Friends shouldn't let friends vote for Republicans

      Via Washington Monthly

"The federal budget deficit is a distraction"

So says Robert H. Frank, an economics professor at the Johnson Graduate School of Management at Cornell University, writing in today's New York Times:

It’s important, yes, and must be addressed. But by a wide margin, it’s not the nation’s most pressing economic problem. That would be the widespread and persistent joblessness that has plagued the labor market since the Great Recession began in 2008.

Almost 14 million people — 9.1 percent of the labor force — were officially counted as unemployed last month. But that’s just the tip of the iceberg. There were almost 9 million part-time workers who wanted, but couldn’t find, full-time jobs; 28 million in jobs they would have quit under normal conditions; and an additional 2.2 million who wanted work but couldn’t find any and dropped out of the labor force.

If the economy could generate jobs at the median wage for even half of these people, national income would grow by more than 10 times the total interest cost of the 2011 deficit (which was less than $40 billion). So anyone who says that reducing the deficit is more urgent than reducing unemployment is saying, in effect, that we should burn hundreds of billions of dollars worth of goods and services in a national bonfire.

Taxes are lower than ever - so why are taxes "off the table" for Eric Cantor and his ideological confreres?

Paul Krugman has this regarding the tax side of any debt ceiling deal:

(Republicans) are willing to risk the good faith and credit of the federal government, rather than accept so much as a single penny of tax increases as part of a deal.

Given all that, it seems almost redundant to mention that federal tax receipts as a percentage of GDP are near a historic low:

      Federal receipts as % of GDP

 
So why are we seeing what appears to be childish behavior on the part of Eric Cantor and his fellow GOP legislators in the context of critical "negotiations" over the debt ceiling as they refuse any effort to increase revenues rather than just taking an axe to critical programs like Medicare and Social Security?  Krugman answers that burning question in our "quote of the day":

(T)he GOP never cared about the deficit — not a bit. It has always been nothing but a club with which to beat down opposition to an ideological goal, namely the dissolution of the welfare state. They’re not interested, at all, in a genuine deficit-reduction deal if it does not serve that goal.

" A strange time for a deficit panic"

Mathew Yglesias at "Think Progress" makes the case against Deficit Hysteria by looking at the rather starkly low interest rates on government borrowing instruments:

Deficits can impede economic growth. No borrower is safer than the government. So when the government wants to borrow a lot of money and investors start charging it a high interest rate, the borrowing costs for everyone else go up. This “crowds out” lots of potentially useful economic activity. A business expansion that’s profitable at a 5 percent interest rate may be far too risky to invest in at a 7 percent interest rate. But as you can see here on the right, the interests rates being charged by the market to lend money to the US government are low and falling...

Note that 10-year interest rates were never below 3 percent at any point during the Johnson, Nixon, Ford, Carter, Reagan, Bush, Clinton, or W. Bush administrations. So why is this on the agenda now?

So why is there a "deficit panic" when the impact of deficits on federal borrowing vs. availability of low-interest investment capital is nil?  And how does cutting the deficit - especially with an emphasis on cutting spending to balance the budget  - produce economic growth and jobs ?   Of course it doesn't.

"BoehnerCare"

"(Attacking deficits and cutting spending) wouldn't square with the way we normally think about economic activity in a depressed economy," (according to) Andrew Samwick, a former chief economist on President Bush's Council of Economic Advisers... When the economy suffers from a lack of demand, as it does now, Samwick explained, most economists think increasing spending is the more effective way to generate that demand and get things moving again.

Why has the opposite view begun to take hold?

"Defict reduction" is a cover for more "Starve the Beast" tax-cuts and attacks on health care reform

Ezra Klein at Wonkbook, clarifies the agenda underlying much of the fiscal debate, pointing out that under the revenue/spending scenario deemed by current law - with the Bush tax cuts due to expire unless revived by new legislation - "We'll only have giant deficits if Congress wants giant deficits":

If Congress lets the Bush tax cuts expire or offsets their extension, implements the Affordable Care Act as scheduled and makes or offset the Medicare cuts prescribed by the 1997 Balanced Budget Act — which (the Congressional Budget Office) calls the “extended baseline scenario” — the national debt will be totally manageable.

If Congress passes laws extending the Bush tax cuts without offsetting the cost, repealing the Affordable Care Act and its cost controls and protecting doctors from Medicare cuts without making up the savings elsewhere — the “alternative fiscal scenario” — the national debt will be totally out of control:

The Dangerous Fantasy of Targeting "Deficit Reduction" for Economic Growth

The Great Deficit Hype took a couple of hits in recent days. Tragically, it's not likely that anyone in the Beltway is listening, the priority of deficit reduction has taken such a tenacious hold.

But even in the apparent absence of  rational policy possibilities, it's worth paying attention to some saner voices - and from relatively stodgy circles. 

Professor of economics and and former vice-chairman of the Federal Reserve, Alan Blinder, had this warning in the Wall Street Journal (via Economist's View) :

"The Myth of Job-Killing Spending" ...  House Speaker John Boehner and other Republicans regularly rail against "job-killing government spending." ... Using the same illogic, employment should soar if we made massive cuts in public spending—as some are advocating right now.

Acting on such a belief would imperil a still-shaky economy that is not generating nearly enough jobs. So let's ask: How, exactly, could more government spending "kill jobs"? ...

The Great Republican Tax Lie

Reagan economic advisor Bruce Bartlett, interviewed by Lawrence O'Donnell, on the Big Republican Lie that "tax cuts pay for themselves":

Visit msnbc.com for breaking news, world news, and news about the economy

Why has no one gone to jail for the fraud and excess that brought the world economy to the brink, robbed millions of their savings and cost more millions jobs?

Woody Guthrie: "Some men rob you with a fountain pen..."

In receiving the Academy Award for his excellent documentary, Inside Job, on the 2008 financial meltdown that still haunts our broken economy, director Charles Ferguson brought a bit of cold water to the Oscar ceremonies last February:

“Forgive me, I must start by pointing out that three years after our horrific financial crisis caused by financial fraud, not a single financial executive has gone to jail, and that’s wrong.”

Ferguson raised an important question. At least part of the answer is addressed in the context of an extensive New Yorker article by George Packer on the prosecution of the Wall Street insider trading case against Raj Rajaratnam, head of Galleon hedge fund, which isn't directly related to the 2008 crisis.  The relevant sections from Packer's piece that speak to the lingering question raised by Ferguson and his documentary's investigation into the larger crisis follow:

'Tis the season

Stephen Colbert's commencement address to Northwestern University graduates.

"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.)