Age of Austerity

Republican voters are more sour on the debt deal than Democrats, and Nate Silver says polls show House Republicans owning the debt ceiling deal, creating an opportunity for Obama:

Voters’ Pavlovian reaction may simply be that fiscal austerity equals pain, which could complicate Republican messaging in the long-run.

In the short-run — depending on what happens with the markets over the next several trading days as well as with tomorrow morning’s jobs report — the question becomes whether Mr. Obama attempts to exploit the crisis by calling for stimulative measures that were lacking in the deal he signed with Republicans.

And speaking of that job's report for July: Hiring increases, expectations don't.  Via NPR, Brookings' William Dickens isn't impressed:

The July report also revised figures for the two previous months. The economy added 53,000 in May, up from an earlier estimate of 25,000; and 46,000 in June, up from 18,000.

Even so, the economy expanded at a meager 0.8 percent annual rate in the first half of the year, the slowest pace since the recession officially ended in 2009. Those figures, combined with financial troubles in the eurozone in recent days, have ratcheted up talk of a double-dip recession and put markets on edge in the past week.

"If Europe gets its act together and we don't have any more brinkmanship in the political arena here, I can see us just limping through without a double-dip recession," Dickens said.

Surely we've seen the end of "brinkmanship" hostage taking.  Dickens argues that the Fed is out of options. Dean Baker says not so quick:

... the Fed could pursue a path that Bernanke himself had advocated for Japan when he was still a Princeton professor. It could target a higher rate of inflation, for example 4 percent. This would have the effect of reducing real interest rates. It would also lower the debt burden of homeowners, which could allow them to spend more money.

That could relieve some pressure on consumers, but the numbers today are still a little good news in a sea of bad.  Private sector growth is almost -- but not entirely -- negating public sector cut backs.  Until something different than what we're doing is done, we'll be applauding "not as bad as it could have been" right into the double dip and President Mittens!/Bachmann/Perry's first term.

Weekly Audit: Hostage-Taking Over the Debt Ceiling

 

By Lindsay Beyerstein, Media Consortium blogger

The latest contrived showdown between Congressional Republicans and the White House is over what concessions the GOP will demand in order to increase the federal debt ceiling.

George Zornick of The Nation explains how the shakedown works:

Congress now needs to approve any borrowing past the $14.3 trillion debt ceiling, which the United States will reach “no later” than May 16, according to Treasury Secretary Timothy Geithner. If Congress doesn’t raise the debt ceiling, the government would have to stop spending—including stopping interest payments on those Treasury bonds, meaning that the United States would effectively default on its debt.

The debt ceiling has to be raised and everyone knows it. Surely the Republicans knew it when they voted for tax cuts for the rich with borrowed money. If the debt ceiling is not raised, the United States will default on some of its obligations. Just like what happens after you miss a credit card payment, the country’s creditors will demand higher interest in order to lend to us in the future.

Playing chicken with the debt ceiling is a recipe for increasing the national debt. Paul Waldman argues in The American Prospect that the Republicans hate government so much that they are willing to declare war on the economy in a quixotic bid to smash the state:

The reason we’re now seeing an unprecedented amount of attention paid to a vote that ordinarily passes with little notice is that the Republican Party’s agenda is being set by a group of ideological radicals who seem quite willing to cripple the American economy if that’s what it takes to strike a blow against the government they hate so much.

Peak Crazy

At AlterNet, Joshua Holland explains why failure to raise the debt ceiling would be an economic catastrophe that could jeopardize the economic recovery. “Peak Crazy,” he calls it.

However, Holland notes that a showdown over the debt ceiling does not risk an immediate government shutdown, like the one we faced over the budget battle. Borrowing isn’t the only way that government agencies are funded. The government could still spend the $150 billion or so it takes in every month in tax revenue, for example.

Yet, Senate Minority Leader Mitch McConnell (R-Kentucky) has announced that 47 GOP senators oppose raising the debt ceiling unless “credible attempts” are made to cut federal spending. Meanwhile the Tea Party is launching an all-out lobbying effort to urge House Republicans not to raise the debt ceiling without major spending cuts.

