The debt ceiling deal -- who won and who lost?

By Richard K. Barry 

Two people I tend to consult to get a read on current economic policy struggles in Washington are Paul Krugman and Robert Reich. Not that anyone is ever right about everything, and maybe it's simply true that these two support my understanding of the world and I find that they usually make sense.

Whatever the case, they provided some pretty depressing commentary today on the deal Obama struck to raise the debt ceiling.

Here's Reich:

Anyone who characterizes the deal between the President, Democratic and Republican leaders as a victory for the American people over partisanship understands neither economics or politics.

The deal does not raise taxes on America's wealthy and most fortunate -- who are now taking home a larger share of total wealth, and whose tax rates are already lower than they have been in eighty years. Yet it puts the nation's most important safety nets and public investments on the chopping block.

It also hobbles the capacity of the government to respond to the jobs and growth crisis. Added to the cuts already underway by state and local governments, the deal's spending cuts increase the odds of a double-dip recession. And the deal strengthens the hand of the political right. 

And from Krugman in a piece entitled "The President Surrenders":

For the deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.

Start with the economics. We currently have a deeply depressed economy. We will almost certainly continue to have a depressed economy all through next year. And we will probably have a depressed economy through 2013 as well, if not beyond.

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

The bottom line is that there are two ways to win in politics. The first is to actually win the election and implement your policies. The second is to lose the election but, somehow, through power politics, political extortion, or appeal to aspects of the winners ideological predisposition that he may share with you, get the winner to do what you would have done had you won.

However it happened, does anyone doubt that, at least this week, the Republicans are controlling the terms of the debate in Washington and that it will be difficult to imagine how Democrats reassert control?

The "deal" means that we will continue to talk about what and how much to cut, which will benefit the richest among us, instead of what and where to invest, which would benefit the vast majority of us, especially those in need of gainful employment.

Not the finest day for America, as far as I can tell.

(Cross-posted at Lippmann's Ghost.)

Things Republicans say about job creation that aren't true

By R.K. Barry 

Yesterday I wrote that no matter how tired progressives get saying the same things over and over again, no matter how tired they get refuting the lies of Republicans, they should carry on and fight the good fight because many people, who perhaps don't always pay enough attention, need to hear the the truth as often as possible.

Recently I have become a big fan of former Labor Secretary Robert Reich, who has a teaching gig at UC Berkeley these days and also blogs on political and economic issues. I find Reich the consummate teacher in the way he lays out his arguments and exposes nonsense for what it is.

One of the greater challenges in politics, I find, is that economic theory is so hard for most people to understand, and some theories that seem to make sense are flat out wrong, things like, if we just slash taxes on corporations, that will necessarily create more jobs. Yeah, well, not so much. Not if there isn't enough demand out there because people don't have sufficient income to buy stuff. Anyway, I'll let the good professor explain.

Here are a few untruths Republicans like to trot out, with rejoinders supplied by Professor Reich:

• "Cutting taxes on the rich creates jobs." Nope. Trickle-down economics has been tried for thirty years and hasn't worked. After George W. Bush cut taxes on the rich, far fewer jobs were created than after Bill Clinton raised them in the 1990s.

• "Cutting corporate income taxes creates jobs." Baloney. American corporations don't need tax cuts. They're sitting on over $1.5 trillion of cash right now. They won't invest it in additional capacity or jobs because they don't see enough customers out there with enough money in their pockets to buy what the additional capacity would produce.

• "Cuts in wages and benefits create jobs." Congressional Republicans and their state counterparts repeat this lie incessantly. It also lies behind corporate America's incessant demand for wage and benefit concessions – and corporate and state battles against unions. But it's dead wrong. Meager wages and benefits are reducing the spending power of tens of millions of American workers, which is prolonging the jobs recession.

• "Regulations kill job." Congressional Republicans are using this whopper to justify their attempts to defund regulatory agencies. Regulations whose costs to business exceed their benefits to the public are unwarranted, of course, but reasonable regulation is necessary to avoid everything from nuclear meltdowns to oil spills to mine disasters to food contamination – all of which we've sadly witnessed. Here again, we're hearing little from the President or Democratic leaders.

