Conservatives & Their Economic Fairy Tales

It can’t get much plainer than this just how detached from reality conservatives are in their economic thinking: supply side economics is, through John McCain’s campaign, coming back despite its total failure.

[A]dvocates see broader economic benefits from lowering tax rates, which is one of the reasons the concept has reappeared as a point of contention in this year’s election campaign, in an amended form.

“What really happens is that the economy grows more vigorously when you lower tax rates,” said Kevin Hassett, an adviser to the presumptive Republican nominee, John McCain, and the director for economic policy studies at the conservative American Enterprise Institute. “It is beyond the reach of economic science to explain precisely why that happens, but it does.”

Except, of course, that it does no such thing and never has.

In the 1980s, though, during the initial era of supply-side tax cuts, per capita revenue from personal income taxes, adjusted for inflation, rose an average of just 0.7 percent annually throughout the Reagan presidency, according to the White House Office of Management and Budget.

That was far below what turned out to be an average annual increase of 6.5 percent in the eight years of the Clinton administration, when tax rates at the high end of the income ladder were raised.

Since 2001, the annual per capita revenue from income taxes fell 1 percent under President Bush even though tax collections picked up sharply starting in 2005. The budget surplus Mr. Bush inherited turned into a deficit.

The Stockman-born conviction of the Reagan years that tax revenues would magically grow after you cut taxes has never been seriously questioned by any conservative economist despite the acres of evidence over the past 3 decades proving that it’s all poppycock. We have been led into an economic dystopia by people who, like supporters of the Iraq war, have never been right about anything.

Why did we ever listen to these people? More importantly, why are we still listening to them when they’ve been so far off-base? We knew – people made jokes about it at the time – that Reagan’s contradictory formulation made no sense, that raising taxes by cutting taxes was a bonehead idea. Yet we voted for this peabrain twice, voted once for Peabrain II, got burned, and then came back to vote twice more for Peabrain the Third even though the guy wno came between P2 & P3 had pretty much proved that supply-side was applesauce.

“If you are cutting taxes without offsetting the cuts through reductions in spending, then all you are doing is increasing the debt and postponing the taxes,” said Jason Furman, director of the Hamilton Project at the Brookings Institution, and also a policy adviser to the Democratic presidential candidates.

Well, duh.

What in gawd’s name is wrong with us? Why don’t we – can’t we – learn?

It’s a puzzlement.

Inflation for the Poor, Stagnant Prices for the Rich

Beneath the mortgage crisis brought about by the deliberate systematic scamming of the poor by greedy lendersis the story of the disparity between the kinds of goods with steep mark-ups. The sector that has suffered the greatest inflation, it turns out, is the sector where low and middle class consumers spend most of their money. At the same time, wages have barely risen for the people hit hardest by inflation while luxury sectors have stabilized and incomes risen dramatically.

We all knew that but a new study of govt data by WaPo reporters (doing some actual investigative journalism for a change) proves it.

Inflation is walloping Americans with low and moderate incomes as the prices of staples have soared far faster than those of luxuries.

The goods and services Americans consumed in February were 4 percent more expensive than they were a year earlier. But there is a big divide in how much prices are climbing between the basic items people need to live and get to work, and those on which they can easily cut back when times are tight.

An analysis of government data by The Washington Post found that prices have risen 9.2 percent since 2006 for the groceries, gasoline, health care and other basics that a middle-income American family has little choice but to consume. That would cost such a family, which made $45,000 on average in 2006, an extra $972 per year, assuming it did not buy less of such items because of higher prices. For a broad range of goods on which it is easier to scrimp — such as restaurant meals, alcoholic beverages, new cars, furniture, and clothing — prices have risen 2.4 percent.

Wages for typical workers, meanwhile, have been rising slowly. In that same time span, average earnings for a non-managerial worker rose about 5 percent. This contradiction — high inflation for staples, low inflation for luxuries and in wages — helps explain why American workers felt squeezed even before the recent economic distress began.

