What’s
Wrong Today:

Today,
the Supreme
Court took another step toward giving the wealthy more freedom to influence
federal elections:

Have you ever
heard of managed
democracy? No? Well, you are living in one:

In a
nutshell, our government has learned to control elections so that the people
can exercise their rights without truly changing public policy.

One major
outcome is the Roberts Supreme Court.

The
concept of managed democracy evolved from the term “guided democracy”,
which was developed in the 1920’s by Walter
Lippmann in his seminal work “Public Opinion” (1922).

So,
here we are. We have elections, but nothing changes. We have elections, and the
incumbents usually win. We vote for hope and change, and nothing changes. We vote
and today, we get an expansion of Citizens
United, while yesterday, we got the Ryan
Budget. We live in a culture of narcissism. As such, social and
political movements are unlikely to get any traction. We live for ourselves and
for those close to us.

We treat the political sphere like
the weather: We endure the persistent economic hard times and try to snag
whatever we can for ourselves. There is limited interest anywhere in improving civic
virtue. People are content to let their “betters” rule and hope for the
best for themselves. If our neighbors suffer, well, that’s too bad.

As
Ian Welsh points
out, we are:

Welsh adds
an important point: Creating the candidates, taking over an existing party, or
creating a new party are all possible. All of them can be done, both in theory and in
practice, if enough people wanted to, or, wanted it enough to do it. But they
don’t.

Welsh
concludes:

We can speculate that
this is because we are a consumer society. Consumers choose from the options presented to us, we
do not make our own options. Whoever controls the menu, controls the
consumer society.

From time
to time, one person or another will bleat something along the lines of: “You are
just nasty; it isn’t conducive to a dialogue”. That is another cop-out, like “I’m
not political”.  There’s no reason why we
should be even remotely interested in dialogue with people who willingly shirk
all political responsibility. They’ve chosen to be impotent; to be little
better than slaves – why should anybody waste their time in a dialogue with
them? The great Stirling
Newberry wrote this week:

Newberry
points out that only 9% of the population believes Congress is doing a good
job, but it doesn’t matter. It won’t change, because only 10% of the population
does the choosing on primary day, and they are the ones who prefer reactionary candidates.

A takeaway
from Howard Zinn’s 2005 “A
Peoples History of the United States“, is that our history has been
one largely of the elites playing various demographic slices of the non-elites
off against one another. Whenever we have made progress, it has been when the
non-elites set aside these artificial divisions and focus their ire at the
elites (often at great personal risk). Usually this only happens after the
elites over-reach in some way. We’re going through that phase again, now.

We aren’t
in danger of a new gilded age, we are in one.

We aren’t
in danger of losing our democracy. In any reasonable sense, we have lost it already.

We have
choices, and could make them. If we as a group fail to do so, then as a
group, we are responsible for our fate.

We were
given this republic and we should keep it. We either will work hard to change
the course and keep it; or, we will let it stay under the control of the oligarchs. In either
case, we have decided. And we are responsible for that decision, to ourselves,
our children, to our society.

But we are a nation of enablers. Are we too
comfortable to change?

What’s
Wrong Today:

Our
never-ending election season is about to shift into high gear. And it’s a
midterm election, which occur every two years in between the only elections
which Democratic voters seem to think matter. Nothing could be farther from the
truth.

From the LA Times:

First, a quick refresher: Republicans hold 30 seats that are not up
for election in 2014. To gain control of the Senate, they need 51,
since Vice President Biden would cast tie-breaking votes in a 50-50
Senate. They currently hold 45 seats. Thus the Republicans need to hold
their 15 seats that are up, plus win 6 of the 21 Democratic seats that are up this fall.
(Democrats hold 52, while there are 2 Independents)

Another
way to look at it comes from the Economist:

Four
Democrats are fighting to keep seats in states that Mr. Obama lost in 2012:
Mark Begich of Alaska, Mark Pryor of Arkansas, Mary Landrieu of Louisiana and
Kay Hagan of North Carolina. None has a clear road to victory.

In 2008,
Mr. Begich eked out a victory over Ted Stevens, the Republican incumbent who had
been convicted of ethics violations just eight days before the election (those
convictions were later vacated).

Eight
senators are retiring or have quit. Of these, five are Democrats, 3 of whom come
from states that Mr. Obama lost by more than ten points in 2012: Jay
Rockefeller of West Virginia, Max Baucus of Montana and Tim Johnson of South
Dakota. Republican candidates enjoy healthy poll leads in all three states. The
other two Dems are in states that Mr. Obama won by less than ten points: Tom
Harkin of Iowa and Carl Levin of Michigan.

