Why Debt Ceilings and Balanced-Budget Requirements Violate the Original Intent of the Constitution

Aug 1, 2011William Hogeland

american_colonial_flagSo-called "constitutional conservatives" ignore the realpolitik of our nation's origins.

american_colonial_flagSo-called "constitutional conservatives" ignore the realpolitik of our nation's origins.

In a critical and entertaining portrait of the anti-tax activist Grover Norquist, the New York Times columnist Frank Bruni presented Norquist as an absolutist obsessed with forcing modern political life to conform to ideas that Norquist associates with the American founders' first principles.

Of course, Norquist is by no means alone in taking that position. That the Constitution came into existence to keep taxes low, the federal government small, and national debt at zero is an article of faith among many who, like Michele Bachmann, have taken to calling themselves "constitutional conservatives." And faith is required to believe it, as the Norquist interview shows. To make his supposedly constitutional argument, Norquist cites the first amendment on freedom of religion and the second on the right to keep and bear arms, and then goes on to cite absolutely nothing, in either the articles or the amendments, that so much as hints at a constitutional requirement to balance the federal budget, avoid debt, tax no more than people like Norquist deem appropriate, and keep government small.

He can't cite anything to that effect because while balancing budgets, restraining borrowing, and keeping taxes low and government small might be good goals, depending on what you mean by them, it is impossible to locate in the founding national law any requirement to accomplish them. Indeed, the reality of founding history leads to the reverse conclusion.

The Constitution came about precisely to enable a newly large government -- a national one -- to tax all Americans for the specific purpose of funding a large public debt. Neither Alexander Hamilton nor his mentor the financier Robert Morris made any bones about that purpose; James Madison was among their closest allies; and Edmund Randolph of Virginia opened the Constitutional Convention by charging the delegates to redress the country's failure to fund -- not pay off, fund -- the public debt, by creating a national government.

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Beginning during the War of Independence, and continuing throughout the 1780s, American nationalists committed themselves to a small class of upscale high financiers (largely identical with the American nationalists), who had bought bonds from the confederation Congress in hopes of earning regular, tax-free, 6% interest payments -- not in the Congress's crashing paper currency but in hard, cold metal or its equivalent, stable bills of exchange. Morris, Hamilton, Madison, and others believed that swelling the debt to immense proportions would make a coherent nation out of thirteen squabbling states and make that nation a player on the world economic stage. Their plan to do so depended partly on making military-officer pay a pension, thus turning the entire officer class into public bondholders -- and giving Congress new power to tax all Americans to support that debt.

Hamilton is often reflexively presented as finding inventive ways to pay down the national debt. His real accomplishments were of course "funding and assumption" -- absorbing the states' war debts in the federal one and funding that huge obligation via nationally collected and nationally enforced taxes.

Hence the all-important provisions of the Constitution giving Congress very broad powers to tax and acquire debt. To 18th-century American nationalists across the political spectrum -- to our founders and framers, that is, from Hamilton to Madison, from Morris to Randolph, from the financiers to the planters -- national taxing and borrowing were ineluctably connected to the very purpose of national government.

Nobody has to like it. But the original intent of the Constitution involved sustaining and managing public debt via taxation.

Both the articles and the amendments do, of course, limit government and restrict its power. But no ratified amendment has ever qualified Congress's power of the purse, which in the minds of the framers explicitly involved the power to take on debt and fund it. In their tweets and blogs, "constitutional conservatives" have been promoting a balanced-budget amendment with reference to the tired notion that since households and small businesses must balance their budgets (as if!), government must too. They link that economically useless prescription to the widespread fantasy that our Constitution was written, amended, and ratified for just such a purpose. The framers saw it just the other way.

But really everybody, not just "constitutional conservatives," buys into the fantasy now. History is rarely helpful politically. It's hard to imagine liberals bringing to debt-ceiling and balanced-budget debates the painful realpolitik of our national origins, which show the Constitution existing, originally, to finance the investing class and yoke that class's interest (in every sense) to national power. Thus the Times gives the Bruni piece a headline referring to Norquist's "dangerous purity" -- as if the danger in Norquist's approach lies in a too-rigid insistence on basic principle. There's nothing purist about Norquist. Whether his ideas may be proven right or proven wrong, they are anything but originalist. Like those of Bachmann and the rest of the anti-tax right, Norquist's principles are novel, innovative, and weirdly postmodern, extra-constitutional at best.

Stark realism about the actual founding purposes of the Constitution will always have limited use in political debate. But it would be nice, at least -- though unlikely -- if we would argue these issues on their merits, and leave the Constitution alone.

William Hogeland is the author of the narrative histories Declaration and The Whiskey Rebellion and a collection of essays, Inventing American History. He has spoken on unexpected connections between history and politics at the National Archives, the Kansas City Public Library, and various corporate and organization events. He blogs at http://www.williamhogeland.com.

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The God of Tea Party Freshmen Serves the Rich, Not the Poor

Aug 1, 2011Lynn Parramore

How a prince of Hell took a job on Capitol Hill.

Every once in a while, you come across a news story that's more than a story. It's a revelation.

How a prince of Hell took a job on Capitol Hill.

Every once in a while, you come across a news story that's more than a story. It's a revelation.

