Obama

/ / , , , , , , / 0 comments

Austerity Bites? Jobs Evaporate.

And some of you thought that budget cuts were a good thing.

We knew today’s jobs report from the government was going to be bad because of Wednesday’s ADP data on the private sector. But this bad? Not many went this far down in their forecasts. The US economy added a miserly 88,000 jobs in March, which is down sharply from any of the prior few months, and is well below even the more pessimistic forecasts. Worse still: the percentage of people active in the workforce – what is called workforce participation – has slumped to a low not seen in decades. Prolonged stagnation and awful work prospects seem to have induced a lot of early retirements and a large growth in the number of disaffected workers. This is a stark measure of policy failure.

So what’s going on?

Austerity. That one word ought now to be etched in your minds.

The US is about to toss away what small growth it has been seeing in the name of the false god of austerity. This adds to the continuing squeeze on the economy exerted by our recent reduction in the deficit. The deficit has already been shrinking – is about 3% of GDP smaller than it was at its peak. Indeed, just today, the Congressional Budget Office reported that the Federal deficit has dropped by about 23% in the first six months of the current fiscal year versus the same period a year ago. That reduction represents a significant withdrawal of demand from the economy and so it is no wonder that many of the recent reports on activity, and not just the jobs report, have been pointing to a slow down. That reduction also suggests that our deficit ‘problem’ is melting away as the economy improves. So what is Washington thinking of doing? Stop the improvement and make matters worse.

Stupid, I know, but that’s what’s going on.

The raise in payroll taxes at the beginning of the year seem to have hit retail sales quite hard, and this has had a knock-on effect with, for example, manufacturers reporting reduced orders and production. Remember that this is before any large scale damage from the sequester works its way into the numbers. Absent any change in policy it seems clear that the second half of the year will see much slower growth than the first half.

And what is the prospect for policy?

Not good.

Washington is gripped by deficit mania. It has become a bi-partisan disease. Obama is reported to be sending a budget proposal to Congress that includes cost to entitlements. There is no economic justification for such cuts. None. Indeed we ought to be thinking about expanding Social Security, not cutting it.

This is not a radical thought. It is based on simple observation. Over recent years businesses have succeeded in shifting the onus of saving for retirement onto employees. The old defined benefit plans have mostly been replaced now by defined contribution plans that expose workers to much greater risk. This increase in risk was not matched by an offsetting increase in reward – wages, as we all know, have been held constant for a very long time. So saving for retirement has become more and more difficult for a larger percentage of the workforce. So much so that, under normal circumstances, our conversation ought to be about how to increase the safety net, not its reduction. The result of deregulation and the bias towards business has been that we are now entering an era of impoverished retirees – exactly what we thought we had eliminated with the introduction of Social Security.

But these are not normal times. Austerity fever has taken away our ability to improve our lot. Even some on the left in our political landscape imagine that the economy cannot afford our entitlement programs. In the vain pursuit of a ‘grand bargain’ Obama is handing to the Republicans a landmark victory. Not only did he capitulate on the Bush tax cuts, but now he is, apparently, going to offer up entitlement cuts.

As I wrote yesterday the entire austerity drive is an assault on the poor and the lower echelons of our society. It will drive a wedge between the 90% and the upper 10% of income earners. It will destabilize our politics even more. And it is completely unnecessary.

We have embarked on a social experiment. The result of which will be the severe reduction of our middle class and the creation of a two track economy. One for the creditor or asset owning class. And one for the debtor  and wage earning class. This is not a land of opportunity. It is a land of privilege.

But it will still be a land of the free. For those who can afford freedom.

/ / , , , , , , / 0 comments

Deficit Realities: No Cuts Needed

It seems like the entire economic discussion is now about the Federal deficit and what we ought to do about it. You all know my position by now: nothing. The deficit is going to melt away, or at least back to manageable proportions. So there is no need to do anything. Really.

But, in the interests of science, and to give you some context, I ought to pass along to you some facts and figures. That way you can keep score for yourselves at home.

Since Obama arrived in the White House the accumulated deficits have been approximately $5,100 billion. That’s a lot by any standards. To put that in perspective: accumulated GDP has been $59,231 billion dollars. So the deficit has been about 9% of GDP throughout.

