Wednesday, April 27, 2011

A not-unexpected reaction

Unfortunately, there's nothing surprising about the fact that Republicans have now convinced the nation that the deficit, and not the lack of jobs, which is in turn due to lack of consumer demand, which is in turn due to the collapse of the housing bubble, is the real problem and that it must be fixed NOW!!!


The suggested solution, of course, is to cut government spending. Never mind that the government spends money because it is trying to meet real and serious needs. The battle cry is “We must cut spending!” The British elected a new Parliament recently, which set about “hammer and tongs” to cut Britain's budget. How did that work out for them? Not well at all. Britain's GDP showed a 0.5% contraction as opposed to any sort of growth.



“The Chancellor needs to get his head out of the sand. He doesn't seem to understand that without jobs and growth you can't get the deficit down. The slower growth, higher unemployment and higher inflation we now see under George Osborne means he is now set to borrow £46 billion more than he was planning to. That's a vicious circle and makes no economic sense at all.


“Families know that cutting too far and too fast is hurting, but now we know it’s not working either. George Osborne can't keep making excuses – it's not the wrong kind of snow that's to blame, it's the wrong kind of policies. He needs to think again before it's too late.”

Is it a good idea to reduce the deficit in any event? Actually, it isn't. The US is seriously behind in getting our infrastructure fixed and up-to-date. Missouri just had to evacuate 1000 people from threatened areas because the levees in the town of Poplar Bluffs failed in four separate places. Nothing surprising about this failure. The levees were rated as “unacceptable” back in 2008 by the US Army Corps of Engineers. Why did this particular levee fail? The community simply couldn't afford to keep it up. The US as a whole needs to spend about $50 billion in order to get all the levees back into shape (The US has 881 counties or 28% of the total number of all counties, that have flood control systems). Of course, people have been moving into areas that are protected by levees, so the longer levees go unmaintained, the more US citizens that are put at risk. In all, the US needs to spend about $2.2 trillion in order to meet all of our infrastructure needs. Curing the deficit by getting spending down is a very bad idea as our infrastructure will then be permitted to deteriorate still further.

Can the Democrats make the case for more federal spending? Well yes, but President Obama's support for the “Cat Food Commission” (i.e., the Deficit Commission) directly contradicts the idea that the deficit is meaningless compared to getting Americans back to work. Essentially, Democrats would have to contradict pretty much everything that the party has been saying about the deficit for the past two years in order to convince Americans that jobs should be our number one priority.

Update: From Daily Kos Pundit Round-up
"Note in the [Stafford Act chart] that it's the Governor, who asks FEMA, who asks the President to declare a Federal disaster or emergency so as to free up funds and relief that through the National Response Framework can be delivered to the states. ..."

The federal response is intiiated by the state, and complexity and speed are inversely related. The wider the area affected, the slower the response will be (because supplies and infrastructure needs to come from farther away.) So let's talk about cutting the budget, shall we? Especially for FEMA. (see GOP's Continuing Resolution Cuts Funding for National Weather Service, FEMA.)  Brilliant idea.

Thursday, April 7, 2011

A review of “Path to Prosperity”

Representative Paul Ryan's (R-WI) economic agenda



Only recently, millions of American families saw their dreams destroyed in a

financial disaster caused by misguided policies, perverse incentives, and irresponsible leadership. This crisis squandered the nation’s savings and crippled its economy.


Path to Prosperity PDF p. 10



Ryan makes it clear in the next paragraph that he blames “the last Congress ” for America's economic problems. Nevertheless, he's right. America's economic problems have everything to do with “misguided” government policies. The government under President George W. Bush was informed by liberal economists as early as 2002 that there was a housing bubble and that the collapse of that bubble would have bad effects on the economy. Both of the Chairmen of the Federal Reserve, Alan Greenspan and Ben Bernanke, were looked up to as economic authorities and both of them miserably failed to even take notice of the housing bubble until after it had burst in late 2007, costing the economy several trillion dollars in lost consumer demand.



