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NYT Economist: Economy Gasping for Air, So Cut off Air Supply Slowly

8:47 am in Uncategorized by Scarecrow

Catherine Rampell, the New York Times’ usually sensible economist, provides a good commentary on today’s depressing Commerce Department report on our stagnant economy. If you read the first two thirds of her article, you’d logically conclude that unless we can find a replacement for the rapidly fading federal stimulus, there isn’t anything on the horizon to raise GDP growth and boost employment. Logically she ends with this:

“There’s not going to be additional monetary stimulus, and it’s hard to imagine any fiscal stimulus given the current discussion in Washington,” Mr. Ryding said. “So what’s going to get us out of this? The inevitable conclusion is time, and that’s not very satisfactory.”

But somewhere in the middle, without warning or logic, Rampell gets captured by Pod People.

The Commerce Department report tells us the economic recession was much deeper than previously believed — we are still not back to the GDP levels of 2007. And the second dip this year, while not yet technically a “recession” because GDP growth hasn’t gone negative yet, was worse than originally reported.

As Dean Baker reminds us, demand was crushed, the 2009 stimulus helped reverse that, but the stimulus is quickly winding down and is now offset by severe reductions in state government spending.

The result is entirely predictable: Depressed demand from people losing $6 or $7 trillion in wealth, plus declining or negative stimulus, equals a declining economy, with little or no growth and worsening unemployment. You couldn’t ask for a clearer confirmation of Keynes and the need for immediate, substantial new stimulus.

So what happens when a sensible economist becomes a Pod Person? They say things like this:

Washington, therefore, has a delicate balancing act in its current debt ceiling debates. Given the unsustainable debt trajectory that the economy is on — primarily because of the country’s growing health care obligations — Congress needs to impose greater fiscal discipline. But imposing too much too soon, or being too focused on the wrong types of spending cuts, could be self-defeating by weakening growth so greatly that tax revenue falls and requires the country to borrow even more.  

Given inflation concerns, it also seemed unlikely that the Federal Reserve will swoop in with another round of monetary easing to goose growth.

Shorter Rampell: The economy is gasping for air, so we need to cut off the oxygen supply more slowly. Since core inflation is very low, the Fed should worry about hyper inflation. And because our private health providers charge too much to provide less than universal coverage, we have a debt crisis and should cut Medicare.

You can’t argue with Pod People.

(For a human interpretation of today’s dismal economic report, see Dean Baker.

WaPo/Bloomberg: Classic Bait and Switch Argument About Social Security

12:22 pm in Uncategorized by Scarecrow

[Note: Along with Jane Hamsher and the folks at Firedoglake, I'll be making calls this month to urge FDL's past supporters to become Founding Members of Firedoglake. So if you get a call from me (617 area code), pick up the phone. It's just Scarecrow! And we'd really appreciate your help. Or you can just become a member by clicking here, and I promise not to call you.]

The Washington Post/Bloomberg Business section recently published an op-ed by Allan Sloan arguing that the only relevant point about Social Security is it’s current negative cash flow.

Only current cash flow matters, he says. So if Social Security payroll taxes are currently taking in less revenues than current payouts to beneficiaries, that means Social Security is in trouble, and not later, but now.

Sloan says this cash flow situation will continue years into the future. Since the Trust Fund doesn’t matter in his accounting, this means Social Security is trouble today, right now, not just in 2036 or so when the Social Security Administration’s most recent official reports tell us the Trust Fund balance runs out.

if I’m not mistaken, this is a classic bait and switch argument he’s making, the one we’ve been warned about before by Paul Krugman, Dean Baker and others.

You can view Social Security accounting two ways: First, you can view it as a separate fund, in which case the Trust Fund surplus of $2.5 trillion is very relevant. Or you can view the issue from the perspective of the entire budget, and ask, “how much of the total is paid for by total incoming revenues?” But what you can’t do is mix the two; you can’t honestly switch between the two accounting perspectives just to make a political point about Social Security.
Read the rest of this entry →

Economists Debunk Hysterical NYT Story on S&P Credit Downgrade Threat

2:22 pm in Uncategorized by Scarecrow

The lead front page story in today’s delivered New York Times reported that the stock market fell after the rating firm S.&P. threatened to downgrade the US credit rating unless the US got its spending under control.

The GOP, led by noted economist Eric Cantor, was quick to predict a US economic collapse unless we used the debt limit vote to eliminate Medicare.

So naturally, I immediately slashed my personal spending by cancelling my Times Saturday and Sunday delivery subscription, hoping to save the economy from imminent collapse. That seemed to help, as the stock market was back up today. The market knows everything, it seems.

Not knowing what else to do, I was later greatly relieved to learn that having grasped the seriousness of S.& P.’s warning, the Times invited several economists to explain the impending doom. Here’s a sample of what they said.

