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How the Next 4 Years Will Play out

2010 October 24
by Ian Welsh

2010 – Republicans take control of the House.  The Senate remains in Democratic hands, but the margin is reduced.

2011 – Bush’s tax cuts are extended.  Social Security is slashed.  This is done at Obama’s behest, so that Dems get blamed for it.

2012 – The Republicans take the Senate (this is virtually guaranteed, 2012′s geography is awful for Dems). They retain the House.  They probably take the Presidency.

2013 – in charge of the judiciary, Congress and the Presidency, and with hard right crazies as a substantial caucus, the Republicans finally repeal the new deal.  SS is turned into privatized accounts (older folks will keep most of what they have), Medicare is slashed going forward, regulatory agencies like the EPA are cut to the bone, education is turned over to the private sector as the Feds withdraw virtually all support for public schools and move to a voucher system. A new bubble (the last one) is inflated at all costs by Bernanke.  Massive slashing of the federal civil service occurs, programs which are not slashed are transferred down to the States, where corruption is easier.

2014 – President Teabag starts a war somewhere to keep pump up the military Keynesianism.  Said war is used as an excuse to even further curtail civil liberties.

If the Republicans don’t win the presidency in 2012, no big deal, they’ll still control Congress and the Supremes, and they’ll get him in in 2016.  Obama will do much of what they want anyway, and get the blame.)

63 Responses
  1. anon2525 permalink
    October 24, 2010

    If this comes to pass, you’ll have lots of grist for the “I told you so” mill. I’m much less certain than you are about these electoral outcomes. The deteriorating economy plus the disastrous foreign policy crimes was enough to get one side of the duopoly thrown out. If that same side (the republicans) gains a ruling majority, it hasn’t shown any newly-found competence to govern. They — since at least 1994 — have shown that they think it is simply a game that they play, like the joke about how you don’t have to be able to outrun the bear, you just have to outrun the other guy. They don’t have to be competent, they just have to slogan better than the democrats.

  2. Albatross permalink
    October 24, 2010

    Yup. At some point the United States falls apart, I don’t know that it’s in the next four years, but it’s probably in the not so distant future. At that point lots of things people take for granted, like child labor laws, 40-hour work weeks, and retirement, evaporate completely.

    California, the northeast, and the Midwest soldier on as before. The south further degenerates until parts of it are third world countries. The nation of Texas becomes an autocracy, as do Utah and Arizona.

    With nation-states pretty much done for, the next sociological battle is between corporations and organized crime.

  3. Ian Welsh permalink*
    October 24, 2010

    Since the Dems will be in charge of the Presidency and the Senate, I think they’ll get the blame for the next two years. Ironically, in some ways they’d be better off losing the Senate.

  4. October 24, 2010

    Since the Dems will be in charge of the Presidency and the Senate, I think they’ll get the blame for the next two years

    Sure, but I could also see that, because the TV networks love to put Republicans on, by 2012 everyone is convinced that John Boehner is President.

    I keep thinking that some other shoe is going to drop and change a lot of perceptions, 9/11-style. Something gets out of hand and there’s a war: China-Taiwan, India-Pakistan, Israel-everybody, etc. Or there’s an epidemic. A mega-drought. Or even something good — some solar energy breakthrough or something. It just feels like we’re at the edge of something.

  5. Ian Welsh permalink*
    October 24, 2010

    I hope you’re right. This prediction is an extrapolation of current trends combined with a reading of the major players. Such predictions can always be upset by events which were never expected, either low probability or ones you can never predict (say a series of big volcanic eruptions which go on and on.)

  6. Bernard permalink
    October 24, 2010

    in any case, it is going to be interesting to watch. too bad i have to live here/America. The Right turn America in to an Iran style/Christian version of Sharia, further codifying their enforcement of Calvinism/”Lord of the Flies” style.

    it really would be better if the Republicans won both houses this time. just to accelerate the crash their politics represent.

    too hazy to hazard a guess. though i know the economic depression continues for a long time, with the depth of the morass depending on how quickly the Republicans finish their Contract on America that Newt launched back in 94 or 95.

    once i get able to i will move to another country, so i can watch this Titanic sink from a “safer” distance. unless there is a deep and complete “overthrow” of the Elites/Versailles, nothing will left for anyone but the Rich. the bridges that connected our Society are being destroyed as we speak.

    everytime i drive on or see a WPA era road or physical structure from the 30′s, i see why the Republicans and Obama have worked so hard to destroy the infrastructure that held America together.
    it will be so much easier to finish off/complete the “Rape” the way the Elites have set up the “scam.” Ayn Rand would be proud.

  7. October 24, 2010

    A solid prediction, that’s for sure. But it just seems so hard to defeat an incumbent president. It’s happened, what, 4 times in the past 100 years? Obama’s plan to cut Social Security ended my support for him, but lots of people will probably do what they’re doing now: “Why dwell on the negatives? Look at the good he’s done, too.” He’ll make some nice speeches, with words about how he supports the same things his audience supports, and they will buy it.

    Anyway, chances are good that whoever the Republicans nominate in ’12 will be just horrible. Not only objectively awful, but bad at communicating, campaigning, staffing, etc. as well. And the electorate isn’t getting any whiter.

    “some solar energy breakthrough or something”
    We could power our country on solar energy now. There just isn’t enough political will to do it. Obama wants oil companies to be happy with him more than he wants to guarantee our nation’s energy future.

    “the next sociological battle is between corporations and organized crime”
    A civil war, in other words? ;)

  8. October 24, 2010

    I hope you are wrong, but I cannot come up with a good reason why you are wrong.

    Somehow I think that they Democrats will keep the House of Representatives. There does seem to be a last minute surge in the Democrats direction (my friend in Wisconsin is pessimistic however).

    It may be wishful thinking on my part, but I think that Social Security will be protected. Food stamps on the other hand, will be cut.

