Thursday, July 14, 2011

Strategic Arson: Republicans Are Demonic Keynesians

Kenneth M. O’Brien



This famous observation, perhaps the most oxymoronic of all time, is the strategy that the Republican cult and its demonic stepchild, the Tea Party, have chosen to adopt.

Never forget that Mitch McConnell, Senate Minority Leader, stated quite clearly that his Party’s number one priority was to guarantee that Barack Obama was a one-term President.

As a result we have witnessed a conscious program that has sought to stymie every effort designed to improve the economy.

The more damage that can be done to the economy, the more that can be done to increase unemployment, thus the more likely, so their thinking goes, it is that a Republican will be elected President in 2012.

Even such a stalwart of Republican orthodoxy as Lindsey Graham (R-SC) said in today’s New York Times that his party had created this debt limit crisis.

We now have an entire generation that has come of age being indoctrinated with the mythology of “supply-side economics” that was famously and correctly characterized by George H. W. Bush as “voodoo economics”.

Did anybody out there take Economics 101?

There are two fundamental components of wealth creation: supply and demand.

The problem in the economy is not supply.

The problem is a lack of demand!

Yet we keep hearing the mantra from the Republican and Tea Party theocrats, “We don’t have a revenue problem, we have a spending problem.”

Well, guess what? We have a revenue problem. And we have had a revenue problem ever since the dawn of the Reagan (on your knees, may his name be praised!) “Revolution”.

From the end of World War II until the beginning of the Reagan (on your knees, may his name be praised!) Presidency the national debt as percentage of Gross Domestic Product had declined.





The Reagan (on your knees, may his name be praised!) “Revolution” was, in fact, a triumph of the perversion of Keynesian economic theory.

What has been done since the time of the actor’s presidency has been the maintenance of demand through government spending financed by the incurrence of debt. The only brief hiatus in this trend was during the Clinton Administration.


In the interim, the continuing reduction in corporate and personal income taxes on the highest earners has resulted in a massive reallocation of wealth away from the middle class.









While a portion of this wealth created some jobs in the U.S. (although a net zero increase in jobs during the presidency of George W. Bush), the bulk of such reallocation of income went to creating jobs overseas in lower wage rate environments, profits from speculative gambling in novel financial instruments, exploitation of market bubbles and outright criminal fraud.

The consequences of this thirty-year “neo-conservative Keynesianism” was that it infected governments throughout Europe due to their being duped by an under regulated Wall Street greed machine leading to a near collapse of world financial markets in 2008.

Now, the Republican and Tea Party cultists are engaging in Bush-bashing to escape responsibility for the consequences of Wall Street bailouts and unbridled spending that make former Progressive criticisms pale by comparison.

Another current mantra of the right wing apologists is that we can’t raise taxes on the job creators in the midst of a recession even though that is precisely what Ronald (on your knees, may his name be praised!) Reagan did.

But, again what job creators? You can’t hire people if there is no demand for your product. And, with spending cuts, declining income and benefits, and shrinking government payrolls, who would buy those products?

Fareed Zakaria has pointed out that the current  agenda of conservatives contradicts the experience of the most successful foreign economies.

Taxes are at the lowest level since the Eisenhower Administration.

Despite all the factual evidence, the Republican and Tea Party cult has resorted to a strategy that says we have to destroy the village in order to save it.

What initiatives have they offered to create jobs?

They have done nothing but block any initiatives.

Filibusters, once an occasional event, have become a matter of course. Nothing can get past the U. S. Senate anymore unless it garners sixty votes.

Despite their attempt to characterize the Obama stimulus plan as a failure (one-third of which were tax cuts), the fact is that it succeeded in reversing the trend inherited from the prior administration.




Now we are seeing a petering out of this trend. Is it any chance due to the fact that the stimulus funds have run out and that the Republican and Tea Party cult has refused to do anything to remedy the problem? Or, are they merely creating crises where one need not exist?

The final mantras being invoked by these political/religious fanatics are that businesses will not invest because of unbearable regulations, uncertainty and the Obama health care plan.

What unbearable regulations?

The regulations embodied in the Dodd/Frank bill that seek to prevent a recurrence of the 2008 meltdown that had its primal basis in the 1990’s repeal of the Glass-Steagall Act?

Or perhaps they mean environmental regulations that would address the problems evidenced by the BP Gulf Oil Spill or the recent Exxon spill in the Yellowstone River?

Uncertainty? Hey, I’ve got an MBA from the oldest business school in the country (yeah, it beat Harvard by 7 years). Uncertainty is the basis of entrepreneurship. Haven’t you ever heard of the risk/reward ratio? If there were absolute certainty there would be no risk and therefore no profit. Jeez, talk about pandering to ignorance.

