David Plouffe, Still Believe People Are Feeling Better about Economy?

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David Plouffe was at yesterday’s disappointing “Freedom Rally” at Johnson Controls. Aside from being amazed (as I often am when I see politicos in person) at how short he is, seeing him also made me newly cranky about Plouffe’s comments last month about people feeling better about their own economic situations.

The average American does not view the economy through the prism of GDP or unemployment rates or even monthly jobs numbers.

In fact, those terms very rarely pass their lips. So it’s a very one-dimensional view. They view the economy through their own personal prism. You see, people’s — people’s attitude towards their own personal financial situation has actually improved over time. You know, they’re still concerned about the long-term economic future of the country, but it’s things like “My sister was unemployed for six months and was living in my basement and now she has a job.”

There’s a — a “help wanted” sign. You know, the local diner was a little busier this week. Home Depot was a little busier. These are the ways people talk about the economy. [my emphasis]

As I pointed out then, people actually weren’t feeling better about the economy, which seemed like a point you ought to be cognizant of if you’re trying to get a President re-elected based on improving consumer confidence.

Particularly when consumer confidence is at Jimmy Carter levels of malaise.

Confidence among U.S. consumers plunged in August to the lowest level since May 1980, adding to concern that weak employment gains and volatility in the stock market will prompt households to retrench.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment slumped to 54.9 from 63.7 the prior month. The gauge was projected to decline to 62, according to the median forecast in a Bloomberg News survey.

The biggest one-week slump in stocks since 2008 and the threat of default on the nation’s debt may have exacerbated consumers’ concerns as unemployment hovers above 9 percent and companies are hesitant to hire. Rising pessimism poses a risk household spending will cool further, hindering a recovery that Federal Reserve policy makers said this week was already advancing “considerably slower” than projected.

“The mood is very depressed,” said Chris Christopher, an economist at IHS Global Insight Inc. in Lexington, Massachusetts. “Consumers are very fatigued and very uncertain. In the short term, people are going to pull back on spending.”

Of course, when the President’s team decides that, rather than go and point out that the government can and has done something about jobs (and proposes to do more), it should blame Congress and pretend that freedom creates jobs all by itself, it doesn’t really inspire confidence.

As Paul Krugman says, what we need is someone to go out and staunch the bleeding, not someone to lecture more about getting the deficit in order (as Obama also did yesterday).

For the fact is that right now the economy desperately needs a short-run fix. When you’re bleeding profusely from an open wound, you want a doctor who binds that wound up, not a doctor who lectures you on the importance of maintaining a healthy lifestyle as you get older. When millions of willing and able workers are unemployed, and economic potential is going to waste to the tune of almost $1 trillion a year, you want policy makers who work on a fast recovery, not people who lecture you on the need for long-run fiscal sustainability.

[snip]

What would a real response to our problems involve? First of all, it would involve more, not less, government spending for the time being — with mass unemployment and incredibly low borrowing costs, we should be rebuilding our schools, our roads, our water systems and more. It would involve aggressive moves to reduce household debt via mortgage forgiveness and refinancing. And it would involve an all-out effort by the Federal Reserve to get the economy moving, with the deliberate goal of generating higher inflation to help alleviate debt problems.

Mind you, just from watching last night’s debate via Twitter, I recognize that most of the alternatives would be far, far worse. But to prevent one of those yahoos from having a change, the Obama Administration really ought to be looking at what works–investing in factories like JCI–rather than lecturing more about deficits and freedom.

Made in China: Ensuring Everyone Gets Paid Less

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The San Francisco Federal Reserve has a report showing that we don’t really import all that much from China (this, in spite of yesterday’s report that our trade deficit rose again last month). It manages to make the claim by tracking not the volume of all the stuff we use, but the percentage of the ultimate amount of money we spend on that stuff. That calculation shows that just 2.7% of what we spend goes to China.

Here’s how that works:

Obviously, if a pair of sneakers made in China costs $70 in the United States, not all of that retail price goes to the Chinese manufacturer. In fact, the bulk of the retail price pays for transportation of the sneakers in the United States, rent for the store where they are sold, profits for shareholders of the U.S. retailer, and the cost of marketing the sneakers. These costs include the salaries, wages, and benefits paid to the U.S. workers and managers who staff these operations.

