Ben Bernanke Channels Paul Krugman

I have been watching Ben Bernanke, chairman of the Federal Reserve Board, testify this morning before the Senate Banking Committee.

He has sounded a lot like Paul Krugman.*

Krugman, an economist of distinction who also happens to be a liberal, has been telling anyone who will listen that all the scary talk about the national debt is misplaced, considering that we have a genuine jobs crisis going on right now.

Bernanke said this morning:

High unemployment has substantial costs, including not only the hardship faced by the unemployed and their families, but also the harm done to the vitality and productive potential of our economy as a whole.

Ya think? He also said—again sounding like Paul Krugman:

In terms of the near-term recovery, there is a sense in which monetary and fiscal policy are working at cross purposes. To some extent, the fiscal policy decisions being made are mismatched with the timing of the problem. The problem is a longer-term problem, and should be addressed over a longer time frame in a way that, to the extent possible, it does no harm to the ongoing recovery.

In other words, the actions of Congress (fiscal policy—focusing only on long-term debt) are working against the Fed’s actions (monetary policy—buying government bonds now in order to help stimulate the economic recovery) and the result of those “cross purposes” is sluggish growth and needlessly high unemployment.

Now, we have to ask ourselves: Why would congressional Republicans, who are leading the charge when it comes to ginning up fear over our long-term debt problems, want to work against the economic recovery?

You can supply your own answer to that question. Suffice it to say here that we not only have most economists in the country saying it, including Paul Krugman, we now have clearly on the record the chairman of the Federal Reserve Board saying it too: Stop worrying so much about the future and concentrate on the now. There are still a lot of folks suffering from the Great Recession.

As for the dreaded sequestration, Bernanke supported the Congressional Budget Office’s “reasonable estimate” that the automatic $1.2 trillion spending cuts due to begin on Friday will dampen economic growth in 2013 by 0.6% and cost 750,000 jobs.  He also said that, in terms of the effects on economic growth, it didn’t matter much how the cuts were made, whether judiciously or injudiciously. That’s simply too much money to extract from the economy in the short term, even though “the sequestration takes place over time” and its impact “would probably build over a period of months.”

Bernanke also made a point about the constant battles over fiscal policy, what with cliffs, sequestration, and continuing budget resolutions, which cause enormous amounts of uncertainty for everyone and which Republicans use as devilish leverage to drastically cut spending. He said:

Uncertainty itself is costly.

Yes, the uncertainty created by hostage-taking Republicans, again and again, is costly, even though no one can exactly quantify it. But I doubt even the Fed chairman, trying to talk sense to the kidnappers, will help.

Ultimately, the American people will have to send the kidnappers a message because, in our democracy, the people are, paradoxically, both the hostages and the hostage rescuers.

_______________________________

* Even though the two players have had their disagreements in the past.

The Future Isn’t Free

David Leonhardt, Washington bureau chief for The New York Times, has published an extended essay on Kindle, Here’s The Deal.

The deal, says Leonhardt, is that Americans want more government than they are willing to pay for and he presented some ways to fix the resulting long-term debt problems (you’ll have to cough up $1.99 to find out what they are, though).

Now, Leonhardt, who is a mathematician by training, has won a Pulitzer Prize for commentary, so who am I to say that his notion that Americans don’t want to pay for all the government they desire is, well, sort of obvious. But it is.

Since the time of Ronald Reagan and the advent of voodoo economics, Americans have become accustomed to having big-government benefits and paying for them with small-government taxes, which, of course, means deficits, deficits, deficits.

The Democrats temporarily restrained the voodoo-practicing Republican witch doctors in 1993, with the Deficit Reduction Act, which raised taxes and contributed to subsequent surpluses. But the voodoo came back when George W. Bush, who was designated president by Republicans on the Supreme Court late in 2000, went on a tax-cutting and spending binge.

And these days the voodoo, though not quite as prevalent as before, is still with us, as Democrats are willing to raise taxes only on the wealthy, which is a noble deed indeed (since they have plenty more to give), but, given political reality, it is just not plausible those taxes can be raised enough to significantly narrow the budget gap without more and deeper budget cuts.

