Big Brass Blog is a group blog founded in February of 2005 by Pam Spaulding of Pam's House Blend and Melissa McEwan of Shakesville (formerly Shakespeare's Sister). The mission of this collaborative effort is to stand as the premiere forum where strong, enduring voices of Progressivism provide what liberal politics has been missing: the unapologetic, unrelenting voice of liberalism in the darkness visited upon our world by Right-wing extremists, their ruinous policies, and their hypocritical beliefs.
Which is to stop sending the jobs overseas. Duh. That would be the logical course of action, if the U.S. Congress actually worked on behalf of the citizenry. Obviously they don't, and therefore none of them will propose the only lasting solutions to our massive unemployment. End our destructive trade policies, restore fair trade policies and practices, invest in new sustainable industries on the domestic front (other than weapons), and sweet pygmy Jeebus STOP REWARDING CORPORATIONS THAT SEND JOBS OVERSEAS!
There. That's not too difficult, is it? It's not rocket science. And it's well within the realm of the possible. But *they* won't do it. They won't discuss it. Almost no one will mention it on the floor of Congress. Why? Why won't the people who supposedly represent our interests do the things that will lead to a reversal of our crumbling fortunes and dismal futures? Because their handlers - their actual bosses, the financial elite, the investor class, the 1% - don't want that.
The reality is that our lives are of no importance to them. In fact, we're obsolete. They make enormous amounts of money by sending our industries, our (former) work to the third world. They're profiting like never before; why on earth would they want to return to the bad old days, when profits were hampered by trade policy, by benefit packages, by paying a middle-class wage?
As noted by Paul Craig Roberts, "Most emphasis is on the lost manufacturing jobs. However, the high speed Internet has made it possible to offshore many professional service jobs, such as software engineering, Information Technology, research and design. Jobs that comprised ladders of upward mobility for US college graduates have been moved off shore, thus reducing the value to Americans of many university degrees. Unlike former times, today an increasing number of graduates return home to live with their parents as there are insufficient jobs to support their independent existence.
All the while, the US government allows in each year one million legal immigrants, an unknown number of illegal immigrants, and a large number of foreign workers on H-1B and L-1 work visas. In other words, the policies of the US government maximize the unemployment rate of American citizens."
So the politicos from both sides of our one political party hawk their "job creation" strategies, but these are simply marketing gimmicks for the msm to parrot and the drones to latch on to. If *our* representatives really wanted to create full employment, they would have done so long ago. They know damn well that it's their own policies and their own oversight failures that have created the current economy. But it works for the richest 1%, so that's all that matters.
As I noted in 2008:
A highly-regarded economist (Michael Hudson, Distinguished Research Professor at the University of Missouri, Kansas City, who has advised the U.S., Canadian, Mexican and Latvian governments as well as the United Nations Institute for Training and Research, and who is a former Wall Street economist at Chase Manhattan Bank who also helped establish the world’s first sovereign debt fund) said:
"You have to realize that what they’re trying to do is to roll back the Enlightenment, roll back the moral philosophy and social values of classical political economy and its culmination in Progressive Era legislation, as well as the New Deal institutions. They’re not trying to make the economy more equal, and they’re not trying to share power. Their greed is (as Aristotle noted) infinite. So what you find to be a violation of traditional values is a re-assertion of pre-industrial, feudal values. The economy is being set back on the road to debt peonage. The Road to Serfdom is not government sponsorship of economic progress and rising living standards, it’s the dismantling of government, the dissolution of regulatory agencies, to create a new feudal-type elite."
In 2009, Foreign Policy magazine ran an article entitled "The Next Big Thing: Neomedievalism", arguing that the power of nations is declining, and being replaced by corporations, wealthy individuals, the sovereign wealth funds of monarchs, and city-regions....
Labor Day Has Been Rendered Completely Meaningless
As Mark Provost has points out - the rich love high unemployment. Because all branches of government and the Federal Reserve are wholly captured by the top .1% (and see this, this and this), they are not very motivated to decrease unemployment.
The "labor share of national income has fallen to its lower level in modern history ... some recovery it has been - a recovery in which labor's share of the spoils has declined to unprecedented levels."
