Showing posts with label cutting social security benefits. Show all posts
Showing posts with label cutting social security benefits. Show all posts
Tuesday, April 16, 2013
Monday, April 15, 2013
Obama’s Misguided Agenda
Doing the Business of DC's Elites
by DEAN BAKER
The debate around the budget is getting ever further removed from reality. As every budget expert knows, the reason that we have seen large budget deficits in the last five years is that the economy plunged following the collapse of the housing bubble. This collapse cost us more than $600 billion in annual construction demand and more than $500 billion in annual consumption demand.
This lost demand gave us large deficits because it led to plunging tax collections and more spending on programs like unemployment insurance. We deliberately raised deficits by roughly $300 billion annually in 2009 and 2010 with the stimulus package.
These deficits were supporting the economy, making up for the loss of private sector demand. They took the deficit from a very modest 1.2 percent of GDP in 2007 to a peak of more than 9 percent of GDP in 2009.
Unfortunately, rather than deal with the reality – that we need deficits to sustain demand in a context where the private sector will not do it – the politicians in Washington have gotten hysterical. This is like complaining about our use of water when the school is on fire with the kids still inside.
In spite of the hysterics coming out of Washington, the interest burden of the debt is near a post-war low. Even if no further cuts are made, it is not projected to get back to its early 1990s level for more than a decade.
In this context, it is unfortunate that President Obama has proposed a budget that has substantial cuts to Social Security. The vast majority of seniors are already struggling. The proposed cuts would be a reduction in their income of more than 2 percent. By contrast, his tax increase last fall cut the after-tax income of the typical wealthy household by less than 0.6 percent.
The budget should be focused on expanding the economy and creating jobs, ideally through more spending in infrastructure, education and research. It should also include funding for state and local governments to reverse layoffs and cutbacks that have slowed growth and raised unemployment.
Unfortunately, President Obama has accepted the agenda of the Washington elite, putting cuts to Social Security and Medicare at the center of his budget and offering little that will help to speed the growth of the economy and create jobs.
by DEAN BAKER
The debate around the budget is getting ever further removed from reality. As every budget expert knows, the reason that we have seen large budget deficits in the last five years is that the economy plunged following the collapse of the housing bubble. This collapse cost us more than $600 billion in annual construction demand and more than $500 billion in annual consumption demand.
This lost demand gave us large deficits because it led to plunging tax collections and more spending on programs like unemployment insurance. We deliberately raised deficits by roughly $300 billion annually in 2009 and 2010 with the stimulus package.
These deficits were supporting the economy, making up for the loss of private sector demand. They took the deficit from a very modest 1.2 percent of GDP in 2007 to a peak of more than 9 percent of GDP in 2009.
Unfortunately, rather than deal with the reality – that we need deficits to sustain demand in a context where the private sector will not do it – the politicians in Washington have gotten hysterical. This is like complaining about our use of water when the school is on fire with the kids still inside.
In spite of the hysterics coming out of Washington, the interest burden of the debt is near a post-war low. Even if no further cuts are made, it is not projected to get back to its early 1990s level for more than a decade.
In this context, it is unfortunate that President Obama has proposed a budget that has substantial cuts to Social Security. The vast majority of seniors are already struggling. The proposed cuts would be a reduction in their income of more than 2 percent. By contrast, his tax increase last fall cut the after-tax income of the typical wealthy household by less than 0.6 percent.
The budget should be focused on expanding the economy and creating jobs, ideally through more spending in infrastructure, education and research. It should also include funding for state and local governments to reverse layoffs and cutbacks that have slowed growth and raised unemployment.
Unfortunately, President Obama has accepted the agenda of the Washington elite, putting cuts to Social Security and Medicare at the center of his budget and offering little that will help to speed the growth of the economy and create jobs.
Money for Militarism Not for People
Obama’s Betrayal of Social Security
by DAVE LINDORFF
What’s wrong with the Obama administration’s proposal to change the way Social Security checks are adjusted for inflation from using the Consumer Price Index (CPI) to instead using something called a “chained” CPI?
Let’s start with the fundamental problem: Social Security is not a cause of the federal budget deficit, and will not be for years, even if nothing is done to raise more revenue for the program.
Sure the US will eventually have to come up with more money to pay the benefits earned by retirees in the Baby Boom generation, but that problem of an eventual shortfall in Social Security tax revenues can be easily solved by simply eliminating the cap — currently $113,000 in annual income — that is subject to the FICA tax. If the cap were completely eliminated, so that all income was subject to the tax, as is the case with the Medicare tax, the shortfall would be nearly eliminated. Any remaining shortfall could be erased too, by extending some kind of FICA tax to unearned income from investments. My favorite is one that is common in Europe: a small — say 0.25% — tax on short-term stock and bond trades.
But there is a bigger problem with this Obama proposal to cut both Social Security benefits and Medicare funding: Adopting a long-time Republican proposal, it only looks at those programs in isolation, and concludes that they need to be cut. Our Nobel Peace Prize-winning president does not look at the biggest and most wasteful spending in the entire federal budget, which is the military. That bloated white elephant, which this year is sucking up close to $800 billion, not counting the interest on money borrowed to pay for past wars and armaments, could be cut in half or even by three-quarters, and it would still leave the US military budget larger than any other nation’s in the world. The US would be no less safe in that case. In fact, it would be a hell of a lot safer because we would no longer have US troops stationed expensively and provocatively in 1000 foreign locations.
Nobody in Congress is talking about slashing military spending and spending the savings on medical care, Social Security, education and other pressing needs. The public needs to demand this.
But let’s leave those two points aside for a moment, important as they are.
What the Obama administration is calling for — a switch from the Bureau of Labor Statistics’ CPI to a new chained-CPI to determine inflation adjustments in Social Security checks each year — is a brazen attempt to cut benefits for the elderly without admitting it. This is unconscionable, and as poorly reported as the story has been, the American people, regardless of age, are smart enough to be solidly opposed to the idea. People old enough to be drawing Social Security benefits, or who are close to filing for Social Security, know it’s stealing from them. But younger people, who almost all have parents or grandparents who are depending on Social Security, also know intuitively that this is a bad idea, and are opposed to it.
Chained-CPI has long been a favorite scam among by Republicans and conservative Democrats, who are in thrall to business interests that want to reduce the payroll taxes they have to pay into the Social Security system. But their claim that it is a “more accurate” way to measure inflation’s impact on the cost of living is clearly a fraud and a lie.
The rationale behind a chained-CPI calculation of inflation is a theory that when the price of some good or service rises too much, people supposedly switch to a cheaper alternative, so that alternative should be substituted in the “market-basked” used to calculate the cost of living.
Now sometimes that may be true. When gasoline prices soared during the Bush invasion of Iraq, many people downsized their cars to cut their gasoline bills. That move to smaller cars also cut families’ overall transportation expenses because small cars are generally cheaper than big ones. A chained-CPI would account for this by substituting small cars in the market basket, and might also lower the allocation for gasoline, since people would be buying less.
But the theory falls down, especially when it comes to older people, who drive a lot fewer miles than those who are commuting every day to work, and who also tend not to buy new cars. The old gas-guzzler they have, which doesn’t get many miles put on it in a year, is kept on the road and repaired as needed. They continue to buy whatever gasoline it takes to drive the thing. (I had a great aunt who died in the mid-1970s. We discovered that the 1950s Rambler she drove, which was in mint condition because it was kept in a garage, only had 10,000 miles on it because she just used it to go to the store once a week. When my cousin, who inherited it, tried to drive it home to New York, she discovered, out on the highway, that she couldn’t get it to go over 30 mph. Taking it back to the garage she learned from the mechanic that there was so much wear on the metal throttle arm that rode over a rod to move the carburator fuel control, that it would hang up on a ridge formed where it rested at 30 mph — the fastest my aunt ever drove. She would never have traded that car in for a new smaller one to save on gas.)
Old people and the disabled also spend vastly more on health care than most other people, and the cost of that health care is rising much faster than most other things.That’s a point the CPI, chained or not, doesn’t factor in. And the elderly and disabled have little choice about making substitutions on health care. They don’t — and shouldn’t — change doctors. And if you need an operation, you go where your doctor practices. If you need heart medication or cholesterol-lowering medication, you buy what is prescribed, whatever it costs. If you need Medi-gap insurance to cover your health needs, you buy it, whatever the inflated premium. Even Medicare itself has become more expensive at a pace well above the inflation rate!
Housing is another problem area. Young people, if their rent goes up, can move to cheaper digs. Old people can’t do that so easily. If they are in some kind of senior housing, it’s probably the only one in their neighborhood, and they’re not going to move to some place cheaper where they don’t know anyone, or where they are too far from their family, or to the son or daughter who lives nearest and who has been helping them out as needed. Nor should we expect them to move just to save money. If they are in their family home, it is where they are comfortable. It would take a lot to make them move, so they probably won’t. (Add to that the fact that with housing prices still way down thanks to the housing collapse, it would be a terrible thing for them to have to sell at a time like this — akin to selling out of the stock market right after a crash.)
Food is another area where the elderly have a harder time making substitutions. As people get older, they tend to get much more set in their ways. A young person can decide that buying salmon is too expensive, so they’re going to switch to mackerel or sardines, but an older person can get very fussy. They may not know how to cook a new fish, and won’t even try to switch. They may not even be doing that much cooking, and are relying on prepared foods that can be put in a microwave. There’s not much room for switching there.
All in all, this chained-CPI proposal from the White House is a disgusting betrayal by a president who swore as a candidate that he would stand firm against any cuts in Social Security or Medicare. As economics professor Michael Hudson so succinctly explains in an interview in Counterpunch, chained-CPI isn’t really a consumer price index, it’s a “cost of lower living standards index.” He says, “If living standards are ground down and down (through substitutions of cheaper goods and services) because people are poor, then the government can say, ‘Because you’re getting poorer and poorer, your living standards have declined, so we don’t have to pay you so much to live.’ … Poverty will cascade downward, and so will the chained CPI. This gives new means to the working class being put in chains.”
There are only two proper responses to this betrayal. One: we must demand that there be no cuts in Social Security or Medicare benefits, or increases in the taxes paid by those already paying taxes into the program or receiving benefits, until the military budget is first cut by at least 50 percent. Two: We must demand that no change be made in the index used to adjust Social Security benefits for inflation unless or until the government conducts an honest, unbiased and transparent academic study to develop a valid market basket for the elderly and disabled, to determine what their actual costs of living are, and how they are impacted by inflation. And no index should be based on simply adjusting as the elderly and disabled adjust to becoming increasingly destitute.
by DAVE LINDORFF
What’s wrong with the Obama administration’s proposal to change the way Social Security checks are adjusted for inflation from using the Consumer Price Index (CPI) to instead using something called a “chained” CPI?
Let’s start with the fundamental problem: Social Security is not a cause of the federal budget deficit, and will not be for years, even if nothing is done to raise more revenue for the program.
Sure the US will eventually have to come up with more money to pay the benefits earned by retirees in the Baby Boom generation, but that problem of an eventual shortfall in Social Security tax revenues can be easily solved by simply eliminating the cap — currently $113,000 in annual income — that is subject to the FICA tax. If the cap were completely eliminated, so that all income was subject to the tax, as is the case with the Medicare tax, the shortfall would be nearly eliminated. Any remaining shortfall could be erased too, by extending some kind of FICA tax to unearned income from investments. My favorite is one that is common in Europe: a small — say 0.25% — tax on short-term stock and bond trades.
But there is a bigger problem with this Obama proposal to cut both Social Security benefits and Medicare funding: Adopting a long-time Republican proposal, it only looks at those programs in isolation, and concludes that they need to be cut. Our Nobel Peace Prize-winning president does not look at the biggest and most wasteful spending in the entire federal budget, which is the military. That bloated white elephant, which this year is sucking up close to $800 billion, not counting the interest on money borrowed to pay for past wars and armaments, could be cut in half or even by three-quarters, and it would still leave the US military budget larger than any other nation’s in the world. The US would be no less safe in that case. In fact, it would be a hell of a lot safer because we would no longer have US troops stationed expensively and provocatively in 1000 foreign locations.
Nobody in Congress is talking about slashing military spending and spending the savings on medical care, Social Security, education and other pressing needs. The public needs to demand this.
But let’s leave those two points aside for a moment, important as they are.
What the Obama administration is calling for — a switch from the Bureau of Labor Statistics’ CPI to a new chained-CPI to determine inflation adjustments in Social Security checks each year — is a brazen attempt to cut benefits for the elderly without admitting it. This is unconscionable, and as poorly reported as the story has been, the American people, regardless of age, are smart enough to be solidly opposed to the idea. People old enough to be drawing Social Security benefits, or who are close to filing for Social Security, know it’s stealing from them. But younger people, who almost all have parents or grandparents who are depending on Social Security, also know intuitively that this is a bad idea, and are opposed to it.
Chained-CPI has long been a favorite scam among by Republicans and conservative Democrats, who are in thrall to business interests that want to reduce the payroll taxes they have to pay into the Social Security system. But their claim that it is a “more accurate” way to measure inflation’s impact on the cost of living is clearly a fraud and a lie.
The rationale behind a chained-CPI calculation of inflation is a theory that when the price of some good or service rises too much, people supposedly switch to a cheaper alternative, so that alternative should be substituted in the “market-basked” used to calculate the cost of living.
Now sometimes that may be true. When gasoline prices soared during the Bush invasion of Iraq, many people downsized their cars to cut their gasoline bills. That move to smaller cars also cut families’ overall transportation expenses because small cars are generally cheaper than big ones. A chained-CPI would account for this by substituting small cars in the market basket, and might also lower the allocation for gasoline, since people would be buying less.
But the theory falls down, especially when it comes to older people, who drive a lot fewer miles than those who are commuting every day to work, and who also tend not to buy new cars. The old gas-guzzler they have, which doesn’t get many miles put on it in a year, is kept on the road and repaired as needed. They continue to buy whatever gasoline it takes to drive the thing. (I had a great aunt who died in the mid-1970s. We discovered that the 1950s Rambler she drove, which was in mint condition because it was kept in a garage, only had 10,000 miles on it because she just used it to go to the store once a week. When my cousin, who inherited it, tried to drive it home to New York, she discovered, out on the highway, that she couldn’t get it to go over 30 mph. Taking it back to the garage she learned from the mechanic that there was so much wear on the metal throttle arm that rode over a rod to move the carburator fuel control, that it would hang up on a ridge formed where it rested at 30 mph — the fastest my aunt ever drove. She would never have traded that car in for a new smaller one to save on gas.)
