“A Failure To Hold Congress Accountable”: Economic Policy Is Largely Being Driven By Obstructionism, Not Economic Advisers
President Obama is reportedly planning to nominate economist Jason Furman to replace Alan Krueger as the head of the Council of Economic Advisers. Like Krueger and, for that matter, Austan Goolsbee and Christina Romer who previously served this administration in the same capacity, Furman boasts an impressive resume, with a Harvard economics doctorate as well as stints at the Brooking Institution, the Center on Budget and Policy Priorities (CBPP), and the CEA under President Clinton, among others. If you’re still of the incorrect belief that tax cuts largely pay for themselves (looking at you, Senate Minority Leader Mitch McConnell), do yourself a favor and read his CBPP report explaining the mechanics and empirics of “dynamic scoring” (pdf) and why invoking it as a talisman doesn’t mean one can claim anything one finds politically expedient.
The Beltway coverage of this news is overly focused on the inside baseball politics between the CEA and the National Economic Council, where Furman has been serving as Deputy Director since January 2009. But it’s important to step back and remember that economic policy in recent years has been principally driven not by well-qualified economists with the CEA, NEC, or elsewhere in the executive branch, but instead by conservative congressional obstructionism. Jason Furman’s appointment to the CEA will not alter the troubling reality that the United States is on an autopilot course of premature, excessive austerity and intentionally poorly designed sequestration spending cuts. But even if the ghost of conservative saint Milton Friedman rose up and warned the GOP against such austerity, today’s conservatives in Congress would declare him an apostate and continue their destructive course.
Consequently, the U.S. economy will almost certainly continue muddling through an adverse equilibrium of anemic growth, severely depressed output, massive underemployment, large cyclical budget deficits, subdued price inflation, widespread real wage deflation and low interest rates. It’s really quite simple: a steep aggregate demand shortfall continues to keep the economy’s performance well below potential, and the Federal Reserve has been and will continue to be incapable of fully ameliorating this shortfall so long as contractionary fiscal policy is being pursued. (See this paper for a thorough treatment.)
In short, the intellectual debate over austerity vs. stimulus has been totally decoupled from the policy debate and, more importantly, policy outcomes in Washington—despite having been resolved in a virtual TKO by those opposed to foisting austerity on depressed economies. The United States doesn’t face, or, perhaps more accurately, no longer faces a deficit of economists capable of opening up an intermediate macroeconomics textbook and relearning liquidity trap/depression economics. But the U.S. Congress faces a depressing deficit of members who seem to care about empiricism or evidence-based policy, never mind their unemployed constituents.
My colleague Josh Bivens and I have chronicled the ways the GOP has routinely and frequently obstructed economic recovery since 2009—much of which should inform any debate this summer regarding much needed reform of the Senate’s filibuster rules, as well as the inevitable political fight over the debt ceiling. Conservatives, particularly the Tea Party caucus, are to blame for exploiting every piece of leverage available (including the nation’s credit worthiness) to extract premature spending cuts, filibustering just about anything that would boost aggregate demand, watering down the Recovery Act, hamstringing monetary policy and demanding counterproductive legislative ‘pay fors’—stipulated to never, ever include revenue increases. The frequently espoused pox-on-both houses punditry is not just off-base, but is also somewhat complicit in this sad state of affairs.
Does it matter who advises the president? Absolutely. But the distressing state of the U.S. economy is, at root, a failure of our representative democracy and institutions to hold Congress accountable for its decisions preventing economic recovery, not a failure of technical advice given to the president. Realistically, the Constitution and budgetary process outlook afford the administration scant leverage to force more deficit-financed government spending, the most effective policy lever for digging out of this Lesser Depression. Under this backdrop, the United States needs more than qualified economic advisers to the president—a majority of representatives and (barring meaningful filibuster reform) super-majority of senators who heed evidence, as well as a press corps holding them accountable, jump to mind.
By: Andrew Fieldhouse, Economic Policy Institute, May 29, 2013
“The Story Of Our Time”: The Most Crucial Thing To Understand Is The Economy Is Not Like An Individual Family.
Those of us who have spent years arguing against premature fiscal austerity have just had a good two weeks. Academic studies that supposedly justified austerity have lost credibility; hard-liners in the European Commission and elsewhere have softened their rhetoric. The tone of the conversation has definitely changed.
