Report

Labor Market In Full Retreat

Isaiah J. Poole — Fri, 08 Jul 2011 10:22:07 -0400

Democracy Corp/CAF Survey on the House Republican Budget

Terrance Heath — Thu, 14 Apr 2011 14:45:01 -0400

Paul Ryan To Seniors: "Drop Dead"

A new Democracy Corps/Campaign for America's Future survey on House Republican budget proposal shows Americans are skeptical of Republicans in Congress and the Tea Party movement, and cautious about the deficit reduction plan.

Our data shows that proposals to dismantle Medicare in the 2012 House Republican budget could sink the political futures of those who for it. When the budget is described, using the language of its chief author, support collapses to 36 percent. The proposed cuts to Medicare raise concerns for nearly two-thirds of respondents.

Here are the key findings from the survey:

Just 38 percent of voters say they approve of House Republicans. After the tumultuous debate over the 2011 budget and the threatened government shutdown, a shocking 55 percent disapprove.
Less than half of the public supports the House Republican budget — described simply as a “budget for the next 10 years that they say will cut 6.2 trillion dollars from the federal budget.”
When the budget is described using Ryan's own language, support drops to 36 percent. A large majority of 56 percent oppose it, 42 percent strongly. Among seniors, support drops to just 32 percent, with 57 percent opposed. Independent support drops to 43 percent.
Cuts to Medicare raise concerns for nearly two-thirds of respondents; raising serious doubts for 66 percent, and very serious doubts for 40 percent.

Democracy Corps Poll On Economy And Federal Spending

Isaiah J. Poole — Thu, 10 Feb 2011 23:29:11 -0500

Democracy Corps surveyed 1,000 likely 2012 voters from Feb. 7-9, testing voters’ responses to the Republican proposal to cut $32 billion from the federal budget.

The poll tested messages on both sides of the debate and recorded responses to itemized cuts. The American people know that this is a debate about principles and priorities. The results are clear: these are the wrong priorities at the wrong time. The poll shows that there is little appetite for these cuts, but it is imperative that Democrats’ get the message right—right now. The poll reveals how progressives can win this debate, but they must start now and come out swinging.

Democracy Corps/CAF Poll On Jobs And The Economy

Isaiah J. Poole — Tue, 18 Jan 2011 10:32:33 -0500

Download the memo (PDF)

Download poll details (PDF)

Download presentation slides (PPT)

News release

Blogs and commentary

View this presentation on the OurFuture.org Slideshare page.

The voters have a clear and dramatic message for the new Republicans in the Congress and the president on the eve of his State of the Union Address: focus on jobs and the economy and show how America is going to be economically successful again.

This is not a nuanced poll. If Democrats did not get the message in 2010, voters are ready to send a message again, according to the first Democracy Corps-Campaign for America’s Future survey of 2011. The media pundits and Washington conventional wisdom says deficit reduction and cutting government spending are the top priorities for the nation, and the Republican Congress is starting with voting to repeal health care and putting Social Security cuts on the table for the first time. They could not have it more wrong.

This survey was conducted after the January 8 Tucson shooting but mostly before the president’s memorial address January 12.

Here are key findings from the poll:

When asked to select what they believed were the two most important economic problems facing the country right now, 41 percent said “high unemployment” and 33 percent said “outsourcing of jobs,” the latter capturing the deep worry that America and American corporations are not able or willing to create American jobs. Another 18 percent focused on wages not keeping up with the cost of living. Just 25 percent chose “the budget deficit is big and growing” as one of the top two problems.
Just 17 percent think the priority of the new Congress should be repealing health care. What respondents did say the Congress should prioritize over the next two years is economic recovery and new jobs (46 percent), protecting Social Security and Medicare (34 percent) and "making sure that our children receive an education for these times (27 percent).
While deficit reduction is very important, voters want to see a growth strategy. When respondents were offered a choice between brave deficit reduction and a jobs plan to reduce the deficit and achieve growth, they rallied to the later, 58 to 35 percent, with 42 percent strongly embracing growth over austerity. On a scale of zero (cool) to 100 (warm), respondents registered support for a plan to invest in new industries and rebuild the country over the next five years (57 warm and 16 cool). They also supported, but not as strongly, a plan to dramatically reduce the deficit over the next five years (52 warm and 20 cool).
Elected officials have no mandate to cut Social Security—and the voters have no appetite for it: 56 percent of respondents oppose the recommendation of the White House bipartisan deficit commission to raise the retirement age to 69 by 2075.
On the surface, 56 percent of respondents support a deficit commission goal of $4 trillion in deficit reduction by 2020. But a nearly identical bloc (54 percent) hate the plan itself. When they hear the details of the plan, without any rhetoric, they turn dramatically against it.
A sizeable majority, 52 to 43 percent, oppose the planned $100 billion dollars in budget cuts House Republicans have proposed for this year that would reduce spending on education, student loans, energy and the environment. Also, by a two-to-one margin, voters disapprove of Republican positions that add to the deficit (such as the repeal of health care reform and making permanent tax cuts for the wealthy).

The Politics Ahead

After the Republicans landslide win in 2010, the country has quickly moved to a position of party parity in vote preference, image and identification. About equal numbers identify with the Democrats and Republicans; the two national and congressional parties are equally unpopular. In addition, President Obama's standing is stronger since the election. His approval rating is up to 47 percent, but more important, strong disapproval has plummeted. This is a major change in mood and climate for the period ahead.

However, the president has further to go to have a clear lead and congressional Democrats have further to go if they are to rebuild their majorities. The Democratic majorities of 2006 and 2008 were produced by a new broad progressive base and by gains among key swing groups. To regain these majorities for 2012 Democrats will have to make significant additional gains with young voters and unmarried women. Democrats also need to do better with union households.

The difficulty that Democrats are having with white non-college and blue-collar voters is no doubt closely linked to the economy and the job climate. If Democrats are to reach these voters, they have to understand the scale of the problems people are facing and how hungry they are for Democrats to show how they are going to get the country back to growth and creating American jobs.

Economists agree that the unemployment rate will exceed 9 percent for the next several months and will most likely still exceed 8 percent during the 2012 election. There is no more important fact. In this survey, 17 percent report being unemployed in the past year; 41 percent when counting themselves or someone in their immediate family—one half of white non-college men.

President Obama and the Democratic Party have to start over in communicating their vision of the economy. The country embraces long-term plans for investment to create jobs and favors growth as the best route to deficit reduction, strongly favoring investment over austerity.

