Tag Archives: economy

Why cutting rich people’s taxes doesn’t create jobs

You’ll never get a job from a rich person with no customers.

Stop me if you’ve heard this before: A Republican president is proposing to massively cut the taxes paid by rich people. But it’s all good, because they’re “job creators”. So the tax cuts will give them money to create good jobs up and down the line, and result in so much economic growth that the government won’t even lose revenue.

One way to argue against this idea is with history: Cutting taxes always cuts revenue and leads to deficits. Both Ronald Reagan’s and George W. Bush’s tax cuts led to what were then record deficit. In between, Clinton’s tax increases created a huge surplus. This may seem too obvious to bear repeating, but apparently it needs to be said: If you cut taxes you collect less tax. If you raise taxes you collect more.

And the job creation thing only works sometimes: Reagan’s job record is pretty good (though not as good as Clinton’s), but George W. Bush’s is terrible: The economy created only 2.1 million jobs during Bush’s eight years (and was shedding jobs at a record pace as he left office). But during the eight tax-increasing Clinton years, 21.5 million jobs — ten times as many — were created.

What’s more, the purpose of cutting taxes on the wealthy is supposed to be so that they’ll have more cash to create jobs with. But if that worked, we’d have been swimming in jobs for years, because the very rich currently have as large a share of the national income and national wealth as they have since just before the Depression. If the job creators were ever going to create good jobs, it seems like they’d be doing it now, and would have been doing it since the turn of the millennium.

In fact, if you look at that graph, there seems to be an inverse relationship at work: The good old days of American jobs — when a man like my father could get a factory job, support an at-home wife, buy a house, and send two kids to college — were the 1950s and 1960s, when the top 1% was receiving a record low percentage of the national income.

But if you’ve been paying attention to American politics, you know that history — especially the kind of history you need to illustrate with graphs — doesn’t convince everybody. So in spite of hard experience, talking heads on TV are still telling us that making the rich richer will make everybody richer, because the rich create jobs for the rest of us.

You can rage about that. You can complain about how gullible and stupid the American public is, that they’re still falling for this nonsense. Or you can try to understand why: What is it that makes this particular false theory seem so much like common sense that the clear evidence against it doesn’t even register?

The answer to that is that the job-creator myth is supported by a convincing appeal to personal experience: “Do you have a job? Who pays you? Is he richer than you or not?” As the saying goes: I never got a job from a poor person.

So what’s wrong with that? You get a job because a rich person hires you, so if we want the economy to produce a lot of new jobs, we should make sure there are a lot of rich people with a lot of money to hire everybody else.

Why doesn’t that work? I mean, those of us who believe in history and graphs and stuff know it doesn’t, but why not?

The answer is that it takes three characters to create a job, not just one. For the economy to add a job, you need:

  • a worker to do the job
  • a customer to buy what the worker produces
  • an entrepreneur to bring the other two together.

If any one of the three is missing, there’s no job.

At any given moment, in any particular part of the job market, the logjam might be in any of the three factors. It’s possible that entrepreneurs don’t have enough investable cash, and that a tax cut will fix the problem. But it’s also possible that workers don’t have the right skills, so the government ought to be investing in education and training. Or that customers aren’t buying, so the government either needs to subsidize them or to buy things itself on the public account.

What’s wrong with conservative economics is that it always assumes that the lack is of entrepreneurs: If more people were in a position to start or expand a business, they would.

In fact, they won’t, unless they are confident the other two roles will be easy to fill. Imagine, for example, that you run a restaurant, and that a tax cut suddenly gives you a windfall of money you could use to expand. Will you? Not if you’re having trouble filling the tables you have.

That’s what happened during the Great Recession: Rich individuals and big corporations were sitting on huge piles of cash, but they weren’t using it to hire people. Why would they? Nobody is going to spend money to expand their businesses or start new ones if existing businesses are failing for lack of customers. If you cut rich people’s taxes in that situation, they’ll add their new pile of cash to their old pile until the economic outlook gets better.

What the economy was missing in 2008 was the customer. In an atmosphere of widespread fear, we all wanted to hang onto our cash and until we felt more secure. In such a situation, how much money entrepreneurs have to invest doesn’t matter; they won’t invest it until they see unsatisfied customers looking for a product they can spend their money on.

In general, that’s the problem when the distribution of wealth gets too skewed towards the rich: the economy chronically runs short of customers. No matter how extravagantly the rich live, there are limits to what they can consume and how many people can be employed satisfying them. You can’t base a mass-employment economy on yachts and caviar.

Right now, cutting taxes on the rich is exactly the wrong thing to do until the distribution of wealth and income returns to more normal levels. Instead, the government ought to be creating jobs by creating customers — even being the customer if it has to. It ought to be raising taxes on the rich in order to buy things we all need: roads and bridges, health care, clean air and water, education, and a 21st-century energy system that doesn’t wreck the prospects for future prosperity. In an economy already too dominated by the top tenth of a percent, that’s the way to create jobs.

So sure, I’ve never gotten a job from a poor person. But I’ve also never gotten a job from a rich person with no customers.

Why are middle-aged whites dying?

I’m doing fine, but my cousin is dead.

Look at this graph:

In 1990, the death rate for American whites aged 45-54 (USW) was within the normal range of similarly aged people in comparable countries, and similar to the death rate for middle-aged American Hispanics (USH). In all the other countries, death rates continued their centuries-long trend of dropping, with USH tracking the United Kingdom rate almost perfectly. But starting in 1998, USW turns up.

A good summary of this new study is in The Atlantic. The upshot is that about half a million American whites are dead who would be alive if USW death rates had followed the downward track of other first-world countries. The effect seems concentrated in the less-educated classes, and the cause is a sudden jump in the rate of what are called “poisonings” — mainly deaths related to alcohol and drugs — as well as an increase in suicides and other causes related to not taking care of yourself. Atlantic concludes that middle-aged whites “are dying of despair”.

This feels personal to me. My father was a high-school-educated white who was an adolescent during the Depression. For most of my childhood, he had a good-paying factory job that allowed him to buy a small farm that he worked on the side. Needless to say, he was a hard-working guy. But he also saw himself as extremely successful: He owned a house nicer than the one he grew up in, sent his kids to college, and after he retired had a winter home in Florida. He lived to be 90.

I took advantage of the opportunities my parents gave me and got a PhD. I also feel successful, and am in excellent health at 59. But what if, rather than reaching for a better life than my father’s, I had tried to duplicate his success? It wouldn’t have worked. The good-paying no-college-needed jobs went away during my lifetime. I probably would have bounced from one low-status job to another, always wondering why I couldn’t live at the level I had thought was normal for people like me. Compared to my father, I would be a failure.

That pretty well describes one of my cousins, who had alcohol problems for most of his adult life and died a little younger than I am now.

What we’re seeing here, I believe, is the end result of privileged distress. It’s still not objectively harder to be white in American than non-white, but the traditional privileges of whiteness have shrunk, particularly for the working class, while visions of how life is supposed to be (for white people) are pegged to the achievements of our parents. Consequently, it gets harder and harder for working-class whites to live up to the expectations they were raised to have. By middle age many feel like failures, and live with a corresponding lack of self-regard.

Is it any wonder they look for scapegoats, like the Hispanic immigrants, and are attracted to anger-channeling politicians like Donald Trump? They cheer when Trump says America is going to start winning again, and they love to identify with him when he calls his opponents “losers” — because looking down on somebody else is very satisfying when you feel like a loser yourself.

Damned Lies and Employment Statistics

Yes, some “real” unemployment rate is roughly double the official 5.1%. But there’s nothing sinister about that, and the job market really is gradually improving.

Some 19th-century wit — maybe British Prime Minister Benjamin Disraeli or American humorist Mark Twain or somebody else — once said that there are “lies, damned lies, and statistics“.

This week the Bureau of Labor Statistics issued its monthly jobs report, in which it asserted that the economy added a good-but-unspectacular 173,000 jobs in August, bringing the unemployment rate down to 5.1%, the lowest it’s been since early in the Great Recession of 2007-2009.

As happens every month, a number of pundits and politicians then blew a lot of hot air about how these numbers hide the “real” unemployment rate, which is much higher than 5.1%. Some even made it sound as if an evil government conspiracy is trying to fool the public into thinking things are getting better when they’re actually getting worse. Ben Carson expressed this idea in May:

What you have to know is that you can make the unemployment rate anything you want it to be, based on what numbers you include and what numbers you exclude.

Well, pretty much whatever you want to include or exclude, the BLS tracks that too, and publishes it for everybody to see. The wonks at the BLS refer to the “official” unemployment rate as U-3, but they also keep track of  U-4, U-5, and U-6, each of which defines unemployed more broadly than the previous U. U-4 includes people who would like a job, but are too discouraged to look for one; U-5 adds people who want a job, but haven’t looked recently for some other reason; and U-6 adds people who are working part-time when they would rather work full-time.

