Number 468 December 20, 2010

This Week: More on Deficit Mania!

"Quote" of the Week: Three "Quotes" this week.
Tackling the Deficit: Looking at Some of the Proposals
Why Are There Deficits in the First Place?



My brain is exploding!

That's my excuse for the relatively long gaps between issues of Nygaard Notes lately. I have been doing a lot of background reading on the issues I've been writing about. Not just deficits (currently under the microscope) but also Afghanistan, Social Security, racial disparities, and whatever. I always do quite a bit of background reading, but for some reason I have been going deeper than usual lately, which makes it harder than usual to condense down to Notes-sized articles some of the information I uncover. This, you understand, is what threatens to make my brain explode. I hope that the increased depth of the 2010 Notes makes up for the somewhat decreased frequency. I recall that I had predicted that this would happen earlier this year: less frequent, more in-depth issues. And so it has.

At the moment, I'm going on and on about Deficit Mania for two reasons: First of all, I think that this particular issue illuminates more clearly than most the nature of the Class War that has been underway for decades (centuries, really), and that has intensified in the past 30 years. Secondly, despite the importance of this struggle, it's really not getting reported very well in the media that most people see. For instance, in this issue I (very briefly) discuss seven different major reports/proposals for dealing with the deficit. The report put out by the official Commission appointed by the President got about 100 mentions in major newspapers in the lead paragraphs in the past month. The next three most-covered plans got a total of 23 articles. The other three—including what I consider the best two—weren't featured in a single article, according to my research.

All that's leaking through into most people's heads is that "we don't have enough money to do what we used to." That's dangerous thinking, supported only by some fundamental ideas that should be highly controversial. In fact, they are highly controversial, although I doubt that most people know that they are. How can ideas be controversial without people knowing? Is that possible? Tune in next week when I try to explain.

Still figuring it out,



"Quotes" of the Week

I couldn't choose among three "quotes" this week, so all three are offered here. (What's gotten into me!?)

"Quote" #1:

First off is David Morris, vice president of the Institute for Local Self-Reliance, from his opinion piece that appeared in my local newspaper, the Star Tribune, on December 16th. Titled "Tax Compromise Adds up to a Raw Deal; Social Security's Funding Security Has Gone Away," the piece deserves wide circulation. Go to the Star Tribune website and search for "David Morris." Here are some key words from the piece:

"One reason Social Security has proven so enduring and substantial is because of the financing strategy chosen, a payroll tax... Obama's tax deal will cut the payroll tax by 2 percentage points, reducing payments into the Social Security trust fund by $120 billion a year. Not to worry, says the White House. The $120 billion will come from the general fund. Social Security revenues would remain intact. And the payroll tax reduction, they insist, will disappear in two years. Well, if anyone believes that in two years the Republicans will agree to raise payroll taxes or that the Democrats will insist on it, I have a bridge to sell you.

"The payroll tax cut will be permanent. The elderly and disabled will have to compete for $120 billion a year against all other claimants on the federal budget -- the Pentagon, Medicaid, education, environment. Or, the payroll tax will become a bargaining chip for a Republican demand that Social Security benefits be reduced."


"Quote" #2:

This one is from the proposal from the Citizens' Commission on Jobs, Deficits and America's Economic Future, which I discuss elsewhere in this issue:

"We do not have an entitlement crisis; we have an unaffordable health care system."


"Quote" #3:

The final "Quote" is from economist Rick Wolff, whose excellent article I also discuss elsewhere in this issue:

"[T]he mainstream debates about deficits have simply assumed their necessity. Those debates then focus narrowly on the size of deficits—whether larger versus smaller is better—rather than on why they exist and who benefits from them. No wonder those debates have never solved the deficit problem; they functioned rather to obscure the underlying issue about who pays for and who benefits from government budgets in capitalist societies."


Tackling the Deficit: Looking at Some of the Proposals

Here is a list of seven of the more prominent "deficit reduction" proposals, with a short comment or two from Nygaard on what you might find if you look at them, and why you might care. (Time-saving hint: The last two are the best ones, so you can skip to those if you're not as wonky as I seem to be on this issue.)


The National Commission on Fiscal Responsibility and Reform, as it was called before it was disbanded on December 3rd, was the official commission appointed by the President. Sometimes known as the Simpson-Bowles Commission, this is the one I talked about in the last issue of the Notes. I referred to it as "corrupt and illegitimate"—and I was being polite! Still, it's worth looking over, as it is more or less the reference point for public discussion on the issue. Find it online here.


