Rolling Stone: How the GOP Bacame the Party of the Rich

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2011-11-10 06:10 PM

Schmidt
Colorado Springs, CO
Posts: 1058

Reference: Tim Dickinson, Rolling Stone Magazine, November 9, 2011: How the GOP Became the Party of the Rich

I added this excellent article by Tim Dickinson, not for the benefit of liberals and progressives, but rather for any Independents or moderate Republicans that might be visiting this website looking for an alternative to the right wing idealogy that is now in control of the Republican Party. Dickinson leads off with a quote by Reagan, but until you find that it was Reagan, mentally everyone is visually Obama.

Quoting Dickinson:

The nation is still recovering from a crushing recession that sent unemployment hovering above nine percent for two straight years. The president, mindful of soaring deficits, is pushing bold action to shore up the nation's balance sheet. Cloaking himself in the language of class warfare, he calls on a hostile Congress to end wasteful tax breaks for the rich. "We're going to close the unproductive tax loopholes that allow some of the truly wealthy to avoid paying their fair share," he thunders to a crowd in Georgia. Such tax loopholes, he adds, "sometimes made it possible for millionaires to pay nothing, while a bus driver was paying 10 percent of his salary – and that's crazy."

Preacherlike, the president draws the crowd into a call-and-response. "Do you think the millionaire ought to pay more in taxes than the bus driver," he demands, "or less?"

The crowd, sounding every bit like the protesters from Occupy Wall Street, roars back: "MORE!"

The year was 1985. The president was Ronald Wilson Reagan.

Dickinson's article is just another that highlights how the Republican Party has strayed so far to the right that past Republican Presidents would be labeled liberal.

2011-11-11 02:56 AM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

I like the article's view on Reagan; we've been saying the same thing around these parts now for years. He's a flaming Communist compared to the GOTP.

However, the Clintonista narrative of the article is baloney, and I'm sick of hearing it. Democrats should be ashamed of the "Clinton Surplus" not proud.

Owls on Parade.

Check out my debate with DalAnon of Occupy Dallas and Texas Anonymous.
http://occupydallas.org/economic-rant-occupy-dallas-supporter
scroll down to comment section....we go back and forth.

It's Deficit Doves v. Deficit Owls.

Deficit Owls Unite!

Down with the Clintonistas!
Rage: BOP http://www.youtube.com/watch?v=-58-36lSqG4

Occupy Everything.

2011-11-11 03:34 AM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

To be clear:
Schmidt provides some of the best commentary on this website. He's the epitome of an honorable citizen-journalist, and one hell of a Democrat if I ever did see one.

To Schmidt:
It's been a long while since we had a good back and forth - what do you say to a web summit of some sort?

2011-11-12 08:41 AM

Schmidt
Colorado Springs, CO
Posts: 1058

Thanks Kaboom for the kind words. Yes it's been a while since we had a back and forth on any issue. But I see you've found a good challenge with DalAnon at Occupy Dallas as you discuss Moderm Monetary Theory. You have moved beyond me with your depth of thinking, but let me share my simplistic view, which I believe is consistent with what both you and DalNon are saying but with some questions. I'll make a few observations on that dialogue and a few other points, which are repetitive from our previous discussions and perhaps elementary. So go ahead and poke holes in it...I need it.

First I absolutely agree with the principle of "velocity of money," which as DalAnon states, "is equal to all financial transactions that don't include locking the money up (like paying down debt or putting money into savings)." Another analogy to provoke thought is our simple stimulus story that we discussed back over a year ago, and I'll repeat it here for those that missed it:

Stimulus Story

It is the month of August, on the shores of the Black Sea. It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.

Suddenly, a rich tourist comes to town. He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to pick one.

The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher.

The butcher takes the 100 Euro note, and runs to pay his debt to the pig grower.

The pig grower takes the 100 Euro note, and runs to pay his debt to the supplier of feed and fuel.

The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town's prostitute that in these hard times, gave her "services" on credit.

The hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.

The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything. At that moment, the rich tourist comes down after inspecting the rooms, and takes his 100 Euro note, after saying that he did not like any of the rooms, and leaves town.

No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism.

That story very simplistically illustrates the importance of the velocity of money. Money must circulate to stimulate the economy. Money taken out of circulation causes a drag on the economy. As DalAnon stated, money is taken out of circulation when it goes into savings instead of spending it on consumer goods. The rich save more of their money than the middle class and poor. The rich also take money out of circulation when they put it into Caymen Island or Swiss accounts or gamble with it on hedge funds. Hence lower taxes on the rich only works as a drag on the economy because a larger portion of their tax dollars are taken out of circulation...i.e. not spent on US made consumer goods and services.

