Michael Grabell : How the Stimulus Revived the Electric Car

Rodney Smith cleans a new Think electric car at the Magnum Drive plant in Elkhart, Ind. Photo by J. Tyler Klassen / The Elkhart Truth / AP / Pro Publica.
How the stimulus revived the electric car

Although electric cars would not make up for the generation-long loss of manufacturing jobs, at least not yet, it was novel to see companies creating jobs in the Rust Belt instead of outsourcing them.

By Michael Grabell / ProPublica / January 31, 2012

A common criticism of President Obama's $800 billion stimulus package has been that it failed to produce anything -- that while the New Deal built bridges and dams, all the stimulus did was fill some potholes and create temporary jobs.

Don't tell that to Annette Herrera. She was 50 when the auto supplier she worked for in Westland, Michigan, closed its factory and moved the work to Mexico. Then, after being unemployed for two and a half years, she got a job in October 2010 with A123 Systems, which had received $250 million in stimulus money to help open a new lithium-ion battery plant in nearby Romulus, Michigan.

"The first thing I did was call my husband and tell him, 'You're never going to guess! I got a job!'" Herrera recalled. "And then it was like celebration time."

One success the Obama administration can duly claim is the rebirth of the electric-car industry in the United States. Automakers have unveiled a number of mass-market electric cars, which have seen small but rising sales. Battery and parts manufacturers are building 30 factories, creating thousands of new jobs. A123 has hired 700 workers at Herrera's plant and a second one in nearby Livonia, and plans to hire a couple thousand more people over the next few years.

If it wasn't for the stimulus, the companies say, they would have built these plants overseas.

It was all part of an effort to promote "green" manufacturing and put a million electric cars on the road by 2015.

The question is: Will it last?

Elkhart, Indiana, once believed it would. It saw electric vehicles as its salvation after watching its unemployment rate hit 20 percent. Eager to seed a new industry, the county witnessed electric-vehicle ventures sprout out of nowhere as the stimulus took off in 2009.

But by late summer 2011, what had sprouted were weeds. The parking lot of the Think electric-car plant was full of them, some more than a foot high growing from the cracks. Out front were two pickups and a motorcycle.

Hundreds of laid-off factory workers were supposed to have found jobs churning out the Norwegian company's bug-like, plastic-bodied cars, which ran solely on electricity.

Today the Elkhart factory employs two. Its parent company filed for bankruptcy in June. Its largest shareholder and battery maker, Ener1, which received $118 million in stimulus money, did the same last week.


A second life

Electric cars began appearing on California roads in the mid-1990s after state regulators mandated that a certain percentage of automakers' fleets include zero-emissions vehicles.

But within a few years, they were deemed a failure by car companies, which stopped making them and took back those they had leased.

Much had changed in the eight years leading up to the stimulus package. The lead-acid and nickel-metal hydride batteries that weighed as much as 1,200 pounds were replaced with lithium-ion batteries that weighed as little as 400 pounds.

In the early 2000s, gas hadn't even passed $2 a gallon. Less than a decade later, it was twice that. Toyota had proven the demand with its long waiting list for the Prius hybrid.

Government policy had changed, too, with a 2007 energy bill that increased fuel-efficiency standards and provided $25 billion in loans for automakers to upgrade their plants.

But until the economic stimulus package was passed in 2009, the manufacture of electric cars and their batteries in the United States was nearly nonexistent.

The United States had only two factories manufacturing less than 2 percent of the world's advanced batteries. Most were made in Korea and Japan. In America, only Tesla manufactured an electric car -- which sold for a cool $100,000. Across the entire country, there were a mere 500 electric charging stations.

But as the stimulus kicked in, there was suddenly no better environment for the electric car to thrive.

With more than $2 billion in federal grants, matched by another $2 billion in private investment, the Obama administration was supporting electric cars from the mine to the garage.

Chemetall Foote Corp., which operates the only U.S. lithium mine, received $28 million to boost production at its plants in Nevada and North Carolina. Honeywell received $27 million to become the first domestic supplier of a conductive salt for lithium batteries. More than $1 billion was spent to open and expand battery factories, many of them in hard-luck towns across Michigan. Through a separate federal program, automakers received loans to retool their assembly lines.

Customers could receive a $7,500 tax credit for buying an electric car. The stimulus provided funding for 20,000 electric charging stations by 2013. In many cities, drivers could get a home charger for free.

Although electric cars would not make up for the generation-long loss of manufacturing jobs, at least not yet, it was novel to see companies creating jobs in the Rust Belt instead of outsourcing them.

In July, Johnson Controls opened the first U.S. factory to produce complete lithium-ion battery cells for electric vehicles. Compact Power is building a $300 million factory in Holland, Michigan, to produce batteries for the Chevy Volt and the electric Ford Focus. A123 now supplies the luxury electric carmaker Fisker Automotive and the manufacturers of electric delivery trucks used by FedEx and Frito-Lay. "Quite simply, if we didn't get that grant, we wouldn't have built [the factory] in the U.S.," A123 spokesman Dan Borgasano said.

The battery grants have created and saved more than 1,800 jobs for assembly workers, toolmakers, and engineers, according to a ProPublica analysis of stimulus project reports filed by the companies. That number doesn't include the workers who constructed the plants or those hired by the matching private investment the companies had to make to get the grants.


Killed again?

The problem: Consumers have been slow to embrace the electric car.

The price of the battery is still too high, and the price of gas is still too low, the Government Accountability Office warned in June 2009 before the grants were awarded. The starting price for the all-electric Nissan Leaf is $33,000, while the hybrid Volt sells for about $40,000 before tax credits -- far more than many middle-class families can afford.

About 40 percent of drivers didn't have access to an outlet where they park their vehicles, the GAO noted.

"Although a mile driven on electricity is cheaper than one driven on gasoline," the National Research Council reported, "it will likely take several decades before the upfront costs decline enough to be offset by lifetime fuel savings."

Perhaps the biggest obstacle, though, was what the automobile represents in the American psyche: the freedom of the open road. While most people drive less than 40 miles per day, consumers want cars that they can also take on summer vacations -- and they don't want to have to constantly worry about looking for a charging station.

The Leaf's range is just 73 miles, according to the official government rating, well below the much-advertised 100 miles.

By the end of 2011, fewer than 18,000 Leafs and Volts had been sold in the United States.

A report by congressional researchers last year concluded that the cost of batteries, anxiety over mileage range, and more efficient internal combustion engines could make it difficult to achieve Obama's goal of a million electric vehicles by 2015. Even many in the industry say the target is unreachable.

While the $2.4 billion in stimulus money has increased battery manufacturing, the congressional report noted that the United States might not be able to keep up in the long run. South Korea and China have announced plans to invest more than five times that amount over the next decade. Even A123 had to lay off 125 workers in November -- though Borgasano says the company plans to rehire them all by June -- because Fisker reduced orders.

Dick Moore, the mayor of Elkhart, had hoped the area known for its recreational-vehicle factories would one day be not just the "RV Capital of the World" but the "EV Capital of the World" as well.

Navistar International had received $39 million in stimulus money to build 400 electric delivery trucks in the first year. But by early 2011, it had hired about 40 employees and assembled only 78 vehicles.

Think had rallied into 2011 with plans to start production in Elkhart earlier than expected. But in April, assembly work suddenly stopped as the plant awaited parts from Europe.

In June, Think's parent company filed for bankruptcy. The decision left the Elkhart plant slouching toward extinction until the American subsidiary was purchased by a Russian entrepreneur who promised to restart production in early 2012.

But on Thursday, its battery maker, Ener1, also filed for Chapter 11 bankruptcy, reporting that the demand for electric vehicles "did not develop as quickly as anticipated."

Elkhart's dream of becoming the EV capital?

Moore put it this way: "The fact that this hasn't moved very quickly, that doesn't bode well for that idea."


The future

The fate of the electric car depends greatly on whether sales take off soon.

There are other factors, such as the price of gas and whether Congress approves proposed standards requiring automakers to raise the average fuel economy of their vehicles to 55 miles per gallon by 2025.

The electric car has always struggled with a chicken-and-egg dilemma: Automakers have been reluctant to build electric cars without consumer demand. But consumers won't buy them until automakers develop cheaper, longer-range batteries.

One of the goals of the ongoing stimulus spending is to solve this problem. By 2015, the 30 battery and component factories will be able to produce 40 percent of the world's batteries, according to the administration.

The investments would help manufacturers increase the batteries' life from four years to 14 and cut their cost from $33,000 to $10,000, the administration said in a report on innovation. That would make the electric car more competitive.

Herrera noted that many people at the A123 factory believe they will never be able to afford the cars powered by the batteries they make. But, she says, "you never know."

"When the flat-screen TVs first came out, they were way expensive, and now they're reasonably priced," she said. "I think that's going to be the same thing with electric automobiles. This is a new product. It's going to take time."

