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WashPost: Obama to Propose Social Security, Medicare Cuts to Buy Boehner’s Vote on Taxes

6:55 pm in Economy, Politics by Scarecrow

The Washington Post has a story tonight, citing Democratic sources familiar with Obama’s views, that the President will propose a massive $4 trillion spending cut over the next decade that includes significant cuts in Social Security and Medicare.

President Obama is pressing congressional leaders to consider a far-reaching debt-reduction plan that would force Democrats to accept major changes to Social Security and Medicare in exchange for Republican support for fresh tax revenue.

At a meeting with top House and Senate leaders set for Thursday morning, Obama plans to argue that a rare consensus has emerged about the size and scope of the nation’s budget problems and that policymakers should seize the moment to take dramatic action.

As part of his pitch, Obama is proposing significant reductions in Medicare spending and for the first time is offering to tackle the rising cost of Social Security, according to people in both parties with knowledge of the proposal. . . .

It seems our President wants a grandiose bargain in which he plays Ronald Reagan and John Boehner plays Tiip O’Neill. And our President has entered some seriously deluded region in which he and those around him think the country will thank him for seizing this great opportunity to do what the Washington Post editorializes as “a major legislative achievement.”

Yes, at a time when the economy desperately needs more federal spending to offset what’s happening in the private sector and the states, when states and local governments are reeling, unemployment is stuck at 9 percent and the country desperately needs federal infrastructure funding, our misguided President wants to slash spending by [$3 trillion and aggregate demand] by a phenomenal $4 trillion in the near future. And it’s all about ego . . .

“Obviously, there will be some Democrats who don’t believe we need to do entitlement reform. But there seems to be some hunger to do something of some significance,” said a Democratic official familiar with the administration’s thinking. “These moments come along at most once a decade. And it would be a real mistake if we let it pass us by.”

. . . and the conviction that doing exactly the wrong thing for the economy and destroying his Party’s brand and integrity will be rewarded at the polls:

The administration argues that lawmakers would also get an important victory to sell to voters in 2012. “The fiscal good has to outweigh the pain,” said a Democratic official familiar with the discussions.

Buckle up in your time machine, folks. We’re about to return to 1936-37, when the “fiscal good” argument put millions out of work. But don’t expect FDR to be reelected this time.

Update: The New York Times emphasizes the initiative came during John Boehner’s surprise White House visit on Sunday, in which he reportedly discussed the potential of $1 trillion in tax measures (which aren’t to be confused with raising taxes). That visit, first denied, has left some Democrats worried about Obama’s response. No kidding.

The president’s renewed efforts follow what knowledgeable officials said was an overture from Mr. Boehner, who met secretly with Mr. Obama last weekend, to consider as much as $1 trillion in unspecified new revenues as part of an overhaul of tax laws in exchange for an agreement that made substantial spending cuts, including in such social programs as Medicare and Medicaid and Social Security — programs that had been off the table.

The intensifying negotiations between the president and the speaker have Congressional Democrats growing anxious, worried they will be asked to accept a deal that is too heavily tilted toward Republican efforts and produces too little new revenue relative to the magnitude of the cuts.

Uh, earth to Dems: Even ignoring that you’re dumb enough to throw away Paul Ryan’s House gift, if you get branded as having betrayed your promises on Medicare and Social Security, no amount of tax shifting offered by John Boehner is going to save you: “Sure, we cut your Social Security and Medicare benefits, but we sure nailed those guys with corporate jets and hedge funds!” Say “good night,” Gracie.

Update II: via Huffpo, another anonymous White House source tells us these stories “overshoot the runway,” so everyone should calm down. Sorry, but it was their plane, their runway, their pilot and their air traffic controller. Once again, they’re saying Obama won’t “slash” benefits, but you can bleed someone to death with cuts that start small.

From the archives:
Jane Hamsher, Obama packs debt commission with Social Security privatizers and benefit cut supporters

Larry Summers Tells Us How to Fix the Economy He Helped Mess Up

6:48 am in Economy by Scarecrow

Larry Summers, now the burden of Harvard University, is back on the op ed pages to explain what’s wrong with the economy and how to fix it.

It’s all in the technocratic language of macro economics — Brad DeLong approves and will likely retranslate later — but here, I think, is the gist: It seems the financial and housing collapse crushed demand, and it has to be rebuilt with jobs and economic growth over a very long period. And until you do that, you can’t expect deficits to come down, so it’s way premature to pivot to reducing the deficit. Instead we need more stimulus to increase demand, restore jobs and boost the economy. And this is a great time to invest in infrastucture, education, and so on, because we have lots of people who can do that work who need jobs, we need the infrastructure, and interest rates on borrowing are near historic lows. Oh, and we need to restore confidence.

Most of that could have been written by Paul Krugman, the guy the Administration ignored for three years, or by DeLong and many critics of the Adminstration’s far too tepid economic policies. In fact, it has been written by them. So is this Larry’s mea culpa?

Larry Summers is the guy who, when presented in early 2009 with a set of calculations and projections from Christine Romer that showed we needed a stimulus about twice the size the one Summers ultimately proposed to the President, said we should limit fiscal stimulus policy to a mere “insurance policy” against the possibilitiy of another Great Depression. That would be enough to produce a self-sustaining recovery, he told President Obama. And they stuck to that story even when Romer’s starting assumptions proved too optimistic, because we were in a far deeper ditch than she assumed.

