Make the Republicans say "no"
Barack Obama's big win in November could have been a springboard for moving American political dialogue to the left. Arguably, it has done that, at least a little bit. Of course, Sandy Hook and Hurricane Sandy have had a role in that, too.
After all, state legislatures and Congress are seriously considering tighter restrictions on guns (Maryland, for example), state legislatures are advancing action on climate change over right-wing objections (Kansas, for example), and six Republican governors are going ahead with a Medicaid expansion they had previously opposed.
But Obama's decision to focus on potential damage caused by the sequester misses an opportunity to push political dialogue even further to the left. And, as Robert Reich argues in a column carried by the Huffington Post, focusing on the damage isn't effective tactically, either.
However real that damage might be, it probably won't be obvious to most Americans, Reich says. "Moreover, the blame game can be played both ways, and Republicans are adept at slinging mud," he wrote.
Instead, Obama should "...directly rebut the two big lies that fuel the Republican assault," Reich writes. "The first big lie is austerity economics--the claim that the budget deficit is the nation's biggest economic problem now, responsible for the anemic recovery.
"The second big lie is trickle-down economics--the claim that we get more jobs and more growth if corporations and the rich have more money because their the job creators, and job growth would be hurt if their taxes were hiked."
Reich's piece doesn't outline what Obama should be offering in opposition to austerity and trickle-down economics, but he's right that swapping accusations over the sequester helps Republicans avoid the debate over how much damage right-wing economic policy has caused over the past three decades, and especially since the collapse of the housing market dumped the country into a recession that caused job losses from which we still have not recovered. That recovery should remain the priority for national economic policy and President Obama is in the best position to make that argument.
He could begin by reviewing the work of the Center for Economic Policy and Research (CEPR), still the best source for a full look at the high price of deficit reduction at this time and what additional stimulus might accomplish. And, if the president needs to look at new ways of generating revenue, he should study CEPR's carefully documented argument for a financial transaction tax.
A bill in the Senate calls for the imposition of just such a tax. A press release from CEPR summarizes the benefits of the tax.
"The Harkin-DeFazio bill provides a way to raise a substantial amount of revenue while at the same time making our financial markets more efficient."
"The modest tax would discourage an enormous amount of short-term trading while having almost no impact on the ability of markets to finance productive investment. The cost of the tax would be born almost entirely by the financial industry, since for most investors the money saved as a result of lower trading volume will offset the higher cost of trades.
"At a time when Congress and the President are looking to cut Social Security, Medicare, and other essential programs, the idea of getting $40 billion a year from taxing speculation in the financial industry looks very attractive."
Wouldn't that move the debate in a progressive direction?
Showing posts with label CEPR. Show all posts
Showing posts with label CEPR. Show all posts
Friday, March 1, 2013
Thursday, February 21, 2013
Buy a bit of economic justice
Raise the minimum wage
So, I've written the Washington Post, again. And, reliably, it does not appear that they will print my letter.
No matter. I almost prefer the opportunity to elaborate my point in a forum (this one) that I know will always make space for me and, from time to time, will be read by others.
In any case, here's what I wrote:
Editor,
In any case, Lane's column kicks off with his characterization of Paul Krugman as a "liberal firebrand [who] is still economist enough..." to note that quickly raising the minimum wage by a substantial amount would create problems. This description ignores the fact that Krugman is also a Nobel Prize winner in economics and signals to the casual reader that Krugman is a partisan and Lane is not.
This is not good journalism. We are all partisans. Krugman is the one with the Nobel. With his characterization of Krugman the firebrand, Lane is also signaling from the beginning that he is going to come down in favor of some alternative to raising the minimum wage.
Applauding Lane for actually appearing to be carefully considering a minimum wage increase was a bit of sychophancy in the interest of getting the letter published. Say it didn't work, if you will. Say that sychophants will burn in hell, if you like, but I tried.
The issue my letter raises is that despite Lane's apparent willingness to consider all the pros and cons of raising the minimum wage, he actually dismisses two potential benefits pointed out in a study by John Schmitt of the Center for Economic and Policy Research (CEPR). Workforces that are compensated better at the low end may end up working with more enthusiasm and improved efficiency. In the long run, such improvements allow employers to recover costs. But Lane sees that potential benefit as less certain than the potential downsides, like the possibility of reduced employment overall, and fewer job opportunities for youth.
Indeed, Lane cites studies that show reduced unemployment for "young, low-skilled people" when the minimum wage goes up. That ought to be a genuine concern and should be addressed, even if the problem is not quite the one Lane defines. The fact is that many young people have been pushed out of the job market with increasing frequency as more older people, including those collecting Social Security, take part-time jobs just to make ends meet. Holding down the minimum wage doesn't serve either group.
There is a silver lining in Lane's column. He actually uses CEPR as a substantial source for his column. That's a big deal, and a credit to CEPR and to co-founders Dean Baker and Mark Weisbrot who have been a relentless voice for progressive economic policy. Lane has always been a centrist, at best, and has never seemed very willing to consider progressive policy options. But he does here, even if he ends up rejecting the idea of a minimum wage increase.
As George Lakoff tells us (a bit on Lakoff here), sometimes speech is action. Baker, Weisbrot and CEPR keep researching, writing and talking and have helped move the political discussion to the left.
A better column on the minimum wage by Harold Meyerson ran in the Post on Feb. 20. In "A jump-start for wages," Meyerson points out that the lion's share of the benefits from productivity gains have been going to employers, not workers, since 1973. "The decoupling of wages from the fortunes of big business has been going on for the past 40 years," he writes.
Meyerson cites another study that may not have crossed Lane's desk. "As a January report by Cal-Berkeley economist Emmanuel Saez documents, while the income of the wealthiest 1 percent of Americans rose by 11.2 percent during the recovery years of 2009-11, the incomes of the bottom 99 percent declined by 0.4 percent. That's some recovery," he observes. Read the rest of Meyerson's column here.
So, I've written the Washington Post, again. And, reliably, it does not appear that they will print my letter.
No matter. I almost prefer the opportunity to elaborate my point in a forum (this one) that I know will always make space for me and, from time to time, will be read by others.
In any case, here's what I wrote:
Editor,
I applaud Charles Lane's effort to broadly consider the merits of an increase in the minimum wage ("Better than minimum wage," Feb. 19). One quibble, though.
Lane reviews four of the possible effects of an increase that may minimize an employer's interest in cutting jobs when an increase in the minimum wage is mandated. But in concluding that an expansion of the earned income tax credit (EITC) is superior to an increase in the minimum wage, Lane appears to discount two of the potential benefits connected to an increase--lower turnover and higher organizational efficiency.
Why not capture those positives, too?. Get better at calibrating and regularizing increases in the minimum wage and spread the benefits of a broader EITC.
Jeff Epton
Brookland
But the truth is that I have more than one nit to pick with Lane's piece, and one happy observation to add, as well. I held back on the quibbles because the Post doesn't seem very receptive to extended critiques and I figured the one point--that Lane was posing an either/or choice when both would work--was substantial enough.
This is not good journalism. We are all partisans. Krugman is the one with the Nobel. With his characterization of Krugman the firebrand, Lane is also signaling from the beginning that he is going to come down in favor of some alternative to raising the minimum wage.
Applauding Lane for actually appearing to be carefully considering a minimum wage increase was a bit of sychophancy in the interest of getting the letter published. Say it didn't work, if you will. Say that sychophants will burn in hell, if you like, but I tried.
The issue my letter raises is that despite Lane's apparent willingness to consider all the pros and cons of raising the minimum wage, he actually dismisses two potential benefits pointed out in a study by John Schmitt of the Center for Economic and Policy Research (CEPR). Workforces that are compensated better at the low end may end up working with more enthusiasm and improved efficiency. In the long run, such improvements allow employers to recover costs. But Lane sees that potential benefit as less certain than the potential downsides, like the possibility of reduced employment overall, and fewer job opportunities for youth.
Indeed, Lane cites studies that show reduced unemployment for "young, low-skilled people" when the minimum wage goes up. That ought to be a genuine concern and should be addressed, even if the problem is not quite the one Lane defines. The fact is that many young people have been pushed out of the job market with increasing frequency as more older people, including those collecting Social Security, take part-time jobs just to make ends meet. Holding down the minimum wage doesn't serve either group.
There is a silver lining in Lane's column. He actually uses CEPR as a substantial source for his column. That's a big deal, and a credit to CEPR and to co-founders Dean Baker and Mark Weisbrot who have been a relentless voice for progressive economic policy. Lane has always been a centrist, at best, and has never seemed very willing to consider progressive policy options. But he does here, even if he ends up rejecting the idea of a minimum wage increase.
As George Lakoff tells us (a bit on Lakoff here), sometimes speech is action. Baker, Weisbrot and CEPR keep researching, writing and talking and have helped move the political discussion to the left.
A better column on the minimum wage by Harold Meyerson ran in the Post on Feb. 20. In "A jump-start for wages," Meyerson points out that the lion's share of the benefits from productivity gains have been going to employers, not workers, since 1973. "The decoupling of wages from the fortunes of big business has been going on for the past 40 years," he writes.
Meyerson cites another study that may not have crossed Lane's desk. "As a January report by Cal-Berkeley economist Emmanuel Saez documents, while the income of the wealthiest 1 percent of Americans rose by 11.2 percent during the recovery years of 2009-11, the incomes of the bottom 99 percent declined by 0.4 percent. That's some recovery," he observes. Read the rest of Meyerson's column here.
Wednesday, January 26, 2011
Obama's State of the Union
Can the left live with it?
President Obama's speech last night was definitely not a leftist call to arms. But in the wake of a stinging electoral defeat for Democrats in November, it was, by and large, the speech Obama needed to give; and a speech well within his strike zone. One might have expected progressives to condemn Obama's caution, his willingness to concede space to Republicans with commitments to freeze discretionary spending, take on tort reform and and control Medicare spending, but attacks from the left, so far, are muted and seasoned with approval for some of the things he did say.
Nation writer John Nichols adopted a balanced tone in assessing the State of the Union speech. While noting Obama's declared intention to soften some regulations, continue supporting free-trade agreements, in general, and accommodate other Republican interests, Nichols also applauded Obama's forthright defense of Social Security and government investment in infrastructure.
"Obama has more political capital than he did in the weeks after the election .And he used it to defend Social Security -- rather then embrace calls for slashing benefits or experimenting with privatization – and to renew commitments to classic infrastructure investments in roads, bridges and transit, as well as 21st century projects such as high-speed rail and the development of national wireless networks," Nichols wrote.
Dean Baker, co-director of the Center for Economic and Policy Research (CEPR), noted that Obama's call for further controlling healthcare costs should be perceived as a way to defend, not attack Medicare. "In reference to Medicare and Medicaid, President Obama stuck to the facts and pointed out that the problem is the broken U.S. health care system, not inefficiencies in these programs. He noted the progress made in controlling health care costs in the Affordable Care Act, but acknowledged the need to go much further in containing costs," Baker said in a written statement released by CEPR today.
The statement also credits Obama with resisting "...the immense pressure from the financial industry and other opponents of Social Security and Medicare by refusing to call for large cuts in these programs in his State of the Union Address. Given the power of these groups, this would have been the easiest path for him to take. However, he instead insisted on the need to protect Social Security and to ensure that future generations of workers can also depend on it."
