Where are the Troops for Paul Krugman?

Paul Krugman is predicting another Depression because governments are refusing to keep pumping more money into the economies of Europe and the United States. He has written that the mistake of 1938 is being repeated. At that time, Franklin Roosevelt listened to the deficit hawks and cut back on federal subsidies meant to create jobs and fuel the economy. The economy tanked and the New Deal hit a brick wall.

After an $800 billion stimulus package spearheaded by President Obama and a Democratic Congress, job creation is stalled and deficits are ballooning. Republicans smell blood as the November elections approach. Political will has softened among moderate Democrats for more government spending to spur employment and growth. A large cadre of first term Democrats in Congress were elected in conservative districts fed up with George Bush and failing Republican policies.

But now Obama is the incumbent and his policies have become the target of an increasingly agitated American electorate. Wall Street’s collapse has left average citizens with a bitter taste in their mouths. The detritus is strewn throughout middle America. Millions of soured mortgages, confiscated homes, failed businesses and lost jobs remain as financial titans responsible for the carnage are nursed back to health with taxpayer subsidies. Polls show decisive majorities for shrinking government rather than embracing the pump priming policies of John Maynard Keynes that were the Democratic formula for the New Deal, Fair Deal, New Frontier and the Great Society. Read More »

Hello Again

After a brief respite, I’m back. I intend to periodically record my thoughts on matters of public interest. My column in Bay Area Media News papers has run the agreed upon three years and now I will record my thoughts for a vastly reduced readership. No matter. I learned a powerful lesson from having a deadline every Tuesday. The benefits to self from writing – apart from whether or not anyone ever reads your content – are awesome.

When I was a student, my seminary English professor made us write a daily essay. I remember the grueling nights spent dissecting Shakespeare’s poetry. But the forced regimen, learned long ago, to condense ideas into one clear message, has served me well throughout the rest of my life. Also, there is a certain value in the simple discipline of articulating your own thoughts and impressions only to yourself. We sometimes don’t know what we think until we reflect and organize our precise thinking.

But writers write to be read. So let us begin… Read More »

Drowning Democracy

When it happened, no one is quite sure. But during the late 1970s and early 1980s, the stream of money flowing into our political system began to swell. Since then, the river has become a raging flood that is now drowning our democracy.

I remember managing my first victorious campaign in the 1970s. We spent less than $20,000 on a major race and won handily.

Another time, I was able to win a campaign for my client by spending less than $2,000. We placed brochures on the seats of every transit rider and delivered our literature door to door with teenage volunteers.

During those lean years, I needed a day job to support my forays into political campaigning. I opened a store on the San Francisco waterfront at 33 Filbert Street just to pay my bills.

I would have starved to death if I had tried to live on my pittance wages from running campaigns.

But by 1980, my fee alone for running a single congressional race in Los Angeles was well over $100,000. In 1987, my firm earned millions when I was hired to direct a package of initiatives on the California ballot. And our bill was only a slice of the nearly $80 million spent on the races.

At the time, I thought this huge sum would become a high water mark for spending. In fact, the amount has been exceeded multiple times in the intervening decades.

The mega sums now spent on elections are nothing compared to the gusher of cash paid out by special interests for lobbying and public relations. Read More »

American Gridlock

Change is supposed to be difficult. Major progress – like reforming a country’s education system or achieving universal health care – takes vision, patience and will.

But it’s not supposed to be impossible.

Especially not for the most economically prosperous, militarily powerful and politically advanced country in the world.

Still, here we are.

Nearly 15 months into the Obama presidency – with huge Democratic congressional majorities – we’re still waiting for health care reform. Our corrupt and broken banking system remains unaddressed. A climate bill? Please.

These are just a few of the big problems now confronting us. Dig a little deeper and you’ll find a rapidly deteriorating education system, a fragmented immigration policy, the looming insolvency of Social Security, and the absence of a rational plan for energy independence.

Conservatives implore the president to slow down, that “America” doesn’t want big change. They throw sand in the gears of government. So, nothing happens at all.

