The talk in Washington these days might lead people to think that the main cause of the economic downturn is the Social Security and Medicare benefits being paid to retirees. After all, we have people from both parties giving us assurances that cuts to these programs are an essential part of any budget deal. This is the sort of topsy-turvy thinking that passes as conventional wisdom in Washington.
In case it's necessary to remind people, our economy plunged due to the collapse of a Wall Street fueled housing bubble. The loss of demand from the collapse of the housing bubble both led to a jump in the unemployment rate from which we have still not fully recovered and also the large deficits of the last five years. ...
The reason that we suddenly got large deficits was the economic downturn which caused tax revenue to plummet and increased spending on programs like unemployment insurance. We also had temporary measures that included tax cuts like the payroll tax holiday and various spending programs that further raised the deficit.
However these stimulus measures were temporary and were quite explicitly designed to boost the economy. Had it not been for the downturn, they would not have occurred. There is very little by way of permanent changes from the pre-recession tax and spending policy that would raise the budget deficits from the low levels that had been projected in 2008. This means that the story of current deficits is the story of the collapsed housing bubble.
So why all this talk about "entitlements"? (Note that the word alone makes me angry, since you might think our seniors are expecting something for nothing, instead of having fulfilled their part of the bargain by paying FICA taxes their entire working life.)
Social Security and Medicare did not collapse the economy. Yes, they're big expenses in the federal budget, but so were the two wars we waged for no reason (and without raising taxes to actually pay for).
So were Bush's tax cuts for the wealthy, which were specifically set to expire after ten years because of the disastrous effect they would have - and did have - on our budget deficit. That was why they were made temporary (although they should never have been passed anyway).
We're not in a bind because of Social Security and Medicare, certainly not in the short- to medium-term. Long-term, we have to get a handle on medical expenses in general - this is not just a problem with Medicare - but Social Security is in good shape, requiring only a very modest fix (like eliminating the cap on contributions, at most).
But what do we hear from Washington?
In a sane world we might be looking to square the deck with the folks who brought us the bubble. One obvious way would be a modest financial speculation tax like the one that the UK has had in effect on stock transfers for centuries. A modest tax on trades of stock, options, credit default swaps and other derivative instruments could raise enormous amounts of money while barely affecting normal investors.
The Joint Tax Committee estimated that a 0.03 percent speculation tax proposed by Senator Tom Harkin and Representative Peter Defazio would raise almost $40 billion a year. This bill would imply a tax of just $3 on $10,000 of trades. Since computerization has caused trading costs to plummet, this tax would just raise transaction costs back to where they were 10-15 years ago.
The big hit would be on the high speed traders and other fast turnover types who are flipping stock and other assets by the hour or even by the second. This trading is a drain on the economy and cutting it back would free up resources for productive activity.
(Please note that financial experts are becoming increasingly worried about this high-speed computerized trading, which flips stocks far too quickly for human beings to react. This would be a very good way to discourage this practice, which is becoming more and more dangerous to our financial system by the day.
(And $3 per $10,000 trade hardly seems excessive under normal circumstances, does it? Do you think you'll go bankrupt the next time you buy $10,000 worth of stock and have to pay an extra $3?)
But It Won't Happen
But in Washington policy circles, taxing Wall Street is off the agenda, cutting Social Security and Medicare is on the agenda. And, best of all, many of the people at the center of the housing crash are playing leading roles in this drive to cut retirees benefits.
Last week, many people might have seen Lloyd Blankfein, the CEO of Goldman Sachs, talking about the need to cut Social Security benefits and raise the retirement age. The last time that Mr. Blankfein was very visible in policy debates he was desperately seeking a bailout for Goldman Sachs which was facing a bank run that pushed the company to the edge of bankruptcy.
It was granted special protection from the Federal Reserve Board and the Federal Deposit Insurance Corporation. This protection, coupled with tens of billions of dollars in loans at below market interest rates allowed Goldman Sachs to regain its health. Now its CEO wants to cut our Social Security.
An even more amazing apparition in this story is former Federal Reserve Board Chairman Alan Greenspan. More than anyone in the whole country, Greenspan deserves blame for the economic downturn. As the bubble was growing to ever more dangerous levels, Greenspan was cheering it on, insisting that there was no bubble, and that even if there was a housing bubble its collapse would pose no special problem for the economy.
In a sane world, Greenspan would be hiding away somewhere enjoying his high six-figure pension. But this isn't a sane world, this is Washington. Therefore we could find Greenspan telling us that another recession would be a price worth paying, if it led to cuts in Social Security and Medicare.
I wish we could expect the Democrats to defend us from this, but - either because of timidity, the need to milk Wall Street for campaign contributions themselves, or just the overpowering need to get Republicans to like them - they've adopted this rhetoric themselves, to a large extent.
I don't know if Democrats will cave (like they have every other time), but,... let's just say that I'm not confident they won't. And I would bet cold, hard cash that this 'speculation tax' is dead in the water, without the slightest chance of it becoming law.
Admittedly, Republicans still control the House of Representatives - and still control the Senate, effectively, due to the insane rules on filibustering currently in effect. (And if the Democrats don't change the rules this time, I'm going to be just about ready to give up on them!)
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Edit: Just after I posted that, I saw this video clip with Cenk Uygur ranting about pretty much the same thing:
One other thing to note is that, thanks to Citizens United, these CEOs don't even have to use their own money to buy politicians. Instead, they can use the corporation's money - yours, if you own any stocks or mutual funds (say in your retirement plan?) - and they can keep it a secret from you, from all the other shareholders, and from the corporation's customers, too.
That's what Republicans on the Supreme Court have given us. For all the Democratic Party's faults - and they're legion - note that every Democrat on the Supreme Court opposed Citizens United.
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