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Washington Post Continues Its Crusade for Cutting Social Security and Medicare Print
Wednesday, 03 August 2011 03:25

Fox on 15th Street had another front page editorial calling for cuts in Social Security, Medicare, and Medicaid. It told readers:

"Foreign investors and economic analysts see further action as crucial to restoring the United States’ financial reputation."

Without actually citing any investors or analysts it then added:

"On Tuesday, critics in China and elsewhere warned that the initial debt-reduction package, which would cut about $1 trillion from agency budgets over the next decade, is too modest. And they complained that the last-minute agreement will not tackle the dangers that national health and retirement programs pose to the government’s long-term fiscal health."

It would have been interesting to know who these critics were. The reaction of actual investors in the market was the opposite. Interest rates on U.S. Treasury bonds have been falling for most of the last month and fell again yesterday. The investors who are putting trillions of dollars oon the line apparently have a different assessment of the country's financial situation than the Washington Post.

 
What Does a Downgrade of U.S.Debt Mean? Print
Tuesday, 02 August 2011 21:56

The NYT had a great opportunity to raise this question, but for some reason chose not to. A lengthy piece discussing the possibility and implications of a downgrade never asked the fundamental question, how could the United States ever be unable to pay off its debt?

This a simple but important point. The debt is issued in dollars. That means that the U.S. government is committed to paying it off in dollars. The U.S. government also prints dollars. So does a downgrade mean that Moody's thinks that it is possible that at some point we will forget how to print dollars?

The NYT should have asked this question in the article. We should ask why they didn't.

 
Clinton's Surpluses Were Because the Economy Grew, Not the Other Way Around Print
Tuesday, 02 August 2011 13:05

The sky is up, grass is green, and Clinton got budget surpluses because the economy grew much more rapidly than expected. We know this because the Congressional Budget Office (which passes for God in Washington budget debates) told us in 1996 that the deficit in the year 2000 would be $244 billion or 2.7 percent of GDP ($405 billion in 2011). CBO calculated that the net impact of legislated changes between 1996 and 2000 was to raise the 2000 deficit by $10 billion.

Therefore when Bloomberg tells us that the economy grew at a 4 percent annual rate from 1994 to 2000 as the federal government's budget  moved from deficit to surplus, this is like telling us that the sun rose as the rooster crowed. Yes, the sun did indeed rise, but the rooster's crowing had nothing to do with it.

 
Dana Milbank Ridicules People Who Don't Work for Wall Street Print
Tuesday, 02 August 2011 07:07

Dana Milbank, a Washington Post columnist who doubles as a fashion critic, devoted today's column to ridiculing progressive members of Congress who complained about the deal on the debt ceiling. He presents a number of quotes from progressive members of Congress who complained about cuts that may mean that people cannot afford housing, heat, food or medical care.

While these were all very funny, it would be much easier to find ridiculous comments from deficit hawks. For example, Mr. Milbank could fill endless columns with lines from former Senator Alan Simpson, the co-chair of President Obama's deficit commission. Mr. Simpson apparently thinks that we have just discovered the existence of the baby boom cohort as they are on the edge of retirement.

He also could have included comments from David Walker, the former comptroller general at the Government Accountability Office and also former head of Peter Peterson's Foundation. Mr. Walker has repeatedly warned that if we don't get the deficit down, then the dollar could fall against other currencies. This one is really hilarious, because a decline in the dollar against other currencies is actually supposed to be one of the main benefits of lower deficits.

In standard economics the argument is that deficit reduction will reduce the trade deficit by lowering U.S. interest rates, which will make dollar assets less attractive to foreign investors. If they buy fewer dollar assets, then the dollar will fall, improving our trade deficit. Now how funny is that? Our former comptroller general doesn't even know which way is up when it comes to the deficit, his life's obsession.

