Winning Progressive

(By NCrissie B)

This week I am exploring Simon Johnson and James Kwak’s White House Burning: The Founding Fathers, Our National Debt, and Why It Matters To You. Previously we considered the history of our federal debt and the relationship of government, money, and credit. Today we look at our long-term debt outlook. Next we’ll conclude with the authors’ proposals for a sustainable budget that preserves essential programs and services.

Simon Johnson is a professor of entrepreneurship at MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics. He is a member of the CBO’s Panel of Economic Advisers and of the FDIC’s Systemic Resolution Advisory Committee. He was previously the chief economist of the IMF.

James Kwak is an associate professor at the University of Connecticut School of Law. In 2011–2012, he is also a fellow at the Harvard Law School Program on Corporate Governance. Before going to law school, he was a management consultant and co-founded a software company.

Johnson and Kwak founded The Baseline Scenario economics blog and also wrote 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown.

The Party of Fiscal Responsibility

If the debate over our federal debt were really about the risks of debt, President George W. Bush and a Republican Congress would not have passed budget-breaking tax cuts in 2001 and 2003. Economic growth in the 1990s – fueled by Baby Boomers in their peak earning years, boosting both tax revenues and our overall economy – left a budget surplus in 2000. A fiscally responsible party would have recognized those Baby Boomers would soon be retiring, and proposed saving the current budget surplus to pay for the Social Security and Medicare benefits those Baby Boomers would soon need.

Indeed a fiscally responsible party recognized and proposed exactly that in the 2000 presidential election campaign. The party of fiscal responsibility were Democrats, as Vice President and presidential nominee Al Gore said:

We will balance the budget every year, and dedicate the budget surplus first to saving Social Security. Putting both Social Security and Medicare in an iron-clad lock box where the politicians can’t touch them – to me, that kind of common sense is a family value.

Texas Governor and Republican nominee George W. Bush proposed not fiscal responsibility to prepare for the future, but tax cuts to boost current consumption:

I believe that cutting the taxes will encourage economic growth. I believe cutting all marginal rates will keep the economy growing. I believe we ought to get rid of the death tax. I believe we ought to get rid of the earnings test on Social Security. I believe we ought to mitigate the marriage penalty. I believe we ought to use this time of prosperity to get money out of Washington and into the pockets of the taxpayers.

That pattern has not changed over the past twelve years. While Mitt Romney and Paul Ryan howl about our federal debt, their budget proposal is vague and the Committee for a Responsible Federal Budget estimated that it could push the debt up to 96% of our GDP by 2021.

How did Republicans become the party of fiscal irresponsibility?

Two views of government

Conservatives often call for a “return” to our nation’s true roots of: limited government, little regulation, and low taxes. Yet as we saw in E.J. Dionne’s Our Divided Political Heart, that history is more myth than fact.

However, Johnson and Kwak note that scientific and technical advances increased the scope of government. We learned how public utilities could reduce disease and improve public health, and the need to weigh the risks from pollution against corporate profits. The Great Depression highlighted the need for insurance to ease the suffering of market failures and allow seniors to retire with dignity. Science and technology also increased the need for a better educated population who could both develop and use new technologies. And as advances in medicine pushed health care costs beyond families’ budgets, we saw the need for effective, affordable health insurance to pool the risks. This was less a “government takeover” than increasing awareness that the often brutal hardships of middle- and low-income families’ lives were not inevitable.

Faced with that choice, the authors write, the inevitable result is redistribution of wealth. The only question is who the redistribution favors:

In a low-tax/low-benefit world, your bank account is a little bigger (if you make enough to pay taxes), but you face more risk of running out of money in retirement or not being able to afford health care; in a high-tax/high-benefit world, your bank account is a little smaller, but you face less risk. Since rich people are better able to self-insure, they gain less by pooling their risk with other people, so they might be better off in a low-tax/low-benefit world; poor people cannot self-insure, so they gain the most from risk pooling, and they will be better off in a high-tax/high-benefit world. Compared to current policy, reducing benefits so we can keep our low tax rates is a form of redistribution from the poor to the rich; raising taxes so we can maintain today’s benefit levels is a form of redistribution from the rich to the poor (assuming that the tax increases are progressive).

Thus we get then-Rep. Dick Armey (R-TX), now chairman of FreedomWorks, admitting why Republicans really talk about deficits and the federal debt:

Balancing the budget in my mind is the attention-getting device that enables me to reduce the size of government. Because the national concern over the deficit is larger than life. [...] If you’re anxious about the deficit, let me use your anxiety to cut the size of government.

