SOS from Robert Reich: Stuck On Stupid

Yes from Robert Reich we get great assurances via an article in the Online WSJ on 28 MAR 2009 that: Obamanomics Isn't About Big Government.

Of course he starts with President Reagan's tax cuts, who on the Left doesn't like to start there?  Yes if you must tell a lie, tell a big one, and say that letting those who make money KEEP IT is the same as TAXING IT and having government do anything with it:

Twenty-eight years ago, Ronald Reagan used the severe economic downturn of 1980-82 to implement an economic philosophy that not only gave force and meaning to a wide range of initiatives but also offered a way back to sustained economic growth. Is there a similarly powerful animating idea behind Obamanomics?

I believe there is -- and it's not a return to big government.

The expansive and expensive forays of the Treasury and the Federal Reserve Board into Wall Street notwithstanding, President Barack Obama's 10-year budget (whose projections may prove wildly optimistic if the economy fails to rebound by early next year) presents a remarkably conservative picture. In 10 years, taxes are expected to fall to around 19% of GDP, a lower level than the late 1990s. Spending is expected to drop to around 22.5% of GDP, about where it was under Ronald Reagan -- including nondefense discretionary spending at about 3.6% of GDP, its lowest since data on this were first collected in 1962.

'The expansive forays of the Treasury and Federal Reserve Board' notwithstanding?

You mean the wants of Mr. Geithner and President Obama to be able to oversee executive payments not only in banks but in any financial institution that may have grown 'too big to fail'?

That is trying to micromanage the economy from the Federal Reserve Board and, strangely enough, Congress and the President are not given those powers to hand out in the US Constitution.  Really, if you have to tell a huge lie, you might as well try to pass it off as a mere nothing, an incidental, just a minor little thing that really doesn't matter.  Shame about all those peasants, but you can see such nice villages as we go past them on the train... don't mind them being mere fronts and not real buildings, they are just the same as the 'real thing'.

So lets see the powers granted to the federal government in the monetary arena as part of the US Constitution.  I have italicized the passages of interest.

Section. 7.

All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills.

[..]

Section. 8.

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow Money on the credit of the United States;

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;

To establish Post Offices and post Roads;

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;

To constitute Tribunals inferior to the supreme Court;

To define and punish Piracies and Felonies committed on the high Seas, and Offences against the Law of Nations;

To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water;

To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years;

To provide and maintain a Navy;

To make Rules for the Government and Regulation of the land and naval Forces;

To provide for calling forth the Militia to execute the Laws of the Union, suppress Insurrections and repel Invasions;

To provide for organizing, arming, and disciplining, the Militia, and for governing such Part of them as may be employed in the Service of the United States, reserving to the States respectively, the Appointment of the Officers, and the Authority of training the Militia according to the discipline prescribed by Congress;

To exercise exclusive Legislation in all Cases whatsoever, over such District (not exceeding ten Miles square) as may, by Cession of particular States, and the Acceptance of Congress, become the Seat of the Government of the United States, and to exercise like Authority over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings;--And

To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.

Section. 9.

The Migration or Importation of such Persons as any of the States now existing shall think proper to admit, shall not be prohibited by the Congress prior to the Year one thousand eight hundred and eight, but a Tax or duty may be imposed on such Importation, not exceeding ten dollars for each Person.

The Privilege of the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it.

No Bill of Attainder or ex post facto Law shall be passed.

No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken.

No Tax or Duty shall be laid on Articles exported from any State.

No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another; nor shall Vessels bound to, or from, one State, be obliged to enter, clear, or pay Duties in another.

No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.

No Title of Nobility shall be granted by the United States: And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince, or foreign State.

So are these powers that Mr. Geithner wants to have over non-bank institutions given in the Constitution.

Well they aren't part of Section 7, that's for sure.  In Section 8 we can go by the pieces handed out.

Is this part of the Impost, Duty, Excises and Taxation power?  No, clearly not.

Is this part of the borrowing money on credit for the US?  Nope.  In theory the Federal Reserve is supposed to figure this out, but the actual duty and responsibility of the burden is on Congress and Treasury.

Is this part of regulating commerce - With foreign Nations (and I include Indian Tribes with that)?  Only by treaty agreement.

