On Wisconsin

Everyone is saying the same thing about the stock market crash yesterday (Thursday, August 4): job creation, not deficit reduction, is what we need right now. So I won’t bother saying again, but will discuss something more important instead: the Wisconsin recall elections in six State Senate districts next Tuesday, August 9.

The recalls grew out of the storm of protest last winter against Republican Governor Scott Walker’s bill to strip state workers’ unions of collective bargaining power. As you probably remember, all the Democratic state senators left the state to prevent the bill from passing, but eventually it did. In the meantime, however,  there were massive protest demonstrations in Madison, in and around the state Capitol, for weeks.

The anger against Walker and the Wisconsin Republican party lead to campaigns to recall Republican state senators. In Wisconsin, you can only recall a political office-holder who has been in office for one year, so recall petitions were filed against all six Republicans who had been in the Senate for longer than that. The Republicans filed petitions against 3 Democratic senators, as well. The first won reelection in July, the other two will be coming up next week. Wisconsin recalls are basically a special election between the incumbent and the nominee of the other party. If 3 of the 6 Republicans are defeated on the 9th, and the 2 Democrats hold onto their seats, the Democrats will take control of the Senate, and be able to block the right-wing legislation that Walker and the Republicans have been pushing through. They won’t be able to repeal anything, but they will also build momentum toward the next election, and toward an anticipated campaign to recall Governor Walker next January.

Why is this so important? First, obviously, it will show that progressive forces can win, and perhaps suggest that the right-wing tide that rose with the Tea Party is now turning. That will not only change things in Wisconsin, but also give progressive politicians everywhere the courage to be more assertive in advancing their policies, rather than sticking to a defensive position.

But beyond that, it is about unions. Unions do far more than improving the lives of their members – although they certainly do that. They are also the most important institutional support for progressive politics. Unions have been declining in strength, and even in legal rights, for the last few decades, a trend that accelerated with the Reagan administration and has not slowed until very recently.

The Obama administration has begun to reverse some of the anti-labor policies of the past, and the Republicans are digging in to resist those reversals. That’s what the recent shutdown of the Federal Aeronautical Administration was all about: the board that regulates air unions had ruled during the Bush administration that unions would have to get a majority of all eligible voters, rather than a majority of those voting, in order to be designated to represent a bargaining unit. In other words, those who didn’t show up to vote would be counted as “no” votes. Obama’s appointees had reversed this decision, and the Republican House has been trying to reinstate it through legislation – and refusing to reauthorize the FAA unless the Senate would agree.

Walker’s bill was part of this general assault on labor rights. It not only took away the power of state workers’ unions to bargain over benefits, it also ended the collection of union dues through payroll deduction; union members now have to pay their dues directly to the union themselves. Obviously, Walker’s hope is that many workers simply won’t pay, depriving the unions of their participation and their money, and weakening them as a result.

The Citizens United case gave corporations the amount to spend unlimited amounts of money to influence elections. Most of this money will be spent to further the cause that is dearest to the hearts of those who own the big corporations: increasing inequality. The rich want to get richer (quite naturally); and the only way that they can do that is to make the rest of us poorer. They’ve been doing pretty well at this, because most of the resources are on their side. Restoring the strength of labor unions can provide a powerful weapon to resist them, and to promote the cause of greater equality.

Political Lessons from the Debt Deal

OK, it’s over (or will be unless the Senate surprises everyone), time to move on — but first, just two quick points about what we can learn from the debt ceiling clash.

1. A lot of people are complaining that the Washington politicians didn’t solve the problem until the last minute. That completely misses the point — it was not possible to solve it until the last minute. Unless you are actually at the deadline, you have no reason to give up the things that are important to you. It is only the reality of impending catastrophe that will get you to do that. We can see the same thing with the federal budget. In the 1960s, the fiscal year started July 1, and Congress never passed the budget on time – so they moved the fiscal year back 3 months, to October 1. Congress still never passes the budget on time, because they need to be right at the deadline in order to compromise.

