Tuesday, January 29, 2008

Clinton, Obama, King, Johnson and history

It appears that the controversy inspired by Hilliary Clinton's crediting President Lyndon B. Johnson with the success of the civil rights movement has subsided.

Thankfully, Barack Obama and Hilliary Clinton have declared that a prolonged fight over civil rights history would be unproductive.

Both candidates' positions in this abortive debate were flawed, based on the faulty assumption that history is primarily the product of the actions and ideas of great men.

While it is certainly preferable to expand the pantheon of great men to include black and other men (and women for that matter) of color, this view of history ignores the social movements and the everyday men and women who participate in them that propel leaders to prominence and action. Yet, as the movie The Great Debaters brings to life in its scenes of a southern tenant farmer organizing drive and community mobilization, long before civil rights seized the national agenda, courageous men and woman, all but forgotten to history, like the poet, Melvin B Tolson and Wiley College's students, were challenging the entrenched system of racial segregation.

Eric Foner, DeWitt Clinton professor of history at Columbia University, writes: "Although many American still identify the civil rights movement with such national figures as Martin Luther King Jr., and some historians see the presidency as the critical reference point for civil rights activism, a strong case can be made that the movement reflected the strength, persistence, and vitality of grassroots black institutions and that it determined the agenda of presidential activism rather than visa versa."

Following the Supreme Court's unanimous decision, Brown vs the Board of Education, the landmark case outlawing "separate but equal schools" argued by NAACP Legal Defense and Education Fund attorney and future Supreme Court Justice, Thurgood Marshall (where would the candidates place him in their civil rights hierarchy?), little real progress in integrating schools occurred.

President Eisenhower refused to implement the Court's decision. Southern politicians interpreted federal indifference as a signal to mount an aggressive campaign of massive resistance. In response, the civil rights movement entered a new stage of direct action protest with local citizens again taking the lead. The modern civil rights movement of domestics and laborers, of students, teachers, preachers, steelworkers and lawyers, of people from all walks of life, emerged to challenge racial supremacy throughout the South.

In Montgomery Alabama, a middle aged seamstress, Rosa Parks, joined with a prominent union leader, E.D. Nixon, to spark a boycott of the city's segregated buses that seized international attention. Nixon selected Rosa Parks for attention when she was jailed for refusing to sit at the back of a bus. As an organizer for the Brotherhood of Sleeping Car Porters, Nixon knew that Parks' almost twenty year relationship with the NAACP meant her jailing would be perceived as an attack on the organization making it easier to generate a community response. It was also Nixon who called Martin Luther King, Jr. to ask whether the boycott meetings could be held at his church. Nixon asked King because he calculated that the young minister had not been in town long enough to have been intimidated by Montgomery's white power structure. King agreed and emerged to provide leadership and moral authority to this social movement.

The Montgomery bus boycott and the civil rights movement that followed in its wake provided Dr. King with a national stage from which he addressed the nation and radically transformed the political agendas of the Kennedy and Johnson administrations.

President Kennedy had given lip service to support for civil rights. But the Kennedy administration largely accepted the status quo until 1963. By the spring of that year civil rights demonstrations had reached an intensity that compelled a response from Washington. As Foner writes: "Kennedy went on national television and in a largely impromptu speech eloquent in its moral passion, called for the substantial civil rights legislation that eventually became the Civil Rights Act of 1964."

After Johnson took office, he continued Kennedy's new approach of actively supporting the fight for social and economic equality. that had been prompted by the civil rights movement. He even invited Dr. King to meet with him in the White House.

Today, Johnson is partly remembered as the former segregationist who overcame southern resistance and got Congress to pass the Civil Rights Act (1964) which outlawed most forms of segregation and Voting Rights Act (1965) which outlawed discrimination in voting allowing millions of southern blacks to vote for the first time.

It is inconceivable that Johnson would have invited Dr. King to the White House or become such a forceful advocate of civil rights without the often invisible work of the Student Nonviolent Coordinating Committee (SNCC); without the courageous stand of thousands of unknown domestics who boycotted Montgomery's buses; without the work of the Highlander Folk School where organizers and activists like Rosa Parks and Dr. King were trained; without the multi-racial sharecropper organizing drives of the 1930s; without the sit-in of four young, black North Carlina AT and T students that spread to fifty-four cities in nine different states; and much much more.

It has been written that: "Men make their own history, but they do not make it just as they please; they do not make it under circumstances chosen by themselves, but under circumstances directly encountered, given, and transmitted from the past." This was true of Dr. King, Presidents Kennedy and Johnson and all the men, women and children who participated in the fight for racial justice and equality. Some were courageous, some reluctant. Some were both reluctant and courageous. But collectively they changed the segregated world they had inherited.

