Sunday, April 17, 2011

What happens when the deficit deal gets done? How much of Social Security will be left?

Simpson-Bowles policy for seniors: Let them eat catfood!
I've come across several good items warning that we need to watch out for the next budget deals that Obama actually strikes with the Republicans, the one that is probably coming over raising the debt ceiling next month.

The notion that Obama has to negotiate budget deals with the Republicans over the debt ceiling is bogus. It's pure political theater. As Digby has been saying for months, if he negotiates over that it's because he wants to, not because he has to. Republican leaders know there's no choice but to raise the debt ceiling. Lots of the wealthiest Americans, the only constituency they truly care about, would lose serious money if the debt ceiling isn't extended on time. Obama does not have to deal with them over it.

But he's almost certainly going to. Gene Lyons uses sports analogies to discuss the debt limit fight in It's Time to Play Ball Cagle Post 04/14/2011. Gene thinks that Obama's budget deal from last week was a reasonable one for him to make, "the tactical equivalent of an intentional walk in baseball." In his reading, Obama preferred to stage a political confrontation with the Republicans' Ryan plan, proposed by "the Wisconsin Republican with the funeral director's demeanor and the zeal of an Ayn Rand enthusiast." He gives a great short summary of the Ryan proposal: "Reduced to a slogan, Ryan's ballyhooed plan is 'Back to the 19th Century': $4.5 trillion in tax cuts for millionaires and corporations, huge cuts in Social Security, Medicaid and food stamps, while privatizing Medicare."

But Gene is worried about what kind of ugly deals Obama will strike with the Ryan Republicans. He describes it on the explicit assumption that Obama is committed to the Democrats' own platform and campaign themes:

To the degree that it endorses Ryan's schemes, in a sane political climate the GOP would be risking political obsolescence. This was the same party that only a year ago pitched a fit over Sarah Palin’s imaginary "death panels." Now its leading thinker wants to control costs by asking grandma to bargain for cheaper heart surgery?

Standards, however, are anything but rational. The president faces a defining challenge. I often wonder whether Obama has mistaken the U.S. government for the Harvard Law Review, where the emollient balm of his personality persuaded rival factions to reason together.

Ivy League intellectual that he is, I’m afraid he definitely underestimates public ignorance on everything relating to the budget: where the money comes from, where it goes, and what’s at stake in the coming showdown over the U.S. government debt limit. It’s hard for somebody as obsessed with public policy as Obama to grasp how little his countrymen know.
Noting that trying to put the federal government into default is a non-starter even for the Teapartyized Republicans, he worries about Obama's willingness to act on that understanding:

Congress can repeal Medicare and Social Security, but it can't renounce their lawful debts. Ordinarily, an establishment Republican like John Boehner would refrain from even bluffing about the idea, which he dare not follow through.

Obama's seeming passivity, however, has made the GOP reckless.

Batter up. [my emphasis]
Robert Borosage of the Institute for America's Future observes in Obama's Deficits: Progressive Priorities, Conservative Context Huffington Post 04/13/2011 that Obama's Wednesday speech included some excellent statements of Democratic principles and vision of government. But he articulated them in a context in which he accepts the Republican framing and the economically destructive idea that cutting public spending is a good idea when the economy is in a weak recovery and is also in what economists call a "liquidity trap" - big corporate savings but domestic demand to weak to induce them to invest:

But it is worth understanding just how conservative this debate has become -- and how far the president has retreated. The most progressive president since Johnson has now embraced a center-right agenda -- even before entering negotiations with the Republicans.

The president effectively announced the demise of a reborn Keynesian era that has expired before the economy revived. 25 million Americans are in need of full-time work. Home values are still sinking; gas prices are at $4 a gallon and rising. Consumer confidence is plummeting. Europe's growth is slowing. But the federal government will join the states and cities in immediately cutting spending and laying off workers.

With this premature embrace of austerity, mass unemployment may become the new normal. Wages will remain stagnant. The concentration of wealth will grow and the middle class will continue to decline.

The president allowed that he was "sympathetic" to the view that we shouldn't cut spending until the economy is fully recovered. But he embraced the conservative argument that "doing nothing on the deficit is just not an option," because we could do "real damage to the economy" if we don't "begin a process now."

