[T]here is a cost to the Fed’s aggressive easing programs, and that cost will be paid in terms of bond market ructions and a sharp slide in the value of the dollar.

DECEMBER 11, 2012

Bernanke's (Latest) Big Mistake

Crashing the Bond Market

by MIKE WHITNEY

Ben Bernanke has made a serious mistake and the country is going to pay dearly for it.

Since 2009, the Fed Chairman has launched 3 rounds of his bond buying program called quantitative easing or QE. He also initiated a similar program called Operation Twist in which the Fed changes the duration of its portfolio by selling short-term US Treasuries and buying longer-term ones. Like QE, Operation Twist is designed to reduce borrowing costs for businesses and consumers by pushing down long-term interest rates. All told, the Fed’s various unconventional easing programs have more than doubled the Fed’s balance sheet (now approaching $3 trillion) while tripling the amount of liquidity (base money) in the financial system. At present, those excess reserves pose no danger to overall price stability, but if the economy rebounds–as it eventually will–then the Fed will either have to mop up the extra liquidity quickly or face an inflationary tsunami unlike anything the country has experienced in its 230 year history.

Bernanke is expected to announce an extension of Operation Twist later this week following a meeting of the Federal Open Market Committee or FOMC. Analysts expect the Fed to continue to purchase $45 billion per month in USTs via Operation Twist, and another $40 billion in mortgage-backed securities (MBS) per month via QE3. All told, the Fed is on track to buy $85 billion in financial assets per month “indefinitely” to maintain the status quo, that is, to sustain grossly-inflated stock prices and a real economy that is barely treading water 4 years after Lehman Brothers defaulted. Here’s how Barron’s sums up Bernanke’s progress in restoring the economy to financial health:

“….the Fed not only has failed to spur real growth but mainly has pumped up prices. That’s been a boon for wealthy investors who have benefited from lift in asset prices, but a bane for middle- and lower-income consumers who have to pay more for food and fuel…..

During QE1 and QE2, wholesale gasoline prices jumped 30% and 37%, respectively, while the food component of the Goldman Sachs Commodity Index rose 7% and 22%, respectively. Meanwhile, the Standard & Poor’s 500 gained 36% and 24% during those respective spans. ….

The unintended consequence of higher prices, and reduced workers’ real incomes as a result, actually has been to slow economic activity, he argues. The wealth effect, meanwhile, has been confined to upper-income households, whose spending is hardly affected by asset prices. According to one estimate Hunt cites, a $1 increase in wealth generates less than 0.5 cents in incremental spending.” (“Don’t Blame Us, Bernanke Says”, Barron’s)

QE is not just an ineffective way to stimulate the economy, it’s actually counterproductive. (as we’ll see) $1 increase in food stamps, unemployment benefits, public infrastructure programs or other forms of fiscal stimulus all have greater impact on economic activity. Bernanke’s large-scale asset purchase program has done nothing to reduce unemployment, boost demand or increase growth. It is a straightforward reflation project designed to prevent a restructuring (and, perhaps, nationalization) of the banking system by propping up prices on complex financial assets which, otherwise, would be worth just a fraction of their original value. But there is a cost to the Fed’s aggressive easing programs, and that cost will be paid in terms of bond market ructions and a sharp slide in the value of the dollar.

At some point, the Fed will have to reverse-field and sell the stockpile of unwanted assets on its balance sheet. That, in turn, will put pressure on stock prices, slow economic growth, and (in Barron’s words) “crash the bond market.” Of course, no one knows whether these dire predictions will come to pass or not, since the Fed’s programs and balance sheet expansion are without precedent. Simply put: We are in uncharted waters. One would think that that fact alone would spur greater caution among the Fed governors whose explicit task under its charter is to ensure “price stability”. But that hasn’t been the case. Led by “Great Depression expert”, Bernanke, the Fed has upped-the-ante at every turn exchanging hundreds of billions in reserves for complex bonds of uncertain value (MBS) and distorting prices on benchmark 10-year yields by dominating the market for USTs. Check out this article in Bloomberg titled “Treasury Scarcity to Grow as Fed Buys 90% of New Bonds“:

“Even as U.S. government debt swells to more than $16 trillion, Treasuries and other dollar fixed-income securities will be in short supply next year as the Federal Reserve soaks up almost all the net new bonds…… the Fed, in its efforts to boost growth, will add about $45 billion of Treasuries a month to the $40 billion in mortgage debt it’s purchasing, effectively absorbing about 90 percent of net new dollar-denominated fixed-income assets, according to JPMorgan Chase & Co.

