Simpson-Bowles

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The Anti-Gates

Bob Gates has made quite a name for himself by being ‘that sensible guy’ —  the one who cuts through the rhetoric and tells it the way it is. In this vein he fits alongside other ‘serious people’ such as the infamous Simpson and Bowles who, as you might recall, made a great name for themselves back in the days when the world was ending because of our Federal debt problems.

And just like Simpson and Bowles, Gates is simply defending the status quo. Or, rather, trying to re-assert the dominance of the older status quo he is fearful we are losing.

In his latest attempt to burnish his serious reputation he lectures us on the kind of president we ought to elect.

Clearly he doesn’t think much of either Donald Trump or Bernie Sanders because both are clumped together repeatedly as representative of who we ought to avoid.

Gates is wrong on many counts. Let me enumerate them:

First: let’s all stop this nonsense about equating Trump with Sanders. This equation is a tell-tale sign of faux centrism. It has become an obsession of ‘serious’ people who want to appear sensibly grounded in facts and not wild eyed ideas. Trump is an inexperienced demagogue. Sanders is a battle hardened politician from the left. Trump has no core ideas he simply rattles the cage and stirs up the passions on popular hopes and fears. Sanders offers a long and well thought out response to issues that may be neither popular nor new — but he has thought about them for a long time. Trump is a bombastic bully who appeals to emotion. Sanders is a skilled debater who appeals to reason. I could go on, but the point remains the same: Trump and Sanders are not equivalent. That they sit on opposite sides of the political spectrum does not make them equivalent.

Second: Gates gives us the standard centrist debating points about the American political system. It is designed he reminds us to do nothing. Well he doesn’t say it quite like that, but the implication is clear. The American political system is designed to enforce compromise and thus preserve the status quo Gates prizes so highly. It does not permit heavily partisan movement because of the division called the separation of the powers. This separation is a deep flaw: it prevents the emotions of the electorate being expressed and thus vented before they build into toxic anger. Ironically it is the existence of this toxic anger that Gates seems most to fear.

Perpetual compromise is precisely what has sent America down the path to economic inequality and social divide. Had, at any point, the partisan views of either side been fully expressed in actual policy the nation could have responded with rebuttal or affirmation at the next election. Instead neither side of the divide has ever properly felt it has ‘won’ and neither side can say its ideas have been fully tested or that they have succeeded or failed. Hence the anger within the electorate. No one is satisfied. And the problems persist.

Third: this latter point is vital. Under normal circumstances where crises are few and people generally feel both secure and prosperous, the system of compromise is adequate: it prevents anyone rocking the boat and thus threatening that secure prosperity. But when society is manifestly stressed either by external threats of internal failures, persistent compromise simply serves to act against the installation of a solution. Conversely, it can allow the emergence of false solutions in circumstances where the ‘centrists’ or ‘serious people’ see problems or threats to their  preferred status quo.

It is this latter problem that dogs us so vitally today.

Our so-called centrists are heavily vested in the policies that have produced the lack of secure prosperity that the majority of people are now bridling against. They represent the neoliberal view of the past forty years and are steeped in the foreign policies of post-Soviet American world domination. Their lens is sullied by this narrow perspective.

The Bowles-Simpson solution to the debt ‘crisis’ is a good example. It was a highly biased set of proposals that placed the burden for crisis resolution firmly on the shoulders of those who had least responsibility for the problem in the first place. It took for granted constraints on spending and taxation that were political choices and not ‘facts’. It thus expressed a preferred and privileged point of view and not the kind of objectivity or ‘centrism’ its supporters pretended it had.

Gates falls into this category of faux sensibility when he argues that the next president needs to talk to the people truthfully. By this I take it he means that the ‘truth’ is a set of values or ideas that Gates agrees with. Sanders invective about inequality would probably not be seen, in this light, as truthful – perhaps the world is too complex simply to load neoliberalism with the blame. Or Trump’s attacks on immigrants are not, presumably, tapping into nativist fears that whilst noxious, are also real.

Lastly: Gates for all his self-regarding seriousness is hapless in his naivety. His opinion is actually a cry for help. The world of the last sixteen years – he casts the blame of being too ideological equally onto the last two presidents – is, in his eyes, proof that we need to revert to management by consensus and to avoid the foolishness that ideologies of either side might be a better guide to policy. In other words the blame for the so-called gridlock is not the antiquated system Gates so reveres, but the attempt to search for partisan solutions. He wants us to drain ourselves of ideas and to settle back into a world of sensible management by people like himself who are bureaucratically capable, well-informed (by which he means having similar ideas to his own), and firmly attached to the status quo.

