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“More About Marketing Than Math”: The Tea Party’s Big Idea To Shrink Government Is A Vacuous Nothingburger

Insurgent political movements are usually built around a big idea, like abolition or workers’ rights. The Tea Party certainly has a big idea: Shrink the government.

Wanting to shrink the government is a perfectly reasonable impulse given the state of Washington’s finances. The federal debt has more than doubled as a share of GDP since 2007, and future spending projects are off the charts. The latest academic evidence suggests an increase in government size is associated with slower annual GDP growth.

It’s easy to see why this shrink-the-government idea is powerful, and how it fueled the Tea Party’s rapid ascent into a rocket-powered force on the right.

However, a big idea alone is not sufficiently enough, in and of itself, to guarantee success. And therein lies the Tea Party’s big problem.

The Tea Party’s blueprint for turning their raison d’être into reality is flawed. Called the “Penny Plan,” it’s a favorite of the Tea Party Patriots, media supporters such as Sean Hannity of Fox News, and fellow travelers in Congress, including possible 2016 presidential candidate Rand Paul and — perhaps most importantly — Mike Enzi, the new Republican chairman of the Senate Budget Committee.

First devised by Georgia businessman Bruce Cook, the Penny Plan would cut government spending by 1 percent a year until the federal budget is balanced. After that, federal spending would be capped at 18 percent of GDP, to match the long-term revenue trend. Here’s how Enzi touts the plan on his website:

Though only a 1 percent cut, the savings add up quickly to balance the budget. And if it’s done right, where we’re eliminating duplication and sensibly prioritizing, discomfort will be manageable. … Living with 1 percent less is a small price to pay in order to help bring this country back from the brink of catastrophic fiscal failure. [Enzi]

It sounds so simple! Well, it really isn’t.

For starters, the “penny” part of the plan is a gimmick, more about marketing than math. The Enzi version would cut 1 percent a year from total government spending, other than debt interest payments, for three years. Maybe that doesn’t sound like much. But once you factor in inflation, that works out to a 10 percent cut in real terms after three years.

Now maybe that still doesn’t sound like much. But getting such a reduction is tough enough that there are no details in the Penny Plan about what exactly would be cut. To balance the budget in 2018, according to CBO, it would require $540 billion in reduced spending. It can’t all come from reducing non-defense discretionary spending such as foreign aid or scientific research. That part of the budget, just 17 percent, or around $600 billion, is already at its lowest levels since the 1960s as a share of GDP.

That leads to a bigger problem with the Penny Plan: Is it realistic to cap long-term government spending at 18 percent of GDP — well less than the post-WWII average of 21 percent — when an aging population means increased spending on entitlements such as Medicare and Social Security? Remember, most of the spending increase from health-related entitlements and Social Security — 75 percent over the next quarter century — comes from simple demographics, more people getting benefits over a longer period of time. That works out to about 3 percentage points of GDP in additional spending baked into the budgetary cake. Overall, CBO projects total spending at 26 percent of GDP by 2039.

Just keeping long-term spending at its historic average will be a huge challenge, much less sharply reducing it. If you also want to spend a bit more on important public investments such as infrastructure and basic research while keeping military spending constant — well, good luck. Even the GOP Senate’s new balanced budget amendment — which doesn’t calculate debt interest payments as spending — would have a tough time hitting its 18 percent target.

That the Penny Plan offers zero specifics on how to make the numbers work undercuts its seriousness. It would obviously require sweeping entitlement reform — and more. But Enzi, for one, argues that “we should focus on identifying and eliminating all of the wasteful spending that occurs in Washington before we look to other important programs and services.” That’s an evasion, though hardly a surprising one from a party that depends on older voters.

In fact, some on the right are trying to fudge that political reality by distinguishing between “earned” entitlements — Social Security and Medicare — that go to GOP-leaning voters and “unearned” entitlements — such as Medicaid and ObamaCare subsidies — that go to Democratic-leaning voters.

So yes, the Tea Party has a big idea. But it has no idea how to make it happen.

 

By: James Pethokoukis, The Week, February 19, 2015

February 22, 2015 Posted by | Federal Budget, GDP, Tea Party | , , , , , , , | Leave a comment

“Hold Your Applause”: Walmart’s Wage Hike Still About Greed

With much fanfare and platitudes like “Our people make the difference,” WalMart has achieved a public relations coup by granting quite meager raises to its employees. The headlines make the $277 billion (market cap) company look quite generous as it has raised its starting hourly wage immediately to $9 an hour, which is 19 percent higher than the prevailing federal minimum wage.

