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

Thoughts from economics writers on politics

Mark Thoma has put together some thoughts of his own as well as those of Bruce Bartlett, Brad DeLong, and Paul Krugman. I think it is worth a scan.

Bruce Bartlett on President Obama as ‘an old time Republican’ seems to fit the description, without the hyperbole of contentious issue debate:

In a little-noticed comment on Spanish-language television on December 14, Obama himself confirmed this typology of today’s political spectrum. Said Obama, “The truth of the matter is that my policies are so mainstream that if I had set the same policies that I had back in the 1980s, I would be considered a moderate Republican.”
I think this is correct and explains a great deal about why Obama refuses to use his leverage to pursue liberal policies and keeps inviting Republicans back to the negotiating table again and again on the budget. He wants a deal, he wants to cut spending and balance the budget if possible. This may or may not be a wise course for a Democratic president to follow, but that is who Obama is.

Read more at Fiscal Times

Mark adds:

My guess is that Obama already knows that the outcome of that debate will be one in which he looks like he retreated over time. But I also believe that the place he retreats to will be where he wanted to go in the first place; indeed, I suspect he never believed he would get 100% of the Bush tax cuts reversed in the fiscal cliff negotiations. Note too that, to DeLong’s complaint, the next debate will again be an issue of how much austerity. And expect that Obama will allow the negotiations to drag out to the eleventh hour, thereby forcing both Republicans and Democrats to choke down a meal – some combination of tax hikes and entitlement cuts – they both find distasteful.

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House approves bill

Via NBC news

Updated at 6:58 a.m. ET: An agreement to stave off the harshest and most immediate consequences of the fiscal cliff won approval in the House late Tuesday. President Barack Obama said he would sign the law, the battle over which foreshadowed more fights with Congress over spending.

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"G.O.P. Anger Over Tax Deal Endangers Final Passage"

by run75411
Op ed.

G.O.P. Anger Over Tax Deal Endangers Final Passage

NYT is reporting Eric Cantor and many other House Republicans will not vote for the Senate (89-8) passed Hr8 bill American Taxpayer Relief Act of 2012. Again another line is drawn in the sand for the President and whether he will use the political advantage the Repubs and Teabaggers keep forcing on him to knock the chip off their shoulders.

“Go ahead, knock it off, I dare you” sneer on Cantor’s face just begs for the President to begin to exercise some of the political capital he gained from being re-elected to a second term and the Repubs backing themselves into the corner. Meanwhile Boehner, the Republican eunuch can be seen scurrying in the background not committing to a stance on the Senate passed HR8. So is this the golden moment where the President finally grows a pair and takes on a Republican party which protects 3 million household taxpayers without regard for the other 151 million?

“I would be shocked if this bill doesn’t go back to the Senate,” said Representative Spencer Bachus, Republican of Alabama.

Or is this the moment, the President apologizes to the Republicans for asking for too much and slinks off to the Oval Office to begin his proposal a sellout of SS, Medicare, Medicaid, CHSCH in answer to House Republican? The stage is once again set for the President to emerge as a real statesman and kill the Groundhog Day scenario in which Congress appears to be stuck. The President does not appear to be a true Chicago City street-wise kid for which so many of them are recognized.

“It is clear that the vice president and the president are convinced that they have done the right thing. They don’t see it as a perfect deal though, and nobody else does,” said Representative Elijah Cummings, Democrat of Maryland.

If it is sent back to the Senate, the next Congress will decide on its passage and hopefully without Barack Obama conceding anything else. One can only hope . . .

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Three definitions of Solvency for Social Security

Bruce Webb brings an interesting perspective to the current situation as pundits and politicians figure out ‘what is acceptable’ and what ‘they can live with’ her at AB and at his new website Social Security Defender: (see link below):

Scheduled vs Payable Benefits: three definitions of Solvency


As usual click to embiggen.

When it comes to Social Security there are three definitions of ‘Solvency’, one used by the ‘Actuary’ another by the ‘Defender’ and the third by the ‘Reformer’. And it is this difference that lays at the heart of the policy disagreements on how to achieve it. Something ostensibly all three seek.

