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The '147 People' Destroying the US Economy

Tuesday, March 26, 2013 by Campaign for America's Future Blog
by Richard Eskow



Can 147 people perpetuate economic injustice – and make it even worse? Can they subvert the workings of democracy, both abroad and here in the United States? Can 147 people hijack the global economy, plunder the environment, build a world for themselves that serves the few and deprives the many?

There must be some explanation for last week’s economic madness. Take a look:

Cyprus: The European Union acted destructively – and self-destructively – when it tried to seize a portion of the insured savings accounts of the citizens of Cyprus. They were telling anyone with a savings account in the financially troubled nations of the Eurozone: Forget your guaranteed deposits. If we need your money in order to bail out the big banks – banks which have already gambled recklessly with it – we’ll take it.

That didn’t just create a political firestorm in Cyprus. It threatened the European Union’s banking system, and perhaps the Union itself. The fact that the tax on deposits has been partially retracted doesn’t change the basic question: What were they thinking?

The Grand Bargain: The President and Congressional Republicans reportedly moved closer to a deal that would cut Social Security and Medicare while raising taxes – mostly on the middle class – without doing more to create jobs. A “Grand Bargain” like that would run counter to both public opinion and informed economic judgement.

Who would impose more economy-killing austerity when there’s so much evidence of the harm it does? Why would the White House want to become the face of a deal to cut Social Security, killing its own party’s political prospects for a generation?

There’s more:

Him again: Washington reporters once again sought the opinion of Ex-Wyoming senator Alan Simpson, a vitriolic blowhard with no discernible knowledge of either economics or social insurance, and then wrote up his opinions on those topics in flattering pieces like this one.

Derivatives, the Sequel: Four short years after too-big-to-fail banks nearly destroyed the world economy, as the nation continues to suffer the after-effects of the crisis they created, a Congressional committee moved to undo the already-insufficient safeguards in the Dodd/Frank law.

Within days of a Senate Report which outlined the mendacity, extreme risk, and potentiality criminality surrounding JPMorgan Chase’s “London Whale” fiasco, the House Agriculture Committee approved new bills that would legalize trades like the “London Whale.”

Above the Law: The Attorney General of the United States remained silent as the controversy continued over his recent admission that banks like Dimon’s were too big to face prosecution. And yet there were no moves to change either Holder’s policy or the size of these institutions. Politico, the Washington insiders’ tip sheet, ran a piece entitled “Why Washington won’t break up the big banks.”

Dimon Unbound: The Senate report also provided evidence that JPMorgan Chase’s CEO, Jamie Dimon, failed to manage his bank’s risk and concealed information about its losses from regulators. We learned last week that regulators lowered their rating of Dimon’s bank after chastising the bank’s leadership for management failures that included inadequate safeguards against money-laundering, poor risk management, and failure to separate the banks’ own investments from those of its customers.

Illegalities during Dimon’s tenure as CEO have cost his shareholders billions in settlements and fines. Poor risk management (and additional potential illegalities) cost it another $6.2 billion in Whale-related losses. And yet last week Dimon’s own Board “strongly endorsed” his dual role as CEO and Board Chair, an unusual concentration of power at what is (by some measurements) the world’s largest bank, and commended itself in a proxy filing for the “strength and independence” of its oversight, adding: “The Firm has had strong performance through the cycle since Mr. Dimon became Chairman and CEO.”

All this, in just seven days. Has the world gone insane? What is everybody thinking?

That’s where the number “147″ comes in.

Anthropologist Robin Dunbar tried to find out how many people the typical person “really knows.” He compared primate brains to social groups and published his findings in papers with titles like “Neocortex size as a constraint on group size in primates.”

Dunbar concluded that the optimum number for a network of human acquaintances was 147.5, a figure which was then rounded up to 150 and became known as “Dunbar’s Number.” He found groups of 150-200 in all sorts of places: Hutterite settlements. Roman army units. Academic sub-specialties. Dunbar concluded that “there is a cognitive limit to the number of individuals with whom any one person can maintain stable relationships.”

Around 150 or 200 people form a human being’s social universe. They shape his or her world view, his or her world.

That means that 147 people can change the course of history. Not necessarily the same 147 people, of course. But the small social groups which surround our world’s leaders have extraordinary power.

Economist Simon Johnson mentioned Dunbar’s Number last week in a column about incoming Treasury Secretary Jacob Lew and the new SEC chair, Mary Jo White. “The issue is not so much their track record,” Johnson wrote, “because neither has worked directly on financial-sector policy issues; it is much more about whom they know.”

“If most financial experts you know work at, for example, Citigroup,” added Johnson, “then you are more likely to see the financial world through their eyes.”

Lew is a former Citigroup executive. That mismanaged megabank is also the former corporate home of ex-Clinton Treasury Secretary Robert Rubin, and the current home of Peter Orszag, formerly President Obama’s OMB Director. For her part, White went from prosecuting criminals to defending Wall Street bankers. That was also Attorney General Eric Holder’s profession before he was appointed to his current position.

These are the people who surround our President, our Senators, our Representatives. They talk to them every day. They say, This is how the world works. They say, Everybody knows these things.

Their European counterparts saw the effects of austerity on the economies of their Union: Unemployment up. Gross domestic product down. Even the deficits, which austerity was meant to reduce, have been rising as the result of these unwise cuts.

But, they say, we know Angela Merkel. We know George Osborne and Christine Lagarde. We trust their judgement. How did the predictably disastrous plan to tax guaranteed savings accounts in Cyprus get approved? It’s not hard to imagine: “Everybody we know” thought it was a great idea.

That’s how it works here in the US, too. Larry Summers, Alan Greenspan and Robert Rubin were spectacularly wrong about everything: deregulation, the housing bubble, government spending, everything. But we know them.

Nobel Prize-winning economists like Paul Krugman and Joseph Stiglitz keep explaining why more stimulus spending is needed. But we don’t know them – not the way we know Larry, Alan, and Bob. Same for Simon Johnson, or William K. Black Jr., or Robert Johnson, or any of the other economists we don’t know very well.

And when we don’t know someone very well, their criticisms make us uncomfortable.

Bill Clinton’s “Third Way” triangulation led to welfare “reform” that’s proven disastrous. His Wall Street deregulation ruined the economy, and his brand of old-fashioned pseudo-centrism is out of touch with today’s political and economic realities. But we know him.

Bill Clinton doesn’t make us uncomfortable at all.

Investigate Jamie Dimon, or Lloyd Blankfein, or Robert Rubin? But they were our clients, and will be again once we leave government. Investigate them? We know them.

Dimon’s Board of Directors is a case study in Dunbar’s Number. It includes Honeywell CEO David Cote, who was a member of the Simpson Bowles Commission. There’s a retired senior executive with another big defense contractor, Boeing. Together with Dimon, that makes three CEOs who earn their money from government largesse.

The CEO of Comcast is on Dimon’s Board, too. (The media’s leaders are always among the 147.) One seat belongs to the head of one of the accounting groups that overlooked massive bank fraud when signing off on their annual statements. Another belongs to the former CEO of Exxon Mobil.

The “147″ run companies. They also hold fundraisers for politicians – in both parties.

When Senator Obama became President Obama, during the gravest unemployment crisis since the Great Depression, one of his first acts was to create a “Deficit Commission” instead of a “Jobs Commission.” Why? Because “147 people” thought that was the right priority. Then he appointed the dyspeptic, unlikable, and uninformed Sen. Simpson to co-chair it.

You see, the “147 people” in Washington’s political and media circles like Alan Simpson. To them he’s not an embarrassment to his President, a paid pitchman for billionaire Pete Peterson’s anti-Social Security jihad. (We know Pete!) To them Simpson’s not an ill-informed and misogynistic bully who taunts women with comments about “310 million tits.” To them he’s Al. They know him. They say he’s a lot of fun when you get to know him.

They really say that.

Then there are the news anchors and journalists who say things like this: Everybody knows that we need to cut Social Security. Everybody knows the deficit is our most urgent problem.
Everybody knew that Saddam had weapons of mass destruction, too.

Everybody understands that the right-wing, anti-government Simpson Bowles plan represents the “political center,” although it’s far to the right of public opinion – even of Republican or Tea Party voters’ opinion – on issues that range from job creation to increasing Social Security benefits.

You can’t fit millions of frustrated voters into a social group of 147 people.

When Teddy Roosevelt became President, J.P. Morgan (the person, not the bank) suggested he “send your man to my man and they can fix it up.” He was shocked that the new President chose instead to operate outside the Circle in order to create real change. And when Franklin D. Roosevelt became President he brought in new faces, new voices, new ideas. He broke the social circle that had paralyzed government and the economy.

But the circle of right-wing Republicans and corporatist Clintonite Democrats is still intact. That means Barack Obama, Nancy Pelosi and other Democratic leaders will keep on promoting the right-wing agenda known as Simpson Bowles until their party loses all its political power at the polls.

It also means that Republican extremism will still be reported with straight-faced gravity.Congressional committees will keep deregulating big banks, the Justice Department will avoid prosecuting them, and their Boards of Directors will keep rewarding their executives. They’ll all keep doing exactly what they’re doing – until the economy blows up again, perhaps with far worse consequences than the last time.

And when the next crisis comes, “147 people” will react to it exactly the same way they reacted to the last one. You can almost hear them now, can’t you? You can’t blame us, they’ll say. Nobody could’ve seen this coming. How do we know that?

Because we asked everybody we know.

No Austerity Has Helped Any Economy

Sunday, 03 February 2013
By Gaius Publius, America Blog | News Analysis

Paul Krugman’s recent column looks at the romance between the “austerians” — the promoters of austerity for economically troubled nations — and the need to inflict pain to get economic gain. His bottom line — no country that has tried austerity has seen a major economic benefit.

My bottom line — add “to its people” to the end of Krugman’s bottom line and you’ve got it exactly. There is an obvious economic benefit, but only for a few.

