An Economic Path to Prosperity or Purgatory?

Apr 13, 2011Marshall Auerback

If Democrats and Republicans continue to miss economic fundamentals in considering deficits, we can be sure of reducing one thing: future prosperity.

If Democrats and Republicans continue to miss economic fundamentals in considering deficits, we can be sure of reducing one thing: future prosperity.

There's a reason we don't advocate amputating arms as a solution for weight loss. We have to consider the loss of the limb in the context of how well the human body functions in the aftermath of its removal. The same principle applies to deficit reduction. And yet the President seems to be embracing a conservative agenda on deficit spending and "entitlement reform" that makes precisely this mistake. Like his counterparts in the UK, Ireland, Greece, Portugal and Spain, the President is lining up to ensure that his country doesn't become the next Japan, even though (irony of ironies), Japan's "lost decade" never produced a level of unemployment as high as the "recovering" US economy has today.

The President, like Congressman Ryan before him, needs to consider the budget balance in the context of the dynamics of the external sector and the private domestic sector, which are intrinsically linked by national income movements. Consider the fundamentals: there is a private sector that includes both households and firms. And there is a government sector that includes both the federal government as well as all levels of state and local governments. Then there is a foreign sector that includes imports and exports. In their discussion of government deficits, both the Democrats AND Republicans fail to appreciate that there is a relationship among these 3 sectors and that one cannot look at changes in one (say, the government sector), without considering what changes in its spending patterns will do to the others.

I recall back in 1999 that the Wall Street Journal ran two long articles, one claiming that government surpluses would wipe out the national debt and add to national saving-and the other scratching its head wondering why private saving had gone negative. There is a reason this occurred: The government's budget surplus meant that the private sector was running a deficit. Households and firms were going ever farther into debt, and they were losing their net wealth of government bonds. And because private debt is inherently self-limiting (because households and business are USERS of currency, not ISSUERS), this eventually caused a recession. Why? Because the private sector became too indebted and thus cut back spending.

Unfortunately, the President continues to push forward the idea that somehow cutting government expenditures and reducing the deficit is a good thing, but he doesn't explain how this can be the case. Clearly, deficits matter when the economy operating close to full employment and high capacity utilisation. At that stage, too much government spending clearly can be inflationary and should be reined in. But those circumstances don't apply today. The President fails to understand that government cutbacks at this juncture could well take income away from the private sector and therefore induce a higher predisposition to save (because businesses won't invest and private individuals are reluctant to consume in the face of greater economic uncertainty).

In the days before the New Deal, the problem of high private debt levels, minimal government stimulus and correspondingly declining spending power amongst the population as a whole resulted in depressions, widespread debt defaults and a lot more human suffering. It's one of the reasons we introduced the welfare provisions in the form of automatic stabilizers, now so decried by so many fiscal hawks. Automatic stabilizers are the "safety levers" that are built into fiscal policy to keep the economy on an even keel in times of stress. Things like tax revenue, unemployment insurance, food stamps, etc., put money into people's hands that help to stabilize economic activity by stabilizing demand. They are meant to provide the safety floor below which consumer spending will not fall as private spending declines. The expansion of public spending provides some relief from poverty and other major forms of social ills which flow from long term unemployment. Indeed, it is the existence of these stabilizers which have prevented the onset of another Great Depression.

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The Hooverian orthodoxy of minimal government intervention and correspondingly tighter fiscal policy -- which seems to be the new orthodoxy of the Republican Party -- was tried during the early 1930s, and failed miserably. And the same mistakes are being made today in Europe. Greece, Ireland, the United Kingdom, Portugal, and Spain. All of these countries are implementing tax increases and drastic spending reductions in the form of cuts in public sector wages, government workforces, and social spending, and their economies are deteriorating. The situation is particularly misconceived in the UK, which does not operate under the constraints of the euro zone.

Perhaps the President and his economic advisors believe that higher private investment, not more government purchases, is the surest way to increase prosperity. To be sure, the President, through his financial bailout policies, has legitimized this argument because far too much of his government spending has been directed toward buying the junk of the financial sector, rather than the productive services of the unemployed.

Governments that maintain high quality health care and public educations systems will set in place the conditions for future prosperity. Conversely, governments that allow mass unemployment to become entrenched and cut back public service delivery and public infrastructure development impose significant real costs on future generations. Most governments are in that mode at present. They fail to see that a budget deficit is simply an accounting statement: a difference between revenues and expenditures, nothing more. In my view, the real goal of government is to run budget outcomes that support sufficient spending power to support full employment. Unemployment is a real cost, a budget deficit is not!

The recent crisis has been, in part, the result of policies based on the idea that nations could sustain growth based on such increases in private indebtedness. We've all too quickly forgotten the costs of that build-up of private debt. Instead, both major parties remain fixated on "unsustainable" budget deficits. Amazingly, nothing is said about the unconscionable Federal Reserve bailouts of countless foreign institutions and multimillionaires during the height of the financial crisis. The Fed itself implicitly recognized this scandalous hypocrisy if one is to judge the fervor with which it legally sought to block Bloomberg from obtaining the relevant details under the Freedom of Information Act. But the public has bought the line about the evils of budget deficits in large part because it is furious about these kinds of Wall Street rescue packages. In that sense, the financial bail-out has "crowded out" more sensible spending policies.

These programs emanated from the White House and Treasury. President Obama owns them. Just as in Afghanistan and Libya, he is doubling down on dumb domestic policies, thereby ensuring an equally tragic outcome for the country.

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

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Conversation With Thomas Ferguson: How Political Money Drives Deadlock

Apr 12, 2011Tom FergusonLynn Parramore

man-on-money-150Lynn Parramore caught up with Roosevelt Institute Senior Fellow Thomas Ferguson at the annual INET conference in Bretton Woods.

man-on-money-150Lynn Parramore caught up with Roosevelt Institute Senior Fellow Thomas Ferguson at the annual INET conference in Bretton Woods. Ferguson, father of the Investment Theory of Politics, explains why polarization has completely gripped Washington -- and why the New Deal is getting rolled back in the process.

Lynn Parramore: What's polarization in politics and how did it start?

Thomas Ferguson: Polarization is a sharp intensification of divisions between the major political parties. The tensions between them now run through the entire system, including the Supreme Court and state and local governments. Congressional polarization is the most visible form right now and surely a key link in the whole process. Both national parties have spent enormous amounts of time and money painting each other in the worst possible terms -- to the point that some Republicans have repeatedly cast aspersions on the patriotism of the Democrats.

The split between the two major parties first widened out in the late ‘70s and early ‘80s. It showed in a sharp increase in the number of votes in Congress along party lines -- that is, votes in which a majority of Democrats opposed a majority of Republicans and vice versa. But notice this, because it is extremely important: While the two parties name call and indeed often stalemate, the center of gravity of the whole political system moves steadily to the right. This is every bit as important as all the public discord and angry rhetoric. Just look, for example, at the current debates on entitlements. In 1954, President Eisenhower famously dismissed critics of Social Security and unemployment compensation as "stupid." Now leaders in both parties are talking about all kinds of big budget cuts, even though many Americans have been out of work for long periods and have watched their savings and the values of their homes sink, while they were forced to bail out the financial sector.

LP: How does polarization affect what Congress does?

