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

In my last post "The President’s re-election (MoreDiscussion V)" I set forth a very provocative presentation from Louise Mayo, PhD, Professor of History Emeritus, from Pittsburgh, Pennsylvania. I urge you to re-read it so that you can more easily follow my rebuttal, which follows.

I wrote:

I am also delighted about your comments on gun ownership. People sometimes think they are making me feel good by saying they agree with me, but if that is all I give to my audience, to affirm their own views, I am accomplishing very little. If I succeed in supplying facts, whether in support of predilections or in opposition, then I feel my hard work is productive. As you know, I always preach facts first, then opinions. If facts don't support the opinions then it is time to re-examine the opinions.

By the same token, I appreciate the facts you are supplying on the debt before, and during World War II and today. If you can supply the figures for the years following the war that would also be helpful. I believe the deficits were rapidly reduced. I would also appreciate your clarifying whether your figures are, in fact, for the debt, which would apply to all accumulated debt since the founding of the Republic, or the deficit, which is a figure that applies to a given period, usually the fiscal year.

My suggestion about the defense budget was not entirely sarcastic. It was a way of smoking out Paul Krugman's contention that deficits are the be all and the end all, that will solve our problems. I think that is simplistic, as is his contention that we can inflate our way out of the economic malaise. I also pointed out that with his logic increasing taxes on the rich is bad because that too decreases the deficit.

I am a Keynesian. I believe that in times of economic slow down, pump priming is essential and you are right that increasing the defense budget, while not the most efficient way of stimulating the economy, in fact, would do that, even though it runs counter to liberal orthodoxy. 

But not all increases in the deficit are beneficial. (Which is what Krugman appears to be saying.) Increasing taxes on the rich decreases the deficit, but Krugman would hardly argue that therefore this is undesirable. So it should be clear that larger deficits by whatever means, is not desirable.

In fact, if we correlate deficits, with economic performance over the years, we find that contrary to popular beliefs, most deficits were run up under Republican Administrations, (See table displayed in my blog "The President’s Re-election (More Discussion III)" while as Bill Clinton pointed out in his convention speech, "since 1961, for 52 years now, the Republicans have held the White House 28 years, the Democrats, 24. In those 52 years, our private economy has produced 66 million private sector jobs...So what’s the job score? Republicans, 24 million; Democrats, 42 (million)."

So clearly there is no correlation between deficits and private sector jobs. Pump priming is putting money in the hands of people who will spend it, thereby increasing demand, which will be met by the need to produce more, causing producers to increase production to meet the demand, which necessitates hiring, which creates more consumer demand, a circular cycle, which works well until demand outstrips supply, which causes inflation, at which point either demand must be restricted or means must be found to increase supply. Deficits are irrelevant in this, except in so far as sufficient revenue cannot be found to meet the need for expenditures, and then on a temporary basis, deficit spending can be justified. 

What made WWII successful in ending the depression was not deficit spending, but the creation of untold jobs in the defense industries and the huge expansion in our industrial capacity. Long range the GI bill, which increased educational opportunity, also laid the groundwork for economic revival for the future, and the wise investment in the Marshall Plan gave us markets for our goods. The deficits were a necessary evil in that endeavor, not the foundation.

The only time deficit spending is desirable is for investments that can be shown to produce a greater return than the cost of the investment in the long run. This is particularly true in the case of infrastructure spending, and investments in education. Private industry could never function without borrowing, but such borrowing is never for salaries, it is for investment in plant, which is depreciable.

                       

At the end of your presentation you make the standard argument, "Borrowing rates will never be as low again as they are now" first advanced by one my subscribers, Robert Malchman, and later advocated by Krugman. But that is a great fallacy recognized by our President. The credit we have is not at a fixed interest rate. No one can predict when it will go up, or how fast. It will at some point. No one know when or how much. When it does, we can't just pay it off all at once. We suddenly have huge expenses in debt service.

                       

I have said this time and time again. 

That is why an increase in revenue is so important. We need to spend on creating jobs, and at least as important if not more so, we need to spend on infra-structure, enlarging our ports, repairing our highways and bridges, our electric grid, our access to the web, and above all in our educational system. 

We achieved greatness because we were one of the first countries in the world that made high school free. We now must make college free. Not all colleges. Private colleges should remain private. But State and Municipal colleges must be free. The federal government must make grants to enable this. The huge debts incurred by people striving to make it into the middle class and instead being destroyed by it must stop. Those that have already incurred these horrendous debts must be allowed to declare bankruptcy and get a new start.

It is unfortunate that the Left is fixated on entitlements. They are important, but they are not the be all and the end all. To demand no changes is absurd. Social Security is an easy fix. Yes, a large part of it can be fixed by lifting the cap on the payroll cap. But if this is not politically feasible, then we must be willing to do that which is. Lifting the retirement age has drawbacks, but if that is the only politically viable way to extend the life of the program we need to do it. To do nothing is to doom the program. I prefer that to changing the COLA. Political reality cannot be ignored.

As for Medicare and Medicaid, Increasing the eligibility age will not help. It will take healthier people out of it and undermine it. Its best hope is Obama Care's ability to change the culture of health care, through the much-hated "Independent Payment Advisory Board.” Here the problem is not inherent in the government program, but in the way our Health Care system works. Unless we make the health care system more efficient, no amount of tinkering with the insurance system will make much difference. 

But we must recognize, that taking care of our future is more important than our entitlements, as important as they are. More revenue is fundamental to our future and a reversal of the redistribution of our wealth upward, is fundamental to our nation’s future. Tax Reform, most important, by taxing capital gains and dividends, as ordinary income is crucial. The permanent inherited aristocracy must be abolished, or at least reduced by ever-higher estate taxes, and preferably inheritance taxes, which are much fairer than estate taxes. 