My sense, however, is that many people still don’t understand what this is all about. So this seems like a good time to offer a sort of refresher on the nature of our economic woes, and why this remains a very bad time for spending cuts.
Let’s start with what may be the most crucial thing to understand: the economy is not like an individual family.
Families earn what they can, and spend as much as they think prudent; spending and earning opportunities are two different things. In the economy as a whole, however, income and spending are interdependent: my spending is your income, and your spending is my income. If both of us slash spending at the same time, both of our incomes will fall too.
And that’s what happened after the financial crisis of 2008. Many people suddenly cut spending, either because they chose to or because their creditors forced them to; meanwhile, not many people were able or willing to spend more. The result was a plunge in incomes that also caused a plunge in employment, creating the depression that persists to this day.
Why did spending plunge? Mainly because of a burst housing bubble and an overhang of private-sector debt — but if you ask me, people talk too much about what went wrong during the boom years and not enough about what we should be doing now. For no matter how lurid the excesses of the past, there’s no good reason that we should pay for them with year after year of mass unemployment.
So what could we do to reduce unemployment? The answer is, this is a time for above-normal government spending, to sustain the economy until the private sector is willing to spend again. The crucial point is that under current conditions, the government is not, repeat not, in competition with the private sector. Government spending doesn’t divert resources away from private uses; it puts unemployed resources to work. Government borrowing doesn’t crowd out private investment; it mobilizes funds that would otherwise go unused.
Now, just to be clear, this is not a case for more government spending and larger budget deficits under all circumstances — and the claim that people like me always want bigger deficits is just false. For the economy isn’t always like this — in fact, situations like the one we’re in are fairly rare. By all means let’s try to reduce deficits and bring down government indebtedness once normal conditions return and the economy is no longer depressed. But right now we’re still dealing with the aftermath of a once-in-three-generations financial crisis. This is no time for austerity.
O.K., I’ve just given you a story, but why should you believe it? There are, after all, people who insist that the real problem is on the economy’s supply side: that workers lack the skills they need, or that unemployment insurance has destroyed the incentive to work, or that the looming menace of universal health care is preventing hiring, or whatever. How do we know that they’re wrong?
Well, I could go on at length on this topic, but just look at the predictions the two sides in this debate have made. People like me predicted right from the start that large budget deficits would have little effect on interest rates, that large-scale “money printing” by the Fed (not a good description of actual Fed policy, but never mind) wouldn’t be inflationary, that austerity policies would lead to terrible economic downturns. The other side jeered, insisting that interest rates would skyrocket and that austerity would actually lead to economic expansion. Ask bond traders, or the suffering populations of Spain, Portugal and so on, how it actually turned out.
Is the story really that simple, and would it really be that easy to end the scourge of unemployment? Yes — but powerful people don’t want to believe it. Some of them have a visceral sense that suffering is good, that we must pay a price for past sins (even if the sinners then and the sufferers now are very different groups of people). Some of them see the crisis as an opportunity to dismantle the social safety net. And just about everyone in the policy elite takes cues from a wealthy minority that isn’t actually feeling much pain.
What has happened now, however, is that the drive for austerity has lost its intellectual fig leaf, and stands exposed as the expression of prejudice, opportunism and class interest it always was. And maybe, just maybe, that sudden exposure will give us a chance to start doing something about the depression we’re in.
By: Paul Krugman, Op-Ed Columnist, The New York Times, April 28, 2013
“Wait, The Sequester Thing Is Still Happening?”: Well-Off People Soon To Finally Be Inconvenienced By Sequestration
This week, the FAA began keeping 10 percent of America’s air-traffic controllers home every day, because of a stupid federal budget argument that turned into a purposefully bad law. Furloughing a bunch of air traffic controllers has a pretty easy-to-predict effect on air travel: It causes delays. Airlines have been sending out automated emails warning travelers to expect as much. The Washington Post yesterday reported on how the first day of furloughs turned out: The New York airports had delays of “one to three hours.” By later in the day, those delays had rippled out to airports in the middle of the country. By late Monday night, LAX was still dealing with delays of more than an hour.
I am guessing that over the next few days a lot of Americans are going to hear about these delays, or be personally inconvenienced by them, and think to themselves, wait, the sequester thing is still happening? Well, yes, it is, because so far it hasn’t been that bad, for certain Americans. Other Americans, though, have been aware of the cuts since they went into effect.
