Two Serious Errors in Griftopia

GriftopiaAs I mentioned earlier in the week, Republicans Call for Most Oppressive Government, I’ve been listening to the audio version of Matt Taibbi’s 2010 book, Griftopia. And although I think it is a great book, there were two things in it that really stood out as being totally wrong. It’s five years later, and I would guess that Taibbi has since been educated on the topics. They are both bits of conventional wisdom that usually get taken as fact without any thought. As a result, it is a good idea to go over them and discuss them. Taibbi is very much a liberal, and if he thinks these things are true, there are doubtless a lot of other liberals who don’t even think to question them.

Social Security Trust Fund

At one point in the book, he was talking about the rise in the payroll tax. It touches on one of my own favorite articles, Reagan’s Legacy: Tax Cuts for Rich, Tax Hikes for the Rest. Taibbi was talking about how Alan Greenspan headed the commission that recommended raising the payroll tax. But then the extra money didn’t go to social security. It was just loaned out to the federal government for deficit spending. Well, yeah; so what?!

Matt TaibbiI hear people make this argument all the time: there is no trust fund! It’s just a bunch of worthless paper! This just isn’t true. No one would say such a ridiculous thing about an investor who had a lot of money invested in treasury bills. They would say such a person was a prudent investor. They would call someone who stored cash under their bed a loon, yet that is what they are expecting with Social Security. The extra money that the Social Security Administration (SSA) was taking in had to be stored somehow. What were they supposed to do?

The payroll taxes went up in 1984, as a result of the Social Security Reform Act of 1983. If the SSA had invested the money in gold, it would have done well that year because gold was at an all time low. But for the money taken in in 2012, the trust fund would have lost almost 40% of its value. Looking at the long view, if all the trust fund were invested in 1980, it would now be worth 37% less. The Social Security trust fund is invested in a mix of treasury securities. But if you just look at 30-year securities, you see that they have done much better than gold.

And clearly: the SSA wouldn’t have been holding actual gold. It would have been holding “worthless” paper that said that it owned gold. It could have been holding on to actual cash, but there are two problems with this. First, it is worth a whole lot less now because of inflation. And second, there isn’t enough cash to do this. In 2011, there was $2.6 trillion in the trust fund. There is only $1.2 trillion in circulation. You can’t just have trillions of dollars sitting around because there aren’t trillions of dollars in existence. And if there were, it would be very bad. Money is supposed to be moving around. If it isn’t, it is indeed “useless.”

Strong Dollar

Taibbi also claimed that Greenspan was wrong to say that it didn’t matter if the international value of US currency went down. Okay, on this one, Taibbi is half right. It does matter because we live in a global economy. Just the same, the vast majority of what we spend our money on is stuff that is right here in the US: houses, food, healthcare. There is a downside when the value of the dollar goes down. But there is also an upside. Taibbi doesn’t talk about this at all. And that is a very big problem.

What most people need are jobs. When the dollar is too valuable, it makes imports too competitive. That means that Americans are put out of work because the things they make cost too much. There is obviously a balance that we want to achieve. But certainly over the last several decades, the problem has been that the American dollar is worth too much, not that it is worth too little.

What’s especially bad about this is that Taibbi is making the argument for the rich. If you have a lot of money, the more each dollar is worth, the better. But most people do not have a lot of money. In fact, most people live paycheck to paycheck. Their biggest concern is that they will lose their jobs. Making our steel and lumber and cars more expensive to export is not good for such people.

Sobering Conclusion

Matt Taibbi is a really smart and knowledgeable guy. If, after researching the 2008 financial crisis, he still manages to push two very tired, very wrong conservative talking points, what hope has the average American of understanding what’s really going on? Both of these points are commonly made on Fox News and the crazy editorial page of The Wall Street Journal. The decades long conservative disinformation campaign has been highly effective. We really need to push back against it — hard. I think Matt Taibbi needs to write a book about both these things to atone for his sins.