Word on the street is that Obama's big jobs speech is going to be lame, and feature a feeble, small-in-scope plan. I'm fairly certain that this will be the case, because the repukes seem to determine everything this man says and does. So he will not offer the big action plan that's actually needed, because the petulant asswipe repug corpo-baggers won't like it - wah!
Our deep and continuing unemployment is largely the result of our government's choices and policies. It has not only allowed, it has actively facilitated the wholesale export of our industries and our production facilities to the third world (yet its members make the usual noises around election time about wanting to "create jobs"). Please. If they really wanted to create jobs, it's fairly simple - it's just that there's no political will from either party to take the actions that are required.
First of all, stop allowing corporations to profit from exporting jobs - and stop rewarding them for doing so. End the subsidies, end the tax breaks for the exporters. End or rework these destructive, grossly unbalanced trade agreements, and bring back some protectionism! No that's not a dirty word, except maybe to Wall Street. Protectionism is how smart countries operate, in order to have a functioning economy.
Invest in domestic industries! A green energy industry could create jobs galore, for example, fuel innovation (not to mention our homes), and end our dependency on fossil fuels, which are being depleted anyway and are killing the planet.
Then, create a stimulus for Main Street for once - force the banks that got billions of dollars to re-work people's messed up mortgages, so they can stay in their homes. Cancel student loan and medical debt. Give every worker who earns less than 200,000k a year a 100% refund of taxes paid for one year. Pay for it by implementing a half a cent transaction tax on every Wall Street trade, and end the Bush tax cuts immediately. End excessive tax breaks, and all tax breaks for job-exporting corporations, and that's how we pay for it.
We also can pay for an economic renaissance by ending our non-essential wars, which would be all of them, and end the tiresome "policing the world" routine, which forces taxpayers to pay for the endless manipulations of and interference in the affairs of countless sovereign nations. Affairs which are none of our business! Making the world safe for multi-national corporations is not the government's job, nor was it ever the intent of the nation's founders, who made that abundantly clear. James Madison declared that,"Of all the enemies of true liberty, war is, perhaps, the most to be dreaded, because it comprises and develops the germ of every other. No nation can preserve its freedom in the midst of continual warfare."
But somehow I don't think these ideas are the ones that are going to be proposed next week!
Update: A "deal" was indeed announced this evening.
I'm sitting here reading the latest from the alternative media (the only way to get the real nitty-gritty), and it looks like a debt deal is being finalized now. A deal which, according to the buzz, is right out of the repug playbook. According to Michael Tomasky at The Daily Beast, "President Obama appears to have cut a deal with the Republicans, on their terms, or about 98 percent of them."
Nice. Once again, American citizens are thrown under the bus under the pretext of an emergency, so that the tools of the financial elite can further hack away at what basic public resources remain. Tomasky goes on to say that "it’s a bleak day for this presidency, and really in American history, as we’ve now embarked on a path that’s very likely to lead to huge cuts in entitlement programs, the domestic budget, and more or less everything..."
A TPM article on the pending deal includes a statement from Stephanie Taylor, co-founder of the Progressive Change Campaign Committee, which aptly describes the feeling: "Seeing a Democratic president take taxing the rich off the table and instead push a deal that will lead to Social Security, Medicare, and Medicaid benefit cuts is like entering a bizarre parallel universe. One with horrific consequences for middle-class families."
Scrutiny Hooligans writer Tom Sullivan points out that teabaggots "relish the idea of pulling the temple down on their own heads if it will destroy their enemies. Lucky for them, they have compliant Democrats to help do the heavy lifting."
Michael Collins, writing for Op-Ed News calls it "The War On You", which is exactly what it is. He writes: "Let the word go forth from Washington! The corporate rulers occupying our nation's capital have declared war on just about every citizen.
"Have no doubt: those in the upper ranges of the top 1% of wealth in this country (aka The Money Party) want to kick you to the curb.They want to reduce your social security and make you go broke paying for medical care.They want to lower your wages and trash your retirement.They ignore the clear facts that we've had negative job growth since 2000 and the situation is just getting worse.They want to ship jobs, factories, and entire businesses overseas and give companies that do that a big fat tax credit for doing so.They've been given so much for nothing for so long. Now, they're ready to take it all. It's their time!"