Deficits are always large during an economic downturn because tax revenues plunge as wages and profits take a hit. This was the mother of all recessions and so of the $5,100 a substantial part is due, not to policy – Obama being a closet socialist trying to take over the entire economy –  but to the downturn itself. This is the bit we can expect to go away through time as the economy recovers and tax revenues get back to normal. A rough estimate produces about $1,500 as this effect. This is about $375 a year or 30% of the deficit. So if we do nothing, we can expect the deficit to shrink by that much.

Then there’s all the short term and one time spending enacted to shore the economy up during the crisis. This includes the stimulus and things like the bank bail outs. These add up to about $1,600 over the last four years or about $400 billion a year. Obviously these are also going to go away, indeed the stimulus is already down to a trivial level.

Then there’s the Bush wars. Don’t forget about them. They weren’t paid for by extra taxes, they were paid for by borrowing and thus added to the deficit. Over the past four years their cost has been about $720 billion or $180 per year. One of these days those costs will go away, even though, for now, they still linger on.

And then there’s the impact of the Bush tax cuts. Even after the recent tax hike for high end wage earners there is still a huge drag on the budget from those cuts. To the tune of about $1,400 over the last four years. That’s $350 a year.

Now let’s add this all up.

The annual deficit since 2009 – the four years of Obama’s administration so far – has been approximately $1,275 billion. Makes your head spin, right?

Take away the effects of the crisis itself or $375 billon a year. Take away one time crisis related costs that will go away or another $400 billion a year. What do we get? A deficit of around $500 billion a year.

End those wars and that reduces us further. To around $320 a year.

Now.

In 2012 GDP, unadjusted for inflation, was about $15,700 billion. So this adjusted deficit of $320 billion is just about 2% of GDP. Compare that with the average of 4.23% during the Reagan administration. Yes, I know. Reagan had to deal with a recession too. So let’s be fair. Let’s add back to the Obama score that part of the deficit due to the downturn itself and to the stimulus. That means we have to add back about 3% of GDP making the average Obama deficit around 5% compared with Reagan’s 4.23%. Not a big difference. Especially when we take into account to the enormity of the recent recession.

So if we do nothing at all we can expect the deficit to shrink back to below the average we saw during the Reagan years when, as you no doubt recall, Dick Cheney famously said that deficits don’t matter. If that is so, the future Obama deficits will matter less.

Or ought to.

But the Republicans don’t seem to agree. While they loved those Reagan deficits, voted for them, and embraced them wholeheartedly. The Obama deficits, which are around the same totals and have the same impact, are, apparently a threat to the very soul of America.

Odd that.

Somewhere along the road to today Republicans had an epiphany. They saw the balanced budget light. And did a total U-turn. Whereas once deficits were the work of God, now they are the work of Satan. And like all born again folks their fanaticism for their new cause is extreme.

Well. Almost.

You see, I don’t think for one moment that the likes of Paul Ryan actually worry about deficits  as deficits. They just adore the war spending after all. No. They only ever object to deficits when their cause is social spending. Then all hell breaks loose and Republicans are beside themselves with angry fiscal rectitude. In the GOP’s eyes we cannot afford deficits when the spending is on the poor, only when it is on war. Social spending, bad. Military spending, good. Since both are government sending we can’t quite make out what Republicans think of that. Perhaps they’re just confused.

Anyway. The point of all this is to give you some context. Our deficits, labeled as a cause of crisis and imminent disaster by the media and right wingers, are under control. They need no action. The arithmetic says so. You saw it with your own eyes.

Oh. wait.

There’s that last bit. The Bush tax cuts. Let’s see. We had whittled the ongoing deficit down to around $320 billion a year by subtracting all the odds and ends associated with the recession and the Bush wars. The Bush tax cuts add about $350 billion a year to the deficit. Huh? $320 billion minus $350 billion  is … roll the drums … a surplus of $30 billion a year.

Yes. You see without the impact of the extraordinarily reckless George W Bush, our ongoing deficit wouldn’t be there at all. We’d have a surplus. Small, but definitely a surplus.

Eat your heart out Paul Ryan. We have a better budget plan than you do. All we have to do is eradicate the impact of Bush  and his Republican friends on history and we are all square.

Too bad we didn’t think of that at the time. Well some of us did. But I won’t brag about that.

 

/ / , , , , , / 0 comments

Sequester – Now What?

