“Hurting The Most Vulnerable”: Cutbacks To Unemployment Insurance Came Long Before The Great Recession
You may have heard that we’re in the middle of an unemployment crisis. It’s little wonder that an average of 365,500 people per week made new claims for unemployment benefits over the past month. These high numbers have been straining unemployment insurance programs at the federal and state level, and many states have run out of reserves to pay for them, triggering a reduction in benefits. But this crisis wasn’t inevitable. The pull back in unemployment benefits is just another result of state-level choices to cut taxes at the expense of state spending, spending that could be cushioning the blow of the Great Recession.
States are unable to adequately finance their unemployment insurance programs just when they are most needed not because they were unexpectedly overwhelmed. As a new report from the National Employment Law Project shows, it was because they failed to finance them during the good times like they’re supposed to. Here’s the way it works: federal law requires each state to collect unemployment insurance contributions from employers and deposit them into a state trust fund held in the treasury. During good times, the trust funds accumulate reserves so that claims can be paid out during downturns. This makes the program countercyclical, helping to pump money into workers’ pockets and therefore businesses (via their spending) when times are tough.
The problem is that employer contribution rates vary among and even within states. Not shockingly, business groups turn on political pressure to reduce employer contributions and taxes during good times before the coffers are adequately full. And too many states gave in to this temptation before the recession. As the report notes, “Thirty‐one states reduced UI taxes by at least 20 percent between 1995 and 2005.” Meanwhile, from 2000–09 the average UI contribution rate was .65 percent of total wages, “the lowest in the life of our federal‐state UI program.” That left many of the reserves underfunded, especially when they were called upon to respond to the financial crisis.
And now, of course, the demand for these benefits is at a historically high levels. So what have states done to address the fact that they don’t have the funds to pay them out? The solutions “have tended to focus more on curtailing and reducing benefit payments than on the revenue side of the equation,” the report says. That is, rather than looking at ways to hike taxes or employer contributions to make up the shortfall, most states have cut back on benefits for the unemployed.
Over the past thirty years, lawmakers have eroded long-standing features such as the duration of benefits that were “previously seen as untouchable,” and today’s responses follow that trend. Six states have reduced the maximum duration of benefits below twenty-six weeks, which has been the standard since the 1950s. Other states have put up barriers to benefits, like drug testing requirements and excluding seasonal workers. Several states and even the federal government have limited the number of unemployed workers who qualify, forced skilled workers to accept low-wage jobs and lowered the value of payments. Meanwhile, most states did nothing to raise revenues or “passed token policies that will raise a negligible amount of revenue”—the only states to buck that trend were Colorado, Rhode Island and Vermont.
This may sound familiar. That’s because tax cuts have gotten in the way of other important policies at the state level. As Mike Konczal and I showed earlier this year, a handful of ultraconservative state governments were responsible for the massive wave of public sector job losses the country has experienced during the recovery. But layoffs weren’t the only option for dealing with tight state budgets: many of these states also cut corporate taxes or taxes on high-income earners (or both). Estimates have shown that without these job losses, unemployment would likely be a full percentage point lower than what it is now.
And there’s another fiscally irresponsible choice a number of states have said they’ll be making soon: the refusal to expand Medicaid as part of the Affordable Care Act. The Supreme Court ruling that upheld the law struck down the part that would have all but ensured across-the-board participation, and now at least fifteen governors are indicating that they’ll opt out—despite the fact that the federal government will pick up the tab for the full price of expansion in the early years and 90 percent after that. One study even found that the expansion could actually end up saving these states money. But even if that didn’t pan out, Richard Kim recently made a clear case that there are some pretty painless ways for these states to find the money to expand Medicaid. The only catch? They require raising taxes. Either by undoing some unnecessary tax breaks or raising taxes modestly, the states that are threatening fiscal ruin at the hands of this mandate can actually easily afford what it’ll cost them. Small price to pay when Medicaid saves lives.