- Amongst the several States? This does involve interstate commerce, but going after executive pay and bonuses is not part of commerce which is the transportation of goods and procurement of services.  These people have legal residences in one State and abide by that State's laws for those jobs.  If an organization is criminal and using multiple States to hide those operations, that is one thing.  Doing legal business with legal contracts and paying individuals on that contractual basis is not something Congress can step into without being a part of that contract, and once the contract is agreed to, Congress cannot write a Bill of Attainder.  Even on those areas where Congress sets pay levels for government contracts, they are adjusted by locality and even local economy... to the point of being near useless in the modern age.

Is this part of the uniform Laws of Bankruptcies?  No.  That is something that is put down for private companies to properly have a legal method for either shutting down or for re-organizing.  That does have federal oversight, but must be applied equally without bias or preference across the board.  As these are private concerns, government may not come in to 'pre-liquidate' or judge some worth saving and others not.

Is this part of the coining money and regulating value?  Examine the paragraph and we see fixing weights and measures added in, which indicates this is real value monitoring for set amounts of precious goods.  That then tells how much of such precious goods must be in each coin, and the value is regulated by that.  For overseas work and other such things the Treasury takes care of that for Congress.

Is this part of punishing counterfeiting?  Just how fast is the money coming off the presses, anyways?  Damn someone needs to check into that, as having so many dollars going out will surely impact the value of the currency...

Is this part of the establishment of Post Offices and Post Roads?  Well, AIG sure used those a lot, but, no, that is not the case for the entire industry that Mr. Geithner and the President want to get their fingers into.

Is this part of supporting, arming and maintaining the armed forces?  Nope, not a bit of it.

How about the authority over buildings for federal use?  No.  In fact when the federal government arranges securities backed by the government that may have actual physical property fall into government oversight without consulting the States PER PIECE OF PROPERTY as is the clear and abundant verbiage of that, the federal government is acting in a manner outside the US Constitution.  But then I am a 'strict constructionist' as we are told to be in Amendments IX and X to safeguard our liberty and freedom, and don't cotton on to the Teddy Rooseveltian 'expansive' powers concept of government in relation to the people.  That gets us into a whole can of worms that is the start of a warehouse full of burgeoning worm cans as this is the PROBLEM: government getting involved in private property transactions as guarantor and ending up holding the bag when folks default on government backed loans.  So I would say a resounding NO is what is called for here.

Noted previously is the Bill of Attainder part.

How about taxation?  Ahhh... here is where the 'Progressives' got us to Amend the Constitution so that Congress could IGNORE equal taxation either by amount or percentage and go to proportionate taxation via income, not proportion of population in any State.  This was changed with:

AMENDMENT XVI

Passed by Congress July 2, 1909. Ratified February 3, 1913.

Note: Article I, section 9, of the Constitution was modified by amendment 16.

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Hey!  All you 'fair taxers' out there, how about getting rid of this Amendment?  Same with the 'flat tax' folks.  Can we all have purely equal government over us that doesn't think that it can tell us who can and 'should' pay more?  Who elected them as the Angels to figure out what is due from the hearts and wallets of men?  How about this equal treatment under the law business?

Yeah I got a lot of problems with the 'Progressive' era junk put in to gut the internal controls of the US Constitution so that Congress can feel free to discriminate on taxation and no longer see us as equal citizens under the law.  No direct taxation upon you and me... but that is a rant for another day and multiple previous ones.  But the abuse of Congress to now think it can go after a tiny sub-set of the US population, that being those people in AIG, is the end result of this Amendment.  When Congress can decide to go after such a small group in can go directly after YOU without hesitation.  Is that what you really and for true want government to do?  And if you are pointing out, from the Left, on the apportionment part, do note that ONE INDIVIDUAL is a proportion and can be apportioned properly on that basis.

To continue - Is this part of not taxing or putting duties on goods exported from any State?  Nope.  Quite the opposite, this would prohibit Mr. Geithner and President Obama from doing a damned thing on the interstate part of things.

Is this part of the commerce regulation via ports and such?  No.  Even if it was applicable, it would prohibit such acts.

Is this part of drawing of funds via Congressional approval via law?  No.  Just the opposite as this would allow the Executive to do as it pleases with private companies contrary to the preceding logic of the US Constitution.

 

Thus, government cannot do this.

 

That is the lie that Robert Reich is glossing over, and it is a huge area of the economy that he passes off as 'forays'.  There is in no sense of the term 'foray' that he really wants to attach to this.  Consider this from Webster's Revised Unabridged Dictionary (1913):

Foray \For"ay\ (?; 277), n. [Another form of forahe. Cf. Forray.]

A sudden or irregular incursion in border warfare; hence, any irregular incursion for war or spoils; a raid. --Spenser.

