Push Polling And Its Pernicious Politics

It takes a lot more than money, believe it or not, to keep up a plutocracy. One of those things is fake public opinion perceptions. The days of buying that appear to be numbered, if Rachel Maddow's performance is any indication. Her treatment is worthy of any college course on statistics or social science.

The progressive community has railed for many many years about the pernicious effect of "push polling" -- a poll designed to influence the results that the pollers want to see. But only Rachel can boil it down and slice and dice it like this (with the help of the inestimable and uncompromising Nate Silver of fivethirtyeight.com):

I have nothing more to say:

Michael Moore: The Most Feared Film-Maker in America Strikes Again

Michael Moore, the most feared film-maker in America. The trailer for his latest film:

Al Franken Schools the Protestors: With Reason & Respect

Wow. Thank you to Anna Marie Cox guest-hosting tonight for Rachel Maddow. She and the show highlighted a stunning video of Senator Al Franken (D-MN) effectively talking down conservative shouters about health care!

I've been telling friends what Rachel has been saying too, that we're not even having the same conversation in this country right now about politics. The right-wing pretends to oppose policy, but they really just oppose Democrats and especially President Obama.

There's a very interesting and effective tactic for these folks however that I've also witnessed and have been talking about and demonstrated by Senator Franken: respect the opponents, and then confuse the hell out of them by talking them down with both reason and fact.

Witness - this is AMAZING:


Long live Senator Franken, a tremendous American Senator already and an up-and-coming Liberal Lion Cub, making Americans proud with the power of reason & respect.

A Brief History of Tea Parties & Taxes

I like to read good blogs as much as I like to write my own. This morning I ran across a post by a user named "Science Teacher By Trade" about the proper understanding of the establishment of federal taxes in the United States by George Washington (The Whiskey Rebellion) following the Revolutionary War. This is a very good recap of that moment in history.

History often has a way of becoming mere folklore over years until the truth of what actually happened is twisted beyond recognition many times. That effect is what creates the space for allegations of "revisionist history" particularly when an accurate recounting of history runs counter to how the folklore has evolved. Consider this phenomenon a quirk of evolutionary psychology in the modern paradigm

Anyway, some truth about the founders and taxes:

The first assumption to dispel is that our "Founding Fathers" were resolutely opposed to taxes, and that the Boston Tea Party was due to this opposition. This is true to a limited extent. Following the Glorious Revolution, parliament established a declaration or Bill of Rights. Among these rights was that reserving the ability to Tax for parliament alone. Since parliament was an elective and representative body, this implied that legitimate taxation was restricted to citizens with representation. This wouldn’t become an issue in the Americas for several decades. Following the French and Indian War, Britain was left with a standing army, something it had not really dealt with before. Because of a sense that it was necessary to continue to protect the colonies, as well as the benefits of maintaining an army to restrain French aggression, it was decided to maintain a large force in the Colonies.

This meant that funds had to be found to not only pay for the extremely expensive war that had just been fought, but also to pay for the standing army in the Colonies. Naturally, parliament decided that it only made sense to use taxation to pay for this, and it seemed to follow that since the colonies were benefiting from having an Army for their defense, as well as a war fought partially for their benefit, that they should pay for a large share of the expenses.

This presumption had two problems: first, it assumed that the colonists would perceive the troops as guarantors of security, rather than occupiers. Second, it violated the idea that taxes were linked to representation. In response, mutterings of anger began in the colonies. To be fair, much of the anger was simply due to the fact that taxes were going up to pay for troops that most people did not feel were necessary, especially since the colonies had voluntarily raised their own internal taxes for the war, and had never been fully reimbursed. As resentment strengthened, however, the colonists began to examine their conceptions of natural laws and rights. Ultimately they would realize that fundamentally, the new taxes violated their rights because they had no representation in parliament.

There would be ongoing protests in the future, many which would echo the mob violence of the Boston Tea Party. Curiously, due to a variety of factors, the Boston Tea Party would have no hint of simple anger at increased prices due to taxes. At this point in time, the East India Company had long been competing with Dutch smugglers for the tea imports market in the colonies. Recent acts of parliament had actually made it possible for the East India Company to import tea into the colonies for less than the smugglers were charging. Unhappily, there was a tax attached to these imports that the colonists refused to pay, even though the overall price was less. Due to opposition to the right to impose this tax, the colonists either forced the authorized resellers of tea to resign, or forced the ships importing the tea to return to England without offloading their cargo.

Finally, in Boston the Governor refused to let the ships bearing tea leave until they had paid the tax on the tea they carried. Since this would have forced the company to take a loss (paying the duty without selling the tea,) the ship captains refused to leave, although hostile colonists would not permit their cargo to be unloaded and sold. After a rowdy meeting led by Sam Adams, a large group of men raided the ships and dumped the tea overboard, declaring they would destroy the goods before they paid a tax on them.

Since price was not the issue, clearly the Boston Tea Party was not about paying extra money: it was almost exclusively about taxation without representation, combined with a dose of drunken mob violence. It still became a symbol of valiant resistance to tyranny, especially in American folklore, and would otherwise lose much of its meaning in terms of the specific grievances of the participants.

