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Some Modest Proposals to Spur the Economy (And Create Jobs) September 13, 2010

Posted by Kate Ryan in Barack Obama, Democrats, Economic Stimulus, Economy, National Politics, Politics.
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Some very sobering and alarming statistics were published this weekend.  The number of Americans living in poverty has jumped from 13.4% to 15% – and while a 1.6% increase doesn’t seem so high, remember that it represents almost 5 million Americans.  FIVE MILLION.

These are levels that have been unseen in this country since before Lyndon Johnson’s “War on Poverty” was declared in the 1960’s.  The increase is the single largest yearly increase since the government began keeping poverty statistics in 1959.  Roughly one in seven of our fellow citizens is now poor.

We can point to so many reasons for this.  Of course, the immediate effects of unemployment and the housing crisis are primary.  There are also underlying structural problems with the economy that cannot be cured by simply putting more people to work.  This government erred terribly by trying to fix the economy by fixing Wall Street.  Wall Street doesn’t buy school supplies, and washing machines, and new cars – people do.  And until we can get people buying things – creating demand – nobody out there will be creating jobs.  As a business owner – why would I hire people to make things that nobody will buy?  To serve meals that nobody can afford to eat? 

There are some fundamental steps that the government can take to increase demand.  The first thing is to stop worrying about the federal budget deficit. It is axiomatic that if we can get people working and paying taxes, there will be less stress on the budget.  Though the Republicans will tell you that you can’t raise taxes in a recession, most Keynesian economist will tell you that you MUST deficit spend your way out of a recession.  It’s kind of like the rising tide lifting all boats.  Or that you have to spend money to make money.

Second, you must end the Bush-era tax cuts.  Economically speaking, we should end them for everyone – including the middle class – but allowing them to expire for the top 2% of wage earners in this country would go a long way towards plugging some leaks.   For a taxpayer making $250 K, the increase amounts to about $5,000 per year.  The wealthier the taxpayer, however, the more likely it is that he or she will have high mortgage interest deductions or other income tax credits that are unavailable to those who don’t itemize.  So, the impact of these would be even less.

Third, you must cut taxes that will spur demand in the lower third of workers in this economy.  This would be through a payroll tax holiday where the federal deductions for Social Security and Medicare are totally eliminated for six months, then gradually reintroduced over a period of six months.  For many working Americans, this would be about a 9% raise in pay.  For a guy making $10 an hour, this would be an increase of $36 per week or over $140 per month.  The gradual reintroduction (say 3%, 6%, 9%) would be so that people who were got used to having that extra money wouldn’t suffer the shock of suddenly losing it.  Employers would still have to pay their full share to the government during this entire time. 

Fourth – allow Americans to refinance their mortgages directly through the government at extremely low interest rates.  Right now, the Fed is lending money to banks at or near zero percent.   The government should allow ANY American homeowner – whether they are underwater or threat of foreclosure or just doing fine – to refinance a primary residence at 2% for a 15-year loan, or 3% for a 30-year loan.  The loan would have to have been issued before September 2008 to qualify.  A homeowner carrying a $250,000 mortgage at 7% for 30 years is now paying about $1665 per month in principal and interest.  If this was refinanced for 30 years at 3%, the P & I payment would go to $1055, an extra $600 per month that the homeowner is now free to spend on something else.  If the homeowners mortgage was $1 million, the refinance would save him or her almost $2,500 per month.   As a bonus, if the homeowner’s mortgage is owned by a bank that was bailed out through the TARP legislation, the government would reduce the banks repayment obligation by that amount – rather than pay off the homeowner’s mortgage.  So, for example, if the homeowner’s loan was owned by Citibank, the government will just reduce Citi’s TARP debt by $250,000.  If the homeowner is underwater – that is – paying on a house that is no longer worth what it was purchased for, the government will similarly refinance the REAL cost of the home, and the original lender will write off the total amount against its TARP windfall.  The government would completely pay off mortgages held by local lenders. 

Finally, there are plenty of people out there who don’t have mortgages, but are drowning in consumer debt that the credit card companies have made it ever harder to afford to pay off.  In 2009, the average credit card debt per household with debt was about $16,000.  About 14% of Americans have revolving debt that is more than 40% of their net incomes.  The government could directly issue loans at 3% to individuals for credit card debt up to a maximum of $25,000 for a period of up to 5 years.  For the consumer with $16K in debt, this would result in a payment of about $288 per month.   The consumer would agree that a notation would be placed in his or her credit report that would prohibit he or she from getting any NEW credit until the government was paid in full.

