Jeff Madrick

Roosevelt Institute Senior Fellow and Director of the Rediscovering Government Initiative
Roosevelt Institute Profile

Recent Posts by Jeff Madrick

  • Rediscovering Government

    Ignore the Deficit Hawks. Social Security is Easy to Fix.

    Aug 14, 2012Jeff Madrick

    On the 77th anniversary of Social Security, we're celebrating what has made the program so important and why it remains vital today. Jeff Madrick explains why Social Security's so-called fiscal crisis has been overblown and looks at the many simple solutions on the table. Read the rest of our coverage here.

    On the 77th anniversary of Social Security, we're celebrating what has made the program so important and why it remains vital today. Jeff Madrick explains why Social Security's so-called fiscal crisis has been overblown and looks at the many simple solutions on the table. Read the rest of our coverage here.

    Little is as distressing in the public discourse as the linking of the financial problems of Social Security and Medicare. It is a favorite ploy of the deficit hawks to claim we must reform our entitlement programs without distinguishing between the two. I am at a loss to explain this. It is clearly ideological -- small government no matter who gets hurt. But Social Security payouts will rise from roughly 5 percent of GDP to 6 percent at worst down the road, while Medicare will rise by much more.

    Nevertheless, poorly educated pundits, willing to believe the self-proclaimed centrist view that we cannot tax our way to solvency, demand Social Security reforms from selfish baby boomers. Monique Morrisey of the Economic Policy Institute does good work on this. Moreover, there is even a detailed Senate report on the issues that requires only a little updating. Maybe journalists should read it before they write about the subject. Its title is rather self-explanatory: “Social Security Modernization: Options to Address Social Security Solvency and Benefit Adequacy from the Senate.” 

    First, remember that Social Security provides nearly 60 percent of the elderly more than half of their income. Seventeen percent receive all their income from Social Security, mostly households headed by elderly women. Most remarkably, and it would be nice for young people to register this, the poverty rate measured by the federal government for the elderly was 35 percent in 1959. As Social Security became more generous, it was reduced to 10 percent, about where it stands today. This is one of the great social achievements of our time.

    Now for that future financing gap. It's true that payroll taxes won’t cover all the benefits to be paid in 25 years or so, as the ratio of the elderly to workers rises and life expectancy grows. But a more important and lesser known cause of this future gap is inequality of income. Tax revenues are reduced because incomes have stagnated for so many. Due to an earnings cap above which taxes are not collected, now about $110,000 a year, combined with the rapid rise of incomes for high-end earners, some 17 percent of aggregate earnings are not covered by the payroll tax. In 1980, only 10 percent were not covered.

    But the solvency gap, as we might call it, is not very large, amounting to only 2.67 percent of GDP. How can that be closed? Pretty darned easily. For example, the cap can be eliminated. This would close almost the entire gap if high-end earners do not receive higher benefits. It will still close four-fifths of the gap if they do.

    Another way to close the gap would be to raise payroll taxes by 1.1 percentage points, from 6.3 percent to 7.6 percent. This would entirely close the solvency gap. Or the tax could be raised by a little more than 1 percentage point in 2020 and another percentage point in 2052, also eliminating the solvency gap.

    A combination would also work. If the cap were raised to cover 90 percent of all workers, for example, it would close about 25 percent of the gap. Thus, a tax increase to close the rest would be smaller. Alternatively, the payroll cap on employees could be limited to 90 percent and eliminated altogether for employers. This would just about eliminate the gap.

    There are many other options and permutations, but any claim that a pragmatic increase in taxes cannot close the gap is utterly wrong. 

    Let’s also keep in mind that Social Security solvency is based on a 75-year forecast. Any increase in the rate of growth over what is expected will reduce the gap significantly. Now to really be pie in the sky, there is also the possibility of investing in the economy to enable it to grow faster—investing in infrastructure, education, and so on. More equality of income would also reduce the solvency gap. For those eager for major benefit cuts because we can’t be sure about growth, well, they can be quite modest if coupled with tax increases. But they are not necessary now!

    Medicare is a different issue. In sum, the nation pays about twice as much for what it gets from health care than it should compared to other countries. This is the domestic problem of our time. I think Obamacare may start us down the road to control these costs, especially if we ultimately add a public option at something like Medicare rates. That’s where pundits and deficit hawks should focus their attention. Instead, they like picking on Social Security, our single greatest achievement. Why?

