arianna huffington

Trouble Is When We Take the Truth Off the Table

Joseph M. Firestone — Sun, 27 Feb 2011 01:03:11 -0500

Arianna Huffington is calling attention to “the great budget battle of 2011,” between the President and the Republicans. She correctly points out that whichever of the two sides win, we, the people, lose. She's right, of course, and says further:

Just look at this so-called "debate" we're having. The problem ostensibly on the table is the deficit. But, without any context, the raw deficit number is meaningless. If the country's debt were, say, $50 million, that wouldn't be a big deal. If some average American suddenly found himself $50 million in debt, well, that would be a big deal. And that's because the country's GDP is a lot bigger than the average person's income. So what we're talking about is really the debt-to-GDP ratio.

Yet the debate is concentrated almost entirely on the debt side of the equation and barely at all on ways to increase the GDP side. . . .

Arianna's right about the pure deficit number being meaningless and needing context. But it's also true that it needs the right context. The right context for deficits isn't simply GDP or comparing the size of a deficit to the annual volume of economic activity, and the right measure of whether we have a deficit problem or not, or how serious it is, is not the debt-to-GDP ratio. Implicitly here, Arianna is accepting the view that the debt-to-GDP ratio is an indicator of something that causes grave economic problems. But there is no empirical evidence that there is any relationship between that measure and negative economic effects when a nation has a fiat, non-convertible currency, a floating exchange rate, and no external debt in a currency not its own.

So, she's claiming that the current debate is constrained because only the debt side and not the GDP side of the deficit/debt issue is being debated, but I think it's constrained because nearly everyone in the mainstream, including Arianna, refuses to debate whether there are any deficits, debts, or debt-to-GDP ratio levels that make it necessary to either increase taxes or cut spending, or, alternatively to avoid further tax cuts or spending increases. Please don't misunderstand. I'm not suggesting that we shouldn't cut spending and/or taxes in certain areas, or increase spending and taxes in others. What I'm saying, instead, is that any fiscal proposals at all need to be evaluated according to whether their consequences are likely to be in accord with public purposes, and not according to whether they either raise or lower deficits, the national debt, or the debt-to-GDP ratio.

In short, I'm suggesting that there is no deficit/debt problem for the United States at all. And I'm asking why the debate that Arianna refers to doesn't start with the bedrock question of whether there is a deficit/debt problem, and only when that question is settled, and only if necessary, move to the subsidiary question of whether the present focus on spending cuts ought to be broadened to the GDP context, or for that matter to the question of tax increases on the wealthy?

Arianna continues:

. . . How has the playing field of what is acceptable in this debate been so shrunken that the only two competing proposals still allowed on the field are the president's cuts and the House GOP's draconian cuts?

Well, it was no accident. And, as it turns out, there's an entire field of study based on the dynamic being played out: Agnotology. Coined by Robert Proctor, a historian of science at Stanford University, the word means the study of ignorance that is deliberately manufactured or politically or culturally generated. "People always assume that if someone doesn't know something, it's because they haven't paid attention or haven't yet figured it out," Proctor says. "But ignorance also comes from people literally suppressing truth -- or drowning it out -- or trying to make it so confusing that people stop caring about what's true and what's not."

Sadly, this is quite to the point. But it doesn't apply only to the present debate in the sense that the wider context of how the debt-to-GDP ratio might be reduced through alternative tax and spending policies designed to increase GDP is being “drowned out” or suppressed. It also applies to it in the sense that most media outlets including blogs with wide audiences are “drowning out” or suppressing post-keynesian and other heterodox economic viewpoints on the deficit/debt debate.

Ignorance of these positions is being manufactured and maintained by all of the mainstream media and by much of the alternative media, too. The way it is maintained is partly by ignoring the existence of alternative views about whether there is a deficit problem; partly by distorting and misrepresenting these views when they are, infrequently, able to find expression in popular outlets, and finally, by not supporting and fostering open debates between different fiscal sustainability/responsibility approaches. Using these methods, the media have made it difficult for any views to gain currency except deficit hawk and deficit dove views on the deficit. It's as if the media, including much of the blogosphere is frozen in the deficit hawk/dove neo-liberal polarization, just as politics in Washington is frozen into its narrow left-right polarization. However, there is a deficit owl position in the fiscal sustainability/responsibility debate, and it needs to be considered seriously by everyone debating these issues because 1) it may be right; and 2) the deficit hawk/dove polarization has worked out very poorly for the doves.