When numerous serious economists and dismayed scarecrows insisted the stimulus was far too small and likely too short, and pleaded for jobs programs and another stimulus by the end of 2009 and throughout 2010, Summers dismissed them. He insisted the President and his team had done enough with the policies they had. Eventually, the Administration was forced to admit in December 2010 that the economy needed another $300 billion or so in unemployment insurance and added stimulus via a payroll tax cut. Not to mention a shameless gift of over a hundred billion for the richest people in America.

Once again, serious economists and scarecrows said this would not be enough, reminding the Administration that simultaneous deficit reductions and layoffs at the Federal and State levels would negate any stimulus effect. Summers and his boss dismissed these warnings, too.

Now Summers tells us we need another $200 billion in extended payroll tax cuts. He explains that this is the nature of recessions connected with financial collaspe, that this inherently crushes demand and it takes a lot of money — from borrowing and spending — and an long time to build demand back up to the level at which economic growth and significant job creation are self sustaining. Well, no kidding, Larry. Except you pretended for two and half years that wasn’t true and the rest of us were stupid.

He now tells us, as Krugman et al have been warning for years, that we’re in the middle of a “lost decade,” a predictable era we learned about from the Japanese financial crash and their lost decade. Unfortunately, Summers took until the fifth year to realize his economic advice left America in the midde of a terrible economic decade.

At no point in Summer’s op ed does he own up to the huge blunders for which he and his boss are chiefly responsible. We don’t read of all the lectures he gave to the skeptics about how the Administration had done all that should and need be done. And where was Larry when the scarecrows warned that Ben Bernanke, whom we pleaded with the President not to reappoint, was signalling his predictable unwillingness to meet the Fed’s obligations to pursue full employment?

He now warns us against a premature pivot to deficit reduction, but he neglects to mention it was the President and his team who sanctioned that premature pivot over a year ago; his team made up excuses, and continues to make up excuses, for empowering the Cat Food Commission then and the Joe Biden Dining Table surrender now.

Yet even now, Summers can’t let go of his own and his President’s mistakes. He and his President insisted that any investments funded in the 2009 stimulus needed to be “shovel ready,” because they didn’t want the stimulus to last too long. We argued the recovery could take many years, so that extended investment programs would be needed. And we said it was the right time to invest: we had infrastructure that needed to be rebuilt, millions out of work willing to do it, and interest rates were low. It’s more than two years later, and now Larry Summers says, gosh, it makes sense to be making infrastructure investments now, because we need them, we have people who can do it and need the jobs, and interest rates are low.

Where have you been all these years, Larry?

And what’s the point of using the word “confidence” as part of what we need to restore? You know that’s Tea-GOP code for restoring “business confidence” among the group that simply wants to cut corporate taxes and slash regulation — like the stuff that EPA does, or OSHA, or the folks who oversee drilling permits in the middle of the Gulf. And wasn’t it Larry Summers who insisted we needed those efficient TBTF banks to remain competitive? You just can’t seem to stop doing damage, can you?

You screwed us with financial deregulation. You screwed us with an inept, inadequate stimulus. You screwed us with the unnecessary “pivot” from jobs to deficit reduction. And now you want us to believe in the confidence fairy?

Just go way.

Obama Hits An Easy One, Rachel Maddow Cheers

7:01 pm in Uncategorized by Scarecrow

In a memorable segment of the movie, American President, Michael J. Fox’s character, Lewis, tells the President that people are so hungry for leadership they’ll crawl towards a mirage and even drink the sand. The cynical President replies that the reason is “they don’t know the difference.”

The reaction of liberals to the President’s speech Wednesday reminds us how thirsty liberals/progressives have been for President Obama to show the slightest hint of courageous and progressive leadership. So when Obama, who has repeatedly betrayed liberal values cherished by the Democratic Party since FDR, finally said what liberals/progressives have been saying for months, much of the liberal community cheered or at least said, “finally!” But this was easy.

This President has spent the last 18 months undermining liberal values, nowhere more blatant than his repetition of Tea-GOP talking points about deficits and debts, and how government had to tighten its belt because that’s what families do. What gibberish. His convening of the Catfood Commission, whose chair proposals would worsen the distribution of wealth towards the rich, and his partial endorsement of its framing today still hang over Social Security and other safety net programs.

Candidate Obama often told voters that government programs are both legitimate and necessary as a collective response to problems that can overwhelm millions of individuals if left alone. In today’s speech, we heard candidate Obama again, with only a hint of the Obama who’s been our President for two years. Which is the water? Which is the sand?

You could see this one coming late Friday night when the Tea-GOPs and the White House confirmed the deal to cut spending by some still undetermined amount for the fiscal year 2011 budget. The reaction among liberals, including some deep into what Jane Hamsher calls the “veal pen,” was almost universal disgust. You could see the concerns in the blog posts at WaPo, at TNR, at Mother Jones; you could feel the disillusionment in angry tweets.

It was clear by the weekend that the White House was facing a potential revolt among even the more loyal but now wavering followers, so something had to be done. And they sent White House adviser David Plouffe to do it, on four cable/network Sunday shows.

My guess is that Plouffe’s priority was to change the subject. The new topic, which immediately grabbed the compliant media’s headlines, was the announcement that Obama would make a speech on Wednesday laying out his framework for deficit reductions. It would be Obama versus Paul Ryan and the Tea-GOPs. Great theater. Supporters stopped moaning and waited.