Old people and the disabled also spend vastly more on health care than most other people, and the cost of that health care is rising much faster than most other things.That’s a point the CPI, chained or not, doesn’t factor in. And the elderly and disabled have little choice about making substitutions on health care. They don’t — and shouldn’t — change doctors. And if you need an operation, you go where your doctor practices. If you need heart medication or cholesterol-lowering medication, you buy what is prescribed, whatever it costs. If you need Medi-gap insurance to cover your health needs, you buy it, whatever the inflated premium. Even Medicare itself has become more expensive at a pace well above the inflation rate!
Housing is another problem area. Young people, if their rent goes up, can move to cheaper digs. Old people can’t do that so easily. If they are in some kind of senior housing, it’s probably the only one in their neighborhood, and they’re not going to move to some place cheaper where they don’t know anyone, or where they are too far from their family, or to the son or daughter who lives nearest and who has been helping them out as needed. Nor should we expect them to move just to save money. If they are in their family home, it is where they are comfortable. It would take a lot to make them move, so they probably won’t. (Add to that the fact that with housing prices still way down thanks to the housing collapse, it would be a terrible thing for them to have to sell at a time like this — akin to selling out of the stock market right after a crash.)
Food is another area where the elderly have a harder time making substitutions. As people get older, they tend to get much more set in their ways. A young person can decide that buying salmon is too expensive, so they’re going to switch to mackerel or sardines, but an older person can get very fussy. They may not know how to cook a new fish, and won’t even try to switch. They may not even be doing that much cooking, and are relying on prepared foods that can be put in a microwave. There’s not much room for switching there.
All in all, this chained-CPI proposal from the White House is a disgusting betrayal by a president who swore as a candidate that he would stand firm against any cuts in Social Security or Medicare. As economics professor Michael Hudson so succinctly explains in an interview in Counterpunch, chained-CPI isn’t really a consumer price index, it’s a “cost of lower living standards index.” He says, “If living standards are ground down and down (through substitutions of cheaper goods and services) because people are poor, then the government can say, ‘Because you’re getting poorer and poorer, your living standards have declined, so we don’t have to pay you so much to live.’ … Poverty will cascade downward, and so will the chained CPI. This gives new means to the working class being put in chains.”
There are only two proper responses to this betrayal. One: we must demand that there be no cuts in Social Security or Medicare benefits, or increases in the taxes paid by those already paying taxes into the program or receiving benefits, until the military budget is first cut by at least 50 percent. Two: We must demand that no change be made in the index used to adjust Social Security benefits for inflation unless or until the government conducts an honest, unbiased and transparent academic study to develop a valid market basket for the elderly and disabled, to determine what their actual costs of living are, and how they are impacted by inflation. And no index should be based on simply adjusting as the elderly and disabled adjust to becoming increasingly destitute.
Wednesday, April 10, 2013
Bi-Partisanship We Don’t Need
Wednesday, April 10, 2013 by RobertReich.org
The President Offers to Cut Social Security and Republicans Agree
by Robert Reich
John Boehner, Speaker of the House, revealed why it’s politically naive for the President to offer up cuts in Social Security in the hope of getting Republicans to close some tax loopholes for the rich. “If the President believes these modest entitlement savings are needed to help shore up these programs, there’s no reason they should be held hostage for more tax hikes,” Boehner said in a statement released Friday.
House Majority Leader Eric Cantor agreed. He said on CNBC he didn’t understand “why we just don’t see the White House come forward and do the things that we agree on” such as cutting Social Security, without additional tax increases.
The President throws things on the table before the Republicans have even sat down for dinner.
Get it? The Republican leadership is already salivating over the President’s proposed Social Security cut. They’ve been wanting to cut Social Security for years.
But they won’t agree to close tax loopholes for the rich.
They’re already characterizing the President’s plan as a way to “save” Social Security — even though the cuts would undermine it — and they’re embracing it as an act of “bi-partisanship.”
“I’m encouraged by any steps that President Obama is taking to save and preserve Social Security,”cooed Texas Republican firebrand Ted Cruz. “I think it should be a bipartisan priority to strengthen Social Security and Medicare to preserve the benefits for existing seniors.”
Oh, please. Social Security hasn’t contributed to the budget deficit. And it’s solvent for the next two decades. (If we want to insure its solvency beyond that, the best fix is to lift the cap on income subject to Social Security taxes – now $113,700.)
And the day Ted Cruz agrees to raise taxes on the wealthy or even close a tax loophole will be when Texas freezes over.
The President is scheduled to dine with a dozen Senate Republicans Wednesday night. Among those attending will be John Boozman of Arkansas, who has already praised Obama for “starting to throw things on the table,” like the Social Security cuts.
That’s exactly the problem. The President throws things on the table before the Republicans have even sat down for dinner.
The President’s predilection for negotiating with himself is not new. But his willingness to do it with Social Security, the government’s most popular program — which Democrats have protected from Republican assaults for almost eighty years — doesn’t bode well.
The President Offers to Cut Social Security and Republicans Agree
by Robert Reich
John Boehner, Speaker of the House, revealed why it’s politically naive for the President to offer up cuts in Social Security in the hope of getting Republicans to close some tax loopholes for the rich. “If the President believes these modest entitlement savings are needed to help shore up these programs, there’s no reason they should be held hostage for more tax hikes,” Boehner said in a statement released Friday.
House Majority Leader Eric Cantor agreed. He said on CNBC he didn’t understand “why we just don’t see the White House come forward and do the things that we agree on” such as cutting Social Security, without additional tax increases.
The President throws things on the table before the Republicans have even sat down for dinner.
Get it? The Republican leadership is already salivating over the President’s proposed Social Security cut. They’ve been wanting to cut Social Security for years.
But they won’t agree to close tax loopholes for the rich.
They’re already characterizing the President’s plan as a way to “save” Social Security — even though the cuts would undermine it — and they’re embracing it as an act of “bi-partisanship.”
“I’m encouraged by any steps that President Obama is taking to save and preserve Social Security,”cooed Texas Republican firebrand Ted Cruz. “I think it should be a bipartisan priority to strengthen Social Security and Medicare to preserve the benefits for existing seniors.”
Oh, please. Social Security hasn’t contributed to the budget deficit. And it’s solvent for the next two decades. (If we want to insure its solvency beyond that, the best fix is to lift the cap on income subject to Social Security taxes – now $113,700.)
And the day Ted Cruz agrees to raise taxes on the wealthy or even close a tax loophole will be when Texas freezes over.
The President is scheduled to dine with a dozen Senate Republicans Wednesday night. Among those attending will be John Boozman of Arkansas, who has already praised Obama for “starting to throw things on the table,” like the Social Security cuts.
That’s exactly the problem. The President throws things on the table before the Republicans have even sat down for dinner.
The President’s predilection for negotiating with himself is not new. But his willingness to do it with Social Security, the government’s most popular program — which Democrats have protected from Republican assaults for almost eighty years — doesn’t bode well.
Saturday, April 6, 2013
Obama Allegedly to Cut back Social Security and Medicare in New Budget
The Great Capitulator capitulates once again and...
Accepts GOP Austerity Cat Food War on the Unwealthy
MARK KARLIN, EDITOR OF BUZZFLASH AT TRUTHOUT
It's back to the Simpson-Bowles cat food for the elderly and poor budget as far as the White House is concerned, according to The New York Times (NYT) on Friday:
President Obama next week will take the political risk of formally proposing cuts to Social Security and Medicare in his annual budget in an effort to demonstrate his willingness to compromise with Republicans and revive prospects for a long-term deficit-reduction deal, administration officials say.
Once again, a Democratic president is conceding to the GOP "frame" of austerity being vital to the future of America, when it was the Republicans who ran up the deficit – after Clinton left Bush a balanced budget – with a profligate tax cut for the super rich, two wars, and things like a multi-billion gift to the pharmaceutical industry by prohibiting government negotiations on drug prices in Medicare Part D.
This amidst a historical moment when income redistribution and asset ownership disparities have reached record levels in the US. But Obama appears to have an aversion to discussing or rectifying a morally unacceptable imbalance in wealth in America.
In return, Obama will get some crumbs of revenue enhancement, but take at a look at some of his leaked proposed reductions:
Cutting domestic programs such as pensions and unemployment?
In its defense, the White House claims that it is proposing increased infrastructure investment (too little) and more taxes on the wealthy (not a whole lot more).
Meanwhile the elderly on a pittance of Social Security will have imposed on them the dreaded chained CPI, says the NYT:
Obama either continues to believe in the now inexcusably naïve notion of "bi-partisanship" or he is, as some will argue, at heart a fiscal corporate neo-liberal Wall Street true believer:
The NYT, which clearly received the leak about the Obama budget from White House sources, is reflecting an Oval Office viewpoint that the president is compromising in order to win over "moderate" Republican votes. Say what? Earth to planet Obama: have you learned nothing from continually starting negotiations with the Republicans letting them advance to 10 yards of their goal – and them allowing them to walk over into the end zone for a victory twist and shake?
If you want to know the low threshold of weakness Obama is negotiating from, read the viewpoint of his aides, as reported in the NYT:
Uh, so the White House can't get even a basically Republican budget passed – with some crumbs of federal spending. They have to, as they see it, concede grovel and pray.
Bill Clinton said a long time back: "We [Democrats] have got to be strong. When we look weak in a time where people feel insecure, we lose. When people feel uncertain, they'd rather have somebody who's strong and wrong than somebody's who's weak and right."
Doesn't Obama run the danger, in his budget and many of his legislative proposals of appearing both weak and wrong?
Or is it that he actually believes in what he is proposing?
BuzzFlash at Truthout is not clairvoyant, so we can't say.
But history will judge him – and the seniors, unemployed, and poor who watch helplessly -- as President Obama thrusts a stake through the heart of the New Deal, while perpetuating a system of systemic oligarchy.
Accepts GOP Austerity Cat Food War on the Unwealthy
MARK KARLIN, EDITOR OF BUZZFLASH AT TRUTHOUT
It's back to the Simpson-Bowles cat food for the elderly and poor budget as far as the White House is concerned, according to The New York Times (NYT) on Friday:
President Obama next week will take the political risk of formally proposing cuts to Social Security and Medicare in his annual budget in an effort to demonstrate his willingness to compromise with Republicans and revive prospects for a long-term deficit-reduction deal, administration officials say.
Once again, a Democratic president is conceding to the GOP "frame" of austerity being vital to the future of America, when it was the Republicans who ran up the deficit – after Clinton left Bush a balanced budget – with a profligate tax cut for the super rich, two wars, and things like a multi-billion gift to the pharmaceutical industry by prohibiting government negotiations on drug prices in Medicare Part D.
This amidst a historical moment when income redistribution and asset ownership disparities have reached record levels in the US. But Obama appears to have an aversion to discussing or rectifying a morally unacceptable imbalance in wealth in America.
In return, Obama will get some crumbs of revenue enhancement, but take at a look at some of his leaked proposed reductions:
Deficits would be reduced another $930 billion through 2023 as a result of spending cuts and other cost-saving changes to domestic programs, and $200 billion more due to reduced interest payments on the federal debt.
Mr. Obama’s proposed spending reductions include about $400 billion from health programs and $200 billion from other areas, including farm subsidies, federal employee retirement programs, the Postal Service and the unemployment compensation system.
Cutting domestic programs such as pensions and unemployment?
In its defense, the White House claims that it is proposing increased infrastructure investment (too little) and more taxes on the wealthy (not a whole lot more).
Meanwhile the elderly on a pittance of Social Security will have imposed on them the dreaded chained CPI, says the NYT:
Besides the tax increases that most Republicans continue to oppose, Mr. Obama’s budget will propose a new inflation formula that would have the effect of reducing cost-of-living payments for Social Security benefits, though with financial protections for low-income and very old beneficiaries, administration officials said. The idea, known as chained C.P.I., has infuriated some Democrats and advocacy groups to Mr. Obama’s left, and they have already mobilized in opposition.
Obama either continues to believe in the now inexcusably naïve notion of "bi-partisanship" or he is, as some will argue, at heart a fiscal corporate neo-liberal Wall Street true believer:
Together with the $2.5 trillion in deficit reductions that Mr. Obama and Congressional Republicans have agreed to since 2010, that would bring the total deficit reduction to more than $4.3 trillion over 10 years by the administration’s computations — just over the goal that both parties have set for stabilizing the growth of the national debt.
The NYT, which clearly received the leak about the Obama budget from White House sources, is reflecting an Oval Office viewpoint that the president is compromising in order to win over "moderate" Republican votes. Say what? Earth to planet Obama: have you learned nothing from continually starting negotiations with the Republicans letting them advance to 10 yards of their goal – and them allowing them to walk over into the end zone for a victory twist and shake?
If you want to know the low threshold of weakness Obama is negotiating from, read the viewpoint of his aides, as reported in the NYT:
Neither the president nor senior aides privately hold much hope that Republican leaders — Mr. Boehner and Senator Mitch McConnell of Kentucky, the Senate Republican leader — will compromise. So Mr. Obama’s strategy of reaching out to other Senate Republicans reflects a calculation that enough of them might cut a budget deal with the Democratic Senate majority. If that happens, the reasoning goes, a Senate-passed compromise would put pressure on the House to go along.
Uh, so the White House can't get even a basically Republican budget passed – with some crumbs of federal spending. They have to, as they see it, concede grovel and pray.
Bill Clinton said a long time back: "We [Democrats] have got to be strong. When we look weak in a time where people feel insecure, we lose. When people feel uncertain, they'd rather have somebody who's strong and wrong than somebody's who's weak and right."
Doesn't Obama run the danger, in his budget and many of his legislative proposals of appearing both weak and wrong?
Or is it that he actually believes in what he is proposing?
BuzzFlash at Truthout is not clairvoyant, so we can't say.
But history will judge him – and the seniors, unemployed, and poor who watch helplessly -- as President Obama thrusts a stake through the heart of the New Deal, while perpetuating a system of systemic oligarchy.
Wednesday, March 6, 2013
The Growth Stealers
The wages of most workers have barely risen since 1980 because the vast majority of the gains from growth have gone to those at the top of the income distribution.
by DEAN BAKER
The Wall Street crew has been in high gear trying to convince the public that our children’s well-being is going to be threatened by their parents’ and grandparents’ Social Security. This story would be laughable except that it is endlessly repeated by people in positions of power and responsibility. For this reason it is worth going over the basic numbers yet again so that everyone knows that the people making these assertions are either ignorant or dishonest.