[Michael Grabell has been a reporter at ProPublica since 2008, producing stories for USA Today, Salon, NPR, MSNBC.com, and the CBS Evening News. Before joining ProPublica, he was a reporter at The Dallas Morning News. He has twice been a finalist for the Livingston Award for Young Journalists. This story was published at and distributed by ProPublica It was adapted from Money Well Spent?: The Truth Behind the Trillion-Dollar Stimulus, the Biggest Economic Recovery Plan in History which will be published Tuesday, February 6, by PublicAffairs.]

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'Trickle Down' Folly : Cutting Taxes Doesn't Create Jobs

The "trickle down" theory: how it works.
How NOT to create jobs:
Cut business taxes and lower wages?

Money does not trickle down in a capitalist economy -- it flows upward, and that has always been true.

By Ted McLaughlin / The Rag Blog / February 3, 2010

For years now, the corporate-owned Republicans have been telling us that the way to create more jobs in America is to cut business and corporate taxes and lower wages for workers. They would like to do away with the minimum wage completely, which would put downward pressure on all wages (except for corporate executives).

Even President Obama has recently jumped on this dubious bandwagon by recommending business tax cuts as a part of his jobs creation program. On the surface, this sounds like it might work. After all, if business owners got to keep more money from reduced taxes, they would be able to afford to hire more workers -- right?

The real question is whether a businessman being able to afford more workers would actually translate into that businessman hiring more workers. I submit it would not. Answer this question -- is a person in business to create new jobs or to make as much profit as possible?

Any sentient being knows the answer to that question. Nobody goes into business to create jobs. Most business owners work very hard, and they do it to make as much profit as possible so they can make life better for themselves and their families (and there's nothing wrong with that as long as it's done legally).

So what would happen to the extra money a business owner would get to keep from lower taxes or lower wages? Unless he/she chose to donate it to some charity (and a few might), it would go in the owner's bank account to maximize profits (and the same thing would happen in a corporation). This is understandable, but it does nothing to create new jobs.

There are a couple of ways to cut taxes and stimulate job growth, but they are cumbersome and expensive and nobody is proposing them. One way would be to legally tie a business tax cut to the creation of new jobs at that business ($X in cuts=X number of new jobs). The problem with this approach is that the tax cut would have to equal or exceed the actual salaries of the new jobs in order to create more than a miniscule amount of jobs.

That would be a very expensive solution. It would probably be cheaper for the government to hire workers directly for a depression/recession program like Roosevelt's CCC or WPA.

So if a business tax cut will not work, what kind of tax cut will work? A consumer tax cut like lowering sales taxes or income taxes (for those making less than $100,000).

Republicans want us to think the American economy works in a "trickle down" manner. In other words, if you give the rich businesses enough money some of it will trickle down to workers. That is total nonsense. The economy has never worked that way. Money does not trickle down in a capitalist economy -- it flows upward, and that has always been true.

Just look at our history. The best times for our economy were when consumers had money to spend. Take the 1950's for example. Consumers had it good because it was a time of educational achievement (thanks to the GI Bill) and union expansion. This gave consumers more money to spend, and because of that businesses (both large and small) thrived as that money flowed upward.

There is only one reason for a business owner to hire more workers (create jobs), and that is because he/she needs more workers to handle an increase in demand for that business's goods or services. That increased demand can only happen when consumers have money to spend.

This same argument is true whether we are talking about tax cuts or lower wages. Lower wages would let the business owner keep more of his money, but it would also shrink the amount of money consumers have to spend. And in the long run, that would hurt both workers and businesses. Instead of costing jobs (as Republicans want us to believe), higher wages actually create jobs as businesses must hire workers to handle increasing demand created by the higher wages.

Cutting business taxes and/or lowering wages is only a short-term solution for a long-term problem. This recession has cost America over 7 million jobs, and this economy will not really start moving again until we recover most or all of those jobs. The only way to do that is to aim the recovery money at workers and consumers -- not at businesses.

Cutting business taxes and/or lowering wages will give businesses a little short-term profit, but will not create jobs or help the economy. Cutting taxes for consumers and directing recovery money at workers will not only create jobs and put our economy back on track, it will help business even more in the long-term. It is the only solution.

(A tip of my hat goes to Badtux the Snarky Penguin for his humorous and very astute take on this situation.)

[Rag Blog contributor Ted McLaughlin also posts at jobsanger.]

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Minsinformation and the Economy : The Games Republicans Play

The independents are jumping ship...
Republican misinformation and economic reality

By Sherman DeBrosse / The Rag Blog / November 18, 2009

By persistent obstructionism and using endless false information, the GOP pulled off some big wins in the 2009 elections. Worse still, they have been able to convince people that Obama has handled the economy badly. The YouGov poll shows that 47% disapprove of Obama’s handling of the economy, while 43% approve.

The biggest problem is that the independents who supported Obama are deserting in big numbers. One reason for this is that unemployment is getting worse, and is now at 10.2%, somewhere around 17% when we take into account all the gimmicks that are employed to keep the figure artificially low. We think that it will be 9.5% next November, around 15% in real terms. That does not bode well for the Democrats in next year’s elections.

The most recent Rasmussen poll shows 49% of respondents blaming George H. W. Bush for the bad economy; 45% blame President Obama. The tendency has been for the number blaming Bush to sharply decline, while the number of those blaming Obama are increasing. One third of likely voters thought the stimulus was doing some good.

Republican columnist Peggy Noonan tells us that voters think deeply about the issues and follow the news carefully. She says the public cannot be easily manipulated. No sane, and rational person could conclude the economy Obama inherited was not all that bad or that he could be expected to fix it in less than ten months.

Even granting the public’s impatience, it is hard not to conclude that the Democrats have not effectively communicated with the public about the economy. The Republicans have shown far better message control. The lies they have been endlessly repeating are not particularly clever. But they are effective because they play to people’s desire for simplistic answers and they fit a childlike view of economics that the Republican information machine has sold the American people for more than three decades.

Republican politicians and pundits as well as mainstream media types repeatedly say that President Barack Obama now “owns” the bad economy.

The more astute Republican spokesmen concede that the downturn began under Bush but insist that Obama should not have sought the presidency if we were unable to administer a quick fix. That they are justified in blaming Obama for lost jobs and the slow recovery. Their false assumption is that all recessions are the same and can be fixed easily.

This simple fact is that Obama inherited a financial system that had almost fallen apart and an economy on the verge of depression. Even now the financial system is so shaky that the banks are still hoarding money. As long as they continue not lending, employers will not be able to borrow money to expand production. Anyone can understand that, and the Democrats had better be making these simple points at every opportunity.

John Boehner, the typical Republican spokesman, continually asks “Where are the jobs?” though there has not been enough time for Obama’s policies to work. Then he says that all the stimulus money has been spent and has accomplished nothing. The fact is that $500 billion still has not been committed and much of the remainder is just getting into the pipeline. Republicans have vastly inflated the amount of debt incurred under Obama. The amount of the Stimulus was $787 billion, but the Republicans have been saying it was $ 1 or 2 trillion and no one corrects them. This man consistently generates so much misinformation that someone in the House leadership should be detailed to answer Boehner’s distortions and lines.

Representative Jack Kingston of Georgia boiled down the Republican argument to this simple lie: “Let’s remember the Pelosi plan for jobs: an $800 billion stimulus plan that caused unemployment to go from 8.5% to over 10%.” How anyone can believe the plan created unemployment -- and in such a short time -- challenges the imagination. Of course, one might suggest that such arguments were pitched to people still unhappy that a black man is in the Oval Office.

Democrats must answer Boehner and Kingston by noting that the Republicans offer no jobs plan other than tax cuts for the wealthy and blocking efforts to stimulate the economy. We Democrats have a plan, and it is beginning to work by reducing the number of lost jobs. It may not create jobs as quickly as we want because the deep economic problems are rooted in a system the GOP created and defended. It cannot be changed overnight.

Only in America

Obama’s policies helped saved us from another depression. Yet he is being blamed for not working miracles. He inherited the worst sort of recession -- one with very high unemployment, which is followed by very slow recovery of jobs. The financial system he inherited is a basket case, and it will take years to fix it. Only in the United States, among advanced countries, would a president and his party be punished for heading off a depression and not producing an impossible economic miracle. That is because the level of our political discourse is so low, our voters so uninformed, and our mainstream media so unprofessional.

Now many people believe the wild claims about “socialism” and losing their liberties, and Democrats ruining the economy, because they have almost no conceptual framework with which to view the economy. For decades they have been taught that invisible economic laws operate the economy and that government must interfere with those laws. A careful study of these market forces in reference to CEO compensation might raise questions about this.

Recently CEOs were getting huge bonuses while stockholders were taking it on the chin. What happened? Did market forces find a shortage of bad CEOs and choose to heap vast rewards on the bad ones? Lack of regulation produced the financial crisis, and now the Republicans are trying to weaken the proposed new rules. They are even fighting the creation of a new agency to protect loan consumers. Is that because the banks were so fair with customers in the past?

