If there is one thing the recent presidential election made clear, it is that the 1% have no shame. So it’s no surprise that CEOs are drumming up "fiscal cliff" hysteria to protect their wealth. Their campaign to ‘Fix the Debt’ wants to retain the Bush-er

The Mexican senate approved controversial new labor reforms yesterday, the AP reports. The bill, which has faced mounting public protests, would allow greater flexibility on the part of owners to hire and fire workers, among other changes.  While supporters claim it will generate thousands of jobs, critics contend that it will erode what little benefits workers do have. Alejandra Barrales, a senator from the Democratic Revolution Party, told Reuters, “What we're doing here is annulling worker's rights.”

Aspects of the bill that unions had advocated for; the right to a secret ballot and increasing transparency of union finances, were stripped in the lower house and not included in the Senate version. Those reforms were seen as key to diminishing the power of the PRI-backed, non-democratic unions and supporting the development of smaller more independent groups.  The PRD did manage to get Senate approval for two articles (388 and 390) that allow workers to choose which union they want based on majority vote and require unions to submit proposed contracts to union members.  Ultimately, these were left out of the labor reform bill and sent back to the lower house for discussion and approval.

These reforms would have been especially important in the Mexican context because often collective bargaining agreements are signed by ‘unions’ that are company-backed.  Without independence, these frequently fail to represent the interests of workers, many of whom are unaware that their labor group is essentially an extension of the company they work for. 

Senator Manuel Bartlett told reporters Tuesday night that, “This law is an attack against social justice, and the only ones who will benefit are going to be the business owners.” For example, the law legalizes trial periods and initial training contracts, which allow employers options for offering more tenuous employment and paying lower wages with fewer benefits.  With respect to outsourcing, a practice already used but now formally sanctioned, the law allows employers even more ways to combine low wages with little or no health, housing, severance and profit-sharing benefits, according to the AP.

The Washington Post has been as aggressive as any Republican in Congress in hyping the dangers of letting the Bush tax cuts expire. It has run numerous front page pieces telling readers of the dire consequences of letting January 1 pass without a deal (e.g. here and here). Today Wonkblog warned of us the real bad news of going off the fiscal cliff!!!!!!!

Just in case you didn't understand the Post's official line on this, the headline of the piece is "the economy (probably) can't survive a short dive into austerity crisis." It starts with some clearly mistaken economics. It calculates the hit to the economy of higher tax with-holdings for the month of January.

"In a narrow sense, a short voyage off the cliff shouldn’t crush the economy too badly. The CBO estimates that the full brunt of the policies add up to about $56 billion a month, which is a lot of money — about 4 percent of GDP — but should, in theory at least, do only modest damage to the economy if it lasted only a few weeks. One month of austerity along those lines would subtract only about a third of a percentage point from growth for the full year, before accounting for multiplier effects.

For comparison, the U.S. economy grew at a 1.8 percent rate over the last year; if a single month of fiscal cliff-style austerity had been in place, that number would have been more like 1.4 percent."

The problem with this arithmetic is that consumption is unlikely to respond in any measurable way to a one-month tax hike. There is a big debate among economists as to how much consumption responds to temporary tax cuts, like the Make Work Pay tax cut that was part of the initial stimulus package. Many economists, especially those who seem to be most worried about the "fiscal cliff" right now, argue that consumption responds little or not at all to tax cuts that are scheduled to be in effect for a year or two. One doesn't have to agree with this strong position to accept the view that a one month increase in taxes will have a minimal impact on people's consumption patterns.

This is especially likely if the tax increase is likely to be reversed the next month, which would almost certainly be the case, as the column acknowledges in the next sentence. So, this arithmetic exercise gets us essential zero hit from jumping over the fiscal cliff.

Dean Baker
Boston Review, November 2012

A new human rights report reaffirms the United Nations Stabilization Mission in Haiti’s (MINUSTAH) responsibility for causing the cholera epidemic that has now killed over 7,600 and infected over 600,000. The Paris-based International Federation of Human

Dean Baker
Truthout, November 12, 2012

Mark WeisbrotThe Guardian Unlimited, November 12, 2012

Dean Baker
Al Jazeera English, November 12, 2012

It's so cute to see all the serious people who are so worried about economic crises that do not exist. They are constantly telling us how the "job creators" (a.k.a. rich people) who run businesses are just so nervous and uncertain they don't know what to do. The current concern is that taxes could rise at the end of the year and government spending will fall.

Of course this would be bad news, but would it be a crisis? As many people have pointed out, this is called "deficit reduction," which is exactly what most of the people now complaining about an imminent crisis have been advocating. The tax increases and spending cuts would weaken the economy and, if left in place over the course of the year, would sharply slow growth and likely push the economy into a recession.

But none of this happens in January. In fact, almost nothing happens in January except the Bush tax cuts expire, substantially improving President Obama's bargaining position. This is bad news for Republicans, but so what?

