Rush to Judgment

Defining economic justice is hard to do – go over to the Center for Economic and Social Justice and see for yourself. Giving to each what he or she is due depends on what you decide is due to anyone in particular, and just who those people are. That gets tricky. These folks say no one is talking about charity, but rather, what they call the Principle of Participation, the Principle of Distribution, and the Principle of Harmony – roughly that everyone, without exception, should get a chance to play in the game, that what is public stuff shouldn’t be hoarded by those who have gained the power to withhold it, and that no one gets to rig the rules for their own advantage. If you like detail, drop by the Stanford Encyclopedia of Philosophy and dive right in – but be warned, that opens with the comment that the role of ethics in economic theorizing is still a debated issue.

 

Yes, fairness and distributive justice is, to many, utterly irrelevant when you’re talking about how the economy should run, or whether it should even be run. There is that notion, the libertarians of today, high on Adam Smith and that Amazing Invisible Hand, saying no one should run the economy – it’ll run itself, without regulation or anything else. They also borrow from Darwin – as with flora and fauna, changes occur over time and the fittest players in the big economic ecosystem survive, and the others die out in a process of natural selection that produces the most efficient and cost-effective critters, which presumably reproduce and produce more of their kind. That’s the idea, and Smith and Darwin are quite dead, unable to object to being used to justify Enron and Bernie Madoff, and hedge funds, and the asset-backed securities market that just collapsed. Darwin might mutter that, damn it, he was writing about sparrows and finches.

 

Of course most people think the economy should be managed in some way – a few rules regarding fraud and deceit, and a way for everyone to pitch in to pay for necessary things for the common good, like roads and bridges, fire and police services, a national defense, and basic utilities like water and sewage systems. That’s the stuff no one should have to provide on their own, individually – that would make no sense. Everyone agrees all that’s fine, but beyond the banal generalities, no one agrees on much of anything else. Why should I pay for a fancy new bridge in your city with my tax dollars, when my taxes are high and your ferry works well enough, or so it seems from over here? And don’t even think about telling me about new museums and parks. And so it goes. Whether or not any given public expenditure looks foolish or wise depends on where you’re standing – and any example will do, from aid to certain sorts of people, to our pooled-risk Social Security system, to subsidizing research on honeybees, which seem to be dying everywhere (which actually might matter quite a bit). When we decided to have government of the people, by the people and for the people, well, we were just asking for trouble – everyone has an opinion, and everyone has a gripe. And they have the right to say what they think is best. So we guaranteed ourselves chaos and acrimony – and people shouting about economic justice, and the use or misuse of “their” money in the pool of “our” money. It’s amazing we made it this far.

 

And it all comes down to tax policy somehow. People say they don’t mind chipping in a bit, but ask why the government should confiscate so much of their money – as they earned it, working hard, and it is theirs, and shouldn’t be handed out to lazy bums, or the unlucky, or people with no values at all, people who should straighten up and fly right and earn their own damned money. Others, paying what they can, and must, see the wealthy getting big tax breaks, and holding most of the wealth of the nation, and wonder why they cannot chip in a bit more so things aren’t so bad everywhere for everyone else. They say we’re all in this together, after all, and quote Teddy Roosevelt on the matter:

 

No man should receive a dollar unless that dollar has been fairly earned. Every dollar received should represent a dollar’s worth of service rendered, not gambling in stocks, but service rendered. The really big fortune, the swollen fortune, by the mere fact of its size, acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes, and in another tax which is far more easily collected and far more effective, a graduated inheritance tax on big fortunes, properly safeguarded against evasion, and increasing rapidly in amount with the size of the estate.

 

Conservatives, quite fond of the manly and bellicose Teddy Roosevelt, might say Teddy was just having a bad day when he said that, but this has been going on forever – or since Lincoln’s administration – the Great Tax Wars. Things shift back and forth, recently from Reagan and his notion that government is the problem and any taxes at all, on anyone at all, are a necessary evil and must be cut to almost nothing, so people can do what they want with their own money, to Obama now – the American people electing a fellow who explicitly said our government, all of us working together, can get some things done, and done well, for the benefit of everyone, and those who have most of the wealth really ought to be taxed at the old and higher rates, ironically the same rates as at the end of Reagan administration. The pendulum swung the other way. It happens.

 

Operationally, see this:

 

President Obama will propose further tax increases on the affluent to help pay for his promise to make health care more accessible and affordable, calling for stricter limits on the benefits of itemized deductions taken by the wealthiest households, administration officials said Wednesday.

 

The tax proposal, coming after recent years in which wealth has become more concentrated at the top of the income scale, introduces a politically volatile edge to the Congressional debate over Mr. Obama’s domestic priorities.

 

Now there’s an understatement. And there’s more:

 

The president will also propose, in the 10-year budget he is to release Thursday, to use revenues from the centerpiece of his environmental policy – a plan under which companies must buy permits to exceed pollution emission caps – to pay for an extension of a two-year tax credit that benefits low-wage and middle-income people.

