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Robert Kuttner

Robert Kuttner

Posted: November 1, 2009 03:21 PM

How to Abort the Recovery

What's Your Reaction:

As unemployment continues to rise, deficit hawks are upping their efforts to use the economic crisis as a pretext for gutting basic social programs such as Social Security and Medicare. The idea keeps surfacing for a bipartisan deficit-reduction commission, supposedly insulated from politics, which would agree to mandatory caps on spending and perhaps increased taxes as well. Social programs would take the biggest hit. Congress would then take an up or down vote on the whole package.

The latest ploy to promote such a commission is to use the upcoming vote on increasing the national debt, scheduled for late November. Democratic deficit hawks such as Sen. Kent Conrad of North Dakota are working with Republicans such as Judd Gregg of New Hampshire, to condition an increase in the debt on creation of a panel. They have some allies in the White House such as Office of Management and Budget Director Peter Orszag, who has intermittently signaled support for such a plan. The Senate Budget Committee will be holding hearings on this idea in mid-November, according to The New York Times.

The whole approach is bad economics and bad politics on several grounds. First, there is no evidence for the premise that financial markets are anxious about the rising debt. As Dean Baker observes, they keep buying the Treasury's long-term bonds at a low 3.5 percent interest rate. If there were worry that the increased debt would spike inflation, investors would be demanding higher interest rates.

Secondly, it is not "entitlements" that have caused the big increase in the deficit and the debt. The cause is plummeting tax collections as a consequence of the recession. Social Security will be surplus for another generation, and both the House and Senate versions of the health reform bill do not add to the deficit, but help cut costs.

Third, obsessing about debts and deficits when the economy is still losing jobs has it exactly backwards. We probably need bigger deficits for a year or two, to propel a strong recovery. Higher growth will then bring the debt back down to tolerable scale. In World War II, deficits averaged about 25 percent a year (compared to under 10% this year.) But all of that war spending rebuilt the economy and powered three decades of economic boom and the big wartime debt was soon paid off.

Finally, the idea that such a commission could be "above politics" is a deception. The politics--very conservative politics--would be baked into the cake. Republicans on it would resist higher taxes except perhaps for regressive ones such a national sales tax or value added tax. The skids would be greased for deep cuts in Social Security, Medicare, and Medicaid--even before health reform took effect. This would gut all the promises candidate Barack Obama made for a more just America.

Instead of being Mr. Consensus, and trying to please both sides, President Obama needs to weigh in strongly against the idea of a commission before it gains further traction. The House Democratic leadership, mercifully, thinks the commission is exactly the wrong medicine, and has told the White House so.

I spoke with House Speaker Nancy Pelosi on Friday. She favors a plan to increase spending as necessary in the short run to fight the recession, and then significant deficit-reduction once recovery comes--but not via a commission. "Let's have a public conversation in the people's House and in the Senate. This is a very important debate, and is shouldn't be done behind closed doors," she told me, adding: "My responsibility is to protect Social Security and Medicare. If some of the people at the table are opposed to protecting Social Security and Medicare, I'd have big problems. Congress passed these programs in the 1930s, and the 1960s. Why should we give someone else the power to decide their future?"

Amen.

The press for a debt-reduction commission, promoted by scare-mongers such as the Peter G. Peterson Foundation, is really an attack on social insurance masquerading as principled concern for the public fisc. It wasn't entitlements that caused the crash--it was financial high rollers who pushed for deregulation and then exploited it, such as Peterson and his friends.

If you can believe it, the latest gimmick of the Peterson Foundation is an invitation to compose haiku on the alleged fiscal crisis. I kid you not. Here's what the foundation recently sent its supporters:

Hello,

As one of our most active supporters, you've proven your commitment to the Peter G. Peterson Foundation's work time and time again. We're grateful for all you've done -- and we're excited to offer you a sneak peek of our newest initiative, Fiscal Haiku.