Political genius? Hardly. All Obama had to do was beat pitiful Paul Ryan, the Tea-GOP’s budget flim flam man. Ryan not only fixed the numbers, he proposed to dismantle Medicare, the very program the GOP ran on saving from the evil Obama last November. How stupid is that? And he did it with a set of arguments and numbers that were so blatantly dishonest and so easily debunked that he left himself and his party exposed. Even better, Party leaders and numerous Tea-GOP Zombies endorsed Ryan’s budget, making it the official Tea-GOP position.

From that point on, Attila the Hun could have found room to run to the left of the radical Ryan Tea-GOP Zombies. My cat could’ve hit this one.

So we shouldn’t be surprised that even the inept political team in this White House realized they’d been handed a gift. All they had to do was to restate the central premise of American politics since FDR: Americans accept that while we honor individual initiative and freedom, we also share a collective responsibility to take care of each other, especially in individual or collective tough times. And the core programs that honor that belief — Social Security, Medicare, and Medicaid — are sacred.

That core human value is not just liberal or progressive, though liberals embrace it without question. It transcends the left-right dichotomy. Every advanced society embraces it. The only people who don’t are Randian nuts and corporate thugs.

So I”m glad Rachel Maddow is happy with the President’s speech; Cenk was ecstatic, and Ed’s all aglow. But their President just made one of the easiest, most obvious political statements one can imagine, given how extreme and radical Paul Ryan and his Tea-GOP Zombies have become.

The only wonder is that it took so long for this White House and Dem leaders to make this move. The argument was available before November; it was available in December when Obama gave away what he said today he would never give away again. But it would have taken a bit more courage back then.

So was this a great liberal/progressive statement by a courageous President? Yes, as Rachel said, he made a lot of good points — good for him — but points that have been obvious and unsaid for over a year. He only made them now after Paul Ryan’s radical extremism made them easy to say.

What more could a courageous liberal have said? Ask yourself, where was the proposal to provide additional funding to states to replenish their unemployment insurance funds or to relieve states of their huge Medicaid burden, at least until employment recovers or the expanded Medicaid kicks in in 2014?

Where was the defense of government employees and the sanctity of their pension contracts? Where’s the major jobs program for the 25 million still unemployed or underemployed? Where is the warning that austerity plans are already hurting European economies and could hurt ours too?

Where’s the defense of climate change efforts in the face of the Tea-GOP meat axe to EPA? Where’s the defense of financial regulation or the proposal to tax Wall Street casino deals or clamp down on too easy money flowing into derivatives/commodities speculation?

Why was it okay to claim as a “savings” the unused funds for poor women and children merely because the states neglected to seek them out? What about the women who need family planning in DC?

The President got a soft slow pitch and he hit it out. Now, let’s see him hit a fastball and a curve and do it with the game on the line. We’re waiting.

Beltway Media: It’s Okay to Steal from Retirees

10:44 am in Uncategorized by Scarecrow

In case you’ve been on vacation on another planet, the conventional wisdom now solidifying among the D.C. Beltway elite is that old people are a huge problem America just can’t afford, and the only solution is to take benefits and money from them, even if it’s their money they’ve been saving for decades.

So says the Washington Post’s faux economist, Robert Samuelson, who unexplainably got left out of Salon War Room’s 30 most offensive hacks, but ranks at least on a par with WaPo’s George Will (#11) for sheer disingenuous meanness.

Today, Samuelson laments he’s now 65 and eligible for Medicare, which makes him “part of one of Americas biggest problems.” You see, the elderly are unfairly stealing money from their children because — well, because they’re living longer. The only adult thing to do, so the well-healed Beltway adults insist, is to cut their Social Security and Medicare.

But not making cuts would also be unfair to younger generations and the nation’s future. We have a fairness dilemma: Having avoided these problems for decades, we must now be unfair to someone. To admit this is to demolish the moral case for leaving baby boomers alone.

Well, no, it doesn’t demolish anything, because the supposed unfairness is a complete fabrication repeated almost daily by Washington Post editors and contributors. Dean Baker easily demolishes “Samuelson’s demagoguery” here, but I think he’s being too kind.

The thrust of Samuelson’s “unfairness” argument is that Baby Boomers are living longer and thus posing an unsustainable burden on the budget. Gosh, they could become 40 percent or more of the federal budget! Well, so what? It’s the effects of rising health care costs on the economy, stupid, so eliminating Medicare from the budget would still leave the economy vulnerable. Or if we didn’t waste so much in pointless wars, these programs would be an even greater percentage of the budget, but we and the world would be better off.

And never mind it’s the well off and not the poorer who are living longer. Samuelson neglects to mention that for Social Security, the Baby Boomers began paying more in payroll taxes in 1983 and accepted a later retirement age so that Samuelson and I and other Boomers would be covered now without hurting anyone else. And the surplus they/we created for the Trust Fund will leave us fully covered until 2037 or 2039 under conservative assumptions. By then, Boomer Samuelson will be 92 or 94!

Samuelson’s worst argument is an effort to undermine the social bargain that underpins Social Security and Medicare. This is a commitment — a promise — the nation made to its own citizens to ensure their economic and health security in retirement. But Samuelson wants us to believe those who reach 65 don’t deserve that, because they’ll live much longer. 65 is now the new 50, he argues, so these programs are helping “middle-age” folks, not the truly elderly.