The Tea Party’s wish list includes some total pipe dreams like a balanced budget amendment to the constitution, and a law to require a two-thirds majority for all future tax increases. Former senator and current U.S. presidential hopeful Rick Santorum cheerfully announced that he would let the United States default on its debt if health care reform is not repealed. Rep. Michele Bachmann (R-Minn) helpfully suggests paying the interest on Treasury Bills using money that would otherwise go to Social Security.

Shoot the hostage

Cenk Uygur of the Young Turks argues that Democrats are panicking needlessly and, once again, offering needless preemptive concessions to the Republican fringe in the form of a proposed “hard cap” on government spending, which would cap new government spending, and subtract any overruns from social welfare programs like Medicare and Social Security.

The truth, Uygur notes, is that Wall Street has already told the Republicans in no uncertain terms that the debt ceiling will be raised. The economic consequences of doing anything else would be unthinkable. The Tea Party can yell and scream, but the adults have already made the decision. Knowing this, Democrats should not be trying to placate the Republicans so as to induce them to do something they will ultimately end up doing.

Digby on Social Security

Democrats are wavering in their decades-long commitment to defend Social Security, Heather Digby Parton (a.k.a., “Digby”) writes in In These Times:

In a quixotic attempt to fix the problems in the current economy without confronting the plutocrats, the Democrats are using the illogical argument that since Social Security is projected to have a shortfall in 35 years, we must cut benefits now. And they seek to prove to “the market” that the government is fiscally responsible by showing it’s willing to inflict pain on its citizens—in the future.

Even if we do nothing, Social Security can pay out full benefits for the next 35 years. There is no crisis. A small increase on the payroll cap on Social Security could shore up the program for generations to come. Republicans oppose Social Security because they are ideologically opposed to social welfare programs, not because Social Security is broken.

This post features links to the best independent, progressive reporting about the economy bymembers of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The MulchThe Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

 

Weekly Audit: We Welcome Our New Plutocratic Overlords

 

By Lindsay Beyerstein, Media Consortium blogger

Meet the new global elite. They’re pretty much the same as the old global elite, only richer and more smug.

Laura Flanders of GritTV interviews business reporter Chrystia Freeland about her cover story in the latest issue of the Atlantic Monthly on the new ruling class. She says that today’s ultra-rich are more likely to have earned their fortunes in Silicon Valley or on Wall Street than previous generations of plutocrats, who were more likely to have inherited money or established companies.

As a result, she argues, today’s global aristocracy believes itself to be the product of a meritocracy. The old sense of noblesse oblige among the ultra-rich is giving way to the attitude that if the ultra-rich could do it, everyone else should pull themselves up by their bootstraps.

Ironically, Freeland points out that many of the new elite got rich from government bailouts of their failed banks. It’s unclear why this counts as earning one’s fortune, or what kind of meritocracy reserves its most lavish rewards for its most spectacular failures.

Class warfare on public sector pensions

In The Nation, Eric Alterman assails the Republican-controlled Congress’s decision to scrap the popular and effective Build America Bonds program as an act of little-noticed class warfare:

These bonds, which make up roughly 20 percent of all new debt sold by states and local governments because of a federal subsidy equivalent to some 35 percent of interest costs, ended on December 31, as Republicans proved unwilling even to consider renewing them. The death of the program could prove devastating to states’ future borrowing.

Alterman notes that the states could face up to $130 billion shortfall next year. States can’t deficit spend like the federal government, which made the Build America Bonds program a lifeline to the states.

According to Alterman, Republicans want the states to run out of money so that they will be unable to pay the pensions of public sector workers. He notes that Reps. Devin Nunes (R-CA), Darrell Issa (R-CA) and Paul Ryan (R-WI) are also co-sponsoring a bill to force state and local governments to “recalculate” their pension obligations to public sector workers.

Divide and conquer

Kari Lydersen of Working In These Times explains how conservatives use misleading statistics to pit private sector workers against their brothers and sisters in the public sector. If the public believes that teachers, firefighters, meter readers and snowplow drivers are parasites, they’ll feel more comfortable yanking their pensions out from under them.

