KRUGMAN: REBOOBLICANS IGNORE THEIR ECONOMIC MENTOR.

Milton Friedman. the 1976 Nobel Prize winner in Economics. A survey of economists ranked Friedman as the second most popular economist of the twentieth century after John Maynard Keynes,^[2] and The Economist described him as "the most influential economist of the second half of the 20th century...possibly of all of it."
 [He]  became the main advocate opposing activist Keynesian government policies.^[5] ...During the 1960s he promoted an alternative macroeconomic policy known as "monetarism". He theorized there existed a "natural" rate of unemployment, and argued that governments could increase employment above this rate (e.g., by increasing aggregate demand) only at the risk of causing inflation to accelerate.^[7] He argued that the Phillips curve was not stable and predicted what would come to be known as stagflation.^[8] Though opposed to the existence of the Federal Reserve, Friedman argued that, given that it does exist, a steady, small expansion of the money supply was the only wise policy.
....His political philosophy extolled the virtues of a free market economic system with minimal intervention. He once stated that his role in eliminating U.S. conscription was his proudest accomplishment, and his support for school choice led him to found The Friedman Foundation for Educational Choice. In his 1962 book Capitalism and Freedom, Friedman advocated policies such as a volunteer military, freely floating exchange rates, abolition of medical licenses, a negative income tax, and education vouchers.^[10] His ideas concerning monetary policy, taxation, privatization and deregulation influenced government policies, especially during the 1980s.






 

PAUL KRUGMAN N.Y. TIMES

Recently Senator Rand Paul, potential presidential candidate and self-proclaimed expert on monetary issues, sat down for an interview with Bloomberg Businessweek. It didn’t go too well. For example, Mr. Paul talked about America running “a trillion-dollar deficit every year”; actually, the deficit is projected to be only $642 billion in 2013, and it’s falling fast.
But the most interesting moment may have been when Mr. Paul was asked whom he would choose, ideally, to head the Federal Reserve and he suggested Milton Friedman....

Which suggests an interesting question: What ever happened to Friedman’s role as a free-market icon? The answer to that question says a lot about what has happened to modern conservatism.

Friedman, who used to be the ultimate avatar of conservative economics, has essentially disappeared from right-wing discourse. Oh, he gets name-checked now and then — but only for his political polemics, never for his monetary theories. Instead, Rand Paul turns to the “Austrian” view of thinkers like Friedrich Hayek — a view Friedman once described as an “atrophied and rigid caricature” — while Paul Ryan, the G.O.P.’s de facto intellectual leader, gets his monetary economics from Ayn Rand, or more precisely from fictional characters in “Atlas Shrugged.”

How did that happen? Friedman, it turns out, was too nuanced and realist a figure for the modern right, which doesn’t do nuance and rejects reality, which has a well-known liberal bias.

One way to think about Friedman is that he was the man who tried to save free-market ideology from itself, by offering an answer to the obvious question: “If free markets are so great, how come we have depressions?”

Until he came along, the answer of most conservative economists was basically that depressions served a necessary function and should simply be endured. Hayek, for example, argued that “we may perhaps prevent a crisis by checking expansion in time,” but “we can do nothing to get out of it before its natural end, once it has come.” Such dismal answers drove many economists into the arms of John Maynard Keynes.

Friedman, however, gave a different answer. He was willing to give a little ground, and admit that government action was indeed necessary to prevent depressions. But the required government action, he insisted, was of a very narrow kind: all you needed was an appropriately active Federal Reserve. In particular, he argued that the Fed could have prevented the Great Depression — with no need for new government programs — if only it had acted to save failing banks and pumped enough reserves into the banking system to prevent a sharp decline in the money supply.

This was, as I said, a move toward realism (although it looks wrong in the light of recent experience). But realism has no place in today’s Republican Party: both Mr. Paul and Mr. Ryan have furiously attacked Ben Bernanke for responding to the 2008 financial crisis by doing exactly what Friedman said the Fed should have done in the 1930s — advice he repeated to the Bank of Japan in 2000. “There is nothing more insidious that a country can do to its citizens,” Mr. Ryan lectured Mr. Bernanke, “than debase its currency.”

