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

Lost Decades

Mike Konzcal reviews Lost Decades by Menzie Chin and Jeffrey Friedan at New Deal 2.0:

What caused the housing bubble?

This is a different, though related, question from what caused the collapse of the financial sector or why unemployment is sky-high right now. Why did housing value skyrocket and then collapse? More broadly, why did all kinds of consumer debt expand so greatly over the past decade?

there’s another argument, which looks at the explosion of international lending and the indebtedness of the United States by foreign investors. Normally capital runs from rich countries to poor countries, but something changed where it reversed as capital went rushing to the United States. This exposed the United States to the same kind of risks developing nations usually face. And the new book Lost Decades by Menzie D. Chinn and Jeffry A. Frieden, economists at the University of Wisconsin, Madison and Harvard, is the best book-length treatment of this argument.

(italics mine)
Menzie Chin writes about Lost Decades at Econbrowser:

…Jeffry Frieden and I conclude in our book, Lost Decades:

America’s prosperity requires fiscal responsibility. The phrase “fiscal responsibility” has been used so much that it is something between an obligatory buzzword and a code word for cutting government spending. In our view, true fiscal responsibility involves a willingness to raise sufficient tax revenue, over the longer term, to pay for the programs the government implements. Fiscal responsibility should not be equated with a small government, but rather with a commitment to pay for the government services provided. If the nation affirms that enhancing national defense and improving health care for the poor are legitimate goals, fiscal responsibility entails raising the revenue to fund these programs, rather than borrowing for them.

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The Hill reports on "supercommittee"

by Linda Beale

The Hill reports on “supercommittee

Alexander Bolton reports that “With Supercommittee Deadlocked, leaders Reid and Boehner meet“, The Hill (Nov. 15, 2011).  Reid (Dem) and Boehner (GOP) met Tuesday, but aides told The Hill that “They’re not about to dive in” to the negotiations.  But as the committee seems to be at an impasse close to the 11/23 deadline, the leaders must be discussing what is likely to be the next step.  The arrangements for the group (in case no bipartisan deal could be reached) called for across-the-board cuts that impose reasonable cuts on Defense but limited cuts for social safety net/earned benefit programs (medicare limited to 2% cuts to insurance companies and health care providers/Social Security and Medicaid exempt).

The GOP members, of course, are casting it as a Dem problem. For example, Hensarling (a very far right member of the group, from Texas) blamed the Dems for not accepting the Toomey proposal for a piddling $300 billion in new tax revenue.  With Supercommittee Deadlocked, leaders Reid and Boehner meet.

The across-the-board cuts would cut Defense by $500 billion.  Various GOP members of Congress have said they want to change the deal to avoid the cuts to the military.  Tea Party favorite and radical right-winger Jim DeMint has essentially admitted that he never intended to stick with the sequester deal, saying that the GOP has “until next election to fix this thing.”  GOP stalwarts want the US to maintain its exorbitant spending as “the world’s only military superpower” even while being willing to cut health care and pensions to the vulnerable and even while the country’s infrastructure–essential for business–crumbles in ruins.  McCain and Graham urged the Senate to reject the sequester of military funds, fearful it would “set off a swift decline of the United States as the world’s leading military power.” Dems gain upper hand in deficit talks, The Hill (Nov. 16, 2011).  This attitude seems to believe that defense spending, no matter what the cost to the country, is okay, while spending on poor people is a waste and raising taxes on the rich is an impossibility.  Apparently GOP McKeon considered that possibility, but then later backtracked.  Certainly, Grover Norquist has been making sure the pressure is on from the corporate masters of our pseudo-democracy–the Hill notes Norquist’s statement Monday that both Senate and House GOP leaders had “assured him they would not raise taxes to reduce the deficit.”  Id.

