Wednesday, June 30, 2010

Even with the deficit commission on the lam, Jamie Galbraith delivers what should (but won't) be a death blow


UPDATE BELOW: Zounds! The commissioners emerge from hiding for a day!

House Minority Leader "Sunny John" Boehner has taken to arguing that the Bush tax cuts aren't "what led to the budget deficit." Obviously the immediate cause is asset and revenue collapse brought on by the Bush depression, but who laid the groundwork -- for both the depression and the deficits? Of course since Sunny John's knowledge of economics is limited to shoveling in bribes in his personal Corporate Cash for Congress program, he really can't be expected to know better, can he? And apparently it's too much to hope he might keep his trap shut on stuff he doesn't know anything about.

"Secrecy breeds suspicion: first, that your discussions are at a level of discourse so low that you feel it would be embarrassing to disclose them. Second, that some members of the commission are proceeding from fixed, predetermined agendas. Third, that the purpose of the secrecy is to defer public discussion of cuts in Social Security and Medicare until after the 2010 elections. You could easily dispel these suspicions by publishing video transcripts of all of your meetings on the Internet, and by holding all future meetings in public. Please do so."
prepared for the Secret Commission on Deficit Reduction

by Ken

Howie and I have both been jumping ugly on the loomingly disastrous Let's Stick It to Social Security Commission brought to us by the president in cahoots with America's pillars of economic orthodoxy. While it's true, as a report on this morning's NPR Morning Edition ("Once a Critic, Obama Now Embraces Commissions") reported, that there is a long, undistinguished history of presidential commission reports that were duly filed and, after perhaps a hearty press-conference launch, never heard from again. However, I don't think this commission's report is designed to suffer the same fate.

As the Morning Edition report pointed out, a presidential commission is almost always a president's way of saying, "I don't wanna talk about it." As the Morning Edition report also pointed out, it was presidential candidate Barack Obama who derided opponent "Young Johnny" McCranky for proposing to deal with the then-new economic meltdown with -- what else? -- a presidential commission.

For a proper refutation of the kind of nonsense Sunny John is spewing about the deficit, see Kathy Ruffing and James R. Horney's Center on Budget and Policy Priorities report.

What's different about this commission -- that is, apart from its fugitive status (I expect those poor commissioners-in-hiding to start showing up any day now on milk cartons) -- is that it seems meant, not to take an awkward subject off the table, but to provide cover for the first step toward dismantling or at least drastically curtailing so-called entitlement programs long desired by certain corporate and far-right interests emblemized by corporate predator Pete Peterson. Instead of the usual commission formula of producing sensible proposals that will be safely ignored, this commission seems to have been created for the express purpose of producing intensely ideological and normally wildly unpopular plans of action which proponents can then try to strong-arm through Congress.

Which is why I'm not nearly as optimistic as Paul Krugman, in his now-famous blogpost, that ""Zombies Have Already Killed The Deficit Commission." The fact that commission co-chair former Sen. Alan "The Annoyer" Simpson is trotting out long-since-disproved (and therefore "zombie") lies about Social Security might matter if this commission's work were aimed at an impartial, well-informed decision-making authority, but in reality it seems intended to be fed into the Right-Wing Noise Machine and whatever other media echo chambers will sign on, for the purpose of simulating enough noise to induce compliance among enough members of Congress whose existences don't depend on Social Security, Medicare, or Medicaid.

Still, a commission that took it on the lam in response to scrutiny from a single blogger (Social Security Works's Alex Lawson) may be more vulnerable to intellectual shaming than I'm allowing. If so, the devastasting statement just delivered to the commission today, apparently at its request, by University of Texas economist James K. Galbraith (see link above for the text) might actually have some effect.

The statement really is worth looking through. For example, the chunk I've quoted above, denouncing the commission's secrecy, is in fact only one of four counts on which Galbraith argues that the commission is illegitimate -- and that itself is only the first point he makes, which he acknowledges is a political rather than economic one.

The New Deal 2.0 website provides this overview of Galbraith's statement:
James K. Galbraith’s Testimony Blasts Fiscal Commission

Wednesday, 06/30/2010 - 12:16 pm by Lynn Parramore

James K. Galbraith, one of the country’s most respected economists and a ND20 contributor, offered a statement today to the Fiscal Commission on behalf of Americans for Democratic Action, an organization co-founded in 1949 by (among others) by Eleanor Roosevelt. We at New Deal 2.0 recommend that you grab a coffee, sit back, and read this elegant, blistering, and brilliant description of why the Commission is both misguided and malignant.

Read full text of testimony here.

For a quick snapshot, Galbraith’s testimony is divided into ten sections, which address the following points:

-That the Commission’s work is illegitimate
-That current deficits and rising debt were caused by the financial crisis.
-That future deficit projections are generally based on forecasts which begin by unrealistically assuming full recovery
-That, having cured the deficits with an unrealistic forecast, CBO recreates them with another, very different, but equally unrealistic forecast.
-That the only way to reduce public deficits is to restore private credit.
-That Social Security and Medicare “solvency” is not part of the Commission’s Mandate.
-That as a transfer program, Social Security is also irrelevant to deficit economics.
-That markets are not calling for deficit reduction, either now or later.
-That in reality, the US government spends first & borrows later; public spending creates a demand for Treasuries in the private sector.
-That the best place in history (for this Commission) would be no place at all.