U-6 is what people (like the conservative Washington Examiner and liberal Bernie Sanders) are pointing to when they say the “real” unemployment rate is 10.3%. And that’s perfectly reasonable thing to say: 10.3% of potential workers wish they could work full-time, but haven’t found jobs that let them do so.

What isn’t reasonable is the conspiratorial that’s-what-they-want-you-to-think attitude that Carson and others are promoting. For example, The Daily Caller quoted Sanders’ comment accurately, and then inaccurately claimed: “That dose of reality is like a wet blanket on President Obama’s recent claims that the economy is improving.” It was nothing of the sort.

You see, the 10.3% U-6 number wasn’t smuggled out of the BLS by some whistle-blower; it was published in the same report as the 5.1% U-3 number. And while 10.3% unemployment sounds a whole lot worse than 5.1%, in the context of similar measurements taken over time, it tells the same story: The job market has been getting consistently better since very early in President Obama’s administration.*

unemployment2This graph (constructed with tools at Macrotrends), shows U-3, U-5, and U-6 over the last ten years. All three measures of unemployment bottom out in March, 2007; climb sharply to a peak October, 2009 (nine months into the Obama administration), and then decline to a level that is still a bit above the March, 2007 low.**

So U-3 is 5.1%, down from a peak of 10.1% but still not at the 4.4% pre-recession low. And U-6 is 10.3%, down from a peak of 17.4% but still not at its 8.0% pre-recession low. The two stats tell the same story.

But if you really want to make the slow-but-steady economic uptrend sound like smoke and mirrors, you selectively quote another stat openly published by the BLS: the labor participation rate, the percentage of people over 16 who are either working or looking for work.

The LPR has been going down throughout the Obama administration and now stands at 62.6%. So Carson, Paul Ryan, and other Republicans like to point to it as proof that things have actually been getting worse.

The problem with using the LPR as a measure of economic health is that good news can drive it down too, as people who have some economic slack choose not to work: older people retire, younger ones stay in school, couples let one spouse focus on raising the children, and so on.

If you just show a graph of the plunging LPR during the Obama administration, it looks like something must be going horribly wrong. But you see a different pattern if you take a longer view.

This half-century graph makes it apparent that the major trends in LPR don’t have a lot to do with the ups and downs of the business cycle. Otherwise, you’d have to conclude that the 1960s were some economic hellscape, rather than the relative good times they actually were.

What you’re mainly seeing in that big hump-in-the-graph is the life cycle of the Baby Boom generation, added to the effect of middle-class women entering (and staying in) the job market through the 1970s and 1980s. That Boomer-retirement trend is affected on the margins by the economy (as 60-somethings decide whether to retire this year or next year), but barring some catastrophe that keeps 80-year-olds looking for work in large numbers, the LPR should continue its downward trend for years to come, independent of who is president or what policies they implement.

So yes, there are some damned lies going around in the guise of statistics. But the notion that the economy and job market have been slowly getting better for the last six years is not one of them.

* If you really want to get wonky about this, we’re talking about the difference between a quantity that varies with time and its first derivative. Slightly less wonky: the difference between the raw total and the trend.

As far as I’ve noticed, Sanders has been using these numbers responsibly, to claim that the economy still needs a lot of jobs, and so could use the massive infrastructure project he has proposed. I haven’t exhaustively searched his speeches, but I haven’t seen him question the reality of the upward trend in the job market.

** It’s arguable that the 2007 low isn’t a fair comparison, since a lot of those jobs depended on the soon-to-pop real estate bubble.

What to Make of Pope Francis?

Is Pope Francis’ denunciation of “unfettered capitalism” new? or long-standing Catholic doctrine most Americans have ignored and forgotten? Either way, does it matter?

The Catholic Church has always been torn: Is it the church of Jesus, who told a rich man, “Go, sell all that you own and give to the poor”? Or is it the church of the Emperor Constantine, who put the Rome in Roman Catholicism? Is it the church of Saint Francis or of the Borgia popes? Of liberation theology or of Franco’s fascist collaborators?

The church in recent American politics. In recent years the public face of the American church has been turned primarily towards sexual issues: abortion, contraception, and homosexuality. And so the bishops have become allies of the Republican Party; the American politician most publicly identified as Catholic has been Rick Santorum. American cardinals have denied communion to pro-choice Catholic politicians like John Kerry and Kathleen Sebelius, but when a Catholic conservative like Paul Ryan proposes slashing programs that help the poor, a letter of protest is deemed sufficient. (Cardinal Dolan, then president of the U.S. Council of Catholic Bishops, subsequently described Ryan as “a great public servant”.)

On ObamaCare, the American bishops have manufactured great outrage against the fairly minor point* of the contraception mandate, while saying relatively little about Medicaid expansion, which will provide health insurance to millions of the working poor.

Liberal Catholic tradition. Unknown to much of the American public, though, the Catholic Church has a long history of liberal economic positions, going back at least to the 1891 encyclical Rerum Novarum by Pope Leo XIII.

I encountered this tradition myself in 2005 after the death of Pope John Paul II, when I went back and read his 1981 encyclical Laborem Exercens. In that encyclical, the Pope re-examined the relationship between capital and labor, and rejected a point of view he called economism (that workers are just another factor of production, like tools or raw materials, rather than divinely created beings with souls), which he saw underlying both capitalism and communism. He also assigned a secondary and functional role to the institution of private property: If a system of private property leads to a better society, fine, but it’s not an end in itself.

So (unlike Rush Limbaugh) I was not shocked this week when I read headlines like Pope Francis attacks ‘tyranny’ of unfettered capitalism, ‘idolatory of money’. Is this actually something new, I wondered, or does it just look new from within the sex-obsessed bubble constructed by the American bishops and their Republican allies?

Symbols and gestures. Pope Francis made a strong first impression on the world when he rejected many of the regal trappings of the papacy and chose the name Francis, which harkens back to the voluntary poverty and simplicity of Saint Francis of Assisi.

He then made a series of conciliatory statements. About gays:

When I meet a gay person, I have to distinguish between their being gay and being part of a lobby. If they accept the Lord and have goodwill, who am I to judge them? They shouldn’t be marginalized. The tendency [to homosexuality] is not the problem … they’re our brothers.

And atheists:

We must meet one another doing good. ‘But I don’t believe, Father, I am an atheist!’ But do good: we will meet one another there.

Where Pope Benedict had enraged Muslims, Francis reached out them, sending a personal message to a leading imam in Cairo, calling for “understanding among Christians and Muslims in the world, to build peace and justice.”

And running through all of his statements was an awareness of the poor, those who have been cut off from the abundant produce of the planet God created to sustain all people.

So far, so good. But would he actually change anything?

Evangelii Gaudium. A week ago yesterday, the Vatican published an “apostolic exhortation” from Pope Francis. Apostolic exhortations are what the name implies: They’re meant to nudge people into action, not announce new doctrine.

Evangelii Gaudium (“the joy of the gospel”) is no different. Its purpose is to “encourage and guide the whole Church in a new phase of evangelization, one marked by enthusiasm and vitality”. Most of the text has nothing to do with politics or economics; it ranges through subjects as diverse as how the faithful should motivate themselves and advice to priests on preparing good homilies.

[In a couple of subjects — abortion and women priests — he announces that there will be no new doctrine, though he does make this interesting and enigmatic statement:

The reservation of the priesthood to males … is not a question open to discussion, but it can prove especially divisive if sacramental power is too closely identified with power in general.

Time will tell whether that is a fig leaf for continued patriarchy or an indication that women could come to have more power in the Church, even if they aren’t serving mass.]

But a document encouraging Catholics to make their faith felt in the world has to say something about what, specifically, the world should be made to feel. And here he did not focus on sexual issues, but on economic ones.

Each individual Christian and every community is called to be an instrument of God for the liberation and promotion of the poor, and for enabling them to be fully a part of society.

Each individual and every community. Not “the poor — that’s somebody else’s gig — I’m fighting against same-sex marriage”.

Catholic economics. Consistently through the years, Catholic economics has revolved around two ideas:

  • God created the world for everybody. Pope Francis is not staking out any new territory when he writes: “we must never forget that the planet belongs to all mankind and is meant for all mankind; the mere fact that some people are born in places with fewer resources or less development does not justify the fact that they are living with less dignity.”
  • God did not institute any particular economic system. Economic systems are human constructions, so they are not proper objects of veneration. God is not a capitalist, a communist, or anything else. So economic arrangements have to be justified in practical terms, by their results.

So even something as basic as private property or the freedom to buy and sell has only a functional justification. Protecting property or upholding economic freedom has no value in itself. Rather

The private ownership of goods is justified by the need to protect and increase them, so that they can better serve the common good. … Sadly, even human rights can be used as a justification for an inordinate defense of individual rights or the rights of the richer peoples.