  9. jeer9 permalink
    October 24, 2010

    Policy-wise, I think you’ve got it down just right. However, I don’t see Obama losing in 2012 because the oligarchs intend on nominating a loonie to ensure a continuation of his absurd bipartisanship and put a damper on the crazy independent streak of the Tea Partiers. They’re useful idiots but the oligarchs don’t want one of them running the show. Obama’s their guy: sensible, gifted oratorically, shamelessly hypocritical. All the criticism coming from Wall Street and Big Business is pure kabuki. I know Ian disagrees and thinks the outrage at times genuine but the real push to fully eviscerate the safety net comes in 2016 when Dems are disgusted with their party, there is no alternative, and the Right puts forth some pseudo-moderate governor like Daniels. It ain’t lookin’ good, in any case.

  10. Tom Hickey permalink
    October 24, 2010

    An alternate scenario (satire) from Prof. Randy Wray:

    The Great Depression and the Revolution of 2017

  11. Cloud permalink
    October 24, 2010

    Guess: the space shuttle program will not be replaced by anything civilian, possibly for ever.

    Heaven knows what the military shadow world is doing with their robot space plane, but we can assume it’s not for the good of humankind.

  12. Bernard permalink
    October 24, 2010

    what might change the dynamics is if the Middle sides with the Left against the right. and also it may be too late for this dynamic to influence the Congressional Reps that owe their wealth to the Elites.

    all along the Middle has never trusted the Left other than in theory. the Left is far too dangerous and “unrealistic” for the Middle Voters. the Right has always been more “practical” in practice than the Left. the Left is too “unreal” and “Idealistic” for the Middle Voters to ever trust the Left.

    and now with 40 years of ideological PR, courtesy of Goebbels’ little lies in practice, the Middle Voters would trust a shark before trusting the Left. lol. Shark is Obama’s chess game personified. Could/Would the Middle ever trust the Left? that is what the current depression/Bankster theory we see being played upon us now.

    how bad does it have to get before the Middle Voters dare to risk alliance with the Left.
    and is it too late to make a difference. It took 40 years of setting up the various pieces of Government control to effect the “perfect storm of Shock and Awe” Capitalism, courtesy of Naomi Klein’s wonderful book.

    The Middle Voter never trusted the Left, being Radical. The Middle felt safer with the Radical Right, thinking it could counter the Right’s excesses.

    and now the Middle reaps the whirlwind of the Elites. Sarah Palin’s Tea Party, John Roberts’ Citizens United, Obama’s bipartisanship, Greenspan with Ayn Rand’s trickle up economics. and Christian Sharia law.

    “Trust me,” the Right said. sow the wind and reap the whirlwind.

  13. Bolo permalink
    October 24, 2010

    I’m going to go with jeer9 as far as the Presidency goes, though I only lean that way a little bit–Obama is going to be supported by the people with money in 2012 since he’s relatively competent at getting them the results they want. However, the question that sticks in my mind at this point is “how much control will the elites be able to exert with their money, and will there be any major intra-elite defections?” The answer depends on how desperate the state of the nation has become by 2012. More desperation and more intra-elite defections raise the chance of Obama losing to a Republican candidate.

    The timeline makes sense to me, but it almost seems too extreme. I suppose its partly because I have a personal stake in what happens to the Federal bureaucracy (and especially the EPA) since I now work for it… But you’ve almost always been right with your predictions in the past Ian, other than the exact timing (which is impossible to get right anyway, in my opinion). I’d better start working contacts now so that I can jump ship in a couple years if need be.

  14. October 24, 2010

    I would not be so confident that the Democrats are going to lose the House on Nov2, though it is quite possible and even likely. If they do, I would not be so confident that Obama would lose in 2012—in fact, a Republican House may make it more likely that he would win in 2012, because he would have a direct opponent to run against for two years, ahead of the Republican nomination process.

    Even so, if the Democrats lose the House, the general trend of your prediction is probably true, if not necessarily the specific dates and times.

    If the Democrats keep the House, then the general trend is probably the same also, except that it becomes more likely that Obama will lose in 2012. I’d actually prefer Obama to lose in 2012 than the Republicans win the House now—because it is possible (I believe The Raven has suggested it so) that the Tea Party wave might have crested by then.

  15. Frank A. permalink
    October 24, 2010

    I won’t quibble with your forecasts since whichever “political party” is in control of the legislative/executive branch will follow the same course. TPTB (i.e. the plutocrats) have hedged this outcome to infinity. However, I would like to throw out one possible wild card that could completely upset the apple cart.

    WHAT IF A WIKILEAKS-TYPE ORGANIZATION BEGAN PUBLISHING NAMES AND ADDRESSES OF THE EMPLOYEES AND MANAGEMENT OF THE MAJOR WS INVESTMENT BANKS, ALONG WITH NAMES AND ADDRESSES OF THE MAJOR CORPORATIONS BENEFITTING FROM THE MILITARY INDUSTRIAL COMPLEX?

    Now, you could also add in major Health Insurance corporations, as well as the Pharmaceutical Rackets and the Agribusiness Monopolists. But my point is that identifying and harassing these capitalist pigs at their homes and offices could provide a very real intimidation factor. Hell, it has worked fairly well for the anti-abortion zealots over the past 2 decades or so.

    It is way past time for those of us who feel that the primary role of government at all levels is to promote the common good, to go into action. And using the same tactics that have worked so well for those on the other side (i.e.- those who use government to promote nothing but the “corporate good”) just seems highly appropriate to me.

    This is a war that cannot be won at the ballot box.