You can see where that’s heading. We’ve seen the right wing brand those eligible for economic security programs, from unemployment compensation to Medicaid to Medicare and Social Security, as unworthy. They’re lazy, their greedy, they’re slackers, and all these “entitlement” programs do is make them worse and stop looking for jobs.

Okay, let’s talk about moral hazard. The US Congress just passed, and the President signed, a law giving $120-$140 billion over two years to the richest Americans for doing . . . nothing, just because they’re rich. No doubt this Congress and this President will repeat this immoral giveaway two years hence, turning the gift into trillions. But Samuelson does not include that in his assessment of “fairness.”

Nor does he mention or explain how the majority of new wealth created over the last two decades has gone to the top 10 percent, while an even more obscene portion went to the wealthiest 1 percent.

Attacking the modest retirements ordinary people have taxed themselves to create has become the elite’s favorite sport, and our media laps it up. CBS 60 Minutes recently lionized NJ Governor Christie for threatening employees to give up retirement benefits or having the state simply default; WaPo has been running almost daily “news” articles editorializing against Social Security; the New York Times has featured stories of state and local governments reneging on contract promises to fund public employee retirement systems; and the Irish Government just agreed to “borrow” over $12 billion from its retirement system to help bail out its effectively insolvent banks (Good luck getting that back).

And the media has fallen all over itself praising the millionaires in the Senate for proposing to enact the Bowles-Simpson-Obama catfood proposals to cut Social Security and Medicare, so we can cover the $4 trillion in deficits that will occur when the same millionaires’ club is finished extending the tax cuts. We’re just more subtle than Ireland, but our elites practice their looting on a far grander scale.

America is being prepared to accept it’s okay if government breaks its most fundamental promise to its citizens — to promote the general welfare and provide for basic social security. We’re being told that taking benefits away from retirees and the sick is the “fair” thing to do.

Don’t believe it. It’s theft: criminal, inhumane, and based on lies. And those who propose or carry it out should be hounded from office.

John Chandley

Moody’s Blues: How to Kill any Economic Recovery

7:29 am in Economy, Government by Scarecrow

In her post last night, Jane Hamsher wonders how the economists at Moody’s explain their about face in first claiming the Obama-McConnell Tax Cuts for the Rich Act would not pose significant risk to America’s credit rating and then only a week later claiming the opposite. Let us count the ways.

First, let’s review the flip-flop from Moody’s economist, Steven Hess. Here’s Hess quoted by Bloomberg on December 7 [my bold]:

“The extension of the current tax rates is for a temporary period of two years and we think that if that’s all there is to it — it does not have ratings implications,” Steven Hess, senior credit officer at Moody’s in New York, said in an interview today. “We have a stable outlook. We don’t feel it will get changed downward in the next year or two.”
. . .
“We think it will be positive for economic growth in 2011 and 2012,” Hess said.

“That helps government revenue growth. However, it will not nearly offset the reduction in revenues coming from these measures and therefore it’s a negative for government finance if nothing else is done,” he said. “It would not be favorable for any effort to reduce the deficit and reverse the debt trajectory.”

And here’s Moody’s Steven Hess quoted by The Hill just a week later:

Moody’s Investors Service said in a Monday report that the tax-cut deal hammered out between President Obama and congressional Republicans jeopardizes the Aaa credit rating enjoyed by U.S. Treasury bonds. The package could add $900 billion to the national debt, if it is made permanent, and this increases the chances the U.S. would one day default on its debt.

“From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth. Unless there are offsetting measures, the package will be credit negative for the US and increase the likelihood of a negative outlook on the US government’s Aaa rating during the next two years,” Moody’s analyst Steven Hess writes.

So let’s get this straight. The US credit rating agencies — with Moody’s in the lead — are the guys who allowed themselves to become bought captives of the banking industy. To sustain the profitable ratings fees from the banks, they rated as AAA investments all of those mortgage based securities that were based on massive bank and lender fraud, and never said boo. While their function is to forsee risks, they said little about an implausible $8 trillion housing bubble whose risks they didn’t see Then they were surprised when the bubble burst and those assets plummeted to pennies on the dollar, taking the entire financial system with them. Yeah, those guys.

So now Moody’s Hess is telling us the risk of holding US debt will rise because of this deal, so Congress will assume if we don’t offset this by slashing spending, the US is more likely to default on its sovereign debt. It’s absolute gibberish.

For the umpteenth time, the US, unlike the suffering Ireland, Portugal, Spain, etc in the Euro zone, has its own currency and fiat money. It can’t be forced to default. Unless the people who run the country are complete idiots [insert news stories here], and refuse to use the tools and powers they have, the US is not at any risk of defaulting on its debt.

Moreover, the tax package is for two years. If one assumes that’s it, then there is no long-term structural deficit to cause us problems in the long run. But what happens if the tax cuts are extended?

What Hess should tell us is the truth: The problem the deal creates for US deficits is that the tax cuts are mostly a waste of hundreds of billions, because they’re the least effective way to boost the economy. That means we don’t get nearly the stimulus we could have gotten from intelligent deficit spending on things that actually boost demand and create jobs, and thus reduce government spending for safety-net programs and boost government revenues.

