The more you learn about how an economy actually works, or doesn’t work as was recently the case, the more you realize some supposed leadership types have no idea what they are talking about.  Literally no idea.

Take for example Republican presidential candidate Rick Santorum’s scolding of Americans for their ‘immoral’ lifestyles and their tolerance of alternative lifestyles.  Professor Robert Reich makes a legitimate point that Santorum may be scolding the wrong folks.

There is moral rot in America but it’s not found in the private behavior of ordinary people. It’s located in the public behavior of people who control our economy and are turning our democracy into a financial slush pump. It’s found in Wall Street fraud, exorbitant pay of top executives, financial conflicts of interest, insider trading, and the outright bribery of public officials through unlimited campaign “donations.”

Meanwhile, Paul Krugman claims applying austerity policies in our current slump not only doesn’t work, but makes things worse.   And of course Krugman supplies a link to a new academic paper about to be published that provides a factual based argument against austerity.  Krugman says it’s the equivalent of the ancient medical treatment of bloodletting:  A purge that instead of helping, makes the patient sicker.

Brad DeLong and Larry Summers have a paper in progress about fiscal policy in a liquidity trap; some of the analytics here. The bottom line, fleshed out with a lot of evidence, is one that others — including me and Christy Romer — have been arguing for a while: expansionary fiscal policy under these conditions doesn’t just aid the economy in the short run, it may well even improve the long-run fiscal prospect. And austerity may be self-defeating even in fiscal terms.

If this is right (and I think it is), austerity-loving pundits and policy makers really are like medieval doctors who believed in treating illness by bleeding their patients, making the patients even sicker, leading to more bleeding.

Meanwhile, over at Economist’s View, professor Mark Thoma highlights some recent work by economist Peter Diamond who, along with economist Emmanuel, believes the optimal maximum tax rate on income is somewhere between 50% and 70%.

…Diamond also pointed to some of his own recent research, with economist  Emmanuel Saez of the University of California at Berkeley, which found that the  optimal marginal income tax rate on the highest earners — those making $400,000  or more per year — is well above the current 36 percent, or even the 39 percent  level that existed during the 1990s.

“The Washington debate right now is between the Bush and Clinton tax rates on  the top,” Diamond said. But his work with Saez shows that a more efficient rate  for raising revenue — without significantly deterring the wealthy from trying to  earn more — is “somewhere between the tax rate at the top in Reagan’s first  administration, which was 50 percent, and the tax rate at the top from the  Johnson years up to the Reagan change, which was 70 percent.” …

And from a related article published from an MIT economics forum:

To be sure, the basic numbers on economic inequality in the United States are striking, as detailed at the event. In 1980, the top 1 percent of U.S. households earned about 10 percent of the nation’s income; today that top percentile receives about 25 percent of income. The top 10 percent of households accounted for a bit more than 30 percent of income from World War II until about 1980, but now receives 50 percent of all income

Beezer here. As Krugman always does, Thoma provides a link to the original article.  Funny how these academics insist on linking to the underlying papers instead of making statements without proper research to back them up.  Of course, if you don’t have any research to support your opinions it’s impossible to provide any.  Austerity is exactly the wrong policy.  We are not overtaxed, or at least the wealthy certainly are not overtaxed.  And if anyone has displayed anti-social or immoral behaviour it’s been coming from the top down, not the bottom up.  But none of this is about truth anyway.  It’s all about power and suppressing competition.  Not capitalistic, and not Democratic either.

The following information comes from a report by the Committee for a Responsible Federal Budget  (CRFB).   The CRFB is hardly a liberal organization and is mostly considered a ‘centrist’ one that warns of impending doom if America doesn’t get it’s fiscal house in order–more along the Simpson Bowles channel in other words.  We disagree entirely, of course, because the ‘centrist’ theme takes aim at all the social programs installed beginning with social security during the Great Depression 80 years ago.  Our real problem is the crony capitalism we’ve developed the past 40 years where the wealthy are given all the tax breaks because of their money influence on Congress.  The result has been increasing deficits and debt due to lack of government funding.  It’s not a coincidence that the only administration to produce surpluses was a Democrat one, that of President Bill Clinton.

Gingrich’s tax and spending policies would add $7 trillion to the debt over the intermediate term.  Romney’s policies would add $250 billion.  Santorum’s policies would add $4.5 trillion.  Only Ron Paul, who would essentially entirely do away with Social Security, Medicare and Medicaid, the Environmental Protection Agency, the Food and Drug Administration–in short all discretionary spending other than that for defense, which he would also cut drastically by simply installing a non-involvement policy with the rest of the globe–actually cuts the debt by $2.2 trillion.

