What The Budget Debate Should Be

In a rational world, there should be no discussion of the deficit as policy. Team D and Team R would present their competing visions for what the government should spend money on, and where that money should come from. People should understand that modest deficits are never a problem, and that large deficits in recessions are predictable (drop in revenue) and often desired (stabilizers to prevent state budget cuts). We should not be discussing whether we must cut granny's pension to cut the deficit, we should be discussing how big we think granny's pension should be and how we should be funding that pension. Ideally, we'd have one party that thinks we should spend a bit more on things like social safety nets, and do so with more progressive taxation, and one party which thinks we should spend a bit less, and with more regressive taxation, and the voters would have a reasonably clear choice.

But instead we're having a debate about just how much we should be cutting the deficit now and in 20 years, even though the former is a stupid idea and the latter we have no control over.

 

The Economics of Inequality

Anyone who tries to bring up the topic of income inequality in this country will be immediately caught in the crossfire between liberals and conservatives. 

Liberals want to make it a moral issue, about how unfair it is that some people make so much while others suffer. Conservatives on the other hand resort to Cold War-era talk about Marxism and redistribution of wealth.

The reality is that income inequality isn't a right-left problem, but a supply-and-demand problem. It cuts across political divisions, and until we dispense with the ideological battles, it will continue to hamper the American economy. 

First, let's distinguish income inequality from wealth inequality. There is a close correlation between these two, but we are dealing with income inequality here because of its ongoing effect on the economy. How much wealth someone has accumulated in the past isn't as much of an issue.

To understand the problem, we need to go back in time a few decades. The peak of income inequality in the 20th century happened in 1928, when the top one percent of Americans accounted for more than 23 percent of the income earned nationwide. Most people know what happened a year later: The stock market crashed, leading to the Great Depression. 

Fast forward to 2007, and the top one percent were again earning more than 23 percent of all income. Guess what happened in 2008? 

It's not a coincidence that major economic downturns followed peaks in income inequality. It's very simple economics. The top one percent of income earners — those pulling down more than $500,000 a year — don't spend nearly as much of their money as everyone else. They tend to save and invest a large portion of their income, while those in the bottom 50 percent spend nearly every dollar they earn.

Saving and investing is not a bad thing in and of itself. But in this case, with so much of America's income going to those at the very top, it puts a serious dent in consumer spending. We are a consumer economy, and a drop of just a few percentage points causes major problems. Just for comparison, the top one percent in 1982 earned only 12 percent of the income. That almost doubles by 2007, and if you estimate that a significant part of that increase went to investment and savings, you can see the effect.

So, when the top one percent's share of income rises, consumer spending falls, and the economy tanks. 

The Great Depression solved the inequality problem of 1928, as banks and big businesses suffered along with the rest. But in 2008, policymakers seeking to avoid another Great Depression took action to keep the economy from imploding, bailing out banks and auto companies, and pouring money into the economy via the Federal Reserve. 

While this did halt the economic tailspin, it also maintained the same basic inequality. The continuing unemployment problem — of which the top one percent are almost entirely unaffected — threatens to make this inequality much worse as the effects of The Great Recession drags on.

For the past two years, Washington has tried mightily to restart the economy. But their attempts have not been enough to get us back to where we were. That will be tough considering the amount of money not being spent by the top one percent. The situation is made even worse by the big cutback in spending among U.S. corporations, who are raking in record profits and sitting on the cash. 

Income inequality in this country was kept more or less in check until the 1980s, when it began to climb once again. While there are many factors for this change, the biggest ones can be tied to tax cuts and infrastructure spending. Starting in 1981, tax cuts aimed at the upper income levels left more money in the pockets of the top one percent, which grew and grew. The tax cuts of 2001 and 2003 accelerated this growth, leading to the meltdown of 2008. 

At the same time, the federal and state governments began to defer maintenance on roads, bridges, and other important parts of our national infrastructure, leading to a $2.2 trillion infrastructure deficit. Infrastructure spending creates jobs as well as providing opportunities for middle-class businesses. 

Accompanying the tax cuts were huge budget deficits. With so much red ink, the momentum in government right now is to cut spending. But these spending cuts, combined with the continuing tax cuts for the very rich, make the inequality problem much worse. The more inequality in income, the less consumer spending, and the economy suffers.
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The most obvious way to fix this problem is increasing taxes on the wealthy, to reduce this inequality. and using the money to invest in infrastructure like education, transportation and technology. 

