Deficit Predators: Everything You Need to Know About the Twisted, Dangerous Debt Ceiling Fight

By James K. Galbraith, New Deal 2.0 Posted on July 11, 2011, Printed on July 12, 2011 News reports hold that President Obama scored a political victory by agreeing to put Medicare and Social Security on the chopping block to achieve a “go-big” $4 trillion deficit reduction. Speaker Boehner had to concede that Republicans won’t vote for any package that includes tax increases – and the deal died. So the gambit worked and the President emerged with a solid image as the alpha deficit hawk. To which one can only say: how nice for him. We’re in a summer that only Salvador Dali could paint, a reality so twisted that one almost yearns for the simple verities of the War on Terror or even the invasion of Iraq. Then as now, to be serious one must be a “hawk.” (The dove is a weakling, a loser, and the owl for practical purposes does not exist.) So let’s review some of the strange and mysterious faces of this ugly, vicious bird. The debt ceiling was first enacted in 1917. Why? The date tells all: we were about to enter the Great War. To fund that effort, the Wilson government needed to issue Liberty Bonds. This was controversial, and the debt ceiling was cover, passed to reassure the rubes that Congress would be “responsible” even while the country went to war. It was, from the beginning, an exercise in bad faith and has remained so every single second to the present day. Today this bad-faith law is pressed to its absurd extreme, to force massive cuts in public programs as the price of not-reneging on the public debts of the United States. Never mind that to force default on the public obligations of the United States is plainly unconstitutional. Section 4 of the 14th amendment says in simple language that public debts, once duly authorized by law and including pensions, by the way, “shall not be questioned.” The purpose of this language was to foreclose, to put beyond politics, any possibility that the Union would renege on debts and pensions and bounties incurred to win the Civil War. But the application is very general and the courts have ruled that the principle extends to the present day. What is going on in Congress at this moment already violates that mandate. It is an effort to subvert the authority of the government to meet and therefore to incur obligations of every possible stripe. It is an attack on the concept of government itself – as the “Tea Party” by its very name would no doubt agree. It therefore paints those deficit hawks who are using the debt ceiling to take budget hostages as enemies of the United States Constitution. The President, though supposedly a constitutional expert and though sworn to “preserve, protect and defend” the Constitution, will not say this. Instead he appears to treat the Constitution as an optional matter, to which he will not resort, in the hope that by negotiating with the hostage- takers he can reach some reasonable outcome that will preserve everyone’s good name. (The great Harvard legal scholar Laurence Tribe recently argued that the President cannot defy the debt ceiling on his own.That’s a debatable point.) It is as though Lincoln in 1861 faced with the siege of Sumter had sat down with Confederate commissioners to see what could be worked out. In Washington it appears that this assault on government has a large measure of elite and media support, if not on the crass details or vulgar personalities but because it could conceivably force the parties to do “what they should do anyway” – namely come to a long-term deficit and debt agreement. Such an agreement would cut spending, raise some taxes, put the projected debt-to-GDP ratio on a declining track, and solve the “government’s fiscal crisis.” What fiscal crisis? The great unasked question in this summer of sound-and-fury is “why?” The United States has many problems at the moment: a high-and-stubborn unemployment rate, a foreclosure catastrophe, a slowing economy that has not recovered and will not recover from the Great Crisis, and the ongoing challenges of infrastructure, energy and climate change. Fiscal crisis? The entire thing is a figment, made up of wise-men’s warnings repeated endlessly and linked to the projections of technicians at the Congressional Budget Office and elsewhere. The projections, as I’ve written here, are made up of two economically impossible arguments. One is that there will be a big economic rebound, restoring near-full employment by 2013 or so. We’re already off that track, as some of us warned from the beginning. Of course, a recovery would reduce the deficit even if nothing were done. But CBO then recreates the exploding debt by assumptions, which include steady growth and low inflation, but sharply higher health-care costs and much higher short-term interest rates. These lead the projected debt to compound skyward, soon surpassing all previous records in relation to GDP. Is this possible? No it is not. The Federal Reserve would never raise the short-term interest rate as CBO projects, without a prior increase of inflation, which CBO assumes will not occur. If they did, the economy would collapse! And if they don’t, the debt does not compound out of control. I have presented these simple numbers here. For what it’s worth, if you believe the capital markets signal anything, they signal their disbelief in doomsday forecasts, in the long-term interest rate on US government bonds, every single day. Is it possible that cutting government is, by some other path, the way to economic recovery? There are many people who believe fervently in the resilience of the private sector and for whom government is just a burden. Some of those people are pure predators: resource magnates, media magnates, banking magnates. Others have blinded themselves to the role government actually plays in sustaining the advanced networks, human protections and social systems that make up our lives, and imagine that one can go back to the world of subsistence farming, church charity and credit from the corner store. But there were many fewer people in that world, they didn’t do what we do, and they didn’t live nearly so long. In broad terms, today’s government does four major things: – it provides for the national defense. – it purchases goods and services from the private economy for a wide range of public purposes, most of them individually quite small-scale in relation to GDP. – it regulates a wide range of private-sector activity, for safety, health, environmental and other purposes, including financial stability – or so one should hope. – it administers Social Security, Medicare and Medicaid, as well as other pension and health benefit programs. On what grounds are any of these functions too large? As an economist concerned with peace and security issues, I do believe we would be better off ending the wars in Iraq and Afghanistan quickly, that we could dispense with the real resource costs of many foreign bases, aircraft carrier groups, fighter aircraft and submarines and nuclear weapons left over from the Cold War. But these are security judgments, not broad economic ones. In other words, I would not cut a single dime of Pentagon spending that was actually necessary to defend the United States, in order supposedly to lower the interest rate on federal debt. By the same reasoning, why should we cut transportation, or public health, or environmental protection, or scientific research, or bank inspectors or funds that support the public schools? One can argue these matters program by program - and one should. (I would happily cut ethanol subsidies and oil company tax breaks, for starters.) But there is no economic case for placing an overall limit, and it is obvious that the 500,000 public sector workers – including many teachers, police, fire and park rangers and librarians – who have lost their jobs since 2009 were doing good and useful things that are now missed. If sacking them had been good for the economy, we would be having a stronger recovery than we are. Finally there are Social Security, Medicare and Medicaid. Unlike the military or the transportation program, Social Security is not a government purchasing program. It therefore takes nothing directly from the private sector. What it does, is provide insurance: it protects workers from poverty in old age, whether or not their families would otherwise be willing and able to support them. And it taxes all workers, whether or not they would otherwise be burdened with elderly parents, or survivors, or the disabled, to support. Along with Medicare and Medicaid, Social Security is a powerful protector of the entire working population – young and old. It redistributes purchasing power, in loose relation to past earnings, in a way that meets the basic needs of a large number of Americans who would otherwise, in many millions of cases, be destitute or medically bankrupt. What economic purpose would cutting such programs serve? To do so would again redistribute incomes. Many of the future elderly would be much worse off, and of course many would die younger than they otherwise would. Survivors and the disabled would suffer as well. In return, what would the federal government and the country gain? A release of real resources to the private sector? Social Security does not take real resources from the private sector! Lower interest rates? The idea is absurd, and not just because interest rates are low today. The notion that cutting Social Security would help keep interest rates down is absurd because interest rates are set in a way that has no relationship at all to the scale of Social Security, Medicare or Medicaid.* This argument has nothing to do with the trope, oft-repeated and perfectly true, that the Social Security system does not contribute to the deficit. It would not matter if it did. The important question is: are benefits too high? Obviously not. How about payroll taxes - are they too low? There is no case for that either. One of the very few bright spots in recent policy was the decision to reduce payroll taxes on employees, temporarily, while leaving Social Security benefits alone. If you wanted to build on that, the right steps would be to lower – not raise – the Social Security early retirement age, permitting for a few years older workers to exit the labor force permanently on better terms than are available to them today. This together with a lower age of access to Medicare would work quickly to rebalance the labor force, reducing unemployment and futile job search among older workers while increasing job openings for the young. It is the application of plain common sense. And unlike all the pressures to enact long-term cuts in these programs, it would help solve one of today’s important problems right away. Instead of this, what do we have, from a President who claims to be a member of the Democratic Party? First, there is the claim that we face a fiscal crisis, which is a big untruth. Second, a concession in principle that we should deal with that crisis by enacting massive cuts in public services on one hand and in vital social insurance programs on the other. This is an arbitrary cruelty. Third, a refusal to stand on the strong ground of the Constitution, against those whose open and declared purpose is tear that document and the public credit to shreds. In the Daily Beast on Sunday, Howard Kurtz wrote in optimistic terms of the prospects for a deficit bargain: “But away from the cameras, even sharp-tongued politicians recognize the imperative of avoiding the fate of Greece. It is a sign of the times that the Kabuki players of Washington may take a bow simply for averting catastrophe.” Kurtz did not say that the big Kabuki here was his own notion that somehow the United States might face the fate of Greece – a small and overmatched member of a currency zone it cannot control. He did not say that the catastrophe he fears – a default on US government obligations – was entirely the product of treacherous politics, abetted by an irresolute President who seems not to grasp the danger of allowing the Constitution to fail. And he did not say, that the deal he would applaud, with cuts to Social Security, Medicare, Medicaid and all the legitimate and necessary functions of government — would be for millions of Americans the catastrophe itself. * Short-term rates are whatever the Federal Open Market Committee dictates they should be. And if the Treasury wants to pay low interest rates on the debt, it can always issue short-term debt only — or it can issue long bonds and the Federal Reserve can buy them back, maintaining the structure of interest rates it prefers. There is no market default risk, no threat to “solvency” from a “loss of confidence” – nothing the private sector can do to make the US government pay more than it wants do – a point that should be obvious from the fact that the Federal Reserve’s interest rate decisions are never overruled by the market. The only way the United States government can default is if it makes a political decision to do so – which is what the debt-ceiling hostage-takers threaten and what the Constitution forbids.