(emphasis added)

So, once again, if you’re rich, the expensive trinkets you buy cost little more than they did a few years ago. If you’re poor, a much bigger part of your budget goes for basics like food, transportation, and heat. The reporters – Neil Irwin and Alejandro Lazo – claim that the culprit is foreign market pressure.

Inflation is not occurring because labor markets are tight or because the U.S. economy has been overstimulated; if that were the case, wages would be driving inflation up, leaving ordinary households in decent shape and doing more damage to those who lent money at fixed interest rates.

Instead, this inflation is driven by global commodity markets. China, India and other developing countries’ thirst for oil has been growing faster than producers can quench it, sending the price of oil up about 60 percent since 2006. Prices for oil and other commodities fell yesterday though they remain very expensive by any historical standard.

Expensive crude oil has translated into higher costs to heat a house or drive to work. The average middle-income household must spend $378 more per year on gasoline than it did in 2006 if it consumes the same amount, and an extra $38 on fuel oil.

Apparently the pro-war WaPo decided to skip over the pressure on oil prices caused by the second Gulf War and the obscene profits netted by oil companies the last few years. “It’s all China’s fault.” But at least they didn’t gloss over the difficulties caused by a Two Americas economy.

The rise in the basic cost of living means that inflation disproportionately affects those with modest incomes. For example, in 2006, the top 20 percent of households by income spent about twice as much on staples as households in the lower-middle bracket. But the top-earning families had almost six times as much income.

***

The pinch of inflation from energy, food and health care is a significant factor in softening consumer spending, which in turn is the reason economic growth is slowing sharply this year. It is not the only reason consumers are pulling back, however. Lower home prices, less credit availability and dropping stock market values are other likely factors.

Those different sources of weakness are affecting different groups of consumers. Poor and middle-income people are suffering the worst from inflation, middle- to upper-middle-income families are bearing the brunt of the softer real estate market, and the affluent are pinched the most by problems in financial markets.

Poor babies. But don’t worry. The Fed just promised them another $$$30BIL$$$ to help stabilize the market and it worked. For a couple of days.

Of course, that’s the fourth time $$$20-30Bil$$$ has been thrown at the investor class in an attempt to chivvy them into some semblance of sanity (the Bush Admin tossed them almost $$$200BIL$$$ just a couple of months ago) and each injection of cash calmed nervous investors for, like, a week before the next batch of bad economic news sent them into a tizzy of fret and foreboding, and Wall Street took another nose dive. It isn’t news that the effect of this latest give-away had just as temporary an effect.

Meanwhile, absolutely NO ONE is suggesting that maybe wages should be raised past the level of inflation or that maybe prices on staples should be frozen for a while, and the price of oil fixed. Or all three. None of those would chill weak investor nerves or put money in their pockets. So, even though such moves would be far more likely to stimulate a recessed economy than pouring more money down the financial sector rat hole, they won’t be coming our way any time soon.

The people who caused this disaster with their greed and unscrupulous, predatory practices are focused on saving their own asses at our expense.

And as usual, the Bush Administration is happy to oblige.

…and Who They’ve Decided to Help (2)

El Presidente‘s new “stimulus package” and the Democratic roll-over version of same is theoretically meant to stimulate the economy by giving money to people who really need it and will spend it on basic necessities to keep the economy humming. These are the people who haven’t seen a raise in 25 years or have been out of work, yes? Well, no, not exactly.

On Jan. 24, House leaders and the White House announced a preliminary deal that included stipends for all workers and breaks for business, but no money for extended unemployment or food-stamp assistance and no mention of permanent tax changes.

So who’s getting this bail out besides the banks? Guess what George W Bush’s idea of a “needy” consumer who deserves aid might be. Yup, you guessed it: the near-rich.

Elizabeth and Ben Kilgore are back in the real estate market. All it took was a little-publicized section of the economic stimulus package President Bush signed into law last week that lowered the borrowing cost of buying a more expensive home.

***

[I]f the limit on loans backed by a government-backed housing finance entity like Fannie Mae is raised from $417,000 to the full $729,750 she has been hearing about, Ms. Kilgore said, “we will be able to get a 30-year fixed mortgage for less than what we’re paying now plus our homeowner’s dues.”

