Another Economic Disconnect: PAUL KRUGMAN - Profit Gusher

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Another Economic Disconnect

By PAUL KRUGMAN

Published: April 30, 2007

In the Bush years high profits haven’t led to high investment, and rising productivity hasn’t led to rising wages.

Last fall Edward Lazear, the Bush administration’s top economist, explained that what’s good for corporations is good for America. “Profits,” he declared, “provide the incentive for physical capital investment, and physical capital growth contributes to productivity growth. Thus profits are important not only for investors but also for the workers who benefit from the growth in productivity.”

In other words, ask not for whom the closing bell tolls; it tolls for thee.

Unfortunately, these days none of what Mr. Lazear said seems to be true. In the Bush years high profits haven’t led to high investment, and rising productivity hasn’t led to rising wages.

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Gilded Once More: PAUL KRUGMAN

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Gilded Once More

By PAUL KRUGMAN

Published: April 27, 2007

We’ve gone back to levels of inequality not seen since the 1920s.

One of the distinctive features of the modern American right has been nostalgia for the late 19th century, with its minimal taxation, absence of regulation and reliance on faith-based charity rather than government social programs. Conservatives from Milton Friedman to Grover Norquist have portrayed the Gilded Age as a golden age, dismissing talk of the era’s injustice and cruelty as a left-wing myth.

Well, in at least one respect, everything old is new again. Income inequality — which began rising at the same time that modern conservatism began gaining political power — is now fully back to Gilded Age levels.

Consider a head-to-head comparison. We know what John D. Rockefeller, the richest man in Gilded Age America, made in 1894, because in 1895 he had to pay income taxes. (The next year, the Supreme Court declared the income tax unconstitutional.) His return declared an income of $1.25 million, almost 7,000 times the average per capita income in the United States at the time.

But that makes him a mere piker by modern standards. Last year, according to Institutional Investor’s Alpha magazine, James Simons, a hedge fund manager, took home $1.7 billion, more than 38,000 times the average income. Two other hedge fund managers also made more than $1 billion, and the top 25 combined made $14 billion.

How much is $14 billion? It’s more than it would cost to provide health care for a year to eight million children — the number of children in America who, unlike children in any other advanced country, don’t have health insurance.

The hedge fund billionaires are simply extreme examples of a much bigger phenomenon: every available measure of income concentration shows that we’ve gone back to levels of inequality not seen since the 1920s.

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A Hostage Situation: PAUL KRUGMAN - Iraq Funding

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A Hostage Situation

By PAUL KRUGMAN

Published: April 23, 2007

In response to a confrontation over financing for the Iraq surge, President Bush is threatening dire consequences for innocent bystanders.

There are two ways to describe the confrontation between Congress and the Bush administration over funding for the Iraq surge. You can pretend that it’s a normal political dispute. Or you can see it for what it really is: a hostage situation, in which a beleaguered President Bush, barricaded in the White House, is threatening dire consequences for innocent bystanders — the troops — if his demands aren’t met.

If this were a normal political dispute, Democrats in Congress would clearly hold the upper hand: by a huge margin, Americans say they want a timetable for withdrawal, and by a large margin they also say they trust Congress, not Mr. Bush, to do a better job handling the situation in Iraq.

But this isn’t a normal political dispute. Mr. Bush isn’t really trying to win the argument on the merits. He’s just betting that the people outside the barricade care more than he does about the fate of those innocent bystanders.

What’s at stake right now is the latest Iraq “supplemental.” Since the beginning, the administration has refused to put funding for the war in its regular budgets. Instead, it keeps saying, in effect: “Whoops! Whaddya know, we’re running out of money. Give us another $87 billion.”

At one level, this is like the behavior of an irresponsible adolescent who repeatedly runs through his allowance, each time calling his parents to tell them he’s broke and needs extra cash.

...

...Mr. Bush’s refusal to face up to the failure of his Iraq adventure, his apparent determination to spend the rest of his term in denial, has become a clear and present danger to national security.

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Way Off Base: PAUL KRUGMAN

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Way Off Base

By PAUL KRUGMAN

Published: April 16, 2007

On key issues, reluctant Democratic politicians are being dragged by their base into taking highly popular positions.

