Charles gets it amazingly wrong: Charles Krauthammer even made some valid complaints about Obama in his new column! In our view, the highlighted claim has actual merit:
KRAUTHAMMER (12/9/11): Yes, growing inequality is a problem throughout the Western world. But Obama’s pretense that it is the root cause of this sick economy is ridiculous.Rhetorical thunder by Charles to the side, that limited tax hike really doesn’t go very far toward addressing the size of our current and projected deficits. We’d like to see liberals discuss the need for serious revenue gains.
As is his solution, that old perennial: selective abolition of the Bush tax cuts. As if all that ails us, all that keeps the economy from humming and the middle class from advancing, is a 4.6-point hike in marginal tax rates for the rich.
This, in a country $15 trillion in debt with out-of-control entitlements systematically starving every other national need. This obsession with a sock-it-to-the-rich tax hike that, at most, would have reduced this year’s deficit from $1.30 trillion to $1.22 trillion is the classic reflex of reactionary liberalism—anything to avoid addressing the underlying structural problems, which would require modernizing the totemic programs of the New Deal and Great Society.
Charles rarely advances a real complaint. To balance things off, he tossed in this remarkable howler:
KRAUTHAMMER: Where to begin? A country spending twice as much per capita on education as it did in 1970 with zero effect on test scores is not underinvesting in education. It’s mis-investing.According to Charles, we have seen “zero effect on test scores” since 1970!
Where to begin? Perhaps here: It’s entirely possible that Charles doesn’t know what is wrong with that ludicrous claim. Our side never discusses the remarkable score gains by the low-income kids about whom we so plainly don’t care.
Everyone else ends up dis- and misinformed, believing the things Charles wrote. Good kids get no credit; their teachers get slimed. Ain’t liberal indifference grand?
Actually, over here "we" would like to see liberals - or anyone, "we" aren't fussy - demolish the idiotic assertion that the big problem is "out-of-control entitlements systematically starving every other national need." (By "entitlements" "we" think he means insurance programs run by the government.) Similarly, the silly idea that what is needed are "serious revenue gains."ReplyDelete
It's entirely possible that Bob doesn't know what is wrong with this ludicrous claim. "We" aren't sure - as "we" gaze out from our sprawling campus "we" think about the only person debunking this sh** day-in, day-out is Dean Baker.
If anyone thinks that "$.08 trillion" [$1.3 trillion minus $1.22 trillion; plain speak: $80 billion] a year is trivial, he or she might want to consider (for example) the cost of "shoring up" SS or the kinds of cuts being proposed for social programs. Lots of the proposed "shared sacrifice" could be avoided altogether is the rich made this one sacrifice.ReplyDelete
1) using Krauthammer's formulation, eliminating all the Bush income tax rates (instead of just the rich) would reduce the deficit by an additional $.22 trillion or so, out of $1.3 trillion deficit, leaving about $1 trillion. Hardly worth the bother, when you put it that way, no? And might it make sense to inquire where that trillion is going or its source? War? Reduced tax receipts from the economic downturn? Increasing government payments in the downturn? Sensible questions all, but ones not likely to be asked.ReplyDelete
2) "entitlements" is of course a pejorative for SS and Medicare, and as every reader of this blog should know by now, SS DOES NOT INCREASE THE DEFICIT. If Kraut and Co. are going to argue that paying off the bonds maturing in the SS trust fund requires borrowing and thereby increases the deficit, they might as well say that anyone who buys a treasury security is increasing the deficit, because someday the bond will have to be paid off. Absurd!
3) the "real" entitlement, the one which drains the treasury and the American economy as a whole, is of course medical care. But the discussion is phony: all Kraut & Co. want to do is cut or eliminate benefits. They're never willing to address the uniquely American COST of that care. The fact that Americans spend more, get less and suffer worse outcomes than in countries where costs, procedure by procedure, are far lower than ours, is apparently of no interest. The only thing to do is cut benefits, or shift costs to the consumer.