At a time when the free-market foundations of the American economy were in desperate need of

restoration and repair, the last Congress took actions that further undermined them. The President and his party’s leaders embarked on a stimulus spending spree that added hundreds of billions of dollars to the debt, yet failed to deliver on its promises to create jobs.



Hmm, well, first off, the “free market foundations” of America's economy were and are in perfectly good shape. It was consumer demand that had fallen off a cliff due to there being so many people losing value in their homes (For most of them, that was their main investment that they were going to sell off in order to retire in comfort), in addition, millions of Americans were thrown out of work. The “stimulus spending spree” was an absolutely critical necessity in order to get consumer demand back up. It only fell short on that goal because President Obama wanted to get his stimulus bill through without annoying and aggravating Congresspeople and Senators too much and therefore, he didn't force a good bill through. One of his economic advisers wanted a $1.2 trillion stimulus, but by “negotiating with himself,” Obama finally settled for only $787 billion and far too much of that was in the form of tax breaks as opposed to straight-out spending.



Acute economic hardship was exploited to enact unprecedented expansions of government power.


This did not sit well with the American people. Citizens stood up and demanded that their leaders reacquaint themselves with America’s founding ideals of liberty, limited government, and equality under the rule of law.



Government influence on the economy certainly expanded greatly, but it's far from clear that President Obama “exploited” economic hardship in order to expand the government. No one has shown that Obama took any power that wasn't needed in order to get the economy back on track. The “Tea Party” that citizens were allegedly spontaneously joining in order to protest the actions that the allegedly greedy, grasping government was taking, was and is an astroturf organization bankrolled by billionaires (Notably, the Koch brothers) in order to protect the economic interests of the top 1% of income-earners.



In recent years, both political parties have squandered the public’s trust.



I certainly agree that the Republican Party has done so. Not sure how Democrats have done so except by giving in too often and by surrendering the initiative in the war of ideas to the other side. We've seen a spontaneous uprising in Wisconsin due to the overreach of the Governor there, but the Obama Administration, although they've quietly helped Wisconsin citizens, has generally kept a low profile and has not vigorously exploited the situation there at all.



The American people ended a unified Republican majority in 2006, just as they ended a unified Democratic majority last fall. Americans reject leaders who focus on the pursuit of power at the expense of principle.



Not sure I agree as to why either Republicans lost power or as to why Democrats did. Seems to me in both cases that voters were punishing parties that failed to fulfill their mandates. Republicans led America into two grinding, inconclusive wars and chalked up a disastrous economic performance, Democrats failed to either end those wars or to get America's economy back on track. I don't see much evidence that voters were reacting to a failure to follow “principles.”



But a government that loses its sovereignty to its bondholders cannot long guarantee its people’s prosperity – or secure their freedom.



Ah yes, Paul Krugman refers to this theory as the “bond vigilantes,” suggesting dark figures waiting in the alley with switchblades and baseball bats, ready to pounce on Presidents who fail to follow sound economic principles. As the US trades with the world in its own currency and does not carry on trade in Rubles or Euros or the Yuan, there is absolutely zero danger that bondholders will someday take over the government or force it to take any action the government does not wish to take. The US is not Greece and is not subject to the pressures that the Greeks are subject to.



A government that buries the next generation under an avalanche of debt cannot claim the moral high ground in the world.



Having lots of debt is certainly not a good thing and America was certainly on the right path when President Clinton left office, as the national debt was lower and diminishing. Has that national debt become unreasonable or unsustainable? If it were, one would think that bondholders would be insisting on high interest rates or they wouldn't buy our bonds. They aren't, interest rates are low by historical standards, so it's not at all clear what the problem is. Does debt have anything to do with the “moral high ground”? With the national debt being entirely sustainable, it's hard to see much of a connection between debt and morality.



