Serious Implications

Airlines fined for violating anti-trust laws. Who else is fixing prices?

This week, Associated Press reported Delta Air Lines was fined $38 million for price fixing. Delta, which recently merged with Northwest Airlines, met with other airline companies in Japan from 2004 to 2006 to set prices for air cargo business. Why does this matter?

Markets only work when companies are free to compete. The problem is, for the companies themselves, competition can be tough. It’s hard work. Here’s the ‘Lectric Law Library

In a freely competitive market, each competing business generally will try to attract consumers by cutting its prices and increasing the quality of its product or services. Competition and the profit opportunities it brings also stimulate businesses to find new, innovative and more efficient methods of production.

Consumers benefit from competition through lower prices, better products and services. Inefficient firms or companies that fail to understand or react to consumer needs may soon find themselves losing out in the competitive battle.

When competitors agree to fix prices, rig bids, or allocate customers, consumers lose the benefits of competition. The prices that result when competitors agree in these ways are artificially high; such prices do not accurately reflect cost and therefore distort the allocation of society’s resources. The result is a loss not only to U.S. consumers and taxpayers, but also the U.S. economy.

When we ask for clean energy, we’re told it costs too much. When we ask for universal health care, we’re told the nation can’t afford it. When we ask for food to be grown organically and sustainably, for livestock to be raised in humane conditions, we’re told it will cost too much. Schools go without needed updates, teachers are being laid off, because we can’t afford any more school expenses. We’re “taxed enough, already,” according to the TEA Party mantra.

Why can’t we afford the things that would make this a better country? Why can’t we find the money? Who else besides the airlines are ripping us off?

Annotated BEA Graph

Fox News nincompoop Sean Hannity was on tonight expressing deep dissatisfaction with the reported 2.4 percent gain in GDP for the second quarter of this year. GDP slipped from the first quarter level of 3.7. This is the fourth consecutive quarter of positive GDP, a trend we haven’t seen since 2007.

Of course, Hannity never mentioned the -6.7 GDP for the last full quarter of the Bush Administration. But, if he had, he would have been “fair and balanced.” Fat chance of that ever happening.

According to Triune brain theory, our brains have three parts, the primative reptilian brain, which we share with snakes and lizards, the mammalian brain that we share with dogs, horses, and other mammals that display moods and feelings, and the neocortex, where intelligence and language are centered.

The reptilian brain is the center of strong, primitive “gut level” survival concerns (emphasis added): “just the basics: hunger, temperature control, fight-or-flight fear responses, defending territory, keeping safe – that kind of thing.”

The reptilian brain is often the target when someone wants to sell us something or present a political viewpoint. Whenever the race card is used by political operatives, the reptilian brain is the target.

This past week, the big Tea Party blog Biggovernment.com‘s Andrew Breitbart and Fox News caused a fiasco by playing a small portion of a tape where USDA official Shirley Sherrod described her own journey of racial reconciliation. The portion ripped from its all-important context had Sherrod talking about the time when her attitudes toward white farmers were less than charitable. Her father had been murdered and no one was ever tried for the crime.

The video presented by Breitbart was hot stuff, dominating the week’s news. I believe it grabbed so much attention because it was aimed strait at the reptilian brain. The Tea Party and others, like Karl Rove and Fox News President Roger Ailes are masters at pitching to the lowest common denominator. Here’s an anonymous lobbyist writing about his work for the Tea Party:

We’re playing to the reptilian brain rather than the logic centers, so we look for key words and images to leverage the intense rage and anxiety of white working-class conservatives. In other words, I talk to the same part of your brain that causes road rage. Ross Perot’s big mistake was his failure to connect his pie charts with the primordial brain. Two years after Perot’s first White House run the GOP figured this out, and thus was born the “angry white man” and with him a 54-seat swing in the House of Representatives.

Short term, I think Breitbart and Fox News win with the Sherrod fiasco. Even though it’s now clear that the edited video was a trick and low-rent propaganda, politics is like a street fight. The guy who lands the first punch usually wins – but not always.