     The huge Earl Doorm, . . . Bound on a foray, rolling eyes of prey.--Tennyson.

Foray \For"ay\, v. t. To pillage; to ravage.

     He might foray our lands.--Sir W. Scott.

Yes a sudden incursion for war or spoils.  Why its almost as if Mr. Geitherner and President Obama see the private credit market as 'enemy territory'.  And they wish to pillage or ravage it.

Ah, so good of Mr. Reich to say what he thinks is just a quick trip or roundabout and actually mean something different and yet get his true meaning across.  This is the part where we would also get 'to hear the lamentation of their women' added on.  Yes by paragraph three Mr. Reich is trying to hide something huge and claim it is a mere nothing, a day journey into the wilds of your backyard that just needs a bit of trimming.  Yes, indeed, later use of the word has pared down the length of time, we consider it to be, but it is still considered one of a venture into ENEMY TERRITORY.

Hey!  Is Mr. Reich telling us that Mr. Geithner and President Obama sees non-banking institutions as the ENEMY?

Why yes, yes he is.

Strange he isn't more forthright about that, isn't it?

 

So are there any other big lies in what Mr. Reich is saying?

Well, lets go on just a bit to the next few paragraphs:

The real distinction between Obamanomics and Reaganomics involves government's role in achieving growth and broad-based prosperity. The animating idea of Reaganomics was that the economy grows best from the top down. Lower taxes on the wealthy prompts them to work harder and invest more. When they do so, everyone benefits. Neither Reagan nor the apostles of supply-side economics explicitly promised that such benefits would "trickle down" to everyone else but this was broadly understood to be the justification.

Reaganomics surely marked the beginning of one of the longest bull markets in American history and generated enormous gains at the top. But its benefits were not widely shared. After the Reagan tax cuts, growth in the median wage slowed, adjusted for inflation. After George W. Bush's tax cuts in 2001 and 2003, the median wage dropped. Meanwhile, an increasing share of total income went to the top 1% of income earners. In 1980, before Reagan took office, the highest-paid 1% took home 9% of total national income. By 2007, before the economy melted down, the richest 1% was taking home 22%.

Now in the very first two paragraphs of this section and Mr. Reich seems to think that the government has some role to play in growth and prosperity.  And he is right!

It has a NEGATIVE role to play.

As I have looked at elsewhere, Mr. Reich has the problem that Oscar Wilde pointed out:

"What is a cynic? A man who knows the price of everything and the value of nothing."
Oscar Wilde, Lady Windermere's Fan, 1892, Act III
Irish dramatist, novelist, & poet (1854 - 1900)

This is the cost/valuation problem in spades.  In asserting that monetary wealth is the only measure of wealth, he ignores the rapid pace of technical progress that has caused a rapid decrease in the prices of many goods that have enhanced the lives of so many.  In 1972 the US Census finally got rid of trying to track lack of indoor plumbing: it had become ubiquitous.  Similarly trying to track washers and driers, cars, television set ownership (color!), telephones... by 1972 goods that had been pure luxuries in the 1920's and earlier (or weren't even available) had now become affordable to even the poorest in America.  Indeed, the poor, today, live longer, better, healthier lives with more material goods than they did a mere 50 years ago when poverty meant 'a hunger problem'.  Now poverty, for the first time in any civilization's history, means and OBESCITY PROBLEM.  So, what part of this wasn't 'widely shared'?

Cell phones, perhaps?  Going from rich man's toys to common, every day commodities with competition amongst service plans?

Affordable food?  See the 'obescity crisis' near you for that one.

Lack of cars?  The poor have cars, lots of them by all counts.

Lack of clothing?  Have you seen what is available at the low end of the clothes rack for a few bucks?  When the poor can afford $100 sneakers for their children, they aren't that poor.

How about that other affluent toy, the VCR?  Well its the DVR and now everyone seems to have at least the old VCR tape versions and many now have fully digital DVRs.

Computers with which to do your taxes as they are too complicated to figure out?  Cheap and home penetration for PCs will be overtaken when cell phones take over those functions, along with pagers and delivery of entertainment.

What is it, exactly, that sets the rich and poor apart in America?  Ownership?  But Americans now have invested more into owning the means of production, for good and ill, than ever before at any time in the history of any Nation EVER.  And not through government, either.

The difference between an old rust bucket to get a poor man to work and a Porsche?  Tens of thousands of dollars and about the same gas mileage and the poor person has much lower insurance rates.

