Friday, April 27, 2012

Atlas Didn't Shrug and Neither Will You

I don't have a whole lot to say today, I just wanted to get something off of my chest that's been sort of bothering me. Whenever I see pictures like this one, I tend to just facepalm. 




I can't help it. Not to pick on this particular person, but the shirt is just awful, and brings up a deeper, much more annoying issue. But first, in case you didn't get the reference, it's from the book Atlas Shrugged by Ayn Rand. Here's a snarky recap of what John Galt does in the book:
"John Galt is the copper-haired, white-boy protagonist in Ayn Rand’s Atlas Shrugged. Galt leads a revolutionary movement in which all the top leaders of the banks and corporations forsake their corporate jets and perks to work in diners or as subway repair guys. No they weren’t fired by Galt. Rather, Galt urged them to go on strike and withdraw their expertise from an increasingly socialist world. Deprived of the genius of their genius, the world economy collapses."
That's basically what the book is about. Anyways, I frequently hear that the case against slightly higher tax rates, in particular on top earners, would be punitive and would fall on the job creators of the economy. As such, they would, as John Boehner says, go on strike. Paul Ryan called Obama's economic policies, “something right out of an Ayn Rand novel,” and calls Rand “the reason I got involved in public service.” So, is there any truth to what they assert?


As I've said before, the relationship between taxes and overall economic prosperity is muddled, to say the least. We had relatively slow growth in the Bush years despite a tax cut, while we had faster growth under Clinton with across-the-board tax hikes. In the postwar period, top tax rates were upwards of 70% and yet we were still quite prosperous. Even under Reagan, tax hikes didn't lead to disaster (and he did raise them several times.) If you don't believe me, economists Emmanuel Saez and Peter Diamond have done extensive research and come to similar conclusions.


In any case, my ultimate point is this: don't try to attack economic policies on the basis of what you read in a work of fiction! Ayn Rand wasn't an economist, and Atlas Shrugged wasn't based upon careful study of behavioral elasticity and tax rates. In case that didn't drive home my point enough, this will:
"There are two novels that can change a bookish fourteen-year old’s life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs."

Thursday, April 26, 2012

The Fools Running Britain--A Cautionary Tale

You know, there's a famous quote out there that says, "a smart man learns from his mistakesbut a truly wise man learns from the mistakes of others." Well, if there's anything to be gleaned from the utter disaster that is the current British economy, it's that the United States should not try to balance its budget right now. For those of you who don't know what's going on in Britain right now, a bit of history.


In the many months following the financial crisis, Gordon Brown's government steered Britain through the depths of the recession pretty well, and the stage was set for a fairly decent recovery. Then, the elections rolled around, and in mid-2010, the conservative David Cameron was elected Prime Minister. In his view, the biggest challenge facing Britain's economy was the amount of debt it had run up. In his view, Britain would go the way of Greece if it wasn't careful. So Cameron decided that a policy of austerity (budget-balancing by cutting spending/tax hikes) would be the best recipe for economic recovery. This, he argued, would inspire "confidence" in businesses and investors and make them want to start hiring more. So the government started down the road to austerity, in spite of the warnings of many economists. What was the result, you might ask? Well, here's a graph from Joe Weisenthal comparing the real GDP of the UK, US, and the Eurozone:




You'll note that Britain's GDP flatlined and even started falling in 2010-2012. In fact, Britain's growth has been negative for two straight quarters, so technically it's in a double-dip recession. The Eurozone, too, looks pretty similar, for much the same reasons. The difference is that the austerity Britain imposed upon itself wasn't even necessary! The IMF and ECB didn't impose their budgetary demands on Britain like they did on Greece. Britain's 10-year borrowing rates prior to Cameron entering office were around 3.75%. By comparison, U.S. bond yields around the same time were roughly 3.5%. Neither country was anywhere close to being in a debt crisis. Just to make my point abundantly clear, here's a graph (via Krugman) charting Britain's recovery from the Great Depression versus the current recovery:


The numbers on the bottom are quarters since the start of the recession.
So Cameron, as Krugman says, has the remarkable achievement of making Britain's recovery the worst ever. Could it be possible that Britain's slowdown in the numbers was caused by multiple factors? I'm sure that it was. Economics is, as you all know, an inexact science, but the fact is that austerity policies certainly didn't help matters. As if this wasn't bad enough, the initial goal of austerity--to balance the budget--is revealing itself to be self-defeating.

