The first Monday of the year in Los Angeles opened with cold rain and high winds slapping it up against the windows – but it figures. There were dire emails from friends – things going terribly wrong all over, or at least in Manhattan and New Jersey. And here the Grapevine – Interstate 5 at Castaic – was shut down by snow, high winds and black ice. No one was leaving Los Angeles, and no one was getting in. And Hollywood was deadly quiet. And the LORD said to Moses stretch out your hand toward heaven, that there may be darkness over the land of Egypt, even darkness which may be felt. But it wasn’t Exodus 10:21 – just a dismal opening to the de facto first day of the year. Everyone seemed to be in a black mood, as if the dark rain were a portent. They call it stormy Monday but Tuesday’s just as bad, Wednesday’s worse, and so on – like in the blues song that pretty much sums it up.
And of course it was just as dark in DC – the new Congress was about to convene with the first thing scheduled a vote in the House to repeal Obama’s healthcare law, the Affordable Care Act – all of it. By picking up sixty-three seats the House Republicans, now holding the majority, can pull that off. Of course it will die in the Senate, where the Republicans are outnumbered. And were a repeal to pass there Obama would veto it, and there aren’t enough votes anywhere to override that hypothetical veto. It’s nonsense, and as at the first of the year a number of major provisions in that act took effect – like that one about insurance companies not being able to deny coverage for preexisting conditions, or drop you when you get sick, or might get sick – the Republicans don’t really want to repeal the thing, as there would be hell to pay with the public. Folks like that sort of thing.
But it is a gesture, or a statement, or something. Moves to repeal the credit card reform act, and all the financial reforms, and that Ledbetter Act that guarantees equal pay for women, and the legislation providing healthcare funds for the deathly ill 9/11 First Responders, are sure to follow, along with yanking all the stimulus funds to the states, and making them pay back, with interest, what was sent to them already to keep teachers and firemen and policeman employed. That would force most states to just shut down – close the schools and let the roads and bridges crumble and all the rest, and put fifty million state employees out of work nationwide, without benefits. The Republicans are already committed to ending unemployment benefits, and to slowly shutting down the Social Security system. All this is to get the economy on the move again and create jobs. No, don’t ask.
Actually, they’re just into austerity. The debt is large and we need to stop borrowing and spending and doing stuff. You can goose the economy to get it roaring back, so there will be new tax revenue to pay down the debt incurred to do that, with some left over, or you can just not incur the debt and go with what might be called full-frontal austerity. You shut things down and wait it out. The Republicans prefer the latter. The idea that you spend money to make money, that you invest in the future, is an idea they say is just wrong. The debt will ruin us. Yeah, well – whatever. It’s a theory.
Of course the Nobel laureates in economics think it’s a nutty theory. First it was Paul Krugman, and now it’s Joseph E. Stiglitz, a University Professor at Columbia University – the guy who wrote Freefall: Free Markets and the Sinking of the Global Economy (not a cheery read) – suggesting that as a New Year’s resolution America should resolve to ignore politicians calling for austerity:
Economically speaking, 2010 was a nightmare on both sides of the Atlantic. The crises in Ireland and Greece called into question the euro’s viability and raised the prospect of a debt default. In Europe and the United States, unemployment remained stubbornly high, at around 10 percent. Even though 10 percent of U.S. households with mortgages had already lost their homes, the pace of foreclosures appeared to be increasing – or would have, were not it not for legal snafus that raised doubts about America’s vaunted “rule of law.”
Unfortunately, the New Year’s resolutions made in Europe and America were the wrong ones. The response to the private-sector failures and profligacy that had caused the crisis was to demand public-sector austerity. The consequence will almost surely be a slower recovery and an even longer delay before unemployment falls to acceptable levels. There will also be a decline in competitiveness. While China has kept its economy going by making investments in education, technology, and infrastructure, Europe and America have been cutting back.
The private sector screws up royally, so the public sector must pay for that. No, don’t ask. That’s just what people seem to think is right, right now:
It has become fashionable among politicians to preach the virtues of pain and suffering, no doubt because those bearing the brunt of it are those with little voice – the poor and future generations. To get the economy going, some people will, in fact, have to bear some pain. But the increasingly skewed income distribution gives clear guidance as to whom this should be: Approximately a quarter of all income in the United States now goes to the top 1 percent, while most Americans’ income is lower today than it was a dozen years ago. Simply put, most Americans didn’t share in what many called the Great Moderation, but was really the Mother of All Bubbles. So, should innocent victims and those who gained nothing from fake prosperity really be made to pay even more?
The question answers itself, and the waste is obvious:
Europe and America have the same talented people, the same resources, and the same capital that they had before the recession. They may have overvalued some of these assets. But the assets are, by and large, still there. Private financial markets misallocated capital on a massive scale in the years before the crisis, and the waste resulting from underutilization of resources has been even greater since the crisis began. The question is, how do we get these resources back to work?