Bill Moyers who was present during the meeting between Dr. King and President Johnson provides a useful historical perspective in the video below.

Saturday, January 26, 2008

Stimulus plan a "lemon"

Over the past three weeks, even Republicans have been forced to acknowledge the nation's growing economic problems and the need for decisive action by the federal government.

It's worth noting that President Bush and his GOP agreed to act only after the downturn hit Wall Street, exacting an unacceptable toll on the Republican Party's financial and political base. As a result, the Fed enacted the single largest interest rate cut in its history and Congress has moved quickly to design a fiscal stimulus package.

For a stimulus package to be effective, it must stimulate spending (demand) quickly. The essence of an effective stimulus package is for government demand (spending) to step in when private spending (consumption and private investment) is declining.

A recent study by the non- partisan Congressional Budget Office (CBO) concluded that extending unemployment benefits and increasing food stamps, policies that get money to folks who will spend it immediately, is the most effective form of economic stimulus.

Even President Bush was forced to acknowledge this. As a result, he temporarily dropped his initial proposal for making his high income tax cuts permanent since it would not have affected the economy until 2011.

So what has the Democratically controlled Congress agreed to? Another round of tax cuts for people who are less likely to spend it immediately!

Paul Krugman writes that the compromise plan is nothing less than a "lemon:"

Unfortunately, the plan — which essentially consists of nothing but tax cuts and gives most of those tax cuts to people in fairly good financial shape — looks like a lemon...

Specifically, the Democrats appear to have buckled in the face of the Bush administration’s ideological rigidity, dropping demands for provisions that would have helped those most in need. And those happen to be the same provisions that might actually have made the stimulus plan effective...

The entire column is worth reading

Wednesday, January 23, 2008

Stiglitz explains how to stop the economic downturn

Joseph E. Stiglitz, 2001 Nobel prize winner, a professor of economics at Columbia and the author, most recently, of “Making Globalization Work,” has written a short, but excellent article describing the kind of economic stimulus policies that would be most effective.

He writes:

The country needs a stimulus, but anything we do will add to our soaring deficit, so it is important to get as much bang for the buck as possible...

In 2001, the Bush administration used the impending recession as an excuse to cut taxes for upper-income Americans — the very group that had done so well over the preceding quarter-century. The cuts were not intended to stimulate the economy, and they did so only to a limited extent. To keep the economy going, the Federal Reserve was forced to lower interest rates to an unprecedented extent and then look the other way as America engaged in reckless lending. The economy was sustained on borrowed money and borrowed time.

The day of reckoning has come. This time we need a stimulus that stimulates. The question is, will the president and Congress put aside politics to get the job done?

Read the entire article, "How to Stop the Downturn."

Tuesday, January 22, 2008

Milwaukee businesses leaders seem to want a return to the 19th century

Milwaukee businesses leaders seem to want a return to the 19th century

At a recent Public Policy Forum luncheon, some Milwaukee business leaders criticized the city's business climate. Their comments suggest that many corporate leaders remain committed to low wage, low skill economic strategies that have cost Milwaukee thousands of middle class jobs and contributed to the city's growing rates of poverty and inequality ("Business leaders want to warm city's climate," Jan. 11, www.jsonline.com/705904).

Complaining that CEOs don't get the same red carpet treatment in Milwaukee that they get in China, Oilgear boss Richard Armbrust said: "Get on a plane, go to China, and you get picked up in a limousine with lights flashing."

Armbrust's message mirrored the widely publicized comments of former RedPrairie Corp. CEO John Jazwiec, who attacked Wisconsin as "socialist" and suggested that the state flag included a "hammer and sickle" shortly before he resigned after reporting an unsubstantiated home invasion.

The country whose business climate Armbrust finds so appealing is a dictatorship where child and sweatshop labor are rampant, worker health and safety barely an afterthought, independent unions non-existent.

Chinese-made products, from toys to toothpaste to fish, have been found to be tainted with harmful agents. U.S. toy importers are demanding increased government regulations to ensure consumer safety.

As China has become the world's sweatshop, it has also become one of the biggest contributors to global warming. Milwaukee CEOs may get the red carpet treatment when they visit China, but pollution is so bad in many Chinese cities that its people can barely breathe.

Armbrust's desire to return to the 19th century was echoed by Briggs & Stratton CEO John Shiely, who said it was unlikely Briggs would open a new factory in Milwaukee because "we still have problems with the tone in this town. . . . Other places admire wealth creators. They don't beat them up."

