Reaganonmics: a Defense...

[Ben]

A Proud Father Looks Back

Reaganonmics: a Defense

By PAUL CRAIG ROBERTS

I admire Robert Reich, because he has a social conscience. However, if I were writing about the current Republican/Obama tax cut, I would not help the Republicans put Ronald Reagan’s name on it.
In his recent article “Reaganomics Redux”, Reich writes that “Ronald Reagan came to Washington intent on reducing taxes on the wealthy and shrinking every aspect of government except defense.” As Reagan’s first Assistant Secretary of the Treasury for Economic Policy, often labeled both in praise and derision “the father of Reaganomics,” I would like to offer a different perspective.
Reagan came to Washington to put an end to stagflation and the cold war. Keynesian demand management had the wrong policy mix. Easy money pumped up aggregate demand, but high tax rates reduced the response of supply to demand. Consequently, prices rose. The problem was reflected in worsening “Phillips curve” tradeoffs between inflation and employment. As time passed, higher rates of unemployment were required to bring down inflation, and higher rates of inflation were required to boost employment.
Washington was concerned, including Democrats in Congress, because stagflation threatened every category in the budget.
The supply-side policy, which some label Reaganomics, reversed the policy mix. Monetary policy was tightened to lower aggregate demand, and marginal tax rates were reduced in order to boost the response of supply.
The policy worked. The economy ceased to experience worsening tradeoffs between
inflation and unemployment. I described the policy change in my book, The Supply-Side Revolution, published after exacting peer review by Harvard University Press in 1984.
The Reagan tax rate reduction was modeled on the John F. Kennedy tax rate reduction, which was strongly supported by Reich’s Keynesian colleagues in Kennedy’s time. Both the Kennedy and Reagan tax rate reductions cut marginal tax rates (the rate of tax on additional income) proportionally across the board. Everyone got roughly the same percentage cut in tax rates.
Both the Kennedy and Reagan tax rate reductions raised distributional issues. As the higher incomes are taxed at higher rates, those with higher incomes pay far larger dollar amounts. Thus, when rates are reduced, those with higher incomes get more dollars back. But proportionally both tax rate reductions were equal for everyone. Progressives have focused on who got the most dollars back without acknowledging that lower income people were suffering the most from stagflation.
The Reagan tax rate reductions on earned income were proposed as 30% across the board phased in over three years. If memory serves, when enacted, they were a bit less. Using the 30% figure, the top tax rate on wages and salaries was reduced from 50%--the tax rate on a 19th century American slave--to 35%--a higher tax rate than that imposed on medieval serfs.
In 1980 the top tax rate on investment income (“unearned income”) was 70%. It was not Reagan, but the Michigan Democrat William M. Brodhead who put the amendment on the Reagan tax rate reduction bill to reduce immediately the top tax rate on investment income from 70% to 50%.
Reagan had rejected the Treasury’s proposal to reduce the tax rate on investment income. At 4:27 p.m.on February 13, 1981, the Dow Jones wire service reported: “The White House said President Reagan had rejected the Treasury proposal to reduce the maximum tax on unearned income.”
Supply-side economics did not originate with Reagan. Supply-side economics grew out of the policy process in the US Congress. During the 1970s, I was a member of the congressional staff, both House and Senate and personal staffs and committee staffs. My best Republican allies were Jack Kemp and Marjorie Holt in the House and Orrin Hatch in the Senate. My Democratic allies were far more powerful--Russell Long, chairman of the Senate Finance Committee, Lloyd Bentsen, chairman of the Joint Economic Committee, and Sam Nunn on the Senate Armed Services Committee.
