Reich: How to save capitalism from itself

I'm stitching several of Robert Reich's remarks together here:

In the United States, the progressive movement in the early 20th century pursued a very similar agenda: They sought a progressive income tax, limits to campaign spending, break-ups of corporate monopolies, food safety and health regulations, labor rights, etcetera. Those changes occurred not because of a cataclysm but because political reformers had enough influence to push extremely important reforms. I am looking to those historical periods for inspiration about the future. They give me hope.

[...] In the United States, we can already see the beginning of a populist and progressive reaction to the concentration of economic wealth. I disagree with the goals of the Tea Party, but it’s important to remember that the movement began as opposition to the bail-outs of Wall Street and rejected the establishment of the Republican Party. On the Left, you had the short-lived Occupy movement. But we can see the rebirth of progressivism in the election of people like Bill de Blasio or Elizabeth Warren. They were elected on explicitly progressive platforms. And if we are to believe surveys, the U.S. public is increasingly weary of concentrated economic power. The Supreme Court decisions on campaign finance are widely greeted with dismay and anger.

[...] I have nothing but admiration for Thomas Piketty’s book, but I think that it shows a lack of political sophistication if you believe that only crises can generate waves of political reform. I believe – and I think that history bears me out – that democratic capitalism has something like a balance wheel: The public becomes deeply offended by great concentrations of economic and political power. That offense quickly moves to outrage, and that can have serious political consequences. 

Reich: "I am optimistic because I see no alternative"

Interview with Martin Eiermann

June 17, 2014 | The European

URL: http://www.theeuropean-magazine.com/robert-reich--2/8636-robert-reich-on-inequality-and-austerity

Corporate tax dodges are un-American (Fortune)

By the way, Robert Reich just wrote a piece about Walgreen's plan to do a tax inversion. He noted [emphasis mine]:

It’s true that the official corporate tax rate of 39.1 percent, including state and local taxes, is the highest among members of the Organization for Economic Cooperation and Development.

But the effective rate – what corporations actually pay after all deductions, tax credits, and other maneuvers – is far lower.

Last year, the Government Accountability Office, examined corporate tax returns in detail and found that in 2010, profitable corporations headquartered in the United States paid an effective federal tax rate of 13 percent on their worldwide income, 17 percent including state and local taxes. Some pay no taxes at all.

Now read from a conservative publication like Fortune why these tax dodges by "American" companies have gone way too far....

UPDATE (07/09/2014):  In response to this post my Uncle T. freaked out, saying I was being manipulated by statistics.  For some reason he thought the "effective tax rate" of a company was calculated on income before expense deductions, i.e. gross profit.  

But I pointed out to to him that, according to the GAO report cited by Reich, "The most common measure of income for these estimates has been some variant of pretax net book income."

So the starting point for calculation is net profit before taxes, not gross profit, just in case anybody else shared my uncle's confusion.

Positively un-American tax dodges

By  Allan Sloan

July 7, 2014 | Fortune 

URL: http://fortune.com/2014/07/07/taxes-offshore-dodge/

The super rich get the best welfare

By the way, I urge everybody to watch Robert Reich's film Inequality for All that puts the problem in historical perspective, and explains why extreme wealth and income inequality is not just bad for our economy, but for the fundamentals of our democracy.

Pop quiz, hotshots: what was the top marginal tax rate under Eisenhower?  Kennedy?  Nixon? Find the answers and then ponder what you think people mean when they talk about the "good ole' days."  

The Mega-Rich Get the Best Government Welfare

By Hamilton Nolan

April 18, 2014 | Gawker

It's great to be rich. It's extra double great to be super rich. And not just because you have all that extra money—because being super rich actually lets you pay lower taxes.

As Floyd Norris points out today, our wonderful and democratic tax system, in which investment income is taxed at a far lower rate than regular income, means that the super mega ultra rich—who almost always derive a larger portion of their income from investments than any other group—actually end up paying a lower overall tax rate than the merely normal rich, who derive a higher portion of their income from salaries. (The same goes for the non-rich, but more so!) Specifically, "The superrich ($10 million+ income) paid 20.4 percent of their income in federal income taxes in 2011, while the very rich ($500K-$10 million) paid 24.5 percent."

That is dumb as hell.

Even leaving aside any issues of basic economic justice or fairness, here is a bit of worthwhile context: the latest research shows that although the wealth of America has risen by $25 trillion since the depths of the recession, that wealth is not helping us as much as it should, because it's not being churned back into the economy as much as we would expect. From Bloomberg:

His calculations show that since the recession ended in 2009, households have spent 1.7 cents of every extra $1 earned in wealth. That's less than half the 3.8-cent average implied by data between 1952 and 2009.

One reason for the adjustment may be that those enjoying gains in wealth are already rich, so have less propensity to increase spending incrementally.

Hmm if only we could somehow rectify this vexing situation oh yes TAX THE RICH MORE AND THE PROBLEM IS SOLVED.

Reich: 2013 saw huge wealth redistribution

Trickle-down economic theory vs. trickle-up economic fact.

