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The New Populism Needs to Get This Straight

11:12 am in Uncategorized by letsgetitdone

Let’s look again at the new populism through the lens provided by Robert Borosage in his recent attempt to tell us what it is about. He says:

The apostles of the new inequality have unrelenting sought to starve the public sector. President Reagan opened the offensive against domestic investments. Perhaps the hinge moment was in the final years of the Clinton administration when the budget went into surplus, and Clinton, the finest public educator of his time, pushed for paying down the national debt rather than making the case for public investment. He left the field open for George W. Bush to give the projected surpluses away in tax cuts skewed to the top end.

Pop!Tech 2008 - Juan Enriquez
The hinge moment wasn’t then. It was when he decided, either early in his first term, or even before he took office, to rely on deficit reduction coupled with low interest rates from Alan Greenspan, on the advice of Robert Rubin and Larry Summers, rather than on deficit spending on human capital investments as advocated by Robert Eisner and Robert Reich. Rubin’s victory in the internal debates within the Administration was well-known at the time (1993), and set the deficit reduction course that played along with the Fed’s bubbles to create the private sector debt-fueled “goldilocks” prosperity, and surpluses of his second term. By the time Clinton faced the choice Borosage refers to, the die had already been cast. It was very unlikely that Clinton would turn away from further Government austerity policy, and turn instead toward investments in infrastructure, public facilities and “human capital.” Read the rest of this entry →

Who Needs a Balanced Trade Policy?

3:12 am in Uncategorized by letsgetitdone

Do we need balanced trade?

It’s easy to recognize that after many years of trade deficits accompanying implementation of trade agreements beginning with NAFTA the US needs to change what it’s doing. Many, including Robert Borosage of the Campaign for the American Future (CAF), advocate for balanced trade and they contrast that with the so-called “free trade” policies we have now. The case for balance trade policy is summarized by Borosage this way during his discussion of the policies favored by the New Populism:

Our global trade policies have been defined by and for multinational banks and companies. They have shipped good jobs abroad and driven wages down at home, while racking up unprecedented and unsustainable trade deficits. Those imbalances, as the International Monetary Fund and former Federal Reserve Chair Ben Bernanke have noted, contributed directly to blowing up the global economy.

The new populists demand balanced trade policies. . . .

So, we need “a balanced trade policy” meaning one that reduces trade deficits because it will support lower unemployment by keeping “good jobs” here, drive wages up rather than down, be more sustainable, and won’t contribute to a collapse of the global economy. But, is that the only or the best way to get these outcomes?

I raise that question because there is an important truth of macroeconomics to take account of. That truth is that: “Exports are real costs; and Imports are real benefits.”

This notion is based on the distinction between real wealth measured in accumulated products and services and nominal wealth measured in accumulated financial credits. Exports add to real wealth being sent to other nations; in return for nominal wealth received from them (financial credits). Imports add to real wealth being received from other nations; in return for nominal wealth we send to them.

So, would we rather send fiat money to other nations and add to real wealth in return, or would we rather add to their real wealth to and get their fiat money or our old fiat money back in return? My answer is that other things being equal, we’d prefer the first alternative rather than the second, meaning that trade deficits are better than trade surpluses, at least in the short run.

The problem with this answer is that other things are not equal, in the sense that if the Government does nothing to compensate for their shorter and longer-term effects, then the problems highlighted above do result from continuous “free trade” policy supporting continuous trade deficits. On the other hand, these effects of trade deficits can be avoided without implementing balanced trade as a continuous policy. How?

First, trade deficits cause aggregate demand leakages, which is what causes higher unemployment and lower wages. But, we don’t have to accept that outcome. We can implement a Job Guarantee program, along with other Government spending such as State Revenue Sharing, infrastructure spending, and Social Security payroll tax holidays to replace the demand lost to trade deficits.

Of course, we’d have to pass those measures. But what’s better, from a progressive point of view, doing these things or preventing Americans from buying goods and services (acquiring real wealth) from other nations that they would like to buy?

What about the lost jobs themselves? If they were “good jobs” would the new jobs produced by Government spending and SS payroll tax cuts be “good jobs” too? That depends on how the Government implements its Job Guarantee (JG) program. If the JG pays a living wage and provides Medicare access and good fringe benefits to those in the JG, then private sector people will have to better what the JG offers to get employees, and the wage floor will be raised radically over current levels and that will raise wages all along the line.