On Sunday morning, that's what greeted readers of the Washington Post searching for insight into the Great Debt Showdown. The first two thirds of a piece by David A. Farenthold and Dan Balz is a familiar recitation of the tribulations of Speaker John Boehner as he struggled with defiant new members of the House Republican conference. Nothing earth-shattering there. But then, out jumps a nugget of naked truth that simply takes your breath away. It concerns the god served by Tea Party-backed GOP members who have held the country hostage in a sham debt-ceiling crisis. Keep in mind that the passage below is not a parody:

Not even gentle persuasion could overcome higher powers Thursday. As Boehner was in his meetings, three freshman Republicans from South Carolina were in the House chapel nearby, in quiet discussion and in prayer. Reps. Mick Mulvaney, Tim Scott and Jeff Duncan wanted a stronger provision to guarantee a balanced-budget amendment and knew they would be lobbied furiously in the hours to come.

At one point, Duncan said, Mulvaney picked up a Bible and read a verse from Proverbs 22: "The rich ruleth over the poor, and the borrower is servant to the lender."

"It's telling me to really be bold, to really fight for structural changes," Duncan said.

"Mulvaney snapped the Bible closed. And I said, ‘Guys, that's all I need to see,' " Duncan said. "Tim said, ‘Yep.' And we stood up and walked out."

These gentlemen would like for us to construe their prayerful moment as spiritual concern for suffering Americans. That's a tough sell, because the god worshiped by these devout South Carolina congressmen is not Yahweh. It is not the deity served by Jesus, he of throw-the-money-lenders-out-of-the-temple fame.

The god of the Tea Party freshmen is certainly ancient and powerful. He was last employed as one of the chief princes of Hell. And his name is Mammon. On leave from his post in Hell, Mammon is doing a bit of temp work. The avatar of wealth and greed has rolled up his sleeves and taken up residence in the People's House, where he currently advises GOP freshmen on policies contrived to do his bidding.

Now, if Congressman Mulvaney had not shut his Bible so quickly, he might have come across another interesting passage, this one from the Gospel of Matthew.

No one can serve two masters, for either he will hate the one and love the other; or else he will be devoted to one and despise the other. You can not serve both God and Mammon.

—Matthew 6:19-21,24

But there was really no need for the freshmen to read this passage. Mulvaney, Scott and Duncan know  who they are really serving. They must understand that the budget cuts they have fought for tooth and nail will take money from the most vulnerable members of our society and fill the coffers of the rich -- though you wouldn't necessarily think they'd invoke the Christian Bible in support of their trickle-up economics.

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But Mammon's power has been known to be irresistible. Those who fall under his spell frequently turn their backs on justice and become the fawning lapdogs of the rich (peruse the Koch-Mulvaney connections here).

Today we learn that the deal currently in the works to avert an historic U.S. default would require Americans rendered jobless by the financial crash caused by Wall Street to suffer even as bankers take in record-breaking profits. Medicare would be placed on the chopping block. Tax loopholes for the wealthy would remain open. The economy would be further weakened. Pain would be inflicted on just about everybody but the privileged and the powerful.

The God of Greed can look upon his work with satisfaction. His troops are delivering. The angels have fled. He knows his kingdom is coming. And Mulvaney, Scott, and Duncan have secured their place in it.

Lynn Parramore is the editor of New Deal 2.0, Media Fellow and Deputy Director of Communications at the Roosevelt Institute, co-founder of Recessionwire, and the author of Reading the Sphinx.

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Polarized Politics: How Extremists Have Taken America Hostage

Jul 28, 2011June Carbone

flag-150Could the GOP motto be: "Abandon Moderation All Ye Who Enter Here"?

flag-150Could the GOP motto be: "Abandon Moderation All Ye Who Enter Here"?

In the most recent polls, an overwhelming 68% of the American public want a compromise on the debt ceiling. Break down those numbers by party, however, and a different picture emerges. 81% of Democrats want a compromise compared to only 53% of Republicans. Even more strikingly, 53% of the Tea Party oppose a settlement compared to 42% who favor it.  The Tea Party, in opposition to the majority of the country, the majority of the Republican electorate and the weight of professional opinion, takes the my-way-or-the-high-way approach. What is going on?

The short answer is that the Republican leadership, in general, and the Tea Party, in particular, is designed to be a party of extremists. That is, the modern Republican party is built on its appeal to those most likely to see the world in black and white. Giving power to the true believers of any stripe is dangerous, and the debt limit makes visible a decades long process that increases the risk that the country will become ungovernable.

The debt ceiling is a perfect issue to illustrate the intransigence of the new group because the underlying issue is meaningless. The ceiling is an artificial restriction that essentially says that after Congress has passed a budget and the U.S. has borrowed money in accordance with that budget, it cannot make payments on the debts it has already incurred unless Congress increases the debt limit. Ordinarily, Congress raises the debt limit without much fuss. It has done so over 70 times since the limit was enacted in 1917 and, indeed, 17 times during the Reagan Administration alone.

While increasing the debt limit is therefore meaningless, the failure to raise the debt ceiling is not. The refusal to make monthly payments on debts already incurred marks one as a credit risk. Ask anyone who misses an occasional monthly payment on their credit cards. Interest rates go up, even if the debtor has lots of money in the bank. At the national level, the mere threat of default -- the signaling that the U.S. is not a reliable borrower -- could play havoc with national and international markets.

