Out in the Cold: Raising the Debt Ceiling a must, but it won’t help most Americans

The President and Speaker Boehner --the "deciders" on the 18th hole. Photo: Reuters

By Henry S. Cole, Ph.D. Re-posted from here.

The Biggest Show on Earth: I have struggled for days to figure out what to say about Washington’s three-ring circus — the debate on the debt ceiling. Blame it on the Republicans?  Absolutely – they are willing to play Right Wing Roulette[1] with our economy not to mention our national security. I am fairly certain, however, that the crisis will be resolved, “grand bargain,” temporary solution, or Plan B. I only hope it’s not the President who cries “Uncle”; at least his plan has a modicum of fairness. (See his speech).

But whatever, the fix, its not going to help most American families. Our leaders including the Democrats have declined to address the underlying causes of our economic quagmire. Cutting benefits to the already stressed middle class, the unemployed, seniors and the poor will hurt, not help the economy. Slashing support for desperately needed infrastructure projects (e.g. bridges, roads, railroads, aging natural gas pipelines) and education will destroy not create jobs and hurt  America’s ability to compete with other nations.

The real economic crisis is that our economy works well for large corporations but no longer serves the needs of the American people. In order to maximize their profits, corporations are outsourcing production and jobs to low wage companies or investing in job-swallowing automation.

To put it bluntly the U.S.economy that is no longer capable of creating the jobs that many Americans desperately need.[2]  Unemployment is not good if you’re concerned about deficit spending. Jobless people depend on government assistance, e.g. unemployment compensation, food stamps, emergency energy assistance, etc. When people are financially insecure and worried about losing their jobs or homes, they spend less. Sales go down, retailers close their doors, more jobs are lost, more homes are lost, state and local governments curtail services and layoff public employees – in short a vicious cycle. The Republican approach will bankrupt the nation both economically and morally. Cutting corporate taxes will only help the economy if the incentives are specifically tied to job creation in U.S. communities.

The power behind the circus: A single statistic explains a great deal. The six biggest Wall Street financial institutions own assets worth more than 60% of the nation’s gross domestic product (Johnson and Kwak, 13 Bankers, Pantheon, 2010, Figure 7-1).  That’s more than all the other sectors put together including manufacturing, medicine, sales, and services. Rather than invest in the “Main Street” economy, the mega-banks continue to channel trillions (e.g. our pensions) abroad and into the same sorts of “innovative securities (derivatives, credit default swaps, etc.)  that caused the financial meltdown of 2008. Yet these “too-big-to-fail firms” seem oblivious to the risks and consequences of their actions. After all the tax payers bailed them out the last time.

Left out in the cold; the long-term unemployed

Mike Lux writing in the Huffington Post explains the dominance of Wall Street with great lucidity“When they (the big banks) blew up the economy and taxpayers bailed them out with no strings attached, Wall Street won. When the biggest banks swallowed up their competitors and got even bigger, Wall Street won. When bonuses and profits returned to record levels a year after they were bailed out, in the midst of the worst recession since the 1930s, Wall Street won. When the legislation allowing judges to force them to negotiate on mortgage write-downs failed, Wall Street won. … When the amendment to force the break-up of the biggest banks lost, Wall Street won. When loopholes were added to derivatives regulations, Wall Street won. When the antitrust division at DOJ refused to lift a finger against the huge mega-banks, Wall Street won.”[3]

 To put it bluntly, Bank of America, Goldman Sachs, CitiGroup, Morgan Stanley, Wells Fargo, and JP Morgan Chase are calling the shots. And their decisions are not helping the great majority of American families. Their economic dominance translates into political might that neither party chooses to cross – especially when corporations are free to fund political campaigns without restriction (Supreme Court, Citizens United). There are three

Tickled pink: Goldman Sachs CEO Lloyd Blankfein — Who elected him, anyway? Photo: Joshua Roberts, Bloomberg

reasons to break up these firms and reform the banking system: (1) to prevent a too-big-too-fail repeat (2) ensure that banks return to the business of lending to the small businesses that create jobs and (3) to preserve our democracy.

[1] To show just how willing they’ll go, House Republican leaders on Saturday shut down the Federal Aviation Administration (FAA). 4,000 workers were furloughed over the weekend and more than 90,000 jobs across the country are on the line. Read more. 

[2] The current official unemployment rate is 9.2 percent (14.4 million); however, if we add in those who have stopped looking and those who are underemployed the percentage is 16.2 % – some  25 million people. As we’ve shown in a previous post, the recovery, limping along, is the slowest on record since the Great Depression.

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