Bringing The Stock Market Back In Synch With Main Street: It CAN Be Done But A Price Will Be Paid

 "The stock market isn’t the economy: more than half of all stocks are owned by only 1 percent of Americans, while the bottom half of the population owns only 0.7 percent of the market." - Paul Krugman, NY Times, 'The Recovery Is Bypassing Those Who Need It Most', Monday

The stock market is in a bubble of historic proportions (Financial Times Tuesday, 'U.S. Stock Bubble Ranks Among Biggest in History') and needs to be punctured.  It is time this misbegotten financial anomaly be brought back down to earth.  The nonstop headlines appearing on the financial pages of how the stock market exchanges (DOW, NASDAQ, S&P 500) keep defying economic gravity while Main Street suffers are exhausted.  As I  explained in my Aug. 18th post part of the reason for the disconnect can be traced to the Vix volatility index,  which is Wall Street's  "fear gauge".  It is a barometer of how unstable stocks are in responding to current crises or shocks.    

Another measure is called the Economic VIX Index, created by Jim Paulsen, a chief investment strategist at Leuthold Group. This index reflects the volatility  in growth.   It's important now because its history over the decades since World War II shows two things:

1) Stocks do best when economic volatility in the U.S. is at its lowest.

2) Stocks do best when economic volatility in the U.S. is at its highest.

The current crisis driving response from one day to the next is the pandemic which also drives volatility : Will a vaccine soon be available so the economy can get back to normal?  Will a good, effective treatment be available, if not what other options are there?  Will  a  second or third wave hit us?   Since the answers may vary one day to the next then the Economic  VIX is also likely to vary, even whipsaw as different voices give different accounts even on the same day.  But why would stocks continue to do well - despite Main Street's woes-- even in an atmosphere of upheaval.  According to Paulsen:

"This is because the economy is in an unsustainable situation and everyone is working to improve it, both government and companies.  So policy officials are scared to death and they are bringing every conceivable tool they have to get us out of the situation."

But again, this is also based on an expectation: that there is constant and continued positive response to containing the virus.  Also, in the case of the roaring tech stocks that they "remain the clear winner of the coronavirus pandemic."  (WSJ,  Sept. 5-6, p. B1).  Why is this?  Because (ibid.):

"Although the virus upended most businesses, big technology companies have weathered the crisis as people relied on apps and software to work, stream movies and communicate with friends and family"

But there is also a darker, more cynical aspect at work (e.g. WSJ, p. B3, Sept.5-6):

"The shift to  remote work over the past few months - in some cases marking a permanent change-  has refocused the sights of many corporate and private equity buyers to acquisitions that help build new capabilities."

Among the latter 'capabilities' is the startling potential to dispense with millions more human workers altogether.  Why keep them if the same amount of work can be done in  remote venues and  by fewer techies?   This understated element is also clearly what's driving the tech binge.

Indeed, in a recent essay, David Autor - an MIT economist-  and Elizabeth Reynolds (head of the Task Force in the Work of the Future at MIT) outlined the ways they believe technology -driven trends unique to the pandemic will continue to disrupt the lives of some of the nation's most vulnerable workers.   One cited is "telepresence", i.e. by forcing so many professionals to work remotely all at once the pandemic may have permanently reduced how often people work from an office and indeed how many in the future are even hired to work from offices.

This is still hard to reconcile with the desperate plight of America’s 24m  jobless, a crisis that’s approached the unthinkable levels of the Great Depression of the 1930s.  But incredibly, that still isn’t the biggest story on the news cycle. It is rather the continuing social unrest and protests, even violent reactions like Right wing terrorists firing their weapons or pepper spray at innocent protesters.  In terms of perspective the latter is 'small cheese' compared to the economy cratering.  As blogger Will Bunch put it in a past weekend post on smirkingchimp.com:

"Seriously? You’re worried about social unrest now? Just imagine the chaos in a few months, when homeless people sleep on park benches under a blanket of newspaper headlines ...."

But what about the newly announced "moratorium" on evictions? More smoke and mirrors.  True, the government issued a new eviction moratorium last week.  But here's the rub: it is without funding for rental assistance.  Hence, tenants unable to cover rent will face a massive balloon payment or eviction at the end of the year.   Unable to cough up $1,100 rent now?  How about $4,400 in December? This hardly gives them new financial breathing space.

This leaves the matter of bringing the stock market more in line with the reality of  a struggling Main Street economy, and that in turn means puncturing the bubble. As the FT's Andrew Parlin points out, that there is a bubble is beyond contention given some tech stocks are trading at 50 times earnings. (P/E ratio.)  As he writes (ibid.):

"Bubbles are formed around individual stocks and sectors. As the concentric circles of excess widen, more and more stocks are infected.  Wildly exaggerated stock stories force a delinking between fundamental analysis and stock prices."

And he adds as a warning (ibid.):

"This gets at the troubling thing about bubbles. They do not simply undergo smooth and endogenous shrinkage until they disappear. Instead, they continue to expand until they burst."

Who are the people actually partaking of this stock bubble?  Mostly the richest Americans who have the disposable income to make bets in the Maul Street casino, and they are from 1 to 2 percent of the populace.  According to Edward Wolff, an economics professor from New York University (quoted last week in the WSJ, 'Stock Gains Go To Fewer People Now'):

"The middle class has essentially been left out of the stock market surge. The rich have taken off from the rest of society."

In other words, a tiny element of the investor class are racking up huge profits from an abnormal market that is skewed toward technology. (As the FT reports,  5 tech companies account for a fourth of the value of the entire S&P 500). One which ultimately may be responsible for even greater income inequality.   But given the small participation fraction, one can feel better if and when this bubble bursts.  Which will even things out in terms of aggregate demand and bring the market more in tune with Main Street.

How to expedite this?