We must, however, always be able to distinguish between aspirational goals and politically feasible ones. When aspirational ones must be postponed, we must accept compromises that are less than ideal, but that are better than an unacceptable status quo.

Finally, our present deficit is manageable, but the projected deficit, unless its trajectory is changed, is disastrous. Just because Republicans try to use it to gut, desperately needed expenditures, is no reason to deny what should be obvious. The issue should not be whether the projected deficits are acceptable - they are not - but that we must, and I mean must - deal with them with targeted cuts in spending, and there are many places where we can cut spending - reducing the prison population would be a good start, legalizing marijuana, etc. and increasing revenue, not only through the income and the estate tax, but by taxing carbon emissions and taxing discharges into our streams, where this cannot be avoided, taxing unhealthy foods, etc.

But whatever else we do - we must stop the trajectory in our deficit spending.

                       

In the meantime at the risk of causing this discussion to go on ad infinitum I still invite:

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 IV)

In a number of recent posts I set forth a long, and I believe very useful, discussion between Roger Streit of West Orange, NJ and me.

I urge the reader to review that discussion as previously set forth in my posts "The President’s re-election (Discussion)" where I set forth at its beginning exchanges with various people, but near its end my discussion with Roger commences. This discussion continued at length in my post "The President’s re-election (More Discussion)"

However, I then published my exchange with Albert Nekimken, of Vienna Virginia, who had commented on the exchange with Roger in my posts entitled "The President’s re-election (More Discussion II)" and "The President’s Re-election (More Discussion III)."

In the following three posts I digressed from this stimulating discussion. I now want to share the rest of it with my readers.

On November 28, 2012 where after having watched a Paul Krugman / Joseph Stiglitz discussion on C-Span, which Roger recommended to me, I wrote to Roger:

I want to comment on the Krugman/Stiglitz discussion. Krugman used WW II as an example of running up a large deficit that stimulated the economy. He didn't say, and I don't know, (nor do I want to research it) how large the deficit was as a percent of GDP going into the war, nor how large it was at its end. But by his logic we could deal with our present economic problems by quadrupling the budget of the defense department even without a tax increase. I know he wouldn't favor that, but if what he says is true, that is one thing Republicans would go for. So it seems that this would be an easy political solution.

This was never responded to directly, but on December 2nd Roger called my attention to a post by Timothy Egan in the New York Times that can be accessed here, and quoting from that column called my attention to this statement in the column:

Liberalism, in the broadest sense, is about expanding human rights and opportunity, while embracing science and reason.

My response was lengthy! (Brevity isn’t my strong suit.)

I have no problem with that definition. It is too bad that the general public doesn't see it that way. Too discuss why would require a dissertation by itself, so maybe another time.

As for the column as a whole, I think he is too easy on the Republican Party. Since as early as 1876, Republicans gave up their only saving grace as the party of Lincoln. 

"Reconstruction was brought about in the disputed 1876 Presidential election. The Democratic candidate, Tilden, won the popular vote, but neither candidate initially had a majority of electoral votes due to disputes over returns in Florida, Louisiana and S. Carolina--the only states in which federal troops were still stationed in 1876. Although they were not numerous enough to stop white intimidation of black voters, the troops were considered an affront by white Democrats. In back room negotiations, Democrats conceded the disputed election returns to Hayes in return for his agreement to withdraw the remaining 3,000 federal troops, thereby putting a formal end to Reconstruction and assuring Democratic control, based on a platform of white supremacy and black disenfranchisement, throughout the South.” See here. While they had some "liberal" or "progressive moments" after that, they were more aberrations, than real party policy, e.g. Teddy Roosevelt was not popular in the Republican Party. They hated his progressive agenda when he was governor of New York and so to get rid of him, they kicked him upstairs to V-P, figuring he could die on the vine there. This backfired when President McKinley was assassinated and Teddy Roosevelt ascended to the Presidency. 

Along the way there were some real progressive Republicans, such as Morse of Oregon, La Follette of Wisconsin, Hiram Johnson in California, Charles Evans Hughes of New York, and later Jack Javits of New York, and Chase of New Jersey, but they were always a minority.

Nixon supported some progressive things such as the Environmental Protection Agency and even proposed a national health insurance plan, but he was always a political opportunist and was the architect of the Republican Southern Strategy. The Republican Party is and always has been the Party of the rich, and its alliances with racists, theocrats, and misogynists, is opportunistic. But they can't shed them and survive.

After this digression, Roger returned to the main theme, by citing Krugman’s blog and added:

Anyway, my own answer is still what it has been all along: the time for austerity is when the economy is close enough to full employment that the Fed is starting to raise rates to head off an undesirably high rate of inflation; at this point, given the case for somewhat higher inflation, I’d say that we shouldn’t even think about this until unemployment is well below 7 and falling fast. At that point you can, in effect, make a deal — fiscal austerity in return for not hiking rates — that leaves the economy harmless.

And went on to quote from one Paul Mathis:

Since the focus of policy over the past three years has been almost entirely on the federal debt and the implicit danger that its size represents, there has been relentless fear mongering by conservatives about an unspecified danger somewhere in the future that will cause our economy to collapse. Therefore, austerity right now is essential to prevent this calamity regardless of the consequences for economic growth and employment. 

Liberals have been no help in negating this fear mongering because they have agreed, without evidence, that the federal debt is "unsustainable" and must be reduced. In fact, liberals have proudly pointed to the reductions in federal spending that have already occurred, e.g., the wage freeze for federal employees that has gone on for more than 2 years already. 

Those who have said that the federal debt is no problem because interest rates are at historic lows and that any debt, if necessary, can always be repaid with newly "printed" money are derided for "enslaving" us to the Chinese who "own" us and control our future. 

So the bottom line, as usual in American politics, is racism in the form of xenophobia against the Chinese. Against that derangement, we all contend in vain.”