Everyone forgets, but House Speaker Tip O’Neill, a Democrat, had an alternative tax cut bill to Reagan’s. O’Neill’s bill cut personal income tax rates by 15%, but had expensing--one year write-offs for business investments--in contrast to Reagan’s accelerated depreciation for business investment. My effort to have the Reagan administration compromise with Tip O’Neill in order to gain expensing was blocked by White House chief of staff Jim Baker.
There were more supporters among Democrats in Congress for the supply-side solution to stagflation than there were on Wall Street. Indeed, Wall Street was the greatest problem that the Treasury team faced. Wall Street believed that the Reagan tax rate reductions would cause the double-digit inflation from stagflation to go even higher and destroy the values of their stock and bond portfolios. Wall Street’s two prestige economists, known as Dr. Gloom and Dr. Doom, along with Dow Jones’ Barrons, regularly beat me up in print as a “Keynesian inflationist.”
The reason for Reagan’s military buildup was to bring the Soviets, with their broken economy, to the negotiating table to end the cold war. That was Reagan’s second great achievement. The military/security complex was opposed to ending the cold war because of the implied cut in the vast military budget. It was Reagan’s chief-of-staff Don Regan who got the deal done during Reagan’s second term.
It was later administrations that reneged on the deal Reagan struck with Gorbachev and created a new war against “Muslim terrorists” and courted former Soviet republics as members of NATO.
I did not support the Bush tax cuts, because they have nothing to do with the economy’s problems since the collapse of the Soviet empire two decades ago. Reich does not acknowledge the devastating impact on American incomes and employment of the offshoring of middle class jobs in manufacturing and professional services. The Soviet collapse caused socialist India and communist China to decide to get on the winning side of “the end of history.” Consequently, for the first time US corporations had access to the massive supplies of Indian and Chinese labor. The large excess supplies of labor in those countries meant that US corporations could hire workers at wages far below their productivity. Thus the savings from replacing American workers with Chinese and Indians translated into higher stock prices, higher shareholder earnings, and large bonuses for managements, thus worsening the income distribution.
It is the before-tax incomes of corporate CEOs that have exploded from 30 times the average wage to 300 times. Annual Wall Street bonuses from extreme debt leverage now exceed the lifetime earnings of workers. To blame the worsening income distribution on tax rate reductions is to ignore the facts.
Jobs offshoring has resulted in both manufacturing jobs and professional service jobs, such as software engineering and IT, being sent to India and China with a corresponding decline in US employment, income and consumer demand.
Reagan’s supply-side economic policy has nothing whatsoever to do with the post-1991 offshoring of American manufacturing jobs and tradable professional services.
None of us in the Reagan administration had any inkling that the Bill Clinton and George W. Bush regimes would deregulate the financial sector and unleash greed and debt leverage to levels that the world has never before experienced.
No one in the Reagan administration realized that the demise of the Soviet Empire would result in an American Empire whose annual trillion dollar military budgets would be financed by cutting Social Security, Medicare, and income support programs for the poor.
None of us in the Reagan administration, with the exception of the neoconservatives whom Reagan fired, would have supported the policies of the George W. Bush administration or the Clinton administration, which launched a war against Serbia on false premises just as Bush did against Afghanistan and Iraq,
Reagan was not perfect--especially Ed Meese’s war on drugs and the neocon’s plots--but the Reagan administration had no intention of establishing American hegemony over the world. Empire is a neoconservative goal, not a conservative one.
Supply-side economics is a necessary modification to Keynesian demand management, not a conspiracy to enrich the rich.

