Correcting the Poor: The Civilizing Impulses of Homo Corporatus and Private Charities*

This is the next post in my series on Neoliberalism and Charity. Part 1 is posted here and at New Economic Perspectives.

_________________________________

Should anyone—the state or any other source–have an obligation to interfere with you in order bring your best, flourishing, self about?

Certainly, this is the debate that philosophers such as Isaiah Berlin and libertarians such as Robert Nozick have engaged in heartily, with a view to socialist frameworks that redistribute resources in order to produce certain kinds of outcomes. Should the state impose certain ideals and goals upon you, and why? There are certainly examples of very good certain state-imposed expectations such as seatbelts or prohibitions against drunk driving, as well as terrible examples, such as state-imposed prohibitions on certain kinds of drugs.

In a neoliberal era, the corollary to above question is whether non-state organizations should have the ability to interfere with you in order to bring about your best, flourishing, self?

This question emerges in the wake of the heralded contrition of Sam Polk, as expressed in a New York Times opinion piece, where he offered a self-congratulatory description of his decision to give up being a Wall Street trader and “money addict,” and instead to form a charity that awards “grocery scholarships” to “poor moms.”

Polk’s charity, Groceryships, on its face appears to be a thoughtful idea.  Indeed, the basic Groceryship is a “scholarship for groceries.”

 Soon a simple one emerged: what if we bought groceries for a family for six months. I imagined a single mom, working overtime to try to put food on her table, and falling short. We wanted to give that mom some breathing room, and her kid some healthy food in the process.

The language of Groceryships is certainly neutral, but tells a story that reveals a number of assumptions about poor folks. In his tale about how Groceryships started, Polk gives a narrative about how he and his physician wife learned about eating better. And how they might be healthier if they ate better (apparently, this was previously unknown to them).  So they got to work, switching to whole foods, eliminating processed and fatty foods. Though they suffered “withdrawal” from their addiction to unhealthy foods, they were able to kick their habit. (addiction seems to be the lens by which Polk understands many phenomena).

We started buying tons of vegetables and whole grains, and cut down on fatty meats, sugar, and processed foods. It was hard. Very hard. Kirsten and I both experienced what we can only describe as withdrawal symptoms—nightmares, panicky feelings, irritability.

After a few weeks those symptoms faded. We found we enjoyed eating healthy and especially how good we felt. We no longer had to battle ourselves about whether to eat another Cheetos, or felt shame about eating too much cake. That everyday battle-stress just faded away. We ate at mealtimes, snacked when hungry, and felt great. After three months, Kirsten got her cholesterol levels tested. They’d been cut in half. She went off Lipitor.

Polk and his spouse were so impressed with the results that they wanted to share their newfound knowledge and to give back to society at the same time.

A few months later, we watched A Place At The Table (sic), a documentary focused on the staggering numbers of Americans, especially children, facing food insecurity. Each day 50 million people in this country (including one in four children) go hungry.

Growing up, my parents struggled, living paycheck to paycheck. But it never got so bad that food wasn’t on the table. Kirsten and I were horrified that so many people—kids!—were hungry. We were especially horrified that many of these kids lived down the street from us. Los Angeles is a segregated city. It’s easy to forget that just a few miles away people were starving.

I guess the truth is that we had known that; we’d just never taken ownership of our responsibility to do something about it. That day, we decided to help.

Polk recognizes the correlation between poverty and hunger, but he frames this correlation in the language of “choice” and options:

Hunger in America looks strange; there is a definite correlation between food insecurity and obesity. You’d think that people who can’t afford food would be rail thin, but it’s often the opposite. People that struggle to make ends meet tend to opt for the cheapest calories, processed/fast food. They often live in Food Deserts, areas where nutritious produce is simply not available. (Emphasis mine)

Perhaps the implied causation was inadvertent. Perhaps Polk recognizes that such “opting” is the result of being short of cash. In which case, the solution would be to distribute sufficient money to buy healthier food. And certainly, that seems to have been the initial idea, but Polk frames the solution in these terms:

…we realized that mom could also use some nutrition education and group support. We remembered how difficult quitting sugar and processed/fast food was for us, and we realized that a structure of support would be helpful, necessary.

It suggests helpfully, liberally, perhaps due to no fault of their own, that poor moms don’t know much about nutrition.  So, families who receive a “Groceryship” will be supported not only financially, but medically, educationally, and emotionally. Support typically means resources are available to help one advance towards a goal, but not mandated. By contrast, mandatory resources are not forms of support, but a form of discipline: if you must avail yourself of a resource, then you are not supported, rather you are compelled.

Groceryship awards are not merely the distribution of groceries with the “option” of attending nutrition classes; rather the classes are required. “Poor moms” who apply for the meritorious award must swear their allegiance and commitment to attending nutrition classes, “weekly meetings” and to do weekly homework. It’s as if they were young, naïve, subservient children.

Indeed, Polk acknowledges that his program is different from “but can be used in conjunction with SNAP (food stamps) which provides financial to support to struggling families (link not in original),

 but doesn’t insist the money be spent on healthful foods, or teach families how to prepare and shop for those healthy foods.” (emphasis mine)

In that simple sentence, Polk reveals more of his (limited) worldview: the state “does not insist that the money be spent on healthful foods.”

Had Polk searched, he would have found that, if anything, food stamps severely constrain the purchase of healthy foods. According to the Center of Budget and Policy Priorities, the maximum monthly budget for a family of 4 (i.e. those who have no other income) on food stamps is $632.

That boils down to $5.64 per person per day. Whole Foods, expensive as it is, accepts food stamps; there are multiple sites where families have accepted the “Thrifty Whole Foods” challenge to shop for whole foods on a food stamp budget. I’ll let them tell their stories—many of which have various helpful hints about how to shop and cook on a limited budget.

In short: it is possible to cook healthy foods on a severely restricted budget. But healthy foods require adequate kitchen facilities to process and cook them.  Poor families, who can presumably afford housing that is cheap (cheap because landlords don’t make repairs to provide decent stoves, rat- and cockroach-proof storage, adequate refrigerators needed to store fresh foods), often do not have those facilities, therefore tenants are forced to choose processed, sealable, storable foods.

As I’ve noted elsewhere, time (or more its scarcity) becomes a severe constraint if a “poor mom” is also working or doesn’t have access to child-care so that she can schlep to her Whole Foods easily/quickly, and also process said healthy foods. The issue of access to transportation that allows her to get to her Whole Foods will also, chances are, constrain her free cooking time further.  But all of these constraints raise another urgent issue: namely the assumption that someone who is both cash- and time-poor is expected to cook whole foods after long, difficult, days. How many working professionals are expected to cook full, healthy meals after a full day of work?

Aside from the sheer difficulty of spending money on “healthful foods,” there is also the issue of why any state should impose a certain standard on those who are dependent upon public monies for survival, when it does not impose the same expectations on the rest of its citizens.  It calls to mind Isaiah Berlin’s discussion of positive liberty.

For Berlin, positive liberty–defined as the ability to “be my own master,”[1] is least harmful when I am able to decide how to live my own life, to make my own decisions, rather than to have to depend upon external forces. As a counterpart to negative liberty, namely that where I would be protected from being harmed by others and the state, positive liberty allows me to find a way to flourish, to decide how I want to live.  In this idea, Berlin marks an idea that re-emerges a decade later in Hannah Arendt. Arendt criticizes the “Social,” that dimension of society that is subsumed by the economy, where one’s acts are instrumental—where one works in order to make a living.[2]

For Arendt, this idea undermines our very humanness. It coerces us into thinking only about life, about living, rather than acting, understood as great words and great deeds. The economy, with its inducement to consume, to work in order to live and consume—was anathema to Arendt. Arendt was critical of the notion that one’s goals must have utility. Being healthy is exemplifies this idea: Health has become naturalized as an end in itself, but in fact is about usefulness: to be less of a drain on society, to be aesthetically pleasing, to appear successful.

To be fair, Arendt’s is precisely not a socialist ideal, where one’s needs are met through a communal society, where one hunts, fishes, reads, in the model of a balanced life. Nevertheless, Arendt’s fear comports with Berlin’s, who skeptically asks:

“What, or who, is the source of control or interference that can determine someone to do, or be, this rather than that?”

To find a way to flourish without being forced to live out another’s expectations for you—this was both Arendt’s and Berlin’s concern. This question was a challenge to the authoritarian state whose creeping influence, in their experiences, had been detrimental, to say the least.

But the creeping state is not the issue at stake with regard to Sam Polk and Groceryships. Rather, the issue of state-imposed expectations has been derailed with the forceful emphasis on civil society as the arena by which to solve various social and economic problems.

Civil society, a term that G.W.F. Hegel used to indicate that arena where the public and private meet, has a distinctly different sense today. Whereas Hegel circumscribed civil society as that where the individual and the state can interact through intermediate organizations such as guilds, or unions, today’s civil society is that arena where the state has dialed back its obligations in order to allow private organizations and individuals to pick up the slack.

Polk’s charity, like that of many others (such as Teach for America, charter schools, Kiva) that have sprung up in the last several decades, reflects the success of a paradigm that has emerged over the last 3 decades. This paradigm endorses private, faith-based, or “non-profit” charities as the foundation of civil society (defined as a non-government sector). These organizations, endorsed by every U.S. President since Ronald Reagan, have facilitated the evacuation of a public safety net—an evacuation that goes hand in hand with the deregulation of the banking industry, and the steady erosion of unions, public pensions, and labor protections.

Certainly, it is unreasonable to expect that the state can or will address all levels of public need. But private non-governmental charities have fewer Congressional or procedural inhibitions  what they may demand of the constituents that they claim to want to help, such as the ability to impose certain behavioral features.

Groceryships imposes many strings for the mere flaw of being poor.  According to the rules of applying for a Groceryship, being poor apparently means one chooses to eat unhealthily. Being poor apparently means that one is “addicted” to fast foods and sugar (this isn’t such a far-fetched idea for Polk, who frames his past actions in finance as the result of an “an addiction” to wealth).

Thus, to be eligible for a Groceryship, poor moms can’t have excessively large families (“no more than 3 children”), and be only moderately poor. And they “must” need/want/be eager/be motivated/be ready to adopt a healthy lifestyle, to want to be healthy, to be open to new ideas. See here.

Groceryships’ expectations fit into the neoliberal paradigm that I discussed in another piece, namely that poor people, more so than the non-poor, have an obligation to be moral, aesthetically reasonable, healthy, happy, and eager about it.

The most vulnerable—or as I say elsewhere, those who are perceived to be unruly—are seen as scary, dangerous, frightful because they are seen as “failures” due to their personal characters rather than through their circumstances: Why are they poor? Why don’t they eat better? Why are they fat? Why are they rude? Why are they noisy and loud?

If the poor just worked harder, smoked less, didn’t do drugs, shunned McDonald’s and cooked more, then they too could be as aesthetically pleasing—and perhaps as successful and happy as Sam Polk and his spouse.  This is one of the pernicious implications of a neoliberal economic model: the poor are expected to fulfill the aesthetic and moral expectations of the upper-class of what it means to live “a good life,” to flourish. And they are subject to those who are precisely in a position to be able to dictate the life goals for those who are more vulnerable.

Being poor means that if one wants to have one’s poverty relieved slightly or temporarily (remember, the Groceryship is for 6 months, after which one still remains poor), one is at the mercy of the ex-money addict Sam Polk and his neoliberal buddies, who are cheered for “helping the poor.”