So-called “tough choices” aren’t always so tough. Some of the policies that are exacerbating the effects of the recession and hurting the most vulnerable among us have been implemented because states refuse to look at the revenue side of their ledgers. The choices to lower taxes or ignore raising them aren’t made in a vacuum. There are often painful consequences, borne by those who can least afford it.
By: Bryce Covert, The Nation, August 6, 2012
“Debt, Depression, DeMarco”: How Economic Policy Has Been Crippled By Unyielding, Irresponsible Republican Opposition
There has been plenty to criticize about President Obama’s handling of the economy. Yet the overriding story of the past few years is not Mr. Obama’s mistakes but the scorched-earth opposition of Republicans, who have done everything they can to get in his way — and who now, having blocked the president’s policies, hope to win the White House by claiming that his policies have failed.
And this week’s shocking refusal to implement debt relief by the acting director of the Federal Housing Finance Agency — a Bush-era holdover the president hasn’t been able to replace — illustrates perfectly what’s going on.
Some background: many economists believe that the overhang of excess household debt, a legacy of the bubble years, is the biggest factor holding back economic recovery. Loosely speaking, excess debt has created a situation in which everyone is trying to spend less than their income. Since this is collectively impossible — my spending is your income, and your spending is my income — the result is a persistently depressed economy.
How should policy respond? One answer is government spending to support the economy while the private sector repairs its balance sheets; now is not the time for austerity, and cuts in government purchases have been a major economic drag. Another answer is aggressive monetary policy, which is why the Federal Reserve’s refusal to act in the face of high unemployment and below-target inflation is a scandal.
But fiscal and monetary policy could, and should, be coupled with debt relief. Reducing the burden on Americans in financial trouble would mean more jobs and improved opportunities for everyone.
Unfortunately, the administration’s initial debt relief efforts were ineffectual: Officials imposed so many restrictions to avoid giving relief to “undeserving” debtors that the program went nowhere. More recently, however, the administration has gotten a lot more serious about the issue.
And the obvious place to provide debt relief is on mortgages owned by Fannie Mae and Freddie Mac, the government-sponsored lenders that were effectively nationalized in the waning days of the George W. Bush administration.
The idea of using Fannie and Freddie has bipartisan support. Indeed, Columbia’s Glenn Hubbard, a top Romney adviser, has called on Fannie and Freddie to let homeowners with little or no equity refinance their mortgages, which could sharply cut their interest payments and provide a major boost to the economy. The Obama administration supports this idea and has also proposed a special program of relief for deeply troubled borrowers.
But Edward DeMarco, the acting director of the agency that oversees Fannie and Freddie, refuses to move on refinancing. And, this week, he rejected the administration’s relief plan.
Who is Ed DeMarco? He’s a civil servant who became acting director of the housing finance agency after the Bush-appointed director resigned in 2009. He is still there, in the fourth year of the Obama administration, because Senate Republicans have blocked attempts to install a permanent director. And he evidently just hates the idea of providing debt relief.
Mr. DeMarco’s letter rejecting the relief plan made remarkably weak arguments. He claimed that the plan, while improving his agency’s financial position thanks to subsidies from the Treasury Department, would be a net loss to taxpayers — a conclusion not supported by his own staff’s analysis, which showed a net gain. And it’s worth pointing out that many private lenders have offered the very kinds of principal reductions Mr. DeMarco rejects — even though these lenders, unlike the government, have no incentive to take into account the way debt relief would strengthen the economy.
The main point, however, is that Mr. DeMarco seems to misunderstand his job. He’s supposed to run his agency and secure its finances — not make national economic policy. If the Treasury secretary, acting for the president, seeks to subsidize debt relief in a way that actually strengthens the finance agency, the agency’s chief has no business blocking that policy. Doing so should be a firing offense.