Report And Recommendations Of The Citizens’ Commission On Jobs, Deficits And America’s Economic Future

Isaiah J. Poole — Tue, 23 Nov 2010 12:43:50 -0500

Download PDF of the report

Citizens' commission members

Audio of media briefing

Four-minute podcast

News release

EXECUTIVE SUMMARY

The United States continues to suffer the aftereffects of the worst economic recession since the Great Depression, triggered by a financial crisis whose causes were ignored or made worse by elite policymakers for decades. Today, more than 25 million Americans who are ready and willing can’t find full-time work. Personal wealth has declined sharply, creating an especially uncertain future for people approaching retirement age. Confidence is down for both consumers and businesses, which prevents sustained economic growth.

At the same time, largely due to the severity of the recent recession, a federal government that enjoyed record surpluses just 10 years ago now faces record deficits that are spreading alarm and confusion across the land. Moreover, this severe downturn comes after a decade that featured the worst job creation in the post-war period, declining wages for most Americans, weaker unions confronted by employer attacks on rights to organize, continued decay of basic infrastructure, an ongoing crisis in public education, record trade deficits and job loss abroad, and extreme inequality.

Despite the ongoing pain that unemployment is still inflicting on individuals and families, despite the slow growth in demand that is hurting small business, despite the wrenching budget crisis hitting most state governments, and despite the longer term decline that can no longer be ignored, the debate in Washington is now dominated by conservative cries for immediate reduction of the federal deficit. Several elite “commissions”—two privately financed, and one created by the president and Congress—have effectively shifted the attention of the media to deficits as the primary focus for public action.

One voice has been conspicuously absent from most discussion of deficits—that of the American people. Polls have shown that the public's opinion and that of many leading economists are surprisingly well aligned. The public agrees with economists who warn that deficit reduction must be performed judiciously, without restricting government's ability to create jobs and without damaging needed social programs. Both agree that that we must make investments vital to reviving America’s long-term prospects.

The Citizen's Commission on Jobs, Deficits and America’s Economic Future was created to offer proposals that can return our economy to healthy, sustainable growth, while taking action to reduce deficits and debt in a way that enhances the future well-being of the American people. And since the conventional wisdom is so dominated by a relatively narrow range of opinions, it is our intention that this document will elicit media coverage of an alternative point of view—and that its recommendations will be widely discussed by civic and business and labor leaders in communities all across the nation.

This commission has two major priorities. The first is to assure that the U.S. economy recovers fully and returns to a fast track of growth. This is the right way to reduce the current high deficit. The second is long-term public investment in sustainable growth, ensuring a healthy economy that can generate adequate revenue for needed public services. We have outlined three key principles that any plan for growth and deficit reduction must follow:

1. Grow the economy. Don’t kill growth and jobs in the name of deficit reduction.

2. Target what truly drives deficits. Don’t fix what isn’t broken.

3. Invest in future sustainable growth while balancing our national accounts.

These are not just moral imperatives. They are economic prerequisites for successful deficit reduction.

Causes of Current and Future Deficits

Much, if not most, of the current public discourse is misleading and poorly informed.

The federal deficit tripled between 2008 and 2009, reaching $1.5 trillion and 10 percent of GDP in 2009. This was the culmination of a process that began with the passage of the first Bush tax cuts, accelerated with the invasions of Iraq and Afghanistan, and peaked with the economic collapse of 2008. It therefore follows that any reasonable short-term plan should focus the causes of our current deficit. Yet most of the measures currently being debated fail to do so. Despite the role that tax cuts played in creating today's deficits, many such plans would lower taxes for the wealthiest Americans while increasing them for the middle class. They would also restrict government efforts to bring us out of our current economic crisis, weakening the economy and reducing future government revenues.

Future deficits will be driven almost exclusively by the explosive growth in health care costs. Those who advocate for increased austerity are failing to address true the causes of government spending. Furthermore, there is no evidence that implementing policies to reduce government deficit would increase private spending. As we note (see Appendix I), there is ample evidence that such spending cuts would create more unemployment, making a second recession possible and even likely.

The Lesson of 1937

The nation has been at a similar juncture before. Franklin D. Roosevelt's New Deal reduced unemployment from 25 percent to 10 percent in three years, but he was then pressured to reduce spending before the economy was fully stabilized. The result was another sharp increase in unemployment and a weakened economy that only improved when the nation entered World War II.

Then, as now, government spending was one of many legitimate policy concerns. Then, as now, previous government efforts had shown signs of success. President Obama's stimulus program created an estimated 3.5 million jobs and would have created more had it been larger. As in 1937, the nation's economy remains fragile and the recovery is not yet complete. More investment is needed. Premature austerity would be as unwise and counterproductive now as it was then. Plus a nascent and struggling “recovery” is not sufficient given the decline of the last decade. Premature austerity would terminate any possibility of building a new foundation for growth and shared prosperity.

Though weak growth returned by 1934, unemployment was still stuck above 12 percent on the eve of World War II. It was the massive wartime deficits, (peaking at 28 percent of GDP compared to less than 9 percent today) that finally produced strong recovery.

Postwar leaders, unlike today’s deficit hawks, were wise enough not to panic about the large war debt (twice today’s size relative to the economy) but continued such public investments as the G.I. bill, low-interest home loans, and the interstate highway system. Rather than suffering an austerity scheme that would have made debt loom larger, the postwar boom enabled the economy to grow its way out of debt.

Government Investment Still Works

Today's deficit debate often fails to recognize a critical fact: The Obama stimulus of 2009 helped stop the recession—and reduced the level of future deficits. The lesson learned in 1937 is still true today: Government intervention works. And it should not be ended prematurely.

The $800 billion Obama stimulus package of early 2009—the American Recovery and Reinvestment Act—serves as perhaps the strongest recent proof of this statement. The package consisted of a wide array of spending programs, from expanding unemployment insurance to aid to the states to investments in traditional infrastructure projects and the green economy. Roughly one third of the package was devoted to tax cuts. A handful of economists still insist the stimulus was ineffective or even harmful because it raised deficits. The facts are unambiguously otherwise. The nonpartisan Congressional Budget Office modeled the consequences in May 2010 and found that the stimulus will raise the level of gross domestic product significantly into 2012. The CBO produced high and low estimates. In fiscal year 2011, for example, it estimated that the stimulus will increase GDP between 0.7 percent and 2.2 percent. It will reduce unemployment by between 0.5 percent and 1.4 percent. It also concluded that because the economy is running so far below potential, there will be little if any increase in interest rates—that is, little or no crowding out. A Wall Street Journal survey found that 75 percent of economists agreed the stimulus resulted in more growth and less unemployment.

