state of the union

Ryan's Follies: Back to Liberty

Joseph M. Firestone — Thu, 16 Aug 2012 22:38:19 -0400

More on liberty from Ryan's reply to the President's 2011 SOTU. These are about that old Republican hypocritical favorite, “small government.”

”The President and the Democratic Leadership have shown, by their actions, that they believe government needs to increase its size and its reach, its price tag and its power.”

What planet does Congressman Ryan live on? The Democrats have done very little to increase the size of Government. The measure of that is that the average annual growth in Federal Government spending is the lowest it's been in the period since Dwight Eisenhower became President. In addition, Federal spending as a percent of GDP is still extremely low compared to National Government expenditures by the nations mentioned in my last post, and has only risen about 5 percentage points from Bush Administration levels, in response to the economic crisis, which, remember, was caused by policies avidly supported by Paul Ryan and conservative Republicans.

In addition, the President, much to his discredit, has done all he could to keep Government expenditures revenue neutral or revenue positive, beyond expenditures for defense, the stimulus, and increases in social safety net expenditures resulting from the recession. His health care reform bill is a disgraceful attempt to bailout the insurance companies without taking them over, because he would not entertain Medicare for All, since it wasn't “revenue neutral.” Never mind that enhanced Medicare for All would have saved the private sector $900 Billion per year in Medical Costs, and that the stimulus involved in an additional $800 Billion of Federal deficit spending would probably have created an addition 2 million jobs, at least.

”We believe a renewed commitment to limited government will unshackle our economy and create millions of new jobs and opportunities for all people, of every background, to succeed and prosper. Under this approach, the spirit of initiative – not political clout – determines who succeeds.

“Millions of families have fallen on hard times not because of our ideals of free enterprise – but because our leaders failed to live up to those ideals; because of poor decisions made in Washington and Wall Street that caused a financial crisis, squandered our savings, broke our trust, and crippled our economy.”

The history of America is largely the history of extending initiative from the economic sector to politics and gaining advantage in both sectors. We've seen that with the railroads, the steel and oil industries (including Paul Ryan's sponsors, the Koch brothers), coal, the mass media, telecommunications, the software industry, the FIRE sector, and most other industries that have scaled the economic heights in this country. There is no way to separate economic initiative from its extension into politics. The idea that these two can be separated is a myth to persuade Americans without much power that what is happening to them is due to impersonal economic forces, rather than the use of previously accumulated wealth and political power to rig the context of the economic system so that the already wealthy can reap even greater rewards in the future.

So, unfortunately, as much as we would like to believe that a company's success in America has nothing to do with politics. It, most often, is intertwined with either favorable political conditions, political influence, or both. Congressman Ryan knows that very well because he, and his Republican and Democratic colleagues, are the recipients of attempts to "fix" the political system, so that certain private sector businesses can profit.

So, I don't know whether Congressman Ryan thinks that's the “spirit of initiative” or not. But I think it's just as much, if not more, about buying political clout than it is about economic initiative, innovation, and '”free enterprise.”

That happened during the Clinton Administration under the influence of Robert Rubin and Larry Summers, and then the Bush Administration saw to it that the SEC would not enforce the inadequate regulations that still remained. Unregulated “free enterprise” produced unprecedented accounting control frauds and bubbles in the Real Estate markets which eventually led to the crash of 2008. Then the Obama Administration bailed out the banksters/fraudsters and until now has refused to investigate and prosecute the perpetrators, while moaning about how we have to look forward and not backward.

Meanwhile, Paul Ryan, along with Mitt Romney, are responding to all this by telling us that we need to back off regulation of the private sector, and that will make everything all right. But anyone with an ounce of common sense knows that the only thing that will clean up the banking system, and restore public faith in it, is cleaning up the frauds and punishing the people responsible.

Why isn't Paul Ryan calling for that if he wants people to have faith in “free enterprise” again? He needs to keep in mind that there's no freedom without responsibility and accountability, and that his prescription, and that of the Republicans is to put responsibility and accountability aside, and to let working people bear the burden of the failings of the Wall Street FIRE sector and the corrupt Congresses and Administrations that failed, and still fail, to regulate them.

Finally, Congressman Ryan's plea for a return to limited Government would be far more credible if he were as much concerned about limitations on the size and intrusiveness of Government when it comes to privacy, a woman's reproductive rights, civil liberties, rights of habeas corpus, protections against torture, and the right to a speedy trial, as he is about the non-existent rights of businessmen to subvert markets through fraudulent activity hiding beneath the skirts of the ideal of “free enterprise. He would also be much more credible in his concern for liberty, if he were concerned that “necessitous men, are not free men,” and were willing, in the interests of liberty, to strengthen, instead of weaken, the social safety net by making its provisions as generous as the safety net in other civilized nations. He would, further, be still more credible, if his concern for liberty were great enough that he would support Medicare for All, so that employees in the United States would no longer be tied to jobs that they don't like, and were free to move to other employment without having to worry about interrupting or degrading their health care coverage, and risking their lives in the process.

He would, further, be even more credible, if his concern for liberty extended to providing a Federal Job Guarantee (see posts 42-50) to everyone who wanted to work, so that they had the freedom to do so. And he would, finally, be even more credible that that, if he recognized that liberty is not about small sized Government or big Government, but is, instead, about Government that is the right size, to do those things that will maximize the liberty of as many people as possible in our nation.

It's about recognizing that the liberty of individuals is often in conflict with the liberty of other individuals, and that you can't maximize liberty across all individuals by giving some people (big business people and FIRE sector people) complete economic liberty from any reasonable rules, when that means removing or restricting the liberty of many or most of the other people in the United States, by chaining them to the wheel of extreme economic insecurity.

Joe Biden just famously accused Romney of wanting to “let the big banks once again write their own rules. "Unchain Wall Street!” And then continued: “They gonna put y'all back in chains." Biden was right.

For most of American history, farmers and small businessmen have been chained to the banks. The New Deal ended that. But the banks are back, more powerful than ever, and they do want to chain most of us to the wheel of economic insecurity for their own profit. Ryan, Romney, the Republicans, and too many Democrats are their agents in this. They must be stopped!

Does Congressman Ryan understand that it is not about size, but about justice and activities that maximize liberty? If he does, and if he were really interested in justice and liberty, then he would be worth listening to when he talks about limited Government, and his Party would gain the trust and honor among the American people that it has not had since the time of Teddy Roosevelt, and before that Abraham Lincoln.

But don't hold your breath waiting for either that interest in justice and liberty, or that understanding about size to happen. It's just not in the DNA of the 21st Century Republican Party, the party of injustice and of serfdom for the 99%.

(Cross-posted from Correntewire.com.)

Ryan's Follies: Limited Government, Liberty, and Effective Government

Joseph M. Firestone — Wed, 15 Aug 2012 23:55:59 -0400

More Ryan's follies from his answer to the President's 2011 SOTU. These are about that old Republican hypocritical favorite, “small government.”

”So I’d like to share with you the principles that guide us. They are anchored in the wisdom of the founders; in the spirit of the Declaration of Independence; and in the words of the American Constitution.

They have to do with the importance of limited government; and with the blessing of self-government. . . .

We believe, as our founders did, that “the pursuit of happiness” depends upon individual liberty; and individual liberty requires limited government.”

I find myself in general agreement with this position; but I think it raises a very big issue, and that issue is: in exactly what ways ought the Government to be limited? Unfortunately, the Constitution doesn't tell us that in a completely clear way. It leaves it up to us to figure it out. It isn't so much that individual liberty requires limited government; but that it requires government that is limited in the right ways. So let's see what Congressman Ryan thinks about this issue.

”Limited government also means effective government. When government takes on too many tasks, it usually doesn’t do any of them very well. It’s no coincidence that trust in government is at an all-time low now that the size of government is at an all-time high.”

Well, suddenly we've moved away from “liberty” to talking about effective government, trust, and the size of government. OK. Let's talk about that!

There are a lot of factors that determine the effectiveness of Government. It's pretty clear that Government won't be effective if it's badly led and managed. So, since 1981 we've seen that Government wasn't very effective in many of its functions when managed by Ronald Reagan and the two Bushes. I wonder why. Could it be that these Republican Presidents wanted Government to be ineffective in the various areas of Government activity established by legislation they disapproved of?

It's also clear, that Government won't be effective if the people chosen to lead it by our presidents intend for it to perform poorly. So, when presidents have appointed Secretaries of Labor who were anti-labor, it's not surprising that the Labor Department performed poorly. Nor is it surprising that when they appointed people to head the FCC, or the Equal Employment Opportunity Commission that the work of these agencies suffered. And how about their record of appointments to the SEC, or the Treasury or the Fed. If presidents appoint people to these agencies that look the other way, and refuse to regulate accounting control fraud, then you get accounting control fraud run rampant. Or take the EPA, the Republicans keep appointing EPA Directors who are opposed to environmental regulation. Clearly, they are there to stop the Government from performing not, to manage its enforcing the law.

