Blog entry

The Trillion Dollar Solution

Bill Scher — Mon, 05 Jan 2009 12:30:32 -0500

Much of today's chatter centers on unofficial word from the Obama-Biden transition team that its economic recovery plan will include $300 billion in tax cuts. As the incoming administration is estimating the size of its plan between $675 billion and $775 billion (though perhaps with an expectation that Congress will increase the size), dedicating such a large percentage to tax cuts restrains how much will be invested in infrastructure, clean energy, health care, education, state government aid and anti-poverty measures.

The stated political reason for jacking up the size of the tax cuts is to relieve pressure from the conservative minority, entice Senate Republicans to come on board and achieve the symbolic victory of a bipartisan supermajority. (A dubious goal, as noted by Paul Krugman, David Sirota and Hilzoy.)

But that''s not the only pressure on the incoming administration.

While media reports indicate President-Elect Barack Obama wants to keep the overall size of the plan below $1 trillion for "psychological" reasons, calls are growing for a plan of just that size.

On Friday, the governors of Massachusetts, New Jersey, New York, Ohio and Wisconsin deemed a $1 trillion package necessary to meet the crisis, or else it would fail to positively impact the economy and force states to make economically damaging budget cuts. The W. Post reported:

The governors recommended that the stimulus plan include $350 billion for infrastructure, including transportation, wastewater and broadband projects; $250 billion for anti-poverty programs such as Medicaid, unemployment insurance, food stamps and child care; $250 billion in flexible education spending to maintain funding for programs from pre-kindergarten to higher education; and middle-class tax cuts...

...The proposal the Democratic governors discussed Friday is not only larger than others under discussion but presents a new emphasis on education, they said. The recession is causing about 25 states to make or consider making cuts in education, [MA Gov. Deval] Patrick said.

Ohio Gov. Ted Strickland said he applauds the idea of responding to the economic crisis with infrastructure jobs. But he also said that if the states do not get significant help to offset their own cuts, they will be working at cross-purposes with this aid and harming their economies in the long term.

"We may be putting people to work while at the same time we are laying off teachers, allowing college tuition to explode and failing to provide adequate Medicaid resources to the most needy," Strickland said.

Wisconsin Gov. Jim Doyle said, "We will see quality fall off in our schools," adding: "We will see a great restriction of university education, or such soaring tuition that ordinary hard-working families will be unable to afford it."

"I think often during these days about my parents, who grew up during the Great Depression and went to public schools . . . and went to a great state university," Doyle said. "Those people educated in the '30s went on to win a world war and bring this country into the '60s and '70s."

Similarly, the Congressional Progressive Caucus has proposed a $1 trillion recovery plan. As described by The Nation's Katrina vanden Heuvel:

In addition to much needed investments which have already been laid out--like the extension of unemployment insurance while joblessness soars, increasing food stamps, and assisting cash-strapped states with Medicaid--the CPC plan goes a step further. It takes a holistic approach to economic recovery and the needs of ordinary Americans by addressing infrastructure, human capital, keeping people in their homes, job creation, fiscal relief for state, local and tribal governments, education and job training and tax relief for lower-income families.

That adds to Nobel economic prize-winning voices such as Joseph Stiglitz, who said back in November that "at least $600 billion to $1 trillion over two years" is needed, and Paul Krugman, who said of the $775B estimate: "I'd like to see it bigger ... the risks of being too small are much bigger than the risks of being too big."

The Institute for America's Future Main Street Recovery Plan established $900 billion as "the floor, not the ceiling, of what needs to be done." That plan included $145B for middle-class tax cuts, and $755B in public investment for traditional infrastructure, clean energy, energy-efficiency, education, health care, state government aid and anti-poverty measures.

If the overall size of Obama's plan doesn't move, and he insists on $300 billion in tax cuts, that would constrict public investment, and dilute the impact of the plan. (Public investment is far more likely to stimulate the economy in the short-run than tax cuts, especially business tax cuts, not to mention the long-term infrastructure needs we have to address after years of neglect.)

However, if the incoming Obama administration recognizes that the economic facts point to $1 trillion as a number to embrace and not resist, $300 billion in tax cuts would not prevent us from investing $755 billion in our economic foundation: our infrastructure, our state services and our people.

Excessive tax cuts may not be the best way to get our economy back on track. But more important is to make sure we invest enough in America's future, our roads, rail, energy, education and health.

If we put the right pressure on the Obama administration, we can do right by our economy. If all the pressure comes from the Right, our economy will pay the price.

A Final Report Card on the Reagan Years?