In addition, no respectable economic model shows that the Obama stimulus, composed both of tax cuts and spending programs, will add more than marginally to the long-term budget deficit. To the contrary, one widely cited model showed that it will reduce the deficit in coming years. Former Federal Reserve chairman Alan Blinder and Moody’s Analytics economist Mark Zandi (an adviser to the presidential campaign of John McCain) found that the Obama fiscal stimulus package raised the federal budget deficit in fiscal year 2010, but will lower it substantially in both fiscal years 2011 and 2012.

In conclusion, the government stimulus programs ended the freefall of the economy. Without these policies—fiscal, monetary as well as government bailouts and guarantees—Blinder and Zandi estimated that the recession would have deepened into 2011 and the unemployment rate would have peaked at 16.5 percent rather than roughly 10 percent. The federal budget deficit would have equaled $2 trillion in fiscal year 2011, some 15 percent of GDP, rather than the 7 or 8 percent now likely. But the recovery programs were not sufficient to raise the nation out of a prolonged period of stagnation, with persistent high unemployment. And it was countered directly by the cuts in state and local spending required by their balanced-budget requirements.

It has become clear in retrospect—and some argued it from the outset—that the Obama stimulus was not nearly enough. Another weakness was that the portion devoted to tax cuts had little stimulative impact. Given the political circumstances, it would have been difficult at the time to produce a more focused package. On the other hand, when a strong recovery did not materialize, the Obama administration could have started developing and championing another growth package. It did not.

Overview of Recommendations

This report of the CITIZENS' COMMISSION ON JOBS, DEFICIT REDUCTION AND AMERICA’S ECONOMIC FUTURE puts forward a set of proposals that would protect and accelerate the economic recovery while achieving a stable but sustainable level of debt by 2015. It reduces debt to a manageable level while at the same time providing a strong program of government investment that will create jobs and ensure ongoing growth. Our plan achieves that goal without cutting Social Security or capping or “voucherizing” Medicare (as many conservative proposals do). It provides immediate efforts to support economic growth, substantial investments vital to the strength of our economy, cuts to federal wasteful spending and a variety of measures to increase revenues.

An important note: Any plan to substantially reduce the federal deficit should be deferred until unemployment has dropped to an acceptable level, which we have defined as 5.5 percent. Our plan is no exception. Our recommended changes to the 2015 budget should only be implemented if unemployment has reached that level. We believe it will if our short-term investment recommendations are adopted.

Our recommendations are based on the following principles:

Address the current economic crisis first. Before engaging in widespread deficit reduction efforts, we must institute a program of short-term targeted spending to restart the economy and sustained investment to begin to support longer-term growth. Key among the former is aid to the states, whose constitutionally mandated budget austerity is not only inflicting painful cuts in social services but also creating a huge and destructive drag on the national economy. We also must pursue innovative monetary and credit market policies to move roughly $2 trillion in idle cash hoards now held by banks and non-financial corporations into productive job-creating private investments.

Tax justice and empowered workers generate prosperity, fairness, growth—and revenues.Tax cuts were a major cause of our current deficit. Any plan that continues or increases tax breaks for the wealthy will add to the deficit. In an era of excessive inequality, we should end Bush era tax cuts for the wealthiest Americans, tax capital gains and dividends as normal income, tax activities damaging to our economy like excessive financial speculation, and eliminate or reduce tax expenditures that mainly benefit the wealthy.

To ensure ongoing prosperity, we must also provide ongoing tax relief for lower- and middle-income households. These households will spend, not save, the additional income. We must also take steps to reduce the war on unions and worker rights (involving corporate action and misguided public policy) that has been a major factor in preventing working from getting their share of productivity growth over the past three decades. Lower taxes and higher wages for working families will generate consumer activity that leads to more growth, more jobs, and more tax revenue.

Reduce wasteful government spending without compromising public objectives. Spending cuts are needed, but we increase, not decrease investments in areas vital to our future, and insure that any adjustment not worsen already extreme inequality. We must eliminate spending that is unneeded or wasteful, reduce obsolete and unneeded military spending, and make prudent cuts in government expenditures that are not vital to its core mission.

Protect and strengthen Social Security. Social Security retirement benefits are the main source of income for most retirees, and most of this income is spent rather than saved. This leads to growth and jobs without adding to the deficit, since Social Security is funded separately. We must remove Social Security from "deficit cutting" exercises, increase its revenues, provide modest benefit increases, and assure the public that its $2.6 trillion in trust fund assets will not be used for other purposes.

Establish realistic and sustainable long-term deficit goals. Any long-term deficit plan deficit must be politically sustainable, fiscally sound, and not impose unacceptable levels of hardship. We recommend a short-term period of imperative recovery expenditures. We seek a gradual reduction in the deficit-to-GDP ratio over the coming decade. We recommend an annual deficit target of 3 percent of GDP as a medium term goal once recovery comes. This could be achieved as early as 2015—if the economy recovers, and if we don’t choke off that recovery with premature deficit reduction. We are skeptical of targeting a date certain independent of the condition of the economy. The test of when to aim for that 3 percent deficit target is whether unemployment has come down to 5.5 percent. Such a target, over the long term, will enable us to stabilize the level of debt as a proportion of GDP at sustainable levels, because with high employment GDP will be growing faster than the debt

Restore the financial sector's role as an effective engine of growth. The banking industry used government-provided economic advantages to engage in reckless speculation, leading to the current crisis. Banks continue to receive "discount money" and other government support without adequately performing their traditional economic role as lenders. The financial industry has recaptured a high and economically unhealthy percentage of the nation's profits. We recommend a financial transactions tax and programs to encourage increased bank lending in a responsible manner both to ensure our current recovery and to promote long-term stability. The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act does include several important features that could succeed in encouraging long-term financial stability. These include the so-called “Volcker rule” prohibiting proprietary trading by large banks, the requirement that all derivatives trading be conducted on regulated exchanges, careful oversight of public credit rating agencies, and the creation of a Consumer Financial Protection bureau. However, details on the implementation of Dodd-Frank have been left to the discretion of various regulatory agencies, such as the Federal Reserve and the Securities and Exchange Commission. This creates enormous opportunities for the banking industry to weaken the effectiveness of the new regulatory system. To rebuild a healthy economy, focused on channeling our enormous financial resources into productive investments and job creation, it is imperative that all the main provisions of Dodd-Frank be strongly enforced immediately and over time.