The antidote to this kind of dummed-down reptilian brain national discourse is patience, thoughtfulness, and a citizen ethos that compels all of us to make an effort to understand the facts, not just react to alarm bells.

Related to the previous post, the estimable economist Martin Wolf is calling for heading off deflation by printing more money, expanding the money supply, and creating more demand. From this article in the Financial Times:

…if governments need to run deficits, to support demand at a time of private sector weakness, they can always borrow from central banks. Yes, this is “printing money”. It is also an insanely radical policy recommended by no less insane a radical than Milton Friedman, back in 1948. His view was that the government could expand the money supply during recessions and contract it in the subsequent booms. A country with a fiat currency and a floating currency could, thus, stabilise the economy without destabilising credit markets. The neat thing about this proposal is that one does not have to decide whether fiscal policy or monetary policy is doing the heavy lifting: they are two sides of one coin.

I suspect the main opposition to to this approach is coming from those who want to delay the economic recovery until after the November election.

What’s Wrong with “Musgrave’s Law?”

Ralph has a simple and elegant solution to solving our national debt problem, which seems to make some people nervous.

The problem. Deficits and / or national debts allegedly need reducing. The conventional wisdom is that they are reduced by raising taxes and / or cutting government spending, which in turn produces the money with which to repay the debt. But raised taxes or spending cuts destroy jobs: exactly what we don’t want. A quandary.

The solution. The national debt can be reduced at any speed and without austerity as follows. Buy the debt back, obtaining the necessary funds from two sources: A, printing money, and B, increasing tax and/or reduced government spending. A is inflationary and B is deflationary. A and B can be altered to give almost any outcome desired. For example for a faster rate of buy back, apply more of A than B. Or for more deflation while buying back, apply more of B relative to A.

The original post contains several questions raising concerns about printing lots of money. For example, doesn’t printing money cause hyperinflation? Not necessarily. The U.S. has recently increased its money supply enormously without inflation. Despite the massive fiscal stimulus, money supply actually shrank over the first part of 2010.

“Eaton required its 70,000 workers to take furloughs equal to a month of unpaid leave last year. Its cash and short-term investments rose 46 percent from a year earlier to $773 million.”

Psychiatrist and full-time right-wing pundit Charles Krauthammer announced this week that we are having a “capital strike.” Corporations are sitting on a lot of cash. Here’s some of what he had to say:

There are three major areas a corporation, small or large, has to worry about: health care costs, energy costs and the cost of money. In each of these, the administration either has or is planning regulations worth thousands of pages which (a) are going to raise costs, as we know, but also are going to interact in ways that nobody understands and are going to create uncertainty. If you’re trying to figure out who you’re going to hire and how many, and you have no idea if you’re going to be able to afford the extra health care costs, you’re not going to hire.

Uncertainty? Have corporations never faced uncertainty before? Are things different now? I believe Krauthammer needs his head examined for the following reasons:

1. Health care costs have been rising much faster than inflation for years, but the annual increases have fluctuated significantly. Over the past ten years, health insurance premiums have increased between about 4 percent to over 12 percent per year. What’s so uncertain? Premiums are going up either a lot, or a whole lot. Futhermore, companies have adapted to rising insurance costs by purchasing policies with diminished coverage or dropped health benefits all together. The timetable for phasing in the new rules is available for corporations to make their plans.

2. Energy costs have fluctuated for years, especially during the last administration, and are subject to the effects of speculative trading on the commodities exchanges. There is a way for corporations to avoid fluctuating energy costs: it’s called a futures contract. With oil being “probably the most tactical and political product in the world.” One would think highly paid corporate CEOs would understand energy prices are a risk factor now, and have been for years. That’s why there are futures contracts.

3. Cost of money is a problem for small businesses. Corporations in the S&P 500 are sitting on a $1.18 trillion mountain of cash, which is the “capital strike” Krauthammer refers to. Big companies have their own cash to invest. Small companies need banks to lend. The reluctance of banks to lend is not the fault of the Obama adminstration. Here’s Obama:

“But given the difficulty business people are having as lending has declined and given the exceptional assistance banks received to get them through a difficult time,” he said, “we expect them to explore every responsible way to help get our economy moving again.”

