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Protestors Arrested in Minneapolis

Last week I was at a conference in Minneapolis, and on Thursday I happened to be walking by when some folks camped out in the middle of an intersection and were arrested to raise awareness about the foreclosure crisis.  I stopped and filmed a bit of the action.  The police acknowledged the protestors rights to assemble and speak but emphasized that this assembly was unlawful because it was blocking an intersection.  The two chants that were being employed by the crowd were “WE-ARE-THE 99%!” and “STOP FORECLOSURES NOW!”

Indeed, it is shameful that we took such extraordinary measures to protect the wealth on Wall St. (admittedly also sparing everyone the pain from a collapse of the global economy) but have done relatively little to direct benefit of Main St.

Here is the video I took in Mpls:

Where to Cut

This morning the GOP will release its budget proposal for 2012.  When I heard last week that it would propose $1 trillion in cuts to Medicaid, I was troubled.  If you ask me were to start to cut $1 trillion, it wouldn’t be at healthcare for the poor and disabled.  It would be at the Defense Department.  We spend more on defense than the rest of the world combined and nearly 7 times more than the next-highest spender.  Obviously, we have security concerns and challenges that can’t be met without a strong military, but we could could spend hundreds of billions less per year and and still far outspend anyone else.  It doesn’t seem wise to me to continue such extravagant levels of military spending.

Then yesterday I learned that the Medicaid cuts would be accompanied by drastic changes to Medicare (elimination of Medicare as we know it).  Joshua Michael Marshall writes:

The Medicare system has been in place in the United States for a bit more than 40 years. The premise is simple: once you hit retirement age you move into a single payer health care insurance system in which Medicare takes responsibility for your care, regardless of the state of your health or income level. There are copays. No one's crazy about exactly how much is covered. Some doctors opt out. You've probably heard all of this at one point or another. But the key is that you're in the program. And for the rest of your life you're out of the private health insurance system. You're covered. Permanently and on the same terms as everyone else.

What Ryan is proposing is something different.  Ezra Klein summarizes:

Paul Ryan’s plan for Medicare and Paul Ryan’s plan for Medicaid rely on the same bait-and-switch: They use a reform to disguise a cut.

In Medicare’s case, the reform is privatization. The current Medicare program would be dissolved and the next generation of seniors would choose from Medicare-certified private plans on an exchange. But that wouldn’t save money. In fact, it would cost money. As the Congressional Budget Office has said (pdf), since Medicare is cheaper than private insurance, beneficiaries will see “higher premiums in the private market for a package of benefits similar to that currently provided by Medicare.”

In Medicaid’s case, the reform is block-granting. Right now, the federal government shares Medicaid costs with the states. That means their payments increase or decrease with Medicaid’s actual rate of spending. Under a block grant system, that’d stop. They’d simply give states a lump sum at the beginning of the year and that’d have to suffice. And if a recession hits and more people need Medicaid or a nasty flu descends and lots of disabled beneficiaries end up in the hospital with pneumonia? Too bad.

In both cases, what saves money is not the reform. It’s the cut. For Medicare, the cut is that the government wouldn’t cover the full cost of the private Medicare plans, and the portion they would cover is set to shrink as time goes on. In Medicaid, the block grants are set to increase more slowly than health-care costs, which is to say, the federal government will shoulder a smaller share of the costs than it currently does.

Needless to say, I’ve got serious concerns about what Ryan’s plan would do to our social safety net.  However, it is quite unusual in that it actually proposes cuts at a level that would have a significant impact on the deficit.

Up until this point, the “cut or shut” discussion has been focused on non-defense discretionary spending…that is, the more minor parts of the budget.  Military and entitlements (Medicare, Medicaid, and Social Security) are the big ticket items.  All of the usual targets for cuts are small in comparison (and, therefore, of little impact): things like subsidies to oil companies ($4 billion/yr), corporation for public broadcasting (NPR, PBS, etc. $0.5 billion/yr), agricultural ($20 billion/yr), ethanol ($2.5 billion/yr), Planned Parenthood and the rest of Title X ($0.3 billion/yr), renewable energy ($5 billion/yr), National Endowment for the Arts ($0.2 billion/yr). TARP and the auto bailout draw much criticism too.  However, TARP is on target to cost less than $50 billion in total, a bargain for avoiding a total collapse of the global economy.  The auto bailout will cost less than $25 billion.  These are all large numbers, but even added together they are small relative to defense and entitlements.  To have a significant impact you have to address defense and/or entitlements and/or significantly increase revenue (e.g. allowing Bush tax cuts to expire would cut the deficit in half).  Focusing on "non-defense discretionary spending" cannot solve the problem.

