Setting the Record Straight

December 7, 2008

Obama’s Good First Move

Jobs and Infrastructure


     We may be accused of belaboring the subject, but our two main mantras on this site bear constant repeating—“those who don’t remember the past are condemned to repeat it,” and the theory of “trickle-up” economics should be applied to government as a whole. 

     President-Elect Barack Obama has given the first solid indicsr-obamainfrajpegation he may attempt to take this country down the path we believe to be the key to remaking America. He is beginning with a “killing two birds with one stone” solution to two of the country’s major domestic problems.
     A trickle-up view of economics sees the people at the bottom of the income scale as the starting point, lifting them up to enable them to contribute more to society and become the buyers who keep small and then ever-larger businesses in business.
     For too long, our economy has relied on the trickle-down theory of helping businesses expand in the belief they will then hire more workers and help the entire economy: the trickle-down theory. The main difference between the two major parties is the Republicans believe to serve that theory, all federal funds should be channeled through businesses, e.g., that health care should not be direct from the government to the citizen, but should be provided with tax credits to be spent buying health care from a provider, a business.
     The trickle-up theory says that if the money is given directly to a universal health-care system, more funds would be available because they would not be siphoned off by a corporate, for-profit bureaucracy.
     HMO stands for “health maintenance organization,” an entity that was supposed to lower health costs, by working to keep their members healthy before they can contract a more-costly disease or other ailment. The meaning of HMO has been lost almost since they day they were created.
     The current economic crisis resulted from the collapse of a house of cards built on the failed “trickle-down” theory taken to its lunatic zenith, creating a situation where the gap between the rich and poor in this country is now the largest it has ever been. Keeping the middle- and low-income in their status has meant fewer buyers for the goods in American commerce. The crisis adds to that by taking away disposable income from the middle-class and keeping the low-income in their place, both income classes increasing without a job.
     The lame-duck Republican administration, as with most administrations, relied on lagging statistics to decide whether to respond to inflation and recession that was felt first at the low-income level and left to trickle up to engulf the middle-class while the statisticians waiting for months on the numbers that would prove what the lower-income classes already saw. It should not have been a surprise that any increase in the cost of fuel and food is going to affect first those without disposable income.
     So it was not surprising that when the outgoing administration saw a credit crisis building towards collapse, it attempted to solve the problem at the top, believing the solution would trickle down to the bottom.

 sr-msbridgejpeg1    Ever since the 1970s, even before the first oil crisis led to an economic crisis almost as big as the current one, experts have been warning about our collapsing infrastructure, e.g., roads, pipes, wires, dams, bridges, tunnels, much of which needed to replaced decades ago. The infrastructure is a looming crisis almost as big as the financial one.

    So now, with an administration set to take charge with intelligence behind it instead of ideology, Obama has chosen to help out bottom half of American society by pumping money into finally dealing with the infrastructure, a huge task not seen since the Great Depression and one that would provide jobs for all the unemployed and the soon-to-be Under the trickle-up theory, the top half of the economy will benefit from having more people with money they have to spend, and in some cases some they do not have to spend.
     There are many other things that need to be done to get the nation back on track, but providing jobs while halting the deterioration of the infrastructure is an excellent start for the incoming Obama administration.



November 10, 2008

Right-To-Work Hurts Big 3

Automakers: Mind What You Wish For
     How can we lay the U.S. automaker crisis at the feet of the Republicans who were in control of the government for the past 14 years? How about this.
     The Big Three, whose method of operating has been, and is likely to continue to be, one of aiming for instant gratification, were aided and abetted by the Republicans and their decades-long drive to emasculate labor unions in the United States.
    That, of course, contradicts the conventional wisdom that has become a religion among the Big Three (why do we call them that any more—they’re the only three). The automakers have complained and complained the United Auto Workers and its demands on behalf of the union’s workers are what have hurt their industry.
    To be sure, the UAW did overreach in the heydays of the 1950s and 60s and became so strong they also became their own worst enemies and needed to be trimmed back a bit.
    But the UAW would say, and we would agree, that the Big Three were unable to compete with foreign automakers on U.S. soil because the foreign firms built their plants in “right-to-work” states. Whatever union that workers in those plants may have pales by comparison with the UAW.
    How did those right-to-work states come into being? In the wake of the industrial revolution born at the end of the 19th century, labor unions were formed to redress the greedy excesses of their employers who were operating as fief to serf.
    Until the Taft-Hartley Act in 1947, workers and their employers thrived quite well with union rights to require workers to support the unions. Soon after the act was passed, taking away those union rights, 12 states enacted “right-to-work” laws and another 10 states have followed as Republican Party policy relentlessly defeated Democratic and union efforts to repeal Taft-Hartley.
    The result has been that average wages for workers in right-to-work states are 6.5 percent lower than those of their counterparts in states that have not enacted the laws. Of course, they attracted foreign automakers, and Toyota opened the first of its 13 U.S. plants in 1989. An overlay of right-to-work states today closely matches the map of what the red (GOP-voting) states before the election just completed.

