This post is an attempt to take a ‘look back’ and summarize the basic economic debate we’re having today in American and in Europe too, for that matter.

One side is alarmed at the size of governments deficits and, as a result, also alarmed at the growing debt that is being accumulated.    Their preferred corrective is to cut government spending and thus deficits and debt.  If that is not done as soon as possible, then nations with high deficits and debt are in danger of experiencing high interest rates and high inflation rates.  Under that scenario nations might not be able to shoulder their financial obligations and could renege on their obligations with catastrophic results.  This side also argues that without some short term pain, in the long run the pain will be far more severe.   That’s pretty much the basic argument being made by this side.

The other side  argues that a great and severe recession is the cause of the current deficits, and the long term threat of debt is being created primarily by  out of control increases in health care spending, both in the public and the private sector.  That side prefers to attack both problems by spurring economic growth and incomes, which ends the recession and thus decreases or eliminates the current deficits, while at the same time, reforming health care systems in an effort to attack the long term debt issue that is being created by out of control health care spending increases.  That’s pretty much the other side.

So the common ground is that deficits and debt must be decreased.  The dispute is over how best to accomplish this common goal.

So far a major stumbling block is that one side wants to concentrate primarily on government spending cuts and is reluctant to increase taxes and revenue.  The other side wants to rely on both tax increases and spending cuts.  At this particular moment the spending cuts only side has accepted modest tax increases and now wants to do more government spending cuts.   The revenue increasing side claims it has already accepted large cuts.  Neither side is happy with the size of each other’s concessions.

With this concentration on cuts and revenue, the basic idea of improving the economy (a goal both sides say they want) is sort of an orphan and neither side has made much in the way of concession to the other.   The cut side has maintained throughout that tax cuts are the best way to improve economic performance.  The revenue side points out that tax cuts haven’t historically correlated to having this effect, and anyway, tax cuts increase deficits without offsetting spending cuts.

In terms of this argument, neither side has had enough of a political victory to implement their preferred policies.   The revenue side has managed to get some increased, short term spending, but that’s it.  The cut side has managed to get some spending reductions (about $2.4 trillion over 10 years) but not the size in spending cuts it wants.  The end result economically is a muddle and, so far, while there’s been some improvement in economic performance  it is considered weak and vulnerable to any further economic headwinds.

This is pretty much a summary of the debate in the US.   The question is which side’s preferred methods might work best if they could be applied forcefully:  Big cuts, or Big job increases?  Some clues are coming out of Europe, which faces similar concerns over deficits and debt.  There are important differences between European economies, governments, and policies compared to those in the US.  One cannot ignore these differences in any honest analysis.   But the concerns are the same.  What are the differences?  One, Europe is many countries that share one currency.  Unlike the US there is no European central bank which can easily enforce and coordinate currency and monetary policies; Two, each country has its own sovereign government and its own unique political structure, which also impedes coordinated fiscal policies too.

In Europe the cuts people won the day politically early on.  They demanded so-called ‘austerity’ level spending cuts on some members whose economies were suffering the most, even if their fiscal policies were relatively conservative (lower debt levels, no deficits) when the recession showed up.  This hasn’t worked very well, as a practical matter.  Those countries who’s economies seemed healthy before the recession (Ireland, Spain, Italy being the foremost examples)  have seen their economies worsen substantially, showing unemployment rates not seen since the Great Depression.   Even Great Britain, which is essentially a European economic engine but has its own currency, has suffered from austerity policy application and now hovers on a ‘double dip’ recession.   As a result, the EU governing bodies have lightened up on monetary policies and, as was done in the US, is providing backstop guarantees, and liquidity facilities,  to the most troubled EU countries.  That’s helped, particularly in regards to the interest rates being charged the most troubled countries.  Unemployment, however, remains very stubborn.

