Tuesday, July 30, 2013

Economism’s Continued Grip on the GOP

Today’s Houston Chronicle has an op-ed by local Congressman Kevin Brady (subscription required; here’s the column on Rep. Brady’s website: http://kevinbrady.house.gov/kevin-brady-in-the-news/brady-us-economy-needs-a-new-course/). The column gives a pretty good indication of the degree to which the mind of the Republican Party is still held captive by economism, and how apparently incapable the GOP is of having any ideas that are not suggested by that ideology.

First, Rep. Brady cites the economic woes facing the U.S., and he does quite a reasonable job here:

·         The recovery to date is notably weak

·         College debt is worse than ever

·         Wall Street is booming while the middle class suffers (a rare admission from the right that there’s such a thing in America as income inequality, and that it matters)

In fact, just about all that Rep. Brady leaves out is that the recovery has sputtered even more since Congress forced the sequester on us. That little bit of news won’t fit the economism rulebook because it suggests that government spending actually helps the economy.

 So Rep. Brady concludes that something is wrong and that we need to change course. Everything in the above list is presumably to be blamed on the Obama Administration, despite the fact that the reason there is any recovery at all is due to the stimulus that George Bush started and Obama continued, and had Obama had his way, there would have been even more stimulus, only Republicans in Congress fought him at every turn.

So what is the “new course” Rep. Brady recommends? Hold onto your seats, the originality of these ideas will knock you over:

·         Get rid of government regulation;  “Get Washington out of the way so that Main Street can flourish again and jobs can grow”

·         Reform the tax code, “a Reagan-style tax reform could create 1 million new jobs…”

·         Agree with all the Republican programs in the House such as building the Keystone pipeline
In the previous post, I reviewed one of Obama’s recent speeches on the economy and tried to summarize both what he did say, and what he left unsaid. Rep. Brady’s tired recitation of the economism mantra shows the opportunities that Obama is currently leaving on the table. What do you say to someone like Rep, Brady? One thing is, “we tried that; it didn’t work.” That’s the basic answer to all the so-called “reforms” that the GOP has to offer; we’ve been pursuing those policies for the last four decades and the results are disastrous both in America and world-wide, as I tried to explain briefly in The Golden Calf. So the next thing we have to say in reply is: People like Rep. Brady have gotten away for far too long with saying things like this and everyone nodding their heads wisely as if the guy is actually making sense. When people tell us, not anything reasonable about the real world, but some fantasy stuff concocted out of a quasi-religious ideology like economism, the rest of us have to call them on that. We need to challenge them to defend this belief system they are promulgating, not just repeat it over and over as if that made it true.

Wednesday, July 24, 2013

Obama’s Galesburg Economy Speech—Does He Get It Yet?

As I explained in The Golden Calf, when Barack Obama was elected, he was rather a disappointment to anyone whose agenda was calling out and exposing the fallacies of economism. Obama was elected on a centrist, peacemaker platform, the man who would go to Washington and bring the partisans together and get them to stop bickering and act for the public good. Of course the Republicans decided right off the bat that Obama was illegitimate and that they would oppose everything he stood for, so that platform never really worked. And, over time, Obama has been gradually inching toward a more open confrontation with economism.

On July 26, he gave a much-heralded speech at Knox College in Galesburg, IL. This was planned as his first of a series of speeches on the economy, designed to take back the ability to frame the issue from the Republicans. For our purposes, the question is—does he seem, yet, to get it about economism? The answer is that there are positive glimmers but he has a way to go.

First, the politics—Obama says in this speech that the Number One priority of American policy ought to be to restore the prosperity of the middle class, along with making it possible for the poor to advance and become a part of the middle class. He accuses the Republicans who refuse to work with him as having no alternative program except opposition to his own policies. One of the memorable lines from the speech (there aren’t many, though it’s far from a bad speech) goes: “Repealing Obamacare and cutting spending is not an economic plan. It’s not.”

 So where is the positive evidence about taking on economism?

First, Obama is fairly consistent all through the speech in addressing income inequality. He hammers away on how middle class income has stagnated while the wealth of the very wealthy has taken off. At one point he even connects the dots to the reason why so many Americans have lost faith in our democracy—if we don’t change course, he warns, “Inequality will continue to increase. Money’s power will distort our politics even more.”

Second, he says what most economists seem to be saying about the sluggish state of the economic recovery today, even though the mainstream media won’t report this story as the major headline it deserves to be—that the sequester is right now one of the main reasons why the recovery has stalled out so badly. Now, think about this. The advocates of economism say that under any and all circumstances, cutting government spending is a recipe for economic prosperity. On that basis alone, what has happened since the sequester, as thousands of Federal employees have either been laid off or their income reduced and their ability to spend in our consumer economy proportionately diminished, is a disproof of the ideology of economism. So saying that the sequester is directly responsible for economic bad news is a direct attack on the economism belief system. At least in one portion of the speech, Obama is willing to say this out loud.

Third, Obama gives a boost to increasing government spending on infrastructure. He throws in a gag line, “We’ve got more than 100,000 bridges that are old enough to qualify for Medicare.” He asks: does it make any sense to allow our infrastructure to fall apart, to the extent that eventually industry will want to relocate somewhere else where the roads, bridges, and power grid are actually reliable, when we have thousands of construction workers out of work or underemployed,and getting them back to work would hugely stimulate the economy as well as repair our aging infrastructure? Such talk, of course, is fighting talk to any economism true believer, since again it argues for a positive role for increased taxes and increased government spending.

