May 2011 Archives

Austerity -- cutting government benefits and services -- is not the path to fixing deficits. In fact, economists warn that trying to fix a sluggish economy by cutting government spending will just make things worse. Worse yet, this approach can have damaging effects that last into the future. This can be easily shown with simple calculations.

Economist Brad DeLong talks about Simple Deficit Reduction Arithmetic: A Comment on Kash Mansouri, commenting on Kash Mansouri's post Some Simple Deficit Reduction Arithmetic.

Start with Kash who sets it up with an easy-to-picture $100 economy.:

Suppose we are in a country that is running a large budget deficit but, for whatever reason, decides that it needs to dramatically reduce it. Take your pick of examples, because there are plenty to choose from: Greece, the UK, the US...

Suppose that the country - let's call it Austerityland - has a GDP of $100/year, and a budget deficit of $10/yr, or 10% of GDP. And suppose that the government decides it wants to get the deficit down to 5% of GDP. How can it get there?

No, the answer is not "cut spending by $5/yr".

OK, so we have a $100 GDP with $10 deficits and we want to cut that to $5. Kash explains that a $5 spending cut means (by definition) that GDP immediately drops $5, and this (by definition) $5 drop in consumer income makes tax revenue drop as well (as well as a further drop in GDP). After some calculations (go to the post) Kash shows that a $5 cut makes deficits drop to 7.4%, not 5%, but GDP also drops quite a bit - maybe 7 or 8%. Seriously, go see the calculations, they are not difficult.

So much of our current deficit is because of the Great Recession. Obviously we don't want to force the economy back into recession with budget cuts causing a big drop in GDP!

(Note, if this spending cut happens at a time when interest rates are high, then the rates might fall as spending cuts reduce demand, which might help spur investment, but in the US interest rates are zero so this won't happen. The only thing that will happen is demand is reduced and the economy slows.)

Kash concludes,

Why do people keep getting surprised that austerity doesn't work as well as hoped to reach budget deficit targets? ...

But when basic Macro 101 both makes good theoretical sense and also fits what we actually observe, it's really time to start looking for your handy Occam's Razor.

In the UK we observe that this effect is now proven as their austerity has forced a big drop in GDP. And the same is happening with Greece as their austerity forces their economy to slow.

But Wait, It Gets Worse

After linking to this post DeLong takes the warning a bit further, pointing out that if some of the "austerity-induced output decline turns into a permanent reduction in potential output" then the "spending cuts this year lowers future annual tax collections..." which means it hurts your ability to pay off debt. Or, in other words, "that austerity today worsens the debt burden." Click through to see DeLong's calculations.

Got that? Harming the economy on purpose with spending cuts harms the economy in the future, too.

This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.


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I am fortunate to be traveling through portions of Europe that were not too long ago lifted from the veil of the Soviet Union's gray and dull veneer. The experience is not only illuminating for the normal reasons that travel is mind-expanding, but because I am in a place with a thousand year tradition and commitment to the arts---music is everywhere and consistently good.Last night I marveled at a musician who plays music on glasses that are filled to different levels of water and thus, when touched in such a way can play beautiful melodies and create amazing sounds. Arts, the theatre, and architecture simply soar from place to place and one extraordinary edifice to another. This is the legacy of Prague---a place that has bounced back-and-forth through history under control of one conqueror or another. In just the past hundred years or so there was the overthrow of the Hapsburg Empire, the uniting of geographies to create an unnatural country; Nazi occupation during World War ll; the Soviet occupation for over 40 years and then independence a mere twenty years ago and a poet named Havel becoming its President.  

And all the while, these people have maintained a commitment to the arts--through war and repression they have persisted. Even the dreary and weary vagaries of Soviet domination have been unable to extinguish the love of song and the joy of creating that is clearly a hallmark of this country.

There is clearly a lesson here for us in California that we cannot and should not sacrifice the arts for austerity. We have all but removed them from our schools and have made it difficult for our children to experience music and theater and art because they are the first things to be sacrificed when budgets get tight. Without exposure to creativity, the mind does not develop to its full potential. And how sad, short-sighted and reckless it is to remove these opportunities from our youth---many of whom will never know their potential to play an instrument, write a symphony, build a building or paint a masterpiece and yet who might very well be the next Yo Yo Ma, Mozart, Frank Lloyd Wright or Picasso.