Oh, and while we’re on the subject of debasing currencies: one of Friedman’s most enduring pieces of straight economic analysis was his 1953 argument in favor of flexible exchange rates, in which he argued that countries finding themselves with excessively high wages and prices relative to their trading partners — like the nations of southern Europe today — would be better served by devaluing their currencies than by enduring years of high unemployment “until the deflation has run its sorry course.” Again, there’s no room for that kind of pragmatism in a party in which many members hanker for a return to the gold standard.

Now, I don’t want to put Friedman on a pedestal. In fact, I’d argue that the experience of the past 15 years, first in Japan and now across the Western world, shows that Keynes was right and Friedman was wrong about the ability of unaided monetary policy to fight depressions. The truth is that we need a more activist government than Friedman was willing to countenance.

The point, however, is that modern conservatism has moved so far to the right that it no longer has room for even small concessions to reality. Friedman tried to save free-market conservatism from itself — but the ideologues who now dominate the G.O.P. are beyond saving.

KRUGMAN: Consumer Financial Protection Bureau

PAUL KRUGMAN NY TIMES

Like many advocates of financial reform, I was a bit disappointed in the bill that finally emerged. Dodd-Frank gave regulators the power to rein in many financial excesses; but it was and is less clear that future regulators will use that power. As history shows, the financial industry’s wealth and influence can all too easily turn those who are supposed to serve as watchdogs into lap dogs instead.

There was, however, one piece of the reform that was a shining example of how to do it right: the creation of a Consumer Financial Protection Bureau, a stand-alone agency with its own funding, charged with protecting consumers against financial fraud and abuse. And sure enough, Senate Republicans are going all out in an attempt to kill that bureau.

Why is consumer financial protection necessary? Because fraud and abuse happen.

Don’t say that educated and informed consumers can take care of themselves. For one thing, not all consumers are educated and informed. Edward Gramlich, the Federal Reserve official who warned in vain about the dangers of subprime, famously asked, “Why are the most risky loan products sold to the least sophisticated borrowers?” He went on, “The question answers itself — the least sophisticated borrowers are probably duped into taking these products.”

And even well-educated adults can have a hard time understanding the risks and payoffs associated with financial deals — a fact of which shady operators are all too aware. To take an area in which the bureau has already done excellent work, how many of us know what’s actually in our credit-card contracts?

Now, you might be tempted to say that while we need protection against financial fraud, there’s no need to create another bureaucracy. Why not leave it up to the regulators we already have? The answer is that existing regulatory agencies are basically concerned with bolstering the banks; as a practical, cultural matter they will always put consumer protection on the back burner — just as they did when they ignored Mr. Gramlich’s warnings about subprime.

So the consumer protection bureau serves a vital function. But as I said, Senate Republicans are trying to kill it.

How can they do that, when the reform is already law and Democrats hold a Senate majority? Here as elsewhere, they’re turning to extortion — threatening to filibuster the appointment of Richard Cordray, the bureau’s acting head, and thereby leave the bureau unable to function. Mr. Cordray, whose work has drawn praise even from the bankers, is clearly not the issue. Instead, it’s an open attempt to use raw obstructionism to overturn the law.

What Republicans are demanding, basically, is that the protection bureau lose its independence. They want its actions subjected to a veto by other, bank-centered financial regulators, ensuring that consumers will once again be neglected, and they also want to take away its guaranteed funding, opening it to interest-group pressure. These changes would make the agency more or less worthless — but that, of course, is the point.

How can the G.O.P. be so determined to make America safe for financial fraud, with the 2008 crisis still so fresh in our memory? In part it’s because Republicans are deep in denial about what actually happened to our financial system and economy. On the right, it’s now complete orthodoxy that do-gooder liberals, especially former Representative Barney Frank, somehow caused the financial disaster by forcing helpless bankers to lend to Those People.

In reality, this is a nonsense story that has been extensively refuted; I’ve always been struck in particular by the notion that a Congressional Democrat, holding office at a time when Republicans ruled the House with an iron fist, somehow had the mystical power to distort our whole banking system. But it’s a story conservatives much prefer to the awkward reality that their faith in the perfection of free markets was proved false.

 

And as always, you should follow the money. Historically, the financial sector has given a lot of money to both parties, with only a modest Republican lean. In the last election, however, it went all in for Republicans, giving them more than twice as much as it gave to Democrats (and favoring Mitt Romney over the president almost three to one). All this money wasn’t enough to buy an election — but it was, arguably, enough to buy a major political party.

