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Marshall Auerback: Don’t Get Angry – Get Some Real Change

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By Marshall Auerback, portfolio strategist and hedge fund manager. Cross posted frome New Deal 2.0

President Obama can solve the economy’s problems and win back his base, but he has to get with the program first.

For once, let’s praise President Obama (marginally), not bury him. As Bo Cutter has already argued, in the aftermath of the elections, the president probably did the best he could do on taxes. Ideally, the issue shouldn’t have even been something to haggle over in the first place had the Democrats (including the president) dealt with it before the midterms. Had the Party leadership shown an ounce of backbone, our political profiles in courage could have bargained for something much more significant in exchange for keeping the Bush tax cuts. But they didn’t, and the GOP ruthlessly played their own hand to perfection in the electoral aftermath. One has to admit to a grudging sense of admiration for the Right’s relentlessness as the Obama administration bargains for crumbs on the table, calls that dinner, and then expects cheers from its supporters for the resultant compromise.

That said, the president’s petulant rant directed at his base was pathetic and misconceived in the extreme. The “No Drama Obama” guise clearly does not extend to his now frustrated supporters. Obama still genuinely does not have a clue as to why he has lost the trust of so many progressives. Many would have been prepared to cut him some slack if he had given them anything over the past two years, rather than a perpetuation of Rubinomics — an economically regressive blend of crony capitalism and deficit reduction fetishism.

Reviving the old canard about the public option in health care, as he did earlier this week, just reminds people of the paucity of his vision and his corresponding weaknesses as president. Obama loves cutting deals, claiming that he is “getting things done for the American people”, even when the actual substance of his legislative efforts come to virtually nothing (as in the case of both financial regulation and health care). His presidency is all about form and presentation over substance.

That said, the anger of the president’s base is somewhat misdirected right now. The real problem is that the repeal of the Bush tax cuts at the upper end wouldn’t have solved income inequality, which legitimately vexes many. Any good accountant worth his salt can always find a clever tax avoidance strategy for the super wealthy. The tax system’s very complexity facilitates this, that complexity being a product of a code that has become yet another political plaything in the hands of Washington’s K Street lobbyists. To deal with income inequality, you need something more radical. You need reforms such as caps on executive pay and probably a system that simplifies the tax structure (to avoid creative tax avoidance), along with a broad base and a few basic, low rates to ensure a modicum of compliance.

Additionally, the notion that these tax cut extensions will “add” $700 billion to the deficit is nonsensical. One cannot predict the impact of government spending decisions absent a broader economic context. Applying a static revenue analysis to the deficit embraces deficit hawks’ logic, who make comparable claims when they argue that cutting government spending absent any consideration of the economy’s underlying condition will automatically reduce the budget shortfall as a percentage of GDP.

Ultimately, the president (and what’s left of his rapidly imploding party) needs to get off this deficit fixation. It muddles the Keynesian message to say that we don’t need fiscal austerity in the midst of a serious recession — except we urgently need to reduce the dangerous deficit by taxing the rich.

The whole focus on the deficit itself is profoundly misconceived. One of the state’s most important elements of public purpose is to maximize employment. Once the private sector has made its spending and saving decisions based on its expectations for the future, the government has to render them consistent with the objective of full employment. It can’t do this if it continues to focus on bogus questions of “affordability” and “national insolvency”.

By falling into the trap of appearing to be obsessed with punishing the rich, the Democrats muddy their message and look reactive. Instead of fulminating about a tax deal that effectively prevents more government spending from being REMOVED from the economy (rather than actually adding more to it in real terms), the party should be offering a plan to grow the economy in a more equitable way. Instead of offering reforms that serve to preserve the interests of big financial companies, the president and his party should focus on devising and implementing government programs that directly sustain employment and restore states’ finances.

To make matters worse, the Obama administration has been far too preoccupied with “paying for” additional spending through tax hikes or spending cuts elsewhere. It does not appear to be willing to let the fiscal position of the federal budget grow as needed to meet current challenges. All sorts of bad policy decisions have flowed from that wrongheaded paradigm.

Fortunately, when announcing the tax deal with the GOP, the president for once omitted discussion of the longer-term deficit issues. But he has long been one of the main culprits here in fomenting deficit hysteria because he fails to understand that fundamentally, taxes are not about “raising revenues” to “fund” our government, but instead act as the brakes and accelerators for the economy as whole.

As my friend Michael Lind wrote to me in a recent email exchange, America’s progressives have forgotten that the focus of mid-century social democracy was on abundance through a mixed industrial economy, with redistribution as an afterthought. The right has a bogus plan for economic growth, the left has — what? Weatherizing homes for fuel conservation? Wind farms and solar panels?

Since the time of the Clinton administration, the Democrats have focused on “safeguarding the solvency” of entitlement programs, while neglecting to come up with a growth model that would do away with silly discussions about how these programs are allegedly “bankrupting” the country. In the specific case of Social Security, the party has fallen into the trap of looking at the “financial”, as opposed to real, constraints of the program. (The former are in reality trivial, as their resolution would require only relatively simple adjustments in accounting procedures, instead of raising taxes now or lowering benefits in the near future, or even running budget surpluses.) The way the deficit commission was set up by this very president virtually ensured a wrongheaded focus.

The real issue in regard to entitlements such as Social Security relates to the real provisioning for retirees with sufficient quantities of resources in the future. This can only be resolved by increasing productive capacity in the future, thus ensuring that a sufficient share of resources will be transferred to the elderly. These can be achieved by increasing the rate of private and public investment, together with revisions in taxation, at the time the baby boom generation is well into retirement.

Nobody in the Democratic Party, President Obama included, is thinking along these lines. Instead, the philosophic void left by the abandonment of the New Deal and the Great Society has been filled by neo-liberalism and Wall Street-centric policies. The president himself has championed these philosophies ever since he got his party’s nomination in 2008,and promptly began stuffing his team with failed Clintonite retreads. There is a reason why the Dow Jones rose almost 600 points the day that Lawrence Summers and Tim Geithner were appointed to his economic team. The markets knew that Santa Claus was coming to town. That is the real reason for the unhappiness of his party’s base. That’s not the kind of change his supporters were looking for. Nothing the president has done since his inauguration marked a decisive break from the past failed policies embodied by these figures.

At the end of the day, neither the president nor his advisers understand that a budget outcome is only effectively unsustainable if it pushes nominal aggregate demand beyond the capacity of the economy to absorb that spending in real terms (that is, beyond the capacity to increase real output). The financial “funding problems” that obsess his Treasury team are more apparent than real. When growth resumes, the budget’s automatic stabilizers will go to work and eat into the deficit, and the US will cut back stimulus spending to further reduce the deficit. Private domestic saving will stabilize as their balance sheets are restored to some semblance of sustainability following the debt binge. The net public spending required to support that saving and maintain growth will also stabilize.