The site doesn't officially launch for a few more days, but we're inviting you to take a look before the rest of the country. Below is a copy of the message we'll be sending out for Fiscal Haiku's formal debut -- please visit www.fiscalhaiku.com and start submitting your odes to the economy!

Thanks,

The Peter G. Peterson Foundation

Okay, Pete. Here is my own entry:

Spreading fiscal fear,
ideology parades
as principle. Shame!

Robert Kuttner author of Obama's Challenge, co-editor of The American Prospect, and a senior fellow at Demos.

 
As unemployment continues to rise, deficit hawks are upping their efforts to use the economic crisis as a pretext for gutting basic social programs such as Social Security and Medicare. The idea keeps...
As unemployment continues to rise, deficit hawks are upping their efforts to use the economic crisis as a pretext for gutting basic social programs such as Social Security and Medicare. The idea keeps...
 
 
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HUFFPOST SUPER USER
roselaw
10:11 PM on 11/02/2009
Yes, the Republicans sure have become "deficit hawks"--a bit late.

They are shocked, shocked that the deficit for the year ending 9/30/09 was $1.4 trillion, and of course, in Amnesiac Nation, its all Obama's fault--except its not--"According to the Congressional Budget Office, the baseline 2009 deficit the Bush administration bequeathed to the the country when it left office was about $1.2 trillion." (see, www.capitalgainsandgames.com/blog/stan-collender/1021/2009-deficit-would-have-been-same-under-bush).

The Repubs are similarly horrified by the national debt, yet like zombies, they marched in lock step to support Bush's extreme trickle down, tax cuts for the rich policies, which collectively added over $5 Trillion to the national debt. In fact, about 80% of the total national debt was run up under just three presidents--Reagan, Bush I and Bush II.

However, given the equally brain-dead national media, what Joe Six-Pack is lead to believe is that the national debt is the work of "tax and spend" Democrats. Its ironic, and terribly destructive, that so many devastated middle class Americans don't have a clue regarding which party's economic policies have lead to their decline--it sure isn't the party pointed to by their good old boys on talk radio.
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07:52 PM on 11/02/2009
Now-now. We musn't upset the rich people.

They might stop trickling down on us.
07:50 PM on 11/02/2009
Sorry, but the public has no appetite for more reckless govt spending. If you want Congress to agree to raise the debt ceiling, then they need to take additional steps to control the deficit.
09:37 PM on 11/02/2009
You're right. Let's not waste any more money on War - the greatest government reckless spending. All right wingers should advocate for controlling that deficit. Good point. The public welcomes deficits when they serve the greater good.
Viper
Former repub, still repenting
01:12 AM on 11/03/2009
When Business is not spending and the public is not spending and there is massive deflation... then the governement has to pick up the slack which is the result of 30 years of repug economics...

If the government does not spend... then in fact the deficits will actually increase even more as tax collections drop due to the drop in economic activity. In otherwords the very act of cutting spending in this case increases the deficits.


Of course we can do the Herbert Hoover solution that the reougs are proposing again... and we know the results...

I suggest a war tax to pay for the cost of the wars... watch how fast the repug Hawks change their tune if they have to pay for their disasters...

Regards
07:48 PM on 11/02/2009
amazing how we paid off ww2 with a top tax rate of 70-90%.
07:52 PM on 11/02/2009
Then maybe the govt should raise the tax rates on top earners, but they need to do something to pay for the spending, or they need to curtail that spending now.
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10:02 PM on 11/02/2009
Back to the tax rates in effect under IKE. Stop the wars. We just can't afford these wars, These military actions are making us less safe and we are killing ours and theirs. We, create new terrorists with each civilian we kill. We should save money by recalling all our service people from everywhere in the world and getting out of Iraq and Afghanistan. We could use the saved money for food for the poor, medical care, education, bridges, high speed rail service. The wars are the reckless government spending.
01:03 PM on 11/03/2009
Indeed. However did our government at the time get away with doing something the rich would clearly not care for?
06:52 PM on 11/02/2009
That's 10% of Federal Spending is for interest in debt not 15%.
06:51 PM on 11/02/2009
Instant deficit and debt reduction.