Why? Because the deficit dove position, in its most enlightened form represented by Paul Krugman, Joe Stieglitz, Robert Kuttner, Simon Johnson, and much of the Washington, DC progressive establishment starts by granting the premise of the deficit hawk position, namely that the debt-to-GDP ratio is important, and that we must monitor Government spending with reference to its impact on this ratio. Now, these folks, as the old saying goes, “haggle over price.” The hawks think that the ratio has to go down now and that we can't expect the increase in the GDP half of the ratio to outpace the increase in the debt half. The doves believe that we have time to bring the ratio down and that if we do things right, then we can lower it by growing faster than we borrow, raising taxes on the wealthy, and by cutting things like Defense spending, and the rate of growth of health care costs.

But when the two sides debate, the compromise that comes out of that debate always means agreement on the need to manage fiscal policy with the goal of decreasing the debt-to-GDP ratio, and on some plan to reduce that ratio by spending less, taxing more, and just accepting CBO's future GDP growth projections, which are both very conservative and extremely unreliable, as all long-term projections have always been. This leads inevitably to a shared pain and sacrifice scenario for various plans for decreasing the debt-to-GDP ratio over the long term. And this mantra of shared pain and sacrifice then inevitably devolves into a debate about how that sacrifice should be shared. In today's political system, the wealthy and powerful, in the end make no sacrifices, and in fact gain new advantages after these debates. But working people somehow always get called on to make any financial sacrifices that are implicit in the deficit hawk/dove position. Hence the 99ers, the long-term unemployed, Medicare recipients, public employees in Wisconsin, Ohio, New Jersey, Indiana, and the like.

The deficit doves fight back when spending cut proposals threaten programs like Social Security, Medicare, and various “discretionary” programs that are very important to many people. But the pushback from the doves while fact-based and logical, is designed to avoid specific cuts, like preventing Social Security cuts. It is not pushback against the very idea of deficit cuts and managing Federal fiscal policy with reference to the deficit/debt “problem.” So, for example, a year after the President appointed his Catfood Commission, and a large coalition of progressive organizations picked apart the logic and facts supporting the Commission's leaked views on Social Security, it appears that a lot of the momentum in back of Social Security cuts has been blunted, but, as Arianna says, the debate is now down to a choice between the President's proposed, and very damaging to the economy, cuts and the GOPs “draconian” ones. But what can one expect from a debate that concedes the major premise of the deficit hawks in the first place?

If we had been fighting over the past two years about whether there really was a deficit problem, and whether it was ever proper to manage fiscal policy with an eye toward deficit and debt indicators, we would be looking at different debates today. We would not be down to damaging cuts vs. draconian ones, but to whether we should have any spending cuts at all, or instead should be spending whatever it takes to reach full employment and solve our other national problems. In other words, we'd be having the Hoover/Roosevelt debate right now, not the Obama/Tea Party one.

So this is my advice to Arianna. If you want a broader debate, then structure some between deficit doves and deficit owls. That is, get the Keynesians like Krugman, Johnson, and Stieglitz arguing with people who follow the Modern Monetary Theory (MMT) approach like Randy Wray, Warren Mosler, Stephanie Kelton, Scott Fullwiler, Marshall Auerback, Mike Norman and Jamie Galbraith. And get Bill Mitchell participating from Australia. And get some Congresspeople exposed to these perspectives. Then you'll see some fireworks, and you'll also begin to structure a debate that won't be about cuts, but about what we can do to get the economy growing rapidly and building the foundation our grandchildren will need to keep the dream alive.