To which my reply was:

While the Chinese have been a whipping boy, it is not fair to blame Republicans entirely for this. To a very large extent, the attack on the Chinese was started by the Labor Unions, who stupidly wanted to stop globalization. They started the campaign against globalization under the Clinton Administration when they vigorously opposed the North American Free Trade Agreement with Mexico, a treaty that has benefited both the US and Mexico. In fact Obama kind of bought into this when he kept talking about jobs shipped overseas. Jobs shipped overseas are an inevitable consequence of globalization, which can no more be stopped, than could the industrial revolution, which the unions also vigorously opposed, resorting to breaking machinery, which is where the term "sabotage" comes from.

Don't get me wrong, I am for unions, but they are often their own worse enemy.

As for the Chinese, it is wholly a stupid argument, no matter who employs it. "China, it turns out, holds less than eight percent of the money our government has borrowed over the years...But politicians like to find an external enemy to rally the troops against, and China is an easy target." 

To which Roger asserted:

…you have bought into the fear of economic calamity because of “unsustainable” deficits.  Krugman says there has never been a collapse of a country with its own currency.

To which I cited:

Argentina.

Roger went on to say:

We can print money when necessary and we can raise taxes and slow spending when the economy is overheating.

And I forcefully pointed out:

Like so many, you simply ignore arguments and facts that don't fit your predilections. In my last e-mail I pointed out the inflation under Nixon and Carter that was caused by the huge deficits during the Johnson Administration's policy of bread and war.

I also asked why; if deficits are the solution, why not simply create a huge deficit by not raising taxes and exploding the Pentagon budget. No response!

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.

Discussions With My Readership

I posted my last commentary on December 12, 2011. For those who may want to re-read it, it can be found under the title "The Deficit Reduction Committee I and II (Discussion)."

In that post Robert Malchman, Esq. of Brooklyn, NY reacted to a rebuttal that I had made to a column written by Charles Krauthammer with: "using your skills on someone like Klownhammer is like using a flamethrower on a strawman." In response thereto, I offered to consider a column by Ross Douthat entitled "An Argument Against Redistribution," which has more meat to it for rebuttal. However, I concluded with an invitation for additional comments, and many came. Therefore, before I venture on new ground, let me share with you the comments, some of which covered new grounds, and the exchanges to which they led.


Former Judge Edwin S. Bernstein Esq. of Boynton Beach Florida spoke to me on the telephone and said some things that disturbed me, prompting me to write the following rebuttal:

Apropos our telephone conversation, you aroused my curiosity about where my parents were born, causing me to use Google to see what I could find. I told you my mother was born in Zalishchyky, which could possibly be called a shtetl. According to its web site: it has a population of 13.000 people. The 1772 census listed 159 Jewish families in Zalishchyky. The Germans sent 200 Jews to the Kamionka (Kamyanka) labor camp; about 40 others were sent to a nearby army camp and forced to dig mass graves. Soon the other 800 were brought there and gunned down. 

           

However, my mother had left there with my grandmother when my mother was quite young and settled in Vienna, Austria. My mother was born in the late 19th century. During 1772 - 1918 Zalishchyky belonged to the Austrian empire (later Austrian-Hungarian empire when the double monarchy was introduced in Austria). This is important to me, because my mother always claimed that since at the time of her birth the city was part of Austria, she was born in Austria. But the US authorities classified her as Polish because at the time of desired immigration to the US (1938-1939) it was part of Poland. 

           

This was crucial and almost cost her life because the Austrian immigration quota was a favorable one, and if she had been classified Austrian she could have come to the US with her children in 1938, instead of having to wait until 1939 for her Visa, which she obtained while a refugee in Italy.

A similar story applies to my father, who was born in Lemberg, which was also part of Austria when he was born, but which was part of Poland in 1938. Its population in 1869 was 87,109 of whom 26,694 were Jews; in 1890 it was 127,943, including 36,130 Jews; in 1900 there were 44,801 Jews in a total population of 159,618, probably too large to be called a shtetl. 

           

Same immigration classification by the US. Had my mother not had a Visa forged, he would have died in the Buchenwald concentration camp.

           

With all our claims (US) of being hospitable to immigration, such quotas and exclusion acts make it a motley tale.

           

On our political discussion, I am very disappointed that you do not seem to be reading my blog postings. They would frequently prevent you from adopting "facts" that are wrong. I write them not to express opinions, which in most cases my readers share, or at least have similar opinions to mine, but to make sure my readers are familiar with relevant facts, toward which end I spend many hours doing research. 

           

For example I was bothered by some of the comments you made, e.g. that we ought to cut foreign aid, which arises from a neo-isolationism that has gained popularity both on the Left and Right. Please take the time to click on the following.

           

As you will readily see we are not a generous nation. Less than one per cent of our federal budget goes to foreign aid. US aid, as a percent of personal income, is second to last among wealthy nations. We give about 25 cents per American per year in foreign aid. Our total aid in dollar amount is $47.7 billion of which economic assistance is $33.9 billion, and that includes helping African babies avoid the scourge of Aids, Malaria, etc and helping hurricane, earthquake and tsunami victims. Would you argue we should not extend such help? Military assistance comes to $13.7 billion. Of that almost $4 billion goes to Israel and another $1.5 billion goes to Egypt to persuade it to keep the peace with Israel. See here.

           

As for interest on our debt, our treasury notes pay an astounding less that 1% on 30 year notes (see here) and less than 3% on average. See here.

           

As a result the present debt is not a significant problem, but projections into the future are troublesome. At the moment Republicans are using it as a wedge to try to destroy our safety net and regulatory structure. Every one of their budgets and proposals actually would increase the debt, not decrease it. (This is documented at length on my blog postings.)