Normally, politicians face a difficult tradeoff between taking positions that satisfy their party’s base and appealing to the broader public. You can see that happening right now to the Republicans: to have a chance of winning the party’s nomination, Republican presidential hopefuls have to take far-right positions on Iraq and social issues that will cost them a lot of votes in the general election.

But a funny thing has happened on the Democratic side: the party’s base seems to be more in touch with the mood of the country than many of the party’s leaders. And the result is peculiar: on key issues, reluctant Democratic politicians are being dragged by their base into taking highly popular positions.

Iraq is the most dramatic example. Strange as it may seem, Democratic strategists were initially reluctant to make Iraq a central issue in the midterm election. Even after their stunning victory, which demonstrated that the G.O.P.’s smear-and-fear tactics have stopped working, they were afraid that any attempt to rein in the Bush administration’s expansion of the war would be successfully portrayed as a betrayal of the troops and/or a treasonous undermining of the commander in chief.

Beltway insiders, who still don’t seem to realize how overwhelmingly the public has turned against President Bush, fed that fear. For example, as Democrats began, nervously, to confront the administration over Iraq war funding, David Broder declared that Mr. Bush was “poised for a political comeback.”

It took an angry base to push the Democrats into taking a tough line in the midterm election. And it took further prodding from that base — which was infuriated when Barack Obama seemed to say that he would support a funding bill without a timeline — to push them into confronting Mr. Bush over war funding. (Mr. Obama says that he didn’t mean to suggest that the president be given “carte blanche.”)

But the public hates this war, no longer has any trust in Mr. Bush’s leadership and doesn’t believe anything the administration says. Iraq was a big factor in the Democrats’ midterm victory. And far from being a risky political move, the confrontation over funding has overwhelming popular support: according to a new CBS News poll, only 29 percent of voters believe Congress should allow war funding without a time limit, while 67 percent either want to cut off funding or impose a time limit.

***

The only risk the party now faces is excessive caution on the part of its politicians. Or, to coin a phrase, the only thing Democrats have to fear is fear itself.

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Sweet Little Lies: PAUL KRUGMAN

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Sweet Little Lies

By PAUL KRUGMAN

Published: April 9, 2007

Before 9/11, the right-wing noise machine mainly relied on little lies. And now it has returned to its roots.

Four years into a war fought to eliminate a nonexistent threat, we all have renewed appreciation for the power of the Big Lie: people tend to believe false official claims about big issues, because they can’t picture their leaders being dishonest about such things.

But there’s another political lesson I don’t think has sunk in: the power of the Little Lie — the small accusation invented out of thin air, followed by another, and another, and another. Little Lies aren’t meant to have staying power. Instead, they create a sort of background hum, a sense that the person facing all these accusations must have done something wrong.

For a long time, basically from 9/11 until the last remnants of President Bush’s credibility drowned in New Orleans, the Bush administration was able to go big on its deceptions. Most people found it inconceivable that an American president would, for example, assert without evidence that Saddam and Al Qaeda were allies. Mr. Bush won the 2004 election because a quorum of voters still couldn’t believe he would grossly mislead them on matters of national security.

Before 9/11, however, the right-wing noise machine mainly relied on little lies. And now it has returned to its roots.

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Distract and Disenfranchise: PAUL KRUGMAN - Power Abuses

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Distract and Disenfranchise

By PAUL KRUGMAN

Published: April 2, 2007

I have a theory about the Bush administration abuses of power that are now, finally, coming to light. Ultimately, I believe, they were driven by rising income inequality.

Let me explain.

In 1980, when Ronald Reagan won the White House, conservative ideas appealed to many, even most, Americans. At the time, we were truly a middle-class nation. To white voters, at least, the vast inequalities and social injustices of the past, which were what originally gave liberalism its appeal, seemed like ancient history. It was easy, in that nation, to convince many voters that Big Government was their enemy, that they were being taxed to provide social programs for other people.

