(1) Possibly Irrelevant Image for today:

What? billboard

(2) Judge Blocks Az. Law S.B. 1070. Breaking news–U.S. District Court Judge Susan Bolton blocked key parts of Arizona’s restrictive and invasive immigration law, which was to go into effect in a couple of days. Here’s what the New York Times has to say:

In a ruling on a law that has rocked politics coast to coast and thrown a spotlight on the border state’s fierce debate over immigration, United States District Court Judge Susan Bolton in Phoenix said some aspects of the law can go into effect as scheduled on Thursday.

But Judge Bolton took aim at the parts of the law that have generated the most controversy, issuing a preliminary injunction against sections that called for officers to check a person’s immigration status while enforcing other laws and that required immigrants to carry their papers at all times.

Judge Bolton put those sections on hold while she continues to hear the larger issues in the challenges to the law.

Read the judge’s order. Read the rest of the Times article.

(2) Dean Baker on the CBO and Social Security:  Dean Baker suspects the Congressional Budget Office is joining in the frenzy to target Social Security as a way to deal with deficits (or rather, the frenzy to use deficits as an pretext for targeting Social Security).  At issue is the way the CBO models the effect of deficits on private investment:

CBO changed its modeling of the impact of deficits and
debt on the crowding out of private investment. As a result, the 2010
projections show that deficits in the near future will crowd out far more
investment than the 2009 projections. This leads deficits to have a far more
negative impact on GNP growth.

Read the full issue brief. For more on “crowding out,” see this article by our own Alejandro Reuss.

(3) Financial Reform, Round Two: As we reported yesterday (item two), the banks have already moved on to figuring out how to influence rule-making related to the new financial regulations–by hiring former regulators. Mary Battari of BanksterUSA has pointed out a second sense in which we are in Round Two of financial reform:  the opportunity to push for further changes like a transaction tax.

Are you ready for Round Two? Our friend Paul Wellstone used to say, “sometimes you have to pick a fight to win one.” Bankster has been working with colleagues in the consumer movement, labor movement, Netroots and grassroots to figure out some fights worth picking. In addition to continued work on breaking up the banks, groups are coalescing around two big issues.


Repo the Dough: The Banksters crashed the economy and $14 trillion in wages, college savings, retirement saving and housing wealth disappeared. We want it back. The best way to do this? Nobel Prize-winning economist Joseph Stiglitz, the AFL-CIO, SEIU and many others are calling for a teeny tiny Bankster tax, 0.25 % or less on the sale or purchase of a share of stock, bond or derivatives would allow us to recoup our losses and put the money to work rebuilding America. The idea is called a “financial speculation tax.” It would not affect the average investor, but would throw sand in the wheels of the high-speed, high-volume traders and rake in $100 billion a year to create jobs and help provide essential services.
The Rising Tide: A tsunami of foreclosures is sweeping across America. Millions of homes are underwater and the government hasn’t done a single thing to stop it. Where are the helicopters, the aid brigades, the food drops? Why haven’t President Clinton and President Bush been tapped to raise funds for suffering families? A Rising Tide of mighty pissed off Americans is starting to notice and fight back. We will be working with groups like National People’s Action to end the housing crisis and hold big banks accountable for the damage done to our communities.

More interesting posts by Mary and others at BanksterUSA, including a recent one on efforts to make sure Elizabeth Warren is named head of the Consumer Financial Protection Bureau.

(4) Employers on Strike:  Last but not least, we just posted John Miller’s latest column, Employers Go on Strike–Because They Can, from our current (July/August) issue. Enjoy!

–Chris Sturr

Various items:

(1) New Blog Feature:  Possibly Irrelevant Images. With this post I inaugurate a new feature for the D&S blog (or at least my posts here): Possibly Irrelevant Images, random images I have come across on the Internets (as I like to call them, in tribute to GWB).  An inspiration for this feature is the “Antidote du jour” feature that is part of the daily links posts at Naked Capitalism. But I’ll be aiming for images that are visually interesting and possibly leftist, vs. cute animal pictures.  As the name of this new feature implies, the images may or may not have anything to do with the posts they introduce or with left economics. If there is a connection, it may be obvious, but it may also be oblique, or downright recondite–it is up to you to decide. Blog readers are encouraged to submit interesting images; if I post yours you’ll get my gratitude and a hat-tip. For now two of my main sources for interesting images will surely be This Isn’t Happiness and Eric Becker’s “Today” over at Design Observer. (I also welcome suggestions for good sources of groovy or weird or beautiful images.) I will include a link to the source where I found it.

Here is today’s Possibly Irrelevant Image:

Boxes on Heads

(2) Bill Black on Frank-Dodd at Real News Network: The New York Times just posted an article, Army of Ex-Regulators Set to Lobby on New Financial Rules, suggesting that the revolving door between the banks and their regulators is in full operation. William K. (“Bill”) Black is one former regulator not going that route.  Regular readers of this blog will know that Bill Black wrote a great article for our Nov/Dec 2007 issue about the then-nascent banking crisis. There’s a nice series of interviews with him over at the Real News Network.  The fourth installment, posted today, is Who Regulates the Regulators?

(3) Nonprofit Compensation:  The Times had an interesting article about how much CEOs and other bigwigs at nonprofits make (Lawmakers Seeking Cuts Look at Nonprofit Salaries). The article has a heart-warming picture of “Roxanne Spillett, the chief executive of Boys & Girls Clubs, [who]was paid $988,591 in 2008,” tending to a boy and a girl at one of the clubs and looking more like a teacher’s aide than a gazillionaire. She actually tears up when she tells the reporter: “I have worked in the organization for 32 years, and I’ve never been motivated by a dime, not for a single minute.” A Boys & Girls Club board member calls the suggestion that Spillett makes too much money “offensive,” citing the growth of the organization under her leadership. “Do they really think we’d waste their money? Or anyone’s money?” Scrutiny of the organization raised other concerns; Senate investigators are now “are now questioning Boys & Girls Clubs investments in private equity and offshore funds and its use of its endowment.”

The funniest bit was from the head of the American Heart Association, M. Cass Wheeler, who is eager to emphasize that his reported compensation of $995,424 is misleading, because it includes supplemental retirement payment. “If you peeled all that back, you’d get to a base salary less than $600,000.” Well, in that case…  How on earth does he get by?

An item from the Dealbook blog at the Times reports on a new study of compensation, according to which corporate boards “use peers to inflate executive pay.” Find that blog post here;  find the abstract for the original study, which appears in the Journal of Financial Economics, here.

(4) Laying off Workers and Squeezing the Ones You Keep Is Good for Profits. According to the New York Times:  Industry Finds Surging Profits in Deeper Cuts. This relates to the article we are likely to post to the D&S website tomorrow, John Miller’s “Employers Go on Strike–Because They Can.” But…

(5) Huge Victory Against Nike for United Students Against Sweatshops. Nike finally agreed to compensate Honduran workers who were fired by Nike subcontractors several years ago.  Here’s the press release from the USAS campaign website. Here’s the Wall Street Journal story;  here’s the Democracy Now! story. Of course $1.5bn is chump change for Nike, but it is a nice precedent, and good for those workers.

–Chris Sturr

A few items about the G20 meetings have been languishing on my desk (or rather as tabs in my browser). It is time to liberate them (and my browser) by turning them into a blog post. But first: on deficits, etc.:

On deficits: Our intern Julie Herlihy put together a deficit page for the D&S website, listing all of our articles on budget deficits from the past few years.

Also on deficits: Former D&S editor Abby Scher had a piece at Truth-Out earlier this month about activism in New York for more progressive taxation.

On other topics: Simon Johnson on the Dodd-Frank Financial Reform Law (aka the new finance reform law), here;  hat-tip to Tim Sullivan of United for a Fair Economy. And Nouriel Roubini on why there will be a double-dip recession, here; and a Financial Times piece on the Basel Committee’s initial proposals for international banking regulation, here.  We will be covering Basel for the magazine and for the new edition of Real World Banking and Finance, due out in October.

Now, on to the G20–I will keep this brief, because some of these are stale:

The alarming news from the G20 (aka the Group of 20 Finance Ministers and Central Bank Governors)  meetings late last month in Toronto was that Europe seems to be forging ahead with the plan of initiating austerity measures to deal with the European debt crisis. Several related items (some not so related):

Here is Paul Jay, head of the Real News Network, arguing that this is a very bad idea.

And here is Paul Jay interviewing Bob Pollin, D&S pal and head of the Political Economy Research Institute; Bob also argues that this is a very bad idea and could lead to a double-dip.

Here is the Financial Times‘ Martin Wolf sounding similarly pessimistic about the G20′s policies, and comparing them to the children’s game “Pass the Parcel.” (I don’t remember that one…)

Meanwhile, most Europeans polled seem to have drunk the deficit-reduction Kool-Aid, the Financial Times reported last week:

European governments have solid public support, at least for now, for the spending cuts they are making in an effort to boost economic recovery, according to the latest Financial Times/Harris opinion poll.

The survey also indicates that a majority of people in the European Union’s five largest countries disagree with the decision of governments to let their budget deficits rise in order to combat the financial crisis that erupted in 2008.

But in Spain, according to The Guardian‘s Martyn Richard Jones, is having “a Socialist moment” in response to its economic woes.

And the New York Times reported just yesterday that after all the fuss in the bond markets about Europe’s debt crisis, “Debt Worries Ease in Europe.”

Just two months ago, Europe’s sovereign debt problems seemed grave enough to imperil the global economic recovery. Now, at least some investors are treating it as the crisis that wasn’t.

Spain held an auction of 15-year bonds last week that went off without a hitch, raising 3 billion euros, or about $3.8 billion, at a relatively favorable interest rate of 5.116 percent. That was up from 4.434 percent on a debt sale in late April, though the latest one was far more heavily subscribed.

Also last week, Moody’s Investors Service downgraded Portugal’s credit by two notches, citing the nation’s debt burden and poor growth prospects, a sign that the country’s underlying problems are not over. Yet investors, rather than punish assets linked to Portugal’s economy, seemed to take the news in stride.

Go figure.  Let’s see whether that keeps Europe’s leaders from proceeding with potentially disastrous, double-dip-inducing austerity measures.

