Wall Street urges Obama to commit the Great Betrayal

By William K. Black
(Cross-posted at Benzinga.com)

Greetings from the Third Annual Kilkenomics Festival in Kilkenny, Ireland.  The Irish bubble (as a percentage of GDP) was twice as large as the U.S. bubble.  I’m returning to the U.S. to provide economic commentary for al Jazeera’s election night coverage.  (Yes, I voted via absentee ballot.)

The Safety Net is the Glory of America and the unending Wall Street Nightmare

Wall Street’s leading “false flag” group, the Third Way, has responded to the warnings that Robert Kuttner, AFL-CIO President Trumka, and I have made that if President Obama is re-elected our immediate task will be to prevent the Great Betrayal – the adoption of self-destructive austerity programs and the opening wedge of the effort to unravel the safety net (including Social Security, Medicare, and Medicaid).

Romney favors the same betrayal, but it would be political suicide for a Republican national leader to lead the attack on the nation’s most popular programs.  Huge majorities of Americans oppose cuts in the safety nets.  A majority of Republicans oppose such cuts and Democrats overwhelmingly oppose the cuts.

The American people love the safety net because they know it is essential to a humane America.  They know that it has transformed the nation.  Before Social Security, older Americans were frequently reduced to poverty and dangerously inadequate health care that made the remainder of their lives dangerous and miserable.  The safety net does not cover only the elderly and the sick.  My father, for example, died when I (the eldest of three children) was 19 and a sophomore at the University of Michigan.  Even though in-state tuition was inexpensive in those days I would have had to drop out of school.  Survivors’ benefits allowed me to obtain a superb education and pay back the nation with service and decades of greater taxes because education increased y income.  Food stamps and unemployment insurance frequently provide the temporary support that prevent tragedy and allow Americans to obtain useful education and jobs.  The safety net has made America a nation we are proud of and a nation that makes it possible for Americans to recover from hard times and tragedy and to on to lead lives that are vastly more productive and enjoyable.

One of the most important reasons that more Americans support the Democratic Party than the Republican Party is that the Democratic Party is viewed as the Party that created and guards the safety net.  The elements of the safety net are the crown jewels of Democratic Party policy successes.

Only a Democrat can make it politically safe for Republicans who hate the safety net to unravel it (a process that would occur over a number of years) by legitimizing the claim that the safety net must be cut.  Obama may not intend to unravel the safety net.  He may have been convinced by Wall Street that it is necessary to begin to unravel the safety net in order to save it.  But the result would be to declare open season on the safety net by legitimizing the false Republican memes that the safety net is unsustainable and harms the nation.  The Republican Party’s and Wall Street’s greatest frustration is that they have been unable to unravel or discredit the safety net.  The Democratic Party has its Wall Street wing, but the Republican Party has been Wall Street’s principal representative for decades.  The Republican Party has been unable to deliver Wall Street’s unholy grail – privatizing Social Security.

Wall Street salivates at the prospect of any privatization of social security.  This would lead to them being able to charge tens of billions of dollars in fees annually and the banks that administered the privatized program would be systemically dangerous institutions (SDIs) because the consequences of allowing bank failures to cause tens of millions of Americans to lose their retirement savings would require either that all such deposits be federally insured or that the failing banks be bailed out by the federal government.  Privatization, therefore, is a convenient fiction.  The banks’ profits will be private; any catastrophic losses will be borne by the public.  The SDIs’ already massive political power, often exerted through front groups like Third Way,” will burgeon.

This article is the first of a two piece series.  It shows how Third Way lobbies for Wall Street and is used to discredit Democratic polices.  The other piece discusses some of the key flaws in Third Way’s studies.

