Robert Reich

The stock market is euphoric over China’s apparent decision to allow its currency to rise against the dollar.

Watch your wallets.

China isn’t really changing anything. It’s only doing the minimum to prevent Congress from listing China as a currency manipulator, leading to a squeeze on Chinese imports.

Over time – and I’m talking about months if not years – China will raise its currency to where it was before the global meltdown in 2008. Big deal.

Even then, a stronger yuan won’t generate lots of new jobs in the United States

That’s because most of the gains of China’s meteoric growth are still not finding their way into the hands of Chinese consumers, whose spending is growing far more slowly than China’s overall economy. In 2009, total personal consumption in China amounted to only 35 percent of the economy; ten years ago it was almost 50 percent.

Why are Chinese consumers so reluctant to spend? First, social safety nets are still inadequate there, so Chinese families have to cover the costs of health care, education, and retirement. (China recently doubled its spending on these services but the total is still low by international standards – around 6 percent of the Chinese economy, compared with an average of around 25 percent in most developed nations.)

Second, young Chinese men outnumber young Chinese women by a wide margin, so households with sons have to save and accumulate enough assets to compete successfully in the marriage market.

Third, Chinese society is aging quickly because the government has kept a tight lid on population growth for three decades. That means households are supporting lots of elderly dependents and must save in anticipation of supporting even more.

But most fundamentally, China is oriented to production, not consumption. It wants to become the world’s preeminent producer nation. While keeping the yuan artificially low is costly to China — it pushes up the prices of everything China imports — China is willing to bear these costs because its currency policy is really an industrial policy.

We think the basic purpose of an economy is to consume, not to produce. So we only grudgingly support industrial policy. We think of government efforts to rebuild our infrastructure as a “stimulus.” We approve of government investments in basic research and development mainly to make America more secure through advanced military technologies. And we give American companies tax credits for R&D wherever they do it around the world.

Don’t be fooled into thinking that US companies will continue to make big profits from sales in China. China allows big U.S. and foreign companies to sell in China on condition that production takes place in China – often in joint ventures with Chinese companies. It wasn’t American know-how, so it can eventually replace the US firms with China firms.

GM’s China sales are soaring but it’s making those cars there. It’s even designing and developing a new subcompact for China, in China. Proctor & Gamble is so well-established in China that many Chinese think its products (such as green-tea-flavored Crest toothpaste) are local brands. They might as well be. P&G makes most of them there.

Other American are helping China build a “smart” infrastructure, tackle pollution with clean technologies, develop a new generation of photovoltaics that convert solar radiation into electricity and wind turbines, find new applications for “nanotechologies,” and build commercial jets and jet engines. GE was producing wind turbine components in China.

Even if some of this enhances the profits of American-based companies, it doesn’t translate into more jobs in the United States. And it doesn’t build know-how here. It builds it there.

China’s currency policy also doubles as a social policy designed to maintain order. Each year, tens of millions of poor Chinese pour into China’s large cities from the countryside in pursuit of better-paying work. If they don’t find it, China risks riots and other upheaval. Massive disorder is one of the greatest risks facing China’s governing elite. That elite would much rather create export jobs, even at the high cost of subsidizing foreign buyers, than allow the yuan to rise much against the dollar and thereby risk job shortages at home.

Here’s the awkward truth that’s not openly discussed on either side of the Pacific: Both the United States and China are capable of producing far more than their own consumers are capable of buying. In the United States, the root of the problem is a growing share of total income going to the richest Americans.

Inequality is also widening in China, but the root of the problem there is a declining share of fruits of economy growth going to average Chinese and increasing share going to capital investment.

Both our societies are threatened by the disconnect between production and consumption. In China, the threat is civil unrest. In the United States, it is a prolonged jobs and earnings recession which, when combined with widening inequality, could create a political backlash.

When I was a small boy at the start of the 1950s, my father gave me my first economics lesson. “Bobby,” he said with obvious concern, “you and your children and your children’s children will be repaying the national debt created by Franklin D. Roosevelt.”

I didn’t know what a national debt was, but I remember being scared out of my wits.

Dad was wrong, of course. Even though the national debt then was a much higher percentage of the national economy than it is today, it shrank as the economy boomed. My children have never mentioned FDR’s debt. My granddaughter (almost 2) will never pay a penny of it.

Dad, now 96 and still in good health, recognizes how wrong he was then. He admits FDR’s deficit spending not only won World War II but it also got America out of the Great Depression.

But now another gaggle of deficit hawks is warning us against more federal spending.  “The current federal debt explosion is being driven by an inability to stem new spending initiatives,” warns Alan Greenspan in Friday’s Wall Street Journal, calling for budget cuts and saying “the fears of budget contraction inducing a renewed decline of economic activity are misplaced.”

My dad learned from his mistakes. Alan Greenspan obviously didn’t.

Contrary to Greenspan, today’s debt is not being driven by new spending initiatives. It’s being driven by policies that Greenspan himself bears major responsibility for.

Greenspan supported George W. Bush’s gigantic tax cut in 2001 (that went mostly to the rich), and uttered no warnings about W’s subsequent spending frenzy on the military and a Medicare drug benefit (corporate welfare for Big Pharma) — all of which contributed massively to today’s debt. Greenspan also lowered short-term interest rates to zero in 2002 but refused to monitor what Wall Street was doing with all this free money. Years before that, he urged Congress to repeal the Glass-Steagall Act and he opposed oversight of derivative trading. All this contributed to Wall Street’s implosion in 2008 that led to massive bailout, and a huge contraction of the economy that required the stimulus package. These account for most of the rest of today’s debt.

If there’s a single American more responsible for today’s “federal debt explosion” than Alan Greenspan, I don’t know him.

But we can manage the Greenspan Debt if we get the U.S. economy growing again. The only way to do that when consumers can’t and won’t spend and when corporations won’t invest is for the federal government to pick up the slack.

For Greenspan now to say we don’t need more stimulus — when 15 million Americans are still out of work, when retail sales are dropping, when the rate of mortgage delinquencies is still in the stratosphere, when Europe and Japan are tightening their belts — is like Tony Hayward saying the Gulf spill shouldn’t worry us.

America’s long-term debt bomb is a future problem to be sure. But it has nothing to do with current spending initiatives. It will be due mainly to baby boomers’ demands for health care.

Our immediate challenge is to get enough demand back into the economy to pull ourselves out of the deep hole Greenspan helped create. That will require more deficit spending in the short term — relief to state and local governments, extended unemployment benefits, a one-year payroll tax holiday on the first $20K of income.

The $55 billion jobs bill now before Congress isn’t nearly big enough. Yet evidently it’s too big for Senate deficit hawks who blocked it Thursday before leaving town. Presumably Greenspan approves of this devastating lack of responsibility.

My father is a wise and loving man. I wish him a wonderful Father’s Day (the first of which was celebrated, incidentally, just four years before Dad was born).

Greenspan I can live without.