–Chris Sturr

Wow–three big headlines today:

(1) BP supposedly manages to cap the Deepwater Horizon well–for now, at least–after 87 days of oil gushing into the Gulf of Mexico. It is clearly far from over. Not only are we not really sure whether the well will stop spewing oil (as indicated by this article posted to the NYT website today), the environmental, economic, and legal fallout from the spill will last for decades.  Consider the Exxon Valdez spill.  That one happened on March 24th, 1989; more than twenty years later, oil is still bubbling up in Prince William Sound. As Antonia Juhasz points out in our current issue, the legal case against Exxon took almost that long to unwind:

In 2008, after nearly 20 years during which time more than 3,000 of the claimants died, the U.S. Supreme Court ruled in Exxon’s favor and imposed a highly restrictive limit on putative damages–a one-to-one ratio–yielding damages for Exxon of a measly $507.5 million. Exxon’s total Valdez payouts were therefore less than $3.5 billion (about $4.5 billion in today’s dollars).

Click here to read the whole article, which points to lessons from the Valdez spill for the current situation with BP.  (We haven’t publicized this article yet on our home page, so blog subscribers and readers are getting a first peek (after subscribers, who got to read it two weeks ago).

(2) Congress finally passes the financial reform law, with the Senate passing the bill by a vote of 60 to 39.  (The missing vote was Robert Byrd’s, I am guessing. The governor of West Virginia, Joe Manchin, apparently just said who Byrd’s interim replacement will be; apparently a 36-year-old pretty boy named Carte Goodwin, the governor’s general counsel, will hold the seat until a special election in November, when Manchin will run. Trivia: the website of the family law firm where Goodwin works, lists something called  “the Order of the Coif” under the “Education” section of his resume–an honorary society for law school grads, nothing to do with his Scott-Brown-perfect hairdo.)

Anyhow, we posted earlier on the mixed merit of the new regulation, and we will continue to report on it.  For now, check out this article in today’s NYT about how banks have already been figuring out how to accommodate the new law’s provisions. Jamie Dimon’s arrogant remarks about how the banks will keep profits up by passing increased costs on to consumers:

“If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger,” said Jamie Dimon, the chairman and chief executive of JPMorgan Chase, after his bank reported a $4.8 billion profit for the second quarter on Thursday. “Over time, it will all be repriced into the business.”

One example the article gave was increased fees on checking accounts, fees for using tellers vs. ATMs, incentives to do online banking, monthly charges unless you have a (high) minimum balance, etc. Sounds to me like an opportunity for credit unions to push to compete against banks.  Who on earth would have an account at BoA these days? There are other interesting–and disturbing–bits about how they plan to get around the restrictions on derivatives trading, proprietary trading, etc. Read the full article.

(3) Goldman settles with the S.E.C., agreeing to pay a fine of $550 million, which I read (I think in this article) is equivalent to nineteen day’s profit for Goldman (going by their 2009 profits).

–Chris Sturr

Interesting piece from Robert Reich’s blog.  An excerpt:

The Root of Economic Fragility and Political Anger

Tuesday, July 13, 2010

Missing from almost all discussion of America’s dizzying rate of unemployment is the brute fact that hourly wages of people with jobs have been dropping, adjusted for inflation. Average weekly earnings rose a bit this spring only because the typical worker put in more hours, but June’s decline in average hours pushed weekly paychecks down at an annualized rate of 4.5 percent.

In other words, Americans are keeping their jobs or finding new ones only by accepting lower wages.

Meanwhile, a much smaller group of Americans’ earnings are back in the stratosphere: Wall Street traders and executives, hedge-fund and private-equity fund managers, and top corporate executives. As hiring has picked up on the Street, fat salaries are reappearing. Richard Stein, president of Global Sage, an executive search firm, tells the New York Times corporate clients have offered compensation packages of more than $1 million annually to a dozen candidates in just the last few weeks.

We’re back to the same ominous trend as before the Great Recession: a larger and larger share of total income going to the very top while the vast middle class continues to lose ground.

And as long as this trend continues, we can’t get out of the shadow of the Great Recession. When most of the gains from economic growth go to a small sliver of Americans at the top, the rest don’t have enough purchasing power to buy what the economy is capable of producing.

America’s median wage, adjusted for inflation, has barely budged for decades. Between 2000 and 2007 it actually dropped. Under these circumstances the only way the middle class could boost its purchasing power was to borrow, as it did with gusto. As housing prices rose, Americans turned their homes into ATMs. But such borrowing has its limits. When the debt bubble finally burst, vast numbers of people couldn’t pay their bills, and banks couldn’t collect.

Each of America’s two biggest economic downturns over the last century has followed the same pattern. Consider: in 1928 the richest 1 percent of Americans received 23.9 percent of the nation’s total income. After that, the share going to the richest 1 percent steadily declined. New Deal reforms, followed by World War II, the GI Bill and the Great Society expanded the circle of prosperity. By the late 1970s the top 1 percent raked in only 8 to 9 percent of America’s total annual income. But after that, inequality began to widen again, and income reconcentrated at the top. By 2007 the richest 1 percent were back to where they were in 1928–with 23.5 percent of the total.

We all know what happened in the years immediately following these twin peaks–in 1929 and 2008.

Read the rest of the post.

–Chris Sturr

It now appears that with Scott Brown (our “populist” senator from Massachusetts) has agreed to support the reconciled version of the banking reform bill, once he wrested concessions favorable to Massachusetts-based banks like State Street and Fidelity. With votes from Susan Collins and Olympia Snow, Brown’s vote will make for the sixty votes necessary for the bill to move forward, despite the vacancy of Robert Byrd’s seat.

The bill is a mixed bag–not nearly what it ought to be, or could have been, but with some key provisions, especially on derivatives and consumer protection, that make it worth supporting.

In the cover article from our current issue, “Not Too Big Enough,” economist Rob Larson looks at the “too-big-to-fail” banks and how they got too big.  As Larson makes clear, the current reform legislation won’t address the factors and trends that led the six-odd TBTF banks to get so big. Economies of scale and scope give these banks market power, and political clout, that will continue to be problematic.  The article includes a nice timeline sidebar by outgoing D&S intern Jill Mazzetta chronicling the deregulation, mergers, and acquisitions that allowed the banks to get so big.

Jill also put together a table about the current banking reform that was also going to be a sidebar for Rob’s article. But as we went to press, the bill was still in flux (and it still is, somewhat). Click here to see the table, which we’ll update as the final details of the reconciliation bill come out. Jill looks at what made it into the bill, what didn’t, what got watered down, and what was never even considered (like the transaction tax John Miller wrote about in our March/April issue).

The irony of Scott Brown the self-styled populist (he campaigned in his pickup truck and implied that his Democratic opponent was elitist) extracting concessions for Massachusetts investment banks is pretty rich.  Robert Kuttner has a piece at Huffington Post asking Tea Partiers why they aren’t taking Republicans to task for backing the banks.  Kuttner makes the case that even though it is seriously weakened, the bill is worth support, and he urges Russ Feingold, one of the Democrats to oppose it as not enough, to support it: “[W]ith every passing day, the risk increases that Wall Street and the Republicans will kill more than a year’s legislative work. A defeat of this bill would mean that all of the carefully negotiated compromises are up for grabs. With Democrats expected to lose seats in November, anything that managed to pass would be even weaker.” Read the whole article.

On one of the blogs at The Nation, John Nichols takes on some of the Republicans’ rationale for opposing the bill–that it is “big government” and “socialist”:

Why are so many GOP senators so very determined to block the bill, which cannot be debated unless 60 senators senators support a cloture vote?

What’s the problem?

Republicans say that it is not that they oppose regulating Wall Street and big banks. Rather, the argument goes, they are afraid of big government — of the “socialist” sort that might actually try to accomplish something useful, as opposed to big government of the Dick Cheney bloated defense budgets and needless wars sort.

Senate Republican Leader Mitch McConnell says his caucus is fighting “to prevent the Democrats from doing from the financial services industry what they just did to the health care of this country.”

Once again, the conservative chirp goes, a modest measure must be blocked because it would put the country on the slippery slope to socialism.

South Carolina Republican Jim DeMint, the Senate watchdog for against all things social, is denouncing the bill as a “massive, ill-advised piece of legislation” that would make it harder for kids to get braces. Seriously.

Congresswoman Michele Bachmann summed things up when she outlined the “case” — alright, maybe the better word is “rant” — for opposing basic consumer protections and a few minor moves aimed to avoiding more meltdowns.

“This is breathtaking in the level of power that government will have over our lives when it comes to credit,” Bachmann said of the reform bill. “It gives government the authority to decide, for instance, how much a bank teller in Peoria, Illinois, will be making going forward because a pay czar will decide what anyone in banking will be able to make.”

Never mind that socialists fought against czars.

Read the rest of the post.

And Mary Bottari of BanksterUSA and the Center for Media and Democracy (and author of this article in our current issue) has a couple of nice posts on the BanksterUSA site about the reform.  The latest post asks readers to rate the reform bill;  some of the early responses are pretty interesting and lively.  The previous post talks about some hidden positive provisions, including “strong provisions that require extractive companies (oil, natural gas, etc.) to detail in their annual Securities and Exchange Commission (SEC) filings the payments they make to foreign governments,” and a provision requiring tech companies to report on “conflict minerals.” Read the whole post.

Last but not least, William Greider has a piece at the Nation website (not sure if it was in the print edition), “Battling the Banksters,” that captures the ways in which this bill is a mixed bag:

Hold the applause. The president would like us to celebrate his “Wall Street reform,” but the legislation is misnamed. Barack Obama did not set out as president to reform Wall Street in fundamental ways but to restore it. Judging by the largest banks’ booming stock prices and executive bonuses, he appears to have succeeded. The leading bankers expressed relief when they saw the reform package Congress cobbled together on June 25. Wall Street, loathed by citizens everywhere, dodged the bullet in Washington.

Congress followed Obama’s path and rejected the sterner measures that promised to actually change things. As with healthcare reform, the White House, joined by the Treasury and the Federal Reserve, spent much of its energy opposing more aggressive ideas or bargaining small-bore compromises. The president kept a low profile, saving himself for the victory celebration.