I can't say it any better than this. Read the whole thing and get back to me with any questions!

The Year of the Great Redistribution

By Robert Reich

January 5, 2014 | Huffington Post

One of the worst epithets that can be leveled at a politician these days is to call him a "redistributionist." Yet 2013 marked one of the biggest redistributions in recent American history. It was a redistribution upward, from average working people to the owners of America.

The stock market ended 2013 at an all-time high -- giving stockholders their biggest annual gain in almost two decades. Most Americans didn't share in those gains, however, because most people haven't been able to save enough to invest in the stock market. More than two-thirds of Americans live from paycheck to paycheck.

Even if you include the value of IRA's, most shares of stock are owned by the very wealthy. The richest 1 percent of Americans owns 35 percent of the value of American-owned shares. The richest 10 percent owns over 80 percent. So in the bull market of 2013, America's rich hit the jackpot.

What does this have to do with redistribution? Some might argue the stock market is just a giant casino. Since it's owned mostly by the wealthy, a rise in stock prices simply reflects a transfer of wealth from some of the rich (who cashed in their shares too early) to others of the rich (who bought shares early enough and held on to them long enough to reap the big gains).

But this neglects the fact that stock prices track corporate profits. The relationship isn't exact, and price-earnings ratios move up and down in the short term. Yet over the slightly longer term, share prices do correlate with profits. And 2013 was a banner year for profits.

Where did those profits come from? Here's where redistribution comes in. American corporations didn't make most of their money from increased sales (although their foreign sales did increase). They made their big bucks mostly by reducing their costs -- especially their biggest single cost: wages.

They push wages down because most workers no longer have any bargaining power when it comes to determining pay. The continuing high rate of unemployment -- including a record number of long-term jobless, and a large number who have given up looking for work altogether -- has allowed employers to set the terms.

For years, the bargaining power of American workers has also been eroding due to ever-more efficient means of outsourcing abroad, new computer software that can replace almost any routine job, and an ongoing shift of full-time to part-time and contract work. And unions have been decimated. In the 1950s, over a third of private-sector workers were members of labor unions. Now, fewer than 7 percent are unionized.

All this helps explain why corporate profits have been increasing throughout this recovery (they grew over 18 percent in 2013 alone) while wages have been dropping. Corporate earnings now represent the largest share of the gross domestic product -- and wages the smallest share of GDP -- than at any time since records have been kept.

Hence, the Great Redistribution.

Some might say this doesn't really amount to a "redistribution" as we normally define that term, because government isn't redistributing anything. By this view, the declining wages, higher profits, and the surging bull market simply reflect the workings of the free market.

But this overlooks the fact that government sets the rules of the game. Federal and state budgets have been cut, for example -- thereby reducing overall demand and keeping unemployment higher than otherwise. Congress has repeatedly rejected tax incentives designed to encourage more hiring. States have adopted "right-to-work" laws that undercut unions. And so on.

If all this weren't enough, the tax system is rigged in favor of the owners of wealth, and against people whose income comes from wages. Wealth is taxed at a lower rate than labor.

Capital gains, dividends, and debt all get favorable treatment in the tax code - which is why Mitt Romney, Warren Buffet, and other billionaires and multimillionaires continue to pay around 12 percent of their income in taxes each year, while most of the rest of us pay at least twice that rate.

Among the biggest winners are top executives and Wall Street traders whose year-end bonuses are tied to the stock market, and hedge-fund and private-equity managers whose special "carried interest" tax loophole allows their income to be treated as capital gains. The wild bull market of 2013 has given them all fabulous after-tax windfalls.

America has been redistributing upward for some time -- after all, "trickle-down" economics turned out to be trickle up -- but we outdid ourselves in 2013. At a time of record inequality and decreasing mobility, America conducted a Great Redistribution upward.

Reich: Giving up our public goods

Reich is right, even liberals are too shy anymore to mention public goods and the general welfare:  

Not even Democrats still use the phrase "the public good." Public goods are now, at best, "public investments." Public institutions have morphed into "public-private partnerships" or, for Republicans, simply "vouchers."

Outside of defense, domestic discretionary spending is down sharply as a percent of the economy. Add in declines in state and local spending, and total public spending on education, infrastructure and basic research has dropped dramatically over the past five years as a portion of GDP.

America has, though, created a whopping entitlement for the biggest Wall Street banks and their top executives -- who, unlike most of the rest of us, are no longer allowed to fail. They can also borrow from the Fed at almost no cost, then lend out the money at 3 percent to 6 percent.

All told, Wall Street's entitlement is the biggest offered by the federal government, even though it doesn't show up in the budget. And it's not even a public good. It's just private gain.

We're losing public goods available to all, supported by the tax payments of all and especially the better-off. In its place we have private goods available to the very rich, supported by the rest of us.

There's a class war going on alright, and the super rich and the TBTF banks are winning it.

