Tuesday, June 5, 2012

Walker hangs on in Wisconsin

This could be a glimpse at the presidential election later this year. Despite Republicans' anti-worker/austerity/safety-net-cutting platform, the Dems are tainted by Obama, his perceived failed policies, the lack of jobs, the economy, the deficit, etc.

This is bad news for Obama.

38 comments:

Trixie said...

This is a huge hit. Citizens United wins again. But it's interesting that exit polls show Obama leading by 8 points. Not sure what to make of it.

David said...

It's bad news but not, perhaps, for Obama. According to folks at Firedoglake.com, exit polls are showing similar margins in favor of Obama as for Scott Walker. Also reported by one commenter that O was supported by 53% of the people who voted for Walker.

Maybe Wisconsinites are just gluttons for punishment like, say, the Irish.

Tom Hickey said...

Positive, or may just neutral — Über-statistician Nate Silver says, Governors’ Races Can Be a Contrary Indicator for Presidential Elections.

Negative — Political wonks look at this chiefly as a key test of the effectiveness of dark money post-Citizens United. The verdict is unequivocally that dark money is effective and contributions are worthwhile in terms of payback in effecting an election. Expect a flood of dark money in opposition to Obama in the general. It could swamp him (double entendre intended).

Tom Hickey said...

What is unclear is how effective the divide and conquer strategy was. Did the GOP manage to pit private sector workers against public sector workers successfully. Were at least a portion of private sector workers voting with the GOP to cut public worker bargaining power, e.g., in the expectation of cutting their own taxes by reductions in public worker compensation and benefits? I don't think that is clear yet. But I believe the GOP strategists will see it that way.

Matt P. said...

The fact you are even talking about Wisconsin in the context of a Democratic President means it is bad. It means this state will be in pla and even if he wins it he will have to spend resources. Resources he didn't have to spend last time.

Trixie said...

I am absolutely convinced "divide and conquer" worked. The prevailing mentality is that "I can only win if you lose". It's seductive. And it works.

But Citizens United? I just don't get that. If there is ONE political issue that unites everyone across political factions? It's get the money out of g-damn politics.

Tom Hickey said...

Trixie:"But Citizens United? I just don't get that. If there is ONE political issue that unites everyone across political factions? It's get the money out of g-damn politics."

Every ad person should know that the effectiveness of ads is unrelated to how people like them. The message is delivered subliminally and if it is well crafted and delivered people respond. This knowledge has been imported into political ads.

So while Citizen's United is hugely unpopular as an issue, people still fall for the ad barrages, because they can't help themselves from doing so. It's not at the conscious level.

Just as consumer demand for products that people would never choose is manufactured by advertising; so too, are political candidates marketed.

beowulf said...

That's right Tom, the pernicious thing is there's no way for Congress to override Citizens United short of a constitutional amendment.

David said...

One gets the feeling that the monster has barely woken up, stretched and cracked its knuckles. We've seen nothing yet as far as what it's capable of in terms of coordinated repression and money driven electioneering. Just wait until he's had his coffee and a bit of breakfast.

Matt Franko said...

I see this as a phenom of the failed state tax revenue system in this current macro environment.

States govts are running out of revenues and trying to screw the state taxpayers.

It's going to get worse in 2013 and 2014 as pension systems continue to suffer the removal of interest income from the US Treasury (ZIRP).
States are going to go after more revenues to feed their own.

Mike has documented 100s of $Billion of UST interest removed over the last several years.

Dog eat dog. ie A few of the last of the 10 dogs going after the 9th bone causing a dog fight.

Fed's z.1 here page 90:

http://federalreserve.gov/releases/z1/Current/z1.pdf

States and their pension funds holders of 700B of USTs. Remove 5% net interest and that is $35B nationally.

I think the kerfuffle in Wiscy is over only a $143M shortfall which is probably Wiscy's fair share of the $35B UST interest shortfall.

UST starts paying interest again and all of this goes away.

resp,

Tom Hickey said...

"Dog eat dog. ie A few of the last of the 10 dogs going after the 9th bone causing a dog fight."