Address the health care cost crisis. Alarming long-term projections of growing debt come almost completely from uncontrolled growth in health care costs. We do not have an entitlement crisis; we have an unaffordable health care system. Rather than capping, cutting or “voucherizing” Medicare or Medicaid, we need continued health care reforms that control costs through changes to the structure of the medical economy—such as the immediate establishment of a robust public option plan available to all Americans, direct government negotiation of drug prices, and thorough additional cost-cutting and quality improvement measures.

Who We Are

The Citizen's Commission is comprised of economic policy experts, such as former Secretary of Labor Robert Reich, Jeff Madrick and economists Dean Baker, Robert Pollin and Heidi Hartman, and former members of the House and Senate. But perhaps most importantly, many of its members are leaders of national organizations with enormous reach into American communities, from labor leaders such as Larry Cohen and Mary Kay Henry to coordinators of national organizing networks such as Deepak Bhargava, Angela Glover Blackwell, as well as other leaders whose work engages the grassroots public in debates about the economic direction of our country. The commission was organized by the Campaign for America’s Future, which has led nationwide public organizing campaigns around the future of Social Security, health care, green jobs and the future of manufacturing.

Note: Our Citizens’ Commission was inspired to action in part to challenge the one-sided media coverage lavished on the Simpson-Bowles National Commission on Fiscal Responsibility and Reform, the Pew-Peterson Commission on Budget Reform and the Bipartisan Policy Center Debt Reduction Task Force.

Our deliberations were also informed by recent work by the Economic Policy Institute, especially their report, "America’s Economy: A Budget Blueprint for Economic Recovery and Fiscal Responsibility," published by Demos, EPI and The Century Foundation on November 29, 2010. As does our commission, this report outlines policy changes to achieve job growth, long-term public investment and outlines a deficit reduction plan that achieves primary fiscal balance by 2018.

We were also both educated and inspired by the recent set of proposals put forward by a member of the president’s fiscal responsibility commission, Representative Jan Schakowsky. In the best tradition of the great democratic debates, Rep. Schakowsky’s plan presents a proposal to reduce the federal deficit without making middle-class Americans foot the bill. It is an alternative to the Bowles-Simpson plan and would reduce the deficit by $441 billion in 2015, surpassing President Obama’s $250 billion target. Critically, the Schakowsky plan accomplishes deficit reduction without making cuts to essential federal expenditures that benefit the middle class or are crucial to future growth.

Deficits And Economic Recovery

Isaiah J. Poole — Wed, 11 Aug 2010 18:45:41 -0400

Deficits and Economic Recovery

View more presentations from OurFuture.org.

Politicians will face major voter backlash if they advocate cuts in Social Security benefits or choose deficit reduction over job creation, according to a poll by Greenberg Quinlan Rosner commissioned by the Campaign for America’s Future and Democracy Corps, with support from MoveOn.org; the American Federation of State, County and Municipal Employees, and the Service Employees International Union.

Memo: "The Big Decisions Ahead on Economic Renewal and Reduced Debt"

Commentary by Robert Borosage: "Rebuild America, Don't Sack It"

Full poll results

Complete Powerpoint presentation

Audio of news conference

At this difficult moment for the struggling economy and country, voters show an uncommon common sense about the choices ahead. For sure, they are concerned about deficits and what impact that will have on future job creation and key obligations, like Social Security. But they are as intent on learning politicians’ plans for investing in new industries and rebuilding the country as they are on learning their plans to reduce the deficit over the next five years. They think they know how we got into this mess – foreign wars and bailouts – and are determined that the highest income earners and big banks finance deficit reduction, not the middle class through Social Security and Medicare cuts or a national a sales tax.

Voters take the long view, seeing the need for both a commitment to a 21st century economy and long-term strategies to reduce the deficit. These are complimentary, not exclusive goals. Progressives need to show they are serious about the deficits, but once they do, voters turn to them, not conservatives, for the right spending priorities and answers.

Voters are united on this key point: Social Security and Medicare are off-limits as a way to reduce the deficit. It is the threat to Social Security that leads many voters to prioritize deficit reductions. Voters instead want to see higher taxes on top income earners and big corporations.

As Social Security celebrates its 75th anniversary this week in the midst of this troubled economy, voters across the political divide want these programs defended.

Read the full memo »

Key findings of the poll:

68 percent said they would oppose making major spending cuts in Social Security and Medicare to reduce the deficit, while 28 percent said they would favor cutting those programs. That included 61 percent of Republicans and 56 percent of independents.
Strong majorities support progressive solutions for addressing the federal deficit: 63 percent back lifting the Social Security cap on incomes higher than $107,000 a year; 64 percent would favor eliminating tax breaks for corporations that outsource jobs; 62 percent would support a tax on excessive Wall Street bank profits.
Strong majorities also oppose common conservative proposals for addressing the budget deficit: 65 percent oppose raising the Social Security retirement age to 70; 65 percent oppose replacing Medicare with a private sector voucher; 62 percent oppose a 3 percent federal sales tax; 60 percent oppose raising the Medicare age from 65 to 67.

More people support a message that embraces the need for both investments in our future and reduce the deficit over time (52 percent) than a message that only stresses cuts in spending (42 percent). Also, almost equal percentages of respondents were favorable toward “a plan to invest in new industries and rebuild the country over the next five years” (60 percent) and “a plan to dramatically reduce the deficit over five years” (61 percent).
62 percent of respondents support more federal to states once they understand that the aid comes in the context of states laying off teachers, first responders and other essential workers due to the recession. That includes 55 percent of independents and 48 percent of Republicans.
60 percent of those surveyed responded positively to an economic message that said that “we have a budget deficit, but … we also have a massive public investment deficit” that requires us to “rebuild the infrastructure that is vital to our economy” and to the economic growth that will “generate revenues to help pay down the budget deficit.” This message tests better than any other progressive message on investment as well as more conservative messages focused on spending cuts.

The survey of 1,000 2008 voters was conducted July 26-29, 2010. The margin of error is 3.1 percentage points.

James K Galbraith Statement to the Commission on Deficit Reduction

OurFuture.org Staff — Wed, 30 Jun 2010 12:29:22 -0400

by James K. Galbraith, Lloyd M. Bentsen Jr. Chair in Government/Business Relations, Lyndon
B. Johnson School of Public Affairs, The University of Texas at Austin, and Vice President, Americans for Democratic Action. June 30, 2010.

Mr. Chairmen, members of the commission, thank you for inviting this statement.