I know this will make Dana Milbank and Mark Penn cry, but the way to improve the picture is to fix the package in ways Obama’s liberal critics are demanding. And we should stop praising Obama for agreeing with people who insist hacking federal revenues by nearly a trillion dollars doesn’t impact the deficit. Every third grade math student knows this is nuts.

But let’s follow the logic of how Washington will interpret Hess: since the economy doesn’t pick up enough to increase tax revenues to offset the massive hit to deficits, we should offset the tax cuts with spending cuts. How convenient for the foolish proposals from the Deficit (aka Catfood) Commission.

The illogical message the Beltway Hacktopolis will take from this is that having failed to stimulate the economy via wasteful tax cuts, we should make the economy worse by slashing spending. It will never occur to them that slashing spending doesn’t “offset” terrible stimulus; it doubles down on the error.

So now expect to hear the White House and Obama’s new allies in Congress (including 83 foolish Senators yesterday) to really screw the economy. They’re about to waste over $800 billion in ineffective tax cuts, and set themselves up for extending the unconscionable tax cuts for the richest Americans by another trillion dollars or so, and to “offset” that madness, they’ll take meat axes to spending and really tank the economy.

Brilliant. Someone should pay Moody’s another nice fat fee for explaining how to destroy the economy, again, and putting millions of people out of work.

John Chandley

More from FinancialTimes blog, Tracy Alloway, Moody’s sees ‘definite negative’ for US rating. NOT.

Catfood Delirium: US Pretends It’s Not Repeating Europe’s Mistakes

8:13 am in Economy, Politics by Scarecrow

My dead-tree New York Times aptly depicts the mass economic insanity now gripping the US and Europe. There are several related articles, none referring to the others, but they’re all part of the same story: Governments are on their knees from bailing out insolvent banks and rescuing their economies after the financial collapse, but further crippling themselves by pretending that punishing citizens via austerity will keep their economies from tanking further.

On the Times front page, top-right, we read about America’s hysteria over federal deficits. The article frets over whether Obama’s failed Deficit (aka “let them eat Catfood”) Commission can get even a majority, let alone the required 14 of 18 votes, to endorse measures already widely panned, partly because Simpson-Bowles merely wave their hands on health care costs that are the principal driver of structural deficit. Even worse, in the aggregate their proposals shift more wealth from the middle class and elderly to the richest 10 percent of Americans, while restricting the government’s ability to right the inequality. It doesn’t occur to the Times to hope enough members will have the courage and wisdom to just say NO!

The same article goes on to describe President Obama’s efforts to negotiate with Republicans about how large the tax gift should be to the richest Americans. If you’ve been following this “debate” and the White House negotiate-with-yourself tactics, you know the argument is over whether we should give the wealthiest 2 percent a $700 billion gift for ten years or only a $400 billion gift over ten years. You’re supposed to cheer for the “only $400 billion.” Or if they’re clever, the negotiators might decide now to give the same groups about $40 billion per year in gifts for a year or two and give the rest of the $400 bn to $700 bn to them later, which they undoubtedly will. These are what now pass for Serious people.

The only rational, moral response the public could make to the continuing massive wealth transfer to the rich would be to show up at the capital with pitchforks and run all of these rascals out of town. But you won’t find that in paper of record.

On the opposite side of the Times front page we read the first of several recent Times articles on the deepening crisis in Europe. It seems the Euro countries have been following advice similar to that urged by the Catfood folks and deficit hawks and it’s landed half of Europe in a mess.

Like the US, they’ve bailed out European banks without cleaning out the banksters or making the creditors pay for their reckless investments during the European credit/housing bubbles. So countries like Ireland or Portugal that bailed out their banks are now facing their own default risks, made worse by the fact there is no central fiscal authority to protect the larger economy, while a common Euro prevents individual countries from devaluing.

Meanwhile Europe’s own deficit hysterics — led by the central bankers — demanded each country impose severe fiscal austerity — you know, like the massive government spending cuts the Republicans and deficit hysterics are proposing for the US — and what has it gotten them? As Krugman et al predicted, it’s bought them declining growth heading for another recession, rising unemployment even before the worst austerity measures take hold, declining tax revenues, higher safety-net costs, which leads to failed efforts to achieve deficit reduction targets, which then require even harsher austerity measures, etc, with no end in sight. [And see DeLong on Eichengreen on Ireland] Predictable and predicted.

In between these two front page stories is a picture of protesters battling police in Italy over proposed austerity measures — similar pictures could have been used from Ireland, or Portugal, or France — in this case, education cutbacks that make it harder and more expensive to get an education to make you and your country competitive. If that seems stupid, just remember Americans are already seeing similar drastic budget cuts in their home states.

What’s astonishing about these stories is how disconnected they are, as though what’s happening there has no relevance to what could happen here. But the stories from Europe about failing governments, declining economies, growing unemployment and enraged citizens are teaching moments for America. This is where we’re headed, unless we reject the “reign of error” that Republicans pass off as “grownup conversation” in our nation’s capital. And there’s no excuse for it.

We’ve watched our own states slash budgets and lay off teachers, firemen, police. So we know that if US states — which are not sovereign with their own currencies — have to slash their budgets and/or raise fees and taxes and lay off hundred of thousands, that it will depress their economies and cause higher unemployment unless the federal government steps up to offset the economic contraction such actions create.

The Euro group has almost no ability for a centralized authority to offset the fiscal contraction in its Euro member states. But the US does have this authority, so it is not required to sit by helplessly and follow Europe’s fate. To borrow Krugman’s phrase, not using the tools we have to avoid the predictable catastrophe is not merely criminal, it’s a mistake.

