Naked Capitalism Link of the Day

Today's link: This Time Really Is Different, at Decline of the Empire.  This post summarizes well the deep-seated problems we face, in a more efficient way than I can express them:

  I've got some news for people like John Mauldin, Barry Ritholtz, Carmen Reinhart and Ken Rogoff—this time is different, but not in the sense you intend. To understand what is happening in the United States, it is necessary to go far beyond an historical survey of financial crises. You must consider the specific historical circumstances that led to the current crisis. Such a review would include but not be limited to the following observations—

• The United States has been hemorrhaging manufacturing jobs for 30 years.
• Almost all of the income gains made during that time went to the top 10% of wage-earners, with most of them going to the top 1%. Wealth inequality grew accordingly.
• Health care costs have been soaring all that time.
• College tuition costs skyrocketed at a pace far beyond the rate of inflation.
• Households took on more and more debt to replace lost income.
• We had not one, but two, substantial economic bubbles during the last 15 years. Without those bubbles, how much would the U.S. economy have grown?
• The private debt to GDP ratio grew and grew, clearly indicating that more and more debt was required to add an additional point of GDP.
• The Federal Government more and more became the tool of monied special interests.

And so forth. When people endorse Reinhart and Rogoff, we are supposed to understand that the Tough Times we're experiencing now have a well-defined beginning—the financial crisis after the fall of Lehman—and will have a well-defined end—however many years it takes to work through the credit problems. This is utter nonsense. The "historical obversations" I listed above are in fact the root causes of our current predicament.
And in each case, the historical trend has not changed, or has gotten worse. Households now have only slightly less debt than they did before the crisis, but trillions of dollars of housing wealth has disappeared. Health care costs continue to soar, as do college tuitions. Income gains still go to the wealthiest Americans. In short, nothing has changed.

My first steps to address these issues:

1.  Let all of the Bush tax cuts expire, including on dividends and capital gains.  Reintroduce and modify some of the tax cuts or credits targeted to the lower half of the income spectrum.  Bring back a 40% marginal rate on incomes over $1 million, with 45% at $3 million and 50% at $5 million.  Limit deductions on incomes over $1 million.  This will chip away at the income inequality while helping to increase revenues.

2.  Establish a land bank and governmental finance arm to deal with foreclosed properties belonging to Fannie Mae, Freddie Mac and the FHA.  Target low interest loans or rents to the lower and middle classes to provide affordable housing and utilization of existing housing stock.

3. Address immigration reform.  Offer penalties and incentives to encourage illegal immigrants to come out of the shadows and begin the path to legal status.  Some workers may want permanent residency, some may want visas to come in and work seasonally, let's find out what would work.

4.  Analyze the existing freight railroads for traffic congestion and potential for passenger traffic improvements in regional travel.  Investigate commuter public transportation options and improvements in the 50 largest metro areas.  Identify and begin replacement of needed infrastructure, focusing on the central cities in the 50 metro areas.  Provide additional incentives for redevelopment and repopulation in central cities.

5.  Wrap up the Iraq and Afghanistan wars, and wind up U.S. support for Libyan rebels.  Cut defense spending, starting with personnel working overseas hired as contractors, they will not be the shadow army we deploy around the world.

That's just a start, and I haven't gotten to overhauling health care and moving to single-payer, or overhauling our energy system.  I should also note that there is a good editorial in Al-Jazeera (yes, I just wrote that) about the myths surrounding Ronald Reagan, which also goes into detail about some of the giant mistakes made in the last 30 years which have gotten us in this mess, and which must be unwound to get us out.