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The Fix We're In

| Fri Oct. 17, 2008 3:56 PM EDT

THE FIX WE'RE IN....Via Tim Fernholz, Rutgers history professor James Livingston offers his take on the core cause of our current financial meltdown. Naturally I like it, since it confirms many of my existing prejudices about the matter, so maybe you'll like it too:

The Great Depression was the consequence of a massive shift of income shares to profits, away from wages and thus consumption, at the very moment — the 1920s — that expanded production of consumer durables became the crucial condition of economic growth as such. This shift produced a tidal wave of surplus capital that, in the absence of any need for increased investment in productive capacity (net investment declined steadily through the 1920s even as industrial productivity and output increased spectacularly), flowed inevitably into speculative channels, particularly the stock market bubble of the late 20s.

....[Likewise], a shift of income shares away from wages and consumption, toward profits, has characterized the pattern of economic growth and development over the last twenty-five years....The offset to this massive shift of income shares came in the form of increasing transfer payments — government spending on social programs — since the 1960s; these payments were the fastest growing component of labor income (10 percent per annum) from 1959 to 1999. The moment of truth reached in 1929 was accordingly postponed. But then George Bush's tax cuts produced a new tidal wave of surplus capital with no place to go except into real estate, where the boom in lending against assets that kept appreciating allowed the "securitization" of mortgages — that is, the conversion of consumer debt into promising investment vehicles.

....And while consumers were going deeper into debt to service the current account deficit and finance economic growth, corporations were abstaining from investment: "The recent household deficit more than offset the persistent financial surplus in the business sector. For a period of six years — the longest since the second world war — US business invested less than its retained earnings." (FT 8/22/07, p. 13)

....So the Bush tax cuts merely fueled the housing bubble — they did not, and could not, lead to increased productive investment. And that is the consistent lesson to be drawn from fiscal policy that corroborates the larger shift to profits, away from wages and consumption.

I'll leave it to economists to argue over whether Livingston is right in detail. But the confluence of stagnant middle class wages; the resultingly vast pools of idle money looking for places to go; a rising federal deficit and a skyrocketing current account deficit; and then a series of tax cuts to make it all even worse — that's the big-picture core of what's wrong with our economy. It won't get fixed overnight, but the sooner we start the better.

POSTSCRIPT: And on a similar note, how about that capital gains tax cut in 1997, passed just in time to direct even vaster streams of cash into the dotcom bubble? Not such a good idea in retrospect, was it?

UPDATE: See Tyler Cowen here and Daniel Davies here for related thoughts. Though, really, I'm not sure "related" is quite the right word. But beneath the surface there's a sort of family resemblance.

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Bailout Watch

| Fri Oct. 17, 2008 2:53 PM EDT

BAILOUT WATCH....So how's that bank recapitalization going? Are big banks going to use their $125 billion in federal cash to expand lending and unfreeze the credit markets? The New York Times reports:

"There is no express statutory requirement that says you must make this amount of loans," said John C. Dugan, the comptroller of the currency. "But the economics work so that it is in their interest to do so."

Mr. Dugan added that he would not examine how the banks used the money, but he said their actions would "be open to the court of public opinion."

Ah, yes, the court of public opinion. The titans of Wall Street are famous for their humble submission to public opinion. That should work out very well indeed.

Or not. Especially if it doesn't matter because they still don't have any money:

Lenders have been pulling back on credit lines for businesses, mortgages, home equity loans and credit card offers, and analysts said that trend was unlikely to be reversed by the government's money.

"I don't think that the market wants to see that capital being put to work to leverage the business up again," Roger Freeman, an analyst at Barclays Capital, which acquired parts of the now-bankrupt Lehman Brothers last month, told The Times. "My expectation is it's quarters off, not months off, before you see that capital being put to work."

....In the case of the nine-largest commercial banks — Citigroup, Merrill Lynch, Bank of America, Morgan Stanley, JPMorgan Chase, Goldman Sachs, Wells Fargo, Washington Mutual and Wachovia — profits from early 2004 until the middle of 2007 were a combined $305 billion. But since July 2007, those banks have marked down their valuations on loans and other assets by just over that amount.

In other words, their net profit for the past four years is already negative, and by the time this is all over their net profit for the entire past decade or three will be negative. So keep that government cash coming. $125 billion is only the beginning.

Purging Ohio

| Fri Oct. 17, 2008 1:43 PM EDT

PURGING OHIO....A couple of weeks ago the Ohio Republican Party sued the Ohio Secretary of State. Their aim: forcing her to turn over to county officials the raw results of database matching operations for new voter registrations. She had refused because these matching efforts are notoriously unreliable, effectively purging tens of thousands of new registrations because of inaccuracies in the DMV and Social Security databases.

But of course the bulk of new registrations this year are Democratic voters, so the Ohio GOP went to court anyway. Today, in an impressively quick ruling, the Supreme Court unanimously ruled against them. I guess Scalia and Thomas must still be feeling guilty over 2000.