But mass unemployment and stagnant wages represent "real damage to the economy" that is here and now, not speculative. There's no sign of the potential harm that might be caused by deficits in the sometime future. Interest rates are low; America has no trouble financing its debt. The president started down this path prematurely in 2009; now he has forced the pace. [my emphasis]
Focusing on cutting deficits now is just Herbert Hoover economics. No better result can reasonably be expected from it in 2011 than in 1932.

And, from the Center on Budget and Priorities, Robert Greenstein on President Obama's Deficit-Reduction Plan 04/13/2011, another warning on the likely results of Obama-style budget negotiations:

Another significant concern stems from the President’s proposal to limit the annual growth in Medicare costs per beneficiary to the per capita rate of growth in the Gross Domestic Product (GDP) plus only 0.5 percentage points and to require automatic cuts in Medicare if this target would otherwise be exceeded. This goal is laudable. But it may be unrealistic. Historically, Medicare costs per beneficiary have risen about 2 percentage points per year faster than GDP growth per capita. The health reform law will launch a series of demonstrations, pilots, and research projects to find effective ways to slow health care cost growth without reducing the quality of care or access to care. But we don’t know yet how much or how quickly we can lower health care cost growth, especially since the principal driver in cost growth is medical advances that improve health and save and prolong lives but add significant costs.

Finally, the President’s plan calls for a mechanism to trigger automatic reductions in programs and tax expenditures if the debt would exceed certain benchmarks (measured as a share of GDP). The goal of stabilizing the debt as a share of GDP is precisely the right one. But all triggers like this that have been designed in the past have suffered from a fatal flaw — they required the deepest budget cuts when the economy was weakest and the smallest cuts when it was strongest — the opposite of what sound economic policy entails. The President’s plan calls for the trigger to "include a mechanism to ensure that it does not exacerbate an economic downturn." No one has succeeded until now in producing a mechanism that meets this test, and it remains unclear whether it can be done. This new proposal bears some similarities to the trigger in the 1985 Gramm-Rudman-Hollings law, which was not successful and which Congress ultimately repealed.

To be sure, the President's plan represents an important step forward in the debate. But it should be recognized that this plan is a rather conservative one, significantly to the right of the Rivlin-Domenici plan. While we worry about some particular elements of the President’s plan, we worry much more that the deficit-reduction process that’s now starting could produce an outcome that is well to the right of the already centrist-to-moderately-conservative Obama proposal, by reducing its relatively modest revenue increases and cutting more deeply into effective programs that are vital to millions of Americans. [my emphasis]
Then there's this: Alexander Bolton, Some Senate Dems willing to consider Social Security reforms The Hill 04/13/11:

Sens. Tom Carper (D-Del.) and Sen. Dianne Feinstein (D-Calif.) and Sen.Joe Lieberman (I-Conn.), who caucuses with the Democrats, are all openly calling for reform, and making it plain that the party is disunited on the issue when a titanic debate over debt is gathering momentum.
The good news is that Senate Majority Leader Harry Reid continues to be a hardliner on the issue, at least in public:

But Senate Majority Leader Harry Reid (D-Nev.) refuses to give an inch on benefit cuts, arguing that the program has not contributed “one penny” to the debt.
There is currently a "Gang of Six" Senators working on a bipartisan budget proposal: Democrats Dick Durbin, Kent Conrad and Mark Warner, along with Republicans Saxby Chambliss, Tom Coburn and Mike Crapo. According to this report by Richard Wolf, 'Gang of Six' hopes to spur bipartisan action on deficit USA Today 04/11/2011.

The Gang of Six approach is based on Obama's commission, which called for a mix of spending cuts and tax increases. Obama never endorsed the plan, and his proposed 2012 budget called for only $1.1 trillion in deficit reduction over 10 years. But White House press secretary Jay Carney said the president knows much more is required.
That would be the Simpson-Bowles Catfood Commission, whose main focus was how to start the phaseout of Social Security. Wolf follows the now-standard journalistic convention of referring to the "plan" of the Catfood Commission, the actions which it "called for," etc. The Catfood Commission never issued a formal report, because not enough of the members could agree that old people should have to live on catfood. But apparently, since Obama appointed it stacked with Social Security opponents to provide those recommendations, our press corps has just decided to play along and pretend they did. Co-chairs and social Security opponents Alan Simpson and Erskine Bowles did issue a plan, which is typically what is referred to by the Commission's plan or report. I guess this just illustrates how phony the whole bipartisan Kabuki with the Catfood Commission really was. It's purpose was to recommend Social Security Phaseout, so it's now Beltway consensus that they recommended that. Even though formally, the Commission didn't recommend anything at all.

