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

Which battles to fight?

That final paragraph really gets to one of my obsessions: that the political left and the mainstream media focus so heavily on culture-wars issues–especially regarding the Supreme Court–that the corporatocracy and other rightwing non-culture-wars interests (states’ rights!) have been having an incredible run these past years in the courts, without most people even knowing it.

You Can Fool Most of the People Most of the Time

At least on certain issues.

I’m not inherently a great pessimist, but with few exceptions each passing month for over a decade now has seen my optimism whither, at least a little.  So I can’t help but see the manure-colored lining in this otherwise rosy, fluffy cloud.

Steve Benen reports that according to the new NBC/WSJ poll, Americans trust Democrats more than Republicans on domestic issues, sometimes by large margins.  Here is a graph.  (As always, click to embiggen.)

Graph 1   Who Do You Trust?

But the causes of my pessimism are four-fold.  First, as Benen goes on to note, the same polling reveals that in the popular mind “Republicans have an advantage on the (sic) reducing the deficit, ‘controlling’ government spending, and national defense.”  Well, there’s three reasons for pessimism right there.  A) Reducing the deficit is an issue of exactly zero urgency, and attacking it now will certainly cause economic hardship, especially for those at the bottom. Further, Republicans have been huge debt increasers for decades, while Dems have not.  B) We absolutely do not have a spending problem.  We absolutely do have a revenue problem, as graph 2 plainly indicates.  I think the Republicans have become convinced of their own lies.

Graph 2   Federal Gov Current Recpts by GDP

C) From FDR through LBJ to BHO, Dems have been every bit as war-mongerish as their Rep counterparts; BHO has continued his predecessors war initiatives almost seamlessly;  and 9/11 happened on W’s watch.  This just makes me want to cry.

But I have a bigger list.  Second, a look a graph 1 reveals some disturbing details.  A)  Joe BeerCan must not connect “Looking out for the middle class,” Medicare,” “Health Care,” “Medicare,’ or “Social Security” with “Economy” or the results for those categories would line up better.  B) Considering Paul Ryan and the never-ending series of Republican contrived cliffs, scoring Dems only marginally better than Repubs on the economy is, all by itself, cause for despair.  C) As is the close call on taxes.

Third, and I’ve already alluded to this, there is almost no daylight between the two parties on foreign policy issues.  Still I have to give a slight nod to the Dems, based on practicality, because: John Bolton.

And last, though I firmly believe to the bottom of my heart that the Dems are superior on absolutely every issue, problem and question that might rise, they still aren’t that damned good.  Case in point: the new head of the Michigan Democratic party is a venture capitalist.  As Bill Maher sagely put it, while the Democrats have moved to the right, the Republicans have moved to the insane asylum.  They demonstrate this anew, almost every single day

The lessons of history and even a casual observation of the current failures of European austerity show that progressive policies are the clear and present necessity.  But even if we had strong Dem majorities, we still have Reaganite B. Hoover Obama in the White House, and a genuine progressive movement in congress the exact size and shape of Bernie Sanders. 

As one of my college professors put it long ago:  Booze is the only answer.

Republican "fiscal cliff" proposal

by Linda Beale

Republican “fiscal cliff” proposal

House republican leaders have sent a letter to President Obama with their “fiscal cliff” proposal, which the Republicans cast as a “fair middle ground” and a “balanced framework for averting the fiscal cliff.”  Id.  Republicans object that the administrative proposal has is unbalanced, because it has “four times as much tax revenue as spending cuts” (under a Republican claim that the Administration shouldn’t count already enacted spending cuts that were part of the Administration’s original proposal as part of the bargain).  And of course the Republicans don’t like the idea of any stimulus measures being included in the deal or the proposal to finally do away with our arcane and unnecessary debt ceiling mess, which invites games of chicken that have no point.  They claim that they are merely supporting the Bowles-Simpson plan, which of course they are not since they are refusing all tax rate increases.

