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Hullabaloo


Sunday, March 08, 2009

 
"Is There Anything Wrong With Saying Yes?"

by dday

New York Times reporters had a conversation with Barack Obama on his plane, where they actually asked him if he were a socialist. Obama answered no, explained the thought process behind his budget, and later, after pondering it, actually called the reporters back and said, "It was hard for me to believe that you were entirely serious about that socialist question."

As a statement of empirical reality, this is true. As Daniel Gross pretty expertly explained, the Bush tax cuts that Obama is allowing to expire would result in about 3-4 percentage-point increases in the two top marginal tax rates, which is about $4 a day for someone making $300,000 a year. And despite the media insanity around the issue, the other 98% that doesn't make over $250,000 would see a tax cut, making it hard to understand how you can call this an overall increase. People in that top 2% can whine about how they are being persecuted for their genius and talk about going Galt all they want - and I hope they do instead of just talking about it, we need elites that don't have a track record of breaking the global economy - but the kind of "burden" placed on the wealthy, who have it better in America than any other country on Earth, isn't even the burden their patron saint placed upon them in the 1980s, which they also whined about incessantly.

According to a recent Treasury Department study, Ronald Reagan proposed the largest peacetime tax increase in American history as part of a budget deal to get the federal deficit under control. The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 was signed into law on Sept. 3, and most of its provisions took effect on Jan. 1, 1983.

During debate on TEFRA, many conservatives predicted economic disaster. They argued that raising taxes in the midst of a severe recession was exactly the wrong thing to do. "Every school child knows you don't raise taxes in a recession unless you want to make it worse," The Wall Street Journal's editorial page warned. Said Rep. Newt Gingrich, "I think it will make the economy sicker." The Chamber of Commerce of the U.S. said it had "no doubt that it will curb the economic recovery everyone wants."

Looking at the data, however, it is very hard to see any evidence that TEFRA had a negative effect on growth. Indeed, one could easily make a case that its enactment stimulated growth. As one can see, the economy's growth rates after TEFRA took effect were among the fastest in history.


I know that Paul Volcker's monetary policy at the Fed, a luxury we pretty much don't have right now, had a lot more to do with this, but the point is that the same defenders of the rich and powerful made the same statements about taxes then that they are making now.

But beyond the debates over opinions which are obviously ridiculous, there's a larger point that was touched upon in the follow-up question about socialism by the Times.

Q. Is there anything wrong with saying yes?


Only in a country where the balance of acceptable discourse has been so tainted and distorted that reasonable social democratic policies are completely forbidden from the conversation. And so you have Obama's advisers running to David Brooks to prove that they aren't crazy socialist radicals, but pragmatists. Which makes a certain political sense, but isn't actually true. In fact, the debate over the stimulus package was quite instructive in this regard. Obama released an initial bill that was too small for the task, perhaps assuming that the package would get bigger, as most spending bills do, as it made its way through Congress. Therefore they would not be saddled with the impression that they were expanding government as much as Congressional Democrats would. That's not what happened, and as a result, the stimulus is looking too small for the task.

Analysts increasingly view the administration's actions so far as insufficient given the scope of the problem. The stimulus package was designed to "save or create" 3.5 million jobs, according to the administration. But the nation has already lost 4.4 million jobs since the start of the recession. Many banks and other financial institutions, whose health is critical to the economy, are teetering, and the Treasury Department has yet to finalize the details of its plans to remove from their balance sheets the toxic assets dragging them down.

"It's premature to say we need another stimulus, but the economy is performing much worse than when [the law] was signed, and the odds are increasing that we'll need a bigger policy response," said Mark Zandi of Moody's Economy.com, who has advised Democratic lawmakers. "What we've learned is policy has been a step behind this whole downturn. It's important to get a step ahead."


It was well-known among economists that the size of the stimulus may have been too small, but that perspective was kept off the news. It was surely known to the Administration, however, which preferred a more cautious route.