Conservatives will scream that this is a redistribution of wealth, and it is in a way. You aren't giving handouts to the poor, but it is taking money from the rich. Simply transferring wealth from one group to another doesn't solve the problem, no matter how much liberals might think it does. 

As ideologically unacceptable as this might be to some, consider the consequences. Continuing on this path of inequality threatens the stability of the nation, and the well-being of nearly everyone in it. 

As more wealth flows to the top, it destroys the middle class that is responsible for creating the society we find so pleasurable to live. With limited spending on infrastructure, our transportation and utility systems crumble. If we regress into a Third-World-style country where the top one percent own almost everything and the bottom 90 percent fight for the scraps, then even conservatives may embrace some form of income redistribution. 

The top one percent have tremendous political power. It is their dollars that create policy in Washington. They are fighting hard to lower their taxes even more, and cut spending on programs that help the bottom 90 percent in the name of fiscal responsibility. These are also the people who profit by sending American jobs overseas, and battle against labor unions, one of the few tools the bottom 90 percent have to shift the balance of income. 

The result is our national infrastructure crumbles, and the ladders of economic opportunity that used to lead to the top are disappearing. Nations that get too far out of balance end up like France in 1789, or Cuba in 1959, or Egypt in 2011. 

A healthy economy is a balanced economy. We have to restore the balance to the American economy if we are to ever again enjoy the standard of living we used to have. Failure to do so will have dire consequences. 

Political mythbusting #2: Health reform increase deficit, kills jobs

No, not really. Not by a long shot. The new GOP majority in the House is all ginned up to repeal Obamacare, but they can't actually tell the truth about it. Because if they did, they would have to admit that repeal will add $230 billion to the deficit, and wipe out 250,000 to 400,000 jobs annually over the next decade

Political mythbusting #1: Public sector employees overpaid

This is a hot-button issue here in Carson City, the belief that government employees are overpaid and have lavish benefits. But beliefs aren't always factual (cue the Birthers). Here is a study that puts the numbers in perspective. High school graduates due earn 6 percent more total compensation working for state and local governments than they do in the private sector. But those people with college degrees fair far worse, 25 percent less than working on the private sector. And as I was reminded by a former state employee the other day, their retirement plan may look generous until you factor in that they don't get Social Security that all private sector workers get. 

Time to get the hell out of Afghanistan

In case anyone has any doubts about the wisdom of keeping troops in Afghanistan to defend the government of President Hamid Karzai, then you should read about one of his latest conversations with top American officials in that country. Meeting with Gen. David Petraeus and U.S. Ambassador Karl W. Eikenberry, Karzai was less than gracious for the hundreds of billions of American dollars and thousands of American lives that have been lost in this war:

He told them that he now has three "main enemies" - the Taliban, the United States and the international community.
 
"If I had to choose sides today, I'd choose the Taliban," he fumed.

This isn't the first time Karzai has spoken this way. 

Why do we continue to support this clown? Did we learn nothing about supporting corrupt dictators from our experience in Vietnam? If Karzai wants to side with the Taliban, then let him, and bring our people home. There are a lot more urgent problems that money could be spent on here in the U.S., not to mention ending the killing and wounding of our soldiers. We snatched defeat from the jaws of victory starting in 2002 when forces were pulled out to focus on Iraq, leaving the Taliban room to regroup. With no national leadership, there is little if any chance of our forces achieving anything close to victory. 

Now the Afghan president we have supported and protected for all this time wants to join up with the same people who have been killing our people for all this time? I'm surprised Gen. Petraeus didn't tell Karzai to go Cheney himself and walk out. 

Bring our people home, now. 

The Corporate Tax Lie

Back in the spring of 2009, I covered a speech by John Ensign, where the scandal-plagued senator lauded the economic policies of Ireland, and the "Celtic Tiger's" low corporate tax rates, as an example for America to follow. 

My publisher at the time was none too pleased when I fact-checked Ensign's comment, and wrote it this way:

"Ensign also called for lowering corporate tax rates, citing the success of Ireland as an example, though that country is now struggling with its worst economic downturn on record, according to its government."

Yes, Ensign must have been too busy with his sex scandal to keep his examples up to date. But then, just a few months later, Rep. Dean Heller also cited Ireland's low corporate tax rate as a good policy to follow, as if this would cure America's ills all by itself. 

