Category Archive for: Politics [Return to Main]

Friday, December 06, 2013

Paul Krugman: Obama Gets Real

Obama's speech on inequality and mobility was important:

Obama Gets Real, by Paul Krugman, Commentary, NY Times: Much of the media commentary on President Obama’s big inequality speech was cynical. You know the drill: it’s yet another “reboot” that will go nowhere..., and so on. But ... the speech may matter a lot more than the cynics imagine.
First..., Mr. Obama laid out a disturbing — and, unfortunately, all too accurate — vision of an America losing touch with its own ideals, an erstwhile land of opportunity becoming a class-ridden society. ... And he linked rising inequality with falling mobility, asserting that Horatio Alger stories are becoming rare precisely because the rich and the rest are now so far apart. ...
What struck me about this speech, however, was what he had to say about the sources of rising inequality. Much of our political and pundit class remains devoted to the notion that rising inequality, to the extent that it’s an issue at all, is all about workers lacking the right skills and education. But the president now seems to accept progressive arguments that education is at best one of a number of concerns, that America’s growing class inequality largely reflects political choices, like the failure to raise the minimum wage along with inflation and productivity.
And because the president was willing to assign much of the blame for rising inequality to bad policy, he was also more forthcoming than in the past about ways to change the nation’s trajectory, including a rise in the minimum wage, restoring labor’s bargaining power, and strengthening, not weakening, the safety net.
And there was this: “When it comes to our budget, we should not be stuck in a stale debate from two years ago or three years ago.  A relentlessly growing deficit of opportunity is a bigger threat to our future than our rapidly shrinking fiscal deficit.” Finally! Our political class has spent years obsessed with a fake problem — worrying about debt and deficits that never posed any threat to the nation’s future — while showing no interest in unemployment and stagnating wages. Mr. Obama, I’m sorry to say, bought into that diversion. Now, however,... we have the president of the United States breaking ranks, finally sounding like the progressive many of his supporters thought they were backing in 2008. This is going to change the discourse — and, eventually, I believe, actual policy.
So don’t believe the cynics. This was an important speech by a president who can still make a very big difference.

Wednesday, December 04, 2013

Remarks by the President on Economic Mobility

President Obama:

Remarks by the President on Economic Mobility, THEARC, Washington, D.C.: Thank you. (Applause.) Thank you, everybody. Thank you so much. Please, please have a seat. Thank you so much. Well, thank you, Neera, for the wonderful introduction and sharing a story that resonated with me. There were a lot of parallels in my life and probably resonated with some of you.
Over the past 10 years, the Center for American Progress has done incredible work to shape the debate over expanding opportunity for all Americans. And I could not be more grateful to CAP not only for giving me a lot of good policy ideas, but also giving me a lot of staff. (Laughter.) My friend, John Podesta, ran my transition; my Chief of Staff, Denis McDonough, did a stint at CAP. So you guys are obviously doing a good job training folks.
I also want to thank all the members of Congress and my administration who are here today for the wonderful work that they do. I want to thank Mayor Gray and everyone here at THEARC for having me. This center, which I’ve been to quite a bit, have had a chance to see some of the great work that’s done here. And all the nonprofits that call THEARC home offer access to everything from education, to health care, to a safe shelter from the streets, which means that you’re harnessing the power of community to expand opportunity for folks here in D.C. And your work reflects a tradition that runs through our history -- a belief that we’re greater together than we are on our own. And that’s what I’ve come here to talk about today.
Over the last two months, Washington has been dominated by some pretty contentious debates -- I think that’s fair to say. And between a reckless shutdown by congressional Republicans in an effort to repeal the Affordable Care Act, and admittedly poor execution on my administration’s part in implementing the latest stage of the new law, nobody has acquitted themselves very well these past few months. So it’s not surprising that the American people’s frustrations with Washington are at an all-time high.
But we know that people’s frustrations run deeper than these most recent political battles. Their frustration is rooted in their own daily battles -- to make ends meet, to pay for college, buy a home, save for retirement. It’s rooted in the nagging sense that no matter how hard they work, the deck is stacked against them. And it’s rooted in the fear that their kids won’t be better off than they were. They may not follow the constant back-and-forth in Washington or all the policy details, but they experience in a very personal way the relentless, decades-long trend that I want to spend some time talking about today. And that is a dangerous and growing inequality and lack of upward mobility that has jeopardized middle-class America’s basic bargain -- that if you work hard, you have a chance to get ahead.
I believe this is the defining challenge of our time: Making sure our economy works for every working American. It’s why I ran for President. It was at the center of last year’s campaign. It drives everything I do in this office. And I know I’ve raised this issue before, and some will ask why I raise the issue again right now. I do it because the outcomes of the debates we’re having right now -- whether it’s health care, or the budget, or reforming our housing and financial systems -- all these things will have real, practical implications for every American. And I am convinced that the decisions we make on these issues over the next few years will determine whether or not our children will grow up in an America where opportunity is real.
Now, the premise that we’re all created equal is the opening line in the American story. And while we don’t promise equal outcomes, we have strived to deliver equal opportunity -- the idea that success doesn’t depend on being born into wealth or privilege, it depends on effort and merit. And with every chapter we’ve added to that story, we’ve worked hard to put those words into practice.
It was Abraham Lincoln, a self-described “poor man’s son,” who started a system of land grant colleges all over this country so that any poor man’s son could go learn something new.
When farms gave way to factories, a rich man’s son named Teddy Roosevelt fought for an eight-hour workday, protections for workers, and busted monopolies that kept prices high and wages low.
When millions lived in poverty, FDR fought for Social Security, and insurance for the unemployed, and a minimum wage.
When millions died without health insurance, LBJ fought for Medicare and Medicaid.
Together, we forged a New Deal, declared a War on Poverty in a great society. We built a ladder of opportunity to climb, and stretched out a safety net beneath so that if we fell, it wouldn’t be too far, and we could bounce back. And as a result, America built the largest middle class the world has ever known. And for the three decades after World War II, it was the engine of our prosperity.
Now, we can’t look at the past through rose-colored glasses. The economy didn’t always work for everyone. Racial discrimination locked millions out of poverty -- or out of opportunity. Women were too often confined to a handful of often poorly paid professions. And it was only through painstaking struggle that more women, and minorities, and Americans with disabilities began to win the right to more fairly and fully participate in the economy.
Nevertheless, during the post-World War II years, the economic ground felt stable and secure for most Americans, and the future looked brighter than the past. And for some, that meant following in your old man’s footsteps at the local plant, and you knew that a blue-collar job would let you buy a home, and a car, maybe a vacation once in a while, health care, a reliable pension. For others, it meant going to college -- in some cases, maybe the first in your family to go to college. And it meant graduating without taking on loads of debt, and being able to count on advancement through a vibrant job market.
Now, it’s true that those at the top, even in those years, claimed a much larger share of income than the rest: The top 10 percent consistently took home about one-third of our national income. But that kind of inequality took place in a dynamic market economy where everyone’s wages and incomes were growing. And because of upward mobility, the guy on the factory floor could picture his kid running the company some day.
But starting in the late ‘70s, this social compact began to unravel. Technology made it easier for companies to do more with less, eliminating certain job occupations. A more competitive world lets companies ship jobs anywhere. And as good manufacturing jobs automated or headed offshore, workers lost their leverage, jobs paid less and offered fewer benefits.
As values of community broke down, and competitive pressure increased, businesses lobbied Washington to weaken unions and the value of the minimum wage. As a trickle-down ideology became more prominent, taxes were slashed for the wealthiest, while investments in things that make us all richer, like schools and infrastructure, were allowed to wither. And for a certain period of time, we could ignore this weakening economic foundation, in part because more families were relying on two earners as women entered the workforce. We took on more debt financed by a juiced-up housing market. But when the music stopped, and the crisis hit, millions of families were stripped of whatever cushion they had left.
And the result is an economy that’s become profoundly unequal, and families that are more insecure. I’ll just give you a few statistics. Since 1979, when I graduated from high school, our productivity is up by more than 90 percent, but the income of the typical family has increased by less than eight percent. Since 1979, our economy has more than doubled in size, but most of that growth has flowed to a fortunate few.

Continue reading "Remarks by the President on Economic Mobility" »

Friday, November 22, 2013

Paul Krugman: Expanding Social Security

Social Security benefits "should be expanded, not cut":

Expanding Social Security, by Paul Krugman, Commentary, NY Times: For many years there has been one overwhelming rule for people who wanted to be considered serious inside the Beltway. It was this: You must declare your willingness to cut Social Security in the name of “entitlement reform.” It wasn’t really about the numbers, which never supported the notion that Social Security faced an acute crisis. It was instead a sort of declaration of identity, a way to show that you were an establishment guy, willing to impose pain (on other people, as usual) in the name of fiscal responsibility.
But a funny thing has happened in the past year or so. Suddenly, we’re hearing open discussion of the idea that Social Security should be expanded, not cut. Talk of Social Security expansion has even reached the Senate, with Tom Harkin introducing legislation that would increase benefits. A few days ago Senator Elizabeth Warren gave a stirring floor speech making the case for expanded benefits.
Where is this coming from? One answer is that the fiscal scolds driving the cut-Social-Security orthodoxy have, deservedly, lost a lot of credibility over the past few years. ... Beyond that, America’s overall retirement system is in big trouble. ...
Many workers used to have defined-benefit retirement plans, plans in which their employers guaranteed a steady income after retirement. And a fair number of seniors ... are still collecting benefits from such plans.
Today, however, workers who have any retirement plan at all generally have defined-contribution plans — basically, 401(k)’s... The trouble is that at this point it’s clear that the shift to 401(k)’s was a gigantic failure. Employers took advantage of the switch to surreptitiously cut benefits; investment returns have been far lower than workers were told to expect; and, to be fair, many people haven’t managed their money wisely.
As a result, we’re looking at a looming retirement crisis, with tens of millions of Americans facing a sharp decline in living standards at the end of their working lives. For many, the only thing protecting them from abject penury will be Social Security. Aren’t you glad we didn’t privatize the program?
So there’s a strong case for expanding, not contracting, Social Security. Yes, this would cost money, and it would require additional taxes...
Realistically, Social Security expansion won’t happen anytime soon. But it’s an idea that deserves to be on the table — and it’s a very good sign that it finally is.

Tuesday, November 19, 2013

'The Geezers Are Not Alright'

This editorial in the Washington Post really irritated me when I read it, so this response is nice to see:

The Geezers Are Not Alright: The Washington Post editorial board wants to cut Medicare and Social Security. That has been its consistent position as long as I can remember. And what it advocates, always, are cuts in benefits, not costs..., things like a rise in the Medicare age. These are the kind of moves that are considered serious inside the Beltway. And as you might imagine, the Post has gone wild over recent suggestions that Social Security should be expanded, not cut.

But perceived seriousness is not the same as actual seriousness, which depends on the facts. We now know that raising the Medicare age is a truly terrible idea, which would create a lot of hardship while making next to no dent in the budget deficit. And the central premise of the latest editorial — that the elderly are doing fine — just isn’t true.

The Post writes:

The bill’s authors warn of a looming “retirement crisis” because of low savings rates and disappearing private-sector pensions. In fact, the poverty rate among the elderly is 9.1 percent, lower than the national rate of 15 percent — and much lower than the 21.8 percent rate among children.

This suggests that Social Security is doing a good job of fighting poverty as is and that those gains could be preserved in any attempt to trim the program.

Guys, you have to keep up here. It’s well-known that the official poverty measure is quite flawed... — and it’s especially flawed when it comes to the elderly... The Census Supplemental Poverty Measure puts senior poverty at 14.8 percent, only slightly lower than the rate for younger adults.

And some of today’s seniors are still benefiting from traditional defined-benefit retirement plans. In the future, income other than from Social Security will depend almost entirely on defined-contribution plans — basically 401(k)s. And 401(k)s are basically an experiment that failed, except for the already affluent.

Maybe you don’t believe that the failure of defined-contribution plans is a reason to expand the one major defined-benefit plan we have, aka Social Security. But don’t make that argument by claiming that all is well with America’s seniors. The geezers are not alright.

And even if the poverty rate among the elderly is tolerable as it is -- I'm not making that claim, but suppose it is -- the reason why advocates want to increase benefits is the fear that things will get worse in the future. Today's poverty rate doesn't tell us much about the "looming 'retirement crisis.'" Whether or not today's rate is in the tolerable range, should accept more poverty without trying to do something about it? Should we be happy about a large increase in the percentage that are in poverty just because we start from a tolerable figure? And what if today's figure isn't tolerable after all? In any case, this is about the rate of change in poverty among the elderly in the future, not the level now.