Or, at least, to cut taxes. Tax cuts are usually popular, but spending cuts are not. So the Republican playbook has been to cut taxes but not spending while a Republican is in the White House, then howl about deficits and force fiscally responsible Democratic presidents to take the political fallout for raising taxes or cutting spending.

A long view of debt

That understanding sets the stage for the authors’ long-term outlook for our federal debt. Our current $11 trillion debt is partly due to the 2001 Bush tax cuts ($3 trillion), partly due to the wars in Iraq and Afghanistan ($1 trillion), and mostly due to the 2008 financial collapse that cost nine million jobs and wiped out an estimated $7.8 trillion in projected GDP growth from 2008-2018. That lost revenue coincided more families eligible for unemployment benefits, Medicaid, Temporary Assistance for Needy Families, the Supplemental Nutrition Assistance Program, and tax expenditures such as the Earned Income Tax Credit and Child Tax Credit. Many displaced older workers also chose early retirement and applied for Social Security benefits.

Our current fiscal crisis will pass, but the long-term debt dangers lie in our primary government insurance programs: Social Security and Medicare. For Social Security, the issue is simply that more people will soon retire and they will live longer. Thus, their benefits will exceed then-current Social Security revenues and deplete the program’s existing trust fund.

For Medicare, those issues are compounded by rising health care costs. That is partly a function of medical advances that offer new tests, new drugs, and new procedures, such that treatment for a given illness costs more now than it did even two decades ago. It’s also partly a function of our fee-for-service model that spurs providers to prescribe as many tests, drugs, and procedures as insurers will reimburse. The authors acknowledge that the Affordable Care Act attempts to limit the growth of health care costs, but argue there isn’t yet enough data to know whether or how well those provisions will work. Their projections assume health care costs will continue to rise as they have the past two decades, and that would create a serious, long-term debt Medicare debt risk.

But as the authors emphasize, privatizing Social Security and Medicare would not eliminate or even reduce those costs. Indeed, turning those tasks over to private, for-profit investment firms and health insurance companies would likely increase net spending for retirees, with the costs borne by retirees and their families or – for those who could not afford it – other public programs that shelter and care for the indigent.

The Baby Boomers will retire, and will need health care in their senior years, and we will all pay for it, one way or another. Given that, the authors argue, both moral and economic factors suggest we should preserve Social Security and Medicare in their current forms, which are less expensive and far less cruel than the alternatives.

But there’s no such thing as a free lunch … and tomorrow we’ll see how they propose to pay for the government we need.

(Crossposted from Blogistan Polytechnic Institute (BPICampus.com))

As has been widely reported, Mitt Romney revealed his disdain for 47% of Americans during a $50,000 per person campaign fundraiser held at the mansion of Marc Leder, a controversial private equity hedge fund manager.   A secretly recorded video of the event shows Pink Slip Mitt saying, among other things:

There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that’s an entitlement. And the government should give it to them. And they will vote for this president no matter what…These are people who pay no income tax. . . . . [M]y job is is not to worry about those people. I’ll never convince them they should take personal responsibility and care for their lives.

Unpacking this statement a bit, Romney essentially categorized the nearly half of Americans who benefit from social programs and/or pay no federal income taxes as moochers who are failing to take personal responsibility for their own lives.  And while this statement is phrased more harshly than what Romney typically says in public, it is consistent with the Romney/Ryan campaign’s rhetoric and plans regarding abolishing Medicare, starting down the road to privatizing Social Security, eviscerating Medicaid, etc.

Given that tens of millions of hard-working Americans benefit from sensible and popular government programs, it is important to find out exactly who Romney considers to be a “dependent . . . victim” who needs to be convinced to “take personal responsibility and care for their lives” presumably by taking away the benefit they have been received.  As such, in this latest installment of Questions for Mitt Romney, we urge reporters, debate moderators, and voters to ask and demand answers from Romney and his campaign on the following questions:

* Is an 89 year old with late stage dementia who relies on Medicare to pay for her medical care  a “dependent victim”?  Should that dementia patient be deprived of the guaranteed coverage of Medicare so that she can instead “take personal responsibility” by seeking insurance in the private market?

* Are our service members who return home from Iraq or Afghanistan with physical, mental, and/or emotional injuries that necessitate the use of the Veteran’s health benefits or disability compensation failing to “take personal responsibility”?

* Is the parent who works two minimum wage jobs yet still needs food stamps to make ends meet and Medicaid/CHIP to ensure her child has health care failing to “take personal responsibility”?