The Wall Street response (via Third Way) to our warning of the Great Betrayal repeats its central assertion that there is no alternative – the safety net must be cut.  The Wall Street Wing of the Democratic Party alleges that if Obama wields the knife he will do less damage to the safety net than would Romney.  That, of course, does not respond to our point.  Once Obama endorses Wall Street’s false claim that the safety net is unsustainable and a grave danger to our economy he legitimizes future Republican assaults on the safety net.  Third Way admits that these assaults would wield a chainsaw.  Indeed, if Wall Street (via Third Way) is correct that the safety net is destroying our nation’s ability to make productive investments then Republicans should take a chainsaw to the safety net.  Third Way, therefore, has implicitly admitted and even supported our analysis.

The Wall Street response to our warnings of the coming Great Betrayal did not attempt to rebut the point I (and many others before me) made about Wall Street’s quest for the riches it would obtain when Social Security privatization began.  Third Way cannot rebut the point because it proposes that we should begin to privatize Social Security.  The Third Way is faithful to the interests of Wall Street.

The Wall Street response makes three additional points.  First, it argues that austerity “could” be implemented after the economy recovered.  Except that that is not what would happen and it is not what Third Way has proposed when it put forward Wall Street’s views on the need for immediate austerity.  Indeed, it has been demanding immediate austerity for years – even when the U.S. was struggling to eke out a recovery from the depths of the recession.  In October 2011, in a position paper urging Congress’ “Super Committee” to cut the safety net, Third Way made plain its support for “immediate” austerity, when it bemoaned the prospect that:  “Super committee failure would not only be a setback for immediate deficit reduction, but future efforts as well.”

Similarly, in February 2011, Third Way applauded Obama’s proposed budget’s embrace of “austerity” and then pushed for cutting the safety net.

“Third Way applauds President’s “tough but necessary” Budget

Budget Blueprint Balances Growth Investments with ‘new era of austerity;’ Third Way says Congress and White House must tackle entitlements next to “win the future, not cede it.’”

(February 14, 2011).

Third Way Statement on Congressional Passage of Economic Package & Payroll Tax Extension

Today, both parties bucked the trend in Washington to come together behind a deal that’s the right thing for the American economy. This agreement will help prevent a stall in the still fragile recovery. We applaud the conferees for their willingness to work through contentious issues and make appropriate adjustments to reach a principled, bi-partisan compromise. We are glad a deal was reached, though we continue to believe that the package should have been fully paid for given growing national debt.

(February 17, 2012)

Third Way wanted the “package … [to be] fully paid for given growing national debt.”  It wanted austerity now even though it new that was a self-destructive policy.  Third Way doesn’t simply want austerity now – it wants austerity now through big cuts in the safety net.

STATEMENT: On Standard & Poor’s Downgrading U.S. Credit to AA+

The markets have spoken and anyone who continues to insist that entitlements or taxes are off the table is condemning the US to second rate economic status and a permanent downgrade.

America’s credit rating is at a crossroads. We can choose to heed this message by finishing the deficit reduction job with a balanced plan that is composed mainly of entitlement cuts, closing tax loopholes and defense cuts, or we can squabble while our global standing continues to sink. The markets have spoken and anyone who continues to insist that entitlements or taxes are off the table is condemning the US to second rate economic status and a permanent downgrade.

(August 06, 2011)

The reality is that the ratings cut had no effect on federal interest rates because the financial markets, correctly, view the U.S. as posing no risk of failing to pay its debts.  Third Way’s trustees know this because their Wall Street firms engage in billions of dollars of Treasury bond trades on a daily basis and demonstrate their real view that Treasury bonds pose no credit risk.

Third Way’s insistence on austerity now is particularly bizarre because it knows that austerity would be self-destructive.

“How’s that austerity thing workin’ for ya?

Since the 2009 depths of financial crisis devastation, President Obama’s stimulus programs have produced modest-but-steady U.S. job growth, while Eurozone adopted austerity-only measures—favored by many U.S. conservatives—have faltered.”

The data cited in the Third Way report show that austerity has not “faltered” – it has failed abjectly and forced the Eurozone back into a gratuitous recession.  It has helped push Greece and Spain into great depression levels of unemployment.

