Many Republican Leaders Still Believe in the Tax Cut Fairy
During the 1980 campaign for the Republican nomination, George H.W. Bush called Reagan’s supply-side theories “voodoo economics.” These supply-side theories included the wishful notion that tax cuts are so potently stimulative that they are self-financing. Although the resulting gargantuan deficits of the Reagan and the George W. Bush years have amply demonstrated the calamitous falsity of that notion, the notion itself lives on in the brains of present-day Republicans. All of which goes to show you that — although Cheney famously said that Reagan proved that “deficits don’t matter” — what Reagan actually proved is that facts don’t matter. Facts don’t matter at all.
Carly Fiorina recently showed her belief in the Tax Cut Fairy:
“Let me propose something that may seem crazy to you: you don’t need to pay for tax cuts. They pay for themselves, if they are targeted, because they create jobs.”[ 1 ]
Here Arizona Senator Jon Kyl distinguishes between “spending” (such as extending jobless benefits for the unemployed) and “tax cuts” (such as keeping the Bush tax cuts in place for the wealthy):
“You do need to offset the cost of increased spending. And that’s what republicans object to. But you should never have to offset cost of a deliberate decision to reduce tax rates on Americans.” [ 2 ]
Contrary to the analysis of the CBO and most budget experts, Mitch McConnell recently repeated the “potent stimulus meme” to Talking Points Memo:
“ … there’s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue, because of the vibrancy of these tax cuts in the economy. So I think what Senator Kyl was expressing was the view of virtually every Republican on that subject.” [ 3 ]
OK, so ideologues are unmoved by facts.
GOP Ethics
But what explains Republican opposition to stimulus measures for small businesses, such as Oregon Senator Jeff Merkley’s Rebuilding Local Business Act?
On the face of it, this bill would seem to be entirely in keeping with the GOP’s professed principles. Could it be that Dean Baker was right when he said that Republicans are trying to make the economy worse in time for the midterm election in November?
Here Rachel Maddow discusses these issues with Senator Jeff Merkley:
Visit msnbc.com for breaking news, world news, and news about the economy
- Political Animal, by Steve Benen, Washington Monthly, July 19, 2010. [↩]
- “Deficit Fraud Jon Kyl: ‘You should never have to offset tax cuts.’” [↩]
- “Tax Cuts and Mitch McConnell’s ‘Puzzling Evidence’“ [↩]
More Signs That Peak Oil Thinking Has Become Mainstream
CLICK FOR MORE INFO
A new report, produced jointly by Lloyd’s of London and the Royal Institute of International Affairs (aka Chatham House), concludes that “we are heading towards a global oil supply crunch and price spike … companies which are able to plan for and take advantage of this new energy reality will increase both their resilience and competitiveness. Failure to do so could lead to expensive and potentially catastrophic consequences.”
The report focuses on business risk perspectives, and doesn’t elaborate at length on the dire social and civilizational consequences of Peak Oil. It does note, however, the increasing difficulty of oil extraction, a fact much on everyone’s mind in the wake of BP’s Gulf of Mexico oil-spill disaster:
“Much of the world’s energy infrastructure lies in areas that will be increasingly subject to severe weather events caused by climate change. On top of this, extraction is increasingly taking place in more severe environments such as the Arctic and ultra-deep water. For energy investors this means long-term planning based on a changing – rather than a stable climate. For energy users, it means greater likelihood of loss of power for industry and fuel supply disruptions.”
Most writings on Peak Oil emphasize the looming catastrophe of massive price increases in ubiquitous oil-based products as well as untenable shipping cost increases in a global economy dependent on cheap transport.
The ultimate result of Peak Oil, then, would be an unwinding of globalism and a return to primary dependence on local economies.
When I first understood the significance of Peak Oil, I was frightened, and began to think about stocking up on food and other emergency supplies.
In time, though, I came to realize that the only real security is working in community. At the neighborhood level, it does make sense to stock up on food and other emergency supplies (for instance, see the Food Readiness Project). It also makes sense to share other tools.