Paul Craig Roberts was an editor of the Wall Street Journal and an Assistant Secretary of the U.S. Treasury.

[Ben]

Voodoo Economics Revisited

Simon Johnson

2010-12-15

WASHINGTON, DC – Democratic and Republican leaders in Washington are suddenly falling over themselves to agree on the need for major tax cuts – affecting not just middle-class Americans, but also very rich people (both living and when they die). Does this sudden outbreak of the long-desired bipartisan consensus indicate that a new, stronger America is just around the corner?
Unfortunately, the opposite is true. What we are seeing is agreement across the aisle on a very dangerous approach to public finance: a continuation and extension of what President George H.W. Bush memorably called “voodoo economics.” Its consequences are about to catch up with America, and the world.
Bush was competing with Ronald Reagan for the Republican nomination in 1980. Reagan suggested that tax cuts would pay for themselves, i.e., actually raise revenue – a notion that became known as “supply side” economics. There’s nothing wrong with worrying about the disincentive effect of higher taxes, but the extreme version put forward by Reagan did not really apply to the United States. When you cut taxes, you get lower revenue, which means a bigger budget deficit.
To be sure, no serious people are claiming the full Reagan effect today – partly because the Congressional Budget Office has kept everyone honest by showing in detail that the tax cuts will increase the deficit by close to $900 billion. But there is a broader Reagan-type reasoning at work here: unemployment is high, the economy is not growing fast enough, and we “need a fiscal stimulus.” For those who generally like lower taxes, of course, this, too, is wishful thinking.
Experience with fiscal policy over the past few decades is clear. It is worth stimulating the economy with discretionary fiscal policy only occasionally – specifically, when not doing so would be calamitous. Thus, it made sense to pursue a fiscal stimulus of some kind in early 2009.
More generally, fiscal stimulus is unlikely to have much lasting effect, as is the case now. There may be some temporary positive impact on demand, or higher interest rates could offset the entire fiscal push – rates on the benchmark 10-year Treasury bond are up significantly from a month ago (from 3.21% to 4.16%), when the discussion of tax cuts began in earnest.
The market is nervous – mostly about the prospect of large fiscal deficits as far as the eye can see. Some commentators dismiss this as irrational, but, again, that is wishful thinking. The path-breaking work over many years of Carmen Reinhart, my colleague at the Peterson Institute in Washington, makes this very clear – no country, including the US, escapes the deleterious consequences of persistent large fiscal deficits. (Indeed, her book with Ken Rogoff, This Time Is Different, should be required reading for US policymakers.)
In this environment, a further fiscal stimulus may prove counterproductive, with the extra spending counterbalanced by the negative effect on the housing market of higher interest rates. The US Federal Reserve promised to hold down longer-term rates, but its commitments in that direction now seem ineffective.
But that is not the real danger here. Most American politicians like to think and talk only about the US. But longer-term US interest rates are very much affected by what happens in the rest of the world – and how private-sector investors view US government debt relative to other countries’ sovereign debt.
The eurozone’s problems certainly help the US sell more debt at lower prices – for now. But the chances are high that the eurozone will sort out its difficulties in a year or so (most likely after another round or two of crisis), in part through the judicious use of fiscal austerity. It would make complete sense if a German-led core emerged stronger and more politically integrated than before – within a eurozone that has a different composition, a different structure, and very different rules. This presumably more fiscally unified political entity would be highly attractive to investors.
A year from now, what kind of economy will the US have? Any short-term “fiscal stimulus” effect will have worn off, unemployment will still be high, and there will no doubt be politicians clamoring for more tax cuts. The budget deficit will likely be in the range of 8-10% of GDP, even if growth comes back to some extent. And the bond markets will be much more nervous, meaning higher interest payments, which will widen the deficit further. We might also be looking at a potential ratings downgrade for US government debt – implying the prospect of even higher interest rates.
Some people expected Paul Ryan, a rising star within the Republican Party who will become Chairman of the House budget committee in the next Congress, to provide a fiscally responsible anchor to the next round of the deficit debate in the US. Writing in The Financial Times in early November, Ryan suggested, “America is eager for an adult conversation on the threat of debt.” But all indications are that he is just as childishly reckless on fiscal policy as most of his Republican colleagues since Ronald Reagan.
Unfortunately, there is no sign yet that the Democratic leadership is ready for a mature conversation about fiscal consolidation, either. Both parties’ leaders will get there – but only when dragged, kicking and screaming, by the financial markets.


Simon Johnson, a former chief economist of the IMF, is co-founder of a leading economics blog, http://BaselineScenario.com, a professor at MIT Sloan, and a senior fellow at the Peterson Institute for International Economics.
Copyright: Project Syndicate, 2010.
www.project-syndicate.org

[onmyknees]