What he totally misses is the tumult of the past few decades and the rapid change being thrust upon the masses. Whether that change is the deterioration in the prosperity, the rapid change in social norms that threaten their traditional values, or the perception of potential external existential calamity, they all have a common thread: they demand a response from outside the comfort of the neoliberal status quo gates sits in the center of.

The people are angry, not so much about the gridlock, but more about the total disregard of their interests by erstwhile centrist policy makers like Gates. It is this lack of response that irks, not the gridlock that is often blamed for this lack of response.

Gates is oblivious to this difference. He is oblivious to the central fact of our times: the political system has been co-opted and is being run to the advantage of a few. The vast majority are correct in believing that their views are not taken into account. The co-option means that the process of compromise is simply a method for enforcing this advantage enjoyed by a few.

Another great irony of Gates opinion is that he lauds both FDR and Reagan as being pragmatic yet strong leaders. Does he not realize that they both ushered in political epochs of radically different natures and they upended the status quo they found? That is not compromise. It is radical response to circumstances. And it works within the American system only under duress and when leadership can undermine the defenses of the centrists who are dug in defending the past.

The success of both FDR and Reagan is that they redefined the center. Radically so. One shifted it leftwards. The other back rightwards.

So, to respond to the accumulated angst being expressed as anger by voters, our next president needs to redefine the center and not simply acquiesce to the old center. And that requires ideas. It requires us to have clear choice. Do we go further right? Do we go back more to the left?

Gates refuses to give us that choice. Which is why his advice is so wrong.

But on one point I agree.

Trump is not a valid representation of the choice to shift further right. He is, as I said above, simply a demagogue and bully. Ted Cruz is the better representative of the far right’s desire we move more rightwards. Cruz is the analogue to Sanders. All the rest are simply moe of the same.

And it is more of the same that is making voters so angry.

 

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Grand Bargain R.I.P.

Thank goodness too.

There was some angst amongst left leaning analysts earlier this week because the smoke signals rising from the White House suggested that Obama had not given up the idea of changing the indexation for Social Security. This indexation is the way in which payments are calculated each year to offset inflation. A change proposed a few years back in the height of the budget crisis would have had the effect of reducing future increments and thus reducing the amount retirees would receive versus what they would have received under the older indexation method. It all sounds very technical, which it is, but the effect would have been substantial.

The switch in indexation methods was just one element of the so-called ‘grand bargain’ Obama was desperately trying to get agreement on with the Republicans in Congress. Many of us on the left were aghast that a Democrat would propose such a large cut in social payments, and we voiced our opinions loudly at the time. Recall that at the time there was great pressure to slash spending, and silliness like the Simpson-Bowles plan was viewed as mainstream thinking.

But the Tea Party rescued us.

Vehement opposition within the Republican caucus in Congress to any form of tax increase killed off the notion of a grand bargain. As the split in the Republican ranks deepened it became obvious that a sweeping deal on the budget was not a feasible option. Subsequently we all were forced to go through a series of artificially created near disasters as the Tea Party gradually took control of Republican budget strategy.

Amidst this infighting on the right the various elements that Obama had offered up to induce compromise were largely forgotten or ignored as we lurched from one political drama to the next.

So imagine our horror when rumors began to circulate that the switch in indexation might re-appear in Obama’s latest budget.

It was a false alarm. The White House has confirmed it has no intention of including the switch. We can all calm down.

That is victory enough, but the larger message is even more dramatic: clearly the White House has given up any thought of a grand bargain. This is good news indeed because it marks the end of the foolishness of so-called centrist opinion on the Federal deficit and national debt. A grand bargain to reduce the deficit would have done untold damage to our social programs in the name of austerity or budgetary probity, neither of which would have been sensible economic policies. The deficit and the debt were never problems, at least on the scale suggested by those pressing for a grand bargain back in darkest days of the crisis. If there is a problem, which is highly questionable, it only exists way off in the future and can be dealt with in a more considered way after the current malaise has been sorted out and the economy restored to full health. The bargain being pursued a few years back was a panic move on the left and a strategic move on the right. Neither had much to do with the actual size of the deficit. Both had a great deal to do with the political landscape.