Now here's where I might deviate a little from your discussions. Government taxes do not necessarily take money out of circulation if the money is pumped back into the US economy on entitlement programs, building things, salaries for government workers, etc. Tax money sent overseas for nation building, funding trade deficits, wars, etc. is largey taken out of circulation, and therefore is a drag on the US economy if the money isn't returned to be spent on goods and servcies in the USA....OR if the money supply isn't replenished by various means. The media like to talk about the Fed printing money, but as you have pointed out previously, the money supply grows by other than "printing money." That's a topic for a different discussion.

The high marginal tax rates on the rich during the 1950s, 1960s and 1970s had a large stimulative effect on the economy because the government used that money to award contracts to private businesses to build our infrastructure, send a man to the moon, invest in education, and a whole bunch of stuff that benefited our society as a whole. However, the government really didn't physically do all those things themselves...private enterprise did with government contracts and guarantees to take out the risk. So I'm a believer in the role of government to tax to raise revenue to spend on projects that are assigned to businesses. The government acts as a middleman and takes on the risk that business won't...government stimulates the economy...it's our tax dollars at work as we often see on roadside signs next to highway infrastucture projects.

Since Reagan, however, we have entered into a "starve the beast" mentality, that back fired when taxes were cut but not spending accordingly. And this added to the deficits and debt, but also without the benefit of tax revenue, big government projects that helped private businesses thrive have been largely shelved. Our infrastructure has been in decline since Reagan took office...we have effectively been "starving the beast."

Now the question is, should we continue to starve the beast or incur more debt by once again spending on infrastructure, education, alternative energy, etc? I say yes...even if the debt increases as a result. I agree with the MMTers in this regard. But the better alternative would be to do what we did before, and let the government act as a middleman to circulate tax dollars into our economy with infrastructure projects...the country benefits...everyone benefits. It's what "Big Government" does best and that private industry cannot, especially when the banks aren't lending, and companies are too risk averse to take on the projects without some form of government guarantees. Military contractors thrive on that system of government guarantees now. That's why we are the biggest exporter of military equipment in the world. So instead of supporting military contractors and their projects why not instead have government fund highway and bridge projects, airports, or schools...the stuff that made our country great before Reagan. It's the same tax money...just put it to a better cause. And right now, 53 cents of every tax dollar is spent on military, veteran care, and the debt for unfunded wars. That's way too much money directed to military causes at the expense of projects that benefit our society more directly at home. It's not sustainable.

Okay getting back to one of your points where I hope you can clear up some confusion on my part. I agree that we can't overtax and pay down debt as that takes money out of circulation...and it acts as a drag on the economy. As you pointed out, during the last two years of the Clinton administration this is what happened...well not entirely. The unified budget does indeed show a budget surplus for those years, but the debt continued to climb. That's because the money that was designated for the Social Security and Medicare Trust funds was classified as borrowed and spent...debt owed. To put it another way, the total federal debt has never gone down in any year since 1947. We have increased our debt every single year including the Clinton years. So if we had a budget surplus during the Clinton years, why did the total national debt still go up each year? We know already that every penny of the money going into the trust funds was sent to the treasury and immediately spent. Where was it spent?

Our debt as a percentage of our GDP did, however, go down in those years, but that's a result of the rising GDP and not "paying off debt." At least that's the way it appears to me. Maybe I'm confused here.

You have implied that the recession that followed the Clinton years was a result of the Clinton budget surplus. But there are many other causes of recessions over history (See Wikipedia list of recessions and causes.) I absolutely agree that budget surpluses take money out of circulation and can cause recessions. However, there were other factors following the Clinton years that have been suggested as having brought on that recession. You can cherry pick from several. One that I favor the most is the repeal of Glass-Steagall that allowed banks to divert funds to the "Wall Street Casino" instead of being forced to reinvest in America. But the increase in energy prices at that time also probably played a part as it did in the 1970s.

Okay this is too long already. I think we are on the same page, and I especially agree with DalAnon about how more and more tax breaks for the rich have taken money out of circulation. I'll stop now.

Comment invited.

2011-11-12 05:50 PM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

Okay....on the "Clinton surplus."

Basic point is that government took more revenue in than it spent.