The real lesson that we all ought to take away from this is the one that smart people have been warning us about from the very start: contractionary policies are contractionary. Any economics textbook would tell you that. The IMF did a great study in which it analyzed the effects of fiscal consolidation on various measures of economic growth under a wide variety of conditions. According to them, if multiple countries undergo fiscal consolidation (a la the Eurozone plus Britain) while interest rates are at the zero-bound (as is the case in Britain and nearly the case in Europe), the effect of austerity is dramatically increased (pages 17-18 of the study). This study was published in October 2010, before the full effects of austerity were felt in either Britain or the Eurozone. So the story that the IMF told us would unfold under these conditions seems to have come true. Now, if you want to argue that the BoE could have done more to offset the fiscal contraction, you definitely can. But to my knowledge, what they've done hasn't been enough. NGDP targeting, anyone? 


All of this brings my point home to the United States. You'll notice on the first graph that our recovery, while still not great, looks better than Britain's or the Eurozone's. This, in my view, stems largely from the fact that we have not undertaken substantial austerity measures. Yes, the U.S. has a long-term debt problem, but that won't be the case in the short-run. So the next time you hear allegedly "serious" people like Paul Ryan advocating near-term budget cuts and saying things like, "The overarching threat to our whole society today is the exploding federal debt," you should remember Britain's experience. This recovery has been slow enough, and the last thing we want to do is party like it's 1937.

Saturday, April 21, 2012

Help! Lazy Moochers are Stealing Your Tax Dollars!

So the other day Representative Paul Ryan proclaimed the following:
"But we don’t want to turn the safety net into a hammock that lulls able-bodied people to lives of dependency and complacency, that drains them of their will and their incentive to make the most of their lives."
This is a common misconception about welfare: that most of the people on it are just lazy moochers who are kicking back and living in luxury off of your tax dollars. This has been pushed for decades, ever since Ronald Reagan coined the term "welfare queen" in 1976. It's remained in use ever since, even now. And people like Paul Ryan are trying to make it seem as if welfare recipients are largely able-bodied people who have become dependent on the government doles.  Welfare reform, which is what he refers to his plan as, has always had broad appeal to the general populace, especially since the 1996 reform seemed to work so well. The reform's successes, however, may have been distorted at the time, as the economy was in a boom, so fewer people needed welfare. Recent evidence has suggested that welfare reform hasn't been working when people need it most--during a recession. But this isn't about welfare reform, this is about welfare recipients. So who are these "complacent" members of society who are kicking back in our social safety hammock?


Well, Harold Pollack does a much better job explaining it than I ever could, so here's what he had to say about it:
"Like their counterparts who scrub floors, change diapers, or operate cash registers at McDonald’s, these are the lucky duckies whose kids rely upon Medicaid or CHIP, the Earned Income Tax Credit, and other elements of our safety-net. Below them on the economic ladder are low-income single moms trying to raise their kids on Temporary Assistance to Needy Families (TANF), traditional cash welfare. Many of these women can’t find a job in the midst of an economic crisis. Still others are quite poor, yet for one reason or another are ineligible for TANF aid. 
Few people are resting on “a hammock that lulls able-bodied people to lives of dependency and complacency.” Welfare rolls are at record lows. In some states, maximum TANF cash benefit for a family of three are below $200.
I live and work in the Chicago southland, near hundreds of thousands of poor people who would be deeply hurt by policies Congressman Ryan espouses. Some are jobless. Others work hard every day in crummy jobs. Others are students in elementary school."
And in case that didn't make it abundantly clear that the clear majority of the people on various forms of welfare are not, in fact kicking back and livin' lazy and large, here's a chart showing who is on welfare in America:



So no, most of these people are not, in fact abusing the system. Is there some fraud or abuse of our social safety net? I'm sure there is. Do I think it should be fixed? Definitely, and the Affordable Care Act actually has some provisions in it to do just that for Medicare and Medicaid. However, people like Paul Ryan are attempting to make it seem as if our social safety net is somehow a repository for our society's laziest and most unproductive. As you've seen here, this is hardly true. 


