Category Archives: economy

Tough Talk

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Frothy complains that Mittens is a wimp about taxes.

Our economy and American families are struggling, and the country needs bold reforms and major restructuring, not tinkering at the margins. …my opponent in the Republican primaries, Mitt Romney, had a last-minute conversion. Attempting to distract from his record of tax and fee increases as governor of Massachusetts, poor job creation, and aggressive pursuit of earmarks, he now says he wants to follow my lead and lower individual as well as corporate marginal tax rates.

It’s a good start. But it doesn’t go nearly far enough. He says his proposed tax cuts would be revenue neutral and, borrowing the language of Occupy Wall Street, promises the top 1% will pay for the cuts. No pro-growth tax policy there, just more Obama-style class warfare.

Mittens is tinkering at the margins? Ezra Klein says,

Mitt Romney is promising that taxes will go down, defense spending will go up, and old-people programs won’t change for this generation of retirees. So three of his four options for deficit reduction — taxes, old-people programs, and defense — are now either contributing to the deficit or are off-limits for the next decade.

Romney is also promising that he will pay for his tax cuts, pay for his defense spending, and reduce total federal spending by more than $6 trillion over the next 10 years. But the only big pot of money left to him is poor-people programs. So, by simple process of elimination, poor-people programs will have to be cut dramatically. There’s no other way to make those numbers work.

In fact, Mittens recently proposed a 20% across-the-board cut in income tax rates. This is much more drastic than what he has been proposing, but he has to keep moving Right to stay in the race.

Not to be outdone, Frothy is proposing a ten-point Economic Freedom Agenda, which he says will balance the budget in four years. Yes, and I’m Jean Dujardin. And the dog.

Here are his ten points, briefly:

  1. Drill, baby, drill; frack, baby, frack; and pipeline, baby, pipeline.
  2. Deregulate.
  3. Cut taxes.
  4. Cut taxes.
  5. Lay off public employees.
  6. Repeal “Obamacare” and replace it with the better plan Republicans keep promising but can’t seem to find anywhere.
  7. Pass a balanced budget amendment.
  8. Make lots of free trade agreements.
  9. Cut the hell out of “entitlement” programs.
  10. “Revive housing” by finally killing off Fannie and Freddie.

Seriously. I left out some details, but the whole plan is such a fantasy the details are kind of irrelevant. Obviously if the country goes this way in no time we’ll be in such a hole that Greece will look good.

Destructive Austerity

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Paul Krugman has a column and a blog post that ought to be read together. Both are about the way deficit hawkism are prolonging and worsening the recession, here and in Europe.

In “The Austerity Debacle” he writes that Britain climbed out of the Great Depression a lot faster than it is climbing out of the Great Recession. Same thing for Italy, Spain, and a lot of other European countries. And the reason they are having such a hard time is that today’s leaders threw the lessons of the past, including the lessons of the Great Depression out the window.

Britain, in particular, was supposed to be a showcase for “expansionary austerity,” the notion that instead of increasing government spending to fight recessions, you should slash spending instead — and that this would lead to faster economic growth.

This austerity was supposed to foster confidence, which was all that was needed.

Such invocations of the confidence fairy were never plausible; researchers at the International Monetary Fund and elsewhere quickly debunked the supposed evidence that spending cuts create jobs. Yet influential people on both sides of the Atlantic heaped praise on the prophets of austerity, Mr. Cameron in particular, because the doctrine of expansionary austerity dovetailed with their ideological agendas.

Thus in October 2010 David Broder, who virtually embodied conventional wisdom, praised Mr. Cameron for his boldness, and in particular for “brushing aside the warnings of economists that the sudden, severe medicine could cut short Britain’s economic recovery and throw the nation back into recession.” He then called on President Obama to “do a Cameron” and pursue “a radical rollback of the welfare state now.”

Strange to say, however, those warnings from economists proved all too accurate. And we’re quite fortunate that Mr. Obama did not, in fact, do a Cameron.