Right now, all the media focus is on the obvious hot issues — immigration, guns, the sequester, and so on. But let’s try not to let this one fall through the cracks: just four years after runaway bankers brought the world economy to its knees, Senate Republicans are using every means at their disposal, violating all the usual norms of politics in the process, in an attempt to give the bankers a chance to do it all over again.

Backing Down, House G.O.P. Offers 3-Month Debt Extension

Backing down from their hard-line stance, House Republicans said Friday that they would agree to lift the federal government’s statutory borrowing limit for three months, with a requirement that both chambers of Congress pass a budget in that time to clear the way for negotiations on long-term deficit reduction.

 The agreement, reached in closed-door negotiations at a party retreat in Williamsburg, Va., was a tactical retreat for House Republicans, who were increasingly isolated in their refusal to lift the debt ceiling. Speaker John A. Boehner of Ohio had previously said he would raise it only if paired with immediate spending cuts of equivalent value.

The decision by Republicans seemed to significantly reduce the threat of a federal government default in coming weeks and was welcomed by Senate Democrats. The House will consider the plan next week. 

 

   The decision represents a victory — at least for now — for Mr. Obama, who has said for months that he will not negotiate budget cuts under the threat of a debt default. By punting that threat into the spring, budget negotiations instead will center on two other points of leverage: March 1, when $1 trillion in across-the-board military and domestic cuts are set to begin, and March 27, when a stopgap law financing the government will expire.   

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DEBT DECREASES AS ECONOMY IMPROVES

PAUL KRUGMAN NEW YORK TIMES

It’s hard to turn on your TV or read an editorial page these days without encountering someone declaring, with an air of great seriousness, that excessive spending and the resulting budget deficit is our biggest problem. Such declarations are rarely accompanied by any argument about why we should believe this; it’s supposed to be part of what everyone knows.

This is, however, a case in which what everyone knows just ain’t so. The budget deficit isn’t our biggest problem, by a long shot. Furthermore, it’s a problem that is already, to a large degree, solved. The medium-term budget outlook isn’t great, but it’s not terrible either — and the long-term outlook gets much more attention than it should.

It’s true that right now we have a large federal budget deficit. But that deficit is mainly the result of a depressed economy — and you’re actually supposed to run deficits in a depressed economy to help support overall demand. The deficit will come down as the economy recovers: Revenue will rise while some categories of spending, such as unemployment benefits, will fall. Indeed, that’s already happening. (And similar things are happening at the state and local levels — for example, California appears to be back in budget surplus.)

 

Still, will economic recovery be enough to stabilize the fiscal outlook? The answer is, pretty much.

 

Recently the nonpartisan Center on Budget and Policy Priorities took Congressional Budget Office projections for the next decade and updated them to take account of two major deficit-reduction actions: the spending cuts agreed to in 2011, amounting to almost $1.5 trillion over the next decade; and the roughly $600 billion in tax increases on the affluent agreed to at the beginning of this year. What the center finds is a budget outlook that, as I said, isn’t great but isn’t terrible: It projects that the ratio of debt to G.D.P., the standard measure of America’s debt position, will be only modestly higher in 2022 than it is now.

The center calls for another $1.4 trillion in deficit reduction, which would completely stabilize the debt ratio; President Obama has called for roughly the same amount. Even without such actions, however, the budget outlook for the next 10 years doesn’t look at all alarming.

Now, projections that run further into the future do suggest trouble, as an aging population and rising health care costs continue to push federal spending higher. But here’s a question you almost never see seriously addressed: Why, exactly, should we believe that it’s necessary, or even possible, to decide right now how we will eventually address the budget issues of the 2030s?

Consider, for example, the case of Social Security. There was a case for paying down debt before the baby boomers began to retire, making it easier to pay full benefits later. But George W. Bush squandered the Clinton surplus on tax cuts and wars, and that window has closed. At this point, “reform” proposals are all about things like raising the retirement age or changing the inflation adjustment, moves that would gradually reduce benefits relative to current law. What problem is this supposed to solve?

Well, it’s probable (although not certain) that, within two or three decades, the Social Security trust fund will be exhausted, leaving the system unable to pay the full benefits specified by current law. So the plan is to avoid cuts in future benefits by committing right now to ... cuts in future benefits. Huh?

O.K., you can argue that the adjustment to an aging population would be smoother if we commit to a glide path of benefit cuts now. On the other hand, by moving too soon we might lock in benefit cuts that turn out not to have been necessary. And much the same logic applies to Medicare. So there’s a reasonable argument for leaving the question of how to deal with future problems up to future politicians.