Can Mr. DeMarco be fired right away? I’ve been seeing conflicting analyses on that point, although one thing is clear: President Obama, if re-elected, can, and should, replace him through a recess appointment. In fact, he should have done that years ago. As I said, Mr. Obama has made plenty of mistakes.
But the DeMarco affair nonetheless demonstrates, once again, the extent to which U.S. economic policy has been crippled by unyielding, irresponsible political opposition. If our economy is still deeply depressed, much — and I would say most — of the blame rests not with Mr. Obama but with the very people seeking to use that depressed economy for political advantage.
By: Paul Krugman, Op-Ed Columnist, The New York Times, August 2, 2012
“Say It Ain’t So”: Face It Republicans, Reagan Was A Keynesian
There’s no question that America’s recovery from the financial crisis has been disappointing. In fact, I’ve been arguing that the era since 2007 is best viewed as a “depression,” an extended period of economic weakness and high unemployment that, like the Great Depression of the 1930s, persists despite episodes during which the economy grows. And Republicans are, of course, trying — with considerable success — to turn this dismal state of affairs to their political advantage.
They love, in particular, to contrast President Obama’s record with that of Ronald Reagan, who, by this point in his presidency, was indeed presiding over a strong economic recovery. You might think that the more relevant comparison is with George W. Bush, who, at this stage of his administration, was — unlike Mr. Obama — still presiding over a large loss in private-sector jobs. And, as I’ll explain shortly, the economic slump Reagan faced was very different from our current depression, and much easier to deal with. Still, the Reagan-Obama comparison is revealing in some ways. So let’s look at that comparison, shall we?
For the truth is that on at least one dimension, government spending, there was a large difference between the two presidencies, with total government spending adjusted for inflation and population growth rising much faster under one than under the other. I find it especially instructive to look at spending levels three years into each man’s administration — that is, in the first quarter of 1984 in Reagan’s case, and in the first quarter of 2012 in Mr. Obama’s — compared with four years earlier, which in each case more or less corresponds to the start of an economic crisis. Under one president, real per capita government spending at that point was 14.4 percent higher than four years previously; under the other, less than half as much, just 6.4 percent.
O.K., by now many readers have probably figured out the trick here: Reagan, not Obama, was the big spender. While there was a brief burst of government spending early in the Obama administration — mainly for emergency aid programs like unemployment insurance and food stamps — that burst is long past. Indeed, at this point, government spending is falling fast, with real per capita spending falling over the past year at a rate not seen since the demobilization that followed the Korean War.
Why was government spending much stronger under Reagan than in the current slump? “Weaponized Keynesianism” — Reagan’s big military buildup — played some role. But the big difference was real per capita spending at the state and local level, which continued to rise under Reagan but has fallen significantly this time around.
And this, in turn, reflects a changed political environment. For one thing, states and local governments used to benefit from revenue-sharing — automatic aid from the federal government, a program that Reagan eventually killed but only after the slump was past. More important, in the 1980s, anti-tax dogma hadn’t taken effect to the same extent it has today, so state and local governments were much more willing than they are now to cover temporary deficits with temporary tax increases, thereby avoiding sharp spending cuts.
In short, if you want to see government responding to economic hard times with the “tax and spend” policies conservatives always denounce, you should look to the Reagan era — not the Obama years.
So does the Reagan-era economic recovery demonstrate the superiority of Keynesian economics? Not exactly. For, as I said, the truth is that the slump of the 1980s — which was more or less deliberately caused by the Federal Reserve, as a way to bring down inflation — was very different from our current depression, which was brought on by private-sector excess: above all, the surge in household debt during the Bush years. The Reagan slump could be and was brought to a rapid end when the Fed decided to relent and cut interest rates, sparking a giant housing boom. That option isn’t available now because rates are already close to zero.
