I’m an unabashed admirer of the New York Times.  As a former working print journalist who knows a thing or three about  the press, the Times is the gold standard.  They have the best writers.  They have the best fact checking teams.  And they provide this throughout the breadth of the newspaper.  One of their columnists is Princeton economist Paul Krugman, who is also a prolific blogger at the Times as well.    If you read Krugman for very long, what seems at times like a totally incomprehensible world of economics will become understandable.  The Times has a digital subscription that costs less than a plate of chicken wings and a couple beers.

At any rate, Krugman’s latest column, entitled the Medicare Killers  dissects with scalpel-like precision Vice Presidential candidate Paul Ryan’s policy recommendations, including those underpinning his budget proposal.

Paul Ryan’s speech Wednesday night may have accomplished one good thing: It finally may have dispelled the myth that he is a Serious, Honest Conservative. Indeed, Mr. Ryan’s brazen dishonesty left even his critics breathless.

Some of his fibs were trivial but telling, like his suggestion that President Obama is responsible for a closed auto plant in his hometown, even though the plant closed before Mr. Obama took office. Others were infuriating, like his sanctimonious declaration that “the truest measure of any society is how it treats those who cannot defend or care for themselves.” This from a man proposing savage cuts in Medicaid, which would cause tens of millions of vulnerable Americans to lose health coverage.

And Mr. Ryan — who has proposed $4.3 trillion in tax cuts over the next decade, versus only about $1.7 trillion in specific spending cuts — is still posing as a deficit hawk.

But Mr. Ryan’s big lie — and, yes, it deserves that designation — was his claim that “a Romney-Ryan administration will protect and strengthen Medicare.” Actually, it would kill the program.

Before I get there, let me just mention that Mr. Ryan has now gone all-in on the party line that the president’s plan to trim Medicare expenses by around $700 billion over the next decade — savings achieved by paying less to insurance companies and hospitals, not by reducing benefits — is a terrible, terrible thing. Yet, just a few days ago, Mr. Ryan was still touting his own budget plan, which included those very same savings.

But back to the big lie. The Republican Party is now firmly committed to replacing Medicare with what we might call Vouchercare. The government would no longer pay your major medical bills; instead, it would give you a voucher that could be applied to the purchase of private insurance. And, if the voucher proved insufficient to buy decent coverage, hey, that would be your problem.

Moreover, the vouchers almost certainly would be inadequate; their value would be set by a formula taking no account of likely increases in health care costs.

Why would anyone think that this was a good idea? The G.O.P. platform says that it “will empower millions of seniors to control their personal health care decisions.” Indeed. Because those of us too young for Medicare just feel so personally empowered, you know, when dealing with insurance companies.

Still, wouldn’t private insurers reduce costs through the magic of the marketplace? No. All, and I mean all, the evidence says that public systems like Medicare and Medicaid, which have less bureaucracy than private insurers (if you can’t believe this, you’ve never had to deal with an insurance company) and greater bargaining power, are better than the private sector at controlling costs.

I know this flies in the face of free-market dogma, but it’s just a fact. You can see this fact in the history of Medicare Advantage, which is run through private insurers and has consistently had higher costs than traditional Medicare. You can see it from comparisons between Medicaid and private insurance: Medicaid costs much less. And you can see it in international comparisons: The United States has the most privatized health system in the advanced world and, by far, the highest health costs.

So Vouchercare would mean higher costs and lower benefits for seniors. Over time, the Republican plan wouldn’t just end Medicare as we know it, it would kill the thing Medicare is supposed to provide: universal access to essential care. Seniors who couldn’t afford to top up their vouchers with a lot of additional money would just be out of luck.

Still, the G.O.P. promises to maintain Medicare as we know it for those currently over 55. Should everyone born before 1957 feel safe? Again, no.

For one thing, repeal of Obamacare would cause older Americans to lose a number of significant benefits that the law provides, including the way it closes the “doughnut hole” in drug coverage and the way it protects early retirees.