“The shrinking amount of bonds in the market is lowering rates and not just benefiting the Treasury, but providing lower rates for private-sector decision-makers as well,” Zach Pandl, a senior interest-rate strategist in Minneapolis at Columbia Management Investment Advisers LLC…

Deposits at U.S. banks exceed loans by $1.91 trillion, marking a turnaround from 2008, when loans exceeded deposits by about $200 billion. Much of that surplus money has been used to buy Treasuries and government agency debt such as that issued by Fannie Mae, Freddie Mac, boosting holdings to a record $1.86 trillion, Fed data show.” (“Treasury Scarcity to Grow as Fed Buys 90% of New Bonds“, Bloomberg)

Notice how enthusiastic Bloomberg is about the fact that the Fed is “absorbing about 90 percent of net new dollar-denominated fixed-income”, even though consumer loan demand has remained weak. In other words, Bernanke’s extremist policies have not produced the credit expansion he anticipated.

And where are the other buyers of US Treasuries? Have they moved their money into equities as Pavlov-Bernanke intended or have they merely opened savings accounts in order to hunker down and reduce their debt-load? (Bloomberg: “Deposits at U.S. banks exceed loans by $1.91 trillion”)

And how can one accurately assess the value of USTs or MBS when the price is effectively set by Central Bank intervention? One must assume that the price of these assets will fall precipitously when the Fed stops its meddling and market forces are allowed to work.

So, what’s in store for US Treasuries and the dollar? Are we on the brink of a currency crisis and a bond market cataclysm that will dwarf the Crash of ’08?

Former Fed governor, Kevin Warsh, pointed out the potential pitfalls of the Fed’s strategy in an article in the Wall Street Journal titled “The New Malaise”. Here’s an excerpt:

“The Fed’s increased presence in the market for long-term Treasury securities also poses nontrivial risks. The Treasury market is special. It plays a unique role in the global financial system. It is a corollary to the dollar’s role as the world’s reserve currency. The prices assigned to Treasury securities–the risk-free rate–are the foundation from which the price of virtually every asset in the world is calculated. As the Fed’s balance sheet expands, it becomes more of a price maker than a price taker in the Treasury market. And if market participants come to doubt these prices–or their reliance on these prices proves fleeting–risk premiums across asset classes and geographies could move unexpectedly. The shock that hit the financial markets in 2008 upon the imminent failures of Fannie Mae and Freddie Mac gives some indication of the harm that can be done when assets perceived to be relatively riskless turn out not to be.” (“The New Malaise”, Kevin Warsh, Wall Street Journal.)

The dollar may be the foundation upon which the US Empire rests, but the bond market is the bedrock beneath the buck which keeps the entire economic, political and military scaffolding in place. To admit, as Warsh does, that the Fed is price-fixing on a global scale (“more of a price maker than a price taker”) suggests that the “nontrivial risks” of which he speaks could be an erosion of US dominance in the world vis a vis the dollar’s position as the world’s reserve currency. This is a theme that has been explored by many journalists, including former undersecretary of the Treasury, Paul Craig Roberts, who made these observations in a recent article in CounterPunch:

“The Federal Reserve is purchasing not only new Treasury bonds issued to finance the more than one trillion dollar annual federal deficit but also the banks’ underwater financial instruments, taking them off the banks’ books and putting them on the Federal Reserve’s books.

Normally, debt monetization of this amount results in rising inflation, but the money that the Federal Reserve is creating in its attempt to manage the public debt and the banks’ private debt is hung up in the banking system as excess reserves and is not finding its way into the economy. …

However, the debt monetization poses a second threat that is capable of biting the US economy and consumer living standards very hard. Foreign central banks, foreign investors in US stocks and financial instruments, and Americans themselves observing the Federal Reserve’s continuous monetization of US debt cannot avoid concern about the dollar’s value as the supply of ever more dollars continues to pour out of the Federal Reserve….The world is abandoning the use of the dollar to settle international accounts, and the demand for dollars is falling as the Federal Reserve increases the supply of dollars.” (“The Coming Crash of America” Paul Craig Roberts, CounterPunch)

If the world is losing confidence in US stewardship of the de facto global currency, then the blame rests squarely with the Fed. Bernanke’s misguided policies have backed the Fed into a corner. There’s no way that Bernanke can escape his present predicament without pushing the economy back into recession or triggering currency crisis.

Here’s how former FDIC chief Sheila Bair summed it up in an interview with Reuters 2 weeks ago. Her comments were made in reference to, what she called, “The Mother of all bond bubbles”.

BAIR: “Fundamentals do not support current current Treasurys prices…This is what we saw in the housing bubble, a massive underpricing of risk. Eventually, it’s going to correct, and that’s going to create long-term problems for our kids and our country as well as short-term problems for the financial sector”

Indeed. Eventually, the distortions will work themselves out and the market will correct, but at what cost?

There’s bound to be an “Ah ha” moment when market participants realize that Central Bank managers have no idea of how to mop up the trillions in liquidity they created through QE. The FOMC’s can-kicking deliberations (At present, the Fed does not plan to trim its balance sheet until mid-2015) are just a way of delaying the “adverse impact of liquidity draining operations” (Richard Koo) Those operations pose a significant risk to the financial system, the economy, and, perhaps, to the existing order.

