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The Village Still Ignores the Most Important Point

8:48 am in Uncategorized by letsgetitdone

In recent posts I reviewed two commentaries by Abby Huntsman on Social Security and other entitlements, also noting points made in other critiques of her narratives. Abby’s commentaries are here, and here, and my critiques are here and here. The most important point I emphasized in my two rebuttals is that there are no fiscal solvency or sustainability issues related to Social Security, or other parts of the safety net, but that the issues involve only the willingness of Congress to appropriate entitlement spending, and either the removal of current constraints on Treasury to spend appropriations such as the debt limit, or the willingness of the Executive Branch to use its current legislative authority either to a) generate sufficient seigniorage from platinum coins to spend such appropriations; or b) use a type of debt instrument, such as consols, which aren’t counted toward the debt limit.

The day before I posted my second reply to Abby Huntsman, Richard J. Eskow and WeActRadio posted this video clip from Eskow’s radio broadcast. In his critique, Richard shows that Abby Huntsman’s treatment of Social Security and entitlements is full of misleading information and hews closely to the narrative offered by Alan Simpson, Pete Peterson, and organizations supported by Peterson funding, and he calls for the MSNBC producers of “The Cycle” to issue statements correcting the facts, and to give Abby’s co-hosts on The Cycle a chance to reply to her about social security. Read the rest of this entry →

When You Really Look, Financial Quicksand Turns Into Oligarchical BS

9:09 pm in Uncategorized by letsgetitdone

Why do you say that the Government will have a solvency problem?

Abby Huntsman’s first rant about entitlements soliciting generational warfare got a lot of pushback from defenders. I reviewed the main points made in defense of entitlements, and then added “the most important point of all” as well. Abby made a second try, however, this time singling out Michael Hiltzik’s reply to her to respond to and adding a few more points, while withdrawing a bit from her claim that life expectancy has changed very much for seniors since the New Deal period. Hiltzik took issue with that one too. Let’s review Huntsman’s reply to Hiltzik by analyzing the MSNBC transcript of her second rant against entitlements.

Abby Huntsman:

. . . the need for entitlement reform. there was a firestorm of reaction. an article in the ” l.a. times” went as far as to say i want to lead my generation into poverty. come on, man. this isn’t about me. it’s about the major problem.

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The Most Important Point of All Was Ignored

8:43 am in Uncategorized by letsgetitdone

On Abby Hunstman’s right wing Petersonian “Fix the Debt” rant

MSNBC’s right wing representative on The Cycle, Abby Huntsman, got a lot of pushback from Social Security defenders after her rant last week. They made points similar to the following in countering Huntsman:

– SS is not bankrupt now, it has $2.6 Trillion in Treasury IOUs in the SS “trust fund” accumulated because Treasury has used FICA collections to “pay for” other Federal spending since 1983, when the Government began to collect more from workers and employers than was paid out to beneficiaries. The accumulated IOUs, projected interest on them, and future FICA collections are projected as being enough to “cover” 100% of SS benefits until 2033, and then 75% of benefits thereafter. 100% of benefits could be “covered” from 2033 on, if the payroll tax cap on Social Security were to be removed.

– Huntsman’s claim that seniors have longer life expectancies than when SS first was enacted is greatly exaggerated, because life expectancies at birth have improved due to improvements in infant mortality rates. But they haven’t improved nearly as much at age 65 and older, and apart from that, the improvement that exists after age 65 is reached is primarily concentrated among certain social groups, and that the poorest and most needy groups in our population, who need SS the most, have either seen little improvement in life expectancy, or even a decline in life expectancy in recent years.

– Savings of seniors now average very little more than is needed for them to cover Medical expenses due to aging and there is precious little left over for living expenses beyond what SS spending will cover.

– Huntsman is conflating the SS “Trust Fund” running out of money in 2033, with SS running out of money. The first is happening as it was always planned to happen when the Reagan Administration and Congress agreed to raise FICA payments to almost double the amount previously paid, for the boomer generation to cover its retirement benefits; but the second depends on what Congress will do in the future to close the gap between current projected FICA revenues and projected benefits.

These two are different because the Government can do various things to close that gap. Huntsman mentions only cutting benefits or moving the SS retirement age to either 70 or even 75, so that enough will be left in the fund to close the revenue/benefits gap. But there are other ways of doing this easily; most notably removing the payroll tax cap so that the well-off, or those who are prospering, will pay the same share of their income into Social Security as most of the rest of us, and/or there can also be gradual small increases in the employee and employer contributions that will close the projected gaps indefinitely.Other points of less importance, and moral arguments, which from my point of view are among the most important, about the right to a decent secure retirement for the elderly are made, as well.

But, there is one point, the most important one of all, which is not made in all these “progressive” push back arguments against Abby Hunstman’s right wing Petersonian “Fix the Debt” rant. That is the point that there is no entitlement crisis and no emergency, and neither an increase in payroll taxes, nor robbing from “future generations” is necessary to close the projected gap after 2033 because Congress can pass legislation providing for annual automatic funding of expected costs for all SS and Medicare trust funds.

That’s done now for Supplementary Medical Insurance (Medicare Part B), and Prescription Drug Benefits (Medicare Part D), and the same practice using similar legislative language can be extended to the SS Old Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds. End of story. Once that is done, no gaps between SS revenue and benefits can be projected by institutions, such as CBO, under current law.