Paul Ryan, Poverty Warrior? Huh?

Jared Bernstein outlines Paul Ryan's "plan" to reduce poverty:

Paul Ryan, Poverty Warrior? Huh?: ... This AM’s WaPo printed a feature on Rep. Paul Ryan’s plans to fight poverty... Then you read page after page, trying to figure out what the dude is actually saying he’d do to lower poverty, and here’s what you’re left with: vouchers, tax credits, and volunteerism. ...

What are his accomplishments? He’s authored some of the harshest and most unrealistic budgets I’ve ever seen, and I’ve been on this beat for awhile–none of them have or are going anywhere legislatively. ...

Nor is he an accomplished legislator. ... Quick–or for that matter, take your time: name one piece of enacted legislation in which he played a significant role…I’m waiting…still waiting…

OK, time to get to work, and I’m sorry to start the day with negativity and snark. But the emperor in the empty suit has no clothes.

Ryan Poverty Plan

1. Cut spending on the poor, cut taxes on the wealthy
2. Shred safety net through block granting federal programs
3. Encourage entrepreneurism, sprinkle around some vouchers and tax credits
4. ???
5. Poverty falls

Thursday, November 14, 2013

'The Backbones of Banana Slugs'

Robert Reich:

Having the Backbone to Set Minimum Standards for Health Insurance: Democrats are showing once again they have the backbones of banana slugs.
The Affordable Care Act was meant to hold insurers to a higher standards. So it stands to reason that some insurers will have to cancel their lousy sub-standard policies.
But spineless Democrats (including my old boss Bill Clinton) are caving in to the Republican-fueled outrage that the President “misled” Americans into thinking they could keep their old lousy policies — and are now urging the White House to forget the new standards and let people keep what they had before.
And some congressional Republicans are all too eager to join them, and allow insurers to offer whatever crap they were offering before...

Monday, November 11, 2013

The View of Obama's Management Skills: How Much Does Politics Matter?

The end of the most recent entry by David Warsh at Economic Principals:

... Evidence is accumulating that Obama is simply not a good manager of the immensely complicate government over which he presides. (An unnamed White House aide solemnly avers to the Post team that the president ended every meeting with his health care staff with the admonition, “All that is well and good, but if the Web site doesn’t work, nothing else matters”) but a good manager would not just say it, but would also make it so.  His hand-picked point-person to oversee implementation was Nancy-Ann DeParle, a veteran manager of Medicare and Medicaid both in Tennessee and then in Washington during the Clinton years. In retrospect, the tip-off might have been when DeParle left the White House last August for a job in private equity. It is an angle yet to be explored.
But evidence is accumulating, too, of a long-simmering guerilla campaign by Clinton loyalists and other Democratic rivals to paint Obama as an indecisive leader and incompetent manager, as a means of creating a narrative for 2016 in which the next Democratic nominee runs against Obama’s shortcomings as well as whoever becomes the Republican nominee. A campaign to compare and contrast the styles of the Bill Clinton and Obama presidencies means that hardly anything  that is said about either one can be taken at face value.
Republicans, meanwhile, are heartened by the re-election victory of New Jersey Gov. Chris Christie. It is worth remembering that that individual mandate was originally a Republican idea for extending coverage to those who were previously insured – only one part of the nation’s enormous health care problems.  As MIT’s Gruber says, “It was only after president Obama put his name to it that it became the devil’s work.”
The GOP’s improvisational campaign against Obamacare is even nuttier than the long “Whitewater scandal” campaign that led to Bill Clinton’s impeachment – and even more counterproductive. It is hard to imagine a successful Republican candidate for the presidency who doesn’t somehow take back ownership of the individual mandate and promise to make it work. It will indeed be a governor who accomplishes that  – more than a few years off.

Paul Krugman: The Plot Against France

Fiscal scolds -- the same people who have been wrong about the virtues of austerity -- have made France their next target:

The Plot Against France, by Paul Krugman, Commentary, NY Times: On Friday Standard & Poor’s ... downgraded France. The move made headlines, with many reports suggesting that France is in crisis. But markets yawned...
So what’s going on here? The answer is that  ... there really are a lot of people trying to bad-mouth the place —... one clear demonstration that ... fiscal scolds don’t really care about deficits. Instead, they’re using debt fears to advance an ideological agenda. ...
Given such rhetoric, one comes to French data expecting to see the worst. What you find instead is a country experiencing economic difficulties — who isn’t? — but in general performing as well as or better than most of its neighbors...
Meanwhile, French fiscal prospects look distinctly nonalarming. The budget deficit has fallen sharply since 2010... By the numbers, then, it’s hard to see why France deserves any particular opprobrium. So again, what’s going on?
Here’s a clue: Two months ago Olli Rehn, Europe’s commissioner for economic and monetary affairs — and one of the prime movers behind harsh austerity policies — dismissed France’s seemingly exemplary fiscal policy. Why? Because it was based on tax increases rather than spending cuts — and tax hikes, he declared, would “destroy growth and handicap the creation of jobs.”
In other words, never mind what I said about fiscal discipline, you’re supposed to be dismantling the safety net. S.& P.’s explanation of its downgrade, though less clearly stated, amounted to the same thing... Again, never mind the budget numbers, where are the tax cuts and deregulation?
You might think that Mr. Rehn and S.& P. were basing their demands on solid evidence... But they weren’t..., research at the I.M.F. suggests that when you’re trying to reduce deficits in a recession, the opposite is true: temporary tax hikes do much less damage than spending cuts.
Oh,... when people start talking about the wonders of “structural reform,” take it with a large heaping of salt. It’s mainly a code phrase for deregulation — and the evidence on the virtues of deregulation is decidedly mixed. ...
If all this sounds familiar to American readers, it should. U.S. fiscal scolds turn out, almost invariably, to be much more interested in slashing Medicare and Social Security than they are in actually cutting deficits. Europe’s austerians are now revealing themselves to be pretty much the same. France has committed the unforgivable sin of being fiscally responsible without inflicting pain on the poor and unlucky. And it must be punished.

Friday, November 08, 2013

Paul Krugman: The Mutilated Economy

Policy failures can be very costly:

The Mutilated Economy, by Paul Krugman, Commentary, NY Times: Five years and eleven months have now passed since the U.S. economy entered recession. ... Official unemployment remains high, and it would be much higher if so many people hadn’t dropped out of the labor force. Long-term unemployment ... is four times what it was before the recession.
These dry numbers translate into millions of human tragedies — homes lost, careers destroyed, young people who can’t get their lives started. And many people have pleaded all along for policies that put job creation front and center. Their pleas have, however, been drowned out by the voices of conventional prudence. We can’t spend more money on jobs, say these voices, because that would mean more debt. We can’t even hire unemployed workers and put idle savings to work building roads, tunnels, schools. Never mind the short run, we have to think about the future!
The bitter irony, then, is that it turns out that by failing to address unemployment, we have ... been sacrificing the future, too. ... Or so say researchers from the Federal Reserve, and I’m sorry to say that I believe them. ...
According to the paper..., our seemingly endless slump has done long-term damage through multiple channels. The long-term unemployed eventually come to be seen as unemployable; business investment lags thanks to weak sales; new businesses don’t get started; and existing businesses skimp on research and development.
What’s more, the authors ... suggest that economic weakness has already reduced America’s economic potential by ... more than $1 trillion a year ... for multiple years. ... The ...evidence is overwhelming that ... by not even making unemployment a major policy priority ... we’ve done ourselves immense long-term damage.
And it is, as I said, a bitter irony, because one main reason we’ve done so little about unemployment is the preaching of deficit scolds, who have wrapped themselves in the mantle of long-run responsibility — which they have managed to get identified in the public mind almost entirely with holding down government debt. ...
Is there any chance of reversing this damage? The Fed researchers are pessimistic, and, once again, I fear that they’re probably right. America will probably spend decades paying for the mistaken priorities of the past few years.
It’s really a terrible story: a tale of self-inflicted harm, made all the worse because it was done in the name of responsibility. And the damage continues as we speak.

Sunday, November 03, 2013

Plutocrats vs. Populists

Chrystia Freeland:

Plutocrats vs. Populists, by Chrystia Freeland, Commentary, NY Times: Here's the puzzle of America today: the plutocrats have never been richer, and their economic power continues to grow, but the populists, the wilder the better, are taking over. The rise of the political extremes is most evident, of course, in the domination of the Republican Party by the Tea Party and in the astonishing ability of this small group to shut down the American government. But the centrists are losing out in more genteel political battles on the left, too — that is the story of Bill de Blasio’s dark-horse surge to the mayoralty in New York, and of the Democratic president’s inability to push through his choice to run the Federal Reserve, Lawrence H. Summers.
All of these are triumphs of populists over plutocrats: Mr. de Blasio is winning because he is offering New Yorkers a chance to reject the plutocratic politics of Michael R. Bloomberg. The left wing of the Democratic Party opposed the appointment of Mr. Summers as part of a wider backlash against the so-called Rubin Democrats ... and their sympathy for Wall Street. Even the Tea Party, which in its initial phase was to some extent the creation of plutocrats like Charles and David Koch, has slipped the leash of its very conservative backers and alienated more centrist corporate bosses and organizations.
The limits of plutocratic politics, at both ends of the ideological spectrum, are being tested. That’s a surprise. Political scientists like Larry M. Bartels and Martin Gilens have documented the frightening degree to which, in America, more money means a more effective political voice: Democratic and Republican politicians are more likely to agree with the views of their wealthier constituents and to listen to them than they are to those lower down the income scale. Money also drives political engagement: Citizens United, which removed some restrictions on political spending, strengthened these trends.
Why are the plutocrats, with their great wealth and a political system more likely to listen to them anyway, losing some control to the populists? The answer lies in the particular nature of plutocratic political power in the 21st century and its limitations in a wired mass democracy. ...[continue]...

Friday, November 01, 2013

Paul Krugman: A War on the Poor

Why do Republicans treat the poor so poorly?:

A War on the Poor, by Paul Krigman, Commentary, NY Times: ...Republican hostility toward the poor and unfortunate has now reached such a fever pitch that the party doesn’t really stand for anything else — and only willfully blind observers can fail to see that reality.
The big question is why. But, first, let’s talk a bit more about what’s eating the right.
I still sometimes see pundits claiming that the Tea Party movement is basically driven by concerns about budget deficits. That’s delusional. Read the founding rant by Rick Santelli of CNBC: There’s nary a mention of deficits. Instead, it’s a tirade against the possibility that the government might help “losers” avoid foreclosure. Or read transcripts from Rush Limbaugh or other right-wing talk radio hosts. There’s not much about fiscal responsibility, but there’s a lot about how the government is rewarding the lazy and undeserving.
Republicans in leadership positions try to modulate their language a bit, but it’s a matter more of tone than substance. They’re still clearly passionate about making sure that the poor and unlucky get as little help as possible, that — as Representative Paul Ryan ... put it — the safety net is becoming “a hammock that lulls able-bodied people to lives of dependency and complacency.” ...
The thing is, it wasn’t always this way. ...
So what’s this all about? One reason..., Daniel Little suggested in a recent essay, is market ideology: If the market is always right, then people who end up poor must deserve to be poor. I’d add that some leading Republicans are, in their minds, acting out adolescent libertarian fantasies. “It’s as if we’re living in an Ayn Rand novel right now,” declared Paul Ryan in 2009.
But there’s also, as Mr. Little says, the stain that won’t go away: race.
In a much-cited recent memo, Democracy Corps ... reported on the results of focus groups held with members of various Republican factions. They found the Republican base “very conscious of being white in a country that is increasingly minority” — and seeing the social safety net both as something that helps Those People, not people like themselves, and binds the rising nonwhite population to the Democratic Party. And, yes, the Medicaid expansion many states are rejecting would disproportionately have helped poor blacks.
So there is indeed a war on the poor, coinciding with and deepening the pain from a troubled economy. And that war is now the central, defining issue of American politics.

Thursday, October 31, 2013

'Where is the Outrage over Employer-Sponsored Coverage in the “Rate Shock” Debate?

