Bring back Keynes

The best way out of the economic crisis is to cut interest rates, create jobs and raise incomes!

o Ann Pettifor
o The Guardian,
o Tuesday September 30 2008

Anglo-American finance ministers and central bankers, like little Dutch boys, try desperately to plug leaks in the bursting dyke that is the international financial system. In the US, treasury secretary Hank Paulson hoped for $700bn to plug the gaping hole in Wall Street's banks. In the UK, the government is not just plugging holes, but setting aside competition rules to encourage the monopolisation of finance. Alistair Darling suspended competition rules to allow the Lloyds Bank takeover of HBOS because of the crisis. This is like suspending the law during hurricanes. The demise of another independent bank, Bradford & Bingley, and the transfer of its savings business to Santander, will increasingly monopolise finance.

Will these plugs and private-sector fixes work? No, because

• they are not system-wide fixes and
• they are based on the same flawed economic policies that spurred this crisis in the first place.
  

Some of these policies, attributable to Friedrich Hayek and Milton Friedman, are already discredited. Contempt for government is no longer acceptable. Using fiscal policies to bail out banks is now sanctioned by all political parties. To refuse to use fiscal policies to bail out taxpayers who lose pensions, homes and jobs, will make political parties unelectable.

But there are other orthodox economic policies that remain intact and are as yet unchallenged by any political party. The most damaging is orthodox monetary policy. This is based on the assumption that money is a commodity, and that its "price" - the rate of interest - must be set by supply and demand for money in private markets for capital - just as the price of oil is set by supply and demand for oil.

This is a nonsense. We do not dig capital out of the ground, nor does it grow on trees. Money is man-made. Interest rates are a social construct. And as such, unlike oil or soya beans, "there are no intrinsic reasons for the scarcity of capital", as Keynes argued in the General Theory. Because there is no reason for the scarcity of capital, there is no reason for the price of capital to be high.

And yet the private finance sector has succeeded in creating a shortage of capital, the credit crunch, and - at the height of a debt crisis - ratchets its price ever upwards. The rate for private inter-bank loans (Libor) continues to move upwards as the crisis worsens.

The private finance sector also requires that central banks maintain official, or base rates at current levels by adhering to a policy esoterically named "inflation targeting". In fact these high rates, by making debts unpayable, lead to rapid de-leveraging of debts (think bank failures) and assets (think property price falls) and are dangerously deflationary.

Flawed monetary policies are turning a crisis into a catastrophe. They must be challenged. Keynes's cool, rational voice on monetary theory and monetary policy must once again be heeded. Central banks must once again take control over all rates - short and long, safe and risky.

But a system-wide fix would go further. It would challenge the orthodoxy that unemployment helps keep wages low and is a good thing; and that wage rises are always inflationary. It is this orthodoxy that has caused wages and other forms of compensation to fall as a share of GDP in all OECD countries over the past three decades. This fall in compensation has forced people to supplement incomes by borrowing more.

Creating jobs and raising incomes as a share of GDP is vital if we want people to repay debts, salvage banks and return to the high street. If we fail to adopt such system-wide fixes, and if we persist with economic orthodoxy, then look forward to a prolonged period of global economic failure.

Nancy Pelosi's "Partisan" Speech

Madam Speaker, when was the last time someone asked you for $700 billion? It is a number that is staggering, but tells us only the costs of the Bush Administration's failed economic policies -- policies built on budgetary recklessness, on an anything goes mentality, with no regulation, no supervision, and no discipline in the system.

Democrats believe in the free market, which can and does create jobs, wealth, and capital, but left to its own devices it has created chaos.

That chaos is the dismal picture painted by Treasury Secretary Paulson and Federal Reserve Chairman Bernanke a week and a half ago in the Capitol. As they pointed out, we confront a crisis of historic magnitude that has the ability to do serious injury not simply to our economy, but to the American people: not just to Wall Street, but to everyday Americans on Main Street.

It is our responsibility today, to help avert that catastrophic outcome. Let us be clear: This is a crisis caused on Wall Street. But it is a crisis that reaches to Main Street in every city and town of the United States.

It is a crisis that freezes credit, causes families to lose their homes, cripples small businesses, and makes it harder to find jobs.

It is a crisis that never had to happen.

It is now the duty of every Member of this body to recognize that the failure to act responsibly, with full protections for the American taxpayer, would compound the damage already done to the financial security of millions of American families.

Over the past several days, we have worked with our Republican colleagues to fashion an alternative to the original plan of the Bush Administration.

I must recognize the outstanding leadership provided by Chairman Barney Frank, whose enormous intellectual and strategic abilities have never before been so urgently needed, or so widely admired.

I also want to recognize Rahm Emanuel, who combined his deep knowledge of financial institutions with his pragmatic policy experience, to resolve key disagreements.

Secretary Paulson deserves credit for working day and night to help reach an agreement and for his flexibility in negotiating changes to his original proposal.

Democrats insisted that legislation responding to this crisis must protect the American people and Main Street from the meltdown on Wall Street.