Most of the people on welfare programs aren't "lucky duckies," they aren't lazy--they're old. They're mentally or physically disabled. They're poor children. They're people who work in very low-paying jobs--jobs that don't earn them enough to cover their living expenses. And cutting these meager benefits that they often desperately need to get by isn't the way to get them to "make the most of their lives." They deserve better than to be lectured about how they're somehow complacent because they accept help when they need it most. We're better than that as a country. 

Friday, April 20, 2012

Looking for Class Warfare in All the Wrong Places

It's time for me to set some things straight. In the House GOP budget, the overall tax burden on the poorest Americans (making less than $30,000 a year) will rise, while that on the richest (above $1 million a year) will fall by hundreds of thousands of dollars.


In addition, as I've said before, the vast majority of cuts in the budget fall on programs that benefit lower or middle-income Americans. Why is this the case? Well, according to Rep. Pat Tiberi (R-OH), it's because they don't have any "skin in the game." He said that it was "hard to lower taxes on people who don’t pay taxes." Basically, he's pushing the same GOP myth that something like half of Americans don't pay income taxes, therefore they somehow don't pay taxes at all. This is blatantly dishonest.

For as much as Republicans like to talk about taxes, they seem to gloss over the fact that there are other types of taxes. Exhibit A: the payroll tax. According to Citizens for Tax Justice, poorer Americans  only pay slightly less than their share of income in taxes. That is, the total income of poorer people in the economy is only slightly more than their total amount of taxes paid. So no, poor people don't get away with paying no taxes at all. For the sake of visualization, here's a chart showing it:

Yes, poorer people pay slightly less taxes than their share of income, while wealthier people pay slightly more in taxes than their overall share in income. That's called a progressive tax rate, and that's been the basis of mody modern tax systems. But to purport that poor people somehow are "lucky duckies" because of this is, at worst, insulting. They aren't a bunch of freeloading deadbeats coasting through life on your hard work. They pay taxes and work hard, too. In fact, in 2010, payroll tax revenues totalled $865 billion, while income tax revenues were a hair higher at $899 billion. So just to be clear, two-thirds of Americans who don't pay income taxes pay a large portion of their incomes in payroll, state, and local taxes. The ones who don't, those "lucky duckies" that have no "skin in the game," are by and large either elderly and retired (so they used to pay taxes), students, or simply so poor or sick that they simply can't pay taxes. Freeloaders, they are not.

The great irony in the Republican budget is that it calls itself "the path to prosperity," but who is that prosperity for? The poor and middle class get their programs cut, the elderly get pushed into paying more for medical care, and the wealthy meanwhile get huge tax cuts, despite the fact that inequality in the U.S. is at historic highs and the wealthy's tax burdens are near historic lows. Haven't they heard of the diminishing marginal utility of money?  It says that in general, as you get richer, you value money less. Cutting taxes on people who value money the least doesn't seem that economically stimulative to me. The way I see it is that their plan effectively purports that if we cut programs for the poor and middle class and give rich people even more money, then we'll all somehow be rich. I'm not exaggerating when I say these things--that's what the budget basically does. This kind of underpants gnome economics is disturbing. It wouldn't be as disturbing, except that we've tried this before, remember? Those Bush tax cuts that brought us that super duper job growth?

Oh, wait.

Wednesday, April 18, 2012

2,000 Views!