So, from the standpoint of adequacy of pay, there will be many more “good jobs” then there are today. The quality of the jobs will also improve if the JG is implemented to allow local non-profits to define jobs that will produce socially valuable outcomes for people. The role of the Federal Government would be the funder of the JG program; but local non-profits, communities, and the JG participants themselves would define the jobs in the program, exerting pressure on the private sector to increase the quality of the jobs offered in that sector.

One way to look at the situation is that trade deficits and the demand leakage they create, also provide an opportunity for the Government to employ people on social entrepreneurial projects producing public good and commons improvements of significant value; filling needs that cannot be filled by the private profit-motivated market. The purpose of the JG jobs provided is to provide a transition for displaced former employees of dying industries.

This opportunity is a good thing provided the Government takes advantage of it, because it provides not only transition jobs for individuals, but also a transition period for the private sector to develop new industries and new jobs based on new technologies while the potential labor force continues working at other jobs having social value.

Of course, the US Government hasn’t been doing that, preferring instead to leave people in an unemployed buffer stock that depresses wages and increases inequality. But the truly progressive remedy for that is to implement the Job Guarantee and other Government deficit spending and middle class tax cut programs, not to pursue a policy of balanced trade.

Second, it’s very popular today to say that x, or y, or z is “unsustainable” without saying what they mean by that term. From my point of view, policy unsustainability means that a policy cannot be followed forever without undermining the capacity to follow that policy sooner or later. The important thing here is to notice that the Government’s policy isn’t to run trade deficits forever. But just to allow trade to flow freely and let the trade deficit float. So, the issue here is whether that policy is sustainable. With exceptions to be noted below, I think it is.

The reason why it is sustainable, is that it is, in the end, self-correcting. Eventually, other nations will tire of selling the real wealth they produce in return for our nominal wealth, the electronic bits of information that eventually end up in their accounts at our Federal Reserve Banks and they will sell them instead to their own consumers. At that time, the Government’s policy of letting the trade balance float will produce smaller trade deficits or even surpluses, if the US Dollar becomes sufficiently unattractive. Until that time however, having trade deficits resulting from a trade policy that allows the trade balance to float is perfectly sustainable with some exceptions I’ll now consider.

Third, Robert Borosage refers to the view of the IMF and Ben Bernanke that continuous trade deficits of the United States contributed to the Great Crash. The chain of causation, according to Bernanke, is that the accumulation of US Dollar credits by Asian nations led to their investing in US and mortgage-based securities, causing a bubble in MBSs which then, in the crash of 2008 spread the US financial crisis around the world contributing a potent feedback loop to the crash. The general idea is that continuing trade deficits would, over time, concentrate the dollar assets of foreign nations in risky securities vulnerable to financial downward spirals.

This mechanism may or may not be a factor whose importance is great enough to render running continuous deficits unsustainable. But, if it is, then the remedy is easy. Pass legislation banning speculation in financial instruments that carry any systemic risk by entities with large dollar holdings. End of story and of this possible factor in promoting unsustainability.

Fourth, the remaining problem with letting trade happen and allowing the trade balance to float is that there may be industries or areas of endeavor that are vital to the defense of the United States, and/or its further economic development. Free trade in these areas cannot be allowed, since it risks destroying vital US skills and capabilities or potential for innovations. We need a US industrial policy to identify these areas, to decide how to subsidize them, and to ensure that they are maintained or developed. Once we have that, along with the other policies mentioned earlier, a policy of letting the trade balance float, even if it results in continuous trade deficits will be sustainable without causing unemployment, reduced wages, financial crashes, or making the United States dangerously dependent on other nations for political and economic sustainability.

Finally, let’s review the bidding again. The new populists and writers like Borosage think that progressive trade policy is balanced trade. In contrast, I think that a policy of unrestricted trade, taking advantage of the willingness of other nations to send their real wealth to the US is better for us and also seems be what our trading partners want right now.