Nice analogy, Matt. I'll file that in my memory bank.

Matt Franko said...

Tom,
Bill had a great post last week that got back to first principles.... to paraphrase him, if you get the macro wrong there is not much else you can get right from there....

A correct understanding of macro has to be the foundation for all policy, of course this is/has been missing.

In this light I like the tone of Roger's posts lately here. Somewhat coming from another part of the academe (PhD biologic systems) and 'scolding' the economics academe for getting this so wrong.

Where are the true teachers of economics who are in truth???? Suppressed or ignored.

Resp,

paul said...

Matt Stoller has a good post up at NC (related):

http://www.nakedcapitalism.com/2012/06/wisconsin-recap-thanks-to-obama-american-left-lies-in-smoldering-wreckage.html

Matt Franko said...

Paul,

Thanks for the Stoller link.... he paints a bad picture for Dems, pretty scathing.

"At this point, the Democratic Party is hopelessly broken and overrun by the same interests that are running the Republican Party. I hate to be the bearer of such awful news, "

This sounds similar to what Bill Black wrote a few weeks ago but Stoller puts it a bit differently, Stoller puts the focus on INTERESTS which I think is a better way to describe it.

But again back to first principles, Stoller writes:

"Liberalism demands that people pay for a government, but why should anyone want to pay taxes for the terrible governance Obama has implemented?"

???????????

OUT - OF - PARADIGM!

THIS is the problem here, we cannot get anywhere with either Party if this falsehood remains the prevailing wisdom of TPTB... it's got to go.

Resp,

paul said...

@ Matt,

I will cut Stoller some slack - he's not an economist and he was making a greater point that didn't need to get bogged down in a discussion of taxes.

How about this today from Dean Baker at FDL:

http://my.firedoglake.com/deanbaker/2012/06/05/david-brooks-on-debt-can-someone-buy-the-man-an-intro-textbook/

"Borrowing occurs in the present, from some to others. At present, the government sector is the big borrower. It is borrowing from the private sector, but also in part from the Federal Reserve Board…"

He is making the same mistake Obama/Democrats are making - an incoherent message.

Re: the framing of taxation to the public, this is where I part company with MMT.

The message that taxes don't fund spending isn't going to make much sense to the person-on-the-street. The truth never seems to.

To me, the real (functional) need for taxes is re-distribution/re-circulation of wealth. Without this active process all of the wealth would quickly accumulate amongst the richest few.

In this respect, I see the economy modeled very closely by an hourglass. Without taxes and re-spending into the economy, the money (sand) will quickly accumulate and economic activity will cease.

The tax/spending cycle continuously moves money (sand) back to the top, keeping the economy moving, keeping it from reaching the stable state.

Deficit spending accounts for growth and replenishment of lost spending (sand) due to growth (hourglass gets bigger), savings (lumps) and leakages.

Re-distribution of wealth has been hammered by the free-marketeers as a moral evil.

Don't know if we can overcome that framing, but there is no choice, because if we don't sell the idea we will be back to the gilded age or worse.

The bad thing about unlimited deficit spending, even though mathematically we can, is that the few will always end up with the vast majority of the wealth.

They are feedback-destroyers.

Matt Franko said...

Good hourglass analogy Paul.

"Re-distribution": Seems like one would look at it (tax/spend) that way if one thought like Baker and Stoller that taxes "fund" spending, or govt had to borrow from non-govt.

btw I thought Baker was making some progress but looks like not.... funny how some people seem to make progress but then you see them regress.

Rsp,

PS "wealth would quickly accumulate amongst the richest few."

They cant "take it with them" you know.... ;)

rsp

paul said...

"They cant "take it with them" you know.... ;)"

True, they leave it to their kids, who then get to brag about how hard they worked to get where they are…and how unfair it is to punish the "job-creators" by taxing their hard-earned wealth.

Dan Kervick said...

The message that taxes don't fund spending isn't going to make much sense to the person-on-the-street. The truth never seems to.