Despite the defeat of real reform, progressives should not despair—the future looks much brighter than the headlines suggest. Yes, Congress choked on the hard questions. But assuming the Dems pull together last-minute wavering votes, it will be a stronger bill than either the White House or the bankers had intended, thanks to public anger, popular mobilization and nimble pressure from reformers.

This is not the end of reform; it’s the beginning of a promising struggle to cut the financial sector down to tolerable dimensions and reduced power. The forces of reform demonstrated that they have the strength and especially the ideas to win this fight–just not this year.

Mainly, the legislation gives government regulators explicit authority to take tougher measures to curb Wall Street’s dangerous behavior, but only if the Fed and Treasury decide it’s a good idea. Don’t hold your breath. These same agencies failed massively to confront the rampant recklessness that led to collapse (many of them claimed not to have seen the trouble coming).

Read the rest of the article.

–Chris Sturr

Yestesrday’s Times had an article about the alleged misdeeds of Transocean, the company that owned (still owns, I suppose) the Deepwater Horizon rig that exploded in April, setting into motion the worst environmental disaster in U.S. history (still underway). The company has been accused of: doing business with Myanmar, Syria, and Iran; having ties to two men who have laundered money for the brutal Myanmar regime; tax fraud in Norway; fraud to avoid paying for pollution clean-up in the United States; tax abuses in the United States and Brazil.  Read all about it here.

That reminded me of a really great article from the United Electrical Workers website: “BP–A Long, Bloody History of Reckless Greed,” by Al Hart.  Did everyone but me know about the role British Petroleum played in Iran’s history? The company’s original name was the Anglo-Persian Oil Company, and after stealing the Iranian people’s oil for decades, it had a central role in the overthrow of Mohammad Mossadegh, the “George Washington of Iran” (as Time magazine called him back in the day). Here are some of the key paragraphs from the article:

KILLING DEMOCRACY FOR OIL

Iranians overwhelmingly supported Mossadegh and his policies. He advanced the rights of women, enacted sick pay and unemployment compensation for workers, and freed peasants from forced labor for landlords. But with the cooperation of the Shah and key military leaders, a few CIA agents in August 1953 overthrew Mossadegh and killed democracy in Iran. The new regime arrested the 71-year-old Mossadegh, tried and convicted him of treason, and sentenced him to three years in prison and life under house arrest. He died in 1967.

The coup installed General Fazlollah Zahedi as prime minister, but he lasted only two years. The Shah regained the absolute power of earlier shahs, and he hired and fired prime ministers at will. Officers loyal to Mossadegh were shot, as were other democrats and dissidents, and for the next 26 years the Shah ruled through the terror of his secret police, the Savak.

Iranian democracy died so the British could own Iran’s oil. But because the U.S. government overthrew Mossadegh, the British lost their monopoly. AIOC – renamed British Petroleum in 1954 – got 40 percent control of Iran’s oil. Another 40 percent went to the five major American oil companies, and the remaining 20 percent to Royal Dutch Shell and the French Petroleum Company now known as Total.

In 1963 the Shah gained a resolute enemy when his police arrested Ayatollah Ruhollah Khomeini, who as a young Shiite cleric had opposed Mossadegh. But the 1979 Iranian Revolution that overthrew the Shah included much more than Islamic fundamentalists. In the mass demonstrations of 1978 and ’79, many carried pictures of Mossadegh. This was both a protest against his overthrow and a call for the kind of secular democracy he had represented.

The first post-revolution governments were dominated by people associated with Mossadegh and his principles, including Prime Minister Mehdi Bazargan and President Abolhassan Bani-Sadr. But when President Carter allowed the ex-Shah to come to the U.S. for medical treatment, many Iranians feared a repeat of 1953 – a U.S. coup to restore the Shah. A group of Islamic militants seized the U.S. embassy – the place from which the 1953 coup had been organized – and held 52 Americans hostage for 444 days. The hostage crisis doomed Carter’s re-election – and enabled Islamic fundamentalists around Khomeini to consolidate power.

The past 31 years of bad U.S.-Iranian relations have their roots in the CIA overthrow of Mossadegh, on behalf of an arrogant British oil company. Few Americans remember what happened in Iran in 1953, but nearly all Iranians do. When U.S. presidents preach about the virtues of democracy, it sounds like hypocrisy to millions of people around the world who know that Iran once had the beginnings of a democracy, but the U.S. government killed it.

Read the rest of the article–well worth reading (unless everyone besides me knew all this already). So great that it is on the UE website.  I found the article via Portside Labor;  one pet peeve I’ve had about Portside and Portside Labor as news aggregators is that the vast majority of the articles they respost as “material of interest to the left–things that will help them to interpret the world, and to change it” (as their website puts it) are from the New York Times, Washington Post, etc.–outlets that hardly need more of a megaphone, and that are hardly ideological left, or even neutral.

Finally, I can’t repost it (because I don’t think it’s online), but there’s a good article on the Gulf disaster in the June 16-30 issue of CounterPunch, “Oil Drilling Under Clinton, Bush, and Obama: Bad to Worse to Catastrophic.”  (Check out the article in that issue by Eugene P. Coyle about cutting the work week as a way of dealing with unemployment.) Here’s the CounterPunch website.

–Chris Sturr

Dean Baker posted a great response to that David Brooks column I mentioned yesterday.  Here’s what he says:

The Arrogant David Brooks Tells Readers That Stimulus Will Risk National Insolvency

Tuesday, 06 July 2010 03:27

David Brooks has decided to jump into the debate over stimulus with both feet. In a column in which he warns against arrogance he tells readers that additional stimulus would: “risk national insolvency on the basis of a model.”

Mr. Brooks doesn’t tell readers how he has determined that further stimulus carries this risk. He doesn’t explain how raising the country’s debt to GDP ratio by 4-8 percentage points over the next few years would jeopardize the creditworthiness of the U.S. government. This is certainly a rather strong assertion, given that even with this additional indebtedness, the debt-to-GDP ratio in the United States would still be far lower than it had been at prior points in its history.

Even after a decade of accumulating debt at a rapid pace, the U.S. would still face a lower debt burden than countries like Italy do today. Italy is currently able to borrow in financial markets at very low interest rates. Projections for 2020 show that the debt burden of the United States would still be less than half of the current debt burden of Japan, which still pays less than 2.0 percent interest on its long-term debt.

Financial markets also don’t seem to share Mr. Brooks view that national insolvency is a serious concern. The people who are putting their money on the line are willing to buy 10-year Treasury bonds at just 3.0 percent interest rates. That would seem to suggest that insolvency is not a real concern, but Mr. Brooks insists that President Obama should hesitate on stimulus because he thinks that insolvency is a problem anyhow, and the people who disagree with him are arrogant.

There also is a basic question of logic that Mr. Brooks neglects. If the country really did start to face insolvency (i.e. no one would buy its debt), why would the Fed not simply step in and buy up government debt itself, as it has been doing to some extent over the last year and a half? This could cause inflation, which could be a serious problem, but then the issue would be inflation, not insolvency.

Of course, as a practical matter, it is more than a little far-fetched to believe that we will have to worry about inflation any time soon. All the measures of inflation are in the 1-2 percent range and headed downward. With the unemployment rate still near double-digit levels and huge excess capacity in nearly every sector of the economy, it would take some real magic to spark inflation. (Since Brooks is anxious to argue that central banks and international financial institutions, who all missed the housing bubble btw, agree that insolvency is a real concern, it is probably worth mentioning that Olivier Blanchard, the chief economist of the IMF, believes that the economy would benefit from a somewhat higher rate of inflation.)

After inventing a crisis of national insolvency to concern the president (should President Obama also worry about invading Martians?), Mr. Brooks tells readers that:

“The Demand Siders don’t have a good explanation for the past two years.”

Hmmm, is that right? Seems to me that we have a very simple theory to explain the past two years. There was a huge bubble in housing that burst beginning in 2006. This led to a plunge in residential construction that cost the economy more than $500 billion in annual demand. In addition, the loss of $6 trillion in housing wealth, coupled with the loss of around $7 trillion in stock wealth, has cost the economy more than $500 billion in annual consumption demand. This is the result of the wealth effect on consumption, a phenomenon that economists have been writing about for close to a century. In addition, there was a bubble in non-residential real estate that collapsed about a year after the collapse of the housing bubble. This cost the economy about another $150 billion in demand. That gives a total loss in annual demand of around $1.2 trillion. All of this was completely predictable and predicted by at least some demand siders.

It was also easy to see that the stimulus approved by Congress was inadequate. Demand siders rely on something called “arithmetic” to reach this assessment. After pulling out the $80 billion fix to the alternative minimum tax, which had nothing to do with stimulus, and the $100 billion or so designated for later years, the stimulus provided for roughly $600 billion in spending and tax cuts over the years 2009 and 2010. This comes to $300 billion a year. Roughly half of the federal stimulus was offset by cutbacks and tax increases at the state and local level, leaving a net stimulus from the government sector of roughly $150 billion a year.

Demand siders did not believe that $150 billion in annual stimulus from the government could offset the contractionary impact of a reduction in annual spending by the private scctor of $1.2 trillion ($1.2 trillion > $150 billion). That is how demand siders explained the failure of the stimulus to have much impact in reducing the unemployment rate. Perhaps this explanation is too complicated for Mr. Brooks (he repeatedly complains about the high IQs of the demand siders), but it actually seems fairly straightforward. If he wants to be honest, he could at least say that he doesn’t understand the demand siders’ explanation, rather than asserting that demand siders do not have an explanation.

Brooks has also developed his own theory of consumer and investment behavior. He decided that consumers are not spending because of concerns about the debt. This is an interesting theory. Consumer spending is probably still somewhat higher than would be expected given the loss of stock and housing wealth. (The savings rate is between 4-5 percent, compared to a long-term average that is more than 8.0 percent.) Furthermore, with many experts and media pundits (like Mr. Brooks) insisting that the government must cut Social Security and Medicare, it is really surprising that the huge cohort of baby boomers approaching retirement is spending as much as they are. In short, it doesn’t seem like the evidence fits Mr. Brooks theory very well.

Mr. Brooks also insists that concern about future tax burdens is depressing investment. This is also an interesting theory. Of course, given the extensive research showing that demand growth is the primary determinant of investment most economists might be hesitant to accept Mr. Brooks’ theory.