The basic point is that the economy gets more productive through time. This has been true for hundreds of years and no one has any good stories as to why it should not continue to be true long into the future.
Our measures of productivity growth are not very good for the years prior to World War II, but according to the Bureau of Labor Statistics in the 65 years since 1947 productivity growth has averaged 2.2 percent annually. There have been periods of more and less rapid growth.
The strongest growth was in the quarter century after the war when productivity growth averaged 2.9 percent annually. We then had a slowdown in the years from 1973 to 1995 when growth averaged just 1.3 percent annually. Since 1995 productivity growth has averaged 2.3 percent.
These numbers should be well known to everyone involved in economic policy and budget debates. Productivity is the measure of the value of the goods and services that workers produce in an hour of work. When productivity rises through time it means that workers are producing more value through time. If workers get their share of the gains of productivity growth then they will be getting richer through time.
These gains would have a dramatic effect on living standards over time. Suppose that we continued to see productivity grow at a 2.3 percent annual rate over the next quarter century, the same pace that we have seen over the last 15 years. If workers got their share of this growth, wages would be on average more than 75 percent higher than they are today. Just to be clear, this adjusts for any inflation over this period; in 2038 a typical worker would be able to buy 75 percent more goods and services than a typical worker today.
Even in a more pessimistic productivity story there would still be room for large improvements in living standards. If productivity growth fell to the 1.3 percent rate of the slowdown years, a typical worker in 2038 would still have a wage that is 38 percent higher than the average wage today. In short, even in a worst-case scenario, where productivity falls back to the slowest pace we have seen in the last 70 years, workers will on average be much wealthier than workers are today.
Now let’s bring in the deficit hawks who are screaming about demographics and the burdens of Social Security and Medicare. Imagine the case where we raise the Social Security and Medicare taxes by a total of 5 percentage points over the next quarter century. This is highly unlikely since there are many other ways to deal with the projected shortfalls in these programs, but since the Wall Street folks have put up so much money to push their agenda, let’s give them an extreme case.
In the case where productivity growth continues at its recent 2.3 percent annual rate, in a quarter century after-tax wages would still be more than 65 percent higher than they are today. Even if productivity growth falls back to the rate of the slowdown years, after-tax wages would still be 30 percent higher in 2038 than today.
It is also important to remember that after 2038 the demographics barely change but productivity keeps growing. This means that our children and grandchildren will continue to grow richer through time without any negative impact from an increasing population of retirees.
In reality there are some complications in converting productivity growth to wage growth, so the rise in wages would be somewhat less than these calculations imply; but the basic story is not debatable. All plausible projections of productivity growth show that average wage growth will swamp any negative impact on workers’ living standards from a growing burden of retirees.
At this point everyone should be screaming that workers have not been seeing the gains of productivity growth in the last three decades. This is exactly right. The wages of most workers have barely risen since 1980 because the vast majority of the gains from growth have gone to those at the top of the income distribution.
This is worth repeating a few hundred million times. Most workers have seen little benefit from growth because the gains have gone to those at the top.
This is why the yapping about the burden of Social Security and Medicare is so pernicious. If workers share in the gains of economic growth then there is no way that the cost of these programs will impose a serious burden on their living standards. In fact, workers’ living standards rose rapidly in the past in spite of large increases in the payroll taxes used to support these programs.
It will matter far more to our children and grandchildren whether they share in the gains of economic growth than if they have to pay higher tax rates for Social Security and Medicare. The rich, with the full complicity of the media, are doing their best to keep national policy focused on the cost of Social Security and Medicare. But the arithmetic says that the upward redistribution to the wealthy is the far more important issue for future living standards.
by DEAN BAKER
The Wall Street crew has been in high gear trying to convince the public that our children’s well-being is going to be threatened by their parents’ and grandparents’ Social Security. This story would be laughable except that it is endlessly repeated by people in positions of power and responsibility. For this reason it is worth going over the basic numbers yet again so that everyone knows that the people making these assertions are either ignorant or dishonest.
The basic point is that the economy gets more productive through time. This has been true for hundreds of years and no one has any good stories as to why it should not continue to be true long into the future.
Our measures of productivity growth are not very good for the years prior to World War II, but according to the Bureau of Labor Statistics in the 65 years since 1947 productivity growth has averaged 2.2 percent annually. There have been periods of more and less rapid growth.
The strongest growth was in the quarter century after the war when productivity growth averaged 2.9 percent annually. We then had a slowdown in the years from 1973 to 1995 when growth averaged just 1.3 percent annually. Since 1995 productivity growth has averaged 2.3 percent.
These numbers should be well known to everyone involved in economic policy and budget debates. Productivity is the measure of the value of the goods and services that workers produce in an hour of work. When productivity rises through time it means that workers are producing more value through time. If workers get their share of the gains of productivity growth then they will be getting richer through time.
These gains would have a dramatic effect on living standards over time. Suppose that we continued to see productivity grow at a 2.3 percent annual rate over the next quarter century, the same pace that we have seen over the last 15 years. If workers got their share of this growth, wages would be on average more than 75 percent higher than they are today. Just to be clear, this adjusts for any inflation over this period; in 2038 a typical worker would be able to buy 75 percent more goods and services than a typical worker today.
Even in a more pessimistic productivity story there would still be room for large improvements in living standards. If productivity growth fell to the 1.3 percent rate of the slowdown years, a typical worker in 2038 would still have a wage that is 38 percent higher than the average wage today. In short, even in a worst-case scenario, where productivity falls back to the slowest pace we have seen in the last 70 years, workers will on average be much wealthier than workers are today.
Now let’s bring in the deficit hawks who are screaming about demographics and the burdens of Social Security and Medicare. Imagine the case where we raise the Social Security and Medicare taxes by a total of 5 percentage points over the next quarter century. This is highly unlikely since there are many other ways to deal with the projected shortfalls in these programs, but since the Wall Street folks have put up so much money to push their agenda, let’s give them an extreme case.
In the case where productivity growth continues at its recent 2.3 percent annual rate, in a quarter century after-tax wages would still be more than 65 percent higher than they are today. Even if productivity growth falls back to the rate of the slowdown years, after-tax wages would still be 30 percent higher in 2038 than today.
It is also important to remember that after 2038 the demographics barely change but productivity keeps growing. This means that our children and grandchildren will continue to grow richer through time without any negative impact from an increasing population of retirees.
In reality there are some complications in converting productivity growth to wage growth, so the rise in wages would be somewhat less than these calculations imply; but the basic story is not debatable. All plausible projections of productivity growth show that average wage growth will swamp any negative impact on workers’ living standards from a growing burden of retirees.
At this point everyone should be screaming that workers have not been seeing the gains of productivity growth in the last three decades. This is exactly right. The wages of most workers have barely risen since 1980 because the vast majority of the gains from growth have gone to those at the top of the income distribution.
This is worth repeating a few hundred million times. Most workers have seen little benefit from growth because the gains have gone to those at the top.
This is why the yapping about the burden of Social Security and Medicare is so pernicious. If workers share in the gains of economic growth then there is no way that the cost of these programs will impose a serious burden on their living standards. In fact, workers’ living standards rose rapidly in the past in spite of large increases in the payroll taxes used to support these programs.
It will matter far more to our children and grandchildren whether they share in the gains of economic growth than if they have to pay higher tax rates for Social Security and Medicare. The rich, with the full complicity of the media, are doing their best to keep national policy focused on the cost of Social Security and Medicare. But the arithmetic says that the upward redistribution to the wealthy is the far more important issue for future living standards.
Tuesday, January 8, 2013
Take Your Hands Off Social Security
It's Irrelevant to the Deficit
by DEAN BAKER
Millions of people are rightly outraged to hear that Social Security is in the gun-sights of both Speaker Boehner and President Obama in their budget negotiations. There is no reason that our political leaders should be discussing cuts to the country’s most successful social program.
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-GDP 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. One of the most widely discussed proposals to avert that shortfall is a revision in the cost-of-living calculation that would be the equivalent of a 3 percent cut in benefits over a typical retiree’s lifetime. (Perversely, the impact will be largest for the oldest and poorest retirees, since people who live the longest will accumulate the largest reduction in benefits.)
An overwhelming majority of the country strongly supports Social Security and does not want to see any benefit cuts. But because of the nature of this budget negotiation process, Americans are supposed to accept the cuts with no revenue increase whatsoever to shore up the program’s long-term financial position.
It is understandable that people who want to cut back or dismantle Social Security would argue for this position. It is difficult to see why anyone else would.
by DEAN BAKER
Millions of people are rightly outraged to hear that Social Security is in the gun-sights of both Speaker Boehner and President Obama in their budget negotiations. There is no reason that our political leaders should be discussing cuts to the country’s most successful social program.
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-GDP 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. One of the most widely discussed proposals to avert that shortfall is a revision in the cost-of-living calculation that would be the equivalent of a 3 percent cut in benefits over a typical retiree’s lifetime. (Perversely, the impact will be largest for the oldest and poorest retirees, since people who live the longest will accumulate the largest reduction in benefits.)
An overwhelming majority of the country strongly supports Social Security and does not want to see any benefit cuts. But because of the nature of this budget negotiation process, Americans are supposed to accept the cuts with no revenue increase whatsoever to shore up the program’s long-term financial position.
It is understandable that people who want to cut back or dismantle Social Security would argue for this position. It is difficult to see why anyone else would.
Sunday, December 23, 2012
Democrats, Social Security and the Fiscal Cliff
A Web of Convenient Fictions
by ROB URIE
With democrats ecstatic that political dysfunction has postponed their cutting the social insurance programs that Americans have paid for and count on for a few weeks, discussion of the intricacies of ‘chained CPI’ (Consumer Price Index) versus other measures of inflation used to adjust Social Security can now apparently wait for the New Year. Still, this probably isn’t a bad time to ask: why? Why cut Social Security? The program is currently solvent, is expected to remain solvent for decades to come, and projected shortfalls in the future could be better addressed by raising the incomes of the people who pay into the program, not by cutting payments to those who depend on them. What is to be gained by ‘solving’ a problem that isn’t?
If cutting Social Security isn’t necessary, why then is it being proposed? Barack Obama provided copious evidence in prior proposals, television interviews and speeches that doing so is his intent. Congressional democrats and labor leaders quickly acceded to his proposal to do so, with former House Speaker Nancy Pelosi going so far as to actively lie that proposed cuts will ‘strengthen’ the program. And given the cuts will eventually put tens of millions of Americans into dire poverty from a program they paid into for all of their working lives, what rationale could possibly justify doing so?
The reason I ask is a coalition of democrats, labor, liberals and progressives just re-elected Mr. Obama and democrats in Congress to what—cut Social Security? Mr. Obama created the ‘fiscal cliff’ to first push his stacked (in favor of cutting social insurance programs) ‘deficit commission’ to develop a plan to cut government spending and second, to force the issue to be revisited immediately after the election if no plan was agreed to. And Republican threats to refuse to raise the debt ceiling for leverage to ‘force’ spending cuts are idiotic—George W. Bush and congressional Republicans just led the largest increase in government spending in modern history. And that is not a difficult point to make. (And had it been on beneficial programs, it would have been laudable).
Ultimately the entire ‘debate’ is nonsense—the U.S. doesn’t fund spending directly from taxes. As the Federal Reserve is in the process of demonstrating with its QE (Quantitative Easing) programs, it can buy an unlimited quantity of government debt with money it ‘creates’ –the ‘debt limit’ is an arbitrary misdirection. This isn’t to argue that there is no relationship between economic production and money creation, but it is to point out that the ‘Federal budget’ is a convenient fiction. So, given his repeated analogy of the Federal budget to a family budget, is Mr. Obama ignorant of government finances or does he understand them and is purposely using the misleading analogy to further unstated goals?
The ‘Fix the Debt’ committee of politicians, corporate executives and connected financiers claiming to be concerned about the Federal deficit isn’t discussing eliminating the ‘carried interest’ deduction that benefits billionaire hedge fund managers, raising effective corporate tax rates that are currently the lowest in modern history, materially cutting end-of-empire levels of military spending and raising personal income tax rates on the titans of finance who would be begging for change in the street were it not for Federal government largesse in the (ongoing) bank bailouts. But they are deeply concerned about the Federal deficit, as are Mr. Obama and congressional democrats.
But again, why? The web of convenient fictions currently in play amongst both democrats and republicans in Washington—corporate tax cuts promote economic growth and job creation, government spending ‘crowds out’ more productive private sector spending, ‘excessive’ government debt will cause a financial market rebellion (bond vigilantes) and handing social insurance programs to private market profiteers is beneficial to the insured, are all demonstrably nonsense with only a cursory look at ‘the evidence.’
Effective corporate tax rates are the lowest in modern history and job creation, even before the economic calamity began in 2008, is the weakest since the 1930s. As global warming caused by largely private production and the predatory, dysfunctional private sector demonstrate on a daily basis, the ‘efficiencies’ of private production come from cost shifting, not by levels of human motivation intrinsic to capitalism. As QE is demonstrating, the Federal Reserve can control both short and long term interests rates—the ‘bond vigilantes’ are only in control when they provide cover for private interests. And Barack Obama didn’t choose the ‘least bad’ option with his healthcare ‘reform,’ he chose the private option to which he is ideologically committed.
Without apparent irony, these convenient fictions are straight from the IMF (International Monetary Fund) and World Bank playbooks circa 1980. While couched in the language of ‘economic development,’ IMF policies were / are extractive, designed to exert control over political economies and were / are tools of economic imperialism. The ‘austerity’ of IMF policies, cutting social spending to divert funds to service external debt, was rarely accompanied by even the pretense it benefited those whose social insurance programs were being looted. Cut to Mr. Obama and Democratic Speaker Nancy Pelosi mirroring the Vietnam Warism that to strengthen Social Security we must weaken it. Welcome to neo-Colonial America.
Also without apparent irony, the neo-Keynesian wing of the Democratic Party claims to have correctly analyzed current economic travails and prescribed the necessary and sufficient solutions if only Mr. Obama and the DC democrats would listen. In the first, this leaves the great mystery of why they haven’t listened and have actively articulated the policies of the radical right instead? In the second, Keynesian solutions imply that ‘we are all in this together,’ economically speaking, decades after official Washington and America’s plutocracy made it abundantly clear they believe they are responsible for their lot and we for ours, except when they need a few trillion dollars for a bailout. Finally, the ‘we’re all in this together’ monetary policies of the neo-Keynesians have benefited America’s richest 10% who own financial assets alone. (For explanations see Minsky’s essays on inflation and Marx’s Capital, Volume II).