If more proof is needed that the founding fathers did not oppose taxation per se, but instead just taxation without representation, we can look at our most famous leader of the period: George Washington. In 1794, while Washington was president, an outraged group rebelled against what they perceived as an unfair tax on whiskey (meant to pay down debts from the Revolutionary War.) In response, Washington ordered the rebels appear in federal court, and summoned an army of militia of more than 12,000 men to suppress the rebellion. Whups! By today’s standards, conservatives would apparently be calling old Washington a fascist/socialist enemy of the United States. (Just for the record, Abe Lincoln also presided over tax increases. In fact, the first income tax was progressive and enacted during his administration. Such socialists, our best loved presidents!)

So much for the founding fathers being anti-tax. ...

Optimism Is Creeping Back

The following chart is from Pollster.com, a polling outfit that averages most major polls and then regresses the plot to show trend lines. Averages of averages are a relatively good measure for broad indicators. Fortunately, this broad indicator measures American economic optimism!

After long stagnation of relative pessimism, the gap is starting to narrow between those who believe the economy is worsening and those who believe the economy is getting better. Of course, no good analyst will confuse opinion polls with reality, but to the extent that optimism may reflect future spending patterns, this is really great news.

FYI, interestingly, the famous "right track/wrong track" number about the country's direction is continuing a sharp narrowing trend after a long wide gap that started a marked turn-around after the election last fall. It may reinforce or correlate with the above. Regardless, still great news.

Local Option Appraisal Caps: An Assault On Property Tax

Texas is a property tax state. It has no income tax. The effect is that Texas counties have appraisal districts who appraise property values that are then used as the value basis for property tax rates. A property tax is calculated by multiplying the percentage rate (a sum of the rates of all taxing entities) by the value assessed by the appraisal district. Counties apply this to business property as well as to personal property, especially real estate.

The property tax is in many ways extraordinarily unfair and unreasonable. What could be the logic behind burdening property owners with almost the entire state financial needs? Yes, there are local sales taxes and some form of state franchise taxes on businesses, and god bless her Ann Richards got us a Lottery that was supposed to help fund education, but make no mistake the property tax is the staple of Texas state revenues.

I guess what bothers me most is this: someone could live in a modest home for 30 years and pay off their mortgage. They may never refinance or sell their property. But the county appraisal district has the power to raise the assessed value of the home over time to match or even exceed inflation in the district's sole judgment of property values. So the $150,000 home a person bought 30 years ago might be assessed today at $300,000 and at an average combined rate of 3%, this homeowner -- with her or his mortgage entirely paid off and even on a fixed income -- will have to pay $9,000 a year in state property taxes.

That's $750 every month to the state of Texas just for owning property that you might have entirely paid off and have held for 30 years.

Doesn't it make more sense to tax income? When someone makes income or converts investments into proceeds as taxable income, isn't it fair to ask for the good of society and its infrastructure that the recipient of the income pay a small share to the collective needs of the state? Wouldn't it make more sense only to tax income? Why tax savings or investments whose proceeds don't get tapped?

The idea that a person who has saved and paid off their house and is living on a fixed income (even if by choice) has to pay thousands a year on a house purchased 30 years ago but appraised at current value -- well it just strikes me as obscene.

But hey, we have no income tax. And that keeps Texas proud. Or something. I don't know.

Anyway, state representative Debbie Riddle of District 150 in Harris County includes an optimistic note in a recent email to some constituents about her "Option Appraisal Caps" plan, which would gut the state finance system as property owners concentrated in Harris County (the 4th largest in the nation and home to Houston), Bexar County (San Antonio), and Tarrant County (Dallas) would all surely go to the polls to limit annual appraisal raises to 3% of the prior year's assessed value.

It sounds democratic, and it is. It's a good plan. But the effect would be to force an income tax on the state. I don't think that would be such a bad thing.

From Representative Riddle's email:

LOCAL OPTION APPRAISAL CAPS

As focused as I am on the budget right now, this week is exciting for me for other reasons. Tomorrow morning, I will lay out HB 46 before the Ways and Means committee. This is a bill I have been filing since 2005, yet I have never received a hearing because the previous chairman opposed Appraisal Caps in all forms. Finally, the time has come to let the legislature know about the need for appraisal reform in District 150.

House Bill 46 would allow counties to hold elections to determine their own appraisal cap, anywhere from three percent to 10 percent. In my mind, this is the ultimate solution to the ongoing appraisal cap debate. I understand that many of my colleagues would not be reelected if they mandated an appraisal cap any lower than 10 percent for the entire state. But areas such as mine are desperate for relief from appraisal creep and cannot receive it because of concerns from legislators who live hundreds of miles away. Under my proposal, the people of each county would be able to make their voices heard and set their own caps. It takes the decision out of the hands of legislators in Austin and into the hands of local taxpayers, where it belongs.

The bill has widespread bi-partisan support, and I believe it has an excellent chance of being passed out by the committee and put before the entire floor this session. It does require a constitutional amendment, which has to be approved by 100 of the 150 members of the House. I will continue to gather signatures on the bill, but I believe this could be the breakthrough so many of us have waited years to see!

Kudos, Representative. But I won't hold my breath.

Houston House Prices: Still Pretty Good

From the new Houston Association of Realtors press release on recent home sale data:

Single-Family Homes Update
At $182,316, the average sales price for single-family homes dropped 10.5 percent from February 2008, when it was $203,797. However, the figure is up $18,000 from January of this year. The median price of single-family homes in February was $138,970, off 8.0 percent from one year earlier, but up about $10,000 from January. The national single-family median price reported by NAR is $169,900, illustrating the continued higher value and lower cost of living that prevail in the Houston market.

