"David Brooks sure reads a lot of books"

David Brooks wrote another of those "David Brooks columns" on Friday. Citing a recent book on the financial crisis, he targets Fannie Mae as "a cancer that helped spread risky behavior and low standards across the housing industry."  Brooks notes portentiously, "We all know what happened next."

Yes, Fannie Mae and Freddie Mac are examples of government agencies that acted irresponsibly and were co-opted by the financial industry. And, yes, "we all know" there was a financial crisis in 2008 triggered by the mortgage meltdown.

Brooks, who has read a lot of books.

But the notion - or even implication - that Fannie Mae was the "cancer" underlying the industry's "risky behavior and low standards" is a right-wing talking point that is so misleading and misdirected that it constitutes a Big Lie. It's provenance - desperation on the part of the right to blame government rather than markets for the greatest market failure in recent memory - is no mystery.  "Conservatives" need to  implicate government rather than under-regulation and and the voracious market velocity of the industry itself.

Dean Baker at Center for Economic and Policy Research responded definitively to Brooks:

More on the dangers inherent in "austerity" - pushing deficit reduction as policy priority when a damaged economy is still deep in the dumps

As if it wasn't apparent to anyone other than hard-core ideologues - and politicians who should know better running scared - the evidence increases that deficit mania in a recession is little more than a recipe for making things even worse.

John Cassidy at The New Yorker, offers his perspective on the evidence from Britain that an agenda of austerity - i.e. spending cuts and fixation on short-term deficit reduction - is  utterly wrong-headed in a deep recession:

With all the talk of a possible double-dip recession in the U.S. economy—here’s my own little contribution—it’s surprising (and somewhat scandalous) that more attention isn’t being paid to what is happening in Britain, where a second economic downturn began last fall and shows few signs of relenting.

About a year ago, with the British economy seemingly recovering fairly well from the financial crisis of 2008, David Cameron’s Conservative-Liberal coalition embarked on a vigorous policy of deficit reduction, raising taxes and cutting government spending in an effort to balance the budget by 2015. How this experiment in pre-Keynesian economic policy turns out obviously has important implications for the fiscal debate on this side of the Atlantic.

So far, the results aren’t looking very favorable.

"The Banking Miracle"

Joe Nocera, writing in today's New York Times, has a fascinating piece on the history - and the effectiveness - of the Glass-Steagall act regulating banking. Glass-Steagall, which established the Federal Deposit Insurance Corporation and separated retail banks from the financial speculation of Wall Street investment banks, was passed in 1933 - June 16 to be exact.

Glass-Steagall's wall of separation between financial speculation and banks holding customer deposits was repealed by the Gramm-Leach-Bliley Act of 1999.  Critics including Elizabeth Warren, Nouriel Roubini and Paul Volcker have suggested that the repeal contributed significantly to the financial crisis of 2008 and want to see such regulations re-implemented.

Read Nocera's piece HERE - a very useful history lesson.

On the critical need to raise the debt ceiling

"This country now possesses the strongest credit 
in the world. The full consequences of a default -- or even the serious prospect of default -- by the United States are impossible to predict and awesome to contemplate. Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and on the value of the dollar in exchange markets. The Nation can ill afford to allow such a result. The risks, the costs, the disruptions, and the incalculable damage lead me to but one conclusion: the Senate must pass this legislation before the Congress adjourns."

Ronald Reagan, November 16, 1983 in a letter to the Senate majority leader.

Craziest GOP campaign promise to date?

A long primary season begins in ToonTown.

I'm going to stick my neck out regarding the GOP primary candidates. In a field where you have pizza mogul Herman Cain complaining about President Obama growing up in Kenya and Michele Bachmann...uh...opening her mouth on just about anything, the suggestion that one among them has reached Peak Crazy is risky. But even given the tough Republican competition this election cycle for audacious ignorance and outrageous idiocy, Tim Pawlenty's tax cut proposal is going to be hard to beat. And the insanity aside, he's clearly got a lock in the key GOP category of cynical service to the economic elite:

Pushing spending cuts will kill a fragile recovery

Please don't "compromise" on a machete...

Deficit hysteria - pushed by a "Tea Partyized" GOP that refuses to take responsibility for creating the long-term deficits with their tax cut dogmas over three decades - has poisoned the debate over a responsible economic agenda.

