Paul Krugman used most of his column this morning to take some well-aimed shots at the Republican presidential contenders and congressional leadership. He points to their hostility to the Federal Reserve Board’s efforts to boost the economy because of fears of hyper-inflation. These fears have been shown to be completely ungrounded, as inflation continues to be far lower than the Fed’s target of 2.0 percent.

However, Krugman also takes a shot at Senator Bernie Sanders for supporting a bill to audit the Federal Reserve Board’s conduct of monetary policy. There are two points worth making here.

First, an outcome of an earlier version of this bill was an amendment to Dodd-Frank which required the Fed to disclose the beneficiaries of the loans from the special lending facilities it created at the peak of the crisis. At the time, the Fed was insisting that beneficiaries and the terms of the loans had to be kept secret.

David Brooks used his column today to tell readers how Bernie Sanders' programs would destroy the dynamism of the U.S. economy. I don’t have time to go through the whole story, but it is important to make one point.

Brooks complains that Sanders' agenda would raise total spending at all levels of government from the current 36.0 percent to 47.5 percent. He argues this would require higher taxes on most people thereby depriving them of the freedom to spend their own money as they see fit.

Morning Edition had a good piece this morning on Senator Bernie Sanders’ proposal for a financial transactions tax (FTT). There are a couple of additional points worth making.

First, while the piece noted a wide range of estimates of the amount that could be raised through such a tax, we do have some real world experience. As was noted, the United Kingdom has had a transactions tax on stock trades since the 17^th century. This tax raises an amount equal to roughly 0.2 percent of GDP, which would be $36 billion annually in the current U.S. economy or roughly $400 billion over a 10-year budget horizon. This tax applies only to stocks, which allows traders to avoid it through options and other derivative instruments.

Yesterday the Congressional Budget Office (CBO) corrected an error that it made in projecting the share of earnings that will be replaced by Social Security for those nearing retirement. In a report published last fall, CBO projected that for people born in the 1960s, the annual Social Security benefit for those retiring at age 65, would be 60 percent of their earnings for middle income retirees and 95 percent of earnings for those in the bottom quintile. The correction showed that benefits would replace 41 percent of earnings for middle income retirees and 60 percent of earnings for those in the bottom quintile.

This mattered a great deal because the originally published numbers were quickly seized upon by those advocating cuts in Social Security benefits. For example, Andrew Biggs, who served in the Social Security Administration under President George W. Bush, used the projections as a basis for a column in the Wall Street Journal with the headline “new evidence on the phony retirement income crisis.” The piece argued that benefits were overly generous and should be cut back, at least for better off retirees. (To his credit, Biggs quickly retracted the piece after CBO acknowledged the mistake.)

While this was a serious error, unfortunately it was not the first time that CBO had made a major error in an authoritative publication. In 2010, in its annual long-term budget projections it grossly overstated the negative effect on the economy of budget deficits. The 2010 long-term projections showed a modest increase in future deficits relative to the 2009 projections, yet the impact on the economy was far worse.

The 2010 projections showed a drop in GDP of almost 18 percent by 2025, compared to a balanced budget scenario. This was more than twice as large as the impact shown in the prior year’s projections. The sharp projected drop in GDP could have been used to emphasize the urgency of deficit reduction. As was the case with the recent Social Security projections, CBO corrected its numbers after the error was exposed.

This week D.C. will hold another hearing on a proposal for Paid Family Leave, in line with states like New Jersey, California and Rhode Island that have implemented paid family leave programs over the last decade. In this election cycle, a major point of political discourse among Democrats has been that America is still one of the only developed countries that has not established a paid leave program to provide income for workers during family or medical leaves. However, the case for federal paid leave has been gaining momentum for the several years; that would fix many problems with the current system of unpaid leave that keep workers from taking care of family members, bonding with a new child, or taking care of serious medical illnesses.

Nick Buffie
The Hill, February 10, 2016

By Dean Baker and Nick Buffie

The Peter Peterson gang has been hard at work lately trying to get people worried about the budget deficit. After all, with interest payments on the debt as a share of GDP at a post-war low and an interest rate on long-term Treasury bonds of almost 2.0 percent, things look pretty bleak. (That’s sarcasm.)

But the Washington deficit hawks (great name for a NFL team) have never let the real world interfere with their ranting about deficits, which invariably turn to the need to cut Social Security and Medicare. Unfortunately, they are getting some support in this effort from the folks at the Congressional Budget Office (CBO).

While the CBO forecasts don’t look exactly like the sky is falling end of the world stuff, they do show that the debt and deficit will both rise as a share of GDP. And, if the debt is rising as a share of GDP, and we never do anything, then at some point it will do real damage to the economy.