A sovereign government’s budget is never unsustainable in narrow financial terms. It can run whatever deficit it chooses from the perspective of financial viability. As my colleagues Tom Ferguson and Robert Johnson have argued, private oligopolies in health and defense spending, along with the possibility of another banking crisis, are the real threats to the deficit, not entitlements or marginal changes to the tax system.

The neo-liberal era has been associated with the erosion of working conditions and rising inequality in outcomes far beyond anything that could remotely be justified by disparate individual or sectoral productivity trends. The president doesn’t understand this. His base is legitimately peeved. He continues to champion a system that has generated a massive redistribution of national income away from workers and productive sectors. Rather than tinkering around the edges of a profoundly corrupt tax system, the president has to embrace a completely different growth model going forward. This has to be the focus of what’s left of his time in the White House, especially if Obama wants to extend it beyond 2012. Do this, and the president will find that his “sanctimonious”, “whiney” base might actually become enthusiastic about him again.

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78 comments

  1. Paul Repstock

    I don’t know why you wouldn’t get angry. I’m angry, so are most people. Fearfull people are generally angry. I wonder how many of your readers even consider the implications of the following story? You read this and decide if there is any separation of church (sorry I meant corporation) and state.

    http://www.msnbc.msn.com/id/40552073

    1. hermanas

      Wal-mart is having enough trouble dealing with the standard issue theives this time of year. Are they terrorists?

  2. Expat

    Essentially, Auerback is saying that despite the billions handed outright to the banks and major corporations and the trillions in no-interest loans and government support which has dramatically increased deficits, we should continue to give more away, expecially to the very rich who benefited the most from the tax cuts.

    And deficit spending is okay because, heck, who knows what will really happen to the economy down the line. And we can get rich again by spending money we don’t have because that increases nominal demand! So, why not just have the government spend one trillion a month of various projects or just cancel all taxes for ten years?

    Did I misunderestimate Auerback’s ideas or something?

        1. KFritz

          Brevity may be the sole of wit, but not clarity evidently. I LIKE this essay. Between Auerback, Krugman, Dean Baker, and Bernie Sander’s nascent filibuster, there’s good bracketing of Obama’s folly.

          I think MA is trying to look for some positive takeoff fr/ the corner that POTUS has talked himself (and us) into. I don’t know what the best course of action is. Thanks to previous folly, the US is confronted w/ no good choices, only bad and worse. I’m glad NOT to be responsible for the choice.

    1. Jerry

      Americans, like the Irish, need to recognize that and pursue that we will not take the haircut due the bankers and wall street. Why should taxpayers take on this responsibility..it is not ours and also the fraud is prosecuted……Like Ireland we will need to seek a party in DC that recognizes, unless we want to live at the stardard of living in most of India and China, we will have to have a comprehensive plan to maintain a better standard of living if we are to be in a global economy….the standard of living is like water, it seeks it’s own level…

    2. Chester Genghis

      I’ll leave it up to you as to whether you “misunderestimated” Auerback, but you definitely misunderstood.

      What Auerback is saying is Obama is getting suckered into the wrong debate. He’s let the Republicans frame the issue(s) for him by talking about deficits at all.

      To extrapolate a bit: We’re in an extended recession. Unemployment hovers near 10% (and that’s only the official rate -the real rate is much higher) and we’re talking about what? Social Security??? A pay freeze for federal workers??? Social Security is solvent!!! It will be solvent until 2037 (or thereabouts). Even after 2037 it can be kept solvent with minor adjustments. A pay freeze for federal workers would be laughable if it wasn’t obscene given the tax breaks doled out to millionaires.

      But we’re falling into a trap by even talking about this!! The talk of deficits and whether a government program is solvent or not is like Nero fiddling while Rome burns. The real point is WHAT IS OUR PLAN FOR GROWTH(and how do we keep Wall St. from sabotaging it)???? The rest is just silly talk –or worse: a deliberate misdirection. If we’re able to achieve broad-based sustained growth (i.e. don’t rely on the Wall St. Casino as the engine) the deficits will be resolved more quickly and naturally than any artificial “pay as you go” idiocy.

      To paraphrase Oscar Wilde: A foolish man knows the cost of everything and the value of nothing.

      American corporations have been on a cost-cutting mania for so long they’ve forgotten the other side of the profit equation (revenue). They’ve forgotten research, innovation, market development, etc. and focused relentlessly instead on cost cutting, outsourcing, and financial quick-fix boondoggles. I think Auerback is accusing Obama of something similar. And I think he’s dead-on.

      1. Doug T

        Excellent points about misdirection, masterfully staged as noisy buffoonery. But I no longer believe Obama is getting suckered at all— on the contrary, certain he’s part of the con. I don’t know the correct term for his role in the sting, but he’s only playing a stooge to throw off the real mark — the American people. His script is on the teleprompter and his soul belongs to Wall Street.

      2. Traderjoe

        Sustained growth – perpetual growth – is one key canard of the voodoo that is economics. It violates the laws of physics and thermodynamics.

        We would be much better to devise ways to re-order the system then to simply grow it. Posters below mention lowered workweeks and let’s also not forget abolishing the fictional reserve system and privately held Fed.

    3. Marshall Auerback

      I don’t know if you “misunderestimated” my ideas, but you certainly misunderstood them. I was simply pointing out that it is wrong to consider this issue within the gold standard constructs of “financing” constraints. There are none. Even deficit doves often state that once the public debt ratio gets “too big” the interest servicing payments will start to swamp aggregate demand and “reduce the room $-for-$ for other non-inflationary discretionary deficit spending because they will fill up the spending gap more quickly.”

      It is an idea that can only be assessed within a broader economic context for the economy as a whole. It is possible this could happen and then the government could just increase taxes to ensure that aggregate demand remained within the capacity of the real productive sector to respond to it. But if there is excess capacity, then interest payments (or any spending in general) pose no inflation risk and they will help growth and so this option is incorrect.

      You might have also thought the rising interest servicing payment would reduce the capacity of the private sector to save because they will require cuts backs in the deficit to support the repayments. So in one sense, this would reflect a correct interpretation of net public spending whereby it supports non-government saving because it adds to aggregate demand which generates income and saving is a function of the latter.

      So, under pressure to contain the consequences of a rising debt ratio governments and an erroneous belief that the rising payments have to “funded” would require some discretionary reductions in the deficit. But the fallacy here is that a sovereign government is never revenue constrained because it is the monopoly issuer of the currency and doesn’t need to fund any expenditure.

  3. Alessandro Machi

    I just want to point out that progressive are to the democratic party what neo-conservatives are to the republican party. The absolute arrogance of the progressives, who actually represent less than 25% of the democratic party, never ceases to amaze me.