This position puts the Church fundamentally at odds with Rand-style (or Ryan-style) libertarianism, in which property rights and economic freedom are moral values, not just useful tricks for increasing production. In Randism, the produce of the world rightfully belongs to the people who own the world; if those who own nothing are to survive, they must appeal to the charity of the owners. The owners are the Makers, the poor are the Takers.

Francis observes this position with horror:

We have created new idols. The worship of the ancient golden calf (cf. Ex 32:1-35) has returned in a new and ruthless guise in the idolatry of money and the dictatorship of an impersonal economy lacking a truly human purpose. The worldwide crisis affecting finance and the economy lays bare their imbalances and, above all, their lack of real concern for human beings; man is reduced to one of his needs alone: consumption.

He calls on Catholics not just to give alms, but

to eliminate the structural causes of poverty and to promote the integral development of the poor … We are not simply talking about ensuring nourishment or a “dignified sustenance” for all people, but also their “general temporal welfare and prosperity”. This means education, access to health care, and above all employment, for it is through free, creative, participatory and mutually supportive labour that human beings express and enhance the dignity of their lives. A just wage enables them to have adequate access to all the other goods which are destined for our common use. [quotes from Pope John XXIII]

This can’t happen without political action that leads to structural change. The market won’t do it.

We can no longer trust in the unseen forces and the invisible hand of the market. Growth in justice requires more than economic growth, while presupposing such growth: it requires decisions, programmes, mechanisms and processes specifically geared to a better distribution of income, the creation of sources of employment and an integral promotion of the poor which goes beyond a simple welfare mentality.

A mind that worships the Market can only see God as dangerous.

[E]thics leads to a God who calls for a committed response which is outside of the categories of the marketplace. When these latter are absolutized, God can only be seen as uncontrollable, unmanageable, even dangerous, since he calls human beings to their full realization and to freedom from all forms of enslavement.

And a society that writes off the poor can never know peace or be safe from revolution.

Peace in society cannot be understood as pacification or the mere absence of violence resulting from the domination of one part of society over others. … When a society – whether local, national or global – is willing to leave a part of itself on the fringes, no political programmes or resources spent on law enforcement or surveillance systems can indefinitely guarantee tranquility. This is not the case simply because inequality provokes a violent reaction from those excluded from the system, but because the socioeconomic system is unjust at its root. Just as goodness tends to spread, the toleration of evil, which is injustice, tends to expand its baneful influence and quietly to undermine any political and social system, no matter how solid it may appear.

Is this new? No, this is Catholic economics as it has stood for more than a century, with roots going back even further. What’s new is a pope who seems willing to make this the center of his papacy. He has not changed any doctrine — at least not yet — but he has announced a new emphasis away from sex and towards economic justice. As he said in an interview shortly after taking office:

We cannot insist only on issues related to abortion, gay marriage and the use of contraceptive methods. This is not possible. I have not spoken much about these things, and I was reprimanded for that. But when we speak about these issues, we have to talk about them in a context. … The dogmatic and moral teachings of the church are not all equivalent. The church’s pastoral ministry cannot be obsessed with the transmission of a disjointed multitude of doctrines to be imposed insistently.

But the Pope’s re-prioritization of doctrine is going to be a problem for a lot of American bishops. As Jesuit Priest Thomas Reese wrote:

the bishops as a conference have been embarrassingly silent on economic justice during the worst economic crisis since the Great Depression. … Many bishops fear that speaking loudly about economic issues would help Democrats and undermine their alliance with the Republican Party on issues like gay marriage, abortion, and religious liberty. Some even think that the conference’s earlier letters, “Economic Justice for All” and “The Challenge of Peace,” were mistakes because they hurt their friends.

Conservative Catholic response. I recommend reading a thoughtful article by the conservative Catholic NYT columnist Ross Douthat. Douthat observes that the shoe is now on the other foot: For years liberal Catholics have had a yes-but relationship with the Vatican, remaining faithful by their own lights while refusing to get in line with official pronouncements on sexual issues. Now it’s conservatives who want to pick and choose which doctrines they support:

for Catholics who pride themselves on fidelity to Rome, the burden is on them — on us — to explain why a worldview that inspires left-leaning papal rhetoric also allows for right-of-center conclusions.

He attempts to do so, resting his case primarily on the practical effects of capitalism’s increased production, but then concludes:

This Catholic case for limited government, however, is not a case for the Ayn Randian temptation inherent to a capitalism-friendly politics. There is no Catholic warrant for valorizing entrepreneurs at the expense of ordinary workers, or for dismissing all regulation as unnecessary and all redistribution as immoral.

Let me state that conclusion more boldly: If capitalism is going to be justified by its practical ability to create prosperity even for the underclass, then that’s how it must be judged. You can’t talk about the wonders of increasing GDP in the abstract and then ignore the suffering of real people, or worse, blame them for their own suffering and label them as “takers” for wanting to share in the productivity of the planet God made for everyone.

Are you listening, Paul Ryan?

* They’ve been so successful at voicing their manufactured outrage that I need to explain this: Catholic institutions are not required to buy contraceptives for their employees or promote their use. The institutions in question are just required to provide health insurance (or pay a fine). Employees can use their health insurance for contraception if they decide to, just as they can use their wages to buy all sorts of things the Catholic Church disapproves of. The moral onus of choosing contraception (or not) falls on the employee, as it should.

As I have said at length elsewhere, construing this situation as some kind of moral issue for the employer is just passive aggression. They are hyper-extending the sensitivity of their consciences in order to control other people.

Hunger Games: Who’s Right About Food Stamps?

Beyond the anecdotes about lazy surfers and hungry kids, where do the savings really come from?

Thursday, the House passed a bill to spend $39 billion less on Food Stamps (than current law would spend) over the next ten years. All Democrats and 15 Republicans voted against it, but it passed 217-210. President Obama has pledged to veto it, but before it reaches his desk it still has to be reconciled with the Senate farm bill, which cuts Food Stamps by $4 billion.

Image vs. fact. The public debate around Food Stamp cuts has consisted almost entirely of imagery. Fox News’ hour-long special “The Great Food Stamps Binge” anointed lobster-buying surfer-musician Jason Greenslate “the new face of Food Stamps”, while MSNBC focused on kids and military families. Ezra Klein interviewed author and ex-sergeant Kayla Williams about growing up on Food Stamps, and quoted a blog post by an unemployed Afghanistan veteran currently receiving Food Stamps.

Each image is moving in its own way, but how well do any of them represent reality?

First, let’s establish some facts: We’re talking about the Supplemental Nutrition Assistance Program (SNAP), which cost the government $74.6 billion in FY 2012. As of last September, 47.7 million Americans — about 1 in 7 — were receiving SNAP benefits that averaged $134 a month. To be eligible for SNAP, your income must be lower than 130% of the poverty level, or about $30,000 for a family of four.

As you can see from the chart, the percentage of the population getting SNAP benefits fluctuated with the business cycle until Clinton’s welfare reform in 1996, then started increasing again when the 2002 Farm Bill loosened up eligibility. (The anomaly in the chart is the increase during the “Bush Boom” of 2002-2006.) It really took off when the Great Recession hit in 2008. Recently, the number of households receiving SNAP has roughly matched the USDA estimate of the number of households that are “food insecure”. Both numbers jumped between 2007 and 2009, and both are currently about 1 in 7.

The non-partisan Congressional Budget Office (CBO) estimates that the number of recipients would go back down to 34 million by 2023 even with no changes in eligibility. (I’d guess that follows from the assumption that the economy goes back to normal by then.) Benefits were increased in the stimulus bill of 2009, and those increases (a little less than 6%) will run out this November. (That’s already baked into the numbers and does not figure in the $39 billion of cuts.)

Lost in most of the discussion is the question of where the estimated $39 billion savings comes from. Anecdotes or even averages about SNAP recipients are meaningless in this discussion unless they apply specifically to the people who will lose their benefits.

The detailed CBO estimates show that most of the provisions of the House bill have little impact on cost. (It didn’t even bother to figure the savings from Section 110, “Ending supplemental nutrition assistance program benefits for lottery or gambling winners.”) The entire $39 billion comes from three changes.

Work requirements. The biggest chunk, $19 billion, come from Section 109, “Repeal of state work program waiver authority.” That also accounts for the most immediate impact: $3.3 billion in FY 2015.

This sounds like the waivers in welfare work requirements that Mitt Romney so brazenly misrepresented in 2012, but it’s actually different. The SNAP rules say that able-bodied adults without children are limited to receiving 3 months of SNAP benefits every 3 years, unless they are spending at least 20 hours a week either working or participating in a job training program. The 1996 law that established that requirement allowed governors to apply for waivers if their states had high unemployment, figuring that it’s not fair to require hungry people to work if there are no jobs. That’s what’s being repealed.

