Robert Kuttner

The Joys of Recession

(Flickr/jima)
The Social Security Trustees have just projected that the date by which the system will no longer be able to meet all of its payouts has been moved up three years from 2036 to 2033. This has prompted the usual clucking about the need for drastic benefit cuts of partial privatization right now. What nobody seems to have noticed is that the primary reason for the pessimistic forecast is the lousy economy, particularly the high unemployment and depressed wages. Social Security is of course financed by payroll taxes. There’s no better way to put the system into the red than to have a recession and to have 93 percent of the gains to go to the top one percent (whose payroll taxes are capped). In the late 1990s, when we had full employment, in one three-year period Social Security’s Year of Reckoning was set back by eight years, from 2029 to 2037. Full employment would solve all the system’s problems. And if wages rose with productivity growth, as they did until the late 1970s, Social...

Summers' Colleague Criticizes Kim

(AP Photo / Michael Dwyer)
Larry Summers has been unnaturally silent on President Obama’s surprise decision to pass him over for the World Bank presidency in favor of Dartmouth University president and public health hero Jim Yong Kim. Well, one of Summers’ closest chums at Harvard’s Kennedy School, Lant Pritchett, has now gone public with a scorching blast at Kim. Pritchett told Forbes magazine, “It’s an embarrassment to the U.S. You cannot with a straight face say this person is the most qualified to lead the World Bank.” It was Pritchett, while working under Summers at the World Bank in 1991, who drafted the embarrassing memo that Summers signed on the supposed economic benefits of exporting polluting industries to third world countries. Pritchett later contended that the leaked parts of the memo were doctored to omit his ironic intent. The full memo never surfaced. Pritchett took the fall for Summers’ embarrassment when he was up for the presidency of Harvard. So, it’s fair to say these senior and junior...

Jobs versus JOBS: Obama’s Mixed Message

(AP Photo/Charles Dharapak)
More mixed signals from the Obama administration on jobs: A craven capitulation on regulation in the name of job-creation, and a surprisingly good speech by a top official on the importance of American manufacturing. President Barack Obama will shortly sign the so-called bipartisan “JOBS” Act. The law is neither about creating jobs, nor is it bipartisan. The law exempts an estimated 80 percent of new publicly traded corporations from the Securities and Exchange Commission’s (SEC) usual disclosure requirements for up to five years after their initial public offering (IPO). The law was promoted by investment bankers, venture-capital firms, and the Republican leadership, who were all alarmed that IPOs (not surprisingly) have declined in today’s distressed economy. The remedy? Gut investor protections, the better to promote new stocks. The premise is that by facilitating new stock offerings, the law will create jobs. Mainly, it will create jobs for one set of lawyers working to exploit...

A Surprise World Bank Pick

(AP Photo/Haraz N. Ghanbari)
President Barack Obama startled handicappers by selecting Dartmouth President Jim Yong Kim as the U.S. candidate to lead the World Bank rather than the reported front-runner Larry Summers, Obama's former National Economic Council director. The Korean-born Kim is a medical doctor, anthropologist, and MacArthur fellow, best known for his pioneering work to fight HIV and tuberculosis in the Third World. Kim helped develop treatments for drug-resistant TB, and then successfully pushed to reduced the cost of anti-TB drugs. He is close associate of Dr. Paul Farmer, the lead founder of Partners in Health and subject of Tracy Kidder’s 2003 book, Mountains Beyond Mountains. While Third World leaders had pushed for an alternative to Summers, Kim was a total surprise. The appointment is a two-fer in the sense that it gives the job both to an American and to an Asian, as well as a welcome breakthrough in that the presidency goes to someone with on-the-ground work fighting poverty and disease as...

Single-Payer and the Supreme Court

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When the Supreme Court begins its extraordinary three days of hearings on the constitutionality of the Affordable Care Act, one of the oddities will be an amicus brief challenging the act’s individual mandate from 50 doctors who support national health insurance. They point out the inconvenient truth that, contrary to the administration’s representations, the government did not need to require citizens to purchase insurance from private companies in order to meet its goals of serving the health-care needs of the populace. Congress could have enacted a single-payer law. Since the Constitution unambiguously gives Congress the power to tax, there has never been a serious constitutional challenge to our tax-supported systems of health insurance, Medicare, and the services of the Veterans Health Administration system. In the words of the brief: Amici thus submit this brief for the purpose of disputing the primary tenet of the Government’s position, that Congress cannot regulate the...