But Baker was clear about the speech's shortcomings: "The most disappointing aspect of the speech is that it largely skipped over the current economic crisis. This may reflect a view that there is little that Congress will agree to do to at this point. But it still is unconscionable to accept the idea that 25 million workers will go unemployed or under-employed, with millions more losing their home, because of the economic mismanagement by the country’s leaders."
He also took exception to Obama's continuing support for free trade, arguing that an over-valued dollar is the fundamental cause of the continuing U.S. trade deficits, "the largest imbalance in the economy today."
Robert Scheer's critique of the speech must rank among the best expressions of left-wing frustration with Obama's centrism. Scheer's post today on The Smirking Chimp dismisses the speech as "platitudinous hogwash." Obama ignored "... the depth of our economic pain and the Wall Street scoundrels who were responsible—understandably so, since they so prominently populate the highest reaches of his administration," Scheer wrote. "The speech was a distraction from what seriously ails us: an unabated mortgage crisis, stubbornly high unemployment and a debt that spiraled out of control while the government wasted trillions making the bankers whole."
Scheer's points are well-taken and only occasionally hyperbolic (the government spent $1 trillion on the Wall Street bailout, not "trillions"). Indeed, there are certainly more bankers and brokers in the Obama administration than there ought to be, but it won't be the presence of Wall Street big shots in the administration that will undermine any moves Obama makes to increase investment in infrastructure and high tech. Nor will they force Obama to compromise his defense of Social Security and Medicaid.
Republican opposition, of course, will be the first cause compromising Obama's ability to move forward with domestic infrastructure investments, with further action to control health care costs, with effective follow-up on Sec. of Defense Robert Gates proposed cuts in the military budget and other initiatives progressives wish to see. But a left that cannot refrain from unnuanced and relentlessly hostile critiques of Obama's performance and agenda could pose a further problem.
Right now most observers on the left seem willing to give Obama the benefit if the doubt. That comes as a little bit of a surprise, given the widespread perception that Obama and Congressional Democrats didn't go far enough with health care or squeeze out a bigger stimulus bill. But the odds are that the left was as chastened by the November election results as was Obama. If so, would it be too much to ask that a progressive follow-up include electing a few more progressives to Congress and organizing to take back a few Congressional districts from the Tea Party?
President Obama's speech last night was definitely not a leftist call to arms. But in the wake of a stinging electoral defeat for Democrats in November, it was, by and large, the speech Obama needed to give; and a speech well within his strike zone. One might have expected progressives to condemn Obama's caution, his willingness to concede space to Republicans with commitments to freeze discretionary spending, take on tort reform and and control Medicare spending, but attacks from the left, so far, are muted and seasoned with approval for some of the things he did say.
Nation writer John Nichols adopted a balanced tone in assessing the State of the Union speech. While noting Obama's declared intention to soften some regulations, continue supporting free-trade agreements, in general, and accommodate other Republican interests, Nichols also applauded Obama's forthright defense of Social Security and government investment in infrastructure.
"Obama has more political capital than he did in the weeks after the election .And he used it to defend Social Security -- rather then embrace calls for slashing benefits or experimenting with privatization – and to renew commitments to classic infrastructure investments in roads, bridges and transit, as well as 21st century projects such as high-speed rail and the development of national wireless networks," Nichols wrote.
Dean Baker, co-director of the Center for Economic and Policy Research (CEPR), noted that Obama's call for further controlling healthcare costs should be perceived as a way to defend, not attack Medicare. "In reference to Medicare and Medicaid, President Obama stuck to the facts and pointed out that the problem is the broken U.S. health care system, not inefficiencies in these programs. He noted the progress made in controlling health care costs in the Affordable Care Act, but acknowledged the need to go much further in containing costs," Baker said in a written statement released by CEPR today.
The statement also credits Obama with resisting "...the immense pressure from the financial industry and other opponents of Social Security and Medicare by refusing to call for large cuts in these programs in his State of the Union Address. Given the power of these groups, this would have been the easiest path for him to take. However, he instead insisted on the need to protect Social Security and to ensure that future generations of workers can also depend on it."
But Baker was clear about the speech's shortcomings: "The most disappointing aspect of the speech is that it largely skipped over the current economic crisis. This may reflect a view that there is little that Congress will agree to do to at this point. But it still is unconscionable to accept the idea that 25 million workers will go unemployed or under-employed, with millions more losing their home, because of the economic mismanagement by the country’s leaders."
He also took exception to Obama's continuing support for free trade, arguing that an over-valued dollar is the fundamental cause of the continuing U.S. trade deficits, "the largest imbalance in the economy today."
Robert Scheer's critique of the speech must rank among the best expressions of left-wing frustration with Obama's centrism. Scheer's post today on The Smirking Chimp dismisses the speech as "platitudinous hogwash." Obama ignored "... the depth of our economic pain and the Wall Street scoundrels who were responsible—understandably so, since they so prominently populate the highest reaches of his administration," Scheer wrote. "The speech was a distraction from what seriously ails us: an unabated mortgage crisis, stubbornly high unemployment and a debt that spiraled out of control while the government wasted trillions making the bankers whole."
Scheer's points are well-taken and only occasionally hyperbolic (the government spent $1 trillion on the Wall Street bailout, not "trillions"). Indeed, there are certainly more bankers and brokers in the Obama administration than there ought to be, but it won't be the presence of Wall Street big shots in the administration that will undermine any moves Obama makes to increase investment in infrastructure and high tech. Nor will they force Obama to compromise his defense of Social Security and Medicaid.
Republican opposition, of course, will be the first cause compromising Obama's ability to move forward with domestic infrastructure investments, with further action to control health care costs, with effective follow-up on Sec. of Defense Robert Gates proposed cuts in the military budget and other initiatives progressives wish to see. But a left that cannot refrain from unnuanced and relentlessly hostile critiques of Obama's performance and agenda could pose a further problem.
Right now most observers on the left seem willing to give Obama the benefit if the doubt. That comes as a little bit of a surprise, given the widespread perception that Obama and Congressional Democrats didn't go far enough with health care or squeeze out a bigger stimulus bill. But the odds are that the left was as chastened by the November election results as was Obama. If so, would it be too much to ask that a progressive follow-up include electing a few more progressives to Congress and organizing to take back a few Congressional districts from the Tea Party?
Tuesday, April 27, 2010
Achenbach for fun, Baker for the facts
Really, the debt is not a big problem
Joel Achenbach, author of a lot of "Why Things Are" and, sometimes, "Why Things Aren't" books, is generally great fun. Informative and humorous, he can tell funny, riveting stories about things that are generally neither fun or riveting. A recent example, "The Wow Factor: Reading between the pixels of the Hubble's latest images," which ran last December in the Washington Post, reads quick and easy and shares just enough science to make casual readers dangerous at dinner parties.
The Post frequently uses Achenbach to cover complex topical stories that need more than a little explaining, but his most recent story, "Will the debt break Washington?" tramples all over familiar ground, leaving behind little steaming piles of opinion valuable, perhaps, to farmers.
For primary source, Achenbach uses Bill Gross, founder of a large investment company, to pound what appears to be his main point, namely the national debt is "awful" and "hideous" and, in the worst case, either a Ponzi scheme or doomsday for future generations. None of this is actually true, but more to the point, none of it is helpful. If successfully reducing the debt becomes the highest immediate priority for Washington then several things happen along the way, including immediate and major tax increases, dramatic cuts in social programs, likely throwing the economy back into recession. If the hysteria around this issue should continue to grow, it seems plausible that banks and brokerage houses could even get their holy grail, the privatization of at least a portion of Social Security.
Achenbach also relies heavily on William Gale, an economist at the Brookings Institution, his source for the notion that large deficits now shift the cost of problem-solving onto future generations. But ultimately, Achenbach relies on himself. The new health care bill, which Achenbach admits will pay for itself, actually makes things worse "because its spending cuts and new taxes could have been used to reduce the deficit ... instead of being an offset for an entitlement expansion." In view of the prevailing notion that Congress routinely creates new programs without paying for them, the point is bizarre. After all, a program that pays for itself is, according to Brookings, most Republicans, and a host of pundits, a thing of beauty and the very definition of fiscal responsibility. In this case, the program that paid for itself also extends health coverage to another 25 million Americans, which ought to be celebrated as a tiny bit of social justice rather than disparaged as mere "entitlement."
Achenbach gives a little ground in his debt-is-coming, sky-is-falling assessment. "The latest news from the Treasury is hopeful: Tax revenues are slightly higher than anticipated so far this year. The TARP program to bail out financial firms has proved far less costly than expected. Investors from around the world still eagerly bid on Treasury notes at auction," he writes. And Achenbach does quote the far from panicky Peter Orszag, director of the Office of Management and Budget.
Orszag tells him that he believes the Obama administration can balance the budget, excluding interest payments, by 2015. Orszag concedes that reducing the debt will require political action in the future, presumably some combination of tax increases and spending cuts, but his comments do not support Achenbach's next point, which establishes parallels between Greece, Iceland and the United States. In the upshot, should the largest economy in the world go the way of a tiny tax haven and one of Europe's weakest economies then, yes, I suppose Achenbach will have been proven right.
But how different his piece would have been had he asked Dean Baker, co-director of the Center for Economic and Policy Research (CEPR) for his opinion. Fortunately, we can go directly to Dean for a progressive economist's view of the story Achenbach tells. Here's Dean's opinion, in its entirety from his "Beat the Press" blog:
I probably could have confined my response to Achenbach to quoting Dean's opinion alone, but where's the fun in that? Joel Achenbach's got opinions, I got opinions, too.
Joel Achenbach, author of a lot of "Why Things Are" and, sometimes, "Why Things Aren't" books, is generally great fun. Informative and humorous, he can tell funny, riveting stories about things that are generally neither fun or riveting. A recent example, "The Wow Factor: Reading between the pixels of the Hubble's latest images," which ran last December in the Washington Post, reads quick and easy and shares just enough science to make casual readers dangerous at dinner parties.
The Post frequently uses Achenbach to cover complex topical stories that need more than a little explaining, but his most recent story, "Will the debt break Washington?" tramples all over familiar ground, leaving behind little steaming piles of opinion valuable, perhaps, to farmers.
For primary source, Achenbach uses Bill Gross, founder of a large investment company, to pound what appears to be his main point, namely the national debt is "awful" and "hideous" and, in the worst case, either a Ponzi scheme or doomsday for future generations. None of this is actually true, but more to the point, none of it is helpful. If successfully reducing the debt becomes the highest immediate priority for Washington then several things happen along the way, including immediate and major tax increases, dramatic cuts in social programs, likely throwing the economy back into recession. If the hysteria around this issue should continue to grow, it seems plausible that banks and brokerage houses could even get their holy grail, the privatization of at least a portion of Social Security.
Achenbach also relies heavily on William Gale, an economist at the Brookings Institution, his source for the notion that large deficits now shift the cost of problem-solving onto future generations. But ultimately, Achenbach relies on himself. The new health care bill, which Achenbach admits will pay for itself, actually makes things worse "because its spending cuts and new taxes could have been used to reduce the deficit ... instead of being an offset for an entitlement expansion." In view of the prevailing notion that Congress routinely creates new programs without paying for them, the point is bizarre. After all, a program that pays for itself is, according to Brookings, most Republicans, and a host of pundits, a thing of beauty and the very definition of fiscal responsibility. In this case, the program that paid for itself also extends health coverage to another 25 million Americans, which ought to be celebrated as a tiny bit of social justice rather than disparaged as mere "entitlement."
