Category Archives: Ronald Reagan

“A Republican Ruse”

The Republicans haven’t taken over yet but they’ve made their plans known and it won’t come as much of a surprise that their top priorities are tax cuts. One of the very first changes will be gaming the system that tracks whether or not tax cuts work. By every legitimate measure, including common sense, they don’t. The Pubs are going to change all that.

AS Republicans take control of Congress this month, at the top of their to-do list is changing how the government measures the impact of tax cuts on federal revenue: namely, to switch from so-called static scoring to “dynamic” scoring. While seemingly arcane, the change could have significant, negative consequences for enacting sustainable, long-term fiscal policies.

Whenever new tax legislation is proposed, the nonpartisanCongressional Budget Office “scores” it, to estimate whether the bill would raise more or less revenue than existing law would.

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[The] conventional estimates do not, however, include any indirect feedback effects that tax law changes might have on overall national income. In other words, they do not incorporate macroeconomic behavioral changes.

Dynamic scoring does. Proponents point out, correctly, that if a tax proposal is large enough, then those sorts of feedback effects can aim the entire economy on a slightly different path.

“Dynamic scoring” basically allows the injection of unjustified assumptions about the future performance of the economy. IOW, adding a baseline article of faith from Reaganomics that all tax cuts on the wealthy raise revenues and if they don’t, it’s because they weren’t deep enough.

Federal deficits are on an unsustainable path (as it happens, because of undertaxation, not excessive spending). Simply cutting taxes against the headwind of structural deficits leads to lower growth, as government borrowing soaks up an ever-increasing share of savings.

The most optimistic dynamic models get around this by assuming that the world today is in fiscal equilibrium, where the deficit does not grow continuously as a percentage of gross domestic product. But that’s not true. If you add the reality of spiraling deficits into those models, they don’t work.

To make these models work, scorekeepers must arbitrarily assume either that we tax more and spend less today than is really the case — which is what they did for the Camp bill — or assume that a tax cut today will be followed by a spending cut or tax increase tomorrow. Economists describe such a move as “making counterfactual assumptions”; the rest of us call it “making stuff up.”

Again IOW, they’re going to enshrine in law a faith-based assessment mechanism guaranteed in advance to justify both their rosy predictions and their brutal get-tough-on-the-poor cuts to human services along with their go-easy-on-corporations cuts to everything from the SEC to the FDA. They will now be able to point to government-authorized conclusions that everything is fine even as it collapses around ordinary folk not rich enough to protect themselves from it.

The Republicans’ interest in dynamic scoring is not the result of a million-economist march on Washington; it comes from political factions convinced that tax cuts are the panacea for all economic ills. They will use dynamic scoring to justify a tax cut that, under conventional scorekeeping, loses revenue.

When revenues do in fact decline and deficits rise, those same proponents will push for steep cuts in government insurance or investment programs, because they will claim that the models demand it. That is what lies inside the Trojan horse of dynamic scoring.

A win-win. When their tax cuts make the economy worse, their scoring model will demand more tax cuts as a fix.

Priority #2 is likewise financially related: further weakening if not killing outright Dodd-Frank, once again allowing banks to rig their own scams.

The Dodd-Frank financial reform law was supposed to curb speculation in swaps. But as The Journal has reported, hedge funds are increasingly using swaps to wager on whether weak firms will live or die. RadioShack, the troubled consumer electronics retailer, is one of several prominent examples. In December, RadioShack’s total debt came to about $1.4 billion, but swaps outstanding on the performance of the debt totaled $23.5 billion. Similarly, J.C. Penney, the ailing department store chain, had total debt of some $8.7 billion, but swaps outstanding on the debt totaled $19.3 billion.

Those gaps suggest excessive speculation, though it is hard, if not impossible, to gauge the precise exposure of funds to big losses. What is known is that a hedge fund that is betting on a company’s default has an incentive to push it over the edge. Conversely, a fund that is betting a troubled company will not default has an incentive to keep it afloat, at least long enough to avoid a big payout. Either way, the company becomes a pawn in a financial game.

