Tuesday Reads: Daniel Inouye, Richard Engel, and Fiscal Slope Trial Balloons and Lead Balloons

Sen. Dan Inouye reads with children

Good Morning!!

Senator Dan Inouye, who died yesterday at age 88 was a Japanese American who fought for the U.S. in World War II. From Time Magazine:

On Dec. 7, 1941, high school senior Daniel Inouye knew he and other Japanese-Americans would face trouble when he saw Japanese dive bombers, torpedo planes and fighters on their way to bomb Pearl Harbor and other Oahu military bases.

He and other Japanese-Americans had wanted desperately to be accepted, he said, and that meant going to war.

“I felt that there was a need for us to demonstrate that we’re just as good as anybody else,” Inouye, who eventually went on to serve 50 years as a U.S. Senate from Hawaii, once said. “The price was bloody and expensive, but I felt we succeeded.”

Inouye had wanted to become a surgeon, but he lost his right arm in a firefight during the war. He was elected to the House in 1959 after Hawaii became a state. Inouye became well known nationally as a member of the Senate Watergate Committee and later as chairman of the Congressional committee that investigated the Iran Contra scandal.

In one of the most memorable exchanges of the Watergate proceedings, an attorney for two of Nixon’s closest advisers, John Ehrlichman and Bob Haldeman, referred to Inouye as a “little Jap.”

The attorney, John J. Wilson, later apologized. Inouye accepted the apology, noting that the slur came after he had muttered “what a liar” into a microphone that he thought had been turned off following Ehrlichman’s testimony.

Inouye achieved celebrity status when he served as chairman of the congressional panel investigating the Iran-Contra affair in 1987. That committee held lengthy hearings into allegations that top Reagan administration officials had facilitated the sale of weapons to Iran, in violation of a congressional arms embargo, in hopes of winning the release of American hostages in Iran and to raise money to help support anti-communist fighters in Nicaragua….

The panel sharply criticized Reagan for what it considered laxity in handling his duties as president. “We were fair,” Inouye said. “Not because we wanted to be fair but because we had to be fair.”

NBC foreign correspondent Richard Engel and his production team have been released after five days in captivity in Syria. The Guardian reports:

The group disappeared shortly after crossing into north-west Syria from Turkey last Thursday (13 December). NBC had no contact with the kidnappers and asked for a news blackout about the incident, which was observed by mainstream news outlets.

There was no request for a ransom during the time Engel and his crew were missing.

After being abducted they were put into the back of a truck and blindfolded before being transported to an unknown location, believed to be near the small town of Ma’arrat Misrin.

Throughout their captivity they were blindfolded and bound, but otherwise not physically harmed, said the network.

Read more at the link.

According to Beltway Bob (AKA Ezra Klein), a deal between President Obama and Speaker Boehner is in the offing, and it isn’t a good deal for old ladies who are trying to survive on Social Security.

Boehner offered to let tax rates rise for income over $1 million. The White House wanted to let tax rates rise for income over $250,000. The compromise will likely be somewhere in between. More revenue will come from limiting deductions, likely using some variant of the White House’s oft-proposed, oft-rejected idea for limiting itemized deductions to 28 percent. The total revenue raised by the two policies will likely be a bit north of $1 trillion. Congress will get instructions to use this new baseline to embark on tax reform next year. Importantly, if tax reform never happens, the revenue will already be locked in.

On the spending side, the Democrats’ headline concession will be accepting chained-CPI, which is to say, accepting a cut to Social Security benefits. Beyond that, the negotiators will agree to targets for spending cuts. Expect the final number here, too, to be in the neighborhood of $1 trillion, but also expect it to lack many specifics. Whether the cuts come from Medicare or Medicaid, whether they include raising the Medicare age, and many of the other contentious issues in the talks will be left up to Congress.

Now how is that a win for Democrats? If we go over the cliff, Republicans are going to be blamed, and taxes will go up on everyone until Republicans give in to public outcry in early January. But Social Security, Medicare, and Medicaid cuts will inevitably be blamed on Democrats, who are supposed to fight for the social safety net. Then in 2014, Republicans will attack them for those cuts, and it will work–just as it did when Romney and Ryan falsely accused Obama of cutting Medicare benefits in the recent presidential campaign. Back to Beltway Bob:

The deal will lift the spending sequester, but it will be backed up by, yes, another sequester-like policy. I’m told that the details on this next sequester haven’t been worked out yet, but the governing theory is that it should be more reasonable than the current sequester. That is to say, if the two parties can’t agree on something better, then this should be a policy they’re willing to live with.

On stimulus, unemployment insurance will be extended, as will the refundable tax credits. Some amount of infrastructure spending is likely. Perversely, the payroll tax cut, one of the most stimulative policies in the fiscal cliff, will likely be allowed to lapse, which will deal a big blow to the economy.