National Right To Work Legal Defense Foundation

National Right To Work Legal Defense Foundation

    With the gas-shortage crisis of the mid-1970s and the popularity of more fuel-efficient and safer cars produced by foreign automakers, who also employed features U.S. automakers would have included had they not (thanks to the leadership of Democrat John Dingell) defeated congressional efforts to require them, Americans began turning to the better cars once made abroad, but now made at home with foreign-sounding names.
     As the 1970s crisis waned, Instead of looking ahead as Toyota and Honda did, U.S. automakers went for the bigger instant bucks and began pushing sales of SUVs and huge macho trucks, neither of which got anywhere near the gas mileage foreign makers continued to offer.
     And now U.S. automakers are asking for help from the same federal government they joined their GOP friends in beating on so unmercifully for decades.




November 3, 2008

Detroit’s Money-Guzzlers

Is Our Auto Industry Relevant?
     The U.S. Congress and the Bush administration arranged to give the U.S. auto industry, which now numbers three companies, $25 billion in its own version of the much more massive financial meltdown. Now the industry is back asking for $25 billion more, because the first 25 was only half of what they originally asked for.
     Following the original $25 billion, General Motors and Chrysler began using the money to concoct a merger, which would lower a once-proud industry back to just two members. The other would be Ford, and some mixture of a merger from within the three has been talked about since earlier this year.
     Sorry, but so what? Why do we need them any more? Even if we helped them, what would the American people get out of it? The government’s money and efforts might be better spent preparing the current employees for the fallout of the U.S. auto industry’s collapse, with retraining, adult education, financial help and guaranteed health care.
     Recent U.S. history tells us a bailout of Detroit would be folly. We would be ignoring George Santayana’s admonition: “Those who don’t remember history are condemned to repeat it.” So let us remember, beginning with the fact Chrysler has been at that federal trough before.
     In late 1973, with the U.S. automakers gloating over recent victories over congressional efforts to force them to make their cars safer and with better gas mileage, the Organization of Oil Exporting Countries slapped an embargo on oil exports to the United States. That pushed a growing supply-and-demand into a crisis that led to miles-long lines of cars queuing up for gas from draining pumps.
     Unknown to U.S. automakers, their victories over regulation efforts already were beginning to cripple them as Americans turned to safer cars made abroad. With the OPEC embargo, their victory over tough gas mileage efforts was about to bite U.S. makers in the rear.
     In 1979, as the Carter administration and Congress struggled to overcome the financial damage of the embargo, Chrysler, still U.S. born and bred, said it was facing bankruptcy and needed a $1.5 billion bailout from the federal government (that’s more than $9 billion in today’s dollars).
     Instead of bailing out Chrysler, the administration and Congress worked out an arrangement guaranteeing a $1.5 billion loan from the private sector and required the company to raise another $2 billion to cover its operations, but without federal backing. Chrysler also was required to make certain commitments, but none required the firm to make cars that would match the subsequent success of foreign-made models.
     The Carter administration also launched with Congress a series of energy-conservation and alternative-energy initiatives to reduce the stranglehold foreign oil had just placed on the United States. They included requiring all automakers, including the three domestic ones, to meet higher mileage standards.
     A year after the Chrysler loan, Ronald Reagan ousted Carter and it didn’t take long for the country to return to its fuel-wasting days and a large-scale ignorance of the need for conservation. The U.S. automakers merrily went along with that mood and began manipulating the mileage standards so they could continue building ever bigger vehicles getting relatively low mileage and spending billions in advertising to convince the American public bigger was better and pooh-poohing the need to conserve newly abundant gasoline. Eventually Chrysler recovered enough to make it attractive to a German automaker, which swallowed it up, reducing the U.S. automaker number to just two.
     Volvo, Toyota, Honda and several other foreign car makers continued with their business models of the early 1970s, continued to make ever-more reliable, safe and fuel-efficient models and exploring alternatives to the old-fashioned combustion engine that still ran all cars. U.S. automakers could have done the same thing, but they did not; all they were interested in was getting around the regulations, getting their friends in Congress to eliminate them or at least weaken them.
     Prodded by the U.S. auto industry, Americans began buying bigger and bigger cars, moved to SUVs and macho trucks, such as Hummers, so big some psychologists termed them penis substitutes. They also moved much of the manufacturing of the parts for their vehicles to Mexico and other countries, so most of the elements of their cars ended up foreign-made.
     As Detroit advertised its way to a return to its old profligacy, foreign automakers began making cars in the United States (notably in states antithetical to labor unions), research alternative fuels and gas-conserving models and, particularly Toyota and Honda, building reputations as makers of the world’s best-made cars.
     When the new gas crisis hit the United States, motorists found themselves driving gas guzzlers as the average price of gasoline more than doubled. Foreign makers had joined in some of the mad rush to gas-guzzlers, but kept their eyes on the prize, so they weathered the new crisis in much better shape than U.S. automakers (Chrysler had returned to U.S. ownership) and well-suited to move U.S. automakers all the way out of the title of the “big three.”
     Therefore, the government needs to focus on helping auto industry employees at this point, as well as the state of Michigan and the city of Detroit and all the other towns across the country that depend on Detroit and its suppliers. But help the automakers themselves? Why?
     We already know how the U.S. automakers are going to behave after the current financial crisis begins to ease in a year or two. The same way they did after the previous crisis, and guess how the executives of those three firms fared during the relatively plentiful years.