Voodoo Economics Revisited

Simon Johnson

2010-12-15

WASHINGTON, DC – Democratic and Republican leaders in Washington are suddenly falling over themselves to agree on the need for major tax cuts – affecting not just middle-class Americans, but also very rich people (both living and when they die). Does this sudden outbreak of the long-desired bipartisan consensus indicate that a new, stronger America is just around the corner?
Unfortunately, the opposite is true. What we are seeing is agreement across the aisle on a very dangerous approach to public finance: a continuation and extension of what President George H.W. Bush memorably called “voodoo economics.” Its consequences are about to catch up with America, and the world.
Bush was competing with Ronald Reagan for the Republican nomination in 1980. Reagan suggested that tax cuts would pay for themselves, i.e., actually raise revenue – a notion that became known as “supply side” economics. There’s nothing wrong with worrying about the disincentive effect of higher taxes, but the extreme version put forward by Reagan did not really apply to the United States. When you cut taxes, you get lower revenue, which means a bigger budget deficit.
To be sure, no serious people are claiming the full Reagan effect today – partly because the Congressional Budget Office has kept everyone honest by showing in detail that the tax cuts will increase the deficit by close to $900 billion. But there is a broader Reagan-type reasoning at work here: unemployment is high, the economy is not growing fast enough, and we “need a fiscal stimulus.” For those who generally like lower taxes, of course, this, too, is wishful thinking.
Experience with fiscal policy over the past few decades is clear. It is worth stimulating the economy with discretionary fiscal policy only occasionally – specifically, when not doing so would be calamitous. Thus, it made sense to pursue a fiscal stimulus of some kind in early 2009.
More generally, fiscal stimulus is unlikely to have much lasting effect, as is the case now. There may be some temporary positive impact on demand, or higher interest rates could offset the entire fiscal push – rates on the benchmark 10-year Treasury bond are up significantly from a month ago (from 3.21% to 4.16%), when the discussion of tax cuts began in earnest.
The market is nervous – mostly about the prospect of large fiscal deficits as far as the eye can see. Some commentators dismiss this as irrational, but, again, that is wishful thinking. The path-breaking work over many years of Carmen Reinhart, my colleague at the Peterson Institute in Washington, makes this very clear – no country, including the US, escapes the deleterious consequences of persistent large fiscal deficits. (Indeed, her book with Ken Rogoff, This Time Is Different, should be required reading for US policymakers.)
In this environment, a further fiscal stimulus may prove counterproductive, with the extra spending counterbalanced by the negative effect on the housing market of higher interest rates. The US Federal Reserve promised to hold down longer-term rates, but its commitments in that direction now seem ineffective.
But that is not the real danger here. Most American politicians like to think and talk only about the US. But longer-term US interest rates are very much affected by what happens in the rest of the world – and how private-sector investors view US government debt relative to other countries’ sovereign debt.
The eurozone’s problems certainly help the US sell more debt at lower prices – for now. But the chances are high that the eurozone will sort out its difficulties in a year or so (most likely after another round or two of crisis), in part through the judicious use of fiscal austerity. It would make complete sense if a German-led core emerged stronger and more politically integrated than before – within a eurozone that has a different composition, a different structure, and very different rules. This presumably more fiscally unified political entity would be highly attractive to investors.
A year from now, what kind of economy will the US have? Any short-term “fiscal stimulus” effect will have worn off, unemployment will still be high, and there will no doubt be politicians clamoring for more tax cuts. The budget deficit will likely be in the range of 8-10% of GDP, even if growth comes back to some extent. And the bond markets will be much more nervous, meaning higher interest payments, which will widen the deficit further. We might also be looking at a potential ratings downgrade for US government debt – implying the prospect of even higher interest rates.
Some people expected Paul Ryan, a rising star within the Republican Party who will become Chairman of the House budget committee in the next Congress, to provide a fiscally responsible anchor to the next round of the deficit debate in the US. Writing in The Financial Times in early November, Ryan suggested, “America is eager for an adult conversation on the threat of debt.” But all indications are that he is just as childishly reckless on fiscal policy as most of his Republican colleagues since Ronald Reagan.
Unfortunately, there is no sign yet that the Democratic leadership is ready for a mature conversation about fiscal consolidation, either. Both parties’ leaders will get there – but only when dragged, kicking and screaming, by the financial markets.


Simon Johnson, a former chief economist of the IMF, is co-founder of a leading economics blog, http://BaselineScenario.com, a professor at MIT Sloan, and a senior fellow at the Peterson Institute for International Economics.
Copyright: Project Syndicate, 2010.
www.project-syndicate.org

Ahhhhhhhh Peace, Love and Understanding !! Your best post ever Ben. Merry Christmas !! LMAO

[Ben]

When Zombies Win

By PAUL KRUGMAN

Published: December 19, 2010

When historians look back at 2008-10, what will puzzle them most, I believe, is the strange triumph of failed ideas. Free-market fundamentalists have been wrong about everything — yet they now dominate the political scene more thoroughly than ever.

