Robert Kuttner

Needed: A Mass Movement for College Debt Relief

2013-05-19T22:22:04-04:00

Austerity has failed in Europe, where the European Union just racked up 18 months of negative growth with no end in sight. It is failing in the United States, where this year's deficit reductions will cut the growth rate in half.

But austerity is succeeding as politics. The German government shows no signs of taking its heavy foot off Europe's oxygen hose, and President Obama seems determined to strike a 10-year deal with the Republicans that would equal 10 years of sequesters and then some.

What might change this grim politics?

Last seek, Senator Elizabeth Warren -- how splendid to be able write the words Senator and Warren in the same sentence -- showed the way. Warren introduced her very first free-standing bill, and fittingly it was a bill to cut interest rates on student loans.

Warren's bill is only a start. It would prevent an increase in Stafford Loans, federally subsidized loans to low and middle-income families, which are slated to double in cost on July 1 from 3.4 percent interest to 6.8 percent. Warren's bill would cut the rate to the Federal Reserve lending rate to banks, currently 0.75 percent.

But there is in Warren's proposal the germ of a counter-revolution against austerity politics.

Budget-balance mania is favored by elites. Regular people don't want cuts in Social Security and Medicare. The Peter G. Peterson Foundation has spent close to a billion dollars creating one front group after another, trying to sell the proposition that we can somehow deflate our way to economic recovery. Peterson has few takers -- except among the group of people who count, beginning with President Obama.

The austerity crusade seems impervious to both logic and evidence. It will give way only when there is a popular counter-movement of real power.

It seems to me that a mass movement for relief of college debt could be such a movement. Some 37 million students and former students have college loans, totaling more than a trillion dollars. And tens of millions of parents who were required to co-sign loans for their kids are at risk of students fall behind on their payments.

That's a lot of people -- college-educated people in their prime of life. Politicians need to hear from them. An entire generation is failing to get economic traction in a weak job market. College debt only adds to the delay young adults face in buying homes or starting families. This is not an abstract ideological proposition. It is up close and personal.

In 2010, President Obama got Congress to go partway towards reforming the student loan system. The program of federally guaranteed loans underwritten by for-profit financial companies was terminated in favor of less expensive direct federal loans. But banks and for-profit companies like Sallie Mae continued marketing non-federal loans to students. And former students carrying loans under the old programs are not able to refinance, even though rates averaging more than 7 percent are far in excess of the lenders' cost of money in a very low-interest environment.

The student loan program calls attention to the double standards of debt relief. Corporations are able to declare bankruptcy under Chapter 11 and write off old loans -- but college debt follows former students literally to the grave even if they go bankrupt. Big banks have gotten trillions of dollars of debt relief from the TARP program and the Federal Reserve's program of buying toxic assets from banks.

But there is no debt relief for students and former students. Can't we build a movement around that?

No student should have to incur debt in order to attend college. Instead, students could incur a moderate and progressively levied surcharge on their income tax, which could be phased out for people serving the public interest in one of several professions. This provision was included on a pilot basis in the 2010 reform, and could be extended to all college borrowers.

In addition, all former students carrying college debt should be permitted to refinance loans at the Federal Reserve's lending rate to banks. The Fed's program of advancing money to banks has had little success in stimulating the economy because the banks are too risk averse to lend. The banks turn around and buy Treasury securities or leave the money in interest-bearing accounts at the Fed.

Refinancing of college debt would put the money to better use and provide an immediate stimulus to the economy. Pete Peterson and company love to invoke generational justice when they propose cutting Social Security. But debt relief for students and former students would introduce some generational fairness right now. Why doesn't the corporate-led "Fix the Debt Campaign," yet another group promoted by Peterson, start demanding that we fix the college debt?

Groups like Campus Progress, and Demos, where I am a senior fellow, have done important work bringing to light the abuses of college debt. Likewise the Consumer Financial Protection Bureau, an idea of Elizabeth Warren that has come to fruition.

There is no shortage of evidence about how a perverse college debt program is stunting the economic prospects of millions of Americans, just as there is plenty of evidence that austerity doesn't work. But evidence is not enough. We need a movement.

Robert Kuttner's new book is Debtors' Prison: The Politics of Austerity Versus Possibility. He is co-editor of The American Prospect and a senior Fellow at Demos.

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Munich on the Potomac: The Republican Take-No-Prisoners Strategy -- and Obama's Conciliation

2013-05-12T22:36:19-04:00

Republicans in both Houses of Congress are becoming more and more flagrant in their strategy of holding the governing process hostage for far-right demands not shared by most voters. And the pity is that the strategy is mostly working.

The more that the Obama Administration tries to meet the Republicans half way, the more extreme and implacable their demands become.

In the first ring of the circus, we have the confirmation derby. In the past few days, the Republicans have stonewalled confirmation of three key appointees: Thomas Perez, President Obama's nominee to be Labor Secretary; Gina McCarthy, the president's designee to lead the EPA; and Penny Pritzker to head the Commerce Department. Republicans are threatening a filibuster if Majority Leader Harry Reid moves these nominations to the Senate floor.

At her confirmation hearing, Gina McCarthy was subjected to nearly 1,100 written questions, an unprecedented hazing. Republican senators then boycotted the live hearing itself.

This latest strategy of blockage comes on top of unprecedented stalling on judicial nominations, notwithstanding the administration's practice of checking with Republicans to see which proposed judges might win their approval -- a courtesy that has added to the delay, and one that Republicans have taken as another sign of weakness. The Crucial DC Circuit Court of Appeals has remained in conservative hands, more than four years after Obama's inauguration, because Republicans refuse to confirm an appointee.

Nominees more to the GOP's ideological liking are rewarded with quick confirmation. Treasury Secretary Jack Lew, a friend of Wall Street and of fiscal austerity, sailed through 71-26, with almost half the Republican Senate caucus in support.

Meanwhile, in the next ring of the circus, House Speaker John Boehner is looking forward to the next debt ceiling showdown to see what else he can hold for ransom. According to several authoritative accounts, this time Republicans will not stop with budget cuts, but will also use the debt ceiling to demand changes in the tax code, regulatory rollbacks and pro-industry shifts in energy policy. Details are to be spelled out at a strategy meeting this coming Wednesday.

Obama's term still has more than three and a half years to run and Democrats still have a 55-45 majority in the Senate, but the Republicans are treating him like the lamest of lame ducks. It should be clear by now -- meeting these people halfway only whets their appetite.

And in the third ring of the circus, Republicans are pummeling the administration for intelligence and security lapses at Benghazi. This is a twofer for the GOP, since it whacks the next likely Democratic presidential nominee, Hillary Clinton, as well as the present incumbent. Things will only get more intense when Obama nominates a successor to retiring FBI chief Robert Mueller III, and Republicans will predictably attack the administration for missing warning signs about the Boston Marathon attacks.

This is not to excuse the Republican obstructionism. It has been building for decades. Leave aside, too, the question of whether Obama's policies on everything from fossil fuels to the budget to regulation of Wall Street are too centrist (they are). That doesn't explain or excuse why he is such a pushover as a tactician.

In his remaining days in office, Obama can insist until the cows come home that he has been the president who tried to change the tone in Washington, to find areas of common ground and to show that there is more that unites Americans than divides us. But until he finds some inner toughness, the Republicans will continue to stymie his every move and he will be a feeble president at a moment when we need a resolute one.

Robert Kuttner is co-editor of The American Prospect and a senior Fellow at Demos. His new book is Debtors' Prison: The Politics of Austerity Versus Possibility.

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Half Empty: Another Feeble Jobs Report

2013-05-05T22:26:47-04:00

The press strained to find some good news in the government's April employment report. Superficially, things appeared a little better. The official unemployment rate dropped to 7.5 percent, and the number of long-term unemployed people declined by about 258,000. The government revised upwards the number of new jobs created, to 138,000 in March, plus 165,000 in April.

