defense spending

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Budget Topline

We all ought calm down about the Trump budget. Presidential budgets never, ever, get put into practice. They are simply exercises in politics. They simply give us insight into presidential goals.

In Trump’s case there is nothing that we didn’t already know. He wants to slash domestic programs, especially those niggling ones that offend his far right fans, and pile on the offensive weaponry for the Pentagon.

As I said: no big surprise.

Here’s a very short synopsis of the bigger items:

  1. The Environmental Protection Agency takes a really big hit — a 31% cut in spending. Many of its key programs would simply be axed. They range from any and all research into climate change to the very popular Energy Star program that rates energy using products and so gives consumers insight into their probable energy bills. Ironically one program that might survive is the greenhouse emissions monitoring program which is a mandate by Congress so getting rid of it would imply legislation unlikely to pass. So the EPA might still monitor greenhouse gases. It just would n’t be able to do anything about them.
  2. The Energy Department gets hammered too with an almost 18% cut. The biggest target at DOE is its research programs designed to help accelerate the country’s move from a carbon based energy supply to alternative sources. Right wingers have constantly complained about the DOE dabbling in applied rather than pure early stage research. Evidently Trump agrees.
  3. The State Department also gets a beating, especially anything to do with climate change. The cuts don’t indicate that the US is quitting the Paris climate agreement of 2015, but it sure looks as if that is in the cards. The cuts also include anything to do with UN based climate initiatives. Indeed the UN is a heavy target with the US contribution to peace keeping in the cross hairs. State is having its “soft power” capacity severely trimmed. These are the kinds of programs both the hard right and Russia particularly dislike. They are programs that allow the US to project a softer, gentler image to the world and are meant to take the edge off the militaristic image all those wars project. Apparently Trump doesn’t care about the US image. His generals do: they love soft power because it makes their lives easier out in the war zones.
  4. NASA gets its climate watching programs axed or drastically cut.
  5. The National Oceanic and Atmospheric Administration is likewise gutted.

Yes, there’s a pattern here. It’s not for nothing the the Trump cabinet is packed with energy and like minded plutocrats who have a long held contempt for climate science. What better way to get a nuisance out of the way for the energy companies than to gut funding?

The goal of the budget is to shift financing from all these sorts of activities — the list above leaves aside departments like Agriculture which also gets a big hit — and shovel it down the treat of the military-industrial complex in type name of security.

Quite why America needs to ramp up what is already the world’s biggest defense/offense budget — US military spending is more than of the next seven countries added up [including Russia and China] — is not clear. Except, of course, that military spending is an easy sell to a fear riddled country that jumps at the sight of its own shadow.

Oh: and the budget excludes all the severe cuts aimed at Medicaid and Medicare that are part of the great Republican repeal and reform of Obamacare.

If both the budget and the health care plan pass and are signed into law [a very low probability fortunately] America would be a vastly diminished place. Although both big business and the wealthy would be very happy.

And that is all you need to know.

This is a plutocrat’s budget, pure and simple.

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Game Over

Let the new game begin!

You may have missed this weekend’s news. Here is the short version: the Republican party does not think there is a fiscal crisis. No. Not at all. What crisis there is resides well off in the future. So all those panics, fiscal cliffs, sequester debates, and assorted other dire emergencies of the last two years were not, I repeat not, about the deficit or the national debt. No. Not at all.

So said Speaker Boehner on television this weekend. As did Paul Ryan, he of the many emergency, deficit reducing budgets.

Ummm.

What do we make of this?

Well there’s no surprise. The Republicans have never been truly worried about either the debt or the deficit. Those issues were simply useful totems to rally public opinion around. Ever since Reagan, the GOP has been the less fiscally correct of the two major parties. It has indulged in both peacetime and wartime debt accumulation and, for all its anti-big government rhetoric, has acted to bulk up government spending – George W Bush’s extraordinary giveaway to the pharmaceutical industry on behalf of Medicare being the most recent example. Indeed a goodly percentage in the run up of government spending in recent decades has been the result of policies advocated by supposedly small government republican presidents. The facts are clear: the Republicans at the Federal level are not fiscally conservative. Remember Dick Cheney and his comment about deficits being of no concern?

