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The Simplest and Best Way Out

11:01 pm in Uncategorized by letsgetitdone

Well, the proverbial s__t is now hitting the fan in our State Governments, and we’re looking at struggles in State after State between newly elected Republican Governors scapegoating civil servants, while they insist that taxes can’t be raised on the wealthy and large corporations during a recession. Put briefly, the moves to austerity and the resulting conflicts in Wisconsin and other States are partly Democrats’ fault, because they failed to pass a State revenue sharing bill to close the gap in State budgets, so that no cuts in services, employee benefits, or jobs would be necessary. A revenue sharing bill of $300 Billion passed in 2009 would have done the trick, and could have been passed as part of the stimulus package.

Why didn’t they do it? Well, the gutless wonders in the 21st century Democratic Party wouldn’t go after the filibuster when it would have made a difference in January of 2009, and that left them negotiating with a few “moderate Republicans” and blue dog Democrats who ended up controlling the final form of the very inadequate stimulus bill. There’s no turning the clock back, of course. But the Democrats should still propose revenue sharing, make a big fuss about it, and talk about how the Rs were perfectly willing to bail out the big banks, AIG, and even foreign banks, but are not now unwilling to bail out their own American States, and would rather attack public employee unions and their collective bargaining rights rather than doing anything constructive about jobs. The Ds should also point out that all the Rs have done since winning the House is to kill jobs, and that their refusal to pass revenue sharing is just another instance of job-killing.

Of course, someone will read this proposal and say that the Federal Government can’t afford even a bigger deficit than it has now so that it’s not a serious proposal. To them I say that I prefer to deal in reality and not act as if I believe the fantasies of people who think the Government is like a household. I know that people believe that the Federal Government can’t afford it. But that belief is based on various fairy tales and myths I’ve exposed before like:

Everyone of these myths/fairy tales is used to support the idea that the Federal Government can’t afford to do the things it ought to do to end the economic suffering in America, and, in particular, that we can’t afford to save State employee jobs and benefits by providing revenue sharing grants of $1,000 per person to every State to close their budgetary gaps. Every one one of them is untrue. Belief in any of them is stopping us from helping the 99ers, from educating our kids, from re-building our infrastructure, from healing our sick, from re-inventing our economy, from developing our alternative energy sources, from creating real wealth for our children and grandchildren, from extending Social Security benefits, and from stopping these completely unnecessary attacks on unions and collective bargaining.

What we badly need is a mental housecleaning in our economic thinking. We need to sweep away the false ideas of neo-liberalism and its practice of “Aztec Economics,” because our experience (most recently, Ireland, Greece, Spain, the Baltic nations, the UK, and even ourselves, since we held back on stimulus and health care reform out of austerity concerns) tells us that they are serving us very badly and causing suffering all over the world. It’s time to try the ideas of Modern Monetary Theory instead, and see if they will work better. They tell us, in part, that Federal Government spending isn’t in itself a “cost,” since our constitutional authority to spend is unlimited and we can now do so electronically. So, when considering such spending we must never look at its nominal financial cost; but only at its likely real impact. Does it increase value? For whom? What are its real costs in terms of resource consumption and negative outcomes? Does it bring full employment? Does it solve national problems? Is it likely to cause inflation? Does it create a better life for most people?

These are the kinds of questions we should be asking. Asking and answering them correctly and making fiscal decisions based on the answers is fiscal responsibility. Fiscal irresponsibility is watching the impact of spending on deficits, surpluses, debt-to-GDP ratios and other numbers of this type.

The current Administration is fiscally irresponsible, not fiscally responsible. The President’s Fiscal Commission exhibited the height of fiscal irresponsibility. And the current Congress, in jumping on the bandwagon of Aztec Economics and austerity, will give us even more fiscal irresponsibility, while congratulating themselves about taking the tough decisions that fiscal responsibility calls for. What more is there to say? We live in Orwell’s world. We must find a way out!

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

Which Party Poses the Real Risk to Social Security’s Future?

8:42 pm in Uncategorized by letsgetitdone

By

Marshall Auerback

Hint: it’s not Republicans.

Social Security remains one of the greatest achievements of the Democratic Party since its creation 75 years ago. Although Republicans have historically fulminated against the program (Ronald Reagan once likened it as something akin to “socialism”), they have actually made little headway in touching this sacred “third rail” in American politics. President Bush pushed for partial privatization of the program in 2005, but the proposal gained no policy traction (even within his own party) because Social Security continues to be hugely popular with American voters. It’s a universal program that benefits all Americans, not a government handout to a few privileged corporations.

Which is why it’s odd that Democrats seem almost embarrassed to continue to champion the legacy of FDR. The party frets about long-term deficits and the corresponding need to “save” Social Security from imminent bankruptcy and, in doing so, opens the gate to radical cuts in entitlements that will do nothing but further destroy incomes and perpetuate our current economic malaise. It is true that some Republicans have signed on to the idea of privatization, notably a proposal championed by Rep. Paul D. Ryan (Wis.), the senior Republican on the House Budget Committee. But only a handful of GOP lawmakers have actively embraced the measure and, in the aftermath of the worst shock to the financial system since the Great Depression, many Republican lawmakers would just as soon see the idea forgotten.