Preventing Wall Street’s Latest Sucker-Punch

(AP Photo/J. Scott Applewhite)
Mercifully, the misnamed JOBS Act did not sail through the Senate yesterday as expected. The Republican-sponsored “bipartisan” act is a Wall Street wish list of exemptions from investor protections that would allow some 80 percent of new stock offerings to avoid the usual disclosures. Except for its Orwellian, contrived acronym (Jumpstart Our Business Startups) JOBS has nothing to do with jobs. More likely, it stands for Just Obfuscate with B.S. The bill would even undo the Sarbanes-Oxley rules, enacted after the Enron scandal, prohibiting “stock analysts” from touting shares in order to help investment bankers get underwriting business. The Obama White House, always eager to curry favor with Wall Street donors and looking for something it could claim as bipartisanship, indicated it would sign the bill. Shame. With that signal, the measure sailed through the House with only 23 Democrats voting against. Shame again. Finally, the chair of the Securities and Exchange Commission, Mary...

Pick Me! Pick Me!

(AP Photo/Mark Lennihan)
Why does Larry Summers have more lives than a cat? He was fired as president of Harvard, did not exactly serve President Obama brilliantly as economic policy czar, and now seems to be in line for the presidency of the World Bank, a post traditionally chosen by the president of the United States. The deadline for the selection is this Friday, March 23. The appointment is supposed to be made official at the April meeting of the World Bank. Earlier this month, the White House leaked a short list of three names, Summers plus U.N. Ambassador Susan Rice and Massachusetts Senator John Kerry—neither of whom want the job. Brilliantly subtle signaling, that. Pointedly excluded from the list was Columbia University economist and world citizen Jeff Sachs, an adviser to the U.N. Secretary General Ban Ki-moon and a very serious crusader against world poverty. Sachs took the unprecedented and marvelously transparent step of nominating himself and publicly campaigning for the job, but he is a onetime...

With Santorum’s Goofy Views, Why’s Obama Down in the Polls?

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What should we make of those scary poll numbers? The most recent New York Times /CBS poll, conducted March 7 to March 11, reported a big drop in President Obama’s favorability ratings, which declined to 41 percent from 50 percent just a month ago. This occurred during a period when the economic news was relatively good—the economy created more than 200,000 jobs for the third straight month; gas prices rose but not steeply; and Obama acquitted himself well on the treacherous terrain of resisting Iran’s nuclear ambitions without embracing war. It was also a period when the Republicans seemed to be imploding with women, thanks to their clumsy blurring of the issues of abortion and contraception. The White House has revved up its outreach to women voters, who presumably don’t want the government messing with their right to contraception. Yet in this poll, the president’s approval rating declined among all groups, even women. What gives? First, it’s only one poll. In the most recent Gallup...

Geithner's Latest Alibi

(AP Photo/Marco Ugarte)
Treasury Secretary Tim Geithner, chiding Wall Street for trying to undermine enforcement of the Dodd-Frank financial-reform bill, is trying to rewrite history. He would have us believe that regulators lacked the power to prevent the financial collapse. In fact, they had plenty of power. The problem was that Geithner and company were in industry’s pocket, and didn’t use the power they had. Writing in today's Wall Street Journal , in an op-ed piece titled “Financial Crisis Amnesia,” Geithner contends : Regulators did not have the authority they needed….A large shadow banking system had developed without meaningful regulation, using trillions of dollars of short-term debt to fund inherently risky financial activity. The derivatives market grew to over $600 trillion, with little transparency or oversight. Household debt rose….with a large portion of those loans originated with little or no supervision and poor consumer protections. Jesus wept! The amnesia is Geithner’s. Take these in turn...

Bankers' Bonanza

Today, the European Central (ECB) bank opened its loan windows to Europe’s commercial banks, lending some 800 banks nearly 530 billion euros at just one percent interest. It’s the second such rescue operation since Mario Draghi became ECB chief in December, when Europe’s central bank pumped out over 489 billion Euros. This policy is an improvement on the ECB’s earlier tightwad stance (thank heavens the new top guy is Italian rather than German), but it still reflects a terrible double standard. Banks can refinance their operations, but countries can’t. Central bankers with guilty consciences extract fiscal austerity policies on pummeled nations like Greece to offset their more liberal monetary interventions. The slogan might as well be: bankers first, women and children last. It’s a recipe for treading water, not for broad based recovery.

