The Austerity Agenda: Governments creating even greater disaster

Via Dan O at Beautiful Horizons, we have this New Deal 2.0 piece by Marshall Auerback of the Roosevelt Institute, focusing on the global economic downturn made worse by fiscal austerity politics. The evidence that an agenda targeting deficit spending as the "problem" - when economic growth is sluggish and unemployment still hangs just below double digits - actually digs economies deeper in the hole of recession is increasingly apparent in the experience from austerity regimes in Europe, where countries like Ireland are in the grip of deflation with no end in sight.

Here at home, the GOP is pushing austerity politics like patent medicine, but far too many Democrats - including the White House - are also buying in, proposing policies that merely dilute a deficit-centered agenda or tweak it at the margins, rather than providing a compelling counter-narrative based not simply on ideology or partisan politics, but on the evidence from abroad. One hopes that we might learn from the picture Auerback lays out, but I'm not very optimistic. Meanwhile, as Auerback notes, "Governments across the globe are headed for a disaster entirely of their own making":

Though capital markets remain strong, the global economic backdrop continues to deteriorate as fiscal retrenchment takes hold. Commodity markets have rallied in tandem with the fall in the dollar even though there are signs that growth in the emerging world is slowing. Japan’s economy is in the soup, the U.S. economy has failed to pick up as many thought (with a mere 2% growth rate expected to be released for Q1 shortly), and the European economy is overdue for its own slowdown. The U.S. stock market has also rallied despite the threat of a very high gasoline price, disappointing economic growth data, and a fairly mixed earnings picture.

The new theme in the market seems to be that the Fed, unlike other central banks, will stick with super easy money policies, hence the tendency to push the weak dollar, rising equity prices, and soaring commodity prices. But the news that real GDP growth has fallen sharply in the first three months of 2011 is evidence that the current policy mix, with its emphasis on public spending cuts, is not working. If gasoline prices spike as high as they did in June 2008, they will further weaken an already feeble economy. Consumers did not show up at Walmart at the end of the month because they ran out of money. House prices are still falling.

At the same time, the political debate is focused on the public debt limit, which expires in a few weeks. Conservatives are once again threatening not to extend this limit, even though no less a figure than Warren Buffett has said the failure to do so would be the “most asinine act” the U.S. Congress has ever committed.

The evidence of an increasingly imploding euro zone (which continues to embrace fiscal austerity with the zeal of a religious fanatic) does not seem to have shifted the debate much in this country. Many European governments are facing a fiscal crisis due to their failure to advance public purpose and raise the funds needed to maintain existing programs. Only the interventions of the ECB are saving the whole system from total meltdown, but the underlying solvency problem for the individual member states is getting worse as the days go by. The Euro bosses are failing, and with any luck, so is political resistance to rational economic policy.

Jobs, jobs, jobs

Today the government announces April job numbers, but the figures are not likely to be good.  From the Wall Street Journal's "Real Time Economics" blog:

(T)he recent modest job increases prolong the time until payrolls return to where they were before the recession hit.

Indeed, at a monthly increase of 200,000, it would take three years from now until payrolls reached their pre-recession level of 138.0 million...

The U.S. economy grew at a modest 1.8% rate in the first quarter. The April data suggest the second quarter did not kick off with much momentum.

Among the more worrisome yellow lights were the fall in factory production and the steep drop in new orders among non-manufacturers...

Of course, weaker job markets will feed into the headwinds against demand. Consumers cannot boost their spending by an appreciable pace unless their incomes also grow.

Who in Washington believes putting people back to work is the #1 issue facing the country?  Based on the "substance" of current economic debates, it doesn't seem like very many.

"A Mission Not Yet Accomplished"

David Leonhardt, economics reporter at the New York Times, reflects on the implications of weak recovery, market "optimism" and Congressional deficit-mania conspiring to slow growth of new jobs - and makes two modest, pragmatic suggestions that would be "no-brainers" in a saner political environment not rife with demagogues, ideologues and a GOP leadership whose admitted top priority is weakening the President for 2012:

"Work wanted!"

It’s obviously been a good week for the Obama administration. But it comes at a dangerous time, for both the administration and the economy. The excitement over tracking down Osama bin Laden could end up making the president and his advisers less panicked over the state of the economy. And they should be a little panicked.

For the second straight year, the recovery seems to be at risk of stalling. The economy grew at an annual rate of only 1.8 percent last quarter — eerily similar to the 1.7 percent growth last spring, just when job growth started slowing down...