One day after he was blasted on Capitol Hill, BP CEO Tony Hayward has been removed from day-to-day management of the oil spill. BP’s chairman has turned it over to a BP managing director, Bob Dudley.

That makes sense from a PR standpoint. Before the congressional hearings, Hayward seemed merely overwhelmed. After yesterday, the mere thought of Hapless Hayward in charge of plugging the hole strikes most people as ludicrous. Hayward told Congress he knew nothing, took no responsibility, and wasn’t able to comment on a thing.

Yet Dudley’s only apparent qualification is he’s an American. Dudley still reports to the same BP board of directors. They are responsible to the same BP shareholders. Those shareholders still, naturally, want BP to maximize share values and not spend a dollar (or pound) more than necessary.

Day-to-day responsibility for plugging the hole and containing the spill should be under a U.S. Admiral. He should use whatever expertise and resources BP has on hand, but also be able to get expertise and resources from other oil companies, the Navy, and the Army Corps of Engineers. He should report daily and directly to the President.

And he should send BP the bill for everything.

Otherwise Americans have no way of knowing everything necessary is being done.

Thursday BP said it recaptured 25,290 barrels of crude from the wrecked well – the most it has been able to collect in a day. But oil is still gushing at 35,000 to 60,000 barrels per day and shows no sign of slowing.

Until Tuesday morning only one vessel – the Discover Enterprise – was siphoning oil from the well. After the Coast Guard urged BP to speed up the operation, the company brought in another vessel, the Q4000, which by Thursday achieved its maximum capacity of roughly 10,000 barrels a day. Why not more vessels?

Representative Joe Barton’s apology to Tony Hayward for what he termed a “shakedown” of BP by the White House in order to get BP’s agreement to a $20 billion escrow fund, was the best thing to happen to BP since April 20, and the best boost for the White House in months. What possessed Barton, the ranking Republican on Energy and Commerce?

Adding to the mystery is the fact that just four years ago, Barton, as the committee’s chair, excoriated BP’s top brass (who were then appearing before the Committee to explain the firm’s negligence in allowing 270,000 gallons of oil to spill on Alaska’s North Slope, the worst spill ever recorded in that fragile territory) for a “corporate culture of seeming indifference to safety and environmental issues … And this comes from a company that prides itself in their ads on protecting the environment. Shame, shame, shame.”

How did Barton go from BP as shameful villain to BP as shakedown victim? And how did he fail to sense the dimensions of the public’s outrage at BP this time around?

Is it because Barton is virtually owned by Texas oil money? This can’t explain Barton’s turnaround because he was owned by oil four years ago, too. 

Is it old-fashioned partisan politics?  Four years ago Republicans were in charge of Congress and the White House, and now Democrats are. But this can’t be the reason either because Barton’s bizarre apology to BP yesterday so embarrassed congressional Republicans they pushed him into retracting it hours later.

Stupidity? Barton was smart enough four years ago to deliver one of the most scathing criticisms of BP by any member of Congress. His “shame, shame, shame” line was repeated on the evening news and in the following day’s headlines.

I think something else is going on. Barton’s view that the White House overreached in forcing BP to put aside $20 billion has been voiced elsewhere in the netherworld of the Republican right, on Fox News, and among Tea Partiers. 

Unlike four years ago, this country is now having the sharpest and most emotional debate it’s had in more than a century over a deceptively simple question: Which do you trust less – Big Business (including Wall Street) or Big Government?

The crash of Wall Street and subsequent Great Recession has impassioned both sides. The Street can’t be trusted because its recklessness almost wrecked the economy; big business can’t be trusted because it’s laid off millions of Americans with scant regard for their welfare.

On the other hand, government is on the loose because of the giant stimulus package; the yawning budget deficit and hair-raising national debt; the “takeovers” of General Motors, Chrysler, and AIG, along with the firings of several executives; and the huge health-care bill.

Until six months ago, the latter narrative, emanating from the Republican right, seemed to be winning the hearts and minds of an ever more angry electorate. Democrats (including the incumbent of the Oval Office) were reluctant to criticize Wall Street and Big Business with nearly the force and consistency of the Republican offensive against Big Government.

But then came the tidal wave of revelations about the rapacity of business. Investigators linked the near-meltdown of the Street to questionable accounting practices at several of the big banks. Goldman Sachs was shown to have been double-dealing with investors for its own profits.

Heath insurers, most notably WellPoint, yanked up their rates — thereby showing themselves to be less interested in the health care of Americans than their own bottom lines. A terrible mine explosion revealed the recklessness and indifference of one of America’s biggest mining companies, Massey Energy.

And now the worst environmental disaster in American history, courtesy of BP.

In light of all this, the “I trust Big Business (and Wall Street) more than I trust Big Government” story line seems bizarre to most Americans – as did Joe Barton’s apology to BP yesterday.

The political question of the moment is whether the Barton moment finally convinces the President and Democratic leaders it’s safe to fully embrace the other story line. The problem for many of them, of course, is that a large percent of their campaign money is coming from big business and Wall Street.

But fundamentally, the debate is absurd.

It’s not the purpose of the private sector to protect the public. Companies like Goldman Sachs, Massey Energy, WellPoint, and BP will do everything they can to make money. They owe allegiance to their shareholders. Hopefully along the way they also make great products and provide terrific services. If the market is competitive, both consumers and investors gain.

The purpose of government is to protect and enhance the well-being of Americans.  Its job is to protect the public from corporate excesses — enacting laws that bar certain actions that may hurt or endanger the public, and fully enforcing those laws. 

We get into trouble when the two sets of responsibilities are confused – when big business and Wall Street spend vast amounts of money trying to influence government, and when government officials (including the officials of regulatory agencies) pull their punches because they’re aiming for lucrative jobs in the private sector.

The real challenge of our time has nothing to do with whether one trusts Big Business and Wall Street more or less than Big Government. The challenge is to keep the two apart, each focused on what they’re supposed to be doing. (That’s why, for example, I still think it unwise to have BP run the operation to plug the hole in the bottom of the Gulf.)

Teachable moments are rare in America. George Bush missed the chance right after 9/11 to call for a new era of service to the nation; he asked instead that Americans do more shopping.

Tuesday night, President Obama did not call for a tax on carbon. He didn’t even ask the Senate to pass the cap-and-trade legislation that emerged from the House.  Instead, he said there were lots of good ideas out there and he’s willing to consider any of them — which seemed more like a way of declaring cap-and-trade dead. 

But maybe the President has a more subtle strategy in mind. Here’s what New York Magazine’s John Heilemann thinks may be going on:

Lacking the 60 votes necessary for cap-and-trade, the administration plans to get behind a more modest conservation measure in the Senate, then push for a carbon pricing mechanism during the conference committee merger with the House bill — and do so during a lame-duck session after the midterms, when victorious Democrats will find it easier to make a tough vote and losing ones will be freed of political constraints.