TF: When you have divided government -- that is, a president of one party with the opposition controlling one or both houses of Congress -- the process of confirming nominations grinds to a halt. And even if you don't have divided government, members of Congress spend a great deal of time posturing. More congressional votes happen that are not meant to actually pass anything, but rather to send signals to outside groups and supporters. For example, Republicans may craft a bill on abortion that has no chance of being signed into law. But introducing it forces everyone to take a stand. This projects hot button divisions beyond the Congress itself to energize outside constituencies. But polarization's most obvious effect is to deadlock the legislative process. Look, for example, at the way the government has come right to the brink of shutting down over the budget or how climate change legislation has been shelved, as every form of compromise falls through. In the Senate, working control now means not a simple majority of 51, but a "super-majority" of 60, as the minority party routinely threatens to filibuster measures it dislikes.

LP: What's the relationship between political polarization and the media?

TF: The press powerfully amplifies partisanship. Statistical studies of media content suggest that the language newspapers use to describe politics varies systematically. Their news stories tend to employ the favorite buzzwords of one of the political parties rather more than the other. Some papers, for example, may describe inheritance taxes as "death duties" -- a term favored by Republicans. Others just talk about inheritance taxes.

What's interesting is that word choice appears to reflect not the mix of voters in the area covered by the newspapers -- that is, their readers -- but the split in political contributions originating in individual media markets. In other words, the language of the papers reflects the terms each side's partisans prefer, with the balance in each market tilting in favor of the locally dominant bloc of political contributors. Campaign contributors are mostly very affluent; what we have here is a top-down process of language imposition. Congress speaks; America listens, whether it likes it or not, as the papers record the discussion in their locally biased way.

This amplification of polarization in the media, in turn, encourages polarization in Congress. We get a feedback loop running between the media and political institutions.

LP: Does polarization in Congress and the media increase division in the population?

TF: The evidence is that people who hold an opinion on one of the handful of hot button issues that the parties debate in public tend to move toward the party that says it agrees with them. But here's the surprise: generally not that many people do this. When they do, they don't usually change their self-labeling. That is, they don't move from thinking of themselves as moderates to considering themselves conservatives, for example.

LP: So you don't think that culture wars explain polarization?

TF: No. Almost regardless of where you look, you'll find that changes in public opinion between the 1970s and today are relatively small. On many issues, such as gay rights, the shift among the public has gone towards the left, rather than the right. Even the famous ‘liberal label' problem is not nearly as large as people think. The number of people identifying as liberals has dropped by about 5% from the seventies to now. That hardly indicates a massive change in the way people view themselves politically.

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LP: Some argue that we have ‘sorting' among the public that leads to polarization. If I'm surrounded by like-minded people, the thinking goes, I become more extreme in my views. Is this really happening?

TF: The ‘Big Sort' people mostly concede that opinion shifts in the population are not large. So they focus on explaining polarization by looking for some thing or things that shoehorn people into more homogeneous groups that then contend among themselves. The evidence just doesn't support these theories. All the talk about gerrymandering has actually been debunked. There are some stunning cases, but not nearly enough to explain Congressional polarization. And you can simply observe the U.S. Senate: The Senate is about as polarized as the House -- just look at the figures in my INET paper (*see link at the end of this article). Nobody has messed with the boundaries of U.S. states in the last generation. Nor does the obvious fact that Republicans replaced conservative Democrats in the South help very much. Polarization in other areas of the country is very intense; just pointing to all the right wing Republicans from the South and West does not answer the question, given the small changes in popular opinion. It just reframes the question about what really drives this process. It has to be something else.

LP: And what is that ‘something else'?

TF: In a word: money. Since the mid '70s, more and more political money has been moving right and center-right. To understand Congressional polarization, though, you have to focus sharply on the crucial moment, which was 1994. That was the second stage of the Reagan Revolution, when Republicans took over both houses of Congress. Notice the key political players then. You have Newt Gingrich, who was organizing the GOP push in the House; Phil Gramm, who headed Senate fund raising for the GOP; and Haley Barbour, who chaired the Republican National Committee. These people weren't 'bowling alone'. They were free market fundamentalists. They wanted to cut taxes, on high brackets especially. They wanted to push deregulation of the financial and telecommunications industries. They wanted to abolish things like the EPA and the Consumer Product Safety Commission and cut back the FDA, the FTC, and just about every other government regulatory agency. The one area where they liked Big Government was defense.

These anti-government, pro-corporate Republicans broke every record for raising political money. Look at Gingrich and his history in particular. When he started attacking the older Republican leaders in the House as timid and too willing to compromise, money came pouring in. Yes, they supported and allied with evangelical religious groups. But those were always secondary to the main objective, which was to deregulate the economy and roll back the New Deal in all its manifestations.

LP: How did the 1994 Republican victory affect Congress itself?

TF: When Gingrich won control of the House, he installed what amounted to a pay-to-play system internally, which forced individual representatives to compete to hold their positions on key committees and leadership posts by raising funds for the party. The effect on the House was far-reaching, because the seniority system was already pretty much dead as a result of reforms in the seventies. The movement to limit the terms of committee chairs also worked in this direction, because it meant that more posts were coming open on a regular basis. What happened was that the entire Congress became money-driven.

Positions on key committees, leadership posts -- they were all being sold. The money collected then was poured into election campaigns, especially for so-called "open seats," in which no incumbents were running and in doubtful races. The vast spending and noisy campaigns heated up the political atmosphere in and out of Washington, as the media transmitted the messages.

The Democrats looked at the Republicans' pay-to-play system and basically decided to copy it. They did this instead of mobilizing their old mass constituencies. Today, as my paper documents, both parties are essentially posting prices for influential committee slots and leadership posts.

The Democrats' decision to emulate the Republicans and follow the money shifts the system's center of gravity to the right, as both parties frantically cultivate investor blocs. The result is the weird political world we live in. Behind the scenes, investor blocs and businesses maneuver for advantages in both parties. The system's center of gravity moves to the right, checked only by the diminishing influence of unions and other mass political groups that retain some resources and influence on the Democrats. You end up with two "money-driven" parties. The parties are not identical, but they have this in common: They cannot possibly campaign only on appeals to investor blocs, so each party reaches out to select public constituencies to scrape together enough votes to win elections, in a sea of public cynicism.

Polarized politics is money-driven politics and political parties are first of all bank accounts, whatever else they do. More precisely, the current polarization of the system is the direct result of the Republicans' attempt to roll back the New Deal and the way the Democrats responded. I regret to say I don't see much chance that it will abate any time soon. The Obama administration's failure to deliver "real change" has given the Republicans a new lease on life. Less than three years after the financial collapse, which handed the presidency and both houses of Congress to the Democrats on a platter, free market fundamentalism is back. Today Republicans look closer to rolling back the New Deal than they ever have. They are unlikely to see much reason to compromise; especially when the Obama administration, in the middle of trying to raise a billion dollars for the 2012 campaign, declines to press a strong defense of investments in people and regulation, not even financial regulation.

LP: Will the tsunami of money released by the Citizens United decision make polarization even more intense?

TF: Alas, the post-Watergate campaign finance reforms have been steadily watered down. The role big money plays in our electoral system was already grotesque before Citizens United, what with "527s," independent expenditures, and other devices for spending without limits. But the Supreme Court's decision sets corporations (and of course, any labor union that still has any resources) free to disgorge funds directly from corporate treasuries to campaigns, as long as the money is spent independently of candidates' own campaigns. Much of this money is likely to be impossible to track in public. But it will find its way into campaigns, raise the stakes, and set off further rounds of campaign spending. It's just going to make the carousel rotate faster. Yes, polarization is likely to persist.