I think that's a pretty good point, and I wish there was a more focused and pointed body of MMT literature on price stability and demand-pull inflation. It's out there, but it tends to be interspersed randomly with a lot of other stuff on the job guarantee, countercyclical demand stimulus and related issues. It would be good if the economists would generate an article that could serve as the locus classicus of the MMT theory of inflation.

MTT should continue to make clear to people that the government always has the option of spending more than it taxes, and that the debt hysterians usually don't understand what they are talking about. But there is also the issue of the use of taxation for regulation of aggregate demand and prices. When this issue is avoided too often, the discourse degenerates into what I call "Free Lunch MMT" - a crude blogospheric version of MMT that seems to suggest we could do without taxes altogether and just create all the money we need by "crediting bank accounts". Most people, including all the main MMT theorists, recognize that at some realistic point this process just dilutes the purchasing power of dollars, erodes savings, etc. But it is not sufficiently highlighted, and the prevalence of Free Lunch MMT floating around the blogs tends to discredit MMT, IMHO.

The chartalist dimension of MMT focuses on the role of taxation in generating demand for the currency. But there is more than that involved.

Also, there is the important but controversial issue of the role of taxation in restoring social and political equality. Even if we don't need Jamie Dimon's money to "fund" our spending, it might still be a good iodea to take a lot of money away from him juts because it is unhealthy for our democracy when people have that much damn money.

Jonf said...

@Paul

Good points. I think the public simply can't get the idea that deficits are sustainable. If you lead with this argument, you lose. But more than that I part company with MMT on taxes. I believe it is essential to impose higher taxes on the rich. I say that not bc I want their money but to help flatten out the distribution of income. Time to let the Bush tax cuts expire.

I would like to eliminate corporate taxes but no way with the way taxes are tilted toward the wealthy today.

So I sometimes read Baker or Summer and thoroughly disagree on their economics but on politics I agree.

Tom Hickey said...

According to MMT, taxes "drive" money in the sense that money in a modern economy is currency and currency gets value because the govt only accepts its own liabilities in satisfaction of liabilities to it. Once currency has value, the government can then use it to move private resources to public use.

The naive commonsense view, to which most mainstream economists and many heterodox economists subscribe is that revenue is needed to fund government spending and borrowing simply postpones revenue collection and adds interest cost too.

It should be obvious to anyone who can use a dictionary that "fiat currency" implies that government creates currency at will, and so it doesn't need any other source of funds. MMT explains this in terms of the currency issuer-currency user distinction.

This is really not at all difficult to understand, for example, in comparison with most economic theory, let alone computational models. It just is not being explained widely enough in an accessible format.

Politics is driven by narratives. The narratives of the both parties are flat-out wrong, because they are both based on the government as currency user fallacy. A new narrative that is compelling is needed .

Tom Hickey said...

Dan K: "Also, there is the important but controversial issue of the role of taxation in restoring social and political equality. Even if we don't need Jamie Dimon's money to "fund" our spending, it might still be a good iodea to take a lot of money away from him juts because it is unhealthy for our democracy when people have that much damn money."

The narrative has to include economic rent. Michael Hudson is quite good at presenting this already. The based MMT-based should integrate it. Actually the UMKC school narrative incorporates MMT, and Bill Black and Michael Hudson. The potential for a powerful new narrative is there. It just needs more workup for wide and accessible distribution. A single presentation incorporating all the major points needs to be issued in multiple formats (working paper, video, book, slideshow, journal article, FAQ).

Dan Kervick said...

Tom, I agree. From a distance, it lloks to me like they have some great and bold young students at UMKC who will help build on what exists and create the next incarnation of MMT.

Matt Franko said...

Tom & Dan,

From JD's post at NEP:

"The article tells a familiar story: The public sector has mismanaged its finances. The union wages the metro area is required to pay its bus drivers are excessively generous. (Ralph Cramden, apparently, now lives in a mansion and drives a Mercedes). Bus driver health care costs are unsustainable, and their retirement benefits are a shameless demand on the “backs of the tax-payers.” There’s no way people are going to pay more taxes to....."

