Dog whistle politics

In an article written in 2000, William Greider said something that really stuck in my mind: “An enduring truth, a wise friend once explained to me, is that important social change nearly always begins in hypocrisy.”

This is very true. When we look back at the improvement in our attitudes to race and gender, at some point indulging in crude stereotypes, offensive humor, and derogatory remarks against this or that hitherto discriminated group becomes seen as unacceptable behavior and the people making them are viewed as ignorant and become ostracized, outside the bounds of decent society. As a result, we then go through a long period when people who harbor such offensive views feel forced to hide them or even say things that are opposite to what they truly feel. As Greider says “[T]he powerful are persuaded to say the appropriate words, that is, to sign a commitment to higher values and decent behavior.”
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More on bubble economics

Dean Baker (co-director of the Center for Economic and Policy Research in Washington, DC) argues that the US is heading towards a recession, if not already in one, and he says that the main cause is the collapse of the housing bubble and not the spending on the Iraq war, though that is not helping either.

The villains in this story are the economists who somehow couldn’t see an $8 trillion housing bubble, the banks that fueled the bubble with bad and often predatory loans, the regulatory institutions that did nothing to prevent the growth of the bubble and the spread of predatory loans, and most of all, Alan Greenspan and the Fed who blessed the whole thing.

We have to hold these folks responsible for their bubble economics. The best place to start would be to remove them from positions where they are still making economic policy.

On Tuesday, we saw the Federal Reserve decide to pump $200 billion into the financial system to try and alleviate the crisis and it sent stock prices soaring that day.

I didn’t understand exactly what they did or how it was supposed to work because the news was reported in a very obscure way. Fortunately for people like me, in another article Baker explains clearly what is going on here and argues that the media is not characterizing this action for what it really is: a federal bailout of the banks that were partly responsible for this mess.

Can’t the media find any economists who don’t think that handing hundreds of billions of taxpayer dollars to the big banks and the incredibly rich people who own and manage them is a good idea? Apparently not, given the coverage so far to the Fed’s proposal to lend $200 billion to the banks using mortgage backed securities as collateral.

The workings of the Fed and the financial markets can appear complicated, so let’s simplify matters a bit to make it more clear what is going on here. Suppose that it was suddenly discovered that much of the wealth held by the country’s leading financial institutions was in fact counterfeit. Instead of having hundreds of billions of dollars of real currency in their vaults, institutions like Citigroup, Merrill Lynch, and Bears Stearns actually had hundreds of billions of dollars of counterfeit currency. Suppose further that the public did not know exactly who held what in terms of counterfeit currency, only that all of them had a lot of it. (The point here is that these banks hold mortgage backed securities, many of which are only worth a fraction of their face value, and therefore can be viewed as the equivalent of counterfeit currency.)

In such circumstances, investors would be very reluctant to accept the credit of any of the major financial institutions. They couldn’t know whether most of their assets were in fact counterfeit, and they were dealing with a bankrupt institution, or whether the counterfeit currency was only a limited share of the wealth, which would not jeopardize the institution’s ability to meet its obligations.

This is in fact the credit squeeze that we’ve have recently witnessed. The spread between the interest rates on a wide variety of assets and the interest rate on safe assets (U.S. government debt) has soared. As a result, the Fed’s effort to stimulate the economy, by lowering the federal funds rate, has been largely unsuccessful because other interest rates have remained high.

In response to this situation the Fed today announced that it would lend $200 billion to banks and other financial firms, accepting mortgage backed securities as collateral. This is effectively the same as saying that the Fed is going to lend money to banks and accept the counterfeit currency as collateral, treating it just as though it were real money.

The intended effect of this policy is to convince other investors that the counterfeit currency is in fact real currency, or at the very least that there is a really huge sucker out there (the Fed) which is prepared to treat the counterfeit currency as real currency.

So how does this story play out? Well, insofar as the Fed is successful, the counterfeit currency retains its value for a while longer. This allows Citigroup, Merrill Lynch, Bears Stearns and the rest of the big boys more time to dump their counterfeit currency on suckers who haven’t figured out how the game is played.

It is possible that they won’t be able to find enough suckers, in which case these banks will end up defaulting on their loans and the Fed (i.e. the government) has lost tens or hundreds of billions dollars paying good money for counterfeit currency. Alternatively, perhaps the big boys are successful and can offload enough of their counterfeit money to restore themselves to solvency before the music stops. Then the Fed is repaid, but the counterfeit money now sits in the hands of other, less informed, or less inside, investors.

You should really read the whole of this excellent article.

Baker shows how once again, we have the Federal Reserve colluding with the government to use taxpayer money to protect and enrich the wealthiest people in the country.

POST SCRIPT: The work of Satan

Almost everyone has had encounters with those annoying little plastic containers of milk that always seem to squirt onto your clothes when you try to open them. Stephen Fry and Hugh Laurie deal with this menace appropriately.

The propaganda machine-2: Examples of third tier pundit work

(For previous posts in this series, see here.)