Fast forward to today, where Ireland is on the verge of economic collapse, and may have to get bailed out by the European Union. Its economic plight is so bad, it has become the butt of jokes

So this is what Ensign and Heller think we should do? 

All of this corporate tax cutting nonsense is based on a lie, that the U.S. taxes corporations more than any other country. They point out that the corporate tax rate is the second highest in the world, without acknowledging there is a huge difference between tax rates and what is actually paid. 

First off, two-thirds of all American corporations pay no corporate taxes, including some very large and profitable firms like ExxonMobile, which made $45 billion in profits in 2009 but paid no taxes. Second, the amount of taxes collected from corporations has dropped in half over the last half century, while corporate profits have skyrocketed. 

And third, we can look at countries with low corporate tax rates like Ireland and see that it may cause more economic harm than good, feeding the kind of bubble economics that cause these meltdowns. 

I wonder if Ensign and Heller are still using that Ireland example in their speeches. 

The myth of Obama's 'overreaching'

In the wake of the 2010 elections, Republicans and their conservative allies are forwarding the narrative that their success is due to "overreach" by President Barack Obama, that he and the Democrats tried to move the country too far to the left. 

It's an entertaining take on the events of this election season. Unfortunately, it's not true. When you get beyond the rhetoric and look at actual, verifiable facts, it shows that the opposite is true, that President Obama under-reached, over-promised and under-delivered. 

Conservatives point to the unpopularity of health care reform as Exhibit A in their argument for overreach. And certainly, if you look just look at favorable/unfavorable poll numbers, that's what you see. But if you dig deeper, you have multiple polls showing that a majority of Americans are either happy with the changes, or unhappy because they wanted to see them go further. Specifically, Obama caved on his promise of the "Public Option," and didn't even consider another popular approach, a Medicare-style single-payer system. This certainly drove down voter turnout from his 2008 supporters who were pushing for more change, and turned off by the inside dealing and political carnage of the health care debate. 

Another source of this overreaching narrative is the Stimulus bill. Republicans have turned the word Stimulus into a slur, and are battering Democrats with charges that it didn't create any jobs. But the events of the last 18 months have proven true the assertions made at the time by liberal economists like Paul Krugman that the stimulus needed to be much, much larger to really get the economy moving. While the Stimulus bill did help create about two million jobs, that's not enough to drop the unemployment numbers down to a level that voters would be happy with. 

If the Stimulus had created, say, five million jobs and the unemployment rate was under 8 percent and dropping, voters wouldn't have cared if it cost double what Obama asked for. Success matters.

Another buzzword that conservatives like to use to bash this administration is "Bailouts." And on this point, they may have a case that this was overreaching. However, their target as to the cause is misplaced. When you talk bailouts, the big item here is the Troubled Assets Relief Program, or TARP. But what few Americans realize is that this bill was passed under George W. Bush, not Obama, and was created by Bush's economic team, and had many Republican supporters. Some of those same Republicans are more than happy to propagate this falsehood. 

Then let's look at all those other items Obama promised in 2008 that drew people to the polls. Don't Ask Don't Tell is still in place. Gitmo is still open. There's no new energy policy, no "Green Jobs" revolution, no movement on climate change legislation, no immigration reform, not much progress on education. Each of these items have groups of supporters who didn't vote this year in the numbers they did in 2008. 

Certainly President Obama deserves a share of the blame for his midterm election loses, because he chose not to follow the bold policies he campaigned on, and instead either watered them down or ignored them. One thing he is clearly not guilty of is overreaching. 

 

Economic Aftershock

Here is a good video from Robert Reich, though I'm not sure I'm as optimistic that people will begin to put aside ideology and make the necessary changes:

Is Harry Reid trying to become Minority Leader?

The news out this morning that Democrats in Congress aren't going to push a vote on extending tax cuts for the middle class has me sputtering in disbelief. The utter stupidity of this move is simply mind boggling. Now I really have to wonder if there is something in the water on Capitol Hill, or if someone is paying these top Democrats to take a fall.

Extending tax cuts for 98 percent of taxpayers with an election coming up in just over a month is such dead-simple politics that the worst middle school student government candidate gets it. But a big enough number of "Blue Dogs" are somehow scared that they'll be painted as, what, in favor of middle class tax cuts, and be attacked for that? Saying these Blue Dogs are as stupid as dogs would be an insult to dogs.

