Last week, I wrote about the debacle behind the study that was used to promote fiscal austerity in a time when just the opposite policy is prescribed by economic theory. One of the big questions I had was if the results of study’s hypothesis was now insignificant–which in scientific method means the conclusions were not proven–would we see a stop to these crazy austerity policy pushers. We’ve learned the answer is no. Dumber and Dumber–heads of the so-called cat food commission–who couldn’t lead their committee to a written conclusion are on the road touting their call to deficit hysteria based on the always controversial and now highly flawed study.
On April 19, just after I had written about how the key academic research used to bolster austerity policies was exposed by a 28-year-old grad student at U Mass-Amherst, I got a surprise in my email inbox: Erskine Bowles and Alan Simpson giddily announced their new deficit-reduction plan, which includes, among other things, a recommendation to increase the eligibility age for Medicare. Their plan would reduce debt as a share of GDP below 70 percent by 2023, and as the Washington Post reports, “seeks far less in new taxes than the original, and it seeks far more in savings from federal health programs for the elderly.”
What’s incredible is that over the last week, the study by Harvard economists Carmen Reinhart and Ken Rogoff that famously warned of the dangers of government debt has been proven to be riddled with errors and questionable methodology. To recap: R&R’s paper purported to show that countries with public debt in excess of 90 percent of gross domestic product suffered negative economic growth. Austerity hawks everywhere used it to justify cuts that have cost people jobs and vital services. The original spreadsheet used by R&R was obtained by a U Mass grad student, who found that in addition to the mistakes already noted by several economists, there was a coding error in their Excel spreadsheet that significantly changed the results of their study.
As New York magazine’s Jon Chait has pointed out, that same discredited research has been used by Bowles and Simpson to formulate their deficit-reducing austerity plans.
You simply cannot get these tools of the plutocracy to come clean. They’re going to go down with the stupidity and are trying to bring the rest of the country with them.
I promised myself to make sure we pointed to injustice and suffering around the world as well as our own home towns. Today I want to provide information about Myanmar–a country I’ve spent time studying and a country trying to change–with a history of brutal ethnic cleansing of its Muslim minority population.
Ethnic cleansing and crimes against humanity have been committed against Myanmar’s ethnic Rohingya people, according to a new report by Human Rights Watch (HRW), a New York-based nongovernmental organisation.
According to the report released on Monday, entitled All You Can Do is Pray, more than 125,000 ethnic Rohingya have been forcibly displaced since two waves of violence in May and October 2012.
Satellite images show almost 5,000 structures on land mostly owned by Muslim Rohingya have been destroyed, says the report.
The October attacks, the report states, were coordinated by Myanmar government officials, an ethnic Rakhine nationalist party and Buddhist monks. The deadliest attack took place on October 23, in which witnesses say at least 70 Rohingya – including 28 children – were massacred in Mrauk-U township.
The UN has described the Rohingya as one of the most persecuted minorities in the world.
Most Rohingya who live in Myanmar’s western Rakhine state are denied citizenship by the Myanmar government, which claims they are illegal immigrants from neighbouring Bangladesh and often refers to them as “Bengali”.
The Myanmar government has done nothing to prevent the violence, alleges the report, and at times government forces have joined in the attacks on the Rohingya.
“The Burmese government engaged in a campaign of ethnic cleansing against the Rohingya that continues today through the denial of aid and restrictions on movement,” Phil Robertson, HRW’s deputy Asia director, said.
“The government needs to put an immediate stop to the abuses and hold the perpetrators accountable or it will be responsible for further violence against ethnic and religious minorities in the country.”
I am so ashamed to read that Buddhist monks may have been participants. They have been targets themselves and this behavior violates the most important teaching of the Buddha which is the vow of non harming. No real Buddhist would participate in such horrors.
I also wanted to mention the return of CISPA and its impact on internet users in this country. This was slipped back into Congress while we were all watching Boston.
Described as “misguided” and “fatally flawed” by the two largest US privacy groups, the Cyber Intelligence Sharing and Protection Act (CISPA) threatens the online privacy of ordinary US residents more so than any other Bill since Congress amended the Foreign Intelligence Surveillance Act in 2008.
Its sole purpose is to allow private sector firms to search personal and sensitive user data of ordinary US residents to identify this so-called “threat information”, and to then share that information with each other and the US government — without the need for a warrant.
By citing “cybersecurity”, it allows private firms to hand over private user data while circumventing existing privacy laws, such as the Wiretap Act and the Stored Communications Act. This means that CISPA can permit private firms to share your data, such as emails, text messages, and cloud-stored documents and files, with the US government.
It also gives these firms legal protection to hand over such data. There is no judicial oversight.
To make matters worse, because there is little transparency and individual accountability, those who have had their data handed to the US government may not even know about it or be given a chance to challenge it.
Norway’s ruling party is pushing for drilling around environmentally sensitive areas in the Arctic Circle. Could this impact a return to attempts to drill the area by US Oil companies? I hope this doesn’t lead to a race to destroy ANWR
Exploration in the waters around the Lofoten islands just above the Arctic circle is becoming one of the most contentious issues for parliamentary elections in September.
The picturesque area had been off limits because it is home to the world’s richest cod stocks, with environmental groups and the tourism industry opposed to any development.
The Labour party voted for the study, a precursor to any exploration, but also said it would take another vote in 2015, before actual drilling could begin.
Oil is the Norwegian economy’s lifeblood – the nation is the world’s seventh-biggest oil exporter and western Europe’s biggest gas supplier.