Let’s remember that Polk’s money-addiction days were part of a milieu—a group of traders/financiers/bankers who were engaging in a set of practices that were both induced and condoned by state power and general pre-financial crisis societal approval. That is to say, his role in JP Morgan Chase, or other financial corporations who contributed heavily to the banking crisis (including mortgage foreclosures on the working class and minority populations) was seen as a positive contribution, until around 2008/9. Moreover, the state—both Congress and the Executive Branch–continues to condone it through (pro-banking) legislation that allowed CEOs to receive large bonuses in spite of their roles, or through supposedly punitive legislation that slapped banks lightly on their wrists, and paid out less than $2000 per person to those who lost their homes over a three year period. Moreover, this settlement changed nothing in the relationship between the borrower and loan servicing company.

By framing Polk’s actions within an individualizing framework (be it therapeutic or moral conscience), and without locating them in a larger political/cultural structure, this frame precisely engenders the kind of glorification that is showered upon Polk, by Jacqueline Novogratz and many others such as Rachel Cook, Jessica Jackley…and the Nobel Peace Prize winning innovator of microfinance himself, Mohammed Yunus, who are engaged in similar, if not identical, shifts.

What Polk et al. appear to be doing here is making a move from a “corporate free market” to a “non-profit free market,” which in no way challenges the idea that poverty and wealth are exclusively about individual choices. Rather, Polk’s (and Novogratz and Yunus) shifts still emphasize the ideology and primacy of the “free market,” coupled with a rhetorical emphasis on hard work, along with individual moral, personal, social accountability for darker or non-American population.  In Yunus’ case, micro-lending is tested in Bangladesh; for Novogratz, it’s taken to East Africa, India, Pakistan and Ghana, and for Polk, it’s applied to black and Latino populations of Southern California.

But there is another aspect of this that is also troublesome: the self-satisfaction experienced by these “free market successes” who reclaim their moral sensibilities through the act of walking away after making millions in profits and then turning to “help the poor” on their terms. They are cheered for their charity work (in an individualist frame) without being asked about their participation in a financially corrupt, morally bankrupt “free market” system that allowed these individuals to “flourish” at the expense of millions of individuals who are unable to access the free market system because they don’t have the connections or “moral luck” to have been born in the right place at the right time.  As economist Dean Baker clarifies in his book, The Conservative Nanny State, there is nothing “free” about the free market: it is rigged to benefit those who already have at the expense of those who don’t.

As well: this kind of neoliberal framework ensures that the ruling class will shape the poor, by forcing them to behave, reshape themselves through these seemingly neutral, or generous, charities in Sam Polk et al.’s own ill-informed visions of what it means to be a successful citizen.

This, then, is an expression of Michel Foucault’s biopolitics: those who are induced to cultivate themselves in the image of the ruling class are those who are the most vulnerable—subject to the whims and dictates of the wealthy and the powerful.  This is the success of the neoliberal paradigm: it renders to Homo Corporatus (or Homo Wall Streetus) the freedom and flexibility to shape the actions and character of the most vulnerable to those who have the money, the power, and the favor of the state; simultaneous Homo Corporatus’ contributions, the results of plunder and the corporate nanny state—are read as an individual/private acts of generosity to help those who are most needy, those were rendered needy through institutional/governmental/financial practices.

---

[1] Isaiah Berlin, “Two Concepts of Liberty,” p. 131. In Four Essays on Liberty, Oxford U Press: 1969.

[2] Hannah Arendt, The Human Condition, ch. 6. University of Chicago Press, 1958.

*Updated version. Thanks to Robin James, Janine Jones, and Robert Prasch for their helpful comments.

 

Advertisement

Consumer Activism and the Biopolitics of Consumption

In my research, I’ve been exploring neoliberalism and the biopolitics of charity. How do we understand consumption and activism in a society whose social/public safety nets are increasingly eroded?

I’m going to try to post a series of pieces on neoliberal practices.  This is the first. And there’s a fun snarky video at the end.

______________________________________

Last month, I wrote an article about former financier Sam Polk, whose move from Wall Street to Groceryships has been celebrated as an example of the 1% awakening to a moral conscience.  Groceryships is a charity that gives “grocery scholarships” to “poor moms” in order, ostensibly, to alleviate their meager budgets for healthy foods. But the scholarships come with many strings attached: to swear an allegiance to want to be healthy; commitments to attend weekly nutrition classes, do homework, take cooking classes. More on Groceryships in my next piece.

In my original article, I suggested that this kind of charity was an instance of a colonizing mission akin to religious charities who deliver sermons along with meals to the poor. And…needless to say, I challenged the legitimacy of this mission.

Polk’s shift from being a trader to the director of this charity (and the existence of such a charity) represents but one datapoint in an increasingly hegemonic neoliberal society. He characterizes his past existence as about addiction: he was addicted to making lots of money, as he understands it. As Chris Maisano has discussed in an aptly named article, “Chicken Soup for the Neoliberal Soul,” this kind of self-assessment is but part of a dominant therapeutic culture in which certain socially disapproved actions (e.g., excessive drinking/extramarital sex/public prayer/corporate plunder/civilian violence) are attributed to personal flaws. Therapeutic discourse individualizes the action and isolates it from larger, societal phenomena that are indicative of a certain worldview. It also locates anti-social practices in personality attributes that must be corrected and improved by the individual, presumably in ways that are easily visible to others.

This model underlies a range of consumer-activist campaigns: from spending a year producing zero trash, or without spending or shopping or driving or using toilet paper or electricity, or “voting with your fork.” The idea is that one’s politics is best enacted through what one consumes (or doesn’t).

Although the details of each of these various campaigns differ, there are some details that they have in common: each project centers on the individual as the locus of responsibility, thereby depoliticizing the issue at hand, and reducing it to an “individual” choice: to make garbage or recycle; to spend or not; to have a carbon footprint or not; to consume only healthy foods or not.

Such campaigns don’t take into account the context of the issue about which they drumbeat: whether it be waste management (such as where landfills are located, or the health impact of these landfills on surrounding populations), or trash production (involving the notable absence of regulations requiring companies to produce goods in recyclable containers).  The precise point of such consumer-activism is that larger social structures that induce ill impacts on a larger society can be ignored in favor of the “every individual can make a difference” model.  True: if 350 million individuals discarded their cell-phones, or decided to live off the grid, or stopped spending or producing trash simultaneously, we would certainly notice the impact right away. But this hope ignores several important things:

1. It is easier and morally satisfying to shame individuals about their individual behavior, even though it is not as effective as changing the choices they face.

2. It is possible to achieve changes in collective social behavior: by regulating certain practices and penalizing individuals who violate the law.

3. Passing legislation that compels companies to stop polluting, producing trash, (or encouraging them) to grow healthier crops, distribute whole foods widely, find alternative energy sources, etc., may be much more effective in reducing the overall destructive impact—though much more difficult—than changing collective behavior.

4. Consumer-activism reinforces the myth of choice and the neo-classical emphasis on free-markets by focusing on the individual as the locus of change rather than considering the role of social structures (such as the practices of corporations that benefit from the myth of free markets and individual choice).

In other words, the standard corporate response to individual-consumer activism can safely remain: Buy our products if you like them. Or don’t. It won’t really affect our profits or force us to change our practices if individuals act alone. Because hey, the state doesn’t really care, and it is the only force that can compel us to change or lose money. And they (Congress/Senate/President) won’t compel us to change, because we are among their major contributors.

Consumer-activism is but an expression of neoliberal society. There are multiple aspects to neoliberalism, but for my purposes here, a neoliberal society is one in which state support of citizens is evacuated in favor of the privatization of individual well-being. So if you want to be healthy, spend more money and eat better and join a gym, or (“less expensively”) buy sneakers/”cheap” workout accoutrements. If you want a better environment: recycle more, produce less trash. If you want to be less stressed: work less, get off the grid, go for nature walks in the woods across the street.

This model ignores the class dimension of “choice”: one doesn’t just decide to eat better, work less, use less electricity, spend “less,” in a vacuum. In fact there is an invisible context for each “individual” decision, which because it is invisible becomes depoliticized. That context requires an indefinite supply of time or money, preferably both:

1. Money and time are trade-offs. One often spends money in order to save time. One may eat out to save the time of making and packing lunch. On the other hand, it is much easier to eat better—especially in US society (where street and fast foods are often greasy, fried, and/or made of low-quality ingredients)—if one has the time to cook whole grains and unprocessed foods at home.

2. Money buys access to better resources/ingredients: organic, chemical-free, exotic unseasonal foods that are often grown across the country and shipped to one’s local health food/Whole Foods Market-like store.

3. Time is a scarce resource for the professional-class, working-poor, and the indigent. For different reasons. Some of them have to do with “labor-markets,” in which our job hours are not regulated by the state, or by other factors such as job-precarity (I may lose my job if I don’t work the longer hours my employer quietly/implicitly demands).

4. Those with limited access to money must make up for it with time:  For the indigent and working-poor, time poverty is further exacerbated by bureaucratic demands and long waits at social service organizations (public health clinics, etc.), long distances from and public transportation to areas where higher-quality/lower-cost goods can be found; time-poverty is also exacerbated by limited access to affordable child-care (when it cannot be outsourced to a private nanny or day—care center) among other constraints.

By contrast, those with money but limited time can buy their way out of politically, socially, economically exploitative situations. Likewise, those with money, to differing degrees, can buy their way out of limited choices, such as:

-Low-quality food (and thus move to more-expensive foods)
-Low-quality or resource-constrained health care (public medical clinics)
-Child-care constraints

Those with time (and a lot of money, or some money but other abundant resources, such as large plots of land, clean water, decent housing, and robust social networks) can “choose” to grow their own food, can preserves, eat organically, etc.

While this group may contain poor folks, these are often those who have been able to “downsize,” from a wealthier life. These (I’ll call them “Downsizers”) should not be confused with those who are forced to live frugally because of forced unemployment, limited employment, disability, or other imposed financial constraints (“Forcibly Poor”).

The “Forcibly Poor” do not necessarily have time in the way that “Downsizers” do, since they can’t trade in their time for money (They can’t just pick up a paying job or liquidate some of their stocks in order to access money). The corollary to this is that those who are forced, but do not “choose” to live frugally, are also treated with less dignity.

I suspect this is because those forced to live in poverty are seen as hapless, incompetent, and unable or unwilling to “choose” to have money. Therefore, they are treated as lesser rational beings, like young children, who must be instructed, guided, disciplined and ushered along.

This assumption, too, is part of the ideology of free-market liberalism: Those who are wealthy or actually choose to live frugally, are more rational than those who are poor. And those who are poor just don’t know how to live a good life. Their poverty is presumed to be an expression of their lack of desire to live a good life. This logic follows straight from John Locke’s 2nd Treatise of Government: God has given the world to all men (sic) in common. Since the earth is accessible to all, then property (wealth) can be acquired by all who choose to labor.

How else, then, to explain poverty, except by lack of rationality? The poor must be irrational (insane/idiotic/criminal/indigenous), because otherwise they could have used their God-given intelligence to labor and acquire a sufficient share of God-given resources.

If these assumptions make sense, then it seems that several things follow:

1. Consumer Activism is a certain way of comporting oneself in the world so as to appear politically conscious, without necessarily being effective.