Income taxes = spending + $100B to pay off $9T Reaganomics debt. No deficit unless unemployment over 6% and then some kind of sliding scale based on economic track record of stimulus needed.

Want to cut Federal Spending by 15%? Payoff $9T Reaganomics debt and end the interest payment on the Reagan/Bush debt which is currently 15% of Federal Budget.

So we slowly pay off Debt and cut Federal
07:13 PM on 11/02/2009
Sounds good to me.
07:32 PM on 11/02/2009
I hear ya, man, Let's get started here.
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OzzieTonto
“Hatred, the only thing that lasts.”
06:04 PM on 11/02/2009
Appearing over a rant by such as T4 shows how the proponents of the Shock Doctrine [see Naomi Klein] have conditioned the economically ignorant over many years. It seems they are still trying to disprove Keynesian economics long after he discovered the remedy to recession, i. e. spending.

There is still a vast right-wing conspiracy in the world, and it's now trying to bleat about debt. In my country the right wing opposition carries on singing to the same songsheet as your tea-baggers. It's no accident: it's not as if these fascists have actual minds of their own. Predictably, in the UK there will be Tories cranking out the same tune.

Fortunately our glorious leader, one Kevin Rudd, a mate of Obama, gives them short shrift as our lucky country does relatively well, and lashes these ideologues. Hopefully when he comes over for the Rolling Stone cover shoot, he'll cruise by Obama and stiffen that supple spine...
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HUFFPOST SUPER USER
T4
Entreprenuer and financial consultant
05:08 PM on 11/02/2009
I was forced to read this guy material in college. THis is Obama driven drivel.. The budget needs to be slashed - not trimmed. THis means pain, serious pain but it is pain thatAmericans have asked through a steady diet of agreeing to take something for nothing, sponsoring endless warsand now falling into the trap of $ trillion stimulus that does noting and $1trillion hea;thcare that will costs nothing. Kuttner like the rest of his ilk are living in fantasy land. Come to California where the dems have destroyed the econ with never ending social/transportation/education programs that can;t be paid for. Now the payments come due and don;t like the sound of the brakes on their fantasies of government run universe.
05:49 PM on 11/02/2009
That's frightening. That you had to read his BS in college, I mean. California, I say, let it be a warning to the rest of he country.
05:52 PM on 11/02/2009
Are you ready to share the pain? Are you ready to slash the military budget to 10% of what it is, and bring us in line with the rest of the world? Are you ready to reform Corporate law, wean our politicians from the Corporate teat, and return our democracy to what the founders envisioned? Can you handle that?

If yes, I welcome you aboard. If not, I say, Go Fish.
07:50 PM on 11/02/2009
Yeah, millitary spending, the elephant in the deficit room.
07:51 PM on 11/02/2009
Yes, it is time for corporate reform and sacrifice on all parties. The govt is going bankrupt - now is not the time for more reckless spending from any politician in DC.
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HST
Conservatism = selfishness
04:59 PM on 11/02/2009
S"ocial Security will be surplus for another generation,"

Contrary to the rantings and ravings of the 18%ers AKA tea-baggers, birthers or conservative idiots who all claim social security will be bankrupt or gone in 10 years. But of course these people don't like dealing with actual facts -see the dumb posters who say, "nevermind what the CBO says, healthcare is going to raise the deficit, I know it cause Faux news told me so". They don't provide any proof mind you, they just keep spewing those talking points.
05:36 PM on 11/02/2009
Once, Republicans represented an ideological alternative. But that was in 1955. Ike was in.

Ah, the good old days, when we all smoked, and drank Coca Cola, and Dick Clark was the rage, and we built fallout shelters in our back yards. Hold on -- I'm gonna cry.
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HUFFPOST COMMUNITY MODERATOR
oldngrumpy
My micro-bio is no longer empty
07:36 PM on 11/02/2009
America made stuff and sold it to Americans. They made good money for doing so and business was almost guaranteed to succeed. The top marginal tax rate was above 75% somewhere, there were no off shore shelters and the tax code was less than half as many pages as it is now.