The stock market loved the news: Just enough job growth to keep the economy officially out of recession. But a sufficiently sluggish economy that the Federal Reserve will keep interest rates low, and workers will have little bargaining power.

Take a deeper look at the figures behind the April report and consider the coming impact of budget cuts, and the picture is still bleak for the vast majority of Americans. The job growth is not sufficient to materially improve the condition of most working (and out-of-work) Americans.

Wages are still basically flat. Since the financial collapse of 2008, 9.5 million Americans have simply left the workforce. And if you are not in the measured workforce, you don't count in the unemployment statistics.

As recently as 2000, just under 65 percent of Americans were in the workforce--employed or actively looking for a job. In the deep recession of 2008-2009, the percentage plummeted to less than 59 percent. And there it has sat for four years.

Despite 38 straight months of job growth, 2.6 million fewer people were employed in April 2013 than in December 2007 when the recession officially began. According to the Labor Department, 22 million people are unemployed or under-employed in part time jobs looking for fulltime work.

So what is the government doing to improve things? Why, cutting public spending of course. Most economists think these fiscal headwinds will snuff out the prospect of faster growth for the remainder of 2013--and for a decade if the Republicans and President Obama strike their long sought "grand bargain" of tax hikes and deeper spending cuts.

Why are they doing this? For fear that the current and projected levels of public debt will somehow risk future inflation and depress business confidence (which is actually depressed right now because not enough households have enough spending money in their pockets.)

Things are so grim that the Federal Reserve's policy-setting Open Market Committee, nobody's idea of a left-wing shop, felt the need to put out a statement Friday after the jobs numbers came out warning bluntly that "fiscal policy is restraining economic growth" and suggesting that inflation, if anything, is too low. The Fed vowed to keep interest rates extremely low, and suggested that the executive and legislative branches should take their feet off the brake. It's quite a situation when the Federal Reserve is the most fiscally left-wing outfit in town.

While the Administration and the Republicans and far too much of the commentariat are obsessed with public debt, private debts are killing the recovery. Some 22 percent of mortgages are still under water, and student debt has surpassed a trillion dollars.

My just-published book, Debtors Prison, addresses what I call "the double standards of debt." Banks can unload their toxic securities onto the Fed. Corporations can use the bankruptcy code's Chapter 11 to write off old debts (including to their pensioners) and get a "fresh start." But college borrowers stay indentured forever, as do underwater homeowners unless they want to lose the house.

The upside-down policy, of cutting public spending, giving debt relief to banks and corporations, while showing no mercy to students and homeowners, keeps the whole economy in debtors' prison. Until these policies change, we can look forward to a decade of high unemployment and an underperforming economy.

Robert Kuttner's new book is Debtors' Prison: The Politics of Austerity Versus Possibility. He is co-editor of The American Prospect and a senior Fellow at Demos.

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Reality 1, Austerity 0

2013-04-28T22:26:25-04:00

It's been a very bad week for the merchants of austerity.

In Europe, the just-released statistics on first quarter performance show EU nations sliding deeper into recession. In Spain and Greece, unemployment rates are approaching a staggering 30 percent. In Britain, the Tory government took as good news the fact that the UK managed to eke out 0.3 percent growth. Even Germany, the prime sponsor of these policies, is on the edge of recession.

One nation after another is challenging German Chancellor Angela Merkel and the European Central Bank, the two lead purveyors of economic pain as the cure for fiscal sin. The governments of France, Italy, Spain and Portugal are pressing Merkel to relent, and EU Commission President Jose Manuel Barroso, the ultimate weathervane, now says the EU needs to focus on growth instead of belt-tightening. The International Monetary Fund, usually one of the sponsors of fiscal masochism, says Europe is imposing too much pain.

Here is the U.S., the first quarter numbers were lousy. The economy grew at a rate of just 2.5 percent, less than forecasters projected, and not enough to improve the unemployment rate or raise wages. Analysts across the spectrum correctly blamed the slowdown on the sequester, which cut the budget by $85 billion this year, on top of the January deal that raised taxes, mostly on workers, by another $200 billion.

You don't promote growth by slashing demand. Supposedly, fiscal tightening improves business confidence. But if some entrepreneur somewhere decided to break ground for a new factory because the president and Congress at last cut the budget, nobody could find such a person.

Even the Washington Post editorial page, which has long been promoting a budget bargain built on more cuts, warned in its lead Sunday editorial, that austerity is pinching too hard -- in Europe, that is. How about at home?

And Ken Rogoff and Carmen Reinhardt had a really terrible week. Their now infamous 2010 claim that nations get into economic trouble when their debt ratios exceed 90 percent of GDP was blown to hell by a graduate student at the University of Massachusetts. For three years, critics have been pressing R&R to share their raw data. When Thomas Herndon and colleagues Michael Ash and Robert Pollin finally got hold of the research and reworked R&R's numbers, it turned out that they had selectively used data and made basic errors of arithmetic.

Far from corroborating R&R's claim that countries with debt ratios above 90 percent have growth significantly lower than those with lower levels, the reworking revealed the opposite.

Our finding is that when properly calculated, the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not 0:1 percent as published in Reinhart and Rogoff. That is, contrary to RR, average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different from when debt/GDP ratios are lower.

We also show how the relationship between public debt and GDP growth varies significantly by time period and country. Overall, the evidence we review contradicts Reinhart and Rogoff's claim to have identified an important stylized fact, that public debt loads greater than 90 percent of GDP consistently reduce GDP growth.

It turned out that R&R had achieved their results by excluding the post WWII experience when all major Atlantic nations had huge debt ratios but experienced a record boom built on public investment. R&R then compounded the error with spreadsheet mistakes.

In an op-ed piece in last Friday's New York Times, the unrepentant authors were stunningly disingenuous. Reinhart and Rogoff contended that the UMass researchers did not overturn their fundamental finding that high debt levels are associated with lower growth. In fact, this is exactly the contention that the reworking demolishes.

And then, R&R blithely added the point that the cause and effect can run in either direction -- poor growth can cause a high debt ratio as well as vice versa.

Now they tell us! This, of course, is exactly what austerity is producing in Europe, and risks doing in the United States. The more their budgets are cut, the worse the economies of Greece, Spain and Portugal do. If you clobber GDP, the existing debt looms larger and the ratio worsens.

In their Times op-ed, R&R were also falsely modest in contending that they are just innocent academic researchers ("We find these attacks a sad commentary on the politicization of social science research") when in fact their work has been cited over and over again by deficit hawks warning of the horrific effects of high public debt with no demurrer from R&R. They did not disclaim the attention when they were invoked as scholarly validators of bad policies, and even in their ivory tower they are surely aware that austerity is a highly charged political debate. What a lame excuse to publish flawed conclusions used to justify flawed policies and then to bemoan the politicization of research.

Despite the fact that the cold-bath cure has now been disproven both by events and by corrections of bogus research, the actions of Chancellor Merkel and the budget dance of President Obama and the Republicans are still following their own perverse momentum. Merkel shows no sign of relenting, and Obama keeps pitching a grand bargain that would result in a decade of budget cuts almost double the scale of the sequester -- and thus a decade of needless slow growth and high unemployment.

The only good news lately is that President Obama stepped on a progressive hornets' next when he proposed to cut Social Security. Democrats in Congress seem pretty united on the proposition that Social insurance shall not be cut as long as there are tax giveaways for the rich to be reversed. But while it would be an important victory to spare Social Security from the budget axe, it is just as important to spare the larger economy from the even greater folly of austerity as the general cure for recession.

Critics of austerity can win the argument based on the facts on the ground, and based on the findings of economic research. But until critics win on the politics, the austerity parade will march grimly on.

Robert Kuttner's new book is Debtors' Prison: The Politics of Austerity Versus Possibility. He is co-editor of The American Prospect and a senior Fellow at Demos.