Often when we're debating issues, it's not about “drowning out” or suppressing the truth from our point of view. What it's about, instead, is suppressing alternative points of view that we don't think can possibly be the truth, because their implications conflict with our preconceptions, and so are not worth taking our time to learn. The problem with this is that we're too often wrong about what can't possibly be the truth, and as a result we take the truth out of the debate before it has been tested against competing points of view. We can't continue to let that happen in the debate over fiscal policy. If we do, we may well be dooming working Americans to a future of needless continuing privation that will threaten the economic basis of American Democracy.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

Blindsight: Economic Injustice, Country Music, and Third World America

Richard Eskow — Mon, 13 Sep 2010 16:34:53 -0400

Last November, when the Tea Party Express was just building up a head of steam, it seemed worthwhile to stop for a minute and listen to a country song. Why? For one thing it's a really good song, and it had a great hook. "Here in the real world," it says, away from those powerful guys in Washington and New York, "they're shuttin' Detroit down."

That theme was so inclusive and compelling that conservative singer John Rich (John McCain's campaign troubadour) was able to get noted lefty Kris Kristofferson to act in the video, along with Mickey Rourke. That made the song important and interesting. How was John Rich's message able to win over those guys? Because it was simple and true: The people who got us into this mess are doing just fine, and the people who worked hard and played by the rules aren't. What concerned me back then was that this message, while compelling and accurate, could wind up benefiting some of most bank-friendly politicians on Earth. The Republicans who deregulated banking (along with centrist Democrats) could wind up with more power. They'd then be in a better position to carry out their agenda of blocking the modest banking reforms and economic fixes being recommended by the White House and Congress.

Isn't that pretty much what's happening?

Reading Arianna Huffington's new book Third World America made me think of that song again. There's a medical phenomenon called "blindsight," where people who seem to be partially or completely blind are able to respond to visual information under test conditions. The theory is that they're not blind at all, but are unable to consciously process the information they're receiving from their eyes. Isn't that what's happening in the country right now? Most people aren't economists or policy wonks, after all, so they probably haven't "seen" this chart:

(source)

But on some level they know it. And they may not have seen this chart, either (from CBS Moneywatch via Mike Konczal), but you can bet they "know" it too:

People need ways to integrate and process all the information they're receiving. They're struggling with the cognitive dissonance they experience when they're told the economy's doing better, because they know that in their world it's not. Human beings have always used stories and songs to integrate the information they receive, and we need better stories and better hooks than we've been getting lately.

Know what's a good hook for these troubled times? "Third World America." Know what's not? "Recovery Summer." So score one for Arianna before the cover's even cracked. The "recovery summer" theme was bound to ring false for the millions of Americans who still live in a devastated economy. That was destined to reduce the credibility of the very institutions that prevented even greater damage - institutions that could do more to help them.

We've seen the Administration move toward a more coherent narrative in the last week, but will it be enough? "I ran because I felt that we had to have a different economic philosophy in order to grow that middle class and grow our economy over the long term," the President in Friday's press conference. That sounds like a story worth telling.

Third World America is direct and clear in its message: Decades of aggressive corporate lobbying, driven by bankers and other large corporations, have led to a series of policy decisions that are eroding the American standard of living. The details are all there: The financial industry's gone from 2.5% of our GDP in 1947 to 8.3% right before the meltdown. Financial profits went from a maximum of 16% between 1973 and 1985 to 41% right before the crisis hit. And rather than being chastened by their failure, or disciplined by taxpayers in return for being bailed out, bankers have embraced their old ways with enthusiasm. Meanwhile the American households that rescued them lost $13 trillion in wealth between mid-2007 and March 2009.

There has been, in economist Simon Johnson's words, a "quiet coup" led by a classic "oligarchy." Bankers now exert enormous control over both the economy and the political process. People see that, and they're angry. Anyone who wants to discuss the current state of affairs better be prepared to speak plainly - "third world America," "quiet coup," "oligarchy" - or they'll be ignored.

Some of us are actually old enough to remember when the American dream was at its peak. Even if you were just a kid, you knew certain things: If you worked hard, you could retire in financial security. You lived in a country that led the world in science research, education, and social mobility. We designed things, built things. We were creating the future. Many of us later traveled into Third World countries for work or pleasure. We were saddened by the crumbling roads, unsafe bridges, and unregulated companies poisoning the air and water. The income inequities seemed so unjust, and the people's inability to heal their country through a free political process was tragic.

Little did we suspect we might be looking into our own future.

