"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?