You may doubt this solution by pointing out that legislation like this just pushes off Huntsman’s Social Security solvency problem to the Treasury at large, rather than its being SS’s problem, but it doesn’t solve the real insolvency problem. Only it does, because the Government as a whole has no fiscal solvency problem, since it can always use its authority to create the reserves in the Treasury spending accounts to pay all its bills including all those exceeding its revenues.

The customary way of creating such reserves is to sell Treasury debt instruments, destroying reserves in the private sector, and getting the Fed to place an equal amount of reserves in its accounts. But, there is another way it can be done under current law, and still other ways open to Congress, if they want to pay all the SS benefits they would have guaranteed by the proposed change in the law that would solve this faux problem.

The way any gap appropriated by Congress can be closed under current law, is to use Platinum Coin Seigniorage (PCS) to do it. As many of my readers know, I’ve explained how this would work in my e-book. But, the basic idea is that coin seigniorage can be used by the Treasury to require the Fed to use its reserve creation authority to place reserves in Treasury accounts, without Treasury engaging in any additional taxing or borrowing.

So, this capability coupled with Congress providing for annual automatic funding would end the Huntsman, Peterson, Bowles, Simpson, Ryan, and Obama revenue gap problems with Social Security and all other entitlements, for that matter, without these poor folks having to worry about taxing the rich, like them. And, if Congress doesn’t like that alternative way of placing reserves in Treasury’s accounts so it can spend Congressional appropriations, then it can always just go ahead and place the Fed within the Treasury Department, giving the Secretary the direct authority to order the Fed to fill its accounts with enough reserves to cover any revenue shortfalls, without either raising taxes or issuing more debt instruments.

So, these are the easy ways to end the faux crisis which won’t befall us anyway until 2033. Why won’t the “progressives” pushing back against Abby Huntsman mention solutions like these? Why do they, instead, always propose solutions that will raise taxes on the wealthy? Are they afraid to let the people know that the Government isn’t like a household and doesn’t have the same financial problems they have, just written large? Are they so insistent on solutions that will tax higher income and wealthy people, because they must kill the two birds of full employment and greater equality through taxing with a single stone?

Moving toward greater economic equality is a focus we ought to prioritize very highly, but getting that done is a separate issue from defeating deficit terrorism by taking the deficit reduction and faux entitlement crises off the table so full resources can be devoted to strengthening the safety net and legislating programs essential for getting millions of Americans on their feet again and contemplating the future with hope. That, in itself, will lessen inequality.

And after that is done, we can then turn our attention to programs primarily focused on creating greater economic equality. But until it is done, let us focus on stopping the bleeding of working and middle class Americans and restoring them to the economic health and sense of economic opportunity, that we’ve always thought was so important to American life.

(Cross-posted from New Economic Perspectives.)

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An Open Letter to Don Beyer, VA – 8th Candidate for Congress

8:08 am in Uncategorized by letsgetitdone

(Author’s note: My apologies: this one’s about 6 times longer than the ideal 1000 word post. I just didn’t feel right about breaking it up into parts, however, because that lose the continuity. So, please bear with it. I think a lot of candiates for Congress need to get these questions from angry constituents.)

My Congressman, Jim Moran, is retiring this year and his seat is up for grabs in the VA – 8th Congressional District. This is a solidly blue district made even more solid by the Republican gerrymander following their win in the disastrous elections (for poor people, for women, for the middle class, and for minorities) of 2010 in Virginia. So, the question is, which of the eleven candidates who are running in the primary will win it, and become the heavy favorite to win the Congressional election in November.

The heavy primary favorite is Don Beyer, a noted auto dealer in Northern Virginia, who has served as Lieutenant Governor twice, and also as Ambassador to Switzerland. My impression of Ambassador Beyer has been favorable. I have a friend who bought cars from him over many years and who had his Volvos serviced at his dealership all the while, and he had nothing but good things to say about the integrity of the service he received.

That said, however, and personal characteristics aside, I’d like Beyer to clarify his positions on the issues. So, I’m addressing this open letter to him. Read the rest of this entry →

How to Restore the Good Name of Government

2:28 pm in Uncategorized by letsgetitdone

There are four very important things the president can do before the elections of 2014 that would help to restore some faith in Government and, as a by-product, at least tentative trust in the possibility that renewed Government deficit spending may help people.

Why is it that Washington village “progressives,” and their associates in other parts of the country who are nevertheless part of the Washington village culture, often ask useful questions, but, almost always deliver, underwhelming answers? Here’s an example from Richard Eskow, probably the best writer at Campaign for the American Future.

How do we restore the good name of government spending, which is especially important during periods of high unemployment and slow growth like these? First, by supporting those politicians who are unafraid to make the case. Second, by demanding that the reluctant ones take a bolder stand – without mixing their messages between spending and premature austerity. Third, by rejecting the insanity that today’s Republican Party represents. Some in the GOP are even opposing infrastructure spending – as America’s bridges, schools, highways and dams decay around us.

Underwhelming, right? Why? First, because there aren’t too many politicians who are unafraid to make the case. Second, because people who are reluctant aren’t likely to respond to only “demands” from people who fiercely desire more government spending. Third, because merely rejecting Republican insanity is very unlikely to cut it, since that is what Democrats have been doing and it seems to be having little or no effect. And fourth, because the only way to restore faith in Government spending is to take actions that have consequences that are highly visible and unambiguously good for the vast majority of people. In other words, those who want to restore faith in Government spending have to get the Government to take actions delivering things for people that they see as important. So, how can this be done?

