Robert B. Reich's Blog, page 148

Why We Need to Rein In Government Contractors That Use Taxpayer Money for Political Advantage

President Obama is mulling an executive order to force big government contractors to disclose details of their political spending. Big businesses are already telling their political patrons in Congress to oppose it – and the pressure is building.

The President should issue the executive order immediately. And he should go even further – banning all political activity by companies receiving more than half their revenues from the U.S. government.

Lockheed Martin, the nation's largest contractor, has already got more than $19 billion in federal contracts so far this year. But we know very little about Lockheed Martin's political spending other than its Political Action Committee contributions. We don't know how much money it gives to the Aerospace Industries Association to lobby for a bigger defense budget.

We don't even know how much Lockheed is giving the U.S. Chamber of Commerce to lobby against Obama's proposed executive order requiring disclosure of its political activities.

Don't we have a right to know? After all, you and I and other taxpayers are Lockheed's biggest customer. As such, we're financing some of its lobbying and political activities.  

Lockheed's lobbying and political activities are built into its cost structure. So when Lockheed contracts with the federal government for a piece of military equipment, you and I end up paying for a portion of its political costs.

It's one of the most insidious conflicts of interest in American politics.

Now, in the wake of the grotesque Supreme Court decision, Citizens United vs. the Federal Election Commission, there's no limit on what Lockheed can spend on politics.

That's why the President should go the next step and ban Lockheed and all other government contractors that get more than half their revenues from government from engaging in any political activities at all.

Otherwise, you and I and other taxpayers indirectly pay for Lockheed and Northrop Grumman to lobby for a larger military budget and support politicians who will vote for it.

We indirectly pay for Blackwater to lobby for – and support politicians who will demand – more use of contract workers in Iraq and Afghanistan.

We indirectly pay for Raytheon and General Dynamics to lobby for, and support politicians who will push for, more high-tech weapons systems.

And so on.

Disclosure is a start. But in this post-Citizens United world, it's only a beginning of what's needed.

The Great Switch by the Super Rich

Forty years ago, wealthy Americans financed the U.S. government mainly through their tax payments. Today wealthy Americans finance the government mainly by lending it money. While foreigners own most of our national debt, over 40 percent is owned by Americans – mostly the very wealthy.

This great switch by the super rich – from paying the government taxes to lending the government money — has gone almost unnoticed. But it's critical for understanding the budget predicament we're now in. And for getting out of it.  

Over that four decades, tax rates on the very rich have plummeted. Between the end of World War II and 1980, the top tax bracket remained over 70 percent — and even after deductions and credits was well over 50 percent. Now it's 36 percent. As recently as the late 1980s, the capital gains rate was 35 percent. Now it's 15 percent.

Not only are rates lower now, but loopholes are bigger. 18,000 households earning more than a half-million dollars last year paid no income taxes at all. In recent years, according to the IRS, the richest 400 Americans have paid only 18 percent of their total incomes in federal income taxes. Billionaire hedge-fund and private-equity managers are allowed to treat much of their incomes as capital gains (again, at 15 percent).

Meanwhile, more and more of the nation's income and wealth have gone to the top. In the late 1970s, the top 1 percent took home 9 percent of total national income. Now the top 1 percent's take is more than 20 percent. Over the same period, the top one-tenth of one percent has tripled its share.

Wealth is even more concentrated at the top — more concentrated than at any time since the Gilded Age of the late 19th century.

So what are America's super rich doing with all this money? They're investing it all over the world, wherever they can get the best return for any given level of risk. Treasury bills – essentially loans to the U.S. government — have proven good and safe investments, particularly during these last few tumultuous years.

You hear a lot of worries about foreigners dumping Treasuries if they lose confidence in the dollar because of our future budget deficits. What you hear less about are these super-rich Americans, who are just as likely to abandon Treasuries if spooked by future budget deficits.

The great irony is if America's super rich financed the U.S. government the way they used to – by paying taxes rather than lending the government money – that long-term budget deficit would be far lower.

This is why a tax increase on the super rich must be part of any budget agreement. Otherwise the great switch by the super rich will make the income and wealth gap far wider.

Worse yet, average working Americans who can least afford it will either lose the services they depend on, or end up with a tax burden they cannot bear.