Speculative activity is likely to increase. Last month, Congress repealed an anti-speculation provision of Dodd-Frank that would have prevented federally insured banks from conducting several types of swap transactions. In addition, the Federal Reserve recently gave the banks two extra years to meet a Dodd-Frank provision requiring them to sell their investments in private equity funds and hedge funds.

And when the 2 yrs are up, the Fed will extend the deadline for 2 more yrs and then 2 more after that and so on and so on.

The Democrat minority will, of course, “compromise” by unconditionally surrendering when their corporate sponsors tell them to.

And so it goes.

Against Optimism (Expanded)

"Optimism" by John Slaby

“Optimism” by John Slaby

Rollicking, rampant, blind-as-a-bat optimism, anyway.

Look. Sometime around the Industrial Revolution business discovered the power of optimism and began to exploit it. From the bleariest, drunkest, shotgun-in-the-pickup-truck redneck Southern white trash to the snobbiest, most coked-up, Armani-only Upper East Side corporate-raider/investment banker dildo, Americans one and all believe in being optimistic.

  • We voted for Nixon because he promised “Peace with Honor” even though we knew he was a man who wouldn’t know the sting of honor from the slap of a wet turd. We elected him not once but twice knowing full well – or at least with no excuse for NOT knowing full well – that he was a paranoid, belligerent, lying jackass and always had been.
  • We voted for Ronnie Rayguns because he told us a fantasy about shining cities on hills and how it was “morning in America” because it suggested we had everything to look forward to and no history behind us that we needed to worry about. We elected him not once but twice despite knowing full well that he was incompetent, extremely ill-informed (trees pollute??!), and not so much a president as an actor playing one on tv.
  • We voted for George W Bush because he was charming and upbeat and told us we could be millionaires if only he was in charge, a guy we’d like to have a beer with who was incidentally passing out slices of pie from the sky. We elected him not once but twice knowing full well – or with little excuse for not knowing full well – that he was a liar, a failure, a coward, and an arrogant pissant who thought God had elected him instead of us.

Behind all these incredibly bad decisions lay a miasma of denial and optimism, the first required by the second since optimism in the face of a blatantly negative reality is impossible without a fervent denial of what’s right before your eyes.

But to say all that is only to begin to enumerate the folly of unjustified optimism. For example, there’s the global economic crisis created by a handful of Wall Street manipulators and Main Street frauds. This

The bank’s [Goldman Sachs] unprecedented reach and power have enabled it to turn all of America into a giant pumpanddump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere — high gas prices, rising consumercredit rates, halfeaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you’re losing, it’s going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it’s going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth — pure profit for rich individuals.

They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They’ve been pulling this same stunt over and over since the 1920s — and now they’re preparing to do it again, creating what may be the biggest and most audacious bubble yet.

– would not have been possible were it not for an America drowning in optimism, the belief that better days are right around the corner. Who but a zealot optimist could have possibly believed so fervently in the Reagan Paradox that the less the govt collected in taxes, the more it would collect in taxes?

Optimism is the weapon that Goldman and the other Wall Street manipulators use to make a strapped America overplay its already overstretched finances. “Better days are coming. We can take on all this extra debt because when the economy turns up we’ll be making more money, enough to cover this new house.” They had us convinced.

But the economy did get better and our wages still didn’t rise. We weren’t making more money. In many cases we were actually making less because the fear of inflation that infects the rich like typhoid and the power of a fascist-style govt kowtowing to the rich and incipient corporate panic meant that inflationary fears trumped every other concern. And if we fought for higher wages, the rich moved their companies to low-wage low tax countries, dodged the taxes involved, and our jobs were gone. Forever. The optimism they fed us was gibberish, a lie, a con.