I am a professional economist, but I have served in a political role, as Executive Director of the Joint Economic Committee of the United States Congress. I am offering this statement on behalf of Americans for Democratic Action, an organization co-founded in 1949 by (among others) Eleanor Roosevelt, John Kenneth Galbraith, Arthur M. Schlesinger Jr., and Ronald Reagan. Accordingly I would like to begin with a political comment.

Clouds Over the Work of the Commission

Your proceedings are clouded by illegitimacy. In this respect, there are four major issues.

First, most of your meetings are secret, apart from two open sessions before this one, which were plainly for show. There is no justification for secret meetings on deficit reduction. No secrets of any kind are involved. Nothing you say will affect financial markets. Congress long ago – in 1975 – reformed its procedures to hold far more sensitive and complicated meetings, notably legislative markups, in the broad light of day.

Secrecy breeds suspicion: first, that your discussions are at a level of discourse so low that you feel it would be embarrassing to disclose them. Second, that some members of the commission are proceeding from fixed, predetermined agendas. Third, that the purpose of the secrecy is to defer public discussion of cuts in Social Security and Medicare until after the 2010 elections. You could easily dispel these suspicions by publishing video transcripts of all of your meetings on the Internet, and by holding all future meetings in public. Please do so.

Second, there is a question of leadership. A bipartisan commission should approach its task in a judicious, open-minded and dispassionate way. For this, the attitude and temperament of the leadership are critical.

I first met Senator Simpson when we were both on Capitol Hill; at Harvard he became friends with my late parents. He is admirably frank in his views. But Senator Simpson has plainly shown that he lacks the temperament to do a fair and impartial job on this commission. This is very clear from the abusive response he made recently to Alex Lawson of Social Security Works, who was asking important questions about the substance of the commission’s work, as well as calling attention to the illegitimate secrecy under which you are operating.

A general cannot speak of the President with contempt. Likewise the leader of a commission intended to sway the public cannot display contempt for the public. With due respect, Senator Simpson’s conduct fails that test.

Third, most members of the Commission are political leaders, not economists. With all respect for Alice Rivlin, with just one economist on board you are denied access to the professional arguments surrounding this highly controversial issue. In general, it is impossible to have a fair discussion of any important question when the professional participants in that discussion have been picked, in advance, to represent a single point of view.

Conflicts of interest constitute the fourth major problem. The fact that the Commission has accepted support from Peter G. Peterson, a man who has for decades conducted a relentless campaign to cut Social Security and Medicare, raises the most serious questions. Quite apart from the merits of Mr. Peterson’s arguments, this act must be condemned. A Commission serving public purpose cannot accept funds or other help from a private party with a strong interest in the outcome of that Commission’s work Your having done so is a disgrace.

In my view you also should not have accepted help from the Economic Policy Institute, even though EPI’s positions on the merits are substantially closer to mine.

Let me now turn to the economic questions. A first economic question is, what caused the deficits and rising public debt? The answer comes in two parts: present deficits and projected future deficits.

Current Deficits and Rising Debt were Caused by the Financial Crisis

Overwhelmingly, the present deficits are caused by the financial crisis. The financial crisis, the fall in asset (especially housing) values, and withdrawal of bank lending to business and households has meant a sharp decline in economic activity, and therefore a sharp decrease in tax revenues and an increase in automatic payments for unemployment insurance and the like. According to a new IMF staff analysis, fully half of the large increase in budget deficits in major economies around the world is due to collapsing tax revenues, and a further large share to low (often negative) growth in relation to interest payments on existing debt. Less than ten percent is due to increased discretionary public expenditure, as in stimulus packages.

This point is important because it shows that the claim that deficits have resulted from “overspending” is false, both in the United States and abroad.

Future Deficit Projections are Generally Based on Forecasts which Begin by Assuming Full Recovery, but this Assumption is Highly Unrealistic

Unlike the present deficits, expected future deficits are not usually considered to be due to continued recession and high unemployment. To understand how the discussion of future deficits is being framed, it is necessary to grasp the work of the principal forecasting authority, the Congressional Budget Office. CBO’s projections proceed in two steps. First, they wipe out the current deficits, over a very short time horizon, by assuming a full economic recovery. Second, they create an entirely new source of future deficits, essentially out of whole cloth.

The critical near-term assumption in the CBO baseline concerns employment. CBO claims to expect a relatively rapid return, over five years, to high levels of employment, and the baseline incorporates a correspondingly high rate of real growth in the early recovery from the great crisis. If this were to happen, then tax revenues would recover, and ordinarily the projected deficits would disappear. This is what did happen under full employment in the late 1990s.

But under present financial conditions this scenario of a rapid return to high employment is highly unrealistic. It can only happen if the credit system finances economic growth, which implies a rising level of private (household and company) debt relative to GDP. And that clearly is not going to happen. On the contrary, de-leveraging in the private sector is sure to remain the rule for a long time, as mortgages and other debts default or are paid down, and as many households remain effectively insolvent due to their mortgage debt.

With high unemployment, high public deficits are inevitable. The only choice is between an active deficit, incurred by putting people to work or otherwise serving national needs – such as providing a decent retirement and health care to the aged – and a passive deficit, incurred because at high unemployment tax revenues necessarily fail to cover public spending. Cutting public spending or raising taxes, now or in the future, by any amount, cannot reduce a deficit due to high unemployment. The only fiscal effect is to convert an active deficit into a passive one – with disastrous economic and social effects.

Having Cured the Deficits with an Unrealistic Forecast, CBO Recreates them with Another, Very Different, but Equally Unrealistic Forecast

In the CBO models, high future deficits and rising debt relative to GDP are expected. But the source is not a weak economy. It is a set of assumptions describing an economy after full recovery from the present crisis. In the CBO forecasts, big future deficits arise from a combination of (a) rapidly rising health care costs and (b) rising short-term interest rates, in the context of (c) a rapid return to high employment and (d) continued low overall inflation. This combination produces, mechanically, a very large net interest payout and a rapidly rising public debt in relation to a slowly rising nominal GDP.

Even if CBO were right about recovery, which it is not, this projection is internally inconsistent and wholly implausible. It isn’t going to happen. Low overall inflation (at two percent) is inconsistent with the projected rise of short-term interest rates to nearly five percent. Why would the central bank carry out such a policy when no threat of inflation justifies it? But the assumed rise in interest rates drives the projected debt-to-GDP dynamic.

Similarly, the rise in projected interest payments is inconsistent with low nominal inflation. Interest payments rising to over 20 percent of GDP by mid-century would constitute new federal spending similar in scale to the mobilization for World War II. Obviously this cannot happen with two percent inflation. And although a higher inflation rate is undesirable, arithmetically it means a lower debt-to-GDP ratio.