It sounds like great news from the world’s largest private employer, but the news is nowhere near as good as headlines suggest.

The New York Times estimates that there are only about 6,000 retail workers among WalMart’s 1.4 million employees that are paid the federal minimum wage. This shouldn’t be too surprising, since 28 states already mandate higher minimum wages than the federal standard and, says the law, the highest required wage wins. Only seven states have minimum wages set at $9 or higher. So WalMart workers in 43 states are getting some sort of raise.

But in the vast majority of cases, it’s nothing like the 19 percent number you’re seeing thrown around.

For those getting the largest bump from the federal minimum wage to $9, it’s important to put this all in perspective. The federal minimum wage has not been raised since 2009. It would take a wage of $8.55 an hour to equal the purchasing power of $7.25 six years ago.

So, in a real sense, WalMart’s lowest paid employees are getting a 45-cent-per-hour raise—a 6.2 percent increase. Meanwhile, workers in California, Massachusetts and Rhode Island will see no increase (the state hourly minimum is already $9) while minimum wage workers in Washington, Oregon, Connecticut and Washington, D.C., already make more than $9 an hour.

In its release to workers and the public, WalMart says that the wage increase scheduled to go into effect in April will raise the average part-time worker’s wage to $10 an hour across the company. Back in 2010, IBISWorld, a market research firm, estimated that WalMart cashiers made about $8.81 an hour. That 2010 wage inflations adjusts to a $9.56 wage in today’s dollars. According to WalMart’s release, part-time workers will see their wages rise from $9.48.

That means, until now, WalMart’s part-time workers were losing ground against inflation. While nice, this isn’t the saintly endeavor WalMart is making it out to be. The current bumps gets those employees just a few coins ahead of the rise in the cost of living since the end of the Financial Crisis.

For its full-time workers, WalMart says that the average wage is rising from $12.85 an hour to $13. In 2013, WalMart said that its average full-time wage was $12.83. So WalMart’s full-time associates got a 2-cent raise between 2013 and 2014 and now get a 17-cent bump. Adjusted for inflation, you’d need $13.04 cents today to buy what you could with $12.83 in 2013. WalMart’s full-time employees are coming out of this 4 cents short of inflation.

WalMart’s workforce is split about evenly between full- and part-timers. Part-timers will make $17,500 a year if they work 35 hours a week for 50 weeks a year. Full-timers will make $26,000 working 40 hours a week for 50 weeks.

For a two-person household, the federal poverty line is $15,930. For a four-person household it is $24,250.

Even after the raises, WalMart will continue to employ people who will be living below, at or barely above our various, imperfect measures of poverty.

These workers will continue to depend on public subsidies to get by, whether they need help with health care, buying food, or lunches for their school-aged children. It’s hard to see, even, how these wage increases will do enough so that WalMart employees don’t have to hold holiday food drives for each other.

WalMart has wanted to open a store in New York City for years and has been rebuffed at every turn by coalitions of labor and local retailers. The chain most recently failed to infiltrate East Brooklyn. It faces community opposition in cities and towns around the country.

The retailer is clearly tired of being seen as an unwelcome neighbor—and that’s likely a big consideration for why they’re upping their wages just enough.

The company would also like to buy itself a new labor history. For years, WalMart used contractors to clean and maintain its stores, putting a buffer between the companies and the often abused workers—especially when those workers were very often not authorized to work in the U.S. Since the middle of the last decade the company has also been hit with scores of class action lawsuits, some relating to the treatment of women workers and some alleging wage theft through various means.

In 1914, Henry Ford paid his workers $5 a day. It was a move that truly helped create the middle class.  Five dollars in 1914 is $118 today, although that would only add up to a $35,000-a-year salary for a six-day workweek, which is well below our current medium income.

What some forget about Ford is that he had ulterior motives: He wanted to mold his workers into what he considered model Americans. WalMart has ulterior motives as well: It wants to mold your perception of it until you see a model American corporation.

If WalMart is a model corporation, the model is broken.

 

By: Michael Maiello, The Daily Beast, February 20, 2015

February 21, 2015 Posted by | Poverty, Wage Theft, Walmart | , , , , , , | 2 Comments

“Money Makes Crazy”: The GOP Consensus On Money Is Crazy, Full-On Conspiracy-Theory Crazy

Monetary policy probably won’t be a major issue in the 2016 campaign, but it should be. It is, after all, extremely important, and the Republican base and many leading politicians have strong views about the Federal Reserve and its conduct. And the eventual presidential nominee will surely have to endorse the party line.