Its sprawling offshore energy sector continuously needs new areas to explore to halt the decline in production and energy firms have argued that they should be allowed to investigate the Lofoten islands.
Norway’s oil production will fall to a 25-year low this year as North Sea fields mature. Even a series of recent big finds, like the giant Johan Sverdrup field, which could hold over 3 billion barrels of oil, will only arrest the decline.
Waters off Lofoten are estimated to hold 8 percent of Norway’s undiscovered oil and gas resources with seismic tests identifying 50 prospects that could hold recoverable reserves or around 1.27 billion barrels of oil equivalent, the petroleum directorate said earlier.
With Labour’s support, Norway’s top three parties now favor exploration in the area, raising the chance that the next government would begin the process.
So, here’s what Boston’s “union thugs” will be doing this morning: Boston Teamsters vs. Westboro Baptist Church: Teamsters to form a human shield at Bombing victim’s funeral, Look out BB and our Boston friends! These Westboro folks have come to disrupt funerals there. Down here, our Bikers block them.
Teamsters from Local 25 in Boston will protect the family of bombing victim Krystle Campbell during her funeral tomorrow morning. Members of the Westboro Baptist Church are expected to protest.
The Associated Press reports,
Family and friends are saying final good-byes to Krystle Campbell, one of the three people who lost their lives in the bombing at the Boston Marathon finish line.
A wake for Campbell is being held Sunday at a funeral home in Medford, where the 29-year-old restaurant manager was raised and graduated from high school in 2001. A private funeral is scheduled for Monday at St. Joseph Church.Local 25 was contacted by some concerned citizens of Medford asking for help to keep members of the Westboro Baptist Church from protesting the funeral of Krystle Campbell, scheduled for tomorrow morning at 10 AM in Medford.
Local 25 President Sean O’Brien asked all off-duty Teamsters to participate:
Teamsters Local 25 will be out in full force tomorrow morning at St. Joseph’s Church in Medford to form a human shield and block the Westboro Baptist Church from protesting the funeral of Krystle Campbell. The Campbell family and friends have already endured immeasurable amounts of heartache and tragedy this week, and deserve a peaceful funeral with time to grieve privately.
Westboro Baptist Church should understand that we will go to great lengths to make sure they don’t protest any funerals of the victims of the past week’s tragedies, and that those we lost receive a proper burial.
Teamsters Local 25 represents 11,000 hardworking men and women from the Boston area.
There are three dead from the bombing. Westboro is also connected to a law firm that makes money from the antics of these folks. They usually claim their first amendment rights were violated and then collect government money defending their case.
And just because I’ve quit watching CNN around a year ago after watching the station for years, I thought I’d end with this: “Last Week, CNN Itself Became the Poop Cruise”. Frankly, I’ve thought they were full of it and lacking substance for some time.
As reactions to the media’s handling (or rather, mishandling) of breaking news during a busy week continue to flow in, perhaps none is more condemning than David Carr’s latest column in The New York Times. The media critic came down hard on correspondent John King, newly appointed chief Jeff Zucker and the rest of the CNN news team that famously fumbled during the aftermath of the Boston bombing and hunt for the suspects. Most notably, the network erroneously reported the arrest of a suspect on Wednesday, when everybody now knows that a suspect wasn’t arrested until Friday when police found Dzokhar Tsarnaev hiding in the back of a boat.
Carr has an analogy for that. In discussing the mistake, one that more than one person described as “devastating,” Carr reminded us of the most recent moment that CNN’s stolen the limelight — perhaps not in a good way:
It was not the worst mistake of the week — The New York Post all but fingered two innocent men in a front-page picture — but it was a signature error for a live news channel. … Until now, the defining story in the Zucker era had been a doomed cruise ship that lost power and was towed to port, where its beleaguered passengers dispersed. This week, CNN seemed a lot like that ship.
Zing. Inevitably, Carr’s piece comes off almost as apologetic. In his parting words, the veteran journalist points out how even the president “wants CNN to be good.” So when it’s bad, it’s hard to watch.
I’m just praying for a better week and that we can get some attention on the small town of West Texas that really needs our help.
What’s you your reading and blogging list today?
Ben Bernanke joined the chorus of economists concerned about the impact of the sequester on the sluggish recovery. This is not the first time the Fed chair has commented on misguided and dysfunctional Fiscal Policy in our country.
Federal Reserve Chairman Ben Bernanke warned Congress risks slowing the economy by allowing $85 billion in automatic spending cuts to be triggered on Friday, arguing they should be replaced with more deliberate, long-term cuts.
In prepared testimony for the Senate Banking Committee, Bernanke argued the sequester would pose a “significant headwind” to the economic recovery.
“Given the still-moderate underlying pace of economic growth, this additional near-term burden on the recovery is significant,” he warned.Bernanke did not offer an opinion on whether tax hikes should be included as part of a replacement bill, and he did not call for any specific entitlement reforms.
Meanwhile, the White House released reports on how the expected cuts will impact states. This undoubtedly will trigger more Republican whining on how mean the President continues to be to them as they continue their role as economic agents of chaos.
In Kentucky, home of the Senate Republican leader, Mitch McConnell, residents woke up on Monday to news articles like these: Widespread government spending cuts that begin on Friday will cost 21,484 jobs in the state. A construction project at Fort Knox will come to a halt. Three airports may endure partial shutdowns. Nearly $12 million in grants to public schools would be cut, putting at risk the jobs of 160 teachers and aides. More than 1,000 children would lose access to Head Start.