4) the American rich, compared to their counterparts in other industrialized democracies, are preposterously under-taxed. But is the same true of middle and lower-middle income Americans? ABSOLUTELY NOT, if you count the cost of health care, health insurance (either direct pay or as a measure of reduced wages when provided by an employer) and out-of-pocket medical costs, as a percentage of income. Add all those costs up, and American working people pay very, very high taxes -- even assuming there's no serious illness in the family (which can of course wipe out life-savings, not to mention the entire annual wage).
5) Do we really want to reduce the disposal income of middle and lower-income earners at a time of high unemployment and very slow growth? Or does it make more sense to tax people who are unlikely to spend their tax cut, because they already have more money than they know what to do with?
Put all this together, and the real question we should be asking is, why cap the increase on the richest Americans at a mere 4 additional percentage points?
Right on the mark, Anonymous #3. By some calculations, the optimum tax rate for the highest income bracket is at least 70%, since the US economy performed much better when rates were that high and has endured bubble after bubble as the wealthy are induced to "invest" in multi-level derivative instruments devised by finance schemers chasing additional transactions to enrich themselves.ReplyDelete
The tax hike is attached to a jobs bill due to the silly paygo rules. Congress has been trying to pass a fairly straightforward package of aid to states, unemployment insurance extension and such.ReplyDelete
Bob is completely off this week.
Besides the fact that I wouldn't much trust Krauthammer's math -- I've seen assertions of a much bigger effect, depending on how it's structured -- claiming that anyone thinks that is the end-all and be-all is a straw man of the first order. Moreover, since the relationship of the deficit to GDP is the most important thing and the long term deficit is the only thing that matters, even a 5-6% reduction, especially when it is permanent and compounds year after year after year, is highly significant.ReplyDelete
Beyond the nuts and bolts, merely showing the ability to reverse the Bush cuts to the extent they flattened the tax structure has a much larger significance than the direct effect on the budget. It is time to reverse letting the wealthy call all the shots.
David in Cal -- To give some context to your statement about the bad economy being a reason to vote against Obama: When Reagan took office the unemployment rate was 7.5 per cent. It spent 10 consecutive months at more than 10 per cent, from September 1982 through June 1983. In November 1983 the rate was 8.5 per cent -- a full percentage point higher than when Reagan took office.ReplyDelete
Reagan won re-election pretty handily.
Obama was inaugurated when the unemployment rate was 7.8 per cent. It's now at 8.6 per cent, and we had only 1 month with a rate greater than 10 per cent. That's a better record than Reagan at a comparable point in his term.
Yes, I think you're right Anonymous. If the economy continues to improve during the next 11 months, I think Obama might be re-elected easily, especially because the Republican candidate is likely to be flawed.ReplyDelete
Getting back to the improvement shown in NAEP scores.ReplyDelete
My 2nd grade and 5th grade grandchildren are in an OK school in Calif -- a state that doesn't have great education. They have much more homework than my wife or I did at those ages. All this extra work may be a reaction to NCLB, although I can't be certain. Anyway, I suppose all this extra work would naturally lead to better educational achievement.
NAEP scores were rising years before NCLB was implemented.ReplyDelete
"We’d like to see liberals discuss the need for serious revenue gains."ReplyDelete
Well, we wouldn't. We'd rather see liberals talk about improving the economy instead of demanding austerity in the hopes of being seen as "serious" by gasbags like Charles Krauthammer.
And "serious revenue gains" are pretty easy: print more money. Ta-da. Money has no inherent value, so, as James Galbraith says, don't let something with no value get in the way of producing things that have actual value.
Otherwise, we're basically asking the US government to disinvest $1.2 trillion from the American economy during a recession and calling it "serious revenue gains" instead of "austerity." Or, to use Paul Krugman's language, it's removing $1.2 trillion in liquidity during a liquidity trap.
Taking that kind of money from the rich has its benefits, esp. since they don't want to spend or invest it, but taking it from the working and middle classes is just begging for a longer recession.
And to David in CA: I had lots more homework than my parents' generation had and I was in high school from 97-01. I think the jump happened somewhere in the 80's and 90's. But I'm not sure it's all that useful - I taught in France for several years where kids get barely any homework but still do pretty well on standardized tests.
