James Galbraith on Social Security ‘reform’

Now that Barack Obama has secured the White House for another term, we can relax knowing that Social Security, Medicare and Medicaid are safe from the evil hands of the Pete Petersons of the world.

Actually, these programs are not safe in any way. As James Galbraith wrote in Salon:

Big Money has been gunning for Social Security, Medicare and Medicaid for decades — since the beginning of Social Security in 1935. The motives are partly financial: As one scholar once put it to me, the payroll tax is the “Mississippi of cash flows.” Anything that diverts part of it into private funds and insurance premiums is a meal ticket for the elite of the predator state.

And the campaign is also partly political. The fact is, Social Security, Medicare and Medicaid are the main way ordinary Americans connect to their federal government, except in wars and disasters. They have made a vast change in family life, unburdening the young of their parents and ensuring that every working person contributes whether they have parents, dependents, survivors or disabled of their own to look after. These programs do this work seamlessly, for next to nothing; their managers earn civil service salaries and the checks arrive on time. For the private competition, this is intolerable; the model is a threat to free markets and must be destroyed.

The main target of the austerity mongerers? Social solidarity or community.

And that is what the Objectivists in Congress cannot stand. Our sense of community is an obstacle to their power. And what they are determined to destroy, we must defend. There is much more to be said, about disaster relief, food assistance, housing and other threatened programs. But to begin, Congress should leave Social Security, Medicare and Medicaid alone.

Mike Lee likes California so much

Senator Mike Lee (R-UT), Senate class of 2010, wants a Constitutional amendment to impose a ⅔rds supermajority requirement on the Congress whenever it votes for a tax increase. This, of course, is the Constitutional limit on democratic governance that has made California a basket case economy. Lee discussed his desires on Hardball with an incredulous Chris Mathews:

Ian Millhiser of ThinkProgress calls Lee’s gambit extortion:

So Lee wants to rewrite our Constitution to [sic] that the American people must always live under conservative governance, regardless of who they elect, and he’s got a simple plan to force his colleagues in Congress to make this happen. That’s a mighty nice economy we’ve got here, it would be a shame if Mike Lee had to break it.

And so it is.

Quote of the day

Nancy Pelosi (D-CA) is reported to have said:

“It is clear we must enter an era of austerity; to reduce the deficit through shared sacrifice.”

Obama’s foolish austerity project

As Barack Obama approached the conclusion of his July 15, 2011 press conference regarding the budget negotiations, he clearly threw down the gauntlet before the left:

And I have to say this is tough on the Democratic side, too. Some of the things that I’ve talked about and said I would be willing to see happen, there are some Democrats who think that’s absolutely unacceptable. And so that’s where I’d have a selling job, Chuck, is trying to sell some of our party that if you are a progressive, you should be concerned about debt and deficit just as much as if you’re a conservative. And the reason is because if the only thing we’re talking about over the next year, two years, five years, is debt and deficits, then it’s very hard to start talking about how do we make investments in community colleges so that our kids are trained, how do we actually rebuild $2 trillion worth of crumbling infrastructure.

If you care about making investments in our kids and making investments in our infrastructure and making investments in basic research, then you should want our fiscal house in order, so that every time we propose a new initiative somebody doesn’t just throw up their hands and say, “Ah, more big spending, more government.”

It would be very helpful for us to be able to say to the American people, our fiscal house is in order. And so now the question is what should we be doing to win the future and make ourselves more competitive and create more jobs, and what aspects of what government is doing are a waste and we should eliminate. And that’s the kind of debate that I’d like to have.

Marshall Auerback happily picks up the gauntlet:

You want a debate on this, Mr. President? Consider it done. In a nutshell, your proposed cuts will NOT set the stage for a “progressive agenda” going forward. The austerity measures contemplated by your Administration will suck income and wealth out of the private sector. This will cause private spending to fall, leading to yet more downsizing and unemployment. Tax revenues will decline further as corporate profitability sags, social welfare expenditures will rise as the automatic stabilizers kick in. And before you know it, we’ll be bumping up against that troublesome debt ceiling again, experiencing the same kind of political grandstanding that is characterizing today’s conflict, sort of like a nightmare version of “Groundhog Day”. The government will, in effect, be chasing its own tail. You will not “put the nation’s fiscal house in order”, Mr. President, but tear down its foundations even further.