If you’re like me and think that the economy neither needs, nor can stomach, government spending cuts reading the media frenzy over the sequester has a distinctly surrealistic air. What on earth are we to make of the entire episode?

Instead of substantial analysis all we seem to get from the media is a stream of he-said, she-said articles laying the ‘blame’ alternately on Obama and then on various Republicans.

Actually none of this is really difficult.

Let’s not fall into the most common trap: the blame is not to be allocated equally. Take, for example, Bill Keller’s terrible op-ed in this morning’s New York Times. The headline is all we need to read:Obama’s Fault. That settles it then. Apparently it’s Obama’s fault.

What is Obama’s fault?

The sequester cuts and the damage they are doing.

Recall how we arrived at the sequester farce: the Republicans were holding the economy to ransom. In 2011 Obama was negotiating with Congress in order to get the debt ceiling raised. The right wing of the GOP didn’t want any such thing and argued that any increase in the debt ceiling ought to bring with it an equivalent set of budget cuts. This sounds reasonable to the average person unaware that this ties together two unequal issues. The debt ceiling relates to past spending. The debt is to pay for things Congress already agreed to do. Some of those things were set in motion during the Bush administration. So not raising the debt ceiling to pay for those things is tantamount to throwing a hissy fit when you realize how much the stuff you just bought actually costs. Tough. You bought it, now pay for it.

Well: to pay for all the stuff Congress wants to buy we can [a] raise taxes; [b] print money; or [c] borrow money. That’s it. Since Congress doesn’t seem to want to raise taxes to pay for what it wants to spend; and no one wants to print money either – quite why I don’t know – that leaves debt. So we needed to raise the debt ceiling. This is the sort of thing grown up countries do without much ado.

Not here.

No. Not here.

We do things in a more juvenile fashion.

When Obama offered up cuts in order to strike a deal he kept getting rebuffed. Whatever he offered was never enough. It was a classic case of trying to negotiate with hostage takers. Every offer is met with the ante being upped. The hunger for ransom is never sated. Gridlock ensued. In order for America to save face in the world money markets and in order to avoid the potential of an devastating interest rate hike, Obama and Congress punted instead. Thus the sequester was born.

The point was to make the automatic cuts within the sequester so horrible for everyone that both sides would naturally seek to avoid them.

So much for that idea.

Instead of avoiding them everyone spent the interim thinking through the cuts and then coming to terms with them. Those on the right just love the idea of smaller government so much that slashing defense spending by 9%+ was worth smashing away at programs for the poor. On the other side, leftists got used to the idea that slashing defense spending by that much was an opportunity not to be missed even if a few million poor folk got hammered along the way. The political game outshone the economic impact. People took their eye off the economic ball and focused on the damage they could inflict on the other side. Losing 700,000 jobs became collateral damage.

And this is where Keller and his ilk start to go wrong:

Obama tried to avoid this. He offered up more than one plan. Some of his cuts exceeded what the Republicans had wanted to begin with. He made a huge effort. It was not reciprocated. Every time he made a move it was turned down. It was a decidedly lopsided affair. It was not Obama’s fault.

In order to get at how badly Keller gets it all wrong we need also to get inside his view of ‘leadership’ and ‘fairness’.

Apparently the President ought to capitulate on his deeply held views, even after winning re-election, in order to meet Republican demands. This would be, according to Keller, ‘leadership’. It’s the kind of leadership Chamberlain gave to Britain when he appeased Hitler. Such leaders give in so as to preserve the illusion of peace. Keller is advocating appeasement.

Worse: he attacks Obama for running a re-election campaign built around protecting the middle class, women, and minorities. He is criticized for ‘Obamacare’ which is characterized as a huge government entitlement program. Which it absolutely isn’t. It lowers costs long term, it doesn’t add to them.

Obama is then slapped for not dealing with the fundamental issue of our times. This is the fiscal ‘crisis’ and our annual federal deficit.

Yawn.

You and I are smart enough to know that were there a true fiscal crisis, the money markets – not exactly allies of the president – would be charging exorbitant interest rates on the money they lend us. Interest rates would be rocketing. Are they? Not even remotely. Our creditors are trucking money to us to borrow. And, given the relationship between inflation and interest rates, they are giving us money virtually free.

