Opinion

The Great Debate

The sham of Simpson-Bowles

Erskine Bowles and former Senator Alan Simpson deserve some kind of medal for creating the widely held perception that their plan for reducing the deficit and debt is anything other than a bad proposal.

It has been nearly two years since the commission they chaired, which I served on, finished its work. The duo’s proposal has attained almost mythical status in Washington as the epitome of what a “grand bargain” should look like.

But everyone look again. They will discover that it is far less than meets the eye.

Have Simpson-Bowles’ champions read it? Given any real scrutiny, this plan falls far short of being a serious, workable or reasonable proposal – from either an economic or political analysis.

In one of its few specific points, for example, Simpson-Bowles mandates a top individual tax rate of 29 percent “or less.” Much like the vague Romney proposals, the Simpson-Bowles plan would make up the shortfall by eliminating tax loopholes, suggesting options such as having employees pay taxes on their health benefits. Not only is this likely to increase costs to middle-income families, it could threaten coverage altogether. The proposal for corporate tax reform would eliminate taxes on profits earned overseas, rewarding companies that move jobs offshore.

Key fiscal questions nominees must answer

 

We can only hope the final presidential debate Monday provides less heat and more light than the previous two. Especially with regard to fiscal matters, the debates have so far not provided the substance and solutions that voters need and deserve to hear.

Our nation’s escalating deficits and debt represent the biggest threat to our national security, as I said in early 2007. Admiral Mike Mullen, former chairman of the Joint Chiefs of Staff, said much the same in 2010. So the topic of the third debate, foreign policy and national security, needs to include a frank discussion of fiscal issues.

For, as our economy weakens, so does our position in the world. It will eventually compromise both our national security and domestic tranquility if not effectively addressed. Both our allies and adversaries recognize this, and we need to take action.

from MacroScope:

The Law of Diminishing Greeks

The Law of Diminishing Returns  states that a continuing push towards a given goal tends to  decline in effectiveness after a certain amount of effort has been expended. If this weren't the case, Usain Bolt would be able to run the mile in  less than 2-1/2 minutes.

From an economic standpoint, this law now seems to be fully in force in Greece. The latest jobs figures from the twice-bailed out euro zone country paint a bleak numerical picture of the impact of unrelenting austerity in ordinary Greeks, regardless of whether it was self-inflicted or not. To wit:

More than one in five Greeks is unemployed.

There are more young people without a job than with one.

The record 1.08 million people  without work in January was a  47 percent tumble  in a year.

The fast track to a balanced budget

The state of the union, fiscally speaking, is perilous. Despite record deficits and dire warnings from Europe as to the consequences of sustained fiscal imbalance, our leaders have been unable to find common ground. The Simpson-Bowles Commission in 2010, the Gang of Six last summer and the misnamed Super Committee of this past fall were all bipartisan efforts to cut through the Gordian knot of budgetary gridlock. And all of them failed. Miserably.

Yet despite these failures, Congress now has the opportunity to move us onto a path toward prompt national consensus on fiscal reform. Congressional leaders are this week debating legislation to extend the payroll tax cut. If they are smart, they will include in that bill a small, but important, provision that grants the winner of the 2012 presidential election something called fast-track authority. This authority would allow the president — whoever he is — to submit fiscal reform legislation for an up-or-down vote in both the House and Senate on Jan. 21, 2013, the day after Inauguration Day. Indeed, fast-track authority would be a worthy quid pro quo for members of Congress reluctant to sign off on extending the payroll tax cut without some assurance of future progress on deficit reduction.

What’s promising about this proposal is not just what fast-track authority might deliver in 2013, but what its very existence could do to the presidential race. With fast-track authority granted, President Obama and his Republican challenger could each be expected to put forward during the presidential race a coherent and credible plan to move toward a balanced budget.

The Democrats’ opportunity in the supercommittee’s failure

By Nicholas Wapshott
All opinions expressed are his own.

Thanksgiving, I don’t have to remind you, marks the settling of irreconcilable differences between the early settlers and the original Americans, the burying of the hatchet, as it were, between Christians and heathens. If only this Thanksgiving marked the same.

The Congressional supercommittee that was created to find $1.2 trillion in spending cuts has until November 23, the night before Thanksgiving, to find a way to pay down the national debt. But things look bleak. Former Bill Clinton chief of staff Erskine Bowles, whose own deficit cutting plan dribbled into the sand, told the committee the prospect of their reaching an agreement is no more than 50-50. If there is going to be any burying of the hatchet this Thanksgiving, it may be deep in someone’s cranium.

