Some Democrats have come under a lot of criticism lately, much of it deserved, for abandoning popular and important programs that were historically associated with their party. But some of the other Democrats -- the ones who are trying to act in the country's best interests -- are genuinely concerned about what will happen to the economy if the Super Committee fails to come up with a plan.
This message is for them -- and anyone else who has the same concern. You need to know that the evidence is clear: A Super Committee failure won't hurt the economy at all.
But its "success" almost certainly would.
Economic Y2K
Every month it seems as if there's another "bipartisan" process designed to impose austerity on the American people. And every month we're told there will be terrible consequences in the world's markets if it doesn't succeed. These predictions are the economic equivalent of "Y2K" -- always apocalyptic, never true, and all too frequently believed.
Democratic officials and staffers are being bombarded by these predictions, delivered by think-tank operatives from their own party who have been steeped in the cult of austerity. It doesn't matter how many times they're refuted by impeccably constructed papers, or by the observations of Nobel Prize winners. And it doesn't matter how many times these predictions are proven wrong.
Some of the experts warning of doom if the "Super Committee" fails said the same thing about last year's Deficit Commission, too. What happened when that "bipartisan" body deadlocked, and the private plan put forward by its co-chairs went nowhere?
Nothing.
Now the same players are telling us the stock market will plummet without a Super Committee plan. They're saying there will be more downgrades of the US government by credit rating "agencies," and that this will bring disastrous consequences. And they're saying that international markets will lose confidence in Treasury bonds.
But recent history teaches us that the exact opposite is likely to happen.
Over-Rated
Here's the story the doomsayers like to tell about credit ratings: Without the committee's cuts, ratings agencies will stop believing that our country has the "political will" to handle its long-term deficit problem. (It must be remembered that these so-called "agencies" are actually for-profit, publicly traded companies whose clients are the very wealthy individuals and banks that benefit from austerity economics.)
Even so, Moody's has already said that it would be "informative, but not decisive" if the committee fails to come up with a plan. As for S&P -- well, it depends on which S&P is speaking today. Just a few weeks before it downgraded the US economy it was saying that it wasn't concerned about deficits for at least three years. That was a pretty good call, since we'll need about two to three years of government investment in jobs and growth to turn this economy around.
So why did they change their mind so suddenly? That's what a lot of people would like to know. Since S&P benefits from a lot of government regulations, Congress would be smart to hold hearings looking into that question. But there's no evidence that a Super Committee failure would lead to downgrades.
Still, what if it does happen? Fortunately, we already know the answer to that.
Summer Stocks
Today the austerity crowd has rewritten history to suggest that markets plunged when S&P issued its inexplicable downgrade over the summer. But that's not what happened at all. There was a big drop, all right -- after the President and John Boehner concluded an austerity deal to end the debt ceiling crisis. It's the first vertical line on this chart:
The second line marks the "downgrade apocalypse" we'd been hearing about for months -- the long-dreaded downgrade, a moment we were told would lead to a plunge in the stock market. What happened the next day? The stock market went up.
Investors know that austerity programs like that deal -- and the Super Committee's expected proposals -- inflict damage on a nation's economy. So when the last austerity plan passed, they did what any sensible investor would do: they sold. They'd already seen how destructive these programs had done to Great Britain's economy.
Austerity economics suppresses hiring and wages. That leaves people with less money to spend and less confidence about spending it. So companies that provide goods or services lose revenue. That makes investors lose confidence in sales and service-driven stocks.
Investors and other business people may be greedy sometimes -- but they aren't stupid.
The Name Is "Bonds"
What about the bond markets? Inexplicably, a lot of policy types continue to dread what Paul Krugman calls the "invisible bond vigilantes" and the "cruel bond cult," those ruthless -- and mythical -- skeptics of the dollar who will drive the value of our bonds into the ground unless we show political resolve by slashing Social Security and Medicare.
Prediction after prediction of bond-market disaster has proven false, yet the fear remains. Budget expert Stan Collender had it exactly right when he wrote this:
"In spite of the consistent warnings that they were about to unleash the hounds of hell on interest rates, there continues be no sign whatsoever that bond-market vigilantes have returned (or even really exist, for that matter). Quite the opposite might be true: Given the current fragile nature of the economic recovery, the bond and equity markets are just as likely to be spooked by the short-term federal spending reductions and revenue increases the super committee members might recommend ..."
