Wednesday, February 29, 2012

Fiscal Follies of the Republican Party

This'll be a decidedly shorter post, since I'll mostly be doing outsourcing to Krugman. Anyway, as I've been saying repeatedly, the outcry against ballooning government debt and how we need to "cut everything everywhere right now now NOW" coming from the Republican presidential candidates is a complete farce. What's more, we've got a study by the Committee for a Responsible Federal Budget that analyzes the budgetary effects of each candidate's taxing and spending plans on the overall government debt by 2021. 

Anyways, I came across two posts by Krugman, yesterday and today, in which he breaks down the sheer hypocrisy of it all:

"I use the intermediate-cost estimate from CRFB  (pdf) for the four Republican plans, and for consistency, I use CRFB’s own estimate  (pdf) for Obama. And here’s what we get:
So it remains true that all of the proposals, except maybe Ron Paul’s (which contains huge and probably impossible spending cuts) would lead to higher deficits than Obama, based on a common assessment."
So there you have it folks, the Republican presidential candidates, for all of their hemming and hawing about the debt, have no credible way of reducing it. So, in addition to having no plan for health care reform besides "repeal Obamacare," they also have no plan for reducing the debt? Color me unimpressed.

Friday, February 24, 2012

Romney Tells the Truth and is Promptly Crucified

Some of you may have heard Mitt Romney's little slip-up the other day about cutting spending. For those of you who didn't hear it, I'll give you the quote:
"If you just cut, if all you're thinking about doing is cutting spending, as you cut spending you'll slow down the economy, so you have to, at the same time, create pro-growth tax policies."
A seemingly harmless statement, right? Nope, he got some immediate backlash from conservatives. One particular response I wanted to focus on was the one he got from the fiscally conservative Club for Growth. Andy Roth, their Vice President of governmental affairs, said the following:
"It's hogwash. . .The idea that balancing the budget would not help the economy is crazy. If we balanced the budget tomorrow on spending cuts alone, it would be fantastic for the economy."
The long and short of it is this: all politics aside, from a purely economic standpoint, this statement is false. If those espousing this doctrine would only take a look back at the last time we had an economic downturn as severe as this, they'd know that fiscal and monetary contraction during a recovery is precisely the wrong thing to do. 


A bit of history then, shall we? In 1936 and 1937, there was great pressure on FDR and the Fed (by the fiscally conservative) to start cutting the government spending incurred by the New Deal programs as well as to start raising interest rates. Since unemployment had started to come down some, (it was still quite high, around 10% based on the data) the recovery was thought to be well under way. The worry was also that there would be hyperinflation because of the low interest rates and a rise in commodity prices. The other fear was that all the debt we had run up would lead to the cost of borrowing to rise for the government. Sound familiar? Well, it should. Since taking control of the House in the 2010 midterms, Republicans have been touting an agenda of balancing the budget because we allegedly have a debt crisis on our hands in the United States. All of this is due to Obama's government spending extravaganza, which, heads up, is actually mostly just automatic stabilizers like unemployment insurance and safety net programs kicking in for unemployed and impoverished people. What's more, there's also enormous pressure on the Fed to start raising interest rates! Anybody remember Rick Perry threatening Ben Bernanke if he printed any more money? Well, all sorts of people are insisting that the Fed is going to cause huge inflation because gas prices and commodity prices were rising. Well, here's a hot little tip: the Fed doesn't control gas and commodity prices. There's such a thing as supply and demand. It tends to dictate prices of things.


Now that I've established the historical parallels, I suppose you want to know what happened in 1937, right? Well, FDR caved to pressure and started cutting spending, and the Fed started raising interest rates. So, was it great for the economy, like Andy Roth argued it would be? In short, no, it wasn't. In fact, it was quite the opposite of great. It was just awful. It led industrial production to plummet, unemployment to rise, and led to horrible deflation. It caused a double-dip recession.


These graphs illustrate what happened pretty well: (click to enlarge)




The dotted line is the unemployment rate adjusted to how it is measured nowadays.

