Holes in the Ground on Wall Street

A more sympathetic take on the tax deal.

I was going to do another post on Obama´s loss of nerve, compulsive Broderist triangulation, cringe to the Tea Party hicks, selling out his base, etc. But now comes the tax deal, and I thought again. I respect Andrew´s gloomy take, but don´t share it.

Basically Obama had a choice between

  • letting all the tax cuts expire (the default outcome of a gridlocked Congress), scoring a satisfying victory against the malefactors of great wealth, and improving long-run fiscal sustainability at the expense of short-term employment;
  • making a deal along the lines he has, improving the short-run prospects for the economy, protecting (if only for one year) many of a large group of vulnerable Americans, the long-term unemployed, and giving the rich and their GOP tools the tax cut they crave for two years.

That he chose the second reveals a lot about his priorities, and they are sound. Morally, as it´s more important to do good to your needy friends than to punish your enemies. Politically, as the White House seems to have relearnt the Clinton lesson from the mid-terms: ITES. [Update as this confused commenters: ¨It´s The Economy, Stupid.¨] (I agree that it would have been much better to have seen this earlier). It looks OK to kick the long-run fiscal sustainability problem down the road for two years. Andrew´s right, full-employment US taxes will have to go back to Clinton levels at least, someday.

Giving away money to investment bankers to spend on Ferraris, caviar and cocaine is about the second most inefficient and inequitable stimulus imaginable. It´s still a stimulus. Every billion helps Obama´s reelection prospects and ordinary Americans a little.

Ordinary Irish and Greeks too.

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The title is a tip to Keynes. General Theory of Employment, Interest, and Money, Chapter 10, VI:

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

Author: James Wimberley

James Wimberley (b. 1946, an Englishman raised in the Channel Islands. three adult children) is a former career international bureaucrat with the Council of Europe in Strasbourg. His main achievements there were the Lisbon Convention on recognition of qualifications and the Kosovo law on school education. He retired in 2006 to a little white house in Andalucia, His first wife Patricia Morris died in 2009 after a long illness. He remarried in 2011. to the former Brazilian TV actress Lu Mendonça. The cat overlords are now three. I suppose I've been invited to join real scholars on the list because my skills, acquired in a decade of technical assistance work in eastern Europe, include being able to ask faux-naïf questions like the exotic Persians and Chinese of eighteenth-century philosophical fiction. So I'm quite comfortable in the role of country-cousin blogger with a European perspective. The other specialised skill I learnt was making toasts with a moral in the course of drunken Caucasian banquets. I'm open to expenses-paid offers to retell Noah the great Armenian and Columbus, the orange, and university reform in Georgia. James Wimberley's occasional publications on the web

22 thoughts on “Holes in the Ground on Wall Street”

  1. I cannot forget that Obama had a lot to do with creating the choice he faced. He's known where he was going, just as well as the Republicans, for a number of years.

    Small changes in framing, way back when, would have changed the outcome. There's no reason we should be talking about, "the Bush tax cuts". There's no reason, why the Democrats could not have insisted on referring to the reductions in top rates and the estate tax, as *additional* tax cuts *exclusively* for the rich.

    The British Empire adopted the Gregorian Calendar in 1752. Obama, I daresay, is familiar with its conventions, and might have anticipated the timing of events. In order to have this "compromise" with the Repubicans at all, he had to artfully avoid using Democratic majorities in both houses of Congress to enact policy. I think it is realism, not cyncism, to think he preferred to compromise right, as this is his established pattern. He had other options, but preferred to be forced to these policy positions by the Republican Right.

  2. Just on the economics, I would venture that the extreme distribution of income has a causal relationship with declining wages and high unemployment. It is simply not possible to channel so much of national income through financial channels, and away from real production and investment, and maintain a stable and generally prosperous equilibrium. (Keynes kind of, sort of recognized this, though he attributed it, wrongly, to differences in marginal propensity to consume, as income increases. The post-WWII neo-classical synthesis denied it, claiming that full-employment was independent of income distribution.)

    The professional economists are debating whether unemployment is "cyclical" (Krugman's position) or "structural" (the position of conservatives, who want to watch the suffering with a certain detached smugness). It's one of those idiotic debates, which miss all the critical issues, and enlighten no one. In particular, it makes it really hard to appreciate the absolutely urgent and critical need to increase spending on public goods, to address the increasingly severe structural problems in the American economy, including declining wages.

