Marshall Auerback

 

Recent Posts by Marshall Auerback

  • The Real Lesson from the Great Depression: Fiscal Policy Works!

    Aug 30, 2010Marshall Auerback

    marshall-auerback-100New Attacks on FDR's New Deal Fueled by Old - and Discredited - Ideology

    marshall-auerback-100New Attacks on FDR's New Deal Fueled by Old - and Discredited - Ideology

    If the US government had a dollar every time someone proclaimed to learn the lessons of the Great Depression, we probably wouldn't have a budget deficit. Usually, these debates turn on the question of fiscal policy and whether in fact, FDR's New Deal had a discernable role in generating recovery. "Fiscal austerians" have done much to dismiss the economic achievements of the New Deal, some even suggesting that FDR's fiscal policies worsened the crisis.

    For a brief period during 2008, the views of neo-liberals like Alan Greenspan and Robert Rubin were shunted aside. But the FDR revisionists, who disapprove of fiscal policy measures of any kind, have come back. Now they're brandishing the old arguments that "excessive" government spending risks "crowding out" private spending, making it impossible for the US government to deal with the recession (because it has run out of money) and hindering the capacity of the private sector to recover because of too much government interference in the "free market". These complaints are usually accompanied by a wave of rhetoric condemning the "business un-friendly" policies of the current Administration, along with dire warnings of a "national solvency" crisis. After all, fiscal austerians are nothing, if not fully predictable.

    Was the 1937 Relapse Caused by Increased Taxes and Unions?

    In that context, we have to give some credit to Professors Thomas Cooley and Lee Ohanian, who have taken a more novel approach in their critique of the New Deal. In some respects, they actually validate the case for fiscal policy expansion (although the two authors might not see it that way). Cooley and Ohanian argue that:

    "The economy did not tank in 1937 because government spending declined. Increases in tax rates, particularly capital income tax rates, and the expansion of unions, were most likely responsible. Unfortunately, these same factors pose a similar threat today."

    The OMB numbers suggest that spending actually DID decline in 1937 and 1938 (see here) and, contrary to the assertions of Cooley and Ohanian, that decline had a very deleterious impact on economic activity and employment. I will address the tax issue presently, but let's first deal with the "excessive unionization" canard. An objective observer looking at the US in the 21st century would hardly conclude that unions have any real power in the American economy today, any more that we have a "socialist" government dedicated to the promotion of a vast left wing agenda which enhanced union power. Obama has not addressed Labor Law reform and wages haven't risen in a generation; in fact, last year they fell.

    True, the President occasionally does display a social democratic rhetoric, but so far, redistributive policies have primarily benefited financial institutions. Social security benefits are under threat via a new "bipartisan commission" on long term deficits, public health care insurance proposals were eviscerated in the "health care reform" bill, and trade unions outside the public sector have withered over the past 30 years. Cost of living adjustment clauses have largely disappeared since the early ‘80s (although some government benefits like social security retain them), average hourly earnings are virtually flat, and I would not be surprised to see wage deflation before the unemployment rate peaks this time around. US households are paying down debt on a net basis -- even credit card debt -- and creditors remain reluctant to make new loans. So the odds of a wage/price spiral taking root as a consequence of excessive union power look decidedly low - in fact, close to zero.

    On the other question of taxes, I actually have some degree of sympathy with the arguments of Cooley and Ohanian, but largely because functionally, a tax increase works as a countercyclical policy which mitigates the impact of fiscal policy expansion.

    Let's go back to basics. Under a fiat currency regime, such as we have in the US, when the Federal government spends, it electronically credits banks accounts. Taxation works exactly in reverse. Private bank accounts are debited (and private reserves fall) and the government accounts are credited and their reserves rise. All this is accomplished by accounting entries only, but the main point is that spending creates new net financial assets and taxation drains them.