Private Gain to a Few Trumps Public Good for the Many

By Robert Reich

August 24, 2013 | Huffington Post

URL: http://huff.to/1f5iuUo

Reich: Analysis of economic crisis in 2:15

This is pretty darn good, and plenty short enough to watch during commercials on FOX or talk radio.

The Truth About the Economy

By Robert Reich, karinmoveon

June 13, 2011 | YouTube

URL: http://youtu.be/JTzMqm2TwgE

Reich: Anti-union rhetoric is class warfare

Great points by Reich. I would add only two things. First, if you want to cut salaries and benefits of public employees, then get ready to receive worse public services. That is, if you want to pay them like fry cooks at McDonald's, then that's the calibre of employee you're going to get. This truth should be self-evident to "free-market" types who believe that people respond to incentives.

Second, it's also self-evident that some people make the rational choice to forgo a higher salary in the private sector in exchange for greater job security and a secure pension (or any kind of pension, nowadays) in the public sector. That is, if public-sector jobs were as low-paying and insecure as private-sector jobs, there would be little or no incentive for people to man our gov't bureaucracy. Going down that path, we'd end up lowering standards and hiring fry cooks simply to staff our gov't agencies.

The Shameful Attack on Public Employees

By Robert Reich
January 5, 2011 | Huffington Post

In 1968, 1,300 sanitation workers in Memphis went on strike. The Rev. Martin Luther King, Jr. came to support them. That was where he lost his life. Eventually Memphis heard the grievances of its sanitation workers. And in subsequent years millions of public employees across the nation have benefited from the job protections they've earned.

But now the right is going after public employees.

Public servants are convenient scapegoats. Republicans would rather deflect attention from corporate executive pay that continues to rise as corporate profits soar, even as corporations refuse to hire more workers. They don't want stories about Wall Street bonuses, now higher than before taxpayers bailed out the Street. And they'd like to avoid a spotlight on the billions raked in by hedge-fund and private-equity managers whose income is treated as capital gains and subject to only a 15 percent tax, due to a loophole in the tax laws designed specifically for them.

It's far more convenient to go after people who are doing the public's work -- sanitation workers, police officers, fire fighters, teachers, social workers, federal employees -- to call them "faceless bureaucrats" and portray them as hooligans who are making off with your money and crippling federal and state budgets. The story fits better with the Republican's Big Lie that our problems are due to a government that's too big.

Above all, Republicans don't want to have to justify continued tax cuts for the rich. As quietly as possible, they want to make them permanent.

But the right's argument is shot-through with bad data, twisted evidence, and unsupported assertions.

They say public employees earn far more than private-sector workers. That's untrue when you take account of level of education. Matched by education, public sector workers actually earn less than their private-sector counterparts.

The Republican trick is to compare apples with oranges -- the average wage of public employees with the average wage of all private-sector employees. But only 23 percent of private-sector employees have college degrees; 48 percent of government workers do. Teachers, social workers, public lawyers who bring companies to justice, government accountants who try to make sure money is spent as it should be -- all need at least four years of college.

Compare apples to apples and and you'd see that over the last fifteen years the pay of public sector workers has dropped relative to private-sector employees with the same level of education. Public sector workers now earn 11 percent less than comparable workers in the private sector, and local workers 12 percent less. (Even if you include health and retirement benefits, government employees still earn less than their private-sector counterparts with similar educations.)

Here's another whopper. Republicans say public-sector pensions are crippling the nation. They say politicians have given in to the demands of public unions who want only to fatten their members' retirement benefits without the public noticing. They charge that public-employee pensions obligations are out of control.

Some reforms do need to be made. Loopholes that allow public sector workers to "spike" their final salaries in order to get higher annuities must be closed. And no retired public employee should be allowed to "double dip," collecting more than one public pension.

But these are the exceptions. Most public employees don't have generous pensions. After a career with annual pay averaging less than $45,000, the typical newly-retired public employee receives a pension of $19,000 a year. Few would call that overly generous.

And most of that $19,000 isn't even on taxpayers' shoulders. While they're working, most public employees contribute a portion of their salaries into their pension plans. Taxpayers are directly responsible for only about 14 percent of public retirement benefits. Remember also that many public workers aren't covered by Social Security, so the government isn't contributing 6.25 of their pay into the Social Security fund as private employers would.

Yes, there's cause for concern about unfunded pension liabilities in future years. They're way too big. But it's much the same in the private sector. The main reason for underfunded pensions in both public and private sectors is investment losses that occurred during the Great Recession. Before then, public pension funds had an average of 86 percent of all the assets they needed to pay future benefits -- better than many private pension plans.

The solution is no less to slash public pensions than it is to slash private ones. It's for all employers to fully fund their pension plans.

The final Republican canard is that bargaining rights for public employees have caused state deficits to explode. In fact there's no relationship between states whose employees have bargaining rights and states with big deficits. Some states that deny their employees bargaining rights -- Nevada, North Carolina, and Arizona, for example, are running giant deficits of over 30 percent of spending. Many that give employees bargaining rights -- Massachusetts, New Mexico, and Montana -- have small deficits of less than 10 percent.