Sam Pizzigati — Mon, 05 Jan 2009 08:59:53 -0500

Our current economic meltdown may finally have ended the era that began when Ronald Reagan became President. Now a new study — from the Congressional Budget Office — helps us understand the inequality that has us melting.

Two days before Christmas, with hardly anyone at all paying much attention, the nonpartisan Congressional Budget Office delivered up a final report card on the Reagan era. The highest grades? They went, almost exclusively, to the super rich.

You won't, to be sure, find any As, Bs, and Fs in this new Congressional Budget Office report card. And the CBO's researchers certainly didn't set out to grade America on the years since Ronald Reagan became President a generation ago. But they've done just that. On taxes and income distribution, their new report makes vividly clear, the United States desperately "needs improvement."

That may or may not be the message Senate Finance Committee chair Max Baucus from Montana had in mind, last year, when he asked the Congressional Budget Office to dig a little deeper into the data on taxes and income than the CBO had dug in a report released late in 2007.

The CBO's December 2007 study, Historical Effective Tax Rates, 1979 to 2005, had looked at the federal taxes Americans at different income levels have been paying since the year before Ronald Reagan's election. But the report had a hole. Nothing in it indicated how the really rich have fared in the near three decades that the basic principles of Reaganomics — tax rate cuts, deregulation, and privatization — have set the public policy pace.

Senate Finance Committee chair Baucus asked the CBO to fill that hole — by focusing on the richest of the rich. The CBO's new report meets that request, with dramatic results.

Americans in the overall top 1 percent, the 2007 CBO data showed, did quite well in the Reagan era's first quarter-century. Their average incomes, after taking inflation into account, essentially tripled, rising 201 percent.

But these top 1 percent stats, the new CBO data help us understand, hardly tell the full story. The truly stunning income increases over recent decades have gone to the tippy-top of the U.S. income distribution, not the top 1 percent, but the top tenth — and top hundredth — of that top 1 percent.

The higher up you go on the income ladder, in other words, the sweeter the Reagan era.

Between 1979 and 2005, the bottom half of the top 1 percent saw their average incomes only double, after inflation. These incomes increased 105 percent. The next highest four-tenths of the top 1 percent somewhat raised the income bar. Their average incomes, after inflation, rose 161 percent.

That brings us to the top 0.1 percent of Americans. Their incomes, from 1979 to 2005, rose a staggering 294 percent after taking inflation into account. Not bad at all. But the top 0.01 percent did even better. The 11,000 households in this rarified air took home an average $35.5 million in 2005, a 384 percent increase over average top 0.01 percent incomes in 1979.

Need some perspective here? Let's compare Americans at the top to Americans in the middle. Between 1979 and 2005, the average income of America’s statistical middle class — the 20 percent of Americans in the exact middle of the U.S. income distribution — rose, according to the CBO figures, a mere 15 percent. That's less than 1 percent a year.

But many average Americans never actually saw that less than 1 percent. That's because the CBO takes a kitchen-sink approach to defining income. CBO researchers include in their “comprehensive income” calculations all the standard household revenue streams — wages, dividends, interest, and the like — and lots more, too, from food stamps and Social Security to employer-paid health benefits.

All these add-ins tend to inflate average household “incomes.” If your employer’s health insurance company jacks up prices, for instance, the extra dollars in premiums that your employer has to pay count as income to you, at least in the CBO calculations.

The CBO actually has a good reason to take this "kitchen-sink" approach to defining income. Conservative cheerleaders for the Reagan era have been arguing for years that the United States isn't growing that much more unequal, not when you calculate in the various benefits that poor and average Americans get from government and their employers.

But the CBO figures, by adding in all those benefits, neatly expose the flim-flam behind this cheerleading. The United States definitely has become substantially more unequal. Overall, after taxes, the very rich — the top 0.01 percent — have nearly quadrupled their share of the nation's income since 1979.

These super-rich Americans in the top 0.01 percent, even more amazingly, now pay a lower share of their incomes in federal tax than the merely rich.

The overall top 1 percent paid federal income tax at an average 19.4 percent rate in 2005. The top 0.01 percent paid at just a 17 percent rate, mainly because the richest of the rich get nearly half their income from capital gains — and capital gains enjoy preferential tax treatment.

Under George W. Bush, the tax rate on capital gains income — income from the sale of stocks, bonds, and other assets — dropped to 15 percent, less than half the current top 35 percent tax rate on “ordinary” income from paychecks.

