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Co-ordinated Around the Wrong Thing

letsgetitdone's picture

Yesterday, R. J. Eskow remarked:

We expected to see an all-out assault on Social Security and progressive taxation in November, and we expected it to come under the banner of "deficit reduction." That was always the plan: Wait until after the election, when a lame-duck Congress could pass the preferred policies with the least political blowback. Then release a flurry of like-minded proposals and supportive editorials to create the illusion of consensus, capped by a coordinated media blitz to pressure the President and Congress into accepting them.

But even we, battle-hardened as we like to think we are, didn't expect the assault to be so coordinated, so widespread, or so aggressive. The number of like-minded reports released this month is greater than we expected, the ad buys are larger, and the range of ideas is narrower. And more journalists are carrying water for this campaign than we expected. All of this is being done to serve an anti-government, anti-Social Security, anti-tax agenda whose ideas are both unpopular and impractical. Nevertheless, the media's greeted then with a tidal wave of nearly-unanimous praise (some of of which can even be found on the editorial page.)

It's hard to fault Eskow's take on this, or his points developed later in his piece that the media has an extreme rightward bias on long-term deficit reduction, which it falsely calls “moderate,” in the face of the heavy majority of Americans, who according to polls are uncomfortable with the recommendations being offered by the deficit hawks. But, Eskow's hasn't commented at all on co-ordination on the progressive side. While that hasn't been as visible in the past two weeks as we've seen on the fiscal conservative side, it has for some months now been focused on fighting the idea that Social Security should be cut, and advocating for raising the payroll tax cap on the amount of one's compensation that is subject to FICA contributions.

From the beginning of this fight with the deficit hawks, I've warned that this co-ordination around Social Security is a big mistake. It looks like the obvious thing to do because no one wants to see their Social Security cut, and if the fight is focused around that no one has to be educated on arcane details of budgeting to get people organized to oppose “the Catfood Commission.” In spite of this however, we can now see that a strategy of coordinating around Social Security is a losing one. Maybe not for Social Security, which is a battle progressives could well still win, but, instead, for the more important War over whether we will have an activist Federal Government in the 21st Century that will support and fulfill public purposes, rather than a Government that won't do much more than fight unnecessary wars and provide bailouts for banks and the plutocracy when their gambling at the casino gets out of hand.

What all the long-term deficit reduction plans are calling for is limited increases in Government expenditures that won't outrun CBO's very conservative GDP growth projections, regardless of this country's need for Government spending to meet its problems and its public purposes. The plans elevate spending controls above all of the real needs of people, and some call for spending disciplinary structures that will insulate the Executive and the Congress from responding to pressure from the public to spend Federal Money to meet national problems.

In other words, apart from any austerity problems, and the constraints on economic growth that are implied by the plans, most also propose legislative constraints that will build in further anti-democratic mechanisms into our system, exactly at the time when we already have a problem with rising elitism, and a growing feeling that the powers that be are out of touch and unresponsive to the people.

The deficit reduction plans are not only economic suicide, since by constraining Government spending they are also constraining additions of financial assets to the private sector, and restricting Government's capability to respond to business cycles and structural problems, but they are also political suicide for our democracy, because they will suppress, rather than enhance democracy even further and will eventually lead to explosions of popular discontent which have no other effective outlets.

Some progressives, including Eskow, are opposed to plans released by the Peterson-Pew Commission on Budget Reform, the Co-Chairs of the Catfood Commission, and the Rivlin-Domenici Report released by The Bipartisan Policy Center, and would certainly label them coordination around the wrong thing; but they've been expressing support for Jan Schakowsky's plan and urging support of it. If they're successful this will be just another illustration of coordination around the wrong thing.

Let's look at Schakowsky's plan. What does it specify? First, a $200 Billion investment in job creation measures over two years. Is that good, will it help some people? Yes. Will that solve the unemployment problem increasing aggregate demand by enough to get the enormous quantities of private sector cash sitting idle off the sidelines? Probably not, it amounts to an average of only $8 Billion per month of stimulus over 2 years, or about one-quarter of the current first stimulus. Meanwhile, the foreclosure crisis continues, home values keep dropping, and State Governments keep cutting expenditures and jobs.

