Aid For Me, But Not For Thee

By Deborah Newell Tornello
a.k.a. litbrit

The Two-Faced Mayor
from Tim Burton's The Nightmare Before Christmas.

It would seem that America's billionaires don't wear bootstraps.  Or something:

Should the Federal Reserve help bail out billionaire hedge fund managers and millionaire traders — the very people who bought the risky mortgages that led to the current market panic?

That, in essence, is the question swirling around Ben S. Bernanke as he confronts the first crisis of his 18 months as Fed chairman.

There are no shortages of opinions, and some are being shouted. Jim Cramer, known for his histrionics on the CNBC financial news channel, angrily called for Mr. Bernanke to lower interest rates, something the Fed has resisted doing.

A week ago, Mr. Cramer charged that the Fed was “asleep” and that the chairman “has no idea how bad it is out there” in the markets. A video clip of his remarks has been viewed more than one million times on YouTube.

Lower interest rates would help operators of hedge funds and other money managers because the housing market presumably would strengthen as mortgage rates fell. A revived mortgage market would give the hedge fund operators and other holders of the risky securities a chance to sell them, which they are having trouble doing now in the current nervous market.

But others see a bigger danger for the economy in acting on the pleas of Mr. Cramer and others on Wall Street. Cutting interest rates to help the hedge funds would tend to encourage a resurgence of the very risky mortgage lending that has caused the current turmoil, rekindling the crisis.

The issue is often referred to as “moral hazard,” meaning that the risk-takers who brought on this panic would feel bailed out and would be more likely do it again — just as a young adult whose parents paid off a large credit card bill might feel free to run up a debt again.

“The argument is people did risky things,” said Jan Hatzius, the chief domestic economist at Goldman Sachs. “They are getting punished now, and if you ease interest rates, you reduce the punishment.”

Would that I could muster a mild amount of shock, or even surprise, that our "conservative" friends continue to serve up such laughably obvious hypocrisy, but no. I can't summarize it any better than does my friend Lisa in Baltimore, who writes:

Oh, I love this. The same people who are always yammering about "the market" and so-called "free-market capitalism" and the nasty "welfare state," and "pull yourself up by your bootstraps" and "no hand-outs" and "get the government out of my life" and "government is evil" blah blah blah--the very ones who brought us this disaster in the White House--now they want the federal government to bail them out. What a bunch of f***ing hypocrites. But of course the evil government WILL bail them out, just like we bailed out Chrysler, just like we bailed out the airlines, just like we bailed out Halliburton, just like we bail out billion-dollar corporations all the time, in so many ways. But conservatives don't like that pointed out to them.

Tsk tsk.  An inconvenient truth indeed.

UPDATE: Economics and finance professor Dark Wraith analyzes the present situation; his disdain for the Bushian scourge of fiscal irresponsibility never disappoints:

Forget for a moment that what the Fed is doing is trying to inflate away a market crash. For the time being, we should hope only that the central bank and its friends around the world are ready to blow $40 billion every trading day to keep the welfare train on track for the Wall Street boys. It's a win-win situation: the fatcats keep their money, the suckers take the losses, the Bush Administration keeps its hero status for the rich, and the Fed maintains its reputation as both the enabler and the drug dealer for all the liquidity addicts and their conjoined Republican incompetents.

Dispatches From The Conehead Economy

According to a new analysis of the 2005 Census Data, the number of severely poor Americans shot up by 26 percent between 2000 and 2005, growing 56 percent faster than the overall poverty population did during the same period. That's worrisome: we're not just seeing an increase in poverty, we're seeing an increase in severe poverty, to the highest rate since 1975. And this is all coming at the tail end of a fairly robust -- at least if you believe the macroeconomic numbers -- expansionary period.

Indeed, this has been the first expansion in which poverty has increased in every successive year (I haven't seen the data for 2006 yet). That's a fairly remarkable trend, and a real break with how our economy traditionally worked. Periods of growth used to aid every element of society, but we've become so unequal that even multiyear expansions will peter out before they reach the bottom segments of society. Meanwhile, the Luxembourg Income Study found that America has the highest child poverty rate of any of the 31 developed nations studied. As the wise Ms. Goodrich says, "that is one international competition the U.S. probably doesn't want to win." If only we weren't so damn competitive.

Wealth Explosions

Here's one for the Big Government files: Under Clinton, cross-county markers of inequality saw inequality increases driven by tech booms in discrete portions of the economy. Under Bush, the tech effect has largely vanished, only to be replaced by defense contracts, which have vastly enriched various counties in the greater DC area. So we've seen the redistributionist effect that liberals are always promising national investment strategies (say, the Apollo Project) will bring, but it's all been to make missiles, and all gone, quietly and unaccountably, to areas that may or may not have needed it. Someone give me a good reason we shouldn't be doing the same, save in a more transparent and targeted manner, for renewable energy. Someone promise me the right won't complain about such schemes -- as they haven't about the under-the-radar wealth transfer to arms producers -- when we try.

