Economy

What Can Presidents Do About Gas Prices?

Not a damn thing (and Republicans agree!). Even if Obama authorized companies, today, to drill anywhere they wanted to, market forces wouldn’t reflect the price drop (if any ever came) for months. Here’s a problem with democracy: voters expect leaders to change parts of the world over which they have no actual control, or somehow achieve directly contradictory goals. Should the President talk tough with Iran, and let you guys suffer high gas prices; or fold like Superman on laundry day, so you don’t have to dip into the vacation fund? Pick a side, we’re at war. The only thing Presidents can do is talk about the issue cleverly. Which, admittedly, Obama isn’t doing.

Tea Party Populism Falling Markedly Short

An excerpt from my Friday afternoon:

“Hi, [senior associate].”

“Hi, [author].”

“So as you know, the SEC is suing Goldman Sachs on the theory that rather than supporting their CDO, as its managers explained Goldman’s role to investors, the CDO’s managers actually let Goldman pick purposefully risky investments, so Goldman would wind up fleecing th–”

“Oh, yeah, I know. I heard the musical.”

“Huh?”

Watch the musical itself, and read the article, but that’s basically the story. Parties to credit default swaps acquired investors, promising them sure-thing profits and glossing over the fact that Goldman, or another investment bank like Goldman, would also enter the relationship in such a way that the bank would win when the investors lost, and vice versa. That’s fine at the outset. It means the investors have some form of support, to double-down on profits, and the bank, in theory, hedges against opposite investments elsewhere. But the CDO’s managers also let the bank pick investments — derelicting their fiduciary duties to the investors, creating an irreconcilable conflict of interest, and, necessarily, leading to the investors losing everything to Goldman. At least, these are the allegations. It’s bad times, all around.

What’s remarkable, then, is the GOP’s utter unwillingness to deal with the issue. For the past six months, we’ve been subjected to the myth that the right’s anti-regulatory kick is an attempt to keep the government’s hands out of our pockets — when it’s really an attempt to keep the government from keeping unregulated corporations out of our pockets. The choice aspect in the healthcare debate let the GOP gloss over the issue, but we’re well past that point. The collapse of the financial markets left us with innumerable corporate bad guys — almost all of them unregulated — and there’s just no populist case against regulating them, unless we have, finally and irrevocably, excised the anti-corporate crusade that has, for more than two hundred years, defined the populist movement.

RedState Now Officially Celebrating Unemployment

Unemployment to hit 10.4? “Wonderful. Simply wonderful.”

Except it won’t, and if it does, it won’t be.

Politico is a Functionally Worthless Site

From their Sunday front page story:

The rest of the country has a new reason to hate the inside-the-Beltway crowd: Our economy is better than yours. [. . .]

Members of Congress from harder-hit areas can’t help but notice the divide between the relative health of their part-time city and the pain back home. And it particularly rankles conservatives who’ve argued for a smaller federal government but now see it making up one-third of the region’s economy.

Politico devotes one page to analyzing the startling revelation that, when the private sector is hit particularly hard, the public sector somehow survives, and a full second page taking quotes from Republicans, blaming Democrats’ “notorious” love of expansive bureaucracy.

A few notes: first, the federal government isn’t keyed to the stock market, or profitability. The American President will always have a job; as will the White House Chief of Staff; and so on. Sour grapes about the federal government’s relative inelasticity are misplaced, and stem from a misunderstanding of what government does (it governs). Second, it’s wrong to blame Democrats for expanding the federal bureaucracy. Remember, the Department of Homeland Security is the second-largest bureaucracy in all of human history, and that wonder emerged under a Republican president. In fact, under Bush, like under Reagan, the bureaucracy expanded significantly. It’s remarkable that Republicans get away with the “small government” catchphrase, when no Republican President in (at least) the last 20 years has ever bothered to follow through on it.

And, any mention of the state of Washington employees would be remiss without noting two things: in his first month, President Obama capped White House staff pay above a certain level, and plans to limit the traditional annual pay increases for civil servants. Essential government workers still have their jobs, yes, but they’re not immune, as Politico seems to think.

Reporting a non-story, and then reporting it wrong: that’s Politico for you. This from the people that think pronunciation is “elitist”. All that’s missing from this overwrought attempt to wave the bloody shirt of class warfare?