Hardly great by anyone's measure. Unemployment rose about 5%, prices fell, and industrial production fell back to 1933 levels. Not only was this disastrous for the economy, it added years to the recovery, which, by looking at the unemployment rate and industrial production, still had a ways to go. These numbers are strikingly similar to where the U.S. stands today in its recovery. 

Indeed, most of last year was spent discussing the debt ceiling debate, the budget, and how much to cut. With millions of people still unemployed, this hardly seems the time to focus on something that simply isn't an issue with the economy as depressed as it is. Just to be clear, I hold President Obama and Congressional Democrats responsible for this, too, not just Republicans. They could have chosen not to play along, but they did, and our economy languished for it. 

So no, Andy Roth, it would not be great for the economy if we balanced the budget today on spending cuts alone. It would be disastrous. Any competent economist, conservative or liberal, would tell you that. The millions of Americans who are struggling right now deserve better than this. They deserve better than a group of charlatans and witch-doctors who are trying to pass off what is tantamount to blood-letting and ritual sacrifice as economic policy. We all deserve better.

Friday, February 17, 2012

Religion Doesn't Trump Civil Law. Period.

Many of you have no doubt heard of or have been following the for-some-reason-suddenly-a-big-deal issue of the birth control mandate. Seeing as the Affordable Care Act was passed nearly 2 years ago, I don't get why it just now became an issue. Anyways, all of that aside, let's have some background to it, for those of you who don't know.


About a week or so ago, conservatives and religious officials (most notably of the Catholic Church) created an uproar about a particular part of the ACA, which required that businesses provide women with free birth control as part of their insurance plans. What really got them going was the fact that this applied to religiously affiliated institutions, like Catholic hospitals and universities. So, naturally, everyone cried "WAR ON RELIGION!!!" at the mandate. One college president even said that this was "an issue worth dying for." A bit of a drama queen, no? Never mind the fact that actual religious institutions like churches were exempt from the rule. Never mind the fact that the same or similar laws are already on the books in 28 states. Never mind the fact that Romney's health care plan had the same mandate. Never mind the fact that many Republicans were, in fact, in favor of such mandates before this brouhaha. And never mind the fact that the people who work in these colleges and hospitals are in many cases not Catholic or even Christian at all! In any case, what happened as a result? Well, Obama came out and said, fine, employers of these types of institutions don't have to provide them directly, but insurers have to reach out to women who work at these places and provide it to them for free. Naturally, this wasn't good enough, the entire mandate had to go. Jokes about Bayer Aspirin ensued and a gaggle of religious men came to testify about women's health in front of Congress. 


Clearly there's something wrong here. Clearly the people opposed to the mandate don't realize there's a great deal of precedent  on this sort of thing. They obviously don't remember the 1990 ruling of  Employment Division v. Smith, in which the ruling was that religious belief doesn't trump an otherwise neutral civil law. They don't seem to remember that in 2007, the Catholic Church sued the state of New York because of a similar mandate. The state of New York won, and what's more, the Supreme Court upheld the decision. They also don't seem to remember that, as I said before, this is on the books in 28 other states, and that each and every time, Church officials cried foul. One writer said that "the Catholic Church will shut down before it violates its faith." What she didn't seem to realize was that the Church was in compliance with similar mandates throughout the U.S. already. Just a few names of places in compliance: Fordham, Georgetown, DePaul, and Catholic Healthcare West, the fifth-largest health system in the country. Nobody died, society didn't collapse, the American family didn't implode, and the Catholic Church most certainly didn't shut down.


Women who work in religiously affiliated hospitals or colleges don't have any less of a need for this kind of health care than women who work in other colleges or hospitals. It isn't as if women who work for Catholic colleges or hospitals don't get pregnant. Hell, why do American Catholics care? The idea that they don't use contraception because of religious teaching is laughable. Not to mention that a majority of Americans and a majority of Catholics support the mandate and the idea of birth control. Moreover, health plans that don't include services that only women use constitute a form of discrimination under Title VII of the 1964 Civil Rights Act. So it not only makes little sense from a practical standpoint, but it also is kind of against the law. Being part of a modern society involves having some level of tolerance for other peoples' preferences without constantly threatening to secede when you don't always get your way. There's no war on religion in America. The government isn't storming into your local churches and rewriting the sermons. They aren't making churches provide birth control. They don't make any religious institutions pay taxes. And all of that is fine with me. But in return, we as a society expect our tolerance to be repaid in kind with tolerance, not with this.