As to the Government having too many tasks to do anything very well, it's quite clear that the size of the Government is not as important as the size of the units of Government performing the tasks they need to perform, and as the communications among units that need to coordinate to perform tasks well. Also, whether units perform well is a function of the resources available to them to perform particular tasks.

For years Republicans and, to a lesser degree, Democrats, as well,have been trying to shrink the Government (because small government is better, don'cha know?), so that much of its work, has to be contracted out to the private sector. Of course, this introduces incentive problems in doing the contracted out government work, and also communication problems, between the private contractors and the government supervisors, which interfere with both efficiency and effectiveness.

After 30 years of this, there is no evidence that the policy of shrinking Government's permanent civil service employees, and contracting out government work to the private sector has been either less expensive for the Government, or more effective than Government operations of the 1950s and 1960s, which used many more civil service employees, and fewer private contractors to perform Government's work. In fact, it's likely that contracting out has been far more expensive and less effective than the old way of doing things, because private contractors have a tendency to stretch out work, and continue it as long as they can, so that their billings are extended.

In any event, the size of the Government doesn't necessarily correlate with effective performance. We can see this by comparing national governments across the World. Many nations spent more, and some far more, as a percentage of GDP than the 34.6% the United States spent on Federal, State, and local Government in 2007; for example: France; Sweden, Denmark, Sweden, Belgium, Norway, The Netherlands, Austria, Finland, the UK, Germany, Canada, New Zealand, Australia, and Switzerland. Arguably all of these Governments performed more effectively than the US Government in that year. But, even if you don't believe that, it's hard to deny that they performed at least as well.

On the other hand, many nations that spent more on Government as a percent of GDP than the US, performed much more poorly than we did. My point is that there is no clear, strong, correlation between nations whose Governments are obviously effective, and nations with a particular size of Government, and certainly there is no empirical evidence that smaller Governments work better than larger ones.

Finally, the size of Government, viewed in terms of Government spending as a percent of GDP, is not at an all time high relative to the rest of the economy. It was larger in WWII for one thing. For another, its recent increase is due to the effects of the recession and additional Government expenditures made to combat it. Nor does this increase take into account Government spending at the State and local levels. At these levels, Government spending has been cut drastically inhibiting economic recovery by introducing fiscal drag, exactly when we needed the Government sector to step up and inject funding into the private sector.

Trust in the Government may be at or near an all time low, but that is due to the failures of the Bush and Obama Administrations, the crash of 2008, the Federal bailout of the banks without a corresponding bailout of Main Street, and the actions of a Congress paralyzed by deficit hawkism and small government ideology. That is, the Federal Government hasn't performed very well, in large part due to the role of the Republicans, including Congressman Ryan, in opposing the passage of Government spending sufficient to create full employment, and in supporting the continued bailout of the banks, the payment of undeserved bonuses to FIRE sector personnel. And also in taking Federal spending hostage through paralyzing the Federal budget process and using the debt ceiling to force spending cuts, and block income tax increases on the wealthy, and in opposing investigations of the mortgage and accounting control frauds that have put so many out of their homes.

This lack of trust, isn't due to too much Government action, except perhaps in the areas of trans-vaginal ultrasound procedures and onerous voter ID laws, and won't be fixed by Mr. Ryan's preferred policies of ineffective, or no regulation of the FIRE sector and fiscal austerity. On the other hand, it may well be fixed by:

-- an effective Federal Job Guarantee program,

-- a Federal Revenue Sharing program restoring and saving state and local government jobs,

-- a full payroll tax holiday for employers and employees including Federal reimbursement of the Social Security account,

-- ending the wars in the Middle East completely,

-- passing an enhanced Medicare for All bill,

-- forgiving student loan debt,

-- prosecuting accounting control frauds in the FIRE sector, and

-- doubling Social Security benefits.

In other words, if the Government starts doing some things that actually benefit the majority of the population, then it's very likely that people will trust it a lot more. That's not rocket science, is it?

(Cross-posted from Correntewire.com.)

Ryan's Follies: Bureaucracy, Austerity, and Depression

Joseph M. Firestone — Tue, 14 Aug 2012 23:33:19 -0400

Here's the next group of Ryan's follies from his answer to the President's 2011 SOTU.

On bureaucracy and innovation:

”Depending on bureaucracy to foster innovation, competitiveness, and wise consumer choices has never worked – and it won’t work now.”

That may be. But depending on the big banks and big US corporations to either get lending going again, or to bring innovation and jobs to the United States also won't work. What will work is for the Government to increase aggregate demand by deficit spending in areas of the economy we want to grow.

“Bureaucracy” is just a scare term. The big corporations that Ryan, the Republicans, and many Democratic Congresspeople serve are all just as bureaucratic, and in the case of the health insurance companies, even more bureaucratic than the Government. The dirty little secret of the social sciences is that bureaucracy comes with large size whether we're talking about private or public organizations. So, unless Ryan has plans to break up the large banks, insurance companies, pharmaceutical companies, telecommunications companies, and exporters he loves so much, he really ought to shut up about “bureaucracy,” because his precious private sector has absolutely nothing to crow about when it comes to that feature of large organizations.

If we don't like bureaucracy, then what we need is regulation that will break up large organizations, making them illegal beyond a certain size. Then perhaps we might create functioning markets and be able to shrink the Federal government too. But this kind of solution is off the table for Ryan and Romney since regulation is a no-no from the standpoint of their ideology.

On other nations acting soon enough when they rising debts:

”Just take a look at what’s happening to Greece, Ireland, the United Kingdom and other nations in Europe. They didn’t act soon enough; and now their governments have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody.”

First, I've heard just about enough of the mindless comparisons of Greece and Ireland to the United States and other nations that are sovereign in their own currency. Greece and Ireland use the Eurozone's currency, so they have solvency risk not shared by nations like the United States. They can be driven into insolvency by the bond markets. Currency-wise Euro nations are like the states of the United States, and not like the Federal Government which is the creator of US currency. These cannot avoid insolvency by simply creating Euros, because they have given up their power to issue currency. We, on the other hand, can spend dollars, and in the act of spending create high-powered money in private sector accounts.

Second, Ryan may say that the British Government was forced into its austerity measures. But this is nonsense, no one forced it into its austerity moves. It just decided to follow the policies that Ryan wants for us here. And what's happened to Britain since they introduced austerity policies should be a lesson learned for every other nation in full control of its currency that decides to ape Euro austerity.

Contrary to Ryan's neoliberal economic theory, austerity has created economic contraction in the UK, since the fourth quarter of 2010. The UK National Accounts show a decline of 0.5% in real GDP growth in that quarter, a little over 6 months after the new coalition took office and passed its austerity program. That decline was prior to the implementation of some of the heaviest austerity measures, and reflected the attempts of UK households to anticipate the bite of austerity. The UK VAT was then increased by 2.5%. And its impact has been another decline in GDP caused by the Government's removal of private sector financial assets through the increase in the VAT, and its spending cut policies since the Spring of 2011.

Everyone in America should be watching Europe very carefully. Ireland and Greece had the choice of austerity or withdrawing from the Eurozone. They chose austerity. Both economies continue to struggle with Greece on the brink of collapse, and Ireland still mired deep in depression. In addition, Spain, Italy, and Portugal are also choosing austerity, and all of them are in trouble as the Euro crisis treated with austerity policy, gradually kills the economy.

In the UK, the British public is suffering from the stubborn Tory-liberal experiment in austerity, with the ruling parties continuing to deny facts obvious to everyone about how their experiment is working out. Let's hope that the deficit hawks and doves in this country watch that carefully, so that they can see that austerity won't work, before they subject Americans to one of their variety of unnecessary long-term deficit reduction plans.

On endless borrowing and spending cuts:

”We believe the days of business as usual must come to an end. We hold to a couple of simple convictions: Endless borrowing is not a strategy; spending cuts have to come first.”

I believe that business as usual has to end too. For the past 30 years or more we've heard nothing but economic theory that confuses the Government with a household or other economic units that cannot create their own currency. And we've heard all through that time that we cannot keep borrowing, and that spending cuts must come first, while we've kept borrowing largely to provide lower tax rates for wealthy people, in the hopes that greater disposable income for them would trickle down. Ryan and Romney are giving us that same ideology again.

If endless borrowing is really not a strategy, than why won't Ryan work to restore the marginal tax rates of the 1960s and close all loopholes? We all know why; because he doesn't believe in shared sacrifice; only in sacrifices by the poor and the middle class so he can further enrich his supporters. Congressman Ryan, the Republican's young guru is exactly the same as their old gurus. His one prescription for everything is to leave the poor little rich people alone, so they can, out of the goodness of their hearts, leave the rest of us a few scraps.

The Government can borrow endlessly if it wants to, as long as its accompanying Government spending doesn't cause demand-pull inflation. Or, alternatively, if Ryan and Romney are as bothered by the debt as they claim, then they can work to repeal the Congressional mandate forcing the Treasury to issue new debt when it deficit spends. That way, the debt will gradually be reduced to zero as time passes and they won't have to worry about it anymore.

