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“Inequality Is Natural”: The Big, Long, 30-Year Conservative Lie

First came Occupy Wall Street, and its pitch-perfect slogan on inequality: “We are the 99 percent.” After that movement fizzled, Thomas Piketty, the handsomely ruffled French professor, released a 685-page book explaining that we really were living in a new Gilded Age in which the wealth gap was as wide as it had ever been. Finally, in June, one of the plutocrats sitting atop the piles of money he made in the digital revolution, Nick Hanauer, wrote an article in Politico magazine—it’s the most-shared story ever on Politico’s Facebook page—warning that the pitchforks were coming, and rich people like him should advocate for a healthier middle class and a higher minimum wage.

The debate over inequality is now raging, and most Americans are unhappy about the widening divide between the haves and have-nots. Hanauer has been making the same case for years, drawing heaps of both praise and scorn. Forbes magazine has alternately called Hanauer insane and ignorant. His TED University presentation calling for a $15-minimum wage was left off the organization’s website because it was deemed too “political.” That’s nothing next to Piketty’s detractors, who at their most extreme accused him of twisting his data.

Hanauer and Piketty inspire these broadsides because they are challenging, in a far more aggressive way than plutocrats and economists usually do, the conservative economic orthodoxy that has reigned since at least the 1980s. Under Ronald Reagan, we called it trickle-down economics, the idea that the men who can afford their own private jets—they’re usually men—deserve gobs of money because they provide some special entrepreneurial or innovative talent that drives the American economy.

That’s well known. Far less often discussed is the flipside of this belief: that helping the less well off will dampen the American money-generating engine—that it will hurt growth, because the only thing that inspires the “job creators” to work so hard is the promise of insanely vast financial rewards. Poverty is a necessary evil in this worldview, and helping the less well off creates a “culture of dependency,” which discourages work. “The United States thrives because of a culture of opportunity that encourages work and disdains relying on handouts,” Matthew Spalding of The Heritage Foundation wrote in 2012, neatly summing up the conservative ethos.

Conservatives have dominated discussions of poverty for a generation with arguments like this one. It’s completely wrong. It’s more than that—it’s just a lie, concocted as cover for policies that overwhelmingly favored the rich. But it took the worst economic crisis since the Great Depression for many economists, liberal or not, to finally say publicly what many had long argued: Inequality is bad for the economy.

The latest to say so is the rating agency Standard and Poor’s, not exactly a bastion of lefty propaganda. An S&P report released August 5 says that rising inequality—gaps in both income and wealth—between the very rich and the rest of us is hurting economic growth. The agency downgraded its forecast for the economy in the coming years because of the record level of inequality and the lack of policy changes to correct for it. The report’s authors argue against the notion that caring about equality necessarily involves a trade-off with “efficiency”—that is, a well-functioning economy.

To be sure, they’re not making a case for a massive government intervention to help low-income Americans. They discuss the benefits of current policy proposals—like raising the federal minimum wage to $10.10 per hour—with the caveats that such changes could have potential negative consequences—like dampening job growth. (Most economists agree that such a small hike wouldn’t have that impact.)

At its core, though, the S&P report does argue that pulling people out of poverty and closing the gap between the 1 percent and the 99 percent will increase economic growth. The authors argue for some redistributive policies, like increased financial aid for post-secondary education. “The challenge now is to find a path toward more sustainable growth, an essential part of which, in our view, is pulling more Americans out of poverty and bolstering the purchasing power of the middle class,” the authors write. “A rising tide lifts all boats…but a lifeboat carrying a few, surrounded by many treading water, risks capsizing.”

It’s an important moment for such a debate. The Great Recession was a great equalizer, a crisis in which many in the middle class, and even upper-middle class, fell all the way to the bottom and relied on the government safety net. They learned what anyone who cared to look at the data already knew: The vast majority of people relying on government benefits are suffering a temporary setback that they will recover from, as long as they have a helping hand. The holes in the safety net also became more apparent. Even Paul Ryan, the Republican congressman from Wisconsin who has set his blue eyes on higher office, adequately diagnosed many of the problems with anti-poverty programs when he introduced a new plan last month. (Whether he would actually want to pay for the changes he calls for is debatable.)

Closing the gap by lifting low-income families out of poverty could do more to help the economy than any number of tax credits for “job creators” might, which is what Hanauer argued in Politico. And the S&P report puts more support in his corner.