Now I can tell you we are not seeing those kinds of declines in value on the far north side of Houston in quality neighborhoods and with quality homes. The decline there, if any, is hardly noticeable.

But really, this chart contained in the release is all you need to see to get a simple read of the situation in Houston:

Look at the trend lines. Both the average price (skewed higher by expensive homes) and the median price (half of all sales are priced higher, half lower) -- both average and median trend lines show something very important that you can clearly see just by eyeballing it:

Prices in the Houston area are at mid-2007 levels right now.

In case anyone missed it, 2007 was a pretty darn good year for housing in Houston.

Housing Starts: Only 1% Single Family

This just in. NBC analyst Diana Olick notes that inside this morning's numbers, well over 80% of the overall 22% increase in new housing starts are multi-family units; in other words, apartments.

So the number for single-family housing starts of the overall 22% increase is just 1% says Olick.

This is more in line with what we would expect in this economy. Ring around the rosy, we all fall down.

So people who moved out of apartments into new entry-level homes and are now moving out of those homes, they are looking for new apartments and they have already been relocated geographically within any metro area from where their old apartments were to the new production residential areas. This then, according to my analysis, leads to an increase in demand for new apartment complexes in areas that do not have them because those areas heretofore were developed only for single-family entry-level production homes.

Also, many other people who might otherwise be buying entry level homes just cannot afford to do so right now, but still want to be in good areas with good schools, and this too would create additional multi-family demand.

Also, many apartments are owned by very large investment groups that specialize in this class and often own hundreds and hundreds of units in communities across the nation. The successful ones are able to access development funds to meet the new demand.

Also, divorcees account for many multi-family unit occupants. Today a couple's net worth, particularly for younger couples, is not what it was two years ago (or a year ago). With less then to split and start over, many divorcees must turn to apartments but do not want to move far from their existing neighborhoods, jobs, and schools.

Also............ in recent years buyers did not have to put any money down on a new home. In fact, many buyers could finance up to 106% of a home's value and actually walk away from closing with cash in their pocket. This of course was part of the market insanity of that time. However now many people are having to delay a house purchase while they dial back their spending and their debt to save for a down payment - not necessarily a bad thing.

So this makes sense on multiple levels. It is still worth noting however that development of new multi-family units is still creating new construction and new jobs. And for many people, moving into an apartment for a while in order to recharge one's finances before buying a house with a conventional loan is a very good idea. It's what I did, and I'm glad I did it.

Uptick or Upstart? New Home Starts: UP

Just out, The Commerce Department reports this morning that:

The Commerce Department said the jump in housing starts to a seasonally adjusted annual rate of 583,000 units was the biggest percentage rise since January 1990.

That was also the first increase since April last year, when they advanced by 1.6 percent.

And the kicker? This is not what "the markets" had expected. Market analysts were expecting a smaller number.

Analysts polled by Reuters had expected an annual rate of 450,000 units for February.

The question now might be: with so many months of sinking new start numbers, is this just a natural uptick quirk within the larger trend, or is this a new inflection point that will reverse the trend?

Rest assured we are watching very very closely.

On a separate but related note, producer prices were announced at .1% rise, below market expectations. However the markets watch the "core" number, which excludes the traditionally more volatile energy and food costs. Those prices were slightly higher than expected. All said, this is very good news this morning. But with so much debt-financed stimulus, we have to keep an eye on inflationary dynamics. This isn't enough to be concerned this morning.

U.S. producer prices rose by less than expected in February as the pace of energy price increases slowed, government data on Tuesday showed, but prices excluding food and energy came in a bit above forecast.

Before Stewart vs CNBC: Stewart vs Crossfire 2004

To follow up on yesterday morning's comment about the power of satire, and particularly of Jon Stewart's satire, here is the following from 2004:



Mmmmm me loves me some Jon Stewart. Political satire has a rich American history and a critical role to play in a functioning democracy, and in the case last week of Stewart vs CNBC, in a functioning capitalist democracy. Sometimes satire is the most effective way to bring such large and discordant forces into sharp relief. Operative word: sharp. See clip above and prior posts to wit. Jon Stewart is an American patriot and national treasure.

Jim Cramer vs Jon Stewart: All You Need To See

If you know nothing about the current financial crisis and you can only handle so much before you go off a "thought cliff," then this is all you need to see. All week, Jon Stewart has been criticizing the complicity of the financial network CNBC with lying Wall Street execs to mislead the world on the crisis that they all should have known and been honest about.

We need independent investigative journalism for a functioning capitalist democracy. Just watch.

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Pt. 2

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

And do not miss the shorter Part II:

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Pt. 3

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

There are several unedited outtakes at TheDailyShow.com. And for the record, this is not the first time that the comedian Jon Stewart has single-handedly changed the landscape of political media. But more on that another time. A small example: remember the long-running show "Crossfire" on CNN? Jon Stewart pretty much single-handedly destroyed the show with his searing on camera criticism, including on that very show confronting its hosts. Think about that.

This was an astounding interview with Jim Cramer of CNBC. That network cannot escape culpability (no matter how shared) in fueling the run-up to the current crisis, along with the other principals named earlier on this site.