Hence we have David Brooks telling us this morning:

"The first thing to say about this strategy [letting the tax cuts expire] is that it is irresponsible. The recovery is fragile. Europe may crater. China is ill. Business is pulling back at the mere anticipation of a fiscal cliff. It’s reckless to think you can manufacture an economic crisis for political leverage and then control the cascading results."

Is there any evidence for this assertion whatsoever? "Europe may crater." What on earth does Brooks mean by this? People will not want to hold euros because the U.S. economy might be slowing slightly (we're talking January, not the whole year)?

In case any Washington Post readers were unsure, Robert Samuelson used his column today to tell readers that he doesn't like Social Security and Medicare. The piece begins by telling readers:

"If you doubt there’s an American welfare state, you should read the new study by demographer Nicholas Eberstadt, whose blizzard of numbers demonstrates otherwise. A welfare state transfers income from some people to other people to improve the recipients’ well-being. In 1935, these transfers were less than 3 percent of the economy; now they’re almost 20 percent."

Samuelson goes on to tell us how awful this is because these transfers:

1) take money from other government programs;

2) undermine work incentives and thereby reduce growth; and

3) encourage gaming.

Let's take each of these one by one.

If we start with the biggest government transfer program, Social Security, it would be interesting to know how it takes money from other programs. It is financed by a designated tax. Maybe he thinks that people would be just as happy to pay their Social Security taxes to support the Pentagon, but that is not what polls show. In the case of Social Security, and likely most of the other transfer programs despised by Samuelson, the tax revenue is there because the programs are there. Most taxpayers don't like the things that Samuelson apparently wants to spend money on as much as he does.

Of course if it is possible to lie to people and use taxes designated for Social Security for other purposes, then there can be more money for Samuelson's agenda. But this is a discussion of how to deceive the public, not a debate over social programs.

Samuelson also claims that there is a tendency for these programs to expand over time. In fact over the last three decade Social Security has gotten considerably less generous. The age for getting full benefits has already been raised from 65 to 66 and in another decade will be 67. Also, changes to the way the consumer price index is constructed have reduced the annual cost of living adjustment by approximately 0.5 percentage point.

In the case of Medicare, benefits were extended to cover prescription drugs, but this only became an issue because government granted patent monopolies sent the price of drugs through the roof. Drugs were not included in the original program in 1966 because their cost was trivial, but patent monopolies for drug companies now allow them to sell drugs at prices that are close to $250 billion a year above the free market price. Serious people might worry more about all the waste associated with these patent monopolies than the fact that the government is helping seniors pick up the tab for their drugs.

As far as the second point, anything that makes people wealthier reduces work incentives. The fact that so many people on Wall Street are able to play financial games and make fortunes in their 20s and 30s undermines their work incentive by allowing them to retire early. Why should we be concerned if people opt for a modest Social Security benefit rather than working? After all, they did pay for it.

The Washington Post is throwing all journalistic norms aside in its drive to cut Social Security and Medicare. It continues to hype the budget standoff as an ominous "fiscal cliff" and tells readers on the front page of its web site that it could provide a "magic moment" in which Social Security and Medicare can be cut. The piece begins by telling readers:

"Two years ago this month, the leaders of a presidential commission rolled out a startling plan to dig the nation out of debt. After decades of stagnating incomes, they said, Washington must tell people to work longer, pay higher taxes and expect less in retirement."

Okay I tricked you, this is the Washington Post which doesn't acknowledge economic realities like stagnating income. The piece actually began:

"Two years ago this month, the leaders of a presidential commission rolled out a startling plan to dig the nation out of debt. After decades of profligacy, they said, Washington must tell people to work longer, pay higher taxes and expect less in retirement (emphasis added)."

This departure from reality gives you the gist of the story. The piece continues:

"Lawmakers recoiled from the blunt prescriptions of Democrat Erskine Bowles and Republican Alan K. Simpson. But their plan has since been heralded by both parties as a model of clear-eyed sacrifice, and policymakers say the moment has come to live up to its promise."

Well, yes people have praised their plan. They have also ridiculed it. For example it proposes immediate cuts in Social Security benefits that would be a larger share of the income of the typical beneficiary than President Obama's proposed tax increases on the top 2 percent would be for most of the affected taxpayers. It also proposes increasing the age for Medicare eligibility, even though this would add tens of billions to the country's health care costs over the next decade. And, it proposed a minimum Social Security benefit for low wage earners that few low wage earners would actually qualify for due to the number of working years required to qualify.

There were many other carefully detailed criticisms from people who did not find the plan "startling" nor saw the need to "dig the nation" out of a debt that was almost entirely due to the economic plunge caused by the collapse of the housing bubble. As all budget wonks know the deficits were just over 1.0 percent of GDP prior to the economic collapse and were projected to stay low for the near future, until the collapse of the housing bubble sank the economy.

Source: Congressional Budget Office.