           

Republicans keep arguing that the government should act more like a business, but not a single business functions without incurring debt, (which is why our banking system is so crucial and why it they had to be rescued) nor do individuals. Very few could buy a house without incurring debt, and most need to incur debt to buy large items such as a car. Borrowing, so as to do that which brings a bigger return than the interest on the debt, such as infrastructure, makes sense, always has, and always will.

           

On the other hand, Social Security, Medicare and Medicaid are not sustainable without some changes. Republican changes would amount to ending them, but Dems must make changes that will not necessarily be popular, but without changes these programs will not survive. I have written on this subject on my blog in the past, and will, in due course, discuss it in greater detail.

Some time later Bernstein commented on my post entitled "The Deficit Reduction Committee I and II (Discussion)" writing:

As always, I enjoy reading your blog and its comments. As I have said all too many times, our basic problem is the influence that money has on elected officials. This is especially true in Defense spending, where a grateful representative urges retaining unnecessary defense hardware to please his contributors - and his friends in Congress reciprocate. The cure is a Constitutional Amendment limiting contributions to elected officials. It is highly unlikely that this will occur. In its absence, perhaps the answer is something I have opposed in the past – term limits. 

To which I responded:

I hadn't planned to address the issue of money in politics in the near future, but since you raise it, and since it is one of the most corrosive influences in our government, I will address it soon, maybe in my next post.

                       

At this point let me just say that the problem is not just the "the influence that money has on elected officials." It has a much broader sweep than that. It infects our military procurement officers; it infects our regulatory agencies; it infects the staff of our officials; it effects our judges right up to the Supreme Court. You are Right that the cure is a constitutional amendment limiting contributions to elected officials, or at least giving Congress the power to do so. We need a Constitutional amendment stating that corporations are not persons, as persons are referred to in the Constitution, and that nothing in the Constitution shall limit Congress' power to regulate Corporations.

                       

We need an amendment that says money is not speech, and nothing in the Constitution shall limit Congress power to limit or regulate the collection, receipt, or expenditure of money in the political process, except the equal protection clause.

                       

Obama meant well when he decreed that lobbyists shall not serve in his Administration, but it should be the other way around. We need laws that forbid anyone who has served in the government from ever thereafter accepting employment from any individual or corporation who was effected by any act during such person's tenure in government, or from accepting any gratuity or fee from such person or persons for the remainder of their life.

                       

The delayed bribe for government services rendered is a greater problem that the money spent during campaigns.

                       

As for term limits, they accomplish nothing, and in fact are counter productive. The elimination of good people from government service by term limits is a great loss. It takes time to learn the job and term limits remove experienced people just when they become most effective, without any reason to believe that their successors will be an improvement. Stability is a valuable trait. I would, in fact, like to remove term limits from the Presidency.

                       

You are right it is all but impossible to accomplish these things, but they are so important that I think an effort in this direction is warranted. It may take years, or decades but it is so important, that the debate needs to begin. 

                       

How long did it take to gain women's suffrage? How long to emancipate African-Americans, and they are still not truly emancipated. 

If I address this as a full commentary, I will go into the many ways money corrupts, many of which are far from obvious.

                       

But it isn't only money; it is the gerrymander. We need federal rules that set the criteria for creating districts. Each with an equal population (within say 2%) contiguous, without dividing subdivisions such as towns or counties and providing that minorities be represented within (say 5%) of the population, and that the lines be drawn by computer based on these criterion.

                       

Of course, the filibuster must be abolished. It is ridiculous for us to be told that the vote was, e.g. 59 in favor - 39 opposed - the bill is defeated. Why do we have gridlock? It is the most important reason though there are others. The rule about not attaching non-Germaine items to a bill needs to be enforced.

Comments are welcome and will be distributed with attribution unless the writer requests that he/she not be identified.

The Deficit Reduction Committee II

On November 28, 2011 I posted and distributed my commentary entitled "The Deficit Reduction Committee" on the DRC's failure to reach agreement, and pointed out that Republicans on the committee never made a good faith effort to reduce the deficit, since the only proposal that they made would have increased the deficit. (In this connection it should be noted that in pushing for the extension of the Bush tax cuts for the very wealthy, they insisted that no offsets were necessary, when it came to to an extension of the of the payroll tax cut, they insisted that offsets are a sin qua non. Tax Cuts for working Americans, according to them, pose a danger to the economy, but Tax Cuts for the wealthy, who they call “Job Creators” are, according to them, good for the economy and need no set offs, no matter how much they increase the deficit.

I have received two comments to this article, but will postpone sharing them with you until the next post because of space constraints. In the meantime I invite further comments.

At the end of my last post, I promised to analyze point by point a column by Charles Krauthammer that appeared in the November 24 issue of the Washington Post, under the heading "The Grover Norquist tax myth." See here.

I suggest you first read it in full by clicking "here” above and then read my comments thereon, for which purpose I reproduce the article and intersperse my responses in contrasting type.

            Democrats are unanimous in charging that the debt-reduction supercommittee collapsed because Republicans refused to raise taxes. Apparently, Republicans are in the thrall of one Grover Norquist, the anti-tax campaigner, whom Sen. John Kerry called “the 13th member of this committee without being there.” Senate Majority Leader Harry Reid helpfully suggested “maybe they should impeach Grover Norquist.”

            With that, Norquist officially replaces the Koch brothers as the great malevolent manipulator that controls the republic by pulling unseen strings on behalf of the plutocracy.

Nice theory. Except for the following facts:

            ●Sen. Tom Coburn last year signed on to the Simpson-Bowles tax reform that would have increased tax revenue by $1 trillion over a decade  There was no Simpson-Bowles Tax Reform. This refers to a bi-partisan commission appointed by the President, the formation of which Republicans opposed. The President stipulated that its recommendations would only be submitted to Congress if 14 of its members voted for it. That vote was not achieved and the plan died. Sen. Coburn (R) voted for the report, but the Republican leadership in Congress showed no interest in it, and never brought it up for a vote in the House.

