Paul Krugman: Europe has Made a Terrible Mistake and Republicans are Completely Mad

Jun 22, 2012

In the latest Next American Economy breakfast series, Roosevelt Institute Senior Fellow Bo Cutter interviews Paul Krugman, Nobel-prize winning economist and New York Times o

In the latest Next American Economy breakfast series, Roosevelt Institute Senior Fellow Bo Cutter interviews Paul Krugman, Nobel-prize winning economist and New York Times op-ed columnist. Krugman discusses how and why the “two great centers of world economic activity, of democracy, and of everything else are both in deep trouble.” He says, "Europe made the terrible mistake of having a single currency without a single government, and the United States has one of its two major political parties that has gone completely mad.”Watch Krugman explain these two major structural problems causing global economic crisis:   

Interview : Paul Krugman from Roosevelt Institute on Vimeo.

According to Krugman, we are in a “classic depression” for the first time in 80 years, and it is high time for increased government spending to help our economy while our private sector builds itself back up. But “instead, because of the way our politics have worked, we’ve actually had unprecedented fiscal austerity.” He argues that this dangerous paralysis is “exactly what 80 years of economic analysis tells us we should not be doing.” Krugman sighs at the continual Republican assertion that we can’t spend because of our deficit and we instead need to focus on long-run fiscal responsibility. Meanwhile, 8.2 percent of Americans are unemployed, and as Keynes said, “in the long run we are all dead.”

At the same time, Europe is sliding further and further into economic catastrophe. “It’s unthinkable that anybody should leave the Euro, and yet it’s becoming increasingly unthinkable that policymakers will take the steps needed to prevent that from happening.” Europe is basically demanding that Spain slash wages as well as spending, “which is a recipe for depression.”

European will to properly solve this problem is just not there, since “Europe is a currency but not a country.” In contrast, he discusses the fiscal bailouts of Florida and Texas that worked because in America, “we are a nation.” As Cutter notes, “it would be good if we stayed so.”

For more, watch Krugman’s full presentation:

Paul Krugman :: Lecture from Roosevelt Institute on Vimeo.

 

Broken Euro image via Shutterstock.com.

 

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Reagan Redux: The Truth About Romney Economics

Jun 15, 2012Jeff Madrick

The oversimplification of Romney’s economic plan avoids calling it out for what it really is: an extension of failed Republican economic policies.

In the home of Sarah Jessica Parker and Matthew Broderick this week, The New York Times reported that President Obama described Romney’s campaign attacks, which claim all current problems are “the fault of the guy in the White House,” as “an elegant message. It happens to be wrong.”

The oversimplification of Romney’s economic plan avoids calling it out for what it really is: an extension of failed Republican economic policies.

In the home of Sarah Jessica Parker and Matthew Broderick this week, The New York Times reported that President Obama described Romney’s campaign attacks, which claim all current problems are “the fault of the guy in the White House,” as “an elegant message. It happens to be wrong.”

This is as clear an example as we have of Obama’s inability to make a powerful message in a few words. Sounding professorial, he uses the word “elegant” as if referring to a mathematical proof. Clean and simple, I suppose. But to many a listener and reader, elegant only has positive connotations. Why this loftiness when plain, honest, focused language will do the job?

The fact is that almost all of our current situation is a result of economic policies that were put into effect before Obama took office. Not only is Romney’s message not elegant, but his economic plan will boldly extend these failed policies. His central message is simplistic, ignorant, and, to use a lofty word, ahistorical. In actuality, the plan has been underway since the 1980s and even before, and look where it’s gotten us. It serves the interests of the wealthy very well, but has it served America at all? It’s not the collapse of the welfare state, but the ravages of a rising oligarchy, that are undoing America.

Which brings me to another New York Times piece, today’s David Brooks column. Brooks’s methodology as a “thinker” is to develop arguments that he knows will sound plausible to his readers and maybe to a significant swatch of centrists. He is good at these over-simplifications. Today’s column is as unaware or deliberately neglectful of history as ever. What Democrats don’t understand is that the system is broken, he says. Republicans understand this and want to return us to some early (if mythological) economic state. The welfare state is on the cusp of failing; he quotes a Weekly Standard piece on this idea that he thinks definitive. This welfare model, he goes on, “favors security over risk, comfort over effort, stability over innovation.”

