Monday, May 31, 2010

The deficit scolds strike

What really amazes me about this piece on federal budgetary deficits is that it's written entirely from the hysterical deficit scold's point of view. The writer is careful to quote two Republicans and two Democrats, but it never seems to occur to him to quote any economists.

Why is the deficit a problem now? Well, Republicans are "...stirr[ing] up their core voters and [are making] inroads with independents by accusing Democrats of profligacy..." and "Facing a rank-and-file revolt, Democratic leaders began trimming the measure...". I can understand why Republicans would be making inroads with deficit fear-mongering among their own membership and among uninformed independents, but I can't imagine why the Democratic rank-and-file would have a problem with deficits, unless they were being fed a steady diet of baseless fear-mongering. The author doesn't appear to feel the need to quote anybody on the Democratic side, either a rank-and-file member or someone who might know what the rank-and-file actually thought.

If we observe another member of the NY Times' writing staff, Paul Krugman, an economist who, unlike many other people, saw the housing bubble, his views on the deficit worries of Congress are not at all in agreement with that of the deficit scolds. Sure would be nice if the NY Times used what it supposes are the natural advantage that traditional media has over bloggers, i.e., editors. An editor with some competence and ability would have been able to take a broader view than the writer could and could have said "Gee, maybe we ought to account for what the economists think and not just rely on the hysterical deficit scolds." Krugman is amazed and flabbergasted (As am I) that "inflicting economic pain has become the accepted thing" and states that the danger of a double-dip recession (A wiping out of all of the fragile gains made so far) is very real.

This fear of the deficit is having immediate, real, and very destructive effects.

Deficit hawk Democrats forced the excising of two health care-related programs – a subsidy for the jobless to keep them on the insurance of their former employer, and increased funding for state Medicaid programs so they can keep up with increased demand during a time of mass unemployment – because they feared the price tag and the cost to the deficit in the short term.


Adding further injury, the proposal from Tom Harkin and George Miller to spend $23 billion dollars keeping teachers employed looks dead and buried, for the same reasons that the COBRA subsidy and state aid for Medicaid went by the wayside. State budget shortfalls could cost up to 900,000 jobs this year alone.

Economist Dean Baker adds:

The plans by the deficit hawks seem likely to trim $30 billion in unemployment benefits and aid to the states from the bill. Using the methodology in the Romer-Bernstein paper put out by the Obama administration to promote its stimulus package, the cuts will reduce GDP by approximately $50 billion. This will correspond to a job loss of more than 300,000 people. It is irresponsible to report on plans to reduce deficits without noting their likely impact on the economy.

What could account for such hysterical, baseless fears? Krugman says:

The answer, as best I can make it out, is that the organization [The O.E.C.D.] believes that we must worry about the chance that markets might start expecting inflation, even though they shouldn’t and currently don’t: We must guard against “the possibility that longer-term inflation expectations could become unanchored in the O.E.C.D. economies, contrary to what is assumed in the central projection.”

My own guess is that the billionaire deficit scold Pete Peterson and his deficit commission that couldn't win enough votes in the Senate, but was established by President Obama's Executive Order anyway, is the real culprit here.

The commission, which began meeting on Tuesday, has been barraged with letters demanding that it conduct all of its meetings – including those held by subgroups of the 18 commissioners – out in the open. One came from Michigan Rep. John Conyers and 15 other Democratic House members, another from House Republican minority leader John Boehner of Ohio. The third was signed by 77 social service organizations ranging from the NAACP to Vietnam Veterans of America.

What are they so worried about?

That's an extremely good question. One shouldn't need secret, closed-door meetings for a commission whose business was legitimate and whose goal was an honorable and legitimate one. Unfortunately:

...the White House appears to be using a self-described "independent, non-partisan" group, called America Speaks to carry out what appears to be an "astro-turf" campaign to simulate public discussion of these issues. Heads up, folks. They announce on their website:

On June 26, 2010, thousands of Americans, in hundreds of locations across the United States and online, will weigh-in on strategies to ensure a strong economic recovery and a sustainable fiscal future.

Sounds like a cool, grassroots, online democracy kind of project - until you read further and find one of their big funders: the Peter G. Peterson Foundation.

Just as with the Tea Party, progressives aren't faced with just fear and panic. We're facing fear and panic backed by the deep pockets of corporate astro-turf operators. How will the commission go about making its case?

Obama’s deficit commission will be participating in a 20-city electronic town hall meeting, put together by an organization called America Speaks. It is financed by Peterson, along with the MacArthur Foundation and Kellogg Foundation. This is a truly unusual event because it marks the first time a presidential commission’s activities are financed by a private group that has long been lobbying the government on the very subjects the commission is supposed to “study.”

As has been pointed out, Obama seems to be awfully comfortable dealing with the big money people in industry and finance. His statement upon learning that BP didn't have a working plan to deal with undersea catastrophes was:

Where I was wrong was in my belief that the oil companies had their act together when it came to worst-case scenarios.

Let's hope he's not similarly misguided when it comes to the financial security of regular Americans.


Oh, and a piece from firedoglake on what the wars in Iraq and Afghanistan are costing the US as a nation.

Tuesday, May 25, 2010

Interesting juxtaposition

MSNBC did a piece "warning" Americans that they simply "had" to reduce spending.

deficit scold piece

But very interestingly they ran a cartoon on the same page (As of 12:09pm on Tuesday the 25th) of this:

deficit scold wrong

i.e., a cartoon showing us why following the advice of the deficit scolds is a really, really bad idea! As Paul Krugman pointed out many months ago:
The deficit threatens economic recovery, we're told;

The long-run budget outlook is problematic, but short-term deficits aren't -- and even the long-term outlook is much less frightening than the public is being led to believe.