    So in one sense, Cooley and Ohanian are right. Tax hikes do cut aggregate demand, much as government spending cuts do. In economic terms, both serve to depress economic activity. We agree with the authors: tax rises at this juncture are a dumb idea. They won't serve to "reduce" the deficit, because the resultant impact on private sector activity is likely to diminish it and thereby increase the gap between government expenditures and revenues as the economy slows down.

    The broader issue of government spending versus tax cuts is a political/distributional argument, and economists (and others) can legitimately argue about the respective multiplier effects of one versus the other. But at least this kind of discussion shifts the debate in the right direction --toward increasing economic activity and, hence, job growth and away from wrong-headed discussions of fiscal austerity and deficit reduction as a primary policy goal of government. FDR ran into trouble only when he moved away from fiscal expansion toward austerity in 1937.

    At the outset of the Great Depression, economic output collapsed, and unemployment rose to 25 per cent. Influenced by his "liquidationist" Treasury Secretary, Andrew Mellon, then President Hoover made comparatively minimal attempts to deploy government fiscal policy to stimulate aggregate demand. Further, the Federal Reserve actually sold bonds to push up interest rates in a mindless effort to stem the gold outflows that we occurring as the rest of the world lost confidence in the US economy. So much for the halcyon days of the gold standard!

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    FDR's Employment and Wage Strategy Worked

    This all changed under FDR. The key to evaluating Roosevelt's performance in combating the Depression is the statistical treatment of many millions of unemployed engaged in his massive workfare programs. The government hired about 60 per cent of the unemployed in public works and conservation projects that planted a billion trees, saved the whooping crane, modernized rural America, and built such diverse projects as the Cathedral of Learning in Pittsburgh, the Montana state capitol, much of the Chicago lakefront, New York's Lincoln Tunnel and Triborough Bridge complex, the Tennessee Valley Authority and the aircraft carriers Enterprise and Yorktown.

    It also built or renovated 2,500 hospitals, 45,000 schools, 13,000 parks and playgrounds, 7,800 bridges, 700,000 miles of roads, and a thousand airfields. And it employed 50,000 teachers, rebuilt the country's entire rural school system, and hired 3,000 writers, musicians, sculptors and painters, including Willem de Kooning and Jackson Pollock. So much for the notion that government jobs are not "real jobs", as we hear persistently from critics of the New Deal!

    The reasons for the discrepancies in the unemployment data that have historically arisen out of the New Deal are that the current sampling method of estimation for unemployment by the BLS was not developed until 1940 (for more detail see here). If these workfare Americans are considered to be unemployed, the Roosevelt administration reduced unemployment from 25 per cent in 1933 to 9.6% per cent in 1936, up to 13 per cent in 1938 (due largely to a reversal of the fiscal activism which had characterized FDR's first term in office), back to less than 1 per cent by the time the U.S. was plunged into the Second World War at the end of 1941.

    In fact, once the Great Depression hit bottom in early 1933, the US economy embarked on four years of expansion that constituted the biggest cyclical boom in U.S. economic history. For four years, real GDP grew at a 12% rate and nominal GDP grew at a 14% rate. There was another shorter and shallower depression in 1937 largely caused by renewed fiscal tightening (and higher Federal Reserve margin requirements).

    This economic relapse has led to the misconception that the central bank was pushing on a string throughout all of the 1930s, until the giant fiscal stimulus of the wartime effort finally brought the economy out of depression. That's factually incorrect. Most accounts of the Great Depression understate the effect of the New Deal job creation measures, because they don't show how much of the decline in official employment was attributable to the multiplier effect of spending on direct job creation. Also, the "work relief" category does not include employment on public works funded by the Public Works Administration (PWA) nor the multiplier effect of PWA spending. The figures tell the story indirectly, however, in the path official unemployment followed -- steeply declining in periods when work relief spending was high and either declining more slowly or increasing in periods when work relief spending was cut back. In fact, by the end of 1934, more than 20 million Americans (one out of six!) were receiving jobs or public assistance of one form or another from the "Welfare State".