And that’s pretty much where everything stands.  Neither side has marshaled enough political power to translate their viewpoints into strong policies.  In the US, for example, infrastructure or other direct hiring such as direct money transfers to cash strapped states (something the EU cannot do) are not being done, and that’s a key component of the revenue side’s policies.   For the cost cutters, major benefit and spending cuts in social safety net spending like Social Security, Medicare and Medicaid are extremely unpopular.  Outside of Obamacare, which implements $716 billion in cost savings and implements a 3.8% tax hike to help match revenues with bills, nothing has been accomplished in an area both sides agree is otherwise going to be a major driver in national debt (private and public).

Beezer here.  So it goes, back and forth and extremely divisive at the political level.  That said, public opinion has been and continues to be in favor of job creation over almost anything else.  That would seem to politically favor the revenue side whose policies heavily favor government spending on creating jobs via infrastructure spending, or in direct money transfers to states.

Tomorrow’s vote is first about an immediate threat to our democracy.  This threat comes primarily from the domination of large, mostly multi-national, corporations who wish to lock in their dominance by using government to limit competition.  The US Supreme Court’s Citizens United decision accelerated this effort because it unleashed a flood of corporate cash, much of it provided in secret, into our political campaign system.

This multi-billion dollar effort is causing another, longer term problem:  We as a nation are not addressing our real needs and this means we are innocently taking massive and unnecessary risks.   What are those risks?

•  We are running larger deficits and debt than is necessary.  Yet we are being pandered to, again, with more tax cuts that are guaranteed to further increase deficits and debt.
•  We are much too dependent on fossil fuel energy.  Billions of people are climbing out of poverty worldwide and demanding a larger share of fossil fuel energy, which guarantees the price of these fuels will climb.  Yet we have no national program to install sustainable, clean energy systems which would insulate our country from the increasing cost of fossil fuels.   Importantly, this dependence threatens our national security as we are in danger of being in continual wars overseas protecting our fossil fuel sources.
• We are over using chemicals and hormones in our food industry.  This is not only degrading our environment but is also creating an epidemic of ill health outcomes, like diabetes, that are taxing our health care system and costing us hundreds of billions of dollars in unnecessary spending annually.
• Our weather is very likely to become increasingly more severe due to global warming.  Yet we have not begun national programs, such as those for sustainable energy or more robust infrastructures, to prepare for dealing with these probable weather challenges.
• Our financial system is lopsided, favoring very large banking conglomerates that are shielded from competition and the dangers of their risk taking.    We have, so far, continued to socialize their losses which has removed their caution to risk taking.
• Our tax structure too much favors the incomes of the wealthy over the incomes of a majority of Americans.  Privileged rates are applied to wealthy incomes from dividends, capital gains and carried interest.  The tax laws are shot full of tax avoidance schemes designed for the wealthy like unified charitable trusts, irrevocable trusts, offshore accounts and trusts and estate taxes that avoid capital gains taxes altogether.   Combined with broad based tax cuts, these schemes guarantee high deficits and debt and the underfunding of necessary government programs like social security, medicare and medicaid.
• Our regulatory structures are too weak.  From bank risk taking, to environmental abuse, to a medical system focused on the more profitable business of treating symptoms rather than creating cures, regulators all too often look the other way or become enablers of corporations only concerned with the most profitable activity irrespective of the activity’s bad outcomes for individuals and the nation.

Beezer here.  Unfortunately one of our two political parties, the Republican party, is ‘all in’ supporting the efforts of multi-nationals.  They enable all these bad outcomes.  They support unlimited corporate campaign spending that dominates our national discussions and hides the real risks we are taking.  They favor a tax system tilted heavily in favor wealthy incomes, which in turn aggravates income inequality and suppresses both job creation and income gains for the majority of working Americans.   They pander to our want of lower taxes while endangering our needs for a safer, healthier and more competitive economy.   This is the precipice we face in tomorrow’s national elections.  If Republicans win tomorrow, then our needs will never be addressed without encountering some massive disaster of epic scale.  It’s that important.  We need to regain our ability to self-govern. 

