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

‘Deficit Debate Driven by the Wealthy’

And another view on the upcoming election deals we need to worry about in addition to party agendas and deals. Doubling down on upward distribution of wealth remains the name of this game…it is hard enough to debate real budget issues without this party going on:

Deficit debate driven by the wealthy, by Michael Hiltzik, Commentary, LA Times: …The fiscal cliff is supposedly what lurks at the end of this year, when billions of dollars in tax cuts expire and government spending cuts mandated by the big deficit deal in 2011 kick in. According to the bipartisan Congressional Budget Office, the combination of a steep increase in the tax bite and a steep reduction in spending across the board could cut economic growth in 2013 to 0.5% from a projected 4.4%… The CBO says that by any traditional reckoning, that would mean recession.

Yet there’s still reason for most Americans to fear the deal-making aimed at avoiding the fiscal cliff. For one thing, the debate seems increasingly to be driven by the wealthy, who can be trusted to protect their own prerogatives while declaring everyone else’s to be wasteful. Just two weeks ago, a squadron of CEOs and bankers, including Dimon and hedge fund billionaire Pete Peterson, lined up behind a campaign to impose adult supervision on our squabbling Congress.

Their working brief is a document grandiosely entitled “The Moment of Truth.”It’s a deficit-reduction plan cooked up by former Sen. Alan Simpson (R-Wyo.) and Erskine Bowles, an ex-investment banker claiming Democratic Party cred from his nearly two-year stint as chief of staff in the Clinton White House. …

In any environment of serious debate, Simpson-Bowles would be dismissed out of hand. … “The Moment of Truth” bills itself as a roadmap to deficit reduction, but it’s really a guide to cutting services and benefits for the working and middle class while raising revenues only modestly, if that. …

Tags: , , Comments (0) | |

GOP deficit-reduction hype used in ideological "values" war?

by Linda Beale

GOP deficit-reduction hype used in ideological “values” war?
crossposted with Ataxingmatter

There is concerted effort to portray Social Security as ruining the country by being a significant cause of the current deficit , and this is not accidental.  Social Security has been funded by payroll taxes that are supposed to be dedicated to the payouts.  But the GOP since Reagan has worked to cut income taxes and increase military funding (especially with the Bush “pre-emptive” wars of choice that Stiglitz now says will cost us a minimum of FIVE TRILLION), and has borrowed from those Social Security pension funds to pay for those tax cuts and military excesses. It’s the tax cuts and runaway military spending that are choking this country’s economy, not Social Security.  That fact gets lost unless Social Security’s income and outflows are portrayed fully.  It’s a fact that the GOP wants to be lost, I think, along with the overall amount of military and related spending in our budget.

The cost of treating Social Security as part of the deficit is that workers who have been locked out of sharing in productivity gains will pay, while the benefits have gone especially to the upper class that owns most of the financial assets and most of the military-industrial complex.

The deficit hype appears to be a concerted effort, in other words, to destroy the programs that were created in reaction to the colossal inequities that were contributory causes of the Great Depression and were intended to safeguard the broad-based society where growth is shared and everyone has opportunities that is essential to democracy.  I just found that Robert Reich has similar thoughts, noting that this is a divide-and-conquer strategy built on three kingpins:  the battle over the budget, the assault on public employees, and the distortion of the Constitution. See The Real Republican Strategy, Salon.   What the GOP aims to do, I suppose, is to weaken the 90% who aren’t in the race to be the richest plutocrats of the country., and make sure that they secure the spoils for those at the top.

It would seem that the GOP is using this moment to

  • Get rid of programs that have advanced gender equality.
    • See Rebecca Traister, This is what pro-life means?, Salon.com, Feb. 18, 2011, noting that “Morality is on the side of women, on the side of children, on the side of a society that offers aid to its impoverished and to its young and does not discriminate against half its population. In Moore’s words, ‘Planned Parenthood is healthy for women, it’s healthy for children, and it’s healthy for our society.’ ”  The post includes a video of Rep. Jackie Speier’s impassioned response to the lack of understanding about abortions. 
    • See, e.g., Top 10 Shocking Attacks from the GOP’s War on Women,  MoveOn’s political action group (noting the attempt by various state and federal Republican groups to reduce access to abortions and r;define victims of rape  (but not of other crimes like burglary) as mere “accusers”; expand legitimate “defense” to permit killing abortionists; cut funding for food and other assistance to low-income pregnant women and families; allow hospitals to refuse abortions necessary to save a woman’s life;    eliminate preschool programs for poor kids at state levels and Head Start at the federal level; cut funding for services for the elderly poor (most of whom are women); cut all funding for Planned Parenthood; cut all funding for family planning.
  • Get rid of public employee unions (and reneg on pension promises made years ago at the same time). The mainstream media has lapped this up like the lapdogs they are.  See, e.g., Wall Street Journal, New York Times stories.  
    • Gov. Walker in Wisconsin–the state where there is a pitched rhetorical battle to get rid of public employee unions and defund public pensions–die not inherit a budget shortfall.  Like at the national level, GOP policies are driving the attack on public employee more than the actual deficits involved–especially since those shortfalls at states are related to the toll of the Great Recession and to states’ long-term habits of borrowing from Peter (their own employees’ pension funds) to pay Paul (e.g., their other creditors or even their wealthiest taxpayers who were spared taxes by the borrowing).  See, for example, Mark Thoma at Economist’s View on the spreading use of recession-induced budget gaps to target unions. Gov. Walker has pushed the “tax cuts create jobs” idea, signing various business tax cuts into law. See Walker Gins Up Crisis to Reward Cronies, The Cap Times, Feb. 16, 2011;  Wisconsin Legislative Fiscal Bureau, annual review of the State’s Fiscal Status (Jan 2010) ( even with the recession and various changes that caused the state to have less revenues, projecting a surplus of more than $55 million at the end of the 2009-2011 biennium which, though below the statutory surplus of $65 million required, means that the state was still doing well); Walker Signs 2 More Business Incentive Bills, Journal Sentinel, Jan. 31, 2011.  Exacerbating the shortfall created by the tax cuts, the state has about $260 million of unfunded obligations– from taking $200 million out of a dedicated fund for general fund purposes and from an unpaid obligation to Minnesota under a tax reciprocity agreement (an obligation that is earning interest at more than $4000 a day).  So the public employees aren’t the cause of the state’s problems. 
    • This is particularly worrisome for higher education.  See Inside Higher Education story on impact on Wisconsin academics.  These attempts to hit public employees generally start with some of the studies that suggest that public employees have better benefits than private employees.  As noted in earlier posts, that is debatable.  Commensurability is a problem, since many state and federal government jobs require higher education and experience levels.  Wages are negotiated  in exchange for better long-term benefits, which the states are now talking about reneging on.  It’s as though the private industry owners wrote the following script based on this “time to get even” rationale.