Our favorite line comes near the end with this withering address to the Commission: “You are plainly not equipped, either by disposition or resources, to take on the true cause of deficits now or in the future: the financial crisis.”

The point about the need to restore private credit is one the Republican deficit hawks have conveniently forgotten now that their masters the banksters have been bailed out and rendered at least relatively whole relative to the rest of us, only to blithely refuse to do what they were ostensibly bailed out to do: unjam the credit lockdown. You have to give them credit for recognizing what piss-poor judges of creditworthiness they were in the orgy of crap-loan-writing they engaged in as their contribution to crashing the economy. Still, if the banks aren't lending, what public interest is there in helping them to survive?
The only way to reduce a deficit caused by unemployment is to reduce unemployment. And this must be done with a substantial component of private financing, which is to say by bank credit, if the public deficit is going to be reduced. This is a fact of accounting. It is not a matter of theory or ideology; it is merely fact. The only way to grow out of our deficit is to cure the financial crisis.

To cure the financial crisis would require two comprehensive measures. The first is debt restructuring for the entire household sector, to restore private borrowing power. The second is a reconstruction of the banking system, effectively purging the toxic assets from bank balance sheets and also reforming the bank personnel and compensation and other practices that produced the financial crisis in the first place. To repeat: this is the only way to generate deficit-reducing, privately-funded growth and employment.

As a former top adviser in the Clinton White House, co-chairman [Erskine] Bowles no doubt know that privately-funded economic growth produced the boom years of the late 1990s and the associated surplus in the federal budget. He must also know that the practices of banks and investment banks with which they were closely associated worked to destroy the financial system a decade later. But I would wager that the Commission has spent no time, so far, on a discussion of the relationship between deficit reduction and financial reform. [Emphasis added.]

And Galbraith argues effectively that Social Security should be beyond the purview of a deficit commission because it doesn't create debt, it simply moves money -- money that not only has deserving recipients but is spent, unlike the money the banksters and their cronies have been piling up.
Social Security is a transfer program. It is not a spending program. A dollar "spent" on Social Security does not directly increase GDP. It merely reallocates a dollar from one potential final consumer (a taxpayer) to another (a retiree, a disabled person or a survivor). It also reallocates resources within both communities (taxpayers and beneficiaries). Specifically, benefits flow to the elderly and to survivors who do not have families that might otherwise support them, and costs are imposed on working people and other taxpayers who do not have dependents in their own families. Both types of transfer are fair and effective, greatly increasing security and reducing poverty -- which is why Social Security and Medicare are such successful programs. . . .

{C]utting Social Security benefits, in particular, merely transfers real resources away from the elderly and toward taxpayers, and away from the poor toward those less poor. One can favor or oppose such a move on its own merits as social policy -- but one cannot argue that it would save real resources that are otherwise being "consumed" by the government sector. [Emphasis added.]


Also scheduled to report to the commission today was AFL-CIO President Richard Trumka, whose prepared statement included this (there are footnotes in the online text which I've left out):
We need to be clear that President Obama is not to blame for getting us into this mess. Two weeks before he took office, the Congressional Budget Office (CBO) projected a budget deficit of $1.4 trillion for 2009—and annual deficits averaging well over $1 trillion for the coming decade.

We should be honest about what’s causing deficits over the next ten years. According to the Center on Budget and Policy Priorities, “The tax cuts enacted under President George W. Bush, the wars in Afghanistan and Iraq, and the economic downturn together explain virtually the entire deficit over the next ten years.” And “without the economic downturn and the fiscal policies of the previous administration, the budget would be roughly in balance over the next decade.”

Although more than half of the 2009 deficit is due to the recession, Council of Economic Advisers Chair Christina Romer points out that “in the absence of [Bush administration policies that we failed to pay for], we could have had an economic downturn as severe as the current one and responded to it as aggressively as we have, all while keeping the budget roughly balanced over the next ten years [2010-2019].”

We should also be honest about what’s causing projected deficits over the long term. We do not face a crisis of entitlement spending generally, caused by the retirement of the Baby Boomers. In the long term, we face a crisis of public and private health care costs growing faster than GDP, especially after 2035. Social Security has its own source of dedicated funding and is not responsible for our unsustainable long-term debt, and spending on other entitlements is projected to fall as a share of the economy over the long term. [Emphasis added.]

Of course the deficit hawks can always be counted on to be in the forefront of the resistance to any serious effort to rein in health care costs.

It would be interesting to get an idea of the commissioners' responses to the Galbraith and Trumka testimony, but I assume the Secret Commission has gone back into hiding. Soon to be seen on milk cartons in a supermarket dairy case near you?


Well, my goodness, the D.C. Deficit Hawks' Club, I mean the Secret Deficit Commission, slipped out of the attic yesterday to hold what at least one source called "a rare public session"!

I wish I could say this seems in some way significant. I mean, if this was the day set aside for what the defhawks no doubt consider wild-eyed radical lefties like Jamie Galbraith and AFL-CIO President Trumka, why bother going through the motions unless you do it publicly? Never mind that Galbraith has become one of the country's most respected economists; the quickest glance at the statement he was bringing tells you that not a word of it will be given the slightest attention. And when was the last time anyone inside the District of Columbia felt any need to pay attention to anything having to do with organized labor?

Let's wait and see how open the DCDHC, I mean the SDC, is when it comes to actual commission work.


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