Economist's View

'Will American Innovation Slow If We Go 'Cuddly'?'

I hope you read the post by Lane Kenworthy in today's list of links, but let me highlight one section in particular (there's quite a bit more in the full post):

Will everyone be worse off if the United States turns social democratic? by Lane Kenworthy: Daron Acemoglu, James Robinson, and Thierry Verdier have a new paper that asks “Can’t We All Be More Like Scandinavians?” Their answer is no. The answer follows from a model they develop...

Acemoglu, Robinson, and Verdier say the model might help us understand patterns of economic growth and well-being in the United States and the Nordic countries — Denmark, Finland, Norway, and Sweden. The United States chose cutthroat capitalism, while the Nordics chose cuddly capitalism. The U.S. grew faster for a short time, but since then all five countries have grown at the roughly same pace. America’s high inequality encourages innovation. The Nordics can be cuddly and still grow rapidly because of technological spillover. If the U.S. were to decide to go cuddly, innovation would slow. Both sets of nations would grow less rapidly. ...

Will American innovation slow if we go “cuddly”?

The really interesting question posed by Acemoglu, Robinson, and Verdier is whether innovation would slow in the United States if we strengthened our safety net and/or reduced the relative financial payoff to entrepreneurial success. I’m skeptical, for three reasons.

The first flows from America’s past experience. According to Acemoglu et al’s logic, incentives for innovation in the U.S. were weakest in the 1960s and 1970s. In 1960 the top 1%’s share of pretax income had been falling steadily for several decades and had nearly reached its low point. Government spending, meanwhile, had been rising steadily and was close to its peak level. Yet there was plenty of innovation in the 1960s and 1970s, including notable advances in computers, medical technology, and others.

Second, the Nordic countries, with their low income inequality and generous safety nets, currently are among the world’s most innovative countries. The World Economic Forum’s Global Competitiveness Index has consistently ranked them close to the United States in innovation. The most recent report, for 2012-13, rates Sweden as the world’s most innovative nation, followed by Finland. The U.S. ranks sixth. The 2012 WIPO-Insead Global Innovation Index ranks Sweden second and the United States tenth. Whether or not this lasts, it suggests reason to doubt that modest inequality and generous cushions are significant obstacles to innovation.

Third, if Acemoglu and colleagues are correct about the value of financial incentives in spurring innovation, we should see this reflected not only in the United States but also in other nations with relatively high income inequality and low-to-moderate government spending, such as Australia, Canada, Ireland, New Zealand, and the United Kingdom. But we don’t. ...

There’s one additional possibility worth considering. If financial incentives truly are critical for spurring innovation, it could be the opportunity for large gains that matters, rather than the absence of cushions. Suppose we were to increase government revenues in the United States via higher taxes on everyone — steeper income taxes on the top 1% or 5% plus a new national consumption tax. And imagine we used those revenues to expand public insurance and services — fully universal health insurance, universal early education, a beefed-up Earned Income Tax Credit, a new wage insurance program, more individualized assistance with training and job placement. These changes wouldn’t alter income inequality much, but they would enhance economic security and opportunity. Would innovation decline? I doubt it. ...

An enhanced safety net -- a backup if things go wrong -- can give people the security they need to take a chance on pursuing an innovative idea that might die otherwise, or opening a small business. So it may be that an expanded social safety net encourages innovation.

As for the effect of reducing the financial payoff by raising taxes on high incomes to support an expansion in the safety net, I don't think it's any secret that I think the distribution of income in recent decades has pushed too much income toward the top and too little toward the middle and bottom (relative to changes in productivity). That is, the distribution of income is distorted. To the extent that taxing high incomes removes these distortions, it's helpful rather than harmful.

And there must be diminishing returns to incentives in any case. If we take away $50 million in taxes leaving someone the prospect of earning "only" $100 million in net profit (i.e. taxes are 33%), would the person really decide to give up the project? Would someone really decide it isn't worth it to only earn $100 million and work less or give it up altogether? Or is it the case that by the time you get to that much income, a marginal increase of decrease in profit has almost no effect on incentives? I'd guess that's the case (and for those in the game simply to see who can accumulate the most, so long as the rules are the same for all, incentives won't change either). There could be an effect at the margin, i.e. profitable projects become unprofitable due to the increase in the tax rate, and that could impact innovation and growth. But growth doesn't seem to decline when taxes at the top are higher, so this case is hard to make.

Easterlin: When Growth Outpaces Happiness

My attempt to defend the social safety net in a recent column received a fairly ho-hum response, so let me see if (and hope that) Richard Easterlin can do better:

When Growth Outpaces Happiness, by Richard Easterlin, Commentary, NY Times: ... As the recent riots at a Foxconn factory in northern China demonstrate, growth alone, even at sustained, spectacular rates, has not produced the kind of life satisfaction crucial to a stable society — an experience that shows how critically important good jobs and a strong social safety net are to people’s happiness.

Starting in 1990, as China moved to a free-market economy, real per-capita consumption and gross domestic product doubled, then doubled again. Most households now have at least one color TV. Refrigerators and washing machines — rare before 1990 — are common in cities.

Yet... If anything, they are less satisfied than in 1990, and the burden of decreasing satisfaction has fallen hardest on the bottom third of the population in wealth. ... It is startling to find ... a U-shaped pattern of happiness over time... What explains the “U” at a time of unprecedented economic growth?

Before free-market reforms kicked in, most urban Chinese workers enjoyed what was called an “iron rice bowl”: permanent jobs and an extensive employer-provided safety net, which included subsidized food, housing, health care, child care, pensions and jobs for grown children. Life satisfaction ... among urban Chinese, despite their much lower levels of income, was almost as high as in the developed world.

The transition to a more private economy in the 1990s abruptly overturned the iron rice bowl. ... Life satisfaction in urban areas declined markedly..., its market transition has given birth to increasing concerns ... about such matters as finding and holding a job, the availability of reliable and affordable health care, and provision for children and the elderly. ...

It is noteworthy that at a time when the need for a strong safety net is under attack in the United States, the world’s most fervent capitalist nation has inadvertently demonstrated its critical importance for people’s happiness.

'There Aren’t That Many Takers in America'

I was checking my rss feed after class today, and for some reason -- I don't know what came over me -- I clicked through to a Washington Times article by Ted Nugent:

Mitt Romney was right about the 47 percent

It contains just what you'd expect from both the paper and the writer, things like:

Mitt Romney hit the bull’s-eye with his comments regarding the 47 percent of Americans who do not have any skin in the game as it pertains to paying federal income tax. Facts are facts.

Romney did hit a bull's-eye, I'll agree with that, but he scored for the wrong team. Anyway:

Mr. Romney is not backing down. Good. The truth is the truth and it’s long past time someone said it.

As I’ve written before, for at least the past 50 years the Democratic Party has intentionally engineered a class of political “victims” who have been bamboozled into being dependent on the federal government for their subsistence, including food, housing and now health care. They get this without paying any federal income taxes, and that’s wrong. Something for nothing is always a scam. This is how you buy votes, plain and simple. ...

The Democratic Party exists because it promotes the creation of dependence on Fedzilla. ... No able-bodied American should get anything for free while doing nothing to earn it. ...

Good advice Ted, I hope Romney follows it. Tell the 47% off but good!

Fortunately, the next thing I read was this (see the full post for the calculations being the numbers presented below):

There Aren’t That Many Takers in America, by  Nathan Kelly: ...Mitt Romney said...:“... there are 47% ... who are dependent upon government, who believe that they are victims, who believe that government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you name it.”

The ... discussion of dependence on government is at the heart of the Republican case against Democrats... I attempt to gain some empirical leverage on this question using information ... from 2011 Current Population Survey March Supplement microdata.

Creating a working definition of takers is tricky. ... It’s not a sliding scale. Either you’re a maker or you’re a taker. Since the rhetoric is dichotomous, my strategy for identifying takers will be dichotomous as well.

So who should we count as a pure taker? ... Of the 24.7% of Americans who did not work and received government benefits in 2010, more than 70% are either disabled or retired. 7.7% are not working in order to care for home or family – not a group that family values conservatives typically malign. 12.8% are going to school, which likely indicates at least a degree of taking responsibility for oneself. ...

The bottom line here is that there aren’t that many takers in America. The most restrictive definition pegs the percentage of takers at 2.4%. If we’re willing to include people in households with at least one earner, that number increases to 5.2%. ... But these numbers simply don’t line up with the rhetoric of a massive class of lazy people taking advantage of the rest of us while eating solely at the trough of government.

Finally, it’s worth pointing out that these are really upper-bound estimates. Being a taker involves motives as well as work and benefit status. Takers, so the argument goes, feel no responsibility for themselves and believe that they are entitled “to you name it.” The CPS data don’t allow us to examine motives, but if we could, we would likely find even fewer takers.

Workers have not received their fair share of output in recent decades -- wages have lagged behind increased productivity -- so other groups must have received more than their share. Another definition of "takers" would ask who it was that received more than they contributed, and I think it's pretty clear who that group is. Mitt carries their torch.

The 'World-Straddling Engine of Theft, Degradation, Manipulation and Social Control We Call the Welfare State'

John Kay is tired of hearing the same old same rants about the unaffordable welfare state that he's been hearing for decades:

The economy depends on the welfare state, by John Kay: It is more than 30 years since I first attended a conference on the global welfare crisis. Rarely have a few months passed without an invitation to another. Last week, Tom Palmer, the American libertarian, came to London to denounce the “world-straddling engine of theft, degradation, manipulation and social control we call the welfare state”.

The content of these rants is familiar. Levels of welfare provision are unaffordable; government finance is a huge Ponzi scheme. A common conclusion is to provide an estimate of the discounted value of the cost of some hated item of expenditure if its current provision were continued into the indefinite future. Mr Palmer reported that the present value of unfunded liabilities of US medicine and social security is $137tn.

Social security is a means of inter-generational transfer..., but why ... should we look after old people, who can no longer do anything for us?

The obvious answer invokes Kant’s categorical imperative: it would be good for everyone (including ourselves when we are old) if everyone acted in this way. We feed the generations of our parents and grandparents in the expectation future generations will come along and do the same for us. But the consequences of this arrangement do have the character of a Ponzi scheme. One day, the world will end and the last generation of workers will have been cheated of their expectation of a peaceful retirement. In the meantime it is possible to calculate enormous measures of unfunded obligations, and it doesn’t matter. The value of these obligations is offset by the implied commitments of future generations. ...

Exaggeration can sometimes be forgiven when it is used to draw attention to a problem that has received insufficient attention. It is less easy to excuse when it threatens the fragile social arrangements on which economic security depends.

Romney's Misleading Attack on Social Insurance

I have a new column I hope you'll want to read:

Romney's Misleading Attack on Social Insurance

[I shoul dnote that the embedded links are, for the most part, added by the editors.]

Who Receives 'the Disproportionate Share of Government Spending'?

David Brooks:

The people who receive the disproportionate share of government spending are not big-government lovers. They are Republicans. They are senior citizens. They are white men with high school degrees.

But ask them if they deserve the benefits they receive, even those who pay no taxes. They'll say they do, especially the elderly who paid taxes their entire working lives. Many of them will not recognize that they are, in fact, among the 47 percent (or nearly so), or that if they pay taxes, they still receive more than they ever gave. It's those other people, the ones who voted for Obama, they're the problem.

The worry, based upon a misunderstanding of who the beneficiaries of government spending actually are, is that Obama supporters will use their voting power to divert their hard-earned taxes to other people -- the moochers -- denying them of what they deserve. This group won't find Romney's remarks frightening at all, at least not until they begin to feel a Romney presidency puts their benefits in danger. It's the (false) fear of not getting what they deserve that drives this group -- they paid their dues and want into the club with the benefits they were promised. Romney's problem, I think, or one of them anyway, is that many of them thought they were in Romney's secret club, that Romney would protect them from "the others" no matter what he might actually say on the campaign trail. In doing so -- by Romney denying the moochers -- they'd be protected. But they are starting to realize that they may not be in the club -- the one with $50,000 plates -- after all.

'Is Medicare Really Going Bankrupt? Definitely Not'

Trudy Lieberman of the Columbia Journalism Review catches CNN getting something right:

Medicare ‘bankruptcy’: CNN gets it right, by Trudy Lieberman: Hooray for CNN.com, for fact checking the often-heard claim of Medicare’s “impending” bankruptcy. CNN’s contribution sets a high bar...

The “bankruptcy” language comes up a lot. ... But is Medicare really going bankrupt? Definitely not, says CNN. The network is correct, and the point is crucial.

How did CNN pull away from the fact-checking pack on this one? ... First, CNN reported, as CJR has urged news outlets to do, that only one part of Medicare is in potential trouble—the Hospital Trust Fund, which is financed by payroll taxes. The other parts of Medicare, including Part B, which finances doctor visits, lab tests, and outpatient services, “are adequately financed for now,” Medicare trustees have said. ...