Since then, however, we have once again become a deeply unequal society. Median income has risen only 17 percent since 1980, while the income of the richest 0.1 percent of the population has quadrupled. The gap between the rich and the middle class is as wide now as it was in the 1920s, when the political coalition that would eventually become the New Deal was taking shape.

And voters realize that society has changed. They may not pore over income distribution tables, but they do know that today’s rich are building themselves mansions bigger than those of the robber barons. They may not read labor statistics, but they know that wages aren’t going anywhere: according to the Pew Research Center, 59 percent of workers believe that it’s harder to earn a decent living today than it was 20 or 30 years ago.

You know that perceptions of rising inequality have become a political issue when even President Bush admits, as he did in January, that “some of our citizens worry about the fact that our dynamic economy is leaving working people behind.”

But today’s Republicans can’t respond in any meaningful way to rising inequality, because their activists won’t let them. You could see the dilemma just this past Friday and Saturday, when almost all the G.O.P. presidential hopefuls traveled to Palm Beach to make obeisance to the Club for Growth, a supply-side pressure group dedicated to tax cuts and privatization.

The Republican Party’s adherence to an outdated ideology leaves it with big problems. It can’t offer domestic policies that respond to the public’s real needs. So how can it win elections?

***

The good news is that all the G.O.P.’s abuses of power weren’t enough to win the 2006 elections. And 2008 may be even harder for the Republicans, because the Democrats — who spent most of the Clinton years trying to reassure rich people and corporations that they weren’t really populists — seem to be realizing that times have changed.

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Overblown Personnel Matters: PAUL KRUGMAN - The Purge

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Overblown Personnel Matters

By PAUL KRUGMAN

Published: March 12, 2007

It is surprising how fast the truth is emerging about what Alberto Gonzales, the attorney general, dismissed just five days ago as an “overblown personnel matter.”

Nobody is surprised to learn that the Justice Department was lying when it claimed that recently fired federal prosecutors were dismissed for poor performance. Nor is anyone surprised to learn that White House political operatives were pulling the strings.

What is surprising is how fast the truth is emerging about what Alberto Gonzales, the attorney general, dismissed just five days ago as an “overblown personnel matter.”

Sources told Newsweek that the list of prosecutors to be fired was drawn up by Mr. Gonzales’s chief of staff, “with input from the White House.” And Allen Weh, the chairman of the New Mexico Republican Party, told McClatchy News that he twice sought Karl Rove’s help — the first time via a liaison, the second time in person — in getting David Iglesias, the state’s U.S. attorney, fired for failing to indict Democrats. “He’s gone,” he claims Mr. Rove said.

After that story hit the wires, Mr. Weh claimed that his conversation with Mr. Rove took place after the decision to fire Mr. Iglesias had already been taken. Even if that’s true, Mr. Rove should have told Mr. Weh that political interference in matters of justice is out of bounds; Mr. Weh’s account of what he said sounds instead like the swaggering of a two-bit thug.

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Department of Injustice: PAUL KRUGMAN

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Department of Injustice

By PAUL KRUGMAN

Published: March 9, 2007

The politicization of the Justice Department was a key component of the Bush administration’s attempt to create a permanent Republican lock on power.

For those of us living in the Garden State, the growing scandal over the firing of federal prosecutors immediately brought to mind the subpoenas that Chris Christie, the former Bush “Pioneer” who is now the U.S. attorney for New Jersey, issued two months before the 2006 election — and the way news of the subpoenas was quickly leaked to local news media.

The subpoenas were issued in connection with allegations of corruption on the part of Senator Bob Menendez, a Democrat who seemed to be facing a close race at the time. Those allegations appeared, on their face, to be convoluted and unconvincing, and Mr. Menendez claimed that both the investigation and the leaks were politically motivated.

Mr. Christie’s actions might have been all aboveboard. But given what we’ve learned about the pressure placed on federal prosecutors to pursue dubious investigations of Democrats, Mr. Menendez’s claims of persecution now seem quite plausible.

In fact, it’s becoming clear that the politicization of the Justice Department was a key component of the Bush administration’s attempt to create a permanent Republican lock on power. Bear in mind that if Mr. Menendez had lost, the G.O.P. would still control the Senate.

