93crawler

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This is an article about a very intelligent economist describing the current clusterfuck that is our economy thanks to Bush, and also points out what McCain would do to our already fragile situation---hint it would be much worse! This is from a "Liberal" website, so for the majority of you, you probably will dismiss what this man has to say.

In his new book Crunch: Why Do I Feel So Squeezed (And Other Unsolved Economic Mysteries), popular economist Jared Bernstein deconstructs the hidden, usually conservative, biases built into most analysis of the U.S. economy. Structured around a series of common "everything you ever wanted to know about money but were afraid to ask" questions, Crunch acts as a layperson's guide, a kind of Rosetta Stone for the often intentionally abstruse economese mouthed by pundits and politicians. I spoke with him by phone on the night of the Pennsylvania Primary and asked him to handicap the economic bona fides of the remaining presidential candidates.

In one section of Crunch, you discuss a president's role in influencing the health of our economy. How much or how little power can a president wield when it comes to steering our country's economic ship?

It's de rigueur for economists to be dismissive about the president's ability to affect the economy, but I think an objective look at their role belies that case. Presidents have three major tools with which they can impact the economy.

The first regards redistribution. The President has a great deal of influence in setting tax policy. Under Bill Clinton, for example, there were some progressive changes made in the tax code, and vice-versa under Bush. A lot of my book is concerned with the increase in income and wealth inequality. Tax policy can exacerbate that or offset it.

The second thing is, when the economy is weak or when the private sector engine of growth has stalled, presidents can be very influential in Keynesian types of stimulus. We just had a big debate about that here.

And finally, and I think this is the most underappreciated tool and the one with the greatest impact, is the regulatory agenda. Presidents can regulate and deregulate, and often times [do so] by fiat or executive order. For example, President Bush had the labor department make big changes to overtime rules. That may sound trivial but a lot of people depend on overtime pay.

Are there many differences between Hillary Clinton and Barack Obama in terms of economic policy?

I think they're a lot more similar than they are different. On every one of the tools I've mentioned, they're almost identical. There's obviously a difference in terms of their health care plans. But even that is really quite marginal.

It does look like Obama plans to cut taxes a little more deeply than she does ... and he may be more willing to let the tax code reset back to the pre-Bush era than she would. For example, on capital gains, he suggests that he would tax them at 28% percent, which is where it was when Bill Clinton came into office. [The current tax rate for capital gains is 15%] Hillary said she might go back up to 20% again.

I think the economy worked perfectly well when the capital gains rate was at 28% and we actually need the revenue if we're going to accomplish the agenda that Obama and Clinton have both set out without engendering large, unwieldy deficits.

I just learned the other day that John McCain's chief economic advisor is former Senator Phil Gramm. Can you discuss the significance of that choice?

You could fairly convincingly trace the current financial meltdown back to legislative changes that originated with Phil Gramm, including ending a banking regulation called Glass-Stiegel [and banning the federal government from regulating hedge funds].

It's no secret that McCain wants to further deregulate capital markets and that he wants to go way beyond Bush in terms of tax cuts. So if you didn't like Bush-onomics, and I didn't, you really won't like McCain-onomics.

But McCain originally opposed Bush's tax cuts, didn't he?

That's true. I don't know if he's pandering now and the old McCain is going to come back if he gets elected or if he's actually become a really vicious supply-sider, but I'm going to choose to believe what he's saying and what he's saying is quite discordant.

Can you use your economist's crystal ball for a moment? If McCain manages to win in the general election, but the Dems pick up seats in the house and senate as expected, what will happen in terms of our economic direction?

If McCain is elected, I think you'll see massive gridlock, unless the composition of congress changes. I think on domestic policy, you're going to see some really serious head-butting. I can't imagine him getting his tax agenda through, but on the other hand it's hard to imagine that the Democrats will be able to let the Bush tax cuts sunset either. I don't know how that particular train wreck plays out.

On the war, thinking as an economist, you've got McCain spending hundreds of billions of dollars cutting taxes and then hundreds of billions of dollars on [continuing the] war forever, too. The only way he does that without blowing an unbelievable hole in the budget is through massive spending cuts. He likes to talk about earmarks. You can't begin to scratch that itch [by cutting] earmarks. You can't even get there with discretionary spending. You're going to have to cut entitlements. So McCain's real targets if he's serious about all of this are Social Security and Medicare.

But unless the composition of congress changes dramatically, I don't see those cuts occurring, so I think McCain's agenda would wind up being major wheel spinning.

How would that kind of gridlock, if it occurred, affect our current economic situation? How much can and should the government do to avert a possible economic meltdown?

The government can apply some much needed stimulus to the economy as the private sector is recovering from the recession. That will happen. I'm confidant that so-called corrections will work themselves out, though it's going to be very painful.

I don't know that the person who takes office in January of 2009 is going to have a whole lot to do with that. I think the major economic difference between McCain and the two Democrats is less about stimulus and dealing with recession. I think it will show itself mostly in terms of regulation and redistribution, and restoring confidence in government.