But hey, don't feel bad. They're gutting our Social Security, Medicare, further impoverishing many seniors and the disabled, and probably making our own retirements impossible but, per the wingnut-teabaggot decree, at least Big Oil is getting a gusher of a payday, thanks to the American taxpayer. Their windfall amounts to 77 BILLION dollars, in spite of already record profits.
Think Progress notes that, "Big Oil is still flush with cash — including some of the $4 BILLION in taxpayer-funded handouts they’ll get from Uncle Sam this year. This week, the government-subsidized oil giants once again reported tens of billions of dollars in profits.
"As the nation teeters on the brink of default, the GOP wants us to “kiss Medicare goodbye” (along with Medicaid and Social Security), but they still refuse to touch a dime of the $77 BILLION in taxpayer handouts that we’ll give to the most profitable industry the world has ever known over the next 10 years.
Here are the numbers you need to know:
$3.4 BILLION = ConocoPhillips’ second quarter profit.
$5.6 BILLION = BP’s second quarter profit, which investors called “disappointing.”
$7.7 BILLION = Chevron‘s second profit, an increase of 42 percent.
$8 BILLION = Shell’s second quarter profit.
$10.7 BILLION = ExxonMobil’s second quarter profit.
17.6 Percent = ExxonMobil’s effective federal tax rate.
20.4 Percent = The average American’s individual effective tax rate.
$35.4 BILLION = The total second quarter profits of the Big 5 oil companies.
41 Percent = The increase in ExxonMobil’s second quarter profits.
$67.4 BILLION = The total profits of the Big 5 oil companies for the first half of 2011."
See, don't you feel better now? Grandma and Grandpa can't afford medicine and may have to live on cat food, but at least the GOP succeeded in making sure billionaires don't have to contribute one cent to the "shared sacrifice" con they've pulled on the American people. Whew! What a relief! I was so worried that oil execs might have to forgo a fifth vacation home or another Lear Jet! Thank gawd they won't have to suffer that indignity!
Oh, and one more thing. If you live in my area, and I overhear you blathering away in some store line about how you vote GOP because they're "pro-life", I'm gonna smack the living shit out of you. Just so you know.
From Igor Volsky at Think Progress:
In what may be one of the most under-reported stories of the debt ceiling talks, Politico’s Jen Haberkorn notes that before negotiations broke down on Friday evening, President Obama and Speaker of the House John Boehner tentatively agreed to gradually raise the Medicare eligibility age as part of a “grand bargain” to increase the nation’s borrowing limit...
Jacob Hacker, political science professor at Yale University, has called the scheme “the single worst idea for Medicare reform” since it “saves Medicare money only by shifting the cost burden onto older Americans caught between the old eligibility age and the new, as well as onto the employers and states that help fund their benefits.” Worse still, some seniors between the ages of 65 and 67 could “end up uninsured,” the Center on Budget And Policy Priorities’ Edwin Park predicted. Individuals “with incomes too high for premium subsidies in the exchange and those who qualify for only modest subsidies” could be priced out of affordable coverage, he warned.
According to the Kaiser Family Foundation, raising the eligibility age to 67 would cause an estimated net increase of $5.6 billion in out-of-pocket health insurance costs for beneficiaries who would have been otherwise covered by Medicare. Seniors in Medicare Part B would also face a 3 percent premium increase, the study found, since younger and healthier enrollees would be routed out of Medicare and into private insurance. Beneficiaries in health care reform’s exchanges would see a similar spike in premiums with the addition of the older population... the rest at Think Progress.
If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered.
One day we're gonna wake up
And the ghetto's all around
All over my friend
Have you ever seen a man break down?
--Feel No Pain, Sade
~~I'm afraid it's no use.
The boat won't come until Monday.
~~No boat will ever come.
We're here forever.
--And Then there Were None,
Many niceties of our civil society are going by the wayside due to fiscal insolvency. In the past two weeks, National Parks and Public Broadcasting have taken the ax.