Achenbach gives a little ground in his debt-is-coming, sky-is-falling assessment. "The latest news from the Treasury is hopeful: Tax revenues are slightly higher than anticipated so far this year. The TARP program to bail out financial firms has proved far less costly than expected. Investors from around the world still eagerly bid on Treasury notes at auction," he writes. And Achenbach does quote the far from panicky Peter Orszag, director of the Office of Management and Budget.
Orszag tells him that he believes the Obama administration can balance the budget, excluding interest payments, by 2015. Orszag concedes that reducing the debt will require political action in the future, presumably some combination of tax increases and spending cuts, but his comments do not support Achenbach's next point, which establishes parallels between Greece, Iceland and the United States. In the upshot, should the largest economy in the world go the way of a tiny tax haven and one of Europe's weakest economies then, yes, I suppose Achenbach will have been proven right.
But how different his piece would have been had he asked Dean Baker, co-director of the Center for Economic and Policy Research (CEPR) for his opinion. Fortunately, we can go directly to Dean for a progressive economist's view of the story Achenbach tells. Here's Dean's opinion, in its entirety from his "Beat the Press" blog:
"More Debt Fearmongering at the Washington Post
This piece includes the information that the national debt "totaled $8,370,635,856,604.98 as of a few days ago." Boys and girls are you impressed by that big number? Are you scared yet? This is Fox on 15th here -- they'll keep trying.
This sentence continues by telling readers that this number is not "even counting the trillions owed by the government to Social Security and other pilfered trust funds." How did the author determine that the trust funds were "pilfered." The government didn't do what he wanted it to with the money? Wow, that gives a reporter the right to say the money was "pilfered." Apparently it does at the Post.
The article does not include the views of any experts who do not view the debt as a serious problem. It presents an inaccurate assertion (in the context presented) from Brookings economist Bill Gale that the debt: "This [running up the debt] is all an exercise in current generations shifting burdens on future generations." Actually, the debt being run up at present is helping future generations by keeping their parents employed, improving the infrastructure and providing them with a better education. There is little or no real burden associated with this debt since much of the debt being issued is held by the Fed. The interest on these bonds is therefore paid to the Fed, which in turn refunds the money to the government.
Last week, the NYT reported that the Fed paid more than $47 billion in interest to the government. So, where is the burden on our children? If we do get the economy back to normal levels of output the deficit will be at a manageable level. Over the long-term, if we don't fix the health care system, we will face serious budget problems, but this is an argument about the need to fix our health care system, not about the deficit."
I probably could have confined my response to Achenbach to quoting Dean's opinion alone, but where's the fun in that? Joel Achenbach's got opinions, I got opinions, too.
Thursday, March 11, 2010
The Budget Deficit and the National Debt Are Not the Problem
We all need more schooling on economic issues
and I say it ought to happen outside the classroom. My professors of choice? Dean Baker and Mark Weisbrot, the estimable co-directors of the Center for Economic and Policy Research (CEPR). But I begin today's self-taught lesson with a quick look at "Smart Debt, Dumb Debt -- There's a Difference," a column by E.J. Dionne in today's Washington Post.
"Because we never face up to how much we need government to do, there is a pathetic quality to our discussion of big deficits," writes Dionne. I have no particular quarrel with this statement or most of the rest of his column. But I am acutely aware that any discussion of the federal budget, the national debt and huge and vital programs like Social Security are extremely contested terrain. And when we get on that ground, most of us get quite emotional.
The debt, we hear, is a direct squandering of our children's future. Similarly, extended unemployment benefits, deficit spending, even social security, are transfers of wealth from hardworking people to irresponsible spendthrifts. Universal health coverage under Obama, it is said, is a trojan horse that will expand the socialist takeover of the country. Of course, most readers of this blog do not share such extreme perspectives, but they have their doubts, I am sure. These doubts are more often expressed in the form of a belief that social security will not be there when the gen-x and millenial generations need it. Or expressed as a belief that maybe the stimulus package didn't work or, perhaps, the amount of debt held by foreign investors is dangerously high.
Such doubts make a thorough discussion of federal spending difficult at any level. They may not move moderate Democrats and independents to sign up for tea parties, but they do undermine faith in a liberal understanding of government activism, and that uncertainty is channelled by Blue Dog Democrats who turn resistance to government initiatives into a political program, which in turn contributes to the apparent futility of Congress. So when E.J. Dionne calls us to a more rational discussion of government economics, I start looking for ways to ground the debate in a broader understanding of economic reality and government alternatives; I start looking at what Dean, Mark and CEPR can tell us. Here's some of what I found during today's search:
In "America's Public Debt: The Least of Our Worries," Weisbrot observes that the 2009 stimulus package (about $1 trillion) was far too small. Even the best estimates suggest that it has saved less than one-quarter of the 8.5 million jobs we've lost since the Great Recession began. Under the circumstances, deficit spending shouldn't be an issue, he writes:
In fact, more deficit spending is necessary, says Baker, in "The Budget Deficit Crisis Puzzle." More aggressive government action is the only way to create the jobs we need and stabilize the economy, Baker writes, putting to rest the notion that huge current deficits will permanently cripple the economy:
Elsewhere, Baker argues that the millenial generation will not be harmed by paying higher taxes to support baby boomer retirees. They face other problems, he writes:
I could go on, but that likely would be a cruelty to those of you who have actually read this far. But I will end by suggesting that a full discussion of how to restructure federal spending is impossible without putting military spending on the table. I've written about militarism and military spending quite a lot. The dollars involved are huge, highly wasteful in terms of job creation, and encourage destructive interventions and even more wasteful expenditures to support those interventions. In the next decade the U.S. will spend at least $1.5 to $2 trillion to pay interest on that portion of the national debt that is directly caused by past military spending. Only those people who actually believe that the North Vietnamese attacked U.S. warships in the Tonkin Gulf with gunboats, or that Saddam Hussein had weapons of mass destruction, or that billions of dollars in military subsidies to Israel have enhanced national security, can sincerely argue that we ought to keep spending more than $1 trillion on our military every year.
and I say it ought to happen outside the classroom. My professors of choice? Dean Baker and Mark Weisbrot, the estimable co-directors of the Center for Economic and Policy Research (CEPR). But I begin today's self-taught lesson with a quick look at "Smart Debt, Dumb Debt -- There's a Difference," a column by E.J. Dionne in today's Washington Post.
"Because we never face up to how much we need government to do, there is a pathetic quality to our discussion of big deficits," writes Dionne. I have no particular quarrel with this statement or most of the rest of his column. But I am acutely aware that any discussion of the federal budget, the national debt and huge and vital programs like Social Security are extremely contested terrain. And when we get on that ground, most of us get quite emotional.
The debt, we hear, is a direct squandering of our children's future. Similarly, extended unemployment benefits, deficit spending, even social security, are transfers of wealth from hardworking people to irresponsible spendthrifts. Universal health coverage under Obama, it is said, is a trojan horse that will expand the socialist takeover of the country. Of course, most readers of this blog do not share such extreme perspectives, but they have their doubts, I am sure. These doubts are more often expressed in the form of a belief that social security will not be there when the gen-x and millenial generations need it. Or expressed as a belief that maybe the stimulus package didn't work or, perhaps, the amount of debt held by foreign investors is dangerously high.
Such doubts make a thorough discussion of federal spending difficult at any level. They may not move moderate Democrats and independents to sign up for tea parties, but they do undermine faith in a liberal understanding of government activism, and that uncertainty is channelled by Blue Dog Democrats who turn resistance to government initiatives into a political program, which in turn contributes to the apparent futility of Congress. So when E.J. Dionne calls us to a more rational discussion of government economics, I start looking for ways to ground the debate in a broader understanding of economic reality and government alternatives; I start looking at what Dean, Mark and CEPR can tell us. Here's some of what I found during today's search:
In "America's Public Debt: The Least of Our Worries," Weisbrot observes that the 2009 stimulus package (about $1 trillion) was far too small. Even the best estimates suggest that it has saved less than one-quarter of the 8.5 million jobs we've lost since the Great Recession began. Under the circumstances, deficit spending shouldn't be an issue, he writes:
"It is clear that there is no short-term problem with running large deficits in a weak economy: investors are buying up even long-term U.S. Treasury bonds at remarkably low real interest rates. Clearly the markets do not perceive that our government is heading into risky territory with its debt. Interest payments on the debt are currently just 1.4 percent of GDP."
In fact, more deficit spending is necessary, says Baker, in "The Budget Deficit Crisis Puzzle." More aggressive government action is the only way to create the jobs we need and stabilize the economy, Baker writes, putting to rest the notion that huge current deficits will permanently cripple the economy:
"...larger deficits will put many of our children's parents back to work. Larger deficits will increase the likelihood that parents can keep their homes and provide their children with the health care, clothing, and other necessities for a decent upbringing...
In spite of the deficit hawks' whining, history and financial markets tell us that the deficit and debt levels that we are currently seeing are not a serious problem. The current projections show that, even ten years out on our current course, the ratio of debt to GDP will be just over 90 percent. The ratio of debt to GDP was over 110 percent after World War II. Instead of impoverishing the children of that era, the three decades following World War II saw the most rapid increase in living standards in the country's history."
Elsewhere, Baker argues that the millenial generation will not be harmed by paying higher taxes to support baby boomer retirees. They face other problems, he writes:
"The projections from the Congressional Budget Office, the Fed and all other standard sources show that before-tax compensation will rise on average at the rate of about 1.4 percent a year. This means that after 20 years their compensation will be more than 30 percent higher than what workers get today. This means that even if they pay substantially higher taxes than workers today, they will still have substantially higher living standards.
The retirement of the baby boomers is likely to help millennials. It will reduce the supply of labor -- creating opening higher up on career ladders -- thereby allowing millennials to get better jobs with higher pay.
The real threat to millennial living standards are:
1) inequality -- the continuation of the recent trend where more money goes to the top of the income distribution;
2) a broken health care system -- protectionists in control of policy want workers to give all their money to insurers, drug companies, medical supply companies and highly paid specialists;
3) ecological problems -- if the people in Bangladesh can make our children pay for the damage we have done to their land and lives through global warming, then our kids may be in trouble;
4) incompetent economic policy -- if geniuses like Alan Greenspan and Ben Bernanke continue to control economic policy, then they may be able to create poverty even in a world of enormous potential affluence."
I could go on, but that likely would be a cruelty to those of you who have actually read this far. But I will end by suggesting that a full discussion of how to restructure federal spending is impossible without putting military spending on the table. I've written about militarism and military spending quite a lot. The dollars involved are huge, highly wasteful in terms of job creation, and encourage destructive interventions and even more wasteful expenditures to support those interventions. In the next decade the U.S. will spend at least $1.5 to $2 trillion to pay interest on that portion of the national debt that is directly caused by past military spending. Only those people who actually believe that the North Vietnamese attacked U.S. warships in the Tonkin Gulf with gunboats, or that Saddam Hussein had weapons of mass destruction, or that billions of dollars in military subsidies to Israel have enhanced national security, can sincerely argue that we ought to keep spending more than $1 trillion on our military every year.