The American people did not decide to dangerously weaken our regulatory and oversight policies. They did not make unwise and risky financial deals. They did not jeopardize the economic security of the nation. And they must not pay the cost of this emergency recovery and stabilization bill.

So we insisted that this bill contain several key provisions:

This legislation must contain independent and ongoing oversight to ensure that the recovery program is managed with full transparency and strict accountability.

The legislation must do everything possible to allow as many people to stay in their homes rather than face foreclosure.

The corporate CEOs whose companies will benefit from the public's participation in this recovery must not benefit by exorbitant salaries and golden parachute retirement bonuses.

Our message to Wall Street is this: the party is over. The era of golden parachutes for high-flying Wall Street operators is over. No longer will the U.S. taxpayer bailout the recklessness of Wall Street.

The taxpayers who bear the risk in this recovery must share in the upside as the economy recovers.

And should this program not pay for itself, the financial institutions that benefited, not the taxpayers, must bear responsibility for making up the difference.

These were the Democratic demands to safeguard the American taxpayer, to help the economy recover, and to impose tough accountability as a central component of this recovery effort.

This legislation is not the end of congressional activity on this crisis. Over the course of the next few weeks, we will continue to hold investigative and oversight hearings to find out how the crisis developed, where mistakes were made, and how the recovery must be managed to protect the middle class and the American taxpayer.

With passage of this legislation today, we can begin the difficult job of turning our economy around, of helping those who depend on a growing economy and stable financial institutions for a secure retirement, for the education of their children, for jobs and small business credit.

Today we must act for those Americans, for Main Street, and we must act now, with the bipartisan spirit of cooperation which allowed us to fashion this legislation.

This not enough. We are also working to restore our nation's economic strength by passing a new economic recovery stimulus package -- a robust, job creating bill -- that will help Americans struggling with high prices, get our economy back on track, and renew the American Dream.

Today, we will act to avert this crisis, but informed by our experience of the past eight years with the failed economic leadership that has left us left capable of meeting the challenges of the future. We choose a different path. In the new year, with a new Congress and a new president, we will break free with a failed past and take America in a New Direction to a better future.

41 Things You Have To Believe To Be A Republican Today

1. Being a drug addict is a moral failing and a crime, unless you’re a conservative radio host. Then it’s an illness and you need our prayers for your recovery.
2. The United States should get out of the United Nations, and our highest national priority is enforcing U.N. resolutions against Iraq.
3. Government should relax regulation of Big Business and Big Money but crack down on individuals who use marijuana to relieve the pain of illness.
4. “Standing Tall for America” means firing your workers and moving their jobs to India.
5. A woman can’t be trusted with decisions about her own body, but multinational corporations can make decisions affecting all humankind without regulation.
6. Jesus loves you, and shares your hatred of homosexuals and Hillary Clinton.
7. The best way to improve military morale is to praise the troops in speeches while slashing veterans’ benefits and combat pay.
8. Group sex and drug use are degenerate sins unless you someday run for governor of California as a Republican.
9. If condoms are kept out of schools, adolescents won’t have sex.
10. A good way to fight terrorism is to belittle our longtime allies, then demand their cooperation and money.
11. HMOs and insurance companies have the interest of the public at heart.
12. Providing health care to all Iraqis is sound policy. Providing health care to all Americans is socialism.
13. Global warming and tobacco’s link to cancer are junk science, but creationism should be taught in schools.
14. Saddam was a good guy when Reagan armed him, a bad guy when Bush’s daddy made war on him, a good guy when Cheney did business with him and a bad guy when Bush needed a “we can’t find Bin Laden” diversion.
15. A president lying about an extramarital affair is an impeachable offense. A president lying to enlist support for a war in which thousands die is a solid defense policy.
16. Government should limit itself to the powers named in the Constitution, which include banning gay marriages and censoring the Internet.
17. The public has a right to know about Hillary’s cattle trades, but George Bush’s driving record is none of our business.
18. You support states’ rights, which means Attorney General John Ashcroft can tell states what local voter initiatives they have a right to adopt.
19. What Bill Clinton did in the s is of vital national interest, but what Bush did in the s is irrelevant.
20. Trade with Cuba is wrong because the country is communist; but trade with China and Vietnam is vital to a spirit of international harmony.
21. Be like Dick Cheney, who recently called the new Miss America unpatriotic - For wishing for world peace.
22. Be like Tom Delay [The Hammer!] - Doesn’t he look like a big, fat Adolf Hitler without the mustache?
23. With great power comes great responsibility — unless you’re Republican.
24. Republicans believe that if you enjoy sex, you are doing it wrong.
25. American justice should be blind, but Republicans prefer her deaf and mute.
26. Republicans believe that politics is only dirty if you do it right.
27. Republicans love deficits like Clinton loves sex.
28. The voter always wins — unless Republicans have their way.
29. The only time Republicans talk to blacks is when they challenge them at the polls.
30. Jesus loves you, and shares your hatred of homosexuals, Hillary Clinton and IMMIGRANTS.
31. Lou Dobbs is a saint!
32. Immigrants are contaminating America with Leprosy.
33. There is an urgent need to keep the ‘Cradle of the Confederacy‘ safe from leprosy, pedophiles, Spanish and rampant godlessness.
34. Bilingualism is killing America. Kill the INVADERS! — Tom Tancredo
35. Bill O’Reilly, Sean Hannity of Fox News are the most FAIR & BALANCED newscasters in the world.
36. Miami a ‘Third World country‘ — Tom Tancredo
37. Ann Coulter is the reincarnation of Mother Teresa. She is also a Tadpole.
38. You have to be “cockamamie” like Newt Gingrich: In a glimpse of what his candidacy might look like, he said he would shut down public schools that aren’t performing and offer a $ billion reward for the first private company that successfully completes a Mars mission — Reported by the AP
39. Sen. Barack Obama is a dangerous “Madrassa” trained Terrorist, his real name is “Obama Osama,” according to Rush Limbaugh — The drug addicted radio talk show host most Republicans listen to.
40. Draft-Dodging makes you a tougher patriot. and it is “Godly” to do anything and everything to get elected — this includes cross-dressing to appeal to liberal New York of Flip-Flop like a Yo-Yo regarding a woman’s right to abortion.
41. Finally, you ought to be like Ronald Reagan, the president of “sunny optimism