  16. October 24, 2010

    You forgot:

    2016 – The voters engage in another massive repudiation of conservatism, just like they did in 2006 and 2008. This time the media and progressive blogosphere reject untested and inexperienced “messiah” candidates and the voters choose a real liberal for POTUS

  17. Ian Welsh permalink*
    October 25, 2010

    Timing is always the trickiest, yeah. What will happen, barring odd events, is pretty easy, when is hard. Good analysts predicted why and how the Soviet empire would collapse decades in advance. I don’t think I’ll be that far off, mind.

  18. Ian Welsh permalink*
    October 25, 2010

    And yes, the sooner this cycle goes through, the sooner the chance for a progressive moment.

    Only a chance, though.

  19. Jennifer permalink
    October 25, 2010

    hopefully Obama will be impeached and we can get a new candidate in 2012.

  20. Lori permalink
    October 25, 2010

    Jennifer,

    I’m no fan of Obama’s but if Bush didn’t get impeached, Obama won’t either. The financial elite are happy with him and they call the tunes for both parties. The only way he doesn’t run in 2012 is if he is successfully dumped by the Democrats. Right now, that seems unlikely.

  21. October 25, 2010

    Hard to argue with the general trajectory, though the details — like who gets elected to what — may play out differently. Really, “nobody could have predicted” Yeltsin standing on the tank, but the general outlines of the Soviet collapse were known well in advance, just as the outlines of our own are.

  22. cathyx permalink
    October 25, 2010

    I think you forgot one more thing that will happen in maybe 2011 or 2012. The internet will no longer be free.

  23. marku permalink
    October 25, 2010

    I think there is another likely swan. As a part of the Pubs taking power, they enact tax cuts up the yin-yang. They have never actually shown any desire to cut meaningful spending (esp. any corporate pork), so they don’t this time either (tho ORahma may have already cut SS for them).

    As a result, the deficit/debt continues to explode. So that when President Teabag starts the next mideast war, the rest of the world, thinking “You know, most of the Bad Shit that has happened in the last 20 years is all your fault…” stages a boycott of the next Treasury Auction. (This is similar to what the US did to GB during the Suez)

    The FED, always ready to bail out the Pubs, steps in to purchase them instead. This leads to a widespread loss of faith in the USD, even amongst US citizens. It doesn’t really matter whether this is a well-grounded fear or not (who knows, maybe the MMT thinkers are really correct). All that matters is that people no longer have faith in the USD. And with the Pub’s well-demonstrated incapacity for managing government finance, maybe a this is a well-founded lack of faith.

    At this point you get hyperinflation, as described by Gonzalo Lira here:

    http://gonzalolira.blogspot.com/2010/08/how-hyperinflation-will-happen.html

    And the end of the US Empire, as it cannot afford to pay for oil in Euros or gold, or any other basket of currencies. And it surely can’t afford its trade deficit.

    After that, who knows? Probably the US ends splitting up into more coherent regions with independent currencies. Maybe finally we get rid of the South.

    See, there is something good to hope for. :-)

  24. October 25, 2010

    Yeah, that’s pretty much the way I see it too.

    Obama has been an unqualified disaster.

  25. David H. permalink
    October 25, 2010

    marku — Much as I’d like to see some catalyst for change, and yours is as good a scenario as any, I can’t imagine anyone in this economic climate boycotting the safest money on the planet, i.e. Treasury bills. The Euro won’t exist by then, and I can’t imagine what else would replace the dollar as the international reserve currency.

  26. marku permalink
    October 25, 2010

    David: GW and the Pubs doubled the US debt during a time of the largest bubble ever seen. Now the US faces structural deficits as far as the eye can see. With the Pubs free lunch “all tax cuts are good” core belief, and another unfunded war in the prospects, I could easily see the ROW coming to an “anything but the USD” point of view. And that doesn’t even require another “better” currency to flee to.

    The most likely result is a flight to hard goods: commodities, oil, wheat, gold, rare earths, etc. In the Gonzalo link this leads to the hyperinflation result. Seems plausible to me.

  27. October 25, 2010

    I think the only foreseeable thing that might make the 2012 prediction wrong is if the GOP does a replay of 1994-1998, in which they take every opportunity to investigate the President for nonsensical reasons, shut down the government, and generally make complete asses of themselves. Given that this is what they’re talking about doing, I think it could happen.

    Other than that, though, I’m afraid this is likely. If the Democrats lose the House and somehow learn the lesson that progressives are their base, then maybe it won’t happen, but I don’t count that as a foreseeable event right now. In fact, I think it’s more likely I’ll be struck by lightning or win the Powerball lottery.

  28. BC Nurse Prof permalink
    October 25, 2010

    Chris Hedges on the Collapse of Liberalism:

    http://www.truthdig.com/report/item/the_world_liberal_opportunists_made_20101025/

    Read it and weep. Is it time to co-opt the right wing movement? Couldn’t we just infiltrate the Tea Party and take advantage of all of the righteous anger and slowly mold it to rebuild civilization? Maybe not, because..

    …as Dimitri Orlov says, “There are no non-destructive ways to decomplexify complex systems…”

    http://cluborlov.blogspot.com/

    Stoneleigh says that private citizens will not have access to petroleum products within five years:

    http://theautomaticearth.blogspot.com/

    and Joe Bageant wishes some bright young people in Italy didn’t have to see Reaganomics come to their country:

    http://www.joebageant.com/joe/2010/10/algorithms.html

    Snow is in the air here. The woodshed is packed. The root cellar smells of sauerkraut, apples, and onions. The last green tomatoes sit in boxes on the living room floor beside the holey sheets where scarlet runner bean pods are spread out to dry. The last ears of corn were cut up and frozen yesterday. I’ll teach my students during the day, and sit at my spinning wheel at night, until spring comes. I raise a glass of mead to you all. Use this winter to think about what part of civilization you will personally dedicate yourself to saving over the dark age to come.

  29. Pepe permalink
    October 25, 2010

    This time the media and progressive blogosphere reject untested and inexperienced “messiah” candidates and the voters choose a real liberal for POTUS

    So, not a Democrat?

