The Secret of the Weak Recovery: We Had a Fucking Housing Bubble with Nothing to Fill the Gap It Created

Monday, May 6, 2013 by Beat the Press / CEPR
by Dean Baker

The problem with economics is not that it's too complicated; the problem is that it's too damn simple. This problem is amply demonstrated by all the heroic efforts made by economists to explain the weakness of the current recovery.

We've had economists tell us that the problem is that we are now a service sector economy rather than a manufacturing economy. The story is that inventory fluctuations explain much of the cycle. Since we don't inventory services, we will have a slower bounceback in terms of production and employment. (There is a simple problem, since we don't inventory services, the downturn should also be less severe in a service dominated economy. How does this story fit with the worst downturn since the Great Depression?)

We've also been told that the problem is underwater homeowners who can't spend like the good old days because they are underwater in their mortgages. The problem with this one is that we only have around 10 million underwater homeowners, the vast majority of whom have relatively modest incomes. The emphasis is on "only" because, while 10 million is a lot of people to be underwater, it is not a lot of people to move the economy.

The median income for homeowners is $70,000. (Median is probably appropriate here rather than average, since it is unlikely that many wealthy people are underwater.) Suppose that being above water would increase consumption by each of these homeowners by $5,000 a year. This is a huge jump in consumption for people with income of $70k. (Do we think these homeowners are saving an average of $5,000 a year now?) This would lead to an increase in annual consumption of $50 billion a year or less than 0.3 percent of GDP. This would be a nice boost to output, but it would not qualitatively change the nature of the recovery.

Today we have Robert Samuelson telling us that the reason employers are not hiring is uncertainty:

"Businesses have become more risk-averse. They’re more reluctant to hire. They’ve raised standards. For many reasons, they’ve become more demanding and discriminating. These reasons could include (a) doubts about the recovery; (b) government policies raising labor costs (example: the Affordable Care Act’s insurance mandates); (c) unwillingness to pay for training; and (d) fear of squeezed profits."

Hmmm, they're worried about squeezed profits when the profit share of income is at its highest level in more than 60 years? The story of the Affordable Care Act raising costs could at best only explain the behavior of a small group of businesses (firms with close to 50 employees who do not currently provide health care insurance).

But there is a simple way to test the idea that firms would otherwise be hiring but are deterred due to uncertainty about the future: look at the length of workweeks. The logic is simple; increasing hours per worker and hiring more workers are alternative ways to meeting increased demand for labor. Adding work hours involves none of the commitments that apply to hiring addtional workers. If uncertainty, as opposed to lack of demand, is keeping businesses from hiring, then we should be seeing a big increase in the length of the average workweek.

We don't. The length of the average workweek fell by 0.2 hours to 34.4 hours in April. This compares to an average of more than 34.5 hours in the 2006 and 2007. In short there is no evidence that employers are seeing the sort of demand that would justify increasing the size of the workforce but are being kept from doing so because of the concerns raised by Samuelson.

If none of these stories, or any of the others that economists develop to stay employed, explain the length of the downturn, what does? Well, it's pretty damn simple, we had a housing bubble driving the economy before the collapse and there is nothing to fill the gap created. The bubble led residential construction to soar to more than 6.0 percent of GDP at the peak of the boom in 2005. It is now a bit over 2 percent of GDP implying a loss in annual demand of more than $600 billion. The $8 trillion in housing wealth created by the bubble led the saving rate to fall to almost zero due to the housing wealth effect (people increase annual spending by 5-7 cents for each dollar in housing wealth). With the saving rate hovering near 4 percent, we have lost close to $400 billion in annual consumption demand.

The cumulative loss of annual demand is more than $1 trillion. What did we think would replace this demand? Investment in equipment and software is actually close to its pre-recession level measured as a share of GDP. Furthermore, this component of investment has never been a much larger share of GDP, even in the Internet bubble years. Why would anyone expect it to expand rapidly at a time when many firms still have large amounts of excess capacity? (Structure investment is depressed because there was a bubble in non-residential construction as well, leading to large amounts of excess capacity in most areas of non-residential construction.)

Do we somehow think that consumers will spend at the same rate after they have lost $8 trillion in housing wealth as when they had this wealth? Why? Net exports could fill the gap, but the dollar has to fall. Net exports could fill the gap, but the dollar has to fall. (I repeated that one in case any economists are reading.) The value of the dollar is the main determinant of our trade deficit, if we want a lower deficit then we will need a sharp decline in the dollar, which has not happened.

This only leaves the government sector to fill the gap with deficits, which our Serious People types have demanded that we hold down. So, based on the good old intro econo that tens of millions have been subjected to, we know that this recovery will be slow and weak. We simply lack a component of demand to fill the gap created by the housing bubble.
If it seems absurd that economists can't see something this simple, readers should realize that this is a common problem. Just last Friday Robert Samuelson had a useful column that pointed out the huge imbalances that persist in the euro zone and pointed out that the region's crisis is far from over. While he is exactly right, the amazing part of the story is that competent economists somehow did not see these imbalances developing.

As I pointed out, several of the current crisis countries already had incredible trade deficits long before the crash as the world's leading economists were celebrating the "Great Moderation."

Current Account Balance as a Percent of GDP

Country	2003	2004	2005	2006	2007	2008
Greece	-6.533	-5.785	-7.637	-11.388	-14.609	-14.922
Portugal	-6.433	-8.327	-10.323	-10.685	-10.102	-12.638
Spain	-3.508	-5.248	-7.353	-8.961	-9.995	-9.623

                                           Source: International Monetary Fund.


How did the folks at the European Central Bank think that these deficits would fall to a sustainable level without some sort of disastrous crisis? This one should have been simple, but the world's leading economists all missed it.

I recall back in the 1990s and the last decade when both Republican and Democratic economists wanted to invest Social Security funds in the stock market. (Democrats generally wanted to invest the fund collectively rather through individual accounts.) I tried to point out that both were assuming impossible rates of return given the fact that the stock market was at price to earnings ratios that were far higher than historic averages.

When this issue was highlighted in the debate over President Bush's privatization plan (see the No Economist Left Behind test) Brad DeLong suggested that we do a paper on it for Brookings conference. I didn't think that this simple arithmetic could warrant a Brookings paper, even though the issue was hugely important. To get it in Brad (along with Paul Krugman) added a model of optimal consumption paths given a declining rate of labor force growth. While the model was fine, it had nothing to do with the basic issue that the stock market was over-valued at the time that people were thinking of investing workers' Social Security money in it. The model did add sufficient complexity so that we get the Brookings crew to take the simple argument seriously.

The same story held during the housing bubble years. I had many people ask me why I didn't publish anything in journals on the bubble in the years 2002-2007 when I was writing for CEPR's website and popular publications. The reason is that it was too simple a story for any serious journal.

The basic story was that house prices had diverged sharply from their long-term trend and there was no plausible story rooted in the fundamentals of the housing market that could explain this divergence. While this was certainly compelling in my view, the American Economic Review is not going to publish an article that shows house prices just keeping pace with inflation for 100 years and then suddenly rising by 70 percent in real terms from 1996-2006. It would be necessary to somehow make the story complicated to get economists to take it seriously.

To my view this is the fundamental problem of economics. There is a need to find ways to make economic issues complex even when they can be explained by the simple economics that we teach in econ 101. This is not a pretty picture.

Libor Fraud Systemic: Entire Economy based on Fraud says Frmr Reagan Asst SecTreas.Paul C. Roberts

The economy is based on fraud, and another bigger, much worse collapse is inevitable. Eye opening stuff.--jef

About Dr. Paul Craig Roberts

Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy for the Reagan administration and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following.