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Safe and Free

2013-04-22T10:06:21-04:00

As a Bostonian, I have complex feelings about my civil liberties and my family's personal safety in the aftermath of the Marathon bombings. My wife was a block from the first explosion. My son and four-year-old grandson had considered going to the finish line and then changed their plans. The dead and maimed could have been any of us. I am surely pleased that the bombers were caught.

But I fear for my country on two opposite grounds.

The emerging history of Dzohkahr Tsarnaev suggests that while the much-expanded national security establishment has been largely successful at thwarting organized assaults by terrorists, it cannot prevent a one-off attack by an extremist-influenced sociopath.

To do so would require turning our country into a police state.

When I was a graduate student, a refugee professor once told the class, "I grew up in Nazi Germany. It was a very safe place to walk the streets. Unless you were perceived to be an enemy of the state."

How many more of us will have to be presumed enemies of the state in order for the rest of us to be safe from random bombers? After an attack like this, national security ratchets up, and never seems to ratchet back down. And some trade-offs are truly difficult.

The police were able to track down the brothers Tsarnaev thanks to security cameras. So, should we now have a massive proliferation of such cameras? There are already proposals. (Will this be the long-awaited national infrastructure and public employment program to cure the recession -- half the population hired by the government to observe the other half?) Not to mention domestic drones.

The FBI has already been criticized for fumbling a tip from the Russians that Tamerlan Tsarnaev had violent extremist tendencies. Should he have been placed on some kind of watch list for continuous surveillance? Should such watch lists be dramatically expanded?

One of the hallmarks of an open society is that the police miss some things. I was an anti-war activist at Berkeley in the 1960s. Later, in graduate school, I was nominated and accepted for a summer internship at the State Department, and assigned, of all places, to the Cuba desk and given a security clearance. It was even more fun that I was sporting a full beard at the time. My mother reported that a government agent had been in our neighborhood and asking the neighbors if they thought I was loyal or had any odd friends. The gumshoes somehow missed my Berkeley activities. But that was then.

When I first worked in the senate, there were no concrete barricades, no metal detectors, anyone could just walk right in. (In Sweden, which has lost one prime minister and one opposition leader to assassins, the people have rejected the course of becoming a security state. There are no metal detectors and no guards at the entrance to parliament. I had an interview there with a minister and all they asked for was some I.D.)

To have a national security state so secure as to guarantee us against any possible attacks would be to lose a fair amount of our liberty. And yet we don't want to be sitting ducks for the next attack.

The comic-opera actions of the TSA suggest that government can err in both directions -- too much "security" and not enough. On a plane trip, by accident, I had a claw hammer in my backpack (I had been hanging a picture.) TSA, despite tens of billions of dollars worth of scanner technology, totally missed it. But now, in order to improve its public relations, TSA is about to permit carry-on pocket-knives with blades long enough to slit someone's throat.

America is also totally schizophrenic on the subject of weapons. The Tsarnaev brothers had a small arsenal of guns and ingredients for bombs, which are all too easy to obtain. But the same gun lobby that just defeated even token gun control legislation ties the hands of the Bureau of Alcohol, Tobacco and Firearms.

Many of the same people who cling to the bogus Second Amendment right to own and use military weapons are the same ones who have paranoid fears of government black helicopters. Yet the NRA has not made common cause with the ACLU to prevent genuine government excesses.

The Obama administration, meanwhile, has continued the one-way national security ratchet. There has been no meaningful pulling back from the misnamed USA Patriot Act that was rushed through Congress after 9/11. If the only president ever to have taught constitutional law, and a liberal Democrat at that, cannot be counted on to have a better sense of the balance of security and liberty, what president will?

I was impressed by the work of the Constitution Project's private, bipartisan commission whose recent report definitively documented that the U.S. government during the Bush years had resorted to illegal torture. Such disclosures help to push back against government excess. Plainly, the government is getting the balance of liberty and security wrong, and the tilt is likely to worsen.

Perhaps we need a private commission of distinguished civil libertarians and security experts to offer a better formula to maximize our security without compromising our liberties. There are some remarkable people, such as former Ambassador to the Czech Republic John Shattuck, who have served both the ACLU and the State Department who could lead it. At such a moment, we appreciate the legacy and loss of Anthony Lewis, who was astutely critical of the folly of recent trends.

We don't want to be a free people who are sitting ducks, nor do we want the grim security of giving up our liberties in order to be safe in the streets. Yes, these values are somewhat in tension, but there is a far better balance than we one we are inexorably moving towards.

Robert Kuttner's new book is Debtors' Prison: The Politics of Austerity Versus Possibility. He is co-editor of The American Prospect and a senior Fellow at Demos.

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The Budget Speech Obama Didn't Give

2013-04-14T22:33:35-04:00

There are two paths to deficit reduction. One is slash and burn. We cut the investments that the country needs. We weaken the purchasing power of seniors. We end up with lower household income, a slower rate of growth and we get the grim satisfaction of budget balance in a weaker and poorer economy. That's the Republican way.

My way, the other path, is to invest in people, through expanded education at all levels, public infrastructure that creates a more productive economy, renewable energy, new technology, good jobs -- and to defend social benefits that are barely adequate as is.

We pay for some of this by restoring the pre-Bush tax levels on the most privileged among us, and some of it by having larger deficits than the austerity-mongers want, during the next two years. Then, as we restore growth, the deficit actually declines faster than it would if we pursued slash-and-burn, as the Republicans want.

I want to focus on one demand that I've specifically rejected -- cutting the deficit on the backs of seniors. This is bad policy and bad economics. Social Security has nothing to do with the deficit. It is currently in surplus. We can keep it strong by raising the cap on incomes subject to the payroll tax, and by getting unemployment down so that more people are on payrolls and contributing payroll taxes to the trust funds.

The Bush tax cuts, which are continuing for 99 percent of Americans, will reduce Federal revenues by some $2.8 trillion dollars over the next decade. If we had simply restored the pre-Bush tax rates on the top 2 percent, as I proposed in my negotiations with Republicans in January, instead of the top one percent as the final deal provided, that one change would bring in another $1 trillion dollars over that decade.

The proposed backdoor cuts in Social Security by a change in the annual cost of living adjustment have things backwards. First, that cut would bring in about $230 billion over a decade. It would be outrageous to cut benefits on seniors, most of whom depend on Social Security for more than half their total income, while still leaving in place the Bush tax cuts Americans making over $250,000 at a cost of a trillion dollars.

Second, if anything, older Americans face a higher rate of inflation than the rest of us, because they spend a larger share of their income on health care, where costs are rising far faster than average inflation. Seniors need a cost of living adjustment upward, not downward.

The right also wants to cut your Medicare. The fact is that Medicare has already been cut, by stealth. Under various formulas, the government pressures hospitals to admit patients in categories that result in more deductibles and co-pays. Bush-era legislation also prohibits Medicare from saving hundreds of billions of dollars by negotiating bulk discounts with Medicare.

So my budget gets Medicare savings without cutting benefits. We raise Medicare taxes on the wealthy, and we change the law to permit bulk drug discounts. This gets even more savings to the program than the Republicans are proposing.

Cutting Social Security and Medicare via the back door would be the easy way, but the wrong way, to get budget savings. And while the Republicans are pressing me for even deeper cuts, I would not put it past them to attack me for selling out our seniors even as they sought a deeper sellout.

So as I work to put the economy back on the path to recovery and good jobs, you can count on me to veto anything that cuts Social Security and Medicare. There are two paths to recovery. One path cuts benefits that our people need, and fails to restore growth. The other path invests in our people, and gets the economy back on track. Let's have that debate.

Now why didn't Obama give that speech?

Three reasons, I think.

First, he is convinced that by putting an offer on the table that alarms his base, he will induce Republicans to do the same. But the evidence is that they will do just the opposite -- take his conciliation as a sign of weakness and harden their demands. They've already begun attacking him as betraying the elderly.

Second, the top economic and budget advisors he has appointed largely buy austerity economics, and have persuaded him that budget-cutting is the royal road to growth, or at the very least that financial markets (read Wall Street lobbyists) expect it.