Wednesday, February 17, 2010
Social Security Spending Helps the Economy
Military spending drives the deficit
I could have sworn that my 28th letter to the Washington Post, which follows here, would be the second one that they would publish. Alas, I was wrong, again, but it is the content that matters, not the quarrel. The letter focuses, once more, on how unhelpful it is to talk about the national debt and federal budget deficit without even acknowledging military spending. Dean Baker, of the Center for Economic and Policy Research (CEPR), also addressed the same opinion piece to which I'd responded. I've interspersed Baker's response, which ran in his weekly Beat the Press blog, in the text of my letter.
Editor,
So Robert Samuelson is calling on the Obama administration to be more open about future debt and deficit difficulties (“America’s Candor Gap,” Feb. 8), but his version of fiscal reality lacks some important details, as well. The federal government is projected to spend almost $46 trillion between 2011 and 2020, Samuelson writes, and $20 trillion will go to Social Security, Medicare and Medicaid. Such a “…budget is mainly a vehicle for transferring income to retirees from workers, who pay most taxes,” he continues.
But as income transfers go, Samuelson’s example is relatively benign. Most of the transfer in this instance is from younger workers to older ones and most of the money transferred is spent immediately on goods and services—a reliable exchange that helps to keep the economy going. And, as economist Dean Baker and others have pointed out (see a list of CEPR's many reports about Social Security here), if the cap on Social Security and Medicare taxes is raised, higher income professionals will bear more of the tax burden, making the income transfer even more positive for the economy.
But there is a less benign income transfer that Samuelson does not even mention: military spending of more than $1 trillion annually (the sum of Defense Department spending + national security spending + military spending in other departmental budgets + supplemental war spending + interest on that portion of the national debt attributable to deficit spending on the military in previous years). In fact, 25 percent of the six to eight trillion dollars that will be spent on interest on the national debt during 2011-2020 will be attributable to previous military spending.
Discussing the country’s fiscal hemorrhage without discussing the military budget falls far short of full disclosure.
***************************************************
Readers of this blog may find Dean Baker's report, "The Social Security Shortfall and the National Defense Shortfall" of particular interest.
Baker's response to the same column by Samuelson is here. More about the rise in Pentagon spending compared to the increase in spending for Social Security is here. Finally, it is worth noting that, in the last cited piece, Baker does not use the $1 trillion+ figure for military spending that I use because he includes only budgeted spending for the Department of Defense and does not include the additional spending itemized in my letter to the Post.
I could have sworn that my 28th letter to the Washington Post, which follows here, would be the second one that they would publish. Alas, I was wrong, again, but it is the content that matters, not the quarrel. The letter focuses, once more, on how unhelpful it is to talk about the national debt and federal budget deficit without even acknowledging military spending. Dean Baker, of the Center for Economic and Policy Research (CEPR), also addressed the same opinion piece to which I'd responded. I've interspersed Baker's response, which ran in his weekly Beat the Press blog, in the text of my letter.
Editor,
So Robert Samuelson is calling on the Obama administration to be more open about future debt and deficit difficulties (“America’s Candor Gap,” Feb. 8), but his version of fiscal reality lacks some important details, as well. The federal government is projected to spend almost $46 trillion between 2011 and 2020, Samuelson writes, and $20 trillion will go to Social Security, Medicare and Medicaid. Such a “…budget is mainly a vehicle for transferring income to retirees from workers, who pay most taxes,” he continues.
But as income transfers go, Samuelson’s example is relatively benign. Most of the transfer in this instance is from younger workers to older ones and most of the money transferred is spent immediately on goods and services—a reliable exchange that helps to keep the economy going. And, as economist Dean Baker and others have pointed out (see a list of CEPR's many reports about Social Security here), if the cap on Social Security and Medicare taxes is raised, higher income professionals will bear more of the tax burden, making the income transfer even more positive for the economy.
But there is a less benign income transfer that Samuelson does not even mention: military spending of more than $1 trillion annually (the sum of Defense Department spending + national security spending + military spending in other departmental budgets + supplemental war spending + interest on that portion of the national debt attributable to deficit spending on the military in previous years). In fact, 25 percent of the six to eight trillion dollars that will be spent on interest on the national debt during 2011-2020 will be attributable to previous military spending.
Discussing the country’s fiscal hemorrhage without discussing the military budget falls far short of full disclosure.
***************************************************
Readers of this blog may find Dean Baker's report, "The Social Security Shortfall and the National Defense Shortfall" of particular interest.
Baker's response to the same column by Samuelson is here. More about the rise in Pentagon spending compared to the increase in spending for Social Security is here. Finally, it is worth noting that, in the last cited piece, Baker does not use the $1 trillion+ figure for military spending that I use because he includes only budgeted spending for the Department of Defense and does not include the additional spending itemized in my letter to the Post.
Tuesday, October 13, 2009
US Out of Afghanistan
Still no good war
So now we are treated to the spectacle of a decent human being, caught up in a set of ideological and culture blinders, agonizing over whether to escalate the war in Afghanistan. Personally, I've never been a completely convinced pacifist, but the evidence continues to accumulate, as I age, that no war is a good war.
There are probably a million mildly persuasive to absolutely convincing reasons why Barack Obama should decide to pull the US military out of Afghanistan ASAP--not that I think that is the decision Obama is going to make--but one of my favorites is that we can't afford this war. In fact, it ought to be pretty clear by now that we plainly can't afford war, period.
After all, maintaining readiness for war already costs the country more than $1 trillion each year; that's the rough cost of a peacetime military budget + all sorts of military-related expenditures buried in other departmental budgets, like the department of energy+the interest on that part of the national debt that has been incurred in preparing for and fighting wars+spending that never makes the budget, at all, including "black" book operations, like spying and aggressive subversions of interests deemed hostile to the US. That $1 trillion also does not include the last 8 years of spending on Iraq and Afghanistan, a total nearing another $1 trillion. It also does not include probably another $2 trillion in veterans' benefits, which will be expended in the future, much of that for health problems, including PTSD, afflicting vets because of their service in Iraq and Afghanistan. (To see a source for these figures go here.)
Such dollar totals are universal healthcare dollars, California bail-out dollars, urban mass transit dollars, and rebuild and revitalize public education dollars. Healthcare, healthy state budgets, mass transit, good public education, these are the things that secure a nation's future, that increase the security of a people, but we don't have them and can't pay for them because we are always at war or preparing for war, or both.
There are other, perhaps more serious considerations, like the murder of innocents and the killing of soldiers--Iraqi, Aghani and American--that should overwhelm any interest in continuing, or escalating, the war in Afghanistan. Marc Weisbrot (co-director, with Dean Baker,of the Center for Economic and Policy Research) has recently distributed a column arguing that the US war effort in Afghanistan has already failed (find Occupying Afghanistan Is Making Things Worse here). The column suggests that as many as one million Iraqis have died since the beginning of the Iraq War in 2003. The corresponding number for Afghani casualties is much lower, but the Afghani population is also smaller and Afghani casualties will rise as the war escalates.
Citing a variety of sources, Marc also observes that the turnout in the Afghan election five years ago was almost twice the turnout in this year's election. In any case, he says, al-Qaeda isn't even significantly present in Afghanistan anymore, the group's core has moved to Pakistan.
The one possible argument against ending the war in Afghanistan is what happens to the lives of Afghani women, if the Taliban, with their misogyny and fundamentalism, return to power. Still, there are other ways to helpfully address women's issues globally and the United States is not exploring many of those alternatives. And the devastation of the current war is falling equally on women, in any case.
Moral arguments never seem very effective, but we should make them anyway, as Weisbrot does in his piece:
I don't know if I believe that last part about the war ending. But I'm happy to go along, if it will help.
So now we are treated to the spectacle of a decent human being, caught up in a set of ideological and culture blinders, agonizing over whether to escalate the war in Afghanistan. Personally, I've never been a completely convinced pacifist, but the evidence continues to accumulate, as I age, that no war is a good war.
There are probably a million mildly persuasive to absolutely convincing reasons why Barack Obama should decide to pull the US military out of Afghanistan ASAP--not that I think that is the decision Obama is going to make--but one of my favorites is that we can't afford this war. In fact, it ought to be pretty clear by now that we plainly can't afford war, period.
After all, maintaining readiness for war already costs the country more than $1 trillion each year; that's the rough cost of a peacetime military budget + all sorts of military-related expenditures buried in other departmental budgets, like the department of energy+the interest on that part of the national debt that has been incurred in preparing for and fighting wars+spending that never makes the budget, at all, including "black" book operations, like spying and aggressive subversions of interests deemed hostile to the US. That $1 trillion also does not include the last 8 years of spending on Iraq and Afghanistan, a total nearing another $1 trillion. It also does not include probably another $2 trillion in veterans' benefits, which will be expended in the future, much of that for health problems, including PTSD, afflicting vets because of their service in Iraq and Afghanistan. (To see a source for these figures go here.)
Such dollar totals are universal healthcare dollars, California bail-out dollars, urban mass transit dollars, and rebuild and revitalize public education dollars. Healthcare, healthy state budgets, mass transit, good public education, these are the things that secure a nation's future, that increase the security of a people, but we don't have them and can't pay for them because we are always at war or preparing for war, or both.
There are other, perhaps more serious considerations, like the murder of innocents and the killing of soldiers--Iraqi, Aghani and American--that should overwhelm any interest in continuing, or escalating, the war in Afghanistan. Marc Weisbrot (co-director, with Dean Baker,of the Center for Economic and Policy Research) has recently distributed a column arguing that the US war effort in Afghanistan has already failed (find Occupying Afghanistan Is Making Things Worse here). The column suggests that as many as one million Iraqis have died since the beginning of the Iraq War in 2003. The corresponding number for Afghani casualties is much lower, but the Afghani population is also smaller and Afghani casualties will rise as the war escalates.
Citing a variety of sources, Marc also observes that the turnout in the Afghan election five years ago was almost twice the turnout in this year's election. In any case, he says, al-Qaeda isn't even significantly present in Afghanistan anymore, the group's core has moved to Pakistan.
The one possible argument against ending the war in Afghanistan is what happens to the lives of Afghani women, if the Taliban, with their misogyny and fundamentalism, return to power. Still, there are other ways to helpfully address women's issues globally and the United States is not exploring many of those alternatives. And the devastation of the current war is falling equally on women, in any case.
Moral arguments never seem very effective, but we should make them anyway, as Weisbrot does in his piece:
"There is also a moral dimension here that is overlooked by the pundits. It is wrong to kill people, including civilians, and bring mayhem and destruction to other countries simply to "save face" or fend off political attacks from right-wing politicians. Thank God there are millions of Americans who understand this much better than their elected, appointed, and self-appointed leaders. If they keep up the heat, this war will end."
I don't know if I believe that last part about the war ending. But I'm happy to go along, if it will help.
Saturday, June 27, 2009
Iran Coverage You Should Trust
CEPR's Weisbrot Commits Journalism
In talking about the national economy, I've referred quite a lot to the work of Dean Baker, an economist, who is also co-director of the Center for Economic and Policy Research (CEPR), but Dean's colleague at CEPR, Marc Weisbrot, is an equally able economist who tends to focus most of his attention on Latin America and the global economy. Marc's most recent piece, Was Iran's Election Stolen?, focuses on Iran in a blessedly hard-headed and clear-eyed way. In fact, Marc's piece is, I think, a model of journalistic investigation in a period when real journalism seems a dying craft.