It’s normal for an incumbant administration to be rightly or wrongly blamed for bad economic times. But with the “capital strike,” corporate leaders appear to be the culprits. Any corporate leader who would deliberately obstruct economic growth at a time of national crisis is no patriot.

According to this Gallup interactive graph, at 536 days into each of their presidencies approval ratings look like this:

Obama 46%
Reagan 42%

Reagan’s approval numbers eventually bottomed out at 35%. As we know, Reagan went on to win re-election and politically survive the Iran-Contra scandal.

As the economy improves at a painfully slow pace, it will be interesting to see if Obama is ultimately blamed for the economy in shambles he inherited, or credited for saving the country from another Great Depression.

As Reagan ended the PATCO strike, the federal government began a policy of cheap labor.

In an interesting lecture delivered at UC Berkely two years ago called How a Low Wage Economy with Weak Labor Laws Brought Us the Mortgage Credit Crisis, Damon Silvers explained the radical changes in labor policies carried out by the federal government since 1935 and the passage of the National Labor Relations Act, which encouraged collective bargaining.

As Silver’s graph shows, from the end of World War II until about 1980, wages kept pace with productivity. Workers took home the fruits of their labors. The more productive they were, the more they made. Seems fair doesn’t it? That all changed drastically about 30 years ago when Reagan decertified the PATCO air traffic controllers union. At that point, Reagan made a clear signal that had huge repercussions: the federal government was busting unions and corporations could too.

After that, wages and productivity were de-coupled. Worker productivity increased nicely, but those workers’ wages went flat. Is that fair?

(Damon Silver) For thirty years, America’s economic elites and their political allies have pursued a combination of economic and social policies designed to produce a low wage economy. These policies—our labor laws and our broader system of labor market regulation, our tax policies and our approach to globalization, have yielded decades of stagnant wages and rising economic inequality.

But at the same time, policymakers of both parties have sought, with some success, to maintain high levels of consumer spending. The pursuit of the contradiction of a low wage, high spending economy has systematically destroyed the various ways we individually and collectively save and invest. Instead of an income driven economy, we have become an economy driven by asset bubbles fueled by cheap debt. The ultimate unsustainability of this strategy has brought us to our current economic crisis. (Emphasis added)

We can blame greedy Wall Street bankers and financiers, blame Freddie and Fannie, the ratings agencies, Greenspan and all the rest, but we need to realize all of those bugus financial policies were supported by massive borrowing at cheap rates and used to keep a low-wage consumer economy growing. Borrowing became the replacement for growing wages. Again, here’s Silver:

The key thing to understand about the U.S. economic strategy of the recent past is that so long as cheap credit flowed from our trading partners, energy suppliers, and financial engineers, our economy looked much healthier than it really was. Vast amounts of economic activity in areas such as housing construction and other real estate, the transportation, marketing and sale of consumer goods, and government related spending was an artifact of our ability to borrow, not a measure of our overall productiveness as a society or our sustainable ability to support our national consumption…

We must understand that there is a choice, a different direction we can go in – a direction that leads to revitalizing the middle class, putting the great energies of this nation to work to solve the crisis of energy and the environment, and really having a strategy for how the American people can prosper in the global economy. At the heart of the choice that we face is a choice about whether we want to pretend that consumption can go up while real wages fall.

So far, it looks like the nation is still pretending.

“FBI statistics show violent crime rates in all of the border states are lower than they were a decade ago”

Investigative reporter Dana Milbank checked out some of the claims Governor Jan Brewer and others have been making about the border situation in Arizona, including unsubstantiated beheadings. He says in this article at the Washington Post

Brewer’s mindlessness about headlessness is just one of the immigration falsehoods being spread by Arizona politicians. Border violence on the rise? Phoenix becoming the world’s No. 2 kidnapping capital? Illegal immigrants responsible for most police killings? The majority of those crossing the border are drug mules? All wrong.

