Archive for category Deficit

Apocalypse Not Now

Apocalypse 2015
“White House Down” (2013)

Via Think Progress.

Remember all those Tea-GOP predictions about what 2015 would be like if President Obama’s doomed Marxist regime was allowed keep running the country into the ground?

Today, the nationwide average for a gallon of gas is $2.24. The unemployment rate currently stands at 5.8% and has been under 6% since September 2014. The Dow Jones Industrial Average currently stands at 17,823 and is up over 35% since Obama was reelected. The Dow has climbed more than 10,000 points during the Obama administration. The U.S. economy grew at a robust 5% in the 3rd quarter of 2014, following 4.6% growth in the second quarter.

Why couldn’t the Tea-GOP predict declining wages? People who work for a living need a raise, badly.

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The War Power, The Sergeant, the Senator: Treason or Heroism

The Sergeant who some years ago left his post in that unnecessary and unwinnable war in
Afghanistan is either a hero, a traitor, or just a terribly young man in the wrong war at the wrong time. He spent terrible years of torture and probably said things he didn’t really mean.

Some years ago in Vietnam, Senator McCain was shot down over Vietnam, another unconstitutional war, and equally unwinnable war, confessed repeatedly to things he later recanted, once safely in the United States, and is, quite rightly regarded, despite his confessions to American war crimes, a hero. The two cases are not quite completely on all fours, as we say in the law. But the similarity is sufficient to compare with each other and with the undergirding of law.

Presidents, from George Washington to Barack Obama, who are visited by war, either their own or, like Obama, inherited from another (in Obama’s case two other) fools who preceded them, have always had this power. While not yet president, and without this act may well not have become president, Ronald Reagan communicated with Iran, telling them, in effect, just to refuse to deal with Carter on releasing our citizens from the U. S. Embassy in Iran, and await his presidency. Their deal (which killed Jimmie Carter’s hope for a second term and by the way was treason, meriting a firing squad.)

The 30, 60, 90 day notification of Congress is also unconstitutional, but not for the reasons the Republicans and Democrats alike, trumpet. Saint Paul, as I recall, said “this trumpet has an uncertain sound.” And I know he said that some leaders have “zeal without knowledge.” This is Republican and Democratic leaders on steroids, just like my former wife.

The reason the War Powers Act is unconstitutional is not what is now said by either Republicans or Democrats, as I told Joe Biden when he was both Minority Senior member of the Foreign Relations Committee of the Senate and when he was chair. I testified before his committee a few times, and he called me at the law school sometimes to chat about this. The reason is simple. Due to both a few but very senior Democrats and almost all Republicans, Congress forced the Demo’s to give the president 30, 60, or 90 days to play with Congress’ army while he picked his nose. War has not been officially declared since FDR did it in WW2. George Bush (the first) and Colin Powell, in my opinion, got it right, constitutionally, by voting 50-50 in the Senate, and then the Dark Lord, Vice President Cheney, broke the tie and we went to war in Iraq the right way by law; and they had the smarts to stop when their limited mission was accomplished. And until this time, the President, as Commander in Chief, has no constitutional power to use the United States armed forces, save self-defense.

In the Framers’ mind that means only when the United States of America, not our allies, are attacked. For Utahns, the reason J. Reuben Clark, my hero and a great patriot, a rock-ribbed Republican who served under many Republican presidents, served variously as chief legal adviser to the Department of State (then, as an deputy Attorney General on loan from Justice to State,,,,,,now called Legal Adviser to the State Department; and Vice Secretary of State, and Ambassador to Mexico; and advised many presidents between world wars one and two, on all arms control treaties between those to dreadful wars) opposed NATO was because it delegated the war power to a generation not yet born and for the defense of people, and nations, not yet born. Neither the United Nations (Korean War) nor NATO (Ukraine?) can declare war for the United States of America. This is the statement of law, the War Clause, that makes this beyond debate. Remember, that it is also the sole right of Congress: not the President of the United States, nor NATO, nor the United Nations, that decides what constitutes International law, as well. So, both Constitutional Law and International Law, save an attack on the United States, inform us that Congress, not the president or these international bodies, who determines for war or peace.

