Jonathan Chait's Blog, page 152

The Establishment's Strange Debt Fetish

Despite my enthusiasm for the latest debt commission plan, I should say that I continue to be puzzled by the Washington establishment's belief that the deficit constitutes the gravest crisis to the Republic. Check our Fareed Zakaria's latest column:

The fate of the U.S. is going to be decided over the next year. O.K., I know that's overly dramatic, but here's why I say it. The deficit-reduction commission co-chaired by Erskine Bowles and Alan Simpson has put the long-term fiscal health of the country front and center on the national stage. If we're lucky, we'll have a serious debate about it. We could decide that we are willing to undertake real reforms and fix the problem. Or we could once again kick the can down the road. If we do the latter, things get worse, the political deadlock hardens, and costs rise. Historians may well look back and say this was the point at which the U.S. began its long and seemingly irreversible decline.

The problem we need to fix is simple. Americans have an appetite for government benefits that greatly exceeds their appetite for taxes. For more than a generation, we have squared this dishonest circle by borrowing vast amounts of money. As more people age, this gap between what we want the government to provide and what we are willing to pay for is going to widen to an unsustainable level. Over the next 75 years, benefits under entitlement programs will exceed government revenue by $40 trillion. The federal budget deficit, if unattended, will reach 24% of GDP in 2040.

In the first paragraph, Zakaria asserts that the fate of the U.S. will be decided within a year. In the next paragraph, he warns that without proper action, we will experience catastrophe in ... 2040. Dos that sound like the kind of problem we really have to tackle in the next year or never?

I do think the long-term deficit is a serious issue that I'd like to see addressed. I don't understand the idea that this is an especially good political time to solve it. While many Democrats oppose any revisions to entitlement programs, the entire Republican party is in the grips of anti-tax dogma so powerful that not a single Republican in Congress has defied it for twenty years. Now, a moment of high Republican hubris, seems like a very unlikely moment to force the party to compromise its core policy commitment.

What's truly bizarre is this idea that it's the most urgent issue to address. Climate change seems clearly more urgent -- and, what's more, it's probably irreversible. The economic crisis is also more urgent. But Washington elites are fairly removed from the cataclysmic effects of the economic crisis -- they're not losing their homes or living in economic terror. And climate change is a "partisan" issue, unworthy of the urgings of a non-partisan wise man. And so, by dint of the peculiar isolation and sociological demands of the members of the political and media establishments, the deficit must become the top priority.

Business May Be Ungrateful, But It's Not Stupid

Timothy Egan writes that President Obama saved capitalism, lost the midterm elections, and corporate American is ungrateful for it:

The banking system was resuscitated by $700 billion in bailouts started by Bush (a fact unknown by a majority of Americans), and finished by Obama, with help from the Federal Reserve. It worked. The government is expected to break even on a risky bet to stabilize the global free market system. Had Obama followed the populist instincts of many in his party, the underpinnings of big capitalism could have collapsed. He did this without nationalizing banks, as other Democrats had urged.





Saving the American auto industry, which has been a huge drag on Obama’s political capital, is a monumental achievement that few appreciate, unless you live in Michigan. After getting their taxpayer lifeline from Obama, both General Motors and Chrysler are now making money by making cars. New plants are even scheduled to open. More than 1 million jobs would have disappeared had the domestic auto sector been liquidated. ...

Of course, the big money interests who benefited from Obama’s initiatives have shown no appreciation. Obama, as a senator, voted against the initial bailout of AIG, the reckless insurance giant. As president, he extended them treasury loans at a time when economists said he must — or risk further meltdown. Their response was to give themselves $165 million in executive bonuses, and funnel money to Republicans this year.

I think he's basically right about this. Obama's policies have been extremely good for owners of capital. His problem is that nobody else is benefiting, and "nobody else" accounts for the vast majority of the electorate.

Where I disagree with Egan is the implication that business has erred in opposing Obama. It would be true if their opposition was having the effect of threatening TARP or Obama's other stabilization policies. The Republicans may be riding a backlash to those policies, but business understands perfectly well that Republicans not only don't plan to reverse them, they would have done the same thing if they had held power in 2009-2010. Business sits in the enviable position of having one party that wants to save capitalism and another party eager to slash regulations and the tax burden on the rich. Why not have their cake and eat it too?

Better To Have Loved A Debt Commission And Lost Than Never To Have Loved One At All

When Erskine Bowles and Alan Simpson came out with their deficit plan last week, I got a little excited and rattled off like a million blog items about it. That turned out not to work so well for me. The more analysts looked at the plan, the worse it got, and after a while I decided their plan was a pretty bad idea. Oh well, lesson learned -- just because a couple bipartisan worthies come along promising to put our fiscal house in order, it doesn't mean I have to drop everything and...

Hey, look! New bipartisan deficit plan!

Okay, I know, I should probably wait. But seriously. This plan, by Alice Rivlin and Pete Domenici of the Bipartisan Policy Center,  looks a lot more solid. None of the crazy unenforceable caps and wild plans to slash the federal workforce without reducing its responsibilities. It's actually a balanced proposal to distribute pain. It also sensibly includes a short-term payroll tax holiday to address the economic crisis. And the tax reform, while lowering the corporate and top income tax rates to 27%, which is below the lowest point Ronald Reagan cut them to, also makes the overall burden more progressive.