The White House released warnings for every state on Sunday in the hope that angry voters would besiege Republican lawmakers like Mr. McConnell and the House speaker, John Boehner, to stop the $85 billion in cuts, known as a sequester. President Obama wants to replace the sequester with a mix of tax increases on the rich and less damaging spending reductions. Republicans say they won’t consider any proposal that isn’t all cuts, so the sequester is all but certain to begin this week.
There’s a fairly good list of the types of spending items that will be subject to cuts at the Bipartisan Policy Center.
Setting aside the magnitude of the reductions, the most difficult aspect of both the defense and domestic cuts is that they will be made across the board to all non-exempt government spending regardless of programs’ merits or demerits.*** The reductions designed by law are executed at the Program, Project & Activity (PPA) level of the federal budget, sometimes defined in appropriations bills and which often includes very granular categories of expenditures, such as “two Virginia Class Submarines” or “salaries and benefits” of a particular agency.
Absent a new law passed by Congress, the president has little ability to spare one type of spending and cut more from another. This creates uncertainty in both the public and private sector because there remains much to be determined about how PPAs will be defined by agency administrators and how the cuts will be implemented. This inability to plan is already acting as a drag on economic growth.
Furthermore, the immediate and across the board nature of the cuts, along with their magnitude concentrated in a seven-month period, will impair economic growth as the year progresses. At BPC, we estimated last year that the sequester would reduce 2013 gross domestic product (GDP) growth by half a percentage point, and would cost the economy approximately one million jobs over the next two years. More recent estimates released by the CBO and Macroeconomic Advisors have roughly confirmed these projections.
Given all of this, you would think that most congress critterz would want to avoid the sequester. However, there’s that same group of tea party crazies that are so disconnected from an evidence-based reality it appears congress will tank the economy rather than develop a cogent Fiscal Policy related to economic theory and the state of the economy itself.
The White House strategy on the sequester was built around a familiar miscalculation about Republicans. It assumed that, in the end, they would be reasonable and negotiate a realistic alternative to indiscriminate cuts. Because the reductions hurt defense programs long held sacrosanct by Republicans, the White House thought it had leverage that would reduce the damage to the domestic programs favored by Democrats.
It turns out, though, that the defense hawks in the party are outnumbered. More Republicans seem to care about reducing spending at all costs, and the prospect of damaging vital government programs does not seem to bother them. “Fiscal questions trump defense in a way they never would have after 9/11,” Representative Tom Cole, a Republican of Oklahoma, told The Times. “But the war in Iraq is over. Troops are coming home from Afghanistan, and we want to secure the cuts.”
Cuts this draconian have no place in a tottering economy. But, realistically, the only way to break this standoff is for the cuts to exact their toll on daily life, causing Republicans to face pressure from the public to negotiate an alternative plan with higher revenues in March as part of talks to finance the government for the final six months of the fiscal year.
It’s difficult to believe that so many folks can be so misguided about the need to drastically cut the budget. Read the rest of this entry »
Some one needs to take the shovel away from Joe Scarborough. He’s about ready to wind up in Siberia with that hole he’s digging himself. I’ve never seen such obsessive compulsive self-destructive behavior. The man cannot admit he’s wrong and knows nothing about economics. He also doesn’t appear to know the difference between an economist and a lawyer and a foreign policy expert. I expect that one of these days he’ll have heart failure then go to his Politico blog to instruct another lawyer on how to do his surgery correctly. Maybe, he’ll start giving lectures on the origins of the universe to Neil Degrasse Tyson next.
Who knew one man could become apoplectic convincing every one he wasn’t beaten up in a one-sided match of wits by Nobel Prize Winning Economist and ubernerd Paul Krugman over 2 weeks ago? He’s written the second of two “I know you are, but what am I?” blog threads at Politico in two days. What Scarboroughs’s become is your run-of-the-mill internet troll who is now blog stalking Dr. Krugman. Only “Tiger Beat on the Potomac” would continue to give this pathetic man a platform for what looks like a developing psychological disorder. We thought he’d over done it on Nate Silver and the presidential poll analysis. But, nope, he’s back and convinced he knows enough about investment and econometrics to analyze the whims of investors.
Yesterday’s Scarborough rant was so bad and so wrong, I actually stepped into it. Scarborough relentlessly insists that Krugman is wrong and that all the rest of us economists think he’s wrong too. To prove his point and to try to get back for being shown up on his show, Mourning Joe used an article written by Princeton economist and Paul Krugman colleague Alan Blinder. The only problem is that Blinder is basically saying the same thing Krugman’s been saying all along. Scarborough not only proved Krugman’s point, he totally missed the point–and the headline–of the Blinder article as well as ascribing the article to the wrong publication. Mourning Joe must’ve read only a sentence and ignored the rest. Does that first sentence not read “Today, there is no deficit crisis” or do I need to up my script for my reading glasses?
Today, there is no deficit crisis. Tomorrow, there will be no deficit crisis. But in ten years, we will have a massive problem of exploding health care costs. Now that’s a crisis to worry about.
But the same could not be said of a fabulously misleading Business Insider post that claimed to list 11 economists who shared Krugman’s debt-denying views. Never mind the fact that most of the links provided actually undercut Krugman’s reckless position and supported my view that the most pressing fiscal crisis is not next year’s deficit but next decade’s debt.
The Business Insider link to an Alan Blinder piece was particularly supportive of the “Morning Joe” panel’s view. Blinder, a former Fed vice chairman and Princeton economics professor, warned of “truly horrific problems” caused by long-term debt, health care costs and interest on the debt. Paul Krugman’s Princeton colleague even shared my conclusion that the coming Medicare crisis will be so great that Democrats won’t be able to tax their way out of it.
