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

Guest post: Why Means Testing Social Security Benefits Is More Trouble Than It’s Worth

Guest post by Nancy Ortiz

(Rdan here…Nancy is a long time reader of Angry Bear and has worked within the Social Security system professionally)

One of the many fixes now being considered as a remedy for Social Security and Medicare’s projected shortfalls is means testing benefits. The rationale is that rich people shouldn’t get SS because “they don’t need it.” Many people who ought to know better believe this would save a great deal of money and help fix the 2037 benefit gap. Sorry, people. This idea isn’t worth the paper it’s rotten on (as Dorothy Parker once said about someone else’s screen play). The short and long of it is that it costs more to means test benefits than to pay SS benefits without regard to the beneficiary’s income and assets.
How do I know this is true? The Social Security Administration (SSA) administers two programs: the basic SS program and Supplemental Security Income (SSI), a means-tested federal public assistance program for poor aged, blind and disabled people. You have to have worked 40 quarters to receive SS, but no work is required for SSI. It is a “welfare” program, not a social insurance program. SSI began on Jan. 1, 1974. In the intervening years, SSA has had plenty of experience trying to run this complex and challenging program. It has learned that SSI costs at least 7 times more dollar for dollar to administer than its regular SS program. 
There are many reasons. The federal government establishes overall SSI eligibility and payment levels, but each state can pay optional amounts over and above those required by federal law. In effect, there are 50 different SSI programs across the country. Earlier this week, CBS ran an article online with an account of a House Ways and Means Committee hearing about SSA’s improper benefit payments. Here’s the link.
SSA was third in the list of federal agencies making improper payments to its beneficiaries and recipients. The first two in order were DHHS (Medicare, Medicaid, and TANF with $71.4 billion ) and DOL (Unemployment benefits $17.5 billion). DOD is not mentioned in this article presumably because the amount of DOD’s improper payments cannot be determined. SSA’s total was $8 billion, including $4 billion in improper SSI  payments, out of a total of $650 billion in benefits paid for all programs.
Congress has underfunded SSA since the 1980’s, sometimes more– sometimes less, but consistently for at least 30 years. The agency is  understaffed as a result. This has produced a 10% error rate in SSI payments as compared to a .05% error rate in SS benefits. This is because SSI is very labor intensive. The recipients are poor, often functionally or completely illiterate, and don’t speak English well or at all. Interviews are longer, the topics covered more complex, the documentation requirements much more extensive than in the SS program. Furthermore, you have to reinterview recipients frequently to be sure they’re still eligible. So, not only is it harder to process the claims to begin with but also you have to do the work all over again every year. If you don’t have the staff, you can’t do the work fast enough or accurately enough to produce a low error rate.
SSA’s Inspector General summed up the state of SSA’s efforts to improve payment accuracy in his statement for the record at Ways and Means’ hearing. See  SSA plans to spend $796M on quality control in 2011 and at least as much in 2012, budget permitting. This includes local office and end-of-line quality reviews, studies to determine causes of error, costs for computer matches in-house and out-of-house, Continuing Disability Reviews, redeterminations of eligibility, and the like. There are many more ways to reduce payment errors. But they cost more money than the ones listed above.
In SSI or any other means-tested program today, all income and any assets, no matter how small in dollar or market value, have to be reported. Any change in stated income and assets must be reported, recorded and verified. If the parents of a disabled child work, for example, they have to report all changes in their income whenever they occur. People who enter or leave the household cause a change in the payment level. Gifts of money or determinable value can reduce payments. Ownership of real estate other than a principle residence also count against the asset limit of $2000.00 for an individual ($3000.00 for a couple). So, if the recipient is a tenant in common in real estate having a value over the limit, s/he is ineligible. This is common in intestate estates in which numerous relatives may have a share in unmarketable rural property. I could go on, but your eyes are already glazing over.  
The obvious response is to say that means testing SS could be designed in such a way as to get around these problems.  But, the fact is that the limits set on income and assets are absolute dollar limits not subject to waiver or tolerances. So, means testing means one thing and one thing only. You have to check and recheck everything that affects eligibility every year for every eligible person. And, that takes staff which costs money. About 50 million people receive SS and SSI benefits. I cannot even guess what it would cost to handle that many new eligibility determinations. We must look elsewhere to find a fix for the coming SS benefit gap.