It’s plausible. After all, the President has now gotten BP to agree to a $20 billion escrow fund. Maybe the MO of this president is, like Teddy Roosevelt’s, to speak softly and carry a big stick — make nice to adversaries in public and conceal his weapon until he gets them behind closed doors.

But if that’s his strategy it’s a curious one considering Obama’s great gift (on display especially during the 2008 presidential election) to stir the nation and mobilize it behind him.

Furthermore, given the unprecedented power of large corporations to call the shots in Washington aided by unlimited campaign contributions and platoons of lobbyists, surely the only way to advance the public interest these days is to rally Americans to a cause. Closed-door conference committees, back-room deals, and lame-duck sessions keep the public out. And when the public is shut out, the big guys have even more clout.

Yet hard-boiled Washington hands I talk with disagree. They point to the $80 billion back-room deal that bought off Big Pharma for health care. They claim there’s no other way to do business in Washington now because public opinion is too easily manipulated.

They say Machiavellian (more accurately, Emanuelian) deal-making behind closed doors ain’t pretty but the public can’t be counted on. The only way to get close to a carbon tax or anything else that’s good for America is to buy the bums off.

Maybe. But when the bums are paid off the public gets stuck with the tab. We’ll be paying far more for our drugs under the new health care law than otherwise because of the deal with Big Pharma.

The $20 billion deal with BP was also crafted in secret, and we have no way to know what assurrances were given the oil giant that might cost us later.

So too with the financial reform bill that’s now being finalized in conference committee, and with any potential energy bill where the real deals are made in the back room.

Remember the back-room deal that bailed out Wall Street? We still don’t have all the details but it’s clear the public was taken to the cleaners, and the titans of Wall Street are beaming through their bonuses.

Call me old fashioned but I still think democracy is better than corporatist negotiation. And when we have a president as articulate and thoughtful as the one we now have — more capable than almost any occupant of the Oval Office in modern times to educate the public about real challenges and real solutions — he and his advisors do a disservice to the American people when they make the important deals in secret.

The man who electrified the nation with his speech at the Democratic National Convention of 2004 put it to sleep tonight. President Obama’s address to the nation from the Oval Office was, to be frank, vapid. If you watched with the sound off you might have thought he was giving a lecture on the history of the Interstate Highway System. He didn’t have to be angry but he had at least to show passion and conviction. It is, after all, the worst environmental crisis in the history of the nation.

With the sound on, his words hung in the air with all the force of a fundraiser for your local public access TV station. Everything seemed to be in the passive tense. He had authorized deepwater drilling because he “was assured” it was safe. But who assured him? How does he feel about being so brazenly misled? He said he wanted to “understand” why that was mistaken. Understand? He’s the President of the United States and it was a major decision. Isn’t he determined to find out how his advisors could have been so terribly wrong?

Tomorrow he’s “informing” the president of BP of BP’s financial obligations. “Informing” is what you do when you phone the newspaper to tell them it wasn’t delivered today. Why not “directing” or “ordering?”

The President distinguished what has happened in the Gulf of Mexico from a tornado or hurricane because they are over quickly while the leak is an ongoing crisis, lasting many weeks and perhaps months more. He likened it to an “epidemic.” But the real difference has nothing to do with time. Tornadoes and hurricanes are natural disasters. Epidemics occur because germs mutate and spread. The spill occurred because of the recklessness and ruthlessness of a giant oil company in pursuit of profit.

And what has the nation learned from all this? The same lesson we’ve known for decades, according to the President. We must end our dependence on oil. But if we’ve known this for decades, why haven’t we done anything about it? The President endorsed the cap-and-trade bill that emerged from the House (without calling it cap-and-trade) but didn’t call for the only thing that may actually work: a tax on carbon.

I’m a fan of Barack Obama. I campaigned for him and I believe in him. I think he has a first-class temperament. I have been deeply moved and startled by his ability to speak about the nation’s most intractable problems. But he failed tonight to rise to the occasion. Is it because he’s not getting good advice, or because he’s psychologically incapable of expressing the moral outrage the nation feels?

Or is it something deeper?

Whether it’s Wall Street or health insurers or oil companies, we are approaching a turning point as a nation. The top executives of powerful corporations are pursuing profits in ways that menace the nation. We have not seen the likes since the late nineteenth century when the “robber barons” of finance, oil, railroads and steel ran roughshod over America. Now, as then, they are using their wealth and influence to buy off legislators and intimidate the regions that depend on them for jobs. Now, as then, they are threatening the safety and security of our people.

This is not to impugn the integrity of all business leaders or to suggest that private enterprise is inherently evil or dangerous. It is merely to state a fact that more and more Americans are beginning to know in their bones.

I’m sure our president knows it too. He must tell is like it is — not with rancor but with the passion and conviction of a leader who recognizes what is happening and rallies the nation behind him.

This from today’s Wall Street Journal:

In a letter sent Sunday to U.S. Coast Guard Rear Admiral James Watson, BP said it expects to have the capacity to capture between 40,000 and 53,000 barrels of oil a day by the end of June. That compares with 15,000 barrels a day now, out of a flow of 20,000 to 40,000 barrels scientists estimate are coming from the well.

BP, which said further enhancements will increase the collection capacity to as high as 80,000 barrels a day by mid-July, submitted its latest plan after Mr. Watson, the federal government’s second-in-command for the spill response, told the company Friday its previous plan was insufficient and gave BP a 48-hour deadline to come up with a revised approach.

Mr. Watson said in a statement Monday that “BP is now stepping up its efforts to contain the leaking oil,” noting that the new plan’s call for collecting 50,000 barrels of oil by the end of June is two weeks earlier than the previous timeline.

But the Journal isn’t telling the truth. BP is not capable of writing a letter or “saying” anything, “submitting” anything, or “stepping up its efforts.”

You see, BP is not a person.

Like any other corporation, BP is a collection of contracts. The collection includes employment contracts — with people who are paid to be executives, with others who are expert in how to plug holes a mile below the surface of the Gulf, and with lots of workers. There are contracts with BP’s creditors, who expect to be paid on time. There are contracts with numerous suppliers, with other companies like Halliburton, with the owners of tankers. And there are contracts with the U.S. government, which has leased part of the Gulf to BP for drilling.

At the center of this web of contracts are BP’s shareholders, who legally own BP. That means they own BP’s assets — oil reserves under land or ocean bed that BP as a corporation is entitled to, its physical capital (rigs, tankers, and so on), and its financial assets, which amount to tens of billions of dollars.

BP’s shareholders (including pensioners who have shares of pension funds, small investors who own shares in mutual funds, and major investors, all over the world) are interested in only one thing — maximizing the value of their shares. Over the last month and a half, these shareholders have got clobbered. Some have sold out to other investors who believe BP’s share values will rise. Others are holding on in the hope that they will.

It’s impossible for BP to commit to doing anything because BP is not a human being capable of making commitments. BP’s executives (like Tony Hayward) work for BP’s shareholders. They can be replaced by BP’s shareholders if BP’s shareholder aren’t satisifed with their performance. Or, more likely, BP’s shareholders can sell out to major investors who will then replace BP’s executives if they don’t like the job they’re doing.