My question is, why are beltway pundits so stupid? Do they start out that way, or is there something about Foggy Bottom that kills their brain cells?

Of course, many of ’em, and the politicians too, really just want to get rid of “entitlement” programs, and the Great Recession gave them an excuse.

The blog post “Destructive Austerity USA,” shows how budget cuts to state and local governments have been hurting the economy.

It’s hard to overstate just how wrong all this is. We have a situation in which resources are sitting idle looking for uses — massive unemployment of workers, especially construction workers, capital so bereft of good investment opportunities that it’s available to the federal government at negative real interest rates. Never mind multipliers and all that (although they exist too); this is a time when government investment should be pushed very hard. Instead, it’s being slashed.

What an utter disaster.

But, you know what they say — it’s all President Obama’s fault. “They” are idiots, of course.

Update: The utterly pathetic libertarian drones at Cafe Hayek have no argument to refute what Krugman says, so they just lie:

In his New York Times column today, Paul Krugman blames Britain’s economic woes on the British government’s alleged policy of “austerity.” Yet he offers no evidence that Her Majesty’s government is actually pursuing such a policy.

Here you go, pinheads:

U.K. Government Unveils Tough Austerity Plan : NPR (October 20, 2010)

UK Government Introduces Hardline Austerity Plan (October 20, 2010)

Pain of British Fiscal Cuts Could Inform U.S. Debate (April 14, 2011)

In the United States, the debate over how to cut the long-term budget deficit is just getting under way.

But in Britain, one year into its own controversial austerity program to plug a gaping fiscal hole, the future is now. And for the moment, the early returns are less than promising.

Retail sales plunged 3.5 percent in March, the sharpest monthly downturn in Britain in 15 years. And a new report by the Center for Economic and Business Research, an independent research group based here, forecasts that real household income will fall by 2 percent this year. That would make Britain’s income squeeze the worst for two consecutive years since the 1930s.

All of which has challenged the view of Britain’s top economic official, George Osborne, that during a time of high deficits and economic weakness, the best approach is to aggressively attack the deficit first, through rapid-fire cuts aimed at the heart of Britain’s welfare state.

George Osborne will stick to austerity programme despite halting output (July 23, 2011)

Osborne’s austerity program hits the rails (November 29, 2011)

His austerity plans cut far and fast. Osborne was told this would increase unemployment and it has. Increased joblessness has led to pronounced consumer pessimism. Shops are closing, putting more people out of work. Paying several hundred thousand more people unemployment benefits is driving up debt.

UK Sticking To Austerity Plan Despite GDP Drop – NASDAQ.com (5 days ago)

Cafe Hayek’s argument that Britain hasn’t really been engaged in an austerity program is that its budget deficit is still high and has gone higher. That’s because the bleeping austerity program isn’t working, you morons. More people out of work means two things:

1. Lower tax revenue
2. Higher spending

Duh. Of course, the crew at Hayek probably thinks the out-of-work Brits ought to just be allowed to drop dead in the streets, or should start eating babies.

Cost Shifting Is Not Cost Cutting

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You’ve heard that the U.S. spends more on health care than anywhere else on the planet. If you want to see this for yourself, spend some time with this page of charts, graphs and tables compiled by the Kaiser Family Foundation. And what makes the amount we spend even more pathetic is that our overall results do not stand up to that of other nations that spend far less.

Now the Global Health Leadership Institute points out that while we spend much more on health care costs than those other countries, we spend a great deal less on other social services — “rent subsidies, employment-training programs, unemployment benefits, old-age pensions, family support and other services that can extend and improve life.”

We studied 10 years’ worth of data and found that if you counted the combined investment in health care and social services, the United States no longer spent the most money — far from it. In 2005, for example, the United States devoted only 29 percent of gross domestic product to health and social services combined, while countries like Sweden, France, the Netherlands, Belgium and Denmark dedicated 33 percent to 38 percent of their G.D.P. to the combination. We came in 10th.

