Mr. Bruni is off today. Bobo has decided to tell us all about “The Progressive Shift.” He gurgles that liberalism in the United States seems to have moved to believing that government is the first and final engine of all progress. It’s typical… He says “many” progressives (none are cited, of course) believe something so, therefore, his conclusion is that all progressives must believe it. And, of course, he offers no ideas of either his own or his party’s… Mr. Nocera, in “The Senate’s Muckraker,” says Senator Carl Levin of Michigan has done more than anyone to expose the financial industry the past few years. Here’s Bobo:
There is a statue outside the Department of Labor of a powerful, rambunctious horse being reined in by an extremely muscular man. This used to be a metaphor for liberalism. The horse was capitalism. The man was government, which was needed sometimes to restrain capitalism’s excesses.
Today, liberalism seems to have changed. Today, many progressives seem to believe that government is the horse, the source of growth, job creation and prosperity. Capitalism is just a feeding trough that government can use to fuel its expansion.
For an example of this new worldview, look at the budget produced by the Congressional Progressive Caucus last week. These Democrats try to boost economic growth with a gigantic $2.1 trillion increase in government spending — including a $450 billion public works initiative, a similar-size infrastructure program and $179 billion so states, too, can hire more government workers.
Now, of course, liberals have always believed in Keynesian countercyclical deficit spending. But that was borrowing to brake against a downturn when certain conditions prevail: when the economy is shrinking; when debt levels are low; when there are plenty of shovel-ready projects waiting to be enacted; when there is a large and growing gap between the economy’s current output and what it is capable of producing.
Today, House progressives are calling for a huge increase in government taxing and spending when none of those conditions apply. Today, progressives are calling on government to be the growth engine in all circumstances. In this phase of the recovery, just as the economy is finally beginning to take off, these Democrats want to take an astounding $4.2 trillion out of the private sector and put it into government where they believe it can be used more efficiently.
How do the House Democrats want to get this money? The top tax rate would shoot up to 49 percent. There’d be new taxes on investment, inheritance, corporate income, financial transactions, banking activity and on and on.
Now, of course, there have been times, like, say, the Eisenhower administration, when top tax rates were very high. But the total tax burden was lower since so few people paid the top rate and there were so many ways to avoid it. Government was smaller.
Today, especially after the recent tax increases, the total tax burden is already at historic highs. If you combine federal, state, sales and other taxes, rich people in places like California and New York are seeing the government take 60 cents or more out of their last dollar earned.
Democrats would make that weighty tax burden much, much heavier. In fact, the entire Democratic governing vision, from President Obama on down, is based on the notion that we can have a growing welfare state and pay for it by taxing the top 2 percent.
The first problem, of course, is that there aren’t enough rich people to cover even the current spending plans. As an analysis by the group Third Way demonstrated, even if we threw every semiplausible tax increase at the rich, the national debt would still double over the next three decades.
The second problem is that if you set the tax burden at astronomical levels you really do begin to change behavior and wind up with a very different country. You don’t have to be a rabid supply-sider to believe that when you start taking away 80 percent or 90 percent of somebody’s top marginal earnings, you are going to get some pretty screwy effects.
Higher taxes will produce long-term changes in social norms, behavior and growth. Edward Prescott, a winner of the Nobel Memorial Prize in economics, found that, in the 1950s when their taxes were low, Europeans worked more hours per capita than Americans. Then their taxes went up, reducing the incentives to work and increasing the incentives to relax. Over the next decades, Europe saw a nearly 30 percent decline in work hours.
The rich tend to be more sensitive to tax-rate changes because they’ve got advisers who are paid to be. Martin Feldstein, an economics professor at Harvard, looked into tax changes in the 1980s and concluded that raising rates causes people to shift compensations to untaxed fringe benefits and otherwise suppresses their economic activity. A study last year by the economists Michael Keane and Richard Rogerson found that tax rates can have a surprisingly large influence on how much people invest in education, how likely they are to create businesses and which professions they go into.
The progressive budget in the House seems to have been written by people hermetically sealed in the house of government. They work in government. They represent public-sector workers. They seem to have had little contact with private-sector job creators and no idea about what factors might play in their thinking. It’s a reminder that while Republicans may embarrass on a daily basis, many progressives have lost touch with what actually produces growth and prosperity.