At this juncture, little can be done that involves the Congress because Republicans and Democratic corporatists won’t let it happen. They won’t legislate anything useful before the election.

Nor will they legislate anything useful after it unless 1) Democrats get a majority in both Houses and 2) Democrats who constitute those majorities are willing to move away from corporatism and legislate in the interests of people. So, if something can be done in this area, it must be done by the President. There are four very important things he can do before the elections of 2014 that would help to restore some faith in Government and, as a by-product, at least tentative trust in the possibility that renewed Government deficit spending may help people.

1. The President can re-institute the rule of law in the area of national security and secrecy by ending mass surveillance of the US population immediately, ceasing all investigations and attempts at prosecutions of journalists who have been trying to tell the public about the overreach of our intelligence agencies, beginning investigations and prosecutions of intelligence operatives who have broken existing laws in gathering intelligence, ending current prosecutions of whistle blowers, and issuing pardons for those who already have been tried, convicted, and jailed.

2. The President can re-institute the rule of law in the area of FIRE sector control and mortgage frauds by beginning investigations and prosecutions of high level executives at too big to fail FIRE sector organizations who have committed fraud including those that caused the financial collapse of 2008, which, in turn, led to the Great Recession and the destruction of so much middle class wealth.

These first two initiatives are supremely important because they will deliver a very visible presidential message that the Government is re-instituting honest government and a single system of law, which, in turn, will give people some reason to believe that renewed spending by the Government will be carried out honestly for the benefit of people, and not for the benefit of FIRE, health care, energy and other elite corporations. Giving people this is an essential step in restoring faith in additional spending, since from their point of view, it looks like the financial power of Government has been used to save big corporations and Wall Street and see to it that they prosper, while leaving working people and home owners to twist slowly in the economic winds of “the long depression” (Eskow’s memorable phrase). How can they believe that renewed spending will help them if they believe that the Government promising good results from new spending is a corrupt government, in the pocket of the 1% or perhaps even the 0.001%?

3. The President can next do something that is very essential to developing widespread support for renewing spending, because it will make plain that the US Government has and always will have whatever amount of funds it will take to create full employment and to finally end the long depression. The President has to remove the perceived problem of the national debt from the consciousness of the public by paying off a large proportion of it WITHOUT running economy-destroying surpluses. There’s only one way that can be done by the President acting alone right now, in time to affect the campaign environment in the 2014 election by eliminating the debt as an issue backing continued austerity propaganda.

That way is to cause the US Mint to create and deposit a platinum coin with a face value high enough to repay the debt subject to the limit entirely as it falls due, and to cover deficit spending for a long period of time thereafter. If the President does that, and sees to it (as he has the power to do) that the Mint’s account, and ultimately the Treasury’s spending account are credited with reserves equal to the value of the seigniorage resulting from the Mint’s deposit at the Fed; and also, if he follows that up by immediately paying off a large percentage of the debt, then everyone will know that the seigniorage is being used to get rid of the debt quickly.

When people know this they will know two other things. One, that the Treasury is easily paying off the debt, and two, that it has and always can easily create whatever funds it needs to follow through on its promises to end the long depression without either cutting spending or raising taxes. This will be a revelation to people which the President and the Democratic Party must drive home.

4. The White House and the Democratic Party must then run a campaign advocating a list of programs people will immediately view as likely to solve their economic problems. These must promise full employment recovery within a year using full payroll tax cuts and a Job Guarantee program at a living wage with good fringe benefits, strengthening social security and other trust fund programs by guaranteeing their annual spending regardless of the size of their trust fund balances, and by greatly increasing the size of safety net benefits and the protections they afford in case of inflation, truly universal and comprehensive health care using enhanced Medicare for All, revenue sharing for states on a proportional basis by population, fixing US infrastructure over 5 years, fixing the Housing crisis with various specific measures redressing the injustices done to homeowners by the big banks since 2007, fixing the student loan crisis with a “debt jubilee” and a grant program covering post-secondary education, and, lastly, dealing with environmental, climate change, and sustainability issues with a massive 5 year transition away from fossils fuels and nuclear and to renewable energy.

Democrats must then meet the cynicism and ridicule greeting these campaign promises by guaranteeing that if people give them a victory, then they will get rid of the Senate filibuster and other impediments to rapid action, and will legislate their program within the two year period of the next Congress without fail. These guarantees must be backed with a further promise not to run for re-election if they break any of their promises. Only then will some of the cynicism greeting their promises be dispelled.

Finally, these Democratic promises will surely be met with a campaign emphasizing the bogeyman of hyperinflation. Democratic promises will be estimated in a primitive way totaling up what will they cost over the two year period. The assumption will be made that they won’t be countered by automatic stabilizers producing increasing fiscal drag as the US approaches full recovery.

Democrats will have to respond with their own projections estimating that drag. It will come from gradual and automatic re-imposition of payroll tax cuts calibrated to kick in gradually as unemployment decreases, and gradual shrinking in Government spending on the Job Guarantee (JG) program as the private sector responds to increased demand by hiring people from the JG rolls.

In addition, it will come from increasing private sector savings and increasing trade deficits as recovery moves forward. It will also come from the White House working with Congress to phase in some of the programs I’ve mentioned gradually and in response to increasing fiscal drag.