    The anti Clinton progressive drivel has spawned new life because the person needed to fix some of the Bill Clinton mistakes that only now have come to light, (but lets not forget the many successes), would have been Hillary Clinton.

    The progressives would happily see Barack Obama lose in 2012 than Hillary Clinton win in 2012.

  4. Brian

    Oh great, as if we hadn’t seen enough failures of central planning now we have the above. A primary function of government being full employment is the social contract of a socialized and centralized state. I suppose people will continue on, every generation has some who think they’ve figured it all out.

    1. Paul Repstock

      Hey. China and Russia had full employment under communism.

      If the government is in full control, they just tell the people, “You work….or else!!”

      Nobody ever guaranteed a good job..:)

  5. Tao Jonesing

    “President Obama can solve the economy’s problems and win back his base, but he has to get with the program first.”

    You just provided me with the best laugh I’ve had in months.

    Obama is worthless. But as soon as he finishes his one term, he will become rich as hell.

    There is no left. There is no right. There is no conservative. There is no progressive. There are just predators and prey.

    Get used to it, my little droogies.

    1. Paul Repstock

      “One term”. Are you sure?? After all the Republicans must like him even better than the Dems do by now. As I see it very little changed with the new president, except this one doesn’t flub his lines…

      1. Paul Repstock

        I fear Mr. Auerback is either profoundly naive or just afraid of the personal consequences of this house of cards imploding. There is a lot of pragmatic thinking in this world, as in “To heck with my country and the world, just let me keep my nice house and second SUV”.

        More people need to consider what they are really working for. Is it their kids and a better world, or just the next social event?

      2. psychohistorian

        He may not flub his lines but being that he wasn’t born with a silver spoon up his nose like W it is even more galling to see him drink the ultra rich elitist koolaid and abandon the publics’ interest. I suspect for many of color it is very difficult to see the first black president be such a (shall we say) fascist.

        1. Paul Repstock

          I know what you mean Psyco.. I think the whole world had high hopes for Mr. Obama. Many of us continued in these hopes even after he reapointed the same crooks to basically the same jobs?? Everyone lost hope when he started backing off, or just forgetting his political platform. Everyone watches the President of the United States, as he affects us all. Now, I think perhaps the world is becoming more afraid of him, than it was of Mr. Bush.

          1. Paul Repstock

            If you wrote that, you are a bigot and a fool. You disreguard Mr. Obama at your peril. If you cannot vent your disgust except by racial and sex obsessed slurs, then you are not even fit to comment.

            Sadly, I believe Mr. Obama know exactly what he does, and why.

          2. Doug T

            Thanks, Foppe. That’s an exceptional article and site—as brilliant as Matt Taibbi, if less reverent. Evert Cilliers shows Obama the courtesy and mercy due him—none. I hope Obama exacted a very high price for his soul; he is earning every silver shekel.

            Some like Paul will find the “house negro” term offensive, but as Malcom X coined it, it fits Obama to a tee.

            “The term comes from a speech … by African American activist Malcolm X, where he explains that during slavery, there were two kinds of slaves: “house Negroes,” who worked in the master’s house and “field Negroes,” who performed the manual labor outside. He characterizes the house Negro as having a better life than the field Negro, and thus unwilling to leave the plantation, and potentially more likely to support existing power structures that favor whites over blacks. Malcolm X identified with the field Negro. The term is used against individuals[1][2], in critiques of attitudes within the African American community,[3] and as a borrowed term for critiquing parallel situations.”

          3. Foppe

            @Paul: Of course it is offensive; it’s meant to be. That does not mean, however, that it is “racist”; rather, it is offensive because it suggests the president is incapable of criticizing his masters (that is, the social context in which he functions) to see that the power relations are rotten to the core.

        2. Roger Bigod

          “I think it is inaccurate to characterize Democrats, writ large, as quote-unquote betrayed.”

          “I am not a crook.”

      3. ex-PFC Chuck

        “After all the Republicans must like him even better than the Dems do by now. As I see it very little changed with the new president, except this one doesn’t flub his lines…” The little change I’ll agree with. As to the first sentence, not so much: a) The Repubs will not be able to convince the sizable racist element in their base to vote for him and b) A lot of progressives are on the cusp of either staying home, leaving the Prez spots on their ballots blank or going Green.

  6. Scott

    “the president has to embrace a completely different growth model going forward”
    So what is it? You sit and whine and moan and say “do something different!” Offer a suggestion! What is the radical new model we need for growth? I guess you hinted at it in the penultimate paragraph but you need to be more straightforward. That having been said, I think your observations have merit and are generally on-point.

    1. Marshall Auerback

      Scott,

      I’ve offered suggestions before, but for your benefit here goes:
      1. Per capita revenue sharing with the states to mitigate their fiscal crises
      2. A FULL payroll tax holiday for employees AND employers
      3. Most importantly, a Job Guarantee program. The U.S. Government can proceed directly to zero unemployment by hiring all of the labor that cannot find private sector employment. Furthermore, by fixing the wage paid under this JG program at a level that does not disrupt existing labor markets, i.e., a wage level close to the existing minimum wage, substantive price stability can be expected. Other benefits could be provided, including vacation and sick leave, and contributions to Social Security and, most importantly, health care benefits, providing scope for a bottom up reform of the current patchwork health care system.
      Government as employer of last resort would not be introducing another element of intrusive bureaucracy into our economy, but simply better utilizing the existing stock of unemployed, now dependent on the public purse – especially the chronically long term unemployed. The current system we have relies on unemployed labor and excess capacity to try to dampen wage and price increases; however, it pays unemployed labor for not working and allows that labor to depreciate and develop behaviors that act as a barrier to future private sector employment. Social spending on the unemployed prevents aggregate demand from collapsing into a depression-like state, but little is done to enhance future growth and demand, which can be done via the JG by providing them with employment, greater education and higher skill levels.
      The JG program would allow for the elimination of many existing government welfare payments for anyone not specifically targeted for exemption, and would command greater political legitimacy, as society places a high value on work as the means through which individuals earn a livelihood. Minimum wage legislation would no longer be needed as it would be established via the JG. Labor would welcome the safety net of a guaranteed job, and business would recognize the benefit of a pool of available labor it could draw from at some spread to the government wage paid to JG employees. Additionally, the guaranteed public service job would be a counter- cyclical influence, automatically increasing government employment and spending as jobs were lost in the private sector, and decreasing government jobs and spending as the private sector expanded. It would therefore remain a permanent feature of our economy, in effect acting as a buffer stock to put a floor under unemployment, whilst maintaining price stability whereby government offers a fixed wage which does not “outbid” the private sector, but simply creates a stabilizing floor and thereby prevents deflation

      1. bayoustjohndavid

        “A FULL payroll tax holiday for employees AND employers”

        I understand that a full holiday is not the same thing as a temporary reduction, but I don’t think it plays out that way in national debate. More likely, the impression is that if Roosevelt institute braintrusters like Marshall Auerback and nonpartisan financial bloggers like Barry Ritholtz support a full holiday, then a temporary reduction can’t pose any long term threat. Accordingly, doesn’t anybody who has publicly endorsed a payroll tax holiday have an obligation to either draw a clear distinction, to draw the distinction as forcefully as possible, or explain why Mike Konczal and others are wrong.

