Sunday, June 21, 2009

Some aspects of our constitution have constricted us in adapting to changing circumstances over time. Other western countries with parliamentary systems have been able to adopt programs such as universal health care, while we have been unable to do so because our system allows a minority to block major legislation. This is primarily due to how our Senate operates.

Consider the chart below which shows how many people are represented by each senator from the several states. The average number of constituents represented by a senator, that is, the total population less Washington DC, divided by 100, is about 3 million people. In contrast, Wyoming senators each represent only 266,334 people while California senators represent 18,378,333 people each.

To compound the problem people in overrepresented states are more Republican. From the House representation which is nearly one person, one vote, there are 59.1% Democrats and 40.9% Republicans in the country. The overrepresented small states have 46% Republican senators vs. 54% Democrats, while the underrepresented large states have only 35.3% Republicans and 64.7% Democrats.

To compound the problem even further it only requires 40 senators to stop key legislation due to the filibuster rule. This enables lobbyists to concentrate their time and money on 40 people to block any legislation. And, if a Republican president is in office there is no hope of overriding a veto. This phenomena enabled Bush to get almost anything he wanted while the Republicans had a slim majority in congress, whereas the Democratic legislation can be easily blocked even with Democratic majorities in both houses. Since small conservative states are overrepresented in the Senate, it is nearly impossible to get a majority necessary to prevent legislation from being blocked.

A recent poll showed that the country supports the Obama health care program by a sizeable majority.

From Reuters:

"A Times/CBS poll found 85 percent of respondents wanted major healthcare reforms and most would be willing to pay higher taxes to ensure everyone had health insurance. An estimated 46 million Americans currently have no coverage. Seventy-two percent of those questioned said they backed a government-administered insurance plan similar to Medicare for those under 65 that would compete for customers with the private sector. Twenty percent said they were opposed."

Yet the latter program has been taken off the table by a small state senator from Montana, Max Baucus because he said it's a non-starter in the Senate.

A similar situation exists in the effort to reregulate banks. The powerful banking lobby can easily round up 40 senators to block the effort, in spite of the fact that the majority of Americans want it done.

I say let Texas secede. The US would be better off without them. Let them contend with Mexico.

There appears to be substantial objection to Obama's caving to the banks coming from organizations like TPM (Marshall: What They Did) and economists like Krugman. People like Michael Hudson have pointed out that the government ought to be taking actions to reduce debt, not expand federal debt to insulate creditors and banks from the consequences of their own folly. Yet there appears to be a timidity among the mainstream media and bloggers in addressing whether Hudson or Obama are right on this score. Now is the time to screw up some courage and address this controvery before the country goes down in flames. Or, is everyone with some money in the stock market now a member of the oligarchy? Here's a couple links to Hudson's claims.

http://www.youtube.com/watch?v=3pwAFohWBL4
http://www.youtube.com/watch?v=ik2uVt5zvNg&feature=related

This guy's got it all figured out, from an historical perspective. The oligarchs are running the show, not the people. Obama, start listening! Get the money changers out of the government!

http://www.ritholtz.com/blog/2009/02/michael-hudson-six-minutes-with-the-renegade-economist/

The oligarchy has found a way to get more Republicans elected. Now that Bernanke has taken nationalization off the table. (How can he do that when he's not even a member of the government, you ask? Because the real government is the corporations.) Now Congress will have to come up with more funds to prop up the banks. The Democrats will fall in line and push for more bailout money. Only the Republicans will be there to stop it. If they succeed they will be rewarded in the next election.

A recent article in Newsweek lauds Obama's Mid-East peace initiative under Dennis Ross.
(http://www.newsweek.com/id/178470)
According to his bio on Wikipedia, Dennis Ross was the co-founder of AIPAC. How can someone so tied to the Israeli side of the process claim to be an unbiased arbiter of the peace in Palestine. It sounds to me like Obama is vulnerable to appointing a lot of people that previously served in the Clinton administration or are tied in some way to past failed efforts. This shows a lack of vision and imagination in what is needed for real "change". Real change requires an infusion of new thinking which does not seem to be materializing in the new administration.

An investment banker, turned psychologist, Eric Schoenberg, weighs in on a question I asked in a previous post.

"Thus, the answer to your other question is that income concentration both causes and is caused by bubbles. It causes bubbles to the extent that it makes more salient how far ahead the economic winners are, and, empirically, certainly in my studies and, though I haven't seen any papers to this effect, quite clearly in the real world, bubbles generate greater inequality as well."

Check out the details at the link below from Mark Thoma's blog.

"It Might Appear that Some Agents become Risk-Loving"

Just as we did in the war on Lebanon, the US runs interference for Israel again. What more evidence is needed that we that we can't be an unbiased party to any peace effort in Palestine?

There's a lot of truth in what this guy says, but I'm afraid he will be designated a self hater by those he is trying to enlighten.

The Paradox of Israel: Regional Super Power and the Largest Jewish Ghetto Ever Created

I would like to see some comments from economists on how the inequality of wealth and income between the capital and consumption sectors affects economic stability. It seems to me that over the last several decades wealth and income has become concentrated in the capital sector while the consuming sector has required debt to sustain its consumption. When the world is awash in investment capital and investors can't find productive places to invest, they drift toward riskier investments and look for ways to sustain their diminishing returns through the use of leverage and derivatives that expand the money supply and hide risk. This leads to bubbles of fictitious wealth of one kind or another as the price of assets are bid up artificially. These bubbles ultimately burst and the economy freezes up as investors and consumers lose trust in the system.

 I see no way to avoid such instability unless government is willing to step in and rebalance the wealth and income in the capital investment and consuming sectors through adjustments in the way these sectors are taxed. It doesn't seem to make any sense to reduce taxes on capital gains when money is piling up in the capital sector, while the consuming sector is using debt to sustain its consumption. At such times it would seem more reasonable to increase capital gains taxes and reduce taxes on the middle class, which make up the largest portion of the consuming sector.

Do current economic models account for this wealth distribution effect? The federal reserve is an institution of the capital sector and it has control of monetary policy. Does this lead to wealth and income accumulation in the capital sector at the expense of the consuming sector? GDP growth seems to be the main goal of this institution, while it is a poor measure of the well being of the greater society. It seems to me that government should have more control to prevent bubbles from developing.