The Battle is Squared, and Why We Need Budget Jujitsu

Technically, the federal government has now reached the limit of its capacity to borrow money.

Raising the debt ceiling used to be a technical adjustment, made almost automatically. Now it's a political football.

Democrats should never have agreed to linking it to an agreement on the long-term budget deficit.

But now that the debt ceiling is in play, there's no end to what the radical right will demand. John Boehner is already using the classic "they're making me" move, seemingly helpless in the face of Tea Party storm troopers who refuse to raise the ceiling unless they get their way. Their way is reactionary and regressive – eviscerating Medicare, cutting Medicaid and programs for the poor, slashing education and infrastructure, and using most of the savings to reduce taxes on the rich.

If the only issue were cutting the federal deficit by four or five trillion dollars over the next ten years, the President and Democrats wouldn't have to cave in to this extortion. That goal can be achieved by doing exactly the opposite of what radical Republicans are demanding. We can reduce the long-term budget deficit, keep everything Americans truly depend on, and also increase spending on education and infrastructure — by cutting unnecessary military expenditures, ending corporate welfare, and raising taxes on the rich.

I commend to you the "People's Budget," a detailed plan for doing exactly this – while reducing the long-term budget deficit more than either the Republican's or the President's plan does. When I read through the People's Budget my first thought was how modest and reasonable it is. It was produced by the House Progressive Caucus but could easily have been generated by Washington centrists – forty years ago.

But of course the coming battle isn't really over whether to cut the long-term deficit by trillions of dollars. It's over whether to shrink the government we depend on and to use the savings to give corporations and the super-rich even more tax benefits they don't need or deserve.

The main reason the "center" has moved so far to the right – and continues to move rightward – is radical conservatives have repeatedly grabbed the agenda and threatened havoc if they don't get their way. They're doing it again.

Will the President and congressional Democrats cave in to their extortion? When even Nancy Pelosi says "everything is on the table" you've got to worry.

We can fortify the President and congressional Democrats and prevent them from moving further right by doing exactly what the Tea Partiers are doing — but in reverse.

Call it budget Jujitsu.

The message from the "People's Party" should be unconditional: No cuts in Medicare and Medicaid or Social Security. More spending on education and infrastructure. Pay for it and reduce the long-term budget deficit by cutting military spending and raising taxes on the rich. The People's Budget is the template.

But what if the President and Dems show signs of caving? This is the heart of the progressive dilemma. Are we prepared to say no to raising the debt ceiling our demands aren't met? That way, the responsibility for rounding up the necessary Republican votes shifts to Wall Street and big business — arguably more eager to raise the debt ceiling and avoid turmoil in credit markets than anyone else. They're also better able to push the GOP — whom they fund.

Which leads to a more basic question: Are we ready and willing to mount primary challenges to incumbent Democrats who cave?

The Unbearable Lightness of Being Mitt

One of my regrets in life is losing the chance to debate Mitt Romney and whip his ass.

 

It was the fall of 2002. Mitt had thundered into Massachusetts with enough money to grab the Republican nomination for governor. Meanwhile, I was doing my best to secure the Democratic nomination. One week before the Democratic primary I was tied in the polls with the state treasurer, according to the Boston Herald — well ahead of four other candidates. But my campaign ran out of cash. Despite pleas from my campaign manager, I didn't want to put a second mortgage on the family home. The rest is history: The state treasurer got the nomination, I never got to debate Mitt, and Mitt won the election.

 

With Trump, Gingrich, Bachmann, and possibly Palin now in the race for the Republican nomination, GOP is starting to mean Goofy, Outrageous, and Peculiar. Mitt would pose the most serious challenge to a second Obama term. 

 

I say this not because Mitt's mind is the sharpest of the likely contenders (Gingrich is far more nimble intellectually). Nor because his record of public service is particularly impressive (Tim Pawlenty took his governorship seriously while Mitt as governor seemed more intent on burnishing his Republican credentials outside Massachusetts). Nor because Mitt is the most experienced at running a business (Donald Trump has managed a giant company while Mitt made his money buying and selling companies.) Nor, finally, because he's especially charismatic or entertaining (Sarah Palin can work up audiences and Mike Huckabee is genuinely funny and folksy, while Mitt delivers a speech so laboriously he seems to be driving a large truck).

 

Mitt Romney's great strength is he looks, sounds, and acts presidential.