This is breathtaking nonsense. The so-called welfare state—whose main features are benefits to the elderly, by the way—favors opportunity for those who have no access to it,  substantial government investment in education and research, which are the great sources of innovation, adequate transportation to enable business to operate efficiently, and fewer and more moderate recessions so that the nation does not lose investment, human capital, and many good businesses due to short-term fluctuations.

And, oh, yes, the welfare state does promote some compassion for the less fortunate—those thrown out of work through no fault of their own—and a sense that all of us owe something to each other. And, yes, it does require government.

What’s truly mind-numbing about the Brooks view, which clearly represents a Republican body of what is considered highly sensible thought, is that all the Romney proposals have been on the ascendancy since Ronald Reagan, and some of them before. These include lower progressive tax rates (Reagan and Bush); deregulation and weak regulatory implementation (Reagan, Bush I and II, Carter, and most important for financial regulations, Clinton); reduced social spending on many categories, notably welfare (Reagan and Clinton); few new programs even as social needs change; and inordinately tight monetary policy since Paul Volcker’s chairmanship at the Federal Reserve, to keep inflation and therefore wages in check. And what happened? Stagnating wages, modest capital investment, unequal public education, and collapsing infrastructure. These are the results of Romney economics.       

If there is theory at all in the Brooks view, it is of course the spurious generalization that individualism will win the day. Just make everyone take care of him or herself. Republicans love this notion. The other idea is that if business is just allowed to do its job, free of most regulation and taxes, everyone will do just fine.  The historical evidence clearly points to the opposite. Look at the levels of inequality in the good old regulation-free and low-tax days of post-Civil War America. Do you we need a better example?

Returning to Obama—he better fight this battle head on, not in professorial dignities, but on the sweaty mat where victory is won. He better understand that the Brooks's over-simplifications are appealing because they blame victims and relieve the rest of responsibility. Call these things what they are, Mr. President. Make America the responsible society once again. The Romney policies failed not just since George W. Bush, but since Ronald Reagan and even Jimmy Carter. 

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

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What Lies Behind Clinton's Remarks on Private Equity

Jun 7, 2012Jeff Madrick

Bill Clinton's remarks about Romney's record and the Bush tax cuts demonstrate his fealty to the financial sector.

Bill Clinton's remarks about Romney's record and the Bush tax cuts demonstrate his fealty to the financial sector.

We can attribute Bill Clinton making trouble for President Obama to his unquenchable need for the limelight. He first praised Mitt Romney’s business record and private equity practices in general. He then said the Bush tax cuts should be extended, without indicating that he agreed with Obama that the tax increases on the wealthy should be retained.

Clinton’s concern about raising taxes in the weak economy while cutting federal spending is right on. America is now practicing austerity, if a milder version than Europe’s. If not reversed, we could well have a recession again in 2013. And then what happens to the still-strained financial sector?

But Clinton’s remarks are disturbing for what they suggest about his tolerance for the financial class, for lack of a better term. Was it an accident that he left out any mention of raising taxes on the wealthy? The financial class dominates that group, if we include business execs who make a great deal of money from their stock options.

The real giveaway about Clinton is how he supports the financial industry’s assertions about the good done by private equity. We’ve addressed some of that in this space before. Clinton says flat-out that they do a good job. Does he have any evidence to demonstrate that? Has he looked at the evidence that undermines those assertions? Does he really think private equity was all about saving companies rather than exploiting the ability to borrow against their assets, cut them down, and then sell the company? Was it all about making America more productive and innovative? Come on.

This is of course the Bill Clinton who wholeheartedly gave us financial deregulation—no regulation of derivatives, no restraints on bank expansion as Glass-Steagall was undone, little concern by his SEC about over-speculation and analytical lying in investment firms, allowing CEOs to get enormous stock options, and so on.

He has apparently bought the assertion that the financial engineering of the past 20 years was mostly good. Of course, Wall Street is where the campaign money is.

In his most recent book, Clinton argued for stronger government, a welcome call. But he was the one who gave us less government.

Next week, we will post a thorough piece by economist Eileen Appelbaum on the good and bad of privatization. In the meantime, keep in mind that the heyday of privatizations, then known as Leveraged Buyouts, was the 1980s, when productivity growth for America remained historically slow. It did not rise again until the mid-1990s, with the advent of the Internet. The large, large share of productivity gains was in high technology and companies like Wal-Mart, not in the buyouts of companies by Bain and others.

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

 

Bill Clinton image via Shutterstock.