How did that happen? How, after runaway banks brought the economy to its knees, did we end up with Ron Paul, who says “I don’t think we need regulators,” about to take over a key House panel overseeing the Fed? How, after the experiences of the Clinton and Bush administrations — the first raised taxes and presided over spectacular job growth; the second cut taxes and presided over anemic growth even before the crisis — did we end up with bipartisan agreement on even more tax cuts?
The answer from the right is that the economic failures of the Obama administration show that big-government policies don’t work. But the response should be, what big-government policies?
For the fact is that the Obama stimulus — which itself was almost 40 percent tax cuts — was far too cautious to turn the economy around. And that’s not 20-20 hindsight: many economists, myself included, warned from the beginning that the plan was grossly inadequate. Put it this way: A policy under which government employment actually fell, under which government spending on goods and services grew more slowly than during the Bush years, hardly constitutes a test of Keynesian economics.
Now, maybe it wasn’t possible for President Obama to get more in the face of Congressional skepticism about government. But even if that’s true, it only demonstrates the continuing hold of a failed doctrine over our politics.
It’s also worth pointing out that everything the right said about why Obamanomics would fail was wrong. For two years we’ve been warned that government borrowing would send interest rates sky-high; in fact, rates have fluctuated with optimism or pessimism about recovery, but stayed consistently low by historical standards. For two years we’ve been warned that inflation, even hyperinflation, was just around the corner; instead, disinflation has continued, with core inflation — which excludes volatile food and energy prices — now at a half-century low.
The free-market fundamentalists have been as wrong about events abroad as they have about events in America — and suffered equally few consequences. “Ireland,” declared George Osborne in 2006, “stands as a shining example of the art of the possible in long-term economic policymaking.” Whoops. But Mr. Osborne is now Britain’s top economic official.
And in his new position, he’s setting out to emulate the austerity policies Ireland implemented after its bubble burst. After all, conservatives on both sides of the Atlantic spent much of the past year hailing Irish austerity as a resounding success. “The Irish approach worked in 1987-89 — and it’s working now,” declared Alan Reynolds of the Cato Institute last June. Whoops, again.
But such failures don’t seem to matter. To borrow the title of a recent book by the Australian economist John Quiggin on doctrines that the crisis should have killed but didn’t, we’re still — perhaps more than ever — ruled by “zombie economics.” Why?
Part of the answer, surely, is that people who should have been trying to slay zombie ideas have tried to compromise with them instead. And this is especially, though not only, true of the president.
People tend to forget that Ronald Reagan often gave ground on policy substance — most notably, he ended up enacting multiple tax increases. But he never wavered on ideas, never backed down from the position that his ideology was right and his opponents were wrong.
President Obama, by contrast, has consistently tried to reach across the aisle by lending cover to right-wing myths. He has praised Reagan for restoring American dynamism (when was the last time you heard a Republican praising F.D.R.?), adopted G.O.P. rhetoric about the need for the government to tighten its belt even in the face of recession, offered symbolic freezes on spending and federal wages.
None of this stopped the right from denouncing him as a socialist. But it helped empower bad ideas, in ways that can do quite immediate harm. Right now Mr. Obama is hailing the tax-cut deal as a boost to the economy — but Republicans are already talking about spending cuts that would offset any positive effects from the deal. And how effectively can he oppose these demands, when he himself has embraced the rhetoric of belt-tightening?
Yes, politics is the art of the possible. We all understand the need to deal with one’s political enemies. But it’s one thing to make deals to advance your goals; it’s another to open the door to zombie ideas. When you do that, the zombies end up eating your brain — and quite possibly your economy too.

[Ben]

I, actually, like conservative Paul Craig Roberts. (Noam Chomsky, too, is a conservative.
You've gotta go back a hundred years for real conservatives.
Conservatism is based on morality and traditional values. And most people who call themselves conservatives are social democrats. The majority of Americans are social democrats.
And, of course, conservatism stems from classical liberalism....
And one of the leading conservatives was Adam Smith... who was pre-capitalist in his thinking; and, too anti-capitalist.
And markets are supposed to work like this: informed consumers making rational choices. But what we get is uninformed consumers making irrational choices. Therefore markets are: inefficient.)