 

Policy wonks like me want to believe the public pays most attention to candidates' platforms and policy positions. Again and again we're proven wrong. Unless a candidate is way out of the mainstream (Barry Goldwater and George McGovern come to mind), the public tends to vote for the person who makes them feel safest at a visceral level, who reassures them he'll take best care of the country – not because of what he says but because of how he says it.

 

In this regard, looks matter. Taller candidates almost always win over shorter ones (meaning even if I'd whipped him in a debate, Romney would probably still have won the governorship). Good-looking ones with great smiles garner more votes than those who scowl or perspire (Kennedy versus Nixon), thin ones are elected over fat ones (William Howard Taft to the contrary notwithstanding), and the bald need not apply (would Eisenhower have made it if Stevenson had been blessed with a thick shock?).

 

Voices also matter. Deeper registers signal gravitas; higher and more nasal emanations don't command nearly as much respect (think of Reagan versus Carter, or Obama versus McCain).

 

And behavior matters. Voters prefer candidates who appear even-tempered and comfortable with themselves (this was Obama's strongest advantage over John McCain in 2008). They also favor the candidate who projects the most confidence and optimism (think FDR, Reagan, and Bill Clinton).

 

Romney has it all. Plus a strong jaw, gleaming white teeth, and perfect posture. No other Republican hopeful comes close.

 

What does Mitt stand for? It's a mystery — other than a smaller government is good and the Obama administration is bad. Of all the Republican hopefuls, Romney has most assiduously avoided taking positions. He's written two books but I challenge anyone to find a clear policy in either. Both books are so hedged, conditioned, boring and bland that once you put them down you can't pick them up.

 

Mitt is reputed to say whatever an audience wants to hear, but that's not quite right. In reality he says nothing, but does it in such way audiences believe they've heard what they want to hear. He is the chameleon candidate. To call Mitt Romney an empty suit is an insult to suits.

 

Yet Romney is gaining ground over Obama. According to the most recent Marist poll, in a hypothetical presidential matchup Obama now holds a one percent point lead over Romney,  46 to 45. In January, Obama led Romney by 13 points.

 

Why is Mitt doing so well? Partly because Obama's positions are by now well known, while voters can project anything they want on to Mitt. It's also because much of the public continues to worry about the economy, jobs, and the price of gas at the pump, and they inevitably blame the President.

 

But I suspect something else is at work here, too. To many voters, President Obama sounds and acts presidential but he doesn't look it. Mitt Romney is the perfect candidate for people uncomfortable that their president is black. Mitt is their great white hope.

The Battle for the Soul of the GOP

The real battle for the soul of the GOP started today with a speech on Wall Street by Speaker of the House John Boehner.

Wall Street and big business fear Tea Partiers won't allow House Republicans to raise the debt ceiling without major spending cuts – and without tax increases on the wealthy. Wall Street and big business know this would be unacceptable to the White House and congressional Democrats.

The Street and big business want to tame the budget deficit but they don't want to play games with the debt ceiling. Credit markets are fine at the moment, but if the debt ceiling isn't not raised within the month – weeks before August 2, when the Treasury predicts the nation will run out of money to pay its creditors and its other bills – credit markets could go into free fall. The full faith and credit of the United States would be jeopardized. Interest rates would skyrocket. The dollar could plummet.

The Tea Partiers don't care about the debt ceiling. To them, it's a giant bargaining chit to shrink government. Nor do they worry about credit markets. If the full faith and credit of the U.S. government is no longer honored, so much the better.

You see, Tea Partiers hate government more than they hate the national debt. They refuse to reduce that debt with tax increases, even with tax increases on the wealthy, because a tax increase doesn't reduce the size of government. The Tea Partiers' real aim is to shrink the government.

But the Street and big business dislike the national debt more than they dislike government. And they wouldn't even mind a small tax increase on wealthy people like themselves in order to cinch a deal on raising the national debt. They have so much money they'd scarcely notice.

In truth, government has been good to Wall Street and big business. It bailed out the Street. It saved GM, Chrysler, and AIG. And most government spending improves the profits of big businesses – military contractors, big agriculture, giant health-care insurers, Big Pharma, large construction companies.

Tea Partiers have almost as much contempt for big business and the Street as they do for government. After all, the Tea Party was born in anger over the Wall Street bailout.