October 15, 2008

Good News From the Meltdown

Chance to Remake America

     Believe it or not, there are several good signs emerging from the financial meltdown, enabling the U.S. government to think “outside the box,” just as we did earlier on this page in our suggestion to Warren Buffett.
     First, the methods used to resolve the problem should help take some of the onus off the words “socialism,” “nationalization” and even “regulation,” terms that engender negative Pavlovian responses by the uninformed. That will allow for some creative solutions to many of the problems that have plagued the country for decades.
     Second, it should demonstrate anew the government needs to consider solving problems from the bottom up instead of the past and current trend, demonstrated at the beginning of the financial meltdown, solving problems from the top down. We labeled our way “trickle-up economics.”
     Third, we have a chance for a major makeover of U.S. policies across the board as the nation attempts to climb back to the top of the community of nations and tries to avoid losing its economic leadership status to the European Union, as now seems likely.

1.  Look for a major push by the next Congress and the next president, particularly if it is Barack Obama, to make major efforts to pass new regulations and restore old ones in the financial area.
     But the government is not likely to stop there. There have been widespread complaints about the lack of regulation in many other sectors of society, so look for new regulations in most areas and a return to enforcing regulations already in place. Along with this push will come a strengthening of several government institutions, beginning with the Food and Drug Administration.
     We suggested in an earlier piece the government build its own oil refinery to give it more muscle in influencing the price and supply of oil and gas that is a vital piece of the nation’s economy. Similar investments in other industries could give the government greater influence in them.
     By investing in banks and buying out major financial institutions, the government has overcome the previous onus labeled as “socialism” and taken a socialistic approach to resolving the financial crisis. There is nothing wrong with socialism as long as it never forgets its purpose is to serve the common weal. Past efforts lost that core purpose.
     Some of the government’s actions in the bailout were described as “nationalization.” If an industry operates against the interests of the common weal, such as the telephone industry has a history of doing and the oil industry often does, nationalization of that industry should not be off the table.
     Obviously, all these government interventions must be done with great care and never taking the eye off the prize: serving the common weal. But as the Bush administration economics leaders have demon-strated, the United States remains very reluctant to sign on to any of those three “evils.”
     But the idea that any of the three evils would be used as a tool by a U.S. Republican administration, let alone even a Democrat-led one, to solve an economic mess would have been unthinkable just weeks ago, let alone years ago.