I look at this situation as "rent seeking" in a way. State & Local govts extracting monopoly "rents" from the residents to take care of their own.

It is/will continue to become a major problem as the Federal fiscal policy continues to leave "9 bones for 10 dogs".

State and local govts will use the coercive force of taxation to extract "rents" from those in the "non state and local govt sector".

Expect more of the type of chaos evidenced in Wiscy these past few weeks to spread to other states.

I dont think "tax the rich" fixes this.

resp,

paul said...

"…I dont think "tax the rich" fixes this…"

Taxing the rich isn't meant to/doesn't fix anything.

It keeps them from sucking all of the money out of the economy, so that we just have to print more and more to compensate for it.

Further, it follows that if they get it, the rest of us don't.

That's why there's only 9 bones.

No matter how much we print, theres stilll only 9 bones because the few take theirs off the top and throw us the bones.

They won't invest in America unless they get their share guaranteed - they aren't willing to chance failure like the rest of us have to.

And so we have "supply-side" policies.

They get the fiscal spending up front, and we get whatever they think we deserve or less.

Tom Hickey said...

Taxes are needed to withdraw net financial assets from non-government. The amount of the governments fiscal balance is determined exogenously by non-government saving propensity. What should be taxed is determined on the basis of the principle that taxation is a negative behavior incentive, so taxes should be levied on socially, politically and economically undesirable behaviors.


An example of socially undesirable behavior is that which needlessly affects public health negatively, e.g. alcohol and tobacco. "Sin taxes" fall into this category.

Politically undesirable behavior is class behavior that undermines democracy, such as aggregation of wealth in a power elite whose influence captures the state.

Economically undesirable behavior is economic rent, which is parasitical on the circular flow of production-distribution-consumption, and negative externalities prevent price discovery in markets from operating in terms of true cost.

Matt Franko said...

Paul,

"they aren't willing to chance failure like the rest of us have to."

Couldnt agree more. Suspend habeas corpus, ID them all and round them up and send them to GITMO imo, perhaps even better, target many for killing on Obama's new "kill list", all fine with me...

That said, take a look:

Fed's z.1 here page 90:

http://federalreserve.gov/releases/z1/Current/z1.pdf

This sheet shows who has the NFAs.

It's mostly foreigners, the Fed, households, state and local govts, and public and private pension funds.

These are the hoarders.

I dont know if "the rich" have many of the NFAs (dont see that category listed in the Z.1). I guess they could be in "households" (high net worth households) but that is about it.

Looks like you could tax away all of "the rich's" NFAs and it would do no good compared to what would still be left with the true hoarders of the NFAs: zombie foreigners, morons at the Fed, and greedy coercive state and local govts.

True story: Long time community family barber shop in my area. Low prices for families. RENTED location in a strip center.

He was "paying the rent".

He was "under the dreaded rentier".

Lease is up, landlord jacked up the rent, guy had to close in face of the rent increase in 2009 as rents had went up in bubble since his original agreement.

THE LANDLORD WAS THE STATE OF MARYLAND PUBLIC EMPLOYEES PENSION FUND WHO OWNED THE STRIP MALL.

Who/what really is the enemy? It is a much larger entity than "the rich". Kill them all and confiscate all their NFAs for all I care, and looks like we still have a major problem.

Resp,

paul said...

"…households…"

I think this one thing is misleading.

65% of housholds have no savings, so can't be hoarders.

The rich are still counted as households.

If State/Local are hoarding it nust be in the form of pension funds. Cities (some) do have contingency funds - don't know how much that is or if it's significant.

Hoarding is inevitable if we don't have an alternative, but hoarding by the rich creates outcomes we can't fight. It overwhelms us.

Huge advantages in wealth relative to the many gives the rich an advantage no one else has - power.

They can afford to buy anything and everything and do.

So society is designed to protect the rich against the rest of us.

paul said...

Sorry, Matt missed this before.

Actually you've touched on too many things to cover in one comment.


"…I dont know if "the rich" have many of the NFAs…"

I would assume the rich hold most of the treasuries.

