The Democratic "wave" may happen, despite the best efforts of the Democratic leadership

Sam Seder and one of his informed callers took an upbeat tone in talking about the possibility of high Democratic turnout in November, with particular reference to the June primaries in California, Republicans Should Be Terrified Of The Incoming Blue Wave Majority Report 06/12/2018:

But I must admit that the national Democratic establishment's unrepentent conservatism in the 2018 - and conservatism is the right word in this context - makes me dread that they will blow the chance for the much-discussed "blue wave" in November.

the single most discouraging sign to me was this: Pelosi, Hoyer Letter to Budget Committee Conferees on PAYGO 04/28/2018. Trump and his loyal Republicans passed a huge and unnecessary increase in the military budget without any "pay as you go" actions pared with it. And they spent even more on a gigantic tax cut for plutocrats, also without any "pay as you go" actions pared with it. Then the Republicans immediately started talking up cuts to Social Security, Medicare, and Medicaid ("entitlements" in RepublicanSpeak) in order to deal with the looming budget deficit.

And what do the Democratic leaders in the House who style themselves as part of the "Resistance" to Trump do? They go full Simpson-Bowles and demand an end to deficit spending! from the Pelosi/Hoyer letter:

The House is strongly committed to passing statutory PAYGO. The President asked the Congress “to develop a PAYGO law that would help return the nation to a path of fiscal responsibility.” To achieve this objective, the House will attach statutory PAYGO to each of the four bills mentioned above or follow the House PAYGO rule. The House will not consider any conference reports on these four bills or any of them directly from the Senate unless these conference reports or bills include statutory PAYGO, the bills are fully offset under traditional scorekeeping, or statutory PAYGO has already been enacted into law.

Awesome. Awesomely conservative, that is. And remarkable politically-tone deaf. Because there aren't mobs in the street demanding cutting the deficit by flushing Social Security and Medicare down the toilet. Voters don't care about the deficit! Neither to Republicans politicians, who now only bother to pretend they do when they want to cut some program that doesn't primarily benefit the very wealthiest.

Look, and marvel at the leaders of the "Resistance" (Mike Lillis, Dem leaders embrace pay-go The Hill 06/06/18 06:00 AM EDT):

House Minority Leader Nancy Pelosi (Calif.) and other top Democrats are vowing to abide by fiscally hawkish pay-as-you-go rules if they seize the majority next year, rejecting calls from liberals who feel they’d be an impediment to big legislative gains.

Pelosi, who adopted “pay-go” rules when she held the Speaker’s gavel more than a decade ago, says she’ll push to do it again if the Democrats win the House in November’s midterm elections.

“Democrats are committed to pay-as-you-go,” Pelosi spokesman Drew Hammill said Tuesday, affirming the policy would be a 2019 priority. [my emphasis]

I internally flinch a bit when I hear Cenk Uygar say that the establishment Democrats are "paid to LOSE," paid by major campaign donors, that is. I always think he may be underestimating the fecklessness of the Democratic leaders when he says that.

But I have to admit, "they're paid to lose" fits the Occam's Razor criteria for explaining why the Democrats would choose to emphasize this in the middle of what is potentially a Democratic wave election this year.

Charlie Pierce, as he often does, gets what a bad idea this is (Pelosi's 'Pay-Go' Rule Is Entirely Counter-Productive to Progressive Policy Goals Esquire Politics Blog 06/08/2018):

In fact, it’s a stupid rule. It is entirely counter-productive to progressive policy goals. It puts the Democratic Party in conflict with the blog’s First Law Of Economics – Fck The Deficit. People Got No Jobs. People Got No Money – and it revives Zombie Simpson-Bowles to stalk the halls of Congress again. In case nobody in the Democratic leadership has noticed, the rising energy in the party is not coming out of the budget-hawk cryptkeepers. This takes seriously the laughable fiction that the Republicans care about deficits and will use them as an effective club on the Democrats. Right now, the country is giving serious consideration to things like Medicare-for-all and some sort of free college. This isn’t the time to go all Al From again. It also guarantees a serious intraparty skirmish that’s already underway.