    Roosevelt Institute Senior Fellow Jeff Madrick is the Director of the Roosevelt Institute’s Rediscovering Government initiative and author of Age of Greed.

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  • Rediscovering Government

    To Paul Ryan, Faith is Fact

    Aug 13, 2012Jeff Madrick

    Paul Ryan is a true believer in right-wing economics, but his reputation as a courageous truth-teller doesn't stand up to scrutiny.

    Paul Ryan is a true believer in right-wing economics, but his reputation as a courageous truth-teller doesn't stand up to scrutiny.

    Mitt Romney’s choice of Rep. Paul Ryan as a vice presidential candidate has raised the decibel level of the anti-government movement dramatically. We started Rediscovering Government at the Roosevelt Institute to balance such ahistorical and destructive views, and Ryan’s is among the most extreme. If we are to think the best of Ryan, it is this: He believes in what he says. But what he says is a matter of faith, not of evidence.

    Ryan’s budget proposal, which propelled him to the headlines a couple of years ago, would return government spending to 16 percent of GDP, the same the size it was in 1950, before Medicare or Medicaid were created or Social Security expanded enough to lift the majority of the elderly out of poverty. He would basically privatize Medicare, providing an inadequate subsidy to enable the elderly to purchase plans on the open market. He once proposed to change Social Security in a similar way, but that is now apparently on the back burner. He will deeply gut Medicaid and would almost entirely cut out all other government spending in coming decades, except for defense, which he seems to adore. This includes students loans, veteran programs, infrastructure spending, R&D, and so on.

    Despite all this, he would not balance the budget, because the tax cuts he proposes are so extreme that even his social spending cuts won’t pay for them for a generation. Indeed, the size of his tax cuts seems to get lost in some analyses. They are bigger than Romney’s, really whoppers. There was a casual promise that they would be partly financed by closing tax loopholes, but as with Romney, we have yet to see details. 

    Most Democrats seem to be rejoicing. They are probably right. Romney’s choice shows just how lost he really is. Unable to ignite his campaign merely by citing the unemployment numbers against Obama while hiding all kinds of secrets about his own life, he threw up his hands and chose Ryan, who one presumes he thinks will energize the base. Now that the race is about Medicare and tax cuts—and not jobs so much anymore—the Democrats believe they’ve got Romney.

    But it’s worth thinking about why Ryan is so popular with many Republicans. He is thought of as honest, willing to tell difficult truths, and courageous. These are qualities few politicians exhibit today. He is genial. He promises major change, not just incremental change. Could this perception create a groundswell of support? I think there is reason to be wary of overconfidence.

    But there's reason to question Ryan's supposed honesty. Sharply lower tax rates will not create renewed prosperity and jobs. Under George W. Bush, America experienced the slowest rate of job creation in the postwar period. Under Ronald Reagan, whom the conservatives revere as a great success, unemployment and deficits remained high, and wages stopped growing for the next 20 years. George H.W. Bush had to live with Reagan’s broken promises for his difficult four years in office. Republicans are promoting a myth, and Ryan pretends with the best of them.

    His honesty is suspect for other reasons than that it is so destructively naive. Ryan has to know how easy it is rile up some people by playing to their prejudices. His tax cuts, which will help the rich more than the rest, will be paid for by the poor through cuts to such programs as food stamps and Medicaid. These are Ronald Reagan’s famous takers, not givers. It is code for people of color, for lazy good-for-nothings, for the welfare recipients who supposedly almost singlehandedly brought down America in the 1980s and much of the 1990s. Ryan appeals to the angry, the bitter, and the vindictive. Is this honest?

    Finally, he is taking the easy road, not the hard road. Is it courageous to give huge tax cuts to the well-off? Is it honest to claim that tax cuts will reignite prosperity in America? He is promising painless growth. Sound familiar? Shades of the 1980s and Reagonomics? He leaves the tough stuff for the gym, where he apparently works out religiously.

    Like Ayn Rand, his philosophical idol who believed in the individualist superman, Ryan believes faith is fact. Philosophy is easier when it doesn’t come down to earth and stays among the fictitious supermen. Ryan isn’t even close to earth. He cites Jefferson, of course, but Jefferson was an arch regulator of land sales by the government, a guarantor of education, a violator of the Constitution when he (thankfully) bought the Louisiana Territories, and a skeptic of manufacturing. He used government to end the British leftovers of primogeniture, which entailed that estates could not be broken up and the eldest heir would inherit all. His party members at the state level built the canals and developed free primary education, all before 1850. Jefferson believed in ordinary people, which is why he wanted them to have their own parcel of land at affordable prices. Land for Jefferon is Amartya Sen’s capability guarantee in our modern world. Today that means education, a minimum wage, and a minimum amount of health care.