Marc notes that it may "not matter whether the elections were stolen because the government has responded to peaceful protests with violence and arrests. These actions are indeed abhorrent and inexcusable, and the world's outrage is justified," but, he continues, "the issue of whether the election was stolen will remain relevant, both to our understanding of the situation and to U.S.-Iranian relations."
He then goes on to explore the question of fraudulent vote counting and other irregularities in impressive detail and comes to the reasonable conclusion that Ahmadinejad likely did win by something reasonably close to the reported margin. In arriving at that point, Marc enlisted the help of a faculty member at the University of Iran and interviewed an Iranian poll worker by phone. He obtained additional information from "Rostam Pourzal, an Iranian-American human rights campaigner," who confirmed that the description of vote-counting procedures outlined by his other sources seemed factually accurate.
All told Weisbrot's piece is a model of fact-finding, attention to detail and timely commentary. Perhaps more to the point, as Marc notes, it does no good, at all, for Washington and Western Europe to pretend the election was stolen, if such accusations serve only to deepen the divide between Iran and the West. That, he says,
Iranian Demonstrations Inspire Others
Pretty much everyone has something to say about what's going on in Iran. So do I. And it seems likely to me that Iran is headed, over an unknown period of time, to more freedom and less theocracy. I don't know enough about the details of political life there to say anything more specific than that, but that movement isn't going to occur without some bloodshed and considerable pain for ordinary Iraqis.
There have been a number of dramatic and powerful demonstrations against autocracy in recent years, like Tiananmen in 1989, the Orange Revolution in Ukraine in 2004 and Aung San Suu Kyi's National League for Democracy in Burma. All of them were and are full of promise. But the reality is that historically the struggle for expanded freedom is dangerous, complicated and painfully slow. Moments of real inspiration are not that frequent, either, but their importance is underscored by the fact that authoritarian regimes everywhere are severely restricting the availability of information about events in Iran. (Read an article about that here.)
In talking about the national economy, I've referred quite a lot to the work of Dean Baker, an economist, who is also co-director of the Center for Economic and Policy Research (CEPR), but Dean's colleague at CEPR, Marc Weisbrot, is an equally able economist who tends to focus most of his attention on Latin America and the global economy. Marc's most recent piece, Was Iran's Election Stolen?, focuses on Iran in a blessedly hard-headed and clear-eyed way. In fact, Marc's piece is, I think, a model of journalistic investigation in a period when real journalism seems a dying craft.
Marc notes that it may "not matter whether the elections were stolen because the government has responded to peaceful protests with violence and arrests. These actions are indeed abhorrent and inexcusable, and the world's outrage is justified," but, he continues, "the issue of whether the election was stolen will remain relevant, both to our understanding of the situation and to U.S.-Iranian relations."
He then goes on to explore the question of fraudulent vote counting and other irregularities in impressive detail and comes to the reasonable conclusion that Ahmadinejad likely did win by something reasonably close to the reported margin. In arriving at that point, Marc enlisted the help of a faculty member at the University of Iran and interviewed an Iranian poll worker by phone. He obtained additional information from "Rostam Pourzal, an Iranian-American human rights campaigner," who confirmed that the description of vote-counting procedures outlined by his other sources seemed factually accurate.
All told Weisbrot's piece is a model of fact-finding, attention to detail and timely commentary. Perhaps more to the point, as Marc notes, it does no good, at all, for Washington and Western Europe to pretend the election was stolen, if such accusations serve only to deepen the divide between Iran and the West. That, he says,
"will boost hardliners here - including some in the Obama administration - who want to de-legitimize the government of Iran in order to avoid serious negotiations over its nuclear program. That is something that we should avoid, because a failure to seriously pursue negotiations now may lead to war in the future."
Iranian Demonstrations Inspire Others
Pretty much everyone has something to say about what's going on in Iran. So do I. And it seems likely to me that Iran is headed, over an unknown period of time, to more freedom and less theocracy. I don't know enough about the details of political life there to say anything more specific than that, but that movement isn't going to occur without some bloodshed and considerable pain for ordinary Iraqis.
There have been a number of dramatic and powerful demonstrations against autocracy in recent years, like Tiananmen in 1989, the Orange Revolution in Ukraine in 2004 and Aung San Suu Kyi's National League for Democracy in Burma. All of them were and are full of promise. But the reality is that historically the struggle for expanded freedom is dangerous, complicated and painfully slow. Moments of real inspiration are not that frequent, either, but their importance is underscored by the fact that authoritarian regimes everywhere are severely restricting the availability of information about events in Iran. (Read an article about that here.)
Thursday, December 4, 2008
Dean Baker and the Economic Right Stuff
If there is a more delightfully rational and straightforward economist around than Dean Baker of the Center for Economic and Policy Research, somebody needs to tell me. I don’t write much--I wish I could make myself do it more. But reading Baker’s stuff makes me want to package his ideas and analysis and get it out to a wider audience. My reliance on Dean for economic and political truth is so complete, I would be roadkill without him.
“Paulson and Bernanke spread the wealth around” is a recent and useful example of Dean’s thinking. He observes that when Barack told Joe the Plumber that he favored tax increases on incomes over $250,000 in order to spread wealth, the loudest responses were critical and adverse.
But, Dean writes, “fortunes will be made or lost depending on how this bailout money is used. For example, Secretary Paulson just agreed to lend another $20 billion of the Treasury's bailout money to Citigroup.
“In addition, the Federal Reserve Board agreed to guarantee up to $300 billion of presumably bad assets. This is an enormously valuable guarantee. If Citigroup had to arrange a comparable guarantee in the private market, it would almost certainly pay more than $30 billion a year.
“This decision sent Citigroup's stock soaring. In the week since the bailout was announced, Citigroup's stock more than doubled, adding more than $25 billion to the company's capitalization. (The government could have bought the bank outright with the money it lent to Citi.) This is great news for Citigroup's shareholders, who would be holding almost worthless stock if Mr. Paulson had not been so generous.
“Paulson's decision was also good news for Robert Rubin and other top executives at Citigroup. If the government had not stepped in, Citigroup would almost certainly be in bankruptcy and most of its highly paid executives would likely be out on the street.
“Creditors of Citigroup also benefited. If Citigroup went into bankruptcy, their loans would be frozen for a period of time while the court determined what percentage of Citi's debts could be paid. At the end of this process, many creditors would only receive back a fraction of what they are owed.
“The fact that money is being redistributed doesn't make it wrong to bail out Citigroup or any of the other companies now being aided by the various Fed and Treasury funds. We need to keep the financial system functioning. However, there is every reason in the world to be concerned about the extent to which these policies may be enriching the wealthy and well-connected at the expense of the rest of us.
“In the case of the Citi rescue, there was no obvious reason why the shareholders should not be wiped out. They understood (or should have) that when they bought shares of the company that they could lose their whole investment if the company was poorly managed and went bankrupt. Similarly, there is no obvious reason that the management that wrecked Citi should not be thrown out and replaced with a more competent and lower paid team.”
There is more of Dean, lots more at www.cepr.net. Be sure also to check out “Paper wealth and the economic crisis.”
Dean may not have a prime place in the rolodexes of power, but journalists and commentators need to rely on him more often. Ordinary folks already can and do.
“Paulson and Bernanke spread the wealth around” is a recent and useful example of Dean’s thinking. He observes that when Barack told Joe the Plumber that he favored tax increases on incomes over $250,000 in order to spread wealth, the loudest responses were critical and adverse.
But, Dean writes, “fortunes will be made or lost depending on how this bailout money is used. For example, Secretary Paulson just agreed to lend another $20 billion of the Treasury's bailout money to Citigroup.
“In addition, the Federal Reserve Board agreed to guarantee up to $300 billion of presumably bad assets. This is an enormously valuable guarantee. If Citigroup had to arrange a comparable guarantee in the private market, it would almost certainly pay more than $30 billion a year.
“This decision sent Citigroup's stock soaring. In the week since the bailout was announced, Citigroup's stock more than doubled, adding more than $25 billion to the company's capitalization. (The government could have bought the bank outright with the money it lent to Citi.) This is great news for Citigroup's shareholders, who would be holding almost worthless stock if Mr. Paulson had not been so generous.
“Paulson's decision was also good news for Robert Rubin and other top executives at Citigroup. If the government had not stepped in, Citigroup would almost certainly be in bankruptcy and most of its highly paid executives would likely be out on the street.
“Creditors of Citigroup also benefited. If Citigroup went into bankruptcy, their loans would be frozen for a period of time while the court determined what percentage of Citi's debts could be paid. At the end of this process, many creditors would only receive back a fraction of what they are owed.
“The fact that money is being redistributed doesn't make it wrong to bail out Citigroup or any of the other companies now being aided by the various Fed and Treasury funds. We need to keep the financial system functioning. However, there is every reason in the world to be concerned about the extent to which these policies may be enriching the wealthy and well-connected at the expense of the rest of us.
“In the case of the Citi rescue, there was no obvious reason why the shareholders should not be wiped out. They understood (or should have) that when they bought shares of the company that they could lose their whole investment if the company was poorly managed and went bankrupt. Similarly, there is no obvious reason that the management that wrecked Citi should not be thrown out and replaced with a more competent and lower paid team.”
There is more of Dean, lots more at www.cepr.net. Be sure also to check out “Paper wealth and the economic crisis.”
Dean may not have a prime place in the rolodexes of power, but journalists and commentators need to rely on him more often. Ordinary folks already can and do.
Tuesday, April 22, 2008
Letter to the Washington Post, #11
Sebastian Mallaby’s April 21st column, “Housing Sense in Congress?” seems to be implying that it is homeowners who are to blame for the subprime meltdown. “Homeowners,” he writes, “have no moral claim to government assistance.”
Instead, Mallaby says that Congress ought to find ways to provide partial protection to the lenders who issued millions of sub-prime mortgages, then bundled and sold them to investors. In order to stabilize housing prices, the Federal Housing Administration ought to protect lenders from further losses, “if they agree to forgive part of a loan rather than kicking a family onto the street,” he writes.
In such a case, Mallaby notes, “homeowners would get a break, which is unfortunate.”
Such a break. The homeowners in question, who may have applied for and received one loan in their lives, will lose all their equity anyway. In most cases, these homeowners had little insight into what might go wrong and no idea that they were the recipients of unusual “subprime” loans.
But the lenders knew. And the lenders knew that such profitable loans were also risky. Now, Mallaby apparently believes that the lenders who profited greatly during the rise in housing prices are the ones with a “moral claim” on government action.
If Congress wishes to slow the freefall in market prices, a better option would be Own-to-Rent (OTR), a proposal first advanced by Dean Baker of the Center for Economic and Policy Research (CEPR).
OTR would require lenders to offer homeowners the opportunity to rent their home at fair market prices before beginning foreclosure proceedings. This would allow people to stay in their homes, stabilizing neighborhoods and forcing lenders and investors, who profited from the increase in housing prices, to bear the market consequences of the collapse in prices.
Jeff Epton
807 Taylor St., NE
Washington, DC 20017
202 506-7470
Instead, Mallaby says that Congress ought to find ways to provide partial protection to the lenders who issued millions of sub-prime mortgages, then bundled and sold them to investors. In order to stabilize housing prices, the Federal Housing Administration ought to protect lenders from further losses, “if they agree to forgive part of a loan rather than kicking a family onto the street,” he writes.
In such a case, Mallaby notes, “homeowners would get a break, which is unfortunate.”