That makes sense. An imploding economy, with unimproved or declining employment and wages, means a loss of tax revenue -- along with the possibility of social upheaval and political unpredictability. These "bond vigilante" scare tactics may create exactly the problem they're claiming to prevent.
The Austerians will tell you that these markets won't be satisfied with anything less than the sacrificial blood of America's seniors, even though Social Security doesn't contribute to the deficit, because entitlement cuts have long-lasting effects. But they don't. Benefit cuts are just as reversible as any other spending reduction -- and they're much more harmful to the economy.
If you throw Grandma from the train to impress somebody that doesn't exist, you gain nothing. But you're sure gonna tick Grandma off.
Stimulus/Response
Ben Bernanke is a Republican and a traditionally pro-market economist. But he's finally stating clearly that this is not the time to cut spending. Last month he said the economy "is close to faltering," that unemployment continues to be a "national crisis," and that "We need to make sure that the recovery continues and doesn't drop back and that the unemployment rate continues to fall downward."
This week Bernanke added this comment: "While I do not shirk the responsibility of the Fed having to do what it can to meet its mandate, obviously a broad range of policies can affect growth and employment and I hope that there will be a range of actions that will complement and supplement the Federal Reserve's efforts."
In other words: Government, get off the dime and start investing in jobs and growth.
Bernanke's Fed is not the only austerity-minded institution to accept the fact that we need more government spending right now, not less. The IMF, which is usually known for forcing austerity on client nations, has been urging European countries to "adjust their austerity programs to a changed situation and consider measures to drive growth."
IMF head Christine Lagarde also said: "If the United States launches a credible middle-term adjustment program (i.e., stimulus spending), there is possibly room to abandon the short-term austerity measures and to introduce some measures to drive growth."
In other words, don't be in a mad rush to do what the Super Committee is trying to do, which is to impose cuts that begin in 2013. That may sound far away. But the Simpson-Bowles austerity cuts sounded far away, too, when the two men proposed them last year. But if they had been enacted, they would have begun taken effect less than eight weeks from now.
The truth is it's reckless to propose arbitrary dates and dollar-figure targets, as the Super Committee is doing. A smart, balanced deficit program would be designed to take effect after the government has done what's needed to fix today's crisis. And it would not be based on figures that were established years before we knew what the overall economic picture was going to look like.
Failing Up
The other concern that policymakers have is political in nature. Democrats in particular are worried about appearing to have failed if they can't reach a compromise with Republicans, and they're afraid the voters will punish them for it.
That's only possible if they keep insisting that a Super Committee agreement is the only measurement of success. But if they make it clear that they weren't willing to accept destructive, one-sided cuts, the voters will reward them for it. Nothing would be more reckless than to pass a budget-slashing plan based on arbitrary dates and figures in an economy that's this stagnant and in this much danger.
Voters already believe that Obama has been acting in good faith to fix the economy, and that the Republicans are not. If Democrats defend Social Security in the process of saving their government, polls show that voters (including many Republicans) will reward them for it.
The committee's members are being warned that all of them will suffer in any future bids for leadership if the committee "fails" to put forward a plan. The economic and polling data make the answer to that clear: Not if they "fail" like leaders.
Now is the time for Democrats to explain why there are more important things at stake than peace at any price within the Super Committee -- and why the kind of deal Republicans want is worse than no deal at all.
Follow Richard (RJ) Eskow on Twitter: www.twitter.com/rjeskow
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It should be repealed. What if, God forbid, we have a major disaster or decide to declare war on somebody else? That would call for more money spent.
What would our legislators do?
THis law is so stupid that I'm surprized that the corporations that own the legislators would let that happen.
Social Security. Now Republicans in both houses of Congress are preparing to dig into that sacrosanct entitlement as well.