One does not have to go very deep to understand why third tier pundits are not worth spending much time on. In making my criticisms of them, I have to confess that I do not take the time to read these people’s books, so readers will have to take that into account in weighing my comments on them. Fortunately there are people among the first-tier pundits and other commentators who freely and voluntarily take on this truly thankless task and document the bankruptcy of these people and their ideas. You couldn’t pay me enough to waste my time reading their books when there are so many worthwhile books to read. I have read enough articles written by them and about them and watched some interviews, sufficient I think to judge their caliber. It is of course theoretically possible that if I spend the hours necessary to wade through all the prolific output of these third tier pundits, I may find that they have produced works of extreme profundity and elegance that their critics have overlooked. But given the evidence from their other works, I would put the chances of that about as close to zero as you can imagine.
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Technology guerilla warfare

One of the interesting things about technology is the way that it creates a kind of arms race between those who quickly adopt new technologies and those who feel that it impinges on their own freedom and want to thwart them. We know, for example, that the radar guns used by traffic police have spawned detectors that can tell drivers who like to speed when such devices are in use, leading to more sophisticated devices being developed for police, and so on. In this case, the radar detectors were being used by people who were trying to break the law for their own benefit and increasing the risk to other users of the road.
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The propaganda machine-1: The third tier pundits

When I was interviewed recently on Blog Talk Radio about my 2005 posts about the people I call third tier pundits and the baleful influence that they have on political discourse, I didn’t really have the time to go more deeply into how it is that they got to play the particular role they currently play. It would be a mistake to think that they are merely the flotsam brought to the surface by media currents. They play a vacuous but integral part in a propaganda machine.

Third tier pundits are those people who occupy almost the bottom rung of the punditry world, the value of their contributions rising just barely above that of the people who write graffiti on bathroom walls. The most prominent examples of this species are people like Michelle Malkin, Ann Coulter, Jonah Goldberg, and Dinesh D’Souza but unfortunately there are many, many more. In fact, it seems like there is a seemingly endless supply of such people, available at a moment’s notice to appear on TV and radio and fill up newspaper op-ed space or the shelves of bookstores, spouting a predictable line of nonsense. But while they add little, they fill a significant niche in the media world and it is interesting to see what the purpose of that niche is and how they fit into the overall structure of the media. As Jonathan Schwarz says about the whole species:
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The phony Social Security crisis-4: What needs to be done

(For previous posts in this series, see here.)

While Social Security is not in a crisis, it does require periodic adjustments to make it work, as the economy and demographics of the population change. It can be made solvent with minor tinkering at the edges such as removing entirely the cap on payroll tax income or increasing the rate of taxation by small amounts or by lowering the annual cost-of-living increases in benefits or, in the worst case, by slightly reducing the benefits. We are not facing the catastrophe the doomsayers predict.

The major problem with Social Security is not with the retirement benefits part but with rapidly rising Medicare costs. Currently the Social Security tax (the part that goes towards retirement benefits) is 12.4% of income up to the cap, which is $102,000 for 2008. The tax rate for Medicare is 2.9% of your gross income. Your employer pays half of this 15.3% total, unless you are self-employed in which case you are responsible for the entire amount.

It is the Medicare costs that are already outstripping Medicare revenues and rising rapidly, and thus straining the government’s finances. But this is largely a health care costs problem, caused by the hugely wasteful profit-making health system that currently exists in the US that has resulted in per capita costs that are at least twice as much as the costs in other developed countries and yet produces worse results. Introducing a single-payer system like that which exists in France or Canada would result in savings, greater ability to control costs, and better health care overall. (See the series of posts on health care where these arguments are presented in more detail.)

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The phony Social Security crisis-3: More realistic views of the alleged ‘crisis’

(For previous posts in this series, see here.)

In deciding whether Social Security is in trouble or not, it is important to bear in mind different measures. Let us start by assuming that no changes at all are made in the system and that current projections for future demographics hold for the next fifty years. This is a very big ‘if’ indeed, but a starting point for analysis. The alarmists look at the year in which projected Social Security benefits paid out in that year exceed the revenues from the payroll tax that same year. That is expected to occur around 2018. But that alone does not constitute a crisis. Social Security has been running a surplus all these years so by that time the trust fund will have about 3.7 trillion dollars in reserve. This fund earns interest and the interest can be used to supplement the payouts following the year when the expenditures start to exceed the revenues. At a 4.5% interest rate on the US treasury bonds, the accumulated trust fund can generate an annual growth of about $170 billion due to interest alone. Using this interest to pay benefits can be done for some time during which the size of the trust fund will remain the same or will still be increasing, though more slowly.

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The phony Social Security crisis-2: Double talk on Social Security

(For previous posts in this series, see here.)

We currently see this curious double-talk taking place about the US bonds that form the assets of the Social Security trust fund. When trying to scare people about Social Security, people in this administration talk about the bonds in the trust fund being ‘worthless’ pieces of paper. But when trying to actually sell the bonds in international markets to finance its deficits, the government talks about how robust the US economy is. Like all double-talking politicians, the two different faces are presented to two different audiences, with the hope that the audiences will not overlap.
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Some campaign thoughts

Today is voting day in the Ohio, Texas, Vermont and Rhode Island primaries, and is as good a day as any to discuss the nature of the race.

