December 16, 2010

Half of what I say is meaningless

Wow, an actual person validating my own preconception:

"The whole country is now seeing the story that Michigan has been living with for a long time," said Diane Swonk, chief economist at Mesirow Financial. "We have kicked the can so far down the road that now all we have is a cliff to fall off."

"The recession merely revealed a reality that has been with us for a long time. We faced a growing gap in education and skills that we tried to fill with debt and credit, which gave us the illusion of growth."

I have long thought that the Official Story, that the "financial crisis" was itself alone responsible for our current economic disaster, was a case of whistling past the graveyard. The quote above was from a recent Reuters article which delved deeply into U.S. economic history from the 1960's to the present in a more comprehensive treatment of the origins of the American dilemma than one ordinarily encounters. ("Is America the Sick Man of the Globe?") [Note to TJR: a witty play on the old line about Turkey, huh?]

(Those are Diane's pictures, by the way, posted in her honor. Help me out on this, but I think the ring on Diane's left hand is on the middle finger, right? Just checking.)

Reuters goes into a lot of detail about the decline in American manufacturing in the decades since our economic heyday 40 to 50 years ago. At one time, for example, manufacturing accounted for 28% of our GDP; today that number is 11%. In the 1950's about 15 million Americans were employed in manufacturing, a number that has never been surpassed although the population has nearly doubled.

During Reagan's benighted reign, the graph lines representing "financialization" and "manufacturing" crossed paths, with the fast money boyz in the ascendant and the blue collar guys, the backbone of the economy, on the way out. About 40% of corporate profits now are attributable to the FIRE section (finance, insurance, real estate). It used to be that an American worker with only a high school education could nevertheless achieve a middle class standard of living for his family through the engine of American manufacturing prosperity, but those days are long gone. To keep the game going, we substituted debt in all its myriad forms - mortgages, lines of credit, credit cards, the national debt, until we reached the point that total societal debt reached 130% of total GDP. And then the entire house of cards began to teeter and, finally, to collapse.

Diane Ms. Swonk, who graduated from the University of Michigan, a fine public institution just like my own alma mater, no doubt has seen first hand the ravages of the hollowing out of the once mighty United States, the epicenter of which is in Detroit and its environs. (Ms. Swonk: if you're Googling yourself and come across this post, that's a fairly recent photograph of me taken in the subway in New York City, although I now sport a rather dapper [if I say so myself ((hey, I guess I just did!))] mustache. So try to picture...) Where was I? Okay, so the point being that...

The point being that in the face of this huge catastrophe, at last brought to full fruition, our political and media institutions are so bereft of new ideas, and so fundamentally dishonest, that they just won't face these awful truths. The weekly pep talks from Tom Friedman are a case in point. He calls for a "reset" et cetera blah blah blah, or whatever computer-tech-derived term he thinks is cool at the moment. The timeline for our recovery is always ludicrously short, as if decades of neglecting education and technological innovation (and training workers to participate in such new fields, such as alternative energy) can be remedied between his Wednesday column and his Sunday cerebro-spasm. Congress and the White House are the same way; it's all tax breaks all the time, or an extension of unemployment benefits, or a crash program to fix as many potholes in the roads as we can immediately fund. Beyond these largely empty gestures, both political parties appear to believe that solutions to real world problems can be fixed by adherence to a particular "ideology." This is so fundamentally nuts.

Without the infusion of trillions of dollars in borrowed and printed money from the federal government, the American economy would, right now, reflect the real further deterioration in our circumstances which has occurred since September of 2008. The elected leaders act as if they are doing us a favor by perpetuating the illusions of "recovery" through goosing the Dow Jones via Federal Reserve injections of fake money or dumping trillions of hallucinated largesse on the vast legions of the unemployed. Anything, anything, to avoid facing the truth. Simply keep denying the basic econo-thermodynamic laws. Never admit that those old jobs, the ones that supported the middle class of my youth (and Di-Di'sMs. Swonk's) are gone and are not coming back, and that the huge cohort of blue collar unemployed workers have no employment prospects for the future. Congress (with notable exceptions, such as Bernie Sanders) cannot admit that without admitting that in essence that economic policy in this country, for a very long time, has fundamentally betrayed the American commoner, the real worker, the foundation of our once-great economic edifice.