This isn’t a crisis. It is a once in a lifetime opportunity to borrow as much as we can in order to fix our rotten infrastructure, schools and so on. It’s interest free for goodness sakes! It means that instead of pretending to have great airports, electrical grids, cell phone service, roads, schools and so on we can actually have those things for real. How cool would that be? Instead of ranking at the bottom for internet service we could have one that works. No. Really.

But we aren’t thinking that way at all.

Why?

Because of dumb people like Keller.

They have bought into the fear mongering of the fiscal crisis advocates. They take it as common knowledge that we have a ‘crisis’, so it is therefore ‘leadership’ to abandon principle and deal with it.

All you need to know about how little Keller understands of reality is that he mentions Simpson-Bowles with a straight face. For the record: Simpson-Bowles, that oft lauded but little read – for good reason – ‘solution’ to our ‘crisis’ are paid for and bought by big business. They are representative of the so-called serious centrists who imagine we actually do have a fiscal crisis and that, insert a huge sigh here, we can no longer afford all those nice entitlements we want to give ourselves.

This is rubbish.

We can afford exactly what we want. It would involve tax increases, especially on big business. So it is not exactly a surprise to see the team that fronts for big business arguing that the crisis is real. Fixing it sensibly would cost their patrons big bucks.

So let’s hammer the poor, the sick, and the elderly instead. Oh. And let’s fire some teachers too. They’re a nuisance anyway. Presumably the 300,000 teachers we have fired since 2009 isn’t enough.

Anything to protect profits.

It is not Obama’s fault. Keller just wants to sound serious and apportion the blame evenly because the alternative is unpalatable. That would be to dig in and talk about the real cause of our problems.

The true cause is simple to identify: the steady rightward drift of the Republican party – over several decades – and its current ideological position.

And this is the most important point we must all bear in mind: contemporary Republicans, especially those of the far right, don’t want to negotiate over budget cuts. They simply want to get rid of our social programs altogether. This is why they are never satisfied with anything Obama offers up. It can never be enough. Not until Social Security and Medicare disappear altogether along with the multitude of smaller programs the Federal government runs. Like the national parks, cancer research, food safety standards, and so on. These programs, large and small, are an affront to modern Republicans who regard them all – every one of them – as waste, and things that some private venturer could do better.

This is what they mean by ‘smaller government’. Obama and his election supporters don’t share this view at all. Indeed the two views cannot be reconciled. There is no middle ground. No center. No consensus to converge on.

This makes all negotiation hollow. It makes repeated crisis certain. We should expect the awful mess in Washington to go on for a while. That is until we, the people, decide what we want America to be.

Which, of course we just did. Obama won re-election largely be describing an America that the majority want. Unfortunately, some – not all – Republicans didn’t get, or don’t like, the message.

And that is the real cause of our problems. The extremists haven’t gone away yet. They want to fight on despite their loss. They can make mayhem in our political system because it bends over backwards to protect minority interests and frustrate the majority.

So, I suppose, in a manner of speaking the really, really true cause of our problems is the inflexibility imposed on us by the Founding Fathers and their ancient deep seated fear of democracy.

They were a limited bunch weren’t they. Look at the mess they made.

 

/ , / , , , , / 0 comments

Sequester Day

Well here we are. And there we go. I doubt many of us really imagined that there would be a sudden out break of sanity in Washington. We haven’t ben disappointed. The war raging down there has produced another epic failure. It looks as if the sequester will go into effect.

So what happens now?

Well not much … and a lot.

Not much if you think that a drop of about 0.5% in GDP doesn’t matter. That’s the Congressional Budget Office’s estimate of the damage a sequester would cause. When you slash government spending, you slash demand. When you slash demand, you cripple the economy. Period. So, the CBO tried to give us all fair warning. That estimate was published back in November in those heady days when there was a glimmer, just a faint glimmer, that Congress could get off its duff and do something sensible. Oh well.

That drop in the economy will make unemployment leap. The CBO thinks we may crawl back up to an unemployment rate of 9.1% by year’s end.

Not that anyone cares.

And no one does care.

Voters don’t care that the economy will get clobbered. They are so tired of the mess in Washington that they’ve tuned it out. The endless brinkmanship and false crises of the past two years have made everyone so sick and tired of Congress that people seem to want to pretend nothing will happen. It all seems so remote after all.

