Briefs

Kavanaugh
Anybody who ever was a drunken high school boy can have no doubt that He Did It, whether he remembers it or not.  If he does remember, he'll lie about it — but far more disqualifying are the lies he already told during his 2006 confirmation hearings for the DC Circuit Court of Appeals, regarding his service in the Bush administration.  He was an adult by then, and presumably sober.

Trade War
China's threat to respond to the latest Tr*mpian tariff escalations by disrupting US supply chains must be taken very seriously, given that key components of important manufactured products just are not available outside of China.  Even unregenerate supply-siders like Larry Kudlow are able to see that; Our President, though, only will listen to his paleo-mercantilist trade advisor, Peter Navarro.  Can mainstream corporatist Republicans stop them?  Maybe.  Maybe not.

Big Lie
Jaws agape, anybody who has been paying any attention at all over the past forty years stared in amazement as Our President declared that Democrats want to destroy Medicare, Medicaid, and Social Security.  Will his base believe him?  As Hitler wrote in Mein Kampf, "in the primitive simplicity of their minds they more readily fall victims to the big lie than the small lie, since they themselves often tell small lies in little matters but would be ashamed to resort to large-scale falsehoods." 

Notes for a Counterrevolution

With the passage of the Republican tax bill, the economic coup by the plutocracy against the people of the United States is nearly complete.  All that remains is to shred what is left of the safety net in the name of fiscal responsibility — and we can anticipate a concerted effort to accomplish that before the midterm elections.  What can Democrats do about it?

A coup requires a counterrevolution, not incremental "improvements."  None of the suggestions that follow are remotely possible before the 2020 elections, and even then they stand little chance of implementation: not all plutocrats are Republicans.  It's nice to dream, though.

First, the corporate tax rate should be reduced to zero.  Next, virtually all income, including wages, pass-through income, dividends and capital gains should be taxed on the same progressive scale.  Income reinvested in businesses thus would be tax-free, but all income distributed to individuals would be taxable.  Interest income, which encourages savings and the loans that finance economic expansion, would be tax-free.  Payments to foreign investors, who own a bit more than 20% of the US economy, would be taxed at internationally competitive rates.

All income should be taxed to finance Social Security, Medicare, and Medicaid, and all caps on taxable income should be removed.  To make American businesses more competitive with each other, anti-trust laws must be strengthened and vigorously enforced.  Vertical as well as horizontal combinations need closer scrutiny.

The devils can be worked out of the details with implementation, but since none of this is likely to happen anyway, I'll just leave the details to the economists.

The Cap on FICA Contributions

One December in the earlier 1990s — while I still was getting paper paychecks instead of direct deposits — I looked at my paper paycheck and discovered my net salary was higher than expected.  When I received my second December paycheck, my net was even higher.  I pulled out some earlier pay stubs, and discovered the difference resulted from reduced FICA contributions.  Thanks to a good union, years on the job, and earning enough extra post-graduate credits, I'd gone past the cap on Social Security contributions.

January came around, and my net pay went down again.  I remember thinking, back then, that if my pay hadn't gone up in December, I wouldn't have noticed.  So why was there a cap on FICA contributions?  Frankly, it didn't seem fair.  It was a regressive tax.

Right now, the FICA cap is a bit over $114,000.  To me, that sounds like a pretty high income for one worker, and I doubt that if those making $120,000 didn't get their December "bonus," nor if those making over $250,000 didn't get their October through December bonuses, they really would have paid much attention.  I guess those making seven million would notice because the $434,000 they owed all would come out of their first paychecks of the year, so they'd get only about 150 grand for January, and to which I say, tough shit.

Eliminating the cap would make Social Security solvent, with no "chained CPI" needed.  Even if we increased maximum Social Security payments to those who paid more, it would work.  A "sliding scale" for the super-rich would make it work even better.  If Jaimie Dimon collected five or six grand a month in Social Security payments, it wouldn't make a hell of a lot of difference to the rest of us — nor to Jamie Dimon.

Will somebody please slap Obama upside the head and knock a little sense into him?  Michelle?

Compromises

The chained consumer price index, as a measure of inflation, makes a certain amount of sense.  It certainly is true that consumers will substitute cheaper goods for more expensive goods when prices increase.  Old people like me, whose Social Security payments are not the greatest part of our income, can cut back from shell steak to pork tenderloin; or from 85% lean chopped meat to 70% lean chopped meat; or from fresh asparagus to canned string beans.