The arguments in the committee echo the ill-tempered debate in the summer over extending the federal debt ceiling. As before, the Democrats will only agree to entitlement cuts if the Republicans agree to raise taxes on the wealthy. As tax breaks for the rich have become an article of faith for Republicans, compromise seems unlikely. Intransigence is the order of the day.

from Reuters Money:

Fury brewing at ratings agencies as markets gyrate

Carnival revellers are silhouetted as they carry a burning wooden wagon in Liestal, near Basel, February 21, 2010.  REUTERS/Michael BuholzerSo let me get this straight.

Ratings agencies helped spark the financial meltdown of 2008-9, when they deemed that steaming piles of mortgage junk were brimming with triple-A goodness. They were wrong – and epically so.

Now S&P downgrades the debt of the entire country, further threatens to do so another notch, teams with fellow ratings agencies to bring Europe to its knees with each new appraisal and gets an assist for wiping trillions in wealth from investors’ portfolios in just a few days.

Anyone else think the ratings agencies need a time out?

“If you had asked me a couple of years ago if they could do anything more destructive than the mortgage debacle, I would have said never,” says Roger Kirby, Of Counsel for New York City law firm Kirby McInerney, who is involved in a class action against Moody’s on behalf of shareholders. “But it seems they’re managing to do it again, right now. In order to restore their damaged reputations, they’re interjecting themselves unsolicited into sovereign markets.

from Reuters Money:

Deficit cutting need not be cruel

SPAIN-ECONOMY/Congress needn't be cruel to be kind in cutting the U.S. budget deficit while saving popular programs like Social Security and Medicare.

That's not to say that taxes don't need to rise, deductions pared and giveaways to corporations eliminated. That all needs to be considered, although the recent deficit commission report doesn't do the dirty work in an equitable manner. It places far too much emphasis on paring Social Security benefits, a system that works and won't be in deficit mode for several decades.

There's plenty of pain to go around in the deficit commission's proposal. The most compelling trade-off is based on the idea that lowering personal income-tax rates will achieve some long-term economic stimulus. That thinking hasn't worked in the past and won't work now.

Obama, Moses and exaggerated expectations

-Bernd Debusmann is a Reuters columnist. The opinions expressed are his own-

President Barack Obama is close to the half-way mark of his presidential mandate, a good time for a brief look at health care, unemployment, war, the level of the oceans, the health of the planet, and America’s image. They all featured in a 2008 Obama speech whose rhetoric soared to stratospheric heights.

“If…we are willing to work for it, and fight for it, and believe in it, then I’m absolutely certain that generations from now, we will be able to look back and tell our children that this was the moment when we began to provide care for the sick and good jobs for the jobless; this was the moment when the rise of the oceans began to slow and our planet began to heal; this was the moment when we ended a war and secured our nation and restored our image as the last best hope on earth.”

The date was June 3, 2008. Obama had just won the Democratic Party’s nomination as presidential candidate. He was also winning the adulation of the majority of the American people, who shrugged off mockery from curmudgeonly Republicans who pointed out that the last historical figure to affect ocean levels was Moses and he had divine help when he parted the Red Sea.

from The Great Debate UK:

EU stress tests: for banks or governments?

- Laurence Copeland is a professor of finance at Cardiff Business School. The opinions expressed are his own.-

Worries about Europe’s banking system go back at least to 2007, but whereas the U.S. (and UK) banks appear to have weathered the storm, there are fears that for European banks the worst may lie ahead.  Concerns centre on four areas.

First, there are obvious worries about Greece and the other small countries facing debt problems, notably Portugal and Ireland, where the local banks have lent heavily to their governments and in addition may need to make provision for a substantial build-up in the level of bad debts in their respective corporate sectors as their economies struggle through the recession.

Eerie calm before Britain’s election

To look at sterling and gilts, you would hardly know that Britain is sailing into a general election which will likely deliver a weaker government with a diminished ability, if not will, to grapple with high debts, an uncertain role in the global economy and an aging population.

It is impossible to say what will be the result on Thursday, nor what deals may be made between the surging Liberal Democrats, a bedraggled Labour party which will still have a significant wodge of votes and the Conservatives, who must be both hoping that their hour has arrived and that that hour does not prove to be Monday morning at 8 a.m., pouring with rain and all the trains are late.

There is a huge range of scenarios — a weak minority or majority government or a coalition of some form — but the common denominator across almost all likely outcomes is that all raise the risk of a weak government unable or unwilling to push through aggressive deficit-reduction measures.

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