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Chairman of Connecticut Libertarian Party responds

Angry Bear invites Dan Reale.

Dan Reale, Chairman of the Libertarian Party of Connecticut replies with this e-mail:

Libertarians oppose the initiation of force to promote social or political goals. We acknowledge that a “right” is a power, faculty or ability inherent to ownership and incident upon another. This applies to both to your property and yourself, as you own both.

This also applies to what people myopically characterize as “economic”, “civil” or “social” rights, as if the principle is somehow different or distinct. Rights function on the same premise no matter who owns the property in question. If the action of the property owner (as in the person with the corresponding rights inherent to that ownership) would take action that would risk damage to property, infringe the rights of others or limit the rights of others, that person taking such action needs to obtain (or contract for) permission.

Libertarians are minarchists. We believe that government’s only function is to protect individual rights. There are a variety of things that government does to accomplish that end, among these being a court system. These things cannot include invasion of privacy, taking of property without due process, restrictions on the type of gun you can purchase, where you can work, the type of light bulb you can use or who you can freely contract with to purchase health care along with what terms you can agree to. Libertarians assert that you either have a right or you don’t.

Libertarians are neither left nor right. In history, “left” and “right” merely came from what side of a physical aisle French legislators stood in during the early 1800s, and that has no factual bearing or relevance to our world today. In practice, “left” and “right” are means to an end both in terms of how major parties parse the debate and erroneously polarize the electorate. Our question is not “left or right?”; our question is “libertarian or statist?”.

Dan Reale

My reply in comments.

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An Invitation for Libertarians

An Invitation for Libertarians

Here at Angry Bear, we’ve had a number of posts on LIbertarians over the years. Inevitably, someone writes to tell us we’re misrepresenting Libertarians… even when we’re quoting well known libertarians.

So… if you are libertarian consider this an invitation. Send me one to three paragraphs on what it means to be a libertarian or what libertarianism is. Or put it in comments. (I beg the indulgence of non-libertarians to please not put up comments of their own.) If you feel what you are writing about applies particularly to one or another strain of libertarianism, please make that clear.

I will put up as a separate post, verbatim, those e-mails and comments I get sent that seem to me to best tell the libertarian story from the libertarian perspective to the slightly left of center audience that resides here at Angry Bear. (I can’t promise to print everything that comes in to avoid the sort of repetition that will simply detract from the story.)

Here’s your chance to have your story told in your words.

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State and local governments should be listed as a primary risk to the US outlook

I don’t see why the aggregate state funding gap is not numero uno on the ‘risks’ to the US outlook (I usually hear oil, Europe, China, etc., in my line of work). According to the Center on Budget and Policy Priorities, the State budget gap is not expected to clear at least through 2013. From the CBPP report “States Continue to Feel Recession’s Impact“:

Three years into states’ most severe fiscal crisis since the Great Depression, their finances are showing the clearest signs of recovery to date. States in recent months have seen stronger-than-expected revenue growth.

This is encouraging news, but very large state fiscal problems remain. The recession brought about the largest collapse in state revenues on record, and states are just beginning to recover from that collapse. As of the first quarter of 2011, revenues remained roughly 9 percent below pre-recession levels.

Consequently, even though the revenue outlook is better than it was, states still are addressing very large budget shortfalls.

Better put: state revenues are rising more quickly than expected from a low base following the most precipitous drop ‘on record’. Not feeling too confident here.


Whether or not this ‘surge’ will continue depends on the labor market, corporate profits, and retail sales – heck, aggregate demand. There’s an obvious connection between retail sales and state sales tax revenue, and retail sales are weakening. In May, the pace of the 3-month moving average of retail sales slowed to 0.27% (from a peak of 1.09% in October 2010), while that of real retail sales fell 0.11% over the month (raw data here). Lower gas prices will help; but without significant relief in the labor market (from the private sector), the pace of revenue growth is unlikely to be maintained.

It’s not just the states – the health of state and local government’s (or lack of) matters A Lot for the US economy.

