Tuesday, November 8, 2011
Mike Bloomberg jumps on the fiscal austerity bandwagon with one horribly misguided speech
Mike Bloomberg's speech to the Center for American Progress (a liberal think tank, no less), touting his remedy of hard fiscal conservatism. Bloomberg really doesn't seem to understand much when it comes to the economy.
It's a long speech. I make comments until about halfway through. The full speech can be read here.
Bloomberg's remarks are in italics. Mine are in regular type.
Thank you, Elaine and Neera, and good morning. This happens to be Election Day, although there aren’t too many big contests today – unless you count Dancing with the Stars. I want to thank both the Center for American Progress and the American Action Forum for hosting us – who said there’s no bi-partisanship in Washington? But it’s always nice to come to DC – for a few hours anyway.
I’ve come here as a concerned citizen, like all of you, and as an entrepreneur who dedicated 20 years to building a company and as the Mayor of 8.4 million people, many of whom are deeply worried about their futures.
Nearly 40 percent of my constituents are immigrants. They came to America – and to New York – for the opportunity to work and to build better lives for themselves and their families. That’s the promise of America: a nation of dreamers and strivers; we keep our eyes on the stars and our nose to the grindstone. We understand that success requires hard work – there’s no free lunch.
That "hard work" line is becoming a worn out jingo. People have been working hard and even with two family incomes and the social dislocations associated with that, the average American's standard of living has been falling for thirty years. Wages in real terms are lower now than they were in 1968. Maybe we have more billionaires who play games of financial speculation, but those workers he's talking about have not seen real progress and many are currently out of work.
That’s true in New York City, and it’s true in towns across America, except one: Washington.
For too long, Washington has operated on the ‘something for nothing’ principle. Both parties have promised their constituents the world – and given them debt and a sluggish economy and anemic job growth. They’ve adopted ambitious programs – without any serious way of paying for them. They’ve promised to produce and protect jobs – and for the most part, the elected officials have their jobs, but right now, there are 14 million everyday Americans who can’t find work, and more who have stopped looking.
Should read: "both parties have promised their benefactors" (i.e. corporations, the rich) and they've delivered. The plight of the worker has not been the interest of Washington, nor is it the interest of Bloomberg. NYC has become a corporatist paradise.
Both parties preach fiscal responsibility, and yet the national debt stands at $10.3 trillion. That’s about $34,000 for every man, woman, and child in the country and it’s growing by $4 billion – every day. If our current tax and spending policies hold, in 10 years the national debt will be $21.5 trillion, or about $72,000 per person.
That's $34,000 in additional income and savings (in the aggregate) for every man, woman and child. Those dollars spent went to someone, right? They would have been that much poorer if the gov'ts hadn't spent that much in excess of what they took in taxes. And in 10 years it will be $72,000 to every man, woman and child.
Thanks to the ‘prudence’ of the two parties, the Federal government is running annual budget deficits of $1.3 trillion, which means it’s borrowing one of every three dollars it spends.
That's $1.3 trillion of additional income and savings to the private sector. The deficit recycles savings into higher consumption and income.
To put that in perspective: if you made $40,000 a year – would you spend $60,000? Not for long you wouldn’t – because no bank would continue lending to you.
The bank would certainly lend to you if your never missed your debt service and always had the ability to pay. It's called revolving credit. Anyway, he's comparing apples to oranges. Individuals are not currency issuers, the US Gov't is. It has no problem, ever, paying in US dollars.
But Washington doesn’t have that problem. It effectively prints money, while the rest of us have to earn it. And so even during the good times, when responsible management of the budget would’ve meant saving money, Washington was gorging itself on debt.
Saving is inapplicable to the gov't for the very reason he mentions: the gov't can "print" all of its own money it wants. And much of what we (the private sector) "earns" comes from government payments for goods and services, interest and transfer payments (SS, Medicare, Medicaid, etc.). If the gov't weren't paying for these things (yes, Mike, by printing the money), what would replace that income?