It doesn’t matter if Tony Hayward is called to the White House. It doesn’t matter that President Obama says he’d like to fire him. Hayward’s first responsibility is to BP’s shareholders.

Some Americans are also be BP shareholders, but their interests as U.S. citizens aren’t represented in their roles as shareholders. Their citizenship interests are represented by our government, headed by the President.

As citizens, we want the hole in the Gulf plugged up as fast as possible, we want the spill contained, and we want everything cleaned up and damages paid — no matter how much it costs BP’s shareholders. But if we’re BP shareholders, we want to minimize all such expenditures — including our long-term liabilities.

Get it? There’s no conflict between Britain and the United States. The conflict is between two kinds of interests — shareholder interests and citizen interests.

And unless or until citizenship interests predominate in the Gulf — unless or until BP’s shareholders are forced by law to part with their assets to ensure the safety of the American public — shareholder interests will come first. That’s why it’s so important for the Administration (and, if necessary, Congress) to take steps to put BP America under temporary receivership, establish an escrow fund of at least $10 billion that BP must pay into, and whatever else is necessary to trump shareholder interests.

Here’s what Coast Guard Rear Adm. James A. Watson wrote to BP’s chief operating officer on Friday:

“Recognizing the complexity of this challenge, every effort must be expended to speed up the process.” BP’s plans don’t “go far enough to mobilize redundant resources” in the event of an equipment failure or another problem. “BP must identify in the next 48 hours additional leak containment capacity that could be operationalized and expedited to avoid the continued discharge of oil.”

Translated: You’re dragging your heels and aren’t even using all the equipment you have, damn it. You better, or I’ll … I’ll … .

BP spokesman Jon Pack said the company received Watson’s letter and would respond to it as soon as possible.

Translated: Too bad. Have a nice weekend.

The Administration has not used legal authority to order BP to do a thing, because it hasn’t asserted any legal authority.

Meanwhile, the White House backed off its suggestion earlier in the week that it could stop BP from paying a giant dividend to its shareholders. That suggestion had caused BP shares to plummet and pressure to build on Britain’s new Prime Minister David Cameron. 12 percent of dividends paid to pensioners in the UK come from BP. Cameron and Obama had a friendly chat Saturday, assuring one another BP is important to both countries.

You see where all this is heading. At some point there’s likely to be a direct conflict. Like any big corporation, BP has legal duties to repay its creditors and to maximize the share prices of its stockholders. Its duties to the United States are still vague and unknown. The Oil Pollution Act of 1990 can be interpreted in various ways. So far, the Administration hasn’t tried.

Yet BP is still in control of what’s happening in Gulf to stop the worst environmental disaster in U.S. history.

BP still has lots of money. But the final cost of plugging the leak in the Gulf, containing the spill, cleaning up after it, and paying all damages – including lost wages to millions of workers whose jobs have been lost or will be if the spill keeps tourists away – could easily be tens of billions of dollars. And right now BP’s first responsibility is to its creditors and shareholders, not to the American public. 

So if it’s UK pensioners versus American workers and property owners, who wins? More to the point, who’s going to decide? Most likely, a judge – or several judges, here and in the UK, through a mountain of litigation that will keep thousands of attorneys, solicitors, and barristers busy for decades.

In the meantime, months or even years could go by as Coast Guard admirals and rear admirals, as well as the White House, tells BP it needs to spend more to stop and clean up the mess it’s created, it’s going way too slow, and it’s not divulging what it knows. And BP shrugs and says it’s doing all it can.

I’ve got a better idea. Wouldn’t it be far simpler for the White House (stating that the Pollution Control Act of 1990 gives it authority) to put BP’s American operations into temporary receivership? That way, Obama can take over BP’s assets here and use its expertise to stop the leak and clean up the mess as soon as possible — and leave the subsequent years of bickering to the courts.

Extra bonus: It shows the public the President is really in charge. 

Double-dip watch: Retail sales in May took their biggest nose-dive in eight months, according to today’s report from the Commerce Department. Remember: Consumers account for 70 percent of the nation’s economic activity. 

American Corporations are sitting on huge piles of cash but they’re not investing, and they’re creating only a measly number of new jobs. And they won’t invest and create jobs until they know there are customers out there to buy what they sell.

For three decades, starting in the late 1970s, the biggest economic problem America faced on an ongoing basis was inflation. Demand always seemed to be on the verge of outrunning the productive capacity of the nation. The Fed had to be ready to raise interest rates to stop the party, as it did on several occasions.

During this era of inflation economics, it appeared that John Maynard Keynes – and his Depression-era concern about chronically inadequate demand — was dead. So-called “supply siders” told policy makers that if they cut taxes on corporations and the wealthy, they’d unleash a torrent of investment and innovation – thereby increasing the productive capacity of the nation. The benefits would trickle down to everyone else.

But the pendulum may now be swinging back to the earlier era in which demand always seems on the verge of trailing the nation’s productive capacity. The biggest ongoing threats are chronic recession or even deflation, because consumers don’t have enough money to what the economy is capable of selling at full or near-full employment. Despite gains in productivity, little has trickled down to America’s middle class.

John Maynard Keynes is being exhumed because his Depression-era worry about inadequate demand is once again the nation’s central economic problem. 

Keynes prescribed two remedies – both of which are now necessary: Government spending to “prime the pump” and get businesses to invest and hire once again. And, as Keynes wrote, “measures for the redistribution of incomes in a way likely to raise the propensity to consume.” Translated: Instead of big tax cuts for corporations and the rich, tax cuts and income supplements for the middle class. 

Today’s most important economic news: U.S. household debt fell for the seventh straight quarter in the first three months of 2010 as Americans continued to respond to the recession’s fallout. 

But like all economic news, its significance depends on where you’re standing — whether you’re a typical American or someone at the top.

The common wisdom is that excessive debt-financed spending was one of the causes of the recent recession, so the news that household debt is dropping is being celebrated by business cheerleaders as reason to believe we’re on the mend.

Baloney. The reason so many Americans went into such deep debt was because their wages didn’t keep up. The median wage (adjusted for inflation) dropped between 2001 and 2007, the last so-called economic expansion. So the only way typical Americans could keep spending at the rate necessary to keep themselves — and the economy — going was to borrow, especially against the value of their homes. But that borrowing ended when the housing bubble burst.

So now Americans have no choice but to pare back their debt. That’s bad news because consumer spending is 70 percent of the economy. It helps explain why we so few jobs are being created, and why we can’t escape the gravitational pull of the Great Recession without far more government spending.

It’s also a bad omen for the future. The cheerleaders are saying that for too long American consumers lived beyond their means, so the retrenchment in consumer spending is good for the long-term health of the economy. Wrong again. The problem wasn’t that consumers lived beyond their means. It was that their means didn’t keep up with what the growing economy was capable of producing at or near full-employment. A larger and larger share of total income went to people at the top.

