It's the Politics, Stupid!

Everything around us is full of counterfactuals, contradictions and just plain stupidity. People vigorously advocate economic programs which contradict their political values. Facts, especially economic facts, don't seem to matter. Our politics and economics are out of sync and out of control.



Take taxes, for instance. The ratio of federal income and Social Security taxes as a percent of GDP is now 14.8 percent, lower than in any year since 1950. So why are we in the midst of a tax revolt with people complaining that they are Taxed Enough Already? It is a contradiction to want to cut taxes when they are already at the lowest level in 60 years and at the same time to complain about deficits.



The national debt and deficit are mired in political contradiction. If you listen to the fiscal responsibility commission appointed by Pres. Obama, we have to cut Social Security, Medicare and health care benefits or we are headed for fiscal collapse. Yet, without those Bush era tax cuts or those wars we refuse to pay for, there would be no deficit or increase in the national debt. It is counterfactual; the social benefits have nothing to do with it.



The debt and deficit are also not an economic problem. They are a political problem but only because people chose to make them so. The gross domestic debt is $12.3 trillion dollars or 84.8 percent of GDP. However, when you subtract the $5.3 trillion owned by the Federal Reserve (that is what the government owes to itself) then the national debt is only 48.3 percent of GDP, an amount that could double with no serious economic or political consequences. What is the problem? Why are people talking about an economic breakdown?



The Federal Reserve, in turn, is being just plain stupid. Chairman Bernanke even looked scared of his projected 10 years with an 8 percent unemployment rate when he went on 60 Minutes to defend his second round of quantitative easing. QE2 would have the Fed purchase $600 billion-$1 trillion additional in federal bonds, thereby injecting that much more money into the banking system. That money would not however get into the economic system unless the banks were willing and able to lend it. The banks are already sitting on over $1 trillion worth of cash that they are not lending. The banks and borrowers are hesitating because they see a stalled economy in the US and Europe, not because of a lack of available funds or too high an interest rate.



It's the politics, stupid. The case of Speaker of the House Nancy Pelosi makes it clear. She is deeply admired as a very successful Speaker who at the same time is vilified and hated. When push came to shove, she shoved, hard and with success. So Republicans hate her for her success and they spent many millions of dollars to prove it. It is also why her caucus has stood by her. Speaker Pelosi has also been way ahead of President Obama in pushing Change You Can Believe in. It's pure politics.



Maybe the real contradiction in politics is our president. President Obama promised the Republicans well ahead of time that he would not hold out for a repeal of the Bush era tax cuts for the rich. Just the way he did not hold out for a single-payer health care system, closing Guantánamo or Don't Ask Don't Tell -- all of which he promised. The most important thing that our economic and political system needs at this time is confidence. His actions are not confidence building; they invite political attack.



Obama is trading a two-year extension of the tax cuts for the rich for continuation of unemployment compensation. The Republicans expect that in two years they will have the votes to make those cuts permanent. Why would a guy who appears to be so bright be so easily rolled by Republicans who are themselves being rolled by the likes of Sarah Palin, Rand Paul and Michelle Bachmann?



The biggest political contradiction is our continuing presence in the Middle East. Iraq has disappeared off the map of our consciousness. Afghanistan is still there only when it distracts us from Christmas shopping and the titillation of Wiki leaks of State Department documents. The continuing fiasco in Afghanistan is evidence of a crumbling military, and political, empire



The economic contradictions are created by our political needs. But our political needs are also metastasizing those economic contradictions. We can live with these contradictions only so long. Our nervous break down as a society will come not because of our economy but because of our really lousy politics.


Unfortunately, it is the money of the very rich that is buying those lousy politics