Boehner Dismissively Rejects Obama Budget
Posted: April 5, 2013 Filed under: Sequester, Social Security, U.S. Economy, U.S. Politics | Tags: austerity, Chained CPI, John Boehner, Obama budget 20 Comments
House Speaker John Boehner immediately dismissed President Barack Obama’s package of significant new entitlement cuts tied to new tax revenues, calling them “no way to lead and move the country forward.”
The White House had portrayed the proposal, part of the budget it will release next week, as a compromise with Congressional Republicans that could have put them on track for another run at a grand bargain.
But Boehner said he will not consider new revenues as part of the deal, arguing that “modest” entitlement savings should not “be held hostage for more tax hikes.”
Politico notes that Obama has now opened himself up to attacks from both the left (such as it is) and the right. Right wing nuts hate the increased taxes on “tax-preferred retirement accounts for millionaires and billionaires”
Already, Obama’s budget proposal goes farther than many in his own party and base said they would bear by including “chained CPI,” the adjustment that would over time reduce cost-of-living increases to Social Security and other federal benefit programs — effectively, a cut to Social Security benefits by tying them to inflation….
And Obama is already facing a backlash from liberal Democrats as he has floated the chained CPI idea. Sen. Tom Harkin (D-Iowa) said Friday that any Social Security cuts are a no-go for him.
“While there are large portions of the president’s budget that I strongly support, I remain firmly opposed to the chained CPI,” Harkin said. “This policy is an unnecessary attack on Social Security, a program that by law is unable to add to the deficit.”
As I’ve repeatedly said, our only defense against Obama’s obsession with cutting social programs is the stupidity of the House Republicans.
Sequestration Boogie
Posted: March 1, 2013 Filed under: Federal Budget, Federal Budget and Budget deficit, Sequester 39 Comments
Well, it’s here. It’s the day the Mayans predicted!! It’s the beginning of the end of civilization in the Americas! Sequester Disaster Day is here! Well, it’s here for those of us that like to drive on roads and across bridges. It’s here for those of us that will rely on social security or medicare this month or shortly. It’s here for those of us that have kids in schools or would like to go to university. It’s here for those of us that would prefer to live in a civilized country instead of The United States of Mississippi. For politicians and punditry in the beltway, it’s just another ball where they get to show off their designer formal wear and fancy dance steps.
As the automatic across-the-board spending cuts are set to take effect today and as President Obama meets at the White House with congressional leaders, we have to get this off our chest: This has been an absurd week. Today’s White House meeting is coming only at the last second; there’s been no sense of urgency, no negotiating, and Congress has left town; and, when you think about it, this hasn’t even been a true budget showdown. Given the lack of urgency and negotiating, it’s hard not to conclude that — deep down — plenty of folks on both sides of the aisle are OK with having these cuts take place, at least in the short term.
That’s from Chuck Todd et al. I agree. None of this makes sense if you think of economic policy or actually the idea of governing a country efficiently. I have decided that the only thing Washington cares about is the political dance and political boogie surrounding the process and not what actually happens to the nation. For some reason, these cuts play in the beltway. In that vein, Dave Weigal thinks Obama is winning the process cotillion. Will it’s good some one is winning because there are certainly going to be about 320 million losers out here in the great fly over that exists behind Washington DC and Manhattan.
Republicans have one goal, running through all of these negotiations. They don’t want sequestration to be replaced by tax revenue. Any tax revenue. Forcing the president to swallow $85 billion in cuts this year would do that. They’ve got no obvious alternatives.
But a plan like this exposes a quirk of Obama-era fiscal hawksmanship. Republicans want specific cuts. Some of them—total repeal of Obamacare!—they’ll put on the record. The rest of them, they try to put on the White House. As soon as the “supercommittee” failed and sequestration looked real, it became “the president’s sequester.” The 2011 debt-limit deal delayed real action until after the 2012 election, betting $1.2 trillion of chips on its results and giving them to the president. Even the first great structural victory of the Tea Party, the ban on legislative earmarks, handed more clout to the White House. “The power to make thousands of spending decisions, on everything from which flood control projects will be funded to how spending on military bases will be distributed, to President Obama,” warned two political scientists at the time. Republicans ignored those particular political scientists.