Finally, rapidly rising health care costs and low overall inflation are mutually consistent only if all prices except health care are rising at less than that low overall inflation rate – including energy and food prices in a time of increasing scarcity. This too is extremely unlikely. Either overall health care costs will decelerate (relieving the so-called Medicare funding problem) or the overall inflation rate will accelerate – reducing the debt-to-GDP ratio.

In sum: the economic forecasts on which you are being asked to develop a credible plan for reducing deficits over the medium term are a mess. The unemployment and growth forecasts are implausibly optimistic, while the inflation and interest rates projections are implausibly pessimistic and mutually inconsistent.

Good policy cannot be based on bad forecasts. As a first step in your work --long overdue --the Commission should require the development of internally consistent, and factually plausible, economic forecasts on which to base future deficit and debt projections.

The Only Way to Reduce Public Deficits is to Restore Private Credit

The conclusion to draw from the above argument is that large deficits going forward are likely to have the same source as they do right now: stubbornly high unemployment.

The only way to reduce a deficit caused by unemployment is to reduce unemployment. And this must be done with a substantial component of private financing, which is to say by bank credit, if the public deficit is going to be reduced. This is a fact of accounting. It is not a matter of theory or ideology; it is merely a fact. The only way to grow out of our deficit is to cure the financial crisis.

To cure the financial crisis would require two comprehensive measures. The first is debt restructuring for the entire household sector, to restore private borrowing power. The second is a reconstruction of the banking system, effectively purging the toxic assets from bank balance sheets and also reforming the bank personnel and compensation and other practices that produced the financial crisis in the first place. To repeat: this is the only way to generate deficit-reducing, privately-funded growth and employment.

As a former top adviser in the Clinton White House, co-chairman Bowles no doubt knows that privately-funded economic growth produced the boom years of the late 1990s and the associated surplus in the federal budget. He must also know that the practices of banks and investment banks with which they were closely associated worked to destroy the financial system a decade later. But I would wager that the Commission has spent no time, so far, on a discussion of the relationship between deficit reduction and financial reform.

To be clear: unemployment can be cured without private-sector financing, if public deficits are large enough – as was done during World War II. But if the objective is to reduce public deficits, for whatever reason, then a large contribution from private credit is essential.

One more time: without private credit, deficit reduction plans through fiscal austerity, now or in the future, will fail. They cannot succeed. If at the time the cuts take effect the economy is still relying on public expenditure to fund economic activity, then reducing expenditure (or increasing taxes) will simply reduce GDP and the deficits will not go away.

Further, if the finances of the private sector could be fixed, then an austerity program would be entirely unnecessary to reduce public debt. The entire national experience from 1946 to 1980, when public debt fell from 121 to about 33 percent of GDP and again from 1994 to 2000, proves this. In those years the debt-to-GDP ratio fell mainly because of credit-driven economic growth --certainly not because of public-sector austerity programs. And this is why the deficits returned, in 1980-2 and in 2000, once the credit markets froze up and the private economy entered recession.

Thus until the private financial sector is fully reformed --or supplemented by parallel financing institutions as was done in the New Deal – high deficits and a high public-debt-to-GDP ratio are inevitable. In the limit, if there is no private financial recovery, debt-to-GDP will converge to some steady-state value, probably near 100 percent -a normal number in some countries -and at that point the public deficit will be the sole engine of new economic growth going forward. Only when the private sector steps up, will the debt-to-GDP ratio begin to decline.

For this reason, a Commission report focused on “entitlement reform” rather than “financial reform” would be entirely beside the point. Entitlement cuts, no matter how severe, cannot and will not achieve deficit reduction. They cannot “meaningfully improve the long-term fiscal outlook,” as required by your charter. All they will accomplish is to impoverish vulnerable Americans, impairing the functioning of the private economy and the taxing capacity of the government.

Social Security and Medicare “Solvency” is not part of the Commission’s Mandate

I note from Chairman Simpson’s conversation with Alex Lawson that the Commission has taken up the questions of the alleged “insolvency” of the Social Security system and of Medicare. If true, this is far outside any mandate of the Commission. Your mandate is strictly limited to matters relating to the deficit, debt-to-GDP ratio and fiscal stability of the U.S. Government as a whole. Social Security and Medicare are part of the government as a whole, so it is within your mandate to discuss those programs – but only in that context.

To make recommendations about the matching of benefits to payroll taxes – now or in the future – would be totally inappropriate. Within your mandate, the levels of payroll taxes and of Social Security benefits are relevant only insofar as they influence the current and future fiscal position of the government as a whole. Their relationship to each other is not relevant. You are not a “Social Security Commission” and there is no provision in your Charter for a separate discussion of the alleged financial condition of either program taken on its own. Such discussions, if they are occurring, should be subjected to a point of order.

The usual “solvency” arguments directed at the Social Security system and at Medicare as separate entities are in any event complete nonsense. These programs are just programs, like any others, in the Federal Budget, and the Social Security and Medicare “systems” are thus fully solvent so long as the Federal Government is. Further, as explained below, under our monetary arrangements there is no “solvency” issue for the federal government as a whole. The federal government is “solvent” so long as U.S. banks are required to accept US. Government checks – which is to say so long as there is a Federal authority in the Republic. This point has been demonstrated repeatedly in times of stress, notably during the Civil War and World War II.

As a Transfer Program, Social Security is Also Irrelevant to Deficit Economics.

Political discussions of “long-term fiscal sustainability” – including in the Charter for this Commission – make an economic error when they loosely use the word “entitlements” and suggest that supposed economic dangers of federal deficits (for instance, rising real interest rates) can be reduced by “entitlement reform.” As a matter of economics, this is not true.

“Government Spending” – as any textbook will verify – is a component of GDP only insofar as the spending is directly on purchases of goods and services. That alone is what economists mean by the phrase “government spending.” GDP is the final consumption of produced goods and services, and government is one of the major consuming sectors; the others being private business (investment) and households (consumption).

Social Security is a transfer program. It is not a spending program. A dollar “spent” on Social Security does not directly increase GDP. It merely reallocates a dollar from one potential final consumer (a taxpayer) to another (a retiree, a disabled person or a survivor). It also reallocates resources within both communities (taxpayers and beneficiaries). Specifically, benefits flow to the elderly and to survivors who do not have families that might otherwise support them, and costs are imposed on working people and other taxpayers who do not have dependents in their own families. Both types of transfer are fair and effective, greatly increasing security and reducing poverty – which is why Social Security and Medicare are such successful programs.