Adrianna McIntyre at The Incidental Economist:

Where is the outrage over employer-sponsored coverage in the “rate shock” debate?, by Adrianna McIntyre: I’ve been keeping pretty close tabs on the “rate shock” debate... It’s a complicated issue, and prophecies about young adult enrollment, including my own, have relied on broad strokes and guesswork. But one thing in particular has been grating on me: when it comes to complaints about redistribution and overly-generous benefits in health insurance, why is the echo chamber limited to the individual market? Where is the outrage over employer-sponsored insurance? ...
Some 90% of people with private insurance receive it through an employer, and those plans are generally priced using “pure” experience-rating. This means the company serves as one giant risk pool, and a firm’s youngest employees have the exact same insurance premium as their eldest colleagues. The practice has roots in tradition and history; unions started negotiating these kinds of contracts after World War II, and other plans followed suit. But it’s also a matter of law: HIPAA and the ADA prohibit premium variation by health status. Age rating is constrained somewhat—though not entirely—by the Age Discrimination in Employment Act.
Yet, I’ve seen exactly zero Obamacare opponents railing to amend the employer-based practices that require most young healthies to pay more than their “fair share.” No one is plying Congress to amend HIPAA or the ADA so young invincibles can pay premiums appropriate to their health status. No one is calling out employers on their “redistributionist” policies, even though uniform insurance premiums force a substantial transfer from the young to the old. It makes histrionics over Obamacare’s 3:1 age band hard to take seriously. ...
I know many conservative wonks find fault in ties between employment and insurance, but they haven’t injected that into recent critiques. If messaging around rate shock is more than opportunistic hackery—if it’s genuinely about how “health insurance” ought to be conceived—why are they leaving the most prevalent and most redistributive form of private coverage unscathed? Surprise me.

Tuesday, October 29, 2013

'The Latest ACA Dust-Up Should Not be a Dust-Up'

Jared Bernstein tries to make clear that there's nothing new here:

The Latest ACA Dust-Up Should Not be a Dust-Up: Like Igor Volsky, you might ask yourself why this particularly story has any legs right now since it’s re-litigating an issue that was widely debated a few years. But the answer is obvious: tis the season to attack the Affordable Care Act, no matter if this one is a greatest hit from 2010.
At issue is the President’s claim when selling health care reform that if you like your current health plan, you can keep it. That point in turn was based on the provision that grandfathered existing plans in the individual market (neither employer-based or government provided) by granting exemptions from various standards and consumer protections that came into effect when the law was signed in 2010.
However, as clearly stated at the time, if such a plan were to significantly changes in ways that are inconsistent with consumer protections under the ACA, that it would lose its grandfathered status.
Like I said, this has been known since the law was written. In fact, go here to see a 2010 publication by my CBPP colleague Sarah Lueck that lists the ways plans can lose its grandfathered status, like eliminating benefits to treat certain conditions or significantly raising co-pays beyond what’s implied by the rate of medical price inflation. ...
So, did the President misspeak? In a way, sure. He should have said: “If you like your plan and it doesn’t get significantly worse such that it’s out of sync with what we’re trying to do here, you can keep it.”
And, in fact, such nuances were clear at the time and not buried in the weeds but discussed in the open. Not much to see here folks…move along.

Monday, October 28, 2013

'Millions of Dreams Ruined'

Dean Baker reminds us that:

... The United States is still down almost 9m jobs from its trend path. We are losing close to $1tn a year in potential output, with cumulative losses to date approaching $5tn.
These numbers correspond to millions of dreams ruined. Families who struggled to save enough to buy a home lost it when house prices plunged or they lost their jobs. Many older workers lose their job with little hope of ever finding another one, even though they are ill-prepared for retirement; young people getting out of school are facing the worst job market since the Great Depression, while buried in student loan debt. ...

We still have a substantial number of unemployed -- millions above full employment level (and that's not even including discouraged workers and the underemployed):

Unemployed
Yet how much have you heard from Washington lately -- from either party -- about the need to do something to help with this problem? Sure Republicans would stand in the way of doing more (though they favor doing less, e.g. cuts to unemployment compensation, food stamps, etc.), but that's partly a reflection of the Democrat's failure to make an issue of obstructionism in the press. Why haven't Democrats made an issue of helping the unemployed at every opportunity in the same way that Republicans make an issue of the debt, etc.?

Paul Krugman: The Big Kludge

Did Obamacare have to be so complicated?:

The Big Kludge, by Paul Krugman, Commentary, NY Times: The good news about HealthCare.gov, the portal to Obamacare’s health exchange, is that the administration is no longer minimizing its problems. That’s the first step toward fixing the mess — and it will get fixed... But while we wait for the geeks to do their stuff, let’s ask a related question: Why did this thing have to be so complicated in the first place? ...
Imagine ... a much simpler system in which the government just pays your major medical expenses..., you wouldn’t have to shop for insurance..., you’d be covered automatically by virtue of being an American.
Of course ... such a system ... already exists. It’s called Medicare..., and it’s enormously popular. So why didn’t we just extend that system to cover everyone?
The proximate answer was politics: Medicare for all just wasn’t going to happen, given both the power of the insurance industry and the reluctance of workers who currently have good insurance through their employers to trade that insurance for something new. Given these political realities, the Affordable Care Act was probably all we could get — and make no mistake, it will vastly improve the lives of tens of millions of Americans.
Still,... Obamacare is an immense kludge — a clumsy, ugly structure that more or less deals with a problem, but in an inefficient way. ... And the main reason that is happening, I’d argue, is ideology. ...
Republicans still dream of dismantling Medicare as we know it, instead giving seniors vouchers to buy private insurance. In effect..., they want to convert Medicare into Obamacare.
Why would we want to do ... these things? You might say, to reduce the burden on taxpayers — but Medicare is cheaper than private insurance...
No, the assault on Medicare is really about an ideology that is fundamentally hostile to the notion of the government helping people... And this ideology, at a fundamental level ... is why Obamacare ended up being a big kludge.
In saying this I don’t mean to excuse the officials and contractors who made such a mess of health reform’s first month. ... For now, the priority is to get this kludge working, and once that’s done, America will become a better place.
In the longer run, however, we have to tackle that ideology. A society committed to the notion that government is always bad will have bad government. And it doesn’t have to be that way.

Saturday, October 26, 2013

Democrats Will Have to Swallow Entitlement Cuts?

I honestly can't remember if I voted for Obama or Hillary in the primary, but if I voted for Obama, it was a mistake:

Obama's Top Economic Adviser Tells Democrats They'll Have to Swallow Entitlement Cuts, by Joshua Green: This morning, Gene Sperling, director of the White House’s National Economic Council, appeared before a Democratic business group for what was billed as a speech about the economy after the shutdown, followed by a Q&A session. The White House didn’t push this as a newsmaking event, so it didn’t get much billing. But I went anyway, and I was struck by what Sperling had to say, especially about the upcoming budget negotiations that are a product of the deal to reopen the government.
In his usual elliptical and prolix way, Sperling seemed to be laying out the contours of a bargain with Republicans that’s quite a bit different that what most Democrats seem prepared to accept. What stood out to me was how he kept winding back around to the importance of entitlement cuts as part of a deal, as if he were laying the groundwork to blunt liberal anger. Right now, the official Democratic position is that they’ll accept entitlement cuts only in exchange for new revenue—something most Republicans reject. If Sperling mentioned revenue at all, I missed it.
But he dwelt at length—and with some passion—on the need for more stimulus, though he avoided using that dreaded word. He seemed to hint at a budget deal that would trade near-term “investment” (the preferred euphemism for “stimulus’) for long-term entitlement reform. That would be an important shift and one that would certainly upset many Democrats. ...

Friday, October 25, 2013

Paul Krugman: Addicted to the Apocalypse

Why is Chicken Little so popular?:

Addicted to the Apocalypse, by Paul Krugman, Commentary, NY Times: Once upon a time, walking around shouting “The end is nigh” got you labeled a kook... These days, however,... you more or less have to subscribe to fantasies of fiscal apocalypse to be considered respectable.
And I do mean fantasies. Washington has spent the past three-plus years in terror of a debt crisis that keeps not happening, and, in fact, can’t happen to a country like the United States, which has its own currency and borrows in that currency. Yet the scaremongers can’t bring themselves to let go.
Consider, for example, Stanley Druckenmiller... Or consider the deficit-scold organization Fix the Debt, led by the omnipresent Alan Simpson and Erskine Bowles. ... [gives examples of doomsaying] ...
As I’ve already suggested, there are two remarkable things about this kind of doomsaying. ... On the Chicken Little aspect: It’s actually awesome, in a way, to realize how long cries of looming disaster have filled our airwaves and op-ed pages. For example, I just reread an op-ed article by Alan Greenspan ... warning that our budget deficit will lead to soaring inflation and interest rates ... published in June 2010... — and both inflation and interest rates remain low. So has the ex-Maestro reconsidered his views after having been so wrong for so long? Not a bit. ...
Meanwhile, about that oft-prophesied, never-arriving debt crisis:... two and half years ago, Mr. Bowles warned that we were likely to face a fiscal crisis within around two years... They just assume that it would cause soaring interest rates and economic collapse, when both theory and evidence suggest otherwise. ...
Look at Japan, a country that, like America, has its own currency and borrows in that currency, and has much higher debt relative to G.D.P. than we do. Since taking office, Prime Minister Shinzo Abe has, in effect,... persuaded investors that deflation is over and inflation lies ahead, which reduces the attractiveness of Japanese bonds. And the effects on the Japanese economy have been entirely positive! ...
Why, then, should we fear a debt apocalypse here? Surely, you may think, someone in the debt-apocalypse community has offered a clear explanation. But nobody has.
So the next time you see some serious-looking man in a suit declaring that we’re teetering on the precipice of fiscal doom, don’t be afraid. He and his friends have been wrong about everything so far, and they literally have no idea what they’re talking about.

Thursday, October 24, 2013

'Gambling with Civilization'

In case you missed this in the daily links. From Paul Krugman:

Gambling with Civilization, by Paul Krugman, NYRB [Review of The Climate Casino: Risk, Uncertainty, and Economics for a Warming World, by William D. Nordhaus]:
1. Forty years ago a brilliant young Yale economist named William Nordhaus published a landmark paper, “The Allocation of Energy Resources,” that opened new frontiers in economic analysis. [1] Nordhaus argued that to think clearly about the economics of exhaustible resources like oil and coal, it was necessary to look far into the future, to assess their value as they become more scarce—and that this look into the future necessarily involved considering not just available resources and expected future economic growth, but likely future technologies as well. Moreover, he developed a method for incorporating all of this information—resource estimates, long-run economic forecasts, and engineers’ best guesses about the costs of future technologies—into a quantitative model of energy prices over the long term.
The resource and engineering data for Nordhaus’s paper were for the most part compiled by his research assistant, a twenty-year-old undergraduate... It was an invaluable apprenticeship. My reasons for bringing up this bit of intellectual history, however, go beyond personal disclosure—although readers of this review should know that Bill Nordhaus was my first professional mentor. For if one looks back at “The Allocation of Energy Resources,” one learns two crucial lessons. First, predictions are hard, especially about the distant future. Second, sometimes such predictions must be made nonetheless.
Looking back at “Allocation” after four decades, what’s striking is how wrong the technical experts were about future technologies. For many years all their errors seemed to have been on the side of overoptimism, especially on oil production and nuclear power. More recently, the surprises have come on the other side, with fracking having the biggest immediate impact on markets, but with the growing competitiveness of wind and solar power—neither of which figured in “Allocation” at all—perhaps the more fundamental news. For what it’s worth, current oil prices, adjusted for overall inflation, are about twice Nordhaus’s prediction, while coal and especially natural gas prices are well below his baseline.
So the future is uncertain, a reality acknowledged in the title of Nordhaus’s new book, The Climate Casino: Risk, Uncertainty, and Economics for a Warming World. Yet decisions must be made taking the future—and sometimes the very long-term future—into account. ... And as Nordhaus emphasizes, although perhaps not as strongly as some would like, when it comes to climate change uncertainty strengthens, not weakens, the case for action now.
Yet while uncertainty cannot be banished from the issue of global warming, one can and should make the best predictions possible. Following his work on energy futures, Nordhaus became a pioneer in the development of “integrated assessment models” (IAMs), which try to pull together what we know about two systems—the economy and the climate—map out their interactions, and let us do cost-benefit analysis of alternative policies. [2] At one level The Climate Casino is an effort to popularize the results of IAMs and their implications. But it is also, of course, a call for action. I’ll ask later in this review whether that call has much chance of succeeding. ...[continue]...