This is the heart of the civil war in the GOP.

House Speaker John Boehner, appearing today at the Economic Club of New York, tried to placate both wings, but he was far more in the Tea Party camp than with his audience. He said "everything is on the table" in order to reduce the nation's debt – a bow to Wall Street and big business pragmatists. But in the next breath he ruled out tax increases.

Boehner says he won't allow the U.S. to default on its obligations – exactly what the Street wants to hear. But then he insists on tying the debt-ceiling vote to a deficit-reduction deal. "The cuts should be greater than the accompanying increase in debt authority the president has given. We should be talking about cuts of trillions, not just millions."

Boehner knows the only way to get cuts of this magnitude without increasing taxes on the rich (or cutting defense — something else the GOP wouldn't think of) is to make mincemeat out of Medicare and Medicaid, slash education and infrastructure, and kill off most of everything else people of moderate means depend on.

In other words, Boehner's conditions are just another version of the Paul Ryan plan House Republicans approved last month – the same plan that brought howls at recent Republican town meetings. Democrats will never agree to it, nor should they. Nor will the rest of America.

And that means no agreement to increase the debt ceiling.

Boehner is siding with the Tea Partiers. Wall Street and big business hold the purse strings in the GOP but the Tea Partiers are now the ground troops. Boehner and his GOP colleagues figure Wall Street and big business will stake them in any event. They need Tea Partiers to get out the vote in 2012. And they're afraid angry Tea Partiers will get out the vote against them in their own primaries.

But Boehner is playing with fire. If the debt ceiling isn't raised and the financial system begins to collapse, the GOP loses not only Wall Street and big business. It loses everyone who's still sane.

California Democratic Party Convention, Dinner...

California Democratic Party Convention, Dinner Address

Sacramento, CA, April 30, 2011

Why Washington Should Pay Attention to the Economy Here and Now

After a week of non-stop Osama Bin Laden, Washington is now returning to the battle of the budget deficit and debt ceiling.

All over Capitol Hill Republicans and Democrats are debating spending caps and automatic triggers, and whether to begin them before or after Election Day.

But if you don't mind my asking, what about the economy? I'm not talking about the economy five or ten years from now, when projections show the federal budget wildly out of control or when foreigners might start dumping dollars.

I'm talking about the here and now economy – the one Americans are living in day to day.

The Labor Department reported today that unemployment for April was 9 percent, up from 8.8 percent in March. And that doesn't people working part-time who'd rather have full-time jobs.

Yes, 244,000 jobs were added in March — but that's chicken feed. We'd need 350,000 a month, every month for the next three years, simply to get back to where we were before the Great Recession.

And the percent of working-age Americans actually working – 64.2 percent – hasn't improved. It's almost as low as it was in the depths of the recession. 13.7 million people remain out of work.

Hello Washington?

Even for Americans with jobs, wages are going nowhere. Basically, the only employers hiring are paying peanuts. McDonalds just announced it would start hiring big time.

In fact, there's reason to worry we're heading back toward recession. The Labor Department also reports new claims for unemployment insurance soared to 474,000 last week.

In the first quarter of this year the U.S. economy slowed to a crawl — a measly 1.8 percent annualized growth — down from over 3 percent last fall. Higher gas and food prices are putting even more squeeze on American households.

And housing prices continue to drop.

Washington is fighting over how much to cut spending over the next ten or twelve years.

But right now we need more public spending to get people back to work, stronger safety nets to help those who have lost their jobs or can't find new ones, lower payroll taxes on average workers, and a requirement that Wall Street banks renegotiate mortgage loans so Americans can keep their homes.

Why isn't Washington paying attention to what most Americans need in the here-and-now economy?

Because the White House and congressional Democrats don't dare admit how bad the economy continues to be for so many people. They're holding their breath, hoping the recovery catches fire next year before Election Day.

Republicans don't dare admit how bad the economy is because they don't want to increase public spending or strengthen safety nets. And their patrons on Wall Street don't want to modify mortgages. Republicans would rather Americans believe their big lie that taming the deficit will create jobs and restore the economy.

So Washington would rather fight over the long-term budget, spending caps, taxes, and trigger mechanisms than do something about the pain most Americans are experiencing today.

But the here-and-now economy the most important thing on Americans' minds.