Our focus must be on re-building our local communities to be more resilient, self-sufficient and sustainable.
Nevada County is fortunate to have among its citizens a group of people who have been thinking about the Peak Oil problem for years, and are working to prepare for and mitigate its most dire consequences. I speak, of course, about the Alliance for a Post-Petroleum Local Economy (A.P.P.L.E.) and its Sustainability Center.
Spend a few minutes perusing the websites for those two organizations and you will notice a wonderful thing: both are primarily focused on positive local solutions and much less on the looming disasters in the global economy.
In the years ahead, we will have more and more reason to be grateful for the work of this small but rapidly growing local cadre of concerned citizens.
The following is a 2-minute 49-second video summary of the Lloyd’s-Chatham House report by one of the authors, Antony Froggatt, Senior Research Fellow, Energy, Environment and Development Programme for Chatham House.
More Peak Oil Resources
Peak Moment TV
Produced by Nevada County videographers and A.P.P.L.E founders Janaia Donaldson and Robyn Mallgren, Peak Moment shines a bright light on local sustainability projects in North America. After several years, this series now represents an amazing body of work and is increasingly recognized nationwide as an important contribution to the Peak Oil literature.
Energy Bulletin
A reader’s digest of the best writing on Peak Oil: Writers such as Richard Heinberg, James Howard Kunstler, Sharon Astyk, Bill McKibben and many others.
Post Carbon Institute
Peak Oil Think Tank and activist organization. Conferences. Papers. Books. Community organizing.
ASPO (Association for the Study of Peak Oil and Gas).
Think Tank and research institute. Conferences. Papers. Charts.
The Oil Drum
Online journal. “Discussions about energy and our future.”
Life After the Oil Crash
Online journal and discussion group.
The Oil Age Poster
“A Brilliant Tool for Examining the Geologic Realities and Social Ramifications of the Modern World’s Most Prized Resource.”
“Are Low Taxes Exacerbating the Recession?”
David Sirota, in his article, “Are Low Taxes Exacerbating the Recession?,” knocks down one of the foundations of the conservative canon since Reagan, that now-discredited notion that tax cuts stimulate economic growth:
As the planet’s economy keeps stumbling, the phrase “worst recession since the Great Depression” has become the new “global war on terror” – a term whose overuse has rendered it both meaningless and acronym-worthy. And just like that previously ubiquitous phrase, references to the WRSTGD are almost always followed by flimsy and contradictory explanations.
Republicans, who ran up enormous deficits, say the recession comes from overspending. Democrats, who gutted the job market with free trade policies, nonetheless insist it’s all George W. Bush’s fault. Meanwhile, pundits who cheered both sides now offer non-sequiturs, blaming excessive partisanship for our problems.
But as history (and Freakonomics) teaches, such oversimplified memes tend to obscure the counterintuitive notions that often hold the most profound truths. And in the case of the WRSTGD, the most important of these is the idea that we are in economic dire straits because tax rates are too low. This is the provocative argument first floated by former New York Gov. Eliot Spitzer in a Slate magazine article evaluating 80 years of economic data.
“During the period 1951-63, when marginal rates were at their peak – 91 percent or 92 percent – the American economy boomed, growing at an average annual rate of 3.71 percent,” he wrote in February. “The fact that the marginal rates were what would today be viewed as essentially confiscatory did not cause economic cataclysm – just the opposite. And during the past seven years, during which we reduced the top marginal rate to 35 percent, average growth was a more meager 1.71 percent.”
Read the rest of the article here.
Sirota goes on to explain that higher tax rates create an incentive for businesses to reinvest profits, and increase government revenues available for infrastructure investments.
Notice that the same argument was made by Larry Beinhart in his article, “Why the Economy Grows Like Crazy Amid High Taxes,” November 18, 2008:
High taxes create an incentive to reinvest profits into long-term growth.
With high taxes, the only way to retain the bulk of the wealth created by a business is by reinvesting it in the business — in plants, equipment, staff, research and development, new products and all the rest.