So screw the people and the Congress and president now living. When the president, any president, has this army to use, that army will never return to Congress’ care. This is unconstitutional because it is an illegal attempt to delegate to the President a plenary power, given exclusively, textually, to the Congress. Like the power over interstate commerce (the road by which most civil rights legislation is constitutional), along with the equal protection and due process of law clauses of the 5th and 14th amendments. It’s as if Congress were to say to Obama, “Say, friend, we’re so damned tired of life in Washington, despite the cherry blossoms, we will do what the Supreme Court does, and reconvene when good weather returns. We’re going to go to Balboa Island, California, where it’s nice and sunny, in ocean or on the beach, and pick our nose and scratch our butts. And better yet, we have one in eight chances not to pick both with the same finger. Even though we’ve proven, time out of mind, that we in Congress cannot chew gum and pick our nose, simultaneously (a great blessing). So, pres., you now have the taxing and the spending power, and we’ll sweeten the loaf by throwing into the pot, since you do have to stick around in this shitty weather, and give you the power also to fund and provide for the Army, Air Force, Coast Guard, and Navy. And don’t sweat it about financing things by the provision in the Constitution that spending bills begin in the House. Since you already have the taxing and spending power, do all this in the White House. P.S. please instruct the Treasury Department to deliver our checks, our salaries, and all the REALLY big bucks from the armaments industry and all those other lobbyists. We really have earned this right by selling our souls to the devil. Have a good life.

I say that both Senator and Soldier are bona fide heroes. Ed Firmage xoxox

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Capitalism is a Failing System

This editorial by Richard D. Wolff caught my attention:

Janet Yellen, the United States’ Federal Reserve’s new chair, and I were graduate economics students around the same time at Yale University. The professor who shaped the macroeconomics we learned was James Tobin. He taught us to be Keynesian economists: that is, to accept capitalism as the sole object and focus of our studies, to celebrate it as the best possible system and to preserve it against its own serious faults. Keynesian economics teaches that to secure capitalism’s blessings requires systematic government intervention in the workings of the economy.

So far, conventionally Keynesian and even neo-liberal.

No courses at Yale troubled Yellen or myself with any analyses of how exploitation lies at the core of capitalist production. We were never taught that the majority of industrial workers produce more value for employers than what employers pay them. We were prevented from encountering arguments examining how this idea of “more” (or, in economic terms, of a surplus) contributed fundamentally to the systemic inequalities that define capitalist societies.

Now we’re getting interesting:

Capitalism’s dysfunctions have led me to appreciate and independently learn what Marxian economics has to teach me, outside of Yale’s mainstream economics. Yellen and her cohorts avoided and bypassed all that.

Convinced that we can do better than capitalism, many have analyzed the incipient alternatives emerging from capitalism’s deficiencies, such as cooperatives, workers’ self-directed enterprises and others. For us, Occupy Wall Street represents a powerful surge against capitalism, yet another sign of the waning tolerance for a system that Yellen will try to preserve.

The whole article is worth a read.

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Are we at the beginning of a period of political instability and violence?

Peter Turchin seems to believe so – although he also says that it’s not pre-ordained.  I don’t have time for a deeper examination right now, but it’s worth delving these two articles.

A couple key passages:

The US elites, similarly, took the smooth functioning of the political-economic system for granted. The only problem, as they saw it, was that they weren’t being adequately compensated for their efforts. Feelings of dissatisfaction ran high during the Bear Market of 1973—82, when capital returns took a particular beating. The high inflation of that decade ate into inherited wealth. A fortune of $2 billion in 1982 was a third smaller, when expressed in inflation-adjusted dollars, than $1 billion in 1962, and only a sixth of $1 billion in 1912. All these factors contributed to the reversal of the late 1970s.

And this:

Three years ago I published a short article in the science journal Nature. I pointed out that several leading indicators of political instability look set to peak around 2020. In other words, we are rapidly approaching a historical cusp, at which the US will be particularly vulnerable to violent upheaval. This prediction is not a ‘prophecy’. I don’t believe that disaster is pre-ordained, no matter what we do. On the contrary, if we understand the causes, we have a chance to prevent it from happening. But the first thing we will have to do is reverse the trend of ever-growing inequality.