For the ‘Actuary’ ‘Solvency’ is mostly a value free concept. Social Security is solvent when all income from all sources equals all costs leaving Trust Fund assets equalling 100% of the next years projected cost. This is known as having a ‘Trust Fund Ratio’ of 100. If the Trust Funds are projected to be solvent for the upcoming 10 year window Social Security is judged to be in ‘Short Term Actuarial Balance’. If the Trust Funds are projected to maintain that solvency, or at least end up with it without going into the hole over a 75 year period it is judged to be in ‘Long Term Actuarial Balance’. And since 2003 the Trustees added an additional measure of solvency measured over the ‘Infinite Future Horizon’.

Under current law Social Security has a ‘scheduled benefit’ which is the arithmetic result of a formula calculated ultimately on the course of Real Wage increases over the worker’s lifetime. It also has a ‘payable benefit’ based on a formula that is calculated by a combination of Real Wage setting the initial benefit, inflation setting the continuing benefit, and total wages driving the income. The details are not important for the present purpose, suffice it to say that ‘scheduled benefit’ is the measure of Cost while ‘payable benefit’ is the measure of Income minus Cost. And as such ‘involvency’ represents that point here Cost exceeds Income to the extent that Trust Fund assets are driven below a TF Ratio of 100. Or in an alternative formulation when those assets are driven to zero. At which time we have a scenario as depicted in the above figure: a sudden reset of payable benefits from the schedule (where they were topped off by asset redemptions) to the new payable equal to then current income from taxation.

In percentage terms that sudden reset amounts to right on 25% of then current scheduled benefits and it is that discontinuity that defines ‘solvency crisis’. But here is where ‘defenders’ and ‘reformers’ depart.
For Social Security Defenders the crisis is one of a cut in benefits and the solution is putting in place policy that would maintain the scheduled benefit. For Social Security ‘reformers’ the crisis is more political, the risk that a reset in benefits from ‘scheduled’ to ‘payable’ will result in demands that the schedule be maintained via transfers from outside the dedicated income stream of FICA and tax on benefits. As a result the proposed solutions to this same ‘solvency crisis’ via benefit reset are diametrically opposed with defenders advocating measures to maintain current scheduled benefits while reformers see their task as reconciling future retirees to accepting then payable.

The key here, and the stopping point for this post is that either the prescription of the defender in saving scheduled or the reformer in reconciling retirees with payable will, if accomplished by appropriate changes in current law, satisfy the actuary’s test for solvency. As will outcomes in between. From a purely technocratic standpoint any set of policies that has scheduled and payable share the same ultimate projected line with no discontinuity meets the ‘solvency’ test. Meaning that each has ‘fixed’ Social Security by ‘preserving’ benefits in a ‘sustainable’ fashion. Without at any point addressing the question of whether the resulting benefits actually meet any standard of societal inequity.

Are cuts to scheduled actually the ‘Road to Catfood’ or a ‘Concession to Reality’? Well interestingly neither question has anything to do which the metric of ‘Solvency’. The question, while of course of the utmost importance in real terms, is somewhat orthogonal to discussions revolving around ‘actuarial balance’. Because from the latter perspective the ‘crisis’ IS the ‘discontinuity’ and not the real world implications thereof.

And a ‘fix’ is a ‘fix’.

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Who foots the "grand deal (no capitalization on purpose)" costs.

by run75411

Who foots the “grand deal (no capitalization on purpose)” costs.

clip_image001

Everything You Need to Know about the Fiscal Cliff Deal “Wonkblog” Zachary Goldfarb

This was the model to describe what would happen if the Grand Deal increase in taxes fell upon those Household Taxpayers making greater than $200,000 (individual) and $250,000 (family) (Tax Policy Center) . Slight error in the chart also, the 20-60% should be 20-40% of Household Taxpayers. The impact should be similar.

The Bill Itself: ‘‘American Taxpayer Relief Act of 2012’’ I have not had time to go through this bill with a fine tooth comb yet. Amazing how they can write 157 pages of strike this and insert this in a matter of days. While it does not look that alarming, Obama has again displayed his feet are made of sand which wash away with the tides of adversity. An abbreviated cheat sheet can be found here: “Your fiscal cliff deal cheat sheet” Wonkblog Suzy Khimm

The big winner of the day? Milk subsidies will continue.

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Happy New Year 2013

I wanted to say “Thank You” to all of Angry Bear readers, contributors, and commentors, who make Angry Bear such a deeply rewarding endeavor for me. It is a labor of love for all involved.

Here is wishing everyone a healthy, happy and rewarding 2013!

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