Starve the Beast Redux

The scary part of Starve the Beast conspiracy threatens now the stability of the economy of the whole western world. Protests about the on-going class warfare on the poor and yes even the middle class have been routine for years. Riots have broken out in Greece and will likely soon come to Spain. Its not inconceivable that we'll see similar riots in Britain and even the US.

People are tired, hungry and too many are unemployed and homeless. The 40 hour week has all but disappeared in the non-union work place in a blizzard of salaried and contract positions. It's only a matter of time before something more serious happens. The results of more serious consequences could be catastrophic.

Paul Krugman / Starve the beast: Fiscal calamity is the GOP's plan to shrink government

Starving the beasts is the Republican conspiracy to bankrupt the US government to force downsizing government as well as shrinking the middle class in the interest of lower wages until the US can compete against China and India in manufacturing. Paul claims he said it first, but no, I've been talking about it since 2004. Ronald Reagan sold it to the country during the John Anderson debate. A staffer is credited with coining the term. Grover Norquist convinced Double Think Dubya to implement the strategy big time (Wikipedia)

OK, the beast is starving. Now what? That's the question confronting Republicans. But they're refusing to answer, or even to engage in any serious discussion about what to do.
For readers who don't know what I'm talking about: Ever since Ronald Reagan, the GOP has been run by people who want a much smaller government. In the famous words of the activist Grover Norquist, conservatives want to get the government "down to the size where we can drown it in the bathtub."
But there has always been a political problem with this agenda. Voters may say that they oppose big government, but the programs that actually dominate federal spending -- Medicare, Medicaid and Social Security -- are very popular. So how can the public be persuaded to accept large spending cuts?
The conservative answer, which evolved in the late 1970s, would be dubbed "starving the beast" during the Reagan years. The idea -- propounded by many members of the conservative intelligentsia, from Alan Greenspan to Irving Kristol -- was basically that sympathetic politicians should engage in a game of bait-and-switch. Rather than proposing unpopular spending cuts, Republicans would push through popular tax cuts, with the deliberate intention of worsening the government's fiscal position. Spending cuts could then be sold as a necessity rather than a choice, the only way to eliminate an unsustainable budget deficit.
And the deficit came. True, more than half of this year's budget deficit is the result of the Great Recession, which has both depressed revenues and required a temporary surge in spending to contain the damage. But even when the crisis is over, the budget will remain deeply in the red, largely as a result of George W. Bush-era tax cuts and unfunded wars. In addition, the combination of an aging population and rising medical costs will, unless something is done, lead to explosive debt growth after 2020.
So the beast is starving, as planned. It should be time, then, for conservatives to explain which parts of the beast they want to cut. And President Barack Obama has, in effect, invited them to do just that, by calling for a bipartisan deficit commission.
Many progressives were deeply worried by this proposal, fearing that it would turn into a kind of Trojan horse -- in particular, that the commission would end up reviving the long-standing Republican goal of gutting Social Security. But they needn't have worried: Senate Republicans overwhelmingly voted against legislation that would have created a commission with actual power, and it is unlikely that anything meaningful will come from the much weaker commission Mr. Obama established by executive order.
Why are Republicans reluctant to sit down and talk? Because they would then be forced to put up or shut up. Since they're adamantly opposed to reducing the deficit with tax increases, they would have to explain what spending they want to cut. And guess what? After three decades of preparing the ground for this moment, they're still not willing to do that.
In fact, conservatives have backed away from spending cuts they themselves proposed in the past. In the 1990s, for example, Republicans in Congress tried to force through sharp cuts in Medicare. But now they have made opposition to any effort to spend Medicare funds more wisely the core of their campaign against health care reform (death panels!). And presidential hopefuls say things like this, from Gov. Tim Pawlenty of Minnesota: "I don't think anybody's gonna go back now and say, 'Let's abolish, or reduce, Medicare and Medicaid.' "
What about Social Security? Five years ago the Bush administration proposed limiting future payments to upper- and middle-income workers, in effect means-testing retirement benefits. But in December, The Wall Street Journal's editorial page denounced any such means-testing, because "middle- and upper-middle-class (i.e., GOP) voters would get less than they were promised in return for a lifetime of payroll taxes." (Hmm. Since when do conservatives openly admit that the GOP is the party of the affluent?)
At this point, then, Republicans insist that the deficit must be eliminated but they're not willing either to raise taxes or to support cuts in any major government programs. And they're not willing to participate in serious bipartisan discussions, either, because that might force them to explain their plan -- and there isn't any plan, except to regain power.
But there is a kind of logic to the current Republican position: In effect, the party is doubling down on starve-the-beast. Depriving the government of revenue, it turns out, wasn't enough to push politicians into dismantling the welfare state. So now the de facto strategy is to oppose any responsible action until we are in the midst of a fiscal catastrophe. You read it here first.

Read more: http://www.post-gazette.com/pg/10054/1037783-109.stm#ixzz1QoCX6bub

Related articles

• Starving The Beast? (andrewsullivan.thedailybeast.com)
• Starving The Beast? (pinkbananaworld.com)
• Paul Krugman: Origins of the Deficit (delong.typepad.com)
• Paul Krugman: Ludicrous and Cruel (economistsview.typepad.com)
• Krugman Exposes GOP Ryan's Unicorn Budget, Catches Heritage Burying Number (my.firedoglake.com)

Contrary to Popular Belief: Inflation Hurts the Rich, Benefit the Debtor Middle Class, Retirees? Not So Much

Paul Krugman, as usual, has it right.