2. It follows that you win these disputes by being willing to go closer to the deadline than the other side. The Tea Party was willing to kill a deal on Friday; not enough progressives were willing to kill a deal later than that. So the Tea Party got a lot of what they wanted, while progressives got very little.

OK, enough of that (though of course your comments will be welcome). Time to move on to other issues! (Unless, again, the Senate surprises us all!)

My Fantasy Deal

OK, I’m dreaming – but this could really happen.

1. Enough progressive House members vote against the debt deal to defeat it.

2. Wall Street, desperate at all the money they’re going to lose, tell their people in Congress to fix this problem quick.

3. At the last minute, Congress takes up a new bill to raise the debt ceiling without any of the policy riders – no cuts, no new revenue, nothing.

4. All the House Democrats vote for the clean debt ceiling increase, while Boehner (and Wall Street) round up enough Republicans to let it squeak through.

5. In the Senate, the Repulicans don’t have to vote for it, but they have to agree to cloture – see above comment about Wall Street.

If all that happens, we avoid default AND avoid throwing the country back into a deep recession, as the present deal is likely to do. (See Robert Reich’s excellent blog for a full explanation why this is likely.)

As I said, it’s a fantasy. Except for a few courageous individuals like Raul Grijalva, the House progressives won’t have the nerve.

Bad Deal on Debt

Bernie Sanders, the independent socialist senator from Vermont, voted against cloture on the Reid version of a debt ceiling dea. I say good for him! (I don’t like the filibuster, but as long as it exists we can’t leave it to only one side to use). The Reid bill was a bad deal – and the one they apparently agreed to on Sunday afternoon (July 31) is even worse. It makes cuts in important social service programs, reputedly including Medicare, and threatens to cut Social Security in the next round.

As Greg Sargent pointed out today in his Washington Post blog, “The Plum Line,” this deal is a huge victory for the Republicans in general and the Tea Party in particular. Why were they able to win so big? Because they, unlike the progressives, were willing to risk catastrophe in order to get their way. I think it’s time for progressives to respond in kind. 

For the last few days Wall Street bankers have been all over Congress telling them they have to raise the debt ceiling. Congress is going to listen to them — the Republicans in particular. So it’s Wall Street that should have to make some concessions.

Let’s not worry about taxing the rich. That will happen anyway, automatically, in just over a year when the temporary tax cuts expire. Instead, the essential point is no cuts! (Or maybe cuts only from getting out of Afghanistan and Iraq.) There is absolutely no need to include any deficit-reduction measures in a debt-ceiling vote. They are different issues, and should be handled in separate bills. This is nothing but an attempt by the minority party to impose its will on the majority, and it should be resisted.

Rep. Raul Grijalva, chair of the House Progressive Caucus, has vowed to fight the deal and called for the obvious alternative: a “clean” vote on raising the debt ceiling, with no conditions attached. Leave it to Wall Street to get the Republicans in line, rather than trying to buy the latter off with cuts on social services. That’s the way to go.

Why Congress Should Pass an Unconditional Debt-Ceiling Increase

Like most powers of the federal government, the power to borrow money belongs to Congress, but is exercised through delegation to the executive branch. In this case, Congress has delegated this power with an important condition: that no more than a specified amount can be borrowed. This amound is known as the “debt ceiling.”

The problem, of course, is that the federal budget is at least a little bit in deficit every year, and every deficit, no matter how small or large, adds to the total of the national debt — as a result, the debt ceiling is reached from time to time, usually at fairly short intervals. Thus, it is frequently necessary to raise the ceiling to allow more borrowing – in order to make it possible to carry out the activities Congress and the Presdient have already approved. If you want the government to spend less, the way to do it is to cut the budget – not to prohibit borrowing after the budget has been approved.

Almost everyone understands this, so usually the debt ceiling is increased with little controversy. This time, though, two things make it different. First, there are a number of new members of Congress, elected with Tea Party support, who don’t believe that the ceiling should be increased at all, and so will vote against it no matter what. Second, the Republican party, which now controls 1/3 of the policy-making organs of government, wants to use the ceiling as leverage to get its way on important policy issues. The Democrats, who control two of those policy-making organs, are naturally unwilling to give in: hence the standoff.