However, to make that work for the US, we need full employment policies including a Job Guarantee program at a living wage with full fringe benefits, as well as other policies designed to compensate for demand leakages from trade deficits and private sector savings. In addition, we need to prevent investment of dollar savings in risky financial instruments such as Mortgage-Backed Securities (MBSs) and derivatives, and lastly, we need an industrial policy.

So, which is more “progressive” and also “populist”: balanced trade policy, or unrestricted trade, modified by full employment at a living wage, strict regulation of investments in financial instruments, and industrial, policies? I think it’s the second alternative and that progressives and populists ought to forget balanced trade and embrace it.

(Cross-posted from New Economic Perspectives.)

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Reality Check Plus

8:19 pm in Uncategorized by letsgetitdone

After reviewing the terrible state of our economy and the need to reconstruct it so that people can find work and a vibrant middle class can be rebuilt, Bob Borosage suggests that Congress go back to first principles. he briefly reviews the post- WWII history of employment legislation and says:

That debate was revisited in the 1978 Humphrey Hawkins Full Employment Act, which initially sought to revive the mandate to full employment, and the right to a job. In the end, it too was diluted, offering five ultimate goals: full employment, growth in production, price stability, balance of trade and balanced budgets. It was this act that gave the Federal Reserve the dual mandate of pursing both full employment and price stability. Needless to say, over the last decade, the goals were distorted in practice, with price stability becoming primary, while trade deficits soared, manufacturing was shipped overseas, and budget deficits rose — before the collapse.

Glad to see an "access" progressive talking about this, but I think these goals have been "distorted" for a lot longer than the past decade. In fact, I seem to remember that the Federal Reserve never tried to pursue its mandated full employment goal during any of the Carter, Reagan, Bush 41 and Bush 43 Administrations. And even during the Clinton Administration, when full employment was approached, it is debatable whether this was due to Fed actions taken with the intent of getting to full employment. I think the history of the Humphrey-Hawkins act is one of continuous violation of its mandate to place price stability and full employment on an equal footing. Borosage goes on:

It is time to reassert that full employment is the primary measure of our economy: "Continuous and useful employment for those willing and seeking to work." Mass unemployment is an unacceptable failure. We will not learn to live with it. We will keep pushing until we eliminate it. Government will strive to create the conditions for the private market to create the jobs we need. But it will act as an employer of last resort for those unable to find work over a long period of time.

Welcome to the fight Bob, others have been calling for Federal Job Guarantees for a long time now. It’s good to have you aboard with a good direct statement of the need and its basis in US Law.

It is easy to scorn such admonitions. Congress excels at setting high sounding goals that it is certain to ignore. But we’ve got an economy where corporate profits are up, bank profits are up, inequality is rising — and there are no jobs. This cannot become the new normal. However naïve it may sound, it would be good for the congress and the president to have the debate. Commit clearly that full employment is the measure by which their actions should be judged. Or alternatively, admit that full employment is no longer plausible, so we will build a strong social contract — of training, guaranteed income, health care — for those discarded from the workforce. Let’s have the debate — for the one choice that is socially ruinous is the one we seem to be drifting towards — mass unemployment without a safety net.

Let’s indeed have the debate, but let us not have it take too long, and while it is happening, let’s have no more trouble from the Republicans about extending unemployment insurance for people who can’t find work. In particular, let’s have no more trouble about legislation that will give a break to the ’99ers. They are most in need, and none of us ought to have a bit of patience for the Hooverite BS of some Republicans, saying that they don’t want to to work, or they’d find a job.

You say, what about the filibuster?

Well, the Democrats need to get rid of the filibuster tomorrow. What is the filibuster worth? The filibuster is not worth the job of a single laid-off American.

Finally, for Borosage, it would be good if he started to give some recognition to those hard-working prophets among us who have been advocating for a Federal Job Guarantee for many years now. People like L. Randall Wray, of the University of Missouri at Kansas City, and Warren Mosler, Independent Candidate for the US Senate in CT, along with Bill Mitchell of the University of Newcastle in Australia, in particular, have been advocating for a Federal Job Guarantees program and illuminating the issues connected to it for many years. Bob Borosage never seems to get much beyond Paul Krugman, Joe Stieglitz, Dean Baker, and perhaps Yves Smith when he writes about economic recovery.