Even better, if Ryan and Romney hate the debt so much, they can propose that the Executive cause the US Mint to issue a $60 Trillion proof platinum coin, deposit it at the Fed in return for electronic credits which will end up in the Treasury General Account. With the $60 T in credits, the debt subject to the limit can be paid off entirely as it falls due, leaving $44 T in credits to use for deficit spending over the next 15 years or so. Romney and Ryan will never do this however, since if they did and also implemented this plan, then they'd have no excuse for cutting Federal spending that benefits the poor and the middle class.

The more important point is that cutting the level of Government deficit spending is not what ought to be done when we have an economy that is operating so far below its full capacity. If we do that and move to balance the budget as Ryan/Romney want us to do, then we will take financial assets out of the private sector, reduce aggregate demand and further decrease our use of the economy's productive capacity. That is, we'll have greater unemployment, greater suffering, and much less growth.

If that's really what Ryan, Romney, the Republicans, and a variety of Democrats, as well, want to do, then let them try to do it. But I guarantee that sooner or later the American public will have its revenge for their bringing back Herbert Hoover's nightmare.

(Cross-posted from Correntewire.com.)

For a State of the Union Home Run, the President Should Stand Up For Social Security

Richard Eskow — Sun, 22 Jan 2012 17:23:18 -0500

Like a lot of former Obama voters, I've had my issues with the President. Sure, it helped when he sang that Al Green song at the Apollo Theater last week. (Good job, Mr. President! Good pitch and an appropriately understated delivery.)

But in a time of uncertainty people are looking for certitude. In a time of great battles people are looking for strength. They don't just need to hear the words when they listen to their leaders. They need to feel the music.

The State of the Union Address is scheduled for this Tuesday night. The President can go a lot further toward winning over voters who are disappointed, doubtful, or just unenthusiastic, if he chooses an issue that's vitally important to them and offers a clear, strong and unequivocal defense.

Social Security is the ideal issue. It's one of many, according to polls, where both parties are out of step with voters. After seeing their savings, pension plans, and housing values destroyed, people are frightened about their retirement security. They don't hear anybody in Washington offering to protect their benefits.

And to borrow a phrase from Rev. Al, they're tired of being alone.

People's Choice

Last year the President narrowly averted political disaster in his State of the Union address. He bowed to outside pressure and abandoned an ill-conceived plan to propose cutting Social Security benefits and a partial lifting of cap on payroll taxes that fund them. But a form letter from the White House illustrates the Administration's still-squishy position on both Social Security and Medicare.

The White House is clearly preparing for an economically-themed, pro-99 percent speech this week. A chart is clearly visible on its SOTU website, although its still just a preview, showing the difference in pay between the average worker and the average CEO. In a short video, Presidential advisor David Plouffe tells viewers that charts and other information will be available there after the speech.

As President Obama continues his electoral-year pivot toward populism, Tuesday night's offers the perfect chance for a home run. There's no better way for the President to start the year than with a vigorous, unambiguous defense of Social Security - and Medicare, too.

Poll after poll has shown that Americans - including most Republican voters and Tea Party members - oppose cutting Social Security to balance the Federal deficit. So it's a good thing that the President scrubbed that proposal from last January's SOTU. Republicans would have rejected it and then spent the next two years running as the defenders of Social Security, much the same way they ran as defenders of Medicare in 2010.

(Sure, that's insanely hypocritical from the party of the radical Ryan proposal to dismantle Medicare. But that's never stopped them before, and it won't stop them this year either.)

Evasive Maneuvers

Yet for some reason - perhaps because they believe Republicans will have a change of heart and cut a deal on Social Security, and don't realize how hated such a deal would be - the President and his team continue to equivocate on Social Security. They continue to say only that they won't "slash" the program - although the proposals they've considered are pretty slashing for recipients.

A recent form letter, received by a friend who expressed concern about proposed Social Security cuts, shows that the equivocation and evasion hasn't stopped. "Dear Friend," the letter said, "I have heard from many Americans who are concerned about their retirement savings ... Retiring with dignity is a promise we must keep to all Americans, and I am working hard to strengthen our retirement system."

The letter goes on to say:

"That is why I am committed to protecting Social Security and addressing Americans' concerns. Social Security cannot be subjected to risky privatization plans because the future of hard-working Americans should not be left to the fluctuations of financial markets."

To better secure their retirement and prepare for unforeseen circumstances, Americans must also save for their future in other ways. We are laying the foundation for all individuals to participate in workplace retirement accounts. Employees would be automatically enrolled in pension plans and could opt out if they choose. Simple and automatic enrollment makes it easier for people to plan for retirement. This would assist the 75 million working Americans-about half the workforce-who lack access to retirement plans through their employers ...

Thank you, again, for writing.

Sincerely,

Barack Obama"

Anger Management

My friend's reaction wasn't what they were looking for. She was furious. She hadn't written to express her concern about her "retirement savings," but to ask for the President's reassurance that he won't cut Social Security.

The GOP privatization plan is off the table and she knows it. And the paragraph about opt-out pension plans confused her. "Isn't that the Republican privatization plan?" she asked.

She's paid her Social Security contributions all her life, and she was asking if her benefits would be there when she retired. Instead she felt she'd gotten the runaround, with an evasive run of double-talk, with a little lecture about her own moral failings ("Americans must also save ...") thrown in for good measure.

Real Bipartisanship

This is a problem but it can be fixed, and the State of the Union is the perfect place to do it. People are anxious to hear a rigorous defense of Social Security and Medicare. Here's why this issue is a winner for the President:

Social Security isn't in danger. He can explain why during Tuesday's speech, and then back it up with information on graphics on his SOTU website. He can use the work of Ronald Reagan's chief Social Security actuary to reinforce his point.

The President can push his favored bipartisanship theme, but this time he'll have a truly bipartisan position. Most Republicans want Social Security preserved. He can link to this report, prepared by a bipartisan panel of experts under Republican President Dwight D. Eisenhower, to rebut the most common (and completely false) anti-Social Security talking points. (They were around in 1958, and in 1935 too.)

President Obama can also use this as an opportunity reinforce the fact that government has a vital role to play in our society, and that there are some things it can do better than private businesses can. He can point to the military, the police, public health, education - and to private benefits like Medicare and Social Security.

Soul of a New Machine

The Administration's SOTU website displays its mastery of form, which now needs to be matched by a mastery of content. That means simple, direct and clear statements like "We will not tolerate any cut to Social Security - not on my watch." And "We won't let them be cut directly - or indirectly, by raising the retirement age or lowering the already-inadequate cost of living increases people receive."

The President's team has a truly impressive mastery of political technology. Now they need to infuse that technology with a simple, forceful message that resonates in the heart.

David Plouffe tells viewers that the speech will be about a government that "works for the middle class," around the themes of "a fair share, a fair shake, and fair play." Social Security is a perfect fit for that message:

A "fair share" is asking the wealthy to pay a more proportional contribution for Social Security and Medicare.

A "fair shake" means not cutting benefits for people who have worked all their lives.

And "fair play" means not punishing the rest of the nation because a radical upward distribution of income has created an easily fixed long-term imbalance in Social Security.

The President has a great opportunity on Tuesday night. By defending Social Security - and making a firm commitment to ensuring that benefits aren't cut - he can tell voters that, in Al Green's words, "You ought to be with me."

If he does, come November they'll be more likely to say "Let's Stay Together."

(Now it's time for Rev. Al - in his decidedly pre-Reverend days - to remind us what we're all really looking for.)

This post was produced as part of the Strengthen Social Security campaign.

Paul Ryan On Limited Government

Joseph M. Firestone — Tue, 01 Feb 2011 00:23:31 -0500

In my last two posts I reviewed the deficit reduction aspects of Paul Ryan's Republican response to the SOTU. But Ryan also placed considerable emphasis on the idea of “limited government” in his response. In this post, I want to evaluate what he had to say on this theme.

So I’d like to share with you the principles that guide us. They are anchored in the wisdom of the founders; in the spirit of the Declaration of Independence; and in the words of the American Constitution.

They have to do with the importance of limited government; and with the blessing of self-government. . . .

We believe, as our founders did, that “the pursuit of happiness” depends upon individual liberty; and individual liberty requires limited government.

I find myself in complete agreement with this position; but I think it raises a very big issue, and that issue is: in exactly what ways ought the Government to be limited? Unfortunately, the Constitution doesn't tell us that in a completely clear way. It leaves it up to us to figure it out. So let's see what Congressman Ryan thinks about this issue?

Limited government also means effective government. When government takes on too many tasks, it usually doesn’t do any of them very well. It’s no coincidence that trust in government is at an all-time low now that the size of government is at an all-time high.

There are a lot of factors that determine the effectiveness of Government. It's pretty clear that Government won't be effective if it's badly led and managed. So, since 1977 we've seen that Government wasn't very effective in many of its functions when managed by Ronald Reagan and the two Bushes. I wonder why. Could it be that these Republican Presidents wanted Government to be effective in the various areas of Government activity established by legislation they disapproved of?

