Posts © 2011-2012 by Gerald G. Day







Friday, July 29, 2011

July 29, 2011
On Wednesday I saw two more indicators of how little people on the right comprehend about the debt-ceiling debate or about economics in general.
Donald Trump was quoted on the Post-Intelligencer web site (alas, it no longer is a real newspaper) on the debt crisis: “When it comes time to default, [people are] not going to remember any of the Republicans’ names. They are going to remember in history books one name, and that’s Obama. They’re not going to be talking about Boehner or anybody else . . . ” So, the prime consideration is that, when our economy collapses, that non-citizen socialist will be responsible. Actually, according to news reports, the GOP will get the larger share of the blame, but the Donald pronounced: “I don’t care about the polls.” He knows better.
What about the disaster to the economy if there is a default? Well, gosh, why worry about stuff like public welfare, the stability of the country or paying our bills? Only one thing matters: “The fact is, unless the Republicans get 100 percent of what they want, and that may include getting rid of Obamacare, which is a total disaster, then they should not make a deal other than a minor extension that would take you before you [sic] the election which would ensure Obama doesn’t get elected, which would be a great thing.”65 Never mind that the strategy risks disaster; defeating Obama is the only issue. Trump probably never was a serious candidate for the Republican nomination, but his views hardly are unrepresentative of that Party.
The other illustration came via television. At the gym where I work out (too infrequently), there are monitors showing various programs, silently. I had the misfortune to be facing one tuned to CNBC and Lawrence Kudlow. The lack of sound spared me his comments, but at one point the screen showed this legend: “Free-market capitalism is the best road to prosperity.” If Kudlow or his producer are determined to display that bit of propaganda, including the euphemism “free market,” they should be required to read on air Naomi Klein’s book The Shock Doctrine, which details just how that theory has worked out in practice in Asia, South America, Poland, Russia and occupied Iraq. It is a depressing account which should convince any thinking person that it not only is bad economics but is too often is associated with authoritarianism, quite the opposite of the libertarian promises of its advocates.

Sunday, July 24, 2011

July 23, 2011
Politics, according to Bismark, is the art of the possible. If only we were so civilized. John Kenneth Galbraith revised the maxim: “Politics is not the art of the possible. It consists in choosing between the disastrous and the unpalatable.” That is where the debt-limit debate stands, between the disaster of default and budget proposals from each side which the other can’t swallow. There is no reason why this should be so; the limit should have been raised without fuss, without posturing, without playing chicken and without vast programs of debt reduction.
Even supposing that this is the proper time to debate the budget, President Obama has moved so far to the right that, if his offer had been accepted, the result would seem, to anyone asleep for the past two and one-half years, as if a Republican president were in office. Conservative commentators cannot believe that the Republican negotiators did not agree to the administration’s proposal and declare victory.
However, a budget victory, even the adoption of a conservative program, is not enough now. The demands of the House Republicans are so extreme that they no longer fall within the realm of rational politics, to say nothing of rational economics. Their demands are driven by a desire to dismantle the federal government. They may imagine themselves in Boston in 1773, throwing tea into the harbor, protesting unfair taxation. However, their true place is 1788, where they join the anti-federalists in arguing against the Constitution and against the creation not only of a national government but of a nation.

Friday, July 22, 2011

July 22, 2011

I haven’t thought of the space program as one of our priority undertakings, but its ending serves as a metaphor of the decline of the United States: a public undertaking privatized, the abandonment of exploration and cutting-edge science, something we no longer can afford because we refuse to pay taxes, an acknowledgment of weakness and failure, dependance on the Russians.

In describing our present situation, one doesn’t have to search far to find metaphors, similes or other descriptive lines to borrow. A book on my to-read-someday list, primarily due to its provocative title, is Why Is There No Labor Party in the United States? We might ask instead: why is there no Democratic Party (or democratic party) in the United States? The presence of three Dinos, one of them the Assistant Senate Majority Leader, in the Gang of Six illustrates the disappearance of such a party, capitalized or not. Consider the Gang’s proposal, as set out in an Associated Press article in Thursday’s Seattle Times :

The plan would simplify the tax code by reducing the number of tax brackets from six to three, lowering the top rate from 35 percent to between 23 percent and 29 percent. That could [!] provide a windfall for wealthy taxpayers. . . . To help pay for lower rates, the plan would reduce popular tax breaks for mortgage interest, health insurance, charitable giving and retirement savings.. . . .

The alternative minimum tax, which was enacted in 1969 to make sure that high-income families pay at least some income tax, would be repealed. . . .

