Big Spender

The hypocrisy of the GOP on deficit issues is manifest - most especially given their "Starve the Beast" tax-cut ideology over 30 years that deliberately underfunded government in order to create the kind of "deficit crisis" that they are currently using in their arsenal of shameless demagogy to kill government programs.  What is often less apparent is their big-spending hypocrisy.

Newt and the Mistress Missus

Current Presidential aspirant Newt Gingrich - who has unleashed the "big spender" attack on President Obama (actually one of his least obnoxious assertions about the President, but let's leave the pure nutso stuff like "Kenyan Socialist" out of this, if only to control my blood pressure) - is a case in point. Think Progress has the goods on this disingenuous character, whose combination of grotesque pretensions, egomania and lack of self-awareness rival perhaps only Donald Trump's in the GOP's "Presidential" over-stuffed Clown Car of wannabe candidates:

(A)s Speaker of the House of Representatives in the 1990′s, he himself was one of the most avid big spenders in the entire country, using government cash to enrich his district and lift it up to being one of the wealthiest in the country.
During his tenure in Congress, Gingrich represented large portions of Cobb County, Georgia. Cobb was a mostly-white district and largely suburban — completely different from the crude stereotypes Gingrich and others used to blast the welfare state, which were generally portrayed as minority-heavy urban environments. At the same time Gingrich was working with President Bill Clinton to cut back on spending for programs for the poorest Americans, Gingrich made Cobb one of the most subsidized districts in the entire country.
A 1996 article from New York Magazine notes this:

[Gingrich] represents Cobb County, a prosperous jurisdiction that ranks third among suburban counties in federal dollars returned per resident. According to the Atlanta Journal-Constitution, the federal government spent $4.4 billion in Cobb County in 1994, some $10,000 per resident, or nearly twice as much per capita as it spent in New York City.

"How raising the retirement age screws the poor"

Kevin Drum at Mother Jones tells it like it is, HERE.

House Advantage: The Sure Thing

From the New York Times, an animated explanation of how banks use securities lending to make a profit, while their customers cover the losses.

Krugman and Klein on the ugly politics of the debt ceiling

Paul Krugman explains at his NYTs blog just what the fight over the debt ceiling means, in direct effects but more importantly in political terms, which mostly signal just how extremist the allegedly "conservative" faction in our governing system has become and how the most basic measures to ensure stability are nothing but partisan politics for the GOP:

The direct effects of hitting the ceiling would be bad enough — sharp cutbacks in spending, which would undermine essential services, not to mention derail the economy. It’s not clear to me whether there would be some wiggle room through the accumulation of arrears — say, not actually paying workers and contractors but promising to make it up when sanity returns. But it would be ugly indeed.

What might make it even worse would be indirect effects, of two kinds.

First, US government debt plays a special role in the financial system: T-bills are the universal safe asset, the ultimate collateral. That’s why, during moments of financial stress, the interest rate on T-bills has actually gone negative. Make that safe asset suddenly unsafe, and it might cause vast disruption.

Second — and I don’t think this is getting enough attention — failure to raise the debt limit could act as a terrible signal about the US political system.

When you look at the US fiscal position in terms of what we’re capable of as a nation, it’s not a big problem. Never mind those big numbers you hear about implicit liabilities; we have a big economy, too. So modest tax increases and reasonable efforts to limit health care costs could bring our long-run finances into line.

But all this depends on our having the political will and cohesion to do what’s necessary. What if it turns out that we’re a banana republic, with crazy extremists having so much blocking power that we can’t get our house in order?

Democratic budget proposal

The Hill has a piece up suggesting that Democrats are including a "millionaires' surtax" of 3% in their budget proposal.  A start...read it HERE.

Tax cut voodoo...

Once more with feeling:  Current and projected deficits are primarily the result of Republican tax cut dogmas that they cling to like a religion and push on the public like patent medicine, even in the face of all evidence that they have failed as fiscal  policy. Returning to rational taxation by, as a first step, letting the Bush tax cuts expire is the best path to restoring balance in federal budgets.  More tax cuts, as proposed by the GOP in their budget proposals, are an utter fraud as "fiscal conservatism" and benefit no one but the economic elite.

From the Center on Budget and Policy Priorities:

Who needs Medicare?  We've got magic tax cuts!