Public employees should have the right to bargain for better wages and working conditions, just like all employees do. They shouldn't have the right to strike if striking would imperil the public, but they should at least have a voice. They often know more about whether public programs are working, or how to make them work better, than political appointees who hold their offices for only a few years.

Don't get me wrong. When times are tough, public employees should have to make the same sacrifices as everyone else. And they are right now. Pay has been frozen for federal workers, and for many state workers across the country as well.

But isn't it curious that when it comes to sacrifice, Republicans don't include the richest people in America? To the contrary, they insist the rich should sacrifice even less, enjoying even larger tax cuts that expand public-sector deficits. That means fewer public services, and even more pressure on the wages and benefits of public employees.

It's only average workers -- both in the public and the private sectors -- who are being called upon to sacrifice.

This is what the current Republican attack on public-sector workers is really all about. Their version of class warfare is to pit private-sector workers against public servants. They'd rather set average working people against one another -- comparing one group's modest incomes and benefits with another group's modest incomes and benefits -- than have Americans see that the top 1 percent is now raking in a bigger share of national income than at any time since 1928, and paying at a lower tax rate. And Republicans would rather you didn't know they want to cut taxes on the rich even more.

This post originally appeared at RobertReich.org.

Reich: Parallels of 1929 and 2008

Reich has written a long op-ed but the excerpts below were the most interesting to me.

We're in a Recession Because the Rich Are Raking in an Absurd Portion of Wealth

Our economy can't thrive when the richest 1% get an ever larger share of the nation's income and wealth, and everyone else's share shrinks.

By Robert Reich

July 7, 2010 | The Nation

[...]

Each of America's two biggest economic crashes occurred in the year immediately following these twin peaks—in 1929 and 2008. This is no mere coincidence. When most of the gains from economic growth go to a small sliver of Americans at the top, the rest don't have enough purchasing power to buy what the economy is capable of producing. America's median wage, adjusted for inflation, has barely budged for decades. Between 2000 and 2007 it actually dropped. Under these circumstances the only way the middle class can boost its purchasing power is to borrow, as it did with gusto. As housing prices rose, Americans turned their homes into ATMs. But such borrowing has its limits. When the debt bubble finally burst, vast numbers of people couldn't pay their bills, and banks couldn't collect.

[...]

A second parallel links 1929 with 2008: when earnings accumulate at the top, people at the top invest their wealth in whatever assets seem most likely to attract other big investors. This causes the prices of certain assets—commodities, stocks, dot-coms or real estate—to become wildly inflated. Such speculative bubbles eventually burst, leaving behind mountains of near-worthless collateral.

The crash of 2008 didn't turn into another Great Depression because the government learned the importance of flooding the market with cash, thereby temporarily rescuing some stranded consumers and most big bankers. But the financial rescue didn't change the economy's underlying structure. Median wages are continuing their downward slide, and those at the top continue to rake in the lion's share of income. That's why the middle class still doesn't have the purchasing power it needs to reboot the economy, and why the so-called recovery will be so tepid—maybe even leading to a double dip. It's also why America will be vulnerable to even larger speculative booms and deeper busts in the years to come.

Reich: Why We Need a Public Option

Why We Need a Public Health-Care Plan

By Robert Reich

June 24, 2009 | Wall Street Journal

Why has health-care reform stalled in Congress? Democrats, after all, control both Houses, and President Obama, whose popularity remains high, has made universal health care his No. 1 priority. What's more, an overwhelming majority of the public wants it. In the most recent Wall Street Journal/NBC News poll, 76% of respondents said it was important that Americans have a choice between a public and private health-insurance plan. In last week's New York Times/CBSNews poll, 85% said they wanted major health-care reforms.

So why the stall? Mainly because Congress can't decide how to pay for it. The hardest blow came last week when the Congressional Budget Office (CBO) estimated that the trial-balloon bill emerging from the Senate Health Committee would cost a whopping $1 trillion over 10 years and would cover only a fraction of Americans currently without health care. According to the CBO, another tentative bill, this one coming out of the Senate Finance Committee, would cost even more -- $1.6 trillion.

That spells political trouble. Republicans who never batted an eye over George W. Bush's wild spending habits have become born-again fiscal hawks. Blue Dog Democrats are nervous about mounting deficits. Even the president admits that the flow of red ink in future budgets keeps him up at night.

No one wants to raise taxes or even be accused of thinking about the subject. But honest politicians have to admit that universal health care will require additional revenues. The likeliest sources are limits on certain tax deductions and a cap on tax-free employer-provided health care. Would the public go along? The most intriguing finding in last week's New York Times/CBS poll was that most respondents said they would be willing to pay higher taxes to ensure everyone had health insurance.

But before we even get to this point, it's important to recognize that those terrifying CBO cost projections significantly overstate the costs. They did not include potential cost savings from the lynchpin of health-care cost containment: a so-called public option that would give people who don't get health care from their employer the choice of a public insurance plan. Why? For the simple reason that the Senate committees hadn't yet agreed on a public option. Yet without a public option, the other parties that comprise America's non-system of health care -- private insurers, doctors, hospitals, drug companies, and medical suppliers -- have little or no incentive to supply high-quality care at a lower cost than they do now.