The
biggest challenge for Democrats this November isn’t to “win” this or that
public relations battle about the president’s job performance or the economy or
Obamacare or Ukraine—it’s the challenge of improving the turnout of certain demographic
categories who do not turn out as well in midterm elections as they do in
presidential elections.

In fact, the LA Times reported that the Democratic Senate
campaign committee plans to spend $60 million to boost turnout. That’s nine
times what it spent in the last midterm election, in 2010. -And the Democratic
National Committee (DNC) has begun to make the sophisticated data analysis
tools developed to target voters in the 2012 presidential campaign available to
all the party’s candidates.

And President
Obama has talked of need for candidates to start now to work on reducing the
number of so-called drop-off voters:

The
message is that Democrats can’t expect demographics to save the Senate.

Instead, the question is how to avoid a big
drop-off.
According to exit polls, voters younger
than 30 made up 12% of the electorate in 2010, when Republicans won control of
the House, but 19% in 2012, when Obama won reelection.

Minority
voters were 23% of the 2010 turnout, 28% in the presidential election.

Gaps that
big would almost certainly doom Democratic hopes this year.

A key lesson
from the Obama campaign is to drive GOTV (get out the vote) programs. The GOTV
program can’t wait until October, it has to begin now. The problem is that the
strategy has to be deployed (and funded) state by state, precinct by precinct
in the 21 states where Democratic Senate seats are in play.

How to
reach and engage the low turnout voting blocs is the true issue. Convincing
them that voting will actually lead to an important change in direction for the
country is the key to success. Seth Godin drew a great
distinction about engagement:

With those who rarely
vote, picking a venue and getting implicit permission to talk politics is
important. Finding appropriate venues is not as straightforward as schools and
churches were in the old days. Social media affects both venues of choice, and the way the information is
received. GOTV is about unblocking legitimate practical and motivational
issues. And knowing when someone is agreeing just to get you to go away.

Here is
the story the Wrongologist prefers to use:

Republicans are dreamers.
They dreamt of a peaceful democracy in the Middle East, but, paraphrasing
Rumsfeld, you go to the Middle East with the Republicans you have and not with the
ones you need.

• They
  dream that Obamacare will destroy the US

• They
  dream that anything Hillary does is a scandal

• They
  dreamt that Mission Accomplished was real, that the WMD existed

• They
  dream that austerity will fix poverty

• They
  dream that unemployment is caused by laziness

• They
  dream of a constitution written by Jesus

And they dream that
they won’t shoot themselves in the foot before election day. It’s true that one
person’s dream is another person’s nightmare. So, if Republicans DO win the Senate,
the US will deserve whatever ensues, and it won’t be good, of course.

Unless you’re a
transnational billionaire.

What’s
Wrong Today:

Few people are aware of the long-simmering
debate in Murfreesboro, TN between anti-Islamic activists affiliated with
the Tea Party and proponents of a plan to build an Islamic cemetery adjacent to
a newly-built mosque in Murfreesboro, TN. The mosque has 1,000 members.

The
issue dates to 2010, when local Muslims wanted to build a mosque and Judge Robert
Corlew III ruled against them. Federal judges subsequently overruled Corlew and
the mosque was built.

If
you think this is a local debate over what to build where, you would be wrong. It is a story about ignorance of the
Constitution, about what constitutes a religion and about how to instill fear
in an ill-informed populace.

The legal
battle over the existence of the Islamic Center of Murfreesboro has cost
Rutherford County $343,276
in legal fees, as the plaintiffs opposed to the center’s existence pursued
their lawsuit against the county planning commission that approved it. According
to Salon,
in 2012, the Plaintiffs in their appeal of the decision to build the mosque claimed that Islam is not a religion and doesn’t
deserve First Amendment protection. That claim prompted the intervention of the
local US Attorney, who, in a brief, confirmed that Islam is a recognized
religion, and that to suggest otherwise was “quite simply ridiculous.”

Last
week, Judge Corlew recused
himself from deciding on a motion to grant an injunction to stop the building of
the cemetery. His recusal infuriated opponents of the cemetery, who were
betting on the judge granting a delay just as he had when the mosque
construction was contested. WSMF-TV reported that his recusal led to a scuffle
outside the courtroom.

Background:

This all
started during a 2010 primary contest between Republicans in the 6th
Congressional district in Tennessee in which US Rep. Diane Black defeated
rival Lou Ann Zelenik. Back then, the race between Black and Zelenik was deemed
the “craziest
GOP House race of the year” because it focused on creating paranoia
about an Islamic takeover in Tennessee. Zelenik ran on the charge that the
mosque was going to teach Sharia law. After
her defeat, Zelenik founded the Tennessee
Freedom Coalition, a Christian group dedicated to helping citizens
understand how Sharia law threatened the nation.