Third, fiscal conservatives around Obama have sold the president on the idea that nipping and tucking Social Security and Medicare is an easy way to get a lot of money, and doing it by the backdoor will entail a lower political cost to him.

So far, he seems to have been proven wrong on all three assumptions. The Republicans haven't given an inch, the $270 billion in cuts undertaken so far this year under the January budget deal and the March sequester have cut the growth rate in half, and he is alienating core Democratic constituencies.

One unanticipated benefit of Obama's stance is new, explicit pressure on Democratic House and Senate members, as well as candidates considering running for president in 2016, to pledge not to cut Social Security and Medicare. It would be so much better if this Democratic president were behaving as a progressive leader right now.

Robert Kuttner is co-editor of The American Prospect and a senior Fellow at Demos. His new book is Debtors' Prison: The Politics of Austerity Versus Possibility (Knopf)

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Cut Social Security to Destroy the Recovery

2013-04-07T22:31:33-04:00

President Obama picked the very day that new job creation collapsed to propose a deflationary budget deal featuring cuts in Social Security and Medicare. This is perverse economics and worse politics, on several grounds.

The economy created just 88,000 jobs in March, down from close to 200,000 in other recent months, for one main reason: The January 2 budget deal and the March 1 sequester that hiked taxes on working people and cut public spending.

In the January deal, payroll taxes on working people were raised by some $120 billion. The more highly publicized tax hike on the top one percent raised less than $65 billion. The sequester added another $85 billion of budget cuts. The combined economic contraction will be about $270 billion this year, and according to the Congressional Budget Office the result will be to cut economic growth roughly in half.

But the deal that Obama is trying to coax the Republicans into accepting would cut the budget at this rate for an entire decade. The economics are just insane. There is no evidence that banks are waiting to lower interest rates (which are already rock bottom) or businesses waiting to invest, pending progress on a grand budget bargain. Businesses are hesitating to invest because customers don't have money in their pockets -- and a deflationary budget deal will only make the economy worse.

The politics are worse than the economics. President Obama, violating every rule of smart negotiating, has put his final proposal on the table -- cuts in Social Security and Medicare in exchange for the Republicans' (still imaginary) agreement to raise taxes -- before the Republicans have made a single concession.

The Republican habit is well-established -- take Obama's "final" offer as the new starting point and demand further concessions. With this strategy, our president has let them take him to the cleaners for more than four years now, and is still hoping that sweet reasonableness will produce compromise. It never has and never will.

The worst part of all may be the president's offer to cut Social Security, using the sneaky, backdoor method of reducing the annual cost of living adjustment, disguised as a technical change, wink-wink, nod-nod.

The gimmick is "chain-weighting" the consumer price index. The premise is that the CPI overstates inflation because when prices rise, people find cheaper substitutes. There are two problems with this. First, hard-pressed consumers indeed find ways to pinch pennies, but cat food isn't Chicken of the Sea. Second, old folks actually face higher inflation than the rest of us because they spend so much of their budget on health care, whose costs are rising faster than other goods. The elderly are also suffering from the rock bottom interest rates that the Fed is using to keep the economy on life supports -- which translate into very low returns on savings.

If Democrats stand for anything, it is defense of Social Security and Medicare -- America's two most broadly beneficial and most beloved government programs -- and the president just gave away this last bit of product differentiation. You have to wonder where he is getting his advice. (Bob Rubin, maybe?)

Social Security benefits should be increased, not cut. The share of workers with traditional pensions is down to about 15 percent. The rest either have no pensions or have 401k plans that are not pensions at all. 401k's, like IRAs and Keoghs, are tax-sheltered savings plans. More than half of people between 55 and 64 have no pension and no retirement plan at all other than Social Security.

What we need is an increase in core Social Security benefits, and a second tier of Social Security as a universal, fully portable pension. It could be funded by raising taxes on the rich, whose effective tax rates have been steadily cut for four decades, and who now command more of our national income than ever before.

If you don't read any other piece of policy wonkery this year, you owe it to yourself, your parents, and your own golden years to read "Expanded Social Security," the recently published report from the New America Foundation (co-authored by my Demos colleague, Robert Hiltonsmith.) It provides a politically serious blueprint for expanding the retirement income of the elderly, rather than selling them out. If we had a Democratic Party worthy of the name, it would get behind this proposal and change the entire dynamics of the Social Security debate.

The Beltway pundits and supporters the view that the economy can deflate its way to prosperity love to take the president and the Republicans to task for "kicking the can down the road," meaning refusing to make a grand bargain that trades cuts in social insurance for increases in taxes. But that can looks pretty good compared to what's under discussion.

Every Democrat in Congress should be standing up to the White House and refusing to back a budget that cuts a nickel from Social Security or Medicare. Yes, we need to reform those programs, but not in the context of an ill-advised set of general budget cuts that will only sandbag the fragile recovery. In the case of Social Security, reform means increasing, not cutting the income support of the elderly. In the case of Medicare, reform is spelled National Health Insurance.

In the past, Republicans have saved Obama from himself by refusing to consider any tax hikes. Now, I'm beginning to think, it's time for Democrats save him from himself. And the Democratic Party. And us.

Robert Kuttner is co-editor of The American Prospect and a senior Fellow at Demos.

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Looking Backwards

2013-03-31T22:25:31-04:00

November 5, 2014

Jubilant Republicans took back the Senate in yesterday's mid-term election, and appeared to have increased their majority in the House by about ten seats.

"Barack Obama is now the lamest of lame ducks," said Sen. Mitch McConnell of Kentucky, now the Majority Leader, who held on to his own Kentucky seat by about three percentage points, the Senate Republicans only close call of the evening.

"The Senate numbers this year were against the Democrats," said pollster Stan Greenberg, "but what really killed us with the voters was the economy."

Going into the election, 11 Democrat-held senate seats were considered at risk, while the only endangered Republican seat was McConnell's. In a quirk of bad luck and timing, almost every red-state Democrat was up, and several veterans had opted to retire. Republicans gained Democrat-held seats in Alaska, Arkansas, Iowa, Louisiana, North Carolina, South Dakota and West Virginia, while Democrats managed to narrowly hold jeopardized seats in Colorado, New Hampshire, Oregon, and Minnesota, leaving Republicans with swing of seven seats and a 52-48 margin.

Al Franken, who hung on to his Minnesota seat by just two points, concurred with Greenberg. "Voters were really unhappy that unemployment remained above 7 percent, and that Democrats seemed to be the party of austerity and of Wall Street," he said. "The Democrats' support for cuts in Social Security only made it worse."

According to the Congressional Budget Office, growth is likely to be under 2 percent this year once again, after clocking in at just 1.7 percent in 2013. Unemployment seems stuck at a permanent plateau of about 7.5 percent.

After an aborted recovery in 2013, housing prices remained flat in 2014 because of weak consumer purchasing power.

"I congratulate the Republicans on their victory, and I will spend my remaining two years continuing my quest for common ground and bipartisan consensus," said President Obama. "There is more that unites than divides us, and I urge Republicans to reciprocate."

"We are now positioned to crush the socialistic Democrats in 2016," exulted anti-tax crusader Grover Norquist. "We will redouble our efforts to cut back taxing and spending, so that we can at last get a recovery going."

The road to political and economic ruin for the Democrats began in the late spring of 2013, when President Obama agreed to a budget grand bargain that cut deficits by 2.8 trillion dollars over ten years, deflated a fragile recovery, and left no room for more than token domestic spending on jobs or infrastructure.

The cuts were somewhat "back-loaded" -- bigger later in the decade. But in 2014 they took $200 billion out of the budget. According to CBO, that cut the growth rate by a full percentage point.

As part of the deal, more Medicare costs were shifted to patients, and the cost-of-living adjustment for Social Security was cut. Both changes, proposed in Obama's own budget, reduced purchasing power by over $100 billion among the elderly -- who surprised experts by backing Republicans by a margin of 59-41, according to exit polls.