Hence the misleading statistic that public sector workers earn $11.90 more per hour than “comparable” private sector workers. However, when you take education and work experience into account, employees of state and local governments typically earn 11% to 12% less than private sector workers with comparable qualifications.

Public sector workers have better benefits plans, but only for as long as governments can afford to keep their contractual obligations.

Who’s screwing whom?

Former Secretary of Labor Robert Reich is calling for a sense of perspective on public sector wages and benefits. In AlterNet he argues that the people who are really making a killing in this economy are the ultra-rich, not school teachers and garbage collectors:

Public servants are convenient scapegoats. Republicans would rather deflect attention from corporate executive pay that continues to rise as corporate profits soar, even as corporations refuse to hire more workers. They don’t want stories about Wall Street bonuses, now higher than before taxpayers bailed out the Street. And they’d like to avoid a spotlight on the billions raked in by hedge-fund and private-equity managers whose income is treated as capital gains and subject to only a 15 percent tax, due to a loophole in the tax laws designed specifically for them.

Signs of hope?

The economic future looks pretty bleak these days. Yes, the unemployment rate dropped to 9.4% from 9.8% in December, but the economy added only 103,000, a far cry from the 300,000 jobs economists say the economy really needs to add to pull the country out its economic doldrums.

Andy Kroll points out in Mother Jones that it will take 20 years to replace the jobs lost in this recession, if current trends continue.

Worse yet, what looks like job growth could actually be chronic unemployment in disguise. The unemployment rate is calculated based on the number of people who are actively looking for work. Kroll worries that the apparent drop in the unemployment rate could simply reflect more people giving up their job searches.

For an counterweight to the doom and gloom, check out Tim Fernholtz’s new piece in The American Prospect. He argues that the new unemployment numbers are among several hopeful signs for economic recovery in 2011. However, he stresses that his self-proclaimed rosy forecast is contingent upon avoiding several huge pitfalls, including drastic cuts in public spending.

With the GOP in Congress seemingly determined to starve the states for cash, the future might not be so rosy after all.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

 

The Economic Recovery and Opportunity

The Opportunity Agenda has created a series of tools for advocates and policymakers to use as they advocate for equal opportunity in the economic recovery process.

Our most recent tool is a new report, Economic Recovery and Equal Opportunity in the Public Discourse: An Analysis of Media Content and Public Opinion (PDF). This report analyzes mainstream media coverage and a large body of public opinion research regarding America’s economic recovery and the ways in which it is affecting different communities and groups within our society.

There's more...

Weekly Audit: Why Do Deficit Hawks Hate Social Security?

by Zach Carter, Media Consortium blogger

Last week, Social Security advocates learned something they had long suspected. Arguments for cutting Social Security aren’t really about economics or the deficit. They’re all about waging war on social services.

In short, some very prominent policymakers are out to dismantle Social Security on ideological grounds. The most recent example of this view comes from Alan Simpson, a former Republican Senator from Wyoming who now serves as co-Chair of President Barack Obama’s Federal Debt Commission. Earlier this summer, Simpson was caught on video spreading absurd lies about Social Security, but his latest outburst explains why he’s been so willing to distort the facts. Simpson simply hates Social Security.

As Joshua Holland highlights for AlterNet, Simpson fired off a nasty email to Ashley Carson, who advocates for elderly women, in which he referred to the most successful social program in U.S. history as “a milk cow with 310 million tits.”

Social Security is doing just fine

But Simpson has a lot of power on the Debt Commission, which is expected to recommend that Congress reduce the deficit by cutting social programs in a report this year. But as Holland notes, Social Security isn’t in trouble:

Social Security is in fine shape. It’s got a surplus that will run out in 2037, but even if nothing were to change by then, it could still continue to pay out 75 percent of scheduled benefits seventy-five years from now, long after the surplus disappears, and those benefits would still be higher than what retirees receive today.

What’s more, as William Greider notes for The Nation, Social Security has never added one cent to the federal budget deficit. According to the law that created the program, Social Security never can. Targeting Social Security in order to fix the deficit is like invading Iraq to fight Al-Qaeda. The issues are not related.