Wendell Potter, former CIGNA executive and insurance abuse whistleblower, points out an obvious problem with Rep. Ryan’s Medicare reform using vouchers:  Health care costs have been going up at twice the rate of inflation for more than a decade, so Ryan’s vouchers won’t come close to paying for seniors’ medical care.   The current Medicare program guarantees a high percentage of health care costs payments, irregardless of inflation.  In other words Ryan’s plan will downshift an ever increasing portion of health care expenses from the federal budget to the individual budgets of the elderly.

Last month the government reported that the consumer price index had increased 1.7 percent between June 2011 and June 2012, meaning we’ve been paying on average 1.7 percent more this year than last year for goods and services. The cost of medical care, however, shot up 4.3 percent — more than two and a half times the CPI. And that was not an aberration. The cost of medical care has been rising faster than the cost of just about everything else in this country for years. That’s one of the reasons why private health insurance premiums have been increasing so rapidly. That and the fact that insurance corporations have to report a big enough profit every quarter to satisfy their shareholders and Wall Street analysts.

Health insurance premiums rose 9 percent in 2011 to an average of $15,073 for an employer-subsidized family plan, according to the Kaiser Family Foundation. Over the past 10 years, premiums have increased a “whopping” (Kaiser’s word) 113 percent, much faster than wage increases and general inflation. So you can see what almost certainly would happen to Medicare beneficiaries beginning in 2022: They would have to shell out more and more money out of their own pockets every year just to cover the premiums their private insurers would charge them.

That’s bad enough, but consider this: Health insurers began implementing a strategy several years ago to move all of us into high-deductible plans, meaning every one of us will soon be paying (if we’re not already) thousands of dollars of our own money for medical care before our insurance company will pay a dime. Insurers adopted this strategy because they have failed miserably at controlling health care costs. If you can’t control those costs, the only way you can make Wall Street-pleasing profits if you’re an insurer is to keep hiking premiums and shifting more of the cost of care to policyholders.

Under the privatized Medicare program Ryan envisions, the effect of that cost-shifting strategy would be disastrous for the growing number of senior citizens who are finding that every year they have less and less money to make ends meet.

Beezer here.  Ryan’s entire budget is aimed at slashing so-called ‘social’ spending, either privatizing it (social security), reducing it’s usefulness (medicare and medicaid), or simply doing away with it altogether (all other social spending, including programs aimed at children and women).   For the wealthy who have no need for any of these programs, this is just what the doctor ordered because it means they won’t have to bother with paying more taxes.   The problem for the average voter is that none of this will ever be revealed to them.  The GOP has enough money to drown out any such analysis under a cacophony of mis-leading if not outright false, TV commercials.  We could and should have an open discussion about how to actually ‘bend the curve’ of health care cost expenses, but the GOP has never offered anything along those lines.  Instead every savings Obama wants to make in health care costs (like getting better pricing on drugs) is labeled a ‘cut in Medicare’ by the GOP.   And, of course, the Ryan idea of substituting vouchers to shift costs down to elderly private budgets.   

New York Times journalist Annie Lowry reports, in a Sunday article:

In 2009 and 2010, total nationwide health care spending grew less than 4 percent per year, the slowest annual pace in more than five decades, according to the latest numbers from the Centers for Medicaid and Medicare Services…..

A recession has caused part of the slowdown, but health care experts and economist’s say the slowdown is greater than the recession impact.

Still, the slowdown was sharper than health economists expected, and a broad, bipartisan range of academics, hospital administrators and policy experts has started to wonder if what had seemed impossible might be happening — if doctors and patients have begun to change their behavior in ways that bend the so-called cost curve….

“The tectonic plates might be beginning to shift,” said Karen Davis, the president of the Commonwealth Fund, a nonprofit research group in New York. “It’s hard to believe everything that’s been tried over the last decade to slow spending wouldn’t be making a difference.”

Experts were surprised, for instance, at a drop in spending on some hospitalized seniors — people enrolled in Medicare, whose coverage the recession should not affect. They also noted that some of the states where health care spending slowed most rapidly were states that were not hit particularly badly by the recession, suggesting that other factors were at play.

“The recession just doesn’t account for the numbers we’re seeing,” said David Cutler, a Harvard health economist and former adviser to President Obama. “I think there’s much more going on.”