Anyways, what's my take on this whole thing? Well, for one, it seems ridiculous to me that its even an issue. There's a great deal of irony in seeing the heads of these religiously-affiliated hospitals and colleges bemoaning the supposed loss of their religious freedom while simultaneously seeking to impose their religiously-inspired views on birth control on the women who work for them, and indeed on the rest of us. 

Wednesday, February 8, 2012

Halftime in America

Many of you might have seen the Chrysler ad with Clint Eastwood this past Sunday. Hoo-boy did that ruffle some feathers. Karl Rove cried foul and claimed that the ad was effectively a campaign ad for the Obama Administration as a means of paying them back for the automaker bailouts. Never mind the fact that Chrysler has paid back all of the money given to them years ahead of schedule or anything...In any case, I'm here to tell you why the automaker bailouts were necessary and a good thing.

The long and short of the story was this: when the crisis hit the automakers, Democrats wanted to bail them out (i.e. give them taxpayer funded loans in return for the industry presenting a credible plan to get new leadership and restructure their business models) and the Republicans by and large wanted to let them go bankrupt because government should not intervene in the private sector on such a grand scale as this. Now, to be fair, many Republicans thought that the firms would go into Chapter 11 bankruptcy (i.e. another private sector company would take control of GM/Chrysler in return for enough money to keep it running while it restructured to become profitable again) and actually still exist after a series of restructurings. Some just thought that they should do nothing because if a firm cannot stay in business under its own power, it should be allowed to go under. There's a major problem with this point of view, which I'll get to later in this post. For now, let me take Mitt Romney's idea for Detroit as an example of what Republicans by and large wanted to happen.

In 2008, Romney wrote an Op-Ed for the New York Times entitled "Let Detroit Go Bankrupt." Now, the title makes it sound a lot worse than it is, but Romney was effectively calling for the automakers to go through Chapter 11 bankruptcy, restructure their leadership and product lineup, and streamline their companies. In the op-ed, he also called for government support to supplement the automakers as they went through their bankruptcy. So essentially, he argued for the private sector to take care of this in 2008. Ordinarily, I'd agree with his idea, but the elephant in the room here is that in 2008, the U.S. was a jump, skip, and a hop away from another Great Depression. Credit markets were frozen up, firms were cutting back, and uncertainty was in the air. No firm was going to want to take on an asset with any risk--let alone ones as huge as Chrysler and GM. With no one to take them on, Chrysler and GM would have needed to file for Chapter 7 bankruptcy. That means liquidation of all of their assets. No restructuring, no second chance. No more GM or Chrysler, period. That, as you'll soon see, means a lot more than several hundred thousand jobs being lost from those two firms going under. 

Think about it this way: Detroit is a car city. As a car city, it has three huge firms, Ford, Chrysler (and subsidiaries), and GM. But in addition to that, part of the reason Detroit is such a car city is because it is a cluster for all firms that supply these automakers with raw materials and parts. All of these firms operating so close together makes for much lower costs of production for automakers and lower transport costs for suppliers. So if GM and Chrysler go under, firms that supply them will likely have huge losses since they'll lose a lot of their business and they too will go under. To make matters worse, Ford would probably follow soon thereafter. Even though Ford was in a better position financially than GM or Chrysler, they were still in dire straits at the time. Closing down their suppliers that are in Detroit would make it much more expensive for them to build cars there, as they would then have to bring in parts from other states or even other countries, driving up their costs in their already financially fragile situation. Instead of losing an already substantial number of jobs with the loss of GM and Chrysler, Detroit would then stand to lose almost everything.