The Gang of Six plan is silent about taxes on capital gains and dividends . . . . The current top rate on capital gains and dividends is 15 percent, well below the top rate for ordinary income.

The plan would lower the corporate income tax rate from 35 percent to between 23 percent and 29 percent . . . .

Under current law, the U.S. taxes overseas profits of American corporations but only after they return those profits to the U.S. The proposal calls for a territorial tax system, which would tax only profits made in the U.S. . . .

Once again we will shift the tax burden downward. Another large chunk of national wealth will go to the rich and to corporations.

Even without this contribution by the Gang, our policies made little sense. We cut taxes to lower the deficit, impose austerity during a recession, ignore global warming, and wage unnecessary wars that cannot be won and which we cannot afford. Here’s another apt description of the current state of politics: “The world has gone mad today, and good's bad today, and black's white today, and day's night today . . . .” Cole Porter didn’t know when he had it good.

Although The Times did readers a service by publishing the outline of the plot of the Gang of Six, it hasn’t been as helpful on its editorial pages. Letters to the editor have been a better source of intelligent comment lately than Times columns or house editorials.

At the end of June, a Times editorial inveighed against a $20-per-year tax on auto licence tabs to be used to fund transit. The argument was the usual we’re-taxed-to death stuff, as if the editors and publisher were a) going to notice $20 or b) were truly concerned about the tax burden on ordinary folk. (This is, remember, the paper controlled by the Blethen family, which has campaigned for years in favor of tax breaks for the wealthy). A letter which, to their credit, they published, set them straight: “This tax of $1.67 per month is very reasonable for the benefits we get in return: more public transit and less traffic congestion. . . .” The writer quoted Justice Oliver Wendell Holmes, Jr. (“Taxes are the price we pay to live in a civilized society”) and added a succinct statement of political philosophy: “As people become less willing to pay for services, our society becomes less civil. We become more selfish and less of a community.”

In early July, an editorial in the Times blamed the increase in tuition at the University of Washington on the failure of the legislature to provide adequate funding. A letter pointed out the Times’ inconsistency: “The editorial blaming the Legislature for tuition increases . . . is laudable . . . . But your constant and often strident opposition to any new taxes makes me wonder where you think the legislature will get the money . . . .”

On July 19, Bruce Ramsey, the resident libertarian on the Times’ editorial staff, wrote a column on Social Security. As a preliminary matter, let’s consider the position of an editorial columnist or other writer of political opinion. In a column on Liberty Unbound,62 Ramsey criticized a column by Michael Gerson, who in turn had criticized libertarian hero Ron Paul. However, Ramsey made this concession: “Libertarians can rail against Gerson as biased, which of course he is. He is an opinion columnist. Bias is part of his job description.” The same is true of Ramsey and of my modest attempts at commentary, but bias is one thing; getting the facts straight is another. Ramsey doesn’t.

He began his column this way: “Back in May I wrote a column on Social Security. I argued that the system was coming up short, that there is no money in the "trust fund," and that some Americans will have to pay more in taxes or get less in benefits. It is a matter of arithmetic, but some readers loudly denied it. . . .” If by “no money in the trust fund,” he means no cash lying in a drawer, I suppose that he is correct, but I also assume that he is a bit more sophisticated than that. The trust fund consists of U.S. government bonds, which have been the safest investment in the world. If Mr. Ramsey had a private trust fund consisting of such bonds, he would not consider himself broke. Actually, he acknowledged that in his May column: “If you or I had the bonds, we would be trillionaires.” Why the different standard for Social Security?

His answer: “ But Social Security is the government — and an organization's IOUs are not an asset to itself.” The issue is not whether the bonds are a “government” asset; they are an asset of a trust fund. Like any other government bond, they are backed by the full faith and credit of the United States. To believe that the government would default on the bonds requires believing that it would default on the bonds in private portfolios and the bonds issued to cover loans by China. Is the U.S. about to default on those?

Leaving aside questions of law and policy, what of the common conservative argument that the government should behave like individuals? By that standard, the government should honor its debt and pay the SS bonds as they fall due. Indeed, it does just that, many times per year. The problem, or opportunity, depending on one’s agenda, is that, up until now, the SS fund ran a surplus, so that redemption of bonds was exceeded by new purchases. The Ramsey theory, beloved of all conservatives, is that the government will cease redeeming bonds now that redemption represents a net outward flow from the general fund.