Some lawmakers, pundits, and others continue to say that President George W. Bush’s policies did not drive the projected federal deficits of the coming decade — that, instead, it was the policies of President Obama and Congress in 2009 and 2010. But, the fact remains: the economic downturn, President Bush’s tax cuts and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years...

The deficit for fiscal year 2009 — which began more than three months before President Obama’s inauguration — was $1.4 trillion and, at 10 percent of Gross Domestic Product (GDP), the largest deficit relative to the economy since the end of World War II. At $1.3 trillion and nearly 9 percent of GDP, the deficit in 2010 was only slightly lower. If current policies remain in place, deficits will likely resemble those figures in 2011 and hover near $1 trillion a year for the next decade…

The key question is: where do we go from here? It’s too late to undo the damage caused by the tax cuts and wars over the last decade, which have left us with a large overhang of debt. (In fact, that debt legacy — and the resulting interest costs — are a key reason, along with an aging population and rising health-care costs, that it’s unrealistic and ill-advised to restrict total federal spending to the average outlay levels that prevailed over the 1970-2008 period, as some have proposed.) But it’s feasible to enact measures now — to take effect once the economy has recovered more fully — that would put the budget on a sustainable path without jeopardizing the economic recovery.

I'm not an economist, but...

This argument from Brad DeLong regarding the value of a bit of inflation under current circumstances strikes me as sensible:

The Inflation Equation: Creditors vs. Debtors

My great uncle Phil from Marblehead Massachusetts used to talk about a question on a sailing safety examination he once took: "What should you do if you are caught on a lee shore in a hurricane?" The correct answer was: "You never get caught on a lee shore in a hurricane!" The answer to the question of what you should do when conventional monetary policy is tapped out and you are at the zero interest rate nominal bound is that you should never get in such a situation in the first place.

How can you minimize the chances that an economy gets caught at the zero nominal bound where short-term Treasury bonds and cash are perfect substitutes and conventional open-market operations have no effects? The obvious answer is to have a little bit of inflation in the system: not enough to derange the price mechanism, but enough to elevate nominal interest rates in normal times, so that monetary policy has plenty of elbow room to take the steps it needs to take to create macroeconomic stability when recession threatens. We want "creeping inflation."

How much creeping inflation do we want? We used to think that about 2% per year was enough. But in the past generation major economies have twice gotten themselves stranded on the rocks of the zero nominal bound while pursuing 2% per year inflation targets. First Japan in the 1990s, and now the United States today, have found themselves on the lee shore in the hurricane.

That strongly suggests to me that a 2% per year inflation target is too low. Two macroeconomic disasters in two decades is too many.

Frederich Hayek - another damned socialist?

"If you haven't read Atlas Shrugged, read this..."

Frederich Hayek is one of the patron saints of anti-government types who posit the "free market" as solution to any and every problem.  He is considered the Anti-Keynes in the history of 20th century economic thought.

As measure of Hayek's contemporary place in our political discourse, the government-hating nutcase Glenn Beck is credited for ramping up Hayek's Amazon ratings to #1 simply by devoting several shows to some FOXified version of the dead Austrian's economic theories - although this factoid is hardly fair to Hayek himself in it's implications of raving anti-intellectualism and lack of even the most modest aspirations to analytical integrity.

But from recovering neo-conservative Francis Fukayama, who reviewed "The Constitution of Liberty," one of Hayek's major works, for the New York Times Book Review over the weekend, we get this footnote to Hayek's insistent case for the superiority of markets:

It may...surprise some of Hayek’s new followers to learn that “The Constitution of Liberty” argues that the government may need to provide health insurance and even make it ­compulsory .

Surprise?  My sense of the current aggressive ignorance and emotional discombobulation among the Tea Party, Hyper-Foxoid right-wing is that if Glenn Beck and his minions got wind of that rather stunning "caveat" to Hyek's anti-government case, he'd add Hayek to his list of folks out to destroy America!

Quote of the Day

"The fact is that what we’re experiencing right now is a top-down disaster. The policies that got us into this mess weren’t responses to public demand. They were, with few exceptions, policies championed by small groups of influential people — in many cases, the same people now lecturing the rest of us on the need to get serious. And by trying to shift the blame to the general populace, elites are ducking some much-needed reflection on their own catastrophic mistakes..."

Paul Krugman in his NYT column today - "The Unwisdom of Elites." Read the whole piece HERE.

The cost of killing Medicare...