What’s more, America is one of only three industrialized countries to spend the majority of its health and social services budget on health care itself. For every dollar we spend on health care, we spend an additional 90 cents on social services. In our peer countries, for every dollar spent on health care, an additional $2 is spent on social services. So not only are we spending less, we’re allocating our resources disproportionately on health care.

Our study found that countries with high health care spending relative to social spending had lower life expectancy and higher infant mortality than countries that favored social spending. While the stagnating life expectancy in the United States remains at 78 years, in many European countries it has leapt to well over 80 years, and several countries boast infant mortality rates approximately half of ours. In a national survey conducted by the Robert Wood Johnson Foundation, four out of five physicians agreed that unmet social needs led directly to worse health.

This suggests to me that one of the several factors driving up health care costs is our low rate of “safety net” support for people in need. Here’s an eye-opening statistic:

The Boston Health Care for the Homeless Program tracked the medical expenses of 119 chronically homeless people for several years. In one five-year period, the group accounted for 18,834 emergency room visits estimated to cost $12.7 million.

In other words, it would almost certainly be less expensive to the rest of us to provide the 119 with basic shelter, food and health care than to just leave them on the streets. And there’s a chance some of them could become self-sufficient with a little help.

The conservative argument is that benefit programs make people lazy and dependent. So what does being chronically sick and cut off from health care (other than emergency rooms when they’re in crisis) make them?

My suspicions are that there is some optimum amount of government social services that gives you the best overall result for the buck, and trying to get by more cheaply just shifts costs somewhere else. So the “saving” is an illusion. In fact, the “saving” may be driving costs even higher.

The other argument a conservative might make (albeit with different framing) is that if the Glorious Free Market isn’t finding a place for some people, then they are surplus population that should just die already. Because, you know, people exist to serve the needs of the Holy Free Market Economy, not the other way around.

That kind of thinking is the only way conservative ideology makes sense.

Stuff to Read

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To read together — “We Are the 99.9%” by Paul Krugman and “The Reign of the One Percenters” by Christopher Ketcham.

Um, has the “black Friday” thing gotten out of hand? Wal-Mart shoppers in California resort to pepper-spray to eliminate the competition.

“People started screaming, pulling and pushing each other, and then the whole area filled up with pepper spray,” the Sylmar resident said. “I guess what triggered it was people started pulling the plastic off the pallets and then shoving and bombarding the display of games. It started with people pushing and screaming because they were getting shoved onto the boxes.”

The rich get richer; the not-rich scratch and scramble and trample each other for discounted Xboxes. Stephanie Clifford writes for the New York Times:

Budget-minded shoppers will be racing for bargains at ever-earlier hours while the rich mostly will not be bothering to leave home.

Toys “R” Us, Wal-Mart, Macy’s, Kohl’s, Best Buy and Target will start their Black Friday sales earlier than ever — at 9 and 10 p.m. in some instances — with dirt-cheap offers intended to secure their customers’ limited dollars. A half a day later, on Friday morning, higher-end stores like Neiman Marcus, Saks Fifth Avenue and Nordstrom will open with only a sprinkling of special sales.

The low-end and midrange retailers are risking low margins as they cut prices to attract shoppers, while executives at luxury stores say that they are actually able to sell more at full price than in recent boom years.

Next up: Wal-Mart opens arenas so the wealthy can sit in luxury boxes and watch the poor fight over flat-screen televisions.

Economic Injustice

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In a graph, from the Congressional Budget Office:

There’s your class warfare, folks, and we’re losing.

And then there’s the student loan issue (click image for full size) —

Click for full size

This isn’t just a problem for the young folks; it promises to strangle our economy for years to come. President Obama has proposed a relief program that would cap student loan payments at 10 percent of income and forgive the balance after 20 years of payments. Think about that — 10 percent of income for 20 years, and that’s a reprieve from what they have to pay now. We’re going to have to do better than that. This is ridiculous.

