Comforting the comfortable while afflicting the afflicted

According to the NY Times (http://www.nytimes.com/interactive/2009/02/04/business/20090205-bailout-totals-graphic.html) the government has already actually dispersed $2 trillion, and made commitments of $8.8 trillion in trying to respond to the fiscal crisis.

The way the money was committed:

$4.6 trillion: The Government As Investor
$2.4 trillion: The Government As Lender
$1.8 trillion: The Government As Insurer

Jobs saved=0

A.I.G. alone received commitments of $53 billion.
Bear Stearns alone received commitments of $29 billion.

35% of the new "stimulus" bill passed is tax breaks that will help the rich.

See the Krugman pieces below. Its stark. As Krugman points out:

Will those public-private partnerships end up being a covert way to bail out bankers at taxpayers’ expense? Or will the required “stress test” act as a back-door route to temporary bank nationalization (the solution favored by a growing number of economists, myself included)? Nobody knows.

I don't know. I don't have the stomach yet to read the bill.

Krugman, in Obama on nationalization, the second article below, says:

Nationalization is actually as American as apple pie.

What threatens to be the abject failure of the Obama administration to produce a viable and realistic plan to address the fiscal crisis is at its heart the result of his lack of a class struggle outlook and focus on bipartisanship, which objectively undermines working class interests.

Again, I'll quote Paul Krugman from The Destructive Center, attached below.

All in all, the centrists’ insistence on comforting the comfortable while afflicting the afflicted will, if reflected in the final bill, lead to substantially lower employment and substantially more suffering.

But how did this happen? Is President Obama’s belief that he can transcend the partisan divide — a belief that results in warping his economic strategy - a sound basis for dealing with the fiscal crisis?

After all, many people expected Mr. Obama to come out with a really strong stimulus plan, reflecting both the economy’s dire straits and his own electoral mandate.

Instead, however, he offered a plan that was clearly both too small and too heavily reliant on tax cuts. Why? Because he wanted the plan to have broad bipartisan support, and believed that it would. Not long ago administration strategists were talking about getting 80 or more votes in the Senate.

We are asked to be grateful that something, anything, was done to address the fiscal crisis. The whole discussion around dealing with the criris, and its focus on the institutions of wage slavery (banks, mortgage vendors, insurers, and other rotten meat clinging to the terminally ill body of the capitalist vulture), is wrong.

We need as a society to focus on the needs of working families. Let the bankers drown in their red ink. Working families have mouths to feed and homes to warm.

To reiterate:

Nationalization is actually as American as apple pie.

There are different types of nationalization. The best reform response to the current fiscal crisis is to nationalize the structures of the economy and bring them under centralized and democratic control of the government. In the end, socialism is the only real solution to this crisis, and the ones that will follow as long as we wallow in the morass of capitalism, a system that is out of tune with its own productive forces and the needs of the people who must survive its inequities.


February 13, 2009
Op-Ed Columnist
Failure to Rise
By PAUL KRUGMAN
By any normal political standards, this week’s Congressional agreement on an economic stimulus package was a great victory for President Obama. He got more or less what he asked for: almost $800 billion to rescue the economy, with most of the money allocated to spending rather than tax cuts. Break out the Champagne!

Or maybe not. These aren’t normal times, so normal political standards don’t apply: Mr. Obama’s victory feels more than a bit like defeat. The stimulus bill looks helpful but inadequate, especially when combined with a disappointing plan for rescuing the banks. And the politics of the stimulus fight have made nonsense of Mr. Obama’s postpartisan dreams.

Let’s start with the politics.

One might have expected Republicans to act at least slightly chastened in these early days of the Obama administration, given both their drubbing in the last two elections and the economic debacle of the past eight years.

But it’s now clear that the party’s commitment to deep voodoo — enforced, in part, by pressure groups that stand ready to run primary challengers against heretics — is as strong as ever. In both the House and the Senate, the vast majority of Republicans rallied behind the idea that the appropriate response to the abject failure of the Bush administration’s tax cuts is more Bush-style tax cuts.