Image via Wikipedia

... who stands to gain from deflation, and lose if inflation is, say, 4 percent over a period of 10 years? Is it little old ladies living on fixed incomes, and salt of the earth workers who have scrimped and saved?
Well, no. There are, of course, some ordinary people who would lose a bit from higher inflation. But Social Security — the bedrock of retirement for most Americans — is indexed to inflation, and retirement accounts invested in stocks wouldn’t be hurt.
... Since I’ve been arguing that some inflation would help the economy recover, what we’re seeing in practice is that defending the interests of a small wealthy slice of the population takes priority over a possible recovery strategy.

The Rise and Fall of the Middle Class

AlterNet quoted a excerpt from a speech by Economist and New York Times columnist Paul Krugman. In a rambling speech full of vague statements designed apparently to avoid offending his employer, he attempts to explain in "simple terms how the American economy went from having the world's most dynamic middle class to being on the verge of a rich-poor state in only 30 years."
It's shocking but true. While the Republican Party distracted us with the "evil empire" and "axis of evil", our precious middle class has been squeezed until the American dream has been considerably redefined. The poor have gone from a welfare system that created a permanent underclass, largely designed by Democrats, to a slippery slope of what is called "workfare", but is in fact a means to cut people off the rolls. The result is that 1/3 of the millions homeless in America are children. That is simply not acceptable for the richest country in the world.
It's fallen out of fashion to call it "class warfare". But I believe the term is justified. The Republican drive to "starve the beast" has bankrupted our country, dug a huge hole of debt that leaves us owing huge interest payments to China and Japan. Those payments will ensure that any participation of the US government in the solution to our middle class and poor dilemma will necessarily be limited.

[..]And if you're looking for a progressive agenda, certainly from my point of view, a large part of that ought to be straightforward orthodox stuff, which is still very hard to do politically. It would be essentially restoring progressivity of the tax system, and using the revenue to improve social insurance and, above all, health care.
So, if you say what would I really like if I went into a Rip Van Winkle sleep and woke up ten years from now, I'd like to wake up and discover that we have a national health care in some version with the necessary funding supplied in part by higher taxes on me, or actually, the top two percent of the income distribution. But people a lot richer than me, of course. But it's not the whole story that the only thing you can do is taxes and social insurance. And the arc of history for the United States suggests that there's actually a lot more that can happen.


[..]If you actually look at some of the measures -- I'm really into quantitative political science these days -- of political positions that political scientists calculate, it does look as if what the main thing that moves actually over time is in fact the Republican party. The Democratic Party has not -- at least with northern Democrats -- gotten significantly more liberal over the past. They haven't moved much at all over the past 30 years.


But the Republican Party, which had largely converged on the Democrats in the age of Eisenhower, has moved sharply to the right. And so that one party, in effect, moves with the income of the top 5 percent or 1 percent of the population. So that seems to be the story. I mean, we can think about reasons why that might be true.


[..]The official economic story about rising inequality is one in which we have a whole bunch of villains, which all seem to be playing a role.


So we've got skill bias and technological change, which is shifting demand towards highly educated workers. We've got growing international trade with increased imports of labor-intensive products further reducing demand for less educated workers. We have immigration, possibly similar in its effect to trade. We have the falling real value of the minimum wage contributing at the bottom end. We have some affected unionization driving the change in income distribution.


Finally, in terms of at least the after-tax distribution, we have changes in taxes which have, in general, reinforced rising inequality. It could be true, but it's kind of funny that all of these different things should be working in the same direction. In "Murder on the Orient Express," there is an elaborate conspiracy that means that all 12 of the potential suspects were actually in collusion. It's a little hard to see how all of these factors and economics are in collusion.


[..]You might say that's the causation running from income distribution to politics. But if you actually then just start to look at it through history, the timing actually seems to be reversed. The rise of an aggressive or rightwing movement and the rise of a really major assault on the New Deal great society legacy both come before the big shift in income distribution takes place.


The emergence of the modern right is something that obviously dates back to Goldwater, but really becomes a political force in the '70s. You don't really see the big changes in income distribution until the '80s. So it looks almost as if, just in this crude sense, politics is leading the economic changes. How could that operate? I just want to talk about two things. I suspect that there are quite a few channels that we don't really perceive, but there are two that are fairly clear. One of them is unionization.


Obviously, private sector unions were very important in the U.S. 30 years ago and have very nearly -- not completely, but very nearly -- collapsed, and they are down to eight percent of private employment. Why did that happen? You will often see people saying -- well, that's because of de-industrialization, and because of the decline of manufacturing. But that is actually not right. It's not right in two ways.


First of all, arithmetically, most of the decline in unionization is a result not of the decline in manufacturing share, but of the decline of the unionization of manufacturing itself. So the big thing that happens is that there is a collapse of unionization within the manufacturing sector and then of course also a smaller share of manufacturing in the economy, but it's much more dramatic on the collapse within the sector.


The other is that there is no law that says that unionization should be a manufacturing phenomenon. What it really is, to the extent that there is a story, is that large enterprises are more likely to be to be unionized. The reason why the high tend of unionization was also a period when manufacturing was the core of the union movement, is that at that time, large enterprises were largely a manufacturing phenomenon.


Now we have a service economy in which there are a lot of large service sector enterprises. Not to put too fine a point on it, but why exactly couldn't Wal-Mart be unionized? It doesn't face international competition. There is no obvious reason why it wouldn't be possible to have a strong union in Wal-Mart and in the big box sector and other parts of the economy. And just think of how different the whole political economy would look if the service sector enterprises were unionized.