So in the longer term, it’s hard to see where the buying power will come from unless America’s vast middle class has more take-home pay. Yet the economy is moving in exactly the opposite direction: Businesses continue to slash payrolls. And the hourly wage of the typical American with a job continues to drop, adjusted for inflation.

Here’s more news: A Federal Reserve report Thursday showed the net worth of Americans rose a fourth straight quarter in January-March. Don’t be fooled by this one either. That increase was almost entirely based on the stock market’s rise in the first quarter. But the market has since fallen back to where it was at the start of the year. More to the point, most Americans don’t have many assets in the stock market. To the extent they have any net worth, it’s in their homes. And home prices continue to languish. 

Don’t be fooled by the cheerleaders. The economic news continues to be dismal. 

1 Why hasn’t BP moved more of its rigs and tankers to the site? Because BP’s first responsibility is to maximize shareholder value, and moving more rigs and tankers would be too expensive. Coast Guard Admiral Thad Allen, the government’s man on the scene, said BP planned to move another rig to the spill site June 14, which would enable the company to boost its capacity to collect oil from the ruptured well to 28,000 barrels (1.18 million gallons/4.45 million liters) a day.

2. Why isn’t BP leveling with the American people about how many barrels of oil is gushing into the Gulf? Because BP’s first responsibility is to its shareholders, and a bigger leak means more liability. Government scientists estimate the leak spews 12,000-19,000 barrels a day, with one estimate as high as 25,000 barrels. BP says it’s not nearly this much.

3 Why isn’t BP acknowledging a huge plume of oil developing deep under water? Ditto. On Tuesday, National Oceanic and Atmospheric Administration researchers reported subsurface oil as far as 142 miles from the leaking Gulf well, the first clear confirmation of such a plume. On Wednesday, BP rejected the report, insisting that it has not found any significant concentration of crude under the surface. “We haven’t found any large concentrations of oil under the sea. To my knowledge, no one has,” BP Chief Operating Officer Doug Suttles said on NBC’s TODAY show.

Say you’re a high government official with some responsibility for advising the President on what he should be doing and saying about the economy. You know the economy is still in a deep hole, the deepest since the Great Depression. The jobs report for May was dismal — a mere 41,000 new private sector jobs, when the economy needs at least 100,000 to keep up with population growth. The Fed projects gross domestic product, the broadest measure of economic activity, to rise about 3.5 percent this year — a pace barely above that needed to keep pace with the growth in the labor force.

You also know that consumers don’t have the buying power to get it out of the hole because they can no longer use their homes as collateral for loans, as they could before the crash of 2008, and they also have to get out from under huge debts. The housing market is still awful. You know businesses are reluctant to create new jobs if there are few customers for their goods or services. And you know export markets are drying up because of a high dollar that’s made our exports more expensive, and Europe has embarked on austerity measures to shrink its deficits.  You also know state revenues are way down because of the deep economic hole, and they’re forced to raise taxes, cut services, and lay off large numbers of state workers, including teachers.

Oh, and one more thing: You know that all the boosters keeping the economy barely going now are coming to an end. The Fed can’t keep interest rates near zero for long because it’s starting to worry about inflation. It’s already stopped buying Treasury securities and mortgage bonds, and its own deficit hawks are squawking. The federal stimulus is 75 percent spent, and the money will be gone in a few months. Census workers will also be gone by the end of the summer. 

So what do you do?

A) Tell the President the economy will either go into a “double-dip” recession or, at best, suffer anemic growth over the next five years — creating enormous pain and suffering for millions of Americans, and imperiling his reelection — unless he immediately champions a $300 billion jobs bill, including zero-interest loans to states and locales to prevent them from having to raise taxes and cut services, public-service jobs (cleaning up the Gulf), and a one-year payroll tax holiday on the first $100,000 of income. To sell this, he’ll need to explain to the American people why larger short-term deficits are necessary now, in order to get jobs back and the economy growing again so that long-term structural deficits (read health care and Medicare, mostly) can be tackled. 

B) Tell the President you understand the political pressures for deficit reduction are growing, and Republicans are making headway fooling the public into believing that this terrible recovery is due to to excessive government deficits. So so it’s perfectly fine for the President to bend to those political pressures. Cut the budgets of most federal agencies by 5 percent, enforce “pay-go” rules that don’t allow bigger deficits, build up expectations for the report of his “deficit commission” on December, and tell the American public that we now have to move toward fiscal austerity. 

If you choose B, you shouldn’t be advising the President. 

As voters head to the polls today for primaries in 12 states, their anger is showing.

A Washington Post/ABC News poll released today shows that fewer than three in 10 voters say they will support their representative in the House in the mid-term election four months from now. That’s a lower percentage than in 1994 — when Republicans recaptured the House and Senate.

Their anger is rooted in the continuing awfulness of the economy. Fed Chair Ben Bernanke said today the economy appeared to have enough momentum to avoid a double-dip recession. That’s hardly reassuring to 15 million jobless Americans. Nor to all those with jobs who are earning less than they did three years ago because they’re temps or part-timers or have had to settle for lower wages.

I put the chances of a double-dip at 50 percent. Consumers don’t and can’t keep the recovery going because they don’t have the dough. They can’t use their homes as ATMs as they did before the crash, and they’re trying to get out from under a pile of debt. Meanwhile, the states are raising taxes and cutting services – just the opposite of what’s needed. State constitutions bar them from running deficits even when deficit spending is appropriate. Their fiscal drag on the economy comes at precisely the wrong time. (Europe and China are moving toward fiscal austerity, too.)

The White House should present a plan to Congress to give states interest-free loans, which they can repay when the economy turns up and their revenues return.

Meanwhile, the gusher in the Gulf continues – a symbol of the government’s impotence. President Obama said this morning he’d fire BP’s Tony Hayward if he were his boss. Obama said he’s looking for an “ass to kick.”

But he has no ass to kick until he’s in charge. Obama should take over BP’s rescue operation. That’s the only way the public can be sure all necessary resources are being put to the job, that public risks are being properly weighed, and it’s getting the truth.

The President says the company will pay for its mistake. He should act now to make sure. He should also order BP to set aside at least $5 billion for the cleanup, and create a new Civilian Conservation Corps to do it.

The public is angry because everything seems out of control. The President can’t control the economy or the gusher. But he can at least take charge.

Friday’s job report was awful. For most new high school and college grads finding a job is harder than ever. Meanwhile, states are cutting summer jobs for disadvantaged young people. What to do with this army of young unemployed? Send them to the Gulf to clean up beaches and wetlands, and send the bill to BP.

Florida’s panhandle beaches are already marred with sticky brown globs of oil. Workers with blue rubber gloves and plastic bags are already losing the battle to keep them clean. Pelicans and other wildlife coated in oil tar are dying by the droves.