Zelenik is also the
founder of the Tea Party in Rutherford County, TN.  

Fast
forward to 2013:

Who
was leading the charge in the courthouse hallway? Lou Ann Zelenik. After the
judge’s recusal, mosque opponents turned nasty, jostling and shoving, then
insulting a mosque supporter. The
Murfreesboro Post reported that one member
of Zelenik’s group again said that
Islam is “not a religion”. The Zelenik group also turned on WSMF TV’s reporter
Larry Flowers who was covering the hearing (and is African-American), ordering
him not to video them and reportedly yelling at him, “Who are you”?

Tennessee
Tea Party members ought to sit down and read their constitution. It grants
Americans freedom of religion. Then they should remind themselves that the Tea Party is a movement that advocates
strict adherence to the US Constitution.

The
cognitive dissonance here is breathtaking. Islam isn’t a religion? We know the
American educational system isn’t fully up to standard, but really?

Islam
recognizes and accepts Christianity as a religion, and believes the Christian Bible
comes from the same God they worship. It is sad that with all of our access to
information, like Fox News, we still have ignorant people, who make fools of
themselves, spewing hate and ignorance for seemingly idiotic reasons.

The
anti-Islam faction of the Tea Party believes it is in a battle to fend off an “attack”
on its religious freedom by having to share space with Islam. They have no historical
or cultural context, and if they hear one, they dismiss it as liberal
indoctrination and “anti-American.” They think the wishy-washy ideas
of liberals are a threat to democratic institutions in their timeless America.

Tolerance
and accommodation of Islam in society would be a capitulation to the enemy.

Clearly,
this is not about religion. It’s about gaining political power by creating and
channeling fear and hate in the general population.

It’s
an old trick that still works depressingly well.

Fear and
hate are base emotions of humans. Appealing to simple, lower-order,
knee-jerking emotions through ill-informed rhetoric is uncourageous and
misleading.

This is
just more of the Tea Party and far right wing effort to dumb down our political
conversation, and our citizenry. 

Just the right
amount of Wrong:
John and Yoko may have said during
their bed-in that war would
end if everyone found a mate and spent a week in bed. An alternative view in Ukraine this week: Raw Story reports
that a group of
Ukrainian women have called for a sexual embargo, no sex for Russian men. Using
the slogan, “Don’t give it to a Russian”, the vagina-Ukrainians will deny the
penis-Ukrainians of Russian descent, access to the wild thing. Western
government political and economic sanctions did not dissuade Russia from
annexing Crimea, so some Ukranian women will try withholding sex.

Use this quote from Charles
Bukowski on the dignity of work as an inspiration for your homily:

“How in the hell could
a man enjoy being awakened at 6:30 am by an alarm clock, leap out of bed,
dress, force-feed, shit, piss, brush teeth and hair, and fight traffic to get
to a place where essentially you made
lots of money for somebody else, and were asked to be grateful for
the opportunity to do so?”

Here is the Downton Abbey version
of our future:

Hobby Lobby’s argument at the Supreme Court:

 

Every employer should get to design employee health care coverage based on religious conviction. For instance, if a firm doesn’t believe in vaccines or blood transfusions, their insurance company can drop those provisions. If a company doesn’t believe in science, it’s not really a stretch to claim they don’t believe in doctors or medicine or hospitals. If their workers get sick they’ll just pray for them. Heck! Maybe they can drop health insurance entirely! Thank you, Hobby Lobby!

How the Right plays the counter-factual-to-science argument:

Christie CYA: are facts involved?

Christie sets up his own independent investigation into “Bridgegate”. The fluff piece by Christie lawyers and pals theorizes that the GWB was shut down for four days because Deputy Chief of Staff Bridget Kelly had an affair with, and was subsequently dumped by, former campaign manager Bill Stepian. So, Christie’s team tells us it’s really “Bridget-gate”. Why would her reaction to being dumped be: “gonna close the GW Bridge”?

Another attempted counter-factual this week:

What’s
Wrong Today:

History is
not inevitable: decisions are made by people, and that changes the outcome. In February, Larry Summers wrote
in the Financial Times: (emphasis by
the Wrongologist)

Does it mean that “working for the man” will become
“working for the Earl?” That we are on a track to return to a society with very
limited upward mobility?

A generation ago, we thought that the overall
growth rate of the economy was the main influence on the growth in middle-class
incomes. And that GDP growth would help reduce poverty. Today, middle class
incomes are stagnant. Corporate profits are at an all-time high, and GDP is
growing. Summers makes the point that relying on GDP growth to grow the middle
class is no longer a plausible thought.