So why risk it? Because it is what true believers do. The conventional wisdom is that we are living through a period of greater political polarization. It is true that Congressional districts have become more polarized, with more safe Republican and safe Democratic districts. It is also true that the views of members of Congress no longer overlap much, with virtually all Republicans to the right of virtually all Democrats on substantive positions.  People with different views, however, are capable of compromise. The substantive differences between Democrats and Republicans do not explain why they can't reach an agreement especially on an issue like the debt limit where there are many intermediate solutions. Abortion, after all, can be cast as murder; the only issue for the debt limit is the price that can be extracted for the vote.

Understanding the stalemate therefore requires understanding the modern Republican party and how it has been assembled. The result is not a parallel construction of liberals versus conservatives. It is rather the construction of one party (and only one) designed not to compromise.

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First, with respect to substance, the Republican party has become dramatically more conservative while the Democratic party has not become similarly more liberal (See Hacker and Pierson, Off-Center). Republicans have been able to do so and still win elections principally by adopting policies that increase turnout and those policies tend to be the ones that fire up the base and attract deep pocket funders. The principal difference between the outcome of the 2008 and the 2010 elections, for example, was the identity of those who showed up at the polls.

Second, the appeal to the base involves an appeal to those least likely to compromise -- and Republican partisans are more inflexible than Democratic partisans. An intriguing study attempted to determine whether political orientations were inherited by examining the difference between identical and fraternal twins. It described conservatives (irrespective of their positions on individual issues) as those "yearning for in-group unity and strong leadership." They desire clear, unbending moral and behavioral codes, a fondness for systematization, a willingness to tolerate inequality and an inherently pessimistic view of human nature. In contrast, those with a more liberal political orientation tend to be more tolerant of out-groups, and to take a more context-dependent rather than rule-based approach to proper behavior. They also demonstrate more empathy, optimism and "suspicion of hierarchy, certainty, and strong leadership."  The polar opposites in this typology are the true believers v. the flip-floppers. While the jury is out on how conclusively the twin studies establish a genetic component, other studies tend to find that such preferences are hard to change and influence perceptions of facts as well as policies. 64% of Tea Parties, for example, incorrectly believe that President Obama raised taxes in comparison with 34% of the country overall.

Third, Republicans have adopted an intentional rhetorical strategy that tends to appeal to those who prefer fixed, unbending values. According to linguist George Lakoff, for example, conservatives celebrate the "strict father," who enforces relatively fixed and hierarchical values, while liberals prefer the "nurturing mother" who makes context-based decisions designed to promote individual well-being.

Fourth, with the multiplication of cable TV channels and internet sites and the decline of the mainstream media, we increasingly listen only to those with whom we already agree. 63% of Tea Parties, for example, say that they get the majority of their political and current events news on television from the Fox News Channel, compared to 23 percent of Americans overall.

Finally, these effects are greatest for those with the most influence. Polarization on issues -- and values preferences -- are dramatically greater for political activists and the more educated generally than for the rank and file. Tom Ferguson explains that the big increase in political contributions has come from conservative big money donors who both respond to and shape the "no compromise" rhetoric (*For more on how money drives polarization, see Lynn Parramore's ND20 interview with Ferguson).

A half century ago, neither political party disproportionately consisted of those who favored a my-way-or-the-high-way approach. Unbending ideologues did not make it into leadership positions. Today, it may be the only way to get elected - for one of the parties. That party has framed the debt limit as a matter of principle and used it to fire up the base. For a group inclined to see the world in terms of absolutes, compromise can accordingly only be seen as betrayal.

June Carbone is the Edward A. Smith/Missouri Chair of Law, the Constitution and Society at the University of Missouri-Kansas City.

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The Rise of the Radical Center: The Crisis of the Old Order

Jul 26, 2011Bo Cutter

Big changes are coming for Americans fed up with the crisis in governance.

Big changes are coming for Americans fed up with the crisis in governance.

Last week one of my oldest friends -- named Les Francis -- and I hosted a small dinner in Washington D.C. we called "the annual meeting of the Radical Center." Policy preferences differed. Party allegiances differed. Explanations for why we are where we are differed, but among this group -- everyone of whom had long histories of deep involvement in government and politics -- there was no disagreement on a central point: in the deficit/debt ceiling debacle unfolding before us we are seeing a crisis of governance.

This debacle is confirming -- and solidifying -- a view that has slowly been building among ordinary Americans for a long time: the Republican and Democratic parties are essentially bankrupt in a central sense of the term. They are not capable, separately or together, of governing America. The effects of this realization and conclusion will not be felt immediately -- next month -- but the avalanche has begun to move down the hill and it is going to pick up speed.

The evidence is increasingly hard to deny. Republicans have a 55% unfavorable rating by voters -- only exceeded by a 57% score in 1998 during their stupid effort to impeach President Clinton. Democrats have an unfavorable rating of 49%, their highest ever. A resounding 12% of voters express confidence in the Congress. And 62% of Americans think the country is on the wrong track. My bet is that these numbers will become worse not better between now and the 2012 election.

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But so what? Don't the two parties constitute a duopoly, so there is no real way for dissent to be registered except by not voting? Well, that may be changing.