The 2013 budget deal, according to Roger Hickey of Campaign for America's Future, "left the Democrats with bragging rights as deficit hawks, but not on the real economy."

"We should have fought harder for something like the Congressional Progressive Caucus budget, which emphasized jobs and public investment," said Nancy Pelosi, who is stepping down as House Minority Leader. "It was never going to pass, but at least it would have positioned Democrats as the party of jobs, not budget cuts. And the final deal would have been far friendlier to jobs and growth."

In the fateful House vote on the deflationary budget, 106 Democrats joined 142 Republicans in voting aye, after intensive lobbying by the White House, by the corporate-backed group, "Fix the Debt," and by the Peter G. Peterson Foundation. House Speaker John Boehner said most of his Republican caucus had voted for the deal only reluctantly, because of the $840 billion in loophole closings. But after the vote Republicans broke out champagne.

"Congress at long last did the right thing, overcoming partisan gridlock, and voted for a grand bargain in the national interest," said former Citigroup executive chairman Robert Rubin, who has been promoting such a budget bargain for two decades. Rubin was spotted going in and out of the White House and the Capitol during the weeks before the final vote.

"This election was the Democrats' to lose," wrote blogger Nate Silver, "and they ran true to form. Long term, it's a race between demographic and cultural shifts that favor Democrats, and Republican superiority at tactics. For now, the Republicans maximized their advantage and Democrats didn't."

Massachusetts Senator Elizabeth Warren is considering whether to form an exploratory committee for the 2016 presidential campaign, but is likely to defer to Hillary Clinton if the former secretary of state gets in to the race.

"This fiasco, once again, is why I don't call myself a Democrat," said Vermont independent Senator Bernie Sanders. "Don't progressives get even one party?"

Robert Kuttner is co-editor of The American Prospect and a senior Fellow at Demos.

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Talking 'Bout My Generation

2013-03-17T22:35:28-04:00

I will start drawing Social Security next month. I think I've earned it. On the other hand, I have to admit that society has been good to my generation.

I was able to graduate from a good private college with no debt. Four years at Oberlin cost $10,000 -- tuition, room, board, books, fees. Not $10,000 a year -- but for four years.

My wife and I were able to buy our first home when housing was relatively cheap, and we accumulated net worth without lifting a finger, as housing values appreciated.

My employers all provided good health insurance. Though I've had a somewhat unorthodox career, I did not hold multiple jobs because economic circumstances forced me to but because I enjoyed being at the cusp of journalism and academia. Yeah, I've worked hard, but the truth is, I've had a nice generational tailwind.

Why am I telling you this? Not because I expect to retire any time soon. But because, if you are under 40, your generation is getting utterly screwed compared to mine, and you should be in the streets.

The fact that student debt just approached a trillion dollars, that kids without rich parents must begin economic life saddled with college debt, that public universities are no longer free -- none of this has anything to do with changes in the structure of the economy. It all reflects lousy policy.

The bad policy includes Pell grants not keeping up with tuition costs, state legislatures paying for tax cuts by cutting funding for state universities and shifting costs to tuition, private universities marketing themselves like soap and shifting need-based aid to "merit aid" in order to raise their rankings. It stinks.

Sure, housing prices were destined to stop increasing faster than inflation. In that respect, my generation benefited from fortunate timing and dumb luck. But the housing collapse didn't have to happen. That was also the result of bad policy -- in this case the regulators allowing the sub-prime sharks to go nuts at public expense.

The fact that employers have stopped providing good health insurance or good retirement benefits also has nothing to with technology or globalization or any of the other alibis. In a reasonable society, health insurance and decent retirement would be tax-supported and part of the basic package for everyone.

Bad policy reflects bad politics. The great hidden injustice in our society is the set of lead weights being placed on the feet of young adults. Your generation should be in the streets.

The other day, the Urban Institute released a report showing just how far people born after 1952 are falling behind where their parents were at a comparable stage of their lives. According to the report, all of these trends were happening well before the financial collapse of 2008, and the trends were only worsened by the prolonged slump, which has depressed wages and career prospects.

The report was especially satisfying to me because its lead author was Gene Steuerle. Back in 2009, I had the pleasure of debating Steuerle, who at the time was vice president of the Peter G. Peterson Foundation. Steurle, a respected economist, had left the Urban Institute to take the job with Peterson.

Then as now, the Peterson Foundation's party line on generational justice is that our children and grandchildren will suffer lower living standards because of the size of the public debt and the projected deficit in the Social Security trust funds in a decade or two. This is total nonsense. If we use austerity to cut the public debt, that strategy will only slow the rate of economic growth, and future generations will be that much worse off.

The deficit cuts undertaken so far in 2013 -- the more than $100 billion payroll tax increases that were part of the January budget deal, the relatively modest tax increases on the rich, plus the $85 billion in "sequester" spending cuts, will cut economic growth in half this year.

When I debated Gene Steuerle, who is a good economist and an honest man, he seemed distinctly uncomfortable with the Peterson line. The report he just released makes clear that generational injustices have been going on for decades, long before the financial collapse sent deficits skyward.

The worsening economic prospects for the young have everything to do with bad public policies that began three decades ago, and nothing to do with the projected health of Social Security in 2033. If we follow the advice of Peterson and company, there will be even slower growth in the future and even less in the way of public resources to spend on opportunity ladders.

Steuerle must have been uncomfortable with the Peterson line, because he soon left the Peterson Foundation and returned to the Urban Institute where he continues to do important work. But the Big Lie about the federal deficit harming future generations continues to resonate, and Peterson continues to shovel money to an array of front groups of the young, calling for budget austerity in the name of generational justice.

There are plenty of injustices in this country, but they have little to do with old versus young and everything to do with the one percent versus everyone else. You don't have to cut my Social Security benefits to give your generation a decent break.

The secret sauce of my generation was that when I was young, prosperity was widely shared, ladders were plentiful, and tax rates were progressive. If gazillionaires pay their fair share, and we invest adequately in the young, there's no reason why Generations Y and Z can't enjoy the same economic tailwind that my generation did.

That, however, will not just happen. It requires a politics -- and not the politics of young versus old, much less the politics of austerity.

Editor's note: A previous version of this blog post incorrectly referred to the Peterson Institute rather than the Peterson Foundation.

Robert Kuttner is co-editor of The American Prospect and a senior Fellow at Demos.

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The Grand Bargain We Don't Need

2013-03-10T22:19:21-04:00

President Obama has been meeting with small groups of Republican senators and representatives in an effort to reduce the damage of the so-called sequester -- the $85 billion in automatic budget cuts that took effect March 1. But these meetings, if successful, are likely to lead to greater economic and political damage, in the form of a "grand bargain" to cut Social Security and Medicare in exchange for some reductions in tax preferences.

This is a bad idea for several reasons.

First, in these deals, it's usually Democrats who get taken to the cleaners. Republican leaders insist that their rank and file members will never vote for progressive tax increases, so the tax part of the bargain tends to focus on closing minor loopholes while Republicans demand major spending cuts in return.

Secondly, the sequester is a grave problem not just because the cuts are automatic, but because they are a down payment on a decade of budget cuts that both President Obama and the Republicans have embraced. If we trade the $85 billion of automatic cuts in the sequester for $85 billion of some other cuts, the impact on the economy is just as depressive.

President Obama's own proposals support $4 trillion of deficit cuts over a decade, only slightly less than what Republicans demand. The deal that he made over New Years weekend to spare the economy the "fiscal cliff" cut taxes by over $3 billion. Some of this extended the Bush tax cuts for 99 percent of taxpayers, but a lot if it was in the continuation of tax loopholes for the well-off. Massive spending cuts are already baked into the cake for the next decade.