[..]Not necessarily all the effects would be positive, but it would certainly be very, very different. What happened? Why did manufacturing unionization collapse? Why didn't the emerging service sector get unionized? And the answer is actually pretty straightforward and pretty brutal. It's politics and aggressive employer behavior enabled by politics.


I have seen estimates of a fraction of workers who voted for a union and who were fired in the early '80s. They range from a low of one in 20 to a high of one in eight. There is no question that aggressive, often illegal, union busting is the reason the union movement declined. And the change in the political climate that began in the '70s clearly played a role in making that possible.

Bush Has Smoke and Mirrors for Global Warming

Lately, Bush has changed tactics on Global Warming. He now acknowledges it's a problem. Behind the scenes he continues to play down the dire warnings of science.
In public, he makes it clear there will be no meaningful change in policy. He gives lip service to alternative energy. Then he banks on spending our tax dollars with his buddies in the technology field with a far fetched plan to place mirrors in space. They don't even know what the results will be, but he's happy to throw more billions of tax dollars in his new barely disguesed scheme of redistribution of wealth back to the wealthy and continuing to "starve the beast" of government so that the country can't afford a spending federal government.
Los Angeles Times

So it's significant that the Bush administration has decided not to fight the IPCC's substantive scientific conclusions, though Washington's response to the draft does churlishly complain about its "focus on the negative effects of climate change." Back in the day, the administration wouldn't have stopped there. Vice President Dick Cheney would have wasted no time designating all 2,500 IPCC scientists as enemy combatants and shipping them off to Guantanamo.


What caused the policy shift? November's GOP electoral drubbing? Increasing anxiety within the corporate community about the economic impact of climate change? Growing alarm within the military and intelligence communities about the national security impact of global warming?


Whatever the cause, the shift is good news. But don't get too excited because there's bad news too. The administration's grudging admission that maybe, just maybe, there's something to this global warming stuff doesn't mean it is actually going to back a mandatory cap on carbon emissions, which most experts say would be needed to seriously reduce global warming.


Instead, the administration has its own cunning plan to combat global warming. As the president suggested in his State of the Union message, we'll try to shift to alternative energy sources that produce fewer carbon emissions. But if that doesn't work, we'll turn to our secret weapon: We'll reduce the amount of sunlight that hits the Earth by shining giant mirrors back at the sun.


The administration is reportedly lobbying the U.N. panel to include in its report criticisms of the mandatory emissions caps imposed by the Kyoto Protocol (which the White House still hates). And the administration wants to add language noting that space mirrors and other techniques for "modifying solar radiance" could provide "insurance" against global warming. Keep the emissions, deploy the tin foil hats!


The idea is not completely bananas. Some scientists are researching alternative global climate control methods, ranging from the deployment of lots of shiny balloons to the giant space mirrors apparently now favored by the administration. The logic: Just as nomads in the scalding desert wear white robes to reflect the sun's heat away from them, the whole Earth could essentially don a reflective garment to keep from getting too hot. If the mirrors could be constantly adjusted, it would be like having a global thermostat.


But as the IPCC's draft report noted, these technologies are "speculative, uncosted and with potential unknown side-effects." You don't have to be a sci-fi buff to imagine some of those: more space crud, bad stuff happening elsewhere in the galaxy when we start beaming more light up or, creepiest of all, deliberate climate change induced in some regions as a method of political control. (Imagine Cheney controlling the world's thermostat!)

Trade Imbalances and the Return of Keynes

The US is borrowing about $3 billion a day, just to offset the trade imbalance with China. The Bush Administration blames China for it's under valued currency. But even if China values it's currency at a higher rate, the US would still be borrowing $2 billion a year.
Economics has been undergoing a hidden civil war. Keynes has fallen out of favor by Republicans trying to "starve the beast" of the government institution. So they've run up a huge budget deficit and ignored a trade imbalance. The rich aren't too worried about this problem because they fund their own safety net and think the rest of America could do the same. But of course they feather their nest at the expense of the working person who can barely afford his rising rent or mortgage on his stagnant income.
The Keynes approach? Raise taxes on the rich, cut taxes on the lowest incomes. What an amazing idea!
New York Times

Nothing significant can be done about these global imbalances unless the United States attacks its own problems. No one seriously proposes that businesses save money instead of investing in expanding production simply to correct the problem of the trade deficit; and while there may be sermons aplenty about why Americans should save more — certainly more than the negative amount households saved last year — no one in either political party has devised a fail-proof way of ensuring that they do so. The Bush tax cuts didn’t do it. Expanded incentives for saving didn’t do it.


Indeed, most calculations show that these actually reduce national savings, since the cost to the government in lost revenue is greater than the increased household savings. The common wisdom is that there is but one alternative: reducing the government’s deficit.


Imagine that the Bush administration suddenly got religion (at least, the religion of fiscal responsibility) and cut expenditures. Assume that raising taxes is unlikely for an administration that has been arguing for further tax cuts. The expenditure cuts by themselves would lead to a weakening of the American and global economy. The Federal Reserve might try to offset this by lowering interest rates, and this might protect the American economy — by encouraging debt-ridden American household to try to take even more money out of their home-equity loans to pay for spending. But that would make America’s future even more precarious.


There is one way out of this seeming impasse: expenditure cuts combined with an increase in taxes on upper-income Americans and a reduction in taxes on lower-income Americans. The expenditure cuts would, of course, by themselves reduce spending, but because poor individuals consume a larger fraction of their income than the rich, the “switch” in taxes would, by itself, increase spending. If appropriately designed, such a combination could simultaneously sustain the American economy and reduce the deficit.