Which is precisely why the public option has become such a lightening rod. The American Medical Association is dead-set against it, Big Pharma rejects it out of hand, and the biggest insurance companies won't consider it. No other issue in the current health-care debate is as fiercely opposed by the medical establishment and their lobbies now swarming over Capitol Hill. Of course, they don't want it. A public option would squeeze their profits and force them to undertake major reforms. That's the whole point.

Critics say the public option is really a Trojan horse for a government takeover of all of health insurance. But nothing could be further from the truth. It's an option. No one has to choose it. Individuals and families will merely be invited to compare costs and outcomes. Presumably they will choose the public plan only if it offers them and their families the best deal -- more and better health care for less.

Private insurers say a public option would have an unfair advantage in achieving this goal. Being the one public plan, it will have large economies of scale that will enable it to negotiate more favorable terms with pharmaceutical companies and other providers. But why, exactly, is this unfair? Isn't the whole point of cost containment to provide the public with health care on more favorable terms? If the public plan negotiates better terms -- thereby demonstrating that drug companies and other providers can meet them -- private plans could seek similar deals.

But, say the critics, the public plan starts off with an unfair advantage because it's likely to have lower administrative costs. That may be true -- Medicare's administrative costs per enrollee are a small fraction of typical private insurance costs -- but here again, why exactly is this unfair? Isn't one of the goals of health-care cost containment to lower administrative costs? If the public option pushes private plans to trim their bureaucracies and become more efficient, that's fine.

Critics complain that a public plan has an inherent advantage over private plans because the public won't have to show profits. But plenty of private plans are already not-for-profit. And if nonprofit plans can offer high-quality health care more cheaply than for-profit plans, why should for-profit plans be coddled? The public plan would merely force profit-making private plans to take whatever steps were necessary to become more competitive. Once again, that's a plus.

Critics charge that the public plan will be subsidized by the government. Here they have their facts wrong. Under every plan that's being discussed on Capitol Hill, subsidies go to individuals and families who need them in order to afford health care, not to a public plan. Individuals and families use the subsidies to shop for the best care they can find. They're free to choose the public plan, but that's only one option. They could take their subsidy and buy a private plan just as easily. Legislation should also make crystal clear that the public plan, for its part, may not dip into general revenues to cover its costs. It must pay for itself. And any government entity that oversees the health-insurance pool or acts as referee in setting ground rules for all plans must not favor the public plan.

Finally, critics say that because of its breadth and national reach, the public plan will be able to collect and analyze patient information on a large scale to discover the best ways to improve care. The public plan might even allow clinicians who form accountable-care organizations to keep a portion of the savings they generate. Those opposed to a public option ask how private plans can ever compete with all this. The answer is they can and should. It's the only way we have a prayer of taming health-care costs. But here's some good news for the private plans. The information gleaned by the public plan about best practices will be made available to the private plans as they try to achieve the same or better outputs.

As a practical matter, the choice people make between private plans and a public one is likely to function as a check on both. Such competition will encourage private plans to do better -- offering more value at less cost. At the same time, it will encourage the public plan to be as flexible as possible. In this way, private and public plans will offer one another benchmarks of what's possible and desirable.

Mr. Obama says he wants a public plan. But the strength of the opposition to it, along with his own commitment to making the emerging bill "bipartisan," is leading toward some oddball compromises. One would substitute nonprofit health insurance cooperatives for a public plan. But such cooperatives would lack the scale and authority to negotiate lower rates with drug companies and other providers, collect wide data on outcomes, or effect major change in the system.

Another emerging compromise is to hold off on a public option altogether unless or until private insurers fail to meet some targets for expanding coverage and lowering health-care costs years from now. But without a public option from the start, private insurers won't have the incentives or system-wide model they need to reach these targets. And in politics, years from now usually means never.

To get health care moving again in Congress, the president will have to be clear about how to deal with its costs and whether and how a public plan is to be included as an option. The two are intimately related. Enough talk. He should come out swinging for the public option.

Reich: What Wall St. must promise in return for our tax money

I encourage you all to read this and forward it to your Representatives and Senators.  This bailout is serious s**t, and we're all paying for it -- $2,000 - $5,000 per family, at least.  You can quickly find your Congressmen's e-mail contacts here:

www.congress.org


What Wall Street Should Be Required to Do, to Get a Blank Check From Taxpayers
By Robert Reich
September 21, 2008 | Robert Reich's Blog

The frame has been set, the dye cast. Treasury Secretary Hank Paulson, presumably representing the Bush administration but indirectly representing Wall Street, and Fed Chief Ben Bernanke, want a blank check from Congress for $700 billion or possibly a trillion dollars or more to take bad debt off Wall Street's balance sheets. Never before in the history of American capitalism has so much been asked of so many for (at least in the first instance) so few.