Ironically, Washington's disregard for what's happening right now is also worsening the long-term budget problem. That problem is not the debt per se; it's the ratio of debt to the overall economy. If the economy sputters or continues to grow at a snail's pace, that ratio becomes worse and worse.

In other words, attending to the here-and-now economy is also good for the future.

Earth to Washington: Listen to America.

The Republican Plan with Lipstick

Republicans figure that if they can't sell the pig, they'll just put lipstick on it and find some suckers who will think it's something else.

That's the proposal emerging in the Senate from Republican Bob Corker of Tennessee and also Democrat Claire McCaskill of Missouri. It would get the deficit down not by raising taxes on the rich but by capping federal spending.

If Congress failed to stay under the cap, the budget would be automatically cut.

According to an analysis by the Center on Budget and Policy Priorities, the McCaskill/Corker plan would require $800 billion of cuts in 2022 alone. That's the equivalent of eliminating Medicare entirely, or the entire Department of Defense.

Obviously the Defense Department wouldn't disappear, so what would go? Giant cuts in Medicare, Medicaid, education, and much of everything else Americans depend on.

It's the Republican plan with lipstick. It would have the same exact result. But by disguising it with caps and procedures, Republicans can avoid saying what they're intending to do.

The McCaskill/Corker spending cap would also make it impossible for government to boost the economy in recessions. Which would mean even higher unemployment, lasting longer.

Other Senate Dems are showing interest in the lipsticked pig, including West Virginia's Joe Manchin. Not surpringly, Joe Lieberman is on board.

But don't be fooled, and don't let anyone else be. McCaskill/Corker is the same Republican pig.

The Oil Company Gusher

Exxon-Mobil's first quarter earnings of $10.7 billion are up 69 percent from last year. That's the most profit the company has earned since the third quarter of 2008 — perhaps not coincidentally, around the time when gas prices last reached the lofty $4 a gallon.

This gusher is an embarrassment for an industry seeking to keep its $4 billion annual tax subsidy from the U.S. government, at a time when we're cutting social programs to reduce the budget deficit.

Especially embarrassing when Americans are paying $4 a gallon at the pump.

Exxon-Mobil's Vice President asks that we look past the "inevitable headlines" and remember the company's investments in renewable energy. What investments, exactly? Last time I looked Exxon-Mobil was devoting a smaller percentage of its earnings to renewables than most other oil companies, including the errant BP.

Other oil companies also had a banner first quarter, compounding the embarrassment.

American Petroleum Industry CEO Jack Gerard claims the gusher is due to the "growing strength in our economy." Untrue. If you hadn't noticed already, this is one of the most anemic recoveries on record. In fact, $4 a gallon gas is itself slowing the economy's growth, since most consumers are left with less money to spend on everything else. during one of the most anemic recoveries on record.

Gerard then claims the giant earnings "reflect the size necessary for [American] companies to be globally competitive with national oil companies" around the world. Another bizarre argument. The crude oil market is global. Oil companies sell all over the world. The price of crude is established by global supply and demand. In this context, American "competitiveness" is meaningless.

Republicans who have been defending oil's tax subsidy are also finding themselves in an awkward position. John Boehner temporarily sounded as if he was backing off – until the right-wing-nuts in the GOP began fulminating that the elimination of any special tax windfall is to their minds a tax increase (which means, of course, the GOP must now support all tax-subsidized corporate welfare).

Boehner is now trying to pivot off the flip-flop by reverting to the trusty old "drill, drill, drill" for opening more of country to oil drilling and exploration. "If we began to allow more permits for oil and gas production, it would send a signal to the market that America's serious about moving toward energy independence."

This argument is as nonsensical now as it was when we last faced $4-a-gallon gas. To repeat: It's a global oil market. Even if 3 million additional barrels a day could be extruded from lands and seabeds of the United States (that sum is the most optimistic figure, after all exploration is done), that sum is tiny compared to 86 million barrels now produced around the world. In other words, even under the best circumstances, the price to American consumers would hardly budge.

Whatever impact such drilling might have would occur far in the future anyway. Oil isn't just waiting there to be pumped out of the earth. Exploration takes time. Erecting drilling equipment takes time. Getting the oil out takes time. Turning crude into various oil products takes time. According the federal energy agency, if we opening drilling where drilling is now banned, there'd be no significant impact on domestic crude and natural gas production for a decade or more.