When you think about what is really going on, and how we got here, you can see how pathetic the "Keynesian stimulus" ideas of pundits such as Paul Krugman really are. The federal government cannot run yearly budgets of $3.6 trillion against income of about $2.2 trillion and survive forever, and anyway, returning to an economy built on an illusion will not last. I don't understand why Krugman and his ilk can't see that. They imagine that early 2007 or so was some halcyon period in American history, and if we could just get back there... Instead of seeing it for what it really was, the end of the line for a failed economic theory (the empire of debt). Even if we could re-employ all those disenfranchised folks by getting their Best Buy "sales representatives" or Wal-Mart "greeter" jobs back, it could not last, because the actual earnings of Americans (on which we are now going to have to rely) will not support the level of consumption that temporarily made such jobs possible.

These stimulus advocates propose making the situation worse as a way of making it better. Flooding the system with borrowed and printed cash is not going to lift America's educational standards from 15th in the developed world to its former competence. That would require a re-recognition that public education is a positive good, a necessity, of a functioning economy, and such a realization is nowhere to be found. Instead, the American economy will be the victim of our decades of cultural and educational neglect for years and years to come, as the ranks of the hiring pool are filled with victims of our lousy schools. You don't clear out such problems with a short-term "stimulus" jolt, no matter how many "reset" columns Tom Friedman writes. News cycles are one thing, the cycles of Reality quite another.

Sometimes I feel very alone, except for, well you know...I'm not trying to come off like Winston Smith to her Julia, and anyway, I'm not sure the Eurasian authorities will even let me talk to her at this point, but

December 13, 2010

Obamacare hits a snag

Few Constitutional provisions get half the workout of the Commerce Clause, that Article I, Section 9, Clause 3 prerogative of the federal government

"To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes".

This is the essential wellspring of the power of the central government to get involved in state matters where the Constitution does not confer primary jurisdiction on the feds (for example, the exclusive federal jurisdiction over bankruptcy, or the law of the high seas, or America's biggest business, war). As a good, die-hard liberal, I have mixed feelings about the overuse of the Commerce Clause. On one hand, without the liberal use of the Commerce Clause, it would have been much harder to rein in the abhorrent practices under the Jim Crow laws. "State action" (such as public education or voting rights or access to the courts) is governed by the Due Process and Equal Protection Clauses of the 5th and 14th Amendments; but private prejudice, such as Rand Paul's desire to return to the days when a black family caught out in the rain and seeking shelter in a Kentucky motel could be turned away as an exercise of the motel owner's "freedom" (his freedom equating to the family's consequent need to drive on up the road to, oh say, Pennsylvania). Or lunch counters in Montgomery, Alabama, or a swimming pool in Macon, Georgia. The Civil Rights Movement was given a tremendous boost by expansive interpretations of the Clause.

On the other hand, I'm also a "small d" democrat in basic agreement with Thomas Jefferson's idea that the government is best which governs least. A pervasive, all-power central government can guarantee civil liberties, but it can also threaten them through NSA spying, TSA sexual assaults at the airport, or an out of control military-industrial complex. No one in this day and age can convincingly argue that the central government is too small.

Along comes today's ruling by a federal judge in the 4th District in Richmond, Virginia holding that the mandatory purchase of medical insurance under the recently-passed health care bill is unconstitutional, to wit, not permitted by the Commerce Clause, and thus an overreach by the central government into areas of state control. Essentially, Judge Henry Hudson concluded that an individual's decision (and resultant inaction) in not buying insurance cannot be "interstate commerce" because the individual...didn't do anything. The language is fancier than that, of course, but that is the essence of it, metaphysical as it may seem (what is the sound of a wallet not opening?, and other Zen koans). Thus, the federal government has no right to force, on pain of monetary penalty, an American citizen to interact with a private insurance company in order to make the actuarial basis of Obamacare viable.