The Republicans refuse to even discuss anything other than deep cuts in spending, killing government programs including Medicare and - of course - more across-the-board tax cuts benefiting the economic elite.  This is a recipe for disaster. Arguably it's a politically calculated strategy to target Obama for an economic crisis triggered under Bush by prolonging recession and unemployment.  Whether it's driven by pure cynicism or willful ignorance, we don't have to hypothesize the result - the evidence is in from overseas on the most likely outcome.

David Dayen, writing at American Prospect, has an excellent piece that looks at the apparent bi-partisan buy-in to deficit hysterics - under the gun of GOP/Tea Party fanaticism - and how it threatens to kill jobs. He notes that the austerity/spending cuts agenda hasn't worked in England and there's no reason to believe it can work here.  The danger of austerity when consumer demand is already in the dumps is a double-dip recession. As Dayen frames it, "I Ruined the Economy and All I Got Were These Lousy Tax Cuts":

The vicious cycle

Former Labor Secretary Robert Reich:

We’re in a vicious cycle in which lower wages and net job losses and high debt are causing consumers to cut their spending — which is causing businesses to cut back on hiring and reduce pay. There’s no way out of this morass without bold leadership from Washington to rekindle consumer demand.

If the Democrats remain silent, the vacuum will be filled by the Republican snake oil of federal spending cuts and cut taxes on big corporations and the wealthy. Democrats — starting with the President — must have the courage and conviction to tell the nation the recovery is stalling, and what must be done.

In which I agree with a guy who says what he should have been saying when it really mattered...

Larry Summers at Financial Times:

Econ-advisor-in-chief in 2009 -"Sssshhhh!"

(W)e should recognize that it is a false economy to defer infrastructure maintenance and replacement, and take advantage of a moment when 10 year interest rates are below 3 per cent and construction unemployment approaches 20 per cent to expand infrastructure investment...

We averted Depression in 2008/2009 by acting decisively. Now we can avert a lost decade by recognising economic reality.

Focus on jobs, not deficits, Mr. President!

E.J. Dionne on the political gridlock over the economy and where the President needs to take the "national conversation":

Republicans have no interest in moving the nation’s debate toward investments in job creation because they gain twice over from keeping Washington mired in discussions on the deficit. It’s a brute fact that Republicans benefit if the economy stays sluggish. And despite their role in ballooning the deficit during the Bush years, they will always outbid Democrats on spending cuts.

So is there any way out for those looking to Washington? The recent disappointing jobs numbers have at least had the salutary effect of reminding Democrats that they cannot agree to anything that further slows the recovery. “The first principle has to be ‘do no harm,’ ” said Rep. Chris Van Hollen of Maryland, a key House Democratic negotiator in the deficit talks. “There is a danger of making things worse if you adopt very deep cuts in the short term.”...

But there is another player in all this. The broad feeling among congressional Democrats — a sentiment that moves toward impatience when it’s expressed off the record — is that President Obama needs to engineer a turn in the national conversation. Brown, for example, strongly defends Obama’s auto rescue and is happy the president is talking more about manufacturing lately. Yet he adds: “The president has got to get this discussion more on jobs and less on the budget.”

Controlling health care costs: The Democrats have a plan and Paul Ryan, GOP Budget Czar, doesn't

Ezra Klein at WaPo's "Wonkbook," on controlling health care costs:

(T)he reality is that Democrats have a plan and Ryan doesn’t. But the perception, at this point, is just the opposite.

At the heart of Ryan’s budget are policies tying the federal government’s contribution to Medicare and Medicaid to the rate of inflation — which is far, far slower than costs in the health-care sector typically grow. He achieves those caps through cost shifting. For Medicaid, the states have to figure out how to save the money, and for Medicare, seniors will now be purchasing their own insurance plans and, in their new role as consumers, have to figure out how to save the money. It won’t work, and because it won’t work, Ryan’s savings will not materialize.

"We don't have a Medicare problem, we have a health care cost problem"

Paul Krugman makes the essential (and often deliberately obfuscated) point that is central to any discussion of Medicare and health care costs:

Medicare actually does a better job of controlling costs than private insurers — not remotely good enough, but better.