What to do? I want to make two basic points:

1. The eventual solution has to pass Congress, but it does not have to pass with strong support from the Republican Party. Last December, during the lame-duck session, the budget compromise passed the House with a lot of Republican opposition, but with Democratic support. This is bound to be the way it happens on the debt ceiling vote. Even as I write, Speaker Boehnert is unable to pass his Republican plan with Republican votes – so ultimately he is going to have to rely on a substantial number of Democratic votes.

2. Various compromises are being mooted, but the issues are tricky. Therefore, I’d suggest a simpler compromise: both parties should drop ALL of their policy goals. There should be no spending cuts in this bill, and no tax increases either. Instead, Congress should simply raise (or, better, eliminate!) the debt ceiling, let the government go on functioning, and find another venue for debating their budget preferences. Such a bill could pass in one hour or less, if Speaker Boehner would let it come to a vote.

The consequences of failure are enormous, much greater than a simple government shutdown. The whole banking system relies for its stability on buying and selling federal notes, commonly thought of as the most secure and stable of all possible investments. If the value of those notes is suddenly in question, the resulting chaos may well bring the economy to a complete halt. It is time for Congress and the President to act – and a simple, clean debt-ceiling increase is the easiest, least controversial way to end the crisis.

Is the US Returning to Cold War Standards?

I had just graduated from college when I saw my government invade the Dominican Republic to support a military dictator who had just overturned the democratically elected President, Juan Bosch. As my awareness grew, I realized that we were supporting brutal dictators in Vietnam, much of Latin America, Iran, Saudi Arabia, and in many other countries. We had overthrown democratic governments in Guatemala and Iran, as well as the Dominican Republic, and a few years later were to collaborate in the overthrow and murder of the democratically elected President of Chile, Salvador Allende, and his replacement by the brutal military dictator Pinochet.

At the same time, we supported the continuation of colonial rule, often very brutally, in Angola, Mozambique, what was then Rhodesia, and many smaller countries; and, most shamefully at all, we supported the atrocious system of apartheid in South Africa.

All of this was “justified” in the name of stopping Communism, which supposedly would take over all those countries if we let them become democratic.

Then came the collapse of the Soviet Union, the end of the Cold War, and the outbreak of the “third wave” of democratization – in Eastern Europe, Latin America, and Asia, and to some extent in Africa. With no more fear of Communism, there seemed to be no more need for the US to support dictatorships in other countries.

But what is happening today? The US government is turning a blind eye to brutal depression by the absolute monarch of Bahrain. It supported the coup against President Zelaya in Honduras, even while claiming to oppose it. It is maneuvering to keep the revolutions in Tunisia and Egypt from becoming “too” democratic. More broadly, it seems like the Cold War all over again!

This trend is appalling. Many people had hoped that President Obama would turn us in a different direction, but instead he seems to be opting for more of the same. The explanation given, when any is given at all, tends to be that terrorism is just like Communism – if we allow too much democracy, it is said, the terrorists will take over. This isn’t very credible, though – it’s just hard to envision massive electoral support for terrorists! (I mean, if they had that kind of support they wouldn’t need to resort to terrorism!)

Far more likely, in my opinion, is that support for dictatorship abroad is linked to the attack on democracy at home. The increase in economic inequality basically means that a relatively small number of people control more and more of the world’s resources. They benefit immensely from doing so, but they can only keep it up if they keep people from voting on it. Here in the US, they do so by a variety of disenfranchising devices (massive imprisonment, intimidation campaigns, cumbersome registration processes, gerrymandering, etc.) In countries like Bahrain, they don’t have to be so subtle. They just work through the monarchies of Saudi Arabia, Bahrain, and the like to arrest, torture, and shoot those who demand democracy.

It’s time we got more democracy at home, and used it to support democracy in other countries.