But Arianna's not just crying in her beer. The final section of the book details a series of fixes, which include: Campaign financing. Citizen activism, with less reliance on politicians as saviors and more on ourselves as the agents of change. Spending on infrastructure and education. Bank reform with teeth. Homeowner relief. Service to others. Moving your money away from predatory financial institutions.

I'd add another to that fine list: Stop judging the tea party radicals around you. Sure, some may be extremists and racists, but lots of them are just frightened and angry. They're trying to reconcile what they "see" with what they're being told. Right now they believe a false story, but it hangs together and makes them feel sane in a seemingly insane world. Demogogues have always used these kinds of stories to exploit human fear. You can't blame people for believing a false story if they haven't heard the real one.

So don't blame the individuals, blame the story. Tell them a better one. The truth is a helluva story. But even the truth works better if it has a good hook.

Law and Order: AIG

Richard Eskow — Tue, 01 Jun 2010 19:48:12 -0400

President Obama's Department of Justice announced last week that there would be no indictments in the collapse of AIG, an event which led to a worldwide economic collapse and cost the American taxpayer trillions. As someone who once worked for AIG I was shocked, but apparently that's how this mystery ends: Hundreds of millions of victims, smoking guns in every room, and not a perp to be found anywhere.

Yves Smith is disappointed that PriceWaterhouseCoopers, the auditors who signed off on AIG's financial claims despite mounds of disturbing evidence, escaped serious legal scrutiny. She observes that our "Potemkin" financial reform (her word) won't remove the barriers that prosecutors face in pursuing secondary parties like auditors (although I believe the Supreme Court ruling she cited only addressed civil suits.) Not only is the auditor protected, but that allows the fraudster himself to use the defense that he kept his auditor informed - kind of like Bush and Cheney using John Yoo's legal opinion to inoculate themselves from criminal prosecution.

Here's another possible reason there won't be a prosecution: Our economy was shattered by a syndicate, a ring, a cabal at the top of the financial pyramid. To move against any one of them - AIG's Joe Cassano, the auditors, Goldman Sachs, or even the credit agencies - would trigger a chain reaction of rats turning on one another, summoning each other to testify, and spilling each other's dirty secrets in an attempt to save themselves.

Of course, that's exactly what most prosecutors want. But doing that could topple that pyramid at the top of our economy, and it looks like our leaders don't recognize that this would be a good thing. We must protect the booming stock market, whatever it takes. If it means leaving the con artists in power, leave 'em in power. If it mean breaking America's longstanding social contract in the name of "deficit reduction," that's okay too. (There's an irony in the fact that Great Britain's new government is under pressure to make cuts to keep its AAA rating. and that we may be next. The ratings agencies are part of the problem, and now it looks like they're controlling governments instead of the other way around.)

Was there reasonable suspicion regarding Cassano and AIG Financial Products? Let's review the record: AIG paid $80 million to settle criminal charges against Cassano's unit in 2004 when it helped PNC Financial conceal assets. AIG didn't just pay a settlement. It also signed a deferred prosecution agreement with the Justice Department leaving it open to criminal prosecution if it misbehaved again. (There's a good timeline here.)

After that Cassano kept reassuring the public - and investors - that his products were safe throughout 2007. (It's illegal to mislead investors.) Cassano fought the independent auditor who was brought in to watch his books, preventing him from looking at certain critical books of business and eventually driving him to resign. Cassano insisted that PwC stay out of his way when he prepared for a presentation to investors in December 2007 (hello, Securities and Exchange Commission!)

Then, of course, all hell broke loose. With that history, why didn't Cassano face trial? As the Wall Street Journal reports, "prosecutors obtained information about Mr. Cassano's disclosures to AIG senior executives and AIG's outside auditor, PricewaterhouseCoopers LLP. That changed the course of the investigation, these people said." So he stonewalled the outside auditor, but he shared info with the cozy inside one? Apparently a compliant auditor is even better than a Father Confessor - you're absolved when you tell him your sins, and he'll never give you "go and sin no more" nonsense.

PriceWaterhouseCoopers weren't just AIG's auditors. They were Goldman Sachs', too. That's right: they had another huge contract with the counterparty whose thirteen billion dollar claim was paid in full on the instructions of Tim Geithner's New York Federal Reserve. So PwC let two massive financial institutions engage in a highly speculative venture - one possibly misleading the other - and raised no warning flags.

