Obama at Northwestern

He's wrong here: 

Between a growing economy, some prudent spending cuts, health care reform, and asking the wealthiest Americans to pay a little bit more on their taxes, over the past five years we’ve cut our deficits by more than half. When I took office, the deficit was nearly 10 percent of our economy. Today, it’s approaching 3 percent. (Applause.) In other words, we can shore up America’s long-term finances without falling back into the mindless austerity or manufactured crises or trying to find excuses to slash benefits to seniors that dominated Washington budget debates for so long.

And:

By every economic measure, we are better off now than we were when I took office.

The labor force participation rate?

Obama

Dean Baker sends us to Fred Hiatt

Podesta was highlighting President Obama’s speech at Northwestern University on Thursday in which he declared fiscal victory and an end to the “mindless austerity” and “manufactured crises” of Washington budget debates.

 I was pretty mad about the strenghening dollar but this has been overlooked.

JFK and Masters of Sex

Masters Of Sex: “The Revolution Will Not Be Televised”

They show part of JFK's 1961 inaugaration speech and he goes on about how prosperity doesn't depend on the generosity of the state but come from God. It didn't start with Ronnie Raygun. Reminded me about the hopefulness about Obama and how it's been a disappointment. SNL's new News Update segment ended with a joke about a street named after Obama and how parents would warn their kids not to travel north of that street.

household income

Median Household Income Began to Stagnate in 1980, not 2000 by Dean Baker

Thomas Edsall has a good discussion of the shift of income from labor to capital in the years since 2000. His piece puts the blame largely on the way the United States has structured global trade to put downward pressure on the wages of ordinary workers. 

While Edsall's discussion of the period since 2000 is largely on target (it does miss the impact of macroeconomic fluctuations and the fact that we have been well below full employment for most of this period), it errs in telling readers: 

"Until 1999, median household income (as distinct from wealth) rose in tandem with national economic growth. That year, household income abruptly stopped keeping pace with economic growth and has fallen steadily behind then." 

While median household income did keep pace with economic growth from 1993 to 1999, it actually lagged far behind in the years from 1978 to 1993. Over this period real per capital income rose by 30.0 percent, while median household income barely changed. This divergence of median income from growth was associated with an upward redistribution of wage income, with high end earners (e.g. Wall Street types, CEOs, and doctors) gaining at the expense of most workers. 

In this period, most college graduates (@ 25 percent of the workforce at the time) were among the winners. By contrast, in the period since 2000 only workers at the very top of the income distribution and owners of capital have been winners.

America Out of Whack by Thomas Edsall
I asked Shawn Fremstad, a senior fellow at the Center for American Progress, a pro-Democratic think tank, to address current income and wealth disparities, and he wrote back by email:

“a big-picture solution involves higher marginal income tax rates for the top 1 percent and some sort of wealth tax on the top of the top, combined with stronger labor market institutions (minimum wage, unions, paid leave/sick days/vacations, etc.).”

We need wage inflation and full employment via demand management (fiscal, monetary, trade/currency) policy.

Yglesias:

Obama's biggest economic policy mistake

Blame Obama for bad monetary policy, not Republicans

Obama and education

Want to Fix Obama's Bad Education Policy? Start With These Two New Books: The problem with the Left's embrace of center-Right policies by Richard D. Kahlenberg

What the Chicago mayor's race says about the future of education politics updated by Libby Nelson

Geitnerism

OVER AT EQUITABLE GROWTH: COMMENT ON: AYAKO SAIKI AND JON FROST: "HOW DOES UNCONVENTIONAL MONETARY POLICY AFFECT INEQUALITY? EVIDENCE FROM JAPAN" by DeLong

Over at Equitable Growth: Comment on: Ayako Saiki and Jon Frost: "How Does Unconventional Monetary Policy Affect Inequality? Evidence from Japan" 