Beyond that, the promise of unchanged benefits for Americans of a certain age just isn’t credible. Think about the political dynamics that would arise once someone born in 1956 still received full Medicare while someone born in 1959 couldn’t afford decent coverage. Do you really think that would be a stable situation? For sure, it would unleash political warfare between the cohorts — and the odds are high that older cohorts would soon find their alleged guarantees snatched away.

The question now is whether voters will understand what’s really going on (which depends to a large extent on whether the news media do their jobs). Mr. Ryan and his party are betting that they can bluster their way through this, pretending that they are the real defenders of Medicare even as they work to kill it. Will they get away with it?

Princeton economist, Noble Laureate and New York Times columnist Paul Krugman is having a field day shredding Republicans based on their just completed Tampa, Fla., convention nominating Mitt Romney as their Presidential candidate.  In our last post, we highlighted Krugman dismantling the ‘China owns us’ lie the GOP constantly repeats to all who still don’t know enough to stop listening.  In this post Krugman links to another article pointing out Romney’s acceptance speech was essentially identical to the last three GOP nomination acceptance speeches.  And then goes on to point out what happened when the public believed the Bush version  and voted in Republicans.  The title of the piece is  The Definition of Insanity.

Is doing the same thing over and over again …

Mike Konczal does what I was planning to do, and compares the (very thin) policy discussion in Mitt Romney’s big speech with previous GOP speeches. As he shows, Romneynomics 2012 is literally identical to McCainomics 2008, Bushnomics 2004, and Bushnomics 2000. Drill, baby, drill; cut taxes on rich people (why didn’t we think of that?); and so on.

I would just add to Mike’s take the historical experience. Romney says that his plan would create 12 million jobs in his first term. Leaving aside the fact that this is about what forecasters on average predict in any case, surely we should ask how the identical policies worked out in Bush’s two terms. And the answer is: zero job growth in term one (and a fall in private sector employment), one million in term two. Oh, and private sector employment lower when Bush left office than when he arrived:

The poverty of new ideas is truly amazing.

The remarkable thing about this presidential campaign is that the public is beginning to, correctly, suspect Republicans pretty much lie about everything, all the time.

Latest case in point is that China owns us, bigtime, because they hold a lot of Treasury securities and are financing our deficits.  Unfortunately for Republicans, there’s an economist named Paul Krugman who writes from a very big podium called the New York Times, and he’s becoming famous pointing out how wrong the Republicans get  just about everything.

Ah. Let’s give thanks to Rob Portman, who offered a nice break from all the lies in Tampa, and instead offered us some good old-fashioned bad macroeconomics.

In his speech, Portman castigated the Obama administration for not taking a tougher line on China — which is actually something I’ve complained about too — then offered a completely wrong explanation. Obama won’t take on China, Portman said, because

Obama could not run up his record trillion dollar deficits if the Chinese did not buy our bonds to finance them

OK, let’s ask the question: how much overseas financing does the United States as a whole need?

The answer is that it’s determined by an accounting identity: capital inflows = the current account deficit, a broad measure of the trade balance including income on investments. (Trade can adjust to capital flows instead of the other way around, but that’s a longer story).

So what has happened to the current account deficit as a share of GDP in the Obama era? Um, it’s way down:

(I multiplied by 400 because the current account data are quarterly, while GDP is stated at an annual rate)

How is it possible that we’re borrowing much less from foreigners when the government deficit has gone up so much? The answer is that the private sector is deleveraging, having moved into massive surplus as consumers try to pay down debt and corporations hold back on investment in the face of weak consumer demand. All those government deficits have only partly offset this move, so that overall national borrowing from overseas is down, not up.

But what would happen if the private sector stopped deleveraging? The answer is, we’d have a strong economic recovery, which would among other things greatly reduce the budget deficit. A side implication of this point, of course, is that for the time being that deficit is a good thing, helping to support the economy while the private sector unwinds its excessive leverage.

So who’s actually financing the US budget deficit? The US private sector. We don’t need Chinese bond purchases, and if anything we’re the ones with the power, since we don’t need their money and they have a lot to lose. In fact, we don’t want them to buy our bonds; better to have a weaker dollar (a point that the Japanese actually get.)