2. Charity organizations that distribute various goods/services to the Forcibly Poor with various strings that require behavior modification, are enacting a certain mode of Consumer Activism and imposing it on the Involuntarily Poor. But instead, without the accompanying discussion of the evacuation of public safety nets, or the reasons behind the lack of money and time, such models of Charity become normalized and celebrated as the primary means to “help the (forcibly) poor.”

3. Imposing Consumer Activism on the Forcibly Poor, as Sam Polk does with Groceryships, looks a lot like colonizing/civilizing the poor. More on that in my next post.

__________________________________________________

*An earlier version of this article discussed the “Forcibly Poor.” In this version, that term has been changed to the “Involuntarily Poor.”

**The phrase “Involuntarily Poor” has been returned to its original “Forcibly Poor.” It’s more accurate.

The Debt Crisis in Puerto Rico: Why Is It Not More Newsworthy?

This piece, by TransEx blogger Robert Prasch, is reposted from yesterday’s New Economic Perspectives. It’s a timely piece which raises concerns about the lack of “newsworthiness” of an American territory.

__________________________________

By Robert E. Prasch

Anyone who follows the news periodically, if not more often, wonders about the criteria making certain issues or persons “newsworthy,” and others substantially less so. One reliable indicator of newsworthiness is that the story happens in Washington, D.C. A second is an unusual or counter-intuitive event (“Man bites dog”). A third is the prospect of large losses. This last quality, however, renders the relative neglect of Puerto Rico’s debt crisis an interesting anomaly.

To get a sense of this conundrum, let us reflect back on the extensive coverage preceding Detroit’s Chapter 9 bankruptcy this past July. At the time of its filing, Detroit was a city of 700,000 persons, down from 887,000 as recently as 2005, and 1.2 million in 1980. The mass media began to cover the story months before the city’s formal declaration of bankruptcy. A common feature of these stories was that Detroit’s filing was by far the largest muni-debt bankruptcy in U.S. history, with an estimated $18 billion on the line (Jefferson County, AL and Orange County, CA were a mere $4.2 and $1.6 billions respectively). We saw numerous stories about the demise of a once-great city, the politics surrounding the payment crisis, and a fairly robust investigation into the plight of the city’s pensioners, residents, home owners, and sundry other stakeholders.

By contrast, Puerto Rico has a much larger population with approximately 3.7 million residents. As with Detroit or any other location under economic pressure, its population has been shrinking rapidly, by about 1% per annum since 2010. This is not too surprising since Puerto Rico’s GDP has only recently begun to stabilize after contracting in every year since 2006. A large portion of this contraction is due to greatly reduced levels of investment and construction, along with stagnating “exports” to its primary trading partner, the United States. Unsurprisingly, its “headline” unemployment rate is 15.4%, much higher than any state in the Union. While I have not become aware of any substantive data on the demographics of those who have left and those who have stayed, similar economic stresses across other cities and regions make it safe to presume that those who have departed are younger, more educated, and more employable.

As to the crisis itself, depending upon whom you read, somewhere between $55 and $70 billion of municipal or “muni” debt is at risk of default. Of this, just shy of $1 billion must be paid out or refinanced over the next month. In light of the market’s bearish turn on Puerto Rican debt, this will be neither easy nor cheap. As an index of market sentiment, consider that yields on Puerto Rico’s 20 year bonds, which were around 5% as recently as May, have now surged to over 10%. The market’s sense that Puerto Rico’s debt load is unmanageable was given additional impetus this past week when S&P and Moody’s downgraded the ratings on the Commonwealth’s bonds to “junk.”

With its population and economy shrinking, yields on its debt increasing, tax levels rising, businesses struggling, and bond market sentiment becoming notably bearish, Puerto Rico is in a terrible bind. To add to its woes, legal opinion currently holds that as Puerto Rico is not a sovereign government, it most likely does not have the legal authority to file for bankruptcy. Such an inability means that it cannot use the threat of a filing to garner leverage in working out terms with its creditors, and it cannot count on an informal deal freeing it up from predations by “vulture funds.”

Given all of the above, why is this story not more newsworthy (a late exception is this Sunday’s New York Times)? If we merely consider the size of the problem, it should be evident that more people will be directly afflicted by cuts in government services, lower pension payments, and a weakened labor market, etc., than occurred as a consequence of the collapse of Detroit’s or Jefferson County’s finances.

To be certain, some stories have appeared – almost all of them in the business press. The “angle” has been almost entirely on the financial side – the ratings downgrades, the outlook for investors, the efforts on the part of the government of Puerto Rico to balance its budget, etc. Again, with a few exceptions, we have not seen any “personal interest” or “man on the street” articles featuring interviews with pensioners, residents, small business owners, school officials contemplating more budget cuts, or individuals contemplating migration to the New York, Miami, or elsewhere.

I would speculate that part of the reason for the coverage gap is the absence of two U.S. Senators and a handful of Representatives. Representation in Congress would make this a Washington story, and thereby “on the radar” of all political reporters and most newspaper editors. Another reason may be related to Puerto Rico’s quasi-sovereign status.

Or, is it that we are becoming accustomed to such stories? Perhaps we have quietly given up on the notion that the United States is or should be a first-world nation with the ability, capacity, and obligation to ensure that all of its states and territories have the wherewithal to support a decent standard of living. If the latter is true, then the lack of interest in the prospects facing the people of Puerto Rico is just one more signal that plutocratic values and perspectives are increasingly dominating our politics and media.

A “Roadmap” to Restoring Our Constitutional Liberties

Hi, folks–FS here. Apologies to followers of this blog for not having posted for a while. The term knocked the wind out of my sails, as the saying goes. I hope to have a new piece sometime in the next day or so. In the meantime, TransEx blogger Robert E. Prasch proposes a set of reforms to address the latest wave of news concerning NSA leaks and the general encroachment upon Constitutional protections.

From Bush to Obama: Continuity You Can Believe In

Edward Snowden’s revelations have collectively stripped away the last shred of hope that the Obama Administration or the Congressional Democratic Leadership have established or intend to establish any meaningful changes from the dangerous precedents laid down by the openly and unabashedly anti-Constitutional Bush Administration. Indeed, the actions of this Administration arguably represent an even greater betrayal of American values, as they have provided the imprimatur of bi-partisanship to the shredding of our long-standing Constitutional rights. Unsurprisingly, the Obama Administration now finds that its greatest cheerleaders and apologists are the former consigliore of George W. Bush’s disgraced Administration. No less than former White House flak Ari Fleischer has happily tweeted that “Drone strikes. Wiretaps. Gitmo. O[bama] is carrying out Bush’s 4th term.”  The Administration’s newfound friends confirm the old adage, “If you lie down with dogs, expect to wake up with fleas.”

How bad is it?  Consider the stance now being taken by The New York Times, a newspaper that once worked hand-in-glove with the Bush Administration to amplify its pro-Iraq War propaganda and then, less than a year later, cooperated in covering up that same Administration’s massive and illegal domestic wiretapping program until after the 2004 elections were safely over. Yet these new revelations are so bad that the Times, despite its long and pitiful record of subservience to executive power, claims to be shocked. Its editors have concluded that the Obama Administration “has now lost all credibility on this issue.” (The phrasing of the sentence suggests that the Administration retains credibility on other issues. We can only speculate as to what issue or issues they have in mind. Prosecuting fraudulent bankers? Supporting meaningful financial reform? The 49 State Mortgage Settlement? Closing Guantanamo? Renditions? Bush-style “Free Trade” Agreements? Drone Warfare? The restoration of due process of law to Americans that the executive branch suspects of terrorism? But I digress). In the same editorial the Times also, and correctly, dismissed Sen. Dianne Feinstein’s pathetic justification of the these massive surveillance programs as “absurd.” Happily, they refrained from implying that Sen. Feinstein retains credibility on other issues.

What Should Be Done?  Lessons from the Democrats’ Undermining of “Financial Reform”

But, one might ask, how should we proceed?  This is an important question.  While it is impossible to formulate a detailed answer so soon after these revelations, it is not too early to sketch out a strategy. As we consider our way forward, it would be useful to remember the hard lessons learned in the course of an earlier episode in which the Obama Administration and the Democratic Congressional Leadership felt compelled to act in a situation where “success” would mean taking substantive action against their largest donors, their personal ambitions as politicians, and their deepest political instincts as so-called “Centrists” or “Clinton Democrats.” That issue was the reregulation of the financial system in the wake of the greatest financial debacle since 1929. The bill that emerged, a veritable monument to doing nothing while presenting the appearance of attending to the public’s interest, was the Dodd-Frank Act of 2010.

Let us briefly recall how that process unfolded. Immediately after the crash occurred, the public was repeatedly told that the debacle was the consequence of a “panic,” and for that reason we should rest assured that nothing was wrong with either the nation’s financial system or its most prominent firms. All that was needed was some “temporary liquidity,” after which all would be well. Remarkably, Timothy Geithner’s Treasury Department and the Too Big To Fail banks never wavered from this story, and regularly deployed “creative accounting” to support it.  To their regret, the public failed to be persuaded despite the best efforts of the financiers, their kept politicians, and industry-friendly regulators.

Seeing that this initial ruse had failed, their second ploy was to stall for time. To that end, they argued that the system was “complex,” and for that reason “rushing to enact reforms” would be unwise. Time would be required, and the crisis would have to pass, before the nation should even start to consider reregulation. Translated into plain speaking, the Administration and its Congressional allies wished to postpone any push for reforms until such time as the public’s outrage had died down and Wall Street’s political hegemony had been restored. Massive and ongoing bailouts greatly facilitated the latter goal. As to the former, American incomes continued to decline, unemployment remained high, housing prices continued to tank, and constituents remained angry.

With the 2010 mid-term elections approaching, and with the Democrats dominating Congress for the two years immediately following the Crash of 2008, it became evident that the Party leadership would have to do “something” if they were to retain any standing with a public whose anger remained palpable. This was the basis of their third and final ploy – passing a regulatory reform bill that was designed to fail, conjoined with a public relations blitz proclaiming a great victory that would end Too Big To Fail while greatly stabilizing the financial system and its most prominent firms. In Washington, appearance is substantially more important than performance. This, in the final analysis, explains why the Congressional Democratic Leadership gave the nation the Dodd-Frank Act instead of substantive financial reform.

Looking to the Future: The Obama Administration vs. Meaningful Reform of Surveillance State

With the above understanding of the politics of futility in mind, we can now turn to formulating a strategy for achieving some meaningful and lasting reforms. We can begin with their first step – denying that a problem even exists.  Those following the news will have observed that the Administration and its Congressional allies have already embarked on this line of argument. The President and leading Democratic Party senators, most prominently Harry Reid and Dianne Feinstein, are already telling us that this week’s revelations are “overblown,” that it is all “hype,” and that “nothing is amiss,” etc. Check that box.

As they are unlikely to be believed, we can anticipate that they will soon move on to phase two. Again, and in parallel with the effort to not reform the financial system, we should expect to be told that intelligence-gathering programs and agencies are “complex,” that their “mission is sensitive,” that we need to “slow down,” that we must “deliberate carefully” so as to bring about “the best possible reform”, etc. As a wrinkle on this theme, we should expect to see a major effort made to distract us with long-running debates or disputes over the personality or quirks of Edward Snowden (In this, David Brooks has taken the lead with an Op-Ed that is idiotic even by his standards, and that is really saying something). The point of such stalling techniques, as it was with financial reform, is to allow the scandal to become “old news.” If this should come to pass, Congress will be able to talk the issue to death, and perhaps even get away with doing nothing at all (the failure to reform the gun laws despite the public’s outrage after the massacre of schoolchildren and their teachers in Newtown nicely illustrates the power of this approach).