 

The government devises a way to raise a bit more revenue, and the folks on the low end of things get a tax break from the proceeds. The folks of great achievement, who made scads of money, don’t get any of it – which may tick them off. But that’s the way things are going:

 

The combined effect of the two revenue-raising proposals, on top of Mr. Obama’s existing plan to roll back the Bush-era income tax reductions on households with income exceeding $250,000 a year, would be a pronounced move to redistribute wealth by re-imposing a larger share of the tax burden on corporations and the most affluent taxpayers.

 

And this item, from the New York Times, goes on to cover new rules for itemized tax deductions – the old system where the benefit for itemizing, say, a thousand dollars in deductions, now gets you the same benefit no matter what tax bracket you’re in, not a bigger reduction in tax liability if you’re in the top bracket. It’s a bit arcane, but the new rule treats the folks in the middle just like the folks at the top – “The White House says it is unfair for high-income people to get a bigger tax break than middle-income people for claiming the same deductions or making the same charitable contributions.”

 

No doubt someone will say that’s unfair to the achievers in this society, along with the piece in the funding formula with a small cut in the mortgage interest deduction for those in the top tax bracket. That’s not small when you’re carrying a twenty-million dollar mortgage on a thirty-million dollar house, of course.

 

On the other side of that argument is Susie Madrak with Now It’s Their Turn:

 

I had the strangest feeling when I read this – I felt sorry for the people who would be paying this tax increase.

 

And then I said to myself, “You know, I’ll bet these people weren’t exactly worried about the tax increases in my bracket for the past thirty years or so!” Hey, I felt a lot better!

 

Do you smell class warfare in the air? One of Andrew Sullivan’s readers says this:

 

I’m one of those “wealthy” people who will be pinched hard by Obama’s tax hike. I came to this country legally 17 years ago with $300.00 in my pocket but with good education. I struggled at the beginning but nevertheless, worked my way up in the high tech world. I too think that the Obama’s tax proposals are extremely unfair as if I don’t pay already enough to Uncle Sam. And this article [Susie Madrak] on a liberal web site just infuriated me beyond belief.

 

But after listening to and reading about CPAC conference which is held currently in Washington, DC, I realized that I would rather take my chances with Obama than anybody from that group. I can’t imagine that these people were in power for 8 years and yearn for more. This rabid bunch MUST be kept away from any kind of power for all of our sake.

 

Some things are more important than the Great Tax Wars, and Sullivan says he feels the same way:

 

I came from a modest background in another country and arrived in the US with barely a cent of my own money. I’ve worked hard and earned the American dream – and now have to work for the government for well over half the year (a government that still persecutes me for being an HIV-survivor). Obama will take more of my money – and much, much more in the future. Liberalism believes in punishing hard-working successful people in this manner – and the more you succeed, the more they will punish you.

 

But if I had to pick between him and the party of Sarah Palin and Joe the Plumber, it’s really no contest.

 

But another of his readers offers what Sullivan calls the Dissent of the Day:

 

I thoroughly enjoy many aspects of your blog and find it to be very largely informative. However, I have to take exception with your description of the aims of liberalism – I believe you know perfectly well that liberalism doesn’t believe in punishing success/wealth-creation any more than conservatism believes in perpetuating the wealth of the rich on the backs of the poor/middle-class. These are the types of lump descriptions that just drive me wild; everyone agrees that this country would be better if more of its people were successful.

 

So, we disagree on the manner of achieving that outcome. Big Deal. Let’s have the argument about the specifics of that, and refrain from silly/rote/easy demonization.

 

Sullivan gives in:

 

Yeah, that kind of rhetoric isn’t very helpful. But it does express my irritation with the way some liberals – and only some – assume a kind of nefariousness among those who have actually made a material success of their lives, and see no real loss in expropriating their moolah. I have a visceral reaction to that assumption. Which is why, I guess, I’m still a conservative.

 

But another of his readers adds this:

 

I came to this country and worked hard also… and, like you, have been lucky enough to be successful. This country is wonderful that way – if you work hard you have a good chance of being successful. But many people work very, very hard and are not successful – and not because they are stupid, or lazy. The difference between Obama and his predecessors is that he realizes that the people who work hard and don’t make a lot of money, or work hard and don’t have health insurance, or who worked hard all their lives and now – in their golden years – have little to show for it also deserve some minimum level of dignity.

 

And yes, someone has to pay for it, and I’m happy for it to be me and people like me, because there for but for the grace of God. It’s not punishing the successful, it’s realizing that hard work is only part of the equation and we as a society need to recognize our obligations to those people who have held up their part of the bargain but didn’t end up on the winning side (and children get an automatic pass).

 

What you have here is, of course, the notion that success is not determined by hard work and a cheerful attitude and playing by the rules – those may be necessary for success, perhaps, depending on whether or not you were born into a wealthy family, but they are not sufficient. Sometimes it’s just luck – timing or geography or diet or whatever – that means your hard work and interesting idea makes you rich beyond the dreams of avarice, or makes you just another guy in the suburbs with car payments on a Chevy you hate.

