Demos, The Century Foundation and the Economic Policy Institute, in a joint venture, Our Fiscal Security, have just released a new report, "Investing in America's Economy: A Budget Blueprint for Economic Recovery and Fiscal Responsibility." (I'll have more later today about a second progressive proposal, which in part builds on this report.) Not only does it focus on the immediate crisis and the need for economic recovery in the short term, it is also focused on long-term economic growth for the economy as a whole as a key consideration in shaping a long-term sustainable budget policy. (Now, why didn't Obama think of that?) The press release explains:
The Blueprint takes a very different approach from other prominent proposals, specifically prioritizing a strong economic recovery because widespread job creation and robust economic growth are essential to successful deficit reduction.
The plan will produce the following short- and long-term results:
Substantial and sustained increased funding for job creation and investments, especially in the near term;
A budget path that significantly improves the 10-year budget outlook;
A transition from a primary deficit to a primary surplus in 2018, and sustainable debt levels by the end of the decade;
An improvement in the long-term path for public debt, stabilizing debt as a share of the economy beyond 2025;
A solid footing for Social Security, Medicare, and Medicaid for the long term; and
A modernized tax code that raises adequate revenue fairly and efficiently.
The Blueprint's budget path boosts funding for near-term job creation, achieves lower deficits in the medium-term and balances the primary federal budget in less than a decade. It does so with the recognition that boosting-rather than cutting-spending on national priorities, including infrastructure, transportation, technology and education, is critical to American prosperity. Unlike the other plans, the Blueprint provides a path to do more than cut the deficit; it has as its overarching goal the creation of a stronger middle class and a fundamentally more robust American economy.
Last night, Heather McGhee, Director of the Washington office of Demos, appeared on Countdown to talk about the plan:
This second proposal is the "Report And Recommendations Of The Citizens' Commission On Jobs, Deficits And America's Economic Future", organized out of the Institute for America's Future. I participated in a press teleconference this morning and I've looked at the report, and the two reports are far more similar than they are different. In fact, when asked about the differences in the teleconference, the response was a laundry list of similarities, before any relatively small difference were brought up. It's not that surprising, really, given that the Citizen's Commission main includes a note saying:
One might say that the primary difference is the kind of organizations involved and what they are up to,which also results in some differences in framing their messages. Our Fiscal Security is an alliance of three think tanks. The Citizen's Commission is a broader array of organizations involved in activism, with a large membership and active involvement at the community level across the nation, especially through the union movement, which was represented at the teleconference by Larry Cohen, president of the Communications Workers of America.
"Working Americans have had it with the austerity model," Cohen said. "The austerity model has lead to the worst incomes disparity in our history." He went on to note that other countries--whether developed or developing (he specifically cited Germany and Brazil)--were taking a very different approach. He said it was a "fallacy that we're all consumers" in terms of our main identity, instead, he said that for most Americans, "their main identity is as workers," meaning that a share of future prosperity they help to create is more significant to them than the promise of cheaper goods and penny-ante tax cuts. "We're encouraged by the report, and we're committed to it's implementation," he concluded.
Angela Glover Blackwell, founder and president of PolicyLink, put it bluntly, "We can't slash our way to prosperity,"
Robert Borosage, co-director of Campaign for America's future fleshed her statement out by comparing our current situation with the last time we had such a high debt-to-GDP ratio. Higher, in fact: the aftermath of WWII. We didn't worry or focus on the deficit then, he pointed out. We worried about rebuilding the American economy on a peace-time footing. We paid for converting factories from military to civilian production. We paid for the GI Bill, and for the explosion of home-ownership in newly-built suburbs. We even paid to help rebuild Europe via the Marshall Plan. And it's that same sort of focus on bravely building the future, and growing the economy,. rather than cowering in fear and slashing the budget that makes the Citizen's Commission report, "consistent with the American way," he explained. The report itself drew a contrasting historical parallel--the premature budget-slashing of 1937 that lead to a renewed recession which was only finally overcome through the massive military spending of WWII.
And Robert Kuttner warned that the failure to recognize the need for growth gave rise a false balance argument. Interviewers typically "assume the paramount problem is deficit," he said, so they ask, "Why can't Democrats cut spending and Republicans raise taxes?"--a "solution" that would do nothing to solve the problem of an economy mired in long-term underperformance.
The report's executive summary presents a clear vision of how it differs from other proposals out there:
The track record here is pretty consistent -- Reagan was the father of the modern deficit, and no one cared. When Mondale tried to make deficit reduction central to his '84 campaign, he lost 49 states. Clinton was the father of modern deficit reduction, but no one much cared about that, either, and by the time he left office after two terms, much of the country didn't even realize he'd completely eliminated the deficit and had begun paying off the debt. George W. Bush was the most fiscally irresponsible president in American history, but on the long list of Bush's failures, most Americans don't even consider the $5 trillion he added to the debt. Obama has actually reduced the deficit over the last year, but no one actually hears deficit hawks praising him for it.