It’s no wonder that a recent poll showed that 86% of Americans believe our system of government is broken. Time and again we have proven incapable of addressing major national concerns without the boot of acute crisis bearing down on our necks. Read More »

Beware the “Geniuses”

I recently attended a small party with President Obama’s deputy chief of staff, Jim Messina. Messina – a Huck Finn type originally from the office of Montana Senator Max Baucus – treated us to a Pollyannaish assessment of Obama’s first year.

According to Messina, White House Chief of Staff Rahm Emanuel is the smartest political brain in America and Obama is the greatest political communicator of his generation.

That’s where I started to tune out. My BS periscope surfaces whenever I hear these superlatives used to describe politicians. After a lifetime in the game, I’ve learned that genius labels should be reserved for Nobel Prize winning scientists and mathematicians.

Why am I so skeptical? Maybe it’s because our “genius” political class so often drums out rational, intelligent voices of dissent.

Take the case of Brooksley Born.

You could be forgiven for not knowing the former Commodity Futures Trading Commission Chair. But last week’s powerful PBS Frontline story about Born should be must-see TV for all Americans.

Let’s put it this way: If former Fed Chairman Alan Greenspan, former Treasury Secretary Robert Rubin and Assistant Treasury Secretary Lawrence Summers had heeded Born’s warnings, we might have averted the worst financial crisis since the Great Depression, saved taxpayers $12 trillion in bailouts and averted the loss of millions of jobs. Read More »

BREAK THE BANKS

American banks love to affect a false pose of solidity and enduring strength. That’s why so much bank architecture mimics the classical columns of ancient Greece.

But the American financial system today is in ruins – much like the Parthenon.

So, how can it be that more than a year after the ignominious collapse of our financial system, banking reform still languishes in Congress?

A just-published book by former Treasury Secretary Henry Paulson – who wrote the trillion dollar checks – contends that taxpayers stand to make a profit on the bank bailouts.

Paulson’s conjecture is laughable in light of the more than $11 trillion of taxpayer infusions and guarantees committed to staunching our hemorrhaging financial system and stabilizing our economy. Even if it had a grain of truth, it still wouldn’t change history: the unprecedented intervention, the ruined personal wealth, the mass unemployment and our shattered economy.

President Obama has proposed a Consumer Financial Protection Agency to oversee credit cards and mortgages. Mega-money hedge funds would be required to register with the SEC. A Financial Services Oversight Council would target and regulate banks and financial firms too big to fail. A National Bank Supervisor would scrutinize problem banks. He even proposes a tax on banks to repay the government and the end of proprietary securities trading with depositors’ money.

Of course, the banking lobby is shamelessly resisting regulation the way car companies once smeared seat belts. Read More »

NATIONAL EMERGENCY

James Fallows recently wrote a long piece in The Atlantic titled, “How America Can Rise Again.”

We should listen to him.

While pundits claim that America’s greatest challenge is the bitter economic aftermath of our recent near-Depression, Fallows disagrees. “The American tragedy of the early 21st Century…is a governing system that increasingly looks like a joke,” he writes.

“When the United States Senate was created, the most populous state, Virginia, had ten times as many people as the least populous, Delaware. Now the most populous, California, has 69 times the population as the least populous, Wyoming. And yet they both have the same two votes in the Senate. A business organization as inflexible as the United States Congress would still have a major Whale Oil Division; a military unit would be mainly fusiliers and cavalry.”

In other words, our ossified and creaky political system is increasingly unable to address and solve the problems of the American Commonweal. Or, as Fallows succinctly states, “our government is old and broken and dysfunctional and may even be beyond repair.”

During such desperate economic times, government reform may seem disingenuous and disconnected from our real problems. But just read the headlines:

The right makes a goal line stand against health care reform. An $800 billion stimulus package can’t bust out of Washington. Double-digit unemployment persists even as seven figure bonuses rain down on Wall Street. Budget deficits storm in like tornadoes – more than $1 trillion in Washington, $20 billion in Sacramento and $500 million in San Francisco. Polls by both CNN and The Wall Street Journal reflect the unpopularity of President Obama’s policies.

