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

Do investors really not get it regarding US paying it’s debt?

A question has been nagging me. First, does the rest of the world not get that the republicans are playing a game with the US’ bank account? Does anyone really believe that the US won’t pay as in the renter just skipped out the back door? Or maybe I should say; as in the capital venture company just loaded up the latest purchase with debt, pocketed that money and filed bankruptcy?

Really, the US won’t pay it’s bills? Oh no, the nation is going Detroit?

It’s a game folks. Don’t play it. If you don’t play it then the republicans have no threat because the financial world is not really threatened.

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The "Fiscal Cliff" and the Coming Retirement Crisis of the Middle Class

On January 1, Congress approved a tax and spending bill to avert the so-called “fiscal cliff” combination of tax hikes and spending cuts that would have created deflationary pressure on the United States (though Yglesias questioned the conventional wisdom of whether it would necessarily cause a recession). Let’s take a look at the deal in some detail, then proceed to the gruesome details of what will happen around the Ides of March.

From Think Progress, here are some of the more critical parts of the deal.

1) The Bush tax cuts expire on only about 0.7% of households, those earning more than $400,000 per year as an individual or $450,000 for a couple. This brings in $600 billion over 10 years. Since rich people don’t spend as much of their income as the poor and middle class do, this is less deflationary than a tax increase on the middle class, as I discussed in November.

2) With the expiration of the temporary 2% payroll tax cut, 77% of households will see their taxes go up. Indeed, every single income group will, on average, see their taxes increase, as shown below (via Matt Yglesias):

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Since this hits the middle class more directly, the deflationary consequences are larger than they would be for an increase in taxes on the rich. On the other hand, this strengthens the long-run funding of Social Security, an issue I will return to shortly.

3) Unemployment insurance is extended for two million workers. This will get spent and have a definitive stimulative effect on the economy.

However, the second shoe of the fiscal cliff, the automatic cutbacks known as the “sequester” was simply postponed for two months, which is the same time that the Treasury Department will run out of creative ways to keep the country from exceeding the debt ceiling, which it hit on December 31.

Combining these two negotiations, the debt ceiling and the sequester, will be an extremely high-stakes battle where the middle class has a lot to lose. The big problem here is that some Tea Party Republicans really do want to use the debt ceiling to take the economy hostage and force cutbacks in Social Security, Medicare, and Medicaid. Despite the fact that Republicans lost the Presidency as well as both Senate and House seats (with a majority of the votes cast for the House going to Democrats), they see their gerrymandered House majority as giving them license to wreak havoc.

The consensus among most commentators (Krugman, Klein, and Yglesias, for example) is that the fiscal cliff deal will work out okay as long as the President does not cave in to the Republicans’ threats over the debt ceiling.  I agree as far as that goes. But, as Yglesias points out, there is nothing great about what Klein says is the most likely scenario, where the President gets $1 trillion in new tax revenue for $1 trillion in cuts over 10 years. That is still $2 trillion in austerity measures at a time when unemployment is barely below 8%!

The looming problem rarely mentioned, even in the context of the Republican campaign against Social Security, is that my children’s generation (Generation X, if you will) faces a retirement crisis that many of my generation will avoid, based on the end of pension plans. According to one Social Security Administration report, the percentage of private-sector workers with a traditional defined-benefit pension plan fell from 38% in 1980 to 20% in 2008. Over the same period, private-sector workers who only received defined contribution plans rose from 8% to 31%. Note that this means that 49% of private-sector workers are not covered by any pension plan at all. Moreover, while governments have more commonly provided defined-benefit plans than private employers have, they are under attack in many states.

Let’s do the math. With 49% of private workers having no pension, and another 31% having an on-average less generous defined contribution pension, how will seniors support themselves if Social Security is cut? Hint: It won’t be pretty.

Get ready for a bumpy March.

Cross-posted from Middle Class Political Economist.

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What? Romney’s Forgotten the Message That Wisconsin Voters Demand More Teacher Layoffs? So Soon?

Presumptive Republican presidential nominee Mitt Romney on Friday said that President Barack Obama’s call to hire more police, firefighters and teachers proved that he didn’t “get the message” from Republican wins in the recent Wisconsin recall elections.