Mr George “Silver-Spoon” Bush is less concerned with the people about to lose their homes (he’s offered virtually nothing to help them) than he is with making sure the well-off don’t have to scrimp and that they get a good deal on that Big New McMansion they’ve got their eye on. God forbid they should get stuck with a (yecch!) condo. *shudder*

Three years ago, when they bought their first home, they resigned themselves to buying a condominium because it meant taking out a mortgage they knew they could manage.

“This will push us into a price range that’s now financially possible,” said Ms. Kilgore, a real estate agent in Marin County.

Yay! The Kilgores are now Republican for life. Screw the rest of the country. THEY GOT THEIRS! Eyes on the prize, people.

The temporary change in the loan limits is not about to revive the housing market on its own. But in some of the higher-priced regions of the country that have been hit hardest by the flagging real estate market, it could make a big difference. For if anything is going to breathe new life into the local housing economy in places like the San Francisco Bay Area, San Diego, Washington and Boston, it is home buyers emboldened by the prospect of larger loans at lower interest rates.

(emphasis added)

There you go. Things are so bad the upscale markets are starting to weaken, and what does Silver Spoon key on? Hint: NOT the people on marginal incomes who got royally reamed by real estate scam artists and the banks who expected to make fortunes on their predatory practices. No sir. No relief for them. And no relief for housing markets in areas where they’re imploding because wages are low (the South, for instance). No no. We’re only concerned about the “flagging real estate market” in “higher-priced regions”.

Priorities, people. Priorities.

Daniel Billett, a mortgage broker in Seattle, where homes in the downtown area sell for a median price of around $400,000, said that he, like dozens of people he knows, is poised to refinance an existing jumbo loan at a lower interest rate.

“As soon as the loan limits are implemented and lenders are accepting applications. I’ll be the first in line,” said Mr. Billett, whose company, Response Mortgage Services, has been receiving a steady stream of inquiries from clients in recent weeks. “I’m going to save hundreds, and I mean hundreds, of dollars every month on my current jumbo loan, by switching to a conventional loan.”

That’s who Silver Spoon cares about. Not you. Are we clear?

Congressmen Go Hungry on Food Stamps (Updated)

This is a stunt. It isn’t even an original stunt. It has been done before periodically by other legislators. Still, it makes the point.

Rep. Tim Ryan (D-Ohio) stood before the refrigerated section of the Safeway on Capitol Hill yesterday and looked longingly at the eggs.

At $1.29 for a half-dozen, he couldn’t afford them.

Ryan and three other members of Congress have pledged to live for one week on $21 worth of food, the amount the average food stamp recipient receives in federal assistance. That’s $3 a day or $1 a meal. They started yesterday.

Rep. Jim McGovern (D-Mass.) and Rep. Jo Ann Emerson (R-Mo.), co-chairmen of the House Hunger Caucus, called on lawmakers to take the “Food Stamp Challenge” to raise awareness of hunger and what they say are inadequate benefits for food stamp recipients. Only two others, Ryan and Janice Schakowsky (D-Ill.), took them up on it.

“All of us in Congress live pretty good lives,” said McGovern, who ate a single banana for breakfast yesterday and was going through caffeine withdrawal by midday. “We don’t have to wake up worrying about the next meal. But there are a lot of Americans who do. I think it’s wrong. I think it’s immoral that in the U.S., the richest country in the world, people are hungry.”

A very good friend of mine knew, liked and campaigned for Jim McGovern while she was alive (he was running for State Rep then). She was an Irish redhead – a hard city broad, tough as nails and as skeptical as they come, and she thought he was a decent guy. I don’t doubt her. And I appreciate his willingness to try to drum up some media attention for the problem of hunger in this country as it has exploded during the Bush years.

Having said that, it shouldn’t really be necessary for him to have to prove that $1 a day isn’t enough to live on. Only movement conservative Republicans believe it is, and as we all know, proving something they don’t want to believe is a waste of energy. They’ll just shut their eyes, block their ears, and recite Grover Norquist at the top of their lungs like Monty Python’s Gumby Family – you know, the ones with the bandages on their heads – reciting “You’ve got beautiful legs!” in unison no matter what question they’re asked.