for years, we have underpaid our workers while keeping all the productivity gains for ourselves and paying ourselves knock-out pension and health benefits.

We’ve made sure that workers couldn’t unionize, by spending lobbying dollars to fight fair systems (like carch-check) and using all the powers of the employer to intimidate workers (see, e.g., Wal-Mart’s long history of unfair labor practices).  

Now it is clear that unions do benefit workers–just look at the fact that public employees have decent wages and benefits because they are able to bargain collectively with a decent employer that doesn’t use these methods to squelch workers.

We’ve got to stop that–let’s paint a picture of underpaid private workers who have very little in benefits, in order to incite jealousy of public workers.

Then we can use the deficit that we created by evading taxes, lobbying for tax cuts, and charging ridiciulous amounts for contracts through the military-industrial-banking complex to justify taking away both the benefits that public employees long ago gave up wages to receive and the collective bargaining rights that allowed them to get decent wages and benefits.

After all, the alternative would be for workers in our industries to realize that they’ve been cheated by not sharing in productivity and not being permitted to unionize.

We can’t have that–they might get some share of the wealth that has been increasingly accruing to us.

And we deserve all that wealth, because we’ve run our companies so well by making sure that they can’t unionize and that workers understand that they, not us, are expendable.

    

  • Hamstring or get rid of the EPA –The script here sounds very familiar.  We can’t have the EPA regulating carbon dioxide.  That would cut back on our profits.  So what if we are contributing the the rapidly accelerating global warming debacle.  We just can’t have environmental safeguards preventing us from making a killing (in more than one way) with oil and ore.  If we want to use highly toxic chemicals in fracturing rock to extract gas, we should be able to do it.  That’s the free market we believe in.  Free for us, risky for those who have to clean up after us (remember the Great Recession and TARP–same thing).
  • Get rid of public broadcasting.  Public Broadcasting has provided a voice for diverse perspectives in local communities that otherwise are completely left out of commercial media for lack of the funding to buy a way in.  But that voice is not necessarily monotonal–it often has religious or conservative perspectives, but it also permits liberal or atheistic perspectives.  So call up the script again, which in this case might go something like this–hey, we’ve allowed media companies to consolidate so that most are owned by a very few media conglomerates (Rupert Murdoch, SONY, Sinclair, etc.).  That’s great for us, because it permits us to control the way things are cast.  Look at how Murdoch has made even the conservative Wall Street Journal a right-wing rag on our side–not just the op-ed pages anymore, but the way the stories are chosen and cast.  PBS, on the other hand, stillmanages to show some leftie stuff–even with the fear we’ve put into them with Ken Tomlinson and the Corporation for Public Broadcasting’s requirement of balance.  (We know that there isn’t always a right-wing side that’s worth covering, but no matter–they MUST adopt the Fox News view of “fair and balanced” or funding will cease.  Better still, let’s just cease the funding anyway.  Bill Moyers and his ilk is a threat to every multinational corporation that is attempting to protect its hordes of cash from the US treasury by offshoring jobs and offshoring all intangible rights.

Gail Collins notes the same mentality when she discusses the way Congress “saved” the Defense Department’s budget to sponsor Nascar racers.  Sacred Cows, Angry Birds, New York Times, Feb 19, 2011.  Yes, that’s right–Defense wanted to torpedo the funding, but Congress found it was too important to woo Nascar fans to the military-industrial complex way of thinking.  They refused to cutit.

The newly ascendant Republicans have been howling that the deficit is so big, so threatening, that no traget for cutting is sacred.  “Everything is on the table.  We’re broke,” said Boehner.

But the table is mainly crowed with stuff the Republicans didn’t like to begin with.  Family-planning money and environmental protection, but not oil tax breaks or Nascar sponsorships.  “Sesame Street” is fair game, ut the Dayton 500 is untouchable.