How about lack of health care?  Well we used to have an excellent charitable and learning hospital system in the US before subsidizing health care got into full swing which made everything more expensive, less available and saw charitable institutions get taken over and then closed by their subsidized for-profit counterparts... who now don't deliver low cost health care too well.  Amazing what happens when you get rid of the low cost competition, isn't it?  Prices go up.  And subsidized commodities and services get over-used, less available and more costly.  All of that by government 'helping' us... you know, if this were imposed upon us by space aliens, we would have a revolution on our hands...

Now here is the amazing thing about looking at percentages and for this I am going to draw on the larger look I did at Running the Numbers: Polarized America looking at the work by Nolan McCarty, Keith T. Poole and Howard Rosenthal about Polarized America.  Now these folks used a good rough'n'ready set of indicators on party-line votes in the House and how much 'bipartisanship' there was and plotted that against how much the upper 1% of America was owning.  I did some sub-demarcations and put things into periods, like the Heart of the Great Depression, US WWII years and the Cold War.  And it is an interesting graph to say the least:

We have a few interesting artifacts, first of which is that income share is not tracking wealth.  Coming into the 1980's income and actual wealth holdings are coming out of the lowest period of wealth held by the top 1% during the middle of the Cold War.  Indeed the 'Great Society Programs' and aggressive taxation was moving the actual wealth ownership of the top 1% to 8% of the the Nation's total wealth.  What is damned striking is that political polarization had started an upswing just BEFORE those programs got put in place and that polarization would lead a shift in wealth share by the top 1%.

Now flip back to the Great Depression era and the follow on Roosevelt Recession (1928-1941 total) and we find coming in during the 1920's a slow shift to lessening of polarization that LEADS reduction in wealth held by the top 1%.  You would think in an era of the poor getting poorer that you would have INCREASED polarization, but that is not the case.  The downturn of wealth would follow decreased polarization and the top 1% would not be leading polarizing trends but FOLLOWING them with a lag time of 3-5 years in the Pre-WWII era.  Going into the post-WWII years and heading into the Cold War polarization would level off and wealth distribution to the top 1% would lag that by nearly a decade.  Once the 'Great Society Programs' and higher taxation started to go into effect, there was increased polarization even as the top 1% share of all wealth was STILL lagging by the previous plateau of polarization.  By the end of the 1970's the 1% wealth share was now picking up the political polarization trend and increasing.

Mr. Reich has a major problem in his analysis:  if the amount held by the top 1% is a true political problem, then why is it trending AFTER the political trend and not LEADING IT?

If the Leftist analysis were in any way correct, then we would see directly opposite trends and the graph trend for polarization would be flipped as the mean, rotten, nasty, money grubbing  rich controlled political trends and only the storming back of the brave working class would prove divisive and take wealth away.  But that is not what is going on.

If America is coming together starting BEFORE the Great Depression and Rooseveltian Recession, then what is the cause of that?  The two graphs cross in the 1920's as polarization goes DOWN and wealth holdings by the top 1% go to levels of 19% of all wealth in the Nation.  That also takes the Conventional Wisdom concept out behind the barn and shoots it in the head for pre-Depression Era political polarization.  What we were getting is a slow increase of common Americans investing in the system until its collapse, and then that sudden set of hard hits made everyone, rich and poor, lose wealth and the rich lose it far faster and harder than the poor, with the middle class getting squeezed down into poverty while the rich were still wealthy but not as affluent as before and unwilling to spend money for investment  after 1937 due to government policies.  The massive amount of pay going out to US Servicemen during WWII and being unable to be spent draws down the percentage disparity very hard, even as the Nation would head down into some of the lowest polarization levels, ever, and families would own homes like never before.

What is the signal event that will start seeing political polarization and have wealth accumulation at the top 1% lag it?

The Baby Boomers start to get involved in society.  As a general class they will increase political polarization, over time, and lead a march back up for the top 1% in wealth holdings.  The lag time between 1966 and 1981 is 15 years, or about what it takes to get fully established in your mid-30's to late-40's for the Boomers who are shifting the demographics of the market.  The salient point for the early Clinton years and late Bush I years, is that wealth disparity has a temporary plateau, again lagging political polarization by 3-5 years.  When the Cold War finally ends, the historical trend gap time lag has now fully re-appeared, but this time on the upside of polarization, not the downside.  And the trend at the end of the late Clinton years ending with the graph in 1997 show an increasing trend in both polarization and wealth distribution still lagging.  Thus you would expect to see the top 1% capture more overall wealth as the political trend of polarization is upwards 3-5 years ahead of it.  And if we are seeing more of the same today, and nothing leads me to think otherwise, then the increase of political polarization will mean increased disparity of wealth distribution unless we are reverting to a WWI to Pre-Depression set-up.

