Friday Reads: Dismal Scientist Edition
Posted: January 18, 2013 Filed under: morning reads | Tags: Debt, deficit, economics, Economists 46 CommentsGood Morning!
I’ve got a few reads for you from economists on some of today’s economic policy questions. I always complain that we never hear from economists and always hear from politicians, journalists, and lawyers. So, here’s the take on the austerity fetish in the beltway from an economists’ perspective.
Economist Dean Baker thinks there’s a cut Social Security on the Horizon.
According to inside Washington gossip, Congress and the president are going to do exactly what voters elected them to do; they are going to cut Social Security by 3 percent. You don’t remember anyone running on that platform? Yeah, well, they probably forgot to mention it.
Of course some people may have heard Vice President Joe Biden when he told an audience in Virginia that there would be no cuts to Social Security if President Obama got reelected. Biden said: “I guarantee you, flat guarantee you, there will be no changes in Social Security. I flat guarantee you.”
But that’s the way things work in Washington. You can’t expect the politicians who run for office to share their policy agenda with voters. After all, we might not like it. That’s why they say things like they will fight for the middle class and make the rich pay their fair share. These ideas have lots of appeal among voters. Cutting Social Security doesn’t.
While the politics of cutting Social Security are bad, it also doesn’t make much sense as policy. In Washington, the gang who couldn’t see an $8 trillion housing bubble until its collapse sank the economy, has now decided that deficit reduction has to be the preeminent goal.
They don’t care that we are still down more than 9 million jobs from our growth trend; deficit reduction must take priority. These whiz kids apparently also don’t care that the cuts that have already been made are slowing growth and costing us jobs.
Meanwhile, economist Paul Krugman shows–once again–that the deficit isn’t really that big of problem and is dwindling. Oh, just a reminder, Social Security has nothing to do with the Federal Budget, debt or deficit other than than the trust fund is invested in US Treasuries.
Recently the nonpartisan Center on Budget and Policy Priorities took Congressional Budget Office projections for the next decade and updated them to take account of two major deficit-reduction actions: the spending cuts agreed to in 2011, amounting to almost $1.5 trillion over the next decade; and the roughly $600 billion in tax increases on the affluent agreed to at the beginning of this year. What the center finds is a budget outlook that, as I said, isn’t great but isn’t terrible: It projects that the ratio of debt to G.D.P., the standard measure of America’s debt position, will be only modestly higher in 2022 than it is now.
The center calls for another $1.4 trillion in deficit reduction, which would completely stabilize the debt ratio; President Obama has called for roughly the same amount. Even without such actions, however, the budget outlook for the next 10 years doesn’t look at all alarming.
Now, projections that run further into the future do suggest trouble, as an aging population and rising health care costs continue to push federal spending higher. But here’s a question you almost never see seriously addressed: Why, exactly, should we believe that it’s necessary, or even possible, to decide right now how we will eventually address the budget issues of the 2030s?
Consider, for example, the case of Social Security. There was a case for paying down debt before the baby boomers began to retire, making it easier to pay full benefits later. But George W. Bush squandered the Clinton surplus on tax cuts and wars, and that window has closed. At this point, “reform” proposals are all about things like raising the retirement age or changing the inflation adjustment, moves that would gradually reduce benefits relative to current law. What problem is this supposed to solve?
Well, it’s probable (although not certain) that, within two or three decades, the Social Security trust fund will be exhausted, leaving the system unable to pay the full benefits specified by current law. So the plan is to avoid cuts in future benefits by committing right now to … cuts in future benefits. Huh?
In today’s Wall Street Journal, Alan Blinder points out that running into the debt ceiling would provoke a severe fiscal contraction.
“At current rates of spending and taxation, federal receipts cover less than 74% of federal outlays. So if the government hits the debt ceiling at full speed, total outlays—which includes everything from Social Security benefits to soldiers’ pay to interest on the national debt—will have to be trimmed by more than 26% immediately. That amounts to more than 6% of GDP, far more than the fiscal cliff we just avoided,” Blinder writes.
The fiscal cliff, by contrast, would have erased 4.5 percent of GDP.
Any sustained captivity below the debt ceiling, in other words, means that the economy will enter a severe recession. This recession will be made far worse because the so-called automatic stabilizers that kick in when the economy slumps—think unemployment insurance—will not be able to function because of the budget constraint. So unemployment will grow while unemployment insurance contracts. This will not only pose a hardship on the people out of work, it will mean that the spending power of the American consumer will shrink rapidly.