For now, the nation’s focus is on the eight federal prosecutors fired by Attorney General Alberto Gonzales. In January, Mr. Gonzales told the Senate Judiciary Committee, under oath, that he “would never, ever make a change in a United States attorney for political reasons.” But it’s already clear that he did indeed dismiss all eight prosecutors for political reasons — some because they wouldn’t use their offices to provide electoral help to the G.O.P., and the others probably because they refused to soft-pedal investigations of corrupt Republicans.

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The Big Meltdown: PAUL KRUGMAN - Financial Crisis

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The Big Meltdown

By PAUL KRUGMAN

Published: March 2, 2007

If we’re going to have a financial crisis, here’s how it will play out.

The great market meltdown of 2007 began exactly a year ago, with a 9 percent fall in the Shanghai market, followed by a 416-point slide in the Dow. But as in the previous global financial crisis, which began with the devaluation of Thailand’s currency in the summer of 1997, it took many months before people realized how far the damage would spread.

At the start, all sorts of implausible explanations were offered for the drop in U.S. stock prices. It was, some said, the fault of Alan Greenspan, the former chairman of the Federal Reserve, as if his statement of the obvious — that the housing slump could possibly cause a recession — had been news to anyone. One Republican congressman blamed Representative John Murtha, claiming that his efforts to stop the “surge” in Iraq had somehow unnerved the markets.

Even blaming events in Shanghai for what happened in New York was foolish on its face, except to the extent that the slump in China — whose stock markets had a combined valuation of only about 5 percent of the U.S. markets’ valuation — served as a wake-up call for investors.

The truth is that efforts to pin the stock decline on any particular piece of news are a waste of time.

Wise analysts remember the classic study that Robert Shiller of Yale carried out during the market crash of Oct. 19, 1987. His conclusion?

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Wrong Is Right: PAUL KRUGMAN - Admit Errors

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Wrong Is Right

By PAUL KRUGMAN

Published: February 19, 2007

The Democratic base wants someone who doesn’t suffer from an infallibility complex, who can admit mistakes and learn from them.

Many people are perplexed by the uproar over Senator Hillary Clinton’s refusal to say, as former Senator John Edwards has, that she was wrong to vote for the Iraq war resolution. Why is it so important to admit past error? And yes, it was an error — she may not have intended to cast a vote for war, but the fact is the resolution did lead to war; she may not have believed that President Bush would abuse the power he was granted, but the fact is he did.

The answer can be summed up in two words: heckuva job. Or, if you want a longer version: Medals of Freedom to George Tenet, who said Saddam had W.M.D., Tommy Franks, who failed to secure Iraq, and Paul Bremer, who botched the occupation.

For the last six years we have been ruled by men who are pathologically incapable of owning up to mistakes. And this pathology has had real, disastrous consequences.

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Kindly take that apology and shove it

The Health Care Racket: PAUL KRUGMAN

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The Health Care Racket

By PAUL KRUGMAN

Published: February 16, 2007

In our health insurance system, resources that could have been used to pay for medical care are instead wasted in a zero-sum struggle over who ends up with the bill.

Is the health insurance business a racket? Yes, literally — or so say two New York hospitals, which have filed a racketeering lawsuit against UnitedHealth Group and several of its affiliates.

I don’t know how the case will turn out. But whatever happens in court, the lawsuit illustrates perfectly the dysfunctional nature of our health insurance system, a system in which resources that could have been used to pay for medical care are instead wasted in a zero-sum struggle over who ends up with the bill.

The two hospitals accuse UnitedHealth of operating a “rogue business plan” designed to avoid paying clients’ medical bills. For example, the suit alleges that patients were falsely told that Flushing Hospital was “not a network provider” so UnitedHealth did not pay the full network rate. UnitedHealth has already settled charges of misleading clients about providers’ status brought by New York’s attorney general: the company paid restitution to plan members, while attributing the problem to computer errors.

The legal outcome will presumably turn on whether there was deception as well as denial — on whether it can be proved that UnitedHealth deliberately misled plan members. But it’s a fact that insurers spend a lot of money looking for ways to reject insurance claims. And health care providers, in turn, spend billions on “denial management,” employing specialist firms — including Ingenix, a subsidiary of, yes, UnitedHealth — to fight the insurers.