 

But while that dialog was playing out at Andrew Sullivan’s site, in Washington there was that Conservative Political Action Conference – CPAC – coming to a climax with the big closing speech from Rush Limbaugh. It was supposed to be twenty minutes, but ran for an hour and a half, covered live, without interruption on CNN and Fox News. This was the other way of looking at things. He called it his “First Address to the Nation” – the definitive response to Obama’s address to Congress. CPAC presented Limbaugh with their “Defender of the Constitution” award, which included a document signed by Benjamin Franklin.

 

And see this video clip. They compared him to Franklin:

 

The king of England sat with his advisers, and they read the writings of Ben Franklin. They said, “The colonists will never be successful if they read what he writes.” Just as the king’s successor, who is in the White House, said the other day, that conservatives will never be successful if they listen to Rush Limbaugh. The only way we will be successful is if we listen to Rush Limbaugh!

 

Yeah, well – whatever. He defended his comments that he hopes President Obama fails – he said they were “common sense.”

 

There is more video here from David Neiwert, with some of the key points:

 

President Obama has the ability – he has the ability to inspire excellence in people’s pursuits. He has the ability to do all this. And yet he pursues a path, seeks a path that punishes achievement. That punishes earners. That punishes – and he speaks negatively of the country.

 

Ronald Reagan used to speak of the shining city on a hill. Barack Obama portrays America as a soup kitchen in some dark night in a corner of America that’s very obscure. He constantly is telling people that bad times are ahead, worse times are ahead. And it’s troubling because this is the United States of America. …

 

President Obama is so busy trying to create anger, and an atmosphere of crisis. He is so busy fueling the emotions of class envy that he has forgotten: It’s not his money he is spending.

 

This was what you would expect – Reagan stuff. And he wonders about liberals:

 

It is not their task – it is not their right to remake this nation to accommodate their psychology. I sometimes wonder if liberalism is not just a psychosis or a psychology, not an ideology. It’s so much about feelings, and the predominant feeling liberalism is about is feeling good about themselves. And they do that by telling themselves they have all this compassion.

 

Neiwert says this:

 

The coup de grace comes near the end of the speech, when he compares the nation’s economic crisis to the Super Bowl; of course he wants his team to win! Because to guys like Rush, it’s all just a game anyway.

 

I do hope a lot of people watched this. Because Limbaugh’s appeal is very, very narrow indeed. Mostly nasty, ill-tempered paranoids.

 

And what I hear in Limbaugh’s voice is a lot of fear. What they really fear is the possibility that Obama will succeed.

 

A more level-headed report comes from CNN:

 

Rush Limbaugh brought a cheering crowd to its feet several times Saturday in Washington as he called on fellow conservatives to take back the country in the keynote speech at the Conservative Political Action Conference.

 

“We conservatives have not done a good enough job of just laying out basically who we are because we make the mistake of assuming that people know. What they know is largely incorrect, based on the way we’re portrayed in pop culture, in the drive-by media, by the Democrat party,” the conservative talk show host told a mostly-young crowd of energized supporters.

 

“We want every American to be the best he or she chooses to be. We recognize that we are all individuals. We love and revere our founding documents, the Constitution and the Declaration of Independence. We believe that the preamble of the Constitution contains an inarguable truth, that we are all endowed by our creator with certain inalienable rights, among them life, liberty, freedom. And the pursuit of happiness,” he said, pausing several times for enthusiastic applause.

 

That seems harmless enough, although this assessment of Obama was odd:

 

“He wants people in fear, angst and crisis, fearing the worst each and every day because that clears the decks for President Obama and his pals to come in with the answers which are abject failures, historically shown and demonstrated. Doesn’t matter. They’ll have control of it when it’s all over. And that’s what they want,” Limbaugh said.

 

It seems he forgot Bush and the mushroom cloud talk – but fear does work wonders politically, either way. But basically this was a complaint that Obama hates successful people:

 

“They see these inequalities, these inequities that capitalism produces. How do they try to fix it? Do they try to elevate those at the bottom? No, they try to tear down the people at the top.”

 

But he was kind:

 

Limbaugh praised Obama as one of the most gifted politicians he has seen, but said, “It just breaks my heart that he does not use these extraordinary talents and gifts to motivate and inspire the American people to be the best they can be. He’s doing just the opposite.”

 

And he really does want him to fail:

 

“This notion that I want the president to fail, folks, this shows you a sign of the problem we’ve got,” he said.

 

“What is so strange about being honest and saying, I want Barack Obama to fail if his mission is to restructure and reform this country so that capitalism and individual liberty are not its foundation? Why would I want that to succeed?” he said, bringing the crowd once again to its feet.

 

“Did the Democrats want the war in Iraq to fail? Well, they certainly did. And they not only wanted the war in Iraq to fail, they proclaimed it a failure.”

