When Moderation Fails, Part 1: Simpson & Bowles, Standard & Poor's, And Ezra Klein By Richard (RJ) Eskow : April 21, 2011 - 3:03am ET Historians of the future may one day write that the death of the New Deal began this year. If so, it goes without saying that corrupt forces like the Chamber of Commerce will be a big part of the story. So will billionaire ideologues like Pete Peterson, and greedy politicians looking for a handout. Unfortunately, so will a lot of reasonable people whose biggest problem is that they're temperamentally inclined toward being reasonable and moderate - even when circumstances don't warrant it. The problem's become so severe that it will take more than one day to address it. It will require criticizing people that I respect, and who in some cases I've met and like personally. A great many moderately-minded individuals seem to have been lulled into accepting a Washington consensus in which the "new normal" means accepting that only remaining choice is between a radical assault on the middle class and a moderately radical assault on the middle class. In that world, a "judicious" assessment of Republican radicalism can easily turn into accommodationism. That can lead in turn to bad deals that create needless suffering. We begin with somebody I like and respect: Ezra Klein. Ezra's become an important voice in Washington, and he has developed an extraordinary platform at the Washington Post. He's earned it through prodigious, detailed daily output over the course of years. He was highlighted by Politico as part of the Post's "leftward online shift," and he's an MSNBC regular. He's considered a liberal voice by powerful people who know and like him. That's why his approach to deficit reduction and austerity economics is potentially so damaging: people listen to him. While I suspect he's simply trying to be reasonable and fair, Ezra's been giving credence to some very immoderate ideas lately. And by taking Standard & Poor's threat to downgrade the US government at face value, he's helped accelerate the rush to judgment on issues that will affect the future health and well-being of millions of Americans. I have to say I feel a little bad right now, as if I'm piling on, since respected financial blogger Yves Smith just reprinted some gratuitously nasty words about Ezra from a blogger who appears to have one of those tones that revels in the gratuitously self-righteous. On the other hand, Yves was right to point out that what Ezra wrote - that banks thought their mortgage-backed securities were "safe" - was way off-base, and that it whitewashed Wall Street malfeasance. But Ezra's not somebody who makes a habit of protecting bankers. He was off, but every political generalist gets something wrong from time to time and apparently it was his turn. But Ezra's been consistently willing to accept prevailing Washington orthodoxy about deficit reduction: that it's our nation's primary problem, overwhelming unemployment or poverty in importance, and that extremist approaches to it are really "centrist" and reasonable. Like a number of otherwise liberal-leaning observers, Ezra likes to say that "the Simpson-Bowles recommendations" - private recommendations from the co-chairs of the deadlocked Deficit Commission - were something that "many saw as a good bipartisan starting point just a few months ago." Actually, only people who operate inside a very small circle of politicians and journalists saw these proposals as a "good starting point." Polls show that the Simpson/Bowles proposals were soundly rejected by the American people, and findings from Reagan's chief Social Security actuary and a leading economist (among many others) show that their proposed assault on Social Security is absolutely unnecessary. Far from being a "good starting point," the radical Simpson/Bowles proposals are an ending point - for the core accomplishments of FDR's New Deal and LBJ's Great Society. What's more, Ezra's familiar enough with health policy to know that the Simpson/Bowles proposal does nothing to reduce the growth of Medicare costs. It merely imposes arbitrary cost caps, benefit cuts, and other devices that place these costs on the back of elderly people who are in no position to control them. And what can we say about a Klein piece that's entitled "How Congress provoked Standard & Poor's"? That it's the economic equivalent of saying "she asked for it"? Standard and Poor's is a business that's based on a fundamental conflict of interest: It's part of a publicly traded corporation, and it makes money by pleasing the corporate clients that it rates. S&P is a division of publicly traded McGraw-Hill (NYSE:MHP) and it had annual revenues of $2.61 billion for 2009, most of it from Wall Street. A company like that never makes a move without considering the impact it will have on sales, and this announcement was no exception. S&P's corporate clients were undoubtedly delighted to see more