To make excuses for Portman, lots of people keep getting this wrong, even after all these years. But really, truly, the last thing we need to worry about is whether the Chinese love our bonds.

Beezer here.  The simple truth is that Krugman has called out the Republicans on almost every major policy initiative, and in the process shown that they have their economic understanding of our nation’s economy almost precisely wrong.  They’ve been wrong on just about everything the real world has done the past four years, and Krugman has been right.  So who are you going to believe has a better understanding of our position?  Apparently a lot of people still cling to old, obviously wrong, theories.  Pride before the fall, and all that.

Romney’s taxes are beginning to get real ugly.  He really must release them for several more years.  The articles are beginning to mount that Mitt’s ability to avoid taxes, if the reports are true, will be devastating to his candidacy.  The most recent, and this one in the New York Times, with links to other reports, is definitely not a good sign.

For Mitt Romney, probably the only thing worse than having to lay bare his financial life is for someone else to lay it all out. Which is, of course, exactly what Gawker did on Thursday, when the gossip Web site published confidential documents from Bain Capital, the private equity firm where Mr. Romney made his multi-millions – and from which he still takes a share of the profits.

And now we know much more about the nature of those profits. Mr. Romney and his partners may have abused the tax system by paying far less in taxes than they should have.

Back in 2007, The New York Times published  an editorial that explained what was wrong with the tax treatment of Bain-like pay. It cited the work of Victor Fleischer, a law professor at the University of Colorado, who had written a let-us-count-the-ways report on how private equity partners avoid taxes.

In a nutshell, they collect a management fee on their funds of 2 percent, which is supposed to be taxed as ordinary income. And they collect performance fees, usually 20 percent of any profits, which – thanks to a loophole that should have been closed long ago – are taxed as capital gains, at a mere 15 percent, about the lowest rate in the tax code.

It is no secret that Mr. Romney has availed himself of the super-low capital gains rate on his Bain performance-fees – an obscene privilege, but not illegal.

What the Gawker documents indicate is that the Bain/Romney tax avoidance went further than that.

In brief, it looks like four Bain funds in which the Romney family’s trusts are invested converted $1.05 billion in management fees — which should be taxed as ordinary income – into capital gains, which are taxed at the much lower rate. The tax savings: $220 million.

Mr. Fleischer was all over it, writing on his blog that “the Bain partners, in my opinion, misreported their income if they reported those converted fees as capital gains instead of ordinary income.” What would the I.R.S. say? It is unclear, but Mr. Fleischer says the practice is illegal and has no doubt a court would agree if ever asked to rule on the question. What does Mr. Romney say? The campaign declined to comment.

One thing is sure. Virtually every tax shelter, legal and illegal, involves somehow re-labeling ordinary income as a capital gain to get the lower rate. That’s just one more of the many reasons why there shouldn’t be a special low rate for capital gains.

Beezer here.  There may be a silver lining here.   Everyone who’s paid attention knows Romney used every tool in the tax accountant bag to avoid taxes.  Whether what he did was always legal is an open question, made much worse by his refusal to make his tax returns public knowledge.  The discussion, no matter what Romney did, has focused public discussion on our tax laws and that’s a good thing.  Two conclusions can be made right now.  One, differentials in tax rates on different types of income, wages vs capital gains for example, produces big incentives to shift income to the lowest rate.  And two, closing those gaps would allow rates to drop overall, particularly on wage income, while still raising sufficient revenue to fund our government.  KISS, or keep it simple stupid, should be the rule of thumb applied.  If Romney wants to put all this behind him, possibly turning the whole thing to a positive, he should release his tax forms and then promise he would clean up our tax system by eliminating differentials and closing loopholes.  Coming from someone who knows this territory like the back of his hand, he would enhance his standing thereby.   Remember that it is was a rich man, President Franklin Delano Roosevelt, who bucked his own class during the Great Depression, saying in a speech “They hate me.  I welcome their hatred.”

If you step back a minute and simply listen, what you are hearing from Republicans is the following:

“You must not press on with telephones or electricity, because this will raise the rate of interest.”