It's also clear, that Government won't be effective if the people chosen to lead intend for it to perform poorly. So, when the Republicans have appointed Secretaries of Labor who were anti-labor, it's not surprising that the Labor Department performed poorly. Nor is it surprising that when they appointed people to head the FCC, or the Equal Employment Opportunity Commission that the work of these agencies suffered. Or take the EPA, the Republicans keep appointing EPA Directors who are opposed to environmental regulation. Clearly, they are there to stop the Government from performing not, to manage its enforcing the law.

As to the Government having too many tasks to do anything very well, it's quite clear that the size of the Government is not as important as the size of the units of Government performing the tasks it needs to perform, and as the communications among units that need to coordinate to perform tasks well. Also, whether units perform well is a function of the resources available to the units performing particular tasks.

For years Republicans and, to a lesser degree, Democrats, have been trying to shrink the Government, so that much of its work, has to be contracted out to the private sector. Of course, this introduces incentive problems, and also communication problems which interfere with both efficiency and effectiveness. There is no evidence that this policy of shrinking Government's permanent civil service employees, and contracting out to the private sector has been either less expensive for the Government, or more effective than Government operations in the 1950s and 1960s, which used many more civil service employees, and fewer private contractors to perform Government's work. In fact, it's likely that contracting out has been far more expensive and less effective than the old way of doing things, because private contractors have a tendency to stretch out work, and continue it as long as they can so that their billings are extended.

Finally, the size of Government, viewed in terms of Government spending as a percent of GDP, is not at an all time high relative to the rest of the economy. It was larger in WW2 for one thing. For another, its recent increase is due to the effects of the recession and additional Government expenditures made to combat it.

Trust in the Government may be at or near an all time low, but that is due to the failures of the Bush Administration, the crash of 2008, and the Federal bailout of the banks without a corresponding bailout of Main Street. That is, the Federal Government hasn't performed very well, in large part due to the role of the Republicans, including Congressman Ryan, in opposing the passage of Government spending sufficient to create full employment, and in supporting the continued bailout of the banks, the payment of undeserved bonuses to FIRE sector personnel, and in opposing investigations of the mortgage and accounting control frauds that have put so many out of their homes.

This lack of trust, isn't due to too much Government action, and won't be fixed by Mr. Ryan's preferred policies of ineffective, or no regulation of the FIRE sector and fiscal austerity. On the other hand, it may be fixed by an effective Federal Job Guarantee program, a Federal Revenue Sharing program saving state and local jobs, a payroll tax holiday for employers and employees including Federal reimbursement of the Social Security account, ending the wars in the Middle East quickly, and passing a Medicare for All bill

The President and the Democratic Leadership have shown, by their actions, that they believe government needs to increase its size and its reach, its price tag and its power.

What planet does Congressman Ryan live on? The Democrats have done very little to increase the size of Government. The measure of that is that Federal Government spending as a percent of GDP is still extremely low compared to National Government expenditures by the nations mentioned earlier, and has only risen about 5 percentage points from Bush Administration levels.

In addition, the President, much to his discredit, has done all he could to keep Government expenditures revenue neutral or revenue positive, beyond expenditures for defense, and increases in social safety net expenditures resulting from the recession. His health care reform bill is a disgraceful attempt to bailout the insurance companies without taking them over, because he would not entertain Medicare for All.

We believe a renewed commitment to limited government will unshackle our economy and create millions of new jobs and opportunities for all people, of every background, to succeed and prosper. Under this approach, the spirit of initiative – not political clout – determines who succeeds.

Millions of families have fallen on hard times not because of our ideals of free enterprise – but because our leaders failed to live up to those ideals; because of poor decisions made in Washington and Wall Street that caused a financial crisis, squandered our savings, broke our trust, and crippled our economy.

The history of America is largely the history of extending initiative from the economic sector to politics and gaining advantage in both sectors. We've seen that with the railroads, the steel and oil industries, coal, the mass media, telecommunications, the software industry, the FIRE sector, and most other industries that have scaled the economic heights in this country. There is no way to separate economic initiative from its extension into politics. The idea that these two can be separated is a myth.

So, unfortunately, as much as we would like to believe that a company's success in America has nothing to do with politics. It, most often, is intertwined with either favorable political conditions, political influence, or both. Congressman Ryan knows that very well because he, and his Republican and Democratic colleagues, are the recipients of attempts to fix the political system, so that certain private sector businesses can profit. So, I don't know whether Congressman Ryan thinks that's the “spirit of initiative” or not. But I think it's just as much, if not more, about buying political clout.

Ryan goes on to blame Washington and Wall Street for decisions that caused the financial crisis. I certainly agree; But I also think that the wrong decisions made by Washington include de-regulating of Wall Street so that the spirit of “free enterprise” reigned supreme. That happened during the Clinton Administration under the influence of Robert Rubin and Larry Summers, and then the Bush Administration saw to it that the SEC would not enforce the inadequate regulations that still remained. Unregulated “free enterprise” produced unprecedented accounting control frauds and bubbles in the Real Estate markets which eventually led to the crash of 2008. Then the Obama Administration bailed out the banksters/fraudsters and until now has refused to investigate and prosecute the perpetrators, while moaning about how we have to look forward and not backward.

Meanwhile, Paul Ryan is responding to all this by telling us that we need to back off regulation of the private sector, and that will make everything all right. But anyone with an ounce of common sense knows that the only thing that will clean up the banking system, and restore public faith in it, is cleaning up the frauds and punishing the people responsible. Why isn't Paul Ryan calling for that if he wants people to have faith in “free enterprise” again? He needs to keep in mind that there's no freedom without responsibility and accountability, and that his prescription, and that of the Republicans is to put responsibility and accountability aside, and to let working people bear the burden of the failings of the Wall Street FIRE sector and the corrupt Congresses and Administrations that failed, and still fail, to regulate them.

Finally, Congressman Ryan's plea for a return to limited Government would be far more credible if he were as much concerned about limitations on the size and intrusiveness of Government when it comes to privacy, civil liberties, rights of habeas corpus, protections against torture, and the right to a speedy trial, as he is about the non-existent rights of businessmen to subvert markets through fraudulent activity hiding beneath the skirts of the ideal of “free enterprise. He would also be much more credible in his concern for liberty, if he were concerned that “necessitous men, are not free men,” and were willing, in the interests of liberty, to strengthen, instead of weaken, the social safety net by making its provisions as generous as the safety net in other civilized nations. He would, further, be still more credible, if his concern for liberty were great enough that he would support Medicare for All, so that employees in the United States would no longer be tied to jobs that they don't like, and were free to move to other employment without having to worry about interrupting or degrading their health care coverage.

He would, further, be even more credible, if his concern for liberty extended to providing a Federal Job Guarantee to everyone who wanted to work, so that they had the freedom to do so. And he would, finally, be even more credible that that, if he recognized that liberty is not about small sized Government or big Government, but is, instead, about Government that is the right size, to do those things that will maximize the liberty of as many people as possible in our nation. It's about recognizing that the liberty of individuals is often in conflict, and that you can't maximize liberty by giving some people (big business people and FIRE sector people) complete economic liberty from any reasonable rules, when that means removing or restricting the liberty of many or most of the other people in the United States, by chaining them to the wheel of extreme economic insecurity.

Government does need to be limited, but only a simpleton can fail to recognize that its limits have less to do with its size, and much more to do with its having processes that are just and fair and maximize liberty, rather than processes which enshrine arbitrariness, favoritism, exposure to political influence, and special favors for one group, placing them above the law. If Congressman Ryan understood that it is not about size, but about justice and activities that maximize liberty, then he would be worth listening to when he talks about limited Government, and his Party would gain the trust and honor among the American people that it has not had since the time of Teddy Roosevelt, and before that Abraham Lincoln. But don't hold your breath waiting for that understanding to happen. It's just not in the DNA of the 21st Century Republican Party.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

Making America the Best Place on Earth to Work

Leo Gerard — Mon, 31 Jan 2011 09:37:33 -0500

Not the wars. Not greenhouse gasses. Not even the deficit. The issue most important to Americans is jobs.

Despite that, jobs failed to make an appearance in the State of the Union address.

The talk was all about business. Business was doing better. Business needed taxpayers to help pay for research and innovation. Business will get government help to eliminate pesky regulations. Business must have lower taxes.

The most telling statement was this:

“We have to make America the best place on Earth to do business.”

Especially because it wasn’t matched by a companion:

“We have to make America the best place on Earth to work.”

The speech expressed a policy in which business is the focus of government, taking precedence over workers. The American colonists created a government for their own benefit; they did not constitute an agent to serve business. A policy giving corporations primacy is risky for American workers.

The state of the union noted that happy days are here again for corporations and banks:

“Two years after the worst recession most of us have ever known, the stock market has come roaring back. Corporate profits are up. The economy is growing again.”

Never mentioned, however, were the 14.5 million unemployed Americans, the sustained record rate of foreclosure, and the increasing poverty and food bank reliance among citizens of the richest nation in the world.

