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“Almost Anything Would Be More Important”: Memo To Fiscal Hawks, The Long-Term Deficit Doesn’t Matter

Over the weekend I got in a long argument with some ally of the deficit hawk group Fix the Debt on Twitter, and while most of the conversation turned on who should be blamed for mass unemployment, it did reach an interesting place in one respect. This person took as a given that long-term deficit reduction is a policy priority of the first rank — a belief that is very common among America’s elite.

This priority is misguided both in detail and in general. Here’s why.

There are two points to make here: First, long-term deficits are entirely about the rising cost of health care. Centrist elites insist that this is a reason to make our social insurance programs less generous, but the reality is that America’s high prices are driven by inefficient service provision, not by excessively generous programs. American health care is unfair, monopolistic, and captured by specialist doctors, and our policies are designed poorly, which is why we pay about half again as much as the next-most-expensive developed nation for what is in fact a pretty threadbare safety net.

This point is crucial. What it means is that making our social insurance more stingy, by raising the Medicare eligibility age for example, will accomplish almost nothing. Unless you tackle the skyrocketing cost problem, the budgetary headroom created by benefit cuts will be eaten almost immediately by rising prices. In other words, no matter how many grannies you put into the poorhouse, on predicted trends eventually a single ibuprofen will cost the entire federal budget. (Unless, of course, you just repeal all social insurance altogether and let sick, poor, and old people go bankrupt and die in the hundreds of thousands per year.)

Fortunately, we just passed a gigantic health care reform package. You might have heard of it: It’s called ObamaCare, and it seems to be helping slow health care inflation.

Second, even if we set that issue aside and talk about the Platonic ideal of long-term deficits, there again the case for action is weak at best. The political problem is that America does not actually have the consensus necessary to reduce deficits on a long-term basis, despite the constant whining about it one hears all the time on cable news. One of our two political parties is composed of total hypocrites on this issue — just look at Paul Ryan. It is a near-certainty that any long-term work on the deficit would be immediately squandered on tax cuts for the rich the moment Republicans got a chance — it’s what happened in 2001.

But even on the merits, if you actually run through the economic reasoning (PDF), the case for worrying about the long-term deficit is weak at best. The U.S. is indebted in its own sovereign currency and cannot go bankrupt. Inflation could be a worry, but given current mass unemployment it’s a hypothetical concern at best.

So don’t worry about the deficit in 2050 or whatever. People ain’t got no jobs. People ain’t got no money. That’s what matters.

 

By: Ryan Cooper, The Week, March 3, 2014

March 5, 2014 Posted by | Deficits, Health Care Costs | , , , , , , , | Leave a comment

“The Populist Imperative”: Like It Or Not, The Simple Fact Is That Americans “Get” Inequality

“The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.”

John Maynard Keynes wrote that in 1936, but it applies to our own time, too. And, in a better world, our leaders would be doing all they could to address both faults.

Unfortunately, the world we actually live in falls far short of that ideal. In fact, we should count ourselves lucky when leaders confront even one of our two great economic failures. If, as has been widely reported, President Obama devotes much of his State of the Union address to inequality, everyone should be cheering him on.

They won’t, of course. Instead, he will face two kinds of sniping. The usual suspects on the right will, as always when questions of income distribution comes up, shriek “Class warfare!” But there will also be seemingly more sober voices arguing that he has picked the wrong target, that jobs, not inequality, should be at the top of his agenda.

Here’s why they’re wrong.

First of all, jobs and inequality are closely linked if not identical issues. There’s a pretty good although not ironclad case that soaring inequality helped set the stage for our economic crisis, and that the highly unequal distribution of income since the crisis has perpetuated the slump, especially by making it hard for families in debt to work their way out.

Moreover, there’s an even stronger case to be made that high unemployment — by destroying workers’ bargaining power — has become a major source of rising inequality and stagnating incomes even for those lucky enough to have jobs.

Beyond that, as a political matter, inequality and macroeconomic policy are already inseparably linked. It has been obvious for a long time that the deficit obsession that has exerted such a destructive effect on policy these past few years isn’t really driven by worries about the federal debt. It is, instead, mainly an effort to use debt fears to scare and bully the nation into slashing social programs — especially programs that help the poor. For example, two-thirds of the spending cuts proposed last year by Representative Paul Ryan, the chairman of the House Budget Committee, would have come at the expense of lower-income families.

The flip side of this attempt to use fiscal scare tactics to worsen inequality is that highlighting concerns about inequality can translate into pushback against job-destroying austerity, too.

But the most important reason for Mr. Obama to focus on inequality is political realism. Like it or not, the simple fact is that Americans “get” inequality; macroeconomics, not so much.