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Getting Wall Street Off of Main Street
Shrinking Wall Street
by MOSHE ADLER

If you want to make Adam Smith, the founder of economics, and George Stigler, the Nobel Prize winning economist, spin in their graves, say the words “LIBOR scandal.”  LIBOR – London Interbank Offered Rate — is, as everyone learned this past week, the benchmark interest rate that members of the British Bankers Association collude to set. In 1776, in The Wealth of Nations, Smith wrote “[p]eople of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”  Smith would have banned the British Bankers Association altogether. But almost 250 years later, what does the Bank of England, do?  It blesses the collusion by “supervising” it.

Why would George Stigler spin in his grave?  Because to him, the LIBOR “scandal” would be nothing but regulation as usual.  It is routine for regulators to be captured by the executives of the industry they regulate, Stigler explained in his article “The Theory of Economic Regulation.”  The benefits from regulator malfeasance are concentrated on a small group of individuals–the executives of the industry–whereas the costs of such  malfeasance are diffused among tens and hundreds of millions of members of the public.   Because the executives have a huge monetary incentive to prevent the regulator from doing his or her job, they are willing to invest large amounts to get what they want.  LIBOR is just the latest example of Stigler’s theory at work.

The Bankers Association and LIBOR should never have been permitted to exist to begin with.  What did Timothy Geithner do in 2008 when, as the head of the Federal Reserve Bank of New York, he discovered that to improve their profits the banks were setting the benchmark at levels that did not reflect market forces?   Here was an opportunity to ban the Bankers Association and end LIBOR, but instead Geithner wrote a private letter to the Bank of England asking it to establish “procedures designed to prevent accidental or  deliberate misreporting.”  Certainly his discretion was a good career move; it’s hard to imagine that a whistleblower could have gone on to serve as Secretary of the Treasury.

Reforms of the regulations of the financial industry fail one after the next, and bankers continue to rob their clients and to destabilize the economy. So what can be done about Wall Street?

The most remarkable thing about Wall Street is that while it flourishes, working people wither.  How can this be?  The reason for this is the near-zero-interest-rates policy of Ben Bernanke, the chairman of the Fed.  A five year Certificate of Deposit pays now on average less than 1% a year and that has made it impossible for savers to save, except by putting their savings into stocks; this is why the prices of stocks are high.  The ones who benefit from these high prices the most are the executives, because they use these  bloated stock prices to justify their outlandish “compensation.”  As social policy, however, forcing people to buy stocks has no justification.

When individuals buy stocks it is called “investing,” but this is a misnomer, because people are not buying investment goods (e.g., machines, structures, intermediate goods, etc.).  Their trades with the people who sell them stocks are zero-sum games, not economic investments.  The correct policy would be to channel savings toward economic investment, both private and public.  In order to accomplish this, the government should take two steps.  First, it should pay on its bonds an interest rate that, after correcting for inflation, is equal to the average long term growth of real GDP per capita.  What is this rate?  In the years 2001-2010 the average rate of real growth of the economy was only .62%. But that decade saw the bursting of two bubbles, first the dot com bubble, in 2000, and then the subprime bubble, in 2007.  The real growth rate of 2% a year that existed from 1970 to 2000 is a better estimate of the long term growth rate, and the government should pay this rate (in real terms) on its bonds.  (Under this formula a five year bond that was issued in May 2009 would have paid 4% in May 2010, 5.5% in May 2011 and 3.8% in May 2012.)  In order to attract customers away from government bonds to their own CDs and bonds, banks and corporations would have to offer similar or even better terms to savers. And in order to be able to make money themselves, the banks and the corporations would have to finance investments that earn even higher returns still. Furthermore, only deposits that finance real economic investment should be insured by the government.  This will prevent banks from using regular deposits for mergers and acquisitions.  Savers and banks would, of course, be free to trade in stocks, but they would have to do so without government subsidies.

There is an additional step the government should take.  Because the trading of stocks is a zero-sum-game rather than true economic investment, the government should further discourage it by ending the tax deferment to retirement plans (401k) that “invest” in the  stock market instead of channeling that money to government bonds or certificates of deposit.

But what does all of this have to do with the regulation of Wall Street?  First, when savers are no longer forced to give their money to gambles in stocks, the share of the public that has a stake in Wall Street will be far smaller.  And when Wall Street no longer has captive clients, it will have to become more transparent and behave more honestly. Consumers will thus become the regulators.  Even a new, weaker and therefore more honest, Wall Street would still have to be regulated, and this regulation would still have the challenges that Stigler identified. But the damage from the regulatory failures that are sure to continue would be miniscule in comparison to those we have now.  Best of all, a weaker Wall Street would mean stronger investments, both private and public, lower executive “compensation,” and, as a result, as much healthier economy for the rest of us.

The Neoliberal Hoax

A Great Disruptive Force

by ROBERT HUNZIKER

 

Neoliberalism is the most powerful force in economic history; like a black hole in deep outer space, it consumes everything.

The great prophets of neoliberal economic policies like Milton Friedman claim economic freedom is a necessary condition for political freedom, but world events are not cooperating. In fact, neoliberalism may be a better door opener for totalitarian impulses than for democratic spirits.

As a matter of fact, it appears neoliberalism is a breeding ground for totalitarian tendencies, not free will and democracy. Nevertheless, the world community has embraced neoliberalism with gusto. There are examples, like Hong Kong (one of Friedman’s favorites), where economic behavior has proven quite extraordinary, especially for the top 10%-20%, but a United Nations Development Report ranks Hong Kong number one amongst the world’s most developed economies for income inequality, which continues to widen and grow. HK is ruled with an iron fist by a Chief Executive (Sir Donald Tsang), who is not popularly elected… not exactly Friedman’s formula for economic freedom opening the door to political freedom.

Neoliberalism’s ascendancy, according to The Crisis of Neoliberalism(Harvard University Press, 2011) by Dumenil Gerard, as a new stage of capitalism since the 1970s expresses the strategy of the capitalist classes in alliance with financial managers to establish their hegemony and expand it globally. In this regard, Dumenil goes on to state: This strategy has been successful based upon the income and wealth of a privileged minority gaining political dominance. Again, not exactly what Freidman had in mind… or did he?

With the advent of instantaneous global communications and universal acceptance, neoliberalism blazes thru the global economy like omnipotent robots programmed to seek out profits.  Meanwhile, obsequious humans are conceptually baffled within pre-conceived notions of political-socio-economic democratic nation-states. In truth, the modern democratic nation-state is passé, out of touch.

Meanwhile, the invisible hand of the free market is in the vanguard prompted by neoliberal guidance to gain profits at any costs cascading over individual human rights and collectivist politics, resulting in an ever-tighter concentration of wealth and political power. How else account for a U.S. presidential election requiring hundreds of millions of dollars? The very fact that candidates spend hundreds of millions seeking public office is clear evidence that democracy is a failed institution. Nothing more need be stated… end of story.

There is no better example of neoliberalism’s abject failure to bring in its wake political renaissance than China because, based upon the economic determinist viewpoint, the consequences of economics are supposed to dictate politics and life’s patterns, fostering the predominate view among U.S. economists that China’s economic liberalism will lead to meaningful reform, i.e., ‘political openness’. However, economic liberalism has not sprung forth with any semblance of ‘political openness’ in China! In fact, an implacable Standing Committee of Nine, same as always, dictates the country’s politics and dissent is squashed like ripened tomatoes on a busy freeway.