So, it's inadequate, and the question arises, why talk about in a deficit reduction plan? Why not just put forward some proposals that can give us full employment. There are some real proposals out there. In fact, it's likely that Alice Rivlin's Payroll Tax Holiday proposal is likely to be a better proposal for lowering unemployment than Schakowsky's $200 Billion stimulus.

Second, what about her recommendations for Social Security. They're fine. They lay to rest any solvency propaganda. Personally, I would have preferred lifting the salary cap on workers entirely. But that's a nit, relatively speaking. Certainly Schakowsky's Social Security proposal is an improvement.

Third, what about her $441 Billion worth of deficit cuts in 2015. Well, I'm all for her cuts. Every last one of them. It's a good list. Good job Jan!

Fourth. now that I've said I like every part of her plan, what about the plan taken as a whole? Well, I'm afraid I think it's fundamentally flawed! Not that all her cuts, Social Security reforms, and $200B investment shouldn't be enacted. They should. Let's do it immediately! The problem with her plan, however, is that it stops where it does, and accepts the very idea of necessary deficit reduction.

How do we know today that we will need to reduce the deficit by $441 Billion in 2015? Whether that''s a good idea or not depends on the state of the economy and even more on the level of unemployment. If unemployment is still where it is today, then that $441 Billion in deficit reduction should not only be spent on more productive initiatives than the ones Jan Schakowsky wants to cut, but we'll probably need an additional $600 Billion of deficit spending to bring the economy back to full employment.

So what kind of “progressive” commits to deficit reduction of $441 Billion without knowing what the unemployment rate will be in 2015, or without stating that such a reduction in deficit spending is entirely contingent on economic conditions in 2015? How can a President or a Congress with any brains at all commit to such a plan 5 years on?

Five years ago, the Great Crash of 2008 hadn't occurred. What, if the President had committed in 2005 to Mr. Obama's cutting the deficit by $441 Billion this year, and the President and Congress had gone through with it? We'd be having 13 percent unemployment right now; that's what.

So, grow up Barack Obama, Pete Peterson, Alive Rivlin, Pete Domemici, Jan Schakwosky. R. J. Eskow, other progressives, and especially Erskine Bowles, and that nonpareil diplomat Alan Simpson! The Federal Government shouldn't be asked, much less forced, to commit to particular levels of deficit reduction when it doesn't know what kind of economic conditions will exist in the future, and what need will exist for Government spending to add to private financial assets? It is folly and fiscal irresponsibility even to want the Government to make such commitments.

The very idea of long-term deficit reductions is foolish, because it is not budgetary policy that determines whether we will have deficits; it is the economy that determines whether we will have them. Deficits, debts, and debt-to-GDP ratios are primarily endogenous effects of the performance of the economic system. They are not variables that we can control directly by mandates such as “Thou Shalt Spend Only to X USD This Year” without courting economic disaster.

In co-ordinating their opposition to the deficit hawks and the Catfood Commission, around the defense of Social Security, the progressive organizations and web sites have taken what they thought was the easy way out, and they're now faced with a situation where progressives like Jan Schakowsky are making the mistake of supporting long-term deficit reductions that will constrain the ability of the United States to adapt to changing economic conditions.

Progressives will pay a price for that short-sightedness. If not on Social Security than in the areas of Federal "discretionary" programs that we strongly support it. At that point they will regret the wonky cleverness that led them to favor coordinating resistance around Social Security, rather than educating the public about the dangers of hamstringing the Federal Government's ability to enable the United States to adapt to unexpected economic events. Unfortunately, the rest of us will also both regret their wonky cleverness, and pay a much more concrete price for their failure to face up to the real problem of the deficit hawks in our reduced living standards and those of our children and Grandchildren.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

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vastleft's picture
Submitted by vastleft on

How classic for him to start with this?

We expected to see an all-out assault on Social Security and progressive taxation in November, and we expected it to come under the banner of "deficit reduction." That was always the plan: Wait until after the election, when a lame-duck Congress could pass the preferred policies with the least political blowback.