While there is no doubt we need to teach the basic skills to our children, we need to remind ourselves that exposing our children to the arts, music, literature are as basic and fundamental to their education as anything else we put before them. It is through the arts that we appreciate the spiritual (consider the amazing churches and temples of religions throughout the world), the up-lifting quality of Beethoven's 9th, etc. etc. Without giving our children the chance and choice to pursue these life experiences, we deny them what others know so well as the glue that holds a society and its culture together. Let's hold tight to what others have known for thousands of years: that we must encourage and pass strong traditions of music and the arts to our children and their children that reflect our nation's vibrancy and limitless spirit.
 

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When I participated in my first budget battle as a new member of the California Assembly back in the late 1990s, I was admonished that the budget isn't just a collection of numbers. It is a moral statement of our values as a people and a community. The budgets proposed by the Republicans -- both in California and in Washington, D.C. -- clearly show that today's Republican Party values millionaires over working families and Big Oil over seniors.

In California, we have not been able to extract a single Republican vote to extend the current tax rates necessary to protect our schools and create infrastructure to generate jobs. In Congress, the Republicans have gone so far as to adopt a budget that would end Medicare as we know it, turning it into a voucher or coupon program.

This the wrong direction for medical care because it would force seniors to fend for themselves on the private insurance market and continually pay more for their health care costs. The Republicans have yet to explain how they plan to force insurance companies to cover seniors, an age group that is not profitable to insure. How will they insure these people? Will insurance companies continue to increase premiums across the board, as they are doing now? Of course they will. That's why the Medicare system was created in the first place -- because seniors were the most likely to be uninsured, only 14 percent having medical coverage when the program started. While the Medicare system needs reforms to control costs, the answer is not to force our seniors to navigate a private insurance market that will do everything it can to withhold coverage and services. Reducing access and affordability during life's most difficult moments is morally wrong and not the American way of caring for its vulnerable and deserving citizens.

The same Republican budget would extend tax breaks for millionaires and billionaires and continue unnecessary subsidies for Big Oil, at a time of record profits and high prices at the pump. So here we are: According to the Congressional Budget Office, the Republican plan would have your grandparents pay an additional $6,000 out of pocket every year to cover their medical bills so that the Warren Buffets of the world can receive an additional $200,000 tax break and, at the same time, give Big Oil nearly $8 billion a year in subsidies while they continue to make record profits. It begs the question: What exactly do these Republicans value?

Not only is this plan bad for the American people, Americans do not want it. The Republicans in our legislatures are turning a deaf ear to the fact that 84 percent of Americans oppose their plan to privatize Medicare and reduce benefits and 74 percent support eliminating tax breaks for the oil and gas industry. A majority of Americans support eliminating tax breaks for the wealthy. Even close to 60 percent of Independents support eliminating tax cuts for Americans making over $250,000 a year.

There is a better plan, one that will eliminate the deficit and create a surplus by 2021, contrary to the Republican plan that continues to blow holes in the current deficit. The "People's Budget" advanced by the Congressional Progressive Caucus doesn't attempt to balance the budget on the backs of the middle class, children and seniors, the most vulnerable among us. It would get our fiscal house in order by eliminating tax breaks for millionaires and billionaires and make sure they pay their fair share. It would close tax loopholes so that well-paid accountants can't reduce the tax obligations of the wealthy and big corporations to zero. It would end the wars in Iraq and Afghanistan, finally bringing our troops home and stop the expenditures of billions of dollars a day in other countries when we need to invest right here at home. It would enact a comprehensive jobs program to put America back to work so there are more taxpayers paying into the Treasury and fewer Americans dependent on the social safety net. It would enact a public health insurance option that will create more competition with private insurance companies and reduce premiums for all Americans. That is the direction we should be taking -- giving more to the people and less to billionaires and Big Oil. It is a responsible approach that will bring hope, opportunity, dignity and fairness back to our public policy. We can do this and we must if we want to ensure that we really are committed to the future and the American Dream.