The subsequent release of the budget, along with moving forward on long-sought initiatives on health care and energy, does seem bolder, and there are signs that Obama is learning from what may have been an initial negotiating mistake. But even this
"boldness" is being carried out along narrow technocratic liberal lines that becomes very clear from a look at the past:

Barack Obama's bold, ambitious budget plan proves that he is the true heir of Franklin Roosevelt and the New Deal. Consider Obama's Rooseveltian energy plan. In 1939, President Roosevelt decided to mobilize Americans to create a new source of energy: atomic power. Although he was urged to focus on government-funded R&D, FDR chose a different route. He wisely encouraged private capital to invest in atomic energy research by a variety of tax incentives. To make atomic power investment more palatable to private capital, FDR boldly chose to make all other forms of energy in the U.S. uneconomical, by slapping high taxes on kerosene and coal. With the money from the new federal Kerosene Cap and Trade system, President Roosevelt and Congress funded a small-scale federal research program, in the hope of attracting much greater private investment ...

Wait. What's that you say? FDR didn't do that? He poured federal money into the all-public Manhattan Project and created the first atomic bomb in a couple of years? He didn't tax kerosene to make it uneconomical and to encourage private investment in atomic power? [...]

All right, then, forget FDR. He was a socialist, anyway. Let Dwight Eisenhower serve as a model for the Obama administration. President Eisenhower authorized the biggest infrastructure program in American history, when he signed the National Interstate and Defense Highways Act of 1956. The interstate highway act created an elaborate system of private tax incentives and public-private partnerships (PPPs) to encourage private corporations to build national highways. To begin with, all U.S. highways were leased to domestic and foreign corporations for a period of decades. Second, all U.S. highways were set up with toll booths, so that American drivers would be forced to repay the corporate owners of the national highways every few dozen miles. Finally, a system of high-speed lanes with higher tolls was created, so that the rich could whiz down the road while middle-class and poor Americans were stuck in traffic jams ...

All right, what now, wise guy? So that's wrong, too? Eisenhower's national highway system wasn't based on tolls, leases to foreign companies, income-based pricing, and tax credits for private corporations? It used gasoline taxes to fund free public highways?

Free highways without toll booths, owned by the public, paid for out of taxes? My God. So the John Birch Society was right after all. Dwight Eisenhower was as much of a socialist as Franklin Delano Roosevelt!


The point here is that conservatives have so demonized the concept of the public commons, particularly inside the Beltway, that what is now considered a bold and socialistic policy shift - raising the top marginal tax rates 3-4%, investing in infrastructure with a mix of public and private money, using an individual mandate to keep insurance companies in the health care game, cap and trade - is actually a pre-compromised, market-friendly, neoliberal jumble that fits squarely in the center of the ideological divide. And this is essentially why the Army of Galts screams about socialism, to force the debate further to the right from the center where it is now situated.

I'm not totally blaming Obama for this. As a pragmatist, he is more interested in what is politically possible, and 50 years of conservative demonization has battered the ability to make anything that's not "market-friendly." In addition, members of his own party are even more cautious than he is and thus even more unwilling to do anything truly paradigm-shifting. But we have to understand the historical reality.

But a lot has changed since Wall Street imploded last fall. The great investment banks are gone, the U.S. has nationalized much of the financial system, and appears to be on the way to effectively nationalizing the automobile and housing sectors as well. In this environment, we need to consider some heresies, like the idea that the best way to provide a public good is not necessarily to pour subsidies on middlemen, and then bail them out with more subsidies when they fail at their public function.

The fundamental barrier today is the way that the issues are framed, by Democrats and Republicans alike. Thus the problem is defined not as making credit available for individuals and businesses, but as saving the banks and the shadow banking system. The goal is not to provide healthcare to all citizens, but to enable all citizens to purchase private health insurance. The objective is not to ensure universal access to higher education; it is to insure universal access to colleges and universities. In these and other cases, the means is confused with the end. The ultimate goal -- providing credit, healthcare or education -- is identified with the interests of non-governmental for-profit or nonprofit providers of that service. If these private institutions fail to provide the public service in a low-cost, effective and equitable way, then they must be subsidized even more. The idea of achieving the same public goals through simpler, more direct and efficient means that would cut out the middleman appears to be heresy to the Obama administration.


By the way, this is a centrist, Michael Lind, writing this. But one who is mindful of the past.

I grow fairly tired of the defense that "the President isn't a socialist; he isn't even doing anything that radical" used as a defense, when we're in a position with unemployment and the overall economic meltdown where we actually, um, NEED something radical done. And I think the country is prepared for that more than Beltway insiders think. So while I agree with the empirical assessment that Obama's positions are squarely in the center, and that the cult of Galtism is absurd, I don't believe that Obama's team is made up of pragmatists. Because pragmatists would look at reality and do exactly what's necessary, regardless of ideological concerns.


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