Tuesday, August 28, 2007

The Sad Legacy of Alberto Gonzales

The resignation of Attorney General Alberto Gonzales should not have occured in my opinion. He should have been fired long ago. The fact that it took bi-partisan pressure from Senators who were irritated with his selective and faulty memory, and the fact that he kept changing his story, reflects as much upon President Bush as it does upon his A.G.

Sidney Blumenthal from Salon had a most interesting article on Gonzales and his career and the role he played within the Bush/Rove clique that ultimately acheived ultimate power in our republic. Nick-named "Fredo", his similarities to the pathetically weak son from the Godfather saga is illuminating. Fredo, in the Bush drama, appears to have been a lackey doing the bidding of Bush, Rove and Cheney. If anyone doubts that illegal wire-tapping and the rejection of the Geneva accords came from the top in this administration, take a look at Gonzoles and the role he has played over time with this group and you get a sense that his job, was to come up with a legal justification for things that were inherently un-American and to bring more power to the Executive Branch.

As the Bush Presidency winds down, I am amazed that our Republic still stands, weakened though it is with it's diminished core values. Gonzales may resign, but keep in mind, that he was nothing more than consigliery to a corrupt crime family that weakened our Republic in ways that will be discussed by historians for centuries.

Thursday, August 16, 2007

Reagbushonomics Essay 3- The Fallacy of the Laffer Curve

Deficits must be paid for one way or another. Some third world countries have the bad habit of simply printing more money, creating inflation. However, debtor nations have wisened up to that tactic and loan in dollars or a more stable currency and require payment back into that currency. The U.S. dollar has for many years been a primary international currency that funds nation-states.

In the United States, the way deficits are handled is to finance them through U.S. treasury bonds and other government issued investment vehicles. This method of finance in fact dismantles the logical fallacy that is the laffer curve. The laffer curve is at the center of the basic philosophy of what Reagan was hoping to accomplish. By lowering taxes, especially taxes in higher income brackets where there is a high degree of investment vrs consumption, the assumption was that there would be an influx of capital into the marketplace, fueling growth that would bring down unemployment and increase tax revenues. However, when you look at the basic calculation behind this logic, it doesn’t make sense.

Let’s say on average, the income tax reduction went to 40% investment and 60% consumption. So for every $10 dollars of income tax relief, $4 went into the capital markets. However, for every dollar of deficit you run up, 100% of that money comes from the capital markets, resulting in a net decrease of $6 from the capital markets. The results of this was a predicament during the Reagan administration, that real interest rates (interest rates less the inflation rate) actually increased. When real interest rates are high, it has a negative affect on the net present value of all future returns on investments ROI. It also requires business to shy away from long-term investments in favor of short term.

The results in the 1980 capital markets was a foregone conclusion. Welcome to the era of junkbonds, and leveraged buyouts. A focus on existing assets rather than investment in future assets hurt the economy of the Reagan years and that lack of investment in plant and material in many industries resulted in a serious decline in the manufacturing sector in the United States and a significant realignment and displacement of the U.S. economy. Luckily for the U.S., we were bailed out by a technological revolution and the creation of many new products. However, the manufacture of U.S. created products began in the Reagan years, and continues today, to be overseas. The day of the good paying manufacturing job was virtually at an end, compliments of “Voodoo Economics.”

In the next essay, I will address some other by-products of Reagbushonomics and how it impacted income distribution in the U.S. and address the unintended Keynesian aspects of Reagbushonomics.

The Troubling Question of Fundamentalist Islam

Admittedly, I am a critic of all religious thinking. The more I’ve learned, the less plausible all religious belief systems appear to me. Maybe my brain is hard-wired for skepticism or perhaps there is some evil satanic force that keeps me from hearing that still small voice, but I don’t think so. However, as I’ve read about religious traditions and practices, I will say that some religions are not as bad as others. This isn’t meant to sound bigoted. I still may regard good people who belong to an especially bad religion with as much respect and love as someone from a more benign one.

However, I’ve come to be very concerned about the worldwide impact of fundamentalist Islam. I’ve always had this concern, but the events of the last decade or so has left me shaking my head wondering how on earth can a civilized world survive the onslaught of this religion. Let me give you a pertinent example. I Obi wan liberali, having been born of Mormon parents and having been born into the covenant, have never the less become an apostate. How do Mormons treat apostates? Generally, ostracism is the norm, sometimes rumors are spread regarding the reasons for the apostasy, usually discussion of possible moral failings of the apostate in question that caused them to “lose the spirit.” Some experience a loss of business, loss of social contacts, loss of friends, associates, even family members may disown them. Life can be hard on an apostate. I think that is why many doubters in Mormonism keep those doubts to themselves, because of the consequences of openly stating your disbelief.

As harsh as that may seem, contrast that with apostasy from Islam. The Koran is very clear what is to happen to apostates. They are to be killed immediately. Not only are they to be killed, but whom-ever might be accused of leading them astray is to be executed as well. Islam has been better to Christians and Jews than it has been to perceived apostates. Jews for example lived in lands controlled by Islamic empires, first under the Arabs and then the Turks. Christian populations also managed to live in Muslim dominated lands, notwithstanding that they faced an apartheid that could be rather severe. Because Christians and Jews believe in some of the same scriptures as Moslems, they were treated better than those who followed idolatrous religions such as Buddhism or Hinduism.