Unwinding the Fed’s bulging balance sheet is not going to be easy or painfree. There’s a good chance that yields on USTs will skyrocket while the hobbled dollar goes into freefall. As economist Michael Hudson likes to say, “There’s no free lunch.”

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

Obama has confounded their expectations so often that, when things are looking up, [liberals] dare not jinx the outcome. His defenders hope that, on [raising tax rates on the wealth] at least, he will hold fast; that the new Obama has more backbone than the old.

DECEMBER 13, 2012

The Hollow President

A New Obama?

by ANDREW LEVINE

As President Obama negotiates with House Speaker John Boehner and other leading Republicans on avoiding the “fiscal cliff” and addressing the ballyhooed “deficit problem,” he is adamant on one point – that marginal tax rates on the top two percent of earners be restored to their Clinton era levels.

Has he turned over a new leaf? Could he have overcome his first and final instinct, on display countless times over the past four years, which is to let know-nothings walk all over him?

Liberals who can’t let go of the idea that Obama is a “good guy,” doing the best he can in hard times and in the face of Republican obstinacy, seem to think so. Few dare say it outright, however; and who can blame them? Obama has confounded their expectations so often that, when things are looking up, they dare not jinx the outcome.

With our two semi-established, like-minded but bitterly polarized, political parties monopolizing elections, and with the electoral process more than ever corrupted by money, the information elections convey is always, at best, garbled. But Obama did campaign on restoring Clinton-era tax rates on household incomes greater than $250,000, and on persons filing singly with incomes over $200,000; and so he has as much right as anybody, reading the election results, to claim that he has a “mandate” to raise taxes on the top two percent.

His defenders hope that, on this at least, he will hold fast; that the new Obama has more backbone than the old.

They are setting themselves up to be disappointed – again – because Obama’s steadfastness was never really the issue. His negotiating tactics may indeed be bolder now than four years ago, when he squandered the stores of political capital he gained in the 2008 election. But it will become clear, before long, to all but the willfully blind that neither his goals nor his strategy have changed.

What does Obama want? Plainly, not what his liberal boosters think. To be sure, like all Democrats, he does need to appear to side with the constituencies Democrats draw on for votes. But neither he nor they could care less about advancing the interests of those voters.

If they did care even a tad they would be mobilizing now to reverse Michigan Governor Rick Snyder’s sneak attack on working people, the “right to work” legislation he pushed through the Michigan legislature. Thanks to this one foul deed, the bastion of American industrial unionism has been turned into safe territory for the likes of the Koch brothers and their ilk. And what is Obama doing about it? The question answers itself.

Everyone knows what Obama and Company did – or rather did not do – in Wisconsin, Ohio, Indiana and elsewhere in the spring of 2011, in the face of similar machinations initiated by bought and paid for Republican governors and legislators. As a working-class based mass movement, the first in decades, took shape in opposition, they bided their time until they could intervene to assure that popular outrage would become lost in the miasma of meaningless electoral contests.

Despite all that organized labor did for Obama and the Democrats in 2012, he and they are back at it now.

Finding himself in Michigan, speaking to workers about taxes on the very day of Snyder’s infamy, Obama could hardly not voice disapproval. But don’t expect to hear more from him about that any time soon. The change President doesn’t change.

If only the union movement, in fighting back, would take on the Democratic Party too! Don’t count on that either. Obama’s inclination to let Republicans have their way with him pales before the readiness of labor leaders, and leaders of the several other constituencies Obama malignly neglects, to stand by their man no matter what.

Before the November 6 election, they at least had Mitt Romney and the Tea Party for an excuse. Now they don’t even have that.

What Obama and other Democrats want is not what Democratic voters want. It is instead what Democratic Party leaders have wanted ever since Bill Clinton (gently) purged the party’s left wing. They want to supplant Republicans as the electoral favorite of America’s financiers and corporate tycoons.

They’ll never get them all: family traditions and ideological blinders run too deep, and some of them are just too mean spirited. But, as the Clintons realized decades ago, there is a lot of low hanging fruit out there waiting to be picked off. After all, how much enlightened self-interest does it take to realize that Democrats can deliver for the ruling class in a way that Republicans never can?

Democrats have been courting plutocrats for years now, and their efforts have not been in vain.

The main obstacle in their way is that Republicans have a lock on the yahoo vote, and a genius for mobilizing it in support of plutocratic (and therefore anti-yahoo) interests. Plutocrats appreciate that.

For this, Democrats are themselves partly to blame. Because they are fundamentally of one mind with their pro-bankster, pro-corporate rivals, their message too is plutocrat-friendly; they too miseducate the voting public.

And so, the only alternative they project, clearly enough to register in the minds of the misled and uninformed, is cultural, not economic or political.

Of course, in the real world, the cultural chasm between plutocratic elites and the Republican base is easily as great as the one that separates social liberals who vote Democratic from cultural reactionaries who vote Republican.