Republicans crow that these are all examples of Democratic failure and government’s inability to work effectively and efficiently.

But the nihilistic attacks of so many ideologues against “big government” are nothing more than a puerile denial that we need government at all.

In fact, a robust, vibrant government is the only forum that exists in a democratic society where we come together to address our most daunting challenges. Read More »

Terrorism’s Exploding Cost

Last month we learned that lax security procedures allowed a terrorist to board a commercial flight bound for Detroit with a bomb sewn into his underwear. Luckily, the device’s detonator failed, sparing the lives of hundreds of passengers.

Nevertheless, the botched plot exacted a heavy economic and psychological toll.

The subsequent national uproar forced President Obama to call for full body scanners at airports and led to severely tightened security precautions at airports around the world. Air travelers reported tortuous delays and federal officials laid plans to spend $1 billion on full-body scanners.

As I watched the president and his White House aides call for even tighter airline security measures, I wondered why the gold plated equipment and elaborate precautions already in place had missed an underwear bomb.

It may feel like we’re fighting terrorism by instituting draconian security at airports and vulnerable facilities across the nation, but I am beginning to feel that the gigantic expense of defending Western society against a small band of terrorists is itself a massive victory for terrorism. Read More »

The Democrats’ Debt Trap

Politics runs on its own clock. Only 12 months ago, I was triumphantly predicting decades of Democratic dominance in Washington. Today, I worry about President Obama’s re-election prospects in 2012 and whether Democrats will retain their strong majorities in the House and Senate.

What happened?

The massive federal expenditures orchestrated to rescue the nation from economic collapse are now boomeranging politically. Republicans are using the $12 trillion national debt as a cudgel, beating Democrats over the head as the midterm elections approach.

Charlie Cook – ace predictor of congressional races – now says Democrats will probably lose 30 seats this November.

It’s not unusual for an incumbent president’s party to lose seats two years into the first term. Ronald Reagan lost 26 Republican seats in the 1982 midterms. In 1994, Bill Clinton lost more than 50 seats and Republicans won control of the House and Senate for the first time in 40 years.

Both Reagan and Clinton faced grinding recessions during their first years in office. But the economy recovered over the subsequent two years, just in time for both of them to be comfortably reelected – Reagan by 17 million votes and Clinton by 8 million.

So, President Obama may well see his own polling numbers – and re-election prospects – improve dramatically if the recession ends, the national job picture brightens and the country’s GDP continues to grow.

But what if it doesn’t? Read More »

A Difficult Decade

With only two days left in the first decade of the 21st century, it’s hardly a surprise that many Americans are heaving a sigh of relief. The rest are likely holding their breath until the clock strikes midnight.

And who could blame them? By virtually any metric, the last 10 years have been extraordinarily difficult ones for the United States.

The Internet gold rush that began in the mid 90s had reached fever pitch by early 2000. I remember speaking to a Berkeley freshman at the time who was starting an online business from his dorm room. I asked him about his business plan.

“I don’t need a business plan,” he told me. “I could take my mom public right now and make a million dollars!”

Needless to say, the dot-com era ran headlong into a buzz saw in March of 2000. When investors realized that a bad company with “.com” at the end was still a bad company, the bubble exploded.

Eight months later, Americans went to the polls on Election Day to cast their vote for president. No one anticipated the constitutional crisis around the corner. For more than a month, Americans were treated to daily dispatches about “hanging chads” and clandestine legal maneuverings as George W. Bush and Al Gore vied for Florida’s 25 electoral votes. In the end, Bush claimed the presidency after an extraordinary 5-4 decision by the Supreme Court.