The bottom line is that if the Democrats are successful in winning the Congress in 2014, and in legislating these programs, then faith in Government will be restored. But, there will be a fly in the ointment, as there is always is in life. The debates over fiscal policy will shift to debates about the likelihood of inflation, and managing the economy to avoid inflation at full employment will become a prime concern. We will have traded increasing government illegitimacy, chronic unemployment, stagnation, and “long depression” problems for renewed faith in government, full employment, prosperity, and inflation concerns.

That’s a great trade-off for all of us, I think. And I will take it anytime over the current neoliberal evolution toward a feudal/fascistic order.

(Cross-posted from New Economic Perspectives.)

Photo by l’ennui d’ennui, used under Creative Commons license

What That Letter Should Have Said

9:54 pm in Uncategorized by letsgetitdone

On Valentine’s Day, Senator Bernie Sanders sent a letter to the President, authored by himself and signed by 15 other Senators, all Democrats. The letter was a response to the rumors that the President intends to include his Chained CPI proposal to cut Social Security benefits in the budget he will soon send to Congress. It summarized:

Mr. President: These are tough times for our country. With the middle class struggling and more people living in poverty than ever before, we urge you not to propose cuts in your budget to Social Security, Medicare, and Medicaid benefits which would make life even more difficult for some of the most vulnerable people in America.

We look forward to working with you in support of the needs of the elderly, the children, the sick and the poor – and all working Americans.

The letter also stated a number of the usual talking points made in arguments against cuts to Social Security. In addition, it also contained praise for the President for his actions in improving the economy, creating jobs, and reducing the deficit, and it mentioned some specifics, including reduction of the Federal deficit to less that half of the $1.4 Trillion deficit he began with. The letter also asserted the need to do much more, especially in the areas of the economy, reducing unemployment and wealth and income inequality, and reducing the deficit “. . . in a fair way.”

It is a positive development that a group of Senators decided to preempt the President’s budget offering stating their disagreement with any proposed cuts to SS, Medicare, and Medicaid, but I think there were a number of ways in which the letter could have been done more effectively. First, It would be great if progressives urging the President not to cut the safety net would stop reinforcing the frame that lower deficits are good and that the President is due praise for cutting the deficit so sharply (CBP projects a 3.0% of GDP deficit this fiscal year). It is not good that he has cut the deficit so much, because in doing so, he has subtracted from Federal Government additions of Net Financial Assets (NFAs) to the economy. These contributions are projected to be so low this year that they will only compensate for the demand leakage due to the trade deficit, leaving no additional NFAs for net aggregate private sector savings.

Given the presence of unequal economic power to collect financial assets in the hands of economic elites, the implication of this is that the lower deficits will only further exacerbate inequality in the United States as well as contribute to continued high and long-term unemployment and stagnation (low growth) in the economy. In short, the austerians, including the President and other Democrats and Republicans who have been insisting on lower deficits are responsible fr the stagnation we see all around us.

Second, the letter would also have been more effective, if it had more than 15 signatures on it. Many Democratic Senators are running for re-election this year. Do they really want to be running as one of the faces of a party whose head is advocating for cuts to Social Security? Is this really good for Kay Hagan, Jeanne Shaheen, Mary Landrieu, Mark Pryor, Mark Warner, Cory Booker, Tom Udall, Mark Udall, Chris Coons, and John Walsh? So why haven’t they signed the letter? Do they really expect to re-elected if they decide to support a budget that contains chained CPI, and, even if they don’t support it, will they benefit if their party leader is proposing chained CPI? So why wasn’t Bernie Sanders able to get these additional signatures from Democrats who face challenges and are running this year?

And third, this letter would have been much, much stronger if the Senators who signed it said to the President directly that they know that there is no short or long-term debt problem and hence no further need to worry about cutting the deficit to achieve fiscal sustainability or ficsal responsibility. And that they also know that any debts that the Treasury has incurred in the past, or deficits that it incurs in the future, can be either paid off as they fall due, or covered completely by revenues from High Value Platinum Coin Seigniorage (HVPCS) used under the authority provided by legislation on denominations, specifications, and design of coins, passed in 1996. (Full details and issues surrounding HVPCS are given in my e-book.) They also should have added that since there is never any need based on the idea that “we’re running out of money,” to cut any safety net programs, that they want the President to know that everyone signing the letter is committed to voting to kill any budget offered by the President including the chained CPI, or any other provision cutting safety net programs.

A letter enhanced in the three ways I’ve just outlined would have been a damn sight more effective in warning Obama off the chained CPI, than the one Bernie Sanders and the other 15 Senators sent. And it also would have been much more effective in getting those Democratic Senators who signed it and are running, elected in November.

Cross-posted from New Economic Perspectives.)

Dear Dr. Krugman: Please Let Me Explain

8:35 pm in Uncategorized by letsgetitdone

Paul Krugman looking downwards

Krugman misses his deficit hawk friends.

Paul Krugman can’t explain why the deficit issue has suddenly dropped off the agenda. He says:

. . . quite suddenly the whole thing has dropped off the agenda.

You could say that this reflects the dwindling of the deficit — but that’s old news; anyone doing the math saw this coming quite a while ago. Or you could mention the failure of the often-predicted financial crisis to arrive — but after so many years of being wrong, why should a few months more have caused the deficit scolds to disappear in a puff of smoke?

Why indeed are they so quiet? Could it be because the deficit hawks have succeeded in getting the short-term result they want, which is a likely deficit too small to sustain the private savings and import desires of most Americans, and also because the political climate is such right now that they cannot make progress on their longer term entitlement-cutting program until after the coming elections have resolved the issue of whether there will be strong resistance to such a campaign if they renew it? Let’s look at the budget outlook first.