The point is that the case for urgent action now to reduce spending decades in the future is far weaker than conventional rhetoric might lead you to suspect. And, no, it’s nothing like the case for urgent action on climate change.

So, no big problem in the medium term, no strong case for worrying now about long-run budget issues.

The deficit scolds dominating policy debate will, of course, fiercely resist any attempt to downgrade their favorite issue. They love living in an atmosphere of fiscal crisis: It lets them stroke their chins and sound serious, and it also provides an excuse for slashing social programs, which often seems to be their real objective.

But neither the current deficit nor projected future spending deserve to be anywhere near the top of our political agenda. It’s time to focus on other stuff — like the still-depressed state of the economy and the still-terrible problem of long-term unemployment.

ON OBAMA'S NEGOTIATING SKILLS

THE DAILY BEAST MICHAEL TOMASKY

The standard liberal position in the run-up to the cliff deal, or at least a position taken by a number of prominent liberals, was that Obama should have let the country go over the cliff, because he’d immediately have more leverage after Jan. 1. Taxes would go up, the argument went, most of the country would blame the Republicans, and boomity-boomity-boom, they’d come crawling to Obama ready to sign a deal on his terms.

I will readily confess that the logic is, if not impeccable, only mildly peccable. The Republicans would have been over a barrel. Of course predicting what those people will do and how they’ll respond to any given situation is risky business, but presumably they would not have wanted to be blamed for middle-class tax rates going up, so they’d have done something vaguely rational.

I get it. But here’s what I think proponents of that argument don’t get. Obama isn’t some co-speaker. He’s the effing president. People want the president to lead. They may blame Republicans more than Democrats for obstruction, and that’s a good thing. But they still want the president to Get Things Done, and, however naively, they still think he ought to be able to just assert his will and Get Things Done.

There is, in other words, a responsibility that comes along with being the president. It may be unfair, but the leaders of the House and Senate can play all the silly games they want to. Half the country or more doesn’t even know who they are. But the president—he’s supposed to do stuff. Obama really and deeply understands this—perhaps to a fault, but better that than believe he only has to represent the third of the country that loves him.

Sometimes acting out the jobs of Captain Liberal and Mister President can be done in harmony. But sometimes not; in fact, I’d say most often not, given that this is not an especially liberal country. So Mister President Obama was absolutely right to make every effort to hit the deadline. To your average person, failing to hit it would have been a terrible reflection on him, and an explanation from him about his increased leverage would have just sounded like more game-playing.

Relatedly, I’ve been amazed to read, sometimes from people I’ve considered quite knowledgeable, that Obama held “all the cards” here. He didn’t, by a long shot. This was a negotiation. Negotiations are hard. The other side wants exactly what you don’t want. Like it or not, liberals, the other side legitimately represents 47 percent of the country, so they had every right to get something out of this. And as it happens the other side also had the ability to block anything from happening. And they would have, too, if Obama had given them half an excuse.

As a matter of fact, think of this. If Obama had done what these liberals wanted and sent any signals as the New Year approached that he was ready to go over the cliff, the House Republicans would have publicized that, and then, if we had gone over the cliff, Obama would have shared the blame. It was Obama’s strict, good-faith adherence to the deadline that helped shift all the blame to the Republicans, and that is what made them play ball.

Now let’s talk a few of the specifics in the deal. First, how much does it really matter whether the revenue level for the higher tax rate is $250,000 or $450,000? I’d have much preferred the former, but the important thing is the principle. If he had to give a little ground on the amount in order to get the Senate Republicans to shake hands, so be it. It’s a shame the temporary payroll-tax relief will come to an end. This is the item liberals are most upset about, because it was a form of stimulus, and about the only stimulus Obama is going to get. But even Hill Democrats didn’t want that extended. What was Obama supposed to do?

The biggest complaint, given voice by Paul Krugman and Noam Scheiber among others, is that the recent negotiation basically showed that Obama is weak and too anxious to get a deal and will thus be steamrolled by the GOP in March into accepting steep budget cuts because he wants to avoid default.