    Yes, 9.6% unemployment at the end of 1936 was still a big number. But it's hard to imagine the Democrats being in political peril for the midterms, or witnessing the current abysmal state of Obama's popularity ratings, if today's Administration could reduce unemployment by two-thirds in one term in office, as FDR did under any honest measure of unemployment. Suffice to say, unemployment reduction was the singular focus of the Roosevelt Administration; by contrast, today we have "the new normal", in effect, a faux intellectual argument to justify why we can't generate higher job growth. It's a testament to political failure.

    In reference to the criticism of FDR's "high wage" policy by Cooley and Ohanian, it is worth noting that the wage "inflation" which they decry was in reality a product of a deflationary environment in which the general price level fell faster than the money wage level. During the outset of the Great Depression, output generation collapsed in the face of the US federal government's fiscal inaction and central bank interest rate hikes. This had the strange result of generating a counter-cyclical real wage increase, which in fact was nothing more than a product of depressed nature of the economy, in which overall prices were deflating prices faster than wages (for more information see here).

    Overlaying the wage data with the true reduction in unemployment between 1933 to the end of 1936, makes it difficult to mount an empirical case that FDR wage improvements during the Great Depression were damaging to overall economic growth and increasing employment. Even if some sectors were disadvantaged (and that isn't proven by Cooley and Ohanian) the evidence actually suggests that the rises in real wages were associated with rising overall employment.

    Relapse Caused by Austerity Measures

    What about the relapse in 1937/38? By 1936 many economists and financial experts (notably FDR's Treasury Secretary, Henry Morgenthau) feared the country would go bankrupt if the government kept deficit-spending (sound familiar?). And after all, they argued, the government deficits had "pump-primed" the economy. The private sector could now take off on its own and get back to close to the full employment level of 1928-early 1929.

    Consequently, Roosevelt ran (in 1936) on a platform that he would try to reduce, if not eliminate, the deficit. He won the election by a landslide -- understandably, as the U.S. was out of depression by 1937. True to his campaign promise, government spending was cut significantly in 1937 and 1938, and taxes were raised to "fund" the new Social Security program. By 1938 Roosevelt submitted a budget in which the deficit was virtually eliminated (0.1% of GDP). The resultant economic relapse, based on efforts to balance the budget, exacerbated by a nonsensically tight monetary policy brought on by the Fed, duly followed.

    This is unsurprising. Any type of fiscal austerity during a period of economic slowdown, whether via government spending cuts or higher taxes, will indeed depress economic activity.

    But the other lesson of the Great Depression is that properly targeted fiscal policy which focuses on job creation can work. The Great Depression was indeed a disastrous human calamity but FDR's New Deal (including the high wage policies) attenuated the disaster. There is nothing to the claims that the interventions made things worse, other than when Roosevelt himself capitulated to the tired old forces of financial conservatism and fiscal austerianism, and the economy paid the price. Thankfully, FDR was not ideologically wed to the ideas of fiscal austerity and quickly reversed course. It helped, of course, that his Cabinet was well represented by progressive figures such as Frances Perkins, Henry Wallace, Harold Ickes and Harry Hopkins, who overcame the forces of economic conservatism embodied by FDR's Treasury Secretary, Henry Morgenthau. We need these kinds of progressive forces in current Administration, especially given the recent resignation of CEA head, Christina Romer. It's time to let go of the old ideology, which created today's crisis. Here's hoping that President Obama, like FDR before him, changes course quickly. America is ready for a new New Deal.

    Marshall Auerback is Senior Fellow at the Roosevelt Institute.

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  • The Real Waste: Unemployment

    Aug 25, 2010Marshall Auerback

    marshall-auerback-100"Wasteful" government spending should be of little concern compared to the ongoing jobs crisis.

    marshall-auerback-100"Wasteful" government spending should be of little concern compared to the ongoing jobs crisis.

    Joe Stiglitz was interviewed recently on the ABC national current affairs show 7.30 Report. It's an excellent interview, which discusses the utility of fiscal policy. You can read the full transcript to see what he said or watch an extended version of the segment.