The Professor and the Pool

I received the following email in a chain about the stimulus bill. Suffice it to say it's from people who are frustrated and confused (and that's okay) about the stimulus policy. I'm "that jerk" who responds to these chain emails with my own opinion, posted below under the original email here...

I love this explanation. Makes total sense to me!! n

Shortly after class, an economics student approaches his economics professor & says, "I don't understand this stimulus bill. Can you explain it to me?"

The professor replied, "I don't have any time to explain it at my office but if you come over to my house on Saturday & help me with my weekend project, I'll be glad to explain it to you." The student agreed.

At the agreed-upon time, the student showed up at the professor's house. The professor stated that the weekend project involved his backyard pool.

They both went out back to the pool & the professor handed the student a bucket. Demonstrating with his own bucket, the professor said, "First, go over to the deep end & fill your bucket with as much water as you can." The student did as he was instructed.

The professor then continued. "Follow me over to the shallow end & then dump all the water from your bucket into it." The student was naturally confused but did as he was told. The professor then explained that they were going to do this many more times & began walking back to the deep end of the pool.

The confused student asked, "Excuse me, but why are we doing this?" The professor matter-of-factly stated that he was trying to make the shallow end much deeper. The student didn't think the economics professor was serious but figured he would find out the real story soon enough.

However after the sixth trip between the shallow end & the deep end, the student began to worry that his economics professor had gone mad. The student finally said, "All we're doing is wasting valuable time & effort on unproductive pursuits. Even worse, when this process is all over, everything will be at the same level it was before so all you'll really have accomplished is the destruction of what could have been truly productive action!"

The professor put down his bucket & replied with a smile, "Congratulations. You now understand the stimulus bill."

My friend who sent this to me, and with whom I'd previously discussed our nation's situation as we've discussed on this site, is a very very smart man, a PhD in fact, and I adore him and his family. He didn't deserve my frustrated tone, but he did deserve another point of view. He replied, "I obviously touched a nerve." Friends are great to remind us (me) of our outer bounds. Anyway, my reply:

That's wholly inaccurate and makes no sense, FYI. It's more like the pool is full of shared drinking water, and there was a catastrophic leak and the pool is now only half full. Nobody wants to put water in the pool because nobody's sure if it's still leaking, and nobody's really sure what happened, so everyone is hoarding their own water, what little they have left, and they are damming up every little contributory stream near them, diverting it from the pool, which only exacerbates the problem as water continues not only to leak but to evaporate.

Now the government, in charge of the pool, can piddle around complaining about who caused the cracks and blaming enemies and getting the people with little water left to get angry at those who have more water and those with more water to blame and make fun of the people who depend on the pool for daily needs and nobody pays attention to what caused the catastrophic leak or even verifying if the damn thing is still leaking. Even if the leak has stopped, how do we get the level back up so everyone will stop being afraid and restore the flows? Should politicians ask everyone just to pour their water back in on a voluntary basis and in the meantime everyone just stick it out while people with little water run out, and even those with more start running out?

Should the government put a garden hose in the pool to try to overcome any remaining leaks and maybe start to fill it back up and just hope for the best? Is a trickle sufficient? Is a garden hose insufficient? Are there enough people and neighbors who are willing to divert their own water through their own private hoses to try to fill the thing back up while nobody's sure if it's still leaking?

What if the government is the only entity with a firehose capable of shifting water -- with the promise to repay -- from big neighbor's giant pools back into our pool until we can a) stop and fix the leak and b) restart the flow of contributing streams in the system from the citizens? Mind you, our pool is already the biggest of them all, and all our neighbors' pools have unexplained leaks too, and we're all facing the same problem.

Scared water doesn't flow.

Scared money doesn't spend.

Krugman: The Deficit Reduction Plan Can Work

In Saturday's New York Times, Nobel Laureate Princeton Economics Professor Paul Krugman sounds an optimistic tone about Obama's proposed new budget while still sounding a cautionary note about long-term economic challenges. It's worth a read.

Can he actually reduce the red ink from $1.75 trillion this year to less than a third as much in 2013? Yes, he can.

Right now the deficit is huge thanks to temporary factors (at least we hope they’re temporary): a severe economic slump is depressing revenues and large sums have to be allocated both to fiscal stimulus and to financial rescues.

But if and when the crisis passes, the budget picture should improve dramatically. Bear in mind that from 2005 to 2007, that is, in the three years before the crisis, the federal deficit averaged only $243 billion a year. Now, during those years, revenues were inflated, to some degree, by the housing bubble. But it’s also true that we were spending more than $100 billion a year in Iraq.

So if Mr. Obama gets us out of Iraq (without bogging us down in an equally expensive Afghan quagmire) and manages to engineer a solid economic recovery — two big ifs, to be sure — getting the deficit down to around $500 billion by 2013 shouldn’t be at all difficult.

Note all the big "ifs" however. They include a) a successful stimulus policy, which is still a working policy, and b) an ability to extremely reduce defense spending by achieving successful plans in both Iraq and Afghanistan (the new monster on our backs). Krugman also points to successful reform of spiraling health care costs for individuals and over-billing of Medicare to achieve substantial budget savings. These are big "ifs" indeed.

But won’t the deficit be swollen by interest on the debt run-up over the next few years? Not as much as you might think. Interest rates on long-term government debt are less than 4 percent, so even a trillion dollars of additional debt adds less than $40 billion a year to future deficits. And those interest costs are fully reflected in the budget documents.