Matthews: We need to concentrate on jobs

By Chris Matthews

  -  

Mon Jul 11, 2011 8:00 PM EDT

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Let me finish with a powerful word: jobs!

I spent a good deal of my life working in the U.S. Senate, then in the White House, then for a legendary Speaker of the House. One thing we concentrated on was jobs!

One of my first jobs was working for a Senator in Utah. I was counting up the public works and economic development projects that were shovel-ready if the government would approve them. Jobs that put people to work doing things that needed doing - not leaf-raking - but getting roads fixed and bridges up to code - getting sewer and water systems in place.

When I worked for Tip O'Neill, the Republican leader complained that a jobs bill the Democrats were pushing was make-work. I called up the chief engineer in his district and got the names and addresses of the bridges below code. The Speaker read that list aloud on the floor of Congress. It upset the Republican leader but it made a point: there's good work out there that needs to be done and this is a good time to get going on it.

"If not now, when?" The president asked that today about the debt ceiling. "If not now, when?" 

We could demand the same of our politicians about jobs. That "stimulus" bill they passed two years ago ain't very stimulating, not because it was too big, but because it was a pipsqueak. After you've taken out the tax cuts in it, the amount that actually goes to job creation - real public investment spending - comes to about one percent of the economy. One percent. No wonder the stimulus ran out of juice.  It never had much to begin with.

I read Paul Krugman's column in The New York Times today. He makes a great point: the government has fewer people working for it than it did when President Obama came into office. So we've got no real money going into public works, no money going into public service jobs, and you've got your explanation of why we've got a 9.2 percent unemployment rate.

I like the fact that the president is trying to compromise with the Republicans who control the House. But one of the big delusions is always that the truth - the smart policy - is somewhere in the middle between the two sides being argued.  

Maybe we have to go back to old-style partisan politics on this. You know, like getting the list together of all the bridges below code in John Boehner's district - or Eric Cantor's - or Kevin McCarthy's. Maybe the smart policy is the smart politics - put a little heat under their butts.

Mila Kunis Accepts Marine Ball Invite

Uploaded by TheYoungTurks on Jul 11, 2011

Misty Kingma and Richard Eskow discuss Mila Kunis accepting an invitation to the Marine Corp Ball by a Marine serving in Afghanistan. Did Justin Timberlake pressure her into going on the date?

Don't Cut Care, Mr. President (Pt.1)

Keith Olbermann

July 11, 2011 at 6:34 pm

Keith's Special Comment (Part 1 of 2): Despite extreme pressure to cut Medicare, Medicaid and Social Security, President Obama must firmly fulfill his obligation to take care of the least of our fellow Americans.

Chair Debbie Wasserman Schultz Responds to GOP Leader’s Statement on Potential U.S. Default

Posted by DNC Press on Monday, July 11, 2011 at 4:09 PM

In response to RNC Chairman Reince Priebus, the head of the national Republican Party, saying on ABC’s Topline today that the August 2nd debt limit deadline is “not the end of the world,” DNC Chair Debbie Wasserman Schultz released the following statement:

Chairman Priebus is not the first Republican to suggest that it would be fine for the U.S. to default on its obligations and fail to raise the debt limit, but as the head of the Republican Party his comment that doing so is ‘not the end of the world’ is among the most irresponsible. Never before has the United States defaulted on our obligations and economists agree that going into default would have catastrophic consequences for our economic recovery and repercussions in financial markets across the globe. If we were to default on our obligations our economy could crater and significant pain and hardship would fall on our nation’s most vulnerable citizens including seniors, the poor, the middle class and young people.