Where the fiscal cliff might have led to a recession, this is downward spiral toward depression. The shrinking economy will shrink the government’s tax revenues. And since the budget deficit cannot increase, the spiral will go unchecked. Falling taxes will trigger falling spending. “Downward spiral” may be too mild. Economic black hole better fits the bill.
“In short, the consequences of hitting the debt ceiling are too awful to contemplate—worse even than going over the fiscal cliff. A sane Congress wouldn’t even think about it,” Blinder writes. He’s absolutely correct.
Blinder goes on to propose a plan to avoid a crises based on the assumption that Congress is sane. Let’s hope that assumption is correct.
Meanwhile, the House Republicans are discussing another short term fix to the debt ceiling.
House Republicans are discussing a short-term debt ceiling increase to buy time for broader deficit reduction negotiations with Democrats, Rep. Paul Ryan (R-Wis.) told reporters Thursday.
“We’re discussing the possible virtue of a short-term debt limit extension so that we have a better chance of getting the Senate and the White House involved in discussions in March,” Ryan told reporters gathered at the pricey Kingsmill resort in Williamsburg, where the House GOP is holding its annual retreat.
“All of those things are the kinds of things we’re discussing,” said Ryan, the party’s budget chief and 2012 vice presidential candidate.
A small hike in the $16.4 trillion debt ceiling would give the government more time to make payments on its responsibilities as lawmakers and the White House haggle over federal spending. A GOP leadership aide said there was no consensus on the size of a debt limit hike, and that it would have to be coupled with entitlement reforms or spending cuts.
Treasury Secretary Timothy Geithner has told Speaker John Boehner (R-Ohio) that the nation hit its borrowing limit at the end of 2012 and will run out of ways to avoid a first-ever default sometime between mid-February and early March. $85 billion in across-the-board 2013 cuts to defense and domestic spending are set to begin taking effect in March, and the government will run out of funding a month later.
Formulating a good metaphor for Obama’s second term is itself a task for intuitive creative thought that entails rethinking what he will propose in his second term. A good metaphor might embody the idea of an “inclusive economy.” The word “inclusive” resonates strongly: Americans do not want more government per se; rather, they want the government to get more people involved in the market economy. Opinion polls show that, above all, what Americans want are jobs – the beginning of inclusion.
The parallel to Chase’s book today is the 2012 bestseller Why Nations Fail by the economist Daron Acemoglu and the political scientist James Robinson. Acemoglu and Robinson argue that in the broad sweep of history, political orders that include everyone in the economic process are more likely to succeed in the long term.
The time seems ripe for that idea, and it fits with the triumph of inclusiveness symbolized by Obama himself. But another step in metaphor-building is needed to encapsulate the idea of economic inclusion.
The biggest successes of Obama’s first term concerned economic inclusion. The Affordable Care Act (“Obamacare”) is providing more people with access to health care – and bringing more people to privately-issued insurance – than ever before in the United States. The Dodd-Frank financial reforms created the Consumer Financial Protection Bureau, so that privately issued financial products would serve the public better, and created incentives for derivatives to be traded on public markets. And he signed the JOBS Act, proposed by his Republican opponents, which aims to create crowdfunding Web sites that allow small investors to participate in start-up ventures.
We have not reached the pinnacle of economic inclusion. There are hundreds of other possibilities, including improved investor education and financial advice, more flexible mortgages, better kinds of securitization, more insurance for a broader array of life’s risks, and better management of career risks. Much more progress toward comprehensive public futures and derivatives markets would help, as would policies to encourage the emerging world to participate more in the US economy. (Indeed, the inclusion metaphor is essentially global in spirit; had Obama used it in the past, his economic policies might have been less protectionist.)
The right metaphor would spin some of these ideas, or others like them, into a vision for America’s future that, like the New Deal, would gain coherence as it is transformed into reality. On January 29, Obama will give the first State of the Union address of his new term. He should be thinking about how to express – vividly and compellingly – the principles that have guided his choices so far, and that set a path for America’s future.
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Good morning all. Thanks kat for the economy links. Unfortunately my brain isn’t ready this early for deep thinking.