It has been obvious for at least a year that the U.S. government would face an extended period of large deficits, and projections of those deficits haven’t changed much since last summer [piece was written in Feb 2010]. Yet the drumbeat of dire fiscal warnings has grown vastly louder.

the large deficit the federal government is running right now isn’t the result of runaway spending growth. Instead, well more than half of the deficit was caused by the ongoing economic crisis, which has led to a plunge in tax receipts, required federal bailouts of financial institutions, and been met — appropriately — with temporary measures to stimulate growth and support employment.

In other words, where do all of these deep and terribly serious concerns about the deficit come from? The US very badly needs to spend lots and lots of money to get the unemployment situation under control. The deficit is a very low-priority problem that can wait several years.

Saturday, May 22, 2010

Of great concern

President Obama’s newly-formed National Commission on Fiscal Responsibility and Reform does not give me a "warm fuzzy," in fact, it gives me a distinct chill. The evidence is that its members are determined to do what both Bill Clinton and G.W. Bush failed to do, and that's to put Social Security on the chopping block.
The 18 individuals are meeting regularly, in secret, behind closed doors, until safely beyond this year’s mid-term election. If they reach agreement, their proposal will be voted on in December by a lame duck Congress, without the benefit of open hearings and deliberations in the pertinent committees and without the opportunity for open debate and amendment on the floors of the House and Senate.

And here's some background for a some questions that our press corps might consider asking:
Q. Mr. Peterson has been on a decades-long crusade against Social Security. The day after the first meeting of the commission, which focused heavily on the need to cut Social Security, the co-chairs and two other members of the commission participated in a Peterson event that reinforced the same message. A Peterson-funded foundation is supplying commission staff. And Peterson’s foundation is funding America Speaks to develop a series of high-profile town halls across the country to host “a national discussion to find common ground on tough choices about our federal budget.”

My question would be: "Seeing as cutting Social Security has already been mentioned by some members as a potential solution to America's financial problems, doesn't it seem like Mr. Peterson, and indeed the 18 members of the commission, have already made up their minds on the issue?"

Our reporters need to be asking questions NOW, not just at some vague time somewhere in the future.

Tuesday, May 11, 2010

I thought this was just common sense

This is even debatable?!?!?! This isn't simply considered obvious common sense?
Perversely, austerity has become the cure du jour.

For two decades, employers increasingly used outsourcing and off-shoring to cut their labor costs. That trend accelerated after the financial collapse. Many economists wonder whether permanent payroll jobs will ever return to their former level if present trends continue.


But the austerity cure slows growth, raises joblessness, and makes debt-reduction more painful. It’s better to restore high rates of growth and employment. Then, after recovery comes, we can balance the budget at a higher level of economic output.

In the late 1930s, Franklin Delano Roosevelt tackled joblessness with his public works programs. These were palliative, but the permanent cure was a massive economic recovery — as byproduct of World War II. When the war came, we damned the torpedoes and the deficit worries, and spent whatever it took to defeat the Nazis and the imperial Japanese.

Debt increased massively, but economic growth shot up to 12 percent a year for the four war years, and unemployment disappeared. The war also brought huge investments in manufacturing technology. That twin stimulus powered a 25-year postwar boom, and the war debt was easily paid down. [emphases added]

This, to me, is just common received wisdom. Of course it's "perverse" to seek economic health through austerity. How did that ever get to be even remotely controversial?!?!? Sorry, but I never did and never will see the "wisdom" in austerity.

Saturday, May 8, 2010

America Speaks is holding meeting on deficit scold group

America Speaks: Our Budget, Our Economy and the National Town Meeting is holding meetings nationwide on June 26th specifically to counter billionaire Pete Peterson's agitation to toss Social Security to the sharks. The local event will be held:

The Philadelphia Grand Ballroom, 3rd Floor
First District Plaza, 3801 Market Street
Philadelphia, PA 19104


America Speaks blog

Tuesday, May 4, 2010

Audit the FED!!! NOW!!!!!

The Federal Reserve has demonstrated conclusively and without question that it simply isn't capable of doing the job that's assigned to it. It desperately needs direction and oversight from the federal government. Currently, there's a bill to audit the Fed that, amazingly, doesn't have 100% support from both Congress and the Senate. Why this is even a question is absolutely amazing to me.
The principle that government agencies should be transparent and publically accountable is a cornerstone of democratic, responsive government, which is why those who favor plutocracy, let alone kleptocracy, find the concept so threatening. But the US financial sector and its governmental partners have for decades assiduously promoted the view that the Federal Reserve should be exempt from scrutiny, because, they claim, otherwise its "independence" would be as risk. Never mind that the dangers a nation’s economy faces can as easily come from the Fed’s co-dependency with the nation’s largest, irresponsible banks when coupled with a market ideology that encourages fraud and looting. If ever there was a sector that needed sunlight, this is it.

The case that an effective Chairman of the Federal Reserve could have poked a hole in the housing bubble back in 2004 and could have thereby prevented that bubble from crashing with the devastating effects that it did... well, good economists have been making that case since at least 2002. The sad part is that the regulators were so full of their own "wisdom" (Read: "arrogance") that nothing was done until long even long after the crisis hit and passed, leaving untold wreckage in is wake.

Update: Speaker Pelosi is now claiming that the Bush Administration knew about the coming collapse in early June, 2008, about when Obama received the Democratic nomination for President. Congress was actually briefed in September.