Some of you don’t think government jobs are ‘real’ jobs. Really? So a shipyard worker working on the government’s dime is not doing a ‘real’ job, whereas a shipyard worker working on a private sector cruise ship is? If you believe that, you’re nuts. Truly nuts.

Some of you think we have been swamped by a surge in government spending under Obama. You imagine a kind of creeping socialism that is hobbling our good old private enterprise system. Really? Government spending has been declining. Read that again: government spending has been declining. As in going down under Obama. If you believe otherwise, you’re nuts. Truly nuts.

Then there’s some of you who dismiss the entire mess by arguing that both sides are guilty and that there is some equivalence in the stupidity down there. Really? So Obama’s plan which includes both spending cuts and a few tax increases – a balance more towards cuts – is the same as the Republicans no tax at any price and all cuts proposal that slashes social programs alone? One is balanced. The other is biased. They are not equivalent. If you think they are, you’re nuts. Truly nuts.

We live in a strange and unfamiliar world. I come across a lot of people who haven’t fully absorbed what’s going on. They prefer to see all our crises through politics as usual prism. Both sides are being silly these people say. So we have to punish both equally. And, if only the President would reach out and try to compromise.

He has reached out. He has bent over backwards. His compromise is enormous. He has given away a great deal. He has received nothing back. Not one thing. Except dishonesty and ridicule.

This is not politics as usual. There is an insurrection afoot. The Republican party is divided – about two-thirds to one thirds. That two-thirds is the extreme group. They have an extraordinarily radical agenda. They want to re-make America. But they are a minority. They get out-polled every time they make themselves clear. This means they cannot get what they want through the front door of majority rule. So they go through the backdoor of hostage taking and threats. They simply say no. They object. They create alternative facts. And they cry foul even when there’s no foul.

So determined is this group to slash government spending that they don’t mind at all if unemployment soars or the economy tanks. Their goal is to cripple the government and then to use its dysfunction as an excuse to defund it more. These are the people who want to eliminate Social Security and Medicare. These are the people who think unemployment assistance is a prop for laziness. These are the people who have no qualms in firing teachers, police and fire personnel so as not to pay taxes. These are the people who think our rotten infrastructure is just fine. They think government funding of research is unnecessary. They think government is just useless and can do nothing right.

And they’ve carried this fight to Washington.

They are not the heirs to Reagan. Even he was more pragmatic than this group. He modified his position when reality intruded on his idealism. This lot won’t compromise no matter how much reality bites. They have their own reality.

So, when someone says that the economy will suffer from the cuts. They say nonsense. They say if we get government out of the way the economy will soar. It is, in their mind, an economic truth. The less government, the more the private sector will do.

That there is no evidence anywhere to support this contention – nowhere – doesn’t matter. It is a badge of honor. It is a matter of faith. And like all faiths it brooks no discussion and tolerates no ‘fact’ based contradiction.

The impasse we have arrived at is simply a war of ideologies. It is ripping the country apart. It is corroding the economy. It is destabilizing our future.

The opening shot in this war was fired by the extreme right. It is not a war anyone else sought or even imagined possible.

And it is a war that will continue to undermine our society until people like you and me realize that we are the only people who can stop it.

We must pay attention. We must stop pretending it doesn’t matter. We must apportion blame. We must punish the perpetrators. That is what democracies do. We must take sides. We must make a stand.

And if you think this sequester stupidity will pass, I beg to differ. This is just the beginning. The real fight is in about a month when Congress has to pass legislation to fund the government. That budget fight is looming ahead. It will make this crisis look small.

This is no way to run a grown up country.

But it is the way we run ours.

Doesn’t that hurt?

/ / , , , , , / 0 comments

Ho Hum, Another Crisis

Hey everyone: it’s sequester week! Aren’t you excited?

No?

I don’t blame you. And you’re not alone. According to Pew Research only 27% of Americans give a fig about the upcoming sequester. This despite it’s evident and widespread negative impact. This contrasts with the 50%+ who claimed to be intensely interested and concerned about the first of our recent ‘crises’ back in 2011.

What happened to us?

I think that repeat crises and endless brinkmanship wears out even the most ardent political junky. There’s just so much stupidity we can all take from our leadership before we turn away and sink into the sweet embrace of reality TV. Anything, it seems, is better for our mental health than the sorry sight of Congress as it muddles us along towards our demise. It is far better to imagine that it’s not happening and then act surprised and angry when we realize just how far our once great nation has fallen. At least we can feel like we aren’t to blame.