Let’s start with Krugman. He begins:

Looking for Mister Goodpain

Three years ago, a terrible thing happened to economic policy, both here and in Europe. Although the worst of the financial crisis was over, economies on both sides of the Atlantic remained deeply depressed, with very high unemployment. Yet the Western world’s policy elite somehow decided en masse that unemployment was no longer a crucial concern, and that reducing budget deficits should be the overriding priority.

That’s a familiar story, one we’ve detailed before. The answer to economic crisis is always budget cuts and austerity. Then he pivots to austerian attempts to find an example.

In recent columns, I’ve argued that worries about the deficit are, in fact, greatly exaggerated — and have documented the increasingly desperate efforts of the deficit scolds to keep fear alive. Today, however, I’d like to talk about a different but related kind of desperation: the frantic effort to find some example, somewhere, of austerity policies that succeeded. For the advocates of fiscal austerity — the austerians — made promises as well as threats: austerity, they claimed, would both avert crisis and lead to prosperity.

The column is interesting because it lays out that history. First the example was Ireland, which the head of the European Central Bank said in 2010 was “the role model for all of Europe’s debtor nations.” But events proved them wrong; Ireland is worse off today than it was back then. So then the U.K. became the touted model, until it wasn’t. Then little Latvia, which has recovered some, was pushed forward; but Latvia still has 14% unemployment. Hmm.

Krugman’s conclusion — nowhere in the world is there an example of austerity that works as the austerians said it would. The policy is “wrong on all fronts.” Yet they (Our Betters) still promote it.
 
“All your money are belong to us” — the song of the predator class

Krugman stops there, but I’ll continue with the obvious question. Why do they still promote it? Krugman’s answer, from elsewhere, is the Beltway Bubble and its international equivalent:

my side of the debate is actually paying attention both to the numbers and to the arguments of the other side, while the Very Serious People only listen to each other.

In other words, the poor darlings are just deluded, bubbled, sealed from understanding.

Those whom he calls Very Serious People, I call Our Betters. This difference in language (between his and mine) is indicative of the difference in analysis between Krugman and people like me. The language “Very Serious People” speaks to their role as pundits, opinion-generators and insider-echoists. “Our Betters” speaks about their power role — the role these people play in running our lives (at the Obama and Robert Rubin level) or in serving those who run our lives (at the David Gregory and Joe Scarborough level).

In other words, it’s certainly true that the baronial class and its servants and administrators listen only to each other, and thus reinforce in each other the comforting cover story that they’re only doing what’s in our ultimate good.

But the baronial class is also the predator class and they know precisely where the benefit (for them) always lies. This is the predator class in operation:

The Predator Class in action. If you added the Top .001% to this chart, it would have to be taller than you are.

If you added the Top .1%, the Top .01% and the Top .001% to that chart, you’d need a chart as tall as your room. What the chart calls the “Highest Fifth” includes what I call the “retainers” — administrators, enablers (that’s you, CNN producers) and professionals needed to keep the system working. Everyone else is workers, and look what their hard work got them.

All of the gains of worker productivity (the harder smarter computer-enabled work of the lowest four-fifths) have gone into the pockets of the highest fifth and especially the very top earners. Note that these are individual incomes, not corporate incomes; as I’ve argued elsewhere, the corporation is just the collection device, the force extender, for the CEO class that wholly controls it; shareholder-ownership is the comforting cover story.

This is what James Galbraith calls “the predatory state” — and he means that economically. The predatory state is a state that enables and is controlled by economic predators, extremely wealthy vampires who feed on their fellow citizens. Galbraith (my emphasis):

That the looming debt and deficit crisis is fake is something that, by now, even the most dim member of Congress must know. The combination of hysterical rhetoric, small armies of lobbyists and pundits, and the proliferation of billionaire-backed front groups with names like the “Committee for a Responsible Federal Budget” is not a novelty in Washington. It happens whenever Big Money wants something badly enough.

Big Money has been gunning for Social Security, Medicare and Medicaid for decades – since the beginning of Social Security in 1935. The motives are partly financial: As one scholar once put it to me, the payroll tax is the “Mississippi of cash flows.” Anything that diverts part of it into private funds and insurance premiums is a meal ticket for the elite of the predator state.

By “elite” of the predator state, Galbraith means “owners” of the predator state, the top predators themselves. It’s that predatory feeding that produces policies, promises and pronouncements like these that Krugman describes:

Not only have we been ruled by fear of nonexistent threats, we’ve been promised rewards that haven’t arrived and never will.

They’ll say and do anything to get at more dollars; they’ll destroy the planet’s ability to support life itself, all for more dollars. Look again at the chart above. They’ve been looting the country, the government, the schools, the pension plans, your wages, the equity in your home, everything they can get their hands on since Reagan Days. Their only goal — All your money are belong to us. These are true monomaniacs, in the clinical sense.

So yes, they’re self-deluded. But like every feral beast, they also know where the food is. That food is us unless we stop them. And stopping them starts (in my most humble opinion) with naming them and shaming them.

An example of naming — does Obama serve the predators who finance his elections and his looming Legacy & Library Project or does he serve the people who elected him? Ask it loud and proud. The “debt ceiling–sequester” deal is his next chance to show us. As is Keystone, for those who are watching at home. But he can’t show us if we don’t ask him to, and in no uncertain terms.

My advice — dare to be bold, progressives. This game has a fourth quarter, and we’re in it. At some point, the predator will destroy all the prey and then die. Justice for the beast perhaps, but no fun for the already dead.

Roubini: Global Economy faces uncertain Future--including possible double dip--in 2013

Roubini: The Global Economy faces an uncertain Future in 2013

The American Economist Nouriel Roubini (Dr. Doom) predicted an uncertain scenario for the world economy in 2013, a year in which Europe could deepen its crisis, while China slow their growth and United States would fall into a situation of stagnation. The Economist was in the Argentina and during his talk highlighted as a favorable factor in the situation of globalization that promotes sharing and investments.

Nobel Prize in economics 2009 and famous for having predicted the crisis of 2007, Roubini spoke yesterday at the World Business Forum which took place in Buenos Aires last week. The American economist born in Turkey also drew attention to the risk posed the possibility of a confrontation between Israel and Iran for the world economy and that match the rest of its forecasts, it set a 'perfect storm' next year.

Roubini: "My prediction for the perfect storm is not this year but 2013 , because everybody is kicking the can down the road , we going to have a problem in the US after the election if we do not resolve our fiscal problem , China is overheating and at fix investment of 60 percent of GDP eventually it going to get a hard landing,  The Europeans are pushing their problems but Greece Ireland Portugal need to restructure their debt they are insolvent that's going to be on 2013 , Japan is going to shorten its stimulus it is going to slack again in a year from now , so I se every country in the world trying to push their problems to the future , we started with private debt public debt super national debt we are kicking the can down the road and eventually all this is going to come to a an end in 2013." - in CNBC

In the United States, the latest economic data – including a weak labor market – confirm that growth is anemic, with output in the second half of 2012 unlikely to be significantly stronger than the 1.6% annual gain recorded in January-June. And, given America’s political polarization and policy gridlock, we can expect more fights on the budget and the debt ceiling, another rating downgrade, and no agreement on a path toward medium-term fiscal consolidation and sustainability – regardless of whether President Barack Obama is reelected in November. On the contrary, we should expect agreement only on the path of least political resistance: avoidance of tough fiscal choices until the bond vigilantes eventually wake up, spike long rates, and force fiscal adjustment on the political system. - in project-syndicate

"It became clear in 2012 that this game of `kicking the can down the road` is a zero-sum game," he wrote in an article published on the Financial Times website "By 2013 at the latest, but possibly already in 2012, a perfect storm of a double-dip recession in the U.S., a disorderly scenario in the euro zone and a hard landing in China could materialize," he added - via CNBC

+++++++

I've been reading and listening to Dr. Doom (Roubini), Paul C. Roberts, and Gerald Celente, among others, since 2005, and I credit them totally that my wife and I were well aware ahead of time that the economic crisis which hit us in late 2007 was coming. Not like we had an overwhelming investment portfolio to secure, but our lives didn't get turned upside down by it and we didn't lose any money because of it, and we were able to warn friends and family it was coming. Whether or not they took us seriously or thought we were crazy is up for debate, but we still listen to them, and if Roubini says another one is coming, I believe him and you should too.--jef

A World in Denial of What It Knows

Sunday, January 1, 2012 by the New York Times
by Geoffrey Wheatcroft

COULD there be a single phrase that explains the woes of our time, this dismal age of political miscalculations and deceptions, of reckless and disastrous wars, of financial boom and bust and downright criminality? Maybe there is, and we owe it to Fintan O’Toole. That trenchant Irish commentator is a biographer and theater critic, and a critic also of his country’s crimes and follies, as in his gripping if horrifying book, Ship of Fools: How Stupidity and Corruption Sank the Celtic Tiger.

He reminds us of the famous if gnomic saying by Donald H. Rumsfeld, then the United States secretary of defense, that “There are known knowns... there are known unknowns ... there are also unknown unknowns.” But the Irish problem, says Mr. O’Toole, was none of the above. It was “unknown knowns.”

What he means is something different from denial, or evasion, irrational exuberance or excess optimism. Unknown knowns were things that were not at all inevitable, and were easily knowable, or indeed known, but which people chose to “unknow.”

Unknown knowns were everywhere, from Wall Street to Brussels, from the Pentagon to Penn State. Ireland merely happened to offer an extreme case, where “everyone knew.”

They just chose to forget that they knew — about the way that Irish banks ran wild, how easy credit fueled a monstrous explosion of property prices and speculative house-building. Bertie Ahern, the Irish prime minister at the time of the rapid economic growth, merely boasted, “The boom is getting boomier,” preferring to unknow the truth that booms always go bust.