So we have elected representatives in Congress who willfully ignore the will of the majority of people in favor of higher taxes and higher taxes on the rich and corporations in particular; ignore the facts that show that higher taxes on the rich and a more equal economy are better for everybody; and ignore the fact that their own policies (preemptive war and tax cuts during deficits from 2001-2008 under Bush) represent the substantial reason for long-term deficits–all in order to continue to support extraordinarily disproportionate spending on the military rather than on public infrastructure, education and health and in order to be able to continue to use the self-created “debt crisis” to push for further impoverization of America’s middle class.  What a backwards value system that represents can’t be expressed in a public blog.

But at least Reid has said that method of reneging on the agreement won’t be allowed to happen: “Democrats aren’t going to take an unfair, unrealistic load directed toward domestic discretionary spending and take it away from the military.”    See Id.; see also Reid: Dems will oppose efforts to spare Defense from automatic cuts, The Hil (Nov. 14, 2011).

As one of the commenters on The Hill notes (quoting an NPR program), the supercommittee is set up to force one of two bad choices–reducing the social safety net or cutbacks during economic recession.  What we should be doing is increasing taxes now on the rich and on corporations, and then allowing the Bush tax cuts to expire at the end of next year–in their entirety.  We should make judicious spending cuts in wasteful programs–and the military certainly should be a target of some of those cuts.  And we should make judicious spending increases in infrastructure, research and educational support programs to add stimulus to keep the economy going.

Case in point–the New York Times story today about a small town in Kentucky that decided to increase taxes to pay for infrastructure improvements that are putting the two back on the map.

originally published at  ataxingmatter

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Cut now has a plan, revenue increases have wishful thinking…Supercommittee

by Linda Beale

GOP two-step approach problematic

Discussion continued apace yesterday about the “supercommittee” and the idea of agreeing to agree someday on some revenue increases while going ahead with cuts.

This approach is a terrible one since it gives the obstructionist GOP members just another setting in which to refuse to go ahead with tax increases and to “negotiate” yet again over just what counts as a revenue increase.  Like the gimmicks that became so overused in the 2001, 2003, 2004 Bush tax bills, this “deal” is just another gimmick for the radical right to get its way–cuts to Social Security and Medicare, cuts to all programs intended to help the vulnerable, no cuts to military programs, and no tax increases–especially not for the rich.

Republicans on the right are already arguing for applying “dynamic analysis” which tends, in their versions, to be rosy scenarios of increased growth due to tax cuts:  this is a cop-out way to claim revenue increases that won’t materialize while making actual cuts to much needed social programs.  They are also arguing for dramatic changes in the way the earned benefits programs work–such as means-testing for recipients–as first steps in working towards outright elimination of those programs.  You get comments like those of Jim Jordan (Republican of Ohio) who wrote in an op-ed in USA Today that taxes “should not punish success to satisfy some false definition of balance.”  See Rubin,  Debt Accord May be Two-Step Process, Hensarling Says, Bloomberg (Nov. 14, 2011).

Meanwhile, Jim Jordan (Republican of Ohio) said in a USA Today piece that taxes should not be raised because they “should not punish success to satisfy some false definition of balance.”  Id.

This is a wrongheaded view of taxes.  The radical right uses language about taxes “punishing success” because they see defending the rich from  taxation as their mission.  The rich are defined as “successful”–even if the wealth is merely built on top of inherited wealth and position, and even if the rich did nothing at all to earn the wealth.  Taxes do not punish success.  Taxes are the way that we cooperate together to fund important government programs that serve all of us.  Even when they act as transfer programs that transfer resources to the poor and elderly, they are serving all of us by making our society work better.

originally published at ataxingmatter

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Procurement

Mother Jones points us to a Stimson Center study, titled What We Bought: Defense Procurement From FY01 to FY10 (PDF), (via Reader Supported News).