But the timing for this stunt isn’t random. There’s a reason for it.

The New Bedford Raid and Its Aftermath

Back in March, ICE (Immigration and Customs Enforcement) officials pulled off the biggest raid New England has ever seen, bursting into a leather factory in New Bedford to arrest 360 illegal aliens who had been working for Michael Bianco, Inc, a company with contracts to “produce safety vests and backpacks for the US military”. The owner, one Francesco Insolia, was charged with “conspiring to encourage or induce illegal immigrants to live in the United States, and conspiring to hire illegal immigrants.” Why would they risk jail to hire illegals? Because those illegals were desperate enough to work in the intolerable conditions which were all Insolia was willing to furnish.

According to affidavits unsealed yesterday, Insolia hired illegal immigrants instead of legal workers because the immigrants were desperate for jobs and more willing to put up with working conditions in his factory. Federal investigators allege workers were denied overtime, docked 15 minutes for every minute they were late, and fined for talking on the job, or for spending more than two minutes in the plant’s squalid bathrooms.

“Insolia and others knowingly and intentionally exploited the government by recruiting and hiring illegal aliens without authorization to work,” said US Attorney Michael J. Sullivan, announcing the arrests yesterday. “They exploited the workforce with low-paying jobs and horrible working conditions, exploited the taxpayers by securing lucrative contracts funded by our legal workforce, and exploited the legal workforce by hiring illegal aliens.”

A month later the Boston Globe reported that Insolia had actually had the gall to apply for – and receive – grant money from the state of Massachusetts to “train” the workers he was already abusing.

The New Bedford manufacturer raided by federal agents last month for allegedly employing illegal immigrants won approval for $111,150 in state grants over the last four years to hire and train employees, as part of the company’s expansion.

The Massachusetts Department of Workforce Development approved two grants for Michael Bianco Inc. after the owner of the company, Francesco Insolia, appealed for help in winning new contracts from the US Department of Defense and building its share of the commercial textile market.

In early 2003, Michael Bianco, which then employed 87 people, was awarded a $66,250 grant to hire and train 80 new stitchers and machine operators, and to develop an in-house training program for entry-level workers. The state approved another $44,900 for the company this January, but the March 6 immigration raid put that grant on hold.

I probably don’t need to tell you that there is no evidence whatever that the “training sessions” actually took place. Insolia simply pocketed the money. Or perhaps he used it to pay Luis Torres for the fake ID’s Torres got for Insolia’s workers. But here’s the neat part: city officials, Republican and pro-business all, actually visited the factory and, rather than being appalled by the conditions, offered to help Insolia with the grant money and tax breaks.

Foreign Aid Money for Katrina Relief Rejected or Unused

On Sunday, the Washington Post reported that $$$hundreds of millions of $$$ in hurricane relief after Katrina has gone unused.

Allies offered $854 million in cash and in oil that was to be sold for cash. But only $40 million has been used so far for disaster victims or reconstruction, according to U.S. officials and contractors. Most of the aid went uncollected, including $400 million worth of oil. Some offers were withdrawn or redirected to private groups such as the Red Cross. The rest has been delayed by red tape and bureaucratic limits on how it can be spent.

In addition, valuable supplies and services — such as cellphone systems, medicine and cruise ships — were delayed or declined because the government could not handle them. In some cases, supplies were wasted.

“Could not handle them” my ass. As we’ve shown time and again, the Bush Administration had no desire to “handle them”, no desire in fact to do anything that would help the refugees or bring them home. Tens (hundreds?) of thousands of Katrina refugees still languish in FEMA trailer parks from Louisiana to Texas to Arkansas, reconstruction of the poorer neighborhoods is all but at a standstill while HUD refuses to either spend appropriated money or release it to be spent by Gulf state govts and Bush refuses to sign the waiver that would let those state govts do it themselves, and now we find out that not only did the Bushies turn down help offered by Europe, but the help they deigned to accept has been rotting away in banks and warehouses while the Administration claims it “can’t afford” any more aid.