So it matters that the emerging G.O.P. consensus on money is crazy — full-on conspiracy-theory crazy.

Right now, the most obvious manifestation of money madness is Senator Rand Paul’s “Audit the Fed” campaign. Mr. Paul likes to warn that the Fed’s efforts to bolster the economy may lead to hyperinflation; he loves talking about the wheelbarrows of cash that people carted around in Weimar Germany. But he’s been saying that since 2009, and it keeps not happening. So now he has a new line: The Fed is an overleveraged bank, just as Lehman Brothers was, and could experience a disastrous collapse of confidence any day now.

This story is wrong on so many levels that reporters are having a hard time keeping up, but let’s simply note that the Fed’s “liabilities” consist of cash, and those who hold that cash have the option of converting it into, well, cash. No, the Fed can’t fall victim to a bank run. But is Mr. Paul being ostracized for his views? Not at all.

Moreover, while Mr. Paul may currently be the poster child for off-the-wall monetary views, he’s far from alone. A lot has been written about the 2010 open letter from leading Republicans to Ben Bernanke, then the Fed chairman, demanding that he cease efforts to support the economy, warning that such efforts would lead to inflation and “currency debasement.” Less has been written about the simultaneous turn of seemingly respectable figures to conspiracy theories.

There was, for example, the 2010 op-ed article by Representative Paul Ryan, who remains the G.O.P.’s de facto intellectual leader, and John Taylor, the party’s favorite monetary economist. Fed policy, they declared, “looks an awful lot like an attempt to bail out fiscal policy, and such attempts call the Fed’s independence into question.” That statement looks an awful lot like a claim that Mr. Bernanke and colleagues were betraying their trust in order to help out the Obama administration — a claim for which there is no evidence whatsoever.

Oh, and suppose you believe that the Fed’s actions did help avert what would otherwise have been a fiscal crisis. This is supposed to be a bad thing?

You may think that at least some of the current presidential aspirants are staying well clear of the fever swamps, but don’t be so sure. Jeb Bush appears to be getting his economic agenda, such as it is, from the George W. Bush Institute’s 4% Growth Project. And the head of that project, Amity Shlaes, is a prominent “inflation truther,” someone who claims that the government is greatly understating the true rate of inflation.

So monetary crazy is pervasive in today’s G.O.P. But why? Class interests no doubt play a role — the wealthy tend to be lenders rather than borrowers, and they benefit at least in relative terms from deflationary policies. But I also suspect that conservatives have a deep psychological problem with modern monetary systems.

You see, in the conservative worldview, markets aren’t just a useful way to organize the economy; they’re a moral structure: People get paid what they deserve, and what goods cost is what they are truly worth to society. You could say that to the free-market true believer, to know the price of everything is also to know the value of everything.

Modern money — consisting of pieces of paper or their digital equivalent that are issued by the Fed, not created by the heroic efforts of entrepreneurs — is an affront to that worldview. Mr. Ryan is on record declaring that his views on monetary policy come from a speech given by one of Ayn Rand’s fictional characters. And what the speaker declares is that money is “the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. … Paper is a check drawn by legal looters.”

Once you understand that this is how many conservatives really think, it all falls into place. Of course they predict disaster from monetary expansion, no matter the circumstances. Of course they are undaunted in their views no matter how wrong their predictions have been in the past. Of course they are quick to accuse the Fed of vile motives. From their point of view, monetary policy isn’t really a technical issue, a question of what works; it’s a matter of theology: Printing money is evil.

So as I said, monetary policy should be an issue in 2016. Because there’s a pretty good chance that someone who either gets his monetary economics from Ayn Rand, or at any rate feels the need to defer to such views, will get to appoint the next head of the Federal Reserve.

 

By: Paul Krugman, Op-Ed Contributor, The New York Times, February 13, 2015

February 15, 2015 Posted by | Federal Reserve, Fiscal Policy, GOP Presidential Candidates | , , , , , , , | 2 Comments

“An Incredible Ignorance About The Economy”: Rand Paul Has The Most Dangerous Economic Views Of Any 2016 Candidate

Kentucky Senator Rand Paul has had better weeks. On Monday, he suggested there could be a link between vaccines and autism in a CNBC interview. Later on in that interview, he actually shushedas in, pressed one finger to his lipsthe female CNBC anchor. On Tuesday, a New York Times article linked him to a medical group that promotes anti-vaccine theories. But Paul’s dumbest comments came in Iowa on Friday nightand they show why Paul has the most dangerous economic views of any presidential candidate.