A good economist will tell you that economic actors always try to lower their exposure to risk. That is why there are monopolies and why energy companies in some states reach informal agreements not to compete with one another. It explains why state insurance commissions end up in the hip pocket of the industry and approve great rate hikes when the portfolios of the companies go south. That is why people have always been trying to game the system.

The CEO appoints the compensation board to make sure he gets an enormous compensation package. Financiers like Bernie Madoff found other ways to make the system work for them. Former Republican Senator Phil Gramm found a way to so rig the markets in derivatives that he got richer while many of us lost a good chunk of our savings. Yes, some Democrats like Bill Clinton went along with him, and they should be doing penance. So much for the market fundamentalism that led us to near disaster!

Jacoby compares the current political atmosphere to the period when Joseph McCarthy was difficult to challenge. Now as then, there was a headlong flight from reason and a distrust of rational arguments. Reason, history, and facts have become dirty words. The level of political discourse has been so debased that we might be approaching the point when intelligent exchange of ideas is nearly impossible. Emotions and irrationalism were powerful forces. McCarthyism passed after a brief period of dominance, but now, half a century later, people in the conservative think tanks have figured out how to quickly generate such periods of hysteria and to prolong them when they think it necessary.

Susan Jacoby noted that it was not the secrecy surrounding the Clinton health care plan that accounted for its demise. Rather, the Democrats had failed to prepare and educate voters on what the Clinton plan would involve. They should have anticipated simplistic Republican complaints and lies and used facts to help voters see through Republican appeals to emotions and fear. With little good information at their disposal, many average Americans believed the Harry and Louise claims against Clinton care.

Democrats need to inject reason into this poisonous atmosphere, and they must remember that they lack a fair MSM or a vast network of well-funded think tanks to educate the public and prepare the public for progressive initiatives. They need not focus on the Republican base; those folks are not open to persuasion. There are thinking independents out there who can be reached with reason and facts.

Democrats will need to learn a few things about message control and to draw upon the expertise of people in cognitive science like George Lakoff. If Democrats cannot seize the initiative in the national discourse, we could well see a president Sarah Palin and a cabinet stuffed with tea baggers like Dick Armey in 2013.

[Sherman DeBrosse is a retired history teacher. Sherm spent seven years writing an analytical chronicle of what the Republicans have been up to since the 1970s. The New Republican Coalition : Its Rise and Impact, The Seventies to Present (Publish America) can be acquired by calling 301-695-1707. On line, go here.]

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Barack Obama : Stop the Runaway Train

President Obama: Stop the runaway train of globalization.
Long range strategic innovation:

Globalization, the financial crisis, environmental planning, and getting out of Afghanistan

By Ray Reece / The Rag Blog / November 5, 2009

Call this a lesson in how to ensure your mail to the White House won't be answered. The following proposal was originally drafted in response to a call for submissions on the Obama Transition Team website. That was back in December, after Obama's election but before his inauguration. "President-elect Obama wants to hear from you," said the website. "Send us your ideas for change."

So we did -- we being the motley band of scholars, activists and free-thinkers scattered worldwide who constitute the nucleus of the organization named below. Ten months later, we're still waiting for a green light from the White House, or at least a form letter. We're not twiddling our thumbs, though. We plan to have a website of our own online by the time Obama delivers his State of the Union address next year. Stay tuned.

Like hundreds of millions of other people around the world, I'm excited by the prospect of having Barack Obama in the White House. I'm a Texas journalist currently working in Italy and Hungary. I'm also a researcher and activist in several spheres of policy and politics, including energy-environment, urban and regional planning, transportation, and, to put it bluntly, the runaway train of globalization.

I have recently joined the board of a new organization of like-minded activists in the U.S. and Europe called the World Coalition for Local and Regional Self-Reliance. In future dispatches, if you are receptive, I will spell out the specific implications of that. For now I want mainly to advance a pair of policy suggestions that arise from the premises of our coalition.

One is based on our conviction that the current approach in Washington to resolving the so-called financial crisis and "getting America back on its feet" is grounded in faulty, obsolete reasoning that will cause it to fail and even be counterproductive in the long run.

We contend that the financial crisis is functionally intertwined with other national and planetary crises, led by global climate change, or GLOCCH, and Peak Oil, the imminent depletion of the fossil fuel resources on which the entire 21st century "global economy" is based. The financial crisis is likewise inextricably bound up with the hyper-suburbanization of American cities, the egregious loss of farmland and other productive capacity, and, yes, globalization and its evil twin, international terrorism.

The latter, we argue, is nothing more or less than a violent response by the oppressed of the world -- oppressed culturally as well as economically -- to those perceived as their oppressors, meaning, above all, the purveyors of economic and cultural globalization on Wall Street and elsewhere, in league with their national governments.

The banking crisis is thus not merely a symptom of lax regulation of financial markets and greedy investors in recent years. It is systemic in nature, and a systemic crisis requires a systemic response. The trillion-dollar stimulus package recently approved by Congress is not a systemic response, since it purports merely to restart the sputtering engine of the failed larger system itself. Rather, or perhaps we must now say in addition to the stimulus package, the whole matrix of primary socioeconomic assumptions and institutions in the United States -- as a starting point and global model -- must be examined, assessed and, over time, fundamentally changed.

Toward that end, as our first policy suggestion, we urge President Obama to establish and fold into his brain trust a new Office of Long-Range Strategic Policy Innovation. This would be the place in the White House where staff would be recruited to "think outside the box," where vision, boldness and creativity would be prized over technical jargon and obeisance to America’s dying corporate mammoths and their powerful defenders in Washington. It is here that independent in-house thinkers, with appropriate input from real-world experts, would incubate the brave new concepts and paradigms the nation and world will need to survive and supercede not only the "financial crisis" but the web of corresponding metacrises mentioned above.

We dare to hope, indeed will strive to ensure, that among the big initiatives generated by a presidential Office of Policy Innovation would be the following:

1. a greatly expanded and modernized national rail system for passengers and freight alike, similar to the European system;
2. transformation of the urban/exurban population grid to a revised geography of small and mid-sized cities and towns that are largely autonomous and self-sufficient in the production of food, energy and other life-support resources;
3. promotion of small organic family and community farms as the mainstay of American agriculture;
4. at the macro level, encompassing all of the above and more, a liberation of human society from its self-defeating enslavement to the imperative of “growth” in favor of sustainability, sharing and reverence for the planet and its threatened wealth of species.

Our second policy suggestion would necessarily be implemented first, partly in order to redirect funds from the military budget to the crucial and expensive federal initiatives implied heretofore. We urge President Obama to make good on his promise to withdraw American military forces from Iraq. We further urge him NOT to nullify the positive effects of that decision by enlarging and prolonging the American-led NATO military presence in Afghanistan. Such a move, we believe, not only would not save Afghanistan from its own Islamic militants, nor strengthen the security of the U.S. and its allies.

It would have the opposite effect -- in fact might well produce a catastrophe on the scale of the wars in Iraq and Vietnam -- while diverting critical funds and other resources from the task of redesigning and rebuilding our own beleaguered society. To buttress our case, we refer you to a pair of recent articles in The New York Times, one a column by Bob Herbert, "The Afghan Quagmire," the second an essay in the Times magazine, "The Worst Pakistan Nightmare for Obama," by David E. Sanger.

Other references, to name but a few, include two books by James Howard Kunstler, The Long Emergency and World Made By Hand; Kunstler’s blog; E.F. Schumacher’s timeless classic, Small Is Beautiful; two books by Kirkpatrick Sale, Dwellers in the Land and Human Scale; Bill McKibben’s End of Nature; everything published by David Morris and the Institute for Local Self-Reliance; everything published by Pliny Fisk and Gail Vittori at the Center for Maximum Potential Building Systems; La Decrescita Felice by Maurizio Pallante and his website.

[Ray Reece is affiliated with the World Coalition for Local and Regional Self-Reliance. He is a former columnist for The Budapest Sun and author of The Sun Betrayed: A Report on the Corporate Seizure of U.S. Solar Energy Development, among other published works. His most recent book is Abigail in Gangland, a novel. He is currently based in Cagli, Italy.]

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A Stimulus Plan With Jubilee Vouchers. Hallelujah!

Keeping the bear at bay:
Jubilee Vouchers and a complete stimulus plan

If we don’t get a serious world-historical plan in place before the real Bear Market hits we’ll soon be thinking of 'mere unemployment' as the good old days.

By Greg Moses / The Rag Blog / July 15, 2009

In a world where one class manufactures credit and the other class clings to hope, how bad can a debt economy be? Of course, we could have that long-awaited revolution where the hopeful class clobbers the lending class and puts an end to the disparities that make borrowing necessary. But what would happen the week after that?