You can see why the Bipartisan Policy Center understood it had to strike out on its own and create an alternative to the half-baked Bowles-Simpson plan. This is it. This is the bipartisan plan I can get behind! Just look at them -- aren't they dreamy?

Yeah! Come on Ross Douthat -- let's start debating this and pretending Congress might actually take up its proposal.

 

 

&c

-- Noam Scheiber on Sarah Palin's war against the Fed.

-- A group of House Democrats are asking Republicans to give up their government health care.

-- Roger Ailes wants us to sympathize with "this poor guy" George W. Bush. Good luck.

Flopping Comes To Football

The Oregon Ducks have the best offense in college football, and part of their style involves a frenetic hurry-up pace that wears down defenses. Opponents have responded with a rash of fake injuries:

That is pretty fake, alright.

I remember a high school football game where my team was down by a touchdown late in the game and out of time outs. Our coach grabbed a teammate and sent him into the game as a substitute with instructions to fake an injury after the next play, so as to stop the clock. The player was known as one of the less bright kids on the football team, which is really saying something. Anyway, after the play, he started hopping around as if he had hurt his ankle. He then fake-limped back to the huddle. I remember thinking to myself, My God, he is faking an injury, but he's faking the kind of injury you play through. Our coach had failed to explicitly spell out that he was supposed to fall to the ground with his fake injury and be helped off the field. And this was not the kind of kid to figure that sort of thing out on his own.

We lost.

The Cycle Of Conservative Budget Delusion

Cato's Michael Tanner flays Republicans for the meagerness of their budget savings:

[S]ince the election, Republican leaders have been busy “clarifying” that promise. It now seems that they didn’t actually mean that they would roll back all federal spending to 2008 levels, just domestic, discretionary spending. Entitlement programs such as Social Security and Medicare are off the table, as is defense spending. Homeland security and veterans’ programs would also be spared any cuts. Removing those categories, along with interest on the debt, exempts 83 percent of the budget from any serious cuts. Rolling back the remaining spending to 2008 levels would save barely $100 billion, 2.8 percent of federal spending. That’s a drop in the bucket compared with our $1.3 trillion deficit.

Tanner omits any mention of the fact that Republican-endorsed tax cuts would increase the deficit by far more than the spending cuts would reduce it, in keeping with conservative movement policy of refusing to acknowledge the fiscal effects of tax cuts. Still, tanner's analysis is correct as far as it goes -- the Republican plan to confine spending cuts to domestic discretionary spending is indeed pathetically small in proportion to the scale of the deficit.

But then Tanner concludes with a political warning:

In the run-up to the election, Republicans constantly reassured voters that they understood how they had “lost their way” during the Bush era. If we gave them one more chance, they would leave their big-spending days behind them. Faced with the fiscal nightmare of the Obama-Reid-Pelosi agenda, voters reluctantly gave the car keys back to the Republicans. It’s very early, of course, but if Republicans hope to earn and keep that trust, they are going to have to demonstrate that they are a lot more serious about cutting spending than they have shown us thus far.

This is standard right-wing budget doggerel.

Republican politicians have lost their way, they must hew to the right-wing path or they will be turned out by the voters. It fails to explain why, save the eternal blandishments of Washington, Republicans would settle for such meager budget savings in defiance of their political self-interest. Could it be that voters do not want to cut actual government programs? Why yes, it could. From Eric Cantor's memo to Congressional Republicans:

Fast Fact: Over two-thirds of Republican voters believe the budget can be balanced without reducing spending on Social Security or Medicare.

Right. They're totally misinformed about this. Moreover, they believe this in part because .

Anyway, Republicans have the same dilemma as before. They can slash entitlement spending and incur the wrath of the voters. Or they can fail to address the deficit, or -- more likely -- make the deficit worse by cutting taxes. And then the conservative movement can explain that they failed because they lost their way, and the cycle can continue.

Sarah Palin, Reader

[Guest post by Isaac Chotiner]

A few years ago I engaged in a friendly debate with Ross Douthat about the number of books that President Bush had read in 2006. According to Karl Rove, the former president had read 94 books (some of the 94 were big history books). I found this claim dubious, but Ross thought it was believeable.

Now, to Sarah Palin. At the end of his big piece on the onetime Alaska governor, Robert Draper writes:

Palin became testy when I asked her about the books I heard she had been reading. “I’ve been reading since I was a little girl,” she snapped. “And my mom is standing 15 feet away from me, and I should put her on the phone with you right now so she can tell you. That’s what happens when you grow up in a house full of teachers — you read; and I always have. Just because — and,” she continued, though in a less blistering tone, “I don’t want to come across sounding caustic or annoyed by this issue: because of one roll-of-the-eye answer to a question I gave, I’m still dealing with this,” she said, referring to her interview with Katie Couric.