And where is that money going to, really? I have a hard time believing that the cost of educating most young people is really that high.

Meanwhile, true to form, GOP candidate Rick Perry has proposed a tax plan that he says would cut taxes on all income groups, but which independent analysis says would actually only cut taxes for the very wealthy and increase them for everyone else. Elsewhere, GOP candidate Mitt Romney takes being an empty suit to Olympic levels. At Salon, Steve Kornacki has written one article after another about how Herman Cain’s campaign is about to implode. Now he’s finally admitted that, given the quality of Cain’s competition, maybe it won’t.

At the front — here’s an interview of historian Michael Kazin, who has a very smart analysis of OWS, with which I entirely agree. See also Paul Krugman, “Say Anything.”

Interconnections

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Are we all in love with Elizabeth Warren yet?

Steve Benen provides a partial transcript of this clip:

“I hear all this, you know, ‘Well, this is class warfare, this is whatever,’” she said. “No. There is nobody in this country who got rich on his own. Nobody.

“You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.

“Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.”

One of the things I love about EW is that she sees and clearly articulates how the economy is a web of interconnections, each part supporting or being supported by the other parts.

One of the things that has long driven me bats about “conservatives” is that they don’t see that. They don’t see how allowing bridges to rot hurts them, even if they never drive over those bridges personally. They don’t see how making higher education too expensive hurts them. They don’t see how under-funding public education hurts them. They don’t see how letting someone else’s family get buried (possibly literally) in medical bills hurts them. They don’t see how allowing a predatory banking system to rip millions of other Americans out of their homes hurts them.

The hurt may not be immediate, but when one part of the system fails it sets off a ripple of effects that damages other parts. If the overall system is strong it can absorb some failures here and there so that the shocks are localized and contained. But when there are a lot of big failures causing widespread damage to the system, and no one is stepping in to repair the damage, eventually it’s all going to fail.

Very simply, that’s what caused the Great Depression. It wasn’t any one thing. The allegedly strong economy attributed to Calvin Coolidge was a volatile boom-and-bust sort of critter that allowed some people to get rich but left millions behind. And it collapsed like a house of cards because the all-glorious free market did not repair the damage from several smaller failures, and the Coolidge/Hoover administration refused to intervene. Bad for business, you know.

You can see EW’s complex thinking at work in this Morning Joe clip. Someone asked her about China as a dominant military power, and she began to answer that China is investing some significant part of its GDP in infrastructure and technological development, and someone interrupted her and said, no, no, we’re talking about China’s military, not China’s economy. And Warren said, but they go together. The military and economic dominance that China is building are of a piece.

I still don’t think the bobbleheads got that. But what do we call a nation with a big, expensive military and a stagnant, unproductive economy? The USSR.

Part of our problem is that too many Americans have bought an ideology about what’s supposed to be good for business that looks at business in a vacuum, as if all the other parts of the system — such as sound infrastructure, an educated and healthy workforce, and lots of consumers with disposable income — don’t matter. In fact, the thinking is that we have to sacrifice those things in order to pump more money directly into business. This is insane.

As long as business executives get lots and lots of untaxed money, they will grow jobs and make the economy better, they say. The fact that business is losing customers because the working middle class is being squeezed out of existence doesn’t seem to register. And it doesn’t seem to register with business owners, either.

So you’ve got Rick Perry thumping his chest and saying he grew jobs in Texas by lowering taxes, cutting health care spending, and shredding environmental and consumer protection to lure business from other states. So how is that race to the bottom supposed to work nationally? Are we going to cut wages and working conditions even more to lure business from India?

And even then, right now Texas has its highest unemployment rate in 25 years. Way to go, Perry.

How Crazy Are They?

