The American Prospect article Fix the Debt, Destroy the Recovery by Robert Kuttner is another cry for economic sanity.

The Fix the Debt campaign, much like the Bowles-Simpson Commission and the propaganda of the Peterson Foundation generally, contends that the projected national debt is depressing business willingness to invest now. Presumably, businesses are worried about inflation and uncertainty. But the government can fund ten-year bonds at less than 2 percent interest and thirty-year bonds at less than 3 percent. So investors don’t seem worried about inflation. It’s not lack of confidence in deficit reduction that’s depressing business investment but lack of confidence in consumer purchasing power. [ssg note: no freaking customers]

If anything, the economy needs more public spending to get us out of a deep slump brought to you by the very people behind this campaign. Cutting the deficit prematurely will only depress purchasing power and deepen the slump. That’s the real lesson of Greece, Spain, Portugal, et al.
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According to a very helpful analysis by Americans for Tax Fairness, 13 of the corporations whose CEOs are behind this lobby paid zero taxes in recent years. Here is their chart drawn from an analysis of IRS data by Citizens for Tax Justice:

Corporation Federal Income Taxes 2008-2011 Profit? 2008-2011?$ Billions Tax Subsidies 2008-2011?$ Billions Boeing $0 $14.8 $6.0 Corning $0 $2.9 $1.0 General Electric $0 $19.6 $10.6 Honeywell International *$0 *$4.9 $1.7 Verizon Communications $0 $19.8 $7.7 TOTAL $0 $62 billion $27 billion

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This stuff would be comical if it weren’t so influential. And if President Obama is re-elected, the corporate CEOs add up to one more pressure group pushing him to agree to a budget-cutting deal that will be suicidal for the economy and for his legacy in a second term.

Deficit reduction in a deep slump is not a path to recovery but to a deeper slump.

The fact that corporate CEOs are behind this latest push should not give the campaign greater credibility, but rather should signal “buyer beware.”

Despite the bipartisan camouflage, this campaign was always deeply conservative—hostile to social outlay, activist government, and a decent income distribution. Shame on any Democrat who doesn’t see through it.

How is lowering the tax rate on corporations who pay zero taxes anyway going to do anything for the economy?

Below is an email that I sent to John Kerry.  If you’re a constituent of his, you might want to express your thoughts on this subject to him.  Our economic future may depend on it.

Senator Kerry,

What experts will you be consulting with to ensure that you will not be hoodwinked during the negotiations of the committee?

I have posted on your YouTube Q & A of June 2011, the following suggestion:

“Senator Kerry ought to consult with some real economists – Krugman,  Stiglitz,  Kuttner, Tyson, Reich, Galbraith and the like to find out what this economy really needs for job creation. That is economic demand from the middle class. That is what is missing. A big part of that is the money shifted to the ultra-wealthy, Sen. Kerry, from the Bush tax cuts.”

The Republicans are absolutely going in the completely wrong direction. If you follow them even a little bit, you too will be going in the wrong direction. You need experts to help you make the case that there is a better direction than the one they wish to go in.

Exactly what the Republicans are claiming as job killers, taxes on the wealthy, are actually the job saviors. Without putting more purchasing power in the hands of the middle class, there cannot be a self-sustaining jobs recovery. If you do not know why, either read Robert Reich’s book, “Aftershock: The Next Economy and America’s Future” or have him explain it to you.

Please do not go into battle unarmed.

Give your constituents some hint that this message is getting through to you.

/Steve

This opinion piece,  The President Is Missing, by Paul Krugman was brought to my attention by LlandaR. In the article Krugman says:

What’s going on here? Despite the ferocious opposition he has faced since the day he took office, Mr. Obama is clearly still clinging to his vision of himself as a figure who can transcend America’s partisan differences. And his political strategists seem to believe that he can win re-election by positioning himself as being conciliatory and reasonable, by always being willing to compromise.

I can believe that Paul Krugman is on to part of the problem, but I think that the bigger problem is that President Obama does not understand the situation and the stakes.  That is why I have called for an intervention from economists such as Krugman, Kuttner, Stiglitz, Galbraith, Romer, Reich, etc.  They have to find out what Obama understands about the damage that highly unequal wealth distribution does to the chances for an economic recovery.  If he doesn’t understand the issue, how can he be expected to take a strong stand?

Earlier today, I posted the graphic that shows Wealth and Tax Distribution. While the wealthy top percent or so do earn an inordinate fraction of the income, the Republicans point out that they pay an even higher percentage of the income taxes. However, the Republicans never tell you how income does not include such items as unrealized capital gains.  That is why I felt a measure of wealth versus taxes was a better indicator of the disparity.