And the rhetorical response of conservatives to the stimulus plan — which will, it’s worth bearing in mind, cost substantially less than either the Bush administration’s $2 trillion in tax cuts or the $1 trillion and counting spent in Iraq — has bordered on the deranged.

It’s “generational theft,” said Senator John McCain, just a few days after voting for tax cuts that would, over the next decade, have cost about four times as much.

It’s “destroying my daughters’ future. It is like sitting there watching my house ransacked by a gang of thugs,” said Arnold Kling of the Cato Institute.

And the ugliness of the political debate matters because it raises doubts about the Obama administration’s ability to come back for more if, as seems likely, the stimulus bill proves inadequate.

For while Mr. Obama got more or less what he asked for, he almost certainly didn’t ask for enough. We’re probably facing the worst slump since the Great Depression. The Congressional Budget Office, not usually given to hyperbole, predicts that over the next three years there will be a $2.9 trillion gap between what the economy could produce and what it will actually produce. And $800 billion, while it sounds like a lot of money, isn’t nearly enough to bridge that chasm.

Officially, the administration insists that the plan is adequate to the economy’s need. But few economists agree. And it’s widely believed that political considerations led to a plan that was weaker and contains more tax cuts than it should have — that Mr. Obama compromised in advance in the hope of gaining broad bipartisan support. We’ve just seen how well that worked.

Now, the chances that the fiscal stimulus will prove adequate would be higher if it were accompanied by an effective financial rescue, one that would unfreeze the credit markets and get money moving again. But the long-awaited announcement of the Obama administration’s plans on that front, which also came this week, landed with a dull thud.

The plan sketched out by Tim Geithner, the Treasury secretary, wasn’t bad, exactly. What it was, instead, was vague. It left everyone trying to figure out where the administration was really going. Will those public-private partnerships end up being a covert way to bail out bankers at taxpayers’ expense? Or will the required “stress test” act as a back-door route to temporary bank nationalization (the solution favored by a growing number of economists, myself included)? Nobody knows.

Over all, the effect was to kick the can down the road. And that’s not good enough. So far the Obama administration’s response to the economic crisis is all too reminiscent of Japan in the 1990s: a fiscal expansion large enough to avert the worst, but not enough to kick-start recovery; support for the banking system, but a reluctance to force banks to face up to their losses. It’s early days yet, but we’re falling behind the curve.

And I don’t know about you, but I’ve got a sick feeling in the pit of my stomach — a feeling that America just isn’t rising to the greatest economic challenge in 70 years. The best may not lack all conviction, but they seem alarmingly willing to settle for half-measures. And the worst are, as ever, full of passionate intensity, oblivious to the grotesque failure of their doctrine in practice.

There’s still time to turn this around. But Mr. Obama has to be stronger looking forward. Otherwise, the verdict on this crisis might be that no, we can’t.


http://krugman.blogs.nytimes.com/2009/02/11/obama-on-nationalization/
Obama on nationalization
Paul Krugman
Felix Salmon is impressed by President Obama’s response to a question about nationalization of banks. Me, not so much.

Yes, Obama is impressively articulate and well-informed — and his response shows that he has actually considered the issue. It’s light-years better than what we’ve grown accustomed to in recent years.

But his two main arguments aren’t actually very good. Yes, we have thousands of banks — but the problems are concentrated in a handful of big players. In fact, the Geithner plan, such as it is, already acknowledges this: the “stress test” is to be applied only to banks with assets over $100 billion, of which there are supposed to be around 14.

And the argument that our culture won’t stand for nationalization — well, our culture isn’t too friendly towards bank bailouts of any kind. Yet those bailouts are necessary; and even in America they may be more palatable if taxpayers at least get to throw the bums out.

