Relevant and even prescient commentary on news, politics and the economy.

Eurozone saga…what’s up?

by Rebecca Wilder

This is a post about my confusion, rather than my reporting, of the Eurozone saga. Here are some pieces worth reading if you want to catch up:

The NY Times (the basics); Ed Harrison (via Naked Capitalism); From the billy blog; The Financial Times (Martin Wolf, a must read); The Economist (will reference below).

Okay, a conditional guarantee for possible lending, maybe, with consultation from the IMF has been agreed upon by the Eurozone countries (Germany and France, really). But what I don’t understand is pretty well stated in the Economist article:

The Greek government has somehow to keep its economy on an even keel while pushing through a huge fiscal tightening. Countries that seek IMF help generally have to endure brutal cuts in public spending, which deepen recessions. To counter that effect, the IMF typically counsels a weaker currency. Sadly, this is not an option for Greece. Stuck in the euro, its exchange rate with its main trading partners is fixed. Greece cannot devalue, so it needs more time to adjust than the three years it has agreed with its EU partners—and a bigger safety net while it does.

Sadly? This is not an option? The Economist completely skips over the VERY LARGE issue of a singular currency and on to the competitiveness story, one that must be derived through internal devaluation, i.e., dropping wages and other nominal variables.

Financial crises, especially those in small-open economies (Sweden, for example), generally end with a massive currency devaluation that drives export growth (provided there is external demand to suffice). I honestly don’t see how a sufficient export-generated rebound is even a possibility, given that the rest of the Eurozone is essentially trying the “internal devaluation” bit simultaneously (chart above).

And who’s going to pick up the slack? In 2008, 64% of Greece’s export income was derived by the EU 27 countries, 70% for Spain, and 74% for Portugal. If the Eurozone as a whole is using this same internal deflation mechanism to spur export growth, only the “zone” as a whole really benefits, not any one country.

WIHTOUT a massive surge in export-driven GDP growth no “zone” country can drop its financial deficit without incurring behemoth debt burden growth (in the case of the Eurozone, the term “burden” actually applies since Greece, nor any one economy, can print its own money).

Look at the government’s period budget constraint (left), where the lower-case letters “d” and “p” stand for the debt and primary deficit as a share of GDP, respectively. r is the nominal interest rate, and (1+g) is the rate of NOMINAL GDP growth (including price appreciation). (Email me if you want the algebra.)

When Greece starts dropping p (the primary deficit), the fundamentals of the economy (i.e., nominal gdp growth (1+g)) must be robust enough to prevent a surging debt burden. And here’s the cycle: to drop the primary deficit, it does so by reducing G and raising T, which drags Y (as of Y = C + I + G + Ex – Im) and growth of Y, (1+g), since export growth is unlikely to be there to offset the decline in private spending; these effects then flow back to the primary deficit to raise p.

And likewise, only under the circumstances of heroic export growth can the government reduce its fiscal deficit to 3% WITHOUT the private sector levering up their balance sheets and contributing to a larger default risk (of the depressionary type). I’m confused.

All I’m saying is that this plan, in its current form, is really not much of a plan at all. The internal devaluation model has a lot of holes.

Rebecca Wilder crossposted with News N Economics

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Will the Presidents Commission use CBO or SSA Numbers?

by Bruce Webb

Well some things are coming clear about the Presidents Deficit Commission. One its Chairmen have made it clear that its business starts and stops with Entitlements, the concerns some Republicans had that this would be Obama’s way of boosting taxes on the General Fund side or slashing military spending have been shown to be misplaced. Moreover it is clear from the NYT article cited by Jack yesterday plus many other indications that Social Security is front and center, after all the GOP has used the prospect of cuts to Medicare as a centerpiece to their opposition to HCR.

So the ground in being prepared for a grand debate on Social Security. But the question I want to throw out today is this: Who will be the scorekeeper? And the answer to that has huge implications.

There are three main governmental actors who score Social Security and they are not lined up neatly in either methodology or timing. First and foremost are the Trustees of Social Security. They release their Annual Report typically on March 31st though it can come out, as it did last year, as late as May. When it does come out it will be available here: Trustees’ Reports and of course in short order via a link in a post here at AB.

