First Step to Reducing National Debt

April 4, 2013, 7:55 a.m.

Sunlight is the Best Disinfectant

“For the second time in three days, we unseal criminal charges against a sitting member of our State Legislature. It becomes more and more difficult to avoid the sad conclusion that political corruption in New York is indeed rampant and that a show-me-the-money culture in Albany is alive and well.” -- Manhattan U.S. Attorney Preet Bharara, April 4, 2013

Benjamin Weiser and Marc Santora, "In 2nd Alleged Bribe Scheme, a Legislator Was in On the Case," New York Times, April 5, 2013, p. A1.

Congress’ first step in long journey

Nicholas Johnson

The Gazette, April 4, 2013, p. A5
Democrats and Republicans in Washington are seemingly suffering from ideological immobilization regarding the national debt.

Republicans’ Grover Norquist famously said he’d like a government small enough that he “can drown it in the bathtub.” Republicans fear that if taxes are increased, the liberal tax-and-spend Democrats will just squander the money on bigger government and more wasteful giveaways. Meanwhile, Democrats fear that free-range, feral Republicans will ultimately leave us with no solution for our surfeit of poor children other than Jonathan Swift’s suggestion that we eat them.

I understand their dilemma. Being honorable men and women, they know that when you take hundreds of thousands of dollars from someone you have a moral obligation to reciprocate, to meet your donor’s expectations of reward.

Years ago, I documented their expectations. The average rate of return was 1,000-to-one or more. The official gets a $100,000 “contribution”; the donor’s repaid $100 million for his “investment.” The payback can take the form of, say, subsidies, price supports, tax breaks, government contracts, public land, bailouts or tariffs. [Political cartoon credit: Unknown; multiple sources.]

The total isn’t chump change. The International Monetary Fund says global subsidies for fossil fuels alone are $1.9 trillion a year.

Recently, 10 percent of the Fortune 500 corporations had so many tax breaks they not only owed no taxes, they actually got refund checks!

Sen. Tom Coburn, R-Oklahoma, explains what others fear to whisper: “It’s not about tax policy, it’s about benefiting the political class and the well-connected and the well-heeled in this country.”

Legislators need money to be re-elected. Can you see why it’s easier for them to cut Social Security or food stamps than their donors’ rewards programs? (The poor are notoriously miserly when it comes to large campaign contributions.)

So what’s our nation’s first step on this journey of a thousand miles?

Here’s an idea. Ask the Congressional Budget Office and IRS to, first, identify all the special interest tax breaks that lobbyists have obtained. Some benefit an individual company; others an industry, or all business. Forget the other trillions in giveaways; focus on tax breaks.

Don’t eliminate these tax breaks; just make them visible subsidies, as appropriations. Publish them online. Hold news conferences to brief journalists and bloggers, and let them run with it.

Then see what happens. If the public doesn’t respond, well, that’s democracy for you. If they do, it might provide some backbone implants for our “representatives” in Washington.

And Des Moines.

The Gazette’s Erin Jordan has skillfully brought this approach to Iowa’s sales tax. (March 23) “Report: Iowa lost $3.9 billion in sales tax breaks in 2010; Breaks up 62 percent since 2005.”

I’ve written about applying it to TIFs (tax increment financing) — the local form of handing taxpayers’ money over to for-profit businesses, as in “TIF Towers,” http://fromdc2iowa.blogspot.com/2012/04/tif-towers.html.

When it comes to federal, state and local politicians transferring taxpayers’ money to for-profit companies (often in exchange for campaign contributions), the practices and consequences are similar, whether the special treatment comes from local TIFs, state sales taxes or federal corporate income taxes.

The first step to reform is also similar: public disclosure of what’s going on.

How much money is at stake? Who’s getting it? In exchange for how much in campaign contributions?

Neither the media nor public in our democratic society can begin to redress these abuses so long as they take the form of essentially invisible tax breaks, rather than debated appropriations of giveaways, openly arrived at, and shamelessly set upon the table, under lights.

If only Congress’ journey of a thousand miles could begin with this simple, single step.
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Nicholas Johnson, a former FCC Commissioner, teaches at the University of Iowa College of Law. Comments: www.nicholasjohnson.org and FromDC2Iowa.blogspot.com.
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Do you feel sometimes that your elected officials are sidestepping some of these major issues? Did you realize they've all been to dance classes? To "do a little sidestep" requires training, not to mention a good bit of talent:


[The preceding one-minute fair use clip is from the delightful 1982 R-rated full-length musical comedy, "Best Little Whorehouse in Texas," staring Burt Reynolds and Dolly Parton, among a great many other accomplished and well-known actors, and still available for rental and sale. It's based on a true story of a brothel outside LaGrange, Texas, that was ultimately closed down in 1973, following the work of investigative reporter Marvin Zindler of KTRK-TV, Houston. The writing was done by Larry King (whom I remember from Austin in the 1950s), the Governor was played by Charles Durning, and the studio was RKO Pictures. The film is copyright by, presumably, RKO. The use of this miniaturized, very brief clip is for non-commercial, educational and commentary fair use purposes only. Any other use may require the permission of the copyright owner.]

And here, for a little more serious approach to the subject, is Larry Lessig and his "We The People, and the Republic We Must Reclaim":



[Photo credit for opening photo: Unknown.]

# # #

Unemployment Answer is Jobs Not Bailouts

February 6, 2010, 7:00 a.m.

Recession and Unemployment Solution:
Stop Bailouts for Banks and Bosses,
Stop Unemployment Compensation,
Start Federal Jobs Program and Pay Unemployed to Work

(brought to you by FromDC2Iowa.blogspot.com*)
You've got to hand it to the White House and the Congress. When it comes to fighting joblessness their creativity has known no bounds. They've tried, well not exactly everything, but almost everything.

So how's that working for you?

They tried giving investment bankers trillions of dollars. That didn't seem to create a lot of jobs.

They are still giving General Motors and its real estate investment arm, GMAC, billions of dollars. They even gave wealthy people who were able to buy new cars, and thinking of doing so, thousands of dollars to make the purchase. To everyone's surprise the unemployed still sat on their empty wallets and refused to buy. That didn't seem to create a lot of good, new, permanent, full time jobs either.

Now the President has decided to try giving billions of dollars to small business owners. Sewell Chan, "Obama Outlines Plan to Increase Employment," New York Times, January 30, 2010, p. B1 ("In proposing a one-year, $33 billion tax credit for small businesses, the Obama administration is simultaneously seeking to stimulate hiring by reducing payroll taxes and to turn its attention to a constituency that has historically been associated with Republicans. . . . [The plan] would give companies a tax credit of up to $5,000 for each new hire and reimburse them for Social Security taxes . . . capped at $500,000 for each employer").

It's too early to know, but I rather suspect giving Republicans $500,000 each isn't going to result in either their voting for the Democratic Party candidates next November or the provision of jobs for the 29 million unemployed and underemployed.

Yeah, they've tried almost everything. Between December and January they even raised the federal debt ceiling from $12.4 to $14.3 trillion, a $1.9 trillion hike, to cover the $1.35 trillion deficit in this year's budget -- occasioned in part by all the handouts to those "constituencies historically associated with Republicans." ("Senate Votes to Raise Debt Ceiling," New York Times/Reuters, January 28, 2010.)

So, if it's just been "almost everything," what haven't they tried?

They've had a year by now (since President Obama moved into the Oval Office) and they still haven't tried paying people to work. They still haven't tried putting money in the pockets of those "constituencies historically associated with Democrats."

And how have their approaches been working for them?

Unemployment? Forget 10%; try 17% or 48% and 29 million Americans.

While Wall Street and Washington enjoy their bonuses and government job security, and look for silver linings in our dark cloud cover (e.g., a "drop" in the unemployment rate from 10.2% to 9.7%), here is what Paul Harvey used to call "the rest of the story":

The Labor Department revised past data to show that the economy comprised 1.36 million fewer jobs in December than previously thought. The revisions showed the economy lost 150,000 jobs in December — far more than the 85,000 initially reported. . . .

Construction continued to suffer in January, shedding 75,000 net jobs. Transportation and warehousing lost 19,000 net jobs. . . .

The so-called underemployment rate — which counts the involuntary part-timers along with people who have given up looking for work — sat at 16.5 percent in January . . . nearly double the level of three years ago.

Those who have been out of work for six months or longer swelled from 6.1 million in December to 6.3 million in January, the highest level since the government began tracking such data in 1948.

Peter S. Goodman and Javier C. Hernandez, "Labor Market Shows Signs of Reawakening in New Data," New York Times, February 5, 2010.

The point is, as I noted in the blog entry "There's No Such Thing as 10.2% Unemployment," (1) a lot of people don't show up in that statistic because they've given up looking for work, no longer qualify for unemployment compensation, or are working part-time or otherwise well below their job skills and former income, and (2) no American demographic is "10.2% unemployed; 48% of some segments of our society are unemployed while others are 4% unemployed.

The New York Times provides one of its "multimedia interactive graphics" that makes the point: "The Jobless Rate for People Like You," New York Times, November 6, 2009. As it shows, the percentages of unemployment for various demographic groups that have been averaged into that 10.2% are widely disparate.

For example, the unemployment rate for white, college educated women, 45 and over is 3.7% -- a number well within the normal range for a fully functioning economy. (For white, college educated men over 45 it's an equally acceptable 4.1%.)

On the other hand, the unemployment rate for Black, high school dropouts, aged 15 to 24 is 48.5% -- equal to the worst numbers in third world countries with virtually no economy. For Hispanic men 25 to 44, with a high school diploma, it's 9.9%. For more of the combinations click on the link above and select the demographic characteristics that interest you.

Moreover, even that 10.2% increases to 17.5% if you include, along with the recently unemployed, those unemployed for over six months, part time workers who would rather be working full time, and those too discouraged to continue looking (and even that number does not include, so far as I know, those working full time but at jobs well below their skill, education, and experience level). Presumably that near doubling of the numbers would apply to the percentages within various demographic groups as well.

Nicholas Johnson, "No Such Thing as 10.2% Unemployment; I Can CCC Our Way Out of Recession," November 27, 2009.

The U.S. Bureau of Labor Statistics has a measure it calls U-6. "It includes the unemployed as well as people who would like to work, but who have not looked for a job recently and those involuntarily working part-time. In addition, there are individuals who are not in the labor force at all."