We the Capitalists? The Right Rediscovers the Rule of Law, Eight or Eighty Years Too Late

Across the conservative side of the internets – the part that looks more like a dumptruck, and less like a series of tubes – you’ll see frequently corny, and always flamboyant homages to the Constitution. Or, what they think is the Constitution.

These expressions are remarkable as much for their spontaneity (where were these “scholars” from 2000 to 2008?), as for their continuing selectivity. For example, you’ll never see TexasDarlin, Glenn Beck, etc., wax poetic over the Equal Protection Clause. No: their outrage is confined specifically to the Constitution’s economic implications, and always linked to anger over perceived “socialism.” It is altogether fitting, as the Fourth of July approaches, to examine these purportedly constitutional arguments, in some depth.

Most often, when right-wing bloggers invoke constitutional values, it’s in connection with (1) the bailout, (2) states’ rights viz. the bailout, (3) the defense of capitalism generally, (3) the “natural born citizen” clause, (4) the Tenth Amendment, or (5) judicial review. I’ve treated the last three points elsewhere (follow the internal links for more). But the theory that the Constitution enshrines a libertarian, Ron Paul-like notion of wholly unregulated capitalism deserves a rebuttal.

Before I start, I must note that neither I nor any proponent of “liberalism” or “progressivism” have any objection to capitalism. Who could? Competitive markets are the very reason for American hegemony, be it military, scientific, or (obviously) economic. That said, the American experience of the 19th century flatly rebuts the theory that unregulated capitalism is the solution to American problems. We need the FDIC; we need the Sherman Antitrust Act; we need the Securities and Securities and Exchange Acts. Period.

Nor does the Constitution require completely free markets. The Constitution is not an economic document. To paraphrase Justice Holmes, it enacts neither Spencer’s Social Statics nor Adams’ Wealth of Nations. See Lochner v. New York, 198 U.S. 45 (1905) (Holmes, J., dissenting). Indeed, the Constitution’s bulwarks against “socialism” are fairly light indeed, stemming from several basic concepts, now narrowly construed, rather than any overarching legal command.

First, Congress does have textual support for near-plenary control over the American economy. The drafters of the Constitution solved the most basic flaw of the Articles of Confederation by granting Congress the power to regulate commerce “among the several states.” U.S. Const, Art. I, § 8, cl. 3. The Supreme Court construes this power broadly – maybe too broadly – but no-one can seriously doubt Congress’ ability to regulate banks, securities, and the basic elements of the American economy. Compare Wickard v. Filburn, 317 U.S. 111 (1942) with U.S. v. Lopez, 514 U.S. 549 (1995).

Second, conservatives can claim that progressive taxation, and government spending, approximate or equal American “socialism,” in contravention of basic constitutional values. This is false. Congress is explicitly granted the power to lay taxes and spend money to promote the general welfare, with very few real restrictions. U.S. Const., Art. I, § 8, cl. 1; but see South Dakota v. Dole, 483 U.S. 203 (1987). Combine this with the previous point, and you’ve got the “Bailout Act” – done. Admittedly, the administration and internal veto provisions of the Act do pose some dangers to a formalistic model of the separation of powers, but it’s not clear who would have standing to challenge these violations. And, in any event, this nuanced and intelligent point has yet to be raised by any of the bailout’s opponents.

Nor does the Due Process clause vest in economic actors a right to be free from government intrusion. There was a time when it was just that kind of a safe haven. See Lochner, 198 U.S. at 45. Those days are over, so long as government regulation is “rational.” See West Coast Hotel Co. v. Parrish, 300 U.S. 379 (1937); see also U.S. v. Carolene Prods. Co., 304 U.S. 144 (1938). Welfare provisions like minimum wage laws are here to stay, and there’s nothing “socialist” about them.

Indeed, the Constitution mentions private property only twice in the entire document – first, in the “Takings Clause” of the Fifth Amendment, which nonetheless suborns property rights to the general welfare in some key situations, see Kelo v. City of New London, 545 U.S. 469 (2005), and the Contract Clause, which prevents the government from “impairing the Obligations of Contract.” U.S. Const., Art. I, § 10, cl. 1. But this protection, too, is more illusory than real, and also can be defeated by a sufficiently compelling public need. Home Building & Loan Association v. Blaisdell, 290 U.S. 398 (1934). Socialism!!