Most of this logic is beyond silly in a context where the economy is still far below its full employment level of output. Debt or deficits can only be an issue when the economy is close to full employment, until that point the only problem with deficits is that they are not large enough. Cutting deficits when the economy is below full employment means slowing growth and throwing people out of work.

But that is not the point I wanted to make. I thought it was worth showing why CBO is projecting that deficits will rise over the next decade. If we turn to Table 1-2 of the latest CBO Budget and Economic Outlook, we find that the deficit for this year is projected to be 2.9 percent of GDP. This should leave the ratio of debt-to-GDP more or less constant, depending on the exact growth and inflation numbers for the year.

However if we look out to 2026, the end of the CBO projection period, the deficit is projected to be 4.9 percent of GDP. At that level, the debt-to-GDP ratio would be rising, and we would be down the road toward higher interest payments leading to higher deficits, leading to higher interest payments and pretty soon, Zimbabwe.

Today President Obama released his 2017 Budget, the final one of his presidency. Among many initiatives to strengthen the economic security of workers and retirees is one that CEPR’s been leading on for years: work-sharing (a.k.a. short-time compensation). The President’s proposal provides 1.8 billion dollars over ten years to expand work-sharing programs. 

Since the depths of the Great Recession, CEPR’s Dean Baker has been promoting the concept of work-sharing, which prevents job losses by incentivizing employers to reduce workers’ hours, rather laying them off entirely. The workers, in turn, are partially compensated for those hours with pro-rated unemployment benefits.

Work-sharing has proven to be one of the few areas of bipartisan consensus that we’ve seen over the past few years. For example, Dean has regularly partnered with conservative economist Kevin Hassett of AEI in advocating this idea. A dozen states have passed work-sharing since 2009, mostly with bipartisan majorities, to bring the total number with work-sharing programs up to 28 states plus the District of Columbia. In 2012, a bipartisan vote in Congress passed the Middle Class Tax Relief and Job Creation Act, and it included temporary funding to support states’ work-sharing programs, which has since expired. 

January 2016, Eileen Appelbaum

Dean Baker
Truthout, February 8, 2016

Mark WeisbrotÚltimas Noticias, 7 de febrero, 2016

In 1996, the Congressional Budget Office (CBO) projected that unemployment would rise from 5.8 to 6.0 percent the next year and stay at that rate into the 2000s. The consensus among most economists and policy experts was that 6.0 percent unemployment was

Months before the August legislative elections last year, a small scandal erupted in the electoral bureau of Haiti’s Artibonite department. Nine months later Haiti remains mired in a political crisis, but how this came to be has faded from the headlines.

Tracing the election’s flaws from the beginning, in the Artibonite Valley, reveals just how corrupt the electoral process has been and how the politics of power and money have subverted the democratic will of the Haitian people and the elections’ credibility from day one.

In April, Louis Frantz Dort replaced Ralph Ederson Dieuconserve in the departmental electoral bureau of the Artibonite. “This suspicious change is evidence that an electoral coup is being prepared for the Parti Haitien Tet Kale (PHTK) in the Artibonite,” political activist, Délice Jacques, told the local press. The PHTK is the party of current president Michel Martelly, whom human rights organizations, religious leaders and the political opposition have accused of manipulating the elections for his own benefit and that of his allies. But in the Artibonite, this takes on a unique dynamic.

The PHTK openly allied with a number of political parties, but “then you have the local potentates,” explained an official with an international election observation mission, who requested anonymity since the process is ongoing. “It’s lord logic. They may not be part of PHTK, but the local leader wants to maintain control of his area for himself, not just for the party.” For the better part of the last decade, Haiti’s second-largest department, the Artibonite, has increasingly been controlled by Youri Latortue — a former senator and nephew of former Prime Minister Gerard Latortue — and his political party, Haiti in Action (AAA).

An advisor to President Martelly, Latortue was described by U.S. Ambassador to Haiti Janet Sanderson in a 2007 cable published by WikiLeaks, as “the poster boy for political corruption in Haiti.” The former head of the United Nations in Haiti referred to him as a “drug dealer.” A year prior, after speaking with a close colleague of Latortue, Sanderson cabled that Latortue “may well be the most brazenly corrupt of leading Haitian politicians,” adding that “The Latortue family is crawling all over Haitian politics.”

***

Haiti remained on edge in the lead-up to the August election. After the terms of the entire Chamber of Deputies and two-thirds of the Senate expired in January 2015, Martelly ruled the country without legislative oversight. Without elections, local officials had, years earlier, been replaced by political appointees. Despite pledges from the national electoral council (CEP) and positive assessments from international observers, the vote on August 9 was plagued by widespread violence, intimidation and outright fraud. It was, arguably, the worst in the Artibonite.