Down With Agribusiness! (Happy Thanksgiving)

By Neil the Ethical Werewolf

Leave it to me to attack a sector of the American economy on exactly the day that we engage in massive ritual consumption of its output, but wouldn't it be nice if we could beat up on agribusiness more? The number of bad things those guys do is pretty tremendous -- dumping pesticides all over the place, destroying the soil through bad crop rotation, occasionally cheating immigrant workers out of their wages, raiding the treasury, adding to fossil fuel dependence through petrochemical fertilizer use, and worst of all, impoverishing Third World farmers who can't compete with our government-subsidized agriculture. Different but similarly huge problems are caused by factory farming of animals -- I heartily recommend The Meatrix to anyone who wants to learn about this stuff in a very enjoyable way.

I was talking with West Texas native Amanda Marcotte last week, and she explained that there's still ranchers out there who take care of their land and do things very differently from the big agribusiness corporations. The yuppie/hippie types whom ranchers might regard as their cultural opposites are buying their organic produce and helping them make a living. I'm pretty much the last person to go to on the demographics of rural America, so I don't know if there are enough of these people to constitute a serious voting bloc, but I'm excited at the prospect of going after the family farmer / rancher vote by offering to change the criteria for farm subsidy payments.

If farmers earned their subsidies through environmentally sensitive farming practices, we'd be in a much better situation. Cheaper organic produce and free range meat probably wouldn't wreak havoc on the Third World farm economy, since those products would still be pretty expensive even after subsidies. In addition, we'd get all the obvious benefits of sustainable agriculture instead of paying farmers to grow way more stuff than they need to. (Replace subsidies for good environmental management with animal welfare laws stipulating that chickens shouldn't be in cages too small for them to turn spread their wings or turn around, and you've got a plan to win the votes of free-range chicken farmers. Sadly, the latter plan is far more politically dubious, as there's a lot of work to do before people are willing to think seriously about the cruelty of factory farming. But maybe in a few decades...)

This probably isn't a voting issue for anyone besides small farmers, environmentalists, and maybe the odd liberal economist, but as a matter of general Democratic positioning it's the kind of thing I'd like to see our party doing. Family farmers are a much more endearing constituency than agribusiness, and people who like to think of themselves as ordinary folks would be attracted to a party that defended the family farmer from big corporations.

I Don't Wanna Go Down to the Basement ...

By Pepper of the Daily Pepper

I don't want to live in my parents' basement.

It's a nice basement, and it's where they keep the liquor and the stereo. But I still have no plans to live there. And my parents, as cool as they are, certainly don't want me down there.

Due to the dip in consumer confidence, an economic outlook growing bleaker by the day, rising health-care costs, and a government completely unwilling to roll back tax cuts, I have a funny feeling that the world is conspiring to put me in the basement. Most conservatives probably fantasize about all children winding up in their parents' basements maxing out their credit cards. Charge it, baby!

Why? A few notes from an article I read in the San Francisco Chronicle:

To get by, people work more than one job or amass credit card debt, couples work day and night shifts to avoid having to pay for child care, and adult children move back in with their parents, according to interviews with policy experts and workers.

In the Bay Area ... a single adult needs to make $27,901 a year or $13.41 an hour to cover those expenses. A single parent with two children needs $62,969 a year or $30.27 an hour. And a single wage earner in a family where the other parent stays home -- and provides child care -- would have to make $55,740 or $26.80 an hour.

I'm actually okay. I have a job, no kids, and no car. Even savings, which makes me one of the few people I know who can say that. But I realize that I am one bad business cycle or one accident or one illness away from trouble. In fact, I got to thinking about it after Shakespeare's Sister's rough week. (Have you sent her some love yet? You should.)

I can hear someone say, "I have an easy solution for you. Why don't you move out of the Bay Area?" Maybe some people don't want to leave their families. Maybe some people realize that in other parts of the nation they can't find jobs that suit their skills.

Plus, no matter where you are, people will still think it's somehow "your fault" that you're having money trouble. It may be true in some cases, but certainly not all of them. Yet this myth has become convenient for the new-model Republicans currently running the nation.

Lance Mannion was talking about Rich Lowry's knee-jerk reaction to Katrina victims, and Lance addresses the overall perception of poverty in the United States:

The poor are poor because of their own bad character, goes the chorus, of course, but the verse is like this: Liberal government programs encourage, foster, and make virtues out of the vices that keep the poor poor. You know, because not letting their children starve, not leaving them to attend rotten schools, not letting the old and young die of treatable diseases, not forcing them to live in squalid housing, all that just makes them lazy and dependent and (shhhh) shiftless.

The point is that even if you are an angel, you still might end up broke. Our conservative elected officials preach that they don't want anyone dependent on the government. Heaven forbid we be "shiftless."