This day is being breathlessly marketed as a crucial, decisive, make-or-break day, just like the Potomac primaries day before that, or Super Tuesday before that, or the New Hampshire primary before that. On the basis of the results, reporters will declare that one candidate has the momentum and start urging the other candidates to drop out of the race just because they think those candidates are unlikely to win. Why do the reporters care? The candidates have every right to continue for as long as they can or want to without being accused of somehow ruining the process by staying in. Why not just let the voters decide when they have had enough of a candidate? As a result of the elections, if Obama or Clinton or Huckabee or Paul refuse to concede and decide to go on to Pennsylvania on April 22 and even after that until the final elections on June 3, let them do so without being hounded to get out. Even if Huckabee (say) has no mathematical chance of winning his party’s nomination, surely the voters in the remaining states have a right to express their preference for him if they want to?

On another point, with the final primary being on June 3, there will be almost two whole months before the party conventions. So as a result of all the leapfrogging that took place with so many states trying to get in early, we will now have the summer doldrums where nothing happens for two months. Couldn’t they all have started about six weeks later?

I have not been writing about the significance of the Democratic presidential nominee being, for the first time, either a woman or an African-American. Not that this isn’t an important development but before we sprain our elbows patting ourselves on the back, it might be good to realize that this is long, long overdue. After all, many other countries have elected both women and minorities as heads of state much earlier. My own country of origin (Sri Lanka) elected the world’s first female executive head of state way back in 1960, when Sirimavo Bandaranaike became prime minister.

Our reaction here shouldn’t be “Isn’t this great?” but “Why did it take so long?”

But progress is progress, however belated, and should be welcomed. At the very least, this development should put to rest tiresome discussions about whether the US is ‘ready’ for a woman or minority president.

But just at the moment when the possibility of a female US President is being savored, along comes this extraordinarily silly article in the Washington Post by Charlotte Allen in which she argues in support of all the absurd negative female stereotypes that we have long striven to eliminate from our discourse, such as that women are dumb, bad at math, looks-obsessed, shoe-fetishizing airheads, governed exclusively by their emotions, who can’t even drive properly.

The editor of the section of the newspaper in which the article ran now says it was meant to be tongue-in-cheek, but the first rule in humor and satire is to be funny. If you are not, people have a right to take what you are saying as intended to be serious. There are suspicions that this explanation was a story designed to protect themselves from the furious denunciations the article received. What is the Post going to do as a follow up? Run another ‘tongue-in-cheek’ article by an African-American arguing that black people really are stupid and lazy and shiftless?

Charlotte Allen should get some tips from Dave Barry, who is a great example of a writer who exploits all kinds of stereotypes for humor and you are never in any doubt as to his intent. His classic essay The Difference Between Men and Women is a brilliant example of how to use gender stereotypes to humorous effect.

Finally, just the day before the primary elections, we in Ohio were deluged with poll results about the Democratic race, with conflicting predictions. What is the point of such last-minute poll results? It does not help the campaigns since it is too late for the campaigns to do anything with this information. Are the polls meant to influence voters? What kind of voter would choose a candidate on the basis of a last minute poll? Frankly, I cannot think of any good reason to release such last-minute polls except that the polling outfits think that real point of elections is to see which of them is better at predicting election results, so that elections become a test of the polls.

POST SCRIPT: Save the economy! Buy more junk!

Berkeley Breathed’s excellent comic strip Opus comments on the absurd ‘economic stimulus package’ that our wise leaders in government have come up with.

The phony Social Security crisis-1: Understanding the system

There are many who would have you believe that Social Security is in dire straits and that it will go broke soon, so that younger people who are paying into it now will not get any benefits when they retire. While Social Security regularly requires tinkering to remain solvent, this kind of rhetoric is misleading but has been systematically promoted to make young people think that they are being swindled by the old, and thus generate intergenerational warfare. It is the tried-and-true divide-and-rule strategy. The goal is to scare people into agreeing to give private investors access to the money in the Social Security trust fund. (For a fascinating history of how the various forms of social safety nets, including eventually the Social Security system, came about, see here.)

Social Security is designed as a ‘pay as you go’ system, with the money being taken in now in so-called payroll or employment taxes (officially called FICA taxes) going to pay the benefits of those currently retired. It is presently running a surplus (i.e., each year it takes in more money than it spends) so that there is an increasing accumulation of reserve funds in the account, which is called the ‘trust fund’.

The confusing thing about understanding the government budget is that since Social Security is not an independent financial entity, the money that comes in as Social Security revenue is not kept separately from other government revenues, i.e., the ‘trust fund’ is not a separate vault of cash. What the government collects as revenue in any form (Social Security taxes, Medicare taxes, income taxes, import duties, etc.) can be used to fund general government expenditures.

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