Pity party for the rich

Krugman, Pity the Poor C.E.O.’s.

So where’s the evidence that an antibusiness climate is depressing spending? The answer, supposedly, is that this is what you hear when you talk to entrepreneurs. But don’t believe it. Yes, when you talk to business people they complain about taxes, regulations and the deficit; they always do. But the Obama’s-socialist-policies-are-wrecking-the-economy chorus isn’t coming from businesses; it’s coming from business lobbyists, which isn’t at all the same thing. Read the report on the U.S. Chamber of Commerce in the latest Washington Monthly: peddling scare stories about what Democrats are up to is a large part of what organizations like the chamber do for a living.

Or read through the latest survey of small business trends by the National Federation for Independent Business, an advocacy group. The commentary at the front of the report is largely a diatribe against government — “Washington is applying leeches and performing blood-letting as a cure” — and you might naïvely imagine that this diatribe reflects what the surveyed businesses said. But while a few businesses declared that the political climate was deterring expansion, they were vastly outnumbered by those citing a poor economy.

The charts at the back of the report, showing trends in business perceptions of their “most important problem,” are even more revealing. It turns out that business is less concerned about taxes and regulation than during the 1990s, an era of booming investment. Concerns about poor sales, on the other hand, have surged. The weak economy, not fear about government actions, is what’s holding investment down.

So why are we hearing so much about the alleged harm being inflicted by an antibusiness climate? For the most part it’s the same old, same old: lobbyists trying to bully Washington into cutting taxes and dismantling regulations, while extracting bigger fees from their clients along the way.

Beyond that, business leaders are, as I said, feeling unloved: the financial crisis, health insurance scandals, and the catastrophe in the Gulf of Mexico have taken a toll on their reputation. Somehow, however, rather than blaming their peers for bad behavior, C.E.O.’s blame Mr. Obama for “demonizing” business — by which they apparently mean speaking frankly about the culpability of the guilty parties.

Well, C.E.O.’s are people, too — but soothing their hurt feelings isn’t a priority right now, and it has nothing at all to do with promoting economic recovery. If we want stronger business spending, we need to give businesses a reason to spend. And to do that, the government needs to start doing more, not less, to promote overall economic recovery.

The rich are also the Biggest Defaulters on Mortgages.

The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley.

Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

James Galbraith has the fix, Tremble, Banks, Tremble.

What to do? To restore the rule of law means first a rigorous audit of the banks and of the Federal Reserve. This means investigations—Representative Marcy Kaptur has proposed adding a thousand FBI agents to this task. It means criminal referrals from the Financial Crisis Inquiry Commission, from the regulators, from Congress, and from the new management of troubled banks as they clean house. It means indictments, prosecutions, convictions, and imprisonments. The model must be the clean-up of the Savings and Loans, less than 20 years ago, when a thousand industry insiders went to prison. Bankers must be made to feel the power of the law in their bones.

How will this help the economy? The first step toward health is realism. We must first stop pretending that bad assets can be made good, that bad loans will someday be repaid, and that bad people can run good banks. Debt crises are resolved when debts are written down and gotten rid of, when the institutions that peddled bad debts are restructured and reformed, and when the people who ran the great scams have been removed. Only then will private credit start to come back, but even then the result of bank reform is more prudent banks, by definition more conservative than what we’ve had.

So yesterday’s borrow-like-there’s-no-tomorrow America is done for in any event; there will not be another bank-sponsored private credit boom. The housing crisis (and therefore the middle-class insolvency) won’t go away soon. There is no cure for falling housing prices except time and patience; debt relief will at best stabilize the middle class. It follows that the private banks and dealers and borrowing by households are not going to be at the center of the next expansion.

We are in the post-financial-crash. We need to do what the U.S. did during the New Deal, and what France, Japan, Korea, and almost every other successful case of post-crash (or postwar) reconstruction did when necessary. That is, we need to create new, policy-focused financial institutions like the Reconstruction Finance Corporation to take over the role that the banks and capital markets have abandoned. Thus, as part of the reconstruction of the system, we need a national infrastructure bank, an energy-and-environment bank, a new Home Owners Loan Corporation, and a Gulf Coast Reconstruction Authority modeled on the Tennessee Valley Authority. To begin with.

A reconstructed financial system should finance the reconstruction of the country. Public infrastructure. Energy security. Prevention and mitigation of climate change, including the retrofitting of millions of buildings. The refinancing of mortgages or conversion to rentals with “right-to-rent” provisions so that people can stay in their homes at reasonable rates. The cleanup and economic renovation of the Gulf Coast. All of this by loans made at low interest rates and for long terms, and supervised appropriately by real bankers prepared to stay on the job for decades.

The entire host of neglected priorities of the past 30 years should be on the agenda now. That is the way—and the effective path—toward prosperity.

Hopefully Orrin Hatch will be rounding up the banksters soon.