First, Tyler Cowen seems to think S&P was right to warn us of our profligacy, but he worrys the stock market didn’t panic enough:

The fall in the stock market on Monday just wasn’t big enough to put a scare into most of these people. Few political leaders see realism as a winning political message, and making realism scarier, as the S.&P. announcement did, won’t get them there easily.

It’s a common argument that the U.S. need not worry about its borrowing because interest rates on Treasury debt are so low. That’s a mistake. The low rates mean that investors expect to be paid back; they don’t mean that U.S. debt levels are healthy.

So, the market went down because investors think the US can pay its debt obligations, but the market isn’t smart enough to know it won’t. Huh.

Next, Mark Thoma thinks we shouldn’t be stampeded into hurting the vulnerable when there’s no immediate threat:

. . . Don’t let the downgrade allow those with wealth and power to push through the wrong solution. . . .

The main worry about the debt is that, at some point in the future, interest rates will rise as the world becomes reluctant to lend more to us. A rise in interest rates would lead to reduced investment, growth and employment. So far, however, bond markets show little sign of worry and interest rates remain low.

So if there’s no immediate threat, what’s going on? Barry Ritholz says he stopped paying attention to S.& P.:

After Standard & Poor’s missed the greatest collapse in history – indeed, they helped create it by rating junk mortgage backed securities Triple AAA – they are now over-compensating. As I mentioned on The Big Picture, there is an old Wall Street joke about analysts: “You don’t need them in a Bull Market, and you don’t want them in a Bear Market.” That especially seems apt with regard to S.&P.

The deficit has been with us for a long time. Since investors are continuing to lend money to Uncle Sam at exceedingly low rates, there does not appear to be any real fear of a default. That is what matters most to bond buyers — and it why I never care what S.&P. thinks on this.

Next, L. Randall Wray thinks this is just S.& P. doing politics instead of credible ratings based on sound economic analysis:

Mind you, this has nothing to do with economics, government solvency or involuntary default. A sovereign government can always make payments as they come due by crediting bank accounts — something recognized by Chairman Ben Bernanke when he said the Fed spends by marking up the size of the reserve accounts of banks.
Similarly Chairman Alan Greenspan said that Social Security can never go broke because government can meet all its obligations by “creating money.”

Instead, sovereign government spending is constrained by budgeting procedure and by Congressionally imposed debt limits. In other words, by self-imposed constraints rather than by market constraints.

And Yves Smith says S.& P. should be embarrassed:

The United States is simply not at risk of default. Default is impossible for a sovereign currency issuer.

The Standard & Poor’s rating firm should be embarrassed. If there is any political judgment at work here, it is S.&P. falling for politically motivated scare mongering. But given its track record with mortgage securities and collateralized debt obligations, why should we be surprised to see a rating agency relying on conventional wisdom rather than analysis?

Yves and many others note that in addition to complicity in misrepresenting the risks of mortgage-based securities, the rating agencies were consistently wrong about Japan’s experience and that repeated ratings downgrades had essentially no effect on Japan’s ability to borrow at low rates.

There are more derivise opinions from James Galbraith, Paul Krugman, Dean Baker and others listed at Naked Capitalism.

The bottom line is this: The New York Times got duped by the Beltway conventional wisdom driving deficit hysteria. The credit rating companies have little or no credibility and suffer from massive conflicts of interest and their own political agenda; S.& P.’s views are particularly suspect.

The economic theory they’re hawking is wrong and the available evidence contradicts them. And plenty of people easily available to the Times knew this, but the Times neglected to ask them before it wrote its misleading story. The only thing worse is to have the Administration send Secretary Geithner to implicitly confirm the flawed theory by promising to do what the deficit hysterics want.

Given that track record, there is only one thing left for the Times to do, as it prints a retraction and apology to its readers: fire the incompetent editors who went with the phony scare story.

Tea-GOP Craziness: Will Someone Please Have Our Political Leaders Committed?

4:20 pm in Uncategorized by Scarecrow

In the 1947 classic, Miracle of 34th Street, most of the establishment goes through what seems to us as a crazy procedure of trying to have Santa Claus committed to a mental institution. Mr. Kringle’s offense is that he thinks it’s a good idea to be kind to people, especially children, and that you shouldn’t lie about who you are.

But “Miracle” isn’t about whether “a nice old man” is actually Santa Claus. As the movie unfolds, we learn the person who is actually insane is a close-minded authoritarian, an insecure hack psychologist who is actually a bully, dishonest, indifferent to human feelings, and mean-spirited and who insists that anyone who doesn’t share his delusions should be fired, persecuted and have their rights stripped away. And with the help of a mindless system, an unprincipled political hack judge and a unthinking executive, he might have gotten away with it. In the Hollywood version, however, a government employee — a postal worker — returns us to sanity by showing us overwhelming support for Mr. Kringle.