I headed to Alternet this morning, read a couple of pieces & ended with this one: http://www.alternet.org/tea-party-and-right/sandy-hook-truthers-crank-their-gun-nuttery-max?page=0%2C5&paging=off It’s full of good info to counteract the ridiculous claims from the pro-gun folks that more guns = less crime/mass shootings. It also made me think this conspiracy theory might be one reason the details of the shooting in Sandy Hook are not as forthcoming as in other incidents. So, jj that link is for you in particular.
What do ya’ll think of Kucinich joining Fox? I’ve been a fan of his for awhile. He is, after all, an animal rights/vegan guy. Personally, I think it’s a foolish action on his part.
One personal note: work has been close to living hell this week. I nearly had a complete meltdown yesterday & am so looking forward to the weekend. Hope everyone out there has a terrific day & stays warm & healthy. It’s really cold in Orlando this morning – don’t laugh, it’s 43 degrees. BRRRR!!
Connie, thanks for the link..will have to take a look at it.
I saw this while looking for cartoons…
Hope your day is better!
We are so acclimated for being lied to that it becomes a cause for “celebration” when someone stands up and admits that yes, they lied, but so what?
An example is Lance Armstrong “admitting” what was long suspected of taking performance enhancing drugs for years ONLY when others decided to “come clean” about his usage.
Then we have this idiot from Notre Dame who not only admits to having a fake girlfriend who conveniently dies but enhances the story with details in order to become a stronger contender for the Heisman Trophy.
Throw in those imaginary WMDs that pushed us into a conflict that will go down in history as one of the biggest fiascos ever in foreign policy.
One can’t overlook the daily assault of lies coming out of Fox News. Then the last presidential race where lying to the public was the “norm” with “facts” scattered to the wind as unnecessary.
So if Joe Biden “lies” about Social Security we have come to accept it with a shrug. He knows, we know, hell everybody knows we are being fed a package of untruths and would be surprised if it happened otherwise.
Lies have become the staple of our culture and the “winner” is who can “sell it” the best. Mitt Romney was just a terrible candidate who was unable to sustain his lies because he lacked any degree of charm.
Ask any “preacher” who makes his living on spreading fantastical lies and he/whe will admit that in order to carry it out one must possess a charm offensive in order to succeed.
The issue is that for the most part we are willing to accept whatever is thrown out there to aid the cause and refuse to hold these people to any accountability. As with Lance, he is looking to make a “comeback” by “fessing up” hoping the public will overlook 20 years of straight out lying with a seal of forgiveness for coming clean.
Of course Joe Biden is considered an “asset”. He is the designated “point man” to get this job done.
Lance Armstrong needs to go away and never be seen or heard from again. His confessions are useless and disgusting. If I have to hear about bicyclists at all, I’d rather hear from the hundreds (thousands?) of competitors who lost out because of his cheating.
I have no idea why a man that rides bicycles is a celeb anyway. Why can’t we fixate on Nobel Prize Winning physicists for awhile?
Hey, what about Greg LeMond? In contrast, Armstrong always acted like a jerk even before he starting winning lots of races and before cycling became more popular.
I am mystified why football, baseball and basketball and other ball sports are hugely popular, yet they suck up so much taxpayer money for stadiums and don’t come close to paying back communities. Cycling is more understandable to me.
Personally I doubt very seriously that Joe Biden ever thought he was lying about cutting Social Security, Otherwise good comment, especially about Lance Armstrong. Though I doubt you would find any other top cyclist who wasn’t also doping.
I’m also tired of Armstrong’s apologists who carry on about how much money he’s raised for cancer research. First of all, after what we learned about Komen I’d like to see details about whether the money raised went to actual research or for promoting the cause and making lots of rubber bracelets. Second of all, he was able to raise money based on his fame which was achieved by cheating. Then there is the possibility that his cancer was caused by his cheating. It’s all a tower of lies built on a foundation of cheating.
Look at this, it is from George Takei’s Facebook page:
Timeline Photos
Yikes!
Hilarious 🙂
Medical advances have changed testicular cancer from a high-mortality disease to nearly “easy” to treat over the last few decades. So it’s no longer the hugely powerful foe we used to consider it.
Besides, lots of the stats about survivorship reflect good healthcare coverage and the randomness of helpful genetic factors.
My guess is that the picture is of Ralph Waldo Emerson.
That’s who it looks like to me too.
Yup … it is him
Okay, so now what do we win? Cash, check, money order? I’m not fussy as anyone will do.