Transfers of this kind are also indefinitely sustainable – in fact there can intrinsically be no problem of sustainability with transfer programs. Apart from their effect on individual security, a true transfer program uses (by definition) no net economic resources. The only potential macroeconomic danger from “excessive” transfers is that the transfer function may be badly managed, leading to excessive total demand and to inflation. But there is no risk of this so long as the financial crisis remains uncured. Under present conditions Social Security and Medicare are bulwarks for stabilizing a total demand that would otherwise be highly deficient.

Similarly, cutting Social Security benefits, in particular, merely transfers real resources away from the elderly and toward taxpayers, and away from the poor toward those less poor. One can favor or oppose such a move on its own merits as social policy – but one cannot argue that it would save real resources that are otherwise being “consumed” by the government sector.

The conclusion to be drawn is that Social Security should in any event be off the agenda of your Commission, as it is a transfer program and not a program of public spending in the economic sense. In particular it does not use capital resources and will not drive up interest rates. This is true whether the “Social Security System” is in internal balance or not.

Markets are not calling for Deficit Reduction; now or later

Let me turn next to a larger economic question. Do deficit projections matter? Are they important? Was the President well-advised to frame the mandate of the Commission as he did?

What, in short, are the economic consequences of a high public deficit and a rising debt-to-GDP ratio, and what (if any) benefits are to be expected from creating an expectation that deficits will come down and that the debt-to-GDP ratio will fall?

The idea that US economic policy should aim for a path of reduced deficits in the future, is shared by liberals and conservatives, and it is, from a political standpoint, a very powerful idea. The Commission’s charter takes for granted that this goal is desirable. It specifies that your objective is to achieve a balanced “primary budget” – net of interest payments, by 2015.

Yet your charter does say why this is an appropriate goal. It cites no study to which one might refer. It does not explain why 2015 is the right target date, as opposed to (say) 2025 or even 2050. It does not spell out the economic consequences – if any – of failing to meet the stated objective.

Does the requirement make economic sense? I shall tackle that question in two parts. The first accepts the view most people hold of the fiscal and financial world. The second reflects, from an operational standpoint, how that world actually works in practice.

Most informed laymen believe that the Federal government must borrow in order to spend. They believe that the interest rate on Treasury securities is set in a market for government bonds. The markets impose discipline on the government. Thus their idea is that “fiscal responsibility” will produce low long-term interest rates and tolerable borrowing conditions for the federal government, while “irresponsibility” will be punished by higher, and eventually intolerable, debt service costs.

Accepting this view for the moment, what does the present level of long-term interest rates tell us? As I write, thirty year Treasury bonds are yielding just over four percent – or just a little more than half their yield a decade back. On the argument just given, this must be an extraordinary success of virtuous policy. It seems that Wall Street has made a strong vote of confidence in the fiscal probity of our current policies. This vote is unqualified, backed by money, contingent on nothing. It therefore represents a categorical rejection, by Wall Street itself, of the CBO’s doomsday scenarios and all other deficit-scare stories.

On this theory, it follows that the mandate to reduce the primary deficit to zero by 2015 is unnecessary. Such an action can hardly reduce interest rates – neither short nor long-term – which are already historically low.

But wait a minute, some may say. Yes interest rates are low at the moment. But bond markets are fickle, they can turn on a dime. And what then?

Yes, it is possible that interest rates could rise. But the problem with this argument is that it takes us away from the premise of rationality. If bond markets are fickle and arbitrary, who is to say what they will do in response to any particular policy? In the face of irrational markets, the sensible policy is to borrow heavily for so long as they are offering a good deal. One may say that all good things end, and perhaps they will. But if markets are irrational, then by construction you cannot prevent this by “good behavior.”

The conclusion from this section is that one cannot logically argue that markets insist on deficit reduction. Either the markets are rationally unworried about deficits, or they are acting irrationally right now, in which case they can hardly “insist” on anything.

In Reality, the US Government Spends First & Borrows Later; Public Spending Creates a Demand for
Treasuries in the Private Sector

As noted, the above argument is based on the common belief that the government must borrow in order to spend, and thus that the government faces “funding risks” in private markets. Such risks exist, of course, for private individuals, for companies, for state and local governments, and for national governments such as Greece that have ceded monetary sovereignty to a central bank. But the situation of the United States government is quite different.

The U.S. government spends (and the Federal Reserve lends) in a very simple way. It does so by writing checks --in fact simply by marking up numbers in a computer. Those numbers then appear in the bank accounts of the payees, who may be government employees, private contractors, or the recipients of federal transfer programs.

The effect of government check-writing is to create a deposit in the banking system. This is a “free reserve.” Banks of course prefer to earn interest on their reserves. Thus they demand a US Treasury bond, which pays more interest without incurring any form of credit or default risk. (This is like moving a deposit from a checking to a savings account.) The Treasury can meet that demand, or not, at its option – it can permit, or not permit, the stock of US Treasury bonds in circulation to increase.

So long as U.S. banks are required to accept U.S. government checks – which is to say so long as the Republic exists – then the government can and does spend without borrowing, if it chooses to do so. And if it chooses to issue Treasuries to meet the demand, it can do that as well. There is never a shortfall of demand for Treasury bonds; Treasury auctions do not fail.

In the real world, the government creates demand for bonds by spending above the level drained by taxation from the system. The extent to which those bonds are held locally, or abroad (another common source of worry) depends on the US current account deficit. This also has nothing to do with approval or disapproval by foreign bankers, central bankers, or their governments of American deficit policy. A foreign country cannot acquire a US Treasury bond unless someone outside the United States has acquired dollars to pay for them, which is generally done by running a trade surplus with the United States. And when foreigners do acquire those dollars, then like domestic banks they prefer to earn interest, which is why they buy Treasury bonds.

Insolvency, bankruptcy, or even higher real interest rates are not among the actual risks to this system. The actual risks in this system are (to a minor degree) inflation, and to a larger degree, depreciation of the dollar. However at the moment there is wide agreement that a lower dollar would be a good thing – against the Chinese RMB and now also the euro. So it is difficult to believe that the goal of deficit reduction per se serves any coherent, or presently desirable, economic objective.

We can conclude that there is actually no economic justification for the target of reducing the primary deficit to zero by 2015 or any other date. The right economic objectives are to meet real problems, not those conjured from thin air by economists. Bringing about a rapid end to unemployment, caring properly for an aging population, cleaning up the Gulf of Mexico, coping with our energy insecurity and with climate change are all far more important objectives than reducing a projection of future budget deficits.