And that brings us to about the only hopeful news we can take, of late, from the Congressional Budget Office. No one on Capitol Hill has spoken out more clearly on the noxious consequences of preferential treatment for capital gains income than Peter Orszag, the CBO director until last month.

Taxing capital gains at a lower rate than other forms of income, as Orszag has testified to Congress, “creates opportunities for tax avoidance and complicates the tax system.”

As CBO director, Orszag couldn’t do much about capital gains tax breaks for mega millionaires. Now he can. President-Elect Barack Obama last month named Orszag his choice to direct the Office of Management and Budget, the federal government’s most powerful fiscal agency.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality.

Should We Devote 40% of the Stimulus to Tax Cuts?

David Sirota — Mon, 05 Jan 2009 01:48:04 -0500

The Wall Street Journal reports this morning that President-elect Barack Obama is planning to devote roughly 40 percent of any new economic stimulus package to tax cuts. Arguing for the idea in the face of failed Bush tax cuts over the last eight years, his spokeswoman is quoted invoking the tired "pragmatic" meme, saying: "We're working with Congress to develop a tax-cut package based on a simple principle: What will have the biggest and most immediate impact on creating private-sector jobs and strengthening the middle class? We're guided by what works, not by any ideology or special interests."

Of course, tax cuts are a strange way to pursue "what works," because as CAF's Isaiah Poole long ago noted, evidence suggests spending - not tax cuts - is clearly "what will have the biggest and most immediate impact" in fixing the economy. Indeed, the Economic Policy Institute reports:

"Most of the money from the recent tax rebate was saved rather than spent, thus blunting its stimulative benefit. By comparison, other options—such as infrastructure spending, aid to states, food stamps, and unemployment insurance (UI) benefits—are much more cost-effective because they target the needs most likely to channel money back into the economy."

Likewise, Economy.com's Mark Zandi (himself a Republican) recently estimated that each dollar dollar of refundable tax rebates only boosts GDP by about $1.26, while each dollar of infrastructure spending could provide a $1.59 boost. Here's his chart on "what works":

The Wall Street Journal's subheadline suggests what's really going on with Obama's tax cut move: It's not pragmatic policy, it's political pandering "aimed at winning GOP support," and such pandering isn't even politically "pragmatic" because lots of Republican votes aren't even needed. After all, Democrats' vast congressional majorities, Obama's election mandate and the economic crisis should guarantee passage of whatever economic rescue package Democrats push. I mean, c'mon - are we really expected to believe that under these circumstances, a new president can't use pressure to get 3 or 4 Republican senators to back a robustly progressive spending package and that instead, he has to substantially weaken that package? Puh-leeeze.

So, then, why weaken good policy (ie. infrastructure spending) with bad policy in order to attract votes the new president shouldn't need? That's the enduring power of the right-wing's tax frame.

For 30+ years, the conservative movement has insisted that tax cuts are always better economic policy than public spending. And despite the fact that such rigid ideology has proven bankrupt over and over and over again, it still confines American politics, as evidenced by a new Democratic president already appearing to embrace the right's basic tax fallacies.

Breaking apart this tax paradigm is going to take a long time. As I showed in my latest book, progressives are making headway in reframing the tax debate in some of the toughest political territory in the country. But as I also showed in a recent newspaper column, in other places like New York and Washington, D.C., the anti-tax frame remains a powerful force.

Sure, it's good news that the stimulus will likely include a decent amount of public spending. And sure Obama seems intent on making some of his tax cuts progressive by targeting them down the income ladder. But again, he seems to be embracing the right's overall tax frame - and that's a problem.

Greed Goeth Before a Crash?

Terrance Heath — Fri, 02 Jan 2009 22:43:32 -0500

If you haven't seen it yet, check the episode schedule and make sure you don't miss the History Channel's "Crash: The Next Great Depression?".

This one-hour special looks at the current economic meltdown in the US and compares and contrasts it with what led up to the Great Depression, the 1929 Crash, its immediate aftermath and what helped to bring us out of the Depression. Threading first person accounts with expert interviews, the special lets viewers understand how much history is repeating itself and what does history tell us about our future?

Tonight, it followed (appropriately enough) the "Greed" episode of the History Channel's series The Seven Deadly Sins.

It compares the 1929 crash with the 2008 Meltdown, and points out too many parallels to count — from the rampant deregulation and wealth concentration that preceded the 1929 crash, to a do-nothing Hoover administration determined to let the market work itself out — between what happened then and what's happening now. (The footage of Phil Gram quoting Abraham Lincoln even as he, back in 2000, made sure that the credit swaps that helped drive this meltdown stayed unregulated.)