Raising the retirement age robs workers

The Debt Commission is likely to recommend raising the retirement age—the age at which Social Security benefits begin to be paid out. But as Martha C. White notes for The Washington Independent, it’s a “solution” that simply robs low-income workers of their tax money. Everybody pay Social Security taxes when they work, and when they retire, they receive federal support. If you don’t live long enough to actually retire, you don’t get any benefit from Social Security.

“The hardship of raising the retirement age falls disproportionately on low-income workers who work in physically demanding professions, jobs they may not be able to continue through their seventh decade. … Moreover, though the average lifespan has increased since Social Security’s creation, those extra years aren’t enjoyed equally by all Americans. Overall, Americans are living about 7 years longer. But the poorest 20 percent of Americans are living just two years longer.”

Raising the retirement age, in other words, disproportionately hurts the poor—the very people Social Security is supposed to help most.

Subprime scandal 2.0

So who would pick up the slack if Social Security were to be cut? The same crooked Wall Street scoundrels who brought us the financial crisis. If the government cuts back on retirement benefits, the financial establishment can step in and manage a bigger piece of the retirement pie.  The more we learn about the financial mess, the less we should want to see our retirement money controlled by bigwig financiers. Truthout carries a blockbuster new investigative report by ProPublica’s Jake Bernstein and Jesse Eisinger that reveals a new, multi-billion-dollar subprime scam engineered by the financial elite.

We’ve known about Wall Street’s subprime shenanigans for some time, but the report reveals that banks were essentially selling their own products to themselves in order to create the illusion that people really wanted lousy mortgages. It’s called “self-dealing,” and it’s supposed to be illegal.

Subprime Disaster, meet Mortgage Nightmare

Here’s how the scam worked: Wall Street crammed thousands of mortgages into securities, then sliced and diced those securities into new products called CDOs. Those CDOs, in turn, were divided into different “buckets” and sold to investors. The riskiest buckets paid out the most money to investors, but were the most likely to take losses if the underlying mortgages ever went bad. As the housing bubble grew more and more out-of-control, investors became wary of these risky buckets, and stopped buying them.

Wall Street banks were still making a killing from the packaging and sale of everything else, though, so they devised a plan to get rid of some risky bits: they’d buy them up themselves, without telling anybody. A bank would create a CDO called, say, Mortgage Nightmare CDO. Then it would create a separate CDO, called, say, Subprime Disaster CDO. Subprime Disaster would buy up a risky bucket from Mortgage Nightmare, creating the illusion to the market that banks were still able to sell off risky mortgage assets without any trouble, even though the bank was basically just selling garbage to itself.

That illusion propped up the prices of these risky assets and created more revenue for the tricky bankers who sold them, and plump, short-term profits for the banks. It also strongly encouraged other bankers to issue lousy mortgages to the public, since those loans could be packaged into lousy CDOs and score short-term profits for Wall Street’s schemers.

Ultimately, this scheming resulted in a multi-billion-dollar disaster for Wall Street, which taxpayers ended up footing the bill for. Anybody want to see that happen with Social Security?

Social programs did not cause the deficit

As Seth Freed Wessler notes for ColorLines, deficit hawks’ emphasis on social programs is at odds with the factors that actually created the deficit. The Bush tax cuts, the wars in Iraq and Afghanistan and the bank bailouts are the big-ticket items when it comes to government revenues and expenses. Yet deficit hawks in Congress have been refusing to extend paltry unemployment benefits or food stamps to the people hit hardest by the recession. And pretty soon they’re going to go after Social Security too.

In reality, the deficit is only a problem if investors are afraid that the government will default on its debt. Markets measure this worry with interest rates—high rates mean investors are worried, low rates mean they are not. Right now, interest rates on government bonds are at their lowest in decades. With the recession dragging on and the recovery weakening, now would be a great time for the government to spend more money to create jobs and help those knocked out of work.

Instead, the policy debate features cranky old men whining about 310-million-titted cows.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

 

 

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