* Is the young adult who uses federal student loans to be able to afford to be the first person in her family to attend college failing to “take personal responsibility”?

* Is the senior citizen who uses his Social Security benefits to help him be able to afford to stay in his own home failing to “take personal responsibility”?

* Is the laid off factory worker who collects unemployment benefits to make sure her family does not become homeless while she is looking for a new job failing to “take personal responsibility”?

Conservatives are correct that the number of people who receive government benefits of some sort has increased considerably over the past 50 years, and spiked over the past few years.  But those increases are not a sign that Americans are somehow too dependent on government or failing to take personal responsibility.  Instead, the increase is due to three facts.  First, we realized in the days of the New Deal and Great Society that individuals, our economy, and our society are better off when we have a basic social safety net and government efforts to support a strong middle class through Social Security, Medicare, etc.  As such, we expanded and strengthened those programs to serve additional people who need the assistance. Second, the vulture capitalism practiced by companies like Bain Capital caused many middle class Americans to lose their job security and pensions, thereby forcing them to turn to Social Security, Medicare, and other government programs to help sustain our middle class.  Third, conservative economic policies led to the Bush Recession in 2008, which created a short term spike in people needing food stamps, unemployment benefits, etc.  Romney’s alternative explanation that nearly half of Americans are just irresponsible victims who do not take personal responsibility is offensive and disconnected from reality.

Romney’s statement regarding 47% of Americans paying no federal income tax is similarly off-base.  Romney should be required to answer the following questions about that statement:

* Do you realize that those 47% pay other taxes besides income taxes, including sales tax, property tax, payroll taxes, etc.?  Does the payment of such taxes rule these 47% out of the category of people focused on dependency and victim hood rather than on independence and personal responsibility?

* If payment of income taxes is a sign of personal responsibility rather than dependency, what does that say about the fact that you paid only 13.9% in taxes in 2010, while most working people pay a higher rate?

* Do you believe that taxes should be raised on the 47% of Americans who pay no federal income tax?  Would raising these people’s taxes make them less focused on dependency and victim hood and more focused on independence and personal responsibility?

* Do you believe that big corporations and billionaires who pay little to no federal taxes and/or who benefit from federal programs should similarly be categorized as entities more interested in dependency and victim hood rather than independence and personal responsibility?  If so, what specific loopholes or tax increases would you propose to ensure that corporations and billionaires contribute their fair share? And what specific programs would you end or curtail to ensure that big corporations and billionaires are not becoming dependent victims?

There is no doubt that we can and should be having as part of the 2012 Presidential campaign a careful debate about where government social programs are headed, how much we should spend on them, who should be enrolled, who should pay, etc.   Romney’s statement at the fundraiser, however, shows that he is not the person to lead such a debate in a serious and productive way.  Instead, as with his opportunistic grandstanding on the Libya embassy attacks, Romney’s crass dismissal of 47% of Americans shows that he is simply not qualified to be President of a nation where the vast majority of people are in far harder economic straights than Romney ever has been or ever will be.

(By Mark Bridger, cross-posted at ThatMansScope)

There is a major difference between the two parties, and I think that people who call themselves Republicans should be aware of it.  The Democrats historically, by-and-large, are the party of the underdog, of the middle class and working person, of the people who need someone to stand up for them against powerful, wealthy and entrenched interests. Of course, as I said, this is “by-and-large”: certainly there are plenty of Democratic politicians who are in the pockets of oil companies and banks. Yet, it is the Democratic party that created and protected Social Security, Medicare, and the Consumer Financial Protection Agency (under Dodd-Frank). The Democrats also pushed civil rights laws of all kinds, protection for union organization when it literally meant life and death for American workers, child labor laws, support for public education, etc.

(What about the “big unions” you might ask? There is a big difference between unions and corporations, historically and practically. Both can be corrupt, true enough, but union leadership is elected by union membership: there are no boards of trustees intervening, no “majority stockholders” with concentrated power and influence. Unions were set up by workers to give their members an effective say in their working conditions, conditions which, before unions, were egregious. As the power of unions has waned, stagnation of wages and declines in benefits have set in. The unions basically created the middle class, and now the decline in union membership and the rise of corporate power has led to the disastrous decline in the middle class. Those who deride unions should ask themselves who they’d rather have representing them: unions or banks and big corporations?)