Tags: , Comments (45) | |

218 + 60 + 1….math of the budget deficit

To solve the deficit, the numbers add up – but not the votes Ezra Klein

The sudden proliferation of deficit-reduction plans is a reminder that the deficit is, at its heart, a math problem. To get the budget into “primary balance” in 2015 – that’s wonk-speak for a balanced budget before interest payments, and it’s the target everyone is trying to hit – we need $225 billion in savings and new revenue. And you know what? That’s not so hard.

You get there by adding taxes and subtracting spending. As the differences between the various plans suggest, there are a lot of ways to do that. Alan Simpson and Erskine Bowles, the Bipartisan Policy Center, Rep. Jan Schakowsky (D-Ill.) and the conservative Americans for Tax Reform all have their own proposals, with their own unique mixes of policy suggestions.

Resolving the deficit, however, requires a different sort of math. The equation is almost insultingly simple: 218 + 60 + 1. That’s a majority in the House plus a supermajority in the Senate (though you could do this through budget reconciliation, meaning you only need a majority) plus a signature from the president. This math problem, however, is almost impossible to solve. That’s because the politicians don’t agree, and perhaps more important, neither do the people.

Tags: , Comments (5) | |

WaPo (inaccurately?) reports "consensus forming" on deficit

by Linda Beale

WaPo (inaccurately?) reports consensus forming on deficit
crossposted with Ataxingmatter

The buildup in the corporate media supporting the corporatist wishlist on budgeting is growing.  First there was the clamor about the Bowles-Simpson road map to conquering the deficit–depicted as a reasonable, middle-of-the-road approach.  Bowles-Simpson is a neo-liberal/neo-conservative group of people with little understanding of the predicament of the vulnerable middle class in this economy, and apparently as little creativeness for moving the economy out of the stagnation from the four decades of Reaganomics and into a new era of broad-based growth that lifts all boats, rather than just the yachts of the already rich and famous.

Then there was even more clamor about the more “radical” plan put forward by Alice Rivlin and cohorts.  Rivlin is another neo-liberal Clintonite who is perfectly willing to sacrifice the New Deal to get the neo-deal.

Obama doesn’t seem willing to fight any fight.  He quits before he starts, disgusting liberals who understand that a democracy cannot survive based on the kind of “free market capitalism” espoused by the oligarchs who benefit from it.  So there is already talk of extending the Bush tax cuts for the wealthy, which have nothing at all to do with jobs, entrepreneurship, innovation, or growth of the US economy and everything imaginable to do with elitism, power, and hording of productivity gains for the G.W. Bush fan club of have-mores.

So it is perhaps not so surprising that the WaPo is already declaring that a “consensus is forming on what steps to take in cutting the deficit.”  Story by Lori Montgomery, WaPo, Nov. 22, 2010.   Ms. Montgomery takes the pundits and neo-con/neo-lib descriptions as god’s truth as she describes “a surprising consensus” around “the sacrifices necessary to achieve those goals [of less debt and smaller government]” being “Big cuts at the Pentagon. Higher taxes, including those on home ownership and health care. Smaller Social Security checks and higher Medicare premiums.”  Once again, the neo-con faction has used its corporate-owned media to hone its message that there is no choice (false note of sadness) but to cut those deficit-causing “entitlements” like Social Security and Medicare.

The awful deed is required, she suggests, to avoid a “European-style debt crisis.” No real analysis is there.  Once again we see the proof in the pudding: the corporate media has discovered that it can deliver press releases and paid interpretations of events much more cheaply than it can do investigative journalism with smart journalists paid a decent salary and provided decent benefits.  Infotainment, not news; opinion, not facts; rehashing of partisan positions, not analysis.

