Also, if you don’t want to repeat after me, kids, repeat after economist Dean Baker: The deficit problem is not an entitlements problem.

Listen to the man before you go giving away your — and my — Social Security and Medicare:

The gang for gutting Social Security and Medicare (aka “The Campaign to Fix the Debt”) are running in high gear. During the long election campaign they gathered dollars, corporate CEOs and washed up politicians for a full-fledged push in the final months of the year. They are hoping that the hype around the budget standoff (aka “fiscal cliff”) can be used for a grand bargain that eviscerates the country’s two most important social programs, Social Security and Medicare.

They made a point of keeping this plan out of election year politics because they know it is a huge loser with the electorate. People across the political and ideological spectrums strongly support these programs and are opposed to cuts. Politicians who advocated cuts would have been likely losers on Election Day. But now that the voters are out of the way, the Wall Street gang and the CEOs see their opportunity.

It is especially important that they act now, because one of the pillars of their deficit horror story could be collapsing. Due to a sharp slowing in the rise of health care costs over the last four years, the assumption that exploding health care costs would lead to unfathomable deficits may no longer be plausible even to people in high level policy positions.

As we all know, the large budget deficits of the last four years are entirely due to the economic downturn caused by the collapse of the housing bubble. The budget deficit was slightly over 1.0 percent of GDP in 2007 and the Congressional Budget Office (CBO) projections showed it remaining low for the near-term future. The origin of the large deficits of the last few years is not a debatable point among serious people, even though talk of “trillion dollar deficits, with a ‘t’” is very good for scaring the children.

However, the big stick for the deficit hawks was their story of huge deficits in the longer term. They attributed these to the rising cost of “entitlements,” which are known to the rest of us as Social Security, Medicare, and Medicaid.

While they like to push the notion that the aging of the population threatened to impose an unbearable burden on future generations, the reality is that most of the horror story of huge deficits was driven by projections of exploding private sector health care costs. Since Medicare and Medicaid mostly pay for private sector health care, an explosion in private sector health care costs would eventually make these programs unaffordable.

As some of us have long pointedout, there are serious grounds for questioning the plausibility of projections that the health care sector would rise to 30 or 40 percent of GDP over the rest of the century. Recently a paper from the Federal Reserve Boarddocumented this argument in considerable detail.

Even more important than the professional argument over health care cost projections is the recent trend in health care costs. While the CBO projections assume that age-adjusted health care costs rise considerably more rapidly than per capita income, in the last four years they have been roughly keeping pace with per capita income.

In fact, in the last year nominal spending on health care services, the sector that comprises almost two-thirds of health care costs, rose by just 1.7 percent. This is far below the rate of nominal GDP growth over this period, which was more than 4.0 percent. While at least some of this slowing in health care costs is undoubtedly due to the downturn, it is hard to believe that it is not at least partially attributable to a slower underlying rate of health care cost growth.

CBO and other budget forecasters can ignore economic reality for a period of time (they ignored the housing bubble until after its collapse wrecked the economy), but if it continues, at some point they will have to incorporate the trend of slower health care cost growth into their projections. When this happens, the really scary long-term deficit numbers will disappear.

A projection that assumes that health care costs will only rise as a result of the aging of the population, and otherwise move in step with per capita income, will lop tens of trillions of dollars off the most commonly cited long-term deficit projections. It would cost some deficit hawks, like National Public Radio, more than $100 trillion of their long-term deficit story. This would be a real disaster for the deficit hawk industry.

This is why the Campaign to Fix the Debt and the rest of the deficit hawk industry will be operating at full speed at least until a budget deal is reached over the current impasse. If CBO adjusts its long-term health care cost projections downward then their whole rationale for gutting Social Security and Medicare will disappear. Now that is really a crisis.

And in light of today’s horrid front-page News & Record article on the so-called fiscal cliff, here’s a question for Greensboro peeps: Would it really be too much trouble to get Jeff Gauger and his crew at the N&R to introduce some fact-based economic coverage? The voters last week seemed to indicate a taste for that kind of thing.