With that as analysis, the next two paragraphs then become the focus:

Obamanomics, by contrast, holds that an economy grows best from the bottom up. The president proposes to increase taxes on the highest 2% of income earners starting in 2011. Those tax increases will fund more Pell grants allowing lower-income children to attend college, better pay for teachers that show they're worth it, broader access to health care, improved infrastructure, and more basic research. These and related expenditures are designed to help Americans become more productive. You might think of it as "trickle up" economics.

The key is public investment. Reaganomics did not view any public spending as an investment in the future except when it came to spending on the military. Hence, since 1980, federal spending on education, job training, infrastructure and basic research and development (apart from defense-related R&D) have all shrunk as a proportion of GDP. And apart from a modest expansion of health insurance available to poor children, there has been no significant attempt to make health insurance broadly affordable to Americans.

Now, leaving aside all lovely good intentions of Grants, which have a non-proven track record for anything, save political corruption, what is it that Mr. Reich is saying?

First 'bottom up' growing is the exact, same sort of thing that was put in place by President Roosevelt in the 1930's with the bill coming due starting in 1938 which caused a recession.  He compounded that with higher taxation on the rich.  There is a problem with 'soaking the rich':  who is going to pay for high capital private expenditures to increase production and increase jobs?  This is a non-trivial question in a large economy as government has no track record of actually creating prosperity or economic growth.  Famously President Roosevelt was able to get rid of unemployment by having a World War to fight, and it is after that and those coming back that we see so much wealth 'distributed' far and around that private individuals investing to buy new homes are able to support new families and then cause the realization that no one is really 'making it' any more.

Thus, when government actually did spread the wealth around, it was only by not telling people what to do with it that families would be raised to believe this was the 'norm' and then wonder about the other American Dream of 'making it big'.  When 'social consciousness' implied that the top 1% were STILL too rich and attempted to make them poorer and cap off ANY chance for success, did political polarization start to rise DURING the Cold War and that would be followed by those resisting that political ideology by actually doing and making things.  Tax policy certainly does play a role in things, and when it became draconian and the Federal Reserve put in restrictions to 'help solve' the Depression it got worse, and those looking around and seeing the same thing going on WITHOUT the benefit of accumulated wealth did things start to change.  The 'Rust Belt' during the late 1970's showed just what does happen when you do not continually and robustly re-invest from the private capital side in industry: it gets out-competed.

Now Mr. Reich is trying to put forth that the shift downward in government spending in R&D is a bad thing.  Consider this from the perspective of the late 1970's when so much R&D was being done in government that there was little innovation going on in the private sector and Japan was, famously, overhauling the US industrial sector.  High government spending in R&D towards 'targeted goals' (and it doesn't matter if it is better bombs or better 'green energy' sources) is NOT market led nor driven and cannot address short or long term market concerns as government has no clue as to what to invest in for R&D to keep a robust economy going.  The loss of the old-line industrial capacity that was over-taxed, over-regulated and had far too many union problems stifled the advance of the industrial base all the way to the point that it was LOST in major ways in the 1970's.  The prescription that this is 'good' is only one that Luddites can make.

And don't get me started on the subsidy problem for health care along with the economic inefficiencies of health care 'insurance' that doesn't have to act like any other known form of real insurance on the planet.

What happened after removing some of the regulations, government 'help' and lowering taxation was to spur on innovation and technical expansion to where the US would lead the world starting in 1981 and going on up to the present.

If we don't screw it up and trust government to 'invest' by taxing the hell out of those who like to make money by supporting industry, innovation, expansion and growth.

Mr. Reich should know better than to push this pile of garbage into cans and sell it as a nostrum cure-all.

I came from Buffalo during the 'Rust Belt' era, and government 'help' is the last thing anyone ever wants.  I have seen the wages of that with my own eyes, and I place the blame for that and so much else on the lack of trust our political class has placed in industry, even when it is business and industry that have led to the greatest expansion of wealth, greatest access to health care, and greatest material good for all citizens in the Nation, especially the poor, by trying to make them better off than give them a hand out.  They are the ones teaching folks how to fish on the turbulent waters.  Our government is handing out a sardine or two and calling it salmon.

Thanks, but no thanks.