At the root of the far-right’s sudden rediscovery of the Constitution is the idea that the Constitution sharply curtails government action on matters economic, or always prefers private property over public need. This may have been true in 1920. It is no longer true today, and we are better for it. The Constitution has changed over time, from a document that protected private property above all else, to a document that, today, protects minorities from legislative caprice and the “tyranny of the majority.” There’s nothing wrong with that. The Founders never intended to cryogenically freeze 1789′s America. Rather, they meant America to grow, within limits, beyond which the current administration has emphatically not transgressed.

[W]e must never forget that it is a Constitution we are expounding. McCullough v. Maryland, 17 U.S. 316, 407 (1819).

At 100 Days, is it Obama’s Economy Yet?

Like a hearts player eager to dump the queen of spades at the first opportunity, the Republican Party desperately wants to frame the nation’s continuing economic problems as Obama’s legacy, not his inheritance, and Newt Gingrich seems to think the 100-day  mark is the time to do that:

One thing is clear at this point in President Obama’s presidency: His control of Washington Democrats has been so masterful, and his policies so successful, that he has officially claimed ownership of the American economy.

Going forward, it won’t be possible to continue to place blame on former President Bush and the Republicans. If President Obama fails, it will be his failure and his alone.

This “transition of blame” remains premature. While economists begin to report some signs of hope, the continued economic downturn is just that – a continuation to be broken, not re-attributed. It takes time for any political action to filter through the country. Markets respond to action, not symbolic milestones. One hundred days in to Obama’s administration, at least one thing hasn’t changed: Republicans are still trying to pass the buck.

Persecution Today: Atheists are the New Jews

Truly, humanity has come a long way. In the early Muslim states, when economic or military woes beset the empire, the state’s stance on Judaism (and its Jewish subjects) went from a surprising level of egalitarianism to outright persecution, beheadings, you name it. Europe was no better. All levels of society, from villager to Bishop, blamed the evils of the day (war, plague, economic collapse) on Jews, Muslims, and anyone who didn’t toe the particular religious line. It was a bad way to live: persecution and scapegoating dignify neither the persecuting majority, nor the persecuted minority.

Since those days, the world has seen where the road of persecution leads, and it’s not happy. After the horrors borne from hate of the twentieth century, you would have thought that the world learned its lesson: you would be wrong. A new editorial by Dan Henninger in the Wall Street Journal proves that the lesson is, at most, half-learned: rather than taking from the dark periods of human history an acknowledgment that persecution and scapegoating are themselves wrong, we’re apparently still comfortable to run with that idea, and only shift our targets.  Oh, didn’t you hear? America’s current economic crisis is not a result of complex and multi-layered factors. It’s actually quite simple: atheists and secularists did it.

It has been my view that the steady secularizing and insistent effort at dereligioning America has been dangerous. That danger flashed red in the fall into subprime personal behavior by borrowers and bankers, who after all are just people. Northerners and atheists who vilify Southern evangelicals are throwing out nurturers of useful virtue with the bathwater of obnoxious political opinions.

The point for a healthy society of commerce and politics is not that religion saves, but that it keeps most of the players inside the chalk lines. We are erasing the chalk lines.

Apparently, conservatives are all for personal responsibility, until blaming society gives them a chance to stigmatize unpopular elements on the left.

FAIL.

Henninger’s willingness to myopically oversimplify global trends to a narrow culture war blame-game is nothing short of shocking: I expect this type of idiocy out of Human Events on a bad day, and from Phyllis Schlafly ever day, but the Journal? Are we finally seeing Murdoch’s influence creeping in on the Times? At the risk of sounding too much like Olbermann, Henninger should resign; his “article” is unscholarly and needlessly inflammatory, and the Journal shouldn’t be either.