We’re watching the same plot in the US Congress, except it’s real with no guarantees of a sane, happy ending. We see the arrogant Tea-GOPers bullying and threatening everyone — women, children, the old and sick and poor, workers, the economy and the government itself. What’s astonishing about this real life drama is no one in the so-called category of “adults” — not the inept Democratic leadership, nor the feckless “pro-business” White House, nor the complicit media — has the courage to say, “Stop! This is insane!”

Friday’s New York Times tells us the White House is meeting with Tea-GOP representatives, who, after accepting a $4 billion bribe, just condescended to postpone a government shutdown for two weeks. The White House will next offer them several more billions of spending cuts in the delusional hope that with these and other concessions, the bullies will allow the US government to function for a few more months. What are these people thinking?

In poll after poll, and with the feet and voices of hundreds of thousands of protesters in Wisconsin and a dozen other states, the American people have said very clearly that they do not want to cut spending for Social Security, Medicare/Medicaid, education, environmental protection. They’ve repeatedly said that the economy and jobs, not slashing deficits are the country’s priority. But Mr. Boehner and his Tea-GOP ignore this.

When pushed on what they would cut if deficits were the priority, they consistently cut defense and support raising taxes on the rich — exactly the opposite of what the Tea-GOP and Obama just did.

Americans are also clear they don’t support punishing teachers or other public workers; they oppose threatening teachers with layoffs if they don’t give up their rights. They’re clear they support the right of workers to group together to bargain for their collective interests, just as corporations do to protect the interests of many shareholders (theory) or a few well-paid executives (practice).

At the same time, prominent economists warn us that the budget cuts Americans wisely oppose will harm the economy, slow the recovery and put hundreds of thousand of people out of work. Other data consistently shows there is no basis for the Tea-GOP propaganda that economic investment is stalled because of lack of confidence regarding the deficits; instead, all the surveys show it’s lack of demand — consumers don’t yet have sufficient money, job security, or savings to buy enough of the products businesses hope to sell to justify new investment and hiring.

And Friday’s more hopeful employment report is only that: hopeful. As Dean Baker notes, even with this news, at the current rate it will take about 14 years for employment/jobless levels to get back to normal. And yet the Tea-GOPs proposed cuts would destroy another 700,000 jobs from federal actions alone, not to mention another half million or so jobs lost from state budget cuts made necessary because the same Tea-GOP dopes won’t allow the federal government to do what it’s supposed to do in such emergencies. That’s insane.

With the exception of the McCarthy era, I can’t remember a time when the facts pointed so clearly to mass public hysteria, denial and delusion among those who are driving government policies.

We’re going through a period of dangerous craziness that can severely damage the country and harm millions of people. Along with worsening air and water quality, women and children’s health care, education and research and dozens of other worthwhile services, these idiots would even cut funding for poison control.

It’s time to stop listening to these close-minded, authoritarian bullies. It should be obvious to any but the most severely deluded that what their followers in Congress and the states are doing is nuts. And yet Democrats and the White House keep indulging these fantasies, while the media keeps reporting this as though it’s just politics and nothing is wrong.

Update: AlterPolitics, Univ. of Maryland Survey of what Americans would do to change spending/budget priorities

Sunday Talk Shows: Making America Dumber One Week at a Time

12:32 pm in Media by Scarecrow

There is no valid journalistic reason for CBS, NBC and CNN to continue their Sunday Talk shows. (There is still hope for Ms. Amanpour’s efforts to bring some intelligence to ABC.)

What should they have talked about today? Aside from Middle East revolutions, recent domestic news has been dominated, as Frank Rich notes, by Tea-GOPer assaults on any/all government functions that can address income inequality or rein in corporate misconduct. The latter have all been disguised as “necessary” spending cuts to reduce “unsustainable” debts nationally, or as reductions in public worker’s wages, benefits and rights at the state level.

So it would make sense for the shows’ hosts to have at least a basic grasp of the most important budget and fiscal facts, even if they insist on interviewing only Tea-GOP governors and anti-labor zealots with only a lone labor representative invited onto NBC after viewer protests.

Here are a few facts the hosts might have understood (or at least known what was being argued by prominent critics) before CBS’ Bob Schieffer interviewed NJ Gov. Christie or NBC allowed GOP governors Barbour, Haley and Walker to spin in unison their poll-tested talking points:

1. The current budget crises in many states were not caused by runaway wages and benefits for public workers. While there are examples of excesses created by public corruption, which no one defends, the large state budget deficits are almost entirely due to the Great Recession, which was brought on by federal regulators — Greenspan’s Fed, SEC, OCC etc — who recklessly ignored predatory lending, fraudulent securitizations, a housing bubble and its inevitable collapse — and by the financial industry’s reckless self-immolation. Shouldn’t the governors have been asked if they even understand this most basis cause?  . . . Read the rest of this entry →

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

Stimulus Is Not a Bad Word and John M. Keynes Was Smarter than John Boehner

1:17 pm in Uncategorized by Scarecrow

Three (sorta) "positive" stories about economic stimulus all came together in the last couple of days. They suggest that even when the forces of darkness are trying their hardest to make us stupid, it’s possible we can actually sort out the truth.