 

Not everyone was on board with that, as Mitt wasn’t:

 

Former Massachusetts governor Mitt Romney, a 2008 presidential hopeful who may run in 2012, today advised conservatives at the Conservative Political Action Conference to face the new year “with resolve but without resentment.”

 

“Our country has a new president and he has our prayers and our best wishes,” he said. “We want our country to succeed no matter who’s in power … The interests of the nation come first.”

 

Romney went on to criticize the “liberal Democrats” in Congress and Obama’s approach to the economy and foreign policy.

 

Still, his sentiments seemed to put him in a different camp from Rush Limbaugh. Limbaugh set off a ruckus last month when he said he wants Obama to fail.

 

And there was this – Romney Wins CPAC Straw Poll. The results, Romney took 20 percent of the vote, followed by Bobby Jindal with 14 percent, Ron Paul with 13 percent, Sarah Palin with 13 percent, Newt Gingrich with 10 percent and Mike Huckabee with 7 percent. Who know who we’ll get in 2012 – but Rush wants Sarah to run.

 

And as for bipartisanship:

 

Bipartisanship occurs only after one other result. And that is victory. In other words, let’s say, as conservatives, liberals demand that we be bipartisan with them in congress. What they mean is, we check our principles at the door, let them run the show and then agree with them. That is bipartisanship to them. To us, bipartisanship is them being forced to agree with us after we have politically cleaned their clocks and beaten them.

 

That is why he wants Palin to run. And of course Gingrich had told the CPAC folks that the Republicans really must offer new ideas and policies. As Gingrich said – “It’s not our job to be the opposition party. It’s our job to be the ‘better solutions party’.” And last year he had said the era of Reagan is over. Limbaugh lit into any notions like that:

 

Everybody asks me – and I’m sure it’s been a focal point of your convention – well, what do we do, as conservatives? What do we do? How do we overcome this? … One thing we can all do is stop assuming that the way to beat them is with better policy ideas. …

 

Our own movement has members trying to throw Reagan out while the Democrats know they can’t accomplish what they want unless they appeal to Reagan voters. We have got to stamp this out within this movement because it will tear us apart. It will guarantee we lose elections.

 

So no new policy ideas – Reagan was right, and Reagan was fine. But Reagan just lost the White House in a landslide. The Great Tax Wars are over. Even Andrew Sullivan knows that:

 

I’m actually sympathetic to the broad argument that government is usually not the solution to our problems, and I’m leery of the massive spending this president has proposed in a depression – just as I was leery of the massive spending the last president accomplished in a bubble. But what I heard most of all from Limbaugh was the demonization of libruls, again and again and again.

 

Limbaugh is attacking the motives and good faith of more than half the country – and of a president just elected in a landslide. Limbaugh takes us right back to the 1980s and 1990s – the old red-blue paradigm that has led to massive GOP losses. But Obama has reframed his opponents as the vested interests resisting reform. Who do you think will win on that battlefield?

 

And Steve Benen has an interesting comment:

 

About a half-century ago, actor John Wayne, who was very conservative, was asked for his thoughts after JFK defeated Richard Nixon in 1960. “I didn’t vote for him,” Wayne said, “but he’s my president, and I hope he does a good job.”

 

It’s the kind of sentiment that seemed obvious up until about, say, a month ago.

 

And the timing is wrong too. See this item by Peter Goodman in the New York Times:

 

The fortunes of the American economy have grown so alarming and the pace of the decline so swift that economists are now straining to describe where events are headed, dusting off a word that has not been invoked since the 1940s: depression.

 

That’s the word:

 

Mark Zandi, chief economist of Moody’s Economy.com, now places the odds of “a mild depression” at 25 percent, up from 15 percent three months ago. In that view, the unemployment rate would reach 10.5 percent by the end of 2011 – up from 7.6 percent at the end of January – average home prices would fall 20 percent on top of the 27 percent they have plunged already, and losses in the financial system would more than triple, to $3.7 trillion.

 

Allen Sinai, chief global economist at the research firm Decision Economics, sees a 20 percent chance of “a depressionlike possibility,” up from 15 percent a week ago.

 

“In the housing market, the financial system and the stock market, we’re already there,” Mr. Sinai said. “It is a depression.”

 

The rest goes on to say that the administration’s stimulus proposals are probably not enough to keep the worst from happening, just to hold it off a bit – ” the weakening economy was destroying demand for goods and services even faster than the $787 billion stimulus program could replace it.”

 

See this from one of the regulars at Daily Kos:

 

… we on the left have been telling you people this for months. It is nice to see you starting to get over your Atlas Shrugged adolescent hangovers. As for the truly right-wing opinion-leaders and politicians, they will cling to those fantasies until the United States is a smoking ruin, and then blame the blast crater on ACORN, or something. They are not reality testing well, and must be ignored.

 

Funny how in a crisis everyone sane starts doing what they should have been doing all along. It’s a shame it takes a crisis to get them there. In any event, I hope the use of the D-word in the NYT wakes some people up. Indulging in ideological fantasies about the purity of the free market and the evils of helping-people socialism is only going to ruin more lives, now. That’s all it is going to do.