Yes, some of that revenue was "borrowed" from Trust Fund. However, those funds were collected through payroll taxes. So again tax revenues exceeded spending revenues. However, the national debt increased, because intergovernmental loans increased (borrowing from Trust Fund), and the decrease in banking reserves raised term-structure of interest rates for Treasuries. So the Clinton surplus is both real and imagined. Consolidated government ran a net-surplus. Non-SS spending and taxation equalled deficit; but SS payroll taxes collected exceeded SS spending (i.e., SSA ran a surplus). Either way, there were was a net-destruction of US dollar financial assets in the private system.

Now, if SSA was completely independent, and ran it's own account ledger, and invested or deposited surplus revenues in private banks, instead of recieving IOUs from Treasury, it's account balance would be just like any other household balance sheet in the private system. If it runs a net surplus, there must be a corresponding liability in the private system. Whatever happens here, whether SS runs a deficit or surplus, there can be no new net-dollars created. And the Capital Account balance - Government Sector Deficit = Domestic Private Sector Surplus. Here's what you got to bare in my find, mathematically it's not, figurative numbers here, -10 (=Government Deficit)=8 (private surplus) + 2 (Capital Account Balance). Obviously, -10 does not equal 8 + 2.

But, we are describing an accounting identity.

The government deficit is equal to the number of US financial assets created, not borrowed. It's not borrowing. It's increasing net US dollar financial assets and converting some of those US dollar financial assets into interest bearing notes to control base interest rates and to control for inflation. The Government Sector Deficit is for accounting purposes, 10, not -10. The surplus is equal to the number of US dollar financial assets destroyed, thus it would be -10 and DPS would -8 and if we somehow ran a trade surplus the Capital Account balance would be -2. Otherwise, tax payments would have to increase dollars in the private system?, which obviously makes no sense.

2011-11-12 09:02 PM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

The deregulation, which continued into the Bush administration on the administrative side, made it possible to push the limits of net-domestic private system debt. Bush "Ownership Society" was Wall Street duopoly policy.
.........
The projected surpluses would have never materialized. The economy in 2000 was in recession and it got worse. In 2001, Bush tax cuts opened up account deficit, but upwardly distributed it, even while tax-cuts were broad and general. Then Wars blew up deficits (more upward distribution)....trade policies allowed current account deficit to swell (great for foreigners) so basically Bush tax-cuts were MMT for EVIL.

2011-11-13 09:21 AM

Schmidt
Colorado Springs, CO
Posts: 1058

Thanks Kaboom for your patience in educating my 65 year old brain. I agree with everything you said, but let me rephrase it in a slightly different language and "spin."

First it's unfortunate that our politicians have so conditioned Americans to believe that public debt and deficit spending is bad considering that we have a sovereign currency, and hence more flexibility to manage the economy. I think that the MMTers will have a difficult time reversing that mentality, which is now pervasive within both the Republican and Democratic Parties. For us retirees living off of our 401k savings, it is also especially difficult as it goes against everything that we have learned in our lifetimes..and we do worry about how excessive deficit spending and debt might translate into hyper-inflation eating up our savings at some point in the future.

But getting back to the Clinton "surpluses," I note that Clinton himself has contributed to the political spin by his claims of "balancing the budget." That's a spin that resonates with the American public, but much of the so called "surplus" had nothing to do with his deliberate policies to create a surplus or balance the budget, but were rather a result of the combination of the fiscal restraint of the Republican controlled Congress from 1995 onwards being out of sync with the extra tax generating revenue from Clinton's tax hikes on the rich contained in his Omnibus Budget Reconciliation Act of 1993.

That plus the extra revenues of the payroll taxes from the trust funds resulted in surpluses that, in the absence of sufficient spending programs by the Republican controlled Congress, automatically went to paying down the "public debt." Public debt in this case should be differentiated from the "total national public debt," which as you pointed out includes the intragovernment debt accumulated from the surplus Social Security and Medicare funds that go directly into the Treasury and are spent.

Absent sufficient spending programs by Congress, any surpluses revenues (taxes) automatically go to reducing the public debt. And paying down public debt is much the same as a company buying back it's own stock. It doesn't create wealth and it takes money out of circulation that otherwise would have had a beneficial stimulus effect on the economy.

So I agree that Clinton's "balancing the budget," worked as a drag on the economy and primarliy contributed to the recession starting in early 2000, but there were also other factors that "took money out of circulation" such as more money going to pay for oil imports because of rising oil prices. The repeal of Glass-Steagall in November 1999, on the other hand, probably occurred too late in Clinton's tenure to have had an effect on the 2000 recession, but in my mind at least did contribute to the Great Recession of 2008. We can discuss that point later, but for now I just wanted to bring closure to the Clinton budget questions that I raised before moving on to the current 2011 discussions of deficits, debts and taxes...and military spending and wars...and the role of the Federal Reserve to control money.

