Notebook, 23 January 2011: My Response to Howard Dean and bobswern . . .


I was flattered to be asked by Howard Dean for my thoughts on the way forward for progressives. Thank you, Governor Dean, that was gracious of you, and my thoughts follow.

I deleted my extended answer, then bobswern’s diary prompts me to revisit my concerns. This post is actually a comment which had gotten out of hand, as well as my response to Gov. Dean.

If you will, follow me beneath the fold . . .

My original comment:

Political considerations…

also play into Obama’s move rightward. In a replay of Clinton’s midterm ideological shift, Obama read the November results as a repudiation of the left. We hear this daily repeated on the center-right MSNBC: the oft-repeated “desire for Washington to work together” meme.

Will It Work?

All Obama’s pro-business moves will work only if business (not necessarily the financial markets) put on the blinders and talk themselves into believing they’re dealing with another Reagan. I don’t think that’ll happen. Enough ideological free-market believers are out there to run the table in New York and Chicago, and they don’t like democrats as a matter of principle.

I recently gave Obama’s strategy a 40% chance of working, but now, I’d have to revise that downward. The state of politics, especially on the wingnut right, is enough to keep businessmen on edge. Matthews recently said that Obama will get re-elected only if he can reduce unemployment below 8%, which is within two points of full employment, and I don’t see that happening. This doesn’t take into consideration the long term unemployed, neither does it consider the quality of those jobs.

I can see Bonddad and New Deal Democrat rolling their eyes at this point. But I think what they miss is the fact that financial markets, which are doing very well these days, and the rest of the markets are not correlating strongly these days, and I don’t think even they would argue that. For my part, I think what we’re seeing in the markets is a dead-cat-bounce resulting from the fact that we seem to have avoided another great depression thus far. A real rebound would entail a significant shift in wealth, a re-balancing of America’s income profile:

to empower a strong consumer base. In other words, rebuilding the middle class.

For political and economic reasons, businessmen are still worried about the future, though less so than they were 2 years ago. The president’s recent moves: going along with the tax cut extension, meeting with 20 CEO’s shortly thereafter and appointing Jeff Immelt “Jobs Czar”, are all designed to reassure business. The fact that Immelt accepted that post is a measure of just how worried businessmen are at this point.

The central question remains:

Will businesses decide to risk their resources here in the US or rather go where there are still hot markets?

We’re seeing institutional investors go elsewhere.

To Bonddad and New Deal Democrat, I reiterate: there will be no recovery until the consumer base is rebuilt. This is fundamental, and anyone who ignores this, is overly focussed on just a piece of the puzzle which is the state of the economy. It is not a piece of data which can be charted, but one of political economy. Trying to explain things through monetary policy (Friedman), the state of financial markets (Bonddad’s Blog. I know, there is more there than market charts, which is why I drop by from time to time), or daily market analysis (CNBC), has lost the broader view. The political environment is crucial, and we will not see certainty rebound while political events such as the pending debt-ceiling fight and the failure of House Republicans to fund the parts of the PPACA fail to generate the promised cost cuts for businesses await.

David Frum, just now on CNN, says that Republicans will look for weaknesses in the SOTU.

Another example of how politics will affect the economic recovery—the GOP still plays political hard ball rather than move outside their comfort zone to do what needs to be done.

Furthermore, anyone who believes that the GOP in the House will allow measures which foster employment before the 2012 elections is fooling themselves. I don’t think it a stretch to believe that they have made that political calculation, and this is something that every ideologically anti-government, fiscally conservative remark should be measured against.

To Howard Dean, we must begin by recognizing that the greatest barrier to entry for small business creation are large American corporations. That’s just one example that I know of. I know of a supermarket chain, an auto parts manufacturer, a handheld printing device maker, and more, who have suffered like fates at the hand of shareholders. A high ROI does not mean better business practice. Frequently it is just the opposite. This is news to exactly nobody, and we need to get back to this truth. Therefore, I propose diverting tax deferred retirement contributions from the financial markets to a pool funding small business creation. Highly risky, this can be attenuated to a large degree through fielding an army of entrepreneurial mentors, funded by taxes, favorable credit terms and various tax initiatives, such as making returns on these contributions tax free when redeemed. We can be smart about this.

To kossacks and democrats: Chris Matthews recently put out his “Big Number” of 8: the threshold below which U3 unemployment must drop to prevent a GOP takeover of the white house in 2012. As anything less than 6% is generally considered full employment, he proposes that we must be within 2 points of full employment in order get re-elected, and I don’t see that happening. The president says that the economy now needs to go into “overdrive” in order to meet his employment goals. In other words, we need another bubble to reach his economic and employment goals, and this is probably unrealistic:

Historically, employment recovery takes 4.8 years (Massive H/T to Carmen Reinhart and Ken Rogoff for their comprehensive work, This Time Is Different: Eight Centuries of Financial Folly) which should put recovery sometime in 2013.

A year too late to do any good for the 2012 election cycle.

Thus far, we’ve seen health insurance relief for businesses go off the rails (thanks to people like Blanche Lincoln, Max Baucus, and Joe Lieberman), massive support for financial markets (to the point where deficits become an issue the right wing can credibly beat us with), Dodd-Frank fail to reform investment banking, and Democrats fail to adopt the politically populist “soak the bastards who got us into this mess” tax debate prior to the midterms. The pro-business moves by the administration are essentially a political move to take undisputed control of the center, which in practical terms remain an Hail-Mary pass attempt dependent on the good graces of a class of economic player traditionally hostile to Democrats. However at this point, I don’t see any alternative direction the administration can take.

We can thank a handful of Senate Democrats Dinosaurs.

In short:

Domestic businesses who swallow the deficit claims made by the right wing of the GOP and fail to support measures to strengthen the middle class are cutting their own throats. Financial markets are dictating that investment go abroad, and business, especially domestic businesses, need to support measures which enhance the purchasing power of their customers.

I don’t know any clearer way to state what I believe needs to be addressed. “Competitiveness,” though business-friendly and generally is interpreted as across-the-board wage reductions, is exactly the wrong focus.


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