The letter is written rather confusedly and is therefore somewhat ambiguous on exactly what it is offering as a concrete proposal.  One has to conclude that it isn’t a concrete proposal but actually merely puffery that restates the position that the GOP wants lots of entitlement cuts, no military cuts, and no tax rate increases (but might go along, maybe, with some unspecified “loophole eilmination” for the nonce).  It appears to propose the following:

  • $900 billion in cuts to mandatory spending including Medicare and Medicaid spending over the next decade 
    • The Republican letter, of course, tries to assume the mantle of “preserving and protecting” social welfare programs even while they reach out to reduce, eliminate or privatize them, when it suggests that perhaps the Republicans will return to the Budget Resolution that offered a voucher plan for limiting Medicare benefits (and hoped to buy off current seniors and those nearing retirement by promising them benefits under the current program). The Republican proposal referred to claims to “reform” Medicaid by offering “flexibility” that cuts $800 billion from the program over 10 years!  Although admitting that the election makes pursuing those kinds of harsh reforms “counterproductive”, the Republican leaders promise to “continue to support and advance them.”
  • $300 billion in cuts to other discretionary spending over the next decade
  • $200 billion in cuts to Social Security benefits (by revising the method of calculating cost of living increases, which would also apply to keep the tax brackets from rising as fast and for adjustments to government pensions)
  • $800 billion in new revenue–achieved through “pro-growth tax reform that closes special-interest loopholes and deductions while lowering rates” (but of course without mentioning just what loopholes and deductions would be removed).  The letter goes on to declare that the Republican leaders will not agree to higher tax rates, asserting that their position is to “protect small businesses and our economy”.

Let’s assess this so-called “proposal.”

Lowering rates is absurdity at this point:  no reasonable person should vote for a proposal to lower US tax rates even more than they already are.  Lowering rates while eliminating deductions or loopholes doesn’t work any better:  immediately after such a bill is passed, the lobbyists will be back on the floor.  First they’ll demand a temporary extension while markets “adjust” (mostly bulls..t).  Then they’ll demand that the temporary provision be made permanent to provide “certainty” to markets and businesses.  Then they’ll demand enhancement of the loophole to broaden it, since they say such provisions will incentivize job creation. Etc.  This is an old story that never plays out the way the lobbyists promise.  Congress shouldn’t fall for it again.  Because the next ploy will be–oh, let’s broaden the base by removing these new old loopholes and then we can lower rates even more.  The only thing that is likely to happen in this ploy is that the top rates go down for the wealthiest taxpayers, who pay less and less.

Cutting the various safety net programs is equally absurd.  Especially in a time of continuing difficulty, especially for vulnerable populations like the elderly, poor, laborers with inadequate pension and health care possibilities after retirement and other large groups in our population.  There is no reason to cave to the GOP’s forty-year campaign to reduce, privatize or eliminate social welfare programs:  let the gradual onset of taxes and sequesters take place in January, and then ask them to pass a tax cut to benefit those in the middle and lower-income groups.

The letter ends with an oxymoronic statement that essentially states that if the Obama administration will cave to these GOP demands, they are “ready and eager to begin discussions about how to stucture these reforms.”  They go on to suggest that President Obama has taken actions to “undermine good-fith effrorts to reach a reasonable and equitable agreement.”

That’s bunk, boys.  If the GOP is going to play this game this way, the administration should not attempt any kind of short-term resolution.  After the Bush tax cuts are repealed once and for all by operation of existing law as of January 1, it will be much easier to discuss what reasonable tax cuts should be enacted to protect the middle class rather than the wealth of corporate managers and owners.  And once there is a first start on the reduction of the military budget, we can move on to reduce it even more.  Action can be taken to stave off problems that would be caused by any of the provisions in early 2013.

cross posted with ataxingmatter

Links Worth Noting: Stealth (Class) Warfare

by Linda Beale

Links Worth Noting: Stealth (Class) Warfare

Paul Krugman, Class Wars of 2012, New York Times (Nov. 30, 2012).

When Mitt Romney disparaged ordinary Americans, it was visible, obvious, and clearly an indication of the lack of esteem he held for ordinary Americans. The same arrogance is at work in the class warfare that the radical right is waging against the social programs that have been partof the great stabilization of the middle class and a singular pathway to a more sustainable lifestyle for those who are underprivileged in America–Social Security, Medicare, and Medicaid.

The drumbeat for “fiscal cliff” worries continues to build in the media. The right wants us to think that they are worried about future generations facing mountains of debt. They aren’t. The right wants us to think that they are worried that the only way to combat skyrocketing health care costs is by cutting back on benefits for ordinary Americans. They aren’t, and it isn’t. The right wants us to think that the wealthy have sacrificed already and are truly noble if they bear even minimal tax increases from the expiration of the Bush tax cuts. They haven’t and they aren’t. The right wants the progressives to roll over and play dead, so they can insist that they have the good of the country at heart when they demand cuts to infrastructure spending and cuts to “entitlements” as a condition for petty little increases in the taxes of the ultra rich who have greedily sucked up all the juice in the economy for forty years. We won’t.