**Read Ferguson's complete INET paper, delivered April 10 at Bretton Woods: "Legislators Never Bowl Alone: Big Money, Mass Media, and the Polarization of Congress ".

**And for details on how money impacted the 2010 elections, see Parramore's November interview with Ferguson: "Money and the Midterms: Are the Parties Over?"

Thomas Ferguson is Senior Fellow at the Roosevelt Institute and Professor of Political Science at the University of Massachusetts, Boston. He is the author of many books and articles, including Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems.

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

**Follow Lynn Parramore on Twitter at http://www.twitter.com/lynnparramore

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The Shutdown Deal is Another Sign that Obama is Bad at Losing

Apr 11, 2011Mike Konczal

The deal to avert a shutdown was made on Republican terms. The coming battles will now have to play out the same way.

The deal to avert a shutdown was made on Republican terms. The coming battles will now have to play out the same way.

At the end of last year I wrote a post about how President Obama is bad at losing. I like that conceptual model -- that he loses in a way that conflicts his base, concedes too much to his opponents ,and doesn't leave liberalism in a better position to fight the next round -- because it is relevant to many different ideas about the current state of Democratic Party. Regardless of whether or not you think President Obama is a progressive surrounded by failing institutions, a Rubinite centrist who puts on a good show, a political neophyte who is perpetually getting rolled by his adversaries, or someone who hates conflicts and prefers either floating above the fray or getting the half a loaf quickly, the way he is losing his battles should worry you about the longer-term project of liberalism and the Democratic Party.

This idea came back to me now that we've seen another loss. The budget deal was a huge win for Speaker Boehner. Let's chart the proposals that had been offered:

(Source: Ettlinger, Linden, Center for American Progress)

As many have pointed out, the entire battle has taken place on Boehner's terms. Not just in terms of numbers, where the battle was between the Republican leadership's numbers and the Tea Party's numbers, but in the whole idea of government. Obama's recent actions, from securing an extension of the Bush tax cuts to freezing Federal pay to now celebrating cuts to discretionary spending, only have a cohesive vision from the perspective of conservative governance. From visiting Roosevelt Institute fellow Corey Robin's Reclaiming the Politics of Freedom, on the similar battle on the budget last fall:

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When right-wing ideas dominate, we get right-wing policies. After the midterm elections in November, it seemed the most natural thing in the world -- to the right, the media, Obama and parts of the Democratic Party -- was to freeze the pay of federal workers and extend the Bush tax cuts for two years. Incoherent as policy -- the first presumes that the deficit is the greatest threat to the economy; the second, the lack of consumer spending -- it makes sense as ideology. The best (and only) thing the government can do for you and the economy is to get out of your way.

And Obama takes a loss and declares victory. As Ed from ginandtacos points out, Obama's statement that "Like any worthwhile compromise, both sides had to make tough decisions and give ground on issues that were important to them. And I certainly did that" manages to be vacuous, appeasing no one on either side while continuing to celebrate compromise as an end instead of a means. Ezra Klein noted that by "celebrating spending cuts, they’ve opened the door to further austerity measures at a moment when the recovery remains fragile. Claiming political victory now opens the door to further policy defeats later," which is absolutely correct. By ending this battle on these terms he now has to enter the next battle on these terms as well.

The problems keep coming. This narrative concedes the idea that the government has become a power-hungry Leviathan since the financial crash of 2008, when instead the true story is one of automatic stabilizers like unemployment insurance kicking in while tax revenues plummeted. Governments run deficits in recessions. That's what they are supposed to do. We passed a stimulus that was mostly tax cuts and stabilized the collapsing state budgets. This life support function of the government in bad economic times is crucial and something worth celebrating. But this move signals that we are further along in the recovery and have more pressure on our borrowing costs than any numbers would support.

Personally, I'm more upset by the bidding on cuts without any public understanding of where these cuts are going to come from. I'm under the impression that many Democrats don't know where they are going to come from either yet. Why weren't the topic of the cuts discussed, if not leaked? The justification from places like Democratic Leader Jim Clyburn, who told Dylan Ratigan, "If Boehner starts identifying cuts, special interest will rev up. I think he's right not to identify these cuts," is even worse, because it undermines the absurdity of making cuts at this time, helps perpetuate a false distinction between "social issues" and fiscal policy, and removes the actual groups impacted from the democratic process. Instead of the government doing necessary things, spending here is just dolloping out favors to special interest parties.

Things like the funding of the Special Olympics were on the chopping block. The moment the cuts are named, one can create a narrative surrounding (a) the absurdity that slashing the Special Olympics will fix the budget, (b) that these are debates surrounding the appropriateness of each program rather than displaying seriousness by taking out special interest groups, and (c) puts groups into motion defending programs. Planned Parenthood helped fight off an attack through a rider because it was able to mobilize, but it mobilized because it knew it was at risk.

But yes, Obama has declared victory. A few more victories like this and we are in big trouble.

Mike Konczal is a Fellow at the Roosevelt Institute.

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Corey Robin Calls on Progressives to Reclaim Freedom

Apr 8, 2011

Roosevelt Institute Visiting Fellow Corey Robin articulated a plan for progressives to conquer politics in The Nation that falls exactly in line with the goals and work of the Roosevelt Institute and us here at ND20. Taking a page from FDR himself, Robin calls on progressives to talk about the state not as an equalizer, but as an enabler, and to view the enemy not as the Republican party, but as businessmen who subject American workers to their whims.

Roosevelt Institute Visiting Fellow Corey Robin articulated a plan for progressives to conquer politics in The Nation that falls exactly in line with the goals and work of the Roosevelt Institute and us here at ND20. Taking a page from FDR himself, Robin calls on progressives to talk about the state not as an equalizer, but as an enabler, and to view the enemy not as the Republican party, but as businessmen who subject American workers to their whims. After all, he notes, in FDR's 1936 acceptance speech at the DNC, "he was careful to take aim not simply at the rich but at 'economic royalists,' lordly men who take 'into their own hands an almost complete control over other people’s property, other people’s money, other people’s labor -- other people’s lives.'"

The problem is that Republicans claim freedom equals free markets, and rather than confront the allure of this idea, liberals have "tried to co-opt the discourse of traditional values." And the results of this are clear: "When right-wing ideas dominate, we get right-wing policies," he notes. It's time to get on the offense about what we stand for and how progressivism not only helps but empowers the average American.

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Robin posits questions to the reader: "First, how do we formulate this argument in an age when capitalism goes unquestioned?... Second, and perhaps more important, can we formulate this argument at all?" ND20 and the Roosevelt Institute will answer him with a resounding yes through the people and ideas that question unbridled markets and empower Americans.

Take some time to read the full article: "Reclaiming the Politics of Freedom".

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What Actually Happens When the Government Shuts Down (And Other Things You Don't Know About the Budget Fight)

Apr 6, 2011Bryce CovertBo Cutter

Bryce Covert sat down with Roosevelt Institute Senior Fellow Bo Cutter, who was Director of the National Economic Council and Deputy Assistant to the President from 1992-1996 during the Clinton Presidency and the last government shutdown. He explains why the current shutdown is small potatoes compared to the looming battle over the debt ceiling and other things you need to know.

Bryce Covert: What are the odds of a total government shutdown?