Votes from more than 30 percent of ballot boxes across the department were never counted, as voting was shut down by armed gangs. In other cases, ballots disappeared en route to the tabulation center. The Artibonite was the only one of Haiti’s 10 departments that failed to reach the threshold of 70-percent-of-votes-counted, an arbitrary and after-the-fact benchmark instituted by the CEP. When the CEP announced preliminary results on August 17, it declared that the entire Senate election in the Artibonite was to be done over and in addition, in eight districts where fewer than 70 percent of votes were counted, races would also have to be rerun. In five areas, the vote was so marred that not a single vote was counted.

Later, the head of the Organization of American States (OAS) election monitoring division, Gerardo de Icaza, said that the number of missing votes in August would have been "enough to void" the results had they been in a national race. But De Icaza suggested that because the August vote was for local races, problems could be handled at the local level by rerunning the races. In reality, many of the problems were never addressed, setting the electoral process off course from the beginning and undermining the legitimacy of the incoming legislature that was partially sworn in last month.

The CEP, in an attempt to assuage concerns over the August violence, sanctioned 16 candidates, excluding them from the electoral process. It also issued a communiqué, warning political parties involved in “ransacking voting centers” and “removing electoral materials” that further acts would lead to harsher sanctions. But it stopped short of any direct action against parties.

In the Artibonite, the CEP warned five groups: the ruling-party’s PHTK; Latortue’s AAA; the Prime Minister’s KID party; a smaller party, REPAREN, closely linked to Latortue; and the Bouclier party. This latter party was created by Calixte Valentine, an accused murderer and a close advisor to President Martelly. Its presidential candidate’s chief of staff was another Martelly advisor. The party was so controversial that in the days after the August 9 vote, a campaign advisor to the PHTK, Roudy Choute, seeking to distance his party from Bouclier, described them as “the party with the worst drug connections.” 

Steve Eisman, the hedge fund manager of Big Short fame, argued against breaking up the big banks in a NYT column today. His basic argument is that we now have things under control because the regulators have effectively limited the banks’ ability to leverage themselves. He also says that even if we wanted to break up the banks, we don’t know how to do it:

“Furthermore, no advocate of a breakup has come forward with a plan on how to do it. Large banks are global, complex, integrated institutions. Breaking them apart would be incredibly difficult, long and disruptive, and the banks might have to freeze loan growth during the process, slowing our economy even further.”

Hmmm, “no advocate of a breakup has come forward with a plan,” sounds a bit like nobody saw the housing bubble.

Okay, first Eisman raises a good point in that regulation is much better today than it was before the crisis. But those of us who are in favor of downsizing the behemoths question whether that will always be the case. After all, there is a lot of money to be gained from being able to outmaneuver the regulators.

And I’m not sure that many people would want to bet the health of the financial system on Washington bureaucrats staying a step ahead of the Wall Street gang. And in spite of improved regulation, I don’t think many people believe that the government would let J.P. Morgan or Goldman Sachs go under if they faced bankruptcy.

But let’s leave aside the merits of breaking up the banks and ask whether it could be done. There is in fact a simple way to break up the banks; let the banks do it themselves.

Okay, I’m not going to get in the habit of responding to everything Paul Krugman writes on Bernie Sanders, but there are a few quick points worth making about his latest post on Sanders’ electability.

1)     Krugman is raising an entirely reasonable point that voters should consider, so no one should be upset at him for putting the issue on the table. (No, he is not looking for a job in the Clinton administration.)

2)     We should be clear on the question being asked. If the issue is keeping the Republicans out of the White House, then the question is not whether Bernie Sanders could beat the Republican nominee. The question is how likely is it that Sanders could defeat Clinton for the nomination, and then lose a general election that Clinton would have won?

In this respect, it is important to recognize how much the nomination process is stacked towards Clinton. It is not just a question of her having the vigorous support of a former Democratic president and largely controlling the Democratic National Committee. She is also likely to have the overwhelming support of the super-delegates (Democratic members of Congress, state office holders, and other prominent Democrats).

The super-delegates are just under 15 percent of the total number of delegates. If Clinton wins this group by a margin of 80 percent to 20 percent (she has more than 95 percent of the super-delegates who have already made a commitment), then Sanders would have to capture more than 55 percent of the elected delegates to get the nomination.

This means that Sanders could not get the nomination just by scraping by in the primaries; he would need a decisive victory. The question then is, if Clinton were to lose decisively in the primaries to a candidate who has all the weaknesses touted by the experts to whom Krugman referred us, how likely is it that she would have been able to win the general election if Sanders had not gotten in her way?

The point is important, because if the argument is that Sanders can’t win an election that Clinton would not have won either, then we aren’t arguing over control of the White House, we are arguing over who gets to make the concession speech on November 8^th. There is the issue that the margin would be smaller with a Clinton candidacy and this would help Democrats lower down on the ticket. This is an important issue worth considering, which is point 3).