A time-honored variant of this venerable strategy is to form an “official” study group to examine reforms. Assuming that Congress and the Administration pursue this approach, we should expect a “bi-partisan” commission featuring “sound” persons who can be relied upon to discover that nothing is amiss. Ideal candidates for such a commission would be Sec. of State John Kerry, Sen. Dianne Feinstein, former CIA and DoD heads Leon Panetta and Robert Gates, and any of a large number of potty-trained “experts” from the usual beltway think tanks, all of whom will solemnly promise to “look tirelessly into possible abuses.”  If, thereafter, sufficient political pressure remains, expect a bill that is long, complicated, and vaguely worded. For performance, it will call for intelligence agencies to be monitored by, at most, deeply conflicted parties in opaque processes. In short, it will be legislation resembling Dodd-Frank.

Four Guidelines for the Achievement of Meaningful Reform

The failure to reform Wall Street provides several lessons that collectively point to four necessary components of any successful strategy to bring our nation’s bloated and overreaching intelligence agencies (and their contractors) to heal.

First, and of most importance, it must be understood that the Obama Administration and the Democratic Congressional Leadership will resist any and all meaningful reform with every means at their disposal. To that end, we can expect them to continue to prosecute and vilify whistleblowers while libeling critics and reformers. They will also continue to stir up fears that are, to be blunt, as beside the point as they are beneath the dignity of anyone who thinks of themselves as the citizen of a free nation.

Regrettably, such fear-mongering is so prevalent that it must be addressed directly. Since 9/11 we have been repeatedly told that giving up our liberty and privacy is worthwhile as it enables the government to “Keep Us Safe.” Those who make this argument should be reminded that the best-fed, healthiest, and safest animals live in zoos. Seriously, folks, living and thriving as a free people in a free nation involves a degree of risk. But is there anyone out there who thinks that it isn’t worth it? Everyone who has ever volunteered for the armed services has already answered this question. I would submit that it is well past time for the citizenry at large to honor the commitment of our young servicemen and women by agreeing to live with the immeasurably small risks we must shoulder to live as free people in a free nation. Let us recall that our heritage is not one of bowing to fear. Two hundred and forty ago Americans willingly took up a substantial risk. They fought the world’s largest empire so that they might live as citizens rather than subjects. Does their sacrifice mean nothing to us today?  Has July 4^th been reduced to one more great day for a BBQ?

The second condition we must take into account is the fact that the public’s attention span is limited.  No one is more aware of this than the Administration and its Congressional allies. To achieve meaningful reform we cannot allow the process to be diverted into endless “hearings,” “commissions,” “inquiries,” etc.  This is especially the case if these hearings are exclusively staffed by the usual suspects. We can only allow such an investigation to take place if it is short in duration and led by former Senator Russ Feingold or one of the Oregon Senate delegation.  Otherwise, forget it.

Third, we must demand simple laws featuring bright lines and clear performance criteria. Rules that are simple and clear can be easily and readily monitored by any interested citizen or group of citizens. An example from finance was the Glass-Steagall Act of 1933 that separated investment banking from commercial banking. If you were in one business, you could not be in the other. Full stop. It was simple to state and simple to regulate (the lines only became grey after the banks induced the Federal Reserve to make them grey, but that is another story).

In spying, we developed equally simple rules after the Church Committee hearings of the 1970s. NSA and CIA could conduct their activities overseas, but not in the United States. Americans could not be investigated without a warrant from an independent judge (although the secrecy granted to the FISA court and its opinions must be wholly and radically rethought). Again, we want simple laws that are easy to monitor and thereby difficult to elide or evade.

Fourth, we must be ever mindful that the intelligence agencies being subjected to reform will not like it and can be expected to put up a powerful and unceasing resistance. The reason is simple.  As with the equally pathetic “War on Drugs,” there is a massive amount of easy money to be “earned” in the course of spying upon one’s fellow Americans.  Moreover, it is a line of work where one is primarily rewarded for who one knows, not what one knows. What this means is that meaningful reform will undermine comfortable and highly lucrative careers in the “Making Us Safe” business.  With so much at stake we should anticipate vigorous resistance, not limited to highly damaging smear campaigns against any persons or groups pushing for meaningful reform. Also, in the event that binding rules are passed, the leadership of these agencies will almost immediately begin reaching out to their political allies, and especially to their contractors, to have any substantive rules repealed, “reinterpreted” (a task that now appears to be a specialty of the Office of Legal Council), or reworked.  Happily, while blocking the ability of these agencies and their allies to unravel reforms may be difficult, it is not impossible. But, success requires that we be pro-active.

The place to begin is by significantly, and I do mean significantly, reducing the resources available to these agencies. This immediately shrinks the size of the prizes to be gained and thereby the interest in going after them. And let us be clear, these agencies are effectively the “anchor firms” of enormous private sector industries with substantial political reach. Any reform that fails to reduce the bloated budgets of these behemoths will not stick for long. As speed is of the essence, the process of cutting back should resemble the manner with which one deals with a massively overgrown hedge. Begin by hacking back the overgrowth with large indiscriminate swings. Only after the bulk of the trimming is accomplished should one return to the task with an eye to shaping its appearance. So, for example, cutting NSA’s budget by 33% the first year, followed by another 10% over each of the next three years would be a great start. Again, the point of such cuts is to substantially reduce the political power of these agencies and the innumerable contractors who feed at the trough of their porcine budgets. Half measures will be insufficient if we are to get the genie back in the bottle. I should add that publishing the actual budgets of these agencies is essential. Despite the shrill claims that will undoubtedly be made to such a suggestion, publishing these budgets will in no way or manner put the public at risk. Why? Because in this world of doubt and uncertainty one of the few things about which we can be sure is that the Chinese, Russians, Israelis, and all major European powers already know just how much money each of these agencies have been allocated. Only American citizens remain in the dark.

The CIA, we should briefly note, is a qualitatively different problem.  The reason is that they field what is essentially a small army.  The problem with this force is that it is solely and exclusively accountable to the President. That Presidents like having a small army that they can use on a whim should not come as a surprise. Nevertheless, an army that can be deployed at the behest of a single individual goes strongly against every known or imagined notion of  “checks and balances.” To make matters worse, our experience with CIA special operations has in no way or manner validated this Constitutional loophole. The record has not fluctuated between good and bad. On the contrary, it has been a continuous string of disasters. The blowback and loss of moral authority that the United States has experienced from CIA misadventures in Guatemala, Iran, the Bay of Pigs, Cambodia, Afghanistan, El Salvador, the Iran-Contra scandal, “Black Site” prisons, rendition programs, ongoing Drone Wars in at least a dozen nations, etc., have been individually and collectively intolerable.  It must end.

The CIA’s record of repeated failure suggests a problem, one that runs to the core of that institution and its lack of accountability. Which is the reason that it must go. In 1991, Senator Daniel Patrick Moynihan introduced the “End of the Cold War Act” that would have abolished the CIA altogether while moving its (very) few useful functions into the State Department. He tried again in 1995 with the “Central Intelligence Agency Abolition Act.”  Now would be an excellent time to revisit this wonderful idea. Moreover, the successful closing of that agency would send a clear message – one that is nicely designed “pour encourager les autres.” To repeat, the CIA does not need to be reconfigured or reformed, and its leadership does not need to be reviewed or reshuffled. It needs to be shut down. Period. It is of particular importance that its special operations branch be closed. Again, not reformed or recalibrated, but closed. If the President wishes to have a war with another nation, or a particular group within another nation, let him or her argue for and receive explicit Congressional authorization.

Related to this is another essential precondition to the achieving, and especially the sustaining, of substantive reform of our intelligence agencies. We need to eliminate any and all “contractors” (a.k.a. mercenaries) from the payrolls of every branch of the United States government. This includes the Pentagon, all intelligence agencies, and the State Department. The rule should be simple – if you are authorized to carry or operate a weapon in the service of the United States government you will wear an appropriate United States military or police uniform (unless you have been specifically and temporarily assigned to undercover duties).

Likewise, everyone working for an intelligence agency should be an employee of the United States government and earning a government salary. This is important for three reasons. The first is that private firms can and do give political donations, lobby our representatives, and provide our elected officials and their staffers with cushy post-electoral sinecures. Now, it is one thing to lobby for a padded no-bid contract to provide copy-paper to the Pentagon, but it is another thing altogether to lobby for the initiation or continuation of a state of conflict. The second reason is that government employees are considerably harder to fire than private sector employees (although the rules are substantially more lax in areas such as intelligence and Homeland Security – a fact that must be changed). With greater job security, lower-ranking employees who witness wrong-doing have more protection in the event that they attempt to talk to superiors, inspector generals, or members of Congress about what they have seen. The third reason is that uniformed military and intelligence agents are paid considerably less than the fat-cats working for their private-sector counterparts. Contrary to the collective wisdom of the District of Columbia, this is not a fact to be deplored. On the contrary, it is to be proclaimed from every rooftop. When these professions earn below “market rates” we can be certain that everyone who opts for the job must be motivated by something other than the salary. Being “believers” in the importance of their mission, such persons will be more likely to speak up or, as a last resort, become whistle-blowers in the event that the leadership of their agency is heading down the wrong path. Whistle-blowing, as we have seen, is often the last – and for that reason a critical — check on out of control government programs and agencies.

So, to reprise, a successful strategy to restore our Constitution must, (1) recognize that the Obama Administration and its Congressional allies are firmly on the wrong side of the issue, (2) push for immediate and substantial reforms without allowing the process to be stalled by talking it to death in Congress or waiting around for pointless reports from commissions staffed by the usual Washington sycophants, (3) place an emphasis on clear, simple, transparent, and easy-to-monitor rules, and finally (4) significantly defund the beast, with special attention to eliminating the CIA and all outside “contractors” and mercenaries. By design, this list avoids speculating on the specifics of the rules we will need to put in place to restore our privacy and liberties against an overreaching government. Nor does it cover what penalties should await those who violate such rules. But achieving and sustaining meaningful reform requires more than good ideas, it needs a strategy for getting there. If the disappointing outcome of the effort to reregulate the financial system has a silver lining, it is that it has given us some insight into how we should proceed against well-entrenched interests.

_____________________________________

Robert E. Prasch is Professor of Economics at Middlebury College. Click here to read more of his posts.

The Business of Health Insurance and “Obamacare”: What Can We Expect?

Pretty dangerous to be over at Hofstra last night; there were alot of reckless numbers and false statements flying around.  I’m sure there are plenty of excellent rehashes that will be posted, if they haven’t been already. So instead of rehashing the spectacle or valorizing the aggression, I’m just going to post a relevant piece by TransEx‘s very own Robert E. Prasch, who also blogs at New Economics Perspectives and Huffington Post.

Prasch breaks down the myth that Obamacare is about health-care reform. Originally posted over at New Economic Perspectives (the website for the Kansas City School of Economics) yesterday, his column is a clear description of what the ACA in fact is.  It can be printed out and put in your back pocket for easy reference the next time you run across Nicholas Kristof or Andrew Sullivan. Check it out.