Here’s CBO projecting deficits of 3.0% of GDP this fiscal year, followed by 2.6%, 2.8%, and 2.9% for fiscals 2015, 2016, and 2017. Those deficits are mostly smaller than Warren Buffett’s and the Eurozone’s favorite deficit target of 3.0%. They are the same too small deficit targets that have prevented the Eurozone’s PIIGS from responding effectively to the crash of 2008, and the prolonged depression and astronomical unemployment rates which have engulfed them since. When one considers that CBO’s projections are usually too conservative when it comes to projected deficits, so that the reality of these is likely to be smaller, as it has been regularly, for the past few years, then it’s even more apparent that Peter G. Peterson and his other austerian friends have gotten where they want to go for the time being.

Nor are there any other major influences in Washington, DC advocating higher deficits. Even “progressive” groups and politicians always talk about “pay fors” and offer 10 year deficit reduction plans that envision deficits averaging far less than the 3% target.

So, the deficit hawks have already gotten to their short – term goal. Their long – term goal of hollowing out the social safety net has met with increasing resistance over the past four years. And the resistance is strong enough that the Democrats have no stomach for bipartisan compromises cutting Medicare or Social Security for the present.

The deficit/debt hawks now need a breather. They needed to go into wait-and-see mode to see what the elections of 2014 produce.

If they produce the right mix of tea partiers, and Republican and Democratic debt hawks. They may be able to produce a new “Grand Bargain” early in 2015 before 2016 election pressures become intense, and the influence of Hillary Clinton’s candidacy on Democrats in Congress becomes too great. I say this not because I think that Clinton will necessarily oppose any such bargain in the long term; but because such a bargain would be risky for her candidacy and the Democrats in the run-up to the elections of 2016.

So, from my viewpoint I don’t think the time is propitious for the deficit/debt hawk forces to keep pressuring for entitlement reforms and a long-term solution to their favorite, and non-existent, financial problem of excessive public debts in fiat sovereign nations like the United States. And I think they know that.

Instead, it is a good time for them to regroup and plan their next attack on entitlements. That will come under cover of the Republicans’ next debt ceiling attack, which is a good possibility for March of 2015.

So, I see the Peterson forces beginning to beat the drums again towards the end of the year and build up the intensity of their appeals from January to March. I don’t see a strong move to cut entitlement spending in the lame duck session, since there will be no debt ceiling cover then to generate leverage heavy enough to get Democrats to accept part of the blame for cutting entitlements.

Cross-posted from New Economic Perspectives.

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What Happens Now?

7:12 pm in Uncategorized by letsgetitdone

In the aftermath of the great 2013 government shutdown/debt ceiling crisis, and the kicking of the can down the road while maintaining austerity once more, the subject on many minds is where do negotiations over fiscal policy go from here? Will the new “budget committee” produce more austerity and do a grand bargain including the “chained CPI”? Will Congress finally turn towards economic growth and job creation, or will we continue to have more shutdowns and debt ceiling crises in 2014?

Chained CPI and the “Grand Bargain”

Let’s begin with “chained CPI” and possible “Grand Bargains.” The President seems to still want one, but the question is, does anyone else? And, if they don’t, can he still get it through?

It’s dangerous for anyone running in 2014 to vote for chained CPI. Surveys show that overwhelming majorities of all Americans want no cuts to Social Security and Medicare, and also that 40% of tea party respondents are 55 or over, and are not likely to support such cuts, either. Nor do they appear to be anti- “their” Medicare. It’s the corporate Republicans who oppose these things. So, I don’t think the corporate Republicans would get much love from the tea baggers for supporting entitlement cuts, apart from Medicaid, which I think the tea party views as welfare. Certainly any credit the Congressional Republicans would get from their tea party base for voting for “chained CPI” would not outweigh their having given in on the CR and the rise in the debt ceiling just passed.

So what can the corporate Republicans in Congress gain from voting for chained CPI? Very little, I think, unless the Democrats get behind it, and then they can run against the Democrats as having sold out Social Security, as long as not many Republicans vote for it. In that case, however, the Democrats won’t have enough cover to vote for it, so they are unlikely to do so.

So, then we have to ask, what can induce the Democrats to vote for entitlement cuts knowing it will hurt them in the elections? Will the President be a big factor in the Congressional elections? He wasn’t in the elections of 2012, and, he was a negative in the 2010 wave election. Can he deliver votes by campaigning for other Democrats? Does he even want to? Does it matter to Congressional Democrats if he gets annoyed at most of them? I doubt all of these things.

Why will Patty Murray and Harry Reid (both of whom may want to run again in 2016) vote for chained CPI? To end the sequester? As Joan McCarter says, the coming second round of the sequester hurts the Republicans more than the Democrats. So, where’s the incentive for Democrats to go along with the President on chained CPI? I don’t think there is any.

If the President wants chained CPI this Spring, then he needs to assemble a corporate, Wall Street-supporting coalition from both parties, and that has to be large enough for a majority in the House. Since many Republicans would see passing the chained CPI as a victory for the President if he continues to support it, and the Democrats in Congress don’t, then we’re talking about a situation where the Tea Partiers and their allies would be called upon to pull the President’s chestnut out of the fire. How many votes do you suppose he’d get from the Tea Partiers and other Republicans for this? Keeping in mind that they just got 144 votes in the House to continue the ruinous shutdown/debt ceiling crisis, maybe 40, or 50? Or even that many, given that they’ll want to run against the Democrats on Social Security in 2014, if possible, and won’t see any political gain in holding hands with him as everyone jumps off the “I voted against SS” cliff?