So why don’t the Democrats leave well enough alone? Why bother even setting up “bipartisan commissions” to discuss the issue of Social Security? At the risk of sounding like one of those ungrateful members of the “Professional Left”, whom Robert Gibbs recently decried, I note that it was President Obama who most recently re-opened this issue by setting up a commission on reducing long term budget deficits and dealing with the long term issue of entitlements, including Social Security. In the Commission’s remit, nothing is off the table, including Social Security and Medicare. (Of course, given that one of the members is a director of Honeywell, it’s hard to envisage any suggestions of defense cuts). I also note that according to the Washington Post, “Democrats said Simpson and Bowles are uniquely equipped to blaze a path out of the fiscal wilderness — and to forge bipartisan consensus on a plan likely to require painful tax increases as well as program cuts.” No mention of Republicans getting on board. This is self-immolation, plain and simple. And Obama wonders why voters remain unhappy?

Now that the President has opened this Pandora’s Box, it is hard for him credibly to make the case, as he attempted to do in last Saturday’s weekly radio address, that “some Republican leaders in Congress want to privatize Social Security.” In fact, it is an idea enthusiastically embraced by a number of Wall Street Democrats who are funded with huge campaign contributions from Wall Street itself. (Candidate Obama received more money from Wall Street in 2008 than Hillary Clinton.) These contributors would be the Rubinites who for decades have played a huge role in allowing for greater financial leverage ratios, riskier banking practices, greater opacity, less oversight and regulation, consolidation of power in ‘too big to fail’ financial institutions that operated across the financial services spectrum (combining commercial banking, investment banking and insurance) and greater risk. Privatization of Social Security represents the last of the low hanging fruits for Wall Street. Who better to provide this to our captains of the financial services industry than their major political benefactors in the Democratic Party?

The issue of privatization is germane when one considers the members of the Commission approved by the President. There are questions of possible conflicts of interest. As James Galbraith has noted, the Commission has accepted support from Peter G. Peterson, a man who has been one of the leading campaigners to cut Social Security and Medicare. It is co-chaired by Erskine Bowles, a current Director at North Carolina Life Insurance Co (annuity products are a competitor to Social Security and would almost certainly be beneficiaries of the partial privatization). Mr. Bowles’ wife, Crandall Close Bowles, is on the Board of JP Morgan, and she is also on the “Business Council,” a 27 member group whose members include Dick Fuld, Jeff Immelt, Jamie Dimon and a plethora of other Wall Streeters.

At the very least, these kinds of ties raise questions in regard to proposals for dealing with Social Security. Many members of the Commission stand to become clear direct and indirect beneficiaries of the privatization that the President is now warning against. It’s disappointing that these ties have not been fully explored by the press, and it is extraordinary that the President would exhibit such political tone deafness in making these kinds of appointments. It tends to undercut the message of his last radio address.

I’ll leave aside the nonsensical arguments in regard to Social Security’s “solvency,” because Professor Stephanie Kelton has dealt with them conclusively here. The only point I would add is in regard to the alleged issue of deficit spending today burdening our grandchildren. In reality, we will be leaving our grandchildren with government bonds that are net financial assets and wealth for them. As Randy Wray and Yeva Nersisyan have recently argued, even if government decides to raise taxes in, say, 2050 to retire the bonds (for whatever reason), the extra taxes are matched by payments made directly to bondholders in 2050. We can question the wisdom of whether it is right to make this political argument in favor of bond holders over tax payers. But it is a decision to be made at that time (not before) by future generations as to whether they should raise taxes by an amount equal to those interest payments, or by a greater amount to equal retirement of debt.

In the meantime, President Obama’s approval ratings continue to plummet. His scaremongering has little credibility, given the disparity between his rhetoric and his actual policies. At the risk of further upsetting Robert Gibbs, we’ll try to explain why Obama isn’t finding stronger support from his base despite having passed, for instance, a health care bill, a fiscal stimulus bill and a financial regulation bill. For a start, follow the money: with the President and leading Democrats having taken the most campaign dollars from corporate interests those bills purport to challenge, and having gutted the most progressive elements in the bills themselves (see Matt Taibbi’s latest as a perfect illustration of the phenomenon), it is clear that those signature pieces of legislation do not fundamentally challenge the structure of power at a time when that’s what Americans most want. The only “change” most Americans might experience is a reduction in their Social Security benefits from a President currently presiding over one of the most regressive wealth transfers in history. They’ll be receiving nothing but pocket change if a serious attack on entitlements is legitimized by this commission. A scaremongering radio address doesn’t do a whole lot to change that or to alter the country’s current economic trajectory. To paraphrase one of his leading political opponents, Mr. Obama would do well stop practicing the cynical “politics as usual” that his Presidency was supposed to “refudiate”.

Marshall Auerback is a Senior Fellow at the Roosevelt Institute, and a market analyst and commentator.

(Cross-posted from New Deal 2.0).

