The Fiscal Cliff

In my last post entitled "We Interrupt this Debate for Some Timely Comments.” I commended to the reader an article entitled “President Obama: The Democrats' Ronald Reagan” but introduced my subject with: “As the impending fiscal cliff moves ever closer, some timely observations appear to be in order and they will follow soon.” and that will be the main subject of this commentary.

In the meantime, however, the tragedy in Newtown, Connecticut cannot be ignored or as Ernst Hauser of the Bronx and Manhattan, NY said:

Yesterday’s events have interrupted the interruption - since the Supreme Court has chosen to break the SECOND AMENDMENT into 2 pieces, separating the "well regulated militia" and the "right to bear arms" the time has come to REPEAL it and replace it with a clearer worded one, that neither the CJ nor Scalia could twist. In the meantime Congress could repass the Brady bill, without an expiration date or time.

So much has been said on this subject that I have not much to add, except to observe that the tragedy in Newport, Connecticut is dwarfed by the carnage that goes on every day throughout the US without much publicity. The Brady Center to Prevent Gun Violence reports that more than 30,000 people are killed by guns in this nation each year. Yet this daily tragedy, neither commands the attention of the media, nor the attention of the nation.

Is this because multiple deaths occurring at the same time and place make for better headlines than smaller numbers occurring simultaneously, but in different places?

Or is it because such a large percentage of the victims of gun violence are black?

The first possibility is bad. The second is outrageous. 

The Office of Juvenile Justice and Delinquency Prevention of the Department of Justice reports: “Young African-American males have the most elevated homicide victimization rate of any race or gender group. Homicides involving firearms have been the leading cause of death for African-American males ages 15 to 19 since 1969.”

Whatever the reason, the lack of attention to this ongoing carnage by the media is a disgrace.

Now to the Fiscal Cliff!

I find myself disturbed here not only by the distortions on the Right, but by the blasé attitude toward the Cliff on the part of the Left. Thus I have started to get e-mails from an organization styling itself as AmericasDemocrats.org, which refers to that looming calamity as “the so-called fiscal cliff -- and why going over it might not be so bad.” Some suggest that it would take a long time for its effects to be felt. And the rest of the Left blogosphere, while not going quite this far, proclaims the slogan: “No Deal is better than a Bad deal.” While I have no difficulty agreeing with this in principle, I find that these self-styled “Liberals” define a “Bad Deal” as anything that makes the slightest change in the Entitlement programs.

Yes, it might be necessary for the President to allow the country to go over the Cliff rather than to give in to the constant blackmail by those who have decided that they can get their way by taking the Nation hostage, but the failure on the part of the Left to recognize the seriousness of this step, or to downplay it, is deeply disturbing, to say the least.

Let us understand what it means!

I quote from pages one and two of a 10 page paper released by the Congressional Budget Office (CBO), the highly respected non-partisan arm of Congress, entitled: “Economic Effects of Reducing the Fiscal Restraint That Is Scheduled to Occur in 2013.” 

“Under current law, the federal budget deficit will fall dramatically between 2012 and 2013 owing to scheduled increases in taxes and, to a lesser extent, scheduled reductions in spending—a development that some observers have referred to as a ‘fiscal cliff.’ … The resulting weakening of the economy will lower taxable incomes and raise unemployment…” (Emphasis added) 

“If measured for calendar years 2012 and 2013, the amount of fiscal restraint is even larger. Most of the policy changes that reduce the deficit are scheduled to take effect at the beginning of calendar year 2013, so budget figures for fiscal year 2013—which begins in October 2012—reflect only about three-quarters of the effects of those policies on an annual basis. 

“CBO expects—with the economy projected to contract at an annual rate of 1.3 percent in the first half of the year and expand at an annual rate of 2.3 percent in the second half. Given the pattern of past recessions as identified by the National Bureau of Economic Research, such a contraction in output in the first half of 2013 would probably be judged to be a recession.“ (Emphasis added)

Furthermore, Christine Lagarde has urged US leaders to reach a deal to avoid the "fiscal cliff,” warning that the uncertainty was damaging the global economy. The head of the International Monetary Fund told the BBC's Katty Kay that the US had a duty "to try to remove uncertainty and doubt as quickly as possible.” 

Even as early as December 12, 2012 Reuters reported that Dupont was already curtailing spending due to the imminence of the fiscal cliff. 

Furthermore, failure to reach agreement and falling over the cliff means that unemployment insurance checks stop being paid as of Dec. 29 resulting in “about 2.1 million Americans loos(ing) their extended jobless benefits … (and) An additional 930,000 people will run out of unemployment insurance in early 2013. 

Anyone reading this analysis can see the consequences are real and they are serious. Going over the cliff cannot be approached lightly, and from a political standpoint, if it must be endured, it must be clear to the American people that there was no real choice.

This is the President’s dilemma. He cannot stonewall, as the Left would have him do! He cannot cave to their laments, “No changes to Social Security, to Medicare, to Medicaid.” He must be, and he must appear to be, reasonable. It must be crystal clear that if this calamity were to happen that it was Republican intransigence that was to blame.

The Left keeps screaming: “We need more jobs” and it ignores that falling off the cliff will increase unemployment and increase the hardship of the unemployed.

Furthermore these strident voices ignore that more is at stake than entitlements.

Eduardo Porter writing in the New York Times of December 19, 2012, points out that “loath to raise taxes on the middle class yet unwilling to cut deeply into the budgets for Social Security or Medicare, the president and his advisers proposed cutting the discretionary part of the budget devoted to everything except defense and other security agencies to 1.7 percent of economic output by 2022, down from 3.1 percent last year” but there is not a word about such cuts from the Left. For the Left it appears that nothing matters other than entitlements.