Bryce Covert sat down with Roosevelt Institute Senior Fellow Bo Cutter, who was Director of the National Economic Council and Deputy Assistant to the President from 1992-1996 during the Clinton Presidency and the last government shutdown. He explains why the current shutdown is small potatoes compared to the looming battle over the debt ceiling and other things you need to know.

Bryce Covert: What are the odds of a total government shutdown?

Bo Cutter: It looks like we'll have one but it isn't clear yet what kind it will be. It may be that we have one that's purely procedural in the following way: The House Republicans have put in a requirement that a piece of legislation be available for public view on the internet for 72 hours. So if they come to a deal say on Wednesday, they can't meet that commitment and they've made an avoidable showdown. And I think they said three working days, so weekends don't count. Let's say they came to a deal on Wednesday afternoon and the resolution has to be voted and in place, signed by the President, by close of business on Friday. They couldn't make it unless they waive that requirement, and they don't want to waive it. So you would in fact be shut down Saturday, Sunday and Monday. But it wouldn't have much effect because there would already be a deal in place. It looks to me like the highest odds are that's what it's going to be. So going down that track, the results wouldn't be particularly substantial.

But there's every possibility that it could be real. There are a whole series of riders attached to the resolution that Democrats and the President have said not only no but hell no, and the tea party has said they won't accept anything that doesn't have them. I don't believe the tea party, so we'll see. As I understand it and as friends at the White House have said to me, all of the discussions to date between the members of Congress have been about the numbers and they've kind of put the riders to the end. If the riders wind up being the sticking point, you could have a real shutdown.

Bryce Covert: If it shuts down over the weekend, what effects will we feel?

Bo Cutter: The obvious public things that aren't matters of life and death, if there's no money to run the government then you have to shut them down. One of the things that governs this is something called the Anti-Deficiency Act that says there are actually personal, criminal penalties to officials who consciously direct that work be done when there's no money to do it. So one of the things we found when I was there during the last shutdown was that in the absence of legal authorization to do work, people in the civil service are very reluctant to expose themselves and the people who work for them to penalties. And it's not that they're trying to avoid work. As I said previously, I think that one of the real strengths of the American system is our civil service. In both my times in government I've had lots of civil servants who worked with me and for me and I thought they were incredibly good. So I'm not saying civil servants are lazy or trying to avoid work, I'm simply saying that they face legal sanctions. Once the hammer goes down and there is officially no money, while it may sound like a funny formality, they can't work. So you begin to see some of the obvious things close down like the Washington Monument, the Air and Space Museum, the Smithsonian. Which, if you have the bad luck to have taking your three kids and your wife to Washington for that weekend, is not going to be a good thing.

Bryce Covert: What else happens in a real shutdown?

Bo Cutter: Let me take it the other way around and say what doesn't happen. There is an agreement, and it's legal, that life and death stuff continues. So the military continues to function, although there are functions of the military and the civilian side of the defense department that have to begin to stop. The veteran's hospitals continue. Walter Reed, that has the wounded from Afghanistan and Iraq and now maybe Libya, continues to function. Social Security checks do get mailed out. A lot of the stuff that is really immediate and involves immediate transfers of critical services like health or income will continue.

Every agency has a plan. Employees are distinguished between those who are critical and essential and those who are not, and there's a process that involves the legal counsel of each agency. The distinction is people who are required to keep the basic infrastructure of government going and people who aren't. The critical people work without pay. If I were running a part of the White House, which I was, and I had people that had officially been deemed critical and essential, I could then ask those people to come to work. Now, they could say no because they're not being paid. It's forced volunteerism. I was in that status. But I wouldn't be subject to legal sanctions for doing it. On the other hand, I would be for those people who aren't deemed critical and essential -- I can't ask them and they can't come. And the reason for that is the lawyers and court cases decided that it could be too easily a subterfuge -- you could tell somebody I know you're not critical but you better damn well volunteer or I'm going to be unhappy when the government's back in force.

Bryce Covert: How is it decided who is critical and who is not?

I remember one of the big fusses, and it is a very awkward problem, is how do you draw the line between who is and who isn't critical. We have about 1,300,000 civilian employees. Let's say 60,000 to 70,000 of them are critical. You have around 1,200,000 people who suddenly aren't working. And the people who aren't considered critical, how is it you explain to them they aren't critical? The State Department had a terrible problem. Let's say it has 160, 170 ambassadors. They're not all critical, and they had to determine which were the 50 or 60 where you absolutely had to keep country operations going and which were the ones that weren't. People had hurt feelings and were angry and friendships were disrupted because there were ambassadors who were told they weren't critical. In a much smaller way I had the exact same problem. Everybody kind of does.

On the civilian side of the government, domestic side, a skeleton force is immediately put in place in the forests and the parks. You can't visit. But maintenance also stops. In the granting operations of the government, whether it's HUD or HHS, their grants all stop. The part of HHS that oversees Social Security checks will continue, but that's all it'll do. There isn't going to be anybody there to answer questions. If you have a question you're not going to get an answer while the government's shut down. Places like the Department of Education basically shut down entirely because it's hard to argue that it's critical in the sense that I mean the word. The Department of Commerce, which has the National Oceanic and Atmospheric Administration, shuts down, so you're not getting the temperature of the ocean monitored. On the other hand, the Coast Guard will stay in operation. Almost all regulation will shut down, so there isn't anybody doing meat inspection during those periods. Ultimately most of the EPA would shut down. I was in the discussions that were occurring in the White House every night with the members of Congress, and every day there are pleas coming in saying, "Well you couldn't possibly mean we have to close down this," and the thing is legally yeah we do mean it. If you're having a trade negotiation, the negotiators have to go home because it's not crucial immediately. Congress shuts down. I don't know what they do but they can't come, and they can't get paid and their staffs can't get paid and they go through the same thing about who's critical and who's not.

If you think of the things I've been talking about, time matters. Yeah you can close down inspection for a day, but do you really want to close down mine safety inspection for a month? No. And you wouldn't, you'd still have a critical infrastructure. But most of the mine inspectors would be told they're not critical, not for this moment.

Bryce Covert: Are shutdowns just political theater?

The shutdowns are real. People think that this is all a subterfuge sometimes. And particularly I always thought that the Republican Congress basically thought none of this was real and therefore they could have it both ways. They could politically posture by saying that by god they were going to shut the government down and they were rough and tough and all of that, but in their hearts they kind of knew nothing would happen. So some of them were the most surprised people of all when actual things actually happened and when their constituents suddenly didn't get services because the government was shut down. It is quite real.

When we were there during the shut down, President Clinton had done a superb job of positioning before the fact, of saying to people, "I'm not going to give in to outrageous requests just because people think that I'm unwilling to go through this. But I will warn you in advance that it has effects and you won't like them. And this is not the way adults should negotiate." So by midway through the shutdown, the polling had shifted to being very, very substantially in the favor of Clinton, and I think the same thing would happen here.

Bryce Covert: What does the average American feel when the government shuts down?

Bo Cutter: First of all, there's the disappearance of all of the things that are really visible like forests and parks. I don't mean the forests disappear, obviously. But people who'd planned trips are the ones who get hit first. The TSA will be there, but that proverbial family that is in Washington really can't go to the Air and Space Museum and they don't believe it. They think this is crazy, why would anybody close down the Air and Space Museum? So they yell and scream, and they're right, they should be mad.