So what strategy does Shiely want to be admired for? For almost 25 years Briggs beat up its employees as it pursued a less-than-admirable business model based on high-volume, low-cost production. Many of its foreign competitors pursued a model of low-volume, high-quality production in premium markets. (Full disclosure: My sister was employed by Briggs during most of these years and was an elected union leader).

Briggs even fought clean air regulations, ignoring the potential for green markets. As a result of Briggs' 25-year-war against its employees, which included outsourcing jobs to the South, China and Mexico while pursuing wage and benefit concessions in Milwaukee, thousands of wealth-producing employees lost their jobs.

Briggs' plant on 124th St. is closed, the one on N. 33rd St. abandoned. And these "leaders" wonder why they aren't given red-carpet treatment in Milwaukee? Are they really this tone-deaf?

The city they are bashing has the nation's eighth-highest poverty rate and seventh-highest child poverty rate. One of three kids lives in poverty. More than 45% of African-American males are unemployed.

Before international competition became a serious threat, Milwaukee's corporate elite began moving production in search of low-cost labor and short-term profits. The interests of others, particularly those who devoted their lives and labor to help these businesses prosper, were ignored.

When global competition heated up, Milwaukee's elite chose to compete on cost rather than on quality and service. Milwaukee's deindustrialization and deunionization are a byproduct of these low-road strategies, which stand in contrast to Germany, another mature industrial economy, where manufacturing and workers are flourishing based on high-wage, high-skill production.

As Milwaukee's CEOs abandoned their workers, they promised to help the city and people left behind. For more than 30 years, since the Greater Milwaukee Committee promoted the Performing Arts Center and the Grand Avenue Mall as catalytic urban redevelopment projects, Milwaukee's corporate leaders have promoted downtown development as a panacea.
When the festive marketplace model failed to deliver, they promoted a publicly subsidized convention center. Later, the GMC launched the Initiative for a Competitive Milwaukee, and then Johnson Controls' Metro Markets came along, promising a market approach to urban revitalization. The former created one high-wage job, the six figure consultancy of Harvard professor Michael Porter. The latter little more than a three-part series in the Journal Sentinel.

Since former Gov. Anthony Earl convened the Wisconsin Strategic Development Commission in the early 1980s in response to Kimberly-Clarke CEO Darwin Smith's threats to leave Wisconsin, demands for lower taxes, deregulation, privatization and subsidies have dominated the agenda. The efforts have resulted in increased poverty, unemployment and growing inequality in Milwaukee.

Milwaukee's CEOs shamefully used this luncheon to press their narrow economic agenda of reducing labor and other production costs. They dream of a "red carpet" world where wages are low and grateful chauffeurs cater to their every whim. For Milwaukee's working people, many of whom can barely afford to fill their gas tanks and heat their homes, much less hop on a plane, this "dream" is increasingly a nightmare world of haves and have-nots.

Michael Rosen is an economics instructor at the Milwaukee Area Technical College.

Monday, January 21, 2008

Honor Dr. King: fight for economic justice, equality and against unjust war!

On April 30, 1967, Dr. Martin Luther King eloquently broke his silence about the war in Vietnam in a sermon, "Why I am opposed to the War in Vietnam," that is as relevant today as it was forty years ago. A video of that sermon is reproduced below.

Dr. King spoke to the entire nation as he called for a "revolution in values" while asserting that he "opposed the war because he loved America:"

Now, let me make it clear in the beginning, that I see this war as an unjust, evil, and futile war. I preach to you today on the war in Vietnam because my conscience leaves me with no other choice. The time has come for America to hear the truth about this tragic war. In international conflicts, the truth is hard to come by because most nations are deceived about themselves. Rationalizations and the incessant search for scapegoats are the psychological cataracts that blind us to our sins. But the day has passed for superficial patriotism. He who lives with untruth lives in spiritual slavery. Freedom is still the bonus we receive for knowing the truth. "Ye shall know the truth," says Jesus, "and the truth shall set you free." Now, I've chosen to preach about the war in Vietnam because I agree with Dante, that the hottest places in hell are reserved for those who in a period of moral crisis maintain their neutrality. There comes a time when silence becomes betrayal.

Many persons have questioned me about the wisdom of my path. At the heart of their concerns, this query has often loomed large and loud: "Why are you speaking about the war, Dr. King? Why are you joining the voices of dissent?" Peace and civil rights don't mix, they say. And so this morning, I speak to you on this issue, because I am determined to take the Gospel seriously. And I come this morning to my pulpit to make a passionate plea to my beloved nation...