Something has changed.

Now the truth is public. It isn’t debt reduction that drives the Republicans. It is government itself. They are getting perilously close to announcing what we all knew: yes, they really do want to get rid of Social Security, Medicare, and Medicaid. They want to abolish all forms of government insurance coverage of the elderly and the sick. they’d love to get rid of all of it except the military, which miraculously doesn’t count as government spending in GOP minds. So different is it that latest Ryan plan actually piles on more defense spending as it slashes everything else. You can never have enough generals it seems, but there always schools, roads, and hospitals to close.

The Republican problem is, of course, that being too public about this aim is not a very good electoral message. Voters love those programs. Hence the dissembling over the last few decades. Yet, as the GOP became more and more right wing, its purists became more emboldened. They became less and less inclined to hide their real intentions. They fought furiously all efforts to extend government insurance and insisted at every turn that it was those social programs that represented a dire threat to our fiscal health, not unfunded wars. Thus the incessant call to cut those programs. Thus the persistent resistance to fund them. Thus the torrent of alternatives from privatization to the current favorite of vouchers. While all the battles were fought under the rubric of deficit reduction, the real goal was to eliminate the safety net.

At last the lying is over. Now the battle is out in the open. And voters have a clear choice.

This is not about debt or deficits. Those issues can be dealt with in time and with the return to healthy economic growth. No. The next phase of war – over the federal budget – is about whether we keep the safety net, or whether we get rid of it.

In that context, here’s a quick question for all of you.

Would you prefer the government to guarantee your retirement and health care, as it now does, or would you like to rely on Wall Street? You know Wall Street, don’t you? The epicenter of the recent fiscal crisis. The home of those wonderfully socially aware mega-banks and those mega-bonuses. Just think: those CEO bonuses are coming straight from your retirement account. How nice of you to contribute. And what do you get in return? Risk. Lots of risk.

Having successfully made your private sector pensions riskier, they now want to get rid of the less risky part too. But at least you’d be free of the dead hand of government. And the banks would rake in fantastic fees.

What could be better than that?

You poorer. The banks richer. Sounds like a plan. No?

Well, it may not be your plan. But it is the Republican’s plan.

 

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Cliff Walking

This is really irksome.

For most of this phony war, as the key players strut their stuff for public eyes but not for serious negotiation, the Republicans have been oddly coy about what their plan would be. They released no details, gave no hints, and merely repeated their continuing objection to the horror of a tax rate increase for the wealthy.

As a result no one, including most Republicans, had a clue about where the starting lines were being drawn in what was supposed to be a fairly short and intense negotiation. For those of us familiar with Obama’s history, particularly that from 2009 and 2010, the GOP silence was easily explained: he has a tendency to do all the negotiation with himself. Thus his starting position is already heavily leaning towards a Republican viewpoint, which makes him vulnerable to being bullied even further. This is why so much of the early legislation of the Obama administration was so lame from a left of center perspective.

Apparently, somewhere along the road since then, Obama has been given a copy of  basic negotiation handbook. So, while he is still prone to being far too centrist from the beginning of a debate, at least the total give-aways are now being avoided.

This flummoxed the Republicans and produced a great deal of confusion: they had to put something in writing.

That they have now done. And it’s rubbish.

This was predictable. The entire discussion about our so-called Federal deficit and debt crises hinges on the hope that the public don’t realize that there is no crisis. After all panic and doomsaying become a tad vacuous in the absence of anything to panic or predict doom about.

I have said this a myriad times – I too am allowed hyperbole in these circumstances – there is no crisis. None. This talk of a fiscal cliff is simply a neat trick cooked up by the right to force a discussion about entitlement cuts. Such a discussion is not needed and would not be happening without the neat trickery.