But Republicans, with the corporate media in tow, are good at masking the former chasm and better still at exaggerating the one that makes decent, reasonable people seem like a supercilious “other” to likely Republican voters. This is why cultural contradictions and class animosities that would undo political formations in saner climes are not the obstacles they would otherwise be here in the Land of the Free.

But demography is destiny; and so, even Republican strategists have come to understand that there aren’t enough yahoos around any longer to outvote the large and growing components of the Democratic “base” — especially as age takes its toll on the geezers who still call the shots in large swathes of the country, and as new generations, no longer wedded to the nostrums of their elders, assert themselves, as Obama might say, not just in “red states” or “blue states” but throughout the United States.

The news is even beginning to reach the plutocrats themselves. More than a few of them are coming to realize that if they want to get their way, replacing the Republicans their useful idiots vote for with compliant Democrats can sometimes make sense.

So the pertinent question is not: what does Obama want? It is: what do the plutocrats whose hearts and minds he yearns to win over want?

There is no mystery about that: they want to repeal the New Deal and Great Society, and if they can get rid of bothersome Progressive Era reforms as well, they want that too.

In other words, they want to restore the political, social and economic regime that their counterparts enjoyed in their grandparents’ and great-grandparents’ day. In this new Gilded Age made possible by neo-liberal globalization and the “bipartisan” consensus that deforms our political culture, they want near total immunity from state interference.

Libertarian economists and philosophers are at the ready to provide them ideological cover, but the rationales they contrive, no matter how clever, are window-dressing. Of course, the rich are as good at self-deception as anyone. But whatever they may say, or even think, for them, it’s not about ideas; it’s about money.

Plutocrats want the affirmative state gone, the better to enrich themselves – not just by paying lower taxes but by privatizing everything that can be privatized and then some; and by freeing up state revenues for enhancing the already ample subsidies paid out to the many complexes, military-industrial and otherwise, that blight our political scene.

This is what the self-declared “job creators” at the commanding heights of American capitalism have wanted for as long as they have perceived the state standing in their way. Too bad for them that getting from here to there is not as easy or straightforward as they used to think and as Republicans still assume.

Even now, despite their losses last month, Republicans set the agenda. However they can’t deliver; that pesky Democratic base is standing in the way. But Obama and the Democratic Party leadership see an opening, and damn if they’ll let it pass by.

Once we realize this, Obama’s newfound boldness in insisting on raising tax rates for the top two per-cent – or, rather, restoring the rates that were in place a decade ago — starts to make sense.

***

Though they say it is, in truth it’s not about fairness.

For one thing, when fairness is the issue, it seldom makes sense to separate out particular institutional arrangements, much less their technical details, from the economic and political systems in which they operate as integral parts.

But setting that intractable problem aside and supposing that we can meaningfully focus on tax rates alone, how do Obama et. al. get to the conclusion that all will be fair – or is it fairer? – if the rates on the top two percent return to pre-Bush levels?

If they have a plausible answer, they are keeping it to themselves. But, of course, there is no plausible answer.

Philosophers have been discussing what fairness involves for millennia; and at no time more than in recent decades. All this attention has been productive; it is possible nowadays to make defensible, and relatively uncontroversial, claims.

But connections between the philosophical literature on fairness and on the larger topic of justice and the position assumed by Obama in his negotiations on avoiding the “fiscal cliff” and the “deficit problem” are non-existent.

Obama and other Democrats just throw the word “fairness” around in the hope, apparently, of appealing to widespread intuitions that will win popular support.

Their idea seems to be that if we find ourselves in a situation in which sacrifices must be made, it is only fair that everyone sacrifice equally or perhaps in proportion to their ability to shoulder the burden.

Obama and the others would like people to think that we are in such a situation now. Republicans would like everyone to think so too. Not surprisingly, the media has fallen in line as well.

Nevertheless, it is far from obvious that the fiscal cliff or the deficit are as dangerous as all sides make them out to be. But even if we let that pass too, it is hard to see how Obama can get the Clinton tax rates, or anything like them, out of the intuitions they seem to be relying on.

For that, Obama needs to conflate issues pertaining to the distribution of benefits and burdens, the subject of theories of distributive justice, with concerns about retributive justice; in other words, the distribution of punishments and rewards.

And so, implicitly, Democrats appeal to the widespread understanding that the well-off – maybe not everyone in the top two percent, but surely everyone in some fraction of the top one percent – have been making off like bandits, taking unfair advantage of the sacrifices of others.

That would justify increasing their tax burden – not so much to make the resulting distributions more fair, but to rectify the wrongdoing of the beneficiaries of the system in place.

In that context, it doesn’t matter so much that the amount is arbitrary; this is normal where punishment is involved.

For example, people might feel that five years in prison is too lenient a sentence for some particular criminal offense, that a twenty year sentence would be too harsh, and that some number within that range would be fair or fair enough. Within those boundaries, a judge could exercise discretion in sentencing without fear of anyone gainsaying the result on the grounds that the sentence is unfair.