It takes passion, devotion and insight to build something great and good, and momentum to keep it going. Once gone, that good thing is unlikely to return, and certainly not in its former guise. That is why we shouldn't give the heave-ho to civilizing institutions in the name of pragmatic privatization. When things become private rather than shared matters, the money usually follows the drift line of vested interests vs. the general welfare.
In The Sunshine State (not), Governor Rick Scott has vetoed Florida’s nearly $4.8 million appropriation for public broadcasting. The last-minute budget had already trimmed a third from the PBS budget; now, there is nothing. The station I grew up on -- WMFE -- is going dark.
Public broadcasting began in 1970, forged from private educational stations. One of its primary functions has been to provide educational programming for young people, and generations learned the basics of grammar, reasoning and citizenship on that network. It was a "free" counterpart to the hustle of the commercial networks, producing thoughtful programming and financed by private contributions and matching state funds. Its day is drawing nigh.
Now, state parks across the nation are being forced to close; 70 of 278 in California alone. For those that remain, the bargain with the devil is to allow drilling, raise entrance fees, eliminate provisions and/or cut employees in favor of hoped for volunteers. Timothy Egan calls it "the death of American life by a thousand cuts," and that about sums it up.
Compassionate conservatism under George W. Bush hacked away at the AmeriCorps program, Bill Clinton's initiative to unify a stateside version of the Peace Corps, another worthy initiative which could have helped fill in the gaps. Though John McCain made a gesture to support national service, that program was eviscerated years ago.
There's always money for the dirty, pretty things, the things that elicit a rise, or more lately, a shrug from people falling into lassitude. But the generous and decent things that speak of a nation's drive to uplift itself, those things are being frozen in amber.
As with Ozymandias, there will remain a plaque somewhere to note the spot.
Right now the GOP is attempting to ram through some really bad "free trade" deals before summer break on behalf of a variety of corporate trade lobbyists, including Sprawlmart. By bad deals, I mean bad for the American worker - yet, as you'd expect from anything involving repugs, deals that enhance the profit margins for Wall Street and the investor class. These trade deals will cost even more American jobs; valuable manufacturing jobs that pay well. Needless to say, we can't afford to lose any more jobs, let alone decent jobs - especially in light of an economy that's continuing to stagnate.
Todd Lipscomb, founder of Made in USA Forever, explains that these are one-sided trade deals. He says, "Working in Asia really opened my eyes to the truth about these deals. I saw firsthand how in spite of all the talk of free trade, there is really no such thing as goods only flow to the USA, plus how difficult it is for us to export to Asian nations. It is no surprise they have other priorities, such as taking care of their own. They know that manufacturing is vital to economic growth and prosperity.
"Additionally, they have complex legal and cultural barriers beyond just direct tariffs. For example, Korea protects its automotive industry not so much through direct tariffs that even our politicians could comprehend, but through more subtle barriers – the Korean IRS very, very often audits the taxes of those Koreans that dare to buy American or other foreign cars.
"That is why the Korean Free Trade deal is such a fiasco for the USA. It deals with direct tariffs, while completely ignoring the deeper factors that keep our products out. The Economic Policy Institute estimates we will actually have a net loss 160,000 jobs in the USA if this goes through. Plus, the jobs lost would be good manufacturing jobs, while the jobs gained here would be lower paying agricultural harvesting, etc. meaning wages would drop there too."
Todd reports that Walmart lobbyists, along with the U.S. Chamber of Commerce, visited all 100 senators last week "in an effort to ram through the so-called “free trade” agreements with Korea, Panama, and Columbia." He added that a Chamber leader was quoted in a WSJ article, saying that "We're fighting like hell because if the vote doesn't happen by the recess, we risk it not happening in the fall."
Let's be lobbyists on our OWN behalf (like anyone else is gonna do it!) and let our legislative creatures hear loud and clear that we want no more of these "free trade" deals that only line the pockets of the super-wealthy, while gutting income opportunities for the rest of us. We might also remind the beltway bubble people that we see how these "free trade" deals worked out for this country last time around, even if most of THEM choose to ignore it. Those of us out here in reality land see the disastrous outcomes - every day.
"It was standard practice not to pay for things."