Obviously their campaign financiers don’t want to change the current health care system. After all, Americans pay the highest per capita health care costs in the world while the results delivered rank 17th.

There will be those who ask, “How can you say these things?”

My response is straightforward. I look at the historical facts and then apply a scientific principle called “Occam’s razor”. That principle states that, “all things considered, the simplest explanation is usually the truth.”

On the other hand, I would say to my critics, “The definition of insanity is to keep doing the same thing and to expect a different result.”

Keep believing in the Republican and Tea Party theology and their strategy of destroying the village in order in order save it.

I fear that you will end up making ashes of yourselves (and the rest of us as well).

10 comments:

  1. Oh, Ken. What I wouldn't do to get you into a yellow t-shirt with a pink snake on it. We should talk.

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  2. Amelia you make me smile.

    Samuel Adams would sooner wear a red coat and swear allegiance to King George than Ken O'Brien would affiliate with the Tea Party.

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  3. Brilliant! Arun Gupta has written and spoken a lot of the tea party in very similar terms. Give him a listen:
    http://www.archive.org/details/LearningFromTheTeaPartyWithArunGupta-April15th2011-RedEmmas

    Amelia, you should listen, too. Ashes is where they're taking us.

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  4. I will sit next to anybody if they're willing to have a conversation with me. If that makes me too friendly, and certain upstanding citizens within the community don't want to be associated with me because I am not discerning enough in my associations, so be it.

    If you want to speak in sartorial metaphor, I will tell you that a fire engine red coat is very different from a cherry red coat; one man's scarlet is another man's carmine. Where you see broad strokes, I see nuance. I am not what you think I am.

    If it makes you feel any better, Ken, Jane Woodworth doesn't like me all that much either. And I'd **love** to hear what Christen Varley has to say about me. Ian H. likes my politics just fine, and you were more than happy to allow him into your club.

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  5. ...yeah. I just refuse to let go of the radical notion that even the most crazypants of crazyass people (WHAT'S UP SOUTHBRIDGE) are part of the political ecosystem, and as such, are worth conversing with.

    Although honestly, I hope I stay pretty enough to not get attacked with a baseball bat for at least a few years now. (I turned 30 this year, so I'm told I'm only going to be cute for another 5 minutes or so. My eggs are going bad as I type this.)

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  6. Is this just rhetoric, or do you really believe we Republicans and Tea Partiers want to destroy the village? We are trying to prevent as much damage as we can.

    What we have here is opposing philosophical differences. Your argument is if we would just allow President Obama free reign, he would fix all of our countries ails, and lead us to the Promised Land.

    Most in the Tea Party and in the Republican Party do not believe that where he is leading is utopia, but instead to socialism; albeit socialism is what you may believe to be utopia. The problem is history has proven time and time again that socialism eventually fails. This country was founded on capitalism, and capitalism has propelled us into becoming the wealthiest country the world has ever seen.

    Republicans resisting a movement of this country’s policies to the left is what should be expected. To portray this resistance as “attempting to destroy” is hyperbole and not helpful to the discussion.

    Democrats have resisted Republicans as well. Even President Obama voted against raising the debt ceiling when he was a senator and W was president. Need I remind you of Hillary Clinton’s infamous screech when Democrats were being criticized for disagreeing with W?

    When President Reagan took office in 1981, the Federal Corporate Tax Rate was at 46%. This rate did not go up, but rather lowered to 34% by the time he left office in 1989. Today’s current Federal Corporate Tax Rate stands at 35%. This is not the full story because one needs to consider the State Corporate Tax Rate that is paid in addition to the federal tax. Different states have different rates and when the two are combined, 24 states find themselves with a Corporate Tax Rate that is the highest in the world among Organisation for Economic Co-operation and Development (OECD) countries. Using an average tax rate of all of the states puts the U.S. as the second highest combined tax rate amongst OECD countries.

    The lack of demand that you mentioned is a direct result of a lack of jobs. Uncertainty is indeed the reason that we are seeing a drop in entrepreneurship. You made the statement “You can’t hire people if there is no demand for your product”, but if that is true, then how do you explain all the GM employees working on the Chevy Volt? You see an entrepreneur takes the risk by hiring people and purchasing all the required equipment, property, and material needed to produce a good or service. It then becomes the responsibility of the entrepreneur to create the demand for that product or service. Of course in GM’s situation, the risk is on the tax payers.