Not surprisingly, these recommendations did not emerge from the International Monetary Fund meetings in Singapore. The United States retains a veto there, making it unlikely that the fund will recommend policies that aren’t to the liking of the American administration.


Underlying the current imbalances are fundamental structural problems with the global reserve system. John Maynard Keynes called attention to these problems three-quarters of a century ago. His ideas on how to reform the global monetary system, including creating a new reserve system based on a new international currency, can, with a little work, be adapted to today’s economy. Until we attack the structural problems, the world is likely to continue to be plagued by imbalances that threaten the financial stability and economic well-being of us all. MORE

The Baby Boomer's Coming Retirement Crunch

Haven't you all wondered what the consequences are that we face with all this deficit spending and tax cuts? You all knew that there would be one didn't you? The Bush Administration had at least two targets for this strategy. The first one was to "starve the beast". By running up deficits and cutting taxes, attempts to balance the budget will be handicapped by payments on principle and interest. Paying for Social Security now competes with other entitlements and would require tax increases, something that will be increasingly difficult to do as the economy slows down the wages continue to be stagnant.
The other part of the plot was to effectively destroy Medicare and eventually Social Security. All that energy to save Social Security was in crisis was in fact a deception to turn attention away from the real basket case, Medicare. Cuts in payments for Medicare are making doctors refuse to take it. Medicare is not expected to survive much longer in it's current form. Also, pensions both private and public under funded. There will be no taxes available to bail these out for long. In the end, the baby boomers will be on there own. Our leaders have stabbed us in the back by ignoring the truth too long to allow us to head off a problem.
Business Week

Many baby boomers are facing retirement without adequate savings of their own. Together with Medicare trust funds that will be exhausted and inadequately funded corporate and government pensions, you have the makings of a potential crisis.


The problem for financial markets is twofold: First, the underfunding in corporate and other pension funds will cause individual firms great hardship, making those with high legacy costs uncompetitive. Second, the underfunding at the state and federal government levels will cause tax hikes, which will alter regional and international competitiveness. We currently estimate that U.S. corporate pensions are underfunded by about $140 billion. Add the cost of other postemployment benefits and the deficit doubles. State pensions are underfunded by $284 billion.


Disturbing as those numbers are, the federal underfunding situation dwarfs the state and private ones. Social Security has a $4.6 trillion shortfall (based on present discounted value of the next 75 years), and the federal civilian and military employee programs are underfunded by $4.5 trillion.


The underlying problem is demographics. The postwar baby boom was a phenomenon throughout the industrial world, and those babies born in the late 1940s and 1950s are approaching retirement. The leading edge of the baby boom is now turning 60, and we can expect the ratio of retirees to workers to rise. Those who are now paying into pensions will start collecting benefits, and there isn't enough money in the pot to pay the pensions promised. MORE

Where Have Conservative Libertarians' Been?

John W. Whitehead is founder and president of The Rutherford Institute

“The FBI now issues more than 30,000 national security letters a year,” writes Barton Gellman in The Washington Post, “a hundredfold increase over historic norms. The letters—one of which can be used to sweep up the records of many people—are extending the bureau’s reach as never before into the telephone calls, correspondence and financial lives of ordinary Americans.” Indeed, according to a previously classified document released recently, the FBI has conducted clandestine surveillance on some U.S. residents for as long as 18 months at a time without proper paperwork or oversight. Thus, the government does not limit its attacks to actual terrorists. Ordinary American citizens are the focus as well.


Take the case of Selena Jarvis, a social studies teacher at Currituck County High School in North Carolina. She assigned her senior civics and economics class to use photographs to illustrate their freedoms as found in the Bill of Rights. One student photographed a picture of George W. Bush next to his own hand in a thumbs-down position as a way to express his freedom to dissent. However, while developing the student’s photographs, a Wal-Mart photo department employee, in obvious need of some education on the Bill of Rights, called the police. They then contacted the Secret Service. But rather than dismissing the case, the Secret Service decided to investigate the matter. The agents interrogated the student and questioned Jarvis. While questioning Jarvis, an agent asked her if she thought the photo was suspicious. Dumbfounded, Jarvis responded, “No, it was a Bill of Rights project!” Jarvis was startled at the claim that the student was a terrorist and called the whole thing “ridiculous.”


Why would the Secret Service, which is not run by incompetent individuals, take the time to investigate a high school student and his class project? It is safe to assume that the Secret Service knew the student was not a terrorist and wanted to make an example of him for others who might be bold enough to use their right to dissent. After the ordeal, Selena Jarvis commented, “I blame Wal-Mart more than anybody. I was really disgusted with them. But everyone was using poor judgment, from Wal-Mart up to the Secret Service.”


Unfortunately, this is not the only “ridiculous” case of individuals tattling on their neighbors. For example, Barry Reingold was questioned by the FBI after he criticized the war in Afghanistan in the locker room of his local health club. In another case, Derek Kjar’s neighbors reported his bumper sticker of George Bush wearing a crown with the heading “KING GEORGE—OFF WITH HIS HEAD.” As a result, Kjar was interrogated by the Secret Service. In both instances, close contacts of the two men reported them to the authorities.


And as if things weren’t bad enough, the military is now spying on us. A secret database obtained by NBC News recently reveals that the Department of Defense and the Pentagon have also increased intelligence collection on American citizens inside the country. This includes monitoring peaceful anti-war groups and protests and involves video taping, monitoring the Internet and collecting the name of anyone critical of the government. There is even a toll-free number for anyone interested to report on fellow Americans to the military. And the spying even includes religious groups such as those attending the Quaker Meeting House in Lake Worth, Florida. “On a domestic level, this is unprecedented,” says NBC News analyst William Arkin. “I think it’s the beginning of enormous problems and enormous mischief for the military.”