The Bush v. Gore ruling hinted at the level of bitter political polarization that would mark the next nine years. Despite Bush’s pledge to bridge the divide, it took a horrifying national disaster to bring the country together again. Read More »

Catching up to China

Over the past two decades, armed with second mortgages and credit cards, American consumers have mounted a long march of spending. Now they are tapped out, and President Obama has proposed an $825 billion stimulus package of tax cuts and infrastructure spending to jumpstart our ailing economy.

Even without the urgency caused by the current recession, our country desperately needs to rebuild its infrastructure.

Our fast-decaying network of airports, roads, transit systems, bridges, seaports, railway cargo hubs, broadband networks, schools and universities isn’t keeping pace with the rest of the world.

Our current electrical grid couldn’t recharge a national fleet of electric cars even if Detroit was able to manufacture them.

Every century, America wakes up to the fact that it must modernize itself. In 1808, President Thomas Jefferson ordered up a plan that mapped out the infrastructure needs for that era. In 1908, President Theodore Roosevelt created a 20th century master strategy for roads, bridges and waterways. 2009 is President Obama’s time.

Most Americans are still living the illusion that we are the most modern country in the world. But travel outside our borders and the myth soon evaporates. Read More »

America’s False God

By deifying the private accumulation of extraordinary wealth rather than the performance of extraordinary work, our culture worships a false god.

Wall Street has become a metaphor for a system that has forgotten basic values like sacrifice, thrift, saving for a rainy day, integrity and moderation. Unfortunately, the contributions of those ordinary Americans who work hard, raise families and play by the rules are made to seem trivial.

If we are to repair the country, that perception needs to change.

The secret to America’s success is simple: We are an egalitarian society where ideas are celebrated and equal opportunity is a protected right. Sadly, the gap between rich and poor has grown since Ronald Reagan lowered tax rates on both capital gains and personal income in the 1980’s.

We have falsely convinced ourselves that America has the world’s best standard of living. We look down our nose at countries that have higher tax rates and more comprehensive social services like universal health care. At the same time, it’s clear that neither our federal nor state governments have enough money to pay for the smaller level of services provided in the United States.

California’s projected $45 billion deficit is a prime example. The reason for chronic deficits and deficient levels of education and health services is that our tax rates are too low, particularly for the wealthy. Read More »

No Pain, No Gain

History is about to take a whole new generation of Americans to the woodshed. Hopefully, the old-fashioned backyard beating will leave a lasting impression about the virtues of hard work, saving money and sacrifice for others, values that made the United States the world’s greatest country in the first place.

My parents’ generation – those now in their 80’s – developed values that are as scarce today as material wealth was during the 1930s.

My parents both lived through the Great Depression, as did my grandparents. The grave lifestyle and dire conditions shaped their attitudes about both career and money.

A good job was treasured. During the 1930s, both of my grandfathers lost their jobs and never really regained their economic footing for the rest of their lives.

My mother particularly understood the importance of my dad’s job as a milk deliveryman for Berkeley Farms Creamery and later as a driver for Dreyer’s Ice Cream. In an era in which 25% were unemployed, financial calamity was always a fearsome possibility.

This had two effects on my parents. First, even though they were not deprived, they feared deprivation. Second, they stretched every dollar to provide maximum benefit for their family. Read More »

The Gilded Age Implodes

The Republican Party is a dying elephant. But can Democrats seal the deal with the American people and craft a 21st century coalition that rivals the power and durability of their 20th century New Deal coalition?

The 2006 midterm elections made Nancy Pelosi Speaker of the House with a sizable majority. Barack Obama is now poised to capture the White House. But it will take more than a simple rejection of George Bush to sustain a lasting Democratic majority.

The devastating collapse of seemingly impregnable financial institutions laid bare the rotting pillars of an unregulated Wall Street. Gone is the cloak of probity that allowed so many big players to reap undue rewards.

The biggest lesson of the $1 trillion bailout is that capitalism needs democratic government as much as democratic government needs capitalism. As President Theodore Roosevelt realized at the end of the 19th century’s Gilded Age, business must be overseen and regulated by government to assert and protect the common good.