1. Did the President stumble onto the correct framing for economic stimulus?

You’d think Democratic strategists would have figured out by now that the Republican hopes for the midterm elections rest on keeping the economy depressed. And the way to do that is by preventing Democrats from doing anything sensible to boost the economy and reduce unemployment.

I thought it was obvious that a central Republican tactic is to make the the words/concept of "economic stimulus" politically toxic, and thus discourage Democrats from doing exactly what they should have been doing more of from the moment Obama took office and it became clear that the Bush era had left them with a virtual depression. For 18 months, the political imperative has been: Stimulate the economy, stupid!

But of course, the dumbest Democrats fell for the Republican trap, helped by the political geniuses in the White House who, having squandered their strategic electoral mandate to reverse the colossal economic and financial blunders of the Clinton/Bush deregulation era, allowed Republicans to label another needed stimulus as politically unacceptable.

So with Obama coming out with a new package of "not stimulus" ideas, you could have predicted that someone at the President’s press conference would play gotcha! with Obama to see how well he could evade and mangle English to avoid calling his recent proposals another "stimulus." And sure enough, when the question came, the President’s advisers had him well prepped: if you’re asked, "why aren’t your recent economic proposals another economic stimulus," avoid the word but talk about everything you’ve done to help the economy.

As you can see from the transcript, Obama spent several minutes dutifully following that script.

But watch what happened when CBS’ Chip Reid did his predictable gotcha followup:

CHIP REID: And on the stimulus part, we can’t get people in the White House to say it is a stimulus — $50 billion for roads and other infrastructure, but they avoid the word "stimulus" like the plague. Is that because the original stimulus is so deeply unpopular? And if so, why is it so unpopular?

PRESIDENT OBAMA: Well, let — let me — let me go back to when I first came into office. We had an immediate task, which was to rescue an economy that was tipping over a cliff. And we put in place an economic plan that 95 percent of economists say substantially helped us avoid a depression.

[. . . and Obama went on like that, blah, blah, blah for several minutes without ever saying the word "stimulus" . . . until Reid springs his gotcha:]

Q: So this is a second stimulus? (Laughter.)

PRESIDENT OBAMA: (Chuckles.) You know, the — here’s — here’s how I would — there is no doubt that everything we’ve been trying to do — everything we’ve been trying to do — is designed to stimulate growth and additional jobs in the economy. I mean, that — that’s our entire agenda. So — so I — I have no problem with people saying, "The president is trying to stimulate growth and hiring." Isn’t that what I should be doing? I would assume that’s what the Republicans think we should do: to stimulate growth and jobs. And I will keep on trying to stimulate growth and jobs for as long as I’m president of the United States.

In that possibly unscripted statement, the President not only retrieved the word "stimulus," but he reestablished the legitimacy of pursuing economic stimulus policies and made it the job of the President to pursue those policies in a near depression. By implication he also made it relevant for the media to ask John Boehner, as well as Dems, "where is your economic/jobs stimulus plan?"

It’s about time. Were you listening White House advisers? See how easy that was to change the terms of the debate?

Now, if we can just get the White House economic and political advisers to follow up, to come up with a jobs and economic growth plan commensurate with the massive hole Obama inherited, we might have an interesting discussion and midterm election.

And while they’re at it, how about appointing someone to the Federal Reserve and its Open Markets Committee that takes its full employment mandate seriously; how about offering legislation to reform the way these MOTU are chosen, to make sure they get the point?

2. Credit where due: Dana Milbank does some homework, gets the economics right and debunks Republican nonsense, in John Maynard Keynes: GOP’s Latest Whipping Boy

If the Republican strategy is to tank the economy (and hence the Democrats) by making stimulus efforts politically impossible, then part of the strategy is to denigrate the economists who explained why stimulus was essential. So props to the Washington Post’s Dana Milbank for making the effort to sort out economic history and debunk the Republican’s cynical gibberish.

Perhaps these Republicans don’t realize that some of their tax-cut proposals are as "Keynesian" as Obama’s program. There’s a fierce dispute about how best to respond to the economic crisis — Tax cuts? Deficit spending? Monetary intervention? — but the argument is largely premised on the Keynesian view that government should somehow boost demand in a recession.

Or perhaps, more ominously, these Republicans know exactly what they are saying when they reject Keynesian intervention: that the government should do nothing to help the millions out of work or to rebuild confidence in the economy.