Dr. Atul Gawande: IPAB Is Needed To Establish "Rules Of The Road" To Move Towards Better System

Think Progress' "Wonk Room":

On Friday, during an event at the Center for American Progress, Dr. Atul Gawande defended the Independent Payment Advisory Board (IPAB) — a 15 member commission formed by the Affordable Care Act that is tasked with controlling health care costs. The board has come under Republican criticism for “rationing” health care to seniors since President Obama announced his intention to expand its functions as a means of lowering health care spending. During his town halls in Wisconsin for instance, Rep. Paul Ryan (R-WI) repeatedly characterized the board as a “rationing” body that would restrict coverage and benefits to current seniors.

But Gawande — a doctor and prize-winning author — argued that while competition is important to reducing health spending, the government should establish a body to ensure that “what we are driving towards are better quality and lower costs“:

A weak, jobless recovery?

Jobs are at the heart of economic recovery if it's going to be meaningful in repairing the damage that's been done across the social spectrum by deep, lingering recession. So what is the outlook for the long-term unemployed?  Not good, according to Nancy Folbre, economics professor at University of Massachusetts-Amherst, writing at New York TImes "Economix":

Once upon a time, economic recovery led to expanded employment of the United States population. Not anymore. The percentage of adults employed has declined sharply during the last two recessions and failed to increase much in their aftermath.

(T)he employment-to-population rate remains at about 58 percent, about the same as in December 2009 and far lower than the peak of 65 percent achieved before the 2001 recession...

(M)ore than 45 percent of those unemployed in January reported they had been looking for jobs for 27 or more weeks. Many other workers in this situation simply give up and stop looking for paid employment – and thus are not counted as unemployed...

(M)ajor multinational corporations cut their employment in the United States by 2.9 million during the 2000s while increasing employment overseas by 2.4 million.

This is a big change from the 1990s, when those corporations added 4.4 million jobs in the United States and 2.7 million abroad...

Globalization weakens the link between economic recovery, increased profits and job creation in the United States...

Our real deficit problem…and why the President's Independent Patient's Advisory Board is the most serious proposal on the table to address it

James Suroweicki, who authors the New Yorker's  "Financial Page," wrote recently that "strange as it may sound, the federal government does not have a spending problem per se."  This assertion may seem crazy in the context of current deficit hysterics, but it's true.  Rather than a deficit problem, Suroweicki continues, what we have is "a health-care problem."

The cost of most budget items typically rises at a reasonable rate, if at all, but the cost of Medicare, Medicaid, and the tax subsidy for employer-provided insurance has been rising much faster than everything else…

Liberal economist Paul Krugman concurs:

We have to do something about health care costs, which means that we have to find a way to start saying no. In particular, given continuing medical innovation, we can’t maintain a system in which Medicare essentially pays for anything a doctor recommends. And that’s especially true when that blank-check approach is combined with a system that gives doctors and hospitals — who aren’t saints — a strong financial incentive to engage in excessive care.

In a study entitled "Keeping Heatlh Care Afloat", Princeton economist Uwe Reinhardt cites several studies that show where a large part of the excess cost in America's health care system has been going:

(I)n 1990 Americans used $390 less in real medical resources per person than Germans did, but spent $737 more on higher prices, $360 more on administration, and $256 more on other forms of overhead…in 1999 the U.S. system consumed $1,059 per person in administrative costs, compared with just $307 in Canada…from 1969 to 1999 the fraction of the total health care labor force accounted for by administrative workers grew 18 to 27 percent in the United States, but only from 16 to 19 percent in Canada.

"Serious" magical thinking - 30 years on...

Paul Krugman blogging at NYT on the GOP "Ryan's Private Savings" budget plan:

The Heritage Foundation Tax Trick!

(T)here is, as some of us have tried to point out, a huge magic asterisk in the revenue projections: Ryan calls for $3 trillion in tax cuts, but insists that his plan will be revenue-neutral, because they will do something unspecified to broaden the tax base. Ryan and his colleagues have stonewalled all inquiries about what that something might be.

The best guess has to be that there is no there there — that if they ever get to the point of making this an actual plan, they’ll invoke the wonderful “dynamic” effects of lower taxes on rich people to fill that $3 trillion gap...

Once again, let us wonder at the way this plan has been treated by the commentariat. A guy says, “I care deeply about the deficit!” And then he releases a plan that depends on finding $3 trillion over the next decade from some unspecified source — oh, and he comes from a party that has a 30-year track record of promising to reduce the budget deficit but actually increasing it.

And everyone takes him seriously!

