Feb 28th Topic: The Bush Economy and the Middle Class

9:00-11:30 am – Panel: Paul Krugman with Thom Hartmann and Marc Sussman
Topic: The Bush Economy and the Middle Class

Intro – Bush’s policies are a form of looting.

Paul Krugman

What people usually do is contract Bush v Clinton years. The best years of Bush are worse than the worst years of the Clinton years… But this is an unfair comparison – to Bush. We’ve forgotten what an economy that’s good for the middle class looks like. It hasn’t been good for the past 30 years.

Politics managed to change the direction. (note: Read his latest book, Concience of a Liberal).

Tax rates have changed – bad for the middle class. Eating away of the social services, tho not as much as the right wanted.

Conclusion I’ve come to – more subtle things – shift in the balance of power. FDR in reverse. Example – enforcement of labor laws , or lack thereof. NLRB ruled supervisors can’t unionize. Define supervisor? Anyone who ever gives direction to anyone else. (Yikes!) Removal of informal constraints from paying CEOs 1000x what their workers get.

Shift of power already began before Reagan took office. Has led to severe polarization. Result we’re more productive and rich than in 1973 but it’s arguable that the middle class is better off.

Middle class has consistently done worse under Republicans than Democrats. Even under Carter. Bush economy has one feature that is politically gratifying. Underlying bad news will not be matched by a last minute recovery (which has worked for Republicans in the past)

Two worst economies in past history were both under men named Bush.

Thom

News today- Bernake signaled his readiness to bolster the economy with cheaper money. But top priority is fighting recession. Thom thinks their making it worse and in January the next President will have a bad mess to deal this.

Paul says he would be doing what Bernanke is doing except I would do something about the banking mess. What has everyone scared is the specter of Japan – deflation. They had overblown real estate, etc. Turned into a 10 year recession. Many say this could have been avoided. As for inflation – the Fed story, which is probably right – oil prices high, food prices high, etc. China becoming a larger consumer nation. There is no wage in the wage-price spiral. So inflation is a huge blip.

So Thom’s theory may or may not be true. He’s reasonably sure that Bernanke is sincere. Financial system lost its bearings. In 1931 terrible banking crisis. New deal solved it by new regulation. Clinton pulled the plug on glass ceiling. Now, we’ve had hedge funds, etc… markets did an end run around regulations. We need to fix this. Only action right now is coming from state officials – Andrew Cuomo and Elliot Spitzer in NY, for example.

Back to Paul – starting in the 70s, picking up steam in the 80s, repudiation of the New Deal (Limbaugh – “Roosevelt is dead!”). Massive deregulation, insane trade policies, war on labor.. I call this administration a “kleptocracy”. Destruction of fundamentals were well under way before Clinton, but he made things worse with things like NAFTA. People are waking up to this.

Marc
We don’t see what the real problem. We need to look at money in a different way. Introduced Dr. Lynn Twist. Life is like a game of musical chairs. There aren’t enough chairs for all of us. Captains of industry understand this. We have 2 titans – Bill Gates and Warren Buffet – see this. But Gates needs to fix Microsoft and Buffet invests in China and says it’s not his job to tell China what to do.

The sub-prime mortgage crisis where banks are negotiating with the brokers and not the home-owners. Brokers insisted on banks lending money to people who couldn’t afford the mortgages as presented.. This is awful.

Letter coming with your “stimulus” money “Here’s your money, just want you to know we have no idea what we’re doing with your money or how to fix the problem”. (Mark’s idea of what the letter will look like).

Questions

Are we going to end up with razor wire around wealthy properties…?

Paul answers - it’s possible that things will get really catastrophic. What’s happening – every week some unknown market implodes. So we have no way of knowing what’s next. No regulation, no controls. It’s falling apart. So it’s a race to see if new “fixes” can prevent a depression and have “only” a recession. But it will last a long time. Dirty little secret about the Fed, it’s about housing. And there’s nothing they can do about housing right now, so it’s hard to engineer a recovery.