On average, state and local governments jointly are the largest single contributor to aggregate compensation in the 1990’s and 2000’s (roughly), according to the Bureau of Economic Analysis.

Since 1987, State and Local governments have accounted for an average 13% of total compensation of the US economy. So the outlook for 13% of aggregate compensation essentially depends on jobs growth in these sectors.

The trend for job growth has been decidedly negative for state and local governments. State and local governments have net-fired workers every single month since November 2010.

State and local governments are doing something they’ve not or rarely done before: hinder nonfarm payroll growth. In May 2011 (the latest data point), state and local governments dragged annual total payroll growth by 2% and 20%, respectively. Local government payroll was 11% of the total in May. This is not good.

Federal government support to state and local governments is set to decline significantly next year (see figure 2 on html of CPBB report). So it’s up to the private sector to provide sufficient income growth to offset the likely decline (latest data is 2009) by the giant of aggregate compensation, state and local governments, for years to come. I’m skeptical.

Rebecca Wilder

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Paul Clement’s weird tail-can-morph-the-dog ACA-litigation argument

by Beverly Mann

Paul Clement’s weird tail-can-morph-the-dog ACA-litigation argument

Earlier this month I wrote a post called “Markets and the ACA: Why the Supreme Court Will Uphold the ACA” that discussed an article-length post by Santa Clara constitutional law prof. Brad Joondeph published on a blog he runs dedicated entirely to the ACA litigation. I wrote:

[Santa Clara law prof. and ACA-litigation blogger Brad Joondelph is] right, but only if, as he says earlier, the market for health insurance is defined so narrowly that health insurance is viewed as a commodity, a product, independent of the product’s purpose and effect. And then, the constitutional issue would not, I think, be whether Congress has the authority under the Commerce Clause, aided by the Necessary and Proper Clause, to regulate the health insurance market, but instead whether this violates some other constitutional limitation. You know: the slippery-slope-to-government-compelled-consumption-of-broccoli argument.

I wrote that post and sent it to Dan a day or two before the oral argument in the 11th Circuit Court of Appeals in what most commentators think is likely to be the ACA case that the Supreme Court will use to decide the constitutionality of the ACA. Dan posted it a day after the argument.

The plaintiffs in that case are 26 states, two or three individuals, and an organization of small businesses. Former Bush solicitor general and current top-notch private-practice appellate and Supreme Court litigator Paul Clement is representing the 26 states. Another lawyer is representing the private plaintiffs.

The oral argument featured a colloquy between Clement and Judge Stanley Marcus, the swing vote on the panel hearing that appeal, that caused me to write a follow-up to my “Markets and the ACA” post called “Ah! It’s not about regulating markets, after all! It’s about regulating the individual!” I said in that post that in light of what occurred at that oral argument, which was based on the several reports I’d read—I hadn’t read the transcript of the three-hour argument—it looks like I was on to something when I wrote in the earlier post that the constitutional issue might not be whether Congress has the authority under the Commerce Clause, aided by the Necessary and Proper Clause, to regulate the health insurance market, but instead whether this violates some other constitutional limitation.

Last week, I emailed Prof. Joondeph, told him about my posts, and asked what he thought of my analysis and my prediction that the case might be decided not on the issue of whether Congress has the authority under the Commerce Clause (coupled with the Necessary and Proper Clause) to regulate the health insurance market but instead whether the individual-mandate provision violates some other constitutional limitation. His response, which provided more information about what really transpired between Marcus and Clement, surprised me. With his permission to publish it, here’s his response:

Very nice to hear from you. And I’m glad you found at least some of my analysis mildly helpful.

I generally agree with your legal analysis: there seems to be virtually no way any court invalidates the ACA on substantive due process grounds. The notion that forcing someone to purchase a product against their will violates the “liberty” protected by the Due Process Clause has not had any real support since 1937, when the Court decided West Coast Hoteland ended the Lochnerera. So that claim is going nowhere.

This is why the states have actually abandoned the claim (though they raised it in their initial complaint). So there literally is no chance for this claim. It is no longer a part of the case.

What Clement and Marcus discussed at argument was whether it was at all anomalous that the underlying objection to the mandate sounded in “liberty,” but that the legal challenge was framed along the dimensions of “powers.” Marcus thought it a bit strange. Clement argued it was not, as the federal structure of government is ultimately intended to protect individual liberty (as the Supreme Court has stated on several occasions).