The Rivlin-Domenici Deficit Reduction Plan was released on November 17th, by someplace called the "Bipartisan Policy Center." Their summary stated that the Center on January 25, 2010 had "launched a Debt Reduction Task Force to develop a long-term plan to reduce the debt and place our nation on a sustainable fiscal path."

This task force includes a woman named Maya MacGuineas, the President of the infamous Committee for a Responsible Federal Budget (CRFB) that I mentioned in the last issue of the Notes. Funded by the even-more-infamous Pete Peterson, the CRFB seems to be everywhere you look in this era of Deficit Mania. Check out the Committee here. A scary bunch.

The Rivlin in Rivlin-Domenici plan is Alice Rivlin, who is also a member of the President's Commission. About all you need to know about the Rivlin-Domenici you can get from reading their November 17th press release, entitled "In Case You Missed It: Chamber of Commerce, Concord Coalition, Committee for a Responsible Budget and the Peterson Foundation Applaud Bipartisan Policy Center Debt Reduction Plan." When groups like this—The Peterson Foundation!—are applauding, best to run the other way as fast as you can. All of these groups are committed to a failed market-based approach to allocating resources in this culture. Human needs would suffer were these recommendations to be adopted. Find it here.


"Schakowsky Deficit Reduction Plan: Fiscal Responsibility That Protects the Lower and Middle Class." That's the title for an alternative to the majority plan put forward by the official Deficit Reduction Commission. The Commission member who authored it, Rep. Jan Schakowsky (D-Ill.), has an entirely different orientation than the endorsers of the two plans above, as evidenced by its title.

The Schakowsky plan focuses on job creation first, increasing revenues next. The Plan would "invest $200 billion into job creation measures over the next two years to jump-start economic growth." The deficit-reduction goal would be met "by reducing unnecessary spending and increasing revenues in a progressive way." The Representative gets me on her side when she states unequivocally that "Social Security has nothing to do with the deficit." True.

You can read the 7-page report (mostly charts and tables) here.


"Choosing the Nation's Fiscal Future" was put forward by the National Academy of Sciences and the National Academy of Public Administration. It's nearly unreadable at 360 pages, and I wouldn't really recommend reading it. The committee that put it together includes people drawn from groups that seem to value the welfare of the upper classes above that of the majority. You'll see here folks from the Cato Institute, the American Enterprise Institute, and someone from—where else?—the Peter G. Peterson Foundation.

Just one example of why this report should be taken with a large grain of salt: They constantly refer to "Social Security, Medicare, and Medicaid," as if all three programs had the same relation to the deficit. They do not, and individuals or groups that refer to them in this way lose all credibility with me. Another problem: On page 81 they offer their explanation of why health care spending is so high. Reading it we find a combination of blaming the victim ("the lack of cost consciousness on the part of providers and consumers is a key cause of rising health spending") combined with a failure to blame the perpetrator (no mention of corporate drug monopolies, profit-seeking, or inefficiency). I don't think the problem here is yours and my insatiable appetite for more CT scans and surgeries.

Most of the major media has followed my advice and ignored this report. But should you choose to ignore my advice to ignore this report you can find it online here.


"A Roadmap for America's Future" is a document put forward by a Wisconsin Republican Congressman named Paul Ryan. Ryan is the new chairman of the powerful House Budget Committee who, according to the December 9th NY Times, "has his eyes set on reducing the budget deficit through large cuts to programs many Americans take for granted." Like Medicare. And Social Security. All of this is promised in his "Roadmap," which is, he says, "a comprehensive, alternative approach to the Nation's most pressing domestic priorities." Sarah Palin strongly endorses the Roadmap.

This is scary stuff. Scary enough that the reality-based Center on Budget and Policy Priorities published a 17-page analysis of it. Here's what they say:

"The Roadmap would give the most affluent households a new round of very large, costly tax cuts by reducing income tax rates on high-income households; eliminating income taxes on capital gains, dividends, and interest; and abolishing the corporate income tax, the estate tax, and the alternative minimum tax. At the same time, the Ryan plan would raise taxes for most middle-income families, privatize a substantial portion of Social Security, eliminate the tax exclusion for employer-sponsored health insurance, end traditional Medicare and most of Medicaid, and terminate the Children's Health Insurance Program." Yikes! Read the CBPP analysis here.
And, if you're feeling strong, read the whole "Roadmap"—all 100 pages—here.

When we consider that this very same Paul Ryan also was a member of the official Deficit Reduction Commission appointed by the President, we can begin to see how deep is the hole into which we are being placed in the service of Deficit Mania.