In the old days, it was possible for Republicans to join with Democrats in looking after those who needed help and protection. The Civil Rights Act had substantial Republican support; the EPA was signed into law by Richard Nixon, who also supported a health insurance plan that was, if anything, to the left of “ObamaCare.” That Republican party no longer exists. The default position now for Republicans, as evidenced by the recent presidential debates, by their talk shows, and by Fox News and their own public statements, is a sneering rejection of what they dismiss as “do-gooderism” or “collectivism.” Trying to hold people to civil discourse and respect for the rights and feelings of others they mock as “political correctness.” While they sneer at the Democrats’ concerns for political representation of minorities (racial, religious, sexual) as naive and pandering to “special interests”, they themselves seem to have no interest in any of these fairness issues, since the actual objects of their solicitude are corporations — the bigger and more powerful the better. (They talk about “small businesses” but, in fact, their economic policy mostly is to subsidize and protect the largest of corporations: viz. the oil, drug, and agri-businesses. They are absolutely not interested in regulation of trusts and monopolies,  and their support for the Small Business Administration is tepid except in election years.) They deride nearly every “public” enterprise as collectivism, and want to replace any attempt to share resources or power across economic and social strata with raw privatization (for example, of national parks and resources), competition, and a crude social Darwinism. (Ironically, the real and subtle Darwinism embodied in the theory of evolution they still deny in order to pander to their substantial base of religious fundamentalists.)

There is a curious disconnect among people who are in fact concerned and sympathetic, yet call themselves Republicans. They buy into the Republican line that the PTR (Party for The Rich, formerly the GOP) represents some sort of protection for the “little guy” and small business person against the large, collectivist and callous “Big Government.” Nothing could be further from the truth. The biggest clients of the PTR are the immensely large and powerful corporations.  Republican administrations have, if anything, increased the power and size of those parts of government that are least responsive to citizens. Examples are: the Department of (big) Agriculture, which favors corporate farming over family farming; the Department of Defense, which is all about throwing big-time money but small-time control at contractors like Lockheed, General Electric, and Brown and Root (Cheney’s firm and biggest recipient of unexamined federal largess in Iraq); the Department of (big) Energy, which is all about subsidies for large energy companies like Exxon-Mobil that are making record profits.

Those Republicans who call themselves friends of education ought to understand that the PTR is committed to destroying public education and replacing it with private contractors and vouchers that, simply, will make decent school unaffordable for average folks: just look at the cost of private schools versus public schools; price out what it would cost to send your kids to a private school and note that the vouchers the Republicans propose would not make much of  a dent in that. Plus, you get no say in what they do or teach unless you are a stockholder,

Or what about regulations? The PTR tells us that any sort of regulation of businesses is a “job killer.” This is nonsense: regulations are made to protect us. The only support for the “job killer” description of regulation comes from the propaganda of the industries that are being regulated. In a recent survey of businesses, the leading reason for non-hiring is not regulation but low consumer demand. There were fewer complaints about “job-killing” regulation before Wall Street’s speculations created the crisis that crippled our economic system — speculations that could have been, and should have been, prevented by sensible regulations (such as a modernized and strengthened Glass-Steagall Act to control how banks gamble with money). The biggest job-killer was the Great Recession caused by Wall Street and Big Banking’s speculative excesses. Contrary to what the PTR says, regulation protects us citizens from the inherent amorality of industry’s quest of ever larger profits and power concentration (monopoly).  Even if some regulations might slow some business expansion, how will that help if our water and air and soil are poisoned — as it was before the EPA? The meat-packing industry hates being regulated: they would like to return to the good-old-days when they were not inspected and could put any sort of filth in poultry, hamburger and sausages. Yes, it used to be that way, and now the Republicans are voting to cut funds for the inspection system  that protects us by keeping our food and environment clean.

And drugs: the Republican drug plan that is now Medicare part D explicitly forbids Medicare from directly negotiating with drug companies — for example in Canada –  to keep prices low. A lot of folks try to buy their meds in Canada where they much less expensive and, perhaps, even safer; but, the Republicans want to crack down on this to keep the profits high for their friends in Big Pharma.

And what does the Republican party say about all this? They claim that they are preserving the “free-enterprise system” from “big government” and collectivism. But these are just buzzwords. Before our government — yes, it’s our government — started protecting us, the unfettered free-enterprise system gave us sweatshops, 60+ hour workweeks, dangerous child labor, corrupt and unsafe food, and poisoned water, land and air. Every time we’ve let the “free enterprise” system run unfettered it has run over us and simply enabled the wealthy to get wealthier and large companies to get larger, all at our expense.