In the mean time, you might read The End of Loser Liberalism (Free!) and Social Security: the Phony Crisis.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

6 thoughts on “Two Serious Errors in Griftopia

  1. Taibbi’s getting better as he gets older. I looked for the first article I read by him and found it: http://www.rollingstone.com/politics/news/how-wall-street-is-using-the-bailout-to-stage-a-revolution-20090402

    In it, Taibbi says the subprime crisis involved giving “mortgages to ex-strippers on work release and Taco Bell clerks.” He wouldn’t write that today (and it’s an otherwise excellent article.) Criticize him please for what he gets wrong, but also give the writer some credit for improving at his craft. Thomas Frank had to write the insightful but messy “Conquest Of Cool” before he could write “Kansas.”

    • Yeah, I did say that he probably didn’t agree with that anymore. And on one of the points, he went a bit soft — I figure he was already having doubts about it. But the book is great. He didn’t get anything major wrong. Both those points were in the first couple of chapters.

  2. The ironic thing is that if we had a liberal set of fiscal policies, conservative monetary policies would be optimal. Higher interest rates and a strong dollar are great when you have universal healthcare, a BIG, significant unionization, full employment programs and meaningful financial regulations.

    Near zero rates do cause distortions and can make the business cycles more volatile. When we can separate the necessities of life from employment, a strong dollar is good. If we have a BIG and we increase the value of the dollar, we are giving people, especially low income people, more purchasing power.

    Of course, genuinely progressive fiscal policies seem like something that will never happen. So the best that we can hope for is that the Fed does keep rates as low as possible for as long as possible. Use low rates and exports as a highly imperfect jobs program and pray that the next financial bubble bursting doesn’t do that much damage. Low rates under our regime of austerity are problematic but high rates in conjunction with our neoliberal fiscal policies would be a complete disaster.

    • A lot of economic conventional wisdom is right if and only if the economy is at full employment. So I hear people often say things that would be true if we were at full employment, but they never mention that caveat. What’s more, we are pretty much never at full employment. Maybe 1999-2000. That’s it. So I take your point. The problem is that our economy is so out of kilter that a strong dollar is a very bad thing. The same is true of interest rates. Low interest rates will cause silly investment. But our system is out of kilter such that businesses are not investing as much as they should. This is actually the one place I disagree with Dean Baker: analyzing things based on how things ought to work. For example, automation is a great thing in a well functioning political economy. It is a disaster in a plutocracy, which is what we live in. So we shouldn’t dismiss people who warn about automation costing jobs. Yes, they shouldn’t cost jobs. But they probably will because the extra productivity will be captured by a tiny slice of the population.

  3. About a year ago, I saw a libertarian channel on youtube and it was a series of libertarian movie reviews. Some of them were interesting but one was one of the greatest exhibitions of naivety that I have ever seen. The 2013 movie, Elysium, was a hamfisted parable about income inequality and immigration where billions of impoverished people languish on Earth while the super wealthy live on a mega satellite called Elysium. The movie was pretty dumb but the libertarian review was stupid to the Nth degree.

    The libertarian critic said that in the technologically advanced 23rd Century, there would be no poverty. He said that because the world has such advanced robotics and healthcare devices that it is impossible that there would be widespread poverty. Apparently, this person has never even heard of political economy or looked out the window in his life. Not only was he unable to see that we have robotics as well as poverty today, he cannot even imagine a world where law and politics conspire to make sure that most people see little or no gains from giant leaps and bounds in productivity and technology.

    To some libertarians, the state, in its role as protector of private property, is never a bad actor. In fact, it can never even theoretically be a bad actor even in science fiction.

    • This is one of the primary libertarian errors: the government can’t do anything right, but for the few things that libertarians need it for, it will be perfect. It’s incredibly naive, yet libertarians see themselves as the most hardheaded of thinkers.

      That’s an interesting idea for a website. For a while, I was thinking about writing a book called, “A Marxist at the Movies.” And I did write a number of film reviews looking at things from a leftist standpoint. In fact, I still do. One in this vein is, The Boxtrolls and the Happy Ending of Class.

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