Thursday, November 29, 2012

The "fiscal cliff": there's reality and then there's Beltway Village fantasy

When I was going to the National Memo to read Gene Lyons weekly column, I wound up at the National Journal instead. Which led to discovering and interesting set of contrasts.

Gene's piece is Pity The Poor Plutocrats 11/28/2012, in which he relates the ridiculous spectacle of a courier journalist from CBS News doing a fawning interviewing with Goldman Sachs CEO Lloyd Blankfein. This is one that really needs to be read in full. But what does this leading One Percenter think the country needs to do urgently?

"You’re going to have to undoubtedly do something to lower people’s expectations," he said. "The entitlements, and what people think that they’re going to get, because it’s not going to–they’re not going to get it."

"Social Security, Medicare, Medicaid?" Pelley asked.

"Some things," Blankfein said. "... You can go back and you can look at the history of these things, and Social Security wasn’t devised to be a system that supported you for a 30-year retirement after a 25-year career. So there will be certain things…the retirement age has to be changed, maybe some of the benefits have to be affected, maybe some of the inflation adjustments have to be revised."
Gene then proceeds to explain how bogus this argument is, aside from how ludicrous it sounds coming from such a messenger:

Blankfein must think most Americans earn their first paychecks at age 42, retire at 67, and then draw Social Security until age 97.

The actuarial reality, of course, is that most Americans first go to work during their teens, pay Social Security taxes for 50 years, and then draw benefits for an average of 16 years. Twice the work, half the benefits Blankfein pretended to imagine.
But Wall Street would love to take a large cut out of what currently goes into paying payroll taxes to finance the trust funds for Social Security and Medicare.

The sad contrasting article comes from Major Garrett, former FOX News reporters who just this month became the chief White House correspondent for CBS News, Holiday Hysteria National Journal 11/27/2012 (w/ update 11/29/2012. Garrett sounds giddy in his admiration for the way opponents of Social Security, Medicare and Medicaid are exploiting this phony "fiscal cliff" scare to push their austerity agenda and cut benefits on the programs just named.

If there is one redeeming feature of the otherwise gutless and indolent sequestration process, it is the underappreciated component of hysteria.

And this is a good thing. After all, everything else in this great nation’s political tool kit has failed. Governing for governing’s sake is dying, if not dead. Bipartisanship and compromise as legislative art forms are more lost than Jon Stewart at CPAC. And politics as a means of comprehending and responding to economically transformational technologies has never been our strong suit (See: Gilded Age, the)—it’s just worse and more dangerous now.

So, hysteria is all we’ve got left. The politicians want it and need it to cut a fiscal-cliff deal.
Is Garrett completely out of it and really believes what he's writing, or is he just reflexively parroting Washington Beltway conventional wisdom? Where Gene Lyons explains to his readers early on that the so-called fiscal cliff is "the latest phony, made-for-TV Washington melodrama," Garrett has the following to say:

Washington, if it remains paralyzed, will sentence the country to the first premeditated recession not imposed by German bankers (pity the Greeks) in the history of Western civilization.

America won’t stand for it. Not this time. The hair-trigger loathing of Congress is real. President Obama, though reelected, has no hope of a second-term legacy of immigration reform, tax reform, or climate-change legislation (if he even wants it) if he drives the nation off the cliff.
And who's really hot for the big deal? Garrett is much closer to reality on that score:

... Republicans and their backers in business crave a big deal. They’ve held off the higher tax revenue wave as long as possible. They will trade it for entitlement savings and less-aggressive defense cuts. U.S. Chamber of Commerce President Tom Donohue met on Monday with Obama’s top economic advisers in sessions that Donohue’s allies describe as “very constructive.” Donohue wants a grand bargain and may be asked to provide political cover to Republicans who support raising taxes. John Engler, head of the Business Roundtable, got similarly good vibrations from White House meetings on Monday. Together, the two business groups could provide more political cover than Chris Christie’s fleece.
But it's unusually hard to tell what the various players are doing with their positioning in this "fiscal cliff" farce. President Obama is also hyping the sense of panic over what is not a crisis situation except in Washington's staging of it. Robert Reich observes of the current moment in these negotiations (Bungee-Jumping Over the Fiscal Cliff 11/28/2012) :

Obama’s only real bargaining leverage comes from the fact that when the Bush tax cuts expire at the end of December, America’s wealthiest will take the biggest hit. The highest marginal income tax rate will rise from 35 to 39.6 percent (for joint filers), and the capital gains rate from 15 to 20 percent.

This will happen automatically if nothing is done between now and then to change course. It’s the default if Republicans won’t agree to anything else. It’s Obama’s trump card.

So rather than stoking middle-class fears about the cliff, the White House ought to be doing the opposite – reassuring most Americans they can survive the fall. To utilize his trump card effectively, Obama needs to convince Republicans that the middle class is willing to jump.
It has been clear since the debt-ceiling fight in 2011 that Obama wants to make a Grand Bargain to cut benefits on Social Security, Medicare and Medicaid and was willing to hype the deficit crisis to get that in place. Why he is so dedicated to that is another question. It's presumably some combination of bad policy ideas and a vain hope that cutting benefits on Social Security, Medicare and Medicaid would usher in a technocratic dream era of postpartisan harmony.

Obama seems to be comfortable with the "fiscal cliff" arrangement that was part of the agreement over the debt ceiling. It gives advocates of the Grand Bargain to cut benefits on Social Security, Medicare and Medicaid a chance to jam through drastic changes in a period where the public's attention to the harm being done might not be as intense as other times. Also now, the election results mean that the more Democratic Congress coming in January will likely to be less favorable to cutting benefits for Social Security, Medicare and Medicaid than the current one.

So Obama is hyping the phony "fiscal cliff" non-crisis big time. And given his famously disastrous negotiating skills shown in the debt-ceiling fight, it's no cause for relief for supporters of Social Security, Medicare and Medicaid that Obama is framing his opening demand in the negotiations as "asking the wealthiest Americans to pay a little more." (Remarks by the President on Extending Tax Cuts for the Middle Class 11/28/2012)

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