At that point we will be able to compare its numbers to those of the Congressional Budget Office. The CBO gives ten year numbers for Social Security with its standard Budget Outlooks and updates of its Baseline but its main analysis of Social Security comes each August in the form of a document entitled ‘CBO’s Long-Term Projections for Social Security’. The 2009 version of this is available here: CBO Publications: Social Security and Pensions

A third scorekeeper is the White House Office of Management and Budget which releases its own 10-year numbers on Social Security with its release of the President’s Budget. Normally these numbers would not be front and center in a Social Security discussion, but this is after all a Presidential Commission and moreover the current top two at OMB are themselves authors of prominent Social Security plans: Diamond-Orszag and Liebman-MacGuineas-Samwick (LMS).

So we are faced this year with our own Clash of the Titans. And it matters because the data sets are incongruent, where CBO in August projected a 75 year actuarial gap of 1.3%, SSA put it at 2.01% in May. Whereas SSA tells us that the Trust Fund will likely go to depletion in 2037 based on the best available information they had a year ago, CBO using updated information from last Spring/Summer still would have that date be 2043. And that time gap is very significant, it is the difference between mid-point Boomers being 82 or just crossing the average projected mortality date and 88 when most of that cohort will have shuffled off to Buffalo (and points beyond).

A couple of days ago it was announced that the Executive Director of the President’s Commission would be former top Clinton advisor and DLC Chair Bruce Reed and presumedly Bruce is staffing up as we speak. We don’t know when the Commission will actually hold its first hearings but certainly those will be shaped and informed by the numbers in the soon to be released SSA Trustees Report. But the time-table established would have the Commission issue recommendations in December presumedly to be acted on by the next Congress in Spring 2011. Which means that the Commission and then Congress are going to be dealing with four sets of numbers in succession: 2010 Social Security Report (April), Presidents 2011 Budget (Summer), CBO’s Long-Term Projections (August), and then in all likelihood the 2011 SS Report (April 2011).

So it should be interesting, because the set of policies you need to address a 2% of payroll gap in 2037 are very different from those needed to address a 1.3% gap in 2043. And the reality is that the situation on the ground has moved significantly since even those numbers were produced.

I addressed the question SSA? or CBO? to a big group of policy experts. And one of the biggest, and one with a long resume of top jobs at both SSA and CBO firmly answered ‘CBO’. But some people closer to the current action said essentially ‘Not so fast, that decision has not been made’. Well it makes a huge difference because coincidentally some of the major proposals out there like changes in retirement age and cap increases typically score right at 0.7% of payroll and so very close to the difference between SSA and CBO, if we adopt the former they might have to be included in a proposal, if we adopt the latter they could be scrapped without damage.

By and large the Press reporting in years past and most policy discussion generally has revolved around the Trustees numbers and until the debate over HCR few people even understood the role of CBO is scoring legislation. Now that the focus is turning squarely on Social Security commenters who have been content to deal with issues like Trust Fund Depletion in terms of ‘will run out’ are suddenly going to be confronted with an amount of ambiguity and varying datasets that they just are not prepared for. But at least Angry Bear readers will have had a little heads up.

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That’s the headline and lede…where are the interesting parts?

by Reader Jack

From the NY Times yesterday:
“Social Security to See Payout Exceed Pay-In This Year”

That’s the headline.

The interesting parts are buried deep. In the print edition one has to go not just below the fold, but to the inside pages to find the meat of the story. Superficially it would appear the the Times is reporting new and dramatic findings, but the article soon makes it quite clear that while current benefits are beginning to out pace payroll (FICA)taxes those outlays are still not a deficit because of the interest earned yearly by the Trust Fund.

“For accounting purposes, the system’s accumulated revenue is placed in Treasury securities. In a year like this, the paper gains from the nterest earned on the securities will more than cover the difference between what it takes in and pays out. Mr. Goss, the actuary, emphasized that even the $29 billion shortfall projected for this year was small, relative to the roughly $700 billion that would flow in and out of the system. The system, he added, has a balance of about $2.5 trillion that will take decades to deplete. Mr. Goss said that large cushion could start to grow again if the economy recovers briskly.”