CNN pushed further and asked a logical question that most reporters writing about Medicare have missed. When the magic date for “bankruptcy” arrives—2024 according to the Dems, or 2016 if the ACA disappears in a Romney presidency—would Medicare really disappear? Jonathan Oberlander, a health policy expert at the University of North Carolina, told CNN that ... “Medicare is not going bankrupt. Medicare would still have most of the necessary funds to pay those expenses and other parts of the program would be unaffected. Medicare won’t go bankrupt in the literal sense in 2016 or 2024 or 2064—or ever.” The Centers for Medicare and Medicaid Services, which runs the Medicare program, said this year that even in 2024 the Medicare hospital trust fund could still pay 87 percent of its estimated expenditures, and noted that, “in practice, Congress has never allowed a Medicare trust fund to exhaust its assets.” ...

That’s not to say that Medicare’s cost explosion is not a problem. How to control cost—not just for Medicare but for al the rest of the healthcare system, too—is a central issue that the press needs to clarify. ...

Kenworthy: We’re All Dependent On Government, and It Has Long Been Thus

Lane Kenworthy has an important rebuttal to Nicholas Eberstadt's "A Nation of Takers":

We’re all dependent on government, and it has long been thus, by Lane Kenworthy: Nicholas Eberstadt’s “A Nation of Takers” argues that too many Americans have become dependent on government benefits. Over the past half-century, he notes, the share who receive a government cash transfer and/or public health insurance — Social Security, Medicare, Medicaid, unemployment compensation, and so on — has grown steadily. The United States, according to Eberstadt, is now “on the verge of a symbolic threshold: the point at which more than half of all American households receive, and accept, transfer benefits from the government.”

Eberstadt doesn’t contend that this has weakened our economy. His concern is moral. He believes reliance on government for help is undermining Americans’ “fierce and principled independence,” our “proud self-reliance.”

In Eberstadt’s way of seeing things, we are either givers or takers — taxpayers or benefit recipients. This is mistaken. Every American who doesn’t live entirely off the grid pays some taxes. Anyone who is an employee pays payroll taxes, and anyone who purchases things at a store pays sales taxes. Likewise, every American receives benefits from government. If you or your kids attended a public school, if you’ve driven on a road, if you’ve had a drink of tap water or taken a shower in your dwelling, if you’ve deducted mortgage interest payments or a business expense from your federal income taxes, if you haven’t been stricken by polio, if you’ve never had a band of thugs remove you from your home at gunpoint, if you’ve visited a park or lounged on a beach or hiked a mountain trail, if you’ve used the internet….

Eberstadt seems to think receipt of a government cash transfer or health insurance somehow renders people less self-reliant than does receipt of the myriad public goods, services, and tax breaks that government provides. But he doesn’t say why.

Once upon a time public safety was ensured by individuals and privately-organized militias. Then we shifted to government police forces and armies. At one point humans got water and disposed of waste individually. Then we created public water and sewage systems. Education of children was once a family responsibility. Then it shifted to schools. There’s a good reason for this: government provision offers economies of scale and scope, which enables the good or service to be provided to many people who either couldn’t or wouldn’t do it on their own. Did Americans’ character or spirit diminish when these changes occurred? Is there something qualitatively different about the more recent shift from individual to government responsibility in how we deal with retirement saving, health care, unemployment, and other risks? Here too Eberstadt is silent. ...

At the end of his essay, Eberstadt shifts his concern from the moral cost of government to the financial cost. Rising government expenditures on transfers and health care will require, he says, that we cut military spending, sell off public assets (land, buildings, art), or dump the burden onto future generations by running up government debt. None of these options is attractive. But there is, of course, another option: increases taxes. As we’ve transferred various functions from individuals to government over the course of our nation’s history, we’ve (usually) paid for it by asking Americans to contribute more. In many other rich nations governments provide more services and transfers than ours does, and they (usually) fund this by collecting more in taxes than we do. ...Eberstadt ignores this option...

Growth of government spending is not, for the most part, a consequence of rent-seeking special interests or narrow-minded bureaucrats looking to expand their turf. It’s a product of affluence. As people and nations get richer, they tend to be willing to allocate more money for insurance (protection against risks) and for fairness (extension of opportunity and security to those who are less fortunate). Rather than lamenting an imagined shift from self-reliance to dependence, or claiming that we can’t afford more security and fairness, the American right would do better to focus its energy and creativity on devising alternative ways of pursuing these goals. Government doesn’t always do things best; and even when it does, there almost always is room for improvement.

Nicholas Eberstadt’s essay is emblematic of the backward-looking orientation that has dominated America’s right for the past three decades. It’s an orientation that in my view has long since outlived its usefulness. The country will benefit when more smart minds on that side of the spectrum turn their gaze forward.

Paul Krugman: The Medicare Killers

Paul Ryan’s 'big lie' about Medicare:

The Medicare Killers, by Paul Krugman, Commentary, NY Times: Paul Ryan’s speech Wednesday night may have accomplished one good thing: It finally may have dispelled the myth that he is a Serious, Honest Conservative. Indeed, Mr. Ryan’s brazen dishonesty left even his critics breathless. ...

But Mr. Ryan’s big lie — and, yes, it deserves that designation — was his claim that “a Romney-Ryan administration will protect and strengthen Medicare.” Actually, it would kill the program. ...

The Republican Party is now firmly committed to replacing Medicare with what we might call Vouchercare. The government ... would give you a voucher that could be applied to the purchase of private insurance..., the vouchers almost certainly would be inadequate...

Why would anyone think that this was a good idea..., wouldn’t private insurers reduce costs through the magic of the marketplace? No. All, and I mean all, the evidence says that public systems like Medicare and Medicaid ... are better than the private sector at controlling costs. ...

So Vouchercare would mean higher costs and lower benefits for seniors. Over time, the Republican plan wouldn’t just end Medicare as we know it, it would kill the thing Medicare is supposed to provide: universal access to essential care. Seniors who couldn’t afford to top up their vouchers with a lot of additional money would just be out of luck.

Still, the G.O.P. promises to maintain Medicare as we know it for those currently over 55. Should everyone born before 1957 feel safe? Again, no.

For one thing, repeal of Obamacare would cause older Americans to lose a number of significant benefits..., including the way it closes the “doughnut hole” in drug coverage and the way it protects early retirees.

Beyond that, the promise of unchanged benefits for Americans of a certain age just isn’t credible. Think about the political dynamics that would arise once someone born in 1956 still received full Medicare while someone born in 1959 couldn’t afford decent coverage. ... For sure, it would unleash political warfare between the cohorts — and the odds are high that older cohorts would soon find their alleged guarantees snatched away.

The question now is whether voters will understand what’s really going on (which depends to a large extent on whether the news media do their jobs). Mr. Ryan and his party are betting that they can bluster their way through this, pretending that they are the real defenders of Medicare even as they work to kill it. Will they get away with it?

'Patients Would Pay More if Romney Restores Medicare Savings'

Mitt Romney’s promise to restore Obama's Medicare savings is “both puzzling and bogus":

Patients Would Pay More if Romney Restores Medicare Savings, Analysts Say, by Jackie Calmes, NY Times: Mitt Romney’s promise to restore $716 billion that he says President Obama “robbed” from Medicare has some health care experts puzzled, and not just because his running mate, Representative Paul D. Ryan, included the same savings in his House budgets.

The 2010 health care law cut Medicare reimbursements to hospitals and insurers, not benefits for older Americans, by that amount over the coming decade. But repealing the savings, policy analysts say, would hasten the insolvency of Medicare by eight years — to 2016, the final year of the next presidential term, from 2024.

While Republicans have raised legitimate questions about the long-term feasibility of the reimbursement cuts, analysts say, to restore them in the short term would immediately add hundreds of dollars a year to out-of-pocket Medicare expenses for beneficiaries. That would violate Mr. Romney’s vow that neither current beneficiaries nor Americans within 10 years of eligibility would be affected by his proposal to shift Medicare to a voucherlike system in which recipients are given a lump sum to buy coverage from competing insurers.

For those reasons, Henry J. Aaron, an economist and a longtime health policy analyst at the Brookings Institution and the Institute of Medicine, called Mr. Romney’s vow to repeal the savings “both puzzling and bogus at the same time.”

Marilyn Moon, vice president and director of the health program at the American Institutes for Research, calculated that restoring the $716 billion in Medicare savings would increase premiums and co-payments for beneficiaries by $342 a year on average over the next decade; in 2022, the average increase would be $577. ...

Sachs: Losing the Battle over Government

Jeff Sachs says that we need a third party to save us:

America has lost the battle over government, by Jeffrey Sachs, Commentary, Financial Times: ...There is considerable controversy about Mr Ryan’s budget plan... Still, American liberals ... who are now vehemently blasting Mr Ryan’s budget should take note. Their candidate has also already accepted a brutal shrinkage of government programs in coming years. ... Whether Mr Obama or Mr Romney wins, the “non-security” discretionary budget – for education, job skills, infrastructure, science and technology, space, environmental protection, alternative energy and climate change adaptation – is on the chopping block. Mr Obama’s budget would shrink non-security discretionary programs from an already insufficient 3.1 per cent of GDP in 2011 to 1.8 per cent in 2020. That is the “liberal” alternative.

In bemoaning Mr Obama’s budget, I do not mean to equate it with Mr Ryan’s. Mr Ryan’s budget is nothing short of heartless in the face of the dire crisis facing America’s poor. It is also reckless... Yet the sad truth is that the Democrats offer no progressive alternative. Both parties are accomplices to the premeditated asphyxiation of the state. ...

Many Americans will say that they are dodging the European curse by keeping taxation so low but they should look again. Northern Europe (Germany, the Netherlands, Denmark, Finland, Norway and Sweden) gets great value for its tax revenues: lower budget deficits, lower unemployment rates, lower public debt-to-GDP ratios, lower poverty rates, greater social mobility, better job training, longer life expectancy, lower greenhouse gas emissions, higher reported life satisfaction and greater macroeconomic stability.

America’s two political parties depend on wealthy contributors to finance their presidential campaigns. These donors want and expect their taxes to stay low. As a result, social divisions, broken infrastructure, laggard educational attainments, high carbon emissions and chronic budget deficits are likely to continue no matter who is elected, even though the public supports higher taxes on corporations and the rich.

Only a big political realignment, perhaps spurred by a third party bold enough to campaign on free social media rather than expensive television advertising, is likely to break the status quo. Until then, the demise of public goods and services will continue apace.

And the thing is, after going against his party's interests, Obama gets no credit at all from the Very Serious People pushing for this approach to deficit reduction.

I hate having to choose the candidate who will do the least harm instead of a candidate that I can support enthusiastically.

'No Changes in Social Security'

I wish I could believe this:

Biden guarantees: 'There will be no changes in Social Security', by Michael O'Brien, NBC News: ..."Hey, by the way, let's talk about Social Security," Biden said..."Number one, I guarantee you, flat guarantee you, there will be no changes in Social Security," ... "I flat guarantee you." ...

But the first time Republicans offer a trade ("tell you what, if you cut Social Security, we'll stop cutting taxes"), will the administration take it? I'm afraid they will.

Whose Plan Destroys Medicare?

Robert Reich says to spread the word about who really wants to gut Medicare:

Whose Plan Destroys Medicare — Obama’s or Romney-Ryan's?, by Robert Reich: Stumping in Florida today, Mitt Romney charged President Obama’s Affordable Care Act will “cut more than $700 billion” out of Medicare.

What Romney didn’t say was that his running-mate’s budget — approved by House Republicans and by Romney himself — would cut Medicare by the same amount. The big difference, though, is the Affordable Care Act achieves these savings by reducing Medicare payments to drug companies, hospitals, and other providers rather than cutting payments to Medicare beneficiaries.

The Romney-Ryan plan, by contrast, achieves its savings by turning Medicare into a voucher whose value doesn’t keep up with expected increases in healthcare costs — thereby shifting the burden onto Medicare beneficiaries, who will have to pay an average of $6,500 a year more for their Medicare insurance, according an analysis of the Republican plan by the non-partisan Congressional Budget Office.

Moreover, the Affordable Care Act uses its Medicare savings to help children and lower-income Americans afford health care, and to help seniors pay for prescription drugs by filling the so-called “donut hole” in Medicare Part D coverage.

The Romney-Ryan plan uses the savings to finance even bigger tax cuts for the very wealthy.

Spread the word. Don’t allow the GOP to get away with this demagoguery.

Yes, don't let Republicans get away with this. [See also: The Republican ticket’s big Medicare myth, by Ezra Klein.]

Ryan's Budget: The Most Fraudulent Proposal in American History

Paul Krugman on Paul Ryan:

Ludicrous and Cruel, by Paul Krugman, Commentary, NY Times: ...Many commentators swooned earlier this week after House Republicans, led by the Budget Committee chairman, Paul Ryan, unveiled their budget proposals. They lavished praise on Mr. Ryan, asserting that his plan set a new standard of fiscal seriousness.