The first and most obvious way to do this is to raise the interest rate - thereby making the "crack" (money) on which the market feeds more expensive.  Right now investment money is so cheap, so low cost that any amount of leverage is possible.  Why worry too much about paying the piper back with interest rates next to zero?  As Will Bunch has observed in his most recent blog post:  

"We’ve created a system that can pump in literally trillions of dollars to prop up stocks — led by a Federal Reserve whose chairman was appointed by a president who uses the sky-high Dow to argue for his re-election — but gridlocks over the idea of helping families pay their $500 monthly rent."

Raise the interest rate, say to 2.5 - 3.5 % and watch the stock balloon burst and a modicum of realism return - and sanity.   At that point we - the savers (who rely on bank interest rates for savings accounts, not risky equities or 'munis') will enjoy getting some decent return for once.  At the same time we will be elated to see the parasites who profit from the cheap money -  driven by low interest rates -  return to ground level.

But this is only one side of the coin, taxes also need to be raised- locally and by state governments- if not federally. (Unlike most states the federal gov't does not have to balance its budget every year, so it could solve the problem tomorrow by providing fiscal relief to states and localities, like the $1 trillion provided by the HEROES Act that passed the House in May.)

Regardless of whether the Repuke Senate acts or follows the McConnell approach of letting states pound sand, states and localities can bolster their local economies by raising taxes on those who have not been hard hit by the recession. This is not only the right thing to do from a humanitarian standpoint, it is sound economics.  Don't believe me?  Consult the terrific monograph: The Indebted Society  (1995), by James Medoff and Andrew Harless, wherein they found, p. 87:

"High tax rates are associated with higher productivity growth. There is a consistent and strong relationship.". 

This was written barely a year into Bill Clinton's imposition of a marginally higher tax rate on the wealthiest, and we saw after the fact more than 20 million jobs created, even as the deficits decreased and a healthy ($600m) surplus was left for Bush Jr.

In the present situation we need tax hikes as opposed to tax cuts which latter will trigger devastating spending cuts by virtue of insufficient revenue. Such spending cuts are enormously harmful to the people who rely on government services as well as the public workers who would lose their jobs. In a recession, such cuts also course through and damage the broader economy, causing layoffs to ripple through the community.  

These layoffs adversely affect spending on goods and services, so negatively impact aggregate demand.  Aggregate demand is composed of two parts: 1) demand generated by consumers for goods and services, and 2) the demand for investment goods. When the level of aggregate demand is high, both these components are generally equally high, and the levels of production and employment are high. On the other hand, when aggregate demand is low - or even one of the components (e.g. (1)) is very  low, then levels of production  plummet.

So when you fire a teacher, for example, you not only harm her family. You also create a chain reaction, harming the local grocery where she shops, and all the other people and businesses she gives money to.

Doing the math - using even conservative estimates-  one finds that each dollar of spending cuts translates to a drop of at least $1.50 in the gross domestic product.  (There are reasons to believe that the drop is as much as $2.50.) With state budget shortfalls forecast to approach $300 billion this fiscal year, a spending-cut-only approach to balancing state budgets will cause at least a $450 billion reduction in G.D.P.— more than 2 percent.  

One complaint about adopting tax increases is: 'We can't afford to do that right now!'.  But that's false. While it is true tens of millions have lost their jobs, almost half of Americans report that their household has not lost any employment income at all, according to Census Bureau data. That figure jumps to two-thirds for households bringing home more than $200,000 per year.  All of these households can be taxed for the greater good, so states and localities don't have to go on a"Hannibal Lecter"- style economic slashing fest.

Thus tax increases, especially on these high-income people  in the stock market (who aren’t living paycheck to paycheck), are much less economically damaging, costing the economy only around 35 cents for every dollar raised. States and localities that raise taxes on the rich to increase spending will create at least $1.15 of economic activity for every dollar raised, and most likely closer to $2.15 or more.  

The beauty of this higher tax approach, especially in concert with a Federal Reserve (much) higher interest approach, is that it will bring the financial system and Main Street economy more into balance. The 1 percent or so now making out like bandits in the stock market (because savers are basically subsidizing them) will now be out of luck. Meanwhile, the 97- 98 % not in the markets will finally see some financial relief.  Or should!

See  Also:

Economic Policy | Jobs | Wall Street

The Real 'Hoax' in America Is Record Wall Street Profits as Nation's Jobless Millions Cannot Afford Rent

And:

Economic Policy | Wall Street

Indecent Stock Market Boom Exposes Riot-inducing Inequality, Not Economic Positives

Time To Drown Out The Current Reich Wing Socialist Hysteria - With Actual Education!

Socialists from two different eras: Milwaukee Mayor Frank Zeidler (left) and Alexandria Ocasio -Cortez

The Right wing media hail storm of anti -Socialist venom and rhetoric has by now reached the hysterical stage with very little signal amongst the substantial noise. In The Wall Street Journal just in the past two weeks (coincidentally as the new progressive wave of women  have taken their seats in the House of Representatives)  the following editorials, columns have appeared:

'Socialists of the World, Unite!'  - WSJ editorial  (Jan. 28)

'The Left's Idea of Generosity' - Bobby Jindal, WSJ   Feb. 4, p. A17

'The Crippling Cost of 70 % Tax Rates' - Edward Conard, WSJ   (Jan. 21)

'Ignore My Socialism, Please!'  - Holman Jenkins, Jr.  (WSJ Feb. 6, p. A15)

'Trump Flipped The Opposition'-  Daniel Henninger (WSJ, Feb. 7, p. A15)

'Who's Afraid Of Socialism' - WSJ Editorial,  Feb. 7


Only two articles had any degree of intelligence, insight and cohesion concerning socialism:

'A Star For The Left As Doubts Grow Over Capitalism' - Gerard Baker (Jan. 12-13, p. C2)

and:

'Parsing the Lessons of True Socialism'  - by Greg Ip, Feb. 7, p. A2

I suppose what one can glean is that if one is looking for education on socialism in the pages of  The Wall Street Journal it will be pretty much like searching for an oasis in the Arabian desert.