Table 1 shows that, of the 11.5% of U.S. consumer spending that goes for goods and services produced abroad, 7.3% reflects the cost of imports. The remaining 4.2% goes for U.S. transportation, wholesale, and retail activities. Thus, 36% of the price U.S. consumers pay for imported goods actually goes to U.S. companies and workers.

This U.S. fraction is much higher for imports from China. Whereas goods labeled “Made in China” make up 2.7% of U.S. consumer spending, only 1.2% actually reflects the cost of the imported goods. Thus, on average, of every dollar spent on an item labeled “Made in China,” 55 cents go for services produced in the United States. In other words, the U.S. content of “Made in China” is about 55%. The fact that the U.S. content of Chinese goods is much higher than for imports as a whole is mainly due to higher retail and wholesale margins on consumer electronics and clothing than on most other goods and services.

Now, the whole calculation relies on the fact that most of what we spend money on–the 66.9% of our spending that goes to housing (16.6% of our spending), health care (18.4%), recreation (8.2%), and other services (14.9%)–can’t be outsourced very easily (though some of this money presumably pays for call centers in India). Add in the 8% of our spending that goes to food–most of which is still grown in America (more on that below)–and this calculation doesn’t the include three-quarters of our spending that either can’t be or won’t be outsourced very easily.

There’s another way of thinking of this, though: it basically means we don’t pay the Chinese teenagers who make our sneakers very much.

We knew that–that’s the whole point of producing stuff in China!

That allows the companies importing goods from China to spend money, instead, on marketing and shipping and sales. So rather than make sneakers at a US plant, a working class American is left with a job in a big box store selling sneakers made for pennies by someone in China.

Mind you, that still means this whole process leaves room for jobs for those who design the products Made in China, people like engineers, and for B-School grads who manage the logistics of all this. But much of the jobs left for the unskilled workers are low wage.

Now, the process by which increasing amounts of money are spent on marketing and transportation is not just happening in the areas where we do import from China: clothing, cars, and furniture.

The same process is happening in the one area where we still largely produce for ourselves: food. The USDA recently recalculated how much of our food dollar goes where. And while the results aren’t as stark as the Chinese example–American farmers are still making a bigger chunk of what you spend on food than Chinese workers make from your $70 sneakers–the numbers are still pretty striking.

Farmers make less than $.12 of every dollar Americans spend on food. The bulk of the money go to food processing (more very low wage jobs) and food service (low wage restaurant jobs).

Interestingly, one thing seems to be fairly consistent across these measures. 6.6% of our spending on imported goods go to imported oil.

Imported oil, which makes up a large part of the production costs of the “gasoline, fuel oil, and other energy goods” and “transportation” categories, is the main contributor to this 6.6 percentage point difference.

And 6.8% of the American food dollar goes to energy.

This series indicates that payments from each food dollar going to the energy industry group approached 7 cents in 2008, an increase of 75 percent since 1998.

I compare the food dollar to our “China dollar” not just because it illustrates how much of our spending supports relatively non-productive roles. But also because it provides a way to understand the alternative.

Mr. EW and I spend a lot on eating out (though we frequent restaurants that locally source food). But of what I spend on food directly, the bulk of it goes right to a farmer that lives within 30 miles of me–these women, this family and this family, for example. Of course, that means I have to actually cook to make dinner. But it also means my money stays in my community rather than paying Saudis for oil.

There are some goods it makes sense to outsource. And I don’t begrudge Chinese workers for the pennies they’re making off manufacturing consumer goods for Americans. But at some level the logic of spending all that money on marketing and oil rather than on actually making things defies reason.

Apparently, “Freedom” Is the New Euphemism for “Government Investment”

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There’s something really disturbing about Obama’s speech at Johnson Controls today: he barely claimed credit for the government’s involvement in it.

Understand, I think the opening of factories like Johnson Controls the single biggest piece of good news in our economy today. It’s good news because we’re investing in new manufacturing jobs. It’s good news because it helps us move away from our dependence on fossil fuels. And it’s good news because the technologies will help us do something about climate change. Obama’s investment in energy technology jobs may well be the single best thing he has done as President.