Well, they should have waited until people who know how to read budget numbers had a chance to study the proposal. For the G.O.P. plan turns out not to be serious at all. Instead, it’s simultaneously ridiculous and heartless. ...

In the past, Mr. Ryan has talked a good game about taking care of those in need. But as the Center on Budget and Policy Priorities points out, of the $4 trillion in spending cuts he proposes over the next decade, two-thirds involve cutting programs that mainly serve low-income Americans. And by repealing last year’s health reform, without any replacement, the plan would also deprive an estimated 34 million nonelderly Americans of health insurance.

So the pundits who praised this proposal when it was released were punked. The G.O.P. budget plan isn’t a good-faith effort to put America’s fiscal house in order; it’s voodoo economics, with an extra dose of fantasy, and a large helping of mean-spiritedness. ...

And:

Fiscal Phonies, by Paul Krugman, Commentary, NY Times: ...Until now the attack of the fiscal phonies has been mainly a national rather than a state issue, with Paul Ryan, the chairman of the House Budget Committee, as the prime example. As regular readers of this column know, Mr. Ryan has somehow acquired a reputation as a stern fiscal hawk despite offering budget proposals that, far from being focused on deficit reduction, are mainly about cutting taxes for the rich while slashing aid to the poor and unlucky. In fact, once you strip out Mr. Ryan’s “magic asterisks” — claims that he will somehow increase revenues and cut spending in ways that he refuses to specify — what you’re left with are plans that would increase, not reduce, federal debt.

The same can be said of Mitt Romney, who claims that he will balance the budget but whose actual proposals consist mainly of huge tax cuts (for corporations and the wealthy, of course) plus a promise not to cut defense spending.

Both Mr. Ryan and Mr. Romney, then, are fake deficit hawks. And the evidence for their fakery isn’t just their bad arithmetic; it’s the fact that for all their alleged deep concern over budget gaps, that concern isn’t sufficient to induce them to give up anything — anything at all — that they and their financial backers want. They’re willing to snatch food from the mouths of babes (literally, via cuts in crucial nutritional aid programs), but that’s a positive from their point of view — the social safety net, says Mr. Ryan, should not become “a hammock that lulls able-bodied people to lives of dependency and complacency.” Maintaining low taxes on profits and capital gains, and indeed cutting those taxes further, are, however, sacrosanct. ...

And:

Pink Slime Economics: ...Republicans in the House of Representatives passed what was surely the most fraudulent budget in American history.

And when I say fraudulent, I mean just that. The trouble with the budget devised by Paul Ryan, the chairman of the House Budget Committee, isn’t just its almost inconceivably cruel priorities, the way it slashes taxes for corporations and the rich while drastically cutting food and medical aid to the needy. Even aside from all that, the Ryan budget purports to reduce the deficit — but the alleged deficit reduction depends on the completely unsupported assertion that trillions of dollars in revenue can be found by closing tax loopholes.

And we’re talking about a lot of loophole-closing. As Howard Gleckman of the nonpartisan Tax Policy Center points out, to make his numbers work Mr. Ryan would, by 2022, have to close enough loopholes to yield an extra $700 billion in revenue every year. That’s a lot of money, even in an economy as big as ours. So which specific loopholes has Mr. Ryan, who issued a 98-page manifesto on behalf of his budget, said he would close?

None. Not one. He has, however, categorically ruled out any move to close the major loophole that benefits the rich, namely the ultra-low tax rates on income from capital. (That’s the loophole that lets Mitt Romney pay only 14 percent of his income in taxes, a lower tax rate than that faced by many middle-class families.)

So what are we to make of this proposal? Mr. Gleckman calls it a “mystery meat budget,” but he’s being unfair to mystery meat. ...

So the Ryan budget is a fraud; Mr. Ryan talks loudly about the evils of debt and deficits, but his plan would actually make the deficit bigger even as it inflicted huge pain in the name of deficit reduction. But is his budget really the most fraudulent in American history? Yes, it is.

To be sure, we’ve had irresponsible and/or deceptive budgets in the past. Ronald Reagan’s budgets relied on voodoo, on the claim that cutting taxes on the rich would somehow lead to an explosion of economic growth. George W. Bush’s budget officials liked to play bait and switch, low-balling the cost of tax cuts by pretending that they were only temporary, then demanding that they be made permanent. But has any major political figure ever premised his entire fiscal platform not just on totally implausible spending projections but on claims that he has a secret plan to raise trillions of dollars in revenue, a plan that he refuses to share with the public?

What’s going on here? The answer, presumably, is that this is what happens when extremists gain complete control of a party’s discourse: all the rules get thrown out the window. Indeed, the hard right’s grip on the G.O.P. is now so strong that the party is sticking with Mr. Ryan even though it’s paying a significant political price for his assault on Medicare.

If you think the middle class has it too good, too much security, taxes aren't high enough, not enough fear of unemployment, too much help for education, and so on, while the wealthy haven't been coddled enough in recent years, not enough tax cuts, too little upward redistribution of income, not enough bank bailouts, etc., etc., then the Republican proposals should make you happy.

If the Democrats can't make Ryan's views on Medicare and Social Security an issue in the campaign, if they allow Republicans to falsely claim that they are trying to save these critical programs rather than cutting them as much as they can get away with, they deserve to lose.

Many Americans Die with ‘Virtually No Financial Assets'

The importance of Social Security:

Study: Many Americans die with ‘virtually no financial assets’, by Peter Dizikes, MIT News Office: It is a central worry of many Americans: not having enough money to live comfortably in old age. Now an innovative paper co-authored by an MIT economist shows that a large portion of America’s older population has very little savings in bank accounts, stocks and bonds, and dies “with virtually no financial assets” to their names.

Indeed, about 46 percent of senior citizens in the United States have less than $10,000 in financial assets when they die. Most of these people rely almost totally on Social Security payments as their only formal means of support, according to the newly published study, co-authored by James Poterba of MIT, Steven Venti of Dartmouth College, and David A. Wise of Harvard University.

That means many seniors have almost no independent ability to withstand financial shocks, such as expensive medical treatments that may not be covered by Medicare or Medicaid, or other unexpected, costly events.

“There are substantial groups that have basically no financial cushion as they are reaching their latest years,” says Poterba, the Mitsui Professor of Economics at MIT.

However, the study — one of the first to examine Americans’ end-of-life finances — also reveals a diversity of outcomes among senior citizens. Between 1993 and 2008, it found, unmarried older individuals had median wealth of about $165,000 roughly a year before they died — a figure that includes current and future Social Security income, job-related pension benefits, home equity and financial assets. In the same period, the median wealth for continuously married senior citizens, roughly a year before they died, was more than $600,000.

“There is a lot of divergence in how people are doing,” Poterba says. Those disparities also complicate the public-policy issues relating to the new findings.

“One of the clear messages is that it is very hard to do a one-size-fits-all retirement policy,” Poterba says. “We need to recognize that, for example, if we were to substantially reduce Social Security benefits for those later in life, that there is a share of the elderly households for whom that would translate very directly into reduced income, because they seem to have accumulated little in the way of financial resources.” ...[continue reading]...

Republicans would likely respond that people have so few assets because they rely upon the government to take care of them -- cut Social Security and they'd save more -- but history suggests otherwise. There's a reason we have a Social Security program (and other programs such as Medicare), and reducing benefits would make it even harder than it already is for a substantial number of the elderly.

'Inequality and Redistribution during the Great Recession'

This Economic Policy Paper is from the June 2012 issue of the Minneapolis Fed's The Region. It examines how inequality changed during the Great Recession, and illustrates the value of government intervention (i.e. social insurance) to households in the bottom 20% of the income distribution (though keep this in mind):

Inequality and Redistribution during the Great Recession, by Fabrizio Perri - Consultant, and Joe Steinberg - Research Analyst: Introduction Although there is little doubt that the Great Recession constituted a watershed for overall business cycle dynamics in the United States, the jury is still out on its distributional consequences. Did economic inequality change significantly during the recession? If so, which dimensions—income earnings, wealth and consumption—saw the largest changes? And what impact did government policies, such as taxes and transfer programs, have over this time period on both inequality and economic well-being?

Analyses focused on the first two years of the downturn seem to find no increase in economic inequality; indeed, some report a decline. For example, a recent comprehensive volume (Jenkins et al. 2011) that analyzes income distribution in 21 Organisation for Economic Co-operation and Development (OECD) countries (including the United States) across the Great Recession sees “little change in household income distributions in the two years following the downturn.” Heathcote et al. (2010b) and Petev et al. (2011) study inequality in consumption expenditures in the United States up until 2009 and also find little change (if anything, they find a decline).

A longer-term view, however, suggests that high levels of unemployment and the large drop in housing prices, both of which started during the Great Recession but persisted well after, might have had longer-term adverse distributional consequences. In particular, the recession may have left a significant fraction of the U.S. population with very little wealth (due to the fall in asset prices) and poor labor market prospects (due to high unemployment).

The goal of this paper is to paint a more complete picture of the distributional impact of the Great Recession, including more recent data from 2010 and part of 2011. Most importantly, this paper considers inequality in a wide array of variables, such as earnings, disposable income, consumption expenditures and wealth, and looks at inequality for all of these variables at different sections of the economic distribution.

Our first finding is that during and after the Great Recession, the bottom of the U.S. earnings distribution has fallen dramatically. This is the result of historically high unemployment and nonparticipation. In terms of earnings, the bottom 20 percent of the U.S. population has never done so poorly, relative to the median, during the whole postwar period. We also show that this group experienced rapidly declining wealth.

Despite this, we find that inequality in disposable income and consumption did not increase at either the top or bottom of the distribution, confirming the findings of other studies. In other words, the same bottom 20 percent of the earnings distribution that fared so poorly during the Great Recession in terms of earnings and wealth is in pretty much the same relative position in terms of disposable income and consumption in 2010, after the recession officially ended, as it was in 2006, before the start of the recession.

Such a divergence of trends in earnings and disposable income at the bottom of the distribution is unprecedented in U.S. history, and we show that it is mainly due to government transfers and taxes, as opposed to private components of unearned income.

We conclude our study using panel analysis (i.e., following a specific set of households through time) to better assess the role of government taxes and transfers. This allows us to distinguish between the experience of a given section of the income distribution (e.g., the bottom 20 percent of the distribution, whose members change each period) and the experience of a fixed group of households (e.g., those households that were at the bottom 20 percent of the distribution in 2006 but whose position may have changed by 2010. If the “Smiths,” say, were in the bottom fifth in 2006, we use panel analysis to understand where the Smiths ended up later on).

Our main finding is that although the bottom 20 percent of the earnings distribution experienced constant disposable income or consumption expenditures despite earnings losses, individual households that face earnings losses and enter the bottom 20 percent group do suffer significant losses in disposable income and small losses in consumption.

Our main substantive conclusion is that government redistribution in the Great Recession was at historical highs and partially shielded households from experiencing large declines in disposable income and consumption expenditures. The same households, though, have experienced losses in net wealth, and this might make them more vulnerable to further or more persistent earnings declines in the future.

We believe our analysis provides useful data to inform the policy debate about whether or not, looking forward, the government should take a more aggressive role in providing assistance for households that experience earnings losses. ...

Health Care Costs are the Problem

Another reminder that the long-run budget problem is a health care cost problem, a problem that exists in both the private sector and in government. This is Nancy Folbre:

...Spending on Social Security, often treated as the greatest bugaboo of our aging society, has remained at 4.5 to 5 percent of G.D.P. since 1985. The already carried out transition to a higher retirement age is contributing to cost containment.

The scary increases in government spending have come in Medicaid and Medicare. These two programs, which consumed 1.2 percent of G.D.P. in 1975, reached 4.1 percent of G.D.P. in 2008.

These increases have less to do with government spending than with the increased costs of health care, regardless of who is paying the bill. ...

All government programs deserve critical scrutiny, and there is plenty of room for meaningful debate over the relative efficiency of public versus private provision. But there is no evidence that social spending in the United States is approaching some upper limit of feasibility.

What is unsustainable (or should be) is the current level of confusion, misinformation and paranoia about the future of the so-called welfare state.

Don’t Blame Budget Problems on the Safety Net

It's hard to say this enough. The long-run budget problem is a health care cost problem, "which affect costs for private-sector care as much as for Medicaid and other government health care programs":

Federal spending on low-income programs has gone up considerably in recent years, a development discussed at a recent House Budget Committee hearing.  A new CBPP analysis examines why and explains that low-income programs outside of health care are not a factor in our serious long-term budget problems. Here’s the opening:

Several conservative analysts and some journalists lately have cited figures showing substantial growth in recent years in the cost of federal programs for low-income Americans. These figures can create the mistaken impression that growth in low-income programs is a major contributor to the nation’s long-term fiscal problems.

In reality, virtually all of the recent growth in spending for means-tested programs is due to two factors:  the economic downturn and rising costs throughout the U.S. health care system, which affect costs for private-sector care as much as for Medicaid and other government health care programs.