UPDATE: Elsewhere, Matt Yglesias makes the case for a national ID card as a way of cutting voter fraud. He doesn't actually say that, mind you, but that's how I choose to intepret his tale of voting woe anyway. And I agree.

Defending the Squiggle

| Fri Oct. 17, 2008 1:08 PM EDT

DEFENDING THE SQUIGGLE....Daniel Davies defends the "squiggle," CNN's real-time plot of reactions from their focus group of undecided voters during presidential debates:

My only complaint about the crawler is that CNN removes it from the screen when the debate finishes. I absolutely wish that they continued to show the favourable/unfavourable reactions of the dial-testing focus group to the talking heads on the news afterwards; you'd be able to see the worm plunging every time Wolf Blitzer opened his gob. I suspect a few uncomfortable home truths would arise out of that one.

He's got a few other ideas for on-screen dial testing too. Oddly enough, though, I'm tired of the squiggle. For the first three debates I was fascinated by it even though I knew it was mostly just BS, but in the fourth debate I hardly watched it at all. It wasn't anything deliberate, I just didn't care. Short attention span, I guess.

It Finally Happened: Reporter Assaulted at Palin Rally

| Fri Oct. 17, 2008 1:00 PM EDT

This was a long time coming. A reporter in North Carolina was assaulted at a Palin rally when he tried to interview Obama supporters who were protesting on the scene.

I sidled up to one of the Obama supporters and asked why they were there, what they were trying to accomplish.
As he was telling me a large, bearded man in full McCain-Palin campaign regalia got in his face to yell at him.
"Hey, hey," I said. "I'm trying to interview him. Just a minute, okay?"
The man began to say something about how of course I was interviewing the Obama people when suddenly, from behind us, the sound of a pro-Obama rap song came blaring out of the windows of a dorm building. We all turned our heads to see Obama signs in the windows.
This was met with curses, screams and chants of "U.S.A" by McCain-Palin folks who crowded under the windows trying to drown it out and yell at the person playing the stereo.
It was a moment of levity in an otherwise very tense situation and so I let out a gentle chuckle and shook my head.
"Oh, you think that 's funny?!" the large bearded man said. His face was turning red. "Yeah, that's real funny…" he said.
And then he kicked the back of leg, buckling my right knee and sending me sprawling onto the ground.

You can read the rest of the account here. Ugly.

The Widening Gyre

| Fri Oct. 17, 2008 12:59 PM EDT

THE WIDENING GYRE....Over at MojoBlog, David Corn reports on the latest crop of last ditch attacks being waged by loony right groups against Barack Obama. The nickel version:

Mohamed Atta's Driver License....Obama is a Socialist....Obama Is a Secret Muslim Plotting With an Evil Billionaire....Obama Is Fronting for Islamic Jihadists....

I guess things really are different this year. This stuff just sounds pathetic, not scary. Details here if you want to read up on the latest.

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Reading the Moose Entrails

| Fri Oct. 17, 2008 12:32 PM EDT

READING THE MOOSE ENTRAILS....Apropos of nothing in particular, I want to go on the record with a prediction that Sarah Palin will disappear into a well-deserved obscurity after the election is over. She is not a "comer." She is not the future of the Republican Party. She will not run for president in 2012. In fact, she won't maintain any kind of serious national political standing at all. At best, she'll spend the next few years being a celebrity starter at NASCAR races and speaking at Republican prayer breakfasts. At worst, she'll be an occasional butt of late night comics.

Palin is lazy, ill-informed, contemptuous of policy, and way too convinced that everybody in the country is dazzled by her folksy energy and thousand-watt smile. Yes, the diehard GOP base is rapturously in love with Palin and her media mockin' ways, but that's more a reflection of the base's future, not hers. Palin is a three-day wonder who's already a month past her sell-by date, and on November 5th she'll disappear to Wasilla for good.

Just wanted to get that off my chest. Anybody disagree?

Congress Update

| Fri Oct. 17, 2008 12:26 PM EDT

CONGRESS UPDATE....Via email from Congressional Quarterly:

Illinois 14th – CQ Politics has updated this race from Leans Democratic to Democrat Favored (less competitive).
Indiana 2nd – CQ Politics has updated this race from Democrat Favored to Safe Democrat (less competitive).
Indiana 3rd – CQ Politics has updated this race from Republican Favored to Leans Republican (more competitive).
Indiana 7th – CQ Politics has updated this race from Democrat Favored to Safe Democrat (less competitive).
Indiana 8th – CQ Politics has updated this race from Democrat Favored to Safe Democrat (less competitive).
Iowa 4th – CQ Politics has updated this race from Safe Republican to Republican Favored (more competitive).
Minnesota 1st – CQ Politics has updated this race from Leans Democratic to Democrat Favored (less competitive).
Nebraska 2nd – CQ Politics has updated this race from Republican Favored to Leans Republican (more competitive).

Every single change favors the Democrats, and there are 16 more that they'll cover in a separate story tomorrow. Details here. And Karen Tumulty reports that trends are similar in Senate races. Bottom line: If you're a Republican, life really sucks right now.