But there is much at stake here!! Possibly more than even entitlements. To quote from the article: “It pays subsidies for higher education and housing assistance for the poor. It finances the National Institutes of Health and the Food and Drug Administration. It pays for the Federal Emergency Management Agency and training programs for unemployed workers.” But even Porter leaves out much of what is in that part of the budget. How about National Parks? How about the budget for the SEC and our other regulatory agencies? How about the budget of the IRS, where for every cut in its enforcement budget, we lose a multiple in tax revenues. I could go on and on. What about spending on infrastructure? See here. But I don’t hear any concern from the Left.

I know that we live in an age of slogans, and the pretense of simple solutions, in an age of short columns and short attention spans, but unless we focus on what is truly at stake and how difficult the choices are, we undermine the very things we value. Entitlements are very important, but they are not the be all and the end all.

And then comes the final straw from this new messenger from the Left. This AmericasDemocrats.org gives the impression that it is connected to the Democratic Party. Not only is this not true, but it gives us this bit of revisionist history. It tells us:

Did you know that Democratic “bosses” made FDR accept Harry Truman as vice president?

Did you know that Truman was “very anti-Semitic and racist”?

Did you know that Japan did not surrender primarily because of the atom bomb?

The first is not true. No one could make Roosevelt do anything he did not want to do and he demonstrated this four years before when he wanted Henry Wallace on his ticket, by being prepared to threaten not to run if Wallace was not his running mate.

As for the second, it was Truman who signed an executive order integrating the military at a time when most still thought of African-Americans as inferior, and it was Truman who against the strong opposition of his Secretary of State, George Marshall, recognized the State of Israel.

The website sets forth a view of the Cold War that can only be described as being out of playbook of the then communist party, blaming the cold war on Truman and American Imperialism. For more on Wallace, see here and particularly the sections on “The 1948 Presidential election” and “Later career”.

Next time I will return to the discussions with my readers, which I left off on December 4, 2012 with The President’s Re-election (More Discussion III)

We Interrupt this Debate for Some Timely Comments.

As the impending fiscal cliff moves ever closer, some timely observations appear to be in order and they will follow soon.

For now, however, I find it imperative to urge the reader to spend their time reading an article that appeared in Newsweek before the election. I find it always more interesting to read a predictive article after the fact than before, because with hindsight we can see, ever so clearly, whether the article had a clear vision.

The article is entitled: “President Obama: The Democrats' Ronald Reagan” (Click on title or here)  It also had the alternate title “Welcome Back to the White House Mr. President”, and it was published as early as September 24, 2012. 

I consider it must reading!! Read it on the screen or print it out, but read it!!

Allow me to quote from a portion of the article at its end.

I could be dreaming, I know. No doubt, my hope will be mocked as another dewy-eyed, liberal big-media fantasy. But I wore a Reagan ’80 button in high school for the same reason I wore an Obama T-shirt in ’08—not because their politics were the same, but because they were both right about the different challenges each faced, and both dreamed bigger than their rivals in times of real crisis. 

The hope many Obama supporters felt four years ago was not a phony hope. We didn’t expect miracles, but a long, brutal grind against the forces and interests that brought the U.S. to its 2009 economic and moral nadir. I’ve watched this president face those forces and interests with cunning and pragmatism, but also platinum-strength persistence. Obama never promised a mistake-free presidency, or a left-liberal presidency, or an easy path ahead. He always insisted that he could not do for Americans what Americans needed to do for themselves. In his dark and sober Inaugural Address he warned that “the challenges we face are real, they are serious, and they are many. They will not be met easily or in a short span of time.” 

But in a first term, he ended the Iraq War on schedule, headed off a second Great Depression, presided over much more robust private-sector job growth in his recovery than George W. Bush did in his, saved the American automobile industry, ended torture, and saw his own party embrace full marriage equality and integrate gays into the military. If those liberals who voted for him in 2008 think this is somehow a failure or a betrayal, in the context of the massive crisis he inherited, then they could not have been serious about real change in the first place. But some of us were—and still are. We understood that real change meets real resistance. In fact, you only know it’s real when the resistance is so strong. And the proper response to that resistance is not to fire the president who made this Reagan-like first-term progress in a far worse economic and fiscal climate, but to redouble on the Obama promise, to insist that America’s profound problems can only be addressed by a compromising president making bipartisan deals. And which ticket is likelier to compromise with the other party: Obama–Biden or Romney–Ryan? The question answers itself. 

Just as Reagan became an icon only in his second term, Obama needs four more years to entrench and build upon the large, unfinished strides in his first term. That’s why, if you backed Obama in 2008, as a liberal wanting change, as an independent wanting pragmatic solution-seeking, or as a conservative hoping to drag the GOP back from Palin-style insanity, it makes no sense to bail on him now. Because this is when the payoff of the long game really kicks in, when stronger economic growth will put a wind at the president’s back, when a bipartisan deal on debt could lift business confidence and accelerate recovery, when universal health-care reform becomes irreversible and health-care spending is slowed, when the last soldier leaves Afghanistan, when millions of illegal immigrants can come out of the shadows and help build the next economy, and when the spiraling emotions of religious warfare can be calmed, managed, and handled, rather than intensified, polarized, and spread more widely.

This was always Obama’s promise. He has not betrayed it. And we—yes, we—-deserve a chance to fulfill it.