To get a sense of this, I recommend two recent articles to you: first, Tom Friedman's column of July 23, "Make Way for the Radical Center"; and John Avlon's July 22 Daily Beast column, "The Web's Stealth Presidential Race." Both columns discuss the emergence of a new group -- Americans Elect -- which intends to do two simple things: (1) Provide ballot access to an independent bipartisan presidential ticket, which will be chosen through (2) a web based convention to be held in June 2012. I've been part of this effort for a couple of years, but that is not why I mention it here. Rather, I mention this new group to emphasize the following points: we are in the midst of a governing crisis; we are also in the midst of fundamental change in the "old order"; Americans are losing confidence rapidly in existing political arrangements; and technology now provides a way of leap-frogging the two party duopoly and going directly to the voters with a different message.

Both the necessary and the sufficient circumstances for the effective emergence of the radical center are now fulfilled. And the odds are mounting that within the next 2 presidential elections we will see political changes of the kind this country sees about twice a century.

Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

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Why Republicans Will Block Richard Cordray for the CFPB

Jul 18, 2011Mike Konczal

It's not just that they don't like Elizabeth Warren. It's that they want to undo the entire Consumer Financial Protection Bureau.

Elizabeth Warren is out. And former Ohio Attorney General and current Consumer Financial Protection Bureau (CFPB) Director of Enforcement Richard Cordray is in as the nominee to head the CFPB.

It's not just that they don't like Elizabeth Warren. It's that they want to undo the entire Consumer Financial Protection Bureau.

Elizabeth Warren is out. And former Ohio Attorney General and current Consumer Financial Protection Bureau (CFPB) Director of Enforcement Richard Cordray is in as the nominee to head the CFPB.

Cordray took the problems in the foreclosure fraud crisis very seriously while in Ohio, going as far as to sue GMAC when the robosigning scandal broke last October. Here is coverage of that lawsuit from Yves Smith and David Dayen from back then. Beyond GMAC, Cordray sent letters to Bank of America, JPMorgan Chase, Citi and Wells Fargo to question their use of robosigning. I hope he is going to support other AGs like Eric Schneiderman who are currently investigating these problems further up the securitization chain. He also did a telling interview with Annie Lowrey last October. Cordray: "What we're talking about here is not just sloppy paperwork," he said. "We're talking about fraud in a court of law. The [foreclosure document signers] were lying under oath, to a judge. And there is evidence that this company has illegally ousted people from their private property, violating their property rights." Sadly Cordray lost his election with the Tea Party wave of 2010, but he did promptly land a job with the Consumer Financial Protection Bureau, which was just starting out.

Forty-four Republican Senators had already vowed to block anyone nominated to head the CFPB unless structural changes are made, and they have reiterated today that they will continue to do so. This is important as there are many things the CFPB can't do -- basically powers that aren't transferred over from another agency -- without a Director. What's their deal?

Let's back up for a second. What are the strengths of the way the CFPB is structured in the Dodd-Frank Act? There are many, especially the consolidation of consumer regulation and the focus on research. But three structural strengths stand out: it has a single director, there's been careful attention paid to its budgeting process and it is just like other regulators in terms of accountability. These three parts of the CFPB were carefully planned, designed and fought for.

In early May of 2011, 44 Republican Senators signed onto a letter written by Senator Shelby that requested three specific changes before they released the hostages confirmed any nominee to head the CFPB. The changes, quoted from the document:

- Replace the single Director with a board to oversee the Bureau. This would prevent a single person from dominating the Bureau and provide a critical check on the Bureau's authority.

- Subject the Bureau to the Congressional appropriations process. This would provide oversight and accountability to the American people on how public money is spent.

- Establish a safety-and-soundness check for the prudential financial regulators who oversee the safety and soundness of financial institutions. This would help ensure that excessive regulations do not needlessly cause bank failures.

See that? Three of its major strengths -- a director, funding, and accountability with a focus on consumer protection -- are exactly what the Republicans want to dismantle. No doubt they are trying to stall the implementation of Dodd-Frank and prevent the CFPB from doing all its work -- of course they are -- but these are three critical points where they can significantly weaken what the CFPB can do. Any leeway given on these requests would be a major problem.

The CFPB is going to have a large operation with people overseeing various parts of the regulatory framework. It's not clear what problem having a board instead of a Director is meant to solve, and it is very clear that having a board instead of a Director will throw sand into its gears. Subtly, it will reduce the Bureau's presence among all other banking regulators, as they all have a clear chief agent who coordinates the activities of the agency. Not so subtly, it'll cause in-fighting and a lack of focus during its crucial first years.

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The second change on how it is funded is a major battlefield. As Adam Levitin wrote last year in The Political Economy of CFPB Funding:

CFPB funding isn't a poorly thought-through piece of legislation; a lot of thought went into this particular issue. The concern that Congress and CFPB advocates had was that if CFPB were subject to the regular appropriations process, it would be too easy for CFPB to be strangled in the appropriations process, which is one of the least transparent parts of Congressional activity, and therefore the ideal place to ice an agency. The whole point of giving the CFPB a percentage of the Fed's overall budget was to ensure that the CFPB will always have the financial wherewithall to be effective -- consumer financial protection shouldn't be a politically dependent matter. Congress acted deliberately and intentionally to bind its own hands in the future when political winds change... The CFPB funding mechanism is based on a careful assessment of the CFPB's needs and the political economy of consumer protection... Recall that a major reason we needed a CFPB was that consumer financial protection was severely compromised by housing it in bank regulators who got their funding from banks, not through the appropriations process.