    Another interesting line of yours was “Uncertainty is the basis of entrepreneurship. Haven’t you ever heard of the risk/reward ratio?” An entrepreneur needs to be able to make an assessment of the risk to determine the risk/reward ratio. I will try to explain this in poker terms. If I am in a hand of poker and I do not yet have a “made hand”, and someone is betting, I have to do some calculations to decide if I should call. I need to calculate what the odds are of my drawing the card I need; I then need to calculate what the percentage of my call is compared to what the pot total will be. If the amount of my call percentage is less than or equal to the odds of my drawing the card I need, then I make the call. If not, then I need to fold. That is a risk to reward assessment. The problem here is that I have to consider the house rake (taxes) and the possibility that the rake is going to rise in the middle of the hand. I am also having a difficult time trying to calculate my odds of drawing my card due to Obamacare. How can I calculate it when nobody can really explain what it is going to cost? Remember the bill was something like 2,000 pages long.

    Republicans and Tea Partiers do not wish to see the destruction of The United States; rather they are trying to protect it.

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  7. Let’s try doing those links a different way since they were broken in my last post.

    Hillary Clinton = http://www.youtube.com/watch?v=NJxmpTMGhU0

    Federal Corporate Tax Rate = http://www.irs.gov/pub/irs-soi/02corate.pdf

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  8. Mike:
    No, it’s not just rhetoric.

    I believe that the monied interests that are actually behind the Tea Party and the Republican Party will do virtually anything to defeat Obama and the Democratic Party. They have realized however that their posturing on the debt ceiling issue was an overreach that now threatens their financial interests. Ergo McConnell’s cave in following issuance of a letter signed by over 400 CEO’s saying that default was not an option.

    That aside, let’s deal with your obsession with trees over the forest.

    First, this country was not founded on capitalism. It was founded on mercantilism, which is no longer a viable economic policy.

    Second, the casual use of socialism as a scare word is simply inane. This country has not been a purely capitalist society for over 100 years. It has been a mixed economy, realizing long ago that there are some functions are better carried out by government just as there are some functions better carried out by private enterprise. The balance of that mix has changed over time in response to the realities of both domestic and international factors.

    Third, your discussion of corporate tax rates is simply delusional. Tax rates have as much relationship to reality as “South Park” does to the lifestyles of fourth graders (perhaps less). If this were not the case, there would not be a link on the right hand side of this page under “Favorite Sites” titled “Corporations that pay no taxes”.

    Your whole statement about the issue of demand is similarly delusional. Existing industries (not entrepreneurial enterprises) create jobs in response to increased demand for an existing product. Entrepreneurs do not “create” demand. Successful entrepreneurs either identify an unmet need or find a better way to satisfy an already identified market. Demand “creation” is a function of promotion and marketing to extend the life cycle of an existing product or to identify previously unexploited needs satisfied by an existing product.

    The lack of entrepreneurial activity in the current environment is not mainly a function of uncertainty. Rather, it is a lack of access to capital, despite the fact that American corporations are sitting on over $1 trillion in cash assets.

    In a similar vein, your understanding of the risk/reward ratio as it relates to uncertainty is also inaccurate. The analogy to poker is totally wrong. In poker, as in virtually any game of chance, there are objective odds that are immutable. In this respect, there is an interesting analogy to the issue of regulation in business. In blackjack the odds can actually favor the player if he is an adept card counter. Consequently, gambling establishments are allowed to prohibit players identified as such.

    In business there are no objective probabilities. All probabilities are based upon subjective assessments. That is why some take the entrepreneurial risk while others do not – they assess the odds differently. In this respect it is more analogous to horse racing.

    Getting back to the forest, if Tea Partiers are trying to protect the United States, why don’t you stop dealing in ideological orthodoxy and cherry picked trivialities and simply look at the reality of thirty years of history?

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  9. Forgive me for adding another unwelcome dose of reality to burst the conservative ideologues’ repetition of Frank Luntz talking points.

    Regrettably, the only time that they can tear themselves away from Fox News is when they need to get their batteries recharged by reading World Net Daily or listening to Rush Limbaugh.

    Had they chosen to take some Dramamine and watch Meet The Press today they would have seen a roundtable discussion of the issue of job creation in the U. S.

    Among the participants was David Cote, Chairman and CEO of Honeywell.

    When he was confronted directly with the question of what element of uncertainty was retarding corporate investment in job creation he was straightforward and without hesitation.

    It wasn’t taxes. It wasn’t regulation.

    It was uncertainty about demand.

    Q.E.D.

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  10. From the Huffington Post:

    "Honeywell has used their increased fundraising clout to build a close relationship with the White House. Obama cites Honeywell CEO David Cote as one of his closest advisors in the business community. Cote ensured an early political victory for the President when he persuaded the US Chamber of Commerce to stay on the sidelines during the stimulus fight. Cote was rewarded for his support with a slot on the President's deficit commission."

    This can be fount at http://www.huffingtonpost.com/mike-elk/honeywell-becomes-1-polit_b_763137.html


    Wouldn't it be more credible if you sourced someone who was NOT in bed with Obama?

    ReplyDelete

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