So I’ve been waiting for Obama to come claim credit for the factories in Holland since they were built. Since then, Rick Snyder and Crazy Pete Hoekstra have hailed these new factories, all the while pretending that capitalists did the work all by themselves, with nothing more than a tax cut from the government. I’ve been waiting for Obama to correct the record and explain how important government investment can be–particularly at a time when no one else is investing.

But it took him 1095 words–over a third of the speech–before he offered the following vague explanation for what made the factory possible.

But what also made this possible are the actions that we took together, as a nation, through our government –- the fact that we were willing to invest in the research and the technology that holds so much promise for jobs and growth; the fact that we helped create together the conditions where businesses like this can prosper.

No mention of precisely what the government did or how it invested. No mention of how many jobs that investment created (JCI’s CEO made some of that case).

And Obama’s weak claim of credit came long after Obama’s first explanation (coming 210 words in) for what created these jobs,

The reason a plant like this exists is because we are a country of unmatched freedom, where groundbreaking ideas flourish.

And it came in the paragraph after Obama’s second explanation for what created these jobs,

So let’s think about it — what made this possible?  The most important part is you:  your drive, your work ethic, your ingenuity, your management.  The grit and optimism that says, “We’ve got an idea for a new battery technology or a new manufacturing process, and we’re going to take that leap and we’re going to make an investment.  And we’re going to hire some folks and we’re going to see it through.”  That’s what made it possible.

It seems that Obama would rather push a Milton Friedmanesque notion of capitalism–arguing freedom creates jobs–than take clear, proud credit for the government’s role in creating them.

Obama had no problem claiming credit for the government’s role in creating jobs when he broke ground on a different battery factory (the LG Chem one) in Holland a year ago. After first invoking the auto bailout (and admitting it was an unpopular decision), Obama described clearly that the factory relied, in part, on a government grant for funding.

And through small business loans, a focus on research and development and investments in high-tech, fast-growing sectors like clean energy, we’ve aimed to grow our economy by harnessing the innovative spirit of the American people.

Because we did, shovels will soon be moving earth and trucks will soon be pouring concrete where we are standing.  Because of a grant to this company, a grant that’s leveraging more than 150 million private dollars, as many as 300 people will be put to work doing construction and another 300 will eventually be hired to operate this plant when it’s fully up and running.  And this is going to lead to growth at local businesses like parts suppliers and restaurants.  It will be a boost to the economy of the entire region. [my enphasis]

And he went on to boast about all the additional benefits of the investment in related jobs and increasing efficiency. That language–the language Obama used last year–is the kind of language we need to hear now that people owe their employment to such government support. It’s the kind of language that would not only support his own re-election (his approval levels in MI are barely where they need to be to win the state, particularly if Romney’s on the ballot), but it’d also help downticket Dems (Granholm had a big role in this investment), and correct the false claims made by Snyder and others.

Obama’s failure to boast loudly about the government’s role in this plant is all the more troubling given the rest of the speech.

The larger speech, after all, was about what we can do now to stimulate the economy.

Now, there are more steps that we can take to help this economy growing faster.  There are things we can do right now that will put more money in your pockets; will help businesses sell more products around the world; will put people to work in Michigan and across the country.

He went on to rehearse a bunch of ideas that really won’t stimulate the economy all that much: the payroll tax cut, the trade deals, new patent law, and a veteran jobs program. And (second in the list of things we could do), as part of his call for a highway construction bill, he admitted “we’re slipping behind because we’re not investing.”

America used to have the best stuff — best roads, best airports, best seaports.  We’re slipping behind because we’re not investing in it, because of politics and gridlock.  Do you want to put people to work right now rebuilding America?  You’ve got to send that message to Congress.

But if it’s true (and it is) that America’s falling behind because the government is not investing, if Obama’s going to try to mobilize voters to pressure Congress to do something about jobs, if what made this factory and these jobs possible was government investment, why not make a broader call for more of it?

The evidence was all there today in the form of the shiny new battery factory and the engineers running around in blue lab coats that government investment can be critically important to creating jobs. But rather than make that argument, Obama pretended that grit and freedom are all it takes to create jobs

Obama Tries to Sell Free Trade in Holland, MI

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I’ll have more to say about Obama’s speech at Johnson Controls later today when I get back to reliable Toobz.