Oh, and not a week goes by without the FDIC taking several smaller banks into receivership. Nationalization is actually as American as apple pie.

http://www.nytimes.com/2009/02/09/opinion/09krugman.html
February 9, 2009
Op-Ed Columnist
The Destructive Center
By PAUL KRUGMAN
What do you call someone who eliminates hundreds of thousands of American jobs, deprives millions of adequate health care and nutrition, undermines schools, but offers a $15,000 bonus to affluent people who flip their houses?

A proud centrist. For that is what the senators who ended up calling the tune on the stimulus bill just accomplished.

Even if the original Obama plan — around $800 billion in stimulus, with a substantial fraction of that total given over to ineffective tax cuts — had been enacted, it wouldn’t have been enough to fill the looming hole in the U.S. economy, which the Congressional Budget Office estimates will amount to $2.9 trillion over the next three years.

Yet the centrists did their best to make the plan weaker and worse.

One of the best features of the original plan was aid to cash-strapped state governments, which would have provided a quick boost to the economy while preserving essential services. But the centrists insisted on a $40 billion cut in that spending.

The original plan also included badly needed spending on school construction; $16 billion of that spending was cut. It included aid to the unemployed, especially help in maintaining health care — cut. Food stamps — cut. All in all, more than $80 billion was cut from the plan, with the great bulk of those cuts falling on precisely the measures that would do the most to reduce the depth and pain of this slump.

On the other hand, the centrists were apparently just fine with one of the worst provisions in the Senate bill, a tax credit for home buyers. Dean Baker of the Center for Economic Policy Research calls this the “flip your house to your brother” provision: it will cost a lot of money while doing nothing to help the economy.

All in all, the centrists’ insistence on comforting the comfortable while afflicting the afflicted will, if reflected in the final bill, lead to substantially lower employment and substantially more suffering.

But how did this happen? I blame President Obama’s belief that he can transcend the partisan divide — a belief that warped his economic strategy.

After all, many people expected Mr. Obama to come out with a really strong stimulus plan, reflecting both the economy’s dire straits and his own electoral mandate.

Instead, however, he offered a plan that was clearly both too small and too heavily reliant on tax cuts. Why? Because he wanted the plan to have broad bipartisan support, and believed that it would. Not long ago administration strategists were talking about getting 80 or more votes in the Senate.

Mr. Obama’s postpartisan yearnings may also explain why he didn’t do something crucially important: speak forcefully about how government spending can help support the economy. Instead, he let conservatives define the debate, waiting until late last week before finally saying what needed to be said — that increasing spending is the whole point of the plan.

And Mr. Obama got nothing in return for his bipartisan outreach. Not one Republican voted for the House version of the stimulus plan, which was, by the way, better focused than the original administration proposal.

In the Senate, Republicans inveighed against “pork” — although the wasteful spending they claimed to have identified (much of it was fully justified) was a trivial share of the bill’s total. And they decried the bill’s cost — even as 36 out of 41 Republican senators voted to replace the Obama plan with $3 trillion, that’s right, $3 trillion in tax cuts over 10 years.

So Mr. Obama was reduced to bargaining for the votes of those centrists. And the centrists, predictably, extracted a pound of flesh — not, as far as anyone can tell, based on any coherent economic argument, but simply to demonstrate their centrist mojo. They probably would have demanded that $100 billion or so be cut from anything Mr. Obama proposed; by coming in with such a low initial bid, the president guaranteed that the final deal would be much too small.

Such are the perils of negotiating with yourself.

Now, House and Senate negotiators have to reconcile their versions of the stimulus, and it’s possible that the final bill will undo the centrists’ worst. And Mr. Obama may be able to come back for a second round. But this was his best chance to get decisive action, and it fell short.

So has Mr. Obama learned from this experience? Early indications aren’t good.

For rather than acknowledge the failure of his political strategy and the damage to his economic strategy, the president tried to put a postpartisan happy face on the whole thing. “Democrats and Republicans came together in the Senate and responded appropriately to the urgency this moment demands,” he declared on Saturday, and “the scale and scope of this plan is right.”

No, they didn’t, and no, it isn’t.