Where are those Tea Party protestors now?

Congressman George Miller has released a report by the Center for Economic and Policy Research that found a 54-year-old today would need $182,000 in additional savings at retirement just to pay for the cost of maintaining full health coverage to age 84 under the Congressional GOP's plan to eliminate Medicare.

April job growth - still treading water

Economist Mark Thoma at Moneywatch:

Recovery isn't reaching the long-term unemployed

The (Labor Department's April) jobs numbers are out...and they show the unemployment rate increasing to 9.0 percent, and the creation of 244,000 new jobs (the private sector added 268,000 will government jobs fell by 24,000 — the net figure of 244,000 was better than many analysts expected). This does add jobs over and above the 100,000-150,000 needed each month to keep up with population growth. But remembering that we have millions and millions of people out of work, at this rate it will take more than five years to get back to full employment (job growth during the recoveries from previous recessions was much stronger than this).

There's not much else to say...

If you missed this, here's Paul Krugman on the absolute lack of seriousness governing our economic agenda debates:

D.C. economic discourse is saturated with fear: fear of a debt crisis, of runaway inflation, of a disastrous plunge in the dollar. Scare stories are very much on politicians’ minds.

Yet none of these scare stories reflect anything that is actually happening, or is likely to happen. And while the threats are imaginary, fear of these imaginary threats has real consequences: an absence of any action to deal with the real crisis, the suffering now being experienced by millions of jobless Americans and their families...

Do the scare-mongers even believe their own stories? Maybe not...the politicians most given to apocalyptic rhetoric about the deficit are also utterly opposed to any tax increase; they argue that debt is destroying America, but they’d rather let that happen than accept even a dime of higher taxes. Yet the inconsistency and probable insincerity of their fear-mongering hasn’t stopped it from having a huge effect on policy debate...

Which brings me back to the destructive effect of focusing on invisible monsters. For the clear and present danger to the American economy isn’t what some people imagine might happen one of these days, it’s what is actually happening now.

Unemployment isn’t just blighting the lives of millions, it’s undermining America’s future. The longer this goes on, the more workers will find it impossible ever to return to employment, the more young people will find their prospects destroyed because they can’t find a decent starting job. It may not create excited chatter on cable TV, but the unemployment crisis is real, and it’s eating away at our society...

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...

When economically illiterate partisan demagogues control Congress: "The cascading effects on the economy would be severe and long-lasting"

Huffington Post:.

"Reagan taught us deficits don't matter."

“If there is a vote on raising the debt ceiling and it fails, there will be a significant market reaction,” said Tony Fratto, a former Treasury and White House official in the Bush administration. “Investors already believe that Congress doesn’t understand the financial markets. A failure to raise the debt ceiling will confirm this to them."

If the markets get spooked, U.S. treasury bond yields will spike, driving up interest rates and increasing the price of borrowing money for everyone from the federal government to municipalities to consumers, Fratto warned. The cascading effects on the economy would be severe and long-lasting.

The negative market reaction would "come quickly,” Fratto said. “I think you can virtually guarantee that, and I hear it from everyone that I talk to in the markets, here and abroad.” He added, “I’m uncomfortable about the number of [Congress] members who don’t seem to understand that.”

The GOP's "Kill Medicare" budget plan is in a shambles, but they have a back-up strategy

From Friday's Washington Post:

Anxiety is rising among some Republicans over the party’s embrace of a plan to overhaul Medicare, with GOP lawmakers already starting to face tough questions on the issue at town hall meetings back in their districts.

House leaders have scheduled a Tuesday conference call in which members are expected in part to discuss strategies for defending the vote they took this month on a budget that would transform the popular entitlement program as part of a plan to cut trillions in federal spending...

A Washington Post/ABC News poll published this week found that two-thirds of Americans want Medicare to remain as is. That includes 62 percent of independents and nearly eight in 10 people 65 and older — making for an uphill climb for House Republicans trying to reassure constituents...

“Republicans don’t want to be talking about Medicare every day for the next year and a half,” said a Republican Party official, speaking on the condition of anonymity to address internal strategy deliberations...The GOP official added that the party “can fight the Medicare issue to a tie” by “muddying the waters”...

Who could have guessed they might try this approach?