There’s an enduring myth among the punditocracy that populism doesn’t sell, that Americans don’t care about the gap between the rich and everyone else. It’s not true. Yes, we’re a nation that admires rather than resents success, but most people are nonetheless disturbed by the extreme disparities of our Second Gilded Age. A new Pew poll finds an overwhelming majority of Americans — and 45 percent of Republicans! — supporting government action to reduce inequality, with a smaller but still substantial majority favoring taxing the rich to aid the poor. And this is true even though most Americans don’t realize just how unequally wealth really is distributed.

By contrast, it’s very hard to communicate even the most basic truths of macroeconomics, like the need to run deficits to support employment in bad times. You can argue that Mr. Obama should have tried harder to get these ideas across; many economists cringed when he began echoing Republican rhetoric about the need for the federal government to tighten its belt along with America’s families. But, even if he had tried, it’s doubtful that he would have succeeded.

Consider what happened in 1936. F.D.R. had just won a smashing re-election victory, largely because of the success of his deficit-spending policies. It’s often forgotten now, but his first term was marked by rapid economic recovery and sharply falling unemployment. But the public remained wedded to economic orthodoxy: by a more than 2-to-1 majority, voters surveyed by Gallup just after the election called for a balanced budget. And F.D.R., unfortunately, listened; his attempt to balance the budget soon plunged America back into recession.

The point is that of the two great problems facing the U.S. economy, inequality is the one on which Mr. Obama is most likely to connect with voters. And he should seek that connection with a clear conscience: There’s no shame in acknowledging political reality, as long as you’re trying to do the right thing.

So I hope we’ll hear something about jobs Tuesday night, and some pushback against deficit hysteria. But if we mainly hear about inequality and social justice, that’s O.K.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, January 23, 2014

January 25, 2014 Posted by | Economic Inequality, Income Gap | , , , , , , , | 2 Comments

“After The Flimflam”: Little By little, Washington’s Fog Of Fiscal Austerity Seems To Be Lifting

It has been a big week for budget documents. In fact, members of Congress have presented not one but two full-fledged, serious proposals for spending and taxes over the next decade.

Before I get to that, however, let me talk briefly about the third proposal presented this week — the one that isn’t serious, that’s essentially a cruel joke.

Way back in 2010, when everybody in Washington seemed determined to anoint Representative Paul Ryan as the ultimate Serious, Honest Conservative, I pronounced him a flimflam man. Even then, his proposals were obviously fraudulent: huge cuts in aid to the poor, but even bigger tax cuts for the rich, with all the assertions of fiscal responsibility resting on claims that he would raise trillions of dollars by closing tax loopholes (which he refused to specify) and cutting discretionary spending (in ways he refused to specify).

Since then, his budgets have gotten even flimflammier. For example, at this point, Mr. Ryan is claiming that he can slash the top tax rate from 39.6 percent to 25 percent, yet somehow raise 19.1 percent of G.D.P. in revenues — a number we haven’t come close to seeing since the dot-com bubble burst a dozen years ago.

The good news is that Mr. Ryan’s thoroughly unconvincing policy-wonk act seems, finally, to have worn out its welcome. In 2011, his budget was initially treated with worshipful respect, which faded only slightly as critics pointed out the document’s many absurdities. This time around, quite a few pundits and reporters have greeted his release with the derision it deserves.

And, with that, let’s turn to the serious proposals.

Unless you’re a very careful news reader, you’ve probably heard about only one of these proposals, the one released by Senate Democrats. And let’s be clear: By comparison with the Ryan plan, and for that matter with a lot of what passes for wisdom in our nation’s capital, this is a very reasonable plan indeed.

As many observers have pointed out, the Senate Democratic plan is conservative with a small “c”: It avoids any drastic policy changes. In particular, it steers away from draconian austerity, which is simply not needed given ultralow U.S. borrowing costs and relatively benign medium-term fiscal projections.

True, the Senate plan calls for further deficit reduction, through a mix of modest tax increases and spending cuts. (Incidentally, the tax increases still fall well short of those called for in the Bowles-Simpson plan, which Washington, for some reason, treats as something close to holy scripture.) But it avoids large short-run spending cuts, which would hobble our recovery at a time when unemployment is still disastrously high, and it even includes a modest amount of stimulus spending.

So we could definitely do worse than the Senate Democratic plan, and we probably will. It is, however, an extremely cautious proposal, one that doesn’t follow through on its own analysis. After all, if sharp spending cuts are a bad thing in a depressed economy — which they are — then the plan really should be calling for substantial though temporary spending increases. It doesn’t.

But there’s a plan that does: the proposal from the Congressional Progressive Caucus, titled “Back to Work,” which calls for substantial new spending now, temporarily widening the deficit, offset by major deficit reduction later in the next decade, largely though not entirely through higher taxes on the wealthy, corporations and pollution.

