Melanie Scarborough’s economic alternative reality: Episode II, "Joke the Plumber’s and John McCain’s amazing economic world"
Let me share with you, in my last entry before November 4, the letter I sent to The Examiner with respect to its editorials against Obama’s positions on the economy. As I wrote it in a rush, I have made some small modifications in the text to make clearer some parts of the original letter. The only part I regret to have forgotten is a paragraph with respect to our balance of payments: overexposed in the balance of capital and dangerously negative in the balance of goods and services. This reflects not only the weakening of our fundamentals but also of our competitiveness with respect to other countries. Worse, in an overindebted economy, the effectiveness of the Federal Reserve rate could be seriously impaired to help the economy make the necessary soft-landing to sustainable levels of consumer spending. In case The Examiner does not publish my letter, I wanted to share it with you and with the voters you can reach. In any case, I thank The Examiner for the honesty they have repeatedly shown publishing many of my letters, no matter how hard they have been for its editorial page or its columnists (and calumnists).
Why the mention of Melanie Scarborough? Because in her last attack to Obama’s positions on the economy, for her own embarrassment, she does not mention any of the important issues I address in this letter beyond ludicrous attempts to picture Obama as a socialist bogeyman. If using progressive income taxes is socialist, that means that all civilized country, which use progressive income taxes, have been overtaken by communism. For those who know something about communism, whose failed system is not based on progressive taxation but in assigning prices and resources administratively, the attacks of socialism could not be but laughable. Calumnists like Scarborough try to hide their ignorance behind empty labels applicable to any person who do not share their ultraconservative points of view, no matter how contradictory and inconsistent they could be. On the other hand, conservative columnists like Irvin Stelzer deserve my respect despite some unavoidable discrepancies. It is with the Stelzers that we will be able to debate and improve our points of view and so help America be the country the Founders dreamt about.
On your editorials of October 23 and October 24
Dear Sirs:
In your last two editorials on Obama’s economic policies you have slipped more than once:
- The Tax Policy Center has clearly demonstrated (in its study "The Impact of the Presidential Candidates’ Tax Proposals on Effective Marginal Tax Rates") how more households will benefit more from Obama’s plan than McCain’s. It is ludicrous to accuse Obama of "dishonesty" for not supporting Bush tax cuts as if they were the only possible tax cuts. Actually, in an open economy like ours they have proved to be completely inefficient as the money so redistributed by Bush to the wealthy could end up in investments in China, as actually has happened, or just saved overseas. On the other side, tax cuts for the less wealthy are more likely to be spent here as workers and small business do not have the same opportunities to move overseas and, for example, twist the Chinese Communist Party’s arm on unionization.
- The Republican obsession with the capital gains tax is irresponsible in these times. The same Tax Policy Center has found that the reduction of the capital gains tax to 7.5% or less benefits the top 78.2% of the income pyramid, those making at least $500,000. Any taxpayer can read the IRS publication 544 and realize how little relevance has for the lives of most taxpayers.
- It is very condescending to sell the idea that the economic issue is reduced to taxes, and specifically to income and property taxes, and that more taxes imply less jobs. This is the same kind of simplistic message that Gingrich’s cataclysmically predicted at the beginning of the Clinton administration for his own embarrassment.
- A very important part of the $800 billion new spending and the $300 billion stimulus package you decry in your editorial of October 24 is for overhauling infrastructure. The American Society of Civil Engineers (in its recently published report "The infrastructure crisis") estimates in $1.6 trillion the needs to overhaul and maintain our infrastructure. The urgency of this inversion is not limited to the painful memories of the New Orleans levies or the Minneapolis’s bridge but is at the roots of keeping our competitiveness with the rest of the world. Even Cato admits that an important amount of public investment is needed on this field.
- Another important part of Obama’s spending is investment in education, urgently needed to close the growing gaps with other developed countries. China and India, aware of this, have not mind in making heavy investments on education to close their gaps with us. We need to invest heavily in science and education.
- While in inflationary crisis it could be important to establish limits to public spending, to self-stretch yourself with spending freezes is absurd when facing recessionary risks. Worse when every day you seem to find new exemptions to such freezes like Palin’s projects for special needs.
- As we cannot seriously estimate the dimensions of Bush’s economic legacy, which McCain said to have supported in at least 90%, we need to set priorities. While McCain was unable to set them in the second debate, Obama wisely put energy independence as his first priority. As we need to restructure the $5 trillion debt resulting from the Bush irresponsible tax policy, which McCain has endorsed, we need to be prepared for a pessimistic scenario in which a ‘peak-oil’ inflicts severe financial pressure as early as around 2015 (CFr. Hirsch, 2005; Phillips, 2006). "Drill, baby drill" is a ludicrous answer to this risk. Financially, the need to include the entitlements for Social Security and Medicare in such restructuration was wisely put by Obama as his second priority in that second debate.
- Overexposed in the balance of capital and dangerously negative in the balance of goods and services. This reflects not only the weakening of our fundamentals but also of our competitiveness with respect to other countries. Worse, in an overindebted economy, the effectiveness of the Federal Reserve rate could be seriously impaired to help the economy make the necessary soft-landing to sustainable levels of consumer spending. Let’s not forget that the vulnerability of the government sector, with $5 trillion of additional debt, is due mainly to Bush’s irresponsible tax cuts in the first place and the war in Iraq in second. McCain opposed those tax cuts at first but then, as Republican nominee, has pledged to make them permanent.
- Irvin Stelzer is by far your best columnist. In his column of October 24, despite his very libertarian positions, he admitted that regulation on reporting, rating agencies, and the leverage of mortgage originators could be needed. Additionally, we have to properly regulate the mark-to market accounting used by Enron to distort values and astonishingly used now to deceive about the level of risk associated to ABSs [Asset Backed Securities]. We also have to extend the Secretary of the Treasury’s power to buy the mortgages covered by the Housing Bill signed into law on July 31 at the initiative of the borrower if the lender does not do so. We need to give guidelines to the Federal Reserve to use the interest rate as an anti-bubble mechanism; to keep the interest rate artificially low, although politically opportune for McCain, was inadmissible in a market that was clearly performing a bubble even before 2006. For the same reason, we also need more flexible regulation of the leverage financial institutions can take. We need to reverse the line set by Wendy Lee Gramm in the Commodity Futures Trading Commission and modify the Phil Gramm Banking Act of 1999 on its repealing of the Glass Steagall Act and revise the Depository Institutions Deregulation and Money Control Act of 1980 at the light of this mortgage bubble, 19 years after the failure of the Federal Savings and Loan Insurance Corporation resulting from the real estate bubble of the 1980s. We also need to regulate credit default swaps and any other derivative as far as they could create systemic risks. We also need to increase the level of accountability of executives who flew with millionaire severance packages after literally destroying their own companies; after the Enron scandal members of the board alleged ignorance of the financial statements because they did not have the obligation to sign them and things do not seem to have changed too much since then. Another regulation urgently needed is the regime of credit card fees, which have made even more vulnerable the finances of many households.
- I am a believer in free market but because in real life there is risk and uncertainty, we cannot pretend to live in perfect competition conditions without creating big opportunities for all kind of crooks. Because Obama’s approach to the economy has the required level of maturity, Obama is my option for president.
Reading you,
Alfredo M. Bravo de Rueda E.
Gaithersburg, Maryland
PD: Because this letter is unavoidably long, I will understand and trust you for its edition, but because many of your editorials have mischaracterized Obama’s economic policies is fair to let a voice to express his discrepancy.
Trusting in your honesty,
Alfredo M. Bravo de Rueda E.