We have a successful model for our economy if we just kicked corporate greed to the curb and ran our country for the people again. We can get there, but first we must abandon the false logic of the Reich wing.

What is America going to look like when the people needing employment outnumber the jobs for a long period of time? When will the people realize that America belongs to them, not the global capitalists, and begin demanding their share of the resources? We can't survive in a jobs based economy without jobs, but America is still a wealthy country. Before I starve to death there will be a host of elitists going before me. In desperation the side with the numbers will prevail.
05:57 PM on 11/02/2009
If you take your pay check, deposit it in the bank, then take the money out and write on it "IOU payable in 30 years", and then spend it, please don't try and tell me you have a good retirement plan. Social Securitity is a Ponzi scheme by definition, it pays prior investors with current investors payments. There is no "surplus" other than US Treasury bonds, which is just one branch of the government spending another branches current tax income.
No, Social Security will not be gone, it will just be different. They will means test recipients or they will raise the retirement age or they will increase taxes on our kids to pay us. It will become, like almost all the current government programs, a way to transfer income from one group of people (those who make money) to another group of people (those who have paid for a politician).
But please, never mind the facts.
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HST
Conservatism = selfishness
07:02 PM on 11/02/2009
"But please, never mind the facts."

Speaking of facts, your post seemed to lack them, but very nice fantasy of what you think (and I use that term lightly) will happen with Social Security.

Thanks for proving my point!
01:18 PM on 11/03/2009
MrMaus - actually, you're wrong pretty much right out of the gate.

Ponzi schemes bill themselves as investment plans which make money, but have no means to make money. Social Security is not an investment. It's a social program, which is different. In the case of Social Security, it exists to try to keep the elderly out of poverty, among other things.

The rest of your post is basically groundless rambling, so there's not much to comment on.
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humanbeing-rick
Born in the USA 1947
04:47 PM on 11/02/2009
A very shrewd assesment, Mr. Kuttner, and right on target I am afraid to say.
The neo-conservative movement is committed to dismantling the social safety nets that they call "entitlement programs". They have the corporate executives supporting them and driving them behind the scenes. They want full fledged corporatism and globally "free" markets.
IT figures that they would have such a plan as this up their sleeves.
We must watch out for it, as he advises us.
05:02 PM on 11/02/2009
Yeah! Screw the Constitution!
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HUFFPOST COMMUNITY MODERATOR
oldngrumpy
My micro-bio is no longer empty
05:19 PM on 11/02/2009
You'd burn it before freezing to death this winter. So yeah, if necessary, screw the constitution, as in rewrite it to mean something to this century.
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HUFFPOST COMMUNITY MODERATOR
ncmom54
04:44 PM on 11/02/2009
Oh hell no! after what they allowed Bush to do to the economy?... they've had ample opportunity to 'speak up' about deficit reduction.
Now is definitely NOT the time to act like they all of a sudden give a damn about the country's fiscal health.
03:19 PM on 11/02/2009
Why not just repeal Bush's tax cuts for the wealthy? The top rate returning to 39% from 35% isn't going to impact most people.
05:05 PM on 11/02/2009
How sheepish we've become to believe that giving up over 1/3rd of your income to a single government entity for a single tax, one of many entities and many taxes, is just no big deal. These taxes always *start* at around 1 or 2% and people say "well, how bad could that be?". Oh, about 20 or 30 times as bad. Or worse. Drip, drip, drip goes our economic and personal freedom.
05:45 PM on 11/02/2009
In a strange, left-handed way, I agree with you. Before I raised taxes on the individual, any individual, I would first arrange for the Corporation to pay their fair share. If that were done, you never know, the rest of us might not need to pay any taxes at all.
01:33 PM on 11/03/2009
Being in the top tax bracket doesn't mean you pay the top rate on all your income.