Perhaps it’s time he looked into Modern Monetary Theory (MMT). It might free him from having to agree with the deficit hawks and other deficit doves that: Of course, the US has a long-term deficit problem, so eventually we’ll have to cut some Government programs before we run out of money, or cause hyperinflation.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

Past Time To Get Serious

11:07 pm in Uncategorized by letsgetitdone

These last couple of days, I happened to see a couple of pieces by Robert Borosage. The first of these called “Kick the Old and Disabled to Show We’re Serious About Deficits,” is about organizing and fighting back against the deficit terrorist movement to cut Social Security, and reported that Borosage’s organization, the Campaign for America’s Future, “has joined with 50 other organizations (and growing) representing 35 million Americans to form a coalition”, called “Strengthen Social Security.” He also refers to a panel on Social Security at Netroots Nation that will be “inviting the bloggers across the country to help fend off the assault on Social Security, and join the debate about priorities over the next years.” Then he ends with this:

”This country has big decisions to make in the months and years ahead. We’ve still got a long way to go to get people back to work and to get this economy going. We’ve got to build a strong foundation for a new economy that will provide shared prosperity and rebuild a broad middle class. We need to address global warming — and capture a leading role in the green industrial revolution that will transform our lives. Fix our broken health care system whose soaring costs will be unaffordable for businesses, families or government and get our budgets back in order. Redress our growing domestic public investment deficit — in basic infrastructure like sewers, roads, an efficient electric grid, in education and training, in research and development. Balance our trade, and revive manufacturing in America. End two wars and stop spending as much as the rest of the world combined on our military budget. Clean up our politics, curb the influence of money, and reform the dysfunctional Senate. Empower workers and fix our broken immigration system. The daunting check list can go on.

”But one thing we don’t need. We don’t need politicians demonstrating their "credibility" by kicking the elderly and the disabled. We don’t need to fix a Social Security program that isn’t broken. The best "fix" for Social Security is simply to tell the truth about it.”

The second piece, “How Obama and the Dems Can Get Us Out of the Huge Economic Hole We’re in,” is a strategy piece for Democrats. It 1) outlines all the bad things out there that are putting the public in a sour mood approaching the mid-term elections, 2) describes the gloomy (for Dems) recent poll results, 3) covers the Dem attempts to frame the election as a contest between “the policies that led us into this mess and the policies that are leading us out of this mess,” as well as their attempts to sell the idea that they should be credited with the most dramatic and consequential set of reforms passed ind decades, 4) highlights the Republicans’ obstructionism and framing the contest as being about voting against the Dems’ lack of good results, 5) emphasizes the fact that the economy doesn’t look like it’s out of the woods yet and will give the Dems something to run on, and 6) points out the Dems’ intention to continue to push a “multi-faceted reform agenda.” He then gets to his point which is:

”. . . the White House would be better advised to focus as much as possible on jobs, even at the risk of aggravating liberals and constituency groups. The president needs to speak directly and repeatedly on where we are, explaining the reality that while the recovery act did stop the freefall and generated millions of jobs, the crisis was far worse than predicted. He should be calling for more action to create jobs. Raise the ante with a bold package of measures — including direct public hiring, aid to states and localities, use the money paid back by the banks to give small business access to lower interest loans, call for an infrastructure bank to mobilize private capital to rebuild America. Shelve the free trade agreements and challenge China and Germany, stating flatly that the US will not allow a return to the old global imbalances. Call on states and localities to pass and enforce domestic content legislation to ensure that taxpayers dollars create jobs here rather than abroad. Push the elements in the energy bill that generate jobs — from retrofitting public buildings to permanent tax credits for renewable energy sources. Push passage of jobs creating transport and infrastructure appropriations.

”The conservative noise machine already argues that the president, having run up record deficits with a failed stimulus program, now wants more of the same. Virtually all of these measures will be opposed — as everything else has been — by Republicans. Little of it will survive the inevitable Republican filibuster in the Senate.

”Why propose what is unlikely to pass? Because these measures are needed, and at least will clearly define the choice for this fall. Why propose measures that will increase the deficit that people are said to be freaked out about? Because the majority of Americans, if forced to choose, make the right choice – for focus on jobs over deficits. So pose the choice between a White House and Democratic Congress still pushing for action on jobs, and an opposition focused on deficits and wedded to the policies that drove us off of the cliff.”