Similar to 17^th century Mercantilism whereby success is judged by exports exceeding imports, advancing commercial interests, China’s State Capitalism focuses on pure economic consequences. Thus, commercial interests are advanced to the level of national political policy, a dehumanizing factor in society as participants statistically react to events predetermining the individual’s role/slot in society, e.g., peasants fresh off the farm receiving $1.50/hr. for assembly-line work and living in tiny caged dormers. There is no economic liberalism at work to change politics. It is D.O.A. Rather, China is a prime example of how neoliberalism obliterates any hope for political renaissance.

According to Xibai Xu, Neoliberalism and Governance in China (Oxford, 2011), regarding the effects of neoliberalism: “…contrary to the expectation of many Western observers, economic liberalization has not led to political liberalization or democratization. Instead, it has transformed China into a highly unequal and divided society in which power and wealth are monopolized by a small elite class of party cadres and associates, while a large number of peasants and workers are deprived of land, employment, welfare and rights.”

Xu’s statement serves to reinforce the viewpoint that neoliberalism’s greatest proponents were incorrect, e.g., Friedrich von Hayek, arguing that economic freedom had to be wrested from control by government or suffer totalitarian rule, and Milton Freidman’s advocacy that economic freedom is a prerequisite to political freedom. China’s experience proves otherwise, and it is common knowledge in America that neoliberalist’s tendencies have served to concentrate wealth and power more so than at any time since the 19^th century’s Gilded Age, a term coined by Mark Twain.  And, now personal freedoms are under attack in America as neoliberal groupthink impacts political policy.

The evidence of the influence of wealth in politics is replete within America’s tax code, dramatically favoring capitalists over governmental requirements, which is a major tenet of neoliberalism. The proof of this distortion is found in federal tax receipts as a percentage of Gross Domestic Product (GDP) at 50-year lows because the proponents of neoliberalism have worked the system to ‘starve the beast’ by lowering taxes on those who can afford it at the expense of the many whom all-together shoulder the burden of the resultant national debt. Today’s federal tax receipts vis a vis a similar level, pre-Bush tax cuts, amounts to a shortfall of ¾ of a trillion dollars, enough to cover more than half the annual deficit, and if U.S. citizen’s offshore income/profits were taxed, the deficit would be nearly balanced, back to the days of President Clinton, who raised taxes in ‘93 and sported a surplus because of economic growth.

The nation-state is subjugated to imperceptible profit-sourcing neoliberal forces that are extraordinarily rational in pursuit of profit/wealth whereas the masses are totally subservient, in turn, fostering fatuous, doltish citizenry obedient to the pursuit of profit for the sake of profit, similar to a religious experience. Note: The American public’s helpless acquiescence to challenges to their constitutional individual rights as well as lop-sided taxation policies that enrich the wealthy but penalize all taxpayers with a concomitant widening societal divide between the rich and everybody else. As an example, Mitt Romney pays a 13.9% tax rate on tens of millions while average Americans pay over 20% on tens of thousands whilst Mitt receives millions of votes from the ‘everybody elses’.

The neoliberal fixation on profits as a glorified path to success is, in fact, dictated by neoliberalism’s instincts, which embodies the free movement of goods, resources and enterprises to find cheaper resources, i.e. labor, to maximize profits worldwide. In turn, the mindsets of the participants are warped into insane worshiping over profits/wealth/capital at all costs, or as explained by Doh Jung-il, emeritus professor, Kyung Hee University and author of Market Totalitarianism and Barbarism of Civilization: “When the educational systems nurtures human ‘machines’ to just make money… culture is governed by market-favorable by-products and there is no soul-searching, the totalitarian capitalism destroys us… the globe is suffering from a direct result of the totalitarian capitalism that is relentlessly tramping down on human thought and values.”

Unbeknownst to Doh Jung-il, he keeps strange bedfellows right here in the USofA. Senators Mark Udall (D. Colorado) and Ron Wyden (D. Oregon) of the U. S. Senate Intelligence Committee have expressed outrage over America’s flirtation with totalitarian behavior, addressing a letter to Attorney General Eric Holder, asking him to address the issue: “We believe most Americans would be stunned to learn the details of how these secret court opinions have interpreted section 215 of the Patriot Act….” referencing the latitude the Foreign Intelligence Surveillance Court, under Section 215 of the Patriot Act, grants the government to investigate people. For two U.S. senators to suggest Americans would be “stunned” is very strong language in the world of politics-speak (what secrets do the senators know?)

And… more poignantly yet, President Obama signed the National Defense Authorization Act, which negates the writ of habeas corpus, a powerful cornerstone of civil rights since the Magna Carta in 1215. Who dreams this stuff up?
 
According to David Harvey, A Brief History of Neoliberalism (Oxford University Press, 2005): 

Neoliberalism values market exchange as “an ethic in itself, capable of acting as a guide to all human action, and substituting for all previously held ethical beliefs.” He further states, “Neoliberalism has meant, in short, the financialization of everything.” It is a power shift away from production to the world of finance, and the effect in many parts of the world has increasingly been to see it as necessary, even wholly natural, a way for the social order to be regulated.

Furthermore, according to Harvey, in the event of conflict, neoliberal states favor the integrity of the financial system and solvency of the financial network over the well being of the population and over the integrity of the environment, contrary to the best interests of its citizens (written by Harvey in 2005.) Witness: The U.S.’s massive bailout of the banks in 2008-09 at taxpayer expense. Plus, the right wing sponsored war against the reality of global warming, putting the planet’s health at risk of total breakdown… all for a buck!

Harvey disputes the tendency of the competitive advantages, a significant positive element of neoliberalism, which all too often proves ephemeral, introducing extraordinary volatility into global capitalism. Witness: The extreme volatile behavior of the capital markets these past years, upsetting a balanced approach to capital investment, begging the question: Does neoliberalism really work in anybody’s best interests?

Harvey concludes: “The first lesson we must learn, therefore, is that if it looks like class struggle and acts like class war then we have to name it unashamedly for what it is.” And… according to Warren Buffet (qtd. In Woodward 2004): “If there is a class war in America, my side is winning.”

Neoliberalism is a great disruptive force that dominates policy, politics, and culture to the detriment of the masses but to the advantage of the select few, unwittingly, maybe not, enabling concentration of wealth and power to breed totalitarian nation-states. This seemingly natural progression of neoliberalism’s political and economic influence results in an increase of concentration of fewer people celebrating at the same parties, diminishing societal, political, and cultural values to something comparable to driblet performances at Disneyland.

America’s Lost Decade

Economics Without Facts

by MARK WEISBROT

 

The American Economic Association’s annual meetings are a scary sight, with thousands of economists all gathered in the same place – a veritable weapon of mass destruction.

Chicago was the lucky city for 2012 this past weekend, and I had just finished participating in an interesting panel on “The Economics of Regime Change,” when I stumbled over to see what the big budget experts had to say about “The Political Economy of the U.S. Debt and Deficits.”

The session was introduced by UC Berkeley economist Alan Auerbach, who put up a graph of the United States’ rising debt-to-GDP ratio, and warned of dire consequences if Congress didn’t do something about it.  Yawn.

But the panelists got off to a good start, with Alan Blinder of Princeton, former vice-chairman of the U.S. Federal Reserve, describing the public discussion of the U.S. national debt as generally ranging from “ludicrous to horrific.”  True that.  He asked and answered four questions: 

(1) Is there any urgency (to reduce the deficit or debt)?  No.  The government can borrow short term at negative real interest rates, and long-term at about zero.  The world is paying us to hold their money. That is anything but a debt crisis.

The Fed is out of bullets, he said – referring to the fact that the U.S. Federal Reserve had lowered short-term rates to zero and had used quantitative easing to help keep long-term rates low.  So we need more fiscal stimulus, preferably spending that focuses on actually creating jobs. Amen.