But let's acknowledge the two "antidotes" in black bold cited above more than neutralize the twaddle emitted in the earlier citations.

For example, in counterpoint to the yelping that anti-capitalism or control of capitalism resides only on the Left, Gerard Baker writes:

"Faith in the American model of capitalism has been crumbling for a decade - and not just on the left. Both wings of the partisan divide are challenging the existing order."

Adding:

"Ms Ocasio - Cortez may be the perfect complement to President Trump."

I'd say light years beyond that, given "AOC" is at least capable of honest brokering of her positions on capitalism and its detrimental effects on the nation's welfare, unlike Dotard.

Greg Ip's piece also bears attention as it rips to shreds the nonsense in the same day's WSJ editorial  which claims the Dem 'Medicare for All plan is tantamount to control of the means of production - the standard criterion for any total socialism.  But as Mr. Ip puts it:

"Medicare for All wouldn't  nationalize doctors and hospitals, though it might drive private insurers out of business- putting the U.S. where many industrial countries already are."

Indeed, and we already know all the insurance companies do is continually raise their rates each year, even as they render hospital pricing for various procedures  almost totally opaque. A single payer system would by contrast do what the Japanese health care system already does, i.e. in deciding how much to pay doctors and hospitals for each procedure - by setting out a standard pricing list, ss well as a standard formulary for drug costs.  This is not "control of the means of production" as the WSJ editorial barks, but an end to Wild West capitalist pricing schemes.

In regard to the same editorial's bitching about the Green New deal, one might suggest the editors again refer to Mr. Ip's column in the same issue, especially where he writes:

"If the federal government ends up financing significant expansion of renewable energy under a Green New Deal, it wouldn't be unprecedented.  It created the Tennessee Valley Authority ijn the 1930s and the Interstate highway system in the 1950s."

So once again, we aren't talking about a radical takeover of the means of production, just a redirection of capital for the common good.  Moreover as author Naomi Klein has noted ('This Changes Everything: Capitalism Vs. Climate Change'  ), we now know the extent to which capitalism's growth dynamic has stoked global warming.  To wit, capitalism is unable to affect or alter  the course of climate change due to its dependence on fossil fuels and need for continuous growth. Also,  the time for marginal fixes has expired, thus forcing us to now make radical changes in how we live. 

 We simply don't have the luxury of using all the carbon that lies in the Earth. Yet capitalism's never ending growth engine would demand we do so to support the expansion of new markets for exploitation.   We have roughly 550 gigatons (gT) left of carbon we can extract  and inject anthropogenically into the atmosphere before the first phase of earthly Hell is unleashed. As rising sea waters, hellish temperatures and heat waves, prolonged droughts and dozens of superstorms. 

The threshold for earthly hell? Exceeding 2, 750 gT. Once we cross this, we will usher in the maw of the runaway greenhouse and be on our way to converting the Earth to another Venus. The problem? The energy- and fossil fuel empires that govern most of our economic system don't see it that way. CO2 consumption gadfly Bill McKibben  (350.0rg) cites the fact that Exxon's share price, for example, is based on a total carbon deposition of at least 2,800 gT - which also conforms to expectations set by hedge funds, et al including Peabody Global.

So yeah, a "Green New Deal' is emphatically needed and the sooner, the better.
As for Henninger,  he's hostage to the usual Trump twaddle as he scribbles that Trump - in his SOTU spiel "put the Democrats on the defensive".  Hardly! He merely confirmed what a brainless, feckless asshole he is - especially with his schoolyard threat about we can have either "legislation or investigation".    Henninger then confirmed his own mutt ancestry and delusion by writing:

"Ever since the 'socialism' wave began building inside the party's ranks, professional Democrats had to wonder how long they'd be able to get away with this hooey.:"

Actually, son, the only "hooey" is cowboy capitalism which since the credit crisis has been in its death throes. We know it, most sane and sensible Americans know it, and most serious economists and commentators.  Certainly, Henninger's WSJ compadre Greg Ip knows it as he writes:

"Where Democrats may actually remake capitalism is in corporate governance. Ms. Warren would have workers select at least 40 percent of directors and demote shareholders to just one of ,many stakeholders to which corporations are responsible. Mr Sanders and Mr. Schumer would prohibit companies from buying back stock unless they also pay workers at least $15 an hour and provide various other benefits."

Thereby concluding:



All of which shows Greg Ip is vastly more educated on the version of Socialism (actually a form of Rhine capitalism) the Democrats are actually about, as opposed to a hatched up miasma of the reactionary Right's basest fears.  Indeed, Ip in his last paragraph exposes these baseless fears by clearly arguing what the Dem progressives have proposed is nothing compared to "true" (i.e Marxist) socialism.  In other words, showing up his WSJ colleagues for the ignoramuses and dunderheads they really are.

And as I had already pointed out, e.g. in my Sept. 5, 2018 post:

"In the case of Marxist socialism or Marxism (as manifested in the old USSR) one beheld  total state control of ALL goods and services. This was to the extent nearly all jobs were created by the state, wages set by the state and pseudo-markets created where there were no genuine needs to fulfill and others (especially for growing food) left under-developed. In addition, no such entities as stock markets or commodities exchanges existed."

In the same post, I also exposed how Oprah herself was as brainwashed about what constitutes socialism as the WSJ scribes identified above, when even she raised the misbegotten fear of socialism and the welfare state.e.g.