Another post I made today, The L Curve Of Income, points out that:

In Bill Gates’ best year he increased his net worth by $50 billion!

Now the naysayers are going to claim unrealized gains don’t count because they could go away almost as easily as they came.  It is true that there is year to year volatility, but the long term average increase in the value of the American stock market is on the order of 10% to 12% per year.  So the wealthy may have their ups and downs, but all they have to do is invest in an index mutual fund to make an average of 10% to 12% a year in increased wealth.  As long as they leave it unrealized, they pay no taxes on it.

In his The New York Times column, The Obama-Keynes Mystery, Paul Krugman starts with the following:

I’m not alone in marveling at the extent to which Obama has thrown his rhetorical weight behind anti-Keynesian economics; Ryan Avent is equally amazed, as are many others. And now he’s endorsing the structural unemployment story too.

To those defending Obama on the grounds that he’s saying what he has to politically, I have two answers. First, words matter — as people who rallied around Obama in the first place because of his eloquence should know. Yes, he has to make compromises on policy grounds — but that doesn’t mean he has to adopt the right’s rhetoric and arguments. The effect of his intellectual capitulation is that we now have only one side in the national argument.

Second, since Obama keeps talking nonsense about economics, at what point do we stop giving him credit for actually knowing better? Maybe at some point we have to accept that he believes what he’s saying.

I have been attributing this mystery to the fact that Obama spent time as a professor at the University of Chicago. My conjecture has been that the pernicious influence of Milton Friedman has lasted long after his demise. Friedman did build a department of like minded economists around him while he was there. Many of them are probably still there and exerting their influence.

I have just found an article, A Dark Age of macroeconomics (wonkish), by Krugman, himself, that takes a shot at some of the work that is still going on at the University of Chicago.

Obama was not in the economics department at the university, but he did pick his key economic advisors from there. I was going to do some research to see where his advisor, Austan Goolsbee, stands. All I had to do was look at a December, 2010 post of mine on this blog, White House White Board: Tax Cuts, Unemployment Insurance & Jobs.

If Goolsbee as an adviser to the President came up with this justification on his own, then he is not serving the President or the country very well. I have heard that the influence of Milton Friedman at the University of Chicago School of Economics is waning, but I think I see some of the taint of Friedman in what Goolsbee is saying.

Obama has continually ignored advice from economists not in tune with the Milton Friedman doctrine.

Even renowned Keynesian economists such as Paul Samuelson have admitted to having been bamboozled by Milton Friedman for a time. If these kinds of economists could succumb, even for a time, how can we fault Obama? Obama needs an intervention from some good, modern-day economists who understand the way Friedman fooled the world of economics for a time. The names Krugman, Stiglitz, Kuttner, Romer, Tyson, Reich, Galbraith, DeLong readily come to mind.

In the Krugman article, More On Friedman/Japan, he explains some of the bamboozling that Friedman did.

And this also calls very much into question Friedman’s famous claim that the Fed could easily have prevented the Depression, which gradually got transmuted into the claim that the Fed caused the Depression. Yes, M2 fell — but why should we believe that the Fed had any more control over M2 in the 30s than the BOJ had over M2 more recently?

In the online discussion that followed this article, I made the following comment in response to another comment explaining the importance of public investment.

Dave Baltimore said, “private investment has always followed public investment.”

I am afraid that this time might be different. In his book “Aftershock…”, Robert Reich tells of a part of Keynesian economics that was not taught to me in the early 60’s when I had a few college courses in economics.

The missing part was that the wealth could not be so heavily concentrated the way it is now for Keynesian stimulus to produce a follow-on self-sustaining recovery.

In the 60’s it probably was thought to not be necessary to cover this aspect, because at that time nobody could conceive of returning to wealth concentration that has occurred since the 1980s.

With the current wealth concentration, the money spent by the government on stimulus projects will go so predominantly to the rich that not enough purchasing power will be put in the hands of the middle class to stimulate private investment.

One take-away I got from Reich’s book is that even if public investment managed to achieve full employment, the middle-class would still not be getting a big enough share to buy the goods the economy produced so that full employment could continue after the public investment was scaled back.

My Senator, John Kerry, sent me a link to view his question and answer session.

It is at 2:51 into the video that I realized that Kerry has turned Republican.