Thus far, many of the people directly affected by sequestration cuts have been the sort of people whose desires and policy preferences are easily ignored by our political institutions. Larry Bartels has shown that politicians are quite responsive to the views of their rich constituents, but not particularly concerned with anyone else. “The views of middle-class constituents matter rather less, while the views of constituents in the bottom third of the income distribution have no apparent effect on their senators’ roll call votes.” Martin Gilens has found basically the same thing.
So far, the sequestration cuts have been particularly hard on people who rely on food pantries and Head Start and Meals on Wheels and unemployment benefits, along with more middle-income government employees and contractors. (And a bunch of scientists, but no one listens to scientists unless they’re building death rays or something.) For rich people, the most inconvenient thing about the sequestration thus far has been trying to figure out why it caused the president to threaten to drone Bob Woodward that one time.
That is going to change, once flights everywhere — but especially out of the Northeast — are suddenly being delayed and canceled all the time, for no good reason. For a really dumb, easily fixable reason, in fact. (And no, we don’t need to “fix” this with a “balance” of cuts and tax hikes, we just need to not do the sequestration. Just repeal it! Super-simple. Then have your idiotic Grand Bargain Budget Showdown.)
“Shuttle flights between Washington and New York were running 60 to 90 minutes late,” the Times reports. Do you know who takes weekday shuttle flights between Washington and New York? People who think they are too important for the train, let alone the bus. People Congress listens to. (People Congress is, also.)
Members of Congress are more likely to fly commercial than attend school on an Indian reservation. Their rich constituents, the only ones they listen to, are more likely to fly often than their constituents who, say, rely on federal housing vouchers.
So Congress may feel a bit more urgency, then, about addressing the sequestration cuts. (Pundits and journalists, too, may start treating them more seriously.) The DCA-LGA shuttle is at risk.
Not that the inconveniencing of the usually convenienced will cause an immediate sensible end to sequestration cuts. The defense cuts were supposed to ensure that right-wingers hated this, and that didn’t work. A lot of people are pretty committed to this weird showdown between the president and House Republicans. And delays and flight cancellations may make a certain type of conservative more committed to mass austerity.
There are certain Simpsony-Bowlesy people who believe quite strongly that the United States will — must — pay for the sin of Debt, by self-imposed austerity or by “becoming Greece.” Plenty of right-wingers already believe a sort of millenarism-via-Drudge in which the United States is already Greece, or some other failed state on the verge of collapse. Mass airport congestion will only nurture that pleasant feeling of inevitable, deserved decline. (This is related to the common elite opinion that mass unemployment is a sign of a country “taking its medicine.”) For some, the worse things get in America, the more evidence it is that we need to make things worse.
So, if your flight gets canceled sometime soon because a bunch of knuckleheads in Congress don’t know how sovereign debt works, just be grateful you’re not a Medicare cancer patient. (Unless you are one, too.)
By: Alex, Pareene, Salon, April 23, 2013
“Fewer And Fewer Regulators To Ensure Safety”: Austerity, Deregulation And The Texas Fertilizer Plant Explosion
Last evening, a fertilizer plant owned by Adair Grain Inc. in West, Texas caught fire, then exploded, killing several people and wounding at least one hundred. The blast, caught on video from afar, destroyed nearby homes, businesses and a nursing home for seniors. There are still lingering questions about how this happened, but documents suggest the plant faced little regulatory scrutiny.
The Dallas Morning News reported that the plant filed papers with state and federal environmental regulators in 2006 claiming that there were “no” fire or explosive risks at the plant. “The worst possible scenario, the report said, would be a ten-minute release of ammonia gas that would kill or injure no one,” noted reporter Randy Lee Loftis. Residents complained about the smell of ammonia as they “went to bed” that year, according to a filing.
As I pointed out on Twitter last night, in the last five years, the Occupational Safety and Health Administration (OSHA) has only inspected five fertilizer plants in the entire state of Texas—and the plant in West, Texas was not one of them. OSHA is severely understaffed and operates with a tiny federal budget. With the agency’s current resources, that means “OSHA can inspect a workplace on average once every 129 years and state OSHA inspectors could inspect one every 67 years.”
There are specialized inspectors for chemical plants that, in theory, should have covered where OSHA or environmental regulators left off. The US Chemical Safety Board, which came into operation in 1998, is the commission tasked with investigating safety violations. Like similar boards, the Chemical Safety Board has virtually no resources: only a $10 million budget to cover every violation in the country. The Center for Public Integrity has a new, incredibly damning report, showing that the agency has failed to investigate several recent disasters, including the death of a worker at refinery in Memphis last December.