Beginning in 2008, the skies were lighted up by financial conflagrations, from Lehman Brothers to the Royal Bank of Scotland. These were dramatic enough — but were they unforeseeable or unknowable? What kind of willful obtusity ever suggested that subprime mortgages were a good idea? An intelligent child would have known that there is no good time to lend money to people who obviously can never repay it.

Or recall how we were taken into the Iraq war. That was the origin of Mr. Rumsfeld’s curious words 10 years ago. When he murmured about “things we do not know we don’t know,” he was touching on the unconventional weapons that Saddam Hussein might — or might not — have held.

In a sense, Mr. Rumsfeld was more right than he realized. Those of us who opposed the war may be asked to this day whether we knew what weaponry Iraq possessed, to which the answer is that of course we didn’t. Nor, as it transpired, did President George W. Bush, Vice President Dick Cheney, Mr. Rumsfeld or Prime Minister Tony Blair of Britain.

But that was the wrong question. It should have been not “what weaponry does Saddam Hussein possess?” but “Is Saddam Hussein’s weaponry, whatever it may be, the real reason for the war, or is it a pretext confected after a decision for war had already been taken?” The answer to that was obvious and could have been known to all, but too many people chose to unknow it.

Then there was another unknown known: the likely consequences of an invasion. Shortly before it began, Mr. Blair met President Jacques Chirac of France. As well as reiterating his opposition to the coming war, Mr. Chirac offered the prime minister specific warnings. Mr. Blair and his friends in Washington seemed to think that they would be welcomed with open arms in Iraq, Mr. Chirac said, but that they shouldn’t count on it. It was foolish to think of creating a modern democracy in an artificial country with a divided society like Iraq. And Mr. Chirac asked whether Mr. Blair realized that, by invading Iraq, they might yet precipitate a civil war.

This has been described in a BBC documentary by someone present, Sir Stephen Wall, a Foreign Office man then attached to Downing Street. As the British team was leaving, Mr. Blair turned and said, “Poor old Jacques, he just doesn’t get it,” to which Sir Stephen now adds dryly that he turned out to get it rather better than “we” did.

At that time, Mr. Chirac was reviled in America, and his career has just ended in disgrace, with a court conviction for embezzlement. But who was right about Iraq? All the calamities that followed the invasion were not only foreseeable, they were foreseen. And yet for Mr. Blair, as well as Washington, they were unknown knowns.

One more such, bitter as it is to say so when many people have been ruined, was the Bernard L. Madoff fraud. For years, his investors gratefully and unquestioningly accepted returns that were strictly incredible. Loud warning voices sounded. Harry Markopolos, a former investment officer, exhaustively back-analyzed Mr. Madoff’s supposed figures by computer. He spent nearly nine years repeatedly trying to explain to the Securities and Exchange Commission that these figures were not merely incredible but mathematically impossible. And still the SEC chose to unknow it. Leos Janacek wrote a harrowing opera called “The Makropulos Affair”; Peter Gelb at the Met should commission someone to write “The Markopolos Affair” as a fable for our times.

In a very different kind of scandal, not everyone at Penn State, and certainly not every fan, knew what had happened in the showers. But quite enough was known by people who could have acted. They chose instead to unknow. And so to another classic unknown known, the euro. The recent summit in Brussels turned into a silly melodrama, with a British prime minister, David Cameron this time, once more playing the pantomime villain. But Mr. Cameron was right, if for the wrong reasons, to oppose the European Union’s latest frantic (and doomed) plan to prop up the euro.

If truth be told (but it so rarely is!), the euro cannot work and could never have worked. That is, a single currency embracing countries as diverse in social culture, productivity, work practices and taxation as Germany and Greece, or the Netherlands and Portugal, is economically impossible without much closer fiscal and financial union — which is politically impossible. Anyone could have known that at the time the euro was introduced, but for the rulers of the European Union it was their very own unknown known.

“The Cloud of Unknowing” is a medieval classic of mystical writing, and unknowing still hangs over us. It will be a happier new year if we can dispel some of that cloud, try to unknow less, and know a little more.

Raging Greeks Stage Biggest Anti-Austerity Protest Yet

Sunday, June 5, 2011 by Agence France-Presse

Police: Over 50,000 Greek protesters assemble in the capital

by Will Vassilopoulos 

ATHENS — Thousands of Greeks took to the streets of Athens late Sunday on the 12th consecutive day of protests against the government's draconian austerity measures.

Over 50,000 people, according to police estimates, thronged the capital's central Syntagma square for a peaceful demonstration responding to calls for gatherings across Europe. Some 3,000 people also gathered in Greece's second largest city, Thessaloniki, according to the police.

"Thieves, thieves," the crowd chanted waiving Greek flags, but also flags from Spain, Portugal, Tunisia and Argentina.

"You got the disease we got the solution. Revolution," one banner proclaimed.

Sunday's gathering appeared to be the largest since protests began over a week ago.

The non-political, non-ideological demonstrations are modeled by a similar mobilization in Spain led by a group calling themselves 'the indignants'.

"There is hope if demonstrations like this make a difference. If political parties get involved, then no," 26-year-old Maro told AFP.

"I'm indignant because I know I will never find a job in my profession," Maro, who studied to be a fashion designer, said.

Greeks feel indignant and voiced their discontent to the government, which just agreed to a new wave of spending cuts and tax hikes amid a deep recession and job layoffs in order to safeguard a new package of financial help from its creditors, the European union and International Monetary Fund.

"It's a shame what is being done to Greece," retired policeman Stelios Sfinas told AFP.

"I want 'troika' out," the 87-year-old added, referring to the country's three main creditors: the European Union, International Monetary Fund and European Central Bank.

48-year-old Panos came with his wife and two young daughters to the demonstration.

"I'm not indignant, I'm disheartened," said Panos who said he saw his salary at a research company he works lowered 70 percent the past year.

"Our relatives support us by lending us money to live," added his unemployed wife.

Culture Minister Pavlos Geroulanos described the Syntagma square demonstration as both a Greek and global phenomenon.

"This shows that a system that worked for many years has reached its limits and at this moment all of the people in all these countries demand the system changes," he told state television NET early on Sunday.

The minister added that the government's priority was to change matters for the state to operate better.

However, most Greeks no longer have confidence in the country's political system, according to an opinion poll published in the daily To Vima last week.

Three-quarters of those surveyed said they disapproved of Socialist Prime Minister George Papandreou's handling of the crisis and also the reaction of his right-wing rival, Antonis Samaras.

In an effort to improve its image the government released a video on its website on Saturday outlining the achievements it has made while in power the past 20 months.

The mass demonstration comes a day after Greece's two main private and public sector unions protested in central Athens to condemn the government's new bailout deal from international lenders.

Drowning in debt, Greece won Friday the pledge of a new bailout on top of a July cashflow fix from European Union and International Monetary Fund, but only after surrendering some of its financial autonomy.

International backers want greater control over a radical economic overhaul, ranging from decisions over the privatisation of Greek state assets to fixing the country's chaotic tax collection system.

The Granddaddy of All Bubbles?

April 14, 2011
World markets are frothing like shaken Champagne, and doomsayers argue that today's bubbles need to be deflated now before they get dangerously large
By Peter Coy and Roben Farza, Bloomberg

It's as if 2008 never happened. Once again the world's investors are pumping up bubbles that will probably explode in their faces. After the popping of a real estate bubble led to the first global recession since the 1930s, world markets are frothing like shaken Champagne. Pundits claim to have spotted price increases that are unsupported by economic fundamentals in assets ranging from U.S. farmland to Israeli biotech to Australian housing to Chinese cemetery sites. Commodities have soared. Global junk-bond issuance hit a record in the first three months of the year. And Yale's Robert Shiller calculates that the Standard & Poor's 500-stock index is trading at 23 times earnings normalized over the past 10 years, compared with a historical average of 16. "I fear this is the granddaddy of them all, an almost-encompassing bubble right at the heart of monetary systems," says Doug Noland, senior portfolio manager of the Federated Prudent Bear Fund.

Cassandras, pointing to the bankruptcies, taxpayer-financed bailouts, and joblessness caused by the last bubble, argue that today's bubbles need to be deflated now before they get dangerously large. Many blame the Federal Reserve for keeping interest rates too low and pumping out a flood of money in search of yield that feeds bubbles around the world. Chinese authorities want the Fed to raise rates to relieve inflation in China. On Apr. 7 the European Central Bank raised its benchmark lending rate a quarter-point, to 1.25 percent. In the U.S., "What we've created is beyond moral hazard," laments Brian Wesbury, chief economist at First Trust Advisors, a Wheaton (Ill.) fund shop. "People are coming to think that the market cannot go higher if the Fed isn't helping it."

Not everyone is in the grip of bubble-phobia, least of all Fed Chairman Ben Bernanke. The central bank remains committed to keeping rates ultralow until the economy shows more staying power. In an Apr. 11 speech in New York, Fed Vice-Chair Janet L. Yellen didn't say anything about bubbles. But she rejected the contention that Fed policy is responsible for commodity price inflation, blaming the runup in oil and food prices largely on "rising global demand and disruptions in global supply." She's right: Commodities aren't being hoarded, as they would be if investors were speculating on them. Inventories have fallen since last summer.

Some economists such as Jaume Ventura and Alberto Martin of Barcelona's Universitat Pompeu Fabra go so far as to argue that bubbles are the price we pay for vigorous growth. They say the optimism reflected in sharply rising prices can become a self-fulfilling prophecy: Rising prices induce more hiring and investment. That generates the growth that justifies even higher prices, and so on in a virtuous upward spiral. Of course, eventually the bubble pops and causes a mess. Yet however jarring a boom-bust economy may be, they say, it's better than an overregulated economy stuck in perpetual underperformance. "The bubble has costs. But you prefer the world with the bubble over the one without the bubble," says Ventura.

