Deficit Reduction

I’m a pretty well-informed person.  I read news stories, blogs, op-eds, and get friends’ thoughts on the issues in America (and the world) in 2013 and beyond.  So I’m pretty well able to form my own opinions and articulate them relatively clearly.

What I don’t know is what the hell to do about them that will actually make a difference.

You know the problems as well as I do.  Here’s a partial list:

  • We have 25 people –including 20 young school children — killed by gun violence while in school and we still can’t do anything about it, because the NRA owns Congress.  So now the NRA, feeling its oats, is proposing placing armed guards in schools, and arming teachers.  The city council in Nelson, Georgia — and I swear I’m not making this up — voted 5-0 to make gun ownership mandatory.  Unless the members of the family opt out.  The level of idiocy in this is simply breathtaking.  How does any of this remotely make sense?
  • The manufactured deficit crisis, leading to the sequester:  This is directly related to the fact that most of our leaders (and I blame both Democrats and Republicans on this, but the Republicans are much, much worse on this) take really good care of the rich in this country.  After all, that’s where the campaign cash comes from, and those are the people who can afford the lobbyists.  Meanwhile, the little guy keeps getting the shaft.  The Republicans claim victory on the sequester, too, which is absolutely crazy.  At the same time they’re saying that the cuts are bad, bad, bad.  No wonder they’re so out of touch.  The latest news on this: Cancer clinics are turning away Medicare patients because of the sequester.  Can someone explain to me how this is good policy, or how it’s even humane?  Because I don’t see how it could be.  I can’t see how it’s moral or right, either, but that’s another story.
  • Women’s health and the right to choose: States continue to pare back a woman’s right to control her body.  I wrote a post on this last August.  I don’t want to re-litigate it here.
  • Republicans in North Carolina wants to declare a state religion.  Obviously, this is unconstitutional, but that people would actually try this in 2013 just boggles my mind.
  • The Obama Administration is considering a trade agreement with the European Union that would give corporations just what they need — more power (yes, I’m being sarcastic).  This is another one of those policy ideas that I just can’t understand.  Corporations have too much power in this world; they certainly don’t need more.
  • The heartbreaking struggle (If you haven’t seen the film that I’m linking to here, you should; it’s a documentary that aired on HBO … I was in tears watching it) that so many people are going through in  this country with long-term unemployment (while corporations sit on an unprecedented amount of cash, don’t hire enough people, and only manage to the bottom line).  The only mobility in this country is downward, unless you’re incredibly rich.  The middle class is being decimated.  It’s pretty plain that a strong middle class, and the poor actually being able to improve their situation, is vital to a strong economy.  All the growth is being concentrated with the rich.  None of it is “trickling down.”  Did we learn nothing from the last 30 years?  Did we learn nothing from the last Gilded Age?
  • The gerrymandered to death congressional districts that pretty well rigged elections for the next decade.
  • The voting rights act that is under review in the Supreme Court that could turn back the gains made there over the past 45 or 50 years.
  • Taxpayer-subsidized banks and oil companies.

I’ve left out all kinds of things in this list, I know — everything from gay rights, to protection for women against being raped and mandating that rape kits are actually processed, to equal pay for equal work, to the crumbling infrastructure, to the crippling student debt that so many are buried under … the list could go on and on.  America is in sorry shape.  (And I want to blast Republicans in general for their general wing-nuttery, but that’s another post.)

So my question is this:  What the hell do we do about it?  What would actually make a difference?  Because I really don’t know.

We saw the Occupy movement fall apart and fade away after some serious police brutality and the weather changing.  Newspapers are failing and being consolidated.  (I can’t find a citation right now, but I read that there’s something like four or five corporations that control nearly all of the media in this country.)

I’m really concerned about my son’s future.  How is he going to get ahead in this country when it’s on this path?

So can someone tell me something to do that will actually make a difference?

Update 4/12/13 — I had dinner with a friend last night.  She said that to change it, you have to run for office.  I pretty much dismissed that out of hand; I don’t really have much interest in running for office.  I don’t want to join to politician class and become part of the problem.  Smarter people than I am have tried and got sucked in.  I’m watching people like Elizabeth Warren pretty closely.  I hope she and others like her can make a difference.


We knew the “super” committee in Congress to trim the deficit was doomed to fail before it even got started.  That outcome just got a little more certain today.  Speaker Boehner gave a speech today.

Greg Sargent culled two sentences from the speech that sum it all up.