If you look at Medicare in isolation, the cost rise looks terrible, because it is:

Source.

But it looks a bit different if you look at private insurance, too:

 

If Medicare costs had risen as fast as private insurance premiums, it would cost around 40 percent more than it does. If private insurers had done as well as Medicare at controlling costs, insurance would be a lot cheaper.

It’s a mystery why anyone claims that shifting more people into private insurance is a good idea. Actually, no, it isn’t a mystery; it’s an outrage.

The most significant fact about Medicare is not that it's too costly,  but that it saves Americans a lot of money.

Throwing seniors - of all people - back into the private insurance market would mean vastly greater % of GDP eaten up by health care costs. Or sick people simply going without care.

Neither option is acceptable.  Except perhaps to privatization fanatics and "free-market" ideologues like Congressman Paul Ryan (who admits to being inspired to go into politics by Ayn Rand, who conjured sociopathic narcissism into a pop philosophy that drives much of the libertarian movement.)

Clinging to the theory...

Dean Baker compares the faith-based economics of "deficit reduction" to creationism:

Sometimes, it can be fun to get inside a crazy worldview to ask how it deals with contradictory evidence. For example, how do creationists reconcile their view that all plants and animals were created in their current form around 10,000 years ago, with fossil evidence of life forms dating back hundreds of millions of years?

In this vein, it's worth asking how the proponents of deficit reduction think that lower deficits will lead to increased growth and job creation in an economy mired in a severe slump? There is not an easy answer.

There is a standard "econ 101" story about how reducing deficits can boost the economy. The theory goes that if the government reduces its deficit, and therefore borrows less, it will reduce interest rates. Lower interest rates will, in turn, give firms incentive to invest more.

Lower interest rates should also cause the dollar to decline, since it will make US government bonds and other dollar assets less attractive to foreign investors. If the dollar falls in value, then our goods will be more competitive on world markets. This will cause us to import less and export more, thereby creating jobs.

However, is this what the deficit hawks believe will happen now? The interest rate on 10-year Treasury bonds is already down to 3.0%. Assuming a 2% inflation rate, this translates into a real rate of about 1%. How much lower do the deficit hawks think interest rates will fall if we were to sharply cut the deficit? Furthermore, how much more investment do they think we can induce even if we got a large reduction (for example, 0.5 percentage point) in real interest rates?

Do they think that this sort of decline in interest rates will send the dollar tumbling and thereby improve our trade balance? Against which currencies will a lower interest rate cause the dollar to fall sharply?

Neither of these stories really passes the laugh test. At best, we may hope to see modestly lower interest rates if cutting the budget deficit slows growth further. But there is no reason to expect any future decline to have any more impact than the recent decline in the 10-year Treasury rate from 3.6% in the winter to near 3.0% present this month.

There is another story that the deficit hawks occasionally push. This one says that if we lay off workers in the public sector, that will increase employment in the private sector. The story here is, presumably, that mass layoffs of public sector workers will depress the wages of workers further, thereby making it more profitable for employers to hire them. There's a simple problem in this picture. In order for wages to actually fall, the additional employment in the private sector must not be as large as the job loss in the public sector.

"The Sickness Beneath the Slump"

Economist Robert Shiller of Yale offers some thoughts - and data - on the roots of the financial crisis, the long-term effects on consumer spending, "rational market expectations" and a major failure of his profession in recent decades:

THE origins of the current economic crisis can be traced to a particular kind of social epidemic: a speculative bubble that generated pervasive optimism and complacency. That epidemic has run its course. But we are now living with the malaise it caused.

News accounts of the economic crisis rarely put it in these terms. They tend to focus on distinct short-term developments or on the roles of prominent people like Federal Reserve governors, members of Congress or Wall Street financiers. These stories grab attention and may be supported by some of the economic statistics that the government and private institutions collect.

But the economic situation is primarily driven by hard-to-quantify sociological factors that play out over many years.

The uptick in the unemployment rate, to 9.1 percent from 8.8 percent two months earlier and the drop in stock prices over the last month have attracted notice, yet in a sense they are symptoms of a deeper economic sickness.