That change shouldn’t affect any children, but it should cut off both Fox’s freeloading surfer and MSNBC’s unemployed Afghanistan veteran. (I didn’t find national estimates, but adults without children who don’t work 20 hours a week are about 8% of SNAP recipients in Texas, according to the Dallas Morning News. ) How you feel about it largely depends on which one you think is more typical. I suspect the vet is more typical, but I don’t really know.

How you feel also depends on your mercy/severity bias. Some people would gladly feed ten freeloaders to save one person from going hungry through no fault of his or her own. Others feel justified in cutting off ten hungry innocents to force one Jason Greenslate back into the job market.

Categorical eligibility. The second biggest savings, $11.6 billion ($1.3 billion in 2015), comes from Section 105, “Updating Program Eligibility”, which eliminates something known as “categorical eligibility”. CE amounts to the idea that if you’ve already qualified for one needs-based government program, you can qualify automatically for some others, even if the eligibility requirements don’t match perfectly. This saves overhead costs for the government and shortens the lag time of waiting for your paperwork to go through, at the cost of giving benefits to people who might make a little more than 130% of the poverty level.

So the main folks this hurts are the working poor, those lucky couples with kids who get SNAP even though they make slightly over $30,000 a year. It hits them in multiple ways, because qualifying for SNAP can also automatically qualify their kids for free school lunches. Bread for the World estimates that 2-3 million people will lose SNAP benefits if CE is eliminated, and that 280,000 children will lose free school lunches. (It’s tricky, but not impossible, to make that estimate match the CBO’s $1.3 billion. Using the $133-a-month average benefit, we’d be talking about 10 million person-months. That could be 2 million people getting SNAP for an average of five months each during a year. My best guess, though, is that we’re more likely talking about 1 million people, with the other 1-2 million losing benefits only briefly while they re-apply and re-qualify.)

Heat and eat. $8.7 billion in savings ($840 million in 2015) doesn’t actually concern food at all. It comes from eliminating the so-called “Heat and Eat” program, through which SNAP recipients can get assistance paying their utility bills. Bloomberg’s article says this would affect 850,000 people currently getting about $90 a month. (Again, I think you make that work with the $840-million-a-year CBO estimate by assuming not everybody gets assistance for the full 12 months.)

So that’s the whole $39 billion right there. Everything else in the bill is window dressing. For example, drug-testing recipients — which the House bill does not mandate but allows states to do — will almost certainly cost the government more for the tests than it can save by denying benefits to drug users. That was already true when Florida tried it for welfare applicants, and since SNAP benefits-per-person are much less, the loss should be even bigger.

Dependence. The Republican rhetoric on this issue revolves around the word dependence: dependence on government, creating dependence, and so on. The implicit assumption is that people who are getting aid would otherwise take matters in hand somehow. (And that we would approve of how they did it. After all, isn’t Breaking Bad the story of a man realizing that no one is going to help him and taking matters in hand?) And that in turn is based on the assumption that poverty is caused by poor people; if they’d just get out and work, they wouldn’t be poor. A third assumption is that it’s OK for children to suffer for the misbehavior of their parents; seeing their children hungry is part of what’s supposed to motivate the poor not to be poor.

I see two things going on here. First, what I like to call the Musical Chairs Fallacy, which is a version of the Composition Fallacy. If a particular child is always the first one out in musical chairs, you could train him/her to be quicker and more alert. But if you trained all the kids, someone would still be the first one out, because there aren’t enough chairs.

Similarly, you can imagine individual parents watching their children plead for more food and getting a burst of desperate energy that propels them into jobs they might otherwise not have found. But if all the poor get desperate at once, will that desperation create enough jobs to feed all their children? Or are a certain number of people going to go out of the game when the music stops (no matter how quick or alert everyone is) because there aren’t enough chairs?

Second, there’s the problem of the working poor. Adjusted for inflation, the minimum wage is lower than it was when I made it back in the 1970s.

And our economy is creating more and more part-time and minimum-wage jobs. The increasing numbers of people on food stamps is how we’re dealing with those trends. If you’re working 30 hours a week at WalMart, you can’t feed your kids. Politicians who are against raising the minimum wage and also against Food Stamps need to spell out their plan for those kids.

Summing up. The $39 billion saved by the House bill comes from three places: Cutting off benefits for unemployed adults without kids and trusting that they will find legal jobs rather than go hungry or turn to crime; stopping benefits for the working poor who make slightly too much money; and poor families being hotter in the summer and colder in the winter.

What’s next? The Senate passed much smaller Food Stamp cuts (about $4 billion over ten years) back in June. That was part of a bipartisan farm bill that got 48 Democratic and 18 Republican votes. Now the House and Senate have to meet in a conference committee to work out a compromise bill, though it’s hard to imagine what that might look like. Like all the other spending bills that are hung up in this Congress, it has an October 1 deadline.

Apocalyptic Optimism

It’s the end of the world as we know it*, but Gar Alperovitz and David Graeber feel fine.

Lately Robert Jensen has been importing religious terms into journalism. Borrowing from the seminal theologian Walter Brueggermann, Jensen defines three stances from which a journalist can report:

  • royal, relaying the vision of the Powers That Be
  • prophetic, calling the Powers That Be to repent and reform, as the prophets confronted the kings in the Old Testament
  • apocalyptic, announcing that the status quo is beyond reform and calling on the people to think in dramatically new ways

It’s easy for a royalist to be optimistic, because the system is basically sound and a few policy tweaks — a tax cut, a jobs bill, a new general with an improved strategy — will fix whatever temporary problems we might be having. A prophet may rail against current trends, but prophetic warnings rest on the optimistic subtext that we still have time to change our ways. If we just end the war or restore the Constitution or throw the crooks out, we’ll be back on track.

“I was planning to rebuild anyway.”

But the rarest kind of optimism is apocalyptic. The apocalyptic reporter sees that the cavalry won’t arrive in time or isn’t coming at all or will just make the destruction more complete. To be an apocalyptic optimist, you need to see the new seeds already sprouting in the shadow of the doomed sequoia.

In his new book What Then Must We Do?, Gar Alperovitz recognizes all the signs that the American-system-as-we-know-it can’t survive.

  • Even after crashing the world economy in 2008, the big banks are still too powerful to regulate, and the private-profit/public-risk dynamic still dominates. So given time, they’ll crash the economy again.
  • Greenhouse gases keep accumulating in the atmosphere, but even now that we’re seeing the results in droughts, heat waves, and violent storms, we still can’t raise the will to do anything about it.
  • Inequality keeps growing, regardless of which party holds power. For decades, all the apparent growth in the economy has been captured by the rich. The  average person’s standard of living is not improving at all, even as valuable intangibles (like job security) are being lost.
  • Our health-care system gets ever more expensive, and yet we get worse results than the other wealthy countries.
  • The unlimited corporate money pouring into political campaigns has captured both parties. The Democrats may be slightly less receptive to the corporate agenda, but they can’t stand against it either.

And while he by no means rejects traditional political organizing and movement-building, Alperovitz doesn’t think politics will solve the problem. Historically, progressive change in America happened in two big bursts — the New Deal and the Great Society — and both depended on external circumstances that aren’t likely to recur. The New Deal needed not just the desperation of the Depression, but a conservative president (Hoover) to blame for it. If things had shaken out differently, all that despair could have energized the Right, as in Germany. (Imagine the nativist backlash if the immigrant-backed Catholic liberal Al Smith had won in 1928 and been in the White House when the bottom fell out in 1929.) The Great Society couldn’t have happened without the confidence and generosity that resulted from two decades of widely-shared growth; and that couldn’t have happened if World War II hadn’t wrecked all our industrial competitors.

So yes, political reform movements can make a difference, but only in the presence of circumstances we can’t count on. And that’s pretty much what we’ve been seeing: We had three consecutive wave elections: Democratic in 2006 and 2008, and Republican  in 2010. But how much actual change did they bring?

And if we somehow managed the political will to, say, break up the too-big-to-fail banks, wouldn’t they just merge back together as soon as our attention shifted? Isn’t that what the old AT&T phone monopoly did?

Looking at things that way should make a person pessimistic, right? Not exactly. Alperovitz’s introductory chapter ends like this:

as a historian and political economist, it is obvious to me that difficult historical times do not always or even commonly persist forever. In my judgment “we shall overcome” is not simply a slogan but in fact the likely, though not inevitable, outcome of the long struggle ahead.

It is possible, quite simply, that we may lay the groundwork for a truly American form of community-sustaining and wealth-democratizing transformative change—and thereby also the reconstitution of genuine democracy, step by step, from the ground up.

The key phrase here is “long struggle”. We can’t just be socially conscious and politically active for a few months, elect President Wonderful, and then go back to sleep. We tried that; it didn’t work.

Alperovitz’s long struggle isn’t purely political. It’s more than just a series of marches and demonstrations that you attend before returning to your old life. The struggle he envisions involves creating institutions that democratize wealth: co-ops, credit unions, employee-owned businesses, and so on. Alperovitz envisions replacing the flighty government/capitalist partnerships of today with more stable alliances joining local governments with fixed local institutions (like hospitals and universities) and the worker-and-consumer-owned businesses that could service and supply them.