With no respect whatsoever, this leads to the observation that Mr. Obama and his co-conspirators in the Democratic Party haven’t ‘caved,’ ‘capitulated,’ ‘relented,’ ‘given in,’ ‘submitted’ or ‘yielded’ by agreeing to cut social insurance programs. Mr. Obama’s far-right-of-center policies of his first term were just affirmed by the coalition that re-elected him. He will propose cutting Social Security again in just a few weeks. And democrats, labor, liberals and progressives will again be sincerely debating the merits of chained CPI versus other measures of inflation by which to cut Social Security. But while the effects of cuts will be real, the ‘debate’ won’t be. Put another way, the goal is to cut Social Security, not to ‘strengthen’ it.
In his speech at the Hamilton Project launch (link above) in 2006 Mr. Obama articulated the ‘slippery slope’ argument he believed was the ‘left’ position against ‘modernizing’ America’s social insurance programs. He argued supporters of these programs feared minor ‘adjustments’ were a pretext for the wholesale cuts desired by the radical right. But what this explanation leaves out is context. Were the ‘discussion’ taking place as the economic prospects of the poor and working classes were dramatically rising– rapid income gains, increasing income security, rising food security and income and wealth distribution resembling economic democracy, interpreted intent might be benign. But with Mr. Obama and congressional democrats several decades into giving voice to the desires and policies of the radical right, it would require a fool to believe benign intent today.
Hopefully I am underestimating the political pushback proposed cuts will engender. But given the propensity of democrats, labor, liberals and progressives to sincerely debate irrelevancies while giving unwavering support to the increasingly debased policies of their leaders, I doubt it. The bourgeois of these constituencies will likely break with the poor and working class and accede to the bogus rationale that the programs must be weakened so they may be strengthened, calculating that they’ll be all right in any case. And the pundit class will do the narrow calculus of cutting this program to save that without noticing the unwavering trajectory toward neo-liberal hell of the last forty years. To the folks who support the Democratic Party without apparently knowing what their policies are, good luck with that Social Security thing and all. To everyone else, we didn’t ask for this, but it’s coming our way anyhow.
by ROB URIE
With democrats ecstatic that political dysfunction has postponed their cutting the social insurance programs that Americans have paid for and count on for a few weeks, discussion of the intricacies of ‘chained CPI’ (Consumer Price Index) versus other measures of inflation used to adjust Social Security can now apparently wait for the New Year. Still, this probably isn’t a bad time to ask: why? Why cut Social Security? The program is currently solvent, is expected to remain solvent for decades to come, and projected shortfalls in the future could be better addressed by raising the incomes of the people who pay into the program, not by cutting payments to those who depend on them. What is to be gained by ‘solving’ a problem that isn’t?
If cutting Social Security isn’t necessary, why then is it being proposed? Barack Obama provided copious evidence in prior proposals, television interviews and speeches that doing so is his intent. Congressional democrats and labor leaders quickly acceded to his proposal to do so, with former House Speaker Nancy Pelosi going so far as to actively lie that proposed cuts will ‘strengthen’ the program. And given the cuts will eventually put tens of millions of Americans into dire poverty from a program they paid into for all of their working lives, what rationale could possibly justify doing so?
The reason I ask is a coalition of democrats, labor, liberals and progressives just re-elected Mr. Obama and democrats in Congress to what—cut Social Security? Mr. Obama created the ‘fiscal cliff’ to first push his stacked (in favor of cutting social insurance programs) ‘deficit commission’ to develop a plan to cut government spending and second, to force the issue to be revisited immediately after the election if no plan was agreed to. And Republican threats to refuse to raise the debt ceiling for leverage to ‘force’ spending cuts are idiotic—George W. Bush and congressional Republicans just led the largest increase in government spending in modern history. And that is not a difficult point to make. (And had it been on beneficial programs, it would have been laudable).
Ultimately the entire ‘debate’ is nonsense—the U.S. doesn’t fund spending directly from taxes. As the Federal Reserve is in the process of demonstrating with its QE (Quantitative Easing) programs, it can buy an unlimited quantity of government debt with money it ‘creates’ –the ‘debt limit’ is an arbitrary misdirection. This isn’t to argue that there is no relationship between economic production and money creation, but it is to point out that the ‘Federal budget’ is a convenient fiction. So, given his repeated analogy of the Federal budget to a family budget, is Mr. Obama ignorant of government finances or does he understand them and is purposely using the misleading analogy to further unstated goals?
The ‘Fix the Debt’ committee of politicians, corporate executives and connected financiers claiming to be concerned about the Federal deficit isn’t discussing eliminating the ‘carried interest’ deduction that benefits billionaire hedge fund managers, raising effective corporate tax rates that are currently the lowest in modern history, materially cutting end-of-empire levels of military spending and raising personal income tax rates on the titans of finance who would be begging for change in the street were it not for Federal government largesse in the (ongoing) bank bailouts. But they are deeply concerned about the Federal deficit, as are Mr. Obama and congressional democrats.
But again, why? The web of convenient fictions currently in play amongst both democrats and republicans in Washington—corporate tax cuts promote economic growth and job creation, government spending ‘crowds out’ more productive private sector spending, ‘excessive’ government debt will cause a financial market rebellion (bond vigilantes) and handing social insurance programs to private market profiteers is beneficial to the insured, are all demonstrably nonsense with only a cursory look at ‘the evidence.’
Effective corporate tax rates are the lowest in modern history and job creation, even before the economic calamity began in 2008, is the weakest since the 1930s. As global warming caused by largely private production and the predatory, dysfunctional private sector demonstrate on a daily basis, the ‘efficiencies’ of private production come from cost shifting, not by levels of human motivation intrinsic to capitalism. As QE is demonstrating, the Federal Reserve can control both short and long term interests rates—the ‘bond vigilantes’ are only in control when they provide cover for private interests. And Barack Obama didn’t choose the ‘least bad’ option with his healthcare ‘reform,’ he chose the private option to which he is ideologically committed.
Without apparent irony, these convenient fictions are straight from the IMF (International Monetary Fund) and World Bank playbooks circa 1980. While couched in the language of ‘economic development,’ IMF policies were / are extractive, designed to exert control over political economies and were / are tools of economic imperialism. The ‘austerity’ of IMF policies, cutting social spending to divert funds to service external debt, was rarely accompanied by even the pretense it benefited those whose social insurance programs were being looted. Cut to Mr. Obama and Democratic Speaker Nancy Pelosi mirroring the Vietnam Warism that to strengthen Social Security we must weaken it. Welcome to neo-Colonial America.
Also without apparent irony, the neo-Keynesian wing of the Democratic Party claims to have correctly analyzed current economic travails and prescribed the necessary and sufficient solutions if only Mr. Obama and the DC democrats would listen. In the first, this leaves the great mystery of why they haven’t listened and have actively articulated the policies of the radical right instead? In the second, Keynesian solutions imply that ‘we are all in this together,’ economically speaking, decades after official Washington and America’s plutocracy made it abundantly clear they believe they are responsible for their lot and we for ours, except when they need a few trillion dollars for a bailout. Finally, the ‘we’re all in this together’ monetary policies of the neo-Keynesians have benefited America’s richest 10% who own financial assets alone. (For explanations see Minsky’s essays on inflation and Marx’s Capital, Volume II).
With no respect whatsoever, this leads to the observation that Mr. Obama and his co-conspirators in the Democratic Party haven’t ‘caved,’ ‘capitulated,’ ‘relented,’ ‘given in,’ ‘submitted’ or ‘yielded’ by agreeing to cut social insurance programs. Mr. Obama’s far-right-of-center policies of his first term were just affirmed by the coalition that re-elected him. He will propose cutting Social Security again in just a few weeks. And democrats, labor, liberals and progressives will again be sincerely debating the merits of chained CPI versus other measures of inflation by which to cut Social Security. But while the effects of cuts will be real, the ‘debate’ won’t be. Put another way, the goal is to cut Social Security, not to ‘strengthen’ it.
In his speech at the Hamilton Project launch (link above) in 2006 Mr. Obama articulated the ‘slippery slope’ argument he believed was the ‘left’ position against ‘modernizing’ America’s social insurance programs. He argued supporters of these programs feared minor ‘adjustments’ were a pretext for the wholesale cuts desired by the radical right. But what this explanation leaves out is context. Were the ‘discussion’ taking place as the economic prospects of the poor and working classes were dramatically rising– rapid income gains, increasing income security, rising food security and income and wealth distribution resembling economic democracy, interpreted intent might be benign. But with Mr. Obama and congressional democrats several decades into giving voice to the desires and policies of the radical right, it would require a fool to believe benign intent today.
Hopefully I am underestimating the political pushback proposed cuts will engender. But given the propensity of democrats, labor, liberals and progressives to sincerely debate irrelevancies while giving unwavering support to the increasingly debased policies of their leaders, I doubt it. The bourgeois of these constituencies will likely break with the poor and working class and accede to the bogus rationale that the programs must be weakened so they may be strengthened, calculating that they’ll be all right in any case. And the pundit class will do the narrow calculus of cutting this program to save that without noticing the unwavering trajectory toward neo-liberal hell of the last forty years. To the folks who support the Democratic Party without apparently knowing what their policies are, good luck with that Social Security thing and all. To everyone else, we didn’t ask for this, but it’s coming our way anyhow.
Saturday, December 8, 2012
The Plutocrats and the Placeholder President
*Sigh* Yes, the Democrats suck just as hard ads the Republicans do. Obama will bend over for the Republicans' bullshit 'the sky is falling' austerity and cut deep gouges out of social security and other important programs even though it's unnecessary. (Hint) just let the Bush tax cuts expire, end the wars, bring the troops home, and cut the military budget. A conventional military is outdated and unneeded in this age of warfare. Problem solved.--jef
Austerity, Obama-Style
by ROB URIE
In Quentin Tarantino’s movie ‘Jackie Brown’ the illegal arms dealer played by Samuel L. Jackson laughs as he recounts the sales slogan used by the manufacturer of the ‘Tech Nine’ semi-automatic weapon—“the most popular gun in American crime, like they proud of that shit.” Mere weeks after Barack Obama was re-elected, farce is added to tragedy with his supporters complaining that while the Republican proposal to cut Federal government spending and social insurance programs is all bluster and misdirection, their guy (Mr. Obama) has a real plan to do so—like they’re proud of that shit. Thanks just the same folks, but I’ll take the fake plan.
The moment when the New Deal as we knew it became history by bi-partisan consensus was a long time coming. A trans-generational core of inherited wealth and right-wing cranks has been trying to undo the New Deal since Social Security became fact in 1935. Ronald Reagan echoed anti-New Deal cries of ‘socialism,’ first as a paid spokesperson of the AMA (American Medical Association) against the implementation of Medicare and Medicaid, and later through his racist caricature of the ‘welfare queen’ living fat on public largesse. Despite the fact that Social Security is an insurance program paid for by its participants, much the same as private insurance but without the executive looting, the charge has always been of an undeserving public sucking on “a milk cow with 310 million tits.”
Democrats first joined the effort in earnest with Bill Clinton’s plan to partially privatize Social Security. The idea was to let our good friends on Wall Street manage a bit of the money for us, for a fee of course. That proposal faltered when Mr. Clinton was impeached. As was the fashion in European Central Bank circles in 2009, Mr. Obama took up the torch of fiscal austerity of his own initiative by creating his very own deficit commission. This should have come as no surprise to anyone paying attention—Mr. Obama publicly stated his intention to ‘fix’ Social Security, Medicare and Medicaid when he allied himself with the Wall Street friendly ‘Hamilton Project’ in 2006.
(In Between Democrats Clinton and Obama came Republican George W. Bush who also tried to partially privatize Social Security. Mr. Bush quickly retreated when he saw the depth of political opposition to the effort. As the saying goes, it takes a Democrat to gut the New Deal).
For the uninitiated, the Hamilton Project is the demon spawn of the Clintonite contingent of the Democratic Party led by former Treasury Secretary and disgraced Citicorp Board member Robert Rubin. The kindest take on the Wall Street lootocracy populating the organization is that they don’t know how money is created (the U.S. has a fiat currency), making them morons. The less kind take is that their greed has no limits. Whichever is more applicable (neither is mutually exclusive), if one group of Wall Street politicos bears responsibility for the economic catastrophe that an unregulated Wall Street has visited upon the world in recent years, the Hamilton Project is it.
Never one to let the wish list of the entrenched plutocracy go unfulfilled, Barack Obama chose Democrat, inheritance baby and Wall Street ‘welfare queen’ Erskine Bowles, to co-head his (Mr. Obama’s) very own ‘deficit commission.’ Of course Mr. Obama knew nothing of Mr. Bowles experience leading the earlier effort to (partially) privatize Social Security when he appointed him to the position. In his speech welcoming the Hamilton Project into existence (link above), Mr. Obama additionally described himself as an enthusiastic ‘free trader’ committed to globalization. And of current relevance, he ascribed fiscal ‘discipline’ as the proximate cause of the Clinton economic ‘boom,’ deftly ignoring the greatest stock market bubble (as measured by price / earnings ratio—twice that of 1929) in human history.
One could be forgiven for believing that Mr. Obama, or any other placeholder Democrat for that matter, has something of a point regarding ‘entitlement’ spending if his words are the only that are listened to. People in the U.S. are living longer and a strapped citizenry simply cannot afford the lavish promises made in an earlier age of plenty goes the toxic bullshit. By leaving out class divisions this formulation simply furthers the shift in social resources upward from poor to rich. As economist Paul Krugman has effectively argued, the rich are living longer and the working class and poor are not. Additionally, unless those in the ‘gap’ years between the old and new eligibility ages for Medicare simply forgo health care, the change will force them to purchase private health insurance under whatever terms the ‘market’ will bear. But of course, private insurance companies always act in the public interest when people’s backs are to the wall.