And why the panicky lede when again deeper into the body of the story we find there are no surprises and things are goiong as expected for the past three decades.

“Indeed, the Congressional Budget Office’s projection shows the ravages of the recession easing in the next few years, with small surpluses reappearing briefly in 2014 and 2015. After that, demographic forces are expected to overtake the fund, as more and more baby boomers leave the work force, stop paying into the program and start collecting their benefits. At that point, outlays will exceed revenue every year, no matter how well the economy performs.”

And best of all, one might surmise from the lede and first several paragraphs that it’s Social Security that is bringing the economy to ruins. But again we read deep and what to find?

“The United States’ soaring debt — propelled by tax cuts, wars and large expenditures to help banks and the housing market — has become a hot issue as Democrats gauge their vulnerability in the coming elections. President Obama has appointed a bipartisan commission to examine the debt problem, including Social Security, and make recommendations on how to trim the nation’s debt by Dec. 1, a few weeks after the midterm Congressional elections.”

Of course in spite of the actual causes of our government’s deficit “problems,” if they can be truly deemed as problems, the Times can only find one basis for economic survival. Take it out of the hides of the formerl;y working stiffs.

“The long-term costs of Social Security present further problems for politicians, who are already struggling over how to reduce the nation’s debt. The national predicament echoes that of many European governments, which are facing market pressure to re-examine their commitments to generous pensions over extended retirements.”

Note the tell tale reference for what drives all decision making these days, “facing market pressure.” And true to their often hyperbolic approach, the link for the term “facing market pressure” brings the reader to this scary article and photo. (see link)

What more need be said? There is no emergency as the full article makes clear, but the implied disasture is fast upon us if one ignores the facts provided. The Times does know how to skirt an issue and walk both sides of the fence. One can only hope that Keller and Sulzberger slip and that the fence posts catch them where it hurts.
_______________________________
by Reader Jack

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Why taxes are important

by Linda Beale

why taxes are important
from ataxingmatter

When I started this blog several years ago, I wrote in my inaugural post that I thought it was important for people to be informed about taxes–how they work, who pays them, and why we need a tax system to support our governmental programs. I thought it might be worth repeating parts of that, given all the misinformation abounding now about taxes. For just a tip-of-the-iceberg indicator of the misinformation and lack of understanding that many Americans have about taxes, see Mark Thoma’s Economist’s View posting on Bruce Bartlett’s analysis of the tea partiers’ views about taxation: The Misinformed Tea Party Movement. (In short, they think that the average American with $50,000 in income pays between 20-25% of gross income in federal taxes, whereas the actual amount is much less–less than 7% in federal income taxes and less than 15% in federal income taxes and social security taxes; they think that taxation raises revenues equal to about 40% of GDP, whereas in reality it is less than 1/4th that, they think taxes have increased under Obama whereas in fact they went way down because of the economic stimulus package that Obama and the Democratic Congress pushed through right after Obama took office.)

The following is from my inaugural post:

We Americans, like all other humans, are social creatures. We live together in communities and are bound to total strangers by both shared values and shared risks. We pay taxes to support a system that will ultimately benefit us, our children, our neighbors and, yes, even those strangers on the other side of town or the other side of the continent. We do so because our shared community cannot exist without resources–to pave the streets, pay the police, support medical research that may someday save us or a loved one from one of the terrible diseases of the twenty-first century, provide a chance for artists and musicians to flourish, and give at least temporary support for those who have lost their homes to a tragedy or lost their jobs to outsourcing. We know there will always be some programs we may not approve of, and some expenditures that could be handled more efficiently in another way, but we understand that consensus government of a diverse population requires some mutual trust and mutual give and take. Let’s hope that this discussion can grow, so that we do not find ourselves burdened in the future with a tax system funded entirely off the backs of those who work, while the leisure class that lives mainly on inherited wealth and capital investments reaps the lion’s share of the benefits of a free America without carrying a fair tax burden.

If our government is honest with us, we are willing, even eager, to pay our fair share of the tax burden to support it. When our government is dishonest with us, or hides the true goal of governmental provisions behind meaningless platitudes or false promises or untrue distortions, we worry whether the overall system is truly fair.

crossposted with ataxingmatter

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Housing: Speculation is the Key posted April, 2005 by Caculated Risk

I mentioned I would be going into the archives to re-post some of Angry Bear’s explanatory writing in the 2004/05 time period. The first was written by Kash in early 2005 on the coming dilemma in paying for health care and how to use measures to think it through.