 

Ah, but what about economic justice?

 

Regarding Free-Market Capitalism

Is it game over? If communism came to an end twenty years ago with the collapse of the Soviet Union, is capitalism coming to an end with the current worldwide economic collapse, with giant banks around the world effectively insolvent as a result of free-market enthusiasm for gobbling up shares of imaginary assets? Sure credit markets have seized up and we seem to be in a liquidity crisis – but one must not confuse the symptom with the cause of the disease. It’s a solvency crisis. Money does not flow through the system when there is no money available. It may not matter when, or if, confidence returns, and the impulse to borrow and lend flowers in the sun or whatever. There may not be much there to work with. But all that can be left to the economy wonks. The distinction may not matter, day to day, as individuals work on how best to make it through the shutdown of so many of the elements of the life they once knew – what they assumed would always be there. You adapt – you have to.

 

And then, of all things, we elected Barack Obama – a man who talked about sharing the wealth and common sacrifice, and community. That last word scares the free-market capitalists to the core. Everyone working together for the common good sounds nice, but the root of the word community is the same root as communism – common. Any given day on the preeminent business channel, CNBC, you can see the crew of Cassandra-types there, angry about this new class warfare – they call it the War on Achievement – where taxes on those who earn more than a quarter million a year revert to previous levels. They say that will shut down capitalism – no one will want to succeed at anything, as the government will just take away everything you earn. Why bother? They are saying this is the end of everything, by which they mean the end of what they say is the system that made America what it is, and then conquered the world – free-market capitalism.

 

Enough has been said about Rick Santelli – CNBC’s Howard Beale (oh, you remember him) – but here is their Larry Kudlow:

 

Let me be very clear on the economics of President Obama’s State of the Union speech and his budget. He is declaring war on investors, entrepreneurs, small businesses, large corporations, and private-equity and venture-capital funds.

 

And here’s Kudlow in the National Review:

 

President Obama’s massive mortgage-bailout plan is nothing more than a thinly disguised entitlement program that redistributes income from the responsible 92 percent of home-owning mortgage holders who pay their bills on time to the irresponsible defaulters who bought more than they could ever afford. This is Obama’s spread-the-wealth program in action.

 

Team Obama is rewarding bad behavior. It is enlarging moral hazard. It is expanding its welfarist approach to economic policy. And with a huge expansion of government-owned zombie lenders Fannie Mae and Freddie Mac, Team Obama is taking a giant step toward nationalizing the mortgage market.

 

And that will be the end of free-market capitalism. As you remember from mythology, Cassandra spent a night at Apollo’s temple, and at the temple those nasty snakes licked her ears clean, and then she was able to hear the future. She told them Troy was going to fall, but no one believed her. The snakes have been licking Larry’s ears – he’d be the first to tell you, although he might not put it that way.

 

But maybe Obama is just trying to contain the damage, as free-market capitalism seems to be imploding on its own, starting long before he was elected, maybe before he even decided to run. And on Friday, February 27, things got even worse, with a bit of a trifecta:

 

Wall Street ended another unforgiving month with a steep loss – one that left the Dow Jones industrial average at less than half its record high.

 

The day’s news unsettled investors. Citigroup Inc. agreed to turn over a big piece of itself to the government, a move that fanned worries that other banks would face crippling trouble with bad debt. General Electric Co. slashed its quarterly dividend by 68 percent. Both companies are part of the Dow Jones industrial average, which fell 119 points.

 

And the government’s gross domestic product report showed that the economy fell at a 6.2 percent annual pace at the end of last year, a much faster than expected pace.

 

Everyone was relieved when the Dow only dropped only 119 points – one wag on CNBC said down was the new up. There could have been a market crash and there wasn’t, but after the markets closed – “Regulators on Friday closed Heritage Community Bank in Illinois, and Security Savings Bank in Nevada, marking sixteen failures this year of federally insured institutions.”

 

You sort of get used to such news – happens every week. And this is the system Kudlow says no one should touch – let people do what they will and it will all work out.

 

But the Associated Press notes something odd. It seems the economy is moving in reverse faster than the government can measure – things are not only worse than they seem, when they finally manage to gather all the accumulated data, they have to go back a revise the figures downward, way downward:

 

The contraction for the fourth quarter of 2008 had been estimated at 3.8 percent just a month ago. Then the Commerce Department raised it to an astonishing 6.2 percent Friday – the largest revision since the government started keeping records in 1976.

 

That was the economy’s worst showing in a quarter-century and raised the prospect that the nation could suffer its worst year since 1946.

 

“Consumers are just hunkering down and saying ‘game over,’ and businesses in response are cutting back on investment and employment,” said Brian Bethune, economist at IHS Global Insight. “It’s a negative feedback loop.”

 

And Kudlow is worried about Obama, and frightened to death Obama will nationalize the banks, and ruin everything.