(2)  Should we focus on the next decade? No, he said, and noted that the Congressional Budget Office’s (CBO’s) budget deficit projections over the next decade are about 3.6 percent of GDP, which is not much to get agitated about.  Also true.

(3) Is government spending the problem?  No, he said, it’s health care costs, and mainly the rising price of health care (i.e not the aging of the population).   Most important truth yet !  (More on this below).

(4)  Is the public really up in arms about the deficit?  No, actually they care more about the economy and jobs.  As they should.

Blinder concluded that since this is an election year, we can forget about having any fact-based discussion of these issues in 2012.  Happy New Year, he said, and the audience laughed.

Well that was refreshing, I thought — an economist telling the unvarnished truth to hundreds of his people at the annual meetings. But a rapid descent into Hell was imminent.

Former CBO director Douglas Holtz-Eakin was next, talking about the need to “repair” Social Security and Medicare.  The United States has all the characteristics of countries that run into trouble, he said. Then he warned that the U.S. is going to end up like Greece.  This is one of the dumbest things that anyone with an economics degree can say.

Hello, Mr. Holtz-Eakin!  Have you ever heard of the U.S. dollar, the world’s key reserve currency? The United States is not going to end up like Greece any sooner than it will end up like Haiti or Burkina Faso. A country that can pay its foreign public debt in its own currency and runs its own central bank does not end up like Greece.  In fact, even Japan is not going to end up like Greece, and Japan has a gross public debt of about 220 percent of its GDP, more than twice the size of ours and vastly larger – again relative to its economy — than that of Greece.  And the yen is nowhere near the dollar in its importance as an international reserve currency.  But the Japanese government is still borrowing at just 1 percent interest rates for its 10-year bonds.

At this point it was clear that this panel, other than Blinder, was living in a dystopian fantasy world. Next up was Rudy Penner of the Urban Insitute, another former CBO director. His perspective was not much different from that of Auerbach or Holtz-Eakin.

He complained about the polarization of the political process, which prevents the two major parties from reaching an agreement.  It’s not partisanship, he said – House Speaker Tip O’Neill and President Ronald Reagan knew how to be partisan but they were able to reach agreement on the 1983 Social Security package and the 1986 tax reforms.  And yadda yadda.  He might have added that we have had 25 years of lying about Social Security since then, and even Reagan didn’t dare try to privatize Social Security.  And of course Social Security can currently pay all promised benefits for the next 24 years without any changes.

These arguments about polarization really beg the question:  From the viewpoint of the 99 percent, it’s not polarization, but weakness in defending our interests that is the problem.  President Obama compromised much more than he should have last year, offering cuts to Social Security and Medicare in exchange for a long-term budget deal.  The 99 percent are just lucky that the Republicans are too extremist to make this kind of a “grand bargain” with Obama.

The last panelist was Alice Rivlin of the Brookings Institution, another former CBO budget director and Fed vice-chair, as well as a member of the President’s (2010) National Commission on Fiscal Responsibility and Reform.   She agreed with Blinder that we need more stimulus.  But we can only get this if we agree to long-run spending cuts, including Social Security, of course.  Yuck. This is a political strategy that is sure to end in disaster, given the prevailing state of misinformation and disinformation.

During the discussion, Blinder – who identified himself as a Democrat – expressed his frustration in not being able to convince fellow Democrats to cut Social Security.  Double yuck. The average Social Security check is about $1,177 a month,  and a majority of senior citizens are getting most of their meager income from Social Security. Why these people insist on creating more poverty among the elderly, especially when the program is solvent for decades to come, is beyond me.

I got to ask the first question for the panel.  I called attention to Blinder’s presentation of the long-term budget problem as almost completely a problem of the rising price of health care.  I pointed out that you could take any country with a life expectancy greater than ours – including the other high-income countries – and put their per capita health care costs into our budget, and the long-term budget deficit would turn into a surplus.  My question was simple: Are Americans so inherently different from other nationalities that we can’t have similar health care costs?  And if not, then why are we talking about long-term budget problems instead of how to fix our health care system?

None of the panelists offered a serious answer to this question.  Auerbach, the moderator, said that other countries have rising health care costs, too. And some of the others said or implied that health care costs were rising at an unsustainable pace worldwide.

But this is nonsense.  The United States pays about twice as much per person for health care as other high-income countries – and still leaves 50 million people uninsured. This is a result of a dysfunctional health care system that has had health care prices rising much faster than those of other high-income countries for decades.

What the budget hawks are basically telling us is that we must assume that insurance and pharmaceutical companies will have a veto over the provisions of health care reform for decades to come.  And that therefore we must find other ways to make up for these excessive costs, including cutting Social Security and other government spending, and pushing us into higher rates of poverty and inequality than we already have.

And even worse in the short run, all this crap about the deficit and the debt will be used to block the necessary stimulus measures – “stimulus” has already become a dirty word that Democratic politicians are afraid to utter.  This means high unemployment and a lot of unnecessary misery in the world’s richest country for the foreseeable future.

A dismal performance for the dismal science, on some of the most important issues of the day. Of course there are other economists, including Nobel Prize winners such as Paul Krugman, Joe Stiglitz, and Robert Solow (full disclosure: the latter two are members of CEPR’s advisory board), who would offer more sensible views.  But this panel was, sadly, representative of economists with the most influence on public policy.

With a brain trust like this, a lost decade for America looks likely – unless the citizenry can steer a different course.

Banks and Bankers

by L. Neil Smith 

This is a new chapter just added to the "Where We Stand" website at where-we-stand.com

Banks are the means by which European aristocracy regained control of America once again following what we thought had been our Revolution.
—L. Neil Smith

I have been saying for years that, exactly like like lawyers and literary agents, bankers somehow seem to have forgotten who's the boss.

I'm not an economist (a fact I could wake up every morning and thank the gods for, if I were religious, which I'm decidedly not), but I've been dealing with banks since I was a little kid in the 1950s, and I have never liked the "cut of their jib" or the way they do business.

As I say, I'm not an economist and although I am, in nearly every sense of the expression, a "student of Ayn Rand", my interest in the subject is pretty severely limited. I have never bothered to learn the ins and outs of formal economics, of "M-1", "M-2", "M-23", and so forth, nor do I care to do it now. Money is money is money, or—in the case of the worthless slips of paper issued by governments—it's not.

I am, however, sufficiently educated in physics to understand perfectly well that you can't make something out of nothing. It's too damned bad that most politicians and voters seem to lack that simple understanding. Money today literally isn't worth the paper it's been printed on because it's been spoiled by smearing all that ink all over it.

In any case, economics is not nearly as complicated a discipline as many—especially academics and politicians—would prefer you to believe. At the dawn of modern civilization, back when individuals like Galileo Galilei began peering upward through their newly- invented telescopes, they discovered that the mechanics of the sky were not exactly as they had been described by the authorities of the day.

Instead of every visible celestial body circling around the Earth, they found that the Earth—along with several other planets—were circling around the sun. One of those planets, Jupiter, had four small worlds circling around it the way the Moon circles around us. And the stars were so remote that they didn't seem to be circling anything at all.

We learned better later.

Supporters of the old theory, including the Church, fought back, threatening the life, liberty, and physical wellbeing of supporters of the new theory. As for those they couldn't reach, they argued that the old theory needed revising slightly. The Sun, Moon, and planets didn't circle directly around the Earth, but around a line around the Earth, "explaining" why Mars appeared to travel backwards from time to time.