Until very recently, no one in his right mind would have believed that this could happen, that the United States government would default on its bonds. Our national credit would collapse and our national standing, power and way of life with it. The capture of the House by ignorant reactionaries has made this a possibility, as the debt-ceiling standoff demonstrates. If default occurred, Ramsey’s wish-cum-prediction of trust fund insolvency might come true, though of course he does not acknowledge that self-destructive irrationality would be required to make it happen.

If the debt ceiling were not raised, and default occurred, the American and international economies would collapse, so some face-saving deal is inevitable. If default is not the answer to cheating the trust fund, then we move to the fallback argument along the lines suggested by Ramsey: pretend that the bonds are worthless, so that payment may be ignored or held hostage to a reduction in benefits, or to a rise in the retirement age, or to some other preliminary stage to the ultimate goal of scrapping the system.

The cause of the risk of default, both general and regarding Social Security, is obvious: a refusal to raise taxes on the rich. In any circumstance this would be a position of dubious fiscal and ethical merit; here it is simply immoral. According to Ramsey, those who want the bonds to be redeemed also want to avoid being taxed to accomplish that. Here’s his argument, referring to a letter-writer who demanded that the loans be paid:

[W]hat he was really saying was, "Make someone else pay." That is not a respectable answer. Not for a system built under the assumption that "we're all in it together." It is, however, a sentiment you hear all the time with Social Security and other big budget issues. Whether it's ending the $106,800 cap on Social Security wages, reversing the Bush tax cuts for the top bracket only, or imposing a Washington state income tax for the top 3 percent of earners only, tax proposals often seem to exempt the group making them. Make someone else pay.
Pity the wealthy: we’re all out to get them. I’d be interested to hear Ramsey’s rationale for the cap on SS wages, or the justification for the tax cuts for the wealthy, let alone their perpetuation. (His rationale for opposing the state income tax came down to its “soaking the rich”). Ordinary folk have paid the payroll tax based on the assumption — indeed the promise — that they were funding Social Security. That tax was raised in the 1980s for the express purpose of building up the fund for the wave of retirements now beginning.63 The surplus was borrowed, as provided by law but, because it has been used irresponsibly, redeeming the bonds is more difficult than it should have been. In addition to war, the chief culprit has been tax cuts, overwhelmingly favoring the wealthy. Therefore, leaving aside war, ordinary people have paid regressive payroll taxes so that the wealthy could have income and estate tax cuts; in effect, we’ve lent them, as well as the government, billions. Mr. Ramsey thinks the wealthy should not be required to repay that loan. At least he’s consistent: repayment of debts is optional.

Taxing the wealthy heavily, in addition to making fiscal sense — raising needed revenue — makes moral and cultural sense. Consider, for example, Theodore Roosevelt’s view:

At many stages in the advance of humanity, this conflict between the men who possess more than they have earned and the men who have earned more than they possess is the central condition of progress. In our day it appears as the struggle of freemen to gain and hold the right of self-government as against the special interests, who twist the methods of free government into machinery for defeating the popular will.
Preventing huge discrepancies in wealth is not based on envy or a desire to avoid obligations, or class warfare, but on the health of society: “At every stage, and under all circumstances, the essence of the struggle is to equalize opportunity, destroy privilege, and give to the life and citizenship of every individual the highest possible value both to himself and to the commonwealth.” TR’s solution: “a graduated income tax on big fortunes,” and “a graduated inheritance tax on big fortunes, properly safeguarded against evasion, and increasing rapidly in amount with the size of the estate.”64

However, such thoughts are so Twentieth-Century. The Times rounded out the picture Thursday by endorsing the Gang’s plan.

______________________________

62. A libertarian journal, formerly known as Liberty magazine

63. Another of those perceptive letters pointed out that Ramsey is inconsistent as to the relationship of payroll taxes to benefits (do they contribute to the payors’ future benefits of merely pay benefits for those already retired?)

64. New Nationalism speech, August 31, 1910. http://www.teachingamericanhistory.org/library/ index.asp?document=501

Saturday, July 16, 2011

July 16, 2011
There is a story going round that a Democratic administration took office in early 2009. It must be a myth; consider:
• the appointment of a conservative economic team;
• the absence of a jobs program in the face of high and persistent unemployment;
• a plan to drastically cut spending during a long recession;
• extension of the Bush tax cuts;
• acceptance of the notion that Social Security is part of the deficit problem;
• turning our longest war into a seemingly permanent one, ignoring the human and financial cost;
• abandonment of a promise to close Guantánamo, and resumption of military trials;
• bombing Libya and claiming exemption from the War Powers Act;
• continued invocation of the state-secrets defense.

The latest sign is the claim by the new Secretary of Defense that we invaded Iraq because of 9-11, to defeat al-Qaeda.