  1. If we want to create a better environment for job creation, politicians of all stripes can leave the “my way or the highway” philosophy behind.
  2. Tax increases, however, are not a viable option for the Joint Committee.
Doesn’t that just put paid to any chance the committee had of doing anything?  You have to credit the Republicans with sticking to their guns.  But all they’re doing is screwing over the rest of us in their quest to keep the rich from paying anything more in taxes.  And screwing us all over in their quest to keep Obama to one term.
The Republicans keep saying that all we have to do is cut taxes and regulation and the economy, freed from its bonds, will come roaring back.  The problem is that trickle-down economics doesn’t work.  Obama’s job plan might help.  But it looks dead on arrival in Congress.
When are the Republicans going to stop with the blatant obstructionism and actually govern?

From Ezra Klein today.  I don’t usually just post entire posts, but this one is good enough that it doesn’t need any comment from me, except “Exactly right.”

Daily Real Yield on TreasuriesThis is going to be the most boring sentence I have ever included in a column, but it might also be the most important: The real yield on Treasury debt has, in recent months, turned negative. Sound impenetrably dull? Sure. But here’s what it means: free money!

Let’s start by defining some terms: The “yield” on Treasury debt is how much the government pays to borrow money. The “real yield” is how much it pays to borrow money after accounting for inflation. When the “real yield” turns negative, it means the government isn’t paying to borrow money anymore. Rather, the situation has flipped, and the government is getting paid to keep money safe.

It also means that America is facing perhaps the single greatest investment opportunity in decades. But more on that in a moment. First, I have to convince you that free money — or, in this case, better-than-free money, as real yields are negative, not just zero — is possible.

If you’re an individual investor, you can put your money in the bank and be assured of its safety. Bank deposits, after all, are insured up to $250,000. But if you’re an institutional investor — if you’re playing with millions, or billions — it’s not quite that easy. You have to put that money somewhere. And right now, there aren’t a lot of safe spaces. Europe is a mess. China is slowing down. Brazil and India remain uncertain. Corporate profits can’t outpace a sluggish economy forever.

These investments don’t just carry the potential for weak returns. They carry the potential for big losses. So does stuffing money under the proverbial mattress, where you’d lose money every year simply because of inflation.

That’s where Treasury debt comes in. You won’t make much money investing in U.S. Treasurys. But barring a catastrophic outcome to some future negotiation over the debt ceiling, you won’t lose much, either. And right now, that’s good enough for the market.

Usually, the U.S. government has to pay quite a bit to borrow money. In January 2003, for instance, the interest rate on a seven-year Treasury was about 3.6 percent, which gave investors a yield of more than two percent after accounting for inflation. Right now, the interest rate is 1.52 percent, or minus-0.34 percent after accounting for inflation.

Here’s what this means: If we can think of any investments we can make over the next seven years that have a return of zero percent — yes, you read that right — or more, it would be foolish not to borrow this money and make them.

The case is even stronger with investments we know we will need to make over the next decade. The economy will get better, and as it gets better, the cost of borrowing will rise. The longer we wait, in other words, the more expensive those investments will become.

The only reason we wouldn’t take advantage of these rates is that we have no worthwhile investments to make. But that’s clearly not true.

Our infrastructure is crumbling, and we know we’ll have to rebuild it in the coming years. Why do it later, when it will cost us more and we very likely won’t have massive unemployment in the construction sector, as opposed to now, when the market will pay us to invest in our infrastructure and we have an unemployment crisis to address?

More than 16 percent of Americans are unemployed or underemployed: This would be a good time for an employer tax cut to goose hiring, or a larger payroll tax cut to help families make ends meet.

State and local budgets are wrecked, and one casualty has been higher education. California, for instance, is hacking away at the University of California system, which is far and away the finest public higher-education system in the world. If we permanently damage our public colleges and universities, we’ll have lost a major source of economic strength. But it needn’t be that way. Kindly investors the world over are willing to pay the federal government to save our education system.

Everyone knows we have worthwhile investments to make. The real reason we won’t take advantage of this remarkable opportunity is ideology: Republicans argue that deficits are the only thing that matters for our recovery — unless anyone attempts to close them through tax increases, and then tax rates are the only thing that matters for our recovery. And Democrats have stopped even attempting to challenge them.

As an economic theory, that’s just dead wrong. Deficits matter, but in the long and medium term. What matters now is getting the unemployment rate down.

Need proof? Well, what’s worrisome about deficits? That high federal deficits will crowd out private borrowing. And how do we know if that’s happening? High interest rates. And where are interest rates now? They’re negative.