They called these extra circles "epicycles", and each time some modern astronomer shot their theory down, they added another layer of epicycles to the one that had preceded it, until the planets were doing circles around the circles around the circles, and so on, each iteration postponing the eventual, inevitable collapse of their position. Much more importantly, however, the contrived complexity discouraged ordinary individuals from studying the situation and seeing through the smoke and past the mirrors to a simpler and grander truth.

Economics today is in much the same state as astromomy was in the Renaissance, its complicated vocabulary and complex theorizing meant mostly to keep non-economists from seeing certain simple truths about it.

Take banks, for instance.

People seem always to have had trouble, one way or another, with banks. And, one way or another, banks seem always to have had trouble with people. It's always been an uneasy relationship which bankers and their symbiotes, the politicians, have never hesitated to exploit to the hilt. The first bank records appear to have been written on clay tablets in cuneiform. In their primeval beginning, banks were little more than fortified warehouses in which, for a reasonable fee, you could store your valuable assets—usually consisting of gold, silver, jewelry, and grain—a bit more securely than you could at home.

After a while, somebody realized—maybe it was the bankers, maybe it was their customers, tired of paying that "reasonable fee" which slowly ate away at their savings—that nobody was getting any richer with all that wealth just sitting there in the warehouse. There ought to be some way to put it to work, preferably making even more wealth.

Bankers began lending their customers' wealth, for which borrowers paid a "reasonable fee" (now we call it "interest") which the bankers split with their customers. When cultural and religious taboos didn't interfere with the process, everybody made out, and capitalism was born.

It was at this point, however, somewhere around the Middle Ages, that everybody made a couple of really tragic mistakes. The first one occurred because people are basically lazy. Most of the time, this is a wonderful thing, the primary source of all human progress. The great Thomas Edison, for example, invented the electric light bulb because, as a kid, he'd detested cleaning kerosene lamp chimneys for his mother.

Apparently people got tired of carrying all those heavy gold and silver coins around in the little leather bags you see in paintings of the times and in the movies (although a little gold and silver went a long way back then, and the real bags couldn't have been all that big and heavy). There was also considerable physical risk involved: Sam Colt wouldn't come along to make men equal for another five or six hundred years. And women, although they often carried little daggers themselves—and really intimidating pairs of scissors—unless they were accompanied by a competent bodyguard, were at the mercy of the first thug who ran across them, especially if he happened to have a sword.

Instead of lugging all those big, nasty, heavy coins around, folks took up pen and parchment instead, and started writing instructions, of a kind. If they happened to owe their local apothecary a silver florin for his sovereign remedy against tansy or gleet (which don't seem to be quite the problem today that they apparently were in times past), they would dash off a short note to their bank, saying "Please give this apothecary guy one of the silver florins from my personal hoard, [signed] Luigiano the Fairly Resplendant, Gonfaloniere of Podunchio."

History would come to call it a "bank draft" or "check".

Later on, the bank began to write such letters for their lazy customers to carry around instead of all those nasty old heavy coins. (Observe that this innovation left bodyguards fully employed.) These were called "bank notes" and they represented real wealth, for which they could be exchanged whenever someone who had them wanted coins. They were the first paper money, and later would lead to nothing but trouble.

The invention of paper money made inflation possible. The tragic, life-destroying process of inflation is often dealt with by the media—as well as by government officials—as something natural and unpredictable, like the weather, but nothing could be further from the truth.

Inflation happens whenever the amount of stuff—printed paper, for example—people use instead of real money increases, without an increase in the real money—gold, silver, etc.—it claims to represent.

One of the fundamental laws of economics (okay, so I have studied it a little bit) and of human psychology as well, observes that the more there is of anything, the less any single bit of it is worth. If there's a trillion paper dollars in circulation, and the government suddenly prints another trillion, then the paper money we've saved up is halved in value—although if the government and their pet banks spend it quickly, they can enjoy the full benefit of it before that effect gets noticed. By the time it gets to us, however, it takes twice as much money to obtain the things we need or want. In effect, half our savings have been taken away by what amounts to an invisible tax.

Interestingly, the first inflating wasn't done with paper money. I have handled a good many ancient Roman coins that were polygonal in shape instead of round, because, whenever they passed through the hands of an unscrupulous banker or merchant, their edges were clipped off, to be added to a horde of such clippings which could then be melted down to make more coins. (That's why coins today have "milled" or decorated edges, to prevent such a practice.) The coins left dishonest hands at face value, although they were actually smaller, lighter, and worth less. Thus was the Roman money supply "watered down".

The great libertarian teacher Robert LeFevre told the story of England's King Henry VIII, who loved fighting foreign wars more than anything else, and was always looking for money to pay for them. All the historic fuss over his divorce, his various wives, and the Church of England was a smokescreen, according to LeFevre. What he really wanted to do—and did—was loot the holdings of the Roman Catholic Church.

Even that money soon ran out, however, and to pay for his men and horses and golden armor, he finally instructed the treasury to make coins out of junk metal (just as we do today), give them a gold or silver wash, and get them out into the marketplace. Henry's advisors were aghast, and fearful that such a fraud would cause rioting and revolution.

Yet when the advisers checked the marketplace, after a little while, they noticed two things: first, that the phony coins were being exchanged quite briskly, even when the coating had worn off and the dull gray of their base metal could be seen clearly; and second, that there were no real gold or silver coins in sight. These were being hoarded, not circulated. Hence the observation, which came to be known as "Gresham's Law" that "bad money drives out the good" from the marketplace.

In Germany, before World War II, and in Hungary, immediately afterward, inflation with paper currency became so extreme that it's said people took their wages home in wheelbarrows, that the money would hardly pay for a loaf of bread, and that workers were paid twice a day and immediately went out and bought food before prices rose even higher.

When I was young, a common thing for kids born in the shadow of World War II, to trade back and forth were fifty million Deutschmark bills their G.I. dads had brought back from Germany. A few years later, a gold Hungarian pengo was worth thirteen trillion paper pengoes.

A possibly apocryphal story holds that the great economist Ludwig von Mises was walking with some officials past a building where the money presses were rumbling day and night. Asked what they could do to stop the terrible storm of inflation that was tearing their country apart, Von Mises simply pointed at the building and said, "Stop that noise".

Today, government and its symbiotic banks don't need printing presses. Thanks to a shady practice called "fractional reserve banking", they can lend out many times the amount of money they actually have, creating what I've called "air credit". During the Carter Administration, and then again during the Clinton Administration, banks were encouraged—even compelled—to lend non-existent money to would-be homeowners who had no way of paying it back.

Eventually, the banks, which had been promised that the government would back them up with regard to these rotten loans, got into serious trouble and had to be bailed out—with trillions more in air credit—which was the beginning of the economic mess we find ourselves in today. When other businesses began to fail—the automobile industry comes to mind—they had to be "rescued", too, with even more funny money.

Today, the dollar is worth only a small fraction of what it was just a few years ago, affecting trade and our relative position in the world.

What can be done?

From the time you are a little child with pennies, they stop at nothing to keep your money out of your hands. First, they make sure that half of it disappears in taxes. Then they convert what remains into paper and make half of that evaporate as inflation. Next, they convert what paper you have left into entries in a ledger. Finally, they convert those ledger entries into electrons, scattered into space.

There's only one way to stop them, with copper, silver, and gold, and platinum, with wealth that can't be counterfeited and that won't evaporate.

Banks and bankers must be put back in their proper place as simple guardians of the wealth of individuals. Exactly like government, they must forever be kept small and weak. There must be no special laws, no special powers or privileges for banks. Government commissions, state oversight committees, and so on soon become packed with former bankers or future bankers working overtime to make sure their businesses enjoy every government advantage possible—always to the detriment of their customers—while preventing the entry of potential marketplace competition.