The implications of a bend in the cost curve would be enormous. Policy makers on both sides of the aisle see rising health care costs as the central threat to household budgets and the country’s fiscal health. If the growth in Medicare were to come down to a rate of only 1 percentage point a year faster than the economy’s growth, the projected long-term deficit would fall by more than one-third.

The loss of private insurance has been going on for almost two decades.  It’s not a phenomenon unique to any particular administration.  As insurance rates rose quickly, employers reduced benefits and increased employee co-pays, which has an effect on health care use.  But still health care costs rose smartly.  Maybe it’s hitting some type of wall, some sort of limit as to what health care can charge for services.  Maybe employers, hospitals and employees are beginning to push back on the fee for service type of care.

“In Massachusetts, we had a lot of political pressure to understand the growth in costs as unsustainable,” said Sandra Fenwick, the chief operating officer of Children’s Hospital Boston, which has put more than 100 reforms into effect, saving millions of dollars, in the past four years. “We had to figure out how we were going to be part of the solution, not part of the problem.”

Ms. Davis of the Commonwealth Fund said that “a lot of the big gains have come from keeping people out of the hospital and the emergency rooms.”

“Five or seven years ago, the private sector started rewarding providers that got their patients’ chronic conditions like diabetes and asthma under control,” Ms. Davis said. “That was couched as a quality-control measure, or putting an emphasis on chronic-disease care. But the direct result is going to be a reduction of hospitalization.”

Moreover, experts said not to discount the accountable-care revolution just because it remained small or because the changes implemented by the Obama health care law had not come into full effect yet.

“In the past, these slowdowns have occurred not just because of the direct effect of reforms, but because of greater attention to reforms changing provider and patient behavior,” said Mark B. McClellan, the economist and doctor who ran Medicare and Medicaid under President George W. Bush.

Beezer here.  Oh well, it would be nice if this moderation, or flattening out, of health care cost increases continues.  Nobody knows if it will.  That’s the problem with projecting trends out into decades, they’re almost always significantly off.  If they do continue, then a lot of pressure on longterm debt is lifted because all those debt projections assume the past rates of growth in health care costs.

Former Labor Secretary under President Bill Clinton, economist Robert Reich, writes in his blog that the Social Darwinism of the late 1800s is back in vogue in the Republican Party.

During this period, known as the Gilded Age, so-called ‘robber barons’ accumulated massive wealth and openly bribed legislators to gain government aided advantages.  Women couldn’t vote, blacks still worked under Jim Crow, and income inequality was huge.

It was an era when the nation was mesmerized by the doctrine of free enterprise, but few Americans actually enjoyed much freedom. Robber barons like the financier Jay Gould, the railroad magnate Cornelius Vanderbilt, and the oil tycoon John D. Rockefeller, controlled much of American industry; the gap between rich and poor had turned into a chasm; urban slums festered; women couldn’t vote and black Americans were subject to Jim Crow; and the lackeys of rich literally deposited sacks of money on desks of pliant legislators.

Most tellingly, it was a time when the ideas of William Graham Sumner, a professor of political and social science at Yale, dominated American social thought. Sumner brought Charles Darwin to America and twisted him into a theory to fit the times.

Few Americans living today have read any of Sumner’s writings but they had an electrifying effect on America during the last three decades of the 19^th century.

To Sumner and his followers, life was a competitive struggle in which only the fittest could survive – and through this struggle societies became stronger over time. A correlate of this principle was that government should do little or nothing to help those in need because that would interfere with natural selection.

Listen to today’s Republican debates and you hear a continuous regurgitation of Sumner. “Civilization has a simple choice,” Sumner wrote in the 1880s. It’s either “liberty, inequality, survival of the fittest,” or “not-liberty, equality, survival of the unfittest. The former carries society forward and favors all its best members; the latter carries society downwards and favors all its worst members.”

Sound familiar?

Today’s Republican mantra defining the wealthy as ‘job creators’ has its origin in Sumner’s world view.