As many economists have pointed out, America is currently suffering from a classic case of debt deflation: all across the economy people are trying to pay down debt by slashing spending, but, in so doing, they are causing a depression that makes their debt problems even worse. This is exactly the situation in which government spending should temporarily rise to offset the slump in private spending and give the private sector time to repair its finances. Yet that’s not happening.
The point, then, is that we’d be in much better shape if we were following Reagan-style Keynesianism. Reagan may have preached small government, but in practice he presided over a lot of spending growth — and right now that’s exactly what America needs.
By: Paul Krugman, Op-Ed Columnist, The New York Times, June 7, 2012
“Openly And Dangerously Reckless”: Republicans Are Unfit To Govern
One of this biggest economic stories of the past week was this:
The 17-country eurozone risks falling into a “severe recession,” the Organization for Economic Cooperation and Development warned on Tuesday, as it called on governments and Europe’s central bank to act quickly to keep the slowdown from dragging down the global economy.
Just six months ago the OECD considered a 2 percent European contraction the worst-case scenario, but it now sees that as close to happening.
The report forecasts Europe falling further behind other countries, particularly the United States, whose economy is expected to grow 2.4 percent this year and 2.6 percent next.
Let me repeat: Europe’s economy is contracting, while the U.S. economy is growing. Europe’s economy is in imminent danger of contracting at the rate that just six months ago was considered the worst-case scenario, while the U.S. economy is expected to grow even more next year than this year. And just outside the Eurozone, this past week also saw England’s double-dip recession reported as even worsethan had been thought. In other words, as the world continues to attempt to dig itself out of the economic collapse that was caused by the banking meltdown, the United States is slowly recovering. Europe isn’t.
While Europe elected conservative governments at the worst possible moment, and then embraced the cruel stupidity that is economic austerity, the United States took a different path. The United States should have embraced a much more aggressive growth policy, but at least it didn’t slash and burn government spending the way Europe did. Europe’s economies and Europe’s people have been devastated by economic austerity while the tentative Obama stimulus package has stimulated tentative economic growth. Stimulus works, austerity doesn’t. Until the economy is fully back on its feet, more stimulus would be the best economic policy. Austerity would be the worst economic policy. So what do the Republicans want to do?
Mitt Romney would have let the auto industry go bankrupt. Mitt Romney thinks unemployment insurance is a disaster. Mitt Romney wants to cut Medicare and Social Security benefits. Mitt Romney wants to cut benefits on just about everyone who needs them in order to finance even more tax cuts for the extremely wealthy— people such as Mitt Romney. In other words, Mitt Romney wants to impose austerity on pretty much everyone other than the very few who are in the economic class of Mitt Romney. In fact, Mitt Romney’s economic program is so unfair, and it so favors the very few who are in the economic class of Mitt Romney, that he doesn’t even want us to know its details. And that gets to the core of why Mitt Romney is unfit to govern.
The problem with Mitt Romney is not only that he doesn’t want us to know the details of his economic agenda, which suggests that it’s even worse than what we do know, and what we do know is bad enough, but Mitt Romney also doesn’t want us to know any details about Mitt Romney. Breaking with the tradition that voters should know as much as is possible about presidential candidates, Mitt Romney won’t release his tax returns. What is he hiding? Breaking with the tradition that voters should have at least some idea about a presidential candidate’s positions on major issues, Mitt Romney has flip-flopped so many times on so many issues that even one of his top campaign advisors openly admitted that Romney’s stands can be erased and rewritten without notice. Does he even have any principles or values, or is that he doesn’t want us to know what they are? What is he hiding? Mitt Romney has taken so many stands on so many issues that even he can’t remember where he is supposed to stand on them on any given day. Maybe what Mitt Romney is hiding is that there is no Mitt Romney at all.