5.5 Million Americans unemployed and not recieving benefits

University of Oregon economist Mark Thoma at his "Economist's View" blog:

The WSJ's number of the week: "5.5 million: Americans unemployed and not receiving benefits":

Number of the Week: Millions Set to Lose Unemployment Benefits, by Mark Whitehouse, WSJ: ...The country’s unemployment rolls are shrinking... As of mid-March, about 8.5 million people were receiving some kind of unemployment payments, down from 11.5 million a year earlier...

To some extent, the shrinkage reflects a desirable reality: Some people are leaving the unemployment rolls because they’re finding jobs. The number of employed in March was up nearly 1 million from a year earlier...

Many Americans, though, are simply running out of time. As of March, about 14 million people were unemployed... At the time..., about 8.5 million were receiving some kind of unemployment payments... That leaves about 5.5 million people unemployed without benefits, up 1.4 million from a year earlier. ...

"The High Cost of Low Teacher Salaries"

Dave Eggers and Nineve Clemets Calegari, writing in the New York Times:

WHEN we don’t get the results we want in our military endeavors, we don’t blame the soldiers. We don’t say, “It’s these lazy soldiers and their bloated benefits plans! That’s why we haven’t done better in Afghanistan!” No, if the results aren’t there, we blame the planners. We blame the generals, the secretary of defense, the Joint Chiefs of Staff. No one contemplates blaming the men and women fighting every day in the trenches for little pay and scant recognition.

And yet in education we do just that. When we don’t like the way our students score on international standardized tests, we blame the teachers. When we don’t like the way particular schools perform, we blame the teachers and restrict their resources.

Compare this with our approach to our military: when results on the ground are not what we hoped, we think of ways to better support soldiers. We try to give them better tools, better weapons, better protection, better training. And when recruiting is down, we offer incentives.

We have a rare chance now, with many teachers near retirement, to prove we’re serious about education. The first step is to make the teaching profession more attractive to college graduates. This will take some doing.

At the moment, the average teacher’s pay is on par with that of a toll taker or bartender. Teachers make 14 percent less than professionals in other occupations that require similar levels of education. In real terms, teachers’ salaries have declined for 30 years. The average starting salary is $39,000; the average ending salary — after 25 years in the profession — is $67,000. This prices teachers out of home ownership in 32 metropolitan areas, and makes raising a family on one salary near impossible.

Inflation hysterics and gold standard-bearers

Ron Paul: "Gold is 6000 years old..."

David Andolfatto is an economist who has taught at Simon Fraser University and currently works primarily as a researcher for the Federal Reserve Bank of St. Louis.

Andolfatto has a good commentary at his "MacroMania" blog debunking the notion peddled by characters like Ron Paul and Glenn Beck that an element containing 79 protons should be the foundation of our money supply as opposed to what "serious" GOP Presidential candidate Tim Pawlenty has dismissively called "fiat money" - the currency system governed by the Federal Reserve and backed by the full faith and credit of the U.S. government, rather than an arbitrary pile of gold.

In the course of his discussion, Andolfatto also gives a good explanation of why the Federal Reserve doesn't use a simple "basket of all consumer goods" as it's inflationary benchmark and why inflation hysterics in the current economy are simply bogus.

The piece hinges on Congressman Ron Paul's reaction to Fed Chairman Ben Bernanke's press conference (in an interview on CNBC you can view HERE.)  Here's David Andolfatto's reply to Paul's "money quote":

The interviewer begins by quoting a statement Paul made after Bernanke's news conference:

"Bernanke continues to ignore his culpability for the inflation all Americans suffer due to the Fed's relentless monetary expansion."

Let's take a look at U.S. inflation since 2008. Here it is.

The thirty-four trillion dollar solution

Economists at Center for Economic and Policy Research have crunched the numbers on the "Ryancare" plan to kill Medicare, using Congressional Budget Office estimates and projections, and it's not pretty:

"Thirty-four Trill-i-on Dollars!"

Based on the CBO data provided, the waste far exceeds the savings to the government. Under traditional Medicare, the government is expected to spend about $6,600 in 2022 on a typical 65-year-old, and the beneficiary is expected to spend $4,600 (all numbers in 2011 dollars). Under the Ryan proposal, a voucher for the same 65-year old would cost the government $6,600, saving the government nothing. However, the total cost of purchasing Medicare-equivalent insurance would be $16,900 – more than 50 percent higher than the $11,200 spent by the government and beneficiary combined under traditional Medicare. The difference of $5,700 represents a gift to the private sector...

