Economic Populist: The Obama Platform and the Grand Bargain

Burning the Midnight Oil for Economic Populism

There is this thing called the "Democratic Party Platform" that people fight over, as another set of people fight over the Republican Party Platform ... but its been decades since the Party Platform was the kind of actual governing platform that we see in the party platforms in parliamentary democracies such as the UK or France or Australia.

The closest thing we are getting to a real platform is what is put on TV, with the speechwriters working in a room underneath the stage vetting the speeches. Part of their job is to ensure consistency of "the message".

And in listening to the economic policy positions as filtered through the speechwriters room ... well, one of these things is not like the others.

From Maryland Governor Martin O'Malley, who had the unenviable position of speaking between MA Governor Duval Patrick and San Antonio Mayor Julian Castro:

With 29 months in a row of private sector job growth, President Obama is moving America forward, not back! By making college more affordable for millions of middle-class families, President Obama is moving America forward, not back! By securing the guarantee of Medicare for our seniors, President Obama is moving America forward, not back! By putting forward a concrete plan to cut waste, ask those at the top to pay a little more, and reduce our deficit, President Obama is moving America forward, not back! And by adding American manufacturing jobs for the first time since the late 1990s, President Obama is moving America forward, not back!

Setting aside for a moment the extent to which the policies live up to the claims, consider the claims themselves:

  • Making college more affordable ~ that would be progress
  • Securing the guarantee of Medicare ~ that's retaining something valuable in the status quo
  • A plan to cut waste ~ and who can object to cutting waste!
  • asking those at the top to pay a little more ~ a progressive overall tax structure stabilizes the economy, so that would be progress
  • reduce our deficit ~ direct steps to reduce out deficit are steps to reduce economic activity, make things tougher in labor markets and increase unemployment, so that's a step backward
  • Adding manufacturing jobs ~ that's progress

Well, OK, maybe Martin O'Malley is just one example. Lets look at the more effective speakers who came before and after Martin O'Malley. First, the governor of Massachusetts:

The question is: What do we believe? We believe in an economy that grows opportunity out to the middle class and the marginalized, not just up to the well connected. We believe that freedom means keeping government out of our most private affairs, including out of a woman's decision whether to keep an unwanted pregnancy and everybody's decision about whom to marry. We believe that we owe the next generation a better country than we found and that every American has a stake in that. We believe that in times like these we should turn to each other, not on each other. We believe that government has a role to play, not in solving every problem in everybody's life but in helping people help themselves to the American dream. That's what Democrats believe.

All lovely values to hold. And not a word of balancing the budget. Maybe Martin O'Malley was an outlier. So we turn to the Mayor of San Antonio:

Four years ago, America stood on the brink of a depression. Despite incredible odds and united Republican opposition, our president took action, and now we've seen 4.5 million new jobs. He knows better than anyone that there's more hard work to do, but we're making progress. And now we need to make a choice.

It's a choice between a country where the middle class pays more so that millionaires can pay less—or a country where everybody pays their fair share, so we can reduce the deficit and create the jobs of the future. It's a choice between a nation that slashes funding for our schools and guts Pell grants—or a nation that invests more in education. It's a choice between a politician who rewards companies that ship American jobs overseas—or a leader who brings jobs back home.

Nope, there it is: "a choice between a country where the middle class pays more so that millionaires can pay less -- or a country where everybody pays their fair share, so we can reduce the deficit and create the jobs of the future."

Fair Share

What would "everyone paying their fair share" really mean?

We have over the past forty years, through reducing the top income tax bracket, reducing capital gains tax and eliminating the higher marginal rate for wealthy individuals, cutting the billionaire at birth tax rate, while raising payroll tax rates and sales tax rates, shifted from a progressive tax system, to a tax system that is close to a flat tax. And even at that, proponents of a "flat tax" do not propose to just simply the status quo and take a constant share of everyone's income, getting rid of the whole array of both progressive and regressive taxes ... they either proposed to replace a moderately progressive income tax with a flat income tax, to make the whole system regressive, or to replace a moderately progressive income tax with a regressive national sales tax, to make the whole system regressive ... or a combination of both.

And at the same time, the balance of spending has tilted in favor of the wealthiest among us. The great soaring heights of the yellow bellied surplus sucker economy are all dedicated to generating profits that flow to shareholders that are concentrated in the top 1% of the income ladder:

  • "Defense" spending that makes the country less secure, but generates profits for the Military Industrial Complex
  • "Reform and Rehabilitation" spending that takes people doing what wouldn't be illegal in a sane society, and through incarceration in a brutal and increasingly for-profit prison system, creates a growing supply of hardened criminals to incarcerate again and again
  • "Education" lending that forces the most vulnerable amongst us to take on $10's of thousands in debt in a high risk gamble on escaping from the ranks of the unemployed and underemployed poor into the ranks of the overworked working poor.
  • "Health Care Spending" that ensures over twice the revenues per person to the medical sector of the economy than other industrial economies, and outcomes that fall below advanced industrial economies to rank amongst semi-peripheral economies.