Social Security – Krugman: has a dedicated tax. It’s in very good shape in spite of pessimistic projections. The crisis is an invention of people who want to dismantle it. What drives them is the projected cost of health care in Medicare. That’s not a SS problem, it’s a health care issue. If we solve that, SS projections go away. Krugman is worried about private debt. There is something like $7b of wealth that is in the housing market that will go away because of debt. People will walk away from their houses. Will cause a big problem (more) in banks.

Value of the dollar – impact of lowered value? Thom – value of currency has to do with variety of perceptions. When Reagan came in we were the largest creditor and exporter of finished goods – now we’re the largest debtor, largest importer of goods, etc. Paul: Europe is a creditable alternative now. Technological level basically the same as ours, good financial markets, better health care system. Now Euros are a good place to put investments. In the short term, fall in the dollar is a good thing. Exports are rising, US products are looking more attractive worldwide. We also have one good piece of luck – our foreign debts are in dollars, so when the dollar falls, our debt doesn’t go up (as it did in Argentina when their debt in dollars with the decline of the Argentinean peso tripled their debt).

What about the debt incurred in Iraq? Krugman– relative to the economy, Iraq is running about half of what VietNam was. So – is $10B enough to cripple the economy? No. If you ask what we could be doing with that money, it’s very different. But this isn’t a realistic alternative right now, under Bush.

Unions – in airlines – SW Airlines most profitable and strongest unions. Krugman: 1969 GM largest company, strongest union, salary ~$25,000. Today – Wal-Mart largest company. Best salary ~$18,000.

When to get out of the market? How to invest? Marc – If you have the time, take the long term view -invest in companies that are going to help solve the problems – agriculture, energy solutions, etc. Pay attention to what’s in your mutual funds.

If we had to fight a war today, we couldn’t because we no longer have the manufacturing to support it. So if we truly had a security crisis, where are the resources? Krugman: We’re capable of doing incredible things if we have the will. I don’t agree with the doomsayers. These look like problems because we don’t have the leadership.

Could US bail on its retirement benefits to govt employees? Krugman: Governments do go bankrupt, but we’re more likely to default on debt to China before pension obligations. But in the end we’ll honor the obligations. Progressive revolution will make it happen. A new New Deal. Thom: the economy is here to serve us, not the other way around. Marc – we’re going to have to give up the unfair treatment of capital gains vs wages.

The stimulus package – purpose? Thom: nice to help bail out banks because people will use it to pay down debt. Krugman: purpose, from the point of view of Congress, is aboveboard. Housing is collapsing, consumer spending is decreasing. It’s to buy time til other things can be figured out. It’s a lousy plan, little bang for the buck. Things that would have been helpful – increased unemployment benefits, etc, but Bush would have rejected all that. There will be no change until change of administration. Marc: Wall Street said “it’s not nearly enough”.

Greatest confidence Obama and Clinton wrt the economy?

Marc: I believe Obama will be the next president. My greatest confidence is that he is less connected to corporate America than anyone else. I worry about the people he will surround himself with people who may or may not have the courage to do what is necessary. Clinton – with Bill, would be a very strong leader. Marc questions Bill’s moral fiber.

Thom: Good that Hillary is distancing herself from some of the economic policies of Bill. Obama – he ran in Illinois on single-payer but doesn’t now. Edwards had the best plan.

Paul: both candidates have very good economic advice. Hillary also knows financial economic stuff very well. Unclear from Obama. On health care: Hillary’s plan IS the Edwards plan. Goal from both: Medicare for all. Obama has shown a tendency to weaken or soften the progressive plan. Stimulus – Clinton’s plan looked more like New Deal, Obama’s was rebates. For 35 years right-wing “free market” has dominated. I’m less optimistic than I was 6 months ago.

what a fabulous session!