At the end of the day this charade is a struggle over social resources. The ‘too-big-to-fail’ guarantee of the banks, which is the only reason why insolvent, predatory Wall Street remains in business, is an entitlement program for connected bankers—for which they pay nothing. The bloated, murderous, military industry that lobbies the U.S. into unnecessary wars for their own benefit and that of corporate welfare receiving multi-national corporations is an entitlement program. And the aforementioned corporate welfare that perpetuates the puffy, gray corporate executives behind the ‘Fix the Debt’ campaign for whom official Washington now apparently works is an entitlement program. So if we want to have a public ‘discussion’ of entitlement spending, by all means let’s do so.
And as far as entitlement programs go, government guarantees and redistribution schemes are only a starting point. As economist Dean Baker has argued, America’s professional class retains monopoly pricing power for their labor through trade restrictions while the working class has been thrown to the wolves. The Federal Reserve has spent upwards of four trillion dollars to entitle the fortunes of the investor class since 2008, returning the already rich to their former wealth. And corporate executives have entitled themselves to robber-baron sized paychecks through the combination of trade policies that have so reduced the fortunes of the working class, tax abatements that have bled the public weal for some forty years, and through the financialization of the economy that has favored, along with Federal Reserve policies, the financial wealth that executives pay themselves with. All of these and more are entitlement programs that have redistributed ever more social wealth from the working class and poor up to the Washington establishment’s beloved plutocrats.
But the trillions of dollars in health care expenditures that we deadbeats intend to sponge off of the blessedly deserving rich is the really big money, right? When Erskine Bowles wakes with night terrors, it is my herniated disk and your gall bladder operation that will sink the country, right? The U.S. pays 30% – 50% more per person than other first world nations for health care that is of substantially lower quality because we have a largely private health care system. Were the system totally public—Medicare for all, we would realize some material proportion of these savings and most likely vastly improve the health of the citizenry. Were the monopoly entitlements of doctors and pharmaceutical companies reduced or eliminated, further cost reductions would be realized. So quickly, who are the main beneficiaries of America’s ‘bloated’ entitlement programs?
As Mr. Obama will offer, his proposals include reducing payments to health care providers and negotiating lower prices for prescription drugs. However, the private health care system in America is the global leader in shifting costs to those with the least social power. Cuts in public payments to private providers have a long history of popping up elsewhere, as health insurer profits will attest. For instance, Mr. Obama’s health care ‘reform’ program, the ACA (Affordable Care Act), requires insurance companies to spend fixed percentages of their revenues providing health care or to rebate the difference to their customers. As corporations constitute the majority of their ‘customers,’ corporations apparently now have an incentive to shop around for health insurers that provide the lowest proportion of health care to their employees to maximize the rebates. (The central business of insurers was already to provide the appearance of coverage without providing actual coverage). And health insurance providers can gain market share, if at lower margins, by doing exactly this. Welcome to America.
Last, any honest discussion of ‘entitlements’ would be to the benefit of America’s poor and working classes. The globetrotting plutocrats behind current ‘discussions’ see working class product as their due. This is the very definition of entitlement. We can either disabuse them of this notion or roll over and play dead. Or better yet, roll over and vote Democrat.
+++++++++++
Austerity, Obama-Style
by ROB URIE
In Quentin Tarantino’s movie ‘Jackie Brown’ the illegal arms dealer played by Samuel L. Jackson laughs as he recounts the sales slogan used by the manufacturer of the ‘Tech Nine’ semi-automatic weapon—“the most popular gun in American crime, like they proud of that shit.” Mere weeks after Barack Obama was re-elected, farce is added to tragedy with his supporters complaining that while the Republican proposal to cut Federal government spending and social insurance programs is all bluster and misdirection, their guy (Mr. Obama) has a real plan to do so—like they’re proud of that shit. Thanks just the same folks, but I’ll take the fake plan.
The moment when the New Deal as we knew it became history by bi-partisan consensus was a long time coming. A trans-generational core of inherited wealth and right-wing cranks has been trying to undo the New Deal since Social Security became fact in 1935. Ronald Reagan echoed anti-New Deal cries of ‘socialism,’ first as a paid spokesperson of the AMA (American Medical Association) against the implementation of Medicare and Medicaid, and later through his racist caricature of the ‘welfare queen’ living fat on public largesse. Despite the fact that Social Security is an insurance program paid for by its participants, much the same as private insurance but without the executive looting, the charge has always been of an undeserving public sucking on “a milk cow with 310 million tits.”
Democrats first joined the effort in earnest with Bill Clinton’s plan to partially privatize Social Security. The idea was to let our good friends on Wall Street manage a bit of the money for us, for a fee of course. That proposal faltered when Mr. Clinton was impeached. As was the fashion in European Central Bank circles in 2009, Mr. Obama took up the torch of fiscal austerity of his own initiative by creating his very own deficit commission. This should have come as no surprise to anyone paying attention—Mr. Obama publicly stated his intention to ‘fix’ Social Security, Medicare and Medicaid when he allied himself with the Wall Street friendly ‘Hamilton Project’ in 2006.
(In Between Democrats Clinton and Obama came Republican George W. Bush who also tried to partially privatize Social Security. Mr. Bush quickly retreated when he saw the depth of political opposition to the effort. As the saying goes, it takes a Democrat to gut the New Deal).
For the uninitiated, the Hamilton Project is the demon spawn of the Clintonite contingent of the Democratic Party led by former Treasury Secretary and disgraced Citicorp Board member Robert Rubin. The kindest take on the Wall Street lootocracy populating the organization is that they don’t know how money is created (the U.S. has a fiat currency), making them morons. The less kind take is that their greed has no limits. Whichever is more applicable (neither is mutually exclusive), if one group of Wall Street politicos bears responsibility for the economic catastrophe that an unregulated Wall Street has visited upon the world in recent years, the Hamilton Project is it.
Never one to let the wish list of the entrenched plutocracy go unfulfilled, Barack Obama chose Democrat, inheritance baby and Wall Street ‘welfare queen’ Erskine Bowles, to co-head his (Mr. Obama’s) very own ‘deficit commission.’ Of course Mr. Obama knew nothing of Mr. Bowles experience leading the earlier effort to (partially) privatize Social Security when he appointed him to the position. In his speech welcoming the Hamilton Project into existence (link above), Mr. Obama additionally described himself as an enthusiastic ‘free trader’ committed to globalization. And of current relevance, he ascribed fiscal ‘discipline’ as the proximate cause of the Clinton economic ‘boom,’ deftly ignoring the greatest stock market bubble (as measured by price / earnings ratio—twice that of 1929) in human history.
One could be forgiven for believing that Mr. Obama, or any other placeholder Democrat for that matter, has something of a point regarding ‘entitlement’ spending if his words are the only that are listened to. People in the U.S. are living longer and a strapped citizenry simply cannot afford the lavish promises made in an earlier age of plenty goes the toxic bullshit. By leaving out class divisions this formulation simply furthers the shift in social resources upward from poor to rich. As economist Paul Krugman has effectively argued, the rich are living longer and the working class and poor are not. Additionally, unless those in the ‘gap’ years between the old and new eligibility ages for Medicare simply forgo health care, the change will force them to purchase private health insurance under whatever terms the ‘market’ will bear. But of course, private insurance companies always act in the public interest when people’s backs are to the wall.
At the end of the day this charade is a struggle over social resources. The ‘too-big-to-fail’ guarantee of the banks, which is the only reason why insolvent, predatory Wall Street remains in business, is an entitlement program for connected bankers—for which they pay nothing. The bloated, murderous, military industry that lobbies the U.S. into unnecessary wars for their own benefit and that of corporate welfare receiving multi-national corporations is an entitlement program. And the aforementioned corporate welfare that perpetuates the puffy, gray corporate executives behind the ‘Fix the Debt’ campaign for whom official Washington now apparently works is an entitlement program. So if we want to have a public ‘discussion’ of entitlement spending, by all means let’s do so.
And as far as entitlement programs go, government guarantees and redistribution schemes are only a starting point. As economist Dean Baker has argued, America’s professional class retains monopoly pricing power for their labor through trade restrictions while the working class has been thrown to the wolves. The Federal Reserve has spent upwards of four trillion dollars to entitle the fortunes of the investor class since 2008, returning the already rich to their former wealth. And corporate executives have entitled themselves to robber-baron sized paychecks through the combination of trade policies that have so reduced the fortunes of the working class, tax abatements that have bled the public weal for some forty years, and through the financialization of the economy that has favored, along with Federal Reserve policies, the financial wealth that executives pay themselves with. All of these and more are entitlement programs that have redistributed ever more social wealth from the working class and poor up to the Washington establishment’s beloved plutocrats.
But the trillions of dollars in health care expenditures that we deadbeats intend to sponge off of the blessedly deserving rich is the really big money, right? When Erskine Bowles wakes with night terrors, it is my herniated disk and your gall bladder operation that will sink the country, right? The U.S. pays 30% – 50% more per person than other first world nations for health care that is of substantially lower quality because we have a largely private health care system. Were the system totally public—Medicare for all, we would realize some material proportion of these savings and most likely vastly improve the health of the citizenry. Were the monopoly entitlements of doctors and pharmaceutical companies reduced or eliminated, further cost reductions would be realized. So quickly, who are the main beneficiaries of America’s ‘bloated’ entitlement programs?
As Mr. Obama will offer, his proposals include reducing payments to health care providers and negotiating lower prices for prescription drugs. However, the private health care system in America is the global leader in shifting costs to those with the least social power. Cuts in public payments to private providers have a long history of popping up elsewhere, as health insurer profits will attest. For instance, Mr. Obama’s health care ‘reform’ program, the ACA (Affordable Care Act), requires insurance companies to spend fixed percentages of their revenues providing health care or to rebate the difference to their customers. As corporations constitute the majority of their ‘customers,’ corporations apparently now have an incentive to shop around for health insurers that provide the lowest proportion of health care to their employees to maximize the rebates. (The central business of insurers was already to provide the appearance of coverage without providing actual coverage). And health insurance providers can gain market share, if at lower margins, by doing exactly this. Welcome to America.
Last, any honest discussion of ‘entitlements’ would be to the benefit of America’s poor and working classes. The globetrotting plutocrats behind current ‘discussions’ see working class product as their due. This is the very definition of entitlement. We can either disabuse them of this notion or roll over and play dead. Or better yet, roll over and vote Democrat.
Friday, December 7, 2012
The Obscenely Rich Men Bent on Shredding the Safety Net
They want to cut social security and medicare to line their own pockets, not to address the budget deficit/national debt.--jef
##########
Wednesday, November 14, 2012
The Deficit Hawk Industry
In a weak economy, there are more important issues for us to spend money on than the deficit.--jef
The gang for gutting Social Security and Medicare (aka “The
Campaign to Fix the Debt”) are running in high gear. During the long
election campaign they gathered dollars, corporate CEOs and washed up
politicians for a full-fledged push in the final months of the year.
They are hoping that the hype around the budget standoff (aka “fiscal
cliff”) can be used for a grand bargain that eviscerates the country’s
two most important social programs, Social Security and Medicare.
They made a point of keeping this plan out of election year politics because they know it is a huge loser with the electorate. People across the political and ideological spectrums strongly support these programs and are opposed to cuts. Politicians who advocated cuts would have been likely losers on Election Day. But now that the voters are out of the way, the Wall Street gang and the CEOs see their opportunity.
It is especially important that they act now, because one of the pillars of their deficit horror story could be collapsing. Due to a sharp slowing in the rise of health care costs over the last four years, the assumption that exploding health care costs would lead to unfathomable deficits may no longer be plausible even to people in high level policy positions.
As we all know, the large budget deficits of the last four years are entirely due to the economic downturn caused by the collapse of the housing bubble. The budget deficit was slightly over 1.0 percent of GDP in 2007 and the Congressional Budget Office (CBO) projections showed it remaining low for the near-term future. The origin of the large deficits of the last few years is not a debatable point among serious people, even though talk of “trillion dollar deficits, with a ‘t’” is very good for scaring the children.
However, the big stick for the deficit hawks was their story of huge deficits in the longer term. They attributed these to the rising cost of “entitlements,” which are known to the rest of us as Social Security, Medicare, and Medicaid.
While they like to push the notion that the aging of the population threatened to impose an unbearable burden on future generations, the reality is that most of the horror story of huge deficits was driven by projections of exploding private sector health care costs. Since Medicare and Medicaid mostly pay for private sector health care, an explosion in private sector health care costs would eventually make these programs unaffordable.
As some of us have long pointed out, there are serious grounds for questioning the plausibility of projections that the health care sector would rise to 30 or 40 percent of GDP over the rest of the century. Recently a paper from the Federal Reserve Board documented this argument in considerable detail.
Even more important than the professional argument over health care cost projections is the recent trend in health care costs. While the CBO projections assume that age-adjusted health care costs rise considerably more rapidly than per capita income, in the last four years they have been roughly keeping pace with per capita income.
In fact, in the last year nominal spending on health care services, the sector that comprises almost two-thirds of health care costs, rose by just 1.7 percent. This is far below the rate of nominal GDP growth over this period, which was more than 4.0 percent. While at least some of this slowing in health care costs is undoubtedly due to the downturn, it is hard to believe that it is not at least partially attributable to a slower underlying rate of health care cost growth.
CBO and other budget forecasters can ignore economic reality for a period of time (they ignored the housing bubble until after its collapse wrecked the economy), but if it continues, at some point they will have to incorporate the trend of slower health care cost growth into their projections. When this happens, the really scary long-term deficit numbers will disappear.
A projection that assumes that health care costs will only rise as a result of the aging of the population, and otherwise move in step with per capita income, will lop tens of trillions of dollars off the most commonly cited long-term deficit projections. It would cost some deficit hawks, like National Public Radio, more than $100 trillion of their long-term deficit story. This would be a real disaster for the deficit hawk industry.
This is why the Campaign to Fix the Debt and the rest of the deficit hawk industry will be operating at full speed at least until a budget deal is reached over the current impasse. If CBO adjusts its long-term health care cost projections downward then their whole rationale for gutting Social Security and Medicare will disappear. Now that is really a crisis.
They made a point of keeping this plan out of election year politics because they know it is a huge loser with the electorate. People across the political and ideological spectrums strongly support these programs and are opposed to cuts. Politicians who advocated cuts would have been likely losers on Election Day. But now that the voters are out of the way, the Wall Street gang and the CEOs see their opportunity.
It is especially important that they act now, because one of the pillars of their deficit horror story could be collapsing. Due to a sharp slowing in the rise of health care costs over the last four years, the assumption that exploding health care costs would lead to unfathomable deficits may no longer be plausible even to people in high level policy positions.