    Money quote:

    Interviewer: I'm not sure how much you know about Australia's stimulus packages in response to the crisis, but to the extent that you do, how did the quality of Australia's stimulus compare with that in the US and elsewhere, in terms of its effectiveness?

    JOSEPH STIGLITZ: I did actually study quite a bit the Australian package, and my impression was that it was the best - one of the best-designed of all the advanced industrial countries. When the crisis struck, you have to understand no-one was sure how deep, how long it would be. There was that moment of panic. Rightfully so, because the whole financial system was on the verge of collapse. In that context, what you need to act is decisively. If you don't act decisively, you could get the collapse. It's a one-sided risk.

    Interviewer: There's been a lot of criticism of waste in the way some of Australia's stimulus money was spent. Is it inevitable if you're going to spend a great deal of government money quickly that there will be some waste and can you ever justify wasting taxpayers' money?

    JOSEPH STIGLITZ: If you hadn't spent the money, there would have been waste. The waste would have been the fact that the economy would have been weak, there would have been a gap between what the economy could have produced and what it actually produced - that's waste. You would have had high unemployment, you would have had capital assets not fully utilised - that's waste. So your choice was one form of waste verses another form of waste. And so it's a judgment of what is the way to minimise the waste. No perfection here. And what your government did was exactly right. So, Australia had the shortest and shallowest of the downturns of the advanced industrial countries. And, ah, your recovery actually preceded the - in some sense, China. So there was a sense in which you can't just say Australia recovered because of China. Your preventive action, you might say pre-emptive action, prevented the downturn while things got turned around in Asia, and they still have not gotten turned around in Europe and America.

    Stiglitz is 100% correct. When our critics begin to talk about "wasteful" government spending, it is worth reminding them that there is no greater waste than persistent unemployment. It dwarfs all other inefficiencies. About the bang for the buck, the fact that real GDP only went up by a dime when deficits reached a dollar is a meaningless calculation, yet one hears it all of the time. The right calculation, what amount of GDP reduction was avoided by the government deficit seems more interesting, but it is more difficult to compute and requires some empirical model.

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    In fact, in the overall context of government spending, "bang for the buck" is a pretty meaningless concept, as it implies something is given up by the government when it spends. But in reality, the only thing given up is spending that contributes to aggregate demand.

    So if the government were to spend by giving the man on the moon $10 trillion and he holds it in cash, and doesn't spend any of it, the government doesn't actually use anything up.

    By the same token, if there is a tax cut that doesn't increase spending, nothing was used up, and taxes can be cut that much more until they do increase spending. So in fact, one could turn the tables on the "bang for the buck" crowd and argue that the lower the bang for the buck, the more taxes can be cut, or spending increased. And that's a good thing!!

    Marshall Auerback is a Senior Fellow at the Roosevelt Institute, and a market analyst and commentator.

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  • The Myth of the "Credibility of Markets"

    Aug 19, 2010Marshall Auerback

    marshall-auerback-100It is time to distinguish between the truths and the myths propagated by Wall Street.

    marshall-auerback-100It is time to distinguish between the truths and the myths propagated by Wall Street.

    A few days ago, I wrote a piece suggesting that President Obama's attack on the proposed GOP threat to Social Security masked a more fundamental threat posed by members of his own party.  Sadly, this analysis appears to be confirmed today in Mike Allen's politico playbook:

    "--ADMINISTRATION MINDMELD: The virtue of action on Social Security is that it demonstrates the ability to begin to affect the long-run deficits. Social Security isn't the biggest contributor to the problem - that's still health-care costs. But it could help a little bit, buy time, and strengthens the odds of a political consensus behind other spending cuts or tax increases. Most importantly, it would establish more CREDIBILITY with the MARKETS. The mood of the world at the moment (slightly excessive, from the administration's point of view) is that if you don't do anything with spending cuts, it doesn't get you credibility." (My emphasis).

     

    This, in a word, encapsulates the Administration's perverse Wall Street-centric thinking.  Credibility with the American people takes a back seat to this amorphous concept called "the markets", and the corresponding need to maintain "credibility".

