President Obama chose Knox College in Galesburg, Illinois (originally founded by anti-slavery activists in the 1830s) to float the economic program he has been working out with Wall Street investment bankers. His aim is to wrap this program in a democratic rhetoric. The speech's actual content boils down to: "I'm doing fine and housing prices are recovering. The way to heal the economy faster is to make a Public-Private Partnership (with Wall Street) to finance new infrastructure investment. The government will guarantee a return -- and if there's any loss, we (you taxpayers) will bear it." His political genius was not to sugar-coat the shady parts of his proposals
In a Clintonesque manner, he started his speech by saying, essentially, "I feel your pain."
"In the period after World War II," he started out, "a growing middle class was the engine of our prosperity." People had a sense that...
"...hard work would be rewarded with fair wages and benefits, the chance to buy a home, to save for retirement and, above all, to hand down a better life for your kids. But over time, that engine began to stall. That bargain began to fray. Technology made some jobs obsolete. Global competition sent others overseas. It became harder for unions to fight for the middle class. Washington doled out bigger tax cuts to the rich and smaller minimum wage increases for the working poor. The link between higher productivity and people's wages and salaries was severed -- the income of the top 1% nearly quadrupled from 1979 to 2007, while the typical family's barely budged."
All true enough. The idea is that if a President can spell out how unfair the economy is, voters will imagine that he will take the next step and do something about it.
But what is the "it" that needs to be addressed? There is a tendency to blame today's unemployment and economic stagnation on technology. Last Monday, for instance, Paul Krugman blamed much of Detroit's problem on changing technology of auto-making. He did not mention unionization's role -- and the decision by carmakers to shift production to non-unionized sites with much lower worker benefits than the UAW had won over the years. It was as if unionized labor were itself technologically obsolete.
Nor did Obama's setting the economic stage by focusing on global competition and technology acknowledge the role of debt in raising the price of labor. How can American industry compete when some 40% of the salaries it pays its employees must be paid for housing, 10 percent more for credit-card and other bank debt, 15% for FICA wage withholding for Social Security and Medicare, and 15% more for income tax withholding and for sales taxes? Before employees can start buying the goods and services they produce, they must spend about three-quarters of their income on the Finance, Insurance and Real Estate (FIRE) sector and taxes that have been shifted onto their shoulders?
Meanwhile, the companies themselves have been managed by financial officers whose idea of making money has been to debt-leverage, so that more and more cash flow has been used to pay back bondholders and to buy up company stock (thereby increase the value of the stock options that the managers give themselves), instead of to reinvest inexpanding the business at home?
Like any good politician, President Obama recognized that if he tells people that he knows how squeezed they, they will assume that he intends to solve the problem he has just described -- not make it worth to reward his backers.
Without mentioning that he had promised to write down the legacy of consumer debt and real estate debt, he hoped to disarm audience resentment by acknowledging that over the past "three decades, a housing bubble, credit cards, and a churning financial sector kept the economy artificially juiced up. But by the time I took office in 2009, the bubble had burst." So it's not his fault; he just inherited the problem.
What's wrong with this picture? He obviously did not expect his students to remember how Democratic Congressman Barney Frank got Bush Treasury Secretary Hank Paulson to agree to link the $700 billion TARP subsidy to the banks to a mortgage-debt writedown. Paulson agreed to this, if President-elect Obama would sign on. He didn't, and the proposal sank.
President Obama also did not expect the Knox College liberal arts students to have read FDIC Chairperson Sheila Bair's Bull by the Horns or SIGTARP Neil Barofsky's Bailout to remember how Obama's Treasury Secretary Tim Geithner disabled any serious plan to write down mortgage debts, by explaining to Barofsky that the Home Affordable Mortgage Program (HAMP) was intended merely to "foam the runway" to slow foreclosures, not prevent them.
President Obama sought to get the debt problem behind him by acknowledging up front that it had cost "millions of Americans their jobs, their homes, and their savings. The decades-long erosion of middle-class security was laid bare for all to see and feel." Not mentioned was how this "erosion" of security was what had produced the gains of the banks and Wall Street institutions that became his largest political campaign funders.
Now comes the hutzpah, trying to rewrite history while most people are still engulfed in it:
"Together, we put in place tough new rules on big banks, and protections that cracked down on the worst practices of mortgage lenders and credit card companies. We changed a tax code too skewed in favor of the wealthiest at the expense of working families, locking in tax cuts for 98% of Americans, and asking those at the top to pay a little more."
The reality, of course, the FICA wage withholding has just increased. And the president has let the crooked mortgage lenders off without prosecuting them, levying only a few pennies on the dollar of fines.
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