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Home Publications Blogs Beat the Press The Deficit Commission Refuses to Talk to Anyone Who Knows About the Economy

The Deficit Commission Refuses to Talk to Anyone Who Knows About the Economy

Sunday, 11 July 2010 21:08

Erskine Bowles, the co-chair of President Obama's Deficit Commission and a director of the Wall Street investment bank Morgan Stanley, claimed that the current economic crisis (which is projected to add more than $4 trillion to the national debt) was "largely unforeseen." This is not true. Competent economists saw the crisis as an inevitable outcome of the housing bubble. It is remarkable that the deficit commission seems to be relying exclusively on economists who could not see this $8 trillion bubble, the collapse of which wrecked the economy.

The commission also does not appear to be considering any measures that would challenge powerful interest groups like the pharmaceutical industry, the insurance industry, highly-paid medical specialists, or the Wall Street banks. Rather than incur the wrath of these powerful interest groups by reining in medical expenses or reducing the rents earned by Wall Street bankers, the commission seems intent on taking back Social Security and Medicare benefits for ordinary workers. The reporters covering the commission should be reporting on the failure of the commission to follow its mandate in this respect.

Comments (16)Add Comment
none dare call it redistribution UP
written by David Cay Johnston, July 12, 2010 4:09
Cutting old age benefits while continuing current government policies for reimbursing health care businesses is a form of redistribution UP. How government takes from the many to enrich the few deserves much more focused examination.
written by izzatzo, July 12, 2010 6:03
In a bold move to clarify its mandate, the Deficit Commission decided to rename itself the Economic Rent Protectionist Commission, noting that the objective wasn't really about deficits at all.

Even if the current deficit was zero or running a surplus said an insider, excess government spending funded with more taxes is still the problem that requires a solution., who also admitted the Commission was set up to fail, initiated to placate deficit hawks until the elections.

The insider noted that SS is no longer the sole untouchable "third rail" of politics, which has been expanded to include health care providers, insurers, bankers, CEOs, multinationals and a host of others rendered immune from competition with protectionist policies designed to preserve their economic rental income, while preaching free markets, self reliance and low-tax no-subsidy competitive living for everyone else.

Another bold change anticipated shortly from the Commission will be to rename Teabaggers to Rentbaggers to clarify their mission as well.
Corrections to Mr Simpson & Mr Johnson.
written by AndrewDover, July 12, 2010 6:40
Dean missed Mr Simpson's howler (Because not all U.S. public debt is financed from other countries)
"The commission leaders said that, at present, federal revenue is fully consumed by three programs: Social Security, Medicare and Medicaid. "The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans -- the whole rest of the discretionary budget is being financed by China and other countries," Simpson said. "

So DCJ @ 4:09 says "Cutting old age benefits while ... is a form of redistribution UP"

Well, most benefit reduction proposals use "means testing" to selectively reduce benefits on those who have substantial other income. So, actually most proposals increase the redistribution of income from high to low. (Not to mention that median and mean net wealth of 65-74 years old is double those 35-44)

Even my proposal has two components which increase the redistribution of income from high to low. The other is neutral.

0.60 Raise the cap of taxable earnings per E2.10
0.49 Lower COLA by 0.3% per year per A3
0.28 Tax social security benefits per H1.

http://www.ssa.gov/OACT/solvency/provisions/index.html has the details on E2.10, A3, H1 and other policy options.

Seeing as the primary problem is unemployment, I would reject options that increase taxes on the majority of employed workers.

The above choices would remove 1.37% of the 2% of payroll long-range actuarial gap.
corrections to AndrewDrover
written by David Cay Johnston, July 12, 2010 9:07
Your "correction" has nothing to do with what my post was about.

Also, you misspelled my name in your "correction."
written by bailey, July 12, 2010 9:51
That leaves PK out, and deservedly so! How far he's fallen..
written by bailey, July 12, 2010 9:58
By the way Andrew Dover, the "primary" problem we face is NOT unemployment, it's the single party political system responsive only to corporations & the 1%.
David Cay Johnston has it right.
written by ljm, July 12, 2010 11:34
And...bailey, PK hasn't fallen anywhere. He calls them like he sees them. When posting something that maligns someone else, you'd better post your supporting facts. Oh wait! You don't have any do you?
written by ThresherK, July 12, 2010 12:23
David Cay Johnston? Wow. Glad you're here too.