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Republicans yammered about a balanced budget amendment through most of the 1990s, shutting up only when the Clinton Administration balanced the budget without one. They continued to keep their mouths shut while George W. Bush borrowed and spent trillions of dollars and ran up the Deficit That Could Eat Cleveland. And now they are pinning that deficit on the guy who inherited it and are demanding another balanced budget amendment.

Any respectable economist, meaning any economist not on the payroll of a right-wing think tank, will tell you that a balanced budget amendment would permanently cripple the U.S. economy. David Leonhardt provides a basic explanation why this is so. See also Stephen Foley, explaining our little pickle to British readers of the Telegraph:

[A] balanced budget amendment is terrible economics. It effectively means an end to counter-cyclical fiscal policy: when a recession strikes, the federal government would not be able to stimulate the economy by spending more. Instead, it must cut back at the same time householders and businesses are doing the same, making the recession worse. It could condemn the US to a perpetual recession, a depression even.

Wiser heads tend to regard any balanced budget amendment proposal as a gimmick Republicans periodically use to bash Democrats. “As it is such terrible economics, the tendency has been to assume it cannot pass,” Foley writes. The problem is that after years of such demagoguery, enough ideological zealots have been elected to Congress to possibly make it real, and the American public is brainwashed enough to support it.

Grassroots organisations have been lined up to agitate in support of the plan; Republican governors, including at least two potential presidential candidates, have written in support in the past few days. It could easily become a touchstone issue for next year’s elections, with moderate Democrats not wanting to be seen as weak on cutting the deficit.

Leading to:

After all the drama of last week, Republicans had the chutzpah (or, in Minnesota, “choot-spa,” possibly from Old Norwegian “sjøsltsbÃ¥t,” the act of sniffing reindeer glue) to trot out another hard-right proposal over the weekend that is absolutely devoid of compromise and which is nothing but another Dem-bashing tool. “Cut, Cap, and Balance” was praised as a “common sense” proposal, which in Republicanese means it’s wearing a tin foil propeller beanie and crazypants.

Ezra Klein explains,

It begins with the McConnell plan, in which the debt ceiling is raised three times between now and November, and each time, Republicans are able to offer a resolution of disapproval. Then it adds in $1.5 trillion in spending cuts harvested from the Biden talks. Then it creates a committee of 12 lawmakers charged with sending a deficit-reduction plan to Congress by the end of the year. Whatever they decide on would be protected from the filibuster and immune to amendments.

Ezra doesn’t mention a balanced budget amendment, but they’ve thrown that in as well.

The only bright spot in this mess is that opposition to this proposal can be found across the political spectrum. The teabaggers don’t like it because it gives too much away to Obama. Face it; any raising of the debt ceiling will be seen as a failure and betrayal by the wingnuts, which makes me think the Republicans should just do it and get it over with and think of something else to stir up the mob going into the campaign season.

And, of course, anyone sane enough to not believe pixies are hiding behind the light socket plates is nervous about this, also.

Amy Fried writes that Republicans, as always, justify whatever lunatic thing they are pushing by claiming it’s what the American people want, even when polls say the American people want something else entirely. But, in Republicanese, “the American people” means “large donors to the Heritage Foundation.” If you understand that much, then the rest of it starts to make sense. Sort of.

Why the Republicans Walked

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Details are coming out about the deal the Republicans refused to discuss —

In essence, Van Hollen said, Republicans chose to “protect taxpayer subsidies for big oil companies, tax breaks for corporate jets, and tax breaks for millionaires.”

Democrats want to close tax loopholes that benefit oil companies, and eliminate a tax preference that gives corporate aircraft a friendlier depreciation schedule than commercial aircraft. Additionally, Van Hollen said, Democrats were proposing to phase out tax deductions and certain credits for people making more than $500,000 a year. These would be paired with a reduction in the tax burden on lower earners, by eliminating existing limitations on their deductions.