I want to make three big points: READ MOAR 

Figuring out what we expect QE to mean for income and wealth inequality is difficult because we are not sure what QE is supposed to do for the macroeconomy. Is it a way of credibly committing to lower nominal interest and higher inflation rates in the long run by goosing the monetary base at the zero lower bound? Is it a way of reducing the supply of assets subject to risk and thus reducing the risk premium? If the first, it is the government imposing--relative to the baseline--a transfer from those who are going to save, who are going to cut their spending below their income and shift purchasing power into the further future, and to those who are going to borrow and to those who have saved in the past. If the second, it is the government imposing--relative to the baseline--a transfer from those who are going to supply risk-bearing services to those who will lay off risks into the future and those who have already committed to bearing risk in the past. In either case, it is bound to be the rich today who have born risk in the past (and been lucky) or who have saved in the past. So today's inequality should, we think, rise. It is nice to see that it is true--and it is interesting that the effects look to be so large...

Looking forward, however, QE seems to be a piece of what Keynes called the euthanasia of the rentier--or of the risk-bearer. Wealthholders who are going to stay influential wealthholders must reinvest at rate n+g, so their true free cash is only r-n-g. What if they spend more? Keynes thought that there was a social compact: if the rich do not accumulate--if they spend more than r-n-g--then the political process will soon take their wealth away. Thus a world of QE is a world in which the rich have extremely high wealth levels, yet surprisingly little weight, given their wealth, on consumption patterns. There is high wealth inequality. And there is very high income inequality along the transition path as asset prices attain their new equilibrium levels. But less spending inequality.

The Geithner view of the world: monetary policy is unreliable witchcraft, fiscal policy is "sugar" that makes you feel really good for four hours before you drop into a diabetic coma, the only source of durable prosperity is to reinforce business and financial prosperity by giving them the returns they think they deserve--and then a little more. I parody. But this is the dominant view in the North Atlantic, at least. Basically, the bankers and investors and CEOs have us by the plums. If QE reinforces business confidence, it is worth doing in spite of its inequality effects. If, on the other hand, QE scares our upper class by (a) making them fear that asset prices are unsustainably high and will crash, and (b) making them fear that their future deals will have to squeeze returns out of an eyedropper, then the inequality effects are yet another reason to exit as fast as possible. Now I am not a believer in Geithnerism. But many people are. And it is certainly a live analytical position...

I think it's helpful to distinguis DeLong as a "soft" neoliberal from Geithner who is a "strong" neoliberal. He even had the Treasury working at cross purposes with the Fed over QE. Was this in his book? I hope Bernanke will discuss it.

inequality and Democrats; Strange Defeat

Inequality: Don't Blame the Market by Dean Baker

Goldfarb:

Jason Furman, the chairman of the Council of Economic Advisers, has estimated that overall, the health care programs and Obama's tax policies should undo years of growing inequality. 

"Just the tax changes we made in this administration undid about half a decade of the increase in inequality," he said in a press briefing last week on an unrelated topic. "If you add in the Affordable Care Act, it’s more than a decade of inequality that was undone. " 

He said future work must tackle the pre-tax inequality, by doing things like raising the minimum wage, which would immediately increase the income of the poor, and improving educational attainment, which could reduce inequality over the long run.

First off: defeat the Republicans. Secondly, purge the Democrats of the Rubinites. We need the Democrats to not bother talking about supply side policies to fix pre-tax inequality like improving education. They need to focus on full employment and rising real wages. They need to take to heart Kalecki's point that the economy should not depend upon the whims of investors and business managers. The base line should be set by the government and government spending. Then who cares when an asset bubble pops.

The "strange defeat" of the Democratic Party - to take the title of J.W. Mason's blog post - happened when Bill Clinton dropped his campaign pledge for a middle class spending bill in the face of Greenspan's threats to raise interest rates. As James Carville quipped "I want to be reincarnated as the bond market. Everyone's afraid of you." Greenspan did deliver 4 percent unemployment, but it was unsustainable and led to increasing inequality as the tech boom busted and morphed into the housing bubble. Clinton's deficit reduction was squandered by Bush's tax cuts for the rich which Greenspan endorsed.

Mason's post a response to his article where the conservative writer mentions India. They wish America, Japan and Europe were more like developing nations and were more vulnerable to bond vigiliantes. But they have their own printing presses.