            ●During the debt-ceiling talks, House Speaker John Boehner agreed to an $800 billion revenue increase as part of a Grand Bargain. Yes, and then reneged when he found that his caucus would not consider it, despite the fact that cuts would have been three times the size of revenue increases.

            ●Supercommittee member Pat Toomey, a Club for Growth Republican, proposed increasing tax revenue by $300 billion as part of $1.2 trillion in debt reduction. This is precisely, what I was talking about in my last post. The proposal was to increase $300 billion in revenue, provided there was a decrease of $4 trillion in revenue, through a permanent extension of the Bush tax cuts. This means a net cut in revenue $3.7 trillion.

Leading, very conservative Republicans proposing tax increases. So why does the myth of the Norquist-controlled anti-tax monolith persist? You might suggest cynicism and perversity. Let me offer a more benign explanation: thickheadedness — the inability to tell the difference between tax revenue and tax rates.

            In deficit reduction, all that matters is tax revenue. The holders of our national debt care not a whit what tax rates yield the money to pay them back. They care about the sum.The Republican proposals raise revenue, despite lowering rates, by opening a gusher of new income for the Treasury in the form of loophole elimination. For example, the Toomey plan eliminates deductions by $300 billion more than the reduction in tax rates “cost.” Result: $300 billion in new revenue. This is unadulterated nonsense! Democrats don’t care how revenues are raised as long as they are raised. It is not a question of rates. Republicans have made clear they will not agree to anything that brings more revenue to the treasury.

The Simpson-Bowles commission — appointed by President Obama and endorsed by Coburn — used the same formula. Its tax reform would lower tax rates at a “cost” of $1 trillion a year while eliminating loopholes that deprive the Treasury of $1.1 trillion a year. This would leave the Treasury with an excess — i.e., new tax revenue — of $100 billion a year, or $1 trillion over a decade. Not extending the Bush tax cuts nets $4 trillion. As indicated, Republicans do not support the Simpson-Bowles plan. So this is a straw man. What is the significance of one Republican supporting it on the commission, when we don’t even know if he is prepared to support it in Congress? And it is one Senator. One!

            Raising revenue through tax reform is better than simply raising rates, which Democrats insist upon with near religious fervor. It is more economically efficient because it eliminates credits, carve-outs, and deductions that grossly misallocate capital. And it is fairer because it is the rich who can afford not only the sharp lawyers and accountants who exploit loopholes but the lobbyists who create them in the first place. This is the latest canard. No Republican reform plan proposed would increase revenue, and none of any kind has been proposed. What they mostly talk about is reforming the tax code, so as to do away with mostly middle class deductions, and a flat tax that would further shift the burden of taxation away from the rich and toward the middle class. This is truly class-warfare. It is war on the middle class and the poor.

            Yet the Democrats, who flatter themselves as the party of fairness, are instead obsessed with raising tax rates on the rich as a sign of civic virtue. This is perverse in three ways:

            (1) Raising rates gratuitously slows economic growth, i.e., expansion of the economic pie for everyone, by penalizing work and by retaining inefficiency-inducing loopholes. We should get rid of the loopholes!!! That is a good start. Lets do it now and reduce the deficit. Increasing taxation on those who can best afford it doesn’t slow growth, no matter how often it is repeated. If we wish to encourage work then we should reduce taxes on those who indeed work, and increase taxes on the “coupon clippers.” Or in other words, tax unearned income the same as earned income. Tax Capital Gains and Dividends the same as earnings from work. Tax Inheritance, at the upper end, since the beneficiaries have never worked for it.

            (2) We’re talking pennies on the dollar. Obama’s coveted repeal of the Bush tax cuts would yield the Treasury, at the very most, $80 billion a year — offsetting 2 cents on the dollar of government spending ($3.6 trillion). This is the ultimate in juggling numbers. It sounds like Enron. That is not 80 billion a year. It is $4 trillion over ten years. And no one expects spending to be anywhere near 3.6 trillion going forward. But of course spending has to be reduced, and the President and Congressional Democrats have proposed spending cuts three times as large as revenue enhancements. Their proposals would begin to bring the deficit under control. The answer has been No and No and No. Every Republican proposal, whether the Ryan budget, or the plan put forward by Republicans on the Deficit Reduction Commission, would actually increase the deficit.

            (3) Hiking tax rates ignores the real drivers of debt, which, as Obama himself has acknowledged, are entitlements. Deficits are driven by lack of revenue or spending or both. Most non-partisan economists feel it is both. Entitlements need structural adjustments and Obams’s “Patient Protection and Affordable Care Act” makes a number of changes that make a beginning in reducing these expenses, over Republican opposition. In negotiations, other changes have been proposed as part of a comprehensive debt reduction measure. Republicans have rejected each and every one, because small revenue enhancements were to be included.

            Has the president ever publicly proposed a single significant structural change in any entitlement? Yes, Many! Again and again, as part of a balanced approach, only to be rebuffed each time. After Simpson-Bowles reported? No. In his February budget? No. In his April 13 budget “framework”? No. During the debt-ceiling crisis? No. During or after the supercommittee deliberations? No.

Indeed, Obama was AWOL from the supercommittee — then immediately pounced on its failure by going on TV to repeat his incessantly repeated campaign theme of the do-nothing (Republican) Congress. Obama had actively negotiated with Boehner and they had a deal until the Republican caucus rejected it. After this failure, it was agreed to set up the super-committee, which was to work without interference from Boehner or the President.