Publicly traded companies are required to disclose corporate threats in their 10-K statements, which are approved by their auditors. Here's what AIG said in its 2005 statement (buried several pages into the "Risk Factors" section): "AIG's liquidity could be impaired by an inability to access capital markets or by unforeseen significant outflows of cash." (Gee, ya think?) That's about it for risks. PwC either ignored or missed the warning signs as AIG accumulated losses great enough to break the world's economy.

How have they suffered for this dismal track record? Their revenues rose 8% to $28.2 billion in 2008, and operating profits grew in the fiscal year ending June 2009. And why not? A lot of businesses enjoy the, uh, shall we say flexibility that comes with an auditor like that. Of course, there's no proof their conduct was criminal. They may have just overlooked the worst meltdown in modern financial history.

How about the ratings agencies? The warning signs were there: A plea deal on a charge of criminal fraud, ongoing negotiations with the New York Attorney General, leading economists expressing concern about the stability of the housing market. Yet remarkably (or not), leading ratings agencies S&P and Moody's were rating AIG well right up until September of 2008, when it became clear that it had already lost $18.5 billion and the worst was yet to be revealed. Until that point, S&P had given AIG's counterparty deals the top rating of A-1+, which means "obligor's capacity to meet its financial commitment on the obligation is (very) strong."

In 2007, well after the Spitzer investigation was underway, Best's affirmed that in its judgment AIG's creditworthiness was "superior," saying that "AIG's renewed focus on accounting integrity and future successful remediation of accounting concerns provides a level of stability."

Accounting integrity? Write your own joke, as Ed McMahon used to say. When it comes to PwC and the ratings agencies, Upton Sinclair got it right: "It is difficult to get a man to understand something when his job depends on not understanding it."

We've already reviewed the emails and internal documents showing that ratings agencies were always selling their services to these institutions, a hopeless conflict of interest. The Franken Amendment would improve that situation significantly, but there's no guarantee it will survive the House/Senate negotiations - which should be fully transparent to the public (sign the petition to televise them here, folks.)

My own background as an AIG exec adds an extra dimension to my sense of outrage. The company was destroyed by the ratings agencies, the auditors, and Goldman Sachs (AIG's replacement CEO, Edward Liddy, served on the Goldman board). I heard horror stories about hard-working people who had nothing to do with the scandal receiving death threats or having to pull their kids out of school. Joe Cassano kept his ill-earned salary and bonuses, and for a while after he left was paid $1 million every month at Liddy's behest. PwC had a boom year, and the ratings agencies still (remarkably) have some credibility.

But a once-thriving company is dead. We've paid hundreds of billions of dollars directly, and trillions of dollars indirectly. 15 million people are out of work. The gamblers in the Wall Street casino are still placing bets, secure in the knowledge we'll cover their debts. As they said about Nicky in Casino, they "had a good system: When they won, they collected. When they lost, they told the bookies to go f**k themselves."

And now we're told that nobody's guilty. That's getting it backward. It's like Murder On the Orient Express: They all did it. But apparently we're the only ones who are going to pay for it.
_____________________________

(We'll be discussing financial reform and other critical issues with Simon Johnson, Nancy Pelosi, Alan Grayson, Robert Kuttner, Arianna Huffington, Bob Herbert, and a host of other luminaries at the Campaign For America's Future Annual Conference on June 7-9.(1) Walk-ins welcome! More info here. Come on in!)

(1) As they (never) taught me on Wall Street, "always be closing."

Elites Rule, Not You: When Bipartisanship Becomes Undemocratic

Richard Eskow — Wed, 03 Mar 2010 00:05:26 -0500

At what point does "bipartisanship" begin to erode the democratic process?

Here's my answer: When it's used to take decision-making power away from voters and place it in the hands of a governing elite - an elite which acts in secret so that its members cannot be held accountable to anyone for their actions.

Democrats traded away some of the most critical elements of health reform for bipartisan comity that never appeared - and yet didn't bring those elements back when the other side of the aisle rebuffed them. Now they appear to be doing the same thing with financial reform.