"Investing in America's Economy: A Budget Blueprint for Economic Recovery and Fiscal Responsibility." In addition to the Schakowsky plan there are two other major proposals for dealing with the federal deficit that have different goals and methods than the Ryan/Rivlin/Reactionary versions that are floating around. This 84-page proposal was prepared for Our Fiscal Security, a collaborative effort of Demos, the Economic Policy Institute (EPI), and The Century Foundation (TCF).

It's a lengthy report, but a hint of the priorities here can be gotten from this sentence: "It is not enough to look just at the magnitude of the deficit; the composition of what is being financed matters." In that light, this proposal follows five "basic guidelines," which are: Jobs first; Stabilize debt; Build on economy-boosting investments; Target revenue increases. ("Revenue increases should come primarily from those who have benefitted most from the economic gains of the last few decades."); No cost shifting.

It's worth quoting the thinking behind "no cost shifting." The authors explain that "Debt reduction must be weighed against other economic priorities. Policies that simply shift costs from the federal government to individuals and families may improve the government's balance sheet but would worsen the condition of many Americans, leaving the overall economy no better off."

This proposal is worth looking at if you plan to talk to your friends, family, or co-workers about Deficit Mania. Or if you just want to help yourself to begin to break out of the mental confines imposed by the information establishment's focus on the "official" Commission's way of thinking. Find it here.


The Campaign for America's Future (CAF) put together a group called the "Citizens' Commission on Jobs, Deficits and America's Economic Future." Their November 30th report doesn't really have a title, but it can be found here.

It's a good report at 38 pages, and they unashamedly start out by saying "since the conventional wisdom is so dominated by a relatively narrow range of opinions, it is our intention that this document will elicit media coverage of an alternative point of view..."

Their recommendations, they say, are based on the following principles:
* Address the current economic crisis first.
* Tax justice and empowered workers generate prosperity, fairness, growth—and revenues.
* To ensure ongoing prosperity, we must also provide ongoing tax relief for lower- and middle-income households.
* Reduce wasteful government spending without compromising public objectives.
* Protect and strengthen Social Security. (Every plan says this. But these folks mean it!)
* Establish realistic and sustainable long-term deficit goals.
* Restore the financial sector's role as an effective engine of growth.
* Address the health-care cost crisis. Alarming long-term projections of growing debt come almost completely from uncontrolled growth in health care costs.

Alone among the major deficit reduction plans, this one actually mentions the important role that labor unions play in the struggle to distribute our national wealth more fairly. I talked about this in the last issue of the Notes, pointing out that unions are one of the few hopes for stemming the increasing inequality imposed by the Market. This report makes the point clearly, saying "We must...take steps to reduce the war on unions and worker rights (involving corporate action and misguided public policy) that has been a major factor in preventing workers from getting their share of productivity growth over the past three decades."

I'm sure there are more proposals out there, but these seven are the ones that I thought were either the most interesting or the most influential. If you've read this far you now know more than 97 percent of people in this country, I would imagine.


Why Are There Deficits in the First Place?

Doing a Lexis/Nexis database search of the nation's major newspapers for the past month, here are the numbers of articles cited when searching for the words "deficit" and...

"Adult conversation": 104 articles
"Shared sacrifice":126
"Common sense": 312
"Realistic": 548
"Austerity": 2,519

The existence and prevalence of this kind of language is part of the reason why I so often complain about "Deficit Mania." I personally don't think we need to worry about the deficit all that much, but that is not to say that I am not concerned about the federal deficit. In fact, I too would like to see the federal deficit shrink and disappear. But my reasons are worlds removed from the reasons put forward by the so-called Deficit Hawks and the official commissions and think tanks that employ them. I don't have a problem with the size of the deficit. I have a problem with the debate that does not happen when we spend our time debating the size of the deficit.

Back in 1998, in these very pages, I mentioned a book called "Wall Street," by Doug Henwood. I said at the time that I would "undoubtedly publish a review" of the book when I finished it. Well, I finished it, and never did publish a review. I still recommend the book as a good introduction, for the non-economist, to the various tricks of the trade that Wall Streeters have been using for years and that recently brought the global economy to its knees. True, many new instruments have been concocted since 1998, but the book still works well as an introduction to the criminal insanity that has been called financial capitalism.

In the introduction to the book, Henwood gets really basic, asking "What does the stock market do?" In the process of answering that question, Henwood wrote something that has stuck in my mind ever since:

"One thing the financial markets to concentrate wealth. Government debt, for example, can be thought of as a means for upward redistribution of income, from ordinary taxpayers to rich bondholders. Instead of taxing rich people, governments borrow from them, and pay them interest for the privilege."