Tim Pawlenty confuses "belief in the American people" with his foolish fantasies of tax cut pixie dust

One of the more desperate candidates for the GOP's presidential nomination, former Minnesota Governor Tim Pawlenty, has doubled down on the party's Tax Cuts Uber Alles dogma and equated his crank faith-based economic strategy with belief in America.

Actually he's "tripled down" on massive tax giveaways structured to further enrich the economic elite:

According to Bloomberg/Businessweek:

Pawlenty’s $11.6 trillion tax-cut plan, which reduces rates on income, capital gains, interest, estates and dividends, is almost three times larger than the proposals endorsed by House Republicans...Almost half of the benefits would flow to taxpayers in the top 1 percent of income distribution, or those earning more than $593,011 in 2013...

Pawlenty...said 5 percent annual average economic growth would help make up the revenue gap... (S)uch growth would be driven by the tax plan as well as by spending cuts, regulatory overhaul and monetary policy changes that Pawlenty is proposing.

So we're getting a version of the "tax cuts pay for themselves" mantra on steroids.  Paul Krugman, NYT's columnist and Nobel Prize-winning economist at Princeton, looks at Pawlenty's "plan" and the promise - 5% economic growth driven by massive reductions in taxes:

Tim Pawlenty — who has turned out to be a much bigger fool than I or, I think, anyone imagined — replies to criticism of his claim that he can get 10 years of GDP growth at 5 percent:

Obama’s economic team doesn’t have a plan, so their spokespeople attack ours. The idea that they don’t believe in the American people enough to say that we can grow the economy at 5% GDP really says everything. You have to wonder if in fact Obama’s grand plan is that we don’t grow at all — and if so — he and the central planners are doing a great job of that.

Well, here are 10-year growth rates starting with 1929-39:

   

Bureau of Economic Analysis Data here.

Except for the big jump from the depths of the Great Depression to the height of World War II, we have never had a decade of growth at 5%.

What’s also notable in this figure is the invisibility of all the supposed economic miracles we hear about. Saint Reagan was supposed to have revitalized the economy; can’t see it here. All you can really see is that the 60s were very good, and the recent slump has been very, very bad.

At least we can thank Pawlenty for erasing any doubts that he's one of the biggest fools out there - even by GOP presidential aspirant standards (or lack of them.)

Dreaming of Unicorns - when folks on the Right get "philosophical" about the issues

Ezra Klein wrote an excellent piece that examines the care-effective results delivered at low cost by the Veteran's Health Administration hospitals.  He references the column David Brooks recently published on the difference between Republican and Democratic approaches to the health care problem with this insight:

One way of thinking of health-care reform is, as David Brooks put it in his Tuesday column, that it presents “a basic philosophical choice.” I disagree. I think it’s a policy question.

Various models present us with substantial evidence of the benefits and drawbacks to the different choices we can make. Unfortunately, those models don’t present us with substantial evidence as to the benefits of the choices we would like to make. And that’s when we get philosophical.

Brooks gets "philosophical" in discussing health care reform because the empirical evidence doesn't back up his private market biases.  That's largely where the GOP is coming from these days.  Ideology and wishful thinking trumps reality-based problem solving.

Read Klein's entire column on the VHA below - "When socialism works in America" - it's a breath of fresh air in a stale and increasingly dishonest debate between pragmatic policy choices and promises of unicorns that exist in a land of dreams:

The dangerous politics of the debt ceiling

The Financial Times' conservative columnist Clive Crook warns:

Tea Party true believers may be salivating at the prospect of the coming Battle of the Debt Ceiling, but the GOP’s leaders are dreading it. Shutting down the government is a button they dare not press – not if they retain the least grip on reality. They did it once before, during the Clinton administration, and were slammed: the shutdown rescued the Clinton presidency. To do it in 2011, with the economy laid low and financial markets still twitchy, would be the limit of irresponsibility. It would be betting the recovery to make a point. This time, political annihilation might follow, and the party would deserve it.

The fraud and fallacies of "Ryancare"

Jared Bernstein, former chief economic advisor to Joe Biden, offers this critical commentary on a Paul Ryan Youtube touting the GOP's plan to kill Medicare:

The basic flaw is that Ryan and his video pretend that the R’s Medicare plan gives consumers the power to negotiate directly with health care providers, who can thus use their voucher-driven bargaining clout to hold down prices.  But, in fact, that’s not how his plan works at all.  Under his plan, seniors get to negotiate with insurance companies, not service providers (doctors, hospitals, etc.).