A swell slogan that fits nicely with the Norquist myth. Except for another inconvenient fact: It is the Republicans who passed — through the House, the only branch of government they control — a real budget that cut $5.8 trillion of spending over the next 10 years. Yes, it does. It does away with SS, Medicare and Medicaid, and the whole safety net, and still has so many tax cuts that it increases the debt by $6 trillion. Obama’s February budget, which would have increased spending, was laughed out of the Senate, voted down 97 to 0. Dems didn’t want the vote, and turned it into a joke by voting against it. As for the Democratic Senate, it has submitted no budget at all for 2 1 / 2 years. Does the filibuster have anything to do with this?

Who, then, is do-nothing? Republicans should happily take on this absurd, and central, Democratic campaign plank. Bring Simpson-Bowles to the House floor Yes, why not, but all of it, not cherry picking it. and pass the most radical of its three deficit-reduction alternatives.

Dare the Senate Democrats to vote down the grandest of all bargains. Dare Obama to veto his own debt commission. Dare the Democrats to actually do something about debt. They already have, most particularly in the “Patient Protection and Affordable Care Act,” which Republicans want to repeal.

Krauthammer isn’t even consistent. On July 14, 2011 he wrote: 

 If conservatives really want to get the nation’s spending under control, the only way is to win the presidency. Put the question to the country and let the people decide. To seriously jeopardize the election now in pursuit of a long-term, small-government, Ryan-like reform that is inherently unreachable without control of the White House may be good for the soul. But it could very well wreck the cause. But they would never put their hostility to the entitlements to a vote. They would lose overwhelmingly. Instead, they will talk about anything else, and hope they can fool the voters, and do all they can to keep the economy from improving.

The Deficit Reduction Committee

Surprise, Surprise! The Deficit Reduction Committee did not reach agreement.

Our media, as is their wont, bills it as a failure of our two parties unwillingness to compromise, and as a symptom of our broken government. But it is not the former, and it is the latter, only in so far as one of our two major parties, the Republican Party, is determined to keep government from working. As the old saying goes: “it takes two to tango.”

No compromise was possible because the Right (Republican Party) has no interest in what the Committee was charged with accomplishing, i.e. deficit reduction and they demonstrated this again in blocking any possibility of agreement.

           

As I have demonstrated in past writings on the deficit, Republicans have no interest in deficit reduction. It is simply a weapon with which to destroy the hated, “Welfare State.” I discussed this at length, and I urge you to go back and read my posts starting with my latest post on the subject: "The Deficit – One Big Hoax (Part VI)" and working backwards from there, using the links provided.

           

To repeat part of what I said in these posts:

Their lack of concern with the deficit can easily be seen in that not one of their proposed “reforms” decreases the deficit. The Ryan plan, which has passed the House with almost unanimous Republican support (four Republicans voted against it and no Democrats voted for it) would, according to Representative Paul Ryan himself, add $6 trillion to the national debt over ten years as reported by the Economist, hardly a left wing source, and as far as I can find nowhere else in the media.

This lack of concern with the deficit surfaced again in the deliberations of the “The Deficit Reduction Committee.” Democrats genuinely concerned with the deficit and anxious to reach agreement offered to agree to cuts in entitlement programs, which need to be cut in any case for their sustainability, as I discussed in my post which you can find here. 

They asked that Republicans come to the table with an agreement that would raise revenues, and until a few days before the deadline the Republicans on the panel would not put one dime in increased revenue on the table. With the deadline fast approaching they finally talked about an “increase (in) tax revenue by $300 billion, which was seen by some lawmakers as a breakthrough given the party’s resistance to increased revenues.”  

Since the committee was charged with coming up with at least 1.2 trillion in reduction to the deficit, this would have meant that Democrats would have to agree to $ 900 billion in cuts, a three to one ratio. The Dems swallowed hard and indicated they might be willing to go along. They thought they had a breakthrough, in so far a Republicans finally appeared to have put “added revenue” on the table. Then came the kicker! In order for them to agree to 300 billion in added revenue, Dems would have to agree to extend the Bush tax cuts, or a decrease in revenue of $4 trillion. It doesn’t take a mathematical genius to see that if you deduct 2.1 trillion from 4 trillion, you get 1.9 trillion, the amount by which the deficit would be increased. Or to put it another way, it’s the Ryan budget all over again. You cut entitlement spending and you increase the deficit at the same time, which, according to their logic requires further slashing of entitlements and other programs that they don’t like. Or heads we win, tails you lose. Needless to say, there was no agreement.

But where was the media to explain all this? As usual they were missing in action. All they could come up with was a shake of the head and the usual bromide, “Why can’t they agree.” Well there is a damn good reason why! There was no desire on the part of the Republicans to offer anything that remotely accomplishes anything, other than do away with entitlements.

How could any sane Democrat agree to this?

Why doesn’t the media, who even with their fear of speaking the truth is denounced by the Right, speak the truth for once. Why are they so afraid of being accused of partisanship? Telling the truth wherever it may lead, is what good journalism is supposed to be all about.

One of the few media outlets, The Christian Science Monitor reported what happened accurately:

Republicans insisted during the super committee negotiations that curbing tax breaks to raise revenues be coupled with guarantees that all the Bush tax cuts would continue beyond 2012…Democrats countered that the super committee was created to reduce the budget deficit, not add to it by extending tax cuts.

The Economist all alone tells us the way it is:

The game being played here has little to do with the budget itself. It is an ideological debate about the role and obligation of government. First, cut taxes for the wealthy to create a big hole in the budget, have a Great Recession aid the cause by stripping government at all levels of tax revenue, increasing costs of serving people, and creating short-run deficit problems (and a war here and there doesn't hurt the cause either), and finally use the deficit as a club against social insurance programs such as Medicare and Social Security. 

So we have ended up with $1.2 trillion cuts going into effect beginning in 2013. $600 billion of that will be in defense spending which is in addition to a cut of $450 billion previously agreed to. Not the worst of all possible outcomes, and in 2013 the Bush tax cuts will expire. No Congressional action is needed. Beginning in 2013 the deficit will be reduced over the following ten years by 6.1 trillion. The hammer of using the deficit to justify attacks on needed spending will be gone. Not bad negotiating by our President.