    What makes everyone so sure that Obama will even run for re-election?

  30. Fester permalink
    October 25, 2010

    I’m actually more pessimistic than Ian. I think we are good for at the most three more competitive presidential elections, of the type where, you know, you get a choice of candidates.

    As Ian’s latest post shows, the American elite is getting grabbier, and I think they will reach the limits of what co-option and propeganda will get them, and will have to start using more coercion to maintain control.

    However, I am somewhat more optimistic about social security. The private accounts idea seems to have been an attempt to head off the financial crisis of 2008 by diverting the social security money into the stock market. Its too late to do that now, getting rid of social security will just mean pissing most of the population off. Then you really have to resort to coercion.

    Also, who winds up as the Republican presidential candidate in 2012 makes a huge difference. They could nominate a joke candidate that causes them to blow the election, just like they might be blowing their chances to take back even the House this year with too many joke candidates. The could conceivably nominate someone who gets elected and is not that bad. The US has lucked out at least twice in its history with the electoral system throwing up good presidents in times of crisis. There was no reason to believe, given his pre-presidential career, that Lincoln would turn out the way he did, nor could you expect the 1930 version of the Democratic Party to produce the New Deal, it was actually generally to the right of the Republicans at the time.

    I think luck plays a bigger role in how these these turn out than people realize, but I agree the trends are all bad.

  31. Ian Welsh permalink*
    October 25, 2010

    A deft/deficit issue leading to hyperinflation is more than possible. Traditionally that’s how countries get out of the sort of deficit trap the US is in. Of course, we also have a huge austerity movement coming, so we’ll see if they’re serious. But no one wants to raise taxes or cut the military, the debt is now so large that the FED can’t raise interest rates, so they’re in a real trap–basically, “entitlements” have to go, if that’s your set.

    It could be fixed easily enough. End the mortgage deduction (a trillion a year alone) while decreasing interest rates on mortgages, increase tax rates on the rich, add a transactions tax, and close corporate tax loopholes and you’ve more than closed it, you actually have money to play with and fix the fundamentals of the economy.

    Odds of that happening seem minimal.

    Even now, in theory, the US has no major problems it can’t fix. It also has no major problems it will fix.

  32. CMike permalink
    October 25, 2010

    Ian says:

    >>>>>>End the mortgage deduction (a trillion a year alone) while decreasing interest rates on mortgages, increase tax rates on the rich, add a transactions tax, and close corporate tax loopholes and you’ve more than closed it, you actually have money to play with and fix the fundamentals of the economy.<<<<<

    I think you're way off on that trillion dollar estimate. Here, among other places, I’ve seen it reported the cost to the Treasury in 2012 for that deduction would be $131 billion:

    >>>>>The mortgage interest deduction (MID) is one of the oldest and largest tax expenditures in the federal income tax and is the largest single federal subsidy for owner-occupied housing. The president’s fiscal year 2010 budget reports that, in 2012, the MID will cost the federal Treasury an estimated $131 billion, much more than the total of all outlays by the Department of Housing and Urban Development ($48 billion). Homeowners also benefit from other federal tax preferences, including deductibility of residential property taxes on owner-occupied homes ($31 billion), and exclusion of tax on the first $250,000 ($500,000 for joint returns) of capital gains on housing ($50 billion).”<<<<<

    Here, and elsewhere, I’ve seen the total deductions on mortgage interest in 2008 were in the $70 to $80 billion range:

    >>>>>A bipartisan federal commission looking at ways to cut the federal deficit is at least willing to consider a recommendation to eliminate the mortgage-interest deduction, a tax break which cost the U.S. Treasury about $70 billion in 2008.<<<<<

  33. October 25, 2010

    A deft/deficit issue leading to hyperinflation is more than possible. Traditionally that’s how countries get out of the sort of deficit trap the US is in.

    hi ian. can you give some examples where this has happened for nations like the usa (where the debt is in our own currency, not backed by any gov commitment of convertibility to gold or similar and also, at least not yet, where the productive capacity of the country hasn’t been trashed by war or other massive disruption?

    i think i disagree…. but may change my mind if you have convincing examples. thanks!

  34. Ian Welsh permalink*
    October 25, 2010

    Thanks CMike. I took “this and other taxes to mean “mostly this”" my bad.

    Selise: The US’s productive capacity has been massively trashed by war and other massive disruptions… for a good thirty years. Bombing isn’t the only type of trashing which exists. What does the US make other than weapons, software, pharma and entertainment at this point?

    Wikipedia has a list of hyperinflationary periods. They are not all caused by physical plant destruction in war or all in non sovereign currencies. http://en.wikipedia.org/wiki/Hyperinflation

    I have avoided dealing with the question of money and with MMT at length after seeing the hysterical and rabidly hostile way that Stirling was treated when he tried to do so at Corrente. Maybe I’ll do so at some point, right now I think it’s something people aren’t willing to hear. Printing money will not get the US out of its problems (or, more accurately, it will only do so under very specific circumstances and can only be done for a very brief period because money is not the same as production, and what matters is production which can be traded for oil and other key resources.)

  35. C.H. permalink
    October 26, 2010

    Dear god I hope not. If this starts coming to pass, I’m grabbing my three craziest friends, getting the fuck out of here (my apologies if that offends) and heading to Europe. No way would I want to grow to old age or raise a family in a country like you just described.

    I’m 22, about to graduate from college, and I want to live in a peaceful society. I grew up with two wars raging in the news. I’m tired of these wars, and I want them to end. If we get Palin or someone else in office who’s champing at the bit to go fight Pakistan or Iran or go back to Iraq, I’ll follow Edith Wharton and F. Scott Fitzgerald and become and expatriate.

  36. MRW permalink
    October 26, 2010

    Elizabeth Warren 2016 !!!

  37. October 26, 2010

    ian, well wikipedia didn’t persuade me.