It will get far worse. Most of the oil hasn’t hit land yet. When it does, hundreds of thousands of workers will be needed to clean beaches, siphon off oil from wetlands, and rescue stranded wildlife. Tens of thousands more will have to bring in new landfill, replace tarred sea walls, and rebuild shoreline infrastructure.

Yet we’ve got hundreds of thousands of young people sitting on their hands right now because they can’t find jobs. Many are from affected coastal areas, where the tourist and fishing industries have been decimated by the spill.

The President should order BP to establish a $5 billion clean-up fund, and immediately put America’s army of unemployed young people to work saving the Gulf coast. Call it the new Civilian Conservation Corps.

(The old CCC — created by FDR at another time of massive unemployment and environmental stress — gave millions of young Americans jobs and training to reforest lands that had been degraded, provide emergency flood relief in the Ohio and Mississippi valleys, and build the infrastructure for our national parks.)

I just came across this post from Theda Skocpol, a professor of government and sociology at Harvard whom I’ve never known to mince words.

I like Bob Reich and consider him a friend, but he is nuts. [She’s referring to my suggestion that the President put BP into temporary receivership.] There is a reason why the right, including Sarah Palin, is calling for Obama to “take charge” of the BP disaster, including fixing the leaking pipe. This is a problem that cannot be solved, and probably will not be for many months.

They want Obama to directly own it so they can reinforce their message that government does not work. Why should liberals, stupidly, be pushing for this? I cannot figure out what the left and many liberal pundits think they are doing in all this.

When a huge private corporation makes a mess and cannot fix it, it is sheer lunacy to take direct charge of that mess unless you can fix it right away.

Obama and the government can (a) hold BP accountable in criminal and financial terms; and (b) orchestrate the mitigation, restitution, and financial help for the regions affected. They are doing this and should be as visible as possible about steps in both areas. The last thing they should do is take charge of fixing the leak itself when they cannot.

My response:

I like Theda Skocpol and consider her a friend, but she’s got this one backwards. It’s not “political lunacy” for the president to take charge of this mess. It’s political lunacy for him not to.

Would Theda propose that if a military contractor accidentally fired off a missile, or the owner of a nuclear reactor accidentally allowed it to melt down, or a food processor accidentally sent off deadly bacteria into America’s food chain, that the President should not take control because he couldn’t “fix” these disasters right away? Or that he shouldn’t get involved because the political right might subsequently use his efforts to reinforce its message that the government doesn’t work?

What’s happening in the Gulf is the worst environmental disaster in American history. It defies common sense for the President to delegate most of its solution to the same corporation whose negligence in all likelihood created it.

The public deeply distrusts BP, with good reason. Its record to date has been cutting corners to make profits. Yes, BP’s expertise may be necessary now. But how can we believe BP is using all the resources at its disposal to stop the leak? (A petroleum engineer told me earlier this week that BP has some two dozen tankers in the Gulf that could be siphoning off the oil, and has shut down work on the second relief well in order to cannibalize parts from it for the primary kill effort.)

How can we trust that decisions BP continues to make – such as the use of toxic dispersants – properly weigh risks to the safety and health of Americans?

And as BP continues to pay out dividends to its shareholders, how can we trust it will have enough capital to pay all the costs of cleanup, not to mention the costs to businesses and individauls of the devastation it’s wrought?

For the President to stand apart from all this – to set up a commission to study how it happened and instruct the Justice Department to inquire into the possibility that civil and criminal fines may be appropriate – is both poliltically unwise and against the public’s interest. I fear Americans will come to see it as a dereliction of duty.

We’re falling into a double-dip recession.

The Labor Department reports this morning that the private sector added a measly 41,000 net new jobs in May. (The vast bulk of new jobs in May were temporary government Census workers.) But at least 100,000 new jobs are needed every month just to keep up with population growth.

In other words, the labor market continues to deteriorate.  

The average length of unemployment continues to rise – now up to 34.4 weeks (up from 33 weeks in April). That’s another record.

More Americans are too discouraged to look for a job than last year at this time (1.1 million in May,  an increase of 291,000 from a year earlier.)

Of the small number of jobs created by the private sector in May, many came from temporary help services.

Which is one reason why the median wage continues to drop.

Why are we having such a hard time getting free of the Great Recession? Because consumers, who constitute 70 percent of the economy, don’t have the dough. They can’t any longer treat their homes as ATMs, as they did before the Great Recession.

Businesses won’t rehire if there’s not enough demand for their goods and services.

The only reason the economy isn’t in a double-dip recession already is because of three temporary boosts: the federal stimulus (of which 75 percent has been spent), near-zero interest rates (which can’t continue much longer without igniting speculative bubbles), and replacements (consumers have had to replace worn-out cars and appliances, and businesses had to replace worn-down inventories). Oh, and, yes, all those Census workers (who will be out on their ears in a month or so).

But all these boosts will end soon. Then we’re in the dip.

Retail sales are already down.

So what’s the answer? In the short term, more stimulus – especially extended unemployment benefits and aid to state and local governments that are whacking schools and social services because they can’t run deficits.

But the deficit crazies in the Senate, who can’t seem to differentiate between short-term stimulus (necessary) and long-term debt (bad) last week shot it down.

In the longer term, we need a new New Deal that will bolster America’s floundering middle class.

Most prior recessions were caused by the Fed over-shooting in trying to control inflation by raising interest rates too high. So the garden-variety recession could be reversed by the Fed reversing itself and lowering rates. But the Great Recession was caused by the bursting of a huge housing bubble. And that can’t be reversed without a major restructuring of the economy because housing prices won’t be back to where they were — and won’t be rising above that peak — for years.

We have to get to the core problem: a middle class that doesn’t have the dough to buy the goods and services the economy is capable of produciing. Where to start? Expand the Earned Income Tax Credit and extend it up through the middle class. Finance that extension through higher marginal income taxes on the wealthy, who have never had it so good.

Just before his daily briefing Wednesday, Admiral Thad Allen, the President’s military point man in the Gulf, had the BP logo removed from the podium. The White House apparently wants to distance itself from Bad Petroleum.

But confusion over who’s in charge – BP or the White House – continues to reign. Questioned about whether BP can successfully shear off the well pipe in order to fit a cap over it, Allen answered “I don’t think the issue is whether or not we can make the second cut. It’s about how fine we can make it, how smooth we can make it.”

As Tonto asked the Lone Ranger, “who’s we kemosabe?”

“We” – that is, the American people and its representatives – are not in control of this. BP is in control. Yet BP has a long record of negligence, and it was BP’s negligence that probably caused this disaster. So why is it in control?

If BP’s attempt to cap the well fails again, BP says America will have to wait until August to stop the surge of oil into the Gulf, when BP says it will complete a relief well.

August is way too late. Since the explosion on April 20, the gusher has leaked anywhere from 21 million to 45 million gallons of oil into the Gulf. At that rate, the Gulf will be filled with more than twice that amount by August.

How do we know BP is using every possible resource to stop this? How do we know it’s providing accurate information? How do we know it’s properly weighing risks and benefits to America?