Moreover, Congressional Budget Office (CBO) projections show that federal spending on means-tested programs other than health-care programs will fall substantially as a percent of gross domestic product (GDP) as the economy recovers — and fall below its average level as a percent of GDP over the prior 40 years, from 1972 to 2011. Since these programs are not rising as a percent of GDP, they do not contribute to our long-term fiscal problem. ...

Federal spending for low-income discretionary programs is virtually certain to fall as a percent of GDP in the coming decade as well.  Under the Budget Control Act’s funding caps, non-defense discretionary spending will fall over the decade to its lowest level as a percent of GDP since 1962 (and probably earlier).

As a result, total spending for low-income programs outside health care — both mandatory and discretionary programs — is expected to fall over the coming decade to a level below its prior 40-year average.

This won't stop conservatives from using the deficit as a battering ram to assault social insurance -- facts haven't stopped them yet and they won't matter now -- particularly since the media is so willing to play along. [More here.]

"Mitt Romney And Paul Ryan’s Budget"

Simon Johnson:

Mitt Romney And Paul Ryan’s Budget, by Simon Johnson: The conventional wisdom in American presidential politics is that once a candidate has secured a party’s nomination, he tends to move ... toward the political center...

However, in a panel discussion on Tuesday, Vin Weber, a senior adviser to Mr. Romney, indicated that the campaign may be moving toward positions on fiscal policy that are close to those proposed by Representative Paul D. Ryan..., a significant shift toward a much more extreme view on the future of government than many Romney proposals during the primaries...

Mr. Ryan’s proposals would substantially phase out the federal government’s role in providing basic social insurance for older people by massively reducing Medicare and by eliminating almost all nonmilitary discretionary spending. The House Budget Committee is also proposing to remove the only safeguard we have against the failure of another mega-bank. ...

Mr. Ryan’s approach certainly reduces this dimension of government spending over time. But ... according to the C.B.O., this approach would increase total health-care costs as a share of the economy and as paid by you...

Mr. Ryan’s plan would effectively shut down the federal government’s ability to set rules for the economy and to provide essential public services, such as air-traffic control, the monitoring of hurricanes and the provision of disaster relief.

Big private companies will no doubt do well...; there will be less restrictions on what they do (e.g., as the Environmental Protection Agency winds down or food-safety rules go unenforced), and they will be able to increase their market power (as the Department of Justice drops its remaining interest in antitrust issues).

This is bad news for entrepreneurs or anyone seeking to invest in start-up companies. The playing field will become ever more uneven – just as it was when J.P. Morgan and his colleagues were building the original industrial, railroad and energy trusts at the end of the 19th century.

From the perspective of too-big-to-fail banks, the news from Mr. Ryan is even better. The House Republicans are proposing to repeal Title II of Dodd-Frank, which creates the legal authority to wind down large financial institutions in an orderly fashion. Without this, we are back at the situation ... where big banks can blow themselves up, inflict great damage on the economy and also receive large-scale bailouts...

None of these Republican proposals should be dismissed as pure rhetoric. ...

Wanting Non-Existent Jobs

Nancy Folbre says the evidence does not support the contention that people aren't trying very hard to find jobs "because they would prefer to live off unemployment insurance or other social benefits" (I wonder if the editors at Economix will ever tire of having their economics correspondents waste valuable space explaining why another correspondent, Casey Mulligan, is wrong):

Not Wanting Jobs, by Nancy Folbre, Commentary, NY Times: A significant number of American voters seem to believe that the unemployed don’t really want jobs because they would prefer to live off unemployment insurance or other social benefits. ...

Many such voters are also drawn to a particular austerity strategy my fellow Economix blogger Casey B. Mulligan laid out last week: cutting taxes for high earners and cutting subsidies for low earners. This strategy makes perfect sense if you believe that most people who are struggling to pay their bills aren’t trying hard enough.

This argument appeals for several reasons. It absolves believers of any responsibility for other people’s hardships. It lends credence to the assertion that the labor market would work just fine if it weren’t jammed up by a social safety net. It lays the blame for persistent unemployment squarely on President Obama...

But the ... social safety net is not a hammock that workers can luxuriate in. In a New York Times/CBS News poll conducted last fall, two-thirds of those receiving benefits said they were not enough to pay for basics like housing and food. Another poll conducted by National Public Radio and the Kaiser Family Foundation ... found that only 22 percent of the long-term unemployed were receiving unemployment benefits.

One widely cited study published by the Federal Reserve Bank of San Francisco ... found that extended unemployment benefits could not account for more than eight-tenths of one percentage point of the increased unemployment rate in the later years.

A paper by Jesse Rothstein ... of ... the University of California, Berkeley, asserts that extensions of unemployment insurance added at most two-tenths to six-tenths of a percentage point to the unemployment rate. ...

The unemployed want jobs badly enough. But many Americans don’t seem to care much about helping them get some. ...

I find this argument -- blaming the unemployed and the meager help they get for the unemployment problem -- really annoying (insert shrill comment).

"More Americans Find Aging is a Gateway to Poverty"

Evidence that our social insurance system needs to be shored up:

More Americans find aging is a gateway to poverty, by Ellen Freilich: Over the last several years, more Americans have found that aging has left them in the clutch of poverty. Between 2005 and 2009, the rate of poverty among American seniors rose as they aged, as did the number of people entering poverty, according to a new report from the nonpartisan Employee Benefit Research Institute (EBRI).

Poverty rates fell in the first half of the last decade for almost all age groups of older Americans (defined as age 50 or older) but increased since 2005 for every age group. ...

Poverty rates, as defined by U.S. Census poverty thresholds, were highest for the oldest of the elderly. Almost 15 percent of Americans older than age 85 were in poverty in 2009... Additionally, in 2009, 6 percent of those age 85 or older were new entrants in poverty. ...

Poverty rates for women were nearly double that of men... The EBRI report found that in 2009, the poverty rate for Hispanics was 21 percentage points higher than for whites. For blacks it was 17 percentage points higher than for whites. ...

"Let's Beef up Social Security Benefits"

More on Social Security:

Let's beef up Social Security benefits instead of cutting them, by Michael Hiltzik: Advocates for strengthening Social Security have come to dread the release of the annual report of the program's trustees. That's because the event has become the basis for more hand-wringing about Social Security's fiscal condition and calls to cut benefits for current and future retirees. This week's release of the 2012 report is no exception. ...

What won't be adequately explained is that the program isn't "insolvent" or "bankrupt." ... Economic recovery alone will improve the program's fiscal condition, and the trustees say that even if Congress does absolutely nothing, in 2033 there still will be money to pay about 75% of currently scheduled benefits.

And by the way, despite facing the worst economic conditions in its history, the program ran a surplus of $69 billion last year, increasing the trust fund to nearly $2.7 trillion. ...

It's time to shut down the talk of cutting benefits, which serves nobody, and pump up the volume on making them better. ... Of the customary three legs of the retirement stool, two — personal savings and employer-paid pensions — have been shattered into smithereens by the markets, high unemployment and changes in workplace benefits. Social Security is the third leg. ...

Modernizing Social Security is crucial today because the actions of government and industry have increased Americans' dependence on the program. ...

Undoubtedly you're going to hear that improving Social Security will bankrupt America. This is the mating cry of the haves-and-want-mores, and it's malarkey. Federal taxes ... amounted to about 15.4% of our gross national product last year... That's lower than the level of every other industrialized country...

Isn't it curious that the same people who insist that America is the greatest, richest country in the world, ever, are those who insist that there's no way we can afford to provide for our elderly, our disabled and the survivors of our deceased workers to the same degree as the rest of the industrialized world? ...

We can afford to give people a decent retirement. People who benefitted from the hard work of others -- those who reaped the gains of increasing inequality and have more than enough -- can do more to help provide a decent retirement to the people who toiled day in and day out to help create that wealth. And as I've said again and again, the income distribution mechanism has gone awry in recent decades. People at the lower income are not getting what they have earned, and people at the top are getting more than what they contribute. So I view this as simply returning income to its rightful owners.

Dynamic Capitalism vs. the Welfare State

We are, as they say, live. Did the welfare state work during the recession?:

Dynamic Capitalism vs. the Welfare State

Does increased social protection for middle class households lower "dynamism"?

Raise the Cap and Close the Gap

Dean Baker:

The Primary Cause of Social Security's Bleak Outlook Is Upward Redistribution, by Dean Baker: In an article on the release of the 2012 Social Security trustees report the Washington Post told readers that:

"Social Security’s bleak outlook is primarily driven by the ever-larger numbers of people in the baby boom generation entering retirement."

Actually the fact that baby boomers would enter retirement is not news. Back in 1983, the Greenspan Commission knew that the baby boomers would retire, yet they still projected that the program would be able to pay all promised benefits into the 2050s.

The main reason that the program's finances have deteriorated relative to the projected path is that wage growth has not kept pace with the path projected. This is in part due to the fact that productivity growth slowed in the 80s, before accelerating again in the mid-90s and in part due to the fact that much more wage income now goes to people earning above the taxable cap.

In 1983 only 10 percent of wage income fell above the cap and escaped taxation. Now more than 18 percent of wage income is above the cap.

Raising the cap is my favored solution, but (surprise) somehow raising taxes of those with the most political power is not on the agenda. Instead, the proposed solutions always seem to hit those who are the most politically and economically vulnerable.

Peter Dorman also weighs in:

For the past thirty years we have seen repeated campaigns to eviscerate Social Security—to privatize it, siphon off its finances, drain it of its essential social insurance character.  These have failed, not because of the brilliance or commitment of its defenders, but simply because it fulfills a vital social function and is wildly popular.  Even those who, in their heart of hearts, want to crush it to bits, claim to be in favor of “saving” it.  So what’s the strategy of the anti-SS minions?

Cynicism.  Convince younger voters, whose benefits are still decades away, that the program is dying a slow but certain death, and that politicians are too myopic or pandering or just stupid to do anything about it.  From time to time I poll my students, and by a big majority they always tell me that SS will not be around to support them in their retirement.  (Not that this has provoked a big Feldsteinesque spike in their personal savings....)  As this mindset takes hold, it becomes easier to simply tune out the debate over SS.  After all, it’s not like it’s actually going to be there when I’m old, no matter what they say, right?  At some point, it goes from being a third rail to a footnote to just background noise, to mangle a bunch of metaphors.

What I’d like to see are news stories that say something like, “Social Security has had its ups and downs, but it’s in better financial shape now than it was a generation ago, and unless its enemies prevail, it will be there for you when you need it.”

People also need to realize that "Social Security faces a shortfall — NOT bankruptcy — a quarter of a century from now. OK, I guess that’s a real concern. But compared to other concerns, it’s really pretty minor, and doesn’t deserve a tenth the attention it gets. It’s also worth noting that even if the trust fund is exhausted and no other financing provided, Social Security will be able to pay about three-quarters of scheduled benefits, which would mean real benefits higher than it pays now."

Notice that even under the worse case scenario, real benefits would be higher than they are now. The benefits would not keep up with increases in productivity as they do presently -- payments rise as the standard of living rises -- but the benefits would still rise as much or more than inflation. So today's standard of living would still be available even in the worst possible case. But there is the problem of how to cover the productivity increases over the next quarter century. What to do?

Raise the cap and close the gap.

The Truth about 'Skin in the Game' Doesn't Matter

Steve Benen:

'Skin in the game', by Steve Benen: If there's one unshakable, unwavering rule in American politics in the 21st century, it's this: Republicans oppose any tax increases on anyone by any amount for any reason, no matter the consequences. Full stop.

There is, however, a pesky little asterisk tied to this rule that often goes overlooked: a whole lot of Republicans support tax hikes on the poor. Indeed, the House Republican budget plan, as written by Rep. Paul Ryan (R-Wis.), actually increases the tax burden on those at the very bottom of the income scale.

ThinkProgress' Scott Keyes asked Rep. Pat Tiberi (R-Ohio), a member of the powerful House Ways and Means Committee, about this yesterday. Tiberi stressed the need for low-income families, many of whom have no federal income tax burden at all, to have some "skin in the game." ... Mitt Romney told voters in Florida last year, "I think it's a real problem when you have half of Americans, almost half of Americans, that are not paying [federal] income tax." ...

When Democrats want millionaires to pay a little more, it's socialism. When Republicans want the poor to pay a little more, it's just helping these low-income Americans have some "skin in the game."

Welcome to class warfare, Republican style.

In case anyone's forgotten, the relevant details matter here: millions of Americans may be exempt from income taxes, but they still pay sales taxes, state taxes, local taxes, Social Security taxes, Medicare/Medicaid taxes, and in many instances, property taxes. It's not as if these folks are getting away with something -- the existing tax structure leaves them out of the income tax system because they don't make enough money to qualify. Indeed, many are retirees who can't earn an income because they're no longer in the workforce.

But for many Republicans, including the party's presidential candidate,... the only way to correct this problem is by increasing the tax burdens of those least able to afford it.