In 1980, Ronald Reagan ignited a revolution by mobilizing taxpayers against the very “big government” that had rescued their parents from the Great Depression. But without checks and balances for the common good, free markets ultimately unhinge in binges of excess and greed. The gilded age implodes.

We are witnessing more than the death of our free-for-all financial system; the passing of a governing philosophy is also at hand. The question is whether we will use this moment of reflection to chart a new course. Read More »

$1,014,000,000,000 (and counting)

The big numbers keep piling up. First there was Bear Stearns’ controlled implosion, which cost $29 billion. Then Fannie Mae and Freddie Mac flatlined, eliciting another emergency injection of $200 billion and a government takeover. AIG teetered and fell into an $85 billion safety net. Then came the request for another $700 billion from the Treasury Department and Federal Reserve to save Wall Street from itself.

Wow! That’s a ton of scratch – even for Uncle Sam’s deep pockets.

To justify the unprecedented zeros, Wall Street bankers argue that our financial system will collapse without the intervention, taking with it the machine that keeps the American economy generating taxes and jobs. A new depression would ultimately cost Americans far more. President Bush reasserted this message when he addressed the nation last Wednesday night.

By contrast to this trillion dollar grift, many social programs long castigated as “too expensive” by conservative critics seem positively cheap. Read More »

Tracking the Credit Virus

For decades, Wall Street financial institutions have escaped government oversight by convincing people that even the slightest regulation would hogtie the global financial system.

Over time, the lack of oversight spawned a rogue banking system in which hedge fund entrepreneurs, mega-money managers and investment bankers were free to gamble vast sums completely unregulated. The sub-prime lending extravaganza rose from this unchecked morass.

That was before a rolling credit crisis brought staggering losses of wealth not only to big banks, but to regular homeowners across the country. With the economy reeling and in the wake of Bear Stearns’ $30 billion taxpayer bailout, much-needed government regulation is on the way.

Read More »

Wall Street’s Big Bailout

March, 2008 will go down in history as a turning point in finance. The delusion of deregulated financial markets has been exposed.

For decades, the titans of Wall Street have demonized government regulation meant to protect the public interest and the integrity of our financial system. They framed their case against intervention as “innovative public policy.” But as the financial giants have crumbled, their argument has been revealed as a mere tactic to avoid scrutiny of their unsavory and imprudent practices.

Martin Wolf, writing in the Financial Times of London, describes the current crisis in stark terms: “Remember Friday March 14, 2008,” he writes. “It was the day the dream of global free market capitalism died.”

In recent weeks, the Federal Reserve has been forced to bail out Bear Stearns, guarantee tens of billions of the firm’s losses and loan hundreds of billions to big banks and Wall Street investment firms in order to prevent the collapse of both the domestic and global financial systems.

Breaking a barrier that had never before been broken, the Federal Reserve used the taxpayers’ credit and dollars to save Wall Street from imploding. Read More »

Capitalism Without Values

Are the barons of high finance ever called to account for their avarice, or for the billions squandered by their schemes?

A culture has evolved which allows the corporate executives of public companies to achieve monumental pay packages without investing a dime of their own money. I recently talked to the 45-year-old retired CFO of a famous Silicon Valley company who justified his $250 million stock package by saying that he had worked six days a week for five years. I thought of my father, who worked six- and seven-day weeks for 40 years as a deliveryman for Berkeley Farms and Dreyer’s Ice Cream.

Business leaders are portrayed as omnipotent gurus who blame the ills of society on a recalcitrant government bureaucracy and a self-dealing political class. The myth of the meritocracy of financial genius is perpetuated by horserace coverage of wealth, such as the Forbes 400 list. Here the accumulation of money is more than lauded; it is mythologized. Success has become so equated with money that critical professions such as teaching, journalism, medicine, public health and government service, which require a spirit of sacrifice, are made to seem less important than pure capitalistic endeavors.

But current events are challenging the myth of the omnipotent businessman. Read More »