This matters, because it means the entire premise of the Arizona immigration law is a fallacy. Arizona officials say they’ve had to step in because federal officials aren’t doing enough to stem increasing border violence. The scary claims of violence, in turn, explain why the American public supports the Arizona crackdown…

FBI statistics show violent crime rates in all of the border states are lower than they were a decade ago — yet Sen. John McCain (R-Ariz.) reports that the violence is “the worst I have ever seen.”

This is amazing, in my view, because the tone and content of the news I hear is consistent with Brewer’s false claims. Fact-checking is apparently optional nowadays in most newsrooms.

If the housing boom was still going on in Scottsdale and Phoenix, and builders needed workers, would Brewer and McCain be singing this “scary tune?”

“the middle class still doesn’t have the purchasing power it needs to reboot the economy”

Robert Reich has an excellent article out called Unjust Spoils where he explains how income inequality leads to dangerous speculative bubbles that eventually burst and create economic calamity. It happened in 1929 and again in 2007. An exerpt:

Consider: in 1928 the richest 1 percent of Americans received 23.9 percent of the nation’s total income. After that, the share going to the richest 1 percent steadily declined. New Deal reforms, followed by World War II, the GI Bill and the Great Society expanded the circle of prosperity. By the late 1970s the top 1 percent raked in only 8 to 9 percent of America’s total annual income. But after that, inequality began to widen again, and income reconcentrated at the top. By 2007 the richest 1 percent were back to where they were in 1928—with 23.5 percent of the total.

Each of America’s two biggest economic crashes occurred in the year immediately following these twin peaks—in 1929 and 2008. This is no mere coincidence. When most of the gains from economic growth go to a small sliver of Americans at the top, the rest don’t have enough purchasing power to buy what the economy is capable of producing. America’s median wage, adjusted for inflation, has barely budged for decades. Between 2000 and 2007 it actually dropped. Under these circumstances the only way the middle class can boost its purchasing power is to borrow, as it did with gusto. As housing prices rose, Americans turned their homes into ATMs. But such borrowing has its limits. When the debt bubble finally burst, vast numbers of people couldn’t pay their bills, and banks couldn’t collect.

I think one of the main reasons the bubble finally burst was the spike in commodities prices, which was fueled by speculators, and particularly $4.50 a gallon gasoline. Reich does a good job of linking income inequality to the bubble economy we’ve seen. Basically, when rich people have purchased enough creature comforts and still have piles of money lying around, they go speculating. Again, from Robert Reich:

A second parallel links 1929 with 2008: when earnings accumulate at the top, people at the top invest their wealth in whatever assets seem most likely to attract other big investors. This causes the prices of certain assets—commodities, stocks, dot-coms or real estate—to become wildly inflated. Such speculative bubbles eventually burst, leaving behind mountains of near-worthless collateral.

The crash of 2008 didn’t turn into another Great Depression because the government learned the importance of flooding the market with cash, thereby temporarily rescuing some stranded consumers and most big bankers. But the financial rescue didn’t change the economy’s underlying structure. Median wages are continuing their downward slide, and those at the top continue to rake in the lion’s share of income. That’s why the middle class still doesn’t have the purchasing power it needs to reboot the economy, and why the so-called recovery will be so tepid—maybe even leading to a double dip. It’s also why America will be vulnerable to even larger speculative booms and deeper busts in the years to come.

The whole article is good and his message doesn’t seem to get much attention in the mainstream media.

An interesting note: Norway has high per capita GDP and is one of the most equal nations in terms of income distribution. It is also one of the richest on a per capita basis.

Norway’s Gini Index: 25
Norway per Capita GDP $58,600

U.S. Gini Index: 45
U.S. per Capita Income $46,400

Source: CIA World Factbook

Not if recent history is any indication.

When the Bush and the GOP Congress were in power they cut taxes and increased spending. Now, they are campaigning on promises to cut spending and cut taxes. Would they do it? Can we trust America’s future to Larry Kudlow and the GOP? Here’s economist Bruce Bartlett, former economic advisor to Ronald Reagan:

But in a larger sense, the extremely poor economic performance of the Bush years really set the stage for the current recession. This is apparent when we compare Bush’s two terms to Bill Clinton’s eight years. Since both took office close to a business cycle trough and left office close to a cyclical peak, this is a reasonable comparison.