Far from supporting Mr. Krugman’s extreme position, the link to Professor Blinder’s New Yorker article undercuts his Princeton colleague’s exaggerated “In-the-end-we’ll-all-be-dead” approach to U.S. long-term debt.
Then he added a short list of noneconomists--including Ed Rendell who is paid lobbyist for deficit hawk group Fix the Debt associated with Simpson & EB who make about $40,000 a speech as travelling austerians–as proof that all economists think Krugman is as extreme on economics as Wayne LaPierre is on gun safety laws. Considering Krugman’s name resides on a well-known trade model, he’s published in just about every prestigious peer-reviewed journal possible, and he’s got one of the best-selling set of text books in the country right now, I’d say Joe just won’t admit he’s way out of his league. Krugman calls Scarborough desperate. Frankly, he gone way beyond that to pathetic to me.
First up, the sad story of Joe Scarborough, whose response to my anti-austerian appearance on his show has been a bizarre campaign to convince the world that absolutely nobody of consequence shares my views. Why is this bizarre? Because while I could be wrong about macroeconomics (although I’m not), it’s just not true, provably not true, that I’m alone in arguing that the current and near-future deficit aren’t problems.
I actually wrote about all of this over two weeks ago (1/30/2013) when the incident first happened, so it seems all deja vu to be at this again. But let me tie this to a bigger problem again. Hillary Clinton left the Benghazi hearings uttering something profound. These hearings were some of the more bizarre things I’d ever watched until the Hagel hearings started and the obsession with conspiracy theories went nuclear. Clinton said some ‘‘just will not live in an evidence-based world’. This includes Joe Scarborough who thinks his “analysis” in his latest little short blog blurb shows Krugman as being wrong, wrong wrong. This is what he thinks is a “TA DA”! moment. I would expect better analysis from Macro 101 students. I would also expect any student in basic statistics or econometrics to have a hey day with his methodology which doesn’t even broach the high school level. But, he’s real proud of it and thinks it puts Krugman in his place.
Investors may be growing skittish about U.S. government debt levels and the disordered state of U.S. fiscal policymaking.
From the beginning of 2002, when U.S. government debt was at its most recent minimum as a share of GDP, to the end of 2012, the dollar lost 25 percent of its value, in price-adjusted terms, against a basket of the currencies of major trading partners. This may have been because investors fear that the only way out of the current debt problems will be future inflation.
More troubling for the future is that private domestic investment—the fuel for future economic growth—shows a strong negative correlation with government debt levels over several business cycles dating back to the late 1950s. Continuing high debt does not bode well in this regard.
I can tell you that the minute all the econ and finance professors who blog get a hold of this, there will be laughter so loud that it will leave the blogosphere and escape to a permanent home in the universal annals of Pathos. Frankly, I can already see using this in a first level, midterm statistics class, corporate finance class or economics class. How many wrong things can you point to in this analysis in just 45 minutes? Go!
Joe probably eyeballed domestic investment numbers and debt levels then labelled it correlation so he can jump an infinite number of sharks to go AHA!!!! GOTCHA PROFESSOR MORIARTY errr Krugman!! He also appears to be blissfully unaware of Fed policy concerning the dollar which basically sets the supply of our currency and the fact that supply interacts with the demand for our currency to set exchange rates. Oh, and the dollar’s been up against the major currencies (especially the EURO) since Dubya left office, so one of his arguments is just factually wrong. The USD has been up against the Yen for well over a year and then up then flat against the Pound Sterling for years so I’m not sure which currency he’s worried about in that basket. It’s even been flat against the Cayman Islands Dollar which I’m sure is more of interest to him than anything else. It’s way down against the Chinese Yuan but then, I wouldn’t consider that a problem at all.
I’m tempted to go there and there and all the places I could go with this, but I won’t because most of you probably don’t want a stats lecture and I don’t have all day. Let me just say that there are a lot of factors that drive investment, which is the least logical component of the national income accounts; and to single out one possible factor without controlling for any of the other factors is a fool’s errand. It shows complete ignorance of investment, finance, and economics so we can add a few more things to the list called what Joe doesn’t know. Actually, worse than that is that he appears to have gotten this blather from an anonymous “senior economist” from the Rand Corporation. Is he misquoting another economist or did some one actually write this for him? Worrying either way!!
Joe, however, is more importantly a symptom of the much bigger problem identified by our former Madam Secretary. We have an entire political party that insists it’s right when clearly, the overwhelming amount of evidence says its wrong. For this analysis, I’m closing with something by Kevin Drum who occasionally can find the nut. We deserve a better press. We deserve better than Joe Scarborough littering up the air waves under the guise of “news” instead of misguided memes and propaganda.
It seems to me that something has happened over the past three months: the nonpartisan media has finally started to internalize the idea that the modern Republican Party has gone off the rails. Their leaders can’t control their backbenchers. They throw pointless temper tantrums about everything President Obama proposes. They have no serious ideas of their own aside from wanting to keep taxes low on the rich. They’re serially obsessed with a few hobby horses — Fast & Furious! Obamacare! Benghazi! — that no one else cares about. Their fundraising is controlled by scam artists. They’re rudderless and consumed with infighting. They’re demographically doomed.
Obviously these are all things that we partisan hacks in the blogosphere have been yapping about forever. But the mainstream press, despite endless conservative kvetching to the contrary, has mostly stuck with standard shape-of-the-world-differs reporting.