  • No mention of the fact that the Euro zone nations do not have monetary sovereignty.  The story ends with the scare-tactice line (from a Republican strategist, so part of the framing intended to make it acceptable to cut Medicare and Social Security while providing more tax cuts to the wealthy) “if we don’t act [to cut the deficit], we will be Greece.”  That’s simply not true.  We are not in the same position as Greece.  We need to do some things, but we have many more choices than Greece (though the Republican path of tax cuts for the wealthy and spending increases on programs that benefit big corporate interests tend to reduce those choices).  While I don’t entirely agree with the monetarists who want us to print our way out of debt and deficits, there is some basis for printing more dollars to meet national needs, stimulate the economy, and avoid more borrowing.  That is not an option for Greece. 
  • No analysis of the tax proposals–lower rates even with closing some loopholes will generally mean more of the burden is passed to the middle class and taken from the wealthy.  Merely repeats the Republican notion that lower tax rates lead to economic growth (they don’t–just look at the historic pattern of growth and tax rates–we have higher growth when we have higher rates, likely because it leads to better allocation of resources).
  • No mention of the fact that the health reform bill, when it kicks in, should begin the process of reducing health care costs, or of the fact that a much more cost-effective solution–rather than cutting benefits to those vulnerable elderly and sick for whom Social Security and Medicare is a lifeline–would be to throw the rent-seeking health insurers out of the primary business of determining who gets health care and let them make their non-rentier profits on supplementing a national health care single-payersystem similar to Canada’s or Britain’s or Germany’s–anybody but our failed profits-for-financial-institutions-at-the-cost-of-care-for-ordinary-Americans system.
  • No mention of the fact that Social Security is not even officially part of the deficit–that in fact we have borrowed from the funds paid in by workers who are now retiring so that we could create a tax-haven economy for the wealthy and corporate elite or the fact that whatever shortfall Social Security might (but not necessarily will) face in future years is EASILY solvable by extending the tax to full wage income of all workers (and, for this purpose at least, acknowleding that payments from hedge and equity fund partnerships to service partners in respect of their “profits” interest are compensation that is subject to payroll taxation).  Social security should be off the table because it ain’t broke, any future fixing that it needs is simple and equitable, and it has been put on the table by the same monied elites that at the same time work to ensure that their favorite tax breaks and other benefits stay in the system (such as the charitable contribution deduction for the value of stock, rather than the basis that represents the owner’s actual investment in the stock).  Instead, the Bowles-Simpson right-wing dominated group would reduce benefits for all retirees by redefining their cost of living needs (in spite of the fact that the current formula is probably weighted too lightly on the kinds of expenses that the elderly face, they would suggest a formula that would be even less likely to keep the elderly who depend on SS on an even keel); means-test Social Security (thus destroying the key element of the near universal support of the program); and raise the retirement age (to 69) meaning that some people who get nothing whatsoever from the years invested and many in manual labor jobs would be worn out before able to retire.
  • No mention of the fact that  Alan Simpson, Obama’s choice to co-chair his so-called Commission on Fiscal Reform (it should have been called–neo-lib/neo-con commission for cutting benefits under Social Security and Medicare), has consistently targeted Social Security (and other New Deal programs) as a huge unearned entitlement that should just be gotten rid of or at least whittled down to the bare bones if at all possible.  See e.g., Alan Simpson Calls Social Security ‘Cow with 310 Million Tits,’ Causes Uproar, TPM Muckraker, Aug. 25, 2010.  It’s no surprise that a commission made up of elitists –including nine Republicans that the Business INsider site politely calls merely “tax averse” (see Beutler, Meet the 18 People Who Could Determine the Fate of Social Security“, Aug. 30, 2010) opts for solutions that favor elites.
  • No mention of the fact that Social Security funds were required to be invested in US Treasuries-(see Trust Fund FAQs,” Social Security Administration, February 18, 2010) 
    The SS surplus funded US debt at the same time that huge tax cuts were enacted in favor of corporate and wealthy elites, but now the neo-con/neo-lib move to decrease benefits is essentially a call to reneg on commitments made to those that funded the surplus and borrowing.
  • No mention of the fact that most of the Bowles-Simpson crew held pre-determined positions that favored reducing the programs that help the poor and vulnerable (see Beutler, Meet the 18 People Who Could Determine the Fate of Social Security“, Aug. 30, 2010) :
    • Bowles himself, a Wall Streeter Clintonite Dem who was not very strongly against privatization when he was chief of staff;
    • Simpson, who has supported privatization and benefit cuts to Social Security for deaces,
    • Rivlin, another bank-friendly Clintonite who has long argued for cutting Social Security benefits;
    • Stern, a former President of the SEIU who has supported the idea of investing Social Security funds in the stock market rather than in US Treasuries;
    • Cote, Republican CEO of Honeywell who has advocated cuts for military servicemen and women rather than defense contractors like Honeywell; 
    • Fudge, an Obama supporter who has been in business at Kraft Foods and Young & Rubicam (so is likely to support business friendly solutions whether they are good for the vulnerable or not)
    • Paul Ryan, Republican advocate of austerity budgeting, Social Security privatization, and Medicare vouchers
    • Jeb Hensarling, Republican advocate of austerity budgeting and privatization and cuts for Social Security and Medicare
    • Dave Camp, Michigan Republican that wants tax cuts, and Social Security privatization
    • Judd Gregg, Republican interested in raising retirement age to 70, privatizating Social Security, shrinking government by “starving the beast”, and yet doesn’t think tax cuts should be offset
    • Tom Coburn, Republican from Oklahoma  who says he’s “open to everything if it gets us where we need to go” regarding the commission’s deficit reduction aims, BUT hypocritically opposes not providing an additional tax cut for the wealthy.  Coburn wants to “dismantle large segments of the federal government” and wants all options on the table except preserving current structure and benefits or increasing SS taxes (on the wealthy).  He also wants to cut pay and benefits for military dependents, retirees and survivors.  Funny, he doesn’t mention generals or defense contractors.  Coburn has consistently worked to eliminate the New Deal programs oriented towards the ordinary and middle class folks.
    • Mike Crapo, Republican who wants to privatize Social Security and reduce benefits for anyone born after Jan.1, 1950.
    • John Spratt, blue-dog Democrat who has long advocated  changes to Social Security, including supplementing SS with private plans
    • Xavier Becerra, democrat who may actually oppose changing Social Security
    • Jan Schakowsky, progressive democrat who opposes entitlement cuts and fought for the public option
    • Kent Conrad, Democratic budget hawk who opposed the public option, supports passing new tax cuts that extend the Bush cuts for everybody, though arguing for tax increases eventually
    • Max Baucus, Democrat who supported Bush tax cuts (imagine where we might be if he had fought instead for ordinary Americans) and has consistently supported decimating the estate tax and has supported the idea of Social Security cuts
    • Dick Durbin, a progressive Democrat who nonetheless has been open to cutting Social Security

No analysis is there.  What Montgomery puts forward as supporting the idea of a national consensus is the Bowles-Simpson vague statement of a roadmap; the Rivlin-Domenici panel, another neo-lib/neo-con dominated group whose prescriptions are predictable; Frank Keating, a Republican who wants lower income-tax rates and a national sales tax (perfect for the wealthy in passing the burden of taxation to the middle class); and retired military officers and national security experts who agree that the hugely bloated Pentagon budget can be reduced (can’t we ALL agree on that one?).  That’s a national consensus?  I don’t think so.