# As of the third quarter of 2009, there are 12.5 million unemployed native-born Americans, but the broader U-6 measure shows 21 million natives unemployed or underemployed.

# There are 6.1 million natives with a high school education or less who are unemployed. Using the U-6 measure, it is 10.4 million.

# In addition to those less-educated natives covered by U-6, there are another 18.7 million natives with a high school education or less not in the labor force, which means they are not looking for work.

# The total number of less-educated (high school education or less) natives who are unemployed, underemployed, or not in the labor force is 29.1 million.

Steven A. Camarota and Karen Jensenius, "A Huge Pool of Potential Workers: Unemployment, Underemployment, and Non-Work Among Native-Born Americans," Center for Immigration Studies, December 2009.

There are nearly 30 million Americans who could be working and are not. And what is Washington doing about them? They're using taxpayers' money to give Wall Street bankers bonuses.

There is a better way.

I can CCC clearly now -- why can't Washington?

Take a look at how President Franklin Roosevelt responded to unemployment during the last Great Depression. He didn't wait a year or more for improvement. It barely took him a month.

FDR was sworn in on March 4 of 1933. By March 31 the CCC legislation had been passed and signed. Five days later there were already 25,000 employed in the program -- soon to reach 250,000 and then 3 million. And not incidentally, the benefits to the participants in literacy training and health care paid national dividends for decades more.

"By mid-1933, sixteen CCC camps and thirty-two projects had been approved for Iowa. . . . By the time the CCC ended in 1942, the number of CCC enrollees in Iowa camps would total nearly 46,000. They would contribute to the development of more than eighty state parks, and leave a tangible legacy that still numbers more than seven hundred state park structures" -- including Johnson County's own Lake MacBride State Park. Rebecca Conard, "The Legacy of Hope from an Era of Despair: The CCC and Iowa State Parks," Books at Iowa 64 (April 1996). [Photo credit: the Iowa DNR CCC Web site.]

How far we have fallen from our once proud compassion for our fellow Americans in distress. Nor is that distress limited to homelessness and hunger. See Reid Forgrave, "Worry rises with suicide rate," Des Moines Register, November 28, 2009.

But hunger is still a very real problem. And yet some are even seemingly reluctant to provide the underemployed 17% with unemployment compensation and Food Stamps -- those who are suffering from an economic collapse brought on, through no fault of their own, by greedy, multi-million-dollar Wall Street bankers and those in Washington who've been blessed with their generous campaign contributions. See Jason DeParle and Robert Gebeloff, "Across U.S., Food Stamp Use Soars and Stigma Fades," New York Times, November 29, 2009, p. A1 (More than 36 million receive Food Stamps, a program that "now helps feed one in eight Americans and one in four children. . . . Under Secretary of Agriculture Kevin Concannon says 'there are another 15, 16 million who could benefit.' . . . [T]he program is now expanding at a pace of about 20,000 people a day. . . . In more than 750 counties, the program helps feed one in three blacks. In more than 800 counties, it helps feed one in three children. In the Mississippi River cities of St. Louis, Memphis and New Orleans, half of the children or more receive food stamps. [H]alf of Americans receive food stamps, at least briefly, by the time they turn 20. Among black children, the figure was 90 percent. . . . [During] the 1990s . . . some conservatives tried to abolish the program . . ..").

Notwithstanding the fact that many, if not most, of these recipients would prefer the self-esteem that comes from work, and the ability to support oneself financially, we have yet to see the first federal job created by the current Administration.

As a result, we all fail to receive the benefits -- for ourselves as well as the participants in a modern-day CCC -- if only we were willing to pay for their work rather than their unemployment.

Nicholas Johnson, "No Such Thing as 10.2% Unemployment; I Can CCC Our Way Out of Recession," November 27, 2009.

Just think some more about Roosevelt's timing. If President Obama had merely done the equivalent, not more, we would have already provided work, and an income, to 25,000 unemployed a full year ago. By now we'd have 3 million off the unemployment compensation roles and working, instead of homeless and destitute.

So tell me why you haven't done it, President Obama. Why? Why? Why have you almost exclusively targeted taxpayers' largess on "constituencies that have historically been associated with Republicans"?

We can argue about the administrative details. Notwithstanding the continuing need for work in our state and national parks and forests, if urban projects are thought to have higher priority, and the unemployed would prefer to work there, there's no shortage of urban projects either.

There's no question that it is helpful to pass federal dollars to state and municipal governments that can help keep government employees on the payroll. But it does little to provide work and income for the unemployed/underemployed who never have been government office workers, and who will continue to feel the pain of this "jobless recovery" for another couple years at a minimum. It does little to stimulate the economy with the consumer purchasing the unemployed could provide if they were working. It does little to quell the mounting risk of serious social unrest.

And it's relatively cheap to do. Goodness knows, there is no shortage of work that needs doing. If we can get that work done for little more than it costs us for unemployment compensation and food stamps, tell me again why we'd rather do that than provide the recipients with the dignity, as well as the income, of useful accomplishment?

Mother Jones magazine documented the $14 trillion that America's taxpayers will someday, somehow have to pay that was given to some of our elected officials' most generous campaign contributors on Wall Street. Nicholas Johnson, "A $14 Trillion Opportunity Cost," January 27, 2010.

Any idea how much of a federal jobs program that could have funded if it had gone to unemployed, poor workers instead of obscenely wealthy bankers? It could have funded all of the 29 million unemployed, at $25,000 a year, doing productive work, for 20 years. (Would you rather pay them $50,000 a year? OK; then the program could only run for 10 years.) And it wouldn't have taken 10 or 20 years, because it would have, instantaneously, recreated the economic engine that is consumer spending -- 70% of our gross domestic product.

February 12 addition: "No matter what Congress does to lower the cost of labor, employers won’t hire unless they believe demand will be sufficient to sell whatever the business produces." Editorial, "How Not to Write a Jobs Bill," New York Times, February 12, 2010, p. A30. The New York Times got that much right. Only by putting money in the pockets of workers -- not their potential employers -- can "demand" be created in that 70% of our economy that is driven by consumers. Unfortunately, the editorial does not take the next logical step and propose a federal jobs program.

If you've read this far . . .
. . . you've pretty much got my slant on this one. But if you'd like to read more, some prior consistent blog entries, see a list of links to earlier commentary, and another picture, read on.

What was I saying almost exactly a year ago? Almost exactly the same thing.

Quick Fix: Support Jobless, Not Bankers
February 7, 2009, 10:30 a.m.

Banker Bailout Billions Not the Answer
(brought to you by FromDC2Iowa.blogspot.com*)
There's even more reason this morning [Feb. 7, 2009] to make the economic recovery case I've been urging in these blog entries ever since the potential consequences of our downturn became obvious to all.

In a failing economy, 70% of which depends upon consumer spending, once the government decides to infuse trillions of dollars into the economy the first place to put it is in the pockets of those who will spend it: the jobless.

Yesterday we learned we now have 598,000 more of them among us than we had a month ago. ("[T]he Labor Department announced that 598,000 jobs were lost in January. The contraction in jobs is already steeper than in any other recession since at least the early 1980s. And economists warn that several more shoes are about to drop . . .." Carl Hulse and David M. Herszenhorn, "Senators Reach Accord on Stimulus Plan as Jobs Vanish," New York Times, February 7, 2009.)

Adequate and additional funding for the unemployed does not require the creation of new programs (they're already in existence), can distribute the money faster than almost any other way, provides money to those most likely to spend it (rather than invest it), and to spend it almost immediately (rather than months from now), with a multiplier effect of roughly 1.7 in economic impact (compared to 0.27 for tax cuts), in the single largest economic sector (consumer spending).

And for those who look at economic recovery issues from a moral, ethical, humanist, communitarian, sociological or religious perspective, clearly those who are down on their luck through no fault of their own are the ones most deserving of our government's assistance. The point is, even if these considerations are ignored, and one just looks at the numbers like a steely-eyed banker, caring for the jobless is also the most cost-effective way out of the hole we're in.

But it's not quite that easy, as Christopher S. Rugaber's AP story explains. Christopher S. Rugaber, "Recession exposes holes in jobless benefit system; Holes exposed in jobless safety net as more than 5 million go without unemployment benefits," Associated Press/Yahoo! Finance, February 6, 2009.

o Half or more of the 11.6 million currently jobless Americans aren't covered.

o Some earned too little to qualify -- in part because of how their earnings are calculated.

o Part-time workers aren't covered.

o Benefits run out (after, say, 26 weeks) long before new jobs appear, since the program was designed for those "between jobs" during brief recession dips not the massive, continuing joblessness of a major global depression.

o The programs are funded by employers, now contributing less.

o They are administered as state, rather than federal, programs; states are running out of money, and under-staffed to handle the rapid increase in applications.

Here are some excerpts from Rugaber's story:

The government safety net designed to protect laid-off workers from financial catastrophe is falling short, leaving nearly half the 11.6 million jobless Americans without unemployment benefits.

The shortcomings are fueling the recession as an increasing number of workers fall through the cracks and curtail spending. The trend highlights what economists say is a growing need for a 21st century makeover of a program started in the depths of the Great Depression.

Among the key problem areas:

-- There are many more part-time workers now than in 1935, but the program only covers those looking for full-time work.

-- Many eligible jobless Americans are shut out because states use an outdated system for calculating their income, making it more difficult to meet requirements.

-- Unemployment spells increasingly last longer than the usual 26-week jobless benefits program.

Jobless benefits are essentially mini-financial stimulus packages for struggling American families. Helping laid-off breadwinners continue to purchase goods and services until they find new jobs ultimately bolsters the economy and makes further layoffs less likely. . . .

[J]obless benefits . . . vary by state but average about $300 a week. . . .

[Covering] part-time workers and more low-wage workers . . . could extend benefits to 500,000 people . . ..

But more fundamental reforms are needed to address the system's underlying weaknesses, several economists said.

Many of the 5.2 million unemployed Americans without jobless benefits already ran through their 26 weeks of assistance. The program, funded by states through taxes levied on employers, has been no match for a recession that is frustrating the ambitions of even the most qualified job hunters.

That is forcing families to cut back on spending and dip into savings, if they have any. . . .

Gus Faucher, director of macroeconomics at Moody's Economy.com, said if the government provided benefits to more workers, it would reduce the severity of the recession. . . .