Third, Social Security and Medicare outlays are not what ails the economy, and the two programs tend to be wrongly lumped together in discussions of "entitlement reform." A characteristic recent piece in the Washington Post by liberal deficit hawks Isabel Sawhill and Harry Holzer substantially blames progressives for the current fiscal stalemate:

The reluctance of our fellow progressives to consider sensible reforms to entitlement programs is puzzling. Progressives must begin to acknowledge a hard fact: Our very expensive retirement programs already crowd out public spending on virtually all other priorities -- including programs for the poor and those that strengthen the nation's future

Sawhill and Holzer go on to argue that since Republicans will resist higher taxes, Social Security and Medicare are the main place to look for budget savings.

This line of argument is misleading on several grounds. It isn't Social Security and Medicare that are killing other social programs, but Republican refusal to support them.

The ratio of public debt to GDP is roughly stable for the next decade. If we begin making cuts now, whether in Social Security and Medicare, or in other outlays, we will slow the recovery. That will only worsen the debt ratio over the long term, and at a depressed level of economic output.

Republicans do resist higher taxes, but at times Democrats have prevailed in raising taxes on the rich -- with the full support of the voters. President Clinton managed it in 1993, and even President Obama, though he settled for too skimpy a bargain, got Republicans to vote for a $630 billion tax hike on the top one percent last January. Faced with a choice of cuts in Social Security and Medicare or tax increases on the wealthy, polls show that most voters opt for the taxes.

Social Security and Medicare face entirely different fiscal challenges. As even a budget-balancer like former OMB chief Peter Orszag has acknowledged, the current Social Security program will face cost increases of only about one percentage point of GDP over the next 75 years, largely because of the aging of the population.

We can bring the program into balance by lifting the lid on incomes subject to payroll taxes. Since Social Security is financed by taxes on wages, the program would be nicely in surplus of wages began rising with productivity again, as they did in the 30 years after World War II.

Medicare faces larger deficits, but mainly because it co-exists with a heavily commercialized larger health system. A remarkable piece in Time magazine, by Steven Brill, "Why Medical Bills Are Killing Us," explains how hospitals and doctors charge astronomical fees that have no connection to their actual costs. A single-payer system -- Medicare for all -- could drastically reduce the rate of medical inflation.

When someone like Dr. Sidney Wolfe of Public Citizen, or Sen. Bernie Sanders, or former New England Journal of Medicine Marcia Angell, calls for single payer insurance as the solution to our health mess, they are starry-eyed socialists. When Time magazine stumbles on this reality, it's news.

But whacking Medicare, either to pay for the sins of the rest of the health-industrial complex or to compensate for the Republican refusal to tax the rich, it is utterly perverse.

This supposed grand bargain, long promoted by centrist deficit hawks and their Wall Street allies, is bad economics, bad social policy, and bad politics for Democrats. So far, only the refusal on the part of Republicans to entertain more than the most token of tax increases on the rich as part of a bargain has saved Obama from himself.

Robert Kuttner is co-editor of The American Prospect and a senior Fellow at Demos.

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Economy Sick, Politics Deadlocked? How About a Trade Deal!?

2013-03-04T10:07:39-05:00

The economy faces a persistent budget crisis.

Pushback from Wall Street has gutted most of the banking reforms, unemployment is stuck around 8 percent, corporate profits have been soaring while there is no wage growth -- and the newest White House proposal is... a free trade zone with Europe.

This idea of a Trans-Atlantic Free Trade Area was tossed in, reportedly at the last moment, to President Obama's State of the Union, and is being promoted in the government's latest report on trade.

You don't know whether to laugh or cry. This is a classic case of changing the subject to a cause that will not address any of the economy's deeper ills and could well worsen them.

It recalls the very old joke about the drunk looking for his keys under a lamp post. He mentions to a cop that he lost the keys somewhere else, but "this is where the light is."

Bipartisanship is not doing so well this season, but the one thing that Republicans and Wall Street oriented Democrats can agree on is more free trade deals.

The fact is that there is already massive trade between the U.S. and Europe -- about $650 billion last year, an increase of two-thirds just since the turn of the 21st century. Tariffs are already at very low levels.

The remaining issues dividing the U.S. and the EU are ones where no agreements are in sight. The Europeans, for instance, have much higher standards to protect their consumers from Franken-foods, and are not about to give them up.

Since the creation of the World Trade Organization in 1995, free trade deals have been less about facilitating trade and more about undermining social and economic protections and wages. These trade deals create a regulatory race to the bottom, on health, labor, environmental, and financial standards. The proposed deal would also weaken or ban efforts to use government contracting powers to promote green development and other domestic jobs and infrastructure efforts that rely on "Buy American" provisions.

Every time another trade deal is proposed, spuriously precise claims are made about its benefits. A U.S.-EU trade deal, according to one study, would increase U.S. gross domestic product by 0.99 percent or more, other things being equal.

But other things are not equal. The same ideology that promotes these trade deals promotes economic and financial deregulation. Prudent regulations are dismantled as barriers to trade. How do we weigh a possible one-point gain in GDP against the trillions of dollars of losses that resulted from the financial collapse?

More free trade deals don't compensate for other economic imbalances. As Public Citizen's irreplaceable Lori Wallach recently reported, in 2012 the (non-oil) trade deficit rose to a five-year high.

We keep incurring trade deficits because we no longer make enough stuff that the rest of the world wants to buy, and the fruits of our past trade policies make it too easy for American industry to expand offshore.

Trade deals are also anti-democratic, both in their substance and in how they are negotiated and ratified. Corporate lobbyists are given access to negotiating documents while public interest groups get none except via leaks. Then the deal is approved by Congress under a "fast track" up-or-down vote that allows no amendments. Fast track expired in 2007, and was not renewed, but the Administration now wants it reinstated under the euphemism, "Trade Promotion Authority."

Though President Obama and Speaker Boehner have been at each other's throats on budget issues, we can expect the two to stand shoulder in supporting this deal (why do we get bipartisanship only when it serves corporate interests?)

The idea of a trans-Atlantic trade deal has been on the shelf for decades. The president should put it back on the shelf and deal with the real problems afflicting our economy.

Robert Kuttner is co-editor of The American Prospect and a senior Fellow at Demos.

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The Sequestering of Barack Obama

2013-02-26T14:18:00-05:00

President Obama has miscalculated both the tactical politics of the sequester and the depressive economic impact of budget cuts on the rest of his presidency. The sequester will cut economic growth in half this year. But it's now clear, one way or another, that we will get cuts in the $85 billion range that the sequester mandates this fiscal year. All that remains are the details.

Obama's miscalculation began in his fist term, with his embrace of the premise that substantial deficit cutting was both politically expected and economically necessary, and his appointment of the 2010 Bowles-Simpson Commission as the expression of that mistaken philosophy. Although the Commission's plan was never carried out, its prestige and Obama's parentage of it locked the president into a deflationary deficit reduction path.

This past week, we've seen how the Republicans took advantage of Obama's self-inflicted wound. With the March 1 deadline looming, the White House assumed that if the president gave enough publicity to the harm of pending automatic cuts, the Republicans would just cave. But the Republican leadership calculated that the ensuing political and economic damage would be worse for Obama, so they hung tough.

Obama also assumed that military cuts would be enough to move Republicans to compromise. But with two wars winding down, most Republicans decided that this year they were deficit hawks more than defense hawks.

The president also played the populist card, calling for tax increase on the wealthy to spare the rest of the country program cuts. But that didn't move the Republicans either.

The Republican leadership also deftly evaded the risk of being blamed for shutting down the government. They offered the Democrats a continuing resolution to allow government to keep operating, but at $85 billion below current spending levels. That shifted the onus to Democrats if they refused to take the deal and Congressional leaders advised the president that they were not prepared to take that risk.

Finally, Republicans took some of the sting -- and responsibility -- out of the sequester by offering to give Obama new flexibility in how he implemented it, thus making it even more his problem.

Read the rest of this blog post at Prospect.org.

The Sequester Debacle: Who Takes the Fall?