And finally this one:

How does growing economic inequality lead to political instability? Partly this correlation reflects a direct, causal connection. High inequality is corrosive of social cooperation and willingness to compromise, and waning cooperation means more discord and political infighting. Perhaps more important, economic inequality is also a symptom of deeper social changes, which have gone largely unnoticed.

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Fox News Admits ObamaCare Will Reduce the Deficit

Yes – Fox News actually just admitted that Obamacare would reduce the deficit.  Republicans have continually repeated the lie that Obamacare increases the deficit; it doesn’t.”

From Fox News’ September 6 2012 Democratic National Convention coverage:

Full video HERE.

This chart shows both the increase in revenues and costs and the line in the middle shows the impact on the deficit by year. If the line is below zero then it reduces the deficit and if the line is above zero – it increases the deficit. You can see…the estimate is that it reduces the deficit: Source

ACA obamacare CBO10yeargraph-thumb-454x327-18160

The new estimates reflect a couple of factors. The Congressional Budget Office lists them:

– An increase of $168 billion in projected outlays for Medicaid and CHIP;
– A decrease of $97 billion in projected costs for exchange subsidies and related spending;
– A decrease of $20 billion in the cost of tax credits for small employers; and
– An additional $99 billion in net deficit reductions from penalty payments, the excise tax on high-premium insurance plans, and other effects on tax revenues and outlays—with most of those effects reflecting changes in revenues.

Jonathan Cohn at the New Republic digs into the details and rebuts those Republicans who INCORRECTLY say Obamacare now costs double:

To figure out the cost of health care reform, CBO looks at each of the law’s component parts and, for accounting purposes, groups them into different categories. It calls one category “gross cost of coverage expansions” – that’s the amount of money the federal government will spend to help people get insurance, mostly by offering Medicaid to more people or giving people subsidies they can use to help offset the cost of private insurance. Last year, CBO estimated that the gross cost of coverage expansion from 2012 through 2021 would be $1.445 trillion. Now CBO thinks the gross cost will be $1.496 trillion. The number shifted, in part, because the CBO has changed its projections for economic growth. (MSNBC’s Tom Curry has a nice explanation of this.) But, in the context of such a large a budget projection, that’s barely any difference at all.

Watch Sicko (2007) online for FREE!

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Oops, about your economics paper GOP

Sad news for the GOP, http://thinkprogress.org/economy/2013/04/16/1875631/new-research-blows-a-hole-in-gops-austerity-agenda/?mobile=wt

First, Reinhart and Rogoff excluded the post-war years for certain countries that enjoyed robust economic growth despite debt levels well over 90 percent. They also chose a skewed method of weighting the data: for example, New Zealand’s single year of terrible growth while over the 90 percent threshold wound up counting just as much as Britain’s 19 years of healthy growth. And they even incorrectly input at least one Excel spreadsheet formula, wrongly excluding several countries form their calculations.
In short, the central argument in support of austerity — cited by MSNBC’s Joe Scarborough, the New York Times’ David Brooks, and multiple times by House Budget Committee Chairman Rep. Paul Ryan (R-WI) — is now defunct. No one disputes that a country should avoid a big build-up in debt over the long-term. But every concrete signal we’re getting from the American economy — our high unemployment, our low inflation, our extraordinarily low interest rates, and our negative real interest rates — are a signal that more debt spending in the short term to fight the depression is perfectly appropriate. Thanks to the austerity drive that was heavily influenced by Reinhart and Rogoff’s study, American lawmakers ignored those signals (and plenty of others) and cut spending, delivering the most destructive fiscal policy we’ve had in any recession since at least 1980.

Why do we take these people seriously again?

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CPC’s ‘Back To Work Budget’

Budget comparison

The Congressional Progressive Caucus budget promises to create 7 million new jobs in one year, and includes $4.4 trillion in deficit reduction and $112 billion in infrastructure investment. That beats any other budget proposal in Washington, by far – including the Obama administration’s yet-to-be-released budget. And it won’t cut Medicare benefits to pay for more tax breaks for millionaires and billionaires.