NEXT, Part II: Trickle-Up and New America


October 12, 2008

Shut Up, Racism & Chairman McCain

Metaphorical Musings

     Does anyone else get the feeling Dubya would be more effective during this financial crisis if he would just shut up?

     He was whistling past the graveyard before the muck hit the fan, and since the meltdown began he has been fiddling as the U.S. economy goes down in flames.

     Climbing out of that paragraph of mixed metaphors, we should note that other countries quit listening to him years ago and have been wondering why his constituents still do.


     Back when we were still in the throes of the primaries, we wrote that racism would be the elephant in the voting booth in November when all of the racists who told pollsters they were not (most actually do not believe they are racists) actually cast their ballots in secret.

     The McCain/Palin campaign’s advisers also have known that and that is the reason the two have been whipping their audiences into a fever, with Sarah Palin even failing to rebuke a man who yelled “kill him” as she repeated her Barack-Obama-pal-of-a-terrorist claim.

     That campaign has now discovered it has been shaking a bag with a Tasmanian devil inside and is not sure how to deal with it. John McCain finally cautioned one of his audiences about hateful remarks, but then rebuked John Lewis, a black congressman, for pointing out in an op-ed piece the racist undertones of the campaign’s mud-slinging.


     It is curious, as the financial meltdown becomes increasingly serious, that the McCain/Palin campaign has little, if anything, to say about it. We know why Palin does not—George Bush looks somewhat knowledgeable by comparison—but why not McCain?

     As our Veritas reminds us, McCain once acknowledged he knew little about economics, later joined Bush and company in the graveyard whistling ding dong, the economy’s strong, and immediately after referred to the economy in crisis.

     We’ll take him at his word about the deficit in his knowledge of economics, but since he has been in the Senate, he has served on and even chaired for several years, the Senate committee that is all about regulations.

     That perhaps, is why he has been quiet about the economy when he is on the stump—it might lead to questions about his and his party’s deregulatory past, the past that allowed the runaway greed that created today’s tumbling house of cards.

     As the hate-Obama campaign begins to backfire, look for McCain to make some specific economy-repairing proposals, but be assured they will not be aimed at the little guy. They will be true-blue Republican and all about businesses and those with enough disposable income to be investors.


October 11, 2008

Deregulation = Meltdown, Part II

Republicans’ Meltdown

     American voters have good reason to be angry with Republicans over the current financial meltdown. John McCain has good reason to try to keep the issue in the background of his campaign.

     Democrats facing their ouster from control of Congress because they were not Republican enough were responsible in their final days in 1994 for allowing banks to cross their state borders and become maxibanks, but they were still not megabanks. That would require additional legislation and Democrats were not ready to go that far.

     Today’s financial meltdown has been called the most serious one since the Great Depression, a situation expected to be prevented by government entities, programs and regulations Republicans in those days fought against creating.
     Actually, today’s meltdown has exceeded that event in terms of scale. As part of the effort to get control of the depression meltdown, one of the New Deal reforms was the Glass-Steagall Act of 1935. It not only created today’s deposit insurance system, it barred commercial banks from engaging in investment banking and underwriting insurance. It also gave the Federal Reserve system more muscle, making it into today’s central bank.
     Republicans gained control of both houses of Congress in 1995. Jim Leach, an Iowa Republican, became chairman of House Banking and Phil Gramm, Texas Republican became chairman of Senate Banking. Together they maneuvered through both houses the Financial Modernization Act of 1999, which they named after themselves and Tom Bliley, a Virginia Republican, the Gramm-Leach-Bliley Act of 1999.
     The law repealed Glass-Steagall, allowed financial institutions, including banks, to create financial holding companies so one corporation such as today’s Wachovia could merge its various financial services into one gigantic corporation. And now Wachovia is being purchased in a fire sale by another megabank.
     Officials of the Federal Deposit Insurance Corp., a government institution affected by both of the acts, warned four years ago of the dangers of the widespread consolidation that occurred since the savings-and-loan crisis, creating megabanks concentrating assets and deposits in just a few places. They warned of the idea of “too big to fail” becoming a reality.
     They were ignored and now the government has decided some of the gigantic financial institutions are so big that allowing them to fail would have catastrophic repercussions through American society, and by extension in the globalization era, just about the entire world.
     Late into his campaign for the presidency, John McCain echoed the philosophy of his fellow Republicans and boasted of his stance against regulations, proudly calling himself “the deregulator.” He no longer does so, but failed to suggest or even endorse any return to regulation.
     In fact, at a campaign stop, a man with no understanding of what is going on angrily railed against growing socialism. McCain did not correct him. Barack Obama, has joined Democrats in moving to restore regulations.
     All but most libertarians in Congress signed onto the nub of the beginning of regulatory restoration when they finally voted for the bailout bill to begin an effort to restore some federal control of the nation’s financial system, an effort expected to dominate the term of the next president.
     Intellectual libertarians strangely endorse government actions to halt the meltdown with intervention, i.e., regulation and control, but hasten to call for an end to the cure once the patient is well again.
     And it should not be forgotten that the same Phil Gramm most responsible for the deregulation that allowed the current mess of greed served as the McCain campaign’s economics adviser until long after the low and middle classes already were living stagflation, that the nation was a bunch of whiners. So much for guilt by association.