    The American Empire committed suicide in the Bush Administration, first by taking the poison of the Bush taxcuts and the Greenspan easy money, and then by putting a gun to its head in Iraq and Afganistan. Obama is merely holding down the body during its (final?) convulsions. America's rulers are not willing to invest it in its future or conserve its resources. The habits of parasitism are given a tax break. This is not sound policy; at best, this is euthanasia for the Great Republic.

  3. It is certainly the case that he had significant majorities and immense personal popularity during the past two years. He had complete control of the timing on the cites and he had the ability to force votes on stand-alone bills extending unemployment benefits and the middle-class tax rates. Obama is not a fool. The fact that he waited until he and the Democrats were painted into a corner suggests that this is not the deal he was forced but accept but rather was the outcome he preferred.

    As to his moral choice to save the hostages even at the cost of unjustly enriching the richest least deserving elements of society, I do not accept your framing. He did not make the moral choice you attribute to him. Rather, I think he callously refused to take any chance that liberals and others might be able to pass stand-alone bills to save the hostages and make it unnecessary to extend Bush's signature domestic initiative. I say Obama simply used the unemployed and the poor as human shields in his pursuit of his real objective, namely extending the tax breaks for the rich.

  4. Mr. Guthman, even you must know that is utter nonsense.

    And Mr. Wilder, paraphrasing Sam Clemens, the rumors of our demise are quite exaggerated.

  5. I do not think I'm speaking nonsense. I disagree with the interpretation of events suggested by Wimberley. If I'm wrong, explain why Obama failed to submit stand alone bills to extend the middle-class tax cuts and unemployment benefits and force Republican to take politicaly difficult votes on those bills. Why didn't he at least try to get them while there was still time and while he had powerful majorities in both houses? The timing of this was always up to him—-he thought it was to his advatage to give tax breaks to the rich and he used the poor and unemployed as human shields to create a false choice. He didn't do this for them, he did it for himself. Show me where I'm wrong.

  6. Obama practically begged the House to deal with the tax situation before the election. He is a smart man and I am sure he saw the writing on the wall about the impossibility of the negotiating position the House was putting him in if the election turned out badly, which it did (and which, in my estimation, turned out worse because the House especially delayed).

    The problem I see is that everyone, House, Senate and many progressives want Obama to ride in like the Lone Ranger and save them not only from Republicans but from their own worst impulses. Who wouldn't be annoyed.

  7. If Obama had anything on the ball, he'd have shoved the tax breaks up the Republican's butts and fought for the unemployed forcing them to take the political hit. Instead they'll take credit for both.

  8. Here's a tax cut plan I could support: extend all the Bush tax-cuts, forever, but make it revenue neutral by adding in an equivalently sized carbon tax.

    I think the Republicans would actually agree to it, too, if the alternative were to revert to the Clinton tax rates. All you need are 41 solidly progressive senators willing to maintain a filibuster.

  9. Ditto marcel; I also get "International Teacher Exchange Services" which fits the context equally poorly. Not every FLA (four letter acronym) is SE (self-explanatory). Please spell out.

  10. Mr. Guthman,

    Barbara is right, there was never a point where a middle class tax cut only could have passed the Senate. R's could always muster 41 votes or more (from among the R's, Blue Dogs, etc). Once Scot Brown became the 41st R, any votes would have been for show, and R's would only have been too happy to defend the current tax rates. You guys still don't get that a majority of this center right country is against your class war tactics, and in fact, since D's win by such huge margins in cities, the impact is that R votes are spread around more efficiently.

    The other factor you conveniently forget is that the D base was pushing the Prez hard on its #1 priority, Obamacare, to the exclusion of everything else, including the tax strategy.

  11. Is the Keynes quote an inducement to regard the denizens of Wall Street as mere repositories of cash, which can be freely and without consequence broken open and emptied?

    Good, I thought so.

  12. ITES: my acronym for ¨It´s The Economy, Stupid.¨

    Sorry for trying to be clever. Post corrected.

  13. MosesZD: ¨[Obama could have] fought for the unemployed forcing them to take the political hit¨. What are the costs to the GOP of their overt policy of screwing the unemployed? Worthless parasites, many black, who ocasionally vote Democratic.

    bdbd: I don´t think simply robbing the bankers would go far enough. It would be a net good to take away their ill-gotten wealth, even if it were destroyed and not distributed. Their activities have been as destructive as those of Soviet central planning, once described as a system for subtracting value from perfectly good raw materials of copper, glass, steel, etc by turning them into exploding televisions and broken washing machines. American investment bankers have taken a perfectly good housing stock and turned it into a wasteland of foreclosures, bankrupt ex-hemewoners, and taxpayer bailouts.