From the report

Procurement funding grew from $62.6B in FY01 to as much as $135.8B throughout the decade.3 In constant dollars, base procurement funding in FY10 increased by 41 percent from FY01.4 Increases also were augmented by the use of supplemental war funding. In FY02, only $1.4B was appropriated for procurement in supplemental war funding. That increased every year until $65.9B was appropriated in FY08. FY08 ended up as the high water mark, but the following three years have all seen procurement funding of about $30B included in war funding.5 In all, $232.8B or 22 percent of total procurement funding in the last decade came from supplemental war funding. Although procurement funding increased in the base budget, supplemental war funding significantly enhanced the resources available.

The Mother Jones article

says the military is hardly in dire straits when it comes to funding its big-ticket items. “The services capitalized on funding to modernize their forces, especially the major weapons programs that constitute the heart of the services’ capabilities,” writes the report’s author, Russell Rumbaugh—a retired Army officer and ex-CIA military analyst.

The study shows there’s one big reason the brass are concerned about budget-cutting discussions in Congress: They’ve been double dipping into the taxpayer’s pocket to finance weapons purchases. Of the roughly $1 trillion spent on gadgetry since 9/11, 22 percent of it came from “supplemental” war funding—annual outlays that are voted on separately from the regular defense budget. Those bills are primarily intended to keep day-to-day operations running in Iraq and Afghanistan—meaning that if a member of Congress votes against a supplemental spending bill, she exposes herself to charges that she doesn’t “support the troops” in harm’s way.

And there’s plenty to cut, thanks to McKeon and his congressional cohort. This spring, they preserved defense earmarks after vowing that they wouldn’t; voted to make more Humvees the Army doesn’t want (and reject Afghanistan base defense systems that it did); to keep an unnecessary $3 billion GE contract to build an “alternative engine” for the single-engine Joint Strike Fighter, whose costs are approaching $1 trillion; and to repatriate US victims of the 1804 Barbary War in Libya.

In their defense, they did vote to trim defense dollars by banning color copies at the Pentagon.

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Super Committee and GME funding

By Michael Halasy

Super Committee and GME funding

SO, about that super committee. Surely you remember, the gang of 12 that was created by the showdown over the debt ceiling this summer. Well, they’re hard at work but among the proposals out there, is one that is causing some grave concerns.

As a health workforce researcher, I understand implicitly the difficulties that lie ahead and the underlying shortage of physicians that will worsen dramatically by 2025. Current estimates suggest a shortage of over a 130,000 physicians by that time. Many, if not most, do not realize that physician training, at least the post graduate residency phase, is paid for by CMS (Center for Medicare Services).

Currently, as we all know, if the super committee does nothing, there will be an across the board 2% cut to all federal discretionary spending. Some of the other proposals are a little more concerning. In 2010, direct GME expenses totaled 9.5 billion. IME or Indirect Medical Education expenses totaled an additional 6 billion.
IME represents an additional 5.5 % payment to teaching hospitals, as it is understood that they not only teach other health professionals, but that there may be extra costs associated with education. Current proposals are to cut that rate in half (first proposed by Simpson-Bowles) to 2.2%. Among other proposals which include Home Health Co-Pays, SNF (skilled nursing facility) shared payments, raising Medicare eligibility to the age of 67, lies a proposal by the House Ways and Means Committee to cut GME funding by 15 billion over the next ten years, or a 15.7% cut. It is unknown at this time if the Committee will pursue this, but this is problematic.

Adding to the problem is the current GME Cap placed in effect in 1997, when several organizations were predicting an oversupply of physicians. This is not our current concern. This cap is problematic, and with the current budgetary concerns has no chance of changing. By 2015, we will have had over a 30% increase in medical school graduates from 2000. There is significant concern that also by 2015, we will not have enough GME residency slots for all US graduates, without even mentioning the several thousand US citizens who go to foreign medical schools every year.

States have already reduced the amount of money in the GME system, with only 41 states participating, and contributing a little over 3 billion annually. Nine additional states are now likely to opt out as well.

We need a serious look at discretionary spending, but this will only compound and weaken an already distressed healthcare system. I hope that the Super Committee strongly considers this, and looks to other alternatives.

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