UPDATE: Paul Krugman: Cheating Our Children

[T]alk of a fiscal crisis has subsided. Yet the deficit scolds haven’t given up on their determination to bully the nation into slashing Social Security and Medicare. So they have a new line: We must bring down the deficit right away because it’s “generational warfare,” imposing a crippling burden on the next generation. …

…Yet there is, as I said, a lot of truth to the charge that we’re cheating our children. How? By neglecting public investment and failing to provide jobs.

Read the rest of this entry »

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Did the Iraq War Cause the Great Recession?

My initial response to that question was to say, “Huh?”

But we’re talking about complex, interconnected systems.  The argument goes something like this:

Start by recognizing that international economics and politics are a set of networks.  Each national economy is a network connected to a larger, international network.  These networks have key nodes.  In terms of finances, the US and UK are two nodes whose influence is outsized simply because they are connected to so many other networks.  The more links a network has to other networks, the easier it is to spread problems.

. . . if contagion spreads across links, network topology will have important consequences for the likelihood of spread. As it turns out, there is strong reason to believe that the international financial system is one of the latter kinds of networks rather than one of the former. On two measures of financial ties, most countries on the periphery of the network have few links to other peripheral countries, but pretty well everyone has links to the US, and many have links to the UK too.

In other words, the US exported its economic downturn to the rest of the world when our financial system crashed.  What does that have to do with Iraq?

Military Keynesianism, says Thomas Oatley.

Now consider the Iraqi case. The sharp increase of military spending sparked by 9/11 and Iraq followed a massive tax cut (and coincidentally, we had a massive tax cut in 1964). Like Vietnam, therefore, the US borrowed to pay for the War on Terror. If the Vietnam War experience is any guide, this budget deficit must have had consequences for US macroeconomic and financial performance. The deficit was larger and persisted for longer than the Vietnam case. I argue that the choice to finance the War on Terror by borrowing rather than by raising taxes worsened the US external imbalance and the resulting “capital flow bonanza” triggered the US credit boom. The credit boom generated the asset bubble the deflation of which generated the great global crisis from which we are still recovering. Obviously, it takes a lot of heavy lifting to get from the war-related budget deficit to the global financial and economic crisis.

Oatley is writing a book exploring this theory.

In a less networked, less connection international economy, the effects of the US economic crash might have been limited to the US.  Instead, however, the distortions of the US economy caused by the spending for the War on Terror in general and the Iraq war specifically, and the massive tax cuts that caused us to pay for it through borrowing, created ripples in the US economy the ultimately caused a US crash which, through our connection to all the networks, casued a worldwide economic crash.

Everything is connected to everything else.    We’re talking aobut complex systems here, systems playing out in unexpected ways.  It’s a prime example of the levels of complexity Adam Kahane talks about – social, dynamic and generative complexity working concurrently in crazy making ways.  Tax cuts in 2001 and 2003 causing a crash in 2008?  The Iraq war causing a global economic meltdown?  It seems daft until you start thinking about interlocking parts connected to other interlocking parts.  So, in a way, you can start building a case that the 2001 Bush Tax cuts are ultimately responsible for the economic problems in Greece, Spain and Cyprus.

One of Oatley’s colleagues explores the idea further, arguing that there’s a distinction between core and peripheral nodes and their crises.  A peripheral node crisis is unlikely to spread further while a core node crisis will spread further:

Or take the examples of Iceland and Ireland. Iceland repudiated the debt of its banks, imposed capital controls, and told international investors to take a hike. Once again, this is a recipe for contagion yet systemic crisis did not result. Ireland did the opposite: it guaranteed the debt of its banks, did not institute capital controls, and paid off international investors. Systemic crisis also did not result. The opposite local policy response produced the same global outcome. Only the local outcome varied.