Similarly, if Obama’s insistence on raising rates for the top two percent has anything to do with fairness at all, the idea would have to be that Clinton level rates fall within an acceptable range, while Bush level rates do not – for roughly the same reason that a nineteen year sentence for the aforementioned crime would be acceptable, but a twenty-one year sentence would not.

However this is no more plausible than any of a host of contrary judgments that rely on similarly vague intuitions, and it is certainly not defensible in any more principled way. Strain as we might to find some substance behind Obama’s appeals to fairness, I would venture that we are bound to come up short.

***

But if it’s not about fairness, what is it about?

The short answer is: it’s about getting the plutocrats what they want.

Whatever else they may do, and whatever hardships and dangers they involve, crises, real or imagined, provide opportunities for politicians.

This is why Democrats and Republicans have concocted a “fiscal cliff” and why they agree that a looming “debt crisis” must be avoided at all costs. Crises like these enable them to do, or attempt to do, what they would stand no chance of doing, or even attempting, in the normal course of events.

And so Democrats and Republicans negotiate – Obama leading one side, Boehner, obdurate as ever, leading the other. And tax rates on the top two percent of earners are among the points in contention. Both sides have seen to that, though for different reasons.

Negotiations involve give and take; short of unconditional surrender by one side or the other, each of the negotiating parties will have to give up something for the sake of achieving some gain.

Republicans predictably are giving their all for the plutocrats’ maximum program. They are therefore holding out for keeping the rates for the rich and super-rich as they are.

But with his “mandate” in place, Obama has the stronger hand. And he knows that the plutocrats he is courting know that he is in a better position than Boehner to get what he insists upon most adamantly.

Obama is counting on those same plutocrats, the enlightened ones anyway, to realize that they stand to gain more if they side with him, and lighten up, just a little, on their wish list.

Reason is on his side; plutocrats who still have the wits they were born with should be able to see that pursuing their maximum program, in the present circumstances, is likely to result in an outcome worse, for them, than the one Obama is offering.

The reason why, again, is that Obama can deliver on setting progress back to a degree that Republicans cannot, and because a small adjustment in marginal tax rates is a small price to pay for that result.

Clinton was better even than Ronald Reagan in delivering on Reagan’s goals — on trashing regulations and and on ending “welfare as we know it”– because he could neutralize the opposition and bring Democrats along. Had Republicans, not succumbed to the temptation to impeach him, he might have delivered on Social Security too.

But circumstances now are such that if Obama can find it within himself to keep up his resolve, his legacy will be to have left his predecessor and mentor standing in the dust.

And that is what will have become of hope and change – unless we, the people, mobilize well enough and wisely enough to stop him in his tracks.

ANDREW LEVINE is a Senior Scholar at the Institute for Policy Studies, the author most recently of THE AMERICAN IDEOLOGY (Routledge) and POLITICAL KEY WORDS (Blackwell) as well as of many other books and articles in political philosophy. His most recent book is In Bad Faith: What’s Wrong With the Opium of the People. He was a Professor (philosophy) at the University of Wisconsin-Madison and a Research Professor (philosophy) at the University of Maryland-College Park. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press).

For those unfamiliar with what a “right-to-work” (I hate that godawful slogan) state is, it’s a state where you don’t have to join the union or pay union dues as a condition of employment. By contrast, a union shop (or, in some configurations, an “agency shop”) is a facility where you are required to become a union member as soon as you hire in. ... This Michigan deal is bad. It could prove to be as big a blow to organized labor as Ronald Reagan’s 1981 firing of the air-traffic controllers. Let’s not forget that, corny as it sounds, perception is everything, and when Reagan fired those PATCO guys, he single-handedly altered the perception of union strength in America.

DECEMBER 13, 2012

How Should Labor Respond?

Losing Michigan

by DAVID MACARAY

When you examine the history of organized labor—the birth, growth, trajectory—you have to be shocked and mortified by what just happened to the great state of Michigan. They went from being one of the strongest, most celebrated union bastions in the country (the UAW was formed in 1935, the same year the Wagner Act became law) to becoming the 24th right-to-work state.

For those unfamiliar with what a “right-to-work” (I hate that godawful slogan) state is, it’s a state where you don’t have to join the union or pay union dues as a condition of employment. By contrast, a union shop (or, in some configurations, an “agency shop”) is a facility where you are required to become a union member as soon as you hire in.

In the wake of this Michigan debacle, the media have been referring to union shops as “closed shops,” which is incorrect. The closed shop (which required that new employees already belonged to a union, any union, even before being hired in) has been illegal for decades. It was outlawed by the Taft-Hartley Act (1947).

One of the horrendously unfair things about a right-to-work state is that it allows non-union employees to get a free ride. As everyone knows, union wages and benefits are, across-the-board, roughly 15-percent better than non-union wages and benefits. Plus, union facilities, by and large, have better safety records than non-union facilities. That’s because safety rules and department safety committees are written into union contracts.