This is somewhat more optimistic than yesterday's post here about the risks of overextending the national debt as a) tax revenues decline with contracting production in the economy, and b) federal debt-spending is required to unfreeze credit markets and replace lost demand (to preserve jobs basically). This is a double whammy, but Professor Krugman says these dynamics could feasibly be limited to the short term, an assumption on which all policy planning seems to depend right now.

The overall outlook is best summed in Krugman's closing lines.

So we have good priorities and plausible projections. What’s not to like about this budget? Basically, the long run outlook remains worrying.

Early Indicator: Interest Rates to Rise

I received the following from a lender at Network Funding LP, but I can't figure out who owns the copyright. At any rate, very interesting headline and information.

Supply Concerns Boost Mortgage Rates

... [M]ortgage rates rose slightly during the week. The reason is that concerns about the enormous supply of debt that the government will need to issue outweighed the other factors. [emphasis added]

...This week, the Obama administration proposed a $3.6 trillion budget plan, with an estimated deficit of $1.75 trillion, which is enormous by historical standards. The Treasury will need to issue debt to borrow money to fund all of this. As the government issues more debt, the interest rate offered generally must rise to attract additional investors. Interest rates on similar investments such as MBS then move higher as well to compete for funds from investors.

Reflecting their concerns about an increase in supply, investors required higher interest rates at the large Treasury auctions during the week. The auction results showed that demand from foreign investors remained strong, which was very good news. If foreign investors should ever reduce their purchases of US bonds, then interest rates in the US would be likely to rise. [all emphasis added]

These are dynamics long discussed on this blog. Like day follows from night, so will inflation follow from the massive stimulus required to unfreeze credit and consumer markets where "scared money doesn't spend." Not to mention the very very real massive losses the banking sector faces from their catastrophic past lending practices, which further reduces available private money into the demand side of the economy.

These factors necessitate the enormous spending from the last credit-worthy entity capable of replacing all the lost demand (through debt-financed spending), namely the federal government.
Unstated in the quote however is the notion that investors/lenders require higher returns when loaning money even to the United States government because at some point, the investors/lenders begin to worry a little bit more about the government's ability to raise enough tax revenue from the economy's future production in order to pay for the national debt load (remember we're starting already over $10 TRILLION in the hole, with an actual doubling of the national debt in the last 8 years with nothing to show for it).

An important caveat: The United States will never default on its loans, that's the market assumption. But it may, if necessary, only avoid doing so essentially by printing money to pay down the debt, which only ends up causing inflation as new cash enters the system without being backed by any real production or assets. This raises prices of everything, yes, but it also reduces the real value of debt as "printed money" pays down the loan balances. Everyone loses.

To illustrate, imagine if you could pay off your mortgage not by keeping a job and making payments with the fruits of your labor or even by inheriting enough existing money to pay it off -- but rather you could just print your own money to pay it off, or successfully pay it off with a "valid" hot check. See? The only "winner" is the one printing the money, but then the printer will never get an affordable loan again either.

That's kinda the dynamic that gets figured in here, the risk level of that scenario above actually happening, as foreign and domestic investors consider issuing loans to the federal government. As the lenders' or "investors'" concerns rise, then so does the pay they demand in return for their loan -- the interest rate.

And all interest rates are related in some fashion. So when the federal government has to pay a higher interest rate for its debt, so too do individuals borrowing with mortgages, as no person or entity is seen as "more" credit-worthy than the United States government.

(In finance, the 10-year Treasury bond rate is often referred to as the "risk-free" rate.)

No, this will not be on the exam.

The Surging Populist Rage

In this morning's New York Times, the invaluable social critic Frank Rich writes about a familiar theme on this blog, namely the catastrophic policies set forth by both parties in the 1999 repeal of the depression era reform bill "The Glass Steagall Act" and the even more disastrous foundation for our current crisis, "The Commodities Futures and Modernization Act of 2000." From Rich:

Key players in the Obama economic team beyond Geithner are also tied to Rubin or Citigroup or both, from Larry Summers, the administration’s top economic adviser, to Gary Gensler, the newly named nominee to run the Commodity Futures Trading Commission and a Treasury undersecretary in the Clinton administration. Back then, Summers and Gensler joined hands with Phil Gramm to ward off regulation of the derivative markets that have since brought the banking system to ruin. We must take it on faith that they have subsequently had judgment transplants.

Truly any American should be concerned that the usual suspects of the 1990's whose policies caused so much international turmoil at the time, and whose policies (along with Chairman Alan Greenspan) set the stage for the gathering storm of the past eight years that culminated in this crisis of our own making we face today. Chillingly, Rich suggests that these players may not be fully rehabilitated.

A welcome outlier to this club is Paul Volcker, the former Federal Reserve chairman chosen to direct Obama’s Economic Recovery Advisory Board. But Bloomberg reported last week that Summers is already freezing Volcker out of many of his deliberations on economic policy. This sounds like the arrogant Summers who was fired as president of Harvard, not the chastened new Summers advertised at the time of his appointment. A team of rivals is not his thing.

Americans have had enough of such arrogance, whether in the public or private sectors, whether Democrat or Republican.