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Millennials' Lack of Faith in Government is Leading to a Grayer Congress

Jun 7, 2012Brad Bosserman

To get more young people on Capitol Hill we have to prove that government can play a positive role in American life.

To get more young people on Capitol Hill we have to prove that government can play a positive role in American life.

A recent survey conducted by Harvard University revealed that while 69 percent of 18-29 year olds believed community service was an honorable thing to do, only 35 percent felt that way about running for office. This has real ramifications for the make-up of our legislatures. A recent article in Salon explained that Congress is getting older not because incumbent members are sticking around longer, but because the age of incoming members is rising.

It is worth considering the impact of having telecommunications and Internet policy drafted by politicians who are still “learning to get online” and leaving foreign policy decisions to people whose views were shaped and developed during the Cold War. Stephen Marche made the case earlier this year that these trends have also led to “thirty years of economic and social policy that has been rigged to serve the comfort and largesse of the old at the expense of the young.” So where are the Millennials who should be beating down the doors to the Capitol?

Some have suggested that the absence of young people in elected office is all about economics. Older Americans have gone from out-earning their younger counterparts by 10 times in the mid-'80s to nearly 50 times in 2008. This migration of wealth from young to old has occurred alongside a dramatic growth in the cost of running a successful campaign, with political spending in House and Senate races increasing eight-fold between 1970 and 2000.

This alone does not seem to explain the systemic aging of our legislatures, however. The technology booms of the '90s and aughts also produced a record number of young millionaires and billionaires. Yet they have chosen to stay out of elected office in far greater numbers than wealthy members of previous generations. Why?

I have a theory. The Millennial generation has come of age in an America influenced by a conservative ideology that changed our views about the role of public and private civil society. Heather McGhee, the Washington Director of Demos, has observed, “[T]he most pernicious effect of the Reagan revolution was to take the horizon of public policy solutions off the table entirely. We know that there are problems, but we no longer imagine that there are public policy solutions to them.” This is a profoundly different vision of American government than that which animated the New Deal and Great Society.

The modern Republican Party’s commitment to shrinking the size and scope of the public sector has led them to shake our confidence in key government institutions. The GOP has been able to convince the public that the government is corrupt and ineffective, in part by making the government corrupt and ineffective. This campaign has disproportionately affected the generation of young people who have been forging their views about politics over the last 15 years. Gallup reports that cynicism and negativity toward the government has been building for over a decade, recently culminating in “record or near-record criticism of Congress, elected officials, government handling of domestic problems, the scope of government power, and government waste of tax dollars.”

This phenomenon parallels another recent trend: the rise of the independent voter. Research has long shown that despite the conventional wisdom, self-identified independents actually behave much more like weak partisans than they do like hyper-informed mavericks. The ranks of these “independents” have grown dramatically over the last 20 years, and much of that growth has been concentrated among young Americans. In 2009, Gallup found “more than one-third of the youngest Americans identify as independents, a percentage that drops steadily as the population ages, reaching a low of around 20% among those 80 years of age and older.”

This is not entirely bad news. Even as they have lost faith in our political parties, young Americans have flocked to other forms of civic engagement. The Corporation for National and Community Service reports that volunteer rates for 16- to 24-year-olds has nearly doubled over the last 20 years. In many ways, volunteerism has become second nature to the Millennial generation, taking the place of more traditional political involvement.

But the challenge remains for those who want to see young Americans in Congress. To reverse these trends, we must actively promote the belief that public policy and institutions of government have a powerful and positive role to play in American life. The graying of the House and Senate shows that allowing conservatives to demean public service, institutionalize gridlock, and breed public cynicism will drive away the young and idealistic. This vacuum hands power over to increasingly older politicians with entrenched views and distinct generational interests that do not represent the largest generation in American history.

Bradley Bosserman is a member of the Roosevelt Institute | Pipeline and a Policy Analyst and Director of the MENA Initiative at NDN and the New Policy Institute. 

 

Congress image via Shutterstock.

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Mike Konczal on “Fireside Chats”: Tough Times make Liberal Reform Tougher

Jun 5, 2012Danielle Bella Ellison

In the latest episode of “Fireside Chats,” Roosevelt Institute Fellow Mike Konczal talks with David Frum, Daily Beast writer and author of the new novel Patriots. In the clip below, they take on why Democrats have had trouble gathering support for stimulus programs during the current recession. “We’ve gone from Speaker Pelosi and the new Obama presidency and the idea of this wave of progressive energy to really trying to fight between the center and the center right,” Konczal notes.