...There is...a very obvious and almost facile connection between the war in Vietnam and the struggle I and others have been waging in America. A few years ago there was a shining moment in that struggle. It seemed that there was a real promise of hope for the poor, both black and white, through the Poverty Program. There were experiments, hopes, and new beginnings. Then came the build-up in Vietnam. And I watched the program broken as if it was some idle political plaything of a society gone mad on war. And I knew that America would never invest the necessary funds or energies in rehabilitation of its poor so long as adventures like Vietnam continued to draw men and skills and money, like some demonic, destructive suction tube...So I was increasingly compelled to see the war as an enemy of the poor, and attack it as such.

In honor of Dr. Martin Luther King's birthday and legacy I have linked this remarkable speech. We miss his moral leadership, activism and commitment to justice.

Friday, January 18, 2008

Free market ideology contributed to housing bubble and economy's free fall

Paul Krugman explains how Alan Greenspan and top Bush administration officials' rigid commitment to free market ideology contributed to the housing bubble and emerging recession.

In Friday's New York Times he writes:

...U.S. financial markets, it turns out, were characterized less by sophistication than by sophistry, which my dictionary defines as “a deliberately invalid argument displaying ingenuity in reasoning in the hope of deceiving someone.” E.g., “Repackaging dubious loans into collateralized debt obligations creates a lot of perfectly safe, AAA assets that will never go bad.”

In other words, the United States was not, in fact, uniquely well-suited to make use of the world’s surplus funds. It was, instead, a place where large sums could be and were invested very badly. Directly or indirectly, capital flowing into America from global investors ended up financing a housing-and-credit bubble that has now burst, with painful consequences.

... the next year or two could be quite unpleasant.

What should have been done differently? Some critics say that the Fed helped inflate the housing bubble with low interest rates. But those rates were low for a good reason: although the last recession officially ended in November 2001, it was another two years before the U.S. economy began delivering convincing job growth, and the Fed was rightly concerned about the possibility of Japanese-style prolonged economic stagnation.

The real sin, both of the Fed and of the Bush administration, was the failure to exercise adult supervision over markets running wild.

It wasn’t just Alan Greenspan’s unwillingness to admit that there was anything more than a bit of “froth” in housing markets, or his refusal to do anything about subprime abuses. The fact is that as America’s financial system has grown ever more complex, it has also outgrown the framework of banking regulations that used to protect us — yet instead of an attempt to update that framework, all we got were paeans to the wonders of free markets.

...let’s hope that when the dust settles a bit, Mr. Bernanke takes the lead in talking about what needs to be done to fix a financial system gone very, very wrong.

Midwest Airlines betrays employees: let them eat cookies!

When Midwest Express was purchased for $450 million by a Texas based private equity firm, TPG Capital, Milwaukee’s political leadership had nothing but praise for the deal.

County Executive Scott Walker said he hoped there would be no major cutbacks while stating, despite overwhelming evidence to the contrary, that when companies are privately owned, managers can take a longer view of things because they do not have to worry about satisfying shareholders each quarter with earnings and dividends.

"I'm hoping it's long-term good news.” Walker said. “But certainly in the short term it is good news."

County Board Chairman, Lee Holloway, praised the deal with equal naiveté: “I truly believe that a private equity group will provide Midwest with the necessary resources to compete in the constantly changing airline industry.” Mayor Tom Barrett was also effusive:” This new arrangement provides an excellent opportunity for Midwest to remain an engine for jobs and economic growth across our area.”

Even the pilots’ union head. Capt. Jay Schnedorf, swallowed the Kool Aid saying that TPG Capital is not looking to cut service or employment. "Their intent is to grow Midwest Airlines," Schnedorf said, arguing that TPG Capital's resources would allow Midwest Air to have more growth opportunities.

Yesterday, Midwest Airlines announced that it was eliminating 400 jobs, a move that Midwest Chairman and CEO, Timothy Hoeksema, defended as a “difficult but necessary cost saving measure.”

When Hoeksema described his decision as painful, he employed classic Orwelian doublespeak that obfuscates rather than clarifies.

The obvious question is painful for who?

The almost 400 employees- mostly pilots, flight attendants, mechanics and dispatchers- and their families who were told that Midwest had been saved from an unfriendly, job threatening takeover by Air Tran? Or should Hoeksema himself be the object of our sympathy for having to make such a tough, but ultimately necessary call?

Don’t shed too many tears for Mr. Hoeksema and the firm’s top brass!