It appears, finally, that Obama has learned that there can be no compromise as long as the Tea Party rules the Republican agenda.

Thus we move on liberated from the nonsense of a grand bargain.

May it rest in peace. Better yet: in pieces.

 

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The Debt Non-Problem

You may have missed it but we are fast approaching yet another deficit/debt ceiling showdown. The real fight will be this fall, but the early posturing is beginning. As usual all the serious people in the media and elsewhere will be chiding the White House for its apparent lack of leadership, where ‘leadership’ means giving the Republicans pretty much everything they are asking for. This must be the case since Obama has already sent Congress a budget that goes more than halfway towards the Republican position, and yet still gets rebuked by those serious folks as being too partisan and being unwilling to negotiate.

The serious people evidently are not that serious.

Still the economy will be held hostage again sooner rather than later, so I think it is time for a sober – as opposed to serious – recap of the game so far.

In this light I find it interesting that the Center for American Progress, a well respected centrist Democratic party think tank, has done a complete volte-face with respect to the need to strike a deal on the budget. It has walked away from its previous pro-austerity position and now advocates growth. Some of us have been arguing this was always the correct position, but the CAP shift signals that at least part of the serious center no longer sees the national debt and the Federal deficit as being the central economic issue to resolve.

Phew.

So where are we? Let’s recap the CAP position:

Recall the argument from back in the depths of the crisis: the collapse in Federal revenues blew a gaping hole in the annual budget; spending rose as safety net programs kicked in; borrowing soared; and the debt ratio to GDP started climbing. This was a perfect fiscal storm that conservatives and serious centrists all latched onto and started calling for dramatic action in response. Add in the apparent – back then – never ending climb in health care costs and the US medium and long term budget situation looked dire enough to require radical change. We witnessed a torrent of plans, schemes, and alternative budgets. The so-called Simpson-Bowles plan was one. The infamous, and math challenged, Ryan budget was another. We bounced from debt ceiling crisis to budget negotiation breakdowns to yet more debt ceiling crises and the impression emanating from Washington was the end of the fiscal world was nigh. Not surprisingly the national debt became a more commonplace topic of discussion than it had ever been before, and almost always in the context of imminent disaster.

Three years later we can reflect on what has happened.

Coming out of all the mean spirited confrontations between an intransigent Congress and pliant White House has been series of cobbled together kluge-like fixes that culminate in budget deficit cuts of around $2.5 trillion. This means that per capita Federal spending is now 8% lower than it was three years ago – the largest three year reduction in spending since the post-Korean War demobilization. This is major austerity program by any measure.

That run-away health care spending problem is now not so run-away. The key issue was that health care costs escalated more rapidly than the economy bin general. Since two of the government’s biggest programs are health care insurance programs – Medicare and Medicaid – this escalation was portrayed as devastating for budget stability. The gleam in right wing libertarian eyes was that those programs could be called ‘unsustainable’ and few if any objections could be made. Indeed it became accepted dogma on the right and in the center: something had to be ‘done’ to contain health care costs. But those costs have started to regress back towards the average. They no longer outstrip other cost inflation by much. The difference is dramatic. Government spending on those programs is no longer the long term threat it appeared. those programs are perilously close to sustainable as they are. This may change again, but any deficit debate today must take into account the radical shift of the past three years.

We have now exposed the debt to GDP ratio panic as false. The research on which the right and center hung its hat has been exposed as incorrect. Sufficiently so that the cause and effect they relied upon to call for radical cuts has been reversed. Instead of high debt being the cause of slow growth, more and more evidence is piling up that slow growth is the cause of high debt. If you want to get debt down, then you find ways to accelerate growth. You don’t cut spending which slows growth.

The CAP report is more comprehensive than this and is well worth reading, but I want to add one more observation.

The libertarian and right wing attacks on spending were never about the debt or the annual deficit. Those issues were simply convenient and sanitized ways to pursue the deeper and more far-reaching goal of reducing government under any circumstance. With the debt and the deficit now under control in the medium and longer term, those right wing efforts to re-shape the nation will have to be carried out in a more overt manner. The debate will be more real as a result. And it will be more intractable.

Which means, in turn, that this fall’s debate could end up being more mean spirited and partisan than anything so far. The debate will be about real ideological differences and not muddied by specious debt panics. It would be nice if the White House started preparing the country for this fight by making sure that everyone realizes that the last three years have seen a lot of change, and that the change implies we need a new debate, not the same one once more.