2013-02-24T22:40:50-05:00

President Obama and his advisers are wagering that Republicans will take the political blame if the sequester of $85 billion in automatic budget cuts is actually executed March 1. The president's public remarks keep emphasizing the risk to the recovery, the loss of jobs, the inconvenience to the public and the generally obstructionist posture of Republicans in Congress.

He is certainly right -- in the short run. But the potential for damage to Obama and the Democrats is far greater in the years between now and the next mid-term (2014) and presidential (2016) elections.

Why are Democrats more at risk?

First, though the public tends to hold Congress in lower regard than it holds President Obama, the voters generally blame both parties when Washington seizes up and can't get the public's business done. The austerity lobby has been all too effective at disseminating a rhetoric of "Washington is broken," suggesting symmetrical blame (even though one party is rather centrist and serious about governing while the other has a lunatic strategy of "let it burn.")

If the sequester is executed, we will be treated to usual media bleats of "Where are the grownups?" and "Why can't you people just execute a grand compromise?" with the austerity lobby as ventriloquist.

And "execute" is just the right word, for the Republican price of compromise is savage cuts in what's left of social spending, including Social Security and Medicare, and no serious increases in taxes on the wealthy.

The sequester may bite for a few days or even weeks, but the end-game of this round of budget warfare is all too clear. The president and Congress agree to solve the sequester of automatic cuts -- by substituting budget cuts of a like sum, with most them on the spending side.

But this has exactly the same depressive effect on the recovery as the sequester, itself. According to the CBO and independent economists, cuts of this magnitude will cut this year's economic growth rate in half -- from the 3 percent necessary to signal even the beginning of a recovery to about 1.5 percent according to the Congressional Budget Office. This doesn't even count the likely hit to the stock market.

This moves the budget even further away from the stated goal of reducing the ratio of debt to GDP a decade hence, because it shrinks GDP faster than it reduces debt.

And the sequester is only the beginning of a decade-long process of annual budget cuts of an even greater amount -- at least $120 billion a year, which equals 10 years of economic deflation.

This brings me back to the political consequences for Democrats. The Republicans are willing to take the political heat now, as obstructions, for three reasons.

First, as noted, accountability will be blurred. Both parties will be blamed, and by 2014 the details of the great sequester squabble will be blurry.

Second, any short-term pain to Republicans is outweighed by long-term gain: an austere budget slows the recovery and leaves the Democrats with no economic bragging rights going into 2014 and 2016.

Would the Republicans be that cynical -- to deliberately retard growth so as to embarrass Obama? Is the Pope Catholic? (Actually that's become a more complex question, but I digress.)

The third benefit to Republicans is that the sequester, and all the sequential sequesters over the next decade, deprive Democrats of the resources that they need to be, well, Democrats. Obama can proclaim big, bold initiatives as he did in the State of the Union Address, but they are all mere gestures -- because there is no money to spend on any of them, thanks to the bipartisan obsession with budget cutting.

Even worse, Democrats end up colluding in eviscerating very popular and necessary signature programs like Medicare and Social Security, which literally define the core differences between the two parties.

So by 2016, and even by 2014, nobody will much remember who was more at fault in the sequester battle of early 2013. The voters will be looking at their own economic situation, and it won't be pretty.

Is there nothing Obama and the Democrats can do? The president has challenged Republicans to join him in raising taxes on the rich, to spare the 99 percent the sacrifice of valued programs and the economy a needless double dip recession. That's a start, but he needs to blow up the entire premise that the cure for this economy is more and deeper budget cutting.

Robert Kuttner is co-editor of The American Prospect and a senior Fellow at Demos.

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The Last Liberal Branch of Government

2013-02-17T22:57:15-05:00

If you want to appreciate just how conservative the fiscal conventional wisdom is, consider that hotbed of Bolshevism, the Federal Reserve. Yes, the central bank that progressives love to hate is today the most expansionist outfit in town.

Although they are arguing about the details, both President Obama and the Republican Congress have committed to another $1.5 trillion of deficit reduction over the next decade, just about guaranteeing a prolonged period of high unemployment, an under-performing economy, and flat or declining wages for most working people.

Consider this thoughtful speech by the Fed's vice chairman, Janet Yellen, delivered last week at an event jointly sponsored by the AFL-CIO (!) and the German Social Democratic (!) Friedrich Ebert Foundation, titled "A Trans-Atlantic Agenda for Shared Prosperity." It was light years more progressive than the sort of fiscal summits that the White House has blessed.

In the speech, Yellen began by reminding the audience that the Fed's mandate is a society of high employment, not just low inflation, and she made several important points that seem to have eluded President Obama -- all of which are implicit rebukes to the Administration's fiscally deflationary approach to the recovery. Compared to all other postwar downturns, she said, "The Great Recession stands out both for the magnitude of the job losses that attended the downturn and for the weak recovery in employment that occurred after the recession ended."

How come? First, Yellen reports, bad fiscal policy. In every other postwar recession, government helped the recovery along by increasing spending or cutting taxes, or both. But in this recession, the government has been more concerned to rein in deficits.

... [D]iscretionary fiscal policy this time has actually acted to restrain the recovery. State and local governments were cutting spending and, in some cases, raising taxes for much of this period to deal with revenue shortfalls. At the federal level, policymakers have reduced purchases of goods and services, allowed stimulus-related spending to decline, and have put in place further policy actions to reduce deficits.

So people, let's not make things worse by even more belt-tightening while the recovery is still weak.

And in other recoveries, housing led the way. Not in this one.

Tight mortgage credit conditions are continuing to make it difficult for many families to buy homes, despite record-low mortgage interest rates that have helped make housing very affordable... For some households, the collapse in house prices has left them underwater on their mortgages, and thus less able to refinance or sell their homes.

Yellen is too polite to scold Obama for his lame and inadequate mortgage relief program, but the clear implication is that the Administration could be doing a lot more.

She also pointed out the persistence of too high unemployment, with its negative effect on incomes, hopes, and purchasing power. When you accurately count unemployment, to include people who've given up any reasonable hope of funding a job and people in part-time work who can't find fulltime work, the real rate according to Yellen, is not 7.9 percent but 14.4 percent.

Workers' share of the total national income, she reports, is near its all-time low, just over 60 percent, compared to 68 percent during boom times. And long-term unemployment is still near its recession high:

Long-term unemployment is also a great concern because it has the potential to itself become a headwind restraining the economy. Individuals out of work for an extended period can become less employable as they lose the specific skills acquired in their previous jobs and also lose the habits needed to hold down any job. Those out of work for a long time also tend to lose touch with former co-workers in their previous industry or occupation -- contacts that can often help an unemployed worker find a job. Long-term unemployment can make any worker progressively less employable, even after the economy strengthens.

Yellen then took on the center-right's favorite alibi for persistently unemployment--the conceit that the skills demanded by the economy have moved away from the skills that today's workers. Citing an impressive array of scholarly evidence, Yellen was having none of it.

[A] broad-based cyclical shortage of demand is the main cause of today's elevated unemployment rate.....whatever problems there may be today with labor market functioning [i.e, skills shortages] are likely to be substantially resolved as the broader economy improves and bolsters the demand for labor.

Yellen went on to defend the Fed's extraordinary policies of bond purchases to keep interest rates very low, but made clear that monetary policy alone can't levitate the economy when fiscal policy is making things worse and there are inadequate efforts to solve the housing and unemployment problems.

Yellen's Chairman, Ben Bernanke, has said much the same thing, just not quite so bluntly. Today, the most resolute economic progressives in town are the chair and vice chair of the Fed.

Compared to the past stance of the Fed -- priority for cutting inflation, capture by bankers -- this is good news. But it hardly makes them radicals. Her speech was the sort of analysis you'd expect from a middling Democratic president or his top economic advisers. But this Democratic president and his top advisers, despite some brave words about new spending initiatives (for which there is no serious money in the budget), still believe in the austerity cure.