While the article isn’t really worth a merit’s debate, I’ll do Henninger the courtesy of meeting his arguments partially on substance: the “social decay” narrative he’s invoking is as old as civilization, but that doesn’t mean it’s right. Ever since Livy and Plutarch, reactionary forces have invoked the notion of chronological primitivism – “things were better back then, when we stuck by tradition!” – to argue against progress, both social and physical. It’s never told the whole story, and Henninger’s iteration is no better. I can concede quite happily that, for some, religion does keep individuals within “the chalk lines”: for even fewer, perhaps, it’s sadly the only force capable of checking wanton criminality. But religion has just as often allowed irrational actors to draw “chalk lines” to justify actions clearly contrary to any notion of objective morality: kill the Jews, enslave the blacks, burn the witches, stone the gays, sack Constantinople. At worst, then, religion is an excuse to ignore the “chalk lines” inherent in the human condition. But even at best, religion is incomplete as a moral code to bind an entire civilization together. No society has ever been stable because of its religiosity – arguing to the contrary either misstates and romanticizes history, or reduces to a “No True Scotsman” fallacy (“well, they weren’t religious enough to be truly stable”). A healthy society should inculcate a sense of civic responsibility independent of individual, subjective, private beliefs while supplementing a strong objective moral code with laws and regulations to check the outliers. Henninger’s solution and resort to the blame-game does neither.

Perhaps the saddest thing about Henninger’s article, though, is that it admits of no remedy other than “kill the secularists.” If that’s the best solution that we as a country can think of, then perhaps we’re in worse shape than I thought.

Welcome to Paulson’s $700 Billion Bender

When I heard on Tuesday Treasury was redirecting the remaining $400 billion of the bailout to further capitalize banks and other credit institutions, I flipped. What about homeowners?! And I’m not just talking about those facing foreclosure. I’m talking about millions of homeowners who are in fixed-rate mortgages and who are watching their home values plummet and their neighborhoods become littered with “for sale” signs. (Consider yours truly in this group.)

Before I totally freaked out, I had a glass of wine and did some research. Why would Treasury bail (pun intended) on buying the mortgage-based securities? I read the interagency statement from the Fed, FDIC, et al., and I was somewhat reassured. By further capitalizing banks, there is greater liquidity to assist businesses and consumers and settle down banks so that they can work with borrowers to stave off “preventable foreclosures.” The statement directs banks to work determinedly and in good faith with borrowers. It also says future loans must be sound and credit-worthy. Notably lacking is the “or else” part of the equation. Ultimately, the statement reads like a list of friendly suggestions.

The shoe drops further after the jump.

Continue reading »

Stock Market Soars: Credit, Please!

After the stock market fell on November 5th, pundits on the right (Hannity, etc.) decried the beginning of the “Obama recession,” despite, of course, the fact that the man had yet to take office. Well, good news everyone! The Dow Jones Industrial Average is about to close $500+ above its starting price: I assume, by the same logic, Hannity will preface his show with a profound apology, and give credit where it’s due.

And the Award for Scariest Costume Goes to (drumroll) the McCain Tax Plan

Remember the good ol’ days when math was just fuzzy? Well, I just completed reading the Tax Policy Center’s (TPC) Updated Analysis of the 2008 Presidential Candidate’s Tax Plans, and I am damn-near speechless looking at details surrounding McCain’s tax plan. Lucky for you, dear reader, I am not completely speechless, so I can fill you in on some of the more interesting tidbits.

First, there is the issue of whether John McCain knows what the hell he is talking about when he is on the campaign trail. Based on CBO projections (using current law), federal tax revenue will not keep up with spending, leaving a cumulative deficit of $2.3 trillion between 2009-2018. But even this deficit forecast is rosily optimistic, because the current-law baseline does not assume an Alternative Minimum Tax patch, and the estimates were completed before all of the economic craziness that hit in late September. Nonetheless, it is a place to start.

John McCain’s tax plan, as described in campaign literature by economic advisers, would result in a cumulative deficit of $7.3 trillion over the same period. When McCain is stumping, however, the effect of the promises he makes amounts to a deficit of $11 trillion! By comparison, the projected 2009-2018 deficit from Obama’s campaign literature is $5.8 trillion; the deficit projected from his stump speeches: $5.4 trillion.

Why are John McCain’s speeches so far off from his campaign materials? Four-trillion dollars doesn’t arise from rounding error. Continue reading »