-Orrin Hatch, on Republican fiscal discipline during the Bush presidency, December 2009
Eight years of "not paying for things". Including little things like unnecessary WARS, tax cuts for billionaires, economic collapses due to fraud and gross "mismanagement" - and plying large corporations with huge subsidies and tax breaks to move millions of American jobs to the third world.
Whoops! Now the bill comes due. So naturally, the repug/teabaglican strategy is to trot out the tearful orange spokes-mannequin, and inform the public that all the programs, the public safety nets that they've paid for, the basic services and even the minimal help that's there for them, must be slashed or destroyed. "Because we're broke."
RJ Eskow, writing about the recent budget compromise, points out the following: "Congratulations! The "grand compromise" will cut nearly thirty nine billion dollars in needed government spending, which proves how "serious" everyone is about reducing the deficit. The grand compromisers could have cancelled the next ten years of tax subsidies for oil companies and cut the deficit by forty billion, but apparently that's not how serious people do things."
Aside from the fact that we are NOT broke - they've just given our money away to corporations/banksters without our consent and need only to take it back, which they refuse to do - this was planned, from the get-go. This is their public justification for the wholesale transfer of remaining public resources to corpo-world and the financial elite.
In other words, your kids can't go to college, because this is what the GOP and its compliant Dem enablers have CHOSEN. You can't stay in your own home, because this is what THEY CHOSE. You can't have reasonable protections from the banksters and credit card industry, because this is what THEY CHOSE.
Instead of making banksters pay, instead of insisting that huge corporations pay some taxes, YOUR REPRESENTATIVES HAVE DECIDED THAT YOU ARE GOING TO END UP WITH NOTHING. No break on your student loans for you! No help with your mortgage for you! No bailouts for you! No big tax rebates for you! No Pell grants for you or your kids! And the utter mess of so-called "healthcare reform" touted by the Dems, features as its centerpiece MAKING YOU BUY PLANS from corporate health insurance providers! With no rate caps! This is their great fucking plan! Are you kidding me?
And now they want to take your Medicare, Medicaid, and Social Security. "Because we're broke".
I don't know what it takes for most of y'all out there to wake the hell up and DO something - even if it's just calling these asswipe congressional reps every damn day - but I suggest we get it in gear NOW. Because by the time 2012 rolls around, things are going to be way, WAY grimmer for 98.5% of us. And you know I'm right. It's time to take a stand, folks. Now is the time.
In his January 1961 farewell address, outgoing President Dwight Eisenhower famously warned of what he described as an emerging "military-industrial complex." Less well known among many was his long-term, unwavering dedication to balanced federal budgets: subsequent to a tax cut in 1954, Eisenhower ignored the harangue for more tax cuts, even in the face of recessions and average economic growth less than that of the Truman years. Eisenhower understood that the economy was in the doldrums, but he also grasped that the balanced budgets he would realize in the final years of his tenure were the result both of responsible spending and of responsible tax policy. There was little justification to go along with tax cuts just for the sake of tax cuts as a Keynesian substitute for mature, steady control of the federal budget on both the expenditures and revenues sides. The bawl for tax cuts to boost the economy fell on deaf ears in the Oval Office of Dwight D. Eisenhower, even when the call came repeatedly from his own Vice President, Richard Nixon.
President Eisenhower's successor in office, John Kennedy, caved to the call of both Republicans howling for tax cuts and neo-Keynesians among his own Democrat advisers who firmly believed in federal spending and lower taxes as twin weapons in the war against lackluster economic growth. The tax cuts of 1964, largely the result of encouragement by Kennedy before his assassination, resulted in a nearly two-decade spiral of federal spending with inadequate tax revenues. As time went on through this period, the Federal Reserve would deviate from its exclusive duty in monetary policy of maintaining stability of the aggregate price level and instead steer perilously further into the slippery slope of financing excess spending by the government through accommodative monetary policy. Through the Administrations of Johnson and Nixon, followed by the flaccid "Whip Inflation Now" campaign of President Ford as the inevitable inflation became more and more embedded in the economy, few looked back at the leadership Eisenhower had exemplified, choosing instead to look to the urgency of the contemporary situation to justify one more round of this stimulus, that wage-and-price control regime, or some other doomed-to-fail way of replacing strong, solid command with slogans, patches, and promises.