On regulation, the Democrats are interested in trying to have federal agencies up and running again and doing what they're supposed to do ... and on the tax side, I think Democrats will be looking to raise needed revenue and also, they'll take steps to reverse market inequalities and [Bush's] regressive tax policies.

Of course, there's a big difference in health care, too [between McCain and the Democrats]. That would also be a government intervention that would play out very differently depending on who wins in November.

You talk in the book about a new brand of economic populism, embodied by politicians like Jim Webb and Sherrod Brown. Both Hillary Clinton and Barack Obama have tried to portray themselves as aligned themselves with that agenda, especially in Midwest and rust belt states like Pennsylvania.

Do you see either of them being able to legitimately wear the label of economic populist? I mean, will either of them actually stand up to corporate interests when it comes to things like trade agreements? Hillary's husband was the one who championed NAFTA after all.

Let's just say I'm not deeply convinced. I don't think Clinton or Obama would renegotiate NAFTA in any significant way that would have any real affect on workers either here or abroad. On the other hand, I believe that both of them will do a lot more for people who have been hurt by trade than other presidents have in the past, Democrat or Republican.

When I hear them debating NAFTA, I think it's just a code word for globalization. As I emphasize in the book, I don't think any one trade agreement has anything to do with how globalization really plays out here. We don't have unilateral trade agreements with China or India, for example, and they have tremendous impacts on our country. Globalization is a juggernaut and an ongoing force that is accelerated by technological change ... and I think Clinton and Obama would both do a bit more to craft a policy architecture that helps distribute the benefits of globalization more broadly.

Take health care. Health care isn't often talked about in the context of offsetting the effects of globalization. But in fact, globalization has made many workers less secure and has cost many workers good jobs with good wages and good medical benefits. The idea that you would rebuild social insurance, including health insurance, is actually an important offset to the economic insecurity that globalization has engendered for a lot of folks.

Put it this way, either one of their health care plans [Clinton's or Obama's] would do far more to offset the effects of globalization than renegotiating NAFTA.

I have one last question for you. You're one of the few progressive economists to appear regularly on CNBC's Kudlow and Company. How do you put up with all the rightwing windbags on that show?

[laughs] I'm kind of counterpuncher, so I enjoy a lot of it ... They'll put three or four guys up against me but I've always got the truth on my side and that's a pretty powerful force.

Juan.©amaney

Good article. They do call Bush the greatest liberal president yet because of his spending....

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shiiboi

Here's a shocker-- there is NO significant difference between republicans and democrats on the tax / spend issue.

Both parties have thoroughly embraced the economic theories of John Maynard Keynes. ("keynsian economics").

The capitalist system has one very significant flaw-- because the primary source of funding for new business ventures / technological innovation is from 'capitalists' (the 1% of the population who possess 90% of the total wealth) and that funding comes in the form of 'investment' (ownership of future profit potential), there is a relentless flow of wealth back to the 'capitalists,' continually concentrating the majority of wealth back into the control of the few.

Capitalists invest in potential business ventures, but don't want to participate in the running of the companies they invest in, they seek short-term return on investment by 'pumping up' the apparent value of their successful investments and shifting ownership to the general public through the IPO (initial public offering) wherein a company issues public stock that is purchased by institutional and smaller individual investors.

Ultimately, this invest-- cash-out-- shift risk to small investors-- pattern results in what is called 'the business cycle' a pattern of economic growth followed by the recessions that we all know so well.

In the 1920's, economist John Maynard Keynes proposed a solution to the business cycle. By using a progressive taxation system (in which the highest earners and recipients of capital gains would be taxed at a higher rate), a tiny percentange of the flow of capital back to the capitalists would be captured by the government and spent in areas which would take the edge off the peaks and valley of the boom / bust cycle.

It was the democrats under Franklin Roosevelt's 'new deal' who first put the US government poiicy into the practice of Keynesian economic theory-- but both major parties have wholeheartedly embraced it ever since. Despite the rhetoric both parties engage in 'tax and spend' economic policy. The only difference is who are the recipients of the government spending. The 2 major parties each direct the spending towards the reliable voting blocks that put / keep them in power.

But since the late 1980's, a new group has become the primary recipients of government spending-- the large multinational corporation. Under the rationale of 'creating jobs' or 'boosting the economy' a few small mega-corporations, such as Walmart, Exxon, General Motors, etc. have become the primary recipients of direct government payments from tax revenues. We are now at the point where the payoffs to big corporations are sacrosanct-- legitimate government spending (such as social security payments or infrastructure development) is cut before payments to corporations are touched.

In a recent speech, Ralph Nader said that the first time he ran for president, he warned that big corporations had an undue influence of government policy. But in this election, big corporations now ARE the government.

At this point, the only thing that is clear about the current political candidates is the Hilary Clinton is the most committed to taxing the middle class to facilitate the transfer of wealth to the large corporations. McCain has had a mixed history of supporting transfers of wealth to corporations and supporting the transfer of wealth back to the capitalist class. Obama has no record to indicate where he stands.

ddoubleez

Anyone intrested in the continuation of a war we have to borrow for is bad for the economy....