Recently, though, my sense is that this has shifted a bit. The framing of even straight new [sic] reports feels just a little bit jaded, as if veteran reporters just can’t bring themselves to pretend one more time that climate change is a hoax, Benghazi is a scandal, and federal spending is spiraling out of control. It’s getting harder and harder to pretend that the same old shrieking over the same old issues is really newsworthy.
This brings me back to Boston Boomer’s Valentine’s Day morning rant based on a phone discussion we had the night before. Why-oh-Why am I writing about this again? Why-oh-why can’t we put this kind of nonsense to bed like all sane people who know the earth is not flat, an apple will fall to the ground if dropped from a tree, and if you every one stops spending and only a few families have decent incomes, the economy will contract and say stay contracted? Don’t folks like Scarborough and the AEI know we buried Say’s
Law Failed Hypothesis a long time ago? (Kinda like we buried that zombie Laffer curve! But some folks just want to believe the universe revolves around the earth and the entire set up is only a few thousand years old. Hmmm, like Mark Rubio.)
I’m not sure that last question was rhetorical or not, but hey, it’s a thread and there’s a discussion, so discuss amongst yourselves …
Here’s the topic:
Joe Scarborough, pathetic or desperate? or Why oh Why can’t we Have a better press corps? Joe Scarborough edition
Yes, yes … the fiscal bunny slope has been somewhat solved and the press has moved on to discussing the next big self-inflicted fiscal crisis coming up in February. ( I guess we’re adopting the term “March Madness” just to make it all exciting and discussable.) We’re still in the land of economic surreality instead of theory. It worries me. The basic problem is that this country has forgotten its economic history, lessons and theory. Fiscal policy should not be based on political memes and lurching from one crisis to the next. Here’s some things to think on from economists.
Economist Nouriel Roubini points out that we’ve been let down by our political leaders who just don’t get that our basic problem is really one of development. We’ve had substantial growth in upper incomes and corporate profits, yet we’re going nowhere in all the quality of life and economy numbers. We have a tax policy that encourages folks like Romney to strip money out of functional businesses, shut them down, and move the proceeds to offshore bank accounts to avoid paying taxes that support basic features of a civilized country. How is this kind of wealth creation helping our economy? How is treating speculative gambling to tax favors instead encouraging actual business building creating a future upon which we can sustain our civilization? Why isn’t the press looking at the fiscal drag this cliff solution creates a well as the bigger issue of austerity facing us in March? Austerity has done the UK no favors and is crushing parts of the Eurozone. Why are the media and the political elite focusing on policies that look like Herbert Hoover’s revenge? Why feed the drone economy while starving granny?
President Barack Obama and his allies will argue that the deal concluded on Tuesday raises only $600bn of revenues over 10 years rather than their initial target of $1.4tn – and therefore there is further room for tax rises, at least for the wealthy. Republicans will argue that spending should now be radically cut, since this week’s deal did not address that side of the national balance sheet. (Even the 2011 debt ceiling deal reduced prospective spending by $1tn).
In the meantime, the likely fiscal adjustment in 2013 will be about 1.4 per cent of gross domestic product. (Spread between the expiry of the payroll tax cut, the increase in the tax rates of the rich, and some eventual cuts to spending.)
This translates into a 1.2 per cent of GDP drag on the economy during the year. If the economy was happily growing above trend – at say 3.5 per cent – that would not be such a big deal, as growth would still be above 2 per cent. In the past few quarters growth already averaged about 2 per cent. So the US could quite easily come perilously close to stall speed this year – or worse, if the eurozone crisis worsens.
The longer-term picture is bleaker still. The reality is that America is yet to wake up to the full extent of its fiscal nightmare. Even the typical Republican voter is not – being on average older and poorer than a Democrat voter – in favour of gutting the welfare state. Tea Party extremists are more noise than signal. That is why the plans of Mitt Romney and Paul Ryan, the Republicans’ losing presidential ticket, postponed all the tough spending cuts on Social Security and Medicare by a decade.
Neither Democrats nor Republicans recognise that maintaining a basic welfare state, which is right and necessary in our age of globalisation, rapid technological change and demographic pressure, implies higher taxes for the middle class as well as for the rich. A deal that extends unsustainable tax cuts for 98 per cent of Americans is therefore a pyrrhic victory for Mr Obama.
Yes, they continue to eye cuts in social security under the guise of tackling the deficit. Economist Dean Baker reminds us that Social Security has nothing to do with the Federal Deficit. Yet, there’s Simpson and Bowles yacking up that granny starving canard again! Let’s chain link our grandparents in the name of a lie, please!! Baker is right. Budget hysteria is a growth industry driven by lies and has nothing to do with what’s really happening in our real economy.
While the promotion of budget hysteria is one of the largest industries in Washington, the most important and widely ignored fact about the budget situation is that we have large deficits today because the collapse of the housing bubble sank the economy. This is not a debatable point.
The budget deficit was just 1.2 percent of gross domestic product in 2007. Before the collapse of the housing bubble the deficit was projected to remain low for the next decade and the debt-to-G.D.P. ratio was actually falling. This would have been the case even if the Bush tax cuts were allowed to continue.
When the bubble burst and the economy plummeted, tax collections fell. We also spent more on unemployment insurance and other benefits for unemployed workers. And we had further tax cuts and stimulus spending to try to boost the economy. The automatic and deliberate steps taken to counter the downturn fully explain the large deficits we have seen the last five years.