There is, of course (if your mind runs in the same channels mine is most comfortable) a delicious irony in all of this. Had the spineless Dems and the Lawn-Chair-in-Chief offered a public option as part of the solution to the national disgrace of American health care, this problem would not exist. An "option" to buy insurance from a government plan not only (a) would have acted as a serious brake on out-of-control, predatory pricing by the insurance cartel, but (b) is by its very nature proactive, positive action and thus, of course, covered by the Commerce Clause. The federal government can constitutionally regulate the purchase of health insurance on an open, interstate exchange where the government is itself the vendor.

I don't know whether this decision will hold up or not. It seems a little too cute by half. A Zenesque interpretation's survival all the way through the Supreme Court seems iffy at best, for whether or not the individual's inaction is interstate commerce, there is little doubt that the whole business of medical insurance most definitely is (hell, if the feds can regulate the sign-in desk of the R-U-Lonely Motel on the outskirts of Nashville because it's in interstate commerce, they can regulate this), and the mandatory purchase requirement is part of that entire scheme. The judge (a George W. appointee) didn't like the Big Government plan, obviously, and did what judges can do with the vague language of the Constitution and the sketchy guidance of case precedent: he made things turn out the way he wanted them to, and he didn't like the coercion involved in making people buy products from private industry (I don't really like it much myself). The Department of Health & Human Services, as defendant, pointed out that many states make residents buy car insurance if they want to drive, but Judge Hudson distinguished these cases by noting that one can avoid buying auto insurance by not driving, whereas, one has to buy health insurance under Obamacare by virtue of one's "very existence." Hudson might be in the wrong field; he should probably be teaching existential philosophy at the Sorbonne.

Interestingly, however, the Virginia trial court where this occurred (in a proceeding known as a Motion for Summary Judgment) is part of the notorious Fourth Circuit, which occupies the same approximate position for conservatives as the Ninth Circuit (based in San Francisco) does for liberals. It was not accidental that the Bush Administration, when it wanted to deprive an American of constitutional rights (such as Jose Padilla), was careful to incarcerate them within the compassionate confines of the Fourth (Padillia was in a Navy brig in South Carolina). That way the prisoner had to fight his way up through the brutual jurisprudence of the trial courts and appeals court of the Good Ol' Fourth, Confederate flag waving in the background. Ah such glorious memories of our Gulag past! Aren't you glad Obama was quick to reverse all this nonsense? Oh that's right, he didn't.

Thus, the appeal by the Department of Health & Human Services will be to that same Fourth Circuit Court of Appeals, where the Bush-Cheney-Rumsfeld gang had what little judicial success they enjoyed in their war on the Constitution. There is another Virginia case from Lynchburg on essentially the same issue which recently went the other way, so the Fourth Circuit will have to decide which one they like the most. Make no mistake, judicial decisions interpreting vague language such as the reach of the Commerce Clause are far more political than "legal," whatever that may mean.

Ultimately, of course, this mess will wind up in the weird clutches of the Roberts Supreme Court. I don't know how the Robed Rascals will handle this one. One one hand, the court is conservative and sort of believes in states' rights (except where they have the opportunity to reinterpret state election law so they can appoint a president; see, Bush vs. Gore). On the other, these people are in the District of Columbia and hate giving away power. But I would surmise, just to thwart Obama and make him sorry he ever criticized the Citizens United case during last year's State of the Union, that Roberts, Alito, Scalia and Thomas might go with an anti-Obamacare ruling. Breyer, Ginsburg, Sotomayor and Kagan would probably go the other way. So we're where we always are: Judge Kennedy, essentially, is the Supreme Court.

It's what I've always loved about the law: it's so rigorous and scientific.

December 12, 2010

The Naive Manchurian Lawn Chair

I saw "Inside Job" at my local trendy-art theater recently and can report that it is a good, clear exposition of how the financial crash of 2008 came about. The movie is narrated by the sincere, trustworthy voice of Matt Damon, but the star of the show is the writer/producer Charles Ferguson, who never actually appears on screen; however, the intelligent, incredulous questions he asks of the various vermin who stupidly agreed to be interviewed for the documentary are the best part of the movie. Ferguson (who graduated from Berkeley in 1978 with a mathematics degree, then obtained a PhD from MIT in political science) is certainly a match for the shifty economists, politicians, investment bankers and other scum placed under his unrelenting microscope.