But it was still nice to think "Back in my day...." Hard work at least breeds pride, even if the latter is of the foolish sort.
One more thing: I can't believe Somerby let Krauthammer's "Let's only look at 1 year of a tax increase and determine its effects on the deficit from that." Usually economists look at the 10-year projection of a fiscal policy, and 10 years of that tax increase would add up to $800B, which is a lot of money.ReplyDelete
Getting to full employment would do a lot more, but so long as dumb liberals keep on begging for austerity, that one isn't going to happen. Back in the good old days, liberals could actually articulate full employment as the goal of liberal economic policy. Liberals today prefer throw out inane bumper stickers with no correlation or coherence, while conservatives do all they can to increase the wealth and power of the aristocracy.
And then liberals wonder why no one is doing anything to fix the economy! Why should the elite care about fighting unemployment - it's not like we care all that much either!
Alex, printing money leads to disaster. It causes inflation. At best, inflation might be cured by a long period of austerity and high interest rates. That policy worked in the 1970's at the cost of recession. And, the inflation had already wiped out a big portion of people's savings.ReplyDelete
At worst, inflation might not be cured. The dollar might be destoyed as a currency. This sort of thing has happened again and again.
On another subject, I agree that a 10-year tax increase of $800 billion is big money relative to the other steps being considered. However, it's only 62% of the current one year deficit. And, it's only .5% of our $15 trillion National Debt.
Relative to the National Debt of $15 trillion, a 10-year saving of $.8 trillion wouldn't do much. Suppose that without the tax increase, our annual deficit would stay at $1.3 trillion for each of the next ten years. Then, by 2021, the National Debt would be $28 trillion. OTOH with the tax increase, the 2021 National Debt would be $27.2 trillion.
The fact is, there has been almost no discussion of ways to pay down the National Debt or even to end the deficit. Most of us are in a state of denial.
@David in Cal writes: "The fact is, there has been almost no discussion of ways to pay down the National Debt or even to end the deficit. Most of us are in a state of denial."ReplyDelete
And it would be hard to think of a more counterproductive discussion, in the middle of a deflationary depression (of asset values, like homes), and when the government can borrow for 30 years at what amounts to a negative interest rate -- in effect, the U.S. Treasury is getting paid to take investor's money and hold it.
The fact that many liberals have adopted the hysterical Republican deficit rhetoric, but without the saving hypocrisy of the Republicans (deficits for Repubs are of absolutely no concern when it comes to military spending, corporate subsidies and preserving low taxes on wealth), is just another measure of just how deeply the Democratic party has betrayed its base.
So, no: we *shouldn't* be talking about the need for serious revenue. The best way to reduce the deficit is to get people working again.
We can't tax our way out of this depression, and we can't cut our way out of it. The government needs to create demand, even if amounts to "printing money" (which is a false characterization in any case--issuing and selling is debt is not the same as creating money out of thin air). Some apparently find this formulation offensive to their sense of fairness -- they want to punish someone -- but it remains the solution. Krugman knows it, Goldman Sachs knows it, and Jamie Diment knows it, and Ben Bernanke knows it (just look at their public pronouncements.
The deficit scolds, by contrast, have been right about nothing. They've been shrieking about SS since the 1980s -- a "crisis" we can easily and painlessly avoid -- but were mum on the trillions lost on the real estate bubble, not in 75 years, but right now. Why are we still listening to this people?
Yes, Anonymous, I agree that it's reasonable for the government to take advantage of extremely favorable borrowing rates. And, it's wise of them to lock that advantage into 10 year bonds as long as low-interest 10-year bonds can be sold.ReplyDelete
But, how long will banks lend money to the US government at effectively negative rates of interest? That I don't know. I suspect that if and when inflation starts to pick up, the banks will suddenly raise the interest rates they charge to the US. Given the magnitude of our National Debt, a signicant rise in borrowing rates would push the deficit up, likely resulting in a vicious cycle of rising deficits, rising inflation, rising interest rates, falling dollar and worsening recession.
