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?

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.

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.

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.

What the Corporatocracy Thinks of Its Workers

Wasserman

Minimum Wage Bill Tied to Iraq Funding (2 Updates)

Nancy Pelosi gets more interesting by the minute. Refusing to sit still for a threatened Republican filibuster of the minimum wage bill because the House cut $$$7Billion in corporate tax breaks out of the Senate version, she has come up with a whole new tactic: she’s tying it to the war appropriations package.

House leaders have added legislation raising the federal minimum wage to an emergency spending bill for the Iraq war. They hope to break a logjam with the Senate over the wage bill, a top Democratic priority that was once seen on Capitol Hill as a relatively easy compromise.

House leaders also hope the addition of the wage provisions will induce House liberals to vote for the $105 billion war package, which authorizes funds for Iraq while setting a timeline for withdrawal that would require combat operations to end by August 2008.

House Democrats unveiled the plan yesterday but did not release a draft of the legislation, saying that details were being worked out. According to Democratic aides, the proposal would increase the minimum wage to $7.25 an hour from $5.15 over two years and grant $1.3 billion in tax breaks for restaurants and other affected businesses.

Those provisions have already passed the House. The Senate also approved the wage increase, but added $8.3 billion in business tax breaks to placate Republicans in that chamber. House leaders oppose such a large tax package and hope to force a smaller one through the Senate by tying the minimum-wage increase to the Iraq bill.

The Republics, of course, have been furious because she wouldn’t let them turn a bill to raise the minimum wage for ordinary workers into a huge barrel of corporate pork.

Card-Check Bill Passes House

To no one’s surprise, the Employee Free Choice Act passed in the House yesterday.

The measure would represent one of the most significant revisions of federal labor law in 60 years. It is the top legislative priority of the labor movement, which represents a record low 12 percent of the workforce, compared with 35 percent in the 1950s. Major business lobbies have mobilized against it to a level not seen since the fight over Bush’s 2001 tax cuts, according to a Chamber of Commerce official. Yesterday’s 241 to 184 vote was largely along party lines, with 13 Republicans voting for the measure and two Democrats opposing it.

The real fight will come in the Senate where Republicans, representing the corporatocracy as always, have promised to filibuster to prevent its passage. Their primary argument for public purposes is that the EFCA would eliminate the secret ballot, “a cornerstone of democracy”. It’s by far the best argument they could make against the law even though it’s bogus. In what has become a standard GOP tactic, it makes them sound as if they’re protecting workers’ rights even as they vote to take them away.

The irony here is that if the Bush Administration, particularly its Labor and Justice Depts, were doing their jobs, which they’re not, this bill wouldn’t be necessary.

The Minimum Wage Compromise

The minimum wage bill is back, and the House Ways and Means Committee has compromised though it hasn’t caved.