Readers may think this blog has become a broken record of arguments for higher taxes–at least on the wealthy, at least through the removal of the preferential capital gains rate–and holding firm on protecting Social Security, Medicare, Medicaid. Maybe so. But we must continue to speak out until those we elected to lead the country act like they heard the prevailing sentiment of the election: we want more taxes on the upper class; we want an economy that is stimulated by government spending when private spending won’t do it; we want a sustainable economy that distributes resources more equitably and not a winner-take-all economy that allows those with monetary power to dictate the lifestyles of the rest of us.

Krugman is, as usual, correct. What they can’t get by buying an election the rich will try to get by lobbying and pretending to worry about the fiscal cliff. Let them try. Progressives in Congress should start talking, on any available outlet, about “going over the cliff” because it really isn’t so bad. It will free us once and for all of the ridiculous Bush tax cuts and allow us to undertake thinking about the tax code without that “status quo” hanging over our head like the sword of Damocles. And we can pass some really decent tax cuts for the lower income quintiles at the first of the year, without having to deal yet again with the “extenders” on the table. We can reform corporate tax–getting rid of loopholes; getting rid of the transfer pricing games–without lowering rates. And we can deal with the sequester in reasonable ways. What should we spend on and why. Let the rest go. We would finally begin the process of lowering the expectations of the military-industrial complex.

The following are excerpts from Krugman’s piece.

The important thing to understand now is that while the election is over, the class war isn’t. The same people who bet big on Mr. Romney, and lost, are now trying to win by stealth — in the name of fiscal responsibility — the ground they failed to gain in an open election.
Consider, as a prime example, the push to raise the retirement age, the age of eligibility for Medicare, or both. This is only reasonable, we’re told — after all, life expectancy has risen, so shouldn’t we all retire later? In reality, however, it would be a hugely regressive policy change, imposing severe burdens on lower- and middle-income Americans while barely affecting the wealthy. Why? First of all, the increase in life expectancy is concentrated among the affluent; why should janitors have to retire later because lawyers are living longer? Second, both Social Security and Medicare are much more important, relative to income, to less-affluent Americans, so delaying their availability would be a far more severe hit to ordinary families than to the top 1 percent.
[A]ny proposal to avoid a rate increase is, whatever its proponents may say, a proposal that we let the 1 percent off the hook and shift the burden, one way or another, to the middle class or the poor.
The point is that the class war is still on, this time with an added dose of deception. And this, in turn, means that you need to look very closely at any proposals coming from the usual suspects, even — or rather especially — if the proposal is being represented as a bipartisan, common-sense solution. In particular, whenever some deficit-scold group talks about “shared sacrifice,” you need to ask, sacrifice relative to what?
America’s top-down class warriors lost big in the election, but now they’re trying to use the pretense of concern about the deficit to snatch victory from the jaws of defeat. Let’s not let them pull it off.

cross posted with ataxingmatter   11/30/12

A Different Look at GDP and Inflation

At Illusion of Prosperity, Stagflationary Mark posted this scatter-graph of quarterly GDP YoY growth and CPI data from Q1, 1948 through Q4, 2011.  Each point represents the differences from the medians of each data set for each of the variables, respectively.  This gives you a picture of time spent above and below what might be considered normal performance.

I wondered how this would look if each point were identified by presidential administration, and if this would suggest any particular narrative.  So I redid the graph, data from FRED, using mean instead of median as the determinant.  It is presented here as Graph 1, with each data point (256 total) color-coded by presidential party; red for Republicans, blue for Democrats.  The calendar quarter of each president’s inauguration is allotted to the previous administration.

I’ve labeled the quadrants as follows, and indicated the frequency of data points populating each quadrant.

Here are the Mean and Standard Deviation values.


Graph 1  CPI and GDP, data from FRED

The GDP data has something close to a normal distribution, with approximate symmetry around the mean. The CPI data does not. For CPI, the highest frequency is 2 percentage points below the mean, and there is a long tail on the high side, so the distribution looks more like a Poisson type.

I’ve broken out presidential administrations, 3 or 4 to a graph, to avoid excessive clutter.  Graph 2 shows the administrations of Truman (light blue), Eisenhower (red), and Kennedy-Johnson (dark blue.)