In the latest episode of “Fireside Chats,” Roosevelt Institute Fellow Mike Konczal talks with David Frum, Daily Beast writer and author of the new novel Patriots. In the clip below, they take on why Democrats have had trouble gathering support for stimulus programs during the current recession. “We’ve gone from Speaker Pelosi and the new Obama presidency and the idea of this wave of progressive energy to really trying to fight between the center and the center right,” Konczal notes.

As Konczal explains, “The real New Deal that we think of – the core economic security and managing the business cycle and so on – occurred in ’35,” when the economy was expanding. Meanwhile, “the conservative agenda to roll back the Great Society and the New Deal” unfortunately becomes more feasible in tough economic times like ours. The public becomes more risk averse and prefers austerity policies to big and potentially risky spending programs. Major liberal reforms, however necessary and beneficial they may be, are just very hard to pass during bad economic times.

The current grim economic condition, as well as the increase in media culture and accelerating ethnic change, have caused a transformation of American politics. Watch the full conversation below in which Konczal and Frum discuss this transition, what a Romney budget would look like, and the future of Obamacare.

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Defending Krugman: The Importance of Keynesian Economics

May 25, 2012Jeff Madrick

Keynes was right: increased government spending in the U.S. is necessary to decrease unemployment and raise demand in the near-term.

Paul Krugman hardly needs defending, but his views about the need for Keynesian stimulus in the U.S. right now are coming under considerable fire from centrist and left-of-center economists. I find this disturbing because Krugman’s view abides by basic Keynesian principles that seem to have been discarded by many who profess themselves Keynesians. Is there a wide misunderstanding of Keynes?

Keynes was right: increased government spending in the U.S. is necessary to decrease unemployment and raise demand in the near-term.

Paul Krugman hardly needs defending, but his views about the need for Keynesian stimulus in the U.S. right now are coming under considerable fire from centrist and left-of-center economists. I find this disturbing because Krugman’s view abides by basic Keynesian principles that seem to have been discarded by many who profess themselves Keynesians. Is there a wide misunderstanding of Keynes?

What seems to upset people is that Krugman argues the government must spend more money now, almost regardless of what it spends it on. The Keynesian thesis is that economies can settle at a high level of unemployment rather than re-adjust to the optimum unemployment level—or level of economic activity—on their own. This was a response to the classical, pre-Depression view that the beauty of free markets was a self-adjustment process based on falling prices in downturns. But ultimately the problem is a lack of demand, and Keynes advocated budget deficits to support an increase in demand.

The lack of demand in the economy now is palpable. Krugman’s contention is that in the near-term, we can solve this problem if we have the will to do so. The economy can reduce its rate of unemployment fairly rapidly with adequate Keynesian stimulus. It is clear that monetary stimulus at this point is not enough.

This view is not incompatible with longer-term concerns about the economy -- inadequate education for too many, infrastructure decay, old energy technologies, and so on. Many seem to criticize Krugman for not acknowledging “structural” changes in the economy, and they implicitly agree with classical conservative observers that the unemployment rate really can’t fall much below 7 percent. I can’t speak for Krugman, but he seems to be saying that we should not mix up longer-term structural issues with near-term demand inadequacy. It’s very likely the unemployment rate can fall much farther without igniting inflation.

I can’t see how he is wrong about this; indeed, he is urgently right about it. We are facing a year or two when the federal government will likely contract spending and will certainly not increase stimulus markedly. Of even greater concern is the refusal in Europe to recognize that austerity—the opposite of Keynesian advice right now—will lead to further recession, which in turn could spill over to the U.S., jeopardizing Obama’s candidacy.

When so many commentators criticize Krugman’s view, insisting that any new spending must be investment in infrastructure, must not go to the military, or that there should be no new spending at all, they are ignoring the Keynesian process. Krugman will not advocate against military spending cuts (and I certainly wouldn't myself). But priorities are important here. Let’s keep them clear.

In sum, let’s understand that more aggregate demand now will reduce the unemployment rate. There is a near-term solution, not to America’s long-term issues, but to an economy that is sputtering and may lead to a political environment in which those who plan to do more damage win office.  

One of the true advances in contemporary thinking is that both a power and a duty of government is to use fiscal and monetary policy to ameliorate downturns and create economic expansions. This is the legacy of Keynes, well supported by empirical research.  