The second thing you notice is a real slowdown in everything. There's no place to call and find out what's happening to a particular grant. If you're Caterpillar and you sell heavy earth moving equipment and you had a contract in competition with others being considered by the Department of Transportation, your contract isn't going to get looked at. So the people whose jobs depended on that work lose their jobs.

So the first effect is on the people who were planning to do something that depended quite directly on the provision of government services.

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Bryce Covert: Will there be job losses?

Yes, the second effect is people beginning to lose their jobs. And that surprises people. It happens in two ways. One is the federal employees. People are very funny about that. The vast majority of federal employees don't work in Washington. They work out in the real world. When people yell and scream about government in Washington, they don't really think that about Joe who lives next door and works for the Department of Transportation's regional office. What Joe is frequently in the business of doing is providing services to his neighbors, providing information about grants and contracts and all of that. They don't really think that Joe's one of those people in Washington that they don't like, Joe's a neighbor who's got a job like everybody else and suddenly he's out of work. Then all the people whose contracts, grants, etc. suddenly can't get done, they feel it. It's a progressive thing that you first feel the direct absence of things, then you see people aren't working, then everything starts to slow down and stop.

Bryce Covert: Given the unemployment crisis, do you think that people losing their jobs from a shutdown will have greater reverberations this time around?

Bo Cutter: A bit. There are a couple of ways of answering the question. One is just numerically. People will be out of work and they will be counted as such, so the unemployment rate will bump up. But it's presumably pretty short. The labor force as a whole is 142 million people, and at 9% unemployment that means that we have 128/129 million Americans working. Having 1 million and a couple hundred thousand not working is less than 1% of that. So you don't see it big in the numbers because by the time you look at its year effect it's less than that. But there is some effect there. I don't think there is a lost GDP effect, therefore a bigger unemployment effect, if the shutdown is relatively short, because then you have a down month and then that just means you have a catch up.

But I do think the politics of the unemployment rate will be sharper because it feels different at 9% unemployment. When we did it, when we had to go through it, the unemployment rate was at around 4.5% so the world was in a different place. Maybe slightly higher, but it was lots less.

Bryce Covert: Which Americans are the biggest losers of a government shutdown?

Bo Cutter: Well obviously the biggest losers are people who actually lose jobs, whether it's short or long, because of it. And probably the biggest losers in terms of actual money at least at the start are all the federal employees who are furloughed. But much more broadly than that, the losers are going to tend to be the American middle class because Social Security checks get continued, so the elderly don't see as much of an immediate problem, the defense operations keep working, so it's really people outside of Washington who in their daily life depend on the government functioning. And that's contracts and grants. A second big area to feel it is probably cities because there's a lot of granting that goes directly and indirectly to cities and that stuff stops.

Bryce Covert: Does the government take a monetary hit because of a shutdown?

Bo Cutter: It does and I don't know what it is. We made an effort to figure it out but you had to make so many assumptions that your range of error was going to be so great that if you said a number you were certainly going to be wrong. The people who would argue you've way overestimated this or the people who said you way underestimated this were all going to beat on you and you wouldn't have a number you could defend. So we didn't do it.

But there are certainly real costs, not just deferred costs. We were trying to look at a couple of different sorts of things. Whenever you start something and then start it again, there is a cost of the wind down and a cost of the start up. If you think of it in terms of a factory, to bring a factory line down to a close and ensure that the equipment will stay in shape and is maintainable so that you can in fact then walk away from it involves costs you wouldn't be incurring if you didn't have to shut it down. So they're lost costs. Exactly the same is in reverse when you have to start something that you shut down. You have to go through all kinds of procedures, both safety and operational, to get to start it up again. Now the world isn't a factory, but the same kinds of things occur. If you tell people to shut down a grant making organization you have to make certain that you can start back up again at some point. You can't just walk away with a memorandum half written in Word and come back three weeks later. You have to close it down. It's hard, as you can see, to figure out what those costs are, but you know they're there. It is a vast loss of efficiency.

And then there's also the effort to figure out the real GDP loss. You know there is one, it's just kind of very hard to figure out how you go about counting it.

Bryce Covert: Are there other differences between the last shutdown and now that you foresee making this one better, worse, or different?

Bo Cutter: It's more the politics of controlling it. When we went through it, Newt Gingrich had come in with the Contract with America. The new Republicans believed, and the evidence was pretty good, that the reason they were elected was that Gingrich had managed to nationalize a whole set of local elections and it was sort of the power of his thinking that created their election opportunity. So they were with him lock stock and barrel and he had real control over his caucus. No one ever has complete control over everything and the control began to ebb, but he had it. Today the circumstances are really different in that Boehner does not have control over the Republican caucus. Large numbers of the tea party members don't have any interest whatsoever in figuring out the rational answer to all of this. So you have a really fundamentally different condition of political management. Clinton was reasonably certain, and at our lower levels in the conversations we were reasonably certain, that if the Republicans committed to do something when we finally began negotiations about how to end it, they could follow through on whatever it was they committed to. It's not clear here.

If it happens, this phenomenon could extend the shutdown. The problem is that when you get into a shutdown, like everything else you better have thought through your way out of something difficult before you kind of jump into something difficult. They rarely do. Once you're in a shutdown all kinds of motivations come into play. There is the "by god we're not going to lose to President Obama, whom we don't like anyway, so we're going to stick" thinking. On the other hand, the members who weren't terribly enthusiastic to begin with are beginning to hear from their constituents, and that happens pretty fast. There were a lot of frank conversations when I was part of it last time and Republican members were saying, you know the people back home don't really like this. And the members who weren't enthusiastic about doing it to begin with and are also being whacked by their own voters get madder and madder. So the internal dynamics of the Republican side get more and more complicated. Meanwhile, if as I suspect the polls begin to swing in President Obama's direction, his position is even harder because he doesn't want to have presided over a loss, he doesn't control the votes of the diehard tea party members, but he's got to get himself out of an untenable situation or he could easily lose the House again. So he's feeling (this is all surmise) that he's got big problems.

And all of this is occurring in real time. It's not as if it's occurring in a calm, deliberate atmosphere. It's all occurring with people shouting at each other. Exactly how you begin to move to the end game is much harder for the Congress than it is for the executive. We could meet around a table and we had a boss, the President. So our messaging was better, and Obama's messaging is and will be better than Congress', and when you have the cacophony that occurs during the shutdown it's even more so. We could think through what's the nature of the negotiations we want to have, what do we think will happen, we could role play. They can't because they have 200 plus people around the table. It's much more helter skelter for the Congress.

Bryce Covert: What's the longer term outcome of all of this?

Bo Cutter: I think for a political situation to get to the point where you shut the government down is a failure of governance and it's absolutely wrong as an outcome. I also think somewhat paradoxically that from the politics of it, shutdown would help Obama enormously. Obama does not have anything to fear from this. They have a competent White House. I think they will manage this well and will manage it with a single message. The polling already says that the public thinks the Congress looks like squabbling children. The President looks pretty good and I don't think he has any reason to give in very much. So if I were the President and I had to have one, I'd want one.

I also think that from the point of view of the management of the next fights, both the country and President Obama will be better off if there's one now. This is small potatoes. But we are about to see the debt limit debate. And there are people on the Republican side who actually believe that risking a default isn't a bad thing. I think it's an awful thing. I think it's really, really reckless. And I don't have any confidence that the Republican tea party members are going to come to that realization soon enough and they could play a real game of chicken. That's different than the shutdown stuff. The shutdown occurs gradually and it would have to last quite a while before the results really, really hit.