Vote by vote, accidentally, Republicans are endorsing an imperial vision of the presidency. Perhaps they’re picking this up by osmosis. The default position of the punditocracy is that the president must lead. The lazy pundit invokes Harry Truman’s desk ornament, “The Buck Stops Here,” as a totem of great wisdom. Brendan Nyhan, who isn’t lazy, calls this “the Green Lantern Theory of the Presidency,” after the D.C. Comics superhero and his ring that runs on willpower. Bob Woodward offered a sterling example of the theory this week, when he suggested that the president’s willingness to obey the Budget Control Act (the law that mandates sequestration) was “madness.”
See, I actually think they all must want all these cuts. They are so far removed from any impact that any of this would actually have that they’re just ignoring it. As a matter of fact, the similarly out of touch punditry likes the idea of it too. Let me offer of this from Ygelasias:”A Cheer or Two for Sequestration“.
But on the merits it seems to me that while sequestration is hardly optimal budget policy, it really isn’t all that bad in the scheme of things, and really going through with it would be better than repealing it. The key reason is that fully half the cuts are cuts to “defense” spending, and yet nobody from either party is seriously trying to maintain that America will be left defenseless in the wake of this reduced military spending. The specific sequestration mechanism is clearly awkward and clumsy, but again nobody’s saying the Mexican army is going to come swarming over the border to reconquer Santa Fe, that the Taliban is now going to be able to outspend the Pentagon, or that America’s NATO allies are now left unable to fend off a Russian invasion. That’s half the cuts with basically zero real public policy harm.
So then you look at the domestic side. Your basic transfer payments to poor people are spared, your transfer payments to the elderly are basically spared, and then everything else gets cut willy-nilly. That leads to some real policy harms. Valuable research grants are going to not happen. We’ll see some real bottlenecks at regulatory agencies. But obviously there’s some waste and fat in this domestic discretionary spending.
Long story short, if you’re a defense dove like me and have a nonutopian view of the domestic discretionary budget, then this looks like we’re mostly talking about harmless spending cuts.
This from a man who had to get a wife from an on line dating service which is basically the equivalent of a mail order bride. How much do you have to hate yourself to troll around online for an equally desperate person?
Let me just return to the economic impact of all of this.
Yes, the across-the-board spending cuts will lead to hundreds of thousands of job losses and a fiscal drag of 0.6 percent for 2013, according to the forecasting firm of Macroeconomic Advisers. Mostly, though, the rub is the timing and the inartful nature of the cuts.
“It would clearly be preferable to have a more orderly process for fiscal adjustment than the indiscriminate effects of sequestration,” wrote Macroeconomic Advisers in a recent research note.
The inopportune moment of sequestration — hitting just as the economy shows bright spots — will create a drag on the economy in a slow-motion manner. First, the furlough notices will go out in March to federal employees, the majority of whom live outside of the Washington metro area. Unemployment checks will drop as early as April for the long-term unemployed who receive the federal benefit checks.
States eventually will have to decide how to cut programs for low-income or vulnerable people that are funded through federal grants, such as child-care assistance, nutrition programs for women and children, mental-health services, and meal programs for senior citizens.
If Congress keeps the sequester cuts in place for a few months, then the economy will start to feel the effects. Federal workers furloughed for as many as 22 days between mid-April, when the furloughs are expected to begin to occur, and the end of the fiscal year will face a pay cut of as much as 20 percent. This will have ripple effects throughout the economy on consumer spending as well as state income and sales taxes.
By July, August, and September, the impact of sequestration should be fully felt. “We’re not going to go into a downward spiral overnight, but the spending cuts will build, and as they build, the effects will become noticeable,” says Nigel Gault, the chief U.S. economist of IHS Global Insight.
Already, the economic data showed a dip in federal-government spending for defense in the first quarter, a reaction to the impending cuts.
That is the real takeaway of the sequester and its economic impact. It will not hurt the economy immediately, but it still serves as a reminder of the power the federal government holds over the economy. Even if the government cannot enact policies to boost growth, it certainly can hurt the long-term prospects.