On Wednesday morning, shortly before Obama's big deficit speech, three Republican senators unveiled a plan to cut $6.2 trillion by paring back Social Security over the next two decades. Under a proposal unveiled by Sens. Lindsey Graham (R-S.C.), Rand Paul (R-Ky.), and Mike Lee (R-Utah), the qualifying age for Social Security would rise from 67 to 70 by 2032, while benefits for everyone earning more than an average of $43,000 over their lifetime would be reduced. Graham took pains to explain that he wasn't pushing for privatization but also slammed any tax increases to shore up Social Security, saying such a move would "destroy America." "It's much better to give up benefits on the end side than pay taxes now," he explained.
http://motherjones.com/politics/2011/04/republican-social-security-cuts
I think the voters are quite a bit more nuanced than you assume. They know the Republicans are deliberately blocking any stimulus to the economy at present. However, they also know that Obama's measures are inadequate to address the problem and that his policies, even if they were passed unmodified, will only put a bandaid on a festering and growing wound. They blame both parties and they especially blame Obama for not doing enough in the last three years to do anything but to prolong the recession (pronounced "depression"). The Democrats mealy-mouthed support for modifications to SSN that will ultimately result in significant cuts to benefits will cost them and I see no evidence that they will do anything but continue to be mealy-mouthed. The Democratic Party has failed us over the last 30 years and a significant part of the base is beginning to understand that propping up this band of thieves and losers will only make things worse. The Republicans are craven, but that is what they stand for. The Democrats are to BLAME for the situation we find ourselves in and they have demonstrated an unwillingness to offer solutions that can stop the ever-advancing plutocracy.
The Public has gone wanting for many years now. take a peek at my post above.
I also felt that there are many parties who wanted the super 12 to fail because programs they like might get cut, and better to stay with the devil you know than to risk something unknown.
Then it is revealed that the automatic cuts may not be so automatic because of the way they structured the agreement. Talk about pulling one over on the people.
Members of the committee are sworn not to raise taxes so how can they agree to a deal. I hate to say it but, if they won't negotiate in good faith, why sit in the room with them, it's a waste of time.
Put your offer on the table, stay and talk if the other side meets you halfway, walk away if they don't.
If you put entitlements on the table and they say yes we'll take that but we won't give you anything, even Frank Luntz can't come up with a credible phrase to explain that one, and believe me, he's working on it as we speak.
There is always a handful of dems clogging up the gears and slowing things down, not to mention give the repubs a talking point that even Obamas' own party doesn't support his ideas.
I have said Reid is no Daschle, he is not the same parlimentarian, period. Bush replaced Lott with Frisk because Lott couldn't get the job done. I have written/emailed the white house and told the president that he needs to STAND. He needs to get down and dirty with the repubs. If they know Obama can be just as cut throat, they will think twice.
I know I am not the professional in these matters, it just seems to me that people want somebody who will kick butt and take names in order to help us out of this mess.
More Americans need to be aware of the potential for this to emerge from the Super Committee and quickly:
"The "Social Security Chain-CPI Massacre": Underhanded, Unnecessary, Unfair, Un-American "
http://www.huffingtonpost.com/rj-eskow/the-social-security-chain_b_888380.html
Anything that has caused a country to fail, they are all for it. War with Afghanistan? Send jobs to another country?
Why they would let a handful of companies...health insurance, big pharma, banking, big oil and gas overcharge the people?
Stimulating the economy will raise our interest rates even more making us make even worse cuts later.
It is also strange that stimulating the economy will raise interest rates. It may raise my saving rate above one third of one percent.
It is mind boggling that supposedly intelligent rational people think that a government sovereign in its currency (not Greece or any other EU country) operates like a household or a private company. Households and companies have to earn money to spend it. They can create credit, but credit leverages money created by the Treasury and the Fed (the useless public sector) when they update ledger accounts (not much printing goes on really.)
Sit down with a pencil and paper and try to make sense of monetary stocks and flows with neo-liberal economic thinking. It can't be done unless you assume "magic happens" in the background. How is that working out? Perhaps we should burn some sacrificial offerings to appease the magicians living in the woods.
It is a simple copernican shift in macroeconomic reasoning. That homunculus thing didn't work out either.
Try this and rethink your posting ... http://neweconomicperspectives.blogspot.com/2011/06/modern-money-theory-primer
I agree with you that increasing taxes is not a good idea. The reasoning that we have to pay for U.S. public sector spending is based upon flawed assumptions about macroeconomic mechanics. Greece and other EU countries do, the U.S. and other countries with sovereign freely floating currency don't. We should spend until there is sufficient momentum to overcome our private debt load. The lesson in our recent experience is that we can chose not to let capital interests suck all of the air out of the room if we want to. I'm waiting for a congressperson or the President to realize this. //so it goes
Some people feel fear motivates. I believe fear, especially irrational fear, tends to paralyze (or, at the very least, one is more likely to have more mistakes or missteps). An often used concept in power dynamics is the fact that a chronically frightened people is easily divided (& then conquered).