However, their policies force those who must work for a living - like myself - to be dependent on someone, whether it be the company they work for or their parents. I understand that business is what makes the world go round, but there is no independence without economic independence. If the average American doesn't have the resources to stand on their own two feet, they are beholden to the whims of their employers. They have no real rights. They can't say anything for fear of losing their jobs. And that's where the desperation kicks in.

Conservatives like Rich Lowry gripe about people robbing and stealing and generally not being able to control themselves. Well, they've seen what it gets you to be good - not much more security than being bad. You get the basement if you're lucky.

The Incredible Shrinking Deficit

On the subject of government revenues, it looks like this year's deficit won't be as bad as projected, clocking in at $350 billion rather than $427 billion.  Good stuff, and the administration will surely tout it as a God-given sign that their agenda is a blessed one, and their fiscal policy wise.  But let's not relax yet:

the nation still faces long-term deficit problems. Overall federal spending is increasing, including for war costs. More broadly, spiraling health-care costs for Medicare and Medicaid programs, including a prescription-drug benefit for seniors starting next year and a wave of baby-boomer retirements after 2008, will drive federal deficits to unsustainable sizes.

"These are the good ol' days. These are the best of times," says Congressional Budget Office Director Douglas Holtz-Eakin, a former administration economic adviser. "After this, it gets worse."

The WSJ has a graphical representation of this that's pretty stark:

So, sorry kids, smaller deficit or not, we're still going to have to raise those revenues.  And, on an ironic note, much of the narrowed deficit comes from the administration counting Social Security surpluses up until 2017.  So you can argue whether or not that program's in bad shape till you turn blue in the face, but what does it say about our fiscal picture that the program remains a rare bright spot our economy?

Home, Home Out of Range

The LA Times has a great article on the housing bubble, and its stubborn unwillingness to pop, this morning. In it, they talk to a bunch of economists who've been predicting a crash for years now, only to see their best models and most educated guesses foiled by the market's relentless upward momentum. Best quote comes from Dean Baker, who you all remember from the Social Security wars. He writes:

A year ago, Baker was so sure the collapse was at hand that he sold his Washington condo, which had tripled in value in the seven years he owned it. He moved two blocks away into a rental and wrote another article warning that "the crash of the housing market will not be pretty."

He pointed out that housing prices traditionally didn't rise faster than inflation, but that on the coasts the price jumps were exceeding that level by double digits. He dismissed the argument that prices were increasing because of immigration, or the scarcity of land or the demographics of the baby boomers.

Despite this excellent list of reasons, the crash stubbornly refused to happen.

"It's kind of troubling, like you were a physicist studying the laws of motion and you see an object that ignores gravity," Baker acknowledged.

That seems about right. But the fact is the housing market simply can't sustain itself long-term because most folks can't pay the prices being asked. What you've been seeing is a lot of trading: person A's $350,000 home shoots up to $500,000, so he sells it, borrows/liquidates $100,000, and moves into a new $600,000 place. The owner of that place does the same thing, moving into an $800,000 place. And so it goes, both up and down the food chain.

But the reality remains that wages just aren't growing this fast, they're barely keeping up with inflation (indeed, last quarter, they didn't), while housing prices are racing past them both. So the only real way for people to buy these homes is to cash in on places they already own, liquidate assets, or borrow. That'll sort of horizontal motion will keep the market moving for a bit, but long-term it's not sustainable. Sooner or later, the market will slow to accommodate new buyers rather than seller and traders; the only question is whether, in doing so, it busts or it rusts.

Moving to policy on this, the government is going to have some culpability for the ensuing pain. Read Ben Wallace-Wells' excellent piece on Alan Greenspan's attempts to sustain the recovery by exposing home buyers to risk and ruin. Important stuff.

--Ezra

The People's Debt

I thought I might chase The Ethical Werewolf's notes on The People's Money with a snapshot of The People's Debt.  I've been following this story for several months, and I've noticed that it doesn't get much air time.  The essence is simple.  Assume the Republican Party makes all of its recent regressive tax changes permanent (but does not go farther down that path) and then only increases discretionary spending with GDP (by among other things, not debt-financing colonial adventurism).  By 2040, almost every penny that the Federal Government takes in goes just to pay the interest on the national debt.  For those who are curious about what that looks like, there's a chart below the fold.

That's not my opinion.  That's the opinion of the General Accounting Office, based on a middle-of-the-road set of assumptions.  And yet, the Republican Party talking points are that Social Security is bankrupt because in 2042, the Social Security Trust Fund will be depleted, and the amount of money then coming in earmarked for Social Security will only be enough to pay between 70% and 80% of the then-scheduled payments (again, based on a middle-of-the-road set of assumptions).

If the Republicans can't tell the difference between these two situations (and apparently, they can't, or they'd be far more worried about the General Fund than Social Security), they really shouldn't be trusted with the The People's Money to run the government.  Frankly, The People should probably think twice about whether the Republicans can even be trusted with The People's Ten-spot to buy The People a six-pack at Circle K.