Perhaps even more specifically, I think Marcus was wondering whether it made any sense to impose a “Congress can only regulate voluntary action” limitation on the commerce power, if that limitation stemmed principally from individual liberty concerns, rather than from a coherent conception of the scope of interstate commerce.

Not sure this directly responds to your questions. But those are my thoughts — coherent or otherwise. 🙂

All the best,

Whoa. Okay. My response:

One of my pet peeves as a political liberal is this claim by the conservative justices that federalism necessarily translates into a protection of individual liberty. The Court is incessantly invoking federalist principals to keep the federal courts from intervening when states-especially state courts, but state legislatures too-infringe upon individual constitutional rights and upon individual liberty. Destroying individual liberty in order to save it, I guess.

During oral argument in February in the Supreme Court in Bond v. United States, the wacky case in which a biochemist tried to poison her former friend and current paramour of the biochemist’s husband, Kennedy said, “The whole point of separation of powers, the whole point of federalism, is that it inheres to the individual and his or her right to liberty; and if that is infringed by a criminal conviction or in any other way that causes specific injury, why can’t it be raised?” What nonsense that the whole point of federalism is that it inheres to the individual and his or her right to liberty. In Bond, it works that way. In other cases, not so much.

Anyway … thanks for responding.


Lochner v. New York is a 1905 Supreme Court case that invalidated a New York state labor law that limited the number of hours a baker could work per week to 60. The Court said the statute violated the ‘liberty’ guarantee in the Fourteenth Amendment’s due process clause because it removed what the Court said was the constitutional right to contract freely.

Back then, “substantive” due process—the right to make certain decisions without government interference—was limited to economic decisions. In the 1960s, the Court expanded the concept to include the right to make certain deeply personal, non-economic decisions (such as the right to use contraceptives, to have an abortion under certain circumstances, to have homosexual sex) without government interference. Some modern legal conservatives, including four current Supreme Court justices, share the Lochner-era view that substantive due process protects only economic ‘liberty,’ and does so almost without limit.

Lochner operated as a bar to most labor laws, until it was overturned in 1937 in a case called West Coast Hotel Co. v. Parrish, in which the Court upheld a Washington state minimum-wage statute and said the Constitution does not include an absolute right to contract freely. The opinion held that states are entitled to restrict liberty of contract in order to protect the health and safety of the community or of vulnerable groups.

Clement, who was not involved in the case in the lower court, chose to drop the economic-substantive-due-process argument on appeal—if only ostensibly—presumably because he views the West Coast Hotel and the three quarters of a century of Supreme Court jurisprudence based on that opinion as having settled the matter. No justice but Clarence Thomas would vote to overrule those precedents, even in order to void ‘Obamacare’.

But Clement is attempting a really weird, and really dangerous, sleight of hand, and apparently Marcus saw through it. If the individual mandate violates a constitutionally protected liberty interest, then the mandate is unconstitutional on that basis, irrespective of whether Congress had the authority to enact it as necessary and proper under the Commerce power. And if the mandate doesn’t violate a constitutionally protected liberty interest, then substantive due process—individual liberty—can’t remove Congress’s authority to enact the mandate as necessary and proper under the Commerce power. Conflating the two separate arguments doesn’t make it greater, constitutionally speaking, than the sum of its two separate parts.

But if it does, we’re in for an interesting ride. All that would be necessary to have the Court strike down any statute as beyond Congress’s authority under whatever the respective “enumerated” power under which the statute was enacted—the defense power; the taxing power; the spending power; whatever—would be to identify the relevant enumerated power and transform an unsuccessful substantive-due-process claim and an otherwise unsuccessful enumerated-powers claim into a successful enumerated-powers claim. So long, Selective Service Act. For example.

Or maybe not. The Court’s 5-4 majority could limit the ruling to that one case. That, of course, has it’s own precedent, called Bush v.Gore.


The day after my email exchange with Prof. Joondeph, the Court issued its opinion in Bond. Kennedy wrote the opinion for a unanimous court. Ginsburg wrote a separate concurrence, which Breyer joined.