Is it true that you, Krugman, and Baker aren't allowed on the same airplane? :-)
written by bailey, July 12, 2010 3:01
Sorry David Cay, didn't know we had to start every post here with the "understoods". What supporting facts would you be reasonable enough for you to hear?
How about this one? Where was PK when Dean B. was providing input at the Boskin Commission hearings? Where was PK when Dean B was providing input at the hearings to repeal Glass-Steagall? When did PK FINALLY get around to warning on the horrors of the housing bubble? Was it '06, AFTER the Bubble popped?
And, how long has it taken for PK to hold his cohort BB & BB's FED accountable for its responsibility for the housing debacle?
I was a PK groupie since he tuned up his "liquidity trap" argument, long before he cautioned us as to the wisdom of "Airport Economists". I'll agree to this, he's come a very long way.
Hear, Hear... Fix the Deficit Commission before Fixing the Deficit...
written by Wisdom Seeker, July 12, 2010 3:38
I thank the authors for shedding light on a critical flaw in the Deficit Commission. They're flying blind based on outdated charts and ignoring the engineering blueprints of their aircraft. In other words, they're not paying attention to how the economy actually works and what it's real technical issues are.

However, I've got to complain about AndrewDover's comment.

AndrewDover writes: "Dean missed Mr Simpson's howler (Because not all U.S. public debt is financed from other countries) "

Whatever. You mean having foreigners financing half of the debt isn't bad enough? Which half do you think we should finance with overseas borrowing? I'm willing to give Simpson the benefit of the doubt on this one, but you're right in the bigger picture that these guys Just Don't Get It.

See here for who's buying: http://www.econbrowser.com/arc...g_all.html
bailey, you should be talking to me.
written by ljm, July 12, 2010 3:47
Glen Beck takes the position that PK missed the housing bubble. Do you blieve Glenn Beck? Here's something that refutes your claim.


If you go back to 2001, you'll find all sorts of silly claims that PK is responsible for the housing bubble. It's time to stop the silliness. You got an issue with PK, take it to his blog.
Sorry about the typo, David Cay Johnston.
written by AndrewDover, July 12, 2010 6:53
So what was your post about?

I thought it was about "the commission seems intent on taking back Social Security and Medicare benefits for ordinary workers"
written by bailey, July 12, 2010 11:19
I never wrote that PK was "responsible" for anyting except maybe missing an enormous opportunity to help avoid or shorten the worst economic debacle of our lifetime.
Dean B. HAD the argument, as your reference acknowledges PK knew), but PK had the stature. Who knows what might have happened had PK stood with Dean B. on all three occasions?
Correlating my reminder that PK missed all three defining economic arguments of our time to anything said by Beck is nonsensical.
Further, your '05 reference supports my contention. By Spring '05, when PK was "if"ing, all that was left of the housing bubble was smoldering ashes. I know because of self-interest I'd been following the issue closely for years. (aside -Thanks in a small part to Dean B. we sold in Jan.,'05, at the highs.)
written by liberal, July 13, 2010 8:45
bailey wrote, aside -Thanks in a small part to Dean B. we sold in Jan.,'05, at the highs.

Heh. I've been following Dean so long, because of his writing showing the domestic stock market was overvalued in the late 1990s, I got out of that bubble within a year before it crashed.

Housing...I wasn't in a position to buy anyway. However, in early 2008 wife wanted a house badly, so I gave in despite thinking housing had a long way to fall. Closed June 2008.
written by liberal, July 13, 2010 8:51
AndrewDover wrote, So what was your post about?

AFAICT DCJ's post is about the inequity of making cuts in social insurance benefits for the benefit of wealthy rent collecting parasites. He's not viewing e.g. SS funding as a closed system involving payroll taxes coming in and benefits going out.

Your comments assume it is a closed system. While those are not unreasonable assumptions, and while I have no doubt that you yourself are writing in good faith, it's clear to me that the people in power talking about the "problem" of social insurance mainly desire a soft default on the SS trust fund. (Soft default = slowing or eliminating the schedule for drawing down the fund, rolling bonds over instead, effectively a regressive income tax revenue source for the general fund.)
written by bailey, July 13, 2010 10:09
Hope you love it, Liberal. We rented for 3 1/2 yrs & closed on an reo in the Fall,'08. FYI, I recall reading Dean B bought not too far in front or behind us.
I really have no interest whether our value fluctuates up or down for the next seven years. We bought close enough to fair value (based on our area's long-term growth rate) that price fluctuations going fwd are pretty much a non-issue for us. (We've all got to live somewhere!)
Best luck to all who've recognized & taken to heart the reasoning, values & perspective of Dean B prove valuable over time.

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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.