"It's always the economy, stupid!"

Ezra Klein:

The most important story in the 2012 election is...jobs and GDP growth. And yesterday, the news was bad. GDP growth was 1.8 percent in the first quarter: disappointing under normal circumstances and crushing during a recovery. Weekly jobless claims, meanwhile, hit a three-month high. And high gas prices tend to trick people into thinking inflation, which is actually worryingly low, is out of control, further adding to their concerns.

Inflation is not the danger in our current economic straits - thoughts on Fed Chairman Bernanke's press conference

I'm going to double-down on the inflation "issue" - it's a non-issue right now, except as a cover for a regressive economic agenda. Inflation is as low as it's been in years. And, despite global fluctuations in oil and food commodities prices, there are no signs that core inflation - which is the predictive norm for Federal Reserve monetary policies, as opposed to "events-driven" shifts in the markets most contingent on external factors and thus most subject to short-term spikes - will rise significantly.

Brad De Long, economics professor at UC Berkeley, offers a good explanation of the current and essentially timid Fed policy, as interpreted from Ben Bernanke's precedent-setting press conference. And De Long explains why he sees the Fed inflation target as overly restrictive and oblivious to the continuing high unemployment:

Chairman Ben

A few years ago former Federal Reserve governor Larry Meyer said: “If you have not noticed that the Federal Reserve is pursuing a 2 percent per year inflation target, you have not been paying attention.”

To me the most surprising thing about Chairman Bernanke’s press conference was his apparent abandonment of that 2 percent per year inflation target.

A view on the Paul Ryan and House GOP's "Kill Medicare" plan from a health care provider

From a commenter "Taylor 16" at Ta Nehisi Coates' (excellent) blog, venting on the Congressional GOP's vote to kill Medicare under the "Ryan Plan":

I do billing for an orthopaedic surgeon's office in a hot ski vacation region of the country.

I am getting so tired of arguing with insurance companies over whether it was "medically necessary" for patients who fall on the ski slopes and have unstable fractures/dislocations of their wrists/legs/shoulders/hips/whatever, or bleeding open wounds, to seek treatment in our office immediately after they are injured.

I spend weeks/months on each of these claims, sending appeal letters back and forth. The waste in time and money (in my salary, and frankly, the reams of paper sent back and forth) for what should be paid immediately under any reasonable health care system is ridiculous. I am, literally, sending back my third appeal letter today to argue that a guy who broke his hip on the slopes deserved to get it treated in the state where he was injured, rather than going home first. Can you imagine flying or driving home with a broken hip??? But this is what his insurance is insisting he should have done.

This only happens with private insurance, by the way. Never Medicare. They have a nationwide system of providers and clear rules that apply to everyone.

Our hero - Elizabeth Warren's complete 3-part interview by Jon Stewart

Elizabeth Warren dropped by the Daily Show to discuss the continuing attacks in Congress  - stealth and overt - on the Consumer Financial  Protection Agency by agents of elite interests aligned against consumers, and to reaffirm the importance of the agency she initiated.

The Daily Show
Tags: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

Parts 2 & 3 below the fold.

The GOP hostage takers threaten nothing less than financial crisis in order to force their political agenda

"Gay marriage is the biggest issue that will impact our nation."

The current "debate" over raising the debt ceiling is bizarre and disingenuous on several counts. First of all, the "Ryan budget" passed by the House GOP - despite the smoke and mirrors and the slashing and burning -  encompasses multi-trillion dollar deficits over the next decade that require that the debt ceiling be raised. So on the fact of it, any GOP House member who voted for that budget yet threatens to vote against raising the debt ceiling has twisted themselves like a pretzel and can't be taken seriously.

Second, the debt ceiling vote has always been routine.  It's been raised 75 times in 50 years - 7 times under the Bush administration, with no protests from Paul Ryan & Co. as the national debt increased by over 70% in just those 8 years.

The reason for the debt ceiling itself is obscure (it's rooted in congressional budget prerogatives versus the executive actually administering most spending) and in large measure because raising it has become so routinized, but suffice to say that not raising the debt ceiling is not a substitute for real fiscal policy that grapples with the issues of revenue and spending and debt head on and in a serious political context.  This is a Kabuki power play that, I'm afraid, some of the players don't actually understand.  My guess is that - the cynicism and media manipulations of a John Boehner aside - many of the Tea Party faction among the congressional GOP don't have a clue regarding the insanity of failure to raise the debt ceiling.