The poor standards of Standard and Poors

There was a bit of brouhaha on Monday when the credit ratings agency Standard & Poors talked of a one-in-three chance that US Treasury securities could be downgraded by the company to "negative" in three years. The warnings were based on projections of federal deficits and were welcomed by many in the punditry, in politics and in the financial sector who want to make deficits the centerpiece of any immediate economic agenda.

But one wonders how much credence should be given to Standard and Poors?  How much of what they publish is tailored to what Wall Street wants to hear and carefully aligned in their immediate interests?

The Congressional Financial Crisis Inquiry Commission has judged S&P and the other ratings agencies as key players in the big stakes deceptions and fundamentally fraudulent mortgage bundling that was at the center of the 2008 financial meltdown. For example, last fall, via the New York Times reporting of the Crisis Inquiry hearings, we learned this:

D. Keith Johnson, a former president of Clayton Holdings, a company that analyzed mortgage pools for the Wall Street firms that sold them, told the commission on Thursday that almost half the mortgages Clayton sampled from the beginning of 2006 through June 2007 failed to meet crucial quality benchmarks that banks had promised to investors.
Yet, Clayton found, Wall Street was placing many of the troubled loans into bundles known as mortgage securities.

Mr. Johnson said he took this data to officials at Standard & Poor’s, Fitch Ratings and to the executive team at Moody’s Investors Service.

“We went to the ratings agencies and said, ‘Wouldn’t this information be great for you to have as you assign tranche levels of risk?’ ” Mr. Johnson testified last week. But none of the agencies took him up on his offer, he said, indicating that it was against their business interests to be too critical of Wall Street.

So anything coming from Standard and Poors needs to be taken with some very large grains of salt. In this vein, emeritus Amherst economics professor Richard Wolff, in an article for the UK Guardian, called the S&P warning,"another scary instalment in the conservative campaign to justify cutting government social spending. S&P may be rampant in its interests, but it hardly seems conflicted about them." 

Simon Johnson, former chief economist for the International Monetary Fund, also had some appropriately skeptical comments on S&P's pronouncements at the NYT's Economix blog:

It is commendable that S.&P. now wants to talk about the United States fiscal deficit –- one wonders where it was, for example last year, during the debate about extending the Bush-era tax cuts.

The House GOP - just a few months into their "Winning-Duh!" triumphalism - has already reached the "I know they're lying because I saw them moving their lips" stage of epic political and policy failure

Two items on today's menu highlight the radical incoherence, profound dishonesty and - yes - "unseriousness" of the alleged conservatives in Congress who are using the country's economic and budgetary challenges as an excuse for ideological hyperventilation and rank hypocrisy, but little else.

Exhibit A - The New York Times reported that:

Mr. Obama wants to expand the power of the 15-member panel, which was created by the new health care law, to rein in Medicare costs.

But not only do Republicans and some Democrats oppose increasing the power of the board, they also want to eliminate it altogether. Opponents fear that the panel, known as the Independent Payment Advisory Board, would usurp Congressional spending power over one of the government’s most important and expensive social programs.

Matt Yglesias notes this opposition signifies that:

...the very same members of congress who voted this month to privatize Medicare in 2022 and enact draconian cuts throughout the 2020s and 2030s are here in town right now defending health care providers’ right to charge the government high prices for services that don’t work. Indeed, as recently as 2009 no less a figure than Paul Ryan himself was fuming at the idea of reducing government subsidies to for-profit insurance companies (via Medicare Advantage.) 

Of course, this is mostly on the GOP side about President Obama being damned if he does anything to rein in deficits and make Medicare more efficient and damned if he doesn't. 

Exhibit B, which is truly stunning in the annals even of congressional hypocrisy - Matt Miller's column at the Washington Post:

The House Republican budget adds $6 trillion to the debt in the next decade yet the GOP is balking at raising the debt limit...

I thought about making this week’s column that one sentence printed over and over 30 times. It would have been the opinion page equivalent of a Dada-esque protest against the inanity of the debate — and a cry for every news outlet to focus on this simple, clarifying fact...

For the life of me I don’t understand why the press doesn’t shove this fact in front of every Republican who says the debt limit cannot be raised unless serious new spending cuts are put in place. The supposedly “courageous,” “visionary” Paul Ryan plan — which already contains everything Republicans can think of in terms of these spending cuts — would add more debt than we’ve ever seen over a 10-year period in American history. Yet Ryan and other House GOP leaders continue to make outrageous statements to the contrary. 