Auerback continues:

The debate that the President is calling for, then, should not be focused on “affordability” but on what constitutes the national priorities of our government. The political process, not a non-existent gold standard, or a foolishly imposed debt ceiling of questionable constitutionality, should determine our national priorities. Promising jam tomorrow in exchange for “eating our peas” today might make for a good sound bite, but it is predicated on a fundamentally flawed model. The whole basis of our growth over the past quarter century has been based on households borrowing and the continuation of negative saving trends. A good place to start recovery efforts, therefore, would be to change this method of economic growth toward restoring incomes and job growth, rather than propping up zombie banks and embracing “rentier economics” through this misconceived emphasis of public debt reduction. No ostensible progressive can achieve anything close to the objectives ostensibly desired by the President, if we embrace his flawed economic thinking. Concerns about government deficits and the government debt have served as a very useful way of masking the real issue, the unwillingness of conservatives to allow the government to work for the good of the population, something that a democratic government is supposed to do.

Barack Obama, Wall Street’s man in Washington.

Quote of the day

Dean Baker writes about the intransigence of the Congressional Republicans:

The tension is building in the budget talks as the calendar closes in on the Aug. 2 drop-dead date. According to Treasury Secretary Geithner, this is the date where the government would no longer have the money to pay its bills and a default on the debt would be looming.

As many have noted, including me, a default on the debt would be an absolute disaster for the financial system. We would see the same sort of freeze up of lending as we did after the collapse of Lehman in September of 2008; although this time would almost certainly be much worse.

With U.S. government debt no longer the rock-solid pillar of the world financial system, banks would instantly lose much of their capital. They would not only have to write-down the value of government debt, but also all the assets backed by the government, like Fannie Mae- and Freddie Mac-issued mortgage-backed securities.

This would almost certainly push the major banks into insolvency. J.P. Morgan, Citigroup, Goldman Sachs and the rest would suddenly be back in the welfare line. And any rescue would almost certainly not restore them to their former strength and profitability like the last one did. If the government defaulted on its debt, Wall Street would take a shellacking and it would never again be the center of world finance.

This is why we knew all along that the Republicans in Congress were not serious about their threats over allowing the government to default. While these people might be happy to kick poor people in the face, to take hard-earned wages and benefits away from working people, and to shove retirees out onto the street, the Republican congressional leadership is not about to cross Wall Street. After all, who pays for the campaigns?

This meant that the Republicans were always going to fold if President Obama didn’t cave. The only question was when and how.

Obviously Baker does not think much of the Republican’s commitment to an abstract principle like fiscal responsibility:

The idea that Republicans in Congress were going to force big cuts in the country’s most important programs — Social Security, Medicare and Medicaid — by taking Wall Street hostage with the debt ceiling is absurd. It was only necessary for President Obama to call their bluff.

The bottom line is that the debt ceiling is a gun pointed first and foremost at Wall Street’s head. And, there is no way on earth that Wall Street is going to let the Republicans pull the trigger.

Quote of the day

A Business Insider headline:

It’s Official: The Whole World Thinks Republicans Are Dangerous Maniacs Threatening Everyone

Quote of the day

According to Jonathan Chait of The New Republic, it is because of the debt ceiling debate and the anti-Obama mania among the House Republican Freshman that:

The more we find out about the House Republican caucus, the more obvious it becomes that they’re not just trying to maximize their leverage by pretending to be crazy. They’re crazy.

On Obama’s centrism

How might one make Obama’s reactionary economic policies appear reasonable? Achieving this would be a real trick since a reactionary politics is nearly unreasonable by definition. A transformation such as this requires a bit of magic. The trick: The magician needs to utter the words, “He’s a centrist” and “He’s a pragmatist,” and presto: The class warrior Barack Obama turns into the ‘savior’ of Social Security and Medicare!