So it’s an arms race between insurers, who deploy software and manpower trying to find claims they can reject, and doctors and hospitals, who deploy their own forces in an effort to outsmart or challenge the insurers. And the cost of this arms race ends up being borne by the public, in the form of higher health care prices and higher insurance premiums.

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Scary Movie 2: PAUL KRUGMAN - Attacking Iran

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Scary Movie 2

By PAUL KRUGMAN

Published: February 12, 2007

Attacking Iran wouldn’t be the first catastrophic mistake this administration has made, and there are indications that, at the very least, a powerful faction in the administration is spoiling for a fight.

Attacking Iran would be a catastrophic mistake, even if all the allegations now being made about Iranian actions in Iraq are true.

But it wouldn’t be the first catastrophic mistake this administration has made, and there are indications that, at the very least, a powerful faction in the administration is spoiling for a fight.

Before we get to the apparent war-mongering, let’s talk about the basics. Are there people in Iran providing aid to factions in Iraq, factions that sometimes kill Americans as well as other Iraqis? Yes, probably. But you can say the same about Saudi Arabia, which is believed to be a major source of financial support for Sunni insurgents — and Sunnis, not Iranian-backed Shiites, are still responsible for most American combat deaths.

The Bush administration, however, with its close personal and financial ties to the Saudis, has always downplayed Saudi connections to America’s enemies. Iran, on the other hand, which had no connection to 9/11, and was actually quite helpful to the United States in the months after the terrorist attack, somehow found itself linked with its bitter enemy Saddam Hussein as part of the “axis of evil.”

So the administration has always had it in for the Iranian regime. Now, let’s do an O. J. Simpson: if you were determined to start a war with Iran, how would you do it?

***

"... last year Donald Rumsfeld set up a new “Iranian directorate” inside the Pentagon’s policy shop. And last September Warren Strobel and John Walcott of McClatchy Newspapers — who were among the few journalists to warn that the administration was hyping evidence on Iraqi W.M.D. — reported that “current and former officials said the Pentagon’s Iranian directorate has been headed by Abram Shulsky.”"

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The Green-Zoning of America: PAUL KRUGMAN - Spoils System

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The Green-Zoning of America

By PAUL KRUGMAN

Published: February 5, 2007

Under the guise of promoting a conservative agenda, the Bush administration has created a supersized version of the 19th-century spoils system.

One of the best of the many recent books about the Iraq debacle is Rajiv Chandrasekaran’s “Imperial Life in the Emerald City.” The book tells a tale of hopes squandered in the name of politicization and privatization: key jobs in Baghdad’s Green Zone were assigned on the basis of loyalty rather than know-how, while key functions were outsourced to private contractors.

Two recent reports in The New York Times serve as a reminder that the Bush administration has brought the same corruption of governance to the home front. Call it the Green-Zoning of America.

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Meanwhile, never mind the idea that outsourcing of government functions should be used to promote competition and save money. The Times reports that “fewer than half of all ‘contract actions’ — new contracts and payments against existing contracts — are now subject to full and open competition,” down from 79 percent in 2001. And many contractors are paid far more than it would cost to do the job with government employees: those CACI workers processing claims against other contractors cost the government $104 an hour.

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Missing Molly Ivins: PAUL KRUGMAN

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Missing Molly Ivins

By PAUL KRUGMAN

Published: February 2, 2007

The Texas columnist’s satire was only the means to an end: holding the powerful accountable.

Molly Ivins, the Texas columnist, died of breast cancer on Wednesday. I first met her more than three years ago, when our book tours crossed. She was, as she wrote, “a card-carrying member of The Great Liberal Backlash of 2003, one of the half-dozen or so writers now schlepping around the country promoting books that do not speak kindly of Our Leader’s record.”

I can’t claim to have known her well. But I spent enough time with her, and paid enough attention to her work, to know that obituaries that mostly stressed her satirical gifts missed the main point. Yes, she liked to poke fun at the powerful, and was very good at it. But her satire was only the means to an end: holding the powerful accountable.