Still, politicians  continue to quote their tired mantras about
job creators, lower taxes and socialist redistribution whenever inequality is
discussed. But maybe, not for much longer.

The economist Thomas Piketty, who (along
with Emmanuel Saez) has done useful work on income concentration, has written a
magnum opus: Capital
in the Twenty First Century. The title is an obvious reference to Karl Marx’s
Kapital, and the book is a survey of 200 years of economic history,
specifically relating to what Piketty defines as “Capital”. James
Galbraith reviewed
Piketty’s book, and helpfully outlines Marx’s definition compared to our
current view of capital: (brackets by the Wrongologist)

Piketty’s “Capital in the Twenty-First Century”
analyzes the long term distribution of income and wealth. The book draws on
reams of data from the United States and many other countries. The sheer
quantity of data that underlies Piketty’s conclusions is unprecedented, and as
a result, brings a great deal of credibility to his analysis.

The major
conclusion Piketty finds is that, over the long run, the return on capital has been higher than the growth rate of the
overall economy. He shows that the long term growth rate for wages over
the last 200 years has been between 2-2.5%. The long term growth rate for
capital (money/wealth), has been 4-5%. 

In other
words, accumulated and inherited wealth has become a larger fraction of the
economic pie over time. This has happened more or less automatically, and there
is no reason to believe this trend will change or reverse course.

Piketty also
found that the more capital you have, the faster it grows: so if you have $100,000,
you get a greater return than someone with $10,000. This contradicts orthodox economics, which claims there will
be diminishing returns, but it is a common sense observation about how the
world actually works.

Piketty
argues that the reduction in inequality in developed countries after World War
II was a “one-off”, driven entirely by political choices and
policies. It did not happen automatically. Those policies have now been largely
reversed, especially in the US.

As
a result, the drive toward increased inequality has become relentless.


Piketty’s solution is a global wealth tax. While this seems politically
unfeasible, he argues that it is the only thing likely to work. He is dismissive
of the idea that more education and training for the masses will solve the
problem by itself. We need a mix: Jobs are primary way to eliminate inequality,
but more revenue is necessary to rebuild our failing infrastructure and fund a
robust safety net.

Policy matters: Low inflation is
bad for ordinary people. They tend to have one major asset, the family home and
inflation will make its value rise. Their wages are tied as much to inflation
as to merit. Inflation helps make their debt cheaper to repay over the long run,
because the amount is fixed. Low inflation is good for the wealthy. It holds
labor costs down, keeps stock markets robust, and provides opportunity to invest
for the long term. Policies since
1979 have favored very low inflation. This has increased the power
of the rich. High marginal taxation would be good for ordinary people (they
don’t pay the taxes, the state gets the benefit of increased funding, and the
rich are relatively weak).

Political
decisions are important: In 1929, Hoover, the Fed, and later, FDR, did not bail
out the rich. They were allowed to lose their money, and thus much of
their power. 

That was a
policy decision. Another decision could have been made, and in 2008 it was made:
The rich were bailed out. A different decision was made in 2008 because
the rich had spent the last 80 or so years obsessing over what went wrong in
1929 that facilitated FDR and the New Deal. They did everything they could to
reverse it.

The cost
of bailing out the banks and the rich in 2008 was the catastrophic drop in the
income and wealth of average Americans, the austerity in Europe, the failed
Arab Spring, the Ukrainian Maidan revolution, and so on. 

A Great
Depression was avoided, but instead, a long austerity for the 99% was created.

Why do so many Americans believe
that the rich create jobs? They do not. Jobs are created when a buyer buys something
that whoever is selling the product cannot produce enough of by themselves, forcing
the seller to create more jobs to make more of the product.

The
consequences are easy to figure out: The 99% are the vast majority of buyers. If
they fall behind, they will buy less. That leads to fewer jobs, which leads to
less buying, and so on.

It
was America’s relative equality
(in terms of capital distribution and income) that allowed it to create the economic
and political institutions that led to our current global dominance. Economic
growth, we argued back then, was a product of companies and institutions
reflecting broad political participation, where the interests of those who are
just starting out were just as important as those who had already climbed way up
the economic ladder.

These institutions
are impossible to find in unequal societies, like the society we are busy creating
today.

Everybody
knows that the dice are loaded 
Everybody rolls with their fingers
crossed 
Everybody knows that the war is
over 
Everybody knows the good guys
lost 
Everybody knows the fight was
fixed 
The poor stay poor, the rich get
rich 
That’s how it goes 
Everybody knows

(Leonard Cohen)

What’s
Wrong Today:

What is
America’s corporate tax rate? According to the Tax
Foundation, it is 39.1%, the highest in the world:

The
reality is that they pay nowhere near that rate. According to a report by the General Accounting
Office, (GAO) the effective tax rate in 2010 was 13%:

The stated
rate is reduced by large domestic corporate tax breaks and by the ability of
multinationals to keep foreign profits offshore and free from US taxes, both
are permitted by various laws passed by the best Congress money can buy.