Regretably, she ends with a quote from Domenici (not a moderate by any means) saying that the fact that there is some common ground about cuts and tax increases among this disparate group  is “‘a testament to the moderate nature’ of the ideas under discussion”.  No–it is a testament to the ability of one view to dominate the media and to be presented as a growing consensus on the need to cut the welfare programs that are the backbone of the New Deal, in order to frame the discussion in a way that pushes it towards a single conclusion.

For a different perspective, see DAvid Coates, Eating the Old at Thanksgiving (nov. 22, 2010).

Tags: , Comments (12) | |

Who’s saving where? An application of the 3 Sector Financial Balances Map

Dean Baker finds gaping holes in deficit hawk rhetoric using the simple accounting identity that national saving must equal the current account (S-I = CA). If the domestic private-sector’s desire to save is positive, then the only way for the public sector (i.e., government) to net save is for the economy as a whole to run a sizable current account surplus.

Singapore does just that. Spanning the years 2004-2009, the average current account surplus was near 21% of GDP, which enabled the government to run surpluses near 5% of GDP and the private sector to save 16% of GDP. Singapore is a net-saver in all sectors of the economy: private, public, and international. However, it’s Singapore’s huge current account surplus that allows the domestic sector to net save, and not all financial balances are created equally.

Let’s use a slightly different version of Rob Parenteau’s 3 Sector Financial Balances Map to illustrate that not all financial balances are created equally.

The chart illustrates the combination of private and public surpluses (or deficits) that prevail at each of three “zones” of the Balanced Current Account Line (BCAL). The BCAL zones are: CA > 0 to the right of the red line, CA World Economic Report database, October 2010, is used to construct the average 3-Sector Financial Balances Map for the IMF’s Advanced Economies spanning the years 2004-2009. (Note: Singapore, Norway, and Iceland are not illustrated because their respective sector financial balance points lie outside the normal range and distort the map.)

The public-sector financial balance (PubS) for each economy is the IMF’s measure of general government net lending as a percentage of GDP. The domestic private-sector financial balance (PrivS) is the residual of the current account as a percentage of GDP less PubS such that the following identity holds:

PrivS + PubS = Current Account
(please see Rob’s post for further detail on the sectoral balances approach)

In the chart, the four quadrants of public-sector and private-sector financial balances that account for the CBAL zones across the Advanced Economies are:

I. PubS > 0 (public-sector surplus) and PrivS II. PubS III. PubS > 0 and PrivS > 0
IV. PubS 0

The quintessential savers are listed in quadrant III and to the right of the BCAL: Sweden, Hong Kong, Luxembourg, and Singapore (not shown). The classic debtors are listed in quadrant II and to the left of the BCAL: Ireland, Spain, Portugal, Greece, and a couple of other Eurozone economies that are not labeled (Cyprus, Malta, and Slovak Republic). Finally, quadrants I and IV list economies that have positive saving in one of the domestic accounts: public (I) or private (IV).

The point is pretty clear: in order for the government to net-save, PubS > 0, either the private sector must dissave and/or the current account must be in surplus. It’s that simple.

Notice that the financial balances of Spain, Portugal, Ireland, and Greece are in quadrant II and to the left of the CABL. These are averages, and the fiscal deficit worsened markedly in 2009 and 2010 as the private sector incentive to save surged. Currently, though, the fiscal adjustment requirements are huge (deep into quadrant II). For example, Spanish policymakers announced a deficit reduction path to take the PubS
Given that Spain, for example, is starting from a point of hefty private-sector deficits over the last five years, on average, the sole hope for a successful policy tightening lies with external demand growth (the current account). Spain needs massive export income in order to finance such reductions in the government deficits.

So who will succeed in reducing their public fiscal deficits? Pretty much any country with private surpluses has a fighting chance: Germany, France, the Netherlands, Belgium, the UK, and the US even (on the corporate side). The problem is, that policy makers can’t just tell the private sector to start dissaving. Well, it can, but incentives may be needed.

All else equal, recent FOMC announcements furthered a dollar sell-off, and along with recent disinflation the economy has a fighting chance if policy does move toward austerity. But as Dean Baker suggests, more currency re-valuation is needed.

Rebecca Wilder

Tags: , , , Comments (7) | |

Current fiscal deficit hawks…oops!

Projected growth in spending on the federal government’s big health and retirement programs–Medicare, Medicaid, and Social Security–dominates the long-run budget outlook. If current policies continue, that spending is likely to grow significantly faster than the economy as a whole over the next few decades. By 2040, the Congressional Budget Office (CBO) projects those outlays will rise to about 17 percent of gross domestic product (GDP)– more than double their current share.
CBO report ready for hawking in year 2000.

