President Obama has announced a White House Jobs Summit for next month. At least that's the beginning of recognition that the unemployment rate is unacceptable. The measured rate is now 10.2 percent, but if you count people who have given up or who are involuntarily working part time, the real rate is over 17 percent.

This spells political catastrophe for Democrats in the 2010 mid-term election, as foreshadowed by the recent losses in the New Jersey and Virginia governors' races. But Obama's top economic advisers, such as Larry Summers, don't seem to get it. They continue to resist the idea of a second stimulus package.

"I think we got the Recovery Act right," Summers recently told the Washington Post's Alec MacGillis, adding, "We always recognized that America's problems were not created in a week or a month or a year and that they were not going to be solved quickly. We designed the Recovery Act to ramp up over time, through 2010, and to make sure that the investments we made were important for the country's future."

And other senior Obama officials such as White House Chief of Staff Rahm Emanuel and Office of Management and Budget Chief Peter Orszag are more concerned with cutting the deficit than spending more money to reduce joblessness. According to the Wall Street Journal, Orszag is sympathetic to the idea of a commission to cap government spending and Emanuel is floating the idea of spending some of the money that has been repaid from TARP bank bailouts on deficit reduction.

But this is putting the cart before the horse. We need larger deficits now, in order to get a real recovery going, so that a healthy economy will allow us to pay down public debt later. Specifically, we need to focus on three big things:

State and Local Fiscal Relief. You often hear that outlays on public infrastructure are not a good source of stimulus because they take too long to plan. But emergency revenue sharing to states and localities takes effect almost instantly because it prevents cuts in existing programs and layoffs of existing workers. Today, states and localities are not only cutting back outlays because their constitutions require balanced budgets; they are raising taxes, usually regressive taxes. According to the Center on Budget and Policy Priorities, the three year state fiscal gap 2010-2012, will be at least $470 billion. So more than half of the federal stimulus is undermined by state and local belt tightening.

Accelerated Spending on Public Works. The Roosevelt administration, in an era before computers, got a lot of public works spending going in less than a year. There are massive unmet needs in public infrastructure. The Obama administration needs a short term and a long term strategy. Projects such as school repair and expansion, which can get underway in a few months, should get fast-tracked funding commitments right away. Longer term needs, such as smart electrical grids and modernization of water and sewer systems, expanded mass transit, and green energy, should be targeted for funding in 2011, so that plans can get on the drawing boards now.

Wage Subsidies. It is fashionable among American conservatives to make fun of the "rigidity" of European labor markets. But Germany today has a flexible and creative program of wage subsidies. The result is that the German unemployment rate has pealed at around 8 percent while ours has crashed through 10 percent. German companies suffering a downturn because of recession can get wage subsidies for their workers. Workers can also be put on reduced working time (kurzarbeit) and the German unemployment office will make up most of the loss in their take-home pay. According to the German government, a worker cut to 40 percent of his or her normal hours will end up with about 85 percent of usual take-home pay. Today, some 1.4 million German workers have been able to keep their jobs and most of their earnings thanks to the kurzarbeit plan. German firms keep their workers connected to the company, workers hold on to their jobs, and there are also incentives for workers on reduced time to use their spare hours to get additional training.

All told, we need additional federal spending in the range of at least $500 billion. But won't this increase the deficit? Yes it will, and that is the whole point. We are in a classic downward spiral of reduced household income and wealth, and a weakened financial sector. Many businesses face reduced consumer demand, compounded by a reluctance of banks to advance to any but the most blue chip borrowers.

In this climate, GDP growth can turn positive but companies are reluctant to hire. Full recovery will not resume spontaneously based on household or business demand, and the only source of increased demand to break the cycle is the government.

One of the most widespread and mistaken assumptions is that this bleak future is just baked into the cake. Because of the legacy of the financial collapse, and the limits of deficit spending, supposedly, we are just stuck with it. You hear that in testimony from Federal Reserve Chairman Bernanke, and it is repeated mindlessly by the media.

This fatalism is just plain wrong, and history's great counter-example is World War II. In 1939, unemployment was stuck around 16 percent. GDP growth after 1933 was solid — 6 to 10 percent a year with the exception of 1937 — but the wounded economy was just not generating net jobs. Many expert commentators of that era concluded that there was something about the maturity of capitalism, or the replacement of human workers by machines, that consigned the economy to a chronic structurally high, rate of unemployment.