In fact, Bloomberg, that bastion of socialist news
coverage, reports
that US multinationals have parked $1.95 trillion of profits offshore (you can see a detailed infographic at the
above link). GE leads the parade, with $110 billion, followed by Microsoft with
$76 billion. 22 companies hold $984 billion, while another 285 companies hold
an additional $963 billion.

So, how
did this happen? As Yves
Smith says: (brackets by the Wrongologist)                           

The
implied tradeoff for the country and our social contract was clear: Give corporations bigger tax breaks and the
economy will grow faster and the average person will be better off. But
that plan hasn’t worked out:

Source:
davecokerblog

Private
domestic investment has dropped like a stone since 2006, two years before the
start of the domestic crash, and today it is at 2003 levels. Right-wing pundits
have maintained that we will not see employment return to the pre-crash levels until
we cut taxes further to unleash the power of business to create more jobs, and Republican
policymakers have dutifully followed that script.

And what
are corporations doing with their big offshore cash hoards? They are investing it in the US stock
market. Take a look at this
chart (gated), at the Financial Times
by Andrew Smithers:

The chart
shows net buying and selling of equities by corporations, institutions, households
and global investors. The purple color reflects buying by corporations, and the
purple bulge since 1997 reflects how
the US stock market has been driven almost entirely by corporations buying
stocks.

What funds
have they used to jump into the market so strongly? It’s largely the offshore
cash that they hold.

So companies
have not lived up to their half of the “lower our taxes and we will grow the economy”
bargain. Instead, they have been feathering their nests by using their cash to
buy back their shares. Here is another chart from Smithers:

This chart
compares US Corporate investment as a percentage of their cash flow (Left axis
and blue line) with US Corporate buybacks of their own shares (right axis and
red line).

Buybacks
are at historic highs and investment is at historic lows in the post WWII
period. As The FT’s Smithers
writes: (emphasis by the Wrongologist)

So, large
corporations continue to find it more attractive to game their stock than compete
in their marketplace, and they are using their offshore cash hoards to play the
game.

Congress
has built a foundation for the corporate elite to continue looting. Corporates
have used some of their cash to make sure that Congress continues to listen to their
needs and votes correctly. Meanwhile, ordinary citizens contend with a hostile
job market, where total employment is still less
than it was in 2007. They have little reason to hope that their financial
condition will improve.

Welcome to
the paradise of oligarchs and corporatists.

We should
be discussing whether or not we are prepared to live in what looks like a neo-feudal
country, dominated by an entrenched oligarchy. The Occupy movement tried to bring attention to this
situation, but, since they were inarticulate and not schooled in media spin, no
one listened. Now what? Today there is no dissident movement, no political
opposition to the status-quo, and Republicans may be poised
to take control of the Senate in November.

What sort
of society do we want to live in? This is one of the basic questions we must
answer, and unless we get better politicians, the beatings will continue.

The issue
should not be only about corporate growth and investment, but also about how well
corporations (which are socially
sanctioned entities) are working to move us toward being the society we
want to become.

Viewed
from this standpoint, it is clear that corporations and their Congressional
supporters are at war with the rest of us, and with the society we need.

We can safely come to some
conclusions. Politics in America is largely determined by dedicated interest
groups that play for keeps. We can’t keep crying that “it’s not fair”, while arguing
that politics is about “issues”. The people have to do something.

America, you citizens and voters: How
about actually “doing” something that brings about a change? How about voting for true reformers in November?

It shouldn’t just be true in college basketball that an underdog can win, it should also be true for a few underdogs in our Congressional elections.

You will never have democracy in
America while big business buys both parties and expects a payoff whichever one
wins – Tony Benn

This
week, we remember Tony Benn, British radical and Member of Parliament for 50
years. Benn told
filmmaker Michael Moore:

Bill Moyers
spoke about Benn’s pop quiz. Benn explained it in 2001, during his farewell speech to the House of Commons:

RIP Tony Benn. He foresaw this Koch Brothers
board meeting:

Fred Phelps, leader of the Westboro
Baptist Church, known
for its virulently anti-gay protests at public events, including military
funerals, also died. If
there is one man who can be credited for the success of the gay rights movement,
it’s him:

We continue to obsess about the
missing plane:

Putin dials heat up to 11:

Putin‘s brackets reflect different kind of March
Madness:

What’s
Wrong Today:-

Yesterday
we reviewed the “prize” that is Crimea. Today we turn to the “prize” that is
Ukraine.