Second, Third Way implies that I wrote near the “election eve” to try to defeat Obama.  I voted for him in this and the prior election.  Obama has told us he will try to commit the Great Betrayal as soon as possible.  We have to organize now to be able to act immediately to prevent it.  Again, the point we made in our warnings is not that Obama wants to unravel the safety net or that the initial concessions to the Republicans will destroy the safety net.  The point we made is that by accepting the false Wall Street (via Third Way) and Republican claims about the safety net Obama would be legitimizing continued assaults on the safety net by Republicans and Democrats that would eviscerate it.

Third, Third Way warns that if Obama does not commit the Great Betrayal the Republicans will destroy the economy.

“The alternative to a grand bargain is a grand throwdown, one like the debt ceiling debacle of 2011. Only this time, the threat of default would be joined by the double threat of sequestration and tax hikes on the middle class.”

Giving in to Republican extortion would only prompt repeated Republican extortion.  President Clinton followed the correct strategy against similar attempts at extortion by refusing to give in to it.  The extortion strategy blew up in the Republican’s faces.  They remember what happened.  Third Way’s proposed appeasement strategy would encourage relentless Republican extortion.

The Third Way:  Wall Street’s Tool for Discrediting the Democratic Party

Third Way “lauds” criminal immunity for Wall Street Frauds

Pete Peterson, a Republican Wall Street billionaire, has long led an unholy war to eviscerate the safety net.  He has pledged a billion dollars to the effort and funded many groups.  The “Third Way” was founded and run by Jonathan Cowan, one of his “acolytes.”  Third Way’s Board of Trustees is dominated by Wall Street executives.  Third Way refuses to disclose its donors.

Third Way represents the Wall Street.  The Wall Street wing of the Democratic Party has pushed successfully for the worst domestic failures of the Obama administration, including continuing the Bush administration policy of granting the elite banksters whose frauds drove the crisis de facto immunity from criminal prosecution.  Third Way has been conspicuously silent in pushing either administration to prosecute these elite financial frauds.  Its Board of Trustees is peppered with senior executives of SDIs that the federal government has charged – but only in civil cases – engaged in fraud.  Third Way’s applauded the administration’s grant of immunity from criminal prosecution for the massive foreclosure frauds (hundreds of thousands of frauds) committed by several major banks in a November 9, 2012 press release entitled: “Third Way Lauds Landmark Foreclosure Deal.”

Third Way is also useful to Wall Street’s pursuit of other major priorities, including austerity, unraveling the safety net, and gaining access to tens of billions of dollars in freebie profits from beginning to privatize social security.  Here is a sampling of how Wall Street and Republican use Third Way to try to discredit the Democratic Party, candidates, and policies.  The repeated motif is that critics of the Democratic Party’s policies cite pro-Wall Street statements by Third Way officials to “prove” that even Democrats admit that the policies endanger the nation.  Third Way’s specialty is   spreading the faux “moral panic” that the safety net is the great threat to America.

Count the Republican Memes that Keller and the Third Way Endorse

The NYT’s Bill Keller authored a column (“The Entitled Generation”) on July 29, 2012.  He excoriated baby boomers based on a study specially given to him in advance by Third Way.  Here is how he described this organization run by Wall Street for Wall Street.  “This brings me to a soon-to-be released study by the incorrigible pragmatists at Third Way, the centrist Democratic think tank.”

Keller proceeds to accept, with no demonstration of even the feeblest effort at critical analysis, Wall Street’s position as gospel.  Remember, he is doing this in 2012, during an epidemic of fraud and failed models when every week brings the disclosure of a new scandal by our most elite financial institutions, including those that direct the Third Way.  Keller implies that he has to accept Wall Street’s numbers because they are “arithmetic.”  Keller must have amnesia about the entire financial crisis, which demonstrated that Wall Street’s “arithmetic” consisted of maximizing fictional accounting income through the famous four-ingredient fraud “recipe.”  That recipe produces massively inflated asset values, fictional income, real bonuses, and catastrophic losses.  Each of these results is a “sure thing.”  Nobody does arithmetic worse than Wall Street.

