Cowards, Liars

 Ezra Klein:

This is pretty much the Republican Party in one tweet:

Today’s Republican Party thinks the key problem America faces is out-of-control entitlement spending. But cutting entitlement spending is unpopular and the GOP’s coalition relies heavily on seniors. And so they don’t want to propose entitlement cuts. If possible, they’d even like to attack President Obama for proposing entitlement cuts. But they also want to see entitlements cut and will refuse to solve the fiscal cliff or raise the debt ceiling unless there are entitlement cuts.

You can see why these negotiations aren’t going well.

"The Grand Scam"

Paul Krugman @ NYT:

... (T)he current budget deficit is overwhelmingly the result of the depressed economy, and it’s not clear that we have a structural budget problem at all, let alone the fundamental mismatch between what we want and what we’re willing to pay for that people like to claim exists. Here’s another chart, showing the primary federal balance — that is, not counting interest payments — since 1972 (data from CBO):

It’s hard to look at that chart and not conclude that the slump is the principal cause of the deficit. (Evan) Soltas suggests, based on a more careful statistical analysis, that the structural budget deficit, including interest, is 2 percent of GDP or less. He also makes an interesting observation: the deficit has become more cyclically sensitive over time thanks to rising inequality. How so? More revenue comes from the wealthy — even though their tax rates have fallen — and their income is more volatile than that of ordinary workers.

So, the whole deficit panic is fundamentally misplaced. And it’s especially galling if you look at what many of the same people now opining about the evils of deficits said back when we had a surplus. Remember, George W. Bush campaigned on the basis that the surplus of the late Clinton years meant that we needed to cut taxes — and Alan Greenspan provided crucial support, telling Congress that the biggest danger we faced was that we might pay off our debt too fast. Now Greenspan is helping groups like Fix the Debt.

And as Duncan Black points out, the Bush experience tells us something important about fiscal policy: namely, that when Democrats get obsessed with deficit reduction, all they do is provide a pot of money that Republicans will squander on more tax breaks for the wealthy as soon as they get a chance. Suppose Romney had won; do you have even a bit of doubt that all the supposed deficit hawks of the GOP would suddenly have discovered that unfunded tax cuts and military spending are perfectly fine?

The point is that the whole focus of budget discussion is based on a combination of bad economics and bad (and fundamentally dishonest) politics. We’re looking not so much at a Grand Bargain as at a Great Scam.

More HERE from Joe Weisenthal @ Business Insider on the fact that the path to deficit reduction isn't imposing austerity "pain" but addressing unemployment. Excellent article with lots of data, worth reading in full.

Both Democrats and Republicans want to raise taxes...

Kevin Drum @ Mother Jones (w/ link to Ezra Klein):

Both Democrats and Republicans want to raise taxes on certain people. The main difference is which people they want to raise taxes on:

Democrats do want to raise taxes on families making more than $250,000. You sometimes hear Democrats say they just want to "restore the Clinton-era rates" for these folks, but that's misleading. In addition to letting the Bush tax cuts expire, the White House wants to add about $700 billion in further tax increases on these taxpayers. And that's in addition to the high-income taxes passed in the health-care law. Under Obama's plan, taxes on the richest Americans would be much higher than under the Clinton tax code.

So yes, Democrats want to raise some taxes. But so do Republicans. They want to let the payroll tax cut and the various stimulus tax credits (notably the expansion of the Earned Income Tax Credit and the Child Tax Credit) expire. Those are the tax cuts that primarily help poor and middle-class Americans. In fact, 87.8 percent of the payroll tax cut's benefits go to taxpayers making less than $200,000 and 99.9 percent of the stimulus tax credits' benefits go to taxpayers making less than $200,000.

But you want numbers, don't you? How much do Democrats want to raise taxes on the rich? How much do Republicans want to raise taxes on the poor? This is a little tricky... I don't have numbers for the entirety of Obama's most recent proposal. However, the Tax Policy Center gives us a good rundown of the major points of contention in the chart below, which I've compressed and annotated. Bottom line: allowing the payroll tax cuts and the stimulus tax cuts to expire will raise taxes on the poorest Americans by nearly 3 points. Allowing the high-end Bush tax cuts to expire will raise taxes on the richest Americans by nearly 4 points. Take your pick.