These proposal would take significant outlays of cash by the government and it does not seem as though there is the stomach for this on Capitol Hill these days from either party.  However, failure to take bold moves such as these will needlessly prolong and deepen this recession,  We need President Obama to act more like Franklin Roosevelt and less like Bill Clinton.

Americans on the Brink April 12, 2010

Posted by Kate Ryan in Bank Bail-Out, Democrats, Economy, National Politics, popular culture, Republicans, Tea Party, Tea Party Activism.
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Yesterday was a typical secular Sunday in my household.   An early riser by nature, I drove off at 8 am to get doughnuts and a paper, and was comfortably ensconced in my recliner in time to watch the Sunday news shows.  During the roundtable feature on “Meet the Press”, host David Gregory was asking the panelists to comment on the retirement of Justice Stevens and any potential Obama nominee to the high court.  Conservative columnist David Brooks supported the idea that the President should choose someone outside the judiciary this time.  Brooks placed it in the context of the current political climate:

“Listen, there’s a social context here.  We have become a divided society based on college education and non-college education.  People without high school–without college degrees, much lower incomes, much higher divorce rates, much less social trust.  They take a look at people running Washington and running corporations, and they say, ‘Those people don’t get me.’ And that’s behind a lot of the anger we see in the country.  And every single issue reflects that in some way. ”

Brooks’ comment got me thinking about the anger in America these days and, I have to say, I disagree with his reasoning.  Americans are not angry because the people in charge don’t “get” them.   They are angry because they are afraid.  They see that country is changing culturally, racially, and economically – perhaps not to their perceived advantage – and this scares the hell out of them.  They feel powerless in the face of this change and are lashing out at anyone and everyone that they feel are responsible.   Unfortunately, they are lashing out at the wrong people entirely.

For the working and middle classes in America, the last 30 years has been a steady and planned destruction.  Beginning with Ronald Reagan’s first tax cuts in 1981, through the paroxysms of globalization and free trade, to the near-collapse of the American economy at the hands of Wall Street bankers, average Americans are losing ground.  If you are lucky enough to have a full-time job, wages and salaries have been stagnant or decreasing.  The cost of living is getting ever higher.  Family lives are suffering because we have to work more and longer hours just to make ends meet.  Teen pregnancy, drug use, and crime are rising because too many parents can’t be home to supervise their children.   Household debt is crushing, health insurance or medical costs are crushing, our pensions are gone in favor of 401Ks that have been decimated by the economic meltdown….the list goes on. 

In the mean time, we have bloated our military budget beyond all reasonableness and have pursued two expensive and largely unnecessary wars – a third if you consider the next to useless “war on drugs”.  We have looted our treasury to enrich political contributors and lobbyists with taxpayer money.  We have ignored the health and well-being of our fellow citizens by gutting every paltry social safety net that we ever provided. We have allowed our roads, bridges, railways, and air-traffic control system to disintegrate in favor of shoveling over 90% of the country’s wealth to the richest 1% of its citizens.

Most of the above can be laid squarely at the feet of Republicans and Conservatives.  Tax cuts for the wealthy, union-busting, incentives to off-shore jobs, deregulation of banks and Wall Street, pursuit of “law and order”, pre-emptive war, destruction of private pensions, ballooning budget deficits…all what the Conservatives want for us.  Now they sit in Congress, gleefully blocking anything that would make things better for the average American out there, and the American people are finally angry.

BUT NOT AT THEM.

To me, that is mind-boggling.   I look at the faces in the crowds at Tea Party protests and see a lot of people who look like my parents, my brothers, my friends and neighbors.  Just regular old working-class shmoes that have the simple desire to see their children do better than they did.   They are motivated by a strong desire to just go back to the time when a guy could graduate from high school, get a manufacturing job that paid well enough so that the wife could stay home and raise the kids, maybe take a vacation every summer, and the kids could go to college – graduate without being a bazillion dollars in debt –  and get an even better life.   

What the Tea Party activists need to realize is that this particular vision of America is gone forever.  What they need to realize is that by embracing change, they will be able to shape change, and that will guarantee the better future we are looking for.  What they also need to realize is that voting for people and parties that are working against their interests will never get them there.

In the 1995 film, “The Usual Suspects”, Kevin Spacey’s character Verbal Kint says, “The greatest trick the Devil ever pulled was convincing the world he didn’t exist”.  The greatest trick the Republicans ever pulled was convincing ordinary Americans that they were just like them.

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