The Dangers of Perception

There is a saying that one’s perception of reality can be just as dangerous as reality. Last week’s midterm elections are proof positive to that point.

 

Despite six years of Republican obstructionism that has wreaked havoc on the nation, voters in several states rewarded the petulant children that make up the GOP with a resounding victory that gave Republicans the U.S. Senate and expanded the Republican majority in the U.S. House.

Journalists and the pundit class have offered several post-mortems on the elections, and there will be many more such pieces down the road. So far, several things appear clear: Most people have no idea what they are talking about, and too many rely on conventional wisdom without realizing that wisdom is anything but conventional.

If the exit polls are correct and many people voted for the Republicans because they are displeased with the direction in which the nation is headed or because they feel government is not working, then we must ask in exactly which direction do the voters wish the country to go and what makes them think the dysfunction that is the GOP will cease to exist come January?

Despite the sabotage from Republicans and the dire, “sky-is-falling” warnings from their sycophants the economy is doing remarkably well. Preliminary jobs numbers released by the U.S. Department of Labor last week showed that the nation created 214,000 jobs in October. That means the nation has gained an average of 235,000 jobs a month for the last six months. The averages are 224,000 over the last three months, and 220,000 over the last 12 months. The October numbers marked the 56^th month of job gains. In addition, the unemployment rate dipped to 5.8 percent in October, and, more important, the four-week average for unemployment claims hit a 14-year-low the previous week.

The good news does not stop there. Bankruptcies were down 13 percent for the fiscal year that ended Sept. 30; gas prices are below $3; the third quarter gross domestic product grew at an annual rate of 3.5 percent; the budget deficit has dropped to 2.8 percent of GDP; the Dow keeps setting records; and the labor force actually grew.

Of course, there is some bad news to go with the good news. Most revealing is that wages continue to be stagnant, although many business leaders and economists say the continued reduction in the unemployment rate should provide upward pressure on wages. And as Daily Beast writer Michael Tomasky reported on Nov. 6, median household income fell each year from 2009 to 2012. While it grew to $52,100 in June 2013, the growth is not enough to make up for the losses American households have endured since 2000 when median household incomes dropped to $55,987 after hitting a peak of $56,080 in 1999 under President Bill Clinton.

So what does all that have to do with the midterm elections?

Apparently very little because according to some exit polls 78 percent of those who voted on Nov. 4 felt that the country is headed in the wrong direction economically. Such a number says either the voters who responded to those exit polls were not being totally truthful, or that they are extremely ignorant of current events. Both may actually be true.

Because if a lack of faith in the direction of the economy and a disdain for dysfunctional government were the motivators for voters then why would Republicans win? It was Republicans who blocked a vote to increase the minimum wage, an issue that passed ballot initiatives even in states that voted for Republican legislatures and governors.  It also were Republicans who blocked efforts to help jump start the economy by improving the nation’s infrastructure, something nearly all agree must be done eventually. Most important, it was Republicans who took the nation hostage, shutting down the government in an effort to overturn the Affordable Care Act and threatening default during the debt ceiling brinksmanship.

As Paul Krugman wrote in a Nov. 6 post on The New York Times web site:

“…the biggest secret of the Republican triumph surely lies in the discovery that obstructionism bordering on sabotage is a winning political strategy. From Day 1 of the Obama administration, [Mitch] McConnell and his colleagues have done everything they could to undermine effective policy, in particular blocking every effort to do the obvious thing — boost infrastructure spending — in a time of low interest rates and high unemployment.

“This was, it turned out, bad for America but good for Republicans. Most voters don’t know much about policy details, nor do they understand the legislative process. So all they saw was that the man in the White House wasn’t delivering prosperity — and they punished his party.”

Apparently, some pundits are just as clueless. David Brooks of The New York Times and Dana Millbank of the Washington Post each offered his take on the election.

In his Nov. 6 post on The New York Times website, Brooks basically argued that the Republican Party’s massive victory on Nov. 4 occurred because the party had grown up, that its leaders had pulled “back from the fever swamps” that followed the injection of Sarah Palin and the like onto the national stage. The key, according to Brooks, was that Republicans returned to their stalwart roots.