And how many House Democrats would he get to play along? 150? 100? More? I think if he can’t get 200, an almost impossible outcome with at least 90 “progressives” very uncomfortable with the proposal, then this dog won’t hunt. The more he’s likely to fall short, the more likely it is that Democrats will see themselves as walking the plank for nothing, and will just run away from the proposal, and vote against it if need be.

Now you may see this scenario as far-fetched, because you may be thinking there would be some big omnibus deal with the Republicans that chained CPI would just get tucked into, and that would be irresistible for “progressive” Democrats. But what do the Republicans have to give? They certainly won’t offer any additional taxes on the wealthy. That’s poison to them. And they certainly won’t offer any increased deficit spending, say on infrastructure, because that would weaken the deficit/debt play they plan to run for all they’re worth in the election, and also because they know that infrastructure spending will reduce unemployment, and perhaps improve prospects for Congressional Democrats in the elections.

So what can they offer? Only concessions on the sequester. But here, if Pelosi, Murray and Reid play tough, as they certainly ought to do, then as Joan McCarter explains, the Republicans either have to shoot themselves in the foot again by keeping in place the sequester, or they would have to come to agreement. Then, if the Democrats know what’s good for them in 2014 (not a sure thing by any means, but still likely, in light of how well refusal to budge has served them over the past two weeks), then they won’t accept anything less than full lifting of the sequester. It’s harmed the economy for long enough, we need them to get rid of it, and they need that too.

The Republicans will then play games proposing lifting the parts of the sequester they don’t like, while giving the Dems nothing or only very little. At this point the Democrats need to take an all or nothing position on the sequester, rejecting the Republican’s salami tactics, and calling on the public for an end to the sequester nonsense, which has hurt the economy so grievously already.

The Rs will respond either by agreeing to lift it, or they will refuse. If they refuse, then the Democrats get to blame them for the down economy, we will surely see in the run up to the election, and the Democrats can run against that down economy which they would then claim was caused by the Republican shutdown, multiple debt ceiling crises, sequester, and blocking of any efforts to lower unemployment with jobs programs. (“They promised us “jobs,” “jobs,” “jobs,” and what did we get? Debt ceiling crises, sequesters, a government shutdown, more unemployment, and an economy in the ditch.)

Given that CBO projections will probably show the deficit going down to $400 Billion or less in FY 2014, which is about 2.5% of GDP, the Republican emphasis on “teh debt” and the deficit will not trump a Democratic campaign blaming Republicans for the lack of recovery and calling for jobs programs. Add to the above themes the Republican War on women, and suppression of voting rights of seniors, blacks, hispanics, and urbanites, and we have a Democratic victory in 2014 large enough to get back the House and keep the Senate.

Given all this, I don’t think there will be any Grand Bargain or chained CPI “compromise” in the near future and in the run-up to the election. It just makes no political sense for most Democrats and many Republicans. It may come up again in the lame duck and possibly in the next Congress, Republican or Democrat, if the President continues to push it. But I don’t think we’ll see it again this fiscal year.

Continued Austerity?

What we will see however, is continuing austerity from CRs or budget agreements, whether or not the sequester is lifted. Where a trade deficit exists, Government austerity is either running a surplus, or a deficit so low that it doesn’t make up for the leakage in demand due to the trade deficit. Let’s say one’s trade deficit is 3.5% of GDP, then the Sectoral Financial Balances (SFB) Model (whose terms refer to flows of financial assets among the three sectors of the economy in any defined period of time):

Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0

tells us that the domestic private sector, taken as a whole, can’t increase its net financial assets, unless the Government has a deficit greater than 3.5%. And, if we wanted to provide for the domestic private sector to save 6% while it was running that 3.5% trade deficit, anything less than a Government deficit of 9.5% of GDP would not meet that objective.

Of course, no budget proposed by anyone in Congress or the White House envisions a deficit this large. Patty Murray’s Senate Budget proposed in the Spring of 2013 envisioned a 4.2% of GDP deficit for FY 2014, just a bit more than the austerity boundary of 3.5%. Paul Ryan’s House Budget proposed a 3.2% deficit, which is an austerity budget, in the precise sense that given a 3.5% trade deficit, it would entail the private sector running a deficit and losing 0.3% in net financial assets.

Will either a compromise bill coming out of the budget committee, or a CR, after a failure to agree on a budget, be closer to Ryan’s or Murray’s deficit figure? I think it will be closer to Ryan’s; partly because the Congress just passed a CR for the first approximately three months of the fiscal year that is closer to Ryan’s view than to Murray’s and which maintains the sequester, and partly because I doubt that the Democrats will even propose a more expansive budget involving a deficit, but will just focus on getting the sequester removed in early 2014, and will then turn to other problems and to positioning themselves for the fall elections.

Growth and Jobs or Shutdowns and Debt Ceiling Crises?

I think the answer is neither. We may have shutdown and debt ceiling threats before the 2014 elections; but we will not have either of these types of crises, because the cost in public opinion, if it keeps trending the way it has been, will be too heavy for many Republican candidates, except for those in the reddest gerrymandered districts, to bear in 2014. I believe they know this, and that many of them are increasingly willing to chance getting primaried by tea party candidates in order to avoid probable defeat from Democrats, if they toe the tea party line and then try to run.