Exception to the rule - "A Conservative Case for the Welfare State"

Authentically conservative and eminently sensible policy wonk Bruce Bartlett - a former advisor to Reagan, GHW Bush,  Jack Kemp and Ron Paul - combats The GOP Crazy:

At the root of much of the dispute between Democrats and Republicans over the so-called fiscal cliff is a deep disagreement over the welfare state. Republicans continue to fight a long-running war against Social Security, Medicare, Medicaid and many other social-welfare programs that most Americans support overwhelmingly and oppose cutting.

The bottom line on the central spending issue facing the US

Republicans in Congress opposed the New Deal and the Great Society, but Republican presidents from Dwight D. Eisenhower through George H.W. Bush accepted the legitimacy of the welfare state and sought to manage it properly and fund it adequately. When Republicans regained control of Congress in 1994 they nevertheless sought to repeal the New Deal and Great Society programs they had always opposed.

Energized by their success in abolishing the principal federal welfare program, Aid to Families With Dependent Children, in 1996, Republicans tried to abolish Social Security as well, through partial privatization during the George W. Bush administration, and they more recently have attempted to change Medicaid into a block grant program with funds going to the states and to turn Medicare into a voucher program.

In the 40th anniversary edition of his book, “Capitalism and Freedom,” Milton Friedman advised conservatives to use crises as opportunities to advance their agenda. “Only a crisis – actual or perceived – produces real change,” he contended.

Thus Republicans are now using the fiscal impasse to try to raise the age for Medicare and reduce Social Security benefits by changing the index used to adjust them for inflation. They know that such programs will be easier to abolish in the future if the number of people who qualify can be reduced and benefits are cut so that privatization becomes more attractive.

This is foolish and reactionary. Moreover, there are sound reasons why a conservative would support a welfare state. Historically, it has been conservatives like the 19th century chancellor of Germany, Otto von Bismarck, who established the welfare state in Europe. They did so because masses of poor people create social instability and become breeding grounds for radical movements.

How Crazy Are They?

Just how intellectually, emotionally and morally dysfunctional is contemporary "conservatism"?  Some clues in this incredible New York magazine feature story on National Review's "Ship of Fools" Cruise - a boatload of their most elite supporters and subscribers at sea in the Caribbean just weeks after the November elections.  Read the whole thing - even for someone who is extremely cynical about the GOP,  it's both jaw-dropping and eye-opening that The Crazy runs this wide and this deep.

"Medicare spending isn't out of control"

While there is agreement among economists and health care experts that overall the US has highly inflationary health care expenses over the long term - certainly compared to other relatively wealthy countries with high-quality medical care and much better health outcomes - Uwe E. Reinhardt @ New York Times Economix shows, once again, that the locus of this "out of control" spending isn't Medicare:

It’s the season of holiday cocktail parties, demanding intelligent chit-chat over Chardonnay. In such data-free environments it is always safe to say, “Medicare spending is out of control!” Wise heads will nod, because it is a credo with wide currency.

After all, as I explained in my previous post, traditional Medicare, which still attracts about 75 percent of all Medicare beneficiaries, affords its enrollees free choice of providers and therapy. In the jargon of health-policy wonks, it is “unmanaged.” Thus, it would not be surprising if unmanaged Medicare spending were, indeed, out of control.

But some caution is in order. A really wise guy in the crowd, one familiar with relevant data, might challenge you with: “Oh, really? In what sense is Medicare spending out of control?”

That query might have been prompted by the following data.

 

Kaiser Family Foundation

These data, most of which have been published by the Office of the Actuary, Centers of Medicare and Medicaid Services, of the Department of Health and Human Services (see Table 16), show that in most periods Medicare spending per Medicare beneficiary has risen more slowly than per-capita spending under private health insurance.

The exceptions are the period 1993-97, when private managed-care plans appeared to be able to hold down their outlays on health care better than did Medicare, and 2002-7, because there was a jump in spending as Medicare began, in 2006, to cover prescription drugs under the Medicare Prescription Drug, Improvement and Modernization Act of 2003.