If you are running a deficit, and we're running a 1.6 trillion dollar deficit, and you refuse to extend the debt limit today, tomorrow you can't issue any more debt and you can't even roll over your debt. The next morning at 9:01, if you're running a deficit, in theory and in fact the deficit increases somewhat in that first minute. So you can't do anything. In that case you can't send out the Social Security checks. Since you are instantly above the debt limit and you have no money if it isn't extended, everything else about a shutdown comes into place. Instantly all of those workers can't be paid because it's against the law to pay them. They have to go home. So it's a shutdown raised to the nth degree. Now there are a couple of things a Secretary of Treasury can do that give you a little room, but it's like a week. I remember when Robert Rubin was Secretary of the Treasury, I knew him very well and I had worked for him and he and I talked about it, he said I've had all the experts, I've had everybody in on debt management, I've had all the lawyers in and we've looked at it every way around, there is some legal room but there isn't very much.

If your debt limit is 1.6 trillion, people think, okay, well as long as that's occurring it's kind of beyond that in some way. But anything above zero you've broken the debt limit if they won't raise it. It hits you broadly and it hits you fast. The other thing is the Treasury is involved in debt management all the time that is in concept unrelated to an increasing deficit. You may not like the term structure of the debt, you may want to make it a little longer or a little shorter. In the bowels of the Treasury there are constant operations that are occurring by financial technicians who aren't trying to do anything with the deficit. But you can't separate that from the deficit, so you can't do those things either. In terms of the operation of the debt it begins to hit you right away.

Bryce Covert: What does it mean to the markets?

It has big money market consequences. If people begin to think that the governance of this country is so irresponsible and reckless that we would actually risk the credit standing of the country, they're going to have a little less faith in our money. Let's say it's just trivial, it's only 10-15 basis points, you multiply 10-15 basis points all across government debt and you've paid one hell of a lot of money for a symbolic act.

That's coming up right down the road pretty soon. My theory is that it's always better if you think a hit's going to come to take it early rather than late. My own view is that the President will win a shutdown hands over, the Republican tea party will look awful, and they aren't going to have the appetite to really be reckless. But on the other hand if we don't, and this is one of the reasons I think we should have one, their view is going to be that they didn't get all they wanted but by their tactics they forced something out of the administration. So why not try again? And the next time you try is the debt limit.

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Let the Government Shut Down

Apr 5, 2011Bo Cutter

Eking out a compromise to avoid a government shutdown will only play into Tea Party hands.

My negotiating instincts say that President Obama ought to want the House Republicans to shut down the Federal Government. Why? Six points.

Eking out a compromise to avoid a government shutdown will only play into Tea Party hands.

My negotiating instincts say that President Obama ought to want the House Republicans to shut down the Federal Government. Why? Six points.

First, the wrong negotiating strategy is to see the endgame as a compromise that avoids a shutdown. This is how Congress sees it; this is how Congress always sees these kinds of issues. The long run is next Friday. But the real end game for President Obama is (1) to succeed in managing a series of events well, of which a shut-down is only one; (2) to demonstrate to the American people his sense of prudence and pragmatism, contrasted to the House Republican crazies (you want them to be the Republican Party's poster children for the 2012 elections); (3) to avoid a real catastrophe -- which would be to come anywhere close to a default during the coming debate over the debt ceiling; and (4) to put forward a convincing overall economic plan, contrasted again against the Republican plan that consists of muscle flexing over a shutdown.

Second, despite what a number of "prudent" commentators have said, a shutdown now would not have any substantial effect on international perceptions and is, paradoxically, the prudent course in the midst of all the craziness. Policy does not always, or even often, move in a straight line.

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Third, the President has, for once, some wind at his back. Recent polls are saying that by a substantial margin Americans will blame the House Republicans for a shutdown. And the recent jobs report suggests the economy has more strength than expected. The President has the upper hand now.

Fourth, if a compromise is reached the Tea Party will think they won that battle. There would be no good reason not to push the limit again in a debt ceiling fight. That fight involves very real dangers; the administration would be forced to err on the cautious side and House Republicans simply do not know enough about the issue to understand how recklessly they are behaving. The way to win the debt ceiling battle is to beat the Republican Congress like a rug in the current fight. The time to win the debt ceiling battle is right now.

Fifth, during a shutdown an administration can speak every day with one coherent message. The House and Senate Republicans will instantaneously fracture into a couple hundred voices. Your average member of Congress really does not want to explain to her constituents why the Washington Monument and the Space Museum are closed during their vacation.

Sixth, one nanosecond after winning a shutdown battle the President can put forward a full economic and budget plan. He will be saying, in effect, "Now that we have ended these childish games, let's work together to accomplish real things."

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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Will the Florida GOP Dishonor the Greatest Generation?

Apr 4, 2011Harvey J. Kaye

harveys-fatherTo truly honor our World War II heroes, we also have to honor their progressivism that made this a freer and more equal country. **Photo is Harvey's father, Murray N. Kaye (1923-1990), from his days in the US Army during WWII.

harveys-fatherTo truly honor our World War II heroes, we also have to honor their progressivism that made this a freer and more equal country. **Photo is Harvey's father, Murray N. Kaye (1923-1990), from his days in the US Army during WWII. He was drafted out of college, trained as an engineer with the ASTP at Washington State, and then served with the 11th Armored Division in the Battle of the Bulge where he was wounded, for which he was awarded a Purple Heart.

This past Saturday, April 2, Florida Republicans launched a six-months-long, seven-city "Greatest Generation Tour" in Pensacola's Veterans Memorial Park. Declaring their intention to recognize and honor the patriotic sacrifices and achievements of those who served the country in World War II -- and noting that more than 1,000 of those veterans are passing away each day -- state GOP spokesperson Don Salter stated that "we need to show our appreciation before it's too late."

Nice words -- spoken, I am sure, with the utmost sincerity. And yet I seriously doubt that the Sunshine State Republicans will -- or even can -- properly recognize and honor the achievements of those whom we have come to call the "Greatest Generation." It's not simply that previous celebrations and commemorations have repeatedly failed to fully appreciate what those then-young Americans actually accomplished. It's also that Republican conservatives -- no, let's face it, reactionaries -- essentially have placed the memory and legacy of those who confronted the horrors of the Great Depression and the Second World War under siege.

Over and over again, Americans, both right and left, have failed to properly acknowledge how much the men and women of the 1930s and 1940s actually accomplished. Against historical expectations, in the face of powerful opposition, and despite their own terrible faults and failings, those Americans not only rescued the nation from economic destruction, defended it against political tyranny, and turned it into the strongest and most prosperous country on earth, but at the very same time made it freer, more equal, and more democratic than ever before. Arguably the most progressive generation in U.S. history, they not only rejected the easy temptations of authoritarianism and isolationism and responded with courage and determination to Franklin Roosevelt's democratic New Deal and vision of the Four Freedoms. They also subjected big business to public account and regulation, empowered the federal government to address the needs of working people, organized labor unions, fought for their rights, reconstituted the "We" in "We the People," established a social security system, expanded the nation's public infrastructure, improved the environment, and -- having imbued themselves with fresh democratic convictions, hopes, and aspirations -- went on to fight and defeat Nazi Germany, Fascist Italy, and Imperial Japan.