Repeat after me, kids: There. Is. No. Fiscal. Cliff.

The Washington Post continues to lie, and economist Dean Baker, bless him, continues to call them out on it. Logic having failed, he now turns to mockery:

The Washington Post is throwing all journalistic norms aside in its drive to cut Social Security and Medicare. It continues to hype the budget standoff as an ominous “fiscal cliff” and tells readers on the front page of its web site that it could provide a “magic moment” in which Social Security and Medicare can be cut. The piece begins by telling readers:

“Two years ago this month, the leaders of a presidential commission rolled out a startling plan to dig the nation out of debt. After decades of stagnating incomes, they said, Washington must tell people to work longer, pay higher taxes and expect less in retirement.”

Okay I tricked you, this is the Washington Post which doesn’t acknowledge economic realities like stagnating income. The piece actually began:

“Two years ago this month, the leaders of a presidential commission rolled out a startling plan to dig the nation out of debt. After decades of profligacy, they said, Washington must tell people to work longer, pay higher taxes and expect less in retirement (emphasis added).”

This departure from reality gives you the gist of the story. The piece continues:

“Lawmakers recoiled from the blunt prescriptions of Democrat Erskine Bowles and Republican Alan K. Simpson. But their plan has since been heralded by both parties as a model of clear-eyed sacrifice, and policymakers say the moment has come to live up to its promise.”

Well, yes people have praised their plan. They have also ridiculed it. For example it proposes immediate cuts in Social Security benefits that would be a larger share of the income of the typical beneficiary than President Obama’s proposed tax increases on the top 2 percent would be for most of the affected taxpayers. It also proposes increasing the age for Medicare eligibility, even though this would add tens of billions to the country’s health care costs over the next decade. And, it proposed a minimum Social Security benefit for low wage earners that few low wage earners would actually qualify for due to the number of working years required to qualify.

You  know what the worst thing will be to happen immediately if we don’t have a new deal by Jan. 1? Very rich people will start having to pay a little more in income taxes. Quelle horror.

Also, everyone just needs to shut up about Erskine Bowles being some kind of selfless patriot and/or competent leader. As White House chief of staff, he made Bill Clinton’s affair with Monica Lewinsky possible (not that Clinton wasn’t a Grade A horndog, but you don’t give people like that lots of free time if you expect them to lead the nation without embarrassment). The guy’s an investment banker. He personally will profit a great deal from any kind of austerity deal, as will the investment bank on whose board he sits. Also? Obama is expected to get 60 votes in the Senate to get anything done, a situation the Framers never intended, and Bowles couldn’t even get 14 votes for his own plan from a committee that was named after him. I think that tells you just about all you need to know.

Our terrible, horrible, no-good, very-bad news media and the deficit; or, Don’t point that gun unless …

Economist Dean Baker:

In the middle of a steep recession, any measure that reduces the deficit will cost jobs. That is because it will reduce demand. If anyone wants to see a lower deficit in 2013 (certainly the Post does), then they want to throw people out of work.

This is sort of like pulling the trigger on a gun pointed at someone’s head. Presumably this is not done unless the desire is to see the person dead.

 

Child abuse

Economist Dean Baker:

Yes, on this great day when we hear the unemployment rate is 8.3 percent, NYT columnist Bill Keller is still pressing on the need to curb Social Security and Medicare spending and calling on his fellow baby boomers to rise to the occasion. He has even brought in Jim Kessler, the senior vice-president for policy at Third Way, to help him make the case.

I’m sure that Keller and Kessler would consider my mention of the 8.3 percent unemployment rate to be rude, after all what does that have to do with the need to cut Social Security and Medicare? There is a simple answer to that. The 8.3 percent unemployment rate should be seen as comparable to a school fire where the children are still inside the building. Tens of millions of people are seeing their lives ruined.