Great Clusterfuck

Reviewing Ryan Avent’s Review of Amir Sufi and Atif Mian’s House of Debt: Friday Focus: May 16, 2014 by DeLong

Geithner

AND DAN DAVIES DELIVERS TIM GEITHNER'S SOLILOQUY AS THE EARL OF KENT IN "KING BARACK": MONDAY REAL-TIME SMACKDOWN WATCH by DeLong

Why Tim Geithner is wrong on homeowner debt relief by Atif Mian and Amir Sufi

Tim Geithner: More Banker Than the Bankers by Noam Scheiber

Social Security

Ain’t It Not Grand? by Krugman

Hurray: President Obama has dropped his notion of using a change in the price index to cut Social Security benefits. 

This is a big deal, not just because of the concrete implications for retirees, but because it signals the end of an era. BowlesSimpsonism is dead; “responsible” policy will no longer be defined as the search for a fiscal Grand Bargain. 

We might even be on the path to grappling with America’s real problems.

liberal versus conservative

Obama's Big Gamble by Greg Sargent

...But he then doubled down on precisely the argument that is the main point of contention with Republicans, arguing that the primary challenge we face is stagnating economic mobility and widening inequality, and crucially, that only an agenda of robust government intervention can reverse the larger trends underlying those problems and restore economic mobility and the American dream.

The current political tug of war breaks down as follows. Republicans want the Obama era to be seen as one of excess liberal governance thwarting our economic potential, leading to widespread misery. The primary vehicle for this argument is Obamacare — government interference is only leading to lost coverage, higher premiums, and crushed jobs. Only electing Republicans to Congress can act as a check on unbridled liberal governance and restore market-powered prosperity.

Democrats want to persuade Americans that only they have an actual policy program to deal with our primary problems — that the gains from the recovery are not broadly shared, that wages have stagnated, and that there aren’t enough jobs. The Dem case is that the Republican arguments against Obama’s signature domestic achievement are really a proxy for the same old GOP trickle down ideology, that only getting government out of the way — and keeping taxes and regulations low on rich people and job creators — can unleash the market potential that will miraculously lift up everyone below them.

White House advisers say they think that if the argument is understood on the latter terms — in the 2014 elections in particular — they will have the advantage. So yesterday’s speech was the start of a broader effort to use whatever “bully pulpit” powers the presidency has to shift the argument onto that turf.

But as Dean Baker points out, conservatives use the government to redistribute upwards.

Obama's 2013

What Obama Is Really Trying to Do in the State of the Union Address by Jonathan Chait

...What, then, has the administration done with the last year? The first thing it did was wage a political war to assert, or reassert, the basic legitimacy of the executive branch. In my preview of Obama’s second term, I wrote, “The necessary predicate [for a successful second term] is for Republicans to accept Obama as a legitimate president.” 

In 2013, Republicans were not prepared to make that concession. The congressional GOP undertook a campaign to strip Obama of the normal presidential powers, in two ways. One was by using the threats of a government shutdown and a debt default as “leverage,” which could force the president to surrender policy concessions to Congress without any policy trades. The second was an unprecedented move to blockade any appointment at all to vacant executive branch and judicial positions. Much of the drama of 2013 was consumed with Obama and his Democratic allies successfully beating back this ambitious Republican effort to reshape the power dynamic between the branches of government. 

The end results — new limits on the filibuster, and the crushing of the hostage-taking strategy — were not preordained. (Indeed, most pundits predicted Obama’s counterattack would fail. Here’s Chris Cillizza predicting last summer that Senate Democrats would never limit the filibuster; here are various pundits predicting Obama would have to pay a debt-ceiling ransom.) But if Obama had not beaten back the assault on the presidency, he would now be in no position to carry out the work his administration is undertaking. 

For instance, having managed to install a chairman of the Consumer Financial Protection Bureau, the administration has finalized key rules in the Dodd-Frank law. Those regulations have received little attention, but the end result is that even many liberal skeptics now say the law is far tougher on Wall Street than they originally believed. And having filled the vacancies on the crucial D.C. Circuit Court, the administration is much better positioned to defend itself from the inevitable legal attacks on its regulations on the environment and elsewhere. 