I’d really like to know why politicians these days are united in making most people’s lives worse off while maintaining things like preferable tax treatment for people that are already better off than nearly 99.9 % of the people living on the planet? The only thing I can figure out is that none of this impacts any of them so they could care less. It’s not about what happens to the nation or to its people. It’s like they’re teenagers at a country club dance. The only thing that matters is who dances with who and how they each will be perceived in the outfit they’ve chosen. Meanwhile, what will be the cost to the country in the eventual crime and social unrest? Ah, who cares, just buy stock in the latest company that runs the privatized jails. It’s a sure winner.
Thursday Reads: Rick Scott Folds on Medicaid, the Sanctity of Marriage, GOP Meltdown, and Media News
Posted: February 21, 2013 Filed under: Barack Obama, morning reads, Sequester, the GOP, The Media SUCKS, U.S. Economy, U.S. Politics | Tags: CNN, DOMA, Erin Burnett, Gay Marriage, hypocrisy, Medicaid, Michelle Laxalt, Obamacare, Paul Laxalt, Pete Domenici, Rick Scott, sanctity of marriage, Soedad O'Brien 43 Comments
Good Morning!!
There’s another winter storm moving across the country, and we could get another big snowstorm here in New England this weekend. My local NPR station predicted a foot of snow for the Boston area on Sunday, but the Weather Channel says it could turn out to be mixed with rain. We’ll just have to wait and see. The good news is that February is almost over and spring is on the horizon.
For now, pull up a chair (or curl up in bed with your laptop, grab your coffee or tea, and let’s see what’s in the news this morning.
Yesterday JJ wrote about all the Republican governors who are refusing to cooperate with the ACA by setting up health care exchanges in their states. Many GOP governors have also said they will not agree to an expansion of Medicaid. But late yesterday, one of the most recalcitrant of these governors, Rick Scott of Florida, reversed course and accepted a Medicaid expansion that would provide health coverage for an additional 1 million Floridians. The Orlando Sentinel reports:
Gov. Rick Scott announced Wednesday a proposed three-year expansion of Florida’s Medicaid program — enrolling an additional one million poor and disabled Floridians beginning next year — after the Obama administration gave the state tentative approval to privatize Medicaid services. If the Legislature approves, Scott’s announcement means the state will extend eligibility in the federal-state program to single people and families earning up to 138 percent of poverty….”While the federal government is committed to paying 100 percent of the cost of new people in Medicaid, I cannot, in good conscience, deny the uninsured access to care,” Scott said at a press conference. He added that the expansion would have to be renewed in three years.
Florida has approximately 3.8 million uninsured citizens, so this isn’t going to solve the problem for most of them. So what’s going on with the privatization deal?
Scott’s announcement came a few hours after the Centers for Medicare and Medicaid Services announced its tentative approval of a managed-care plan that Scott had previously said might well determine his decision on expansion – though the governor said he had not committed to the expansion in return for the approval….
But, the approval is conditional. According to CMS, the state still needs to show how it plans to monitor the quality of care that the Medicaid recipients will receive, plus create a “rigorous and independent evaluation” of the managed-care plans.
Republicans in the Florida legislature are unhappy and may still challenge Scott’s decision.
Erik Erikson is unhappy too, writing at Red State: I Am Very Disappointed in Governor Rick Scott. Erikson says “[i]t is a sad day for conservatives.”
Pete Domenici and Michelle Laxalt
In sanctity of marriage news,
Just a week after Democratic Representative Steve Cohen of Tennessee revealed that a young girl he was tweeting with was his daughter–a child he had not know about until recently–we learned yesterday that former New Mexico Senator Pete Domenici had a secret, out-of-wedlock child, a son who is now in his thirties. From the Albuquerque Journal:
Statements given to the Journal by Domenici and the son’s mother, Michelle Laxalt of Alexandria, Va., identified the son as Adam Paul Laxalt, a Nevada lawyer. Michelle Laxalt formerly was a prominent government relations consultant and television political commentator in Washington, D.C. She is a daughter of former U.S. senator and Nevada Gov. Paul Laxalt. “More than 30 years ago, I fathered a child outside of my marriage,” Domenici said in his statement. “The mother of that child made me pledge that we would never reveal that parenthood, and I have tried to honor that pledge and so has she,” Domenici said.
Michelle Laxalt said that she and Domenici decided to go public now because she had reason to believe that someone else was going to (someone in the media?) was going to reveal their secret.