'A Very Expensive Tea Party'

Simon Johnson:

A Very Expensive Tea Party, by Simon Johnson, Commentary, NY Times: The recent government shutdown and confrontation over the federal debt ceiling gained the Republicans nothing,... – and may have cost them politically... But it slowed the economy and undermined confidence in public finances in a way that will have a significant negative impact on future budgets of the United States. None of this should make for an appealing strategy, but Tea Party Republicans are giving every indication that they want to do the same thing again early next year. Their more moderate colleagues need to take a firmer hand.
On the political gains from recent tactics, it is hard to find any good news for the Republican side as a whole. ...
The shutdown and debt ceiling brinkmanship did real damage to the economy. ... 
Members of the Tea Party movement express concern about the longer-run federal budget... But their tactics are directly worsening the budget over exactly the time horizon that they say they care about. ...
The major long-term issue the United States faces is rising health-care costs..., but an important part of our projected future deficits is interest costs...
The United States dollar is the world’s primary reserve currency and safe haven; the asset that major investors, such as central banks and big international companies, actually buy is United States Treasury debt. ...
Over a longer period of time, of course, investors get the message: United States Treasury debt is not so safe... Unwittingly and perhaps inadvertently, the Tea Party is helping to fulfill the prophecies of ... Arvind Subramanian, who has long predicted that the renminbi will eclipse the dollar... Speeding up such a transition will directly increase the interest cost of the national debt and exactly run counter to what Tea Party representatives claim they want to do. ...
In the American system,... the ... only force that can rein in Tea Party extremism – and get the nation off the road to fiscal ruin – is resurgence among Republican moderates. Unfortunately, their recent performance has not been impressive.

'Why the 1% Should Pay Tax at 80%'

Emmanuel Saez and Thomas Piketty:

Why the 1% should pay tax at 80%, by Emmanuel Saez and Thomas Piketty,  theguardian.com: In the United States, the share of total pre-tax income accruing to the top 1% has more than doubled, from less than 10% in the 1970s to over 20% today (pdf). A similar pattern is true of other English-speaking countries..., however, globalization and new technologies are not to blame. Other OECD countries ... have seen far less concentration of income among the mega rich.
At the same time, top income tax rates on upper income earners have declined significantly since the 1970s... At a time when most OECD countries face large deficits and debt burdens, a crucial public policy question is whether governments should tax high earners more. The potential tax revenue at stake is now very large. ...
There is a strong correlation between the reductions in top tax rates and the increases in top 1% pre-tax income shares...
The ... data show that there is no correlation between cuts in top tax rates and average annual real GDP-per-capita growth since the 1970s. ... What that tells us is that a substantial fraction of the response of pre-tax top incomes to top tax rates may be due to increased rent-seeking at the top (that is, scenario three), rather than increased productive effort....
By our calculations about the response of top earners to top tax rate cuts being due in part to increased rent-seeking behavior and in part to increased productive work, we find that the top tax rate could potentially be set as high as 83% (as opposed to the 57% allowed by the pure supply-side model). ...
In the end, the future of top tax rates depends on what the public believes about whether top pay fairly reflects productivity or whether top pay, rather unfairly, arises from rent-seeking. With higher income concentration, top earners have more economic resources to influence both social beliefs (through thinktanks and media) and policies (through lobbying)...
The job of economists should be to make a top rate tax level of 80% at least "thinkable" again.

Monday, October 21, 2013

Paul Krugman: Lousy Medicaid Arguments

Conservatives will use whatever arguments they can find to deny health care to the poor:

Lousy Medicaid Arguments, by Paul Krugman, Commentary, NY Times: For now, the big news about Obamacare is the debacle of HealthCare.gov, the Web portal through which Americans are supposed to buy insurance on the new health care exchanges. For now, at least, HealthCare.gov isn’t working for many users.
It’s important to realize, however, that this botch has nothing to do with the law’s substance, and will get fixed. After all, a number of states have successfully opened their own exchanges,...
In other words, the technical problems, while infuriating ... will not, in the end, be the big story. The real threat remains the effort of conservative groups to sabotage reform, especially by blocking the expansion of Medicaid. This effort relies heavily on lobbying, lavishly bankrolled by the usual suspects, including the omnipresent Koch brothers. But it’s not just money: the right has also rolled out some really lousy arguments. ...
Enter ... experts ... to declare that Medicaid actually hurts its recipients. Their evidence? Medicaid patients tend to be sicker than the uninsured, and slower to recover from surgery.
O.K., you know what to do: Google “spurious correlation health.” You are immediately led to the tale of certain Pacific Islanders who long believed that having lice made you healthy, because they observed that people with lice were, typically, healthier than those without. They were, of course, mixing up cause and effect: lice tend to infest the healthy, so they were a consequence, not a cause, of good health.
The application to Medicaid should be obvious. Sick people are likely to have low incomes; more generally, low-income Americans who qualify for Medicaid just tend in general to have poor health. So pointing to a correlation between Medicaid and poor health as evidence that Medicaid actually hurts its recipients is as foolish as claiming that lice make you healthy. It is, as I said, a lousy argument.
And the reliance on such arguments is itself deeply revealing, because it illustrates the right’s intellectual decline. I mean, this is the best argument their so-called experts can come up with for their policy priorities?
Meanwhile, many states are still planning to reject the Medicaid expansion, denying essential health care to millions of needy Americans. And they have no good excuse for this act of cruelty.

Sunday, October 20, 2013

Ideology and Macroeconomics

Arnold Kling:

Ideology and Macroeconomics, by Arnold Kling: Scott Sumner writes,

I am amazed by how many proponents of fiscal policy don’t understand that it’s symmetrical. Fiscal policy doesn’t mean more government; it means more government during recessions and less government during booms, with no overall change in the average level of government. Anyone who doesn’t even get to that level of understanding, who doesn’t think in terms of policy regimes, is simply not part of the serious conversation.

I agree with the first two sentences, but not with the last.

Yes, in theory, there should be economists who, as they argued for more stimulus in 2009, should at the same time have been arguing for entitlement reform or other reductions in future spending. Other things equal, the bigger debt that we have accumulated over the past five years would make a non-ideological macroeconomist want to propose tighter fiscal policy somewhere down the road.

But “nonideological” and macroeconomics are nearly oxymorons. ...

Huh? See here (from 2005, before the recession had even started):

... To use fiscal policy to stabilize the economy however, you have to spend more or tax less in the bad times (increase the deficit) and then do the hard thing which is to raise taxes or cut spending in the good times (decrease the deficit).  To keep the budget in balance the good has to be matched somewhere by the bad.  If you cut taxes for this disaster, or this recession, or this war, and don’t raise them later, what do you do next time?  Cut again?  Okay, what about the time after that?  It won’t work forever.  The priming of the economy during the bad times must be matched by a slowdown during the good.  Borrow when income is low, pay it back when income is high. 

Furthermore, in stabilization policy, it’s also not possible in the long-run to use both government spending and taxation at opposite points in the business cycle.  That is, suppose you cut taxes during the bad times, then cut spending during the good times to pay it back.  That will work for a recession or two, a hurricane or two, but it won’t work forever because eventually there will be nothing left to cut out of government.  The opposite will not work forever either.  If you increase spending during the bad times then increase taxes during the good, the size of government will grow indefinitely over the long-run.  In more graphic form:

G↑ (rec) → T↑ (boom) →  G↑ (rec)→  T↑ (boom)  → G↑  (rec) → T↑ (boom)  →  bloated government

T↓ (rec) → G↓ (boom) →  T↓ (rec)→  G↓ (boom)  → T↓ (rec) → G↓ (boom)  →  no government

These two policies, or some combination of them (increase G and cut T in recessions, do the opposite in booms) are sustainable:

G↑ (rec) → G↓ (boom) →  G↑ (rec) →  G↓ (boom)  → G↑ (rec) → G↓ (boom)  →  sustainable size of government

T↓ (rec) → T↑ (boom) →  T↓ (rec) →  T↑ (boom)  → T↓ (rec) → T↑ (boom)  →  sustainable size of government

The Democrats are accused of adopting the first strategy and bloating the government.  The Republicans claim to adopt the second strategy to shrink government, but they’ve bloated government themselves (take the second line and change it to T↓ (rec) → G↑ (boom) → etc., a clearly unsustainable path).  Neither party seems willing or able to use either the third and/or the fourth lines as a means of stabilizing the economy.  We are seeing that now, and maybe even less stable budgetary variations.  The WSJ and other members of the GOP seems to advocate T↓ (rec)→ T↓ (boom) → etc. which, without cuts in G, cause deficits rise no matter how much they claim otherwise. 

There are, of course, lots and lots of variations on these basic chains of events, e.g. to adjust the size of government the first or second strategies can be adopted temporarily, and you hope lawmakers would put all their cards on the table as they do so whichever direction government size is to be adjusted.  But fiscal policy that is sustainable in the long-run, through recession after recession, natural disaster after natural disaster, war after war, has to adopt some combination of the third and fourth lines.  ...

Or here (from 2008, a bit afer the recession started):

Short-run stabilization policy for the economy during a downturn involves either cutting taxes to stimulate consumption and investment (and sometimes net exports), or increasing government spending. Which of these is used and the specific policy adopted has important implications for the effectiveness of policy, but no matter how it is done it will raise the deficit, and the increase in the deficit is often used to oppose the policy.
Theoretically, however, there is no reason at all why short-run stabilization policy ought to impact the long-run budget picture. Ideally, the deficits that accumulate during bad times are paid for by raising taxes or cutting spending during the good times so that there is no net change in the budget in the long-run.
Historically, we have been pretty good at spending money in bad times, but not so good at paying for the spending when times are better. But if we are serious about stabilization, that's what we need to do. When output is below the long-run sustainable rate we increase economic activity by deficit spending, and when output exceeds the long-run sustainable rate, we decrease activity by running a surplus. Doing this fills the troughs with the shaved peaks from the booms and keeps the economy closer to the long-run trend value.
I've been wondering if the current crisis will change our attitude about paying for stabilization policy, i.e. if it will make us more willing to raise taxes and cut spending when times are good. One of the problems with the last two boom-bust cycles was unchecked exuberance. Any calls to raise taxes or interest rates were met with howls about how it would cut off the boom, and who would want to do that? But tempering the boom might have helped to reduce the size of the meltdown we are experiencing now and left us much better off.
When the next boom develops, will we be more willing to raise taxes, cut spending, and tighten Fed policy? Will we remember what happened when the previous two booms ended and be more willing to step in and slow down the booming economy, will we be less susceptible to the argument that doing so will eliminate creative and productive innovation (as opposed to misdirecting resources during the mania phase)? This doesn't mean creating a recession or slamming on the brakes so hard we hit our heads, it doesn't mean ending innovative activity, it simply means what it says, bringing the growth rate down to its sustainable rate, and attenuating the exuberance that leads to housing and dot.com bubbles. Will we be more willing to take the necessary steps the next time the economy begins to boom?
I doubt it.
And the problem is that if we aren't willing to pay our bills during the good times, then it will be much harder to spend the money we need to spend when times are bad -- our hands will be tied when it comes to stabilization policy. ...

I could go on, but I'll just simply note that Krugman has been arguing (more than once) that there is little evidence that expansionary fiscal policy in recessions is permanent.

Oh, and since we are talking about unwillingness to reverse policy for ideological reasons, are conservatives arguing that the tax cuts they call for in recessions ought to be reversed when the economy improves? Why aren't those who are so worried about reversing policy in good times only talking about the spending side of the equation? Could it be -- gasp -- that their ideology, there belief that government is too big, is the reason?

Saturday, October 19, 2013

'Polarization'

Comments on this post from Dan Little?:

Polarization: Suppose a country had come to the brink of financial catastrophe because the two parties in its legislature were unable to find compromises in the public interest. Suppose further that the discourse in that country had evolved towards a highly toxic and hateful stream of anathemas by one party against the other. And suppose that one party projects an unprecedented amount of vitriol and hatred towards the leader of the other party, the president of the country. How would we describe this state of affairs? And what hypotheses might we consider to explain how this state of affairs came to be?

First, description. This seems like a society on the brink of political breakdown. It is riven by hard hatreds, with almost no strands of civility and shared values to hold it together. One side portrays the other in extreme terms, with few voices that insist on the basic decency of the other party. (There is one maverick voice, perhaps, who breaks ranks with the extremists of his party, and who expresses a decent respect for his political foes. He is accused of being too soft -- perhaps a secret ally of the opposition.)