This appeared in the Santa Barbara News-Press, May 8, 2011


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Is there a "block" of "centrist" voters who "move" one way or the other, to Democrats or Republicans, depending on whether a candidate takes positions that are "between" the positions of those on the "left" and "right?" This is the standard model followed by many Democratic pollsters, who advise their clients to take wishy-washy positions and avoid clear progressive positions. There is reason to believe this view is fundamentally wrong, and that the metaphor of the existence of a "centrist" is affecting and constraining our ability to understand what actually happens in the voting population.

Washington Post's The Fix looks at a Pew poll of independent voters in The misunderstood independent,

In politics, it's often tempting to put independents somewhere in the middle of Republicans and Democrats, politically. They identify somewhere in between the two, so they must be moderates, right?

A new study from the Pew Research Center suggests that's not so true anymore. Independents, in fact, are a fast-growing and increasingly diverse group that both parties are going to need to study and understand in the years ahead.

. . . Pew identifies three different kinds of independents. Libertarians and Disaffecteds are 21 percent of registered voters and lean towards Republicans; Post-Moderns are 14 percent and lean towards Democrats.

A look at their views on issues shows those three groups can often be among the most extreme on a given topic.

Disaffecteds, for example, believe in helping the needy more than most Democrats. Libertarians side with business more than even the solidly Republican Staunch Conservatives. And Post-Moderns accept homosexuality more than most Democrats. The three independents groups are also less religious, on the whole, than either Republicans or most Democrats.

In the post I wrote here last year, The Elusive "Swing" Vote, I wrote about this idea of a "swing" voter, (note I should have written "few" voters switch instead of flatly saying none),

Have you heard of the "Moveable Middle?" This is the idea that there are voters on the left who will always vote on the left, and voters on the right, who will always vote on the right, and then there are voters between them who switch back and forth. They are called "swing voters."

So the idea in politics is that in order to win elections you have to take positions that appeal to these voters, and they will "switch" and vote for you instead of for the other side. This is a fundamental mistake.

Here is what is very important to understand about the "swing" vote: No voters "switch." That is the wrong lesson. There are not voters who "swing" there are left voters and right voters in this middle segment who either show up and vote or do not show up and vote, and this causes this "swing" segment to swing.

The lesson to learn: You have to deliver for YOUR part of that swing segment or they don't show up and vote for you. That is what makes the segment "swing."

That post looked at polling by the Progressive Change Campaign Committee that reached conclusions similar to this more recent Pew polling.

So I've been saying that Dem pollsters are using the wrong model of what an independent voter is, telling the politicians that there is a "block" of independents who will vote one way or the other depending on what they hear. With this model they have to "move to the center" always staying in "between" the position of liberals and the far right, hoping to "attract" these voters away from the other side. They describe a single "center" or "independent voter" who will vote one way or another depending on whether they thing a candidate is "in between" the two poles, even when those poles have been moved very far to the right.

The problem here is the effect the metaphor of a "center" has on our thinking. Thinking about independent voters as being a "block" that is "between" the parties is the problem. It forces the brain into a constraint because of the visual image that it evokes. What I mean is that the actual language of "centrist" changes how we think. The metaphor makes us think they are "between" something called left and right. And as a result it forces certain conclusions.

The PCCC and now the Pew poll show us that these "independent" voters are NOT some group that sits between the positions of the parties. They are not a block and they are not between. Democrats and especially their pollsters think of them as a block that is between, and this is why the do what they do.

Karl Rove believed that there were independents who were not registered Republican because the party was not far enough to the right for them, who would only turn out if the party gave them something to vote for. I think Karl Rove's model is more accurate, that the independent voters are a number of groups, and very large numbers of them are MORE to the left or right than the parties, and don't vote unless the parties appeal enough to them.

Rove decided this means the Republicans need to move ever more to the right, and this will cause those "independent" voters who had changed their affiliation out of disgust with the centrism of their party to now turn out and vote.

I think Rove nailed it. the PCCC had a poll a while back that showed this, and now see below. Dems have it exactly wrong, what they are doing turns off those independents who might have turned out to vote for them.

The way to grow your voting base is NOT to try to "appeal" to some group that is not left or right, but is "between" something called left and right. To get more voters -- especially the "independent" ones who won't identify with a party -- is to take stands, be more committed to progressive positions, and to articulate them more clearly.


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This page is an archive of entries from May 2011 listed from newest to oldest.

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