• Oprah got perfect response from Danish woman on their social welfare state 

As Oprah rambled on  about "socialism" with a fearful expression, a Danish citizen on Skype quickly informs her: "We think of it as being civilized. As taking care of each other...the elderly, the sick."   The Danish woman had clearly exposed Oprah's brainwashing - and Oprah is not a dumb American.
Now, let's take on the bogey of high (70 percent) tax rates,  as trotted out by Edward Conard - a more or less typical drone at the American Enterprise Institute (where is Norm Ornstein where you need him, to set his colleagues straight?)

Anyway, we still have Grep Ip to deliver a measure of sanity as he writes (ibid.):

"Ms. Ocasio -Cortez has proposed a top income tax rate of 70%. It stood there as recently as 1981."

Good point! And also it was as high as 91 percent in the Eisenhower years. And i don't seem to recall anyone jumping out of windows but rather decent bank savings rates and an economic situation where only one parent needed to work as opposed to two. Also where most middle or even working class folk could afford to own their own homes.   What was this, magic, practicing the dark arts?

Not at all. As economists James Medoff and Andrew Harless observed in their excellent book, The Indebted Society, 1995, p. 84, 'Let Them Eat Cake', 

"High tax rates are associated with higher productivity growth"

There is a consistent and strong relationship. By contrast, for the years when Arthur Laffer's supply side dogma held, productivity retreated by more than 30% and debt exploded- exactly the opposite of what we've been sold. The classic example was the Reagan era, i.e. from 1981 on - with the 70 percent tax rate abolished-  for which Medoff and Harless note (p. 23):

"For the health of the economy, Reagan's policies turned out to be just about the worst thing that could have happened: investment did not increase, growth continued to stagnate, and the federal deficit ballooned to new dimensions."

Meanwhile, a more recent Financial Times Analysis of the Bush tax cuts (9/15/10, p. 24) passed in 2001 and 2003, showed they engendered "the weakest decade in U.S. postwar history for real, non-residential capital investment".

The FT analysis also observed that “during each decade from the 1950s to the 1990s, growth in real gross non-residential investment averaged between 3.5 percent and 7.4 percent a decade. During the 2000s it averaged a mere 1%”


Last but not least there is the inimitable Holman Jenkins Jr. who tried to roast Bernie Sanders and Chuck Schumer for their proposal to make corporations that do stock buy backs accountable to workers, not just investors. You want to do stock buybacks, fine. Then you also extend full benefits to your workers, as well as pay a minimum of $15 an hour.  Jenkins tries to defend the status quo by writing in disingenuous fashion:

"Let's correct some misconceptions: In a buyback a company exchanges one asset (cash)  for another at the market price, so it should have no effect on the share price except it signals a credible commitment by management not to waste shareholder resources on low return assets."

But can we not agree that the ultimate waste of shareholder resources would be in a company's  liquidation? Enter the "net profit test"  by which investors can ascertain whether companies are resorting to buybacks and thereby "self liquidating" or having positive assets exchanged - as little Holman claims. 

According to Gary Lutin - a former investment banker who heads the Shareholder Forum:

"The test cuts through to the essential logic of comparing a process that grows a bigger pie - reinvestment - to a process that divides a shrunken pie among fewer people: share  buybacks."

Adding:

"It's pretty obvious that even mediocre returns from reinvesting in the production of goods and services will beat what's effectively a liquidation plan."

This negative view of buybacks or "repurchases" is underscored by Robert L. Colby a retired investment professional and developer of Coequity, an equity valuation service. According to Colby (ibid.):

"The simplest way to evaluate a company's asset allocation decisions over the years is to see whether its net profit growth is close to its earnings per share growth."

What about little Holman's claim that share price is not affected in buybacks, while conceding his qualifying factor about "a credible commitment not to waste shareholder resources"?

Let's say company XYX shows earnings per share over eight quarters increasing at the rate of 1 percent per quarter. This translates to 8 percent earnings per share growth over 2 years while its net profit growth over the same period is 7.8%.  Not exactly the same but close. . The company is also sound enough to be able to pay dividends.

Consider also company ZZZ, whose earning per share growth is computed to be (-0.1%) per quarter over the same time period. Over two years this marks a loss of -0.8% but its net profit growth is actually -4%. The company is in trouble, its net profit growth is out of whack with its earnings per share growth. In an effort to right the ship the company uses stock buybacks which artificially inflate the price of its shares - say from $10 each to $11.50 but only because a proportionate amount of shares have been taken out of circulation via the buybacks.

Ten million shares of ZZZ initially have a market capitalization of $10 x 10,000,000 = $100 m. But after buying back nearly 200,000 shares the share value is jacked up to $11.50.  What's going on? According to Messrs. Colby and Lutin ZZZ is liquidating.

Let's take specific examples. It turns out Mr. Colby actually ran his net profit test for pairs of companies in the same industries from 2008 through 2015. In each case, he contrasted a company that "bought back loads of shares" with one that did not.  One specific pair entailed two restaurant chains, Cracker Barrel and Jack in the Box. 

Cracker Barrel bought back $160m worth of shares over the period while Jack in the Box bought back $1.2 billion worth. This buyback reduced its share count by 37 percent. It saw an earnings per share increase of 6 percent over the period (7 years) but its net profit declined by 0.5 percent per year. In other words a loss of (-0.5 %/yr) x 7 yrs. = -3.5 %   By contrast, Cracker Barrel earning per share growth was 13. 6 percent while its net profits grew by approximately 14 percent. So it passed the test.

Target and Costco were also compared in a similar paired analysis. Costco spent $2.8 b to repurchase shares over the period while Target spent $11.4 b thereby reducing its share count by 20 percent (in effect liquidating a fraction). Costco's annual earnings per share gains were 9 percent over the period almost identical to its 8.9 percent net profit growth. By contrast Target's earnings per share rose by 7.3 percent while the net profit growth was only 4.3 percent.
The buyback craze, make no mistake is one big reason for the comparatively low levels of business investment since companies emerged from the 2008 financial crisis. This is also likely tied to the anemic annual growth rates if so many companies are doing it.   As noted at the end of the piece:

"Investors may be dazzled by the earnings per share gains that buybacks can achieve but who really wants to own a company in the process of liquidating itself?"