Here is how the point is put in a recent piece in the Washington Post:

Today there is a New Confederacy, an insurgent political force that has captured the Republican Party and is taking up where the Old Confederacy left off in its efforts to bring down the federal government. (link)
Consider this map of the distribution and density of slaveholding in the South that Abraham Lincoln found very useful in the run-up to the Civil War; link
.

Compare this to a map created by Richard Florida in the Atlantic link:


congressdistricts_final_big-01

There is a pretty strong alignment between the two maps.

So where does the extremism come from? There is a fairly direct hypothesis that comes to mind: racism and racial resentment. We are facing a real inversion of the white-black power relation that this country has so often embraced. Perhaps this is just very hard for the president's opponents to accept. Perhaps it creates a curdling sense of resentment that is difficult to handle. This is certainly the impression created by the recent incident involving the waving of a confederate flag in front of the White House, an act not so different from a cross-burning in front of the home of a black family. And in fact, there is a pretty striking correlation between the heart of this anti-government activism and the distribution of slaveholding in the United States before the Civil War that is revealed in the two maps above.

Another possibility is that it's really and truly about ideology. The right really hates the president because they think he advocates an extreme left set of policies. The problem with this idea is that the President is in fact quite moderate and centrist. The health care reforms he spearheaded were themselves advocated by conservative think tanks only a few years earlier; the President's agenda has not given much attention to poverty; and the President has avoided serious efforts at redistribution through more progressive taxation. So in fact the President represents the center, not the left, on most economic policies.

So where do these trends seem to be taking us? I used the word "polarization" to describe the situation, but perhaps that is not quite accurate. The percentage of the electorate represented by the extremist faction is small -- nothing like a plurality, let alone majority, of the population. So the extremism in our politics is being driven by a fairly small segment of our society. Because of the extreme degree of gerrymandering that exists in many Congressional districts, though, these legislators are secure in their home districts. So we can't have a lot of hope in the idea that their own electorates will turn them out.

Maybe this society will cycle back to a more moderate set of voices and values. Maybe the public will express its displeasure with the extremist voices, and like good political entrepreneurs they will adapt. Maybe. But we don't seem to see the signs of thaw yet.

Friday, October 18, 2013

Paul Krugman: The Damage Done

Republicans have made the economy worse:

The Damage Done, by Paul Krugman, Commentary, NY Times: The government is reopening, and we didn’t default on our debt. Happy days are here again, right?
Well, no. ...Congress has only voted in a temporary fix, and we could find ourselves going through it all over again in a few months. ...
Beyond that,... it’s important to recognize that the economic damage from obstruction and extortion didn’t start when the G.O.P. shut down the government..., it has been an ongoing process, dating back to the Republican takeover of the House in 2010. ...
A useful starting point for assessing the damage done is a ... report by ... Macroeconomic Advisers, which estimated that “crisis driven” fiscal policy ... since 2010 ... has subtracted about 1 percent off the U.S. growth rate for the past three years. This implies cumulative economic losses ... of around $700 billion. The firm also estimated that unemployment is 1.4 percentage points higher...
Yet ... the report doesn’t take into account ... other bad policies that are a more or less direct result of the Republican takeover in 2010. Two big bads stand out: letting payroll taxes rise, and sharply reducing aid to the unemployed... Both actions have reduced the purchasing power of American workers, weakening consumer demand and further reducing growth. ...
But why have Republican demands so consistently had a depressing effect on the economy?
Part of the answer is that the party remains determined to wage top-down class warfare... Slashing benefits to the unemployed because you think they have it too easy is cruel even in normal times, but it has the side effect of destroying jobs when the economy is already depressed. Defending tax cuts for the wealthy while happily scrapping tax cuts for ordinary workers means redistributing money from people likely to spend it to people who are likely to sit on it.
We should also acknowledge the power of bad ideas. Back in 2011, triumphant Republicans eagerly adopted the concept ... of “expansionary austerity” — ...that cutting spending would actually boost the economy by increasing confidence. Experience since then has thoroughly refuted this concept...
Are all the economy’s problems the G.O.P.’s fault? Of course not. .... But most of the blame for the wrong turn we took on economic policy, nonetheless, rests with the extremists and extortionists controlling the House.
Things could have been even worse. This week, we managed to avoid driving off a cliff. But we’re still on the road to nowhere.

Thursday, October 17, 2013

The Decline in Legitimacy of the Federal Government

Simon Johnson is less than optimistic about the long run prospects for "the current governmental arrangement known as the United States of America":

The Long March of the American Right, by Simon Johnson, Commentary, NY Times: With a last-minute agreement on lifting the debt ceiling, the immediate threat of legal and financial disaster from a default on United States government obligations has been averted. But the last week has provided additional insight into how and why the current governmental arrangement known as the United States of America will end.
The mainstream narrative is that the problem is “dysfunctional government” or “paralysis in Washington.” That’s true, up to a point, but the real problem is the steady decline in legitimacy of the federal government – and the way this is related to what has happened on the right of the political spectrum. ...
In the 1940s, many people believed ... in the ability of the federal government to both organize activities at home and to have a positive impact around the world. This was, perhaps, the most lasting effect of the Great Depression..., on the whole, government was perceived as stepping in to help.
This positive view of an expanded federal government never sat well with people on the right, but the organized pushback was limited through the 1950s. It was only with the turmoil of the Vietnam War and other social pressures in the 1960s that the conservatives got their chance – starting with political direct mailing (American Target Advertising was founded in 1965), the rise of talk radio (particularly from the 1980s), and early anti-tax campaigns (including Proposition 13, which cut property taxes sharply in California in 1978). ...
The ... decline in legitimacy of the United States government is real and lasting... Reinforcing and accelerating this trend is perhaps the greatest damage caused by the financial crisis of 2007-8...
Sooner or later, the American public may elect a group of politicians determined to end the belief that the federal government can be trusted. Their initial steps in that direction will strengthen their showing in opinion polls – and they will be encouraged to go further. At that time, the United States will default on its debts and the world’s financial and fiscal systems will be plunged into chaos.

Wednesday, October 16, 2013

'Enemies vs. Adversaries'

A colleague says "I found this to be very interesting.  Maybe your readers would be interested?" (To some extent, this is the point I was trying to get at in the post below this one):

Enemies vs. Adversaries, by Michael Ignatieff, NY Times: For democracies to work, politicians need to respect the difference between an enemy and an adversary.
An adversary is someone you want to defeat. An enemy is someone you have to destroy. With adversaries, compromise is honorable: Today’s adversary could be tomorrow’s ally. With enemies, on the other hand, compromise is appeasement.
Between adversaries, trust is possible. They will beat you if they can, but they will accept the verdict of a fair fight. This, and a willingness to play by the rules, is what good-faith democracy demands.
Between enemies, trust is impossible. They do not play by the rules (or if they do, only as a means to an end) and if they win, they will try to rewrite the rules, so that they can never be beaten again.
Adversaries can easily turn into enemies. If majority parties never let minority parties come away with half a loaf, the losers are bound to conclude they can only win through the utter destruction of the majority.
Once adversaries think of democracy as a zero-sum game, the next step is to conceive of politics as war: no quarter given, no prisoners taken, no mercy shown. ...
More civility and gentility — being nicer — will not cure this. What needs to change are the institutions themselves, and they will only change when the political class in Washington realizes that, just as in American football, there are some hits that are killing the game.
Saving the game means changing the rules. ...
What’s indefensible is a political class that believes nothing better is possible — a class that benefits from enmity without realizing that the damage from it is corrosive, and possibly irreversible.

Tea Party Just Playing within the Rules?

James Kwak:

I am probably one of the few liberals who don’t think the Tea Party caucus is engaged in irresponsible hostage-taking. Sure, I disagree with their policy objectives, and they are risking economic catastrophe by trying to force the government into default. But they are also fighting for a principle, misguided as it may be: Obamacare is evil, and should be stopped. The debt ceiling is an absurdity that should not exist. But since it does exist, it is leverage that conservatives can use to try to achieve their policy goals. The problem is that the debt ceiling exists; given its existence, you can’t blame people for using it for their ends. It’s like the filibuster: you can say that the 60-vote requirement is bad, but you can’t blame people for taking advantage of it. As Norman Ornstein said..., “If you hold one-half of one-third of the reins of power in Washington, and are willing to use and maintain that kind of discipline even if you will bring the entire temple down around your head, there is a pretty good chance that you are going to get your way.”

I don't think that the fact that something is permissible under existing rules necessarily makes it OK. Unlike the public, legislators have the power to change laws/rules that allow behavior that shouldn't be permitted, that's their job, and I don't think threatening the economy with severe harm to get your way ought to be allowed. They aren't operating in a world where the rules are determined exogenously, so they can't just say the rules are the rules and we are simply operating within them -- the rules can (and should) be changed.

Tuesday, October 15, 2013

'The GOP Tax'

Paul Krugman:

The GOP Tax: Macroeconomic Advisers has a new report out about the effects of bad fiscal policy since 2010 — that is, since the GOP takeover of the House. ... They say that combined effects of uncertainty in the bond market and cuts in discretionary spending have subtracted 1% from GDP growth. That’s not 1% off GDP — it’s the annualized rate of growth, so that we’re talking about almost 3% of GDP at this point; cumulatively, the losses come to around $700 billion of wasted economic potential. This is in the same ballpark as my own estimates.
And they also estimate that the current unemployment rate is 1.4 points higher than it would have been without those policies (a number consistent with almost 3% lower GDP); so, we’d have unemployment below 6% if not for these people.
Great work all around, guys.

But the master's of the universe -- the wealthy supporters of the GOP and a driving force behind the push for austerity -- are doing great. If they get lower taxes as a result of all this, that's allthat matter, right? Who cares about all the other people who are struggling as a result of cuts to social services, higher unemployment rates, and the like?

Monday, October 14, 2013

Paul Krugman: The Dixiecrat Solution

What's the biggest problem we face right now?:

The Dixiecrat Solution, by Paul Krugman, Commentary, NY Times: ... Stocks surged last Friday in the belief that House Republicans were getting ready to back down on their ransom demands over the government shutdown and the debt ceiling. But what Republicans were actually offering, it seems, was the “compromise” Paul Ryan ... laid out...: rolling back some of the “sequester” budget cuts  — which both parties dislike; cuts in Medicare, but with no quid pro quo in the form of higher revenue; and only a temporary fix on the debt ceiling, so that we would soon find ourselves in crisis again. ... Yet even this ludicrously unbalanced offer was too much for conservative activists, who lambasted Mr. Ryan for basically leaving health reform intact. ...
Conservative activists are simply not willing to give up on the idea of ruling through extortion, and the Obama administration has decided, wisely, that it will not give in to extortion. So how does this end? How does America become governable again?
One answer might be ... Dixiecrats in reverse.
Here’s the precedent: For a long time, starting as early as 1938, Democrats generally controlled Congress on paper, but actual control often rested with an alliance between Republicans and conservative Southerners who were Democrats in name only. You may not like what this alliance did... But at least America had a functioning government...
And right now we have all the necessary ingredients for a comparable alliance, with roles reversed. Despite denials from Republican leaders, everyone I talk to believes that it would be easy to pass both a continuing resolution, reopening the government, and an increase in the debt ceiling, averting default, if only such measures were brought to the House floor. How? The answer is, they would get support from just about all Democrats plus some Republicans, mainly relatively moderate non-Southerners. As I said, Dixiecrats in reverse.
The problem is that John Boehner ... won’t allow such votes, because he’s afraid of the backlash from his party’s radicals. Which points to a broader conclusion: The biggest problem we ... face right now is not the extremism of Republican radicals, which is a given, but the cowardice of Republican non-extremists (it would be stretching to call them moderates).
The question for the next few days is whether plunging markets and urgent appeals from big business will stiffen the non-extremists’ spines. For as far as I can tell, the reverse-Dixiecrat solution is the only way out of this mess.