    But how are we to divine the true aspirations of the markets?  Is this really a legitimate basis for government policy?  Private portfolio preference shifts (which are manifested daily in the capital markets) are probably the area least amenable to economic analysis.  There are no cookie cutter models here (and economists LOVE models).

    Consider the case of a currency: How does one respond to a weaker currency?  The conventional response seems to be, "Raise interest rates and eventually you'll re-attract the capital because you will re-establish 'credibility' with the markets". That was essentially the IMF advice to East Asia in 1997.  But, as that experience demonstrated, sometimes raising rates can actually trigger additional capital flight if it is perceived to be a panicked reaction to something.  And Japan today clearly demonstrates that low rates per se do not necessarily prefigure a weaker currency. What does a 10 year Japanese government bond yielding less than 1% tell us about "the markets"? Does it reflect approval with a country that has a public debt to GDP ratio about 2.5 times higher than the US?

    To paraphrase Milton (the poet, not Friedman), sometimes they also serve who only stand and wait!

    Markets are an amorphous concept, which reflect heterogeneity of viewpoints.  Some people today are buying gold because they foresee a Weimar style hyperinflation emerging in the face of all of this government spending. Some buy it because they envisage the death of fiat currencies and view the yellow metal as the ultimate insurance policy.  Some invest because they consider gold the only real form of money.  Some people view it as a barbarous relic and ignore it altogether. How does a government respond to these varying points of view?  What's the right policy response?

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    The myth that markets, not governments, ultimately determine rates has, of course, been legitimized to some degree by virtue of the fact that our institutional monetary arrangements still reflect archaic gold standard type thinking (whereby a certain amount of gold on hand was required to fund government operations).  But we went off the gold standard decades ago. Still we have laws which mandate that all net government spending is matched $-for-$ by borrowing from the private market. So net spending appears to be "fully funded" (in the erroneous neo-liberal terminology) by the market. But in fact, all that is actually happening is that the Government is coincidentally draining the same amount from reserves as it adds to the banks each day and swapping cash in reserves for government paper.The resultant bond market drain is there to ensure that the central bank maintains control of its reserve rate.  It has nothing to do with "funding" government operations itself.

    If you think that sounds radical then consider the following question posed by my friend, Professor Bill Mitchell:  If a government bond auction "fails" (i.e. the government doesn't find enough buyers for the paper it issues during that particular sale), does this mean that your Social Security cheque is going to bounce?  Will national infrastructure projects be suddenly halted because the net spending is not "funded"? Do we have to stop fighting a war in Afghanistan?  The answer to all of these questions is the same: Of course not!  The net spending will go wherever the Government intends it to go - after all the Government needs no funds to spend because it first creates the currency which is ultimately required to be spent in the real economy.  The private sector does not produce dollars (if it did, it would represent a jailable offence called counterfeiting).

    More fundamentally, how, pray tell, does one presume that the private sector can net save (in this case, dollars) something it cannot net produce?

    Isn't it true that the government is in a unique position because only it has the capacity to create new net financial assets?  Now, granted, this simple observation does not readily apply to the euro zone because the individual countries concerned have effectively ceded that authority, thereby circumscribing an adequate fiscal response to their crisis (a point I have made before).  But when the operations of government are examined in this light, it establishes that the Obama Administration's ongoing fixation with "long term deficit reduction" and "establishing credibility with the markets" is as foolhardy as conducting human sacrifices to placate a deity.

    Yet government policy responses today on issues like Social Security or Medicare reflect a misguided belief system and a genuine failure to understand the basis of modern money.  Scaling back Social Security will certainly drive unemployment up higher than it is already going becomes it robs people of the very income required to sustain growth. Not a very sensible strategy if you truly care about implementing "change that people can believe in".

    Unfortunately, until these Wall Street-centric beliefs are fully exposed for the myths that they are, we can expect to see more dispiriting headlines of the sort reflected in Mike Allen's latest politico playbook.