Before the emergency extensions, only about one-third of unemployed Americans were receiving benefits, a level that has declined steadily since coverage was at its peak in 1975.

The proportion of workers covered usually increases during recessions as Congress typically enacts extended benefits. Some experts argue that extensions should be automatic during downturns to avoid politicizing them. . . .

High demand -- and insufficient funding -- has made it difficult for many unemployment offices to keep up. Last month, online systems for requesting benefits in three states crashed under the crush of claimants. . . .

At least a half-dozen states have had to borrow money from the federal government to pay benefits after exhausting their unemployment insurance trust funds. . . .

In decades past, layoffs during recessions were often short-lived and workers were eventually rehired by the same company. Today, companies are more likely to eliminate jobs for good, either by shutting down plants or moving them abroad, according to a study by the Brookings Institution.

The result: Unemployment spells tend to be longer . . ..

Many states don't count workers' most recent 3 to 6 months of wages . . . [S]hortchang[ing] low-income workers, who may not be able to prove they earned the minimum required for benefits. . . .

In 21 states that have begun calculating eligibility using up-to-date wages, roughly 40 percent of those who initially didn't qualify were able to do so . . ..

Jeffrey Kling, an economist at the Brookings Institution, says . . . the government should temporarily replace part of the income workers lose when they take lower-paying jobs after a layoff.

The stimulus package provides some little nods in the direction of the jobless, but is a far cry from solutions. Once these problems are fixed, once all of the jobless are offered financial support, job training and job opportunities, once we've at least begun to expand for them the immediate relief of health care and ways to hang onto their homes, then and only then should we be considering any additional hundreds of billions for bankers.

Presumably, the Republicans in the House and Senate will support me on this. After all, their objections to some elements of the Obama stimulus package were that they didn't think they would create jobs, that any impact on economic stimulus would be too far in the future, or that they had nothing to do with stimulating the economy, and that taken together they involved far too much total money.

Surely those concerns are all equally applicable to the additional hundreds of billions Treasury Secretary Geithner is about to propose for his banking friends. Those billions not only won't create jobs, they will not even require the banks to make loans! And given the $2.4 trillion the Fed has already provided the banks, and the $350 billion in TARP funds, the amounts Geithner is talking about far, far exceed anything ever considered for the jobless, or for jobs programs.

Stephen Labaton, "New Plan to Help Banks Sell Bad Assets," New York Times, February 7, 2009 ("[T]he Obama administration has settled on a plan to inject billions of dollars in fresh capital into banks . . . [that] will not require banks to increase their lending. That is despite criticism that institutions that already received money from the Troubled Asset Relief Program, or TARP, either hoarded it or used the funds to acquire other banks. . . . The goal is to relieve the banks of their worst assets . . ..")

There may be more details tomorrow, but I still intend to measure them by the standards I set out at the end of the blog entry two days ago. Nicholas Johnson, "Hang Onto Your Wallet," February 5, 2009.
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Related Blog Entries on Global Economy and Bailouts
Nicholas Johnson, "Who's The Reason?" September 5, 2008

Nicholas Johnson, "How Much Do You Owe the Chinese?" September 6, 2008

Nicholas Johnson, "Taxpayer Rescue," September 15, 2008

Nicholas Johnson, "Global Finance: The Great Fountain Pen Robbery," September 21, 2008

Nicholas Johnson, "Alternatives to 'The Plan,'" September 28, 2008

Nicholas Johnson, "Better Alternatives to Congress' Bailout Plan," October 2, 2008

Nicholas Johnson, "Can We Trust Our Bankers?" October 29, 2008

Nicholas Johnson, "It's the Economy," November 7, 2008

Nicholas Johnson, "Jobs, Not Unemployment, Key to Recovery," November 8, 2008

Nicholas Johnson, "Trust Your Instincts, Auto Bailout's Terrible Idea," November 14, 2008

Nicholas Johnson, "Auto Bailout: An Open Letter to Congress," November 19, 2008

Nicholas Johnson, "A Trillion Here, a Trillion There," November 20, 2008

Nicholas Johnson, "FromDC2Iowa's Weekend Edition," November 21, 2008 ("The Answer to Global Economic Collapse" and "Auto Bailout: 'Show Me the . . . Plan'")

Nicholas Johnson, "Citigroup Deal Stinks," November 25, 2008

Nicholas Johnson, "Only Select Few Are Thankful for Trillions," November 27, 2008

Nicholas Johnson, "Auto Loan Makes Too Few Dollars Even Less Sense," December 4, 2008

Nicholas Johnson,"Quick Fix for the Economy," December 12, 2008

Nicholas Johnson, "You Know It's Serious When We Start Laughing," December 15, 2008

Nicholas Johnson, "A Car in Every Garage," December 16, 2008

Nicholas Johnson, "Forget Madoff, Focus on Bernanke," December 17, 2008

Nicholas Johnson, "Of Theaters and Automobiles," December 20, 2008

Nicholas Johnson, "There's Bad News and . . . and . . .," December 21, 2008

Nicholas Johnson, "Et Tu, Toyota?" December 22, 2008

Nicholas Johnson, "Revolting Developments," December 23, 2008

Nicholas Johnson, "First Things First," January 8, 2009

Nicholas Johnson, "Why We Should 'Point Fingers' and 'Look Backwards,'" January 13, 2009

Nicholas Johnson, "Fool Me Twice," January 14, 2009

Nicholas Johnson, "Economic Sorrows and Solutions," January 27, 2009

Nicholas Johnson, "No More for Wall Street!" February 1, 2009

Nicholas Johnson, "Hang Onto Your Wallet," February 5, 2009

Nicholas Johnson, "Quick Fix: Support Jobless, Not Bankers," February 7, 2009

And again last November . . .

"Jobs, Not Unemployment, Key to Recovery," November 8, 2008

Why We Need a Jobs Program

Look at the numbers. There are now over 10 million unemployed. Unemployment stands at 6.5 percent, and is projected to go to 8 percent next year -- 22 percent of whom have been out of work for more than six months, something we haven't seen for a quarter-century. The rates are increasing. Of the 1.2 million jobs lost this year 284,000 were in September and 240,000 in October.

In the 1950s over 50 percent of the unemployed received benefits; today, because of various restrictions, only 32 percent qualify -- more unemployment, more holes in the safety net.

The Times reports, "'The economy is slipping deeper into a recessionary sinkhole that is getting broader,' said Stuart G. Hoffman, chief economist at PNC Financial Services Group in Pittsburgh."

Put it all together and the answers seem, to me, rather obvious.

You can't improve business (profits, returns to shareholders, executive compensation) without improving retail sales; you can't improve retail sales without putting money in the hands, and confidence in the heads, of potential consumers; and unemployed consumers don't have money unless they are provided either unemployment compensation or wages from a public sector job (in an economy with a shrinking private sector).

Given our rotting, unattended, infrastructure (roads, bridges, pipelines, schools) resulting from the last 30 years of "tax cuts" it seems to me, given the same amount of money, that using it to create "jobs" makes more sense than providing it for "unemployment compensation."

But either makes more sense than trying to turn an economy around with "trickle down" -- whether tax cuts for the rich, or bailouts for the rich.

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* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself.
-- Nicholas Johnson
# # #

It's the Unemployment, Stupid!

July 29, 2009, 6:00 a.m.

Perry County: If the Question is Economic Recovery
The Answer is Jobs
(brought to you by FromDC2Iowa.blogspot.com*)
James Carville, the political consultant who once famously tried to keep presidential candidate Bill Clinton "on message" with the wall sign, "It's the economy, stupid!" is today giving Afghanistan presidential candidate Ashraf Ghani similar "stay on message" advice. If Carville were content to stay in his own country, and on message, I suspect his wall sign for President Obama might well be, "It's the unemployment, stupid!"

Our unemployment numbers continue to climb to roughly 10%, with some pockets more than double that, and most economists projecting at least a year before meaningful improvement, noting that the jobs picture is the last to improve when coming out of a recession.

Despite these realities, the response of Congress and the White House has been bailouts for the corporate CEOs credited with the largest campaign contributions rather than America's working men and women.

Nine months ago I urged a jobs program as the most efficient and effective "stimulus package." Nicholas Johnson, "Jobs, Not Unemployment, Key to Recovery; Why America Needs a Jobs Program: Because When Your Automobile (Industry) is in the River It Makes More Sense to Go For the Shore Than to Continue Bailing it Out," November 8, 2008.

Earlier this week the Times reported that at least one of America's 3100 counties is now successfully taking that approach. Michael Cooper, "To Create Jobs, Tennessee Looks to New Deal Model," New York Times, July 27, 2009 (the site offers a multimedia slide show including the voices of some of the new job holders).

Excerpts from my earlier recommendations, and the Times' report on the Perry County, Tennessee, project, follow.

My own view -- buttressed by [reports regarding] (1) the automobile industry (especially General Motors), (2) retail sales, and (3) unemployment -- is that the best interests of the business community, as well as the American people, will be served by providing public jobs programs, and economic support to the unemployed, rather than continuing to pour billions of dollars into failed and failing businesses. . . .

[A] major part of GM's problem is that laid-off GM workers, and the 10 million other unemployed Americans, don't have the money to buy anybody's cars right now . . ..

[T]here's little likelihood much of the billions given to GM (whether "loans" unlikely to be repaid, "bailouts," or money said to be for "re-tooling" or research on more energy efficient vehicles) is going to find its way to UAW workers, suppliers and dealers -- unless GM would be stupid enough to increase its production, and inventories, of cars that neither its dealers nor its customers can afford. . . .

If the automobile industry is the lynch pin to economic recovery the new president thinks it is, the solution is to get more money into the hands of consumers -- especially the unemployed (and soon to be unemployed). Enabling auto executives to have tens of billions of additional dollars to spend at their discretion in postponing bankruptcy doesn't strike me as a solution to anything . . ..

Another problem with Washington's willy-nilly giveaways, aside from the fact that they are unfair, don't work and will ultimately bankrupt our nation, is that they are irrational. . . .

I have no more enthusiasm for bailing out, or subsidizing, the retail sector than I have for the automobile sector. If Target's sales are down (as they are), I'm not confident that giving its executives billions of dollars will increase its "discretionary spending" sales to customers who barely have money for food.

But if Obama is looking for economic sectors to which to transfer taxpayers' money, wouldn't the one that represents "two-thirds of the nation's economic activity" make more sense in a recession/depression than bailing out the one that makes $30,000 new vehicles? . . .