This sort of reckless rhetoric is detrimental to the efforts of President Obama and Congressional leaders to find a responsible solution to getting our fiscal house in order in a balanced way and meeting our nation’s obligation to pay its bills. Instead of playing politics and risking default to appeal to the most extreme elements of their base, Republicans should use this opportunity to reach a meaningful compromise to put our country on firmer financial footing.

Sanders, Boozman Introduce 10 Million Solar Roofs Bill

June 6, 2011

Sen. Bernie Sanders (I-Vt.) and Sen. John Boozman (R-Ark.) introduced a bill that would lower the cost of solar power and put the United States on track to install 10 million solar systems on homes and businesses by 2020.

Sanders and Boozman are the chairman and ranking member, respectively, of the Senate Green Jobs and New Economy Subcommittee. They were joined in introducing the solar legislation by Sen. Jeff Bingaman, the chairman of the Energy and Natural Resources Committee.

"This legislation will make it more affordable for families and businesses to install solar, by helping communities reduce the costs associated with solar energy permitting," Sanders said. "As we lower the cost of solar energy and increase our use of solar, we can create hundreds of thousands of good-paying manufacturing and installation jobs in this country. This bill also sets strong targets for American solar energy production, to ensure we compete vigorously with China and Europe for solar energy jobs."

Boozman said the goal is to reduce unnecessary bureaucratic hurdles to American-made solar energy. "Our country benefits by using our domestic energy resources, including the expanded use of renewables, such as solar and wind energy.  A simplified permitting process will make solar energy more affordable.  I am especially pleased that our bill is fully offset and uses existing authorized spending to spur improvements in solar permitting and encourage the deployment of solar energy systems."

The 10 Million Solar Roofs Act of 2011 would establish a goal of powering 10 million homes and businesses with solar energy by 2020. The measure also would incorporate a Department of Energy initiative called SunShot to make solar more competitive with conventional energy technologies. The bill would provide grants to communities to help them make their solar energy permitting process less costly and more efficient, and would recognize and reward communities that have adopted common policies on solar permits.  

A solar industry report said obstacles to acquiring local permits add up to $2,500 to the cost of a typical residential solar installation. The Department of Energy also identified local permitting costs as an obstacle to further lowering solar energy costs that declined by 60 percent since 1995.

Supporters of The Ten Million Solar Roofs bill include the Solar Energy Industries Association, the National League of Cities, and the League of Conservation Voters.

To read the bill, click here.

From taxes to abortion, pledges secure spot in Republican politics

By Anjeanette Damon (contact)

Tuesday, July 12, 2011 | 2 a.m.

Given the shaky reputation of campaign promises, it was inevitable that some voters would ask politicians to put them in writing.

Indeed, Republican candidates are being asked to sign a litany of pledges: to declare fealty to the rights of the unborn as defined by a national anti-abortion group; to repeal the estate tax; to not — under any circumstances — raise taxes; to not raise the federal debt limit unless a balanced-budget amendment, spending caps and significant budget cuts are in place.

In Iowa, presidential candidates can pledge to stay true to both their spouse and family-friendly policies. (The pledge is based, among other things, on the misguided assumption that blacks had a better family life under slavery than in modern America.)

The candidate pledge has become the campaign requirement du jour in Republican politics as conservative groups seek to create litmus tests for office. The movement hasn’t taken hold among Democrats.

“If there wasn’t such a distrust in elected officials, you wouldn’t have a need for pledges,” Republican consultant Grant Hewitt said of the steady stream of pledges that cross his desk during campaigns. “It’s kind of a sad state of affairs. It’s too bad a handshake and your word aren’t good enough.”

Republicans said the number of pledges have expanded recently, mostly on the national stage.

The incentive for candidates? Pledge-signing often makes for a good photo op. It can become a seal of approval for single-issue voters — the no-tax or anti-abortion crowds, for example. And they’ve become a hammer in Republican primaries — both for candidates who sign them and those who do not.

Take the Susan B. Anthony List’s Pro-Life Citizen’s Pledge. Republican presidential candidate and former Massachusetts Gov. Mitt Romney’s refusal to sign the pledge brought a rash of publicity, largely because of his changing stance on abortion. In response, Romney wrote his own “anti-abortion pledge,” noting his belief that abortion should be used only in “instances of rape, incest or to save the life of the mother.”

Or, in Iowa, GOP presidential candidates Michele Bachmann and Rick Santorum have endured criticism for signing the Marriage Vow, a densely worded two-page pledge put forward by the Family Leader. The original preamble to the pledge said blacks were more likely to be raised in a two-parent household under slavery. The group has since apologized and removed the wording from the pledge.