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

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The Case Against Tax Breaks for Private Equity

May 23, 2012Jeff Madrick

Private equity disproportionately rewards privatization companies while others are burdened with the risks. 

Private equity disproportionately rewards privatization companies while others are burdened with the risks. 

I wanted to wait a few days before commenting on Newark Mayor Cory Booker’s spontaneous criticism of Barack Obama for picking on Mitt Romney's experience at Bain Capital. Booker doesn’t know much of anything about private equity, but many financial services donors have his ear. He took in nearly half a million dollars in campaign donations from the industry over the last nine months, and he frankly sounded like its mouthpiece.

Booker backtracked, but it would be nice if he knew something about the private equity business before he spoke publicly about it. This expectation of knowledge should also apply to widely read columnists like David Brooks, who, as usual, reflexively defended the Wall Street practice without presenting evidence. He issued a piece of public relations diatribe that no doubt soothed the right but contributed nothing to our understanding. The contention is that these buyouts turned fat American companies into lean and productive ones since the 1970s. Other pundits less well known for their conservative reflex responses have also given partial defense of private equity.

So let’s begin with one point: there is a place for private equity. In a privatization or leveraged buyout, a company is bought by an investment partnership with moneys borrowed against the company itself. The new money can be used productively even when levels of debt against the company’s assets and profits soar. A smaller company that cannot raise adequate equity can raise money by being bought by a private equity partnership. A company that is doing poorly can benefit from added capital and new management. Sometimes trimming labor costs in the process makes sense, of course. 

But the record of leveraged buyouts and private equity reflects its excesses, and most importantly, the lopsided nature of the financial incentives for doing the deals in the first place. Companies like Romney’s Bain or Steve Schwartz’s Blackstone or Kohlberg Kravis Roberts, the early industry leader when privatizations were called leverage buyouts (LBO), take advantage of a major government-provided benefit. The interest on debt is tax-deductible, and high levels of debt are the source of profits in these transactions. It is just like buying a house with a small down payment; if you can sell as the value goes up, the return on the down payment is high and the interest was deductible all along. In the meantime, the house is collateral for the loan. Similarly, partners are rarely if ever on the line for the debt; the company being privatized is. The one difference is that if the collateral value of the house falls, as it has recently, the homeowner is on the line. This is usually not so with privatizers.  

Great deal? You bet. The owners of the privatizing firm put up very little capital; it is their limited partners who put up more.  Then they borrow like mad from banks, pension funds, hedge funds and so on. If the new company can be sold or brought to market again at a higher price, they make a bundle compared to their equity down payment. The CEOs of the company, or the new executives brought in, are given huge amounts of stock. They too make a bundle. Are these incentives conducive to good business decisions?

Most likely, the investment decision is based not on how much the company can be improved, but how much can be borrowed against its assets. The second concern is the interest rate on the debt. There is no evidence that privatizers mostly buy struggling companies to resuscitate them.

Moreover, companies with high levels of debt are subject to great risk of bankruptcy. Macy’s did one of the first leveraged buyouts of its size, the CEO made out wonderfully, and soon Macy’s was in bankruptcy. It reorganized and reemerged successfully due to its retailing skills, but these were not enhanced by the LBO partners.  

Data shows the newly bought firms create fewer new jobs—or result in more lost jobs—than firms that are not subject to private takeover. But what about the much-lauded productivity gains? On balance, these target firms mostly increase productivity by selling or closing low-productivity units. Arguably, they also make their employees work harder. The fear of lay-offs can enhance productivity. There is no evidence that these firms improve productivity mostly by investing in new technologies, new managerial methods, and so on, which is often their claim.

And of course what productivity gains they have had (overall they are small) did not reinvigorate the American economy. The two main sources of productivity gains in the U.S. were high-tech companies and the retailing behemoths led by WalMart. Many retailing targets of privatizations eventually went bankrupt.

The best recent paper on private equity was written by Eileen Appelbaum of the Center for Economic and Policy Research and Rosemary Batt of Cornell University. The David Brookses of the world will cry that these researchers are of a liberal bent. But read the paper to see how carefully it is done. The exegeses of much of the right in defense of private equity are essentially outright propaganda.   

However, the basic point comes back to government and regulation. A major tax advantage gives rise to these buyouts. The privatization partnerships are lightly regulated. After-fee returns to the limited partners seem to be below average. But as for their benefits to society, privatization rewards investors by cutting short-term costs. For a long time, the stock market pushed up the stock prices of companies that kept short-term earnings growing. The influence of such corporate governance has been to keep downward pressure on wages and stoke fear in employees for three decades.