James W. Paulsen, the bullish chief investment strategist at Wells Capital Management in Minneapolis, happens to think the Fed should raise interest rates a bit now—but, he says, "It's comical that we think we can regulate away future recessions or crises. It's scary to the extent that if we do, we will crush the essence of capitalism, which is basically greed and animal spirits."

Didier Sornette, a physicist who studies finance at the Swiss Federal Institute of Technology Zurich, sketches out six stages of bubbles:

1) the appearance of a new investment opportunity;
2) the expansion of credit;
3) euphoria;
4) distress;
5) revulsion;
6) panic. 

Ventura and Martin don't even assume euphoria. In their "rational bubbles," investors buy into a bubbly asset because they conclude that the overpricing can last for many years, and the chance they will still be invested when the bubble bursts is small. For all the people who sell before the bust, as well as all those who earn salaries from the sector while it's still bubbling, there's no downside, they note.

One reason it's hard to pick between the bubbles-are-bad and bubbles-are-O.K. camps is that bubbles aren't all alike. The best ones create assets whose value survives the crash. The Apollo program that put people on the moon, only to lose public support in the 1970s, was a "social bubble" in which over-optimism advanced science, Sornette says. Bad bubbles generate worthless assets such as exurban housing subdivisions that are taken over by squatters and mold. Other bubbles don't produce any supply response at all. The only impact of China's new mania for old wine—one bottle went for nearly $233,000 last year—is to transfer wealth to whoever was lucky enough to own the bottles before the Chinese got interested, notes Harvard economist Edward Glaeser.

When the tech sector gets bubbly, consumers are often the biggest beneficiaries, Glaeser says, because investors fund ideas that help the general public, from wireless communications to solid-state data storage to the Internet. So it was in the 19th century with the railroad boom. Today's speculation in tech is concentrated in social networking. The question is whether the new investments will live up to the greatest hits—and productive busts—of Silicon Valley's past.

When a Country Goes Insane

Monday, February 21, 2011 by CommonDreams.org
by Robert Freeman
This must be what it’s like when a country goes insane, when it falls down a rabbit hole and tries to pretend that everything is normal.

It can’t tell truths from lies. Hucksters pose as upright men, and people imagine they are Solons, avatars of insight come down from the ages. Sleazy operators pass themselves off as statesmen, as thinkers of deep gravitas, and the crowds, unable to distinguish sanctimony from sincerity, bravado from bullshit, lap it up.

Let’s be clear. It was the Republicans and Corporatist Democrats who wrecked the economy. Both their people and their policies drove the economy into the ditch.

So Republicans and Corporatist Democrats condescending to instruct Americans about how to fix the economy is like the captain of the Titanic lecturing shipping operators about safe procedures for navigating the north Atlantic. No sane society would tolerate it. But this one does.

How bad is it this time?

Twenty five million people have lost their jobs. Twenty  million are underemployed. Many will never work again. Eight trillion dollars of middle class wealth has been destroyed in the housing collapse. One out of four mortgage holders are under water, owing more on their home than it’s worth. Fifty million people are living in poverty. One out of eight Americans are on food stamps. One of every two children will be on food stamps at some point in their lives.

How much worse can it get?

And the rich? Corporate profits are at an all-time high. But corporate taxes — not the imaginary “nominal” rates they whine so bitterly about, but the taxes actually paid — are among the lowest in the industrial world. Income inequality is at its highest level since 1917. Between 2000 and 2006, two thirds of all the growth in the entire economy went to the top 1%. And the “too big to fail” banks, those that wrecked the economy and extorted trillions of dollars from the government to rescue them? They are now even bigger.

How much better can it get?

And the Republicans’ response? The working and middle class need to pay. Never mind that it was Reagan and Bush I who quadrupled the national debt in only 12 years, and Bush II who doubled it again in only eight, all to grease the pockets of their wealthy base. It’s the working and middle class who need to be bled. They still have assets that can be milked from them. They can still be made more subservient, more docile.

They need to give up the union protections that have afforded them the slightest bargaining power against the largest organizations on earth. They need to give up environmental protections, even though every one of them have rocket fuel in their bodies from water contamination. They need to give up the mortgage interest deductions that allowed them to buy and own their own homes.

They need to give up government help with college loans that allowed their children to get the education they could never have. They need to give up any expectation of extended unemployment insurance, even though there are five people looking for every job available. They need to give up the retirement protections that Social Security has promised them for the past 75 years.

In other words, they need to give up any expectation of security, or dignity. They need to give up any childish illusions that they have any say in the government, that it is operated for any such quaint Madisonian ends as “the general welfare.” They need to put on their kneepads and accustom themselves to being grateful servants to their new feudal masters, assuming their masters will have them. It’s sickening.

Even though it was trillions of dollars of government bail-outs that saved the banks and their shareholders from bankruptcy… Even though it was government stimulus that reversed the 750,000 monthly job losses that were savaging the economy when Obama took office… Even though it was government FDIC insurance that protected millions of savers from being wiped out, and unemployment insurance that mitigated the collapse of aggregate demand, staving off another Great Depression for the time being…

It’s the poor, the working, and the middle classes that must be made to pay, for in the Republicans’ psychotic world government is existentially bad because it is through government that democracy tries to modulate the worst excesses of capitalism, which is existentially good.

It’s almost surrealistic. But decades of relentless Republican hate-mongering against the government has done its job, and made the government an easy purchase by any corporation.

Never mind that it was pre-corporatist government that pulled off the greatest feat of social engineering in history. In 1900, only 4% of Americans graduated from high school. By 2000, more than 80% did. It was this mass educated public that made possible the most technically sophisticated economy in the history of the world.

It was pre-corporatist government that won both World War I and World War II, leaving the U.S. economy astride the world like a colossus, able to harvest the fruits for decades. It was the government GI Bill program that educated a generation of young people to ultimately defeat the Soviet Union.

It was the pre-corporatist government that wired every house in the country for electricity during the Great Depression, setting up the largest household consumer-goods market in the world in the 1950s: home appliances. And it was pre-corporatist government guarantees for home loans that set off the greatest building boom in the history of the world: suburbia.

It was pre-corporatist government that paved more than 3 million miles of road between 1930 and 1960, making possible the massive economic boom associated with automobiles, mass mobility, and more. It was pre-corporatist government research that invented the graphical user interface and the Internet.

None of that matters.

Hate is stronger than logic and more than anything else, Republicans love their hate, and Corporatist Democrats love the corporate money that comes from Republican hate. It’s the only thing that gives them power. The more vicious, the more loony they are, the more they are treated like savants, like prophets channeling some higher wisdom, come though it may from the self-loathing gutter of political prostitution. They pull stuff out of their asses and brazenly pass it off as stone tablets. And people swoon.

Of course, you can understand why. The corporate mainstream media genuflect before gibberish and idolize idiocy. They are the media-tors of a Gresham’s Law of public discourse where bad information drives out good. For their own slick whoring they become “players,” while everybody else is left with a debauched civic currency, a crushed economy, and a collective impotence that makes true democracy and true prosperity impossible.

Alice in Wonderland would be amazed, even repulsed, that such cultural pathology passes for intelligence, even civilization. At least she stood up to the inanities of the Mad Hatter, the insanities of the Queen of Hearts, the arrogant deceits of Humpty Dumpty. But she didn’t live in today’s America.

A Real-Market Alternative

The economic choice we face is no longer between capitalism and communism, but rather between Wall Street and Main Street.
by David Korten
Wednesday, February 16, 2011 by YES! Magazine

In America we are taught from birth that capitalism is synonymous with markets, democracy, and individual liberty. Whatever its flaws, the only alternative is communism, or so we are told.

This sets up a false and dangerously self-limiting choice between two economic models both of which create concentrations of power that stifle liberty and creativity for all but the few at the top.

Communism is dead. As we now look for solutions to our current economic crisis, the relevant distinction is not between capitalism and communism, but rather between Wall Street and Main Street.

The Wall Street economy is centrally planned and managed by big banks and corporations for which money is both means and end. The primary goal is monopoly control of markets, physical resources, and technology to maximize profits and bonuses.

Main Street economy is comprised of local businesses and working people who self-organize to provide livelihoods for themselves, their families, and their communities producing real goods and services in response to community needs. Main Street exemplifies the market economy envisioned by Adam Smith; Wall Street is the antithesis.

The stronger the relations of mutual trust and caring and the more equitably power is distributed, the more the market becomes self- policing and the less need there is for formal governmental intervention.

Smith believed that people have a natural and appropriate concern for the well-being of others and a duty not to do them harm. He also believed that government has a responsibility to restrain those who fail in this duty.

Smith and the political economists who followed in his tradition developed an elegant theory of the market’s capacity to self-organize in the community interest based on a number of carefully articulated assumptions, including the following:

• Buyers and sellers must be too small to influence the market price and must honor basic principles of honest dealing.
• Income and ownership must be equitably distributed.
• Complete information must be available to all participants, and there can be no trade secrets.
• Sellers must bear the full cost of the products they sell and incorporate it into the sale price.
• Investment capital must remain within national borders, and trade between countries must be balanced.
• Savings must be invested in the creation of productive capital rather than in speculative trading.

These are the characteristics of a real market economy. Wall Street capitalism violates them all.

Capitalism is a term originally coined to refer to an economic and political regime in which the ownership and benefits of capital are appropriated by the few to the exclusion of the many who through their labor make capital productive. It describes Wall Street perfectly.

The “free market,” a code word for an unregulated market, is a contradiction.

Markets work wonderfully within a framework of clear rules and a caring community. The stronger the relations of mutual trust and caring and the more equitably power is distributed, the more the market becomes self-policing and the less need there is for formal governmental intervention. An economy comprised of powerful corporations governed by a culture of greed and a belief that their only legal duty is to maximize their profits requires a strong and intrusive governmental hand to limit the abuse and clean up the messes.

The “free market,” a code word for an unregulated market, is a contradiction. A market without rules facilitates and encourages the unlimited concentration and abuse of corporate power unconstrained by market discipline and democratic accountability.