In 2000, the federal government took in $2 trillion in revenue and spent $1.9 trillion. In 2010, the federal government took in $2.3 trillion in revenue and spent $3.6 trillion. That means, over 10 years, our revenues increased by 15 percent while our expenses increased by 80 percent.
The surplus of $100 bln that he alludes to removed $100 bln of income from the public. That's his remedy??? The $1.3 trillion deficit he talks about added that much to the public's income and savings. He deems that bad???
Spending money we don’t have seems to be about the only thing the two parties can agree on, but it is threatening the very future of our country. Why? That’s what I’d like to discuss today: Why the era of ‘Something for nothing’ has to end – and end now – and what it will take to do it.
A few sentences ago he said the government doesn't have the problem of money because it can print all it wants. Now it says we're spending money we "don't have."
For the past few years, government has attempted to stimulate the economy largely by deficit spending and tax cuts – and I think it’s fair to say the results have been, at best, mixed. Even though we’re in better shape than Europe, far too many Americans are still out of work. Far too many families are still having trouble keeping up with their bills. Far too many small businesses are still struggling to keep their doors open – and they are responsible for about half of all jobs in America.
Yes, we're in better shape than Europe because Europe is imposing austerity. We haven't done that yet, but we will because of people who think like Mayor Bloomberg. And if our stimulus had been larger, the upswing in the economy from the depths experienced in 2009 would have been that much larger, too.
By now, it should be clear that more government spending and tax cuts cannot stimulate the job growth we need to regain economic stability. We’ve already crossed that bridge – and borrowed too much.
Clear? By what evidence? If you look at the rebound in the economy since the stimulus was enacted, what's clear is that we saw major turnarounds in GDP, household wealth, stock prices, even employment started to grow. There is nothing that clearly shows the stimulus was not effective. It just needed to be bigger.
Likewise, consumer spending cannot stimulate the growth we need to regain economic stability – because consumer debt remains high. Both government and consumers have balance sheets that are heavily in the red. Neither has the money to lead an economic recovery – but luckily, one group does: business.
Consumer debt has fallen considerably. It's down to where it was in 1991, way below where it was in 2007. It's probably still going down. That's precisely why gov't debt has to rise.
Unlike in the run-up to the 2008 crash, where businesses took too much risk, today they are not willing to take risks we need them to – and the result is that a lot of capital is sitting on the sidelines. Why this is happening is not something that government leaders seem to fully grasp – and as someone who has been in both business and government, I’ve seen how the two sides often talk past each other.
Yes, there is deleveraging going on. The private sector is shedding risky assets for safe assets (cash, Treasuries). The faster the gov't supplies this, the quicker we'll be out of the recession. He certainly doesn't grasp this.
Last week, at Senator Michael Bennet’s request, I convened a dinner with a bipartisan group of Senators and New York business leaders. We had a very frank discussion about the economy and how Washington is handling it. Some of the business leaders expressed the concern that they are not being heard in Washington – and they are half-right.
That's been the rally cry, however, it's a slogan and not based on any visible evidence. Business investment under the current Administration is higher than any president in the past 30 years, with the exception of Clinton. And corporate profits are at a record even as millions go unemployed and hungry. How are businesses not being heard? They're the ONLY ones being heard it seems.
They are being heard – but they are not being understood. Hopefully, this morning I can do a little translating.
More of his "translating" that we don't need.
Generally speaking, major American companies are not short on cash. But one of the big reasons they are not investing is that they are short on confidence in the Federal government’s ability to manage macro-economic policy.
Again, that's just a line of B.S. Business investment under Obama dwarfs anything seen in since 1980. Bigger than Reagan, Bush I, Bush II. Only Clinton was bigger and he had Internet and Y2K as drivers. Obama is just three years in. if he goes two terms he could even be bigger than Clinton.
Companies do not make major investments when the future of tax and regulatory policies are so up in the air. Every CEO and business leader that I speak with says virtually the same thing: They are not going to make major investment decisions until they know how Washington intends to grapple with our huge deficits. And right now, they have no idea how or if that’s going to be accomplished.