They won’t be negative forever, of course. The path forward is obvious: We should borrow now and put in place a firm plan to cut deficits later, once the economy is back on track and investors have other places to put their money. But refusing better-than-free money now in order to talk about reducing our deficit later? Well, that may be the craziest sentence I’ve ever had to include in a column.

It’s not exactly a newsflash, but the Republicans are blatantly hypocritical when it comes to their no taxes pledge.  They now want to let the payroll tax cut expire at the end of the year, adding about $1,000 a year to working Americans’ tax bills.  The same Republicans who were willing to let America default are now willing to endorse what amounts to a $120 billion tax increase.

Ezra Klein looks at this today:

One possible answer is that a large tax increase in an election year is good for them because it’s bad for President Obama and the economy. But that’s a pretty cynical explanation. Another is that they care more about tax rates on the rich than they do about tax rates on the poor. But they resist that argument. The real answer, Republicans says, is that they just don’t like temporary tax cuts.

”We don’t need short-term gestures,” explained Sen. Lamar Alexander. “Temporary tax rebates don’t work to create economic growth,” said Rep. Paul Ryan. Brad Dayspring, the spokesman for House Majority Leader Eric Cantor, says his boss “has never believed that this type of temporary tax relief is the best way to grow the economy.”

But as Jon Chait noted, Republicans proposed and passed temporary tax cuts in 2001 and 2008. Ryan voted for both packages. So did Cantor. And Alexander. So the GOP seemed to believe in temporary tax cuts when George W. Bush was president.


In other words, Republicans have frequently fought for temporary tax cuts. When offered the choice between a larger temporary tax cut and a smaller permanent tax cut, as happened in 2001 and 2003 and 2010, they have opted for the temporary tax cut. Now that Obama has come to endorse a temporary tax cut, they have stopped supporting it — a pattern we’ve seen on many other issues, as well. But the idea that the party has had some steady, policy-based objection to temporary tax cuts just doesn’t fit the record.

I’ll take the cynical views that Ezra mentions in his post.  Mitch McConnell’s stated goal was to keep President Obama to one term.  That’s pretty bold honesty from a politician.  To me, it looks like two things.  The Republicans are willing to screw the working poor and middle class to protect the rich.  The Republicans are also completely unwilling to do anything that President Obama wants to do, whether it’s good for the country or not.

During the budget ceiling and deficit reduction debate, Republicans were unwilling to consider any new revenues at all.  Let’s leave aside the obvious lie from Sen. Alexander (of course temporary measures help – all stimulus programs are temporary).  We need stimulus for this economy.  Some economists believe that the US economy is already in recession.  Again.  And all they’re doing in Washington is blathering on about the need for deficit reduction. 

We don’t need deficit reduction at all.  What we need is a robust jobs program.  We need to help the long term unemployed.  They face a real human catastrophe.  We need to get those people back to work.  The deficit will be reduced just by people working again and paying taxes again.  Keynes was right.  Government needs to step in during times when the economy is weak.  Republicans either forgot that, or don’t care.

The Republicans have forgotten – or again, don’t care – that they need to govern.  And that means doing what’s right, not trying to stack the deck with a weak economy so that Obama’s reelection chances are lessened.  A poor economy could benefit the Republicans weak presidential field in 2012.  So they do what they can to keep the economy weak and the working poor and middle class continue to suffer, and the Republicans rich friends keep getting richer.

All the talk these days is about how the United States simply must reduce its budget deficit.  There’s a target reduction of $1.5 trillion over 10 years.  Democrats and Republicans, predictably, differ on how to get that done.  I think they’re both misguided at the moment.  We need to be focusing on jobs.

We seem to be forgetting our history in this country.  It’s a cliché, but those who don’t know history are doomed to repeat it.  We’re worried about reducing the deficit at a time when the economy is still sluggish, just as we did in the 1930s.  The difference here, though, is that there isn’t another world war on the horizon to pull us out of it.

It all comes back to jobs.  If we get people working again, like we did in the 1990s, we will increase tax receipts, which in turn reduces the deficit.  We have so many projects that need to be done.  The freeways are in horrible shape, as are airports, BART stations (to say nothing of their cars), bridges, and so on.  Some of this stimulus was done in 2009.  But much, much more is needed.  We absolutely have to get people working again.

Despite the Standard & Poor’s downgrade of US Treasury debt, interest rates on that debt remain incredibly cheap.  This is definitely the progressive, Keynesian view, but we should be borrowing more, not less, right now.  And then we need to be investing in infrastructure and other projects that get people working again.  If we can get companies hiring again, the economy will start to grow at a healthy rate.  And that will reduce the deficit, and the debt.