The other major implementation project of 2013 was the Obamacare rollout. That, of course, was an utter debacle of such a scale that even mentioning the administration’s successes alongside it has a mordant, pitiful ring of “Other than that, how did you enjoy the play, Mrs. Lincoln?” The shoddy website helped launch a wave of disastrous news coverage, spreading out to other, more predictable transition problems, like people who received cancellation notices. The failed Obamacare launch has dragged the president’s approval ratings into anomalously low territory, threatening to turn the midterm elections, which already favored the GOP, into a chance to hand Republicans control of the Senate.

Those low approval ratings provide the impetus for Obama’s splashy new message. Everything about Obama’s messaging — the image of vigorous unilateral action, the laser focus on jobs, the small but popular policy initiatives attached to it — serve the goal of patching up the president’s standing and framing the Washington story in the most favorable terms possible. The State of the Union address is not an effort to fundamentally reorient the administration’s strategy. It’s a campaign to mend the political damage from the botched Obamacare launch.

Obama's TV picks

Obama’s TV Picks: Anything Edgy, With Hints of Reality

And the list of heavies continues. Mr. Obama has told people he is a big fan of “Game of Thrones,” a brutal imagining of the wars in medieval Europe. He has raved about “Boardwalk Empire” and the BBC’s “Downton Abbey,” two period dramas that document the angst and difficulties that people faced during those times. And he has worked his way through the DVDs of AMC’s smoldering “Mad Men” series, telling friends that the character of Peggy Olson has given him insight into what it must have been like for his strong-willed grandmother in a world dominated by men.

Then there is HBO’s “The Wire,” which Mr. Obama has repeatedly called one of the “greatest shows of all time.” The drama depicted the poverty-stricken projects in Baltimore and documented the drug war between worn-out cops and the city’s African-American residents. (The president’s favorite character: Omar Little, the stickup man who robs the drug dealers.)

Obama's inequality speech

Inequality is ‘the defining issue of our time’ by Greg Sargent

Obamacare

DeLong linked to John Cassidy on healthcare.gov.

Liberalism Will Survive Obamacare  by John Cassidy

On one level, the “bed-wetters”—according to Franklin Foer, the editor of the revitalized New Republic, this is the term that White House officials reserve for the Administration’s worrywart supporters—are obviously right. The launch of healthcare.gov has been horrendously botched, and Obama’s misleading statements about what would happen to Americans who wanted to keep their individual policies have come back to bedevil him. In Foer’s words, the Administration “has stifled bad news and fudged promises; it has failed to translate complex mechanisms of policy into plain English; it can’t even launch a damn website. What’s more, nobody responsible for the debacle has lost a job or suffered a demotion.” 

Actually, that isn’t quite accurate...

On one hand it's obviously bad that White House officials didn't nail healthcare.gov's launch. But it's heartening that they aren't panicking over the media feeding frenzy. They seem to be making progress. One possible explanation is they got more confidence after winning the government shutdown and being proven right.

Grand Bargain and fiscal policy

A Dirty Secret Lurks in the Struggle Over a Fiscal ‘Grand Bargain’ by Jackie Calmes

“It’s a lot harder than you’d think to find Republicans who’d actually want to cut entitlements, or Democrats who want to raise taxes,” said Jared Bernstein, a former economic adviser to Vice President Joseph R. Biden Jr. and now a senior fellow at the liberal Center on Budget and Policy Priorities. “The only person who seems to have consistently been interested in a grand bargain is the president, and frankly I’m not even sure about him.”
...
Mr. Obama put the proposed changes to entitlement programs in his budget, including one that would reduce annual cost-of-living benefits for Social Security, over his party’s opposition. His hope was to entice Republican leaders back to the bargaining table, or at least to expose their unwillingness to compromise. Republicans were not enticed.

“One of the big differences between budget discussions now and previous ones back to the ’80s is that I’m not sure anyone here really wants to cut a deal,” said Stan Collender, a longtime fiscal policy analyst and the national director of financial communication at Qorvis, a public relations firm.

