There are some very disturbing sounds coming from the President-Elect. Even more disturbing is that only a small number of people in the progressive blogsphere have picked up on what’s been said.
Stirling Newberry warned yesterday that Obama Puts New Bank Bailout in Stimulus Bill - allowing financial companies to use losses in this crisis to “recover” taxes paid on profits going back five years! As Newberry notes, “The Wall Street Journal calls it a bonanza.”
But even worse, is what Obama had to say about what he is considering now:
“We expect that discussion around entitlements will be a part, a central part” of efforts to curb federal spending, Mr. Obama said at a news conference. By February, he said, “we will have more to say about how we’re going to approach entitlement spending.”
I think David Stout and Edmund L. Andrews have it exactly right when they begin their New York Times article:
Changes in Social Security and Medicare will be central to efforts to bring federal spending in line, President-elect Barack Obama said on Wednesday, as the Congressional Budget Office projected a $1.2 trillion budget deficit for the fiscal year.
Dean Baker has an interesting take on what Obama said about “entitlements”: Obama Suggests Defaulting on the National Debt.
These two things should be setting off alarm bells already. But Newberry does us the discourtesy of adding some historical context, by quoting Martin Wolf:
Welcome to 2009. This is a year in which the fate of the world economy will be determined, maybe for generations. Some entertain hopes that we can restore the globally unbalanced economic growth of the middle years of this decade. They are wrong. Our choice is only over what will replace it. It is between a better balanced world economy and disintegration. That choice cannot be postponed. It must be made this year.
As Stilring notes in a different article, this one on The Agonist:
An economic package facing a significant downturn has three parts: relief, restructuring, and recovery. Relief is to ameliorate the pain in the immediate context - this is done primarily by "counter-cyclical" policies like Unemployment insurance and other forms of direct aid. Restructuring is designed to move resources from wasteful activities to more productive ones, and recovery is designed to create a long term stream of sustainable demand and supply that will attract private investment. Obama's plan can best be described as "Better Bush": a tax cut and war spending driven plan which at least includes the no brainer steps of infrastructure and counter-cyclicals.
Newberry’s takedown of the Obama stimulus plan is trenchant and merciless, and very much worth the time. Ian Walsh also had a good critique of the Obama stimulus plan three days ago: A Stimulus Bill with 40% in Tax Cuts Won’t Do the Job
the only economic policy that Obama really really believes in is tax cuts. During the election, even when no one really cared, he would keep repeating, over and over and over again, that he was going to cut taxes.
The problem is that giving money to people without pricing power (most middle and working class people) is pointless. People with pricing power, like health care providers, credit card companies (who can and will raise rates) and employers (who will take into account that their workers are now taking home more money and thus don't need as much from them) will simply take the money away. And at this time workers and ordinary consumers just don't have pricing power.
Likewise corporations are not going to create real new jobs if there's no demand. Who wants to invest into this economy? This isn't an economy where you hire new people, it's an economy where you take any money you've got and you use it to buy up distressed competitors and properties at generational lows. Then you rationalize your new acquisition with your own company by laying people off. We've just spent the past few months watching this play out in the banking industry, heavily subsidized by the government, now we're going to have to watch the government subsidize buyouts of non-financial companies. If at first giving money to corporations (banks) doesn't work, why not try it with even more companies?
In stark contrast to the disappointing neo-Chicago pablum coming from Obama is the article by David Cay Johnston, former New York Times correspondent, and author of Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You With the Bill), in Mother Jones a few days ago. Johnston provides a point by point guide to how to dismantle some of the most glaring abuses of the corporatist state that has developed since the Reagan revolution. It is a very powerful article, full of great zingers, and you should take to time to read it in full. Here’s my favorite part:
In 1983 just 10 percent of America's corporate profits were funneled through places that charge little or no corporate income tax; today more than 25 percent of profits go through tax havens. The Obama administration could tell the Caymans—now fifth in the world in bank deposits—to repeal its bank secrecy laws or be invaded; since the island nation's total armed forces consists of about 300 police officers, it shouldn't be hard for technicians and auditors, accompanied by a few Marines, to fly in and seize all the records. Bermuda, which relies on the Royal Navy for its military, could be next, and so on. Long before we get to Switzerland and Luxembourg, their governments should have gotten the message.
Barring gunboat diplomacy (tempting as it is), there is no reason we cannot pass laws to block financial transactions with tax havens or even, Cuba-style, make it a crime for Americans to visit or do business with them without special permission. Congress could declare the hiding of funds a threat to national security and require that anyone with offshore assets disclose them to the irs within 30 days and pay taxes, interest, and penalties within 180 days. For the holdouts, temporary special teams in the IRS and Justice Department could speedily pursue civil or criminal charges.
I really wonder if most people understand the historic nature of the days we live in. The world’s financial system has collapsed. Trillions of dollars have been looted from the public, and from our future. Now is the time to propose and win fundamental changes – and Johnston has given us over a dozen solid, substantial examples of much-needed policy changes. The key question is: Will we ever see similar proposals from Obama and his team?