    I have avoided dealing with the question of money and with MMT at length after seeing the hysterical and rabidly hostile way that Stirling was treated when he tried to do so at Corrente. Maybe I’ll do so at some point, right now I think it’s something people aren’t willing to hear.

    i’m sorry to hear about stirling’s experience. i don’t think i was around for that (had to stop reading blogs for most of the last few months – very strange after years of pretty consistent reading) and will attempt to track it down to see what you are referring to.

    mostly though, i’m sorry that the question of money and MMT is something you want to avoid for now. i hope that will change at some point…. i’ve been looking in vain for arguments against (the logical kind, not the shouting kind) and discussion by someone who has an open mind and knows what they are talking about. (yi: a lot of what gets written about MMT by non-MMTers is mischaracterization or outrightly false. so, if you ever do decide to write about it, my advice, fwiw, is that it’s important to go to the specialists to learn what MMT is and is not. disclaimer: that would so not be me… but i will say i’m quite sure that “printing money will get the US our of its problems” is NOT representative of MMT (take that for what it’s worth given my disclaimer).

  38. marku permalink
    October 26, 2010

    “Even now, in theory, the US has no major problems it can’t fix. It also has no major problems it will fix.”

    Gods Yes. This should end up on the US’ tombstone. Our legislature is such a sad joke, so special-interest-encrusted, that no solution to _any_ problem can be even approached without goring someone’s sacred ox, so it isn’t even attempted. It’s just the vultures arguing over the corpse.

    I think MMT could work, but only if approached with capital controls and a WPA style employment program that built oil replacement technologies, as Ian has suggested in the past. I had a discussion with MMT advocate Detroit Dan, he commented “You can’t have a default in your own currency as long as there is faith in the government” I said “True, but that is exactly what the Pubs have been destroying for the last 30 years.”

    At this point I don’t think I know anyone who doesn’t believe that the government is simply filled with crooks. Now, you can say that it has always been that way, but in conversation today I can speculate that in 20 years, there won’t even be any such thing as the United States, and I don’t get any push back. That would have been unimaginable in 1970.

    Strangely, I think we will get the money printing desired by the MMTers, once the Pubs trash faith in the USD and the FED has to monetize to keep the casino open. Only the spending will be wasted on wars and corporate handouts, keeping the salad shooters coming from China, not increasing productive capacity.

    Hence hyperinflation.

  39. Formerly T-Bear permalink
    October 26, 2010

    Agree that the cycles must play out. Neo-conservative and neo-liberal must be seen to fail and fail spectacularly, without doubt, without recourse. These twin ideologies must be seen as responsible for the disaster they have spawned and held accountable.

    A work that is highly germane to today is a book by Arthur M. Schlesinger, Jr “The Cycles of American History” ISBN 0-395-37887-7 Houghton Mifflin Co. (1986) which gives an overview of American History by one of the premier students of American History. Every careful reader will draw new information and a new perspective from this work if not encountered before or renewed and updated connections if reviewing from an earlier reading.

    The point the book leads up to and broadly hints about, are the conditions today where there is a natural point where there is a change of dynamics. What is not suggested is the failure of the political system to accommodate and direct that change, Schlesinger could not have foreseen that occurring when the book was written. It is this failure of the political system itself that illuminates the extent of corruption needed to collapse the Republican form of governance; the changes necessary to address the multiple problems are only able to be done through legislation, which is remote, removed from the public’s direction and control.

    Once public direction and control are lost, the political vacuum will be filled by other powers that may be in consort. The economic plutocracy may join in alliance with military and police powers against the interests of the public. The likely members will be both authoritarian and hierarchical closed associations such as those usurping power in the Spanish Civil War, the military gaining primacy but allied with business management (industrialists) , the landed aristocracy and the Catholic Church.

    What will replace this Republic will be something similar, that is assured as is the reign of terror that will descend upon the country to enforce public compliance to the new order, most keenly felt upon those who oppose the new order. The life expectancy of this new order will be cut short by the complete economic collapse of the country from the bankrupt political ideology which can only be continued by force. That force may be effective within the borders but will be resisted by the other great and regional powers affecting a complete economic quarantine, depriving the new order of supplies of raw materials, foodstuffs and fuels. The former arrogance of power will return appropriate dividends to those investing in power.

    The main reason this will transpire is that the political parties that once acted to make the government work through coherent policy between the branches of power, the executive and legislative operating from the same book, those parties no longer exist, only the empty shell of appearance remains. The function of the political party to intermediate between power and the public is also a thing of the past and exists today as an illusion of function. All the political froth concocted supposedly differentiating the parties is without substance, beguiling the unaware and the naive, casting a spell over the gullible, pandering to the bigoted and misleading the ignorant. Today’s political parties, there is no there there, only the succubus of marketing ploys to entertain the willing marks.

    In all, a far darker prospect is in order and the probabilities are once the failure of governance becomes a threat to the power elite, this will come to pass quite rapidly, power abhors a vacuum. The power elite will soon turn on each other as theirs are the only resources still available, for the Republic this will be finis, the “meek” will inherit the earth, or what remains.

    Just an opinion. OT did anyone note the US has fallen out of the top 20 least corrupted countries in the world and now occupies place number 22?

  40. Ian Welsh permalink*
    October 26, 2010

    MMT is just the discovery that money is a spreadsheet and you can add money to one column if you want. AKA. it is the discovery that you can print money. That’s important to remember, but it’s still printing money.

  41. Formerly T-Bear permalink
    October 26, 2010

    Addendum to above. Insert this between 3rd and 4th paragraphs please.

    For the public to regain political control and exercise economic control will require a well educated population, conversant in the vital minutiae of public management, e.g. political theories, law and legal history, sociology and public psychology, history, economics and political economics just to enumerate a few of the necessary areas of knowledge. Probably, most importantly, is the development and use of an adequate political language designed to be impervious to the degradation of propaganda’s nefarious affects. For Americans, bad will have to cease being a form of approbation.