The higher taxes are (and from 1940 to 1964 the top rates were around 90 percent), the more this is true.
This creates a bias toward long-term planning.
If a business is planning for the long term, it wants a happy, stable work force. It becomes worthwhile to pay good wages and offer decent benefits.
Low taxes create an incentive for profit taking.
Tsk Tsk, The Rich Are the Biggest Mortgage Defaulters
Perhaps there is a “moral hazard” in merely being rich. The economic history of the United States for the last several decades seems to suggest that conclusion. During this period the U.S. has become the most unequal society among Western industrialized nations, largely due to disproportionate tax breaks for the wealthy, and the middle class has steadily been eroded by job loss to lower-wage nations.
The latest factoid suggesting the moral weakness of the rich is reported by David Streitfeld in his New York Times article of July 8th:
Biggest Defaulters on Mortgages Are the Rich
LOS ALTOS, Calif. — No need for tears, but the well-off are losing their master suites and saying goodbye to their wine cellars.
The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley.
Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.
More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.
By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.
Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.
“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.
Read full article here.
I’m sure, though, that we can still count on plenty of pontifical lectures from the affluent class about “personal responsibility” and the sanctity of mortgage contracts.
GOP Trying to Make Economy Worse Before November?
Bread Line
GOP Ethics
Dean Baker, one of the few economists who correctly predicted the collapse of the housing bubble, makes a plausible case in this Guardian article for the idea that Republicans, by opposing the extension of unemployment benefits, are hoping to make the economy worse in time for the November midterm elections.
Republicans: A Party of Unemployment
It may seem bad taste to accuse Republicans of wanting a rise in unemployment but their actions leave no other explanation.
by Dean Baker
guardian.co.uk, Tuesday 6 July 2010 13.00 BSTFrom now until 2 November, the Republican party will be the party of unemployment. The logic is straightforward: the more people who are unemployed on election day, the better the prospects for Republicans in the fall election. They expect, with good cause, that voters will hold the Democrats responsible for the state of the economy. Therefore, anything that the Republicans can do to make the economy worse between now and then will help their election prospects.
While it may be bad taste to accuse a major national political party of deliberately wanting to throw people out of jobs, there is no other plausible explanation for the Republicans’ behaviour. They have balked at supporting nearly every bill that had any serious hope of creating or keeping jobs, most recently filibustering on bills that provided aid to state and local governments and extending unemployment benefits. The result of the Republicans’ actions, unless they are reversed quickly, is that hundreds of thousands more workers will be thrown out of work by the mid-terms.
Read full article here.
What Nevada County Could Do With A Regional High-Speed Network
If you doubt the value of a local high-speed fiber-optic network, consider what the people of Ten Sleep, Wyoming (population 300) have done with theirs:
New global outsourcing hub — Wyoming?
When it comes to call centers filled with English-speaking employees, India likely comes to mind. Not a tiny town in Wyoming called Ten Sleep, population about 300.
What Ten Sleep has is not, exactly, a call center. Instead, the town is home to a teaching center that is open 24 hours a day, seven days a week. There, American teachers provide real-time video English lessons to thousands of students in classrooms across Asia via high-speed fiber optic networks.
Ten Sleep isn’t the only small Wyoming town that has a center: So does Cody, Powell, Lovell and nearly a half dozen other communities across the state. They’re owned by Eleutian Technology, a company that is using the internet to bring jobs once outsourced to cheap labor in the East to back to unemployed Americans in the West.
Read full story here.
When the time is right, maybe we should invite Eleutian Technology to Nevada County.
This is just one example of the countless opportunities afforded by a high-speed fiber-optic regional backbone.
APPLE: Peak Oil in 30 Minutes Flat
Download a PDF (724kB – 32 slides) of the presentation by clicking the image below. Not included in the PDF, but shown here below it, is a seven minute video clip from “The Power of Community: How Cuba Survived Peak Oil”. We show the video clip as a part of the presentation – it’s one of the best short video explanations of Peak Oil, what it means, and why it’s important, that we’ve ever seen.