Anyone intrested in starting multiple campains that we will have to borrow for, may induce the downfall of the United States, which will start (or has) with the collapse of the economy.......

fmb

Personally, I see Bush as rather liberal. On the flip side, a President cannot change tax rates, etc. without this change passing through Congress. Seperation of powers can be a good thing!

This administration has our economy financed by foreign countries as much as any other. Hell, the Chinese are so far into owning our "capitalist" economy it makes me dizzy.

LOCOprobe

everyone always wants to blame bush for everything, why? because they are too dumb to understand things fully.

bush didnt ruin the economy. did you think war was going to be cheap? everyone was all for the war at the start, but I guess everyone also thought we were gonna go in, blow shit up and be done in a month?
I love my country but americans are getting dumber and dumber

fmb

LOCOprobe: yes, Americans do think wars can be won in months. It doesn't matter whether the enemy and/or our President speaks from the beginning about he war "going on for generations". A good example of this teaching is in Palestine from their former leader, Yasser "Chickenfat" Arafat.

It's always easier to blame a President for failures. He is an individual, out front and ready to be pimp smacked; the true persons with determination for our future, Congress, number 535 and pass the buck.

I agree with Deez, we have borrowed to pay for our battles, and the chickens are coming home to roost. Our borrowed money was not from friends, it was from our enemies. They have us by the scrotum.

CD

Wow. You may want to check your facts before spouting off that.

1) Bush claimed that the Iraq oil would basically pay for the war. So although the cost for war is expensive, this war wasn't supposed to affect us that much financially. Guess what? It's killing this country financially. Not only that, but think about the costs associated with lost lives and injured soldiers (mentally and physically).

2) Yes, I did expect we'd go in and use our bunker buster bombs and blow shit up... I just thought we'd actually be going after bin Laden since he was the man responsible.

3) I was fully gun ho for the invasion of Afghanistan, but when Bush claimed that Iraq was responsible I called bullshit. A lot of others did as well, but Bush silenced a lot of people by claiming anyone questioning the lie he told was un-American. That's plain despicable.

*Back on track*
The original post though brings up a good point that I've asked others about. I fully support the idea of having a strong military, but I was wondering how long we can actually support having a military if the war is killing us financially. Sooner or later doesn't the dollar basically become worthless, and at that point how do you fund a military? Wouldn't it be better for us (read Bush) to admit that going into Iraq was a mistake (read lie) and by leaving, we would save so much money that we could afford to keep our military strong for when we actually need it.

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Juan.©amaney

from a purely military-tactial side, that would be the greatest mistake. you never show weakness. you never even begin to let people THINK you are showing weakness. we all know mistakes were made, but right now, with Iran fucking around with nukes, and so many terrorist ties to Iran, we cannot say "my bad, and withdraw"

The only way is to have someone else (read Obama) do it that way we can claim it was the democrats and the country saves face.

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joerockhead

First, Bush is partly to blame for our economic woes.
But so is Congress!!! Hell, Since the Democrats have controlled Congress, spending has INCREASED!!! The Dems know the bills have to pass, and they add all kinds of BS to these bills. If it gets voted down (it won't), then Bush has to speak up and blame the majority (Dems) and push them to pass it.
Congress is to blame equally, and no, it is not just the Democrats wasting money, the republicans are doing it as well. CONGRESS SUCKS.

I do NOT want to be paying 28% on capitol Gains! Obama says the "Middle Income" will get a $1000 tax break. What he is talking about, is deduct 1000 from your total Income, and then pay on that. That is NOTHING but a couple dollars. No Sir, we are paying stupid taxes on GAS, Beer, Food, New Cars, Used Cars, tags, water, Freakin EVERYTHING! It will ALl go up with Obama in, and he will blame EVERYTHING on Bush.

Second - Bush did NOT blame 9/11 on Iraq, he claimed that they had Weapons of Mass Destruction. These where never found. I believe he was in a tight spot. Dad did not finish Saddam after the Kuwait invasion issue. Bill Clinton Pussied out on ANY kind of attacks for ANY terrorist attacks against us (USS Cole, Kobar, etc). So Saddam felt he could do what ever he wanted. If Bush did nothing like Clinton, we would be far worse off Security wise. I do believe Saddam was working on Some Weapons, but he shipped them to Syria (another country that hates us) and they stashed them.

As for the LONG lasting War - Bush F*cked this up BIG!! My guess is they had no real plan for After. No plan for the Attacks and IED's and no idea how long it would take for the Oil to be pumping. Personally, I believe we should get FREE oil from Iraq for 10 Years!!!!!

Last - The war has been going on for over 5 years now. ~4,000 men and women have died. It is sad for the families and friends, but it is a LOW number. Shit, more people die in NYC in one year.

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CD

Better to show weakness, then have all our rights trampled on by Bush in his quest to "keep America safe". So many human rights have been trampled on that us not showing weakness just really takes a back seat now a days.

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