Recently in Economics Category

Hear freaking hear Joel Kotkin:

You would think, given the massive dissatisfaction with an economy that guarantees mega-bonuses for the rich and continued high unemployment, that the GOP would smell an opportunity. In my travels around the country -- including in midstream places like suburban Kansas City and Kentucky -- few, including Democrats, express any faith in the president's basic economic strategy.

Ask a local mayor or chamber of commerce executive in Kentucky or Kansas City about the stimulus, and at best you get a shrug. Many feel the only people really benefiting from Obamanomics are Wall Street grandees, public employees, subsidized "green" companies and various other professional rent seekers.

It's not surprising, then, that most Americans -- upward of 60 percent -- feel the country is headed in the "wrong direction." Most of these malcontents are not zealots such as those you might find at a tea party. They are more akin to villagers watching in horror as two armies, each fighting in their name, wage war on each other, leaving desolation in their wake.

Yet it's unlikely that the independent-minded will move to the GOP until the party comes up with a credible economic plan that addresses popular concerns. One big problem lies in the very nature of the Republican Party. Since Theodore Roosevelt, the party has devolved into a de facto shill for large corporate interests. One notable exception, to some extent, was Ronald Reagan, whose rise challenged the hegemony of some in the corporate establishment, first in California, when he was governor, and later nationally.

Republicans may now find it convenient to rail against the Troubled Asset Relief Program, but it's something many supported under George W. Bush. Even now, most are loath to fight excessive pay and bonuses at places like Goldman Sachs. Instead, it's populists like North Dakota Democrat Byron Dorgan and Vermont independent Bernie Sanders who seem most outraged by the massive rip-off of taxpayers.

Republicans also do not seem sympathetic to pro­posals by former Fed chief Paul Volcker and others to break up "too big to fail" banks or reimpose distinctions between investment and mainstream banks. If anything, this illustrates that for all the rhetoric about self-sufficiency and small business, they remain more attuned to Wall Street and K Street than Main Street.

Read the whole thing. I agree too with his conclusion.

In the end, economic populism, not social conservatism, can transform Republicans into something other than a scarecrow party. And they could make this strategy work, if they only had a brain.

Ken Silverstein on an object lesson in Congressional priorities. Excerpt:

If you want to understand why Congress seems completely incapable of checking the power of Wall Street, look back to a hearing on the Hill last October 7, and the subsequent events surrounding it. On that day, the House Financial Services Committee hosted a panel on reform of the market for derivatives, the financial instrument which played such a notable role in the country's economic meltdown.

Everyone rational knows that there is an enormous need to seriously reform the derivatives market, but the committee, headed by Congressman Barney Frank (D-Wall Street), invited a panel of eight guests who were distinguished by their uniformly pro-industry positions. They included Jon Hixson of Cargill, James Hill of Morgan Stanley (on behalf of the Securities Industry and Financial Markets Association), Stuart Kaswell of the Managed Funds Association (which, through one of its lobbyists, has delivered significant "bundled" donations to Frank) and Christopher Ferreri of the Wholesale Markets Brokers Association.

At the last minute, reports Silverstein, they invited a single witness from the other side to testify, a guy named Robert Johnson, and cut him off early. They wouldn't post his testimony to the committee's website. The conclusion?:

Meanwhile, Frank's committee has put forth its "reform" bill. "Too tepid, too weak, too late," Johnson says of the legislation. "Very industry influenced. We had a crisis and they are pandering to the perpetrators."

Say "populism" to a Republican, and they'll think you're talking about social conservatism. But economist Luigi Zingales says Republicans have an opening to become market-oriented populists, if they can wake up and quit being the party of big business. Excerpt:

The question is not whether this populist pressure will have a strong influence on policy decisions, but how: Will it work to destroy, or to improve, the market system that has brought so much well-being?

If Republicans ignore popular anger, as the party establishment did last autumn, they leave a powerful and potentially disruptive force in the hands of Democrats. The majority of the Democratic establishment does not believe in the American dream, in the importance of providing incentives for economic growth, or in the market as the best mechanism to allocate available resources. The Democrats could channel popular anger into protectionism, 90% tax rates and onerous new market constraints.

In Republican hands, though, populism could become a strong force for positive change. At the beginning of the 20th century, facing similar conditions of rising income inequality and popular anger, President Theodore Roosevelt, a Republican, approved a series of fundamental reforms that turned the United States into a modern country. From creating the Food and Drug Administration to trust busting, Roosevelt used public anger to counterbalance the power of large companies (and monopolies) and create a more efficient and popular form of market capitalism.

The Republican Party today must follow a similar strategy, updated for present circumstances. It has to move from a pro-business strategy that defends the interests of existing companies to a pro-market strategy that fosters open competition and freedom of entry. While the two agendas sometimes coincide--as in the case of protecting property rights--they are often at odds. Established firms are threatened by competition and frequently use their political muscle to restrict new entries into their industry, strengthening their positions but putting their customers at a disadvantage.

More good Zingales ideas about saving capitalism from the capitalists here.

Do you think that people in the bank's vise over excessive debt are getting what they deserve for living beyond their means? Then Yves Smith would like you to read this letter from a reader. Here's how it begins:

Just like most everyone I know, my husband and I are in big debt with our credit card companies. My husband was laid off on New Year's Eve last year. We were in total shock. I am retired from the USAF and receive a small monthly check, and my husband began collecting a meager unemployment check. He searched all over the US and made several trips out west knocking on doors and handing out his resume. NOTHING. Anyway, we had no saving and a little bit of stock which was cashed in at an all time low. No help there. Then we started living off our credit cards. Without them, we would have not made it, period. Our daughter and her family moved in upstairs and her husband was working of a whopping $8.50 an hour. No help there. So basically we were supporting them as well.

We have a mortgage payment of $1175 and $30,000 equity still in our home, but we are unable to refinance at a lower rate BECAUSE my hubby was unemployed!

Getting back to my B of A card, I have NEVER been late on a payment in 10 years (until last month). I have always paid more than the minimum (until January 1st). BUT, my interest rates have inched up and up in the last few months and then, BOW!

Read on for the whole sorry tale.

It was 80 years ago today that the stock market crashed, ushering in (more or less) the Great Depression. Historian Ron Chernow has a smart recap of the events. What's the main difference between then and now? Ordinary people could understand why the crash happened back then, and how to fix holes in the system. Chernow:

New Deal financial reformers were fortunate that the crash had followed the satisfying script of a morality play, with sin and repentance followed by redemption. The wicked ways of Wall Street in the '20s could be comfortably told in a fireside chat. Franklin Roosevelt had a bunch of rich rascals to chastise -- unscrupulous individuals rather than irresponsible institutions, as in our own recent decline. The blatant stock market abuses were comprehensible to ordinary citizens, quite unlike the exotic credit derivatives and mortgage-backed securities that baffle us today. And the Great Depression that followed the 1929 crash fostered a climate for reform that has proven hard to replicate.

However severe, our current predicament seems mild compared to the calamitous unemployment of the early 1930s. Hence, average Americans, mystified by the complexities of finance today, still await a new season of financial reform.