If cutting taxes on rich people, cutting corporate income taxes, cutting wages and benefits, and deregulation don't create jobs, then a lot of middle class people are probably going to be voting against their own best interests come 2012 and in the interests of others who don't really need the help. Just sayin'.

(Cross-posted at Lippmann's Ghost.)

Taxing the super rich like it's 1959

By R.K. Barry

Robert Reich, who was Secretary of Labour in the Clinton Administration from 1993 to 1997, has a very interesting blog on the current state of affairs that contains any number of useful observations. 

I recently came across one of his posts, which laid out some rather compelling facts about the grossly uneven distribution of wealth in America and how it is that we have come to be in a situation where we can't pay for the things that any civilized society really should be able to fund.

No great surprise, but nearly everyone in America has bought into the idea that we need to radically reduce expenditures rather than give any thought at all to increasing revenues through taxation, specifically by taxing those who can most afford it – the super rich.

We have heard this before, but the numbers, as I say, are compelling.

I do recommend that you read Reich's post in its entirety, but here are a few interesting bits:

Today's typical 30-year old male (if he has a job) is earning the same as a 30-year old male earned three decades ago, adjusted for inflation.

The bottom 90 percent of Americans now earn, on average, only about $280 more per year than they did 30 years ago. That's less than a 1 percent gain over more than a third of a century. Families are doing somewhat better but that's only because so many families have to rely on two incomes.

This may not sound catastrophic, but, and here's the rub, the American economy is more than twice as large now as it was thirty years ago. So, Reich asks, where does all the money go? And the obvious answer is: to the top:

The richest 1 percent's share of national wealth has doubled – from around 9 percent in 1977 to over 20 percent now. The richest one-tenth of 1 percent's share has tripled. The 150,000 households that comprise the top one-tenth of 1 percent now earn as much as the bottom 120 million put together.

In so many ways, I have to say that I don't care what one's politics are. This is just wrong. 

But you might think that with the economy growing so rapidly over the past 30 years, those benefiting the most would be called upon to kick in a bit more. You would be wrong. The power of the super rich has been such that they have been able to make just the opposite happen:

From the 1940s until 1980, the tax rate on the highest earners in America was 70 percent or higher. In the 1950s, it was 91 percent.

Under Ronald Reagan the top rate dropped to 28 percent. Under Bill Clinton it rose to 39 percent and then under George W. Bush dropped to 36 percent (which is, of course, where the Republicans want to keep it).

Reich goes on to talk about big slashes to estate taxes and capital gains taxes, but you get the picture.

To add insult to injury, Reich makes the point that even before the current economic downturn the middle class's share of the nation's total income had shrunk while their tax burden had grown as they paid bigger chunks of their income in payroll taxes, sales taxes, and property taxes than they did before.

A lot of right wingers want to talk about common sense. Well, it makes no sense to me that public services and programs that the middle class and poorer Americans count on are poised to get the axe while this gross, and relatively new, uneven distribution of wealth in America does incredible damage to the fabric of the country.

The obvious point that Reich makes is that we need to hike taxes on the super rich -- not that this is going to happen any time soon.

No, we are going to continue to vilify public sector employers and big government in general. We are going to let big money buy all the means of mass communication and politicians it needs to convince everyone that what we really need is smaller government, which is just another way of saying that people, a growing number of people, will simply have to do without what they need to live a decent life.

A more equitable scheme of taxation would go a long way to solving the problems we are told can only be solved by massive cuts, but that would simply seem to make too much sense.

I'll give Professor Reich the last word:

Do this and we can afford to do what we need to do as a nation. Do this and you prevent setting the middle class against itself. Do this and you restore some balance to a distribution of income and wealth that's now dangerously out of whack.

Amen.

(Cross-posted at Lippmann's Ghost.)