October 10, 2008

Deregulation = Meltdown

Republicans’ Baby 

     The financial meltdown and the presidential campaign have dovetailed to give the American voter a valuable lesson in the key differences between traditional Republicans and traditional Democrats. Besides temperament and judgment, two major differences stand out that independents might want to keep in mind Nov. 4.
     All of John McCain’s proposals would spend tax dollars on programs by filtering them through private industry so businesses and Wall Street can take a cut and have an ownership interest in the programs. Barack Obama’s would do some of the same, but he is not shy about having the federal government deliver tax dollars directly to programs, without a private industry middleman. Republican philosophy versus Democratic philosophy.
     Because of the Republican belief that government should be as involved as little as possible in American’s lives, its adherents believe there should be as little regulation of private industry as possible. Democrats are not shy about imposing regulations on private industry when they feel private industry has or will not practice self-restraint and regulate itself.
     The problem with non-regulation is the same one as parents deciding to let junior be junior, and anyone who has been in a supermarkets knows the result of that. Humans have certain genetic traits that may have helped the race evolve, but are no longer very attractive. One of them is greed. If there ever was a human trait that needed to be regulated, it is greed.
     The financial meltdown, the effects of which are going to be felt by the American public (and pretty much the rest of the world in this era of globalization) for years to come, had its beginnings in two huge political deregulation moves, one when Congress was under Democratic control, the other when it was controlled by Republicans. The driving force that got it to the meltdown stage was greed.
     Two major deregulations brought an ages-old government philosophy of “too big to fail” up from little more than a policy-wonk concern to today when it is a linchpin of the government’s attempts to deal with the meltdown.
     At the tail end of a generation of Democratic control of Congress, Congress passed the Riegel-Neal Interstate Bank Branching Act of 1994. The legislation was introduced by Rep. Stephen Neal, a North Carolina Democrat, former banker and 20-year member of Congress serving in his final year. At the time, Neal was second-ranking Democrat on the committee headed by Henry Gonzalez, a Texan not considered high on the list of intellectuals.
     The Senate Banking Committee, chaired by Don Riegle, a Michigan Democrat who had begun service in Congress as a Republican, took up the House-passed bill, passed it and sent it to the White House where President Bill Clinton signed it into law. Riegle became one the savings and loan scandal’s “Keating Five,” a group including John McCain.
     Banks were prohibited by from operating beyond their own state borders. The Bank Branching Act lifted those restrictions on all commercial banks, giving the states the option (almost universally exercised) to allow their state-chartered banks to operate across the state lines.
     Neal’s state of North Carolina included First Union National Bank. Across the state border was Wachovia of South Carolina. They wasted no time in merging and spreading their banks through several states. Allied but separate institutions First Union Corp. and Wachovia Bank Holding could still not merge their various financial services with their banks.
     Today’s financial meltdown has been called the most serious one since the Great Depression, a situation expected to be prevented by government entities, programs and regulations Republicans largely fought against creating.

Next: Part II on Phil Gramm’s regulation bailout bill 


September 22, 2008

Send in a Gunslinger

Oracle of Omaha as Sheriff of Subprime


Note: Democrats pressed to include in the $700 billion mortgage bailout plan provisions for helping homeowners threatened with losing their homes because of subprime loans. The Treasury secretary resisted, saying it would delay the plan centered on bailing out those holding derivatives based on the subprime loans. A trickle-down economics solution.