Let’s be clear; some private equity investments were healthy and some of these partnerships do a good job. But all in all, it is clear most are simply exploitations of tax law, market fashions, and their power to borrow money. There is no reason America should reward these investors with a tax break on their huge loans.   

Privatizers didn’t rebuild America. They were rarely the people who planted the garden, watered it, or designed it.  They were by and large the ones who weeded it, sometimes recklessly, throwing out the gorgeous roses in the process. Gardens do need to be weeded, but should those who do the weeding, often heedlessly, make so much more money than those who do the planting? And with the added help of government tax breaks?

In the end, Romney’s Bain made money even though its takeover target, American Pad & Paper, went out of business. Consult Appelbaum and Batt on how some of these strategies work, involving mortgaging real estate holdings and transfer pricing to reduce taxes. Privatization was mostly, if not entirely, about working the system, not building capitalism.  On balance, evidence suggests it hurt more than helped. Any way you read the evidence, it is clear the rewards for private equity firms clearly exceeded the risks. That’s not good for free markets.  

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

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Growing a Better Farm Bill From the Roots Up

May 17, 2012Rajiv Narayan

A project that will fight the power of special interests and craft a truly democratic Farm Bill.

Dear Majority Leader Reid and Minority Leader McConnell,

A project that will fight the power of special interests and craft a truly democratic Farm Bill.

Dear Majority Leader Reid and Minority Leader McConnell,

Nearly half the Senate delivered a letter to you both on Tuesday urging you to bring the Agriculture Reform, Food and Jobs Act of 2012 to floor consideration "as soon as possible." Better known as the Farm Bill, and what really ought to be known as the Food Bill, this legislation is projected to cost a half trillion dollars over five years. With the current iteration of the bill set to expire in September, this letter heralds itself as a model for action, a "bipartisan way to craft meaningful, yet fiscally responsible, policy."

But the bipartisan way is no substitute for the democratic way.

While this letter says the Senate can consider the bill in a "fair and open manner," it is unclear that anything about this process has been so. A handful of legislators have sent members of their staff to constituent listening sessions, and many of these sessions are currently underway. But because the Senate Agriculture Committee has already released its version of the bill, the best the public can hope for (should their opinions be heeded at these sessions) is tinkering with a nearly finished product.

Furthermore, public comment is generally only sought from particular groups. While the letter points out that the bill impacts more than just farmers and farming communities, it still devotes most of its attention to the legislation's impact on agricultural jobs. Less than a third of the bill's budget directly impacts this sector. The lion's share of the funding (about 70 percent) is allocated in precisely the place where the larger public would have the most to say: nutrition.

This is not to say that farmers and what the letter calls "other stakeholders" are at odds. Limited listening sessions and strategic framing that targets one group over others are tactics to reduce overall discussion and debate, tactics of expediency rather than good governance. There's great benefit in having all the parties at the table so that they can learn from each other.

Students at the Roosevelt Institute | Campus Network are trying to craft this bill the right way. We're on a mission to build a Food Bill from the ground up instead of through closed-door sessions that only invite a select few. We'll be talking to students and young people across the country, asking them to share their values and priorities in an initial survey, and inviting them to participate in work groups with professionals and policy experts to draft a better plan for spending hundreds of billions of dollars over five years. Through this process we'll be searching for students from all regional, socioeconomic, professional, and educational backgrounds. Once we have their responses, our workgroups will outline a series of recommendations ready for discussion. Then we'll take it to farmers, policy experts, and budget analysts. Because our political leadership has not come to us, we're going to create our own seat at the table and bring youth policy priorities to them.

A legislative package so large that it will impact the food process from sowed seed to second serving deserves better than both sides of the aisle.

Sincerely,

Rajiv Narayan 

 

Rajiv Narayan is the Senior Fellow for Health Care Policy at the Roosevelt Institute | Campus Network and a graduating senior at the University of California, Davis.

Image courtesy of Shutterstock.com.

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Vitters and Shelby Blocking of Federal Reserve Nominees and Previous Conservative Candidates

May 10, 2012Mike Konczal

Chris Hayes, guest-hosting for Rachel Maddow, had a great segment on the hold Senator David Vitters placed on President Obama's Federal Reserve nominees where he talks with economist Betsey Stevenson.