For the whole article, which I urge you read in full even though it is long double click here.

The President’s Re-election (More Discussion III)

In my December 4 blog post, I set forth the views of Albert Nekimken PhD of Vienna, Virginia. I urge my readers to go to that post here and re-read Albert’s comments.

My response follows:

Please read the following with care and refer to the source materials as shown by URLs. The theology of the Left is no better than that of the Right. No, I don't mean that. It is far better, but I prefer to be fact-based and realistic, and not live in any world that ignores unpleasant facts.

                       

Thanks for your input. I may be wrong, but the way I see our divergence, is that he (i.e. Roger Streit) and Paul Krugman seem to believe that in a depression or even a recession, deficits are good and the larger the deficit the better.

                       

Also that no changes should be made in entitlements, certainly not any that reduce spending. That seems to be the position of the Left, and I draw a distinction between the Left, which seems to be almost as disinterested in facts and evidence as the Right and Liberals, like myself, who are fact and evidence oriented. There is a reason why I spend so much of my time doing research in an effort to ascertain relevant facts. Krugman increasingly comes across as a shrill polemicist.

                       

I believe that deficits matter, and I reject equally the claim made by our former Vice-President Dick Cheney, that "Reagan proved deficits don't matter," and those made by Krugman. (That does not mean that I favor a balanced budget) Interestingly enough one should note that Cheney is being consistent, even now arguing against what Krugman calls "the deficit scolds.” Or as the Washington Post reported: 

"Cheney, said lawmakers in the closed-door meetings, urged Republicans to continue high levels of military spending, warning them to resist automatic cuts that were put in place in last summer’s bipartisan budget deal. He offered not a word about how to fix the enormous budget deficits and soaring federal debt....The vice president talked only about the pros of appropriate investments in defense,” reported Sen. Bob Corker (R-Tenn.), who worried that lawmakers might respond to such advice by abandoning attempts to restrain spending." 

                       

But I digress. Your point is well taken. Krugman has said in so many ways that he wants to inflate our way out of the recession. He ignores history on this point and pays no attention to the terrible time we had when having let loose inflation through excessive deficit spending in the Johnson Administration, that led not only to inflation, but what came to be known as stagflation. Carter and his appointment of Paul Volker to be chair of the Fed, broke the back of that by raising interest rates, stopping the inflation, but increasing the recession, which cost Carter the election, and I have to admit that Reagan got us out of that malaise, by deficit spending. The funny thing is that if we look at the history of deficit spending, it is the Republicans who consistently do it, and the Democrats who are always balancing. 

                       

See the tables below:

(Please double click on either image to enlarge.)

The addition of the Presidents in office at the time of each deficit as a % of GDP are mine.

Please note that while during the war years '41-'45 Roosevelt (and his Congress) increased our debt as a % of GDP by a whopping 67.1%, the Truman Administration substantially reduced it by a whopping 46%, Eisenhower also reduced it, but by only 16.2% Kennedy/Johnson equaled that reducing it by 16.6% Nixon/Ford basically kept it flat, Carter resumed the reduction in deficit spending by 3.3% and then came the new Republicans screaming for balanced budgets, but under Reagan the deficit was increased  by 20.6%, further increased by H.W. Bush by 13%, decreased by the Clinton Administration by 9.7% (while having a booming economy by the way) only to have G.W. Bush increase the deficit by 25.3%, which despite all the noise is a hell of a lot less than Obama's 1st term of increasing the deficit by 10.3% of GDP in the face of a recession that is close to a depression.

If we add up all Republican and Democratic records on the deficit, exempting Roosevelt's war time spending, we get Republican - increase in deficit spending of 76.1% as against Democratic Administration decrease in deficit spending of 71.4%, and since the beginning of the Reagan era Republican increase in deficit spending of 58.9% as against Democratic increase in deficit spending of .60% even counting Obama's recession stimulus.

Which shows how easily the public is fooled into believing that Republicans are the party of balanced budgets, while the Democrats are the wild spenders. See the Pew Research Center poll which shows that the budget deficit was of the greatest concern to 69% of voters as of January 2012 and those: "... favor Romney over Obama by a 52% to 42% margin." Would they have had these views if they knew the facts? Those views are informed long before the campaign begins.

Which brings me once again to Krugman's contention that we can inflate our way out of recession by deficit spending. First as I have said before this runs the risk of run-away inflation and even stagflation as history informs us.

In addition Krugman and those who are likeminded show their inconsistency, because if the crux of getting out of the recession is deficit spending, then logically they ought to be satisfied to increase the deficit by any means, including extending all the Bush tax cuts and increase defense spending. That would have the advantage of being politically viable. But they are against this because they recognize, though they are reluctant to say so, that deficits are not the solution. Redistribution of wealth is. Recessions are caused by many factors, but one that is a primary cause is an imbalance between producers and consumers, as Henry Ford recognized, when he doubled his workers pay and started building the middle class. When producers have more resources than consumers, we get recessions and in a worldwide economy worldwide recessions. When consumers have more capacity to buy than producers to produce, we get inflation. That is a simple creed that I would think a Nobel peace prizewinner in economics, should be expounding, instead of focusing on the merits of unsustainable deficits.

That is the fundamental difference between the views of Krugman/Roger Streit and myself.