Put yourself in the shoes of a member of Congress, including our two presidential candidates. The Treasury Secretary and Fed Chair have told you this is necessary to save the economy. If you don't agree, you risk a meltdown of the entire global financial system. Your own constituents' savings could go down with it. An election is six weeks away. Besides, in the last two days of trading, since rumors spread that the Treasury and the Fed were planning something of this sort, stock prices revived.

Now – quick -- what do you do? You have no choice but to say yes.

But you might also set some conditions on Wall Street.

The public doesn't like a blank check. They think this whole bailout idea is nuts. They see fat cats on Wall Street who have raked in zillions for years, now extorting in effect $2,000 to $5,000 from every American family to make up for their own nonfeasance, malfeasance, greed, and just plain stupidity. Wall Street's request for a blank check comes at the same time most of the public is worried about their jobs and declining wages, and having enough money to pay for gas and food and health insurance, meet their car payments and mortgage payments, and save for their retirement and childrens' college education. And so the public is asking: Why should Wall Street get bailed out by me when I'm getting screwed?

So if you are a member of Congress, you just might be in a position to demand from Wall Street certain conditions in return for the blank check.

My five nominees:

1. The government (i.e. taxpayers) gets an equity stake in every Wall Street financial company proportional to the amount of bad debt that company shoves onto the public. So when and if Wall Street shares rise, taxpayers are rewarded for accepting so much risk.

2. Wall Street executives and directors of Wall Street firms relinquish their current stock options and this year's other forms of compensation, and agree to future compensation linked to a rolling five-year average of firm profitability. Why should taxpayers feather their already amply-feathered nests?

3. All Wall Street executives immediately cease making campaign contributions to any candidate for public office in this election cycle or next, all Wall Street PACs be closed, and Wall Street lobbyists curtail their activities unless specifically asked for information by policymakers. Why should taxpayers finance Wall Street's outsized political power – especially when that power is being exercised to get favorable terms from taxpayers?

4. Wall Street firms agree to comply with new regulations over disclosure, capital requirements, conflicts of interest, and market manipulation. The regulations will emerge in ninety days from a bi-partisan working group, to be convened immediately. After all, inadequate regulation and lack of oversight got us into this mess.

5. Wall Street agrees to give bankruptcy judges the authority to modify the terms of primary mortgages, so homeowners have a fighting chance to keep their homes. Why should distressed homeowners lose their homes when Wall Streeters receive taxpayer money that helps them keep their fancy ones?

Wall Streeters may not like these conditions. Well, you should tell them that the public doesn't like the idea of bailing out Wall Street. So if Wall Street doesn't accept these conditions, it doesn't get the blank check.

Reich: Too big for moral hazard

The more I read about this the more upset I get. Meanwhile, notice how pleased the "free-market" Wall Street cheerleaders like Lawrence Kudlow have been about all of this Big Government meddling in the U.S. economy.

Moral Hazard
By Robert B. Reich
March 26, 2008 | Prospect.org

One day while sitting on a beach last summer I overheard a father tussle with his young son about whether the child was old enough to take out a small sailboat. The father finally relented. "Go ahead, but I'm not gonna save you," he said, picking up his newspaper. A while later, the sailboat tipped over and the child began yelling for help, but father didn't budge. When the kid sounded desperate I put down my book, walked over to the man, and delicately told him his son was in trouble. "That's okay," he said. "That boy's gonna learn a lesson he'll never forget." I walked down the beach to notify a lifeguard, who promptly went into action.

Letting children bear the consequences of their risky behavior – what some parents call "tough love" -- is equally applicable adults, and conservatives have made something of a fetish out of it.

Months ago, when the president announced a paltry plan to help out a few of the millions of homeowners who got caught in the sub-prime loan mess, he reiterated the credo: "It's not government's job to bail out ... those who made the decision to buy a home they knew they could not afford." Days ago, when he endorsed the giant Fed bailout of Wall Street, the president signaled it was government's job to bail out big bankers who had made decisions to buy and sell risky securities they knew (or should have known) they could not afford.

It's true that people tend to be less cautious when they know they'll be bailed out. Economists call this "moral hazard." But even when they're being reasonably careful, people cannot always assess risks accurately. Many of the mostly poor home buyers who got into trouble did NOT in fact know they couldn't afford the mortgage payments they were signing on to. The banks and mortgage lenders that pulled out all the stops to persuade them to the contrary were in a far better position to know; after all, they had lots of experience at this game. So did the credit-rating agencies that gave these loans solid credit ratings, as did the financiers who bundled them with less-risky loans and sold them to other financial institutions, and the hedge fund managers who quietly tucked them into their portfolios.

The real moral hazard in this saga started last summer when Fed Chair Ben Bernanke first cut the Fed's discount rate (charged on direct federal loans to banks) and announced that the Fed would take whatever action was needed to "promote the orderly financing of markets." Translated, this means that lenders, credit-rating agencies, financial intermediaries, and hedge funds would be bailed out, one way or another, because they're simply too big to fail. Since then, the Fed's Wall Street bailout has gotten bigger and bigger.