John Chandley

Et tu, Sheila Bair?

10:50 am in Uncategorized by Scarecrow

Sheila Bair, Chairwoman of the Federal Deposit Insurance Corporation, is supposedly one of the few at least halfway sensible federal regulators who actually warned about the banks’ risky behavior and maintains a healthy skepticism of the laissez faire ideology that shielded their predatory behavior both before and after it tanked the US and Western economies.

So it’s disheartening to see her provide cover for the Peterson-type deficit hysterics who would impose Irish-type austerity on the US as the price the already plundered public must pay to give unneeded “confidence” to banksters, already flush with cash, and their protected bond holders.

It’s bad enough Ms. Bair repeats hysterics’ propaganda about out of control “structural deficits,” without explaining our long-term deficits are almost entirely driven by escalating health care costs affecting the whole economy, not just the federal budgets for Medicare/Medicaid. The solutions lie in changing the health care delivery system and how we pay for it, not cutting benefits to meet some arbitrary federal spending limit.

It’s worse that she lumps together, as Petersonians always do, Social Security with Medicare and Medicaid. And for some unexplained reason, these folks can never remember that the 1983 reforms anticipated and planned for the baby boomers. As Dean Baker reminds us (for the umpteenth time) in debunking the same discredited arguments from CBS:

[CBS claims,] “. . . The system won’t be able to handle the strain without an overhaul.”

Well, no that is not true. The projections from the Congressional
Budget Office (CBO) show that the system can pay all benefits through
the year 2039 with no changes whatsoever. The Social Security trustees
are somewhat more pessimistic showing that full benefits can be paid
through the year 2037 with no changes at all. By 2039 the oldest baby
boomers will be age 93 and the youngest will be 74. By 2037, the oldest
boomers will be 91 and the youngest 73.

This means that by both the CBO and the trustees projections, most of
the retirement of the baby boomers can be supported with no change whatsoever.

Most disappointing is how Bair trots out a fear of us becoming Ireland or Greece. From her Washington Post op ed, Will the next fiscal crisis start in Washington D.C.?:

With more than 70 percent of U.S. Treasury obligations held by private investors scheduled to mature in the next five years, an erosion of investor confidence would lead to sharp increases in government and private borrowing costs. And while we enjoy a uniquely favored status today – investors still view U.S. Treasury securities as a haven during crises – events in Greece and Ireland should serve as a warning. The yields on their long-term government securities have risen from rough parity with U.S. Treasury obligations in early 2007 to levels that are hundreds of basis points higher. If investors were to similarly lose confidence in U.S. public debt, we could expect high and volatile interest rates to impose losses on financial institutions that hold Treasury instruments, and to raise the funding costs of depository institutions, which can be highly vulnerable to interest-rate shocks. All of us would pay more for consumer and business credit, and our economy would suffer.

For pity’s sake! How is it possible for a senior federal financial regulator to suggest that the US, with it’s own currency and ability to directly affect exchange rates, is like Ireland or Greece which lack either?

And how can someone with a history of acknowledging the risks to consumers manage to write an entire column about phantom risks that might materialize if, at some point in the future, the US insanely behaved as though it were Ireland and Greece, while dismissing the very real immediate crisis we have of 15 million people unemployed with record numbers in poverty, foreclosure and without health insurance and the worst income inequality since the Gilded Age?

From Krugman today:

But Ireland is now in its third year of austerity, and confidence just keeps draining away. And you have to wonder what it will take for serious people to realize that punishing the populace for the bankers’ sins is worse than a crime; it’s a mistake.

The nation has a redwood tree stuck in the middle of its forehead, and our supposedly most serious government officials are worried about tripping over some future branch that might fall on a road we shouldn’t even be taking. Gah!

John Chandley

Barack Obama’s Catfood Commission Already Hurting America

8:26 pm in Uncategorized by Scarecrow

As of today, the number one topic of the media and much of the blogosphere will likely be the measures recommended by the inept chairs of the Deficit Reduction (aka “Catfood”) Commission to reduce the federal deficit. The fact that these men and this topic are the focus of attention is itself a national tragedy, a sign of the political elite’s unwillingness to heed the public’s demands that government focus on the nation’s real priorities.

Whether one looks at public opinion polls, which consistently place confronting massive unemployment and the recession’s economic effects first, or the views of our wisest advisers, there is no public demand or convincing intellectual argument for focusing now on the federal deficit, even for the long run.

It is bad enough that we have been misled by the lies and misrepresentations of deficit hysterics at the Washington Post and Peter Peterson’s billionaire gang, or faux deficit hawks in Congress who would slash an undisputably solvent Social Security while claiming it’s fine to give $700 billion in tax breaks to the richest people in America.

It is even worse that a media that has been given enough information from its own polling, government or think tank reports, and it’s own reporting has fallen for this insanity. This is the economic equivalent of believing we should go to war to rid Iraq of WMD and end Saddam’s alliance with al Qaeda. The justifications for waging war on the deficits are that false, that stupid, that disproved and that disastrous for the nation. It’s been the Washington Post’s Fred Hiatt playing the New York Times’ Judy Miller.