The state of the union outlined a plan under which the government will coddle corporations, essentially proving companies government welfare using American workers’ tax dollars. If businesses create jobs for workers as a result, fine. If they don’t, there’s no plan to exact a penalty.

For example, under the policy described in the speech, American workers will fork over tax dollars to pay for research and development for businesses that are sitting on a record $1.8 trillion in cash reserves -- hoarding it rather than creating jobs.

The president said:

“Two years ago, I said that we needed to reach a level of research and development we haven't seen since the height of the Space Race. And in a few weeks, I will be sending a budget to Congress that helps us meet that goal. We'll invest in biomedical research, information technology, and especially clean energy technology -- an investment that will strengthen our security, protect our planet, and create countless new jobs for our people.”

Maybe it will create new jobs. Hopefully. But no guarantees were offered. Mentioned as a business success story in the speech was a Michigan company, Luma Resources, which began manufacturing solar shingles with the help of a $500,000 government grant. It created 20 jobs, $25,000 a job. American taxpayers might think that’s a little pricey, but what’s worse is the potential for Luma Resources to go the way of Evergreen Solar, squandering the corporate welfare.

Evergreen, the third largest maker of solar panels in the U.S. and recipient of at least $43 million in corporate welfare, announced earlier this month it would close its main American factory in Massachusetts and move manufacturing to China. Eight hundred Americans will lose their Evergreen jobs by April.

Evergreen officials said China will give the company even higher amounts of corporate welfare, which, of course, makes sense since China is not a capitalist country. Its economy is government controlled. And that government routinely violates international trade regulations – by providing banned subsidies to industries and by deliberately devaluing its currency.

No matter how better educated American workers get. No matter how much more innovative. No matter how much more productive. No matter how many tax dollars the government spends on research and development, if the corporations that benefit move manufacturing overseas, the American workers who paid for it will suffer.

In fact, it’s more than suffering; it’s betrayal by their government that provided tax benefits to companies for off-shoring jobs. It is betrayal by their government that fails to stop violations of trade laws by countries like China that lure away firms like Evergreen.

At the end of the State of the Union speech, the president said:

“From the earliest days of our founding, America has been the story of ordinary people who dare to dream.”

An ordinary American dreams of a family-supporting job, owning a home, saving enough to pay for a child’s college education, helping to build a safe community. Corporations aren’t Americans, no matter how often the U.S. Supreme Court grants them rights that the U.S. Constitution guarantees to human beings. Businesses aren’t citizens. Their allegiance isn’t to America. It’s to profits. They dream only of dollars. They concede no responsibility to family, community or country.

They were not included when the president said:

“Tucson reminded us that no matter who we are or where we come from, each of us is a part of something greater -- something more consequential than party or political preference. We are part of the American family.”

The top priority of the American government must be making America the best place on Earth for Americans. If that’s good for corporations, great. The government must never place American citizens second.

Paul Ryan's Deficit Reduction Fairy Tales: Part Two

Joseph M. Firestone — Mon, 31 Jan 2011 01:27:16 -0500

Here's Part Two of my textual analysis of the deficit reduction portion of Paul Ryan's Republican response to the SOTU.

Then the President and his party made matters even worse, by creating a new open-ended health care entitlement.

What we already know about the President’s health care law is this: Costs are going up, premiums are rising, and millions of people will lose the coverage they currently have. Job creation is being stifled by all of its taxes, penalties, mandates and fees.

Well, Congressman Ryan's right about most of this. The Health Care Reform (HCR) bill doesn't contain direct measures to prevent insurance companies from raising premiums. On the other hand, Paul Ryan and the Republicans wouldn't support any measure that would be effective, such as, for example, prohibiting increases in premium costs greater than the rate of inflation in the rest of the economy, because the Republicans and Ryan himself, along with many Democrats are bought and paid for by the insurance companies and big Pharma.

Ryan's claim that job creation is being stifled by the HCR bill, is currently unsupported by evidence. But this is pure theory, especially since most of the bill isn't operational yet and its impact can't be assessed. One thing's certain, however, and that is that there's no way this way will produce the 2.5 million new jobs predicted by the California Nurses Association study if the Democrats had rid themselves of the filibuster and passed Medicare for All, rather than collaborate with the Republicans and the Blue Dogs to cut the heart out of health care reform.

Businesses and unions from around the country are asking the Obama Administration for waivers from the mandates. Washington should not be in the business of picking winners and losers. The President mentioned the need for regulatory reform to ease the burden on American businesses. We agree – and we think his health care law would be a great place to start.

Health care spending is driving the explosive growth of our debt. And the President’s law is accelerating our country toward bankruptcy.

Health care spending is driving the explosive growth of debt, both public and private, but as we saw in Part One of this series, the public debt caused by health care spending is reducing debt in the private sector and also increasing demand. Unfortunately, the explosive growth of private debt from health costs visited upon individuals is causing great suffering in the form of bankruptcies and foreclosures. In addition, these costs result in deaths when people can no longer afford co-pays and decide to forgo treatment they need before illnesses or injuries get serious.

I don't believe that Paul Ryan is right that “the President's Law” is accelerating the Government towards bankruptcy, because it has no risk of “bankruptcy,” unless Congressman Ryan and his colleagues decide to force insolvency by not using their constitutional authority to appropriate Government spending or to raise the debt limit. The “explosive growth” of the public debt is, for reasons stated in Part One, of little or no concern. However, I do believe that the growth of private sector debt due to health care costs is a major issue, as is the portion of the US GDP spent on the health care sector, which is way out of line with other industrial nations, and which at the same time produces much worse outcomes for too many Americans whether they have insurance “coverage,” or not.

Of course, the Congressman is not concerned about these real problems, but only about his imagined “problem” of the Government becoming insolvent due to excessive spending. That is, one of the reasons, why, I suppose, he opposes Medicare for All. If he and his Republicans were to join with Democrats to pass that, it would relieve both the increasing private sector debt problem, and also reduce the GDP proportion of health care spending by perhaps one-third. But, I guess we just expect this kind of public service out of someone who proposes to return the United States back to 19th century economic rules.

Congressman Ryan, criticizes the waiver process, by saying that Washington should not be in the business of picking winners and losers. But, this is one of the most hypocritical remarks in the history of politics coming from Congressman Ryan, since he has gone out of his way to see to it that lack of regulation would ensure that the health insurance companies, big Pharma, the FIRE sector, and businesses in his and other Congressional Districts that wanted to move jobs to other nations would be big winners while American workers and people needing Medical insurance would be big losers. The Congressman has always picked winners and losers. Unfortunately, for America, however, he has never picked them in the public interest; but only to benefit his own political career.

Our debt is out of control. What was a fiscal challenge is now a fiscal crisis.
We cannot deny it; instead we must, as Americans, confront it responsibly.

If we act soon, and if we act responsibly, people in and near retirement will be protected.

As shown in Part One, the national debt isn't out of control at all. But Ryan is right to think that we have a fiscal crisis that we have to confront responsibly. That crisis is that the Government including Congress, the Federal Reserve, and the Executive Branch isn't using activist fiscal policy to achieve the public purpose, even though there is no solvency risk and little inflation risk in the United States doing so. The United States has so many problems right now that letting these problems go unsolved, by kicking them down the road is the real meaning of fiscal irresponsibility.

When it comes to fiscal irresponsibility no one is better described by that term than Paul Ryan. Of course, he has a lot of company in Peter G. Peterson, the Koch brothers, and all the advocates of balanced budget amendments, Republicans and Democrats who think it's responsible to manage the US Government's spending as though it were a household or still on the gold standard. These people, who have, apparently been joined now by Barack Obama, will destroy the economic foundations of the United States, and create a nation where everyday life is “nasty, brutish, and short,” and the sick “die quickly.”

Our nation is approaching a tipping point.

We are at a moment, where if government’s growth is left unchecked and unchallenged, America’s best century will be considered our past century. This is a future in which we will transform our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency.

Anyone who has experienced unemployment, or living on Social Security alone, or Medicare, not supplemented by other medical insurance, knows that the social safety net is no hammock, and that it is not nearly as generous as social safety nets in other industrial companies. Our social safety is the most frugal of all the industrial nations, and also the one most immersed in false economies that undercut demand and prevent the social safety net from doing its job of making recessions less punishing for poor people and people out of work and the sick. Congressman Ryan makes Mr. Potter, the banker in “It's a Wonderful Life,” look like a generous man, for he means to drain America of real wealth so he can serve the job exporters he loves so well better. If he has his way, the social safety net will become a bed of nails. And if we simply leave it where it is, there's no danger of hammocks anytime soon.

Depending on bureaucracy to foster innovation, competitiveness, and wise consumer choices has never worked – and it won’t work now.

That may be. But depending on the big banks and big US corporations to either get lending going again, or to being jobs to the United States also won't work. What will work is for the Government to increase aggregate demand by Government spending in areas of the economy we want to grow.

