The Regressive Austerity Arguments of the Washington Post

Austerity is where governments refuse to pursue policies that boost consumer demand. Austerity really has hurt a lot of people and there’s even evidence that the poverty it caused has ruined millions of lives.

Last week the Washington Post ran a column by Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, one of the many pro-austerity organizations that received generous funding from the late Peter Peterson. The immediate target of the column was the standoff over the debt ceiling, but the usual complaints about debt and deficits were right up front in the first two paragraphs.

“At the same time, the federal debt as a share of the economy is the highest it has ever been other than just after World War II. ….”

“So our plan is to borrow a jaw-dropping roughly $900 billion in each of those years — much of it from foreign countries — without a strategy or even an acknowledgment of the choices being made because no one wants to be held accountable.”

This passes for wisdom at the Washington Post, but it is actually dangerously wrong-headed thinking that rich people (like the owner of the Washington Post) use their power to endlessly barrage the public with.

The basic story of the twelve years since the collapse of the housing bubble is that the U.S. economy has suffered from a lack of demand. We need actors in the economy to spend more money. The lack of spending over this period has cost us trillions of dollars in lost output.

This should not just be an abstraction. Millions of people who wanted jobs in the decade from 2008 to 2018 did not have them because the Washington Post and its clique of “responsible” budget types joined in calls for austerity. This meant millions of families took a whack to their income, throwing some into poverty, leading many to lose houses, and some to become homeless.

At this point, the evidence from the harm from austerity in the United States (it’s worse in Europe) is overwhelming, but just like the Pravda in the days of the Soviet Union, we never see the Washington Post, or most other major news outlets, acknowledge the horrible cost of unnecessary austerity. We just get more of the same, as though the paper is hoping its readers will simply ignore the damage done by austerity.

And it is not just an occasion column from a Peter Peterson funded group, the Post’s regular economic columnist, Robert Samuelson, routinely complains about budget deficits, as do the Post editorial writers. We get the same story in the news section as well, for example, this piece last week telling us about the need to “fix” the budget. The Post is effectively implying that a lower budget deficit, which results in lower output and higher unemployment is “fixed.”

If the Post cared about the logic of its argument, instead of just repeating platitudes about the evils of budget deficits, it should quickly recognize that its push for austerity makes no economic sense. The argument of the evils of a budget deficit is that it is supposed to lead to high interest rates and crowd out investment.

That leaves the economy poorer in the future, since less investment leads to less productivity growth, so the economy will be able to produce fewer goods and services in future years. (The implicit assumption is that the economy is near its full employment level of output so that efforts by the Fed to keep interest rates down by printing money would lead to inflation.)

The nice part of this story is that there is a clear prediction which we can examine; high budget deficits lead to high interest rates. Or, if the Fed is asleep on the job, high budget deficits will lead to high inflation.

The interest rate on 10-year Treasury bonds at the end of last week was just over 2.0 percent. That is incredibly low by historic standards and far lower than the rates of over 5.0 percent that we saw when the government was running a surplus in the late 1990s. The inflation rate is hovering near 2.0 percent and has actually been trending slightly downward in recent months. So where is the bad story of the budget deficit?

In the classic deficit crowding out investment story, if we cut the budget deficit, investment rises to replace any lost demand associated with lower government spending or higher taxes. We can also see some increased consumption, mostly due to mortgage refinancing, and some increase in net exports due to a lower valued dollar.

But what area of spending does the Washington Post and its gang of deficit hawks think will fill the gap if it could find politicians willing to carry through the austerity it continually demands? It shouldn’t be too much to ask a newspaper that endlessly harps on the need for lower deficits to have a remotely coherent story on how lower deficits could help the economy.

There is also the burden on our children story that the Peter Peterson gang and the Post likes to harangue readers with. Our children will inherit this horrible $20 trillion debt that they will have to pay off over their lifetimes.

This story makes even less sense than the crowding out story. The burden of the debt is measured by the interest paid to bondholders, which is actually at a historically low level relative to GDP. It’s around 1.5 percent, after we subtract the interest rebated by the Fed to the Treasury. It had been over 3.0 percent of GDP in the early and mid-1990s.

And, even this is not a generational burden. It is a payment within generations from taxpayers as a whole to the people who own bonds, who are disproportionately wealthy. Much of this money is recaptured with progressive income taxes. More could be captured with more progressive taxes.

But this is actually the less important issue with this sort of accounting. Direct government spending is only one way the government pays for things. It also provides patent and copyright monopolies to provide incentives for innovation and creative work. These are alternatives to direct government payments.