But here are my first impressions.

First, here’s the order of emphasis in his speech:

  1. Freedom
  2. Debt and compromise
  3. The kinds of investments that make this factory possible

That’s a problem. Republicans like Crazy Pete Hoekstra and Rick Snyder have already come to these factories to claim credit for the jobs. And they’re not going to talk about how these jobs depended on government investment.

I was unsure whether Obama was going to just ignore his pitch for trade. He didn’t. But not only did it come later in his pitch of late (after payroll tax deductions), but he changed the delivery. He claimed that if we pass these trade deals, people around the world will be driving Fords and Chevys.

Of course, people around the world already are driving Fords and Chevys. Made in places like Brazil and Mexico and China. Trade deals won’t change where the American-branded cars sold in Colombia and Panama and Korea are made.

The one exception, of course, is the most dangerous. Korea will import electric Volts and Ford Transits–they even adopted a change in KORUS to allow for them. But how long do you think the real leader in battery technology–Korea–will stand for the importation of batteries from MI? I have long believed–and still do–that KORUS may kill just this kind of factory, because once GM starts building Volts in Korea, they’ll export those higher-margin Volts to other markets.

In any case, the applause when Obama talked about trade was much quieter than the other applause lines.

One more thing about this event. It was, I believe without exception, the whitest Democratic event I have ever attended in MI. Now, Holland is whiter than much of MI (though it has a growing Latino population). But Grand Rapids, which is just  a half hour away, is racially balanced. Moreover, I know an auto supply plant about 10 miles from here that has more Latinos working at it than were in this room.

That’s probably more a testament to who the VIPs were that got invited to this event (and that the employees who have been hired here thus far tend to be white collar workers). But still, I found it striking.

A Jobs SuperCongress

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It’s rather pathetic that this idea seems so remarkable.

Rep. John Larson (Conn.), chairman of the Democratic Caucus, wants to amend the recently passed debt-limit package to establish a joint select committee on job creation to operate alongside the already mandated Joint Select Committee on Deficit Reduction.

In a “Dear Colleague” letter sent to House members earlier in the week, Larson argued that the nation’s jobs crisis is only exacerbating its long-term fiscal problems and therefore demands Congress’s immediate attention.
“This high unemployment poses a very real short-term fiscal crisis, because it drains the federal coffers through increased government spending and reduced tax revenues,” Larson wrote in the Aug. 8 letter.
“Families are being forced out of their homes, children are being forced to forgo higher education, the elderly are being forced to retire early without nearly enough saved to cover their long-term costs,” he said. “If not addressed, I believe the social costs of unemployment will dramatically damage the United States’ status in the world and prevent us from emerging from this recession.”

And in the Senate, a portion of Democrats are making a similar argument.

Dear Leader McConnell:

Given that the single best deficit reduction strategy is economic growth, we urge you to ensure that your appointments to the new joint select committee (“JSC”) created by the debt limit bill are committed to a policy of job creation.

The recent spate of discouraging economic news underscores the need to make employment the top priority of our government.  For families across the country, the biggest economic problem is high unemployment.  As you know, the lack of jobs and anemic growth rate of the economy are not only enormous problems in their own right, causing great pain for millions of Americans, they are a major component of our deficit.  Indeed, the loss of revenue resulting from the recession accounts for nearly $4 trillion of the projected deficits over the next 10 years.

At the same time, jobless workers put additional strain on our critical social safety net programs.  As more and more Americans rely on unemployment benefits, food stamps and Medicaid, our deficits go up.  Getting those individuals back to work not only allows them to be self-sufficient, it reduces federal government spending.

It is therefore appropriate and important that the JSC explicitly embrace job creation as a part of its mission.  Targeted investments in economic growth and job creation can complement and even enhance long-term deficit reduction efforts and should be a priority that the JSC embraces.  Indeed, failure to make such investments could have a serious negative impact on our fiscal situation.

But, as Bob Brigham observes, only 23 Senators signed this letter. How have we gotten to the point where not even a majority of Senate Democrats understand that the one of the best ways to fix the deficit it to fix the jobs crisis (of course, the absolutely best way to fix the deficit is to enact single payer health care, and that’s not going to happen either).