Medicare, the Deficit, and Political Playacting

No doubt you know by now that the Chair of the House Budget Committee, Representative Paul Ryan (R-WI), has proposed to reduce the federal budget deficit by eliminating Medicare for everyone younger than 55. Here is a link to the proposal. The House of Representatives has actually passed this proposal with every Democrat and 4 Republicans voting No. It is going nowhere. The Senate will not pass it, and President Obama singled it out for criticism in his speech on the budget last week. Medicare is extremely popular, and Republicans who voted for it drew criticism in their town meetings during their recent town meetings.

Nevertheless, the Republicans have accomplished one of their goals. They now have everyone thinking that Medicare has something to do with the deficit. It does not! The basic parts of Medicare, covering physicians services and hospitalization, are paid for out of the trust fund with money from the Medicare tax we all pay. That money cannot be used for anything else, only for Medicare. Right now  that fund is in surplus.

Now there is a sense in which you can add up all federal expenditures and federal revenues, including both Medicare and Social Security, and call the result a deficit or a surplus. However, that is just an accounting trick. If those part of the budget that are not either Medicare or Social Security (or a few other, much smaller trust funds, like the one you contribute to if you buy a duck stamp) are in deficit, the government will still have to borrow to pay for them.

So if we want to reduce the deficit, we have to look elsewhere. And there are really only two places to look: stopping all these wars, and ending the Bush tax cuts. Other cuts can be made, but there is not enough money there to have an impact on the deficit.

As I’ve said in other posts, I think a deficit that creates jobs would actually be good right now, but that means the money has to be spent productively. Giving it to the super-rich doesn’t provide any stimulus at all, since they do not increase their consumption, they just invest it to make even more money. So ending the Bush tax cuts for the rich today would not hurt the economy.

There is a problem with Medicare. The trust fund is in surplus now, but it is declining; present estimates are that it will run out in 2029. That gives us some time to find solutions, but there is no need to end the program. Obama’s health care plan, which goes into full effect in less than 3 years, saves some money already. In addition, we can get big savings by allowing the government to negotiate prescription prices. (Everyone knows that prescriptions are cheaper in Canada, but sometimes we forget why: it’s because Canada makes the big drug companies sell at the lowest price that lets them make money, while Congress requires Medicare and Medicaid to pay them their asking price. Go figure!) We also need to reduce health-care profiteering radically. There’s a good reason why more and more non-profit hospitals are being taken over by profit-making corporations: there is a lot of money to be made.

There are many other ideas out there, and they are all worth considering. My point is not that I have the answer, just that we can solve the Medicare cost problem without ending the program. And let’s be clear about that. Ryan’s proposal does end Medicare. He claims he is trying to save it, but he’s not. He wants to end it and replace with something completely different – instead of paying your medical bills, with the usual deductibles and copayments, the new “Medicare” would give you a coupon for a fixed amount, good for the purchase of health insurance. If health insurance costs more than your coupon, you have to pay the rest yourself.

Moreover, the value of each year’s coupon increases at a set rate that is less than the annual increase in the cost of the insurance – so every year either you have to pay more yourself, or you have to switch to a plan with poorer coverage. That’s noe Medicare.

Even though people are rejecting Ryan’s plan, if we end up believing that Medicare is a big part of the deficit, we will think it has to be cut. That’s the sneaky victory that Ryan is putting across on the public.

5 Things to Understand about the Budget Debate

This will be a quickie – I’m trying to get a book chapter written before leaving for spring break, but you faithful readers need something to tide you over. This will be it until mid-March.

As you follow the debate about the budget – federal, but the states are involved, too – just remember these five things:

1. It’s not about the deficit! Obama’s budget proposal has a deficit of over one trillion dollars. Let’s write it out, $1,000,000,000,000 – wow! Huge! No wonder the House Republicans are upset! So they are fighting hard for $60 billion in cuts, which would leave a deficit of only about one trillion dollars. Hmm . . .