Such a break. The homeowners in question, who may have applied for and received one loan in their lives, will lose all their equity anyway. In most cases, these homeowners had little insight into what might go wrong and no idea that they were the recipients of unusual “subprime” loans.
But the lenders knew. And the lenders knew that such profitable loans were also risky. Now, Mallaby apparently believes that the lenders who profited greatly during the rise in housing prices are the ones with a “moral claim” on government action.
If Congress wishes to slow the freefall in market prices, a better option would be Own-to-Rent (OTR), a proposal first advanced by Dean Baker of the Center for Economic and Policy Research (CEPR).
OTR would require lenders to offer homeowners the opportunity to rent their home at fair market prices before beginning foreclosure proceedings. This would allow people to stay in their homes, stabilizing neighborhoods and forcing lenders and investors, who profited from the increase in housing prices, to bear the market consequences of the collapse in prices.
Jeff Epton
807 Taylor St., NE
Washington, DC 20017
202 506-7470
Saturday, March 29, 2008
Letter to the Washington Post, #8
I can guarantee with near-absolute certainty that the Post will not publish this letter. So, at the same time I send it in to the paper, I'm going to put it up here.
The Post’s carefully worded editorial, “Home Truths (March 28),” managed to balance every nuanced point with its opposite. The result is fairly routine for the Post—an editorial worth less than the paper it’s printed on.
Here’s the question for the editorial board: Do you support targeted assistance for homeowners with mortgage problems, or not? If not, please say so more clearly.
If you do, consider supporting a strategy that includes the ingenious, and ingeniously named, “Own-to-Rent” proposal advanced by the Center for Economic and Policy Research (CEPR).
Own-to-Rent would require mortgage-holders to offer to rent a property to its occupants at fair market rates before foreclosing. What would this accomplish?
First, it would force banks and other mortgage-holders who don’t want to become landlords to consider renegotiating loans to monthly payment levels that would be closer to market rents and more affordable to homeowners facing foreclosure.
Second, legislation could be written that would force mortgage-holders to absorb most or all of the loss connected to the deflated value of the home. Banks would not be forced by law to renegotiate, but they would be permitted to do so under the terms outlined in the law.
In successful renegotiations between mortgagees and lenders, occupants would have a chance to remain in their homes, lenders that profited greatly during bubble times would take the lead in stabilizing market values, and there would be no government-sponsored bailout.
Check out Own-to-Rent at the website for CEPR: www.cepr.net.
Jeff Epton
807 Taylor St., NE
Washington, DC 20017
202 506-7470
The Post’s carefully worded editorial, “Home Truths (March 28),” managed to balance every nuanced point with its opposite. The result is fairly routine for the Post—an editorial worth less than the paper it’s printed on.
Here’s the question for the editorial board: Do you support targeted assistance for homeowners with mortgage problems, or not? If not, please say so more clearly.
If you do, consider supporting a strategy that includes the ingenious, and ingeniously named, “Own-to-Rent” proposal advanced by the Center for Economic and Policy Research (CEPR).
Own-to-Rent would require mortgage-holders to offer to rent a property to its occupants at fair market rates before foreclosing. What would this accomplish?
First, it would force banks and other mortgage-holders who don’t want to become landlords to consider renegotiating loans to monthly payment levels that would be closer to market rents and more affordable to homeowners facing foreclosure.
Second, legislation could be written that would force mortgage-holders to absorb most or all of the loss connected to the deflated value of the home. Banks would not be forced by law to renegotiate, but they would be permitted to do so under the terms outlined in the law.
In successful renegotiations between mortgagees and lenders, occupants would have a chance to remain in their homes, lenders that profited greatly during bubble times would take the lead in stabilizing market values, and there would be no government-sponsored bailout.
Check out Own-to-Rent at the website for CEPR: www.cepr.net.
Jeff Epton
807 Taylor St., NE
Washington, DC 20017
202 506-7470
Wednesday, March 12, 2008
No Bailouts
The National Lawyers’ Guild used to have a T-shirt that quoted Shakespeare: “The first thing we do is kill all the lawyers.” It was a pointed tongue-in-cheek comment about the way some lawyers use the law to block social justice and change. Unfortunately, what was first a social observation, and later a leftist insight into the way entrenched interests use the law, has become a club with which to bash all lawyers.
Regardless, the recent moves by the Fed to protect banks against their own bad investment decisions put me in mind of the Shakespeare quote. As the current recession gathers momentum, what we need is a priority list for government action. Maybe lead the list off with, “the first thing we do is, we don’t bailout business.”
One of the Fed’s moves involves loaning investment banks up to $200 billion and allows banks to secure the loans by pledging securities they hold. Supposedly, the banks’ pledged collateral will be their most highly rated, mortgage-backed securities. AAA-rated, we are told.
On the news of the Fed’s move, the Dow-Jones average of industrial stocks achieved its largest single-day increase in five years. Despite appearances, the Washington Post’s Steven Pearlstein says this isn’t just a “bailout for Wall Street (A Bailout. For Everyone, Post, March 12).” Pearlstein says the move will help us all.
"…it is also a bailout…meant to prevent a financial and economic meltdown that drags everyone down with it,” Pearlstein writes, though he leaves out the specific ways in which working families will benefit.
For a different perspective on bailouts check Dean Baker’s book, “The Conservative Nanny State.” Baker, who is co-director of the Center for Economic and Policy Research (CEPR), argues that the government, contrary to popular belief, repeatedly uses its power to help banks and other businesses avoid the consequences of risk.
“…in a market economy lenders take risks when they make a loan [or buy mortgage-backed securities]. They should, in principle, understand this fact. Certainly, the highly compensated corporate executives that manage large banks and other financial institutions should understand that they take risks when they make their loans [or investments],” Baker writes.
That it is necessary for Baker to make the point at all, in a chapter about bankruptcy, suggests that corporations operating in our “free market” economy understand perfectly well that a government bailout is always a good possibility. The message cloaking the substantial benefits of these corporate bailout policies has been consistent since the phrase “what’s good for General Motors is good for America,” entered the vernacular. Pearlstein’s comments are merely the latest refinement.
But it seems more than possible that AAA-rated securities might not be that good, at all. That’s been the experience recently as even security-rating services have come under fire for their practices. That means the Fed’s decision has put the government in the position of guaranteeing $200 billion in investments that might be liquidated for less sometime in the future.
If jobs are at stake here, then for $200 billion the government could extend unemployment benefits, expand food stamp programs and begin investing in different jobs, like new and rebuilt mass transit, bridge repair and renewable energy. But the first thing we do is, we don’t bailout business.
Regardless, the recent moves by the Fed to protect banks against their own bad investment decisions put me in mind of the Shakespeare quote. As the current recession gathers momentum, what we need is a priority list for government action. Maybe lead the list off with, “the first thing we do is, we don’t bailout business.”
One of the Fed’s moves involves loaning investment banks up to $200 billion and allows banks to secure the loans by pledging securities they hold. Supposedly, the banks’ pledged collateral will be their most highly rated, mortgage-backed securities. AAA-rated, we are told.
On the news of the Fed’s move, the Dow-Jones average of industrial stocks achieved its largest single-day increase in five years. Despite appearances, the Washington Post’s Steven Pearlstein says this isn’t just a “bailout for Wall Street (A Bailout. For Everyone, Post, March 12).” Pearlstein says the move will help us all.
"…it is also a bailout…meant to prevent a financial and economic meltdown that drags everyone down with it,” Pearlstein writes, though he leaves out the specific ways in which working families will benefit.
For a different perspective on bailouts check Dean Baker’s book, “The Conservative Nanny State.” Baker, who is co-director of the Center for Economic and Policy Research (CEPR), argues that the government, contrary to popular belief, repeatedly uses its power to help banks and other businesses avoid the consequences of risk.
“…in a market economy lenders take risks when they make a loan [or buy mortgage-backed securities]. They should, in principle, understand this fact. Certainly, the highly compensated corporate executives that manage large banks and other financial institutions should understand that they take risks when they make their loans [or investments],” Baker writes.
That it is necessary for Baker to make the point at all, in a chapter about bankruptcy, suggests that corporations operating in our “free market” economy understand perfectly well that a government bailout is always a good possibility. The message cloaking the substantial benefits of these corporate bailout policies has been consistent since the phrase “what’s good for General Motors is good for America,” entered the vernacular. Pearlstein’s comments are merely the latest refinement.
But it seems more than possible that AAA-rated securities might not be that good, at all. That’s been the experience recently as even security-rating services have come under fire for their practices. That means the Fed’s decision has put the government in the position of guaranteeing $200 billion in investments that might be liquidated for less sometime in the future.
If jobs are at stake here, then for $200 billion the government could extend unemployment benefits, expand food stamp programs and begin investing in different jobs, like new and rebuilt mass transit, bridge repair and renewable energy. But the first thing we do is, we don’t bailout business.
Friday, March 7, 2008
An Economy and Federal Budget That Works-Part Three, Military Spending Works Worst
The recession we are in now is going to get worse. The housing bubble may be popped, but it is not yet fully deflated. Some economists estimate that by the time the housing market has bottomed out, the loss of asset value to individuals and companies will be upwards of $8 trillion—that’s $8 thousand billion, or $8 million million or about $50,000 each for every adult in the country, legal or otherwise. And, to date, we may have only absorbed about half of that eventual loss.
Consumers are already poorer and feeling it; that reality and those feelings, which helped trigger this recession, will continue to fuel it. Built out of a solid foundation of consumer pessimism, rising inequality and poverty, job and benefit losses, mortgage foreclosures, stalled construction, rising commodity prices and other creepy certainties and uncertainties, the recession of 2008 and beyond is going to feel more like the Great Depression of the 1930s than any downturn between then and now.
And because this experience will revive the combination of inflation and economic stagnation, the “stagflation” that dogged the country in the late ‘70s, we will hear a whole lot about how the Fed’s hands are tied—lowering interest rates will fuel inflation, raising rates will increase the severity of the recession, ergo, a powerless Fed.
We will also hear that the Bush-inflated deficit will prevent the federal government from using budget measures (spending on public works, unemployment benefits, etc.) to stimulate the economy. So, no interest rate cuts, no effective federal domestic spending, and no investment-fueled recovery (corporations will invest their money—and ours—overseas where investing will seem more profitable).
But ending the wars in Iraq and Afghanistan and slashing the regular military budget will reduce inflationary pressure and provide billions to invest domestically. Imagine, a whole generation of weapons and war budgets pounded into new public schools, expanded public transportation, health care, rebuilt bridges and more.
A story, almost a parable
Liberal economists say that Henry Ford’s decision to pay autoworkers a higher wage—a wage high enough to allow them to purchase Ford products—created a new market for manufacturing. Paying decent wages a century ago, the story goes, dramatically increased the buying power of working people, and helped create a market for the products that Ford workers made.
Of course, the story is oversimplified, but it helps to illustrate a point. In this case how workers who get poverty wages can’t afford to be consumers of the products they make or of the services they provide. So, if a simple story of an employer and wage workers can help us understand how fair wages can fit into “free” market transactions, can another simple story help us see a way to fight inflation?
I have in mind a story about the military-industrial complex producing items—a cruise missile, say, or a rocket launcher—that no worker in their right mind would be willing to buy. Or, regardless of their state of mind, would be legally permitted to buy or could afford to buy. In that story, decently paid workers with jobs at military contractors produce missiles and tanks that are not available on the open market.