I'd like to know if my two Senators are in favor of a strong and independent Consumer Financial Protection Agency or not. That will help me decide whether to support their re-election. Yet if Senators Dodd and Corker have their way, I'll never get to find out. They'll work out their deal in private, either with the tacit support of the Administration and the Senate leadership or not (I won't know that either), and voters like me will never know where their Senators stood on this important issue.

Did you know that under Dodd/Corker it would be hard for individual states to enforce stronger consumer protection rules those set by the Federal government? One reason you might not know is that there's been no public debate of the Dodd/Corker compromise. "Bipartisanship" sometimes means keeping the public in the dark.

Here's how democracy's supposed to work: One politician stands for a certain set of ideas and values. Her or his opponent stands for others. We, the electorate, choose between them. But apparently this model of governance is considered too inefficient and messy in some circles. The current "bipartisanship" vogue would end the interference of all those meddlesome middlemen - the voters, that is.

In the New Bipartisan Order Washington elites get to decide what will be debated publicly and what will be decided privately. Any ideas that might require politicians to take controversial positions are hashed out behind closed doors and then presented as a "bipartisan" solution (after, of course, having been ritually blessed by David Broder and other cheerleaders).

It's time to give the proper label to this new, fetishized version of bipartisanship: It's an ideology. It's a new philosophy of governance that challenges our current system. Not so coincidentally, it also serves the interests of those promoting it, strengthening those currently in power and weakening the influence of voters and political outsiders.

It has other advantages for its advocates, too: Politicians can adopt a Good Cop/Bad Cop approach, for example, even when they hold a decisive majority. "Sure, pal, I'd give you a private option and a strong CFPA, but my partner here won't let me."

Do I have any hard evidence that's what has happened with financial reform? Of course not. I can't know anything about my politicians or their motivations under this system. That's the point. I don't even get to learn whether they'd vote for the policies I support.

Don't get me wrong: Compromise has its place. It's how legislation gets passed. We don't need to repeat the cliche about how "laws and sausage get made" any more. But in an ideal system compromise takes place after the votes have been counted. That's why it makes sense to put the ideas like the CFPA or the public option to an up-or-down vote. That forces politicians to declare their positions in public. If those measures fail, then it's time for some horse-trading - but out in the sunshine, where people can see it.

Instead we're being presented with faits accompli written in secret chambers, and we're supposed to celebrate the "bipartisan" manner in which they were designed. It's like being ruled by Plato's Guardians - except that these Guardians have been chosen for their wealth and salesmanship, not for wisdom and selflessness. And remember: Plato's Republic was not a democracy.

Take that recent rash of pro-Rahm Emanuel stories. Whether they're true or not, the "virtues" they perceive in the Chief of Staff aren't democratic in nature. Take this embarrassing genuflection from Dana Milbank:

"Obama's greatest mistake was failing to listen to Emanuel on health care. Early on, Emanuel argued for a smaller bill with popular items, such as expanding health coverage for children and young adults, that could win some Republican support. He opposed the public option as a needless distraction."

The American people support the public option by a wide margin. But in Milbank's world - the world of Washington's elites - allowing voters to learn where their representatives stand isn't important. It's better to have a "smaller bill" (i.e., one that does less to fix this critical problem) as long as it has "popular items." And in Milbank's world "popular" doesn't mean popular with voters - like the public option - but popular with the elites (including the party that the electorate just overwhelmingly rejected.)

Some democracy.

Now Barney Frank is saying that the Dodd compromise is a "bad joke." He's speaking for a great many voters, and the residents of his district will know where he stands. Apparently he hasn't gotten the memo: These matters are supposed to be decided in private by the elite, not argued in public where the hoi polloi might overhear.

Don't get me wrong. Elites have their place, too - when they're meritocratic elites. The Olympics are the ultimate elitist event, and we saw a lot of very impressive people there. People should excel at what they do in order to win positions of leadership. But in a democracy, the people decide who leads and who doesn't. They have the right to know where their elected officials stand so they can decide accordingly. The elites don't get to choose their own membership ... or at least they shouldn't.

Bipartisanship ends where a voter's right to choose begins.