Graph 2  CPI and GDP, Truman, Eisenhower, Kennedy-Johnson

Results during the Truman administration were erratic, with both inflation and deflation occurring, and GDP growth widely variable as the nation made post WW II adjustments, and several million G.I.’s reentered the work force.  Ike was an inflation hawk, and one of only two presidents to achieve below average inflation in every quarter of his administration.  (Take your guess now as to who the other might be.  All will be revealed in due time.)  Still, the road was bumpy, with GDP growth highly variable, and two rather severe recessions during his term.  The Kennedy-Johnson administration enjoyed superior economic performance and relatively low inflation, with only 6 quarters of below average GDP growth, and only five quarters of above average inflation during the entire 8 years.  This was one of only two administrations to avoid recession for an entire 8-year term.

Graph 3 shows the Nixon-Ford (orange), Carter (blue), and Reagan (red) administrations.

Graph 3  CPI and GDP, Nixon-Ford, Carter, Reagan

Here we find three increasingly extreme excursions into stagflationary territory, two under Nixon-Ford (remember Whip Inflation Now buttons?) and one under Carter. The first and mildest was in 1970, the second in 1974-5, and the last, in 1979-80 probably played a part in holding Carter to a single term.  Inflation far above average plagued both of those administrations.  Each spent time above and below average in GDP growth with term averages very close to the grand average.  However, Carter’s last two years were consistently below average, and coupled with high inflation, earning him his moribund reputation.  Early in Reagan’s first term, Volker finished slaying the inflation dragon.  But the cost was high in terms of depressed GDP growth, and during that time Reagan was extremely unpopular.  But, as the economy recovered, so did his reputation, and he is now remembered, for good or for ill, as one of America’s most beloved presidents.  The remainder of his presidency resided along at least one of the two average lines, including four consecutive quarters of exceptional GDP growth coupled with only slightly above average inflation, spanning 1983-4.

Graph 4 shows the Bush Sr. (orange), Clinton (light blue), Bush Jr.(red), and Obama (dark blue) administrations.

Graph 4  CPI and GDP, Bush Sr., Clinton, Bush Jr., Obama

During the Bush Sr. administration, 11 of 16 quarters had below average GDP growth, 10 quarters had above average inflation, 8 of these quarters had both.  Clinton’s term began and ended with below average GDP growth, but during his 8 years here were only 9 below average quarters.  Four of them occurred in sequence from Q2, 1995 to Q1, 1996, but the remainder of 1996 was quite strong, and Clinton was granted a second term. Clinton was both the other president who avoided having even a single quarter of above average inflation, and the other president who avoided having a recession during an entire 8-year term.  During the 8-year term of Bush Jr. there were only 4 quarters of only slightly above average GDP growth, occurring from 2003 to 2005.  There were 7 quarters of above average inflation, 3 of them just barely so in 2005-6, and the other 4 in 2007-8, just prior to the economic collapse.  The remainder of his term was in the mild doldrums region.  The collapse ushered in the Obama administration.  Within his first year, the economy was back into the mild doldrums area that has so far been typical of the current century. 

Here is one more graph, showing how each administration performed, as an average over its entire term.  Starting with Truman, the yellow line leads us to each successive administration, up to Obama.

Obama’s position suffers from the recession he inherited.  Whether he gets reelected or not, his average will move up each remaining quarter of his presidency.  If he gets a second term, we can expect more of the doldrums we have experienced over the last two years.

This clearly belies the Romney claim that Obama’s economic policies have failed.  His policies have moved us from near-depression to mere mediocrity.  That counts as some sort of success.

So, here is my narrative.  First off, one can argue that the president does not directly determine the economic fate of the country, and that is partly true.  The other part is that the president sets the policy and the tone, and that both of these things matter.

–  The only presidents to have achieved term averages in the prosperity quadrant were Democrats.
–  The only Republican to achieve above average real GDP growth was Reagan, and that was only by an increment.
–  The only president since Reagan to achieve higher GDP growth than his predecessor was Clinton, other than that, it’s been a downward spiral.
–   Carter had below average GDP growth by a slight margin, but he beat every Republican other than Reagan, and he didn’t trail him by much.
– The last 44 years have been characterized by secular decreases in both CPI inflation and GDP growth.
– They have also been characterized by Republican presidencies 64% of the time, decreasing regulation, lowered tax rates, safety net erosion, loss of labor union strength and participation, and the systematic undoing of of New Deal policies.