Throughout the Bush years, many conservative economists, including CNBC’s Larry Kudlow, extravagantly extolled Bush’s economic policies. As late as December 21, 2007, after the recession already began, he wrote in National Review: “the Goldilocks economy is outperforming all expectations.” In a column on May 2, 2008, almost six months into the recession, Kudlow praised Bush for having prevented a recession.

But the truth was always that the economy performed very, very badly under Bush, and the best efforts of his cheerleaders cannot change that fact because the data don’t lie. Consider these comparisons between Bush and Clinton:

• Between the fourth quarter of 1992 and the fourth quarter of 2000, real GDP grew 34.7 percent. Between the fourth quarter of 2000 and the fourth quarter of 2008, it grew 15.9 percent, less than half as much.

• Between the fourth quarter of 1992 and the fourth quarter of 2000, real gross private domestic investment almost doubled. By the fourth quarter of 2008, real investment was 6.5 percent lower than it was when Bush was elected.

• Between December 1992 and December 2000, payroll employment increased by more than 23 million jobs, an increase of 21.1 percent. Between December 2000 and December 2008, it rose by a little more than 2.5 million, an increase of 1.9 percent. In short, about 10 percent as many jobs were created on Bush’s watch as were created on Clinton’s.

• During the Bush years, conservative economists often dismissed the dismal performance of the economy by pointing to a rising stock market. But the stock market was lackluster during the Bush years, especially compared to the previous eight. Between December 1992 and December 2000, the S&P 500 Index more than doubled. Between December 2000 and December 2008, it fell 34 percent. People would have been better off putting all their investments into cash under a mattress the day Bush took office.

• Finally, conservatives have an absurdly unjustified view that Republicans have a better record on federal finances. It is well-known that Clinton left office with a budget surplus and Bush left with the largest deficit in history. Less well-known is Clinton’s cutting of spending on his watch, reducing federal outlays from 22.1 percent of GDP to 18.4 percent of GDP. Bush, by contrast, increased spending to 20.9 percent of GDP. Clinton abolished a federal entitlement program, Welfare, for the first time in American history, while Bush established a new one for prescription drugs.

The GOP is flooding the media with a lot of rhetoric that is not supported by historic records and real data. The Democrats have made their fair share of mistakes, but Americans best be careful as Novemer elections approach. There’s a lot of snake oil peddlers out there.

Conservative writers and pundits work hard to hide Reagan’s liberal policies.

Over thirty years ago, I was sitting in Ann Arbor with a few friends, all of us in our twenties, talking a little bit about politics. Someone expressed concern about Ronald Reagan’s presidential candidacy, that he, a conservative, might do something brash and stupid to start an unnecessary war, gut federal environmental laws, and throw a lot of poor people out into the streets. My friend, Mark, who was from Santa Barbara, fairly liberal-minded and familiar with Governor Reagan, sat passively, unimpressed.

“Mark, what do you think about Reagan? What if he’s elected?”
“(Shrug) I’m not worried about it. He’s not very conservative.” And so it was. Mark was right. Reagan’s rhetoric was always far to the right of his actions.

Joshua Green wrote an article in 2003 for the Washington Monthly called Reagan’s Liberal Legacy: What the new literature on the Gipper won’t tell you. A raft of new books were out in which the Reagan presidency was re-manufactured to push the view that conservatism made Reagan popular and successful. The books apparently ignore the many instances when Reagan compromised with liberals to support liberal policies that were popular with the voters. The books include John Harmer’s Reagan: Man of Principle , Peter Schweizer’s Reagan’s War , Peter Wallison’s Ronald Reagan: The Power of Conviction and the Success of His Presidency, William F. Buckley Jr.’s Ronald Reagan: An American Hero, Peggy Noonan’s When Character Was King, and Dinesh D’Souza’s Ronald Reagan: How an Ordinary Man Became an Extraordinary Leader. Many of the book projects were funded by conservative think tanks.