On the question of what to do, there is widespread agreement on boosting educational attainment and increasing salaries at the bottom end. Policymakers have had a lot of time to think about how to help the middle class, since real wages began declining in the mid-1970s. Many of the problems of inequality have policy solutions ready to go, spelled out in a white paper stuffed in someone’s desk drawer. Why has it taken so long to think about addressing it? Was the political might of the right so overwhelming that they couldn’t speak up until people like Hanauer saw, as he warned in his essay, that the pitchforks would be coming for them?

 

By: Monica Potts, The Daily Beast, August 8, 2014

August 10, 2014 Posted by | Economic Inequality, Plutocrats, Poverty | , , , , , , , | 1 Comment

“A Lesson Never Learned”: A Hostage Takeover By Any Other Name Is Still A Hostage Takeover

It was, to my mind, the worst thing an American major party has done, at least in domestic politics, since the Civil War. Last summer, congressional Republicans held the full faith and credit of the United States hostage, threatening to impose a catastrophe on all of us, on purpose, to achieve a specific (and unnecessary) policy goal.

It was a move without parallel. The entirety of a party threatened to deliberately hurt the country unless their rivals paid a hefty ransom — in this case, debt reduction. It didn’t matter that Republicans were largely responsible for the debt in the first place, and it didn’t matter that Republicans routinely raised the debt ceiling dozens of times over the last several decades.

This wasn’t just another partisan dispute; it was a scandal for the ages. This one radical scheme helped lead to the first-ever downgrade of U.S. debt; it riled financial markets and generated widespread uncertainty about the stability of the American system; and it severely undermined American credibility on the global stage. Indeed, in many parts of the world, observers didn’t just lose respect for us, they were actually laughing at us.

It’s the kind of thing that should have scarred the Republican Party for a generation. Not only did that never happen, the Republican hostage takers are already vowing to create this identical crisis all over again, on purpose.

House Speaker John Boehner (R-Ohio) will threaten Tuesday that Congress will not raise the debt limit next year without spending cuts greater than the size of the debt ceiling increase.

According to excerpts of the remarks Boehner will deliver to the Peter G. Peterson Foundation fiscal summit on Tuesday afternoon, the Ohio lawmaker will “insist on my simple principle of cuts and reforms greater than the debt limit increase.” […]

He will also tell the audience: “We shouldn’t dread the debt limit. We should welcome it. It’s an action-forcing event in a town that has become infamous for inaction.”

It’s not hyperbolic to characterize this as madness. Boehner is, in no uncertain terms, announcing that he and his party will deliberately hurt the country — and he’s calling his hostage-taking strategy an “action-forcing event.”

At a certain level, it’s true that holding a gun to someone’s head forces “action,” but it’s also true that such aggression tears at the fabric of the body politic.

I should emphasize that Boehner’s comments don’t come as a surprise. After the crisis was resolved last summer, the Center on Budget and Policy Priorities President Robert Greenstein explained, “Those who have engaged in hostage-taking — threatening the economy and the full faith and credit of the U.S. Treasury to get their way — will conclude that their strategy worked. They will feel emboldened to pursue it again every time that we have to raise the debt limit in the future.”

And that’s exactly what has happened. Senate Minority Leader Mitch McConnell (R-Ky.) told Fox News that the GOP-created crisis “set the template for the future.” He vowed, “We’ll be doing it all over” in 2013.

In case anyone’s forgotten, over the last 72 years — before 2011 — Congress raised the debt ceiling 89 times. Lawmakers from both parties, working with presidents from both parties, treated this as routine housekeeping. Preconditions have never been applied to this process, and neither party has ever used the law to hold the nation’s full faith and credit hostage. Clean debt-ceiling votes weren’t always popular, but they’ve been a standard American norm for generations.

Last year, radicalized Republicans changed the game, and they apparently have no intention of going back. This wasn’t a one-time hostage strategy, threatening the nation’s wellbeing in a fit of partisan rage; this was the creation of a new norm, to be repeated forever more. Why? Because the dangerous scheme worked — when radicalism is rewarded, the result is more radicalism.

Update: Incidentally, it’s also worth realizing that Boehner is demanding another debt-ceiling deal less than a year after breaking the terms of the agreement he reached last summer. President Obama is well positioned to ask a simple question: “If you won’t keep your word and honor your own agreements, why should I negotiate with you?”

 

By: Steve Beneb, The Maddow Blog, May 15, 2012

May 17, 2012 Posted by | Debt Ceiling | , , , , , , , | Leave a comment

Personal Parachutes: How Elites Could Profit From A U.S. Debt Crisis

Have you developed a hedging strategy to protect against America’s rapid decline? Or repositioned your portfolio to take advantage of orphaned Treasury securities? Or stashed some cash so you can buy distressed assets from the newly bankrupt?