The seeds of that revolution are all around us. (I suggested painless ways you can start participating two weeks ago.) And Alperovitz believes they may sprout first and best in the places where the old system has failed most completely — rust belt wastelands like Detroit or Cleveland. (He cites Cleveland’s Evergreen Cooperatives, which are modeled on the successful Mondragon Cooperatives of the Basque region of Spain.) His logic is perverse but compelling: As long as capitalists can threaten to move the factory to China, they have the community over a barrel. But after the factory is gone, why listen to capitalists any more?

Alperovitz foresees a snowballing process as each new democratizing institution changes the consciousness of the people who participate and enlarges the constituency for democratically managed solutions. Before long, the resources that communities waste enticing corporations to locate there will instead become available to invest in the community solving its own problems.

David Graeber’s new book The Democracy Project, presents a somewhat different brand of apocalyptic optimism. (His last book, which I also reviewed, was a marvelous work of economic anthropology called Debt: the first 5,000 years.)

Graeber is one of the architects of Occupy Wall Street, and is at least partly responsible for coining the term “the 99%”. That makes him a leading voice in what The New Yorker has dubbed “the anarchist revival“, and puts him in something of a delicate situation: In order to promote anarchism, he has to shut down the media’s attempt to anoint him as the movement’s leader. Graeber is a “horizontal” activist who believes in groups finding consensus, not a “vertical” activist who wants to tell folks what to do. If you think people should either lead, follow, or get out of the way, Graeber is not for you.

The essence of Graeber’s worldview is a question: How would groups co-operate if they knew from the beginning that they couldn’t force dissenters to go along with what the group decides? That makes him more radical than a Libertarian, because Libertarians believe in a police-enforced property system.

Like Alperovitz, Graeber sees the approaching end of the current system, which he believes is based ever-more-nakedly on extracting value by force, under the pretense of increasingly empty rituals like elections and loans and trade agreements. Today’s young people, for example, face a choice between accepting unstable careers at minimum wage or borrowing heavily to get an education, then working as unpaid interns before beginning to earn money to pay off their debts. How different is that from feudalism or slavery?

But he also is optimistic that new ways are sprouting in the shadow of the old. The establishment view of Occupy is that it failed because it didn’t produce a set of demands that could become the platform of a political party. But to Graeber that outcome would have been failure. (In Jensen/Brueggermann terms, it would recast OWS as prophetic rather than apocalyptic.) To make that case, The Democracy Project not only retells the history of Occupy from the inside, it retells the history of American democracy and of revolutionary movements in general.

And the punch line is: The really successful revolutions don’t seize power, they change our common sense about what power is and what it can do. The French and Russian revolutions failed to the extent that they became new governments; Robespierre and Stalin represent the defeat of the revolutionary ideals, not their victory. But both revolutions succeeded as “planetwide transformations of political common sense”. The French Revolution ended monarchy as a viable option for forming new governments, and the Russian Revolution drew a line in the sand that capitalists didn’t dare cross. The New Deal and the social democracy of postwar Europe never would have happened happen without the Russian Revolution.

Similarly, Graeber points to another so-called “failure” — the antiwar movement of the Johnson/Nixon years. Arguably, it didn’t shorten the Vietnam War. But American governments have avoided high-casualty wars for the four decades since. (Put together, the Iraq and Afghan Wars have produced about 1/10th the number of combat deaths as each of the Vietnam and Korean Wars.) That attempt to avoid casualties led to increased “collateral damage” as we bombed from a distance rather than aimed down a barrel. That stiffened local resistance and

pretty much guarantee[d] that the United States couldn’t achieve its military objectives. And remarkably, the war planners seemed to be aware of this. It didn’t matter. They considered it far more important to prevent effective opposition at home than to actually win the war. It’s as if American forces in Iraq were ultimately defeated by the ghost of Abbie Hoffman.

So as Occupy morphs into the future, its goal should not be to launch a new party or seize control of an old one. It should be trying to change political common sense. Graeber closes his book by suggesting places where a change in common sense could make a significant difference. Most have to do with the nature of work, the virtue of working long hours, the value of helping people rather than producing more stuff, and bureaucracy as a problem in both the public and private sectors — a problem that could be avoided if groups organized in ways that didn’t require forcing dissenters to co-operate.

Graeber does not minimize or wish away the signs of global catastrophe, but Occupy has made him hopeful because

the age of revolutions is by no means over. The human imagination stubbornly refuses to die. And the moment any significant number of people simultaneously shake off the shackles that have been placed on that collective imagination, even our most deeply inculcated assumptions about what is and is not politically possible have been known to crumble overnight.

* I’ve never thought about R.E.M. and the Tarot in the same sitting before, so I never noticed: Isn’t that the Fool’s dog in the End of the World video?

What if there’s no spending problem?

Conservative blogs often post a graph more-or-less like the one below, which I got from the blog of Keith Hennessy, who is currently at the Stanford Business School and used to be Director of the National Economic Council under George W. Bush. (So: not somebody I usually agree with, but probably not a dummy either.) He claims that the numbers were computed for him by Bush’s Office of Management and Budget in 2007. (So: probably not a fabrication.)

It looks bad. Taxes as a percentage of GDP have stayed in a relatively narrow band since World War II, only occasionally peaking over 20%. But starting in about 2016, spending as a percentage of GDP starts to take off, reaching the incredible level of 40% by 2080 with no end in sight.

The typical liberal response to this, which I have given myself, is not that graphs like this are wrong, but that they hide the real problem: Government spending goes out of control because healthcare costs go out of control. But just capping what the government spends on Medicare and Medicaid (i.e., the Ryan plan) doesn’t fix anything. If healthcare costs are unsustainable, then what does it matter whether we’re paying those costs through government, through private insurance, or out of our pockets? Personally, it’s all the same to me whether I go broke paying taxes, paying health insurance premiums, or paying my doctor.

So a liberal would rather imitate the countries who already get better healthcare for less money than we do and increase the government’s role, ideally with a single-payer system.

Summing up: Liberals and conservatives agree that we have a long-term problem, but they argue about what kind of problem: a government spending problem or a healthcare cost problem.

Recently I ran into a potentially game-changing question: What if there is no problem? In other words, instead of being trapped in the dismal liberal/conservative argument about which apocalypse we’re headed towards, what if we’re actually not headed towards an apocalypse at all?

“That’s crazy!” That was my first reaction too. I mean, look at that graph. But the guy making the claim (William Baumol in the recent book The Cost Disease: Why Computers Get Cheaper and Health Care Doesn’t) has a track record that earns him a hearing.

Baumol is an economist who is most famous for identifying Baumol’s Cost Disease in the 1960s. His observation is that although the economy as a whole becomes more productive with the advance of technology, not all sectors progress equally, and some don’t improve their productivity at all. For example, a 21st-century farmer feeds far more people than a 19th-century farmer. Likewise, a worker at a modern shoe factory makes more shoes than a 19th-century cobbler. But it still takes four talented musicians to perform a Beethoven string quartet, and they don’t do it any faster than they did in Beethoven’s day. String quartets have not seen a productivity increase.

The economic consensus of the 1960s said that wages were tied to productivity. If that were true, then classical musicians would have seen their incomes crash relative to farmers and shoemakers, who would by now be vastly wealthier than the lowly performers of the New York Philharmonic or the Boston Pops.

In fact that didn’t happen, because in the long run the labor market has a supply side as well as a demand side, the result being that every profession has to pay enough to induce talented people to make whatever sacrifices are necessary to enter that profession. But something has to give somewhere, so we see the productivity difference as inflation: The price of a New York Philharmonic ticket is going to rise much faster than the cost of a loaf of bread or a pair of shoes.

So Baumol’s observation is that industries with a large component of personal service are not going to increase their productivity as fast as the rest of the economy, and as a result those industries are going to see higher inflation than the economy as a whole. Year-by-year those higher inflation rates might just be a nuisance, but over time exponential growth works its dark magic: If two products each cost $1 today, but one is subject to a 2% inflation rate and the other 10%, in 100 years the low-inflation product costs $7.25 and the high-inflation product costs $13,781.

Health care. Health care has a high component of personal service. It does not have high productivity growth.

Now this part gets a little tricky, because we all know how much medical technology has improved over the decades. But the improvement is almost entirely on the outcome side rather than the productivity side. Adrian Peterson could tear up his knee and be better than ever the next season, where half a century before Gale Sayers was never the same. But the amount of attention patients need from doctors and nurses has not gone down. Health professionals are doing better for their patients, but they are not processing more of them faster.

And most of us wouldn’t want them to. If you heard that one local hospital had one nurse for every five patients and another “more productive” hospital had one nurse for every 50, which would you choose for your surgery? If one doctor sees 30 patients in an hour of clinic time and another doctor only six, which would you pick as your PCP?