  7. Matt

    Minsky wrote that the government was the employer of last resort.

    For a body politic both left and right captured by K street, and who have ignored Minsky heretofore, there is nothing left to expect.

  8. Foppe

    “The neo-liberal era has been associated with the erosion of working conditions and rising inequality in outcomes far beyond anything that could remotely be justified by disparate individual or sectoral productivity trends.”

    To be very economically simplistic: the system is becoming progressively more organized towards instability because neoliberals have (on the aggregate level) been transferring more and more money to the ‘savings’ and less to the ‘spending-income’ side of the equation, which means that there is an ever-larger mismatch between S/D even while there is ever more money to be reinvested, creating allocation problems and incentives for risk-taking behavior (trying to get rich off asset-bubbles).

  9. mtnplover

    The employment situation is solved by reducing the work week to 4 days from 5, a 20% reduction in hours worked. The current 20% unemployed and under-employed now have work and the 80% currently employed now have a free day to do as they please. Problem solved.

    The astounding technological efficiencies over the years means there is less work to do since we’re working smarter with very powerful technology tools at our disposal. The work just needs to be distributed better with a shorter work week.

    This simple change also dramatically reduces the need for unemployment payments, welfare payments, some housing subsidy payments and other government transfer payments, freeing up budget money to pay down the debt and reduce deficits. (Deficits do matter! They only benefit the wealthy.)

    The tax problem is easily solved by drastically reducing taxes on lower and middle-income working people (by reducing payroll and income taxes) and increasing taxes by the same amount on gross rents and the biggest earners of dividend, interest and capital gain income.

    This small change to the tax system puts billions of dollars back into the pockets of working people who will spend a good chunk of their newfound wealth, which will create more spending in the economy, create more jobs and growth, and help people save for retirement, vacations, a bigger home, early retirement or a host of other benefits to their lives.

    It’s not a coincidence that at the same time the standard of living has dramatically decreased for the lower and middle classes the concentration of wealth (real estate assets and stocks/bonds) among the few has never been greater – except maybe in the robber baron days.

    Real estate tax law is the clearest example that the government hates working people. We pay billions of dollars in taxes that the government turns around and gives -gives! – to the wealthiest landlords in the form of tax write-offs, tax subsidies and phony tax deductions like “deprecation.”

    If you’re looking for a primary culprit to our severe economic problems, look no further than the way the tax code subsidizes big landlords and speculators.

    1. Yearning to Learn

      The tax problem is easily solved by drastically reducing taxes on lower and middle-income working people (by reducing payroll and income taxes) and increasing taxes by the same amount on gross rents and the biggest earners of dividend, interest and capital gain income.

      And this is the crux of the matter right here.

      allowing Private Equity guys to take home $1 billion in capital gains (COUGH! income) taxed at 15% while a secretary pays a higher marginal income tax on her $47k/year job is just foolish.

      Gone are the days when the uber-rich invest in American jobs and businesses. Now they take those gains and speculate in commodities, driving up raw cost of living for the poor and working class. Or perhaps they invest in off shoring operations, actively reducing American Jobs.

      but one thing they’re not doing is using that windfall to create American Jobs.

    2. jpe

      Those are just business expenses. They’re not anything that doesn’t fall w/in the normal rubric of business deductions, so there’s nothing preferential about them.

      1. mtnplover

        You can call them whatever you want, the fact remains that investment real estate tax deductions are gifts from politicians to the wealthiest individuals paid for by taxes paid by working people.

        There is no justification for a “depreciation” deduction for real estate landlords since they don’t build housing so we’re not getting anything of value for the “expense.”

        And while there might be an argument whether it makes sense to give a mortgage deduction for a person’s home purchase, there is no rational justification to give that same deduction to a landlord or real estate speculator except to provide lucrative tax write-offs (in the tens of billions every year) to the wealthiest landlords and speculators.

        As we’ve seen in the current financial crisis and as we saw in the S&L crisis of the late 1980′s, early 1990′s, it’s always real estate speculation that is at the core of the problem.

        It’s a beautiful system. When real estate prices spike during times of easy money, real estate speculators can make millions from their investments. When the real estate assets crash, the taxpayers are responsible for the worthless loans. It’s classic socialism for the wealthy.

        The banks win many different ways: they earn massive fee income during times of real estate prosperity; when the party’s over the insolvent real estate loans get purchased by the government, AND they get to deduct the write-down of the loans from their tax income. The multi-million and billion dollar losses reported by financial institutions over the past few years will show up as very valuable tax deductions on future tax returns.

        As I say, it’s a beautiful system unless you have to work for a living and you and your family are responsible for paying for the mess.

          1. Marshall Auerback

            The carve-outs you describe might be perfectly ‘normal’ and legal, but that doesn’t mean that they represents sensible policy. There have been studies done which demonstrate that perfectly legal carve outs were often established at the behest of a few specific corporations or individuals precisely so that they could avoid tax. In that regard, I was encouraged to see the President begin to discuss tax policy in the broader context of massively simplifying the system, which I think would be ensure greater tax compliance and mitigate income inequalities by people who are able to LEGALLY game the tax code right now.

  10. Jojo

    Obama still genuinely does not have a clue as to why he has lost the trust of so many progressives.”
    ———–

    This is why:

    Most Americans Say They’re Worse Off Since Obama Took Office, Poll Shows
    By Rich Miller – Dec 9, 2010

    More than 50 percent of Americans say they are worse off now than they were two years ago when President Barack Obama took office, and two-thirds believe the country is headed in the wrong direction, a Bloomberg National Poll shows.

    The survey, conducted Dec. 4-7, finds that 51 percent of respondents think their situation has deteriorated, compared with 35 percent who say they’re doing better. The balance isn’t sure. Americans have grown more downbeat about the country’s future in just the last couple of months, the poll shows. The pessimism cuts across political parties and age groups, and is common to both sexes.

    http://www.bloomberg.com/news/print/2010-12-09/most-americans-say-they-re-worse-off-under-obama-poll-shows.html

  11. F. Beard

    A nice post by Mr. Auerback. I mean no disrespect but it is Keynesian and Leftist which the Austrian Right, of course, rejects out of hand. I know because I used to be a member of the Austrian Right till I wised up about fictional reserve banking.