Budget cuts, and the sequestration, loom large as every federal workforce is scaled back. Rather than provoking reform, at least in the short term, tragedies like this may get worse as there are fewer and fewer regulators to ensure safety at these types of facilities.
By: Lee Fang, The Nation, April 18, 2013
“Two America’s Truer Now Than Ever”: Perishing On A Lonely Island Of Poverty In The Midst Of A Vast Ocean Of Material Prosperity
You may think you know about Martin Luther King, Jr., but there is much about the man and his message we have conveniently forgotten. He was a prophet, like Amos, Isaiah and Jeremiah of old, calling kings and plutocrats to account — speaking truth to power.
King was only 39 when he was murdered in Memphis 45 years ago, on April 4th, 1968. The 1963 March on Washington and the 1965 March from Selma to Montgomery were behind him. So was the successful passage of the Civil Rights Act and the Voting Rights Act. In the last year of his life, as he moved toward Memphis and his death, he announced what he called the Poor People’s Campaign, a “multi-racial army” that would come to Washington, build an encampment and demand from Congress an “Economic Bill of Rights” for all Americans — black, white, or brown. He had long known that the fight for racial equality could not be separated from the need for economic equity — fairness for all, including working people and the poor.
Martin Luther King, Jr., had more than a dream — he envisioned what America could be, if only it lived up to its promise of life, liberty, and the pursuit of happiness for each and every citizen. That’s what we have conveniently forgotten as the years have passed and his reality has slowly been shrouded in the marble monuments of sainthood.
But read part of the speech Dr. King made at Stanford University in 1967, a year before his assassination and marvel at how relevant his words remain:
“There are literally two Americas. One America is beautiful for situation. And in a sense this America is overflowing with the milk of prosperity and the honey of opportunity. This America is the habitat of millions of people who have food and material necessities for their bodies, and culture and education for their minds; and freedom and dignity for their spirits…
“…Tragically and unfortunately, there is another America. This other America has a daily ugliness about it that constantly transforms the buoyancy of hope into the fatigue of despair. In this America millions of work-starved men walk the streets daily in search for jobs that do not exist. In this America millions of people find themselves living in rat-infected vermin-filled slums. In this America people are poor by the millions. They find themselves perishing on a lonely island of poverty in the midst of a vast ocean of material prosperity.”
Breathtakingly prescient words as we look around us at a society where the chasm between the super-rich and poor is wider and deeper than ever. According to a Department of Housing and Urban Development press release, “On a single night last January, 633,782 people were homeless in the United States.” The Institute for Policy Studies’ online weekly “Too Much” notes that single-room-occupancy shelter rates run about $558 per month and quotes analyst Paul Buchheit, who says that at that rate, “Any one of America’s ten richest collected enough in 2012 income to pay an entire year’s rent for all of America’s homeless.”
But why rent when you can buy? “Too Much” also reports that the widow of recently deceased financier Martin Zweig “amid a Manhattan luxury boom” has placed their apartment at the top of the posh Pierre Hotel on the market for $125 million: “A sale at that price would set a new New York record for a luxury personal residence, more than $30 million over the current real estate high marks.”
Meanwhile, a new briefing paper from the advocacy group National Employment Law Project (NELP) finds there are 27 million unemployed or underemployed workers in the U.S. labor force, including “not only the unemployed counted by official jobs reports, but also the eight million part-time workers who would rather be working full-time and the 6.8 million discouraged workers who want to work but who have stopped looking altogether.” Five years after the financial meltdown, “the average duration of unemployment remains at least twice that of any other recession since the 1950s.”
And if you think austerity’s a good idea, NELP estimates that, “Taken together, the ‘sequester’ and other budget-cutting policies will likely slow GDP this year by 2.1 percentage points, costing the U.S. economy over 2.4 million jobs.”
Walmart’s one of those companies laying people off, but according to the website Business Insider, the mega-chain’s CEO Michael Duke gets paid 1,034 times more than his average worker. Matter of fact, “In the past 30 years, compensation for chief executives in America has increased 127 times faster than the average worker’s salary.”
Two Americas indeed.
By: Bill Moyers and Michael Winship, Moyers and Company, April 10, 2013
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