So anyone claiming that “Medicare spending is out of control” can fairly be asked to explain on what data that assertion is based. The responses might be interesting.

Two objections might be raised to my interpretation of the data.

"There is no fiscal crisis..."

Neil Irwin @ WaPo Wonkblog:

Two separate events from the last few days, on two different continents: In the United States, a messy series of negotiations over how to avert the fiscal cliff and bring down the nation’s large budget deficits seemed to be heading nowhere. In Japan, a land of the largest public debt in the world relative to the size of its economy, a new government was elected pledging to pressure the nation’s central bank to inflate the money supply much more.

Here are two numbers to know about  the United States and Japan: 1.79 percent and 0.77 percent. Those are the yields on 10-year bonds in those two nations as of Thursday morning, the price their governments must pay to borrow money for a decade. In other words, investors are willing to fling their savings at those two seemingly dysfunctional governments for next to nothing.

But it’s not just the United States and Japan. Name a country with three elements—a stable political system, a credible central bank to call its own, and a free flow of capital across its borders—and it has, right now, extraordinarily low interest rates. That’s true for Canada and Australia (10 year yields of 1.85 percent and 3.36 percent), of Switzerland and Sweden (0.55 percent and 1.6 percent). Britain, certainly (1.94 percent), but even some countries that don’t technically fit our classification because they lack their own central bank (Germany at 1.42 percent and France at 1.99 percent. That would be the same France that The Economist, in a cover story last month, called “the ticking time bomb at the heart of Europe.”).

So what is going on? Interest rates  are, essentially, the relative price of money today versus its value in the future. And investors are saying that they don’t need very much compensation to delay their spending for the future, as long as they can feel secure that they will get their money back and that the money they get back will be worth roughly what they put in.

To put it a different way, around the world there are all sorts of savers—pension funds, wealthy individuals in emerging nations, governments that want to ensure they have reserves put aside in case there were to be a run on their currency—for whom the goal is not so much to get a big yield on their savings, but rather to ensure that they will get their money back when they need it.

One of America’s greatest exports, then, is not any physical good, but offering the world a deep, liquid, secure bond market. We may have dysfunction in Congress and large deficits as far as the eye can see, but as long as investors are confident that the Treasury will honor its debt obligations and the Federal Reserve won’t allow out-of-control inflation, the United States looks like a terrific place to park money.

There are three points to draw from that.

One is that as the United States looks to reduce budget deficits, it should do so on its own terms. We should figure out what path of deficit reduction would be best for our economy, leaving us with more sustainable finances in the longer run without sucking the wind out of growth. We are not Greece, a nation that found itself unable to pay its debts and had austerity forced upon it by the outsiders offering bailout cash. We have time, and we should use it wisely.

Second, if there are things we can do with the cheap money the world is flinging at us that would make the U.S. economy more competitive in the longer run, we should take advantage. There are reasonable arguments to have on what that might be—infrastructure versus education spending, for example. But if there is spending we could do that would increase our economic potential over the generation ahead, we are fools not to do it.
The third point to draw from the low global interest rates is this: There is an unfortunate tendency to treat the size of budget deficits and the level of inflation or unemployment in moral terms. Surely when a nation sins through fiscal irresponsibility and tempts the devil inflation, it ought to receive the wrath of a vengeful god. But that’s not how it is.

Macroeconomics is not a morality play. Macroeconomics is like the weather. Sometimes the weather is nice and sometimes there is a mighty hurricane. It just is. What we all need to do is adjust to the reality as it is, not pretend the weather is as we think it ought to be.

The growth of income inequality

The Atlantic:

Jordan Weissmann, The Atlantic: This graph, from the Pew Research Center, tracks the annual rate of income growth for Americans across the economic spectrum for each of the past six decades. I have yet to find a more evocative illustration of how profoundly the rewards of our economy have tilted away from the middle class and towards the wealthy. Here, we don't just see who's claiming the biggest slice of the pie, but rather whose standard of living is actually improving (or deteriorating). You can argue about why we've arrived at this point, but that doesn't change the starkness of this picture.