Beyond that, it echoed just about everything progressives have been saying about the route causes of the current crisis, and the best way out of it. From what I can tell, its only flaw is that it payed at least a few minutes of lip service to conservatives' collective case of New Deal Denialism. At least that's what jumped out at me.

Still, it's definitely worth seeing. In fact, it's worth calling the rest of the family into the room to watch it, and calling your friends and telling them to watch it.

The Ghost of Reagan Hovers Over AIG

Isaiah J. Poole — Mon, 29 Dec 2008 10:28:27 -0500

In every article assessing the roots of today's financial crisis, one theme stands out: As would-be Wall Street wizards came up with ever-more-fantastical strategies for making obscene profits, the guardians of the public trust either snoozed or egged them on.

The Washington Post on Monday told the story of three whiz kids who came up with the interest-rate swap strategy that brought down AIG and prompted a so-far $152 billion bailout by the federal government. As the article notes, the series of events that transformed AIG from a rock-solid financial powerhouse to the poster child of today's economic collapse includes heavy dollops of hubris and greed from several quarters. But a critical formula was the atmosphere on Wall Street carefully cultivated by Reagan's conservative cadre in Washington. As the Post notes of the three men who approached AIG with a plan to put what had been a staid financial management tactic on steroids with the promise of huge profits:

Their plan fit perfectly with another revolution they saw unfolding in Washington. Ronald Reagan's unwavering belief in free markets—and his distaste for regulation that put hurdles in the way of entrepreneurs—had steadily spread through the government. "The United States believes the greatest contribution we can make to world prosperity is the continued advocacy of the magic of the marketplace," Reagan told a U.N. audience that fall.

More robust financial oversight would have not allowed billions of dollars worth of financial transactions that few people fully understood, including AIG president Hank Greenberg, to mushroom to the point that the nation's economy is put at risk. Allowing private enterprise to engage in risk, with the promise of innovation for the marketplace and profit for the risk-taker, is one thing. But good public policy draws the line at the point that risk jeopardizes the larger public good. When that line isn't clear, regulators demand the transparency necessary to make that line clear and then use their authority to penalize those who dare cross it.

You would think that this lesson would be clear as we live with the effects of deregulatory excess. But, as a recent story from the normally nonideological Bloomberg News Service noted that is remarkable in its unabashed bias—headlined "Saving Capitalism No Sure Thing as Statism Undermines Economy"—the argument that the American economy will pay "a steep price" when there are cops on the beat to curb capitalism's excesses will still be fervently argued when the Congress and administration get to work in January. "Future investment may be allocated less efficiently as risk-averse politicians make business decisions. Whenever banks decide to lend again, they are likely to find new capital requirements that will curb how freely they can do it," the article says.

The articles sweeping statements are hyperbole masquerading as analysis. But even if the sweeping conclusions become true, would not a more risk-averse Wall Street be far better for the economy than the catastrophe Reaganism has wrought? It certainly would have been for AIG, and for us taxpayers who were forced to pay for their recklessness.

Do We Understand How Big The Economic Recovery Plan Is?

Bill Scher — Mon, 29 Dec 2008 10:16:48 -0500

We are on the verge of nothing less than a transformation in the role of our federal government, from one of conservative neglect to one of progressive action.

Conservatives, deeply fearful of being buried on the wrong side of history, are gearing up to obstruct progress wherever possible.

Yet it seems to me that the liberal progressive grassroots are not similarly geared up to deflect conservative attacks and maximize chances of success.

Earlier this month, the Institute for America's Future proposed a Main Street Recovery Program of $900 billion in "substantial, strategic, and sustained" investment over two years in infrastructure, clean energy, broadband, health care and education.

Such public investment would not only blunt the impact of recession in the short-term, but strengthen America's global competitiveness in the long-run, firmly putting us on the path toward energy sustainability, quality education and health care for all. (IAF's Robert Borosage and Eric Lotke recently published "A New New Deal? in the latest edition of The Nation, making the case for the plan.)

A coalition of more than 200 economists, labor leaders and progressive organization leaders endorsed the plan, declaring $900 billion over two years, "should define the floor, not the ceiling, of what needs to be done."

The Obama-Biden transition team is discussing something similar in terms of what areas of neglect public investment should target, but has yet to commit to a package of quite that size. Incoming White House senior adviser David Axelrod said yesterday on CBS' Face The Nation:

We've talked about a package from $675 billion to $775 billion. But you know, those numbers are not fixed.