That Obama continues to play along with the right in their long term attempts to eviscerate our safety net is a tragedy. True leadership right now would not simply be to stiffen your spine and resist the Republican attacks before coming to some compromise. It would be to sing to the rafters that the entire debate is hollow. It is an outcome of a long playing and persistent attack on the poor, the elderly, the sick, and the very young by the hardcore of our ever more rightward right wing.

Our so-called deficit problem stems exactly from the defunding of government undertaken by the Republicans. The centerpiece of that defunding, as we all know, was the Bush tax cutting program. The first swathe of cuts, in 2001, was designed to eliminate the then surplus running on the Federal government’s books. The second swathe, in 2003, was positioned as a quasi-Keynesian stimulus. The first swathe was a stunning success. It certainly eliminated the Federal surplus. The second swathe was an abysmal failure. It failed to provide any substantial stimulus. The economy continued its rotten ways in the aftermath of 2003, meaning that the promised uptick in revenues provided by faster growth never arrived.

So we entered the crisis of 2008/2009 without any ammunition courtesy of Bush’s extraordinarily negligent fiscal policies.

From the nation’s point of view Bush was an unmitigated failure. From the hardcore right’s perspective he was a hero, albeit unsung because of his toxic public image. He had successfully, if,like a lot of his actions, unwittingly, accomplished the longed for defunding of government.

From then on it became an easy sell to a gullible media that we had some sort of national budgetary crisis and that we could no longer afford all those expensive entitlement programs. They had to be slashed. Such pronouncements of the need for cuts were always accompanied by a suitable amount of regret to indicate that no one actually wanted to cut anything, it was that we had to in order to be responsible. Apparently – and I need to mention this – we were all supposed not to notice that the right assumed we could continue, nay augment, our defense spending. We can afford to pay for generals and their toys. Just not for schools. That the homeland being defended by all those glittery hi-tech weapons is both ignorant and hollowed out never entered the discussion.

Toss in a few frightening articles about the upcoming tsunami of baby-boomer retirements and the stage was set for a right wing victory and the long hoped for roll back of the welfare state.

The fiscal cliff, and all the discussions surrounding it, is simply a veil covering this attack on entitlements. The Republicans have never, ever, been interested in the deficit or the debt. Except where those things are useful in undermining centrist and left wing objections to entitlement reform. This explains all the extraordinary flip flopping the Republicans have done on the deficit throughout the years. It was Reagan’s henchman who barked out that “deficits don’t matter” not a crazy leftist. Reagan and Bush remain the only two American presidents to add to the deficit without a war or economic cause. And all the current leadership of the Congressional Republicans supported Bush’s multiplication of our debt back in 2001 and 2003.

That they all plead fiscal rectitude now is both a hypocritical and a sick joke.

That the Obama administration is complicit in the game being played is even worse.

There needs to be no change in Social Security. The tax code surely needs cleaning up, but that will be a long, arduous, and most likely lobbyist undermined project. Raising tax rates is more simple, clean, and resistant to tampering. Our defense spending needs to be cut to conform with a less imperial foreign policy. And health care spending needs to be controlled.

This is simple stuff.

Obama’s plan, which alters the fiscal balance by around $1.6 trillion, contains details that match fairly well to my list above ex, of course, any serious defense spending cuts. It actually has details, which is important to note. Because the much hyped Republican plan has no details. It is just a rehashing of the Ryan plan without any explicit reference to Medicare vouchers. It is full of hot air and vapor. It promises things such reform of tax deductions – which are alleged to provide an additional $800 million in revenues – without actually saying what those reforms are. And so it goes on. The Republican plan is no plan. It is a wish list. It’s only details are those aimed squarely at the elderly and poor. Medicare gets a revision of its age eligibility, and Social Security gets a change in its annual inflation indexing. Together these changes to the entitlement programs net about $300 million in cold hard cash. Those fixes for the tax code linger in the warm and fuzzy world of pipe dreams.

Given that the fiscal cliff isn’t a cliff, but a contrivance aimed at engendering a debate about entitlement reform, it ought not surprise us that the Republican budget plan isn’t a plan, but a proposal to reduce entitlements.