 

Obama will not do that – because of folks like Kudlow and their sensitivities. What they did do with Citigroup was, actually, worse. Barry Ritholtz explains:

 

… for about 100% of the market value of Citi, plus insurance guarantees worth as much as 500% of its value (~$275 billion), we got less than 1/10 of a company that in total was worth 1/5 of our investment.

 

Pretty good deal, eh?

 

Yeah, but it wasn’t nationalization, per se. Free-market capitalism lives on – but then, so did the corpses in Night of the Living Dead.

 

But one must not ignore the housing market – more about getting hosed than getting housed. Michael Larson looks at the grim news:

 

We got a real one-two punch of dismal housing data this month, with today’s new home sales report looking just as ugly as yesterday’s existing home sales release.

 

Not only did the pace of sales fall to the lowest level since at least 1963, but a key measure of supply exploded to a record high. The raw supply of homes for sale is clearly dropping. But because sales are falling even faster, we’re not seeing any net improvement in the market. Result: Prices continue to fall, with new homes now going for the least in more than five years.

 

It really does all come down to jobs, jobs, and jobs. Lower mortgage rates are nice. Tax cuts are nice. But with the labor market deteriorating so sharply, we’re unlikely to see a meaningful improvement in the housing market. If anything, sales and pricing will deteriorate further.

 

This is quite an economic system we have here.

 

Of course, we could be under attack. This could be a Fire Sale:

 

In the film Live Free or Die Hard, fire sale was used as a fictional hacker term meaning a crippling cyber-warfare attack on the infrastructure of the United States that would disrupt all power, public utilities, water, traffic, and other computer-controlled systems. The term is used because “everything must go.” It is based on three steps. In the first step all the transport network is taken down, in the second step all the utilities are disconnected and in the third step, nuclear facilities, banks, and the stock exchange are hacked and then all the information is washed. The theory is that if you take down the infrastructure one system at a time, it will eventually be able to recover, but if you take down everything at once the entire system will be destroyed and there is no turning back.

 

But that was just a silly movie. Perhaps it was moderately popular for a time because things feel that way. HBO has it in running in regular rotation now – they get it. Something seems wrong. Someone may be messing with us.

 

But it may be the free-market capitalists themselves. There was always something odd about those Collateralized Debt Obligations – those CDO things, all those mortgages and credit card debts bundled into something you could buy as a sound investment. People would pay their debts, or most would, and if you bundled enough of such promises to pay together, those who didn’t pay wouldn’t matter that much, and this was a great asset to own – a sure thing. So wise men created all sorts of Asset-Backed Securities like that, so large that the small pimples of bad debt would not matter much in the great scheme of things, and these became what was traded, really, by anyone who knew anything. It was free-market capitalism at its purist – new and not yet regulated, and the real source of the world’s wealth for almost a decade. Investors, entrepreneurs, small businesses, large corporations, and private-equity and venture-capital funds had their money. For Larry Kudlow – heaven.

 

But it just didn’t work out. See the Financial Times:

 

But now, at long last, one shard of reality has just emerged to piece this gloom. In recent weeks, bankers at places such as JPMorgan Chase and Wachovia have been quietly sifting data trying to ascertain what has happened to those swathes of troubled CDO of ABS [Asset-Backed Securities].

 

The conclusions are stunning. From late 2005 to the middle of 2007, around $450bn of CDO of ABS were issued, of which about one third were created from risky mortgage-backed bonds (known as mezzanine CDO of ABS) and much of the rest from safer tranches (high grade CDO of ABS.)

 

Out of that pile, around $305bn of the CDOs are now in a formal state of default, with the CDOs underwritten by Merrill Lynch accounting for the biggest pile of defaulted assets, followed by UBS and Citi.

 

That is a chunk of change, but wait. There’re more:

 

The real shocker, though, is what has happened after those defaults. JPMorgan estimates that $102bn of CDOs has already been liquidated. The average recovery rate for super-senior tranches of debt – or the stuff that was supposed to be so ultra safe that it always carried a triple A tag – has been 32 per cent for the high grade CDOs. With mezzanine CDO’s, though, recovery rates on those AAA assets have been a mere 5 per cent.

 

I dare say this might be an extreme case. The subprime loans extended in 2006 and 2007 have suffered particularly high default rates and the CDOs that have already been liquidated are presumably the very worst of the pack.

 

Even so, I would hazard a guess that this is easily the worst outcome for any assets that have ever carried a “triple A” stamp. No wonder so many investors are now so utterly cynical about anything that bankers or rating agencies might say these days.

 

But it was a totally free market. It just happened to bring down the world’s economy.

 

The economist Paul Krugman offers this:

 

Why is this important? A recurring theme of those who believe that the financial system can be rescued with fancy financial engineering – a group that, sad to say, apparently now includes the Obama administration – is that the losses on toxic assets aren’t really as bad as people say; that lack of liquidity and “irrational despondence” have led to an undervaluation of these assets, and that if we can just calm things down and get cash flowing again all will be well.