Then World War II broke out. The US government borrowed huge sums to recapitalize US industry and re-employ and retrain US worker in war production, to employ 12 million men and women in the armed forces, and to invest massively in science and technology to develop advanced weapons and substitutes for materials in short supply. The unemployment rate dropped to 2 percent by 1943. Deficits were enormous, as high as 29 percent of GDP in 1942 (this year they will be about 10 percent) but the economy grew at 12 percent a year for the four years of the war, and the high unemployment of the 1930s never returned.

The deficit hawks of that era worried that the very large national debt would be a millstone around the economy. At the end of 1945, the debt was 122 percent of GDP, compared to about 55 percent today, but of course the end of 1945 was the beginning of the 25 year postwar boom — the longest sustained boom in US history. GDP grew at 3.8 percent a year. The average deficit was about 1.1 percent, and with the economy growing much faster than the debt, the debt to GDP ratio declined to about 30 percent by the 1970s. So, we can grow our way out of debt — but we need to get a real recovery going first.

If past Obama White House Summits are any guide, this one will invite a broad cross section of people: trade unionists and deficit hawks, investment bankers and labor economists, industrialists and Republicans; and everyone will speak of the importance of their pet project for job creation. That's not good enough. This is not a moment for another White House gab fest. It's a time for progressive leadership.

This article was originally published on The Huffington Post.

What a long, strange year it's been since Election Night 2008. Whatever this administration has represented so far, it has not yet delivered change we can believe in.

We need a radical break with Wall Street, and we got the politics of prop up and bail out — with the result that most Americans don't think the program is benefiting them.

We needed President Obama to focus like a laser on economic recovery, and instead we got the distraction of a barely-worth-it health insurance patch. We needed the president to go to the country and win support for fundamental health reform, and instead we got Rahm Emanuel's deal with the drug and insurance industries that won House support by the barest of majorities and managed to frighten senior citizens — the most satisfied customers of our one public option — Medicare.

We needed a recovery program that held down unemployment, and instead we got a stimulus that even the Obama team considered too small at the time of its enactment, according to the reporting of The New Yorker's Ryan Lizza.

And now we are on the verge of Barack Obama's very own Vietnam, in an escalating Afghanistan entanglement.

The 2009 off-year elections were a repudiation of incumbents — only now the incumbent party is the Democrats. Popular cynicism about government representing the interests of insiders and economic elites is even more extreme now than in November 2008, when the desire for drastic change thrust Obama into the White House. If present economic trends continue, the Democrats could lose control of the House in 2010, setting up a repeat of Bill Clinton's period of "triangulation," but with an even more lunatic-fringe obstructionist Republican Party.

Yet, as a friend points out, if you had evaluated John F. Kennedy in November 1961, a year after his election, you would have adjudged him pretty much a failure. His administration began with the disastrous Bay of Pigs invasion. Kennedy did not have firm control over his nominally Democratic majority in Congress (despite almost identical partisan margins as Obama's). He did not make an effective impression on Nikita Khrushchev at their Vienna Summit, and the Soviet Cuban Missile offensive followed. But by late 1963, Kennedy had begun the turn to détente, and he managed to lay the groundwork for the civil rights and antipoverty revolution that his successor, Lyndon Johnson, delivered.

So, can Barack Obama recoup, and can he recoup in time?

If you look at what most historians regard as Kennedy's finest hour, his leadership of the Cuban missile crisis of October 1962, you appreciate that Kennedy above all had to face down most of his own advisers. Most wanted a military confrontation with the Soviets. But the brothers Kennedy found an alternative to either war or surrender.

Obama, like Kennedy, needs to overcome the dubious counsel of his own advisers, this time both economic and military. With unemployment still rising to levels the administration did not anticipate, Messrs Summers and company are still opposed to a second stimulus, and the White House is mainly concerned with appeasing the budget hawks.

The president needs to listen to other voices, including his own. He needs to go to the country with a much stronger jobs program, to show people that his administration is on their side. He could take the TARP money that has been repaid by the banks and put it directly into mortgage foreclosure relief, as well as insisting that sub-prime bondholders take the same kind of write-down as auto-company bondholders. He could ask Congress for additional fiscal relief to the states, whose budget collapse is still worsening, undercutting the existing federal stimulus. Deficit reduction can come once the economy is back on track.