Note that behind every one of these institutions lie thousands of well-paid executives who would have lost big if the Fed didn't come to their rescue. A few, such as those at the late Bear Stearns, did lose big. But most executives on Wall Street have not. Even though they had more information and experience at risk-taking than the suckers who borrowed their money, and even though executives at the top of these institutions typically earn more in a day than the borrowers do in a year, moral hazard somehow doesn't apply to them.

When it comes to risky behavior in the market, America has a double standard. We're told that economic risk-taking as the key to entrepreneurial success. But when big entrepreneurs take big risks that fail it's amazing how often they get bailed out.

Indeed, the history of modern American business is littered with federal bailouts, loan guarantees, and no-questions-asked reorganizations. Some are well known, such as the Chrylser bailout of 1979, the savings and loan bailout of 1989, and the airline bailout of 2001. Most occur in the relative dark, such as the 1998 bailout of giant hedge fund Long-Term Capital Management (courtesy of former Fed chair Alan Greenspan), the not infrequent bailouts of under-funded corporate pension plans by the government's Pension Benefit Guarantee Corporation, price supports for big agribusinesses facing market downturns, or the current bailout of Wall Street being engineered by Ben Bernanke's Fed.

Behind every one of these bailouts are CEOs or financial executives who were rescued from their bad bets.

CEOs get away with stupid mistakes all the time. Some, like Robert Nardelli, the former CEO of Home Depot, drive their company's stock low that their boards eventually oust them. But they leave with eye-popping going-away presents nonetheless. (Nardelli got several hundrd million dollars on his departure.) If you're an average American who gets canned from his job, even through no fault of your own, you probably won't even get unemployment insurance (only 40 percent of job-losers qualify these days). Conservatives tell us that unemployment insurance reduces their incentive to find a new job quickly. In other words, moral hazard.

Some CEOs use bankruptcy as a means of getting out from under pesky labor contracts they might have "known they could not afford" when they agreed to them (Northwest Airlines most recently, for example). Others use it as a cushion against bad bets. Donald ("you're fired!") Trump's casino empire has gone into bankruptcy twice -- most recently, last November, when it listed $1.3 billion of liabilities and $1.5 million of assets – with no apparent diminution of the Donald's passion for risky, if not foolish, endeavor. After all, his personal fortune is protected behind a wall of limited liability, and he collects a nice salary from his casinos regardless. But if you're an ordinary person who has fallen on hard times, just try declaring bankruptcy to wipe the slate clean. A new law governing personal bankruptcy makes that route harder than ever. Its sponsors argued -- you guessed it -- moral hazard.

Bush's "ownership society" has proven a cruel farce for poor people who tried to become homeowners, and his minuscule response to their plight just another example of how conservatives use moral hazard to push their social-Darwinist morality. The little guys get tough love. The big guys get forgiveness.

Reich: Progressive tax & reform agenda

I'm editing out a lot of this article by Reich. I'm especially interested in his progressive ideas on paying for the fed. government.


Financing the Common Good
By Robert B. Reich
February 1, 2008 | Prospect.org


> ... A new Democratic president coming into office in 2009 will face a national debt much larger than it was in 1993. Despite the $5 trillion 10-year budget surplus that ended the Clinton years, the federal debt at the end of the Bush years will be almost $4 trillion larger than it was then. It will have grown about 70 percent during Bush's reign.

> ... the administration of George W. Bush has exploited the asymmetry in American politics. By trashing the institutions of government, the younger Bush personified his central thesis that government cannot be trusted to do anything well. He has shown that Republicans cannot lose at this game. There is no downside in treating government like a sewer. To the extent they have been careless or negligent with it, or crassly mendacious, illegally rewarding cronies and punishing opponents, splurging and plundering at every turn, they still come out on top. If, against all odds, a program or initiative somehow succeeds, they can show how wise they were all along. If programs or initiatives fail, as has been more likely, the failures only illustrate why citizens and taxpayers should not rely on government in the first place. Bush has thus enlarged upon the Reagan-era fiscal tactic of "starving the beast" of revenues into a more insidious strategy of starving the beast of public trust.

> ...Increase the staffing of regulatory agencies charged with protecting the public, and appoint regulators who believe in protecting citizens. See to it that corporate lawbreakers are prosecuted vigorously. There is no better means of demonstrating to the public why government is necessary and, not incidentally, that you are not in the pockets of the powerful. Crack down on unsafe products, sweatshops, consumer fraud, bribery, the looting of corporations by executives, illegal firings, sexual harassment, oil spills, predatory lending, insurance companies that fail to honor their policies, underfunded pension plans, corruption in the awarding of government contracts. Protect corporate whistleblowers. Publicly castigate CEOs who endanger or defraud the public.


> ...Where to get the additional money? Three sources: The peace dividend from ending the Iraq War, a more progressive tax, and modest deficit spending. Because many of America's deferred needs are felt so directly by a large majority of citizens -- health care, early education, child care, training for good jobs, better public transit, and so on -- you can gain support for additional revenue if you educate the public about what you're doing and why.