Why We Need a Jobs Program

Look at the numbers. There are now over 10 million unemployed. Unemployment stands at 6.5 percent, and is projected to go to 8 percent next year -- 22 percent of whom have been out of work for more than six months, something we haven't seen for a quarter-century. The rates are increasing. Of the 1.2 million jobs lost this year 284,000 were in September and 240,000 in October.

In the 1950s over 50 percent of the unemployed received benefits; today, because of various restrictions, only 32 percent qualify -- more unemployment, more holes in the safety net. . . .

[T]he answers seem, to me, rather obvious.

You can't improve business (profits, returns to shareholders, executive compensation) without improving retail sales; you can't improve retail sales without putting money in the hands, and confidence in the heads, of potential consumers; and unemployed consumers don't have money unless they are provided either unemployment compensation or wages from a public sector job (in an economy with a shrinking private sector).

Given our rotting, unattended, infrastructure (roads, bridges, pipelines, schools) resulting from the last 30 years of "tax cuts" it seems to me, given the same amount of money, that using it to create "jobs" makes more sense than providing it for "unemployment compensation."

But either makes more sense than trying to turn an economy around with "trickle down" -- whether tax cuts for the rich, or bailouts for the rich.

Nicholas Johnson, "Jobs, Not Unemployment, Key to Recovery; Why America Needs a Jobs Program: Because When Your Automobile (Industry) is in the River It Makes More Sense to Go For the Shore Than to Continue Bailing it Out," November 8, 2008.

[* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source, even if I have to embed it myself. -- Nicholas Johnson]

Now read what's happening in Tennessee:

Critics elsewhere may be questioning how many jobs the stimulus program has created, but here in central Tennessee, hundreds of workers are again drawing paychecks after many months out of work, thanks to a novel use of federal stimulus money by state officials.

Here in one of Tennessee’s hardest-hit areas, some workers were cutting down pine trees with chainsaws and clearing undergrowth on a recent morning, just past the auto parts factory that laid them off last year when it moved to Mexico. Others were taking applications for unemployment benefits at the very center where they themselves had applied not long ago. A few were making turnovers at the Armstrong Pie Company (“The South’s Finest Since 1946”).

The state decided to spend some of its money to try to reduce unemployment by up to 40 percent here in Perry County, a rural county of 7,600 people, 90 miles southwest of Nashville where the unemployment rate had risen to above 25 percent after its biggest plant, the auto parts factory, closed.

Rather than waiting for big projects to be planned and awarded to construction companies, or for tax cuts to trickle through the economy, state officials hit upon a New Deal model of trying to put people directly to work as quickly as possible.

They are using welfare money from the stimulus package to subsidize 300 new jobs across Perry County, with employers ranging from the state Transportation Department to the milkshake place near the high school.

As a result, the June unemployment rate, which does not yet include all the new jobs, dropped to 22.1 percent.

“If I could have done a W.P.A. out there, I would have done a W.P.A. out there,” said Gov. Phil Bredesen of Tennessee, a Democrat, referring to the Works Progress Administration, which employed millions during the Great Depression. . . .

The impact has been enormous, all across the county. Even the look of the place is changing, following the old W.P.A. model. In addition to the jobs for adults, there are 150 summer jobs for young people, some of whom have been working with resident artists to paint murals depicting local history on the buildings along Main Street in Linden, the county seat.

Over all, two-thirds of the new jobs are in private sector businesses, which are reimbursed by the state for the salaries of eligible stimulus workers. Some, in retail, might be hard to sustain when the stimulus money runs out in September 2010. Other businesses say the free labor will help them expand, hopefully enough to keep a bigger work force.

The Commodore Hotel Linden, a newly restored 1939 hotel that has brought new life to downtown, has seen an increase in its bookings since it has expanded its staff thanks to the stimulus. And the Armstrong Pie Company expects to be able to keep on the new bakery assistants and drivers it hired with stimulus money, saying the new workers have helped the company triple its pie production and expand its reach through central Tennessee. . . .

Michael Cooper, "To Create Jobs, Tennessee Looks to New Deal Model," New York Times, July 27, 2009 (the site offers a multimedia slide show including the voices of some of the new job holders).

My only disagreement with the Times' story is its characterization of the Perry County approach as "novel." As it alludes later in the piece, we did this in the 1930s and called it the "Works Progress Administration" and "Civilian Conservation Corps" -- the creations of which we are still enjoying to this day (in, for example, our state parks).

Why are we not doing it today -- outside of Perry County? Your guess is as good as mine. But my suspicion is that it has more to do with the big money corruption of our political system than with some new, Nobel-prize-winning insight into the mysteries of economic theory.
____________

* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source, even if I have to embed it myself. -- Nicholas Johnson

# # #

Banks Declare Their Bailout a Success

April 16, 2009, 10:30 a.m., 1:40 p.m. (addition of endnotes to sources)

Cash, Credit, and Mortgage Foreclosures
(brought to you by FromDC2Iowa.blogspot.com*)
Things may not be quite as bad as the Onion News Network portrays, but its report sure fingers the problem -- as we'll explore in a moment, below.

Let's see now, why was it we were told we had to "right now, no questions asked or answered, trust us" give billions of taxpayer dollars to some of America's largest banks and their wealthy executives? Oh, yeah, the suggestion was pretty heavy that ordinary taxpayers weren't sophisticated enough to really understand, which is why we had to leave the solutions to the guys who created the problem -- guys who tend to rotate back and forth between Wall Street and the Treasury Department.

But for those of us who insisted on more explanation, we were told that this gift was necessary in order to get the banks to abandon their blackmail threat ("give us $700 billion right now or we won't loan money any more") and start loaning money again, restructuring mortgages to enable those who would otherwise become homeless to stay in their homes, creation of more jobs, and the increased buying consumers would do once credit became available. And the point was always stressed that the goal was not to help banks on Wall Street but the consumers on Main Street.

So it's been a few months. What are the results?

Have the banks increased their loan operations? Well, no, not really; in fact they've cut back further, drying up more credit, than they did before they got our money. Meanwhile, they've helped themselves to another pot of gold that has received very little attention from the media. [Endnote 1.]

So how about the foreclosures, are there fewer? Well, no, not actually; there have been 24% more foreclosures this quarter than a year ago. And what about President Obama's plan to forestall foreclosures? The banks have decided that it was a program only designed to keep people in their homes over the winter, when their adverse publicity is the worst as a result of evicting families into the snow. Now that spring is here they're back to evicting people big time. [Endnote 2.]

At least I hope we have had a dip in the number of those who are still receiving unemployment. Hope again; it's more like a cyst than a bubble. After the bank bailouts, what are called "continuous jobless claims" have now escalated to what are the highest levels in American recorded history. [Endnote 3.]

But then I guess at least consumer purchasing must have turned around, right? Wrong. Consumer purchasing declined even further from February to March. [Endnote 4.]

Golly, I'm beginning to feel sorry for those big banks; these must be really tough times for them. Not quite; they're having some very profitable quarters. [Endnote 5.]

Kind of looks like "three strikes you're out," huh? Wrong again; it looks like the bankers will be coming back to the Treasury and Congress asking for an extension on what they consider a very successful "bailout billions for bankers" program. And so long as they continue to be willing to give back in campaign contributions a small share of what Congress gives them, as a token of their appreciation (in what the two major parties have called their "give a million, get a billion" outreach programs), it looks like there may be even more billions coming their way. [Endnote 6.]

To further sweeten the kitty, the Onion News Network is reporting, the Treasury is now recalling all currency still possessed by American citizens:


Treasury Department Issues Emergency Recall Of All US Dollars

Would anyone care for a cup of tea?

Endnotes
1. "Lending by the nation's largest banks fell 6 percent in February from the previous month, continuing a downward trend that began in October with the financial crisis, according to data published yesterday by the Treasury Department. The 21 banks in the survey have received more than $211 billion in federal funding to support new lending with the aim of stimulating the economy. The money has not accomplished its purpose. The banks reported a 24 percent decline in the dollar value of business lending . . .." Binyamin Appelbaum, "Lending by Bailout Recipients Falls Again," Washington Post, April 16, 2009.

"Demand for commercial and industrial loans was weak, and there were several reports that business borrowers were postponing capital expenditures." "Banking and Finance," U.S. Federal Reserve April Beige Book Summary, Bloomberg, April 15, 2009. ["The nation's major banks, concerned about their own deteriorating finances, are making fewer loans to corporations. By cutting back on loans that companies use to buy other concerns, build factories and develop products, the lending slowdown weakens the national economy and could precipitate or lengthen a recession that many economists say has already begun. Michael Quint, "Banks Cut Business Lending, Hurting Weakened Economy," New York Times, October 16, 2008.]

"Goldman Sachs . . . is quietly holding on to other forms of public support that come with virtually no strings attached. Banks have been benefiting from an indirect subsidy adopted by the federal government at the height of the financial crisis last fall that allows them to issue their debt cheaply with the backing of the Federal Deposit Insurance Corporation. . . . [G]iven the huge amounts of debt issued by Goldman, JPMorgan Chase and Morgan Stanley alone, any major collapse could breach the F.D.I.C.’s reserves. The agency has asked Congress for authority to borrow more money from the Treasury in case of an emergency." Louise Story, "U.S. Program Lends a Hand to Banks, Quietly," New York Times, April 14, 2009.

2. "[F]oreclosures surged in the first quarter, according to reports released on Thursday. . . . James J. Saccacio, chief executive of RealtyTrac, said . . . that foreclosures would probably increase over the next months as temporary halts to foreclosures expired at banks . . .." Jack Healy, "No End Yet for Downturn in Housing, New Data Suggest," New York Times, April 16, 2009; "U.S. foreclosure filings rose to a record in the first quarter as . . . temporary programs to delay action on defaults came to an end." Dan Levy, "Foreclosure Filings in U.S. Climbed to Record in First Quarter," Bloomberg, April 16, 2009.

3. "Continuing jobless claims rose to 6 million for the week ending April 4, an increase of more than 100 percent from the same time last year." Ibid.; "The total number of people remaining on the jobless benefit rolls . . . [is now] topping 6 million for the first time . That's the highest on records dating from 1967." Christopher S. Rugaber, "Jobless Claims Top 6M; Housing Starts Plummet," Associated Press Mobile News Network [an iPhone app], April 16, 2009.