Brooks also tells readers that:

“it’s very hard to get money out the door and impossible to do it quickly.”

Is that really true? Suppose the government gave a tax credit that allowed firms to shorten their workweek while keeping pay nearly the same. Would this take a long time to get out the door? This policy of work sharing has prevented the unemployment rate from rising at all in Germany during this downturn and allowed the Netherlands to keep its unemployment rate close to 4.0 percent. Is it arrogant to suggest that this sort of approach could pay dividends in the U.S.?

President Obama and the Democrats are being blamed for the poor state of the economy and high unemployment. This means that the worse the economy performs, the more the Republicans benefit. If stimulus will benefit the economy, then anything the Republicans can do to block stimulus will help their election prospects. In this respect, raising doubts, even if there is no basis for these doubts, can be a very effective election strategy for the Republicans, especially if the doubts can obstruct effective stimulus not just in 2010, but up through the next presidential election.

Read the whole post.

–Chris Sturr

Friday’s jobs report from the Bureau of Labor Statistics was bleak. Though the unemployment rate went down to 9.5% (from 9.7%), that’s because the ranks of discouraged workers increased.  The economy shed 125,000 jobs, which was mostly due to the end of some 200K temporary Census jobs.  Private employers added only 83K jobs.

Here’s an analysis of the jobs numbers from Bloomberg; the New York Times ran this piece yesterday about the struggle in Congress to pass legislation to address joblessness–whether further stimulus money or aid to states or even just extending unemployment benefits.

Our columnist John Miller examines the reasons for this “employers’ strike” in our July/August issue.  (Click here to see the editorial note from the new issue, which includes a paragraph on John’s column.)

A post on a blog at the AFL-CIO website talks about the results of a study showing that 55% of people in the United States have been affected by the recession, either by being unemployed for part of it (something like of a third of people, which is pretty startling), or having hours cut, or being furloughed, or being underemployed.  Here’s the graphic:

The latest issue of In These Times has a good article by David Moberg on the Democrats’ failure to get behind the issue of long-term unemployment.  Here are some key paragraphs from that article:

“The economic case for doing more is overwhelming,” says Economic Policy Institute (EPI) economist Heidi Shierholz. A recent EPI report demonstrates that job-creation policies pay for a large part of their costs by spurring growth and tax revenue—and that does not take into account the value of avoiding social and personal traumas.

More needs to be done to directly aid the unemployed. Only 67 percent of those currently unemployed get benefits. According to the Organization for Economic Cooperation and Development, the United States lags behind most of the 28 other rich countries in the group, replacing on average 28 percent of lost income (temporarily up to 99 weeks for some workers), compared to the leader Norway, replacing 72 percent of income for five years.

As a complementary alternative, the federal government could give tax credits to employers who reduce working hours with no (or little) reduction in pay, thus sharing the work, maintaining engagement, preserving income and encouraging new hiring, as Center for Economic and Policy Research Co-Director Dean Baker advocates. Work-sharing has largely kept unemployment from rising in many European countries (and reduced it in Germany), despite steep drops in GDP.

The federal government could quickly provide jobs for millions by helping states and local governments maintain their workforces. Rep. George Miller’s (D-Calif.) Local Jobs for America Act would have spent $75 billion over two years to retain public-sector jobs, and saved or created 675,ooo public and private jobs. The federal government could also directly employ people for projects such as retrofitting homes for energy efficiency, conserving natural environments, creating public art and providing social and educational services. University of Massachusetts economist Robert Pollin proposes creating 18 million new jobs by 2012 with public investment in such jobs financed by $700 billion in bank loans and $700 billion in new federal spending.

Read the full article.

Even the economists over at Goldman Sachs are calling for more stimulus to address the bleak jobs picture.  (Hat-tip to Doug Henwood over at lbo-talk–”Hi Doug!”; everyone should subscribe to Left Business Observer); here’s an excerpt of the statement from Goldman’s chief economist, Jan Hatzius (excerpted by James Pethokoukis at Reuters):

1.   Friday’s jobs numbers were disturbing.  At best, they show an economy that is growing only quickly enough to keep the unemployment rate flat near 10%.  At worst, they suggest that the labor market is once again turning down.

2. With inventory investment now again close to a normal rate, GDP growth is likely to converge to final demand growth, which has averaged only 1½% since mid-2009 and is unlikely to accelerate given the various headwinds facing the economy.

3. The weak labor market implies not only a great deal of hardship for workers, but also a growing risk of deflation.

4. So what is to be done?  On the monetary side, the possibilities include additional purchases of Treasuries and mortgage-backed securities, as well as TALF-like structures—i.e., special purpose vehicles that lend to nonbanks using equity provided by the Treasury and debt provided by the Fed.

5. On the fiscal side, we hope that Congress passes the extension of emergency unemployment insurance, continued aid to state and local governments, and at least a temporary extension of the bulk of the 2001/2003 tax cuts beyond the end of 2010.

6. A failure to enact additional stimulus—at a minimum, extended unemployment benefits, state fiscal assistance, and extension of the bulk of the 2001/2003 tax cuts—would imply a downside risk to our GDP and employment forecasts, specifically for 2011.

Meanwhile, David Brooks’ column in today’s New York Times makes the case that if the fancy, elitist economists (with “very high I.Q.’s”)–who have misled us so badly in recent years, he opines!–are calling for more stimulus, Obama should take a more “pragmatic” approach, rather than trying to play the economy like a fiddle (“Proponents of a second stimulus need to beware of reckless new debt, but we must also guard against severe austerity.”).  (As if the economists most inclined toward this kind of Keynesian policy are the ones who led us into the financial crisis!) If David Brooks were in a burning building, he’d be playing his fiddle, singing about how we shouldn’t let those elitist firefighters convince us to put too much water on the fire, or water that is too wet.

The more sensible piece on that page of today’s Times is the one by Yves Smith (of Naked Capitalism) and Rob Parenteau, about how capitalists are being short sighted in failing to plow their profits back into their companies. Moreover, both corporations and households are tightening their belts more, so now is not the time for public austerity:

If households and corporations are trying to save more of their income and spend less, then it is up to the other two sectors of the economy–the government and the import-export sector–to spend more and save less to keep the economy humming. In other words, there needs to be a large trade surplus, a large government deficit or some combination of the two. This isn’t a matter of economic theory; it’s based in simple accounting.

What if a government instead embarks on an austerity program? Income growth will stall, and household wages and business profits may fall.

More evidence of an employers’ strike: they are failing to hire, but also failing to invest.

Some scary stories are coming out about exactly what states are cutting to deal with their fiscal crises;  I’ll try to gather up some of those stories and do a post on the states later this week.

–Chris Sturr

The dust is slowly settling on the reconciled version of the banking reform bill, as we find out what deals have been made, what provisions were and were not gutted, what moderates were appeased, etc. Here has some of what has come across my desk:

(1) Mary Bottari of the Real Economy Project of the Center for Media and Democracy, and author of our most recent Economy in Numbers, was following and advocating for Blanche Lincoln’s derivatives provision. Here’s what she reported after the reconciliation (initially) went through:

DERIVATIVES REFORM SUFFERS A MIDNIGHT MANGLING

The last day was a long one in the House-Senate conference committee on financial reform. The conferees had been at it since 9:00 a.m. and were rumpled and weary. Big bank lobbyists packed the conference room and trailed out into the hallways. As the clocked ticked into the wee hours, the chances for meaningful financial reform dimmed. At issue was the strong and controversial crack-down on derivatives trading authored by Senate Agriculture Committee Chair Blanche Lincoln (D-Ark).

TAXPAYER STILL BACK RECKLESS WALL STREET TRADING

At about midnight, House Agriculture Chairman U.S. Representative Collin Peterson (D-Minn.) offered an amendment to the Lincoln provision to require big banks to spin off (or push out) their derivatives desks into a separately capitalized affiliate. The Lincoln measure was geared toward ending taxpayer supports (FDIC insurance, Federal Reserve monies) for Wall Street gambling.

Under the Peterson language, the push-out provision was gutted. Some categories of trading were pushed out: including commodities (other than gold), equities, junk rated credit default swaps. The vast majority of OTC derivatives (approximately 90% were not pushed out.) These include interest rates swaps, foreign exchange trades, investment grade credit default swaps, gold.

This means that at the end of the day, taxpayers are still on the hook for the Wall Street casino. Taxpayers will be incensed to discover this the next time these trades go bad and blow up a “too big to fail” institution. The New Dem coalition and the New York delegation who pushed for this hatchet job must be held accountable in November.

However, a great deal of progress was made to bring derivatives out of the shadows and into the light of day. The fact that most derivatives trades will be cleared and exchange traded with capital requirements, margin requirements, positions limits, and real pricing is a big win for reformers* and will bring real transparency to the marketplace for the first time. These measures will make it much costlier to engage in speculation, plus regulators now have the tools to crack down on speculation. CFTC Chairman Gary Gensler, who had been critical of oil and gas speculation, now has the tools to pop these speculative bubbles when they occur.

FRANK FAILED TO PROTECT LOCALITIES

Lincoln also lost her battle to protect state and local government from bad swaps deals by applying a fiduciary responsibility to swaps dealers who sell to localities and other government entities. Activist have identified at least 71 localities who were sold sophisticated swaps. House Finance Committee Chair Barney Frank succeeded in gutting this provision and watering it down to a “code of conduct” requirement leaving states and localities more vulnerable to the Wall Street con.

BROWN BLOWS LOOPHOLE IN VOLCKER RULE

The Volcker Rule also took a big hit. The rule bans “proprietary trading” or trading for the bank’s own account rather than for customers. The committee passed a strengthened Volcker rule by including the language prepared by Senators Merkley and Levin. The advantage of Merkley-Levin is that it covers more types of proprietary trading than the original rule proposed by the administration.

However, conferees blew a hole in the proprietary trading ban at the request of Senator Scott Brown (R-MA) whose vote may be needed in the Senate to pass the bill. The amendment allows banks to invest in hedge funds and private equity funds. The rule allows them to invest 3% of their private equity capital. This sounds like a small number, but this money can be hugely leveraged. So, for instance, Bear Stearns put $40 million into a hedge fund during the heyday of the housing bubble, and had to pony up $3.2 billion when that investment backfired in 2007- literally 80 times what they put into it. This may be one of the worst provisions in the bill and Brown was aided by the New Dem coalition in his fight to deliver this loophole to Wall Street.

