Monday, January 9, 2012

"The End of Loser Liberalism": A Review

(For those of you who would prefer a less-meandering and better-crafted review of Dean Baker's e-book (available as a free PDF here), read Jared Bernstein's much more concise and spot on essay, Loser Liberalism is a Winner).

Like it or not, politics is the prime mover of human affairs. It is the water in which we swim. We make war, wage peace, trade goods, starve babies, live in filth, wallow in unparalleled splendor, visit other worlds, all within the frame of reference of politics. It is a withering observation, an unsettling judgement as to the fundamental insanity of our species that this should be so.

The one thing we do not recognize, or should recognize more often, is that this frame of reference is not fixed or constant, that the Natural Order of the political landscape is wholly manufactured and artificial, and can be change. And by this I mean, most fundamentally our way of looking at things, what is called the "framing of the political debate" is based upon something as cobbled together as public relations.

In America, currently, we will see one of a myriad of scenarios playing between two extremes over the next year.

On the one extreme, Obama is re-elected as President, inertia from the campaign keeps Republican gains in the Senate to a minimum, and sees losses in the House due to public disaffection with the Tea Party faction of the Republican party. The Republicans recognize the slim but real chance of this occurring, which is why they are holding meetings in Texas to prevent a balkanization of the party, and a convergence around someone who is palatable to all. The fortunate consequence of this extreme scenario would be the end of gridlock, and some forward momentum in getting things done. The unfortunate consequence would be the resurgence of party agenda, as happened in 2008, and 2010, when, in both cases public opinion was tragically misinterpreted.

The other extreme unfolds with Romney being elected as Commander-in-Chief, the Republicans achieving a Senate majority, and losses in the House due to public disaffection with the Tea Party faction of the Republican party kept to a minimum. The fortunate consequence of this scenario is... wow, I can't think of one. But it involves one big Do-Over. Given the Republican's tendency to favor the status quo, and do nothing at all, or as little as possible, the best case scenario is that the nation gets a Reset to 2009, and then continues to bump along the ground until the next economic bubble appears. Then we go through another period of false prosperity, followed by a crisis and crash, as we have been doing for some thirty years now. The good news is we should all be used to it. The bad news is, well, the rich get richer, and the middle class, working class, and the poor continue to get fucked. Or at least until 2016 or so, when China overtakes us as the number one economy (some predict sooner). After that, all bets are off.

The unfortunate consequence of the scenario is something along the lines of a continuation of the 2010 Republican agenda - austerity, privitization of public institutions, and a scaling back of all restraints on the private sector, which pretty much guarantees a contraction of the economy, and most likely a Depression until 2020, or when China overtakes us, when all bets are off. Or when Mitt Romneys' People (read: the people that matter, large multi-national corporations), finally subsume us all into a vast autocratic propertarian utopia, with electronic devices in all our heads.

Of course, all of this is public relations to hide the actual conservation agenda, which is to benefit the rich by stacking the economic deck to promote massive upward redistribution of resources.  You have to admit, in this public relations game, conservatives have been remarkably successful. Which is what Dean Baker's book, and I promise I will eventually get to that.

In looking at the above two extremes, my suspicion is that something in between will happen, unless, of course, public attitudes change. We have seen public attention directed towards this upward distribution of wealth thanks to the Occupy Wall Street movement. Paul Krugman, John Quiggin, and Jared Bernstein have also extensively commented upon this, but much more should be done. Even ordinary citizens are now expressing concerns about the ongoing "trickle-down" economics of the right, and the building evidence that income inequality stifles equality of opportunity and social mobility.

So, finally to Mr. Baker's book. Well, actually, not quite. For a slim 155 pages, Mr. Baker covers a lot of ground. One important piece of information I should mention is his covering of the manufactured recessions and bubble driven economy which we've had over the past thirty years. I've always had a suspicion that, after the real growth of the Long Boom (ca 1945 - 1976), we have been living in a period of false prosperity. Everything has been done to keep growth going, but the inherent flaws of capitalism, with its requirement of a compounded 3% growth per annum, virtually guarantee that this is not only unsustainable but unrealistic. Therefore, artificial booms have been required, similar to sugar highs that inevitably result in a blood sugar crash. With this in mind...

The book. Rather than me tell you, here's from the jacket blurb:
"Most people define the central point of dispute between liberals and conservatives as being that liberals want the government to intervene to bring about outcomes that they consider fair, while conservatives want to leave things to the market. This is not true. Conservatives actually rely on the government all the time, most importantly in structuring the market in ways that ensure that income will flow upwards. The framing that "conservatives like the market while liberals like government" puts liberals in the position of seeming to want to tax the winners to help the losers. This "loser liberalism" is bad policy and horrible politics. The efforts of liberals would be better spent on battles over the structure of markets so that they don't redistribute income upward. This book describes some key areas in which progressives can focus their efforts to restructure markets so that income flows to the bulk of the working population rather than just a small elite".
So, what are the two main governmental mechanisms the rich use to game the market? The Fed, and the Treasury department.