Sunday, October 13, 2013

'The GOP’s Latest Poison Pill'

Here's the latest from the "blame the other side for the crappy things we do to people we don't care about" party. This is from Ezra Klein:

The GOP’s latest poison pill, Wonkblog: ...House Republicans are preparing a six-week debt-ceiling extension that includes the Vitter amendment (see here for more on that bit of health-care trolling), strengthened income verification under Obamacare, and Rep. James Lankford's 'Government Shutdown Prevention Act.' Lankford's bill is interesting. Here's the description from his congressional office:
If Congress fails to approve a budget by the end of each fiscal year, the Government Shutdown Prevention Act would ensure that all operations remain running normally .. by automatically triggering a continuing resolution (CR) or short-term, stop-gap spending device. ... After the first 120 days, auto-CR funding would be reduced by one percentage point and would continue to be reduced by that margin every 90 days.
By progressively decreasing the amounts provided under the automatic continuing resolution, the bill provides continued incentives for Congress and the President to reach agreement on regular appropriations bills.
Catch the problem? The Lankford bill creates a world in which the failure to fund the government leads to automatic, across-the-board spending cuts. That's not a world in which there are "continued incentives for Congress and the President to reach agreement on regular appropriations bills." It's a world in which Republicans who want spending cuts have a continued incentive to refuse to reach agreement on bills to fund the government.
If Lankford wanted to incentivize both sides to come to a deal he'd propose a bill that paired automatic spending cuts with automatic tax increases. ... It'll die a quick death in the Senate. ...

Saturday, October 12, 2013

'Business and the GOP'

Paul Krugman:

Business and the GOP: Still no resolution on the debt ceiling, and I think people are still too optimistic here. Republicans still aren’t willing to walk away from this without some kind of trophy, so they can claim victory; the whole point of Obama’s position is that you don’t get anything, not even something trivial, as a reward for threatening disaster.
Meanwhile, Republicans are getting a lot of pressure from business, which doesn’t like what’s happening. And some pundits are already speculating about the possibility either of a split within the GOP or a kind of coup in which the business-backed party elders take control back from the crazies.
So I’ve been thinking about this, and have managed to convince myself that it’s wishful thinking.
Now, it’s true that Republicans are bad for business... Ever since Republicans retook the House, federal spending adjusted for inflation and population has been dropping fast...
This is exactly the wrong thing to be doing in a still-depressed economy with interest rates at zero... But here’s the thing: while the modern GOP is bad for business, it’s arguably good for wealthy business leaders. After all, it keeps their taxes low, so that their take-home pay is probably higher than it would be under better economic management. ...
In a way, this is an inversion of the usual argument made by defenders of inequality. They’re always saying that workers should be happy to accept a declining share of national income, because the incentives associated with inequality make the economic pie bigger, and they end up better off in the end. What’s really going on with plutocrats right now, however, is that they’re basically willing to accept lousy economic policies from right-wing politicians as long as they get a bigger share of the shrinking pie.
This may sound very cynical — but then, if you aren’t cynical at this point, you aren’t paying attention. And I suspect that the GOP would have to get a lot crazier before big business bails.

This also speaks to the well known agency issue between the "wealthy business leaders" and the stockholders in the firms they are running.

Friday, October 11, 2013

Paul Krugman: Dealing With Default

Don't listen to the default deniers:

Dealing With Default, by Paul Krugman, Commentary, NY Times: So Republicans may have decided to raise the debt ceiling without conditions attached — the details still aren’t clear. Maybe that’s the end of that particular extortion tactic, but maybe not, because, at best, we’re only looking at a very short-term extension. The threat of hitting the ceiling remains...
So what are the choices if we do hit the ceiling? ... What would a general default look like? ...
First, the U.S. government would ... be ... failing to meet its legal obligations to pay. You may say that things like Social Security checks aren’t the same as interest due on bonds... But ... Social Security benefits have the same inviolable legal status as payments to investors.
Second, prioritizing interest payments would reinforce the terrible precedent we set after the 2008 crisis, when Wall Street was bailed out but distressed workers and homeowners got little or nothing. We would, once again, be signaling that the financial industry gets special treatment because it can threaten to shut down the economy if it doesn’t.
Third, the spending cuts would create great hardship if they go on for any length of time. Think Medicare recipients turned away from hospitals...
Finally, while prioritizing might avoid an immediate financial crisis, it would still have devastating economic effects. We’d be looking at an immediate spending cut roughly comparable to the plunge in housing investment after the bubble burst... That by itself would surely be enough to push us into recession.
And it wouldn’t end there. As the U.S. economy went into recession, tax receipts would fall sharply, and the government, unable to borrow, would be forced into a second round of spending cuts, worsening the economic downturn, reducing receipts even more, and so on. So ... we could ... be looking at a slump worse than the Great Recession.
So are there any other choices? Many legal experts think there is another option: One way or another, the president could simply choose to defy Congress and ignore the debt ceiling.
Wouldn’t this be breaking the law? Maybe, maybe not — opinions differ. But not making good on federal obligations is also breaking the law. And if House Republicans are pushing the president into a situation where he must break the law no matter what he does, why not choose the version that hurts America least? ...
So what will happen if and when we hit the debt ceiling? Let’s hope we don’t find out.

Tuesday, October 08, 2013

Inexcusable Republican Tactics Endanger the Economy

New column:

Inexcusable Republican Tactics Endanger the Economy

A better title might have been "Makers, Takers, and the Real Immoral Behavior," or perhaps "Why are Republicans Putting Working Class Households at Risk?"

Monday, October 07, 2013

Paul Krugman: The Boehner Bunglers

Radicalization and incompetence -- a dangerous combination:

The Boehner Bunglers, by Paul Krugman, Commentary, NY Times: The federal government is shut down, we’re about to hit the debt ceiling (with disastrous economic consequences), and no resolution is in sight. How did this happen?
The main answer ... is the radicalization of the Republican Party. ... But there’s one more important piece of the story. Conservative leaders are indeed ideologically extreme, but they’re also deeply incompetent. ...
To see what I’m talking about, consider the report in Sunday’s Times about the origins of the current crisis. Early this year, it turns out, some of the usual suspects — the Koch brothers, the political arm of the Heritage Foundation and others — plotted strategy in the wake of Republican electoral defeat. Did they talk about rethinking ideas that voters had soundly rejected? No, they talked extortion, insisting that the threat of a shutdown would induce President Obama to abandon health reform.
This was crazy talk. After all, health reform is Mr. Obama’s signature domestic achievement. You’d have to be completely clueless to believe that he could be bullied into giving up his entire legacy by a defeated, unpopular G.O.P. — as opposed to responding, as he has, by making resistance to blackmail an issue of principle. But the possibility that their strategy might backfire doesn’t seem to have occurred to the would-be extortionists. ...
Many people seem perplexed by the transformation of the G.O.P. into the political equivalent of the Keystone Kops — the Boehner Bunglers? ... But all of this was predictable.
It has been obvious for years that the modern Republican Party is no longer capable of thinking seriously about policy. Whether the issue is climate change or inflation, party members believe what they want to believe, and any contrary evidence is dismissed as a hoax, the product of vast liberal conspiracies. ...
Remember what happened in the 2012 election — not the fact that Mitt Romney lost, but the fact that all the political experts around him apparently had no inkling that he was likely to lose. ...
Everybody ... realizes that Mr. Obama can’t and won’t negotiate under the threat that the House will blow up the economy if he doesn’t — any concession at all would legitimize extortion as a routine part of politics. Yet Republican leaders are just beginning to get a clue, and so far clearly have no idea how to back down. Meanwhile, the government is shut, and a debt crisis looms. Incompetence can be a terrible thing.

Sunday, October 06, 2013

'Rich People Just Care Less'

From today's links:

Rich People Just Care Less, by Daniel Goleman, Commentary, NY Times: ...A growing body of recent research shows that people with the most social power pay scant attention to those with little such power. ... Dacher Keltner, a professor of psychology at Berkeley,... finds that the poor, compared with the wealthy, have keenly attuned interpersonal attention in all directions, in general, those with the most power in society seem to pay particularly little attention to those with the least power. To be sure, high-status people do attend to those of equal rank — but not as well as those low of status do.
This has profound implications for societal behavior and government policy. Tuning in to the needs and feelings of another person is a prerequisite to empathy, which in turn can lead to understanding, concern and, if the circumstances are right, compassionate action.
In politics, readily dismissing inconvenient people can easily extend to dismissing inconvenient truths about them. The insistence by some House Republicans in Congress on cutting financing for food stamps and impeding the implementation of Obamacare ... may stem in part from the empathy gap. ...
Social distance makes it all the easier to focus on small differences between groups and to put a negative spin on the ways of others and a positive spin on our own...
Since the 1970s, the gap between the rich and everyone else has skyrocketed. Income inequality is at its highest level in a century. ... I fear the expansion of an entirely different gap, caused by the inability to see oneself in a less advantaged person’s shoes. Reducing the economic gap may be impossible without also addressing the gap in empathy.

Saturday, October 05, 2013

'Why Do Smart Republican Economists Continue to Claim that ObamaCare Is Causing a Significant Fall in Full-Time Employment'

I set this piece on part-time employment and Obamacare aside to post, but hadn't gotten back to it yet. Fortunately, Brad DeLong did it for me:

Why Do Smart Republican Economists Continue to Claim that ObamaCare Is Causing a Significant Fall in Full-Time Employment Right Now?: Max Sawicky shows up writing for the extremely useful Economic POlicy Institute: Obamacare Isn’t Causing an Increase in Part-Time Employment, in One Chart:
One of the more baffling messages in the current debate over the economy and “Obamacare” is the hue and cry over the trend in part-time employment. The fact is that since the end of the Great Recession, the trend in part-time employment has been down, not up…. The navy blue region show the level of workers who are part time due to “non-economic” reasons (health, child care responsibilities, etc.). The vertical bars denote recessions, from peak to trough.

Obamacare Isn t Causing an Increase in Part Time Employment In One Chart Economic Policy Institute

Under the Affordable Care Act, employers will be required to provide insurance to workers who work for more than 30 hours a week. This mandate does not take effect for another year. There is no reason why anticipation of it should increase part-time employment in the meantime. And at any rate, such employment has been falling before and after the passage of Obamacare. For more on this, see articles by Jared Bernstein and Paul Van de Water and Helene Jorgenson and Dean Baker. For more on the employer mandate, see this post from EPI’s Josh Bivens.
Yet we have Michael Boskin...[quote]...
And Greg Mankiw:
A Striking Labor Market Fact: John Lott points out the following: "So far this year there have been 848,000 new jobs. Of those, 813,000 are part time jobs.... To put it differently, an incredible 96% of the jobs added this year were part-time jobs."
What are they thinking?
I mean, some employers are going to drop hours below 30 a week once the employer pay-or-play hits. But we won't see that until the February 2015 employment report, and there is no reason for employers to start that eighteen months in advance. It isn't there in the data. And nothing would lead anybody to expect that it would be visible in the data right now.
So why are they claiming that it is?

I should also note that the figure Mankiw cited is wrong.

'The Incoherence of the Republican Message'

The NY Times Editorial Board:

Now Republicans Want a ‘Dialogue’: Republicans are now simply flailing. Because they lack any plausible explanation for their irresponsible conduct in creating and prolonging the government shutdown, they are inventing new demands by the hour.
“Defund Obamacare!” they cried at the beginning, stating their condition for reopening the government. Then they moved to delaying health care reform, delaying the individual mandate and repealing one of the health care law’s taxes. Then they started talking about another grand bargain on the budget, tax reform and entitlement cuts. When nothing worked, they simplified their ransom note, saying President Obama and the Democrats had to sit down with them and negotiate something, or anything.
“All we’re asking for is to sit down and have a discussion,” Speaker John Boehner said Friday... Cathy McMorris Rodgers, chairwoman of the House Republican Conference, put it even more broadly, asking for the beginning of a “dialogue.” The real goal of these demands, however, is not an agreement but instead the perception that it is Mr. Obama who is being intransigent, not the House.
The variety of demands at the news conference demonstrated the incoherence of the Republican message, which is now more about saving face than about any specific policy change. ...
A “dialogue,” now? With 800,000 federal employees furloughed, vital government services cut off and the economy slowing? This is a moment for immediate action to reopen government’s doors, not the beginning of a conversation that Republicans spurned when they lacked the leverage of a shutdown. ...

Kevin Drum says:

So Republicans have settled on their messaging, and it's this: Democrats are refusing to negotiate. We keep offering compromise after compromise, but Democrats won't listen to any of them.
Will this work? ... I suppose it has a chance. But it certainly shows a considerable contempt for the intelligence of the voting public. After six months of (a) refusing to meet with Senate Democrats to discuss the budget and (b) gleefully telling anyone who would listen that the shutdown and/or debt ceiling would be their ultimate leverage to force President Obama to agree to their laundry list of demands, you'd think it would be a hopeless task to pretend it was Democrats who wanted this fight all along. Add to that the fact that Democrats have already given in completely to Republican demands on spending levels, and you'd think it would be flatly impossible to pretend that Democrats were the ones refusing to negotiate.
But you never know. The fact that this is a cynical ploy doesn't mean it won't work. ... [L]et's claim that it's really Democrats who are the intransigent zealots! And we'll do it by continually offering the same concession—i.e., nothing—in return for an ever-changing set of demands and pretending that this represents a sincere search for compromise. It's so crazy it could work!