On the other hand we could recover the wisdom of the legendary Jubilee by placing the lending class on notice that every seven years we're going to have a write-down party, beginning with the summer of 2009.

I offer this as a "mustard seed" (with kudos to Larry Kudlow for the Gospel term that he applies to the salvation of capitalism). Jubilee Vouchers could be sown into "green shoots" and harvested as part of the next stimulus plan. If such debt-relief were offered directly to all the people, all at once, you would surely short the future of any politician who tried to get in the way.

The only moral problem with this idea is how to respect and reward all the good people who didn't get caught up in debt mania. We should acknowledge their moral superiority and sacrifice.


Therefore, the Federal Reserve Bank shall distribute to each taxpayer a book of Jubilee Vouchers totaling $10,000 which shall be accepted by any creditor in return for debt relief. Any unused Jubilee Vouchers held by people of moral superiority and good sense may be presented to the IRS for tax credits that will be good for as many years as the balance may last.

We'll let the big brains at the Federal Reserve Bank work out the technicalities of what happens next. Maybe they can open up a $2.25 trillion jubilee line of credit to be paid down with interest from the lenders they support. They could call it The People’s Bank.

Or the Fed could refuse to redeem Jubilee Vouchers from lenders who have proven to be predatory, forcing them into immediate bankruptcy. Where the Fed is concerned the world has full faith that when it comes to credit, if there’s a will, there’s a way. (Cap and trade on the national debt anyone?)


Perhaps there is a moral concept of modern economics that will be transgressed by the revival of Jubilee wisdom, but since we're borrowing our financial language from the Gospel, why not invite those without financial sin to cast the first stones?

For example, there are people who get paid by huge broadcasting conglomerates who sometimes puff themselves up as saints -- as if the whole credit scheme never leaks into the advertising budgets that fund their creditable livelihoods. We could invite them to stone us, but they'd stone us anyway.

The point is that credit mania became a thoroughgoing social mood that ate and fed all of us with the same collective spoon. Nobody stopped it why? Because we were all hooked into the accelerated experience of the leveraged life.

Since we haven’t got the appetite to prosecute debt pushers or their officious collaborators, and since it is probably true what Greenspan says -- that we will never outlaw greed -- at least we might offer some meaningful ritual comforts to all the addicts who get left with nothing but the spasm of withdrawal.


In addition to Jubilee Vouchers, two other fronts need funding -- which we can visualize via that odd couple at CNBC, Cramer and Kudlow.

Jim Cramer says we need a real New Deal jobs program. Kudlow says we need business tax cuts. Publisher Mortimer Zuckerman has joined issue with Cramer in calling for a real job-stimulus program. And any number of old supply-siders are lining up along the Kudlow-Laffer axis to fight for Capital first.

But enough of the bickering already. Do we need labor or capital? Cramer or Kudlow? Why not both?

At any rate let’s not do as a nation what the readers of the Wall Street Journal did in their online responses to Zuckerman’s sober proposal. Zuckerman stayed focused on the needs of the people and how the government might do its duty. The readers of the Wall Street Journal diverted precious pixels into a childish blame game of whose fault?

Fact is, there are very few of us behaving like part of the solution these days, and Congress could probably get all this done in early August if we make it a condition of their summer break. Get Zuckerman to print the bill, roll it down the aisle in a wheelbarrow, and nothing of the usual diligence or transparency of American democracy would be sacrificed

But if we don’t get a serious world-historical plan in place before the real Bear Market hits we’ll soon be thinking of “mere unemployment” as the good old days.

[Greg Moses is a frequent contributor to these pages. He can be reached at gmosesx@gmail.com.]

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Republicans Blocked Pandemic Preparedness from Stimulus Bill

Susan Collins brags that she led the fight to strip the stimulus bill of pandemic preparednes. Here she shares inanities with President Bush in 2008. Photo by Ron Sachs / Getty Images North America.
GOP Know-Nothings Fought Pandemic Preparedness

Every discussion about a pandemic begins with the public health component but moves quickly to an acknowledgement that an outbreak, and the ensuing quarantines, would bring economic activity to a virtual standstill.

By John Nichols / April 27, 2009

When House Appropriations Committee chairman David Obey, the Wisconsin Democrat who has long championed investment in pandemic preparation, included roughly $900 million for that purpose in this year's emergency stimulus bill, he was ridiculed by conservative operatives and congressional Republicans.

Obey and other advocates for the spending argued, correctly, that a pandemic hitting in the midst of an economic downturn could turn a recession into something far worse -- with workers ordered to remain in their homes, workplaces shuttered to avoid the spread of disease, transportation systems grinding to a halt and demand for emergency services and public health interventions skyrocketing. Indeed, they suggested, pandemic preparation was essential to any responsible plan for renewing the U.S. economy.

But former White House political czar Karl Rove and key congressional Republicans -- led by Maine Senator Susan Collins -- aggressively attacked the notion that there was a connection between pandemic preparation and economic recovery.

Now, as the World Health Organization says a deadly swine flu outbreak that apparently began in Mexico but has spread to the United States has the potential to develop into a pandemic, Obey's attempt to secure the money seems eerily prescient.

And partisan attacks on his efforts seem not just creepy, but dangerously short-sighted.

The current swine flu outbreak is not a pandemic, and there is reason to hope that it can be contained.

But it has already believed to have killed more than 100 people in a neighboring country and sickened dozens of Americans -- causing the closing of schools and other public facilities in U.S. cities.

Dr. Anne Schuchat, the U.S Centers for Disease Control and Prevention's Interim Deputy Director for Science and Public Health Program, explained to reporters on Saturday that, because the cases that have been discovered so far are so widely spread (in California, Kansas, New York, Ohio and Texas), the outbreak is already "beyond containment."

On Sunday, Homeland Security Secretary Janet Napolitano announced that a national "public health emergency" had been declared. Notably, the second question at the White House press conference on the emergency had to do with the potential impact on the economic recovery.

On Monday, the question began to be answered, as Associated Press reported -- under the headline: "World Markets Struck By Swine Flu Fears" -- that: "World stock markets fell Monday as investors worried that a deadly outbreak of swine flu in Mexico could go global and derail any global economic recovery."

Before U.S. markets opened, the Wall Street Journal reported: "U.S. stock futures fell sharply Monday as the outbreak of deadly swine flu stoked fears that a possible recovery in the global economy could be derailed."

The Dow, after several weeks of surging, finished the day down 51 points, with the Journal headlining a late-day report: "US Stocks Down On Continued Swine Flu Fears."

That's unsettling.

To a great many Americans, the latest developments on the public health and economic fronts are genuinely scary.

Not faked-up, politically self-serving scary, like the arguments Rove advanced in February to frame opposition to the stimulus package Obey crafted in the House.

George Bush's political manipulator dismissed Obey's proposals as "disturbing" and "laden with new spending programs." He said the congressman was peddling a plan based on "deeply flawed assumptions."

Like what?

Rove specifically complained that Obey's proposal included "$462 million for the Centers for Disease Control, and $900 million for pandemic flu preparations."

This was wrong, the political operative charged, because the health care sector added jobs in 2008.

As bizarre as that criticism may sound -- especially now -- Rove's argument was picked up by House and Senate Republicans, who made it an essential message in their attacks on the legislation. Even as Rove and his compatriots argued that a stimulus bill should include initiatives designed to shore-up and maintain any recovery, they consistently, and loudly, objected to spending money to address the potentially devastating economic impact of a major public health emergency.

The attack on pandemic preparation became so central to the GOP strategies that AP reported in February: "Republicans, meanwhile, plan to push for broader and deeper tax cuts, to trim major spending provisions that support Democrats' longer-term policy goals, and to try to knock out what they consider questionable spending items, such as $870 million to combat the flu and $400 million to slow the spread of HIV and other sexually transmitted diseases."

Famously, Maine Senator Collins, the supposedly moderate Republican who demanded cuts in health care spending in exchange for her support of a watered-down version of the stimulus, fumed about the pandemic funding: "Does it belong in this bill? Should we have $870 million in this bill? No, we should not."

As late as Sunday, Collins was still using her official website to highlight the fact that she led the fight to strip the pandemic preparedness money out of the Senate's version of the stimulus measure. On Monday, after her machinations with regard to the stimulus bill were revealed, Collins attempted to defend herself, dispatching a spokesman to declare that, "There is no evidence that federal efforts to address the swine flu outbreak have been hampered by a lack of funds."

But, as The Washington Post notes: "Collins and the others who led the fight to axe the flu money three months ago can only hope that doesn't change."

That's because the Republicans essentially succeeded. The Senate version of the stimulus plan included no money whatsoever for pandemic preparedness. In the conference committee that reconciled the House and Senate plans, Obey and his allies succeeded in securing $50 million for improving information systems at the Department of Health and Human Services (HHS).

But state and local governments, and the emergency services that would necessarily be on the frontlines in any effort to contain a pandemic, got nothing.