Speaking in front of more than 150 Iowa activists, Paul ripped into the Federal Reserve and promoted his “Audit the Fed” bill, which he introduced earlier this week. “I think there needs to be some sunshine,” he said, according to reports of the event. “I’m going to fight ’em, and we’re going to get a vote on audit the Fed.” I’m not sure if Paul will get that voteultimately, that’s up to Senate Majority Leader Mitch McConnell. But I do know that “Audit the Fed” is a terrible idea. First, the Fed already is extensively audited by the Government Accountability Office (GAO), the Office of the Inspector General (OIG) and even private sector auditors like Deloitte. Each week, the central bank also releases its balance sheet and even has an interactive guide of its balance sheet available for further explanation.

However, the GAO and OIG audits exclude a few parts of the Fed’s policymaking, including transactions by the Federal Open Market Committee. Paul’s bill removes those exclusions and requires “recommendations for legislative or administrative action” from the Comptroller General. Sounds innocuous, right? It’s not. That would significantly damage the Fed’s independence, which exists so that politicians cannot influence the central bank for their own political purposes. In other words, “Audit the Fed” would lead legislators to interfere with monetary policy matters and put the entire economy at risk. For further explanations why the legislation is so dangerous, see the Roosevelt Institute’s Mike Konczal and the Washington Post’s Catherine Rampell.

With President Barack Obama in office, Paul’s legislation stands no chance of becoming law. It’s hard to imagine it overcoming a filibuster in the Senate, and even if it did, the president would veto it. If Paul were to win the presidency, “Audit the Fed” would still face long odds in the Senate since, even in the best case scenario, Republicans likely won’t have a filibuster-proof majority in the next Congress. So while “Audit the Fed” is theoretically dangerous, it’s not much of an actual threat to Fed independence.

But a Paul presidency would still have disastrous effects on the U.S. economy, for other reasons that were on wide display in Iowa on Friday night.

“Once upon a time, your dollar was as good as gold,” he said. “Then for many decades, they said your dollar was backed by the full faith and credit of government. Do you know what it’s backed by now? Used car loans, bad home loans, distressed assets and derivatives.” Paul’s comments make very little sense. When Paul asks what backs the U.S. dollar now, he’s effectively asking what makes it valuable. When the U.S. used a gold standard, it meant that a dollar was worth a certain amount of gold. Economists overwhelmingly agree that that was a terrible idea, but the connection seemed to explain why dollars had value. The real reason dollars had value is the same today as it was back then: It’s the only currency the government accepts to pay taxes. Businesses and consumers thus have an incentive to carry out transactions using dollars. Paul’s quip about dollars being backed by “used car loans, bad home loans, distressed assets and derivatives” may sound good to Iowa conservatives but it betrays an incredible ignorance about the economy.

What Paul and his followers are concerned about is the purchasing power of the dollar. They want to return the U.S. to the gold standard to ensure that inflation doesn’t undermine the actual purchasing power of the dollar. Over the long run, a gold standard would guarantee that price stability. But over the short run, prices would still fluctuate violently, as happened when the U.S. used the gold standard.

In terms of current policy, goldbugs, as they are often called, think the Fed’s recent decisionsits zero interest rate policy and bond-buying programwill cause skyrocketing inflation and reduce what you can buy with dollars. Those warnings look more foolish by the day. Inflation over the past year was just 0.7 percent, 1.3 percent if you remove volatile food and energy prices. Inflation expectations for the next 10 years are also very low. You would think that these low inflation rates would convince Paul and his followers to rethink their economic theory.

Paul’s economic ignorance doesn’t end there. “[The Fed’s] liabilities are $4.5 trillion; their assets are $57 billion. Do the math,” he said in Iowa. “They are leveraged 80-1. They are leveraged three times greater than Lehman Brothers was when Lehman Brothers went bankrupt. Why do we give ‘em a pass? Because they’ve got a printing press, and they can print up some more money.” Paul apparently can’t read the Fed’s balance sheets, because as of November, its assets were $4.487 trillion and its liabilities were $4.430 trillion. Where did the $57 billion figure come from? That’s its total capital. But as Cullen Roche, the founder of financial services firm Orcam Financial Group, points out, Paul also ignores the fact that the Fed remits most of its profits to the Treasury Department. In 2013, they gave Treasury nearly $80 billion. “The Federal Reserve isn’t just a profitable entity,” Roche writes. “It is perhaps the most profitable entity on the face of the planet.”