The Obama stimulus may have been misdirected by too many tax cuts and insufficient spending, but the general policy was correct. Morever, Milbank echoes the arguments Krugman, DeLong and others have been making about those who criticized the theory out of ignorance or worse:

With so much of Keynesian theory universally embraced, Republican denunciation of him has a flat-earth feel to it. Will they next demand the abolition of NASA because it’s "Galileo on steroids?" Shut down the National Institutes of Health for being a "Hippocratic mistake?" Strip funding for those "Einsteinian experiments" at Los Alamos? Demand a halt to public schools teaching from the "failed Darwinian playbook?" (Oh, wait. They did that last part already.)

Keynes’s place in economics is similarly unassailable, and the assault on him lends credibility to the charge that the Republicans lack ideas of their own and are merely generating opposition for its own sake. There’s a cogent argument to be made that Obama’s stimulus was ill-designed and ineffective, but dismissing the most important figure in economic thought in the last century says less about Obama than about his accusers. . . .

With business and consumers refusing to spend, Keynesian theory says it’s up to the government to stimulate consumption — by spending more or by using tax cuts to stimulate demand.

There is an alternative to such "Keynesian experiments," however. The government could do nothing, and let the human misery continue. By rejecting the "Keynesian playbook," this is what Republicans are really proposing.

Well done, Dana. And good luck explaining the implications to WaPo’s editorial Board.

3. If Ezra Klein can solicit plausible plans to put millions back to work, what is the Administration’s/Congress’ excuse for not doing so?

Serious kudos to Ezra Klein for soliciting proposals from prominent officials/economists on how to put millions of Americans back to work. That’s exactly the discussion the country needs but the politicians have refused to have.

Now that Obama has figured out how to say "stimulus" without blushing and has reminded himself, his own staff and the country his job is to stimulate economic growth and jobs, maybe his economic advisers can take up Andy Sterns’ challenge to meet or beat Stern’s suggested jobs plan. He proposes a jobs sharing plan, an infrastructure bank, and a youth jobs program (think CCC):

Infrastructure Bank.
Cost: $30 billion
Pay-for: One-time repatriation break for corporate earnings
Jobs created: 8.4 million

Youth Employment Programs.
Cost: $46.5 billion
Pay-for: Financial Speculation Tax
Jobs created: 3.1 million jobs

Total $130.5 billion 11.8 million jobs
Net Cost to Taxpayers = $0

In the latest installment (more will follow), economist Dean Baker picks up Stern’s challenge, explains additional elements, and then summarizes:

So, how does my scorecard look? I’ll take my top two items from Stern, then throw in $100 billion a year for infrastructure spending, and $15 billion a year for home retrofits.[yes!]

Job Sharing $ 54 billion 2.4 million jobs
Youth Employment $ 46.5 billion 3.1 million jobs
Infrastructure $ 100 billion 1.6 million jobs
Energy Retrofits $15 billion 0.5 million jobs
Fed Inflation Target 1.4 million jobs

Total $215.5 billion 9.0 million jobs

This is a desperately needed conversation. Why can’t our public officials engage in it and make that the basis for the midterm elections? As we keep reminding the Democrats, it’s good policy, good politics, good economics — and good for the country.

4. NYT article noting that tax cuts for the rich provide the least "bang for the buck."

David Broder Can’t Understand Why Government Can’t Support Education

9:24 am in Uncategorized by Scarecrow

For many months, the Washington Post has been running as "news" front page editorials, and even straight out propaganda written by Pete Peterson deficit hawks/vultures, seeking to terrorize the Beltway over the federal deficit.

In his Beat the Press posts, economist Dean Baker has repeatedly called out the Washington Post for spreading this deficit derangement syndrome e.g. here.

Many prominent economists have explained that the deficit hysteria is just dead wrong, that much of the current deficits is driven by the near-term necessity of dealing with the recession — and that spending should continue until we’re much closer to full employmentt — while long-run structural deficits are caused primarily by out-of-control costs of our health care system, not government overspending per se.

But the Post’s David Broder seems entirely unaware of the misinformation campaign by the Post’s editors and his employers. Instead, his latest column laments the tough "dilemma" the President and Democrats face in having to choose between worthwhile spending to save teachers’ jobs and deficit reduction, which Broder sees as equally valid goals. Thus, it’s a tough choice between helping the states deal with massive budget deficits and avoid laying off 300,000 teachers, and fighting the deficit by not funding measures to ensure the states are not forced to slash public education.

The arguments on each side — for averting teacher layoffs and for avoiding even more ruinous debt — are entirely convincing. But they collide.

Uh, no, they’re not both convincing. The amounts needed to save the teachers is a trivial contribution to our debt, even if that were a concern. From Brad DeLong:

Whether we spend an extra $100 billion more (or less) this year on anti-recession measures is unimportant–is less than rounding error–in the long-term budget context. Let’s do the math:

Spend $1 billion today. Use the Treasury to borrow the money for 10 years at 3.20%. Expected inflation at 2 1/2% means that the real interest charges on the borrowing are only $7 million a year. And in 25 years the real American economy will be twice it’s current size, and so the burden of raising taxes to actually pay off the debt will be half as big as it is today.