Ten years ago - George W. Bush launches his pre-emptive attack on budget surplus...

Lest we forget, it's been a full decade since George W. Bush went on the offensive against the threat to our nation of the Democrats' weapons of fiscal responsibility.  From an AP report shortly after George W. Bush entered the White House in 2001:

Mission Accomplished -June 7, 2001

(AP)  President Bush said Saturday that the most important number in the budget he sends to Congress next week is the $5.6 trillion surplus it projects over the next 10 years.

That huge projected surplus provides the underpinning of all the administration's tax-cut and spending plans, Mr. Bush said in his recorded weekly radio address.

"A surplus in tax revenue, after all, means that taxpayers have been overcharged," the president said. "And usually when you've been overcharged, you expect to get something back." The surplus figure "counts more than any other" in the budget, he said.

Democrats cautioned that surpluses projected over so long a period can turn into elusive fool's gold. And they continued to insist that as it stands the Bush tax-cut plan unfairly favors the wealthy over those of more modest means.

Deep thinker David Brooks fails to tell the truth about health care costs

In his Monday New York Times column titled - apparently without irony - "Where Wisdom Lives",  David Brooks discussed health care systems and the future cost-effectiveness of Medicare, posing Democrats as believing in "top down centralized planning" while Republicans favor "the decentralized discovery system of the market."

Brooks characterizes the Republican Ryancare alternative dishonestly because he doesn't mention that the CBO has projected costs - out-of-pocket and aggregate - as skyrocketing under the scheme to end Medicare in favor of capped vouchers:

Republicans point out that Medicare has tried to control costs centrally for decades with terrible results. They argue that a decentralized process of trial and error will work better, as long as the underlying incentives are right. They suggest replacing the fee-for-service with a premium support system. Seniors would select from a menu of insurance plans. Their consumer choices would drive a continual, bottom-up process of innovation. Providers could use local knowledge to meet specific circumstances.

Of course, Medicare as it stands is the most cost-effective piece of our health insurance puzzle.  It's been more successful - as a "volume buyer" negotiating prices - at controlling costs "centrally" than the multiplicity of private insurers have been.  Based on Medicare's current performance versus private insurers the CBO has rated and projected the difference in future cost of privatized Ryancare over Medicare, and it doesn't look good for Brook's "consumer choices" system. (See chart at right.)

And that's leaving aside any questions about the proposition that seniors - nearly all with pre-existing conditions, most with deep concerns about allocating out-of-pocket expenses within the limitations of a fixed and likely very modest income, and inevitably facing increased physical and mental frailty as they age -  would be more interested in ongoing participation in a "continual bottom up process of innovation" rather than security and systemic integrity - the "known" over a "process of discovery."

But Brooks truly goes off the deep end with this allegation:

Asymmetric warfare

Ezra Klein, at "Wonkbook", on the deficit debate:

(W)e’re not having a balanced argument over the deficit. We’re having an asymmetric argument over deficit reduction. Republicans see the deficit as an opportunity to push for dramatic and permanent changes to the state — including some that would technically increase the deficit... 

As for the Obama administration, they’re proposing a much more modest package that doesn’t use the deficit to push for long-term priorities, and in fact looks like a slightly more conservative version of the Simpson-Bowles report. It’s fallen to liberal think tanks to promote plans that see the deficit as an opportunity to push for major progressive policy changes. But without the support of the White House, those plans aren’t going to get very far...

In the end, Ryan’s plan has made a deal a lot harder than it would’ve been if the two parties had decided to do negotiations first and come out with a final plan together. But from the perspective of Republicans, it’s probably made a good deal a lot likelier. 

"A slightly more conservative version of the Simpson-Bowles report" is being negotiated versus GOP Budget Czar Ryan's anti-government radicalism.  The Republicans - despite the deep unpopularity of their "plan" that includes killing Medicare - couldn't ask for a playing field tilted much farther to the right. Whatever compromise comes of this can't be good. Except, as Klein notes, "from the perspective of the Republicans."