As all this shows, Paul’s views on monetary policy are profoundly misguided. As long as he’s in the Senate, that doesn’t really matter. He can spout his nonsense without having any effect on the Federal Reserve. But if he became president, he would be responsible for choosing the next Fed Chair when Janet Yellen’s term expires in 2018 and for nominating board members to the FOMC. That doesn’t give Paul unlimited power, since the Senate would still have to confirm his nominees. But as president, Paul would be the leader of the GOP, with an even greater ability to dictate its position on monetary policy and convince Republican senators to support his nominees.

Of course, the Republican Party itself has an incredibly misguided position on monetary policy. In 2012, its platform included returning to the gold standard. That’s a good reason why just about any Republican nominee would be a dangerous president. But Paul is far more open about his disdain for the Fed, and given his ideological bent, he’s far less likely to listen to conservative economists who reject his monetary policy views. At least on the economy, that makes Rand Paul by far the most dangerous candidate in the 2016 field.

 

By: Danny Vinik, The New Republic, February 8, 2015

February 9, 2015 Posted by | Economic Policy, Federal Reserve, Rand Paul | , , , , , , , | Leave a comment

“The Bottom Rungs Of The Economic Ladder”: Boehner Undermines His Own Minimum-Wage Argument

When policymakers debate increasing the minimum wage, there’s nothing wrong with them drawing on their personal experiences when making a decision. Some members of Congress, however, really aren’t good at it.

A couple of years ago, for example, Rep. Marsha Blackburn (R-Tenn.) argued against raising the minimum wage above $7.25 an hour because, when she was a teenager, she made $2.15 an hour and she “appreciated that opportunity.”

What Blackburn didn’t realize is that inflation exists – when she made $2.15 an hour as a teen, in inflation-adjusted terms, that was over $12 an hour in today’s money. The Tennessee Republican was trying to argue against a minimum-wage hike, but she ended up doing the opposite.

A related problem popped up over the weekend, when House Speaker John Boehner (R-Ohio) appeared on “60 Minutes” and CBS’s Scott Pelley asked if Congress might increase the “federal minimum wage.” The Republican leader replied:

“It’s a bad idea. I’ve had every kinda rotten job you can imagine growin’ up and gettin’ myself through school. And I wouldn’t have had a chance at half those jobs if the federal government had kept imposing [a] higher minimum wage. You take the bottom rungs off the economic ladder.”

Again, there’s nothing wrong with Boehner, like Blackburn, drawing upon his personal experiences. The trouble is that Boehner, like Blackburn, is flubbing the details.

Sam Stein set the record straight:

[W]hen Boehner was first taking on those “rotten jobs,” the minimum wage was actually at its historic high. And when the wage later dipped relative to inflation, Congress passed a series of hikes that raised it some more.

According to Department of Labor statistics, the minimum wage stood at $1.60 an hour in 1968 – the highest it has ever been when adjusted for inflation…. At first, Boehner went into sales – selling plastics, specifically – after his brief stint with the Navy ended. In 1971, he enrolled in Xavier University. According to a recent Politico profile, Boehner took a number of odd jobs while attending school there, among them “a series of humbling janitorial and construction jobs.” He would graduate in 1977.

On “60 Minutes,” Boehner expressed relief that the government didn’t keep “imposing” a higher minimum wage at the time, but in reality, the government actually did keep “imposing” a higher minimum wage, raising in 1974, 1975, and again in 1976 – just as Boehner was working through college.

And adjusted for inflation, those minimum wages had greater purchasing power than the minimum wage now. If Boehner looks back at that era fondly, he has no reason to create tougher conditions for low-wage workers now.

Keep the political context in mind: the debate about the minimum wage has been ongoing for quite a while, it was a major issue in last year’s elections, and the Speaker no doubt expects questions about the policy during interviews like these. But as of the weekend, his go-to talking point is demonstrably wrong.

 

By: Steve Benen, The Maddow Blog, January 27, 2015

January 28, 2015 Posted by | Congress, John Boehner, Minimum Wage | , , , , , | Leave a comment

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