Yes, it could work, particularly if the media -- despite the editorial above -- generally repeats the Republican talking points as though they have validity:

...remember, both sides are equally at fault. Isn’t that what we’re supposed to say under all circumstances?

If Democrats had, say, shut down the government over the Bush tax cut extension, do you think the reporting would have been different -- far more one-sided? I do.

Friday, October 04, 2013

Comments on the Federal Government Shutdown

Two of my colleagues have comments on the government shutdown (for more comments from University of Oregon faculty from other departments, see here -- more comments should be added over the next few days):

Tim Duy
Professor of practice and senior director of the Oregon Economic Forum
UO Department of Economics
A protracted shutdown creates another headwind to an economy still struggling to regain ground lost during the last recession. Moody's Analytics, for example, estimates that a month-long shutdown would cost the U.S. economy $55 billion. As a result, we will see only slower resolution of pressing problems such as the crisis in long-term unemployment or stagnant median income growth for households. Moreover, the possibility of default on U.S. debt payments threatens the stability of the financial system at its core and could trigger a crisis that leads to another recession, pushing the economy back deeper into the hole. No faction in Congress should find it acceptable to hold the American economy hostage like this for any reason.
George W. Evans
John B. Hamacher Chair of Economics
UO Department of Economics
The partial government shutdown will operate as a perverse fiscal policy, adding negative pressure to a tepid recovery. The reduction in government spending will directly and indirectly act to reduce GDP and employment in the US, with spillover effects on Europe and the rest of the world. Given the weakness of the recovery in the U.S., this is a dangerous “policy.” The chairman of the Federal Reserve has made it clear that there are some adverse fiscal shocks that it may not be possible to offset with monetary policy. A failure to increase the debt limit would additionally test those limits, because it would make conceivable the possibility of default on U.S. federal government obligations, and because default risk would lead to higher interest rates. Both the partial government shutdown, if it continues for a significant length of time, and a failure to increase the debt limit, would increase the probability that the U.S. economy returns to recession. The House of Representatives should immediately pass a “clean” continuing resolution, to end the partial shutdown, and vote a “no strings” increase in the debt limit.

Paul Krugman: Reform Turns Real

Bad news is good news:

Reform Turns Real, by Paul Krugman, Commentary, NY Times: At this point, the crisis in American governance has taken on a life of its own. ... But this confrontation did start with a real issue: Republican efforts to stop Obamacare from going into effect. It’s long been clear that the great fear of the Republican Party was not that health reform would fail, but that it would succeed. And developments since Tuesday, when the exchanges on which individuals will buy health insurance opened for business, strongly suggest that their worst fears will indeed be realized: This thing is going to work.
Wait a minute, some readers are saying. Haven’t many stories so far been of computer glitches...? Indeed, they have. But everyone knowledgeable about the process always expected some teething problems, and the nature of this week’s problems has actually been hugely encouraging for supporters of the program. ...
The ... glitches ... for the most part, to be the result of the sheer volume of traffic, which has been much heavier than expected. And this means that one big worry of Obamacare supporters — that not enough ... would ... sign up — is receding fast. ...
What we still don’t know, and is crucial for the program’s longer-term success, is who will sign up. Will there be enough young, healthy enrollees to provide a favorable risk pool and keep premiums relatively low? Bear in mind that conservative groups have been spending heavily — and making some seriously creepy ads — in an effort to dissuade young people from signing up for insurance. Nonetheless, insurance companies are betting that young people will, in fact, sign up, as shown by the unexpectedly low premiums they’re offering...
And the insurers are probably right. To ... get a description of the typical person Obamacare needs to enroll, just take the description of a typical Tea Party member or Fox News viewer — older, affluent, white — and put a “not” in front of each characteristic. These are people the right-wing message machine is not set up to talk to, but who can be reached through many of the same channels, from ads on Spanish-language media to celebrity tweets, that turned out Obama voters last year. ... Enrollment is probably going to be just fine.
So Obamacare is off to a good start, with even the bad news being really good news for the program’s future. We’re not quite there yet, but more and more, it looks as if health reform is here to stay.

Thursday, October 03, 2013

'The Loss of U.S. Pre-Eminence'

Simon Johnson doesn't understand why the business community is so passive about the threat the Republican temper tantrum over Obamacare poses to the long-run health of the US economy:

The Loss of U.S. Pre-eminence, by Simon Johnson, Commentary, NY Times: The United States became a superpower in the 1940s and, 70 years later, stands on the brink of losing that status. It rose to global pre-eminence at short notice, and its decline can occur just as abruptly. This week’s partial government shutdown both reminds us that the United States has reached such a precarious position and shows us exactly how things can now unravel as it approaches the really big confrontation over the debt ceiling. ...
I’m ... pessimistic. The United States won its global predominance in a short period, but based on a long haul of industrial development, productivity gain and fiscal prudence. Now the groundwork has been laid for its decline with political polarization, a longstanding tax revolt and a well-orchestrated campaign to undermine the legitimacy of the federal government. ...
The silence of much of the business and financial elite on the debt ceiling — as well as on the sequester and the government shutdown — is somewhat shocking. This is a group that is usually quite vocal in promoting its self-interest. ...
The Constitution was designed with multiple safeguards to protect the voices of relatively small groups. This is entirely appropriate. But consequently, if a well-financed and highly motivated group of members of Congress decides that the United States should default on its debts, then the United States will default.
If the business elite cannot speak truth to the Republican Party — and persuade its leadership and enough members of Congress to return to a more moderate stand — there is not much hope for the United States in today’s global economy.

Paul Krugman tried to explain this yesterday:

...business types ... suffer...from a triple misconception about our situation.
First, CEOs still talk as if debt and deficits were the central issue of economic policy. They never deserved that place; they certainly don’t deserve it now that the deficit has clearly been falling too fast and the debt outlook is stable for the next decade. Yet they can’t let go of the notion that a grand bargain on the budget — as opposed to an end to destructive austerity — is what we need.
Second, many CEOs are, I believe, genuinely naive about the people they deal with. They believe, for example, that Paul Ryan actually cares about deficits. They haven’t grasped, or refuse to grasp, the reality that the whole thing about deficits was really about using economic crisis as an excuse to tear down the social safety net.
Finally, they’re still trying to position themselves as the middle ground between extremists on both sides, when the reality is that we have a basically moderate Democratic party confronting a radical Republican party that doesn’t play by any of the normal rules. If you insist on thinking of Ted Cruz and Elizabeth Warren as somehow symmetrical figures, you’re already so out of touch with political reality that there’s no way you’re going to have useful influence.
I do sometimes wonder how these guys can be that naive, and some of them probably aren’t — they’re playing class warfare on the sly. But some of them really do seem clueless, probably because thinking about the reality of American politics today would make them uncomfortable — and who’s going to tell the guy in the big office things that make him uncomfortable?
It’s not just Fox News watchers who live in a bubble; sometimes, wealth and power can have the same effect.

Wednesday, October 02, 2013

'Health Care Panic, Again'

Paul Krugman says I told you so:

Health Care Panic, Again: Eduardo Porter is getting a lot of attention for his piece in today’s paper suggesting that what Republicans fear most is that Obamacare might succeed. ... I’m surprised that so many people seem to find this a surprising and new insight. I thought it was obvious. Here’s a column I wrote back in July predicting more or less what is now happening, for exactly the reason Porter gives: GOP panic over the prospect of successful health reform.
And let’s be clear: the health reform fight has always been about more than health reform. Liberals have long viewed health reform as the opening wedge, a sort of proof of concept, in a campaign to strengthen the US safety net and reduce income inequality; that was basically what I was urging in Conscience of a Liberal, which gave its title to this blog.
Conversely, the right has long opposed health reform for exactly the same reason: it might, in the public’s mind, legitimate further government intervention to increase economic security.
But let’s also be clear that these positions are not symmetric. Liberals favored health reform both because it would work and because it might enhance their ability to push for other policies; conservatives were and are determined to kill health reform ... precisely because it would work — because it might weaken the rest of their agenda. ...
So my plot is working, mwahahahaha. Although I didn’t consider the side effect — benefit or cost? — that health reform would drive conservatives stark raving mad.

I think the idea that this is about more than just health reform, it's about stopping Democrats from strengthening social insurance protections and reducing inequality more generally, is an important and correct point. If Obamacare did not exist, I'd guess we'd still be having a fight over the funding of other social programs conservatives want to scale back or eliminate. But it's also important to note that, as Paul Krugman recently explained, at the heart of it all is class warfare:

...many of the rich are selective in their opposition to government helping the unlucky. They’re against stuff like food stamps and unemployment benefits; but bailing out Wall Street? Yay!
Seriously. Charlie Munger says that we should “thank God” for the bailouts, but that ordinary people fallen on hard times should “suck it in and cope.” AIG’s CEO — the CEO of a bailed out firm! — says that complaints about bonuses to executives at such firms are just as bad as lynchings (I am not making this up.)
The point is that the superrich have not gone Galt on us — not really, even if they imagine they have. It’s much closer to pure class warfare, a defense of the right of the privileged to keep and extend their privileges. It’s not Ayn Rand, it’s Ancien Régime.

Despite what conservatives want you to believe, this is not a fight about the role of government. Conservatives have no trouble with government interventions they benefit from. But ask them to give up a dollar to help the less fortunate and it's another story.

'America Is Already Politically Bankrupt'

How is the government shutdown viewed in Europe?:

Shutdown Spectacle: 'America Is Already Politically Bankrupt': As the United States government shutdown enters its second day, Washington is the target of both ridicule and concern overseas. ...
The examples in the article are from Germany, e.g.:
... The overwhelming consensus among the German press is that the Republicans are the most to blame for the gridlock. In a Tuesday commentary, Spiegel Online's Gregor Peter Schmitz dubbed them the "kamikaze party." He attributed the gridlock to America's mercenary political culture...
"It's circumstances like these," writes Schmitz, "that explain why a brigade of Republicans conduct themselves like a bunch of Berlusconis -- as enemies of the state from within who want to cripple the country because that's the desire of their conservative voters at home."
When it came to the Tea Party wing of the Republican Party, the German press was not pulling any punches. "There are fundamentalists within the world's largest democracy: The hardline wing of the Republican Party are once more crippling the United States," writes Nuremberg's Nachrichten. The Tea Party movement, it concludes, "does not engage in democracy, but in dogmatism."
"Here are fundamentalists at work who hold up their country to ridicule to advance their pure doctrine," wrote a commentator in Collogne's Stadt-Anzeiger. "What a tragedy!" ...

Tuesday, October 01, 2013

Remember When Republicans Were Worried about Uncertainty?

Lydia DePillis at Wonkblog:

Remember when Republicans were worried about ‘economic uncertainty’?: A government shutdown, and the prospect of a default on the national debt, is pretty much the definition of economic uncertainty. Contracts are put in limbo. Future interest rates are unknown. A new healthcare system lies in the balance. And meanwhile, a whole host of issues that businesses need resolved in order to plan several years in advance -- environmental regulation, immigration policy, the tax code -- go almost entirely unaddressed.
These are the conditions brought upon us by a small core of Republicans who can't let go of their opposition to a law their colleagues passed three years ago. And yet, not long ago, many of those same Republicans were declaring that uncertainty is the economy's biggest threat. Let's go to the tape: ...

The Trillion Dollar Coin--or, More Sensibly, 1000 Billion-Dollar Coins--Is the Only Way ...

Brad DeLong:

The Trillion Dollar Coin--or, More Sensibly, 1000 Billion-Dollar Coins--Is the Only Way for Obama to Fulfill His Oath of Office: "I, Barack Hussein Obama, do solemnly swear (or affirm) that I will faithfully execute the Office of President of the United States, and will to the best of my Ability, preserve, protect and defend the Constitution of the United States."

The Constitution tells us that to faithfully execute the office the President shall:

from time to time give to the Congress information of the state of the union, and recommend to their consideration such measures as he shall judge necessary and expedient;

he may, on extraordinary occasions, convene both Houses, or either of them, and in case of disagreement between them, with respect to the time of adjournment, he may adjourn them to such time as he shall think proper;

he shall receive ambassadors and other public ministers;

he shall take care that the laws be faithfully executed, and shall commission all the officers of the United States.

