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Elites Demanding Austerity Also Ignored Housing Bubble

Dean Baker writes to the question of who is pushing the fiscal cliff idea:

Elites Demanding Austerity Also Ignored Housing Bubble

it was somewhat shocking to see a book review in The New York Times by Noam Scheiber, an editor at The New Republic, that longed for the day when we will have people who can use data to identify housing bubbles before they grow so large as to pose a serious danger to the economy.

The personal slight is beside the point; the issue is that our elites are being allowed to construct an alternative reality that absolves them of responsibility for the ruined lives all around us. The reality is that people in positions of authority chose to ignore the evidence of a rapidly growing bubble and those trying to call attention to the dangers it posed. Instead, we have Scheiber giving us the “Who could have known?” story. His case is that the dynamics of the bubble were just too complicated for people to grasp given the tools available at the time. The people who clearly warned of the bubble, using data, simply did not exist in Scheiber’s universe.

If it were just Scheiber saying this on a rant somewhere, he could be easily dismissed as a crank. While he is a prominent writer on policy and politics, prominent writers say ridiculous things all the times.

But this was not just a random rant. It was a book review in The New York Times, by far the nation’s most prestigious newspaper. It is a paper that employs fact checkers and prides itself on accuracy. Would The New York Times allow a book reviewer to bemoan the fact that no one had questioned the existence of weapons of mass destruction in Iraq prior to the war?

And the bubble warners were not entirely below The New York Times’ radar screen. In fact, several Times reporters had picked up on warnings of the housing bubble. In fact, Paul Krugman, perhaps the most famous economist in the world, used his New York Times column in 2002 to warn of the dangers posed by the housing bubble.
Given this history, how can an ill-informed book reviewer get away with making what is obviously an untrue assertion in a New York Times book review? The simple answer is that Scheiber’s “Who could have known?” story is quite comforting to people with power in this country.

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Is it a fiscal cliff or merely a bump in the road?

by Linda Beale

Is it a fiscal cliff or merely a bump in the road?

Sixty percent of American voters in exit polls indicated that they supported higher taxes for the wealthy, see here.  Even some arch conservatives are acknowledging that some tax increases won’t do terrible harm.  Id. (noting that the Wall Street Journal’s Stephen Moore acknowledged that Obama “can claim that he’s got a voter mandate to do that [raise taxes on the rich].” Even Conservative Weekly Standard Editor Bill Kristol counseled Republican leadership to get real.

You know what? It won’t kill the country if Republicans raise taxes a littlbe bit on millionaires.  It really won’t, I don’t think.  …  Really? The Republican party is gonna fall on its sword to defend a bunch of millionaires, half of whom voted Democratic, and half of whom live in Hollywood and are hostile to Republicans?  Nicole Flatow, Weekly Standard Editor Bill Kristol: Raising Millionaires’ Taxes ‘Won’t Kill the Country’, ThinkProgress (Nov. 11, 2012).

Nonetheless, the House and Senate Republican leadership (Rep. Boehner and Sen. McConnell) are insisting that they will not allow tax rates to rise.   McConnell told Breitbart.com the following:

One issue I’ve never been conflicted about is taxes. I wasn’t sent to Washington to raise anybody’s taxes to pay for more wasteful spending and this election doesn’t change my principles. This election was a disappointment, without doubt, but let’s be clear about something: the House is still run by Republicans, and Republicans still maintain a robust minority in the Senate. I know some people out there think Tuesday’s results mean Republicans in Washington are now going to roll over and agree to Democrat demands that we hike tax rates before the end of the year. I’m here to tell them there is no truth to that notion whatsoever.  Annie-Rose Strasser, Senate Minority Leader: We Won’t Raise Taxes At All, ThinkProgress (Nov. 9, 2012).

President Obama Friday invited Congress to sign off on a tax cut for the middle class right away– noting that just extending the Bush tax cuts for those who make less than $250,000 would give a tax cut to 98 percent of Americans and 97 percent of small businesses.