  42. anon2525 permalink
    October 26, 2010

    “There is nothing wrong with America that the faith, love of freedom, intelligence and energy of her citizens cannot cure.” — Dwight Eisenhower

    “Our problems are man-made, therefore they may be solved by man. And man can be as big as he wants. No problem of human destiny is beyond human beings. — John F. Kennedy

    “There is nothing wrong in America that can’t be fixed with what is right in America.” — Bill Clinton

    “Even now, in theory, the US has no major problems it can’t fix.” — Ian Welsh

    These guys quoted above are wrong. Eisenhower and Kennedy can be excused because of ignorance, but Clinton and Welsh should know better. We have a population of approximately seven billion people on the planet with a diminishing resource base and a biosphere that is being destroyed by the world economy. It is not certain that we can transition from the fossil-fuel energy base of the industrial economy to a sustainable energy base without an economic and societal collapse or that we can reverse the global warming and oceanic acidification soon enough to avoid catastrophic biological consequences. And it is definitely not “obvious” that we can do this.

    In his youth, a younger Ian Welsh wrote:

    As I understand the science it’s already too late—we’re going to get hit with runaway temperature increases over the next century, and they are going to make a good chunk of the globe essentially uninhabitable.

    Huge climate change events are the sort of events which end civilizations. While it is always possible that something I can’t forsee could occur, of course, it seems to me that we’re on the glide path for disaster. With the best will in the world, and a great deal of competence, we might keep the deaths under a billion or so.

    “It also has no major problems it will fix.” — Ian Welsh

    Agreed. Major problems will be addressed only once they cause a crisis. When the crises occur it is not certain that they will be handled competently (no reason for optimism there, given the experience of recent decades) or in time.

  43. anon2525 permalink
    October 26, 2010

    OT did anyone note the US has fallen out of the top 20 least corrupted countries in the world and now occupies place number 22?

    Yes, it has been noted (noticed?) here, , and

  44. Formerly T-Bear permalink
    October 26, 2010

    @ anon2525

    Paul Kennedy’s 1987 book “The Rise and Fall of the Great Powers, Economic Change and Military Conflict from 1500 to 2000(sic)” (sorry no ISBN) does a brilliant layout of factors that give rise to great powers and what leads to their eclipse from power for the last half millennium that comprise the “modern” era. Leading powers at the beginning were based upon trade and merchandising. Later the discovery of mineral and other natural resource wealth added immensely to that power (i.e. Spain’s New World empire). To compete, the British used their abundant energy resources to power their development of industrial power to gain economic advantage, still in a mercantile fashion in competition with the Spanish and Dutch. This success of the British in powering industry to gain economic power which in turn became supportive of projection of military and naval power and was soon copied also successfully, so successfully that there became a balance of great powers and competition between great powers became so expensive as to require coalitions of powers. Those coalitions of powers failed in 20th century wars to dominate through the force of war, attrition became the only means of defeating the opposing coalition.

    What becomes obvious in this history is the application of economic wealth to military ends to project power is the root cause of the loss of the economic wealth and empire. It would seem obvious that projection of (political) power, if avoided, would likely preserve economic power. It is striking the historical relation of energy use and power status. Do away with status and that tax on the economy, and energy use can be applied to maintenance of economic process, providing economic income at a reduced level of energy requirements. That is if the ecological damages don’t fry civilization first.

  45. October 26, 2010

    MMT is just the discovery that money is a spreadsheet and you can add money to one column if you want.

    uh, no — that much i do know. seriously ian. have you read randy wray’s book, Understanding Modern Money? it’s only a start, but it’s a very good place to start.

  46. anon2525 permalink
    October 26, 2010

    Welcome back to commentary, selise. (No, I don’t know you personally — just a long-time reader of your comments and postings.)

  47. Ian Welsh permalink*
    October 26, 2010

    I’ve read a number of pieces on MMT, some quite long, but not the book, no. The policy prescriptions they push amount to “print money and go to full employment”.

    It won’t work in the US, because the key resources, most especially oil, are not domestically produced and the window to fix the economy is longer than you can print money for without devestating effects from other international actors with unilateral levers to pull.

    More specifically, the oilarchies will stop pricing and selling oil in dollars or will spike the price through the roof in dollars. You will end the dollar hegemony. The Yuan will become the dedault currency. Other than military goods, there is hardly anything that /must/ be bought from the US anymore, and there are ways to get those goods without pricing oil in dollars.

    Perhaps I should read the book, and do a full take down, but frankly, I have better things to do, since nothing is harder to stop than the wrong idea whose time has come, especially when it seems pain free and since blogging isn’t my job any more. None of this is to say that MMT doesn’t have some really valuable insights (in particular about how money is actually created by the banking and shadow banking systems, not by central banks and about how sovereign defaults occur) but it is incredibly divorced from the real economy. Money is not identical to real economic activity, and MMT has real problems dealing with this.

    MMT is a piece of the answer, but it is not the whole answer, and half answers in such matters can do incredible damage. I have sympathy for those who want MMT, the “well, if right wingers like Obama can print money to bail out bankers, why can’t we print money to do what we want” is attractive, but it won’t work in the end.

  48. anon2525 permalink
    October 26, 2010

    What becomes obvious in this history is the application of economic wealth to military ends to project power is the root cause of the loss of the economic wealth and empire. It would seem obvious that projection of (political) power, if avoided, would likely preserve economic power. It is striking the historical relation of energy use and power status. Do away with status and that tax on the economy, and energy use can be applied to maintenance of economic process, providing economic income at a reduced level of energy requirements.