(Green) A sober review of Reagan’s presidency doesn’t yield the seamlessly conservative record being peddled today. Federal government expanded on his watch. The conservative desire to outlaw abortion was never seriously pursued. Reagan broke with the hardliners in his administration and compromised with the Soviets on arms control. His assault on entitlements never materialized; instead he saved Social Security in 1983. And he repeatedly ignored the fundamental conservative dogma that taxes should never be raised.

All of this has been airbrushed from the new literature of Reagan.

A partial list of Reagan’s not so conservative record:

1. Despite campaigning to eliminate the federal Departments of Education and Energy, Reagan, once elected, kept both of them and added a new one, a big one, The Department of Veterans Affairs.

2. The number of workers on the federal payroll rose by 61,000 under Reagan. (Under Clinton, the number fell by 373,000.)

3. Agreed to a $165 billion bailout of Social Security. It dramatically increased payroll taxes on employees and employers and taxed Social Security benefits for upper-income recipients.

4. “One year after his massive tax cut, Reagan agreed to a tax increase to reduce the deficit that restored fully one-third of the previous year’s reduction.”

5. Raised the gasoline tax in 1983.

6. The Tax Reform Act of 1986 lowered individual tax rates but raised corporate taxes by $120 billion over five years and closed corporate tax loopholes worth about $300 billion over that same period.

7. Expanded the Earned Income Tax Credit (EITC), essentially an income subsidy provided by the federal government.

8. No serious erosion of abortion rights.

Shortly after his election, Reagan tried without success to push major Social Security cuts through Congress. In the 1982 mid-term election, the GOP lost 26 seats in the House. That was the last time the Republicans mounted a serious attack on that popular program.

Green sums up the Reagan years with this:

But, as Reagan himself liked to cite from John Adams, facts are stubborn things. And the fact is that Reagan, whether out of wisdom or because he was forced, made significant compromises with the left. Had he not saved Social Security, relented on his tax cut, and negotiated with the Soviets, he’d have been a less popular, and lesser, president. An honest portrait of Reagan’s presidency would not diminish his memory, but enlarge it.

Unfortunately, facts, stubborn or not, continue to be pushed aside.

House Minority Leader John Boehner offered his answer to the question of how America should pay for the wars in Iraq and Afghanistan in an inter view with the Pittsburgh Tribune Review

Boehner said he’d favor increasing the Social Security retirement age to 70 for people who have at least 20 years until retirement, tying cost-of-living increases to the consumer price index rather than wage inflation, and limiting payments to those who need them. “We need to look at the American people and explain to them that we’re broke,” Boehner said. “If you have substantial non-Social Security income while you’re retired, why are we paying you at a time when we’re broke? We just need to be honest with people.”

This is the Republican solution to solving the deficit. Let the future elderly take care of it. At least one GOP leader thinks asking oil companies to pay for their own oil disaster is a shakedown, and Republican Senator Scott Brown won’t support a bank tax, even after the taxpayers bailed them out to the tune of $780 billion. There should be no doubt about what the GOP is all about: protecting corporate profits.

Tip: Robert Borosage and Campaign for America’s Future.

“So if the U.S. makes changes in the tax code that discourage drilling in gulf waters, they will go elsewhere and take their jobs with them.” – Jack N. Gerard, president of the American Petroleum Institute

In a previous post, I questioned David Brooks’ characterization of “democratic capitalism” where he asserted that the U.S and BP were “on the same team.” I don’t believe they are on the same team.

Despite the fact that the U.S. military patrols the Persian Gulf and fights wars in Iraq and Afghanistan to prevent radical Islamists from taking over the Middle East and its vast oil reserves, oil companies don’t seem much interested in sharing the costs. Next time Transocean has a problem with terrorists threatening their operations, maybe they should call the Panamanian Army for help.