Here is a post by CR describing early thinking on the housing bubble, and not from hindsight:

Housing: Speculation is the Key
Posted by CalculatedRisk | 4/04/2005 on Angry Bear
Re-posted with permission of the author

I have taken to calling the housing market a “bubble”. But how do I define a bubble?

A bubble requires both overvaluation based on fundamentals and speculation. It is natural to focus on an asset’s fundamental value, but the real key for detecting a bubble is speculation – the topic of this post. Speculation tends to chase appreciating assets, and then speculation begets more speculation, until finally, for some reason that will become obvious to all in hindsight, the “bubble” bursts.

Speculation is the key.

A recent report by the National Association of Realtors (NAR) reported that 23% of all homes nationwide were bought by investors. Another 13% of homes were purchased as second homes. In Miami, it was reported that 85% of “all condominium sales in the downtown Miami market are accounted for by investors and speculators”. This is clear evidence of speculation.

The following supply demand diagrams illustrate this type of speculation.

Click on diagram for larger image.

The above diagram shows the motive for the speculator. If he buys today, at price P0, he believes he can sell in the future at price Pf0 (price future zero), because of higher future demand. The speculation would return: Profit = Pf0-P0-storage costs (the storage costs are mortgage, property tax, maintenance, and other expenses minus any rents).

In this model, speculation is viewed as storage; it removes the asset from the supply. The following diagram shows the impact on price due to the speculation:

Since speculation removes the asset from the supply, the Present supply curve shifts to the left (light blue) and the price increases from P0 to P1. In the second diagram, when the speculator sells, the supply increases (shifts to the right). The future price will fall from PF0 to PF1. As long as (PF1 – storage costs) is greater than P1 the speculator makes a profit.

However, if the price does not rise, the speculator must either hold onto the asset or sell for a loss. If the speculator chooses to sell, this will add to the supply and put additional downward pressure on the price.

This type of speculation appears to be rampant only in certain regions, mostly the coastal areas. However, something akin to speculation is more widespread – homeowners using substantial leverage with escalating financing such as ARMs or interest only loans.

Leverage as Speculation.

In this LA Times article “They’re In — but Not Home Free”, the writer describes a woman that is “able to afford, barely, her first home”. She has taken out “an adjustable-rate mortgage that won’t require her to pay any principal for three years”. She is already strapped, working overtime to pay her bills, and doesn’t know what she will do in three years. She is a gambling that either her income will increase or that the value of her home will rise enough to sell at a profit.

Californians are adopting a “buy now, pay later” strategy on a massive scale. The boom in interest-only loans — nearly half the state’s home buyers used them last year, up from virtually none in 2001— is the engine behind California’s surging home prices.

See article for graphic on “Risky Debt”. Here is a similar article in the Sunday Washington Post, “Homeowners in Harm’s Way” and a summary of financing options from the WSJ Online: “Buy Now, Pay Later”

This type of leveraged activity pulls demand from future periods. Starting with the first diagram above, these leveraged financing programs shift the demand curve to the right (light red) and increase the price from P0 to P1. In the future, the demand will be shifted to the left and the future price will be Pf1. If Pf1 is less than P1 (the LA Times buyer’s price), then her house might be foreclosed, increasing the supply too!

One way to prolong the bubble is to offer ever more leveraged financing. And here it is – a 35 year loan, interest only for the first 5 years, with no money down and 103% Loan To Value (to cover closing costs). Amazing.

How many people are on the ragged edge? From the LA Times article:

The number of buyers falling into this category in any given month is unclear. But a California home builder recently got a sense when he sought to answer this question: How many of the potential buyers of his houses could still afford them if interest rates went up even a little?

To find out, the builder conducted a little experiment.

His firm’s preferred lender had pre-qualified 90 potential buyers for a group of new houses. Since the houses wouldn’t be ready for another six months, the builder tightened the loan criteria. He didn’t want buyers to sign up for a house and then get frightened into canceling by rising rates.

