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Simon Johnson

WASHINGTON, DC � The Republican Party has some potentially winning themes for America�s presidential and congressional elections in November. Americans have long been skeptical of government, with a tradition of resistance to perceived government overreach that extends back to their country�s founding years. This tradition has bequeathed to today�s Americans a related rejection of public subsidies and a cultural aversion to �dependence� on state support.

But Republican presidential candidate Mitt Romney and other leading members of his party have played these cards completely wrong in this election cycle. Romney is apparently taken with the idea that many Americans, the so-called 47%, do not pay federal income tax. He believes that they view themselves as �victims� and have become �dependent� on the government.

But this misses two obvious points. First, most of the 47% pay a great deal of tax on their earnings, property, and goods purchased. They also work hard to make a living in a country where median household income has declined to a level last seen in the mid-1990�s.

Second, the really big subsidies in modern America flow to a part of its financial elite � the privileged few who are in charge of the biggest firms on Wall Street.

Seen in broad historical perspective, this is not such an unusual situation. In their recent bestselling economic history, Why Nations Fail, Daron Acemoglu and James Robinson cite many past and current cases in which powerful individuals attain control over the state and use this power to enrich themselves.

In many pre-industrial societies, for example, control over the state was the best way to assure wealth. And, in many developing countries endowed with valuable natural resources, fighting to gain control of the government has proved a very attractive strategy. (I have worked with Acemoglu and Robinson on related issues, though I was not involved in writing the book.)

The traditional mechanism of state capture in much of the world is violence. But that is not true in the United States. Nor is it the case that US government officials are typically bribed in an open fashion (though there have been some prominent exceptions).

Instead, special interests compete for influence through campaign contributions and other forms of political donations. They also run large, sophisticated media campaigns aimed at persuading policymakers and the public that what is good for their special interest is good for the country.

No one has succeeded in the modern American political game like the biggest banks on Wall Street, which lobbied for deregulation during the three decades prior to the crisis of 2008, and then pushed back effectively against almost all dimensions of financial reform.

Their success has paid off handsomely. The top executives at 14 leading financial firms received cash compensation (as salary, bonus, and/or stock options exercised) totaling roughly $2.5 billion in 2000-2008 � with five ndividuals alone receiving $2 billion.

But these masters of the universe did not earn that money without massive government assistance. By being perceived as �too big to fail,� their banks benefit from a government backstop or downside guarantee. They can take on more risk � running a more highly leveraged business with less shareholder capital. They get bigger returns when things go well and receive state support when fortune turns against them: heads they win, tails we lose.

And the losses are colossal. According to a recent report on the aftermath of the 2008 crisis, prepared by Better Markets, an advocacy group that pushes for stronger financial reforms, the cost to the US economy of the financial crisis � caused by financial institutions� reckless risk-taking � amounts to at least $12.8 trillion. A big part of this cost has come in the form of jobs lost and lives derailed for the bottom 47% of the American income distribution.

Former Utah Governor and Republican presidential candidate Jon Huntsman addressed this issue clearly and repeatedly as he sought � unsuccessfully � to win his party�s nomination to challenge President Barack Obama. Force the banks to break up, he argued, in order to cut off their subsidies. Make these financial institutions small enough and simple enough to fail � then let the market decide which of them should sink or swim.

That is an argument around which all conservatives should be able to rally. After all, the emergence of global megabanks was not a market outcome; these banks are government-sponsored and subsidized enterprises, propped up by taxpayers. (This is as true in Europe today as it is in the US.)

Romney is right to raise the issue of subsidies, but he badly misstates what has happened in the US during the last four years. The big, nontransparent, and dangerous subsidies are off-budget, contingent liabilities generated by government support for too-big-to-fail financial institutions. These subsidies do not appear in any annual appropriation, and they are not well measured by the government � which is part of what makes them so appealing to the big banks and so damaging to everyone else.

If only Romney had turned popular disdain for subsidies against the global megabanks, he would now be coasting into the White House. Instead, by going after the hard-pressed 47% of America � the very people who have been hurt the most by reckless bank behavior � his prospect of victory in November has been severely damaged.

True that, every word of it.

All that's missing is a photo of some smelly hippies taking a dump on a squad car.

"Occupy"!

"Occupy"!

"Occupy"!

Romney made a valid point about the givers and the takers. Time for those sad POS to ante up.

I think that is the same point the essayist is making, he is just questioning why the real takers aren't being identified.

Sycamore

A fact the takers don't want people to start thinking about before November.

Sure there are various 'takers'. But this is the one am intimately familiar with, and too needs serious reform/curbing. Medicaid et al.

It doesn't serve (if it ever did) to "help" people who find themselves in difficult financial circumstance. If it did, pretty much all of America would agree it's a social safety net we will budget for out of human kindness.

But no, it's just a way of life. If one can't afford the FIRST baby they have, their healthcare and by extension nutrition, why are they having 1,2,3,4+ more? Because sure as chit, if I "accidentally" over-extend myself, I don't go out and do it 1,2,3,4+ more times and expect (demand) someone else to pay for it. The answer is, not a bad living for staying "unable to provide."

Culturally, it is no longer an "aid," it is "my entitlement." Just last night had a young father of three on the phone (am on call all weekend) not inquiring, not asking, no just "telling" me to call in to a pharmacy the most expensive and not risk-free lice treatment for his three children (on medicaid). Not because they do have lice, but because he thinks one of them "might", and he wants the "best" treatment that someone gave him last time, because that expensive drug is covered by medicaid and he shouldn't have to pay for the over-the-counter formulations (2 different ones available) that most anyone else would use 99% of the time, for $6-8ea locally. Suffice to say, he's "telling on me."