As we all know, the large budget deficits of the last four years are entirely due to the economic downturn caused by the collapse of the housing bubble. The budget deficit was slightly over 1.0 percent of GDP in 2007 and the Congressional Budget Office (CBO) projections showed it remaining low for the near-term future. The origin of the large deficits of the last few years is not a debatable point among serious people, even though talk of “trillion dollar deficits, with a ‘t’” is very good for scaring the children.
However, the big stick for the deficit hawks was their story of huge deficits in the longer term. They attributed these to the rising cost of “entitlements,” which are known to the rest of us as Social Security, Medicare, and Medicaid.
While they like to push the notion that the aging of the population threatened to impose an unbearable burden on future generations, the reality is that most of the horror story of huge deficits was driven by projections of exploding private sector health care costs. Since Medicare and Medicaid mostly pay for private sector health care, an explosion in private sector health care costs would eventually make these programs unaffordable.
As some of us have long pointed out, there are serious grounds for questioning the plausibility of projections that the health care sector would rise to 30 or 40 percent of GDP over the rest of the century. Recently a paper from the Federal Reserve Board documented this argument in considerable detail.
Even more important than the professional argument over health care cost projections is the recent trend in health care costs. While the CBO projections assume that age-adjusted health care costs rise considerably more rapidly than per capita income, in the last four years they have been roughly keeping pace with per capita income.
In fact, in the last year nominal spending on health care services, the sector that comprises almost two-thirds of health care costs, rose by just 1.7 percent. This is far below the rate of nominal GDP growth over this period, which was more than 4.0 percent. While at least some of this slowing in health care costs is undoubtedly due to the downturn, it is hard to believe that it is not at least partially attributable to a slower underlying rate of health care cost growth.
CBO and other budget forecasters can ignore economic reality for a period of time (they ignored the housing bubble until after its collapse wrecked the economy), but if it continues, at some point they will have to incorporate the trend of slower health care cost growth into their projections. When this happens, the really scary long-term deficit numbers will disappear.
A projection that assumes that health care costs will only rise as a result of the aging of the population, and otherwise move in step with per capita income, will lop tens of trillions of dollars off the most commonly cited long-term deficit projections. It would cost some deficit hawks, like National Public Radio, more than $100 trillion of their long-term deficit story. This would be a real disaster for the deficit hawk industry.
This is why the Campaign to Fix the Debt and the rest of the deficit hawk industry will be operating at full speed at least until a budget deal is reached over the current impasse. If CBO adjusts its long-term health care cost projections downward then their whole rationale for gutting Social Security and Medicare will disappear. Now that is really a crisis.
Saturday, November 10, 2012
Let’s Not Make a Deal
By PAUL KRUGMAN - NYTimes
Published: November 8, 2012
Published: November 8, 2012
To say the obvious: Democrats won an amazing victory. Not only did they
hold the White House despite a still-troubled economy, in a year when
their Senate majority was supposed to be doomed, they actually added
seats.
Nor was that all: They scored major gains in the states. Most notably,
California — long a poster child for the political dysfunction that
comes when nothing can get done without a legislative supermajority —
not only voted for much-needed tax increases, but elected, you guessed
it, a Democratic supermajority.
But one goal eluded the victors. Even though preliminary estimates
suggest that Democrats received somewhat more votes than Republicans in
Congressional elections, the G.O.P. retains solid control of the House
thanks to extreme gerrymandering by courts and Republican-controlled
state governments. And Representative John Boehner, the speaker of the
House, wasted no time in declaring that his party remains as
intransigent as ever, utterly opposed to any rise in tax rates even as
it whines about the size of the deficit.
So President Obama has to make a decision, almost immediately, about how
to deal with continuing Republican obstruction. How far should he go in
accommodating the G.O.P.’s demands?
My answer is, not far at all. Mr. Obama should hang tough, declaring
himself willing, if necessary, to hold his ground even at the cost of
letting his opponents inflict damage on a still-shaky economy. And this
is definitely no time to negotiate a “grand bargain” on the budget that
snatches defeat from the jaws of victory.
In saying this, I don’t mean to minimize the very real economic dangers
posed by the so-called fiscal cliff that is looming at the end of this
year if the two parties can’t reach a deal. Both the Bush-era tax cuts
and the Obama administration’s payroll tax cut are set to expire, even
as automatic spending cuts in defense and elsewhere kick in thanks to
the deal struck after the 2011 confrontation over the debt ceiling. And
the looming combination of tax increases and spending cuts looks easily
large enough to push America back into recession.
Nobody wants to see that happen. Yet it may happen all the same, and Mr.
Obama has to be willing to let it happen if necessary.
Why? Because Republicans are trying, for the third time since he took
office, to use economic blackmail to achieve a goal they lack the votes
to achieve through the normal legislative process. In particular, they
want to extend the Bush tax cuts for the wealthy, even though the nation
can’t afford to make those tax cuts permanent and the public believes
that taxes on the rich should go up — and they’re threatening to block
any deal on anything else unless they get their way. So they are, in
effect, threatening to tank the economy unless their demands are met.
Mr. Obama essentially surrendered in the face of similar tactics at the
end of 2010, extending low taxes on the rich for two more years. He made
significant concessions again in 2011, when Republicans threatened to
create financial chaos by refusing to raise the debt ceiling. And the
current potential crisis is the legacy of those past concessions.
Well, this has to stop — unless we want hostage-taking, the threat of
making the nation ungovernable, to become a standard part of our
political process.
So what should he do? Just say no, and go over the cliff if necessary.
It’s worth pointing out that the fiscal cliff isn’t really a cliff. It’s
not like the debt-ceiling confrontation, where terrible things might
well have happened right away if the deadline had been missed. This
time, nothing very bad will happen to the economy if agreement isn’t
reached until a few weeks or even a few months into 2013. So there’s
time to bargain.
More important, however, is the point that a stalemate would hurt
Republican backers, corporate donors in particular, every bit as much as
it hurt the rest of the country. As the risk of severe economic damage
grew, Republicans would face intense pressure to cut a deal after all.
Meanwhile, the president is in a far stronger position than in previous
confrontations. I don’t place much stock in talk of “mandates,” but Mr.
Obama did win re-election with a populist campaign, so he can plausibly
claim that Republicans are defying the will of the American people. And
he just won his big election and is, therefore, far better placed than
before to weather any political blowback from economic troubles —
especially when it would be so obvious that these troubles were being
deliberately inflicted by the G.O.P. in a last-ditch attempt to defend
the privileges of the 1 percent.
Most of all, standing up to hostage-taking is the right thing to do for the health of America’s political system.
So stand your ground, Mr. President, and don’t give in to threats. No deal is better than a bad deal.
Wednesday, January 11, 2012
America’s Lost Decade
The American Economic Association’s annual meetings are a scary
sight, with thousands of economists all gathered in the same place – a
veritable weapon of mass destruction.
Chicago was the lucky city for 2012 this past weekend, and I had just finished participating in an interesting panel on “The Economics of Regime Change,” when I stumbled over to see what the big budget experts had to say about “The Political Economy of the U.S. Debt and Deficits.”
The session was introduced by UC Berkeley economist Alan Auerbach, who put up a graph of the United States’ rising debt-to-GDP ratio, and warned of dire consequences if Congress didn’t do something about it. Yawn.
But the panelists got off to a good start, with Alan Blinder of Princeton, former vice-chairman of the U.S. Federal Reserve, describing the public discussion of the U.S. national debt as generally ranging from “ludicrous to horrific.” True that. He asked and answered four questions:
Blinder concluded that since this is an election year, we can forget about having any fact-based discussion of these issues in 2012. Happy New Year, he said, and the audience laughed.
Well that was refreshing, I thought — an economist telling the unvarnished truth to hundreds of his people at the annual meetings. But a rapid descent into Hell was imminent.
Former CBO director Douglas Holtz-Eakin was next, talking about the need to “repair” Social Security and Medicare. The United States has all the characteristics of countries that run into trouble, he said. Then he warned that the U.S. is going to end up like Greece. This is one of the dumbest things that anyone with an economics degree can say.
Hello, Mr. Holtz-Eakin! Have you ever heard of the U.S. dollar, the world’s key reserve currency? The United States is not going to end up like Greece any sooner than it will end up like Haiti or Burkina Faso. A country that can pay its foreign public debt in its own currency and runs its own central bank does not end up like Greece. In fact, even Japan is not going to end up like Greece, and Japan has a gross public debt of about 220 percent of its GDP, more than twice the size of ours and vastly larger – again relative to its economy — than that of Greece. And the yen is nowhere near the dollar in its importance as an international reserve currency. But the Japanese government is still borrowing at just 1 percent interest rates for its 10-year bonds.
At this point it was clear that this panel, other than Blinder, was living in a dystopian fantasy world. Next up was Rudy Penner of the Urban Insitute, another former CBO director. His perspective was not much different from that of Auerbach or Holtz-Eakin.
He complained about the polarization of the political process, which prevents the two major parties from reaching an agreement. It’s not partisanship, he said – House Speaker Tip O’Neill and President Ronald Reagan knew how to be partisan but they were able to reach agreement on the 1983 Social Security package and the 1986 tax reforms. And yadda yadda. He might have added that we have had 25 years of lying about Social Security since then, and even Reagan didn’t dare try to privatize Social Security. And of course Social Security can currently pay all promised benefits for the next 24 years without any changes.
These arguments about polarization really beg the question: From the viewpoint of the 99 percent, it’s not polarization, but weakness in defending our interests that is the problem. President Obama compromised much more than he should have last year, offering cuts to Social Security and Medicare in exchange for a long-term budget deal. The 99 percent are just lucky that the Republicans are too extremist to make this kind of a “grand bargain” with Obama.
The last panelist was Alice Rivlin of the Brookings Institution, another former CBO budget director and Fed vice-chair, as well as a member of the President’s (2010) National Commission on Fiscal Responsibility and Reform. She agreed with Blinder that we need more stimulus. But we can only get this if we agree to long-run spending cuts, including Social Security, of course. Yuck. This is a political strategy that is sure to end in disaster, given the prevailing state of misinformation and disinformation.
During the discussion, Blinder – who identified himself as a Democrat – expressed his frustration in not being able to convince fellow Democrats to cut Social Security. Double yuck. The average Social Security check is about $1,177 a month, and a majority of senior citizens are getting most of their meager income from Social Security. Why these people insist on creating more poverty among the elderly, especially when the program is solvent for decades to come, is beyond me.
I got to ask the first question for the panel. I called attention to Blinder’s presentation of the long-term budget problem as almost completely a problem of the rising price of health care. I pointed out that you could take any country with a life expectancy greater than ours – including the other high-income countries – and put their per capita health care costs into our budget, and the long-term budget deficit would turn into a surplus. My question was simple: Are Americans so inherently different from other nationalities that we can’t have similar health care costs? And if not, then why are we talking about long-term budget problems instead of how to fix our health care system?
None of the panelists offered a serious answer to this question. Auerbach, the moderator, said that other countries have rising health care costs, too. And some of the others said or implied that health care costs were rising at an unsustainable pace worldwide.
But this is nonsense. The United States pays about twice as much per person for health care as other high-income countries – and still leaves 50 million people uninsured. This is a result of a dysfunctional health care system that has had health care prices rising much faster than those of other high-income countries for decades.
What the budget hawks are basically telling us is that we must assume that insurance and pharmaceutical companies will have a veto over the provisions of health care reform for decades to come. And that therefore we must find other ways to make up for these excessive costs, including cutting Social Security and other government spending, and pushing us into higher rates of poverty and inequality than we already have.
And even worse in the short run, all this crap about the deficit and the debt will be used to block the necessary stimulus measures – “stimulus” has already become a dirty word that Democratic politicians are afraid to utter. This means high unemployment and a lot of unnecessary misery in the world’s richest country for the foreseeable future.
A dismal performance for the dismal science, on some of the most important issues of the day. Of course there are other economists, including Nobel Prize winners such as Paul Krugman, Joe Stiglitz, and Robert Solow (full disclosure: the latter two are members of CEPR’s advisory board), who would offer more sensible views. But this panel was, sadly, representative of economists with the most influence on public policy.
With a brain trust like this, a lost decade for America looks likely – unless the citizenry can steer a different course.
Chicago was the lucky city for 2012 this past weekend, and I had just finished participating in an interesting panel on “The Economics of Regime Change,” when I stumbled over to see what the big budget experts had to say about “The Political Economy of the U.S. Debt and Deficits.”
The session was introduced by UC Berkeley economist Alan Auerbach, who put up a graph of the United States’ rising debt-to-GDP ratio, and warned of dire consequences if Congress didn’t do something about it. Yawn.
But the panelists got off to a good start, with Alan Blinder of Princeton, former vice-chairman of the U.S. Federal Reserve, describing the public discussion of the U.S. national debt as generally ranging from “ludicrous to horrific.” True that. He asked and answered four questions:
(1) Is there any urgency (to reduce the deficit or debt)? No. The government can borrow short term at negative real interest rates, and long-term at about zero. The world is paying us to hold their money. That is anything but a debt crisis.
The Fed is out of bullets, he said – referring to the fact that the U.S. Federal Reserve had lowered short-term rates to zero and had used quantitative easing to help keep long-term rates low. So we need more fiscal stimulus, preferably spending that focuses on actually creating jobs. Amen.
(2) Should we focus on the next decade? No, he said, and noted that the Congressional Budget Office’s (CBO’s) budget deficit projections over the next decade are about 3.6 percent of GDP, which is not much to get agitated about. Also true.
(3) Is government spending the problem? No, he said, it’s health care costs, and mainly the rising price of health care (i.e not the aging of the population). Most important truth yet ! (More on this below).
(4) Is the public really up in arms about the deficit? No, actually they care more about the economy and jobs. As they should.
Blinder concluded that since this is an election year, we can forget about having any fact-based discussion of these issues in 2012. Happy New Year, he said, and the audience laughed.
Well that was refreshing, I thought — an economist telling the unvarnished truth to hundreds of his people at the annual meetings. But a rapid descent into Hell was imminent.
Former CBO director Douglas Holtz-Eakin was next, talking about the need to “repair” Social Security and Medicare. The United States has all the characteristics of countries that run into trouble, he said. Then he warned that the U.S. is going to end up like Greece. This is one of the dumbest things that anyone with an economics degree can say.