If it was funded by Congress, Republicans in Congress would try to strangle it in the dark as financial lobbyists cheered, the same way Phil "Unless the waters are crimson with the blood of investors, I don't want you embarking on any regulatory flights of fancy" Gramm did back in the 1990s to people like Arthur Levitt at the SEC.

The third change is usually phrased as a blend between accountability and goals. Again I'm going to kick it to this chart from Levitin on accountability:

The CFPB is at least as accountable, if not much more so, than any other regulatory body. It's the only regulator that the Financial Stability Oversight Council (FSOC) can veto, a disturbing development during the Dodd-Frank process that was inserted to deal with the criticism that the agency wouldn't be accountable enough (how's that going?). As I noted at the time, between Treasury, the head of the OCC, and the Fed Chair, the FSOC is likely to be bank friendly. There's already enough of an obstacle built into the very framework.

Meanwhile, consumer protection was usually treated as an orphan mission, the third or fourth most important objective for many regulators, in the pre-Dodd-Frank era. If everyone was in charge of it, then nobody was. Consumer protection is the CFPB's main focus and it consolidates this functioning from other regulators. As Tim Fernholz wrote in his paper on the CFPB for New America, "the agency's founding purpose [is] to create a single, accountable home for consumer financial protection." The GOP's change would water down its mission and divert it from its objectives, and thus significantly hurt the new agency.

The Republicans are not stupid, and these three structural changes were not picked out of a hat. Meanwhile, a lot of what the CFPB has to do won't come online without a director. Will Obama be aggressive and go with a recess appointment? According to Public Citizen, he has more discretion than we realize.

Mike Konczal is a Research Fellow at the Roosevelt Institute.

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Tom Ferguson and Rob Johnson Explain Why the Tea Party Became the Big Banks' Best Friend

Jul 12, 2011

money-question-150A year after the passage of Dodd-Frank, why is the Tea Party serving the big banks to thwart it?

It was anger at the bank bailouts that spawned the Tea Party, but now this same movement is becoming the big banks' best friend. What's up with that?

money-question-150A year after the passage of Dodd-Frank, why is the Tea Party serving the big banks to thwart it?

It was anger at the bank bailouts that spawned the Tea Party, but now this same movement is becoming the big banks' best friend. What's up with that?

Recently, our friend Robert Scheer of Truthdig reminded us that the same gigantic banks that caused the economic meltdown enjoy record-breaking profits while doing zilch for the American economy, which continues to stall and sputter. How do they get away with it? Scheer notes that the Wizards of Wall Street have turned away from Obama and are going to the Tea Party for support. And they're getting it.

In a trend that is doubtless making Lloyd Blankfein weep for joy, Tea Party-backed Republicans in Congress are furiously trying to block financial reform and the critical regulations that would prevent reckless speculation and another, possibly worse, economic meltdown. They appear determined to slash the budgets of the Securities and Exchange Commission and Commodity Futures Trading Commission. Scheer notes that the CFTC is run by former Goldman Sachs partner Gary Gensler, one of the Obama "regulators" who has specialized in thwarting proper supervision of the out-of-control derivatives market.

I asked my colleagues at the Roosevelt Institute to help me understand what the heck is going on:

From Roosevelt Institute Senior Fellow Thomas Ferguson, Professor of Political Science at U Mass, Boston:

Alas, this story is all too familiar. In the midst of a giant economic downturn, a new government comes to power. It talks boldly, but acts tepidly. Its massive policy failure discredits the idea that public authority can act effectively at all. At that point a desperate population starts looking around for saviors. In the absence of any plausible progressive alternative, many turn back to primal roots or sacred texts -- in the case of the Tea Party, the Constitution. But in a money-driven political system, cash is still king. Leaders of the "populist" uprising soon find they can do good and do well at the same time by striking deals with elements of big business that have political demands of their own.

So the deadly circle begins to close. Big sections of the population cheer on measures that insiders recognize are designed to wreck them.

There is a bright side: This process doesn't have to end as it did in Weimar or the French Third Republic. Who now recalls that Herbert Hoover's "activism" in the Great Depression was once hailed as epochal? But when the Great Engineer failed to jump start recovery and capitulated to bankers' demands for austerity, he was supplanted by Franklin Roosevelt and the New Deal. But anyone can also see the sticking point now: In 2008, the population threw out the Republicans. In 2010, it tossed out the Democrats. So who does it eject in 2012?

Join us at the Hamptons Institute July 15-17 to hear distinguished speakers take on today’s most pressing issues!

From Roosevelt Institute Senior Fellow Robert Johnson:

We live in a country where the experience of decline has gone from suspected to obvious. The energy that is built up by the pain is not going to go away. In that painful state the search for culprits and blame is inevitable. The storytelling, through technique and repetition, need not bear any resemblance to the truth when the blame is affixed. Unless strong leaders stand up repeatedly to counter the false narratives, scapegoats will be determined by power, not truth.

Unfortunately, strong leaders do not arise when public officials are imprisoned by the need for money in order to survive in office. As trust deteriorates anyone who espouses a vision of "the public good" is treated like a romantic fool. Pretend rituals of statesmanship abound, i.e., deficit commissions that impose hardship on vulnerable. Elites stand around and scratch their head about why people are so angry and join the Tea Party. Why are elites confused by this? There is no where else for people to go. It reminds me of the lyric in the Leonard Cohen song "Everybody Knows", a song that may as well be the anthem for our time.