Foreign Policy Magazine reports that Ukraine has
deep internal divisions. Among the leaders of the three opposition parties with
whom European diplomats negotiated the February 21st Agreement was Oleh Tyahnybok. He is the leader of
the extreme right-wing Svoboda (Freedom), an
anti-Russian, anti-Semitic party that wants Ukraine for ethnic Ukrainians who
speak Ukrainian (which would exclude about half of the population). Svoboda
obtained 12% of the vote in the 2012 parliamentary elections.

Until
2005, Svoboda bore the name “National-Social” and had as its symbol
the “wolfsangel,” emblem of
certain Nazi SS units. In 2012, the European Parliament appealed to the democratic
parties of Ukraine to not associate or form alliances with Svoboda. But Svoboda
also has competition on its right from a smaller but more violent group: the Right Sector, led by Dmytro Yarosh, a long-time
fascist activist.  

Despite
all of this, the EU and the US conferred legitimacy on Svoboda and the Right
Sector. This March, the US State Department published a debunking of Putin’s
“False
Claims About Ukraine,”
assuring Americans that Ukraine’s far-right “are not represented” in
parliament.

Svoboda’s members
now hold several ministerial positions, including Vice-Prime Minister, Minister
of Defense, and Prosecutor General (responsible for upholding the constitution
and other laws). The Right Sector’s Yarosh has become Assistant Secretary of
the Council for
National Security and Defense. The Secretary of that Council is Andriy Parubiy, a longtime
far-right activist. Recently, Prime Minister Yatsenyuk dismissed three
Assistant Ministers of Defense for their refusal to integrate the Right
Sector’s militias into Ukraine’s regular armed forces.

For the first time since World War
II, neo-fascists hold posts in the national government of a European state. And they do this
with the blessing of the Western democracies.

Ukraine’s
economic situation:

The
West’s plan has been to sever the Ukraine economy from Russia. The plan began
in 2004 with the Orange Revolution, but was not fully realized. The February 22nd
coup represents the completion phase of that separation, a plan to sever
the Ukrainian economy from Russia. The
Orange Revolution in 2004 and the overthrow of Yanukovich in 2014 are not discontinuous
events; they are linked and part of a continuum.

According
to Counterpunch,
the next step is an IMF package for Ukraine, and additional funding from the
European Union and the US. The IMF deal is still in development, but it will be
the third deal between the IMF and Ukraine:

• In
  2005: $16.6 billion in loans

• In
  2010: $15.1 billion in loans

The
2010 IMF deal slowed Ukraine’s economy, as it required a 50% increase in retail gas prices and corresponding cuts in gas subsidies. That
significantly reduced aggregate consumption by Ukrainian households and slowed
the economy. So did IMF demands for reductions in government spending, another precondition
for the $15.1 billion 2010 IMF package.

The
IMF deal in December 2013 was reported to require that household subsidies for
gas be reduced by 50% once again. Other IMF requirements included cuts to
pensions, government employment, and a commitment to privatization of (that is,
letting Western corporations purchase) government assets and property. 

The
new $15 billion IMF deal represents less than the $20 billion the Ukraine said
it needed last December, before its currency fell 20% and its foreign exchange
reserves fell to less than $10 billion. It is substantially less than the $35
billion the new interim prime minister, Yatsenyuk, asked for.

The
latest Ukrainian GDP (2012) figures show its GDP was equivalent to $335 billion
if adjusted to PPP, (purchasing power parity) terms. Household gas subsidies
reportedly amounted to 7.5% of GDP in 2012. That’s about $13 billion in
nominal terms. If the pending IMF deal reportedly requires a cut of gas subsidies
of 50%, that’s about $6.5 billion taken
out of the Ukrainian economy. 

So
the $15 billion IMF funding will result in only a net $8.5 billion to the
Ukranian economy. Importantly, a significant share of the $15 billion IMF loan will go to western banks, especially
in Austria and Italy who have problem loans in Ukraine.

It
gets worse: Severing Ukraine from Russia may be a pipe dream since, according
to Trading
Economics, more than 60% of Ukraine’s exports go to Russia and other
former Soviet Republic countries, including Kazakhstan and Belarus.

Military Support for Ukraine:

This
brings up the question of the 1994 Budapest
Memorandum, between Russia, the UK, the US and Ukraine. It obligates
signatory states to:

• Respect
  the independence and sovereignty and the existing borders of Ukraine

• Refrain
  from the threat or use of force against the territorial integrity or political
  independence of Ukraine

• Pledge
  that none of their weapons will ever be used against Ukraine.