At least we could all be clear about that.

Then we could all get on with the task of defending those entitlements, and avoid unnecessary chatter about the dangers of walking too close to cliffs.

But that wouldn’t be centrist enough for our media. So the cliff walking continues.

Addendum:

All the evidence suggests that the Republicans will find it tough to keep a coherent negotiating position in place. Hence the vagueness of their supposed plan. It is already under attack from right wing groups. Some of those groups even acknowledge it as unacceptable. Of course, they don’t seem to offer up anything better. Then again with their anti-debt credentials being tattered and their anti-entitlement colors flying strongly it must be difficult to develop a plan that isn’t toxic to the electorate.

Still, it’s worth reading what they say. Here’s a quote from the Heritage Foundation, a hard right think tank:

“[T]he Republican counteroffer, to the extent it can be interpreted from the hazy details now available, is a dud. It is utterly unacceptable. It is bad policy, bad economics, and, if we may say so, highly questionable as a negotiating tactic.”

Ouch.

 

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Eisenhower’s Nightmare

As Europe stumbles through its crisis unable to lead and unwilling to be led, we should not snicker at its constant postponement of critical decisions. We in America are deft at postponement too. At this very moment we have a committee sitting behind closed doors trying to come up with a list of budget cuts to reduce the federal deficit. It’s target is to reduce that deficit by $1.2 trillion – either from cost cutting or revenue enhancement. If it fails, as I wager it will absenting a bolt of lightening striking from somewhere, a round of automatic cuts kicks in. Those automatic cuts include – gasp – reductions in American offense spending. Perhaps I should call it offensive spending to draw attention to the obscenity of its total.

Predictably the right wing in our political structure ridicules anyone who calls for cuts in our military budget. Apparently anything as trivial as one less paper clip for the Pentagon poses an immediate and radical threat to our national security. This is, of course utter nonsense. Unfortunately America has become so enthralled with its military – just watch television long enough and you will end up being bombarded with endless homages to the heroic contribution that our troops make to our good fortune – and indulgent in pseudo-patriotic flag waving, that we can no longer discuss the military budget with either honesty or clarity. Defense is important. But it should be part of a balanced policy that includes suitable attention to what is being defended. It is, in my opinion, plainly silly to end up defending a rotten and decaying infrastructure, health care system, schools, and other aspects of civilian life. After all the proper functioning of those civilian aspects of our economy are what provides the excess wealth we can pour down the military drain.

If we neglect our domestic economy, eventually our military will be weakened: we won’t be able to afford it any longer.

Given this preamble I want to note a couple of things.

First two quotes:

Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement. We pay for a single fighter plane with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people. This is, I repeat, the best way of life to be found on the road the world has been taking. This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron. [‰Û?] Is there no other way the world may live?

‰ÛÒDwight David Eisenhower, ‰ÛÏThe Chance for Peace,‰Û? speech given to the American Society of Newspaper Editors, Apr. 16, 1953.

A vital element in keeping the peace is our military establishment. Our arms must be mighty, ready for instant action, so that no potential aggressor may be tempted to risk his own destruction…

This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence ‰ÛÓ economic, political, even spiritual ‰ÛÓ is felt in every city, every statehouse, every office of the federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society. In the councils of government,we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals so that security and liberty may prosper together.

– Dwight David Eisenhower, “Farewell Address to the Nation”, January 17, 1961

Eisenhower was no fool when it came to understanding the role of the military and its potential impact on society.

His fears have been realized. America remains a highly militarized society and has built a significant dependency on the very complex that Eisenhower warned against.

Next, fast forward to this week:

Marion Blakely, the CEO of the Aerospace Industries Association, gave testimony to the budget cutting committee. She presented the findings of a report commissioned by her asociation. The news was grim. Cutting defense spending along the lines set down in the automatic cuts that would kick in were the committee to fail to come up with its own, would – and I quote: “devastate the economy and the defense industrial base and undermine the national security of our country”.