Market fundamentalists selectively cull bits and pieces of market theory to argue that the public interest is best served when economic power is concentrated in unregulated globe-spanning mega-corporations engaged in monopolizing resources and externalizing costs for short-term financial gain. They distort market theory beyond recognition.

Like cancer cells that attempt to hide from the body’s immune system by masking themselves as healthy cells, Wall Street institutions attempt to conceal themselves from society’s immune system by masquerading as agents of a healthy market economy.

The credit collapse penetrated the facade to reveal the inner workings of Wall Street capitalism as a criminal syndicate engaged in counterfeiting, predatory lending, usury, tax evasion, fraud, and extortion. It may be legal because Wall Street buys the politicians and writes its own rules, but it should be illegal and treated accordingly.

A criminal syndicate is “fixed” by shutting it down through the enforcement of laws that protect the public interest. You “fix” a cancer by removing it and rebuilding the healthy tissue. Main Street is the healthy tissue from a healthy real market economy can be built.

Mr. President: The Fight for the Middle Class Isn't in Washington

by Amy Dean
Monday, January 24, 2011 by Huffington Post

Tuesday night the nation will focus its attention on the president's State of the Union address, looking for solutions to the economic crisis in this country and in their own lives. We can hope to hear President Obama articulate a bold vision for restoring economic security to our nation's middle class. We can also hope that the president challenges members on both sides of the aisle to stop putting politics before the people's prosperity.

However, as the last two years have proven, hope is not enough. Presidential speeches and the hoped for newly moderated rhetoric of the Congress will not suffice to deliver results. Because while we are focused on Washington, Republicans backed by big business interests are undertaking a coordinated attack, rooted at the state level, on middle class employees. This attack could bring the end of the middle class as we have known it.

As the New York Times has reported, Republican legislatures in ten states across the country are pushing "right to work" laws that undermine the ability of employees who vote to join a union to have their choice respected. And even some states with Democratic governors are less focused on creating jobs than adopting measures that scapegoat those in the middle for economic problems caused by those at the top. The Republicans have been very smart tactically by framing the debate around these issues. We can only hope that people will not fall for their misdirection.

At the national level, Republicans will be talking about reducing the deficit and controlling spending. Their arguments are more about rhetoric than real action. Not only do their proposals stand little chance of being enacted, they are two-faced: even while talking about budget cuts, Republicans advocate huge tax cuts for the wealthy and seek to repeal the cost-saving measures and patient protections of health care reform. In truth, their still-heated rhetoric is primarily designed to give Republicans a message to take back into the districts in the next election cycle. We already know what they will be saying in six months or a year: "We tried to save you money, but the Democrats won't let us." The time to start responding to this disingenuous narrative is now.

We must recognize that the national posturing is a smoke screen designed to conceal the real battle, which is happening in the states.

At this very moment, conservatives are prepared with a scapegoat for the economic woes: unions and public employees. They have been very shrewd in using this time of crisis as an opportunity to drive a stake through the heart of the very organizations that have created the American middle class.

Masquerading their proposals as efforts to liberate working people from the yoke of big government, the right is attempting to systematically undermine the institutions that have historically allowed average people to attain a decent standard of living. Rather than seeking to bring everyone up to the standard of living wages and relative economic security that public employees have gained, Republicans are focused on bringing down those few people in our society who still have jobs that afford ordinary people hopes for health care and dignified retirement.

As a result, the campaign for the future of our country is now on. This is not about something as narrow as reelecting Barack Obama in 2012, or about the political future of any individual elected official. It is much bigger than that. We are in the fight of our lives.

So what do we do?

First, we can't focus all of our time and resources on the Congressional debate. The proposals being floated by the Republican House of Representatives make for good grandstanding, but, by and large, they stand no chance of actually being enacted. They are just being used to set the stage for the next election cycle. Therefore, we need to be building our own infrastructure in the districts, not treating local- and state-level politics as something that we can engage in for a few months at the end of each election cycle. We need to begin our conversation with voters in the districts today.

Second, we must make clear that initiatives like wage freezes and "right to work" laws are measures that are handcrafted by the Chamber of Commerce's lobbyists. Big business is pumping huge amounts of money into the effort to attack public employees and scale back regulations, with billionaires like the Koch brothers leading the way. That is who is really behind these drives. The extent to which the right is able to frame their message as a populist one is a measure of our failure to reveal the wealthy financiers backing their agenda.

Republicans frame their proposals as policies that will "get government and unions off your back." But what is actually being created as a result? Time and time again, these policies have not led to "trickle-down" prosperity, but have taken away gains made by average Americans and given them to corporations and those at the very top. By showing the interests that stand behind each side, we must demonstrate who is really the best advocate for Main Street.

Third, we draw a line in the sand with politicians -- and demand that the president lead the way in recognizing the crisis of the middle class. Whether they have a "D" behind their name or not, politicians should not receive one penny from progressives unless they are for increasing standards of living for average people and defending their rights to organize. Unfortunately, since the Clinton years, we have elected leaders who are taking our campaign money on one day and then distancing themselves from employees' organizations and public interest groups the next. These politicians must see that this will no longer fly. They must understand that Main Street is in a fight for its life, and they must act accordingly.

In America, the pot of rampant individualism and neglect of community has been roiling at a low boil for a long time. Ultimately, we must ask as a society: Do we want to be a place where the fire department comes if we have a fire in our homes? Is this a country where you can get care when you're sick, even if you're elderly or lose your job? Is America a place where, regardless of the town or neighborhood you live in, you can send your kids to a decent public school, with qualified professionals teaching our kids? Such things are the reason we agree to pay taxes and contribute to the common good.

At the end of the day, dismantling the government and attacking public servants means undoing these things. The President will articulate his vision in this fight on Tuesday and is even backing up words with actions like the NRLB's steps to protect organizing via majority sign-up. It's outside of Washington where we face the eliminations of people's ability to voluntarily come together in their workplace to have a say in the conditions of their employment. That would mean creating a country that has a huge gulf between the wealthy and everybody else. It means ending middle class America as we have known it. And that is not something we should let happen without a fight.

Perpetual War for Perpetual Employment?

Saturday, January 15, 2011 – by Anthony Wile, the Daily Bell

Here at the Daily Bell, we remain convinced that America's serial wars have continually deepened that great country's economic crisis. And this gives rise to a peculiar dilemma that we don't usually point out, but which will be the purpose of this article. It may even explain the reluctance of the US to leave Afghanistan and to generally disengage from overseas violence.

This is the issue: "How can the US cease its warring when so many people in that beleaguered country depend on conflict for their employment?"

The US unemployment or under-employment rate (the real one) is somewhere between 25 and 30 percent. To reduce or eliminate garrisons in both Iraq and Afghanistan would inject hundreds of thousands of additional individuals into an economy that is struggling to provide employment to available workers. (Not to mention the private-sector "defense" jobs that would be made redundant.) And assuming that the additional workers find jobs; wouldn't they be at substantially lower salaries than their existing military compensations?

(Ed Note: The Daily Bell is aware of "the broken window" fallacy regarding the profitability of war; and this has been a subject of discussion previously. In the long term, war creates nothing but misery and debt. But in the short-term it is indisputable that it can provide a temporary wealth-effect – as well as a diversion – especially if the country in question controls the world's reserve currency. See additional comments in feedback thread below.)

It is certainly easier to get into a war than to get out of one. Of course, here I am referring to the visible wars only, those which comprise millions of Americans who are earning wages that would otherwise not exist and for whom many would find their current skills not in great demand in peacetime.

It appears on surface that the US could not afford this influx of unemployed and any reigning political body would be committing domestic economic suicide should they chose to truly adopt a non-aggressive foreign policy and return America to protecting its own shores rather than spreading "democracy" all over the world. And here clearly we at the Bell believe that is ALL the US military should be doing. And we also believe that would require a personnel effort of much smaller numbers than taxpayers are currently supporting.

Were the US to suffer such an influx of unemployed as a result of adopting a sensible foreign policy rather than acting as the policemen for global morality, it is likely that trade unions and other leftist organizations would demand the existing wages of the military workers be maintained at current levels. Of course Congress would attempt to pass wage support legislation to ensure that standards of living didn't suffer in the new careers sought but to what overall detriment to the value of the dollar?

The bottom line is that the US economy cannot handle a peaceful withdrawal from active combat without causing even further unemployment, not just to those on the front lines but to all the industries who comprise the vertical support network which keeps the whole clock ticking. And for politicos intent on battling an already raging domestic unemployment crises, caused primarily by the country's out-of-control Federal Reserve, it is ironic that the current and future administrations of the US have no way out of this mess.

If the US doesn't stop the spending insanity of supporting multi war fronts, the monetary base will continue to expand and the dollar's value will continue to plunge toward its true nominal worth – which is surely zero, the inevitable graveyard for all fiat currencies. But should America's leaders decide to withdraw, unemployment will surely deepen, perhaps considerably, and the economy will tumble deeper into depression, causing the Fed to inflate even faster – thus sending the dollar to its fiat funeral, anyway.

It is a sad testament that there appears to be no way out: The US dollar and the US economy are in for further suffering whether the wars continue or not. Millions of lives will continue to be disrupted and many more will die to support the borders of empire and the value of an already dead currency.

America's founding fathers knew that war was a terrible venture and one that should only be entered into with utmost's seriousness, in order to defend the very existence of the country itself. By constantly pursuing wars and allowing Congress to abrogate its duty as the final arbitrator, the American powers-that-be have placed the country in a perilous economic condition.

If troops return home, the already weakened economy will suffer further; if the fighting continues, the economy will suffer as well – and most seriously (in part because the US military industrial complex doesn't wish for a reversion to a peacetime economy). Wars are a last resort, and not to be entered into lightly. Leaving aside the moral issues and the terrible loss of life, and looked at from a purely economic perspective (as the elite apparently tends to do) there are no easy answers and plenty of painful days ahead for those unprepared.