pressure on the government to reduce debt, since that's been a major objective of the US Chamber of Commerce and other corporate organs from some time. The S&P announcement was somewhat bizarre, since they didn't actually announce a downgrade of the government's credit. They just said they would downgrade it if certain conditions weren't met. Conveniently, that announcement put enormous pressure on reluctant politicians to accept a deal - any deal - that would reduce the deficit. And that's exactly what the anti-New Deal crowd's been pushing. (Very few people picked up on the real implication of their announcement: if people were serious about meeting their obligations, they'd push for tax hikes instead. Dean Baker explains. But it was understood that would never happen.) S&P was wrong about Enron. It was wrong about AIG. It was wrong about all those securities it rated AAA, and which were later downgraded to junk bond status. But then, when your corporate bottom line depends on being wrong, you're probably going to be wrong a lot. The right question isn't "why did S&P downgrade the US government?" It's "why does anybody still listen to S&P?" What's more, S&P has pulled this little routine before. The last time they made an announcement like this was last August,when the Simpson/Bowles Commission was losing steam and it was thought that a little push might help it over the top. They offered that push. Then, as now, their announcement came at a very politically opportune time for the austerity economics crowd. Standard & Poor's has a history of being serially wrong and serially unethical, so taking their statements at face value is a big mistake.Time and time again, the company has pressured analysts to give better ratings to their customers - a practice that helped dupe investors into making bad investments. Ezra says that S&P issued their warning because "Congress ...seems to be doing everything in its power to undercut the market's opinion of America," and because "Democrats began the year by convincing everyone they weren't going to produce a deficit reduction plan" while Republicans haven't proposed a rational alternative. Which might make sense -- if S&P hadn't issued an identical warning last summer. Remember, that was before Congress did "everything in its power to undercut the market's opinion." And what exactly did S&P say last August, as the Deficit Commission was preparing to wind up its work? "It is very important for the credit standing of the United States that the Congress considers very carefully what the fiscal commission proposes." The "fiscal commission." That would be Simpson and Bowles. Funny coincidence, that. Let's face it: Saying that Congress "provoked" S&P is like saying that Gotham City provoked The Joker. We won't linger too long on the fact that Ezra also defended Paul Ryan's cartoonish, deceptive "Roadmap for the Future, " calling its ambition "welcome, and all too rare," and said of Ryan: "I appreciate his policy-oriented approach to politics."Krugman's already taken him to the woodshed over that, and we won't belabor the point except to say that the incident is illustrative: When a temperamentally moderate person like Ezra (or President Obama, for that matter) is thrown into a room with people like Paul Ryan, the temptation is to give them more credit than they deserve. Ryan may genuinely be the likeable person Ezra says he is. Many people who do dreadful things are likeable. (I know - I worked on Wall Street and in the insurance industry.) But Ryan's policies are designed to eliminate Social Security, slowly but surely. That's nothing less than a prescription for mass death - a 13% rise in senior mortality, based on the conclusions of one study - and to say anything else is to risk becoming an accessory after the fact. Back in the heat of the healthcare debate, Ezra suggested that the Senate bill was worth passing because it could save 100,000 lives. I felt then that the number was overstated, and I still feel that way now. It probably will save lives - but it could have saved more if people had kept up the pressure for a stronger bill. A stronger bill would've been more popular, too, according to polls. The seemingly moderate approach taken by Ezra and others contributed to the perception that progressives would accept a weaker bill. We're at the same kind of impasse now. Today's stakes involve fundamental issues of economic fairness, and the ideas being promote threaten the physical health and the retirement security of millions of middle-class Americans. Ezra Klein does a lot of terrific work. But he and the other people we'll be discussing represent a "reasonable" form of liberalism that has begun to undercut common-sense policies - policies that are more popular, wiser economically, and far more humane and fair than those of Simpson and Bowles, the Gang of Six, or any other operatives who are carrying water for the right-wing austerity agenda. That may not be their intent (I'm sure it isn't), but from where I sit it sure looks like that's the result. Corporate Coup d’état Coming Soon to a City Near You by Rania Khalek In her book The Shock Doctrine, Naomi Klein demonstrates how wealthy elites often use times of crisis and chaos to impose unpopular policies that restructure economies and political systems to further advance their interests.  