“Do Republicans want to propose changes in entitlements?” he added. “Basically you’re talking about Medicare and Social Security, which a lot of Tea Party folks get, given their ages. Do Democrats want to propose changes in taxes for upper-income individuals? Well, given the support they’re getting from upper-income individuals, I’m not sure they want to take the lead on that.”
...
The declining deficit reflects economic growth as well as the spending cuts and tax increases that Mr. Obama and Congress previously agreed to. It is not expected to begin climbing again until about 2018, as more baby boomers draw from Medicare, Medicaid and Social Security. 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.

2014

Valium for Obamacare Worriers  by Krugman

Suppose that healthcare.gov isn’t fixed by the end of next month. How bad is it for Obamacare? Would the program be doomed?

No, says Jonathan Cohn, because there are two layers of protection against poor signup. First, there is a system of cross-subsidies to insurance companies that was intended to prevent companies from surreptitiously gaining an advantage by only signing up healthy people (hey, our policy is available to anyone — but you have to sign up in our sixth-floor walkup office.) As it turns out, this system would end up compensating insurance companies in general if the risk pool is worse than expected. Second, the subsidies to individuals are designed to hold health costs down to 8 percent of income, which means that they will rise if costs are higher than expected.

Neither of these would be a good thing, since they would increase the budget cost, but they do mean that Obamacare’s survival probably isn’t on the line.

Actually, the biggest reason Obama and co. should be anxious to fix these things now, I’d argue, isn’t the fate of the program itself, which can survive even large early wobbles, but the midterm elections. If Obamacare is fixed, Republicans will be in the position of attacking a program that is benefiting millions of Americans; if it isn’t, they can still run against the legend, not the fact.

So a lot is riding on fixing the technological botch — but not in quite the way people imagine.

I think Chait is freaking out. Jared Bernstein responds also.

positive outlook

No bubble yet in the economy. Private sector sort of chugging along with banks still tight on credit to home buyers. Germany doing well with 5 percent unemployment. They did worksharing. (If the U.S. had rational fiscal policy, we'd be at more like 6 percent. Toss in worksharing and we're at 5 percent.) The Fed hopefully will be headed by Yellen and they will either maintain or improve their management. Hopefully Japan's growth overcomes the sales tax and Abenomics proves so successful that even the skeptics will have to admit it worked - that or they'll twist the explanation of the mechanisms of success to fit their views.

The deficit is no longer a problem in the U.S. Any deficit cutting is merely political (actually it has been with the sequester.) Affordable Care Act takes effect. It's working according to Krugman:

Yes, there may be some negative news stories about the glitches. But Obamacare is not up for a revote. As Jonathan Bernstein says, the only thing that matters is whether it works. And today’s heavy volume is yet another sign — along with abating health costs and below-expected premiums — that it will.

From David Warsh via Thoma:

The responsibility to take care of oneself will have been joined, however loosely, to the long-established right to emergency medical care.

Something like 25 million citizens, more than half of those who are currently uninsured, will enter into a relationship with a medical practice within the next few years. They’ll join more than 250 million Americans who are currently insured in the biggest undertaking to improve public health since the days of city sanitation and the war on communicable disease more than a century ago.

In many states, collective well-being will begin to improve almost immediately (the initial enrollment period extends through the end of March). In other states, especially those in the Southeast, where Republican governors have dug in against implementation of the law, a more complicated political game will play on. Everywhere, changes within the enormous health care sector, already underway, will gather momentum.

No wonder the fuss is so great.

At first glance, the statute bears a striking resemblance to mandatory vehicle insurance in the United States. Massachusetts led the way in broadening that market, too, followed closely by Connecticut. In 1925, the Commonwealth required automobile owners to get liability insurance in order to register their automobiles. New York followed suit, in 1956, and North Carolina, in 1957; other states quickly fell in line. Today only Virginia requires no insurance; residents of the state must at least post a $500 bond instead, and an overwhelming majority purchase insurance.