2. It’s not about the deficit! Those most rabid about budget cutting now voted enthusiastically in December for a tax cut package of over $900 billion. (Well, not quite — the most rabid are GOP freshmen, who didn’t get to vote in December because they were not in office yet. Still, the Republican leadership was there, and voted for the tax cuts.) That $900 billion is spread over several years, so defeating the tax cut would not have wiped out the trillion-dollar deficit, but it would have mad a nice dent in it.

3. It’s not about the deficit! We’re fighting wars in Afghanistan (where helicopters just killed 9 boys gathering firewood) and (though our government pretends it’s over) in Iraq. As recent protests in Tunisia, Egypt, Bahrain, Yemen, Libya, Oman, Iran, Morocco, Algeria, Iraq (yes, now that we’ve installed “democracy” there, pro-democracy protests have sprung up, and our “democratic” government is killing them!), and elsewhere have shown, foreign invasion is not the way to democratize a country. I hope they don’t do it in Libya. In any case, really ending these wars is absolutely necessary if we want to get rid of the deficit – yet very few of the deficit hawks are proposing that.

4. It’s not about the deficit! Social security does not contribute to the deficit, yet the majority of the deficit commission wants to cut it, and the Republicans are taking up the cry. (However, keep in mind that the deficit commission never agreed on a report, since there were not enough votes to approve one – so Boehner’s criticism that Obama didn’t follow his own deficit commission is bogus.) Social security does need some adjustment to keep it strong past the middle of the century (how about making the rich pay the tax on their whole income?), but it’s a separate fund. Unless the government diverts social security taxes to pay for other things, cutting social security benefits won’t do anything for the deficit.

5. It’s not about the deficit! Health care costs do contribute to the deficit, yet the deficit-conscious House of Representatives just voted to repeal the national health care law. The law has many flaws, and does not do nearly enough to control health care costs – but it does make a step, and repealing it would increase the deficit.

Conclusion: It’s not about the deficit! The budget cuts the Republicans in Congress are proposing are all based on undermining the ability of government to increase the quality of life for everybody. They will make it harder for anyone but the rich to get an education, eliminate jobs for working people, and make it almost impossible for regulatory agencies to enforce protective laws that are on the books. This is not deficit reduction, it’s class war, another attempt by the upper class to assure that the their profits, dividends, and bonuses are paid for by the rest of us. In Wisconsin, Governor Scott Walker, backed by Republican majorities in the state legislature, is holding the state hostage until his budget bill passes, even though the unions he is trying to destroy have already agreed to all the economic concessions he proposed. The only issue at stake there is the destruction of the unions, part of the destruction of the power of the working class to defend itself. That’s what’s the federal budget battle is about, as well. We should forget about the deficit and pass a budget that creates jobs, lowers the cost of education, protects the environment, and moves us toward a better health care system.

Where Adam Smith Was Wrong

Government is under attack these days, especially here in the USA. It seems clear to me that we need strong government action to create jobs, but the Tea Party proclaims that government is too big now, and that what we need to do is leave everything to the efficiency of the market.

I have argued earlier that this anti-government view is just bad policy, so I won’t repeat that here. Today I want to reflect on the philosophy of the matter, which brings me to Adam Smith and his two great books, The Theory of Moral Sentiments and The Wealth of Nations. Smith pointed that in an ideal market transaction, both sides are made better off by the result. That’s a tautology – without coercion, you wouldn’t enter into a transaction unless it would make you better off in some way. Thus, in a society where everything is done by ideal market transactions, everyone should become better off continually, day by day, with the sole (but important) exception of market failure. The latter occurs when you want to make an exchange, but can’t find anyone willing to make that exchange with you.

So if the market makes everyone better off, it follows that government intervention makes someone worse off, right? This, too, is a tautology. The essence of government is force, and you wouldn’t need force (except for basic security functions, i.e. preventing theft) unless someone did not want to do what is required.

That’s the argument, in a nutshell. Milton Friedman went on at much greater length, but really made only one additional point – that the market is more intelligent than any planners could be – which is demonstrably and obviously wrong (think: bubbles).

The problem is, Smith’s argument (like any argument) is derived from some assumptions, several of which are incorrect: the assumption of uncoerced exchange, the assumption of basic morality, and the assumption of the commensurability of values. Each of these is fundamentally wrong; let me explain!