The appropriations are lawfully commanded by Congress--to fail to spend them is, since the budget reforms of the 1970s, to break the law--the repayment of the debt is mandated by the Constitution's Article XIV, as is the limitation of the government's authority to take property via taxation or otherwise to the amount lawfully commanded by Congress.

There are two ways in the absence of a debt-ceiling increase for the President not to break the law:

  1. Find some other debt of the U.S. government--like, as Bob Rubin did, the debt of the U.S. government to the Federal Employees' Thrift Savings Plan--where the Trustee will not complain if the government does not pay its debts for a while, and then have the government not pay its debts for a while.

  2. Mint the damned coins already.

(2) look strongly preferable to me--the exercise of the government's not paying its debts to people who can't gain standing to sue and then saying that unpaid debts by the government are not part of the debt subject to limit has always seemed ugly.

From an economic standpoint, yes, this could avoid some very bad economic consequences. But I'm less sure of it from a political standpoint, i.e. that the public would understand and endorse it. I suspect that's true of the administration as well, and politics generally seems to trump economics when push comes to shove within the administration.

'What We Mean When We Talk About Middle-Out Economics'

Hilary Wething at the EPI:

What We Mean When We Talk About Middle-Out Economics: Paul Krugman and Mark Thoma have been discussing (see here and here) the views of the (increasingly influential) very rich on this fall’s fiscal debate. They hypothesize that rising inequality has led to exorbitantly large incomes for a select few, and that these select few don’t understand the value of social insurance because they reap little-to-no benefits from programs like Medicaid, and SNAP, for example. The top 1 percent, after all, rarely realize the benefits of social insurance, since the likelihood that they experience unexpected income losses to the extent that they fall below the middle class living standards is slim. More often, social insurance benefits those who may be in the middle and lower classes, and experience unexpected income losses (like a lay off). Complaining about insurance simply because you don’t think you will need it is a pretty pithy argument, but let’s ignore that for now.
Thoma and Krugman go further, noting that rising inequality seems to have confirmed the top one percent’s notion that they are the indispensable economic engine of the U.S. economy, who take risks and work the hardest and should justly reap the benefits. They push for lower taxes (even though their current tax rate is one of the lowest in history) because they don’t think anything should impede their productivity, and they demand respect for being the “job creators” in society. In the context of this fall’s showdowns over the federal budget and the debt ceiling, not only is this take wrong, but it is totally divorced from the reality the broad middle-class faces—a reality of high joblessness from an anemic recovery, and meager wage growth over the last 30 years.
President Obama and others like to frame economic policy as growing the economy from the ‘middle-out.’ Last week, my colleague, Josh Bivens and I published a paper arguing that the fiscal policy debate this fall needs go beyond rhetoric and put actually improving middle-class living standards front-and-center. We attempted to explore what, if taken seriously, a ‘middle-out’ approach would look like.

A ‘middle out’ approach to fiscal policy would first and foremost focus on creating jobs and ensuring a full recovery from the Great Recession. Relative to other recessions, government spending in recent years has been steeply contractionary... had it just matched typical growth during previous recoveries. Further, had the historical average of public spending been replicated in the current recovery, roughly 90 percent today’s output gap would be closed and there would be 5 million additional jobs. ... At the very least, fiscal policymakers should repeal “sequestration”...

After addressing the jobs crisis, a ‘middle out’ approach would then work to reverse the rise of inequality... [S]ocial insurance programs so many of the very rich despise: these programs (particularly Social Security and Medicare) have been among the only sources of real strength for middle-class Americans in recent years and hence should not be on the chopping block in this fall’s fiscal showdowns. Middle-out economics should focus on preserving key areas of strength for middle-class living standards, and these social insurance programs are one such area.

Monday, September 30, 2013

'World Leaders Must Act Faster on Climate Change'

Speaking of the GOP undermining of the public's faith in the government's ability to solve important problems. This is from Nicholas Stern:

World leaders must act faster on climate change, by Nicholas Stern, Commentary, Financial Times: Governments and businesses should be left in no doubt about the dangers of delaying further cuts in greenhouse gas emissions following the publication of the new assessment report by the Intergovernmental Panel on Climate Change. ... [W]e are seeing fundamental changes to the world’s climate, which could soon be ... causing mass migration and endless conflict. This should focus minds...
But all governments must recognise that they themselves potentially pose the biggest threat. There is a danger that, through vacillation and confusion, they will create policy risk that undermines the confidence of the companies largely responsible for delivering the transition to low-carbon economic growth and development. ...
Some politicians will still seek to deny the science and downplay the risks. Many of them have vested financial interests in protecting the status quo, or ideological beliefs that mean they cannot acknowledge the logic of correcting market failures ... to strengthen the role of markets... Although they are small in number, they still have the power to create confusion and slow action.
But everywhere evidence is emerging of opportunities afforded by new energy sources that are more efficient and less polluting. No investor should fail to be impressed by how rapidly the costs of solar photovoltaics and other technologies are falling. ...
The new IPCC report should now convince all world leaders to accelerate their efforts to tackle climate change and create a safer and more prosperous world.

Given the (intentionally created) political climate surrounding attempts to address this problem, it's hard for me to imagine anything of significance happening anytime soon.

'Thank the GOP for the Shutdown and Holding the Economy Hostage'

Dean Baker:

Thank the GOP for the shutdown and holding the economy hostage, by Dean Baker, theguardian.com: Here we go again: the GOP is ready to stall the US economy and shut down the government in a crusade to cut government spending. Proponents of austerity both in the United States and Europe are eager to claim success for their policies. In spite of economies that look awful by normal standards, austerity advocates are able to claim victory for their policies by creating a new meaning for the word.
In Europe, we have the bizarre story of both George Osborne ... and Olli Rehn ... claiming success for their austerity policies based on one quarter of growth. ...
In the United States, we were treated to the Wall Street Journal (WSJ) boasting of the success of the 2011 debt ceiling agreement on the eve of another standoff on the budget and the debt ceiling. The measure of success in this case appears to be that the sequester budget cuts put in place by the agreement are still in place and that the economy has not collapsed as a result. ...
First, it is worth noting that many of the disaster warnings about the sequester from President Obama and the Democrats were grossly exaggerated. ...
However, this doesn't mean that the sequester is harmless. ...
We ... know the sequester will give us deteriorating government services, higher unemployment, and slower economic growth. That's the track record which prompts the Wall Street Journal's boasts – and the GOP's misguided actions – in favor of even more austerity.

But if the real goal of the GOP is to reduce the size of government, particularly social insurance, and if the fact that it comes at the expense of the most vulnerable in society is not that great of a concern, then it's not at all clear that austerity has been a failure (and Republicans have also managed to undermine the public's faith in the ability of government to solve important problems whch could also be added to the success side of the ledger). The GOP often argues in terms of jobs and growth, but it is usually cover for a broader agenda.

Paul Krugman: Rebels Without a Clue

 It's irrepsonsible for the GOP to take this kind of risk with the economy:

Rebels Without a Clue, by Paul Krugman, Commentary, NY Times: This may be the way the world ends — not with a bang but with a temper tantrum.
O.K., a temporary government shutdown ... wouldn’t be the end of the world. But a U.S. government default, which will happen unless Congress raises the debt ceiling soon, might cause financial catastrophe. Unfortunately, many Republicans either don’t understand this or don’t care. ...
Today we have a weak economy, with falling government spending one main cause of that weakness. A shutdown would amount to a further economic hit...
Still, a government shutdown looks benign compared with the possibility that Congress might refuse to raise the debt ceiling.
First of all, hitting the ceiling would force a huge, immediate spending cut, almost surely pushing America back into recession. Beyond that, failure to raise the ceiling would mean missed payments on existing U.S. government debt. And that might have terrifying consequences. ...
No sane political system would run this kind of risk. But we don’t have a sane political system; we have a system in which a substantial number of Republicans believe that they can force President Obama to cancel health reform by threatening a government shutdown, a debt default, or both, and in which Republican leaders who know better are afraid to level with the party’s delusional wing. ...
Meanwhile,... reasonable people know that Mr. Obama can’t and won’t let himself be blackmailed in this way... After all, once he starts making concessions to people who threaten to blow up the world economy unless they get what they want, he might as well tear up the Constitution. But Republican radicals — and even some leaders — still insist that Mr. Obama will cave in to their demands.
So how does this end? ... Ironically, considering who got us into our economic mess, the most plausible answer is that Wall Street will come to the rescue — that the big money will tell Republican leaders that they have to put an end to the nonsense.
But what if even the plutocrats lack the power to rein in the radicals? In that case, Mr. Obama will either let default happen or find some way of defying the blackmailers, trading a financial crisis for a constitutional crisis.
This all sounds crazy, because it is. But the craziness, ultimately, resides not in the situation but in the minds of our politicians and the people who vote for them. Default is not in our stars, but in ourselves.

Sunday, September 29, 2013

'Creating a New Responsibility'

David Warsh:

Creating a New Responsibility: Between the political posturing in Washington, and the excellent nuts-and-bolts reporting of the major news organizations, it is easy to lose sight of what is about happen on Tuesday.
When the Affordable Care Act takes effect, October 1, requiring most US citizens to obtain health insurance one way or another or pay a tax penalty for going without, a new obligation of citizenship will have been recognized by law.
The responsibility to take care of oneself will have been joined, however loosely, to the long-established right to emergency medical care.
Something like 25 million citizens, more than half of those who are currently uninsured, will enter into a relationship with a medical practice within the next few years. They’ll join more than 250 million Americans who are currently insured in the biggest undertaking to improve public health since the days of city sanitation and the war on communicable disease more than a century ago.
In many states, collective well-being will begin to improve almost immediately (the initial enrollment period extends through the end of March). In other states, especially those in the Southeast, where Republican governors have dug in against implementation of the law, a more complicated political game will play on. Everywhere, changes within the enormous health care sector, already underway, will gather momentum.
No wonder the fuss is so great...
On Tuesday the Affordable Care Act goes into effect. It was passed by the Congress and upheld by the Supreme Court. The White House holds all the cards. The Defunders, the operating arm of the Tea Party in Congress, are certain to lose if the president remains firm. He should simply state: you don’t negotiate with terrorists.
As if to underscore the point, Senator Tom Coburn (R-Oklahoma), a veteran of the government shutdowns of 1995-96, told Politico last week that if If the Republicans succeed in shutting down the government Tuesday, “they’ll fold like hotcakes” after a week or two, when constituents begin to complain about the lack of service. “You do not take a hostage you are not going to for sure shoot. And we will not for sure shoot this hostage.”
And in the longer term? My guess is that Tea Party dissidents will lose ground in the midterm elections next year; that the GOP will split in the 2016 campaign and that a Democrat will be elected president; that in 2018 the Tea Party will further fade. And by 2020, the Republican governors who are successful in implementing the Affordable Health Care Act will be running for president, strongly, on the strength of their records.

Tuesday, September 24, 2013

What's It All About Then?: The Real Reason for the Fight over the Debt Limit

Two from Paul Krugman. The first echoes the point I make in my column today about the attempt to use fear over the debt (and hence the need for austerity) as an excuse to dismantle the welfare state:

What’s It All About Then: Simon Wren-Lewis writes with feeling about the “austerity deception“; what sets him off is a post that characterizes the whole austerity debate as being about “big-state” versus “small-state” people.
Wren-Lewis’s point is that only one side of the debate saw it that way. Opponents of austerity in a depressed economy opposed it because they believed that this would worsen the depression — and they were right.
Proponents of austerity, however, were lying about their motives. Strong words, but if you look at their recent reactions it becomes clear that all the claims about expansionary austerity, 90 percent cliffs and all that were just excuses for an agenda of dismantling the welfare state. ...

But I think growing inequality is a big driving force behind this effort.

And since I've complained in past columns that fiscal policy has not received enough attention (particularly how bad it's been), it's nice to see this:

The Depressed Economy Is All About Austerity: Right now the official unemployment rate is 7.3 percent. That’s bad, and many people — myself included — think it understates the true badness of the situation. ...
But we’re clearly still well below potential. And we’ve also had exactly the wrong fiscal policy given that reality plus the zero lower bound on interest rates, with unprecedented austerity. So, how much of our depressed economy can be explained by the bad fiscal policy?
To a first approximation, all of it. By that I mean that to have something that would arguably look like full employment, at this point we wouldn’t need a continuation of actual stimulus; all we’d need is for government spending to have grown normally, instead of shrinking. ...[does calculations to show this]...
The austerians have a lot to answer for.