In that story, weapons manufacturers produce nothing for the domestic common market. But their employees, those workers, earning relatively high wages, go out and compete in that market with the rest of us to purchase the goods and services we all require. With more buyers and fixed or even slowly expanding supplies of goods, the cost of food, housing, clothing, autos and other consumer goods is driven up. (Yes, in the idealized market place—which, we are told, is the one we live in—the producers of marketable goods produce more and the price holds. Yeah, maybe, but that would be a much longer story.) Into the bargain, the employees of military contractors create powerful voting blocks in regions of the country that have economies dependent on federal military spending.
The point of this story is that there are budgetary ways to control inflation. Want an expanded constituency supporting peacetime budgeting (and peace) and reduced inflationary pressure? Find a productive way to convert military spending into expanding and maintaining domestic infrastructure and green jobs and get such a constituency and many other swell benefits.
Spending for War and Weapons
Iraq and Afghanistan
Further economic benefits develop from ending the wars in Iraq and Afghanistan. The costs of these wars is not included in the regular budget, but are separate appropriations costing $100 billion per year or more. In 2007, the Center for Economic and Policy Research (CEPR) commissioned Global Insight to do an analysis of the long-term effects of increased military spending on the wars in Iraq and Afghanistan. That study, “The Economic Impact of the Iraq War and Higher Military Spending (referred to in Part I of this series),” showed that an early stimulus provided by war spending would begin to turn negative after five years and worsen in succeeding years.
In other words, the result of spending approximately $135 billion for war in 2003 provided a small stimulus at the time, but will have begun to result in job losses in specific sectors of the economy (almost 45,000 lost in manufacturing) by this year. Continuing war spending worsens the effect—the study projects that by 2013 more than 450,000 jobs will be lost across most sectors of the economy.
[Find out more at the CEPR website: www.cepr.net]
The U.S. Military Budget
The United States currently spends more on the military ($623 billion projected for 2008, excluding the military’s share of interest on the national debt) than the combined spending of the rest of the world ($577 billion projected; source, both figures, Stockholm International Peace Research Institute).
New defense priorities that depended more on diplomacy and internationalism and less on the policy preferences of weapons manufacturers would result in immediate and sustained cuts in military spending. And would free substantially more than one trillion dollars over the next decade for housing, public transportation and other infrastructure spending.
Outside of paying people to be soldiers and paying veterans’ benefits, every aspect of the military budget should be examined with at least the same unsympathetic rigor with which the Clinton administration approached welfare reform. As things now stand, the U.S. military budget is a significant source of inflationary pressure. (I leave the actual calculation of how much pressure to a real live economist.)
This tax-workers-buy-weapons (TWBW) policy is probably among the most effective mechanisms ever developed for the transfer of wealth from taxpayers and working families to the executives and shareholders of multi-national corporations. TWBW supports the purchase of weapons systems that we don’t need and that sometimes don’t even work. The fact that we are frequently purchasing weapons that don’t work ought to be a continuing scandal, but it isn’t, which suggests that TWBW is also a foundation for cover-ups, bribes, revolving door transitions from military to civilian careers and lobbyist opportunities, in short, corruption. And, to reemphasize the earlier point, TWBW is inflationary.
So cut the military budget immediately. Disengage militarily as soon as possible from Iraq and Afghanistan, focusing instead on civilian relief and reconstruction in those countries in the hope, probably futile, that a constructive aid program will help to make the transition from war as peaceful as possible. End weapons programs and weapons development that are basically offensive in nature. Eliminate military spending on programs and projects that fulfill the corporate goals of contractors and their investors, but do nothing to enhance the well-being of the country or of working families.
Invest the bulk of the savings from military cuts in domestic social programs. Restore the public school system. Invest in teachers and teacher education. Make college education affordable. Rebuild and expand mass transit and intercity and cross-country railroads. Establish a universal health care system that delivers health and operates efficiently. Invest in conservation, green jobs and managing climate change.
In the process, get these additional benefits: More peace and more peaceful opportunities worldwide; reduced inflationary pressure, a more productive workforce, stronger families, shorter commutes, less traffic congestion, cleaner air, and on and on.
Consumers are already poorer and feeling it; that reality and those feelings, which helped trigger this recession, will continue to fuel it. Built out of a solid foundation of consumer pessimism, rising inequality and poverty, job and benefit losses, mortgage foreclosures, stalled construction, rising commodity prices and other creepy certainties and uncertainties, the recession of 2008 and beyond is going to feel more like the Great Depression of the 1930s than any downturn between then and now.
And because this experience will revive the combination of inflation and economic stagnation, the “stagflation” that dogged the country in the late ‘70s, we will hear a whole lot about how the Fed’s hands are tied—lowering interest rates will fuel inflation, raising rates will increase the severity of the recession, ergo, a powerless Fed.
We will also hear that the Bush-inflated deficit will prevent the federal government from using budget measures (spending on public works, unemployment benefits, etc.) to stimulate the economy. So, no interest rate cuts, no effective federal domestic spending, and no investment-fueled recovery (corporations will invest their money—and ours—overseas where investing will seem more profitable).
But ending the wars in Iraq and Afghanistan and slashing the regular military budget will reduce inflationary pressure and provide billions to invest domestically. Imagine, a whole generation of weapons and war budgets pounded into new public schools, expanded public transportation, health care, rebuilt bridges and more.
A story, almost a parable
Liberal economists say that Henry Ford’s decision to pay autoworkers a higher wage—a wage high enough to allow them to purchase Ford products—created a new market for manufacturing. Paying decent wages a century ago, the story goes, dramatically increased the buying power of working people, and helped create a market for the products that Ford workers made.
Of course, the story is oversimplified, but it helps to illustrate a point. In this case how workers who get poverty wages can’t afford to be consumers of the products they make or of the services they provide. So, if a simple story of an employer and wage workers can help us understand how fair wages can fit into “free” market transactions, can another simple story help us see a way to fight inflation?
I have in mind a story about the military-industrial complex producing items—a cruise missile, say, or a rocket launcher—that no worker in their right mind would be willing to buy. Or, regardless of their state of mind, would be legally permitted to buy or could afford to buy. In that story, decently paid workers with jobs at military contractors produce missiles and tanks that are not available on the open market.
In that story, weapons manufacturers produce nothing for the domestic common market. But their employees, those workers, earning relatively high wages, go out and compete in that market with the rest of us to purchase the goods and services we all require. With more buyers and fixed or even slowly expanding supplies of goods, the cost of food, housing, clothing, autos and other consumer goods is driven up. (Yes, in the idealized market place—which, we are told, is the one we live in—the producers of marketable goods produce more and the price holds. Yeah, maybe, but that would be a much longer story.) Into the bargain, the employees of military contractors create powerful voting blocks in regions of the country that have economies dependent on federal military spending.
The point of this story is that there are budgetary ways to control inflation. Want an expanded constituency supporting peacetime budgeting (and peace) and reduced inflationary pressure? Find a productive way to convert military spending into expanding and maintaining domestic infrastructure and green jobs and get such a constituency and many other swell benefits.
Spending for War and Weapons
Iraq and Afghanistan
Further economic benefits develop from ending the wars in Iraq and Afghanistan. The costs of these wars is not included in the regular budget, but are separate appropriations costing $100 billion per year or more. In 2007, the Center for Economic and Policy Research (CEPR) commissioned Global Insight to do an analysis of the long-term effects of increased military spending on the wars in Iraq and Afghanistan. That study, “The Economic Impact of the Iraq War and Higher Military Spending (referred to in Part I of this series),” showed that an early stimulus provided by war spending would begin to turn negative after five years and worsen in succeeding years.
In other words, the result of spending approximately $135 billion for war in 2003 provided a small stimulus at the time, but will have begun to result in job losses in specific sectors of the economy (almost 45,000 lost in manufacturing) by this year. Continuing war spending worsens the effect—the study projects that by 2013 more than 450,000 jobs will be lost across most sectors of the economy.
[Find out more at the CEPR website: www.cepr.net]
The U.S. Military Budget
The United States currently spends more on the military ($623 billion projected for 2008, excluding the military’s share of interest on the national debt) than the combined spending of the rest of the world ($577 billion projected; source, both figures, Stockholm International Peace Research Institute).
New defense priorities that depended more on diplomacy and internationalism and less on the policy preferences of weapons manufacturers would result in immediate and sustained cuts in military spending. And would free substantially more than one trillion dollars over the next decade for housing, public transportation and other infrastructure spending.
Outside of paying people to be soldiers and paying veterans’ benefits, every aspect of the military budget should be examined with at least the same unsympathetic rigor with which the Clinton administration approached welfare reform. As things now stand, the U.S. military budget is a significant source of inflationary pressure. (I leave the actual calculation of how much pressure to a real live economist.)
This tax-workers-buy-weapons (TWBW) policy is probably among the most effective mechanisms ever developed for the transfer of wealth from taxpayers and working families to the executives and shareholders of multi-national corporations. TWBW supports the purchase of weapons systems that we don’t need and that sometimes don’t even work. The fact that we are frequently purchasing weapons that don’t work ought to be a continuing scandal, but it isn’t, which suggests that TWBW is also a foundation for cover-ups, bribes, revolving door transitions from military to civilian careers and lobbyist opportunities, in short, corruption. And, to reemphasize the earlier point, TWBW is inflationary.
So cut the military budget immediately. Disengage militarily as soon as possible from Iraq and Afghanistan, focusing instead on civilian relief and reconstruction in those countries in the hope, probably futile, that a constructive aid program will help to make the transition from war as peaceful as possible. End weapons programs and weapons development that are basically offensive in nature. Eliminate military spending on programs and projects that fulfill the corporate goals of contractors and their investors, but do nothing to enhance the well-being of the country or of working families.
Invest the bulk of the savings from military cuts in domestic social programs. Restore the public school system. Invest in teachers and teacher education. Make college education affordable. Rebuild and expand mass transit and intercity and cross-country railroads. Establish a universal health care system that delivers health and operates efficiently. Invest in conservation, green jobs and managing climate change.
In the process, get these additional benefits: More peace and more peaceful opportunities worldwide; reduced inflationary pressure, a more productive workforce, stronger families, shorter commutes, less traffic congestion, cleaner air, and on and on.
Thursday, February 21, 2008
An Economy and Budget That Works - Part Two, Social Security
Robert Samuelson is the Washington Post's go-to guy on economic issues, which means that he has a major role in defining orthodoxy on budget and policy issues. Yes, there are elected and appointed officials--President Bush, congressional leaders, Federal Reserve chairman Ben Bernake and others--who occupy command positions in defining the limits of debate about the economy, but as media figures go, Samuelson swings a lot of weight.
Samuelson has occupancy rights on prime turf--a weekly op-ed column in the Post and another column in Newsweek magazine. The options for challenging Samuelson's pronouncements are limited. A letter to the editor might do, but such a letter, if it gets published, gets less space than Samuelson does and comes after the fact. Why does this matter?
Well, one case in point might be a column Samuelson wrote earlier this week about Barack Obama, who Samuelson says, is not telling Americans the truth. "A truth-telling Obama might say: 'Spending for retirees--mainly Social Security, Medicare and Medicaid--is already nearly half the federal budget. Unless we curb these rising costs, we will crush our children with higher taxes," Samuelson wrote.