One final point, however, for future discussion. MMTers in general oppose any tax increases when unemployemnt is high as we have now. I still believe that tax policies and regulations can and should be used to redistribute more of the wealth to the middle class. The numbers and graphs on how the Top 1 percent have made out like bandits since Reagan are quite revealing. I believe the Top 1 percent should take on more of the tax burden...NOW, and I also believe that government spending should largely be directed to those programs that benefit society as whole...that create wealth, much like the spending programs of the 1950s, 60s and 70s. The wars in Iraq and Afghanistan don't create wealth, at least the type of wealth that helps our society as a whole. And with the military taking a disproportunate piece of the revenue pie, it acts as a hinderance on those wealth creating projects at home that promote education, infrastructure, and health and well being.

I don't know how MMTers might feel about some of these latter points. In reading various views of MMTers, there is not unanimous agreement.

As usual I expect you'll clarify my thinking if I'm off base.

2011-11-13 11:52 AM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

Well, we oppose tax increases that are not offset, leading to deficit reduction.

I'm all for retargeting deficit dollars, through tax reform, which includes higher rates on upper income wealth, and lower rates for working people. I'm a fan of the President's jobs bill. On the D-Hub, I've written a stressed-out defense of the jobs bill, just as I did for the President's Machiavellian debt-ceiling performance; and none of this is incompatible with or compartmentalized away from my MMT subscriptions.

My problem with the left and Democrats, in general, is they want to tax the rich to balance the budget.

There is a nostalgia for Roosevelt and Eisenhower tax rates, which were implemented as a means to protect government's gold position. It was a heavy check on inflation that's totally unnecessary today.

We need total tax reform. I'm for true progressive income taxes, which does not involve just taxing the rich people at a flat rate; meaning the guy making 300,000 is not taxed like the guy making 30 million.

Bush tax cuts for wealthy people=FINANCIAL INFLATION
At the last, the Bush Administration used MMT for Evil.

But I'm for tax reform, first, as opposed to doing just rate fixes. I do not think the current tax code can be redeemed. Right now the tax code...is basically used like a pull-string for corporate donations. That's why nominal rates are high and effective rates are low (zero for many corporations). Politicians are selling tax code incentives for campaign donations. It is institutional corruption.
..........

But you are getting at something important about MMT.....it lends itself to a variety of views which transcend partisan and ideological lines.

Cullen Roche (of MMT Manifesto fame) is almost ready to vote for Romney on valence principles. Economy sucks. President held responsible. Politicians shuffled. Nothing personal or ideological about it. But I'm not quite sure if he's truly ready to take the leap. But he's speculating on what Romney might actually do as president (throw tax cuts at everybody?), which is opposed to what Romney is saying now about cutting 500 billion from the deficit.

Roche's not really a politics guy though....and Romney-bot is relatively new to him.

2011-11-15 05:54 PM

Schmidt
Colorado Springs, CO
Posts: 1058

Kaboom, I'm not quite with you on the point that Democrats, in general, want to tax the rich to just "balance the budget." There are quite a few of us that only want more equality in the tax code...and not the inequality that has led to the Top 1 percent accumulating wealth at the expense of the middle class and the economy. And just changing the marginal tax rates won't cut it. I agree with you that we need a total revamping of our tax code. I think we are in general agreement on that and several other MMT points.

In referring to an October 16, 2011 interview with Bill Mitchell (Australian Economics professor) in the Harvard International Review entitled Debt, Deficits,and Modern Monetary Theory, I find some answers that partially address some of my concerns. I know you have also addressed some of these in your other postings trying to educate us on MMT. Comment if you like.

Mitchell: The only issues a progressive person might have with public debt would be the equity considerations of who owns the debt and whether there an equitable provision of private wealth coming from the deficits. There is a debate to be had about that, but there is no reason to obsess over the level of outstanding public debt.

So I assume that "the debate to be had over that" is indeed how to revise the tax code to provide a more equitable position on private wealth. That can prove very difficult.

Mitchell: Why do we want governments? We want them because they can do things that improve our welfare that we can’t do individually. In that context, it becomes clear that public policy should be devoted wholly to making sure that there are enough jobs, that poverty is eliminated, that the public health and public education systems are first class, that people who are less well off are able to become better off, etc.

I like what he says here about jobs, poverty, welfare, health and education. These are all top priorites of the Democrats. However, I notice he didn't mention national security...i.e. military spending. I suppose that was an oversight, but conservatives would castiagate him for that. Anyway MMT in this respect is consist with Democratic (liberal) thinking.