[onmyknees]

When Zombies Win

By PAUL KRUGMAN

Published: December 19, 2010

When historians look back at 2008-10, what will puzzle them most, I believe, is the strange triumph of failed ideas. Free-market fundamentalists have been wrong about everything — yet they now dominate the political scene more thoroughly than ever.

How did that happen? How, after runaway banks brought the economy to its knees, did we end up with Ron Paul, who says “I don’t think we need regulators,” about to take over a key House panel overseeing the Fed? How, after the experiences of the Clinton and Bush administrations — the first raised taxes and presided over spectacular job growth; the second cut taxes and presided over anemic growth even before the crisis — did we end up with bipartisan agreement on even more tax cuts?
The answer from the right is that the economic failures of the Obama administration show that big-government policies don’t work. But the response should be, what big-government policies?
For the fact is that the Obama stimulus — which itself was almost 40 percent tax cuts — was far too cautious to turn the economy around. And that’s not 20-20 hindsight: many economists, myself included, warned from the beginning that the plan was grossly inadequate. Put it this way: A policy under which government employment actually fell, under which government spending on goods and services grew more slowly than during the Bush years, hardly constitutes a test of Keynesian economics.
Now, maybe it wasn’t possible for President Obama to get more in the face of Congressional skepticism about government. But even if that’s true, it only demonstrates the continuing hold of a failed doctrine over our politics.
It’s also worth pointing out that everything the right said about why Obamanomics would fail was wrong. For two years we’ve been warned that government borrowing would send interest rates sky-high; in fact, rates have fluctuated with optimism or pessimism about recovery, but stayed consistently low by historical standards. For two years we’ve been warned that inflation, even hyperinflation, was just around the corner; instead, disinflation has continued, with core inflation — which excludes volatile food and energy prices — now at a half-century low.
The free-market fundamentalists have been as wrong about events abroad as they have about events in America — and suffered equally few consequences. “Ireland,” declared George Osborne in 2006, “stands as a shining example of the art of the possible in long-term economic policymaking.” Whoops. But Mr. Osborne is now Britain’s top economic official.
And in his new position, he’s setting out to emulate the austerity policies Ireland implemented after its bubble burst. After all, conservatives on both sides of the Atlantic spent much of the past year hailing Irish austerity as a resounding success. “The Irish approach worked in 1987-89 — and it’s working now,” declared Alan Reynolds of the Cato Institute last June. Whoops, again.
But such failures don’t seem to matter. To borrow the title of a recent book by the Australian economist John Quiggin on doctrines that the crisis should have killed but didn’t, we’re still — perhaps more than ever — ruled by “zombie economics.” Why?
Part of the answer, surely, is that people who should have been trying to slay zombie ideas have tried to compromise with them instead. And this is especially, though not only, true of the president.
People tend to forget that Ronald Reagan often gave ground on policy substance — most notably, he ended up enacting multiple tax increases. But he never wavered on ideas, never backed down from the position that his ideology was right and his opponents were wrong.
President Obama, by contrast, has consistently tried to reach across the aisle by lending cover to right-wing myths. He has praised Reagan for restoring American dynamism (when was the last time you heard a Republican praising F.D.R.?), adopted G.O.P. rhetoric about the need for the government to tighten its belt even in the face of recession, offered symbolic freezes on spending and federal wages.
None of this stopped the right from denouncing him as a socialist. But it helped empower bad ideas, in ways that can do quite immediate harm. Right now Mr. Obama is hailing the tax-cut deal as a boost to the economy — but Republicans are already talking about spending cuts that would offset any positive effects from the deal. And how effectively can he oppose these demands, when he himself has embraced the rhetoric of belt-tightening?
Yes, politics is the art of the possible. We all understand the need to deal with one’s political enemies. But it’s one thing to make deals to advance your goals; it’s another to open the door to zombie ideas. When you do that, the zombies end up eating your brain — and quite possibly your economy too.