To be specific, if the government wants Pfizer to do research developing new drugs, it can pay the company $5-$10 billion a year to do research developing new drugs. Alternatively, it can tell Pfizer that it will give it a patent monopoly on the drugs its develops and arrest anyone who tries to compete with it.

Generally, the government takes the latter route with innovation. This can lead to a situation where Pfizer is charging prices that are tens of billions of dollars above the free market price. This monopoly price is equivalent to a privately imposed tax that the government has authorized the company to collect.

Anyone seriously interested in calculating the future burdens created by the government would have to include the rents from patent and copyright monopolies, which run into the hundreds of billions of dollars annually, and possibly more than $1 trillion. (They are close to $400 billion with prescription drugs alone.) The fact that the deficit hawks never mention the cost of patent and copyright monopolies, shows their lack of seriousness. They are pushing propaganda, not serious analysis.

Availability of 3D-Printed Weapons Present Risks, and 3D Printers Present Other Opportunities

The main cause of violent street criminality is poverty. Having many of the same societal problems today — poverty, despair, isolation — exist at similar levels world where 3D-printed weapons are widely accessible is a recipe for more disasters.

While advances in additive manufacturing offer potential breakthroughs in prosthetic arms or jet engine parts, 3D printing, as it is known, may also accelerate weapons proliferation.

A new RAND Corporation paper suggests additive manufacturing could benefit military adversaries, violent extremists and even street criminals, who could produce their own weapons for use and sale.

3D printing technology is also susceptible to hacking, which could allow sabotage by hackers who maliciously instruct 3D printers to introduce flawed instructions or algorithms into mission-critical parts of airplanes, according to the paper.

[…]

Additive manufacturing may also indirectly support the survival and rise of pariah states like North Korea, which could avoid the costs of withdrawing from the international community by producing complex items domestically, skirting international sanctions.

From an economic perspective, by decentralizing manufacturing individuals and firms may choose to produce locally rather than importing goods. 3D printing could therefore weaken international connections currently sustained by complex, multi-country supply chains, the authors conclude. That in turn may create upheaval in labor markets — and subsequent social conflict.

“Unemployment, isolation and alienation of middle and low-skilled laborers may be exacerbated by additive manufacturing, potentially leading to societal unrest in both developed and developing countries,” said Troy Smith, an author on the paper and an associate economist at RAND. “The potential security implications of large masses of unemployed, disconnected people are substantial.”

[…]

The paper, “Additive Manufacturing: Awesome Potential, Disruptive Threat,” is part of a broader effort to envision critical security challenges in the world of 2040, considering the effects of political, technological, social and demographic trends that will shape those security challenges in the coming decades.

Report: Shocking Facts About World Health

As the world becomes richer, many remain hungry. The chart below displays the results of a Gallup survey asking respondents whether there were instances in the past 12 months when they did not have enough money to buy food. Even in high-income countries, around 10 percent, or 100 million people, deal with food insecurity. One of the internationally agreed upon Sustainable Development Goals aims to completely get rid of hunger by 2030. According to Homi Kharas and John McArthur, we are off track to meet this goal and, in order to see better progress, countries must have a higher sense of accountability to stick to their health and nutrition policies.

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[…]

The opioid epidemic has major health implications such as increased hospitalizations, substance addiction, and an increase in babies born with neonatal abstinence syndrome. The number of babies born with neonatal abstinence syndrome has quadrupled over the past 15 years. In her report, “Unburying the lead: Public health tools are the key to beating the opioid epidemic,” Dayna Bowen Matthew looks into how American policymakers can make systematic changes to fight the opioid epidemic. She encourages policymakers to look at social factors such as housing, employment, criminal justice interventions, and community engagement when looking to solve the crisis.

[…]

In the United States, life-threatening diseases such as dementia and Alzheimer’s receive a lot of attention, but tuberculosis, a bacterial disease that affects the lungs, kills the same amount of people globally and does not receive the same level of response. Potential treatments being developed for Alzheimer’s and dementia outnumber treatments for tuberculosis by more than three to one. Tuberculosis usually afflicts people of young ages, while dementia symptoms typically appear later in a person’s life. Dementia is the third leading cause of death in high-income countries, while tuberculosis is the fifth cause of death in low-income countries.