And if you want to read some other analyses by Prasch on some of the issues discussed during the debate, links are below.

By Robert E. Prasch

Over the past couple of years there has been considerable back-and-forth over what has been accomplished by the Patient Protection and Affordable Care Act of 2010 (PPACA).  While a short post cannot survey the entirety of this multifaceted law, several elementary confusions have been repeated in public discussions and should be addressed in the interest of clarification.  The most urgent of these is to point out that, despite the Act’s (deliberately misleading?) title, it addresses neither the practice of medicine nor its cost.  At most a government-sponsored institute has been authorized to find and make suggestions.  The Act, then, is not about making health care affordable, but an effort to make health-care insurance affordable – a related but separate topic.  To understand the implications of this, we must consider the business of health insurance.

Private Health Insurance is a Business

The health insurance business is–it cannot be overemphasized–a business.  While its advertising may suggest otherwise, we would do well to remember that business differs from charity in ways that matter.  Being private for-profit businesses, health insurance companies are engaged in the pursuit of profit.  If the health insurer is a corporation, and many of them are, their profits are expected to show steady growth over time so as to satisfy “Wall Street expectations.”  This is not always easy, and firms must be vigilant if they are to achieve these targets.  As is the case for any and all businesses, revenues must be greater than expenses if health insurance companies are to show a profit.  Without profits they will soon cease to exist.  But before this occurs, senior management will be fired.  As they understand this, we should expect these managers to make every effort to avoid this outcome. None of this, it should be noted, implies that health insurers are more or less moral than other firms.  Business is business.  With that point cleared up, let us turn to specifics.

The revenues of health insurers come from customer premiums and the returns on their portfolio of earlier premiums that have been invested.  Their usual portfolio can vary, but it generally consists of government and corporate bonds (about 65%), corporate stock (about 10%), mortgages (including some mortgage-backed securities), cash and other liquid items, and other assets.  Expenses can be broken down into essentially three components.  The first includes all marketing costs, paperwork, and related overheads.  The second is wages for workers and bonuses for bosses.  The third, and by far the largest expense, is the payment of claims.

From the above list it is evident that insurance company profits can rise in one of four ways: (1) revenues from current premiums or past investments can rise (which may imply higher premiums and/or riskier investments),  (2) marketing, paperwork and overhead costs can be reduced, (3) wages and bonuses can be reduced, or (4) payments for claims can be reduced (or at least rise more slowly than revenues).

Given that the payment of claims are, by far, an insurance company’s largest single expense, it is reasonable to suppose that they will work diligently to control or even reduce them.  To this end, they hire staff to negotiate with hospitals and others over the appropriate charges for services provided.  Similarly, they employ a staff to direct customers into lower cost options, assert that the “normal and standard cost” for a given procedure is lower than the bill presented (which means that the patient must shoulder a disproportionate share of the payment even if their insurance contract suggests that they always pay a fixed percentage), or find some grounds to decline care altogether which in the past has included finding grounds for cancelling the policy.

For patients and their families, these cost-reducing decisions can be, as innumerable stories and research has shown, medically and financially devastating.  It is clear to everyone with a beating heart that these – essentially business decisions — are fraught with moral implications.  Yet, of necessity, insurance companies must think of them as part of their normal business operations.  One is reminded of the cliché line uttered by mafia movie assassins, “Sorry man, it ain’t personal, its just business.”

This difference in perspective raises a crucial observation.  Every society must decide, by some process, how goods and services are to be distributed amongst the population.  Most of us would agree that some items, such as ice cream or the vagaries of current fashions in clothing, are best left to markets.  The difficulty, and this is the largely unmentioned issue, is that most of us also believe that decisions fraught with profound moral implications – such as life and death — should not be left to the vagaries of the market.

If this supposition is correct, then the problem with privately-provided health insurance is less with the specific performance of the firms involved than with the fact that many, if not most, of us consider basic health care to be closer to a right than a commodity to be distributed according to the contingencies of price and income.  As such, we find the normal business decisions of health insurance firms, decisions that are necessary and essential to their business operations, to be at best amoral if not immoral.  That people are awarded bonuses for denying care to people they have not met, and on the basis of little more than a cursory look at a chart and some statistics based on national averages, strikes most people as wrong.  Again, if this were the market for ice cream or fashionable clothing, our response to the cost control efforts of for-profit health insurance companies would be very different.  But it is evident that firms are routinely making decisions that are fraught with the deepest moral significance.

Obamacare: What Does It Do?

As mentioned, when reading popular discussions, blogs, and more than a few newspapers, one is left with the impression that many people are confused about the distinction between health care and health insurance.  Stated simply, the PPACA does not grant anyone, anywhere, a guarantee of adequate health care.  The Patient-Centered Outcomes Research Institute that has been founded as part of the Act may, at best, fund investigations designed to uncover and publicize inefficiencies in the delivery and cost of health care.  But they cannot mandate changed practices.  At best, these revelations can be accompanied by exhortatory language.  Someone, somewhere, somehow, is then supposed to do something.

What PPACA does do is require that every American find a way to acquire health insurance.  Most likely, as in Massachusetts, this will be enforced through the tax code.  This suggests that those without health insurance will have to pay for insurance out of pocket and then await compensation in the form of a tax rebate.  If this is indeed the plan, it should raise important questions concerning the liquidity or credit-worthiness of America’s poorer households and the many well-known issues surrounding predatory lending that were not addressed in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Perhaps it is obvious, but it also needs to be stated, that on its own the health insurance mandate modifies neither the incentives nor the profit motives of private health insurers.  That said, some useful changes are embodied in the Act.  For example, in exchange for the law’s producing just under 50 million new health insurance customers through its mandate, health insurance companies will be required to spend 80-85% of the premiums they receive (depending upon the firm’s size) paying for health care and, additionally, to cease terminating contracts after the disclosure or revelation of “pre-existing conditions.”  Now, with the additional revenues anticipated from millions of new customers, the first of these requirements may or may not prove to be an imposition.  I would, however, caution everyone to be wary of the accounting rules used in calculating what is known in the industry as the Medical Loss Ratio.  It is often, and correctly, said that the devil is in the details (this is especially the case when an industry can employ legions of lobbyists).

As to the second requirement, it speaks only to the grounds by which a proposed course of care may be refused.  Let us consider the problem logically and from the perspective of a profit-seeking firm.  If there are potentially grounds, from A to Z, by which to deny or modify a proposed course of care, and grounds A are excluded, that still leaves grounds B to Z.  Perhaps none will be found applicable and the care in question will be duly authorized.  But perhaps alternative grounds can be identified, and it should be evident that the incentive to find such grounds remains.  Maybe the insurance company will find the course of care proposed by a patient’s doctor to be “overly experimental” or “unlikely to be effective” in light of statistics based on national averages that they may have on hand but whose source or author they will refuse to disclosure (believe me, I have tried).  Alternatively, they may declare that the “normal and standard cost” of the course of care proposed is one-half of what the hospital charges, thereby forcing a family to “chose” between a course of care and penury.  These problems can be expected to remain.

According to the American Journal of Medicine, 62% of all the people who declared bankruptcy in the year prior to the financial crisis, 2007, were ruined by an illness they could not afford.  Worse, the majority of those who declared bankruptcy that year were covered by heath insurance.  Stated simply, health insurance, even assuming that it actually becomes affordable to everyone, will not end of the dread of financial ruin in the event of a severe illness.

This brings us to the matter of the how much assistance will be provided to help families meet the mandate.  We are told that everyone up to 400% of the poverty level will be eligible for a subsidy (based on a sliding scale).  Given the current political environment, with its bi-partisan vogue in favor of austerity, I will leave it to the reader to speculate whether or not these subsidies will remain adequate as health costs and thereby health insurance premiums continue to rise.  We can be certain, however, that the mandate will remain in place long after the subsidies become inadequate.  And, what of the days when American families had to chose between adequate care and penury?  Such dire choices will remain a part of our reality the day after the PPACA has become fully operative and every day thereafter.

****************************

Other relevant posts by Robert E. Prasch:

“What to Look for After the Election: Social Security Under Assault”

“The Obama Administration, the 49 State Mortgage Settlement, and the Spin: A Study in Shamelessness”

“Dealing With the Unemployment Problem”

White Privilege, the Dems, and the Rhetoric of “Care”

To read some of the exchanges over the last week in the blogosphere, apparently “white privilege” means that one doesn’t attend to race and class issues at home, but instead privileges “foreign policy” and “national security” issues. This implies that there is privilege in worrying about the bodies and violations to foreign nationals over the bodies of brown and black Americans. Ok, let me grant that assumption for a second.  Still, I wonder why issues such as warrantless wiretapping, surveillance, unlawful (and supposedly “lawful,” warrantless) detention of US Muslim men of South Asian and Middle Eastern backgrounds, the nullification of judicial review, the assassination of not just 1, but multiple, US citizens, the incarceration of U.S. citizens (black and brown), should be deprioritized by American voters. Are these not issues that should be of concern especially to folks who are unencumbered by an excess of “white privilege”?

Still granting the assumption that worrying about foreign issues involves undue privilege: I wonder, after considering some of the policies that the present Administration has supported and backed (from NDAA 2012, Expansion and Renewal of FISA, Expansion of prisons, expansion of DHS deportations of migrants; expansion of detention centers), in which ways have U.S people of color and poor  people benefited under the present Democratic Administration? There may be some, such as college loans forgiveness, and the absence of a concerted attack on reproductive rights. But there are certainly anti-choice Dems, such as Harry Reid, who have managed to stifle somewhat. I would hardly call Health and Human Services Secretary Kathleen Sebelius’ decision to revoke access to OTC contraception a big win for pro-choice folks.

According to a number of progressive economists, the top 20% has remained pretty unaffected by the present Democratic Administration, and I’m betting that includes some of the folks lobbing around the “white privilege” accusation.  Could it not be the case that one is exemplifying white privilege by deciding that one should be loyal to the Administration and the Democratic Party in the face of a range of demonstrable discriminations against certain kinds of minority populations? In the face of violations to certain kinds of brown and black bodies? Does such a loyalty not imply that those who are in a position to make choices are simply refusing to see the world that they themselves have made, by insisting on a repeated loyalty to the Democratic Party, despite the years of abusive behavior on the part of the Dems? Charles Mills calls this “the epistemology of ignorance,” namely that state of the world in which whites refuse to see the world that they themselves have made.

According to a report by the Pew Research Center, “Median wealth fell by 66% among Hispanic households and by 53% among black households during the financial crisis, compared with a fall of just 16% among white households.”

Presumably, the President so cared about the devastating impact to US populations of color that he was going to support California Attorney General Kamala Harris to get as much from the banks as she could, right? POTUS’ response was to pressure Harris to accept a ridiculous settlement with the 5 BIG BANKS of $25 billion dollars, which cashes out either to $750 or $840—yes, you read that right– per household for families who lost their houses due to subprime mortgages.

Again, according to the Pew report:

“A disproportionate share of Hispanics live in California, Florida, Nevada and Arizona, which were in the vanguard of the housing real estate market bubble of the 1990s and early 2000s but that have since been among the states experiencing the steepest declines in housing values.”