What Bush Got Right? Newsweek's Bait n' Switch

You can't tell a cover story by its cover!
Fareed Zakaria writes:

.... A broad shift in America's approach to the world is justified and overdue. Bush's basic conception of a "global War on Terror," to take but the most obvious example, has been poorly thought-through, badly implemented, and has produced many unintended costs that will linger for years if not decades.

.... The foreign policies that aroused the greatest anger and opposition were mostly pursued in Bush's first term: the invasion of Iraq, the rejection of treaties, diplomacy and multilateralism.

.... Change has not extended to all areas, and in many places it's been too little, too late. But that there has been a shift to the center in many crucial areas of foreign policy is simply undeniable.

Zakaria offers rubric of a dozen points for his report card.

• World Bank appointments:Bush followed his first appointment of the under-qualified Paul Wolfowitz, "an arch neoconservative with little background in economics" with Robert Zoellick.
• Policy point man/woman: poster child Dick Cheney has been replaced by pragmatists Condoleezza Rice, Robert Gates, Stephen Hadley and Hank Paulson..
• Iraq: with too few troops; without support of neighboring Arab states or ; dismantled Iraq's Army; bureaucracy and state-owned factories, arrests tens of thousands of Iraqis, mistreated and tortured some of them, use of overwhelming military force against all perceived threats.
• Afghanistan: American attention, energy, troops and resources were wrongly diverted from Afghanistan to Iraq-is devastating and hard to dispute.
• On North Korea: Within months of entering the Oval Office, Bush publicly repudiated his secretary of State, Colin Powell, for even suggesting that the administration would continue Bill Clinton's efforts to negotiate with Kim Jong Il.
• On Iran, Forget the muttering of various proponents of military action, periodically leaked to newspapers.. The general thrust of Bush administration policies has now evolved into the correct one.
• The same could be said for the Israeli-Palestinian peace process. Bush began his term in office vowing that he would not involve himself in Clinton-style efforts at peacemaking. His administration adopted a hands-off approach, allowing resentments to build and conditions to worsen.
• Lebanon: It gave free rein to irresponsible policies from all parties, encouraging, for example, a thoughtless and ill-planned Israeli attack on Lebanon that ended up weakening Israel, devastating Lebanon and empowering Hizbullah.
• Global HIV projects, treating AIDS patients, billions more than Clinton did
• Darfur: admittedly a tough nut to crack. Bush has totally fucked up Somalia, but he had the consent of Euopean members of the Security Council on this one.
• China: Changed from Clinton theme of "strategic partnership" to competitor and back again when , a U.S. reconnaissance aircraft collided with a Chinese fighter plane four months into his administration. Now Bush is present at the opening of the Chinese Olympics and blind to China's role in Burma, Darfur, and Tibet.
• India: Bush broke the deadlock by accepting, in large measure, that India would have to be treated as an exception and be brought into the nuclear nonproliferation regime as a nuclear power, not a renegade.

Zakaria's conclusions:

All this is not meant as a defense of George W. Bush. The administration made monumental errors in its first few years, ones that have cost the United States enormously. The shift in impressions about America's intentions across important sections of the globe, the sense in much of the Islamic world that America is anti-Muslim, the vast and counterproductive apparatus of homeland security-visa restrictions, arrests and interrogations-are lasting legacies of the Bush administration. Its dysfunction and incompetence have left a trail of misery in countries like Iraq and Lebanon, which have been destabilized for decades. The embrace of torture and other extralegal methods has violated America's noblest traditions and provided little in return.

. . . . . Bush 43 has surely been the most fiscally irresponsible president in American history, taking surpluses that equaled 2.5 percent of GDP and turning them into deficits that are 3 percent. This is a $4 trillion hit on the country's balance sheet. On the central issue of energy policy-the greatest economic challenge and opportunity of our times-Bush has been utterly obstructionist, recycling the self-serving arguments of industry lobbyists. On the whole, Bush's record remains one of failure and missed opportunities....

A sorry tale....