He raised the threshold from a fully variable loan, the easiest to get since it immediately moves upward when rates increase, to a mortgage that was fixed for the first three years. That would shield buyers from rate jumps for at least a little while, but it’s also more expensive.

Under the higher threshold, only about 15 of the buyers still qualified.

Only one in six buyers qualified for a slightly higher financing package. I believe that means we are close to the end of the housing cycle. Both types of activities are increasing prices: speculation is reducing supply and leverage is increasing demand.

The Bust

Housing “bubbles” typically do not “pop”, rather prices deflate slowly in real terms, over several years. Historically real estate prices display strong persistence and are sticky downward. Sellers tend to want a price close to recent sales in their neighborhood, and buyers, sensing prices are declining, will wait for even lower prices.

This means real estate markets do not clear immediately, and what we usually observe is a drop in transaction volumes. That is my expectation for this year: stable prices (maybe declining slightly on the coasts) and declining volumes. Stable or lower prices will halt speculation and increase the supply. And if rates rise further, or lenders become more discerning, demand will also decrease. Either spells bust for the current bubble.

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Silly Krugman

Krugman writes:

Andrew Leonard has a good point: if Obamacare is such a disaster for the economy, where’s the market reaction?

Silly Krugman. And silly Andrew Leonard. Sure, the S&P 500 is up a few percentage points. But it would be up many, many times that amount if not for the healthcare bill.

Update: Sarcasm alert!

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In Defense of Deficits

Jamie Galbraith writes in The Nation:

In Defense of Deficits

The Simpson-Bowles Commission, just established by the president, will no doubt deliver an attack on Social Security and Medicare dressed up in the sanctimonious rhetoric of deficit reduction. (Back in his salad days, former Senator Alan Simpson was a regular schemer to cut Social Security.) The Obama spending freeze is another symbolic sacrifice to the deficit gods. Most observers believe neither will amount to much, and one can hope that they are right. But what would be the economic consequences if they did? The answer is that a big deficit-reduction program would destroy the economy, or what remains of it, two years into the Great Crisis.

A big deficit-reduction program would destroy the economy two years into the Great Crisis. For this reason, the deficit phobia of Wall Street, the press, some economists and practically all politicians is one of the deepest dangers that we face. It’s not just the old and the sick who are threatened; we all are. To cut current deficits without first rebuilding the economic engine of the private credit system is a sure path to stagnation, to a double-dip recession–even to a second Great Depression. To focus obsessively on cutting future deficits is also a path that will obstruct, not assist, what we need to do to re-establish strong growth and high employment.

To put things crudely, there are two ways to get the increase in total spending that we call “economic growth.” One way is for government to spend. The other is for banks to lend. Leaving aside short-term adjustments like increased net exports or financial innovation, that’s basically all there is. Governments and banks are the two entities with the power to create something from nothing. If total spending power is to grow, one or the other of these two great financial motors–public deficits or private loans–has to be in action.

For ordinary people, public budget deficits, despite their bad reputation, are much better than private loans. Deficits put money in private pockets. Private households get more cash. They own that cash free and clear, and they can spend it as they like. If they wish, they can also convert it into interest-earning government bonds or they can repay their debts. This is called an increase in “net financial wealth.” Ordinary people benefit, but there is nothing in it for banks.

And this, in the simplest terms, explains the deficit phobia of Wall Street, the corporate media and the right-wing economists. Bankers don’t like budget deficits because they compete with bank loans as a source of growth. When a bank makes a loan, cash balances in private hands also go up. But now the cash is not owned free and clear. There is a contractual obligation to pay interest and to repay principal. If the enterprise defaults, there may be an asset left over–a house or factory or company–that will then become the property of the bank. It’s easy to see why bankers love private credit but hate public deficits.

All of this should be painfully obvious, but it is deeply obscure. It is obscure because legions of Wall Streeters–led notably in our time by Peter Peterson and his front man, former comptroller general David Walker, and including the Robert Rubin wing of the Democratic Party and numerous “bipartisan” enterprises like the Concord Coalition and the Committee for a Responsible Federal Budget–have labored mightily to confuse the issues. These spirits never uttered a single word of warning about the financial crisis, which originated on Wall Street under the noses of their bag men. But they constantly warn, quite falsely, that the government is a “super subprime” “Ponzi scheme,” which it is not.