It will become the norm like Medicare and Social Security and it will be improved. The American healthcare system will move toward the international norm for advanced countries with lower costs and a healthier population with more security. Health care costs are driving government debt to the extent that the debt is a problem. With the cost curve bent, health care spending won't crowd out other priorities.

Obama signed Obamacare into law in 2010 and was re-elected in 2012. Scott Brown replaced Kennedy in 2010 as a Massachusettes Senator. Then Elizabeth Warren replaced Brown. Liberal De Blasio looks likely to be the next Mayor of NYC after Giulanni and Bloomberg. Warsh:

On Tuesday the Affordable Care Act goes into effect. It was passed by the Congress and upheld by the Supreme Court. The White House holds all the cards. The Defunders, the operating arm of the Tea Party in Congress, are certain to lose if the president remains firm. He should simply state: you don’t negotiate with terrorists.

As if to underscore the point, Senator Tom Coburn (R-Oklahoma), a veteran of the government shutdowns of 1995-96, told Politico last week that if If the Republicans succeed in shutting down the government Tuesday, “they’ll fold like hotcakes” after a week or two, when constituents begin to complain about the lack of service. “You do not take a hostage you are not going to for sure shoot. And we will not for sure shoot this hostage.”

And in the longer term? My guess is that Tea Party dissidents will lose ground in the midterm elections next year; that the GOP will split in the 2016 campaign and that a Democrat will be elected president; that in 2018 the Tea Party will further fade. And by 2020, the Republican governors who are successful in implementing the Affordable Health Care Act will be running for president, strongly, on the strength of their records.

After a week or two Boehner will fold. The consituents will complain. Led by Peter King, moderates revolted and Boehner assured them he'd work it out. With the deficits, debt and Obamacare no longer on the radar and with the economy improving, the Tea Party will fade.

shutdown, no default?

The House GOP’s shutdown plan is great news by Ezra Klein

Spielberg's Lincoln is on cable tonight.

The Debt-Ceiling Showdown Is the Fight of Obama’s Life by Jonathan Chait

The progression of events begins with a dynamic I described in a print piece at the beginning of 2012 – conservatives had come to regard the 2012 race as their last chance to win an election as authentic conservatives against a rising Democratic majority. Since their crushing defeat, they have ignored the task of refurbishing the party’s national appeal for its next national electoral bid, and instead have recommitted themselves to waging increasingly millenarian confrontations from their existing red state power base in Congress.
...
If outsiders have failed to grasp the motivations of the House Republicans, puzzling at their odd redoubling of ideological fervor since November, they have likewise mistaken Obama. Everything I have seen from Obama suggests he understands that he cannot repeat his blunder of 2011, when he mistook the GOP’s debt-ceiling threat for an invitation to engage in normal fiscal bargaining.
...
Yet Obama simply has no alternative but to accept that risk. The stakes are higher than resisting the specific demands Republicans are making, and higher even than the economic havoc of a debt breach. Obama is fighting to save his presidency.

Ted Cruz Now Ruining John Boehner’s Life, Too by Jonathan Chait

(world's smallest violin)

The Republican Party right now most closely resembles a Weatherman gathering from about 1969, with various factions debating the feasibility of immediate communist revolution versus building a working-class movement as a prelude to smashing the state. As such, distinguishing the various gradients of ideological fanaticism has become an increasingly abstruse task.

The agenda has largely been driven by the “Defund Obamacare” faction, led by Ted Cruz, which proposes to shut down the federal government until such time as President Obama agrees to abolish his health-care plan, which would of course be never. That faction has failed in the Senate, which voted today to keep the government open without demanding the defunding of Obamacare. (Twenty-three Republican senators joined all of the Democrats.)

why liberals blocked Summers

Summers lost because liberals don’t trust Obama on financial reform by Ezra Klein

Summers fell because at least five Democrats on the Senate Banking Committee doubted his bona fides as a bank regulator. But even that doesn’t get at the whole truth. Summers really fell because those Senate Democrats — and many other liberals — don’t trust the Obama administration’s entire approach to regulating Wall Street. For all the talk of Summers’s outsized personality and polarizing past, he really lost because he was a stand-in for Obama.