One thing we--I think everyone agrees on, economists from left to right, is that we have to do something very large.

Larry Summers wrote an op-ed in The Washington Post today, in which he said that economists believe that if we don't do something large that we're going to be looking at double-digit employment--unemployment by the end of next year, and that is totally unacceptable. So we want to create three million--or create or save three million jobs to forestall that.

And we want to do it in a way that leaves a lasting footprint, by investing in energy and health care projects and refurbishing the nation's classrooms and labs and libraries so our kids can compete, and rebuilding our crumbling roads and bridges and waterways.

And in this way we're not only just--we're not only creating work. But we're laying the foundation for the future of economy.

Following Axelrod, Nobel award-winning economist Paul Krugman expressed concern that, as big as $775 billion is, it may not be big enough:

I'd like to see it bigger. I understand that there's difficulty in actually spending that much money, and they're also afraid of the T-word. They're afraid of a trillion dollar[s] for the two-year number.

But you know, the back of my envelope says it takes roughly $200 billion a year to cut the unemployment rate by 1 percent from what it would otherwise be. In the absence of this program, we could very easily be looking at a 10 percent unemployment rate.

So you do the math and you say, you know, even these enormous numbers we're hearing about are probably enough to mitigate but by no means to reverse the slump we're heading into.

So ... they're thinking about it straight. I liked what Larry Summers wrote in The Washington Post. I think he was getting it right that the risks of being too small are much bigger than the risks of being too big.

Nonetheless, I am actually concerned that this thing is not going to be really big enough.

At the same time, the Obama-Biden transition is showing some concern that conservative obstructionists will be able to delay any enactment of an economic recovery plan, even though everyone agrees that urgent action is needed if our government is to successfully mitigate the damage from the recession.

Already, conservatives are flailing about trying to come up with talking points to justify obstruction, finding a sliver of projects that look like wasteful pork to stoke skepticism about the overall package. Traditional media outlets have begun carrying water for conservatives, relaying knee-jerk criticisms without bothering to investigate the merits of those projects or putting their tiny size in the broader context.

Between today and the Jan. 20th inauguration is a critical period, where a concerted push from the liberal progressive grassroots can generate healthy pressure on President-Elect Obama and congressional leaders to treat $900 billion as the minimum number for any package, and put heat on Senate Republicans to think twice about obstructing action in a time of crisis.

If the package is too small and too slow to be effective in limiting the pain from the recession, we may miss this once-in-a-generation opportunity to transform our government from one defined by callous and reckless conservatism to one that exemplifies responsible and responsive liberalism.

However, in my casual political conversations with liberal friends and family over the last few days, I don't see a focus on quickly enacting a successful economic package.

I see understandable criticism about certain Obama cabinet picks and Rev. Rick Warren. I hear chatter about Gov. Blagojevich. But I feel little energy towards what will literally be the Number One legislative priority for our next government. And with conservatives beginning to regroup, that's a potentially dangerous dynamic.

For progressive ideals to be successful in remedying the damage left by conservatism, we in the grassroots need to be able to walk and chew gum, push against Obama and pull for Obama when appropriate.

If we assume that Obama never needs any help, and we spend all of our time finding things to criticize, we will not play a positive influential role. Good ideas will get watered down as all outside pressure will be coming from the Right, and constructive criticism from the Left of bad ideas will get unfairly dismissed as coming from an unreasonable peanut gallery.

Now is a time to help. Speak up. Comment on Change.gov. Contact your congressperson and Senator. Write your local newspaper. Call-in your favorite talk radio show. Set a high bar for action. Debunk conservative misinformation. Let Washington know you're paying attention.

On economic recovery, the stakes are enormous, and we cede the debate at our peril.

Fox News: "Historians Pretty Much Agree" That FDR Prolonged the Great Depression

David Sirota — Wed, 24 Dec 2008 20:00:38 -0500

I appeared on Fox News to discuss both the Blagojevich flap and the imminent economic recovery package from the Obama administration. You can watch the clip here. As you'll see, on that latter issue, Fox News is starting its campaign to stop Obama's big spending plan by stating - as assumed fact - that "historians pretty much agree" that Franklin Roosevelt prolonged the Great Depression, and that therefore, Obama shouldn't try another New Deal.

When I say Fox News' assertion about historians is patently false, they literally laugh at me as if I've said something so clearly untrue, something Americans supposedly assume is so obviously stupid, that it's worthy of ridicule.