“Bureaucracy” is just a scare term. The Big corporations that Ryan, the Republicans, and many Democratic Congresspeople serve are all just as bureaucratic, and in the case of the health insurance companies, even more bureaucratic than the Government. Bureaucracy comes with large size whether we're talking private or public organizations. So, unless Ryan has plans to break up the large banks, insurance companies, pharmaceutical companies, telecommunications companies, and exporters he favors so much, he really ought shut up about Bureaucracy, because his precious private sector has absolutely nothing to crow about when it comes to that feature of large organizations.

If we don''t like bureaucracy, then what we need is regulation that will break up large organizations, making them illegal beyond a certain size. Then perhaps we might restore real markets and be able to shrink the Federal government too.

Just take a look at what’s happening to Greece, Ireland, the United Kingdom and other nations in Europe. They didn’t act soon enough; and now their governments have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody.

First, I've heard enough of comparisons of Greece and Ireland to the United States and other nations that are sovereign in their own currency. Greece and Ireland use the Eurozone's currency, so they have solvency risk not shared by nations like the United States. They can be driven into insolvency by the bond markets. Currency-wise they are like the States of the United States, and not like the Federal Government which is the creator of US currency. They cannot avoid insolvency by simply creating Euros. We, on the other hand, can spend dollars, and in the act of spending create high-powered money in private sector accounts.

Second, Ryan may say that the British Government was forced into its austerity measures. But this is nonsense, no one forced it into its austerity moves. It just decided to follow the policies that Ryan wants for us here. And what's happening to Britain since they did introduce those policies is instructive.

Contrary to Ryan's neoliberal economic theory, austerity is creating economic contraction in the UK, as this is written. The UK National Accounts show a decline of 0.5% in real GDP growth the fourth quarter of 2010, a little over 6 months after the new coalition took office and passed its austerity program. This decline is prior to the implementation of some of the heaviest austerity measures, and reflects the attempts of UK households to anticipate the bite of austerity. The UK VAT was just increased by 2.5% this month. We should see its impact by the next UK National Accounts Report. It is nearly certain to show another decline in GDP caused by the Government's removal of private sector financial assets through the increase in the VAT.

Everyone in America should be watching Europe very carefully. Ireland and Greece had the choice of austerity or withdrawing from the Eurozone. They chose austerity. Greece struggles with popular frustration, and the Government in Ireland is about to be roundly rejected by the people, with even a chance that the public will turn to Sinn Fein in disgust at the legacy parties.

In the UK, a Government that freely chose austerity when it could have increased its economic stimulus enough to end unemployment, is now testing the neoliberal theory that austerity works for everyone. Early results show that this theory is false and the British public will suffer for it. Let's hope that the deficit hawks and doves in this country watch that carefully, so that they can see that austerity won't work, before they subject Americans to it.

We believe the days of business as usual must come to an end. We hold to a couple of simple convictions: Endless borrowing is not a strategy; spending cuts have to come first.

I believe that business as usual has to end too. For the past 30 years or more we've heard nothing but the economic theory that confuses the Government with a household or other economic units that cannot create their own currency. And we've heard all through that time that we cannot keep borrowing, and that spending cuts must come first, while we've kept borrowing largely to provide lower tax rates for wealthy people, in the hopes that greater disposable income for them would trickle down. Ryan is giving us the same ideology again.

Apart from this however, while ending borrowing and cutting spending may increase the well-being of a private sector household, if everyone does that in the private sector, then there will be no demand, and as surely as night follows day there will be a double-dip recession harming everyone, unless Government spending takes up the demand slack coming from the private sector. The Government can borrow endlessly if it wants to, as long as its accompanying Government spending doesn't cause demand-pull inflation. Or, alternatively if Ryan is so bothered by the debt, then he can work to repeal the Congressional mandate forcing the Treasury to issue new debt when it deficit spends. That way, the debt will gradually be reduced to zero as time passes and he won't have to worry about it anymore.

However, the more important point here is that cutting the level of Government deficit spending is not what ought to be done when we have an economy that is operating at 70% of capacity. If we do that and move to balance the budget as Ryan wants us to do, then we will take financial assets out of the private sector, reduce aggregate demand and further decrease our use of the economy's productive capacity. That is, we'll have greater unemployment, greater suffering, and much less growth.

That's because Government deficit spending, other things equal, increases net financial assets in the private sector; while Government surpluses decrease net financial assets. There's just no getting around that macroeconomic identity. So, spending cuts and budget balancing are a strategy that won't effect the Government's capacity to spend at all, but it will impoverish the private sector. If that's really what Congressman Ryan and the Republicans want to do, then let them try to do it. But I guarantee that sooner or later the American public will have its revenge for their bringing back Herbert Hoover.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

Paul Ryan's Deficit Reduction Fairy Tales: Part One

Joseph M. Firestone — Sun, 30 Jan 2011 01:18:47 -0500

Many of my recent posts have focused on fairy tales I thought the President would tell in the SOTU and also those that he did tell. The reason for this is that I think people on the left have a greater need to be informed about Obama's fairy tales, then they do about Republican fairy tales, since they are automatically skeptical about what Republicans say given their 40 year history of systematically lying about reality every chance they get.

I'm sorry that doesn't sound very civil; but the national Republican Party has consciously chosen to develop political strategies crafted around lying to the public since the days of Richard Nixon and Lee Atwater. Regrettably, I'm not sure the Democrats are very different any more, but that's a story for another day.

In any event, in spite of the automatic skepticism that most left-leaning readers, like myself, probably brought to Paul Ryan's Republican response to the SOTU, I think it's only fair to provide a textual analysis of parts of his speech dealing with deficit reduction in the same way I provided one about the SOTU. So let's see what Congressman Ryan claims about the debt problem and what to do about it, and whether he makes any sense. This post is Part One of that examination.

We face a crushing burden of debt. The debt will soon eclipse our entire economy, and grow to catastrophic levels in the years ahead.

The debt referred to here is the accounting construct of the national debt, or the face value of the debt instruments the Government has yet to redeem. But just why the “burden of debt” is so crushing, or even a burden at all to you and I really needs to be explained by Ryan and the other deficit hawks.

I don't see any public debt burden on the American people at all. Why? Because a burdensome debt is one that you and I will personally have to pay back, and we just won't ever have to pay the public debt of the US back from taxes that we are asked to pay to the Government. That is, we won't unless Congress very stupidly decides to pay the debt by levying taxes, cutting Government spending, and running Government surpluses until it is paid.

That was done once in American history during Andrew Jackson's Administration, when the public debt was paid. The result was that Martin Van Buren, Jackson's successor became a one-term President, following the panic and very serious depression of 1837. A depression caused, in great part, by a shrinking of private demand caused by Government austerity, the successful pay back of the debt, and the continuing policy of balancing the budget. In addition, every sustained attempt in American history to run budget surpluses was followed by either a depression or a recession. A summary of the depressing record is here.

Congressman Ryan either believes himself, or wants you to believe, that the “crushing debt” will have to be paid for out of taxes levied on you and I. But there are a number of different ways to handle the national debt that don't place any burden on us. First, there's the way we've been handling it up to now, namely by rolling over previous debt and paying interest as it comes due. We'll always be able to do that because a debt instrument is the functional equivalent of a savings account, and frequently those who hold USD including foreign nations have the effective choice of keeping their USD in a reserve account or buying a debt instrument. They'd rather buy the debt instruments because they earn interest. However, low the rate of interest is, it's better than the rate they'll get on reserves.

Can our national debt increase indefinitely? The short answer is: yes it can. The reason is that a Government like the United States with a fiat non-convertible currency, a floating exchange rate, and no debts in any other nation''s currency, has no solvency risk because it can always create money to pay its obligations. Its debt instruments are therefore nearly risk free. So, they're a safe harbor for investors who'd rather earn a return on the USD they hold.

Second, in lieu of simply rolling over our debt and increasing it, as needed, Congress can decide to get rid of all the public debt, by simply removing its mandate forcing the Treasury to issue new debt when it deficit spends. This will require that the Treasury spend by directly marking up private sector accounts, or if it continues to spend through its Federal Reserve Accounts, Congress will have to give it authority to mark up its Federal Reserve accounts when it wants to deficit spend Congressional appropriations. If this is done, however, Treasury will be able to make all its debt payments when they become due, and most of the public debt will be gone within 10 years, except outstanding longer-term instruments.

In fact, the reason why any public debt at all exists right now is because Congress mandates that new debt be issued when the Government deficit spends. So, it's Congress that's been forcing the Treasury to manage the debt through the roll over method, and it is Congress's own fault that the United States has any public debt today.

Third, another way the Treasury can pay back the national debt, if it wants to, and without increasing taxes, is for it to use coin seigniorage. Right now, Congress allows the US Mint to produce coins of arbitrary face value using Platinum. A coin with face value $One Trillion could be minted and deposited in Mint's account at the New York Fed. The coin would be legal tender, so the Fed would have to accept the deposit and mark up the Mint's account. The profit (the face value – the cost of making the coin) can be swept by the Treasury into its own account, and then used to mark up private sector accounts in Government spending, including repayment of debt instruments when they come due. Enough coins can be produced from time-to-time to both eliminate the gap between taxes and spending (the deficit), and also to redeem debt instruments.