In addition Krugman/Streit want no changes in entitlements, while I believe that changes are absolutely necessary, not primarily because of the deficit, but because without changes these programs are not sustainable. As I said in my post "Social Security – An Honest Evaluation":

"But that means that even without any changes full payments of Social Security benefits would be paid to all those who are now 44 years old or older, which is better than the guarantee offered by the Ryan budget by one year, and unlike the Ryan budget benefits at a reduced rate would continue to be paid. 

"However I don’t believe that is good enough. We need to make sufficient changes so that people who are now 24 years old and are paying into the trust fund for the benefit of older generations are guaranteed full benefits. If we don’t do that, these younger generations will see little reason to support the system, and it will be doomed much earlier, simply because young people will insist that they not pay into a system from which they will not draw the full benefits of older generations."

As far as your comment below on this subject is concerned, you have to check the math and the political feasibility. You are right that SS should not be part of the budget deficit negotiations because they are not a cause for the deficit. That is the position of the President. But that doesn't change the fact that whether part of those negotiations, or separate from them, changes have to be made. Your suggestion that "making 90% of all income subject to SS tax withholding contributions," has two problems with it. By itself it will not solve the shortfall. I cannot at this moment give you chapter and verse, but I have researched this in the past and it wouldn't be enough. Secondly, it has to be politically feasible. Republicans will never allow it. So do we accept a stalemate and let SS die, or do we make such reasonable compromises as will save it.

Arguing that we need this or that if we don't have the money to pay for it is futile.

I believe that the solution I suggested in my post entitled "The President’s re-election (More Discussion)" is the right one: 

"Or we could consider changing it altogether, to kick in after 40 years of work. This would have the advantage that those who start work earlier, usually the under class, could draw earlier than those going to college, who earn more and are more advantaged. The figure for women as of 1940 are 14.7 and for 1990 19.6, so at the risk of being sexist, it might make sense to have an older eligibility age for women than for men." 

On second thought 45 years would be more realistic.

You say: As for rising life expectancies, where do you find evidence for this myth? This is downright insulting!!! You should know better than to ask me a question like that!!!! I don't deal in myths. I attack them No matter where they come from. I source everything. I wish you and others would look at my sources. I got my figures from the Social Security Administration. I am afraid that you like most others, Right or Left, reject unpleasant facts.

Now to Medicare you talk about the, "potential for legislating lower prices from vendors in the healthcare industry" but you don't say who these vendors are. Are you talking about physicians and hospitals? I can't comment without knowing who these vendors are.

As for your suggestion that we should "establish a national health service that provides services directly" while a fine thing to dream about, there is no point in belaboring that which is not politically viable.

We must live in the real world. We must focus on that which is possible, not "The Impossible Dream.” Ditto for the rest of your comments. The President is working on the possible. Obama Care, which has already extended the life of Medicare by seven years (See here and here) has the capacity through efficiencies in the delivery of health care, to further reduce the cost, particularly through the Medicare Independent Payment Advisory Board, 

As for your comments on the Defense budget, are you advocating that we let the sequester stand, even though it would decimate a whole range of vital services? I once again refer you to the excellent New York Times article entitled: "White House Details Potential Effects If Automatic Budget Cuts Go Through"  (You really have to read my source material.)

In our dreams we win great victories. In the real world we compromise when we must, rather than watching as everything we value goes down the drain but we have the satisfaction of remaining pure.

The President’s re-election (More Discussion II)

In my post entitled "The President’s re-election (Discussion)" I set forth comments that I received from various subscribers and my responses, including an exchange with Roger Streit of West Orange, N.J. and ended with my rejoinder. But my disputation did not end there, and accordingly, I set forth the further discussion with Roger in my post "The President’s re-election (More Discussion)." While my discussion with Roger has not ended, Albert Nekimken of Vienna, Virginia has joined the fray. I set forth below his comments and in my next post will set forth my rather lengthy response.

Here is what Albert opined with respect to my exchange with Roger:

This exchange is thoughtful - thanks for sharing it, though I'm not sure I can identify accurately exactly where you and Roger diverge. There are too many strands to the argument and chronology for that.

 Suffice to say that I agree with you that the future volatility of interest rates makes our high level of national debt dangerous. However, you may be minimizing the allure to some of inflating our way out of it by devaluing the USD, one way, or another.

 Regarding social security and retirement, we ought to remember that at least 30% of SS recipients have no other source of income. Also, by the mid-60s, many (if not most) people are exhausted and/or unable to continue to work even if anyone was willing to employ them, which is unlikely. If so, raising the retirement age is dangerous. Today, millions of people are struggling to remain employed at all, and therefore able to contribute to the SS fund.

 Based on my reading, the SS fund is NOT a debt of the federal government AND the fund can be rather quickly replenished for the foreseeable future simply by making 90% of all income subject to SS tax withholding contributions, as it was when SS was established; at present, contributions end around incomes of $125,000. This must be changed.

 As for rising life expectancies, where do you find evidence for this myth? American median life expectancy is already lower than that of many OECD countries and insurance companies still estimate that people like me, at age 68, should expect only ten more years of life. If so, that means less than 15 years of retirement on SS benefits--not excessive after a lifetime of work, by my estimate.

 Apart from paying off the Treasury bonds with which Congress irresponsibly stuffed the SS fund over the years, the next greatest federal spending burden is Medicare. Here the Republicans are pushing for a decrease in benefits, which are already inadequate, and ignoring the potential for legislating lower prices from vendors in the healthcare industry, which is currently VERY profitable. As the majority of the population is covered by Medicare, vendors unwilling to accept lower prices (and lower profits) offered by Washington will find ever smaller populations willing and able to pay their higher prices. The alternative approach to lowering healthcare costs, of course, is simply to establish a national health service the provides services directly. There is general agreement that we would see quickly a 30% decrease in useless, duplicative administrative costs even before considering bloated corporate profits.