Leonhardt, in his little Kindle ebook, wrote:

Obama’s stance that taxes should rise only on incomes above $250,000 is almost certainly not sustainable in the long run.

He points out that in 2012, federal revenue—including all forms of taxation—represented only 15.8% of GDP, compared to 20.6% in 2000, when the budget was in surplus. (According to the Heritage Foundation, total federal spending for 2012 was 22.9%, so do the math and the problem becomes clear.)

And Leonhardt writes:

…most Americans have paid far less in total taxes in recent years than they would have paid 30 years ago had they been earning the same inflation-adjusted income. For instance, a household making $52,000, which was roughly the median income in 2010, paid 27.7 percent of its income in taxes on average that year…In 1980, a family with the equivalent income would have paid a total rate of 30.5%.

Additionally, the author reminds us that,

By any measure, taxes are lower in this country than in most other rich countries. Here, tax revenue of all forms—federal, state and local—equals about 25 percent of GDP. In Austria, Denmark, Finland, France, Norway and Sweden, the level is at least 40 percent…It is 36 percent in Germany, 35 percent in Britain, 31 percent in Canada and 30 percent in Switzerland.

Remember all that when you hear a conservative talk about how overtaxed we are as Americans.

Look, I’m not one of those folks you see on TV all the time who irritatingly blathers on about how we are on our way to becoming Greece or advances austerity as a cure for our budgetary problems. And I definitely think more revenue is needed from rich. (Leonardt: “The amount of each dollar that the affluent pay in taxes has actually fallen in recent decades.”)

My only point here is that some time in the future—after the economy has shaken off all the effects of the Great Recession—all Americans who earn a middle class and above income in this country need to face the fact that they are getting way more government than their tax dollars are paying for. No one, not even the most wild-eyed liberal economist, believes that we can continue on the path we are on forever.

When Democrats signed off on a fiscal-cliff-averting budget deal with Republicans at the beginning of this year, a deal that made permanent most of the Bush tax cuts, I was critical of it and ended my criticism with this:

...let us hope that what Democrats have done—setting in stone tax cuts that have partly contributed to our fiscal problems—will not someday hinder them as they attempt to protect vital government programs from those who mean to drag the country back into the 18th century.

Democrats can’t protect those programs just with taxes on the wealthy, although obviously more needs to be done to reduce what Leonhardt calls the,

thicket of deductions, credits and loopholes that lead people to change their behavior and waste time trying to avoid too large a tax bill.

Leaders on our side need to be ready to tell the people, even middle class people, that if they want a 21st-century American civilization that still attracts the best and the brightest in the world, they need to be willing to pay for it or it will go away.

Lazy Journalism

Nothing angers me more than lazy journalists, like the kind I heard on MSNBC’s Morning Joe this morning discussing the state of our national politics.

The easiest thing in the world is to say about what is happening what Mike Barnicle said this morning:

There’s no certainty in this country as to what’s gonna happen to my children. We are now living in a country, where—because of the way this campaign is being waged on both sides—where too many people no longer can afford to dream, and that’s a huge hole in the American fabric. A huge hole.

The huge hole, of course, is in Barnicle’s careless, almost comatose, analysis. If he built his journalistic career on such sloppy, inattentive thinking he has been one lucky guy.

The uncertainty in the country belongs squarely on the Republican Party, whose leaders from the beginning of Obama’s term decided that the best political course for them to follow was to create as much uncertainty and cultural angst as possible. There is simply no disputing that.

And the Romney presidential campaign is following that myopic political script written after the 2008 election by trying to capitalize on the almost complete Republican obstruction of the Democrat’s attempt to fix the massive economic problems left to them by years of governance according to Republican Party principles.

On that note, today’s Joplin Globe editorial played the same kind of game that Mike Barnicle was playing on television this morning. Oh, the piece, titled, “Stop pointing fingers,” started out just fine:

In 2001, the Congressional Budget Office predicted that the federal government would collect surplus funds in the amount of $5.6 trillion during the period 2002 through 2011.

Instead, we incurred a deficit of $6.1 trillion resulting in a gross loss in federal revenues during that period of time in the amount of $11.7 trillion. The question, of course, is why such a miscalculation occurred.