“Republicans didn’t establish this dominant position because they are unrepresentative outsiders,” Brooks proclaimed after reciting Republican gains. “They did it because they have deep roots in four of the dominant institutions of American society: the business community, the military, the church, and civic organizations.”

In support of his argument, he offered up several examples: Larry Hogan, who won the governor’s race in Maryland; David Perdue, who was elected to the Senate from Georgia; Thom Tillis, who was elected senator in North Carolina; Bruce Rauner, who was elected governor in Illinois; and James Lankford, the Senator-elect from Oklahoma who ran “the nation’s largest Christian camp.”

Of course Brooks did not mention, for example, that Rauner has been accused of questionable practices in how his private equity firm, GTCR, has handled Illinois’ pension fund, which Rauner now says cannot pay retirees the promised nearly $2,500 a month in benefits. Brooks also does not mention that Tillis championed the 2011 North Carolina bill that would have forced women seeking abortions to view an ultrasound against their wills. Brooks also did not mention several other extreme candidates, including Joni Ernst of Iowa.

Millbank, in his Nov. 5 post to the Washington Post web site, simply decided the real problem was that President Obama did not humble himself after the midterm election, that he did not take serious the idiocy of an American electorate that gave control of the government and economy to the very same people who wrecked it six years ago, an electorate that passed a referendum calling for a hike in the minimum wage while electing people who have vowed to fight any such increase.

That Republicans have spent the last six years rejecting all of the President’s overtures in an effort to embarrass him is of no consequence to Millbank. To Millbank, the fact that an exit poll showed that 33 percent of the voters who responded said their vote was to show disapproval of Obama was all that mattered. Apparently Millbank did not notice that 47 percent of the American electorate voted against Obama in 2012, or that if 33 percent said they wanted to show disapproval of the President that would also suggest that 67 percent had other reasons for voting as they did.

Simply, there is no single reason why Democrats were trounced during this year’s midterm elections. There appears to have been several factors involved – a lack of understanding of the political process, an aversion to facts, low voter turnout, a party ashamed of its leader – and many of those things may not be easily fixed. That is the reality, and it is froth with as much danger as the one many perceive.

Rubio and the GOP's Big Gulp

There was a very good reason why Sen. Marco Rubio took a swig of water during his reply to President Barack Obama’s State of the Union address Tuesday night: Even the Republican Senator from Florida could not swallow the political bane he was peddling to the American public.

Rubio, as expected in his official response for the GOP, labeled Obama in a way that fits neatly into the Republican myth about the President – he is a taxing, big spending, liberal, Democrat, Socialist – but has little to do with the political reality. Then Rubio offered no realistic alternatives to what the President suggested. Instead, he offered the same tired and faulty Republican bromides.

“Presidents in both parties – from John F. Kennedy to Ronald Reagan – have known that our free enterprise economy is the source of our middle class prosperity,” Rubio said. “But President Obama? He believes it’s the cause of our problems. That the economic downturn happened because our government didn’t tax enough, spend enough and control enough. And, therefore, as you heard tonight, his solution to virtually every problem we face is for Washington to tax more, borrow more and spend more.

"This idea – that our problems were caused by a government that was too small – it’s just not true. In fact, a major cause of our recent downturn was a housing crisis created by reckless government policies,” the senator said.

On Wednesday, Paul Krugman, the Nobel-prize winning economist and New York Times columnist, assailed that argument.

“OK, leave on one side the caricature of Obama, with the usual mirror-image fallacy (we want smaller government, therefore liberals just want bigger government, never mind what it does); there we go with the ‘Barney Frank did it’ story,” Krugman wrote. “Deregulation, the explosive growth of virtually unregulated shadow banking, lax lending standards by loan originators who sold their loans off as soon as they were made, had nothing to do with it — it was all the Community Reinvestment Act, Fannie, and Freddie.”

In his Wednesday post to Wonkblog in The Washington Post, Mike Konczal noted that the housing crisis was driven by subprime loans in the private market, not mortgages from Fannie Mae and Freddie Mac, or the Community Reinvestment Act.

“The fly-by-night lending boom, slicing and dicing mortgage bonds, derivatives and CDOs, and all the other shadiness of the mortgage market in the 2000s were Wall Street creations, and they drove all those risky mortgages,” Konczal wrote.