When the actual plan came together to bail out the auto industry in early 2009, (which really was a glorified loan with strings attached, like making the automakers have new leadership and present a credible path to profitability) Romney trashed the plan, saying that it was "even worse than bankruptcy–it would make GM the living dead." Now, you might say, "So he didn't like the plan, so what?" But the thing is, the auto bailout plan bore a striking resemblance to what Romney actually called for in 2008. The chief difference was that Romney wanted the automakers to file Chapter 11 bankruptcy and become debtors-in-possession to a private sector firm. What actually happened was that GM and Chrysler became debtors in possession to the government. I've already addressed why, given the economic situation in 2008, no private sector firm would take on that kind of risk. So the government had to step in and act in place of the private sector.

What was the result of the bailout, you ask? Well, the firms and the UAW both had to restructure, sometimes painfully, but that was what had to happen. But as quickly as they had fallen, they "got right back up again," as Clint Eastwood said in the ad. Chrysler is hiring again, GM and Ford are both posting large profits and all of them are well on their way or have already paid back their taxpayer-funded loans. Michigan's unemployment rate has fallen from 14.1% to (a still bad, but much better) 9.3%. From an economic standpoint, I'd say that the auto bailout was necessary. Not only was it necessary, but it was successful. 

They Call Me Romney Two-Face

A major qualm that a lot of Democrats and Republicans have with Mitt Romney is that he's gone back and forth on a lot of issues in a way that's much more pronounced than your average politician would. The one that is most glaring is his take on the Affordable Care Act. I suppose it represents an about-face for most of the GOP as well, as you'll see.


First things first, the health care bill. Romney's Massachusetts health care law is Obamacare. Period, full stop. The idea of an individual mandate was created as a Republican alternative to the Clinton health care plan in the 1990s. In fact, the entire Affordable Care Act is really as Republican a bill as any universal health care plan could conceivably be. It is made up of a whole host of ideas proposed by Republicans in the past 15 or 20 years and the entire framework is drawn from Romney's health care law. But Romney insists that there are major differences between his bill and the ACA. What differences, you may ask? That remains to be seen. One of the architects of Romney's health care law, Jon Gruber, talks about the bill in an interview:
"They are very, very similar. You can think of the Affordable Care Act as a more ambitious version of the Massachusetts reform. Both reforms have the same core principles: Non-discrimination in insurance markets, health insurance mandates and subsidies so insurance is affordable. In Massachusetts, we stopped there. The national bill – the Affordable Care Act – has two additional features. One is it’s paid for and two, it takes on cost controls. Romney’s reform was paid for with funding from the federal treasury. The Affordable Care Act is paid for through offsets in the federal budget. And the Affordable Care Act tackles the increase in costs in a serious way, which the Massachusetts bill didn’t do. So you can think of the Affordable Care Act as the Massachusetts bill-plus."
I ask any Republican who is opposed to this bill to offer some kind of explanation as to why, specifically, they don't like the Affordable Care Act. Because it seems to me, in view of the evidence, that the only real reason is that it was passed by Barack Obama and a Democratic Congress. I've explained before that the individual mandate is a good thing because it eliminates the free-rider problem of uninsured people going to emergency rooms and having their tabs picked up by taxpayers. In fact, I've heard this before somewhere...
"If you don't want to buy insurance, then you have to help pay for the cost of the state picking up your bill, because under federal law if someone doesn't have insurance, then we have to care for them in the hospitals, give them free care, so we said, no more, no more free riders. We are insisting on personal responsibility. Either get the insurance or help pay for your care." 
That was Mitt Romney defending the individual mandate. So, really, it begins to become painfully clear the problem I, and many other people, have with Romney. He's clearly a very smart guy, and when he isn't pandering to the increasingly radical Republican Party base, he actually sounds like a pretty reasonable moderate conservative. Paul Krugman says that Romney is a smart guy but also is a "moral coward." While Krugman may be right about Romney in that respect, it really reflects more poorly on the current state of a Republican Party that has become so radicalized, so counter factual, so incredibly hypocritical that it becomes impossible for a moderate conservative like Romney to get on their ticket without having to hide from his past legislative achievements.