So this might be pretty mundane, but I looked at my hit stats on this blog today and found that I've surpassed 2,000 page views. I just wanted to send thanks out to all of my readers and all of those who give me feedback, I couldn't have done it without you. I'll keep on blogging as long as you guys keep on reading them, despite the fact that I'm a noob at this blogging thing.


Tuesday, April 17, 2012

Fight Recessions, Eliminate Money

I just finished reading a column by Matt Yglesias that I found particularly interesting. In it, he argues for the elimination of paper money as a medium of exchange, and instead that we switch to electronic-only transactions, like PayPal, credit cards, etc. This, he says, would greatly increase the effectiveness of monetary policy at the zero-bound. I suppose I should explain just what that means, shouldn't I?

Well, in economic downturns, the central bank, in our case, the Federal Reserve, buys up a whole bunch of Treasury bonds from banks and in return gives them newly created money. As such, banks now have cash to go 'round. Since they have more money to work with, interest rates are much lower, and the cost of investments for businesses and people are likewise lower. The idea is that this'll spur consumption and business investment to try to get us out of our current slump. That's what the Fed is doing right now. But why isn't it working, you might ask? Well, the problem for us right now is that interest rates can't go below zero, even though the equilibrium point for them to achieve full employment may be negative. This wouldn't have been an issue had we gone into this crisis with much higher interest rates (since we could then cut them a lot lower before hitting zero), but raising the rates would have in and of itself caused a recession, since inflation was subdued in the 2000s. Interest rates can't be negative, for obvious reasons--people would be effectively paying to keep their money in banks, so they would likely withdraw most of their money in the form of cash. It would be disastrous and ineffective, to say the least. This is where Yglesias' idea comes in.

What if cash didn't exist? What if, when interest rates were negative, people couldn't withdraw their money from banks? They wouldn't be able to because there would be no physical currency, only electronic money, kind of like the sci-fi idea of "credits." Well, their only option would then be to spend that money, rather than see it be diminished by negative rates. Suddenly, consumer spending is back up, firms have demand for their products, and they can hire people again. Problem solved. Why worry about restoring consumer confidence when you can just do this? After the economy has rebounded the central bank could start to raise rates so that people wouldn't be losing on their money in bank accounts, because that obviously wouldn't be good in the long-run.

You might think that negative interest rates would be punitive action to take against people, but consider the alternative that we have right now: ineffective monetary policy that is stuck at zero while Congressional gridlock is preventing any sort of fiscal stimulus to be passed. As a result, we've got extended periods of high unemployment, when we could have the kind of bounce-back recovery we had in the 80s when we could simply cut rates from double-digit highs to much lower levels. We went into this recession with interest rates in the low single digits, so we didn't have nearly as much room to cut rates as Paul Volcker did in 1983-84.

Yglesias also touches on the point of people hoarding precious metals instead of money:
"Some people could, it’s true, try to horde gold, diamonds, or other valuable primary commodities. But this would amount to a price boom, creating mining and exploration jobs. It would also increase the wealth of everyone who already owns jewelry, expanding their consumption. The savvy investor, meanwhile, will realize that the price of gold is sure to crash when the recession ends and interest rates go back up, which should put a break on hoarding."
So, really, it wouldn't be much of a downside if people did that. On top of this incredibly important benefit to monetary policy, there are quite a few others that I can think of outside of Matt's column.

Before I go on, I should note that this isn't some far-fetched idea, either: Italy is trying to ban the use of cash on transactions of 1000 Euros or more. The Italians are mostly doing this to combat tax evasion, though, since only partially banning the use of cash wouldn't be quite so effective for enhancing monetary policy. Some of you might be wary of the idea of a cashless society, I mean, we've had cash and coins for thousands upon thousands of years, why change? Well, we already are changing, for starters. How often do you use cash for anything legal? Probably not very, I'd venture. Most people nowadays use PayPal, credit cards, or checks for most purchases anyways. There are quite a few benefits to it, and very few insurmountable downsides, the way I see it.