She explained her philosophy in a stinging 1995 article in Mother Jones magazine about Rush Limbaugh. “Satire … has historically been the weapon of powerless people aimed at the powerful,” she wrote. “When you use satire against powerless people … it is like kicking a cripple.”

Molly never lost sight of two eternal truths: rulers lie, and the times when people are most afraid to challenge authority are also the times when it’s most important to do just that. And the fact that she remembered these truths explains something I haven’t seen pointed out in any of the tributes: her extraordinary prescience on the central political issue of our time.

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Missing Molly Ivins: PAUL KRUGMAN

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Missing Molly Ivins

By PAUL KRUGMAN

Published: February 2, 2007

The Texas columnist’s satire was only the means to an end: holding the powerful accountable.

Molly Ivins, the Texas columnist, died of breast cancer on Wednesday. I first met her more than three years ago, when our book tours crossed. She was, as she wrote, “a card-carrying member of The Great Liberal Backlash of 2003, one of the half-dozen or so writers now schlepping around the country promoting books that do not speak kindly of Our Leader’s record.”

I can’t claim to have known her well. But I spent enough time with her, and paid enough attention to her work, to know that obituaries that mostly stressed her satirical gifts missed the main point. Yes, she liked to poke fun at the powerful, and was very good at it. But her satire was only the means to an end: holding the powerful accountable.

She explained her philosophy in a stinging 1995 article in Mother Jones magazine about Rush Limbaugh. “Satire … has historically been the weapon of powerless people aimed at the powerful,” she wrote. “When you use satire against powerless people … it is like kicking a cripple.”

Molly never lost sight of two eternal truths: rulers lie, and the times when people are most afraid to challenge authority are also the times when it’s most important to do just that. And the fact that she remembered these truths explains something I haven’t seen pointed out in any of the tributes: her extraordinary prescience on the central political issue of our time.

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The Sum of All Ears: PAUL KRUGMAN - Ethanol vs. Conservation

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The Sum of All Ears

By PAUL KRUGMAN

Published: January 29, 2007

Why is ethanol, not conservation, the centerpiece of the Bush administration’s energy policy?

For those hoping for real action on global warming and energy policy, the State of the Union address was a downer. There had been hints and hopes that the speech would be a Nixon-goes-to-China moment, with President Bush turning conservationist. But it ended up being more of a Nixon-bombs-Cambodia moment.

Too bad: the rumors were tantalizing. Al Hubbard, the chairman of the National Economic Council, predicted “headlines above the fold that will knock your socks off in terms of our commitment to energy independence.” British officials told the newspaper The Observer that Mr. Bush would “make a historic shift in his position on global warming.”

None of it happened. Mr. Bush acknowledged that climate change is a problem, but you missed it if you sneezed. He said something vague about fuel economy, but the White House fact sheet on energy makes it clear that there was even less there than met the ear.

The only real substance was Mr. Bush’s call for a huge increase in the supply of “alternative fuels.” Mainly that means using ethanol to replace gasoline. Unfortunately, that’s a really bad idea.

There is a place for ethanol in the world’s energy future — but that place is in the tropics. Brazil has managed to replace a lot of its gasoline consumption with ethanol. But Brazil’s ethanol comes from sugar cane.

In the United States, ethanol comes overwhelmingly from corn, a much less suitable raw material. In fact, corn is such a poor source of ethanol that researchers at the University of Minnesota estimate that converting the entire U.S. corn crop — the sum of all our ears — into ethanol would replace only 12 percent of our gasoline consumption.

Still, doesn’t every little bit help? Well,...

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On Being Partisan: PAUL KRUGMAN

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On Being Partisan

By PAUL KRUGMAN

Published: January 26, 2007

History says that we’ll see a return to bipartisanship only if and when economic polarization is reversed.

American politics is ugly these days, and many people wish things were different. For example, Barack Obama recently lamented the fact that “politics has become so bitter and partisan” — which it certainly has.