Take a look at those quotes again. This is not a “white privilege” issue. It affects U.S. minorities more so than whites. Clearly, the Big Banks must have “cared” about those homeowners, too, right? They must just have been broke, to pay so little. Right. According to today’s Bloomberg, “Even as U.S. unemployment has remained above 8 percent for 43 months, the country’s biggest banks are making almost as much as they ever have.” Namely, a combined $63 billion in profits.  The original rescue was signed by Bush, but what exactly did O require in terms of accountability from the banks? Anyone?

As I mentioned in my last post, the privilege of deciding that the lives of others are easy to sacrifice, the privilege of deciding that certain civil rights are more important than human rights violations will backfire—This is nationalist privilege—American privilege, to be exact. And it has already backfired.  We are seeing the backlash in all kinds of cases—cases like that of Dr. Shakir Hamoodi, Sami Al-Arian, and hundreds of others.

Ultimately, I don’t care who Democrats vote for because I accept the argument that “the structure is broken.”  If it’s broken, voting for the Democrats yet again isn’t going to fix it. Instead, it’s going to amplify the message that Democratic voters have sent for the last 20 years: Please, screw us again. Abandon your constituents for yet another 4 years. And we’ll reward you as you move even further to the right after every term—we’ll send you the message that “we like it, we love it, and we want more of it.” It’s a state-of-emergency politics: It’s an emergency, so we have to vote for the “lesser evil” of 2 states. And the cycle will continue.

If voting for the incumbent accords with your conscience, then by all means do so. If you, like me–despise the Democratic record on wars, drones, murders, assassinations, detention, torture, solitary confinement of foreign nationals without charges (and that includes migrants of various nationalities—since solitary confinement is used more and more widely), but still feel that this vote matters, voting for POTUS is a better option to other options, do what you need to do.

But don’t bake me a dungpie and tell me it’s my birthday. Just tell the truth. Tell the truth about the Democrats’ record on civil liberties issues, on NDAA 2012, on H.R. 347, on S.Comm, on detention policies, on migration policies, on deportation policies. Don’t tell me that the Democrats “care” more, or that “Obama’s heart is in the right place,” or “he would have done more if we didn’t have a GOP-led Congress (um—again, how did that stop the Dems from getting things done in the first two years under Obama?), or that he’s pro-union, or that innocent civilians aren’t getting killed, or that the Affordable Care Act involved actual health care reform, or that Obama’s not interested in cutting Social Security, or that the Dems “care” about civil liberties or human rights violations.

And by the way, how does one know whether Obama or the Dems “care”? Just because they say so? If POTUS is willing to lie about not wanting the U.S. government to be able to kill Americans (thanks, Sen. Carl Levin), then why wouldn’t he lie about whether he “cares” for you, me, or black and brown folk?

Why don’t the same folks who insist that we must vote for the Dems believe that the Republicans “care” just as much? Because of their track record, I hear. Ok, that’s my standard for the Democrats, too. For those who insist that POTUS/Dems cares about poor black and brown folks, I’ve explored the track record on “care” all over this site. For some examples, see here and here and here.

A friend whose political insights I respect tremendously suggested that she was voting for the incumbent precisely because there are racists who will vote against him because he’s black. I can respect that.  Others suggest that they’re voting Dem to “prevent GOP access to power.” Okay, I can live with that—but I don’t buy that this will increase the likelihood that poor folks, folks of color in the US and internationally will be less vulnerable to having social safety nets or economic structures decimated by Democrats.

Just do what you need to do, but stop insisting that folks who reject the false dichotomy between the lives of U.S. folks of color, black and brown, and the lives of international folks of color are “conservatives,” or libertarians.

And the day after the election, for those of you who feel like you had to vote for the Democrats as the least crappy option among crappy options, please, let’s start pursuing the viability of a third party. We need to change the conversation, we need to hold the Democrats accountable for abandoning voters, poor folks, black and brown folks—in the US and elsewhere. Only the threat of not being re-elected, of losing “winnable votes” will bring them around.

Guest Post: The Middle Class Makes $200k Annually? Romney’s Wall Street Perspective

By Robert E. Prasch

Contempt can take many forms, but one of the most vicious is ignorance.  It suggests that the reality of a large group of persons is unworthy of reflection.  Unsurprisingly, as this nation takes on more and more of the characteristics of a plutocracy, we see this contempt-as-ignorance exhibited in more and more fora.  The latest installment occurred in the course of a much-touted September 12^th dialogue between the former Democratic Party operative and now TV personality George Stephanopoulos and the Republican Presidential Candidate Mitt Romney.  Context is important:

GEORGE STEPHANOPOULOS: But his [Martin Feldstein’s] study, which you’ve cited, says it [Romney’s tax proposal] can only work if you take away those deductions for everyone earning more than $100,000.

 

MITT ROMNEY: Well, it doesn’t necessarily show the same growth that we’re anticipating.  And I haven’t seen his precise study.  But I can tell you that we can lower our rates–

 

GEORGE STEPHANOPOULOS: Well, you cited the study, though.

 

MITT ROMNEY: Well, I said that there are five different studies that point out that we can get to a balanced budget without raising taxes on middle income people.  Let me tell you, George, the fundamentals of my tax policy are these.  Number one, reduce tax burdens on middle-income people.  So no one can say my plan is going to raise taxes on middle-income people, because principle number one is keep the burden down on middle-income taxpayers.

 

GEORGE STEPHANOPOULOS: Is $100,000 middle income?

 

MITT ROMNEY: No, middle income is $200,000 to $250,000 and less.  So number one, don’t reduce– or excuse me, don’t raise taxes on middle-income people, lower them.

 

 Let’s grant George Stephanopoulos and Mitt Romney the benefit of the doubt, and assume that they mean household instead of individual income.  According to the Tax Policy Center, the median income of an American family in 2011, i.e. the earnings of the family in the exact middle, the 50^th percentile of the distribution, is $42,372 (this is cash income, excluding non-wage benefits).

$100,000 would place a family just above the 90^th percentile and $250,000 would put one at the 94^th percentile.  So, in fact the back-and-forth between Stephanopoulos and Romney really is a discussion about whether the latter’s tax policy proposals are of concern to the upper 6% or 10% of the income distribution.

Ah, but perhaps the Tax Policy Center has calculated the numbers in a biased way?  Happily, we can garner another perspective by examining the 2012 edition of the annual report compiled by the Council of Economic Advisors, what is called the Economic Report of the President.  There, in Appendix B-33, one will find a data series on Median Money Income in 2010.  Calculated upon a broader and more inclusive basis, it shows that 2010 median income for a household was $60,395 – still substantially less than $250,000.

This chart reveals another trend that speaks to the ignorance and complacency exhibited above.  It shows that household income peaked at $64,518 in 2007.  This means that the income of the median American household has fallen 6.4% since the peak of the housing bubble and as yet shows no sign of stopping.  This decline in American household income is both fascinating and disturbing because, according to the authoritative National Bureau of Economic Research, the recession that began in December 2007 ended in June 2009.  If the U.S. Gross Domestic Product has been rising for all but the first four months of the time that the Obama Administration has been in power, and the median household income is continuing to decline, then the revenues associated with the economic revival must be going somewhere.  The answer isn’t too surprising.   Corporate profits have hit new highs this summer.

Guest Column by Marcellus Andrews: “About What is Coming Down the Road”

Today’s column is by one of Translation Exercises guest bloggers, Marcellus Andrews, who recently appeared on Up with Chris Hayes this past Saturday. Andrews raised some important questions of capital markets, plutocracy, dubious economic policies of the Oama Administration, and those of Mitt Romney.

In this column, Andrews continues to force us to address some serious questions about what the last few years portend.  Read on and do comment on his points. A friendly request: please keep your comments on the topics at hand, and refrain from directing us to your website or other personal essays.

About What is Coming Down the Road

Prof. Marcellus Andrews, Barnard College, Columbia

With today’s unemployment report (June 1, 2012) — not good, though not as bad as the next few, I think — Obama is finished, and we can look forward (if that is the word) to a Romney presidency with a neo-fascist (sorry, Republican) House and Senate.  In a way, Romney’s win will be Obama’s own fault — he tried to form a national unity government to deal with a national emergency when the other side just wanted to kick his niggah behind.  He pursued a “conservative” economic policy approach in the specific sense of policies that could and have staved off complete collapse but that were also too small to really revive the system, because he was unwilling (or given the right-wing of his own party, unable) to push through the kind of structural reforms linked to sensible expenditure plans that could not just end the depression but begin the reconstruction of this country.  So, here we are, facing a Romney regime that is likely to be extremely bad news for lots of people, especially the working class white people who vote for him.

I have some thoughts on what this means for so-called “minority” American now that everyone realizes that the majority of babies and now the under 5’s are black, brown, yellow and mixed-up chillun.  The Romney years will be decisive for the future of what I will call the real “Colored” American majority (I think that old, nasty word should be revived as an alternative to “multicultural” and even “multi-racial”).  The austerity program that is destroying the British economy — savage budget cuts that are gutting the social safety net and ending redistributive economic policy, abandoning poor and working people to the untender ways of radical predatory capitalism combined with equally savage tax cuts for the wealthy, all with the assistance of the so-called Liberal Democrats — is just the UK version of the Ryan budget.  The Ryan program will be implemented here under Romney and will destroy the futures of young Colored America.  Policies aimed at promoting human development, particularly the capabilities of Colored young people at or near the bottom of society — nutrition, education, basic health care, basic public health, basic housing, even public safety — will be gutted in favor of reverse Robin Hood approaches that increase the well-being of the rich, and the old and white.  In essence, the Romney program, when you really look at it — to the extent that it has been announced — deliberately under-invests in the children of Colored America in favor of incumbent old white America.

I think it is time for Colored America to recognize that American conservatism seeks nothing less that the crippling of the our future, and that Obama’s failure — again, in trying to build a coalition government when the conservative program was nothing less than the restoration of white power, the modern version of the Redeemer governments in the post-Reconstruction South — signals the end of any prospects for conciliation in this country.  I also think that it is time for Colored America — of all colors, including those whites who seek to live in a decent place — to think carefully about how we build a good society when our white nationalist enemies control the White House, Congress, Wall Street, the Federal courts and too many states.

I think the Romney government will be a savage thing that lays waste to the economic lives of so many of our of children, perhaps at the cost of many premature deaths.  We have to think practically about how to educate our kids, how to keep them happy, healthy and safe, and how to keep ourselves fit and build some sort of prosperity, when our Redeemer foes implement their program. We have to think about how to raise and allocate resources to support human development when the states and Federal government deliberately crush opportunity for our children; we have to find ways to build a durable and effective political and cultural resistance to the attacks that white conservatism makes on our lives and liberties via the Supreme Court and state courts, where the rule of law is transformed into yet more iron cages to trap and limit our freedom; we have to build institutions — everything from schools to newspapers and ways to disseminate vital information to museums to forums for art in all its forms, both brick and mortar institutions and the virtual gatherings in cyberspace — that can escape the reach of white restorationism while feeding our souls (example: I see Arizona attacking Chicano intellectual and cultural life with Klan style glee and know that these attacks will widen, deepen and gain force under a Romney presidency).