That's not at all how US income taxes work. You can start to educate yourself here on Wikipedia: http://en.wikipedia.org/wiki/Progressive_tax#Increasing_percentage_rates

Secondly, well, after you have a certain amount of wealth, you stop needing wealth. As income increases, consumption by percentage of income decreases. Eventually, you stop finding new and expensive toys to buy. (Citation: New York Times - http://www.nytimes.com/2008/02/10/opinion/10cox.html)

So when you drop taxes on people who make so much money they don't need it, what happens, you ask? They turn around and invest it, growing massively wealthier, generating more money they won't spend so they use it to invest further - each investment giving them more power and influence.

All of this rich-person money does one more thing: It skews the supply-demand relationship for venture capital, to dire consequences: That 'wall-street casino' that you've seen mentioned on the news exists to meet the demands of the untaxed rich.

And thanks to massive holes in our taxation scheme, created by wealthy and powerful rich people, many are indeed untaxed - so despite supposedly paying a third of their income, they pay a lower rate than you.
HUFFPOST SUPER USER
Azsin
i need a wife
05:23 PM on 11/02/2009
no return it to pre in 70's and put it back at 62%
im not sure but i remmeber reading it was that rate since the 1800

and ps the income tax wasstarted in 1861
by ...... president Lincoln
yes a republican
to pay for that war on the traitorist confederates
(like the gop now)
HUFFPOST SUPER USER
legalclubs
06:20 PM on 11/02/2009
The highest tax rate under Lincoln was 3% of your income in excess of $800. I wish I only paid 3% now.
08:28 AM on 11/03/2009
Er... Ulysses S. Grant was a Republican. Robert E. Lee was a Democrat.

But, times do change.
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HUFFPOST SUPER USER
Tom Langley
Successful Beer Guy
03:15 PM on 11/02/2009
Bankers rejoicing.
Debts paid, tax dough safe in hand.
Citizens? Screw you.
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04:51 PM on 11/02/2009
And Gates wants US to feed the poor in Africa.
HUFFPOST SUPER USER
jeanrenoir
02:44 PM on 11/02/2009
Actually, the quickest and most foolproof way to not only abort the recovery, but also hurl America and the world into a deeper Depression than the Thirties, is for Israel to bomb Iran, giving us instant $15 a gallon gas at the pump, and completely unaffordable heating oil, plus an obliterated world stock market that would make us wistfully nostalgic for the Dow 6,000 of last winter.
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HUFFPOST SUPER USER
Kristen777
04:11 PM on 11/02/2009
Thanks. I feel much better now.
HUFFPOST SUPER USER
Azsin
i need a wife
05:26 PM on 11/02/2009
no if that happens the global war!
and we all know that in war the rich contries win so
easy to turn this country into massive war factory
everyone would be working !
06:05 PM on 11/02/2009
Actually not, Azsin. We have no manufacturing capacity left anymore. We sent it to Asia many years ago, to increase Corporate profits.

Instead I think, we would be importing like all hell, until this became impossible. After that we would be screwed.
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HUFFPOST SUPER USER
mheister
Raconteur. Blog michaelheister.com
02:36 PM on 11/02/2009
If the conservatives are truly interested in cutting Federal spending, they could pressure Obama to draw down Iraq more quickly, withdraw from Afghanistan, and institute a foreign base closure commission to assess why the US still needs troops in places like Japan and Germany.
02:40 PM on 11/02/2009
Agreed. There's a boatload of money to be saved there.
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HUFFPOST COMMUNITY MODERATOR
oldngrumpy
My micro-bio is no longer empty
04:48 PM on 11/02/2009
But then Germany would be deprived of the cultural exchange that our Air Force marching band provides. What's a few billion dollars if we can promote terrible music in the world?
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HUFFPOST COMMUNITY MODERATOR
ncmom54
04:32 PM on 11/02/2009
Yea, I like that.