What the CAP is saying, sotto voce, is that centrists need to define a compromise for the role of government in the economy. This, of course, assumes there is a center in such a debate, and that the libertarians have enough respect for the thing called “we the people” to go along.

Fat chance.

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Shrinking Deficit

We have been bombarded for the past few years by an endless stream of analyses, diatribes, and invectives about the horrors associated with the Federal deficit. The tide of red ink that began to flood Washington at the end of the Bush administration and which has abated only slowly under Obama became a feature of the great political stand-off that has frozen policy making and disrupted Congress since 2009. In response to the yawning gap in the nation’s finances politicians, academics, the media, think tanks, and sundry hangers-on all felt the need to opine on the merits and demerits of a deficit that peaked at 10.1% of GDP back in the darkest days of 2009.

We have been treated to a variety of sober plans to slash it back in the name of preserving the nation, avoiding a burden on future generations, and restoring the full faith and credit of the government. Folks like Alan Simpson and Erskine Bowles have re-emerged from obscurity to become stars amongst the cognoscenti the membership of which was limited to those who saw the dangers of debt and advocated astringent urgent remedies.

We became used to being told that we could no longer afford the goodies we wanted. That Social Security needed “saving”. That Medicare was a looming disaster, and that in our newly diminished state we all had to tighten our belts, forgo nice things, and suffer the consequences of austerity. This was the new America, austere, harsh, but with balanced books. Our creditors would love us. Confidence would flow, and eventually the tide of red ink would be replaced by one of business, industry, and – perhaps – a recovery in employment.

Perhaps the most enduring images of this discussion were the various budget proposals put forward by Paul Ryan. He shot to fame from nowhere because his ideas were deemed a serious conservative alternative to the left’s older, and deemed tired, economics built largely on a Keynesian foundation. Since the right’s leading economic ideas were the root of the crisis, conservatives and self-styled centrists alike were desperate for a new hero who could be the anti-Keyenes. Ryan adroitly fit the bill. That his plans were a sham and didn’t even add up was never a concern. What mattered was that he advocated a solid dose of puritanical, morally uplifting, austerity designed to wean us all off of the government’s largesse.

So the deficit debate turned into one about the size and scope of government. The Republicans managed to exploit the gloom and angst over the rising debt by using it as a bargaining chip. They threatened to shut down the government. They threatened to renege on the national debt. They opposed all and every measure proposed to lift the economy, unless said measure was attached to the introduction of “vital” austerity. As a result, Washington lurched from one political crisis to the next. The economy languished. And we became stuck in a surrealistic stand-off with each and every offer advanced by Obama being rebuffed, even if it embodied austerity measures hated by his own supporters.

And then …

Something funny happened.

The deficit began to melt away. Not completely, but enough. Just like some of said it would. The vast drop in revenues and the equally vast jump in spending that happened because of the drop in economic activity in 2008 was cyclical. It was always going to go away if, and when, the economy came back to life. Which it has done. Just enough to make a big difference in the deficit.

Yesterday the Congressional Budget Office (CBO), the bipartisan referee of Washington facts and figures, published its revised budget outlook. It makes for startling reading.

The deficit is expected to shrink to a mere 2.1% of GDP by 2015. That’s below the 2.4% average for the forty years ending in 2008 before the crisis erupted. Not only that, but the deficit is now projected to be only 4.0% of GDP this year, weighing in at $642 billion. This means that the rapid upward tilt in the debt to GDP ratio that we had been warned would ruin us all is now set to sputter to a halt and even turn down a little. Instead of hurtling across the dreaded 90% cliff of doom – recall Reinhart and Rogoff’s infamous paper – the debt ratio will hover around 71% for the foreseeable future.

In short the panic is over. The deficit is under control. The debt ratio is high but just fine. We can relax.

We have no deficit problem.

This should make us all happy, right?

Well not really.

I think the deficit is too small. We have shrunk too fast too soon. We have drawn too  much demand from the economy before it was able to hum along without government help.

But that’s for another day.

The fun result of the CBO report is to watch all the austerity advocates scurry around to find new things to worry about, and new ways to justify inflicting pain on the poor, the sick, the young, and the less well off. After all, what’s a conservative to do if there’s no budget war to fight?

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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.

 

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