By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Cross posed from New Economic Perspectives
Ms. Calmes is the New York Times’ White House correspondent. Readers who follow finance and fraud may recall her as the object of an epic dismantling in Naked Capitalism. The subject there was Calmes’ dismissive review of Neill Barofsky’s (SIGTARP) book’s criticism of Timothy Geithner.
Calmes is back and writing about economics in an article entitled: “A Dirty Secret Lurks in the Struggle Over a Fiscal ‘Grand Bargain.’”
Calmes thesis is:
But the dirty secret — a phrase used independently, and privately, by people in both parties — is that neither side wants to take the actions it demands of the other to achieve a breakthrough.
That is, many Republicans are no more interested in voting to reduce Medicare and Social Security benefits than Democrats are, lest they threaten their party’s big advantage among the older voters who dominate the electorate in midterm contests like those in 2014.
And Democrats are no more eager than Republicans, with control of both houses of Congress up for grabs, to vote for the large revenue increases that a grand bargain would entail. They do not want to limit popular but costly deductions, as Mr. Obama and past bipartisan panels, like his Simpson-Bowles fiscal commission, have proposed.
When we pull away the camouflage that Calmes deploys to obscure matters, the “dirty secret” that emerges is that key members of both parties realize that the purported “Grand Bargain” actually represents a self-destructive Grand Betrayal that should be opposed by both parties. Her “dirty” secret is actually a “clean” non-secret. Calmes’ quoted passage discusses two of the key planks of the proposal – cut the safety net and increase tax revenues (but not marginal tax rates on the wealthy, which Bowles Simpson propose to reduce). The third plank is to cut (mostly) social program spending.
The most obvious question is also the most important question – would the three planks be desirable to implement today? Calmes neither asks nor attempts to answer the question. She assumes, implicitly, that the three planks would be desirable though she presents information that demonstrates the opposite. Her article implies that the Grand Betrayal would be desirable because “past bipartisan panels, like his Simpson-Bowles fiscal commission, have proposed” [the three planks]. In fact, the Bowles-Simpson commission made no such formal proposal to Congress. President Obama appointed the co-chairs – Erskine Bowles and Alan Simpson. Bowles is one of the leaders of the Wall Street wing of the Democratic Party. Simpson is an ultra-conservative former Republican Senator. They are leading deficit hawks who keep predicting (incorrectly) that debt will cause hyper-inflation. They are fierce proponents of cutting the safety net. They support the partial or total privatization of Social Security – Wall Street’s ultimate dream.
Obama stacked the leadership of the panel to provide him with the political cover to cut the safety net. The panel, however, was the product of a political compromise in which the parties agreed that the panel could make no recommendations to Congress not supported by a substantial consensus of the panel, which the agreement defined as 14 members. The draft plan was supported by only 11 members. Nevertheless, a member of Congress proposed the plan, only to see it overwhelmingly rejected by the House.
Bowles and Simpson, despite the failure of their plan to secure the required consensus, had their plan printed and disseminated as if it were an official plan. Reporters like Calmes ignore Bowles and Simpson’s failure to acquire the required consensus despite the stacking of the panel with so many deficit hawks. Calmes treats the word “bipartisan” as good magic even though the reality is that the Wall Street-wing of the Democratic Party agrees with the Wall Street-wing of the Republican Party that they would love to privatize Social Security and make tens of billions of additional dollars selling investment products to our grandmothers. Washington reporters who bask in and glorify good vibes for such “bipartisan” assaults on our elderly are as common as they are loathsome.
Calmes quotes Jared Bernstein to the effect that the only consistent supporter of the Grand Betrayal is Obama. Calmes is disappointed that “Mr. Obama has not pressed the negotiators from the Democratic-controlled Senate and the Republican-led House to aim higher.” By “higher” she means deeper cuts in the safety net and social programs, which would represent Obama descending “lower” in moral terms.