On Afghanistan, instead of the seemingly inevitable troop escalation that will please nobody and fail to alter events, he could pursue a policy of pressing the Karzai regime harder for reforms while helping Karzai keep the Taliban from taking control of Kabul and northern provinces — and using a small troop presence of 20,000 or less to keep al Qaeda off balance. He could firmly reject getting dragged piecemeal into a war that will only be a quagmire. The Republicans would rattle sabers but most Americans would cheer.

Some of what Obama has faced was beyond his control. Nobody said digging out from the financial catastrophe would be easy, or that fashioning a viable policy for Afghanistan would be a cakewalk. Taming a Democratic majority that included Blue Dogs obsessed with fiscal balance and New Dems in bed with Wall Street was not exactly child's play either. But events did not require him to appoint an economic team headed by Larry Summers and Tim Geithner, or to reappoint Ben Bernanke as chairman of the Fed, or Rahm Emanuel as his chief of staff, or to favor the escalation faction in his Afghanistan advisers. Events did not require him to play an inside game with powerful industries instead of taking a case for radical reform directly to the people and offering a Rooseveltian program too popular to oppose.

From the day he declared for the presidency — indeed, from the day he declared for the Illinois state senate — Obama has displayed an audacity, a decency, an idealism, and an eloquence that gave us hope that here was a great president. But as chief executive, he has seemed buttoned up and damped down while a great crisis threatens to envelop the country and his presidency. He had the audacity to run and to win. Now, will he have the audacity to learn and to lead?

 
This article was originally published on The Huffington Post.

As unemployment continues to rise, deficit hawks are upping their efforts to use the economic crisis as a pretext for gutting basic social programs such as Social Security and Medicare. The idea keeps surfacing for a bipartisan deficit-reduction commission, supposedly insulated from politics, which would agree to mandatory caps on spending and perhaps increased taxes as well. Social programs would take the biggest hit. Congress would then take an up or down vote on the whole package.

The latest ploy to promote such a commission is to use the upcoming vote on increasing the national debt, scheduled for late November. Democratic deficit hawks such as Sen. Kent Conrad of North Dakota are working with Republicans such as Judd Gregg of New Hampshire, to condition an increase in the debt on creation of a panel. They have some allies in the White House such as Office of Management and Budget Director Peter Orszag, who has intermittently signaled support for such a plan. The Senate Budget Committee will be holding hearings on this idea in mid-September, according to The New York Times.

The whole approach is bad economics and bad politics on several grounds. First, there is no evidence for the premise that financial markets are anxious about the rising debt. As Dean Baker observes, they keep buying the Treasury's long-term bonds at a low 3.5 percent interest rate. If there were worry that the increased debt would spike inflation, investors would be demanding higher interest rates.

Secondly, it is not "entitlements" that have caused the big increase in the deficit and the debt. The cause is plummeting tax collections as a consequence of the recession. Social Security will be surplus for another generation, and both the House and Senate versions of the health reform bill do not add to the deficit, but help cut costs.

Third, obsessing about debts and deficits when the economy is still losing jobs has it exactly backwards. We probably need bigger deficits for a year or two, to propel a strong recovery. Higher growth will then bring the debt back down to tolerable scale. In World War II, deficits averaged about 25 percent a year (compared to under 10% this year.) But all of that war spending rebuilt the economy and powered three decades of economic boom and the big wartime debt was soon paid off.

Finally, the idea that such a commission could be "above politics" is a deception. The politics–very conservative politics–would be baked into the cake. Republicans on it would resist higher taxes except perhaps for regressive ones such a national sales tax or value added tax. The skids would be greased for deep cuts in Social Security, Medicare, and Medicaid–even before health reform took effect. This would gut all the promises candidate Barack Obama made for a more just America.

Instead of being Mr. Consensus, and trying to please both sides, President Obama needs to weigh in strongly against the idea of a commission before it gains further traction. The House Democratic leadership, mercifully, thinks the commission is exactly the wrong medicine, and has told the White House so.

I spoke with House Speaker Nancy Pelosi on Friday. She favors a plan to increase spending as necessary in the short run to fight the recession, and then significant deficit-reduction once recovery comes–but not via a commission. "Let's have a public conversation in the people's House and in the Senate. This is a very important debate, and is shouldn't be done behind closed doors," she told me, adding: "My responsibility is to protect Social Security and Medicare. If some of the people at the table are opposed to protecting Social Security and Medicare, I'd have big problems. Congress passed these programs in the 1930s, and the 1960s. Why should we give someone else the power to decide their future?"

Amen.