Coming Soon to Your Hard-Hit Neighborhood: Government-Subsidized TBTF Slumlords

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I’m all in favor of creative ways to solve the foreclosure crisis. But I don’t think this is answer.

The government is soliciting ideas for ways to unload lots–big lots–of foreclosed properties currently owned by Fannie, Freddie, or FHA.

The Federal Housing Finance Agency (FHFA), in consultation with the U.S. Department of the Treasury and Department of Housing and Urban Development (HUD), has announced a Request For Information (RFI), seeking input on new options for selling single-family real estate owned (REO) properties held by Fannie Mae and Freddie Mac (the Enterprises), and the Federal Housing Administration (FHA).

The RFI’s objective is to help address current and future REO inventory. It will explore alternatives for maximizing value to taxpayers and increasing private investment in the housing market, including approaches that support rental and affordable housing needs.

“While the Enterprises will continue to market individual REO properties for sale, FHFA and the Enterprises seek input on possible pooling of REO properties in situations where such pooling, combined with private management, may reduce Enterprise credit losses and help stabilize neighborhoods and home values,” said FHFA Acting Director Edward J. DeMarco. “Partnerships involving Enterprise properties may reduce taxpayer losses and meet the Enterprises’ responsibility to bring stability and liquidity to housing markets. We seek input on these important questions.”

Kevin Drum rightly wonders what the point of this is, given that investors can already buy as many REOs as they want.

The point is volume: basically, the government would share ownership of the houses for such time as it takes the new owner to make them profitable again. And in exchange, the investor would be able to buy a bunch more houses.

The idea is to facilitate investors buying up whole chunks of homes in a particular market.

the agencies look forward to responses from market participants that have the technical and financial capability to engage in large-scale transactions with the Enterprises and/or FHA involving the disposition of REO.
A specific goal is to solicit ideas from market participants that would maximize the economic value that may arise from pooling the single-family REO properties in specified geographic areas. Under the management of a third-party, a joint venture or some other structure may respond to local economic and real estate conditions more effectively than individual sales. For instance, there may be certain metropolitan areas (or some narrower geographic designation) with a substantial number of REO properties and a strong rental market. In such locales economic value in REO disposition may be enhanced (and real estate markets begin to be stabilized) by turning a large number of REO properties into rental housing.

Call me crazy, but it seems the only reason such a program would be lucrative would be because it allowed one investor to corner significant chunks of the housing or rental market in a given city or neighborhood. Which, it would seem to me, would make for really abusive landlords: people with no competitive need to keep up their properties, with market dominance sufficient to raise rents beyond what the economy really supported, and enough pull at city hall to avoid accountability for doing these things.

Now, Jared Bernstein says we shouldn’t worry about using government subsidies to create TBTF slumlords.

I’ve heard two arguments against the idea.

[snip]

Second, investors buying foreclosed properties in bulk make lousy landlords.  It’s a valid concern, but there’s a policy wrinkle in the FHFA/admin’s plan that should help: the proposal—the RFI noted above—should include requirements regarding property management and the Feds should reject proposals that aren’t convincing in that regard.

But really, the language purportedly protecting against TBTF slumlords is flaccid. It lists “address[ing] property repair and rehabilitation needs” as one of six objectives (after, it must be said, “reduc[ing] REO portfolios … in a cost-effective manner” and “reduc[ing] average loan loss severities.” It requires private partners take on “most or all day to day management and operations, including property maintenance and rehabilitation, rental property management, marketing for sale.” And it only requires proposed plans to address, “steps taken to ensure that the properties are well maintained and managed during the period” as item 7, after already emphasizing, as item 2, “a focus on maximizing returns.” Nowhere does it require these hypothetical landlords to charge reasonable rates for rents.

In other words, while this plan may include lip service to the upkeep of these properties, nowhere does it limit what kind of price gouging these TBTF landlords could engage in (indeed, it places more emphasis on financial return than on societal return).

And of course, as happens with most of these Third Way public-private partnerships (cf. health care reform and the Wall Street bailout), it deals away key enforcement mechanisms precisely by helping corporations avoid market forces and encouraging them to become so big they can’t be held to account.