Was this before or after our deficit hawks started crowing in year 2000?

(a figure virtually identical to current estimates…oops…2010)

Hat tip Simon Johnson in It’s hard to take the fiscal hawks seriously.

Perhaps if we dismiss the current hawks we could actually address the issue of deficits.

Tags: , , Comments (8) | |

Why the Pelosi Rule MAY not be a sell-out on Social Security

by Bruce Webb

There is a huge disturbance in the Force, at least as sensed by the Jedi of FireDogLake, Democratic Underground, AMERICAblog, and OpenLeft, which is to say among the Obama-skeptics of the Left. The substance is this, in a last minute move prior to adjournment Nancy Pelosi pushed through the rule for handling the recommendations of the Obama Deficit Commission, and on the surface they mirror that of Cooper-Wolff or its Senate counterpart Conrad-Gregg, that any recommendations coming out of the Deficit Commission has to be voted up or down without amendments. The actual language is here:

“Commits the House to vote on any Senate-passed recommendations of the bipartisan Fiscal Commission and that net savings from any Commission recommendations will go to deficit reduction.”

Meaning on the FDL reading that any Commission proposal focusing heavily on Social Security benefit cuts can simply sail through with Republican and Blue Dog support. Simple sell-out right? Well maybe. But whatever the intent of the players, including Pelosi, the effect might be much different. Because despite strong and deliberate similarities the Obama Deficit Commission is NOT the same as either Cooper-Wolff or Conrad-Gregg. Argument below the fold.

The entire Peter G Peterson backed argument as manifested in both Cooper-Wolff and Conrad-Gregg is that the major threat to the economy going forward is long-term deficits, that the major cause of those deficits are projected to be entitlements, and that the only solution is major cuts to those benefits. In this vision the disease and the medicine are determined beforehand and the whole purpose of the Commissions is to give bi-partisan cover backed up by a requirement that any proposal coming out of such a Commission is subject to an non-amendable up or down vote. And if this vision was still controlling the entire debate then this would look like total surrender by Pelosi. But I argue that it isn’t, that the Obama Commission was formally given a much different mission, and one that in the end conflicts and subverts that of PGP.

The main impetus for the Obama Commission was not the structural long-term deficits seen as the result of ‘unsustainable’ entitlements, instead it was the very large, as in more than a trillion a year, deficits starting with FY 2009 as a result of the worldwide economic crisis, that is the crisis is not defined as intergenerational but instead in the here and now with the main expressed fear is that without action the Invisible Bond Vigilantes and the Chinese Central Bank will stop buying our debt. Well I’ll leave that bigger argument to Prof K, the result was that the Obama Commission was given a specific charter, that of getting the deficit down to 3% of GDP by 2015. And the problem in a nutshell is that you can’t get there via benefit cuts to Social Security, one because Social Security is not actually projected to contribute to the deficit over that time period and two because even the most draconian proposals don’t start operating by then.

It has been an accepted principle since the Leninist Strategy of 1983 that benefit cuts shouldn’t come at the expense of people in or nearing retirement, a principle that was also the first one listed by Bush’s CSSS (Commission to Strengthen Social Security) in 2001, and followed by the various proposals fronted by Alan Simpson, the Ryan Roadmap, and even Michelle Bachmann. Each would give varying periods of grace ranging from seven years (Simpson) to not effecting people over 55 (Ryan Roadmap) to as much as 20 years. But what all share in common is that none of them show any savings under CBO scoring prior to the mandated target of 2015, they simply CAN’T bend the short term deficit path.

It is not clear that any of PGP, the Obama Commission, or Speaker Pelosi quite get this because the whole argument has been framed in terms set by the Social Security and Medicare Trustees where the score is generally expressed over the 75 year actuarial window, or since 2003 over the Infinite Future Horizon. Under those long-term scoring windows new revenues or benefit cuts get scored in the current year even if the actual incidence of the tax increase or benefit cut doesn’t occur for years or even decades. Well all of that is fine in its own place but it doesn’t cut any ice when it comes to projected deficits in 2015, when CBO scores whatever recommendations come out of the Commission, 2015 won’t (or shouldn’t) get credit for savings that won’t be seen until 2030 and later. Now the argument can and will be made that future cuts add current confidence to those nervous (but as yet invisible) Bond Vigilantes, but at most the real effects in 2015 could only be seen in lower interest rates, and those rates are rock bottom now.

How does this play out in practice? Assume the worst, that the real intent of the Catfood Commission is to slash entitlements and particularly Social Security, the question is whether they can present a package that does that yet doesn’t do anything for 2015’s bottom line? Can they get away with putting forth a ‘deficit reduction’ proposal that under CBO scoring doesn’t actually lower the deficit by 2015 or within the standard 10 year scoring window? Well I don’t see that they can, not without revealing their true colors. And this is where the Pelosi Rule might actually work to protect Social Security.