Austerity isn’t the answer. Stiglitz suggests we go the other way – write down or write off the capital losses, and reset folks’ mortgages to the current market value. Yes, investment houses and big banks will have to bite the bullet, and they’d lose billions, but the reset would unfreeze the economy. That actually worked damned will in Argentina – but you have to read Stiglitz on that. In any event, it’s not just a theory. It does work, even if the influential people get hurt, and those who have no voice, or at least no lobbyists, are saved.
But things don’t work that way, and what is coming in the next several months is the test of that. Yes, Senator Lindsey Graham – the smiling Republican from South Carolina – on Meet the Press was asked about raising the federal debt limit, and he acknowledged that failure to do that “would be very bad for the position of the United States in the world at large.” But he added, however, that he is nevertheless inclined to play chicken with the economy – with the stability of the whole global financial system hanging in the balance:
I will not vote for the debt ceiling increase until I see a plan in place that will deal with our long-term debt obligations, starting with Social Security, a real bipartisan effort to make sure that Social Security stays solvent, adjusting the age, looking at means tests for benefits. On the spending side, I’m not going to vote for debt ceiling increase unless we go back to 2008 spending levels, cutting discretionary spending.
Let’s go back to 2008? As Jonathan Cohn notes, this man does realize that the results of this could be catastrophic – “But that’s not stopping him from making his demands. And that’s particularly disheartening, since he is supposed to be one of the more reasonable members of the Republican Senate caucus.”
Actually Cohn has more to say than that:
The United States appears to be the only country in the developed world that forbids its government from accumulating debt without authorizing legislation. And that’s led to some scary moments, including one that the economist Henry Aaron shared with me recently.
During the early years of the Kennedy Administration, Congress passed an increase in the debt ceiling at the last minute. But when JFK went to sign the bill, according to Aaron, nobody could find the document. Treasury Secretary Douglas Dillon wanted to know what would happen if the government reached its debt ceiling and an administration lawyer, after some brief research, reported that “it seems, Mr. Secretary, that you are personally liable for interest on the debt.” Dillon, who was an investment banker, pressed the lawyer: How much would that be? “About $150 million a day,” the lawyer reportedly said, prompting Dillon to deadpan “I can’t last more than three days.”
It’s a funny story because it had a happy ending: Kennedy’s advisors eventually found the bill. And if they hadn’t, they would have gotten together with Congress and found some other way to raise the debt ceiling. That’s because, relatively speaking, they were grown-ups who took governing seriously.
Fifty years later, can we say the same thing?
That question also answers itself:
Sometime in the next few months the US will reach its debt limit and Congress will, once again, have a choice: Raise the limit or let the US default on its obligations. For a while now, Tea Party Republicans like Senator Mike Lee, who unseated the insufficiently conservative Robert Bennett in Utah, have been threatening to vote against the debt ceiling increase unless they win substantial reductions in government spending. Idle threats about refusing to raise the debt ceiling are nothing new, but the Tea Party crowd seems quite serious about it – in part because they’ve promised their base they’re going to do it.
But Cohn notes that this demand of going back to 2008 spending levels is “radical and, not coincidentally, highly unrealistic” – and he cites the Center on Budget and Policy Priorities – it would amount to a one-fifth cut in discretionary spending, “forcing cuts that could damage the fragile recovery and starve programs like Pell Grants that most Americans value.”
And Cohn cites Alex Hart:
Recent history provides a sense of just how scary this would be. “The reason the markets calmed down [during the financial crisis] is that we took [the banks’] toxic assets and handed the financial institutions Treasurys,” says Kevin Hassett, a scholar at the American Enterprise Institute. “If we’re in a default situation, the Treasurys themselves are the toxic assets, and it’s not clear what we can hand anybody to calm them down.”
The sad thing is, Graham seems to grasp this: In the same interview, he notes that default could be catastrophic. But that’s not stopping him from making his demands. And that’s particularly disheartening, since he is supposed to be one of the more reasonable members of the Republican Senate caucus.
And there is Bruce Bartlett who Cohn says is a conservative who “thinks and talks about governing seriously” with this:
I have spent considerable time trying to figure out what exactly would happen in the event that, at some point, the Treasury literally had no cash to pay interest on the debt, redeem maturing securities, pay Social Security benefits and so on. Some people believe that the Treasury has an almost unlimited ability to fudge the problem indefinitely. But I know that there are analysts at the GAO who are very concerned about hitting a hard limit on the Treasury’s legal authority not long after the debt ceiling is breached. The law is very unclear and has never been tested in court.
As far as I am aware, no other country on Earth has the idiotic policy that the United States has of having a legal limit on the amount of bonds the central government can issue. They correctly recognize that the deficit and the debt are simply residuals resulting from the government’s tax and spending policies. It makes no sense to treat the debt as if it is an independent variable.