Ultimately, this seems to be an effort to find a shortcut out of the housing crisis by engaging in more corporate subsidies. Plus, it’ll take several months to put the program together, whereas offering subsidies to everyone right now might be faster with less market-distorting effect.

If the government is going to be subsidizing turning these properties around anyway, why not subsidize the average people that have gotten so screwed over by TBTF corporations in the first place? Why not subsidize the people who create stable communities–actual community members–rather than asking corporations to restore communities? Why struggle again to limit market forces in a such a way that only the big boys benefit?

I know Obama likes to claim, falsely, that government can’t create jobs, and because of that claim he believes all government help must be laundered through corporations. But corporations can’t create communities, which is really what’s called for here.

Ron Bloom to Spend More Time with His Family While Obama Pushes Trade Deals

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So Ron Bloom, Obama’s manufacturing czar and a key figure in the auto bailout, has announced he is leaving the White House to spend more time with his family.

Today, the White House announced Ron Bloom will be stepping down from his position as the Assistant to the President for Manufacturing Policy at the end of August.

[snip]

Bloom will be returning to his long-time residence of Pittsburgh, PA to take the opportunity to spend more time with his family.  

The press coverage of the timing of Bloom’s departure has focused more on what hasn’t happened yet than on what has. It emphasizes that Bloom is leaving before the government sheds the last of its stake in GM. And also notes that Congress probably won’t ever approve actually doing anything to support US manufacturing (in spite of the near unanimity it should).

Bloom won’t stay on to see the government completely exit the auto industry. The government still owns a 26 percent stake in General Motors Co. and 74 percent of Detroit-based Ally Financial. But it has completely exited Chrysler Group LLC, booking a $1.3 billion loss.

Bloom was initially tapped with working to boost the struggling manufacturing sector in September 2009 and took on the role full-time this year. He also oversaw the successful initial public stock offering of GM.

But efforts to further turn around manufacturing — including funding government programs — are likely to go nowhere since Congress is unlikely to approve any new money. Sperling said the Obama administration would still push Congress to do more to boost manufacturing.

But that misses one key aspect of the timing of Bloom’s departure.

Bloom’s announcement comes just days after reports that Congress will vote on Obama’s trade deals with South Korea, Panama, and Colombia and the Trade Adjustment Assistance. But reports on the deal make it clear that 1) Democrats failed to get a commitment to link the trade deal votes with the vote on TAA, and 2) John Boehner still has not committed to what order he’ll advance the bills.

The White House and Democrats are continuing to negotiate the terms of a vote with Speaker John A. Boehner (R-Ohio), who has said he plans to bring up for a vote the trade deals and the assistance program, known as TAA.

“While some sequencing details remain to be worked out, the speaker has now clearly committed to floor consideration of TAA, along with the trade agreements,” said Carol Guthrie, a spokeswoman for Kirk. “The Senate leaders’ agreement on a way forward is an important step on the path to submission of the pending agreements.”

[snip]

Democrats and the White House have wanted legislation renewing the trade assistance program to be voted on along with the three trade deals. Republicans have insisted that they be considered separately.

In a joint statement released late Tuesday, Reid and McConnell said separate votes would be held, with the vote on the trade assistance program coming first.

In other words, last week’s announcement opened the possibility that the trade deals might pass without the TAA that helps manufacturing workers transition into new jobs. And if TAA doesn’t get passed, that’s a huge chunk of investment in job creation that will be sacrificed to the TeaParty Congress.

And at precisely the same time as this possibility became more likely, the language Obama used to describe the trade deals got a whole lot more Orwellian, suggesting that the trade deals themselves–as opposed to the TAA–would help workers displaced by the trade deals.

Now, I don’t know whether there’s a connected between these trade developments and Bloom’s departure or not.

But I do know that Bloom won’t be around in September when this deal–with or without TAA–will be pushed through Congress.

WSJ: How the Problem of Low Wages Is Different from the Problem of Low Wages

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This WSJ article–purporting to explain the difference between the 2008 crash from this crash (which is basically the extension of the earlier one)–is amusing for the way it avoids discussing the drop in real wages as the common cause for both crashes.

For example, it doesn’t consider why people were using their home as an ATM rather than spending non-existent wages on consumer goods in 2008…

The two crises had completely different origins.