Well, that is certainly one question. But another one would be, who was responsible for the reversal from surpluses to deficits? Huh?

On the way to answering its question, the Globe cited some studies by the CBO, the Committee for a Responsible Federal Government, and the Pew Fiscal Analysis Initiative, all of which came up “with the same answers”:

 • The overall weakened economy was the primary cause. Growth for the entire period was predicted to be 3 percent. But from 2002 through 2007, growth was only 2.6 percent. Then during the period 2008 through 2011, growth was only an average of 0.2 percent. This overall lower-than-expected growth caused a 27 percent drop in federal revenue expectations during those years.

• The second highest cause was a 13 percent drop in federal revenues caused by enactment and continuation of all the Bush-era tax cuts, amounting to a 13 percent drop in federal revenues. Other smaller contributors were the Iraq and Afghanistan wars, increases in discretionary spending, defense spending increases not related to wars, the Obama stimulus, and the 2010 tax cuts.

Now, a fair-minded person, upon discovering that the Republican Party was in charge of both houses of Congress and the White House during most of the time the country’s economy was in decline and collapsing and when the path toward massive deficits was first being cleared of surplus brush, would naturally blame the Republicans for most of the mess. Right?

Except that the Joplin Globe editorialist, shielding Republicans from the blame they deserve, had a better idea:

It seems rather naive to be arguing about which party alone caused today’s American economic problems. Again, they both did so big time by cutting federal revenues as shown above, yet continuing to spend at historically high levels.

“Both sides” are apparently equally responsible, it turns out, despite the facts cited in the piece and despite what is plainly clear to anyone paying attention.

All of this, from Mike Barnicle’s dumb statements this morning to the Joplin Globe’s dumb editorial conclusion, serves the right-wing reactionary Republican Party very well, as it requires very little thought to simply assert that both parties are equally guilty, that both parties are equally to blame for the mess we’re in, and therefore the economic philosophy that brought us to our knees can be tried again.

If Obama Is A Big-Government Socialist, What’s That Make Ronald Reagan?

I saw this interesting graphic on MSNBC (adapted from a Talking Points Memo piece), which should, but won’t, shut up all the talk about the socialist in the White’s House.

In terms of net change in government spending, Obama isn’t in the same league with either Bush or Ronaldus Magnus:

“The Original Welfare State” Versus America

About three years ago I was in Boston and I chatted with a couple of German salesmen who were staying at our hotel.  They were in the city on behalf of a German manufacturer of lab equipment, and they had an appointment at Harvard.

I was interested in their standard of living and the effects of reunification and they explained to be the differences between the former West German states and those in the East, and how those in the East were not as “productive” as elsewhere and it would take much time to integrate them into their way of life.

I thought about those two gentlemen yesterday, when on The Dylan Ratigan Show I saw some amazing graphics that compared the relative economies and economic policies of Germany and the United States.  It turns out that David Leonhardt, economics columnist for The New York Times, had previously covered this ground.  He pointed out that both liberals and conservatives have used Germany as an example to support a) stimulus and b) austerity as a way out of our economic mess.  But, he said:

the full story is more interesting than any caricature. In the last decade, Germany has succeeded in some important ways that the United States has not. The lessons aren’t simply liberal or conservative. They are both…

The brief story is that, despite its reputation for austerity, Germany has been far more willing than the United States to use the power of government to help its economy. Yet it has also been more ruthless about cutting wasteful parts of government.

The German economy has outperformed ours since the middle of the last decade, Leonhardt says, and in the process, “most Germans have fared much better than most Americans, because the bounty of their growth has not been concentrated among a small slice of the affluent.” Here are a couple of the charts used on The Dylan Ratigan Show:

And here’s the unemployment rate comparison:

Leonhardt noted that the Germans have made cuts to unemployment benefits and have reduced early-retirement incentives, as well as attempted to “move the long-term unemployed into the labor force.” These are the things that you hear conservatives in the media talk about, as they argue for drastic budget cuts here at home. But the truth is that in terms of safety-net benefits here in the United States, the German system is still relatively generous.