As Jamie Galbraith explained in his 2008 book The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too, the Keynesian notion that federal budgets need to be balanced over time, or over a business cycle, became obsolete with the end of the Bretton Woods system in 1973. Aside from the fact that a country borrowing in its own currency can't go bankrupt, US budget deficits are a result of the dollar's status as the world's reserve currency and the surplus recycling mechanisms in the world eocnomic system that developed after the end of Bretton Woods.

But instead of looking at the real world of the last 45 years, "Resistance" leaders Pelosi and Hoyer think Herbert Hoover/Heinrich Brüning economics policies are the way to go.

Even a 2018 wave election won't save a Democratic Party with this kind of leadership.

Yanis Varoufakis, James Galbraith and the "twin deficits," aka, the Global Minotaur

Yanis Varoufakis is the innovative Professor of Economic Theory at the University of Athens in Greece. His book The Global Minotaur: America, the True Origins of the Financial Crisis and the Future of the World Economy (2011) describes the post-Second World War development of the international financial system, which he sees a s falling into three broad periods: the Bretton Woods regime, the post-1971 years based on the United States' "twin deficits," and the post-2008 world which is still taking shape.

A second English edition is due in February 2013. The Spanish cover for the second edition is pretty awesome:

Varoufakis has a blog which you should probably be reading.

What does he mean by the "Minotaur"? In the Greek myth, the Minotaur was a half-man, half-bull creature that lived in the famous Labyrinth on the island of Crete and had to live on human flesh. Each year, King Aegeus of Athens had to send to King Minos of Crete six young males and six female virgins as a tribute to feed the Minotaur because of some war that Athens lost.

Varoufakis uses it as a metaphor for the "twin deficits" of the United States in the post Bretton Woods period, the twin deficits being the chronic US trade deficit and the corresponding chronic public budget deficits.

Varoufakis doesn't use the image as exclusively or even mainly pejorative:

The Minotaur is a tragic mythological figure. Its story is packed with geed, divine retribution, revenge and much suffering. It is also a symbol of a particular form of political and economic equilibrium straddling vastly different, faraway lands; a precarious geopolitical balance that collapsed with the beast's slaughter, thus giving rise to a new era. (p. 24)

After the foreign exchange system of Bretton Woods ended with a 1971 decision by the Nixon Administration, the dollar remained as the world's reserve currency. This meant that other countries would hold dollars in sufficient quantities that the US would wind up running trade deficits on an ongoing basis. Other major factors like the increase in oil prices and the export prowess of Europe, Japan and China would of course contribute mightily to this same trend.

Jamie Galbraith in The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too (2008) relates that, although Paul Volcker himself in the 1980s talked about the "twin deficits," they weren't generally understood. Economic theory assumed that large, chronic foreign trade deficits (and the related balance of payments issues) move into equilibrium over time, i.e., that a large chronic trade deficit is impossible to sustain over decades and will eventually collapse, either in a controlled way or a catastrophic one. As Galbraith notes, Volcker assumed in the 80s that the chronic trade deficits were a function of the budget deficits that were a trademark of the Reagan Administration.

Why might Volcker have thought that? Because of accounting. Galbraith:

There is a basic relationship in macroeconomics, as fundamental as it is poorly understood, that links the internal and the international financial position of any country. A country's internal deficit, that is, its "public" deficit and its "private" deficit - the annual borrowing by companies and households - will together equal its international deficit. [my emphasis] (p. 55)

The international deficit is usually taken to be the sum of the "current account" and "capital account" balances.