We do have enormous long-run deficit problems. They are not the result of any future difficulty in paying off what we are borrowing today. They will be the result of the enormous medical scare spending that we have put in train for the 2020s, 2030s, and 2040s. To wonder how we will pay off the debt we are currently accumulating is to fundamentally misunderstand the situation we are in. . . .

However, we have a bigger problem right now: 10% unemployment, five percentage points higher than it needs to be, something like $12 billion every month of wealth thrown away via unused capacity and idle workers. Failing to do everything you can to solve a big problem now because the solution might–but probably won’t–set us up for a smaller problem later does not seem to me to be wise policy.

Broder then condescends to lecture the President, a father with school-age daughters, how important education is. He sternly tells the President and the Democrats they should choose to fund education, but promise to fix the deficits in the future. Yes, they should fund the teachers, and a lot more.

To be sure, Broder notes the Congress is split:

Liberal Democrats, led by House Speaker Nancy Pelosi, are trying to assemble such a package, but they have encountered resistance not only from Republicans but from moderate and conservative Democrats, well aware that the voters are becoming more and more worried about the deficits and debts this nation is incurring.

But Broder does not seriously challenge the complicity of conservaDem Blue Dogs, whom he often celebrates as the idealized "centrists" on which good government depends. These "centrists" are the reason the Democrats alone cannot muster the votes in Congress to save teachers, cover increased state Medicaid costs and provide COBRA coverage. His heroes and their beliefs are the problem.

Broder doesn’t otherwise criticize the Republicans, yet no one in their leadership has stepped forward with a plan or a promised vote to save Sasha’s and Malia’s teachers from being layed off. They don’t care.

The Republicans are not a loyal opposition; they have become the party of nihilism, and their policies are anti-growth, anti-jobs, anti-education, anti-teachers, anti-governance.

A column lecturing on the national disgrace of teacher layoffs might at least remind readers that the Republicans and Blue Dog’s prescription for the nation’s anemic support of essential public functions is leeches.

John Chandley

Economist Jamie Galbraith on Panicky Deficit Hawks: There’s No Coherent Story There

3:07 pm in Uncategorized by Scarecrow

Kudos to Ezra Klein for interviewing University of Texas economist Jamie Galbraith on the deficit hawks’ incoherence in warning of the supposed dangers of current US budget deficits. Galbraith, along with Dean Baker and friends, are to the deficit hawks and their cynical scare mongering what the skeptical and ultimately correct McClatchy reporters were to Dick Cheney’s fabrications about Saddam’s weapons of mass destruction and links to al Qaeda. The scaremongering was all a cynical lie that led to a Three Trillion Dollar War.

EK: You think the danger posed by the long-term deficit is overstated by most economists and economic commentators.

JG: No, I think the danger is zero. It’s not overstated. It’s completely misstated.

EK: Why?

JG: What is the nature of the danger? The only possible answer is that this larger deficit would cause a rise in the interest rate. Well, if the markets thought that was a serious risk, the rate on 20-year treasury bonds wouldn’t be 4 percent and change now. If the markets thought that the interest rate would be forced up by funding difficulties 10 year from now, it would show up in the 20-year rate. That rate has actually been coming down in the wake of the European crisis.

So there are two possibilities here. One is the theory is wrong. The other is that the market isn’t rational. And if the market isn’t rational, there’s no point in designing policy to accommodate the markets because you can’t accommodate an irrational entity.

EK: What are the policy implications of this view? . . .

JG: It says that we should be focusing on real problems and not fake ones. We have serious problems. Unemployment is at 10 percent. if we got busy and worked out things for the unemployed to do, we’d be much better off. And we can certainly afford it. We have an impending energy crisis and a climate crisis. We could spend a generation fixing those problems in a way that would rebuild our country, too. On the tax side, what you want to do is reverse the burden on working people. Since the beginning of the crisis, I’ve supported a payroll tax holiday so everyone gets an increase in their after-tax earnings so they can pay down their mortgages, which would be a good thing. You also want to encourage rich people to recycle their money, which is why I support the estate tax, which has accounted for an enormous number of our great universities and nonprofits and philanthropic organizations. That’s one difference between us and Europe. . . .

JG: I have one more answer, though! Since the 1790s, how often has the federal government not run a deficit? Six short periods, all leading to recession. Why? Because the government needs to run a deficit, it’s the only way to inject financial resources into the economy. If you’re not running a deficit, it’s draining the pockets of the private sector. I was at a meeting in Cambridge last month where the managing director of the IMF said he was against deficits but in favor of saving, but they’re exactly the same thing! A government deficit means more money in private pockets.

The way people suggest they can cut spending without cutting activity is completely fallacious. This is appalling in Europe right now.