Joan McCarter writes in disgust (Durbin, Lieberman, willing to 'take action' on Social Security Daily Kos 04/13/2011):

It's hard to imagine why any Democrat ... finds they are in agreement with Joe Lieberman, whose sole purpose in political life is now to piss on anything remotely progressive or important to the Democratic base, particularly on something as important as Social Security.
She relates "Gang of Six" member Dick Durbin's expressed willingness to include discussions on Social Security in deficit-reduction consideration, even though Social Security doesn't contribute to the federal deficit. In Harry Reid 2010 Netroots Nation convention appearance in Las Vegas, he said that he got Dick Durbin appointed to the Catfood Commission to defend Social Security! But Democratic activists have been particularly skeptical of Durbin since he made this statement, as reported by Obama Tells Debt Commission 'Everything Has to Be on the Table' New York Times 04/27/2010:

Representative Dave Camp of Michigan took pre-emptive aim at a value-added tax, saying, "Washington has borrowed enough from the American people."

But Senator Richard J. Durbin of Illinois, the second-ranking Senate Democratic leader, denounced suggestions of an administration VAT plan as the "musings of right-wing cable shows."

He also admonished "bleeding heart liberals" to be open to program reductions to restore fiscal balance. An hour after the commission’s meeting, however, several liberal activists held a conference call with reporters to press for additional spending to create jobs, lower military spending, higher taxes for the wealthy and no cuts in Medicare or Social Security. [my emphasis]
That was Obama a year ago this month, when he still had a solid majority of Democrats in the House. That article is a good reminder of how the Obama White House has always seen the deficit issue and the work of the Catfood Commission. It even contained a hint that if the Commission didn't agree on a report, the White House would pretend they had anyway. In ObamaSpeak, "everything has to be on the table" means Social Security Phaseout:

President Obama told his bipartisan debt commission on Tuesday that "everything has to be on the table," while the Federal Reserve chairman, Ben S. Bernanke, suggested overhauling the nation’s tax code to raise more revenue. ...

Former Senator Alan K. Simpson of Wyoming, the panel's Republican co-chairman, warned the panel, "The extreme right and the extreme left will savage our final product."

That assumes, however, that the commission will agree to one before its Dec. 1 deadline. Expectations are low given the party polarization, especially in an election year.

Still, administration officials have suggested that should the commission reach a deadlock, Mr. Obama could adopt proposals left on the table.

While Fed chairmen typically stick to monetary policy and shy away from advising elected officials about budget policy, Mr. Bernanke's remarks were the latest in his recent string of calls for elected officials to make "hard choices" soon, before debt threatens the economy’s recovery and growth.

"Choices regarding Medicare, Social Security and other spending programs cannot be made in a vacuum but must be combined with decisions about how much revenue the government will raise and how it will raise it," he said. [my emphasis]
Dean Baker's analysis of the Simpson's and Bowles' recommendations remains relevant, unfortunately: The Deficit Commission’s Parallel Universe Boston Review 11/11/2010:

The country in which most people live is experiencing an economic disaster. More than 25 million people are unemployed, underemployed, or have given up looking for work altogether. Tens of millions are now underwater on their mortgages, with millions facing the imminent loss of their homes. Furthermore, there is little prospect that the situation will improve anytime soon.

Many fewer live in the other America, the world of Wall Street and Washington lobbyists. This is where you’ll find former Wyoming Republican Senator Alan Simpson and investment banker-turned-Clinton Chief of Staff Erskine Bowles, the co-chairs of President Obama’s deficit commission, which on Wednesday outlined its plans for what it calls “fiscal responsibility.” In their world the key fact is that, today, corporate profits are back to their pre-recession peaks. As long as the bonuses on Wall Street are again hitting record highs, the economy must be just fine, so what else is there to do but worry about deficits?
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