A better articulation of Eisenhower’s fear could not be written.

The defense industry is threatening us with the consequences of our dependency on it. Our budget has been taken hostage. The sentiment is simple: cut defense and lose a million jobs.

In an economy mired in a jobless slump, where every job created is treated as a minor triumph, the defense industry has us by the unmentionables. Any politician seeking re-election will have to swallow hard before cutting defense and thus jobs. Not to mention the inevitable tirades about slashing at our security.

Apparently our military is so inept that it cannot defend us adequately without outspending everyone else – added together – more that two to one. It is so inefficient that is must absorb about a quarter of our budget to protect the other three quarters. Obviously our military has a major management problem. Which means we, the citizenry Eisenhower refers to, have a much larger and more urgent problem.

It boils down to the perennial question: do we run the military; or does it run us?

We know what the Aerospace Industry Association thinks.

I beg to differ.

A great defense starts with a robust domestic economy capable of producing enough wealth to set aside for defense. Right now our economy is nowhere near being robust enough to support the bloated and inefficient military we have.

Something has to give.

I hope it’s not the schools, hospitals, roads, and bridges our children will need to rely upon.

There’s no point in defending a rotten apple.

And, yes, the tradeoff between security and liberty is a crucial one. Eisenhower drew attention to it. We lost our balance because of 9/11. We became security heavy and liberty light. The point of security is to protect liberty, not to forfeit it.

I am afraid we made the wrong choice. And that has political, not just economic, consequences.

Bad consequences.

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Debt Deal: Is It A Deal?

Not really.

The re-emergence of the Simpson-Bowles commission on fiscal reform as the rallying point for debt reduction should be no surprise. Obama said he liked it when it was first released, but politics intruded and it seemed to have faded away. Then, as the lunatics ran amok inside the Congressional asylum – that vote on the Republican proposal to cap spending and to advocate a balanced budget amendment to the constitution was both farce and cynical tragedy – sensible people began to look for ways to build a consensus that hid everything controversial and punted the big decisions into the arms of future Congresses.

Simpson-Bowles is just such a plan.

The media is obsessing over the cute way in which tax increases can still be scored as tax cuts and thus allow our sundry extremists to vote for the deal. I suspect that enough of the zealots will see through the ruse and still try to destroy the country, but, perhaps, enough will be persuaded and we can get beyond this moment of national shame.

So: is Simpson-Bowles the real deal?

No.

I didn’t like it when they first aired it in public, and it hasn’t improved with age.

To start with there is the small matter of the up-front cuts. About $500 billion of spending cuts will be phased in over the next four years. This is the “sweetener” designed to allay extremist fears that we are not actually cutting big government down to their liking. To put these cuts in perspective: the 2009 stimulus included a combination of tax cuts and spending increases. If we eliminate the tax cuts – they are largely ineffective as a stimulus device anyway – the proposed cuts are actually larger than the increases within the stimulus. In other words, Obama is asking to reverse, or undo, his already too small stimulus. More to the point: he is asking to do this even though the economy is still weak.

This is foolish. It is unwise. It is stupid. It is a lot of things other than good. Quite how anyone on the left of politics could see this as a positive action I don’t know. It is a capitulation to the right. And it is bad, very bad, economics.

In a vivid testimony to just how far to the right our political landscape has shifted, Michelle Bachmann voted against the Republican plan to eviscerate government spending, so I doubt that Simpson-Bowles has much chance with her if it only includes this down payment on cost cutting.

On that score alone the deal is not good.

On its broader and longer term aspects it isn’t much better.

A great deal is left to be determined. Much of Simpson-Bowles is “illustrative” and requires future Congresses to do all the hard work. Given the extraordinary failure of our leadership to deliver a simple increase in the debt ceiling, I have absolutely no confidence – zero – that anything resembling the cuts proposed will ever get passed into law.

Still let’s take a look.

First, the numbers [all totals over the period ending in 2020].