Grape-loving Moth Invades California Wine Country
Asociated Press
By EVELYN NIEVES
SAN FRANCISCO — A moth with a devastating appetite for grapes is causing worries in California’s San Joaquin Valley, the country’s top grape growing region.
The European grapevine moth, unknown to this country until late last year, has found its way to the region’s heart of Fresno County, where grapes are a $725 million-a-year industry and the valley’s top crop.
Read full article here.
We Had a Good Time at the Nevada County Economic Forecast Conference
We had a great time this morning at the Nevada County Economic Forecast Conference in the Veteran’s Hall. It was a lot more fun than we expected.
The people at our table (right next to the stage) were welcoming, energetic and fun: Gil Mathew, Judy Hess, Gary Zimmerman, David Gallo and Peter Van Zant. Only after grabbing a couple of the remaining free chairs in the room did we realize that we were at the speakers’ table. Good choice.
Gary Zimmerman, Senior Economist at the Federal Reserve Bank of San Francisco, was the first to speak. He recapped the standard national indicators of the recession: high, long-term unemployment, plunging permits for single family housing, high loan delinquency rates, etc.
His good news was mostly recent news: Increased activity in the housing market (but from a low level), job gains in the recent quarter, upticks in personal consumption, etc.
His summary? A slow recovery, which has already begun in a moderate fashion. “Underutilized capacity and a high unemployment rate are expected to persist for some time.”
Professor David Gallo reported on economic conditions at the county level.
One of his more shocking graphs was labeled “Value of Residential Building Permits: Nevada County 2001-2009,” showing a plunge from a peak of $160 million in 2005 to about $30 million in 2009!
And yet he too had some good news, but to find it he had to look beyond employment growth, which “is a trailing indicator.”
He predicts that “if national growth is between 3% and 4%, then Nevada County growth should be between 4% and 5%.”
“The early stages of recovery for the national economy imply that the economies of California and Nevada County are currently growing as well.”
Move Your Money and Save
Big banks don’t just undermine local economies—they’re bad for your wallet, too.
by Stacy Mitchell
Bigger banks were supposed to lower costs for consumers. That was the promise made repeatedly in 1994 and again in 1999, when Congress dismantled laws that had long restricted the size and scope of banks, ushering in a wave of mergers that left the industry dominated by a few financial giants.
Testifying in support of the so-called Financial Services Modernization Act in 1999, Michael Patterson of J.P. Morgan used the word “consumer” no less than twenty-one times in his remarks. He told Congress that freeing up big banks to get even bigger would provide consumers with “greater convenience, more innovation, and lower costs.”
Many regulators and lawmakers echoed his assertions. Robert Rubin, then Secretary of the Treasury and later a director at Citigroup, said that the “reforms” would “lead to better service and lower costs.” Congress passed the bill by wide margins and President Bill Clinton enthusiastically signed it into law, promising that the changes would “save consumers billions of dollars a year through enhanced competition.”
Just seven years later, the fees consumers were paying on their checking and savings accounts had skyrocketed, rising from $21 billion in 1999 to $36 billion in 2006. (And these amounts do not include credit card and ATM fees, which also shot up.)
That bigger banks would mean higher prices was plainly evident in 1999 to anyone who bothered to consult the data. For the previous five years, the Federal Reserve had issued yearly reports to Congress that showed that bigger banks charged significantly higher fees on checking and savings accounts.
The Fed’s 1999 report, published five months before the Financial Services Modernization Act passed, found that overdraft fees were 41 percent higher at big banks compared to small. Big banks charged more for almost every fee imaginable, including 43 percent more for bounced checks, 57 percent more for stop-payment orders, and 18 percent more for ATM withdrawals.
But rather than allow the evidence in favor of smaller banks to guide policy, Congress decided to get rid of the evidence. At the urging of then Fed chairman Alan Greenspan, Congress ordered the Federal Reserve to stop publishing its annual report on bank fees. “The Fed fought to get rid of it,” said Ed Mierzwinski, consumer program director at the US Public Interest Research Group. “They said transparency was not a good use of their resources.”