Contrast those cases (and all the other eurozone cases, and Argentina, and E Asia, and etc.) with the US in the Fall of 2008. A couple days of dithering — of the sort that the eurozone has made its speciality — lead to an immediate and profound downturn in global markets, including the largest single-day evaporation of wealth in absolute terms in history. The US tried to kick the can down the road, but couldn’t because it is the core node; the EU has been able to repeatedly kick the can down the road because those crises are in the periphery.

I conclude from this that policy always matters locally, but it only matters systemically when the crisis is in a core node. No matter what the policy response to peripheral crises is, systemic contagion is exceedingly unlikely.

This is a fascinating intellectual exploration.  The part that should have been predictable but apparently wasn’t is the transmittability of economic problems throughout the network designed to facilitate capital flows.  The US exported its financial crash to the rest of the world. 

 

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Personal Income Plummeted 3.6% in January

Americans’ personal income decreased $505.5 billion, or 3.6 percent, in January (on a seasonally adjusted and annualized basis), according to the Commerce Department’s Bureau of Economic Analysis. It was the biggest one-month drop in 20 years.

Consumer spending rose just 0.2% with most of it going toward higher heating bills and filling up the gas tank. Consumer spending accounts for about two-thirds of the U.S. economy.

BEA graph

The drop in income was partly driven by the end of the payroll tax cut, which means middle-class workers must pay 2 percentage points more in taxes this year on wages up to $110,000. But Congress has made the Bush Tax Cuts permanent for 98 percent of Americans, all except families with income more than $450,000 and individuals making more than $400,000.

Right-wing Republicans now declare that any ideas about raising tax rates or eliminating loopholes to boost revenue are off the table. They demand “cuts-only” deficit reduction. This means $85 billion in “automatic” austerity budget cuts kick in today (although Congress can cancel this so-called “sequester” anytime). The result will be a partial government shutdown, as many agencies are forced to furlough employees beginning in April.

Meanwhile, even Federal Reserve Chairman Ben Bernanke has said that the Washington obsession with budget deficits is hurting the economic recovery. The immediate crisis is our jobs deficit. Robert Reich:

Unemployment is still sky high. The current official rate of 7.9 percent doesn’t include 8 million people (5.6 percent of the workforce) working part-time who’d rather be working full time. Nor those too discouraged even to look for work. The ratio of workers to non-workers in the adult population is lower than any time in the last thirty years — and that’s hardly explained by boomer retirements.

Wages continue to drop because the only way many Americans can find (or keep) jobs is by settling for lower pay. Most new jobs created since the depth of the Great Recession pay less than the jobs that were lost. That’s why the real median wage is now 8 percent below what it was in 2000.

…The budget deficit and cumulative debt are not the “transcendent issue of our time.” The transcendent issue is jobs and wages. Cutting the budget deficit now will only result in higher unemployment, lower wages, and more suffering.

The next opportunity for Republican economic sabotage will be on March 27, when the continuing budget resolution expires.

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Can Republicans Take ‘Yes’ For An Answer? NO

Party of NO

Once again, President Obama is pressing for a “Grand Bargain” that basically gives the right-wing Republican Party everything they have been asking for. The President wants to implement cuts to Social Security and Medicare, coupled with across-the-board discretionary spending reductions (aka austerity budgeting), and tax reform. You may recall that Willard (“Mitt”) Romney and his running mate, Rep. Paul Ryan, talked constantly about a plan to eliminate tax deductions during the 2012 election campaign.

So, basically, Obama is telling the right-wing “Here’s something you want, and something else you want, and I’m not going to ask for anything that progressives want.” And the GOP answer so far is a big fat NO. They would rather take the blame for a partial government shutdown. Does this make sense?

Jonathan Chait tries to explain:

President Obama is offering up something — hundreds of billions of dollars in cuts to Social Security and Medicare — that Republicans say they want and which (because of their unpopularity) they have proven unable to obtain even when they have had full control of government. They are instead undertaking a public showdown against a figure who is vastly more popular and trusted, who possesses a better platform to communicate his message, and whose message itself — spread the pain among rich and middle class alike, don’t cut retirement programs more deeply than needed in order to protect tax loopholes for the rich — commands overwhelmingly higher public support.