Everybody knows that the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows that the war is over
Everybody knows the good guys lost

Everybody knows the fight was fixed
The poor stay poor, the rich get rich
That's how it goes
Everybody knows

Everybody knows that the boat is leaking
Everybody knows that the captain lied
Everybody got this broken feeling
Like their father or their dog just died

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To Win the Debt Ceiling Showdown, Obama Must Stand His Ground

Jul 7, 2011Bo Cutter

The President has to acknowledge that the opposition is ready to send the country into default -- and make it clear he's not interested in doing so.

The President has to acknowledge that the opposition is ready to send the country into default -- and make it clear he's not interested in doing so.

The last two weeks have been beyond depressing if you believe the debt issue and impending default are actually serious or if you think governance is, or at least ought to be, about solving problems. And if you like and basically agree with the policies of President Obama, it has been hard to see how he emerges from this mess a winner.

On the other hand, if you see this as a theme park or as a political opening for the emergence of the radical center, then you see it all as sort of fun.

To review the bidding, all of the current set of negotiations seem to have gone nowhere -- unless both sides are cleverly hiding a grand bargain. The Senate Gang of Six is on sabbatical. The Biden negotiations are paused. The nation's economists have just sent two contradictory letters to the Hill. The far right, i.e. the Republican House of Representatives, has convinced itself that default is actually not a big deal. The far left is in the process of convincing itself that the President can simply ignore the debt ceiling and rely on a new interpretation of Section 4 of the 14th Amendment. This seems to be what passes for useful strategy today: ignore the problem and create another problem, in this case impeachment.  What passes for a middle is reduced to arguing that the Secretary of the Treasury can manage his way around default by paying bills selectively. (A Treasury Secretary who, by the way, has all but shouted that he is departing, thus rendering himself a short-timer with no negotiating clout. Why doesn't President Obama tell Tim Geithner that he can't leave? Other presidents have.) We are running a $1.5 trillion deficit -- $125 billion  a month. The U.S. Treasury receives about 80 million bills a year, 7 million a month. So each month the Treasury is supposed to sort through 7 million bills and find $125 billion it can avoid paying, while paying all interest and finding a way to roll over maturing debt? This is utter nonsense.

Meanwhile, the President's own strategy is impossible to figure out. He seems reduced to saying that there's a deal if the Republicans agree to alter the depreciation schedule for private jets and reduce America's charitable giving. The administration seems to also be fearful lest an inadvertent comment offend the Republicans. I don't pick up quickly on subtlety, but I can't find a political strategy, or an economic narrative, or a consistent public relations effort in all of this. I hope his call to bring all the negotiators to the White House for another try is the start of a strategy and a narrative.

But this issue is the ball game. Nothing else truly big, truly election settling, is likely to happen before the 2012 elections. There are always unknown unknowns, but most of them are bad. The President has to win or stalemate this issue.

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I think there is a way to do this, and David Brooks posed it indirectly in his excellent column yesterday. He argued that the Republican Party may be moving away from being "a normal conservative party, but an odd protest movement that has separated itself from normal governance, the normal rules of evidence and the ancient habits of our nation." The President has to take the measure of his opposition, offer a short-term deal reasonable people could not refuse, and put such a deal in the context of a real economic strategy. The opposition is moving in the direction Brooks suggests: becoming ideologues and nihilists (and making it obvious), while the nation is composed largely of moderates and centrists who increasingly see themselves as politically independent. The new Congressional Republicans also they think they have the Administration's number and that he will cave before risking default, and they think the economic and financial disaster a default would represent would hurt President Obama more than them. The President has to raise the risks a default poses to the Republicans.

He can accomplish this by:

  • Defining himself as clearly being in the center and trying to solve the nation's problems.
  • Defining the opposition as acting beyond any acceptable political boundaries in being willing to expose Americans to the kinds of risks default entails.
  • Proposing a broad economic strategy comprising deficit reduction, tax reform, and infrastructure investment phased in so that the economy can continue its (weak) recovery. (This strategy won't have a chance before the election, but the President can campaign on it for the next 15 months.)
  • Proposing a modest short-term deal: a limited debt ceiling increase with accompanying deficit cuts coupled with a process for a real negotiation. I would suggest a debt ceiling increase covering roughly the next 6 months, and a full fledged process of negotiation out at Andrews Air Force Base starting in September. I would make the short-term proposal hard to turn down by designing it so that about 80% of the deficit reduction came from spending cuts. (They have already identified more than enough enough budget cuts to do this.)

But the President has to believe all of this if he says it. The only way he wins is if he puts forward a reasonable, doable proposal and then stays with it. Does he go all the way through a default? I just do not know, but he has to come close.

This debt ceiling debacle is not acceptable. Americans have a right to be furious at both parties for all of this, and these events will accelerate the movement away from our current duopoly. What right do politicians have to threaten the economic security of all Americans because they are having an ideological quarrel? Most Americans mostly want to be left alone, not made the victims of a political system that has seemingly lost touch with what governance is. As my friend Les Gelb said on another topic: "Without vision men die; with vision more men die."

Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team.

