Nobody Understands Debt

Source: Paul Krugman

In 2011, as in 2010, America was in a technical recovery but continued to suffer from disastrously high unemployment. And through most of 2011, as in 2010, almost all the conversation in Washington was about something else: the allegedly urgent issue of reducing the budget deficit.

This misplaced focus said a lot about our political culture, in particular about how disconnected Congress is from the suffering of ordinary Americans. But it also revealed something else: when people in D.C. talk about deficits and debt, by and large they have no idea what they’re talking about — and the people who talk the most understand the least.

Perhaps most obviously, the economic “experts” on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits. People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring. Any day now!

And while they’ve been waiting, those rates have dropped to historical lows. You might think that this would make politicians question their choice of experts — that is, you might think that if you didn’t know anything about our postmodern, fact-free politics.

But Washington isn’t just confused about the short run; it’s also confused about the long run. For while debt can be a problem, the way our politicians and pundits think about debt is all wrong, and exaggerates the problem’s size.

Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.

This is, however, a really bad analogy in at least two ways.

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.

Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.

But isn’t this time different? Not as much as you think.

It’s true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that’s already deep in hock to the Chinese, you’ve been misinformed. Nor are we heading rapidly in that direction.

Now, the fact that federal debt isn’t at all like a mortgage on America’s future doesn’t mean that the debt is harmless. Taxes must be levied to pay the interest, and you don’t have to be a right-wing ideologue to concede that taxes impose some cost on the economy, if nothing else by causing a diversion of resources away from productive activities into tax avoidance and evasion. But these costs are a lot less dramatic than the analogy with an overindebted family might suggest.

And that’s why nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today’s conventional wisdom would lead you to believe. Britain, in particular, has had debt exceeding 100 percent of G.D.P. for 81 of the last 170 years. When Keynes was writing about the need to spend your way out of a depression, Britain was deeper in debt than any advanced nation today, with the exception of Japan.

Of course, America, with its rabidly antitax conservative movement, may not have a government that is responsible in this sense. But in that case the fault lies not in our debt, but in ourselves.

So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.

The U.S. Supreme Koch

Constitutional Amendment Not Needed: Congress Already Has a Remedy

Although the Constitution already includes a remedy, certain elected officials and public interest organizations are advocating for a constitutional amendment to overturn recent Supreme Court decisions that have corrupted elections, public officials and government. They are using Vermont town meetings as a springboard for the campaign. Critics of the constitutional amendment approach point out that an amendment would not solve the problem, legitimizes the Supreme Court seizure of power over elections, would keep the Supreme Court in charge and diverts from a solution already in the Constitution that more effectively solves the problem with far less effort. The simpler alternative that is already available in the Constitution deserves attention.

Supreme Court decisions legalizing private interest financing of election campaigns have enabled a vast increase in private interest control over our federal government. The 1 percent contribute hundreds of millions of dollars in election campaigns to empower themselves and disempower the 99 percent. To keep that money flowing to themselves, elected officials waste enormous sums of taxpayer's money on government contracts, subsidies, bailouts, wars and tax cuts for the rich. The 1 percent thus receive enormous returns on their political investments. By contrast, the government uses the resulting deficits to justify cuts in needed spending on education, health care, environment, safety and infrastructure that would benefit the 99 percent who do not buy elections and influence.

Here is why a constitutional amendment is not needed to end this disenfranchisement of the 99 percent. The revolutionary leaders who wrote the Constitution, fresh from overthrowing the tyranny of King George, included sufficient checks and balances on all three branches of government - including the courts - to prevent the kind of tyranny we now suffer.

Under our existing Constitution, Congress already has the power to stop the court from making any more of the decisions that have allowed the 1 percent to buy elections. Then Congress can pass legislation reversing the unconstitutional decisions the court has made to corrupt elections.

Here is the provision the founding fathers included:

The Supreme Court shall have appellate Jurisdiction, both as to Law and Fact with such Exceptions and under such Regulations as the Congress shall make (US Constitution, Article III, Section 2).

Hence, under the Constitution, Congress has the power to remove Court jurisdiction over financing election campaigns. Removing Court jurisdiction means that the court would not even be able to take up cases involving financing of elections. Congress and state legislatures will then be free to pass laws removing private money from election campaigns. Thus, Congress already has power to curtail the court and the tyranny of private money in elections facilitated by the 5-4 majority of Supreme Court judges whose goal is to empower the 1 percent at the expense of the rest of us.

Read the whole story at Truth-Out

On health reform, the election will matter more than SCOTUS

Think the Supreme Court is where the future of President Barack Obama’s health care law will be settled? Think again.

The real verdict on the future of Obama’s signature achievement will come in November — and the law’s supporters say a Republican sweep could pose a bigger threat to the law than the nine justices ever could.

Read more: Politico

George Carlin - Why You Are In Debt

Inequality: Growth in real after-tax income

Source: Paul Krugman:

Andy Rosenthal gets a bit of a laugh out of Mitt Romney’s insistence that the only reason anyone would talk about inequality is the “politics of envy”, and that if the subject is discussed at all, it should only be in “quiet rooms”.

Indeed. Because there’s no way anyone who isn’t motivated by envy could be interested in and possibly concerned about this:

Trickle-down economics has now become shut-your-trap economics.

ALEC: America’s secret political power

SCOTTSDALE, ARIZ.—There’s something rotten in the air. A muggy, oniony, chemical smell that wafts over the lines of uniformed riot police, paddy wagons and metal barriers that are holding back a straggle of protesters waving slapdash placards reading “Shut Down ALEC.”

“Get back ma’am, for your own safety,” a courteous voice warns me. “They’re gonna start pepper spraying.”

Pepper spray?

It’s a surreal touch at the lush, sprawling Westin Kierland Resort, where the air is scented with fragrant flowering bushes and the aromatic lotions of the spa.

But the protesters are at the gate, and inside, hundreds of state legislators from all over the U.S., their wives and entourages are meeting with corporate leaders for a three-day annual policy summit. Or, to their banner-bearing foes, a cradle of “corporate profiteering at the expense of our communities.”

“Today only,” blazons a sign hoisted by a silver-haired protester, “Buy One Senator Get One Free!”

Read the whole story at: TheStar.com