Tom Sgouros: Tom’s Tidbits
Saturday, July 30, 2011
Debt ceiling fight
Last week, representatives from 28 Rhode Island organizations, including NeighborWorks Blackstone Valley, the Fund for Community Progress, the American Friends Service Committee, DARE, Ocean State Action, Jobs with Justice, UNAP (nurses' union), IUPAT (painters' union) and many others, pulled together a petition to urge our congressional delegation to protect Rhode Island during the debt ceiling battle.
In short, what they're asking is that the delegation act to preserve the important parts of our progressive legacy. Social Security and Medicare should be the cornerstones of our nation's social policy, not the constant targets of elimination efforts. Medicaid is a crucial part of the safety net that keeps people healthy when they fall on hard times. All of these programs could be made more efficient -- Medicare, for example, could be allowed to pay less for its drugs, but Congress refuses to let them -- but so often it seems the only efficiency under discussion is simply reducing benefits. This would be pointless, and economically disastrous. (Find a petition you can sign by clicking here.)
The fact is that the bulk of our deficit is attributable to the Bush tax cuts, the wars in Afghanistan and Iraq (and now Libya!), and to the recession. Doing away with the Bush tax cuts alone would do away with between a third to a half of our long-range deficit, a point that you see mentioned very seldom. Despite the domestic moaning about the deficit, our debt continues to be the safest investment in the whole world. Or it was until this month. The whole debt ceiling fight is a baffling one, but as yet the single most appalling aspect to me is that, as of this late date, the Republicans demanding trillions in cuts have only made suggestions for cuts representing a small fraction of that. Again: there is no Republican list of what needs to be cut that comes anywhere near the sum they are demanding be cut from the budget. These guys can preen and talk about tough choices and courage to take unpopular stands, but they are demanding that someone else actually suggest the cuts they demand. In other words, the evidence is quite clear: if you're looking for political courage, look elsewhere.
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There's not a lot to be encouraged by in the recent housing statistics out from the RI Association of Realtors. Sales are down from last years, prices are down, over a quarter of sales are "distressed" where the house is either in foreclosure, or is selling for less than the remaining balance on its mortgage. Not cleaning up the housing bubble properly is going to be the biggest drag on our economy going forward. What many people may not realize is that George Bush had a choice in 2008. Rather than bail out the banks that had made so many bad mortgages, he could have bailed out the debtors.
Solvent debtors would have created solvent banks, and would have prevented the huge consumer debt overhang that is currently preventing consumer spending from growing at all. But bailing out debtors would have meant helping people who'd gotten in debt over their head, and that's an offense to all the rugged individualists out there who want poor people to suffer the consequences of bad decisions. So the Bush's economists created TARP to bail out the banks instead of the people, and the Obama administration didn't change the policy when they came in. The people who ran the banks had made decisions every bit as bad as any underwater homeowner, but they didn't suffer at all. They just accelerated the foreclosures and collected their bonuses.
Now we have a still-devastated housing market, and all those people who we made to suffer foreclosures have no money, and the ones who live in fear of suffering foreclosure have way too much debt for consumer spending to fuel a recovery. (And with governments at every level paralyzed by fear of taxes, they're not helping, either.) The lesson here for me is that morality got in the way of economic recovery. The worst public policy decisions are the ones where people imagine that the losers will just disappear. The homeless people will go elsewhere; the closed school will somehow just vanish; the dropout will fade from the scene. In this case, we imagined that a legion of supposedly imprudent debtors could all be made to suffer without any effect on the larger economy. But it never really happens that way, does it?
Compounding COLAs
North Providence firefighters recently won a court decision to say they can keep a compounding cost of living adjustment (COLA). This is a point of contention in the recent pension battles that I simply don't understand. A pension COLA is meant to be a way to keep the purchasing power of a pension payment more or less constant over the lifetime of the recipient. There can be no debate about whether such a COLA should be compounding or not. In order for it to do the job it must compound, because the world compounds. The inflation rate is a rate that applies to prices that inflated last year, as they did the year before. This is the very definition of compounding.
Unfortunately, the reactionaries in our politics have seen many victories in the recent past using semantic dust in the eyes, so language has become a tool in undermining good policy. We've seen Newt Gingrich in his salad days argue that Medicare wasn't to be cut because the amount of money spent would have gone up -- despite a drop in the level of service. His pioneering abuse of language saw lots of willing imitators, not least Governor Carcieri who argued precisely the same thing about his education aid cuts. And in the past couple of weeks, we've seen John Boehner and Eric Cantor, Speaker and Majority Leader of Congress, respectively, argue that we're not really looking at a national "default" next week, even though they're using precisely that threat to extract breathtaking concessions from Barack Obama and congressional Democrats.
Now you hear discussions about pensions that include phrases like "simple COLAs" which might substitute for a "compound COLA." The easiest way to avoid any of these semantic swamps is to focus on the effect, not the name of the effect. Here's the plain fact: a cost of living adjustment is for keeping up with the cost of living. If it doesn't do that, it's not a COLA. And so a COLA that doesn't compound isn't a COLA at all.
Tom Sgouros is the editor of the Rhode Island Policy Reporter, at whatcheer.net and the author of "Ten Things You Don't Know About Rhode Island." Contact him at [email protected].
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