 When U.S. vendors are unable or unwilling to sell at prices that the national service can afford, procurement should be opened globally. Also, if SS and Medicare payments were made to recipients for payment anywhere in the world where they may reside, you would see an earthquake of price adjustment in the healthcare industry. 

Finally, as you know, defense and intelligence spending must shrink. Alas, there is growing evidence (especially to Washington, DC residents) that the heretofore untouchable spending on intelligence has gone totally out of control. We could likely obtain the same, or better, intell while spending half of what we spend currently--again due to waste, duplication, and sheer incompetence. 

The defense vendor community is resisting spending reductions fiercely, but this is a fight that we must win--even at the cost of raising unemployment temporarily. Employment that is supported entirely by federal spending should be better shifted to time-sensitive, temporary unemployment benefits. 

Must end. Thanks again for resuming your blog and keeping our brains agile.

Comments, questions, or corrections, are welcome and will be responded to and distributed with attribution, unless the writer requests that he/she not be identified.

The President’s re-election (More Discussion)

I posted my last commentary "The President’s re-election" on November 18. On November 23, 2012 I posted the first installment of the discussion, which ensued under the heading "The President’s re-election (Discussion)"

In that post I set forth a lengthy exchange with Roger Streit of West Orange, NJ. That discussion continued after my post and I want to share it with you. 

My last rejoinder to Roger, as set forth on my blog of November 23, 2012 was:

That is an old but dangerous argument. Our debt has to constantly be refinanced. Three years from now interest rates may suddenly go up sharply, and will if the debt is large and growing. Then we are suddenly faced with a major crisis. We cannot just focus on now. We must also look to the future.

To which he replied:

Please consider than when you are criticizing [Paul] Krugman’s economics, there is a good chance that you are wrong. I know that you think you are qualified to do so, but you certainly have not convinced me by past columns.

 Of course we have to work on reducing the deficit in the long term. No one says anything different, including Krugman. 

FYI, C-Span 2 is showing A Conversation on the State of the Economy with Joseph Stiglitz & Paul Krugman on Saturday at 11 pm and again on Sunday at 2:45. 

My response to this was:

Or course, it is always possible that I am wrong. I am not an oracle. I do not claim infallibility. As for my convincing you with past columns, that is also a risk I take. I can't expect to convince everybody all the time and some, I am sure, never. All I can do is try. As you can see, Krugman, who is certainly far better credentialed than I am, can't convince everybody either. He is not an oracle either, and I fear that you are treating him as one. Actually, I am sure that he knows that he is wrong. As a columnist, he has to condense his comments to the length of the column.

              

I expect that he will be far more on the mark on C-Span, and I thank you for calling it to my attention. I will watch it.

               

But I don't think he should be allowed to be fast and loose with the facts any more than the Right. For instance, please refer to my commentary of November 18, 2012 entitled "The President's Re-Election" where I write: "writing in his column of November 15 entitled: "Life, Death and Deficits": I quote Krugman: "... right now the most dangerous zombie is probably the claim that rising life expectancy justifies a rise in both the Social Security retirement age and the age of eligibility for Medicare" and I say: "He makes some cogent arguments to support this, but fails to propose any reasonable alternatives, such as having a different retirement age for the relatively affluent and well-educated, and a different one for Americans in the bottom half of the income distribution, who aren't living much longer. (He doesn't cite any actuarial tables) and does not even propose closing the Social Security budget gap by raising the Social Security tax ceiling for the affluent."

              

Since then I have checked on the actuarial tables for those over 60 and in a discussion with another of my subscribers wrote:  In 1940 (I have no data earlier than this) life expectancy for males was 12.7 years. In 1990 it was 15.3.  I have nothing earlier or later, but if we go back to 1930 and forward to 2015 we can assume that it is double that, or 6 years. So an increase to 71 for males would be justified. Or we could consider changing it altogether, to kick in after 40 years of work. This would have the advantage that those who start work earlier, usually the under class, could draw earlier than those going to college, who earn more and are more advantaged. The figure for women as of 1940 are 14.7 and for 1990 19.6, so at the risk of being sexist, it might make sense to have an older eligibility age for women than for men.

               

In my view, the Left has become the conservatives on this issue, and the Right are the radicals who want to go back to an age long gone. But while the Right is dangerously wrong, so is the Left. We must embrace change to meet changing conditions.

Now to get back to the deficit.

Let me put it this way. Let us suppose you had a huge adjustable mortgage at 1% and the bank told you didn't have make any payments on principle or even on interest for 10 years and you can borrow more every year, say by 10%. Should you accept it? It sounds too good to be true. In fact that is what happened leading up to the bubble. Five years from now, or even ten, the bank raises the interest rates to 10%. “Whew,” you say, “I can't afford that.” I better pay it off, but where am I going to get the money now owed, which is now about twice as large as ten years ago.

               

This is the danger in ignoring a growing deficit. It is real, and there has to be a balance between stimulating the economy, re-building our infrastructure, and our social safety net, while always keeping an eye on the deficit. We need to get enough revenue, to meet our needs. Meeting our needs by borrowing is not a solution. That is why the argument about taxation is so important. It is not about the importance of getting money from the rich. It is about getting as much revenue as possible from those who can afford it, so we can meet our needs without increased borrowing.