The same nonsense goes on endlessly with every infant who ever spit up has a mom demanding as a "right" the most exotic specialized formula (unnecessarily); every cough a nubulizer and infinite supply of albuterol; every pimple a dermatology visit; every patellofemoral syndrome ache needs an MRI or tummy ache a CT. Crazily, many many of them are educated in what buzz words to use to get the chit, too. The other population that behaves this way is Tricare. I rarely or just don't see it among patients that have a financial stake in the care of their illness/injury.

So that's a microcosm of what am witness to daily for about 50-60% of all the children in this community with about 9 in 10 of their parents fitting the mold described. Imagine, 50% of all children cranked out of vaginas and into the responsible arms of the taxpayer for everyone else to care for. Don't look now, here comes another innocent kid.

It's just a fact we've a nation of citizens conditioned to "take" with no personal stake in cost:benefit, and which obviously the nation cannot afford.

So in recap, we get to choose between two individuals that support banks, who float the idea they are too big to fail, they privatize their earnings but socialize their losses, and we (the US tax payer) get to fund it.

Sounds too much like some conspiracy theory, Tin foil hat time, people making billions would never get together and plot how to maintain that pattern. Where is our host of regular to say how silly that sounds?

Yep, that goes for anything. Including big business. If we could, as a nation, have a free market that assigned, perfectly, the consequences of an action to the cause of that action, more people could/would behave in their own best interests.

ANYTIME/EVERY TIME we separate consequences from actions, people run up the bill, for medicine, pollution, air quality, water quality, children, crime, etc.

Sycamore

Jon Huntsman is a douche-bag. Mitt is no saviour. Obama is a stinking pile. Influence peddling and corruption isn't new. The Glass-Steagle Act should have been left alone. Derivatives should be a mathematical operation, not a financial instrument. Big Banks aren't the only beneficiaries to bailouts. Bailouts of any kind and subsidies = taxpayer getting it up the whazzoo to the benefit of a few (funny how Dems won't acknowledge the irony in that).

Dude! Glass-Steagle? Business must be freed from the chains of oppression! Hoe dare you suspect banks of less than virtuous dealings! The crash was caused by unemployed people buying mansions! Don't you watch FOX?

Who is John Galt! Business left alone will enrich all! Huntsman and Romney are RICH! Every knee must bow! If they weren't worthy, the free-markets and the Almighty would not have blessed them so! THEY NEED A TAXCUT! and John Kerry too! He is WEALTHY! He must have earned it! All praises due the wealthy, they are better than the rest!

If you fail to serve the rich, a camel shall pass through the eye of your needle, you heathen!













Sycamore

I'd rather choose a wealthy man as a leader, than a poor man that acts as a puppet, for a wealthier man.

At least the wealthy man made succesful decisions in his life, whereas the puppet only proved that he could be bought.

Like Huntsman? Or George Soros? Or John Kerry?




Sycamore

When I was growing up my father owned several H&R Block income tax franchises. When the earned income tax credit came about along with the refund anticipation loans my father's business quadrupled from low income people. The earned income tax credit is a form of welfare that's paid out through the tax system (to keep it from officially being labeled welfare). A person entitled to the EITC could walk into an H&R Block, electronically file their tax return, then come back the next day and pick up a check issued by a bank against the tax refund. The fees for this were enormous, but the vast majority wanted their money right then, and it was free money to them anyway so they didn't mind paying a couple of hundred dollars to get it the next day. The kicker was that in order to qualify for the EITC they had to have dependent children who lived with them more than six months of the year, and you maxed out the EITC after two kids, more didn't do you any good. People who had "extra" kids would stand outside of my dad's office and sell the extra's social security numbers on a piece of paper to those who didn't have dependent kids, the going rate was $50 back then. The one who bought the SSN would then come into the office and claim the kid as his dependent so he/she could qualify for the EITC. The kicker was that the IRS wouldn't accept neice/nephew, godchild, etc. as a qualified dependent, only son/daughter, grandson/granddaughter, etc. However, they would accept the word "fosterchild" as a qualifier. Every one of them knew that the magic word was "fosterchild", I used to input the day's tax returns into the computer for my dad for electronic filing after school when I was a kid. I'd estimate 75% of those tax returns had "fosterchild" listed as dependents. My dad reported this fraud to the IRS and was told that his job was just to put on the tax return what they told him, it wasn't his job to investigate fraud. Basically he was told to butt out, the immense fraud in the EITC program was well known by the IRS and they intentionally looked the other way over it.

Many of these folks couldn't read or write, but they definitely knew all the buzzwords it took to get freebies from the government. Somebody's educating them on it.

10-4, and the ones that can read and write, and the ones that have attorneys working for them, really go to town!

I see it all the time, there is an entitlement mentality spread through out the nation.

Same as a rich guy parking his money in Switzerland or the Cayman Islands, "hey if it's legal, why not?"


"Why shouldn't I take just as much as I can, and give back the least possible? It's all about ME!"

Then we have threads on this 24hr Campfire about a family's sons going to Afghanistan for the 1st, 2nd, or 3rd time, and being paid $1000 or $2000 or $3000 a month.

How much of their money gets parked in Switzerland, do you think?

Sycamore