    Marshall Auerback is a Senior Fellow at the Roosevelt Institute, and a market analyst and commentator.

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  • Deficit Chicken Littles Miss Another Doomsday Deadline

    Aug 17, 2010Marshall Auerback

    marshall-auerback-100 China is dumping Treasuries and interest rates remain low.  Will the doomsayers see the error of their ways?

    marshall-auerback-100 China is dumping Treasuries and interest rates remain low.  Will the doomsayers see the error of their ways?

    In a post titled "China Cuts US Treasury Holdings By Record Amount," Mike Norman makes the excellent observation that while China is moving its money out of Treasuries, interest rates are hitting record lows.  In other words, the sky still isn't falling.  So, Mike wonders, "Where is the Debt/Doomsday crowd?"  He rightly concludes that “They’re nowhere to be found because they can’t explain this. This is a ‘gut punch’ to them. Their whole theory is out the window.  They just don’t understand or don’t want to understand, that interest rates are set by the Fed…PERIOD!!!”

    Also of note: Nikkei QUICK News reports that the #309 10-year bond, the current benchmark, has traded to a yield of 0.920% Tuesday morning, down 2.5 basis points from yesterday's close. This is the lowest yield since August 13, 2003. U.S. Treasuries traded higher overnight and press articles suggest that China is finding the safety of JGBs attractive.

    This, from a country with a debt-to-GDP ratio of 210%!

    I know what the deficit hawks are now saying -- it is only a matter of time! Yes, and doom-merchants have been predicting the end of the world forever and the Y2K bugs were predicting it then and the gold bugs were predicting Weimar-style hyperinflation by the end of 2009 and… We can just let the “it is only a matter of time” brigade worry themselves sick and leave us in peace.

    Marshall Auerback is a Senior Fellow at the Roosevelt Institute, and a market analyst and commentator.

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  • Which Party Poses the Real Risk to Social Security's Future?

    Aug 16, 2010Marshall Auerback

    marshall-auerback-150Hint: it's not Republicans.

    marshall-auerback-150Hint: it's not Republicans.

    Social Security remains one of the greatest achievements of the Democratic Party since its creation 75 years ago. Although Republicans have historically fulminated against the program (Ronald Reagan once likened it as something akin to "socialism"), they have actually made little headway in touching this sacred "third rail" in American politics. President Bush pushed for partial privatization of the program in 2005, but the proposal gained no policy traction (even within his own party) because Social Security continues to be hugely popular with American voters. It's a universal program that benefits all Americans, not a government handout to a few privileged corporations.

    Which is why it's odd that Democrats seem almost embarrassed to continue to champion the legacy of FDR. The party frets about long-term deficits and the corresponding need to "save" Social Security from imminent bankruptcy and, in doing so, opens the gate to radical cuts in entitlements that will do nothing but further destroy incomes and perpetuate our current economic malaise. It is true that some Republicans have signed on to the idea of privatization, notably a proposal championed by Rep. Paul D. Ryan (Wis.), the senior Republican on the House Budget Committee. But only a handful of GOP lawmakers have actively embraced the measure and, in the aftermath of the worst shock to the financial system since the Great Depression, many Republican lawmakers would just as soon see the idea forgotten.

    So why don't the Democrats leave well enough alone? Why bother even setting up "bipartisan commissions" to discuss the issue of Social Security? At the risk of sounding like one of those ungrateful members of the "Professional Left", whom Robert Gibbs recently decried, I note that it was President Obama who most recently re-opened this issue by setting up a commission on reducing long term budget deficits and dealing with the long term issue of entitlements, including Social Security. In the Commission's remit, nothing is off the table, including Social Security and Medicare. (Of course, given that one of the members is a director of Honeywell, it's hard to envisage any suggestions of defense cuts). I also note that according to the Washington Post, "Democrats said Simpson and Bowles are uniquely equipped to blaze a path out of the fiscal wilderness -- and to forge bipartisan consensus on a plan likely to require painful tax increases as well as program cuts." No mention of Republicans getting on board. This is self-immolation, plain and simple. And Obama wonders why voters remain unhappy?