I have tremendous regard for Krugman and Scheiber, but I don’t agree. Obama has negotiated with the Republicans four times now—the December 2010 extension of the Bush tax cuts, the spring 2011 government-shutdown threat, the summer 2011 debt-ceiling talks, and these recent cliff negotiations. On three—all but the summer 2011 talks, which were a fiasco—he came out looking pretty good. Now, it’s unfortunate that the one on which he didn’t do well involved the debt ceiling, the locus of the upcoming talks. But he vows that he’ll be tougher this time, and I take him at his word. He’s gotten a lot done, he got himself reelected when lots of people thought he couldn’t, and I say he’s earned a little bit of my trust. We’ll see.

I also think that “Obama is going to sell us out” columns somehow help make that eventuality come true. At the very least, they establish a tone and mindset that rank-and-file liberals imbibe and accept. Liberals should certainly pressure Obama to do as many liberal things as he can, but we should also recognize that he’s not the leader of a movement—he’s the head of a country. And he’s actually helped change the country pretty dramatically.

NY TIMES PAUL KRUGMAN

...the reality is that our two major political parties are engaged in a fierce struggle over the future shape of American society. Democrats want to preserve the legacy of the New Deal and the Great Society — Social Security, Medicare and Medicaid — and add to them what every other advanced country has: a more or less universal guarantee of essential health care. Republicans want to roll all of that back, making room for drastically lower taxes on the wealthy. Yes, it’s essentially a class war.

 The fight over the fiscal cliff was just one battle in that war. It ended, arguably, in a tactical victory for Democrats. The question is whether it was a Pyrrhic victory that set the stage for a larger defeat.

Why do I say that it was a tactical victory? Mainly because of what didn’t happen: There were no benefit cuts.

 

This was by no means a foregone conclusion. In 2011, the Obama administration was reportedly willing to raise the age of Medicare eligibility, a terrible and cruel policy idea. This time around, it was willing to cut Social Security benefits by changing the formula for cost-of-living adjustments, a less terrible idea that would nonetheless have imposed a lot of hardship — and probably have been politically disastrous as well. In the end, however, it didn’t happen. And progressives, always worried that President Obama seems much too willing to compromise about fundamentals, breathed a sigh of relief.

 

There were also some actual positives from a progressive point of view. Expanded unemployment benefits were given another year to run, a huge benefit to many families and a significant boost to our economic prospects (because this is money that will be spent, and hence help preserve jobs). Other benefits to lower-income families were given another five years — although, unfortunately, the payroll tax break was allowed to expire, which will hurt both working families and job creation.

The biggest progressive gripe about the legislation is that Mr. Obama extracted less revenue from the affluent than expected — about $600 billion versus $800 billion over the next decade. In perspective, however, this isn’t that big a deal. Put it this way: A reasonable estimate is that gross domestic product over the next 10 years will be around $200 trillion. So if the revenue take had matched expectations, it would still have amounted to only 0.4 percent of G.D.P.; as it turned out, this was reduced to 0.3 percent. Either way, it wouldn’t make much difference in the fights over revenue versus spending still to come.

Oh, and not only did Republicans vote for a tax increase for the first time in decades, the overall result of the tax changes now taking effect — which include new taxes associated with Obamacare as well as the new legislation — will be a significant reduction in income inequality, with the top 1 percent and even more so the top 0.1 percent taking a much bigger hit than middle-income families.

So why are many progressives — myself included — feeling very apprehensive? Because we’re worried about the confrontations to come.

According to the normal rules of politics, Republicans should have very little bargaining power at this point. With Democrats holding the White House and the Senate, the G.O.P. can’t pass legislation; and since the biggest progressive policy priority of recent years, health reform, is already law, Republicans wouldn’t seem to have many bargaining chips.

But the G.O.P. retains the power to destroy, in particular by refusing to raise the debt limit — which could cause a financial crisis. And Republicans have made it clear that they plan to use their destructive power to extract major policy concessions.

Now, the president has said that he won’t negotiate on that basis, and rightly so. Threatening to hurt tens of millions of innocent victims unless you get your way — which is what the G.O.P. strategy boils down to — shouldn’t be treated as a legitimate political tactic.

But will Mr. Obama stick to his anti-blackmail position as the moment of truth approaches? He blinked during the 2011 debt limit confrontation. And the last few days of the fiscal cliff negotiations were also marked by a clear unwillingness on his part to let the deadline expire. Since the consequences of a missed deadline on the debt limit would potentially be much worse, this bodes ill for administration resolve in the clinch.

So, as I said, in a tactical sense the fiscal cliff ended in a modest victory for the White House. But that victory could all too easily turn into defeat in just a few weeks.