Waiting for a New Economic Theory

The Economic Crisis and the State of Economics
By SASAN FAYAZMANESH

Economic theories, for the most part, have emerged in response to particular social situations or governmental policies. For example, Francoise Quesnay’s 18th century Tableau Economique came into being in reaction to the plight of the French peasantry, excessive taxation, and government regulation that followed mercantilist teachings. Adam Smith’s “invisible hand” theory similarly appeared as a response to mercantilist restrictions. It also corresponded to the early stages of the Industrial Revolution, when inventions and innovations made England relatively prosperous. Thomas Robert Malthus’s population and glut theories emerged in the midst of the Industrial Revolution, when migration of peasants to the cities, unemployment, and poverty became rampant. Karl Marx’s version of the labor theory of value was a response to the revolutionary movements in 19th century Europe, as exemplified by the 1848 uprising and the 1871 Paris Commune. John Maynard Keynes’s “general theory” was developed in the midst of the Great Depression and was a response to the laissez faire economics and policies that prevailed at the time.

It is too early to see if the recent economic crisis—which started in the financial sector of the economy and spread to the productive side—will produce any novel theories. What we have seen so far is different economists reciting some old theories and advocating corresponding remedies. This is exemplified by three groups of economists, ranging from the most ardent supporters of laissez faire to those who see no future for capitalism.

The free market advocates still fall back on the marginalist or “neoclassical” theories that have dominated economic teaching since the end of the 19th century (the term “neoclassical” is a misnomer, but it is widely used). This unreal, a-historical theory started not with analyzing any real economy or human behavior, but with certain concepts in mathematical physics. The marginalists’ bizarre point of departure then led to a peculiar concept of the market that the proponents of laissez faire found quite useful. A market in this theory consists of two curves, a supply curve and a demand curve. “Equilibrium price” is where these two curves meet. Left alone, all such markets will self-adjust and bring about the equilibrium price. This holds for the “labor market” as well, where the equilibrium real wage will bring about full employment. It also holds for the so-called capital market, where the interest rate is determined. Given this self-adjusting mechanism, anything that interferes with the market, such as government or central bank intervention, is considered to be undesirable. Government deficit spending merely results in higher interest rates, and monetary policy ends with price changes, particularly inflation, if the money supply increases. In either case, the “real variables,” such as the level of employment or real output of goods and services, remain intact. In this happy, serene world there is never any crisis, especially a monetary crisis. Actually, in such a world there is no need for money, since all variables are real and money is just a “veil.” Also, in this tranquil and trouble-free land there are no classes, no workers no capitalists; there are only consumers and producers, getting along happily ever after.

When the current crisis began and the capitalist world economy appeared to be on the brink of another disaster, the proponents of the neoclassical theory trembled at first. They retreated and abandoned their usual arguments concerning the glory of unfettered markets. However, now that falling into the abyss of another depression appears less likely, they are back to the theories of leaving the market alone, reducing taxes for the captains of industry and finance and cutting spending when it comes to the working class.

At odds with these free marketeers are various shades of economists whose roots can be traced to Keynes. Keynes clearly saw the incompatibility between the neoclassical theories and the real world, particularly during the Great Depression. He criticized certain laissez faire aspects of these theories and ultimately advocated for fiscal and monetary policies. Yet, since he was educated in the same neoclassical school, his criticism of these theories was halfhearted and did not shake the foundation of the school. A few critical notes at the beginning of The General Theory of Employment, Interest and Money (1936) were followed by some theories that were incomplete, underdeveloped and ambiguous. The result was many possible interpretations of his theories and their ultimate subsumption under the “neoclassical synthesis,” a combination of the old-fashioned neoclassical theories, called microeconomics, and Keynesian theories, called macroeconomics. This hodgepodge of theories became, and continues to be, the regular staple of economics students.

The ambiguities and lacunae in The General Theory also allowed for very different policy prescriptions. Take, for example, Keynes’s theory of the “multiplier,” a theory that looks at the stimulating effect of spending, particularly government expenditures, on output and employment. The theory was ambiguous enough when Keynes borrowed it from another economist, R. F. Kahn, but Keynes added to the ambiguity by stating:

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again . . . there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is.

This seemed to imply that it made no difference if government spending was on useful things or wasteful things. Actually, a number of other comments in The General Theory support this indifference. For example, just before the above passage Keynes simply stated: “Pyramid-building, earthquakes, even wars may serve to increase wealth, if the education of our statesmen on the principles of the classical economics stands in the way of anything better.” Such statements made “military Keynesianism,” or warfare, an acceptable form of economic policy. To this day, the followers of Keynes are unclear as to whether going to war is good for the economy and a stimulant or bad for the economy and a drag. Thus, we see some individuals advocating the start of yet another war in the Middle East as a way to rescue the US economy and some opposing the wars already in progress by pointing out their overall costs and how such costs are destroying the economy.

In addition, the silences in The General Theory allowed for the simultaneous existence of different types of Keynesian economists. Even though all such economists agree on the need for fiscal and monetary policy, they do not agree on the limit of such policies and the exact method of pursuing them. For example, liberal Keynesians—such as the “Post-Keynesians” who try to distance themselves from the neoclassical teachings—and conservative Keynesians—such as the “New Keynesians” who are quite eclectic in their theories—are often at odds with one another as to how high the deficit can go or what steps the Federal Reserve System should take. They also disagree over such matters as how much regulation the financial sector of the economy needs. Yet, the squabbles between different types of Keynesians are quarrels within the family. All Keynesians, similar to Keynes, believe in saving capitalism from itself; reform, and not revolution, is their aim.

This brings us to the Marxist economists who, when it comes to solving the ills of the capitalist society, believe in revolution and not just reform. For these economists a little more or a little less deficit spending, or tinkering with the money supply, will not solve the long-term problems of capitalism, particularly when it comes to the current worldwide economic crisis. Neither would the financial woes of the capitalist economy be solved by more regulation.

In their arguments, most Marxist economists fall back on Marx’s mature writings, particularly his Capital, the first volume of which was published in 1867. Setting aside the fact that Marx’s economic project was never finished and that his labor theory of value has always been the subject of controversy, Marx’s work is one of the few economic writings that actually tries to address the issue of economic crises. In Capital there are two major theories of crisis, one cyclical and another secular. The first deals with disproportionality or imbalances between different sectors of the economy, that is, between the sectors that produce “capital goods” and “consumer goods.” Marx’s second theory deals with the tendency for the rate of profit to fall over the long haul. However, neither of these theories explains the current economic crisis. It is, of course, true that in Marx’s theory of capitalist economy money plays a central role in production and could therefore cause crisis at various moments. But, there is no detailed and comprehensive theory of money and credit in his theory that would enable us to deal with modern monetary problems.

Of course, one should not expect theories that were developed in the middle of the 19th century to explain unique economic crises in the 21st century. This is particularly true if one believes, as any good Marxist economist should, that capitalism continuously evolves and poses new problems. Thus, any theory trying to explain an evolving economy must itself evolve and grow. That, however, does not appear to be the case when it comes to Marxian economics. Very little has changed in this field since Marx wrote his Capital, as is evident from various books that have been recently published by Marxist economists, as well as the discussions and debates that are going on between these economists.

There is another major problem with the application of Marx’s theory to the recent economic crisis. Given the period in which it was written, Marx’s Capital was not about reform, but was about revolution, a socialist revolution. The work was meant to sound the death knell of “capitalist private property,” the expropriation of “expropriators.” And the sound was supposed to be heard in the most advanced capitalist country, where forces of production had grown so much that they were no longer compatible with the relations of production. Presumably, this would have been England, where the workers would have established the first socialist economy. What a socialist economy might look like, however, was never delineated by Marx beyond a short and vague sketch in the Gotha Program written in 1875. Such a revolution never happened, and a socialist society was never established (setting aside, of course, the Russian Revolution of 1917, when in a relatively less developed country some revolutionary intellectuals, in the name of workers, came to power and presumably established “state capitalism”).

Nearly a century and a half later, there is no sign of workers’ uprisings in any part of the globe, particularly in advanced capitalist countries. We also have no idea, beyond that discussed in the Gotha Program, what a socialist society might look like. Thus, waiting for the working class to rise, put an end to a chronically sick social system, and establish a new order does not appear to be feasible in the near future, unless one has a strong set of religious beliefs, as some “Marxists” do.

What is to be done? Should we leave the markets alone, as marginalist economists argue, even though we know that their two-curve markets have never existed and, historically, when markets were left alone they always fell into crisis? Or should we rely on increasing budget deficit and easy money policy to get us out of the present economic conundrum, as Keynesians advocate? In the latter case, which Keynesians should we listen to and why, knowing full well that none of the renowned Keynesians of our time predicted the 2008 crisis that brought the US economy to the brink of depression? Or should we wait and hope for workers’ uprisings to end the ills of the capitalist economy once and for all, as some Marxist economists are still hoping for, even though there are no signs of such uprisings anywhere in the world?

It seems that none of the prevailing economic theories provide a viable option for understanding and dealing with the current economic woes. Looking back at the history of economic thought and emergence of new theories at particular historical conjunctions, one can only hope that the current worldwide economic slump will generate new ways of thinking and new theories.

A Recipe for Fascism

American politics, as the midterm elections demonstrated, have descended into the irrational.
By Chris Hedges, Truthdig
Posted on November 10, 2010

American politics, as the midterm elections demonstrated, have descended into the irrational. On one side stands a corrupt liberal class, bereft of ideas and unable to respond coherently to the collapse of the global economy, the dismantling of our manufacturing sector and the deadly assault on the ecosystem. On the other side stands a mass of increasingly bitter people whose alienation, desperation and rage fuel emotionally driven and incoherent political agendas. It is a recipe for fascism.