Record low interest rates on government bonds demonstrate that the current deficits are not a real problem. But even if they were, it is difficult to see how cutting Social Security could to be part of the solution. Under the law Social Security is not supposed to be part of the budget. It is an entirely separate program financed on its own.
This is not just a rhetorical point. We can talk about Social Security facing a financing shortfall in the future precisely because it is solely financed by its own revenue stream.
What we really need is a recovery. That will not happen with all the fiscal policies being placed on the table right now. Let’s review one simple thing. As long as you have a good currency, federal debt instruments in demand, and a vast array of taxable assets in your country, there is no such thing as a ‘bankrupt’ government or excessive debt. But, don’t take my word for it. Let’s again, look at the economic studies and look at the demand for treasury bonds and bills. Markets see no problem with debt levels in most industrialized nations because they know that with development and growth there comes decreased deficits and pay down of debt.
The sovereign bond markets in America, Japan, Britain, and the euro area’s “core” do not seem to think so. These governments can borrow cheaply for decades at a time. While it is certainly possible that the markets are wrong, policymakers should probably pay more attention to investors and less to the fear-mongers, especially since economists do not know how much government debt is too much. In fact, there is good reason to think that many countries with their own currencies could become far more indebted without risking trouble. One reason is that many private investors do not own enough sovereign bonds.
It is important to remember that there is an absence of evidence that governments with their own currencies are too indebted. Those who argue otherwise point to the work of Carmen Reinhart and Kenneth Rogoff, the celebrated authors of This Time is Different. Their paper “Growth in a Time of Debt” claimed that sovereign debt creates a burden on the rest of the economy. (They summarise their points here.) But, as Robert Shiller and Paul Krugman have pointed out, Ms Reinhart and Mr Rogoff never explain how public indebtedness restrains growth. There may be other forces at work, especially since sovereign debt ratios are usually at their highest after wars and financial crises. In countries with their own currencies, private interest rates are now so low that many investors have been grasping for yield wherever they can find it, such as in the revived CLO market. When he evaluated the evidence, my colleague concluded that “debt matters, but the precise way that it matters isn’t as clear-cut as Reinhart-Rogoff seem to indicate”.
Why would private investors want to buy more sovereign debt? A previous post on the shortage of safe financial assets mentioned how pension plans in many countries need to buy more government bonds to avoid mismatches between their assets and liabilities …
Nearly all the red states in our country may be Greece and Portugal–with the exceptions of Texas and Florida–but the blue states are overwhelmingly Germany and they continually bail out those loser states. That’s why we are not the Eurozone. However, those red states sure are trying to blow up the very arrangement that keeps them in roads, schools, and police forces. Economist Clive Crook points out how these idiots have now created a situation where governing means we lurch between crisis because none of them appear to be able to accept the lessons learned from the civil war, the Great Depression, or about 60 year of economic and finance theory.
The latest fiscal deal does little to resolve those uncertainties. The spending-cut part has merely been delayed by two months. The tax increase for couples making more than $450,000, together with other changes and estimated savings in debt interest, shaves about $700 billion from the 10-year deficit. Savings of about $2 trillion will be needed to stabilize the ratio of public debt to national income. Bringing that ratio down to a safer level requires spending cuts and tax increases worth $4 trillion — the original “grand bargain” ambition.
Instead of dealing calmly with the problem, fiscal policy has settled into a mode of perpetual phony crisis. Phony doesn’t mean harmless, however. The risk of a real fiscal crisis gradually builds. Meanwhile, the cumulative effects of simulated crisis might be almost as bad. It’s the difference between an acute illness and a chronic wasting disease — one that’s beginning to look incurable.
Don’t tell me the economy just had a lucky escape. Whatever happens next, it has been paying for the fiscal standoff for months. It’s paying for what Congress might do with the next debt ceiling, and the one after that. The “significant uncertainty” that Geithner referred to has already held back the U.S. recovery. Another temporary fiscal patch isn’t a remedy. It’s just more of the same.
The economy needs a lasting fiscal compact that commands broad, bipartisan support. I can hear the groans. Not another call for compromise. Many Democrats and almost all Republicans find the idea disgusting. On Capitol Hill, it’s no longer enough for one side to win; the other has to be seen to lose. That attitude is the growing burden the economy has to carry.
Which brings me back to journalistic, political hacks that write columns like this one at Politico. (Glen Thrush and Reid J Epstein are the guilty wielders of the keyboards of ignorance here.) They just opine that Obama has a debt problem. Gee, guys, where did you get your doctorates in economics or finance? The place is aptly called Tiger Beat on the Potomac by Charles Pierce. They are all about being groupies to their DC stars. No Republican meme is too outrageously wrong for this e-dishrag.
The staggering national debt — up about 60 percent from the $10 trillion Obama inherited when he took office in January 2009 — is the single biggest blemish on Obama’s record, even if the rapid descent into red began under President George W. Bush.
Glenn Thrush and Reid Epstein’s Politico piece on President Obama’s “debt problem” helps capture a lot of what’s wrong with the larger debate and the political establishment’s confusion about fiscal matters.
It’s the same damn problem that happens when you watch MTP and Dancing Dave and Tom Brokaw discuss anything about economics. They don’t know a damn thing. They just repeat what they’ve heard from their local lying republican friends. Here’s more from Benen.
First, when there’s a global economic crash, and the government needs to invest to rescue the economy, large deficits are good, not bad, especially when borrowing is cheap and easy. Had the president focused on reducing the $1.3 trillion deficit he inherited from Bush/Cheney, instead of job creation and economic growth, the recession would have intensified, and yet, too many reports simply accept it as a given that higher deficits are worthy of condemnation.
