Sunday, April 07, 2013

Today in Obama/Hoover/Brüning economics

There's going to be a lot of repetition in the fight to preserve benefits on Social Security, Medicare and Medicaid from the current attacks from President Obama and the Republicans. One that deserves a lot of repeating is one that George Stephanopoulos didn't make on This Week today when he hosted White House "strategist" Dan Pfeiffer. Stephanopoulos asked him about the proposed benefit cuts to Social Security justified by the "chained CPI" scam, which would also apply to veterans benefits and reduce those, as well:

PFEIFFER: Well, a couple of things. One, Senator Sanders is a passionate advocate, and has been a big supporter of the president. This president will -- this -- this chained CPI that's being referred to here, is something the president will only accept on two conditions. It's something Speaker Boehner and -- and Senator McConnell asked for in the context of the original negotiations, and those two conditions are, one, It's part of a balanced package that includes asking -- closing tax loopholes to benefit the wealthiest, and, two, that it has protections for the most -- for the most vulnerable, including the oldest seniors.

STEPHANOPOULOS: So there will be some carve outs there?

PFEIFFER: Absolutely. And look, this is compromise. And compromise means there are going to be some folks on both sides who are not happy. [my emphasis]
The point Stephanopoulos couldn't be bothered to make is that if "chained CPI" really were the more realistic measure of inflation that its advocates falsely claim it is, there wouldn't be any need to have special adjustments for anybody. The argument for the "chained CPI" is seniors won't be hurt by it. But the admission that implementing it may require "protections ... for the most vulnerable, including the oldest seniors," what Stephanopoulos calls "carve outs" is an admission that seniors really will be hurt by this.

Means-testing Social Security benefits is also something to be on the lookout for, and those "carve outs" referred to here are a form of means-testing. Obama and other opponents of Social Security want to introduce elements of "welfare" into Social Security to make cuts to the program more politically acceptable.

Pfeiffer also reminds us that the Herbert Hoover/Heinrich Brüning economics symbolized by "Simpson-Bowles" is still the operative policy of the Obama Administration: "Our budget includes investments in infrastructure, bringing jobs back to America, you know, preschool for our -- for -- for everyone, while still bringing our deficits down to the -- our debts down to levels that are talked about by commissions like Simpson-Bowles." (my emphasis)

STEPHANOPOULOS: But it hasn't seemed to change the dynamic at all, at least so far. Here's what part of what Speaker Boehner said. He said, "If the president believes these modest entitlement savings are needed to help shore up these programs, there's no reason they should be held hostage for more tax hikes. That's no way to lead, and move the country forward." If they're good ideas, he says, why not just do them?

PFEIFFER: Well there's -- there are a couple -- couple things here, George. First is, the House has passed a budget, the Senate has passed a budget. The hope is that those houses can then come together and work to try and find a compromise. The president's focused, in addition to the regular order process that members of Congress say they want, is to try to find a caucus of common-sense. Folks who are willing to compromise, who don't think compromise is a dirty word, and try to get something done. And -- but, if Speaker Boehner's position, as he said in that statement, remains his position, then -- then we will not make progress.
Phrases like "a caucus of common-sense" are weasel-words for cutting benefits on Social Security, Medicare and Medicaid.

The tiresome "compromise means there are going to be some folks on both sides who are not happy" is pretty much the Obama Administration's standard excuse to the Democratic voting base for why the White House is kicking them in the face yet again.

From the AFL-CIO, Tell Congress: No Benefit Cuts to Social Security, Medicare and Medicaid 11/08/2012:

Paul Krugman was on the This Week pundit panel to face off with one-time Reagan budget director David Stockman, who has just written a new book pimping Hoover/Brüning economics. Krugman said of the weak job figures that just came out:

I mean, the usual stuff, one month's numbers don't mean much. A lot of noise in the data. It might be revised up and all that. But yeah, I mean, what people forget, is two things. One is that the -- we say we avoided the fiscal cliff. But to larger extent we did not. In fact, payroll taxes went up. We had a pretty big hit to working Americans' incomes starting in January.