It would take one-term President Jimmy Carter to appoint Paul Volker to chair the Federal Reserve Board before the only real remedy would come: a draconian, sustained, contractionary monetary policy regime. With the cure would come serious pain to augment the suffering of the economy. What had been "stagflation" that had settled in during Carter's term became a full-blown crisis of looming, stunningly hard recession as the draining of liquidity from the economy by the Fed sent interest rates to extraordinary heights. Few were those who credited Mr. Carter for doing what had to be done, and he was defeated by Ronald Reagan in the 1980 general election.
What had been nearly balanced budgets during Carter's last years became soaring deficits as President Reagan, with good justification, led the old-time Republican gospel choir in a successful push for deep tax cuts. It would not be until his Vice President, George H.W. Bush, became President that tax rates would be re-aligned to more responsible levels. His successor, President Clinton, would enjoy the longest sustained economic expansion in U.S. history, an economic boom time attended by low unemployment, low inflation, and strong tax revenues, not the least of which came from robust capital gains realized by investors in a surging stock market.
That unrelentingly good stock market embittered Alan Greenspan, Paul Volker's protégé and successor as Chairman of the Federal Reserve Board. Greenspan testified before Congress that the stock market was exhibiting what he called "irrational exuberance," an utterly fallacious claim that incomprehensible numbers of investors making even more incomprehensible numbers of trades over months and years could possibly sustain "irrationality" at the scale of trillions of dollars in investment decisions. (To his credit, Mr. Greenspan kept a dead-pan serious look on his face as he made his absurd declaration to a gullible assembly of congressional committee members.) Although he did not use the word at the time, Mr. Greenspan might legitimately be credited with introducing the idea behind the vapid term "bubble" to describe, especially in retrospect, any price level increase theoreticians and critics find unacceptable and perhaps incomprehensible.
There was method in Greenspan's claim, though, despite the failure of his effortsincluding the most consecutive increases in the discount rate everto stop the economic juggernaut of the Clinton years. With tax revenues continuing to close in on federal spending, largely because of tax revenues from capital gains, the Federal Reserve would eventually lose its most powerful tool for conducting monetary policy and, therefore, for being a major control agent of the macroeconomy. So-called "open market operations" by the Federal Reserve use short-term government debt instruments as the leverage for adding liquidity to or draining liquidity from the banking system. The Fed sells Treasury bills to member banks to drain liquidity, and it buys Treasury bills from banks to add liquidity; but if the government stops running budget deficits, the U.S. Treasury stops issuing T-bills (and pretty much all other Treasury debt securities, for that matter). Hence, without T-bills being issued by the U.S. government, the Federal Reserve has no instrument for executing open market operations, so it is effectively out of business as a driving force in economic policy-making.
It was with that in mind that, when George W. Bush succeeded Bill Clinton, not only did the Republicans call for tax cuts to deal with a recession that never actually happened at the beginning of the 21st Century, but Alan Greenspan was there with them, in late January of 2001 providing the assurance from the supposedly objective Chair of the Federal Reserve Board that the economy was, indeed, in such dire condition that the tax cuts were needed. The Republican-controlled Congress then had all the cover it needed, thin as that excuse was at the empirical level, to institute sweeping tax cuts that would last a decade to the real, underlying purpose of trying, as President Reagan had a generation before, to starve the federal government of the funds to pay for social programs.
The horror of the events of September 11, 2001, would fuel two extraordinarily costly wars and massive security expenditures in the homeland that would only exacerbate the widening federal budget deficits of the presidency of George W. Bush, leaving the U.S. Treasury bereft of any semblance of buffer when a real, powerful recession hit at the end of the Bush Administration.
The current President, Democrat Barack Obama, will cave to the Republican call to extend those massive tax cuts deployed ten years ago and which are about to expire. More likely than not, despite his protestations that he will draw the line short of extending the tax cuts for the wealthiest Americans, he will likely find no new political backbone and certainly no new reserve of political capital to make good on much of that vow.