4. It turns out that what consumers need to increase their spending is more cash, not more credit! "The Rockefeller Institute of Government recently released a report . . . indicating that the [states'] sales tax decline in late 2008 was the worst in 50 years . . . because sales to consumers have fallen — a spending decline that has been unusually steep by historical standards." Catherine Rampell, "Comparing This Recession to Previous Ones: Retail Sales," New York Times, April 16, 2009;

"Geithner believes the only way to rescue the economy is to get the big banks to lend money again. But he’s dead wrong. Most consumers cannot and do not want to borrow lots more money. They’re still carrying too much debt as it is. Even if they refinance their homes – courtesy of the Fed flooding the market with so much money mortgage rates are dropping – consumers are still not going to borrow more. And until there’s enough demand in the system, businesses aren’t going to borrow much more to invest in new plant or machinery, either." Robert Reich, "We Need More Stimulus, Not More Bailout," April 14, 2009.

5. "J.P. Morgan Chase this morning reported first-quarter earnings of $2.1 billion, as it profited from the availability of cheap funding from depositors and the federal government. The results offered the latest indication that some banks are beginning to overcome the weight of massive losses on their outstanding loans, following reports of first-quarter profits from Goldman Sachs and Wells Fargo." Binyamin Appelbaum, "J.P. Morgan Chase Reports Strong 1Q Earnings," Washington Post, April 16, 2009.

6. "With only $110 billion remaining in the TARP bailout fund, all signs are that Tim Geithner is preparing to return to Congress seeking more bailout money. . . . Congress won’t be happy but in the end it will cough up another 300 to 500 billion." Robert Reich, "We Need More Stimulus, Not More Bailout," April 14, 2009.
______________

* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson

# # #

Don't Trust the "Experts"

April 9, 2009, 8:30 a.m.

Trust Your Instincts
(brought to you by FromDC2Iowa.blogspot.com*)
Five months ago I suggested that we common people should trust our instincts when we have the sense that we have been the victims of the largest robbery of the largest number of people in the history of the world. (At that time it was in the context of the GM bailout. Nicholas Johnson, "Trust Your Instincts, Auto Bailout's Terrible Idea," November 14, 2008.)

A couple weeks ago Nicholas Kristof provided some backup for my trust in the people's common sense. Nicholas D. Kristof, "Learning How to Think," New York Times, March 26, 2009 -- with thanks to my son, Sherman, for bringing it to my attention.

In that blog entry I commented about an earlier one, "To many observers this proposal [to bail out the auto industry] looked nuts. Nicholas Johnson,"Jobs, Not Unemployment, Key to Recovery; Why America Needs a Jobs Program: Because When Your Automobile (Industry) is in the River It Makes More Sense to Go For the Shore Than to Continue Bailing it Out," November 8, 2008 ("GM went through nearly $7 billion in cash in the course of losing over $4 billion during the last three months! Pouring more billions of taxpayers' money into this bottomless pit can do little more than postpone the agony for three or four more months.").

What has the Obama Administration, or the auto industry for that matter, gained by waiting five months -- and putting billions of additional debt on my great granddaughter's "credit card" -- before coming to the same conclusion?

I continued:

On balance, I'm a proponent of a meritocracy, expertise, graduate and post-graduate education, and looking to scientists and experts rather than ideologues for solutions to public policy challenges.

But it's also reassuring when ordinary folks like myself, relying on instincts, intuition and such limited information and understanding as we possess, can come to the same conclusions ultimately adopted by the experts.

Nicholas Johnson, "Trust Your Instincts, Auto Bailout's Terrible Idea," November 14, 2008.

You've probably heard that, with all of their high-priced financial experts, roughly 80% of specialized mutual funds do worse than the market averages (which you can buy in "index" mutual funds -- and at lower administrative costs). Pick stocks at random, throw darts, or ask your cat to scratch what she thinks are the winners on the stock market page and you'll do better than most "experts."

It makes sense -- especially given what we've just watched their stupidity and greed do to the entire global economy.

But now Nicholas Kristof informs us we should not be surprised at that result; because our instincts are almost always as good as, if not better than, the self-proclaimed "experts" in every field.

We should continue to avoid communicating the aura of arrogance and certainty that seems to exude from some experts, but neither should we feel the need to apologize, or be shy about our own judgments.

The entire column is well worth a read. Meanwhile, here are some excerpts. He writes:

Ever wonder how financial experts could lead the world over the economic cliff?

One explanation is that so-called experts turn out to be, in many situations, a stunningly poor source of expertise. There’s evidence that what matters in making a sound forecast or decision isn’t so much knowledge or experience as good judgment — or, to be more precise, the way a person’s mind works. . . .

The expert on experts is Philip Tetlock, a professor at the University of California, Berkeley. His 2005 book, “Expert Political Judgment,” is based on two decades of tracking some 82,000 predictions by 284 experts. The experts’ forecasts were tracked both on the subjects of their specialties and on subjects that they knew little about.

The result? The predictions of experts were, on average, only a tiny bit better than random guesses — the equivalent of a chimpanzee throwing darts at a board.

“It made virtually no difference whether participants had doctorates, whether they were economists, political scientists, journalists or historians, whether they had policy experience or access to classified information, or whether they had logged many or few years of experience,” Mr. Tetlock wrote.

Indeed, the only consistent predictor was fame — and it was an inverse relationship. The more famous experts did worse than unknown ones. That had to do with a fault in the media. Talent bookers for television shows and reporters tended to call up experts who provided strong, coherent points of view, who saw things in blacks and whites. People who shouted — like, yes, Jim Cramer!

Mr. Tetlock called experts such as these the “hedgehogs,” after a famous distinction by the late Sir Isaiah Berlin (my favorite philosopher) between hedgehogs and foxes. Hedgehogs tend to have a focused worldview, an ideological leaning, strong convictions; foxes are more cautious, more centrist, more likely to adjust their views, more pragmatic, more prone to self-doubt, more inclined to see complexity and nuance. And it turns out that while foxes don’t give great sound-bites, they are far more likely to get things right.

This was the distinction that mattered most among the forecasters, not whether they had expertise. Over all, the foxes did significantly better, both in areas they knew well and in areas they didn’t.

Other studies have confirmed the general sense that expertise is overrated. In one experiment, clinical psychologists did no better than their secretaries in their diagnoses. In another, a white rat in a maze repeatedly beat groups of Yale undergraduates in understanding the optimal way to get food dropped in the maze. The students over-analyzed and saw patterns that didn’t exist, so they were beaten by the rodent. . . .

Nicholas D. Kristof, "Learning How to Think," New York Times, March 26, 2009.

So be a fox. Don't be shy. Say it loud; say it proud: "I've been cheated out of a whole lot of money by a bunch of thieves in suits, who have caused individuals all around the world to lose trillions of dollars of wealth, thieves who are walking away with past years' of excessive compensation, bonuses, and stock profits; and the politicians whose campaigns they've been financing are protecting them, giving them trillions of dollars of my money, and there's scarcely a prosecution in sight!"

That's right. Don't you feel better now? Next try "I'm mad as hell and I'm not going to take it anymore!"

Then start turning up the heat on Congress.

Meanwhile, trust your instincts about all this. Apparently you and I really do know as much as the "experts."
_______________

* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson

# # #

Punishment to Fit Financial Crimes

March 23, 2009, 8:20 a.m.

Punishing Thieves in Suits:
Piano Wire or Stocks?
(brought to you by FromDC2Iowa.blogspot.com*)
As I've repeatedly conceded, I don't claim expertise as an economist. On the other hand, I've also urged that our instincts and intuition are entitled to more weight than we're modestly inclined to accord them. Nicholas Johnson, "Trust Your Instincts, Auto Bailout's Terrible Idea," November 14, 2008.

Clearly, Tim Geithner, Ben Bernanke and Larry Summers do know something about economics.

Equally clearly the New York Times staff of editorial writers and columnists are not necessarily among the nation's top economists -- although one did win the Nobel Prize in economics, which is not something those three can claim .

Nonetheless, it was reassuring in terms of my "trust your instincts" theory that so much of what appeared in the Times over the weekend echoed analyses and concerns I've expressed over the last six months in the blog entries linked below.

For example, while I'd prefer to let the market sort this out, rather than simply throw taxpayers' dollars at bankers, if we are going to bail out those who have brought us this disaster I'd rather it be used to purchase the banks ("nationalization") rather than their so-called "toxic assets."

On Saturday the Times editorialized:

This crisis is unlikely to turn around until President Obama and his aides come up with a plan for failing banks that does not arbitrarily reject the idea of nationalization.

Thursday morning [March 19] I wrote:

And if it makes no sense to try to revive the auto economy by giving billions to auto executives [when consumers would rather save their money than buy cars], it makes even less sense to try to revive an entire economy by transferring trillions of taxpayer dollars to bankers. Here again, the problem is not that businesses and consumers don't have the opportunity to run up even more debt. The problem is that they have the wisdom not to want to do so, especially at this time. ["What a Mess," March 19, 2009.]

Saturday's editorial continues:

On Wednesday [March 18], it [the Fed] announced that it would buy hundreds of billions of dollars more [of mortgage-backed securities] and as much as $300 billion of Treasury bonds. . . . Unfortunately, there is no guarantee that this will work. With unemployment rising, debt loads high and household wealth falling, consumers may be reluctant to resume spending anytime soon, no matter how low rates and prices go. And even if consumers and businesses want to borrow, banks — stung by their own losses — may not be willing to lend.

I have repeatedly noted that the multi-trillion-dollar transfer of taxpayers' money to the banking and financial community has emphasized only the benefits of a rational benefit-cost analysis. There are potential downsides of this approach as well -- most notably, inflation -- and that the Administration and Congress have, at a minimum, an obligation to evaluate, and then share with the American people, those costs and risks.

The Times editorial went on:

To buy up securities, the Fed creates money. To provide fiscal stimulus, Congress borrows money. The more money that is created and borrowed, the greater the risk of future inflation and higher interest rates. . . . [A] forthright acknowledgment of the risks is necessary to keep policy makers from venturing too far into dangerous territory.rates.

Editorial, "The Fed Does Battle, Again," New York Times, March 21, 2009.

By this morning [Monday, March 23] at least four, count 'em four, Times columnists, card-carrying members of the "liberal media," were expressing something far shy of enthusiasm for President Obama.