I think the Republican Party’s behavior can be at least partly explained, though not necessarily rationalized. The main thing that’s going on is that, in the face of cross-pressures, the party’s anti-tax wing has once again asserted its supremacy.

…Part of the confusion is that Republicans have been saying for months that they really just want to stop tax rates from raising. They’re happy — nay, eager — to make the rich pay more taxes by reducing their tax deductions. Certain conservative economists believe this as well. Since Obama is offering to increase revenue in exactly this way, his plan might seem inoffensive to Republicans.

…The answer to this piece of the mystery is clear enough: Republicans in Congress never actually wanted to raise revenue by tax reform. The temporary support for tax reform was just a hand-wavy way of deflecting Obama’s popular campaign plan to expire the Bush tax cuts for the rich. Conservative economists in academia may care about the distinction between marginal tax rates and effective tax rates. But Republicans in Congress just want rich people to pay less, period.

Robert Reich offers a better strategy for President Obama: Clear up all the confusion by taking on the Republicans’ big lies directly.

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.

Wrong. The problem is too few jobs, lousy wages, and slow growth. Cutting the budget deficit anytime soon makes the problem worse because it reduces overall demand. As a result, the economy will slow or fall into recession — which enlarges the deficit in proportion. You want proof? Look at what austerity economics has done to Europe.

The second big lie is trickle-down economics — the claim that we get more jobs and growth if corporations and the rich have more money because they’re the job creators, and job growth would be hurt if their taxes were hiked.

Wrong. The real job creators are the broad middle class and everyone who aspires to join it. Their purchases keep economy going.

The Obama administration doesn’t have to play this crazy game of offering right-wing Republicans everything they say they want, knowing that they will refuse to take it. What they ought to be doing is explaining to the public that the right-wing is wrong, that they are lying.

UPDATE:

Josh Marshall:

Republicans have run on big across-the-board spending cuts for literally decades.

…But here we are. For the first time I think in our history we are about to go over the precipice of genuine across-the-board spending cuts. And Republicans are completely freaking out. There’s no other way to describe it.

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Republicans Wave White Flag On Debt Ceiling Increase

White flag

Via TPM: “The jig is up. Republicans are going to increase the debt limit. Probably for free.”

First, the “Hastert rule” isn’t actually all that big a deal (it’s not really a rule). Republicans are now saying that the principle that legislation shouldn’t come to the House floor unless the majority of the GOP conference supports it only applies when there is a Republican in the White House.

Both the “fiscal cliff” deal and a relief bill for victims of Superstorm Sandy recently passed the House without a “majority of the majority” voting for them.

Second, the so-called “Boehner rule,” which requires a dollar in spending cuts for every dollar increase in the debt limit, is really, truly dead.

Third, Republicans’ big talk about forcing a partial government shutdown to avoid defaulting on the nation’s debts has faded away.

Read the rest of this entry »

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Republicans Don’t Understand Money

Titanic

Via Jason Linkins on HuffPo.

Yes, with platinum bullion at $1,587 per ounce you would need almost 20 tons of platinum to have $1 trillion worth. Whether this would sink the RMS Titanic is a moot point, because that ship sank more than 100 years ago. The point is, that’s not how money works. According to a 1996 law, the U.S. Treasury can mint a platinum coin of any denomination.

Yes it’s silly to think of avoiding default with a coin, but it’s even sillier to think that refusing to pay the bills for congressional appropriations might be a good idea (it’s actually unconstitutional).

UPDATE: White House Responds To $1 Trillion Platinum Coin Idea

UPDATE: FDL’s Jon Walker points out that if Congress refuses to raise the debt limit, without the $1 trillion coin the President has to make a choice of which law(s) to break:

The President could ignore just the debt limit law and continue to fulfill all the spending laws. Or, the President could fulfill the debt limit law, but that would require ignoring multiple other laws which would force the President to randomly pick who does and does not get paid.

More info:
Why The Fight Over The $1 Trillion Coin Is The Most Important Fiscal Policy Debate You’ll Ever See In Your Life
3 Huge Myths About The Trillion Dollar Coin Plan To Save The Economy

UPDATE: Paul Krugman: Mint that coin!

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