Republican politicians making these claims know that most people do pay taxes of some sort, that those who don't are largely the elderly, that the number rose considerably due to the recession, and so on, but facts and figures are not the point. The message is "Dear hard-working middle-class America (all the while nodding to the wealthy supporters of the party): There is a group of deadbeats out there -- the social insurance system turned them into lazy good for nothings living off the system -- who are taking hard-earned tax dollars, your tax dollars, they don't deserve. Unlike the Democrats who want to give these people even more of your money and make things even worse, we will protect you." Or something like that. The you to be protected is really the wealthy, but the message sells more broadly.

It's a highly misleading claim, aided and abetted by poor press coverage and rebuttal (particularly at news sites such as Fox that cater to this group). But the fact that a claim doesn't withstand scrutiny never stopped Republicans from making self-serving arguments in the past (e.g. tax cuts pay for themselves), and it won't stop them now.

"Welfare Limits Left Poor Adrift"

Welfare reform left far too many people with nowhere to turn for help when the economy turned downward:

Welfare Limits Left Poor Adrift as Recession Hit, by Jason DeParle, NY Times: Perhaps no law in the past generation has drawn more praise than the drive to “end welfare as we know it,” which joined the late-’90s economic boom to send caseloads plunging...

But the distress of the last four years has added a cautionary postscript: much as overlooked critics of the restrictions once warned, a program that built its reputation when times were good offered little help when jobs disappeared. Despite the worst economy in decades, the cash welfare rolls have barely budged.

Faced with flat federal financing and rising need, Arizona is one of 16 states that have cut their welfare caseloads further since the start of the recession — in its case, by half. Even as it turned away the needy, Arizona spent most of its federal welfare dollars on other programs, using permissive rules to plug state budget gaps.

The poor people who were dropped from cash assistance here, mostly single mothers, talk with surprising openness about the desperate, and sometimes illegal, ways they make ends meet. They have sold food stamps, sold blood, skipped meals, shoplifted, doubled up with friends, scavenged trash bins for bottles and cans and returned to relationships with violent partners — all with children in tow. ...

The old program, Aid to Families with Dependent Children, dates from the New Deal; it gave states unlimited matching funds and offered poor families extensive rights, with few requirements and no time limits. The new program, Temporary Assistance for Needy Families, created time limits and work rules, capped federal spending and allowed states to turn poor families away. ... Many leading Republicans are pushing for similar changes to much larger programs, like Medicaid and food stamps. ...

Mitt Romney ... said he would place similar restrictions on “all these federal programs.” ...

This is one of the reasons the number of people receiving food stamps swelled so much during the recession (more here). If Republicans manage to limit that program too, it will be much worse than it already is:

...the number of very poor families appears to be growing. Pamela Loprest and Austin Nichols, researchers at the Urban Institute, found that one in four low-income single mothers nationwide — about 1.5 million — are jobless and without cash aid. That is twice the rate the researchers found under the old welfare law. More than 40 percent remain that way for more than a year, and many have mental or physical disabilities, sick children or problems with domestic violence.

Using a different definition of distress, Luke Shaefer of the University of Michigan and Kathryn Edin of Harvard examined the share of households with children in a given month living on less than $2 per person per day. It has nearly doubled since 1996, to almost 4 percent. Even when counting food stamps as cash, they found one of every 50 children live in such a household.

The Census Bureau uses a third measure, “deep poverty,” which it defines as living on less than half of the amount needed to escape poverty (for a family of three, that means living on less than $9,000 a year). About 10 percent of households headed by women report incomes that low, a bit less than the peak under the old law but still the highest level in 18 years. ...

[Jared Bernstein has more comments on the article.]

The Real Moral Problem

Ezra Klein points out that we shouldn't confuse structural and cyclical debt accumulations. Saying that recent changes in debt reflect a moral issue when it is being driven by the recession is very misleading:

Deficits don’t reflect a crisis of American character, by Ezra Klein: There are many good points in David Brooks’s encomium to the life and work of James Q. Wilson, but permit me a quick quibble.

”Every generation has an incentive to spend on itself, but none ran up huge deficits until the current one,” Brooks writes. His point is that the growing federal debt is superficially attributable to higher spending and, more profoundly, is a reflection of changes in the national character. But that’s not what the numbers show. Rather, they show that the growing federal debt is attributable to tax cuts that began in the 1980s and, in the future, to the aging of the population and the ceaseless advance of medical technology.

Current deficits reflect the aftermath of a generational financial crisis. They show an economy saving itself, not a generation spending on itself. ... For the last two decades, debt has been around what it was in the immediate run-up to the crisis. So there’s been no major change to structural deficits in the last 20 years, and thus, no evident change in the national character. ...

So perhaps a more accurate way to make Brooks’s point is that every generation has an incentive to cut taxes on itself, but none ran up huge deficits doing so until Ronald Reagan. But that was a previous generation. Then this generation did the same thing under George W. Bush...

Why should we care about the misleading rhetoric? Because it gives ammunition to those who have had social programs in their sites for decades -- it gives them the arguments they are looking for to make severe cuts in government programs. And centrist, right-leaning Democrats will go along in the interest of solving this "great problem" that we face:

Grand bargain, redux?, by Steve Benen: Last year, as part of the fiasco surrounding Republicans' debt-ceiling hostage crisis, President Obama offered House Speaker John Boehner (R) an overly-generous "grand bargain." Though some of the details are murky, by all accounts, the Democratic president offered Republicans a $4 trillion deal on debt reduction, which included GOP-friendly entitlement "reforms," in exchange for modest increases in tax revenue.

Presented with a ridiculously sweet deal on what is ostensibly the party's top priority, Republicans rejected the offer out of hand. It would have required a fairly small concession on taxes, which GOP lawmakers simply were unwilling to make. It was, in retrospect, the best possible outcome for Obama -- he offered far too much and was poised to get far too little.

Regardless, the Republican opposition to the compromise scuttled the grand bargain, seemingly for the indefinite future. Oddly enough, there's renewed scuttlebutt eight months later.

A small, bipartisan group of lawmakers in both the House and Senate are secretly drafting deficit grand bargain legislation that cuts entitlements and raises new revenue.

Sources said that the task of actually writing the bills is well underway, but core participants in the regular meetings do not yet know when the bills can be unveiled. ...

You'll notice those paragraphs mention three conservative Republicans and one conservative Democrat as participating in the talks. I'd add that there's no evidence of any progressive Democrats playing any role whatsoever in these negotiations.

The result, if there is a result, will almost certainly be a bargain that's very favorable to Republicans. ...

If there's a moral issue here, it's the Republicans using misleading rhetoric about the effects of tax cuts on growth, trickle down economics, tax cuts paying for themselves, and so on to obscure what, at its essence, is a large transfer of income to those at the top of the income distribution.

And they're still trying to mislead us to hide the true agenda:

News Is That Romney's Advisors Are Trying to Keep the Campaign from Claiming That "Dynamic Scoring" Through Faster Growth Will Pay for More than 1/3 of the Tax Cuts..., by Brad Delong

Why isn't Brooks complaining about the morality of this? There's no evidence to support this claim (or similar claims made by Romney and others during the campaign), as his advisors know full well. It's simply a means to cover the fact that the benefits he wants to give to the rich -- more tax cuts -- will blow a hole in the budget. Again, where's the complaints about the morality of doing this? Romney's far, far from alone in making these misleading, dishonest claims, yet Brooks wants to blame a cyclical budget problem and budget problem arising from the Bush tax cuts on the morals of the general population? How convenient.

And isn't empathy a desirable moral trait, one that someone like Brooks would endorse? How about self-pity, is that an attractive moral trait? What about selfishness to the extent of demanding tax cuts for yourself that are likely to come at the expense of important programs for the poor? How moral is that?:

Fanning the Flames of Class Warfare, by Bruce Bartlett, Commentary, Ny Times: A curious phenomenon occurs during every economic crisis – the rich whine that they are the ones who are suffering most. While obviously one’s capacity to suffer under any circumstances is subjective, when we hear that the very well-to-do ... seek pity, it comes across as callous and clueless.

That is especially so when the political agents of the rich are demanding still more tax cuts for them while doing their best to slash spending for programs that aid the poor. ...

But they should have the good grace not to ask for sympathy from those who are unemployed, barely have enough to eat or have had their homes repossessed. In particular, the wealthy ought to stop demanding more tax cuts and cuts in spending for programs aiding the poor, as every Republican presidential candidate promises. That’s just repulsive. ...

I’m still waiting for the growth Republicans promised under George W. Bush after they cut the top federal income tax rate to 35 percent from 39.6 percent, the top rate on qualified dividends to 15 percent from 35 percent and the top rate on capital gains to 15 percent from 20 percent. All of these actions significantly lowered taxes for the rich without raising economic growth at all. Why will more tax cuts for these same people do any good now? ...

President Obama is clearly preparing for a debate on the growing inequality of wealth and income. ... I think the Republican nominee is going to have a hard time responding if all he has to say is the rich need more tax cuts to compensate them for all their suffering during the economic crisis.

There are moral issues out there, but they aren't the ones that Brooks and company think they are. Many of the people pointing fingers at the moral failings of others need to take a hard look at their own behavior and how it has enabled the morality that allows the rich to mislead the public about the impact of budget busting, redistributive, hard to see any growth policies that were key in producing the debt problems that we now face.

"A Pact with the Devil."

Did welfare reform work?:

Welfare Reform Worked, by Ron Haskins and Peter H. Schuck, Brookings: The primary election campaign has intensified a justified concern about inequality in America: People at the top are rising much faster than everyone else. Even low-income Americans consider relatively high levels of inequality acceptable if they have a decent opportunity to improve their condition. But because they may work fewer hours and at stagnant wages, their gains are very limited.

Among the poor, surprisingly, never-married mothers have gained the most in recent decades. Their story shows the best way to reduce poverty and inequality: by encouraging individuals to work more and by supplementing their earnings with tax credits, child-care subsidies and other benefits for low-income working parents.

Until the mid-1990s, never-married mothers seldom worked outside the home, had poverty rates of over 60% and were at least five times more likely than married-couple families to be poor. Then in 1996, congressional Republicans and President Clinton collaborated on a welfare reform law requiring adults on welfare, including never-married mothers, to work.

When Clinton signed the law, many of his strongest political supporters reviled him for entering into "a pact with the devil." They predicted that poor women and their children deprived of welfare would die in the streets. Any employment gains, they insisted, would vanish in the first economic downturn.

The data refute these dire predictions....

See here for another view (scroll down to the section "TANF’s Overall Record Belies Claims of Welfare Reform’s Success").

What's To Be Done?

Duncan Black:

What's To Be Done About The Lower Classes, by Duncan Black: I was thinking about BoBo's latest Charles Murray inspired claim that that what the lesser humans among us need is some "bourgeois paternalism." Apparently they're behaving badly, in ways which hurt BoBo's aesthetic sensibilities, and Upper Class Daddy is going to have to bring out the rod. Because what poor people - and their kids - need is leadership and discipline from the proper sort of people. Like BoBo.

Mostly these people need decent schools, affordable simple health care, and, yes, a bit more money without working 3 jobs. A stern lecture from Daddy BoBo probably won't do much for them.

Are Budget Problems Due to Rising Health Care Costs as Scary as We've Been Led to Believe?

Not too long ago, I sent the following email to several people I thought might have the answer:

Something that's been bugging me -- I don't know much about how they estimated future health care cost increases, but since that is largely behind the budget problems -- and hence the source of the ability to use the deficit for ideological purposes -- is there any reason to try and question these numbers? Do we really know what these will be 30 or 40 years from now?

I didn't get an answer.

We can't forecast very well beyond a 3 to 6 month horizon, yet we are relying upon projections for decades in the future as the basis for cutting social programs now. The CBO, for example, uses a 70 year projection for revenues and outlays, and that is the basis of a lot of the worry over the long-term budget picture. But, did we have any idea at all 70 years ago -- in 1942 -- what health care costs would be today?

Jeff Sachs takes up this issue:

Entitlements Hysteria, by Jeff Sachs: One of the unshakable myths of the punditariat is that the federal government is going bankrupt because of entitlements spending, especially spending on Medicare and Medicaid. Each day we hear the drumbeat saying that either we cut entitlements now or we are finished as a nation. This is a stampede of unreason, contradicted by the facts. ...

So what is the source of the hysteria? Some of it is simply propaganda, by those with the political agenda to gut the country's social safety net.

But there is something else. Confusion! The punditocracy is repeating the results of forecasts that indeed suggest calamity, but calamity in the late 21st century, not now. These long-term forecasts are arbitrary but have been repeated as an immutable fact by those who don't read the fine print. The most frequently quoted forecast is that of the Congressional Budget Office.

The CBO's long-term forecast assumes that health care costs will continue to rise steeply during the next 70 years, though at a diminishing rate. If healthcare costs continue to soar for decades to come, then yes, lo-and-behold, the government would eventually go broke. ...

