Category Archives: Domestic Politics

Serious versus Non-Serious Positions on US Debt

Paul Krugman was on Morning Joe (video below) this week and put forth  his standard arguments about job creation needing to take priority over deficits.  (I encourage people to watch it for a thorough run-through of the basic Keynesian arguments.)  The co-host, Joe Scarborough, wrote an opinion piece on Politico blasting Krugman.  What strikes me is that the opinion piece is shoddy ranting that uses little evidence and mischaracterizes Krugman’s positions.  Yet deficit scolds Simpson-Bowles praised the article.  I don’t have time to run through everything, but a few key points:

1) The article is entitled “Paul Krugman vs. the world.”  Krugman listed on his blog many of the mainstream economists who hold positions similar to him.  Check it out for the details.

2) Scarborough blatantly oversimplifies Krugman’s position:

“Mr. Krugman suggested Medicare and Medicaid shortfalls should be ignored…saying that no one could predict the future of entitlements so there was no need to worry until the programs became insolvent.”

If you watch the show, while Krugman says he thinks it can’t be predicted with absolute certainty that Medicare/Medicaid spending will be unsustainable in the future, he does say it’s a “good bet.”  Nowhere did he say that we need to wait until the entitlements can’t be paid out.  He simply says that it is not something that needs to be addressed immediately given unemployment as a more pressing problem.  Krugman may be right or wrong, but how does someone get taken seriously when they make silly oversimplifications?

 

Watching Krugman’s appearance though made me think that is important to make some major distinctions when discussing the debt issue.   Future entitlement spending problems and the US debt are related issues, but are not the same.  It is important to separate them, because it seems like the average person may think that unless we cut spending on entitlements our economy is going to tank, when in fact the situation is more complex.  There is an issue of the sustainability of entitlement spending related to an increase in the size of the population dependent on Social Security and Medicare/Medicaid.  This issue is about whether or not the government will be able to fund those programs.

That is distinct from the size of the US debt, which is usually measured as a percentage of US Gross Domestic Product.  This is an issue of whether bad things will happen if the debt-to-GDP ratio keeps increasing.  An anti-deficit coalition of former and current senators and CEO’s, Fix the Debt, says on its webpage that by the 2040′s our debt will be 200% of GDP.  Krugman actually pointed out on his blog that the Center on Budget and Policy Priorities projects a much more stable debt-to-GDP ratio, assuming economic recovery.  But suppose they are wrong.  Japan’s debt is over 200% of its GDP and its new government is promoting a major stimulus and no one is panicking.
When deficit hawks scold Krugman by misrepresenting his position and dire fears of interest rate increases are put forth when Japan as a counter-example is hardly discussed, it makes it hard to believe that people are making serious arguments.

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No One Ever Says “We Are on the Road to Japan”

During the presidential campaign, Romney said Obama would drive the US down the road to Greece in terms of its debt.  Sen. John Cornyn made the same argument in an op-ed a could weeks ago, saying we need government spending cuts to avoid the “path of Greece, Italy, and Spain.”  But it interesting that one never hears the argument applied to Japan, which, like China, holds about $1.1 trillion of US Treasury Bonds.  The reason this is interesting is that Japan’s public debt is about 220% of its GDP, while the US is only about half of that.  If the US is allegedly on the “path of Greece, Italy, and Spain”  at rates of 137%, 117%, and 61% then shouldn’t Japan be on the brink and ready to dump US bonds for cash to pay off their debts?  No one has made this argument because no one believes it.  But if the soundness of an economy was simply a function of how much debt we owed, then it would be made all the time.

First Tackle the Debt, Then Worry About Humans

I just watched a great interview with Paul Krugman by Bill Moyers from a couple days ago (see below).  Last summer I read Krugman’s book they mention, End This Depression Now, so this is all pretty familiar to me, but I still can’t help but feel furious that Republicans, and some centrist Democrats, are so intent on focusing on the issue of government debt while the suffering of actual human beings is given second tier status (and often negative status).