The older one spread from the bottom up. It began among over-optimistic home buyers, rose through the Wall Street securitization machine, with more than a little help from credit-rating firms, and ended up infecting the global economy. It was the financial sector’s breakdown that caused the recession.

And then blames lack of trust (a version of the confidence fairy, I guess), rather than lack of customers, to explain why businesses aren’t investing or hiring.

The current predicament, by contrast, is a top-down affair. Governments around the world, unable to stimulate their economies and get their houses in order, have gradually lost the trust of the business and financial communities.

The two crises had completely different origins.

That, in turn, has caused a sharp reduction in private sector spending and investing, causing a vicious circle that leads to high unemployment and sluggish growth. Markets and banks, in this case, are victims, not perpetrators.

Aside from the way this ignores the “lack of customer” problem, since when does the business press’ flagship newspaper claim that the failure of the government to successfully stimulate business makes those inadequately government-stimulated businesses “victims”?

Someone has watched too many Cialis commercials.

The column continues, pretty much repeating the first difference using different words.

The second difference is perhaps the most important: Financial companies and households had feasted on cheap credit in the run-up to 2007-2008.

When the bubble burst, the resulting crash diet of deleveraging caused a massive recessionary shock.

This time around, the problem is the opposite. The economic doldrums are prompting companies and individuals to stash their cash away and steer clear of debt, resulting in anemic consumption and investment growth.

Once again, however, the column ignores that the same underlying problem–low wages forcing ordinary people to either rely on credit to continue spending, or stop spending–lies behind both crises.

Then, once again, the WSJ restates what is going on, repeating the claim that the failure of the financial bailout to work makes poor helpless businesses victims.

The final distinction is a direct consequence of the first two. Given its genesis, the 2008 financial catastrophe had a simple, if painful, solution: Governments had to step in to provide liquidity in droves through low interest rates, bank bailouts and injections of cash into the economy.

[snip]

The present strains aren’t caused by a lack of liquidity—U.S. companies, for one, are sitting on record cash piles—or too much leverage. Both corporate and personal balance sheets are no longer bloated with debt.

The real issue is a chronic lack of confidence by financial actors in one another and their governments’ ability to kick-start economic growth.

I find this last one the most interesting. The logic goes like this: Governments had to step in to provide liquidity (to banks, mostly). And they succeeded in making companies liquid (except for those burdened by the legal liabilities for the fraud they committed during the previous bubble, the WSJ forgets to mention). But for some reason that didn’t work, which makes these poor victim businesses lose confidence.

Somehow, the WSJ misses the obvious solution. Whether by direct government intervention, or by paying workers, you’ve got to put money in the hands of those who can stimulate the economy.

Obama’s Slogan for Trade: “Displaced workers … Made in America”

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When I saw Obama’s pivot to creating Korean jobs on Tuesday, I actually thought he had mangled his script.

And I want Congress to pass a set of trade deals — deals we’ve already negotiated — that would help displaced workers looking for new jobs and would allow our businesses to sell more products in countries in Asia and South America, products that are stamped with the words “Made in America.”

As I noted, Obama adopted the phrase used to refer to those who had lost jobs in past trade deals, “displaced workers,” to refer to those who would get jobs out of these new ones.

And his suggestion that letting JP Morgan Chase and Goldman Sachs use trade deals to extend their financial gimmickry to South Korea and incorporate Panama’s secrecy regime into the US orbit constituted products stamped “Made in America”? That’s a cynical appeal to the nearly-unanimous call for the opposite: a move away from such financialized madness to actual manufacture.

But he didn’t mangle the script. That is the script. Obama said precisely the same thing in his weekly address yesterday:

It’s time Congress finally passed a set of trade deals that would help displaced workers looking for new jobs, and that would allow our businesses to sell more products in countries in Asia and South America – products stamped with three words: Made in America.

Shorter Obama: “Displaced workers … Made in America.”

Update: Here’s how the Administration uses the term “displaced” when it’s not trying to propagandize (this is from a statement Austan Goolsbee made on Friday).