Since 9/11, it has been consistently drummed into our heads by the government, with all its alerts and multi-colored alarms, that terrorists are everywhere and even your next door neighbor could be one. As a result, the government’s promotion of fear and paranoia has moved us closer to an Orwellian state where citizens inform on one another. The result is that the citizens often do the job of the police and no longer use good judgment before reporting their neighbors. In the process, such informing citizens are doing away with their own freedoms.


These tactics are not new to the world. The Nazi and Soviet secret police of former regimes were infamous for such tactics. The police controlled the people through fear, and the subsequent result was a totalitarian state. They turned their respective population into a society of informers. Aleksandr Solzhenitsyn, the Nobel Peace Prize-winning author and former Soviet dissident, once spoke of how fear destroys the will of the people. He noted how the Russian people would kneel inside the doors of their apartments, pressing their ears to listen when the KGB came at midnight to arrest a neighbor who had spoken out against the government. Solzhenitsyn said that if all the people would have come out and driven off the secret police, sheer public opinion would have demoralized the effort to subdue a free people. But fear and paranoia kept the people at bay.


We should not be afraid of government agents, whether employed by the FBI, the military or local authorities. Their salaries are paid through our tax dollars. Supposedly, they are our servants. Truly free societies do not function that way. Our fear of government servants is a clear indication of ominous things to come. If citizens are too frightened to use their freedoms, then those freedoms will become extinct. And the darkness will be complete.

Welcome words from an organization dedicated to "civil liberties and human rights", conservative or not. However, why has it taken so long? Both the Democrats and Libertarians have been largely silent on topics close to their hearts for nearly three years. Surely there is more to the effects of fear that took hold long before the government agents were authorized to get involved. Seeing the Forest addresses this issue.

The big question, of course, is how this is going to manifest itself in terms of political action within the right, and within the Republican Party... at what point is the level of alarm and dissent going to rise so high as to precipitate real change?


I'm afraid the answer is, "far too late". The Republican Party and the right are reaping the whirlwind of thirty years of extremist propaganda, which has acquired a momentum of its own - a tsunami of rhetoric whose operators broke no dissent from the party line, and whose tactics, in many ways, can be seen as functionally analogous to those used by the Nazi and Soviet secret police referred to above. I have to wonder what type of heat Whitehead is taking from Administration loyalists as a result of this article... it might be interesting to see whether or not the Rutherford Institute's funding is affected over the next few years.

An atmosphere of fear did indeed emerge from the Reagan Administration. Democrats were seen as "tax and spend liberals" and were "soft on defence". Meanwhile, Reagan was running up a deficit that quickly quadrupled the National Debt. I truly thought no Republican would ever dare do that again. "Starving the beast" became the secret methodology of killing the federal government. Grow government until it starves on it's excess.
But this is nothing new in politics. Society has always been quick to pick out scapegoats in times of economic or political stress. But it's been a certain kind of government that has used that tactic effectively, its been those that lean towards an authoritarian bent, be they from the right or the left. As Whitehead says, the Soviets and the Nazi were known for that kind of government excess. It appears life in a authoritarian family lead people to authoritarian attitudes. From a recent psychological study, Psychological Bulletin 2003, Vol. 129, No. 3, 339–375:

Extremely conservative and authoritarian attitudes may lead ... to an actively hostile or dominant approach to dealing with socially sanctioned scapegoats and devalued out-groups (and) may lead to a more passively submissive or deferential posture toward authorities, which would make its subscribers ideal candidates to follow the next Hitler or Mussolini. Thus, extreme right-wing attitudes "lock" people into a "dominance submissive authoritarian embrace".

Every dictator has used this method to control his supporters since the begining of history.

The Rise and Fall of the US As Superpower

Many people, including myself, believe we are witnessing historic times. Gregory Djerejian at THE BELGRAVIA DISPATCH this morning asked what I think might be a good summarizing question about this past century. He is always a good read, though I frequently disagree with him.

50 yrs or so from now--when major historians look back at the last 100-120 yrs of American history--what date will be deemed to have had a larger impact on the course of this nation's history, Dec 7, 1941 or Sept 11, 2001? There are a lot of angles to approach this essay at prognostication, but as 9/11 is so much fresher in all our minds, let me just remind readers of the critical import of America's decision to join the allies in WWII, ie. how the future of Europe was changed so materially, how an entire post-war security architecture was created by the likes of Dean Acheson that still exists to this day, how the post-war settlement helped lead to a fifty year Cold War with the Soviets, and so much more. Big stuff, all this, very obviously. There is also, of course, the post-Cold War era that lasted from the fall of the Berlin Wall to, I guess, 9/11 (though some would say the magnitude of 9/11, while huge, doesn't supersede the post-Cold War era so that, often, you hear that we are inhabiting both the post-Cold War and post-9/11 era, not merely the latter). Still, the post-Cold War era (remember Herbert Walker's New World Order?) now seems to have been relegated to something of footnote status, with the demons of unleashed nationalism that wracked the Balkans (and still do parts of the FSU), now so overshadowed by the reining hegemon's robust pursuit of the global war on terrorism (nationalist fervor was often portrayed as one of the major potential perils stemming from the end of the Cold War).