This Path to Prosperity draws upon solutions from across the political spectrum and builds upon the important work of the President’s bipartisan Commission on Fiscal Responsibility and Reform.



%$#@&!!! The damned “Cat Food Commission” is what Ryan's referring to. The Commission that failed to fulfill its mandate and issued a report anyway, despite not having the appropriate number of votes in favor of its recommendations. Senator Dick Durbin (D-IL) disgraced himself by voting in favor of its recommendations, even though he knew full well that the proposed plan was an awful one. He piteously mewled that he needed to maintain some credibility in order to be “part of the conversation.” Representative Jan Schakowsky (D-IL) distinguished herself by refusing to vote for its recommendations because she recognized what an awful mess those recommendations were. Interestingly, Ryan was also part of the Cat Food Commission (It was called that because the Commission would obviously like to see grandma and grandpa living in a four-story walk-up with broken windows and no heat, eating cat food for their dinner) and refused to vote for its recommendations because the Commission wanted to raise taxes as part of its approach to “fixing” the economy.



While American families have been tightening their belts, these agencies have been the beneficiaries of a major spending spree over the last two years. Since January of 2009, there has been a 24 percent increase in this slice of the pie – a number that jumps to 84 percent when stimulus funds are included.



Here's a familiar conservative/Republican/right-wing complaint. Why can't government be run like a family and stay within its budget? Well, one reason is that modern families don't stay within their budgets, either. When a family wished to have a carriage for their horses to pull, that was a sufficiently cheap investment that the family could afford to wait until they had the full cost in hand and then go to the carriage-maker to custom-manufacture a carriage just for them. When the automobile arrived on the scene, they quickly became too expensive to pay for outright and so, consumer credit was born. When homes were hand-built using local materials, there was no need for consumer credit. When small city houses and especially when suburbs, were born and families didn't have the money to purchase them outright, again, consumer credit was developed to meet that need. Governments run debt/deficits for precisely the same reason. If the US wants to fight a war overseas, say in Afghanistan or Iraq or wants to establish, say, Medicare Part D or wants to give tax breaks to millionaires and billionaires and corporations, it sells bonds and covers the cost that way. Yes, it would be nice to cover everything via taxes and during several years under President Clinton, everything was. But when the country has a severe economic problem, such as with the collapse of the housing bubble, it's entirely sensible for the government to run an even bigger deficit to cover all of the things (Schools, hospitals, transportation infrastructure, etc) that would otherwise have to stop working.



As illustrated in Figure 1, autopilot spending accounted for around 60 percent of all federal spending in 2010. Congress does not regularly debate, annually appropriate or properly scrutinize this category of spending. If an individual meets legal eligibility requirements for these government programs, he or she automatically receives – or “is legally entitled” – to the benefit. This category includes food stamps, unemployment benefits, and farm subsidies – programs that are frequently referred to as “entitlement programs.”



It's not at all clear why, if a recipient of an entitlement program is legally entitled (I don't put that phrase in scare quotes because it's not clear why Ryan uses quote marks in the first place) to a government benefit, that the program under which the benefit is distributed is not also “properly scrutinized.” Why would a benefit that a citizen was legally entitled to not be considered properly awarded to the citizen? If Congress has written the eligibility requirements so that citizens have too easy a time getting benefits, then that's a problem to be tackled in the legislative process. That's a fight over details, not over principles.



But Americans will not be able to rely on these programs for much longer unless Congress repairs and reforms them. Social Security, Medicare and Medicaid all face structural problems that are driving them – and the country – into bankruptcy.



Well, Medicare and Medicaid face great problems because of four of what the Kaiser Family Foundation calls “cost drivers.” They include Technology and Prescription drugs, Chronic disease (Longer life spans means more diseases in total), Aging of the population and the Administrative costs that come along with the extensive use of private industry in health matters. All of these drivers are outside of the design of the programs. There are no problems that are traceable solely to the way in which these programs are designed. As Ryan's own chart on p. 16 shows, Social Security is not a problem at all and should not be included on this list.