Unfortunately, it sound’s like the GOP’s “Path to Prosperity” will go aggressively after entitlements but treat the Defense Department with kids gloves by merely “…accepting Defense Secretary Robert Gates's plan to target inefficiencies at the Pentagon.”  It also goes after some of those items I listed above such as agricultural subsidies and renewable energy.  Tax reform is in there too:

This budget would focus on growth by reforming the nation's outdated tax code, consolidating brackets, lowering tax rates, and assuming top individual and corporate rates of 25%. It maintains a revenue-neutral approach by clearing out a burdensome tangle of deductions and loopholes that distort economic activity and leave some corporations paying no income taxes at all.

Simplifying the tax code and getting rid of some of the deductions and loopholes sounds good to me.  However, federal taxes as a percentage of GDP are currently at their lowest level in the last 60 years.  If the debt is really such a crisis level, it would seem prudent to reform the tax code in a way that isn’t revenue-neutral and helps pay off the debt (at least until we are back on a more sustainable course).  Unfortunately, a significant portion of the GOP cares more about reducing the size and scope of government and making sure taxes are never increased than they do about actually reducing the debt.

Updated 2011-04-05:
Changed the CPB funding link and clarified that taxes as a percentage of GDP (i.e. taking into account the effect of the recession on the economy) are at historically low levels.

What did the Congressional Budget Office Really Say About the Stimulus?

I got a reminder today about the importance of reading your news from a variety of perspectives. 

An example (not today's) is opinions about the underlying causes of the current economic crisis.  If you only pay attention to a certain set news outlets, blogs, and message boards you'll "know" that it's all the liberal's fault for creating the Community Reinvestment Act and forcing banks to make loans to people who couldn't afford them.  From another set of news sources,  blogs, and message boards you might learn that half the sub-prime loans came from institutions not covered by the CRA, that institutions that were covered by it did less (not more) of the risky lending, that it wasn't the debt itself but the selling of the debt (bad debt chopped up and marketed as mortgage-backed securities to financial institutions).  They'll tell you it was actually the inevitable consequence of the Rght's march to deregulate, deregulate, deregulate (for example, the 1999 repeal of the Depression-era Glass-Steagall Act, which separated commercial banks from Wall Street, is significant in this mess).  They probably won't tell you much about the Democrats' role in that deregulation.  Two claims in stark opposition.  Half of the population has been told and believes one; half believes the other.  Almost certainly the real truth is somewhere in between.  Even if it's not, you really need to hear both sides (someday I'll do something with this).

Today's example relates to interpreting the message of the non-partisan Congressional Budget Office's statement about the proposed stimulus package.  I Googled "cbo stimulus."  The first link is to a US News & World Report article.  The second is to a Washington Times article.  There third is to the actual letter written by the CBO.  The letter is here.  Read it for yourself and decide what you think it's key message is.

When Amanda Ruggeri read the letter, she got the message that the CBO was saying "Stimulus Bill Could Meet Obama's Job Creation Goal in Short Term" and wrote an article for US News & World Report saying so (here).

When Stephen Dinan of The Washington Times read the very same letter, he got the message that the CBO was saying that "Obama stimulus [will be] harmful over long haul" and wrote an article saying so (here).  The implication of the Washington Times piece is that the CBO thinks the stimulus package is a bad idea...and I saw that very statement echoed, for example, on a certain "Grace Centered" message board.

What do I think the CBO's real message is?  Well, it's partly that the stimulus will almost certainly have a positive effect in the short term (h/t Amanda).  It's also partly that taking on such massive debt will probably have some negative consequences in the long run (no duh!) (h/t Stephen).  However, I think it's a gross over-simplification to say that the CBO was saying that the stimulus is a bad idea.  Let me point out that the CBO letter the emphasizes that...