If you’re like most Americans, the answer is, of course not. But if you work on Wall Street, the man-made debt crisis that’s brewing in Washington might represent a surprising opportunity to make money. As the whole world knows by now, the U.S. government will no longer be able to borrow money as of early August, unless Republicans and Democrats swallow their vitriol and come up with a compromise deal that will begin dealing with America’s oversized debt and allow the government to function normally. The nation’s mushrooming debt load is a big problem, but abruptly halting all federal borrowing would transform it into a disaster, since it would require vast government spending cuts that would promptly trigger another recession.

The ongoing assumption is that legislators will puff and posture until the last second, then congratulate themselves for making a deal that should have been in place months ago. But even if politicians avert the worst-case scenario, the size of the debt and the deep dysfunction in the nation’s capital are likely to cause other trouble. It’s increasingly likely, for instance, that rating agencies like Moody’s and Standard & Poor’s will cut America’s credit rating from AAA—the top rating, which the United States has held for decades—to a notch or two lower. That would force thousands of institutional investors to determine whether they can keep holding Treasury securities or whether they need to dump them. Even small spending cuts that come as part of a deal to raise the federal borrowing limit could cut into weak economic growth, especially if they go into effect immediately.

The knock-on effects of a U.S. debt downgrade, sharp spending cuts or a “policy mistake” in Washington could rattle financial markets, depress hiring and drive confidence back down to recessionary levels. But smart investors know that one man’s crisis is another’s opportunity, and the monied class is planning how to profit if America goes bust. As the New York Times reported recently, some hedge funds are stockpiling cash, to buy U.S. government securities at fire-sale prices if there’s a credit downgrade and conservative investing vehicles like pension or money-market funds are forced to dump Treasuries. Others are trying to identify institutions that might be damaged by a U.S. debt crisis and forced to sell assets that vulture investors could buy on the cheap. Another way to gamble on America’s collapse is to invest in credit-default swaps that would pay out if the United States defaults on its debt. The price of such insurance has doubled recently, indicating a lively market for bets against America.

The modern financial markets are sophisticated casinos that allow steely investors to gamble on almost anything, including gloom-and-doom scenarios that could potentially harm millions. Though it might sound unctuous, betting on the likelihood of adverse events is a healthy part of a free market, because it creates an even stronger incentive for those who would suffer from bad outcomes to prevent them—and punishes those who destroy value, such as CEOs who mismanage their companies. But it doesn’t always work that way, and besides, this kind of gambling is generally open only to professional investors or those wealthy enough to have experts handling their money.

In his 2010 financial disclosure forms, for instance, House Majority Leader Eric Cantor listed a small investment in a fund that bets against U.S. Treasury securities and would benefit if the U.S. government defaulted or something else happened that devalued Treasuries. That became controversial, since Cantor is one of the key Republicans involved in the debt negotiations and a conservative stalwart who insists there should be no new taxes as part of a deal. Cantor’s office says the fund is in his wife’s and his mother-in-law’s name and amounts to less than $4,000, while the vast majority of Cantor’s retirement savings are invested in conventional securities that would lose value if there were a true U.S. debt crisis. But Cantor’s portfolio is probably similar to those of other affluent Americans, with traditional investments offset by a hedging strategy meant to minimize losses if something profoundly bad happens.

Ordinary Americans who lack investment funds or live paycheck-to-paycheck don’t have much of a hedging strategy, however, which makes them directly vulnerable if Washington wrecks the economy and jobs gets even scarcer. Some economists think the drawn-out debt drama—and the near-total absence of action on other big problems, like the foreclosure epidemic or sky-high unemployment—is already causing harm. Businesses, for instance, have virtually stopped hiring while they await the outcome of the Washington Follies. A sliding stock market reflects jittery investors who can’t figure out if they should invest in a global recovery or gird for Armageddon. “Washington is locked in a budget war that will determine the U.S. economy’s fate, not only for this year and next but for generations,” writes economist Mark Zandi of Moody’s Analytics. “Lawmakers may well misstep on this path to fiscal sustainability.” If they do, many of them will no doubt have their own personal parachutes. If possible, get your own.

By: Rick Newman, Columnist, U. S. News and World Report, July 22, 2011

July 24, 2011 Posted by | Capitalism, Class Warfare, Congress, Conservatives, Consumers, Debt Ceiling, Debt Crisis, Deficits, Democrats, Economic Recovery, Economy, Federal Budget, GOP, Government, Government Shut Down, Ideologues, Ideology, Income Gap, Jobs, Lawmakers, Middle Class, Politics, Public, Republicans, Unemployment, Wall Street | , , , , , , , , , , , , , , | Leave a comment