See...you blew it. You should have stopped while you were ahead. Now you went and fucked it all up with Krugman and Chomsky. Paul Krugman can take his Nobel prize and stick it where the sun don't shine. He's become an irrelevent whinner. Econmic Theory has turned into political cheerleading. He has ZERO credibility. He's wrong far more than he's right. He's rarely the "go to guy" anymore....even for progressives. Hell.. George Will isn't even an econmist and he body slams Krugman every week.

[Ben]

Monday, Apr 25, 2011 Reaganomics will bring our cities to ruin

By David Sirota


If America circa 2011 were a movie, there's little doubt it would fall into the "sci-fi/horror" genre. We've got a government that emulates Big Brother, wars that are prosecuted by Terminators, and leading politicians who seem fit for the cover of Fangoria magazine -- and that's just at the federal level. Down at the local level, deindustrialization and recession have left more and more cities looking like the set from "Twelve Monkeys." Even more troubling, the two archetypal models for supposed "success" in the future are Colorado Springs and Chicago, two enclaves that have been pioneering a sub-genre of policymaking we might call "Municipal Dystopia."
The Springs, as we call it here in the square state, has made national headlines as a Republican bastion with an unwavering commitment to the old tax-cuts-and-budget-cuts theory of growth. During the recession, that has resulted in both comparatively low property tax rates and in darkened street lights, cuts to police and firefighting forces, and an end to basic municipal services.
The more Democratic Chicago, on the other hand, has gone in a slightly different -- but equally radical -- direction. Instead of offending its liberal voters by overtly terminating municipal services à la The Springs, Chicago has instead cloaked its Municipal Dystopia agenda in complex corporate transactions, raising short-term money by selling off huge chunks of public infrastructure to private investors, often at scandalously low prices. In the process, the city has become "the most aggressive city in the United States in the privatization of public infrastructure," according to the Illinois Public Interest Research Group -- and other cities like New York and Pittsburgh have been looking to follow its lead.

Such schemes as the Skyway privatization plan and the selling off of parking meters provided a relatively small amount of money up front to momentarily fill public budget shortfalls. But that cash came in exchange for guaranteeing huge future profits for private investors -- profits that will be financed by the ever-increasing fees those backers are already forcing Chicago residents to pay.
This has been the tale of twin cities hurtling down two lanes of the same Reagan-paved road -- perhaps until now.
A few weeks ago, the Springs hit the brakes, as anti-tax forces were decidedly crushed in municipal elections at the same time Democrat Richard Skorman swept into front-runner position in the city's May mayoral runoff. The stunning results appear to be a direct repudiation of the Springs' previous commitment to the Municipal Dystopia agenda, in part because one of the electoral casualties was Douglas Bruce, the well-known architect of Colorado's anti-tax ballot initiatives (and good thing he was defeated -- his tenure on the council would have been interrupted by his recent federal indictment).
By contrast, Chicago may be hitting the accelerator in the face of foreboding news.
The Medill News Service reports that the one-time money the city raised from privatization schemes is now running out, as the city is quickly "burning its way through millions of dollars [from the] deals, threatening to leave the long-term financial health in ashes." Meanwhile, a new lawsuit cites the city's own data in alleging that taxpayers were fleeced by a collaboration of politicians and corporate consultants who sold public infrastructure at deliberately below-market prices. Nonetheless, Chicago's incoming mayor, former investment banker Rahm Emanuel, is now loading up his new administration with privatizers.
Specifically, Emanuel's top economic advisor will be private equity investor Mark Angelson (for more on the private equity industry and the looting of public infrastructure, see this report in Businessweek). And as the New York Times reported this weekend, Angelson will head an economic team chock-full of consultants who specialize in privatizing public infrastructure:

During the campaign, Mr. Emanuel advocated a go-slow approach to any future privatization deals, but there seems little doubt what sort of advice his economic advisers will be offering. Lois Scott, the chief financial officer, runs a consulting firm specializing in privatization deals that has put together more than $35 billion in bond sales over the years. The budget director, Alexandra Holt, is a Baker & McKenzie lawyer who worked for clients trying, unsuccessfully, to privatize Midway airport.

Chicago, of course, is still a few privatizing steps behind smaller towns like Maywood, Calif., and Sandy Springs, Ga. And its commitment to the Municipal Dystopia agenda hasn't yet delivered the same painful budgetary consequences that may now push the Springs off that course. But if the numbers from Chicago's past privatization deals predict the future, then it and other cities following the same path will indeed face those consequences -- the only question is whether, like the Springs, those cities must bear that pain before voters finally demand a true change of direction.