Coerced exchanges. The essence of capitalism is not the market, but the wage relationship. The capitalist is different from the feudal lord or the slaveowner because he or she (or more likely it, since the capitalist is likely to be a corporation) buys labor for a wage rather than exchanging it for the right to use land or compelling it by brute force. But why would anyone be willing to sell his or her labor to a capitalist? That may seem like a silly question today, when the need for jobs is a given. However, you only need a job because you cannot support yourself by your own independent efforts – and you probably can’t, for the simple reason that you do not have access to the things you need: tools, materials, machines, a distribution network for the things you make – unless you become the employee of a capitalist. Capitalism was only able to get going because a lot of people who had lived on the land were driven off it by the enclosure movement. Once they had no other way to support themselves, they became available as full-time wage laborers.

You can probably see where this is going. If you have no other way to live you have to get a job, whether you think the wages are enough or not. Workers can try to force up the wage level through collective bargaining – but if they are in the job market as individuals, it is not a free exchange; one side, the employer, can dictate the terms.

Failure of moral limits.  Adam Smith thought that abuses of the market would be prevented by the basic humanity of morality. Of course he was right to think that people are moral beings, and the vast majority of us try to do what is right, at least as we see it. Unfortunately, however, “the vast majority” is not enough. Immorality gives a competitive advantage, so the people whose behavior is not limited by moral principles – in other words, those willing to lie, cheat, and steal – tend to rise to the top. One very important reason we need government is to keep immorality from prevailing.

Money can’t buy happiness. Finally, it’s simply not true that values are commensurable (i.e., that they can be measured by a common unit, which we call “money.”) In practice, there is very solid evidence that more money does not lead to more happiness – after a certain point (basically, enough money to maintain a modicum of comfort) there is simply no relationship between wealth and happiness. (See Gross National Happiness by Arthur C. Brooks.) Contemporary society, driven by the imperative of increasing wealth, is producing higher levels of stress, despair, and depression. It seems safe to assume that no one chooses despair or depression (and few choose stress), we must conclude that people are not achieving Pareto optimality. Instead, they are entering into transacions that make them worse off.

None of this is an argument that any particular government intervention in the market would be a good idea. But it does mean that we should never simply assume that markets are good, and government is bad. After that, we need to look at the details.

The Real Threat Behind Obama’s Tax-cut Giveaway

As you have heard, the tax-cut compromise was enacted last night, and will become law as soon as President Obama signs it. I’d been on the radio all over the country explaining why it’s bad, but I guess Congress didn’t listen to me!

     I just want to make two points today, so I’ll keep this short. First, the House Democrats were really disappointing. Everyone expected them to add an amendment to increase the estate tax on estates over $3.5 million, giving them some chance to negotiate a better deal from the Senate. They were supposed to have the votes for that, but they didn’t do it.

      By the way, I keep hearing conservatives call it the “death tax,” as if that’s supposed to be bad. Why? In the UK, “death duties” were introduced by the Labour government of the 1940s, specifically to break up the hold of the old aristocracy on the countryside. It was wildly popular under that name! Maybe we should be more straightforward here.

     But on to my second point. Today’s Washington Post reports that:

Key lawmakers in both parties have embraced a deficit-reduction plan produced by Obama’s fiscal commission, which includes a tax overhaul that would lower rates across the board but raise additional revenue by closing dozens of long-standing loopholes, such as the mortgage-interest deduction claimed by many homeowners. Meanwhile, the relative ease with which Obama and the GOP were able to strike a deal over the Bush cuts has raised hopes on both sides for productive talks in the future.

     In other words, now that they’ve warmed up by preserving the Bush tax cuts and undermining Social Security with the “payroll tax holiday,” Obama, the Republicans, and the Democratic leaders in Congress are going to go on to pursue the wholesale attack on Social Security called for by the deficit-reduction commission. That may be the worst part of the whole deal.

     What do you think? And what do you think those opposed to the deal should do now?