Monday, August 29, 2011

Recommendations for the President

Rep. Michele Bachmann (R-MN) has gone on record, saying that God is displeased at America's spending habits and “we’ve got to rein in the spending.”


House Majority Leader Eric Cantor is making noises about attaching spending cut measures to disaster-relief bill.


The good news is that Obama's debt-ceiling deal was politically, a catastrophe. 46% to 32%, the public thought it was a lousy deal that would hurt the economy.


Obama signed the bill all alone.


Absolutely no one wanted to be visually associated with the deal, even though Speaker of the House John Boehner said "We got 98 percent of what we wanted," he said adding that the framework cuts more spending than it raises the debt limit. It also caps future spending to limits in the growth of government.


The problem for the President is not that lefty bloggers are critical of him and his performance (They are), but that they're the canaries in the coal mine who are warning him that he's really starting to slip in the estimation of the voters. The President's embrace of austerity was a really bad move that he really needs to pivot away from.


My recommendations are two: Obama needs to demand a clean bill for disaster relief. No cuts or the bill gets vetoed. He can't let himself get rolled again by giving in to blackmail as he did in the debt-ceiling deal. Two: He needs to cancel Cat Food Commission II, or as Senator Pat Toomey calls it, the super-committee to cut spending. He can do it by quietly telling all the Democrats on the Commission to simply not show up for meetings, Republicans will then complain, Obama can then come out and say the Commission was a lousy idea to start with and he supports Democrats who stay away from it. He should then stand with the public and say that he's opposed to any further cuts.


Failure to do this could very easily result in a President Romney/Perry/Bachmann.


Update: Progressive Keynesian economist Dean Baker examines Obama's proposed job creation schemes and finds them most underwhelming. If this is the best he can do, it means he hasn't learned anything and is probably doomed to be a one-term president.


Further update: Good! Looks like that's just what he's doing.

Thursday, August 11, 2011

Cat Food Commission II

A few days ago (Aug 7th), Representative Allyson Schwartz (D-PA) caught my attention with the statement: "[The debt increase agreement] cuts $2.7 trillion from federal spending over 10 years, protects Medicare and Social Security, and does not harm our economic recovery." I immediately sent her a letter, protesting that any and all cuts to government spending harmed the economy. A Republican/Tea Party Representative sent a letter to the Congressional Budget Office, asking about the effects of cuts on the economy. The CBO's answer was:

"When demand for goods and services falls short of the economy's ability to produce them, as is the case currently, increasing government spending can increase aggregate demand and thereby narrow the gap between the economy's actual and potential levels of output," Elmendorf writes.

The precise details matter. The more robust the economy, the lower the impact. But, according to Elmendorf, "when the Federal Reserve's ability to lower short-run interest rates is constrained because those rates are already near zero, as they are currently, the short-run effects of changes in government spending on output tend to be larger than usual." [emphasis in blog post]

In other words, yes, cutting the budget by anything harms the "economic recovery." Elmendorf adds that cuts "would decrease real (inflation-adjusted) gross national product (GNP) in 2012, 2013, and 2014 by amounts ranging from roughly 0.1 percent to 0.6 percent depending on the year and the assumptions used." In other words, no, there is no "safe" level of cuts that will not harm the recovery.
Of course, this is quite significant given Cat Food Commission II, or in Senator Pat Toomey's (R-PA) words, the "deficit super-panel," which just finished picking its roster of persons to serve on it, is constituted to produce cuts only. Toomey himself says "I'm not interested in some kind of big tax increase; that would be counterproductive."

Senate Minority Leader Mitch McConnell (R., Ky.), who chose Toomey, said his main criterion was finding senators "who are interested in achieving a result that helps to get our nation's fiscal house in order. . . . That means reforming entitlement programs that are the biggest drivers of our debt, and reforming the tax code in a way that makes us more competitive and leads to more American jobs."

So, whether Democrats agree or not, and at least some of them are in agreement with Republicans that there should be spending cuts, but no tax increases, the real problem is the Committee itself:

The super-committee itself is a profoundly conservative and anti-Democratic entity, immune from public pressure and tasked with deciding between two bad choices—a so-called grand bargain that would significantly reduce the social safety net vs. deep across the board cuts at a time of economic peril. The idea of doing anything to stimulate the economy is totally absent from its purview. The scope of the committee itself, rather than who’s on it, is the real problem.