Seems to me Sens. Sanders's and Schumer's proposal to make corporations more accountable in stock buybacks is more than overdue, and quite justified. It sure as hell isn't "socialism"  as the WSJ's screecher reactionaries try to portray it.  And it more than skewers little Holman's rant that it is all about "promoting another  unfunded mandate"  so that "private companies have to pay off a constituency so politicians can take credit without having to work for it."  In fact, it is about putting safeguards in place to ensure investors, shareholders, employees  -   all stakeholders - don't get hosed under the pretext of a company liquidation. But Holman will never admit that.

As for Milwaukee under its last Socialist Mayor, Frank Zeidler - a member of the Socialist Party of America - the city prospered during his reign. Jobs proliferated, especially in major manufacturing (Allis –Chalmers etc.) while the Breweries hired thousands with excellent pay and benefits, including health care. Housing abounded as well, affordable housing off of Greenfield Ave. and Teutonia and in other suburbs to the north and west. Parks, meanwhile, were the envy of many other cities for their beautiful layouts, amenities and services. I can still recall going to Washington Park (across the street from where my family lived on 48th and Cherry Streets) on the 4th of July for band performances and later fireworks. I also enjoyed going to the Washington Park Zoo as often as I could, especially to visit the denizens of the Reptile House.

Crime was almost non-existent, despite Milwaukee reaching a population of 747, 000 by 1960. Zeidler also provided health care through the city, so no one needed to go broke to get any treatment. Like all REAL Socialists, Zeidler believed health care was a right, not merely having health insurance!. Education also benefited, and Milwaukee’s schools became some of the finest – not just Catholic but public schools as well, thanks to a higher local taxation rate, and not merely property taxes, which Zeidler knew would hit the elderly hardest.
Was any of this "communistic"? Of course not! It actually represented the ideal of what an American city ought to be about - as opposed to citizens subject to the law of the jungle and every man for himself.

In the Economic Bill of Rights, published by the Democratic Socialists of America (DSA), it is interesting to see:

1.. The right to a useful and remunerative job
2. The right to sufficient and nutritious food
3. Safe, healthy, secure and affordable housing
4. Free, accessible health care to all
5. Free, high quality public education
6. The right to organize to form unions, as well as community organizing

All of these were evident in Frank P. Zeidler’s Milwaukee, and one hopes the New Progressives and Socialists of the Democratic Party will be bold enough to take pages from his book, his principles. In particular, don't let the snide and hysterical attacks of the Right subdue your efforts at reform of the entrenched capitalist market economy.

See Also:

Miles Mogulescu

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Government

America Is Already Socialist, And That’s a Good Thing

AND:

Paul Krugman

Trump Versus the Socialist Menace

The Commies are coming for your pickup trucks

Excerpt:

"What Americans who support “socialism” actually want is what the rest of the world calls social democracy: A market economy, but with extreme hardship limited by a strong social safety net and extreme inequality limited by progressive taxation. They want us to look like Denmark or Norway, not Venezuela.

And in case you haven’t been there, the Nordic countries are not, in fact, hellholes. They have somewhat lower G.D.P. per capita than we do, but that’s largely because they take more vacations. Compared with America, they have higher life expectancy, much less poverty and significantly higher overall life satisfaction ."

"America's Debt Disease" - Blame Huge Tax Cuts And Defense Spending!

Let's concede that pointy -headed economists, especially those who totally missed predicting the 2008 credit meltdown and financial crisis, are about the last who should be railing about "America's debt disease".  This is because their fancy models typically  come up short, and fail to process the importance of increasing tax revenue and limiting "defense" spending.

As Paul Waldman in a recent NY Times piece put it:

We all know there’s really no such thing as a Republican “deficit hawk” — they pretend to care deeply about the deficit when there’s a Democrat in the White House so they can restrain spending and hamstring the economy, but when there’s a Republican in the White House, all that goes right out the window. Sure, some ultra-conservatives complained about this bill on the grounds that it raises the deficit, but they all voted for the GOP tax plan."

One would have hoped economist Martin Feldstein might have processed this before writing his op-ed 'Reagan's Cure For America's Debt Disease'- ironic given that Reagan was the one who hurled this nation into debtor status in the first place.. That was in the 80s when he enacted huge supply side tax cuts combined with lavishing $2.2 trillion on defense spending - including rubbish like the SDI - with no tax revenue to pay for it. See e.g.

http://brane-space.blogspot.com/2018/03/jay-keyworth-godfather-of-missile.html

 Ever since then defense spending, actually corporate welfare for defense contractors, has been sucking up lever larger fractions of the budget. e.g. examine this graph for 2013;


This is despite the fact the Pentagon budget- barely 2 weeks ago-  just got handed another $80 billion until September in the new spending bill.  Also, let's bear in mind that the Pentagon still can't account for $1.2 trillion from 2002. (According to former defense analyst Chuck Spinney when he appeared on an episode of Bill Moyers 'NOW').  With the latest largesse, the U.S. now has spent more $ than the next 8 nations combined on defense, as opposed to the next seven. So the problem is excessive military spending. Reduce that dramatically,  and also increase taxes, and you have a nation more like Germany with budget surpluses -  as opposed to massive debt and deficits -and increased social spending capacity, e.g.

http://brane-space.blogspot.com/2018/02/do-americans-really-want-big-government.html

Feldstein insists instead that military spending:

"will contribute relatively little to the increased debt and is a long overdue correction to a military budget that had become dangerously low"

Which is laughable balderdash, since most  $ that isn't defense contractor welfare is wasted anyway, e.g.