Oil companies already hold a significant number of leases on federal lands and offshore seabeds where they are now allowed to drill, and which they have not yet fully explored. Why would they seek more drilling rights? Because ownership of these parcels will pump up their balance sheets, even if no oil is actually pumped.

Last but by no means least, environmental risks are still significant.

Let's not fool ourselves – or be fooled. There's no reason to continue to give giant oil companies a $4 billion a year tax windfall. Nor any reason to expand drilling on federal lands or on our seashores. But there are strong reasons to invest in renewable energy – even in a time of budget austerity.

The Wageless Recovery

This week's biggest economic show occurs tomorrow (Wednesday) when Fed chair Ben Bernanke steps in front of the cameras for the Fed's first-ever news conference. The question on everyone's mind: Will the Fed signal it's now more worried about inflation than recession?

Much of Wall Street thinks inflation is now the biggest threat to the US economy. As has been the case in the past, the Street is dead wrong. The biggest threat is falling into another recession.

The most significant economic news from the first quarter of 2011 is the decline in real wages. That's unusual in a recovery, to say the least. But it's easily explained this time around. In order to keep the jobs they have, millions of Americans are accepting shrinking paychecks. If they've been fired, the only way they can land a new job is to accept even smaller ones.

The wage squeeze is putting most households in a double bind. Before the recession, they'd been able to pay the bills because they had two paychecks. Now, they're likely to have one-and-a half, or just one, and it's shrinking.

Add to this the continuing decline in the value of the biggest asset most people own – their homes – and what do you get? Consumers who won't and can't buy enough to keep the economy going. That spells recession.

Why doesn't Wall Street get it? For one thing, because lenders always worry more about inflation than borrowers – and, in general, the wealthier members of a society tend to lend their money to people who are poorer than they are.

But Wall Street's inflation fears are also being stoked by several specifics.

First are price upswings in food and energy. The Street doesn't seem to understand that when most peoples' wages are dropping, additional dollars they spend on groceries and at the gas pump means fewer dollars they have left to spend in the rest of the economy. Rather than cause inflation, this is likely to lead to more job losses.

The Street is also worried that the Fed's easy money policies are pushing the dollar down and thereby fueling inflation – as everything we buy abroad becomes more expensive. But if wages are stuck in the mud and everything we buy abroad costs more, Americans have even fewer dollars to spend. This also spells recession, not inflation.

Finally, the Street worries that if Democrats and Republicans fail to agree to a plan to cut the budget deficit, the credit-worthiness of the United States as a whole will be in jeopardy – causing interest rates to rocket and inflation to explode. Standard & Poors, the erstwhile credit-rating agency, has already sounded the alarm.

The Street has it backwards. Over the long term, the deficit does have to be tackled. But not now. When job growth remains tepid, when wages are dropping, and when the value of most households' major asset is declining, government has to step in to maintain overall demand.

This is the worst possible time to cut public spending or reduce the money supply.

The biggest irony is that the Street is doing wonderfully well right now, in contrast to most Americans. Corporate profits for the first quarter of the year are way up. That's largely because corporate payrolls are down.

Payrolls are down because big companies have been shifting much of their work abroad where business is booming. The Commerce Department recently reported that over the last decade American multinationals (essentially all large American corporations) eliminated 2.9 million American jobs while adding 2.4 million abroad.

What the Commerce Department didn't say is the pace is picking up. In 2000, 30 percent of GE's business was overseas and 46 percent of its employees; now 60 percent of its business is outside the U.S., as are 54 percent of its employees. Over the past five years, Oracle added twice as many workers overseas as in the US; 63 percent of its employees now work abroad.

Corporations are simultaneously finding ways to cut the pay of their remaining U.S. workers – not just threatening job losses if they don't agree to the cuts, but also automating the work or sending it to non-union states. (The Wall Street Journal's editorial page, an unremittingly reliable barometer of Street thought, argued earlier this week that such states offer workers the freedom to choose whether to join a union – in reality, the freedom to lose even more bargaining power and be forced to accept even lower wages.)

America's jobless recovery is becoming a wageless recovery. That puts the odds of another recession greater than the risk of inflation. Wall Street and its representatives in Washington don't understand – or don't want to.