"Everyone paying their fair share" would in reality see a roll back in the yellow bellied surplus sucker economy that we all pay for but which primarily benefits the top 1% ... and an increase in the share paid by the top 1%. Given that it is not fair that someone who is born in a wealthy family can inherit that position without earning a dime of their own money, "everyone paying their fair share" would replace estate taxes with a cumulative lifetime gift tax that capped lifetime unearned income at 50 times median personal income. Given that nobody earns massive wealth outside of the economy that makes that wealth possible, which rests upon a mountain of common knowledge that has been accumulated over the millenia, incomes over ten times median income would surely be able to carry the burden of the 75%+ of "Defense" spending that has nothing to do with National Defense but is only focused on generating more income to those already wealthy.

However, what does the phrase really mean? We know what it means. President Clinton explained it in detail on Wednesday night:

Let's talk about the debt. We have to deal with it or it will deal with us. President Obama has offered a plan with 4 trillion dollars in debt reduction over a decade, with two and a half dollars of spending reductions for every one dollar of revenue increases, and tight controls on future spending. It's the kind of balanced approach proposed by the bipartisan Simpson-Bowles commission.

I think the President's plan is better than the Romney plan, because the Romney plan fails the first test of fiscal responsibility: The numbers don't add up.

$4T over a decade is $400b per year. $2.50 in spending cuts for every dollar in tax increases is 71% of the deficit reduction in spending cuts, or $285b in spending cuts.

And where is this going to come from? Well, as President Clinton suggests, lets use arithmetic. In the second quarter of 2011, actual Federal government spending on goods and service was $1,211b. Spending on defense related goods and services was $807.8b. And spending on non-defense related goods and services was $402.9b.

We know that the entire 285b is not going to come from substantial defense cuts. This was spelled out by the Pentagon to the civilian population in January of this year:

There is broad agreement on the left, right and center that $450 billion in cuts over a decade — the amount that the White House and Pentagon agreed to last summer — is acceptable. That is about 8 percent of the Pentagon’s base budget. But there is intense debate about an additional $500 billion in cuts that may have to be made if Congress follows through with deeper reductions.

Mr. Panetta and defense hawks say a reduction of $1 trillion, about 17 percent of the Pentagon’s base budget, would be ruinous to national security. Democrats and a few Republicans say that it would be painful but manageable; they add that there were steeper military cuts after the Cold War and the wars in Korea and Vietnam.

Of course, the $450b in cuts over a decade are cuts against the Pentagon "baseline" budget. When the Center for American Progress analysed the 2013 Defense Budget, they scored the 10 year projection a "D":

The Pentagon also announced that it will cut $487b from its budget over the next decade. This $487b number, however, is calculated from projected levels of defense spending. As a result, when one adjusts for inflation, these "reductions" essentially hold the defense budget steady at its current level.

So in the $285b per year, on average, about $49b is "not increasing the Defense budget by $49b per year as we had planned to do.". The good news is that this means that the cut in spending is only really $236b. The bad news is that the this means that "handing back the increase we planned" is intended to inoculate Defense spending from real cuts that would be accomplished by rolling back the massive Military Base network that is the primary generator of threats to US National Security.

Now, can we cut $236b from $400b in non-defense spending on goods and services? No way, no how. So, where are the bulk of the cuts in spending going to have to come from?

If the cuts in spending are not going to come from the roughly half of the Federal budget that goes to spending on goods and services, and if it sure as hell is not going to come from reducing spending on interest payments that generate income directly to the FIRE sector (Finance, Insurance and Real Estate) that is a substantial industrial base for the President's Hedge Fund wing of the Democratic Party, then its going to have to come from the larger part of the other half of federal spending, federal government transfer payments. And its not possible to get any $100b+ reduction per year in transfer payments unless you reduce spending on the three biggest transfer payment programs: Social Security, Medicare, and Medicaid.

The Grand Bargain and the Double Renege

Yeah, I know that there has been a proposed "Grand Bargain" in the news, under the assumption that "fixing the budget" involves the numbers of dollars in spending cuts to the numbers of dollars in tax increases, and not the things that the government spends money on and the things that the government taxes.