Hello, Mr. Holtz-Eakin! Have you ever heard of the U.S. dollar, the world’s key reserve currency? The United States is not going to end up like Greece any sooner than it will end up like Haiti or Burkina Faso. A country that can pay its foreign public debt in its own currency and runs its own central bank does not end up like Greece. In fact, even Japan is not going to end up like Greece, and Japan has a gross public debt of about 220 percent of its GDP, more than twice the size of ours and vastly larger – again relative to its economy — than that of Greece. And the yen is nowhere near the dollar in its importance as an international reserve currency. But the Japanese government is still borrowing at just 1 percent interest rates for its 10-year bonds.
At this point it was clear that this panel, other than Blinder, was living in a dystopian fantasy world. Next up was Rudy Penner of the Urban Insitute, another former CBO director. His perspective was not much different from that of Auerbach or Holtz-Eakin.
He complained about the polarization of the political process, which prevents the two major parties from reaching an agreement. It’s not partisanship, he said – House Speaker Tip O’Neill and President Ronald Reagan knew how to be partisan but they were able to reach agreement on the 1983 Social Security package and the 1986 tax reforms. And yadda yadda. He might have added that we have had 25 years of lying about Social Security since then, and even Reagan didn’t dare try to privatize Social Security. And of course Social Security can currently pay all promised benefits for the next 24 years without any changes.
These arguments about polarization really beg the question: From the viewpoint of the 99 percent, it’s not polarization, but weakness in defending our interests that is the problem. President Obama compromised much more than he should have last year, offering cuts to Social Security and Medicare in exchange for a long-term budget deal. The 99 percent are just lucky that the Republicans are too extremist to make this kind of a “grand bargain” with Obama.
The last panelist was Alice Rivlin of the Brookings Institution, another former CBO budget director and Fed vice-chair, as well as a member of the President’s (2010) National Commission on Fiscal Responsibility and Reform. She agreed with Blinder that we need more stimulus. But we can only get this if we agree to long-run spending cuts, including Social Security, of course. Yuck. This is a political strategy that is sure to end in disaster, given the prevailing state of misinformation and disinformation.
During the discussion, Blinder – who identified himself as a Democrat – expressed his frustration in not being able to convince fellow Democrats to cut Social Security. Double yuck. The average Social Security check is about $1,177 a month, and a majority of senior citizens are getting most of their meager income from Social Security. Why these people insist on creating more poverty among the elderly, especially when the program is solvent for decades to come, is beyond me.
I got to ask the first question for the panel. I called attention to Blinder’s presentation of the long-term budget problem as almost completely a problem of the rising price of health care. I pointed out that you could take any country with a life expectancy greater than ours – including the other high-income countries – and put their per capita health care costs into our budget, and the long-term budget deficit would turn into a surplus. My question was simple: Are Americans so inherently different from other nationalities that we can’t have similar health care costs? And if not, then why are we talking about long-term budget problems instead of how to fix our health care system?
None of the panelists offered a serious answer to this question. Auerbach, the moderator, said that other countries have rising health care costs, too. And some of the others said or implied that health care costs were rising at an unsustainable pace worldwide.
But this is nonsense. The United States pays about twice as much per person for health care as other high-income countries – and still leaves 50 million people uninsured. This is a result of a dysfunctional health care system that has had health care prices rising much faster than those of other high-income countries for decades.
What the budget hawks are basically telling us is that we must assume that insurance and pharmaceutical companies will have a veto over the provisions of health care reform for decades to come. And that therefore we must find other ways to make up for these excessive costs, including cutting Social Security and other government spending, and pushing us into higher rates of poverty and inequality than we already have.
And even worse in the short run, all this crap about the deficit and the debt will be used to block the necessary stimulus measures – “stimulus” has already become a dirty word that Democratic politicians are afraid to utter. This means high unemployment and a lot of unnecessary misery in the world’s richest country for the foreseeable future.
A dismal performance for the dismal science, on some of the most important issues of the day. Of course there are other economists, including Nobel Prize winners such as Paul Krugman, Joe Stiglitz, and Robert Solow (full disclosure: the latter two are members of CEPR’s advisory board), who would offer more sensible views. But this panel was, sadly, representative of economists with the most influence on public policy.
With a brain trust like this, a lost decade for America looks likely – unless the citizenry can steer a different course.
Thursday, August 25, 2011
The State and Local Budget Crisis
August 24, 2011
The Ultimate Sacrifices
by MICHAEL HUDSON
The cost of the 2011 cutbacks in federal spending will fall most directly on consumers and retirees by scaling back Social Security, Medicare, Medicaid and social spending programs. The population also will suffer indirectly, by lower federal revenue sharing with U.S. states and cities.
Now that federal aid is falling – along with revenue from sales and income taxes – local budgets are falling into deficit. But for many cities and states, their constitutions and regulations prevent them from running deficits. So they face a number of hard choices.
It is hard to raise property taxes back toward earlier rates, because the rental income already has been pledged to the mortgage bankers.
Untaxing real estate has served mortgage bankers by freeing more rental income (the land’s site value) to be paid as interest. Property taxes have not absorbed anywhere near the rise in debt-leveraged housing and commercial prices. However, this has not lowered the cost of housing for most people. New buyers must pay a price that capitalizes the property’s rental value. Less and less of this payment has taken the form of local property taxes. More and more has been paid to mortgage lenders as interest. So cutting property taxes has simply left more revenue to be capitalized into higher debt-financed prices.
While homeowners saw their carrying charges rise, they nonetheless felt more affluent as real estate prices rose – inflated on easier and easier credit terms. Prices rose faster than mortgage debt as long as (1) interest rates were declining; (2) loan maturities were stretched out (ultimately reaching the point of zero amortization rather than the old-fashioned 30-year self-amortizing mortgages); (3) down payments were shrinking toward zero (rather than requiring 20 percent equity as used to be the case) and indeed as “liars’ loans” led prices to be bid up recklessly; and finally (4) cities refrained from raising property taxes as fast as market prices were rising. This left more revenue to be capitalized into higher prices, providing capital gains that home owners were encouraged to treat like “money in the bank” – by taking out home equity loans. This rising mortgage debt was increasingly important in enabling people to maintain their living standards, especially as they had to pay more for housing. So what appeared to be affluence and rising net worth from the value of one’s home on the asset side of the balance sheet found its counterpart in debt on the liabilities side.
From the local fiscal vantage point, these debt-leveraged price gains represented uncollected user fees for the site value provided by public infrastructure and rising prosperity. The bankers ended up with the rising flow of rental value, not the cities. This obliged tax collectors to look to other sources of revenue. So homeowners paid out what they seemed to be saving in modest property taxes in the form of rising sales taxes and income taxes.
By 2008 these financial system’s easing of credit terms had reached its limit. No more room for credit inflation remained, so speculators began to withdraw from the market. (They accounted for about one-sixth of demand for housing.) When the credit spigot was turned off, prices plunged – leaving the debts in place. (So taking out a home-equity mortgage was not really like drawing down money from a piggy bank after all. Years of future income had to be diverted to spend for past shortfalls.)
To tax heavily indebted property would lead to more foreclosures and abandonment. And the Obama Administration’s hope that banks somehow will use the Federal Reserve’s tsunami of cheap (0.25 per cent) reserves and credit to re-inflate a new real estate bubble is in vain, because bankers have little interest in lending to property that is still sinking in market price. It is easier to speculate on interest-rate arbitrage with the BRICS and get a foreign-exchange premium as well, or simply to play the market. Banks report winnings in the derivatives trade day after day, with nary a loss – an indication of how poorly their hapless customers and other outsiders must be doing! So the path of least resistance for most cities and states is to cut back spending on public services, and above all on pension plan contributions.
The ultimate sacrifice (and the aim of financial predators) is to sell off public land and buildings, roads and other transportation services, sewer systems and other basic infrastructure. In this aim, the investment bankers are being aided and abetted by the credit ratings industry, threatening to downgrade cities that do not sell off their public domain. In this respect the financial end-game of privatization is similar in the United States to pressures by the European Central Bank to force the indebted PIIGS economies to engage in privatization sell-offs, Third World and post-Soviet style.
Just as in Europe, when revenues are squeezed and something must give – either debt service, payment to pensioners or current payments to labor – the financial sector is seeking to take all the available surplus for itself. This puts creditors in the forefront of today’s class war against labor.
On the eve of the September 2008 financial crash, cities such as Birmingham, Alabama and Chicago already were looking for ways to cope with the fiscal squeeze imposed by political pressures from the major local campaign contributors – the real estate and banking sectors – to cut property taxes. One seeming path of little resistance was to gamble in the Wall Street financial casino, hoping to make easy gains rather than making landlords, wage earners or consumers pay higher taxes.
Landlords and bankers encouraged this speculation as an alternative to taxing property. Landlords wanted to pay less in property taxes, and banks knew that whatever rental value buyers could save in the form of lower taxes would end up being used to bid up prices to capitalize into debt service for mortgages to buy properties up for sale.
Here is the dilemma that states and cities now face: So much urban property is sinking into negative equity territory that a rise in property taxes will lead to even more foreclosures and abandonments, and hence even lower fiscal returns. To avoid this, cities are seeing Chapter 9 bankruptcy as the main route to free themselves, especially from problems that stem from an unwarranted trust in bankers to help them out of the earlier fiscal squeeze by putting them into losing financial gambles. Orange County in California successfully sued Merrill Lynch to recover damages, and Birmingham also was awarded recovery payments from JP Morgan Chase.
Birmingham and Chicago as microcosms of the national debt squeeze
Now that financial fraud has been decriminalized for all practical purposes, most financial victims are obliged to sue for reimbursement in civil court without much help from prosecutors. Alabama’s state capital Birmingham is a case in point. After a predatory financing arrangement to upgrade its sewers in 2008 forced its Jefferson County into bankruptcy, the Securities and Exchange Commission (S.E.C.) negotiated $75 million in fines and reimbursement of fees to be paid by JP Morgan Chase as lead lender and negotiator for the complex interest-rate swaps they had advised the country to take, ostensibly to protect its economic interest. The banks also forfeited nearly ten times this sum ($647 million) in termination fees. But the court-appointed receiver grabbed the $75 million settlement for payment on the debts the country still owed.
As usual, the banks had paid the fine and made reimbursement without admitting any wrongdoing. To the financial sector, deception and fraud is part of the game, after all, not a tactic that can be prosecuted as criminal. They paid their fines without admitting any wrongdoing, and without even admitting the S.E.C. charges. They merely paid up and kept silent – while the Justice Department and Internal Revenue Service were still in the time-taking process of ruling on legal claims brought by Jefferson County. The case prompted bankers and bondholders to bring pressure on the state of Alabama to take responsibility (that is, take on the debt liability) all on behalf of statewide taxpayers, and to demand that all lawsuits brought for financial fraud to be dropped.[1] “Responsibility” is supposed to be only for debtors, not for the financial sector itself. This is how the banks have managed to rewrite the laws, after all.
Jefferson County is now debating whether to declare Chapter 9 bankruptcy to free itself from debts that can be paid only at the cost of disrupting economic continuity and living standards. The city’s debt quandary is a microcosm for the U.S. economy as a whole. Its lowest-income residents are burdened with financialized charges for sewer-system debt payments so far beyond their ability to pay that they face the same fate as Latvians, Irish and Greeks: As the local economy shrinks, they must move in order to find jobs – in places less debt-burdened and hence lower-cost. The “free market” choice is to emigrate to flee the debts imposed on their economies and on themselves personally.
Well-to-do Birmingham families have yards large enough to have their own septic tanks as an alternative to paying for access to sewers, but lower-income families living in small houses or apartment buildings lack this option. One county commissioner asked: “Why should the poor have to pay for the ill-gotten gain of some of these banks who poisoned the well in the very first place?” Other commissioners demanded that bondholders “bear the entire cost of a $20 million fund that is being created to help low-income residents pay their sewer bills.”
But the government usually provides relief only for creditors – above all, relief from criminal prosecution for their business plan that involved making loans beyond the debtors’ ability to pay. Some states have fraudulent conveyance laws to prevent this, as well as to prevent banks from misrepresenting the quality of their loans to outside investors. There are laws to punish appraisers who give false appraisals, and mortgage brokers who fill in false income reports to qualify for loans. But the S.E.C. has seen its staff and budget slashed and deregulators appointed to oversee its affairs. It has no authority to prosecute, only to make recommendations to the Justice Department, where Attorney General Eric Holder has followed the Obama Administration’s support of Wall Street, feeling no obligation to live up to the promises to make that a change from the Bush Administration’s similar lax behavior.
The financial sector recognizes a dimension of economic behavior that textbooks politely refrain from citing: the ability to capture regulatory agencies, gain control of the courts and buy control of politics. The Supreme Court has ruled that corporations have the same rights as individuals to contribute to campaigns, a euphemism for buying the loyalty of politicians and judges, and obtaining veto power over regulatory appointees. Corporations pay lower income-tax rates and are free of value-added and excise or other sales taxes paid by consumers.
Unlike real people, corporations cannot be sent to jail. Corporate shells shield owners and managers from criminal prosecution for the wholesale frauds that have left Countrywide Financial, Bank of America, Citibank, JP Morgan Chase and other pillars of the banking community free to make civil settlements for deceptive policies without admitting wrongdoing. And whereas individual crooks need to pay their own lawyers, corporations pick up the tab for their managers, while contributing generously to politicians who rewrite the laws to decriminalize fraud and deceptive business dealing. The corporate-backed media applaud politicians who insist that families “take responsibility” for their unemployment risk, debts and health care – while bailouts free the wealthy from having to suffer losses on bad loans.
Rhode Island recently rewrote its laws to place bondholders ahead of other creditors, including pension recipients. Under the new law, “city officials who intentionally fail to pay bondholders can be removed from office or held personally liable for the payments.”[2] In contrast to the pro-debtor trend of legislation since the 13th century, wealth at the top of the pyramid takes precedence over retired schoolteachers and other public employees. The effect has been for the city of Central Falls, Rhode Island, to seek Chapter 9 bankruptcy protection to avert a 34 percent cut in pensions to its retirees in order to pay bondholders.
Rhode Island is not alone in giving legal priority to bondholders. “Illinois has some of the strongest bondholder protections anywhere, which explains how a state that began its fiscal year with $3.8 billion in unpaid bills from last year – and whose pension system has less than half of the money it needs – is able to keeping selling bonds. State law requires Illinois to make ‘an irrevocable and continuing appropriation’ of tax revenues into a special fund every month that can be used only to pay bondholders.” (Mary Williams Walsh and Michael Cooper, “Faltering Rhode Island City Tests Vows to Pensioners,” The New York Times, August 13, 2011. The article adds that: “The federal bankruptcy code says pensioners and general-obligation bondholders are both unsecured creditors, stuck at the back of the line and treated as equals. But there is maneuvering room in the welter of state and federal laws.”)