When I'm talking about "the rich" I'm talking about the super-rich. I will have to adjust my terminology.

I don't consider the group between the 1% and the 0.2% (or thereabouts) to be the big problem. It's the handful of rich families and groups that hold in excess of 30% of the wealth.

I have millionaire friends that have no power.

That's another thingabout "hoarding". It's one thing to hoard wealth. It's another thing to use that wealth to tip the playing field to ones advantage so failure is impossible.

There's a treasure-trove of discussion in this area.

paul said...

"…Who/what really is the enemy?…"

Pension funds are an example of a vehicle, but who designed them and why do we need them?

They are extraction machines that rely on deficit spending to fund.

Pension funds aren't funded, from Z.1 I added up a partial list of funds and got near $40 Trillion. Where will the dollars come from to fund that?

In the meantime, "the system" profits, and we aren't part of that system, the rentiers are.

That's why I say the system is rigged and we are the marks.

We are working machines used by the rentiers to extract wealth (inevitably everything) for their benefit, not ours.

We should go back to producing things for ourselves. I'm on board with the community movements. The system isn't for us.

Matt Franko said...

Paul,

To your point I often think about all of the fees that private managers of the pension funds extract from them for no value add.

The strip mall that threw out the family barber in my area was under a management Co. (Fees!)

We should just have the Fed level provide a robust public retirement pension and meds.

"Pension funds aren't funded, from Z.1 I added up a partial list of funds and got near $40 Trillion. Where will the dollars come from to fund that?"

What Table was that?

resp,

paul said...

Matt,

"We should just have the Fed level provide a robust public retirement pension and meds."

That's what I was getting at but within the current realm of ideas it's a non-starter IMO.

"What Table was that?"

It was a sum of several tables that I guessed would be a representation of unfunded investments.

Someone else more familiar with the tables should be able to come up with a more accurate summary.

I added Tables L.118 thru L.127 plus L.225.i just to get some idea.

Even half of those add up to 4 times the amount of net cash in existence.

Tom Hickey said...

"The rich are still counted as households."

All domestic private ownership is ultimately by households, because households own firms, non-profits with no equity excepted, but they become "owned" either by other non-profits or the state, if they have assets on dissolution.

Tom Hickey said...

"I would assume the rich hold most of the treasuries."

Not sure that this is a proper characterization. Funds own a lot of tsys because they are mandated to hold a certain % of high rated securities. Banks and financial firms also use tsys in their ops due to their money-like nature.

paul said...

"…Not sure that this is a proper characterization…"

True, depends on the definition of rich.

Still, if 65% of the population has no savings, the top 35% holds it all.

How much of that is held by the top 1% and above is the question.

The other question is whether NIPA's definition of savings is in any way related to treasuries.

Matt Franko said...

But would it not be true that if everyone tried to "sell everything" all at once, the most they could get would be the total of all NFAs issued at that point?

ie about $10T ?

Resp,

paul said...

"ie about $10T ?"

Well, by my estimate $10.5T treasuries, $5T cash.

Can you say "bank run"?. I knew you could.

As an aside, I suspect when we hear claims of "unfunded mandates" for medicare, SS and such, this is what they are referencing.

SS and Medicare don't have to be funded, the money can't possibly be extracted from the non-government since the money doesn't exist in th efirst place.

These things are funded by printing money as needed. "Socking money away" for the future is nonsense in this perspective.

Matt Franko said...

Right I forgot the "cash". So looks like $15T.

iow if everyone "had to sell everything right now" the most we would all get is net $15T.

This is probably really why prices fall in a sell off. All of that "paper wealth" ($100T) starts to compete for the paltry $15T.

Resp,

paul said...

@Matt

Yeah and if we take into account that foreigners hold at least a third of those NFA's it's even worse (last I checked the CAD stock was just over $5T, AAMF it was you that linked us to that info).

Without NGS those pension funds can only increase in "value" through greater leverage.

It puts the term "value" in a different perspective.

Now we can move on to "real value" and what that means.