For most of the last decade, information on the average cost difference between big banks and small local financial institutions has not been publicly available. But, as it turns out, the firm that the Fed once employed to gather this data, Moebs Services, has continued to survey fees at more than 2,000 financial institutions. Moebs agreed to share its 2009 data with the New Rules Project. As our chart shows, the biggest banks still impose much higher costs on their customers than small financial institutions do.
Not only are fees lower, but several studies have found that smaller banks and credit unions pay higher interest on savings accounts. In a study published by the Federal Reserve Bank of Cleveland, researchers Kwangwoo Park and George Pennacchi examined data from 1998 to 2004 and found that rates on one-year CDs were an average of 14 percent higher at small banks (under $1 billion in assets) than at large ones (assets of $10 billion or more) and rates on interest-bearing savings accounts were 49 percent higher.
Why are small banks and credit unions a better deal? One reason is that they really want your deposits. Unlike big banks, which have access to wholesale funding, community banks rely much more on customer deposits to finance their lending and investments.
A second reason is that many small banks are more efficient than their big competitors. That may seem surprising at first. In many industries, more volume lowers costs, but in banking there’s an upper limit—a point at which a bank’s bloated bureaucracy makes the cost of doing everything more expensive, not less. Exactly where that threshold lies is a matter of debate, but some analysts suggest that the sweet-spot for efficiency starts as low as $500 million in assets and ends once a bank hits $4 or $5 billion. To put that in perspective, Bank of America and J.P. Morgan Chase are about 300 times that size.
But perhaps a more instructive question to ask is not why are small banks a better deal, but how do big banks get away with charging so much more? After all, people have a choice about where to bank and free markets are suppose to drive down prices.
Christopher Peterson, an expert on consumer finance at the University of Utah School of Law, says there are two main theories. Those who believe the market is working contend that “bigger banks have more comprehensive branch locations, so people will pay a premium for convenience.”
Another explanation is that banks are adept at obscuring their prices and make it hard to comparison shop. “I think our impulse in this country is to overestimate the ability of people to shop down fees that are not transparent,” said Peterson.
Indeed, the Government Accounting Office recently sent secret shoppers into 185 bank branches. They were unable to obtain detailed information on account terms at one-third of those branches and unable to obtain a comprehensive schedule of fees at one-fifth, despite the fact that such disclosures are required by federal law—a law that apparently is not enforced. More than half of the banks did not provide this information on their websites, either.
Mierzwinski says big banks have the advantage of having recognizable names and branches everywhere. Many people simply go to the nearest big bank branch and don’t shop around. “They particularly don’t compare the bank’s penalty fees, which are so hard to find,” he said. “Everyone advertises free checking, but ‘free’ only defines monthly maintenance fees.”
If you bank at a big bank, all of this should prompt you to give some serious thought to ditching it. Even if you are good at avoiding penalty fees, why do business with a bank that charges exorbitant prices and attempts at every turn to hit its depositors with sneaky fees? Shop around instead for an institution that treats its customers fairly. Consumer advocacy groups say the best place to start is with local credit unions and community banks. The smallest have the lowest costs on average. But keep in mind that averages are just that; institutions vary and each should be evaluated individually according to how well it meets your needs and how responsive it is to your community.
This article is licensed under a Creative Commons License 
Stacy Mitchell is a senior researcher with the New Rules Project, a program of the Institute for Local Self-Reliance that challenges the wisdom of economic consolidation and works to advance policies that build strong local economies. She is the author of the monthly bulletin the Hometown Advantage and the book Big-Box Swindle: The True Cost of Mega-Retailers and the Fight for America’s Independent Businesses, which was named one of the top ten business books of the year by Booklist.
This article is part of the New Rules Project’s Community Banking Initiative and was originally published on Huffington Post as part of a partnership with their Move Your Money campaign.
Interested?
Move Your Money
Move Your Money is a growing national movement to switch money out of big, national banks and into local, community banks. A video paralleling “It’s a Wonderful Life” promotes the campaign.