FUTURE FIGHTS

The lack of progress on separating the taxpayer guarantee from the big bank derivatives trade leaves taxpayers on the hook for a future derivatives crisis. When these crises inevitably occur, they will give new fuel to measures such as that offered by Senators Brown and Kaufman to shrink the size of “too big to fail” institutions so that taxpayers will not have to go down with the Wall Street titans.

*Note of caution: much fine print still to be read.

Visit BanksterUSA to see Mary’s latest reports as things shake out about the reform bill.

(2) Speaking of Mary Bottari, hat-tip to subscriber LF for pointing out this other piece by Mary:

Wall Street Reform Bill Could Be a Big Win for the Farm Belt

Submitted by Mary Bottari on June 30, 2010 – 09:12

Everyone in America remembers the summer of 2008 when gas prices rose to over $4.00 a gallon. The puzzling price spike caused hardship for many Americans, but it had a disproportionate impact on farmer given that energy costs are one of farmers biggest costs of doing business. A repeat of this scenario not only threatens consumer pocketbooks and farm livelihoods, but could be a serious set back to an already slow economic recovery.

That possibility just became much more remote due to some last-minute maneuvers involving the Wall Street reform bill slated to be voted on in Congress this week. The derivatives chapter of the bill specifically cracks down on the energy and food commodity speculation that elevates the cost of farming and socks it to consumers.

Read the rest of the report.

(3) We in Massachusetts are dismayed at the negotiations our new senator, Scott Brown (who campaigned as a “populist”) has been doing on behalf of the Massachusetts-based banks like Fidelity and State Street. The latest was balking at the bank fee that made it into the reconciliation to pay for the new regulation. Brown forced the bill back into reconciliation and the fee is now gone. The regulation will now be financed out of TARP funds, and TARP will wind down earlier than it had been slated to. Find details in this article from today’s New York Times.

—Chris Sturr

We have sent our July/August 2010 issue to the printers, and we will soon be emailing it to e-subscribers. (Not a subscriber? Click here.)

We’ve posted a couple of the articles from the new issue to the website:  Mary Bottari’s bubble-chart comparing the Wall Street bailout to other large government expenditures (here);  and Elissa Dennis’s feature article on the Yasuni region of Ecuador and Rafael Correa’s plan to keep the region’s oil in the ground (here).

Here’s this issue’s editorial note:

Corporate Anarchy

How is the spill in the Gulf of Mexico related to the “too-big-to-fail” banks? A piece by Chilean blogger Gonzalo Lira posted to the Canadian website Global Research (globalresearch.ca) chalks it all up to what he calls “corporate anarchy,”

[in which] corporations do not have to abide by any rules—none at all. Legal, moral, ethical, even financial rules are irrelevant. They have all been rescinded in the pursuit of profit—
literally nothing else matters. … The larger the corporation, the greater its absolute freedom to do and act as it pleases.  …  The biggest of them all, like BP and Goldman Sachs, live in a positively Hobbesian State of Nature, free to do as they please, with nary a consequence.

BP has certainly done as it pleased. The New York Times has reported that the federal agency responsible for overseeing offshore drilling, the Minerals Management Service, “repeatedly declined to act on advice from its own experts” on how to minimize the risk of failure of “blowout preventers” on rigs like Deepwater Horizon. Lira speculates that BP postponed a “top-kill” of the well until it was too late, just so it could preserve its investments in the oil field. We may never know whether this is true, but what is noteworthy is how plausible it is: if a profit-making company is in charge of clean-up, why would it compromise its investment to protect the environment? (More on the Gulf spill from Linda Pinkow, p. 6, and Antonia Juhasz, p. 7.)

The big banks clearly also do just about as they please. Both the financial crisis and the “too-big-to-fail” banks themselves are the result of years of non-regulation, deregulation, and lax oversight—in other words, corporate anarchy. Now, industry lobbyists have derailed key provisions of the current financial reform bill, kept others (like a financial transactions tax) off the table completely, and are working overtime to water down what remains (like the Volcker Rule and Blanche Lincoln’s derivatives provision). Rob Larson’s cover story (p. 11) explains how the big banks got that way, and how market consolidation gives them the political clout to foil reform efforts. And this issue’s Economy in Numbers (p. 22) provides a striking visual representation of that clout, by showing how the bailout of Wall Street dwarfs other government spending priorities.

And bosses generally do as they please—and the fact that the bosses have the upper hand these days in the U.S. economy goes a long way toward explaining the long-term unemployment that characterizes the lingering recession. John Miller points out that what we have is an “employers’ strike”: even as their costs are down and profits are up, employers are refusing to hire. Employers’ response to the recession is just an extension of recent historical trends.  Veteran Boston-area organizer Mike Prokosch alerted us to a report from McKinsey Global Institute that looks at GDP growth since the ’70s. The report finds that adding new jobs accounted for 68% of GDP growth in the ’70s but by this decade, that figure had shrunk to only 28%. Now, it’s rising worker productivity that accounts for most GDP growth (72%, up from 32% in the ’70s). Mike observes: “There could hardly be a clearer explanation of the chronic job shortages in this country, and our increasingly slow jobs recovery from each recession over time.”

For a glimpse of what things look like with a government that actually pursues the public interest, check out Elissa Dennis’s feature (p. 17). Rafael Correa, Ecuador’s (sometimes) left-leaning president, has spearheaded a plan to keep some of that country’s oil in the ground, in exchange for international payments to be used for sustainable energy.  The plan would be a three-fer: avoiding the environmental damage of extraction, reducing the amount of oil available to contribute to carbon emissions, and helping to pay for sustainable energy alternatives. Let’s hope that Big Oil doesn’t stop the plan in its tracks.

Please subscribe or donate to support our work!

–Chris Sturr

Several items on immigration I have been meaning to post:

(1) From D&S collective member and frequent author Alejandro Reuss, an op-ed about immigration that was part of the Progressive Media Project of The Progressive magazine.  Some tidbits:

Conservatives Should Favor Free Immigration By Alejandro Reuss, June 4, 2010

Conservatives who claim to defend individual liberty should favor free immigration.

Restrictions on immigration are big government intrusions on the rights of people to move, live and work where they please.

If conservatives really believe in small government, they should not favor border walls or patrols, workplace raids or deportations. In fact, they should call for the elimination of all restrictions on immigration.

Conservatism in the United States is really an amalgam of two different points of view.

Economic conservatives have used free market rhetoric mainly to justify pro-business policies, attacking organized labor, opposing social-welfare programs and undermining government regulation of business. Social conservatives, meanwhile, yearn for an imagined past of “traditional values” and ethnic and cultural homogeneity.

The two groups, however, are not completely distinct, and both make heavy use of the rhetoric of individual liberty.

Overall, the ideology of free markets has been a terrible guide to economic policy over the last thirty years. It has left us with a tattered social safety net, a gravely weakened labor movement and the reckless deregulation of industry and finance that helped detonate the Great Recession. Such policies have also facilitated income and wealth inequality unseen since the 1920s.

On immigration, however, it would be better if the free-market conservatives were truer to their professed principles. Free-market conservatives denounce restrictions on international trade as protectionism. They argue against restrictions on international investment. Why should the international movement of people be any different? Restrictions on living or working where one wants are among the greatest government intrusions against individual liberty.

Even cultural conservatives who pine for an early 19th-century style minimalist federal government should consider that the traditions of that time did not include restrictions on immigration.

“Before 1882, immigration to the United States was barely regulated at all,” notes Claire Lui of American Heritage magazine. “The concept of illegal immigration did not yet exist. Almost anyone who wanted to move to America was free to do so.”

In U.S. politics today, nobody would tolerate border patrols demanding proof that an individual from, say, Oregon had the right to cross into California. Were anyone to suggest such a thing, conservatives would surely raise hell about government “thugs” robbing us of our freedoms. Somehow, though, there is no hue and cry from conservatives when it comes to restrictions on people crossing from Mexico into California.

Instead, what we hear from conservatives are calls for more walls, barbed wire, surveillance cameras and armed troops — all to keep people from moving and living where they please.

So why don’t conservatives favor free immigration? Perhaps they do not really mind government power so much, as long as it is pointed at someone else.

Ok, that was all of it.  But it ran three weeks ago.  Here’s the original version on the website of The Progressive (but it ran as an op-ed in a bunch of papers, apparently, via McClatchey, I think).

(2) As if they’d read Alejandro’s op-ed, Rupert Murdoch and Michael Bloomberg are joining together with a bunch of CEOs to push for immigration reform. (Read the fine print, though, to see what kind of “legal status” they want–I’d bet it’s some kind of guestworker status.) Part of the Huffpo article:

Rupert Murdoch, Mayor Bloomberg Lobby For Immigration Reform, Path To ‘Legal Status’ For Illegal Immigrants

NEW YORK (AP)— Chief executives of several major corporations, including Hewlett-Packard, Boeing, Disney and News Corp., are joining Mayor Michael Bloomberg to form a coalition advocating for immigration reform – including a path to legal status for all undocumented immigrants now in the United States.

The group includes several other big-city mayors and calls itself the Partnership for a New American Economy. It seeks to reframe immigration reform as the solution to repairing and stimulating the economy.

Bloomberg and Rupert Murdoch, chairman and CEO of News Corp., appeared together Thursday on Fox News to discuss the effort.

“We’re just going to keep the pressure on the congressmen,” Murdoch said. “I think we can show to the public the benefits of having migrants and the jobs that go with them.”

Bloomberg added, “Somebody has to lead and explain to the country why this is in our interest.”

The CEOs said Thursday in statements that their companies – and the nation – depend on immigrants.

Read the whole article.

(3) Something funny from Stephen Colbert:

Immigrant farm workers’ challenge: Take our jobs

SAN FRANCISCO – In a tongue-in-cheek call for immigration reform, farm workers are teaming up with comedian Stephen Colbert to challenge unemployed Americans: Come on, take our jobs.