    Although it may well have been true historically that governments and countries hurt themselves through the waste of resources by their military forces, it would not matter today whether the U.S. was squandering fossil fuels on military invasions and occupations or not. In less than 200 years of use, the world’s economies have nearly burned through the one-time supply of fossil fuels. It’s not a U.S. economic problem — it is a problem with providing energy for industrialized economies and transportation systems. Germany and Sweden will be hurt by this in the same way that the U.S. and China will be. They’re all using the same fossil-fuel energy base that the industrial revolution started with, and now it needs to be replaced.

  49. October 26, 2010

    ah, ian, maybe a light bulb just went off for me while reading your comment that begins, “I’ve read a number of …”

    maybe, at least some of the misunderstandings that appear to have propagated are because MMT is a paradigm and NOT a set of policy prescriptions, let alone “the answer.” different people, depending on their politics, values, etc. can and do advocate for different policies while still being “in paradigm” (iow, MMT consistent).

    re: “Money is not identical to real economic activity..” this is exactly what i have gotten from reading MMT specialists (not, “it [MMT] is incredibly divorced from the real economy.” or, “MMT has real problems dealing with this” — in fact, just the opposite.). below are a couple of small examples with links (and that include mention of your issue re: “key resources, most especially oil”) to statements by MMT specialists. i’m sure there are many better ones that will strike me later….

    here is jamie galbraith (just the first example that popped into my head):

    …in the present state of the world economy, and for the foreseeable future — and except for the energy sector — surely a small rise in the inflation rate is a trivial risk.

    My position is that the government should focus on real problems: unemployment, care for the aging, energy, climate change, and the disaster in the Gulf of Mexico.

    The so-called long-term deficit is not a real problem…

    and warren mosler via google:

    …the composition of output is critical, and we need to grow gdp in directions that don’t increase energy consumption, and preferably decreasing it….

    although i would love to read a post or posts from you re randy wray’s book after you’d read it, i can certainly understand why you might not want to invest the time. life is short and there are many interesting and important things to do. my loss.

  50. October 26, 2010

    howdy backatcha, anon2525.

  51. Ian Welsh permalink*
    October 26, 2010

    Unilaterally printing money in ways which create resource inflation (and it will, if it is actually creating economic growth that is widespread) will create a reaction from other nations. They will not allow the US to do so without using their own levers, because the cost of resources goes up extremely with relatively small increases in demand right now.

    Inflation isn’t just a risk, it is already here, in various resources. Meso-inflation matters, not just macro inflation. When food and fuel prices go up, ordinary people get slaughtered and the US economy shudders apart.

  52. anon2525 permalink
    October 26, 2010

    worth repeating*:

    My position is that the government should focus on real problems: unemployment, care for the aging, energy, climate change, and the disaster in the Gulf of Mexico. — James Galbraith

    In other words, an economist who is saying the problems we face are not in the realm of economics. Someone who is able to raise his head above the trees of his profession and see the forest of the world around him.

    *yet again

  53. October 27, 2010

    …and it will, if it is actually creating economic growth that is widespread…

    has nothing to do with the MMT paradigm specifically and MMT specialists do not ignore energy bottlenecks (see galbraith’s quote above, which includes the qualifier: “except for the energy sector”)

    insofar as it’s an issue, it’s one of creating widely shared prosperity without addressing resource bottlenecks. at least that’s what i think you are saying and i don’t disagree — except for the MMT connection.

    sort of an aside, the last few years commodity markets have apparently been strongly influenced, not so much by demand for the actual commodities, but by the actions of institutional investors (hedge funds, pension funds, etc). see, for example, mike masters’ testimony before congress here and here and also randy wray’s “Money manager capitalism and the global financial crisis” which cites masters’ work/testimony.

  54. Ian Welsh permalink*
    October 27, 2010

    Then the MMTers need to stop pushing policies which won’t work.

  55. beowulf permalink
    October 27, 2010

    Good to see you around Selise. As you well know, I’m a fan of MMT, certainly it better explains how the US economy works than either the New Keynesian or neoclassical models, but I think the Levy Institute’s iteration of it makes the valuable addition of viewing the trade deficit as a weakness and not a strength. To that end, they endorsed Warren Buffett’s import certificate plan to reduce the trade deficit. The Levy Institute report pdf linked below suggests replacing Buffett’s cap and trade market with Tsy auctioning off import certificates and using the revenue to reduce payroll taxes. And yeah, we should probably exempt oil imported from Canada, from a national security perspective, oil from Alberta is as secure as oil from North Dakota. Politics being what it is, a cap and trade system would do a world of good and since the revenue flows stay in the private sector and off the govt budget, its a much easier sale politically.
    http://www.levyinstitute.org/pubs/wp_538.pdf

    If the government started “printing” money instead of simply outsourcing its seigniorage power to banks (who’ve been printing money every day for decades), we could start filling the output gap which is hobbling the economy. To deal with the inevitable inflationary expectations, there’s another cap and trade system worth considering, the “market anti-inflation plan” (MAP) proposed towards the end of his life by Abba Lerner and his protege David Colander (which was endorsed by Nobel Laureate and all around good egg William Vickrey). I’ve linked below a paper Colander wrote about Vickrey that discusses how a MAP would work (p. 7 of pdf).
    http://community.middlebury.edu/~colander/articles/William%20Vickrey%27s%20Contribution%20to%20Economics.pdf

  56. Formerly T-Bear permalink
    October 27, 2010

    @ anon2525, comment 10753

    That which you quote is my summary of a 540 page, extensively end noted and bibliographed book (obtained through BOMC) which mentioned the role of energy utilization in the economic process of projecting national power and as a measure of the economic power supporting military establishments. The observations were germane to your argument, added depth and further substance to your opinions as well. My role is solely to bring the work to attention, you will have to take up your disputations with the author or a greater authority than myself. If a guess were to be hazarded, three quarters of all energy used by the US is expended upon economically frivolous pursuits. This may scuttle your argument though, concerning energy. Yes, the low hanging fruits have all been used, however that is not the end of things which will happen when a barrel of oil is needed to obtain a barrel of oil. Your milage obviously differs, but then I am not the one asserting to have all answers to everything.