For starters, it would be more convenient. It might be a few years before online and mobile banking is up to the task of fully replacing cash, but it certainly could get there if the need was readily apparent. Tax evasion would probably be much more difficult without the use of cash for under-the-table payments and the like. This goes hand in hand with combating crime on a number of levels (like illegal arms trader, violent drug lords, etc) because transactions would become easier to track by authorities. I should quickly note before continuing that I personally think the War on Drugs is a spectacular failure. However, so long as everything remains illegal and non-regulated, the supply of these drugs remains largely in the hands of drug lords who are, let's face it, all-too-often violent criminals, so being able to track them down is always a plus. Legalization and regulation would be simpler and more effective, I think, in eliminating the black markets for these goods than any War on Drugs has been. But I digress...

From a public health standpoint, cash is pretty germ-ridden. Since cash changes hands a lot more than other stuff, it also spreads germs a lot more, too. In fact, a lot of hospitals are trying to eliminate the use of cash in their cafeterias, so as to avoid patient infections, since something like the influenza virus can survive on a dollar bill for up to 17 days. Moreover, the U.S. spends more money to produce coins right now than they're actually worth (2.4 cents for each penny, 11.18 cents for each nickel), so it seems only prudent from a fiscal standpoint as well to be rid of them, especially since they're barely used as is. This is all in addition to the boon that a cashless economy would give to our monetary policy makers.

This is not to say, however, that implementing such a system wouldn't have downsides or would be an easy task. A cashless society would hit the poor the hardest, since they're often the ones who don't have checking or savings accounts (1 in 12 American families don't have bank accounts). I feel like this could be remedied with relative ease with something like a regulation on banks to offer free checking or savings accounts to lower-income people. Mobile payment systems are on the rise in places like Sweden, where you can send a text message to buy a bus ticket, so it isn't as if we lack the technology for implementation. As I said before, the problems that we would face with a cashless society do exist, but they're far from insurmountable in my view.

Paper money has been around in the West since 1661 in Sweden. We've done away with the gold standard because it was cumbersome and offered more problems than remedies. Now, it only seems both prudent and beneficial to do away with paper money. Sure, it's definitely difficult to stomach from a sentimental point of view, but economics, as Paul Krugman often says, is not a morality play.


Thursday, April 12, 2012

How Much Do Super Diseases Cost Us?

Pretty short post today, but I just read a really interesting piece by Ezra Klein on the effects of antibiotic use in our beef and the implications for our health care costs. Here's a few choice excerpts that I found particularly frightening:
"70 percent of the antibiotics used in this country -- 70 percent! -- go into livestock production. And that's before you even get to the antibiotics that are used on animals who actually fall ill. 
The reason is simple enough: If we didn't pump our livestock full of antibiotics, they would get sick. They are, after all, packed into dim and dirty enclosures. They're stacked on top of one another. And they're being fed food they didn't evolve to eat. All of this makes animals sick. But rather than raise them in a way that doesn't make them sick, but costs somewhat more, we just keep them on constant doses of antibiotics.
And then we eat them. Which means we get constant, low-grade doses of these antibiotics. Which means common bacteria get constant, low-grade doses of these antibiotics. And there's mounting evidence that this background exposure to antibiotics is contributing to the startling rise in antibiotic-resistant bacteria."
I have to admit, for all of my knowledge of what goes into certain foods, I really didn't know that that many antibiotics were used (primarily in cows, so beef and milk) in producing our livestock. Numerous studies have been done by the WHO and other groups that have shown that the large increase in antibiotic-resistance diseases is largely due to the widespread use of antibiotics in our livestock. The way it works is this: cows get a consistent, low-dose of antibiotics, we eat the cows, so we, too, get a consistent, low-dose of antibiotics. Enter bacteria we encounter all the time. And voila, they're resistant. Overuse of antibiotics, it is widely known, creates resistant diseases. This is just about the textbook definition of overuse.

The FDA and others have proposed banning the use of certain types of antibiotics in livestock before, but the beef industry lobbied heavily against it. Unfortunately, the FDA's new measures to limit certain antibiotics for human use only (so they can actually kill the resistant bugs) are apparently only voluntary. So basically the company just has to disclose that the drug is used in animals on the label. Needless to say, this probably won't help and isn't a strong enough measure.