But we are: we elect these clowns. They are our clowns.

Well, not really. Most of them come from South and West of here. So strictly speaking they’re their clowns. Whoever they are.

Meanwhile we should take stock of the damage we are about to suffer. Helpfully, the White House has published a series of fact sheets to tell us. Some highlights:

  • The FBI will lose about 1,000 agents
  • Customs and Border patrol will lose man hours equivalent to about 5,000 fewer staff
  • The FAA will lose about $600 million which will require furloughing staff. This will increase airport wait times rapidly, with the big airports having 4 hour waits become normal
  • Airport security will have to furlough its 50,000 officers
  • FEMA will cut back its aid to local emergency responders
  • Nationally funded research will be cut back with as many as 1,000 research projects into things like the cure for cancer being axed
  • The FDA will be forced to slow its new drug approval process due to lack of staff
  • Small business aid will lose $900 billion in funding
  • Oil and gas prospecting will slow down due to loss of staff and longer approval times for licensing
  • Food safety will suffer as the FDA slows inspections
  • Up to 398 national parks will be forced to close
  • Funding for about 2,700 schools for disadvantaged children will be cut. This will affect about 1.2 million school children
  • Approximately 32,000 teachers will lose their jobs due to funding cuts of various sorts
  • A whole swathe of social services will either be eliminated or severely reduced. These include: meals on wheels; social security help and processing; child care; rental help for the poor; emergency unemployment assistance; homelessness programs; mental health programs; AIDS treatment; and Native American programs;
  • Then there’s the 9.4% cut in defense spending each and every year for the next decade which will cause unemployment right across the defense industry and its subcontractors

But we don’t care. Do we?

Well maybe a little.

The problem is simply that the emergence of a hard right faction within the Republican party has exposed the rickety nature of our political system. It was designed to prevent dominance of any majority over the minority and thus preserve individual liberty, but an unintended consequence is that a determined minority can disrupt everything and bend the nation to its will. The radical right is now running the show.

That’s why we have had an endless series of these artificial crises since the GOP took control of the House back in 2010. In fact the first such crisis emerged only three months after they took control. So radical and out of the mainstream is their agenda that their only method for advancing their cause is to create a crisis and hope to force the White House into an appeasement that extracts ransom sufficient to push the right’s agenda a little further along. The tactic worked well until Obama’s re-election. During his first term he caved far too often and gave away far too much.

Why?

It wasn’t that he was simply weak. Although, in my opinion, he was. The fact remains that he represents a line  of thinking within our elite that is dominant. That line of thinking is deeply flawed, but is both widely and deeply held. It is that our economy is too indebted; that our budgets need cutting; that fiscal policy – the use of the government budget as an active part of the economy – is not very effective; and that … drum roll please … austerity in some form or another is essential.

This all, to put it politely, is total balderdash.

Our debt is high but manageable. It has risen because we went through the mother of all recessions. Its rise was sharp but entirely explicable. It wasn’t due to some sudden surge in permanent government spending. It was subject to a massive swing due to the rotten economy and the consequent rise in emergency spending and the simultaneous loss of tax revenues.

That surge in spending has already abated. Government spending is falling back. Revenues are rising slowly too. There is no fiscal crisis. None.

So our federal budget doesn’t need cutting. At least not now. We have a few years to worry about health care spending which remains our largest challenge.

Which leaves fiscal policy.

Here I go again:

We need more, not less, spending.

Monetary policy – the Fed’s purview – has gone as far as it can. Interest rates have been forced as low as they can go. The economy is awash with cash much of which is sitting in corporate bank accounts and going underutilized. This means that the only policy lever we can pull is government spending and thus stimulus. Giving away more freebies to business won’t make them invest. They need customers with cash. That means we need to get the economy growing. And we do that by putting cash into the hands of people who will spend and not save it.

Yet here we are in sequester week talking about cuts to that spending. Going in exactly the wrong direction. We are headed into austerity.

And it isn’t as if we don’t know what that means. Just look at Europe. Do we really want to be that bad? Or that stupid?

Apparently.

«< 7 8 9 10 11 >»