    Now that the President has opened this Pandora's Box, it is hard for him credibly to make the case, as he attempted to do in last Saturday's weekly radio address, that "some Republican leaders in Congress want to privatize Social Security." In fact, it is an idea enthusiastically embraced by a number of Wall Street Democrats who are funded with huge campaign contributions from Wall Street itself. (Candidate Obama received more money from Wall Street in 2008 than Hillary Clinton.) These contributors would be the Rubinites who for decades have played a huge role in allowing for greater financial leverage ratios, riskier banking practices, greater opacity, less oversight and regulation, consolidation of power in ‘too big to fail' financial institutions that operated across the financial services spectrum (combining commercial banking, investment banking and insurance) and greater risk. Privatization of Social Security represents the last of the low hanging fruits for Wall Street. Who better to provide this to our captains of the financial services industry than their major political benefactors in the Democratic Party?

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    The issue of privatization is germane when one considers the members of the Commission approved by the President. There are questions of possible conflicts of interest. As James Galbraith has noted, the Commission has accepted support from Peter G. Peterson, a man who has been one of the leading campaigners to cut Social Security and Medicare. It is co-chaired by Erskine Bowles, a current Director at North Carolina Life Insurance Co (annuity products are a competitor to Social Security and would almost certainly be beneficiaries of the partial privatization). Mr. Bowles' wife, Crandall Close Bowles, is on the Board of JP Morgan, and she is also on the "Business Council," a 27 member group whose members include Dick Fuld, Jeff Immelt, Jamie Dimon and a plethora of other Wall Streeters.

    At the very least, these kinds of ties raise questions in regard to proposals for dealing with Social Security. Many members of the Commission stand to become clear direct and indirect beneficiaries of the privatization that the President is now warning against. It's disappointing that these ties have not been fully explored by the press, and it is extraordinary that the President would exhibit such political tone deafness in making these kinds of appointments. It tends to undercut the message of his last radio address.

    I'll leave aside the nonsensical arguments in regard to Social Security's "solvency," because Professor Stephanie Kelton has dealt with them conclusively here. The only point I would add is in regard to the alleged issue of deficit spending today burdening our grandchildren. In reality, we will be leaving our grandchildren with government bonds that are net financial assets and wealth for them. As Randy Wray and Yeva Nersisyan have recently argued, even if government decides to raise taxes in, say, 2050 to retire the bonds (for whatever reason), the extra taxes are matched by payments made directly to bondholders in 2050. We can question the wisdom of whether it is right to make this political argument in favor of bond holders over tax payers. But it is a decision to be made at that time (not before) by future generations as to whether they should raise taxes by an amount equal to those interest payments, or by a greater amount to equal retirement of debt.

    In the meantime, President Obama's approval ratings continue to plummet. His scaremongering has little credibility, given the disparity between his rhetoric and his actual policies. At the risk of further upsetting Robert Gibbs, we'll try to explain why Obama isn't finding stronger support from his base despite having passed, for instance, a health care bill, a fiscal stimulus bill and a financial regulation bill. For a start, follow the money: with the President and leading Democrats having taken the most campaign dollars from corporate interests those bills purport to challenge, and having gutted the most progressive elements in the bills themselves (see Matt Taibbi's latest as a perfect illustration of the phenomenon), it is clear that those signature pieces of legislation do not fundamentally challenge the structure of power at a time when that's what Americans most want. The only "change" most Americans might experience is a reduction in their Social Security benefits from a President currently presiding over one of the most regressive wealth transfers in history. They'll be receiving nothing but pocket change if a serious attack on entitlements is legitimized by this commission. A scaremongering radio address doesn't do a whole lot to change that or to alter the country's current economic trajectory. To paraphrase one of his leading political opponents, Mr. Obama would do well stop practicing the cynical "politics as usual" that his Presidency was supposed to "refudiate".

    Marshall Auerback is a Senior Fellow at the Roosevelt Institute, and a market analyst and commentator.

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