And my senator, Harry Reid, WTF? Did you take too many punches to the head in your boxing days? You are in a tight reelection race with a certified fruitcake who shouldn't be polling above 30 percent, and you punt on a sure-win issue like this?

I refuse to believe these people are this politically stupid. Not only do these tax cut extensions — leaving out the top 2 percent — have wide public approval, but they put the Republicans in an extremely tough spot where they might vote against them. The campaign commercials write themselves. "Candidate X voted against giving you a tax cut!" It's this kind of action that would go a long way in taking the steam out of the Tea Party crazies.

But instead, the Democrats seem determined to hand their opponents a club with which to get beat with. Now, the GOP can run ads saying, look, the Democrats won't extend the cuts because they are planning to raise your taxes by $3.9 trillion to pay for God-knows-what kind of socialistic government programs.

WTF are these people thinking?

There are some folks like Josh Marshall who talk about the "bitchslap theory of politics," where the Democrats are acting like abused spouses, walking on eggshells around their Republican opponents trying to keep from getting attacked again.

On the other hand, you have the folks who note that many of these Dems consider those $250,000-and-up crowd an important part of their base, and certainly a big source of campaign funds.

Or maybe it's that — despite all the partisan acrimony — what we really have are two wings of the same political party, both controlled and funded by basically the same people. After all, it was crystal clear that Sen. Max Baucus was sandbagging on the health care bill, and Sen. Chris Dodd was doing Wall Street a favor in trying to block Elizabeth Warren's appointment to head the Consumer Financial Protection Bureau. Those are just two examples of how Dems have worked to water down any real change.

But not putting the tax cuts to a vote before the election is just completely stupid. If you can't figure out the politics involved with this, you don't deserve to be in Congress.

Obama's 60-day challenge

Dear Mr. President,

There is a meme being circulated by your opponents that the problems plaguing this country are due to the "liberal overreach" of your policies. It may be a false meme, but it is fast becoming conventional wisdom. In 60 days, it will be set in stone.

And I hate to say it, but it's your fault.

During your campaign, you electrified the country, showing them a progressive vision for the future that a wide majority of people could believe in. You tirelessly promoted that vision, fighting back the attacks and smears, and you won.

Since then, things have gone downhill in terms of the public's perception of that vision. You seem to think that your job is sitting in a room with a bunch of smart people, coming up with policies for this nation. You are wrong. Your job is to sell those policies, to advance the vision, and communicate with the American people.

You are the president of the United States. You have the biggest megaphone in the country, yet you appear voiceless as your detractors denigrate you and your policies. When you look at polls that show larger and larger portions of the American public believe provable falsehoods, that means you are failing at your job.

When you actually compare your policies with those of the Republicans attacking you, your policies are overwhelmingly more popular. On the merits, you win. But you have let your opponents hijack the narrative, and they are busy trying to blame the problems caused by their past policies on you.

And it's not just those on the right that are the problem. Your core supporters are becoming wary of your leadership, because you seem not to fight very hard for the positions you campaigned on. You managed to get a health care reform bill passed, congrats. But a majority of people think it didn't go far enough. Perhaps you are correct that you couldn't have passed a better bill with the Congress that you have. But it appears to everyone that you didn't fight for a better bill, particularly the public option. The same thing happened with the stimulus, which you seem to now acknowledge was too small to turn this country around. But you didn't fight for better bills, so you have to own them, along with their flaws.

Then there's immigration reform, DADT, climate change, all have majority support, but you seem to not even fight for them. We need another jobs bill, but you don't seem interested.

Have you given up?

You have 60 days to turn this around. If you don't, you will have squandered the best opportunity in 70 years to point this country in a new direction. Essentially, your agenda and your presidency may come to an end in 60 days.

You have the power to do this. We know, because we have seen this before. Perhaps you despise the politicking that comes with your job. But that IS your job, first and foremost. We know you can do this, and do it well.

The next 60 days will tell us all a lot about who you are. Are you going to fight for the vision you sold us, or are you part of the Washington problem you said you wanted to solve?

It may be too late to turn the tables for the upcoming election. But if you don't at least try, then we'll know that what we saw out on the campaign trail in 2008 was not real.

Sixty days. Time is ticking. What are you going to do?