  1. Cuts to discretionary spending, including defense: $1,464 billion
  2. Cuts to mandatory spending, mainly Medicare and Social Security: $733 billion
  3. Savings from tax reform: $751 billion
  4. Miscellaneous bits and pieces: $210 billion
  5. Reduced cost of interest on national debt: $673 billion

This all adds up to net deficit reduction over the entire period of $3,831 billion. That’s roughly the figure you keep seeing bandied about in the press.

It’s quite an austerity package. If it’s real.

Every aspect of spending gets a hit. Even defense spending, which is an unusual step in such a militarized society. The problems start with identifying actual programs to cut to add up to the top line suggestions. There are pious targets to achieve annual 3% productivity gains in the public sector. Great. How? Then there is the notion of reducing total expenditure to 21% of GDP and then holding it there. That assumes, a major “if”, that Congress thinks 21% is proper and isn’t tempted to do silly things like channel cash to local projects that help Representatives get elected. In case you think our band of zealots is better than their awful tax and spend predecessors, think again. Zealotry stops at those home district borders. Even the most devout Republican Congressman or woman seems to see fit to make sure the cash flows home. The notion is to stop it flowing anywhere else. Suffice to say that if, in this most extreme of Congresses, budgetary discipline is weak, future and less extreme Congresses might find it more difficult to resist the call of largesse flowing home. Especially prior to an election. So the Simpson-Bowles reliance on such ruses is somewhat naive. OK, more than somewhat.

The proposed cuts to discretionary spending are a mixed bag. They include a freeze on military and government employee wages for three years. They include the loss of about 250,000 contractor jobs. Foreign bases are cut by a third. The government payroll – apart from those contractors – is to be cut by 10%, this yields $13.2 billion in 2015 alone. Foreign aid growth is reduced. A sale of federal property yields $1 billion. Then there is the grandstanding: a modest cut in White House and Congressional spending is in the proposal, although I don’t see a freeze on Congressional pay and benefits. Funny that. I must have missed it.

Tax reform is even more of a hodge-podge. The basic approach is to zero out all major deductions – called “tax expenditures” in the proposal, which is why getting rid of them can be positioned as spending cuts rather than tax increases, get rid of the Alternative Minimum Tax, allocate some of these gains to deficit reduction and the rest to reducing all marginal tax rates. If Congress should then decide to protect one or more of those deductions, then it would have to make sure total revenue was the same by raising the marginal tax rates appropriately.

This is where things get funky. The deep red state sponsors of tax reform want to get rid of the deduction for state and local taxes. That would drive a stake into the heart of property values in high tax states, which by some miracle of coincidence are predominantly blue states. How did that happen? One of the sponsors argues that it is time the red states, who have all chosen to have rotten public services and thus lower local taxes, stopped subsidizing the indulgent spending habits of the blues states who all seem to value things like education and so on. Thus he wants to cut the deduction in question. Presumably he hopes this doesn’t precipitate a reaction by the blue states who, by and large, ship truckloads of cash south and west every year by way of government subsidies for those very red states who all fail to finance themselves. Needless to say this is one deduction that will be hard to cut.

It isn’t alone. Mortgage interest credit is a big annual cost and no one, not even our most extreme of zealots, is arguing to cut that out entirely. By the time the Republicans are done it may well be the only boondoggle left for the middle class. We have to leave them something poor dears.

At its most extreme all this tax reform would lower the top marginal tax rate from its current 33% – it would have been 36% had the Bush tax cuts been allowed to go away – all the way down to 23%. This won’t happen in anything like the way proposed. There are too many hands in the till – or is it mouths at the trough?

That mystery “miscellaneous” set of cuts is mainly accounted for by a change in the way in which inflation is measured in any governmental contract that is adjusted for inflation. By shifting to a chain weighted index away from the current index that rate of increase in inflation magically dies down, and all those escalation clauses scale up much more slowly. Funny money? Actually no. This is one of the easiest changes being proposed and could deliver on its promise.