During a press conference earlier on Friday, Obama had called on Congress to pass a jobs proposal that would prevent layoffs and rehire public workers like police, firefighters and teachers.

But that was then.  This is a full four months later, and Romney apparently has forgotten he message of Wisconsin.  He now wants to … hire teachers!

Four months from now, though, if he wins, he’ll probably remember that message from Wisconsin.  

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Romney says he likes straight talk. Just not from him.

Washington may not like straight talk, but I do.

— Mitt Romney, yesterday

Sooo, Governor, about those massive tax cuts for the wealthy ….  You know, including the elimination of all incomes taxes on capital gains and stock dividends, which your running mate’s budget proposal includes?  How, exactly, do you plan to balance the budget despite that loss of revenue?

No, no, no.  I mean, how, exactly, do you plan to do that?

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Screw Austerity, I have a new theme song

by Daniel Becker

Being that we’re about to experience austerity because we are convinced we can’t spend money properly such that we actually end up with more after rather than less …  which is very depressing to me and defeatist in presentation, I present my new theme song:  That’s how it goes.

I just find it fascinating that we will accept the argument that government needs to run as we run our own houses and thus need to not spend more than we have, blah, blah, blah yet we seem not willing to apply the concept that we apply daily in our own household to get ourselves an education, a house, our own business, improvement to our property and self.  We do this all the time because we understand it is building our wealth, and we do it even though we can’t print our own dollars like the government can.  (Yeah, we’re not Greece in that way.)

Really, just listen to both sides presenting the austerity program arguments.  Can’t you hear how disjointed the reasoning is?  Can’t you hear how selective they are in presenting examples of proof of their argument which is resulting is a totally disjointed line of reasoning.  Ask one question you are told we need to save to prosper.  Ask another question you are told we need to spend less just like you, to prosper.  Ask a third question and you are told we have no money, just like you.  Ask a forth question and we’re told the economy is growing (more money produced) NOT LIKE YOU.  Ask a fifth question and we are told to better yourself, NOT LIKE WE THE PEOPLE.  Ask a sixth question and we are told to get an education, NOT LIKE WE THE PEOPLE.  Ask a seventh question and we are told to…(fill in your own).

My favorite verses of the song and why it is my new theme song:

I help you and you help me
That’s the way the world should be
Tit for tat and give and take
Just be good for goodness sake
I’ll pick you up if you should fall
It works both ways if it works at all
Hold in your heart the people you love
Always thank the powers above
Everyone deserves a share
So keep your promise, fair is fair

So gather ‘round me people
And help me while I sing this song
I’d rather have you with me
Together as we travel along
It’s the feeling of the wind in your face
The sound of the music they play
The friends you make along the way
Don’t you know, that’s how it goes

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Being Early to the Party: Bad for Links, But Good for Information

Yahoo! News, Tuesday early afternoon

Dr. Black, Wednesday, just before noon.

Brad DeLong, about fifteen minutes after Dr. Black

Me, Monday morning.

But this isn’t a “First Mover” claim. It’s a note that there are no “savings” in getting rid of the website. There aren’t even the “registration fee” that applies to private enterprises. Commenter Bryan at Skippy notes:

The Federal government is the registrar for the .gov TLD [Top Level Domain], so the only cost is storage and bandwidth on government servers.

The cost of locating and removing a site is probably the equivalent of 20 years of ignoring it.

So not only is “the Sheriff” going after chump change, the actions aren’t even going to save any money.

The difference between Joe Biden and Paul Ryan appears to be that one isn’t even talking about real money.

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Joseph Stiglitz: Of the 1% by the 1% for the 1%

by Daniel Becker

This is an interview of Joseph Stiglitz on Democracy Now regarding his article in the current Vanity Fair.  He discuss the issue of income inequality, taxes, etc and how it has set us up to be less of a land of oportunity than what old Europe was.

A few quotes:

The question was, if people were getting rewards for contributing to our society, a theory that was in the 19th century called “marginal-productivity theory,” then you could say, “OK, those who contribute more should get more.” But what we saw in that crisis was that these titans of the financial industry got mega-bonuses while their companies were making mega-losses.