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What's Wrong with the Obama Administration's Cuts to Medicaid

Jul 6, 2011Richard Kirsch

President Obama's proposed Medicaid cuts won't address the source of rising costs, but they would be a major step backward for public health care.

President Obama's proposed Medicaid cuts won't address the source of rising costs, but they would be a major step backward for public health care.

While the public debate about the Republican budget focused on the sharp reactions against Paul Ryan’s Medicare privatization scheme, the other big “M” in health care, Medicaid, hasn’t received the attention it deserves. As a result, the Obama administration has proposed cuts in Medicaid. These will undermine the achievements of its own historic health care law and harm access to health care for tens of millions of women, children and seniors.

Unlike Medicare, our national health insurance program for seniors and the disabled, Medicaid comprises 51 different state programs (including Washington DC) operating under a set of federal rules, financed by both the federal and state governments. As a result, it’s much harder for the feds to control Medicaid costs through policy changes. The Ryan/Republican budget doesn’t even try; it simply limits the amount that the federal government will spend on Medicaid and shifts the rest of the costs to the states, while weakening the rules so that states can dump people out of the program.

Unfortunately, most of the proposals that have been made by President Obama in the debt-ceiling negotiations are a kinder and gentler version of the same wrong-headed policy of shifting costs to states, and through them to American families, rather than dealing with the underlying reasons that Medicaid costs are rising.

It’s true that Medicaid costs are increasing, but that’s not because Medicaid has done a poor job of controlling health care costs, at least compared with the rest of the nation’s health care system. For example, from 2000 to 2009 private health insurance companies spending per person increased by 7.7% each year while Medicaid spending on acute care health services –- doctor, hospital, prescriptions, tests, mental health – increased by 5.6% a year. Medicaid did an even better job controlling spending on long term care, which went up an average of just 3% a year per beneficiary, the same rate at which the economy grew and lower that the overall rate of medical inflation (4.1%).

To really see where Medicaid spends it money, you only need to look at the 5% of Medicaid beneficiaries who are responsible for more than 50% of the costs. These are people with very serious, chronic health conditions and serious disabilities. President Obama knows this –- in fact, he raised the issue at the National Governor’s Association in February.

The other major factor in Medicaid spending is increased enrollment –- particularly when the economy tanks. For example, enrollment of families was flat from 2004-2007 but spiked sharply once the recession began. Enrollment jumped by three million from June 2008 to June 2009 alone, the biggest increase since the early day of the program.

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Rather than dealing with the root causes of high Medicaid spending, the Obama administration proposes to cut $100 billion from Medicaid over the next decade, mostly by changing the way it pays states for the program. The biggest change would be to reimburse states at the same rate for all their Medicaid patients, unlike now, where states get a different rate for different populations, such as children or seniors. The new so-called “blended rate” would be set at a lower amount than current health spending. Like the Ryan plan, the proposal is simply a cut to states, albeit a much smaller one than Ryan proposed and without the loosening of rules on who and what to cover included in the Republican budget. States would still cut back on who and what it covers, if only to the extent allowed within the current rules. States would also cut payments to providers, which in many cases – particularly physicians, dentists and hospitals in some states – would make it harder for patients to get needed medical care.

The “blended rate” proposal also strikes a blow at the Affordable Care Act, which is counting on Medicaid to provide care to more than half of the 33 million uninsured who will be covered under the new law. Under the Affordable Care Act, the federal government will reimburse states 100% of the cost of these new enrollees for the first three years and gradually reduce that to 90%. Compare that to the average 57% now that the federal government pays as its share of Medicaid. The blended rate would result in states having to pay a lot more for people who become eligible for Medicaid under the Affordable Care Act. As a result, states will throw up more barriers to enroll these working families and will scream more loudly about how the ACA is hurting their budgets. That later charge has almost no basis in fact now, but will become true under the blended rate proposal.

A second Obama administration proposal would close off one source that states now use to finance Medicaid, taxes on health care providers. Since states would be reluctant to replace these taxes with other taxes, they would also cut their spending on Medicaid, lowering federal spending.

In fact, only 10% to 15% of the cuts in Medicaid spending in the Obama proposal would come from rational savings in the system – increased efficiencies in providing medical equipment and prescription drugs – as opposed to simply giving states less money and making it harder for them to raise money for Medicaid.

The Affordable Care Act was a huge step toward a more rational health system, but the Obama proposals for Medicaid in the budget take us backward. Instead, the President should accelerate reforms that focus on the handful of high cost patients that drive most of the costs, by requiring states to implement care coordination programs which provide systems and incentives for health care providers to improve the care of the chronically.

Early this June, Senator Jay Rockefeller announced that 41 Democrats had pledged to “stand united against any efforts to slash Medicaid." Their action was aimed at the debt-ceiling and budget talks. Unfortunately, their resolve will be tested soon, in the Medicaid proposal made by their Democratic President.

Richard Kirsch is a Senior Fellow at the Roosevelt Institute, whose book on the campaign to win reform will be published in 2012. He was National Campaign Manager of Health Care for America Now during the legislative battle to pass reform.

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Republicans Remain Poor at History – But So Do American Citizens

Jun 17, 2011Harvey J. Kaye

story-book-200We could all use a brush up on some of the nation's most important historical moments.

story-book-200We could all use a brush up on some of the nation's most important historical moments.