OBAMA SAVED BUT BOEHNER MAY NOT BE IN REBOOBLICAN IMPLOSION

With his customary shrug and a grin, Mr. Boehner plainly acknowledged what the world already knew — he had failed to get enough Republicans to sign off on a deal to avoid automatic tax increases and spending cuts, and his members once again had left him standing nearly alone, like a man without a date to his own wedding, and at the crossroads of his career....Mr. Boehner risked his speakership with the vote this week, something he professed to be unconcerned with.


PAUL KRUGMAN, NY TIMES   12/20/12

A few years back, there was a boom in poker television — shows in which you got to watch the betting and bluffing of expert card players. Since then, however, viewers seem to have lost interest. But I have a suggestion: Instead of featuring poker experts, why not have a show featuring poker incompetents — people who fold when they have a strong hand or don’t know how to quit while they’re ahead?

 

On second thought, that show already exists. It’s called budget negotiations, and it’s now in its second episode.

 

The first episode ran in 2011, as President Obama made his first attempt to cut a long-run fiscal deal — a so-called Grand Bargain — with John Boehner, the speaker of the House. Mr. Obama was holding a fairly weak hand, after a midterm election in which Democrats took a beating. Nonetheless, the concessions he offered were breathtaking: He was willing to accept huge spending cuts, not to mention a rise in the Medicare eligibility age, in return for a vague promise of higher revenue without any increase in tax rates.

 

This deal, if implemented, would have been a huge victory for Republicans, deeply damaging both programs dear to Democrats and the Democratic political brand. But it never happened. Why?

 

Because Mr. Boehner and members of his party couldn’t bring themselves to accept even a modest rise in taxes. And their intransigence saved Mr. Obama from himself.

 

Now the game is on again — but with Mr. Obama holding a far stronger hand. He and his party won a solid victory in this year’s election. And the legislative clock is very much in their favor, too. All the Bush tax cuts are scheduled to expire at the end of the month.

 

A brief digression: I’ve become aware of a new effort by the G.O.P. to bully reporters into referring only to the “Bush-era” tax cuts, probably in the hope of dissociating those cuts, which they want to preserve, from a president voters now regard with disdain. But George W. Bush and his administration devised those cuts and rammed them through Congress, and it’s deceptive to suggest otherwise.

 

Back to the poker game: The president doesn’t hold all the cards — there are some things he and fellow Democrats want, like extended unemployment benefits and infrastructure spending, that they can’t get without some Republican cooperation. But he is in a very strong position.

 

Yet earlier this week progressives suddenly had the sinking feeling that it was 2011 all over again, as the Obama administration made a budget offer that, while far better than the disastrous deal it was willing to make the last time around, still involved giving way on issues where it had promised to hold the line — perpetuating a substantial portion of the high-income Bush tax cuts, effectively cutting Social Security benefits by changing the inflation adjustment.

 

And this was an offer, not a deal. Are we about to see another round of the president negotiating with himself, snatching policy and political defeat from the jaws of victory? Well, probably not. Once again, the Republican crazies — the people who can’t accept the idea of ever voting to raise taxes on the wealthy, never mind either fiscal or economic reality — have saved the day.

 

We don’t know exactly why Mr. Boehner didn’t respond to the president’s offer with a real counteroffer and instead offered something ludicrous — a “Plan B” that, according to the nonpartisan Tax Policy Center, would actually raise taxes for a number of lower- and middle-income families, while cutting taxes for almost half of those in the top 1 percent. The effect, however, has to have been to disabuse the Obama team of any illusions that they were engaged in good-faith negotiations.

 

Mr. Boehner had evident problems getting his caucus to support Plan B, and he took the plan off the table Thursday night; it would have modestly raised taxes on the really wealthy, the top 0.1 percent, and even that was too much for many Republicans. This means that any real deal with Mr. Obama would be met with mass G.O.P. defections; so any such deal would require overwhelming Democratic support, a fact that empowers progressives ready to bolt if they think the president is giving away too much.

 

As in 2011, then, the Republican crazies are doing Mr. Obama a favor, heading off any temptation he may have felt to give away the store in pursuit of bipartisan dreams.

 

And there’s a broader lesson here. This is no time for a Grand Bargain, because the Republican Party, as now constituted, is just not an entity with which the president can make a serious deal. If we’re going to get a grip on our nation’s problems — of which the budget deficit is a minor part — the power of the G.O.P.’s extremists, and their willingness to hold the economy hostage if they don’t get their way, needs to be broken. And somehow I don’t think that’s going to happen in the next few days.