I think the primary driving force of history is economics. 12/7 and 9/11 represent two catalytic dates in US history. By it's shear size, the US economy has a overwhelming effect on the world economy, therefore world history. No one likes bad news, and I'm afraid my this post and the blog's economic catogory is full of it, especially bad economic news. However, more blogs are raising similar alarms. I can only hope I am wrong.
Imperial Admiral Yamamoto was indeed prophetic in his statement, "We have awakened a sleeping giant and have instilled in him a terrible resolve". After successfully propagating a war against the Japanese in the Pacific and assisting the European allies in defeating Hitler's Germany. The industrial might created prior to, during and after WWII, created the conditions where the US became the sole superpower after "winning" the Cold War.
The Marshall Plan and the US occupation of Japan led to rebuilding Western Europe and Japan into more modern industrial nations remaking the world economy for likely the next 60 years.
Globalization combined with the events on and following 9/11, will likely remake the world again. This time, however, the decline of influence of the United States will be the telling factor. There are several reasons for this coming decline, but the writing is already on the wall and it seems unlikely the momentum of history will redirect the outcome.
One of the primary features of this coming change is the deindustrialization of the United States. Jobs have move away from heavy industry into service industries. Rather than rebuilding infrastructure in the US as it depreciated however, economic leaders have rebuilt outside of the US where labor is cheap. Now, most consumable goods in the World are produced overseas, creating an oppresive trade deficit in consumer America driving the world economy.
By shear numbers of people, the dominant labor force now lies in Asia. China and India are the future economic superpowers. Perhaps even more significantly, universities in Asia are turning out more engineers and scientists than the United States. Already, US based corporations have to look to new graduates from Asia to fill positions here and US giants like Microsoft are building satelites in India to ensure availability of highly skills specialists. Already, the US is being displaced in it's dominant position in the modern industries that have produced the highest wages in the world.
Meanwhile, in the US, wages have stagnated, largely because of the competition overseas. Unemployment has remained high despite signs of recovery in the economy again because of competition overseas and vigorous outsourcing to cheaper resources overseas.
Two other factors have combined to apparently lock in this inertia in the US economy. The National Debt has ballooned beyond comprehensible proportions. Future tax resources will be largely consumed by interest and principle payments, largely to China and Japan. Much has been said about the coming correction in the world imbalence where interest rates will rise precipitously. Many have been counting on the falling value of the dollar will bring about a rebuilding of the industrial base in the US and more competition of US goods in the world economy. Or will it?
The second event that seems to have locked in future events is the recapitalizing of the upper class in America. There are now more billionaires in the US than ever. So there should be plenty of eager investors to rebuild the US infrastructure. Or are there?
American consumers drive the world economy. But the current imbalence created by overwhelming debt and trade deficit ensures current conditions have to change. The devaluing of the dollar may well made American goods more competitive, but will it be enough to offset the cheap labor in Asia? I don't think so. So when the correction comes, interest rates will rise, demand for goods from the US will decline, world recession is the result and even deflation is a risk. A new depression is not beyond belief. The chaos that raged through Argentina in the 1990's may threaten the US. Even the perenial optimist Greenspan is warning of a difficult correction for the world.
Recession is not often a time of investment. Labor will remain relatively expensive in the US and there will continue to be a shortage highly trained engineers and scientists in the US. US and other investors are much more likely to invest their fortunes in Asia than in the US. The US infrastructure will probably continue to decline, the middle class buying power will likely have to decline just to keep up employment, and fewer middle class youths will have the means to go to college.
Government will be in no position to intervene. The National Debt has effectly "starved the beast" because no one will support raising taxes sufficiently to offset rising interest payments. The current Congress continues to try to cut taxes without any justification of than to line the pockets of their constituents.
9/11 signals the beginning of the decline of Superpower America. It seems unlikely the US will dig itself out of stagnation in the first part of the 21st Century. Asia by then will dominate the world economy and very likely world politics. We will be the largest debtor nation in the world for along time. After Bush's incompetent foreign policy and treasonous economic manipulation, our prestige is all but lost, our world power rusting away. The shining city on a hill, is dimming, decline, and in danger of falling away from it's central role in history. Worse yet, will the US engage in other futile aggressive moves like the invasion of Iraq to forstall it's fall?
Is there a way to avoid this scenario? I don't know of one. It's possible I over estimate the impact of our current fix and the solution show it self. It seems likely to me that anything even hoping to be effective will also be very painful and cost our national character greatly. Our values as a nation will be tested. Will we retain our optimism as a country? I can only hope.

Starving The Beast

Since Reagan, Republicans have been committing deliberate sabatoge of the American economy, so far at the expense of our children. The tactic is called "starving the beast". I've been talking about this topic since the second month of this blog and a half dozen times since then. I suppose I continue to be as disbelieving that first, a loyal American would do this and that the voting public seems blissfully unaware while they too pile up their credit card accounts. While the latter appears to be true, the guys doing this are loyal to capitalism, even if it's the death of the American way of life.
Here is a post that is very visual and understandable. Even the creator of the chart is astounded by it's implications. Hat tip to Brad DeLong for the link.
Angry Bear

Even with the Bush administration's probably unrealistic goals for cutting NDNHS discretionary spending, their budget plans will result in on-budget deficits of $400-$500 bn (roughly 3% of GDP) for the next several years. And of course, this forecast assumes steady real GDP growth of roughly 3% per year. Much more likely, of course, is that there will be a recession sometime in the next five years, which will cause the deficit to be much, much larger.