After Panic of 1907, when JP Morgan bailed out the federal government, Congress in 1913 created the Federal Reserve system. Conservatives will claim that the Fed was pure progressive evil by allowing private banks to control the currency. But the purpose of the Fed, in "immediate" response to the Panic, was to set up a central banking system to control and stabilize federal currency through a system of interbank lending and the setting of interest rates. It was set up to be purposely undemocratic by removing all processes from congressional and executive oversight (thus avoiding, among other things, graft, corruption, conflict of interest and the whims and fancies of populace). The purpose of Fed is twofold, two , as it turns out, conflicting functions: stabilize prices, and achieve maximum employment. The Fed is primarily a service to the banking industry, and as such, price stability is always, or almost always, it's primary concern. The Fed can actually do little to influence a stimulation of the economy, but its main trick is to lower interest rates, which is great for banks, making lending easier, and rent-seeking (e.g. banks charge much much higher rates to lend money than what they borrow from the government) more profitable. On the other hand, the Fed is much, much better at putting on the brakes by raising interest rates. And when you raise interest rates, you slow down the economy, put people out of work, reduce wages, keep prices low, and asset values high. Not surprisingly, rich people love the Fed. Can the Fed be used to help the employment picture? Well, ever since Volker, the stated goal of the Fed is to keep inflation at no more than 2%. But as Baker points out, there is little evidence that even modest inflation of 3-4% causes any serious harm to the economy. The right-wing flying monkeys descended upon Chairman Bernanke in the initial stages of the financial crisis when the monetary supply was expanded. They predicted runaway inflation, and successfully shut down any further stimulus. Prices in fact did not skyrocket:
"With massive amounts of idle capacity in almost every sector of the economy and an extraordinarily high unemployment rate, the conditions did not exist for inflation to take off. Furthermore, there had been prior instances in which central banks had vastly expanded a country's core money supply during severe slumps, most obviously the Fed during the Great Depression and Japan's central bank in the 1990s. In both cases the money went to excess reserves, since banks faced no demand for loans in a depressed economy. Inflation did result. However unrealistic they may have been, the complaint by the right had their intended result. They bolstered inflation hawks on the Fed and almost certainly made Chairman Bernanke and other relative doves more cautious about pushing expansionary monetary policy".

In short, thank you asshole Republicans, for unnecessarily prolonging the recession. And thank you, spineless Democrats, for not aggressively complaining that the Fed was taking inadequate steps to fulfill that portion  of the congressional mandate encouraging full employment.

Baker recommends a bit more accountability and transparency regarding the Fed's favoring the nation's banks and bankers. Surprisingly, legislation was passed, sponsored by Congressmen Ron Paul, Alan Grayson, and Bernie Sanders, to make details of loan information public. True, the monies handed out were a conscious effort on the part of the Fed to dilute the amount of toxic assets the bank's creditors held, in order to make them profitable again, but at what cost?

Baker also covers the US Treasury and its long-standing attempts to keep the dollar strong. The Treasury can intervene directly in currency markets by buying or selling dollars, though it uses this power infrequently. But the strength of the dollar has a major impact on not only the unemployment rate, but also on which workers become unemployed and how much employed workers earn. Starting with Robert  Rubin under Clinton, using the Asian banking crisis as the opportunity, Rubin has built up the dollar against other foreign currencies. Who benefits from this?

A strong dollar increases the size of out nations trade imbalance, as foreign goods are cheaper to import, and our own manufactured goods are more expensive to export. So consumers - those who have jobs - benefit with cheaper shoddy goods from, say, China (at the expense of domestic manufacturing jobs). The financial industry benefits in two ways:
"First, by making imports cheaper, a high dollar helps to keep inflation low, and stable prices are a financial industry obsession. Second, when the financial industry looks to move abroad, its dollar assets go much further when the dollar is overvalued."
You would think manufacturers would be opposed to a strong dollar, but then:
"Domestic manufacturers should oppose a high dollar since it places them at a disadvantage relative to foreign competitors. However, insofar as manufacturers are able to establish operations overseas, they are likely to be content with a high-dollar policy that disadvantages only some of their operations. Because they can shield themselves with foreign operations, they can gain advantage over purely domestic competitors".
So apparently a weaker dollar would benefit that segment of the US work force that relies on wages alone for income, not so much for the professional and ruling classes.

So-called free trade agreements further erode the working and middle classes, by encouraging manufacturers to relocate outside of the US. One wonders how the upper income brackets would feel if similar foreign competition occurred for their professions. Baker explores the idea of foreign competition for doctors, lawyers, business administrators, trust-fund managers, engineers, computer programmers, etc., but this suggestion seems unrealistic and untenable. One can hope, should one wish wages and benefits for the higher income brackets to be lowered to less obscene levels, that sophisticated automation will give them a run for their monies. This type of healthy free market competition would surely lower wages and benefits, freeing up monies to go back into general circulation, probably in an impact several tens of times the expiration of the Bush tax cuts to the wealthy, as it is well known that salaries, no matter who gets them, are a cost to everyone else. I doubt this will happen. Opening up the job market at the upper echelons sounds like something that would be strictly opposed, so, moving on...

The rich have really pulled a number on us. There's a lot more stuff, but, read the book. I ti s ironic that so many of Baker's progressive solutions involve, what do you know, leveling the playing field to allow for real competition.
In summary, just so you get the idea, I'll end with a quote Baker's from final chapter:
 "The enormous growth of inequality over the last three decades did not come about as a result of the natural workings of the market; it came through conscious design. The job of progressives is to point this out in every venue and in every way we can. It is not by luck, talent, and hard work that the rich are getting so much richer. It is by rigging the rules of the game."

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