“Recently information has come to me that this sacred situation might be twisted … and shopped to press outlets large and small in a vicious attempt to smear, hurt and diminish Pete Domenici, an honorable man, his extraordinary wife, Nancy, and other innocents.” Michelle Laxalt said in her prepared statement.
“Why, after more than 30 years, would anyone insinuate pain and ugliness where joy and beauty have presided?” she asked.
Michelle Laxalt said “one night’s mistake led to pregnancy” and she chose to raise the son as a single parent.
“Given the fact that both my father and the father of my child were United States senators, I felt strongly that I would make this choice according to my values and would not seek advice, input or permission,” Michelle Laxalt said.
A few more reactions to the Domenici-Laxalt story:
Elspeth Reeve at The Atlantic Wire: Senator Had a Secret Son With Pundit Who Praised Him as a Great Dad.
Digby at Hullabaloo notes that Domenici was extremely judgmental of Bill Clinton over his relationship with Monica Lewinsky.
I really liked this one at The League of Ordinary Gentlemen: “Secret Children For Me, No Gay Marriage For Thee!”
More evidence that the GOP is melting down:
Yesterday, conservative pundit Byron York was mystified by John Boehner’s op-ed in the Wall Street Journal about the sequester. York writes:
In a Wall Street Journal op-ed Wednesday, House Speaker John Boehner describes the upcoming sequester as a policy “that threatens U.S. national security, thousands of jobs and more.”
Which leads to the question: Why would Republicans support a measure that threatens national security and thousands of jobs? Boehner and the GOP are determined to allow the $1.2 trillion sequester go into effect unless President Obama and Democrats agree to replacement cuts, of an equal amount, that target entitlement spending. If that doesn’t happen — and it seems entirely unlikely — the sequester goes into effect, with the GOP’s blessing.
In addition, Boehner calls the cuts “deep,” when most conservatives emphasize that for the next year they amount to about $85 billion out of a $3,600 billion budget. Which leads to another question: Why would Boehner adopt the Democratic description of the cuts as “deep” when they would touch such a relatively small part of federal spending?
The effect of Boehner’s argument is to make Obama seem reasonable in comparison. After all, the president certainly agrees with Boehner that the sequester cuts threaten national security and jobs. The difference is that Obama wants to avoid them….Could the GOP message on the sequester be any more self-defeating?
Bwwwwwaaaaaaahahahahahaha!!!!
In other bizarre wingnut news,
I had to double check to make sure this story at HuffPo wasn’t satire.
Fox News personality Bill O’Reilly has announced that Killing Jesus: A History will be his follow-up book to the NYT Bestsellers Killing Lincoln and Killing Kennedy. A press release from his publisher Henry Holt stated that the book will
…tell the story of Jesus of Nazareth as a beloved and controversial young revolutionary brutally killed by Roman soldiers. O’Reilly will recount the seismic political and historical events that made his death inevitable, and the changes his life brought upon the world for the centuries to follow. “Jesus Christ has not walked among us physically for more than two thousand years, yet his presence today is felt the world over and his spirit is worshipped by more than 2.2 billion people,” said O’Reilly. “His teachings, his legacy, his life as a flesh-and-blood man, and his death created the world in which we live.”
Too much! More from The Hollywood Reporter:
In Killing Jesus, O’Reilly “will recount the seismic political and historical events” that made the death of the “beloved and controversial young revolutionary” known as Jesus of Nazareth inevitable.
“Jesus Christ has not walked among us physically for more than 2,000 years, yet his presence today is felt the world over and his spirit is worshipped by more than 2.2 billion people, O’Reilly said in a statement released by Holt. “His teachings, his legacy, his life as a flesh-and-blood man and his death created the world in which we live.”
This is a riot:
Candy Crowley moderating presidential debate
Dylan Byers reported at Politico last night that former RNC chairman and current co-chair of the presidential debate commission Frank Farenkopf regrets allowing CNN’s Candy Crowley to moderate the second presidential debate between Obama and Romney.
Why, you ask?
Crowley, who moderated the second, town-hall-style debate, drew heavy fire from conservatives for challenging Mitt Romney after he suggested that President Obama had not called the attacks in Benghazi, Libya, “acts of terror.”