Politics is about to take over from policy in any event. Forecasters say the oil will probably start washing up on Florida’s coast this Friday – not only threatening its fragile system of bays and islands, but also rendering miles of white-sand beaches unusable. The tourist destination that’s been called the “Redneck Riviera” will be coated with thick black ooze.

If you think there’s been a political firestorm so far, you ain’t seen nothin’ yet. Florida’s beaches are crucial to its economy. In 2008, at least 60 percent of vacation spending in Florida occurred in beachfront cities. Florida’s economy is central to its politics. And Florida’s politics is – well, think back on the last several presidential elections.

The President is proposing to roll back billions of dollars in tax breaks for the oil companies. He’s appointed a commission to find out why BP’s well blew.

But unless or until he takes charge – putting BP’s U.S. subsidiary under temporary receivership, forcing BP to use all its available resources and submit itself to full federal oversight and control – his own presidency is in danger of being tarred by the same thick gunk that’s about to wash up on the Redneck Riviera.

Last year was a fabulous one for entrepreneurs, at least according to the Kauffman Index of Entrepreneurial Activity released last month by the Ewing Marion Kauffman Foundation. “Rather than making history for its deep recession and record unemployment,” the foundation reported, “2009 might instead be remembered as the year business startups reached their highest level in 14 years — even exceeding the number of startups during the peak 1999-2000 technology boom.”

Another surprise is the age of these new entrepreneurs. According to the report, most of the growth in startups was propelled by 35- to 44-year-olds, followed by people 55 to 64. Forget Internet whiz kids in their 20’s. It’s the gray-heads who are taking the reins of the new startup economy.

And if you thought minorities had been hit particularly hard by this awful recession, think again. According to the report, entrepreneurship increased more among African-Americans than among whites.

At first glance, all this seems a bit odd. Usually new businesses take off in good times when consumers are flush and banks are eager to lend. So why all this entrepreneurship last year?

In a word, unemployment. Booted off company payrolls, millions of Americans have had no choice but to try selling themselves. Another term for “entrepreneur” is “self-employed.”

According to an analysis of Bureau of Labor Statistics data, the number of self-employed Americans rose to 8.9 million last December, up from 8.7 million a year earlier. Self-employment among those 55 to 64 rose to nearly two million, 5 percent higher than in 2008. Among people over 65, the ranks of the self-employed swelled 29 percent. Many older people who had expected to retire discovered their 401(k)’s had shrunk and their homes were worthless. So they became “entrepreneurs,” too.

Maybe this is a good thing. A deep recession can be the mother of invention. These Americans are now liberated from the bureaucratic straitjackets they thought they had to wear. They can now fulfill their creative dreams and find their inner entrepreneurs. All they needed was a good kick in the pants.

But this upbeat interpretation doesn’t include lots of people who don’t particularly relish becoming their own employers, like an acquaintance whom I’ll call George. George was an associate partner at one of the world’s largest technology and consulting firms until he lost his job last year in a wave of layoffs. For months, George knocked on doors but got nowhere because of the deep recession.

Finally, his old firm got some new projects that required George’s skills. But it didn’t hire George back. Instead, it brought him back through a “contingent workforce company,” essentially a temp agency, that’s now contracting with George to do the work. In return, the agency is taking a chunk of George’s hourly rate.

Technically, George is now his own boss. But he’s doing exactly what he did before for less money, and he gets no benefits — no health care, no 401(k) match, no sick leave, no paid vacation. Worse still, his income and hours are unpredictable even though his monthly bills still arrive with frightening regularity.

The nation’s official rate of unemployment does not include George, nor anyone in this new wave of involuntary entrepreneurship.

Friday’s job numbers are likely to show substantial gains but they’ll still be small relative to the army of America’s unemployed and underemployed — and the growing number of anxiously self-employed.

Yet to think of the latter group as the innovative owners of startup businesses misses one of the most significant changes to have occurred in the American work force in many decades.

Typically each year, large numbers of Americans leave their old jobs to find new ones. Unemployment rises during recessions mainly because companies hire fewer workers, not because they lay more people off. But this Great Recession has been different. Layoffs by mid-sized and large companies have surged while hiring has almost disappeared.

These companies have used the sharp downturn as an opportunity to cull their payrolls for good — substituting labor-saving technologies and outsourcing to workers abroad or to contract workers here. This explains why almost half of America’s unemployed have been jobless for more than six months — a greater proportion than at any time since the Great Depression. It also explains why so many people like George have joined the ranks of the self-employed.

Yes, a growing number of Americans went out on their own before the recession, but clearly their numbers have vastly increased. While some are happy about their new status, most are worse off than they were before. It’s one thing to be a contingent worker in good times and when you’re young; quite another in bad times when you’re middle-aged.

Still, many would rather view these people as entrepreneurs and owners of startup businesses, and see their major challenge as getting adequate credit. Congress’s Joint Economic Committee reported last week that small businesses continue to face tight lending standards. “Small business is the job-creation engine that powers this economy,” said Representative Caroline Maloney, the New York Democrat who heads the committee. Democrats will be pushing bills to make loans more available to them.

Indeed, America’s startup businesses do need better access to credit. But many entities that look like small new businesses are actually self-employed people who need more than bank loans. They need predictable income and benefits.

For starters, they could use what might be called “earnings insurance” that would pay for up to two years part of the difference between what they earned on the old job and what they earn now on their own. Employed workers would contribute to the insurance fund through their payroll taxes, as they do with unemployment insurance, but the total bill for benefits would be unlikely to rise because earnings insurance would get them back to work quicker and thereby reduce the number of weeks they relied on unemployment benefits.

The self-employed also need more help saving. Since they can no longer depend on tax-free corporate matches to their 401(k)’s or I.R.A.’s, they should be entitled to tax credits that match them. Fortunately, thanks to the reform package passed by Congress, they will have more help getting affordable health care, as they will be able to use their aggregate bargaining power in medical exchanges to push down insurance costs.

New businesses are vital to job growth, and entrepreneurship does fuel the economy. And surely some of America’s new independent workers will build their own companies. But when the economy is still so hard on so many, it’s important to distinguish between entrepreneurial zeal and self-employed desperation.

Q: Is this realistic?

A: Not only realistic but it may become necessary — both operationally and politically. If the disaster continues to worsen, it’s untenable for a for-profit corporation to be in charge.

Q: But why should we expect government to do any better job than BP?

A: BP would still be at the job — and its expertise, equipment, and other assets would continue to be utilized. But the federal government would be in overall control of the operation — weighing public risks and benefits, deciding what resources are necessary, getting accurate information and disseminating it to the public.

Q: Why should we trust the government?

A: This isn’t an ideological contest about how little you trust a giant oil company versus the federal government. It’s a matter of accountability. BP’s primary responsibility is to its shareholders. And it will cut corners — as it has before — if that’s the best way to maximize the value of their shares. But only the government, through the President, is directly accountable to the American public, and responsible for protecting it.  