So, I think the shutdowns and debt ceiling scares are over until after the elections. That means there will have to be an agreement on a CR for the first part of FY 2015 by next October 1. That will happen because there’s no way the Republicans will chance another hostage-taking taking a month before the next elections.

That’s the good news. The bad news is that there will be very little growth and very few new jobs. If the sequester remains in place for the rest of FY 2014, unemployment is likely to increase, not decrease, because Government will continue to be a fiscal drag on the economy, and the private sector is likely to avoid expansion without increased demand. That demand could be manufactured by a credit bubble; but it doesn’t look like that is in the offing for 2014. So, the shortfall in demand produced by the Government will not be made up from private sector spending.

On the other hand, if the sequester is lifted, then this will make some difference. We will probably see declining unemployment if that happens, but since the deficit was much too small to sustain a vigorous expansion, even before the sequester, the decline in unemployment, increased job creation, and economic growth, will all happen only slowly, and by election time we will still see an unhappy public, but maybe one that is a little more hopeful about the future than we are now seeing.

I don’t know yet whether the falloff in economic activity due to Government austerity or near austerity, will be enough to produce another recession in the middle of this long stagnation period, Richard Eskow has aptly named “the long depression.” But there is some chance that this will happen before the fall elections. If it does, then we will see a messaging war on who bears the blame for the downturn, and the outcome of the elections will hang on the outcome of that war.

(Cross-posted from New Economic Perspectives.)

The Five Worst Reasons Why the National Debt Should Matter To You: Part Three, The Other Four Worst Reasons

3:06 pm in Uncategorized by letsgetitdone

In Part One of this series, I considered “Fix the Debt’s” claim that high levels of debt cause high unemployment and gave a few reasons why this is a false claim. In Part Two, I followed with a review of the historical record from 1930 to the present and showed that it refutes this claim throughout this period, and that there is not even one Administration where the evidence doesn’t contradict “Fix the Debts” theory. In this part I’ll continue my examination of the other four “top reasons” why “Fix the Debt” insists that the National Debt should matter to you.

2. Debt means more expensive consumer credit: home, auto, student loans, as well as credit cards.

Growing federal debt can drive up interest rates throughout the American economy. That means higher interest rates for people across the country who may be taking out loans for a home, a new car or truck, to pay down credit card cards or for education costs. Higher interest costs mean they will all be more expensive, resulting in higher monthly payments.

Response: This is a proverbial red herring. Interest rates in the United States aren’t determined by private markets, they’re determined primarily by the Federal Reserve, or by the Fed in collaboration with the Treasury. That is not to say that markets can’t drive up interest rates if the Fed does nothing about it. But if the Fed chooses to take counteraction, then it can determine the term structure of interest rates across the Board.

3. Delaying action on the national debt means it will be much more difficult to protect Medicare and Social Security from abrupt, severe, and widespread cuts in the future on all beneficiaries.

Social Security’s disability program will exhaust its assets in 2016, the overall Social Security trust funds will be exhausted in 2033, and the Medicare Trust Fund will run out in 2026. Some of those dates may seem like a long time away, but if we want to protect beneficiaries who rely on these programs from severe and abrupt cuts – especially the elderly who have used up all their savings and other vulnerable groups – we need to start taking gradual steps now.

Response: All of this is false. It assumes that we will fund safety net programs in the way we do today, by continuing to issue debt, and it also assumes that continuing to issue debt and having higher levels of debt are problems for a fiat sovereign. They’re not! Fiat sovereigns can continue to deficit spend regardless of their debt or debt-to-GDP ratio levels. And if we want to get rid of or reduce debt for political reasons, then Congress needs to guarantee annual funding for these programs in perpetuity and for the Executive to ensure that funds are there by using Platinum Coin Seigniorage (PCS), to supply the reserves to cover appropriated deficit spending.

Even if these alternatives aren’t available right now, however, it still makes no sense to cut safety net programs now, based on some long-range projections that may never come to pass. If people really will have to suffer later, because Congress and the Executive are refusing to use their power to remove the need for any suffering at all, then why should we, the people just accept that?

Much better to get ourselves a new Congress and a new President who will do what’s needed to remove any need for suffering at all. We certainly should not let today’s politicians rob us now, so we can plan ahead for poverty, when we have as much as 25 years to replace this crew of reprobates with people who will vote in the interests of most of the people, most of the time, and who will take back the gains of the 1% extracted from the economy and the Government through political influence and outright fraud.

4. If we do not address the debt now, federal investments in education, infrastructure, and research will decline.

We currently spend nearly $225 billion each year in interest payments alone on the national debt. And that number will only continue to rise. These payments – which have to be made – reduce our ability to fund critical investments in areas such as education, infrastructure, and research that are vital parts of a strong economy. In addition, the mindless sequester continued to cut spending throughout many of these programs, without making any decisions on where to target the savings and without focusing on the most unsustainable areas of the budget: increasingly-costly entitlement spending and an outdated, inefficient tax code.

Response: Yet another fairy tale for the gullible. Yes, interest payments are at $225 Billion per year. That’s about 1.5% of GDP. During the 1980s that figure was more than 5% of GDP. Why did it go down?