The substitution effect makes sense, up to a point.  If you're already eating cat food as your primary source of protein, what in hell do you substitute?  People actually trying to live on Social Security cannot survive a chained consumer price index.

If Social Security were means tested, I could survive it — but if it were means tested, Social Security would be eroded down to nothing.  Nobody really gives a shit about the people who depend on it for their survival.  The most important thing about Social Security is that everybody gets it, so even rich people get it (and generally more than poor people do.)

So, if a "grand bargain" comes about, and it includes a chained consumer price index, you should be aware that Obama has sold you out to the fucking plutocrats.  Okay, he's looking for a deal.  I don't care.  We don't need a grand bargain.  We need justice.

Beware the "Grand Bargain"

The general public seems to believe that what Bernanke called "the fiscal cliff" (and Krugman called "the austerity bomb") has been averted.  It hasn't, of course.  Sequestration and lifting the debt ceiling were kicked down the road a couple of months, but nothing, really, is settled.

During his first term, Obama seriously sought a "Grand Bargain" on tax increases and spending cuts with John Boehner — but Republicans, possibly convinced by too rich a diet of Fox News, declined, thinking they could take the Presidency and possibly the Senate as well in the 2012 elections.  Well, they were wrong.

The problem now, though, is that Obama still wants a "Grand Bargain," and probably still is willing to make entirely too many concessions on what currently are called "entitlements," but which used to be called "the social safety net."  (Yes, the progressives let the conservatives select the lexicon again.  When Republicans talk about "reforming entitlement programs," what they mean, really, is "shredding the net.")

Well, there are some changes that could be steps in the right direction.  The salary cap for FICA contributions could be lifted — or, better yet, entirely eliminated — to build the Social Security trust fund.  Since that trust fund may be invested only in government bonds, perhaps the Fed could create a new instrument — available only to the trust fund — that actually pays a little interest.  Since the Fed creates money out of thin air, it wouldn't cost taxpayers a cent, so beefing up the trust fund would not have any negative impact on the general economy.

What Medicare needs more than anything is what insurers call a more favorable experience rating — that is, it needs more members paying in who need less health care.  Hence, it makes no sense at all to raise the age of eligibility to 67, since the youngest members use the fewest services.  What should be done is to open up Medicare coverage to much younger participants.  The best way I can see to do that is to allow Medicare to compete against the private companies on the Affordable Care Act exchanges.  Uh huh, that good old public option — but there's no doubt it would cut costs.  The real solution, of course, is single payer for all.  Don't miss Eduardo Porter's column in yesterday's Times!

Needless to say, eliminating corn subsidies and the corn-based ethanol requirement for gasoline would free up a lot of money for food stamps, and raising the minimum wage to a living wage would help increase all kinds of tax revenues while reducing income inequality.  Yes, prices might have to rise, but poorer people tend to spend whatever extra income they receive, boosting sales.  That means more profits for (real and alleged) small businesses, and more employment.

I could go on, but why bother?  None of the above will happen.  After all, as Will Rogers said, "We have the best Congress money can buy."

The Case for (and against) Chained Inflation

Obama is compromising again, and among his latest offers is acceptance of computation of inflation using the "chained" consumer price index.  In truth, the "chained" computation makes a lot of sense, because it accounts for something we all (ought to have) learned in basic economics — the substitution effect.  If the brand name product's price goes up, we buy the store brand.  If beef gets too expensive, we buy pork.  Chained computation of inflation really does reflect the actual cost of living — for most people.  The cost of inflation really does have less impact — on most people — than the current computation of CPI indicates.

For the elderly, though, chained computation does not work.  People getting by on Social Security payments already are substituting the pork (or the cat food) for the beef, and some of their largest expenses are not part of the CPI "market basket" — health care costs.

Most of the people who re-elected Obama (including the elderly) do not have a clue what the new measure of inflation means, which probably is why Obama put it on the table.  Maybe Our President will look more liberal in his second term, but he's still the guy whose economic team's godfather is Robert Rubin.

Who will Obama select to replace Timmy Geithner?  (I think we can assume it won't be Joseph Stiglitz.)

As for Timmy, he has not yet been CEO of Citi, but there still is plenty of time.  Wall Street über alles.