 

It’s just not that easy to fix, no matter what you do – and it is not a liquidity issue, or an investor confidence issue. There was nothing there, no matter what the rating agencies had to say about the assets in question – that they were Triple-A and carried no real risk. The world of Kudlow and Santelli is a strange place.

 

See Hillary Bok on the Financial Times item:

 

If I’m reading this right, within four years of being issued, two thirds of these CDOs are in default, and their recovery rates are very, very low. That’s just staggering. It’s actually hard to understand how the banks managed to do this badly: you’d think they could have done better hiring people off the street and paying them to put all those nice little loan documents into piles at random, or tossing mortgages down the stairs and bundling them based on how they landed. They certainly didn’t need to hire people with advanced math degrees and pay them seven- or eight-figure salaries to get these kinds of results.

 

And how about those ratings agencies? They would have done a better job using a Magic 8-Ball to rate the CDOs. (“Signs point to junk!”)

 

I have been hearing for years and years about how the financial services sector pays such exorbitant wages because the people who work there are so immensely talented that they are cheap at $50 million a year. I never particularly bought that line before. But I never imagined that all those Masters of the Universe would do quite this badly. If we had paid them $50 million a year to go far, far away and leave our financial system alone, it would have been a bargain.

 

But Kudlow prefers such folks to the Obama crew.

 

But this is leading to what Kevin Drum reviews as a Global Meltdown – “exports plummeting in Japan, Italy rescuing its banks, Eastern Europe turning into a basket case, Russian GDP down 8%, etc. etc.”

 

But the bottom line was simple: there’s a world of economic pain out there, and economic pain frequently turns into political and national security pain too.

 

Drum notes that the White House is worried about the same thing, and has asked the CIA to begin preparing a daily report on the global economic crisis:

 

The CIA’s role in producing the report underscores the level of anxiety within the administration over how rapidly the economic downturn is spreading, as well as its potential to hobble foreign governments and trigger instability overseas.

 

The report, called the Economic Intelligence Brief, was launched at the request of the White House and delivered for the first time Wednesday.

 

[CIA Director Leon] Panetta said the document would survey major economic developments internationally and focus on how plunging markets and credit pressures are driving the decisions in nations including Russia and China.

 

The report covers “economic, political, leadership developments” in other countries as well as “the implications of those developments in terms of the U.S. economy,” Panetta said.

 

Drum:

 

We’re not going to see pitchforks and torches in the United States, but we might in a few other countries before this is all over. This is a smart move by Obama.

 

Drum provides links to specific uprisings but suggests Michael Klare at Salon:

 

If you want to be grimly impressed, hang a world map on your wall and start inserting red pins where violent episodes have already occurred. Athens (Greece), Longnan (China), Port-au-Prince (Haiti), Riga (Latvia), Santa Cruz (Bolivia), Sofia (Bulgaria), Vilnius (Lithuania) and Vladivostok (Russia) would be a start. Many other cities from Reykjavik, Paris, Rome and Zaragoza to Moscow and Dublin have witnessed huge protests over rising unemployment and falling wages that remained orderly thanks in part to the presence of vast numbers of riot police. If you inserted orange pins at these locations – none as yet in the United States —- your map would already look aflame with activity.

 

Obama’s new briefing is going to be a busy one.

 

Ah, free-market capitalism at work. And that’s what the Republicans run on (besides God and guns). Ron Beasley suggests that might be pointless now;

 

If you are a middle class American the Republican Party has been taking you for a really unpleasant ride for the last 29 years. The American people started getting it in 2006 and had pretty well figured it out by 2008. The Republicans have not figured out that middle class Americans have figured it out which is why they will probably find themselves even deeper in the wilderness for the foreseeable future.

 

He cites Daniel Larison:

 

It seems to me that conservatives and Republicans have assumed the GOP is the natural governing party, at least regarding the Presidency and to some extent as it relates to Congress since ‘94, which is why so many have continued to insist that America is a “center-right nation” in face of mounting evidence that it is not and hasn’t been for a while. Symbolic gimmickry does stem in part from a lack of confidence, but it is more the product of a movement and party that have ceased to understand, much less address, most of the pressing concerns of working- and middle-class Americans. The party assumes that all it needs to do is show up, push the right pseudo-populist buttons and reap the rewards, and for the most part the movement cheers. See Palin, Sarah.

 

The GOP settles for offering “symbolic, substance-free BS” because enough conservatives are already persuaded that Republican policies obviously benefit the middle class, so there is no pressure to make Republican policy actually serve the interests of Republican constituents. It is taken for granted that this is already happening, but voters have been showing for several cycles that many of them do not believe this.

 

Beasley:

 

So what is it the real average American who has quit listening to Rush – the vast majority – have figured out. They are a lot worse off since the Reagan Revolution.

 

Yep, regulate nothing, lower taxes on corporations and the rich, and all will be well. Just look around you. People did look around. Did they think no one would notice?

 

Larison:

 

As we all know, income stagnation is something that most conservatives and Republicans have spent years pretending was not happening, because it did not fit in with the assumption that working- and middle-class Americans were thriving as part of the “greatest story never told.” It is the failure to acknowledge and address all of these things along with the preference for using symbolic gimmickry that begin to account for the lamentable states of conservatism and the GOP.