Feldstein then turns his deficit reduction guns on Social Security and Medicare, viz.:

"Between 2018 and 2027  Social Security outlays are projected to grow by 1 percent of GDP and Medicare by 1.4 percent of GDP. Together they would account for the entire 2.4 % rise in the deficit as a share of GDP. Cutting their growth in half would reduce the 2027 deficit from 5.2% of GDP to 4 % of GDP. That would start to shrink the future debt ratio  from more than 100 percent of GDP back to today's 76 percent. That isn't good enough but it's a shift in the right direction."

Well, it would also mean reducing millions of seniors to a cat food diet, and also forcing sick seniors to beg for charity or 'Go Fund Me' pages to get basic health care.  (Feldstein's solution for slowing Medicare growth is to pay higher premiums including for inpatient and outpatient visits. For Social Security he wants to raise the full benefits age to 70 from where it is now, and also "pass a law that automatically raises the age for full benefits as life expectancy improves."    But he's somewhat gracious and is willing to "make some exceptions for those in strenuous occupations."

But this is all so much codwallop because first, of all, he never mentions how Reagan himself - and Bush Jr. later- used Social Security monies as a foil to reduce the apparent cost of military spending. This has been by consistent raiding of the Social Security Trust Fund which right wing nuts and libertarians insist is a figment of the imagination. If it is  figment, then why has the gov't take nearly $2.7 trillion from it?  That's some "fictitious" money right there?

But of course in their lexicon it only becomes a "figment" when we demand the raided money be paid back.

Let's also note that the canard that the military budget is "small relatively as a percentage of GDP", may appear so but that it has more than doubled since 2000, from 2.4 % of GDP to 4.9%. has meant pain for many. This uptick in GDP percentage led former Pentagon Analyst Chuck Spinney (the same person who exposed the unaccounted for $1.2 trillion) to remark that the increase was nothing less than "a war on domestic programs, including Social Security and Medicare".

This blatant codswallop is also repeated in another WSJ Op-ed  ('Why America Is Going Broke', Feb. 22, p. A17)  by Hoover Inst. toad John F. Cogan, who has the audacity to write:

"Surprising as it may seem, the share of GDP spent on national defense ...is no higher today than it was seven decades ago."

Adding:

"The contrast between the long term increase in entitlement spending and the long term decline in defense spending reflects the profound transformation of the federal government's priorities from providing for the nation's defense to redistributing income."

If this horse manure is true, and defense spending is in such regression, perhaps Cogan can explain how the U.S. now spends more on defense than the next 8 nations combined - including China and Russia.  The fact is he bloody well can't because he's peddling conservo think tank bull piffle. Like Feldstein, he wants American seniors - those that aren't in the one percent- to be reduced to a cat food diet.

Apart from the false "entitlements are eating up the budget" narrative,  the solution to saving Social Security is to simply remove the payroll tax cap, e.g.

https://www.cbpp.org/research/social-security/increasing-payroll-taxes-would-strengthen-social-security

It emphatically will NOT "require records levels of taxation and debt" as Cogan claims (ibid.)

Social Security's cap on taxable wages is now a ridiculous $118, 500 a year despite the fact many people with income much greater are receiving it. Eliminating it would resolve nearly all Social Security's funding problems, many arising from the erosion of its payroll tax base, owing to rising wage inequality. (E.g. as more and more earners bypass the $118,500 threshold they no longer need to contribute to the payroll tax.)

By Feldstein's own admission (par. 4, 2nd column) shrinking future deficits could indeed be accomplished by a tax increase, but which he claims is "economy damaging" which is nonsense. It's nothing of the sort. As economists James Medoff and Andrew Harless observed in their excellent book, The Indebted Society, 1995, p. 84, 'Let Them Eat Cake',

"high tax rates are associated with higher productivity growth"

There is a consistent and strong relationship. By contrast, for the years when Arthur Laffer's supply side dogma held, productivity retreated by more than 30% and debt exploded- exactly the opposite of what we've been sold.  Indeed, an analysis of the Bush tax cuts by The Financial Times (Sept. 15, 2010), p. 24 showed them to be a failure, not achieving what was promised, e.g. these cuts ushered in "the weakest decade in U.S. postwar history for real, non-residential capital investment".

The FT analysis also observed that “during each decade from the 1950s to the 1990s, growth in real gross non-residential investment averaged between 3.5 percent and 7.4 percent a decade. During the 2000s it averaged a mere 1%”

The FT analysis on Bush Jr's tax cuts was among the most devastating, showing once and for all supply side bunkum doesn't work. It is among the "dead ideas" Matthew Miller wrote about in his book 'The Tyranny of Dead Ideas'.  To repeat the same nonsense as with the recent GOP-Trump tax cuts - while expecting a different outcome - is to endorse again the definition of insanity as articulated originally by Einstein.  It also means we won't  soon eradicate the nation's debt disease. This is given we already know damned well the source of it, but economists like Mart Feldstein - for whatever reasons  - won't go there.

Methinks Marty Feldstein and John F. Cogan need to crawl out of their isolate enclaves and  go back to school and re- learn that increasing taxes is the answer for the budget surplus economy, along with drastically cutting back on defense contractor corporate welfare..

Right Wing Bloggers Ought To Fear GOP Budget, Tax "Reform" More Than Frederica Wilson

The approval last Thursday of the GOP budget by a 51-49 Senate vote using "budget reconciliation" ought to send shivers down the spine of every citizen. That also includes raucous Righties and inveterate Trumpies who've been castigating Frederica Wilson because she's a powerful black woman who dares to wear a cowboy hat -  something most white crackers can't handle.  Of course we know from psychology such over the top hate-filled rants (including use of epithets like "black ape") shows profound fear,  A fear Citizen John Kelly (he's no longer a general), after all, displayed last Thursday.