Milbank also could have made fun of the bond rating agencies threatening to downgrade U.S. government debt. What does this mean? U.S. government debt is denominated in dollars. The U.S. government issues dollars. Do Moody's and Standard and Poors think that the government will lose the ability to issue dollars? In other words, what could they mean with this threat to downgrade U.S. debt?

The credit rating agencies are making a nonsense threat. Now that is really funny.

Milbank could fill many columns making fun of the deficit hawks who are trying to whip up hysteria with nonsense stories about the budget and the economy. Of course the Post, his employer, is at the forefront of this effort. So, Mr. Milbank sticks to making fun of politicians who profess concern for the poor and middle class, and to fashion criticism. 

 
The Post Tells Us It's About "the Size and Role of Government" Print
Tuesday, 02 August 2011 05:26

In a front page news article the Post told readers that the debt ceiling battle was really a battle over "the size and role of government." Is this something their mother told them?

I didn't see anyone in this debate arguing for "big government." If there is anyone in the country who supports big government as a matter of principle, they have a seriously losing electoral position.

In the real world the battle is over specific programs. And, apart from the military, there is overwhelming support for most of what the government spends money on -- Social Security, Medicare, Medicaid, and unemployment benefits -- across the political spectrum. Everyone from liberal Democrats to Tea Party Republicans strongly supports these programs.

In fact, there is only a small minority that really wants to see these programs cut back in a major way. Of course this minority is extremely powerful since it includes much of Wall Street and major news outlets, like the Washington Post.

It helps to advance the agenda of those who want to cut the major social programs to mischaracterize the issue as a debate over the size and role of government. This can create serious divisions among the programs' supporters. However, if the debate is more accurately described as one between people who support social programs and those who oppose them, then the Washington Post's position has much less chance of succeeding.

 
How Does the Post Know That the Debt Is Becoming "Crushing?" Print
Tuesday, 02 August 2011 04:51

Yes, it was just a throw away line. But serious newspapers do not say in front page story that:

"Over the long term, the deal could help free the nation from what is fast becoming a crushing debt."

Lines about a "crushing debt" should appear in quotations or left to the opinion pages. They should not be assertions of fact to readers.

 
Beat Up Your Favorite News Reporter, What Would It Mean for the U.S. to be Unable to Pay Its Debt? Print
Tuesday, 02 August 2011 04:33

Okay boys and girls, this stuff about a credit downgrade has gone far enough. We know that all the important people in Washington and on Wall Street are warning us about the possibility that the credit rating agencies will downgrade the U.S. government if we don't reduce the debt to their standards. But what could this possibly mean?

The U.S. debt is denominated in dollars. The government issues dollars. Do Moody's and Standard and Poor's think that there will be some point in the future where the government will not be able to issue dollars?

Let's say this so that even a reporter with an elite news outlet can understand it. Suppose I issue IOUs that are payable in Dean Baker IOUs. What is the likelihood that I will ever default on my IOUs?

That's right, unless I lose the ability to write, the probability is zero. There is a possibility that at some point that Dean Baker IOUs will lose some of their value (i.e. inflation) because I have issued so many of them. However the credit rating agencies are not in the business of making inflation predictions. They certainly don't have any obvious expertise in this area.

Furthermore, if a debt downgrade for the U.S. is simply a forecast for higher inflation, then the debt downgrade must apply to every debt issue denominated in dollars. In other words, if U.S. debt loses 30 percent of its value because of higher than expected inflation, then so will dollar denominated debt issued by General Electric, AT&T, or the government of Israel.

In other words, if the concern really is higher inflation, then the credit rating agencies must be considering downgrading all debt denominated in dollars. But, they have not threatened every issuer of dollar denominated debt with a credit downgrade, so this must not be what they mean.

So, what does the threat of a credit downgrade mean? The reporters should be asking this question and giving us the answer. This is their job.