“Folks with over $500,000, we’re going to phase out your deductions and some of your tax credit,” Van Hollen said. … “The message Republicans sent was…unless we accept their lopsided approach…they’re prepared to tank the economy,” Van Hollen said.

Cantor retorted by babbling about broad tax rate hikes on individuals, small business, and employers, and anyone who believes that is a wingnut already. I’m sure the rate increases he’s talking about are the end of the Bush tax cuts for upper income earners, which would affect very few small businesses.

And John Boehner just released a press statement saying that a debt limit increase will not pass the House if it includes tax rate increases.

But House Republicans also let it be known that Cantor’s walkout was long planned. The timing of the walkout has been discussed for weeks. So, they admit they never were negotiating in good faith. Big surprise.

I want to hear the Dems say, fine; no more closed door discussions. Spell out publicly what they propose for revenue increases. Then, they’ve got to go out and make a real effort to tell the American people what’s at stake if the debt ceiling isn’t raised, because I still say large parts of them really don’t know.

Read more:

Steve Benen

Andy Kroll

Paul Krugman

Steve M.

Republicans Don’t Do Compromise

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Basically, the Republican theory of compromise is “you have to give in to my demands, but I don’t have to give you anything in return.”

Yesterday the remaining Republicans in Joe Biden’s debt ceiling negotiations walked out. Why? Because they’d reached the “tax increase” portion of the program. Per the Republican theory of compromise, they demanded that all tax increases be taken off the table entirely. And the Dems said, no deal. So Eric Cantor had what some are calling a hissy fit and a temper tantrum and walked out, followed by John Kyl. So no Republicans are left to negotiate.

John Dickerson says, never fear. The tax increase deal will be cut between John Boehner and President Obama. The walkout is just political theater.

Ezra Klein thinks the situation is more serious, since whichever Republican leader cuts the deal will be falling on his sword.

Cantor has the credibility with the Tea Party that Boehner lacks. But that’s why Cantor won’t cut the deal. The Tea Party-types support him because he’s the guy who won’t cut the deal. He can’t sign off on tax increases without losing his power base. But if he’s able to throw it back to Boehner, and Boehner cuts the deal, that’s all good for Cantor: Boehner becomes weaker and he becomes stronger. Which is why Boehner will also have trouble making this deal. It’ll mean he made the concessions that Cantor, the true conservative, didn’t. That’s not how he holds onto the gavel in this Republican Party.

One analysis of the House GOP right now is that there are two players in the GOP who can cut a budget deal: Eric Cantor and John Boehner (and, on some of the other budget issues, Appropriations Chair Hal Rogers). One of them is going to have to do it. Which means one of them is going to lose his job. The optimistic take is that what we’re seeing right now is a game of musical chairs over which one of them it’ll be.

Of course, sniveling weenies that they are, the poor babies Republicans are blaming the President for their predicament. Yesterday Cantor called on the President to make his position clear (clue: he has already done that). And Mitch McConnell is babbling about failures of leadership.

“It’s worth asking: Where in the world has President Obama been for the last month? Where is he? What does he propose? What is he willing to do to reduce the debt? And to avoid this crisis, that’s building on his watch?” Senate Minority Leader Mitch McConnell (R-KY) said today.

“He’s the one in charge. I think most Americans think it’s about time he started acting like it. It’s not enough for the President to step in front of a microphone every once in a while and say a few words that somebody hands him to say about the jobs situation and our economy. Americans want to see that he’s actually doing something about it.”

Raising the debt ceiling is Congress’s job, of course. The President cannot do it. But McConnell wants daddy to come and hold his hand, I suppose.

Headlines are saying the “White House” is absent from the negotiations, sort of overlooking the fact that the guy who’s been leading the negotiations, with the title “Vice President,” is part of the Obama Administration.

The truth is, the Republicans had no intention of honestly negotiating, but they lack the moral courage to admit this. Instead, they blame everybody else. Oh, and then they’ll all go out and make speeches about how Republicans stand for personal responsibility.