My greatest concern is about "the arrogant" Larry Summers. And while I have to honor a confidentiality oath, I can say that Summers is one of the creepiest people I have ever met and listened to in person, when he was President of Harvard University. One gets the sense that this man's sense of self-supremacy is unlimited and untempered even by recent years' evidence of his past failures. He is brilliant, the youngest professor ever to be tenured at Harvard University, practically at the moment he received his PhD. But academic brilliance does not translate into policy brilliance, which is fraught with unintended consequences if implemented poorly. This man rose too far too fast and was handed policy reigns when he should have been relegated to an advisory position and nothing more.

In 1999, he succeeded Rubin as Secretary of the Treasury. A year later, he was, with Alan Greenspan and Rubin, a leading advocate of the derivatives deregulation. Also during his stint in the Clinton administration, Summers was successful in pushing for capital gains tax cuts.

Larry Summers also deserves credit for advocating Washington Consensus policies during the Asian Financial Crisis. He eschewed Keynesian policies in favor of fiscal austerity, forcing the Korean government to raise its interest rates and balance its budget in the midst of a recession, policies criticized by liberal economists such as Paul Krugman and Joseph Stiglitz.[2] According to the book The Chastening, by Paul Blustein, during this crisis, Summers, along with Paul Wolfowitz, pushed for regime change in Indonesia. On May 4, 1998, when the Indonesian government began to raise fuel prices as part of an IMF program in exchange for hard currency, students started to protest, and in the ensuing riots, hundreds burned to death as blazes swept shopping centers in Jakarta.[2]

During the California energy crisis of 2000, then-Treasury Secretary Summers teamed with Alan Greenspan and Enron executive Kenneth Lay to lecture California Governor Gray Davis on the causes of the crisis, explaining that the problem was excessive government regulation.[4] Under the advice of Kenneth Lay, Summers urged Davis to relax California's environmental standards in order to reassure the markets. [5] It was later conclusively revealed that Enron traders were the cause of the California electricity crisis.

Here's a taste of the 1990's shenanigans by Summers and his ilk, and now ask yourself whether you want these "thinkers" in charge of turning around the American economic crisis we face.

Many critics of trade liberalization... see the Washington Consensus as a way to open the labor market of underdeveloped economies to exploitation by companies from more developed economies. The prescribed reductions in tariffs and other trade barriers allow the free movement of goods across borders according to market forces, but labor is not permitted to move freely due to the requirements of a visa or a work permit. This creates an economic climate where goods are manufactured using cheap labor in underdeveloped economies and then exported to rich First World economies for sale at what the critics argue are huge markups, with the balance of the markup said to accrue to large Multinational corporations. The criticism is that workers in the Third World economy nevertheless remain poor, as any pay raises they may have received over what they made before trade liberalization are said to be offset by inflation, whereas workers in the First World country become unemployed, while the wealthy owners of the multinational grow even more wealthy.

[C]ritics further claim that First World countries impose what the critics describe as the consensus's neoliberal policies on economically vulnerable countries through organizations such as the World Bank and the International Monetary Fund and by political pressure and bribery. They argue that the Washington Consensus has not, in fact, led to any great economic boom in Latin America, but rather to severe economic crises and the accumulation of crippling external debts that render the target country beholden to the First World.

Bear in mind that all the globalization of that decade still led to unending massive trade deficits that helped mushroom the national debt more in the last eight years than in all prior American history combined. Now our foreign debt is held by Japan and China, and our economy is subject to enormous economic and political threats by our adversaries. To me, that is not good policy, Professor Summers.

I had the good fortune to hear a small-room lecture by a past-president of a small Latin American nation, a man who experienced the ravages of the IMF first-hand and was ousted from his position because of his own country's crisis. This stuff is not theory.

Further alarming is Rich's claim that Paul Volcker, Alan Greenspan's predecessor whose leadership of the Fed laid the policy groundwork to save America from its last economic crisis in the late 70's to early 80's, is being "shut out" by Larry Summers today. Here's Volcker's previous work:

Paul Volcker, a Democrat[4], was appointed Chairman of the Federal Reserve in August 1979 by President Jimmy Carter and reappointed in 1983 by President Ronald Reagan.[5]

Volcker's Fed is widely credited with ending the United States' stagflation crisis of the 1970s. Inflation, which peaked at 13.5% in 1981, was successfully lowered to 3.2% by 1983.

While our current crisis is different in nature to be sure, it is no less urgent and its eventual solutions will be no less controversial than the policies Volcker implemented in the early 80's to arrest the inflationary spiral of that time.

The New "1/20" Rule
Here's where the new "populist rage" enters, as millions of Americans find themselves very recently out of work in the last three months alone. Again from Rich:

But we do know that the system has been fixed for too long. The gaping income inequality of the past decade — the top 1 percent of America’s earners received more than 20 percent of the total national income — has not been seen since the run-up to the Great Depression.

Yes, it's hard to believe, harder to fathom, that only 1% of the American population received more than 20% of the entire national income. When candidate Barack Obama said inartfully that he wanted to "spread the wealth," he wasn't talking about socialism. He was talking about this issue, about the need to rebuild the middle class, which brought this country to the peak of its economic and global power in the 20th century, so that more people can earn a better share of the nation's "pie," and so we can make it as big as we possibly can, together. That's not welfare. It's not socialism. It's how to build a healthy, diversified, and strong national democratic capitalist economy.