Bowles-Simpson would cut the safety net and inflict even more destructive austerity on our Nation while cutting taxes on many of the wealthy. That is a trio of terrible ideas, particularly in our current economic circumstances. We have just watched the eurozone suffer through years of a second gratuitous Great Recession (and a Great Depression in its periphery) because of the self-inflicted wound of austerity. The most recent data show that the eurozone’s “recovery” is so anemic that it makes the U.S. recovery roaring by comparison. Austerity has been proven, again, to be a disastrous response to a recession. This is one of the areas where Calmes’ lack of understanding of economics produces incoherent analysis. In her piece criticizing Barofsky’s book she understands that the eurozone’s policies proved self-destructive, but not what those policies were or why they failed. The context is Calmes defense of TARP.
As ugly and flawed as the rescue process was, and as galling as Wall Street’s revived bravado and bonuses can be to most Americans, the fact remains that an economic collapse was averted, and that Main Street is recovering: slowly, but typically so for recessions brought on by credit crises. As Europe’s crisis persists for a fourth year, commentators around the globe have suggested that the Continent should have followed America’s example.
Yes, the eurozone “should have followed America’s example” and provided a recovery program that expanded federal spending rather than inflicting austerity. Indeed, they should have provided considerably more vigorous increases in recovery spending than we were able to do because of the opposition of leaders likes Treasury Secretary Timothy Geithner, Bowles, and Simpson. Calmes, however, seems to think that the key to the U.S. economic recovery was the bailout of U.S. banks and that eurozone nations did not provide bank bailouts. Both assumptions are incorrect. The U.S. bailout made our banks and their owners wealthier, but it did not expand the economy. Many European nations provided bank bailouts – and suffered a second gratuitous recession due to their austerity programs.
Calmes was particularly disturbed at Barofsky’s criticisms of Geithner and emphasized that Geithner had never cashed in. It has just been announced that Warburg Pincus has hired Geithner as its President. Calmes’ heroes have betrayed her faith, but her analytical failure in her 2010 book review was her inability to understand that Geithner’s preferred policy of austerity was the policy that explained Europe’s far more severe economic problems. In her current “dirty secret” article she concedes that austerity in response to the Great Recession is self-destructive.
With the unemployment rate stuck above 7 percent, Democrats are more interested in increasing spending for programs like public works and education, and ending the sequestration cuts, which economists say are costing hundreds of thousands of jobs.
The sequestration, which is only one of several acts of federal austerity over the last two years, is “costing hundreds of thousands of jobs.” Collectively, the multiple acts of federal, state, and local austerity have seriously reduced the pace of the recovery. The real “dirty secret” about the Grand Betrayal is that it would harm the Nation by recreating the self-inflicted wound of austerity that devastated Europe. That means that many Democratic members of Congress oppose the Grand Betrayal for the best of reasons that they are happy to proclaim publicly – he opposite of a “dirty secret.”
It is Calmes who still seems to think it makes sense to adopt even more severe austerity now through cuts in the safety net and other governmental spending, even though it will cost hundreds of thousands of additional jobs, in order to “save” (my characterization of her implicit argument) Social Security in 2033. She quotes this source with apparent approval.
David Winston, a Republican pollster close to House leaders, said that especially in a slow-growing economy, lawmakers have a hard time selling voters on proposals like fixing Social Security to avoid shortfalls in the 2030s.
“That pressure isn’t there,” he said. ‘People are more like, “I’m in a job where I’m clearly underemployed. How did this happen? How do we resolve underemployment as a problem, as opposed to dealing with Social Security in 2033?”
Winston, a “pollster” with no understanding of economics is upset that “voters” and members of Congress are economically literate and realize that Winston’s arguments about “fixing Social Security” now by cutting current benefits is ridiculous. Social Security is currently in surplus. If we cut Social Security benefits today it does not provide any additional real resources in 2033. We can produce additional real resources in 2033 through programs we implement between today and 2033 that increase training, improve health, and produce higher rates of employment. Reducing unemployment today is helpful to reducing unemployment in 2033 because extended unemployment is strongly associated with reduced future employment. There is no inconsistency between working to reduce underemployment today and being able to provide full benefits to Social Security recipients in 2033. Cutting Social Security benefits today would add to austerity and inflict even greater damage on our productive capacity, which is what defines our ability to provide real resources to those in need. Once more, the only “dirty secret” is that the proponents of the Grand Betrayal and their media mavens are economically illiterate as well as callous. If their policies were adopted our Nation would suffer more.