The
signatories are required to “seek immediate United Nations Security Council
action to provide assistance to Ukraine” only in the event of an act of
aggression “in which nuclear weapons are used.” As one international law
scholar puts it:

Now that
Russia has violated the Budapest Memorandum, is there any possibility that the
other signatories will make any military move beyond exercises?

In
fact, according to Reuters,
Ukraine’s new leadership is not seeking membership in
NATO, said Prime Minister Arseny Yatsenyuk in comments intended to reassure Russia and Ukraine’s
large number of Russian-speakers.

Despite Yatsenyuk’s statement, there is an emerging
view in Europe that NATO has to be
active in Ukraine. The NYT
reports that Anders
Fogh Rasmussen, secretary general of NATO, said on Wednesday that the alliance
was considering providing assistance to Ukraine to help deter Russia from another
military intervention there:

He
noted that the foreign ministers of the NATO alliance will decide what to
provide at a meeting on April 1-2. Drumbeats came from Adm. James G. Stavridis,
who led NATO’s military command until he retired last year. He said:

NATO
will hold military exercises in Ukraine this summer. They were announced before
the current dust-up with Russia, RT reports, and US
military will call the shots in the exercise that will bring together some
1,300 Western forces in Ukraine.

According
to the US forces in Europe website, Rapid Trident 2014 is designed to:

Here we
are, once again hip-deep in a crisis of our own making. A crisis that has
driven serious domestic issues, like jobs and inequality right off the front
page of our news outlets. Crimea and the bad Russkis are a better topic for our
corporate and political overlords.

We say they started it, while they say we started it.

It’s more of the “keep the
rubes confused while we keep on stealing”.

Once again,
America has used “democracy” and 60 year old anti-Russian memes in a clumsy and
wrong-headed effort to beat Putin to the draw.

What’s
Wrong Today:

Today
and tomorrow we will look at the geopolitical and economic dynamics that will
play out in Crimea and Ukraine. Starting with Crimea, the NYT gives some insight
into the situation on the ground:

David
Herszenhorn continues: (emphasis by the Wrongologist)

Herszenhorn
interviewed Russia’s regional development minister, Igor N. Slyunayev, who
said:

Yes,
he did say “our” Crimea. Slyunayev went on to say:

Russia
is facing its own fiscal challenges. Revenue growth from oil and natural gas is
projected to slow precipitously, and the Kremlin confronts big bills from
salary increases for the police, the military and other public workers. Time
Magazine reports: (brackets and parenthesis
by the Wrongologist)

There
is no overland transportation link between Russia and Crimea, and building a
bridge across the shortest waterway, near the Crimean city of Kerch, could take
years and cost an estimated $3 billion to $5 billion. Keeping Crimea stocked by
air and sea can be done, but it will be costly and more difficult.

Turning to
the European Union, it is clear that most members are very dependent on Russia
for energy imports, which limits their actions against Russia. Some in the financial
media are willing to acknowledge that the EU can’t afford to implement very strong
sanctions against Russia over Crimea, and Bloomberg quotes them as saying outright that there’s not much more that the West
can do:

It’s a sad
day in America when you have to get your honest news from the pigs at Goldman
Sachs, B of A, and Morgan Stanley.

But Russia
has not been standing still geopolitically. It has finished the final stage of the
East Siberia-Pacific Ocean (ESPO) Pipeline in 2013. Here’s Oil Price, describing what the new pipeline means:

There is geopolitical
significance to the new pipeline in terms of any possible additional sanctions
in the West: The pipeline makes Russia’s Far East a major Asian oil player,
positioning it to become a strategic transit point for oil to Japan, China, South
Korea, the Philippines, Singapore and Taiwan.

That means
Russia has built even more leverage over Europe.

Mr. Putin’s
decision to annex Crimea has pluses and minuses for Russia. It is a province
that likely would have remained Russian even after the breakup of the old
Soviet Union if Khrushchev hadn’t given it to Ukraine. It is a province that is
unable to support itself, but one that is a long-term strategic asset,
militarily. It has some untapped oil and gas reserves to draw upon, but they can
hardly be developed in a short enough period of time to be of value to Crimea or to the
Russian economy as a whole. That will take a decade or two.

Its major economic
sector is tourism, and European and Baltic tourists are going to stay away for
awhile.

This is a
geopolitical situation that saber-rattling and stare-down contests can’t
possibly win, but maybe, time will show it to be a bad decision for Mr. Putin.