However, the Grand Bargain I am referring to here is the one between Ronald Reagan and Tip O'Neal. It involved a switch from the mostly Pay As You Go Social Security system to one with a rising trust fund through the nineties and noughties, to be used to pay more in Social Security payments than collected in taxes as Baby Boomers started retiring.

Of course, there is no place where "the money" collected can be saved. The Pay As You Go portion of payroll taxes represent the diversion of production between this generation's workers and this generations retirees. But the "surplus" is handed over to the General Fund to be spent, in return for a Treasury security, which is to say a promise to transfer money out of the General Fund at some point in the future.

For any given fiscal balance, that transfer of money out of the General Fund represents either less spending by the government on goods and services or else more taxes on income.

So the Grand Bargain was to use increased payroll taxes on incomes of middle class and working poor households up front to cut taxes on rich people up front, and then a promise to, "when the time comes", reverse the process.

It only takes a brief moment of reflection to realize that the Republican side of that grand bargain never intended the "when the time comes" to ever happen. And so they have been attempting to renege on the Grand Bargain, starting in the 90's and then with greater urgency in the Naughties.

Which seems to be what the current efforts to reach a "Grand Bargain" come in. We are actually reaching that point where the Social Security trust fund will start to cash in its accumulated bonds, after several decades of financing tax cuts on the wealthy and lavish spending on the yellow bellied surplus sucker sectors of the economy.

The new Grand Bargain seems to consist of the President, leading the Hedge Fund wing of the Democratic party, joining together to sort out the finalizing of the reneging on the Grand Bargain.

This effort would be better described as the Grand Shell Game. Because we have been feeding rampant health care services price inflation, that puts Medicare under pressure. Medicare is the second biggest flow of "entitlement" transfer payments, so "entitlements" are in trouble. Social Security is the biggest flow of "entitlement" transfer payments, so Entitlement Reform involves cutting Social Security benefits.

That is cutting Social Security benefits to avoid a trebly fictitious Social Security crisis. It is a fictitious crisis because it occurs at a time on a projection time line where any projection is largely fictitious. It is a fictitious crisis because simply levying FICA on unearned income over twice median incomes would generate a massive trust fund surplus. It is fictitious because even if the projections were from a 100% accurate crystal ball, and even if the entitlement gap was not covered by new revenues, the projected benefit able to be paid on a pay as you go basis would deliver greater purchasing power than the current Social Security benefits that are proposed to be cut.

But the Corporate Media will treat the Social Security crisis as gospel, because NewsCorp and Disney and Universal are all strongly in support of keeping the current system in place of using a regressive payroll tax to deliver surpluses to the General Fund to maintain low taxes on high income individuals and high government spending on the yellow bellied surplus sucker segments of the national economy.

But Wouldn't the Republican Plan Be Worse

While I sympathize the natural reaction to take the opposite position to those adopted by the Democratic partisan progressive rationalization machine, as represented by the Daily Kos and others ... adopting the exact opposition to a position that is composed of truths, half-truths and lies results in a position that is composed of lies, half-lies and truths.

Yes, certainly, the Republican Plan is worse. The Republicans are proposing as much as the 1% could possibly want, while the Democrats are proposing as much of what the 1% want as they can con the Democratic wing of the Democratic party into accepting, and so the bipartisan compromise that tests so well among the unaffiliated voters between the two parties is surely going to be better than what the Republicans propose and would prefer, and worse than what the Democrats propose and would prefer.

But this isn't an election essay, its a policy essay. Getting stabbed in the arm when healthy is preferable to getting shot in the head while recovering from an accident in the hospital, but I would prefer not to be attacked at all, thank you very much. Denying people some social security benefits today and forcing many working poor to try to survive a few more years on the pretense of increasing benefits three decades in the future on retirees projected to be wealthier than today's Social Security recipients: that's absurd policy, which undermines economic recovery, strong labor markets, and growing employments.

It is less bad than dismantling Medicare and dismantling Social Security, it is less bad than the austerity policies that we have seen the Germans impose on the Greeks and the British imposed on themselves. While the Republican policies would surely drive the economy into a second recession, the President's proposal to "merely" cut benefits ~ and by less than 25% to 50% ~ might avoid driving the economy into recession.

But is that any policy objective to boast of? "Three cheers for a destructive neoliberal policy that is less bad than the policy of a radical reactionary faction willing to wreak havoc on the economy in pursuit of their radical neoliberal fantasies. Hip Hip, Hurray!"

Well, no. Hence the "fair share". This is fair share of sacrifice in the face of a massive destruction of property values caused by a bipartisan Democratic and Republican policy of letting Wall Street play reckless games with housing markets. Which is to say, first, I break into your house and steal everything of value that you have. Then I contact you and ask to compromise on a fair share of your stuff. No need to bring in the police ~ we'll just sort out with stuff you are most interested in having, and what you are willing to give up. Nice, easy, no muss, no fuss. And plus, you can spend more time on fixing that window I smashed to get into your place.