• David Sirota is a best-selling author of the new book "Back to Our Future: How the 1980s Explain the World We Live In Now." He hosts the morning show on AM760 in Colorado.

[trish]

The trickle down analogy in Reaganomics tempts people into making two unquestioned, and yet very bizarre assumptions. First: there is a something like a downhill gradient at work in every economic system. When left to itself (presumably without Government interference) money flows downhill with respect to this gradient. Second: it is assumed the direction of flow is from the well-off to the less well-off. These coupled assumptions are known as the trickle down theory.

The trickle down theory likens economics to classical gravity. Trickle down uses gravity as a metaphor. So let’s press the analogy. In gravitational theory massive bodies attrack. Matter is attracted to matter. In economics money and money should therefore attract money and power. Okay, that seems reasonable. So money and power, when there no other forces at work, should flow from the pockets of the less-well-off into the pockets of those better-off. That seems right too, except it runs counter to the prediction of the trickle down theory. Why? Because Reaganomics doesn’t know its hind quarters from its front; it doesn’t know which end is up! The gravitational metaphor requires that money and power flow from the have-nots and accrete onto the wealthier haves. The wealthiest haves are like supermassive black holes. All you have to do is walk past them and the money leaps out of your pocket and falls into the singularity never to be seen again.

Money and power attracts money and power. The most powerful and wealthy naturally accrete more wealth and power. The down hill direction is toward the wealthy and the powerful. The natural downhill flow is toward the wealthy and the powerful. Trickle down is change that out of your pockets at the gas station, or the box store that is in excess of the cost of the gas or item you bought; i.e. the profit. The profit accretes with the stock holders, and the greater portion of power and wealth accretes with the ceos and those who hold the majority shares.

[Stavros]

I, actually, like conservative Paul Craig Roberts. (Noam Chomsky, too, is a conservative.
You've gotta go back a hundred years for real conservatives.
Conservatism is based on morality and traditional values. And most people who call themselves conservatives are social democrats. The majority of Americans are social democrats. And, of course, conservatism stems from classical liberalism....
And one of the leading conservatives was Adam Smith... who was pre-capitalist in his thinking; and, too anti-capitalist.

Ben, even though the meaning of conservative and liberal is sometimes different in the US from the UK, in both cases one party does not believe the government or the state should play a major role in the economy, the other believes it sometimes must. It is the liberals who, as the name implies, want less government, and conservatives who are more likely to use government as an instrument. It is complicated because in the UK it was the conservatives who were more closely associated with the pillars of the state: Monarchy-Church-Military and thus CONserving a hierarchical social structure that favoured property-owning Christians many of whom were entitled by the crown (as in Lord and Lady this, Sir this and that etc etc). The liberals, who emerged in the wake of the civil war, and whose champion John Locke had some influence on the ideas that led to the American Revolution, believed that markets were the driving force of society, and that government should not restrain economic activity, but regulate social and political interaction to encourage fairness and thus endow capitalism with a sense of justice. Adam Smith was a liberal, he believe the only purpose government served was to defend the territory and take up those economic activities which are not commercially viable for individual capitalists. It is further complicated in the UK because of the restoration of the monarchy in 1688 and the 'constitutional settlement' that followed. When political parties emerged after the 1832 reform act, none were opposed to the monarchy, indeed, the Labour Party has never been opposed to it either, but over time, the liberal party declined as the Labour Party rose, and the Conservative party absorbed a lot of the liberals who thought Labour was bad for capitalism, while Labour, to win elections, sold its supporters short by merely 'taking over' some parts of the economy, allegedly to 'better manage' it than traditional capitalists.
Thus, in the USA, you also have parties whose ideologies in practice morph into versions of each other -the critical difference thus becomes the extent of state intervention in the economy and its impact on things like taxes, regulation and so on.

Someone once said 'we are all Keynesians now' because of JMK's profound impact on economic policy in the 1940s -I see no reason to retire the quote.

[Faldur]

If you can sell Chomsky as a conservative I've got a job and a healthy salary for you. Chomsky is a socialist.