The Depression issue was brought up by conservative pundit Monica Crowley - not surprising since this is the conservative talking point du jour ever since the "center-right nation" meme started looking humiliatingly idiotic and ever since fringe-right-wing bloviator Amity Shlaes published her since-discredited book claiming FDR essentially created the Great Depression. Crowley supported the "FDR ruined the country" meme with the very authoritative-sounding statement that "based on all kinds of studies and academic work done on the great depression" she knows that the New Deal's "massive government intervention prolonged the Great Depression."

Of course, she doesn't offer up a single study or "academic work" as any kind of proof, and yet, when I say her assertion is absurd, Fox News anchor Greg Jarrett starts laughing at me - as if my assertion that FDR's New Deal helped end the Great Depression is so fantastical as to prompt guffawing. Jarrett proceeds to state that historians "pretty much agree" that FDR prolonged the Great Depression, and resorts to insisting that he knows that's true because "it's in the books" - whatever the hell that means. Indeed, Fox wants us to believe that what was only very recently the deranged propaganda of a handful of conservative political pundits is now such a consensus opinion among historians that to say otherwise is to evoke laughter.

Now, it's true - back in 2004, two UCLA professors published a little-noticed report claiming the New Deal's government intervention prolonged the Great Depression. But that assertion has been subsequently eviscerated by, ya know, actual data.

Here's University of California historian Eric Rauchway:

For a start, New Deal intervention saved the banks. During Hoover's presidency, around 20 percent of American banks failed, and, without deposit insurance, one collapse prompted another as savers pulled their money out of the shaky system. When Roosevelt came into office, he ordered the banks closed and audited. A week later, authorities began reopening banks, and deposits returned to vaults.

Congress also established the Federal Deposit Insurance Corporation, which, as economists Milton Friedman and Anna Jacobson Schwartz wrote, was "the structural change most conducive to monetary stability since ... the Civil War." After the creation of the FDIC, bank failures almost entirely disappeared. New Dealers also recapitalized banks by buying about a billion dollars of preferred stock...

The most important thing to know about Roosevelt's economics is that, despite claims to the contrary, the economy recovered during the New Deal. During Roosevelt's first two terms, the U.S. economy grew at average annual growth rates of 9 percent to 10 percent, with the exception of the recession year of 1937-1938...

Excepting 1937-1938, unemployment fell each year of Roosevelt's first two terms. In part, the jobs came from Washington, which directly employed as many as 3.6 million people to build roads, bridges, ports, airports, stadiums, and schools -- as well as, of course, to paint murals and stage plays. But new jobs also came from the private sector, where manufacturing work increased apace.

This basic fact is clear -- unless you quote only the unemployment rate for the recession year 1938 and count government employees hired under the New Deal as unemployed, which conservative commenters have taken to doing.

So, as Rauchway says, the hard data about bank closures, job creation and overall economic growth rates proves the regulations and spending of the New Deal helped end the Great Depression. In fact, Rauchway notes that the data actually suggests that the major, data-driven criticism of the New Deal is that it didn't spend enough money fast enough.

But, OK - let's say you want to cherry pick the unemployment numbers like a right-wing pundit. Let's say that, as Rauchway notes, you are a conservative dittohead totally comfortable dishonestly "quot[ing] only the unemployment rate for the recession year 1938 and count[ing] government employees hired under the New Deal as unemployed." Shouldn't you be blaming conservative ideology, and not New Deal-ism, for those numbers? After all, as Paul Krugman recently explained to a stunningly ignorant George Will on ABC News, 1937-1938 was the period Roosevelt dialed back the New Deal in the name of conservative demands that he stop spending:

By 1937 things were a lot better than they were in 1933. Then [FDR] was persuaded to balance the budget or try to and he raised taxes and cut spending and the economy went back down again and then it took an enormous public works program known as World War II to bring the economy out of the depression.

So with all of that data, let's go back to Fox News' main assertion: Is it really true that "historians pretty much agree" that the New Deal's government intervention prolonged the Great Depression? Of course not, as New York Times economics writer Daniel Gross says:

It was only with the passage of New Deal efforts--the SEC, the FDIC, the FSLIC--that the mechanisms of private capital began to kick back into gear. Don't take it from me. Take it from Federal Reserve Chairman Ben Bernanke, who wrote the following in Essays on the Great Depression: "Only with the New Deal's rehabilitation of the financial system in 1933-35 did the economy begin its slow emergence from the Great Depression."...