We have proved over and over again that this inaction on the part of the Bush Admin is deliberate. It can’t be an accident, an oversight, a mistake, or incompetence. It has to be policy. There is no other rational explanation.

Response to Mr Blair 3

I haven’t read Assets and the Poor, though I’ll give serious consideration to ordering it the next time I get a spare 25 bucks, but there is an excerpt – the first 5 pages – at Amazon which at least gave me a flavor for what Sherraden’s after and where he’s coming from. First response? Not good.

Unfortunately, Amazon won’t let me copy any of the excerpt and as rotten a typist as I am, I’m not going to copy large chunks by hand – it’s only 5 pages and you can read it for yourself in under 5 mins. The main thrust of his thesis seems to be that anti-poverty strategies have been based on income tansfers and income transfers don’t work. (Reminder: this book was written in 1991 and is therefore 16 years old and outdated by at least 10.)

There is widespread discontent with the failure of income transfers, such as Aid to Families with Dependent Children (AFDC).

Who, may I ask is discontented with it? And why? He doesn’t say though this is the opening and obviously the place to summarize that discontent. If he’s going to argue unhappiness, it would be nice to know where that unhappiness comes from and what its basis is. Especially since later on he admits income transfers have had a positive impact.

[I]ncome transfer has maintained…a minimum level of subsistence in the United States….In addition, welfare policy has buffered the severity of economic cycles by providing strong countercyclical fiscal stimuli.

IOW, it has done as much as conservative means-testing has allowed it to do and provided the minimum safety net which is all conservatives could stomach. Their intention was to hold welfare to the subsistence level and they succeeded in doing that. How, therefore, do we justify calling it a failure?

After decades of federal programs, it cannot be demonstrated that means-tested welfare policies permanently change people’s lives for the better.

Well, duh. Of course not. The policy was built to actively prevent “changing people’s lives for the better”. Conservatives, as I have demonstrated, wouldn’t stand for it. They didn’t even want the minimum subsistence aid, as they showed quite clearly when they came to power in ’94 and immediately began gutting as much of it as they could.

So already, right at the beginning, we’ve got problems.

Response to Mr Blair 2

What you – and a lot of other people; you’re not alone – don’t seem to realize is that poverty is not a state of mind. It’s an economic condition that’s often forced on people.

[T]here are a lot of people…who think poverty is the result of stupidity or laziness, people who simply can’t believe that in America talent and intelligence could go unrewarded. Well…they do. Every day.

One of the smartest people I know is a cook at a nursing home. He had two years at a technical college where he learned how to be a tool-and-die maker because he liked to work with his hands. That craft has been taken over by computers, so now he cooks. He’s good at it, proud of what he can do and how people feel when they eat what he makes. He can do wonders with a budget slim as a Chihuahua hair. He makes $9/hr. His family wants to know why he doesn’t do more with his life. In a weak moment (when we’d been drinking), he told me that, and then he told me what he didn’t dare tell them–that he kept the job because he was happy doing it, and that money really wasn’t very important to him as long as his family had a roof over their heads and enough to eat.

He was lying, like a lot of us do, by telling himself that what he could get was all he wanted. I challenged him, and he admitted he’d really like to learn gourmet cooking and work in a legitimate restaurant where he didn’t have to make superior food out of inferior product. I asked him if he’d considered going back to school, get a degree in Culinary Arts. Sheepishly, he told me he’d applied but his income ($9/hr!) was over the guidelines and there was no financial aid available since the Feds had cut their grant programs to the bone.

The most brilliant guy I know is a Hungarian émigré. He was trained as a surgeon in Eastern Europe, has a raft of degrees on the wall of his tiny apartment, and speaks 4 languages, 3 of them reasonably well (English, he tells me, is tough). But the degrees aren’t recognized in America, he’s over 50, and his accent is so thick, his English so rudimentary, that a lot of prospective employers thought he was retarded. He works as a janitor. He makes $7/hr after three years; he started at $5. It was all he could get. His shame is so great that he won’t tell his family where he is or what he’s doing now.