Paul Krugman (that Nobel Prize winner) writes of his "Financial Policy Despair":

If the reports [of the Administration's bank rescue plan] are correct, Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy — specifically, the “cash for trash” plan proposed, then abandoned, six months ago by then-Treasury Secretary Henry Paulson.

I have expressed concern about the Administration and Fed secrecy regarding what the banks and AIG have done with the money we gave them. Krugman notes that,

the administration has failed to quell the public’s doubts about what banks are doing with taxpayer money.

From the outset I've expressed concern about the President's close ties to the financial community, that community's financial contributions to him and members of Congress, the role of Goldman Sachs and Geithner's selection of the firm's lobbyist, no less, as his chief of staff, and the seeming obliviousness of the lot of them to the public feelings about corporate excesses.

Krugman comments:

And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing. It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street.

In "What A Mess" I wrote:

[E]ven the world's best and most honorable bankers couldn't solve this problem with that much money. Trickle down doesn't work. In addition to common sense, intuition, and long history, we now have the lack of results from the most recent six months of trying.

Paul Krugman shares this conclusion:

But the real problem with this plan is that it won’t work. . . . And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.

Paul Krugman, "Financial Policy Despair," New York Times, March 23, 2009.

On Sunday [March 22] Tom Friedman bemoaned the consequences of what he called "politics worse than usual":

There don’t seem to be any adults at the top — nobody acting larger than the moment, nobody being impelled by anything deeper than the last news cycle. . . . Right now we have an absence of inspirational leadership. From business we hear about institutions too big to fail — no matter how reckless. From bankers we hear about contracts too sacred to break — no matter how inappropriate. And from our immature elected officials we hear about how it was all “the other guy’s fault.” . . . [Meanwhile,] our country, alas, is not too big to fail.

Thomas L. Friedman, "Are We Home Alone?" New York Times, March 22, 2009.

Maureen Dowd shares my concern about the consequences of the close ties between the Administration, AIG and Wall Street. She thinks "we need less smooth jazz and more martial brass" and, inspired by Michelle Obama's declaration that the President (and their daughters) are going to be pulling weeds in her new White House garden "whether they like it or not," believes "the wrong Obama is in the Oval."

[T]he fury directed at the robber barons by the robbed blind in America has been getting hotter, not cooler. And that’s because the president and his Treasury secretary have been coddling the Wall Street elite, fretting that if they curtail executives’ pay and perks too much, if they make the negotiations with those who siphoned our 401(k)’s too tough, the spoiled Sherman McCoys will run away, the rescue plan will fail and the markets will wither. . . .

The shafters of the universe have been treated with such kid gloves that they remain obnoxiously oblivious. Vikram “Pandit the Bandit” at Citigroup, which received $50 billion in bailout money, is . . . spending $10 million to renovate his Park Avenue offices . . .

Fannie Mae . . . brazenly intends to give $1 million apiece in retention bonuses to four top executives, even though the word retention in a depression is pure Ionesco. Freddie Mac . . . has yet to disclose its planned bonuses. . . .

Treasury Secretary Tim Geithner, who grew up as a Republican . . . sees things from the point of view of that wellspring of masters of the universe, Goldman Sachs. (His Treasury chief of staff was a Goldman lobbyist, who fought then-Senator Obama’s attempt to curb executive compensation — just as Geithner has done within the administration.) . . .

Virtually unnoticed amid the bonus imbroglio was A.I.G.’s grudging disclosure that it had funneled $93 billion — more than half its federal money to date — to its high-flying insurees, including Goldman Sachs . . .. Yet as Goldman sneers at the federal money at the front door, it’s taking delivery of billions in no-strings federal money through the back door. . . .

The issue is how much we must pay to preserve financial stability over all, not how much one company promised to pay. At this point, A.I.G. seems to be the only party paying face value on toxic derivatives.

Maureen Dowd, "Toxic R Us," New York Times, March 22, 2009.

Frank Rich used some very tough language to hit on a number of the issues that I have written about, many of which are identified above. He also mentions an issue (the legality of much of what was done) that I've often described in these words: "the problem is not just that corporations violate the law, the much more serious problem is that they are writing the law."

A charming visit with Jay Leno won’t fix it. A 90 percent tax on bankers’ bonuses won’t fix it. Firing Timothy Geithner won’t fix it. Unless and until Barack Obama addresses the full depth of Americans’ anger . . . his presidency and, worse, our economy will be paralyzed. . . .

The White House seemed utterly blindsided by the public’s revulsion at the moneyed insiders’ culture illuminated by [former Senator Tom] Daschle’s post-Senate career. Yet last week’s events suggest that the administration learned nothing from that brush with disaster.

Otherwise it never would have used Lawrence Summers, the chief economic adviser, as a messenger just as the A.I.G. rage was reaching a full boil last weekend. Summers is so tone-deaf that he makes Geithner seem like Bobby Kennedy. . . .

[AIG] has, in essence, been laundering its $170 billion in taxpayers’ money by paying off its reckless partners in gambling and greed, from Goldman Sachs and Citigroup on Wall Street to Société Générale and Deutsche Bank abroad.

Summers was even more highhanded in addressing the “retention bonuses” . . ..

[M]ost Americans don’t know how A.I.G. brought the world’s financial system to near-ruin or what credit-default swaps are. They may not even know what A.I.G. stands for. But Americans do make the connection between their fears about their own jobs and their broad understanding of the A.I.G. debacle.

They know that the corporate bosses who may yet lay them off have sometimes been as obscenely overcompensated for failure as Wall Street’s bonus babies. . . .

Since Americans get the big picture of this inequitable system, that grotesque reality dwarfs any fine print. That’s why it doesn’t matter that the disputed bonuses at A.I.G. amount to less than one-tenth of one percent of its bailout. . . .

What made Jon Stewart’s takedown of Jim Cramer resonate was less his specific brief against CNBC’s cheerleading for bad stocks than his larger indictment of the gaping economic inequality that defined the bubble . . . [the] “two markets”. . ..

No one is more commanding on this subject than our president. . . . But rhetoric won’t tamp down the anger out there, and neither will calculated displays of presidential “outrage.” . . .

Obama must do what he has repeatedly promised but not always done: make everything about his economic policies transparent and hold every player accountable . . . actually answering the questions that officials like Geithner and Summers routinely duck.

Inquiring Americans have the right to know why it took six months for us to learn (some of) what A.I.G. did with our money. . . . [W]hy Goldman, which declared that its potential losses with A.I.G. were “immaterial,” nonetheless got the largest-known A.I.G. handout of taxpayers’ cash ($12.9 billion) while also receiving a TARP bailout. We need to be told why retention bonuses went to some 50 bankers who not only were in the toxic A.I.G. unit but who left despite the “retention” jackpots. . . . And where are the M.R.I.’s from those “stress tests” the Treasury Department is giving those banks?

[I]t's hard to imagine taxpayers shelling out billions for a second bank bailout unless there’s a full accounting of every dime of the first, and true transparency for the new plan whose rollout is becoming the most attenuated striptease since the heyday of Gypsy Rose Lee. . . .

[W]hy . . . has there been . . . so much evasiveness so far? The answer, I fear, is that too many of the administration’s officials are too marinated in the insiders’ culture to police it, reform it or own up to their own past complicity with it. . . .

The “dirty little secret,” Obama told Leno on Thursday, is that “most of the stuff that got us into trouble was perfectly legal.” An even dirtier secret is that a prime mover in keeping that stuff legal was Summers [of whom his mentor, Robert Rubin] wrote in his 2003 memoir . . . underestimated how the risk of derivatives might multiply “under extraordinary circumstances.”

Given that Summers worked for a secretive hedge fund, D. E. Shaw, . . . you have to wonder how he can now sell the administration’s plan for buying up toxic assets with the help of hedge funds. It will look like another giveaway to his own insiders’ club. As for Geithner, people might take him more seriously if he gave a credible account of why, while at the New York Fed, he and the Goldman alumnus Hank Paulson let Lehman Brothers fail but saved the Goldman-trading ally A.I.G.

Frank Rich, "Has a 'Katrina Moment' Arrived?" New York Times, March 22, 2009.

To remove any possible question I want to repeat that with which I began. I suffer no illusion that anyone -- members of Congress, the Obama Administration, or New York Times' columnists -- are even reading this blog, let alone influenced by it. Nor do I believe that I've come up with insights over the past six months or so that had not occurred to others. Indeed, that's exactly my point.

If I, and thousands of other bloggers, can come up with these insights and analysis drawing on nothing much beyond intuition, why oh why cannot our elected and appointed officials do as well?

So what should we do with these folks who've brought the world to this economic disaster?

At dinner last evening talk turned to appropriate punishments for those who are coming to taxpayers for multi-trillion-dollar bailouts necessitated by a 40% (give or take) decline in home values and stock prices brought on by their own incompetence and greed.

Nicholas Night, who hails from Bisbee, Arizona ("the town too high to care" -- a response to Tombstone's claim to be "the town too tough to die"), made reference to AIG Ed Liddy's concern regarding threats he's received from those who believe piano wire should be put around the necks of the most guilty of AIG executives. Bisbee is something of a music town, and Nick observed that there are now so many electronic keyboards in use that there may well be a shortage of piano wire -- at least in Bisbee.

So what he next proposed is that they be put in stocks. No, not the kind they're already in, the stocks of profiteers; the stocks the Puritans put folks in, with criminals' heads, arms and legs sticking through and locked down. Guards would be provided to protect them, so that nothing more damaging than tomatoes and rotten eggs would be thrown.

After being freed from the stocks they, and indeed all white collar criminals in Nick's proposal, would then be required to pay back in full whatever losses they'd caused or thefts they'd pulled off. They would have to earn that money selling ice cream bars by driving a truck through neighborhoods primarily occupied by persons of a different color from themselves. And these customers could pick a 38-second excerpt from a song that the perps would have to listen to over-and-over, constantly, until the debt was paid.