The public is once again smarter than the Village pundits. In poll after poll they’ve said the country’s number one priority by far is to deal with the Great Recession’s disastrous effects on unemployment, economic security, foreclosures, declining wages and disappointed retirement hopes. How one could know that and still think the solution is to delay and reduce Social Security and Medicare benefits is a mystery.

Yet night after night we have to listen to the sickening hypocrisy of the John Boehners lecturing us on how the Democrats lost because they, and only they, failed to listen to the American people. There’s no mandate to radically slash deficits or threaten safety nets in the middle of a recession. And there’s certainly no support for slashing Social Security. Yet that’s exactly where Obama’s selectmen Knowles-Simpson are.

The country does not need a crash program to reduce the deficits now, so asking a high-level commission to focus on that problem and present its recommendations now is the worst possible distraction one could imagine. Instead, the country desperately needs an economic recovery plan, a jobs plan, a state rescue plan, an infrastructure investment plan, an alternative energy plan. Where are the Presidential commissions for these real priorities?

The Catfood Commission is not merely a momentary distraction from what needs to be done; it is a calculated displacement — a cynically manipulated replacement of the right priorities with exactly the wrong ones. As long as Washington and the national media debate the details of budget reduction, it will be impossible to discuss what we need to do to put people back to work or even to ameliorate their suffering until the jobs and economic security return.

The Bowles-Simpson proposals should not be debated; they shouldn’t even be read. Instead they deserve to be put on a shelf, probably for at least three years and likely more, until this country is well on its way to economic recovery and the numbers of unemployed are several millions fewer and steadily declining. No other economic/budgetary priority comes even close.

When Obama established his commission, it may have been the worst strategic blunder by a Democratic President in our lifetimes. It’s almost impossible to calculate how much damage he may have done to the country in this single, foolish act. We have 15 million unemployed, millions undergoing bankruptcy and/or foreclosures, record poverty, state and local governments in budgetary collapse, services being slashed, teachers/firemen/police losing jobs — all of which could be prevented but will take more federal spending because that is the only place increased demand can come from. Yet the Deficit Commission focus will now be an unneeded obstacle to every proposed solution.

The only useful thing a responsible deficit commission might have done now is to debunk the falsehoods and hypocrisy of the deficit hysterics and faux deficit hawks. A truly responsible group might then have continued working, in public, to analyze long-run future budgetary issues. But they’ve not only failed to clarify the problems and debunk the myths; they’ve made public understanding worse. If they’d been commissioned by a successful corporation wanting to understand its future priorities, these folks would have been fired months ago.

Now we have to spend all our energy fighting a set of deficit proposals, including proposals to weaken Social Security, from two men chosen by Barack Obama whom no one with any sense would ever trust with setting the nation’s priorities. Next will come mindless proposals for balanced budget amendments, whose constraints could turn a sovereign federal government with its own currency into a gridlocked California or Greece.

And liberal Democrats now squarely confront the dilemma that the only way to stop the slide into fiscal insanity and restore the nation’s focus on its real priorities is to defy and discredit a supposedly Democratic President. This is his error; make him fix it or go down with it. I hope they wake up in time.

John Chandley

More:
Kevin Drum, Is the Deficit Commission Serious? [no]
Paul Krugman, Unserious People
Dean Baker, Erskine Bowles, Morgan Stanley, and the Deficit Commission
Jon Walker/FDL, Disaster for Democrats
Masaccio/FDL: Catfood Co-Chairs Use Social Security to Cut Deficits
Michael Whitney/FDL — FDL Petition — Tell President Obama and Catfood Commission: Hands Off

DeLong: Unexpected thoughts: “I’d be a happier camper if Obama (and Biden) resigned tonight.” And that was before he read this.

Peter Orszag Makes Up Stuff To Justify Cutting Social Security

8:32 am in Uncategorized by Scarecrow

In an op-ed published in the New York Times Opinionator section, former Budget Director Peter Orszag makes up stuff about Social Security and fabricates views of the “left” about how to protect it.

Orszag thinks this is a good time for Washington to “reform” Social Security, because he believes having a Democratic President and Deficit Reduction Commission led by such public spirited citizens as Alan Simpson and Erskine Bowles can be trusted to “save” the program. And because Republicans are willing to “reform” Social Security too, the elections have improved the chances a “reform” can be approved.

“I don’t think that word means what you think it means.”

The clowns who are coming to the next Congress have Social Security in their gun sights. They aren’t coming to “reform” it. And the belief it will be protected by this weakened President after he foolishly created the catfood commission and put Bowles/Simpson in charge of it is ludicrous. The only thing the elections made “more likely” is that Social Security benefits will be cut in one way or another. So Orszag is in fantasyland:

Erskine Bowles and Alan Simpson, the co-chairs of the fiscal commission due to report at the beginning of December, have both expressed a desire to restore solvency to Social Security. And Republican leaders have previously expressed a willingness to tackle the issue too.

Restore solvency? Uh, Social Security is not insolvent; it has a surplus of over $2.5 trillions which will ensure 100 percent payments on all scheduled benefits for nearly three decades, and at least 75-80 percent of scheduled benefits indefinitely thereafter. At no time will Social Security become “insolvent,” but using that term is exactly the type of misrepresentation — from the likes of Peterson, Knowles and Simpson — that poses the greatest threat to the most important safeguard seniors have. And Orszag know this.

But Peter Orszag isn’t finished misrepresenting the facts. He next claims:

The left, though, seems adamantly opposed to restoring actuarial balance to Social Security now. . . .