But the truly remarkable thing about the graph is just how far federal revenues have fallen over the past fifty years. It appears that successive tax cuts, especially those by Reagan and Bush, have driven down federal revenues in a permanent way. Equally important, it is clear that those tax cuts have NOT driven down federal spending; the only substantial decline in federal spending happened during the 1990s, following a major tax increase in 1993. Yet more evidence that the "starve the beast" theory has the empirical validity of the Ptolomaic solar system.

The Impending Economic Disaster

Brad DeLong's Semi-Daily Journal: On the Deficit

On the eve of a titanic partisan clash in the Senate, eggheads of the left and right got together yesterday to warn both parties that they are ignoring the country's most pressing problem: that the United States is turning into Argentina.... Stuart Butler, head of domestic policy at the conservative Heritage Foundation, and Isabel Sawhill, director of the left-leaning Brookings Institution's economic studies program, sat down with Comptroller General David M. Walker to bemoan what they jointly called the budget "nightmare."


There were no cameras, not a single microphone, and no evidence of a lawmaker or Bush administration official... they agreed that without some combination of big tax increases and major cuts in Medicare, Social Security and most other spending, the country will fall victim to the huge debt and soaring interest rates that collapsed Argentina's economy and caused riots in its streets a few years ago. "The only thing the United States is able to do a little after 2040 is pay interest on massive and growing federal debt," Walker said. "The model blows up in the mid-2040s. What does that mean? Argentina."


"All true," Sawhill, a budget official in the Clinton administration, concurred.


"To do nothing," Butler added, "would lead to deficits of the scale we've never seen in this country or any major in industrialized country. We've seen them in Argentina. That's a chilling thought, but it would mean that."

Has Bush started a debacle that threatens to unravel everything good about America? It would appear so. What started out as a strategy to "starve the beast" of the federal budget by running up huge deficits, has led to a politically untenable situation. Do the right thing, and commit political suicide. Bush is not about to do that. Nor is the majority of our elected leaders.
Why is that? How can they be so callous? Isn't their children's future also on the line? Maybe not. The extreme right has always been hoping to role back the FDR reforms: Social Security, and federal intervention in the economy through bank regulation, Supreme Court "Activism" and federal programs creating jobs. There are other more dubious examples of LBJ's legacy that are often inappropriately dumped in the FDR pile.
What we have happening before our eyes is a massive redistribution of wealth and political power. Over the past year, I've talked about this economic revolution under the rubric of Corporate Welfare here, here, here, here, and here.
The real intent is embedded in this quote from a Cato Institute publication "Class Struggle?":

A kernel of truth within the income mobility confusion is that good parenting matters to a child's lifetime success. Economics Nobel laureate James Heckman notes that "good families promote cognitive, social and behavioral skills," but "single parent families are known to produce impaired children who perform poorly in school, the workplace and society at large." Yes, there are many attentive parents with low incomes who spend hours reading to toddlers, and there are negligent parents with high incomes. But many dysfunctional families do have low incomes, and collecting more taxes from functional families in order to send more transfer payments to dysfunctional families can have perverse results. Mr. Heckman points out that "generous social welfare programs . . . discourage work and hence investment in workplace based skills. . . . Subsidizing work through the EITC . . . can reduce the incentives to acquire skills and so perpetuate poverty across generations."

What seems to make sense on it's face, carries with it ominous consequences for the majority of Americans. Basically, this philosophy was espoused in an article about banking reform, specifically advocating the deregulation of the banking industry that began under FDR. The ultimate goal of that move is to transfer the risk of the banking industry, currently bore by the banking industry under FDIC, to the depositor. Should banks collapse, depositors will lose their money. That means the average depositor, the middle class. In
Argentina, the middle class shrunk precipitously because jobs disappeared. Wages could not keep up with hyperinflation.

Although there was economic growth in Argentina in the 1990s, the increase in living standards for the masses of Argentines was very unequal. While a small fraction of Argentines may have been able to purchase the latest consumer goods, send their children to private schools, and occasionally take vacations abroad, the situation for most people in Argentina was far different. The official unemployment rate was over 10% throughout the 1990s. Official unemployment is now about 20% or more, and underemployment is 35%. In 1975, the poverty rate was about 10%--now the poverty level is around 40%.


The middle class has been affected by the privatization of state companies and the "austerity" plans that hit state workers particularly hard. In late February, the government announced it would not pay the full salaries of over 500,000 state workers. These workers have already had their pay and pensions cut under various economic "adjustments" ordered by the government. State workers had their wages cut 13% in July of last year. Retirees from state government have had their pensions cut by a similar amount. Now the government is saying it simply won't pay state workers at all. In addition, the Argentine government essentially stole $3.5 billion from state workers' pension funds to make a debt payment.


One principal of an elementary school said, "Being in education used to allow for middle-class living. But now I have teachers who have to sell their car to make it, and parents who take their kids out of school so they can work for the family's short-term survival."


The working class and poor have been hit even harder. Hunger has become widespread. Much of the "unrest" in December involved the looting of grocery stores by hungry people. People have been bartering clothes for food. Pacific News Service reports that "hundreds have resorted to selling their own hair to a wig store..." Independent plumbers and electricians haven't had a call in weeks because people don't have any money to pay for services or, due to the government's policies, are unable to withdraw enough money from bank accounts. It's estimated that workers at private companies have seen their wages decline by 20% since 1998. Average per capita income has fallen by about 14% during the recession.

[...]
The structure of Argentine business has changed dramatically over the last decade of "reform" and crisis. It is estimated that 38,000 medium-sized enterprises in Argentina operated by the petty bourgeoisie over the 1990s either went bankrupt or were saddled by crippling debt. Many more small businesses are now facing bankruptcy. In the early 1980s about a third of big enterprises were foreign-owned--in 2000, about two-thirds of big enterprises were foreign-owned.