Whether it's a simple burglary, mugging, rape—or fractional reserve banking—theft is theft, and fraud is fraud. Nor are any special laws required to deal with such crimes when they're committed by banks, which shouldn't be regulated any differently than, say, a filling station or a grocery store, which shouldn't be regulated at all.

Certain common sense reforms are called for.

At present, it costs a bank customer twenty or thirty or forty or fifty dollars whenever he or she bounces a check. (Retailers often add their own fees, as well.) This amounts to kicking an individual when he or she is already down, since the person didn't have enough money to begin with to cover the check. It can end up costing him or her ten or twenty times the amount of the check they bounced, simply to feed the bank's insatiable, greedy maw. Add the factor of hard times, like those we all happen to be going through at present, and these fees become a major profit item. The bank's position as a bottom-feeding scavenger on human misfortune quickly becomes clearer—and more nauseating.

Another dirty banker's trick is what might be termed the "serial overdraft" scam, in which they invariably post charges against your account before they count your deposits, resulting in a cascade of fees.

I have asked several computer-savvy individuals who have worked for banks what the actual cost of processing a draft on insufficient funds amounts to, and in no case has that amount exceeded a couple of dollars. The rest of what they charge is illegitimate, punitive, and paternalistic. It is not now, nor has it ever been, a bank's place in the scheme of things to fine their customers or punish them. They have a choice: they can lecture them or collect a reasonable fee, but not both.

Yet another corrupt practice that needs a closer examination is the way that banks will happily accept a deposit—but then deny you the use of your own money until they have "confirmed" that it's really there.

In the electronic age we live in, when data flash straight across the country and around the world at the speed of light, the practice of holding a customer's transferred funds for "confirmation" for a week, for a day, for a minute, or even for a nanosecond is nothing more than baldfaced crooked larceny. During the period when you can't enjoy free access to your money, they feel free to lend it out to others, collecting interest on it that they don't share with you. It's a scam called "the float": your money, multiplied times the money of tens of millions of other suckers being worked over the same way, amounts to millions in ill-gotten gain for the bankers every single day.

Billions every year.

And what ever happened to interest-bearing savings accounts?

Lately banks have been finding ways to force employers to deposit their employees' salaries electronically. In some situations, having a bank account has become compulsory, a condition of employment. The banks' highest objective is that you never get to see your own money. Government, of course, loves this idea, because it feeds their sick, perverse obsession with monitoring everything that individuals do, every penny they earn, everything they spend it on, everything they eat.

And every time they go to the bathroom.

At the same time banks gleefully cooperate in violating their customers' natural and Constitutional right to privacy, dignity, and individual sovereignty, fundamental concepts that appear to have disappeared altogether from both the corporate and the governmental universes.

If banks were truly private enterprises, then they would be free to do as they liked in many of these respects. Facing competition, it would pay them well to defend their customers' interests from the predations of the lawless state. Unfortunately, however, they are not private enterprises, but merely another tentacle of government, twice over: the are organized as corporations, and specially chartered as banks.

As long as they remain tentacles of government, banks must be bound, as government is supposed to be, by the Bill of Rights, and regulated within an inch of their corporate lives to prevent the abuses, petty and otherwise, that they regard as doing business as usual.

I have half-jokingly considered advocating that bank officers be compelled to get themselves tonsured, their tellers to wear monkish robes or nuns' habits, if I believed that it would improve their general attitude and encourage some humility. But clearly that would violate the Zero Aggression Principle, and it would probably only make banks and bankers even more self-righteous than they are already. Hats that were once silly in Europe are now the stuff of pomp and circumstance.

Although I invariably favor laissez-faire economic policies, and wouldn't interfere with or limit any genuinely private enterprise, I do remember a time when it seemed much nicer to do business with banks, a time when branch banking was forbidden here in the state of Colorado. The battle for individual freedom against the state must be a battle against its corporate symbiotes—especially banks—as well.

Huge, impersonal, international banking conglomerates must be broken up—within principle—and a business model much more customer-oriented substituted, instead, mostly through the process of open competition, which banks have assiduously avoided for something like 300 years. As institutions of trust, banks must be discouraged from automatically taking government's side against their customers in matters such as private records disclosure and lockbox searches, and encouraged, whenever any doubt arises, to take their customers' side, instead.

The power to create money must be taken from the government backed banking cartel called the Federal Reserve. Lawful money, as mandated by the Constitution—precious metal coins and nothing else—must be substituted for the wastebasket trash that we've become accustomed to.

Putting an end to limited liability—and the pernicious doctrine of the corporation as a person in and of itself—will aid us in this fight. Banks will be smaller, more local, and more respectful of their customers.

That means you and me.

Economics 101 for Deficit Hawks

The same Washington policymakers who inveigh against the deficit want a strong dollar – clueless about the contradiction
by Dean Baker - Thursday, October 7, 2010 by The Guardian/UK

There are few areas of economics more boring than accounting identities. This is really unfortunate, since it is virtually impossible to have a clear understanding of economic policy without a solid knowledge of the underlying identities.

Most of the people in Washington policy debates were apparently overcome by boredom before they could get this knowledge. As a result, we see some really silly policy debates.

The debate over the value of the dollar against the Chinese yuan is the latest episode in this silliness. The Washington tribal elite has been on the warpath against budget deficits in recent months. They have worked themselves into such a frenzy that nothing will stand in their way: neither concerns about unemployment, nor concerns about the well being of our elderly, nor even concerns about basic economic logic.

The central problem stems from the simple accounting identity that national savings is equal to the broadly measured trade surplus. A country with a large trade surplus will also have large national savings. Conversely, a country with a large trade deficit will have negative national savings. These relationships are accounting identities – there is no way around them.

This brings us to the next part of the story; where trade deficits come from. At a given level of GDP, the main determinant of the trade deficit is the value of the dollar in international currency markets. This is very basic supply and demand. If the dollar is higher in value relative to other currencies, then our exports will cost more to people living in Germany, Japan, and China.

If a car sells for $20,000 in the United States, then the price of this car to people living in other countries will depend on how much of their own currency (euros, yen or yuan) they must pay to get a dollar. The higher the dollar relative to these other currencies, the more expensive the car is to foreigners. And, the more expensive it is to foreigners, the fewer US-made cars they will buy. This means our exports will fall.

The story works in reverse on the import side. If the dollar is high and therefore buys lots of foreign currency, then imports are cheap. This means that we will buy lots of imports.

If we have low exports and high imports, then we will have a large trade deficit. End of story. We can train our workers to be more productive, urge our firms to invest more and try to improve our public infrastructure, but realistically, none of these factors can come close to offsetting the impact of a currency that is 20-40% over-valued. A severely over-valued currency virtually guarantees a trade deficit.

This brings us back to the budget deficit part of the story. If the United States has a large trade deficit, then it means that net national savings are negative. That is definitional. For net national savings to be negative, then we must have either negative private savings or negative public savings (that is, a budget deficit).

During the peak years of the housing bubble, private savings were strongly negative. This was because the wealth created by the bubble led homeowners to spend rather than save. With the collapse of the housing bubble, people are now saving much more. Furthermore, investment has fallen due to overbuilding, which means that private-sector savings are no longer negative.

This leaves us with our large budget deficit. The budget deficit follows from the fact that we have a trade deficit, which is, in turn, the result of the over-valued dollar. This brings us to the strangely paradoxical behavior of the Washington policy elite.