Incredibly, employees who work in a union facility within a right-to-work state, but who selfishly refuse to join the union, still get to enjoy the valuable perks of a union contract. It’s true. They get to work in a clean, safe environment, and they get to enjoy those 15-percent higher wages and those 15-percent better benefits that the union bargaining board sweated blood to negotiate for them. They get to wallow in all these benefits despite not having the integrity or moral courage to join the union.

Not only that, but these people get to file grievances, just like regular union members, which seems utterly ridiculous. It’s like an atheist going to the Catholic Church and demanding to be canonized. In fact, the only things these freeloaders give up is not being allowed to run for union office or vote in union elections. Big whoop-dee-do. How many union members run for office anyway?

What should labor’s response be to the Michigan reversal? Should we react hysterically? Should we treat this unfortunate but isolated event as a precursor to the inevitable apocalypse that awaits us? Or should we take a deep breath and calmly assess the actual damage? My personal suggestion is that we react hysterically.

This Michigan deal is bad. It could prove to be as big a blow to organized labor as Ronald Reagan’s 1981 firing of the air-traffic controllers. Let’s not forget that, corny as it sounds, perception is everything, and when Reagan fired those PATCO guys, he single-handedly altered the perception of union strength in America.

By firing en masse the entire air-traffic union, Reagan changed everything. He showed America’s corporations that when you have the guts and confidence to stand up to union leadership, you have a good chance of winning. Indeed, that was Reagan’s legacy on how to handle organized labor. You attack it. And we all know what happened to the economic landscape as a result of that change in perception..

The same could be true of the Michigan fallout. If union-heavy Michigan could metastasize into a right-to-work state, it means that every single state in the union could, hypothetically, do the same. All they would need is a Republican state assembly, a Republican state senate, and a Republican governor willing to sign the bill.

There’s a lesson here, and it’s one the ideologues will find hard to accept. That lesson is to vote Democrat. Say what you will about the Democratic Party being the “lesser of two evils,” of it being wishy-washy, of it being gutless, of there being “no real difference” between the two parties, etc. All of that, within obvious limits, is absolutely true.

But the rhetoric doesn’t change the political realties. Question: How many states with Democratic assemblies, Democratic senates, and Democratic governors have ever voted to become right-to-work states? Answer: None.

David Macaray, a Los Angeles playwright and author (“It’s Never Been Easy: Essays on Modern Labor,” 2nd Edition), was a former union rep. He can be reached at dmacaray@earthlink.net

How much of the differences between conservative and liberal minds can be summarized into simple patterns is still a question, but a most basic distinction, independent of specific beliefs is really not so difficult: conservatives want and need everyone to be like them and liberals are not displeased when some people are different from them. There are two types of liberals in this model, those who have learned by experience that everyone can’t be like them, even if they might want them to be, and those who are actually invigorated by the differences of others. Conservatives are of two types as well, those who see difference as a discomfort and social inconvenience to be avoided as much as reasonably possible and those who see difference as a danger and a crime for special condemnation. It is important to note that the details of the difference are not the issue so much as the simple fact of difference. Conservatives seem to try to understand liberals by trying to see what liberals do to make everyone think the same and liberals try to understand conservatives by studying how conservatives relate to reasoned, logical presentations of evidence; both, therefore missing the essential qualities of the other.

December 13, 2012

Into the Lair of the Plutocrats

Conservatism’s Yellow Brick Road

by JAMES KEYE

For all the folderol about the conservative and liberal minds, we can say without contention that there are certainly differences in the underlying history or biology of people who end up manifesting quite different reactions to the world around them, many of these differences unrelated to the details of belief. And it is my deepest suspicion, increasingly supported by brain studies, that different ones of us are made differently in subtle ways resulting in a variety of reactions to the social conditions in which we live (see Chris Mooney’s book, ‘The Republican Brain’).

How much these differences can be summarized into simple patterns is still a question, but a most basic distinction, independent of specific beliefs is really not so difficult: conservatives want and need everyone to be like them and liberals are not displeased when some people are different from them.

There are two types of liberals in this model, those who have learned by experience that everyone can’t be like them, even if they might want them to be, and those who are actually invigorated by the differences of others. Conservatives are of two types as well, those who see difference as a discomfort and social inconvenience to be avoided as much as reasonably possible and those who see difference as a danger and a crime for special condemnation. It is important to note that the details of the difference are not the issue so much as the simple fact of difference.

It is a mistake to get caught up in the details of difference; detail is not the point, but only the definitional force of difference itself that matters. The detail is only a means to an end, a condition of membership and not an adaptation to reality. And because the details of belief are conditions of membership, these positions must be held with much greater fervor and certainty than other ‘elements of truth’ would ever be in actual practice.