Why Should We ACT Based on CBO’s Projections?

8:01 pm in Uncategorized by letsgetitdone

Today, Dean Baker questioned the sanity of The Washington Post, after its editorial staff once again came out for cuts in Social Security to avert a crisis which will not be manifest until 2037. In reply to the Post’s observation that this year is the first in which the Social Security program will pay out more than it takes in, and that this is a warning sign, Dean points out that it:

. . . certainly is a warning sign. The falloff in Social Security tax revenue is a warning that the economy is seriously depressed due to the collapse of the housing bubble. Double digit unemployment leads to all sorts of problems, including the strains that it places on pension funds like Social Security.

He then goes on to criticize the Post for not advocating the urgency of the need to get back to full employment to solve any pending shortfall in Social Security, and for advocating instead for possible Fiscal Commission–recommended "balanced" measures, including Social Security spending cuts to be implemented gradually to avert the projected 2037 crisis.

Dean then advocates that we reject this recommendation and wait to act. He says:

A Greenspan Commission size fix put in place in 2030 would leave the program fully solvent for most of the rest of the century.

There is also a very good reason for delay. The opponents of Social Security have been spending huge amounts of money deliberately promoting misinformation. Peter Peterson, the richest and most prominent opponent, has repeatedly asserted that the Social Security trust fund does not exist. This flat earth view of the program has been given respectful treatment at the highest levels of government. When Peterson put on a daylong program on the deficit in the spring both of the co-chairs of President Obama’s deficit commission took part in the program as did former President Clinton.

This massive effort to undermine confidence in the program has been largely successful. Polls show that substantial majorities of younger workers do not expect to receive their Social Security benefits.

That is not a good environment in which to debate substantial changes to the country’s most important social program. Since there are several decades until the program faces any real problems, it is entirely reasonable for those who support the program to focus on educating the public about the program’s financial health and to seek to delay any major changes until the Peterson-type misinformation campaigns have been defeated.

I think this is a very good argument, and I’m glad that Dean has made it. But why have he and other economists chosen not to go directly at the CBO projections that are currently driving much of the WaPo/Peterson/Fiscal Commission/deficit hawk propaganda, not only against Social Security, but also against every form of Government spending that is not deficit neutral, regardless of the vital need for that spending to allow us to meet our increasingly severe national problems?

Both WaPo and CBO are suggesting that the CBO projections, which admittedly are not predictions, and in CBO’s own view are extremely unlikely to come true, should be taken as the basis for actions this Fall that will put in place a framework for spending cuts that will hurt very real and very vulnerable people, if not this year or next, then certainly in the next few years, when the current economic crisis ends. But this contention is insanity. It is the height of true fiscal irresponsibility.

It is one thing to ask people to sacrifice to fight a war for survival, or to respond to dangers that they have a clear expectation will come true at some time in the future. But, it is entirely another to ask people to sacrifice for some projected state of affairs that by CBO’s own admission is “not likely” in the sense that scientific predictions are likely, and that is “unlikely” in the sense that CBO itself doesn’t think they will occur.

CBO’s scenarios are not as likely as an assertion that a Katrina-like hurricane will hit New Orleans again sometime in the next decade. They are not as likely as the scenario that we have a double-dip recession during the next year. Its projections are not predictions that will come true. They are projections based on a policy environment and on policy choices that “we” can change at any time.

And, as I have pointed out elsewhere, the so-called projected fiscal crisis is not based primarily on the structure of our current expenditures, or even on the projected growth of our health care and Social Security entitlements. Rather, if it is real at all, which I very much doubt because the absolute level of the public debt-to-GDP ratio has no significance in the abstract, it is because we are refusing to stop issuing Governmental debt, and even more importantly, because we are refusing to provide full employment, out of an exaggerated fear of inflation. If we stopped issuing debt, and also provided a Federal Job Guarantee program ensuring full employment at all times, we could cut out the huge projected interest expense and also, restore economic growth rates to historical norms and even beyond, and then the automatic stabilizers would give us a surplus problem rather than a deficit problem soon enough.

So, because WaPo and CBO are unwilling to consider, or to envision such initiatives, or any other changes that would make a real difference in their projections, except myriad little cuts in spending or tax increases that would cause most Americans to suffer; they tell everyone who will listen that austerity, sacrifice, and suffering are the only way out. And, of course, they expect us to believe this. But what we ought to believe instead is that these institutions have no interest in solving real problems, but are only interested in offering painful solutions to problems they’ve conjured up to maintain their own sense of authority and relevance.

Fiscal responsibility in Government is using the Government’s fiscal power to fulfill the public purpose, including full employment and price stability, enough economic economic growth that improves the lot in life of all Americans, environmental sustainability, educational excellence, a new energy foundation for the American economy, universal health care, and other public purposes. It has nothing to do with maintaining particular levels of deficits, the national debt, or the debt-to-GDP ratio considered in the abstract. It’s time for The Washington Post and the CBO to begin advocating for real fiscal responsibility and to give up Peter G. Peterson’s wet dream of shredding the Social Safety net

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).