  Kelly-  who had to run interference for Dotard last week-  actually lied about a speech congresswoman Wilson gave honoring slain FBI agents in Miami in 2015. The whole video of the speech was released by the Sun-Sentinel revealing there was no element of the self-glorification that Kelly had claimed. No "empty barrel" - just a serious black woman who gave all those gathered their just due. It confirmed once and for all Kelly is a damned liar and tool.

But Kelly's lie followed Dotard's earlier lie about Ms. Wilson "fabricating" the content of a phone call he made to Myesha Johnson, LaDavid Johnson's widow.  Yesterday, Myesha Johnson confirmed that Dotard is the liar and Wilson was "absolutely correct" because she was in the same car when the speaker phone sounded. Dotard followed up his earlier lies with more yesterday including he had a "respectful conversation" with Myesha Johnson. No, he didn't.  He made her "cry even worse" in her own words, because he didn't even know the name of this slain soldier. Yet the deranged Righties are determined to give Dotard all kinds of breaks and excuses.

The Trumpkins who blog on how they love Dotard so much have also castigated Frederica for "being anti-military". For example, not voting for the $2b bill that would have extended benefits to families of the fallen, failing to note that the bill was killed mainly by Tea Baggers (i.e. in the GOP) who wanted to use a rider to defund Obamacare. (Also not processing that the budget sequester was still in effect). But this sort of shtick is par for the Right's course when they target a person of color, especially one who is outspoken and not prepared to take lies from Donald Dotard or his sock puppet Kelly.( At least most of the rightist bloggers, while biased against Wilson,  have been decent enough not to use the "black ape" epithet this time.)

The point I am making here is that while the Dotard lovers are getting off now piling onto Frederica  Wilson and blaming the "left" for using a tragedy (the killing of 4 soldiers in Niger) to foment a "crisis" - it is really the rightists who have no shame.   They certainly ought to have bridled against Trump's and Kelly's clumsy defense of the words "he knew what he signed up for" to a grieving widow. As another Gold Star father  (Khizr Khan) told CBS a.m. hosts yesterday morning, Trump only had to read decent and respectful words from a note to Mrs. Johnson, and not  "wing it". As Mr. Khan also noted, when asked if Trump or Kelly could be given the benefit of the doubt and "no one can perfectly say the words needed",  they needn't be perfect only respectful.  And if the widow herself didn't feel they were then they weren't.

The next best thing was to apologize but Dotard didn't even have the grace to do that, and up to now Kelly hasn't even offered a correction to his rash, untrue comments.   Khizr Khan put it best last night in an MSNBC interview, that perhaps Kelly hasn't yet found the courage.

But here's the choice part: these Trumpkins who are savaging Wilson for  past plans to "cut VA benefits"  will now have to face real, serious jeopardy if and when this latest GOP budget plan materializes. And according to the WSJ yesterday, it may well do so before Thanksgiving.  If it does, these Frederica critics will really have something to grouse about when their VA benefits - especially medical - are transferred to private sources.  The only thing right now standing in the way of full passage are a handful of Tea Party radicals and deficit hawks who may want to block any budget or tax reform that they believe adds to the deficit.

Let's go over the Budget proposal as it stands now and which we know.  The plan is also to cut $1 trillion from Medicaid and $473 billion from Medicare over ten years.   This is also the timeline over which the VA modifications (to a private system)  are expected to be implemented. (The propaganda attached to the latter is that vets will be afforded more choice going to private health providers, in return for which they will have to sacrifice a bit more money.)

In terms of the Medicare cuts, let's process that recent studies indicate a 65-year old couple will need an average of  $260,000 just to cover out of pocket health care costs. This is a staggering number for retirees struggling to get by - especially the 20 percent who have no income beyond Social Security. (Which the GOP also has in its cutting sights, via the elimination or reduction of the COLA).

As for Medicaid, many Americans forget that this is not only the health care system for lower income citizens but also middle income seniors who  suffer medical calamities. That is, medical crises that require 24/7 nursing home or long terms care - sometimes at $100,000 a year.  That cost is usually not covered by insurance policies or Medicare (which only pays for 10-15 days before seniors need to pay out of pocket.)

The way it works currently, is that for a medically compromised senior - say with  late stage Alzheimer's - to access Medicaid, they must spend their assets down.  If they have assets worth $400,000 they must continue to spend it all down until they have less than $5,000 left - which is the threshold Medicaid finally kicks in.

The GOP explains the justification for the preceding safety net cuts to as a need to offset the $1.5 trillion in deficits that will be caused by the planned tax cuts - mainly to the corporations and wealthy. They  argue these cuts will generate such enormous economic growth they will pay for themselves. Of course this is codswallop.  My question would be: If the tax cuts pay for themselves, why would you need to cut Medicare and Medicaid to the tune of nearly as much $$$?

To be fair, let's be  clear that the federal budget outlines how the government plans to spend money during the new fiscal year. We need money in order to spend money - that's where tax revenue comes into play. Republicans in Congress are hoping to use the budget passed as a basis to next pass tax cuts worth nearly $1.5 trillion. Those tax cuts are a big deal as midterm elections approach because most taxpayers are in favor of some form of cuts. Also, Trump and the GOP have promised the clueless GOP base they will get them, and if it doesn't come to pass....well, things might get dicey. Even the Dems taking over the House next year. Who knows?

The corollary to this is while most taxpayers want the benefit of tax cuts they do not wish to have their own oxen gored when the time comes for spending cuts to offset the tax cuts. Pushing  tax cuts through without corresponding cuts in spending will increase the deficit and that's not good politics for a party which prides itself on fiscal responsibility.  So much for the bunk that they will "pay for themselves".