Rogers’s rebuttal was:

I do not glorify him. I appreciate that Krugman is fighting the people who would use the deficit to cut entitlements. He proves over and over that they do not really care about the deficit. As you well know, we had surpluses until unfunded wars and tax cuts that mostly benefited the wealthy.

 You have to read his blog in addition to his columns. Otherwise you say things like "(He doesn't cite any actuarial tables) and does not even propose closing the Social Security budget gap by raising the Social Security tax ceiling for the affluent.” You frequently criticize him for what he does not say in one column. As you mention, his columns must be short, so they cannot address all points. But here is a post that answers at least one of your complaints. 

 We will certainly have a negotiation. Accepting the argument that the problem is mainly the deficit is a mistake in fact and in tactics. Krugman wisely criticizes the Very Serious People, who have been wrong consistently. As much ridicule as possible will help the cause. (See Clinton.)

 Comparing a country that has its own currency (and is the de facto safe haven for investors) to a family borrowing on a mortgage is just plain wrong.

My concluding counter to this was:

First of all let me thank you and compliment you for taking the time to voice your views and to enter into a debate with me. It is unfortunate that this happens so rarely. It is through sincere debate that we can all benefit.

                       

Allow me to respond to your points, one by one, and then I will go public. I really need to go on to other subjects.

As to paragraph one, I have been making the same point over and over again far more extensively and possibly earlier than Krugman. For example as early as July 14, 2011, I began writing on this subject with "The Deficit – One Big Hoax (Part I)," "The Deficit – One Big Hoax (Part II)," "The Deficit – One Big Hoax (Part III)," "The Deficit – One Big Hoax (Part IV)" and "The Deficit – One Big Hoax (Part V)." But the point I was making, and continue to make, is that while Republicans are insincere in using the deficit as a cudgel to try to kill our safety net, which we cannot and will not allow, does not mean that the growing deficit is not a real threat and danger.

                 

Your second paragraph points out that Krugman in a short blog showed the life expectancy tables at age 65. But he does not draw the right conclusions from this statistic, which is that even at age 65 life expectancy has risen significantly, something he denies in his column. Quite aside from the deficit debates, we need to put Social Security on a financial footing so that it is secure far beyond where it is now scheduled to have more expenditures than income, which according to the latest calculations is 2038. That is not far away. We need to make adjustments to make income equal expenditures, and we need to do it as soon as possible. The longer we wait, the harder it becomes, and with polls showing that: "Half of Americans between the ages of 18 and 29 don’t believe that Social Security will exist by the time they reach retirement age, a recent poll from iOMe Challenge finds. Of those young people that do say Social Security will still be around when they’re 67, only five percent say it will exist at the same level it does today."  That is a serious danger. They need to be reassured by making it sound into the period where they will begin to draw or they will not support it.

                       

Ronald Reagan did a lot of damage during his reign, but his Social Security compromise with Tip O'Neill served Social Security well and substantially extended its solvency. Its time to do it again. It is time, aside from the deficit arguments, to remake it for the 21st century along the lines I proposed in the fourth paragraph of my last message. Sitting on our asses and opposing all change is not being liberal.

                       

Using Alan Simpson as a foil is doing what I always criticize the Right for, setting up a straw man.

                       

Criticizing the phonies is not something I have a problem with. I have been doing this for a very long time. But to talk about going over the cliff rather than compromise is irresponsible. It could do the opposite of what you and he have been most concerned about. Jobs! The cliff would raise the unemployment rate to well over 10%. What a calamity. Sure, the President has to signal a willingness to go over the cliff if Republicans are intransigent. But by the same token, he has to show himself to be reasonable, in order to avoid the cliff, if it is at all possible. And if it has to happen, it must be clear to the public who was the unreasonable one. If the Public believes it was the President that will be reflected in the next election.

Let Obama be Obama. He is shrewd, liberal, and practical.

Finally, you say that a country is different from a person because it has its own currency. Point well taken. But it doesn't solve the problem I outlined. Solving a debt problem by printing money is inflationary, if not in the short term, certainly in the long term. Nobody remembers any more the terrible inflation during the Nixon years, which Carter stopped by having Paul Volker sharply raise interest rates. It caused a recession and was a major factor in Carter losing to Reagan. But we don't want to go through that again.

As for Medicare, increasing the age of eligibility would be a big mistake. In fact lowering it, by adding people who are healthier, would make more sense. But in order to reach agreement with Republicans, it will most likely be necessary to make some concessions (I trust not too many) that might not be desirable. But reality dictates that some compromises that include deleterious things will be part of the package.

Further comments, questions, or corrections, are welcome and will be responded to, but will not be distributed, since it is my intention to address other issues hereafter.

The President’s re-election (Discussion)

I posted my last commentary "The President’s re-election" on November 18.

As coincidence would have it, I received an inquiry from one of my subscribers that relates to it even before I posted my commentary, so allow me to share that exchange with you.

The inquiry came from Barbara Valentino Crowley Baptiste Moreus, of Port St. Lucie, Florida, who asked:

How does one rebut Senator Marco Rubio’s comment that: there isn't much point in raising taxes on the wealthy because they have the money to hire people who would help them get out of paying taxes. The billionaires and millionaires that are going to be impacted by higher rates, they can afford to hire the best lawyers, lobbyists and accountants in America to figure out how NOT TO PAY those higher taxes. Obama's approach will fail and therefore the problem of the huge annual deficit still remains. The President doesn't seem to understand that he is not going to get the "Bang for the Buck" by taxing the wealthy.