Not because our national debt got smaller; but because the Federal Reserve drove interest rates down, allowing the Treasury to sell securities at lower interest rates. Again, the Fed can drive down interest rates to virtually zero if it wishes to, and can keep the interest bill of the United States as low as it wishes, ensuring that interest on the national debt will never be a threat to the rest of the budget. So, forget about this. Interest payments on Treasuries can never be a threat to the solvency of the United States as long we maintain the present fiat currency system we’ve had since 1971.

But, of course, apart from such action by the Fed, the option of PCS is always open to the Treasury. It can pay back whatever portion of the debt it likes and refrain from issuing any more debt. So, over time, the Treasury can lower its interest costs as low as it wishes if it believes interest payments are becoming either a financial or a political problem.

5. Taking steps to address our deficit now would mean a more robust economy and significant job growth over the next 10 years.

A Congressional Budget Office analysis indicates that $2 trillion in deficit reduction over ten years could grow our economy by nearly an additional 1 percent by 2023. A healthy, growing economy means more good jobs and higher wages for hardworking Americans.

Response: The CBO projections about deficit reduction growing our economy are wrong. First, because CBO projections are mostly wrong. They’re even wrong four months out. For example, compare CBO projections on the anticipated 2013 deficit published in January and May of 2013. CBO failed to project the four years of Clinton Administration surpluses. It failed to project the recession at the end of the Clinton Administration at the beginning of the year 2000. It failed to project the crash of 2008 in early 2008, and even a few months before the crash.

Then it failed to project the seriousness of the recession in January of 2009. It failed to project the Clinton recovery in 1993, or the boom in Clinton’s second term. All these were relatively short-term errors. But, forecasting errors due to false models accumulate drastically over time. So, CBO has nil capacity to project over a period of ten or more years. All one can really count on is that CBO (and all the other well-known projectionistas will be wrong.

CBO’s projections do not take into account the macroeconomic sectoral financial balances. So, it doesn’t even recognize that long-term proactive deficit reduction means reducing Government additions of Net Financial Assets (NFAs) into the private economy. Of course, lower NFA additions over a decade, due to deficit reduction, do not guarantee a contracting economy and high unemployment in 2023. But, in the absence of a private credit bubble, which will bring another crash sooner or later, they make it much more likely that CBO’s projection will prove false.

In short, the idea that $2 Trillion in deficit reduction now will produce a healthier, more robust economy is false. We might have a more rapidly growing economy in 2023, even with deficit reduction, if the private sector, supported by the Fed, blows that big credit bubble. But that growth will not mean a healthy, robust economy. It will mean a sick one on the point of a huge deflationary collapse produced by another debt crisis. And while the new class of Peterson plutocrats might greatly desire such a result so that they can extract most of the rest of the financial resources of the 99%, I think the rest of us would prefer to base our future expansions on the actual additions to private NFAs produced by Government spending that is not offset by tax revenue.

So, we’ve now seen that “Fix the Debt’s” five top reasons why the national debt should matter to you, are actually the five worst reasons why it should matter. However, there are at least three REAL reasons why the national debt should matter, and why we should fix it without breaking America, or causing people to suffer. In the concluding, Part Four of this series, I’ll give these reasons.

(Cross-posted from New Economic Perspectives.)

“Makers and Takers:” They’re Projecting Again!

7:01 pm in Uncategorized by letsgetitdone

 
I found a segment on MCNBC’s Up With Steve Kornacke show revealing for what it did not say. The segment started off with a clip from a recent town hall of John McCain’s. Senator McCain took a question from a woman who said, with more than a little emotion.

Woman: ‘It kills me every time i hear senators, especially republicans, talk about those takers. they’re just taken. the takers. I paid taxes for over 30 years and i have a rare illness and now I’m disabled. the state of arizona raised the eligibility for a program that was paying $100 a month for my medicaid to 3.4%. consequently, I was cut off. $100 a month, which meant (breaks down) I could no longer go to physical therapy. Do it intentionally to cut as many people as they can for as long as they can from benefits that are desperately needed and it’s just not right. We’re the takers.’

McCain walked slowly over to the woman and said in a consoling and emotional voice:

McCain: ‘I thank you, you’re not a taker. You’re not a taker.’

Kornacke comments on the clip: ‘That was amazing to watch because to me what i thought was i watching there is somebody, we talked earlier about the media bubbles, the media bubble on the conservative side where that rhetoric of makers versus takers. Paul Ryan talked about it and Mitt Romney had had the 47% tape that came out last year. That, to me, is somebody who has heard that and doesn’t live in that bubble and sort of looked at themselves and had a powerful, emotional reaction and here’s a public office holder and said, no, ma’am, you’re not a taker.’

Then Sam Seder added:

‘McCain walking over to her and say you’re not a taker, you’re not a taker. It’s absurd. It’s gotten to the point of absurdity when the Republicans have to justify to say to a person like that, you’re not a taker. This is still going on. Again, this is the same problem the Republicans have and this is why I think they ultimately so want the democrats to cut social security and medicaid and medicare down the road because they don’t want to have to own this. I mean, just last week fox news had had a two-hour special on how people on food stamps are takers.’

The Republican strategist on Kornacke’s panel then offered the insight that “anecdotal cuts both ways.” And Seder replied

‘I understand. but the reality is that guy who is getting $200, if that’s going to be the leverage point to deny this woman the benefits to get physical therapy, the republicans are going to have a problem. and they are feeling this. they are feeling this’”

Whereupon, Krystal Ball capped the political implications with:

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