So back in the 1960s, Baumol looked at this situation and concluded that medical inflation was here to stay. Not because doctors are greedy or health insurance companies are evil or socialized medicine is inefficient, but just from the nature of health care. While other factors undoubtedly matter, the exponential growth would happen anyway.

This is borne out by the inability of any country to tame medical inflation. France, for example, is often held up as a model healthcare system. But its costs are also rising exponentially.

Government spending. And it isn’t just health care. Government services in general tend to be in what Baumol calls “the stagnant sector” — not due to bureaucratic waste or the power of public-sector unions, but because the services themselves require one-on-one attention.

In education, we call productivity by another name: students per teacher. But nobody wants his third-grader in a 150-student lecture hall. Everybody’s happy when an hour of labor builds more cars or mines more copper. But it’s not necessarily a good thing if social workers, public defenders, parole officers, or cops on the beat handle more cases faster.

So Baumol predicts that over time government spending will rise as a percentage of the economy.

But we can afford it. So far this is just a different spin on Hennessy’s graph. But here’s the difference: In Baumol’s model, government spending isn’t crowding out everything else. As a society, we aren’t doing without manufactured goods because health care is soaking up all our money; we’re just using less of our labor to produce the manufactured goods we want.

Despite their ever increasing costs, stagnant-sector services will never become unaffordable to society. This is because the economy’s constantly growing productivity simultaneously increases the community’s overall purchasing power. … If governments cannot be led to understand the ideas presented here, then their citizens may be denied vital health, education, and other benefits because they appear to be unaffordable, when in fact they are not.

In other words, even though orchestra tickets cost more now than in the 1800s, it’s ridiculous to claim that past societies could afford orchestras and our far richer society can’t.

Think about food. America’s Farmers estimates that an American farmer today feeds 155 people. By contrast, in colonial times a farm family barely did more than feed itself. Imagine going back to colonial times and telling people that by 2013 the non-farm part of the economy would grow so much that it would force a single farmer to feed 155 people! They would undoubtedly picture some cancerous expansion in the non-farm economy that could only be checked by mass starvation.

But that’s not what happened. The non-farm economy came to dominate GDP, but we’re not starving. That 1 farmer is providing his 155 eaters with too many calories, not too few.

This conclusion — that our descendants will likely be able to afford more health care and education as well as more of all the other goods and services they consume — may seem strikingly implausible … if health-care costs continue to increase by the rate they have in the recent past, they will rise from 15 percent of the average person’s total income in 2005 to 62 percent by 2105. This is surely mind-boggling. It means that our great-grandchildren in the year 2105 will have only a little less than forty cents out of every dollar they earn or otherwise receive to spend on everything  besides health care — food, clothing, vacations, entertainment, and even education! Yet as this book will show, this prospect is not nearly as bad as it sounds.

There are many possible objections to Baumol’s argument. (I wonder how it’s affected by the way that wages in general have come unstuck from productivity.) But here’s the message that I take from his book: When someone presents a graph like Hennessy’s and acts like the conclusion is obvious — say, that government spending can’t reach 40% of GDP by 2080, and so some catastrophe will have to intervene before that point — don’t buy it without a more compelling explanation.

The economy of 2080 or 2105 will be different from today’s in many, many ways. Maybe current trends will persist until then or maybe they won’t. But you can’t conclude anything from the mere fact that some statistic from the far future looks implausible.

The far future is going to look implausible to us, if we manage to survive long enough to see it. That’s the one prediction I have complete confidence in.

The Trillion-Dollar Coin Hits the Big Time

The notion that President Obama could avoid the debt ceiling by minting a trillion-dollar platinum coin and depositing it in the government’s account at the Federal Reserve has been around for a while now. (I first noticed it in July, 2011.) It sounds ridiculous because it is. (Even people who favor the idea understand that.) It’s a wacky solution that underlines just how wacky the whole debt-ceiling problem is in the first place.

Think about the situation President Obama will find himself in (by about mid-February) if the debt ceiling isn’t raised: Laws passed by Congress tell the President what taxes he can collect, what money he must spend, and that (even though these numbers don’t balance) he can’t borrow. Meanwhile, the Constitution tells him that his first duty is to “faithfully execute the laws”.

What’s he supposed to do? Several people, including Matt Yglesias, claim that the Budget and Impoundment Act of 1974* leaves the administration with no legal choices other than something off-the-wall like a trillion-dollar coin.

During the 2011 debt-ceiling crisis, the Very Serious Persons of the punditocracy did not stoop to comment on the trillion-dollar coin. Instead, they just refused to believe that our politics had gotten that dysfunctional. Congress might appear to be steaming headlong towards welching on all our nation’s commitments, but at the last minute wisdom would prevail. And lo: Congress temporized, giving a Super Committee of the Wise time to design an austerity plan.

Well, that worked out just dandy, didn’t it? The Super Committee deadlocked in the same place Obama and Boehner had: Republicans would not raise rich people’s taxes by a single dime, and Democrats refused to thrust all the sacrifice onto the old, the sick, and the poor. That deadlock set up the fiscal-cliff conflict that Congress again avoided at the last minute, but didn’t resolve. Now we’re looking at a second debt-ceiling showdown.

I think that sequence of events has been an eye-opener for the VSPs: Seriously? You want to do that again? [Yes, they do.]

Suddenly, the trillion-dollar coin doesn’t look so crazy. Well, it is still crazy. But picking a path into the fiscal future is starting to feel like picking a Bull Goose Loony at the asylum. Tom the Dancing Bug provides the proper level of seriousness:

So this week the trillion-dollar coin suddenly went from a fringy absurdity to a policy option that every VSP needs to have an opinion on. The WaPo asked financial types how the markets would react. Wednesday, NBC’s Chuck Todd asked about it at a White House press briefing, and Jay Carney dodged. “I would refer you to the Treasury.” Saturday, the Treasury issued an official denial.

Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit.

But a lot of other VSPs regard it as a viable option. Paul Krugman was one of the few to comment during the 2011 debt-ceiling crisis: “Outrageous behavior demands extraordinary responses.” He came back to it this week, characterizing Obama’s options as:

one [the coin] that’s silly but benign, the other [default] that’s equally silly but both vile and disastrous. The decision should be obvious.

Thursday he added: “we need a strategy to deal with the crazies if they really do prove irredeemably crazy, which seems all too possible.”

Former CBO director Donald Marron more-or-less agrees: The coin option “lacks dignity”, but “might be better than the alternatives if we reach the brink of default”. Former Director of the Mint Philip Diehl says minting the coin would work and have no obvious bad effects on the economy. As a co-author of the law it takes advantage of, he writes:

Yes, this is an unintended consequence of the platinum coin bill, but how many other pieces of legislation have had unintended consequences? Most, I’d guess.

And Atlantic’s Matthew O’Brien adds:

If it’s a choice between defaulting on our obligations, and minting a trillion-dollar coin, I say mint the coin. In an ideal world, Obama would end the platinum coin loophole in return for the House GOP forever ending the debt ceiling, as Josh Barro proposed, but I’ll settle for anything that involves us paying our bills as we promised.

So far, most conservatives still refuse to take this idea seriously. But they want the rest of us to take their don’t-raise-the-debt-ceiling threat seriously, and threaten impeachment if Obama somehow circumvents it.

Continuing to stake their claim as the Party of Stupid, Republicans at the NRCC tweeted an image** of a coin made out of a trillion dollars worth of platinum — as if that’s how coinage works. And the Network of Stupid made the same mistake even after the NRCC had been widely lampooned.

But liberals have an objection also, which Ezra Klein expressed like this:

The platinum coin is an attempt to delay a reckoning that we unfortunately need to have. It takes a debate that will properly focus on the GOP’s reckless threat to force the United States into default and refocuses it on a seemingly absurd power grab by the executive branch.

The right way for this crisis to end, Klein believes, is for the remaining grown-ups in the Republican Party (i.e., the business community) to take back control in order to save the day. That will start a civil war inside the party, so they will only do it if they have no choice; if they think Obama can still pull a day-saving gimmick out of his hat — especially one that could make him vulnerable politically — they won’t.

That’s why wannabe Republican grown-up Philip Klein (no relation) says minting the coin “would be tossing a life preserver to Republicans”.

Obama apparently agrees. That’s why he’s steadfastly refusing to take the burden off Congress by embracing any executive-branch gimmicks. He thinks Congress should pass a clean debt-ceiling bill. If House Republicans want to tie the ceiling increase to unpopular spending cuts, they can spell out what those cuts are. He isn’t going to give them any political cover.

[I’ve explained the politics of this many times: The American people have only very hazy notions of how the government spends money. So “spending” in general is unpopular, but the particular things the government actually spends on — Medicare, Social Security, defense — are very popular. Republicans want to take advantage of this by opposing “spending” but getting Obama to specify which programs to cut.]