So, there are least three ways to manage the public debt, two of them allowing it to be paid off, which don't involve increasing taxes. That's why the burden of that debt is illusory and that Ryan is telling us all a fairy tale.

What about his remark that the debt will soon eclipse our whole economy? I suppose that Ryan means that its size will soon match our annual GDP. But that's a silly comparison, as is the debt-to-GDP ratio derived from that kind of thinking. The GDP is an annual statistic. The debt (roughly) is the accumulation of deficits since Andrew Jackson last paid it off in January of 1835. So the proper comparison, if Ryan wanted to make it, would be the national debt compared to the sum of the annual GDP since 1835. I won't calculate that sum, but clearly the close to $14 Trillion national debt is a very, very small proportion of the GDP since that time.

To tell the truth though, neither the size of the national debt, nor the debt-to-GDP ratio are relevant to the capacity of the Government to spend either in the present, or in the future, because their size has nothing to do with the Constitutional authority of the US Government to issue currency and create money, and also has nothing to do with the solvency of the United States Government. So, not only is Ryan's comparison inappropriate, but it's also irrelevant to the real issue being raised which is the continued solvency of the Government.

On this current path, when my three children – who are now 6, 7, and 8 years old – are raising their own children, the Federal government will double in size, and so will the taxes they pay.

It will be roughly 20 years until Ryan's children are raising their own children, and guess what? GDP will be between two and three times what it is now, and, as we've already seen there's no reason why taxes should be any higher as a percentage of income for most people. Hopefully, the tax rates for the top 2% of the population will be far higher than they are now, and estate taxes will return to their levels in the 1950s, so that gentlemen like Congressman Ryan can begin to pay their fair share again, and the United States can once again have a wealth distribution that is more equal than the likes of Russia, China, Turkey, and Jordan.

The next generation will inherit a stagnant economy and a diminished country.

That depends on Congressman Ryan, the Republicans, President Obama, and other Democrats who think we have a deficit/debt problem, which must be treated with Government austerity. That's a sure recipe for condemning the United States to a stagnant economy and a diminished country. How do these exponents of Hooverian crackpot economics expect the economy to grow when they are going to lower the aggregate demand provided by Government deficits? By blowing more private sector debt bubbles leading to a new collapse produced by lack of regulation and corporate account control fraud, and the further impoverishment of the American Middle Class?

Unfortunately, instead of restoring the fundamentals of economic growth, he engaged in a stimulus spending spree that not only failed to deliver on its promise to create jobs, but also plunged us even deeper into debt.

I too, think the Democrats have failed to end the recession, at least for most Americans, but I certainly don't believe that Paul Ryan's austerity policies would have restored “the fundamentals of economic growth.” Balanced budgets at the Federal level would only have depressed demand to such a degree that we'd be in a second Great Depression right now. Really, Ryan's version of economic science is at the very least 100 years old. Some whiz kid! Between he and Eric Cantor, they'd have the economy flat on its back for the next 100 years.

The facts are clear: Since taking office, President Obama has signed into law spending increases of nearly 25% for domestic government agencies – an 84% increase when you include the failed stimulus.

I'd certainly like to know what Ryan considers a “domestic government agency,” because I've learned to distrust numbers like this. In particular, how much of this “spending” is a result of the operation of the automatic stabilizers in the safety net helping people get through the recession, created by the FIRE sector and its control frauds -- spending over which the Obama Administration had no control that was also necessary, and how much of it was due to Homeland Security and its expenditures, which I'm quite sure Ryan would be opposed to cutting? In any case, numbers like the ones just above don't mean anything, unless one thinks these expenses increase the solvency risk of the Government. Since we've already seen that they don't, these "facts" of Ryan's are of little or no importance.

All of this new government spending was sold as “investment.” Yet after two years, the unemployment rate remains above 9% and government has added over $3 trillion to our debt.

Again, the addition to debt doesn't matter. Also, much of the new Government spending was due to the response of the automatic stabilizers to the crash of 2008, and wasn't “sold as 'investment'” at all. As for the stimulus package, only a relatively small part of it was justified as “investment,” as Ryan very well knows. By the time the Republicans, the Blue Dogs, and the President got through with it, the tax cuts in the package and spending geared toward maintaining the States, ate up more than half the stimulus over a two year period, and were in no way "investment."

The stimulus itself was also only half as large as it needed to be in volume of spending to end the recession (as many asserted, including myself, at the time), and was less stimulative due to the fact that low-multiplier tax cuts were such an important component of it. So, it wasn't any surprise to many of us that it failed to lower unemployment below 9%, or that the deficit remained high, since the primary cause of big deficits was the combination of high unemployment and the operation of the social safety net.

Congressman Ryan is a rising star in the Republican Party, and is often characterized as their foremost policy wonk and budgetary guru. But his performance in responding to the SOTU, indicates that if he's their guru, and if the Republicans remain in charge of the House, then we'll all be in trouble; because while Paul Ryan may be better at adding and subtracting than most of his colleagues there are very important things that he fails to understand about Macroeconomics and its relation to fiscal policy.

In particular, Congressman Ryan, seems to have no clue about the sectoral balance model of macroeconomics. One of the things that model implies is that if the US is running a negative trade balance (imports exceed exports), and the private sector needs to save to pay back debt, the Government budget deficit must be equal to the value of the trade deficit plus the value of private sector savings. If the Government tries to work against that dynamic by taking active steps to reduce that deficit as Paul Ryan and the Republicans so vigorously advocate, then the private sector is going to have to reduce its imports, its savings, or, most likely, both, because a reduced Government deficit will lessen demand in the private sector.

So, Government austerity is not going to create private sector prosperity as Ryan, and increasingly, President Obama are suggesting, but private sector privation, instead. Less private sector savings, less real wealth, and a stagnating economy. Paul Ryan may want that, but most of the rest of us don't.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

More Fairy Tales of the SOTU

Joseph M. Firestone — Fri, 28 Jan 2011 18:05:24 -0500

In my last post, I scored the SOTU on the 7 Fairy Tales I discussed previously, and concluded that the President was subscribing to at most two of them, and that he accepted the deficit reduction framing of the Republicans as a basis for negotiation, and was trying to point the US in the same direction as export-led economies emphasizing fiscal austerity, thus joining the world's race to bottom. Today, I want to analyze the details of the portion of the SOTU dealing with deficit reduction. The President said:

Now, the final step – a critical step – in winning the future is to make sure we aren’t buried under a mountain of debt.

The President is talking about the national debt here. He's most definitely not talking about private sector debt. Generally speaking, and neglecting distributional issues which are very significant to working people, the greater the Government's debt, the less private sector debt. This is true because of the macroeconomic sectoral balance model, an accounting identity that must be true.

The Government sector spending/savings balance and the non-Government sector spending/savings balance must equal zero during any period of monetary flows.

So:

-- If the Government runs a surplus, reducing the national debt, then the non-Government sector, including the US private sector must, unless it has a trade surplus, run a deficit, which means it must increase its debt. So, without an export surplus, Government policies that succeed in creating a Government surplus, mean more private sector debt.

So, the Government's attempt to escape from its “mountain of debt,” only produces another mountain of debt for people. Do you really think it's good for you for the Government to decrease its debt and force you to increase yours? I don't think it's good for me. I'd rather see the Government increase its debt, so that I can reduce mine, especially since the Government can literally make more money whereas I have to get already existing USD from others.

-- If the Government runs a deficit, then the non-Government sector, including the US private sector must, unless it has a trade deficit bigger than the Government deficit, run a surplus, which means it will increase its savings. So, if the Government runs a deficit, then you and I are more likely to be able to run a surplus and reduce our debts. I know I want to do that. How about you?

-- If the Government reduces its deficit, then the non-Government sector, including the US private sector must, unless it has a trade deficit bigger than the Government deficit, run a smaller surplus, which means it will increase its savings and reduce its debts, but by less than it would have if the Government has run a larger deficit. So, if President Obama is successful and implements his fiscal austerity plans, then you and I will likely be poorer for his doing so. Do you want that? I know that I don't.

So, the question is: If we want to “win the future” are we really better off getting rid of our mountain of debt, or are we better off increasing it? The answer provided by the uncontroversial macro-economic accounting identity is that we, you, and I will all be better off increasing deficit spending, not reducing it, and that if this means increasing the national debt, as it does under the present Congressional mandate to issue debt when we deficit spend, then still we will be better off for it.

We are living with a legacy of deficit-spending that began almost a decade ago. And in the wake of the financial crisis, some of that was necessary to keep credit flowing, save jobs, and put money in people’s pockets.

Much more of it was necessary to end unemployment. The President blew the stimulus opportunity. To make it effective, he needed first to take the big banks into resolution; second, to persuade Harry Reid to get rid of the filibuster, and third, to put through a stimulus that was at least twice as large focused on a payroll tax holiday, State Revenue sharing, and a Federal Job Guarantee.