And as to the notion that the Democrats on the Commission are flaming lefties, erm, no.

Saturday, August 6, 2011

What does the S&P downgrade of US creditworthiess mean?

A very, very serious math error was allegedly behind the Standard & Poor downgrade of the US credit rating from AAA to AA+. S&P admitted the $2 trillion error, but downgraded US creditworthiness anyway.

A round-up of opinions on the downgrade.
Lots and lots of questions about whether S&P is competent to rate anybody.  Lehman Brothers and AIG were both issuing bonds that S&P rated as AAA only a month before they crashed and burnt.

Very good question by an economist.
"It would have also been worth asking what S&P thinks it means by this downgrade. U.S. government debt is payable in dollars. The U.S. government issues dollars. What does it mean that S&P thinks that at some point the government will not have the dollars needed to pay interest and principle and its outstanding debt. Does S&P think the U.S. government will forget how to print dollars?"

Yee-hah to this!
"...sound fiscal policy must take precedence over ideological hissy fits and constant threats of government shutdowns and partial-shutdowns as petty acts of gamesmanship (see: FAA shutdown, etc.)"

Tuesday, August 2, 2011

Terrorism and debt

Well, having just finished watched the movie "The Taking of Pelham 1 2 3," I feel it goes pretty well with the drama that was just more-or-less concluded in Washington DC. As in Pelham, this was a hostage crisis, with Republicans threatening the good name and credit rating of the United States. As The Philadelphia Inquirer made clear, the whole episode has left US creditors and allies very troubled. Unfortunately, President Obama seems to have these "Grand Bargain" fantasies where everybody gets something and gives up something and all parties ends up reasonably satisfied. Or perhaps Obama just might be a fan of the old Clintonian trick of "Triangulation," a strategy whereby the President would stand between the left wing of his own party and Republicans and thereby appear to be the centrist, Third-Way "grown-up in the room." It worked for the President, but greatly weakened the Democratic Party as a whole.

As an old peacenik buddy David Gibson puts it (David had a long-time relationship to the group Peace Action, a group that's big in California and that has a significant chapter in New Jersey, but is next to unknown here in Philly), I cheerfully and wholeheartedly agree with him that the “People’s Budget” is a vastly superior alternative to anything that's been discussed by either Obama's "Cat Food Commission" or Representative Paul Ryan's (R-WI) plan "The Path to Prosperity," that was voted on by the Republican-controlled House of Representatives ("No Dems voted for the measure; and only four Republicans jumped ship"). Alas, the People's Budget was considered a minor also-ran that was worth little, if any, attention as far as the national press corps was concerned.

According to NY Times columnist Paul Krugman, the deal reached by President Obama and the Republicans/Tea Partiers is an unmitigated disaster.

Indeed, slashing spending while the economy is depressed won’t even help the budget situation much, and might well make it worse. On one side, interest rates on federal borrowing are currently very low, so spending cuts now will do little to reduce future interest costs. On the other side, making the economy weaker now will also hurt its long-run prospects, which will in turn reduce future revenue. So those demanding spending cuts now are like medieval doctors who treated the sick by bleeding them, and thereby made them even sicker.

As the blogger Digby puts it:

The idea that they are even talking about this at a time of nearly 10% official unemployment with the economy looking like it's going back into recession (if it ever left) makes this debate surreal and bizarre. To cut the safety net and shred discretionary spending in massive numbers at a time like this is mind boggling. That it's happening under a Democratic President and a Democratic Senate is profoundly depressing.

A blogger for the Washington Monthly felt progressives were so down about the results, he rounded up people who saw the deal as something other than a complete disaster, but Daily Kos pours cold water all over his first example. Various people have tried to suggest that the Bush (Now the Obama) tax cuts will be eliminated at the end of 2012, but that appears to be very highly unlikely.

I really wish I could say something positive about the deal, but I'm afraid that Pelham had a much happier ending.

Updates:  Y'know, it's always nice when people wake up to a realization (AFL-CIO also chimes in), but it's kind of annoying when they realize something after close of business, like a few minutes after 5:00pm, after most everyone has left for the day.
Senate Minority Leader Mitch McConnell has absolutely, positively no intention whatsoever of turning to the jobs issue. Why Obama thinks we've settled the spending issue and can now turn to jobs, I just don't know.
Very disturbing photo, of the President signing the debt bill all by himself. Neither Republicans nor Democrats want to be associated with this bill.