Here’s how I put all that together: The coin would be a last resort, and while Obama should hold it in mind to buck up his resolve, the administration is right to deny that they are open to it — until the public understands that we are in last-resort territory and clamors for any kind of solution.

“Last resort” means: The Republicans have blocked a clean bill raising the debt ceiling. The Treasury has run out of books it can juggle to keep paying the bills. The government has shut down all but the most essential services, furloughed its workers, and the public has felt the first pinches: Retirees find that there is no one to process their Social Security applications. Income tax refunds are delayed indefinitely. Defense contractors are filing lawsuits to get paid. And there’s a big interest payment due on the national debt that there may not be money to cover***. The stock market is crashing. Wall Street is begging its bought-and-paid-for congressmen to do something. But still the House majority refuses to raise the debt limit.

Then — and only then — does Obama go on TV, explain the coin loophole to the public, say he has reconsidered his decision not to use it, and promise to trade away that ridiculous power forever if Congress also eliminates the ridiculous debt ceiling.

If that scenario plays out, America will be a laughing stock to the rest of the world. But we will have taken a pratfall, not tumbled into an abyss.

*After President Nixon “impounded” money Congress appropriated to buy stuff he didn’t like, Congress passed a law demanding that future presidents spend whatever Congress appropriates.

**Their image contains a false frame I can’t let pass: It’s not “Obama’s spending”, it’s the spending of the United States of America, duly authorized and appropriated according the Constitution.

***As Josh Barro points out: It isn’t just that incoming revenue covers only 60% of expenditures over the course of a year. Both revenue and expenses are “lumpy”.

It would be impossible to give certainty to people and entities owed money by the federal government about when and whether they would be paid; they would have to wait and see how much money the government could come up with on any given day.

Avoid the cliff, hit the ceiling

I admit it: I expected House Republicans to reject the last-minute Biden/McConnell deal (that passed the Senate 89-8) and send us over the fiscal cliff.

Instead, they did one of those having-it-both-ways things that makes people despise politicians: Within their own caucus, Republicans voted to let the bill come to the floor, where (led by House Majority Leader Eric Cantor) most of them voted against it. So they knew it was necessary and wanted it to pass, but they also wanted to be able to deny supporting it.

The WP’s Wonkblog summarizes what’s in the deal and charts how it affects the national debt. (Short version: The tax hikes and spending cuts that constituted the fiscal cliff would have cut the annual deficit more, but this is a middling path between that and the status quo.)

The chart on the right has way too much jargon, but it’s showing debt-as-a-percentage-of-GDP over time under various scenarios. The top line is roughly cancel-the-fiscal-cliff-and-let-things-go-on-as-they-were and the bottom is go-over-the-cliff. The red, green, blue, and purple lines are where we’re headed now under various scenarios.

So who won? Nobody yet. This deal solved the question of the Bush tax cuts, but it delayed the spending-cut decisions until March, when they will run up against another debt-ceiling showdown.

Republicans are claiming that the debt ceiling is a better battleground for them, and believe they’ll get the kind of concessions out of Obama that they got in 2011. Obama thinks the public was disgusted with the 2011 shenanigans and won’t stand for the Republicans taking the world economy hostage again. (Until 2011, raising the debt limit was an opportunity to score rhetorical points, but no one ever seriously proposed not doing it or extracted any concessions in exchange for doing it.)

So who won in this deal depends on who is right about their advantages in the next deal. Greg Sargent writes:

the major fight at the heart of this whole mess — over the proper scope and role of the safety net of the 21st century, and who will pay for it — remains unresolved. Only the outcome of that battle can settle the question of whether today’s compromise was a good one for liberals.

And Kos of Daily Kos agrees:

Whatever argument we’re going to have, it shouldn’t be whether this deal is good or bad. It’s over whether Obama will eventually cave or not.

Do it like this, Mr. President

I’d like to see Obama include an Eastwood-like make-my-day paragraph in the State of the Union: “You want to blow up the global economy if you don’t get your way? Go ahead. Show the world what kind of people you really are.”

I think this is a necessary and (eventually) inevitable confrontation. For that reason, I’ve soured on tricks like the trillion-dollar coin to finesse around the debt ceiling. Kevin Drum explains how that trick distorts the intention of the law, and so puts Obama in the position of trying to pull something rather than calling the Republicans on pulling something. I don’t want him to sacrifice his integrity to avoid paying blackmail; that’s just another kind of blackmail payment.

Meanwhile, Republicans are trying to minimize the consequences of not raising the debt limit. Senator Cornyn writes:

The coming deadlines will be the next flashpoints in our ongoing fight to bring fiscal sanity to Washington. It may be necessary to partially shut down the government in order to secure the long-term fiscal well being of our country, rather than plod along the path of Greece, Italy and Spain. President Obama needs to take note of this reality and put forward a plan to avoid it immediately.

(President Obama, of course, has put forward a plan: Congress should raise the debt ceiling the way it always did until 2011.) And Senator Toomey said:

A temporary disruption because we have to furlough the workers at the Department of Education, or close down some national parks, or not cut the grass on the Mall, that’s not optimal, it’s disruptive, but it’s a hell of a lot better than the path that we’re on.

The problem is temporary and minor only if you assume that Obama quickly folds once he discovers that Republicans are serious. But what if Obama is serious too? The 14th Amendment (section 4) requires that the government keep paying interest on its debt and principle on bonds as they come due. But how long before we have to shut down the National Weather Service or the Center for Disease Control or the TSA?

I’m glad to see I’m not the only one who’s reminded of one particular movie scene. Greg Sargent quotes an email he got from former Solicitor General Walter Dellinger:

The whole thing reminds me of the great moment in “Blazing Saddles” when Sheriff Bart takes himself hostage by pointing a gun at his own head. The simple townsfolk of Rock Ridge were dumb enough to fall for it. Are we?

The Tea Partiers have talked themselves into the idea that this would be the Lesser Apocalypse compared to the spending binge that is about to turn us into Greece. Kevin Drum debunks:

The facts are pretty clear. Spending isn’t our big problem. The recession spike of 2008 aside, it’s about the same as it was 30 years ago. But instead of paying for that spending, we’ve repeatedly cut taxes, which are now at their lowest level in half a century.

You’ll see an early sign of who’s going to win in how the mainstream media identifies the hostage in this crisis. If the hostage is “government” — a separate entity unrelated to the rest of us — then the Tea Party will win. If the hostage is “the country” or “the economy”, then Obama will win.

What do we know about Romney’s tax and budget plans?

The first Obama/Romney debate on Wednesday had a playground quality to it: One contestant would say “You did X”, the other would say “No I didn’t”, and then either Obama would let it drop or Romney would repeat “Yes you did!”. Jim Lehrer refused to play teacher, so it was left to fact-checkers and other pundits to determine the truth afterwards.

On no subject was the truth less obvious than on Romney’s budget plans. President Obama laid it out like this:

Governor Romney’s central economic plan calls for a $5 trillion tax cut — on top of the extension of the Bush tax cuts — that’s another trillion dollars — and $2 trillion in additional military spending that the military hasn’t asked for. That’s $8 trillion. How we pay for that, reduce the deficit, and make the investments that we need to make, without dumping those costs onto middle-class Americans, I think is one of the central questions of this campaign.

And Governor Romney flatly denied it:

I don’t have a $5 trillion tax cut. I don’t have a tax cut of a scale that you’re talking about. My view is that we ought to provide tax relief to people in the middle class. But I’m not going to reduce the share of taxes paid by high-income people.

Fact-checkers tried to apply their usual categories — true, false, misleading — but often they just added to the confusion. CNN, for example, said Obama’s charge was false, but graded Romney’s denial as “incomplete”, whatever that means.

Here’s what’s going on: The press is afraid of bias accusations, so it hides behind rules of objectivity that have gotten increasingly technical. Campaigns have gotten good at manipulating those rules, so the objective press has a hard time announcing simple judgments. Judgments, then, are left to the partisan voices, who just increase the noise.

The Weekly Sift makes a lesser claim: I’m not objective, I just try to be honest and give you enough links to check my accuracy. So let’s see if some common sense can cut through the confusion.

The $5 trillion tax cut. Mitt Romney has proposed a tax plan, sort of. On his web site, the full plan to “create 12 million new jobs” has four “economic pillars”, one of which is:

Reform The Nation’s Tax Code To Increase Growth And Job Creation.

o Reduce individual marginal income tax rates across-the-board by 20 percent, while keeping current low tax rates on dividends and capital gains. Reduce the corporate income tax rate – the highest in the world – to 25 percent.
o Broaden the tax base to ensure that tax reform is revenue-neutral.

The idea is that people pay a lower tax rate, but that more income gets taxed (“broaden the tax base”), so the government winds up with the same amount of money (“revenue neutral”).