Given the left’s strident opposition to any serious discussion of Social Security reform, the issue will provide a key early indicator of the administration’s response to the election results.

Those are flat lies. The “left” is not opposed to “restoring actuarial balance,” nor is it opposed to a “serious discussion of Social Security Reform.” What the left and all genuine supporters of Social Security have said is that proponents of cutting benefits should stop lying about “insolvency,” stop linking Social Security to some structural deficit problem it has not created, and stop misrepresenting the Trust Fund surplus as meaningless I.O.U.s subject to likely sovereign default. They insist that unjustified budget deficit hysteria not be used as a cover for cutting Social Security benefits, for either current or future beneficiaries via postponing eligibility ages or other gimmicks. They repeatedly point out that a return to the percentage (90%) of income subject to tax that we once had — which means lifting the limit of $106,000 — is the simplest, fairest way to ensure 100 percent coverage of all scheduled benefits well beyond the next 30 years of coverage.

The “left” and other Social Security supporters have been the only groups actually engaged in a “serious discussion” of Social Security. They’ve told the truth. The Administration, Obama’s irresponsible catfood commission, the Peterson budget hysterics, and the Republicans have consistently lied about Social Security.

And Peter Orszag knows this.

John Chandley

More:
Dean Baker, Peter Orszag and the drive to cut Social Security

Axelrod and McConnell Take ABC’s Amanpour and US Down the Rabbit Hole

9:51 am in Uncategorized by Scarecrow

The polls tell us there are more people enthusiastic about voting for Republicans than for Democrats. After watching White House Adviser David Axelrod on ABC’s This Week, one can easily understand the lack of enthusiasm for an aimless Democratic Party that can’t even stand up and fight for what it’s supporters believe because it’s led from the top down by incompetent and corrupt corporatists.

Axelrod chose to pound on the two parties’ difference in tax cuts for the middle class versus the rich. But he offered no explanation for why his own party was afraid to take that difference to a vote in the Congress.

Obama’s team had already failed to offer a Plan B for jobs and economic recovery to replace their sputtering Plan A, and he said nothing about the rest of the more worthwhile job-producing stimulus tax cuts that are due to expire this week. It’s now obvious there’s no one minding the store, and with everyone preoccupied with leaving, we’re not about to get a credible jobs/economic recovery plan from this Administration. Next, please?

So that explains much of the Democrats’ malaise, but you have to inhabit an alternative universe in which up is down, right is wrong, and facts are lies and myths to account for the willingness of voters to even consider voting Republican.

The deeply cynical Senate Republican Leader, Mitch McConnell, managed to evade every question asked by ABC This Week’s Christiane Amanpour. She came armed with videos and quotes showing what a hypocrite he is and how embarrassed any rational person would be by the nutty positions expressed by Republican candidates like Sharon Angle, Rand Paul, Joe Miller, and Christine O’Donnell and the rest of the horror show that has become the Republican Party. But McConnell dodged every question; Amanpour simply gave up trying to get direct, let alone honest, answers.

McConnell avoided defending the nutcases that now define the Republican Party by saying that since Sharon Angle was polling even with the Democratic Senate Leader, why should he question the voters’ judgment? Well, Mitch, it’s because you’re supposed to care about your Party’s integrity and sanity and the country’s interests. But of course, Mitch didn’t want to answer the question Amanpour was asking: how can you defend candidates that are consistently making stupid and dangerous statements? He can’t, so he dodged.

McConnell’s evasiveness on the implicit label of lunacy was to charge the Democrats with extremism, characterizing the Administration’s efforts to rescue the economy from the depression McConnell’s Party left us as "extreme." Amanpour did not think to ask how Republicans would have reversed the depression they created, nor how they could argue tax cuts for the richest Americans would rescue the economy but tax cuts for the middle class, jobs programs, infrastructure investments, and emergency relief to states to avoid layoffs were "extreme." He should have been asked: How can you explain not voting for any of these?

Nor did Amanpour effectively pressure McConnell to unpack his argument that we shouldn’t be increasing taxes in the middle of a recession. The question is what measures work best to stimulate jobs and recovery, and the first answer is, tax cuts for the rich are the least effective. So the issue is between continuing tax cuts primarily for the middle class versus those exclusively for the richest 2 percent, whose revenues could be used in vastly more worthwhile, job-creating ways.

McConnell dodged that by noting that 31 House Democrats and perhaps 5-6 Senate Democrats agreed with the Republican position of further enriching the rich. Thanks a lot, Blue Dogs and conservaDems, for bailing out the man who wants to be your next Senate Majority Leader. You own him.

But that wasn’t the only moment when McConnell used corrupt and foolish Democrats to defend the indefensible. When Amanpour asked where Republicans would cut spending to achieve their preposterous claims of cutting deficits while extending massive tax cuts for everyone, McConnell noted that President Obama’s Deficit ("Catfood") Commission would report in December, and he’d be happy to consider their recommendations. Which translated means: we said Thursday we won’t harm seniors, but on Sunday I’m saying if the Commission says, "let them eat catfood," that’s how we’ll balance the budget. Thanks, Obama.

So once again, we find the White House and conservative Democrats helping Republicans make the argument that Republicans should replace Democrats in Congress and never be required to say or do anything remotely sensible or helpful in addressing the nation’s staggering problems. You’d think the Republicans won the 2008 elections, and maybe they did.