Yet somehow I'm not ready to panic about the health care costs as of 2085. Mechanical extrapolations that assume that health care costs will rise much faster than GNP between 2011 and 2085 are utterly unconvincing. Why should healthcare costs continue to rise so far and fast when healthcare costs are already vastly over-priced now compared with what other countries pay for the same services? Why should we assume failure decade after decade to use the new information technologies to lower the costs of health-care delivery and administration?

In fact, the recent trends are mildly favorable. As J. D. Keinke of the American Enterprise Institute writes today in the Wall Street Journal, the idea of runaway health spending is a "myth" because "new data show that health spending over the past several years has been normalizing toward the rate of general inflation, rather than growing higher and higher, as had been the case almost continuously since the 1970s." ...

Even if we don't get all the way down to the lower costs that we should have, there is no reason to assume that health care costs will continue to soar year in and year out for another seven decades.

Let's therefore fight the right-wing hysteria demanding immediate and harsh cuts in Medicaid and other health outlays. We do not need to cut off the lifeline of the poor and elderly. We simply need to keep up the pressure against the healthcare lobbies, and resist the panic of the punditariat.

Paul Krugman: Moochers Against Welfare

The idea that members of "the idle poor" are taking government benefits they don't deserve and in the process endangering the benefits of those who do deserve them is a convenient fiction for those who are ideologically committed to reducing the size of government:

Moochers Against Welfare, by Paul Krugman, Commentary, NY Times: First, Atlas shrugged. Then he scratched his head in puzzlement.

Modern Republicans are very, very conservative; you might even (if you were Mitt Romney) say, severely conservative. ... And what these severe conservatives hate, above all, is reliance on government programs. Rick Santorum declares that President Obama is getting America hooked on “the narcotic of dependency.” Mr. Romney warns that government programs “foster passivity and sloth.” Representative Paul Ryan ... requires that staffers read Ayn Rand’s “Atlas Shrugged,” in which heroic capitalists struggle against the “moochers” trying to steal their totally deserved wealth, a struggle the heroes win by withdrawing their productive effort and giving interminable speeches.

Many readers of The Times were, therefore, surprised to learn, from an excellent article published last weekend, that the regions of America most hooked on Mr. Santorum’s narcotic — the regions in which government programs account for the largest share of personal income — are precisely the regions electing those severe conservatives. Wasn’t Red America supposed to be the land of traditional values, where people don’t eat Thai food and don’t rely on handouts? ...

Now, there’s no mystery about red-state reliance on government programs. These states are relatively poor... But why do regions that rely on the safety net elect politicians who want to tear it down? ...

Cornell University’s Suzanne Mettler points out that many beneficiaries of government programs seem confused about their own place in the system. She tells us that 44 percent of Social Security recipients, 43 percent of those receiving unemployment benefits, and 40 percent of those on Medicare say that they “have not used a government program.”

Presumably, then, voters imagine that pledges to slash government spending mean cutting programs for the idle poor, not things they themselves count on. And this is a confusion politicians deliberately encourage. For example, when Mr. Romney responded to the new Obama budget, he condemned Mr. Obama for not taking on entitlement spending — and, in the very next breath, attacked him for cutting Medicare.

The truth, of course, is that the vast bulk of entitlement spending goes to the elderly, the disabled, and working families, so any significant cuts would have to fall largely on people who believe that they don’t use any government program.

The message I take from all this is that pundits who describe America as a fundamentally conservative country are wrong. Yes, voters sent some severe conservatives to Washington. But those voters would be both shocked and angry if such politicians actually imposed their small-government agenda.

What If Emergency Unemployment Benefits Expire?

What will happen if Congress allows the extension of unemployment insurance to expire at the end of this month?:

What Happens if Congress Doesn’t Continue Emergency Unemployment Benefits?, by Chad Stone, CBPP: The emergency federal unemployment insurance (UI) program is set to expire at the end of the month. If Congress fails to extend it:

• The number of weeks of available benefits for unemployed workers will shrink dramatically, to fewer than 26 weeks in some states (see the maps [1,2] below).

• Nearly 4.5 million jobless workers will lose UI benefits before the end of the year (see the table below).

• The economic recovery will slow.

Besides the obvious benefit of supporting unemployed workers and their families at a time when there is still only one job opening for every four unemployed workers, UI is one of the most cost-effective ways to support the economic recovery. ...

The failure of people to find jobs that don't exist is surely a moral issue.

Paul Krugman: Romney Isn’t Concerned

Who does Romney care about?:

Romney Isn’t Concerned, by Paul Krugman, Commentary, NY Times: ...Earlier this week, Mr. Romney told a startled CNN interviewer, “I’m not concerned about the very poor. We have a safety net there.”

Faced with criticism, the candidate has claimed that he didn’t mean what he seemed to mean... But he quite clearly did mean what he said. ...

First of all, just a few days ago, Mr. Romney was denying that the very programs he now says take care of the poor actually provide any significant help. On Jan. 22, he asserted that ... because of the cost of a huge bureaucracy “very little of the money that’s actually needed by those that really need help ... actually reaches them.”

This claim, like much of what Mr. Romney says, was completely false:... between 90 percent and 99 percent of the dollars allocated to safety-net programs do, in fact, reach the beneficiaries. ...

Also, given this whopper about how safety-net programs actually work, how credible was Mr. Romney’s assertion ... that if the safety net needs a repair, “I’ll fix it”?

Now, the truth is that ... Mr. Romney ... wants to make the safety net weaker... Specifically, the candidate has endorsed Representative Paul Ryan’s plan for drastic cuts in federal spending — with almost two-thirds of the proposed spending cuts coming at the expense of low-income Americans. ...

So Mr. Romney’s position seems to be that we need not worry about the poor thanks to programs that he insists, falsely, don’t actually help the needy, and which he intends, in any case, to destroy.

Still, I believe Mr. Romney when he says he isn’t concerned about the poor. What I don’t believe is his assertion that he’s equally unconcerned about the rich, who are “doing fine.” After all, if that’s what he really feels, why does he propose showering them with money? ...

Mr. Romney’s tax plan would actually raise taxes on many lower-income Americans, while ... 80 percent of the tax cuts would go to people making more than $200,000 a year..., increasing the deficit by $180 billion a year — and making those draconian cuts in safety-net programs necessary.

Which brings us back to Mr. Romney’s lack of concern. You can say this...: He is opening up new frontiers in American politics. Even conservative politicians used to find it necessary to pretend that they cared about the poor. Remember “compassionate conservatism”? Mr. Romney has, however, done away with that pretense.

At this rate, we may soon have politicians who admit what has been obvious all along: that they don’t care about the middle class either, that they aren’t concerned about the lives of ordinary Americans, and never were.

The Path to a More Secure Economic Future

A new column is live:

The Path to a More Secure Economic Future

It's a response to president Obama's plan to increase economic growth and job opportunities through a revival of manufacturing in the U.S.

"The Food Stamp Speaker"

If you look into why food stamp enrollment has increased so much during the recession, it turns out that Newt Gingrich played a key role. This is from David Dayen at FDL:

The “Food Stamp Speaker” is Actually Newt Gingrich, by David Dayen: ...Gingrich never tires of calling Barack Obama a food stamp President, saying that the food stamp rolls increased by the highest amount in history under this Administration. As a technical matter, this is not true. George W. Bush actually put more people on food stamps than any President in American history... But that doesn’t totally get at who is responsible for the increase in food stamp benefits. ...

As Brooks Jackson points out, the economic downturn that began in December 2007 made 4.4 million Americans newly eligible for food stamp benefits. The Obama Adminstration included increased benefit levels in the 2009 stimulus... But there’s a reason that the food stamp program, or SNAP, became a vehicle for direct benefits to poor Americans. It can be traced back to a guy named Newt Gingrich.

In 1996, Gingrich succeeded as House Speaker in passing welfare “reform,” which decimated the welfare program, particularly its ability to respond during times of economic stress. ... The 1996 welfare reform made cuts to SNAP, most of which remain. But it’s still expandable during a downturn, unlike TANF. In 2010, 40% of single mothers received food stamps, while only 10% received TANF funds. And this is why SNAP costs increased by 102% during the Great Recession.

In other words, without the “end of welfare as we know it,” nobody would likely have become a food stamp President. ... I suppose the other option is to let the poor starve, which Gingrich must be advancing. But when he talks about “food stamp Presidents,” recognize that he’s responsible.

And he should be thrilled to take the credit! The US Department of Agriculture estimates that $1 spent on food stamps generates $1.79 for the economy, creating economic activity with one of the best multipliers of any federal program. Census data from 2011 shows that SNAP kept 5.1 million Americans out of poverty, including substantial numbers of women and children. It’s a great program... Almost all of the benefits get directly to people with a tiny administrative overhead.

This part is important:

Of course, whether or not SNAP is a good program has little to do with the racial overtones of Gingrich’s remarks. He and his allies can object all they want, but he clearly is painting a picture of a “food stamp king” as a mirror to Ronald Reagan’s “welfare queens.” This is ridiculous, primarily because the plurality of food stamp beneficiaries – 36% – are white. ...

I'm not sure what Newt is supposed to get credit for here. He squeezed the balloon at one end -- cutting welfare as we knew it -- and is disappointed that it inflated somewhere else. As he makes clear, he is not at all pleased that the people kicked off of welfare have been able to find a way to eat through food stamps. If he gets the chance, he'll fix that.

Finally, I have to add that it's pretty disappointing that the press will not go after Newt (or anyone else on the right) for the clear racial undertones of his remarks on this and other issues. Newt and his followers believe that most of our problems can be blamed on poor minorities and the government's attempt to help them -- if the poor only had Newt's morals (ahem) they wouldn't have these problems -- despite very clear evidence to the contrary. Admitting the truth about what caused our problems would mean placing blame on key powers within the conservative cabal, and it would require them to accept regulations and other restricitions on their ability to make unimaginably high profits. That is to be avoided at all costs.

"Five Things You Probably Don’t Know About Food Stamps"

While I look around for something to post, here's the latest attempt to counter Republican attacks on the social safety net. This time conservatives have food stamps in the cross-hairs:

Supplemental Nutrition Assistance Program (SNAP), formerly known as the Food Stamp Program, is in the news these days because of comments made by some Republican presidential candidates. Below are five things you probably don’t know about the program.

1. A large and growing share of SNAP households are working households (see chart). ...

   One reason why SNAP is serving more working families is that, for a growing share of the nation’s workers, having a job has not been enough to keep them out of poverty.

2. SNAP responded quickly and effectively to the recession. ... That’s precisely what SNAP was designed to do: respond quickly to help more low-income families during economic downturns...
   

   Economists consider SNAP one of the most effective forms of economic stimulus, so SNAP’s quick response to the recession ... helped the broader economy. ...

3. Today’s large SNAP caseloads mostly reflect the extraordinarily deep and prolonged recession and the weak recovery. ...Workers who are unemployed for a long time are more likely to deplete their assets, exhaust unemployment insurance, and turn to SNAP for help...
   
   
4. SNAP has one of the most rigorous quality control systems of any public benefit program. ...
   
   
5. SNAP’s recent growth is temporary. CBO predicts that SNAP spending will ... return nearly to pre-recession levels as a share of the economy.
   

   Over the long term, SNAP is not growing faster than the economy. So, it is not contributing to the nation’s long-term fiscal problems.

The question shouldn't be whether a particular program is "contributing to the nation’s long-term fiscal problems." When overall revenues fall short of spending, any program funded out of general revenue can be accused of causing the deficit problem. Instead, we should compare the costs and the benefits of each program, then find a way to pay for those that pass and reduce the scale or eliminate those that fail. Even though spending on SNAP has increased quite a bit during the recession, as you'd expect if the program is working, I have no doubt that this program passes the cost-benefit test.

National Security Spending, Not Entitlements, "Run Amok"

Once again, Jeff Sachs takes on the editorial page of the WSJ and tries to expose the "big lie of our time" (or one of them anyway):

How the Wall Street Journal Misleads About Federal Jobs, by Jeff Sachs: The editorial board of Rupert Murdoch's Wall Street Journal has a simple game. They want to cut taxes for the rich and government services for the rest, and end regulations of banks and the environment. They support taxpayer-financed bailouts of Wall Street when needed. They will twist any facts in the service of these goals.

Today's lead editorial, with its graph of "Obama's Growing Payroll," is a perfect example... The gist of the editorial is that Obama is presiding over a massive increase of government, exemplified by the surge of civilian employees. The graph shows a striking rise of federal employment from around 1.875 million in 2008 to 2.1 million in 2011. (I reproduce this as Figure 1 below).

The Journal neglects the fact that today's 2.1 million workers is actually identical to the number of Federal employees in 1981 at the start of the Reagan Administration, 1989 at the end of the Reagan Administration, and 1993 at the end of the Bush Sr. Administration. The numbers went down slightly after that ... with a decline in Defense Department civilian employees, a decline that was probably offset by the rise of private defense contractors (not included in the OMB tables). There is no long-term trend at all. (I show this as Figure 2 below).