Did Rove, Collins and their compatriots want a pandemic?

Of course not.

They were just playing politics, in the exceptionally narrow and irresponsible manner that characterized the Republican response to the stimulus debate –- and that, because of Democratic compromises in the Senate, dumbed down the plan President Obama ultimately signed.

No serious player in Washington has been unaware of the fears with regard to a flu pandemic. They have been well-publicized and well-discussed. Even Collins admitted as she objected to the House allocation for preparedness: "I think that everybody in the room is concerned about a pandemic flu."

And it is important to point out that no serious player in Washington could have been unaware of the threat that a pandemic -- or even the fear of one -- would pose to economic renewal. Every discussion about a pandemic begins with the public health component but moves quickly to an acknowledgement that an outbreak, and the ensuing quarantines, would bring economic activity to a virtual standstill.

So Rove, Collins and those who echoed their know-nothing appeals understood that they were wrong.

But they bet that they would be able to score their political points without any consequences.

Now that fears of a pandemic have been raised, however, it is appropriate to ask whether individuals who are so manifestly irresponsible and partisan should be taken seriously.

This is an especially important concern with regard to Collins, who portrays herself as a moderate who tries to make things work in Washington.

Senate Democratic leaders bowed to Collins in the process of crafting their chamber's version of the stimulus. In doing so, they eliminated more than 80 percent of the modest amount of money that had been allocated for pandemic preparedness -- and all of the money that would have helped emergency services.

Collins played politics with public health, and the economic recovery. That makes her about as bad a player as you will find in a town full of bad players.

But Senate Democrats bent to her demands. That makes them, at the very least, complicit in the weakening of what needed to be a muscular plan.

The bottom line is that there were no heroes in either party on the Senate side of the ugly process that ridiculed and then eliminated pandemic preparedness funding.

There is, however, a hero on the House side. Throughout the process, David Obey battled to get Congress to recognize that a pandemic would threaten not just public health but a fragile economic recovery.

Source / The Nation

Thanks to Cloudy Scribbler / The Rag Blog

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Sherman DeBrosse : An Economic Enema to Chill the Meltdown

People walk to work in the snow as they pass the flag-draped New York Stock Exchange Monday, March 2, 2009. Photo by Mark Lennihan / AP.

The Geithner Plan may be good economics but it probably is terrible politics.

By Sherman DeBrosse / The Rag Blog / March 5, 2009

The Dow and Obama

Last night, an evening news anchor said that the plunging Dow registered investors’ belief that President Barack Obama’s policies were not helping the economy or fixing the financial system meltdown. The fact is that the Dow does not reflect what is going on in the economy, and it does not reflect political opinion.

This line of reasoning demands that Obama be a miracle worker. In the last twenty months, about half the world’s wealth has evaporated, and Obama is supposed to fix it in a matter of weeks!

Obama cannot be blamed for the insolvency of the banks. That was a result of Republican economics. Yes, some Democrats bought into the new ideas, but it was largely Reaganism and Phil Gramm economics. Now John McCain, a big Gramm backer, wants to investigate what happened! What a joke! But if this disaster goes on too long, current Republican efforts to blame him will pay them big dividends.

The Dow is going down because investors know the financial system is broken and insolvent, and they fear that the fix will be painful for them. Some, of course, have listened too much to talk radio and Republican interviews on the cable stations. They fear “nationalization” and “socialism” but would be hard pressed to define either. The obverse of these fears is that the bank managers have done a wonderful job so far.

Headlong panic could doom the Geithner Plan, no matter how excellent it may be.

Setting aside their fears and the real “panic” that exists in the investment world, they have a point in wanting to know exactly what the Geithner Plan is, what banks will be reorganized, and how shaky assets will be assessed. He has kept to very broad outlines because he shares the fear that there is insolvency across the board and because he needs flexibility in addressing it.

The problem is that panicked investors are incapable of patience or even thinking clearly about this. So long as these questions are not answered, the market will plunge over the several months needed to conduct the “stress tests” and for the banks to, probably unsuccessfully, seek private refinancing.

As long as there is uncertainty, investors will stay on the sideline watching the bloodbath and shareholders will keep dumping their stocks.

The continued dramatic drop of the Dow will further reduce confidence in the economy and will begin to rapidly chip away at confidence in the Obama Administration. It will make recovery so much more difficult and will, though unfairly, do infinite damage to Obama and the progressive cause. Republicans are busy talking down recovery efforts and claiming Obama has “cooked the books” when pointing to any sign of hope.

We now know that the Obama Administration thinks another $700 billion is needed to continue the bail-out. If the market continues to plunge, it will be exceedingly hard to get votes for this. Moreover, the folks in Congress do understand the absolute rage most people feel toward the banks.

The current Geithner Plan and the proposed new TARP must be considered together. Maybe this writer has been wrong in saying an approach modeled on what happened in Japan was wrong. Assume a Japanese-style rescue approach is theoretically correct. The fact seems to be that it will take too long to implement and will drive the Dow and public confidence to an unacceptable level. Phase two of this effort seems to be raising another $700 billion to continue the bailout. Finding votes for that will be very, very tough and will cost many Democratic seats in November, 2010. Unless the Democratic leadership and Obama people are sure the GOP will provide half the votes for the Second TARP, a course change is absolutely necessary.

The near impossibility of getting another TARP might save us from just sustaining “zombie banks” through what has been called “the shovel method” and producing a lost decade.

The Geithner plan makes some sense, but it is a political time-bomb and unworkable without a huge second TARP. We need a second best plan that passes the political tests.

A few of the deans of the punditocracy write that great presidents can get beyond partisanship and that Obama should continue to reach out to the GOP. So far we saw a near brick wall of opposition to the stimulus package and GOP’s, led by Corker and Shelby, trying to push GM and Chrysler into bankruptcy, throwing millions out of jobs. Even FDR could not have charmed these blind partisans. Obama should follow Ronald Reagan’s advice, “Trust but verify.”

We need “Plan B” now -- sort of an economic enema

If the current plan is creating too much uncertainty and cannot be completely carried out, we need to think about a second-best approach that can be performed quickly and decisively. Hopefully, its implementation would commit the taxpayer to far less immediate debt.

To buy time and perhaps stimulate growth, four steps—three of which are usually anathema to progressives—could be tried to, promote confidence, buy time and slow the slide.

• Increase the tax credit on new home construction and purchases to 10% up to 15,000.
• Roll back the recent moratorium on off-shore drilling to just the most environmentally sensitive areas.
• Legislate no long-term capital gains taxes on purchases made in the next 24 months.
• Ban short selling for 12 months. We all know that the hedges profit mightily by driving the market down. This must stop now! Even ultra-rightist Ben Stein calls for a halt to selling short.

“Plan B” should simply build on the existing plan. Given that Paul Voelker is a key Obama advisor, a good guess is that the Geithner plan is designed to slowly release the remaining air from the Bush bubble. The problem is that the fear out there was underestimated.

We read that the “stress tests” do not take into account exotic assets and liabilities. They must be thoroughly examined. There is a New Deal lesson we must heed. Conservative scholars may be correct in saying that hundreds of millions were wasted trying to recapitalize insolvent banks. It might be better to just let them sink, more or less at once.

When the tests are done, Geithner should announce that the most insolvent banks must be left to bankruptcy. Market forces must be permitted to do their work. Weak banks can be restructured and combined, with losses being carried by stockholders.

If the second TARP is unattainable, the only recourse is to move swiftly to let market forces quickly and decisively resolve the situation. It might mean more pain for the GOP’s constituencies—banks and bankers, but it will speed the recovery.

To the extent possible, the FDIC will guide restructured banks, and they can be partly recapitalized with money from the Fed. All the bad assets must be identified, purged, and revalued. If there is no TARP money to purchase them, they should be given current market value and placed on contingency basis in a federally operated aggregator bank.

Make a distinction between the everyday banks that loan money for things we can see and use and those at the top of the pyramid that engage in issuing exotic instruments and casino capitalism. Focus on fixing the former and seeing that any aid advanced to them cannot be sent up to whatever is left of the bank holding companies.

Of course, the U.S. needs banks at the top end, but we can build around those we have already subsidized.

When all the smoke clears, borrow a Republican idea and introduce a new insurance scheme for banks and phase it in gradually, perhaps with partial premium write-offs at first.

It will be very messy for some time, and the Dow will fall to new lows. This was going to happen anyhow under Plan A. But the purge could well work if it is sufficiently thorough. There does not seem to be any other choice given the strong possibility that the Congress and public simply will not accept borrowing hundreds and hundreds of billions to bail out the irresponsible bankers.

It is a shame we could not fix the banking and securities sector in several weeks as did FDR, but the problem is so much greater and more complicated.