That's just a bunch of crap. Companies look at their order books to determine whether they invest or not and/or how much. Did Bloomberg look at the deficit (which was big at the time) when he started his company? It was 1981, a very scary time.
That uncertainty is a major drag on job creation – because the price of uncertainty for business is paralysis. Decision-makers abhor a lack of clarity. You can price tax increases and labor costs into your business plan and still invest and grow.
Business conditions are always uncertain. This idea of "certainty" is an illusion. It's all about making a guess about the future.
But if you don’t know what’s on the other side of the ledge – you don’t jump off it. You sit and wait – and that’s what companies are doing. Companies are expressing a vote of no confidence in Washington because of the lack of certainty they face, and we see the effects in the lack of job growth and investment.
There's no evidence that they are sitting and waiting. Investment is up. Hiring is not up because they don't need to hire. Their profits are rising without adding new employees.
When business leaders talk about uncertainty, they are often talking about how healthcare reform or financial regulatory reform will end up being implemented – and those questions are real impediments to growth.
Many more talk about something much more important: weak orders and sales.
But as important, and the subject for today, is the broader uncertainty that exists about the country’s long-term fiscal stability. There is widespread recognition in the business community that we have to make big changes – now – or risk having big changes thrust upon us in the form of further credit downgrades, high inflation, or unacceptably severe austerity that would harm the most vulnerable Americans. So – what does the business community hope to see out of Washington?
We had a credit downgrade and, so? Rates are at all-time lows. High inflation? Where? In commodities, perhaps, but that's because we let speculation run wild. Austerity? It would be self-imposed. No one but ourselves (billionaires like Bloomberg) imposing austerity on the most vulnerable. Like he said before, we have all the money we need.
Nearly every CEO I talk with says the same thing: If the Federal government passed a real deficit reduction plan – and we’ll talk about what ‘real’ means in a minute – business leaders would respond just as they did in the 1990s, when President Clinton and Congress adopted a long-term deficit reduction plan that gave businesses more certainty about the market. That sense of greater certainty – that confidence in the future of the country and the stability of markets – is worth its weight in gold.
Well then the CEOs he talks to are completely misguided. Massive deficit reduction would destroy the economy. Just look at Europe. Are they blind?
But so long as the Federal government continues running huge deficits, and engaging in kabuki dances every few months about how to fix them, business leaders will be less likely to make major long-term investments that would produce jobs.
That's another line of garbage. Moreover, all the major long-term investments of this country, like infrastructure, education, basic science, were ALL undertaken by government.
One of the reasons this message is not penetrating the Beltway is that too many elected officials have not spent enough time in the private sector to know that investment decisions are about more than dollars and cents. They are about expectations – expectations of where the market is moving, and in which ways the government will push it.
That’s a panacea that you have to work in the private sector to have an understanding of what to do. Most people in Congress are millionaires. Gov't and the private sector have different functions. Government is not a profit seeking enterprise and should not be run that way.
That’s why today, I believe the best economic stimulus is fiscally responsible, long-term deficit reduction that sends a clear signal to the private sector about Washington’s commitment to economic stability.
Fiscal responsibility and economic stability should mean running the government in a way that always sustains full employment and output.
Real deficit reduction means more jobs today and tomorrow. But real deficit reduction requires real political courage – and that, unfortunately, is the biggest deficit we face.
They are reducing deficits in Europe with austerity and it is not creating jobs. It is killing the economy for reasons mentioned earlier.
As we all know, the Super Committee on deficit reduction has until November 23rd to come up with recommendations for achieving $1.2 trillion in savings over the next ten years. To put that in perspective: that would shrink our deficit by about 13 percent. That’s it. A drop in the bucket. And the Federal debt will continue to grow.
A 13% shrinkage of the deficit means a 13% decrease in net private savings and income. Huge. That would shrink GDP by the same amount: $1.3 trillion in lower output. He wants it bigger? That's a depression.
I can't take it anymore. If you want to read his entire speech it's here.