The press for a debt-reduction commission, promoted by scare-mongers such as the Peter G. Peterson Foundation, is really an attack on social insurance masquerading as principled concern for the public fisc. It wasn't entitlements that caused the crash–it was financial high rollers who pushed for deregulation and then exploited it, such as Peterson and his friends.

If you can believe it, the latest gimmick of the Peterson Foundation is an invitation to compose haiku on the alleged fiscal crisis. I kid you not. Here's what the foundation recently sent its supporters:

Hello,

As one of our most active supporters, you've proven your commitment to the Peter G. Peterson Foundation's work time and time again. We're grateful for all you've done — and we're excited to offer you a sneak peek of our newest initiative, Fiscal Haiku.

The site doesn't officially launch for a few more days, but we're inviting you to take a look before the rest of the country. Below is a copy of the message we'll be sending out for Fiscal Haiku's formal debut — please visit www.fiscalhaiku.com and start submitting your odes to the economy!

Thanks,

The Peter G. Peterson Foundation

Okay, Pete. Here is my own entry:

Spreading fiscal fear,
ideology parades
as principle. Shame!

Robert Kuttner author of Obama's Challenge, co-editor of The American Prospect, and a senior fellow at Demos.

 
This post was originally published on The Huffington Post.

If the unemployment numbers keep rising into 2010, the Republicans are primed to pick up dozens of seats in the House, crippling the Obama administration's capacity to recoup in the second half of the president's first term. Obama would lose his very tenuous working majority and would confront a situation very much like the one Bill Clinton faced after the Republican gains of 1994, when he worked even more closely with Republicans in order to save his own skin. If you liked triangulation Clinton-style, wait for Rahm Emanuel's version of it.

The most recent employment numbers were bad enough on their face — 263,000 job losses in September, and a measured increase in payroll employment to 9.8 percent. But the real numbers are much worse. The nominal rate conceals the fact that the labor force is 615,000 workers smaller than it was a year ago, even though the working age population continues to grow. People who can't find jobs and quit looking are no longer counted as part of the labor force. If normal labor force growth had continued, the unemployment rate would be close to 12 percent. See the analysis of the numbers by the good people at the >Economic Policy Institute and the estimable Dean Baker. The administration's people know this reality, and they are aware of the political risks. So what are they doing? Precious little.

I had a conversation with a senior administration economic official last week and I asked him to suspend disbelief and consider a large increase in public spending to create more jobs. What would he spend the money on? We discussed the pro's and con's of emergency fiscal aid to the states versus a tax credit for job creation in the private sector, subsidized job-sharing, and direct public works employment. But it was clear that the administration considers a Stimulus II a non-starter. The view is shared by Fed Chairman Ben Bernanke, who testified last week that there was not much we could do about rising unemployment except wait it out.

This is economically deplorable and politically self-defeating. When the administration considered its $787 billion stimulus bill last winter, its projection was that unemployment would peak at 8.9 percent. It's clear that joblessness is going to be a lot worse, and nobody has a convincing story about where the new jobs are going to come from once economic growth turns positive. Time magazine recently ran a cover story suggesting that we might just have to get used to a new reality of persistently high joblessness, and compensate with other policies such as more heroic job training (but for non-existent jobs?)

But that view is malarkey. Economists were making the same argument in 1938 and 1939. The economy, supposedly, had reached a level of maturity and technological sophistication that there just weren't enough jobs. Unemployment was just stuck around 15 percent. Then along came World War II. The federal deficit rose to 29 percent of GDP (this year it will be about 11 percent) and unemployment disappeared.

The president should be making the case for increased deficit spending on job-creation in 2010 and 2011, followed by a program of deficit reduction financed by progressive taxation. Public opinion on these issues is not static, and in fact a recent poll done by Hart Research Associates for EPI shows that the public cares a lot more about joblessness than it does about the deficit. 53 percent of respondents said lack of jobs was the most important issue, but only 27 percent said the deficit was. Fully 83 percent sand that unemployment was a big problem, and just two percent said it was not a problem. Presidential leadership could make a huge difference in translating these attitudes into action.

The Blue Dog Democrats in Congress are opposed to larger deficits, but many of them would support a ten-year program of more public outlay now coupled with deficit reduction after recovery comes. Unfortunately, a lot of Washington's centrist savants are skipping directly to the deficit reduction, overlooking the fact that we are still a long way from recovery. As EPI was holding a conference releasing the results of its research, the more moderate Center for American Progress (CAP) was holding a big event on alarm about the national debt. CAP President John Podesta, former director of the Obama transition team, is an enthusiast of value-added taxes as deficit-reduction medicine.