Start with the peace dividend. According to government figures, the wars in Iraq and Afghanistan have so far cost the United States more than half a trillion dollars. Another four years would cost significantly more, because this figure doesn't include the ever larger costs of recruitment or the cost of replacing the equipment that's been used in the war so far. If you ended the war, it's safe to say that the peace dividend would be more than $100 billion a year, even including the costs of attending to our wounded.

The only people who have the money necessary to reverse the nation's troubling trends are at the top. Recent data from the IRS show that the wealthiest 1 percent of Americans are earning more than 21 percent of all income -- a postwar record -- while the bottom 50 percent of Americans combined are earning just 12.8 percent of total income. (Right-wingers have attacked these data by arguing that the IRS improperly counts adjusted gross income, but however you try to bend the numbers the trend is unmistakable.)

Explain to the public that even as income and wealth have become more concentrated than at any time in the past 80 years, those at the top are now taxed at lower rates than rich Americans have been taxed since before the start of World War II. Taxpayers who bring home over $5 million annually now pay less than 22 percent of their incomes in federal tax, on average. Managers of hedge funds, private-equity partners, and many venture capitalists are paying no more than 15 percent -- since their earnings are, absurdly, treated as capital gains. This means that America's wealthiest, who have been receiving most of the economy's bounty, are paying a smaller percentage of their income in taxes than are middle-class Americans. Financiers who are raking in hundreds of millions -- last year, each of the 25 highest paid hedge-fund managers took in an average of $560 million -- are paying at a lower rate than many of America's working poor who barely clear $20,000 annually.

How to sell a higher marginal tax on the wealthy? Emphasize that there's no way the country can do what's needed unless more money is raised -- and yet, if the rich don't pay their fair share, the burden will fall on a middle class that's already financially strapped. By the same token, only a relatively few at the top would need to pay more. According to the Institute on Taxation and Economic Policy, if the marginal income tax rate on Americans whose yearly income exceeds $10 million were raised to 70 percent, and the rate for those who earn between $5 million and $10 million a year were raised to 50 percent, federal revenues in 2008 would increase by $105 billion. By my calculation, a tiny annual wealth tax of one-tenth of 1 percent on all net worth exceeding $5 million -- a tax that would affect only 50,000 households, or fewer than one-tenth of 1 percent of the nation's taxpayers -- would yield an additional $100 billion.

Point out that a progressive income tax has been a cornerstone of our fiscal system since 1913 -- and our current non-progressive and often regressive tax is the anomaly. In World War II, rich Americans paid a marginal rate of over 68 percent of their incomes in federal taxes, even after exploiting every tax loophole they could find. In the 1950s, under Dwight Eisenhower, the highest marginal rate was over 90 percent, and even after using all the deductions and credits, the rich paid almost 52 percent.

[...]

Immigration debate baloney

America's Biggest Divide
By Robert B. Reich
January 4, 2008 | Prospect.org

The biggest divide in America today isn't over social issues like abortion or gay marriage. It's not even over the war in Iraq, or taxes. The biggest split is over immigration.

Demagogues on the right and left are telling Americans our jobs are threatened, our social services overwhelmed, and their streets unsafe because of immigrants. Fear and prejudice are on the rise. According to a recent Pew survey, more than half of Hispanic adults in America today worry they or someone close to them could face deportation.

The fear-mongers won't compromise. Earlier this year, when Congress tried to enact a bipartisan bill that would better secure the borders and also try to regularize the plight of undocumented immigrants -- giving them a path to become regular citizens and avoid the constant fear of deportation -- the bill was killed by these agents of fear and intolerance.

Well, I have some news for these demagogues. If they think this country or this economy can succeed in coming decades without tens of millions of additional immigrants, they're not thinking straight. The huge baby boom generation -- 77 million Americans born between 1946 and 1964 -- will be retiring, and there aren't nearly enough native-born Americans after them to keep this economy going, let alone keep money flowing into the boomers' Social Security and Medicare trust funds. The graying of America means we need this new wave of immigrants.

Remember also that most of us born here are descended from immigrants. In 1900, the same proportion of people living in America had been born elsewhere as there are today, including today's undocumented immigrants. What we've learned over the years is that people with the guts and gumption to leave their country of birth and come to America are almost by definition ambitious. And the single most important asset of this economy and society is ambition.

I'm not arguing that we throw our borders open. No, we need better border security. But to think immigrants are our enemies, or to believe that they're taking more out of the economy more than they putting into it, is pure baloney. To reduce the entire debate over immigration to the simple question of whether someone is here legally is to miss all the insidious ways that prejudice is hurting so many who are here legally. And to conclude that working in America without proper documentation is an offense equal to a heinous crime, meriting the permanent breakup of families who have lived and worked here for years, is to be blind to the realities all around us.

At this time of year especially, we need to remind ourselves of the tolerance and generosity that built this country by allowing our immigrant ancestors to become full-fledged Americans.