    The real government people doing the work of trying to resolve the financial meltdown have thrown up their hands, realizing there is no regulatory or legal system in place to resolve it. Instead they are thinking outside the box, just not far enough.

    One proposal that has been raised coincides with one we had been tinkering with for this page—buying up the subprime mortgages on houses most in danger of foreclosure. Although we are believers in compassionate government, we have a take that is different from that of Treasury Secretary Henry Paulson.
     He says it would take “hundreds of billions” of dollars for the government to do buy the bad mortgages, and would leave an impression it was bailing out the greedy money-lenders who enticed naïve borrowers into taking out such mortgages.
     Although the United States already is deeply in debt—nearly half a trillion dollars—adding to the debt with a mortgage bailout could be defrayed in part by a quicker-than-planned exit from Iraq.

     Or call in Warren Buffett, and maybe his new-found partner in charitable largess, Bill Gates. This is the idea we had been working on.

     Even these two guys do not have cash to throw around that is anything like the federal government can come up with, but they could make a huge dent in at least this part of the crisis.
     Create a foundation with people—how about some of those “community organizers” Republicans now appear to disdain—scattered all over the country with no-strings authority to buy up bad mortgages, beginning in depressed neighborhoods at homes in greatest danger of foreclosure. Offer the mortgage holders a bit above their foreclosure costs and have the foundation hold the paper.
     The foundation broker then would offer the person with the mortgage a monthly payment equal to that charged before the amount crossed beyond the line of affordability.
     In most cases, those mortgages would be paid off within the lifetime of the mortgage. Saving houses in a neighborhood from foreclosure also saves the neighborhood, as towns and cities all over America are discovering. Eventually, the value of the house in danger is likely to equal at least the amount being mortgaged.
     The foundation, as with the government, is not in the mortgage business to make money, but if it does make money, all the better. That gives the paper-holder more funds to put back into the program, raising the bar to a higher income level.
     Any such action by a foundation or the government has the added effect of creating competition with the money-lending community. Tighter regulations would still be necessary, but competition from an entity outside of the private sector could go a long way to make businesses a bit smarter, less reckless and less greedy.
     We will never hope for compassion above the level of the neighborhood grocer, if those exist any more.


          From Oracle to Sheriff

I think we need a gunslinger.
Somebody tough to tame this town.
I think we need a gunslinger.
There’ll be justice all around.

                –John Fogerty’s “Gunslinger,” from “Revival” 


July 4, 2008

The ‘Little People’ Say: Stagflation

Time for Trickle Up Economics

         The Great Depression began during the administration of Herbert Hoover, a Republican president who threw up his hands and declared there was nothing the federal government could do to stop it, that it had to just run its course. As we know, his successor proved otherwise.
         It is no accident that Hoover was just one of a long string of GOP presidents (up
to and including the current one) who believed in the “trickle-down” theory of economics. Essentially, it means that if you give big tax breaks to the rich and big business, those benefits will trickle down the economic ladder, eventually reaching and benefiting the little people.
         We suggest that in the current economic situation, the government begin paying attention to what we call the “trickle up” theory. We intend that term to mean the economists, government officials, stock market analysts, etc., need to begin listening to those “little people.”
          More than a month ago, we said inflation and recession, the twin evils of “stagflation” had already arrived. Today, stock analysts, govern- ment and business economists and others are still arguing about whether there is inflation and whether the formal definition of the term means a recession has arrived yet.
          We could say a month ago that stagflation had begun because we live among the “little people.” The “little people” know their fuel costs are rising at the same time their food costs are rising. Those two expenses may represent discretionary spending to the rich, but they are not discretionary to the LP.
          The LP know that jobs are less secure during the current economic situation and they most certainly that even if they are able to keep their jobs, they are not going to receive a raise or added benefits. They see unemployed friends and relatives unable to acquire a decently paying job, much less one providing the health and other benefits they also need.
          The government, Wall Street and others need to stop trying to decide whether two consecutive quarters of no growth and other convoluted definitions are met and begin listening to the “little people.” They know what Franklin Delano Roosevelt knew.


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