This history is so clear, it's amazing how uniformly Versailles can ignore. But they do.
Steve went on to argue the obvious (to Americans, that is):
Voters want the economy to grow. They want more jobs. If they actually cared about the deficit, they'd be outraged by the notion of a new round of tax cuts (they're not), and supportive of measures like the Simpson/Bowles plan (they're really not).
And then he went one step further:
It's not altogether clear people even know what the deficit is. For many, it's likely that the deficit is just something that's "bad." Indeed, given that deficit concerns tend to coincide with economic downturns, some folks might see a correlation -- the deficit is high and the economy is bad, they figure, so maybe if the deficit were lower the economy might get better.
All of this is nonsense, of course, but it's worth remembering when various political players suggest policymakers' popularity is riding on deficit reduction. It's not.
There is, of course, strong evidence for this. People really do seem to respond to--even repeat--the meme that since households are cutting back spending, government should do the same, even though macro-economics tells us unequivocally that the opposite is true. Now that even President Obama is spewing this nonsense, it's not likely that ordinary folks are going to get a clue. But even so, the CBS poll figures speak for themselves. It's just not an issue for the vast majority of them.
So why is it an issue for Versailles? Reason number one is that the President is a Democrat.
An idea occurred to me at Netroots Nation, but I let the perfect get in the way of the good, and Dean Baker beat me to it:
The Budget Deficit Chicken Hawks
Most people are familiar with the concept of "chicken hawks." Chicken hawks are the politicians who are anxious to send other people to risk their lives in war, but somehow managed to avoid service when they had the opportunity to fight themselves. Former Vice-President Dick Cheney and former President George W. Bush are the leading members of the chicken hawk society.
It turns out that we have a similar story with budget policy, where there appears to be a large contingent of budget deficit chicken hawks. The deficit hawks have been filling the news lately. These are the folks who are yelling that something terrible will happen if we don't reduce the deficit. Most of them seem to have missed the fact that something terrible is now happening. We have almost 15 million people unemployed and 9 million underemployed, with several million facing the loss of their home in the next few years.
The perfect, of course, would be a list of all the senators and representatives currently calling for "fiscal responsibility" who supported Bush's tax cuts and other forms of profligate spending on the wealthy and well-connected--along with the total amounts they've added to deficit. But since I've already been scooped, and I'm no closer to having the time to do the research, I figured I'd do the next best thing. Okay, would you believe the next-to-the-next best thing? Well, whatever. I figured I'd just do something to help give the deficit chickenhawk meme a little push, and suggest that it's worth pushing a whole lot more.
So here's my suggestion: You know how the GOP just loves to generate absurd tallies of how many "tax increases" some poltician voted for? (If they voted for a bill that cut taxes 10% here, while raising them 1% there, there and there, then they voted for THREE tax increases! And if they voted for cloture, too, then they voted for SIX tax increases!) Well, it would make perfect sense to turn this around and generate a realistic statistic instead, the individual politician's federal deficit and debt. This could be used in all sorts of ways, particularly campaign ads. It would be an extremely useful sort of statistic to generate.
I really don't have the resources to pull this off properly, but I can point to a good place to start, the list of Senators who voted for Bush's 2001 tax cut:
In The Shock Doctrine: The Rise of Disaster Capitalism, Naomi Klein convincingly argued that "free market" capitalism did not spread worldwide because people welcomed it freely, but because it was forced on them against their will, imposed through a series of shocks--military coups, financial crises, physical disasters--that left people, and entire societies reeling, unable to get their bearings, much less respond critical to the most critical of situations.
Now, however, we've reached a critical turning point: the entire system that was built up by Shock Doctrine strategy is itself coming apart at the seams--and now, rather than standing back, and saying, "Now wait a minute!" the elite consensus in most quarters is to double down on our past mistakes. Now, the very shock of the systems collapse is being used to try to extend it--not just a little further, but far further than ever before.
The main focal point of this effort is the two-pronged battle to (1) prevent anything close to an adequate fiscal response to generate a full-employment recovery, and (2) prevent anything close the necessary re-regulation of the financial sector, so that the national and world economy can be restored to a sound financial foundation. The Obama Administration double-faulted on these twin challenges within its first few weeks in office, and things have been going downhill ever since.
Now passive failure is being turned into active malevolence, as Obama has appointed a commission to address the issue of America's long-term debt--a problem that only exists in the far long term--2050 or so, and only then because we've had an out-of-control health care sector for almost as long as our financial sector has been out of control--as I argued in my diary "Health care costs over time--how the US became so different & why conservatives can't fix it" earlier today.
Earlier this month, economist Dean Baker warned against the folly involved in a column titled "The Budget Deficit Crisis Crisis", which began thus:
The country faces a serious crisis in the form of a manufactured crisis over the budget deficit. This is a crisis because concerns over the size of the budget deficit are preventing the government from taking the steps needed to reduce the unemployment rate. This creates the absurd situation where we have millions of people who are unemployed, not because of their own lack of skills or unwillingness to work, but because people like Alan Greenspan and Ben Bernanke mismanaged the economy.