“While there may be disagreements in Congress over whether to raise taxes on people making *over* $250,000 a year, nobody — not Republicans, not Democrats — want taxes to go up for folks making under $250,000 a year,” Obama said. “So let’s not wait.”  Adele M. Stan, Obama throws down gauntlet on fiscal cliff, Salon.com (Nov. 10, 2012).

Robert Reich, now at the University of California at Berkeley, writes that the game of chicken is on.
So who blinks first? Democrats who don’t mind going over the cliff because they’ll get a better final deal – and the deal will be retroactive to January 1st so it’s not really a cliff at all but more like a little hill? Or Republicans who want to extend the Bush tax cuts beyond January 1st, until we get sufficiently close to the debt ceiling that they can once again threaten the full faith and credit of America?

As I said before, I had naively assumed the election would put an end to these games, but obviously not. Yet Obama and the Democrats are holding most of the cards now. Let’s hope they use them.  Robert Reich, Get ready for an economic game of chicken, Salon.com (Nov. 9, 2012).

cross posted with   ataxingmatter

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…the sacrifices necessary…

Beat the Press Dean Baker November 22, 2010 says it well:

The Washington Consensus That Excludes the Overwhelming Majority of the Public

A front page Washington Post editorial * touted the “accord seen in debate over deficit.” It begins by telling readers that: “the sacrifices necessary to achieve those goals are coming into sharp focus.”

Included in the Post’s list of sacrifices are cuts to Social Security. It never mentions the fact that poll after poll continue to show that the vast majority of the public strongly opposes cuts to Social Security. It is only the select group of Washington insiders that the Post chose to cite that is agreeing on the “sacrifices necessary.”

It is also worth noting that the Post did not even mention plans by the Bowles-Simpson and the Pew-Peterson deficit commission to cut the annual cost of living adjustment. This change would reduce benefits by an average of 0.3 percentage point for each year that a worker receives benefits. This means that after 10 years their benefits will be 3 percent lower as a result of this cut. After 20 years the cut will be close to 6 percent. If the average beneficiary receives benefits for 20 years this means that the average benefit cut will be close to 3 percent.

For most retirees Social Security is most of their income. For the bottom 20 percent of the income distribution, it is almost their entire income. This means that the change in the Social Security indexation formula proposed by these deficit cutters would have almost as much effect on after-tax income for many retirees as the proposed ending of the Bush tax cuts for high income households, which would increase their tax rate by 4.6 percentage points on income above $200,000. While the Post has devoted endless news stories to the consequence of this change in the tax code, it did not even think it was worth mentioning the proposed cut in Social Security benefits.

It is also worth mentioning that the Post’s consensus on reducing the deficit excludes the proposal from the IMF for more taxes on the financial sector. Insofar as taxes on the financial sector are not being considered it is likely attributable to the fact that financial interests are playing such a central role in the debate. A newspaper would call attention to this fact.

*The article is here.

— Dean Baker

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Dear ———– (Congress people),

Lifted from comments here by Reader Jack, who recommends writing to your Congress representatives. Now this is probably not as satisfying as the (hat tip Yves Smith crosspost) post from Steve at the Daily Bail.

Dear——-,
I hope that you will be standing tall against the current forces of deception that are campaigning hard to destabilize Social Security as we know it. The SS program works very well and has been doing so since its inception. The program is in the black and only a deceitful campaign to destroy the program presents it any other way. The Trust Fund is real and is a debt to the system as well as the program’s “savings account” upon which if draws when receipts from FICA are insufficient to cover benefits. Do not conflate Social Securities solvency with the deficit condition of the general budget or the Medicare program.