What I conclude is that New Deal (dare I say Keynesian?) policies were successful in generating real prosperity, and free market policies have been far less successful.  Over time, Reaganomic trickle-down, free market policies have given us first, the Great Stagnation, and ultimately the worst economic crisis in 80 years.  These policies were, by no coincidence at all, quite similar to those in effect when the Great Depression of the 30’s happened – and also all the other earlier depressions that are no longer very prominent in people’s memories.

As I said, policy matters – and it matters profoundly.

With that in mind, here is my question to the Fed:  Since the average of CPI inflation since WW II is 3.7%, and there is ample evidence that we can have very reasonable economic performance with inflation in that range, why have you set an inflation target that is effectively half of that level, while ignoring high unemployment –  the other half of your alleged dual mandate?

Of course, I’m being rhetorical.  It’s because they are bankers, and inflation favors creditors borrowers, not lenders.  The fact is they don’t care one whit about unemployment.


It matters.

Cross-posted at Retirement Blues.

Worthwhile British Initiative

Today’s FT (front page, below the fold*) declares that Mark Carney “has been informally approached as a candidate” to head the Bank of England “in June next year.” He is currently governor of the Bank of Canada.

It would be a good choice. As the speeches at the link above note, Carney is no fool, which often seems rather more than one can say for many members of David Cameron’s Administration.**

Of course, the BoE already has one foreigner who should be considered as Merwyn King’s successor—but Adam Posen is American. As the FT anonymously notes:

Naming a foreigner as Governor…would break with tradition, although Mr. Carney has a British wife, studied at Oxford university [sic] and worked at [The Giant Vampire Squid] in London early in his career.

“As a Canadian national, he is a subject of the Queen,” said one supporter. “That is important.”

I’m now waiting for Felix Salmon to start a “Posen for the BoE Governorship” campaign which, sadly, is likely to be about as successful as his “Ngozi Okonjo-Iweala for the World Bank Presidency” campaign.

*no link–being a print subscriber, online access is limited to PDFs, and the website is quite unfriendly to non-online subscribers

**Cameron’s choices remind one that however pathetic Tim Geithner is, it is possible to do worse. I mean, really, George Effing Osborne? A man who supposedly prepared for five years in the “Shadow” role and came up with this shite?

Three-Card Monte (Spring 2004)

Angry Bear archives reminds us of the longstanding strategies embedded in the current political debate, and trial balloons of possible current Super Committee proposals November 22, 2011. The Social Security surplus as a significant amount of money is recent, in the last fifteen years or so:

Tuesday, March 02, 2004

Three-Card Monte

Following up on Kash’s earlier post about Greenspan, Krugman’s op/ed also highlights a fairly bold bait and switch maneuver by Greenspan:

The payroll tax is regressive: it falls much more heavily on middle- and lower-income families than it does on the rich. In fact, according to Congressional Budget Office estimates, families near the middle of the income distribution pay almost twice as much in payroll taxes as in income taxes. Yet people were willing to accept a regressive tax increase to sustain Social Security.
Now the joke’s on them. Mr. Greenspan pushed through an increase in taxes on working Americans, generating a Social Security surplus. Then he used that surplus to argue for tax cuts that deliver very little relief to most people, but are worth a lot to those making more than $300,000 a year. And now that those tax cuts have contributed to a soaring deficit, he wants to cut Social Security benefits.

As you can see from this post last week, the 2004 deficit is only brought down to a mere $500,000,000,000 by starting with the non-trustfund deficit of $631,000,000,000 and subtracting from that the $154,000,000,000 surplus created by the payroll tax (money allegedly going into the trust fund/lockbox).
To summarize, here’s Greenspan’s 20+ year plan to roll back Social Security:

Step 1. Get appointed in early 1980s to committee to protect Social Security.

Step 2. Successfully propose substantial increases in regressive payroll taxes in order to save Social Security. Workers will pay higher payroll taxes but their retirement benefits will be assured.

Step 3. Wait 20 years; to pass the time, become Chairman of the Federal Reserve.

Step 4. Actively support large and regressive cuts in income taxes. Never mention payroll taxes.

Step 5. Repeat step 4.

Step 6. Observe that in 2004, steps 4 and 5 lead to a $631b shortfall; Step 2, however, created a $154b surplus.

Step 7. Reverse Steps 4 and 5.

Step 8. Just kidding about step 7. Seriously, the answer is clear: cut Social Security benefits.


UPDATE: CalPundit had a post on Sunday, THREE CARD MONTE WITH ALAN GREENSPAN, which made the same observation and concluded, “A normal person would at least be embarrassed by all this. But Alan Greenspan has never been a mere mortal, has he?”