As reported here:

Over the last 10 years, oil companies have also been aggressive in using foreign tax havens. Many rigs, like Deepwater Horizon, are registered in Panama or in the Marshall Islands, where they are subject to lower taxes and less stringent safety and staff regulations. American producers have also aggressively exploited the tax code by opening small offices in low-tax countries. A recent study by Martin A. Sullivan, an economist for the trade publication Tax Analysts, found that the five oil drilling companies that had undergone these “corporate inversions” had saved themselves a total of $4 billion in taxes since 1999.

Transocean — which has approximately 18,000 employees worldwide, including 1,300 in Houston and about a dozen in Zug, Switzerland — has saved $1.8 billion in taxes since moving overseas in 1999, the study found…

And for many small and midsize oil companies, the tax on capital investments is so low that it is more than eliminated by various credits. These companies’ returns on those investments are often higher after taxes than before.

So far, through a combination of political campaign contributions and intimidation, the oil companies have pretty much controlled their tax destinies.

Jack N. Gerard, president of the American Petroleum Institute, warns that any cut in subsidies will cost jobs.
“These companies evaluate costs, risks and opportunities across the globe,” he said. “So if the U.S. makes changes in the tax code that discourage drilling in gulf waters, they will go elsewhere and take their jobs with them.”

Here’s Gerard speaking on API’s website about some new ads they’re running on TV:

“Americans have historically been suspicious of taxes on the industry that produces most of the energy they consume. They deserve to be informed about new proposals that would increase those taxes by many billions of dollars a year. The ads are part of the national debate on energy and tax policy. We hope they will help ensure decisions affecting our economic and energy security are not made in a vacuum or based on incomplete information,” said Gerard.

Suspicious? Who’s suspicious? They can pay their fair share just like everybody else. As we all celebrate the Fourth of July, these oil companies would do well to consider where they’d be without the United States.

GOP politicians often invoke Ronald Reagan as they strut their conservative bona fides in front of the electorate. Now, there’s even an awesome 80s cover band called “The Reaganomics” working the nostalgia bar circuit. The lead singer looks a lot like Glenn Beck. The drummer sort of looks like Joe the Plummer. The 80s were good years for a lot of us middle Boomers then in our twenties and thirties: out of school, finally making a few bucks, sharing good times with friends.

If we could just get back to those good old days. Maybe we just need another Ronald Reagan, another “Gipper” to put us on those big padded shoulders and carry us over the goal line to another “morning in America.” Why can’t we can just cut taxes and watch the new economy bloom?

Unfortunately, things are a lot different now than they were in 1980. Economist Bruce Bartlett, who worked for Reagan, offers this in an interview with CNN:

CNNMoney: So are Republicans fighting the last war?
Bartlett: What good are tax cuts when people have no income to tax? In this crisis we’ve run into the same problem we had in the Great Depression: a liquidity trap. Money isn’t circulating. The stimulus package may have been over-sold by Obama, but the principle was correct. We need government spending to get out of the trap.

Bartlett’s short interview with CNN Money is here.

Here are some important differences between the American economy in 1980, compared to now:

1. High interest rates then, low interest rates now.

2. High inflation then, low inflation now.

3. Taxes relatively high then, relatively low now. Chart. Ronald Reagan persuaded Congress to cut the top marginal rate from 70% to 50%. It is now 35%.

4. Then, Boomers were moving into peak earnings and consumption, buying cars and houses, raising families. Now, empty-nest Boomers are selling and downsizing, pushing down housing prices at the same time loans are harder to get. The ratio of workers to retirees is shrinking rapidly as the early Boomers retire, reducing income tax revenues at the same time the older Boomers become eligible for Medicare and Social Security.

5. New sources of cheap oil coming online then (North Sea Oil, Alaskan oil, Pemex), falling oil reserves and rising oil prices now.

The problems Reagan faced in the the 1980s were child’s play compared to what’s going on now. As Obama deals with two wars he inherited from Bush, the biggest environmental disaster in American history ongoing in the Gulf, the worst economic crisis since the Great Depression (also inherited), a hostile Supreme Court, and a Congress corrupted by campaign finance laws that say money is the same as speech, who could help feeling a little nostalgic for the Reagan years.

If we think and act like adults, though, we’ll realize we can’t go back.

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