The Peterson Foundation is leading this deceptive attack on the sanctity of Social Security in a brazen attempt to weaken that system and move ever closer to a privatization scheme. The so-called bipartisan Deficit Commission, correctly maligned as the Cat Food Commission, is stacked against Social Security. It’s Chairmen’s preliminary recommendations are absurd if the purpose of the Commission is to genuinely find a means by which to balance the general budget. It lacks even face validity. That is not surprising as its two Chairs have previously expressed their individual biases. Mr. Simpson has been publicly derisive of the Social Security program. Mr. Bowles is a hand maiden to the investment banking community serving as a Board member of JP Morgan bank and receiving compensation of $300,000 for attending several Board meetings each year. That’s bi-partisan?? Only if one considers right of center and far right as the measure.

I’m looking for you to play a more significant role protecting the interests of working middle class Americans in any effort to “adjust” Federal spending, taxation and Social Security.

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Seven steps to Social Security cuts prophecy

Seven steps to Social Security cuts by Bruce Webb was posted January 2010 this year at Angry Bear and has proven to be prophetic:

‘…is that the strategy to get major slashes to Social Security and Medicare takes an Seven Step and that this technique is not new and in fact mirrors the original plan for Bush’s Commission to Strengthen Social Security (CSSS) in 2001-2002.

Step one. Get consensus on ‘Crisis’. In this case that current debt growth levels are unsustainable.
Step two. Get consensus that there are only three possible paths out: revenue increases (A), cuts in military and other discretionary spending (B1 and B2), or cuts to non-discretionary spending, meaning Medicare and Social Security (C)
Step three: Having agreed that some combination of A, B, and C is needed set up a Commission with a mandate to propose an up or down vote.
Step four. Committee decides it is unwise to increase taxes during a recession and eliminates (A). Commission further decides that it is unwise to cut defense spending in the middle of two wars eliminating (B1) and that eliminating infrastructure spending or farm supports is both unwise or politically impossible in the current climate (B2)
Step five. Recommend a package of cuts to Medicare and Social Security-C on the basis of shared sacrifice, after all every CD and State has a share of the elderly population.
Step Six: Tell Congress that the statute doesn’t allow them to revisit A or B and then that NOT voting for a C based solution means denial of Steps one and two.
Seven: Either get a vote for C or run against opponents as ‘Do Nothing Deficit Deniers”

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One reader’s reaction to the fiscal deficit drama to begin

There will be plenty of reactions to the draft release of the fiscal draft proposal, but one caught my eye as I just came home. Reader HW at TPM has this reaction

I took a very quick look at this document and what’s amazing to me is that they came up with these draconian cuts in Social Security, which is off-budget and currently in the black, but have barely anything for Medicare, where the government is hemorrhaging money.

They have several pages of material with almost no concrete ideas that adds up to minor savings (they claim savings that rise to $47 billion in 2020, but $13 billion of that comes from vague promises like “reform the sustainable growth rate” and “enact tort reform.”)

If you look at the spending side of the federal budget, Medicare is the single item that drives growth out of proportion with the nation’s population and income growth. Yet these guys seem to be hacking away at every other part of the federal budget more to make room for Medicare rather than contain it.

One other thing: they call for a cap of 21% of GDP for revenues and spending. But doesn’t that exceed the mandate here? We are looking to these guys to tell us how to bring the budget into balance, not what the role and size of government ought to be. I would think liberals and conservatives ought to be able to agree in saying, who the hell are these guys to put their finger arbitrarily on the number 21% and tell us that’s where it should be (I’d assume conservatives would like to see it lower, and I don’t necessarily disagree with the number, but don’t know why we’d set it in stone)? Its like my accountant telling me how much my income should be, in addition to how I should balance my family budget.

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Obama’s fiscal commission offers recommendations

Some of the recommendations as outlined by TPM from the Pres. Obama’s Bowles and Simpson fiscal commission:

Social Security cuts:

  • Index the retirement age to longevity — i.e., increase the retirement age to qualify for Social Security — to age 69 by 2075.
  • Index Social Security yearly increases to inflation rather than wages, which will generally mean lower cost of living increases and less money per average recipient.
  • “Increase progressivity of benefit formula” — i.e., means test part of Social Security benefits by 2050.
  • Increase the Social Security contribution ceiling: while people only pay Social Security taxes on the first $106,800 of their wages today, that’s only about 86% of the total potentially taxable wages. The co-chairs suggest raising the ceiling to capture 90% of wages.

