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.