Take out some insurance — plan for more setbacks

If “Plan B” does not work due to lack of bank cooperation, there need to be contingency plans for bypassing them to make loans to merchants, students, car purchasers and home buyers to get the economy going. In the New Deal, there were contingency plans for all sorts of undesirable contingencies. A second contingency plan will provide making some banks smaller so that none are “too big” to fail in the future.

The GOP is banking on a deepening crisis

The political dimensions of this are fascinating. One cannot help but wonder if the Bushies warned the GOP on the hill that the problem was so darned big that there was no clear solution. A long banking crisis means a long depression, and that most likely would provide political dividends for the GOP.

We see every day that Rush Limbaugh, who calls for Obama’s failure, has become the party’s most important spokesman. Former Speaker Newt Gingrich has emerged from retirement as their most important tactician. Remember when he and his followers called opponents “traitors;” now he says the “secular left” is driving “God out of the secular affair.” We can only imagine the line he will take on the Bush depression. His rule or ruin, scorched earth, take no hostages obstructionism was rewarded by the American people in the election of 1994 with turning over the House of representatives to him and his party. Previously, his approach took years of throwing monkey wrenches into the machinery of government. This time, a few years of obstruction might be enough for many voters to give up on this creative, bright and idealist president and go back to the party of trickle down economics.

It is doubtful if most Republicans think beyond blocking useful legislation, demanding more tax cuts for the rich and reciting easily understood but childlike bumper-sticker formulae. But some, like Gingrich, would seize the opportunity to scrap entitlement programs, privatize as much as possible, slash taxes for the rich and resume using our armed forces to pursue abroad the economic objectives of the great interests on Wall Street. They would also have the internal security apparatus begun by Ronald Reagan and Ollie North and vastly increased by George W. Bush to subtly cripple their opposition.

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Stimulus Denier Jindal Blows Rebuttal, Bails Out to Disneyland

Graphic by Larry Ray, The Rag Blog, with apologies to Mickey.

Even Rush Limbaugh had to scratch around in the back of his painful plaudit pantry to try to put some sort of positive face on Jindal's threadbare recitation.

By Larry Ray / The Rag Blog / February 26, 2009

Louisiana Gov. Bobby Jindal has weakened Republican credibility even more after delivering his response to President Obama's speech to Congress on Tuesday night. The Associated Press noted that Jindal's speech, broadcast nationwide from the Louisiana Governor's mansion, was, "Insane. Childish. Disaster. And those were some of the kinder comments from political pundits."

Even Rush Limbaugh had to scratch around in the back of his painful plaudit pantry to try to put some sort of positive face on Jindal's threadbare recitation. Blaming President Obama for being an inspirational orator, Rush grumbled, "We cannot shun politicians who speak for our beliefs just because we don't like the way he says it."

The choice of the 37 year old Jindal, a relative political newcomer, to be the one to deliver his party's party line was certainly consistent with other recent lackluster GOP selections including Alaska Governor, Sarah Palin as their Vice Presidential candidate and recently elected National Republican Committee Chairman, Michael Steele whose most noticeable talent is divisive ranting right off the bat.

Sarah Palin, who is basically clueless, can at least connect with the dwindling rabid hard core Right Wing base when given a list of talking points. Jindal fell flat with Republicans as well as Democrats as he unconvincingly mumbled his way through tired 'government is the problem' sop. New York Times conservative columnist, David Brooks, minced no words about Jindal's comments given the dire economic crisis the nation now faces, calling them,"insane" and tone-deaf."

Jindal is the son of Indian immigrants, and, unlike Sarah Palin, is, indeed, a Rhodes Scholar. He has attracted the attention of the GOP because of his improbable political rise to power in Louisiana. Interestingly, Jindal and Palin have extreme religious experiences in common. Palin, a Pentacostal who speaks in tongues, had an African witch doctor on a visit to her church chant and pray to cast out any lingering demons that might be after her. The demon bashing ritual, held in Palin's Alaska church, is still a YouTube favorite.

Jindal, a devout Catholic, detailed in an essay he wrote in 1994 for The Oxford Review how he took part in an exorcism to cast out a supernatural spirit that had possessed his friend. Jindal wrote that he believes her cancer was even cured by their ritual in addition to sending the demon packing. Palin and Jindal both scare the hell out of many Americans.

It may be telling that Governor Jindal, after delivering his Obama response, later went upstairs and helped his wife and children pack for a planned trip to Disney World. You can't make up this stuff. They left today and I have to wonder if Bobby will make a visit to The Hall of Presidents in Liberty Square at Magic Kingdom Theme Park his first stop. It is a 23-minute stage show featuring every American president, past and present. Then, after that he could find a nice spot on the street outside to watch the 'Disney Dreams Come True Parade.' It passes right by the Hall of Presidents.

Jindal needs a nice vacation from work before he returns home to Louisiana to refuse tens of millions of dollars in federal emergency unemployment benefit stimulus assistance. He won't accept the needed Federal money because that would mean Louisiana would finally have to expand access to unemployment insurance programs in his state to part time and other workers who now get nothing under ancient deep-South eligibility requirements.

Jindal makes it clear that he thinks that kind of use of federal dollars to help folks who need it most is just plain Goofy.

[Retired journalist Larry Ray is a Texas native and former Austin television news anchor. He also posts at The iHandbill.]

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The Stimulus Fix and the Global Ponzi Scheme

In terms of our current economic condition, we resemble a junkie going through withdrawal; “jonesing,” desperate for a money fix. Stimulus packages are thus globally popular to alleviate the symptoms of our addiction to easy money resulting from the recent unregulated issuing of debt.

By Roger Baker / The Rag Blog / February 14, 2009

See 'IMF Says Advanced Economies Already in Depression' by Angus Whitley and Shamim Adam, Below.

What would a financial collapse look like?

For one, there would be a downward spiral of job losses feeding on other job losses.

For another thing, the banks would stop lending.

And for another thing, the IMF might start saying we're in a world depression, and saying we have to restructure the broken world banking system to get out of the fix we're in. Just like they are saying now, (see bottom of this post).

[The banking sector is the sector of society that risks or invests a society's wealth in market goods, infrastructure or production, with the aim of protecting or expanding it. Even under socialism there needs to be some kind of a state bureaucracy to do the same things. Historically, you didn't used to have to have banks at all because you had priests and potentates with kingly powers. In common doing what they thought was necessary to run the money affairs of the kingdom in such a way as to make it prosper over the lifetime of a king and his agents. A kingly system by its nature tends to encourage a fairly
long-range management perspective.]

Now we have a different perspective rooted in our political system and in the international needs of finance capital. Capital has assumed and demanded a system that assumes stable growth forever. This set the stage for a permanent bubble economy in which the US government has turned into a sort of publicly supported incubator to guarantee the success of deregulated banking and investment interests. Now globally expanding on the same bad habits that led to the great depression.

In effect the managers of US capitalism have forced the government to guarantee the unregulated issuing of bad paper like credit default swaps, based on infinite growth. To back up this bad paper, the future earnings of US taxpayers have been pledged as collateral for bank bailout debt. But about the only way for the taxpayers and economy to thrive is for the US to become competitive in world trade by producing goods that make sense when restructuring toward an energy limited economy.

We have investment banks trying to influence politics and reduce regulation alongside Fannie Mae and Freddie Mac. Washington is swarming with special interest lobbyists aiming to restrict, and sweeten for themselves, the political outcomes. On the whole, this is a system acting to impede reform and change.

The Federal Reserve, the ones who try to regulate our economy by setting the prime interest rate, are really a private outfit sponsored by the largest dozen or so banks. Alongside that kind of political clout, the US Treasury Dept., that prints up our money and sells US bonds, usually goes along with the Fed.

The chances for turning around what looks like a world depression seems to boil down to whether the current dysfunctional system, now hobbled by entrenched special interests, can actually be reformed and restructured into a sound global banking system. One that will take up the slack and stand on its own after the immediate effect of the stimulus funds wear off.

In terms of our current economic condition, we resemble a junkie going through withdrawal; “jonesing,” desperate for a money fix. Stimulus packages are thus globally popular to alleviate the symptoms of our addiction to easy money resulting from the recent unregulated issuing of debt. A fix of stimulus cash can help over the short run to get us back into a functioning state, but its not going to help very much and for very long -- unless we deal with the underlying problem, which is the unregulated, dysfunctional banking system in search of rational managemnt on a global scale.

An unregulated global banking system really amounts to a giant global Ponzi scheme, one that bets on the infinite growth of future global market demand, even for discretionary spending on status items. The more risk, the higher the interest rates tend to be, and the more profitable for those involved in setting up and insuring the deals.

Obviously, the USA would have to be a key player in reforming the global banking system, but also China, Britain, Japan, Germany, etc. If one regional banking system looks sounder than the the others, the money will head there.

The odds for international cooperation are not so good for a global banking system used to calling the shots.

A new system with a matching political regulation system is needed to set up wise banking and investment rules, rules based on cooperation and long term thinking. A new regulated global system is needed, one that potential investors have confidence will really offer hope for long range growth and stability of their invested wealth.