Mitchell: From a macroeconomic point of view, the spending and tax decisions of government should be such that total spending in the economy is sufficient to produce the level of real output at which firms will employ the available labor force. This is the goal, and the particular budget outcomes must serve this goal.

I agree.

Mitchell: None of this is to say that budget deficits don’t matter at all. The fundamental point that the original developers of MMT would make—myself or Randall Wray or Warren Mosler— is that the risk of budget deficits is not insolvency but inflation. In saying that, however, we would also stress that inflation is the risk of any kind of overspending, whether investment, consumption, export, or government spending. Any component of aggregate demand could push the economy to that point where we get inflation. Excessive government spending is not always to blame.

This addresses one of my big concerns, and that of many retirees...INFLATION. I really still don't understand the drivers of inflation in this new economic world...but I still worry about it.

Mitchell: The third story is what happens when the government runs a budget deficit. What happens in the money market is as follows: the US government buys something from the private sector. They pay the manufacturer, who then pays the workers. A whole range of transactions follows from that initial government purchase. All of those transactions work their way through the system and find their way to the reserves of the banks each day. Typically—though not at the present because we are in an extraordinary situation where the central bank is paying interest on reserves—those reserves would just sit there and earn zero interest for the banks. And so typically, as I’ve explained before, banks try to get rid of those reserves, driving down the interest rate in the interbank market in the process. What you can understand from that is that budget deficits, independent of any monetary operations, drive interest rates down, not up. This is the complete opposite of what orthodox economists claim is the case, and it’s confirmed by the present combination of record low interest rates and very large budget defecits.

So I understand all this somewhat...you've explained it before. But I'm a bit slow. And Mitchell hasn't addressed some of my questions which relate to the velocity of money.

1. Banks are not lending. They've taken huge government "loans" through the TARP program but have not lent it back out to small businesses as intended. The money loaned to the banks is not circulating in the economy.

2. Big companies are making huge overseas profits now but not investing those huge profits in the USA . If they're not investing it overseas, they're buying back their own stock...."in droves" or $273 billion in just the first 9 months of 2010 as the washington Post reported last year. I couldn't find any numbers for 2011. As I''ve said before, it takes money out of circulation and therefore is a drag on the economy.

3. Even after investing in cheap labor overseas, and even after buying back their own stock, big companies are sitting on enormous cash reserves...$1.2 trillion worth at the end of 2010 for some 1600 large US companies. They have more money than they can realistically spend, but rather than invest it at home, they just sit on it. That's $1.2 trillion at the end of 2010 that is taken out of circulation. What are they waiting on? A Republican presidency?

4. Of course there are are some segments of the US market that are thriving...principally those companies associated with the military industrial complex...private contractors that turn huge government contracts into making war stuff. Why are they so profitable? Because the government is subsidizing their contracts and the government is largely taking on the risk. But much of this military money is being spent overseas and not at home...again taking money out of circulation.

So would the MMTers say none of these examples matter because we can always "print more money" to make up the shortfalls? But it still doesn't seem to translate into more jobs for US workers. And in this global economy where so many jobs have been shipped overseas because of cheap labor, should not the MMT model be thought of in a global context instead of just the USA? And wouldn't that require all countries to float their currencies? And if that doesn't happen, must we wait until market forces drive up the wages in these other countries like China? It might be a long wait.

Okay...these are more "thinking out loud" points that, to borrow a phrase from Herman Cain, are "twirling around in my head." I'll leave those points twirling for now as I ponder life. We can continue the discussions.

2011-11-15 10:37 PM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

Okay....maybe I'm off on the "just" part, but the Clinton narrative is clearly a selling point of the party. And it shouldn't be.

Quick point on inflation: MMT does not deny that when you increase "money" supply beyond what is necessary to buy up goods and services at today's price level, prices will obviously rise.
But what do we mean by "money"....it's not M3. The FED doesn't even trying to control the entire M3 money supply, it can't even account for it all. But not all US dollar financial assets are equal. "Money" as it matters to inflation is that which is in the hands of those with a propensity to spend. Taxes and bonds are really just monetary actions.

Here's another thing about how government spends.
Treasury has account at FED, right?
Revenues collected from tax payment and bond sales go first to Tax, Title, & Loan accounts, staying in the private system.

Treasuries account balance at FED, must stay in black....it's constant account surplus is managed according to monetary flows.
When Treasury spends....if account balance is lower than desired...the act of spending is simultaneously accompanied by depositing exact funds from TTL accounts to maintain desired account surplus at FED. Fiscal Spending and Monetary Operations are deeply coordinated between Treasury and FED.

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