...many things that make people better off do not appear in GDP at all. For example, healthier children or shorter commute times can improve people’s welfare without necessarily increasing the nation’s measured output in the long run (though spending in those areas would still provide short-run stimulus). Even legislation explicitly intended to affect output may also seek to accomplish other goals and can be evaluated accordingly.

That's the key to my take on the CBO letter.  The CBO's predictions about short-term positive effects on jobs and long-term effects on GDP (the cold, hard financial facts) are interesting and important but only part of the story.  A friend pointed out that this situation can be seen as an example of the "old approach" of making easy choices, delivering immediate benefits and quick payoffs at the expense of "real change" approach Obama has often condemned.  OK, maybe...but sometimes the immediate benefits are worth some long-term difficulty.  Next time I have surgery, I could decline the anesthesia in order to avoid it's (relatively) long-term negative consequences...but I think I'll probably take the anesthesia so I'll be spared the agonizing pain of the knife cutting my flesh in exchange for feeling a bit woozy later.  Needless to say, I don't know enough about economics and our economy to have a strong opinion about what should be done about the crisis, but I don't think it's absurd to fear that there will be a whole heck of a lot of human suffering in the short-term if the the economy collapses and that a slightly lower GDP in 2019 might be worth it to mitigate that pain.  The CBO's predictions about GDP are important to consider, but it's not as simple as just that.

That's what I think.


Today a friend said:

If budgets are moral documents then Hell is going to be over-crowded with church folk.

and another replied:

also pretty much most families. Do you have a budget? Do you look to the interests of others before the interests of your own?

I have been thinking a bit about church budgets lately.  It started when I heard that the U.S. set a new record for charitable giving last year despite the economic downturn (from an article by Philip Rucker in the Washington Post):

Americans donated $306 billion to charities in 2007...most of the donations, about $229 billion, came from from private foundations increased 7 percent and through personal bequests 4 percent, adjusted for aid agencies, environmental groups and human service charities saw the largest increases in charitable gifts. Gifts to international groups, which were so small 20 years ago that the category was nonexistent in the survey, have grown steadily, increasing by 13 percent last year to $13 billion.

I've mentioned before that Robert Reich has argued that most charitable donations are made by the rich to institutions that serve the rich:

This year's charitable donations are expected to total more than $200 billion, a record. But a big portion of this impressive sum -- especially from the wealthy, who have the most to donate -- is going to culture palaces: to the operas, art museums, symphonies and theaters where the wealthy spend much of their leisure time. It's also being donated to the universities they attended and expect their children to attend, perhaps with the added inducement of knowing that these schools often practice a kind of affirmative action for "legacies."

It turns out that only an estimated 10% of all charitable deductions are directed at the poor.

I started thinking about churches as charitable institutions and how church-spending typically fits this pattern too.  What fraction of American's "charitable giving" to church actually goes to the poor and needy?  Churches have ministers to pay and facilities to maintain, so what fraction of a typical church's budget goes to benevolence?  For us, it's about 7 %.  I'm not saying that the other 93 % doesn't go to good things too, but much of it isn't charity as I would define it.

I'm glad Americans are setting giving records again this year, but I wonder if our priorities couldn't use some adjustment.


In recent years I've been confused by a couple things I've read.

On the one hand, I read that Americans lead the world in charitable giving, setting a record in 2006 by giving $300 billion.

On the other hand, I read that America is near the bottom of the industrialized nations in terms of foreign aid as a fraction of its GNP.  That is, it's total giving is big but not so much as a fraction of its economy.  The $20 billion number quoted in the Wikipedia article is a lot smaller than the $300 billion mentioned above.  From this I assumed that the US is a great giver but mostly gives to itself.

An editorial in the LA Times by Robert Reich (Is Harvard a charity? Most donations go to institutions that serve the rich; they shouldn't be fully tax-deductible) reveals another side of this issue.

This year's charitable donations are expected to total more than $200 billion, a record. But a big portion of this impressive sum -- especially from the wealthy, who have the most to donate -- is going to culture palaces: to the operas, art museums, symphonies and theaters where the wealthy spend much of their leisure time. It's also being donated to the universities they attended and expect their children to attend, perhaps with the added inducement of knowing that these schools often practice a kind of affirmative action for "legacies." 

It turns out that only an estimated 10% of all charitable deductions are directed at the poor. 


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