Cooper-Wolf and Conrad-Gregg were both to be established pretty much openly as ‘Entitlements Commissions’ along the lines of the 1994 Kerrey-Danforth ‘Entitlement and Tax Reform Commission’ http://www.ssa.gov/history/reports/KerreyDanforth/KerreyDanforth.htm , a package entirely focused on entitlements would not only not be surprising but expected giving the framing. But the Obama Commission has a different framing, that of near term deficits, requiring a different approach, the Commission has to at least present some measures that will actually address their charter of reducing the 2015 deficit. Which means revenue enhancements and spending restraint OUTSIDE of Social Security. (Or just biting the bullet and cutting current SS benefits, something most concede would be political suicide). Now the examples of the Stimulus and HCR Bills tells us how this could work, the Commission introduces a balanced proposal of short and long term revenue increases and cuts with a focus on both 2015 and 2083 and that proposal gets whittled down bit by bit ostensibly to gain the votes of Conservadems and Blue Dogs, but really just to eliminate any tax increases or defense cuts leaving only entitlement ‘reform’ intact. The Pelosi Rule, by intent or not, prevents that whittling process.

Seen in this light Pelosi would be simply calling the Blue Dogs bluff, is it really about deficit reduction? or about slicing away at the social safety net?

I don’t believe the Commission can get away with a package that only slashes future entitlement payments but does nothing about near term deficits, it would just be too raw in light of their mandate. Yet the more cover they add in the way of truly bi-partisan measures to increase revenue and cut discretionary spending, including military, the more support will bleed from Conservadems and Blue Dogs, to say nothing of Republicans, while Progressives are not going to jump on board an entitlements cut only program. Where they might have gotten away with a straight out Entitlements Commission whose focus was on 75 year and Infinite Future savings, they are handcuffed by a 2015 target and attendant CBO scoring.

My opinion anyway. For anyone else, well that is what comments are for.

Tags: , , Comments (32) | |

How the Deficit Commission Painted Itself into Corner on Social Security

by Bruce Webb

High on the list of tasks mandated of the Obama Deficit Commission is to get the deficit down to 3% of GDP by 2015. Unfortunately for them they have set up a situation where they can’t move that number via cuts to Social Security, if anything such cuts more one of their metrics the wrong way. To understand why we need to revisit old friends including ‘Leninist Strategy’, ‘CSSS’, ‘deficit’, ‘debt’ and ‘unfunded liability’.

It was well understood as far back as the publication of Butler and Germanis’ Leninist Strategy (11th article here) in 1983 that cutting benefits in the near term for existing retirees and even for newly approaching retirees was both politically deadly and deeply inequitable, these people simply didn’t have time to do alternative planning through Personal Retirement Accounts or anything else. This reality was explicitly recognized by Bush’s 2001 Commission to Strengthen Social Security where it was established as Guiding Principle no 1 of 6 CSSS. Now how long this grace period should be and whether it would be permanent for that class of retirees, or whether they would ultimately share in whatever index changes were adopted vary across plans. What doesn’t vary is the fact that no plan entirely based on benefit cuts can move that 2015 target number.

The why and how of this below the fold.

The first problem is that Social Security ‘reformers’ continually confuse ‘deficit’, ‘debt’ and ‘unfunded liability’. They implicitly assume that current year deficits sum into ten year debt increases which in turn equate to long-term unfunded liabilities. And if we were just talking about General Fund spending this would largely be so. But Social Security throws some wrinkles in.

Lets take the extreme case, one where benefit cuts happen right away from Day One. Well if big enough they would put Social Security back in cash-flow positive territory (CBO’s ‘Primary Surplus’) and so score as a reduction in deficits compared to the baseline, so far so good. But by forestalling the need to pay a portion of the interest accruing on the Trust Fund in cash those cuts equally serve to pad the bottom line of Trust Fund balances, which for this purpose score as a part of total Public Debt. To make it worse interest not paid out in cash gets transformed into new principal which itself starts drawing interest and so boosting Trust Fund Balances compared to the baseline. Exactly how are you creating ‘intergenerational equity’ and relieving your children and grand-children when the net effect of short term cuts is a boost in long-term debt. (I know this sounds goofy, but that is the way the numbers run).

So the Commission is already in a trap, they can improve the short term deficit position by cutting benefits and in so doing also have positive effects on 75 year and Infinite Future actuarial gaps but only at the cost of actually increasing Public Debt over the medium term. But it gets worse, because they have already ruled out short term benefit cuts.

The strictest plan being floated right now is that of co-Chairman Alan Simpson. He would reduce the grace period so that it only cover people 60 and older. But this means that you simply don’t see any savings at all until people now aged 59 reach Full Retirement Age which in practice means 2017. Meaning you don’t move the number in the target year of 2015 AT ALL. And unless you quickly phase in those benefit cuts in a big way in 2017 you end up with no real impact on your standard CBO Ten Year score.

And the Ryan Roadmap makes this worse, he would exempt people 55 and older which means your very first savings come in 2022 and so outside the 10 Year scoring window altogether. And then you have people like Bachmann vaguely proposing to ‘wean’ people under 50 off Social Security, which puts any savings off until 2027. Which is fine if your real goal is to eliminate Social Security over the long run, but not particularly compelling when you are trying to sell this as a deficit and debt reduction measure sparked by short term Obama spending. It literally does not compute.

The current public line being taken by most of the Commissioners is that they have to tackle Social Security to show the bond market that they are serious. But since it is doubtful they have the cojones to cut benefits in the short term and even if they do won’t have the effect they need on either their Public Debt or Debt Held by the Public metrics, how is that supposed to reassure the bond markets of anything?