[…]

As seen in the pie chart below, the United States contributes to almost one-third of Development Assistance for Health (DAH) spending. However, this only amounts to 0.22 percent of the entire federal budget, and if President Trump’s budget request is fulfilled, it will decrease considerably. He has called for a 24 percent reduction in spending on foreign assistance for global health. Jake Schneider and Darrell West examine how cuts in U.S. global health assistance would be devastating for global health. They predict that if a 24 percent decrease comes to fruition, the global development assistance for health would drop from $39.2 to $28.8 billion, and the U.S. contribution would drop from $13.6 billion to $10 billion. These cuts would have grave consequences for the developing world and international stability as a whole.

The modern world shouldn’t have problems this drastic.

Report Finds That Class is a Better Predictor of Incarceration Than Race

In America, there are two systems of justice under the law: one for the rich and politically powerful, and then one for everyone else. Under this corrupt, two-tiered system of justice, few U.S. bankers (and none of the most high-ranking ones) were sent to prison in the aftermath of the 2008 crash, despite how big U.S. banks largely caused the global crisis that happened around ’08. This is noted as millions of Americans have been arrested (and some imprisoned) for relatively innocent activities such as the nonviolent possession of marijuana.

IT’S A FACT that African-Americans are disproportionately represented in America’s prisons. In state prisons, where the majority of prisoners are held, African-Americans are incarcerated at 5.1 times the rate of white Americans.

But what remains an open question is what explains this racial incarceration gap; what needs to change to eliminate that gap? Is it a racist economic system that produces a disproportionate population of impoverished African-Americans who then are ground up by a criminal justice system that targets the poor? Or is it better explained by racial bias in policing and sentencing?

A new report from the People’s Policy Project argues that while both exist, it’s economic oppression that matters most — or, at least, matters first.

Researcher Nathaniel Lewis sought to examine the role of both race and class in male incarceration as they impact four different outcomes:

  1. Whether or not men aged 24-32 years have ever been to jail or prison
  2. Whether or not men are jailed after being arrested
  3. Whether or not men have spent more than a month in jail or prison
  4. Whether or not men have spent more than a year in jail or prison

[…]

Ultimately, Lewis concluded that his data showed that the primary reason we see overrepresentation of African-Americans in the criminal justice system are factors related to poverty.

“I think that people are used to hearing the statistics about glaring racial disparities in the justice system, and police brutalization and the police murder of black individuals, plus the long history of stark racism in America, and they add this all up and, quite reasonably, the New Jim Crow framework of explaining mass incarceration as a racist system designed to oppress black people seems inarguably correct,” he told us. “But most of these studies and statistics don’t control for socioeconomic status, and the ones that do, I would say, do so inadequately. It could be that mass incarceration is primarily a system of managing poor people, rather than black people, and the racial disparities show up mostly because black people are disproportionately represented in the lower classes. This is what my study finds.”

Lewis concluded that his research suggests that one of the best ways to reduce the total prison population would be to embrace social democratic policy that would address poverty, the education gap, and other class divides.

“One implication, at least to me, is that policies aimed at alleviating class disparities may be the most effective way of helping black people, and all people, subject to being ground up by the criminal justice system,” he said.

World’s Top 1% Obtained 82% of Wealth Generated in 2017

What a horrifying report this is on the status of global inequality. It’s easily one of the most disturbing reports on economic inequality ever released, as it shows that the world economic system has overall been structured to benefit the top 1 percent to an extreme degree.

In 2017, a new billionaire was created every two days and while 82 percent of all wealth created went to the top 1 percent of the world’s richest while zero percent—absolutely nothing—went to the poorest half of the global population.

That troubling information is included in Oxfam’s latest report on global inequality—titled Reward Work, Not Wealth (pdf)—released Monday. In addition to the above, the report details how skyrocketing wealth growth among the already rich coupled with stagnant wages and persistent poverty among the lowest economic rungs of society means that just 42 individuals now hold as much wealth as the 3.7 billion poorest people on the planet.

“The billionaire boom is not a sign of a thriving economy but a symptom of a failing economic system,” Winnie Byanyima, Oxfam’s executive director of Oxfam International. “The people who make our clothes, assemble our phones and grow our food are being exploited to ensure a steady supply of cheap goods, and swell the profits of corporations and billionaire investors.”