In response to my post “What can we, and should we do about the deficit?” Bruce Weintraub wrote:

Republicans should be forced to make choices too:  Either an increase in marginal tax rates for the superwealthy or steep cuts in ‘defense’. But Democrats NEVER put them on the spot.

Well Bruce, they did, and the “Elephants” were maneuvered into agreeing to steep defense cuts.

            

Would Bruce and the Left please apologize to our President and admit he did a brilliant job of negotiating under the most difficult circumstances.


The threat to our National Security according to Admiral Mike Mullin then Chairman of the Joint Chiefs of Staff is our debt, as shown below:

While Secretary of Defense, Leon Panetta, has talked about all kinds of disasters from cuts in defense of $1 trillion, this does not square with the facts. As an article in US News and World Report points out: 

Despite the doomsday scenarios continually espoused by Secretary Panetta and the military chiefs, a cut of that size would amount to only 15 percent, in real terms return spending to its 2007 level, and still leave the United States above what we spent on average in the Cold War. Finally, such a cut would be far less than cuts made by Eisenhower (27 percent), Nixon (29 percent), and Reagan, H.W. Bush, and Clinton (35 percent), which were done without jeopardizing security.

           

Now the Republican deception takes full form in a column by Charles Krauthammer that appeared in the November 24 issue of the Washington Post, under the heading “The Grover Norquist tax myth." I will analyze this point by point in my next post.

I regret that I was forced by events to abandon my analysis of where we could beneficially cut spending. Hopefully events will make it possible for me to return to beneficial cutting without ignoring developing news.

Comments are welcome and will be distributed with attribution unless the writer requests not to be identified.

What can we, and should we do about the deficit?

Where can we and should we cut?

I last addressed this in my post of October 28th under the title: "The Deficit – One Big Hoax (Part VI)," which I urge you to re-read.

In that posting, I address the insincerity of Republicans claims of concern with the deficit, while every one of their proposed budgets would vastly increase the deficit.

I then went on to point out, that despite the gamesmanship, there is only one purpose in creating the deficit and making it an issue, and that is to eviscerate and destroy the safety net that has been built over many decades, and the protections to our health and safety, so that those who already have the bulk of the nation’s income and wealth, can further increase it at the expense of the poor and middle class.

But that does not mean that we should descend into our own fairy tale world, and pretend that the course we are on is sustainable. Increased revenue is essential, but controlling our ever-increasing costs, is equally essential.

For instance if we leave the Bush Tax cuts in place for those making $250,000 per annum or less, as has been proposed by the President, we would be increasing taxes only on the top 3% of earners and we would only be increasing tax receipts by $800 billion over 10 years. See here at 1:44 minutes. When we consider that the deficit was projected by the Congressional Budget Office (CBO) at $1.3 trillion for the year 2010 alone we can see this is a piddling sum. However if all the Bush tax cuts were left in place, the deficit would be decreased over ten years by four trillion dollars, a much more significant sum, but still not enough to solve our projected deficit, which the CBO estimates at six trillion over ten years, without counting interest payments, and assuming that no laws were to be changed, which is unlikely.

But the attempt to put a rosy, but untrue, picture on our outlook can be seen from an article which appeared in the Washington Post, written by E.J. Dionne, a man who has written many insightful columns in the past, but who posits that doing nothing would lead to $7.1 trillion in deficit reduction over the next decade. Now what is interesting about this is that the CBO says doing nothing would still lead to over a 3 trillion deficit over ten years, and doing nothing is unlikely. Most important, doing nothing would mean not extending the Bush tax cuts for those earning under $250,000, when the President, the Left, and the Wall Street occupiers give us the impression that if we just focus on the top 99% all will be honky dory. It’s a fairy tale! I say wake up!

Furthermore changing nothing, outside the Bush tax cuts, is neither likely nor desirable. If you will look here, you will find the Dionne article reproduced, with my comments interjected in red, showing why many of the things Dionne assumes could be left unchanged, need to be, and are likely to be changed.

Reverting again to my post of October 28th I point out that according to the Social Security Administration, “Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing, and will require legislative modifications if disruptive consequences for beneficiaries and taxpayers are to be avoided.” But I go on to say, “this should be addressed, not as a budget issue, but as a sustainability issue.”

As can be seen from the above we will not solve our deficit problems with increased taxes alone, and certainly not with increased taxes on the top 1% alone, or even those making less than $250,000. We need to end the Bush tax cuts in their entirety and we must look to making intelligent cuts.

It is for that reason that I address this subject. In my post entitled "The Deficit – One Big Hoax (Part VI)" I began to address some of the areas where we could, and should, beneficially cut, and I begin with the drug wars, where, I point out that there are already major voices across the political divide calling for an end to this destructive and expensive war.

According to Bernd Debusmann, a Reuters columnist:

The budgetary impact of legalizing drugs would be enormous, according to a study prepared to coincide with the 75th anniversary of prohibition’s end by Harvard economist Jeffrey A. Miron. He estimates that legalizing drugs would inject $76.8 billion a year into the U.S. economy — $44.1 billion through savings on law enforcement and at least $32.7 billion in tax revenues from regulated sales. (For a total of 76.8 billion per annum or 760,800 billion over ten years, over 3/4 trillion. And this is before we add in the benefits to the economy. 

The war on drugs has helped turn the United States into the country with the world’s largest prison population…The U.S. has 5 percent of the world’s population and around 25 percent of the world’s prisoners. Ibid  

In addition to the law enforcement expense, we must add in the cost of incarceration. Here we find that his cost alone amounts to over $6 trillion per year to the states with additional costs to the federal government.