More than half of those identified in a poll by the Republican-leaning Rasmussen Reports as “mainstream Americans” now view the tea party favorably. The other half, still grounded in a reality-based world, is passive and apathetic. The liberal class wastes its energy imploring Barack Obama and the Democrats to promote sane measures including job creation programs, regulation as well as criminal proceedings against the financial industry, and an end to our permanent war economy. Those who view the tea party favorably want to tear the governmental edifice down, with the odd exception of the military and the security state, accelerating our plunge into a nation of masters and serfs. The corporate state, unchallenged, continues to turn everything, including human beings and the natural world, into commodities to exploit until exhaustion or collapse.

All sides of the political equation are lackeys for Wall Street. They sanction, through continued deregulation, massive corporate profits and the obscene compensation and bonuses for corporate managers. Most of that money—hundreds of billions of dollars—is funneled upward from the U.S. Treasury. The Sarah Palins and the Glenn Becks use hatred as a mobilizing passion to get the masses, fearful and angry, to call for their own enslavement as well as to deny uncomfortable truths, including global warming. Our dispossessed working class and beleaguered middle class are vulnerable to this manipulation because they can no longer bear the chaos and uncertainty that come with impoverishment, hopelessness and loss of control. They have retreated into a world of illusion, one peddled by right-wing demagogues, which offers a reassuring emotional consistency. This consistency appears to protect them from the turmoil in which they have been forced to live. The propaganda of a Palin or a Beck may insult common sense, but, for a growing number of Americans, common sense has lost its validity.

The liberal class, which remains rooted in a world of fact, rationalizes placating corporate power as the only practical response. It understands the systems of corporate power. It knows the limitations and parameters. And it works within them. The result, however, is the same. The entire spectrum of the political landscape collaborates in the strangulation of our disenfranchised working class, the eroding of state power, the criminal activity of the financial class and the paralysis of our political process.

Commerce cannot be the sole guide of human behavior. This utopian fantasy, embraced by the tea party as well as the liberal elite, defies 3,000 years of economic history. It is a chimera. This ideology has been used to justify the disempowerment of the working class, destroy our manufacturing capacity, and ruthlessly gut social programs that once protected and educated the working and middle class. It has obliterated the traditional liberal notion that societies should be configured around the common good. All social and cultural values are now sacrificed before the altar of the marketplace.

The failure to question the utopian assumptions of globalization has left us in an intellectual vacuum. Regulations, which we have dismantled, were the bulwarks that prevented unobstructed brutality and pillaging by the powerful and protected democracy. It was a heavily regulated economy, as well as labor unions and robust liberal institutions, which made the American working class the envy of the industrialized world. And it was the loss of those unions, along with a failure to protect our manufacturing, which transformed this working class into a permanent underclass clinging to part-time or poorly paid jobs without protection or benefits.

The “inevitability” of globalization has permitted huge pockets of the country to be abandoned economically. It has left tens of millions of Americans in economic ruin. Private charity is now supposed to feed and house the newly minted poor, a job that once, the old liberal class argued, belonged to the government. As John Ralston Saul in “The Collapse of Globalization” points out, “the role of charity should be to fill the cracks of society, the imaginative edges, to go where the public good hasn’t yet focused or can’t. Dealing with poverty is the basic responsibility of the state.” But the state no longer has the interest or the resources to protect us. And the next target slated for elimination is Social Security.

That human society has an ethical foundation that must be maintained by citizens and the state is an anathema to utopian ideologues of all shades. They always demand that we sacrifice human beings for a distant goal. The propagandists of globalization—from Lawrence Summers to Francis Fukuyama to Thomas Friedman—do for globalization and the free market what Vladimir Lenin and Leon Trotsky did for Marxism. They sell us a dream. These elite interpreters of globalism are the vanguard, the elect, the prophets, who alone grasp a great absolute truth and have the right to impose this truth on a captive people no matter what the cost. Human suffering is dismissed as the price to be paid for the coming paradise. The response of these propagandists to the death rattles around them is to continue to speak in globalization’s empty rhetoric and use state resources to service a dead system. They lack the vision to offer any alternative. They can function only as systems managers. They will hollow out the state to sustain a casino capitalism that is doomed to fail. And what they offer as a solution is as irrational as the visions of a Christian America harbored by many within the tea party.

We are ruled by huge corporate monopolies that replicate the political and economic power, on a vastly expanded scale, of the old trading companies of the 17th and 18th centuries. Wal-Mart’s gross annual revenues of $250 billion are greater than those of most small nation-states. The political theater funded by the corporate state is composed of hypocritical and impotent liberals, the traditional moneyed elite, and a disenfranchised and angry underclass that is being encouraged to lash out at the bankrupt liberal institutions and the government that once protected them. The tea party rabble, to placate their anger, will also be encouraged by their puppet masters to attack helpless minorities, from immigrants to Muslims to homosexuals. All these political courtiers, however, serve the interests of the corporate state and the utopian ideology of globalism. Our social and political ethic can be summed up in the mantra let the market decide. Greed is good.

The old left—the Wobblies, the Congress of Industrial Workers (CIO), the Socialist and Communist parties, the fiercely independent publications such as Appeal to Reason and The Masses—would have known what to do with the rage of our dispossessed. It used anger at injustice, corporate greed and state repression to mobilize Americans to terrify the power elite on the eve of World War I. This was the time when socialism was not a dirty word in America but a promise embraced by millions who hoped to create a world where everyone would have a chance. The steady destruction of the movements of the left was carefully orchestrated. They fell victim to a mixture of sophisticated forms of government and corporate propaganda, especially during the witch hunts for communists, and overt repression. Their disappearance means we lack the vocabulary of class warfare and the militant organizations, including an independent press, with which to fight back.

We believe, like the Spaniards in the 16th century who pillaged Latin America for gold and silver, that money, usually the product of making and trading goods, is real. The Spanish empire, once the money ran out and it no longer produced anything worth buying, went up in smoke. Today’s use in the United States of some $12 trillion in government funds to refinance our class of speculators is a similar form of self-deception. Money markets are still treated, despite the collapse of the global economy, as a legitimate source of trade and wealth creation. The destructive power of financial bubbles, as well as the danger of an unchecked elite, was discovered in ancient Athens and detailed more than a century ago in Emile Zola’s novel “Money.” But we seem determined to find out this self-destructive force for ourselves. And when the second collapse comes, as come it must, we will revisit wrenching economic and political tragedies forgotten in the mists of history.

Third world America

Sep 14, 2010 by Luiza Ch. Savage

In February, the board of commissioners of Ohio’s Ashtabula County faced a scene familiar to local governments across America: a budget shortfall. They began to cut spending and reduced the sheriff’s budget by 20 per cent. A law enforcement agency staff that only a few years ago numbered 112, and had subsequently been pared down to 70, was cut again to 49 people and just one squad car for a county of 1,900 sq. km along the shore of Lake Erie. The sheriff’s department adapted. “We have no patrol units. There is no one on the streets. We respond to only crimes in progress. We don’t respond to property crimes,” deputy sheriff Ron Fenton told Maclean’s. The county once had a “very proactive” detective division in narcotics. Now, there is no detective division. “We are down to one evidence officer and he just runs the evidence room in case someone wants to claim property,” said Fenton. “People are getting property stolen, their houses broken into, and there is no one investigating. We are basically just writing up a report for the insurance company.”

If a county without police seems like a weird throwback to an earlier, frontier-like moment in American history, it is not the only one. “Back to the Stone Age” is the name of a seminar organized in March by civil engineers at Indiana’s Purdue University for local county supervisors interested in saving money by breaking up paved roads and turning them back to gravel. While only some paved roads in the state have been broken up, “There are a substantial number of conversations going on,” John Habermann, who manages a program at Purdue that helps local governments take care of infrastructure, told Maclean’s. “We presented a lot of talking points so that the county supervisors can talk logically back to elected officials when the question is posed,” he said. The state of Michigan had similar conversations. It has converted at least 50 miles of paved road to gravel in the last few years.

Welcome to the ground level of America’s economic crisis. The U.S. unemployment rate is 9.5 per cent. One in 10 homeowners are behind on their mortgage payments. Home sales are at record lows. While the economy has been growing for several quarters, the growth is anemic—only 1.6 per cent in the second quarter of this year—and producing few new jobs.

Even with interest rates at unprecedented lows, there is anxiety about the possibility of a double-dip recession. Sales of existing homes are at their lowest level in 15 years, and new home sales plummeted this summer to the lowest levels on record. Property and sales tax revenues have shrunk. And nowhere is this more apparent than at the local government level, where officials are being forced to roll back the everyday hallmarks of modern civilization.

Cincinnati, Ohio, is cutting back on trash collection and snow removal and filling fewer potholes.

The city of Dallas is not picking up litter in public parks. Flint, Mich., laid off 23 of 88 firefighters and closed two fire stations. In some places it’s almost literally the dark ages: the city of Shelton in Washington state decided to follow the example of numerous other localities and last week turned off 114 of its 860 street lights. Others have axed bus service and cut back on library hours. Class sizes are being increased and teachers are being laid off. School districts around the country are cutting the school day or the school week or the school year—effectively furloughing students. The National Association of Counties estimates that local governments will eliminate roughly half a million employees in the next fiscal year, with public safety, public works, public health, social services, and parks and recreation hardest hit by the cutbacks. A July survey by the association of counties, the National League of Cities, and the U.S. Conference of Mayors of 270 local governments found that 63 per cent of localities are cutting back on public safety and 60 per cent are cutting public works.

In August, the U.S. Congress passed a US$26-billion stimulus extension bill, aimed in part at saving teacher jobs. But it’s a finger in the dike. Jacqueline Byers, director of research for the counties association, said many local governments have yet to confront the full impact of the real estate crisis on government revenues because they do tax assessments only every third year. A fundamental transformation is under way. “When we come out of this recession we’re going to see government functioning very differently,” says Byers. “We are seeing more public-private partnership than we ever had for things like recreation and parks. We are seeing some of them privatize libraries. They lease the library to a private corporation that employs the workers who don’t carry retirement or health benefits.” Or they could wind up like Hood River County, Ore., which in August closed its three libraries altogether.