It is a tall order given our current situation, but that is what the IMF seems to be saying we need as a basis to keep the banking problems from getting worse, and to serve as a necessary basis to turn around a world depression.

IMF Says Advanced Economies Already in Depression

By Angus Whitley and Shamim Adam / February 7, 2009

Advanced economies are already in a "depression" and the financial crisis may deepen unless the banking system is fixed, International Monetary Fund Managing Director Dominique Strauss-Kahn said.

“The worst cannot be ruled out,” Strauss-Kahn said in Kuala Lumpur, where he was attending a gathering of central bankers from Southeast Asia. “There’s a lot of downside risk.”

Ten days ago, the IMF cut its world-growth estimate for this year to 0.5 percent, the weakest pace since World War II. Stimulus packages alone won’t succeed in dragging the global economy out of recession unless confidence is restored in the banking system, Strauss-Kahn said today.

“All this will work if, and only if, the different countries are likely to do what they have to do in terms of restructuring the banking sector,” he said. “And today it’s not done.”

The U.S. economy has lost 3.57 million jobs since a recession started in December 2007, its biggest employment slump of any economic contraction in the postwar period as companies from Macy’s Inc. to Caterpillar Inc. cut costs. The U.K. economy will shrink this year by the most since 1946, the IMF forecasts.

“There is hope that the fiscal and monetary stimulus measures being implemented around the world can help turn things around,” said David Cohen, Singapore-based director of Asian economic forecasting at Action Economics. “But there is still the risk it can be short-circuited by further financial turmoil.”

$780 Billion Package

The U.S. Senate is due to vote early next week on an economic stimulus package totaling at least $780 billion that President Barack Obama said is needed to prevent the economy from sinking into a deeper recession. Asian nations from China to Singapore and India have pledged more than $685 billion on their own spending programs.

The Obama administration is considering subjecting banks to a new test to determine whether they require fresh capital injections as part of a rescue plan to be unveiled by Treasury Secretary Timothy Geithner next week, people familiar with the matter said.

Governments should be ready for “full-fledged” intervention, acting quickly to sell or wind-up insolvent lenders, Strauss-Kahn said. While the European Central Bank, which left interest rates unchanged this week, may have more room to cut borrowing costs, such a policy may not be as important as restructuring the region’s banks, he said.

Borrowing Costs

“We’re probably not very far from the point where the question of interest rates is not the most important question,” Strauss-Kahn said. “Providing direct liquidity to the market, restructuring the banking sector, may have more influence on demand than interest rates.”

In Asia, “there’s still room for bigger stimulus packages,” the IMF official said. Malaysia, for example, may introduce a second stimulus package larger than November’s 7 billion-ringgit ($1.9 billion) plan, he said.

Developing Asia will probably expand 5.5 percent this year, the slowest pace since 1998, the IMF said in last month’s update of its World Economic Outlook report. The region may expand 6.9 percent next year, the fund forecasts.

Asian nations will need a recovery in the global economy before the region can exit a slowdown, the IMF said this month. Strauss-Kahn said today the fund’s forecast for a recovery to start in 2010 is “very uncertain.”

Demand for Loans

Demand for IMF loans is rising in nations suffering from weaker export sales, banking industry turmoil and deteriorating investor confidence. The organization has so far agreed to lend $47.9 billion to countries affected by the crisis, including Belarus, Hungary, Iceland, Latvia, Pakistan, Ukraine and Serbia.

Strauss-Kahn said he agreed with Poland that the eastern European nation isn’t in need of assistance from the fund now, but may require financial aid in the future.

The fund may collaborate with some countries to restore confidence, without necessarily providing immediate loans, the official said.

“Some need for precautionary arrangements may appear,” he said, without naming specific countries.

Critics of the fund say it’s failed to keep up with the pace of change as the worldwide recession deepens.

The IMF and similar institutions are “incapable” of coping with the global financial crisis, because their resources can’t keep up with demand, former World Bank President Paul Wolfowitz said on Feb. 4.

Russian Prime Minister Vladimir Putin has criticized the World Bank, IMF and World Trade Organization as anachronistic organizations that give no voice to emerging economies.

The IMF and the World Bank were set up at the 1944 Bretton Woods conference. The IMF was designed to prevent crises in the international monetary system and to provide financing to distressed countries.

Source / Bloomberg

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The Republican Taliban Are in the Cat Bird Seat

Charge!: Republican Chairman Michael Steele calls forth the forces of reaction.
'The price of determined obstructionism will be much higher for the nation, but the Republicans clearly care only about their own political fate.'

By Sherman DeBrosse / The Rag Blog / February 11, 2009

Representative Peter Sessions of Texas, head of the National Republican Congressional Committee, bragged that Senate Republicans had learned insurgency tactics from the Taliban. Republican columnist Jonah Goldberg has already registered his opinion that “The stimulus bill has failed. Barack Obama has failed.” Maybe he thought that his colleagues had successfully gutted it, but he limited his explanation of the failure to saying Barack Obama lost his opportunity to reduce the partisan climate, which was not a good idea in the first place in Goldberg’s view.

No one was surprised when Rush Limbaugh, the Republican ayatollah and enforcer of orthodoxy, said "I hope he [Obama] fails." Limbaugh has spent two decades making racially "insensitive" remarks, and race was doubtless one important factor in the spinmeister's motivation. It is difficult to say how many other conservatives have serious problems with President Obama’s race.

No Honeymoons for Clinton and Obama

Republicans refused to grant Bill Clinton a honeymoon in 1993, and now they have done the same to Barack Obama. Blocking Clinton programs paid off big time, and voters in 1994 restored Republicans to control of the House after decades in the wilderness. It looks like the GOP is looking to repeat this feat and profit handsomely in 2010. Willing to sacrifice the interests of the nation, the Republicans have put themselves in the cat bird seat. Heads they win; tails we the people lose.

But this time, the price of determined obstructionism will be much higher for the nation, but the Republicans clearly care only about their own political fate. Recently, a ranking international trade official predicted that this deep depression will lead to political instability in some countries. One of British Prime Minister Brown’s chief economic advisors is saying the world could be facing the worst economic crisis in 100 years.

Even Keynesian economists supporting the stimulus plan say things are bound to get much worse and that there will not be great improvement in 2010. Through delays, talking down the stimulus, and gutting important provisions, the Republicans have guaranteed that things will get much worse. Few doubt that the GOP base will hold firm, and there is a pattern of voters supporting the opposition in off years. Add to that impatient people who will want to punish Obama and the Democrats for not working economic miracles in less than two years, and there is the formula for huge GOP gains in 2010.

The Spin War is about a very difficult paradigm shift

So far, with the help of the corporate media, Republicans have run circles around Democrats in the spin war. All they are required to do is criticize and offer vague bumper sticker slogans. Most, like Party chairman Michael Steele, subscribe to Herbert Hoover economics, and want government to do nothing. Some back the three trillion tax cut plan offered in the Senate. Others are unhappy but have nothing to offer. It seems clear that they have greatly driven down public support for the stimulus and have reconverted many to the old, failed economic paradigm of tax breaks for the rich, deregulation, and opposition to spending to help the least advantaged.

Democrats mistakenly thought that the election results and illusory polls showed that there had been a paradigm shift away from the old model and toward modern economics. They should have read Thomas Kuhn, whose work shows that these shifts come slowly. Economic pain will get worse, and that will stimulate some to question the old assumptions. But there are no simple slogans and one minute soundbites to use in helping people understand our situation and seeing the merit of Keynesian solutions. In his first press conference, President Obama offered many good explanations. However, we must find ways to simplify them still more.

How the Democrats reeducate the public on economic matters is a problem. It is so much easier to sell people on misinformation. Correcting this propaganda requires two and three step reasoning. Congressional Democrats must harp on how Republican economics brought us this looming depression and they must harp on the inconsistency of Republican arguments.

There are many who insist that only tax cuts -- especially for the rich -- will do the job. They note that the Kennedy and Reagan cuts had some positive impact. But they do not tell us that studies of those two events show that we got far less than a dollar's simulative value out of each dollar of tax cuts. Simple, untargeted spending yields $1.75 in stimulus for each dollar spent. It seems that the Bush tax cut went to fuel the financial services and housing bubbles, and the 2008 cash hand-out had no effect whatever.

The Gutted Stimulus Plan

The fact is that the world economy is going over the cliff. Keynesians know that this package is far too small and has the wrong ration between tax cuts and stimulus spending. If this first stimulus package prevents the bottom from completely falling out, it will have been a great success. We also know that the stimulus package was badly weakened in the Senate -- all to pick up three votes. The child tax credit was changed to make certain that the very poorest children would be left out in the cold. Assistance to the states was sharply cut, assuring that many in state and municipal jobs will lose their jobs and be unable to spend at old levels. Medical assistance for the unemployed was practically left out. For no sensible reason, people who now own homes will get $39 billion in assistance so they can try to flip their houses at a profit. It is hard to see how all this damage can be repaired in conference committee as the votes of so-called centrists are needed to get it through the Senate.