Because the rest of the world was not willing to continue to finance the trade surpluses the US had run under the Bretton Woods system, "The old wisdom, which held that budgets should be balanced or perhaps balanced over the business cycle, continued to be spoken, but it was obsolete." The post-Bretton Woods system, the "Global Minotaur," stabilized during the Reagan Administration. As Galbraith relates:

... the Federal Reserve's policy of a super-high interest rates and a super-strong dollar helped Reagan out. By attracting a flood of investment capital back into the United states the strong dollar policy reconciled fiscal stimulus, recovering employment, and a rapid end to inflation. The dollar now became the unchallenged world reserve currency, which meant the United States not only could, but had to, run trade deficits to the extent of the demand for reserves. So long as the domestic private sector remained of a mind to accumulate financial assets, which it did through the Reagan term, the trade deficits had to be translated, as a matter of accounting, into federal budget deficits of a similar size. [my emphasis] (P. 58)

Galbraith discusses this in the context of how the unhealthy fixation by the Democrats in the United States on balancing budgets came to be, unrealistic though it is, a story particularly relevant to the current situation where President Obama and the Republicans are eager to cut benefits on Social Security, Medicare and Medicaid in the name of the budget-balancing dogma, even in the middle of a depression.

Varoufakis focuses on the international function of the twin deficits, especially its role as a global surplus recycling mechanism (GSRM). The purpose of a a GSRM, in Varoufakis' words, is, "To prevent the build-up of systematic surpluses in some countries and of persistent deficits in others."

In general, any economic system contains units that are prone to showing surpluses and others that are more likely to report deficits. To maintain balance, the system must feature surplus recycling mechanisms that maintain the flow of surpluses from the future to the present, from the urban centres to the rural areas, from the developed regions to the less developed ones, etc. ...

The two surplus [internal] recycling mechanisms characteristic of the United States since the Second World War have been the simple transfer union instituted by the New Deal in the late 1930s and the complicated military-industrial complex, which developed in the 1940s. The former works straightforwardly, by ensuring that the unemployment and health benefits of deficit states are paid for by Washington, dipping into taxes raised in surplus states, e.g., California and New York. The second mechanism, too, turns on a political arrangement: whenever a conglomerate like Boeing receives a large Pentagon contract to build a new fighter jet or missile system, it is stipulated that some of the production facilities must be located in depressed, deficit states. This recycling takes the form not of loans and transfers but of productive investments in deficit regions that utilize surpluses produced in the surplus regions. [my emphasis] (pp. 64-65)

The GSRM function of the US twin deficits, which Varoufakis calls the Global Minotaur, reversed the GSRM function of the Bretton Woods arrangements, which he also refers to as the Global Plan. The long-term tendency of the twin deficits was a destabilizing one, because "they had to keep deepening, accelerating, growing."

These destabilizing moves, which threatened to undermine the international order, were counterbalanced by the Minotaur's most intriguing aspect: the fact that it worked just like a GSRM - a weird, most peculiar, terribly unruly GSRM; but a GSRM nonetheless. In fact, it worked in precisely the opposite way to how the original GSRM had worked under the Global Plan.

Under the Global Plan's GSRM, the United States was the surplus-amassing country with the good sense to recycle part of its surpluses to Western Europe and Japan, thus creating demand for its own exports, but also for the exports of its protégés (Germany and Japan primarily). In sharp contrast, the Global Minotaur worked in reverse: America absorbed other people's surplus capital, which it then recycled by buying in their exports. (p. 110)

Varoufakis sees the twin deficits/Global Minotaur system as having permanently broken down with the financial crisis of 2008. He describes several features of the twin-deficits systems, which he calls "handmaidens," such as the creation of the shadow banking system, the Walmart phenomenon of an drastic shift to a low-wage service economy, and various more-or-less crackpot economic theories that were believed by those who Paul Krugman derisively calls the Very Serious People. Varoufakis then gives his own account of how those factors functioned in causing the crash and influencing policy in the aftermath.

The path of destruction left by decades of neoliberal policies of deregulation and piratical financial practices have been sobering for those like Varoufakis trying to point the way to a more hopeful future. The two most hopeful signs for a new GSRM to take over the function of the Global Minotaur are "a grand coalition of emerging countries, which would forge a de facto GSRM on the basis of planned investment and trade transfers between them," and a global International Currency Union based on the policy defended unsuccessfully by John Maynard Keynes and the Bretton Woods conference in 1944.

One thing Varoufakis is sure about is his answer to the question, "Can the Minotaur survive?" (He means the GSRM system, not the US as such.)