The real point, and the real difference between the United States and Germany, though, is this:

But the German story is not merely about making government more efficient. It’s also about understanding the unique role that government must play in a market economy.

That role starts with serious regulation. American regulators stood idle as the housing bubble inflated. German banks often required a down payment of 40 percent.

Unlike what happened here, German laws and regulators have also prevented the decimation of their labor unions. The clout of German unions, at individual companies and in the political system, is one reason the middle class there has fared decently in recent decades. In fact, middle-class pay has risen at roughly the same rate as top incomes.

Labor unions.  Dirty words here in the United States, thanks to Republican meme-making and legislation, but not in Germany. From Wikipedia:

German industrial relations are characterized by a high degree of employee participation up to co-determination in companies’ boards (“Aufsichtsrat”), where trade unionists and works councils elected by employees have full voting rights. Local trade union representatives are democratically elected by union members and formally largely autonomous. Central boards of directors (“Vorstand”) are elected by delegates.

Trade unions in Germany define themselves as being more than a “collective bargaining machine,” but as important political player for social, economical and also environmental subjects, especially also for labor market policy and professional education.

Hmm.

And we’ve all witnessed the war on collective bargaining waged by Republican governors and legislators here in the U.S., but in Germany most workers are covered by a collective bargaining agreement:

The relative friendliness of the German government to labor unions and collective bargaining is perhaps the best reason to explain the following eye-popping income-disparity graphic from Ratigan’s show:

That graphic is difficult to fathom, and should be even more difficult to accept. The top 1% of wage earners here in America are cleaning up, while in Germany, the wealthy, while still doing well, are earning income at the same rate as 40 years ago.  Stunning.

Finally, Leonhardt says, there is the issue of taxes:

Germany does not have a smaller budget deficit because it spends less. Germany, you’ll recall, is the original welfare state. It has a smaller deficit because it is more willing to match the benefits it wants with the needed taxes. The current deficit-reduction plan includes about 60 percent spending cuts and 40 percent tax increases…

Here’s the chart: 

As Leonhardt says, no one is advocating “that the United States should want to become Germany.”  We are richer and still attract immigrants by, unfortunately, the truckload. But in our weakened condition we should be willing to deal with our weaknesses.  But we are not, at least in terms of the political parties cooperating with one another to address them.

Leonhardt:

Some Democrats say Social Security and Medicare must remain unchanged. Most Republicans refuse to consider returning tax rates even to their 1990s levels. Republican leaders also want to make deep cuts in the sort of antipoverty programs that have helped Germany withstand the recession even in the absence of big new stimulus legislation.

I resist the implicit “both sides are equally too blame” in that statement.  I don’t know many Democrats, if any, who say “Social Security and Medicare must remain unchanged.”  But there is a point to be made that Democrats must be willing to explain how those programs can be adjusted to keep them solvent in the future.

In the mean time, Republicans continue to insist that our problems should be solved on the backs of the poor, the disabled, and the soon-to-be elderly, as well as on the backs of our education-challenged children.  And they insist on these things while advocating even more tax relief for the wealthy.

Why, just the other day, one of their most viable, “adult” presidential candidates, Tim Pawlenty, came out with a budget proposal that would lower tax rates for both the wealthy and corporations to cartoonish levels.

And it would be as funny as a cartoon, if our economic troubles were merely part of a Looney Tunes script. But they are not, and the Germans seem to understand that.

Treasury Secretary Tim Geithner: “Everybody Recognizes Now That Our Deficits Are Too High”

I know many liberals hate him, but On Morning Joe this morning, I heard Obama’s Treasury Secretary address openly the issue of deficits and the national debt, and offered a plausible scenario on how to deal with them.

Joe Scarborough asked him about the “political will” for spending cuts and tax increases, “that are going to be required to make sure we don’t turn into Greece.”  Geithner responded:

Absolutely the will’s at the White House.  And the American people are going to insist we do it as a country because they understand—they’re very sensible people—and they look at this and they know it’s not sustainable and their view is…”we’re tightening our belts in a crisis, we make choices when we go too far, and the government needs to do the same thing.”

Here is the segment on the economy and on the debt issues:

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