So, let’s imagine that we all lined up behind Borosage’s calls for support. What would that get us if we were completely successful? First, we’d get no changes to Social Security, except perhaps a rise in the FICA wage cap. The Administration would abandon plans to “reform” SS further for the time being, or until the next time they want to get the “left” jacked up about something. However, the “Catfood Commission” would still be coming out with recommendations the Administration might try to get through the lame duck Congress so it could persuade the bond markets that the US is fiscally responsible. If SS were off the table, then what would be left for the Commission and the Administration to propose?

Well, based on the AmericaSpeaks worksheet on budgetary options, the Commission might still recommend changes like the following. A series of incremental gradually increasing across the board cuts in the following categories so that by 2025 the following spending cuts would have been achieved: 1) $300B in health care cuts; 2) $204 Billion in non-Defense Expenditure cuts; 3) $132 Billion in Defense Expenditure cuts. In addition, they might recommend 4) a range of tax increases designed to “share the pain” across all tax payers and to raise $250 Billion in 2025, 5) a value-added tax providing $400 Billion in revenue in 2025, and 6) “tax reform” that would eliminate most deductions lower rates, and also raise some $642 Billion in additional tax revenue in 2025. The Commission would of course emphasize that with Social Security off the table, it will be even more important to pass a framework leading us to make spending cuts and tax increases of this kind so that our projected deficits in the period 2020 – 2025 are much more manageable. And they would probably suggest that the cut in the projected deficit we should aim for should be $1.2 to $1.8 Trillion, given a deficit projection for 2025 of $2.46 Trillion.

Now suppose that comes to pass. What will Borosage and his progressive coalition do then? Will they just accede to the deficit hawks wishes because SS was spared? How will they mobilize opposition to some of these cuts and new taxes in just the few short weeks of the lame duck session? What will they do if the proposed reductions cut deeply, as they almost certainly will do, into our efforts to solve all the other problems Borosage calls out?

In other words, is Borosage’s focus on opposition to SS cuts, rather than on opposition to the whole idea of a plan for implementing spending cuts and tax increases in order to hit a target 15 years from now that is based on projections about the economy and the Government’s financial state that is almost certainly way off the mark, the wrong focus? Shouldn’t a coalition of progressive organizations instead be focused on opposition to deficit terrorism itself, on the very idea of the fiscal commission, and on the Administration’s support for this idea? Isn’t it, after all, the ideology of deficit terrorism, and its Hooverite associated policies, that are the main barriers standing in the way of our beginning to meet all the challenges in Borosage’s check list? If so, then why isn’t Borosage organizing a coalition to go after that? Why is he organizing in a way that at best will save Social Security, but will cost us all kinds of other things we are loathe to sacrifice?

Which brings us to Borosage’s strategy piece. Here he recommends all kinds of good things for the Democrats to do that may be both effective and popular, but acknowledges that: “Virtually all of these measures will be opposed — as everything else has been — by Republicans. Little of it will survive the inevitable Republican filibuster in the Senate.” And then he says:

”Why propose what is unlikely to pass? Because these measures are needed, and at least will clearly define the choice for this fall. . . .”

So, this is not about getting anything done. It’s about politics. If we have success and the Democrats advocate for the things Borosage calls out, then where are we? Well, the campaign messaging will indicate a clear choice between the two parties, and the Democrats may win the mid-term election, or at least hold down their losses, so that they still retain effective control of both Houses of Congress. But, so what? What does that get progressives?

Well, at least the Republicans won’t be in nominal control of Congress, and they won’t be totally neutering Obama with investigations. That’s certainly something. But, maybe not much for all the millions of Americans suffering because this Administration hasn’t actually solved a single problem. The really important question is: what reason do we have to believe that the Administration will pass any of the measures Borosage lists even if there is a nominally Democratic Congress? After all, it has such a Congress now, and what has it passed that is truly worthwhile. I won’t go through the usual litany of progressive disappointments with this Administration. We all know what they are. The point is that I don’t trust this Administration a bit to either tell the truth, keep its promises, or represent anyone but a small minority of the population. And I’m sure many other progressives feel as I do.