No, I do not believe it can. The Crash of 2008 knocked so much of the financial stuffing out of the American economy, and depleted New York-based financialization of so much of its over energy, that its magnetic power over foreign capital will not recover. Wall Street may have been fully resurrected, and those banks that were too big to fail may have grown even bigger (at least in relative terms), but the capitalization of Wall Street is now too thin to attracted the tsunami of foreign capital that kept the Minotaur alive and kicking. What is more, the new regime that has been established since 2008-09 in the United States and Europe - the 'system' I have labelled bankruptocracy - is too introverted and insufficiently attractive to act as a 'drawing card' for the necessary capital inflows. No, the Global Minotaur today is at the stage the Global Plan [the Bretton Woods regime] was at after 1971: a state of gradual, but irreversible, disintegration. (p. 224)

Tags: global minotaur, james galbraith, predator state, yanis varoufakis

Glenn Greenwald on the Predator State

Glenn Greenwald provides a memorable description of what Jamie Galbraith calls the Predator State in The leaked campaign to attack WikiLeaks and its supporters Salon 02/11/2011:

But the real issue highlighted by this episode is just how lawless and unrestrained is the unified axis of government and corporate power. I've written many times about this issue -- the full-scale merger between public and private spheres -- because it's easily one of the most critical yet under-discussed political topics. Especially (though by no means only) in the worlds of the Surveillance and National Security State, the powers of the state have become largely privatized. There is very little separation between government power and corporate power. Those who wield the latter intrinsically wield the former. The revolving door between the highest levels of government and corporate offices rotates so fast and continuously that it has basically flown off its track and no longer provides even the minimal barrier it once did. It's not merely that corporate power is unrestrained; it's worse than that: corporations actively exploit the power of the state to further entrench and enhance their power.

That's what this anti-WikiLeaks campaign is generally: it's a concerted, unified effort between government and the most powerful entities in the private sector (Bank of America is the largest bank in the nation). The firms the Bank has hired (such as Booz Allen) are suffused with the highest level former defense and intelligence officials, while these other outside firms (including Hunton & Williams and Palantir) are extremely well-connected to the U.S. Government. The U.S. Government's obsession with destroying WikiLeaks has been well-documented. And because the U.S. Government is free to break the law without any constraints, oversight or accountability, so, too, are its "private partners" able to act lawlessly. That was the lesson of the Congressional vesting of full retroactive immunity on lawbreaking telecoms, of the refusal to prosecute any of the important Wall Street criminals who caused the 2008 financial crisis, and of the instinctive efforts of the political class to protect defrauding mortgage banks.

The exemption from the rule of law has been fully transferred from the highest level political elites to their counterparts in the private sector. "Law" is something used to restrain ordinary Americans and especially those who oppose this consortium of government and corporate power, but it manifestly does not apply to restrain these elites.

A private security company had offered its services to Bank of America to fight Wikileaks and suggested smear and pressure campaigns against journalists, specifically including Greewald himself. This is the topic around which he builds this particular analysis.

Tags: glenn greenwald, predator state

Political theory digression: what should we call the current state of things in America?

Marcy Wheeler and Glenn Greenwald have begung trying to analyze the style of governance represented by the Obama administration pro-Lieberman, anti-consumer stance on health care reform.

Marcy is calling it "neo-feudalism" for now. Her contributions on the subject at Emptywheel include Health Care on the Road to Neo-Feudalism 12/15/09 and Brainstorming Future American Neo-Feudalism Today 12/20/09.

Glennzila in The underlying divisions in the healthcare debate Salon 12/18/09 calls it "corporatism". His analysis is good, as usual, but I think he's fantasizing about in what he says about some new left-right coalition against it.