According to an agreement between the Obama and Romney campaigns, the moderator of the town hall debate was to refrain from asking questions or participating in the debate. Crowley had promised to defy that agreement even before the debate started.
Give me a break! Farenkopf was upset because Candy told the truth. Does anyone really believe he would have objected if she had been backing up something Romney said?
Soledad O’Brien
In other CNN news, The New York Post reported yesterday that Soledad O’Brien is leaving the network and {ugh!} Erin Burnett will be moved into the morning spot.
We’re told award-winning journalist O’Brien has indicated she is ready to leave after she was initially promised a plum prime-time slot, but that role has so far failed to materialize. A source tells us: “The deal to move Erin to the morning alongside Chris Cuomo is basically done. Soledad had been told she’d get a prime-time slot, but that hasn’t yet happened, and now she is telling friends she is likely to leave.”
What is the deal with CNN and that airhead Erin Burnett? She’s been all over the network lately–even getting foreign assignments that she’s completely unqualified for. Frankly, she’s unqualified to report anything other than lightweight feature stories where she just reads off a teleprompter.
Other reactions:
The Atlantic Wire: Soledad O’Brien Is Not a Part of Jeff Zucker’s Vision for CNN
It looks like one of CNN’s most liked stars won’t fit at the burgeoning home of poop-cruise story torture and soft morning news — this is new president Jeff Zucker’s CNN, and Soledad O’Brien is not it….
If you’re a fan of Starting Point, you can take some solace in that Page Six’s run-up to Zucker’s changes hasn’t come to complete fruition… yet. a tiny bit solace in that some some of Page Six’s revelations haven’t happened … yet. They outlined the new morning shift late last month, although Cuomo hasn’t moved from his co-hosting gig during primetime breaking-news events like the Christopher Dorner manhunt … yet. That whole Ann-Curry-to-CNN-primetime rumor from December still hasn’t been worked out … yet. And — who knows? — this could light the fire to get CNN execs talking (probably to Page Six) about keeping O’Brien in primetime after all. Last time we checked, even shifting Curry to the 10 o’clock hour would leave one spot open — for O’Brien or another new splashy hire from Zucker … or, you know, more Anderson Cooper.
Erin Burnett
Jezebel: Oh Crap: Soledad O’Brien Is Rumored to Be Pushed Out at CNN.
As a wise person once said, “If you are a dumbass, it’s probably a bad idea to agree to be interviewed by Soledad O’Brien.” The anchor is a whip-smart bulldog who never backs down, who schools fools and fact checks John Sununu. Unfortunately, the buzz is that she’s getting the boot at CNN….
While some journalists are comfortable taking a break from the hard stuff and embracing the softer side of news (looking at you, Peabody Award-winning Hoda Kotb), O’Brien is not that kind of reporter. If you’re seen her deal with Michelle Bachman or argue with Rudy Giuliani, you know that a cushy gig like Today would not be right.
Those are my recommended reads for this morning. Now it’s your turn to share your links. I promise to click on every one! Have a great day everyone!
A Tale of Two Sequesters in multiple chapters — Chapter 1:WTF is this thing?
Posted: February 20, 2013 Filed under: Federal Budget, Federal Budget and Budget deficit, Sequester 26 CommentsI’ve been avoiding this unpleasant subject because I was hoping dynamics would change and maybe patriotism, reason, or some 
semblance of sanity would strike the elected officials in the beltway. That was wishful thinking on my part and now I feel compelled to give you some background information on sequesters in general and this one in particular. This just highlights how dysfunctional our political system has become and it really is a good demonstration of how politicians don’t tend to really get at the real problems. Let me just say that the real future source of any federal deficit problem is the monumental increases in the cost of health care. We have a completely dysfunctional third party payer system in this country as well as astronomical costs for drugs and care whose actual prices are well beyond the knowledge of actual consumers. That being said, let’s proceed to the side shows that our congress keeps setting up to tank our economy.
This isn’t the first time congress and an administration has used a sequester when it’s been unable to arrive at a budget. Usually, this comes from an inability to arrive at the same budget priorities that comes from having mixed party control of legislative bodies and the White House. You know the general approaches by each party. Republicans are no longer supportive of any kind of revenue enhancements or cut in military spending. Democrats have been more accommodating but tend to draw the line at some point when it comes to destroying the safety net and entitlement programs along with the other basic functions that government provides that the private sector just can’t do either economically or effectively. So, once you get this stand off, a sequester is used to force both sides to the bargaining table.