    Let me tell you what the Right cannot reject, particularly the religious Right:

    1) That fractional reserve banking is theft. The Austrians have long been opposed to this but have no solution rather than ruthless liquidation. It is rather late for this though since the banks have and are being bailed out while the debtors are not.

    2) The need for debt forgiveness. The Religious Right cannot deny this since the Bible commands it (Deuteronomy 15). The non-religious Right should at least see the need for restitution for the theft which is fractional reserve lending which cheats both savers and borrowers.

    As for deficit hysteria, that is a consequence of borrowing the nation’s money supply rather than simply creating it debt and interest free.

    If you wish to defeat the Right then you should attack their hypocrisy. They acknowledge the theft that is fractional reserve banking yet propose no restitution.

    Soon on the Right’s agenda is a government backed, enforced or favored gold standard that will be cloaked in libertarian rhetoric. This will also be hypocrisy since without government privilege, gold’s value would be limited to its commodity value.

    The Left’s problem? They propose unjust government as a counterbalance to an unjust money and banking system. The Right has clearly exposed the injustice of government but when has the Left ever exposed the fundamental evil of the FR banking system? Rather, they have sought to harness it to cure the ills that it causes in the first place!

    1. jake chase

      ‘The Left’s problem? They propose unjust government as a counterbalance to an unjust money and banking system. The Right has clearly exposed the injustice of government but when has the Left ever exposed the fundamental evil of the FR banking system? Rather, they have sought to harness it to cure the ills that it causes in the first place!’

      FB, you have nailed it precisely!

    2. Marshall Auerback

      I don’t think we have “fractional reserve lending” in this country. That’s an Austrian construct, but it’s not strictly accurate to describe our banking system that way. It’s more accurately described as an “overdraft” banking system. The University of Ottawa economist, Marc Lavoie, has written pretty persuasively on this. When Lavoie talks about endogenous money he is referring to the outcomes that are arrived at after market participants respond to their own market prospects and central bank policy settings and make decisions about the liquid assets they will hold (deposits) and new liquid assets they will seek (loans).

      The core articles are:

      * Lavoie, M. (1984) ‘The endogeneous flow of credit and the Post Keynesian theory of money’, Journal of Economic Issues, 18, 771-797.
      * Lavoie, M. (1992) Foundations of Post-Keynesian Economic Analysis, Aldershot, Edward Elgar.
      * Lavoie, M. (1996) ‘Horizontalism, structuralism, liquidity preference and the principle of increasing risk’, Scottish
      Journal of Political Economy, 43, 275-300.
      * Marc Lavoie’s excellent 2001 working paper Endogenous Money in a Coherent Stock-Flow Framework also provides a free way of getting into some of the later evolution of the work. But this paper is not easy.

      Lavoie wrote in 1984 (page 774):

      “When entrepreneurs determine the effective demand, they must plan the level of production, prices, distributed dividends, and the average wage rate. Any production in a modern or in an “entrepreneur” economy is of a monetary nature and must involve some monetary outlays. When production is at a stationary level, it can be assumed that firms have at their disposal sufficient cash to finance their outlays. This working capital, in the aggregate, constitutes credits that have never been repaid. When firms want to increase their outlays, however, they clearly have to obtain extended credit lines or else additional loans from the banks. These flows of credit then reappear as deposits on the liability side of the balance sheets of banks when firms use these loans to remunerate their factors of production.”

      The essential idea is that the “money supply” in an “entrepreneurial economy” is demand-determined – as the demand for credit expands so does the money supply. As credit is repaid the money supply shrinks. These flows are going on all the time and the stock measure we choose to call the money supply, say M3 is just an arbitrary reflection of the credit circuit.

      So the supply of money is determined endogenously by the level of GDP, which means it is a dynamic (rather than a static) concept.

      Central banks clearly do not determine the volume of deposits held each day. These arise from decisions by commercial banks to make loans.

  12. Random Blowhard

    When growth resumes, the budget’s automatic stabilizers will go to work and eat into the deficit, and the US will cut back stimulus spending to further reduce the deficit. Provided the out of control, “gorge the beast” spending does not trigger a currency crisis and or a second Wall Street meltdown first. Or our trading partners retaliate against our attempt to print our way out of debt my creating an alternative “reserve currency” leaving the US dollar swaying in the breeze.

  13. Michael Fiorillo

    Is it unduly conspiratorial to suggest that, having a sense of where the economy was going in 2007-2008, combined with awareness of the public’s exhaustion with Bush and minimal confidence in his possible Republican successors, certain Important People (Buffett, Paul Tudor Jones and their ilk) placed their money on someone whose personal and political history demonstrated both no fixed outlook and a reflexive need to be liked?

    And think of the benefits they got in return: the discrediting of “liberalism” for the foreseeable future, the imposition of austerity for the proles based on looting and re-direction of national income (and implemented by a black man, no less! A twofer!), and a civil war within the Democratic Party.

    Now that’s foresight.

  14. Roger Bigod

    “His presidency is all about form and presentation over substance.”

    A polite, impressionistic way of saying “narcissistic personality disorder”.

    Character is fate.

  15. jpe

    Any good accountant worth his salt can always find a clever tax avoidance strategy for the super wealthy

    As one of those accountants, I’d note that rumors of the ease of finding loopholes in the tax code are greatly exaggerated.

    1. Yearning to Learn

      As one of those accountants, I’d note that rumors of the ease of finding loopholes in the tax code are greatly exaggerated.

      True perhaps from a legal standpoint, but hardly from a practical standpoint. Especially since enforcement is a joke… especially for our “corporate citizens”… if I recall correctly 2/3rds paid $0 in taxes last year right?

      1. jpe

        “Committing tax fraud” is a different animal than “finding loopholes.” Auerback was talking about the latter, not the former, and is just wrong on that point.

        re: corp tax: the 0% paid is partially a function of the legitimate design of the system (the foreign tax credit regime to mitigate double taxation) and partially a function of stimulus spending and business favoritism via tax expenditures.

        That said, that sort of favoritism, while present w/ corporate tax, really isn’t there as much w/ individual tax, which I took Auerback to be discussing.