Second, under Obama, as the economy started to improve, the deficit started to shrink anyway. Though the political establishment usually ignores these details, the deficit is $300 billion smaller now than when the president took office — marking the fastest deficit reduction since the end of World War II.
Third, Obama keeps pushing massive debt-reduction proposals on the table, as well as all kinds of policies that shrink the deficit (health care reform, cap and trade, Dream Act), but Republicans have opposed all of them.
For Politico, the fact that the national debt is nearly 60% larger necessarily makes this a major “blemish” on the president’s record. This only makes sense, of course, if one assumes that a larger debt is a bad thing — and given the circumstances, it’s not — and that it’s Obama’s policies that are responsible for the increase.
But as we’ve discussed before, that’s simply not the case. The facts are incontrovertible: towards the end of President Clinton’s second term, debt clocks that had been established in various U.S. locations had to be shut down — the deficit had been eliminated and the clocks had never been set to run backwards. By the time Clinton left office in 2001, the nation not only had a large surplus, it was also on track to pay off the entirety of its debt — roughly $5 trillion at the time — by the end of the decade.
Then the Bush/Cheney era happened. Republicans took a massive surplus and turned it into an even more massive deficit, adding the costs of two wars, two tax cuts, Medicare expansion, and a Wall Street bailout to the national charge card.
Sen. Orrin Hatch (R-Utah) later referred to the Bush/Cheney era as a time in which Republicans decided “it was standard practice not to pay for things.” In just eight years, GOP policymakers added $5 trillion to the debt in eight years.
But then Obama was just as reckless, right? Wrong. The key takeaway here is that it’s Republican policies, not the president’s agenda, that’s driving the national debt now and into the future.
Okay, so I’ve made this an extremely long, wonky post and your eyes are probably glazing over by now. The deal is this. We have a huge number of issues facing our country and we have press and a political party that just plain lies and spreads lies on the big ones. We can’t have a discussion on climate change science, or women’s health and reproduction and rape, or economics or a number of things because very few people bring data, science, statistics, and theory to the table. They bring hype and religious and ideological dogma. We continually see Republicans and press folks like Tom Brokaw say the economic equivalent of ‘women who get raped don’t get pregnant because their bodies shut down’ . They don’t even realize they are doing it and no one calls them on it because they get all the air time they want and economists get very little.
So, we’re on the verge of starving children and the elderly based on that level of discussion. How can we possibly get to a more fact-based reality and a healthier economy and democracy with this level of ignorance?
One of the things that drives me crazy as an economist and a citizen looking at this so-called “fiscal cliff” is that our fiscal strife has been created by the people least likely to suffer from its resolution. Congress gave the Bush administration authority to start a series of unfunded, reckless wars that have lasted well over a decade. Congress passed the Bush administration’s reckless tax cuts and generous loopholes that have benefited the few at the cost of the many. The Bush administration’s and Congress’ lack of oversight and deregulation of the financial services’ industry created a low-risk, gambling casino with the national investment and savings accounts and the debt markets. This led to a huge recession. These are the roots of our fiscal problems. But, the discussions around cleaning up messes in the District mostly surround Social Security which has nothing to do with the national debt and deficit and items that have become more necessary to average Americans since Congress and the Bush Administration broke the country with its bad policies.
Here’s some of the latest examples. Closing loopholes and unnecessary deductions for certain constituents is a good idea. However, which of these things are on the chopping block? Inkling its way up the priority list is the major middle and working class deduction and source of household wealth: the mortgage interest deduction. I have no problem with eliminating second mortgages, mortgages on boats, and mortgages on second properties. These benefit very few people and really serve little policy purpose. Capping the deduction–with an annual COLA adjustment to the median price and below-based mortgages is also fine. However, what are we likely to see?
As the Obama administration and lawmakers on Capitol Hill scramble to defuse automatic spending cuts and tax increases set to take effect Jan. 1, a herd of sacred cows — from Social Security and Medicare to deductions for charitable giving and mortgage interest — are in danger of losing their untouchable status.
Members of both parties have largely steered clear of detailed proposals so far. But plans put forth in the past year by President Obama and Mitt Romney to place limits on annual total tax deductions are likely to crimp the mortgage-interest deduction for certain taxpayers. Top congressional Republicans also have expressed openness to limiting total tax deductions as part of an overall budget deal. In addition, the presidentially appointed Simpson-Bowles fiscal commission suggested scaling back the mortgage-interest deduction as part of its own set of tax-related proposals.
Current law allows homeowners to deduct the interest paid on mortgage balances up to $1 million, including on second homes, as well as on $100,000 worth of home-equity loans. The deduction overwhelmingly benefits wealthier families, partly because they tend to have larger mortgages and pay more interest, and partly because most low- and middle-income Americans do not itemize deductions on their tax returns. It also tends to favor homeowners on the East and West Coasts, as well as those in large cities such as Chicago, where average home prices are higher.
Edward Kleinbard, a tax expert and law professor at the University of Southern California, said the mortgage-interest deduction represents the kind of government “extravagance” that the country no longer can justify, given its fiscal troubles.
“We simply cannot afford wasteful government subsidy programs anymore, and this is one of the most important examples of that,” Kleinbard said. “It’s very much a subsidy to those Americans who need it least.”
Mitch McConnell continues to service Grover Norquist and the Club for Growth. He’s back on his high horse for no tax increases for the wealthy. Ending tax cuts for the wealthy endlessly shown to have no ill-impact on the economy. There is also no real benefit to extending them.