There’s no reason that can’t work in theory, but notice that the marginal-tax-rate cut (the attractive part of the plan) is specified at 20%, while “broaden the tax base” (the unattractive part) is left vague. Elsewhere, Romney promises to eliminate the alternate minimum tax (which falls almost entirely on the wealthy) and the federal estate tax (which only applies to multi-million-dollar estates).

So if you evaluate Romney’s plan by what he has specified — the tax cuts — it’s a $5 trillion tax cut over the next ten years. Now, that’s not entirely fair, because whatever plan he eventually proposes to Congress would also specify the base-broadening part. The rate-cut is part of a “revenue neutral” tax plan in the same way that Cocoa Puffs are “part of this complete breakfast”.

So Romney is technically correct in saying “I don’t have a $5 trillion tax cut.” But let me flesh that out by putting true words in Romney’s mouth: “I don’t have a plan to cut government revenue by $5 trillion. I have a revenue-neutral plan, but the only part of it I’m willing to spell out before the election cuts federal revenue by $5 trillion.”

So he still needs to specify what currently untaxed income will be taxed in order to raise the $5 trillion that his plan needs to fulfill his revenue-neutral pledge.

Growth or funny money? If you read the details on the web site, a big chunk of that previously untaxed income is money that just wouldn’t exist otherwise. Romney’s plan estimates that the economy will grow at a 2.5% rate with the current tax system, but that under his plan (including his similarly vague plan to de-regulate business and other plans he considers growth-inducing) the economy will grow at a 4% rate.

When you compound that over ten years, the difference is huge. Current GDP is around $15 trillion per year. Ten years of 2.5% growth get you to $19 trillion, but ten years of 4% growth get you to $22 trillion, which is almost 16% bigger. So in the tenth year, the 20% rate cut is almost balanced by the growth alone. The extra income you need to broaden the tax base is almost entirely manna that fell from Heaven.

The question is whether you believe any of that. The idea that tax cuts create growth is dogma among conservatives, but recent history doesn’t bear them out. We were promised the cornucopia of growth when Bush cut taxes in 2001 and 2003, but it didn’t arrive. Even with a bubble-based illusion of growth, median household income declined. Atlantic’s Ronald Brownstein reports:

When Bill Clinton left office after 2000, the median income — the income line around which half of households come in above, and half fall below — stood at $52,500 (measured in inflation-adjusted 2008 dollars). When Bush left office after 2008, the median income had fallen to $50,303. That’s a decline of 4.2 per cent. That leaves Bush with the dubious distinction of becoming the only president in recent history to preside over an income decline through two presidential terms, notes Lawrence Mishel, president of the left-leaning Economic Policy Institute.

In the debate, Romney refused any historical comparison. (“My plan is not like anything that’s been tried before.”) But his web site justifies the growth assumptions by looking at the recovery from the 1981-82 recession during the Reagan administration. The problem is that this recession (like the one before it) looks nothing like the 1981-82 recession. The Reagan recession was brought on by the high interest rates (over 20%!) that the Fed imposed to kill off the inflation plague of the 1970s. As the Fed cut rates back to more normal levels, the economy could resume a normal growth pattern, plus make up for lost time.

The last two recessions were set off by popping bubbles: the dot-com bubble of the late 90s and the housing bubble of the Bush years. Recoveries from bubbles are slower, because the previous level was illusory. Let me repeat that: The Obama Recovery is slower than Reagan’s because the level we are trying to recover to was a mirage.

Even if we grant Romney’s 4% growth assumption, the difference in the first year would be small, while the tax-cut hit would be as large as ever. Would the Tea Party types in Congress really accept a budget where the deficit continued to climb for several years while we waited for growth to catch up?

I personally have no confidence in Romney’s growth assumptions. If he’s really going to broaden the tax base, he’s going to have to extend taxes to real income, not imaginary income from the growth fairy.

Deductions. The one real base-broadening idea Romney has floated is to cap deductions. In the debate he said:

But in order for us not to lose revenue, have the government run out of money, I also lower deductions and credits and exemptions, so that we keep taking in the same money when you also account for growth.

One trial balloon suggested that deductions be capped at $17,000, though in the debate Romney refused to be pinned down to any specific number:

what are the various ways we could bring down deductions, for instance? One way, for instance, would be to have a single number. Make up a number, $25,000, $50,000. Anybody can have deductions up to that amount. And then that number disappears for high-income people.

That approach has a problem: If you don’t accept Romney’s growth assumption, eliminating all deductions for upper-income people doesn’t replace the $5 trillion in revenue. So he’s forced to break his pledge not to raise taxes on middle-income people — not all middle-income people, but quite a few. When you add up mortgage interest, state and local taxes, medical expenses, and so on, it’s not hard for a household of slightly-above-average income to hit a $17,000 cap, and even easier to hit some much-lower cap that would really raise $5 trillion.

I know because I did my parents’ taxes last year. In 2011, my parents were in “the 47%” of people who paid no federal income tax. My mother died that year, and both parents spent time in nursing homes, so their medical expenses wiped out their $50,000 of income. Under the Romney plan, with a $17K deduction cap, they’d have owed thousands.

So Al Sharpton is right: “This election isn’t about Obama, it’s about your momma.”

Tax fairness. Romney’s pledge not to favor the rich in his tax plan is very carefully worded: “I’m not going to reduce the share of taxes paid by high-income people.”

This echoes a common conservative framing of taxes. Over the last 30 years, the share of the national income that has gone to the very rich has skyrocketed. Under Romney’s policies, it would presumably continue to skyrocket, because of de-regulation, non-enforcement of antitrust laws, and so on. But all he pledges is to keep their share of taxes the same.

Think about it this way: Imagine a two-person economy that makes $10, with $6 going to the richer guy and $4 to the poorer guy. Imagine their government collects $2 in taxes; let’s say $1.50 from the richer guy and 50 cents from the poorer guy, so that their after-tax incomes are $5.50 and $4.50.

Now imagine that inequality increases, so that the rich guy makes $8 and the poor guy $2. But suppose the government keeps their taxes the same: The rich guy still pays $1.50 and the poor guy 50 cents, so that their after-tax incomes are $6.50 and $1.50.

That system would fulfill Romney’s tax-fairness pledge: the rich guy still pays 75% of the taxes.  But it isn’t fair at all. The rich guy’s tax rate goes down from 25% to 18.75%. The poor guy’s goes up from 12.5% to 25%.

In short: When the rich make more of the money, their share of the taxes should increase, not stay the same.

Spending cuts. The situation on the spending side of Romney’s plan is similar: He has spelled out his spending increasesdefense, mostly. And he has pledged not to cut Medicare of Social Security benefits for anyone currently over 55. In other words, even if he serves eight years, he will never submit a budget that shows a spending cut in either of those two giant entitlements.

But he also pledges to get federal spending down to 20% of GDP by 2016, which (even with his optimistic 4% growth assumption) means $500 billion of annual cuts. The only sizable cut he identifies on his web site is $95 billion by repealing ObamaCare. But repealing ObamaCare also repeals the cost savings and tax increases it contains, and so increases the deficit rather than decreasing it. And “I want to take that $716 billion you’ve cut and put it back into Medicare.” not use it to decrease the deficit. And he was open to retaining the improved drug benefits ObamaCare adds to Medicare.

So the ObamaCare cut is illusion. It won’t cut the deficit.

Romney’s other specified cuts are Amtrak; the national endowments for art, humanities, and public broadcasting (bye-bye, Big Bird); the Legal Services Corporation; family planning; and foreign aid. By Romney’s own account, the total savings (other than ObamaCare) is only $2.6 billion of the $500 billion he says he needs.

So he has specified about half a percent of the cuts his budget needs under his optimistic assumptions. And the biggest parts of the budget — defense, Social Security, Medicare — are off limits. The non-ObamaCare cuts he has specified are insufficient even to cover the increase he wants in defense spending.

That’s why Obama accused him of “gutting our investments in schools and education”, and how Romney was able to deny it: “I reject the idea that I don’t believe in great teachers or more teachers. … I’m not going to cut education funding. I don’t have any plan to cut education funding and — and grants that go to people going to college.”

“I don’t have any plan to cut …” is a universal dodge for Romney. Because he doesn’t have any plan to cut spending, Romney can deny any specific thing you imagine must be cut to plug the huge hole in his budget. The Ryan budget is a little more specific about cuts, but Romney disclaims that as well. His campaign says “as president he will be putting together his own plan.” And Romney has emphasized that he, not Ryan, is “the guy running for president.”

In short, what Romney has given us is a lot of specifics that cut taxes and raise spending, coupled with vague promises to make it all come out right somehow. So electing Romney is sort of like hiring a trainer who promises you can eat more and lose weight. He has pictures of the lavish meals his plan will let you eat, and a graph of how your weight will go down.

How does it work? “Exercise” he says. What exercise? When? How much? “We can work all that out later.”