I guess I am saying that I think it is high time for us to see this election, and, frankly, the trials and failures of Obama, as the opening phase in a low-level civil war about race and the future of the United States.  This “War About Race” is not a racial war in the usual sense — with whites on one side and everybody else on the other; no Turner Diaries craziness.  Instead, this “War About Race” is a fight between a dying but still rich and powerful old white republic that will never accept the plain fact that the future of the United States is Colored and so will instead deliberately create an economic partition between itself and that Other, disgusting America defined by either not-being-white or by being the wrong kind of white — whites who have rejected racism in personal and family life. So how do we go about preventing conservatism from killing the future of Colored America and thereby preserving, protecting and defending the future of the United States from the racial animosity of the white Right?  This, I think, is the most important question of our time, because the white Right is coming back into power and, if we are honest, seeks to cripple us.

So here’s my question: Am I a bit premature in thinking that the white Right is just the modern version of the Redeemers?  Am I wrong to think that white conservatism will pursue a program of economic partition along racial lines as part of a white unity program in the same way that Southern elites managed to create white unity?

Guest Post: Robert Prasch, “The Economics of the SOTU”

Here is another guest column by economist Robert E. Prasch that translates several of the issues that President Obama raised during his SOTU the other night. It’s a clear, comprehensible, and calm discussion of manufacturing and jobs; taxes and offshoring of jobs; education and technology; and the banks and the bailouts.

 The Economics of the State of the Union Speech

By

Robert E. Prasch

President Obama was correct to focus the substantive parts of his speech on the economy.  Undoubtedly he is aware that his re-election prospects depend greatly upon the public’s satisfaction with the economy.  Since the Second World War, only Ronald Reagan has been reelected with the unemployment rate over 7% (it was 7.4% in November 1984, down from 10.8% two years earlier).  Thus far, at 8.4%, the current rate is off its highs, but those who have given up searching for work are responsible for too much of this “success.”  With his fairly modest stimulus plan largely over, banks sitting on money they won’t lend, consumers still overly indebted, and Europe in too much disarray to provide much of a market, there is some doubt about who will provide the spending necessary to drive a recovery.  Obama knows this, his advisors know this, his campaign people know this, and so do many of the people who heard or read his speech.

This, then, was the reason that the State of the Union Speech emphasized economics and economic policy.  However, to be candid, even if the President had free rein to enact a perfect economic policy tomorrow morning, the lags between action and result are such that it would probably not have much impact before Election Day.  To an important degree, the President has already (or not) set in motion the policies that will (or will not) set the economic conditions upon which he will ask to be re-elected.  If this were the only issue on hand this fall, he would likely be in trouble.  The race seems to be the Republicans to lose, but they appear to be up to the task.

But, that said, what can — or should — we make of the President’s assessment of his performance and the new programs he proposed?  In the interests of brevity, I will address four broad areas of the speech.

(1) Manufacturing Jobs in America.  The President made much of his “rescue” of the American automobile industry.  This was and remains an important industry and he was correct to bail it out.  However, one should be skeptical of the claim that these firms failed as a consequence of inefficiency and high labor costs.  On the contrary, their problems were not all that different from the banks.  General Motors, for example, was heavily dependent upon relatively short-term financing that ceased to be available when credit markets dried up as the financial crisis unfolded.  Worse, when people experience or anticipate a decline in income, they tend to postpone the purchase of “consumer durables” such as cars.  Unsurprisingly, this is exactly what occurred during the financial crisis and car sales duly plummeted.  By contrast, Ford Motor Company had the foresight to negotiate and pay for a substantial line of credit in 2006.  Its customers also disappeared with the onset of the crisis, and the firm reported losses of $2.7 billion in 2007 and $14.1 billion in 2008.  But its line of credit enabled it to survive.  GM and Chrysler failed.  But let us note that the ultimate cause of this failure was poor planning on the part of the front office.  Of course, following a time-honored script, labor was blamed and the Obama Administration forced the unions to reopen settled contracts and agree to large givebacks before signing off on government assistance.  You might recall that when the banks that actually caused the crisis needed massive federal support, Lawrence Summers explained to a shocked public that this aid would be granted without asking anything of senior management “because contracts are sacred.”  Summers did not elaborate, but it would appear that some contracts are more sacred than others.

(2) Taxes and the Offshoring of Jobs.  Undoubtedly this part of the speech played well.  But it was largely symbolic or meaningless.  A few exceptions aside, American corporations no longer pay enough in taxes for comparative rates to constitute the “make or break” element of the decision as to where to locate their production.  More important is the structure of “free trade” agreements, which are really agreements concerning the treatment of overseas investment, intellectual copyright, and financial flows.  During the 2008 primaries candidate Obama suggested that he would renegotiate a number of these proposals including NAFTA, but the campaign was soon forced to admit that had no intention of doing any such thing.  In fact, Obama is as passionate as George W. Bush and Bill Clinton in his support of these agreements.  This explains why he spent the early fall orchestrating the passage of three free trade agreements negotiated by George W. Bush (not exactly what one might call “hope and change”).

In Tuesday’s speech, the President had the audacity to suggest that these trade agreements would be net creators of jobs.  Ten minutes reflection and access to Google should be adequate to refute such a claim.  Before we start, let us recall that international trade that is balanced will only change the variety of goods available and the types of jobs we have.  To have more or better paying jobs requires a trade surplus.  Now, the chances of the U.S. running a trade surplus with South Korea over the next several years is very remote.  For one thing, the Koreans understand the link between their trade balance and the level of employment, and can be counted upon to protect their current surplus.  We, of course, will only attend to the interests of the financial sector, big agriculture, and the rentier interests behind TRIPS (trade-related intellectual property).  But, what of Columbia and Panama?  We have a trade deficit with Columbia that is likely much larger than the official tally as it does not account for the most valuable product traded — cocaine.  As to Panama, one might begin by reflecting on the fact that their Gross Domestic Product is larger than Vermont’s but smaller than Rhode Island’s.  Even if we were to run a trade surplus with Panama worth 20% of its GDP every year, it would (a) be hard for them to finance and thereby difficult to sustain over time, would (b) not amount to much anyway, and would (c) certainly not make a dent in our current economic doldrums.

(3) Education and Technology.  Classical and Neoclassical economists are known for their nostrum claiming that “supply creates its own demand.”  John Maynard Keynes famously taught us that when the economy is operating at less than full capacity the opposite is true.  Under such conditions “demand creates its own supply.”  Conservatives, of course, never liked Keynesian economics and for that reason have continued to champion “supply side economics” (For a criticism of this theory, read http://www.commondreams.org/view/2011/05/07-7).  Unfortunately, the Democrats have long championed their own notion of “supply side economics” and this is “education.”  While education is a wonderful thing in itself, and well worthy of public expenditure, Democrats are strangely committed to the demonstrably false belief that the problem of mass unemployment in the wake of a financial crisis is a mismatch or absence of skills.  This is simply untrue.  The millions who are currently unemployed are not a hopeless rabble lacking ability.  Far from it.  Americans who have become unemployed and underemployed in the course of this recession are generally a well-educated and talented group.  Moreover, even before the recession, about 30% of college graduates were working in positions that did not require a college degree.  Worse, for over a decade it has been well-known that American engineers are leaving their profession in disturbingly large numbers – suggesting that the supply of engineers has been persistently larger than the demand.  The problem, then, is not on the “supply side” of talented young people; it is on the “demand side.”  The United States simply does not demand a lot of talented young people in engineering, math, and the sciences.  This is, of course, in keeping with the fact that we have become something of a “casino economy” that has become dependent upon serial financial bubbles to spur employment while remaining unable (or unwilling) to develop a sustained capacity to build things that people here and abroad would actually like to buy.  The point is that an economy that grows at a brisk rate on the basis of sound innovation and production would require lots of talent, and profit-seeking firms would be willing to train that talent on the job.  Naturally, CEOs and Human Resources departments are always and everywhere anxious to have the government or employees shoulder the costs of training, but in periods of rapid growth and labor shortages they will be happy to pick up the tab – let us remember that the “Rosie the Riveters” that the President referred to in his speech learned their skills on the job.

(4) The Banks, Bailouts, and Financial Fraud.  The President claims that the nation will “never again” bail out large financial institutions.  To be blunt, this is very premature as many of the most important rules associated with the Dodd-Frank Act have yet to be written.  Moreover, even after this occurs, it will be unlikely to work as the core problem – the overarching economic and political influence of the largest of the Too Big To Fail banks has not been checked and the resolution authority supposed put in place simply isn’t credible.  President Obama and Timothy Geithner did have a marvelous opportunity in 2009 to do what all thinking adults understood had to be done – break up these large, inefficient, and terribly insolvent institutions.  Instead, they worked tirelessly to protect them both at that time and throughout the negotiations leading up to the signing of Dodd-Frank.  Jamie Dimon and his 1% friends should be very thankful for this stoic service.  Former OMB director Peter Orzag has already left the government to collect his portion of gratitude from Citibank, and it has just been announced that Geithner will soon be leaving government “service,” no doubt to settle into very green pastures at a major banking institution that he helped deregulate under Bill Clinton, bailed out when he was at the Fed, and protected from being broken up or substantially reregulated while with Obama.  He has been a true and valiant servant of the plutocracy and they owe him a very nice sinecure.

But, let us revisit the claim made in the speech.  No more bailouts?  The irony is that the Fed is continuing its ongoing bailouts even as the speech was being presented.  This can be affirmed with a glimpse at the Federal Reserve’s balance sheet.  Its enormous size, as they themselves explain, is a direct reflection of its ongoing, if indirect, bailout policy.  Large sums of next to free cash are being placed with the banks every business day.

Recently, Mitt Romney casually referred to the ongoing accounting games that allowed the banks to continue marking the failed loans on their books as if they were worth their full face-value.  Romney suggested that it was past time for the banks to recognize their losses and write down the value of these assets.  For once, he is correct.  Of course, such recognition would immediately being into question the capital adequacy of several of the nation’s largest banks, and return the public’s attention to questions concerning their solvency when the banks revisit the Fed or the Treasury for more bailout funds.  CEOs know that this would then induce more awkward questions around bonus time.  In sum, since it is an election year do not expect the Congress, the Fed, or the administration to reestablish anything like sound accounting practices, to say nothing of transparency, at our nation’s largest banks.

Finally, before closing, we should all applaud the beginnings of Obama’s commitment to investigate and actually penalize the fraud at the heart of the crisis.  But, one wants to know, why did we have to wait for three years after the election of “hope and change”?  Why was this not pursued soon after the new administration took office?  On September 17, 2004, more than three years before Obama took office, the F.B.I. publicly presented a report claiming that there was “an epidemic” of fraud in the mortgage industry, so it is very difficult to believe that the administration is only now discovering the existence of a problem.  So again, why now?  Is it because the administration is anxious to head off the more substantial investigations that have been initiated by the Attorney Generals of California, New York, and Nevada?  Let us hope that this is not the motive underlying this extremely belated proposal, but the timing induces one to wonder …

Guest Post: Race, Conservatism and Economic Panic

The intense interest that folks have taken in this blog for the last few weeks has convinced me that people want to hear from a variety of progressive voices. To that end, today’s post is by economist Marcellus Andrews,* from whose writing I always learn and whose critical voice gives me hope.  Here are his thoughts on the economic future of US society during this year of the presidential election.