Farm workers are tired of being blamed by politicians and anti-immigrant activists for taking work that should go to Americans and dragging down the economy, said Arturo Rodriguez, the president of the United Farm Workers of America.

So the group is encouraging the unemployed–and any Washington pundits or anti-immigrant activists who want to join them–to apply for the some of thousands of agricultural jobs being posted with state agencies as harvest season begins.

All applicants need to do is fill out an online form under the banner “I want to be a farm worker” at http://www.takeourjobs.org, and experienced field hands will train them and connect them to farms.

Read the full article.

–Chris Sturr

I really can’t recommend Global Research’s page on the BP disaster enough.  It’s not (or not mostly?) original content, but it’s a great collection of stuff.  For example:

(1) This piece on the judge who blocked the moratorium on offshore drilling:

The federal judge who lifted Obama’s six-month drilling moratorium had interests in Transocean and a number of other offshore energy companies, according to financial disclosure forms from 2008.

Martin Feldman, a U.S. District Court Judge for the Eastern District of Louisiana, held energy stocks in Transocean and Halliburton, as well as two of BP’s largest U.S. private shareholders — BlackRock and JP Morgan Chase. The law Feldman overturned would have halted the approval of any new permits and suspended deepwater drilling at 33 existing exploratory wells in the Gulf, four of which are BP rigs.

“It’s pretty damning,” said Kate Gordon, Vice President for Energy Policy at American Progress. “Transocean is the world’s largest offshore drilling company. It holds most of the offshore drilling rigs in the world. So this is… a clear conflict of interest. I think folks should have known because of the history this region has of having conflicts of interests with judges on this issue. The region has got to have a list of judges that have these conflicts because this comes up all the time.”

Read the full article (originally on HuffPo, apparently, but I can’t find it there).

(2) Am I the only one who missed this?  BP Chief Tony Hayward Sold Shares Weeks Before Oil Spill.  Originally in the Telegraph.

(3) Today’s New York Times has an article about BP’s pipeline in Alaska, but Greg Palast (sometime D&S author and muckraker extraordinaire) scooped them by more than three weeks:

Smart Pig: BP’s OTHER Spill this Week

BP’s Alaska Operation With the Gulf Coast dying of oil poisoning, there’s no space in the press for British Petroleum’s latest spill, just this week: over 100,000 gallons, at its Alaska pipeline operation. A hundred thousand used to be a lot. Still is.

On Tuesday, Pump Station 9, at Delta Junction on the 800-mile pipeline, busted. Thousands of barrels began spewing an explosive cocktail of hydrocarbons after “procedures weren’t properly implemented” by BP operators, say state inspectors “Procedures weren’t properly implemented” is, it seems, BP’s company motto.

Few Americans know that BP owns the controlling stake in the trans-Alaska pipeline; but, unlike with the Deepwater Horizon, BP keeps its Limey name off the Big Pipe.

There’s another reason to keep their name off the Pipe: their management of the pipe stinks. It’s corroded, it’s undermanned and “basic maintenance” is a term BP never heard of.

How does BP get away with it? The same way the Godfather got away with it: bad things happen to folks who blow the whistle. BP has a habit of hunting down and destroying the careers of those who warn of pipeline problems.

In one case, BP’s CEO of Alaskan operations hired a former CIA expert to break into the home of a whistleblower, Chuck Hamel, who had complained of conditions at the pipe’s tanker facility. BP tapped his phone calls with a US congressman and ran a surveillance and smear campaign against him. When caught, a US federal judge said BP’s acts were “reminiscent of Nazi Germany.”

This was not an isolated case. Captain James Woodle, once in charge of the pipe’s Valdez terminus, was blackmailed into resigning the post when he complained of disastrous conditions there. The weapon used on Woodle was a file of faked evidence of marital infidelity. Nice guys, eh?

Read the rest of the article. (4) BP Tells Cleanup Workers They’ll Be Fired If They Wear Respirators. And there’s lots of other good stuff at the Global Research BP Disaster page. Check it out yourself. –Chris Sturr

Excellent piece by Gonzalo Lira at the Canadian website Global Research, which has a whole section of great material on BP and the Gulf spill (here).  I will be quoting from this article in my editorial note for the July/August issue of D&S–it fits perfectly since we have two short articles on the BP spill, plus a feature on the Ecuadoran plan to keep oil in the ground in that country’s Amazon region, plus our cover story on how the too-big-to-fail banks got that way. What do BP and the Banks Have In Common? The Era of Corporate Anarchy by Gonzalo Lira

On the occasion of the BP oil spill disaster, President Obama’s delivered an Oval Office speech last night–a masterpiece of milquetoast faux-outrage. The speech was all about “clean energy” and “ending our dependence on fossil fuels”. Faced with the BP oil spill—likely the most severe environmental disaster ever—this was President Obama’s response: Polite outrage, and vague plans to “get tough”, “set aside just compensation” and “do something”.

President Obama missed what the BP oil spill disaster is really about. Though unquestionably an environmental disaster, the BP oil spill is much much more.

The BP oil spill is part of the same problem as the financial crisis: The BP oil spill and the banking crisis are two examples of the era we are living in, the era of corporate anarchy.

In a nutshell, in this era of corporate anarchy, corporations do not have to abide by any rules–none at all. Legal, moral, ethical, even financial rules are irrelevant. They have all been rescinded in the pursuit of profit—literally nothing else matters.

As a result, corporations currently exist in a state of almost pure anarchy–but an anarchy directly related to their size: The larger the corporation, the greater its absolute freedom to do and act as it pleases. That’s why so many medium-sized corporations are hell-bent on growth over profits: The biggest of them all, like BP and Goldman Sachs, live in a positively Hobbesian State of Nature, free to do as they please, with nary a consequence.

The added bonus to this, though, is that the largest corporations have convinced the governments and the people of the “Too Big To Fail” fallacy–they have convinced the world that if they cease to exist, the sky will fall atop our collective heads. So if they fail, they must be saved–without argument, without penalty, and without reform.

Read the rest of the article.

—Chris Sturr

Two more items:

(1) The current issue of Extra!, the magazine of Fairness and Accuracy in Reporting, is about inequality, and there are (as always) some really great article. Two worth mentioning:

Wealth Gap Yawns—and So Do Media
Little interest in study of massive race/gender disparities
By Julie Hollar

Who Ate the Dessert?
Deficit mania ignores growth of income gap
By Neil deMause

Gotta love those titles. If you don’t subscribe to Extra!, you should do so immediately (click here).

(2) Immigrant Workers Targeted in Gulf Oil Spill Cleanup.
Hat-tip to the folks at Interfaith Worker Justice for alerting us to an article currently on the website of ColorLines, Louisiana Cops Probe Oil Spill Workers for Immigrant Gangsters. A tidbit from this article:

Fears have been circulating among immigrant workers involved in oil spill cleanup ever since ICE agents made their presence felt in May. In the Feet in Two Worlds and El Diario/La Prensa report last week, workers spoke from two command centers in St. Bernard Parish and Plaquemines Parish, both in southeast Louisiana, about encountering ICE agents. Feet in Two Worlds reporter Annie Correal wrote, “ICE agents arrived at the staging areas without prior notice, rounded up workers, and asked for documentation of their legal status,” citing Louisiana ICE spokesperson Temple Black. 
 


Asked about these reports by ColorLines, Black at first only gave this statement: 
 


“At the request of the private sector and local law enforcement, ICE conducted trainings on hiring requirements, such as verification of eligibility to work. ICE was also asked to perform a number of work authorization checks, all of which were valid. ICE neither conducted a worksite enforcement operation in conjunction with these requests nor made any arrests.”

This sounds like a replay of lots of ICE harassment that happened post-Katrina. Read the rest of the article here.

—Chris Sturr

Some items on banking reform, which is still in reconciliation: According to the Wall Street Journal and other outlets, Democrats are sparring over Blanche Lincoln’s derivatives provision (which would bar banks from derivatives trading, requiring them to spin off their divisions that trade in them).

Here’s an article at HuffPo by Robert Pollin of the Political Economy Research Institute and SAFER about the importance of regulating derivatives, and why speculation in commodities futures is a special concern. A tidbit:

[P]robably the most contentious issue outstanding will be how to regulate the markets for derivative financial instruments. Financial market derivatives include many of the esoteric Wall Street inventions that led to the near collapse of the U.S. and global financial system in 2008-09, including subprime mortgage-backed securities and credit default swaps. Other types of derivatives include what had once been plain-vanilla options and future contracts for commodities such as oil and food, that farmers and others have long relied on to help maintain stability in their business operations and plan for the future. But deregulation also converted these derivative markets for basic commodities into gambling casinos, which led to the severe price swings in 2008-09 that destabilized businessand household budgets in the U.S. and throughout the world.

Here’s the rest of Pollin’s article.

According to another HuffPo article, Thomas Hoenig, the president of the Kansas City Fed, favors stronger derivatives regulations than the Obama administration is calling for.

Jane D’Arista, also of SAFER, has also weighed in on the topic at The Baseline Scenario, the blog run by Simon Johnson and James Kwak. And here is a pdf of the letter the SAFER economists sent to the reconciliation committee.

And here is a statement from Mary Bottari of the Center for Media Democracy and BanksterUSA, with steps you can take to push for Section 716 of the banking reform bill (the part that would regulate derivatives). Details:

Casino Banking
Currently the five largest banks in the United States have an anti-competitive strangle-hold on 90 percent of the U.S. swaps and derivatives market worth some $300 trillion. The five banks are Goldman Sachs, Morgan Stanley, JP Morgan Chase, Citigroup and Bank of America. These five bank-dealers can fund their swaps trading units with FDIC-insured deposits. They have access to the Federal Reserve’s discount window, which allows them to borrow money for gambling in swaps at near-zero percent interest rates. But these government supports were created to reassure the public that their deposits are safe, and to protect banks from runs on their deposits –- not to help banks finance their own casinos.

Play with Your Own Money, Not Ours
Sec. 716 of the Senate bill contains a ban on federal government assistance to any swap entity. In effect, Sec. 716 will require the five largest banks/swaps dealers to spin off their swaps desks into a separately capitalized affiliate – in other words to Wall off the casino from old fashioned banking. The measure is geared entirely towards preventing a situation in which taxpayers would once again be liable for the bad bets of big banks. Sec. 716 would ensure that private sector institutions alone are responsible for these risky trades.