Reject "chained CPI" Social Security cuts as part of any budget deal

 Richard Eskow at Campaign for America's Future:

News reports say the President’s proposed deal includes the “chained CPI,” which would impose drastic Social Security cuts and tax hikes for everybody but the wealthy.  And House Minority Leader Nancy Pelosi says that “Democrats will stick with the President.”

They should both think again.

The “chained CPI” is being offered as part of a “deficit reduction” deal, even though Social Security is forbidden from contributing to the deficit.  Even if you accepted this unreasoned act, it remains morally unacceptable to reduce spending on the backs of the elderly, women, the poor, veterans, disabled Americans, and the poor.

It’s even more unethical to do it when other options available could save much more money, And it’s even worse when we see who isn’t “sharing in the sacrifice” – a list that includes hedge fund managers, Wall Street gamblers, billionaires, drug companies, defense contractors, and tax-dodging corporations.

Independent estimates say that the “chained CPI” will slash Social Security benefits by $122 billion over the next ten years. Here are eight solutions that will save more money  - and really will reduce the deficit – without compromising either our ethics or our sense of fairness:

1. Close multiple loopholes in the capital gains law: $174.2 billion. (1.42x)
Lawmakers could save nearly one and a half times as much money as they’ll get from stripping seniors, the disabled, veterans, and children of their benefits - 1.42 times as much, to be precise – by closing capital gains loopholes.

The Public Opines

Washington Post poll on "Fiscal Cliff" negotiations:

Q: In order to strike a budget deal, would you accept Cutting spending on Medicaid, which is the government health insurance program for the poor or is this something you would find unacceptable?

Accept    28%

Unacceptable    68%

Q: In order to strike a budget deal that avoids the so-called 'fiscal cliff', would you accept Cutting military spending or is this something you would find unacceptable?

Accept    42%

Unacceptable    55%

Q: In order to strike a budget deal that avoids the so-called 'fiscal cliff', would you accept Raising taxes on Americans with incomes over 250-thousand dollars a year or is this something you would find unacceptable?

Accept   74%

Unacceptable    24%

Q: In order to strike a budget deal that avoids the so-called 'fiscal cliff', would you accept Raising the age for Medicare coverage from 65 to 67 or is this something you would find unacceptable?

Accept   36%

Unacceptable  60%

Q: In order to strike a budget deal, would you accept Changing the way Social Security benefits are calculated so that benefits increase at a slower rate than they do now or is this something you would find unacceptable?

Accept  34%

Unacceptable  60%

The only way that Social Security and Medicare can go “bankrupt” is if we let them.

James Surowiecki at The New Yorker:

One of the most influential ideas in Washington these days is that Social Security and Medicare are on the verge of going bust. Earlier this month, Senator Lindsey Graham warned of the “imminent bankruptcy” of these insurance programs for the elderly, and Republican leaders are citing the threat of insolvency as a reason that entitlement reform must be part of any fiscal-cliff deal. The argument sounds reasonable enough, but it’s really a bid to turn the great political strength of these programs—the fact that they were designed to be self-supporting—into a weakness.

Unlike most government programs, Social Security and, in part, Medicare are funded by payroll taxes dedicated specifically to them. Some of the tax revenue pays for current benefits; anything that’s left over goes into trust funds for the future. The programs were designed this way for political reasons. When F.D.R. introduced Social Security, he calculated that funding it through a payroll tax rather than out of general tax revenue would make people think of the program not as welfare but as an entitlement—as something that they had paid for and had a right to. Many liberals initially opposed the idea, because payroll tax rates aren’t progressive (everyone pays the same rate) and because they tax only labor income. But the system proved as resilient as F.D.R. had predicted, and when Lyndon Johnson introduced Medicare, in the nineteen-sixties, he adopted it, too. Over the years, Social Security and Medicare taxes have risen sharply, to the point where payroll taxes account for thirty-six per cent of all federal revenue. Today, most American households pay more in payroll taxes than in income tax. Yet there’s little public hostility to these taxes, and the programs they fund remain enormously popular.