In any case, I'm an economist-in-training, (or I'd like to think so) not a health expert, so how does this affect you and I from an economic standpoint? Well, you need not look too far into the article to find out: antibiotic-resistant bacterial infections cost the U.S. about $50 billion in health care costs per year. That's not chump change. So why don't we just set aside certain classes of antibiotics for human use? Well, the beef industry doesn't seem to want that, because it would cost more. But how much more could that cost, really? We have to think about the cost-benefit analysis here. Apparently, the National Academy of Sciences did a study to determine just that, and it found that it would cost about $5-10 more per person in the U.S. So, the total cost if applied over the entirety of the U.S. would be $3.1 billion. 

Looking at this from a cost-benefit point of view, it seems pretty worth the trade-off, given that we'd save around $47 billion, and probably even more in the long run, since diseases are only going to become more resistant. If you want to talk about controlling health care costs, a good place to start is making sure the food we eat is actually healthier, and not, you know, breeding super-staph.


Tuesday, April 10, 2012

For the Last Time, Obamacare Does Not Increase the Deficit

Ah, here we are again, ladies and gentlemen. Yet another Republican making some spurious claim that Obamacare increases the deficit and poses a dire threat to our nation's finances. You'd think they would stop trying after the first and second times were proven wrong. But no, I guess not. In his column a few weeks ago, Paul Krugman said the following:
"It’s said that you can judge a man by the quality of his enemies. If the same principle applies to legislation, the Affordable Care Act — which was signed into law two years ago, but for the most part has yet to take effect — sits in a place of high honor."
He was spot-on then, and even more so now. Yesterday, on the front page of the Washington Post, there was an article about a "study" done by the Republican trustee for Medicare. Traditionally, the trustees are divided evenly by party, so that the President appoints equal numbers of both. Anyways, the Post made it seem like this is a government study, but in reality, Charles Blahous did this on his own for the Mercatus Center, which is a conservative think-tank. In any case, his study claims that Obamacare will add $340 billion to the deficit. He got this number by changing the baseline of his study. The baseline is basically the current law that any proposal is compared to, but this study changes the baseline to something wildly different from other cost estimates. I'm outsourcing to Ezra Klein to do the explaining, because he does a better job than I really could:
"Blahous’s argument is this: There’s a trust fund for Medicare. That trust fund, prior to the Affordable Care Act, was expected to run out in 2016. But the Affordable Care Act partially pays for itself through $500 billion in Medicare cuts. That’s delayed Medicare’s looming bankruptcy.
This is where things get a bit tricky: Blahous believes that you should treat Medicare’s insolvency as a kind of guaranteed spending cut. After all, Medicare isn’t allowed to spend beyond its trust fund. So, under his baseline, Medicare doesn’t begin running deficits in 2016. It either cuts benefits or some other solution is found. Under that theory, the Affordable Care Act, by cutting Medicare spending, is cutting spending that would never have happened. Or, as Blahous puts it, Obamacare’s Medicare cuts are “substitutions for spending reductions that would have occurred by law in the absence of the ACA.” 
The implication of Blahous’s baseline is that we don’t have a deficit problem. Anywhere. Medicare won’t contribute to deficits because it can’t spend beyond the trust fund. Social Security, similarly, can’t contribute to deficits because it can’t spend beyond its trust fund."
So basically Blahous just changed the scoring in such a way so as to make Obamacare look worse than it actually does. He's basically making the same claim that the cost estimates are "double-counting" the savings from Medicare that Republicans have been making for the past two years. If this scoring method was used on everything, Paul Ryan's budgets would be double-counting, too, but you don't see such methods being used on it, do you? Let me ask, though: Does the Congressional Budget Office, an agency that specializes in making cost estimates, and is by all accounts very good at making them, sound like it would somehow make the elementary mistake of double-counting? 