For Mr. Obama and his team of advisers, extending the tax cuts will be nothing less than good Keynesian fiscal stimulus policy. In that regard, he will be much like his Democrat predecessor of a half-century ago. Unlike Jack Kennedy, though, Barack Obama will probably not be martyred, and he most decidedly will not be lionized in the decades and years after his short time in office.
In the end, President Obama will be no John F. Kennedy. More importantly to the future of this nation, he will never be Dwight Eisenhower.
In meager defense of Mr. Obama, not one Republican in office today could hold a candle to Mr. Eisenhower, either.
In America, every generation gets the leadership it elects. Consequentially, it gets the leadership it deserves.
When the allies wanted to let the French Resistance know that the D-Day invasion was imminent and they should prepare to fight, they sent the message "John has a long Mustache." In homage to this great video I propose that "Ben has a nice beard" should be the code word to announce our forthcoming domestic uprising.
Gross Domestic Product is defined as the total value of all final goods and services produced within a nation during a given period of time. The U.S. Commerce Department reported at the end of October that the United States GDP rose at an annualized rate of 2.0 percent in the 3rd Quarter of 2010, up from 1.7 percent in the second quarter. The Washington Postdescribed this growth rate as "feeble," and the Los Angeles Timesclaimed that "most economists" consider a growth rate below 2.5 percent as inadequate to substantially reduce the unemployment rate from its historically high level of 9.6 percent.
The story is a little more complicated than that, and the outlook for the economy, while not bright, is not as badat least not in the short runas some economists and political interests might suggest. The longer-term prospects aren't particularly attractive, but that goes to the old saying that it's always darkest just before it's pitch black outside. (The optimist's version of that old saying is, "It's always darkest just before the dawn," but this article is about economics, so optimists will be shot on sight.)
First, GDP is the sum of consumption, private investment, government spending (public investment), and net exports (exports minus imports). In the 3rd Quarter, all of the components of GDP except net exports showed good growth. Our thirst for those cheap imports is still sapping GDP growth, but that will change. The bad news is that the recovery of net exports over the next several years will present its own problems, and hints of those problems are already beginning to become apparent.
The U.S. dollar has been getting weaker against other currencies for several years, now. That makes our exports cheaper overseas, which means our net exports will get stronger. The downside is that, as our exports get cheaper in other countries, imports get more expensive here.
Businesses that have invested heavily in overseas manufacturing of products for domestic consumption will eventually have to start charging more for the goods they sell here in the United States. Retailers that have, over the past decade-plus, geared their purchasing toward foreign products to sell at their American stores will be forced to mark up those goods on their shelves. Anecdotal evidence seems to indicate that this is already happening.
The good news is that, if foreign products are more expensive on retailers' shelves here in the U.S., domestic producers of the same products will find their offerings more attractive as alternatives for buyers. Not surprisingly, though, that has a downside: as the foreign versions of products rise in price, domestic producers of the substitutes will have incentive to raise their prices, too. This is especially true in competitive markets, where constituent firms tend to be "price-takers," moving toward prevailing prices established beyond their individual control.
That's when a major force of consumer-level inflation begins to beat on the door, but only if the economy has a lot of liquidity that can allow consumers to buy at higher prices; otherwise, the pressure to raise prices has no fuel in consumers' pocketbooks.
That's where our central bank, the Federal Reserve, comes into the picture. In the short run, the Fed can use "easy money" to stimulate the economy, a policy of expansionary monetary policy it has been following aggressively to help the American economy out of the worst recession in decades. Unfortunately, in the long run, all that money pumped into the economy is nothing other than a vast reservoir of fuel for inflation because it will provide the liquidity by which the incentive of producers to raise prices will meet the dollars available in consumers' pockets to pay those higher prices.
The good news is that consumers really do not have those dollars to spend right now so inflation will not show up until they have considerably greater willingness to consume. That will come only when the unemployment rate falls quite a bit from its current level.
It works like the gears in a clock, then: inflation will stay subdued until the jobs picture improves, but once that happens, the power of consumptionaccounting as it does for about 70 percent of GDP growthwill guarantee that the huge pool of excess dollars poured into the economy by the Fed will turn into an inflation conflagration.