And the brilliant Digby has been working along the same lines, as in Clarifying Debate 12/19/09. In that piece, she quotes a good explanation from Robert Kuttner on how the Obama-Lieberman-Nelson health bill fits the kind of situation that she, Marcy and Glenn are describing:

Think about it, the difference between social insurance and an individual mandate is this. Social insurance everybody pays for it through their taxes, so you don't think of Social Security as a compulsory individual mandate. You think of it as a benefit, as a protection that your government provides. But an individual mandate is an order to you to go out and buy some product from some private profit-making company, that in the case of a lot of moderate income people, you can't afford to buy. And the shell game here is that the affordable policies are either very high deductibles and co-pays, so you can afford the monthly premiums but then when you get sick, you have to pay a small fortune out of pocket before the coverage kicks in. Or if the coverage is decent, the premiums are unaffordable. And so here's the government doing the bidding of the private industry coercing people to buy profit-making products that maybe they can't afford and they call it health reform. [my emphasis]

I'm going to stick with Jamie Galbraith's term "Predator State" governance for now. But I agree with both of them that after the Cheney-Bush Presidency now followed by a corporate, prowar, anti-consumer Democratic administration, some kind of qualitatively new stage in American democracy has established itself.

Tags: health care reform, predator state

What Bill Moyers said

From the introduction to his 12/18/09 Journal:

Something's not right here. One year after the great collapse of our financial system, Wall Street is back on top while our politicians dither. As for health care reform, you're about to be forced to buy insurance from companies whose stock is soaring, and that's just dandy with the White House.

Truth is, our capitol's [sic] being looted, republicans are acting like the town rowdies, the sheriff is firing blanks, and powerful Democrats in Congress are in cahoots with the gang that's pulling the heist. This is not capitalism at work. It's capital. Raw money, mounds of it, buying politicians and policy as if they were futures on the hog market.

I don't care if every member of the Senate Democratic caucus is voting for this Lieberman-Nelson health care deform bill. This is the Democratic version of Predator State government.

Tags: bill moyers, predator state

Texas is the future?

The conservative London Economist is suggesting that Texas is the wave of the future: America's future: California v Texas 07/09/09.

It does provide a handy definition of the problem that has forced California's staet government for years to chronically operate on the verge of bankruptcy:

No state has quite so many overlapping systems of accountability or such a gerrymandered legislature. Ballot initiatives, the crack cocaine of democracy, have left only around a quarter of its budget within the power of its representative politicians. (One reason budget cuts are inevitable is that voters rejected tax increases in a package of ballot measures in May.)

But in thinking that Texas style government is the wave of the future, I guess The Economist's editors just snoozed through the Cheney-Bush administration, when we got to see Texas-style government implemented on a national and international scale. That would be the experiment that wrecked the world's financial system, slammed the world economy into the Great Recession, put the United States into the torture business, and produced corruption on a scale that makes Teapot Dome sound like an immaterial accounting error.

Oh, and produced the worst strategic disaster in the history of American foreign policy with the Iraq War.

No, thanks, eight years of that kind of "Texas" government was more than enough for a century or two!

Tags: bush administration, california politics, predator+state, texas

The AIG solution: nationalization

US Socialist Party leader Eugene Debs (1855-1926): he wanted to nationalize stuff, too

That's what the Cheney-Bush administration agreed upon, nationalizing the failed insurance giant to taking an 80% equity stake in it, as reported in US to take control of AIG by Francesco Guerrera, Aline van Duyn and Krishna Guha Financial Times 09/16-17/08:

The US Federal Reserve announced that it will lend AIG up to $85bn in emergency funds in return for a government stake of 79.9 per cent and effective control of the company - an extraordinary step meant to stave off a collapse of the giant insurer that plays a crucial role in the global financial system.

Under the plan, the latest dramatic intervention by the US government to combat the global credit crisis, the existing management of the company will be replaced and new executives - as yet unnamed - will be appointed. It also gives the US government veto power over major decisions at the company.

The authorities will receive equity giving them a 79.9 per cent stake in AIG. In return, the insurer would receive a bridge loan of $85bn to keep it afloat until it could dispose of billions of dollars in assets. The Fed said the loan was expected to be repaid by the proceeds of selling AIG operating companies. A senior Fed staffer said the most likely outcome was an orderly liquidation of AIG, though it was possible that the firm could survive as an ongoing business.

Another scandal to watch for: Bush family cronies using the financial crisis and the nationalization of AIG, Freddie Mac and Fannie Mae to make a bundle, by means fair and/or foul.

Tags: predator state, us economy