This is not a short-term story. Many of the families that will break up under the stress of high unemployment or the loss of their home will not get back together when the unemployment rate falls back to a more normal level. Similarly, the kids who have their school lives disrupted because their parents lose their homes or must move in search of jobs and/or family break up will not have the damage repaired later. This is why 8.3 percent unemployment should be problems #1, #2, and #3.

And yes, we do know how to fix this. Spending money puts people to work. Contrary to a bizare cult in policy circles, it does not matter whether money comes from the private sector or public sector –dollars will get people to work. And the people who get those dollars will spend them and put other people to work. If Keller and Kessler want to be responsible baby boomers they will do everything in their power to try to get us back to full employment quickly so that so many children do not have to grow up in families that are troubled by unemployment. The next generation will thank them for their efforts, I assure them.

UPDATE: Link added. H/t to Beau for alerting me to the omission.

UPDATE: Greensboro folks, this Keller piece appears on the front of today’s Ideas section in the News & Record.

Dean Baker sums up our economic, political and journalistic problems in three short paragraphs

Baker:

Dana Milbank devoted his [Washington Post] column to the disenchantment of progressives with the current political situation. At one point he comments that “the still-lumbering economy has depressed President Obama’s supporters.”

While this is no doubt true, it is worth mentioning that just about all progressives said at the time that the stimulus would be inadequate to restore the economy to a healthy growth path. The collapse of the housing bubble destroyed close to $1.2 trillion in annual demand from construction and consumption. At its peak in 2009 and 2010 the stimulus only replaced about $300 billion in annual spending.

It is discouraging to see so many people suffering unnecessarily, but this outcome is exactly what our analysis predicted at the time. Unfortunately, having a track record of being right is not generally a factor in determining which views carry weight in Washington policy debates.

Somebody tell me again how the U.S. is a meritocracy. Or, as Driftglass famously observed:

Everyone’s entitled to his own opinion, but not his own math

Dean Baker eviscerates both James B. Stewart of The New York Times and Rep. Paul Ryan’s massive tax cuts for rich folks disguised as a federal budget:

What Stewart tells us is reasonable is that the budget calls for cuts in entitlements and tax reform. He then asks who could disagree with this.

One has to wonder whether Stewart has looked at the Ryan budget. First, on taxes the only specifics are cuts in the tax rates paid by rich people and corporations. None of the offsetting tax increases are specified.

If this sounds like a sensible opening gambit, let’s imagine the equivalent on the opposite side. Suppose that we proposed to increase Social Security benefits for the bottom two income quintiles of retirees. Suppose that we also proposed increased spending on infrastructure, research and development, and education.

Suppose the left-wing Ryan budget wrote down that these spending increases would be offset by unspecified reductions in government waste. We then told CBO to score it accordingly. Is this a good starting point for further discussion? …

Even more to the point: Is there anyone who has been paying attention for the past 20 years who believes that if some leftist proposed such a budget as Baker hypothesizes, the mainstream media (forget Fox) wouldn’t go utterly batshit calling out the many problems, miscalculations and flawed assumptions contained therein, including but not limited to some that were not flawed or miscalculated at all (Politifact and Factcheck, I’m looking at you)?

The Ryan budget is proving to be a wonderful Rorschach test. We have people who want to be part of the inside Washington conversation who praise the budget’s courage and integrity. Then we have people who believe in arithmetic who call it what it is: a piece of trash.

Why does this matter? Because people who ought to know better are running round calling Paul Ryan a serious thinker, when in fact he is either unable or unwilling to do fifth-grade math, and because there’s a nontrivial chance he will be Mitt Romney’s running mate.

This would leave a mark, if The Washington Post, the administration and Congress had any integrity

Economist Dean Baker on the Post’s reporting on unemployment:

The unemployment rate for the 30 percent of the workforce with college degrees is still more than twice its pre-recession level. If the Post had done its homework it would know that the problem is not the skill levels of unemployed workers, the problem is the skill level of people who make economic policy.