Third Way is “centrist” on matters that involve Wall Street’s compensation only if Keller subscribes to the view that “what’s good for Goldman Sachs is good for America.”  Keller fails to inform his readers that the Third Way is a creature of Wall Street and that the anti-safety net policies it is lobbying for would be worth hundreds of billions of dollars in increased profits (plus SDI status and even greater political dominance) to the Wall Street firms that dictate Third Way’s policies.  Third Way is also a “think tank” only if one views Goldman Sachs’ reports as coming from a “think tank.”  Keller then demonstrated why he didn’t believe his readers should learn that Third Way was a creature of Wall Street.  He was already afraid that his readers would reject his swallowing the Third Way report’s claims hook, line, and sinker.

“Indignant readers are already revving up to tell me that Social Security and Medicare are sacred promises, that cutting them would be stone-hearted Republicanism. A.A.R.P., the lobby for people we used to call senior citizens until we realized that meant us, got hammered by the left earlier this year when its C.E.O. dared to convene a meeting of Washington insiders to even discuss the subject. No wonder A.A.R.P. shies away from supporting any entitlement reform.

But the traditional liberal alternatives — raise taxes on the well-to-do, cut military spending — are not nearly enough by themselves. The arithmetic simply doesn’t work, unless we face the fact that entitlements are a bargain we can’t afford to keep, not in full.”

The quoted passages are revealing in several areas.  Wall Street lobbyists like Third Way fear the public.  AARP was not simply hammered by “the left.”  It was hammered by its members, who overwhelmingly opposed AARP management’s trial balloon in favor of beginning to unravel the safety net.  Bloomberg interpreted the management’s effort as supporting a reduction in the safety net.

As I explained, the “center,” including a majority of Republicans, opposes such a betrayal of the safety net by the U.S. and by the AARP.  We can prevent the Great Betrayal.

I will respond in more detail to Keller’s claims about arithmetic in my second piece.  Spoiler alert:  we do not need to unravel the safety net and doing so would harm our nation.  The Third Way’s “arithmetic” is wrong, but Keller simply accepted it on faith.  When has Wall Street ever got its models and arithmetic wrong?

Keller’s lead-in to the conclusion of his article returns to the claim that beginning the unraveling of the safety net is the “centrist” position.  Note how ultra-right his “center” moves in the process.

“Centrists like those at Third Way and the bipartisan authors of the Simpson-Bowles report endorse a menu of incremental cuts and reforms that would bring down costs without hitting the needy or snatching away the security blanket from those nearing retirement.”

Erskine Bowles is a member of the Wall Street wing of the Democratic Party.  Alan Simpson is a former Republican Senator known for raging at anyone who defends the safety net, including bizarre personal verbal assaults on individual elderly citizens who oppose his proposals.  Keller defines Simpson as a “centrist” and “liberals” as non-centrists.  Keller needs a cartographer or some introduction to the political science literature on how vastly far to the right the Republican Party has moved over the last decade because his view of the “center” is warped.  Eric Laursen has just published a book on this marginalization of the vast majority of Democrats who oppose unraveling Social Security.  (“The People’s Pension: The Struggle to Defend Social Security Since Reagan” (AK Press).)  Laursen explains how the right has created the bizarre state of being that the administration and most of the media treats groups that defend the safety net as extremists – within the Democratic Party – and defines people and groups like Peterson, Third Way, and Simpson as “centrists” despite the fact that the overwhelming majority of Americans support the safety nets.  The supposed non-centrists include the Democratic base – the labor unions, nationally famous leaders like Warren, and other groups that are the most likely to vote for Democratic Party candidates.