And with this one percent getting so much, there’s only one place really to get that extra revenue. The good news is it’s relatively easy. You have 25 percent—almost 25 percent of the income in the upper one percent, you raise their taxes by a few percentage points, and you get an awful lot of money.

This raises a very important point that I raise in my article, which is that much of the wealth of this one percent comes not from hard work, not from innovation, but from good investments in Washington, investing in political capital.

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It used to be "slightly left of center". The budget, taxes, economy from that other side.

By: Daniel Becker
HT: Digby

More people need to hear this perspective regarding the economy and the budget debate if only to remind them that there is another perspective…if only to hear what it sounds like when a congress person is actually fighting and working for you. You, the one without enough money to influence congress.
JUDY WOODRUFF: Well, the president has talked about corporate — corporate tax reform. And he said, in two years, in — for 2012, he’s going to propose letting all those tax cuts expire that were allowed to continue in December.
You spent, what, eight-and-a-half-hours on the floor of the Senate in December in a — in a protest against that. Are you confident the president is going to let the tax cuts expire?
SEN. BERNIE SANDERS: No, of course I’m not. I mean, that’s what the president said when he ran for president. And yet, when the Republicans stood up to him and said, we want to give more tax breaks, extend the Bush tax breaks, essentially, the president gave in.
When the Republicans said that, we want to lower the estate tax, Judy, which appeals — which only applies to the top three-tenths of 1 percent — these are not rich folks — these the very richest people in America — the president gave into that.
So, the president may tell us that he has this in mind, but I think the record is that he has not fought for those principles. The American people want him to fight for those principles.
And I think what this whole budget debate is about is do we stand up and say, no, we’re not going to cut programs for those who need it?
The other issue that I think we have to talk about is, in the president’s budget, he talks about Social Security. And he makes me a little bit nervous, because I think, as many of our listeners know, the Social Security trust fund today has a $2.6 trillion surplus.
Social Security can pay out every benefit owed to every eligible American for the next 27 years. Social Security, because it is funded by the payroll tax, hasn’t contributed one nickel to the deficit.
See, there is another voice, and some are finally experiencing the results of ignoring it. Remember this! Remember what a congress person sounds like when they are for real about working and fight for you. No more excuses you did not know. This is what you will sound like once you decide to influence congress.

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The Lens of the 2012 Election

People have been asking me what I think of the Obama administration’s budget for 2012, as well as Republican plans to cut government spending. My thought in both cases is this: it’s all understandable – even predictable – if you recognize that both sides have one primary goal right now: to win the presidential election in 2012.

The Republicans: Excellent Students of Political Economy

Republicans in Washington, it is clear to me, have no interest in deficit reduction. (There may be an exception to this generalization, but I can’t think of any off hand, and would welcome suggestions.) Why do I assert this? Simply because none of them have proposed a serious plan to significantly and realistically reduce the budget deficit. No, not even Paul Ryan.

Furthermore, they have no discernable moral or ideological position on the size of the federal government. True, many Republicans have talked a lot about “out-of-control government” since Obama became president, echoing and amplifying the wild-eyed ways many of them talked about the federal government’s excessive reach (black helicopters and all) under the Clinton administration. But when a Republican is president they have no qualms about increasing the size or responsibilities of the federal government. (Think TSA and Medicare prescription drug benefit, for example.)

My conclusion is that Republicans in Washington right now are driven by one very simple and clear objective: to recapture the White House in 2012. Everything they say or do must be interpreted in that context, and then it all makes sense.

Next, we must recognize that they are also excellent students of political economics. In particular, they have taken to heart the lesson that the state of the economy is probably the single most important factor in determining which party wins the election for President. (Though there’s some debate about whether the “state of the economy” in this context is the level of income or its growth rate.)

Well, the equation is then pretty simple:

(Desire to beat Obama in 2012) + (Obama is more beatable if economy is bad) = Do what you can to make the state of the economy bad.

Yes, the cynicism and cold-heartedness embodied in this equation is truly breathtaking. But it explains a lot.

Why propose dramatic cuts in government spending? Because they will help make the state of the economy bad. Very effectively.