Point #1: Our economy is still in extremely rough shape with unemployment at 7.8% and the Federal Reserve predicts it will be down to between 7.4-7.7% by the end of 2013.  Obviously good that it is going down, but the pace is pretty awful.

Point #2: College graduates are likely to be permanently impacted by their lack of job experience.  This recession/depression means people who can’t get jobs now are going to earn less and have more difficulty getting good jobs even when the economy returns to full employment.  (The Economic Policy Institute has a good report on this).

Point #3: The debt-to-GDP ratio for the US is likely to be relatively stable assuming there is economic recovery.  The poor state of the economy is actually decreasing government revenue and increasing its deficits.  Furthermore, Japan’s debt-to-GDP ratio is around 220% while the US is less than half that .  Is anyone predicting Japan becoming the next Greece?

Point #4: Given the first three points, why are people so obsessed with threatening to cause the US to default on its debts, cutting the retirement age for Social Security and stopping “big government” rather than doing something that will get the economy going again?  I think a passionate committment to dismantling the welfare state is a reasonable explanation, as is demonstrated by the State of Maine’s Republican governor’s bid for welfare reform.

For US, Oil is About Power Not Consumption

A December Forbes magazine piece states, “If the United States no longer needs access to Middle East oil under any foreseeable circumstances, then the priority Washington assigns to the region will plummet. ”  Really?   Looking at some basic stats seems to show a different picture.  US consumption of Middle East oil is not the issue, but rather control over the world’s largest oil reserves, with the Middle East holding a majority of the world’s oil.  Does anyone really think the US will let China, Russia or Europe have control over the the majority of the world’s oil?

The first graph is from NPR and the second OPEC.

Where The U.S. Gets Its Oil

OPECOilreserves_share_of_world_crude_reserves

Republican Economics the Same in 1920′s and Today

Since I teach high school history, I thought I’d share a couple graphs I found for one of my classes.  During the 1920′s, GNP per capita was increasing…

But gains were concentrated the top…

Calvin Coolidge and Herbert Hoover were the proponents of supply-side economics and “rugged individualism” from 1921-1932.   Republicans spout the same ideas today.  Look at 2007 in the graph above.  Do we have any reason to think the superrich aren’t at it again?

Brief Thoughts on Obama’s Reelection and Health Care

For reasons discussed in my previous post, I think we can be thankful that Obama won the election, or to be more accurate, happy that Romney lost.  The biggest difference is that Obama’s healthcare reform can stay intact.  (A good Huffington Post piece on this was posted today.)  Obviously, it would be nice to not have insurance companies at all and some kind of a single-payer system instead.  But nonetheless, it is important that almost everyone will have health insurance, especially if you keep in mind the Medicaid expansion.  There is good reason to be concerned about keeping premiums down over the long-term, but the fact that the insurance industry will be regulated much more heavily and will not be able to charge more for people based on their health status could end up improving the overall health of the American people.  Leftists (including myself) should keep in mind that saving people’s lives is a good thing, even (or perhaps especially) in a capitalist system.

And now for reactions to Obama’s victory from his opponents…

Blatant Class Warfare Makes Republicans Far More Dangerous

With the presidential election just about upon us, I am in a state of real worry.  If Obama wins, there are certainly profound dangers such as militarism abroad which sooner or later will revisit us in future 9/11′s, climate change, and continued concentration of power in a small, wealthy elite.  But if Romney wins, the right is just going to punch the working and middle classes in the face.  The repeal of the Affordable Care Act would not only set back chances for bringing down health care costs for Americans, but would be a blow to future attempts to create social welfare policies.  In a 1954 letter to his brother, Republican President Dwight Eisenhower said the following:

Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things…Their number is negligible and they are stupid.”

He was saying they were stupid because trying to end such welfare state programs would be political suicide, but times have changed and Republicans can wage blatant class warfare with little difficulty.  Hence Romney/Ryan’s desire to make Medicare a voucher system and cut huge swaths of social spending.   Progressives and leftists still have serious work to do if Obama is reelected, but that work will be much harder and the obstacles greater if Romney does.