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I feel confident that the Florida GOP's Greatest Generation Tour will both warmly register our shared admiration and affection for our parents', grandparents', and great-grandparents' wartime labors and sacrifices and clearly highlight their faith, courage, and determination. However, if past events of this sort are anything to go by, I do not imagine it will recount our elders' achievements in regulating capital, creating Social Security, securing the right to bargain collectively, and pursuing the vast array of New Deal public works projects that transformed the American landscape and public good for the better. I doubt that it will recount the energies, efforts, and enactments of relief, recovery, reconstruction, and reform that not only rebuilt America and enabled the country to turn itself into the "Arsenal of Democracy" and then destroy its enemies on two fronts, but also enabled millions of veterans, boosted by the grand public initiative known as the G.I. Bill, to get educated, housed, and ready to work and thereby turn themselves into the great American middle class.

Of course, it must be granted that the majority of 1930s Republicans despised both the New Deal and working people's struggles to extend and deepen American freedom, equality, and democracy. Indeed, all but writing the script for today's political and economic right, they charged that FDR's New Deal was leading the country to either fascism or communism and that President Roosevelt himself was intent upon establishing a dictatorship. So, having opposed the Greatest Generation's Depression-era labors back then, why should we expect them to make much of those things now?

But in that case, why do today's conservative Republicans feel empowered to make so much of the Greatest Generation's wartime struggles when their political ancestors opposed not only the initiatives of the New Deal but also, right up until we were attacked at Pearl Harbor, the prospect of the United States standing forcefully against Hitler, Mussolini, and Japan's ruling military clique? Committed to isolationism and eager not to antagonize the Axis powers, most GOP congressmen voted against FDR's defense requests to revise America's neutrality laws, expand the American military, institute a military draft, and create a "Lend-Lease" program for Britain and its allies to sustain their resistance to fascism. They voted against it even as Nazi Germany and Imperial Japan were overrunning Europe and East Asia, respectively, and showing every likelihood of coming after us next.

Lest I be misread, let me make myself absolutely clear. I heartily endorse the Florida GOP's efforts to honor the Greatest Generation. However, I urge them not to slight those same men and women by failing to appreciate all that they actually achieved for this country, for themselves, and for us. And having said that, I urge Republicans from Florida to Alaska to stop dishonoring the memory and legacy of the Greatest Generation with their assaults on Social Security, the rights of working people, and the public good.

Harvey J. Kaye is the 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. Follow him on Twitter: www.twitter.com/HarveyJKaye

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April Foolishness: Rick Santorum Has Idea on Abortions & Social Security

Apr 1, 2011Lynn Parramore

rick-santorumRick Santorum. Just when you thought you'd heard it all, he serves up a dollop of idiocy so rich as to stun the senses.

rick-santorumRick Santorum. Just when you thought you'd heard it all, he serves up a dollop of idiocy so rich as to stun the senses.

This time, he comes up with a 'fix' for Social Security. The program, of course, is not broken; the Trustees Report shows that the program is projected to pay out 100% of benefits until 2037 even under less-than-rosy-economic conditions. And even then, it would be able to pay most of what it owes with nary a tweak. The 'Social- Security-is-going-broke' canard is just that. A way to fool us so that bankers can get their greedy paws on all that yummy retirement money.

But I digress.

Santorum's idea --brace yourself -- is that if women stopped having abortions, there would be more people to pay for benefits for the elderly. A direct quote:

"The reason Social Security is in big trouble is we don't have enough workers to support the retirees. Well, a third of all the young people in America are not in America today because of abortion, because one in three pregnancies end in abortion."

Wrap your mind around that second thought, and take a moment to savor the sublime lunacy of the mind that could generate it. The answer to poverty among the elderly is to push millions of women into poverty by forcing them to give birth. Jonathan Swift could not have come up with better satire.

Only that ain't satire. That's the voice of a former senator and potential presidential candidate. That, Reader, is conservative America.

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

**Follow Lynn Parramore on Twitter at http://www.twitter.com/lynnparramore

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Andrew Cuomo Tramples His Father’s Vision for America

Mar 31, 2011Richard Kirsch

New York Governor Cuomo leaves economic equality out of his agenda.

I just left the New York State capitol, where demonstrators were streaming into the building to protest Andrew Cuomo's state budget. The budget gives tax breaks to millionaires in a state loaded with them while making devastating cuts to education in the poorest school districts. The demonstrators plan to spend the night at the capitol, inspired by the example of protesters against Republican Governor Scott Walker. Did someone really say that Andrew was not only a Democrat, but Mario Cuomo's son?

New York Governor Cuomo leaves economic equality out of his agenda.

I just left the New York State capitol, where demonstrators were streaming into the building to protest Andrew Cuomo's state budget. The budget gives tax breaks to millionaires in a state loaded with them while making devastating cuts to education in the poorest school districts. The demonstrators plan to spend the night at the capitol, inspired by the example of protesters against Republican Governor Scott Walker. Did someone really say that Andrew was not only a Democrat, but Mario Cuomo's son?

In 1984, Mario Cuomo thrilled Democrats across the nation with a visionary speech that denounced President Reagan's portrait of America as a "shining city on a hill." Mario Cuomo told Reagan, "Mr. President you ought to know that this nation is more a ‘Tale of Two Cities' than it is just a ‘Shining City on a Hill.'"

What more appropriate description could there be of New York, which boasts the biggest gap between the rich and poor of any state in the nation, than a tale of two cities.

Mario Cuomo went on to use words that could be a direct indictment of his son's budget. He said Reagan's philosophy was to "Make the rich richer, and what falls from the table will be enough for the middle class and those who are trying desperately to work their way into the middle class." Instead, he urged the President to listen to Americans like "a woman who had been denied the help she needed to feed her children because you said you needed the money for a tax break for a millionaire."

Mario Cuomo laid out the task for Democrats in the 1984 election: "We must convince them that we don't have to settle for two cities, that we can have one city, indivisible, shining for all of its people." And he asserted, "We speak for young people demanding an education and a future."

While New York faces a budget crisis -- and budget cuts are inevitable -- Andrew Cuomo has chosen to emulate Reagan rather than his father. As the New York Times wrote in a March 20th editorial, "Just extending the surcharge on New York's highest earners through 2012 would add an estimated $1.2 billion in revenue to the upcoming budget and $4 billion the following fiscal year. Without that surcharge and other targeted tax increases, Mr. Cuomo's proposed cuts in education and other vital services will inevitably be deeper and more painful than necessary, harming both individuals and the foundation for the state's future economic growth."

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The choice is most stark when it comes to education. As the Times pointed out, "For instance, Mr. Cuomo wants to withhold a $1.2 billion payment due to poor school districts under a 2006 court order. If the Legislature agrees, it will be the second year in a row that the ordered payment is not made. And it will further widen an already unconscionably wide gap between rich and poor school districts."

The editors at the Times highlighted the injustice of that gap in another editorial a few days later, in which they compared two school districts, echoing Mario Cuomo's portrait of two cities. In wealthy Syosset, which offers almost 30 Advanced Placement courses to children who graduate to Ivy League schools, Cuomo proposed to cut $212 per student. In upstate Ilion, which has one AP class and where one-third of the students qualify for the school lunch program, Cuomo's budget cut $688 per student.