Many of the same people who routinely express horror over the size of the budget deficit were either on the sidelines or in actual opposition to the effort by congress to get China to raise the value of its currency against the dollar. While one can argue as to whether the bill approved by the house of representatives was the best route to go, anyone who hopes to get the trade deficit down must recognize the need to lower the value of the dollar. And, if one wants to get the budget deficit down, then it is necessary to reduce the trade deficit.

This raises the possibility that perhaps the deficit hawks don't really give a damn about the deficit. Perhaps the deficit hawks just want to cut social security and Medicare and other programmes that benefit the middle class and moderate-income people.

Of course, it is also possible that the deficit hawks are just confused when it comes to economic policy. It's hard to know for sure. But these days, ignorance and/or dishonesty appear to be the chief qualifications for entry to Washington policy debates.

Economics as if People Mattered

by Grace Lee Boggs - Sunday, September 19, 2010 by CommonDreams.org

As I‘ve been following President Obama's desperate efforts to devise a popular Jobs programs in order to avoid his party's defeat in the November election, I've also been re-reading (and urging others to read) Buddhist Economics by E.F. Schumacher.

I first read this amazingly timely article in 1969 when my friend, Henry Geiger, featured it in Manas, his little 8-page weekly with only 2500 subscribers. Robert M. Hutchins, the internationally renowned University of Chicago President, called them "the 2,500 most interesting people in the world."

Schumacher (1911-1977) was a British economist who served as Chief Economic Advisor to the UK National Coal Board. In 1973 he explained Buddhist Economics and advocated small, appropriate technologies in a little book titled Small Is Beautiful: Economics as if People Mattered. The Times Literary Supplement ranked it among the "100 most influential books published since World War II. "

I only met Schumacher once (in Ann Arbor in 1976), but I have long believed that one day his profoundly human approach to economics would be recognized as the alternative to our dehumanizing and increasingly unsustainable economic system.

That day has come!

In Buddhist Economics Schumacher explains why mass joblessness is inevitable as long as Work is viewed as Labor, because both employers and employees, each for their own reasons, are constantly seeking to reduce or eliminate it.

"The modern economist," he writes, " has been brought up to consider ‘labour' or work as little more than a necessary evil. From the point of view of the employer, it is in any case simply an item of cost, to be reduced to a minimum if it cannot be eliminated altogether, say, by automation. From the point of view of the workman, it is a ‘disutility'; to work is to make a sacrifice of one's leisure and comfort, and wages are a kind of compensation for the sacrifice.

"Hence the ideal from the point of view of the employer is to have output without employees, and the ideal from the point of view of the employee is to have income without employment. The consequences of these attitudes both in theory and in practice are, of course, extremely far-reaching. If the ideal with regard to work is to get rid of it, every method that "reduces the work load" is a good thing. The most potent method, short of automation, is the so-called "division of labour" and the classical example is the pin factory eulogized in Adam Smith's Wealth of Nations....dividing up every complete process of production into minute parts, so that the final product can be produced at great speed without anyone having had to contribute more than a totally insignificant and, in most cases, unskilled movement of his limbs."

By contrast, Buddhist Economics is based on recognizing the role that Work plays in human development: "to give man (sic) a chance to utilize and develop his faculties; to enable him to overcome his ego-centeredness by joining with other people in a common task; and to bring forth the goods and services needed for a becoming existence."

Therefore, "to organize work in such a manner that it becomes meaningless, boring, stultifying, or nerve-racking for the worker would be little short of criminal; it would indicate a greater concern with goods than with people, an evil lack of compassion and a soul-destroying degree of attachment to the most primitive side of this worldly existence. Equally, to strive for leisure as an alternative to work would be considered a complete misunderstanding of one of the basic truths of human existence, namely, that work and leisure are complementary parts of the same living process and cannot be separated without destroying the joy of work and the bliss of leisure."

You can find Buddhist Economics on the web. Reading it will open up both your heart and your mind. See also my June 20-26 column, Maybe Jobs aren't what we need by Frank Joyce. It's on the Boggs Center website www.boggscenter.org/

Porn for Pessimists

By Keith Johnson - BLN Contributing Writer 

The very fact that you are reading this may indicate that you suffer from a psychosis characterized by delusions of grandeur, coupled with feelings of euphoric bliss, at the prospect of being clued in to terrible events and conspiracies that may be contributing to the end of civilization as we know it.

Back in early February of 2009, Hugo Lindgren—writing for the New York Times—coined the phrase “pessimism porn,” referring to a “fantasy world of the web” where dire economic predictions are cast by self-righteous doomsayers and apocalyptic futurists.  According to Lindgren, those of us who give credence to such notions are merely addicted to bad news, and have a false sense of superiority over “ all these heedless knaves who have no clue what’s coming down the pike.” 

In Lindgren’s article, the author takes particular pleasure in poking fun at trends forecaster Gerald Celente’s predictions concerning a middle-class tax revolt, food riots, and a Central Park engulfed by shantytowns.  The term “pessimism porn” caught on, and was later picked up by ABC News correspondent Dan Harris, who also ran a similar attack piece on Celente, in April of that same year.

Harris made light of Celente’s predictions for a new Great Depression, even going so far to suggest that the idea of people living out of storage units was a far-fetched concept.  He also tried to paint Celente as some sort of paranoid survivalist who would rely on his close-combat skills, and a German shepherd, to protect himself in the event that “turmoil ensues into full-fledged battle.” 

Harris concluded his tongue-in-cheek piece by assuring his audience that most mainstream economists did not hold Celente’s views.  To prove it, he provided a link to another ABC News article—from January, 2009—where Nobel Prize winning economist, Paul Krugman, was quoted as saying, “We’re not in a depression. But we are in a situation where the normal tools don’t work and we’re back to [a] 1930s-type environment”… “My great fear is not that we’re going to fall into a Great Depression in the next year,” he said. “My fear is that we’re going to have a lingering, major slump for two, three years.”

This is the same Krugman who insisted that our only solution to the economic crisis is for the government to spend more money.  “Government spending is the only surefire way to create employment,” said Krugman. 

At the time, he didn’t believe that the $775 billion proposal from then President-elect Barack Obama was big enough. “At max, the U.S. government can probably borrow another $5 trillion,” Krugman said. “Hard to believe, but we can probably get away with that if we have to. I hope we don’t have to spend that much.”

It’s now been well over a year and a half since the aforementioned articles were written.  I wonder if ABC’s Dan Harris has given any consideration to following up on his piece, and determining which financial guru’s forecasts have proven to be most accurate?  If he did, he may be astonished to learn that the man—whom he considers as a barometer for mainstream consensus on the economy—is now starting to sound more like Celente each day.

Late last June, Krugman wrote an op-ed piece, for the New York Times, where he concedes, “We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.”

Quite a turnaround, don’t you think?  Does this relegate Krugman to the category of a dissenter, who is now purveying doomsday tripe in the vein of fellow outcast, Gerald Celente?  Or does Krugman’s views now bring Celente into the fold of mainstream consensus on the economy? 

Well, I think we all know the answer to that.  The mainstream media will never allow Celente to be accepted into the ranks of legitimate discourse, regardless of how accurate his predictions are.  Never mind that his forecasts relating to a middle-class tax revolt have already come true. 

I don’t need to remind you that—little more than a month after Lindgren and Harris mocked Celente’s wacky conspiracy theories—“Tea (Taxed Enough Already?) Party” protests began to pop up all across the nation to revolt against everything from TARP bailouts to mandatory health insurance.