We also hear, from the same people, about the impending “bankruptcy” of Social Security, Medicare–even the United States itself. Or of the burden that public debts will “impose on our grandchildren.” Or about “unfunded liabilities” supposedly facing us all. All of this forms part of one of the great misinformation campaigns of all time.

The misinformation is rooted in what many consider to be plain common sense. It may seem like homely wisdom, especially, to say that “just like the family, the government can’t live beyond its means.” But it’s not. In these matters the public and private sectors differ on a very basic point. Your family needs income in order to pay its debts. Your government does not.

Private borrowers can and do default. They go bankrupt (a protection civilized societies afford them instead of debtors’ prisons). Or if they have a mortgage, in most states they can simply walk away from their house if they can no longer continue to make payments on it.

With government, the risk of nonpayment does not exist. Government spends money (and pays interest) simply by typing numbers into a computer. Unlike private debtors, government does not need to have cash on hand. As the inspired amateur economist Warren Mosler likes to say, the person who writes Social Security checks at the Treasury does not have the phone number of the tax collector at the IRS. If you choose to pay taxes in cash, the government will give you a receipt–and shred the bills. Since it is the source of money, government can’t run out.

It’s true that government can spend imprudently. Too much spending, net of taxes, may lead to inflation, often via currency depreciation–though with the world in recession, that’s not an immediate risk. Wasteful spending–on unnecessary military adventures, say–burns real resources. But no government can ever be forced to default on debts in a currency it controls. Public defaults happen only when governments don’t control the currency in which they owe debts–as Argentina owed dollars or as Greece now (it hasn’t defaulted yet) owes euros. But for true sovereigns, bankruptcy is an irrelevant concept. When Obama says, even offhand, that the United States is “out of money,” he’s talking nonsense–dangerous nonsense. One wonders if he believes it.

Nor is public debt a burden on future generations. It does not have to be repaid, and in practice it will never be repaid. Personal debts are generally settled during the lifetime of the debtor or at death, because one person cannot easily encumber another. But public debt does not ever have to be repaid. Governments do not die–except in war or revolution, and when that happens, their debts are generally moot anyway.

So the public debt simply increases from one year to the next. In the entire history of the United States it has done so, with budget deficits and increased public debt on all but about six very short occasions–with each surplus followed by a recession. Far from being a burden, these debts are the foundation of economic growth. Bonds owed by the government yield net income to the private sector, unlike all purely private debts, which merely transfer income from one part of the private sector to another.

Nor is that interest a solvency threat. A recent projection from the Center on Budget and Policy Priorities, based on Congressional Budget Office assumptions, has public-debt interest payments rising to 15 percent of GDP by 2050, with total debt to GDP at 300 percent. But that can’t happen. If the interest were paid to people who then spent it on goods and services and job creation, it would be just like other public spending. Interest payments so enormous would affect the economy much like the mobilization for World War II. Long before you even got close to those scary ratios, you’d get full employment and rising inflation–pushing up GDP and, in turn, stabilizing the debt-to-GDP ratio. Or the Federal Reserve would stabilize the interest payouts, simply by keeping short-term interest rates (which it controls) very low.

Page 2 can be read following the link

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Topical thread: Incumbency, retirements, and leavings

The Dan Rather interview also reminded me of the many Senators and House members outright retirements or “running for another office” that affect the nature of incumbent advantage in more regular elections. From a cursory google of sources I believe there are 9 senate retirements (4 R, 5D) and 17 (6R,11D) House members retiring outright, and the numbers sort of even out overall when those “seeking other offices” are added to the list.

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Dan Rather on the Rachel Maddow show

Maggie Mahar at Health Beat Blog gives a historical perspective to the passage of Healthcare Reform 2010 and Medicare 1965. Maggie’s comments are in the parenthesis in red on transcripts of Rathers and Maddow’s exchange.

Dan Rather on Presidents Obama, LBJ and HCR:

I saw Dan Rather on the Rachel Maddow show. Some people have suggested that today, the country is polarized the way it was in the 1960s. But Rather reminds us that when Congress passed Medicare in 1965, President Johnson was operating in a very different landscape. Reading this interview, one realizes what President Obama has been up against. He beings by observing that, if he succeeds, President Obama will be making history.