What sort of a topsy-turvy world is it when we have to look to the Federal Reserve, normally the home of inflation hawks and shills for commercial bankers, for ordinary common sense on the economic recovery? It's not that the Reserve has become dangerously left-wing. It's that the rest of Washington has been captured by the deflation delusion.

Robert Kuttner is co-editor of The American Prospect and a senior Fellow at Demos.

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Le triste état de notre Union

2013-02-12T03:35:30-05:00

Le Président Obama prononcera son cinquième discours sur l'état de l'Union aujourd'hui. Selon des fuites de la Maison-Blanche, le président va insister sur l'idée de reconstruire une classe moyenne. Il va invoquer l'importance de l'éducation, des infrastructures, des énergies propres et de l'industrie.

Ce sont des thèmes économiques et politiques formidables. Le seul problème est qu'il est hors de question de reconstruire cette classe moyenne avec les investissements publiques dont la société a besoin - en raison d'une politique de rigueur budgétaire que le Président soutient.

La Maison-Blanche partage avec la droite républicaine et les grands intérêts du centre droit, l'idée que nous atteindrons une reprise économique totale en visant un taux d'endettement plus bas d'ici 2023, et que nous réduirons ce taux d'endettement en supprimant le déficit.

Or, comme de récents évènements l'ont montré (au cas où il y aurait un doute), ce raisonnement fonctionne à l'envers. Le taux d'endettement baisse quand l'économie reprend. Les mesures d'austérité budgétaire ralentissent la reprise et le déficit d'investissements publics enlève au gouvernement les outils dont il a besoin pour que l'éducation et les infrastructures puissent aider à reconstruire la classe moyenne.

La semaine dernière, le bureau du Budget du Congrès américain (CBO) a indiqué que l'économie ne va croître que de 1,4 % pour cet exercice fiscal, soit encore moins que le déjà faible 1,9 % de l'an dernier - en raison d'une baisse des dépenses publiques et d'une hausse de deux points dans les prélèvements sur les salaires. Sans ces compressions budgétaires, le CBO a estimé que l'économie aurait progressé de 3 %.

Lors du dernier trimestre de 2012, l'économie a baissé de 0,1 % , en grande partie à cause des 22% de dépenses reportées par le département de la Défense, en prévision du redouté "sequester", nom donné aux coupures budgétaires automatiques prévues à hauteur de 110 milliards de dollars sur une année fiscale, mandatées par le Budget Control Act de 2011.

L'administration a exagéré l'impact négatif du "sequester", et Obama le mentionnera sans aucun doute dans son discours sur l'état de l'Union. Mais ce "sequester" est la moindre des mesures prévues. Dans son accord pour le budget de 2011, le Président a approuvé des plafonds budgétaires pour la prochaine décennie, qui vont diminuer les dépenses de 1,5 mille milliards de dollars - des coupes budgétaires plus importantes que celle prévue par le "sequester".

A moins que le Président Obama désavoue cet accord, et les hypothèses économiques qui se cachent derrière, il n'y aura bientôt plus d'argent à dépenser sur quoi que ce soit - seulement des coupes. D'ici 2023, les dépenses intérieures discrétionnaires seront descendues à leur niveau le plus bas depuis Eisenhower, soit 2,5 % du PIB.

Le propre budget du président pour l'exercice comptable de 2013 prévoit de réduire les dépenses intérieures de 24 milliards de dollars, y compris 200 millions prévus pour l'aide aux côtes sinistrées (!), et 359 millions pour l'eau potable. Et il ne s'agit là que l'offre initiale du président, les républicains réclameront de plus amples coupes en échange de leur coopération pour éviter le "sequester".

Sur cette question, le Président essaie encore de se positionner des deux côtés. Dans son briefing du 5 février, il a ainsi déclaré : "Nous ne pouvons pas nous couper notre chemin vers la prospérité" (amen !), mais il a ensuite ajouté qu'il espérait négocier un package "équilibré" de réductions du déficit dans la réforme budgétaire, les coupes dans les dépenses, et les réformes - lisez coupes - de la Sécurité sociale et du Medicare.

C'est un jeu qu'Obama ne peut pas gagner et ne devrait pas jouer. Il est temps pour le Président de dire aux gens que cette vision économique marche à l'envers. Il doit refuser l'intégralité de ce postulat selon lequel réduire le déficit dans une économie faible est la clé de la reprise - et rejeter la responsabilité sur les Républicains si le "sequester" nous replonge dans une complète récession..

J'aimerais entendre un discours sur l'état de l'Union qui comprendrait ces mots :

"L'état de notre Union est divisé. Certains voudraient mettre le gouvernement à genoux en diminuant notre capacité à dépenser de l'argent sur des besoins communs, et ce jusqu'au point où le gouvernement devient si petit qu'on peut le noyer dans une baignoire, pour reprendre les mots célèbres d'une de ces personnes.

Je ne vais pas l'autoriser. L'automne dernier, l'économie a vraiment commencé à replonger dans la récession parce que le Pentagone, en vue des coupes automatiques prévues par le 'sequester', a commencé prudemment à différer ses dépenses. Puis l'accord budgétaire que j'ai dû signer malgré moi le 2 janvier a aggravé la situation, en augmentant les prélèvements de salaires sur la classe moyenne.

Le week-end dernier, presque un million de personnes ont subi des coupures de courant parce que les Etats-Unis sont le seul pays développé à ne pas enterrer la plupart de ses lignes d'électricité. Cela va coûter des centaines de milliards supplémentaires de protéger nos côtes contre les menaces d'inondations avec des tempêtes qui vont s'amplifier dans le futur. Et bien plus encore pour orienter notre économie vers les énergies propres.

Tous ces investissements ne rendraient pas simplement notre économie plus sûre et plus productive. Ils vont produire des emplois qui donneront des revenus décents. Mais ces investissements nécessitent de l'argent. Et le plafond budgétaire imposé par le Budget Control Act de 2011 nous empêche de trouver cet argent. Et le 'sequester' n'arrange rien.

Preuve a été faite que nous ne pouvons pas couper notre chemin vers la reprise ou vers une société décente. Aujourd'hui, je désavoue cet accord budgétaire et les hypothèses économiques qu'il contient. On n'obtient pas de redressement en visant un taux d'endettement à dix ans d'ici. On crée la reprise en investissant, et quand cette reprise survient, le taux d'endettement se résout de lui-même.

Quand nous avons dû faire face à la menace terroriste d'Al Quaida lors des attaques du 11 septembre, nous avons trouvé l'argent - plus de trois mille milliards de dollars, en partie pour des guerres inutiles - dont nous estimions avoir besoin pour garder notre pays en sécurité. Nous avons besoin d'argent aujourd'hui pour mettre à l'abri notre économie et nos familles qui travaillent.

Si les partisans de l'austérité économique veulent s'y opposer et frapper encore plus durement ces Américains qui travaillent et viennent d'entamer leur cinquième année de souffrance, l'histoire les jugera sévèrement. Je passerai mon second mandat à me battre pour ces Américains et pour que le gouvernement puisse continuer à faire son travail."

Bon, je sais, on peut toujours rêver. Mais si Obama n'est pas prêt à prendre en charge ce combat, le reste d'entre nous le devrait.

Si le prix pour détourner le 'sequester' est un autre éventail, légèrement moins onéreux, de coupes dans les dépenses publiques, l'économie va rester coincée en deuxième vitesse, le gouvernement ne recevra pas les ressources dont le pays a besoin et la défense de la classe moyenne d'Obama ne restera qu'un joli discours.

Le Président est moins obsédé par le déficit aujourd'hui que lorsqu'il a nommé la commission Bowles-Simpson en 2010 et que lorsqu'il a approuvé le Budget Control Act de 2011. Il commence à prendre parti dans cette lutte. Espérons qu'il ne s'interrompe pas en si bon chemin.

Robert Kuttner est rédacteur en chef adjoint du magazine The American Prospect et un membre senior de Demos.