Race, Conservatism and Economic Panic

Marcellus Andrews

Department of Economics, Barnard College

The Republican presidential primary has been an entertaining, if ultimately baffling carnival from the perspective of an economist.  What we are witnessing is the collapse of conservatism as the governing principle of public life in the United States. It is collapsing under the pressure of economic panic – the collapse of the housing market, high and sustained long-term unemployment, falling real wages for most American workers, and the greatest degree of economic inequality in a century, among others.  This panic — born of the self-destruction of the Reagan program that led directly to the Lesser Depression of 2007-2009 and its aftermath has inspired the return of the racist and xenophobic politics of the 1990’s associated with the Republican capture of Congress [Nobel laureate Joseph Stiglitz has provided a superb, if depressing, analysis of how the Reagan program led directly to the crisis in a number of places, including his regular column, Unconventional Economic Wisdom].  Newt Gingrich’s heated rhetoric  about Obama as the “food stamp” president are the sullen insults of a failed political movement that has disgraced itself and ruined the nation.  Though Gingrich, with Bill Clinton’s help, ended “welfare as we know it” in the 1990’s, the political reflex of blaming the black and poor for the nation’s woes is always a sure way to win the votes of a portion of the Republican electorate, as demonstrated this past weekend in the South Carolina primary.

The collapse of the Reagan program means that the older white population of the US, which owns most of the nation’s wealth and forms the core of the Republican Party, has benefited from policies that threaten to cripple the American future.  But rather than think seriously about how to rebuild middle class capitalism in America – albeit along conservative lines – the Right has opted to double down on Reaganism and revisit all the old racist rants. Thomas Byrne Edsall’s reporting on the racial conflicts at the heart of conservative economic policy in his books Chain Reaction: The Impact of Race, Rights and Taxes on American Politics and most recently The Age of Austerity: How Scarcity Will Remake American Politics demonstrate why this nasty but frequently unacknowledged fight over the racial distribution of income, wealth and opportunity across color lines could prevent the reform of American capitalism.  Edsall’s deep point – that all modern economic policy invariably involves the redistribution of economic resources and opportunity across color lines – is the key to understanding the otherwise irrational political economy of contemporary conservatism.

The next model of middle class American capitalism requires conservatives to abandon the quest to restore the Old White Republic as population trends transform the US into a genuine “rainbow” society without a racial majority. The people of this country know that the era of small government not only led to the financial crisis and crash, but that the government rescue of finance proves, beyond any doubt, the utility and necessity for a large role for very big and intrusive government on modern economic life.  Logic and evidence suggest that the important debate we face in this country is not whether the state should play a big role in economic life but what that role should be, for whose benefit, at what cost to whom.

The answer to that question is really very clear: government should pursue policies that maximize the economic wellbeing of the working majority by combining regulation, smart and progressive taxation and well thought through investments in the health, education and development of the citizens to promote genuine equal opportunity for all.  The substantive fight between left and right in this country should be over the nature of the mixed economy, not over whether we need a mixed economy.  What types of taxes do we need and how much should the total tax take rise to reduce our debt, pay for better schools, fixing our infrastructure and financing guaranteed health care for all?  How do we share the burden of higher taxes and changing priorities in ways that are both fair and efficient?  What is the balance between the needs of the young and the old in an economy that has save and invest more while consuming and borrowing less, all the while becoming smarter and fairer?

The American middle class has been and always will be the end point of government social engineering that insures that economic opportunity is available to all on the basis of effort and ambition, without regard to a family’s wealth, race, ethnicity, region or religion. Most middle class Americans are nowhere near rich enough to detach themselves from public goods or the many subtle middle class subsidies that form the basis of our odd welfare state.   Mass homeownership, the opportunity to attend college and guaranteed retirement benefits are all the result of government social engineering.  The entitlements so zealously and rightly defended by older whites against budget cuts – Social Security and Medicare – are financed by young workers who pay for the health care and retirement benefits of retirees.  Economic arithmetic tells us that the only way these benefits can exist is if workers produce so much that they can satisfy their own needs as consumers and parents while paying taxes for themselves and their children to attend good schools, buy homes, rely on decent roads and bridges, and pay the retirement benefits of their aging parents.

Basic arithmetic puts modern conservatism in a terrible bind given its racial commitments.  The Census Bureau estimates that the majority of children born in the United States from now on are more likely to be raised in black, Latino or Asian or interracial families than non-Latino white families.  In time, these children will be the talent pool from which the future labor force and military will emerge. The strategy of inequality  — low taxes, big budget deficits, a strangled and incompetent public sector — will insure that American workers are poorly educated, that the nation’s infrastructure remains broken and therefore that the nation’s intellectual and economic prowess as well as its productivity and competitiveness slips relative to the rest of the world. The pretense that our nation can restore its long-term economic health by savage cuts in education, public investment and the health of the young is economic folly. If the modern Right gets its way, the ever more diverse American labor force will be deprived of the skills and tools to join the ranks of the world’s most productive workers making the US an ever less prosperous and competent society.

Where is the rationalist business class that sees the need to repair the American economy and the social fabric in ways that extend markets and opportunity across all lines?  Where is the conservative reformer who sees the need to quietly engineer a divorce between racism and conservatism in favor of a robust, post-racial capitalism? Of course, those among us who hope for a just and decent society will work for a post-capitalist as well as post-racial society, but one would want practical business people to see that their alliance with racial conservatives is a losing proposition.

---

---

*Marcellus Andrews teaches economics at Barnard College, Columbia University, and is the author of The Political Economy of Hope and Fear. Andrews’ current book projects include Realism, Violence and Economic Order: Economic Analysis and the Problem of Justice and Economic Policy and the Decent Society.

Guest Post: “Where is My Half Glass?”

The brilliant Robert E. Prasch, an economist at Middlebury College, reflects on the Obama Presidency.

President Obama, Where Is My “Half Glass”?

By Robert E. Prasch

Since deftly managing the Congressional “debate” over health care to eliminate the public option, the White House has found itself criticized increasingly by voices from within the Democratic Party. President Obama and his spokespersons were irritated to discover the following: those Democrats who wrote the checks, pounded the pavement, and got out the vote for “Change You Can Believe In,” really wanted change.  Who knew?  Robert Gibbs, David Axelrod and the President himself have all made it clear that they view such critics as childish “purists” unsatisfied with a “glass half full.”  I have only one question.  “Where is my half glass”?

Let us briefly review the administration’s performance on four areas of great concern to those who supported Barak Obama in 2008.  These include the financial crisis & economy, the endless Bush wars, the shocking erosion of civil liberties, and increasing unaffordable health care.

Less than one month after the historic November 2008 election, we were informed that “Hope and Change” would include neither the financial sector nor the economy. This occurred on November 28^th with the announcement of two critical appointments.  The first was that of former Clinton Treasury Secretary Lawrence Summers, a chief architect of the policies that set the groundwork for the 2007-2009 financial crisis, to head President Obama’s National Economic Council.  The second was that of Timothy Geithner, former Clinton Undersecretary of the Treasury and then President of the New York Federal Reserve Bank (NYFRB), as the new US. Treasury Secretary.  Geithner informed the US. House of Representatives –very truthfully– that he “had never been a regulator.”  The sad part is that the Federal Reserve and specifically the NYFRB has a substantial role in bank regulation and regulatory policy, a role in which he clearly and most publically failed. Several months after taking office, President Obama declared that he would reappoint Ben Bernanke to chair the Federal Reserve System.  With these three leading the way, can we be surprised that the Obama Administration never devised serious policies or took substantial action on financial reform, “Too Big To Fail” banks, rampant mortgage and bank fraud, high and persistent unemployment, or mortgage relief?.  Can we be surprised to learn that his idea of a “jobs program” was to push through President Bush’s “Free Trade” agreements?  Is anyone surprised to learn that he is now considering cuts to Social Security?

By contrast to the economy, candidate Obama frequently stated his commitment to Bush’s Middle East wars.  His attachment to the status quo was signaled the day after the Summers/Geithner announcement when it was revealed that he would reappoint Bush’s Defense Secretary Robert Gates (This, of course, was the same Robert Gates who narrowly avoided indictment for lying to Congress over his role in the Reagan Administration’s Iran-Contra Affair).  Officially, the US war on Iraq ended this past summer, but that event occurred according to a timetable set up by Bush–and only because Obama could not negotiate blanket immunity for US soldiers in the wake of the Wikileaks revelations.   Before shifting to another topic, I would also advise readers to take a moment to review the size of the “training” and “security staff” that have been left behind in Iraq, along with the size of the forces stationed in Kuwait and the other Gulf States.  Do not think for a millisecond that anyone in the Middle East is unaware of the size and lethality of the army and naval armada the US has stationed in their midst.  (For those who may imagine that this is about “promoting democracy” in the region, I have a one-word refutation – Bahrain.  YouTube has numerous videos featuring Bahraini police, and their ally, the Saudi Arabian army, shooting peaceful protestors.  And let us refrain from discussing the almost daily atrocities occurring in Egypt, or the out-of-control predator drone program).

What of civil liberties?  Here the record is genuinely appalling.  The prisoners of Guantanamo Bay continue to languish without proper judicial hearings, and the extended pre-trial treatment of Bradley Manning is criminal by any standard of measure.  Obama’s vigorous attack on whistleblowers who shed light on the idiocy and mendacity of the bloated bureaucracies associated with the national security apparatus is an ongoing scandal.  In fairness, candidate Obama did “tip his hand” on these issues when he suspended his campaign so that he could fly to Washington to vote in favor of retroactive immunity for the telecommunications companies that violated the law, and profited mightily from, working with Bush and Cheney on illegal wiretapping programs.  Moreover, he has never deviated from Nancy Pelosi’s early insistence on blanket immunity for all Bush administration officials who lied to Congress, promoted or engaged in torture, war crimes, etc. The record, apparently, is not sordid enough.  On December 23^rd 2011 Obama signed a bill co-sponsored by Sen. John McCain granting the President, on his own whim, the ability to imprison anyone, anywhere — American citizen or not — for an indefinite period without an attorney, charge, jury trial, or any other kind or variety of review.  Goodbye 4^th Amendment, you will be missed.

Finally, a word about “health care reform.”  This bill neither “gives” nor “provides” anyone with health care or health insurance.  On the contrary, it mandates that everyone purchase his or her own policy.  There is a some commitment to providing subsidies to those who cannot afford a policy – but anyone who has ever followed politics knows what will happen to it when budget cutting season returns (they also know that when the subsidies go, the mandate will surely stay).  The bill also embodies a vague commitment to reducing health care costs that is not worth the paper upon which it was written.  Elementary economics tells us that if health insurance policies are subsidized they will rise in price.  This tendency will be even more pronounced if people are forbidden from deploying their single greatest negotiating tool – the threat to leave the market altogether.  Obama’s “accomplishment,” if we can call it that, is to provide even more money and market power to the single largest obstacle to affordable health care – the private insurance companies.

Alarmed by trends in the then-new administration, columnist Bob Herbert called attention to them while identifying a core flaw in the thought processes of its apologists, “Policies that were wrong under George W. Bush are no less wrong because Barak Obama is in the White House” (New York Times, June 22^nd, 2009).  Two years have passed since Herbert wrote these words.  So I ask again, if Obama’s 2008 supporters have received a “half glass” on the four issues summarized above, then where is it?  At this point, I can’t even see the glass.

Robert E. Prasch is Professor of Economics at Middlebury College where he teaches courses on Monetary Theory and Policy, Macroeconomics, the History of Economic Thought, and American Economic History.  His latest book is How Markets Work: Supply, Demand and the ‘Real World’ (Edward Elgar, 2008)