Obama appointed Bowles and Simpson as co-chairs of the commission to recommend budget cuts knowing that both were Pete Peterson allies eager to impose austerity, begin to unravel the safety net, and begin to privatize Social Security.  The Bowles/Simpson (BS) co-chairs pushed each of these three policies (though even they warned that what former President Clinton terms “austerity now” must be avoided because it would throw the nation back into recession).  The BS co-chairs, however, were unable to convince the required number of members of their commission to support their recommendations.  The co-chairs, therefore, simply went ahead and published a report making their recommendations.

Note that Keller admits, but only elliptically, that Wall Street’s (Third Way and BS) proposals are “snatching away the security blanket from those [not yet] nearing retirement.”  That is a massive, destructive assault on the safety net and Keller’s readers deserve to be told so directly.  Keller’s readers deserve to be told what Third Way and BS want to replace the safety net – privatized savings accounts – the holy grail of Wall Street and its false flag operation known as the Third Way.

But these passages from Keller do not represent the most extreme and destructive attack on the safety net, the American people, and the Democratic Party by Keller and the Third Way.  Keller adopts Wall Street’s memes for destroying the safety net.  Gutting the safety net becomes not a sad necessity, but the essential act necessary to save the nation.  The great threat to our nation becomes the safety net.  That means that the people who guard the safety net (like me) endanger the nation.

“[The Third Way study] examined two categories of federal spending over the past 50 years, representing two of government’s fundamental missions.  One was “investments,” … helping assure that our work force is educated to a high standard….  The other category was “entitlements,” a catchall word for the safety-net programs….”

Keller adopts wholesale Third Way’s asserted dichotomy and Third Way’s warning that the increase in safety net payments relative to “investments” harms our nation.

“By 2030, when the last of us boomers have surged onto the Social Security rolls, entitlements will consume 61 cents of every federal dollar, starving our already neglected investment and leaving us, in the words of the study, with ‘a less-skilled work force, lower rates of job creation, and an infrastructure unfit for a 21st-century economy.’”

While the numbers in the Third Way report are not accurate, note that Keller adopts the Wall Street (and Republican Party) assertion in the Third Way report that safety net expenditures “crowd out” “productive” “investments” in the public and private sectors.  The asserted dichotomy between “productive” “investments” and “unproductive” “safety-net” expenditures is false.  I explained why the safety net often produces some of the most economically productive results of any private or public sector expenditure, as George Romney’s career showed.  Health care expenditures often extend lives and “productive” work lives.  More fundamentally, the entire dichotomy and claimed “crowding out effect” is false.  Indeed, when we are below full employment (our most common condition), the safety net expenditures increase economic growth.   What Keller and Wall Street (via their Third Way mouthpiece) are pushing in these passages is a variant of Romney’s “47 percent” claim that people who receive payments under the safety net are drones who harm the productive class.

Keller ends with this proposal:  “We should make a sensible reform of entitlements our generation’s cause.”  As a nation, we have immense needs because of how our working class and the poor have been hammered over the last three decades.  Keller, and Wall Street (via the Third Way), however, urge us to make “our generation’s cause” the reduction of the safety net that has reduced massively the agony of the suffering of the poor and the working class and was essential to the economic recovery we have experienced.  Keller and Wall Street claim that the “centrist” position is that the Democratic Party’s central mission is to lead an assault on the poor and the working class.

As extreme as Keller’s position is, Wall Street’s position (as expressed in the Third Way study) was more extreme.  The report claims that:  “Entitlements are a critical part of economic security, but without change, investments will all but dry up….”

Here is the Third Way’s summary of the report.

“Public investments and entitlements are on a collision course.

Since the 1960s, LBJ’s Great Society and JFK’s New Frontier have competed for federal dollars. And as the cost of entitlement programs like Medicare and Social Security has skyrocketed, we’ve spent less and less of our budget educating kids, building roads, and curing disease.

In this report, we argue that the only way for Democrats to save progressive priorities like NASA, highway funding, and clean energy research is to reform entitlements. The lame duck offers Congress a “Now or Never” chance to set the terms of a budget deal that saves money on entitlements, raises revenue, and protects investments. And the heart of the Democratic brand is depending on it.”