But he then went on to say that partisanship is why “we can’t tackle the big problems that demand solutions. And that’s what we have to change first.” Um, no. If history is any guide, what we need are political leaders willing to tackle the big problems despite bitter partisan opposition. If all goes well, we’ll eventually have a new era of bipartisanship — but that will be the end of the story, not the beginning.

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Gold-Plated Indifference: PAUL KRUGMAN - Bush & Health

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Gold-Plated Indifference

By PAUL KRUGMAN

Published: January 22, 2007

President Bush is someone with no sense of what it’s like to be uninsured.

President Bush's Saturday radio address was devoted to health care, and officials have put out the word that the subject will be a major theme in tomorrow's State of the Union address. Mr. Bush's proposal won't go anywhere. But it's still worth looking at his remarks, because of what they say about him and his advisers.

On the radio, Mr. Bush suggested that we should "treat health insurance more like home ownership." He went on to say that "the current tax code encourages home ownership by allowing you to deduct the interest on your mortgage from your taxes. We can reform the tax code, so that it provides a similar incentive for you to buy health insurance."

Wow. Those are the words of someone with no sense of what it's like to be uninsured.

Going without health insurance isn't like deciding to rent an apartment instead of buying a house. It's a terrifying experience, which most people endure only if they have no alternative. The uninsured don't need an "incentive" to buy insurance; they need something that makes getting insurance possible.

Most people without health insurance have low incomes, and just can't afford the premiums. And making premiums tax-deductible is almost worthless to workers whose income puts them in a low tax bracket.

Of those uninsured who aren't low-income, many can't get coverage because of pre-existing conditions — everything from diabetes to a long-ago case of jock itch. Again, tax deductions won't solve their problem.

The only people the Bush plan might move out of the ranks of the uninsured are the people we're least concerned about — affluent, healthy Americans who choose voluntarily not to be insured. At most, the Bush plan might induce some of those people to buy insurance, while in the process — whaddya know — giving many other high-income individuals yet another tax break.

While proposing this high-end tax break, Mr. Bush is also proposing a tax increase — not on the wealthy, but on workers who, he thinks, have too much health insurance. The tax code, he said, "unwisely encourages workers to choose overly expensive, gold-plated plans. The result is that insurance premiums rise, and many Americans cannot afford the coverage they need."

Again, wow. No economic analysis I'm aware of says that when Peter chooses a good health plan, he raises Paul's premiums. And look at the condescension. Will all those who think they have "gold plated" health coverage please raise their hands?

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A Failed Revolution

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December 29, 2006
The New York Times

By PAUL KRUGMAN

After first attempting to deny the scale of last month’s defeat, the apologists have settled on a story line that sounds just like Marxist explanations for the failure of the Soviet Union. What happened, you see, was that the noble ideals of the Republican revolution of 1994 were undermined by Washington’s corrupting ways. And the recent defeat was a good thing, because it will force a return to the true conservative path.

But the truth is that the movement that took power in 1994 — a movement that had little to do with true conservatism — was always based on a lie.

The lie is right there in “The Freedom Revolution,” the book that Dick Armey, who had just become the House majority leader, published in 1995. He declares that most government programs don’t do anything “to help American families with the needs of everyday life,” and that “very few American families would notice their disappearance.” He goes on to assert that “there is no reason we cannot, by the time our children come of age, reduce the federal government by half as a percentage of gross domestic product.”

Right. Somehow, I think more than a few families would notice the disappearance of Social Security, Medicare and Medicaid — and those three programs alone account for a majority of nondefense, noninterest spending. The truth is that the government delivers services and security that people want. Yes, there’s some waste — just as there is in any large organization. But there are no big programs that are easy to cut.

As long as people like Mr. Armey, Newt Gingrich and Tom DeLay were out of power, they could run on promises to eliminate vast government waste that existed only in the public’s imagination — all those welfare queens driving Cadillacs. But once in power, they couldn’t deliver.

--More--

Krugman -- Flat-Out WRONG

Dec 22, 2006

By Bonddad
bonddad@prodigy.net

Today's Paul Krugman writes an essay in the NY Times arguing that the Democrats should not try and fix the deficit. While is argument is clear and cogent, it is also 100% wrong. Below I will explain why.