The argument that the New Deal's efforts "perhaps had prolonged, the Depression," is a canard. One would be very hard-pressed to find a serious professional historian--I mean a serious historian, not a think-tank wanker, not an economist, not a journalist--who believes that the New Deal prolonged the Depression. (emphasis added)

In other words, it's the opposite of what Fox News says. "Historians pretty much agree" on one thing when it comes to Roosevelt: The New Deal helped end the Great Depression. But I would go even further than that, and agree with economist Brad DeLong who said that whether you are a historian or not - to argue what Jarrett and Crowley argued today is to publicly declare oneself as divorced from the facts as the most ridiculed conspiracy theorists. As DeLong says, "A normal person would not argue that the New Deal prolonged the Great Depression."

But, then, these are not "normal people" - those making these arguments are right-wing automatons whose claim that we shouldn't look at actual data, we should simply accept the truth of their claims because they insist "it's in the books!" or they've supposedly seen "all kinds of studies and academic work" that proves their hysteria true.

Of course, the good news is what I said on Fox News before they cut me off: While the right's historical revisionism is dishonest, it's doing progressives a big favor.

If the right wants to try to stop a serious economic recovery package and financial regulations by trying to vilify one of the most popular presidents and popular policy programs in American history, then I'll say what George Bush once said: Bring it on. Every high school civics class teaches the broad truth about Roosevelt, the New Deal and how it helped end the Great Depression, and if the conservative movement has gone so off the deep end that they want to make crazy-sounding arguments that even high schoolers know are silly, then the progressive movement is in an even better position than we may have thought.

Bin Laden's New Weapon of Mass Destruction

Robert Borosage — Wed, 24 Dec 2008 09:48:33 -0500

Longtime friend, Mark Steitz, an irrepressible Washington wit, described the potential threat posed by Osama bin Laden's new arsenal:

If bin Laden were smart, he'd disband his terrorist cells, and instead buy ad time on radio and TV stations. The ads could be simple: 'Remember Americans, Your mortgage is a non recourse loan. You can walk away.' Now that would be explosive.

As always, Steitz has a point. First American CoreLogic, a real estate data company, estimated that 7.6 million American homeowners were "under water" at the beginning of October, with another 2.1 million headed there. For one in four homes with mortgages, the amount owed on the mortgage is greater than the value of the house. And it's getting worse. Over the last two months, housing prices have continued to plunge. Some experts estimate as many as 19 million homeowners could be under water by 2010. That would be about half of all homes with mortgages.

Most mortgages on personal residences are non-recourse loans, secured only by the value of the house. The lender has no recourse to any other assets of the borrower. This leads to an awkward economic truth. If homeowners were "rational economic actors," as free market fundamentalists assume they are, they would turn in their keys to the banks and walk away. They've already lost their down payment. Many are struggling to pay a loan worth a lot more than the property they own. They'd be better off cutting their losses and renting a new home. If they have savings, they can wait for prices to settle and buy in at the lower price.

But if a large portion of 10 million homeowners did the economically rational thing tomorrow, they would blow up the financial system, with banks still laden with mortgage-backed securities that haven't been written down to their foreclosure value. And mass foreclosures would drive housing prices down even farther, with particularly devastating effects in the epicenters of the housing collapse, California, Nevada, Florida, and Arizona. That would deepen an already harsh recession, and shake once more the foundations of the banking system the Federal Reserve has committed over $8 trillion trying to shore up.

This is, incidentally, why mortgage relief is so difficult. Writing off excessive mortgages so 19 million homeowners can get an affordable mortgage at say 90% of current value could cost literally trillions of dollars. With housing prices continuing to plummet, not helping them means the financial system is being buttressed on top of a time bomb.

Washington is beginning to direct its attention to home prices and foreclosures. The Federal Reserve has lowered interest rates to zero, while pushing mortgage rates lower. The Treasury is talking about having Fannie Mae and Freddie Mac purchase mortgages at 4.5% interest rates. The FDIC's Sheila Blair, a lonely hero in the Bush administration, wants to spend $24 billion to help some 1.5 million homeowners avoid foreclosure. Rep. Barney Frank has insisted that mortgage relief be central to the expenditure of the last half of the $700 billion given the Treasury Secretary for the bailout of bankers. President elect Barack Obama has called for a 90 day moratorium on home foreclosures, while more comprehensive plans are put into effect.

Steitz, of course, was kidding about bin Laden, but his wit raises another question. Defense Secretary Robert Gates, who will be retained by Obama, has announced plans to add "well north of " 20,000 US troops to Afghanistan, and to sustain over 50,000 troops there indefinitely, while the US commits billions to build a nation in that land of fierce ethnic and tribal rivalries, and centuries long resistance to occupiers. "This is a long fight, 'Gates said. "I do believe there will be a requirement for sustained commitment here for some protracted period of time."