The strongest punch and thematic statement from Mr. Rich comes in his opening paragraphs this morning. And if the president, the senate, and the congress do not come to terms with this warning soon, it won't just be "the president's best-laid plans" that get "maimed."

SOMEDAY historians may look back at Tom Daschle’s flameout as a minor one-car (and chauffeur) accident. But that will depend on whether or not it’s followed by a multi-vehicle pileup that still could come. Even as President Obama refreshingly took responsibility for having “screwed up,” it’s not clear that he fully understands the huge forces that hit his young administration last week.

The tsunami of populist rage coursing through America is bigger than Daschle’s overdue tax bill, bigger than John Thain’s trash can, bigger than any bailed-out C.E.O.’s bonus. It’s even bigger than the Obama phenomenon itself. It could maim the president’s best-laid plans and what remains of our economy if he doesn’t get in front of the mounting public anger.

The Drama of the Coming Week: Cuts vs Cats

The best show since the Superbowl is sure to unfold in the coming week as President Obama barnstorms the country to sell the Stimulus Bill to a skeptical and beleaguered nation.

No doubt opponents of the bill will be highlighting "cats and dogs" in the bill to dramatize what they think is "waste," making what the president said is "the enemy of the essential," and seeking their own political benefit -- acts tantamount to treason given the urgency and enormity of the economic crisis we face. See last week's report of January job losses (in a post below) for a taste of what's accelerating. Every wasted moment equals thousands of more jobs lost.

At any rate, proponents will be holding up the cuts this week contained in the co-called senate "compromise" version of the bill announced on Friday. Courtesy of Senator Leahy's office, we get our first shot across the bow of cuts that are sure not to sit well with the public so long as we're going to spend hundreds of billions of debt money anyway:

Billion dollar cuts from the bill

$40 billion State Fiscal Stabilization

$16 billion School Construction

$7.5 billion of State Incentive Grants

$5.8 billion Health Prevention Activity

$4.5 billion GSA

$3.5 billion Higher Ed Construction (Eliminated)

$3.5 billion Federal Bldgs Greening

$2.25 Neighborhood Stabilization (Eliminate)

$2 billion broadband

$2 billion HIT Grants

$1.25 billion project based rental

$1 billion Head Start/Early Start

$1.2 billion in Retrofitting Project 8 Housing

$1 billion Energy Loan Guarantees


Multi-Million dollar cuts from the bill

$100 million FSA modernization

$50 million CSERES Research

$65 million Watershed Rehab

$30 million SD Salaries

$100 Distance Learning

$98 million School Nutrition

$50 million aquaculture

$100 million NIST

$100 million NOAA

$100 million Law Enforcement Wireless

$50 million Detention Trustee

$25 million Marshalls Construction

$100 million FBI Construction

$300 million Federal Prisons

$300 million BYRNE Formula

$140 million BYRNE Competitive

$10 million State and Local Law Enforcement

$50 million NASA

$50 million Aeronautics

$50 million Exploration

$50 million Cross Agency Support

$200 million NSF

$100 million Science

$300 million Fed Hybrid Vehicles

$50 million from DHS

$200 million TSA

$122 million for Coast Guard Cutters, modifies use

$25 million Fish and Wildlife

$55 million Historic Preservation

$20 million working capital fund

$200 million Superfund

$165 million Forest Svc Capital Improvement

$90 million State & Private Wildlife Fire Management

$75 million Smithsonian

$600 million Title I (NCLB)

I dunno... but it seems to me that given 600,000 job losses just last month, at an average of $50,000 each, means that American workers lost $30,000,000,000 ($30 billion) of annual personal income LAST MONTH.

I'm not sure, with this particular emergency stimulus bill and historic economic crisis continuing to spiral out of our grasp, that a billion here and a billion there for such things as local government, aerospace, education, and law enforcement really is worth all the dithering and grandstanding.

Not All Tax Cuts Are Bad

While "tax cuts" in the abstract are proven (yes, proven) to be less effective than "spending" for turning around an economy with cratering demand (more on that later), it is worth noting that not all tax cuts such as those included in the Senate and House versions of the stimulus bill are bad...

It's worth noting that many middle class earners who would get tripped by the AMT are not expecting to pay the AMT because they have not had to pay it in the past. So if the AMT were not eliminated, it would result in several million earners to have withheld too little in taxes and therefore come up short, or would have to withhold more in taxes from paychecks, thereby reducing disposable income.

So delaying the AMT is good policy. Tax cuts that produce immediate spending that otherwise would not have happened is still spending, and it's still good policy.

Tax cuts however that simply benefit the rich and would simply result in additional money cut from the government and staying protected in fat bank accounts would continue the economic crisis.

Another great good policy example: $15,000 refundable tax credit for (qualified) home buyers to get people buying new homes now and not waiting until it's too late.

Another great example: a multi-thousand dollar tax credit for anyone who gets a new air-conditioner (which will have a higher SEER rating, more efficient) or replaces single-pane windows, etc. This will cause middle and lower-class owners to consider replacing old A/C units for example that are at the end of their useful life and they will see a huge spike in efficiency in their bills and energy use -- not to mention getting a great break on a system that will need replacing regardless and creating jobs/saving jobs for the manufacturers and installers, etc. Not all tax cuts are bad. Not all public spending is good. Blah blah blah.