To which I responded:

“This is true as long as we have a tax system that has a million loopholes that clever lawyers can exploit. We really do need to close the many loopholes that are now in the tax system, e.g. look at my post "Romney is worse than I thought!" and look at the loopholes that Romney exploited. These need to be closed. Republicans are right that this kind of tax reform probably would raise more revenue than raising tax rates. But are they really prepared to eliminate them. I don't think so. The biggest loophole is that taxes on capital gains are taxed much lower than ordinary income. This needs to be changed. There is absolutely no reason why income from working should be taxed higher than income derived from investment. If we believe in the work ethic then we shouldn't punish people who work and reward those who get passive income by investing. But Republicans are adamant against this change.

But look at the many other loopholes that Romney exploited. When he gave assets to charity, he got a deduction for the value of the assets at the time of the contribution, rather than the price he paid for them, thus avoiding even the smaller capital gains tax. That is wrong. He should have to pay the capital gains tax when he gives to charity, as though he had sold the asset.

Inheritance tax. Aside from being too low under the Bush tax rates they allow a decedent to escape capital gains taxes altogether, since the law now says that assets of a deceased are exempt even from the very low capital gains taxes.

I can go on and on. Yes, Republicans are right that there is more money there than in increased tax rates, but they are phony when they suggest that they really favor tax reform. They will not support any of these reforms.

Extending the Bush tax cuts on the wealthy on the basis that at some time in the future we will have real tax reform is offering a bird in the bush. (No pun intended.) They will never let it happen. But if they have specific ideas along this line, I would like to hear them, and so would the President.

However Rubio is right about how much simply extending the Bush tax cuts for the wealthy will bring. 

To make a real dent in the deficit we would have to extend The Bush tax cuts for all, as Allan Greenspan has been advocating. If none of the Bush tax cuts were extended the deficit would be reduced by approximately $3 trillion over a decade, but extending them, in accordance with Obama's plan, only for those making more than $250,000 per couple, $200,000 for singles, would increase revenue by only 3/4 of a trillion over ten years, not nearly enough. But politically Obama can't be for extending all because he has made a pledge not to do so, and at this point in the recovery, it is not desirable. After we have recovered it would make sense. See here.

The amount that Obama is seeking in additional revenues is 1.6 trillion. See here. The 3/4 trillion achieved by the proposed elimination of the cuts is less than half of what we need in additional revenues. So not extending the Bush cuts for the wealthy gets us less than halfway there. Additional revenue beyond that must be found. The article, which I referenced in US News, is not realistic as to other sources.

This addresses the point made by Rubio.

The other points generally made are that taxing the rich will hurt job creation because it hits small businesses. This is not true. Small businesses and the wealthy are not the same. Please read the article which you can find here.

Finally the argument that taxing business at all will hurt job creation is also nonsense. There is a super abundance of cash in businesses, large and small, that is not being invested. Having more is not going to make a difference. There is only one reason businesses are not hiring, and that is that they have no need for additional employees because there is a lack of consumer demand. When consumer demand picks up, they will start hiring. It is well established that 70% of the economy comes from the consumer. That is why putting money into the hands of people who will spend it on consumer goods is by far the most effective way to move the economy. The stimulus worked, despite all the denials. Look at the figures. Before the stimulus, jobs were being lost at a rapid clip. Right after job losses declined rapidly, and then jobs started being created at an ever faster clip. It is true that the stimulus was too small and did not last long enough, but that is not Obama's fault. The size of the stimulus was the best that could be gotten out of Congress. 

Republicans are right that the best way to deal with the deficit is by growing the economy, but wrong about the way to grow the economy. The economy grows from the bottom up, not from the top down, i.e. consumers drive the economy, not supply side economics. Compare the economy under Bush I lower taxes, Clinton's higher taxes, and with Bush's II lower taxes.

Joel Wiener of Boca Ratan Florida, had this observation:

I found Krugman's earlier column (November 8th - Let's Not Make a Deal) on the Fiscal Cliff interesting, especially his conclusion:  

“Meanwhile, the president is in a far stronger position than in previous confrontations. I don’t place much stock in talk of ‘mandates,’ but Mr. Obama did win re-election with a populist campaign, so he can plausibly claim that Republicans are defying the will of the American people. And he just won his big election and is, therefore, far better placed than before to weather any political blowback from economic troubles — especially when it would be so obvious that these troubles were being deliberately inflicted by the G.O.P. in a last-ditch attempt to defend the privileges of the 1 percent." 

"Most of all, standing up to hostage taking is the right thing to do for the health of America’s political system. So stand your ground, Mr. President, and don’t give in to threats. No deal is better than a bad deal.”  

I just don't think the Obama has the nerve to see what happens. I recall that in the third debate, when asked about the Fiscal Cliff, he said: "It will not happen." That was before the election, however.

To which I replied:

In a sense this is like the confrontation with the Russians in the Cuban Missile Crisis. Don't act too tough; don't overplay your hand, but be tough and offer the other side some kind of concession.

The military wanted Kennedy to immediately order the invasion of Cuba. Kennedy said NO! That would definitely lead to war. But he ordered a blockade. He then contacted Kruschev and said take your missiles out of Cuba and we will take ours out of Turkey.

That’s what we need here. Tough and a signal that we are willing to face disaster (falling off the cliff if we have to) but not so tough as not to offer concessions and to make a deal unlikely.

                       

No deal may be better than a bad deal, but what is the definition of a bad deal. Is a bad deal any that makes painful concessions?

I trust Obama's judgment. This is where Krugman and I part. He does not.