Some argue that the debt limit has the virtue of focusing the attention of policymakers on the debt. But Congress already has a budget process designed to do that on an annual basis. Having a separate debate on the debt limit is at best superfluous. But it’s also dangerous because it allows members of Congress to try and compensate for being fiscally irresponsible – voting for new entitlement programs such as Medicare Part D or massive tax cuts that are not offset with spending cuts – by casting a vote against the debt limit.
It’s a game. And Steve Benen adds this:
There’s nothing subtle about Graham’s gambit here. It’s the latest in a series of Republican hostage strategies. Either (a) Democrats agree to cut Social Security and slash funding for education and health care; or (b) Graham and his cohorts will deliberately gut the full faith and credit of the United States government, and send the global economy into a catastrophic tailspin.
And as far as the political mainstream goes, President Obama is supposed to be able to work with “reasonable” Republicans like Graham, who’s ostensibly less extreme than many of his GOP colleagues.
It’s going to be a long two years.
Yeah, it is – and it’s raining. But Benen also suggests that the problem with most proposals to reduce the deficit is that they carry policy or political costs, and you don’t want to create a public backlash. But there is the idea of raising taxes on the wealthy:
Raising taxes on the rich beats out cuts to defense spending, Medicare or Social Security as US adults’ top preference on how to close the deficit, according to a 60 Minutes/Vanity Fair poll.
Sixty-one percent of Americans said that increasing taxes to the wealthy should be the first step toward balancing the budget.
By contrast, 20 percent of respondents preferred cuts to defense spending as the first option, while four percent said that cutting Medicare would be the best way to start cutting the deficit. Three percent said they preferred cutting Social Security.
Increased taxes on the wealthy tops those four options even among higher earners who might be most affected by a tax hike, the poll suggested.
Benen adds this:
So, the single most popular idea for reducing the deficit is the one idea Republicans will fight the hardest to defeat. Indeed, the political dynamic is almost amusing.
Well, you attend to those who have the bucks to enable you to have a political career. And folks living on Social Security don’t finance your campaigns. It seems they don’t matter.
So the cold rain falls and the days seem darker and darker. But in terms of Social Security, which Lindsey Graham wants to phase out, or else he’ll bring down the world’s economy, there are answers. See James Galbraith with this:
The most dangerous conventional wisdom in the world today is the idea that with an older population, people must work longer and retire with less.
This idea is being used to rationalize cuts in old-age benefits in numerous advanced countries – most recently in France, and soon in the United States. The cuts are disguised as increases in the minimum retirement age or as increases in the age at which full pensions will be paid. Such cuts have a perversely powerful logic: “We” are living longer. There are fewer workers to support each elderly person. Therefore “we” should work longer.
But in the first place, “we” are not living longer. Wealthier elderly are; the non-wealthy not so much. Raising the retirement age cuts benefits for those who can’t wait to retire and who often won’t live long. Meanwhile, richer people with soft jobs work on: For them, it’s an easy call.
Second, many workers retire because they can’t find jobs. They’re unemployed – or expect to become so. Extending the retirement age for them just means a longer job search, a futile waste of time and effort.
Third, we don’t need the workers. Productivity gains and cheap imports mean that we can and do enjoy far more farm and factory goods than our forebears, with much less effort. Only a small fraction of today’s workers make things. Our problem is finding worthwhile work for people to do, not finding workers to produce the goods we consume.
In the United States, the financial crisis has left the country with 11 million fewer jobs than Americans need now. No matter how aggressive the policy, we are not going to find 11 million new jobs soon. So common sense suggests we should make some decisions about who should have the first crack: older people, who have already worked three or four decades at hard jobs? Or younger people, many just out of school, with fresh skills and ambitions?
That question also answers itself:
Older people who would like to retire and would do so if they could afford it should get some help. The right step is to reduce, not increase, the full-benefits retirement age. As a rough cut, why not enact a three-year window during which the age for receiving full Social Security benefits would drop to 62 – providing a voluntary, one-time, grab-it-now bonus for leaving work? Let them go home! With a secure pension and medical care, they will be happier. Young people who need work will be happier. And there will also be more jobs. With pension security, older people will consume services until the end of their lives. …
A proposal like this could transform a miserable jobs picture into a tolerable one, at a single stroke.
And Digby adds this:
When I was young, a long time ago, it was conventional wisdom that you wanted the oldsters to get out of the job market to make way for the youngsters. Now perhaps that was a function of the boomer generation but it used to be common to hear this kind of talk in discussions of the future. But somewhere along the line it became an article of faith that anyone who didn’t want to work until they dropped dead was a spoiled parasite who expected young people to keep them in style by working 20 hour days.
In a modern, civilized world in which people were trying to find economic answers to the problem of how to deal in a humane way with an aging population in a time of economic transition, Galbraith’s prescription would at least be part of the discussion. Unfortunately, we are not in a civilized world…
And that’s why the new year opened in darkness.