Senate Republican Leader Mitch McConnell (Ky.) slammed the door Thursday morning on Democratic demands to raise tax rates on families earning more than $250,000 per year.
“We’re insisting on keeping tax rates where they are, first and foremost, to protect jobs and because we don’t think government needs the money in the first place,” McConnell said on the Senate floor.
“The problem, as I’ve said, is that Washington spends too much. But if more revenue is the price that Democrats want to exact, then we should at least agree to do it in a way that doesn’t cost jobs and disincentivize rates, as we all know raising rates would do,” he said.
McConnell’s comments came a day after Speaker John Boehner (R-Ohio) shot down a proposal by a senior GOP lawmaker, Oklahoma Rep. Tom Cole, to agree to extend tax rates only for families earning below $250,000 and resume the battle against higher tax rates on the wealthy next year.
Boehner said President Obama and Democrats should focus on finding ways to cut spending and reform entitlement programs.
The fate of the Bush-era tax rates — which will expire for all income levels in January — has dominated the debate over the slew of tax increases and spending cuts that are set to begin next year.
McConnell scolded the president Thursday for sticking fast to his campaign pledge to seek higher taxes on the rich, and made clear that raising tax rates on anyone is unacceptable.
The debate over Medicare is likely to be equally absurd. Medicare needs some reworking. Most of its problems comes from the pharmacy benefit which currently allows Big Pharma to price gouge participants and the taxpayers. But, you wouldn’t know that from the conversation. Republicans are playing games with Amercan’s health. They appear to be clinging to the Ryan’s voucher plan which would be disastrous for the majority of retired seniors.
The austerity crisis talks have hit a peculiar impasse. The problem isn’t, as most analysts expected, taxes, where Republicans seem increasingly resigned to new revenue. It’s Medicare. And the particular Medicare problem isn’t that Democrats are refusing the GOP’s proposed Medicare cuts. It’s that Republicans are refusing to name their Medicare cuts.
Politico quotes a “top Democratic official” who paints the picture simply: “Rob Nabors [the White House negotiator], has been saying: ‘This is what we want on revenues on the down payment. What’s your guys’ ask on the entitlement side?’ And they keep looking back at us and saying: ‘We want you to come up with that and pitch us.’ That’s not going to happen.”
That’s partly politics. If nothing else, Republicans are respectful of Medicare’s political potency. Recall that a core Republican message in both the 2010 and 2012 elections was that Democrats, through Obamacare, were cutting Medicare too much. Republicans, already concerned about their brand, don’t want to rebrand themselves as the party of Medicare cuts.
But it’s partly policy, too. The fact is that short of converting the program to a premium support system — a non-starter after they lost the 2012 election — Republicans simply don’t know what they want to do on Medicare.
Scour the various outlets for Democratic policy ideas and you’ll find plenty of proposed Medicare cuts. President Obama’s 2013 budget, for instance, includes hundreds of billions in Medicare cuts (see pages 33-37), and caps the program’s long-term growth at GDP+0.5 percent. More recently, the Center for American Progress released a 46-page proposal for cutting Medicare by almost $400 billion.
Republicans, meanwhile, have focused their energy on a long-term effort to convert Medicare to a premium-support model. Paul Ryan’s 2013 budget kept the Affordable Care Act’s Medicare cuts for the next 10 years and proposed to convert the program to a premium-support model in the future. Mitt Romney’s platform proposed reversing Obamacare’s Medicare cuts and offered a vague framework for converting the program to a premium-support model in the future.
If you dig deep into the Republican think tank world, you can find a few proposals that focus on the near-term.
The current fiscal ‘cliff’ framework appears to place a lot of burden on those least able to take it as well as those least responsible for creating the problems.
Cut through the fog, and here’s what to expect: Taxes will go up just shy of $1.2 trillion — the middle ground of what President Barack Obama wants and what Republicans say they could stomach. Entitlement programs, mainly Medicare, will be cut by no less than $400 billion — and perhaps a lot more, to get Republicans to swallow those tax hikes. There will be at least $1.2 trillion in spending cuts and “war savings.” And any final deal will come not by a group effort but in a private deal between two men: Obama and House Speaker John Boehner (R-Ohio). The two men had a 30-minute phone conversation Wednesday night — but the private lines of communications remain very much open.
No doubt, there will be lots of huffing and puffing before any deal can be had. And, no doubt, Obama and Congress could easily botch any or all three of the white-knuckle moments soon to hit this town: the automatic spending cuts and expiration of the Bush tax cuts, both of which kick in at the end of this year, and the federal debt limit that hits early next.
Go to the Politico story for a concept of what’s at stake and at issue.
Speaker John Boehner (R-Ohio) said Thursday there had been “no substantive progress” in fiscal-cliff negotiations in the two weeks since congressional leaders met with President Obama.
Boehner, addressing reporters after a meeting with Treasury Secretary Tim Geithner in the Capitol, called on the White House to “get serious” about the talks and warned of a “real danger” that Jan. 1 would come without a deal if President Obama did not offer up specific spending cuts he would be willing to accept.
“Despite claims that the president supports a balanced approach, the Democrats have yet to get serious about real spending cuts,” Boehner said. “Secondly, no substantive progress has been made in the talks between the White House and the House in the last two weeks.
“Listen, this is not a game,” he added. “Jobs are on the line. The American economy is on the line, and this is a moment for adult leadership.”
The Speaker criticized the president for holding “campaign-style rallies” instead of engaging in serious talks.