Chris Hayes, guest-hosting for Rachel Maddow, had a great segment on the hold Senator David Vitters placed on President Obama's Federal Reserve nominees where he talks with economist Betsey Stevenson.  The nominees, Jay Powell and Jeremy Stein, were nominated as a bi-partisan move after Peter Diamond was blocked by the Senate (records have Powell donating to the Romney and Hunstman campaigns in 2011).






Vitters' reasoning? "I refuse to provide Chairman Bernanke with two more rubber stamps who approve of the Fed's activist policies."  This is consistent with Richard Shelby, who blocked Nobel Prize award winning economist Peter Diamond for the Federal Reserve because of “Dr. Diamond’s policy preferences…He supports QE2…He supported bailing out big banks during the financial crisis.”  Republican Senators are giving themselves a de facto seat on the FOMC, and they are casting multiple votes against further monetary easing, without being held accountable for their logic or the subsequent results.

Here's an important point on how far to the right conservatives have moved on monetary policy.  The natural way reporters cover this is to note that the back-and-forth blocking of Federal Reserve nominees have been escalating for several years, especially since Democrats blocked Republican-nominee Randy Kroszner.  Indeed Shelby notes in his letter that "For those who say that policy preference should not be considered, I will only point out that the re-nomination of Dr. Randy Kroszner to the Fed was blocked by the majority party because he was viewed as being too free market."  Democrats blocked conservative, free-market Randy Kroszner's nomination to the Federal Reserve, and so the Republicans are going to block those who support QE2.

But here's the funny part (and I'm cannablizing one of my posts, which lays out the case in more detail): Randy Kroszner supported QE2.  He urges people to seriously consider QE3.  To give you a sense of how off-center the Republican Party has gone in terms of the economy, if Kroszner was to show up as a nominee from President Obama for the Federal Reserve tomorrow the conservatives in the Senate would block him because of his policy preferences.

Here's Kroszner, in January 2011, saying: ”I think [QE2] was the right policy when they put it forward. I think the right policy now, and I think the data has been very much supportive of what the Fed’s been doing...It depends on where we are four or five months from now. If the unemployment rate has not ticked down at all, if we haven’t seen a little bit more job creation, then of course the Fed will have to see if it needs to do more support [with QE3].”  That now appears to be sufficient to get blocked by the conservatives in the Senate.

Even better, Kroszner spent March 2011 arguing not only that inflation wasn't spinning out of control but the real threat was Japanese-style deflation.  Bloomberg TV, March 2011: “It’s hard to see a lot of inflation pressures right now. If you look at the recent numbers that came out on inflation just earlier this week, the core rate, stripping out food and energy, is less than 1%. That’s dangerously close to Japan-style deflation problems. An even the headline rate, which includes food and energy is less than 2%. So we aren’t seeing enormous inflation pressures right now…inflation is well-anchored."  The real threat is not inflation but Japan-style deflation...it's like you are reading a Krugman column.

(For fun, here's Kroszner saying that even glancing at the evidence shows that the Community Reinvestment Act didn't cause subprime lending: "the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis.”  Given how important that the "CRA -> Crisis" argument is to think-tank based conservative intellectuals, Kroszner is practically a socialist in the political landscape.)

There is no neutral in monetary policy.  If Republicans in the Senate think that the Federal Reserve is doing too much, then they think the Federal Reserve can't accomplish anything, or that unemployment is too low or they think that unemployment should not come down because it would get in the way of other political projects - from passing the Ryan plan to taking the Senate as a result of a weak economy.  Some people on the right are explicit about the third - “The more we offer accommodative monetary policy, the less incentive they have to pull their socks up and do what’s right for the American people,” was the argument Richard Fisher used for dissenting.  I wish more would just come out and say that.

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Social Security: It’s for Young People, Too

May 9, 2012Elisa Walker

Social Security is not just for the elderly, it's an important investment for everyone. 

I’m a young American; I value Social Security; and this week in particular, I’m feeling reassured that Social Security is on solid footing and will be there for me when I need it. In fact, I see it as a great investment. 

Social Security is not just for the elderly, it's an important investment for everyone. 

I’m a young American; I value Social Security; and this week in particular, I’m feeling reassured that Social Security is on solid footing and will be there for me when I need it. In fact, I see it as a great investment. 