  16. Brick

    It is very easy to knock arguments without giving reasoned arguments about why you disagree. It is also very easy to pick up on contentious points and ignore things you agree with.
    My take would be that there are a number of good points mentioned here. Firstly there was an opportunity to change taxation in a way which closed loopholes, addressed inequality and prompted growth. That the administration did the best they could is probably true and reflects that crony capitalism has placed disastrous limitations on what policy can be achieved. Quite rightly Marshall has pointed out that longer-term deficit issues have not been discussed or addressed. The point about deficits is that they must be addressed in the long term rather than the short. I also tend to agree about oligopolies in health and defence.
    I do however somewhat disagree about the argument that the size of the deficit now does not matter. Yes there is an option to print money and in many respects policy makers are not limited in the spending they can do. I also don’t agree that a budget only becomes unsustainable if nominal aggregate demand is beyond the capacity of the economy to absorb. There is an assumption that growth and nominal interest rates don’t have any external influences. Currency value, Export and Import trade size, compound interest, inflation expectations (whether wrong or not) all feed into calculations about whether a budget is sustainable.
    In total there is a lot to agree with here especially on the need for a focus on growth, US politics is not making the big decisive decisions the electorate want, tinkering round the edge of taxation makes no difference when root reform is what is being asked for, the electorate cares about the redistribution of wealth. Where I disagree is on how the US fits into the jigsaw of world economics and budget decisions will not feed back through the world economy to the US. The deficit maybe somewhat constrained by the external expectations of inflation in the US, even if those expectations are wrong.

  17. BS

    I thought this was the point of the article:

    “the party should be offering a plan to grow the economy in a more equitable way.”

    It’s about the lack of a big idea which would become a message.

  18. Doug T

    “President Obama can solve the economy’s problems and win back his base, but he has to get with the program first.”

    Alright, who are you really and what have you done with Marshall? This sounds like most of the so-called professional left whose salaries depend on maintaining the crippling illusion that there are two distinct parties in Washington—that Obama did the best he could and that he is not really a fraud, imposter, plant, ringer, quisling, dark horse Trojan horse for the masters of the universe. Once we get clear on the latter, then we can “get with the program”. Apart from the false assumptions about Obama, your conclusions are compelling.

    Also, you write, “By falling into the trap of appearing to be obsessed with punishing the rich, the Democrats muddy their message and look reactive. Instead of fulminating about a tax deal that effectively prevents more government spending from being REMOVED from the economy (rather than actually adding more to it in real terms), the party should be offering a plan to grow the economy in a more equitable way.”

    Sorry, your own message sounds muddy here. How does Obama’s GOP tax giveaway “prevent government spending from being REMOVED from the economy”? Isn’t it the opposite? Even the reduction in FICA taxes is clearly aimed at defunding Social Security in order to deliver the Holy Grail Obama promised to his investors.

    As for “being obsessed with punishing the rich”, you’re using the GOP’s preemptive “class-war” canard, while they pick your pocket. I don’t hear the punishment canard at all. Even Sanders’ lone voice crying in the wilderness is not seeking proper vengeance. To me, that’s the problem. We’re waaay beyond truth and reconciliation here —and overdue for truth and retribution—with pitchforks, nooses, and guillotines.

  19. F. Beard

    … the party should be offering a plan to grow the economy in a more equitable way.” Marshall A

    Here’s an idea. Bailout the population (after setting reserve requirements to 100% to preclude an inflationary spiral) and then implement fundamental reform in money creation. This would include revoking legal tender laws for private debt and allowing private currencies. The Income Tax would have to be abolished since it would be impractical with a host of private currencies. Furthermore, fractional reserves should only be allowed with private currencies, if at all.

    1. Marshall Auerback

      What I would say is this: instead of trying to revive the productive economy, most of the recovery effort has consisted of cardio-pulmonary-resuscitation for Wall Street. Fearing what it might find if it actually examined the books of financial institutions in detail, the administration put a chosen handful of them through a wimpy “stress test” after announcing that none would fail. Rather than closing massively insolvent institutions, it continues to allow them to operate “business as usual” and to cook the books to show profits so that they can pay out big bonuses to the geniuses who created the toxic waste that brought on the crisis.

      That’s clearly wrong because policy has served to preserve the interests of big financial companies, rather than implementing government programs that directly sustain employment and restore states’ finances, as I said in the article.

      The US economy is today crushed by massive indebtedness in two sectors of the economy: the financial sector and the household sector. Maintenance of the status quo is not a solution. Administration proposals to relieve debt burdens by encouraging lenders to renegotiate mortgages have failed miserably. Personal income is falling at a terrifying rate. Already 15 million have lost their jobs—since the start of the crisis. The administration’s promise that the stimulus package would create additional jobs over the next few years is unsatisfying in the face of the challenges faced.

      We need federal government spending programs to provide jobs and incomes that will restore the creditworthiness of borrowers and the profitability of for-profit firms. We need a swift and detailed investigation of financial institution balance sheets and resolution of those found to be insolvent. We need to downsize “too big to fail” financial institutions, while putting in place new regulations and supervisory practices to attenuate the tendency to produce a fragile financial system as the economy recovers. We need to investigate fraud and to jail the crooks. We need a package of policies to relieve households of intolerable debt burdens. In addition, given that the current crisis was fueled in part by a housing boom, we need to find a way to deal with the oversupply of houses that is devastating for communities left with vacancies that drive down real estate values while increasing social costs. And we’ve got to reign-in the money managers that seem to be dictating policy.

      And by the way, my point about REMOVING fiscal stimulus, a factor to which a few you seemed to think I was being cute, I was simply pointing out that Obama’s tax “compromise” essentially maintains the status quo, rather than making things worse, as the expiration of the deal would have put taxes up for everybody. In that sense, this was simply a package to prevent things from getting much worse.

      1. Paul Repstock

        Marshall: Extending the status quo seems to have been the main focus of the Obama Administration.

        Certainly it is the kindest course for all concerned. Given the aging demographic and the general state of the world, any economic upheaval would have terrible consequences. In the longer term our kids would probably benifit from letting things go to hell now. But, in the short term everyone would suffer.

        There has been much talk, by solvent (mortgage free) people, suggesting that there should be no bailouts or subsidies. I doubt these people consider the implications for their own home values if the markets crashed. A 20% overhang in te housing markets could quickly leave them paying a huge proportional property tax.

        In light of your above post re; government spending, I must say that my position has changed recently. I don’t really understand all the implications of a “Guaranteed Jobs” program. But, I can see that it will be very inflationary. To this point Mr. Bernanke’s bond purchases have tried to avoid that. The same can be said for the tax exemptions/ unemployment extention. Stimulus spending cannot help but cause inflation. The government ends up competing with the private sector for goods and services. Jobs are not created in a vacume. They always require material and financial inputs. In this regard, the unemployment extension was the only reasonable solution. All the politicians came out smelling like crap for playing financial football with it. One day it will come back to bite them.

        I don’t think the game can be continued indefinitly, perhaps Mr. Obama is trying to manufacture a ‘Softer Landing’.