Homeowners and Landlords would do well to study the final bill (when it gets done) and take advantage of all provisions that give incentives for pulling forward spending that otherwise would be put off. This could include replacing old A/C units, replacing single-pane windows, replacing an old car (with a more efficient car at a low interest rate), and yes even buying a new house at a potentially lower-than-future market price and historically low fixed interest rate.

Not everyone has the ability to spend right now, and that's fine. But this nation desperately needs those who can spend to spend... without delay. Anything that causes spending right now, including pulling forward public spending for infrastructure, as well as private spending, etc., is going to help turn things around.

Right now (not in the long term): if we're spendin', we're survivin'.

Just sayin'...

Entire Major Cities & States Unemployed

It's hard to get our minds around certain statistics like today's announcement that 598,000 (let's just say 600,000 can we?) jobs were lost just last month. This shows definitively that the horrific job loss trend is indeed accelerating. (Every American should be pressuring their congress-critters to pass a stimulus bill asap - it's already past due.)

To put this in perspective, it is as if the following entire major cities were put out of work just last month:

U.S. Cities with Populations around 600,000:

• Boston
• El Paso
• Milwaukee
• Seattle
• Nashville
• Denver
• Washington, D.C.

The following cities have far fewer than 600,000 people. Last month's job losses alone would have eliminated more than one job for every person in the following cities:

• Las Vegas
• Louisville
• Portland, OR
• Atlanta
• Sacramento
• Kansas City
• Cleveland
• Miami
• Omaha
• Oakland
• Minneapolis
• Raleigh
• Arlington, TX
• St. Louis
• Tampa
• Cincinnati
• Pittsburgh
• Newark
• Plano, TX
• New Orleans
• Orlando

Obviously this is not an exhaustive list, and remember that city populations include children, the retired, and others not in the workforce.

There have been over 2 million jobs lost in the last three months.

There are only four U.S. cities with populations greater than 2 million:

• Houston (2.2 M)
• Chicago (2.8 M)
• Los Angeles (3.8 M)
• New York (8.2 M)

There are only fifteen U.S. states with populations over 2 million.

And there are 26 -- yes, twenty six -- U.S. states with populations less than 600,000 - the number of jobs lost in the U.S. just last month.

We are not having an academic or ideological discussion in this country about the imminent need for stimulus.

And Houston Joins the Fray

Make no mistake the Houston economy is still the exception in this nation, but that does not mean it is immune to the economic downturn.

This week's news that oil services firm Baker Hughes is laying off 1500 jobs worldwide and 200 jobs in Houston is unwelcome news and hopefully not a harbinger of things to come. It is a chilling headline.

As we have discussed here several times, there can be no broad economic turnaround without a) a stop in job losses, and b) net new jobs creation.

Today's headline from The Labor Department is that continued jobless claims are now at their highest peak ever since the data collection began in 1967. Continued jobless claims are people who continue their claims after an initial week, and the data is from the week ending January 17th, and stands at 4.776 million people nationwide.

However, it is important to note that continued jobless claims is more or less an indicator of current economic conditions and not a strong indicator of a longer trend - that's the silver lining I think.

Not All Bleak in Houston
Meanwhile, back in Houston, encouraging news still persists in the mix. Shell announced it has no layoff plans despite a weak 4th Quarter. Chevron is keeping its capital spending levels steady. Continental Airlines posts a loss, but beats analyst estimates. And huge Houston car-dealer AutoNation, which owns several area dealerships including BMW, Mercedes, Acura, Hyundai, GM, Ford, Nissan, Mitsubishi, Chrysler, and Toyota, has announced despite an historic challenging economic climate it nonetheless has booked a profit.

And on that note, I need to go pick up my car from the repair shop of a nearby AutoNation-owned dealership. I'm doing my part for the Houston economy, or at least my car is.

Repeat: Houston is the Exception

Okay, another press release, another frightening headline. But repeat and repeat again: "Houston is the exception." Let me cut to the chase, which is the last line in this Reuters article:

"The bear market continues; home prices are back to their March, 2004 levels," David M. Blitzer, chairman of the Index Committee at Standard & Poor's, said in a statement.

Okay, now as anyone can remember who was in the market in 2004 as a seller: those were not hard times in Houston.

So while other economic metrics mentioned in the article are at multi-decade lows, home prices in Houston remained relatively stable in comparison, down year-over-year in November by about 7%, but that's on much much lighter activity overall. Basically, sellers are afraid to sell, and buyers are afraid to buy, and so we mustn't be too serious about the price figures, which only reflect a small set of data due to the overall inactivity in the Houston market. (Note an important corollary: many would-be area sellers are also would-be area buyers. They are coupled, and so are the market effects.)

In other news, while the article says that a turnaround in housing is required for an overall economic turnaround (true enough), it also reports an important jobs figure:

Chief among consumers' woes has been spiraling job losses in recent months.

U.S. employers axed 533,000 jobs from payrolls in November alone, the most in 34 years, according to Labor Department data released earlier this month.

The Conference Board data reflected this, with its "jobs hard to get" index rising to 42.0 in December -- the highest since December 1992. That was up from 37.1 in November.

As we've discussed on this site again and again, the real indicator of an economic turnaround will be a stabilization of job losses. Without jobs, the economy can go nowhere for 99% of Americans. If you want a good housing market, you must have a good jobs market.

Repeat ad nauseum.