- paperwight

Our Government in a Nutshell

John Cole's got more on United's liquidation of its pensions. The story, amazingly, gets worse. While the Bankruptcy Bill was steamrolling through Congress, Dick Durbin offered an amendment that would've "protect[ed] employees and retirees from the common corporate practice of discharging liability for retirement plans, retained earnings and matching funds when businesses file Chapter 11." This is really, if you think about it, quite amazing. The Bankruptcy Bill made it harder for individuals to declare and survive bankruptcy. Durbin offered an amendment that would've forced corporations, when they were declaring bankruptcy, to fulfill their stated financial obligations to their employees. These financial obligations are retirement plans, matching funds, and so forth. They are, in other words, the exact same long-term assets that are supposed to keep hard-working Americans out of bankruptcy court!

If you want to know who our government is working for, you need look no further than this. Republicans rammed through a bill that made declaring bankruptcy harder on individuals while rejecting amendments that would've helped ensure Americans employed by struggling firms don't lose their financial base and thus have to declare bankruptcy. So the bill made it harder for individuals to declare bankruptcy, but easier for corporations to drive them to that point. Brilliant.

Showing Deficits Some Love

The latest Democracy Corps poll found:

Requiring Congress to forego a pay raise in any year the government runs a deficit or raids the Social Security trust fund, and requiring that any future benefit cuts to Social Security should apply to congressional pensions as well.

Matt doesn't like the idea because civil servant salaries are tied to congressional salaries, and this'd hurt them too. But if we can reformulate how salaries are calculated so this'd only hurt congresscritters, Matt says we should give the people the "wacky populism" that they want.

I disagree. It's all well and good to nail Bush for his huge and irresponsible deficits now, but Democrats really shouldn't be in the business of making moderate deficit spending impossible, or at least really, really unlikely. Fact is, we're the social program folks, and once this weird administration with its big-budget conservatism heads back to Crawford, and once our fiscal house is put in a bit better order, there are going to be times when we need to bust the bank in order to fulfill social ends. There are times, after all, when a bit of deficit spending isn't a bad thing.

Now, a deficit that's almost 6% of GDP is a Very Bad Thing indeed, and a proposal like the one above that withheld pay raises when the deficit exceeded, say, 4% of GDP, might be a decent idea. But we really don't want to make a bit of deficit spending against the interests of Congress. Sometimes you need counter-cyclical spending. Sometimes you need a bit of borrowing to make sure entitlements and programs helping those hit by an economic downturn aren't sliced up. Because when the economy goes into recession, government takes in less money. In order to fulfill its entitlement and spending obligations, it runs a deficit. If Congress is dead set against doing so, it's the poor who're going to feel the bite, as health spending and unemployment benefits and other social programs take the hit to make up for the lost revenues. And that's something no Democrat should support.

- Ezra

P.S -- Dan and Battle Panda are rocking the house, huh?

P.P.S -- Happy -- or at least poignant -- Passover!

Gas Prices Burn

The LA Times has an interesting article on the hit fuel prices are handing small businesses. Makes sense, particularly if your work has a roving component (gardener, pizza delivery, etc). Nevertheless, this strikes me as quite a non-story. Gas prices are higher, but not that much higher. We're dealing with an increase of around 30 cents a gallon (at least here in the Southland), seems to me that small business has larger fish to fry, it's just the LA Times that didn't.

It will, on the other hand, be pretty fascinating to see what happens when oil becomes really expensive, $4 or $5 bucks a gallon. Considering the lifetime costs of that, you're likely to see a lot of investments in new, more fuel-efficient capital. That means everything from hybrid cars to window insulation to white paint for your roofs (did you know that if LA painted its roofs white it'd save about 1,500 megawatts of power on cooling, or about 3% of California's Summer load?) to thicker copper wires (retain electricity better). Little changes that make a huge lifetime difference.

This is the sort of thing we did during the OPEC shock in the 70's, and we tore OPEC apart with it. Fuel-efficient cars (through CAFE standards), regulation mandating more efficient air conditioners, and so forth were all forced to market, all did better jobs than their gas-guzzling forebears, and all contributed to lifetime savings and profit increases for the companies involved. But we did our job too well, and Saudi Arabia decided OPEC had lost and so they flooded the market with super cheap oil, thus ending all need to conserve. And so we stopped conserving.

Oil prices aren't so high now that we're being forced to act responsibly, but they will be soon. And then it'll be interesting to watch us rise to the challenge -- many of these investments can be a long-term boon for small businesses, not to mention the economy as a whole. During the California energy crisis -- a man-made one -- there was an enormous scramble to bring more power capacity online. Huge amounts of money were invested, power plants forced into operation, and so forth. But by the time they hit the market, their capacity was no longer needed. Why? Because Californians had cut their power usage by 10% in a matter of months. They had created their own extra capacity and lowered fuel costs. So I'm not too worried about the small businesses -- today's bitching to newspaper reporters is tomorrow's conservation and capital investment. And we need that to happen.