But now that the worst of the recession is over, we have to confront the fact that our government spends more than it takes in. That is not sustainable. Every day, families sacrifice to live within their means. They deserve a government that does the same.

Well, the worst of the recession goes on for most Americans. There's massive U6 unemployment, waves of foreclosures and bankruptcies, and depressed wages and salaries for most working Americans, and while things have improved for the President's Wall Street friends, they are worse than they were for most Americans when the President took office.

As for the rest of the statement this is the famous argument that Government deficit spending isn't sustainable because the Government is like a household and that since households sacrifice to live with their means, Government ought to do that too. The problem with this is that Governments like the United States, that are sovereign in their own currency aren't like households. Households can't make their own currency and require that people use that currency to pay taxes. Households can run out of money; but the US can't ever run out of money as long as Congress decides to appropriate spending and gives the Executive the authority to implement that spending.

So, it's false that continued deficits are unsustainable. If economic conditions call for it, then Governments like ours (but not Greece, Ireland, other members of the Eurozone, or nations that owe debts in foreign currencies) can sustain deficit spending indefinitely until full employment and full use of the nation's productive capacity is reached.

So tonight, I am proposing that starting this year, we freeze annual domestic spending for the next five years. This would reduce the deficit by more than $400 billion over the next decade, and will bring discretionary spending to the lowest share of our economy since Dwight Eisenhower was president.

This freeze will require painful cuts. Already, we have frozen the salaries of hardworking federal employees for the next two years. I’ve proposed cuts to things I care deeply about, like community action programs. The Secretary of Defense has also agreed to cut tens of billions of dollars in spending that he and his generals believe our military can do without.

The President shouldn't be crucifying Federal employees and important Federal programs on the cross of austerity and using fear mongering about a non-existent deficit problem to do so. There are many Federal programs that ought to be cut because they don't fit the standard of the public purpose, and produce more harm than good. But none should be cut on the grounds that the Government is like a household and can't sustain continued deficit spending.

I recognize that some in this Chamber have already proposed deeper cuts, and I’m willing to eliminate whatever we can honestly afford to do without. But let’s make sure that we’re not doing it on the backs of our most vulnerable citizens. And let’s make sure what we’re cutting is really excess weight. Cutting the deficit by gutting our investments in innovation and education is like lightening an overloaded airplane by removing its engine. It may feel like you’re flying high at first, but it won’t take long before you’ll feel the impact.

Versailles commentators had a fit over the joke ending the paragraph. Evidently it violated their principles of good messaging textbook, or something. However, I thought the joke was well-done, and very apt. If it hadn't been presented in the context of agreement with the frame of deficit reduction, I might even have been pleased with it.

Now, most of the cuts and savings I’ve proposed only address annual domestic spending, which represents a little more than 12% of our budget. To make further progress, we have to stop pretending that cutting this kind of spending alone will be enough. It won’t.

The bipartisan Fiscal Commission I created last year made this crystal clear. I don’t agree with all their proposals, but they made important progress. And their conclusion is that the only way to tackle our deficit is to cut excessive spending wherever we find it – in domestic spending, defense spending, health care spending, and spending through tax breaks and loopholes.

The President repeats the fable that the Fiscal Commission made some proposals. It did not, because it couldn't assemble the required 14 votes to pass any proposal.

The Co-chairs presented a proposal, and others on the Commission offered their own individual proposals, but there were no Commission proposals as both the President and such doyen of the cable media as Nora O'Donnell love to claim. More importantly, however, in this paragraph the President embraces the frame that we need to cut “excessive spending” wherever we find it both in programs and tax expenditures. But, again, there's no need to cut anything because we can't afford the spending, and one person's excessive spending, will be another person's necessary program, so that what turns out to be “excessive” will be determined by the politics of the matter, once people have agreed on how much spending has to be sacrificed to the austerity Gods. This stuff is truly “Aztec Economics.”

This means further reducing health care costs, including programs like Medicare and Medicaid, which are the single biggest contributor to our long-term deficit. Health insurance reform will slow these rising costs, which is part of why nonpartisan economists have said that repealing the health care law would add a quarter of a trillion dollars to our deficit. Still, I’m willing to look at other ideas to bring down costs, including one that Republicans suggested last year: medical malpractice reform to rein in frivolous lawsuits.

He's delivering fairy tales again. He's not willing to entertain the best idea to bring down costs and still deliver universal health care. That idea, of course, is Medicare for All.

That is likely to reduce national expenditures on health care by 1/3, or as much as $800 Billion per year from its current level of $2.5 – 2.6 Billion. Of course, this would probably raise the Federal deficit in the short run. But it would make the private sector and working and middle class people richer, and would greatly reduce the rate of increase in health care expenditures by taking the insurance companies out of the equation and requiring the providers to negotiate with the Government directly. And, of course, since continued Federal deficits are sustainable for as long as necessary, there is no fiscal problem associated with Medicare for All.

To put us on solid ground, we should also find a bipartisan solution to strengthen Social Security for future generations. And we must do it without putting at risk current retirees, the most vulnerable, or people with disabilities; without slashing benefits for future generations; and without subjecting Americans’ guaranteed retirement income to the whims of the stock market.

The call for a bipartisan solution is trouble for the American people. The Republicans are out to radically change Social Security and privatize or destroy it. They're after the guaranteed incomes of working people in their old age. There can be no bipartisan solution that won't involve Democrats giving something away to the Republicans' desire to make Social Security less effective and less popular. So, the best thing for people is that there be no “solution.” There are two reasons for this.

First, Social Security's supposed need to cut benefits to 75% in 2037 is a false problem, because even if current projections prove correct 26 years from now (a ridiculous contention), the Government, which again, can never run out of money, can easily deliver full benefits to people, when they are due. And second, the problem with Social Security is not the imaginary problem of Government solvency, but the real problems that the full benefits retirement age is too high, and the cost of living adjustment needs to take into account the higher percentage of income the elderly pay for Medical care than other age groups. Democrats should be talking about these real problems; not agreeing with the austerity frame that Social Security needs a “bipartisan solution.” And they should be taking Social Security off the table of change, until the political winds shift again and they can pass a solution to Social Security's patent inadequacy.

And if we truly care about our deficit, we simply cannot afford a permanent extension of the tax cuts for the wealthiest 2% of Americans. Before we take money away from our schools, or scholarships away from our students, we should ask millionaires to give up their tax break.

It’s not a matter of punishing their success. It’s about promoting America’s success.

Progressives loved this because they hate the Bush tax cuts. However, the framing is wrong. It accepts that there must be either cuts in spending or tax increases to '”fund” our education programs. The truth however, is that we need neither one. All we need is for Congress to appropriate the money and remove artificial constraints, like forced debt issuance and the debt ceiling, from the Executive branch so that it can spend what Congress appropriates. Again, the US can never run out of money, except by Congress's own choice.

It would be a good thing to end the Bush tax cuts for the top 2%, but the framing used should be that we have an increasingly unequal distribution of wealth in the US, that this is dangerous for the future of Democracy, and that the top 2% must be patriotic enough to accept the ending of these cuts with good grace. We need to end the tax cuts as soon as possible as a first step toward restoring a more reasonable distribution of wealth similar to the distribution existing in this country from 1945 – 1970.

In fact, the best thing we could do on taxes for all Americans is to simplify the individual tax code. This will be a tough job, but members of both parties have expressed interest in doing this, and I am prepared to join them.

So now is the time to act. Now is the time for both sides and both houses of Congress – Democrats and Republicans – to forge a principled compromise that gets the job done. If we make the hard choices now to rein in our deficits, we can make the investments we need to win the future.

Simplifying the tax code is good. But historically, tax reform has often meant lower marginal tax rates for the wealthy. Now, however, we must have a different outcome. We may need a simplified tax code; but we need even more a progressive tax code that redistributes wealth again. Simplification shouldn't occur unless it's coupled with more progressive taxation.

In my last post, I said that the President's orientation in the SOTU was toward joining the race to the bottom and creating an export-led economy. And I also pointed out the implications of this move for working people who would have to endure austerity, both due to less Government spending, and also to lower wages and a lower standard of living. That is what the President was really advocating in the SOTU, and that is the true meaning of his call for innovation, education, and infrastructure spending, while also calling for doubled exports and Government deficit reduction at the same time. He's asking Americans to get used to more poverty, and privation, worse Medicare, greater inequality, and increasing acceptance of the emerging global plutocracy and its American affiliate.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

Talking Economy and the State of the Union On KGO Radio

Richard Eskow — Wed, 26 Jan 2011 23:37:59 -0500

LISTEN

I spent a few minutes speaking with Gil Gross on KGO Radio in San Francisco during the run-up to yesterday's State of the Union. We talked about the additional financial reforms we still need and the unfair economic privileges the big banks still enjoy. And I was able to put in a plug for the important work of the Financial Crisis Inquiry Commission, whose report will be released tomorrow.

The whole exchange lasts about five minutes. Listen to it here or download it here.