  20. frances snoot

    “The timing and composition of the adjustment will need to be carefully designed to minimize the impact on demand while ensuring credibility. In this connection, a credible fiscal plan could have three basic elements. First, an upfront adjustment beginning in FY2011; in current circumstances, we believe that the 2 percent reduction in the structural deficit proposed in the FY2011 budget is broadly appropriate. This should be accompanied by, second, a clear commitment to the further measures needed over coming years, for instance through enshrining targets and/or measures in legislation; and third, further measures to address entitlement pressures, notably imbalances in Social Security, where the needed policies are well known.”

    http://www.imf.org/external/np/ms/2010/070810.htm

  21. john

    In a political system where in order to establish credibility as a candidate one must first systematically solicit bribes, raise “campaign funds”, it should come as no surprise that those who succeed are incapable of seeing the interests of those who can not afford to pay bribes or choose not to.

    It’ll be interesting to see how Obama’s internet outreach to “small donors” goes next time: he’s been flipping those supporters the bird since winning the primary.

  22. frances snoot

    blah blah blah “And while making smart, targeted investments in our future, we must also cut the deficit over the next few years and make sure that America once again lives within its means.” blah blah blah

    http://www.nytimes.com/2010/08/03/opinion/03geithner.html?pagewanted=2

    Thesis-driven targets out of the FSAP for the new multilateral system: don’t let the circus tent distract. ‘Ein’ program, ‘ein’ citizen, ‘ein’ liquidity.

    http://en.wikipedia.org/wiki/Employer_Identification_Number

  23. Ep3

    What gets me is that George bush never bargained with his base and told them to compromise with the other side. It was always about telling the other side take it or leave it. It’s like Obama is treating the republicans as his party and treatings democrats as the bad minority

  24. Jim the Skeptic

    From the post ”The tax system’s very complexity facilitates this, that complexity being a product of a code that has become yet another political plaything in the hands of Washington’s K Street lobbyists. To deal with income inequality, you need something more radical. You need reforms such as caps on executive pay and probably a system that simplifies the tax structure (to avoid creative tax avoidance), along with a broad base and a few basic, low rates to ensure a modicum of compliance.”

    I don’t want President Obama to negotiate revisions in the tax code. HE FAILS MISERABLY AS A NEGOTIATOR!

    From the post “Ultimately, the president (and what’s left of his rapidly imploding party) needs to get off this deficit fixation. It muddles the Keynesian message to say that we don’t need fiscal austerity in the midst of a serious recession — except we urgently need to reduce the dangerous deficit by taxing the rich.“

    The time for stimulating the economy is over, for the most part. Extend unemployment benefits because it is obvious to most of us that the unemployed can not find jobs. Outside of that, it is time to accept that we are in a new normal. Our economy is smaller than it was in 2007 and it will not be getting back to those levels anytime soon. Our government could not prop up this economy even if it tried; the only result of such an attempt would be the large government debt.

    From the post “The real issue in regard to entitlements such as Social Security relates to the real provisioning for retirees with sufficient quantities of resources in the future. This can only be resolved by increasing productive capacity in the future, thus ensuring that a sufficient share of resources will be transferred to the elderly. These can be achieved by increasing the rate of private and public investment, together with revisions in taxation, at the time the baby boom generation is well into retirement.”

    Wonderful, let’s encourage workers to put even more of their savings into Wall Street investments! Anyone with a 401K account over the last 10 years knows about the volatility of those investments. Exactly how are unsophisticated workers supposed to plan a retirement based on those investments? That model doesn’t work, let’s move on. The Social Security model has worked for over 75 years, perhaps it is time to begin an additional program for workers with money to invest for larger benefits.

  25. Jack Rip

    I will not argue economics with the poster, but two basic assumptions he makes are wrong. It’s not just the base that is frustrated with Obama, Democrats wall to wall are disgusted with the clown president. The second wrong assumption is that fixing the tax code will help. That is another one of urban legends based on UFOs detected by a guy with a truck in New Mexico. Even if the rate will be fixed (ultra regressive) and no deductions allowed, accountants would find ways not to pay taxes legally.

    The approach that both parties has absolutely no clue about economics, is wrong. The last of the endangered species was LBJ and the big society vanish way back is way too arrogant to take seriously. Stiglitz, Krugman and many individuals I don’t know can tell the right way to go; they all are Democrats.

    Once again, we hear that Clinton was a failure. Once again we pose the question what is it he didn’t like the peace or the prosperity, or is it yet another incarnation of CDS that brought us a president who would fail even as manager of a 7-11.

    1. mtnplover

      Your statement that it makes no difference who pays the tax is completely false. It would make a tremendous difference to decrease taxes on lower and middle income working people and increase them by the same overall amount on the wealthist who earn interest, dividends, rents and capital gain income.

      Assume a family that currently pays $300 a week in taxes. If we cut their taxes in haf to $150, most of their $150 tax savings would be spent for goods and services (or savings), all of which positively benefit the economy.

      If we increase taxes on the wealthiest by the $150 a week, all it does is reduce their wealth from $12.5 million to $12.5 million, amounts rounded. The impact to the economy of this tax increase on the wealthiest is nil. Nothing. Nada. Zilch.

      Perhaps you should preface your comments with, “Speaking on behalf of the wealthiest landlords and capital investors, I think….”

  26. frances snoot

    “Keynes’ The General Theory of Employment, Interest, and Money was published in 1936 and has today been largely regarded as the foundation of the post-War economy of the United States. However, Keynes’ economic ideology is essentially the same thing as economic fascism, and indeed Keynes himself was heavily influenced by fascism, associated with fascist thinkers, and stated that the fascists were perhaps the most well suited to adopting his economic agenda (which is really because they had already developed similar programs).

    Keynesianism is an attack on laissez-faire capitalism and proposes solutions to the problems posed by that model.”

    http://rationalrevolution.net/articles/understanding_fascism.htm

    “The global economy is suffering from a lack of aggregate demand.”

    http://www.pimco.com/Pages/AllentownDecember2010.aspx

  27. drb48

    “The real issue in regard to entitlements such as Social Security relates to the real provisioning for retirees with sufficient quantities of resources in the future. This can only be resolved by increasing productive capacity in the future, thus ensuring that a sufficient share of resources will be transferred to the elderly.”

    As long as the prevailing ideology is “everyman for himself” no amount of future growth in productivity will ensure that any share will transferred to the elderly, any more than any of the productivity gains of the last 2 decades were transferred to workers. What is required before we can get sound policy changes is a cultural change that restores some recognition of the common good and the need to “provide for the general welfare” IMHO.

  28. frances snoot

    “The state is absolutely rational inasmuch as it is the actuality of the substantial will which it possesses in the particular self-consciousness once that consciousness has been raised to consciousness of its universality. This substantial unity is an absolute unmoved end in itself, in which freedom comes into its supreme right. On the other hand this final end has supreme right against the individual, whose supreme duty is to be a member of the state.