My own view is that VAT's are highly regressive taxes on consumption. I could go along with them if they were part of a deal that included progressive taxes such as a tax on financial transactions and if some of the money went to expanding public services rather than just reducing deficits. But this is only half of the conversation, and the less urgent half. Unless we get a bigger recovery going, and get unemployment down well before the 2010 mid-term elections, all this center-left policy wonkery will be beside the point because the Republicans will be running the country.

 
This article was originally published on The Huffington Post.

You know how far politics has swung to the right when the most left wing guy in the room is the former chairman of the Federal Reserve. But that's what financial reform has come to.

Paul Volcker was an early backer of Barack Obama. He counseled Obama on one of the best speeches of his campaign, his March 27, 2008 address on financial reform at Cooper Union, and sat in the front row as Obama delivered it. This was the speech where Obama declared that no corner of the financial system should be unregulated. And when Obama clinched the Democratic nomination, Volcker was introduced as a senior advisor.

But when it came time to allocate the jobs, the people with the real power managed to freeze out the grand old man of finance. Volcker, who had been touted as a possible treasury secretary, ended up chairing an advisory panel with little influence, the President's Economic Recovery Advisory Board, and for the most part his phone doesn't ring. The board, appointed last year, did not even have its first meeting until May 20.

Yet Volcker has continued to speak out, and he is worth listening to, even if the White House is ignoring him. In his recent testimony before the House Financial Services Committee, Volcker made it clear that he had serious reservations about the recent administration and Federal Reserve policy of propping up financial institutions deemed "too big to fail." Volcker said that the actions amounted to an unintended and unanticipated extension of the official "safety net," an arrangement designed decades ago to protect the stability of the commercial banking system. The obvious danger is that with the passage of time, risk-taking will be encouraged and efforts at prudential restraint will be resisted. Ultimately, the possibility of further crises — even greater crises — will increase.

Volcker explicitly challenged the very centerpiece of the administration's proposed reform program, the idea of focusing on "systemically significant institutions," which presumably would come in for additional supervision, but would be rescued if they got into trouble. Volcker said:

The approach proposed by the Treasury is to designate in advance financial institutions "whose size, leverage, and interconnection could pose a threat to financial stability if it failed." Those institutions, bank or non-bank, connected to a commercial firm or not, would be subject to particularly strict and conservative prudential supervision and regulation. The Federal Reserve would be designated as consolidated supervisor. The precise criteria for designation as "systemically important" have not, so far as I know, been set out. However, the clear implication of such designation, whether officially acknowledged or not, will be that such institutions, in whole or in part, will be sheltered by access to a Federal safety net in time of crisis; they will be broadly understood to be "too big to fail."

Think of the practical difficulties of such designation. Can we really anticipate which institutions will be systemically significant amid the uncertainties in future crises and the complex inter-relationships of markets? Was Long Term Capital Management, a hedge fund, systemically significant in 1998? Was Bear Stearns, but not Lehman? How about General Electric's huge financial affiliate, or the large affiliates of other substantial commercial firms? What about foreign institutions operating in the United States?

And, without using the words, Volcker in effect called for a restoration of the core principles of the Glass-Steagall Act, separating commercial banking from investment banking and proprietary trading. He said:

As a general matter, I would exclude from commercial banking institutions, which are potential beneficiaries of official (i.e., taxpayer) financial support, certain risky activities entirely suitable for our capital markets. Ownership or sponsorship of hedge funds and private equity funds should be among those prohibited activities. So should in my view a heavy volume of proprietary trading with its inherent risks.

Volcker made similar remarks in a speech in Los Angeles earlier this month. The point is that there is an entirely orthodox view of how to reform the financial system well to the left of the administration's. Similar criticisms have been made by progressives like Paul Krugman and Nobel Laureate Joseph Stiglitz, as well as relative conservatives such as former World Bank chief economist Simon Johnson. But it doesn't get much more orthodox than Paul Volcker.

As Congress deliberates the details of financial reform, several of the key elements of the Obama program fall short — the idea that "systemic risk regulation" should just be bucked to the Federal Reserve; that immense financial conglomerates are perfectly fine as long as the Fed is keeping an eye on them — the same Fed that totally missed the sub-prime disaster and that is owned by its member banks; the acceptance of the premise that customized derivative securities need not be traded on exchanges; the continuing toleration of the business models of behemoth financial conglomerates such as Goldman Sachs, which mix investment banking, hedge-fund speculation, proprietary trading for their own accounts, and commercial banking — making them walking conflicts of interest.