    Not so for Ryan. He wants to let the poor fend for themselves, trusting that the rich will create jobs for them. Forced responsibility will save the day. Can such nasty over-simplification work? I don’t think so, but I worry. How does one effectively respond to airy promises based on bitter feelings and easy scapegoats? He is promising faith, not facts. Let’s as a people at least demand some evidence and expose that fantasy as a lie.

    Roosevelt Institute Senior Fellow Jeff Madrick is the Director of the Roosevelt Institute’s Rediscovering Government initiative and author of Age of Greed.

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  • "Romney Hood" is the Return of Reagan's Starve-the-Beast Strategy

    Aug 9, 2012Jeff Madrick

    Romney may be running as the small government candidate, but his only real goal is to cut taxes.

    Romney may be running as the small government candidate, but his only real goal is to cut taxes.

    The Tax Policy Center has carefully analyzed how much would come out of the pockets of the middle class and poor to support Mitt Romney's top-heavy tax cuts for the rich. The numbers are appalling. But it’s likely Romney has no intention to pay for his tax cuts or to make his plan revenue neutral. Call it the Ronald Reagan feint.

    Romney is promising tax cuts and believes that’s how he will get the vote. He probably thinks deep down that the tax cuts will generate more growth than anyone serious anticipates, just as Reagan did, but here’s no real evidence to support that, as much as his advisers try to claim otherwise. He says he is “supportive” of Paul Ryan’s budget, which will result in draconian cutbacks. But we shall see how often he talks about these details. He knows people don’t really believe what progressives say about these cuts, as Katrina vanden Heuvel has noted. 

    Romney is running an impressionistic campaign, not one of details. The impression is that he is for tax cuts and smaller government, which is appealing to many Americans. The details will come later, if they ever do.

    Oddly enough, he is not genuinely running on austerity. Rather, he is the new leader of the old starve-the-beast school. Eventually government will be cut if taxes are cut first. That means he will use the austerity argument to chop up Social Security and Medicare to the degree he can when the time comes. And we may get some stimulus under Romney as president, but it will be the worst kind. We got stimulus under Reagan and George W. Bush, but tax cuts did not return America to a fast-growing, job-creating economy under Bush, and deficits were used under the tax-hating Reagan to create obstacles for new social programs and put heat on welfare. The nation never grew fast enough to bring the deficit down as a proportion of GDP in the 1980s and it left George H.W. Bush with a difficult agenda and still historically high unemployment.

    Progressives should fight on the details, but they should also fight impressionistically on a bigger level. “Romney Hood” is effective because it is pitching the fight on tax breaks for the rich. Another effective criticism is that Romney is elitist. A third is that this approach was tried by George W. Bush and failed. On social programs, the Democrats show a weak hand when so many agree they need substantial cuts. Democrats have made austerity their big cause. Ironically, Romney, is in his offhand way, is just giving it lip service for now, when he is really just for tax cuts.

    Of course, Romney as president will return to austerity to create pressure for cuts in key social services. He will not be able to make desperately needed social investment, and the nation will be seriously run down. But Romney’s trick in the election is to put austerity on a back burner and wait until he becomes president to address it. The opposition should make clear the consequences of such a president, but it needs to understand the battle of impressions as much as it does the battle of details. I write this as a details person myself. But the big issue is that tax cuts for the rich don’t mean prosperity for America. The history is clear, and so is the academic research. 

    Roosevelt Institute Senior Fellow Jeff Madrick is the Director of the Roosevelt Institute’s Rediscovering Government initiative and author of Age of Greed.

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  • Rediscovering Government

    The Republicans’ Medicaid Cruelty

    Jul 30, 2012Jeff Madrick

    This piece originally appeared in The New York Review of Books.

    “The essential American soul,” claimed D.H. Lawrence, “is hard, isolate, stoic, and a killer.” While the rejection by five state governments of the Affordable Care Act’s Medicaid expansion may not precisely illustrate Lawrence’s heated observation, it does suggest a contemporary vein of cruelty in America that is deeply disturbing.

    This piece originally appeared in The New York Review of Books.