I think the 'fear strategy' is yet another example of black & white thinking. Not to mention, appeals to fear, emotion, & perhaps as a phenomenon? The Mean World Syndrome:
"... Fearful people are more dependent, more easily manipulated and controlled, more susceptible to deceptively simple, strong, tough measures and hard-line measures," said Gerbner when he testified before a congressional subcommittee in 1981.
"You know, who tells the stories of a culture really governs human behaviour,"... Now it's a handful of global conglomerates that have nothing to tell, but a great deal to sell."
http://en.wikipedia.org/wiki/Mean_world_syndrome
Unfortunately, this hysteria captures the minds & maybe hearts of people & prevents them from having a clear vision. Sadly, rational thought & providing solutions becomes secondary to calming hysterical fears. & we are stuck there.
The Navajo proverb, "Those who tell the stories rule the world" rings true. Time has come to courageously write stories that resonate in the heads, hearts & hands of, by & for the people.
In many ways, what we need is more Cheney/Bush...perhaps Obama can bring Cheney onboard.
Fewer and fewer consumer goods being needed means more and more people lose their jobs, and the vicious circle just keeps repeating itself until someone like Lincoln or FDR comes along. Lincoln got so disgusted that he printed his own money. Google Greenbacks. FDR created the CCC and a host of other programs to put the country back to work and out of a Republican caused Depression.
Now President Obama wants to put the people back to work. He can't do it with the NO, NO, No, Republicans. Wall Street is piling money on Romney, hoping he will be the Republican nominee. You aint seen nothing yet. If he does get the nomination, that money will be quadrupled. The insane part of this deal is that each time the mega rich have nearly finished sending the 99% to the poor house, a chrismatic leader has turned the tide. Let's show the Republicans our votes trump their money.
http://www.guardian.co.uk/business/2010/jan/21/obama-bank-reform-glass-steagall
"President Barack Obama, hurt by the historic loss of a Democratic seat in the Kennedy stalwart state of Massachusetts, is now determined to earn his own place in the history books by again making banks pay the price for the taxpayer bailouts that were needed in October 2008 to stop the financial system collapsing."
http://thecaucus.blogs.nytimes.com/2011/09/18/campaign-redux-as-obama-pushes-for-taxes-on-rich/
He has been trying. People really should keep up with the News. He has been trying since
before he was elected. Since some Democrats in Congress have now joined the Republicans, he is trying to tell the American people. You haven't HEARD the Republican mantra, "No taxes on the rich."
None of this has been proposed or passed in the House.
Both support endless wars that are bankrupting our country. Both would execute US citizens by drone attacks. Both would attack other countries without congressional approval. Both support the Patriot act. Both support the abomination of democracy that is "the super congress". Both would not raise taxes on the rich. Both will never mention carried interest for fear that the public would find about it. Both are puppets of their wall street masters.
President Obama is getting us out of Iraq, despite the utter disapproval of Republicans. He didn't start that war, or the one still raging in Afganistan.
http://politicalticker.blogs.cnn.com/2011/10/21/romney-blasts-obamas-iraq-decision/
Do you even know which provisions of the Patriot Act he signed to keep in place?
http://articles.cnn.com/2011-05-27/politics/congress.patriot.act_1_lone-wolf-provision-patriot-act-provisions-fisa-court?_s=PM:POLITICS
After 9 - 11 some things the Act covered are really necessary.
As to "Both would not raise taxes on the rich?" Obviously you have not been listening to the debate. President Obama against the House of Representatives.
http://www.huffingtonpost.com/2011/09/17/obama-tax-plan-millionaires_n_967861.html
As to being puppets of Wall Street, guess who lost in the donation game, precisely because he refused to be their puppet.
http://www.trendbuzz.com/politics/14994/barack-obama-loses-support-of-wall-street-donors.html
I guess they figured in 2008 that he was going to be their black 'boy.' Looks like they figured wrong and that you owe President Obama an apology.