My thanks to Prof. Joondeph.

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What would you tell your child?

As our manufacturing sector has shed jobs, especially during the past 15 years, there have been few opportunities for young people to start working and train in manufacturing.

Now that manufacturing is picking up just a little, and as the boomer work force hits retirement age, there are reports of a growing shortage of skilled manufacturing workers and allied skills (welders in particular).

So what do tell young people? Get into manufacturing, learn the skills, and you may have a job for an entire career, or maybe for ten years until the offshoring starts again. How do we convince young people, who have seen nothing but deterioration in their lifetimes, that devoting time and energy to manufacturing will have a good payoff?

Or should we tell them the economy is lousy, there may be nothing else, take the job and ride it as long as you can? What would you tell your child?

Interested in your opinions.

Tom aka Rusty Rustbelt

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Spot Effing On, as The Mainstreamers Edge Leftward

We have just printed the eleventh (11th) straight week in which new jobless claims have exceeded 400,000 people. As Krugman notes, “The Fed predicts disastrously high unemployment as far as the eye can see(pdf) [a]nd, in response to this dire prospect, it declares its work done.”

So this it is almost palliative that Barry Ritholtz writes the Quote of the Day, or perhaps the Decade:

The sooner we recognize that the field of economics is a branch of Sociology and not Mathematics, the better off we will all be.

Anyone who has looked at the CF that Microeconomic doctrine has created over the past twenty years will not be surprised by Ritholtz’s conclusion. The question would almost be why he waited so long to say so explicitly.

Other signs that people are coming around to the positions taken at this blog:

  1. The gracious, even-tempered Mark Thoma has been driven to pointing out that the math, let alone the social issues, don’t work:

    I had hoped to see more acknowledgement that the current soft patch may turn out to be something more significant than a temporary aberration in the numbers, and some hint of willingness to ease further should those worries come true. But the Fed shows no such willingness, in fact as Neil Irwin notes, the “employ its policy tools as necessary to support the economic recovery” language is gone, and the main question at this point is when the Fed might begin tightening policy by reversing QE1 and QE2 rather than when they might ease further.

  2. Brad DeLong channels Bruce Webb or me in talking about Diane Lim Rogers:

    Get out of the defensive crouch, Diane. If you and your peers won’t stand up and say that every single Republican presidential candidate is talking hogwash and that every economist who wants high federal office in the next Republican administration is acting like a craven coward, then you are giving them every incentive to do so.

  3. The NYT—Gretchen Morgenson, of all people—notices that Executive Pay is not aligned with optimal company management, let alone shareholders:

    WHEN does big become excessive? If the question involves executive pay, the answer is “often.” …just how this paycheck stacks up against, say, a company’s earnings or stock market performance is rarely laid out.

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Guest post: AMA backs the mandate…

Guest post by Michael Halasy

AMA backs the mandate…

The AMA has its annual House of Delegates meeting last week, and boy, are they concerned. Recent evidence has suggested that they have lost 12,000 members since 2009. Much of this has been due to the AMA’s support of the PPACA. Today, the HOD voted to maintain the support of the individual mandate, (Chicago Tribune story here).

The problem with this concern is that it isn’t new. The AMA has been losing members for many years. They have also been losing money.
At one point in there history, the AMA was powerful, perhaps one of the most powerful organizations in the country. Politicians feared them. People respected them. But then, with the rampant specialization that really began in the early 1960’s, physicians started to jump ship. Many began to only belong to the rapidly rising specialty organizations, believing that they could tend to their interests as a specialty physician better.
Add to this, that the AMA chose to have battles with…..well, everyone. They fought against group practices, labeling them “communist”. They challenged the creation of HMO’s and vigorously opposed Medicare. They fought against the Doctor of Osteopathy (D.O.) profession. They challenged the creation of the Nurse Practitioner and Physician Assistant professions, and have continually challenged Podiatrists, Chiropracters, Optometrists, Psychologists, and virtually everyone NOT an M.D.
The end result was an organization that became a caricature. A cartoon. Like the boy that cried wolf, the AMA lost respect and wasted precious political capital in far too many small skirmishes that could have been negotiated instead of battled. During this time they lost a lot of members. Determining the peak of membership is difficult as the AMA does not make that public, but it seems that membership during the aughts has decreased by about 2-3% annually, with this latest decreased of 5% being the most substantial. This means that once you discount the medical students, residents, and fellows, you have at best about 19-20% of physicians represented. Once you discount retirees the number is closer to 15-16% of practicing physicians.
This is too bad, but this is a situation that they themselves created.