And Rick Pereira of North Adams, Massachusetts chimed in with:

I totally agree with you that gerrymandering continues to be, if not the primary, then at least the fundamental, cause of our perceived political instability. It may well be part of why we have effectively only two parties. In my belief, it will take one or more states to take action against gerrymandering as a political message against it and to raise public awareness of it.  I have long complained of the lack of the words "accountability" and "transparency" in politics (national as well as state) and although I'm encouraged by Cuomo's efforts, I've been very disappointed in New York's lack of transparency in its election laws.  Furthermore: if there is any contingent of citizens concerned enough about this issue, one strategy may be to promote enlarging of political districts in the name of saving money, because technology is now easily able to handle larger districts. This should obviate gerrymandering on a zipcode-by-zipcode basis.

To which I responded:

We need to revise the Constitution as difficult as that may be. We are spending too much time on elections, so that as soon as one election is finished, fund raising begins for the next. I would suggest that both members of the House and the Senate should be elected every four years to coincide with Presidential elections and that state elections for Governor and state legislatures be held at the same time. One election every four years is more than enough and the Presidential election brings out more people voting, so the results are more democratic.

An override of United needs to go with it, saying specifically that the Congress shall have the power to regulate the manner of raising and spending money in elections and the extent to which the government shall finance it. Fewer members of Congress and larger districts are desirable. 

Then Congress needs to legislate how Districts are to be drawn, setting forth the criteria, e.g. contiguous, no more population variation than 5%, geometrically concise such as a square, etc. and that these criteria are to be fed into a computer by the US Census Bureau. That may not be perfect, but I can't think of a better way. The type of voting machine to be used and how many voting machines per registered voter also needs to be mandated.

As for state elections, the above will improve these, but under our federal system, anything beyond this will have to be a state matter, though I would like to see a mandate that judges must be appointed by the governor and not be elected.

And finally I had an extensive exchange with Roger Streit of West Orange, NJ who opined:

I do agree with Paul Krugman’s argument as set forth in his November 11 column  “Contrary to the way it’s often portrayed, the looming prospect of spending cuts and tax increases isn’t a fiscal crisis. It is, instead, a political crisis brought on by the G.O.P.’s attempt to take the economy hostage.” 

Why do you “take it from this that Krugman would be perfectly happy for taxes not to go up, even on the very rich, as the President wants, because … he doesn’t specifically say so”? 

From previous columns, it is very clear that he is in favor of raising taxes on the rich. He doesn’t have to make that point in every column. He was debunking the right’s supposed concerns of reducing the deficit. He identified the hypocrisy and also pointed out that they have been consistently wrong in their prescriptions and predictions. 

In short, you have to read Krugman on a consistent basis in order to appreciate his columns. I suggest that you read his blog as well as his columns before you criticize him. IMO, he has been right much more often than not. See also here.

To which I replied:

It is both a fiscal crisis and a political crisis. As I pointed out in numerous posts, the deficit is a phony issue when Republicans raise it, because they are totally insincere. Ryan's budget doesn't even attempt to close the budget gap. All it does is to destroy the safety net and all kinds of other governmental functions and cuts taxes on the higher incomes.

                       

But that doesn't mean that the looming deficit, which is a Bush creation, having inherited Clinton's balanced budgets and surpluses as far as the eye could see, isn't real. The Supreme Court's denial of the election to Gore was one of the greatest tragedies in American history.

                       

It is real. Not immediately. But down the road, but we can't wait till it is an immediate problem. That is too late. We need to put a long-range plan in place now. The President has been trying to do that for quite a long time with his proposals of tax increases and cuts, but the G.O.P. has been adamant for no revenue increases. That has changed. Now it is only how much and how. But cuts must be and will be part of the equation.

                       

Yes, Krugman wants taxes to go up, but he undermines the need for this when he argues that the deficit is irrelevant. If it is irrelevant, then we can just meet the nations needs without tax increases and let the deficit keep going up.

                       

Krugman is simply sloppy in writing his column and columns. Look back on my blog where I have time and again criticized him for undermining our President. He has no sense of political realities, and he is too often more of a polemicist than a thoughtful economist. I hope he does a better job in teaching his economics classes.

And then added:

Roger, let me add that I agree with much of what Krugman says. Erskine Bowles would be a terrible choice for Treasury Secretary, but I am not aware that he is being considered. When he says, "the deficit-scold movement was never really about the deficit. Instead, it was about using deficit fears to shred the social safety net," I agree with him, and I have been saying that all along. But when he says they "don’t even deserve a seat at the table." that is downright silly. The President can't deal with the "fiscal cliff without dealing with 'deficit scolds' in Congress!! To say they shouldn't have a seat at the table is ludicrous. Just because he rightly advocates for  ‘Keynesian economics’ as I do, doesn't give him a license to say silly things.

To which Roger replied:

I agree with you that you have to negotiate with the crazies, but you don’t have to give their arguments any credence. President Obama has given much too much weight on deficit reduction and has not focused enough on reducing unemployment. As Krugman has pointed out, the U.S. can borrow money for free and we have massive unemployment. Why not focus on putting these people to work?

And my rejoinder was:

That is an old but dangerous argument. Our debt has to constantly be refinanced. Three years from now interest rates may suddenly go up sharply, and will if the debt is large and growing. Then we are suddenly faced with a major crisis. We cannot just focus on now. We must also look to the future.

Comments, questions, or corrections, are welcome and will be responded to and distributed with attribution, unless the writer requests that he/she not be identified.