SOCIAL SECURITY, MEDICARE AND DEFICITS

Why doesn’t Obama appoint Krugman Secretary of the Treasury? And while he’s at it he should make Mr. Krugman his personal advisor. Here Mr Krugman expertly explains why raising the retirement age on Social Security and Medicare would be a harsh blow to Americans in the bottom half of the income distribution.

http://www.nytimes.com/2012/11/16/opinion/life-death-and-deficits.html?smid=tu-share

America’s political landscape is infested with many zombie ideas — beliefs about policy that have been repeatedly refuted with evidence and analysis but refuse to die. The most prominent zombie is the insistence that low taxes on rich people are the key to prosperity. But there are others.

And right now the most dangerous zombie is probably the claim that rising life expectancy justifies a rise in both the Social Security retirement age and the age of eligibility for Medicare. Even some Democrats — including, according to reports, the president — have seemed susceptible to this argument. But it’s a cruel, foolish idea — cruel in the case of Social Security, foolish in the case of Medicare — and we shouldn’t let it eat our brains.

First of all, you need to understand that while life expectancy at birth has gone up a lot, that’s not relevant to this issue; what matters is life expectancy for those at or near retirement age. When, to take one example, Alan Simpson — the co-chairman of President Obama’s deficit commission — declared that Social Security was “never intended as a retirement program” because life expectancy when it was founded was only 63, he was displaying his ignorance. Even in 1940, Americans who made it to age 65 generally had many years left.

 

Now, life expectancy at age 65 has risen, too. But the rise has been very uneven since the 1970s, with only the relatively affluent and well-educated seeing large gains. Bear in mind, too, that the full retirement age has already gone up to 66 and is scheduled to rise to 67 under current law.

 

This means that any further rise in the retirement age would be a harsh blow to Americans in the bottom half of the income distribution, who aren’t living much longer, and who, in many cases, have jobs requiring physical effort that’s difficult even for healthy seniors. And these are precisely the people who depend most on Social Security.

 

So any rise in the Social Security retirement age would, as I said, be cruel, hurting the most vulnerable Americans. And this cruelty would be gratuitous: While the United States does have a long-run budget problem, Social Security is not a major factor in that problem.

 

Medicare, on the other hand, is a big budget problem. But raising the eligibility age, which means forcing seniors to seek private insurance, is no way to deal with that problem.

It’s true that thanks to Obamacare, seniors should actually be able to get insurance even without Medicare. (Although, what happens if a number of states block the expansion of Medicaid that’s a crucial piece of the program?) But let’s be clear: Government insurance via Medicare is better and more cost-effective than private insurance.

 

You might ask why, in that case, health reform didn’t just extend Medicare to everyone, as opposed to setting up a system that continues to rely on private insurers. The answer, of course, is political realism. Given the power of the insurance industry, the Obama administration had to keep that industry in the loop. But the fact that Medicare for all may have been politically out of reach is no reason to push millions of Americans out of a good system into a worse one.

What would happen if we raised the Medicare eligibility age? The federal government would save only a small amount of money, because younger seniors are relatively healthy and hence low-cost. Meanwhile, however, those seniors would face sharply higher out-of-pocket costs. How could this trade-off be considered good policy?

 

The bottom line is that raising the age of eligibility for either Social Security benefits or Medicare would be destructive, making Americans’ lives worse without contributing in any significant way to deficit reduction. Democrats, in particular, who even consider either alternative need to ask themselves what on earth they think they’re doing.

 

But what, ask the deficit scolds, do people like me propose doing about rising spending? The answer is to do what every other advanced country does, and make a serious effort to rein in health care costs. Give Medicare the ability to bargain over drug prices. Let the Independent Payment Advisory Board, created as part of Obamacare to help Medicare control costs, do its job instead of crying “death panels.” (And isn’t it odd that the same people who demagogue attempts to help Medicare save money are eager to throw millions of people out of the program altogether?) We know that we have a health care system with skewed incentives and bloated costs, so why don’t we try to fix it?

 

What we know for sure is that there is no good case for denying older Americans access to the programs they count on. This should be a red line in any budget negotiations, and we can only hope that Mr. Obama doesn’t betray his supporters by crossing it.