A corollary condition follows: liberals are not primarily concerned with being like those around them, focusing more on events and evidence for decisions, while conservatives are more deeply sensitive to fitting in with what they perceive as prevailing attitudes. The major method for influencing attitudes and decisions for them is to show that many people “just like them” think a certain way.

These were both very useful habits of thought and action in our originating tribal life…when both attitude systems were represented with some equality and there were social expectations for honesty and fairness. Conserving existing attitudes is important for social coherence and responding to culture-free evidence is vital for adaptation to the larger Reality. However, if each system is isolated from the other and is allowed to form the view that its own result is absolutely correct while the other is absolutely wrong, neither system of thought can fully function in the total social context: the essential functional role of adapting species behavior to the larger exigencies of life on the earth.

And it must be noted that in their most aggressive forms the conservative view must reject liberalism while liberalism can accept the differences presented by conservatism, though rejecting its absolutism as, at a minimum, counterproductive and distorting of reality; and finally noted that conservative rejection can be expected to be strident and liberal rejection of conservatism can be expected to be compliant and issue based. Conservatives seem to try to understand liberals by trying to see what liberals do to make everyone think the same and liberals try to understand conservatives by studying how conservatives relate to reasoned, logical presentations of evidence; both, therefore missing the essential qualities of the other.

* * *

The principles of philosophical and scientific decision making have been considered in great depth for thousands of years and need not be labored with here. And the ways of those who are invigorated by the differences of other people function quite differently than fear of difference. For now it is the process of ‘being like everyone else’ and ‘everyone else being like you’ – an essential tension – that is interesting. It is unlike the “easy” discoveries of difference among people who value, or at least accept, difference. How does one go about displaying one’s views, basic congenial communication, when to do so risks that the views may be seen as different from those around them? There have to be coded processes, learned and practiced, that let a thought be exposed and then quickly withdrawn if it is suspected of divergence; a sort of ‘now you see it now you don’t,’ with a 2-second no foul rule.

One of the consequences is that everyone can believe that everyone else thinks just as they do – and can, therefore, live in the perfect bliss of a completely accepting world. A select group of opinion makers are appointed or self-appointed; people, who by virtue of their talents at perceiving, distilling and projecting the coded forms of many popular views, instruct others in how to say and how to do those things that support the common code (think tanks, for example). The irony is, of course, that the attempt to manage a ‘completely accepting’ world is made by creating unspoken rules and codes by which differences are rejected.

Have you ever been around a monumental construction built of playing cards, experienced the tension and narrowed limits of movement required to allow the construction to have some permanence of existence? First, the reason for the ‘castle’ is not questioned, but taken as a given reality. And second, acquired from the first, all the behaviors required to avoid endangering the ‘castle’ are also considered essential. The zone of influence expands from the table on which the construction sits to the allowable patterns of movement around the room, to the opening and closing of windows, to which doors have to be closed and opened in a given order, to the passing of trucks on the highway, to the flushing of a toilet in an upstairs bathroom, to…

A difference between this metaphor and the coming to a common pattern of conservative “reality” is that in the metaphor the movement of influence can be plainly seen. However, the “I can only be safe if I am just like my neighbor and my neighbor is just like me” idea leads as irrevocably to the rejection of science, to a 6,000 year old earth and to religious fundamentalism…just as irrevocably as the requirement of having “no breezes around the card castle” leads to having to be sure that the door to the kitchen be closed before going onto the porch.

Of course, we all have our systems for measuring and informing others about what we are willing to talk about and willing to do at the various levels of relationship, that is not at issue, but it is the systematic process maintaining the illusion and reality that ‘you believe as me’ and ‘I believe as you’ acting as a primary social construction that defines a major part of the conservative constituency.

Conservatism is a way of life in a way different from liberalism, which is more a habit of thought. The rejection of difference requires complete systems of control for all aspects of life in ways that the acceptance of difference does not. It is really this ‘way of life’ that we so often hear is in need of defending.

This leads to present so-called conservative positions, while based on these quite deep human habits of thought and attitude, being co-opted purely as devices to herd people into groups that can be manipulated for the crassest reasons of power and influence. But this simple and cynical fact doesn’t change the reality that these are fundamental ways to approach the experience of life.

A conservative-liberal synergistic dynamic works when liberalism supplies the belief system and conservative process maintains it; conservatism is uniquely ill-equipped to supply its own beliefs since its function is not to respond sensitively to the variations in reality, but rather to standardize beliefs for purposes of social cohesion. Liberalism does not produce social cohesion by its normal functioning. For these reasons, today’s “conservative” and “liberal” constituencies must contain their own actual conservative and liberal parts. In a terrible perversion, the “liberal” function in American Conservatism, and increasingly elsewhere, has been taken over by the plutocracy (and as total plutocratic power increases it becomes more and more a “reality to be dealt with” in liberal consideration).