See the rest of the post, including details about what you can do, the House and Senate Conferees you can contact, etc.

—Chris Sturr

Multiple apologies again for the skimpy posting lately–things have been busy here at the D&S office. I hope we can begin posting more regularly soon.

For now, here are some items on the BP Gulf oil spill that have been accumulating on my desk; I will do an post of oil- and tarball-free items later today or tomorrow.

(1) BP Out of Its Depth: D&S e-subscriber and WordPress helper Shaun S. also has a blog, Counter Economics. I had dinner with Shaun the other day, meeting him in person for the first time, and he was citing some technical info about the oil spill that I hadn’t heard from my usual sources. He said he’s been reading engineering sites, and that some of his findings can be found on his blog. Here’s a sample:

How Deep Was BP Drilling?

Interesting comments from different articles on the disaster.

1. BP was drilling deeper than the 18,000 foot limit they were supposed to operate within.
2. BP failed to inform their subcontractor, Haliburton, of the true depth of the well. Haliburton poured enough concrete to cap an 18,000 foot well, but the increased pressure blew the cap.
3. BP initially claimed that the well was capped and there was no leakage. While they were lying it is estimated that 2.5 million gallons a day was and is continuing to shoot from the ocean floor.
4. The US Coast Guard repeated BP’s claim, therefore, government response was delayed until the truth “leaked” out.
5. BP was also responsible for spill containment for Prince William Sound, where the Exxon Valdez disaster occurred. BP was found to be negligent, having lied to the US government about the number of booms, cleanup vessels, and trained crews that it had on call in the area. In fact, to cut costs, BP had no booms and had fired all the trained crews and replaced them with untrained workers.
6. It is suspected that BP has done similar cost cutting in the Gulf. They did not have the required personnel on hand and stonewalled with claims of no leakage while they readied a token show of preparedness.

According to Robert Kennedy Jr., there is now conclusive evidence that BP was drilling to 25,000 feet, even though they only had a permit to drill to 18,000 feet. Of course the question should be “why?” the platform was not periodically reviewed and its records checked. Another question which should be raised is if no well has ever been capped at 5000 feet (the sea floor depth of the well, not the overall well depth), how did BP get a permit to drill there in the first place? Do we make a habit of providing permits for activities that if there is an accident, there is no proven method of stopping the damage? If so, why?

Here’s the rest of the post.

(2) The Spill, Climate Change, and a Carbon Tax. An interesting item by longtime Boston-area economics reporter David Warsh, from his online column Economic Principals:

The Gulf oil spill has a way of putting in perspective our other troubles. Suppose the first few shards of evidence hold up—that BP engineers were under some pressure to cut costs by electing cheaper safety methods against the possibility of a blowout?

What would be the cost, going forward, of increasing tenfold the precautionary apparatus installed at every undersea well-head around the world? Fifty cents a barrel? A dollar? That’s not much in a world of $75/bbl oil—surely not much more than a penny a gallon at the pump. That the costs of enhanced safety methods, including better governmental oversight, will be borne, mostly by the consumer, is a foregone conclusion

The really daunting risks have to do not with the production of oil but with humankind’s accelerating consumption of it, and other fossil fuels—not that this is a bad thing in itself, except that it has undesirable side effects that may be accelerating even faster.

He goes on to talk about a review by philosopher of science Philip Kitcher of a bunch of books on climate change, and Kitcher’s comments about the state of skepticism of science today. Read the full column here.

(3) Twitter Satire: Hat-tip to our new intern Elizabeth M. for pointing out the satirical Twitter feed BPGlobalPR, which affirms that “We are not associated with Beyond Petroleum, the company that has been destroying the Gulf of Mexico for 51 days,” yet has these hilarious tweets:

# Wait, Oil PLUMES? We thought you asked about oil PLUMS in the ocean. How silly! Yes, yes, there are TONS of oil plumes! about 1 hour ago via web

# We bought google, bing gave 100k to help. Come on yahoo! Buy $100,000 worth of free “bp cares” t-shirts! #bprebrand about 11 hours ago via TweetDeck

# Proud to announce we’ve partnered with Google to turn the Information Superhighway into a Corporate Bus Route. #bpcares about 16 hours ago via web

# Surprised ourselves by getting emotional on the coast today. Turns out the wind blew dispersant in our eyes. #BPrebrand about 19 hours ago via web

# Alright, back to work everyone! It’s World Ocean Day! Everybody do your part! #BPrebrand http://twitpic.com/1v5ayp about 19 hours ago via Twitpic

# We at BEYOND POLLUTION Global PR are unhappy to announce yet another $10,000 donation to @healthygulf #BPrebrand about 20 hours ago via web

Check out the full Twitter page.

(4) What Toxic Crap Will We Get This Time? A huge and full hat-tip to our business manager Paul P. for finding this juicy tidbit on the Wikipedia page on the Exxon Valdez spill:

In the case of Baker v. Exxon, an Anchorage jury awarded $287 million for actual damages and $5 billion for punitive damages. The punitive damages amount was equal to a single year’s profit by Exxon at that time. To protect itself in case the judgment was affirmed, Exxon obtained a $4.8 billion credit line from J.P. Morgan & Co. This in turn gave J.P. Morgan the opportunity to create the first modern credit default swap in 1994, so that J.P. Morgan would not have to hold so much money in reserve (8% of the loan under Basel I) against the risk of Exxon’s default.

The Wikipedia article cites this 2009 New Yorker article for this bit of history.

The question is: if the Exxon Valdez spill gave us the credit default swap, what kind of destructive and toxic “innovation will the BP/Deepwater Horizon/Gulf Oil Spill give us?

A few items (apologies again for so few posts lately–the energy I’d be putting into posting has gone into fixing the blog):

(1) On Banking Reform. Now that the banking regulation bill is in reconciliation, it will be interesting to see what comes out the other end of the sausage-maker, and in particular whether all the good bits get discarded.

We’re working on our July/August issue right now, and one of the feature articles, “Not Too Big Enough,” by Rob Larson, will look at the too-big-to-fail banks, how they got that way, and why the current reform is unlikely to solve the TBTF problem. We’ll also have a review of the banking legislation, what got in, what got left out, and what never got considered. The next few weeks will obviously be crucial.

Mary Bottari of the Center for Media Democracy and BanksterUSA has been on top of the reconciliation process. This is from a recent email from her:

THE FINAL FIGHT: NO MORE GAMBLING WITH TAXPAYER MONEY

Even thought the bank reform bill working its way through Congress is far from perfect, there are some strong provisions well worth fighting for as the bill moves to a House-Senate conference committee.

Two recent articles illustrate the pros and cons of this behemoth bill. New York Times reporter Gretchen Morgenson, does a great job reminding us that the original Glass-Steagall legislation was only 34 pages long and it was key to keeping our financial system stable for 60 years. She points out that the two bills that the Senate and the House have now passed are a whopping 3,000 pages combined.

Yet despite all that verbiage, there are flaws in both bills that would let Wall Street continue devising financial black boxes that have the potential to go nuclear. And even if the best of both bills becomes law, investors, taxpayers and the economy will remain vulnerable to banking crises.

We agree, the bills are far from perfect and will not prevent the next crisis. But while some will walk away in frustration, we think there are a few things left in the legislation that are worth fighting for. Chief among these is the Senate derivatives chapter, which is head and shoulders better than the House version. The main goal of the Senate derivatives chapter is to separate reckless Wall Street gambling from the taxpayer guarantee. Morgenson’s article notes that this language is under attack and highlights the fact that taxpayers are now backstopping and unbelievable 59% of the financial sector.

Lawmakers who are charged with consolidating the two bills are talking about eliminating language that would bar derivatives facilities from receiving taxpayer bailouts if they get into trouble. That means a federal rescue of an imperiled derivatives trading facility could occur. (Again, think A.I.G.)

Surely, we beleaguered taxpayers do not need to backstop any more institutions than we do now. According to Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond, Va., only 18 percent of the nation’s financial sector was covered by implied federal guarantees in 1999. By the end of 2008, his bank’s research shows, the federal safety net covered 59 percent of the financial sector.

Because the Senate derivatives language is so strong, it is under attack from all sides. Michael Lewis, New York Times writer and author of the best selling book on the crisis “The Big Short,” had a spot-on analysis of the bill in a very funny Sunday op-ed called “Shorting Reform.” The article is written as a memo from a lobbyist to his bosses at the big banks.

Shockingly, the Senate version of the bill more or less would require us to cease to trade derivatives entirely. This unpleasant idea was introduced by Senator Blanche Lincoln of Arkansas, and it leads me to a point that is worth underscoring: We do not have a problem with the American people, we have a problem with American women. Elizabeth Warren, our TARP supervisor, continues to ask questions about what we did with our government money; Mary Schapiro has used her authority at the S.E.C. to sue Goldman Sachs. Of the four Republican senators who crossed over to vote with the Democrats, two were women – and one of the guys posed naked for Cosmopolitan magazine.

Going forward, we should discourage women from seeking higher office – or indeed, any position in which they might exert influence over our activities. More immediately, in your private conversations with Larry Summers, Tim Geithner and male Republican senators, you should simply refer to Blanche Lincoln as “unhinged.” They’ll get it.

This must indeed be the backroom banter. How else can the Obama administration defend its opposition to the Lincoln measure?

At this point, these strong provisions are in the bill. To preserve them we need to focus like a laser on the conference committee and force all proceedings into the light of day. All amendments to the bill need to be posted online days in advance so the public can read them and analyze them. Each amendment needs to be subject to a roll call vote, and all proceedings must be televised. Citizen journalists should be in the room along with live bloggers.

Tell Us Your Ideas

Do you have other ideas on how to hold the Bankster Party accountable? Send them our way in the comments section of our Bankster blog. At BanksterUSA.org will be working on transparency and accountability during this next stage of the fight. We will be outing the conferees who are against strong derivatives reform and supporting those who do the right thing. Thanks to the many who called your Senators about the Lincoln derivatives language and reported back to us on our 1st ever Bankster whip list. We will do it again for the conferees soon. We hope you will stay tuned in, stay in the fight and tell your friends and family to sign up for email alerts at BanksterUSA.org.