"What's Google?"

Regarding Daniel's point on child poverty and the promise the internet has for linking kids to a world that'd otherwise remain inaccessible, I want to tell a quick story. Grant, one of my closest friends, works with Amnesty International going into urban areas of Chicago and teaching the students about human rights. A recent lesson plan of his focused on Abu Ghraib and American attitudes towards torture. Towards the end of the lesson he noted that further pictures, documents and information could be found on Google. One student raised his hand and, not joking, said:

"What's a google?"

He wasn't the only one in the class not to know. We take it for granted that the information revolution sweeping through our lives has, to some degree or another, rippled into every crevice of America. It hasn't. And while modems aren't a silver bullet to poverty and despair, they do provide those hoping for a better life but sequestered in an impoverished one with the opportunity to tap into worlds beyond what they know. Using the net, you can look at colleges, e-mail admissions officers, read blogs, scan the news, meet new people, read new things, and on and on. Will everyone use the computer for that purpose? Of course not, most will hone in on the porn. But for those who do want to expand their horizons, giving them that opportunity is a moral imperative.

Infinite Horizon

Apropos of nothing save my annoyance, I did a little research on the "infinite-horizon" modeling today. "Infinite horizon" projections are where we get numbers like Social Security's supposed $11 trillion deficit. It's a way of forecasting costs off into the great beyond. It's also a load of crap. President Bush's tax cuts, if judged via an infinite horizon projection, would cost us $20 trillion, and his Medicare plan would be coming to your house to eat your children.

But the infinite horizon is BS. While trawling around the internets to figure out exactly how it works, I found a good Fact-Check.org article explaining that, well, it doesn't. Because it's so inaccurate, it was never included until the 2003 Trustees Report, which apparently was when the Bush administration decided to add fangs and a pitchfork to the Social Security numbers. A technical panel advising them on the inclusion on the number said it's misleading as a dollar estimate and should instead be expressed as a percentage of the taxable payroll numbers, which, in 2003, would have been 3.8%. Not so impressive, is it?

It gets worse. In a letter to the Social Security Advising Board, the American Academy of Actuaries (nominated for most boring national convention six years in a row!) wrote:

The new measures of the unfunded obligations included in the 2003 report provide little if any useful information about the program’s long-range finances and indeed are likely to mislead anyone lacking technical expertise in the demographic, economic, and actuarial aspects of the program’s finances into believing that the program is in far worse financial condition than is actually indicated.
...
Thus, we believe that including these values in the Trustees Report is unnecessary and is, on balance, a detriment to the Trustees’ charge to provide a meaningful and balanced presentation of the financial status of the program.

So the whole thing is useless. What's really aggravating is that Bush has shown no compunction about shortening every projection we've got. Bush has rejected 10-year budgetary outlooks in favor of five-year projections, and the Medicare expansion was regularly undersold and placed on a shortened projection in order to lowball the costs. And that's not even getting into the the intimidation of its chief actuary, who believed it'd cost $100 billion more than the Administration was admitting, and was told he'd lose his job if he said anything. He was right.

This, I feel, has been the media's primary failure over the past few few years. By not insisting on any numerical standard for their economic reporting, they've allowed the Administration to bewilder voters by placing every policy on a different projection depending on whether they want it to look healthy or near-death. That failure has denied news consumers any sort of comparative ability when evaluating different stories. It's straight insane that voters think Social Security is in worse shape, yet they do. And, after all, how can they compare them accurately when Social Security is evaluated into the ever-stretching future and Medicare is capped at 10 years? They can't -- there's no way to decipher that. It's the media's job to provide the translation. And they've failed.

Auditing the Tax Plan

I'm not sure Brad Plumer's comments on CAP's tax reform plan are fair. While he's right that raising revenues to 17.2% of GDP isn't enough to close the deficit, this plan isn't really a tax proposal ready for implementation, it's a tax proposal ready for prime time. The aim of it, quite overtly I think, is to offer Democrats something that is responsible (though not perfect), that is attractive, that gives most Americans tax cuts, that broadens the tax base, that solves Social Security, that's pretty progressive, and that lays out a vision of what tax reform should look like. This way, Democrats can spend their time on the Sunday shows debating whose proposal offers larger tax cuts, more help to the middle class, and more incentives for the poor (as in the restoration of the EITC for single-parents who get married), rather than whether tax reform is a good idea or not. We need to be responsible in what we put forth, but considering our ability to pass the plan is roughly commensurate with Nancy Pelosi's ability to leap tall buildings in a single bound, I don't think our proposal has to make the tough choices and tradeoffs that it would if we were in the majority.