The buzz around Albany is that this is all about Andrew Cuomo's insatiable desire to be president based on a strategy of being a fiscal conservative and a social liberal. At the same time that Cuomo has insisted on giving tax breaks to the rich, he's begun pressing the State Legislature to legalize gay marriage. His father's moving address was based on unifying people, saying, "Remember that, unlike any other Party, we embrace men and women of every color, every creed, every orientation, every economic class." His son seems to have put his finger in his ears after "orientation." But then, the wealthy Democratic donors who are spending millions of dollars to push Cuomo's budget plan don't hear that well either.

One courageous New York Senator is rejecting the calculus that civil rights will trump economic rights. Manhattan Senator Thomas Duane, an openly gay champion of marriage equality, will vote against the budget. But where are the rest of New York's Democrats, who control the State Assembly and make up a 48% of the State Senate? Only seven Democratic Assemblymembers had the guts to buck the Democratic Governor and vote against the budget bill that will lower tax rates for the rich. A handful of Democratic Senators will join them. The rest are captive of Albany's craven "let's make a deal" politics that seems to strip state legislators of the courage to do what is right.

In 1984, Mario Cuomo told the nation that:

The difference between Democrats and Republicans has always been measured in courage and confidence. The Republicans -- The Republicans believe that the wagon train will not make it to the frontier unless some of the old, some of the young, some of the weak are left behind by the side of the trail. "The strong" -- "The strong," they tell us, "will inherit the land." We Democrats believe in something else. We democrats believe that we can make it all the way with the whole family intact, and we have more than once.

Mario Cuomo seems to have lost one of his own family members along the way.

Richard Kirsch is a Senior Fellow at the Roosevelt Institute and is writing a book on the progressive campaign to enact health reform.

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How We've Budgeted Ourselves Out of Investing in Our Country

Mar 30, 2011Bo Cutter

The way things are going, we'll have scraps -- if anything -- to spend on vital government functions.

While the Republican right carries on its budget antics in the House and the left denies there is any problem, we are allowing the most important part of the public sector to deteriorate into irrelevancy.

The way things are going, we'll have scraps -- if anything -- to spend on vital government functions.

While the Republican right carries on its budget antics in the House and the left denies there is any problem, we are allowing the most important part of the public sector to deteriorate into irrelevancy.

Let's start with some numbers, boring as that is. The Federal Government will spend $3.77 trillion in fiscal year 2011; 87% of that total -- $3.27 trillion -- will be spent on defense, the entitlements (Social Security, Medicare, Medicaid, mostly), and interest. That other 13%? The entire rest of the government? $500 billion.

Now jump forward 10 years. The President projects we will spend $5.9 trillion, or $2.2 trillion more. All of the growth will be spent on defense, entitlements, and interest. The entire rest of the government stays constant at $500 billion (no growth for 10 years) and falls to 9% of the total. This is the best overall number I can get for total public sector investment (both hard and soft). Actual infrastructure is a much smaller piece of that.

Almost everything you ever heard of involving the government is in this 13% -- going to 9% -- figure. Green technology, SEC regulation, job training, the Parks Service, the forest service, infrastructure, tsunami warnings, environmental protection, head start, the National Cancer Institute, the State Department, disaster assistance -- just to name a few at random -- are all declining or going away.

Do you think we should invest in a smart grid, or a public jobs program, or infrastructure, or public health, or healthier forests? Well, we're not going to. And my spending numbers are on the high side. The House Republicans will take my numbers down a lot.

One other set of numbers: of this $500 billion, about $190 billion is personnel costs. Over the next 10 years, these costs will grow to $230 billion. (I am assuming no increase in the number of federal employees and a 2% annual increase in pay and benefits.)

So what? This means that the total of all of our non-personnel investments is now $310 billion, or 8% of the total federal budget, and will fall to $270 billion, or 5% of the total budget. (For the record, I have no intention of dismissing the contributions of Federal employees. To the contrary, one of the great strengths of America is the quality of our public service.) G.E. employees in the 1980s called CEO Jack Welch "Neutron Jack" because when he finished fixing a company, the buildings were all there but the people were gone. This is the reverse. The people are all here, but the buildings are gone.

So what? Four questions and then four answers: What do these numbers mean? What are their consequences? Why are we in this corner? How do we get out of it?

1. These numbers mean that we will invest virtually nothing in our economy through the public sector. If you think -- as I do -- that these "rest of the government" expenditures include valuable public sector investments in our economy, then we will invest an average of slightly more than 2% annually -- and steadily falling -- for the next ten years. Just on the face of it, this is crazy. No well-run company in the world could go 10 years investing as trivial an amount as 2% annually. (And that leaves out the terminally boring issue of depreciation: if you think that is real -- I do -- then we are systematically reducing our stock of public capital every year.)

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2. This underinvestment probably means a lower economic growth rate, a poorer, less competitive nation, and higher unemployment. I have always thought that Ben Friedman's book "The Moral Consequences of Economic Growth" should be a central part of the true progressive canon, but unless we are lucky beyond all rational expectations, you don't get growth without investment. And I believe that sustained higher growth in our private sector is in part dependent upon higher public sector investment. But we are planning the opposite. We are planning for lower investment, lower growth of productivity, and a poorer nation. We have maneuvered ourselves into a very tough corner: our public debt and deficit levels are way too high and simultaneously our public investment levels are way too low.

3. We are in this corner because our political system is frozen into a sterile and seemingly permanent quarrel between America's left and right, which long ago departed from reality. I won't waste my energy on the right. It is owned today by a group of nihilists who actively want to wreck the public sector. (For a full description of the new doctrine, read Senator Marco Rubio's piece in the Wall Street Journal, "Why I won't vote to raise the debt limit.") But the left is almost as bad -- less mean, mostly less vicious, less irresponsible but just as empty. The left lacks a coherent economic growth strategy, it is in denial about our debt and deficit levels, and it has no overall perspective on what the role and shape of our public sector ought to be. For both the right and the left, economic and budget policy are derivative. It's what is left after you do whatever is central to your agenda. By definition, this means there is no political energy remaining to do anything hard.

4. We will only get out of this corner when an administration -- it has to be the Obama administration, we can't wait -- puts forward an economic strategy that simultaneously brings our public debt issues under control and commits the federal government to a long-term program of public investment. Doing this requires both new tax revenues and reductions in the growth of entitlements and defense. I would do roughly the following:

(a) Commit to holding public debt -- over the long-run -- to a maximum of 70% of GDP. (I would live with a higher level in the next few years -- we still have a 9% unemployment rate.) This is less onerous than the Simpson-Bowles Commission, but tougher than the administration's current track.

(b) Propose new public investment for the next 10 years of 1% to 2% of GDP annually. This makes the necessary budget policy even harder.

(c) Create a new structure for this new investment so it doesn't turn into pure pork (call it a combination of national foundation and infrastructure bank); track the expenditures and report on them annually.

(d) introduce a 2% to 4% net VAT (value added tax) to pay for the investments, maybe even tied to these investments.

Will we actually do anything remotely like this? The only honest answer is of course not. Congress won't. The two ends of our political system do not inhabit the same universe and regard compromise and bargaining as evil. And there is no center -- although in further demonstration of the triumph of hope over experience, I would love to see the gang of six in the Senate, who are working with Alice Rivlin, come up with something. The only real hope is that President Obama plays the impending government shutdown rope-a-dope perfectly, wins the battle of public opinion, and then, at precisely the right moment, gives the big economic speech I suspect he already has written.

And if not, then as the joke's punch line says, "I'm gonna go find my brother Chester, cause he ain't never seen a train wreck."

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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