RATHER: “It will be the signature achievement of this first term, perhaps the only term, but a signature achievement of President Obama`s this term. And whether one likes it or not, disagrees with it or not, it takes up the line that started with Social Security, ran through Medicare and Medicaid, which was passed more than 40 years ago, 45 years ago, and it will be put in that category. [Rather is not saying that Obama will be a one-term president. But he is suggesting that even if he only has four years, he will have accomplished more than the vast majority of two-term presidents.-mm]

“And if it passes, and if it is put into effect, I expect it will be in the first paragraph of President Obama`s obituary, that he passed health care reform, partly because so many presidents — President Johnson was successful, but President…

MADDOW: When Lyndon Johnson was able to get Medicare passed in 1965, is there any useful comparison to make or contrast to draw between the political environment in which he was able to make that happen in `65, and the way — and the environment in which Obama has been able to presumably make this happen if he does it?
RATHER: Well, there are certainly a lot of contrasts. First of all, remember that President Johnson got this landmark legislation, Medicare and Medicaid, passed in the wake of the assassination of President Kennedy. He ascended to the presidency. And the country was aching to not only appear to be, but to be united. [this is very true–mm]

I have my doubts whether President Johnson could have gotten Medicare and Medicaid pass if it had not been for the assassination of President Kennedy and the mood the country was into after that. Then, the second thing, that there was — certainly it was political warfare, and the kind of no holds barred political warfare. But nothing like the polarization in Washington and nothing like the polarization in the country existed at that time.
MADDOW: Really?
RATHER: And –
MADDOW: I always think that — I look at the polarization we have now and I think oh every generation must think that they`re the most polarized time ever.
RATHER: No.
MADDOW: You think we are actually. . . . [here, one realizes how young Maddow is—mm]
RATHER: I think we are. This is the most polarized the country has been certainly since the 1960s over the Vietnam War, and I think even more so than then, and Washington is unquestionably more polarized.
Lyndon Johnson got Medicare and Medicaid passed, given the special circumstances in the wake of President Kennedy`s assassination, but he did so with some Republican support.
MADDOW: That`s right.
RATHER: The Republican Party was almost totally different. You had three wings of the Republican Party Lyndon Johnson was dealing with. You had the liberal Republicans, and they would call that people like Jake Javits, the senator from New York. You had moderate Republicans, many of them from the upper Midwest, and then you had self-described more conservative Republicans. [Yes, and the liberal Democrats were powerful in states like N.Y. –mm]
You had the three. That made it a totally different situation than today. The Republican Party was not completely totally united against it. It was, in the main, united against it, but you see the difference.
Whereas now the Republicans, whether — again whether you like it or not, they have been from a strictly political/practical standpoint, well disciplined, well organized and a total and complete absolute united front against health care. [He is right: The Republican party has become monolithic in a way that it never was. It’s easy to forget that it wasn’t always this way. Something very strange has happened within our government. mm]
Lyndon Johnson didn`t face that.
Also, . . . the Senate leadership had a lot of what we call the, quote, “old votes,” . . . Senate changed a lot in the early 1970s, but in this period in the 1960s when Medicare and Medicaid were passed, that — the seniority system was much stronger.
You had a lot of people who had been in the Senate and the House for a long time, some of them 35 to 40 years. And President Johnson himself had been a congressman and senator for a very long time. [The old bulls provided leadership. Some [and I’m including Republicans here) were even statesmen. Now, we have Mitch McConnell]
It was almost a completely different landscape from which President Obama is operating today. .
RATHER: . . . I`m — back from a trip to California and some other places in the country, the country is angry. This is as angry as I`ve seen the country. Republicans, Democrats, independents, mugwamps, whatever they are.. They`re really angry.
A lot of it springs from the recession, almost depression that we went through and a sense that we`re not all the way through it yet. And that anger is going to be interesting to see how it cuts in the November elections. Very, very interesting. [My guess is that many incumbents will lose their seats—Republicans as well as Democrats: Voters will say, “Throw the bums out”– mm.’]

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