Last week, there was a revealing skirmish on the House Financial Services Committee. The administration blueprint for reform, issued last June and currently being debated in several Congressional venues, includes a Consumer Financial Protection Agency (CFPA). In the draft sent to Congress, the proposed Agency had the authority to require that in addition to marketing other, more complex and risky retail products, banks and other institutions would be required to offer "plain vanilla" products. For example, a bank that marketed more lucrative and risky adjustable rate mortgages would also have to offer a traditional 30-year fixed rate mortgage. A similar "plain vanilla" requirement has been part of New York State banking law for three decades.

But when the White House endorsed the idea, the banking lobby went berserk. It targeted members of the Financial Services Committee, offering campaign contributions to friendly legislators and threatening to support the opponents of pro-consumer members. On September 22, Chairman Barney Frank sent his colleagues a letter declaring that he would oppose any "plain vanilla" language, adding that in his draft of the bill: "Financial institutions will not be required to offer plain vanilla products and services and CFPA will not have the authority to approve or change business plans."

Testifying the next day, Treasury Secretary Timothy Geithner, never an enthusiast of the proposed consumer agency, said Frank's changes were fine with him. But of course, the whole point of consumer regulation is to require banks to "change business plans" when those plans are built around insane products such as sub-prime loans or usurious credit cards. The bill is not even out of committee and the bankers' lobby is having its way.

If the American financial system needs anything, it needs a lot more plain vanilla — fewer products of Byzantine complexity that serve no economic need other than the profit of their sponsors, less excessive risk, and more service by financial institutions to the real Main Street economy. We should be paying a lot more attention to plain vanilla type guys like Paul Volcker.

 
This article was originally published on The Huffington Post.

One prime cause of the financial collapse is that financial trading markets have become speculative worlds unto themselves. Instead of adding efficiency to the real economy, they mainly add risk that the rest of us now have to pay for.

There are many ways to damp down financial speculation, but a very effective strategy is to tax it. Given the huge costs of the clean-up (now being borne mainly by taxpayers) it would make a lot more sense to require financial markets to pay for their own bailout.

One very neat way of doing this is through a very small tax on all financial transactions. Ordinary retail sales are taxed, as are wages. But oddly enough, financial transactions are exempt from tax.

This idea was first proposed in modern form by the Nobel Laureate James Tobin in 1972, after the collapse of fixed exchange rates led to massive increase in currency speculation. Tobin proposed a small tax on short term currency trades to make extreme speculation less profitable.

Since them, short term speculation and the invention of exotic securities that lend themselves to speculation has become the dominant activity of Wall Street. So a Tobin-style tax on all financial transactions has three big things going for it.

First, a very small tax in all kinds of financial transactions, say one tenth of one percent, would not be felt by legitimate long-term investors. But in the case of traders who get in and out of exotic derivatives minute by minute, making huge numbers of quickie trades, it would add up to a lot of money and would cut into both their profits and their entire socially destructive business strategy. So a universal financial transaction tax would discourage purely speculative activities and encourage investing for the long term.

Second, such a tax could pull in hundreds of billions of dollars a year, at a time when large deficits are giving the political right (and center) an excuse to cut social spending, and no form of taxation is popular. But this tax would be the least unpopular. It would not just fall primarily on the very, very wealthy. It would fall on the least socially defensible part of Wall Street, the people who make their billions from speculative short term trades. And that raises the third benefit.

What's missing from the entire debate about financial reform is a progressive brand of populism. Regular people know that they got done in by excesses on Wall Street, and they see a Democratic administration shoveling trillions of dollars to the same Wall Street banks that caused the mess. No wonder people are confused about whether government is on their side. What is overdue is a little bit of populist retribution against the people who brought down the system — and will bring it down again if the hegemony of the traders is not constrained.

Do we have a shot of injecting the case for a Tobin Tax into the debate? In the past few weeks, Adair Turner, the head of Britain's Financial Service Authority, cautiously expressed support for the general idea.

Peer Steinbrueck, Germany's finance minister, explicitly called for such a tax last week, as did the AFL-CIO. In an unguarded moment early in his career, even Larry Summers, President Obama's market-friendly chief economic adviser, embraced the idea, as throwing some salutary sand in the gears when financial markets "worked too well."