The Journal endlessly tries to portray the "growth of government" as a social welfare system run amok. The editorial implies that President Obama is repeating LBJ's Great Society by building up giant welfare and regulatory programs reflected in the "boom" of federal employment. But where did this so-called "boom" (actually a tiny boomlet) actually appear? In Great Society programs? In entitlements?

No, the increase in employment is mainly in national-security-related employment: the military, homeland security, and justice (including prisons, FBI, drug enforcement, and the like). Welfare and entitlements programs little to do with it. If we parse the increase of 225,000 federal jobs between 2008 and 2011, three-fourths came in the Defense Department (+84,000), Homeland Security (+28,000), Justice (+13,000), and Veteran's Affairs (+45,000).

Of course the Journal's entire argument is ... a red herring, since the increase of 225,000 jobs represents all of 0.0017 of U.S. non-farm employment of 131 million workers. The entire federal civilian workforce is a mere 1.6 percent of the total non-farm employment. The Journal is taking tiny fluctuations and making them into a federal case, so to speak, for its propagandistic purposes.

The actual fact of relevance is that the federal government has been declining as a share of national non-farm employment, from 2.3 percent in 1981 to 1.6 percent in 2011. ...

The big lie of our time is that the federal government is expanding out of control. ... For government services that count for the 99 percent, the federal government is shrinking, alas, no matter which phony figures the Wall Street Journal throws our way.

"An Appalling Idea"

If Republicans get their way, collecting unemployment insurance will be much harder for many workers:

An Appalling Idea, Even by Washington Standards, CBPP: For legislation to extend the payroll tax cut through the end of 2012, House Republicans are expected to push for a provision on unemployment insurance (UI) that is appalling even by current Washington standards. Neither President Obama nor Congress should accept any payroll-tax legislation that includes it. Here’s why:

The provision, part of a full-year payroll-tax bill that the House passed in December, would deny UI benefits to any worker who lacks a high school diploma or GED and is not enrolled in classes to get one or the other — regardless of how long the person worked or whether he or she has access to adult education, which itself has been subject to significant budget cuts in the past few years and is heavily oversubscribed.

The proposal would deny UI benefits to hundreds of thousands of workers — many of them middle-aged — who have worked hard, played by the rules, and effectively paid UI taxes for years and who then were laid off due to no fault of their own. ...

Older workers would be hit the hardest. Nearly half (47 percent) of UI recipients with less than a high school education or the equivalent are over age 45... In 2010, half a million workers age 50 or over who received UI lacked a high school diploma. By contrast, less than one-fifth of UI recipients without a high school diploma or the equivalent are under age 30.

For most of these individuals, who may have worked for 30 years or more, returning to high school makes little sense. And adult education, even when it might be useful because the workers are younger, very often isn’t available due in part to federal and state budget cuts.

Virtually every state had waiting lists in local adult education programs in 2009-2010, according to the most recent survey, and the number of people on waiting lists doubled just between 2008 and 2009-2010. Furthermore, the shortage of adult education slots has almost certainly grown significantly since 2009-2010 because of substantial budget cuts in adult education since then. ...

The proposal ... would allow people without a high school diploma or GED to receive benefits only if they enroll in classes for which there often would be no slots available — in part because of budget cuts approved by some of the same policymakers who now embrace this new requirement.

President Obama and lawmakers of both parties face a crucial test. They claim to care about average Americans who are trying to find work in an economy that still struggles to create jobs. If they give in to House Republicans and agree to this provision as part of a final package on the payroll tax cut, their claims will ring thin — and they will deserve the strong criticism that will come their way.

If all that is required is to enroll and benefits end before enough credits are accumulated to graduate, how much effort do you think these students will put into their classes (and if there is a GPA requirement, e.g. you cannot get an F, many will do just enough to meet the requirement, and no more)? Students who have no interest in being in adult education classes, no interest in learning, will crowd out students who want to be there (and being in school doesn't help much with job search). How is that better? If there was excess capacity in the system, they could enroll without displacing someone else. But that's not the situation right now, and if Republicans have their way with budgets, that's unlikely to change (and even if it was the situation, I'd still object to making obtaining a degree a condition for receiving unemployment insurance). I suppose we could get a bunch of private schools offering an easy way to satisfy the requirement in exchange for some of the money the unemployed receive through unemployment insurance (guaranteed to pass or your money back!), but degree mills popping up to collect money from the unemployed -- money they very much need -- is not a very desirable outcome (and if the government pays for the classes, the incentives are even worse).

High Unemployment Is *Not* Primarily the Result of "Generous" Unemployment Insurance Benefits

Brad DeLong takes on the claim that our unemployment problem is due to "generous" unemployment insurance benefits.

The Deficit is the Means, not the End

I've made this point many, many times as well, but it's worth emphasizing once again. As Krugman notes:

...the GOP is not now, and never has been (at least not since the 1970s) concerned about the deficit. All the fiscal posturing of the last couple of years has been about using the deficit as a club to smash the welfare state, with the secondary goal of frustrating any efforts on the part of the Obama administration to help the struggling economy.

The entire debate has been fake. If you don’t understand that, or can’t bring yourself to admit it, you’re missing the whole story.

"Newt's War on Poor Children"

This is how Republican mainstream views the poor (I figure a leading candidate must represent mainstream thought within the party). Compassionate conservatism is alive and well:

Newt’s War on Poor Children, by Charles Blow, Commentary, NY Times: Newt Gingrich has reached a new low, and that is hard for him to do.

Nearly two weeks after claiming that child labor laws are “truly stupid” and implying that poor children should be put to work as janitors in their schools, he now claims that poor children don’t understand work unless they’re doing something illegal.

On Thursday, at a campaign stop in Iowa, the former House speaker said, “Start with the following two facts: Really poor children in really poor neighborhoods have no habits of working and have nobody around them who works. So they literally have no habit of showing up on Monday. They have no habit of staying all day. They have no habit of ‘I do this and you give me cash’ unless it’s illegal.” ...

He comes across as a callous Dickensian character in his attitude toward America’s most vulnerable — our poor children. ...

Gingrich wants to start with the facts? O.K.

First, as I’ve pointed out before, three out of four poor working-aged adults — ages 18 to 64 — work. ... Furthermore, according to an analysis of census data by Andrew A. Beveridge, a sociologist at Queens College, most poor children live in a household where at least one parent is employed. ...

You can tell how much hard work Newt does daily from that impressive Newtonian physique.

The idea that some of the hardest working people in our society -- the people toiling daily for next to nothing at the dirty, grimy, repetitive, difficult, mind-numbing labor nobody else will do -- are lazy is an attempt to remove any moral responsibility for their plight. It's a convenient myth for those who want to avoid paying for the social costs of the people the system casts aside as they amass their fortunes on the backs of the very people they are calling lazy. In recent decades, the wages of the poorest members of the working class haven't even kept up with their rising productivity, those gains have gone to the people at the top. Yet they show up for work anyway only to be called lazy by those who'd rather turn their backs when they have no more use for the underpaid workers who help to generate the profits that make them rich.

Reich: The Rebirth of Social Darwinism

Another busy day brings another quick post. This is Robert Reich:

The Rebirth of Social Darwinism, by Robert Reich: What kind of society, exactly, do modern Republicans want? ...

They’re not conservatives. They’re regressives. And the America they seek is the one we had in the Gilded Age of the late nineteenth century. It was an era when the nation was mesmerized by the ... ideas of William Graham Sumner, a professor of political and social science at Yale... Sumner brought Charles Darwin to America and twisted him into a theory to fit the times. ...

To Sumner and his followers, life was a competitive struggle in which only the fittest could survive – and through this struggle societies became stronger over time. A correlate of this principle was that government should do little or nothing to help those in need because that would interfere with natural selection.

Listen to today’s Republican debates and you hear a continuous regurgitation of Sumner. “Civilization has a simple choice,” Sumner wrote in the 1880s. It’s either “liberty, inequality, survival of the fittest,” or “not-liberty, equality, survival of the unfittest. The former carries society forward and favors all its best members; the latter carries society downwards and favors all its worst members.” ...

Social Darwinism offered a moral justification for the wild inequities and social cruelties of the late nineteenth century. It allowed John D. Rockefeller, for example, to claim the fortune he accumulated ... was “merely a survival of the fittest.” It was, he insisted “the working out of a law of nature and of God.”

Social Darwinism also undermined all efforts at the time to build a nation of broadly-based prosperity and rescue our democracy from the tight grip of a very few at the top. It was used by the privileged and powerful to convince everyone else that government shouldn’t do much of anything.

Not until the twentieth century did America reject Social Darwinism. We created the large middle class... We built safety nets to catch Americans who fell downward through no fault of their own. We designed regulations to protect against the inevitable excesses of free-market greed. We taxed the rich and invested in ... public schools, public universities, public transportation, public parks, public health – that made us all better off.

In short, we rejected the notion that each of us is on his or her own in a competitive contest for survival.

But make no mistake: If one of the current crop of Republican hopefuls becomes president, and if regressive Republicans take over the House or Senate, or both, Social Darwinism is back.

The Source of Cronyism Is *Not* Social Programs for the Poor

Jeff Sachs:

Fairness and the Occupy Movement Revisited, by Jeff Sachs: A recent Wall Street Journal article by Arthur C. Brooks on the Occupy Movement and fairness says some interesting things about potential common ground between free-market ideas and the Occupy movement. Yet Brooks also commits some very important errors. ...

Brooks, the head of the American Enterprise Institute, denounces crony capitalism as the dark side of American politics and economics. On this we should all agree. The level of corruption in Washington is staggering, growing, and rife in both parties. ...

The Republicans answer to crony capitalism is to slash government. Yet by this they mean mainly an attack on the remaining social programs. This is a kind of bait-and-switch strategy: rev up the anger against government corruption, and then kill the life-support programs of the poor and working class. Crony capitalism exists mainly in the big-ticket sectors of the economy -- banking, oil, real estate, private health insurance, military contractors, and infrastructure -- not in the essential but much smaller parts of the economy: malnutrition of poor children, lack of quality pre-school, insufficient job training, and inadequate student loan coverage.

Yes, crony capitalism should be confronted anywhere in the economy, yet cutting the life-support systems for the working class and poor won't fix government, but instead would cripple the prospects of more than 100 million poor and near-poor Americans. To control crony capitalism, we need to direct our attention where it belongs: the wealth-support systems of the rich, not the life-support systems of the poor. ...

Yes, Mr. Brooks, let us find common ground. We all agree on the need to end crony capitalism. But let us also work together not to cripple government but to make it work for all Americans.

The hope for common ground where there is none can lead to Obama like one-sided concessionary behavior, and we have more than enough of that already. Yes, let's find common ground where it exists, but let's also be careful not to try to meet in the middle when the other side is pursuing a bait and switch strategy. The Republican goal of reducing the size of government through reductions in social programs is unwavering, and they will pursue any argument handy at the moment to bring this about. In recessions, they tell us tax cuts are needed to stimulate the economy, but the real goal is to cut funding for the government permanently. Once the taxes are reduced, they won't agree to increase them again (unless it's to protect their cronies, i.e. an increase in payroll taxes is fine so long as it prevents the increase in taxes on the wealthy needed to fund it). In normal times, we're told tax cuts stimulate economic growth even though there's not much evidence to support this claim. Presently, it's the cronyism argument, and tomorrow it will be something else. The Republicans have their eyes on the ball, and the rules of the game are to be adjusted as necessary to allow them the best opportunity to take the ball across the goal line. Winning is all that matters. Fairness for both sides playing the game, etc. has nothing to do with it and we'd be wise to keep our eyes on the ball as well.

The other thing to note is that the location of common ground has shifted to the right from where it used to be. "Meet us in the middle" now means meeting on ground that would have been considered on the right not all that long ago. Democrats have already conceded too much in the ideological war, and there comes time when leaders in the party must take a stand and hold their ground. That time is long past.

Social Insurance and Unemployment: Do People Deserve Poverty?

Casey Mulligan claims that social insurance is a big reason that unemployment is so high:

Were it not for government assistance,... the recession would have pushed 4.2 percent of the population into poverty, rather than 0.6 percent.

One interpretation of these results is that the safety net did a great job... Perhaps if the 2009 stimulus law had been a little bigger or a little more oriented to safety-net programs, all seven would have been caught.

Another interpretation is that the safety net has taken away incentives... Of course, most people work hard despite a generous safety net, and 140 million people are still working today. But in a labor force as big as ours, it takes only a small fraction of people who react to a generous safety net by working less to create millions of unemployed. I suspect that employment cannot return to pre-recession levels until safety-net generosity does, too.

A comment from this post responding to Casey Mulligan takes on this claim:

I'm sure my daughter connived to get herself laid off at Peet's Coffee just as her health insurance would have kicked in and live on $98 a week, far less than she would have brought in in wages, and not even enough to pay her $500 a month rent. And she was so thrilled with this condition that she kept it up for a full two months, and then found herself another job, this one with no health benefits.