Conversely, I think the criticism focusing on the enormous jumps between tax brackets are right on. My feeling is that that's good for selling the plan (three brackets sound pretty simple to people), but deeply counterproductive if the fight turned real. If the CAP plan ever got a serious hearing and found itself being debated as a possible piece of legislation, the brackets would have to be reworked so a pay raise doesn't become an immediate and deep pay cut -- that sort of thing really would retard work. But this proposal won't be seriously scrutinized, it'll be a vague Democratic plan that we can use to counterpoint Republicans and allude to as a "better way". I'd remind my wonky lefty friends that we're out of power and, if we insist on opposing as if we were legislating, we're quite unlikely to regain it. The problem with being in the majority is that you have to make hard choices. When you're in the minority, it's ice cream and fairy tales all the way to the ballot box.

Update: Matt says the same thing, but better.

Update 2: In comments, Kenneth Fair proves me completely wrong:

Ezra, Ezra. You've made the same mistake regarding tax brackets that most Americans do. Getting a raise that moves you to a higher tax bracket can't give you a pay cut. The higher bracket isn't applied retroactively to all your income, just to the portion that's in the bracket.

A quick example: Let's say there are two tax brackets, 25% and 50%, and you have an income that puts you at the very top of the 25% bracket. All of your income is taxed at 25%. Then you get a raise that lifts your taxable income by $10,000. The $10,000 is taxed in the 50% bracket, but all the rest of your income is still taxed at 25%. The net effect of your raise is to give you $5,000 in your pocket.

Unless the bracket you move into is over 100%, it can't possibly turn a pay raise into a pay cut.

So there you have it. On the bright side, I've got a book on tax policy coming this week, so I hopefully won't embarrass myself too many more times. And yes, I said a book on tax policy. 360 pages on the subject. See what I go through for you guys?

Tax Reform -- Now With 50% Less Yawning

I'm going to second Matt on this one -- the Center for American Progress's brand-spankin-new tax proposal is really very good, even to an untrained eye like my own. Those of you wanting the full rundown can find it here (warning: 32 page PDF), but most will probably opt for the two page executive summary.

Democrats would be smart to find themselves a few days lull during the Social Security fight and switch gears to blitzing for tax reform. Our tax reform. Because CAP has released a proposal that is, in fact, very good politics. Most Americans would love to see the SS portion of their payroll taxes eliminated, with Social Security now being funded through a guaranteed 2.25% allocation of GDP and a removal of the payroll cap on the employer side. Very smart politics, and very relevant to the current battles. And by changing the subject from Social Security and to tax reform, Republicans can no longer accuse us of lacking a plan, but the subject switch will help bog down the privatization process and defeat the president's proposal outright. CAP also offers incentives for marriage (or, more precisely, the elimination of disincentives for lower-income couples, as single-parent women currently lose their EITC when they accept the ring), consolidates everyone into three income brackets, eliminates the AMT, and encourages saving with an across-the-board 25% tax credit on retirement savings and the ability to shield 50% of assets worth less than $1 million from the capital gains tax so long as they're marked for retirement.

You'll probably notice a lot of tax cuts and exemptions in there. You'd be right. The plan will raise revenue as a percentage of GDP from 2004's 16.2% to about 17.2%. That's an improvement, but it's also the second lowest it's been in years. Bush's average (which has been going down, so much of this is balanced out by pre-tax cut revenues) is 17.5%, Clinton's average was 19.2%, Reagan stood at 18.1% -- so in some ways, we're making up just a bit of lost ground, and we're still way behind the Europeans. But the plan is such good politics, and so much sounder than what Bush wants to do, that the sacrifices are well worth it. Democrats should print it out, study it, and begin selling it to the American people. In the same way that Gephardt undercut Dean's momentum on health care by getting a more progressive, more attractive (but less pragmatic) plan out the door first, so too should Democrats sap the urgency from Bush's tax reform by offering a massively appealing plan before he even takes on the subject. CAP's proposal* is an excellent starting point.

* By the way, props to the Center for American progress, huh? This is exactly what we need our Think Tanks to be doing. And they're not leaving the plan alone to stumble about it a cold, cruel world. John Podesta's been hitting the op-ed pages burying Bush and selling progrssive tax reform. Check him out.

Wolfowitz

Bush is nominating Wolfowitz to head the World Bank. Wolfowitz. Sorry, just have to say that a few times to make it feel real. Wolfowitz. A guy who knows nothing about economics. Wolfowitz. A guy who's detested by Europeans as a main architect of our foreign policy. Wolfowitz. A guy who licks his comb.

I guess I shouldn't be surprised. They want John Bolton to become Ambassador to the UN. He's philosophically opposed to the very idea of it. They want down-home communications guru Karen Hughes to become central in remaking our image in the Arab world. She knows nothing about Islam. As a friend of Steve Clemons' said, "Maybe Bill Kristol should be nominated as successor to Kofi Annan, or Richard Perle. And James Woolsey should get UNICEF."