For their part, Republican congressional leaders want to repeal the Obama health care law, which would explode the national debt. Republican congressional leaders offer nothing to replace the Obama health care law. House Republicans voted to end Medicare. House Republicans want to decimate health care spending. House Republicans want to take away a million Pell Grants. House Republicans want to punish low income Americans. House Republicans want to punish senior citizens. House Republicans want to punish women. House Republicans want to drive even more Americans from some semblance of food security into poverty. The House Republican budget leader wants to drive even more children into poverty. Whatever they may say they want to do, the agenda of congressional Republicans would be devastating for tens of millions of Americans.
Unfortunately, being wrong— even stupidly wrong— is not in itself proof of unfitness to govern. As the Bush-Cheney team proved, it is in fact now a prerequisite for any Republican aspiring to national office. But the destructive policy agenda of congressional Republicans is not even remotely the worst of it, because in order to impose these policies they have resorted to tactics that are nothing more than political extortion, and government cannot function by extortion. It cannot function when hard fought agreements are blithely broken for the purpose of further extortion. And that’s what the Republicans now are about. They operate like criminal thugs and they cannot be trusted to keep their word. And it’s not merely a game of daring high stakes brinksmanship, for merely playing the game is itself dangerously destructive.
When the Republicans last summer broke bipartisan precedent by threatening the full faith and credit of the United States in order to force the sorts of budget cuts that have shattered the economies of Europe, they agreed to a deal that itself will damage the recovery, but by forcing that deal they also triggered the first ever downgrade in our national credit rating. The Standard & Poor’s downgrade was problematic in itself, but S&P was very carefully explicit in its rationale:
The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.
That brinksmanship was wholly the fault of the Republicans. Under both Democratic and Republican presidents, and with both Democratic and Republican Congresses, no one previously had been so petty and unhinged as to play chicken with the debt ceiling. The Republicans last year broke all precedent. Ownership of the consequences is theirs alone. And beyond revealing how dangerous they are even to have attempted political extortion by holding the debt ceiling hostage, the specifics of the Republican approach to the national debt also was specifically mentioned.
Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.
Both the Republican policy and the means of imposing the Republican policy were specifically cited. As our own Hunter explained:
Parsing the S&P statement from a partisan standpoint, there are a few things to note. As cited above, the Bush tax cuts appear to be the only non-entitlement-related government policy specifically called out by S&P in their rationale for downgrade, and “Republicans in Congress” were specifically called out for “continu[ing] to resist any measure that would raise revenues.” It seems S&P comes down squarely on the side of believing revenues doneed to be increased, though it pointedly shies away from suggesting any numbers.Couple this with their plain and prominent citation of debt ceiling hostage-taking as a prime reason for the downgrade, and it would be difficult to argue any position other than that S&P is blaming recent GOP actions directly for their downgrade decision
All of which would be bad enough. All of which would by itself reveal how dangerous it is to allow such people any means of asserting any level of control over the making of economic policy. But now House Speaker John Boehner wants to play the whole game over again:
In the meeting—a day after a high-profile speech by Boehner in which he called for spending cuts paired with any future debt-ceiling hikes—the speaker told the president that “I’m not going to allow a debt ceiling increase without doing something serious about the debt,” according to the Ohio Republican’s aides.
Which has even his Republican Senate counterpart unenthused. Of course that same Republican Senate counterpart last year said that his single most important goal was to deny President Obama a second term in office. Despite two wars, international terrorism, a still staggering economy, rising poverty and homelessness, an impending climate crisis and a host of other issues on which one would think a national political leader would want to focus, the single greatest priority of the most powerful Republican in the Senate was to ensure electoral victory. And continued Republican efforts to sabotage the economyproved the man’s words.
The Republicans don’t want to solve the nation’s problems, they only want to gain and maintain political power. And in pursuit of that goal they are openly and dangerously reckless. And their new presidential standard-bearer not only wants to impose policies similar to those that continue to devastate Europe, he is a deliberately dishonest cipher, not only about where he stands on issues but even about whether or not he actually has any stands on issues. He doesn’t merely disinform, he openly mocks even the concept of informing.