Being retired, I'm very concerned about this possibility. I worry about how to protect my savings, in case we get a combination of recession, high inflation, and a falling dollar. The answer isn't clear, especially with European investments looking even riskier than US investments.
We deny that your obsessions with deficit and debt are relevant!
And we deny that you even use rational measures of debt and debt when you discuss them! (%GDP beats raw numbers all day long)
Inflation fantasies are equally useful.ReplyDelete
That is to say, they're worthless.
When people quote that 70% top tax rate (actually, I think it was 90%) they forget that back then, one could deduct about everything. And I mean: everything.ReplyDelete
Interest on ANYTHING not just your mortgage, sales tax, clothes for work, lunch during the workday, car when taking it to work, etc etc etc.
That's what Reagan did - try to bring down the rates and make things more complicated (with an increase in revenue...how'd that happen?). Because it was out of control. But now, well, the tax code is more out of control. So don't think that 90% tax rates are the answer. Increasing the rates would most likely decrease the total revenue (which is why the Dems, who needed zero votes from the Rs, allowed the tax 'cuts' to continue).
Saying we are 'undertaxed' is a little silly. We as a society are (still) capitalist. The countries people compare us to are ones where those countries think a more involved government is better. AND it doesn't take into account all the taxes people pay - tax rates at the federal level are but one component of what people pay. Many people pay almost 10% of state income in taxes. Not to mention property taxes, sales taxes, oh, you get the idea.
@David in Cal writes: "Being retired, I'm very concerned about this possibility. I worry about how to protect my savings,"ReplyDelete
That's your right, as a creditor, but other people have worries, too: for example, folks who still need to work for a living, and who don't have savings. For the country at large, deflation can be just as bad, if not worse, than inflation.
To paraphrase Bill Clinton, U.S. monetary policy has been driven by f***ing bond traders, and their slow growth/low inflation policies. We no longer have that luxury. Mild to moderate inflation is exactly what we need now, because inflation reduces debt, and this is a debtors' depression. The banks, and the government enthrall to the banks, are evidently not willing to write down mortgage principal, so inflation is the only tool left.
"For the country at large, deflation can be just as bad, if not worse, than inflation."ReplyDelete
I guess in theory deflation could be just as bad as inflation, if the deflation were of the same magnitude. But, in the real world, paper currencies have all been affected a lot by inflation and almost never by deflation. E.g., since 1942, the year of my birth, the US dollar has inflated by around 1300%.
In other words, a dollar today has the same purchasing power as 7 cents did in 1942.
"In other words, a dollar today has the same purchasing power as 7 cents did in 1942."ReplyDelete
More material for the fantasy factory?
We don't agree that deficit, debt and inflation are the big problem, David.
You haven't provided anything that would make a thinking person think that those are our main worries.
Notably, your vaunted markets also disagree with you. They don't see inflation on any horizon. Which you blithely dismiss for more fantasizing. ("That I don't know. I suspect that if and when..." -- Maybe you should have stopped at "I don't know," and not even hit the Publish button.)
Comeback? Of course you will. With more fantasy, irrelevance and misdirection. We can hardly wait for it.
The Quantity Theory of Money (which may not even be correct) is often expressed as MV=PY, where M is money supply, V is velocity, P prices, and Y productivity.ReplyDelete
If you assume V and Y remain constant, then adding net financial assets to an economy (i.e. increasing M), all other things being equal, will be inflationary (P must increase to balance the equation). However, if you assume V and Y remain constant, you are very, very ignorant. Thus, the statement "Alex, printing money leads to disaster. It causes inflation." is simply false, as stated. Inflation occurs when the capacity of the real economy to meet demand is exceeded by the amount of money fueling the demand. The solution is simple: tax increases and/or spending cuts.
Additionally, "borrowing" doesn't fund anything. It is a monetary operation the Fed undertakes to achieve its interest rate target. It is operationally unrelated to funding. It is, IMO, an anachronism of the Gold Standard days that ought to be replaced by simply paying interest on reserves.
The other day, while I was at work, my cousin stole my apple ipad and tested to see if it canReplyDelete
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