We begin to see that cutting in order to deal with the deficit can be beneficial. The only purpose for reducing some benefits in entitlements is to make them sustainable.

I must add, however, that I do not favor states passing laws to make Marijuana available as a medicine. This has the effect of bypassing the FDA, and no substance should be made available for therapeutic purposes without the rigorous double blind studies, that all such drugs are required to undergo.

Comments are welcome and will be distributed with attribution unless the writer requests that he/she not be identified. 

The Deficit – One Big Hoax (Part VI)

In my last twelve posts I departed from my discussion of the deficit in order to focus on the columnists of the media and the media in general, with special emphasis on the New York Times.

However, it is now time to return to the subject of the deficit, the last part of which was posted on July 30. I suggest that you re-read it and if you can possibly find the time read all its parts. You can find the last post here and that post will give you links to all the others.

At the end of my last post on this subject I said:

Next time: What can and should we do about the deficit and the imminent insolvency of Social Security, Medicare, and Medicaid? Where can we and should we cut?

I will address this here, but before I do so let me return to the subject of this series, namely The Deficit – One Big Hoax. I called it a hoax, not because I don’t think that it is a serious problem, I believe that it is, but because the Republican Party is using it as a hoax to justify its primary aim, which is to destroy all that we have built over the last half century and even before. To not only repeal the Presidents greatest achievement in passing Health Insurance Reform, but to repeal Social Security, Medicare, Medicaid, and even to destroy the agencies that safeguard our health and our well being, including the minimum wage and occupational safety, and I kid thee not, if they can get away with it, our system of free public education.

Their lack of concern with the deficit can easily be seen in that not one of their proposed “reforms” decreases the deficit. The Ryan plan, which has passed the House with almost unanimous Republican support (four Republicans voted against it and no Democrats voted for it) would, according to Representative Paul Ryan himself, add $6 trillion to the national debt over ten years as reported by the Economist, hardly a left wing source, and as far as I can find nowhere else in the media.

The same goes for all the proposals for “tax reform” touted by the Republican Presidential candidates. Whether we are talking about the famous (or infamous) 9/9/9 plan or the newly touted flat tax plan of Rick Perry, each one would increase the deficit that they are so ostensibly worried about that they threatened to put the country into default. Yet the media, not even the so-called liberal media, has bothered to point this out. E. J. Dionne Jr. writing in the Washington Post said:

What struck me about Rick Perry’s unveiling of his flat tax proposal is how little attention most of the coverage paid to the massive increase in the deficit it would cause – or the enormous cuts it would require… But the will-o’-the-wisp quality of the Washington conversation is underscored by the fact that when anyone proposed new and temporary spending to boost job growth a couple of months ago the avatars of the conventional wisdom kept asking, “But what about the deficit?” But when Perry proposes his big tax cuts, such questions are nowhere to be heard – except in the 10th paragraph of some news stories. (And that includes Dionne’s own Washington Post’s news reports.)

It is in that sense that it is a hoax, but one that our media fails to call attention to.

But as I have said, while the deficit in the short run, is of secondary importance, while job creation and our infrastructure are of immediate concern, and the two are related, we cannot afford to have only a short-term outlook. The long-term economic future of this country depends on our having the infrastructure to compete. As just one example that has not been discussed, but that is of vital importance is the enlargement of our ports, particularly the port of New Orleans. The Panama Canal is being enlarged to accommodate the larger vessels of the future, but the Port of New Orleans, and our other ports, do not have the capacity to accommodate such vessels. The sooner we address such problems, the better for the future of our economy, and the deficit, which ultimately will be controlled by a robust economy.

But at the same time there is enormous wasteful spending by our government. To the extent that we address such spending, we will reduce our deficit and free up money to do the things that need to be done.

We keep being told that the elephant in the room is entitlement spending and this is true, but in my view this should be addressed, not as a budget issue, but as a sustainability issue.

According to the Social Security Administration (I urge the reader to read this report in full.):

Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing, and will require legislative modifications if disruptive consequences for beneficiaries and taxpayers are to be avoided. The long-run financial challenges facing Social Security and Medicare should be addressed soon. If action is taken sooner rather than later, more options and more time will be available to phase in changes so that those affected have adequate time to prepare. Earlier action will also afford elected officials with a greater opportunity to minimize adverse impacts on vulnerable populations, including lower-income workers and those who are already substantially dependent on program benefits.

Both Social Security and Medicare, the two largest federal programs, face substantial cost growth in the upcoming decades due to factors that include population aging as well as the growth in expenditures per beneficiary. Through the mid-2030s, due to the large baby-boom generation entering retirement and lower-birth-rate generations entering employment, population aging is the largest single factor contributing to cost growth in the two programs. Thereafter, the continued rapid growth in health care cost per beneficiary becomes the larger factor.

I intend to discuss this vital issue at length at a future time but allow me to here at least begin a discussion of wasteful spending and I will not attempt to address this in the order of importance, but rather as issues come to my mind. Following this model I address first the so-called Drug War.

I can think of no area where we have done more damage to our economy and to our society than in this area.

The incredible thing is that it should have been obvious from our experience with prohibition. While I am sure that differences between them can be found, the results in the two cases are so parallel that it is an inescapable comparison.

In addition, there is an incredible agreement across the political spectrum on its wrong-headedness. The people who have spoken out against it include: Milton Friedman, the supply side economist, Walter Cronkite, the beloved journalist, George Shultz, Secretary of State in the Reagan Administration, Walter F. Buckley, Jr. founder of the Right Wing National Review, and Jimmy Carter the 39th President of the United States. For the exact quotes from these people, see below. To enlarge for legibility click on it.

Once again, in order to limit the post to a reasonable length, I will defer further discussion to the next post.

Comments on this and other posts are invited and should be sent to es628@columbia.edu.