The Group of 20 meetings next week in Pittsburgh are not likely to produce very much in the way of real reform, because even after the disgrace of Wall Street, the usual suspects are still making policy in most nations. But a global campaign for a Tobin Tax should begin in earnest now. It could bear early fruit, as speculative excess continues and as government finds itself searching for defensible taxes.

Robert Kuttner is co-editor of The American Prospect, www.prospect.org, and a senior fellow at Demos, www.demos.org. His recent best-selling book is Obama's Challenge.

This article was originally posted on The Huffington Post.

Will somebody please explain to me why Barack Obama is still on his bipartisan kick?

Ever since Obama's first efforts to reach out to Republicans, with his cabinet appointment of two Republicans, Gates at Defense and LaHood at Transportation, and his appeasement of Republican tax-cutting demands in the stimulus package, the Republican opposition has made it clear that no goodwill gesture, no effort to meet them halfway signals anything other than weakness. They are out to destroy his presidency, pure and simple. Nothing makes this clearer than the battle over health insurance reform.

Even Chuck Grassley, the rank (I mean ranking) Republican on the Senate Finance Committee and the great white hope of bipartisanship for his Democratic buddy Max Baucus, was giving aid and comfort to the Palin "death panel" nonsense. "In House bill there is counseling for end of life," said Grassley, "And from that standpoint you have every right to fear … we should not have a government program that determines you're going to pull the plug on grandma." Maybe it's time to pull the plug on Grassley.

The White House Chief of Staff, Rahm Emanuel, is said to be a tough guy. And Obama's top political adviser, David Axelrod, is supposed to be some kind of tactical genius. What do these guys think they are getting by continuing to kiss up to the Republicans?

I don't buy the claim that making nice got them any more Republican votes for Sonia Sotomayor's confirmation. The handful of Republicans who supported her were motivated either by demographics of their state or by the fact that a few GOP senators are still willing to approve a highly qualified centrist nominee and didn't want to alienate women voters. Had Obama been playing hardball on other issues, it would not have fatally damaged Sotomayor.

Today's op-ed piece "by" Barack Obama in the New York Times was the same old high-minded pabulum. It read as if it had been pureed several times by the speechwriting staff:

The long and vigorous debate about health care that's been taking place over the past few months is a good thing. It's what America's all about.

But let's make sure that we talk with one another, and not over one another. We are bound to disagree, but let's disagree over issues that are real, and not wild misrepresentations that bear no resemblance to anything that anyone has actually proposed. This is a complicated and critical issue, and it deserves a serious debate.

That's great above-politics stuff if you are modeling high school civics, not so great if the other side is going for the jugular — and winning.

Clearly, the administration playbook is to stick to the high road and not take the argument to the other side. But the strategy isn't working. The approval ratings for both the president and for his health plan are falling. He isn't even inspiring his own strongest grass roots backers to turn out in numbers at support rallies.

Obama's own gut instincts seem to be a little better than those of his astonishingly risk-averse advisers. At his own town hall meeting in Portsmouth, New Hampshire August 11, Obama was quite eloquent and detailed on the foolishness of the "death panel" lies, and he also said this:

Every time we come close to passing health insurance reform, the special interests fight back with everything they've got. They use their influence. They use their political allies to scare and mislead the American people. They start running ads. This is what they always do.

We can't let them do it again. Not this time. Not now. (Applause.) Because for all the scare tactics out there, what is truly scary — what is truly risky — is if we do nothing. If we let this moment pass — if we keep the system the way it is right now — we will continue to see 14,000 Americans lose their health insurance every day. Your premiums will continue to skyrocket. They have gone up three times faster than your wages and they will keep on going up.

But, oddly, he didn't name the "special interests" (like the insurance and drug industry) because they are nominally part of his reform coalition. If anyone is killing somebody with kindness, it's the insurance industry backing Obama and slyly killing real reform.

Despite the lies, the real insecurity that people feel, and the shameless Republican opportunism, health reform will be a loser for Obama and the Democrats unless this president can shake off his delusion that bipartisanship works. So far, it works mainly to strengthen the far-right and weaken this president and what should be a reform moment.

 
This article was originally published on The Huffington Post.

EVER SINCE the financial crisis began in 2007, there has been a tension between recovery and reform. It seems to make sense to get the economy back on track now and worry about reforms later.

But a time of financial crisis, when Wall Street needs big-time government help, is the rare moment when government has the leverage to demand fundamental change. Otherwise, the moment is lost and the cycle of risky practices and taxpayer bailouts continues.