    “The essential American soul,” claimed D.H. Lawrence, “is hard, isolate, stoic, and a killer.” While the rejection by five state governments of the Affordable Care Act’s Medicaid expansion may not precisely illustrate Lawrence’s heated observation, it does suggest a contemporary vein of cruelty in America that is deeply disturbing.

    A new study published in The New England Journal of Medicine shows that providing greater medical insurance coverage for the poor has saved lives. Moreover, the ACA’s expansion of Medicaid requires little state money, since the federal government will pick up more than 90 percent of the costs over time, and 100 percent of the costs for the first few years. Yet Texas, Florida, Louisiana, South Carolina, and Mississippi—which together account for more than a sixth of the overall US population—have already rejected the plan, and as many as twenty other states, including New Jersey, Missouri, Iowa, Nebraska, and Nevada, have indicated they may follow suit.

    Furthermore, these states already have among the highest numbers of citizens with no health insurance. Twenty-five percent of non-elderly Texans have no health insurance, for example, compared to the national average of about 18 percent. If the Obama Medicaid reforms were fully implemented, 15 to 17 million of the nation’s 50 million without health insurance would be covered. In a report just issued in late July, however, the non-partisan Congressional Budget Office estimates that the Medicaid expansion will only cover some ten million more, or a full third fewer than anticipated, because of the rejection of the plan by large states like Florida and Texas and others who have not yet formally announced their intentions.

    This is particularly troubling in view of how important the Medicaid expansion is to low-income Americans. The two Harvard economists who authored the NEJMstudy have found that there are 6 percent fewer deaths in several states that had expanded Medicaid in earlier years compared to nearly contiguous states that did not. Fortunately, according to the recent CBO report, three million of those who will not be covered in states that reject the Medicaid expansion will qualify for and probably buy insurance through another provision in the ACA—a program that provides subsidies to buy insurance for those who earn between 100 and 400 percent of the federal poverty level, which is $22,350 for a family of four.

    What has enabled states to reject the expansion is the curveball thrown by the Supreme Court in its decision in June to uphold President Obama’s Affordable Care Act: not only did the court argue that the states need not participate in the new expansion, which the Obama administration had intended to be mandatory; it also said that the federal government could not withhold Medicaid payments for states that decide not to participate. Thus, the court created a way to undermine one of the most admirable achievements of the ACA, a sweeping expansion of a medical safety net for the neediest.

    Read the full article here. 

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  • Rediscovering Government

    A Big Banker’s Belated Apology

    Jul 30, 2012Jeff Madrick

    This op-ed originally appeared at NYTimes.com.

    This op-ed originally appeared at NYTimes.com.

    Last week, in a CNBC interview, Sanford I. Weill, the former chairman of Citigroup, said that America should separate investment banking from commercial banking. This separation, of course, was the prime purpose of the Glass-Steagall Act of 1933, a piece of legislation that Mr. Weill and other bankers had successfully watered down, with Alan Greenspan’s support, before Mr. Weill helped engineer its official demise in 1999. Now, Mr. Weill, the creator of what was once the largest financial conglomerate in the world, suggests that Citigroup and others should be broken up. Banks can no longer “be too big to fail,” he told CNBC.

    But what was most eye-catching was Mr. Weill’s claim that the conglomerate model “was right for that time.” Nothing could be further from the truth.

    Mr. Weill’s original business concept — the justification of financial conglomeration — was to provide one-stop shopping to any and all customers. This could now include clients for investment banking, stock research, brokerage and insurance. Then, with the 1998 merger of his Travelers Group with Citicorp, it could include savers, business borrowers and credit card users, too. But few, even among his own executives, ever believed the strategy would work.

    Rather, conglomeration bred conflicts of interest in Mr. Weill’s firms, and others — the very conflicts that the original Glass-Steagall Act was designed to prevent. This inevitably led to investment in and promotion of risky, poorly run and, in some cases, deceitful companies that brought us the high-technology and telecommunications bubble of the late 1990s.

    Indeed, Mr. Weill’s Citigroup was a primary underwriter of and one of the two largest lenders to the oil and futures trading firm Enron, whose accounting charade resulted in what was in 2001 the biggest bankruptcy of its time. Citigroup was a major underwriter for the telecommunications giants Global Crossing and WorldCom, which would later go bankrupt as a result of flagrant accounting deceptions. There were many other, if less visible, debacles.

    Read the full article here.

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