Now, I don’t just view a religion on the basis of how they treat apostates, I also want to see if there are those whom are persecuted or marginalized and how discipline is meted out against those who don’t follow the letter of the law. Islam in this regard tends to be extremely harsh in it’s treatment of women, homosexuals, and common every day criminals. There is a primitive ruthlessness that makes me wonder how Islam can make it in a civilized society.

Ultimately, that is the question. Can fundamentalist Islam survive in a civilized society, or can a civilized society survive fundamentalist Islam? I’m still looking for answers to this question. Seeking those answers has led me to read books on middle eastern and Islamic history that I never would have read before, and I’m still reading. Can Islam shake off fundamentalism and embrace any sort of compromise with modernity and the values of the European Enlightenment?

We entered into war in Iraq under the assumption that our values have a universal appeal and that Iraqis, once liberated from tyranny, would embrace those values. I have had my doubts all along about those prospects in addition to questioning the wisdom of invading a country on the basis of what they might do to us in the future. But as we sit here in 2007, quickly approaching 2008, the fate of our enterprise is less in our hands as Americans, than it is in the hands of Iraqis. Will Iraqis be able to live together in peaceful coexistence or even as reasonably amicable neighbors? My search for answers has led me to believe that anyone very sure of themselves on this issue must know somethings I've apparently missed, or they are in serious denial.

Monday, August 6, 2007

Reagbushonomics Essay 2: Spending, the Other Half of the Equation

This part in the series will focus on the fiscal policy of the Reagan administration, his priorities and it’s impact upon deficits and the national debt. Ronald Reagan put a great deal of weight into the idea that a major tax cut was necessary. Successfully selling that idea upon a skeptical Democrat-controlled Congress was not easy, but it was passed never the less.

The other half of the equation that got lost was the need to decrease spending at the same time. Reagan’s budget director David Stockman slashed away at certain departmental budgets. However, at the same time that Stockman was proposing massive cuts to certain budgets, he was confronted with another reality. Reagan had been critical of his predecessor in allowing the U.S. military to become weakened and vulnerable during Carter’s administration. Notwithstanding Carter’s development of the Trident Sub program and his failed attempt at his original proposal for an MX Missile system (mobile missiles), conservative think-tanks, many funded by arms manufacturers, had worked on selling the public on the idea that the U.S. was militarily weak relative to the Soviet Union. The result was a massive increase in military spending during the Reagan years. Military spending grew during the 1980’s from $136 billion in 1980 to $282 billion in 1987.

Reagan also was reluctant to do anything with social security or medicare, both large components of the budget. The results were quite predictable. The budget deficits that were so alarming during the Carter administration were exceeded greatly and were now approaching $200 billion by 1983, this during a period of relatively high interest rates. These deficits needed to be funded by the Government issuing bonds, bonds at dangerously high interest rates. As a result, interest expense would increase as a part of the federal budget every year. From 1980 to 1984, interest expense would nearly double going from $64 billion in 1980 to $111 billion in 1984. By 1987, interest expense would be $138 billion.

By the end of the Reagan administration, the national debt as a percentage of gross national product (GNP) had gone from 26.8% to 43.2%. The impacts these deficits upon capital markets and upon the distribution of wealth in the United States will be the subject of Essay 3 of this series.

Thursday, August 2, 2007

Reagbushonomics Essay 1

This post is intended to be a first in a series of posts that deal with the economic viability of Reaganomics and it’s 21st century variant, Bushonomics. This first essay will talk a little about definitions and touch on the history behind these economic policies as they’ve been proposed and passed into law.

In 1981, Ronald Reagan assumed the presidency and proposed a dramatic shift in the role and size of the federal government. Assuming the presidency during a time of double digit inflation and interest rates, there were also deep-seeded economic rumblings that were occurring in major industries in the United States such as steel, automobiles, and other heavy industries that were capital intensive and burdened with large numbers of relatively well paid working class jobs.

Reagan’s first and foremost objective was to lower taxes. Most of the tax cuts were earmarked for the wealthy. There is no doubt, that marginal rates had become out of control in the higher income brackets. If I remember right, the highest marginal rates were around 80%. The results were, extensive and pervasive tax avoidance strategies among those in the higher brackets. The result of such a high bracket could also be seen as federal redirection of resources. With such high marginal rates, investment and consumption decisions were being based more and more on their tax impacts rather than the NPV (net present value) of expected returns on investments.

Even so, any proposal for a tax cut faced a daunting reality. The last year of the Carter administration, the federal budget deficit increased to $57 billion, at the time a most alarming amount. Republican economists argued that this deficit was driving down the value of the dollar and helping to fuel the inflationary pressures that ultimately did in the Carter administration.

How to resolve that problem came to the heart of an ongoing debate regarding the impacts of tax policy on economic growth. Reagan’s argument was that a dramatic decrease in the tax rate, especially for those in higher tax brackets, would fuel economic growth that would actually raise income tax revenues and bring down the deficits the U.S. experienced during the Carter years. This assumption was derived by Arthur Laffer, and was articulated in what came to be known as the “Laffer Curve.” Ironically, while making this claim during the Republican party’s presidential nominating process, Reagan’s opponent, George H.W. Bush, referred to this philosophy as “voodoo economic.” The second essay in this series will talk about the impacts of the Reagan tax cuts and whether those assumptions panned out.