It seems as if how fair a "fair share" is may depend upon how fair the distribution was in the first place.

Message from Marley: I Shot the Sherrif




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Good essay Bruce.

Big Al's picture

To me, there is no fair share issue when ti comes to the national debt. And nothing they have planned even with SS, Medicare and other social programs looks like it would put much of a dent in it. Even with these proposed ten year budget plans, doesn't the debt continue to rise to projecteds of 25-30 trillion by 2022, when the interest alone will be around $1 trillion per year? They don't have a plan to solve the debt issue, which should be easily solved by just doing away with it. I just don't think the 99% should accept any share of the debt. Like you said, the distribution from the gains was never fair in the first place as seen by the incredible wealth now at the top.

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Interest on the debt can indeed rise to ...

BruceMcF's picture

... whatever amount of subsidy to Wall Street they decide to grant. And by the same token, if they decided that the additional interest payments to Wall Street were not required, by a combination of lower interest rate policies and monetizing the debt, the Fed could equally well lower the "debt burden".

The notion that they are forced to do one thing or another because of some arbitrary dollar value level of the debt is part of the neoliberal fantasy that we are being treated to as if it was serious economic analysis.

Indeed, the simple arithmetic of debt as a percentage of GDP is that if the deficit as a percent of GDP is smaller than economic growth, then debt as a percentage of GDP will shrink. So one big reason we have the rising debt as a percentage of GDP is the massive unproductive tithe of both government spending and mandatory household spending on the yellow bellied surplus suckers. So, for example, if we had precisely same structural deficit, but spent productively rather than wasted on the overseas base network, we would quickly see debt as a share of GDP drop, because a move toward full employment would generate a cyclical surplus, and because spending the money productively would lead to accelerated economic growth.

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this is a great analogy:

poligirl's picture

Getting stabbed in the arm when healthy is preferable to getting shot in the head while recovering from an accident in the hospital, but I would prefer not to be attacked at all, thank you very much.

and i shudder to think of Simpson-Bowles... it's coming... it was seen coming a while ago, but last night was pretty much confirmation....

at this point, the only hope i have of ever coming close to the 1% is if i win the lotto. hard work won't do it anymore. there's no where to get a real leg up... and we won't have retirement or health security by the time i get there in 20 years... a dismal future is all i see... sigh...

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Wel, you know that other than doorknocking for ...

BruceMcF's picture

... Sherrod, with the primaries over, I'm looking ahead to the 2014 election, and 2016, and 2018, and 2020.

We have to build a blue-green coalition directly, outside of the Democratic party establishment tent, and enter into their tent with a plan to drink their milkshake rather than begging for scraps from the table. "Please, sir, as you are destroying the planet with clean coal and fracking natural gas, could you also increase car mileage some?"

But also, we need to knock off as many Tea Partiers as possible, because the worse the Republicans are, the worse it allows the Democrats to be.

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Great piece, BruceMcF

priceman's picture

I call it scared sacrifice; they both want us to be scared so we give up our share of the 1983 grand bargain(as bad it it was might as well scrape up our share). They both want us to be scared having waving balance sheets with all liabilities and no assets for the future in our face using their inter-generational accounting garbage. The difference is, Democrats can't make all of their caucus follow such stupidity in Congress in turn because Democratic voters do not like cuts to transfer programs that deliver the gains from production. That's why they won't take the hard line and shoot us in the head, but they will do the bidding of the gun manufacturer in this analogy.

I like this analogy like poligirl does.

Getting stabbed in the arm when healthy is preferable to getting shot in the head while recovering from an accident in the hospital, but I would prefer not to be attacked at all, thank you very much.

Indeed, those cuts will be taking a pound of flesh(and you can't cut enough of it) and not against the MIC when you look at the baseline.

I am more pessimistic as you know. At this point, our economy is on life support. Republicans want to pull the plug completely while the Democrats didn't want to invest in the procedures that would have saved the brain. Sure, its alive now, but is it really life and how do we define economic life? Balancing the budget means taking away oxygen.

I will probably be smothered to death by not having any resources for health care or anything else. So no rah rah here. You need to build on the movement outside of the mortgage Wall St has paid on Congress and the executive.

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Very well described

geomoo's picture

It's all pretty vague to me--just can't wrap my mind around economics and financial stuff, but I understand enough to know who is getting screwed and who is making out. It is painful to watch the cons pulled in plain site.

The police metaphor of fair share in right on.

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