    That´s not taking account of the poisonous effect of great wealth in buying the government and media, and sabotaging democracy. I´m not a Marxist – finance didn´t use to be, and doesn´t have to be, like this. But in recent years the old left-wing caricatures have come true. Ask Irish taxpayers.

  14. Alex F: All you need are 41 solidly progressive senators willing to maintain a filibuster.

    Oh golly! I can't tell if I'm crying or laughing. And where have you been hiding these senators?

    But yeah, I could probably support a tax plan like that.

  15. Redwave72,

    The Republicans and Blue Dogs are not immovable objects. They are as adverse to taking political unpopular votes as anyone. President Obama had two years to send bills on automatic extensions of unemployment insurance and a middle class tax cut to Congress and put pressure on Republicans and Blue Dogs. I can't prove that putting the frighteners on the Blue Dogs would have worked but, then, neither can you prove it wouldn't have done because Obama never even tried. He seems to be perfectly capable of being angry and playing hardball—-just not with Blue Dogs and Republicans.And, if he'd failed he still could've cut this deal. That's why I say his supposed concern for the poor and unemployed is just for show. He never tried to push these bills. He did not make the kind of moral choice which Wimberley credited to him. Extension of the Bush tax cuts is what he wanted from day one. From my perspective, the problem is that we have a center-right president negotiating with the hard right about whether to kill some hostages neither lot really gives a damn about.

  16. Tim: it's impossible fantasyland, for sure. My point was just that the problem isn't Republican intransigence. The problem is on our side.

    I mean, I do actually think that there are 41 senators liberal enough to do it. They just don't have the discipline or leadership to pull it off.

  17. Alex F,

    I actually agree but I would also point out they it is customary for a political party to look towards the president (who is by custom party leader) when that party also occupies the White House.

  18. "Tool or Fool?"

    I think, "Tool". Obama knows that he is more useful to the corporate plutocracy than any Republican alternative. As long as he is in, the plutonomy is safe from the possibility of mobs with pitchforks. And, they know it, too. This is a group that had the foresight to hire Bernanke as Fed Chair, after all.

    The problem is "on our side", but in the deeply depressing sense that "we" don't have a side, anymore. American politics is completely dominated by a corporate plutocracy: a numerically small, but enormously powerful class of financial and top corporate executives, including a few enormously wealthy families, who control the economy, including the Media, through giant corporations, which extract big rents in myriad zero-sum (and worse) games with the hapless mass of working people and the middle classes.

    By any measure of social affiliation beyond Facebook and reality teevee show popularity, American political cohesion and solidarity is at a singularly low point. There are no powerful organizations representing and defending ordinary people, in the way, say, trade unions once did. Nor are there elaborate ideologies to explain and criticize the way the political economy has been organized to channel all income growth to the top.

    I think practical politicians do not believe there would be any percentage in hanging tough on principle. And, even those, who can see the risks of decline and collapse, have been able to figure out how to short that future, profitably, in the electoral marketplace.

  19. I guess I don't understand the mechanics of the various fantasies presented above. 41 senators can't pass a bill, they can only prevent one. It's not like preventing passage of a bill they don't want would result in the passage of a bill they do want: post-election, the Republicans would just wait for January, when it all tips in their favor.

    The other mechanical question is that I'm not sure how well folks appreciate the extent of the dysfunction of the Senate when we talk about floor time. Grouse all you want about taking on the stimulus, health care, financial regulation, and energy/climate change before the tax issue, but given the (mostly fruitless) hope for some Republican cross-overs on those other issues, I don't think the priority was unreasonably skewed. You only get so many big bills, so many big fights.

    Also, I don't think the House had the votes on taxes before the election. Individual members were worried about (a) their funders and (b) the rump electorate, and didn't think on balance that taking the 'class warfare' vote was going to help them. And no, I don't care what national polls say about the relative popularity of one option or the other: in the run-up to an election, the member has to care what likely voters in his/her district think. If you want to change this — and I know I do — it can't come from more 'fight' from the President, or a more authoritarian Speaker. It has to come from people in the district, more people on the progressive side becoming 'likely voters.' There is no other solution, ime.

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