To support his contention, Konczal cited data that showed “more than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions… Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.”

He went on to quote David Min, a University of California, Irvine law professor, who said the argument that the government directly created either the housing bubble or subprime loans has a serious problem with the timing:

“From 2002-2005, [GSEs] saw a fairly precipitous drop in market share, going from about 50 percent to just under 30 percent of all mortgage originations. Conversely, private label securitization [PLS] shot up from about 10 percent to about 40 percent over the same period. This is, to state the obvious, a very radical shift in mortgage originations that overlapped neatly with the origination of the most toxic home loans.”

Of course Rubio’s arguments fly in the face of other realities. Republicans are quick to say that the government creates regulations and laws that destroy America. They also argue that government, especially on the federal level, is incapable of getting things done. 

No Child Left Behind was passed to improve education, yet our schools continue to flounder. The Environmental Protection Agency and several presidents have pushed to reduce carbon emissions from industry and cars, yet those emissions remain high. The government is trampling the people’s right to bear arms, yet gun sales continue to climb. The Obama administration is pushing socialist ideas, yet the markets continue to climb and many companies are enjoying large profits.

But somehow a federal government that cannot get anything else done was able to force private bankers to give housing loans to undeserving families at great risk to the banks. How could such an incompetent government get private banks, which seek to maximize profits, to put those profits at risk?

The point is the government was not able to accomplish that.

“Did Fannie and Freddie buy high-risk mortgage-backed securities?” Min asked. “Yes. But they did not buy enough of them to be blamed for the mortgage crisis. Highly respected analysts who have looked at these data...including the nonpartisan Government Accountability Office, the Harvard Joint Center for Housing Studies, the Financial Crisis Inquiry Commission majority, the Federal Housing Finance Agency, and virtually all academics, including the University of North Carolina, Glaeser et al at Harvard, and the St. Louis Federal Reserve, have all rejected the Wallison/Pinto argument that federal affordable housing policies were responsible for the proliferation of actual high-risk mortgages over the past decade.”

The sub-prime lending leaders among private banks in 2008 were Countrywide Financial, HSBC, JP Morgan Chase, and Wells Fargo, according to data from Inside Mortgage Finance. In 2011, the Center for Public Integrity reported that “mortgages financed by Wall Street from 2001 to 2008 was 41/2 times more likely to be seriously delinquent than mortgages backed by Fannie and Freddie.”

Yet Rubio and other Republican sycophants continue in the misguided meme that the housing crisis was the fault of Fannie, Freddie and the CRA. Never do they mention the removal of Glass-Steagall, the 1933 law that banned banks from gambling with depositor’s money.

Rubio also argued that more government will not “help you get ahead;” will not “create more opportunities;” will not “inspire new ideas.” Of course, history tells us that argument does not hold water. It was through government programs after World War II that many returning veterans were able to attend school and make themselves more valuable to employers.

While one may not be able to say definitively that the computer industry would not be at its current level without government, one cannot honestly claim that government research and contracts did not help to support the industry as it grew. Can one claim that the Internet would have been created without government support? Maybe, but one cannot honestly claim that the government did not play a major role in its development. 

And the Republican Party cannot claim to support innovation in education, as Rubio did in his comments, after vowing to eliminate the Department of Education, seeking to cut PELL Grants, and denigrating the teaching of critical thinking skills.

Rubio was correct when he said that we need to “incentivize” local school districts to offer more advanced placement courses and more vocational and career training. He also was correct in saying that the cost of college must be contained if we wish to have an educated workforce and populace. Yet, Republicans cannot make those arguments without looking like hypocrites. They cannot claim to be for education when they are the party of cuts to the education budget, are dismissive of science, and unwilling to reign in the biggest abusers of education funding – for-profit colleges that offer students a GED and an associate’s degree or certification, but only give them a large federal loan bill that cannot be forgiven.

“I believe in federal financial aid,” Rubio proclaimed. “I couldn’t have gone to college without it. But it’s not just about spending more money on these programs; it’s also about strengthening and modernizing them.”

Indeed, much of that may be true. The problem is that it is hard to swallow when it comes from Republicans.