The $10 million plus he receives when the sale is eventually approved will make it much easier to forget any lingering pangs of guilt. Nor for Midwest’s senior vice presidents who are each in line for six- or seven-figure sums. And unlike the 380 Skyway employees who are losing their jobs, Midwest senior executives made sure their jobs were secure in the sale to TPG. Executive job security and payouts, not cost savings, were a major part of this deal.

It appears that the only one who was right about Midwest’s sale was Midwest's unsuccessful suitor, AirTran Chairman and CEO, Joe Leonard who, after the sale, presciently warned: "… the Midwest board has chosen a path that will benefit current senior management by selling out to a private equity firm… private equity investors are laser focused on generating short-term returns and the only way to accomplish that goal is to slash costs by cutting back on service and eliminating jobs…If the Midwest board is successful in selling the company to a private equity investor, the Midwest employees should be concerned about their job security and Midwest's customer service is sure to suffer."

As more of Milwaukee’s hard working, productive workers are kicked to the curb, I wonder if our elected officials, who praised this deal and the TPG and Midwest executives who made it, will learn that corporate executive promises of employee job security are as worthless as a three dollar bill.

Wednesday, January 16, 2008

North Carolina judge provides hope for Wisconsin's taxpayers

A North Carolina state judge’s ruling against a Wal-Mart tax avoidance scheme provides hope for Wisconsin’s beleaguered taxpayers who have seen their taxes increase as corporate taxes have decreased.

Wal-Mart is one of the world’s most profitable corporations, generating $315 billion in revenue and $11.2 billion in profits in 2006.

Yet in North Carolina, Wal-Mart transferred ownership of its stores to various in-house real-estate investment trusts (REITS), and then cut its taxes by taking deductions for rent payments that never left the company.

In a judgment signed on December 31, Emergency Special Judge of Superior Court Clarence Horton Jr. ruled "there is no evidence that the rent transaction, taken as a whole, has any real economic substance," other than for cutting Wal-Mart's taxes. "It is particularly difficult for the court to conclude that rents were actually 'paid' when they subsequently returned to the payor corporation," the judge ruled.

The judge dismissed the giant retailer's suit, which sought a refund of the $33.5 million in taxes, interest and penalties.

Wal-Mart, like other corporations doing business in the Wisconsin, manipulates the tax code to avoid paying taxes using REITS and Passive Investment Corporations (PICs). Both are little more than accounting gimmicks that turn taxable profits into operating costs, often reducing taxable income to zero. These companies are gaming the system at the taxpaying public’s expense.

It’s not as if Wisconsin’s business taxes are high. Forward Wisconsin, the state’s public private marketing and business recruitment agency, brags that: “Wisconsin business taxes are low - lower than those in 35 other states..." and " Wisconsin's business-friendly attitude is reflected in positive business tax changes that have been made in every biennial legislative session since the early 1970s. "

The Accounting firm, Ernst & Young, reports that the corporate share of state and local taxes in Wisconsin is among the 10 lowest in the country.

Nonetheless,corporations avoided $643 million in Wisconsin income taxes in 2006, according to a recent study in the tax journal, State Tax Notes. The Institute of Wisconsin’s Future reports that Microsoft, the computer behemoth that made $12 billion in profits in 2005, didn't pay a penny of Wisconsin corporate income tax. Nor did Merck, the pharmaceutical giant with $5 billion in 2005 profits. Nor Sears, whose retail family includes Kmart and Lands' End, which made $1 billion in 2005 profits.

Since 1978 Wisconsin’s corporations' real (inflation adjusted) profits have doubled, while real tax contributions have actually declined slightly. As a result, the share of state revenue contributed by corporations has fallen dramatically:



2000 4.6%

2006 3.5%

Corporate tax avoidance schemes have contributed to shifting the tax burden onto homeowners and Wisconsin’s working families.

As corporate tax contributions have declined, state government has reduced its support for the University of Wisconsin system, technical colleges and local governments. Services have been cut and residential property taxes, tuition and fees have increased.

Milwaukee's state aid has declined from 45% of the city’s budget in 1998 to 34% in 2006. To compensate residential property taxes have increased from 12% to 17% and non property tax revenue such as parking ticket fees and street parking permits from 21% to 30%.

MATC, the state’s flagship technical college, has seen its state aid decline from over 30% in 1990 to 14% in 2007. Students now contribute more to our technical colleges through their tuition and fees than the state does.

Corporations that use accounting gimmicks to avoid paying their taxes are shifting the burden of financing local government and educational services to homeowners, students, and other citizens. They are classic free riders, benefiting from these public goods, but refusing to pay their fair share.

Wisconsin's billion dollar plus structural deficit is, in part, the result of these tax avoidance schemes.