Again, that doesn’t sound like a win for Obama at all. Let’s hope Beltway Bob is wrong again.

Dean Baker on the chained CPI: He argues that the chained CPI is not really applicable to seniors.

The Bureau of Labor Statistics (BLS) has constructed an experimental elderly index (CPI-E) which reflects the consumption patterns of people over age 62. This index has shown a rate of inflation that averages 0.2-0.3 percentage points higher than the CPI-W.

The main reason for the higher rate of inflation is that the elderly devote a larger share of their income to health care, which has generally risen more rapidly in price than other items. It is also likely that the elderly are less able to substitute between goods, both due to the nature of the items they consume and their limited mobility, so the substitutions assumed in the chained CPI might be especially inappropriate for the elderly population.

Baker explains for the umpteenth time that it is wrong to use Social Security cuts to lower the deficit.

It is important to remember that under the law Social Security is supposed to be treated as a separate program that is financed by its own stream of designated revenue. This means that it cannot contribute to the budget deficit under the law, because it is only allowed to spend money from the Social Security trust fund.

This is not just a rhetorical point. There is no commitment to finance Social Security out of general revenue. The projections from the Social Security trustees show the program first facing a shortfall in 2033 after which point it will only be able to pay a bit more than 75 percent of scheduled benefits. While this date is still fairly far in the future, at some point it will likely be necessary to address a shortfall.

It is reasonable to expect that the changes needed to keep the program fully funded will involve some mix of revenue increases and benefit cuts. However if the chained CPI is adopted as part of a budget deal unconnected to any larger plan for Social Security then it effectively means that there will have been a substantial cut to Social Security benefits without any quid pro quo in terms of increased revenue. This hardly seems like a good negotiating move from the standpoint of those looking to preserve and strengthen the program.

There is much much more at the link. Digby has been writing about this issue for months, and she had another good post on it yesterday.

There has always been some fantasy, mostly held by people who are about to be fleeced by Wall Street sharpies, that this country should be run like a cash business. It cannot and should not be done that way. (Ask Mitt Romney about the role of debt in a modern economy.) The problem is that this focus on debt is making it impossible to do the things we need to do to spur economic growth in the short term, which would close the deficit, and apparently the only way anyone in Washington can see to get around that is to sell off the future security of American citizens as some sort of human sacrifice for no good reason. It simply is not necessary, as Krugman shows.

John Boehner came up with a new “offer” this week-end to raise the rates on those who make a million or more each year and also agreed to take the debt ceiling off the table for the next year. Krugman thinks this is a bad deal which Obama has no good reason to take — and I would agree with him if I didn’t still see a very dangerous possibility that the administration wants to pursue some unacceptable spending cuts in order to deliver on that “balanced approach.” A looming debt ceiling fight is a very good excuse for them to do that. If kicking the can down the road another year will stop them from cutting more spending, then I’m inclined to say take the deal.

Obviously, this whole thing is ridiculous. They should get rid of this idiotic debt ceiling vote altogether: after all once they appropriate the funds they’ve agreed to pay for them whether through taxation or borrowing. This yearly vote allows them to get credit for the goodies and then later refuse to pick up the tab. But unless they are willing to give it up completely, I’d be glad to at least see it be delayed until the White House stops talking about cutting vital programs.

And yes, the taxes should go up for all income over $250,000. They can afford it. But not if the price is changing to the Chained CPI which will take the food out of the mouths of 90 year old women and squeeze veterans and disabled people who can’t afford it. In other words, the devil is in the details. If Obama hangs tough as Krugman prescribes and wins on all these points without giving up the store (also known as “making tough choices ” his own base “won’t like”) then I say go for it. I’m just not sure I have much faith that’s the game plan. If it isn’t, then maybe he should take Boehner’s offer, repeal the sequester and put this to bed for the time being. There’s been more than enough cutting already to drag this economy down. Let’s see what happens if we stop the austerity insanity for a while.

Dr. Dakinikat would probably agree with that.

Meanwhile, most Americans disapprove of the the proposed cuts to safety net programs, so maybe this will turn out to be another trial balloon that goes over like a lead balloon.

Most Americans want President Obama and congressional Republicans to compromise on a budget agreement, though they, too, are unhappy about the options that would avert the “fiscal cliff,” according to a new Washington Post-ABC News poll.

The strong support for compromise belies widespread public opposition to big spending cuts that are likely to be part of any deal.

Most Americans oppose slashing spending on Medicaid and the military, as well as raising the age for Medicare eligibility and slowing the increase of Social Security benefits, all of which appear to be on the table in negotiations. Majorities call each of these items “unacceptable.”

Wow. I’m running out of space already? Suddenly, a week before Xmas there’s more happening in the news. We’ll have to discuss other items in in the comments. So what’s on your reading list today?