If the Democrats do win, what’s to prevent them from giving us a lot more kabuki, and then blaming the Republicans, and the filibuster, for their failure once again? What’s to prevent them from coming back right after the election, and passing a good many of the recommendations of the Catfood Commission, even if they’ve promised during the campaign to return to their populist roots? I think the answer is nothing. And the question I have is why Borosage isn’t telling the Administration and the Democratic Party in Congress that what they need to do is to immediately prove to working people that they will represent them by passing the list of things he has called for.

I know, I know; there’s no time left for that before the election, especially since the Republicans will filibuster everything the Democrats try to pass. Well, guess what? There is plenty of time to pass these measures if the Democrats get rid of the filibuster first by using “the nuclear option.” And they can follow that with all the legislation Borosage has proposed. So why aren’t he and other progressives calling for that? Why aren’t they calling for Democrats to prove that they can really be trusted to be Democrats rather than corporate shills, before the election.

As far as I’m concerned, they’ve already gotten our votes and our support, and they’ve failed to prove they deserved either. In my view, it’s time for them to put up or shut up. Only performance will now suffice to persuade those among the progressive base who think we’ve been screwed, that this group of Democrats is worth trusting again, or that they can be believed when they make campaign promises.

So, my question is, why hasn’t Borosage advised the Democrats to perform, to pass the measures he suggests and in that way to show the public that there is a clear choice between Democrats and Republicans? Why is asking them for promises they are unlikely to keep, if elected, enough for him, and other Washington progressives?

That is, and with respect to both the columns I reviewed, Why doesn’t Borosage propose actions that, if successful, will really mean a victory for progressives, and not just a result that still leaves them in a defensive crouch, thinking that things could be even worse than they are, and hoping for changes that will never take place? Why is it that Washington-based progressives always seem to ask for less than what is necessary to get a concrete result that solves a problem? Why is it that they stop short of actually proposing solutions to the problem of the Catfood Commission and propose instead a solution for its attempts to cut Social Security alone? Why is it that they propose a solution to the problem of seeing to it that Democrats have a better chance to win in the Fall; but no solution to the problem of how the Democrats can get the legislation they need passed so that they can actually win in the Fall?

Could it be that the various progressive interest groups based in Washington to defend progressive interests have learned the wrong lessons too well? Could it be that they have learned how to mingle with other Washington elites and also learned the limits of "acceptable behavior" in order to keep a place at the table? Could it be that it is acceptable to try to protect Social Security, but not acceptable to try to force the President to give up his Catfood Commission and his foolish ideas about what constitutes fiscal responsibility and sustainability? Could it be that it is acceptable to advise the Democrats about what to do about their messaging, but not to say to them that if they don’t actually do what is necessary to make that messaging believable, then the progressive coalition will see to it that they sustain a big electoral defeat in 2010, and, if necessary, split the Party in 2012, to ensure that there is a nominee running for President in 2012 who is likely to represent the interests of the people?

Democrats cannot serve two masters. They cannot serve both corporate interests and the people. They cannot serve Wall Street and Main Street. They cannot serve the haves and the have-nots. What Borosage should be organizing is a coalition of progressive organizations spanning the range of all interests threatened by the Catfood Commission, and this coalition should be asking the President and the Congress to immediately disband the Commission, and to abandon plans to manage Government spending using deficits, the debt, and the debt-to-GDP ratio. Government spending should be evaluated only in terms of its likely real effects on American society and the economy at any point in time. It should be evaluated only relative to its public purposes, and to the impact it has on Borosage’s list of challenges and additional challenges he doesn’t mention. That is true fiscal responsibility.

Those challenges are the real problems, not some entirely unreliable projections about what the future state of the deficit may be that is very unlikely to come to pass. A progressive coalition of interest groups should make it clear that its support for the Democratic Party in the coming election is conditional on concrete action and results before the election; that pie-in-the-sky promises won’t do. Immediate action getting legislation passed is necessary. The coalition should also make it clear that its support also requires the Democratic Senate to immediately end the filibuster forever, and pass the measures advocated by Borosage before the election, and before October 1st, so that there is time to campaign on these legislative achievements. And if they won’t act before the election, then let’s see ‘em win it without us.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).