It's possible you had to be there, but I think Night is on to something. If Obama is going to continue to refuse to prosecute and imprison them the least we can do is identify who they are and do some form or another of public shaming.
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Related Blog Entries on Global Economy and Bailouts
Nicholas Johnson, "Who's The Reason?" September 5, 2008

Nicholas Johnson, "How Much Do You Owe the Chinese?" September 6, 2008

Nicholas Johnson, "Taxpayer Rescue," September 15, 2008

Nicholas Johnson, "Global Finance: The Great Fountain Pen Robbery," September 21, 2008

Nicholas Johnson, "Alternatives to 'The Plan,'" September 28, 2008

Nicholas Johnson, "Better Alternatives to Congress' Bailout Plan," October 2, 2008

Nicholas Johnson, "Can We Trust Our Bankers?" October 29, 2008

Nicholas Johnson, "It's the Economy," November 7, 2008

Nicholas Johnson, "Jobs, Not Unemployment, Key to Recovery," November 8, 2008

Nicholas Johnson, "Trust Your Instincts, Auto Bailout's Terrible Idea," November 14, 2008

Nicholas Johnson, "Auto Bailout: An Open Letter to Congress," November 19, 2008

Nicholas Johnson, "A Trillion Here, a Trillion There," November 20, 2008

Nicholas Johnson, "FromDC2Iowa's Weekend Edition," November 21, 2008 ("The Answer to Global Economic Collapse" and "Auto Bailout: 'Show Me the . . . Plan'")

Nicholas Johnson, "Citigroup Deal Stinks," November 25, 2008

Nicholas Johnson, "Only Select Few Are Thankful for Trillions," November 27, 2008

Nicholas Johnson, "Auto Loan Makes Too Few Dollars Even Less Sense," December 4, 2008

Nicholas Johnson,"Quick Fix for the Economy," December 12, 2008

Nicholas Johnson, "You Know It's Serious When We Start Laughing," December 15, 2008

Nicholas Johnson, "A Car in Every Garage," December 16, 2008

Nicholas Johnson, "Forget Madoff, Focus on Bernanke," December 17, 2008

Nicholas Johnson, "Of Theaters and Automobiles," December 20, 2008

Nicholas Johnson, "There's Bad News and . . . and . . .," December 21, 2008

Nicholas Johnson, "Et Tu, Toyota?" December 22, 2008

Nicholas Johnson, "Revolting Developments," December 23, 2008

Nicholas Johnson, "First Things First," January 8, 2009

Nicholas Johnson, "Why We Should 'Point Fingers' and 'Look Backwards,'" January 13, 2009

Nicholas Johnson, "Fool Me Twice," January 14, 2009

Nicholas Johnson, "Economic Sorrows and Solutions," January 27, 2009

Nicholas Johnson, "No More for Wall Street!" February 1, 2009

Nicholas Johnson, "Hang Onto Your Wallet," February 5, 2009

Nicholas Johnson, "Quick Fix: Support Jobless, Not Bankers," February 7, 2009

Nicholas Johnson, "Geithner's Same Old, Same Old," February 10, 2009

Nicholas Johnson, "Terrorist Bankers," February 13, 2009

Nicholas Johnson, "Financial Crises for Dummies," February 17, 2009

Nicholas Johnson, "They're Back!!" February 20, 2009

Nicholas Johnson, "The Burden We Ought to Bear," February 23, 2009

Nicholas Johnson, "Candid Conservatism," February 27, 2009

Nicholas Johnson, "Bankers as Arsonists," March 3, 2009

Nicholas Johnson, "Don't Buy Stuff," March 6, 2009

Nicholas Johnson, "The Story of Stuff," March 16, 2009

Nicholas Johnson, "What a Mess," March 19, 20, 2009
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* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson

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What a Mess

March 20, 2009, 6:45 a.m.
March 19, 2009, 9:15 a.m.

The Futility of Trickle Down
and More Bad News
(brought to you by
FromDC2Iowa.blogspot.com*)
Since last September I have repeatedly been arguing against transfers of massive amounts of taxpayer money to those who created this problem, for reliance upon "the market" (with examples of where and how it has been working even during this crisis), against "trickle down," and for trickle up. (E.g., "There are three groups of people I care about in this mess -- none of which is made up of Wall Street or Main Street bankers. I am concerned about (a) depositors, (b) workers, and (c) homeowners." Nicholas Johnson, "Alternatives to 'The Plan,'" September 28, 2008.)

And speaking of "the marketplace," note the comment in this morning's New York Times about the 90% tax on bonuses that "Several banks are considering refusing to participate in government financial rescue programs if the bill passes, according to a person briefed on the banks’ plans." Carl Hulse and David M. Herszenhorn, "House Approves 90% Tax on Bonuses After Bailouts," New York Times, March 20, 2009.

Secretary Paulson had passed along an earlier, comparable threat last fall.

There is no positive spin one can put upon those sentiments. (a) If the banks, if the market, will function with or without these bailouts, why are we giving them trillions of dollars of our money? (b) If their executives are so selfish, greedy and unpatriotic that, even though their incomes put them somewhere between the top 2% and top 1/100th of 1% of the nation's wage earners, they would rather see their bank go bankrupt than lose their precious bonus, why would we want to protect them from failure (so long as the depositors are protected by FDIC)?

Much as I continue to hope that Washington knows what it is doing and will eventually succeed and prove me wrong, I must confess to a little sense of vindication this morning [March 20].

Presumably the goal here is to reverse a downward spiral of reduced sales, leading to reduced manufacturing, leading to increased unemployment, leading to a repetition of this further deepening cycle, that has thrown business and consumers alike into a personally rational (even if group irrational) reassessment of their borrow and spend behavior. They want to reduce expenses and debt, use cash rather than credit, save rather than spend. Businesses cut costs by laying off workers; consumers by no longer running up debt, spending money they don't have to buy things they don't need.

As we've discovered with the auto industry, you can't revive an economy through a program of increased automobile sales by putting billions of dollars into the hands of auto executives -- especially those with a proven track record of inability to make cars people want to buy or otherwise run a corporation at a profit. The problem never was a shortage of GM cars coming off the assembly lines, or sitting in dealers' show rooms.

The problem was that there weren't all that many people who wanted to buy them in the best of times. And now, in what is fast becoming the worst of times, the problem is not a lack of opportunity for consumers to take on a hefty increase in their debt load to buy a new car. The problem is that laid off workers are not the only ones who are hunkering down, reapplying the Depression-era wisdom ("Use it up, wear it out, make it do, or do without"), and wisely deciding this is not the time to be taking on more debt.

And if it makes no sense to try to revive the auto economy by giving billions to auto executives, it makes even less sense to try to revive an entire economy by transferring trillions of taxpayer dollars to bankers. Here again, the problem is not that businesses and consumers don't have the opportunity to run up even more debt. The problem is that they have the wisdom not to want to do so, especially at this time.

"Trickle down" didn't work in the best of times, and certainly won't work now.

And I'm not even talking about fairness and equity, "government by campaign contribution," outlandish bonuses, or the near criminality and stupidity of putting these trillions of dollars into the hands of those who, like auto executives, have a demonstrated inability to run a corporation with ethics, common decency and common sense (not to mention long term survival and profit), executives who created the problem through their own greed.

No. Of course those are reasons enough not to be giving them our grandchildren's trillions of dollars. But my point for now is that even the world's best and most honorable bankers couldn't solve this problem with that much money. Trickle down doesn't work. In addition to common sense, intuition, and long history, we now have the lack of results from the most recent six months of trying.

The solution? I won't repeat everything laid out on this blog over the last six months (most of which are linked at the bottom of this entry), except to say that it involves trickle up not trickle down, a focus on the consumer, on 300 million Americans, not 300 thieves in suits, a massive and yet precisely targeted jobs program, mortgage relief for deserving homeowners, immediate health care for all during the downturn (while long term solutions are being crafted), and continued protection for bank depositors (not investors).

If that had been how we'd invested all those trillions given to bankers over the past few months I think we'd be well out of this mess by now.

Meanwhile, on top of everything discussed in this blog entry yesterday, below, there are now a couple of other, equally disgusting revelations.

(1) Apparently taxpayer protection language -- that AIG couldn't be paying millions in bonuses to the guys who created this problem while receiving billions of taxpayer dollars -- was once in Senate and House versions of a bill and then deleted under cover of darkness in conference as a result of Secretary Geithner's pressure on Senator Chris Dodd. Raymond Hernandez and Thomas Kaplan, "Connecticut Senator Draws Voters’ Ire for His Bonus Role," New York Times, March 20, 2009 ("[AIG's] employees, political action committees and subsidiaries have made campaign contributions of nearly $300,000 to [Senator Chris] Dodd since 1989. . . . [Senator Dodd] finds himself a symbol of the political establishment’s coziness with tainted corporations and a target of populist wrath over their excesses. . . . That change [in the bill] exempted bonuses protected by contracts, like those at American International Group . . . that received billions in federal bailout money. Mr. Dodd said that his staff revised the bill at the urging of Treasury officials . . ..").

Edmund L. Andrews and Jackie Calmes, "Many in Government Knew Weeks Ago About A.I.G. Bonuses," New York Times, March 20, 2009 ("Interviews with senior Federal Reserve and Treasury officials, as well as members of Congress, leave little doubt that the bonus program was a disaster hiding in plain sight. Mr. Geithner is not the only one who appears not to have understood the populist fury the bonuses would set off. Career staff officials at the Treasury, Fed and Federal Reserve Bank of New York exchanged e-mail messages about the A.I.G. bonus program as early as late February, according to a person familiar with the matter. A.I.G. itself revealed the bonus plan in regulatory filings last September.").

The rationale? The sanctity of contracts. You can't retroactively change an employment contract. Oh, really? Apparently that's a legal principle only applicable to thieves in suits. Auto workers' contracts, and those of millions of other workers across America, have already been changed, with more to come -- contracts regarding wages, health care benefits, and pension funds. It's just one more example of the stench that's accompanied this con game from the beginning.

(2) Apparently Treasury secretaries and other appointees are not the only folks who don't feel they need to pay taxes. A hefty proportion of the corporations receiving billions of taxpayer dollars aren't paying their taxes either.

"[T]he AP reported Thursday [March 19] that 13 firms receiving billions of dollars in federal bailout money owe a total of more than $220 million in unpaid federal taxes. Rep. John Lewis, D-Ga., chairman of a House subcommittee overseeing the federal bailout, said two firms owe more than $100 million apiece. . . . Banks and other firms receiving federal money were required to sign contracts stating they had no unpaid taxes, Lewis said. But the Treasury Department did not ask them to turn over their tax records . . .." "House OKs Hefty Tax on AIG Bonuses," PBS Online News Hour, March 19, 2009.