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Ignorance, Fake Turing Tests, and Bads

by Mike Kimel

Ignorance, Fake Turing Tests, and Bads

I don’t think Bryan Caplan realized he was advocating ignorance as a strategy for passing this non-Turing test.

But it actually got me thinking. I may soon be spending a bit of time on a small project that some years ago I might have tackled by trying to build some adaptive behavior into a piece of software, though I’m older and (I hope) wiser now, so if the project goes forward, the software will rely more on script and less on what some people erroneously call artificial intelligence. (I don’t like that term. Machines don’t learn and machines don’t think. It may happen some day but we’re a long way from that now and I don’t think there’s anyone out there who has any idea how it might happen, if it ever does.)

We live in a world where a surprising amount of the public put an astounding amount of time and effort into keeping track of the affairs of other people who don’t actually do very much. I discovered the other day that not just did I, a guy who rarely watches tv, have knowledge of a show called Jersey Shore and can even recognize three of its cast members. How this, er, information got into my brain I’ll never know, but if anyone can tell me how to remove it I’d be most appreciative.

So… could it be that the optimal strategy for building a program that can pass a Turing test is filling it with information about useless stuff? Which leads to another question – is it possible that we consume a lot of things that are harmful to the economy’s long run health? Not because they generate externalities, but because they are really “bads” rather than “goods”?

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Unforced Error, or How Well Has That Worked Out for You, BarryO?

PGL, in the process of an optimistic piece, points us to Martin Feldstein ringing in 2011. Apparently, the reason is this:

The most substantial potential boost to spending comes from a temporary reduction of the payroll tax, lowering the rate paid by employees on income up to about $100,000 from 6.2 per cent to 4.2 per cent. But, while the decline in tax payments will be about 0.8 per cent of GDP, it is not clear how much of this will translate into additional consumer spending and how much into additional saving. Because this tax cut will take the form of lower withholding from weekly or monthly wages, it may seem more permanent than it really is, and therefore has a greater impact on spending than households’ very feeble response to the previous temporary tax changes.

Feldstein attempts a free-finesse with “it may seem more permanent than it really is.” This is like playing the seven to the Queen when you’re only other holding is 10-x and expecting it to work.

It’s six months later. The crowd jewel of BarryO’s deficit-saving agreement, per Feldstein, was a low-impact change that was mostly (if my paycheck is any indication) neutralized by other factors (such as increases in health insurance costs). So the payroll cut is going to UHC or Aetna, or BCBS, or some other place where the money multiplier will be significantly less than one.

Even more interesting is that, just three paragraphs before, Feldstein understood that workers are still engaged in balance-sheet repair, and the likely consequences of same:

Even for those taxpayers who had feared a tax increase in 2011 and 2012, it is not clear how much the lower tax payments will actually boost consumer spending. The previous temporary tax cuts in 2008 and 2009 appear to have gone largely into saving and debt reduction rather than increased spending.

It is surprising, therefore, that forecasters raised their GDP growth forecasts for 2011 significantly on the basis of the tax agreement.

But Feldstein did see some good in the greater tax deal—it would temper deficit fears:

Obama wanted to continue the 2010 tax rates permanently for all taxpayers except those with annual incomes over $250,000….By agreeing to limit the current tax rates for just two years, the tax package reduces the projected national debt at the end of the decade (relative to what it would have been with the Obama Budget) by some $2 trillion or nearly 10 per cent of GDP in 2020.

That reduction in potential deficits and debt can by itself give a boost to the economy in 2011 by calming fears that an exploding national debt would eventually force the Federal Reserve to raise interest rates — perhaps sharply if foreign buyers of US Treasuries suddenly became frightened by the deficit prospects.

There can be only one remaining question:

When will Martin Feldstein endorse Jon Hunstman for President?

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