Here is a link to the editorial

Now that the Democrats have regained some power, they have to decide what to do. One of the biggest questions is whether the party should return to Rubinomics — the doctrine, associated with former Treasury Secretary Robert Rubin, that placed a very high priority on reducing the budget deficit.

The answer, I believe, is no. Mr. Rubin was one of the ablest Treasury secretaries in American history. But it’s now clear that while Rubinomics made sense in terms of pure economics, it failed to take account of the ugly realities of contemporary American politics.

And the lesson of the last six years is that the Democrats shouldn’t spend political capital trying to bring the deficit down. They should refrain from actions that make the deficit worse. But given a choice between cutting the deficit and spending more on good things like health care reform, they should choose the spending.

....

But the realities of American politics ensured that it was all for naught. The second President Bush quickly squandered the surplus on tax cuts that heavily favored the wealthy, then plunged the budget deep into deficit by cutting taxes on dividends and capital gains even as he took the country into a disastrous war. And you can even argue that Mr. Rubin’s surplus was a bad thing, because it greased the rails for Mr. Bush’s irresponsibility.

As Brad DeLong, a Berkeley economist who served in the Clinton administration, recently wrote on his influential blog: "Rubin and us spearcarriers moved heaven and earth to restore fiscal balance to the American government in order to raise the rate of economic growth. But what we turned out to have done, in the end, was to enable George W. Bush

.....

With the benefit of hindsight, it’s clear that conservatives who claimed to care about deficits when Democrats were in power never meant it. Let’s not forget how Alan Greenspan, who posed as the high priest of fiscal rectitude as long as Bill Clinton was in the White House, became an apologist for tax cuts — even in the face of budget deficits — once a Republican took up residence.

I understand what Krugman is saying -- by actually balancing the budget the Democrats would allow another Bush to come in and screw things up.

While I am sympathetic to that argument from a political perspective, I am completely opposed to it from a policy perspective for several reasons.

1.) The dollar is approaching multi-year years. While there are several reasons for this, the lack of fiscal discipline in Washington is one reason. Restoring fiscal discipline to Washington will help to bolster the dollar. Here is a recent chart of the dollar to illustrate what I am talking about.

2.) According to the Bureau of Public Debt, the US has issued over $550 billion dollars of net new debt each year for the last 4 years. The debt/GDP ratio now stands at over 60% of GDP. Simply maintaining that pace under a "do not harm" governing strategy will increase the burden on future generations. In addition, if we don't start addressing this issue now, it could spiral out of control and get to the point where it addresses us.

3.) It would increase the market's confidence. Corporations have a ton of cash on their balance sheet right now. However, they aren't spending it. That leads to the question of why? One of the reasons is the uncertainty to the current economic situation. Businesses look to the Federal government and see a mess. They know that eventually someone will have to clean it up. And that means tax increases and spending cuts. As a result, businesses are shoring up their balance sheets for that possibility. Balancing the budget will free up these balance sheets for more domestic investment.

4.) The end of crowding out. In line with 2 and 3 above, the net new issuance of debt means there is over $550 billion in money invested in government bonds that could be invested in the domestic economy. The US economy desperately needs this money.

Update [2006-12-22 9:37:19 by bonddad]:: I wrote the preceding in a fit of pique, so I left a few things out.

5.) Krugman wrote that Dems should spend on things like health care, etc... That's a good idea. But -- where is the money for that going to come from? Thanks to Bush's policies we are in debt. There ain't any money there.

6.) As the chart below indicates, the US is more and more obligated to foreign holders of US debt. Some of this is the result of the trade deficit. However, thanks to the budget deficit, the US is floating lots of debt as well.

7.) The entire US system is currently based on a "rentier" system. Because the US floats all this debt, it has to create a tax system that promotes debt. Hence -- the need to cut capital gains taxes and income taxes on upper-income individuals. After these taxes get cut, the US is more able to promote the "borrow and squander" theory of budgeting. Until we dry up the supply of debt, politicians will be more likely to promote the current system.

While I respect Krugman's intellect and ability, here he is simply wrong.

For market and quick hit economic commentary, go to the Bonddad Blog