McCain Now Using Robocalls He Once Condemned

| Fri Oct. 17, 2008 12:05 PM EDT

As John McCain robocalls sweep the country, accusing Barack Obama of literally murdering newborns and associating with a group that "killed Americans," keep in mind that when John McCain was a victim of Bush robocalls in the 2000 Republican primary he had a very different view of the tactic. Back then, he slammed slimy robocalls as "hate calls."

Evidently, he is willing to use "hate calls" in the service of his campaign. But who knows? As I've postulated before, the image of McCain as a saintly campaigner that emerged out of 2000 might have been very different if he had won the primary and went on to a bruising general election. If McCain were losing by 10 points in October 2000, whose to say he wouldn't be acting the same way he is now?

The Right's Final Attack: Obama is a Black Muslim, Anti-Christian Socialist Plotting with an Evil Jewish Billionaire

| Fri Oct. 17, 2008 11:51 AM EDT

With less than three weeks to go before Election Day, time is running out on the rightwing effort to delegitimize Barack Obama. At the last debate between John McCain and Obama, McCain finally confronted his opponent directly with the Bill Ayers charge. It was a half-hearted effort: he noted that he didn't "care about an old washed-up terrorist" but insisted that "we need to know the full extent" of Obama's relationship with the former Weather Underground radical, who has since become an education expert. Though McCain succeeded in appeasing conservatives who demanded he pounce on the Ayers matter, the polling evidence has indicated that whining about Obama's casual association with Ayers has not yet become a winning tactic for McCain and Republicans trying to depict Obama as an untrustworthy pol outside the American mainstream. But Ayers is not the only ammo for rightwingers striving to brand Obama as anti-American. Various conservatives are pushing other lines of attack to achieve this goal. And as they mount various ploys, their desperation is showing. Here are some of the last-minute blasts being waged by conservatives hoping to convince voters that they ought to be afraid--very afraid--of Obama:

Mohamed Atta's Driver License. An outfit called the National Republican Trust Political Action Committee has sent out an email to potential conservative donors calling Obama "dangerous" and boasting that it has hit on the killer issue that "will nail him." That issue: Obama supports allowing undocumented aliens to obtain driver's licenses. This means, the group says, that the next Mohamed Atta could obtain a valid driver's license--and somehow make use of it in a plot to kill thousands of Americans. "We are days away from our new TV ad exposing Obama's support for driver's licenses for illegals," the email says. Message: Obama doesn't understand the dangers facing the country and will help terrorists conspiring to destroy the United States.

Obama is a Socialist. McCain came close to saying this at that final debate, when he derided Obama for wanting to "spread the wealth" and maintained that Obama's plan to raise taxes on the well-to-do to help finance tax cuts for the middle class was "class warfare." But McCain did not use the S-word. Others are not so reticent. Richard Viguerie, chairman of ConservativeHQ.com and a founder of the modern conservative movement, proposes that Obama be slammed in a simple manner. "The Obama economic policy," he says, "can be summed up in two words: Marxism/Socialism." In Viguerie's view, the McCain campaign and others must reveal that Obama wants to "re-make America along the lines of socialist countries in Europe, most of which are headed toward collapse." Drop the S-bomb, he urges. Message: Obama is a commie who hates the rich and wants to kill the American Dream.

Obama Is a Secret Muslim Plotting With an Evil Billionaire. Human Events, a leading conservative magazine, sent out a promotional email the other day for an anti-Obama book co-written by Floyd Brown, a conservative activist infamous for having cooked up the Willie Horton ad during the 1988 presidential election. The email notes that there are "many Islamofascists who are sworn to the destruction of America" who are "actively campaigning for Obama" and that Muslims would demand and receive "special rights" from a President Obama. The email asks, "Being a Black Muslim doesn't disqualify [Obama] from running for President, so why won't he be honest about it?" In other words, yep, he's a covert Muslim. But beyond circulating this canard, the email claims that George Soros, the Hungarian-born billionaire financier who has supported Democratic and liberal causes, is "planning to sack the US economy, make himself billions richer, and put Obama in the White House marching to his mad tune." Message: A black Muslim in league with an evil Jewish billionaire--you do the math.

Obama Is Fronting for Islamic Jihadists. Writing in The Washington Times this week, former Reagan Pentagon official Frank Gaffney, charges that Obama's campaign has received "between $30 million and $100 million" from the Mideast, Africa and other places [where] Islamists are active." He asserts it "seems likely" that "these funds come not only from Wahhabis, Muslim Brotherhood types and jihadists of other stripes but from non-U.S. citizens." (His evidence? Don't be so picky.) Gaffney adds that "Obama hopes to win the White House by relying, in part, on the Jihadist vote." He writes: "The next three weeks afford the American people--and the media, the courts and the [Federal Elections Commission]--an opportunity to get to the bottom of Barack Obama's ties to and affinity for jihadists who have their own reasons for relishing his promise of 'change]' for this country. Unfortunately, the change his Islamists supporters have in mind is for global theocratic rule under Shariah, and the end of our constitutional, democratic government." Message: Obama will destroy Christianity in the United States and enslave you within an Islamic dictatorship.