To get some sense of what's at stake, there's this, via New York Times "Economix", from Matthew Zanes, a director at JP Morgan Chase who chairs the Treasury Borrowing Advisory Committee. (Why should we listen to a guy from JP Morgan?  Well that's always a good question, but in this case my assumption is that he's offering a pretty straightforward view from the perspective of market insiders regarding the impact of imposing Tea Party ideology over what has become standard practice for decades in managing federal debt):

Any delay in making an interest or principal payment by Treasury even for a very short period of time would put the U.S. Treasury and overall financial markets in uncharted territory, and could trigger another catastrophic financial crisis.

A "moderate Republican" in the White House?

In a different era, apparently the answer would have been yes. Ezra Klein explains:

If you put aside the emergency measures required by the financial crisis, three major policy ideas have dominated American politics in recent years: a plan that uses an individual mandate and tax subsidies to achieve near-universal health care; a cap-and-trade plan that attempts to raise the prices of environmental pollutants to better account for their costs; and bringing tax rates up from their Bush-era lows as part of a bid to reduce the deficit. In each case, the position that Obama and the Democrats have staked out is the very position that moderate Republicans have staked out before.

Are Financial Institutions Holding Our Country Hostage? - "The Breakdown" Podcast

Chris Hayes at The Nation's "The Breakdown" podcast is joined by Mike Konczal of "Rortybomb" -

"During the 2008 financial meltdown, we were told by politicians, economists, bankers and industry executives that further implosion of major financial institutions would wreak havoc on the larger economy... But since the financial gains of the past several years haven't trickled down, many are wondering why we continue to be held captive by the same financial system that caused the mess in the first place. Finance blogger Mike Konczal joins Nation DC Editor Chris Hayes to discuss what's behind this 'financialization' of the economy, how it happened and whether there's anything that can be done to change it."

It looks like you don't have Adobe Flash Player installed. Get it now.

Further Reading:
Mike Konczal's finance and economics blog, Rortybomb.

The "deficit debate" isn't about deficits

Krugman:

(T)he only major budget proposal out there offering a plausible path to balancing the budget is the one that includes significant tax increases: the “People’s Budget” from the Congressional Progressive Caucus, which — unlike the Ryan plan, which was just right-wing orthodoxy with an added dose of magical thinking — is genuinely courageous because it calls for shared sacrifice.

True, it increases revenue partly by imposing substantially higher taxes on the wealthy, which is popular everywhere except inside the Beltway. But it also calls for a rise in the Social Security cap, significantly raising taxes on around 6 percent of workers. And, by rescinding many of the Bush tax cuts, not just those affecting top incomes, it would modestly raise taxes even on middle-income families.

"Serious" concern about deficits...

All of this, combined with spending cuts mostly focused on defense, is projected to yield a balanced budget by 2021. And the proposal achieves this without dismantling the legacy of the New Deal, which gave us Social Security, and the Great Society, which gave us Medicare and Medicaid.

But if the progressive proposal has all these virtues, why isn’t it getting anywhere near as much attention as the much less serious Ryan proposal? It’s true that it has no chance of becoming law anytime soon. But that’s equally true of the Ryan proposal.

The answer, I’m sorry to say, is the insincerity of many if not most self-proclaimed deficit hawks. To the extent that they care about the deficit at all, it takes second place to their desire to do precisely what the People’s Budget avoids doing, namely, tear up our current social contract, turning the clock back 80 years under the guise of necessity.

Paul Krugman's entire column today is a "must read" - HERE.

Making money the old fashioned way...

1980s Smith Barney "icon", John Houseman

Since confidence games have no doubt been with us since history has been written, it seems that Smith Barney has indeed been making money "the old fashioned way."

Several high-end investors have just won $54.1 million in civil arbitration against the company (a division of Citigroup) - including over $17 million in punitive damages - for a municipal bonds leveraging scheme that made a lot of money for the company but was a disaster for people who apparently believed they were putting their wealth into a safe municpal bonds haven.

According to Gretchen Morgenson at The New York Times:

Requiring a minimum investment of $500,000, the deals employed the wonders of leverage, borrowing 8 to 10 times the value of the municipal bonds in an underlying portfolio to generate higher income. Calling the strategy conservative and ideal for investors’ safe money, Smith Barney sold the trusts to wealthy investors...

Smith Barney’s sales representatives kept 40 percent of the total fees paid by their investors, far exceeding what they would have earned selling ordinary municipal bonds. This arrangement encouraged Smith Barney to lever up the portfolios...lawyers argued, putting the interests of their clients and those of Smith Barney at odds...