Third Way has provided another proof of our family rule that it is impossible to compete with unintentional self-parody.  Only Wall Street could argue that preserving the Democrats’ “heart” depends on cutting benefits to the poor and working class so that they could burnish their “brand” by spending the money instead on building roads or rockets.  Some heart!  Wall Street is describing its heartless “brand.”

Third Way slimes Elizabeth Warren for criticizing Wall Street Frauds

A second example of how proponents of unraveling the safety net use Third Way as a false flag scheme was illustrated by the Chamber of Commerce.  They ran a huge ad campaign in mid-October designed to defeat Elizabeth Warren in her run for the Senate.  The Chamber’s goal is to achieve Republican control of the Senate.  The title of the ABC article about the Chamber’s ad campaign was:  “U.S. Chamber of Commerce Calls Elizabeth Warren ‘Catastrophically Antibusiness’.”

The centerpiece of the ad and the title was the quotation that Warren was “Catastrophically antibusiness.”  The person who made the statement that the Chamber quoted was one the Third Way’s founders and a principal spokesmen.

“‘If you listened only to Elizabeth Warren [at the Democratic Party’s national convention], the message was catastrophically antibusiness,’ said Matt Bennett, co-founder of Third Way, a centrist Democratic group. That ‘further drives a wedge between business and Democrats that may not be fair but is the way business perceives things,’ he said. ‘And making voters into victims is not a winning strategy.’

‘As Bill Clinton used to say, you can’t love the jobs and hate the job creators,’ said Mr. Bennett, who worked in the Clinton administration.”

Warren outraged the Wall Street wing of the Democratic Party by speaking truth to power about Wall Street:

“Wall Street C.E.O.’s — the same ones who wrecked our economy and destroyed millions of jobs — still strut around Congress, no shame, demanding favors and acting like we should thank them.”

The same article noted that “moderates” were upset that Warren was allowed to speak to the convention during prime time, but the Democratic Party felt supporting her candidacy was one of the vital steps in preventing the Republicans from controlling the Senate.

“To the chagrin of moderate Democrats, a prime-time speaker was Elizabeth Warren, the liberal scourge of Wall Street who is running in Massachusetts to unseat Senator Scott P. Brown, a Republican. Her scheduling slot reflected Democrats’ zeal to capture that seat and protect their slim Senate majority.”

The Chamber ad attacking Warren identified Bennett, the Third Way’s co-founder, as the author of the quotation and described him as working for an organization of moderate Democrats.  Note that Bennett also adopted the false Republican meme that only CEOs are “job creators.”  The reality is that each of us, by creating private sector demand and by creating wealth through our labor we create jobs.

The Third Way willingness to attack one of the most praised public servants in the nation, in a Senate race vital to the Democratic Party, because she had the temerity to criticize the Wall Street CEOs who caused the crisis (often through frauds that made them wealthy), were bailed out by the government, and responded with insolence.  Third Way not only applauds the administration’s refusal to prosecute the Wall Street frauds who drove the crisis – the Wall Street Wing demands that the Democratic Party not criticize the SDIs’ CEOs and claims that calling for the senior executives to be held accountable for their crimes and misconduct is impermissible because it will enrage business people and because any discussion of elite frauds would have to address the fact that they victimized the public.  Wall Street demands that we do nothing that would cause the public to consider their victimization by elite frauds.  The Third Way claims that discussing elite frauds and abuses runs afoul of the Third Way’s mantra that “making voters into victims is not a winning strategy.”  The reality is that the elite frauds victimized voters.  Warren didn’t make the voters into fraud victims – the banksters did.  She did not attack business – she attacked a rigged system that produces what economics and white-collar criminology calls a “Gresham’s dynamic” in which bad ethics drives good ethics out of the marketplace.  George Akerlof was awarded the Nobel Prize in economics in 2001.  His most famous article to date discusses markets for “lemons” (bad quality cars).  Akerlof asked what happens if fraudulent sellers of goods are able to deceive their customers and secure a competitive advantage over honest businesses.  He found that honest businesses and the customer were both victims of fraudulent CEOs.