Steve tries, in his post, to explain that this isn't just another outrage in a long and distinguished line of them, it's the marker of something very different, very radical. "A period of major, dramatic, discontinuity". That sounds about right. This is a slap in the face of intellectualism, of the very idea that the criteria for these positions should be expertise and good intentions. This is a victory for patronage, for a president's power to project his will onto worldwide institutions, no matter how crazy or contradictory that will seems to the other members. Ugh. Wolfowitz.

Update: Think Progress has more on why this is a nightmare.

Update 2: Here's more on the changes Wolfowitz might make. CW seems to be that Bush wants him to reduce the focus on poverty alleviation, to dome on infrastructure, and generally be a bit harder-edged. You can follow a more informed discussion about it here.

Update 3: I should probably note that I'm not certain Wolfowitz will be bad at this job, he may well rise to the occasion. But there's no real way to predict that, he's not a trained economist nor a public figure, like Sam Brownback, who's shown a great and unexpected passion for international development. Without those markers, the only reason to choose him was to anger our allies and irritate the left. That's what pisses me off about the decision, it makes major appointments into just another venue for swagger and symbolism. The head of the World Bank should be the best from the pool of interested individuals qualified for the job. Wolfowitz doesn't qualify.

The Continuing Greenspan Hackery Watch

Kash takes Greenspan out to the woodshed and gives his absurd antitax jihad the what-for (read it in full). Anybody exclaiming that tax increases equivalent to those levied in 1993 would destroy our economy should be recognized as a Rayndian hack and no longer given the keys to the Fed. But with Alan descending ever-deeper into incoherent, party-line, hackitude, we can expect him to be around for a long, long time. As Paul Snow Paul O'Neill and Eric Shinseki will tell you, lock-step inxompetence is the quickest path to job security in the Bush administration.

Risk

Thanks to Peter Gosselin's blog-based outreach efforts (when mid-size bloggers like me are getting e-mails, you know he's casting a wide promotional net!), I've spent some time rereading his series on risk in America. Kevin Drum beat me to the punch and called for a Pulitzer, a demand I really can't argue with. But I'm less desperate for award committees to read the piece and more hopeful that Democrats, of all positions and power levels, will absorb the package. Because it contains everything needed for a compelling, coherent, and critically important economic message.

I know I jump on this horse every few weeks, but it's really necessary for us to build a new populism based on the all-pervasive reality of risk in America, not just as a political imperative, but as a service to America's working class. With business focused entirely on short-term profits (see the post below) and Republicans trying to inject ever more risk into the lives of the worker, Americans desperately need a political party willing to make risk-reduction a major part of their platform. That it just happens to feed into every political priority we have -- health care, Social Security, universal day care, etc -- makes it all the more of a no-brainer.

The debate over populism has proceeded off of two premises -- that the Democrat's need a better economic message, and that NAFTA and free trade killed our old one. But contra Sirota and Franks, globalization happens to be a good thing that the Democratic party shouldn't simply start demonizing it (and to our credit, we haven't). Putting the emphasis on risk allows us to address globalization at exactly the point it hurts workers -- when it robs them of their economic security. It makes our whole critique flow again. The government's economic role is to a) reduce risk to the worker so b) the free market can function effectively and c) workers can take full advantage of it thanks to their increased occupational mobility. In service of this goal we need d) a rock solid social insurance system like Social Security, a universal health care system independent of your employer, universal day care so women can work, etc.

But you don't have to believe me on any of this. You just have to read Peter Gosselin on it, and draw your own conclusions.

Populist in Substance AND Speech

Responding to Meyerson's article (which excellently lays down the Democrat's problem with the working class, but hides when solution time comes 'round), Brad Plumer writes:

Personally, I'm against "economic populism" as a political strategy. I prefer something along the lines of Eliot Spitzer's outlook on things: use regulation to correct market failures and get the capitalist system working more efficiently. That's a cumbersome message, but speechwriters can have at it. Also, I'd prefer a set of policies that reduced "economic risk" while promoting more of the sort of risk-taking that makes capitalism so marvelously vibrant. For instance, universal health care would help cushion your family against a job loss, but it would also encourage you to move jobs, relocate, seek a bold new career for which you might be more suited, without being chained down by the fear that comes with switching jobs and possibly losing your coverage. The end result, in theory, is a more dynamic economic world. What's more: It's populist, but it doesn't sound populist.

I agree with Brad entirely on policy here, but couldn't disagree more on the politics. To begin, I'm a huge advocate of using Spitzer's government v. corporations formula in conjunction with a risk reduction philosophy to form the Democrat's economic message. Spitzer has perfected the art of taking on the corporations in a way both economically sound and politically effective. We do need toothy oversight of the multinationals and we do need a government that proves itself willing to stand up for the marketplace. Indeed, right there comes the first break -- Democrats should value the marketplace over its corporate inhabitants. That gives us the edge in the economic values debate, too.