The parallel between the US and Argentina is staggering.
One principle of political power is that people focused on survival rarely find the energy or relevance of voting, thus the concept of the politically disenfranchised. The larger the mass of unvoting Americans, the more power the rich have, the more like a plutocracy America becomes. Then the disenfranchised are left to take care of themselves in a process called "social Darwinism".
Back in the 1800's the rich had the upper hand and the religious people of America led the fight against social Darwinism as "evil". Social Darwinism was at the basis of Nazi philosophy and became an argument against welfare:

This idea eventually led to a variety of practices and beliefs, e.g., Nordic Racism, used by German anthropologists and later Nazi theoreticians. It also led to eugenics in which, it was believed, the unfit transmit their undesirable characteristics. A breeding program for human beings would see to it that the unfit did not transmit their undesirable characteristics.


Another application of a biological concept to human behavior was the notion that any attempt to provide welfare for the poor was a tragically misguided mistake. Feeding or housing the poor simply permitted them to survive and to transmit their unfitness to their children, who in turn would pass it on to their children. A spurious piece of sociology about two families known as the Jukes and the Kallikaks purported to trace a race of criminals and prostitutes to two persons in the Revolutionary War. This study was used for many years to demonstrate that "inferiority" was inherited.

In the 1800's, the Social Darwinists were condemned by Christian leaders as advocating survival of the fittest at the expense of the weak and disabled. Over one hundred years later, Christian Rightwing extremists bent on power and influence have perverted the Righteousness Of Divine Retribution as justification to abandoned the disabled to natural selection.
In the Dark Ages, disability was equated with being possess by the devil. Today, the disabled have been condemned for not having enough faith to be healed by God. Lack of faith has been equated with evil. And the disabled are abandoned to their fate. The conclusion the greedy draw has become the conclusion of those who dare call themselves "righteous".

The Real Reason Bush Wants to Overhaul Social Security

The reason the Bush Administration wants to overhaul Social Security has nothing to do with the survival of the program. Witness how they ignore Medicare while it teeters on the brink of insolvency. They want Medicare to fail. And they want Social Security to fail. This is more of the "starve the beast" tactic. Thanks to Josh for the link.

There's already talk of raising the $90,000 income cap on which Social Security taxes now are collected to restore fake "solvency" to the program. Nothing like a massive tax increase on the entrepreneurial class to "fix" things, eh?

They want to free the rich from paying for the solvency of Social Security. Why shouldn't people with $90,000 income pay a little more to help those who don't make enough to create a viable pension? Let them starve? The food shelves are empty quite often these days. Charitable giving is down. The Churches and private sector can't pick up the difference.

The only real way to fix Social Security is, over the long haul, to convert this socialist wealth-redistribution scheme into a free-market, wealth-creation program. And the best place to start is with the modest private accounts the Bush administration proposes.

This is about greed. The rich don't want to pay for the privilege of getting richer on the backs of the workers. They use catch words that raise people's ire like "socialism" to cover their real intent.

Even factoring normal market ups and downs, private accounts will -- conservatively invested and over the long term -- provide workers of every socioeconomic class with a better, and inheritable, retirement income.

What Bush doesn't want you to know is that a whole lot of people who rely on Social Security today will have NOTHING in the future, because they can't afford to self-pay for their pension. The private accounts will bring down Social Security decades earlier.

Stephen Roach of Morgan Stanley Speaks Out About the US Economy

While Stephen Roach of Morgan Stanley remains comfortable with the falling dollar, he remains highly concerned about the "reckless course" of the Bush Administration economic policy. He is particularly concerned about the falling rate of already abismal savings in the private sector in America and impending retirement of the Baby Boomers. I can't help but wonder if this isn't more of the "Starve the Beast" tactic this Administration has been using. Running up a huge debt will force spending cuts in the future. Now while "reforming" Social Security, he proposes to cut income to Social Security and redirect it to private sector, just before the huge retirement of the Baby Boomers, leaving an entire generation with no safety net. Again Bush's strategy is to wreak Social Security to force privatizing retirement. Then the rich won't have to contribute to the average Joe's Social Security fund. That should make his friends happy at the expense of the poor elderly.

Global Rebalancing at Work

The US, in my view, remains on a dangerous and reckless course -- consuming out of asset-based saving at a point in its demographic life-cycle when it should be building up income-based saving to fund the looming retirement of 77 million baby-boomers. Record lows in the personal saving rate and the current account deficit, to say nothing of record highs in household sector indebtedness, all speak of a US that is living dangerously beyond its means. Subsidized by unusually low interest rates, in large part underwritten by equally myopic foreign investors and governments, America has managed to keep the magic alive. But there�s nothing sustainable about that arrangement. If America stays this course, the endgame will not be pretty. The day will come when US interest rates rise -- driven by either domestic or foreign developments. That would undoubtedly spark a painful unwinding of the Asset Economy -- all the more conceivable now that the US housing market is firmly in bubble territory (see my 2 December dispatch, �Bubble Day�). Equally worrisome is America�s anemic job creation and the related shortfall of organic income generation. November�s disappointing employment report was hardly an aberration; it marked the 31st month in this now 36-month old recovery, when job growth failed to live up to cyclical standards of the past. So much for the timeworn consensus view that the Great American Job Machine is finally on the mend. Like it or not, the United States remains mired in the mother of all jobless recoveries -- making the perils of excess consumption all the more worrisome.