 Here’s Sumner, more than a century ago: “Millionaires are the product of natural selection, acting on the whole body of men to pick out those who can meet the requirement of certain work to be done… It is because they are thus selected that wealth aggregates under their hands – both their own and that intrusted to them … They may fairly be regarded as the naturally selected agents of society.” Although they live in luxury, “the bargain is a good one for society.”…..

Social Darwinism offered a moral justification for the wild inequities and social cruelties of the late nineteenth century. It allowed John D. Rockefeller, for example, to claim the fortune he accumulated through his giant Standard Oil Trust was “merely a survival of the fittest.” It was, he insisted “the working out of a law of nature and of God.”…

Not until the twentieth century did America reject Social Darwinism. We created the large middle class that became the core of our economy and democracy. We built safety nets to catch Americans who fell downward through no fault of their own. We designed regulations to protect against the inevitable excesses of free-market greed. We taxed the rich and invested in public goods – public schools, public universities, public transportation, public parks, public health – that made us all better off.

In short, we rejected the notion that each of us is on his or her own in a competitive contest for survival.

But make no mistake: If one of the current crop of Republican hopefuls becomes president, and if regressive Republicans take over the House or Senate, or both, Social Darwinism is back.

Beezer here.  Are we really going to roll back Social Security, Medicare and Medicaid, labor bargaining rights, the 40 hour work week, the Environmental Protection Agency?  If you listen to the current crop of Republican candidates for President, they all sound like acolytes of Sumner.   Have they actually studied Social Darwinism?  Or are they just repeating the mistakes made more than a century ago out of their pure ignorance?  Maybe the public needs to learn what America was like when Social Darwinism did rule American politics. 

The GOP has long since given up on using facts and mathematics to decide their policies because the facts and the arithmetic show GOP policies to be fantasies.

Nobel economist Paul Krugman, who blogs in the New York Times and forms his opinions after studying the facts and the mathematics, has become possibly the most damaging thorn in the side of the GOP as a result.    His most recent blog dismantles GOP charges that President Obama has somehow promoted more government spending and, as a result of that spending splurge, government spending has grown as a percentage of Gross Domestic Product (GDP).

The Obama Spending Non-Surge

Blogging is a lot like teaching the same class year after year; you’re always encountering the same arguments you’ve refuted in the past, and you want to demand why they weren’t listening the last time.

Anyway, what I’m seeing in comments and reactions, once again, is the claim that Obama has presided over a vast expansion of government — a claim backed not by describing any specific programs, but by pointing to the share of federal spending in GDP. Indeed, federal spending rose from 19.6% of GDP in 2007 to 23.8% in 2010 (it was briefly 25 in 2009, but that was a number distorted by the financial bailouts). So there has been a roughly 4 points of GDP rise in the spending share. What’s that about?

Well, part of the answer is that the ratio is up because the denominator is down. According to CBO estimates, in fiscal 2010 the economy operated about 7 percent below potential. This means that even if what the government was doing hadn’t changed, the federal spending share of GDP would have risen by 1.4 percentage points.

Then, look inside the budget data (pdf), specifically at Table E-10. You’ll see a surge in spending on “income security”; that’s basically unemployment insurance, food stamps, and similar items. In other words, spending on safety-net programs is up because the economy is depressed, and more people are falling into the safety net.

You’ll also see a sharp rise in Medicaid; again, this is because the lousy economy has pushed more people into hardship, making them eligible for the program.

I’ve done a bit of number-crunching, and here’s my allocation of the sources of the rise in federal spending as a share of GDP:

So a depressed economy plus safety net programs that have grown as a result of a depressed economy are, overwhelmingly, the real story here.

What’s in that “other” category? Some of it is stimulus spending. Some of it is the leading wave of the baby boomers, who are starting to collect Social Security and enter Medicare. Some of it is rising health care costs.

What isn’t there, no way, nohow, is a massive expansion of government, which is a figment of the right wing’s imagination.

Beezer here.  That darn Krugman!  There he goes again using his arithmetricks.