Friday, April 6, 2012

Obama's Not-So-Big Government

As some of you econ nerds out there may already have heard, the jobs report for last month came in, and the news was not good by anyone's measure. 120,000 jobs were added (compared to 240,000 in February), and the unemployment rate fell to 8.2%. I grant that this might just be a blip on the radar from something like the recent spike in gas prices. At the same time, though, it reflects that we are still very much in an unemployment crisis, and that now is definitely not the time for complacency.


This jobs report made it quite clear that the recovery is probably not self-sustaining, as much as we might wish it to be so. So why is this recovery so devilishly hard to maintain? Well, you might find this hard to believe, but layoffs in the public sector (i.e. government jobs) are really a large part of what's holding us back. You're incredulous, I know. Barack Obama has presided over a massive increase in the deficit, and thus, in the size of government. He's replaced the job creation of businessmen with that of bureaucrats, right? Well, no, not quite, actually. Since the recovery began in June 2009, 584,000 public sector jobs at the federal, state, and local levels have been lost.


The thing is, the public sector has been slowly bleeding jobs since the middle of 2009, while the private sector has hired 3.9 million people since February 2010. However, the huge amount of debt the private sector (and homeowners) racked up is still being paid down, so private sector job creation isn't fast enough to fully counteract the government layoffs.


Why has this happened? Well, there are a few reasons. The first reason is that federal aid to state and local governments, which was provided as part of the Obama stimulus package, began to run out a bit over a year ago. When Republicans swept the 2010 midterms, there was no chance that more federal dollars would be appropriated, as Republicans refused to increase government spending. States and localities found that they had huge budget shortfalls. Since states can't run budget deficits nearly as easily as the federal government can (all but one have budget amendments), they were forced to balance their budgets.


When balancing your budget, you obviously have two options: cutting or taxing. States either couldn't or didn't raise taxes alone to completely cover their shortfalls for a variety of reasons. Anyways, since they can't raise a whole lot via taxes, the states were forced to make deep budget cuts. Obviously, you know what came next--the layoffs. States (and localities) were forced to shed thousands upon thousands of jobs.


The second source of public sector job loss was actually at the federal level. To begin with, the stimulus package was too small, so it didn't actually account for any appreciable rise in public employment. To make matters worse, the focus was taken off of job creation in Washington in 2010. This was especially true after the Republican victory in the 2010 midterm elections heralded in a newfound focus on our so-called debt crisis. The budget cuts started almost immediately: first with the showdown over the budget, which resulted in billions in cuts. Then, the debt ceiling agreement cut $1 trillion immediately, with another $1.2 trillion in cuts to follow in January of 2013 (not to mention the tax hikes). As a result, the government started shedding jobs at a steady pace.


So how does this situation stack up against recoveries from previous recessions? Well, let's take a look at public sector employment following the 1981, 1990, and 2001 recessions, when Reagan, Bush I, and Bush II were President, respectively.


The EPI says that if public sector job growth had been around what it had in these previous recoveries, we would have gained roughly 1.7 million jobs, instead of losing nearly 600,000. It's interesting, isn't it? Under all three Republican Presidents, government actually got bigger, while under Obama, it got smaller. That's not to say that Obama is right and they are wrong--I'd have liked to seen more public sector hiring--but it certainly calls into question a lot of the claims about government that Republicans like to throw around. Who knew Reagan was such a big-government guy?


The irony of it all would be funny if it wasn't so depressing.

Wednesday, April 4, 2012

Mitt Romney's Marvelous Budget

"Marvelous." That's the word that Mitt Romney used to describe Paul Ryan's latest budget. The new budget, entitled The Path to Prosperity, was passed along party lines by House Republicans last week. Many of you may know Paul Ryan from his 2011 fame as the serious, fiscally responsible budget-balancer. Or so the media deemed him. He even got a "fi$cy" award for fiscal responsibility. It becomes readily apparent when you actually look at the details of his latest budget proposal, that Paul Ryan's budget, is, in fact, not fiscally responsible, not serious, and definitely not marvelous.