To some, these statements might seem unrealistic, especially given all the negative media coverage that followed the release of the 2012 Social Security Trustees Report last week. But despite the doomsday responses, the reality is actually reassuring–especially for today’s young people, who are used to hearing misleading accounts to the contrary.

Social Security is fully financed until 2033–in other words, its ongoing income plus accumulated savings can cover all of the benefits due until then. And over the next 75 years (through 2086, the end of the trustees’ estimates), it’s 85% solvent, or able to pay 85% of its obligations without any changes. That’s a pretty solid base to build on.

There’s much to celebrate: 

  • Social Security is one of the most successful government programs in history. Since 1935, it has collected $15.5 trillion and spent $12.8 trillion, leaving a balance of $2.7 trillion in its reserves.
  • The reserves will continue to grow to about $3.1 trillion by 2020. If Congress acts by then, there may be no need to spend them down.
  • Social Security has responded to the recession and the slow recovery by performing exactly as it was designed to do. In fact, Social Security is an unsung hero of the recession: by pumping out benefits on time and in full, it has helped keep the national economy–not to mention the personal finances of the 56 million people who receive benefits–in better shape. The Center for Rural Strategies has documented that Social Security benefits provide a crucial chunk of total personal income at the local level, especially in rural counties. This makes a real difference to the small businesses and local economies in America’s towns and cities.

Everyone knows that Social Security is critical to today’s seniors, but in fact it’s critical to all generations. It’s the largest federal benefit program for children, with nearly 7 million children receiving part of their family income from Social Security, mostly after the death or disability of a working parent. And if it weren’t for Social Security, how many more of the elderly would have to move in with their adult children? How many disabled workers or surviving widows would face even greater difficulties feeding their families?

Although it may come as a surprise to many of today’s young workers, Social Security is critical for us too. Besides supporting our parents when they retire, it will provide an essential foundation for our own retirement, as far down the road as that seems. Of course we all hope to do well, but think: today, to buy insurance paying a lifelong annuity (a fixed annual amount) at age 65 that would match the average Social Security retirement benefit ($1,230), plus partially keep up with inflation and continue to pay a widowed spouse, you’d have to pay about $430,000 up front in a lump sum. That’s an inconceivable amount for most people. Plus, other sources of retirement income, like pensions, savings, and housing values, are increasingly uncertain–so there’s a good chance that by the time today’s young adults are ready to retire, reliance on Social Security will be even greater than it is today.

For young workers and their families, Social Security also provides critical life and disability insurance. Consider a sample young family: a 30-year-old worker earning around $30,000 a year, with a spouse and two young children. For that family, Social Security disability and life insurance protection are each valued at close to $475,000. And it’s an unfortunate fact that a 20-year-old worker has a 3 in 10 chance of becoming disabled before reaching full retirement age. Again, Social Security is there, especially for those life-changing tragedies we can’t plan for.

That’s the crux of why Social Security is a worthy investment for young people, and indeed for everyone. It’s insurance, on a national scale: you pay in over your working career, in exchange for monthly income if you face work-ending retirement, disability, or death. Plus, it has everything you’d want from an ideal pension plan, including the fact that it pays benefits as long as you live, and those benefits keep up with inflation.

So let’s not let today’s young people, or workers of any age, be misled about this vital program. The truth is that we can be confident in Social Security’s future. Social Security is sound, facing only a fixable long-term revenue shortfall, not insolvency. And it will be there in the future for our generation, and for the generations that follow us. In the words of one blogger, “Social Security has had its ups and downs, but it’s in better financial shape now than it was a generation ago, and unless its enemies prevail, it will be there for you when you need it.”

Politicians who want to cut Social Security benefits always stress that current seniors should be held harmless, unaffected by any cuts. (They’re not dumb; they know seniors vote.) Instead, they talk about cutting benefits “out in the future.” While that may sound innocuous, it’s not. Young people, take note: it’s our benefits (not their own) that they propose to cut.

Instead of talking about benefit cuts, how about benefit improvements? Minor changes to Social Security–such as lifting the cap on taxable earnings, or gradually increasing the contribution rate–could more than cover the program’s long-term shortfall, with money left over to improve benefits (PDF). Now that’s the kind of future that we as young people should be investing in.

Elisa Walker is an Income Security Policy Associate at the National Academy of Social Insurance, where she has co-authored several briefs and fact sheets on Social Security policy.

This piece was originally posted in the National Academy of Social Insurance blog, on May 3, 2012.

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