To an extent, the entire economic meltdown could only have taken place in a country so besotted with optimism that it could deny the chasm under its feet even as it was tumbling down the slope to the rocks below. The bubble was built on optimism – not at the top where they knew better – but throughout the rest of the body right down to the very bottom. We would never have tied ourselves into financial knots if we hadn’t persisted in being optimistic about the future, and if we hadn’t tied ourselves into financial knots with debt on top of debt, there would have been no imaginary profits to feed the bubble Goldman and others were blowing up.

And still we learn nothing. Taibbi points out in his Goldman take-down that they’re ginning up to do it all again, and we’re going to let them because we’re…what? You got it. Optimistic. Dig:

[I]nstead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion dollar market that barely even exists yet, but will if the Democratic Party that [Goldman Sachs] gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an “environmental plan,” called cap-and-trade.

The new carboncredit market is a virtual repeat of the commodities-market casino that’s been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won’t even have to rig the game. It will be rigged in advance.

Here’s how it works: If the bill passes, there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy “allocations” or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billion worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

The feature of this plan that has special appeal to speculators is that the “cap” on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison’s sake, the annual combined revenues of all electricity suppliers in the U.S. total $320 billion.

(emphasis added)

Wall Street makes its money on suckers like us by selling us optimistic fairy tales. Got a pollution problem? We can fix it and you can get rich at the same time. This is America. We can do anything!

Optimism is largely responsible for our being so deep in denial that we could consistently vote against our own best interests and even help destroy our own country and yet insist we did no such thing.

Fuck optimism. Give me a little healthy skepticism any day. If you’re staring at pie-in-the-sky instead of the ground under your feet, it’s a lot easier to walk off a cliff.

Yet instead of finally letting go of our childish and dangerous dependency on Happy Endings, we build entire sociological and psychological structures defending Optimism as “necessary for survival“.

We humans tend to be an optimistic bunch. In fact, it’s long been established by psychologists that most people tend to be irrationally positive. The optimism bias, as it’s called, accounts for the fact that we expect to live longer and be more successful than the average and we tend to underestimate the likelihood of getting a serious disease or a divorce. This tendency is adaptive—many researchers have claimed that a positive outlook motivates us to plan for our future and may even have an effect on our long-term physical health.

Optimism may be so necessary to our survival that it’s hardwired in our brains. A new study published in the journal Nature further confirms the idea that having a rosy outlook is a personality trait with deep, neurological roots. Researchers found that the brains of optimistic people actually light up differently on a scan than those who tend to be more pessimistic when they think about future events.

The disparity between positive and pessimistic minds is especially prominent in areas of the brain that have been linked to depression. “The same areas that malfunction in depression are very active when people think about positive events,” says Tali Sharot, a post-doctorate fellow at University College London, who conducted the research at New York University.

And in skeptical France, say, their brains are hardwired to be pessimistic? Crap.

Only in America is optimism made into a religion that supercedes everything but death and where we protect our divine right to remain children with guns. Hope has become an American fetish. America without optimism would be Europe. Ugh. Oscar Wilde said that the basis of all optimism is sheer terror. If that’s true, and it probably is, it makes us the most frightened country on Earth. Not good for an Imperial Superpower. It’s one thing to indulge your urge to defy growing up when all you can fuck up is yourself. It’s another to shove it down the throats of the rest of the world when you have the power to fuck up everything. At some point you need to become a responsible adult who considers reality instead of wetdreams to figure out policy.

What we are fighting now is a century-old training program. We have all been taught to believe and worse, act as if we have every right to ignore uncomfortable facts because, hey, somebody will figure it out and relieve us of the responsibility of fixing any of it. The Best Is Yet to Come! We’re No 1! Don’t Worry, Be Happy! Shop Til You Drop!

Enough already. Unjustified optimism has brought us to the brink of economic destruction. It’s time to put away childish things, y’all, and eat our damn green beans.