 

Of course at this year’s CPAC convention, they have found their answer – Attendees See a New Sales Pitch, Not Change in Values, as Key to Success.

 

As Beasley says – “The best marketing in the world won’t sell a car with a pile of dog shit on the front seat.”

 

But what else is left? Peter Hamby at CNN – Senator Calls Obama “World’s Best Salesman of Socialism” –

 

Sen. Jim DeMint of South Carolina, the only member of the senate to earn a perfect rating from the American Conservative Union, called President Obama “the world’s best salesman of socialism” on Friday in describing his prime time speech earlier this week. DeMint, a fierce opponent of government expansion, told the CPAC crowd that conservatives might have to “take to the streets to stop America’s slide into socialism.”

 

Good luck with that. And UCLA’s Mark Kleiman offers some musing:

 

During the Republican primaries, I was worried about Mike Huckabee: earnest but not priggish, funny, evidently not a hater, a non-terrible record as governor, compelling speaker. Yes, of course he believed, or at least said, some certifiably nutty stuff, but he didn’t say it in a nutty way. And I’ve remained concerned that Huckabee might use the next four or eight years to learn something about the substance of national policy – he’s poorly educated, but no one’s fool – and abandon some of the “populist” positions that made him anathema to the money-cons. The result might have looked a lot like a 21st-Century Reagan, while continuing to cover a fairly serious theocrat.

 

He says he has stopped worrying, after this:

 

“The Union of Soviet Socialist Republics may be dead,” said Huckabee, “but a Union of American Socialist Republics is being born.” Democrats, according to Huckabee, were packing 40 years of pet projects like “health care rationing” into spending bills. “Lenin and Stalin would love this stuff.”

 

Kleiman says he’s relieved. And Andrew Sullivan says that Obama has played the budget and spending game pretty shrewdly:

 

Look at how Obama has framed the debate since the election. Every single symbolic act has been inclusive and sober. From that speech in Grant Park to the eschewal of euphoria on Inauguration Day; from the George Will dinner invite to the Rick Warren invocation… And now, after presenting such a centrist, bi-partisan, moderate and personally trustworthy front, he gets to unveil a radical long-term agenda that really will soak the very rich and invest in the poor. Given the crisis, he has seized this moment for more radicalism than might have seemed possible only a couple of months ago.

 

Radicalism? Here’s how Obama is “soaking the very rich” these days:

 

If Obama’s tax plan is approved, a family making $500,000 a year would see its annual tax bill rise to nearly $132,000 from about $120,000, a 10 percent increase, said Clint Stretch, managing principal of tax policy at Deloitte Tax.

 

Kevin Drum adds some reality here:

 

Republicans who paint him as the second coming of Karl Marx just look like idiots these days. At the same time, let’s not go overboard. …

 

Over the past three decades, these families have seen their incomes double and triple while the rest of the country stagnated. Now Obama proposes to increase their tax bill by $12,000 – not even enough to get them back to the rates they were paying when Ronald Reagan left office. This is a very, very modest nod toward fiscal fair play, very much in keeping with Obama’s modest optics. You’d have to drink several pitchers of Rush Limbaugh’s Kool-Aid to think that this counts as soaking the rich.

 

And the canary in the coal mine for the Republicans might be in Germany:

 

A Berlin cashier who was sacked from a supermarket after 31 years of service because her employer accused her of stealing 1.30 euros ($1.65) has become a flash point of a debate about unchecked capitalism in Germany.

 

Leaders of Germany’s major political parties criticized the supermarket’s decision to fire Barbara Emme, especially because the 50-year-old who has become a German cause célèbre denies the charges that she kept bottle deposit receipts worth 1.30 euros.

 

Wolfgang Thierse, vice president of parliament and member of the Social Democrats, on Thursday called a court decision on Tuesday that upheld the cashier’s sacking “barbaric” and warned cases like this “destroy people’s confidence in democracy.”

 

Horst Seehofer, leader of the Christian Social Union, said the case raised questions about capitalism, which has come under attack in Germany in the wake of the global financial crisis.

 

“I don’t understand how a cashier can be fired because of 1.30 euros while managers who lose billions of euros can keep their jobs,” Seehofer told a rally in Bavaria on Wednesday.

 

Kudlow might want her arrested, and Santelli might want her executed, but note this:

 

The case of “Barbara E.” is starting to loom over Germany’s upcoming election campaign in a way that has similarities to “Joe the Plumber,” an ordinary Ohio voter who became a lightning rod in the 2008 U.S. presidential election.

 

“My phone has been ringing off the hook,” Emme told Bild newspaper on Thursday after she appeared on a late night ZDF television talk show on Tuesday evening.

 

Jim DeMint may say that conservatives just might have to “take to the streets to stop America’s slide into socialism.” These days someone might be there to meet them. People have figured out something is wrong.