    Genuine actuality is necessity; what is actual is inherently necessary. Necessity consists in this, that the whole is sundered into the differences of the concept and that this divided whole yields a fixed and permanent determinacy, though one which is not fossilised but perpetually recreates itself in its dissolution.”

    http://www.marxists.org/reference/archive/hegel/works/pr/prstate.htm

    We see the corporate seeded as the individual in this new global state hegemony: why argue virulently concerning the rights of the individual human seeded with prior promise in a moribund system? Are we looking now for a ‘fixed and permanent determinancy’?

    It is a new religion we are to be offered, no?

  29. Almost Ghetto

    I’ve come to expect a high quality of posts on Naked Capitalism. That being said, I was very disappointed by this post. The idea that deficits don’t matter and that future productivity could possibly expand enough to keep the current entitlements afloat is pure Keynesian (and a bit socialist) drivel. I don’t know if I’ll be reading more Marshall Auerback.

    Everyone knows that most administrations are infested with K street whores and shills. It would be a proud day (and a cold day in hell) that we got rid of this infestation. But we can argue all day about who to tax more to drive down the deficit. What we should really focus on is what is causing the deficit. The biggest line item on and off budget is the Global War on Terror, an endless war against an enemy that doesn’t exist. If we ended or reduced the level of this massive farce, maybe we could divert some of that money to actually benefit the people of our country instead of killing brown people and destabilizing the world.

  30. Hugh

    The premise of this post is completely wrong. It is not that Obama doesn’t understand what he’s doing. He does understand. What’s more he means it.

    If this was early in his Administration, this line of argument might be more comprehensible, but we now have a record of two years to look at. All of his actions go the same way, to the right, even those where he can act independently of the Congress, and the Republicans. Seriously, wake up and smell the coffee.

    What we see, and have seen, is what we will see because that is who Obama is. His understanding is just fine. He’s a conservative. Get used to it.

  31. Fractal

    This is criminal bullshit. The estate-tax payoffs alone are immoral & criminal. The estate tax rates will regress to the level they were in 1931, in the age of the plutocrats. The Walton family alone will receive a $32 Billion dollar estate-tax gift. One Family. Thirty-Two Large.

    Rupert Murdoch and the heads of JPMorgan, Morgan Stanley, Aetna, Citigroup and other bailed-out banks will receive taxcut bonuses of a million dollars each, every year. At a time when the White House and GOP claim it’s impossible to given an additional year of unemployment insurance (UI) at a cost of $56 Billion. Or that it’s impossible to spend ANYTHING on those who have fallen off UI because they remain out of work more than 99 weeks.

    All the while adding NINE HUNDRED BILLION DOLLARS to the national debt, which will be part of the excuse in two years for killing Social Security.

  32. Fractal

    Marshall Auerbach needs to drop the double-talk and just say flatly whether the White House taxcut bonuses deal should be approved or not. With or without the Christmas-tree ornaments just hung on it in the Senate bill last night.

    Just make the call, Marshall.

    Meanwhile, what’s your response to Larry Summers’s double-dip doom bomb? If we don’t pass this piece of shit White House sellout, we are gonna have another recession? Really?

  33. Tax Manhattan

    Don’t be a hedge fund manager, get a real job! Besides, none other then Larry Summers – the fat, greasy son of a bitch who conveniently inhabited the D side of the ruling class at opportune moments in the past 20 years, was a notorious hedge fund profiteer.

    This article is yet another call to delusion. A kind of fantasy concept to favorably frame elite tyranny by use of favored terms of propaganda “his progressive base”. Deification: “He is unaware why the people have abandonded him”
    Great comedy writers thrive when streams of sewage like that above embrace this delusion of process, perversion of Democracy. The serfs are being decapitated under debt servitude, and the imperial engine is bombing, burning and killing ‘somewhere’ outside the borders of most American’s reality.

    Wealth would be inconvenienced by taxation, the dutiful catering premise of this author’s tripe is that it wouldn’t be helpful.

  34. George

    The fact is 48% of Americans pay no income taxes. Bush’s tax cuts would never have become law if not for being temporary. Temporary is like a dumb adjustable rate loan and guess what, it’s due. Bernanke goes on 60 minutes and swears he’s not monetizing. Everyone, at least those not institutionalized, knows he has hit the panic button. November saw the largest deficit month on record, ever. A 1.4T annual deficit is not something you become comfortably numb about. The ill conceived tax cuts should expire and no, it not okay to let your children pay for your coddling.

  35. Bernard

    such drivel as Auerbach ‘s will keep us on the path to total destruction, financial theft by the Rich who write the tax laws and own our Government. Led originally by the Republicans, their Spokesperson, Obama.

    i have yet to hear Obama lead and dare the Republicans. Too “unprofessional.” So, i’ll just wait to see how much the Republicans can “demand” from Obama. Including the kitchen sink, which Obama will give away, cowering to please the Republicans. and screw the “base” that ain’t there no more.

    such drivel used to cover the thefts of our Government, led by the Republican/Democrat agent for the Corporations.

    oh well. watching this crash i wonder when the poor folks will wake up, if they ever will or can ? Watch things get messier as times passes.

    all these thieves stealing and no one stopping them.

  36. Deus-DJ

    The enthusiasm shared on this board against Auerbach’s arguments have been quite mesmerizing and impressive to me. You people are genuinely special…

    There is a final solution to all of this but all of you must focus your energies on that rather than looking at the symptoms(like the “theft” that is going on). That solution is one that requires us to understand that at any given moment of time man must experience a constant struggle between the proletariat and the bourgeois. Any system of law or beliefs that go against this philosophy MUST BE ATTACKED. We must further realize that man has a certain dignity, and a certain misery. To say that there are fraudsters in a system that is bound to produce fraud, and that if we went after them all would be solved is simply fantasy….man’s misery prevents him from ever being the moral gentleman that we presume they can be. Modern finance and the separation of duties, particularly when it comes to failures because of derivative products and “rogue traders”, is better evidence of this than than anything. I’m glad that those of you posting here are already “awake”, but your energies are focused the wrong way.

    To get on topic just briefly, tax cuts are another vehicle that ultimately prevents the struggle necessary in society, for two reasons: the false belief that tax cuts actually stimulate growth, and they ultimately focus a business on cost cutting rather than revenue growth, because tax cuts fuel the owners of said business and thus doesn’t need to grow the business as much as he would had taxes been much higher. See http://real-economics.blogspot.com/2010/12/obama-tax-deal-with-republicans-is.html

    1. Deus-DJ

      btw I wasn’t talking to any of you libertarian/conservative losers that posted above, or to any reading this now. If you’re a libertarian and reading this, do me a favor and go to hell.

      1. Traderjoe

        Huh? As a libertarian/anarco-capitalist (if I can find a label that works) I think you have your anger somewhat mis-directed.

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