Why not worry about the unemployment effects of spending cuts? Because that’s an inevitable part of helping to make the state of the economy bad. (In other words, increased unemployment is exactly the point, silly!)

Why reduce aid to states facing their own budget crises? Because that is also an extremely efficient way to help make the state of the economy bad.

It’s a simple equation, and once you understand that the Republicans also understand this equation, and furthermore, that it is the one thing they deeply believe in, then Republican behavior in Washington becomes explicable and even predictable.

The Obama Administration: It’s All About the Middle 20%

Meanwhile, the Obama administration has just put out its budget for 2012. The cuts proposed by the administration have mystified many on the left. But they’re easy to explain if you believe that, given Republican control of Congress, the budget is purely a political document. As anything other than a political document the budget proposal is irrelevant.

And therefore the main usefulness of the 2012 budget proposal (from the Obama administration’s point of view) is if can somehow help Obama’s reelection chances.

For the Obama administration, the calculus works like this:

1. The chance of reelection depends mainly on the state of the economy. We need to do what we can to prevent the Republicans from actively making the economy worse over the next year, they think to themselves, but that’s probably the limit of what is possible regarding the economy. So let’s move on.

2. Given the state of the economy, the Obama administration reasons, the primary goal of purely political acts (such as the preparation of the 2012 budget proposal) must be to do whatever else can be done to persuade the “middle 20%” of Americans to vote for Obama. (40% of Americans will vote against him no matter what, and 40% will vote for him no matter what.) Note that this is the opposite of the Roveian strategy of firing up and turning out the base to win elections, but it is clearly what Obama’s political advisors believe.

3. The middle 20% will be more likely to vote for him if they think he’s in the middle himself – compromising, striking a balance between left and right, etc.

4. The 2012 budget proposal is a very good way for the Obama administration to persuade the middle 20% that Obama is in the middle himself. It offers some real cuts – including cuts that the left hates. It makes some gestures toward deficit reduction. But it is not as vicious as the Republican alternative, and leaves the entitlement programs that are loved by the middle 20% completely alone.

This calculus suggests to me that the 2012 budget proposed by the administration has exactly accomplished their goal: it has generated howls of protest from both left and right, thus helping to persuade the middle 20% that he’s in the middle, too.

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The Republicans have a savings plan. Gut the Nation’s Personality

by: Daniel Becker

Well, the repubs finally have put up.  They have a $2.5 trillion, ten year savings plan.  No, don’t worry.  You will be kept safe as all national security is untouched.  However, you can expect to wake up the next day from passage in a nation with an completely different personality.  As in 180 degree different.

Here is the overview provided by the Republican Study Committee:

FY 2011 CR Amendment: Replace the spending levels in the FY 2011 continuing resolution (NYSE: CR – News) with non-defense, non-homeland security, non-veterans spending at FY 2008 levels. The legislation will further prohibit any FY 2011 funding from being used to carry out any provision of the Democrat government takeover of health care, or to defend the health care law against any lawsuit challenging any provision of the act. $80 billion savings.

Discretionary Spending Limit, FY 2012-2021: Eliminate automatic increases for inflation from CBO baseline projections for future discretionary appropriations. Further, impose discretionary spending limits through 2021 at 2006 levels on the non-defense portion of the discretionary budget. $2.29 trillion savings over ten years.

Federal Workforce Reforms: Eliminate automatic pay increases for civilian federal workers for five years. Additionally, cut the civilian workforce by a total of 15 percent through attrition. Allow the hiring of only one new worker for every two workers who leave federal employment until the reduction target has been met. (Savings included in above discretionary savings figure).

“Stimulus” Repeal: Eliminate all remaining “stimulus” funding. $45 billion total savings.

Eliminate federal control of Fannie Mae and Freddie Mac. $30 billion total savings.

Repeal the Medicaid FMAP increase in the “State Bailout” (Senate amendments to S. 1586). $16.1 billion total savings.