A sequester is basically an automatic reduction in Federal Spending during a budget year. We had a January 2 Fiscal Cliff deal that postponed the sequester until March 1. This is what will happen if nothing is done.
The deal sliced the scheduled 2013 sequestration by $24 billion, from $109.3 billion to $85.3 billion. This reduces the percentage cuts in full-year funding for most eligible programs (those that the law does not exempt from the automatic cuts). The Medicare percentage does not drop, however, because Medicare cuts were and are still capped at 2 percent, and the across-the-board cut that applies to other non-defense programs remains larger than 2 percent.
The chart and the narrative come from the Center on Budget and Policy Priorities which is a great source of information.
The first of the sequesters happened when I was fresh out of graduate school back in the mid 1980s. You’ll probably recognize the names of the usual agents of economic chaos from the Reagan years: Gramm-Rudman-Hollings–Balanced Budget and Emergency Deficit Control Act of 1985. Oddly enough, the Supreme Court found the bill unconstitutional saying that it gave Congress too much power over the budget. They had to rewrite it and it repassed in 1987.
The Balanced Budget and Emergency Deficit Control Act of 1985 (Graham-Rudman-Hollings) was an amendment to a bill that allowed the debt ceiling to be raised to over $2 billion. It created a five-year deficit reduction plan, with decreasing deficit targets each year, until the budget would be balanced in fiscal year 1991. If deficit goals were not met in any given year, a process of automatic spending cuts termed “sequestration” would take place. Fifty percent of the cuts would come from domestic discretionary spending and fifty percent from defense. Social Security, Medicare, several anti-poverty programs, and interest on the debt were exempted from a potential sequester.
Gramm-Rudman-Hollings garnered bipartisan support and was signed into law by President Reagan in December 1985. Most Republicans in the House and Senate voted for it, while the Democratic vote was split nearly evenly in both chambers. Those in favor of the bill argued that the budget deficit, which had greatly increased since 1981, required dedicated measures to reign [sic] in federal spending. Democrats who voted “no” argued that budget cuts were likely to impact domestic programs while leaving military spending largely intact. Nevertheless, the Reagan administration opposed the mandated fifty percent cuts in defense spending in a potential sequester and provided only lukewarm support for the measure.
They assume a fiscal multiplier of 1.4 for general government spending, which is Moody’s Analytics most recent public estimate of the government spending multiplier. While we use the same multiplier for all cuts, we’d guess that these likely slightly overstate the adverse economic impact resulting from defense spending cuts and understate job losses from domestic spending cuts. Budgetary programs for lower-income households in the discretionary budget—such as housing assistance and the special supplemental food program for women, infants, and children (WIC)—as well as infrastructure spending have particularly high multipliers. And to the extent that cuts to spending by the Department of Defense come from capital-intensive weapons acquisitions rather than reductions in personnel strength, the impact on employment would be milder. Regardless, any cuts in the near-term (unless they are ploughed into more spending somewhere else) are going to constitute a drag on the still-weak recovery. Cutting government spending reduces aggregate demand and worsens joblessness while the economy is running well below-potential output.
The new study was performed by Thomas Hungerford of the non-partisan Congressional Research Service. Though the study is not a CRS product, Hungerford’s data is widely cited on both sides; he’s an impeccably objective analyst.
Here’s what Hungerford found: The single greatest driver of income inequality over a recent 15 year period was runaway income from capital gains and dividends.
This finding is directly relevant to the current debate, because Obama and Democrats want to offset the sequester in part by closing loopholes enjoyed by the wealthy, such as the one that keeps tax rates on capital gains and dividends low. Dems want to do this in order to prevent a scenario where the sequester is averted only by deep spending cuts to social programs that could hurt a whole lot of poor and middle class Americans. Republicans oppose closing any such loopholes and want to avert the sequester with only deep spending cuts.