I’ve seen some people describe the caucus proposal as a “Ryan plan of the left,” but that’s unfair. There are no Ryan-style magic asterisks, trillion-dollar savings that are assumed to come from unspecified sources; this is an honest proposal. And “Back to Work” rests on solid macroeconomic analysis, not the fantasy “expansionary austerity” economics — the claim that slashing spending in a depressed economy somehow promotes job growth rather than deepening the depression — that Mr. Ryan continues to espouse despite the doctrine’s total failure in Europe.

No, the only thing the progressive caucus and Mr. Ryan share is audacity. And it’s refreshing to see someone break with the usual Washington notion that political “courage” means proposing that we hurt the poor while sparing the rich. No doubt the caucus plan is too audacious to have any chance of becoming law; but the same can be said of the Ryan plan.

So where is this all going? Realistically, we aren’t likely to get a Grand Bargain any time soon. Nonetheless, my sense is that there is some real movement here, and it’s in a direction conservatives won’t like.

As I said, Mr. Ryan’s efforts are finally starting to get the derision they deserve, while progressives seem, at long last, to be finding their voice. Little by little, Washington’s fog of fiscal flimflam seems to be lifting.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, March 14, 2013

March 18, 2013 Posted by | Budget | , , , , , , , | 1 Comment

“Pernicious GOP Nonsense”: Spending Isn’t The Problem, Austerity Is

Don’t buy the budget hype. Sure it’s fun to ding Paul Ryan for his unrepentant (Election? What election?) budget plan and his Obamacare contortions. (He wants to repeal it, except for its Medicare savings and tax increases, which he was against, then for, then against, and now for again). But here’s the thing about budget resolutions: They’re not laws. They’re not binding. They are, for all intents and purposes glorified, congressionally sanctioned, party platforms.

The great budget debate, in other words, is a philosophical one. And while such arguments are important we shouldn’t let them distract from the real-world policy fights ongoing about how money is actually spent or not spent.

If you’ve paid any attention, for example, you know the GOP’s mantra, that the nation’s problem is spending, which is “out of control.” This is the basis for their entire policy agenda. It’s also pernicious, economically destructive nonsense.

Consider some data points:

Federal spending grew by 0.6 percent from 2009 to 2012, according to Bloomberg. That’s the slowest rate since the Eisenhower years. That’s a novel definition of “out of control.”

Austerity has been the single biggest drag on job growth, according to the Wall Street Journal. The paper notes that federal, state, and local governments have cut nearly 750,000 jobs since June 2009. “No other sector comes close to those job losses over the same period,” the Journal reported last week. “Construction is in second worst place, but its 225,000 cuts are less than a third of the government reductions.” The same article figured that without the public-sector job losses, the unemployment rate would be 7.1 percent instead of 7.7 percent. Remember that the next time Republicans react to improving job numbers with statements of yes, but it should be better.

And what good is all this austerity? “Here’s a pretty important fact that virtually everyone in Washington seems oblivious to: The federal deficit has never fallen as fast as it’s falling now without a coincident recession,” Investor’s Business Daily reported last month. Assuming sequestration stays in place, the deficit is expected to shrink by 3.4 percent of the economy between fiscal year 2011 and 2013, and the only other times the budget deficit shrank that quickly—the start of Franklin Roosevelt’s second term, the post-World War II demobilization, 1960-61, and 1969-70—recessions quickly followed.

This isn’t an error; it’s a deliberate policy of austerity monomania, consequences be damned. Remember what John Boehner said weeks after he became speaker: “In the last two years, under President Obama, the federal government has added 200,000 new federal jobs,” Boehner said. “If some of those jobs are lost, so be it.” If anything is out of control, it’s the push for spending cuts, which, let’s not forget, is ongoing. The Congressional Budget Office has estimated that sequestration—the arbitrary, across-the-board spending cuts which started going into effect two weeks ago—will cost the economy another 750,000 jobs this year if left untouched.

The first couple of weeks of sequestration have produced a strange kind of euphoria on the right as lawmakers and activists alike preen over the cuts (“This was a necessary win for Republicans,” one anonymous GOP aide told National Review Online) while most of the inside-the-beltway attention has focused on whether President Obama oversold the effects of the cuts and criticism over White House tours having been canceled. Republicans run the risk, however, of becoming the proverbial frog in boiling water. At some point the real-world effects of the cuts, slowly building though they may be, will punch through their ideological bubble.