(2) The Oil Spill. A second feature in our July/August issue will be on the Yasuni region of the Amazon, in eastern Ecuador, where Pres. Rafael Correa has proposed to keep crude oil in the ground in exchange for payment to Ecuador from the international community. This innovative proposal–opposed by the oil industry–to keep the oil in the ground has multiple advantages: avoiding the ecological harm of extraction (now so obvious because of Deepwater Horizon in the Gulf of Mexico); less oil out there to burn, so reducing greenhouse gas emissions; plus the payments Ecuador would get would be used to develop alternative energy sources and conservation measures.

Anyhow, a couple of interesting items have come to our attention. One is from the Christian Science Monitor, about a study of “blowout preventers” that the oil industry produced (but did not publicize) that shows that measures to prevent blowouts of the sort that led to the current disaster in the Gulf are not very effective.

Second item, from Good Morning America, via the Center for Media Democracy’s PR Watch (thanks again, Mary!): what BP doesn’t want you to see–underwater plumes of oil mixed with chemical dispersant, as viewed by a GMA dude and the grandson of Jacques Cousteau, clad in hazmat dry-wetsuits. Ick. Poor fish, poor marine life in general. View here.

That’s all for now. I promise to try to post more frequently.

Counterspin, the excellent radio edition of Extra!, the excellent left media criticism magazine of Fairness and Accuracy in Reporting (FAIR), interviewed D&S author Mike Epitropoulos for this week’s program. (Mike wrote Greece as a Demonstration Project for our current issue.)

Listen to the interview (and the whole program) here.

Now that I have at least a temporary fully functioning blog to use, I can post several items that have come across my desk over the past few days. D&S subscriber and WordPress-pro Shaun S. has kindly offered to help us migrate once again to a permanent WordPress blog located on our own server, so I hope that will be up and running very soon. Here are those item, in no particular order:

(1) Another interesting paper by Jayati Ghosh (the earlier one I posted from was on food security and derivatives), this time on a surge of private capital flows into emerging markets, aka speculative “carry trade”:

Once again, emerging markets have become the (often unwilling) “beneficiaries” of a surge in private capital flows. Once again, this is not really being used within most receiving economies, since they continue to add to their external reserves. And once again, this is creating additional and often complicated problems of macroeconomic management, with conflicts between different domestic goals.

Some of this renewed capital inflow relates to the perceptions of private investors about better long term economic growth prospects in countries like China, India, Brazil and so on. But much of this is simply what is known as the “carry-trade”, which is essentially the attempt to benefit from different rates of return on assets in different currencies.

This is not a new tendency–for example, in the late 1990s, the Japanese yen carry trade (which was based on interest rate arbitrage) caused significant exchange rate movements that affected its trade partners adversely. Todays basic source of the carry trade is the US economy. This results from the very loose monetary policy that was part of the stimulus package, with low interest rates, easy credit policies and “quantitative easing” (which is the current euphemism for deficit financing in the form of money creation). These have all provided a significant increase in access to funds at very low nominal interest rates that are actually negative in real terms, because they are well below expected inflation.

As a result, the big players in international capital markets–banks, mutual funds, hedge funds and the like–have renewed risk appetite and are making forays into emerging markets (mostly through portfolio flows) as well as into commodity markets (mostly in the futures markets). In the past one year there has been a near doubling of net private capital flows into emerging markets.

Read the rest of the article.

(2) Ezra Klein interviews Jamie Galbraith on the deficit: “The danger posed by the deficit ‘is zero’”. Hat-tip to Aslam K.:

EK: You think the danger posed by the long-term deficit is overstated by most economists and economic commentators.

JG: No, I think the danger is zero. It’s not overstated. It’s completely misstated.

EK: Why?

JG: What is the nature of the danger? The only possible answer is that this larger deficit would cause a rise in the interest rate. Well, if the markets thought that was a serious risk, the rate on 20-year treasury bonds wouldn’t be 4 percent and change now. If the markets thought that the interest rate would be forced up by funding difficulties 10 year from now, it would show up in the 20-year rate. That rate has actually been coming down in the wake of the European crisis.

So there are two possibilities here. One is the theory is wrong. The other is that the market isn’t rational. And if the market isn’t rational, there’s no point in designing policy to accommodate the markets because you can’t accommodate an irrational entity.

EK: Then why are the bulk of your colleagues so worried about this?

JG: Let’s push a bit deeper on the CBO forecasts. They publish a baseline set of projections. One of those projections holds the economy will return to a normal high-employment level with low inflation over the next 10 years. If true, that would be wonderful news. Go down a few lines and they also have the short-term interest rate going up to 5 percent. It’s that short-term interest rate combined with that low inflation rate that allows them to generate, quite mechanically, these enormous future deficit forecasts. And those forecasts are driven partially by the assumption that health-care costs will rise forever at a faster rate than everything else and by interest payments on the debt will hit 20 or 25 percent of GDP.

At this point, the whole thing is completely incoherent. You cannot write checks to 20 percent to anybody without that money entering the economy and increasing employment and inflation. And if it does that, then debt-to-GDP has to be lower, because inflation figures into how much debt we have. These numbers need to come together in a coherent story, and the CBO’s forecast does not give us a coherent story. So everything that is said that is based on the CBO’s baseline is, strictly speaking, nonsense.

EK: But couldn’t there be a space between the CBO being totally correct and the debt not being a problem? It seems certain, for instance, that health-care costs will continue to rise faster than other sectors of the economy.

JG: No, it’s not reasonable. Share of health-care cost would rise as part of total GDP and the inflation would rise to be nearer to what the rate of health-care inflation is. And if health care does get that expensive, and we’re paying 30 percent of GDP while everyone else is paying 12 percent, we could buy Paris and all the doctors and just move our elderly there.

EK: But putting inflation aside, the gap between spending and revenues won’t have other ill effects?

JG: Is there any terrible consequence because we haven’t prefunded the defense budget? No. There’s only one budget and one borrowing authority and all that matters is what that authority pays. Say I’m the federal government and I wish to pay you, Ezra Klein, a billion dollars to build an aircraft carrier. I put money in your bank account for that. Did the Federal Reserve look into that? Did the IRS sign off on it? Government does not need money to spend just as a bowling alley does not run out of points.

What people worry about is that the federal government won’t be able to sell bonds. But there can never be a problem for the federal government selling bonds. It goes the other way. The government’s spending creates the bank’s demand for bonds, because they want a higher return on the money that the government is putting into the economy. My father said this process is so simple that the mind recoils from it.

EK: What are the policy implications of this view?

JG: It says that we should be focusing on real problems and not fake ones. We have serious problems. Unemployment is at 10 percent. if we got busy and worked out things for the unemployed to do, we’d be much better off. And we can certainly afford it. We have an impending energy crisis and a climate crisis. We could spend a generation fixing those problems in a way that would rebuild our country, too. On the tax side, what you want to do is reverse the burden on working people. Since the beginning of the crisis, I’ve supported a payroll tax holiday so everyone gets an increase in their after-tax earnings so they can pay down their mortgages, which would be a good thing. You also want to encourage rich people to recycle their money, which is why I support the estate tax, which has accounted for an enormous number of our great universities and nonprofits and philanthropic organizations. That’s one difference between us and Europe.

EK: That does it for my questions, I think.

JG: I have one more answer, though! Since the 1790s, how often has the federal government not run a deficit? Six short periods, all leading to recession. Why? Because the government needs to run a deficit, it’s the only way to inject financial resources into the economy. If you’re not running a deficit, it’s draining the pockets of the private sector. I was at a meeting in Cambridge last month where the managing director of the IMF said he was against deficits but in favor of saving, but they’re exactly the same thing! A government deficit means more money in private pockets.

The way people suggest they can cut spending without cutting activity is completely fallacious. This is appalling in Europe right now. The Greeks are being asked to cut 10 percent from spending in a few years. And the assumption is that this won’t affect GDP. But of course it will! It will cut at least 10 percent! And so they won’t have the tax collections to fund the new lower level of spending. Spain was forced to make the same announcement yesterday. So the Eurozone is going down the tubes.

On the other hand, look at Japan. They’ve had enormous deficits ever since the crash in 1988. What’s been the interest rate on government bonds ever since? It’s zero! They’ve had no problem funding themselves. The best asset to own in Japan is cash, because the price level is falling. It gets you 4 percent return. The idea that funding difficulties are driven by deficits is an argument backed by a very powerful metaphor, but not much in the way of fact, theory or current experience.

Read the original interview. Also see Marty Wolfson’s article on myths of the deficit in the current issue of D&S.

(3) More, and more recent, from Jamie Galbraith–from a written statement to the Senate Judiciary Committee: “I write to you from a disgraced profession.”:

Chairman Specter, Ranking Member Graham, Members of the Subcommittee, as a former member of the congressional staff it is a pleasure to submit this statement for your record.

I write to you from a disgraced profession. Economic theory, as widely taught since the 1980s, failed miserably to understand the forces behind the financial crisis. Concepts including “rational expectations,” “market discipline,”efficient markets hypothesis” led economists to argue that speculation would stabilize prices, that sellers would act to protect their reputations, that caveat emptor could be relied on, and that widespread fraud therefore could not occur. Not all economists believed this—but most did.

Read the full statement, available at the Real World Economics Review, aka the Post-Autistic Economics Review.

(4) Also from the Real World Economics Review, aka the Post-Autistic Economics Review (whose new name they adopted at least 27 years after we’d been calling our textboos the “Real World” series, ahem, but we love them anyway): The Revere Award for Economics is awarded to Steve Keen (contributor to D&S‘s Economic Crisis Reader), Nouriel Roubini, and Dean Baker, who wrote about the housing bubble in a D&S article back in January of 2005. Kudos!

(5) Hat-tip to D&S collective member and Bentley University economist AND senior lecturer Herr Prof. Bryan Snyder for pointing us to this astroturf website, purporting to be worried about too big to fail, but in fact trying to block financial (re-)regulation. As reported at Talking Points Memo among other sites, the site duped MIT economist Simon Johnson (here responding at his blog Baseline Scenario) and former labor secretary Robert Reich, who referred to the website as engaging in “swiftboating” of reform.

That’s all for now.

—CS