But instead, the Democrats (and let’s not forget the mainstream Republican complicity in this, using and abetting the tea party movement as a path back to power) let a small faction of extremely conservative people completely control the debate.  So any stimulus is dead on arrival.  And the economy just sputters along.  People’s lives just sputter along.  How does that serve anyone?

How did the debate over the debt ceiling – something that should be a no-brainer – become such a huge political football?  I blame both the Republicans and the Democrats.  How did the “deal” that emerged last night end up such a disaster for America?

Republicans irresponsibly attached a routine debt ceiling vote to deficit reduction.  Why was that done there, instead of via the appropriations process?  That’s where it belongs, not on the debt ceiling.  The debt ceiling, of course, is not connected to appropriations; it finances deficits that Congress already authorized.  But instead Republicans acted like three-year-olds with their “I want it now and I’m not taking no for an answer” negotiation style.  They have good negotiation skills, but at such a cost to the country.  A pox on their house.

Democrats simply allowed the Republicans to control the debate, allowing them to frame it the way they wanted.  That’s weak – weak on President Obama’s part and weak on Congressional Democrats’ part.  And then Obama caved in the end.  Weak.  And the health care bill, which was needed, was done at the wrong time.  Obama’s agenda should have been all about jobs.  But he got sidetracked.  And why not raise the debt ceiling last December?  Kicking the can down the road didn’t work.  No wonder so many on the left (me included) are so angry at Obama.  A pox on the Democrats’ house.

Who loses in all this?  Americans do.  States do.  The unemployed do – there’s no extension of unemployment benefits in this deal.  It is plain nuts to cut government spending while the economy is this weak.  Did we learn nothing from the Great Depression?  History definitely does repeat itself.  Yes, disaster was averted (the House passed this mess today; the Senate votes tomorrow) and the United States won’t default.  But the economy remains stalled and cutting a lot of government programs will put more people out of work.  This deal is going to push us right back into recession.  Great job, US government.

This paragraph might be a bit naïve, but what happened to people in Congress and the administration who actually put the country first?  Ted Kennedy could be as partisan as they came, but he’d work across the aisle to make deals when they needed to be made.  Tip O’Neill did as well.  So did Ronald Reagan.  What happened to these people?  These days we have leaders like John Boehner, who can’t control his conference.  We have leaders like President Obama and Harry Reid, who keeps caving to the Republicans.

Boehner (and others) glommed on to the tea party movement as a path to power last fall.  How well has that worked out?  Let me answer: It’s been a calamity.  I hope people wake up and get these people out of office next fall.  They have misread their mandate, just as they think Obama has.

And the world laughs at us.  A pox on both their houses.

How much longer is this going to go on?  We are less than a week away from defaulting and there still isn’t a viable plan out there.  The president has offered things that make progressives gag and still the Republicans say no.  And Boehner has the gall to say that the president keeps moving the goalposts.  Nope, it’s extortion, and Boehner pretty much admitted it.

Do they think we’re stupid?  Does Boehner think that entitling his plan “The Two Step Approach to Holding President Obama Accountable” even comes close to putting the country first?  The House has forgotten to govern in all of this political bickering.  Osama bin Laden would be laughing at us.  We’re doing with internecine warfare what he could only hope to do – crumble America’s influence as a power in this world and the dollar as the basis for world finance.

It’s ridiculous and it’s criminal.  It’s time to grow up and start doing what’s best for America, not a future reelection campaign.  A lot of Americans are going to be in really bad financial shape – as if they weren’t already – if the United States defaults on its debts.

Don’t think for a second that I excuse Democrats for their complicity in this.  We would have had none of these issues if the Democratically-controlled Congress would have passed a budget and debt ceiling increase when they had control.  That said, the Democrats have been acting a lot more like adults than the three-year-olds in the Republican Party.  (And those in the Republican leadership should be ashamed for glomming onto the tea partiers as a path back to power.  They took the quick, easy path back to power.  And now we’re all suffering and stand to suffer a whole lot more.)

And through all this, we’re losing sight of the real problem: jobs.  If we put more people to work, tax receipts go up and the deficit goes down.  That seems pretty simple to me (and I know I oversimplified it).  But we’re forgetting this, just like we’re forgetting how to govern.  Ruth Marcus said it yesterday, Madison would indeed be aghast.

Since I wrote this post earlier today, the Republicans have failed to take a vote on the Boehner plan; they don’t have the votes to pass it.  What does it say when the speaker can’t get his caucus in line?  Weak.