If Galbraith is correct, and as I read them, our best known economists are saying he’s right on the essentials, then what are we to think of the anti-deficit, anti-employment policies now sweeping Europe, partly at the urging of the US government? The logic tells us Europe and Obama’s economic advisers think the way to fix their respective economies is reduce spending and put more people out of work. Huh?

The news is full of stories not just about the efforts to forestall a Greek default — a uniquely extreme problem — but promises by Spain, Portugal and Great Britain to implement severe budget contractions immediately.

When the Obama stimulus plan was being debated last year, our best macro economists taught us that deficit spending was not only okay, it was essential to make up for depressed private demand when monetary policy — lower interest rates — was exhausted. We needed deficit spending to increase demand, to put money into the economy via the public sector to increase spending and create both public and private jobs. These experts had a plausible story: you have to do this to staunch unemployment and rebuild the economy, and if you don’t do enough — "we need a bigger stimulus" — you risked a "jobless" recovery and/or extended period of unacceptably high unemployment, along with increased deficit spending to deal with that. They’ve been proven right.

And the economists also told us that if government curtailed deficit spending too early or too fast, it would push the economy back into a second recession. That would repeat FDR’s strategic blunder in trying to balance the budget in 1937, which reignited massive unemployment and another downturn. So it was a mistake to listen to the anti-Keynesian deficit hawks, who convinced FDR that US deficits had to be reduced or else.

Okay, isn’t that where we and Europe are? I understand there’s another serious complication with the Euro currency disconnected from national budgets and a central bank disconnected from fiscal policy and coherent theory. That makes this harder to solve.

But the lessons of 1937 still seem a coherent, credible story. So someone needs to explain why it makes sense for the UK, Spain and Portugal to be making what appears to be the same mistake FDR made in 1937, and why the Obama Administration is pushing this mistake not only on Europe but on ourselves.

And if, as the Administration has repeatedly told us, we’re counting on increasing exports to help produce our way out of the current recession, why does it make sense for Europe, one of our largest trading partners, to reduce spending, increase unemployment and shrink their economies?

It seems the incoherent story coming from the Peterson/Washington Post/Administration deficit hawks that Jamie Galbraith worries about is sweeping not just Washington but the capitals of Europe. These people seem like the real weapons of mass economic destruction. If that’s not true, we need a coherent story why. Hello?

NYT: Deficit cuts promised in Britain
NYT: Portugal follows Spain on austerity cuts
Dean Baker, The deficit problem is not "we the people," it’s you the incompetent elite, and many other posts there.
Paul Krugman, Are we Greece?, and Shock and Uh?
Brad DeLong, via Matthew Yglesias, A complacent capital [about unemployment]; also Spending cuts for the UK
Baseline Scenario/Simon Johnson: Restructuring the Eurozone; and see The kitchen sink . . .
MSNBC, For lawmakers, easing joblessness isn’t Job #1
Naked Capitalism/Edward Harrison, MMT: The accounting of budget deficits

Why Is There Even a Question About Auditing the Fed After it Failed So Badly?

2:56 am in Uncategorized by Scarecrow

Sometime Tuesday the Senate may take up Bernie Sanders’ amendment to the Senate financial reform bill. It would require the Government Accounting Office (GAO) to conduct an audit of the operations of the Federal Reserve. The outcome is much in doubt, but it shouldn’t be.

Current and past Fed officials, who have much to answer for, are naturally opposed, as is the Obama Administration, which has become the champion for government non-accountability. They’re joined by Wall Street and the big bankers’ Senate apologists. It is a sorry spectacle.

The principle that government agencies should be transparent and publically accountable is a cornerstone of democratic, responsive government, which is why those who favor plutocracy, let alone kleptocracy, find the concept so threatening. But the US financial sector and its governmental partners have for decades assiduously promoted the view that the Federal Reserve should be exempt from scrutiny, because, they claim, otherwise its "independence" would be as risk. Never mind that the dangers a nation’s economy faces can as easily come from the Fed’s co-dependency with the nation’s largest, irresponsible banks when coupled with a market ideology that encourages fraud and looting. If ever there was a sector that needed sunlight, this is it.

We’ve learned over the last two years the boys at the Fed just aren’t as smart as they claim but are too arrogant and conflicted by regulatory/ideological capture to admit it. So if we have to have a Fed, we have to figure out how to oversee it and keep it focused on the public interest and not solely the banks’ interest.

If it wasn’t clear already, the recently released transcripts of 2004 meetings of the Fed’s Open Markets Committee reveal they were shown clear evidence of a dangerous housing bubble in early 2004 — when they still had a window to let an overheated sector down easy and prevent the great crash. But they not only failed to take it seriously, they accepted the view that they, and only they, understood what’s going on and shouldn’t let anyone else know.

Here’s Alan Greenspan, from the Spring of 2004, a period when a competent, vigilant bank regulator might have realized we were experiencing a disturbing housing bubble and needed at least to raise a warning if not to start deflating it:

"We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand."