In a recent article, New York Times writer Sam Dillon reports that the results of nationwide exams conducted as part of the National Assessment of Educational Progress show that "American students are less proficient in their nation's history than in any other subject." And there is, as Dillon notes, a developing consensus as to why this is so: "History advocates contend that students' poor showing on the tests underlines neglect shown to the subject by federal and state policy makers, especially since the 2002 No Child Left Behind act began requiring schools to raise scores in math and reading but in no other subject. The federal accountability law, the advocates say, has given schools and teachers an incentive to spend less time on history and other subjects."

That may well be so. But I want to suggest another possible cause for young people's poor knowledge of American history: kids are simply emulating conservative celebrities. And the kids are no fools. They know from the news that if you want to get ahead, if you want to be taken seriously, if you want to be a contender, if you want to be a candidate for President of the United States -- a rightwing candidate, that is -- you can't be good at history. Isn't that the lesson of the past few weeks? Sarah Palin couldn't explain what Paul Revere's ride was all about. Bachmann didn't know that Lexington and Concord -- the first battles of the American Revolution -- were fought in Massachusetts, not New Hampshire.

But while we can laugh all we want at Palin and Bachmann, the problem isn't that they don't have the facts straight about American history -- it's that too many of us don't know enough about it. And our ignorance can be politically debilitating. Consider...

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Two weeks ago, on the 67th anniversary of the D-Day Landings at Normandy, former U.S. Senator Rick Santorum, a Pennsylvania Republican, announced that he was entering the race for the presidency. Eager to harness the Greatest Generation to his cause and strike a blow against "Obamacare," Santorum stated: "Almost 60,000 average Americans had the courage to go out and charge those beaches on Normandy, to drop out of airplanes who knows where, and take on the battle for freedom... Those Americans risked everything so they could make [their own] decision on their health care plan."

Naturally, leftwing commentators mocked him for saying it. But the progressive punditocracy missed a great opportunity. Santorum wasn't just speaking stupidly; he was also speaking wrongly. Contrary to what he asserted, the GIs who stormed the beaches of Normandy essentially were fighting for the chance of pursuing freedoms and securing government-guaranteed national health care. They and their fellow Americans knew quite well that just six months earlier President Franklin Roosevelt, in his State of the Union Message of January 1944, had translated his original vision of the Four Freedoms -- freedom of speech, freedom of worship, freedom from want, freedom from fear -- into a proposal for a Second Bill of Rights. And among the rights he enumerated was "The right to adequate medical care." Moreover, the President himself knew that the vast majority of his fellow citizens supported his proposal. Polls conducted for the White House in 1943 by Princeton's Public Opinion Research office showed that 83 percent of the American people wanted Social Security to include health care, not just for veterans, but for all Americans.

To listen to the right, you'd think the very idea of national health care was the Trojan Horse of communism. And yet a bit of history teaches that the Greatest Generation and its greatest leader -- our foremost heroes of the twentieth century -- hoped to enact it. Un-American? Hardly.

I don't care if conservatives know enough about history. But I do care that we and our fellow citizens do. For starters, we have got to be able to point out when the Tea Party right gets history dead wrong. Moreover, we have got to remember who we are. And to do that we need to not only restore the study of history to its rightful place in the school curriculum, but also make sure that the history we teach enables students to think and act as citizens, not game show contestants. Responding to equally dismal reports of student ignorance of America's past, progressive columnist Max Lerner wrote in April 1943: "History belongs to the people. It must be taught as part of the people's struggle to build a free democracy on this continent. It must be taught as the prelude to what American democracy can do and be."

Harvey J. Kaye is the Ben & Joyce Rosenberg Professor of Democracy and Justice Studies at the University of Wisconsin-Green Bay and the author of Thomas Paine and the Promise of America. He is currently writing The Four Freedoms and the Promise of America: FDR, the Greatest Generation, and Us. Follow him on Twitter: www.twitter.com/HarveyJKaye

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Tom Ferguson on the Budget Battle: "We've Got Two Conservative Parties"

Jun 14, 2011

In a recent interview with New School Radio's Antonio Seccareccia, Roosevelt Institute Senior Fellow Tom Ferguson weighs in on the budget debate, which he sees as "the end stages of the Reagan Revolution." The problem, he says, is that there are essentially two conservative parties at the national level: "Republicans want to cut, Democrats want to cut less." That leaves no one to defend programs like Social Security at a time when people need them most.

In a recent interview with New School Radio's Antonio Seccareccia, Roosevelt Institute Senior Fellow Tom Ferguson weighs in on the budget debate, which he sees as "the end stages of the Reagan Revolution." The problem, he says, is that there are essentially two conservative parties at the national level: "Republicans want to cut, Democrats want to cut less." That leaves no one to defend programs like Social Security at a time when people need them most.

As for the growing deficit, Tom argues that the Republican push to cut taxes without cutting expenditures created the problem.  However, it only became truly catastrophic after the financial crisis, since "financial collapses typically crush economies for years, and that's driven down the tax take of governments."  In order to close the gap, we need to return to full employment as soon as possible.  Tom believes President Obama's biggest mistake was his failure to pass a big enough stimulus in 2009, and the economy continues to drag because of his reluctance to push for another round.

Click here to listen to the full interview, including Tom's take on Social Security, the Bush tax cuts, state-level union-busting, and more.

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