The classic definition of chutzpah was a kid who kills his parents and then asks for the mercy of the court because he’s an orphan. The new definition of chutzpah is Republicans who vote for the Ryan plan that adds trillions in debt and who then say the debt limit goes up only over their dead bodies!

If I were Barack Obama, my mantra on this week’s debt tour and in the months ahead would be that we should lift the debt limit only by as much debt as is needed to accommodate Paul Ryan’s budget. The president and his team should say this every time they’re asked about the debt limit until people can’t stand hearing it any more.

Matt Miller's piece via Economist's View and Stan Collender

Executive PayWatch

The AFL-CIO has a great new website where you can get data on Fortune 500 CEO pay and information on CEO "pay abuse" which should be addressed by shareholders:

Click HERE.

During the past decade, CEOs of the largest American companies received more in compensation than ever before in U.S. history. They supposedly deserved this money for increasing stock prices. Did they? On Dec. 31, 2010, the S&P 500 Index closed 19 percent below its high on March 24, 2000.

Over the past decade, shareholders—including workers—lost trillions of dollars in retirement savings through the collapse of the Internet stock bubble and the corporate accounting scandals at Enron and other companies. More recently, shareholders have suffered further declines from the bursting of the real estate bubble and the Wall Street financial crisis.

While CEO pay is still out of control on Wall Street and in the rest of Corporate America, shareholders now have new tools to fight back. CEOs must now give their shareholders a “say on pay,” thanks to the Dodd-Frank Wall Street Reform and Consumer Protection Act that President Obama signed in July 2010.           

Via Steven Greenhouse at New York Times' "Economix."

Ryan's private savings

Alan S. Blinder, economics professor at Princeton and a former vice-chair of the Federal Reserve, writes of the GOP budget czar's proposal in the Wall Street Journal:

The House Budget Committee's own rack-up of changes from the CBO baseline displays the much-ballyhooed $5.8 trillion in spending cuts over 10 years. But it also displays $4.2 trillion less in tax revenue. How many Americans know that 72% of Mr. Ryan's claimed budget cuts would go to fund tax cuts that overwhelmingly benefit the rich?

Another Ryanfest - but I'll post a picture of a funny baby rather than the GOP's congressional budget czar because I'm getting sick of his mug

I feel like I'm in a mode of constant repetition, but the fundamental flaws and dishonesty of the GOP's "deficit reduction" proposal need to be driven home, at the risk of boring even myself. Jeff Madrick, economics contributor to the New York Review of Books and senior fellow at The Roosevelt Institute, brings a bit of history to take the GOP's budget strategy apart:

"A fine mess..."

Among the economic fallacies embraced in Congressman Paul Ryan’s budget proposal, two are particularly egregious: that getting rid of Medicare will reduce health care costs and that enacting yet further tax cuts for the rich will spur growth and investment...

(T)he Ryan plan won’t reduce health care costs...the bipartisan Congressional Budget Office calculates that overall health care spending will go up as Medicare recipients are forced to buy private insurance, since private insurance has far higher administrative expenses than Medicare. Health care expenditures...are not being reduced on the backs of seniors, they are being raised on the backs of seniors.

And herein lies a further misunderstanding. It is true that the main cause of long-term budget deficits today is the expected rapid rise in expenditures for health insurance programs like Medicare and Medicaid (not Social Security, though they are all too often lumped together in the press). But the main reason those programs will become so costly is the rapid expected increase in health care costs in general, not the purported over-generosity of Medicare and Medicaid.

All effort should go into reforming health care. Americans pay far more per person in health care for outcomes that are typically not as good as in many nations that spend far less. In my view, effective health care reform will require much more serious government involvement—certainly not less—in improving efficiency and reducing costs.

As for the tax-cut mantra that it will automatically raise rates of growth, it is hard to believe that this theory has any credibility after the poor performance of the economy since the Bush tax cuts. Yet the Ryan plan would not only retain the Bush cuts for those who earn more than $250,000 a year; it would increase the cut for those who make more.

The conscience of a conservative

I do not much like David Frum, the former Bush speechwriter who penned one of the most idiotic and overwrought locutions I've heard a President deliver in a State of the Union address in my lifetime - "The Axis of Evil" - combining Saddam's Iraq, the Mullah's Iran (which had seen its conscripts subjected to chemical warfare at Saddam's hands in a nine-year conflict) and the isolated outlier of North Korea into some imagined alliance that defied even a wisp of rational analysis.