Then release a flurry of like-minded proposals and supportive editorials to create the illusion of consensus, capped by a coordinated media blitz to pressure the President and Congress...

... instead of something accurate like:

As was entirely predictable, President Obama's unilaterally created and handpicked "fiscal responsibility" commission is making a well-coordinated assault on America's all-too-threadbare safety net.

vastleft's picture
Submitted by vastleft on

Wasn't either founded on or bathed in bullshit. He's the poor man's Frank Rich, lauded as a great writer and great progressive and always subtly or otherwise serving up truthiness, albeit accessorized by or accessorizing reasonable-sounding points.

beowulf's picture
Submitted by beowulf on

Nobody likes to see wasteful government spending and certainly there are many economically harmful activities that should be curbed with her Pigou Taxes (alcohol, carbon emissions, derivatives trading),
but as you know all "reducing the deficit" means is, whether by spending less or taxing more, the govt sector drains Net Financial Assets from the economy, which even in good times is a missed opportunity to help people and in bad times, only makes the economy worse. Insteading of cutting the deficit, recycle the money as a universal tax credit-- kind of like the negative income tax idea t our old friend Richard Nixon proposed 40 year ago.

A few years ago, Bob Filner proposed a bill to replace the Bush tax cuts with a $2000 per adult, $1000 per child standard tax credit to replace the standard deduction). Al Sheahen wrote an interesting article about the backstory of that bill. Always educational to see how the sausage is made. (link in Word format).

Doesn't really matter what the per person amount starts out with, because the goal should be every dollar in lower spending or higher spending should be recycled into a bigger standard tax credit, $441 billion cut from wasteful spending is great, using it to increase the standard tax credits by, say, $4000 is even better. The bigger the credits got, the less need there'd be to raise taxes to reduce inflation as the economy reached full employment. Tsy could set and adjust a percentage of the credit to be channeled into a IRA or some other savings vehicle (harnessing the demand leakage to keep aggregate demand in check).

letsgetitdone's picture
Submitted by letsgetitdone on

Sounds like a plan for getting back some reasonable distribution of wealth in America.

CMike's picture
Submitted by CMike on

Lets writes:

There are some real proposals out there. In fact, it's likely that Alice Rivlin's Payroll Tax Holiday proposal is likely to be a better proposal for lowering unemployment than Schakowsky's $200 Billion stimulus.

[Wikipedia says:

[Bruce] Bartlett was educated at Rutgers University (B.A., 1973) and Georgetown University (M.A., 1976). He originally studied American diplomatic history under Lloyd Gardner at Rutgers and Jules Davids at Georgetown....

In 1976, Bartlett changed careers, going to work for Congressman Ron Paul (R-Texas)....

In January 1977, Bartlett went to work for Congressman Jack Kemp (R-New York) as staff economist. Bartlett spent much of his time on tax issues, helping to draft the Kemp-Roth tax bill, which ultimately formed the basis of Ronald Reagan's 1981 tax cut....

In late 1984, Bartlett became vice president of Polyconomics, a New Jersey-based consulting company founded by Jude Wanniski, a former Wall Street Journal editorial writer, that advised Wall Street clients on economic and investment policy. Bartlett left in 1985 to become a senior fellow at the Heritage Foundation in Washington, where he specialized in tax policy and was especially involved in the debate around the Tax Reform Act of 1986....

In 1988, Bartlett [became] deputy assistant secretary for economic policy at the Treasury Department, where he served until the end of the administration of George H.W. Bush. He worked briefly at the Cato Institute in 1993....

In 2006, he published Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy, which is critical of the Bush Administration's economic policies as departing from traditional conservative principles.

In Bartlett's latest book, The New American Economy: The Failure of Reaganomics and a New Way Forward, he embraces Keynesian ideas, stating that while supply-side economics was appropriate for the 1970s and 1980s, supply side arguments do not fit contemporary conditions.]

Of all people, it's Bruce Bartlett who has the right of this. Via Mark Thoma, Bartlett writes [my emphasis]:

Domenici and Alice Rivlin have proposed a one-year payroll tax holiday to stimulate the economy. I have previously explained why I think monkeying around with the payroll tax is a dreadful idea and won't repeat my argument here.