A German History Lesson

Yesterday, the German Parliament relented and agreed to let the Greek debt restructuring go forward, but only the price of crushing austerity for the Greek economy. This is a widespread attitude in Germany, where aid to the Greeks is unpopular. The other day, Jörg Krämer, chief economist for Commerzbank in Frankfurt, said of the Greeks, “If you live beyond your means, then you can repair your balance sheet only if your consumption goes down.” But the Germans might take a moment and reflect on their own history. In the aftermath of World War II, the Allies, remembering the disastrous consequences of German reparations after the First World War, did not insist on their pound of flesh. The entire Nazi public debt, amounting to over 600 percent of German GDP, was written off. The pre-existing unpaid debt from the Weimar period was written down to a fraction of its original cost. Claims on old debt were strictly segregated from German reconstruction funds. The German Federal Republic...

The Mortgage Deal with the Devil

(AP Photo/David J. Phillip)
The long-awaited mortgage deal between the federal government, 49 state attorneys general, and five big banks that was announced Thursday is pretty thin gruel, but it could have been a lot worse. Under the deal, the banks will provide relief to homeowners in a deal variously described as ranging from $25 billion to more than $40 billion. But a look at the fine print suggests that only about $5 billion cash will actually change hands. Some $1.5 billion will go directly to homeowners who went through foreclosure, with each receiving about $2,000. Other cash will go to states to help distressed homeowners. The rest of the money will be granted in the form of “credits” to banks that refinance loans or reduce principal amounts of underwater mortgages. But this is, in fact, funny money. Much of this write-down has already been taken by the banks, which know that an underwater mortgage is worth far less than its nominal value. In exchange for agreeing to refinance loans, the banks will get...

Help Wanted Again

AP Photo/Amy Sancetta
The latest jobs report was a welcome surprise . Jobs increased in January by 243,000, cutting the unemployment rate to 8.3 percent. The question remains: Is this a blip, or has the economy turned a corner? Earlier in the week, the Congressional Budget Report put out a more pessimistic report, showing unemployment rising to 8.9 percent by the final quarter of this year (which happens to include Election Day), and peaking at 9.2 percent in early 2013. According to the CBO, we won’t return to pre-recession employment levels until 2019. Why the grim picture? CBO assumes more budget cutting, as the Bush tax cuts sunset, the deficit keeps declining, and there is no further offsetting stimulus. Though the short-term jobs numbers have been above expectations for both December and January, there is no assurance that this good news will continue in the absence of additional stimulus. And the risk remains of either a spike in the price of oil, as a byproduct of the escalating conflict with Iran...

Force-Fed

AP Photo/Jacquelyn Martin
The Federal Reserve, in a remarkable acknowledgement of how soft the economy is, has disclosed a vote of its open market committee to keep short term interest rates close to zero for at least three more years—until late 2014. This means that the Fed will keep pumping money into the economy by purchasing bonds at whatever level is required. The Fed, improbably enough, has also been pressing the Obama Administration to do more about the housing bust, arguing that its own cheap money policies can only do so much. The climate of very low interest rates means that the new program announced by President Obama in the State of the Union Address making it easier for homeowners to refinance—details still to be disclosed—will have several years to lower housing costs and perhaps help put a floor under housing prices. But the Administration needs to do a great deal more so that under-water homeowners can refinance at the current depressed market value of the house. It is rare to see the Fed...

The Scarlet Tax Return

AP Photo
Mitt Romney’s newly released tax returns, showing that he paid taxes in 2010 at a rate of just 13.9 percent on income of $21.6 million, should provide ammunition for President Barack Obama’s newly rediscovered populism. Obama is on record supporting a “Buffett Rule,” that the boss should pay at least the same tax rate as the help. In the watered down economic dialogue of 2012, a flat tax rate rather pitifully passes for the progressive position. Not so long ago, progressives were of the view that the more money you made, the higher your rate should be. The tax schedule should be, well, progressive. The original presidential sponsor of this concept was that Bolshevik, Theodore Roosevelt. That view of progressive taxation was widely held and was public policy in America, until the supply-side revolution of the Reagan era and its claim that lower taxes on dividends, interest, and capital gains would reward, and hence promote, investment and growth. Unfortunately for the theory, taxes,...

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