And let’s not forget some of Celente’s other predictions that have been made the brunt of so many jokes from the likes of Lindgren, Harris, and a variety of other hacks.  Take the subject of “food riots” for instance.  Though they have yet to become commonplace in American cities, many factors leading up to that realization have already begun to unfold.  Paul Joseph Watson recently wrote:

“Globalist mouthpiece the Financial Times concedes that “another food crisis does not look out of the question,” as a result of Russia’s wheat export ban, noting that food riots occurred in developing countries two years ago amidst similar conditions.”


“Allied with proposed consumption taxes on carbon dioxide, spikes in sales taxes, income tax bracket hikes, gas price increases, crippling austerity measures, and the sinking U.S. dollar, skyrocketing food prices will serve to further financially castrate Americans, achieving the elite’s goal of eviscerating the middle class by forcing them to adopt lower standards of living and becoming more dependent on big government for their sustenance and survival.”

Though Americans—for the most part—can still find a meal or two to get them through the day, we are beginning to witness tensions rising, all across the nation, as people struggle to secure things as basic as shelter.  According to this recent article from the Atlanta Journal-Constitution:

“Thirty thousand people turned out in East Point on Wednesday seeking applications for government-subsidized housing, and their confusion and frustration, combined with the summer heat, led to a chaotic mob scene that left 62 people injured.”

“At the Tri-Cities Plaza Shopping Center, emergency vehicles passed each other, transporting 20 people to hospitals. Medical and police command posts were set up on scene. East Point police wore riot gear. Officers from four other agencies supported them. Yet no arrests were made.”

“All of this resulted from people attempting to obtain Section 8 housing applications and, against long odds, later securing vouchers for affordable residences. Some waited in line for two days for the applications.”

Yeah—people are desperate, and when they are unable to secure adequate housing in major metropolitan areas, you may actually begin to see places like “Central Park engulfed by shantytowns.”  Not that that’s anything new.  During the last Great Depression, Central Park was host to a dozen or more shacks in what the Parks Department describes as “Hoover Valley.”  During the winter of 1932-1933, more than 1.2 million American’s were homeless; 2000 of those were New Yorkers.  Today, 25,000 New Yorkers find themselves in similar predicaments.  That’s 12X the homeless population of the Great Depression.  By this calculation, it is realistic to envision hundreds of makeshift settlements springing up there in the not-so-distant future.

What were once known as “Hoovervilles” during the Great Depression have now become known as “Obamavilles”: tent cities that have been found across the nation, populated by scores of homeless.  Some are found in the most unlikely of places, like the Island of Oahu—President Obama’s own backyard—where 50 acres of Navy and Public land are home to more than 60 different encampments, and populated by desperate people who have been driven off the island’s beaches and city parks by police and city officials.

In March of 2009, Obama was asked to comment on his concerns over the tent cities.  He responded by saying that it was “not acceptable for children and families to be without a roof over their heads in a country as wealthy as ours.”

It’s pretty hard to take him seriously at his word, especially in light of the fact that he is currently embarking on his fifth vacation since the beginning of July.   This week, the Obama family is expected to take a 10-day trip to Martha’s Vineyard where they will be staying at the 28-acre oceanfront Blue Heron Farm that rents for up to $50,000 a week.  This comes a little more than a week after wifey, Michelle, returned from a glitzySpanish vacation where she, and 40 of her closest friends, occupied up to one third of a 160 room resort where rooms go for about $7,000 per night.  Transportation aboard Air Force 2, and housing for 70 Secret Service personnel, has made this one damn expensive—taxpayer funded— shopping spree. 

This kind of lavish spending is what you might expect from rich elites, who have amassed fortunes, and have no obligation to share their wealth with the less fortunate.  But for a taxpayer funded public servant to splurge, in the middle of the worst financial crisis in modern history, is nothing short of a crime against humanity.  Think how many beds and meals could have been furnished to the countless veterans, children and single mothers living on the street—whose lives have spiraled out of control during these tough times and made even worse as a result of the actions taken by our own government.

It’s easy for Obama to promise that he will bring an end to homelessness within 10 years.  Bush did the same thing back in 2003.  But such promises always come in the form of “studies” and “proposals” that never see the light of day.  Funding for the homeless is campaign rhetoric that always takes a back seat to other pressing budget priorities like war and Wall Street bailouts.  Meanwhile, on any given night, more than 640,000 men, women and children find themselves without shelter in America, and according to the Department of Housing and Urban Development (HUD), the number ofhomeless families has increased by 30 percent over the past two years, to 170,000.

And, just as Celente predicted, some of these homeless families are now using storage units for shelter—a concept that ABC’s Dan Harris appeared to think of as odd back in April of 2009.  By September of that same year, The Tampa Tribune ran a piece that reported:

Along with dusty family heirlooms, mattresses and furniture, self-storage units are serving as homes for a growing number of homeless people.


“It’s not a widespread practice, but there are more people renting space and sneaking in at some storage units around Hillsborough County. There’s no plumbing, and it’s strictly against a myriad of rules, but people without homes are finding the rent cheap and accommodations safer than on the streets.”

But—of course—to dwell on such trivia is the trait of a pessimist.  Both Hugo Lindgren and Dan Harris would agree that those of us who seek out this kind of information are doing so to satisfy a morbid curiosity akin to a gawker at the scene of a car crash. 

Maybe they’re right to some degree.  Maybe we can be found at the scene of the crash.  But it’s certainly not to satisfy a morbid curiosity.  We’re there because it wasour car that was involved in the crash, and those are our family members who were injured.  We’re there to find out what happened, and who is responsible.  We’re taking pictures, getting witness statements, and making sure no one tampers with the evidence.  

If that makes us pessimists, then I must assume that an optimist is one who drives by the crash site and pulls into the nearest bar so he can drink himself into believing that he did not see what he just thought he saw.

The optimist believes that what he doesn’t know won’t hurt him; while the pessimist believes that what he doesn’t know may very well sneak up behind him someday and bite him near the pocket he carries his wallet in.

Being a pessimist isn’t for everybody, and if you want to avoid becoming one, then I suggest you confine your reading to the pages of the mainstream press.  There you’ll find plenty of good news to feed into your optimism, like: Obama signs manufacturing bill or President Obama signs $26 billion jobs bill.  But if you want to stay in a good mood, I would strongly advise against reading beyond the headlines.  If you do, you may enter through a gateway that leads to a life of hardcore addiction. 

You may be compelled to dig deeper once you learn that Obama’s manufacturing bill does nothing to bring manufacturing back to the United States, but rather sets up a bi-partisan commission to “study” the causes of the trade gap with China, Japan and Mexico. 

Or you may be enticed to investigate further once you discover that Obama’s job bill does nothing to create new jobs or save those jobs that actually help stimulate the economy (like farming, manufacturing or new technologies), but rather rewards 26.1 million taxpayer dollars to irresponsible state and local governments that are predominantly controlled by powerful police and teachers unions, and whose support is critical for the upcoming elections.

 See what I mean?  Once you get started, you just can’t stop.

I would agree that all of this stuff is pretty nasty and hardcore, but it certainly doesn’t qualify as porn.  Porn is sensational and exaggerated, while the issues concerning our economy are very real and disheartening.  It affects us all in very intimate ways.  We cannot become detached from it or view it from the peripheral.  We are active participants, struggling to discern the facts from the fictions that are often laid before us as obstacles. 

The daily struggle to find the truth is not a masturbatory exercise in futility.  It is an ugly, dirty and animated war for information.  To be involved, you must be a warrior, not a spectator.  

The definition of  pessimism is:

The doctrine or belief that the evil in the world outweighs the good.

While I may believe that evil men overwhelmingly occupy seats of power, I am confident that good people outnumber them several thousand times over.  But until I see these people wake from their slumber, and rise to join the fight, I will remain…a pessimist.