The New York Times shows how it is done:

President Obama made no apparent headway on Monday in his attempt to forge a crisis-averting budget deal, but he put on full display his effort to position himself as a pragmatic centrist willing to confront both parties and address intractable problems.

At a news conference preceding the latest round of debt-reduction talks with Republican and Democratic Congressional leaders, Mr. Obama said he would not accept a temporary agreement to kick the problem down the road a few weeks or months.

He said that he was willing to take the heat from his own party to move beyond entrenched ideological positions and that Republicans should do the same. And he continued to insist on “the biggest deal possible,” saying that now is the best opportunity for the nation to address its long-term fiscal challenges.

Republicans dismissed his performance as political theater. But Mr. Obama’s remarks appeared to be aimed at independent voters as well as at Congressional leaders, and stood in contrast to the Republican focus on the party’s conservative base, both in the budget showdown and in presidential politics.

There is so much irony here. A part of it issues from the fact that Obama’s deficit politics sit to the right of those held by the Congressional Republicans (see this)! Lest we forget, Obama’s maximalist demands will, if realized, destroy the remnants of the New Deal and the Great Society. It is because of this that Obama is publicly redefining the party he leads! Obama is not seeking to implement structural reforms intended to benefit the “lesser people,” reforms that will actually maintain the integrity of America’s sparse social safety net by putting this net on a stronger fiscal foundation. Obama wants to implement an austerity program during an economic downturn. Even Lawrence Summers calls for another stimulus. Barack Obama, the transformational President, is now pushing the Reagan Revolution closer to completion.

The irony increases in intensity because the Deficit Crisis is nonsense. The United States has a demand constrained economy. Aggregate demand today will not prompt investment in the real economy, thus triggering job growth. If investors lack confidence in anything, it is because they believe — correctly! — that markets do and will not exist for the goods they would produce if they were to invest in the real economy. Therefore, at this very moment, the Federal government ought to increase the deficit by implementing programs meant to pull the economic system it governs out of its slide back into recession. Obama, as we have seen, will have none of that. He wants to give away the store, to enrich his rentier benefactors. He also wants to degrade further the conditions of labor in this country by securing a high-unemployment, low-wage labor market. This is a political decision. It is one that he has made. And we know he made this decision because his administration now has a contractionary fiscal policy, and a policy such as this lacks an antidote to the unemployment crisis. But the social problems caused by a high-unemployment, low-wage economy which also lacks a welfare state able to secure the well-being of those entitled to its benefits do not trouble Obama. I would guess he believes their solution will come sometime in the future, perhaps not long after a single-payer system comes on line.

A final irony, as I see it, is this: The Republicans and the Tea Party crazies are, at best, impediments to achieving Obama’s great reactionary political cause. They mostly seem to be stalking horses Obama uses to achieve the policies he wants. This is, as Elich points out, “Class war without mercy.” It is a war of choice for Barack Obama.

Quote of the day

From Paul Krugman‘s latest:

You can’t make any sense of American political discourse if you give everyone credit for really wanting what they claim to want. My sense is that there are very few true deficit hawks; the vast majority of those who claim that title are really just using the deficit to pursue the goal of a more unequal society.

Reactionary politics and the deficit

Chad Stone, the chief economist for The Center on Budget and Policy Priorities, informs us that “…the Bush-era tax cuts and the Iraq and Afghanistan wars — including their associated interest costs — account for almost half of the projected public debt in 2019 (measured as a share of the economy) if we continue current policies.”

Center on Budget and Policy Priorities

This debt projection is instructive, although, as Kathy Ruffing and James R. Horney, also members of The Center on Budget and Policy Priorities, point out, “Some lawmakers, pundits, and others continue to say that President George W. Bush’s policies did not drive the projected federal deficits of the coming decade — that, instead, it was the policies of President Obama and Congress in 2009 and 2010. But, the fact remains: the economic downturn, President Bush’s tax cuts and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years ….” The debt projection may be instructive, but only those willing to evaluate the facts of the matter and then soundly draw conclusions from their evaluations will learn something pertinent about America’s economic predicament.

I guess the Washington elite along with their finance capital paymasters are not among those individuals capable of learning anything about the economy they regulate.

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