Frum became identified with the neoconservative movement at its worst. That is, until the GOP think tank, American Enterprise Institute, dismissed him soon after he began questioning aspects of the party line. (I have to say that today neo-conservatism seems like a fading echo within the spectrum of loud noise on the right.) But partly because I have long seen him as herald of a conservative mindset which in all honesty I despise, I also happen to find much of his current analysis of the ideological cul-de-sac of the Republican party's recent parade of political "stars" fascinating and telling.

"You'd have to be half mad to dream me up!"

In short, Frum - of all people - is freaked out by the descent into blindered unreality and unhinged  hsyterics of a Tea-Partyized GOP.  Here's a Frum commentary - reflecting on the aftermath of the 2008 financial meltdown and his own efforts at rethinking a "free market" outlook in it's wake - that captures some of the essence of just how disconnected from reality the current iteration of the GOP has become:

Especially after 2000, incomes did not much improve for middle-class Americans. The promise of macroeconomic stability proved a mirage: America and the world were hit in 2008 by the sharpest and widest financial crisis since the 1930s. Conservatives do not like to hear it, but the crisis originated in the malfunctioning of an under-regulated financial sector, not in government overspending or government over-generosity to less affluent homebuyers.

"In politics, the side with a fixed notion of ends and an unscrupulous approach to means always has the advantage"

George Packer brings clarity to the essential nature of today's GOP - their goals and their means - as "The Budget War" is being waged in Washington:

Rep. Ryan: "This is not a budget. It's a cause."

The Republicans now hold just one house of Congress, yet they have controlled the terms of the debate, because they understand that budget battles are about far more than numbers, and they’ve made the ideology behind their various bargaining positions startlingly clear: government should be reduced to gasping for air. What’s more, they’re willing to deploy legislative terrorism—threatening to shut down the government and to allow the United States to default on its debt—to get their way. In politics, the side with a fixed notion of ends and an unscrupulous approach to means always has the advantage.

No joy in Medicareville: more on the funny numbers and dishonest packaging of "Ryancare"

GOP Congressional Budget Czar Paul Ryan in the Wall Street Journal:

“Starting in 2022, new Medicare beneficiaries will be enrolled in the same kind of health-care program that members of Congress enjoy.”

Princeton economics professor Uwe Reinhardt begs to differ with Ryan's (false) claim that he's giving Grandma the same health insurance that he and John Boehner "enjoy:"

Mr. Ryan goes to Washington... to snatch Grandma's purse, enrich insurance companies and keep the cost of health care high.

Dean Baker of the Center for Economic and Policy Research comments on just how fundamentally irresponsible the GOP's "Ryancare" plan to kill medicare is, solely in terms of  dollars spent on coverage, according to the non-partisan Congressional Budget Office estimates:

The CBO projections show that under the Ryan plan, seniors would soon be spending more than half of their income to buy a Medicare equivalent plan. This is both due to the cost shifting from the government to individuals, but even more importantly CBO projects that Ryan's plan will lead to much higher health care expenses since it will be less effective in containing costs than the traditional Medicare program.

The CBO projections imply that Ryan's plan would add more than $30 trillion to the cost of providing Medicare equivalent policies over the program's 75-year planning period. The additional cost under the Ryan plan is an amount that is approximately equal to $100,000 for every person in the country or 6 times the size of the projected Social Security shortfall. This sum is the pure waste, it does not count the costs shifted from the government to seniors.

This breakdown of CBO findings is so stunning it's worth repeating: Obtaining private insurance policies that are equivalent to Medicare coverage over the duration of "Ryancare's" 75 year projection - would cost $30 trillion more than current Medicare. This is the sum of difference between profit-driven private insurance premiums and the cost of low-overhead Medicare with fee containment structured in.

Via Center for Economic and Policy Research.

New York Times Budget Puzzle - "You Fix The Budget!"

ACCESS PUZZLE HERE.

Assuming some haven't seen this, the Times "Budget Puzzle" is a fascinating (and fun) interactive federal fiscal "game" in which you can make your own choices as to how best to generate federal revenues and align them with federal spending.  The puzzle gives you a menu of choices on both sides of the balance sheet.  It's been online since last fall, but its worth revisiting in the context of current debates and definitely worth checking out if you've missed it.