There are some interesting figures in the article.  One is that eliminating the health care reform law adds $80 billion to the debt.   Like most policy organizations, CRFB realizes health care needs structural reform in that the system needs to move away from a fee based business model to a health outcomes model.   All the GOP candidates ignore this truth and just shift the cost to families while doing nothing to control cost inflation created by the fee based model.

The big negatives for reducing debt in all the proposals comes from giving more tax cuts to businesses and the wealthy.

The take away?  The GOP is not now nor has it ever been interested in reducing deficits or debt.  The current crop (except for Ron Paul who’s policies would never be enacted for good reason) are all dissimulators, manipulators of data who know the mass media will never get around to actually studying the proposals so the public will be kept ignorant of the truth, if not completely mis-informed.

Beezer here.  From crony capitalism to journalistic malfeasance the country’s economic health is being systematically dismembered.  It’s a sad sight to witness.  Our only hope is that somehow the public will see through the circus and demand fairness in the tax system, and a restoration of social welfare as one of the nation’s top priorities.  Once again hat tip to economist’s view which linked to a Baseline Scenario article, which in turn linked to the CFRB research.

Berkeley economics professor Brad DeLong worked at the Treasury Department under Treasury Secretary Rober Rubin when then House Speaker Newt Gingrich provoked a debt ceiling crisis in 1995 during the Clinton presidency.  In a post on his blog Grasping Reality, DeLong recalls those days and what Treasury officials were thinking about handling the crisis.

Mark Tushnet asks a question:

Balkinization: [L]iberals now appear to be trying to put an off-the-wall idea on the table…. For liberals it appears to be the idea that legislation setting a debt ceiling is unnecessary because of Section 4 of the Fourteenth Amendment. Is that an off-the-wall argument? One test might be this: Can anyone locate any writing, preferably legal scholarship but even off-hand musings will do, making that argument prior to, say, November 5, 2010?…

First, Bruce Bartlett–the most aggressive advocate of the Constitutional Debt Ceiling Option–is not a liberal but a conservative: a long-time aide to Jack Kemp and a Senior Treasury Official in the Reagan Administration. Mark needs to consult his program.

Second, the issue has little history for good reasons. Before January 2011 the issue arose rarely. The Gephardt Rule was: vote on a budget, and you are also voting on the debt ceiling increase needed to put that budget into effect. That coupling of spending with debt issue authorizations was one of the pieces of the government Boehner and company broke last winter.

Then-Speaker Newt Gingrich provoked a debt ceiling crisis in 1995 by suspending the Gephardt Rule. Between November 15, 1995 and March 29, 1996, Secretary of the Treasury Rubin declared a debt-issuance suspension period and took various extraordinary steps to avoid breaching the legislated debt ceiling, as detailed in https://www.tsp.gov/PDF/formspubs/GAO-AIMD-96-130.pdf.

During that period, various Treasury staff and others had informal, private discussions about Treasury options if Secretary Rubin ran out of room to keep amortizing the debt and paying the bills without breaking the debt ceiling.

The general tenor of the discussions that I heard was that:

1. Raising outré scenarios and possibilities publicly before they became imminent was destructive of market confidence and profoundly unhelpful.
2. Whatever the Treasury did, §4 of the 14th Amendment absolutely, totally, completely prohibited it from ever, ever defaulting on debt it had issued–whether financial markets saw that debt as a high-quality full-faith-and-credit obligation of the United States or not.
3. The Treasury had a legal obligation to pay all of the bills for discretionary and mandatory spending that had been duly authorized by law, and the Treasury had a legal obligation not to issue debt above the limit. What should the Treasury do if these two legal obligations came into conflict? It was not clear. That’s why the Gephardt Rule was a good thing.
4. It was much, much better for the country if these two legal obligations never came into conflict: for the Treasury to fail to obey Congress’s instructions to spend was bad; for the Treasury to issue debt above the debt ceiling was bad–and such debt would probably not be salable at normal Treasury-bond prices. Every nerve should be strained to keep from going there.

The 1995-1996 crisis was resolved in the winter of 1996 when Secretary Rubin informed Congress that he was going to deal with the situation by not mailing out the March Social Security checks. Gingrich then knuckled under.

The lesson I draw from history is that a bunch of us have been aware of this possible conflict-of-laws for quite a while. That Mark cannot find legal academics who have been worrying the issue seems to me to tell us more about what legal academics do than what a court would decide (or, more likely, not decide).

Beezer here.  At some point the public will come to understand that Republicans are crazy.  Probably about the time Geithner informs Congress the Social Security checks won’t be going out.