Some governments are looking for creative ways to replace plummeting property and sales tax revenues. Facing a US$1-billion budget shortfall, Montgomery County in Maryland appealed for corporate sponsors to step up and adopt porta-potties in its public parks. In the end, the privies were saved by a combination of park employees taking early retirement, a few private sponsorships, and a negotiated discount from the supplier, Don’s Johns. Meanwhile, Montgomery County’s school system, banking on its reputation for high standards and test scores, took the unusual step of selling its curriculum to a private textbook publisher, Pearson, for US$2.3 million and royalties of up to three per cent on sales. As part of the deal, county classrooms can be used as “showrooms”—which critics said effectively turns students and teachers into salesmen for a corporation. But the superintendent, Jerry Weast, told the Washington Post, “I tend to look at this from the perspective that we are broke.”

These cuts in infrastructure and education are more than just a temporary belt-tightening in response to a recession. They threaten long-term damage to American’s economic foundation—a foundation that has long been eroding. When the eight-lane Interstate 35 bridge collapsed in Minneapolis in 2009, killing 13 people and injuring 145, the American Society of Civil Engineers warned that the infrastructure deficit of aging postwar highways and bridges amounted to US$1.6 trillion. More than a quarter of America’s bridges were rated structurally deficient or functionally obsolete. Steam pipes have exploded in New York City and the levees failed in New Orleans.

Despite its position as the world’s unrivalled superpower, international comparisons show the U.S. slipping on a number of fronts. On education, the United States has been falling behind, in everything from science and engineering to basic literacy. The U.S. once had the world’s highest proportion of young adults with post-secondary degrees; now it ranks 12th, according to the College Board, an association of education institutions. (Canada is now number one.) In 2001, the U.S. ranked fourth in the world in per capita broadband Internet use; it now ranks 15th out of 30 nations, according to the Organisation for Economic Co-operation and Development. “We have been involved for three decades now in paring back public commitments and public spending, and that started with the Reagan revolution. We are living with the outcomes and consequences,” says Michael Bernstein, an economic historian at Tulane University in New Orleans.

Meanwhile, prolonged rates of high unemployment are taking a toll on families today, and will for years to come. Studies have shown that the longer a person is unemployed, the more difficult it is to find a job—partly because skills deteriorate, and partly because employers become suspicious of why someone hasn’t worked for a year. “The United States is expanding its underclass of a whole group of individuals who will become less employable, less integrated, more subject to criminal and other deviant behaviour—and probably become part of the larger problem of structural poverty in America as well,” says Sherle Shenninger, director of the economic growth program at the New America Foundation, a Washington think tank.

Arianna Huffington sees an even starker big picture emerging from the reams of bad economic news. “As we watch the middle class crumbling, for me this is a major indication that we are turning into a Third World country,” said Huffington, founder of the Huffington Post, in an interview. “The distinguishing characteristic of the Third World country is you have the people at the top and the rest—you don’t have a thriving middle class,” says Huffington, whose new book is entitled Third World America: How Our Politicians Are Abandoning the Middle Class and Betraying the American Dream.

America is moving “from the Jetsons to the Flintstones,” she argues. “The American dream was already based on the idea you could work hard and do well and your children will do better. Now we are confronted with downward mobility across the board. You have the phenomenon of unprecedented numbers of college grads who can’t get jobs.” The current public sector cutbacks in education and infrastructure will only make things worse, Huffington says. “You are both hurting people in the present, and basically undercutting your economic growth and prosperity in the future.”

But the problem isn’t simply a product of the current recession or the 2008 financial crisis. It is now well understood that for years Americans lived beyond their means on borrowed money.

The real estate bubble enabled many homeowners to borrow against inflated house prices, giving families the feeling that their wealth was increasing. It was all a mirage. Low interest rates and easy credit allowed consumers to spend enthusiastically, masking the fact that the standard of living and incomes were stagnating, and public and private investment was lagging.

Over the past decade, private sector job growth was sluggish. Combined with recession job losses, there are now only as many private sector jobs as there were in early 1999, a decade ago, while the population continues to grow. And incomes stagnated for a full decade—the longest such period since the U.S. Census Bureau has been keeping track of household income.

“There is certainly a serious erosion of both the American social contract and the American dream for a great majority of Americans,” says Shenninger. “There is a worrying trend that the private sector has not been able to generate jobs for now more than a decade.”

While business productivity increased—workers created more output per hour of work—that did not follow the traditional model of translating into higher wages. “Eighty to 90 per cent of productivity gains went to corporate profitability—which means that in order to make up for the gap in demand, working families resorted to relying on rising housing prices and debt,” says Shenninger. Workers lost the ability to bargain for wage increases as they competed with lower-wage workers in Europe, Asia and other emerging markets. Meanwhile, corporate earnings exploded.

Clyde Prestowitz, a former Reagan administration trade official and president of the Economic Strategy Institute, says the scope of the problem came into focus for him one day last year when he read, in the same newspaper, that China was launching a new 240-mile-an-hour high-speed train, and then an article about city leaders in Pittsburgh considering a tax on university tuitions in order to fund the municipal employees’ retirement pension plan. “I thought, the Chinese are building world-record trains and we’re taxing kids who go to school!” says Prestowitz. “We’ve been in decline for quite some time—we haven’t recognized it and have been fooling ourselves. But we’ve gotten to the point it’s hard to not see.”

There are numerous theories about the path America took to get where it is. Prestowitz blames the American approach to trade and globalization. A former trade negotiator who worked on NAFTA and advised Ronald Reagan’s commerce secretary, he argues that at the root of the problem is a long-term American naïveté about global trade, a case he makes in his book The Betrayal of American Prosperity.

American jobs are being lost not only to low-wage competition from emerging economies, but to strategic policies by foreign governments to dominate critical sectors of the economy, or to keep their currency values low to promote exports. “Other countries recognize the importance of economies of scale and promote the development of certain industries, whether solar panels, or semiconductors, and we don’t,” says Prestowitz.

High-tech plants and research labs of companies such as Intel, Applied Materials, General Electric and BP have been moving to China because the Chinese are offering subsidies in the form of free energy, free infrastructure, reduced taxes and discounted utilities. Prestowitz made the argument earlier this year to a meeting of White House economists who were debating the administration’s funding for alternative energies such as battery technologies. “My position was, if you spend all this money and not do anything about currency manipulation by China, South Korea, Singapore, Taiwan, Malaysia, Thailand, if you don’t do anything about the investment incentives being offered to companies like Applied Materials, if you don’t deal with all those things and just give money to some battery company—forget it, that’s money down the rathole.”

Prestowitz accuses successive American administrations of sacrificing trade issues to geopolitics. “The highest priority for the U.S. government is national security. We need a base somewhere or a vote at the UN, and we make an economic concession,” he says. Exhibit A: “The Obama administration has bent over backwards to avoid calling China a currency manipulator,” he noted.

Huffington blames politicians’ domestic economic policies: first, Republicans for tax cuts and deregulation that favoured top earners and corporations, and now Democrats for failing to undo the damage. As a candidate, Barack Obama accused George W. Bush of ignoring the middle class, she notes. But now Huffington criticizes Obama for campaigning on prioritizing the middle class and then failing to do so in the White House. “What happened is he picked an economic team whose primary focus has been Wall Street and who dramatically underestimated the depth of the crisis,” she says. “The emphasis has been on fixing Wall Street, which was bailed out without any strings attached, and which turned around and cut lending instead of lend more.”

Shenninger points in part to foreign policy: waging expensive wars overseas rather than spending the money at home. “Our priorities are horribly distorted,” he says. “We spent billions on new energy plants in Iraq and most of the money got siphoned off. We are spending billions of dollars trying to build schools in Afghanistan. But we are not willing to borrow at historically low rates to keep teachers at work or improve public infrastructure at home.”

Whatever the causes, the way out is not clear. While some critics are calling for a major program of reinvestment in public infrastructure and reviving parts of the U.S. manufacturing base, the politics do not favour it. In a speech in Milwaukee on Monday, Obama asked Congress to pass a US$50-billion infrastructure spending program to refurbish roads, runways and railways. But concerns about government deficits among Republicans and some Democrats make it unlikely that any large spending package could pass Congress—especially after the gains the GOP is widely expected to make in the mid-term elections on Nov. 2.

Republicans are calling for aggressive spending cuts. When Democrats pushed through their spending bill for local governments, Republicans called it a “bailout” of profligate local governments that overindulged public sector unions with generous salaries and benefits. House Republican whip Eric Cantor called Obama’s latest call for infrastructure spending “another play called from the same failed Keynesian playbook,” adding, “We need to cut spending immediately and end the environment of uncertainty that continues to impede real private-sector job creation and growth.” The GOP members on the House budget committee have identified US$1.3 trillion in potential cuts to federal spending. House minority leader John Boehner calls federal spending “a job killing agenda.” “ We have to remember that, even when spending is not at record-setting levels, each dollar the government collects is taken directly out of the private sector,” Boehner said in a recent economic speech. He added: “I’m not afraid to tell you there’s no money left. In fact, we’re broke.”

But where does that leave people like the good citizens of Ashtabula County, Ohio? How can they be safe from criminals without a fully staffed local police force, TV station WKYC asked a local judge in April. “Arm yourselves,” came the reply from Ashtabula County Common Pleas Judge Alfred Mackey. “Be very careful, be vigilant, get in touch with your neighbors, because we’re going to have to look after each other.”

And so they did. In July, a group of farmers removed the safeties from their shotgun triggers and surrounded a trailer in which a suspected house robber was hiding while they waited for the county’s last, lone squad car to arrive.