Well, I guess if your party produces people like the one who actually said at CPAC that the slaves should have been grateful to ol’ massa for feeding and housing them it could be said to embarrass. Here’s Mr. Nocera:
I’ll miss Carl Levin when he leaves the Senate after the next election — and you will, too.
At 78, Levin has represented Michigan in the United States Senate for 34 years. He has certainly earned the right to retire on his own terms. But as a longtime Democratic member of the Senate Permanent Subcommittee on Investigations — and as its chairman since 2007 — Levin has done more than anyone to expose the scams, the conflicts, the wrongdoing and the sheer idiocy of the financial industry from the run-up to the financial crisis to the present day. Every time Levin’s subcommittee holds a hearing, it should shame Attorney General Eric “Too Big to Jail” Holder Jr.
The subcommittee’s most recent exposé took place on Friday, when it held a hearing to explore the infamous “London Whale” trades that cost JPMorgan Chase $6 billion last year. Months earlier, the Senate Banking Committee, whose members lean on the big banks for major campaign contributions, held its own inquiry into the disastrous trades. There, JPMorgan’s chief executive, Jamie Dimon, was treated more like a visiting dignitary than a committee witness. Senator Charles Schumer of New York, unctuously describing Dimon as “a financial expert,” asked him to gauge the “danger of this kind of thing happening at other institutions not as well-capitalized as JPMorgan.” Pathetic.
Levin and John McCain, the permanent subcommittee’s ranking minority member, didn’t even bother to invite Dimon. “We wanted to speak to the people who had the most information,” Levin told me. Thus, the subcommittee’s witnesses included Ina Drew, who led the division that oversaw the London traders, and Douglas Braunstein, who was the bank’s chief financial officer. The combination of Levin’s tough questions and a 300-page report by the subcommittee’s investigators was brutal. The bank, and Dimon, took a major reputational hit.
For instance, Levin established that JPMorgan knew more about the mounting losses than it let on during the now-notorious conference call in April 2012, when Dimon described the trades as “a tempest in a teapot.” The report included examples of the utter contempt for which the bank held its regulators at the Office of the Comptroller of the Currency. The O.C.C., meanwhile, never understood the risks involved. Indeed, under Levin’s relentless questioning, bank witnesses essentially conceded that their explanation for the losses — that the London trades were part of a hedge that had gone wrong — was not a particularly truthful statement. What the trades were supposed to be hedging was never adequately explained.
(“Our executives said what they believed to be true based on the facts they had at the time,” said a JPMorgan spokesman in a statement. “In retrospect, the information they had was wrong, and they apologized for this.”)
The JPMorgan hearing was only the latest in the subcommittee’s muckraking efforts. Previous hearings — on the mortgage shenanigans at Washington Mutual, the egregious conflicts of the credit-rating agencies, and Goldman Sachs’s efforts to dump its toxic assets on unsuspecting clients — were every bit as illuminating, and as devastating. They often exposed behavior that was at least potentionally criminal.
But when I asked Levin about the purpose of the hearings, he did not mention criminal prosecutions, perhaps just as well given our supine Justice Department. “All of our hearings are held with some legislative purpose in mind,” he said. For instance, the Goldman hearing led the authors of the Dodd-Frank financial reform law to include language intended to prevent investment banks from hiding that they were on the opposite side of trades being pushed on their clients.
One goal of Friday’s hearing, Levin told me, was to “stiffen the spine of regulators. Rule-makers are struggling with what to allow in terms of hedging under the Volcker Rule,” he said. (The Volcker Rule is intended to prevent banks from trading for their own accounts.) “This should help them.”
Of course, the O.C.C. has bigger problems than that — as the hearing implicitly underscored. It is a classic captured regulator. As American Banker pointed out recently, the Promontory Financial Group, a prominent banking consulting firm founded by Eugene Ludwig, a former comptroller of the currency, recently hired the O.C.C.’s general counsel, Julie Williams. And where did the O.C.C. find its new general counsel, Amy Friend? From the Promontory Financial Group!
But I digress.
Toward the end of my interview with Levin, he let slip a tantalizing tidbit. Sometime in the next few months, the permanent subcommittee plans to call the Internal Revenue Service to task for allowing the political super PACs to be classified as tax-exempt 501(c)(4)s. “Tax-exempt 501(c)(4)s are not supposed to be engaged in politics,” he said. “It is against the law to do so.” Then he added, with a certain undeniable relish, “We’re going to go after them.”
I’ll believe that when I see it…