If intelligence and talent were what counted in America, that janitor would be running a huge hospital and Bill Gates–who stole everything MicroSoft is from smarter people–would be sweeping the floors of the wards. But they aren’t.

It’s a rigged game, Mr Blair. Leaf through the categories Poverty and/or The Class War and/or War on the Poor on this blog and you will find dozens of posts written over the last few years documenting the tricks, lies, and outright cruelty practiced on the poor by conservatives, first because they believe poverty is the result of laziness, and second because it’s what their corporate supporters want.

Response to Mr Blair 1

This is one of those posts that started out to be a comment on someone else’s blog until I decided that a) it was too long for a comment, and b) the issue has enough resonance to deserve wider exposure.

A brand-new blog (born March 17, barely a month ago) called Asset Almanac and authored by one Benjamin Blair linked to Monday’s post on infant mortality along with posts on several other blogs he’d never heard of that also featured pieces on the NYT article. Mr Blair’s point in this particular post, gently made, was that we were all having “knee-jerk responses” that aren’t “constructive” because they “impl[y] we ought to return to the good old days pre-welfare reform.”

Before I do answer him, however, I want to acquaint you with Mr Blair so we know who we’re dealing with and can put his remarks in some kind of context.

He describes himself as a “do-gooder…always working for fragile nonprofits” whose “passion” is for something called “asset development”. Asset development, it turns out, is a relatively new anti-poverty strategy built around, apparently, teaching poor people to save money.

The logic is very simple (important ideas are often simple): 401k account-holders save more when there’s a company match; perhaps poor people (few of whom have access to any 401k account, much less a matched one) would save more, and have a better chance of clawing their way out of poverty, if their difficult efforts to save for the future were also matched (…picture penguins marching through the polar winter — that metaphor may suggest the discipline and sacrifice necessary to save on an extremely low income). Michael Sherraden at the Center for Social Development at Washington University had that epiphany (well, not the goofy penguin part — I take full responsibility for that) and he wrote about it in his 1991 book, Assets for the Poor: A New American Welfare Policy. He argued that asset development, as opposed to (or in addition to) income support, is what can give poor people a chance at financial security and real self-sufficiency.

The beauty of the matched savings account is that the match can be used as not just an incentive to save but also a source of leverage about what to save for. Matched savings accounts, dubbed individual development accounts (IDAs), allow low-income people who complete a required financial education program to use their savings and the matching funds (which are often a generous two or three times the amount saved by the individual, up to a certain limit) to invest in a productive asset such as a first home, higher education, or the capitalization of a micro-business; in other words, the kind of investment that has been shown to move many people permanently up the economic ladder, and though certainly not risk-free investments (which we are being reminded of with the current subprime mortgage crisis), they have proven to be more practical and effective than most other investment options for the poor.

As regular readers have probably already guessed, warning flags starting going off all over the place, if not red then at least blazing orange. The idiotic concept that the poor are poor because they don’t manage their money well enough or save enough has been a right-wing talking-point for a generation, largely employed to frame the blame for poverty on the poor themselves and then sidetrack the discussion into a thoroughly useless cul-de-sac that neatly avoids the only real long-term solution whether we like it or not: income redistribution, an idea that drives our home-made oligarchs into fits of pique and panic.

Minimum Wage Deal Cut in Senate

The Senate has just passed the minimum wage bill which will go to the president as part of the supplemental package funding the war in Iraq. The bill, worked out in Conference Committee mainly by the Democratic majority, will cut the $$$12Bil$$$ in corporate tax breaks originally demanded by Senate Republicans under a threat of filibuster to a still-extortionate $$$4.8Bil$$$.

An improvement of sorts, I suppose.

Though the Senate initially approved tax cuts worth about $12 billion over five years, House negotiators wanted less than $2 billion. The final figure, $4.84 billion, includes several provisions, including giving expanded tax breaks to restaurants and other small businesses that hire disabled veterans and residents of poor neighborhoods as well as allowing small businesses to write off a greater portion of their investments for tax purposes.