In response, state Senator Dave Hansen (D-Green Bay) has introduced the Corporate Tax Accountability Act (SB367) which would require publicly-held corporations to report their profits and tax contributions to the state. The legislation will affect less than 1% of Wisconsin’s companies, primarily large multi-state businesses like Wal-Mart and Merck.

Co-sponsors include nine senators and nineteen assembly representatives. Assembly Representative Phil Garthwaite (D-Dickeyville) plans to introduce an Assembly version.

This legislation will provide legislators with important information if they are to provide Wisconsin’s beleaguered taxpayers with real tax relief.

Wal-Mart has announced that it hasn't decided on how it will proceed in the aftermath of the North Carolina ruling, and declined to comment on the case's specifics due to a possible appeal. It continues to use REITS in Wisconsin.

Monday, January 14, 2008

Krugman reviews presidential candidates' stimulus plans

Over the last week all of the presidential aspirants, as well as the current occupant of the Oval office, have acknowledged that the economy is either in a recession or on the verge of one.

Today's report that consumer spending, particularly high end consumption, has declined, is the latest indication that the economy is in trouble.

The sharp decline in spending is particularly ominous since this economic expansion was driven almost entirely by consumer spending (as opposed to business investment) that seemed impervious to declining real wages and stagnant family income. Of course, we now know that much of that spending was financed by the real estate bubble as homeowners refinanced their homes, using the proceeds for consumption, now almost 70% of the entire economy, a historic and unsustainable high.

All of the leading presidential candidates now recognize that the nation's economy has deteriorated sufficiently to require a federal response.

Most economists agree that tax cuts are not nearly as effective a stimuli as increased federal spending on unemployment compensation, food stamps, direct financial aid to states and infrastructure investment.

Paul Krugman's latest column which reviews the stimulus proposals of all of the leading Presidential candidates is linked.

Friday, January 11, 2008

Foreclosures rose over 50% in Milwaukee County last year!

While County Executive Scott Walker toys with selling off Milwaukee County's airport and scapegoats the County's retired employees, foreclosures rose 51.5% in Milwaukee County last year, according to data gathered by ForeclosuresWI.com.

Statewide, they were up 27.5% to 20,995.

"Adjustable-rate and exotic/subprime mortgage rate resets continue to result in staggering increases to many homeowners' monthly mortgage payments," said ForeclosuresWI.com President Robert Jansen. "Furthermore, the cooling of the housing market and overall increase in the number of homes on the market has made it more difficult for those facing financial trouble to quickly sell their home to avoid foreclosure. Compounding the issue, many lenders have tightened lending standards in the wake of subprime mortgage crisis and skyrocketing mortgage defaults, which eliminates many refinancing options for those in trouble," he said.

I can't wait to see how Walker tries to blame this on the "pension scandal?"

Thursday, January 10, 2008

Momentum grows for fiscal stimulus

Economic Policy Institute economist, Jared Bernstein, has a very good blog, Stimulus 101, that explains why an economic stimulus is needed to to jump start the faltering national economy and identifying the most effective forms of federal intervention.

In a rebuke to the Bush administration's penchant for upper income tax cuts he writes:

"Tax breaks for rich people are unlikely to generate much stimulus because those folks are not income-constrained.

For example, ...a dollar of revenue sacrificed for a dividend or capital gains tax cut yields a measly nine cents."

I pointed out in a recent blog that the administration's proposal to make the 2001 and 2003 tax cuts permanent would have no impact because it would not effect the economy until 2011, when the cuts lapse.

The economy needs a jump start now, not three years from now!

Bernstein persuasively argues for short term, targeted spending:

"You get a much better bang-for-the-stimulative-buck from direct spending. A dollar spent shoring up Unemployment Insurance yields $1.73; a dollar spent on fiscal relief to the states yields $1.24. This last idea—ratcheting up state grants from the Feds—is particularly important right now, since many state and city coffers are coming up short due to the local revenue impacts of the housing meltdown.

In short, especially given the ideologies of the folks in charge, we should favor direct spending stimulus ideas over tax cuts."

A New York Times editorial, Not Just the Fed, has joined the chorus calling for action: " ...it is imperative that President Bush and Congressional leaders begin a serious discussion about how to help revive the economy, if need be, with a short-term stimulus package."

Wednesday, January 9, 2008

Merrill Lynch says US in recession!

The feared recession in the US economy has already arrived, according to a report from Merrill Lynch.

It said that Friday's employment report, which sent shares tumbling worldwide, confirmed that the US is in the first month of a recession.

Its view is controversial, with banks such as Lehman Brothers and the National Bureau of Economic Research's President, Martin Feldstein, disagreeing.

