Only Deficit Spending Will Save Us

Today's must-read comes from the chief economist at the Financial Times.

People have been bullied and misled about the so-called "ogre" of deficit spending. During a recessionary period, when businesses are not spending and tax revenues are down, the government becomes the key player. All other players are sitting on the sidelines, so government has to act. Government has to spend when no one else will. It may be the most crucial role government plays in our lives––unless you subscribe to the idea that government's only role is blowing up our enemies and fencing our borders.

The founders knew the importance of a national debt. Alexander Hamilton created a robust national economy by creating the national debt. Washington presided over this. Business wealth grew in America because we had a national debt. The great presidents knew this and used this tool to create infrastructure. Eisenhower didn't win WWII, rebuild Europe or build the interstate highway system with ready cash.

FDR got us through the Great Depression with deficit spending. Without it millions would have died of starvation and disease, not to mention millions more households that would have been broken up, homes and businesses lost. Instead, well built bridges and parks, roads and dams, electrical grid work in rural areas, hospitals, schools and public buildings were the result. We still see those projects in use today. We also see several generations who got higher education through the G.I. Bill, the last liberal "good deed" created by FDR. Millions would never have gone to college but for the New Deal.

FDR did make one key mistake, though. In 1936 he promised to balance the budget. His attempt to do so when the economy was still weak caused a second recession in 1937. It was only the massive deficit spending of WWII that finally ended the Great Depression.

In good times we pay our debt back... unless we have a Republican leadership that decides good times are a reason to loosen up, to throw no-strings tax breaks at corporations that are shifting jobs overseas.

Government needs to do the opposite of what businesses do. In bad times, government must spend. In good times, government spending is less important than government oversight to make sure the private sector doesn't create another financial collapse. Think if it as Id and SuperEgo. In good times the private sector needs a grown-up in the room, a conscience. In bad times, it needs someone to clean up its messes.

Standard & Poors or Dumb & Dumber?

Should the name be Standard & Poors or Dumb & Dumber? Here's a very good analysis in The Nation.

And another by Joe Nocera in the New York Times.

The Times is also reporting that the S.E.C. has downgraded S&P back for their own failings. Why didn't the S.E.C. downgrade the credit raters credibility earlier?

Remember, S&P and Moody's and Fitch were the ones who rated Enron AAA and did the same for the fraudulent toxic securities Wall Street dumped on customers prior to the 2008 collapse. The credit rating agencies caused the collapse by selling their ratings rather than making corporations earn them. And who had to clean up the mess? Taxpayers. It's S&P's mistakes that have ballooned our national debt. As I said the other day, blaming Obama for this is like blaming the surgeon for the cancer you wanted removed.

The real causes get lost in the noise as mommy and daddy argue. The problems we have aren't obscure or hard to understand, just hard to hear anyone talk about on television, unless you count Jon Stewart who may be the best explainer around. Maybe it's because he's allowed to use obscenities. We need them to describe what is going on.

Then there's the dull, boring but pithy and usually dead-on correct Brookings Institution.

But these causes are just political. The real cause of America's thirty year decline has been Reaganomics. Ronald Reagan (who was officially declared a god several years ago) established the rule that people who work should be paid less and pay more in taxes, and that people who own and don't work at all or work very little should reap the big rewards and pay taxes at a lower rate.

This dynamic took a robust economy and made it fragile, nervous, unstable and underfed. What feeds an economy? Incomes from honest work. Who has thrived most in Reagan's economy? The predators, the parasites, the "creative destroyers", the manipulators, the people who shuffle money rather than making products or delivering services. Reaganomics has hollowed out the America we grew up in, moving the wealth and the productivity offshore to low-wage havens and their private islands. Maybe Americans are finally waking up to this. I hope so.

Blaming the Surgeon for the Cancer He's Removing

Today's Must-Read is from the Daily Beast, Tina Brown's hard-hitting digital newspaper. And nobody deserves to be hit harder than Standard & Poors.

As Noni Prins's article explains, S&P was "factory-stamping" AAA bond ratings on all the garbage Wall Street could manufacture in the run up to the financial meltdown of 2007-2008, and pocketing enormous fees.

The U.S. debt problem right now, which S & P is deploring, is largely made up of S & P's toxic garbage that we taxpayers (and our government) had to clean up.

A bit like blaming the surgeon for the cancer he's been asked to remove. The U.S. government removed the cancerous investments S&P and Moody's fed into the U.S. economy.

Instead of S & P downgrading U.S. Treasury Bonds, the U.S. Justice Department ought to be putting S & P on trial for its massive fraud. But major financial players appear to have total immunity.

This would be outrageous satire if it were satire, but it's not. It's all true, and we're paying for it.