Afghanistan, of course, is the central front in the war on terror. But perhaps we'd be wiser to leave bin Laden in his cave, abandon the entire wrong-headed misnomer of a "war on terror," and give up attempting to build a new democracy in a country on the other side of the world. Make aggressive global policing, intelligence sharing, and a crackdown on financial flows the core of our reaction to bin Laden, and focus our resources and attention on the crisis here at home, which remains truly terrifying to anyone who looks at it closely.

Maddow Busts Morgan Stanley Board Member for Lack of Transparency

David Sirota — Wed, 24 Dec 2008 07:52:09 -0500

Last night, Rachel Maddow did something I never thought I'd see a journalist do: In the name of transparency, she went back and clarified that a bailout-justifying guest of hers actually had a blatant conflict of interest. Watch the clip here.

On Monday, Maddow had on Berkley professor Laura Tyson to talk about the bailout. You can watch that clip here. As you'll see, Tyson defended the firms that have received bailout money, saying they are not at fault in either how they are using the money, or in how they are refusing to answer questions about their use of the money. She also insisted that companies that get bailout money should be able to keep paying dividends to their shareholders.

Yet, Tyson didn't tell viewers that she sits on the board of directors of Morgan Stanley, a bank that has received $10 billion in bailout money. That's right - according to Morgan Stanley's SEC filings, Tyson makes about $350,000 a year from Morgan Stanley in total compensation from that position, and she now owns about 79,000 shares of the company. In other words, she has a direct financial interest in defending the bailout, absolving bailout recipients of wrongdoing, and justifying the use of bailout money for shareholder dividends.

Obviously, it's really unethical to appear on a show billing yourself as an objective disinterested professor at the same time you aren't telling people you are on the board of directors of the company you are effectively defending. But, as a recent New York Times story about defense commentators shows, this kind of thing happens all the time. It's completely corrupt - quite literally, paid industry spokespeople are being allowed to cloak themselves in the veneer of objectivity and use the media to limit the parameters of our political debate on major issues.

Thankfully, when I pointed Tyson's conflict of interest out to Maddow and her show's staff, they did the responsible thing and made a big effort to inform viewers about what happened. Indeed, in doing this follow-up piece, the Rachel Maddow Show displayed the kind of integrity and respect for their audience that is almost unheard of in political journalism. In being so honest about this, they really showed what their program is all about, and how they aren't willing to be used or deceived by corporate spokespeople.

Executing the Main Street Economic Recovery Program Equitably

Susan Ozawa — Mon, 22 Dec 2008 16:14:25 -0500

Given the male dominated nature of construction and heavy manufacturing involved in infrastructure projects Eileen Appelbaum, at the School of Management and Labor Relations and Director of the Center for Women and Work recommends that proposals pushing infrastructure investment include construction of child care centers and additional space to accommodate expanded pre-K programs. Appelbaum also recommends including in this investment funds targeting training historically marginalized workers and incentives alongside other mechanisms to ensure these jobs are distributed equitably.

A petition along these lines can be signed here. Progressive economists highlight the importance of the quality of the jobs created, pushing for those receiving recovery funds be held accountable to create jobs with livable wages, health insurance, paid sick days, paid holidays and vacations. Monitoring and oversight to ensure transparency is fundamental. Provisions are outlined by the National Partnership for Women & Families here.

Endorser of the Main Street Recovery Program, Randy Albelda, professor of economics and Senior Research Fellow at the Center for Social Policy at University of Massachusetts Boston, highlights the need to address our severe deficits in social infrastructure as well as physical infrastructure. The Main Street Economic Recovery Program emphasizes spending on education, health care and child care, recognizing these should be down payments on larger reforms in our domestic budget priorities.

Signatory, Robert Drago, Professor of Labor Studies and Women's Studies at Penn State University further highlights the economic benefit of child care funding. The multiplier effect embodied in services is stronger than pure construction partly because child care workers earn less, but also because infrastructure investment is capital intensive and can involve foreign inputs although the Main Street Recovery Program emphasizes procuring domestic supplies. You can find Drago’s full argument here.

Following this lead, the Direct Care Alliance has laid out a series of recommendations to President-Elect Obama here. To avoid the kinds of jobs created after Katrina, to begin to set in order our ailing economy and to redirect our comprehensive infrastructure priorities these recommendations offer sound guidance on executing a progressive Main Street Economic Recovery Program that can benefit us all.