An official ruling on whether the US is in recession is made by the National Bureau of Economic Research, but this decision may not come for two years. The NBER defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months".

It bases its assessment on final figures on employment, personal income, industrial production and sales activity in the manufacturing and retail sectors.

Feldstein, a Harvard University economist, revised his earlier estimates saying that the odds of a recession had now risen to more than 50 percent.``We are now talking about more likely than not,'' Feldstein said in an interview in New Orleans two days ago. `I have been saying about 50 percent. This now pushes it up a bit above that.''

Merrill Lynch said that the figures showing the jobless rate hitting 5% in December were the final piece in that puzzle.

"According to our analysis, this isn't even a forecast any more but is a present day reality," the report said.

Merrill said that the current consensus view on Wall Street that there is a good chance of avoiding a recession is "in denial".

It also objected to the use of euphemistic terms for the state of the economy.

"To say that the backdrop is 'recession like' is akin to an obstetrician telling a woman that she is 'sort of pregnant'," the report said.

A BBC article on the Merrill Lynch report is linked.

Tuesday, January 8, 2008

Krugman: Bush policies never change but the arguments do!

Yesterday I wrote that President Bush proposes the same medicine, upper income tax cuts, for any economic illness.

When we had a projected $5.2 trillion surplus, he proposed upper income tax cuts because the federal government didn't need all that money.

When the 2001 recession began, President Bush said upper income tax cuts (phased in over nine years to conceal their long term cost) was the solution.

When gas prices began to rise in May, 2001, he again said the answer was upper income tax cuts.

Now that the economy is sliding into a recession, he is again arguing that we need to make his high income tax cuts permanent.

No matter what the problem, upper income tax cuts are the only solution.

Paul Krugman makes the same point in his recent column :

"You see, for 30 years American politics has been dominated by a political movement practicing Robin-Hood-in-reverse, giving unto those that hath while taking from those who don’t. And one secret of that long domination has been a remarkable flexibility in economic debate. The policies never change — but the arguments for these policies turn on a dime.

The entire column is worth reading.

Sunday, January 6, 2008

Fixing our infrastructure will jump start the economy!

The unemployment rate surged to 5 percent in December as the economy added a meager 18,000 jobs, the smallest monthly increase in four years.

The private sector actually lost 13,000 jobs.

The swift deterioration in the job market indicates that troubles once confined to real estate and construction are spilling into the broader economy, threatening the ability of American consumers to keep spending.

In response, President Bush has proposed making his high end tax cuts permanent.

This is not surprising. Cutting the taxes of the wealthy has been the singular policy proposal of this administration for any and all problems.

When President Bush was running for office in 2000, he proposed high end income tax cuts, the elimination of the inheritance tax, and cutting investment income taxes because the country was running a projected $5.2 trillion dollar surplus. He proposed a $1.3 trillion cut (25% of the total projected surplus) because he: "...trusted the people, not the government."

Shortly after he assumed the Presidency, in March 2001, the economy fell into a recession. But Bush's response was the same medicine-high end tax cuts- for an entirely different ailment.

In May 2001, as gas prices began to soar for the first time under his administration, President Bush proposed, you guessed it, high end tax cuts as the solution which Congress ultimately passed

President Bush, and all of the Republican candidates competing to replace him, are wrong when they argue that making tax cuts that have disproportionately benefited the wealthy permanent will stimulate the economy.

The 2001-2003 jobless recovery and the relatively anemic job growth that followed suggest that high end tax cuts are not an effective stimulus precisely because the wealthy are the least likely to immediately spend their tax cut windfalls, although that is precisely what is needed to jump-start the economy.

Making high end tax cuts permanent, moreover, would not increase spending this year when a stimulus is needed. It wouldn’t affect the economy until 2011 since that is when the tax cuts are set to expire.

Making the tax cuts permanent, however, would increase the country’s deficit for years, increasing interest payments on the debt that will have to be paid by future generations and reducing the funds available for needed social investments in education, job training, research and development, science, medicine, medical care, energy and infrastructure.

On Sunday the New York Times called for an economic stimulus package to revitalize the failing economy.

The Times argued that middle and low (income or payroll) tax cuts would be effective since that money would be spent immediately.

Equally if not more, effective than targeted tax cuts, would be a plan to significantly increase investment in the nation’s failing public infrastructure — highways, bridges, rail systems, water works, public schools, port facilities, sewers, airports, energy grids, tunnels, dams and levees.

California’s experience in early 90’s demonstrates what a well-timed shock of public spending can do for a depressed economy.