It should be noted that this situation should be impossible if the "magic of the marketplace" were real.
Free market ideology cannot explain unemployment except as a voluntary choice on behalf of workers. When millions--nay, tens of millions of people suddenly decide not to work, what's an economist to do? That alone ought to be enough to banish these cretins from the stage forever. Instead, they're running the whole show.
I'm going to do a more extended diary (or two) about this next weekend, but given how much attention this is getting, I really can't wait to make this basic point: The long-term federal debt is basically due to two things: Republican fiscal irresponsibility and the extreme costliness of the American health care system as a whole.
The interest from this mid-term debt is, in turn, a major contributor to the long-term (20-40 year) debt. But--as seen in this chart from CBPP's mid-December report, "The Long-term Fiscal Outlook is Bleak"--the largest contributor to that debt is the growth in costs of Medicare and Medicaid above and beyond the increase in GDP:
Demographics is not the most significant driver of such costs (chart from same report):
This week, Rachel Maddow did an excellent segment on presidents and the debt:
There's just two problems--not for Rachel, but for the entire Democratic establishment, and frankly the entire supposedly fact-checked and "objective" media: (A) What took so long? and (B) Where's the endless repetition?
As you can see from the following chart (same underlying figures the second chart in last weekend's diary, "Everything Versailles says about the debt is wrong") Republican's haven't engaged in responsible budgeting since Ronald Reagan rolled into town 30 years ago:
It's not just that Republicans are "fiscally irresponsible." It's that they're constantly using Keyensian-style deficit spending to drive the economy, all the while claiming that what's driving the economy is the "free market forces" they've "unleashed." Of course, Keynes never said that government should run deficits all the time. They were supposed to run countercyclically--when non-governmental demand plummeted, the way it has since mid-2008. Running deficits all the time--not little ones--has a really bad effect on the economy, because it more than "unleashes" those magical "free market forces", it gets them turbo-charged, intoxicated and headed right off the nearest cliff.
I don't care how smart you are. You can't make good policy against a background chorus of constant lies.
This is a public service announcement in light of (a) the increased hyperventilation over the current deficit, and (b) the gathering storm to form a Catfood Commission to return senior citizens to the age of Dickens.
Versailles:
The GOP is the party of fiscal responsibility, and Democrats have to show they can reign in spending in order to prove they can govern responsibly.
Reality:
The GOP is the party of intentional fiscal disaster. They are destroyers of government in the short run as well as civilization in the long run. (See Natasha's diary from yesterday afternoon/evening, "The Destruction of Reciprocity.") They know that people--even a majority of Republicans and conservatives--want the government to spend money to make people's lives better in ways they can't do for themselves. The only way to stop this is to financially ruin the government. So that's what they've been trying to do ever since Reagan took office in 1981. This, in turn, is intended to force the Democrats to "act responsibly" by doing the most politically unpopular cutting for them. Barack Obama is just dumb enough to not only fall for this, but to break his arm patting himself on the back for being so virtuous.
The Data:
The most important measure of fiscal health for sovereign governments is not the size of the debt, but the debt-to-GDP ratio. Roughly speaking, fiscal responsibility consists of maintaining or reducing the ratio, fiscal irresponsibility consists of increasing the ratio absent a clear and compelling reason--such as fighting WWII, financing an energy transition to avoid catastrophic global warming, that kind of thing. (More accurately, the above should apply over the course of the business cycle, but for purposes of evaluating presidential performance, we're stuck with the rough approximation.)
So what does the record of fiscal responsibility since the end of WWII look like? Well, as it happens, we were predominantly responsible until Ronald Reagan took office in 1980, and predominantly irresponsible ever since. Exceptions: Nixon-Ford were (arguably) just a teeny bit irresponsible. Bill Clinton was significantly responsible:
That's as close to a laboratory controlled experiment that you're ever going to see in political history, and conclusion is utterly damning to the GOP.
Table of underlying data (from Wikipedia) on the flip.
From a macro-economic point of view, the most important way to think about the debt is as a percentage of GDP. Put simply: how big is the governments' debt compared to the size of the whole economy--the tax base available for paying the interest, and hopefully paying down the debt. And if we start off by thinking of it that way, then the record is strikingly clear: throughout the heyday of "big government," the size the debt shrank consistently--if not uniformly--under every post-WWII Administration, until Ronald Regan:
It's equally notable that the size of the debt shrank under Clinton as well, while rising under both Bushes. This is important for at least two immediate reasons:
(1) It shows that even with the incredibly foolish bailout package, our debt levels should remain managable, if the next President is sane (i.e. not a Republican). This doesn't mean we have no problems. It just means that this bailout, however odious, is not a crushing blow that destroys all hope.
(2) It reminds us of the basic argument we should have been making ever since 1984: so-called "conservative," supply-side, voo-doo economics does not work, and drives the government into needless levels of high debt. (As opposed to the WWII debt, which was quite necessary.)
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