 

Zombies walk among us …

… and not the fun kind, John Hussman says:

In short, my impression is that investors are deluding themselves about the solvency of the banking system. People learned in the 1930′s that when you don’t require the reported value of assets to have a clear and tangible link to the value that the assets would have in liquidation, bad things happen. Yet this is what regulatory and accounting rules are allowing for the banking system at present. While I do believe that bank depositors are safe to the extent of FDIC guarantees, my impression is that the banking system is still quietly insolvent.

And how badly overvalued are those banks’ assets? Well, Hussman says, according to economist Dean Baker’s 2009 Congressional testimony, banks have protested that there’s really no well to tell, but in fact (he’s still quoting Baker) there has been an excellent, albeit extremely unpleasant, way to tell. It just isn’t telling banks what they want to hear:

The troubled assets on the banks’ books are overwhelmingly mortgages, both first and second or other junior liens, not mortgage-backed securities. The FDIC has acquired large quantities of mortgages from its takeover of several dozen failed banks over the last year. It auctions these assets off on an ongoing basis. The results of these auctions are available on the FDIC website. Non-performing mortgages typically sell in these auctions at prices in the vicinity of 30 cents on the dollar.

So if we “extend and pretend,” as Hussman calls the administration’s current eyes-averted approach to the problem, what will happen? At best, a decade or more of stagnancy. And we might not get the best. Peachy.

And speaking of banksters …

… a meme has been circulating recently on Facebook urging us to require welfare recipients to submit to drug testing. I’ve announced there and here that I’ll support that right after we start drug-testing recipients of federal bailout money. All irony aside, I oppose drug testing in both cases, but the truth is that bailout recipients, as measured by their burden on the taxpayer, are a substantially bigger problem.

Economist Dean Baker points out (via Firedoglake) that the 18 largest banks, the “too big to fail” ones, are currently enjoying a lower rate of borrowing from the federal government (1.15%) than their smaller brethren and sistren (1.93%). That 0.78% difference amounts to a taxpayer subsidy of about $33 billion a year. That, he points out, is more than twice as much as the Temporary Assistance to Needy Families program and about 20% more than the total we spend on foreign aid, even after all the direct bailout money is paid back.

Your tax dollars at work … helping the banksters to screw you even more.

Odds and ends for 11/20

Huge win for the good guys, by which I mean taxpayers: House Finance Committee overwhelmingly and with true bipartisan support votes to audit the Fed. Barney Frank, previously a supporter, voted against. He’s going to need a damn good explanation.

Welcome to the 21st century, beehortches: Muslims want an anti-blasphemy law? Well, I want a jet pack and I ain’t getting that, either.

Come for the counsel, stay for the funny anecdotes (or vice versa): The NYT asks a shrink to tackle the fraught topic of holiday family get-togethers.

Transact this: Economist Dean Baker on the case for a financial-transaction tax. Short version: Yes, it would raise (microscopically) the cost of capital, but like booze and cigarette taxes, it would discourage something harmful: in this case, the kind of high-frequency, high-volume, low-value trading currently dominating the stock market. (Let’s face it, when the market can go up significantly on a day when more than a third of all trading involves the stock of just four companies — four basically insolvent companies — does the economy really benefit?)

Show some respect: A large majority of Americans, and 53% of Republicans, think it’s OK for the president of the United States to bow to the leader of a foreign country he’s visiting when it’s custom to bow in that country, according to a poll from that hotbed of pro-Obama liberalism, Fox News (question 18).

Shorter Amanda Hess, for the win: Why is sexism only a problem when it affects Sarah Palin?

Funding priorities: Can we please all agree that whatever else goes into health-care reform legislation, it ought not contain a dime for stuff that doesn’t work? Or has Teh Stoopid rendered even that common-sense position untenable?

Consumer advocacy: Elizabeth Warren sez, “We need a new model: If you can’t explain it, you can’t sell it.”

Once-a-century confluence?; or, Who are you and what have you done with the senator?: When Sen. James Inhofe and former New York Gov. Eliot Spitzer agree that it’s time SecTreas Tim Geithner resigned, maybe it really is time Tim Geithner resigned.