Now the Commission has a tiny exit hole. If they can keep the focus entirely on reducing the 75 year and Infinite Future actuarial gap and keep the public in the dark about the actual effect of their proposals on ten year deficits and twenty year debt levels they might escape the trap. But their political need in the here and now to make unpopular future cuts to Social Security somehow forced on them by current deficits makes it difficult for them to pull the bait and switch, over the last year the informed public has been trained to look at the CBO score and in that regard the Commission has nothing.

Tags: , , Comments (74) | |

Deficit Commission, CBO Scoring and the "Leninist Strategy" for Social Security Reform

by Bruce Webb

I have had occasion before to mention the “Leninist Strategy” for Social Security put forth in 1983 and followed by Social Security ‘reformers’ ever since. The strategy has three main pillars:

One: reassure current retirees that their benefits won’t be cut
Two: convince younger workers that left unreformed Social Security just won’t be there for them
Three: blame the Boomers

Well time has moved on since 1983 and increasingly pillars One and Three are coming into collision and this combined with CBO scoring methodology has put the Deficits Commission into a bind. One which I will outline below the fold.

A central tenet of the Cato endorsed “Leninist Strategy” for Social Security Reform outlined in Butler and Germanis (1983) http://www.cato.org/pubs/journal/cj3n2/cj3n2-11.pdf was that benefits for those in or approaching retirement should not be affected (p.549). This was billed as a matter of equity but was equally a bow to political reality. This tenet was maintained in the establishment of Bush’s CSSS (Commission to Strengthen Social Security) in 2001 as the first of the six Guiding Principles http://govinfo.library.unt.edu/csss/index.htm and most recently is a feature of the Ryan Roadmap which promises to hold at least initial benefits for workers 55 and older harmless.

Unfortunately this consistent upholding of Pillar One of the “Leninist Strategy” is undermining Pillar Three because workers 55 to 64 ARE Boomers and it is pretty hard to hold them responsible for ‘Crisis’ and yet give them a free pass, the rhetorical underpinnings of the “Leninist Strategy” are simply aging themselves out of effectiveness.

Adding to this rhetorical challenge for the ‘reformers’ is a methodological one deriving from CBO scoring. Traditionally both CBO and OMB score proposals over a ten-year time period and only occasionally peak over that horizon. But if as the current Ryan Roadmap does Ryan Roadmap: Social Security and promise that it “Preserves the existing Social Security program for those 55 or older” you get a ten-year CBO deficit score of near-zero. And if you define “preserves” and “existing” as also covering the COLA adjustment you almost equally kill any score for the next ten-year period.

This problem was largely self-created, those pushing for this Commission relied on a deliberate confusion of the concepts of deficit, debt and unfunded liability to use relatively short term deficits to sell’ solutions that realistically only address long-term debt and ‘liability’. In fact the official name of the Commission is Bipartisan National Commission on Fiscal Responsibility and Reform and its mission statement does not explicitly reference ‘deficit’ at all. Yet a search on ‘Obama deficit commission’ pulls up 10X the hits of ‘Obama fiscal responsibility commission’ and most of the latter reference the former anyway. For better or worse the MSM has settled on ‘Deficit Commission’.

A couple of years ago hardly anyone outside the policy world knew or cared much about CBO scoring, but a year of Health Care Reform has accustomed people to use that score as a touchstone. Adhering to the “Leninist Strategy” and the Ryan Roadmap for Social Security will return a big fat Zero as a CBO score. On the flip side most of the ‘fixes’ floating around out there give Boomers a mostly free pass. Which leaves the ‘Deficit’ Commission a tough choice: get a good score by sticking it to Boomers right away, and so angering the single largest demographic cohort of Americas precisely when they are in the prime voting year? or take the zero and try to sell Gen-X and the Millenials that taking huge future benefit cuts that do nothing to address short term deficits is just the price they have to pay for past excesses?

In my view Entitlements Crisis people over-played their hand. First they sat by while their allies in the Republican Party rather cynically used the savings from Medicare reforms in the HCR bill to be framed as “medicare cuts”, and second allowed the framing of the Fiscal Responsibility Commission to fall within “Obama deficits” when realistically they will have no short term effect. Not at least without significant short term political fallout. Should be interesting.

Tags: , Comments (60) | |

Billions for Bankers, Nothing for the Housing

Good Thing We Have Deficit Hawks in Congress:

The tenants were all living low-rent under a program that’s beginning to expire – but had been promised they could still qualify for a federal Section 8 rent subsidy.

But this week, when many of them began to show up at New York City Housing Authority offices, which accepts the vouchers and administers the subsidy, they were told the program was kaput….

NYCHA Chairman John Rhea Thursday blamed the move – which could push thousands into the city’s already crowded shelters – on Congress, a lower-than-usual attrition rate in the program and unprecedented demand….

More than half the vouchers – 1,833 – had been given to families and individuals who were once homeless.

Rhea, a former investment banker who took over the agency this year, said Congress didn’t set aside enough money to run the program through the end of the year.

Congress took $58 million from the authority in May from funds that were earmarked for Section 8, Rhea said. [link to Rhea appointment added]

Good to see responsible budgeting only means putting 3,000 families out on the streets just in time for the first big snowstorm of the year.

Tags: , , Comments (6) | |