Hmm... government debt as a means for making the rich richer. Now there's an idea that you won't see in the blizzard of daily articles about the federal deficit! This idea lay dormant in my mind until recently, when I ran across an article entitled "Deficits: Real Issue, Phony Debates" in the magazine Dollars & Sense: Real World Economics. The author, economist Rick Wolff, writes:

"Government borrowing ... benefits businesses and the rich by offering them an attractive investment. They lend money to the government that then repays those sums with interest. Instead of losing a portion of their wealth by paying taxes, those groups keep that portion (in the form of a purchased government bond) and earn more with it. Businesses and the rich are usually major lenders to their governments; workers rarely are. The same U.S. business leaders who advise governments to 'live within their means' simultaneously fill their business and personal portfolios with government bonds."

(Ironically—or, perhaps, hypocritically—these same bondholders have been heard to say, "There is no money in the Social Security Trust Fund!" They are well aware that the Trust Fund dollars are real and are invested in government bonds, and that the interest on those bonds will be used to pay retirement benefits for you and me, rather than fattening the wallets of the rich bondholders mentioned above. Which is no doubt a part of the reason why Social Security is under constant attack by these people. But, I digress...)

After explaining that the phenomenon which we know as "austerity" usually involves plans to "cut government spending on public sector jobs and services for the mass of people," Wolff makes what might be called A Modest Proposal in a short two paragraphs that brings the issue sharply into focus:

"Consider this example of this kind of alternative to austerity programs: Every year, two companies catering to rich investors survey their clients. Capgemini and Merrill Lynch Wealth Management's 'World Wealth Report for 2010' counts as High Net Worth Individuals (HNWIs) everyone with at least $1 million of 'investible assets' in addition to the values of their primary residence, art works, collectibles, etc. HNWIs in the United States numbered 2.9 million in 2009: well under 1% of the people in the United States. The HNWIs' investible assets totaled $12.09 trillion. For 2009, the total U.S. budgetary deficit was $1.7 trillion. Had the U.S. government levied an economic emergency tax of 15 percent on only the HNWIs' investible assets, no government borrowing would have been necessary in 2009. Obama's stimulus program would have required no deficit, no borrowing, and no additional taxes for 99% of U.S. citizens.

"The real debates all along should have been—and now ought to be—about who pays how much in taxes and who benefits in what ways from government spending. Deficits are necessary neither in normal economic times nor when crises hit and government stimulus is required. That business and the rich prefer lending to finance government deficits over being taxed instead is just their understandable self-interest. The rest of us have not only the right to a very different preference, but also a clear basis in economic theory and available empirical studies not to abandon our preference for theirs. We only have deficits because of who pays and who does not pay how much in taxes and who gets how much in government spending."

Deficit Hawks tell us that the federal deficit is too large, and that legitimate government functions like the provision of services or allocation of resources cannot be afforded. Liberal critics say that deficits are necessary in hard times, and we don't need to reduce government functions all that much.

The ideas that form the foundations for these two positions are, on the "conservative" side, that government has only a limited right (or no right) to take money from citizens – that is, to tax them – because the money does not belong to the government. It belongs to you and me, they say, and they refer to taxation as "theft" or "confiscation." The premise for the liberal argument is that, yes, the government does have a right to take our money, but only if they do good things with it.

The idea that is literally never brought up in mainstream discourse—likely because it is never conceived—is the idea that some portion of the society's wealth belongs not to you, nor to me, nor to Bill Gates, but to all of us. There are all sorts of terms for this: Social wealth; Social assets; The commons; Common wealth; Common assets. I'm sure there are many more.

If it is true that there are some forms of wealth that belong to all of us, then what we call "taxation" becomes a different creature entirely. Instead of "tax and spend," we could say that what the government does is "pool and share." Or, instead of "confiscating" wealth, what if taxation were considered a process of re-claiming wealth? That is, of returning wealth to its rightful "owners," who would be... all of us.

In case you are wondering if I have just gone off on some hopelessly abstract, theoretical tangent (I would be wondering that), let me just say that this dispute—about who owns what and how it is that they get to "own" it—gets played out every day, in very important ways. We just never talk about it, because we're too caught up in Deficit Mania.

Not only does this dispute get played out every day, I think it's one of the most fundamental disputes of the past 500 years, at least since the Euros arrived in this hemisphere. And it's far from being settled. I'll explain what I mean in the next issue of Nygaard Notes.