The
West had only one bad option regarding Mr. Putin’s Crimea incursion, and that was a
military confrontation. The idea that financial sanctions and visa restrictions
would somehow stop Putin from doing whatever he wanted was fanciful to say the
least. Mr. Obama’s decision not to go to war with Russia or impose truly serious
sanctions over Crimea is a smart one, as is his decision to let our EU allies
bear the brunt of the saber-rattling. That allows Mr. Obama to play a long game, seeing if Putin
can manage the Russian economy past a difficult point, while also propping up
Crimea.

All
of that in the face of some sanctions and political isolation.

It he can
do both, Mr. Putin wins a limited victory. If he can’t, the West can give him enough
rope to hang himself at home.

Tomorrow,
we focus on Ukraine’s domestic situation, and some of the implications for the
US.

What’s
Wrong Today:

The United
States’ social insurance system has always been a public-private hybrid, but conservatives have dreamed of returning to a
world where private social insurance and private charity fulfills all public social
safety net needs ever since the passage of the Social Security Act
in 1935. But, according to an article by Mike Konczal in Democracy, that world never existed. The article
draws on serious historical research to make two main points:

• There
  never was a Golden Age of purely voluntary charity

• What
  charitable support mechanisms existed completely collapsed with the onset of
  the Great Depression

Konczal outlines the desire of conservatives to return to private or
voluntary insurance: (brackets by the Wrongologist)

In
the past 30 years, there has been a continuing effort by Republicans to privatize
much of the safety net, including social security. When Ronald Reagan was challenging Gerald
Ford for the GOP nomination in 1976, during a press conference at Daytona
Beach, Reagan made
this comment about Social Security:

More
recently, we saw similar efforts with President George Bush I’s “thousand
points of light”, followed by George Bush II’s 2005 plan to partially privatize Social Security,
and now, Rep. Paul Ryan’s
and the Republican Party’s platform: Path to Prosperity.

Despite Republican
longing for the old days, there are sound economic reasons why public social
insurance is superior to charity and private solutions. The goal is to protect
people against risks of unemployment, health emergency, and outliving one’s
savings. For risk-mitigation programs to work, several things are necessary.
One is that people are actually covered. This is something you can’t have with
a private system (unless it’s regulated to the point of being essentially
public), since charities or insurance
companies get to pick and choose who they want to help. Konczal says of
private agencies before the Depression: (emphasis by the Wrongologist)

Any safety
net must have the assurance that the system will have the financial capacity to
actually protect people in the event of a crisis. That’s why you don’t depend
on your neighbors to rebuild your house if it burns down. They may not like
you, they may not have enough money — especially if you lose your house in a
fire that burned down the entire neighborhood. Finally, it’s important to know
that more than half
of total private charitable donations go to religious organizations, private
schools, and medical organizations, with
only 12% going to human services organizations.

Private social
insurance cracked after the Great Recession in 2008. According to the US Census,
employer-based health-care coverage has
declined from 64% of the workforce in 1997 to 56% in 2010. Private savings vehicles are a poor substitute
for social security. They don’t look capable of providing the safety net in old
age, since the typical 401(k) holding was just $83,000 in
2013.

Importantly, private charitable
giving failed to meet the challenge of the Great Recession. The start of the Great Recession should have been the exact moment
when private charity could have made a huge difference. But, private giving
fell as the Great Recession started. Overall, giving fell 7% in 2008, with
another 6.25% drop in 2009. Using the yardstick of charitable giving measured
as a percentage of GDP, charitable giving fell during the Great Recession (even
as GDP shrank), from 2.1% in 2008 to 2.0% in 2011. The high point in the ratio was
2.3% of GDP in 2005.

All of this didn’t hurt
as much as it might have, because of the role of “automatic
stabilizers”. Automatic stabilizers are federal programs such as
unemployment insurance and food assistance that maintain an income floor when
people lose their jobs. These stabilizers, in turn, also decline automatically
as the economy starts to recover. During 2009, automatic stabilizers expanded
rapidly, from 0.1% of GDP to 2.2% of GDP, more
than all charitable giving in the US in that year. This was directly
targeted at areas that suffered from the most unemployment, and helped those
most in need—something that private charities cannot do.

Alongside the
government’s efforts to prevent the collapse of the banking sector and the Fed’s
expansion of monetary policy, automatic
stabilizers were a core reason the Great Recession didn’t become a second Great
Depression.

But social insurance
isn’t just a collection of socialist programs. It’s a reflection of who we are as
a people and how we intend to navigate the risks of our age. It establishes a
baseline of equality among all citizens, so that charity can serve to enhance
the lives of the less fortunate instead of forcing them to rely solely on the good will of those
with big bucks.

Contrary to the
idealized imaginings of conservatives, Mike
Konczal’s article amply
demonstrates that the Four Horsemen of accident, illness, old age, and
joblessness won’t be—and have never been—fended off with purely private programs.