Since self-identified groups of humans require some means of feeling connected together by common habits and beliefs, then great influence can be had by supplying the form of those habits and beliefs. The obvious “enemy” of such an ascension to power would be those who might question both the elements of detail and whole idea of difference in the first place – who might wonder at the efficacy of a card castle in the living room – the liberal frame of mind.

And so an effective pincer-movement forms naturally, a movement that is episodic in human history, the conservative mind’s drive to eject difference is met in symphony with the powerful’s need to prevent any questioning of their devices of domination; and it always takes on a recognizable form: ‘kill the heretic.’ However, it is vital to recognize and keep clearly in mind that one set of forces is coming from the habits of the conservative mind and that another, using the same language and devices, is coming from the cynical forces of the powerful. Unfortunately, this is a difference that the construction of the conservative “reality” is perfectly designed to obscure.

James Keye is a retired teacher and

small businessman living in Santa Fe, NM.

For those who somehow have missed it, Morgan Stanley director Erskine Bowles and former Senator Alan Simpson were the co-chairs of President Obama’s 2010 deficit commission. While they were unable to produce a report that had the support necessary to win approval from the commission, they have made a career out of promoting their own proposal which they misleadingly imply was a report of the commission.

December 13, 2012

The Simpson-Bowles Traveling Show

Paid to Whine About the Deficit

by DEAN BAKER

The government has implemented a wide array of policies over the last three decades that have led to a massive upward redistribution of income. As a result, most workers have seen little benefit from the economic growth over this period.

Not surprisingly, the wealthy people who have benefitted from the policies that have redistributed income upward, for example NAFTA-type trade deals, Wall Street bailouts, and anti-union labor policies, don’t want the public talking about them. This is why we have the Erksine Bowles and Alan Simpson speaking tour.

For those who somehow have missed it, Morgan Stanley director Erskine Bowles and former Senator Alan Simpson were the co-chairs of President Obama’s 2010 deficit commission. While they were unable to produce a report that had the support necessary to win approval from the commission, they have made a career out of promoting their own proposal which they misleadingly imply was a report of the commission.

According to the New York Times, Bowles and Simpson get $40,000 a piece for speaking engagements where they push their agenda. This price tag tells us everything we need to know about what is going on here.

While $40,000 might not be big money among the people with whom Mr. Bowles and Mr. Simpson socialize, it sure is to the rest of us. This is a couple of thousand dollars more than the typical worker earns in a year. It is a bit less than three times the average annual Social Security benefit. And Bowles and Simpson get this money for spending an hour or so giving their tirade about the desperate need for reducing the deficit.

The incredible irony of these sorts of fees is that the substance of the Bowles-Simpson tirade is that paying for Social Security and Medicare will bankrupt our children and grandchildren. The two of them are running around the country telling people that Social Security checks to retirees that average $15,000 a year and providing health care insurance to seniors who have spent their lives working will have our children and grandchildren living in poverty.

To sell this line, Bowles and Simpson must be betting that they have some really poorly educated young people in their audience. If they learned their grade school arithmetic, they would quickly recognize these two for the hucksters they are.

The Social Security Trustees project that real wages, that means the growth in wages after adjusting for inflation, will grow on average by more than 40 percent over the next 30 years. This means that if a typical worker is making $38,000 in 2012, then a typical worker would be earning more than $53,200 in 2042, in today’s dollars.

By comparison, the trustees report tells us that if we want to have Social Security fully funded for the rest of the century, it would take a tax increase of 1.3 percent on both the worker and the employer. This assumes that we make up the projected shortfall entirely by raising the payroll tax, as opposed to say, raising the cap on wages (currently around $110,000) that are subject to the tax. It also assumes no cuts whatsoever in scheduled benefits.

In this extreme case, the necessary tax increase, combining the employer and employee side, is just 6 percent of projected wage growth over this period. Yet Bowles and Simpson want to tell us that this tax increase will have our children and grandchildren living in poverty.

The story changes little even if we add in the projected shortfall in the Medicare program of 1.35 percent of payroll, half of which would be applied to the employee and half to the employer. Again, assuming no other changes and we make the program fully funded based exclusively on payroll tax increases, the combined tax hit for Social Security and Medicare is just 10 percent of projected wage growth over the next three decades.

Of course people will object that they have not been seeing wage increases because the rich have been getting all the gains from growth over the last three decades. This is exactly right.

The well-being of our children and grandchildren will be determined by the extent to which people like Erskine Bowles, Alan Simpson and their rich friends will be able to continue to extract all the gains from growth. If they can make the next three decades like the last three decades then our children and grandchildren will be screwed even if they stopped paying Social Security and Medicare taxes altogether. (Of course then they would be doubly screwed since they also wouldn’t have Social Security and Medicare benefits when they retire.)

In short, the whining about the deficit that Bowles and Simpson are pedaling is a huge distraction from the factors that will actually determine the well-being of the vast majority of our children and grandchildren. And the truly wealthy are prepared to pay Bowles and Simpson lots of money for this distraction.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This article originally appeared on Yahoo’s The Exchange.