Which is dangerous, because the exact same ruse is in the proposals for mandatory spending cuts. The idea is to slow down the way in which Social Security rises each year to reflect changes in the cost of living. Since the new index measures the increase in the cost of living differently, the outer years covered by the proposed cuts have large reductions in planned spending. This will be a real reduction in the value of Social Security in those outer years.

Other changes in Social Security include raising the retirement age to reflect longer lifespans, but to ask Congress to investigate how to mitigate this reduction in benefits for people who work in manual labor jobs – their lifespans are not increasing anywhere as fast as that of the rest of us and so it would be unfair to attribute it to them. Is Congress likely to be this fair? Ask people like Michelle Bachmann, who is outraged at all and any government program anyway.

Besides changing the inflation index, the other big shift being proposed in Social Security is to increase the amount of income subject to payroll tax. Right now payroll tax is only applied to the first tranche of incomes. So high income earners do not pay tax on all their income. Changing this is the largest contributor to the overall effort to “save” Social Security. Since it didn’t really need “saving”, all this cutting is a sop to the extremists. But let’s leave that discussion for another time.

Last, but not least, are a plethora of cuts to Medicare and Medicaid. This is a real mess of cuts and dodges. Much os it is illustrative and therefore of little value as an actual hard cut. Right wing favorites are the change in tort law to reduce frivolous health related law suits. On the other side of the political ledger the proposal calls for the mitigation of the ridiculous Bush giveaway to the pharmaceutical industry, and its prohibition on Medicare using its market power to reduce drug costs. Reversing that alone save billions. Other than that the proposal melts away quickly into things like “ask doctors, other health care providers, lawyers, and individuals to take responsibility for slowing health care cost growth”. Good luck with that.

The entire section on cutting Medicare is the weakest part of the proposal. It includes things like changes to military retiree benefits and caps on aid to states. These could be real. But much of it appears more aspirational than concrete. So as a viable austerity program it fails at the first hurdle.

In fact this criticism could be leveled at the Simpson-Bowles package in general. Lots of aspiration. Little concrete. Unfortunately the most concrete elements are all those aimed at the elderly or the poor, so I imagine the extremists could support those. But the defense cuts and much of the health care savings are entirely wishful thinking and would need a Congress able to act rather than simply posture.

My conclusion?

The proposal is bad economics – it cuts when we can least afford it; it accepts, tacitly if not explicitly, a cap on spending which cramps future fiscal policy; and its mix is too biases towards spending cuts rather than revenue increases. Simply allowing the Bush tax cuts to expire would produce a very similar effect and wouldn’t attack the poor or elderly either.

The proposal is also vague in many key areas. It places a great burden on Congress to act responsibly and coherently. That is not possible in these days of extremism. More likely is that the extremists will continue their attack on middle class programs and entitlements generally, without allowing any revenue increase. The door is still open, as a result, for a radical re-engineering of American society back to a 1800’s model of small government, high inequality, severe business cycles, and no safety nets. A libertarian paradise, but hell for the rest of us.

Finally, the proposal is a triumph of politics over sensibility. The only reason Simpson-Bowles is back on the agenda is that it provides a framework that middle of the road legislators can sign up for without too much compromise. It is essentially a right of center program. It smacks of sensible austerity without actually requiring tough decisions right now. And by so being, it provides cover for a vote to increase the debt ceiling, which is the true near term objective.

One final thought: I doubt that most of this means anything. Next year’s election will change everything. If the Republicans gain, we can expect the extremists to to ramp up their attacks on the elderly and the poor, and to cut taxes more, which could produce a package with zero revenue increases and 100% spending cuts, as opposed to the Simpson Bowles 33%/67% split.If the Democrats gain, we can expect a shift towards revenue increases and less spending cuts – say a 50%/50% split. Either way this grand bargain so beloved of our leader is a short term fix, and has no real bearing on how, or even whether, we alter our fiscal trajectory.

That we have to sacrifice so much to accomplish so little is a sad testimony to the state of our nation.

Very sad.

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