Now the downside. Obama says that the Republicans don’t have a real policy alternative, since just saying no to everything Obama is not a policy alternative. He says if they do have ideas, say what they are and he’ll happily discuss these ideas with them. But he never says what desperately needs to be said—that almost the entire Republican party believes in a false ideology that has been proven both fallacious and unworkable time after time, and until they stop believing those things, they will never see what actually needs to be done to fix the economy. I’m sure there is a nicer and more polite way to say this than the way I have just said it, but as Obama is credited with being the best orator to occupy the White House in a good while, he ought to be able to figure out how to say that.

Second, and more minor—when he ticks off what has been working so far in producing whatever economic recovery has occurred, while still insisting that we need to do a lot more to restore the middle class to its rightful place, he lists almost solely private sector activities. He hints, by omission, that the government really has no role in turning the economy around.

So give President Obama credit for moving in the right direction, but in my view he has to come farther to provide the true leadership we need on this issue.

Sunday, July 21, 2013

Corporate Corruption: The Case of Aluminum

On my other blog, HOOKED, about medicine and the pharmaceutical industry, I have recently been talking about corporate corruption:

A striking example that has nothing to do with health care emerged in a story in today’s New York Times business section:

This story is quite complicated and would cause most readers to yawn and give up before reading a third of the article. (The Houston Chronicle had a vastly edited-down version of the story in today’s paper, which made no sense at all to me, and so I had to track down the original long article before I could grasp what was going on.) As to the corporate powers that manipulate us and run off with the proceeds, they probably like it that way.

As best as I can boil it down, in 2010, the huge banking firm Goldman Sachs bought Metro International Trade Services, a firm that warehouses massive amounts of aluminum in Mt. Clemens, Michigan, a Detroit suburb. Goldman, in the bad old days when government regulations had some teeth, would not have been allowed to buy a firm that was part of the metal commodities trade; but in these new, deregulated days, apparently anything goes, so everything that follows in this account is strictly legal.

Since Goldman bought out Metro, the wait for delivery of shipments of aluminum metal to manufacturers who make stuff out of aluminum has grown from 6 weeks to 16 months. Partly as a result of these delays, the price of aluminum on the spot market has doubled. Even firms that don’t get their aluminum from Metro warehouses, like the beverage companies that make aluminum cans and can no longer stand the long delays, have to pay the higher prices.

The reason the prices and delays have both jumped, according the the Times investigation, is simply that Metro makes more money the longer it gets to store the aluminum in its warehouses. So under Goldman’s influence, the company has found various ways to hang onto the metal longer and delay shipments. (For example, the firm pays special incentives to speculators who buy up aluminum to hold onto their supplies longer.) The result is about a quarter billion dollars a year in rents. The total impact on the price of aluminum goods to consumers over this past 3-year period is estimated at $5B.

As the Times documents, the on-the-ground aspect of these deliberate shipping delays is somewhat ludicrous. Trucks and forklifts work diligently doing nothing more than moving the huge bars of aluminum from one Metro warehouse to another and then back again.

In theory at least, all this chicanery could quickly be put a stop to by the London Metal Exchange, which oversees 719 warehouses around the world and sets the rules under which they operate. But funny thing—the London exchange gets 1 percent of the rent charged by each warehouse. So for some reason they seem reluctant to take any action that would cause Goldman, through its Metro subsidiary, to lose any of that rent money. (In The Golden Calf, I told the story of the Great Recession of 2008, in which a prominent part was played by large Wall Street ratings firms that were supposed to tell us whether the financial instruments put on the market by the big banks, including the derivatives made up of subprime mortgage loans, were safe or not. As the ratings firms had to compete for business among the banks they were supposed to rate, it should have come as no surprise that they had bestowed AAA ratings on junk bonds that were eventually worth pennies on the dollar.)

According to the Times, due to similar shenanighans where speculators are allowed to drive up the costs of commodities, the average American pays about $10 extra for a gallon of gas beyond what crude oil would actually cost in an unmanipulated market. And the big banks, having tasted huge profits from aluminum, are about to go into the even more lucrative copper warehouse trade—a move enabled by the outgoing SEC chair, amidst assurances that nothing in these deals would have any impact on the price of copper in the open market.

And thus does economism, the belief that if we just let the market operate free of government regulation, all of us will be propserous, continues to control our national policies.

A brief editorial comment. In my younger days, the old folks still around then could recall the New Deal programs of the Great Depression, including the Civilian Conservation Corps. To hear the anti-Roosevelt people tell it, this program was an outrage; just to make work to help bring down unemployment, the government would pay one group of workers to dig holes, then another group of workers to fill them in again. Apparently when the government does something like this so workers and their families need not starve, it’s a moral outrage. But when Goldman Sachs moves aluminum bars from one warehouse to another and back again, just so it can make a few extra bucks and the consumer has to pay an estimated $12 extra for each new US-made car, it’s all fine and dandy. So long as it’s the rich and not the poor who take home the unearned, extorted cash, there’s no moral outrage from the economism crowd.