Chicago has balanced its budget not by taxing finance and real estate gains, but by selling off its roads and other basic infrastructure. Much as in feudal Europe, the leverage is financial. Privatizers are charging tolls and even installing meters on the city’s sidewalks to charge cars by the minute for parking. New York City has slashed is public subway and bus service, extending commuting times and making life harder. It has privatized its television and radio, replacing public airtime with commercial advertising.
The ending of federal revenue sharing will exacerbate local budget constraints. The fact that many cities and states have constitutional requirements of balanced budgets – just as Republicans advocated for the federal government in the 2011 debt-ceiling agreement – requires that taxes be raised, public services cut, or assets sold off. California’s Proposition 13 prevents the state from raising property taxes in keeping with market prices, tying its hands fiscally and obliging it to commercialize its once-great university system. Students must now take on enormous education debt for what formerly was free or subsidized. New York City’s real estate tax likewise favors large investors and wealthy homeowners, at the expense of co-ops and condominium owners in apartment buildings. The rising rental value that local tax collectors relinquish does not lower housing costs; it merely enables the land’s site value to be paid to bankers. Rising debt-inflated housing prices have priced the city out of the market as the manufacturing center it formerly was. Its textile buildings and other industrial properties have been gentrified, leaving it a one-industry (finance) town focused on Wall Street.
At the international level, Irish voters confirmed the policy of taking bad European Central Bank advice to put the interest of bondholders first by taking bad bank loans onto the government’s balance sheet and taxing the population to make up the losses, even at the cost of imposing a generation of debt-strapped depression on their economy. This is the self-destructive road to debt peonage that the IMF and World Bank forced Third World countries to follow for many decades. The fact that this ethic reverses centuries-long social values promises to make the great debate of the 21st century over the issue of which debts are paid and which will not be – and how much debts should be written down.
The Ultimate Sacrifices
by MICHAEL HUDSON
The cost of the 2011 cutbacks in federal spending will fall most directly on consumers and retirees by scaling back Social Security, Medicare, Medicaid and social spending programs. The population also will suffer indirectly, by lower federal revenue sharing with U.S. states and cities.
Now that federal aid is falling – along with revenue from sales and income taxes – local budgets are falling into deficit. But for many cities and states, their constitutions and regulations prevent them from running deficits. So they face a number of hard choices.
It is hard to raise property taxes back toward earlier rates, because the rental income already has been pledged to the mortgage bankers.
Untaxing real estate has served mortgage bankers by freeing more rental income (the land’s site value) to be paid as interest. Property taxes have not absorbed anywhere near the rise in debt-leveraged housing and commercial prices. However, this has not lowered the cost of housing for most people. New buyers must pay a price that capitalizes the property’s rental value. Less and less of this payment has taken the form of local property taxes. More and more has been paid to mortgage lenders as interest. So cutting property taxes has simply left more revenue to be capitalized into higher debt-financed prices.
While homeowners saw their carrying charges rise, they nonetheless felt more affluent as real estate prices rose – inflated on easier and easier credit terms. Prices rose faster than mortgage debt as long as (1) interest rates were declining; (2) loan maturities were stretched out (ultimately reaching the point of zero amortization rather than the old-fashioned 30-year self-amortizing mortgages); (3) down payments were shrinking toward zero (rather than requiring 20 percent equity as used to be the case) and indeed as “liars’ loans” led prices to be bid up recklessly; and finally (4) cities refrained from raising property taxes as fast as market prices were rising. This left more revenue to be capitalized into higher prices, providing capital gains that home owners were encouraged to treat like “money in the bank” – by taking out home equity loans. This rising mortgage debt was increasingly important in enabling people to maintain their living standards, especially as they had to pay more for housing. So what appeared to be affluence and rising net worth from the value of one’s home on the asset side of the balance sheet found its counterpart in debt on the liabilities side.
From the local fiscal vantage point, these debt-leveraged price gains represented uncollected user fees for the site value provided by public infrastructure and rising prosperity. The bankers ended up with the rising flow of rental value, not the cities. This obliged tax collectors to look to other sources of revenue. So homeowners paid out what they seemed to be saving in modest property taxes in the form of rising sales taxes and income taxes.
By 2008 these financial system’s easing of credit terms had reached its limit. No more room for credit inflation remained, so speculators began to withdraw from the market. (They accounted for about one-sixth of demand for housing.) When the credit spigot was turned off, prices plunged – leaving the debts in place. (So taking out a home-equity mortgage was not really like drawing down money from a piggy bank after all. Years of future income had to be diverted to spend for past shortfalls.)
To tax heavily indebted property would lead to more foreclosures and abandonment. And the Obama Administration’s hope that banks somehow will use the Federal Reserve’s tsunami of cheap (0.25 per cent) reserves and credit to re-inflate a new real estate bubble is in vain, because bankers have little interest in lending to property that is still sinking in market price. It is easier to speculate on interest-rate arbitrage with the BRICS and get a foreign-exchange premium as well, or simply to play the market. Banks report winnings in the derivatives trade day after day, with nary a loss – an indication of how poorly their hapless customers and other outsiders must be doing! So the path of least resistance for most cities and states is to cut back spending on public services, and above all on pension plan contributions.
The ultimate sacrifice (and the aim of financial predators) is to sell off public land and buildings, roads and other transportation services, sewer systems and other basic infrastructure. In this aim, the investment bankers are being aided and abetted by the credit ratings industry, threatening to downgrade cities that do not sell off their public domain. In this respect the financial end-game of privatization is similar in the United States to pressures by the European Central Bank to force the indebted PIIGS economies to engage in privatization sell-offs, Third World and post-Soviet style.
Just as in Europe, when revenues are squeezed and something must give – either debt service, payment to pensioners or current payments to labor – the financial sector is seeking to take all the available surplus for itself. This puts creditors in the forefront of today’s class war against labor.
On the eve of the September 2008 financial crash, cities such as Birmingham, Alabama and Chicago already were looking for ways to cope with the fiscal squeeze imposed by political pressures from the major local campaign contributors – the real estate and banking sectors – to cut property taxes. One seeming path of little resistance was to gamble in the Wall Street financial casino, hoping to make easy gains rather than making landlords, wage earners or consumers pay higher taxes.
Landlords and bankers encouraged this speculation as an alternative to taxing property. Landlords wanted to pay less in property taxes, and banks knew that whatever rental value buyers could save in the form of lower taxes would end up being used to bid up prices to capitalize into debt service for mortgages to buy properties up for sale.
Here is the dilemma that states and cities now face: So much urban property is sinking into negative equity territory that a rise in property taxes will lead to even more foreclosures and abandonments, and hence even lower fiscal returns. To avoid this, cities are seeing Chapter 9 bankruptcy as the main route to free themselves, especially from problems that stem from an unwarranted trust in bankers to help them out of the earlier fiscal squeeze by putting them into losing financial gambles. Orange County in California successfully sued Merrill Lynch to recover damages, and Birmingham also was awarded recovery payments from JP Morgan Chase.
Birmingham and Chicago as microcosms of the national debt squeeze
Now that financial fraud has been decriminalized for all practical purposes, most financial victims are obliged to sue for reimbursement in civil court without much help from prosecutors. Alabama’s state capital Birmingham is a case in point. After a predatory financing arrangement to upgrade its sewers in 2008 forced its Jefferson County into bankruptcy, the Securities and Exchange Commission (S.E.C.) negotiated $75 million in fines and reimbursement of fees to be paid by JP Morgan Chase as lead lender and negotiator for the complex interest-rate swaps they had advised the country to take, ostensibly to protect its economic interest. The banks also forfeited nearly ten times this sum ($647 million) in termination fees. But the court-appointed receiver grabbed the $75 million settlement for payment on the debts the country still owed.
As usual, the banks had paid the fine and made reimbursement without admitting any wrongdoing. To the financial sector, deception and fraud is part of the game, after all, not a tactic that can be prosecuted as criminal. They paid their fines without admitting any wrongdoing, and without even admitting the S.E.C. charges. They merely paid up and kept silent – while the Justice Department and Internal Revenue Service were still in the time-taking process of ruling on legal claims brought by Jefferson County. The case prompted bankers and bondholders to bring pressure on the state of Alabama to take responsibility (that is, take on the debt liability) all on behalf of statewide taxpayers, and to demand that all lawsuits brought for financial fraud to be dropped.[1] “Responsibility” is supposed to be only for debtors, not for the financial sector itself. This is how the banks have managed to rewrite the laws, after all.
Jefferson County is now debating whether to declare Chapter 9 bankruptcy to free itself from debts that can be paid only at the cost of disrupting economic continuity and living standards. The city’s debt quandary is a microcosm for the U.S. economy as a whole. Its lowest-income residents are burdened with financialized charges for sewer-system debt payments so far beyond their ability to pay that they face the same fate as Latvians, Irish and Greeks: As the local economy shrinks, they must move in order to find jobs – in places less debt-burdened and hence lower-cost. The “free market” choice is to emigrate to flee the debts imposed on their economies and on themselves personally.
Well-to-do Birmingham families have yards large enough to have their own septic tanks as an alternative to paying for access to sewers, but lower-income families living in small houses or apartment buildings lack this option. One county commissioner asked: “Why should the poor have to pay for the ill-gotten gain of some of these banks who poisoned the well in the very first place?” Other commissioners demanded that bondholders “bear the entire cost of a $20 million fund that is being created to help low-income residents pay their sewer bills.”
But the government usually provides relief only for creditors – above all, relief from criminal prosecution for their business plan that involved making loans beyond the debtors’ ability to pay. Some states have fraudulent conveyance laws to prevent this, as well as to prevent banks from misrepresenting the quality of their loans to outside investors. There are laws to punish appraisers who give false appraisals, and mortgage brokers who fill in false income reports to qualify for loans. But the S.E.C. has seen its staff and budget slashed and deregulators appointed to oversee its affairs. It has no authority to prosecute, only to make recommendations to the Justice Department, where Attorney General Eric Holder has followed the Obama Administration’s support of Wall Street, feeling no obligation to live up to the promises to make that a change from the Bush Administration’s similar lax behavior.
The financial sector recognizes a dimension of economic behavior that textbooks politely refrain from citing: the ability to capture regulatory agencies, gain control of the courts and buy control of politics. The Supreme Court has ruled that corporations have the same rights as individuals to contribute to campaigns, a euphemism for buying the loyalty of politicians and judges, and obtaining veto power over regulatory appointees. Corporations pay lower income-tax rates and are free of value-added and excise or other sales taxes paid by consumers.
Unlike real people, corporations cannot be sent to jail. Corporate shells shield owners and managers from criminal prosecution for the wholesale frauds that have left Countrywide Financial, Bank of America, Citibank, JP Morgan Chase and other pillars of the banking community free to make civil settlements for deceptive policies without admitting wrongdoing. And whereas individual crooks need to pay their own lawyers, corporations pick up the tab for their managers, while contributing generously to politicians who rewrite the laws to decriminalize fraud and deceptive business dealing. The corporate-backed media applaud politicians who insist that families “take responsibility” for their unemployment risk, debts and health care – while bailouts free the wealthy from having to suffer losses on bad loans.
Rhode Island recently rewrote its laws to place bondholders ahead of other creditors, including pension recipients. Under the new law, “city officials who intentionally fail to pay bondholders can be removed from office or held personally liable for the payments.”[2] In contrast to the pro-debtor trend of legislation since the 13th century, wealth at the top of the pyramid takes precedence over retired schoolteachers and other public employees. The effect has been for the city of Central Falls, Rhode Island, to seek Chapter 9 bankruptcy protection to avert a 34 percent cut in pensions to its retirees in order to pay bondholders.
Rhode Island is not alone in giving legal priority to bondholders. “Illinois has some of the strongest bondholder protections anywhere, which explains how a state that began its fiscal year with $3.8 billion in unpaid bills from last year – and whose pension system has less than half of the money it needs – is able to keeping selling bonds. State law requires Illinois to make ‘an irrevocable and continuing appropriation’ of tax revenues into a special fund every month that can be used only to pay bondholders.” (Mary Williams Walsh and Michael Cooper, “Faltering Rhode Island City Tests Vows to Pensioners,” The New York Times, August 13, 2011. The article adds that: “The federal bankruptcy code says pensioners and general-obligation bondholders are both unsecured creditors, stuck at the back of the line and treated as equals. But there is maneuvering room in the welter of state and federal laws.”)
Chicago has balanced its budget not by taxing finance and real estate gains, but by selling off its roads and other basic infrastructure. Much as in feudal Europe, the leverage is financial. Privatizers are charging tolls and even installing meters on the city’s sidewalks to charge cars by the minute for parking. New York City has slashed is public subway and bus service, extending commuting times and making life harder. It has privatized its television and radio, replacing public airtime with commercial advertising.
The ending of federal revenue sharing will exacerbate local budget constraints. The fact that many cities and states have constitutional requirements of balanced budgets – just as Republicans advocated for the federal government in the 2011 debt-ceiling agreement – requires that taxes be raised, public services cut, or assets sold off. California’s Proposition 13 prevents the state from raising property taxes in keeping with market prices, tying its hands fiscally and obliging it to commercialize its once-great university system. Students must now take on enormous education debt for what formerly was free or subsidized. New York City’s real estate tax likewise favors large investors and wealthy homeowners, at the expense of co-ops and condominium owners in apartment buildings. The rising rental value that local tax collectors relinquish does not lower housing costs; it merely enables the land’s site value to be paid to bankers. Rising debt-inflated housing prices have priced the city out of the market as the manufacturing center it formerly was. Its textile buildings and other industrial properties have been gentrified, leaving it a one-industry (finance) town focused on Wall Street.
At the international level, Irish voters confirmed the policy of taking bad European Central Bank advice to put the interest of bondholders first by taking bad bank loans onto the government’s balance sheet and taxing the population to make up the losses, even at the cost of imposing a generation of debt-strapped depression on their economy. This is the self-destructive road to debt peonage that the IMF and World Bank forced Third World countries to follow for many decades. The fact that this ethic reverses centuries-long social values promises to make the great debate of the 21st century over the issue of which debts are paid and which will not be – and how much debts should be written down.
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