Hungerford’s report, like all serious examinations of inequality, is very complicated. He looks at a bunch of recent data on inequality from the period from 1991-2006 — measured by the so-called “Gini index” — and calculates the degree to which various factors exacerbated it. Hungerford found that over that period, the rise in the Gini index (a story that’s been widely told elsewhere, one that’s largely been driven by the runaway wealth of the top one percent and top 0.1 percent) was driven mainly by the rise in capital gains and dividends income.
“By far, the largest contributor to increasing income inequality (regardless of income inequality measure) was changes in income from capital gains and dividends,” the report concludes.Or, as Hungerford put it in an interview with me: “The reason income inequality has been increasing has been the rising income going to the top one percent. Most of that has come in capital gains and dividends.”
In other words, wealthy beneficiaries of low tax rates on capital gains and dividends are doing extremely well — and their runaway wealth is a major driver of income inequality. There’s a lot of that money out there that could be taxed as ordinary income — as Obama and Dems want — as a way to avert the sequester, which could badly damage the economy. Republicans oppose this.
This finding comes as even some conservatives are reckoning with the fact that the GOP’s message on the sequester is deeply flawed. Writer Byron York notes today that Republicans are openly conceding that the sequester will gut the military, even as they openly point to the sequester as an acceptable policy outcome.
Unemployment fell to 4.1% by the end of last year – a record low for at least 25 years. Poverty has fallen by 27% since 2006. Public spending on education has more than doubled, in real (inflation-adjusted) terms. Increased healthcare spending has expanded access to medical care, and other social spending has also increased substantially, including a vast expansion of government-subsidised housing credit.
If all that sounds like it must be unsustainable, it’s not. Interest payments on Ecuador’s public debt are less than 1% of GDP, which is quite small; and the public debt-to-GDP ratio is a modest 25%. The Economist, which doesn’t much care for any of the left governments that now govern the vast majority of South America, attributes Correa’s success to “a mixture of luck, opportunism and skill“. But it was really the skill that made the difference.
Correa may have had luck, but it wasn’t good luck: he took office in January of 2007 and the next year Ecuador was one of the hardest hit countries in the hemisphere by the international financial crisis and world recession. That’s because it was heavily dependent on remittances from abroad (eg workers in the US and Spain); and oil exports, which made up 62% of export earnings and 34% of government revenue at the time. Oil prices collapsed by 79% in 2008 and remittances also crashed. The combined effect on Ecuador’s economy was comparable to the collapse of the US housing bubble, which contributed to the Great Recession.
And Ecuador also had the bad luck of not having its own currency (it had adopted the US dollar in 2000) – which means it couldn’t use the exchange rate or the kind of monetary policy that the US Federal Reserve deployed to counteract the recession. But Ecuador navigated the storm with a mild recession that lasted three quarters; a year later it was back at its pre-recession level of output and on its way to the achievements that made Correa one of the most popular presidents in the hemisphere.
How did they do it? Perhaps most important was a large fiscal stimulus in 2009, about 5% of GDP (if only we had
done that here in the US). A big part of that was construction, with the government expanding housing credit by $599m in 2009, and continuing large credits through 2011.
But the government also had to reform and re-regulate the financial system. And here it embarked on what is possibly the most comprehensive financial reform of any country in the 21st century. The government took control over the central bank, and forced it to bring back about $2bn of reserves held abroad. This was used by the public banks to make loans for infrastructure, housing, agriculture and other domestic investment.
It put taxes on money leaving the country, and required banks to keep 60% of their liquid assets inside the country. It pushed real interest rates down, while bank taxes were increased. The government renegotiated agreements with foreign oil companies when prices rose. Government revenue rose from 27% of GDP in 2006 to over 40% last year. The Correa administration also increased funding to the “popular and solidarity” part of the financial sector – co-operatives, credit unions and other member-based organisations. Co-op loans tripled in real terms between 2007 and 2012.
The end result of these and other reforms was to move the financial sector toward something that would serve the interests of the public, instead of the other way around (as in the US). To this end, the government also separated the financial sector from the media – the banks had owned most of the major media before Correa was elected – and introduced anti-trust reforms.
Of course, the conventional wisdom is that such “business-unfriendly” practice as renegotiating oil contracts, increasing the size and regulatory authority of government, increasing taxes and placing restrictions on capital movements, is a sure recipe for economic disaster.
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