 
Did President Obama Want to Give the Kidnappers Hostages? Print
Tuesday, 02 August 2011 03:59

Joe Noccera and Paul Krugman both see President Obama as having been taken for a ride by a Tea Party gang who were prepared to blow up the house if they didn't get their way. This is one possibility, but there is another way to interpret recent events.

President Obama had other options all along the way. As Krugman notes, he could have insisted last December that the debt ceiling was part of the deal to extend the Bush tax cuts. After all, contrary to what his National Economic Adviser seems to think, the Democrats did still control Congress at the time.

In the context of the debt ceiling being hit, he could have taken the 14th amendment route that a substantial number of legal scholars believe to be kosher. It probably passes the laugh test better than the non-war in Libya. He was prepared to challenge Congress for the latter, why not the former?

He could have also tried the stand tough approach. As we know, in the meltdown scenario Wall Street is on the front line. The J.P. Morgan-Goldman Sachs gang would be pretty damn furious at the Republicans if they actually put them out of business. It's very hard to believe that Boehner and company don't buckle in this scenario.

Finally, the whole debate has hugely misrepresented the Tea Party. Poll after poll shows that they are not really against what government does. In fact, they are huge supporters of Social Security and Medicare and other programs that support the middle class. And, after we pull out the military, this is in fact the vast majority of the government.

The Tea Party is against some nonsense notion of massive government waste that does not exist. Like President Reagan, they want to eliminate the Department of Waste, Fraud, and Abuse.

President Obama could have insisted that he would protect the core middle class programs that enjoy support across the political spectrum. And he could have said that the Republicans want to gut them.

Instead, he contributed to the nonsense. He made up a false story about the origins of the deficit, wrongly telling the country that the huge deficit came about from the Bush tax cuts, the cost of the wars, and the Medicare drug benefit. This implied that we had large deficits before the downturn, that large deficits were a chronic problem.

In fact, the numbers are clear as day and it's impossible to believe that President Obama and his advisers do not know them. The large deficits of the past few years came about because of the collapse of the housing bubble, end of story. 

So we can believe that President Obama is just a really bad poker player, as Paul Krugman suggests, or we can believe that he is getting what he wants. I report, you decide.

 
Does the President's National Economic Adviser Not Know That Democrats Controlled Congress Last December? Print
Monday, 01 August 2011 10:23

He didn't seem to in his comments on CNN this morning. Gene Sperling, the head of President Obama's National Economic Council, explained the failure of President Obama to get a deal on the debt ceiling last December as being a problem of divided government. 

Actually, Democrats fully controlled both houses of Congress by large majorities at that time. It is possible that Republicans may have filibustered a debt ceiling deal in the Senate, but it is just wrong to say that we had divided government.

Reporters may want to ask Mr. Sperling if he was aware of the congressional line-up last December. It is probably more important to the country than getting to the bottom of Representative Weiner's twitter underwear pictures.

 
The Impact of the Budget Deal for Those Who Don't Carry Around the Budget in Their Pocket Print
Monday, 01 August 2011 04:22

Many readers of the NYT and Post may not have a good sense of how much $2.4 trillion in cuts over the next decade is. Unfortunately, the major news outlets do not consider it their responsibility to tell us.

The government is projected to spend $46 trillion over the next 10 years. This means that the proposed cuts are a bit more than 5 percent of projected spending. However, large categories of the budget are protected. More than $27 trillion of projected spending goes to Social Security, Medicare, Medicaid and interest. If these areas escape largely untouched, the projected cuts would be around 13 percent of the remaining portion of the budget.

In fact, since some other areas of the budget, like unemployment insurance, are also likely to be largely protected, the cuts to the remaining portion of the budget will be even larger.

The government is projected to spend $7.8 trillion on the military over the next decade. If this area is largely protected, then most of the cuts would likely come from the $6.7 trillion of spending on the domestic discretionary portion of the budget. This is the portion that includes spending on infrastructure, education, research, and other areas that are considered investment.

 
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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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