Social Security is a hobby horse of Samuelson's; its vulnerability, combined with the rising federal deficit allegedly comprise a poison pill that future generations will be forced to swallow by the inaction (read selfishness) of baby boomers. Obama's disinformation, Samuelson claims, includes a pledge not to "raise the retirement age" or reduce benefits to retirees. Obama's further proposal to provide tax relief to retirees making less than $50,000 annually shifts even "more of the tax burden to younger workers," says Samuelson.
But, as Dean Baker of the Center for Economic and Policy Research (CEPR) has pointed out repeatedly, the non-partisan Congressional Budget Office has calculated that Social Security will be able to pay current and future retirees through 2052 without any changes to the current tax structure (excepting gradual increases in payments to reflect cost of living increases). and the national budget deficit, a genuine problem for all of us, is an entirely separate issue from Social Security.
In fact, if the Social Security tax, currently the most regressive tax in the country--it falls more heavily on lower-income workers than on the wealthy--is raised to include a larger portion of the income of those making over $102,000 per year, it could extend the solvency of the Social Security system into the 22nd Century. (You can read more about Social Security at CEPR's website: http://www.cepr.net/index.php?option=com_issues&task=view_issue&issue=19&Itemid=22).
Ultimately, it is Samuelson's misleading perspective on Social Security that is the larger problem. Obama is being criticized for standing outside a perspective that is actually disabling. If the notion that Social Security is in deep trouble and that addressing the deficit is the foremost priority carries the day, government as an investor in working people will be sidelined. But implementing Obama's simple proposal will end the scaremongering about Social Security and create the political space for dealing with more immediate issues, like employment and fair trade agreements, climate change and the high human, political and financial cost of the US occupation in Iraq.
And the deficit? More than manageable if we reduce the annual rate of American military spending, which already exceeds spending by the rest of the world combined.
Samuelson has occupancy rights on prime turf--a weekly op-ed column in the Post and another column in Newsweek magazine. The options for challenging Samuelson's pronouncements are limited. A letter to the editor might do, but such a letter, if it gets published, gets less space than Samuelson does and comes after the fact. Why does this matter?
Well, one case in point might be a column Samuelson wrote earlier this week about Barack Obama, who Samuelson says, is not telling Americans the truth. "A truth-telling Obama might say: 'Spending for retirees--mainly Social Security, Medicare and Medicaid--is already nearly half the federal budget. Unless we curb these rising costs, we will crush our children with higher taxes," Samuelson wrote.
Social Security is a hobby horse of Samuelson's; its vulnerability, combined with the rising federal deficit allegedly comprise a poison pill that future generations will be forced to swallow by the inaction (read selfishness) of baby boomers. Obama's disinformation, Samuelson claims, includes a pledge not to "raise the retirement age" or reduce benefits to retirees. Obama's further proposal to provide tax relief to retirees making less than $50,000 annually shifts even "more of the tax burden to younger workers," says Samuelson.
But, as Dean Baker of the Center for Economic and Policy Research (CEPR) has pointed out repeatedly, the non-partisan Congressional Budget Office has calculated that Social Security will be able to pay current and future retirees through 2052 without any changes to the current tax structure (excepting gradual increases in payments to reflect cost of living increases). and the national budget deficit, a genuine problem for all of us, is an entirely separate issue from Social Security.
In fact, if the Social Security tax, currently the most regressive tax in the country--it falls more heavily on lower-income workers than on the wealthy--is raised to include a larger portion of the income of those making over $102,000 per year, it could extend the solvency of the Social Security system into the 22nd Century. (You can read more about Social Security at CEPR's website: http://www.cepr.net/index.php?option=com_issues&task=view_issue&issue=19&Itemid=22).
Ultimately, it is Samuelson's misleading perspective on Social Security that is the larger problem. Obama is being criticized for standing outside a perspective that is actually disabling. If the notion that Social Security is in deep trouble and that addressing the deficit is the foremost priority carries the day, government as an investor in working people will be sidelined. But implementing Obama's simple proposal will end the scaremongering about Social Security and create the political space for dealing with more immediate issues, like employment and fair trade agreements, climate change and the high human, political and financial cost of the US occupation in Iraq.
And the deficit? More than manageable if we reduce the annual rate of American military spending, which already exceeds spending by the rest of the world combined.
Friday, February 15, 2008
An Economy and Budget That Works - Part One
An Economy and Federal Budget
That Works for Working Families
What the Next Administration Should Do
Part One
(I’m going to produce my own prescription for economic change in the United States. This section, about health care and military spending, is part one. Later pieces will be about climate change and green jobs, unions, Social Security and more.)
Recessions are commonly experienced in two ways. Economists measure them; working people and their families endure them. The recession that we are in now, precipitated by the bursting of the housing bubble, will get worse. How much worse will be a subject of debate among economists, now and over the next few years.
But workers will not be attempting to measure the recession; they will be trying to live through it. Workers will lose jobs. Unemployed workers will face lengthening periods of unemployment and loss of individual and family health care coverage. Workers with jobs will still get paychecks, but paychecks with diminished purchasing power. And health care costs will keep rising.
Congress and President Bush have passed and signed a stimulus package, but it won’t be enough. It won’t restructure the federal budget, it won’t support the creation of millions of good, green jobs over the long-term, and it won’t lead to universal, affordable health care in the United States. Getting there will require a new president promoting new economic and social policies.
Health Care
A recent study by the Center for Economic and Policy Research (CEPR) shows that ending the role of big drug companies in conducting clinical trials is one way to begin cutting health care costs. The monopoly that big Pharma currently maintains over the data generated from those trials ultimately costs consumers and taxpayers billions. That data, says co-author Dean Baker, rightfully belongs in the public domain and would allow the FDA to make better regulatory decisions and help prevent the wasteful duplications of drug testing and marketing that turns decisions about treatment into competition between drug advertisers.
The study, “The Benefits and Savings from Publicly-Funded Clinical Trials of Prescription Drugs,” released in January, shows that public funding of trials, combined with a mandated reduction of 40 percent in the prices paid for drugs by Medicare (bringing prices in line with those paid by the VA), would save $50 billion over a ten-year period. If state and local governments also had corresponding reductions in the prices paid for prescription drugs, their ten-year savings would be over $120 billion. If these price reductions were applied to the private sector as well, they would total more than $900 billion over the same period.
Such savings would be a big step toward reigning in the escalating costs of health care. It would also end the drug company monopoly over data from trials, making all information available to the FDA, the public and other researchers.
Spending for War and Weapons
Last year, CEPR commissioned Global Insight to do an analysis of the long-term effects of increased military spending on the wars in Iraq and Afghanistan. That study, “The Economic Impact of the Iraq War and Higher Military Spending,” published in May, showed that an early stimulus provided by that spending would begin to turn negative after five years and worsen in succeeding years.
In other words, the result of spending approximately $135 billion for war in 2003 provided a small immediate stimulus, but will begin to result in job losses in specific sectors of the economy (almost 45,000 lost in manufacturing) by 2008. Continuing war spending worsens the effect—the study projects that by 2013 more than 450,000 jobs will be lost across most sectors of the economy.
Any president trying to make policy that will strengthen the economy and create good jobs will have to deal with the damaging long-term effect of spending for war and supporting a bloated military budget.
Among the worst offenses of the current military budget is the sustained multi-year spending for weapons systems that are inappropriate for the current mission of the military, inefficient and/or faulty. These multi-billion dollar programs are the direct consequence of the revolving door between the Pentagon and defense contractors.
New defense priorities that reduce the overall military budget—the United States currently spends more on the military than the combined spending of the rest of the world—would free hundreds of billions of dollars over the next decade for housing, education, public transportation and other infrastructure spending. As things now stand, the U.S. military budget is probably the most effective mechanism ever developed for the transfer of wealth from taxpayers and working families to the executives and shareholders of multi-national corporations. Call that mechanism "tax workers, buy weapons (TWBW)."
That Works for Working Families
What the Next Administration Should Do
Part One
(I’m going to produce my own prescription for economic change in the United States. This section, about health care and military spending, is part one. Later pieces will be about climate change and green jobs, unions, Social Security and more.)
Recessions are commonly experienced in two ways. Economists measure them; working people and their families endure them. The recession that we are in now, precipitated by the bursting of the housing bubble, will get worse. How much worse will be a subject of debate among economists, now and over the next few years.
But workers will not be attempting to measure the recession; they will be trying to live through it. Workers will lose jobs. Unemployed workers will face lengthening periods of unemployment and loss of individual and family health care coverage. Workers with jobs will still get paychecks, but paychecks with diminished purchasing power. And health care costs will keep rising.
Congress and President Bush have passed and signed a stimulus package, but it won’t be enough. It won’t restructure the federal budget, it won’t support the creation of millions of good, green jobs over the long-term, and it won’t lead to universal, affordable health care in the United States. Getting there will require a new president promoting new economic and social policies.
Health Care
A recent study by the Center for Economic and Policy Research (CEPR) shows that ending the role of big drug companies in conducting clinical trials is one way to begin cutting health care costs. The monopoly that big Pharma currently maintains over the data generated from those trials ultimately costs consumers and taxpayers billions. That data, says co-author Dean Baker, rightfully belongs in the public domain and would allow the FDA to make better regulatory decisions and help prevent the wasteful duplications of drug testing and marketing that turns decisions about treatment into competition between drug advertisers.
The study, “The Benefits and Savings from Publicly-Funded Clinical Trials of Prescription Drugs,” released in January, shows that public funding of trials, combined with a mandated reduction of 40 percent in the prices paid for drugs by Medicare (bringing prices in line with those paid by the VA), would save $50 billion over a ten-year period. If state and local governments also had corresponding reductions in the prices paid for prescription drugs, their ten-year savings would be over $120 billion. If these price reductions were applied to the private sector as well, they would total more than $900 billion over the same period.
Such savings would be a big step toward reigning in the escalating costs of health care. It would also end the drug company monopoly over data from trials, making all information available to the FDA, the public and other researchers.
Spending for War and Weapons
Last year, CEPR commissioned Global Insight to do an analysis of the long-term effects of increased military spending on the wars in Iraq and Afghanistan. That study, “The Economic Impact of the Iraq War and Higher Military Spending,” published in May, showed that an early stimulus provided by that spending would begin to turn negative after five years and worsen in succeeding years.
In other words, the result of spending approximately $135 billion for war in 2003 provided a small immediate stimulus, but will begin to result in job losses in specific sectors of the economy (almost 45,000 lost in manufacturing) by 2008. Continuing war spending worsens the effect—the study projects that by 2013 more than 450,000 jobs will be lost across most sectors of the economy.
Any president trying to make policy that will strengthen the economy and create good jobs will have to deal with the damaging long-term effect of spending for war and supporting a bloated military budget.
Among the worst offenses of the current military budget is the sustained multi-year spending for weapons systems that are inappropriate for the current mission of the military, inefficient and/or faulty. These multi-billion dollar programs are the direct consequence of the revolving door between the Pentagon and defense contractors.
New defense priorities that reduce the overall military budget—the United States currently spends more on the military than the combined spending of the rest of the world—would free hundreds of billions of dollars over the next decade for housing, education, public transportation and other infrastructure spending. As things now stand, the U.S. military budget is probably the most effective mechanism ever developed for the transfer of wealth from taxpayers and working families to the executives and shareholders of multi-national corporations. Call that mechanism "tax workers, buy weapons (TWBW)."
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