Among the report’s key findings:

  • Billionaire wealth has risen by an annual average of 13 percent since 2010 – six times faster than the wages of ordinary workers, which have risen by a yearly average of just 2 percent. The number of billionaires rose at an unprecedented rate of one every two days between March 2016 and March 2017.
  • It takes just four days for a CEO from one of the top five global fashion brands to earn what a Bangladeshi garment worker will earn in her lifetime. In the US, it takes slightly over one working day for a CEO to earn what an ordinary worker makes in a year.
  • It would cost $2.2 billion a year to increase the wages of all 2.5 million Vietnamese garment workers to a living wage. This is about a third of the amount paid out to wealthy shareholders by the top 5 companies in the garment sector in 2016.
  • Dangerous, poorly paid work for the many is supporting extreme wealth for the few. Women are in the worst work, and almost all the super-rich, nine out of ten, are men.

The report comes just as the world’s economic and political elite are set to open the World Economic Forum, held annually in Davos, Switzerland. And why the global elite argue the summit’s focus is addressing the world’s most pressing problems, Oxfam found that the amount of new wealth which went to the world’s top one percent in 2017 was roughly $762 billion—a figure large enough, the group points out, to end extreme global poverty seven times over.

What the report ultimately exposes, Mark Goldring, Oxfam GB chief executive, told the Guardian, is a “system that is failing the millions of hardworking people on poverty wages who make our clothes and grow our food.”

“For work to be a genuine route out of poverty we need to ensure that ordinary workers receive a living wage and can insist on decent conditions, and that women are not discriminated against,” he added. “If that means less for the already wealthy then that is a price that we—and they—should be willing to pay.”

Not just cataloging and lamenting the metrics of inequality, the new report also puts forth a number of policy solutions that should be embraced by people and governments worldwide to reduce levels of inequality and lift billions of people out of extreme poverty. They include:

  • Limit returns to shareholders and top executives, and ensure all workers receive a minimum ‘living’ wage that would enable them to have a decent quality of life. For example, in Nigeria, the legal minimum wage would need to be tripled to ensure decent living standards.
  • Eliminate the gender pay gap and protect the rights of women workers. At current rates of change, it will take 217 years to close the gap in pay and employment opportunities between women and men.
  • Ensure the wealthy pay their fair share of tax through higher taxes and a crackdown on tax avoidance, and increase spending on public services such as healthcare and education. Oxfam estimates a global tax of 1.5 percent on billionaires’ wealth could pay for every child to go to school.

Though Oxfam has been calculating global inequality on an annueal basis for more than a decade, the anti-poverty group notes that this year’s report used new data from Credit Suisse and a separate kind of model. Specifically, Oxfam noted, the fact that the world’s 42 richest billionaires have as much wealth as the poorest bottom half “cannot be compared to figures from previous years – including the 2016/17 statistic that eight men owned the same wealth as half the world – because it is based on an updated and expanded data set published by Credit Suisse in November 2017.  When Oxfam recalculated last year’s figures using the latest data we found that 61 people owned the same wealth as half the world in 2016 – and not eight.”

UN Investigated Extreme Poverty in World History’s Richest Country

The poverty rates in the U.S. are absolutely shameful. Significant poverty in a wealthy country means that the wealth is being distributed improperly.

His fact-finding mission into the richest nation the world has ever known has led him to investigate the tragedy at its core: the 41 million people who officially live in poverty.

Of those, nine million have zero cash income – they do not receive a cent in sustenance.

Alston’s epic journey has taken him from coast to coast, deprivation to deprivation. Starting in LA and San Francisco, sweeping through the Deep South, traveling on to the colonial stain of Puerto Rico then back to the stricken coal country of West Virginia, he has explored the collateral damage of America’s reliance on private enterprise to the exclusion of public help.

The Guardian had unprecedented access to the UN envoy, following him as he crossed the country, attending all his main stops and witnessing the extreme poverty he is investigating firsthand.

Think of it as payback time. As the UN special rapporteur himself put it: “Washington is very keen for me to point out the poverty and human rights failings in other countries. This time I’m in the US.”

[…]

The tour comes at a critical moment for America and the world. It began on the day that Republicans in the US Senate voted for sweeping tax cuts that will deliver a bonanza for the super wealthy while in time raising taxes on many lower-income families. The changes will exacerbate wealth inequality that is already the most extreme in any industrialized nation, with three men – Bill Gates, Jeff Bezos and Warren Buffet – owning as much as half of the entire American people.

A few days into the UN visit, Republican leaders took a giant leap further. They announced plans to slash key social programs in what amounts to an assault on the already threadbare welfare state.

[…]

Trump’s undermining of human rights, combined with the Republican threat to pare back welfare programs next year in order to pay for some of the tax cuts for the rich they are rushing through Congress, will hurt African Americans disproportionately.

Black people are 13% of the US population, but 23% of those officially in poverty and 39% of the homeless.