LOL. Well, you have my awe and admiration! Actually, I figured you and BB would probably come up with it. You two are the most well read people on the planet!!
It’s Michele Bachmann’s favorite New Hampshire poet!
lol … she may be headed for jail for campaign finance fraud … she could have a lot of time to read him … I’ve also read a biography of him called The Mind on Fire …Good description of her brain too but different in a huge way!!!
In case Bachmann has forgotten, here is the famous verse of Emerson’s “Concord Hymn”, commemorating the Battle of Concord in Massachusetts:
By the rude bridge that arched the flood,
Their flag to April’s breeze unfurled,
Here once the embattled farmers stood,
And fired the shot heard round the world.
Michele Bachmann and Barney Fife: Separated at Birth?
Discuss.
It sounds like the current plans of both Democrats and Republicans may be pushing the economy in the direction that gun nuts are planning for–where they’ll have to use their military-style weapons to stave off the starving masses.
Good point.
They way it’s going doing here, Jindal will make it legal for them to use sick, dying poor people for target practice.
Foreign Policy: Does the NRA Want to Turn America Into Afghanistan?
That’s where we’re heading, if the gun nuts get their way.
Michelle Obama Announces Launch Of ‘Organizing For Action’ (VIDEO)
Maybe we could press for what we want here, rather than what the courtier press wants. If enough people push the organization, this could be a very good thing.
This is getting some play, check it out: FOR WANT OF A NAIL | Gin and Tacos
Death Beagles! Awesome.
Death Beagles with gaydar! The only go after heterosexual genitals! 😀
I love it!!!!!!!!!!!!!!!!!!!!
I had to edit your comment Ralph to show that picture.
Hee hee!
Beagles can’t help but be cute no matter how they are dressed.
Huh?
Software engineer ‘Bob’ outsources job to China so he could watch cat videos
I hope this isn’t a hoax. It’s just too good. 🙂
This could be true because, in my former life, we had an engineer who had tunneled into the companies servers and was running someone’s porn site there for extra cash. When he got caught he thought it was funny, until security walked him out.
I think folks are looking into that and have found that livestrong hasn’t really donated to cancer research per se
He donates to survivorship research and they sell sun screen too
http://www.businessweek.com/articles/2012-10-24/can-livestrong-live-without-lance
Research on living with cancer is cancer research. The writer may have meant “cancer treatment.”
“Survivorship” is a worthwhile area of study/support. Testicular cancer is highly curable. But other cancers, such as nearly all breast cancer, are not — the risk of recurrence is still there even years later. Breast cancer treatment usually leaves damage from surgery, chemo, radiation and/or the years of meds to reduce risk of recurrence. i.e., tamoxifen which has risks of blood clots and endometrial cancer; the aromatase inhibitors side effects are osteoporosis, cardiovascular disease, and bone/joint pain.
The Livestrong Foundation does some good things. They sponsor free or reduced-cost access to exercise classes and gyms. Exercise and healthy weight reduce risk of recurrence. The healthcare system can be truly mind-boggling, especially to anxious and sick cancer patients.
Support for prevention programs (risk reduction; we can’t completely prevent cancer) is important. Thousands of people die every year from metastatic skin cancer.
While I think Armstrong has done some good work, I don’t believe that should offset that he is a jerk and a liar.
Colbert: Second Amendment was like a ‘Constitutional pre-nup’
Hilarious 🙂
I like Robert Reich’s suggestion:
Robert Reich
The Law finally caught up with Ray Ray
Ray Nagin charged w/ 21 counts of bribery, conspiracy to deprive citizens of honest services + more: http://ow.ly/gW9JC #raynagin
Seems like it’s about time.
Hey Ralph!! Look at this!! One of your Senators has a brain cell!!
Cornyn: Congress will not allow default
http://www.chron.com/news/houston-texas/houston/article/Cornyn-Congress-will-not-allow-default-4203978.php
He’s faking having a brain. 🙂
Oddly enough when Cornyn was Attorney General he was actually fairly non-partisan and did a good job overall. Except for some occasional rhetoric it was hard to identify him by party. He only became a wingnut when he ran for the Senate. fwiw.
New Study Highlights Threat From Far Right-Wing Groups In U.S.
Republicans are already pushing back on this jewel. Darn those liberals at West Point.
Lol. It’s gotten so that one has to consider the Republicans as a threat to the U.S., due to their violent idiocy.