After the conference bill passes, President Obama needs to lower expectations by pointing out all the damage that was done to the program. It will no longer produce four million jobs.

Let The Repugs Bring Buckets to the Senate

With the certainty of more obstruction down the road, Democrats have to either abandon large parts of their program or face up to doing something about the filibuster. It is unlikely that the rules can be changed, so they are left with letting the Republicans bring their buckets into the Senate chamber and start talking around the clock. The trick will be finding the right issue. It is probably health care, provided the Democrats submit a simple and clean bill that will not open the door for all sorts of outrageous claims about not being able to pick your own doctor, etc.

What NeoCons Want in 2013

If the Democrats cannot facilitate a paradigm shift, we could see gleeful NeoCons begin implementing Friedman's Shock Doctrine in 2013, complete with a shredded safety net, all sorts of privatization, stripped away labor and environmental regulations, a return to casino capitalism, and a foreign policy designed to extend the power of Wall Street while alienating tens of millions abroad. Face it; if the American economy cannot generate great income for American investment capitalists, the Armed forces must do it abroad.

If things are bad enough, ordinary people might accept the kind of security state General Augusto Pinochet introduced to protect the Chicago School's economic program in Chile. George W. Bush greatly improved upon the foundations laid by his father and Oliver North, and Barack Obama will not be able to dismantle all of that. Already, his administration has refused to back off Bush’s use of the state secret privilege.

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Dear Sen. Cornyn : You Have Pork for Brains

Sen. John Cornyn (R-TX). Image by Bill Narum / The Rag Blog.

Senator Cornyn: 'Your political ambitions are clearly far more important to you than the well being of ordinary Americans who are losing their jobs in the millions.'

By Sarito Carol Neiman / The Rag Blog / February 9, 2009

I just sent Sen. John Cornyn [Very R-TX] an email to tell him the biggest piece of pork I saw in the neighborhood of the economic stimulus plan was the pork in the place where his brains should be, and mentioned that it's called being "pigheaded.”

I told him:

Your political ambitions are clearly far more important to you than the well being of ordinary Americans who are losing their jobs in the millions. If you really want to fix everything with tax cuts and let the state budgets, education, alternative energy solutions, and affordable health care continue to be in the hands of the so-called "free market". . .

Well. . . then I threatened to camp out on his lawn in a tent and hunt squirrels for dinner if it got to that point, and suggested if he gets his way he won't be able to find a cop to throw me off his lawn because they'll all be out preventing food riots.

It was fun, a kind of catharsis.

Being a gentleman, he wrote right back to thank me "for contacting his offices” and attached my letter in case I might have forgotten what I had just said. He closed with his “warmest regards.”

I sent KB Hutchinson a much nicer note, trying to shame her into looking at herself in the mirror and doing what she knows is the right thing. Girl talk, you know.

Geez, these people make me so mad!!

As an officially "unemployed" person, I wish we could've organized a "million-person unemployed vigil" on the mall today. Or at least a few people holding up a continuous string of paper dolls representing each of the 3.5 million unemployed plus their 2.5 (or whatever it is these days) children. The numbers don't have faces and the Republicans don't have any shame.

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Roger Baker on the Economy : The Pit and the Pendulum

It's as if the economic pendulum has been made, by artificial means, to swing so far to one side for so long that it's now becoming nearly impossible to keep it from swinging back strongly in the opposite direction of economic contraction, and picking up speed as it goes.

By Roger Baker / The Rag Blog / February 8, 2009

Nobel prize winning economist Paul Krugman today says in his NYT blog that his best guess is that Obama won't be able to come back to Congress for more stimulus. Mainly because the half dose of government money medicine that Congress is offering as stimulus won't work very well. And what doesn't seem to work on mainstreet is not so likely to be rewarded with more of the same medicine.

But part of the problem is that likely even a full dose or even more of this Keynesian stimulus medicine can't be shown to work. We've been using Keynesian stimulation to try to keep the bubble economy permanently inflated, throughout the long Greenspan permanent bubble economy era extending throughout the Bush administration.

It's as if the economic pendulum has been made, by artificial means, to swing so far to one side for so long that it's now becoming nearly impossible to keep it from swinging back strongly in the opposite direction of economic contraction, and picking up speed as it goes.

Keynesian stimulation can be effective, especially when free of politics, and does have its place in the toolbox. But two important economic factors that tended to be ignored by the Keynesians are these:

First is that the world of finance capital is highly interlinked, which fact assures the economic contraction is now global. It takes global cooperation to resolve global problems. The stimulus package really needs to be the result of strategic global cooperation. (Some good economists think the Asian market is about the only place to turn for long-run post-stimulus economic demand, since they now hold so much of our treasury debt.)

Second, Krugman makes use of a formula to translate economic stimulation dollars into jobs gained or lost. But a very big part of the economic effectiveness is actually psychological. And this fact has a lot to do with how effective the stimulus package could be. Of course politics is also largely based on psychology, meaning that other fuzzy psychological unknowns determines whether the stimulus package can even exist at all.

How does the effectiveness of the stimulus package depend on psychology? Since US consumers were already over their heads in debt, and the economy started contracting last year, the public has cut back spending dramatically. This in turn has helped to globalize the economic contraction, raising risks and adversely affecting the international investment psychology as a consequence.

In order for the global economy to resume expanding, those in charge of fixing the economy have to convince everyone, including capitalist investors, that it is safe to resume spending on long-term production for things that are not immediately essential. They need to convince spenders that the worst is over and that things will get better, or at least that increased discretionary spending will be rewarded.

But the major surviving US banks are so far in debt that it may take four trillion dollars to bail them out, whether or not we decide to maintain them as private institutions. (The treasury and fed already got seriously burned by allowing Lehman Bros to fail.) The Congressional stimulus package is competing with the insolvent banks for US government funds. From Fortune:

"Bank bailout could cost $4 trillion; Banks don't have enough capital to fix their problems, which means the Obama administration may need a lot more money to clean up the financial mess"

Its red ink everywhere in every direction we look. So many economists, including myself, assume that the government will simply borrow more or even just print up more money, which is easy to do since the dollar isn't backed up by anything at all. (The dollar does however have the advantage of being the global money standard, which has protected it so far.) There is an unforseeable danger that the world could start suddenly dumping dollars, leading to rapid devaluation and commodity-led inflation.

At some point, however, when the public and the whole system is waist deep in freshly printed dollars, it is assumed that US consumers will start to shift in their thinking and start spending again.

The velocity of circulation of money, a key economic concept, says that with the same quantity of dollars in private hands, we could see prices in the marketplace either rise or fall, all depending on whether the public is of such a mind as to hoard their money or to spend it freely.

There is a famous economic metaphor that says that while the federal reserve can make money tight by raising interest rates, trying to throw things in reverse and get folks in a mind to start spending again is like pushing on a string. Since the fed has already lowered interest rates to zero without loosening up bank credit (a good indication in itself that the banks are still deep in debt despite the bailouts), about the only option left is to hand out lots of money, to the banks or general public, and to try to reverse the spending psychology. The government cannot force people to spend, but it can pass out lots of money, knowing that at some point consumer psychology will turn around.

The point at which consumers might decide to start spending in the midst of prevailing hoarding and deflationary psychology is when demand meets shrinking supplies for certain economic essentials like food and oil. If these prices begin to rise that will attract further spending into these tight market categories. Once started the psychology can swing back toward inflation starting from the tight market sectors, but this is not something under good control; given all the hoarded money lying around, the situation could rapidly turn toward a firestorm of hyperinflation, for which the only remedy is for the Fed to try to raise interest rates really fast to try to soak up dollars and cool things down once more.

But there are no guidelines, no idea when this might happen -- or if merely bailing out the big international investment banks alone, even without the stimulus package, would eventually flood the system with enough cash to reverse the current psychology and start folks spending again.

Is there a bright side to our current economic mess? Maybe so.

The global economy is rapidly restructuring, on its own, to require less material resources, especially those tied to energy. The oil experts are warning us that we need to get accustomed to using on the order of 4% less oil per year in accord with world depletion, even as the US economy contracts by about the same amount. Likewise the global warming scientists are warning us about.

But we have never taken the advice of the such scientists very seriously before, if their advice interferes with private profit, no matter how credible the facts.

Is it not a relief to find that there are limits in our ability to use expansionist economics to defy nature, thus forcing us to comply with the natural limits on growth on a finite planet? Does anyone really think we should try to continue to keep growing global production as usual until global warming forces billions to starve? Here is a link to "Peak Oil and the Global Economy," one of the many sources that suggest what we need to do and why, looking at the big picture from an energy economics point of view.

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