Bipartisan action is needed to help the private sector and the economy grow – such as measures to extend both the payroll tax cut and unemployment insurance, as well as passing the pending free trade agreements with re-employment assistance for displaced workers, the patent reform bill, and a bipartisan infrastructure bill to help put Americans back to work. [my emphasis]

Goolsbee has used the same formula before, as in this statement on July 29. That is, elsewhere, the Administration admits that these deals will “displace workers,” not directly benefit those who have already been displaced by trade deals.

Update: And Obama admits that the trade deals create displaced workers in this press conference on July 15.

I’ve got three trade deals sitting ready to go.  And these are all trade deals that the Republicans told me were their top priorities.  They said this would be one of the best job creators that we could have.  And yet it’s still being held up because some folks don’t want to provide trade adjustment assistance to people who may be displaced as a consequence of trade.  Surely we can come up with a compromise to solve those problems. [my emphasis]

And Jay Carney on July 8:

Q    Speaker Boehner today rejected the idea of tying Trade Adjustment Authority to the free trade agreements.  He says four separate bills.  Do you want it attached because you feel it can’t pass on its own?

MR. CARNEY:  Well, the agreement that was presented was worked out in a bipartisan way.  Trade Adjustment Authority has been supported by members of both parties for years.  And we believe it is very important to provide that kind of assistance to workers who have been displaced by free trade agreements.  And that has been a notion supported, again, by members of both parties for a long time. [my emphasis]

 

The End of the American Empire

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I write about our dying empire just about every day in my links posts. But given the debt limit debate and Friday’s S&P downgrade, I wanted to look at four pieces that examine where we are more closely (note, all of these are well worth reading in full–do click through to read them).

There are two issues to grapple with: first, with the undeniable evidence that our government has become a clusterfuck, we have become incapable of taking obvious steps–like taking the profit motive out of our health care system or taxing the wealthy that just got a giant government bailout–that we need for the well-being of the country. At this level, S&P’s downgrade makes sense.

But then there’s the question of why we let a thoroughly discredited entity like the S&P be the one to dictate whether we merit our world leadership position or not. That’s not just a question of letting one of the agencies that created the bubble retain any position of authority in the world afterwards (though, again, the fact we left the rating agencies in place after the crash is another sign our governance has failed), but also why a nation-state would let a corrupted entity like S&P do so in the first place.

Therein lies the paradox here: the downgrade is at once a real measure of the collapse of our governance, one of the best symptoms of it, and a key piece of evidence of why our governance is failing. So what’s going on?

This column at Spiegel Online looks on this as a problem of culture. It argues the US has left “the West.”

America has changed. It has drifted away from the West.

The country’s social disintegration is breathtaking. Nobel economist Joseph Stiglitz recently described the phenomenon. The richest 1 percent of Americans claim one-quarter of the country’s total income for themselves — 25 years ago that figure was 12 percent. It also possesses 40 percent of total wealth, up from 33 percent 25 years ago. Stiglitz claims that in many countries in the so-called Third World, the income gap between the poor and rich has been reduced. In the United States, it has grown.

Economist Paul Krugman, also a Nobel laureate, has written that America’s path is leading it down the road to “banana-republic status.” The social cynicism and societal indifference once associated primarily with the Third World has now become an American hallmark. This accelerates social decay because the greater the disparity grows, the less likely the rich will be willing to contribute to the common good. When a company like Apple, which with €76 billion in the bank has greater reserves at its disposal than the government in Washington, a European can only shake his head over the Republican resistance to tax increases. We see it as self-destructive.

The same applies to America’s broken political culture. The name “United States” seems increasingly less appropriate. Something has become routine in American political culture that has been absent in Germany since Willy Brandt’s Ostpolitik policies of rapprochement with East Germany and the Soviet Bloc (in the 1960s and ’70s): hate. At the same time, reason has been replaced by delusion. The notion of tax cuts has taken on a cult-like status, and the limited role of the state a leading ideology.

Now, it is true that America’s political culture has been hijacked, and that those who have hijacked it used hatred as a way to convince others to act against self-interest. But that’s what (perhaps) distinguishes us from Europe; that’s what explains why we, a country with our own currency, can be in as dire a situation as Europe with its common currency. Moreover, I’m skeptical whether, mere weeks after the terrorist attack in Norway, Europe should really be lecturing the US about hate.

Craig Murray looks elsewhere–at the military we feed at the expense of feeding our own people. Read more →