So what's so bad about this budget? Well, let's start with what gets cut. The budget calls for $5.3 trillion in spending cuts. Where do these cuts fall, you might ask? Well, let's just start by saying that 62% ($3.3 trillion) of the cuts come from programs for the poor and needy. What kind of programs? Well, supplemental nutrition programs for young children (SNAP) gets a hefty $134 billion cut over 10 years. Medicaid, the program for poor, disabled, and elderly people who need extra care gets a whopping $2.4 trillion cut over 10 years. On top of that, $166 billion is cut from a wide range of programs, including job training programs and Pell Grants for lower income college students. As if all of this wasn't bad enough, this is what the Center for Budget and Policy Priorities has to say about the budget plan:
"Since, as CBO notes, “spending for defense alone has not been lower than 3 percent of GDP in any year [since World War II]” and Ryan seeks a high level of defense spending — he increases defense funding by $228 billion over the next ten years above the pre-sequestration baseline — the rest of government would largely have to disappear. That includes everything from veterans’ programs to medical and scientific research, highways, education, nearly all programs for low-income families and individuals other than Medicaid, national parks, border patrols, protection of food safety and the water supply, law enforcement, and the like."
In other words, I hope you like the highways as they are, because there won't be any money to fix them. I hope you like paying for your own care, veterans, because Paul Ryan's plan thinks your service to America deserves no recompense. I hope you like tainted food, water, and air, because Paul Ryan doesn't think that's an important factor in determining the prosperity of our nation. And seniors, I hope you like paying for more and more of your health care, because Paul Ryan will give you a voucher that covers less and less of your insurance costs. I'm not exaggerating.

All of these things, according to the House GOP, must be done in the name of balancing our budget. All of these things, according to the House GOP, we simply can't afford anymore, so we all have to share in the sacrifice. You know, they might have one tiny shred, one iota of credibility when they say things like this, if it weren't for the tax cuts. Ohh, the tax cuts. Paul Ryan is proposing to eliminate all but two brackets--10% an 25%, and cutting the corporate tax rate down to 25%. How will these tax cuts affect people in different income levels, you might ask?


Shared sacrifice, says the GOP. Bullhonkery, says I. The middle class barely benefits from the tax cuts, while people making over $200,000 take the lion's share. This is more pronounced when you consider the large cuts to lower and middle-income programs that this budget makes, so that ultimately, poorer and middle class people are worse off under this budget, while the wealthy get a hefty tax break. The GOP's defense of this tax cut is that the wealthy are the so-called "job creators" of America, and by taxing them, we'll somehow have fewer jobs. The reality of this is that less than 2 percent small business owners are in the top two tax brackets

But wait, it gets worse! These tax breaks end up costing a total of $4.6 trillion dollars, to say nothing of the $5.4 trillion cost of extending the Bush tax cuts. Ryan claims that the revenue will be made up for by closing loopholes. Which ones, you might ask? Well, he hasn't named a single one. He has, however, explicitly stated his refusal to close loopholes on capital gains, the very same ones that allow Mitt Romney to pay 14% in income taxes. This isn't fiscal discipline. This isn't serious.

And what really scares me is that this budget isn't some fringe group's proposal. This has been endorsed by the Republican nominee for President. This was voted for by the entire House GOP. This is now their vision for America. In a speech last December, Mitt Romney said that he bought into Teddy Roosevelt's thinking "that government should level the playing field to create equal opportunities." In another speech, he argued that ordinary people's frustration with the greed of corporate CEOs was simply about envy and class warfare. If Mitt Romney really believed that the government should create equal opportunities, he wouldn't have endorsed a budget that would deprive millions of a chance at a college education. If Mitt Romney really wanted to speak out against class warfare, he wouldn't have endorsed a budget that leaves the poor and middle class out in the cold while giving millionaires a tax cut. This isn't the path to prosperity. This isn't even the path to deficit reduction. This is a raw deal, and it's being peddled by a pack of charlatans who've taken over a once-reasonable political party.