Differences in policy are one thing, and history tends to reveal who was right and who was wrong. For example, the New Deal worked, while austerity doesn’t. And it’s perfectly fair for Republicans to continue to try to gut the New Deal while promoting more disastrous austerity. That’s politics, and if American voters want to swap the current slow but steadily improving economic recovery for the type of economic implosion and social upheaval now crushing Europe, they have every right to vote for the Republicans. They have every right to vote for whomever they want for whatever reasons or lack of reason they choose. But when Republicans shatter precedent by attempting political extortion that by itself endangers the full faith and credit of the United States, when they threaten to crash the economy if they don’t get their way, when they consider winning more important than responsible governing, when they consciously attempt to undermine the very concept of an informed electorate, that isn’t politics, it’s the deliberate destruction of politics. It makes mere thuggery appear relatively benign in comparison. It reveals the Republicans as not only ideologically and intellectually incompetent, but also as dangerously unstable of temperament.
With the modern Republican Party, the danger isn’t merely that they will succeed in imposing more disastrous policies, the danger is that even allowing them to have any influence at all on the process of making policy can and will be abused, with potentially disastrous consequences. Modern Republicans are not merely lousy at governing, they are unfit to govern.
By: Laurence Lewis, Daily Kos, May 27, 2012
“Failing The Test Of Courage, Integrity And Loyalty”: Romney Messes Up And Tells The Truth About Austerity
Romney has periodic breakdowns when asked questions about the economy because he sometimes forgets the need to lie. He forgets that he is supposed to treat austerity as the epitome of economic wisdom. When he responds quickly to questions about austerity he slips into default mode and speaks the truth – adopting austerity during the recovery from a Great Recession would (as in Europe) throw the nation back into recession or depression. The latest example is his May 23, 2012 interview with Mark Halperin in Time magazine.
“Halperin: Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office? Why not do it more quickly?
Romney: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression. So I’m not going to do that, of course.”
Romney explains that austerity, during the recovery from a Great Recession, would cause catastrophic damage to our nation. The problem, of course, is that the Republican congressional leadership is committed to imposing austerity on the nation and Speaker Boehner has just threatened that Republicans will block the renewal of the debt ceiling in order to extort Democrats to agree to austerity – severe cuts to social programs. Romney knows this could “throw us into recession or depression” and says he would never follow such a policy.
Romney, however, has not opposed Boehner’s threat to use extortion to force austerity on the nation. Romney has the nomination sown up, but I predict that he will stand by and let Boehner try to throw us into a Great Depression rather than upset the Tea Party-wing of the Republican Party. Indeed, Romney will attack Democrats who have the political courage to defend our nation against his Party’s demands for austerity that would throw the nation into recession or depression. What does one call a politician who, solely to advance his personal political ambition, supports his Party’s efforts to coerce austerity even though he knows that the austerity would cause a national economic catastrophe and states that he, “of course,” would never adopt such self-destructive austerity if he were president? Romney is failing the tests of courage, integrity, and loyalty to our nation and people.
Later in the interview, Romney claims that federal budgetary deficits are “immoral.” But he has just explained that using austerity for the purported purpose of ending a deficit would cause a recession or depression. A recession or depression would make the deficit far larger. That means that Romney should be denouncing austerity as “immoral” (as well as suicidal) because it will not simply increase the deficit (which he claims to find “immoral” because of its impact on children) but also dramatically increase unemployment, poverty, child poverty and hunger, and harm their education by causing more teachers to lose their jobs and more school programs to be cut. Fewer children will be able to get college degrees. Austerity is the great enemy of children – it is the epitome of a self-destructive, immoral economic policy.
Listen for the sounds of silence from Romney in coming months. I predict that he will not act to protect our children or our economy from the suicidal and “immoral” austerity his Republican allies are trying to coerce the Democrats to inflict on our economy and our children.
By: William K. Black, New Economic Perspectives, May 25, 2012
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