But the trust-fund strategy has an Achilles’ heel: funds can run out of money. Projections show that, owing to an aging population and rising health-care costs, the Medicare Trust Fund will become insolvent in 2024 and Social Security in 2033. The image of empty coffers is a powerful one: half of all Americans aged between eighteen and twenty-nine don’t think that Social Security will exist when they retire. That’s a bizarre thing to believe about an important government program. No one ever says, “I don’t think the U.S. Army will be there when I get old” or talks about the Defense Department “going broke.” We assume that there will always be a need for the military, and that we’ll end up paying the taxes that are necessary to fund it. But, because Social Security and Medicare have always been self-supporting, it’s easy to believe that they’ll just vanish if the trust funds dry up. This isn’t the case. Relatively minor tweaks to Social Security will allow it to keep paying full benefits for many decades. And, if we wanted, we could supplement funding for both programs with general government revenue. That’s what most European countries do, and, indeed, parts of Medicare are already paid for out of general revenue. The only way that Social Security and Medicare can go “bankrupt” is if we let them.

"Preserving Medicare Benefits by Controlling Health Care Costs"

From Campaign for America's Future:

The Challenge:

To "fix the debt," we should focus on fixing the economy. Investment in jobs and growth will a) reduce the costs of high unemployment, b) raise more revenue, and b) reduce the debt burden. Instead, a small but well-funded and loud group of "deficit hawks" is demanding to "cut entitlements," including Medicare. Now, as President Obama seems to be on the verge of forcing Republicans to accept tax increases on the wealthy, conservatives are demanding a large payoff in return: cuts to Medicare benefits that would raise costs for seniors now and undermine the program for future retirees.

The trade-off is morally offensive: Why should fairer taxes from the rich be allowed only if accompanied by less health care for the old or vulnerable?

Their cuts are aimed at the wrong target. We don't have an "entitlements" problem; we have a broken health care system. The rising costs of publicly funded health care programs like Medicare will consume a larger portion of the budget in the future if nothing is done. But the real problem is runaway health care costs generally, driven by the entrenched corporate interests – the drug and insurance companies and the private hospital complexes – that have made our health care the most expensive in the world.

Make the Case:

Voters overwhelmingly rejected the right's plan to turn Medicare into a "voucher" in the 2012 elections. Now conservatives have another strategy to weaken Medicare: raise the age of eligibility; that is, eliminate benefits for 65- and 66-year-olds. (Republican leaders in Congress don't want to admit that publicly, so they propose $600 billion in Medicare and Medicaid cuts without any explanation of how they arrived at that number or which specific policies they have in mind to reach that number.)

Denying Medicare to 65- and 66-year-olds will actually cost more money than it saves. The best estimate is that $5.7 billion in projected federal savings in Medicare will end up forcing individuals, states and employers to pay an additional $11.4 billion for health care...

There are also reports that House Republicans want to increase Medicare costs for people with higher incomes. But three out of four people with Medicare have incomes under $40,000, and the very small number of seniors with incomes over $80,000 already pay considerably more for Medicare.

If the overall U.S. health care system controlled costs as well as most European countries, both Medicare and overall health care costs would be fully affordable. To do that, you have to take on the drug companies, insurance companies and hospital complexes that drive up costs. Cutting benefits - or eliminating them for 65- and 66-year-olds - doesn't control costs. It simply shifts the costs from the public budget to individual seniors or their families.  (Economist Dean Baker of the Center for Economic and Policy Research documents this.)

Cliff notes...

Laura D'Andrea Tyson @ New York Times:

...The economy continues to operate far below its capacity. The unemployment rate is at least two percentage points higher than what most economists consider consistent with a full recovery. Other measures, such as the high rate of long-term unemployment and the low labor-force participation rate, reflect an impaired labor market.

According to the Congressional Budget Office, gross domestic product is still about 6 percent, or about $973 billion, below the potential level the economy is capable of producing at full capacity. This is the largest gap between actual and potential output following a recession in modern American history.

The weakness of government spending at the state and local level and more recently at the federal level has been a significant factor behind the slow recovery. The phasing out of earlier federal stimulus measures, the expiration of temporary payroll-tax relief and extended unemployment benefits scheduled at the end of the year, and the tight caps on discretionary federal spending already in force mean more federal fiscal drag on the economy’s growth next year even if the fiscal cliff is averted...