Q: Under what legal authority could the President take control of BP’s North American operations?

A: Obama has implicit authority through laws and regulations dealing with offshore drilling, especially the Oil Pollution Act of 1990. By analogy, if a nuclear reactor were melting down, the President would use his regulatory authority over nuclear energy to take temporary control over the plant and the relevant parts of the corporation that ran it. President Truman seized the nation’s steel mills in 1952, arguing that the emergency of the Korean War necessitated it. (The Supreme Court ultimately blocked him but according to Justice Jackson, whose opinion was essentially the majority’s, that was because Truman had no statutory basis for the seizure, not even an implicit one. That isn’t the case here.)

Q: But BP is a British corporation. How can the U.S. government take control?

A: The nationality of a corporation’s shareholders has nothing to do with it. If it is operating within the jurisdiction of the United States and poses a serious and imminent threat to the health or safety of Americans, a president would take control of its operations and assets in the United States. 

Q: Do you really think Obama would do this? Wouldn’t he prefer to stay away from this mess and keep the responsibility squarely on BP?

A: He may not have much of a choice. If the disaster worsens and Obama doesn’t take control he risks inheriting the mantle of Katrina.

Q: What will force his hand?

A: The White House is already inching toward control. BP’s new admission that it can’t stop the leak until August has shocked a public already deeply distrustful of it. As new evidence emerges of the scale of the disaster, the pressure on the Administration to take full and open control will only grow. Last Saturday Energy Secretary Chu asked BP to cease its so-called “top kill” effort to stop up the gush because he and his team of scientists had concluded it was too risky. Now the White House has to decide whether BP’s continued use of highly toxic dispersants poses more of a threat to the public and the environment than a help. When do these decisions tip over into control? Any time now.

A petroleum engineer who’s worked in the oil industry tells me BP is doing the minimum to clean up the oil and everything it can to protect its bottom line. According to the engineer, here’s what BP should be doing right now to mitigate the damage. If the President were to put BP into temporary receivership, he’d have the power to get BP to:

1. Stop releasing dispersants. So-called dispersants are toxic, and it’s crazy to add more poison to the Gulf. Dispersants do nothing to assist the environment in naturally cleaning the oil; their main use is PR. They reduce the number of ugly pictures of birds covered in pure black crude. Dispersants break the thick layer of crude into smaller globs, but that doesn’t help the Gulf and its wildlife. Most of the crude just mixes with the water to produce a goop that looks like chocolate ice cream but is highly poisonous.

2. Mobilize every possible tanker to siphon up crude from as close to the leak points as possible. Oil industry leaders as John Hofmeister (president of Shell Oil from 2005 until 2008) have recommended this, but inexplicably neither BP nor the federal government are talking about even trying this idea. BP currently has only one spot where they have inserted a tube into a riser, or pipe, that is leaking oil from the sea floor. The company is gathering the crude oil and siphoning it up to a drill ship for storage.

They should have at least a dozen collectors. BP has 24 tankers that are being used to make money for BP, not for clean-up duty. (President Obama should also use all necessary federal power — or money, and send BP the bill — to put as many tankers and refineries from other companies on the task.)

Mile-long pipes could be dangled down into the crude spewing from the wellhead and at each breach in the riser pipe, and the tankers could pump the crude mixed with water back into the tankers. They could then separate the crude and water in the tanker, and pump the water out on the spot. This should continue until each tanker is full of oil. The crude should then be taken to a refinery for processing, as other tankers take their place. Submersibles can be used to monitor the uptake into the dangling pipes, moving them as needed to keep them picking up as much crude as possible.

Even after some separation time in the tankers, the crude will be contaminated with water beyond the typical water contamination levels acceptable at refineries. This would drive up the price of gas in the short term. The president will need to go on TV and ask all Americans to cut their gasoline and energy usage in half, as an emergency response to the disaster in the Gulf, so that tankers and refineries can enact these far-from-perfect cleanup measures.

3. Restart work on the second pressure relief well. BP did start work on two relief wells as the government requested, but the second has been shut down to cannabalize parts from it for the primary well kill effort. The President must order BP to spend whatever money it takes to get another blow out preventer on site, to re-start work on the second pressure relief well. A recent blow-out off the coast of Australia required five pressure relief wells to successfully shut it down.

The following from David Postman, who says he’s writing for Paul Allen:

“I work for Paul Allen. I’m writing to point out errors in your recent piece, ‘Closing Tax Loopholes for Billionaires.’ It is absolutely incorrect to say that Mr. Allen is ‘opposed to closing a tax loophole that allows hedge-fund and private equity managers to treat their earnings as capital gains.’”

“We have asked lawmakers to clarify their intent of the proposed language to make clear that it does not include individual investors like Mr. Allen, who are purely investing, not offering advice or management services. Democrats have been clear that they did not intend to include individual investors. We believe that individual investors - not hedge funds or private equity — should be able to continue to receive capital gains investment treatment.”

My apologies to Mr. Allen if I misstated his purpose in seeking to influence pending legislation. Evidently his only goal is to continue to pay 15 percent of his earnings in federal taxes on the grounds that he is an investor rather than an advisor.

Forgive me, though, if I still have doubts about the wisdom of treating his earnings this way. One of the most basic principles of taxation is known as “tax equity,” whereby two people drawing the same income should be treated the same for tax purposes.

Assume that Mr. Allen earns $200 million this year from his investments. (This is a conservative estimate since Mr. Allen’s personal wealth is estimated to be $13.5 billion, with earnings also from Vulcan Inc., his private asset management company, and a multi-billion dollar investment portfolio including stakes in Digeo, Kiha Software, real estate holdings, and more than 40 other technology, media, and content companies. Allen also owns three professional sports teams: the Seattle Seahawks of the National Football League, the Portland Trail Blazers of the National Basketball Association, and the Seattle Sounders FC franchise in Major League Soccer.)

Mr. Allen evidently believes most or all of this income should be taxed at 15 percent.

But suppose a high-tech entrepreneur (as Mr. Allen used to be) earns $200 million in income this year from a $10 million salary and $190 million bonus. The salary and bonus would be treated as ordinary income and subject to a marginal income tax of about 38 percent.

This would seem to violate the principle of tax equity.

Of course the moment we we tax capital gains at a lower rate than ordinary income we invite these sorts of inequities. More to the point, we also invite games through which wealthy people and their clever tax attornies try to dress up their earnings as capital gains rather than income.

So maybe the lesson here is we should go back to 1987 and treat income and capital gains the same.

Or the lesson is that any amount of earnings over a certain level — say, $1 million a year — should be irrebutably presumed to be income, subject to the tax rate on ordinary income.

Or maybe the real lesson here — given that median wages are going nowhere, public services are being cut, and America is going ever deeper into debt — is we need a more progressive income tax covering earnings from any and all sources, so that someone receiving $200 million a year (regardless of whether it’s attributed to salary or bonus or capital gains) has to pay a marginal rate of 50 percent. Or more.