A week into sequestration, the Huffington Post surveyed how local television news reports have covered the cuts. Local stations “did tend to dig more deeply into the ramifications of the cuts, looking at how people around the country … will be affected in their daily lives,” the website reported. Those ramifications included Bell Helicopter in Fort Worth, Texas, trying to induce retirements in order to avoid having to fire people, while nearly two dozen county employees around Salt Lake City have been fired. It’s not hard to find other grim sequestration stories: Air Force civilian employee furloughs will cost Ohio $111.1 million in lost wages, according to the Dayton Daily News; Customs and Border Protection will start furloughing 60,000 employees in April; the Army, Marine Corps, and Coast Guard have suspended tuition assistance programs; control towers in more than 200 general aviation airports nationally are expected to be closed; dairy exports could fall by $500 million, according to Agriculture Secretary Tom Vilsack.

The list goes on—I know because Democrats have sent out regular roundups of such local news stories to demonstrate that the sequester has teeth. That’s also why Obama’s Organizing for Action grassroots group is collecting citizens’ sequestration stories.

And voters are taking notice, despite what much of Washington seems to think. A Washington Post-ABC News poll released Wednesday found 53 percent of Americans disapprove of sequestration while an amazing 72 percent disapprove of Republicans in Congress. And by a margin of 47-33, Americans hold that same congressional GOP responsible for the much-maligned spending cuts.

The question now is how long will it take for these feelings to gain discernible political traction. Specifically, will Republicans feel (dangerously) emboldened in August when the next debt ceiling showdown is expected, or will reality have chastened them?

By: Robert Schlesinger, U. S. News and World Report, March 15, 2013

March 17, 2013 Posted by | GOP, Sequestration | , , , , , , , | Leave a comment

“A Total Howler”: Paul Ryan’s Budget, His Own Facts And Obamacare

Hello, I am back. We will discuss aspects of my vacation in due course, but first, our friend Mr. Ryan.

He’s facing lots of derision for assuming the repeal of Obamacare in his new budget. First of all, credit where it’s due–it was apparently Chris Wallace of Fox News who brought this information to light in questioning Ryan, so good for him.

And second of all, yes, this is a total howler. Repeal of Obamacare? Not going to happen. Could theoretically happen in 2017, one supposes, but by that time, even if there is a Republican president and Republican majorities in both houses of Congress, including the super-majority of 60 in the Senate that would presumably be needed to enact full repeal, states will be getting billions in federal funding to put working poor people on the rolls of their new exchanges. It seems pretty unlikely that broad support for undoing that would exist.

So Ryan’s assumption doesn’t pass any known laugh test. So why does he do it? Well, because of the old saying “that’s my story, and I’m stickin’ to it.” Which is to say…

The Republicans have spent the years since the passage of the Affordable Care Act insisting that it’s a deficit-buster. You heard Mitt Romney say this a thousand times. It wasn’t true, and it isn’t true. In June 2012, Politifact gave Romney a flat-out “false” when he made the claim, writing:

…for claims about deficits, we consider the Congressional Budget Office, often called the CBO, to be the standard by which we fact-check claims.

The CBO said this about the health care law back in 2010: It lowers the deficit, by about $124 billion over 10 years.

And in 2011, when Republicans offered a bill to repeal the health care law, the CBO said that increased the deficit, by about $210 billion over 10 years.

Now, is the CBO infallible? Certainly not. And good questions have been raised about some of the CBO’s methods in accounting for the health care law’s effects. We reported on some of those concerns in great detail in a fact-check of statements from U.S. Rep Paul Ryan, R-Wisc. He said the law was “accelerating our country toward bankruptcy.” We rated that Mostly False.

So Ryan has been telling this lie for a while, as have all Republicans. The month after this Politifact assessment, the CBO issued a second report running some new numbers and finding the same result. And this year, The New York Times reported in mid-February that the deficit was decreasing (and it is, and rapidly; see Krugman today on this) largely because of lower health-care costs, by no means all but some of which could be traced to the ACA.

In other words, in reality land, Obamacare contributes to deficit reduction. By how much, we certainly don’t yet know. But all the signs we have–the experts’ projections and the early evidence–suggest that this is the case.

But in Republican land, it’s an article of faith that the ACA increases the deficit. This being the case, or “the case” as it were, then how in the world could Ryan introduce a new budget to eliminate the deficit in 10 years (the full thing is being unveiled Wednesday) that includes Obamacare? He’d be destroyed by the agitprop machine of the right if his budget did that, both because they just detest the thing and because it “increases” the deficit. They’ve agreed on this! Anyone who says otherwise is guilty of apostasy.

So again, this is our “new” GOP. Making up realities according to how the howling half of the base would respond. That sounds kind of like the old GOP to me.

 

By: Michael Tomasky, The Daily Beast, March 11, 2013

March 17, 2013 Posted by | Ryan Budget Plan | , , , , , , | Leave a comment

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