On risk, I've been slapping this donkey for awhile, and have only grown more convinced that it's the right move to make. The role of the government should be to grease the market and reduce risk to the worker. Universal Health Care, Social Security, universal day care -- all this needs to be implemented so workers aren't tied down to a particular job and stuck in a situation that doesn't fully utilize their abilities. Further, if the government takes responsibility for security, Americans have the freedom to be entrepreneurs. Anyone want to argue the good of entrepreneurship? Thought not.

My problem with Brad comes later, when he says "it's populist, but it doesn't sound populist". That's a real problem, if true. Only, I don't think it's true. And it certainly doesn't need to be true. Populism simply means favoring the worker. Fighting corporations with unfair business practices and creating a marketplace where ordinary citizens are free to make occupational choices because they're not tied down to this or that employer is, in a word, populist. Now, it's entirely possible that Democrats will step onto the podium and, through herculean effort, rob these tenets of their populism -- one just needs to read Kerry's speeches to appreciate our capability for snatching incoherence from the jaws of good politics. The sort of public wonkery he died by is bad politics but would've made for good policy. Populism, conversely, is great politics but often makes for bad policy. The challenge here is to merge the good economic principles of risk management and effective regulations with the powerful electoral effects of populism. Having a package that is populist but doesn't sound it is moot -- you still need to get elected. But framed and sold correctly, these packages can be very populist. They can be about protecting the worker from the whims of multinational corporations, both by making the companies play fair and by cutting the chains that leave Americans hostage to their job. And if we can't sell that, it'll only be because we chose populist policies but sold them as if our audience were pro-growth technocrats.

I Want A Reality-Based Electorate

Via Kevin Drum, this is really the most amazing graphic I've ever seen: At any given time, significantly more than half of Americans think the government's primary outlays are coming from food stamps and foreign aid. Meanwhile, back in reality-land, Americans spend $32 billion on food stamps and $7.4 billion on foreign aid, all this coming out of a $2.5 trillion budget. The two combined account for about 1.5% of spending. I wonder which party could have misled them so?

Kiss My Ass -- No New Taxes

Brad Plumer's noticed a problem:

I'm a bit confused as to what Congressional Republicans think would make for a better budget. It seems that the two primary objections from President Bush's own party are: cuts to particular programs, and the yawning federal budget deficit, which the budget doesn't really cure. Okay. But then a sizeable majority of Congressional Republicans have also signed a pledge not to increase taxes. So that solution's out. Meanwhile, cutting discretionary spending even further will only yield very tiny reductions in the deficit. And Bush's two big entitlement "reforms"—including last year's Medicare bill, which will cost $400 billion over the next five years alone, and his vague hints at a proposed Social Security plan, which will cost $4.5 trillion over the next 25 years—will only expand the deficit by huge amounts. So where is fiscal sanity supposed to fit come from? Fairy-land?

There was a time when that question had an answer. Republicans who'd been cornered into signing Norquist's "no taxes" pledge during election campaigns decided that the ridiculous promises they'd been blackmailed into making were less important than sane governance. So one of them, President George H.W Bush, reversed course and proposed some revenue enhancements to close Reagan's deficit, and then convinced 30 of his Republican cosigners to follow his lead. That bit of fiscal responsibility paved the way for the surpluses and growth of the Clinton years (and, in turn, the irresponsible promises and economic absurdity of his son's campaigns). Would that the modern Republican party act with the same wisdom...

Second Term Econ

Remember that time when the Bush administration silenced an actuary and lied $100 billion off the cost of Medicare reform so Congress would pass it? That was fun, even quaint. But this is a brave new second term world, baby! And $100 billion bucks ain't shit to these guys, so now they're saying they lowballed by $670 billion. Yowza! That's second term economics for ya! Bam!

But second term dynamics shouldn't be forgotten, either. Because right now the Bushies are doggedly trying to ram Social Security privatization through, and having little luck with it. As you followers of Josh Marshall know, the most effective, and common, Republican beg-off has been "y'know, yeah, good idea, but a bit later when the deficit looks smaller". Looks like a bit later just got a lot later, and the Conscience Caucus has found itself a rallying cry. What's that Rahm Emanuel? You want to close this one out? Do it, buddy:

"If you're looking for a crisis, I would suggest you look at a crisis that was self-made in just last year, because the crisis exists in what's happened to Medicare by weighing it down," Emanuel said. "Those of us who told you it was going to cost twice as much were right."

Hold It

WaPo calls bullshit on the President's budget:

The spending plan does not include future expenses of the continuing wars in Afghanistan and Iraq, nor does it include upfront transition costs of restructuring Social Security as Bush has proposed. The administration will submit a separate supplemental request largely for Afghanistan and Iraq operations in the current fiscal year, which will be reflected in the budget charts, officials said, but war costs in 2006 and beyond will not be. Nor will be the cost of Bush's Social Security plan, which would begin in 2009 and result in $754 billion in additional debt over its first five years.