The 100 item list is below

Some of the items, cutting them, you just have to ask: How are they going to get the job done?  Like cutting by 20% the federal vehicle budget or cut in half the congressional printing and binding budget?  What, we’re going to suddenly seen legislation that is only 1/2 the size of pages?  I’m sorry folks, but this list is nothing but an ideological hit list.  There is not thought at all regarding intergration as it relates to investing in this country or even governing.  Can you say: New York snow storm clearing disaster?

Here is the full list of cuts:

Additional Program Eliminations/Spending Reforms

Corporation for Public Broadcasting Subsidy. $445 million annual savings.
Save America’s Treasures Program. $25 million annual savings.
International Fund for Ireland. $17 million annual savings.
Legal Services Corporation. $420 million annual savings.
National Endowment for the Arts. $167.5 million annual savings.
National Endowment for the Humanities. $167.5 million annual savings.
Hope VI Program. $250 million annual savings.
Amtrak Subsidies. $1.565 billion annual savings.
Eliminate duplicative education programs. H.R. 2274 (in last Congress), authored by Rep. McKeon, eliminates 68 at a savings of $1.3 billion annually.
U.S. Trade Development Agency. $55 million annual savings.
Woodrow Wilson Center Subsidy. $20 million annual savings.
Cut in half funding for congressional printing and binding. $47 million annual savings.
John C. Stennis Center Subsidy. $430,000 annual savings.
Community Development Fund. $4.5 billion annual savings.
Heritage Area Grants and Statutory Aid. $24 million annual savings.
Cut Federal Travel Budget in Half. $7.5 billion annual savings.
Trim Federal Vehicle Budget by 20%. $600 million annual savings.
Essential Air Service. $150 million annual savings.
Technology Innovation Program. $70 million annual savings.
Manufacturing Extension Partnership (MEP) Program. $125 million annual savings.
Department of Energy Grants to States for Weatherization. $530 million annual savings.
Beach Replenishment. $95 million annual savings.
New Starts Transit. $2 billion annual savings.
Exchange Programs for Alaska, Natives Native Hawaiians, and Their Historical Trading Partners in Massachusetts. $9 million annual savings.
Intercity and High Speed Rail Grants. $2.5 billion annual savings.
Title X Family Planning. $318 million annual savings.
Appalachian Regional Commission. $76 million annual savings.
Economic Development Administration. $293 million annual savings.
Programs under the National and Community Services Act. $1.15 billion annual savings.
Applied Research at Department of Energy. $1.27 billion annual savings.
FreedomCAR and Fuel Partnership. $200 million annual savings.
Energy Star Program. $52 million annual savings.
Economic Assistance to Egypt. $250 million annually.
U.S. Agency for International Development. $1.39 billion annual savings.
General Assistance to District of Columbia. $210 million annual savings.
Subsidy for Washington Metropolitan Area Transit Authority. $150 million annual savings.
Presidential Campaign Fund. $775 million savings over ten years.
No funding for federal office space acquisition. $864 million annual savings.
End prohibitions on competitive sourcing of government services.
Repeal the Davis-Bacon Act. More than $1 billion annually.
IRS Direct Deposit: Require the IRS to deposit fees for some services it offers (such as processing payment plans for taxpayers) to the Treasury, instead of allowing it to remain as part of its budget. $1.8 billion savings over ten years.
Require collection of unpaid taxes by federal employees. $1 billion total savings.
Prohibit taxpayer funded union activities by federal employees. $1.2 billion savings over ten years.
Sell excess federal properties the government does not make use of. $15 billion total savings.
Eliminate death gratuity for Members of Congress.
Eliminate Mohair Subsidies. $1 million annual savings.
Eliminate taxpayer subsidies to the United Nations Intergovernmental Panel on Climate Change. $12.5 million annual savings.
Eliminate Market Access Program. $200 million annual savings.
USDA Sugar Program. $14 million annual savings.
Subsidy to Organisation for Economic Co-operation and Development (OECD). $93 million annual savings.
Eliminate the National Organic Certification Cost-Share Program. $56.2 million annual savings.
Eliminate fund for Obamacare administrative costs. $900 million savings.
Ready to Learn TV Program. $27 million savings.
HUD Ph.D. Program.
Deficit Reduction Check-Off Act.

TOTAL SAVINGS: $2.5 Trillion over Ten Years

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