Although publicity and easy points of attack are the benefits, the downside is simple: The fallout for breaking a signed pledge is more dire than an uttered promise, politicos said.

“It boils down to, if you’re going to take the pledge, it better be in line with your philosophy,” said Stewart Bybee, press secretary for U.S. Sen. Dean Heller, R-Nev., who recently signed the Cut, Cap, Balance pledge on not raising the debt ceiling. “You could take heat for not signing, sure. But you’d take heat for signing and breaking a pledge, and that’s probably worse. So it cuts both ways.”

In Nevada, candidates are bombarded by national pledges. But fewer local groups are pursuing them, particularly on social issues.

“Part of the reason for that has been that Nevada has pretty much been a political backwater,” said Chuck Muth, a conservative operative and keeper of the Taxpayer Protection Pledge in Nevada. “We don’t have a lot of strong independent conservative organizations like Iowa.”

Still, the pressure to sign pledges such as the Taxpayer Protection Pledge, one of the most established pledges both nationally and in Nevada, can be intense.

Hewitt ran U.S. Rep. Joe Heck’s short-lived gubernatorial campaign in 2006 and congressional race in 2010.

Heck initially tried to avoid signing the Taxpayer Protection Pledge, not because he supports tax increases, but because he wanted his own word to be good enough. But the pressure grew too strong, Hewitt said of the 2006 governor’s race.

“You wind up at these events and you’re getting asked by your closest friends, ‘Why won’t you sign the pledge?’ ” Hewitt said. “Pretty soon it was like, ‘OK, OK, we’ll sign the pledge!’ ”

Senator Sanders: No Big Deal? (Dylan Ratigan Show)

July 11, 2011

Visit msnbc.com for breaking news, world news, and news about the economy

The Colbert Report Excerpt |05:33 The Anti-Frack Attack

July 8, 2011: Markey Statement on Hydro-Fracking at Oversight Hearing

From: RepMarkey  | Jul 11, 2011  | 20 views

Opening Statement,

As Prepared for Delivery

July 8, 2011: Markey Statement on Hydro-Fracking at Oversight Hearing

From: RepMarkey  | Jul 11, 2011  | 20 views

Opening Statement,

As Prepared for Delivery

Orrin Hatch Rips 'Perverse' Tax System That Spares Lower Middle Class (VIDEO)

First Posted: 7/11/11 08:46 PM ET Updated: 7/12/11 11:11 AM ET

WASHINGTON -- Sen. Orrin Hatch (R-Utah) pushed back Monday on criticism that he wants to tax the poor, but called it "perverse" that people on the bottom half of the income ladder pay little or no federal income tax.

Hatch attracted heavy criticism last week for saying the poor need to "share some of the responsibility"for lowering the deficit while complaining that the rich already pay too much in taxes.

Hatch backtracked somewhat on Monday, but still suggested that the rich have an unfair share of the load.

"I don't want to tax the truly poor, those who would help themselves if they could," Hatch said. "But you can't tell me that 51 percent of all households are the truly poor. Really, I don't want to tax them either to be honest with you, but it's apparent we're going to have to find a better way broadening the base of the tax system."

He also criticized outlets like MSNBC and The Huffington Post for reporting that he said the poor should do more, accusing the "liberal blogosphere" of using Democratic talking points.

"I'm not surprised, but this completely misses my point and the point is this: No matter what these Democrats tell you, the wealthy and middle class are already shouldering around 100 percent of the nation's tax burden and 51 percent pay absolutely nothing in income taxes," Hatch fumed before lambasting the entire system.

"Furthermore, because of this perverse distribution of federal income taxes, there is no way to fix our deficit hole and start paying down the debt by increasing taxes only on the so-called rich," he said.

Hatch's figures on who pays how much in income tax, while slightly out of date, are essentially correct -- but critics note that he is leaving out all the other taxes people pay, including state income tax, sales taxes and property tax, not to mention innumerable government fees. In fact, middle class taxpayers often end up with no federal tax bill because the tax code recognizes the other taxes they pay, and gives them a break.

Hatch also ignores the fact that the loopholes many Democrats want to close disproportionately help the wealthy.

After railing against the perverse system that doesn't tax the lower middle class, Hatch argued it's the Democrats who will tax that sector if they want to cut the deficit without major "structural changes" to entitlement programs like Medicare and Medicaid.

"The president's out of control spending puts Democrats in the position of having to raise taxes big time on the middle class," Hatch argued.

His arguments came during debate over a resolution -- which he opposed -- that would express the "sense of the Senate" that the wealthy should do more to help deal with the nation's debt problems