And the other thing is sequester is starting to hit and businesses have already been making adjustments in anticipation of that. So, we're actually pursuing a lot of fiscal austerity right now. You look at the CBO numbers on cyclically adjusted budget balance, which is your best measure. And we have had basically a contraction of about 3 percent of GDP since 2011, which is bigger, that's more anti-stimulus than the stimulus ever was. We're doing a lot of contraction on the fiscal side. And, you know, why should we surprised if that shows up in an economic slowdown? [my emphasis]
Krugman and others who haven't forgotten basic macroeconomics have been warning Obama and the Democrats for years now about pulling a "1937", referring to Franklin Roosevelt's spectacularly ill-advised decision to emphasize reducing deficits in 1937 after his re-election which threw the economy back into a new recession before it had fully recovered from the Depression.

Krugman challenged Stockman directly on a central point of his book:

This is actually, this is the core of my problem with David's book. Which is yeah, we have huge debt numbers. But there's a huge misunderstanding of what those numbers mean. People look at the big numbers, debt is 3.6 times GDP and say we're broke, the country has been living beyond its mean. We need to pull it back. But that's not what it means. It's a little known fact that America actually earns more on its investments overseas than it pays to foreigners, right? We're not deeply in hock to the rest of the world.

What has happened is that we've complexified (sic) our financial system. So it used to be that Jimmy Stewart's bank made a mortgage loan and that was it. Now some mortgage originator makes a loan, repackages the loan, borrows money using those mortgage security as collateral, so you can count the same debt twice and sometimes three times.

So we have this overly complex financial system which is why we need financial regulation to bring it back to simplicity. But it has nothing to do with excess. It has nothing to do with zero interest rates.

The big increase in debt took place during the years when the interest rates were reasonably high. So this is a terrible misunderstanding. And again, do you really want to raise interest rates in a deeply depressed economy?
Here Krugman whacks the White House for its Hoover/Brüning economic policies, and Ariana Huffington jumps in with a good point, though it's not quite clear why she thinks it's different that Krugman's perspective:

STOCKMAN: Can I just say Social Security CPI saves $100 billion over 10 years. It's one percent of the problem. The machinery is paralyzed. The Republicans can't own up to the fact that we need major new revenue sources. The Democrats keep saying Social Security isn't busted. It's busted. It is already running a $50 billion deficit a year. There is nothing in the trust fund. It's confetti.

KRUGMAN: I disagree with everything my colleague just said. But let me say, this is not about machinery. This is about people and it's about visions. We have two parties that have fundamentally different visions of what America should be.

We have Democrats who want an expansion of the safety net and have gotten it, mostly in Obama Care but they want it to be, you know, even more. And we have Republicans who want to dismantle a lot of the legacy of both the Great Deal, the Great Society and the New Deal. And of course we have, it's a paralysis because the parties do not agree at all on which direction this country should take.

HUFFINGTON: But Paul that's not true.

KRUGMAN: And the last election was not, unfortunately did not resolve it one way or the other.


HUFFINGTON: That is not true, that there's a clear distinguished vision at the moment. We have a 64 percent increase in suburban poverty, we have a doubling of people on food stamps and disability payments. We have millions of people's homes underwater.

And the administration is ignoring this crisis because they are prioritizing deficit reduction. They have bought into the Republican talking points. And this is not a right/left point, they are ignoring what's happening in Europe. The eurozone has now the highest unemployment rate it has had. All the austerity measures and the deficit reduction measures have not worked in Europe. They are not working here. And yet the administration is not putting forward a coherent vision that prioritizes jobs and growth. [my emphasis]
I'm a little concerned about Democrats/progressives using this argument without taking into account that the White House has adopted its own version of the generational-accounting scam the rightwing is so fond of, arguing that social insurance (Social Security and Medicare) for seniors is undercutting jobs and income for younger people. This is a poisonous Obama/Republicans argument, and supporters of Social Security and Medicare need to shoot it down and avoid feeding into it even indirectly.

AFL-CIO President Richaqrd Trumka approaches it this way: "Millions of Americans remain out of work and the job market is especially devastating for young people. Young people ages 20-24 are facing 13.3% unemployment rates. Without the prospect of good jobs in their early and crucial earning years, these young people will bear the cost of these proposed cuts in Social Security." (Damon Silvers, Bad Policy: President Obama's Budget Cuts Social Security and Medicare 04/06/2013)

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