“[D]ishonest dealings tend to drive honest dealings out of the market. The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence.”  George Akerlof (1970).

It is a pro (honest) business policy to enforce the law vigorously against such frauds.  Warren did not advise voters to feel like helpless “victims.”  She urged them to insist that government hold accountable the fraudulent CEOs who pose a lethal risk to honest firms.    Third Way insists that we not reveal, prosecute, or even criticize the banksters’ frauds.  The Third Way’s “don’t ask; don’t tell” position on elite financial fraud is beyond the pale on many dimensions, but it is revealing that its board of trustees, drawn overwhelmingly from big finance, does not believe that it would be in their firms’ interests to prosecute the elite financial frauds and break the Gresham’s dynamic that dooms honest firms.  That position only makes sense if their firms believe that they would be prosecuted if the Obama and Bush administrations had enforced the criminal laws.  The Third Way and the Chamber of Commerce are the entities pushing a “catastrophically antibusiness” campaign against (honest) businesses by championing the view that it is illegitimate to even criticize the banksters much less prosecute them.  Their view is ultra-extreme, not “moderate” or “centrist.”

Fiat Justitia, Ruat Caelum

In case it is not obvious, the issue is not whether covering up the elite financial frauds is “a winning [political] strategy.”  I don’t care whether it will cost the Democratic Party the loss of all financial donations from finance if we investigate and prosecute their frauds.  I don’t care whether losing those donations from finance cause Obama to lose.  The fact that the Third Way’s co-founder makes clear that he would prefer to cover up the elite banksters’ frauds that drove the crisis because he believes it is “a winning [electoral] strategy” tells me that the Financial Wing of the Democratic Party lacks the integrity necessary to run a financial institution or guide governmental policy.

Samuelson: Third Way “liberals” prove we need austerity and safety net cuts

The third way in which the Third Way was used by proponents of austerity and unraveling the safety net was the subject of one of my prior columns.

Samuelson, however, makes bizarre odes to Irish austerity, emphasizing the necessity of “persuading ordinary citizens to tolerate austerity (higher unemployment, lower social benefits, [and] heavier taxes) without resorting to paralyzing street protests or ineffectual parliamentary coalitions.”  I love the fact that Samuelson not only wants to increase unemployment and taxes while cutting benefits – he demands that Americans become masochists and embrace the pain of hurling America into a gratuitous second recession.  Why should we mimic Europe’s failed austerity strategy?  Because Third Way has proven that even liberal Democrats know there is no alternative to self-mutilation of our economy.

“Can’t we just tax the rich even more? Unfortunately, this won’t work either. Third Way — a liberal group, mind you — estimated the effects of top income tax rates of 49.6 percent and 41 percent and a top capital gains rate of 38.8 percent. The budget still doesn’t balance….”

Samuelson misses the more basic point.  Raising (net) taxes during a fragile recovery from the Great Recession will further cut already inadequate private sector demand and poses a grave risk of forcing the economy back into a self-inflicted recession.  Calling a lobbying force controlled by Wall Street executives that is pushing to begin privatizing Social Security “liberal” is farcical.


The fact that Wall Street (via Third Way) is worried by our opposition to Obama engaging in the Great Betrayal by adopting austerity and cutting the safety net is good news.   Wall Street knows that the public wants the President to protect the safety net from Wall Street’s depredations.  If Obama is re-elected we will soon face the struggle to save the security net.  If Romney is elected the effort may be delayed, but Republicans will recruit Congressional Democrats to co-lead a bipartisan effort against the safety net.  In either case, we need to organize now to save the safety net.


Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.

Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.

Follow him on Twitter: @williamkblack