Yes, the Democrats are sometimes as much in the pocket of big business and big finance as the Republicans. Yes, the Democrats sometimes seem naive and sometimes seem too intent on helping minorities and the poor. But that is because they truly believe in our Constitution, which begins:

(By Mark Bridger, cross-posted at ThatMansScope)

For this weekend’s reading list, we have articles on public support for cuts to military spending, the growing number of children in foster care after their parents were deported, the continued strength of Social Security, how public-private partnerships on infrastructure projects are too often a rip off of taxpayers, and the continued privatization of education in Philadelphia and other urban school districts.

If you have any feedback on any of these articles, or would like to recommend an article for next weekend’s reading list, please let us know in the comments section below or at the Winning Progressive Facebook page.

Public Overwhelmingly Supports Large Defense Spending Cuts – An in-depth survey of public opinion shows that the public favors cutting an average of $103 billion per year from military spending, which is far larger than either political party is currently proposing.

Shattered Families – a report on how there are currently at least 5,100 children in foster care in the US because their parents have been deported, and how increasingly aggressive deportation efforts could increase that number to 20,000 within five years.

What the 2012 Trustee’s Report Shows About Social Security – an in-depth review of the Social Security Board of Trustee’s 2012 report on the status of Social Security.  The report confirms that Social Security remains fully solvent until 2033, would be able to continue paying 75% of benefits after that, and can remain fully solvent until for the next 75 years with only relatively minor changes.

The Wall Street Racket Looting Your City, One Block At a Time – how the “public-private partnerships” that are frequently used to finance infrastructure projects are far too often end up sapping away needed public resources so that the private investors can continue to profit.

The Remaking of Philadelphia Public Schools: Privatization or Bust – a critical look at the City of Philadelphia’s plan to close 64 of its public schools over the next five years and to funnel at least 40% of the system’s students into charter schools, which seems to be part of a growing privatization of education in urban school districts.

In our post from earlier today about Thomas Friedman’s obsession with promoting “centrist” third parties, Winning Progressive referenced the Social Security “reform” efforts of the Peter G. Peterson Foundation and its former Director, David Walker.  Mr. Walker, who is now the CEO of the Comeback America Initiative, provided the following response to our post via a Communications Assistant at his organization:

I read with interest the article on ‘Thomas Friedman’s Destructive Obsession With Third Parties Continues.’ The article contains several false statements. For example, the Peterson Foundation never sought to “privatize Social Security”, and as a former Public Trustee of Social Security and Medicare, I have publicly opposed such efforts in the past. Second, Social Security has been in a negative cash flow position since 2010. Therefore, since the unified budget is calculated in a cash basis, Social Security has been adding to federal deficits since 2010. In addition according to the latest Trustees’ Annual Report, Social Security has unfunded promises of over $9 trillion and growing.

If your readers want to know what my views are on a range of social insurance, defense, health care, tax and other key issues they should read the book Comeback America (available here), and the Restoring Fiscal Sanity Report at www.tcaii.org.

We appreciate Mr. Walker’s response, and agree that when he was head of the General Accounting Office, Mr. Walker rightly criticized President George W. Bush’s Social Security privatization scheme on the grounds that private retirement accounts would excerbate Social Security funding challenges.

As for Mr. Walker’s current views on Social Security “reform,” he has reportedly proposed the following in his book:

* Increasing Social Security benefits for lower income people who have worked at least 30 years

* Reducing benefits for middle and high income people through wage indexing or some other means

* Raising the retirement age, and then indexing it to average life expectancy

* Raising the income cap for the Social Security payroll tax to around $150,000

* Establishing a mandatory individual savings account program through an additional 2 to 3 percent payroll deduction

While advocates of proposals such as those listed above do not use the politically unpopular word “privatize,” the approach would weaken the long term political stability of Social Security by reducing benefits for middle class Americans, reducing the number of people receiving benefits, and getting the camel’s nose of individual savings accounts under the tent.

Mr. Walker correctly notes that the Social Security Trustee’s report identifies some short and long term funding issues for Social Security.  But the short term problems are the result of the Bush Recession.  As for the long term, the Social Security Trust Fund is projected to continue to grow until 2022 and to remain solvent through 2036. After that, three-quarters of benefits could continue to be paid out through 2086 even if no changes are made.

The easiest way to address the long term fiscal issues faced by Social Security is to entirely lift the income cap so that the payroll tax applies to all levels of income, and to increase the payroll tax by 1%.  Such an approach would ensure the viability of the Social Security program for nearly 75 years, without weakening the program or creating risky and administratively burdensome private savings accounts.