On YouTube, I have posted the comment:

Senator Kerry ought to consult with some real economists – Krugman, Stiglitz, Kuttner, Tyson, Reich, Galbraith and the like to find out what this economy really needs for job creation. That is economic demand from the middle class. That is what is missing. A big part of that is the money shifted to the ultra-wealthy, Sen. Kerry, from the Bush tax cuts.

As suggested in the video, I have already sent a couple of questions to Senator Kerry about his false understanding of how to get the economy moving again. How about you? Send questions to question@kerry.senate.gov

Since posting “Aftershock: The Next Economy and America’s Future”, I have come to realize that even many of the Democrats don’t seem to get the point that putting more purchasing power into the hands of the middle class is the only way to get a self-sustaining recovery. What Kerry mentions as solutions to high unemployment miss the mark by a mile.

Other posts of mine on the same theme:

• Schumer: Cuts to Medicare Benefits “Not On the Table”
• Comparing Conservative and Progressive Economic Policies
• Barack Herbert Hoover Obama
• Overworked America: The Great Speedup
• Obama’s News Conference On Economy
• Senator Sanders Tells Obama: Don’t Let Republicans Blackmail You Again

I almost forgot to mention the post Higher Marginal Tax Rates Spur Economic Growth

Paul Krugman has a brief post Barack Herbert Hoover Obama that ties together two of his other articles.  In the article he quotes from President Obama’s radio address today.

Government has to start living within its means, just like families do. We have to cut the spending we can’t afford so we can put the economy on sounder footing, and give our businesses the confidence they need to grow and create jobs.

As I have been surmising, President Obama cannot forcefully stand up for the right economic policy for today because he believes in the wrong one himself.  My thesis is that Obama’s mind has been poisoned by the remnants of Milton Friedman that still reside in the University of Chicago where Obama was a professor.

Paul Krugman’s other two articles that he references are Myths of Austerity and Reposted: Sam, Janet, and Debt.

All is lost if President Obama’s idea of the right policy is a watered down version of the Republican’s policy.  Instead as Krugman, Reich, Stiglitz, Kuttner, Tyson, Galbraith, and many other economists have been saying, Obama needs to be pursuing a policy that is almost directly opposite of what the Republicans propose.

In the Presidential campaign, Krugman warned us about Obama.  Krugman favored Hillary Clinton. I thought he was wrong to think Hillary Clinton was a better choice than Barack Obama.  I still think he was wrong.  Bill Clinton understood the economics that Krugman endorses, but I saw no evidence that Hillary Clinton understood the issue at all.  Her weak defenses of liberalized world trade indicated to me that she didn’t have a clue.

It also showed to me that none of Bill Clinton’s understanding of the big picture had gotten through to Hillary.  And why should it have?  For instance, I studied Electrical Engineering for the equivalent of 5 college years.  I spent a 40 year career involving software related to electrical engineering.  Despite Sharon having been married to me throughout my career, I wouldn’t expect her to have the understanding of Electrical Engineering, Software Engineering, and Semiconductor Physics that I do.  I talked a lot about those subjects to her, but she still did not have the experience of it that I did.  On the other hand, although Sharon has talked to me a lot about horticulture, birds, painting, and the art of cooking, I don’t understand any of those topics as well as she does.

Follow this link to Robert Kuttner’s article in The Huffington Post.

Here we go again with the stories about how Obama is failing on the economy.  I hate to bring this up again, but Robert Kuttner does seem to be making sense.

In one of the response comments, I found an interesting video of Nassim Taleb appearing on CNBC. I don’t yet know who this guy is or whether he knows what he is talking about.  I am going to find out though.

Follow this link to Robert Kuttner’s open letter to David Axelrod.

He urges David Axelrod to advise President Obama’s team to take a more radical approach to fixing the economic crisis.

Kuttner is on the same side as Krugman, but the way he states his case is not all negative about the Obama team performance.  I hope he has more success in getting President Obama’s attention.

Follow this link to a piece by Mark Hulbert that explains why this stock market downturn may have a lot further to go. His claim that this might be the first genuine bear market in three decades gives further credence to Kuttner’s call for more radical action.

Follow this link to Paul Krugman’s column February 15th in the New York Times.

His interpretation of the Federal Reserve’s latest Survey of Consumer Finances is that there has been no wealth creation in the United States since 2000.

Earlier today I posted a link to remarks by Robert Kuttner.  He noted that 40% of the economy had been in financial services.  It occurred to me that if you take out that 40%, what is left may be a real measure of the size of our productive economy.  I wonder if that number is commensurate with what the Federal Reserve has discovered.