Once the rising prices pick up enough speed to cause serious concern among the Federal Reserve's policy makers, the central bank will be forced to clamp down hard on the money supply to drain that ocean of excess dollars. By that time, though, inflation expectations will have become embedded in both the goods and labor markets (the labor markets will be the last to start realizing their share of inflation-driven price increases), so the Fed will have to crush the money supply not only long enough to drain the reservoir of excess liquidity, but also to drain the reservoir of expectations that the excess liquidity is still around.
The result will be a period of both high inflation expectations driving wages and prices higher along with stagnating economic growth as interest rates rise on the already embedded inflation premium coupled to a sharply contracted money supply. At the end of the 1970s, the term "stagflation" was used to describe this situation.
In the here and now, a modestly rising GDP is perhaps better news than one might think from hearing economists, pundits, and politicians talk. As long as the GDP rises anemically, the unemployment rate will not drop too swiftly; and as long as the labor market remains soft, consumer spending will not pick up speed with any vigor. When it does, price inflation at the retail level will start to rear its head seriously, given that the foreign imports upon which retailers have relied for so long will be getting more expensive, pushing the prices of domestic equivalents up, too.
When things will turn rather sour, with inflation getting noticed by the mainstream media, might be difficult to predict down to the month or even the quarter, but an optimistic guess would put the time frame somewhere around 2012 for the inflation to get serious enough for the Federal Reserve to finally react forcefully enough and long enough to tame it. The resulting economic slowdown, then, might start some time in the latter part of 2012 or in the first half of 2013.
A less optimistic forecast would put clear evidence of inflation at the retail level happening in late 2011 or early 2012. In that scenario, the Fed would have to start clamping down on the money supply by the Summer of 2012. As rough as that would be, what might become serious efforts to bring the deficit spending spree of the past decade under control would start to bite hard into the GDP (remember that government spending is one of the four components of gross domestic product). Rising interest rates, inflation at the retail level, and less government spending could all come together like the proverbial perfect storm to claw consumer confidence and business investmentessentially, the whole economic recovery enginedown to a crawl just around the time of the general election, when the current occupant of the White House would be hoping for all kinds of good news to get re-elected.
The Republican nominee would, of course, breathe polemical fire about the end of civilization as we know it, and the Democrat incumbent would find himself having to try a second round of soaring rhetoric about hope and change.
As an alternative, the President could take the even less useful route of trying to teach the American public about macroeconomics. This would be the same American public that just return to control of the U.S. House of Representatives members of the party whose last reign ultimately put the entire financial system of the world at the brink of cataclysmic collapse and drove the American economy into the worst recession in decades. Yes, that's the sort of class every teacher wants to educate without a cattle prod and a crate of detention slips.
Is that less optimistic forecast how it's all actually going to happen? Probably. After all, this is economics.
If you want happy endings, watch reruns of The Love Boat. If you want inspiring stories, watch reruns of Touched by an Angel.
If you want darned good forecastingalbeit with a generous but necessary dose of pessimistic, cynical despairlearn economics from your host here at Big Brass Blog, where misery loves company. It is far better to be with others when the future is bleak and there's nothing whatsoever you can do about it.
Remember to keep hope alive; otherwise, you'll have nothing to give up when all is lost.
Competitive markets are not the same as "free markets." The difference is easy to spot: corporations and their shills will run like Hell from competitive markets; Republicans will never speak of competitive markets; and Democrats will slap any fixno matter how complicated, expensive, and ineffectiveon a problem to avoid modernizing and reforming antitrust law to crush the companies that have constructed non-competitive markets.
Competitive markets are brutal to the participants on the supply side.
Free markets are even more brutal to the participants on the demand side.
The bad news is this: now that the extremists of free markets are ascendant in public policy, you could very well get eaten.
The good news is thus: so could the imbeciles who put those Right-wing hoe-handles in power.
Lie low and avoid the chow line. The herd is about to be culled of its idiots.
I choose my friends for their good looks, my acquaintances for their good characters, and my enemies for their intellects. A man cannot be too careful in the choice of his enemies.
Oscar Wilde (1854-1900)