At the end of the movie, you have little doubt that American business and politics have descended completely into gangsterism. There is really no other word for it. I've been reading about all this stuff for a couple of years, particularly on sites such as, Karl Denninger's, Yves Smith and her and others, so I didn't really encounter too much that was new or surprising. The American people have been sold out by politicians who take bribes from a highly organized kleptocracy. Yawn. Who didn't know that? You learn in more detail just how vile all the people running the rackets and swindles are, the constant whoring (literally), cocaine abuse, obscene displays of wealth, tax fraud (putting their call girl bills on invoices marked "investment research," etc.). It is a world totally drenched in fraud, with no socially redeeming purpose whatsoever.

The only thing I noticed, watching the movie in a crowded theater, was that the reactions to the moronic visage of George W. Bush are different now. No booing or hissing, not even here in liberal Northern California. What's going on, I think, is that Bush is now seen as nothing particularly special. When you look at the Wall Street/Washington Complex, you realize it was given its first big impetus during the Reagan years, when the idea of government regulation was first characterized as an unmitigated evil. This attitude was carried forward by Bill Clinton, who often sided with pro-business, anti-government Republicans against his own party in passing such bad ideas as NAFTA and the repeal of Glass-Steagall, which gave tremendous impetus to the financialization of the American economy. Bush was kind of a bit player in all this; his focus was always on unnecessary wars, and he left the destruction of the American economy to others.

The movie does not spare Obama. It meticulously notes that all the same characters who promoted the deregulated and over-leveraged Wall Street of Clinton & Bush are still on the scene - Bernanke, Geithner, Summers, Rubin, Gensler, et alia. Nothing has changed. The FinReg bill accomplished nothing - just a lot of populist hot air. Obama's comatose Attorney General, Eric Holder, comes to life only when someone's First Amendment rights need to be squelched. All the frauds and thieves responsible for the financial crash are still running loose, still earning millions. There has been no accountability at all. Obama is forever Looking Forward, Not Backward.

Thus, the liberal side of the American political scene has turned the page on Obama. He's simply another part of the problem. My guess is that this latest fiasco, his collapse in the face of Republican demands that the Bush tax cuts be perpetuated, will turn out to be the last time that the liberal/progressive wing even expected Obama to do the right thing. It will be different now; his cooperation with Republicans, his betrayal of his campaign rhetoric, will be seen as de rigeur, nothing to even talk about. Jon Stewart, Bill Maher, Cenk Ugyur, Robert Reich, Glenn Greenwald, Matt Taiibi, all of the liberal pundits have markedly changed their tune in the face of this latest outrage.

The question for now, where Obama is concerned, is which of the three competing theories is closest to the truth: 1. Obama is in over his head, lacks leadership experience, and just gets taken (Naivete Theory). 2. Obama is in some way congenitally incapable of a fight; he doesn't like controversy or discord, so he folds to avoid unpleasantness, thinking the liberals will forgive him because they're nice, whereas the Republicans are meanies and must be appeased (the Lawn Chair hypothesis). 3. Obama is actually a Reagan conservative who's doing exactly what he always intended to do, shares no values with liberals, and sees the Presidency as a way to set himself up as a plutocrat in the coming years (Manchurian Candidate theory).

I'm beginning to think #3 is definitely the answer. There are definite elements of truth to Nos. 1 and 2; Obama doesn't intimidate anybody, and particularly in terms of organizing his agenda to do the most important things first, Obama is pathetic as a leader. This tax situation is a classic illustration of this problem. Why on Earth are the Democrats trying to negotiate this issue now, after the 2010 elections in which they got hammered, when they had a full two years, with overwhelming majorities and control of both houses, to deal with a Bush tax program which had been enacted in 2001 and 2003? Did it never occur to Obama that one way he might have ameliorated his $1.5 trillion yearly deficits was to roll back the top bracket giveaway to the "Inside Job" crowd?

Well, under Theory #3, it might have occurred to him and he decided he didn't want to do anything about it. More important to spend a year on driving more American citizens into the waiting clutches of the medical insurance complex.

Anyway, no wonder George W. Bush makes it a policy never to criticize Barack Obama in public. Obama's the best thing that ever happened to him.