UK Think Tank Says Deficit Paranoia Increases Debt

A think tank in the UK has pointed out (as the IMF did in less vocal tones about Europe as a whole) that focusing on reducing government deficits is actually leading to greater debt.  The UK has taken an approach of tax increases and spending cuts to keep debt from going too high.  But the reduction in consumer spending from taxes and reduction in government spending has slowed economic growth, meaning that there is a smaller tax base from which to generate revenue.   The typical Keynesian picture seems vindicated: the government should spend in hard times, and save in good times.  Important to keep in mind here in the US when conservatives (and many Democrats too for that matter) talk about cutting government spending.   Granted Republicans won’t raise taxes, but as I have repeated over and over on this blog, they aren’t serious about cutting deficits either.  But for the sake of argument, let’s assume they did cut spending significantly.  Especially if the economy is in its current state, then that would slow down growth, decreasing the tax base…you get the idea.

Political Power Comes from Organization

I’ve come to realize I have a certain assumption of how I think political systems work that underlies a lot of my opinions so I thought I’d lay it out.  It’s really very simple, but I think it explains a lot.  It can be summed up in one sentence:

Power over social decision-making requires organization.

“Organization” is to be interpreted very broadly here.  It could be a business, a political party, a union, or any other organization.  There are many advantages to organization.  An organization can collect information and distribute it to its members, rather than each individual having to do his own research, collect information from its members to advocate on their behalf (what political science calls issue articulation) and channel money and resources to influence the political process.

If we assume the above paragraph to be true, then applying it reveals some interesting insights.  Who is organized in the US?  Clearly, major corporations have the largest organizations and resources available to them.  While tiny in comparison to the business sector, labor unions organize about 10% of the labor force.  There is a vast array of non-profit organizations advocating many causes, which have some impact, but they have far fewer resources than the business community.  So it should come as no surprise if government policy disproportionately serves the interests of the wealthy.  It can also be seen if we look at the background of three of Obama’s cabinet posts:

Treasury Secretary Tim Geithner: son of VP of Public Relations of Ford Motor Company, began career at Kissinger Associates

Secretary of State Hilary Clinton: Yale Law School and on the board of directors of TCBY (1985-1992), Wal-Mart (1986-1992), and Lafarge (1990-1992)

Attorney General Eric Holder: In addition to Justice Department positions, he was an attorney with Covington and Burling, an international law firm that represents major corporations.

This is not to suggest any conspiracy, but to point out that a) corporations are organized and b) their interests and those of the government tend to align. What about someone like Bernie Sanders, the progressive Senator from Vermont?  Isn’t he proof that politicians don’t have to be supported by big business?  Sanders actually proves the point quite well, since the vast majority of his top campaign donors are labor unions.  That is why he is able to be the most leftist Senator. UMASS Boston Professor Thomas Ferguson has actually done some great work on what he calls the “investment theory of party competition,” outlining how political parties align to those who are organized (mostly business), while the wishes of the electorate play a secondary role.   He in fact shows that one reason the New Deal was successful was due to an alignment of labor union and capital-intensive industry.  An excellent documentary about his ideas is below.

 

 

Republicans Are Actually Keynesians

I feel like I never stop learning from Paul Krugman.  His latest blog post discusses the fact that the “fiscal cliff” of automatic spending cuts and tax hikes should be welcome to conservatives if they are consistent.  After all, they will significantly reduce the government deficit and all we hear from Romney/Ryan is how debt is such a big problem.  Krugman makes another important observation: Republican agreement that the fiscal cliff will hurt the economy is actually agreement with the Keynesian view, i.e. reduced gov’t spending and increased taxes reduces aggregate demand.  Why won’t Republicans go along with this deficit reduction?  First, because it doesn’t reduce the deficit in a way that gives the lion’s share of the benefit to the super-rich.  Second, and this is me not Krugman talking (although I imagine he’d agree), conservatives don’t actually care about the deficit, as deficits have increased under Republican presidents during the last 30 years.  If you can cut taxes for the rich and cut spending on everyone else, who cares about the deficit?