“You must not hasten with roads or housing, because this will use up opportunities for employment which we may need in later years.”

“You must not try to employ everyone, because this will cause inflation.”

“You must not invest because how can you know that it will pay?”

“You must not do anything, because this will only mean you can’t do something else.”

“Safety first!  The policy of maintaining a million unemployed has now been pursued  for eight years without disaster.  Why risk a change?”

“We will not promise more than we can perform.  We, therefore, promise nothing.”

Beezer here.  This is what John Maynard Keynes heard back in 1929 when he wrote an essay,  A Programme of Expansion, which included the statements above. 

“This is what we are being fed with.  They are slogans of depression and decay-the timidities and obstructions and stupidities of a sinking administrative vitality…”

Beezer again.  Update the language a little and you have today’s Tea Party conservatism in a nutshell.   It’s the ‘Treasury View,’ a classical attitude that has its origins in economic theories formed more than 200 years ago.  They ignore the massive costs of unemployment, both in terms of treasury revenue and payout for unemployment insurance and other programs, not to mention huge losses in productive output and declining demand, but instead worry about inflation and rising interest rates on debt–neither of which have appeared the past four years.   We  are in a classic liquidity trap created by a collapsed asset bubble that blew up the banking system and made private homeowners insolvent.  Doesn’t happen very often.  In fact the last time it happened was when Keynes wrote his essay.  The only cure is to raise employment.  The private market is recovering, but at an insufficient rate.  The federal government should be hiring people by the millions rebuilding America’s tottering infrastructure.  Only this response will speed up recovery.  And with recovery will come relief from deficit and an ability to pay down debt.   

Along the lines of a recent post here, here’s an LA Times piece on Romney’s ridiculous statements regarding Medicare.

Before the presidential campaign hurtles off to the next skirmish, take a moment to notice what happened this week: Mitt Romney vowed to increase the national debt by $716 billion, and no one so much as blinked.

Romney’s handling of the $716 billion in Medicare cost cuts comes close to being a perfect example of why federal spending so seldom gets cut – everyone favors restraining government spending in theory, but voters seldom love it in practice.

To recap: As part of the Obama health reform law, Congress voted to reduce payments to certain hospitals, insurance companies and other healthcare providers by about $716 billion over the next 10 years. The law directed the money to help pay for expanded prescription drug coverage for seniors – eliminating the so-called doughnut hole – and to help cover younger Americans who do not have insurance at their jobs.

When Rep. Paul D. Ryan, Romney’s choice as his running mate, drafted his budget plan, he included repeal of Obama’s health law. But he kept those Medicare cost cuts and applied the savings to reducing the federal deficit. Why wouldn’t he, after all? Ryan was trying to close a huge budget gap, and here was a rare case in which Congress had already agreed to a spending restraint that was relatively non-controversial — the hospitals and provider groups had agreed to the cuts, and they would not reduce benefits to Medicare patients.

But Ryan’s decision – logical though it may have been in the budget context – blunted a Republican attack on Obama for “raiding” Medicare. So on Wednesday, Romney made clear that he would eliminate the Medicare savings, and Ryan fell into line.

The move would mean Medicare’s main trust fund would run out of money in just four years, rather than 12 under Obama’s plan. And because Romney did not offer any new revenue to cover the $716 billion cost, nor any offsetting reductions, the price tag would simply be added to the national credit card – worsening the “prairie fire of debt” that Romney decried in a speech this spring.

How much is $716 billion? It’s equal to half of all the money that Congress agreed to cut last summer after a two-month standoff over the national debt.

Needless to say, both sides indulge in this sort of thing during a campaign year. This week, Obama was in Iowa, pledging support for a wind-energy tax credit that’s popular with Iowa farmers. But the tax credit costs a bit over $1 billion a year, roughly one-seventieth of Romney’s Medicare move.

Whether Romney’s move helps him win the election remains to be seen – it’s too early to know who is winning the campaign battle over Medicare. But if he does win, this week’s decision will make his governing tasks $716 billion harder.

Beezer.  Does Romney even know what he’s talking about?  It seems not.