The idea that the unemployment problem is due to lack of effort on behalf of the unemployed rather than a lack of demand is convenient for the moralists, but inconsistent with the facts. The problem is lack of demand, not the means through which we smooth the negative consequences of recessions.

But what really irks me is the implicit moralizing, the idea that people deserve to be thrown into poverty. Someone who gets up every day and goes to a job day after day, often a job they don't like very much, to support their families can suddenly become unemployed in a recession through no fault of their own. They did nothing wrong -- it's not their fault the economy went into a recession and they certainly couldn't be expected to foresee a recession that experts such as Casey Mulligan missed entirely. They had no reason to believe they had chosen the wrong place to go to work, but unemployment hit them anyway. And since one of the biggest causes of foreclosure is an event like unemployment, it's entirely possible that this household would lose its home, be forced to declare bankruptcy, etc., and end up in severe poverty if there were no social services to rely upon.

What moral lesson is being taught here? Why does this household deserve to be punished for their bad decisions? It did nothing wrong. I understand that people should suffer the consequences of their own bad choices, but that's not what happens in recessions. People who have done nothing to deserve it are nevertheless hit by severe negative shocks. That's what social insurance is for, to smooth the path for such unfortunate households, to avoid sending people into poverty who have done nothing to deserve it (see "The Need for Social Insurance"). It is not an attempt to reward bad behavior and most programs do their best to avoid giving benefits to people who have made bad choices (for example, the system is far from perfect but in most states unemployment insurance can only be obtained if you lose your job through no fault of your, e.g. if you quit or get yourself fired it is not available). The extent to which we should distinguish between deserving and undeserving households for social insurance programs is debatable and depends upon the type of program, but the idea that all households are undeserving is, in my view, simply wrong. I would apply the social safety net widely myself -- I think the benefit of the doubt should go to compassion, not harshness and moralizing -- but in any case I'd dispute the idea that "safety-net generosity" is too high. If anything, we are not generous enough.

Update: Karl Smith comments on this topic.

Economic Insecurity

Via Motoko Rich at the NY Times:

... A new report ... shows that 45 percent of United States residents live without economic security. That means they are not earning enough income to cover basic expenses, plan for important life events like college or save for emergencies like unexpected health bills. ...

The report showed that 55 percent of children live in households where families do not earn enough to achieve economic security. Even among those households with two full-time workers, 22 percent of those families with children earn less than is necessary to guarantee economic security.

The most vulnerable households are those led by single mothers, as well as African-American and Hispanic households. Only 18 percent of households headed by single mothers are living with economic security, while two-thirds of Hispanic households and 62 percent of African-American households are not earning enough to cover basic needs and saving requirements.

Part of the problem ... is that so many jobs pay low wages. ... “We have a construct in this country that if you work full time and keep your nose clean and live by the rules, you will get that full-time job that allows you to take care of your family,” Ms. Addkison said. “And what we’re finding is that workers who are working full time or the equivalent are still struggling.”

The Surprising Number of "Near Poor"

Given the shape of the job market, and the hollowing out of the middle class, is there any reason to think this will not get worse in the near future?:

Older, Suburban and Struggling, ‘Near Poor’ Startle the Census, NY Times: ...When the Census Bureau this month released a new measure of poverty, meant to better count disposable income, it began altering the portrait of national need. Perhaps the most startling differences between the old measure and the new involves data ... showing 51 million people with incomes less than 50 percent above the poverty line. That number of Americans is 76 percent higher than the official account... All told, that places 100 million people — one in three Americans — either in poverty or in the fretful zone just above it.

After a lost decade of flat wages and the worst downturn since the Great Depression, the findings can be thought of as putting numbers to the bleak national mood — quantifying the expressions of unease erupting in protests and political swings. They convey levels of economic stress sharply felt but until now hard to measure. ... The size of the near-poor population took even the bureau’s number crunchers by surprise. ...

Outside the bureau, skeptics of the new measure warned that the phrase “near poor” ... may suggest more hardship than most families in this income level experience. A family of four can fall into this range, adjusted for regional living costs, with an income of up to $25,500 in rural North Dakota or $51,000 in Silicon Valley.

But most economists called the new measure better than the old, and many said the findings, while disturbing, comported with what was previously known about stagnant wages.

“It’s very consistent with everything we’ve been hearing in the last few years about families’ struggle, earnings not keeping up for the bottom half,” said Sheila Zedlewski, a researcher at the Urban Institute...

The results scrambled the picture of poverty in many surprising ways. The measure shows less severe destitution, but a bit more overall poverty; fewer poor children, but more poor people over 65. ...

Perhaps the most surprising finding is that 28 percent work full-time, year round. “These estimates defy the stereotypes of low-income families,” Ms. Renwick said. ...

One group likely to gain attention is older Americans. By the official count, only 22 percent of the elderly are either poor or near poor. By the alternate count, the figure rises to 34 percent.

That is still less than the share among children, 39 percent, but it erases about half the gap between the economic fortunes of the young and old recorded in the official count. The likeliest explanation is high medical costs.

Another surprising finding is that only a quarter of the near poor are insured...

Medical costs are clearly a large part of the problem. But it's not the only difficulty middle and low income households face. Here's how Jeff Sachs describes the more general problem:

...The key to understanding the U.S. economy is to understand that we have two economies, not one. The economy of rich Americans is booming. Salaries are high. Profits are soaring. Luxury brands and upscale restaurants are packed. There is no recession.

The economy of the middle-class and poor is in crisis. Poverty and near-poverty are spreading. Unemployment is rampant. Household incomes have been falling sharply. Millions of discouraged workers have dropped out of the labor force entirely. The poor work at minimum wages to provide services for the rich.

There are two forces that account for this deep divide. The first is globalization. Manufacturing employment peaked in 1979, with jobs and factories increasingly shifting overseas. For a while, the housing bubble provided construction jobs that partly offset the loss of manufacturing jobs. Now the housing bubble has burst. Good jobs for young people with a high-school diploma or less have disappeared.

Unless you have a four-year college degree, you're struggling. Yet only one-third of young men ages 25-29 have a bachelor's degree. Most of the rest are holding on for dear life. Among young Hispanic men, only 11 percent have a bachelor's degree; among young African-American men, the figure is 16 percent. ... Yet with more cuts in state support for tuition and in federal Pell Grants, the situation is rapidly getting worse.

The second force is politics. When Obama has one of his many $35,800-a-plate fundraising dinners, he doesn't meet young people struggling to cover tuition payments. Obama has been separated from reality by the White House's campaign to collect between $750 million and $1 billion for Obama's re-election bid. The big money on the Republican side is even worse. Big Oil controls the party.

The upshot is that both parties champion the 1 percent, the Republicans gleefully and the Democrats sheepishly. Both parties have worked together to gut the tax code. Companies use accounting tricks approved by the IRS to shift their profits to foreign tax havens. Hedge-fund managers and recipients of long-term capital gains pay only 15 percent top tax rates. As a result of these irresponsible tax policies and rampant tax evasion, tax collections as a share of national income have sunk to 15 percent, the lowest in modern American history.

Americans are told daily that these low tax rates on the rich are the natural order of things, that the American economy would collapse if the top 1 percent were to pay more to help fund education, job training, infrastructure, and new technologies. This claim is absurd. ...

Anyone who thinks struggling households aren't trying hard enough, i.e. that social services cause people to be lazy so eliminating them will motivate these households to work harder, is nuts. You can find exceptions at all income levels, but for the most part these households are doing all they can to survive. It's a self-serving argument by those who are afraid that they might be asked to help the people who, when jobs are available, work so hard day in and day out for wages that do not even keep up with productivity so that they can accumulate their fortunes. Unfortunately, this group has the power to bring self-serving arguments to fruition and so long as the rich and powerful are doing okay, we shouldn't expect much to change.

"The Myth of the Wealthy Elderly"

Dean Baker:

The Myth of the Wealthy Elderly, by Dean Baker: The austerity gang seeking cuts to Social Security and Medicare has been vigorously promoting the myth that the elderly are an especially affluent and privileged group. Their argument is that because of their relative affluence, cuts to the programs upon which they depend is a simple matter of fairness. There were two reports released last week that call this view into question.

The first was a report from the Census Bureau that used a new experimental poverty index. This index differed from the official measure in several ways; most importantly it includes the value of government non-cash benefits, like food stamps. It also adjusts for differences in costs by area and takes account of differences in health spending by age.

While this new measures showed a slightly higher overall poverty rate the most striking difference between the new measure and the official measure was the rise in the poverty rate among the elderly. Using the official measure, the poverty rate for the elderly is somewhat lower than for the adult population as a whole, 9 percent for the elderly compared with 14 percent for the non-elderly adult population. However with the new measure, the poverty rate for the elderly jumps to 14 percent, compared with 13 percent for non-elderly adults.

By this higher measure, we have not been nearly as successful in reducing poverty among the elderly as we had believed. While Social Security has done much to ensure retirees an income above the poverty line, the rising cost of health care expenses not covered by Medicare has been an important force operating in the opposite direction. ...

It is also worth remembering that the Medicare premium is projected to rise considerably more than the cost of living each year. This means that as retirees age, rising Medicare premiums will be reducing the buying power of their Social Security check each year.  And this is the median; half of all seniors will have less income than this to support themselves.

This is the group that the Very Serious People in Washington want to target for their deficit reduction. While the Very Serious People debate whether people who earn $250,000 a year are actually rich when it comes to restoring the tax rates of the 1990s, they somehow think that seniors with incomes under $30,000 a year must sacrifice to balance the budget. There is a logic here, but it ain’t pretty.

Raising the payroll tax limit for Social Security would provide needed revenues in a way that is skewed heavily toward the wealthy. However, it would also be a tax increase and we can't have that. But cutting benefits and putting more of the elderly in jeopardy of living in poverty? Apparently that's not a problem.

"The Latest from the Not-So-Super-Committee"

Stan Collender:

Not-So-Super Committee Seriously Considers Becoming A Circular Firing Squad, by Stan Collender: A quick note... This story by Robert Pear in today's New York Times about the latest from the not-so-super committee tells you everything you need to know about the status of the negotiations. According to Pear, one of the main plans for reducing the deficit the committee apparently is considering is to set up a process by which tax increases would be considered by the House Ways and Means and Senate Finance Committees at some point next year.

Does anyone else see how ridiculous this is? 

The anything-but-super committee was set up because the regular committees and legislative process could not agree on what to do about the deficit. But rather than make those decisions, the super committee may decide that the best way to deal with this situation is to throw it back to the two tax-writing committees that, because they were unable to come up with a plan in the first place, gave the job to the super committee.

And the most inane, stupid, absurd, remarkable thing about this is that the definitely-not-super committee will claim that this make-someone-else-do-the-hard-work-later process complies with the legal requirement to reduce the deficit by $1.2 trillion.

The fact that they are willing to make cuts in social insurance and other programs but cannot agree on revenue increases says a lot about the relative power and influence of various groups in Washington.

Poverty With and Without a Safety Net

[Via CBPP]

"The Politics of Austerity"

This discussion of the politics of austerity supports the point I was trying to make yesterday in the post on hypocrisy. However, it's not just the politics of austerity that is important, the power behind the politics matters too and I will be curious to see how much of the long-run deficit problem is solved by cutting programs for the less powerful (or in the case of a flat tax, increasing their tax burden) rather than asking the powerful to pay more, or at least give up deductions like home mortgage interest. To state the more than obvious, the powerful have the upper hand:

The Politics of Austerity, by Thomas Edsall, Commentary, NY Times: The economic collapse of 2008 transformed American politics. In place of shared abundance, battles at every level of government now focus on picking the losers who will bear the costs of deficit reduction and austerity. ...

The new embattled partisan environment allows conservatives to pit taxpayers against tax consumers, those dependent on safety-net programs against those who see such programs as eating away at their personal income and assets.

In a nuanced study, “The Tea Party and the Remaking of Republican Conservatism,” the sociologist and political scientist Theda Skocpol and her colleagues at Harvard found that opposition to government spending was concentrated on resentment of federal government “handouts.” Tea Party activists, they wrote, “define themselves as workers, in opposition to categories of nonworkers they perceive as undeserving of government assistance.”

In a March 15 declaration calling for defunding of most social programs, the New Boston Tea Party was blunt: “The locusts are eating, or should we say devouring, the productive output of the hard working taxpayer.”

The conservative agenda, in a climate of scarcity, racializes policy making, calling for deep cuts in programs for the poor. The beneficiaries of these programs are disproportionately black and Hispanic. ...

Less obviously, but just as racially charged, is the assault on public employees. “We can no longer live in a society where the public employees are the haves and taxpayers who foot the bills are the have-nots,” declared Scott Walker, the governor of Wisconsin.

For black Americans, government employment is a crucial means of upward mobility. The federal work force is 18.6 percent African-American, compared with 10.9 percent in the private sector. The percentages of African-Americans are highest in just those agencies that are most actively targeted for cuts by Republicans...