If Americans were smarter, more savvy, the tax cut fever and fetish would never be the huge obsession it is for the likes of the Goopers.

By contrast, most intelligent Europeans  know they can never make enough money on their own to have medical or social insurance needs  met so they agree from the get go to allow higher taxes to pay for them. Americans (too many) are too dumb to see that and always believe they can make it on their own - until they can't' - like when they end up with a horrific cancer or get into a tragic auto accident that leaves them paraluzed.

The following are what The Center on Budget and Policy Priorities identifies as getting the worst budget hits:

To offset the cost of a $1.5 trillion tax cut, Medicare payments to doctors, hospitals, and insurance plans would be automatically cut 4 percent for each of the next ten years, on top of the 2-percent cuts that those payments are already experiencing under the sequestration triggered by the 2011 Budget Control Act.  

In addition, the automatic cuts would bring the complete elimination of more than 150 mandatory payments for farmers, health insurance, the military retirement trust fund, housing, social services, victims of crime, child nutrition, and many others, all lasting a decade.

This whole exercise essentially resurrects the supply side bunkum which has failed miserably ever since it was first introduced  by Reagan sycophant Arthur Laffer on the back of a napkin. The "Laffer curve" (see diagram below) :


was rendered by one Arthur Laffer in 1974. Laffer was then an economist at the University of Chicago and traveled to Washington, D.C. to meet with Donald Rumsfeld, Gerald Ford's then chief of staff.

Laffer had a new theory on why tax rates were inefficient when too high, or one might say "inefficiently high". One interested nabob from the WSJ asked Rumsfeld to meet with Laffer on the issue. As it happened, Rumsfeld had other commitments so dispatched Dick Cheney instead to a bar, where the meeting took place. (See, e.g. Economics for the Rest of Us by Moshe Adler, Ch. 6)

There in front of Cheney Laffer proceeded to sketch his infamous diagram on a napkin on why the rich could be said to be "over taxed".  As drawn, it was totally convincing! Especially for a guy like Cheney with minimal math skills. Note the line defining the highest marginal tax rate of 70% for Gerald Ford's presidency. What Laffer's curve sought to show is that by cutting that rate down, say to 50%, one could increase the revenues by nearly 35%! Of course, the 50% turned out to be wholly arbitrary and in fact after Reagan became President in 1980 the rates were cut down to 50 percent by 1981, then to 28% (by 1988). After all, if one could increase revenues by cutting taxes 20%, imagine what one could do by cutting them more than 40%!

Thus was born "voodoo economic" or supply side theory as it has come to be known. (Now it's mre rightly called "trickle down" because the crumbs from the richest are forecast to fall on our respective tables to enrich us too. Well up to a point!)

In their examination of supply side tax cuts,  authors James Medoff and Andrew Harless in The Indebted Society, 1995, found, p. 23:

"For the health of the economy, Reagan's policies turned out to be just about the worst thing that could have happened: investment did not increase, growth continued to stagnate, and the federal deficit ballooned to new dimensions....In 1981, the year Reagan took office, the public debt was 26.5 % of the gross domestic product (GDP)....In 1993, the year that Bush left office, the public debt was a staggering 51.9 percent of the GDP."

The current GOP budget proposal  on the whole, would cause most Americans' incomes to fall more than they would gain from the tax cuts themselves. That’s because the planned tax cuts are so concentrated on the rich, and the cuts involved would take so much away from low- and middle-income families.

Is there any chance at all of the proposed tax cuts doing what they claim? None!

A Financial Times analysis of the Bush tax cuts (9/15/10, p. 24) passed in 2001 and 2003, found:

The 2000s- that is the period immediately following the Bush tax cuts – were the weakest decade in U.S. postwar history for real, non-residential capital investment. Not only were the 2000s by far the weakest period but the tax cuts did not even curtail the secular slowdown in the growth of business structures. Rather the slowdown accelerated to a full decline

For reference, the top marginal tax rate during the Bush years (for income tax) was reduced to 36% from the 39.5% during the 1990s Clinton Years. Over the 1950s and into the 1960s (until about 1964) the top marginal rate was at 91%, going down to 65% by the mid -60s. The lower level of 50% wasn’t hit until Reagan arrived in 1980, and passed his tax cuts. And we've been piling up deficits ever since.

The FT analysis also observed that “during each decade from the 1950s to the 1990s, growth in real gross non-residential investment averaged between 3.5 percent and 7.4 percent a decade. During the 2000s it averaged a mere 1%”

This is evidence enough that again, tax cuts to spur economic growth don't work. That is the  myth once called "Voodoo economics" by George Bush Sr. and which Trump and the Goopers are attempting to spring on us again.

The intended VA cuts have been known at least since last July.  While the VA backed off somewhat according to The Military Times the GOP remains dedicated to eliminating the Individual Unemployability benefit payments to retirement-age veterans, a move expected to save $3.2 billion next year alone and $41 billion over the next decade.  The GOP budgeteers are also determined to privatize the VA, and are entertaining doing it in stealth mode - like they tried with the skinny repeal of Obamacare - which didn't work out so well, but you never know. They are determined to get those spending cut offsets to the $1.5 trillion in tax cuts to the rich.

There is even more pressure now on the VA cuts after Trump scotched the GOP plan to limit pretax 401k contributions to $2,400 a year - down from $18,000. This would have offset nearly $115 b which will now have to be found from another source. Short of Social Security, the VA is the only other likely one. (And also fewer will be screaming bloody murder relative to the many millions more who collect S.S.)

If any Reich wing vets have any sense out there, they will take their gnarly, jaundiced sights off Frederica Wilson and put them squarely on the rate at which this GOP budget bill moves to the House for "reconciliation" and then is used to launch the new "tax reform". Their own welfare might depend on it, as opposed to scaring up phony phobias about Ms. Wilson.