  57. anon2525 permalink
    October 27, 2010

    My role is solely to bring the work to attention, you will have to take up your disputations with the author or a greater authority than myself.

    OK. Thank you.

  58. anon2525 permalink
    October 27, 2010

    Unilaterally printing money in ways which create resource inflation (and it will, if it is actually creating economic growth that is widespread)… — Ian Welsh

    Krugman’s latest WEITW

    Higher commodity prices will hurt the recovery only if they rise in real terms. And they’ll only rise in real terms if QE succeeds in increasing real demand. And this will happen only if, yes, QE2 is successful in helping economic recovery.

    So many ‘ifs’. I’m looking around trying to find Truman’s one-handed economist.

  59. Formerly T-Bear permalink
    October 27, 2010

    Somewhat OT, it is another lie that will come home to roost in the next four years, adding another environmental disaster to the political disaster and the economic disaster. People warned that what was happening in the Gulf of Mexico was unacceptable. Al Jazeera has a report of the consequences here:

    http://english.aljazeera.net/indepth/features/2010/10/20101027132136220370.html

    Probably bookmarkable.

  60. October 27, 2010

    anon2525: lol, that’s what i get for not keeping up.

    ian: well, i guess i’ll just have to hope that you do eventually read at least wray’s book and then write some serious analysis/critique on MMT (the paradigm) for discussion.

    beowulf: howdy and thanks for the links (although please don’t feel slighted if it is awhile before i get the chance to read them — they are printing now and will go on my “to read” pile with your handle for reference).

    re the current account deficit. i get the political problem that the fed gov is unlikely fill the demand gap and that’s a problem at home, but won’t attempting to decrease it export deflationary pressures onto the rest of the world so long as the US dollar maintains its reserve status and there is foreign net saving in US dollars? (i asked bill about this about a year ago — so, i don’t think i’m completely off base — but, as always, i could very well be and unfortunately i can’t seem to find the link to my question at billyblog.) what could work to fill the global demand gap if our current account deficit was brought to near balance other than a different kind of reserve currency?

    i don’t see an answer that doesn’t involve a different kind of reserve currency — and even if one could be devised, there is no way we have the institutional structures to do it (the imf? that’s not a joke, that’s a death sentence) and i can’t imagine anything but an awful transition.

    anyway, lots more reading for me before i will have a chance to productively think further on this….. hope i get the time.

  61. October 27, 2010

    p.s. to beowulf: i did get godley and lavoie’s book (used at a great price), monetary economics, thinking it might be useful if, as i though, levy institute’s modeling work is based on the work godley did there. haven’t read it though. there’s a lot on my “to read” pile and it just keeps getting higher while i read almost nothing the last few months.

  62. anon2525 permalink
    October 28, 2010

    re the current account deficit. i get the political problem that the fed gov is unlikely fill the demand gap and that’s a problem at home, but won’t attempting…

    I don’t want to weigh in on whether the economic reasoning around this is right or wrong, but I do think that it is wrong-headed, or playing into the hands of those who do not want the gov’t. to do anything about the economic plight of the middle class and poor. I have written this before in several previous posts, but as Ian Welsh likes to say, “repetition”…

    By arguing about how the fed. gov’t. should react to the economy in terms of how it should pay (or not), we remain stuck (as many desire) at step 1: Deciding how to pay for any gov’t. expenditure and therefore never actually spending. The steps are:

    Step 1: Figure out how to pay — In which many argue that we can’t pay or can’t decide how to pay.

    Step 2: Decide what programs to spend the money on — “No point in taking this step; there’s no money to spend.”

    Step 3: Employ people to work in the programs — “Can’t employ people when we don’t have programs or money!”

    “Gosh, we’d like to help you with your unemployment and losing your house and your food and stuff. And we will, we will — just as soon as we decide how to pay for any programs. Don’t call us, we’ll call you.”

    This is the reverse of what is done in, for example, recent military actions.

    Step 1: Employ people in the military

    Step 2: Decide to invade a country that hasn’t threatened us and which has no weapons to threaten us. Commence shocking and awing.

    Step 3: Figure out how to pay for the invasion and occupation (well, that step still hasn’t been completed — in the meantime, “emergency, off-budget” bills will provide the funds).

  63. beowulf permalink
    October 28, 2010

    Selise, I know what you mean by too much in the to-read pile, and I won’t feel slighted in the least if those articles are put in the bottom of the pile. I included the links in case you (or other readers here) have an interest and the time to read more.

    You’ve asked a very good question concerning the US’s role as reserve currency, you’ve drilled down on this issue more than I have, so I don’t have a solid answer beyond that I don’t see it going anywhere. Moving away from a dollar hegemony would lead to a swift devaluation of the dollar. Besides making US exports more competitive and foreign imports less so, devaluation would instantly crater the value of those trillions in dollar reserves held by our creditors. So those creditor nations unhappy with the current arrangement are like the country song says, darned if they do, danged if they don’t. Not sure what impact the Warren Buffett plan would have on this. I suppose its worth emailing the Levy Institute authors of Buffett paper above for their comments.

    Speaking of which, Wynne Godley, who passed away earlier this year, wrote several excellent papers for the Levy Institute worth checking out (more reading, sorry Selise!). His Monetary Economics book goes pretty far into the weeds, but he has two papers that summarize his book’s economic theory, “Prolegomena to Realistic Monetary Macroeconomics” and “Fiscal Policy in a Stock-flow Consistent (SFC) Model”. For the most part, the rest of his papers at the link were his warnings to the US and UK that their trade deficits are too big.
    http://www.levyinstitute.org/publications/?auth=104

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