The Obama administration enjoyed a moment of triumphalism this past week. The economy lost only 247,000 jobs in July, and due to a statistical oddity the unemployment rate actually dropped a tenth of a point, to 9.4 percent rather than rising to 9.7 as had been predicted. President Obama briefly popped into the Rose Garden to advise reporters that his leadership has "rescued the economy from catastrophe."

Broad credit was given to the $787 billion stimulus package approved at Obama's urging in February. Commentators generally calculated that without the stimulus, the job numbers would have been a lot worse. Some economists suggested that the unemployment rate might be spared double digits. Even the usually pessimistic Nouriel Roubini, who was an early Cassandra warning of the collapse, declared that the economy had turned a corner. The stock market continued its amazing rebound.

But before we break out the champagne and declare the recession over, let's put this all in perspective. First, the job numbers. The official unemployment rate dropped only because so many people have given up looking for work and dropped out of the measured labor force. But of course, they are just as unemployed — in fact, more so, since the long-term unemployed have the hardest time finding work. The percentage of long-term unemployment is still the highest in seventy years; and in July, the average duration of unemployment continued its relentless increase.

If you count people who have given up looking for work plus those who are working part time but want full time jobs, 25.6 million people are unemployed or underemployed, according to Heidi Shierholz of the indispensable Economic Policy Institute.

That's a depression level of 16.1 percent.

What about the stimulus? The other day, I came upon a large sign in Lenox, Massachusetts in the Berkshires. It was on Route 183, which is undergoing road work, and the sign proudly declared, FDR style, "Project Funded by the American Recovery and Reinvestment Act." I pulled over to the side, cheered, and took a picture.

What surprised me, though, is that this is the first such sign I've seen after more than six months of stimulus (and it is in a very blue town, in the bluest of states.) I suspect the locals put the sign up. As I'm writing this, it's now Sunday and the town offices are closed, but I will inquire and report back in my next post.

But the paucity of such signs is a metaphor. The stimulus has put out, so far, about $100 billion in a more than 14 trillion dollar economy. Economists generally have credited the stimulus with adding between one and three percentage points to GDP growth, and saving or creating on the order of 500,000 to 700,000 jobs. That is nothing to scoff at; however, it needs to be kept in perspective.

As Floyd Norris recently reported in the New York Times, the economy has added virtually no net private sector jobs in a decade, an unprecedented record. The labor force is several million people larger than it was in 1999, but in that period the entire private sector has increased its employment by only 121,000 jobs out of 109 million.

So, while the stimulus kept things from being even worse, public outlay will need to do even heavier lifting before we get a real recovery. Compared with its pre-recession level, the economy now has a jobs gap of about 9.1 million jobs, according to EPI. Those include 6.7 million jobs lost since 2007, and 2.4 million jobs that would have been created and job-growth had followed its normal trend needed to absorb new workers and to keep the unemployment rate from rising. We are a far cry from even beginning this turnaround.

Also, as I write in a forthcoming column for the American Prospect, state and local governments continue to be in severe budget crisis, causing them to cut jobs and services and raise taxes in a recession, thereby sandbagging the recovery. All states except Vermont are constitutionally prohibited from running current deficits. As a consequence, they behave perversely when revenues fall (as they do in a recession.) All but two states (North Dakota and Montana) now face budget shortfalls, according to the Center on Budget and Policy Priorities. So while one level of government, the feds, is providing a net stimulus, other levels of government are adding to the economic undertow.

What's needed is Stimulus II. In addition to more jobs spending, it should include emergency revenue aid to the states (an idea as radical as Richard Nixon who first proposed general revenue sharing) as well as federalization of long term unemployment benefits.

When the second quarter unemployment numbers came out, a giddy David Leonhardt began his Friday front-page New York Times off-lead piece, "What if in the end they got it right?"

Suppose Bernanke, Paulson, Geithner and company really got the financial rescue about right? And suppose the Obama team got the stimulus about right, we averted a depression, and things are already reverting to normal?

Don't count those chickens yet. What if Wall Street got too much of the aid and Main Street too little? What if mounting home foreclosures continue to sandbag household net worth? What if we are in for a health reform in name only, a financial reform that leaves the casino model of crony capitalism largely intact, and a jobs recovery that leaves working Americans even more insecure than they were before this financial collapse?

What if Obama had a chance to be Roosevelt, and settled for being Clinton?

This article was originally published on the Huffington Post.