Ryan's chart on page 14 is correct. There are far fewer workers today supporting far many more retirees than when the Social Security program was enacted. But what has also increased is worker productivity. The average worker of today produces far more value than the worker of yesterday did. There is no “massive shift of earnings away from younger families ” that Ryan asserts there is.



Ryan considers it a major problem that the Affordable Care Act puts “even more of the health sector under government control. ” This isn't a problem at all because the private, capitalist sector does a very poor job of managing health care in the first place. That's because buying a car is essentially different from buying an operation to fix a heart valve. Say a woman decides to get her breasts enlarged. That's a straight, capitalist, comparison-shopping experience. She looks at the different models, decides what it is she can afford and arranges for the operation. Now, say that her enlarged breasts start leaking into her chest and putting her health at risk. It wasn't her choice to have to deal with that kind of problem, so she doesn't necessarily have the money to pay to fix the problem. She can't engage in any comparison-shopping because she needs the problem fixed right away. It's wildly unrealistic to expect her to focus on details like the expertise of the different doctors when her health is deteriorating. In the first instance, our hypothetical person is a customer. She had plenty of time to research the various issues connected to her purchase and collected all the money needed before she contacted the doctor who would do the operation. In the second, she's a patient who's dealing with a problem she had no reason to expect and that she hasn't prepared for in any way. It's simply not valid to compare fixing health problems to any sort of shopping experience as the two experiences are not at all alike. Regardless of how much money Medicare/Medicaid may or may not waste, forcing citizens to use a comparison-shopping model is not an answer and never will be.



This next sentence is from p. 24, where Ryan discusses his Reform Agenda.



Government spending on domestic departments and agencies has grown too much, too fast over the past decade, with much of the money going to programs and projects the nation can do without.



This is a problem that goes all the way back (At least as far as I can remember, I was In college when Ronald Reagan won the Presidency) to Reagan's 1980 campaign. He put out the general proposition that government spending should be cut. Okay, fine. He got general agreement on that score. Then came the hard question. What, exactly, to cut? On that, he managed to find lots of small cuts during his first year in office, then he had picked all the “low-hanging fruit” and then had to start really looking. For the past 30 years, conservatives have been looking and they've found very little that 1. Americans can agree on and that 2. Would make a serious difference. It's like saying “Let's establish a toxic waste dump.” Okay, fine, people can easily agree on the need to do that. Where do y'all wanna put it? Ah, there's where decision-making gets difficult and complicated. If any program were one that “ the nation [could] do without,” then it's difficult to see how that program was established in the first place. Obviously, any program that's been running for awhile and that disburses money or things of monetary value to constituents is going to be considered vital and irreplaceable, if only to the constituents that directly benefit from it. Those constituents are likely to be generously distributing campaign money to politicians, which makes their desires very important for those politicians to keep in mind.



Ending corporate welfare:



Y'know what? I'll believe it when I see it. Don't get me wrong, I think ending corporate welfare is a great idea, but when a Republican actually does any such thing, I'll be happy to stand up and cheer. I just don't foresee ever having to do any such thing.



Boosting American energy resources:



The Continental United States reached “Peak Oil” back during the 1970s. That means we already extracted half of all the oil that we'll ever extract around 40 years ago. When does the world as a whole hit Peak Oil? Many sources say we're already there. No, if the US is going to become self-sufficient in energy, it'll have to be through the development of alternative, renewable energy. “Drill, baby, drill” was a cute campaign slogan, but it's not a realistic answer for America's energy needs.



Sorry, but the highly respected economist Paul Krugman weighed in on Ryan's proposals and has found them severely wanting. Also, as Media Matters points out here, Ryan is not exactly some sort of guru or expert that we should expect anything amazing out of. He went along with every budget-busting, unworkable, worthless economic program that President G.W. Bush proposed. There's absolutely no reason to think that anything he produces is going to be worth examining, let alone enacting.