Today, I just want to ask one question: What are the odds that Republicans will ever allow this one-year tax holiday to expire? They wrote the Bush tax cuts with explicit expiration dates and then when it came time for the law they wrote to take effect exactly as they wrote it, they said any failure to extend them permanently would constitute the biggest tax increase in history. Sadly, Obama allowed himself to fall into the Republican trap, but that's another story.

My point is that if allowing the Bush tax cuts to expire is the biggest tax increase in history, one that Republicans claim would decimate a still-fragile economy, then surely expiration of a payroll tax holiday would also constitute a massive tax increase on the working people of America. And what are the odds that the economy won't still be fragile a year from now? Zero, I would say.

...[A] a payroll tax holiday is Pandora's Box and best left unopened. Republicans would prefer to destroy Social Security's finances or permanently fund it with general revenues than allow a once-suspended payroll tax to be reimposed. Arch Social Security hater Peter Ferrara once told me that funding it with general revenues was part of his plan to destroy it by converting Social Security into a welfare program, rather than an earned benefit. He was right....

Save Social Security First. If we can't manage to do that, any other political strategy we adopt is doomed to fail.

letsgetitdone's picture
Submitted by letsgetitdone on

In the proposal; the Social Security is paid the equivalent of what the Payroll Tax would have brought in. There is no loss to SS involved in this proposal. Moreover, if the Republicans want to continue the tax cut on the same basis after the year is over why do you think that's a problem?

CMike's picture
Submitted by CMike on

According to Bruce Bartlett:

Arch Social Security hater Peter Ferrara once told me that funding it with general revenues was part of his plan to destroy it by converting Social Security into a welfare program, rather than an earned benefit. He was right....

Individuals obviously will have a stronger political claim in the out years to any benefits that they actually paid for with their own money than to benefits they might claim they earned by having accumulated credits from the government. FDR understood this, that's why he set the program up the way he did.

letsgetitdone's picture
Submitted by letsgetitdone on

But I don't find it entirely compelling, because we can structure it as an entitlement due to every American. We can have people pay into it when that makes economic sense, and have payroll tax holidays when that makes sense for the economy. Right now the economy needs help so we give people a holiday because that will create more jobs.

It doesn't impress me that enemies of SS wanted to fund it out of general revenues. Back then we were on the gold standard and all spending had to be covered by taxing or borrowing. Now, that is not the case. So, literally no one is paying for the tax holiday, and no one can claim that their money is being taken away in order to have it. So, frankly, I don't care what Ferrara had to say about it, or Bartlett either, and i don't see why you think that they constitute authorities in the matter.

An economic recovery program comprised of a payroll tax holiday, a Federal Job Guarantee, and State Revenue Sharing, supplemented with a 35 hour standard work week and an increase in the minimum wage to $10 per hour will produce full employment within 6 months. Then we can get on to other problems, like re-distributing wealth.

beowulf's picture
Submitted by beowulf on

I agree with what Robert Reich proposes in his new book, "Aftershock"

"The very wealthiest people in this country would do better with a smaller share of a rapidly growing economy than a large share of an economy that's basically dead in the water," he said. That doesn't fit on a bumper sticker, but one of his other habitual lines might: "I'm not a class warrior. I'm a class worrier."
His own prescriptions for rebalancing the economy include a reverse income tax under which the government would add income-pegged amounts of money to the paychecks of people making less than $50,000; higher marginal tax rates on the highest incomes; Medicare for all; college loans that don't break students who go into low-income professions, and more investment in public facilities such as parks, libraries and transportation.

Instead of "college loans", Uncle Sam should adopt wholesale Georgia's "Hope Scholarship" program, keep a B average, and college tuition is free (they even throw in a couple hundred bucks a month to help buy textbooks). Beyond that minor point, I think he's 100% on target. If conservatives complain about giving welfare checks (i.e. tax credits) to people who don't work, I suppose in the spirit of compromise, we could set up a job guarantee workfare system (I believe it was Nixon's Labor Secretary George Schultz who coined that wonderful term).

letsgetitdone's picture
Submitted by letsgetitdone on

We call it a Federal Job Guarantee. But those would be real jobs.