It turns out this is actually only a small part of a much larger problem: "Two out of every three United States corporations paid no federal income taxes from 1998 through 2005, according to a report released . . . by the Government Accountability Office, the investigative arm of Congress." Linley Browning, "Study Tallies Corporations Not Paying Income Tax," New York Times, August 12, 2008.

Now, here's how it looked yesterday:
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Worse Than You Think
(brought to you by
FromDC2Iowa.blogspot.com*)
It would be such a relief if yesterday [March 18] had brought an effective rebuttal to Monday's blog entry, Nicholas Johnson, "Government by Campaign Contribution" in "The Story of Stuff," March 16, 2009:

Government by Campaign Contribution

There are some feigned expressions of outrage from Washington, that those who created the problems through personal enrichment are now enriching themselves further with taxpayer-funded multi-million-dollar bonuses, but little in the way of prosecutions, or efforts to get our money back. There are expressions that "we must re-examine and improve our regulatory model so that this never happens again." But we have had this conversation before; this is the happening that is "again;" and the problem is not entirely the model, it is also the people running it -- and few to none of them seem to be being prosecuted either.

Congress has a lot of explaining to do -- after we clean out the lot of them. I've documented before how those who make campaign contributions in the $100,000 to $1,000,000 range generally get something like a 1000-to-2000-to-one return on their "investment" -- for an investment it is, and one that pays much better returns than any on Wall Street. Nicholas Johnson, "Campaigns: You Pay $4 or $4000," Des Moines Register, July 21, 1996, p. C2.

So it comes as no surprise to me to find out that the financial community has contributed some $5 billion to Congress over the past 10 years in campaign contributions and lobbying expenses. After all, members of Congress and senators are honorable people; they don't take $5 billion from someone and then give them a poke in the eye with a sharp stick -- not if they want another $5 billion over the next 10 years. They behave as they've been behaving; they give Wall Street its $5-to-10 trillion return on its $5 billion investment. See the report, Robert Weissman and James Donahue, "Sold Out: How Wall Street and Washington Betrayed America," Essential Information/Consumer Education Foundation, March 2009, linked from "$5 Billion in Political Contributions Bought Wall Street Freedom from Regulation, Restraint, Report Finds," March 4, 2009, Wall Street Watch.

Nicholas Johnson, "The Story of Stuff," March 16, 2009. And for more detail about what AIG and the bankers did and how they did it see the "Prologue" and "No More for AIG" in Nicholas Johnson, "Bankers as Arsonists," March 3, 2009 ("[Arsonists'] fires are not 'acts of God.' Nor is this economic calamity. Both are the clearly predictable result of reckless and irresponsible behavior by humans. The only difference is that those who deliberately set the woods on fire don't personally profit financially from their acts. These men and women did.").

But it didn't. If anything, yesterday just made it worse.

Of course the $160 million in extra pay for those who brought down AIG and the world's economy with it is outrageous -- as is the role of the past and present administrations in going along with it. So are the expensive corporate gatherings at spas and expensive resorts, the $50 million private jets for executives, and Bernie Madoff's jewelry and yachts.

But all of that day-long ranting and raving by members of congress yesterday is one big shell-and-pea game of diversion. Those AIG bonus payments are less than 1/10th of 1% of the $170 billion taxpayers are in hock to for AIG. That doesn't make the bonus payments any more justified, but it does kind of put them in perspective.

Meanwhile the President, understandably, wanting to get as far from Washington as possible went to California to get some positive vibes and re-creation from "the people," doing what he does best: campaigning at a town meeting. Helene Cooper, "President Takes Campaign for Budget to California," New York Times, March 19, 2009.

However, at one point during the day he was asked by a member of the news media a two part question. One part had to do with his Treasury Secretary. Jackie Calmes, "AIG Uproar is a Defining Moment for Geithner," New York Times, March 19, 2009.

He answered that part. Geithner may have frightened Obama enough to make him leave town, but not enough to reduce the President's professions of "confidence" in him.

The part of the question left unanswered; actually the first part?

What do you have to say about that $100,000 campaign contribution you got from AIG?

Yes, even the President is not free of the questions raised by the $5 billion the financial community contributed to public officials over the past 10 years. (See the "Government by Campaign Contribution" excerpt, above.)

And at another appearance yesterday he almost literally echoed the line quoted in that excerpt, that we should see to it that "this never happens again": "My goal is to make sure that we never put ourselves in this kind of position again." Mary Williams Walsh and David M. Herszenhorn, "AIG Seeking Return of Half of Its Bonuses," New York Times, March 19, 2009.

Yeah, right; who can argue with that? But isn't it just another diversion? When we focus on future reforms, as when we focus on 1/10th of 1% of the problem, we aren't focusing on what's going on right now!

And what's going on right now is what AIG is doing with that $170 billion. To the extent AIG executives are not entertaining themselves at resorts, and enriching themselves with bonuses, they are essentially flowing through that $170 billion of ours to other members of that vast army of "thieves in suits."

And who might they be? Try Goldman Sachs -- yes, the same Goldman Sachs we've already financed with taxpayer money directly -- now getting our taxpayer money from us indirectly, by way of payments of our money we gave to AIG, to the tune of $8 billion.

And then the Fed, in another burst of great generosity, decided "Oh, what the hell, another day another trillion dollars" -- and I'm no more confident we'll ever find out where this trillion will go than the last, now uncounted, trillions of our money they've already given away. The resulting increases in the prices of gold and oil, and decline in the value of the dollar, gives you a clue as to how the world views this additional step toward inflation. Edmund L. Andrews, "Fed Plans to Inject Another $1 Trillion to Aid the Economy," New York Times, March 19, 2009.

No, I'm afraid yesterday didn't make me feel any better.

Nor will today, as Congress endeavors to redeem itself in our eyes for falling sway to to the $5 billion in campaign contributions and lobbying of the financial industry by passing a special extra tax of 90% on those bonuses. Even if it passes, and even if it's legal, it really is far, far too little too late. Carl Hulse and David M. Herszenhorn, "House Approves 90% Tax on Bonuses After Bailouts," New York Times, March 20, 2009.

P.S. Congressman Barney Frank said yesterday he wanted to have the names of those who received bonuses, and how much each has returned to the government. AIG CEO Liddy expressed concern of mass assassinations by outraged members of the public were that to be done. Mary Williams Walsh and David M. Herszenhorn, "AIG Seeking Return of Half of Its Bonuses," New York Times, March 19, 2009. If that proves to be a reasonable concern, rather than fail to reveal anything about this outrage, here's a modest suggestion.

Let's at least start with a list, released to the public and media, with the names redacted and replaced with numbers, along with the title/job description of the individual (or department -- enough to give some idea of what they were paid to do, as narrowly identified as possible without revealing their identity), along with what they did to earn the bonus or "retention" payment, their total salary, benefits, and other perks, the amount of the bonus, and how much has been returned.
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Related Blog Entries on Global Economy and Bailouts
Nicholas Johnson, "Who's The Reason?" September 5, 2008

Nicholas Johnson, "How Much Do You Owe the Chinese?" September 6, 2008

Nicholas Johnson, "Taxpayer Rescue," September 15, 2008

Nicholas Johnson, "Global Finance: The Great Fountain Pen Robbery," September 21, 2008

Nicholas Johnson, "Alternatives to 'The Plan,'" September 28, 2008

Nicholas Johnson, "Better Alternatives to Congress' Bailout Plan," October 2, 2008

Nicholas Johnson, "Can We Trust Our Bankers?" October 29, 2008

Nicholas Johnson, "It's the Economy," November 7, 2008

Nicholas Johnson, "Jobs, Not Unemployment, Key to Recovery," November 8, 2008

Nicholas Johnson, "Trust Your Instincts, Auto Bailout's Terrible Idea," November 14, 2008

Nicholas Johnson, "Auto Bailout: An Open Letter to Congress," November 19, 2008

Nicholas Johnson, "A Trillion Here, a Trillion There," November 20, 2008

Nicholas Johnson, "FromDC2Iowa's Weekend Edition," November 21, 2008 ("The Answer to Global Economic Collapse" and "Auto Bailout: 'Show Me the . . . Plan'")

Nicholas Johnson, "Citigroup Deal Stinks," November 25, 2008

Nicholas Johnson, "Only Select Few Are Thankful for Trillions," November 27, 2008

Nicholas Johnson, "Auto Loan Makes Too Few Dollars Even Less Sense," December 4, 2008

Nicholas Johnson,"Quick Fix for the Economy," December 12, 2008

Nicholas Johnson, "You Know It's Serious When We Start Laughing," December 15, 2008

Nicholas Johnson, "A Car in Every Garage," December 16, 2008

Nicholas Johnson, "Forget Madoff, Focus on Bernanke," December 17, 2008

Nicholas Johnson, "Of Theaters and Automobiles," December 20, 2008

Nicholas Johnson, "There's Bad News and . . . and . . .," December 21, 2008

Nicholas Johnson, "Et Tu, Toyota?" December 22, 2008

Nicholas Johnson, "Revolting Developments," December 23, 2008

Nicholas Johnson, "First Things First," January 8, 2009

Nicholas Johnson, "Why We Should 'Point Fingers' and 'Look Backwards,'" January 13, 2009

Nicholas Johnson, "Fool Me Twice," January 14, 2009

Nicholas Johnson, "Economic Sorrows and Solutions," January 27, 2009

Nicholas Johnson, "No More for Wall Street!" February 1, 2009

Nicholas Johnson, "Hang Onto Your Wallet," February 5, 2009

Nicholas Johnson, "Quick Fix: Support Jobless, Not Bankers," February 7, 2009

Nicholas Johnson, "Geithner's Same Old, Same Old," February 10, 2009

Nicholas Johnson, "Terrorist Bankers," February 13, 2009

Nicholas Johnson, "Financial Crises for Dummies," February 17, 2009

Nicholas Johnson, "They're Back!!" February 20, 2009

Nicholas Johnson, "The Burden We Ought to Bear," February 23, 2009

Nicholas Johnson, "Candid Conservatism," February 27, 2009

Nicholas Johnson, "Bankers as Arsonists," March 3, 2009

Nicholas Johnson, "Don't Buy Stuff," March 6, 2009

Nicholas Johnson, "The Story of Stuff," March 16, 2009

Nicholas Johnson, "What a Mess," March 19, 20, 2009
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* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson

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