Whereupon, the Oracle suggested they take a coffee break rather than do their jobs and apparently everyone nodded in agreement. We can now expect a flurry of reports on all the times Greenspan said "there’s no problem," "buy homes," and "no one anticipated," or "no one said anything," even though they clearly did.

The folks at Calculated Risk, Ryan Grim, Naked Capitalism, a must read, Matthew Yglesias, Paul Krugman and others are now all over the 6-year old transcripts. By law, the Fed was supposed to release transcripts for all of 2004, but it only released the first half and is withholding the second half until next year. You’d think that with Congress struggling to figure out how to reform the system, and the Financial Crisis Inquiry Commission directed to produce a report by December, the Fed would be releasing everything up through 2008. And they can throw in the e-mails between the Fed, Treasury, AIG, Goldman and friends. This is what subpoenas are for.

Assuming one accepts that on matters of monetary policy an economy needs an elite group of qualified grownups in charge of the money supply, and because of the significance of what they do they need to be at least somewhat shielded from the nutwing politics we have today, it’s hard to believe they need five years of secrecy and can’t handle periodic audits by one of the most responsible agencies in the US Government.

Dean Baker lays out the straightforward case for a thorough audit and shining some light on an institution whose complete failure led to the worst economic recession since the Great Depression. Like most Americans, he wants to know what Ben Bernanke did with all that money — who got it and what we got in return. That’s important, but we should also be asking whether it’s reasonable to expect this structure to do the job they’ve been given. After all, if the institution utterly failed, why isn’t its structure or composition a major issue in reform?

Yglesias picks up on the tone of the Fed meetings and the incurious quality of the questions from Fed members. What that says to me is these folks were not ideologically inclined to want to know more. Markets correct themselves, and fraudulent operators lose market share, right? How could they have been so delusional?

The argument for a responsible audit process should be a slam dunk, but unfortunately, the case is not helped by Rep. Ron Paul (and to a lesser extent, Rep. Alan Grayson), the sponsor of the House version. Paul doesn’t want a competently run Fed; he wants to abolish the central banker and eliminate it’s printing of money, without explaining how the system would work, how one implements stimulus spending during the recession or keeps the economy afloat during a credit crisis. Neither can imagine why the banker for one country in an interconnected world might need to rescue banks in another country. Would he rather we were Greece?

Senator Bernie Sanders, who’s pushing the audit amendment in the Senate, presumably has more sense, and Paul’s nuttiness shouldn’t detract from the underlying principle. An agency of the US Government (and it’s bank-dominated affiliates) should be far more accountable and transparent, especially when its most recent Chairs and governors have proven to be so incompetent and devastatingly wrong. They diddled with charts while the banks they were supposed to oversee looted the country and put 11 million people out of work. Not auditing that failure is a coverup.

Dean Baker, Audit the Fed. What did they do with our money?
HuffPost/Ryan Grim, Greenspan wanted housing bubble dissent kept secret
Calculated Risk, Fed discussed possible housing bubble in 2004
Matthew Yglesias, Is our Fed Governors learning?
Calculated Risk, More Fed bubble talk in 2004
Naked Capitalism, Yves Smith and Tom Adams, The Fed thumbs its nose at the public
Paul Krugman, Bubble Denial
TPM/Buetler, Pelosi: Bush Admin barred officials from briefing Congress on financial crisis

Update from Naked Capitalism. The Fed Thumbs its Nose . . .:

Even a cursory inspection of the Fed’s disclosures of its extraordinary rescue operations shows them to have been made only under duress, and then to be incomplete and deliberately unhelpful.

The reason this matters, is that, contrary to the Fed’s claims of independence, it has been operating as an extra-legal off balance sheet entity of the Treasury, circumventing normal Constitutionally-stipulated budget processes. And rather than make adjustments in its practices to reflect its enlarged and now overtly political role, the Fed has instead been engaging in cynical, blatant misrepresentation, giving lip service to the idea of greater transparency in pubic, while fighting disclosure tooth and nail.

Since the Fed has entered into an openly political stance (and this dates back to Greenspan) and cannot be relied upon to make truthful and complete disclosures, the only recourse is to put it on a much shorter leash, which includes greater scrutiny, including third party validation. The Fed has brought on the audit demands via the unabashed and repeated abuse of its privileged role. . . .

[Explaining the Fed's handling of its Maiden Lane off-balance sheet transactions for Bear and AIG . . .] The Fed is engaging in same practices that caused the crisis: failure to make timely disclosures, obfuscation, use of off balance sheet vehicles to distance itself from losses. This posture alone should disqualify the central bank from assuming a greater regulatory role.

The Fed and Treasury’s three card monte operation is anti-democratic and possibly illegal, and to add insult to injury, voters are treated as if they have no right to know when they are ultimately footing the bill. The Fed’s persistent stonewalling and deep seated hostility toward the public provide ample proof of the need for an audit.