California was mired in a severe recession when an earthquake rocked Southern California in January, 1993. It was the costliest in U.S. history. Sixty-one people died. More than 9,000 were injured. The quake destroyed more than $15 billion of property, including 21,000 housing units. It devastated highways in the nation's most auto-dependent region.

The federal government responded with disaster relief. The immediate infusion of $9.5 billion in emergency assistance and public works funds revived the depressed economy. Less than six months after the earthquake, Southern California's economy was growing and generating jobs for the first time since 1990.

The tragic collapse of the Interstate 35W bridge in Minneapolis, while not a natural disaster like the Los Angeles earthquake, is the canary in nation's failing infrastructure mine. Our nation's infrastructure is crumbling.

A study released in May by the Urban Land Institute and Ernst & Young found that 83 percent of the nation’s transportation infrastructure was not capable of meeting the country’s needs over the next 10 years. The American Society of Civil Engineers, in its latest national report card, gave transportation infrastructure a D. It estimates that government should be spending $320 billion a year over the next five years — double the current outlay — just to bring up to par what already exists.

A public infrastructure investment program would address one of the nation's biggest problems, create high wage jobs, save lives, decrease business's cost of transportation and stimulate the economy! If tied to local hiring and job training, it could help address the unacceptably high rates of black unemployment which are rising as the economy slows.

Other ideas should be on the table as well. The nation has a shortage of low and moderate income housing particularly in fast growing suburban areas experiencing labor shortages. We are falling further behind our international competitors in developing a high speed communications infrastructure. And we lack modern high speed train and energy efficient (light rail) transportation systems.

Before we waste valuable national resources by making President Bush's inefficient high end tax cuts permanent, we should examine the more effective economic stimulus tools in our policy tool box. It is after all, our money (and country for that matter) and as someone once said, in a different context, we know better than a lame duck politician what to do with it.

Tuesday, January 1, 2008

Iowa voters rebuke President Bush and apologist McIlheran

On New Years Eve, just days before the Iowa primary, Milwaukee Journal columnist, Patrick McIlheran , ridiculed the New York Times editorial board while alleging that Bush administration critics were utterly alienated from the country.

The record number of Democrats who turned out to caucus in Iowa— more than 239,000, compared with fewer than 125,000 in 2004 — and the surprising easy victory of Barack Obama was a stinging rebuke of the Bush administration and Mr. McIlheran's slander of the administration's critics.

The huge Democratic turn-out — by contrast, 108,000 Republicans caucused on Thursday — demonstrated the extent to which opposition to President Bush has energized the American people.

More than half of those who attended the Democratic caucuses (57%) were new participants.

Obama's victory over Hilliary Clinton, who entered Iowa as the Democratic front runner, also illustrates that voters are far more interested in a candidate promising change — as Mr. Obama was — than one citing experience, the heart of Mrs. Clinton’s appeal. Half of the record number of Democrats said their top factor in choosing a candidate was someone who could bring about change. Just 20 percent said the right experience, Mrs. Clinton’s key argument, was the main factor.

These results reflect the reality, despite Mr. McIlheran's silly protestations, that the Republican Party is more unpopular than at any point in the past 40 years.

Currently, Democrats have a 50 to 36 party identification advantage, the widest in a generation.
Even an ideologue like Mr. McIlheran should know that the public prefers "alienated" Democratic approaches on health care, corruption, the economy and Iraq by double-digit margins.

Republicans’ losses have come across the board, but the G.O.P. has been hemorrhaging support among independent voters who made up 20% of Iowa's Democratic caucus participants..

The turn-out in Iowa and surveys from the Pew Research Center, The Washington Post, Kaiser Foundation and Harvard University show that independents are moving away from the G.O.P. on social issues, globalization and the roles of religion and government.

Even before Iowa, Mr. McIlheran's "utterly alienated" critics had won control of the United States Senate and House of Representatives in 2006 elections by criticising the Bush administration's foreign and domestic policies?

Critics of the Bush administration are not alienated from their fellow citizens or their country.

Rather they are increasingly dissatisfied, as the New York Times editorial so eloquently put it, with what a reckless, handful of extreme neoconservative ideologues have done to our country and its principles. It is "..impossible to see the founding principles of the greatest democracy in the contempt these men (President Bush, Vice President Cheney, and their neocon crowd) ... showed for the Constitution, the rule of law and human decency...lawless behavior (by the United States government) has become standard practice since Sept. 11, 2001."

The record turn-out in Iowa and Mr Obama's victory are additional evidence that the American people are alienated from the Bush administration, its policies and apologists, like Mr. McIlheran, not their country.