Tax reform:

  • The co-chairs suggest capping both government expenditures and revenue at 21% of GDP eventually.
  • In their first plan, called “The Zero Plan,” they suggest reducing the tax brackets to three personal brackets and one corporate rate while eliminated all credits and deductions. Without any credits or deductions (including the ETIC and mortgage interest deductions), the 3 tax rates would be 8, 14 and 23 percent.
  • In their second plan, they would increase the personal deduction to $15,000, create 3 tax brackets (15, 25 and 35%); repeal or significantly curtail a number of popular tax deductions (including the state and local deduction and the mortgage interest deduction); and eliminate other tax expenditures.
  • The third plan would force Congress to undertake comprehensive tax reform by 2012 by raising taxes for each year Congress fails to act.
  • All their proposals limit Congress to collecting taxes on income made within the United States, reducing or eliminating taxes on American expats and revenues companies earn abroad.
  • They also suggest raising the federal gas tax by 15 cents per gallon.

Medicaid/Medicare cuts

  • Force more low-income individuals into Medicaid managed care.
  • Increase Medicaid co-pays.
  • Accelerate already-planned cuts to Medicare Advantage and home health care programs.
  • Create a cap for Medicaid/Medicare growth that would force Congress and the President to increase premiums or co-pays or raise the Medicare eligibility age (among other options) if the system encounters cost overruns over the course of 5 years.

Discretionary spending cuts

  • Eliminate all earmarks.
  • Eliminate the Office of Safe and Drug-Free Schools.
  • Freeze federal worker wage increases through 2014; eliminate 200,000 federal jobs by 2020; and eliminate 250,000 federal non-defense contractor jobs by 2015.
  • Eliminate subsidized student loans, in which the government makes interest payments while the student is in school.
  • Establish co-pays in the VA medical system and change the co-pays and deductibles for military retirees that remain in that system.
  • Eliminate NASA funding for commercial space flight.
  • Require the Smithsonian museums to start charging entrance fees and raise fees at the national parks.
  • Eliminate funding to the Corporation for Public Broadcasting — which many conservatives suggested in the wake of the firing of former NPR contributor Juan Williams.
  • Reduce farm subsidies by $3 billion per year.
  • Create a Committee to eliminate unnecessary programs to the tune of $11 billion by 2015.
  • Merge the Department of Commerce and the Small Business Administration and cut its budget by 10 percent.
  • End “low-priority” Army Corps of Engineers programs to the tune of $1 billion by 2015.
  • Cut the State Department’s overseas budget by 10 percent by 2015; reduce the proposed foreign aid budget by 10 percent in 2015; and cut voluntary contributions to the United Nations by 10 percent in 2015.
  • Eliminate the Overseas Private Investment Corporation, which provides subsidized financing and political risk insurance for U.S. companies’ investments abroad.
  • Cut $900 million in fossil fuel research funds.
  • Force airlines to increase their contributions to airline security costs and allow them to increase per-ticket security fees.

Defense spending cuts:

  • Double the number of defense contractor positions scheduled for elimination from 10 percent of current staff augmentees to 20 percent.
  • Reduce procurement by 15 percent, or $20 billion.
  • Eliminate the V-22 Osprey program.
  • Cancel the Marine Corps’ Expeditionary Fighting Vehicle program.
  • Halve the number of F-35 Joint Strike Fighters in favor of F-16s and F/A-18Es.
  • Cancel the Marine Corps F-35 program.
  • Cancel the Navy’s Future Maritime Prepositioning Force.
  • Cancel the new Joint Light Tactical Vehicle (JLTV), the Ground Combat Vehicle, and the Joint Tactical Radio.
  • Reduce military forces in Europe and Asia by one-third.
  • Send all military children based in the U.S. to local schools.

The report also recommends tort reform as a way to reduce Medicare and Medicaid expenditure

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