She calls these orchestrated raids on the public sphere in the wake of catastrophic events, combined with the treatment of disasters as exciting market opportunities, “disaster capitalism.” Disaster capitalism is on display around the country, as legislators use the debt crisis afflicting their states as an opportunity to hollow out the public sector.  In Michigan it’s being packaged as “emergency financial management” by Republican Gov. Rick Snyder, who is looking to exploit an economic crisis that has left his state with a severe budget deficit.  In March, Snyder signed a law granting state-appointed emergency financial managers (EFM) the ability to fire local elected officials, break teachers’ and public workers’ contracts, seize and sell assets, and eliminate services, entire cities or school districts, all without any public input.  He claims these dictatorial restructuring powers will keep Michigan communities out of bankruptcy. Michigan currently has unelected EFM’s in charge of the schools in Detroit, as well as the cities of Pontiac, Ecorse, and Benton Harbor.  In Benton Harbor, the city’s elected mayor and city commissioners were stripped of all power by unelected EFM, Joseph Harris. Harris issued an order saying the city commissioners have no power beyond calling meetings to order, approving minutes, and adjourning meetings.  This decimation of local democracy is spreading.  Robert Bobb, the EFM that has taken over Detroit’s public school system, sent layoff notices to all of the district’s 5,466 unionized employees.  Bobb says he will exercise his power as EFM to unilaterally modify the district’s collective bargaining agreement with the Federation of Teachers starting May 17, 2011. ACLU of Michigan Executive Director Kary Moss said the law raises concern about separation of powers, its impact on minority communities, collective-bargaining rights and privatization of services.  She is absolutely correct.  Faced with a deficit, emboldened EFMs can sell off public property to developers, close public schools and authorize charter schools, and void union contracts with literally no recourse for local, tax-paying residents or their elected officials to stop it. And, it gets worse.  Michigan has joined with the Turnaround Management Association (TMA) to develop a training program for prospective emergency managers.   According to their website,  TMA members are a professional community of turnaround and corporate renewal professionals who share a common interest in strengthening the economy through the restoration of corporate value.  Michigan Treasurer Andy Dillon, while speaking about the new program during a seminar on municipal distress, said that mayors and school superintendents are essentially running big businesses that, in many cases, are more complicated than private companies.  It’s no surprise then, that Wall Street investors are thrilled about the potential impacts of the EFM law. An estimated 400 accountants, lawyers, school employees, and city workers began classes offered by the program in Lansing, Michigan this week on topics including “Dealing with the Unionized Workforce,” navigating municipal bankruptcy and negotiating contracts for sewer, water and other utilities.  ”Dealing with the Unionized Workforce” is code for destroying unions and has nothing to do with balancing the budget.  Gov. Scott Walker (R-WI) in an appearance before the House Oversight Committee, under questioning from Rep. Dennis Kucinich (D-OH),admitted a key provision in his state budget proposal to curb union rights had no fiscal benefit, putting to rest the notion that union-busting governors like Rick Snyder have any intention of actually solving their state’s economic woes.  As for “negotiating contracts for sewer, water, and other utilities”, this is code for privatize, privatize, privatize! This so-called financial emergency is really a democracy emergency.  Local governments are NOT corporations, nor should they resemble them.  The true purpose of emergency financial management is the conversion of a democratically elected government into a hierarchal business entity through economic “shock therapy”, which would be impossible if workers, elected representatives, and residents had any say.  Michigan has become a laboratory for  Governor Rick Snyder to impose disaster capitalism onto his state.  If we allow what is taking place in Michigan to continue unabated, it won’t be long before disaster capitalism finds its way to a city, town, or school district near you.