After taking this moment to (shall we hint?) gather her thoughts, Palin continues:

“There’s nothing different today than there was in the last 43 years of my life since I first started reading. I continue to read all that I can get my hands on — and reading biographies of, yes, Thatcher for instance, and of course Reagan and the John Adams letters, and I’m just thinking of a couple that are on my bedside, I go back to C.S. Lewis for inspiration, there’s such a variety, because books have always been important in my life.” She went on: “I’m reading [the conservative radio host] Mark Levin’s book; I’ll get ahold of Glenn Beck’s new book — and now because I’m opening up,” she finished warily, “I’m afraid I’m going to get reporters saying, Oh, she only reads books by Glenn Beck.”

Does anyone find this remotely believeable? For starters, this is the perfect political answer. She admits to reading a book by a conservative talk show host, a collection of letters from a Founding Father, the work of a religious novelist/writer, and a biography of a conservative female icon (the conservative female icon). And the Reagan bit is priceless--"of course" she is reading about Reagan! How dare anyone suggest that there is ever a moment when she would not have a book by or about our fortieth president.

The larger question is why anti-intellectual Republicans feel the need to sound like they read more books than they really do. Was anybody's estimation of Bush's intelligence altered by Rove's claim? Sure, the Couric interview hurt Palin, but answers like the one above are not going to change anyone's opinion. This is the usual case of trying too hard, and as a result sounding silly. Even in elite liberal circles people occasionally admit to going a decent interval without a book.

Health Insurers' Double Game

While the health insurance lobby was negotiating with Democrats to limit its exposure during health care reform it was also spending money to defeat health care reform. A lot of money:

Health insurers last year gave the U.S. Chamber of Commerce $86.2 million that was used to oppose the health-care overhaul law, according to tax records and people familiar with the donation. ...

The $86.2 million paid for advertisements, polling and grass roots events to drum up opposition to the bill that’s projected to provide coverage to 32 million previously uninsured Americans, according to Tom Collamore, a Chamber of Commerce spokesman.

It's a smart play -- try to kill the bill, but also negotiate to ensure that you don't get hit too badly if you fail.

Roger Altman Behind Closed Doors

[Guest post by James Downie]

Jon Chait and Jon Cohn's skeptical posts about Roger Altman highlight his public statements, and the possible pick becomes even sketchier when considering his maneuvering behind the scenes. From Andrew Ross Sorkin's Too Big to Fail:

The independent board members [of Morgan Stanley], led by the lead director, C. Robert Kidder, decided they needed to hire an independent adviser and, after a short conversation, chose Roger Altman, the former deputy Treasury secretary and founder of the boutique bank Evercore Partners (and Dick Fuld’s former carpool-mate). He would advise the board on whatever transactions they would be presented with and provide a modicum of cover; in the event that whatever happened over the weekend led to legal battles, at least they would look like they were trying to be responsible. […]

The tension inside Morgan Stanley’s board meeting was becoming untenable. Roger Altman, the banker from Evercore who had been hired just twenty-four hours earlier to advise them, was telling them that they needed to think hard about selling the entire firm. He had painted a doomsday scenario, and it wasn’t sitting well with several directors in the room, who had become convinced that Altman was trying to get them to do a deal simply so that he could collect a big fee. During a break, Roy Bostock spoke with C. Robert Kidder, the firm’s lead director: “We ought to fire that guy right now. Get him out of here. He is not helping.” Others were concerned that given his close ties to the government—he was the former deputy Treasury secretary and was still considered very well connected—that he might leak information about the firm’s health back to them. That, they thought, would explain why Geithner was putting so much pressure on Mack to do a deal. Though they did not know it, Altman had sent an e-mail to Geithner the night before telling him that he had gotten the assignment to work for Morgan, but he had not disclosed any of the details of the meeting.

Whether it was paranoia or just a lack of sleep, the discussion was becoming heated. Mack, who hadn’t been consulted when Altman was hired, was even more upset about his being there than some of the board members. “I don’t trust him,” Mack announced after he kicked Altman out of the board meeting temporarily. He said he thought they should be using Morgan Stanley’s own bankers to advise them if they really were going to sell the firm. He also told them he was worried about revealing the details of Morgan Stanley’s negotiations with Mitsubishi in front of Altman, reminding the directors that Evercore had a partnership with Mizuho Financial Group of Japan, one of Mitsubishi’s rivals.

“I don’t know what this guy is up to,” he said.

In addition, last June, Evercore was in the news for receiving what the US Trustee overseeing the GM bankruptcy termed “staggering” and “excessive” fees for their consulting work. Altman left out that detail a month later, when he wrote a New York Times op-ed in part praising the president's "courageous decision to put General Motors and Chrysler through bankruptcy." Altman was right to be worried about Morgan Stanley's viability, but if the White House's goal is to appoint someone to repair relations with Wall Street, Altman might give them the worst of both worlds: an adviser the public associates with Wall Street whom many on Wall Street don't trust.

Failing Upwards

If you want more evidence for the proposition that a total fraud can continue to prosper if his brand of fraudulence tends to flatter the prejudices of the rich and powerful, take note that Mark Penn is now conducting polls for Politico, and Art Laffer has been hired to advise Rick Scott.