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.