The Best Place in History (for this Commission) Would be No Place At All

Most people assume that “bipartisan commissions” are designed to fail: they are given thorny (or even impossible) issues and told to make recommendations which Congress is free to ignore or reject. In many cases – yours is no exception – the goal is to defer recognition of the difficulties for as long as possible.

You are plainly not equipped by disposition or resources to take on the true cause of deficits now and in the future: the financial crisis. Recommendations based on CBO’s unrealistic budget and economic outlooks are destined to collapse in failure. Specifically, if cuts are proposed and enacted in Social Security and Medicare, they will hurt millions, weaken the economy, and the deficits will not decline. It’s a lose-lose proposition, with no gainers except a few predatory funds, insurance companies and such who would profit, for some time, from a chaotic private marketplace.

Thus the interesting twist in your situation is that the Republic would be better served by advancing no proposals at all.

Thank you again for the opportunity to present this statement.

Voter Survey On U.S. Manufacturing Policy

Isaiah J. Poole — Wed, 16 Jun 2010 13:38:55 -0400

A majority of Americans are highly concerned about the state of manufacturing in America and would support a new, government-led manufacturing policy, according to a poll conducted during the spring of 2010 for the Alliance for American Manufacturing .

Key findings of the poll:

• Voters are anxious about the economy—specifically China debt, spending and loss of manufacturing.
• Voters want Washington to focus on manufacturing, but feel working people who make things are being forgotten.
• Voters believe manufacturing is central to our economic strength.
• Our declining manufacturing sector leads Americans to believe we are no longer the world’s strongest economy—a title they want to regain.
• There is a strong preference for American goods and a strong distaste for goods manufactured in China.
• Majorities favor increased support for manufacturing, including a national manufacturing strategy.
• Voters’ economic solutions center on trade enforcement, clean energy, tax credits for U.S. manufacturing and replacing aging infrastructure using American materials

The nationwide poll was conducted by the Mellman Group, which interviewed 1,000 likely general election voters. The Mellman Group also conducted focus group discussions in conjunction with the poll topics.

Big Bank Takeover

Isaiah J. Poole — Tue, 11 May 2010 08:51:17 -0400

Read the full report »

Throughout the financial reform debate, the finance industry has waged an unprecedented assault on the democratic process, spending an estimated $1.4 million per day to influence Congress and hiring 70 members of Congress and 940 former federal employees to lobby on their behalf.

The six biggest banks—Goldman Sachs, Bank of America, JPMorgan Chase, Citigroup, Morgan Stanley, and Wells Fargo—account for a disproportionate share of this activity. In the two years since the first federal bailout of a big bank (Bear Stearns), these banks and their principal trade associations have hired over 240 former government insiders as lobbyists and spent hundreds of millions of dollars on an influence game designed to thwart reform, shape bailout programs and maintain their status as “too-big-to-fail” institutions.

The big banks have employed an unrivaled network of in-house lobbying teams, hired guns, industry associations, front groups and behind-the-scenes influence peddlers with deep connections to Congress and the Obama administration, including the leadership of the House Financial Services Committee, the Senate Banking Committee, the Treasury Department, and key regulatory agencies. 

The lobbying spree is taxpayer-funded—it follows $160 billion in bailouts from Congress and trillions in cheap loans from the Federal Reserve. And as their influence has come to be viewed as increasingly toxic in Washington, the banks have shifted segments of their political activity to a “shadow lobby” that includes such front groups as the U.S. Chamber of Commerce.

Many of the current big-bank lobbyists were architects of the too-big-to-fail banking regime while they were employed in Congress or elsewhere in the federal government, and they are now drawing lucrative salaries from the banking behemoths they helped create. Now, on a range of issues, the big banks’ armies of lobbyists have scored victories that assure the continued existence of Wall Street’s casinos, despite the threat they pose to the American economy.

Findings from the report

243 lobbyists for six big banks and their trade associations used to work in the federal government – 202 in Congress, the rest in the White House, Treasury, or at a relevant federal government agency. That’s equivalent to 40 revolving-door lobbyists per bank.
This includes 33 chiefs of staff, 54 staffers to the House Financial Services Committee and Senate Banking Committee (or a current member of that committee) and 28 legislative directors.  Many of the revolving-door lobbyists were key architects of financial deregulatory legislation during their time as congressional staffers, including the Financial Services Modernization (Gramm-Leach-Bliley) Act of 1999 and the Commodity Futures Modernization Act.
The six big banks and their trade associations have spent close to $600 million since the first major federal bailout of Bear Stearns in March 2008 on lobbying, trade association activity and political contributions. 
Citigroup employs 55 revolving-door lobbyists, more than any other big bank or financial industry trade association. The federal government was until recently Citigroup’s largest shareholder. Other banks are also employing huge lobbying armies: Goldman Sachs with 45, JPMorgan Chase with 32, Morgan Stanley with 19, Wells Fargo with 14, and Bank of America with 12.  The top big-bank lobbies, the Securities Industry & Financial Markets Association and the American Bankers Association, have hired 84 revolving-door lobbyists.
The top big-bank lobbying firm in Washington is Elmendorf Strategies, founded by Steve Elmendorf, former chief of staff to Rep. Dick Gephardt.  Elmendorf’s financial team includes former top staffers to Senate Majority Leader Harry Reid, Maryland Sen. Paul Sarbanes, and Gephardt. The firm represents the most powerful Wall Street banks and associations, including Citigroup, Goldman Sachs, the Financial Services Forum, and the Securities Industry and Financial Markets Association. Other top lobbying firms include the Podesta Group and Porterfield, Lowenthal, & Fettig.
Senate Banking Committee chair Christopher Dodd (D-CT) leads all current members of Congress, with five former staffers now working as big bank lobbyists. Banking Committee ranking member Richard Shelby (R-AL) and members Chuck Schumer (D-NY) and Tim Johnson (D-SD) each have four.
Big banks are hiding lobbying activities in a burgeoning shadow industry of generic business associations, ad hoc coalitions and front companies. Government bailouts and partial federal ownership have made it difficult for big banks to ramp up direct lobbying; instead, they are routing their dollars through this shadow lobby.
Sullivan & Cromwell, the firm defending Goldman Sachs in its Securities and Exchange Commission fraud suit, secured the most lucrative big bank lobbying contract in 2009, a $520,000 deal with Clearing House Payments Co. – a company owned by JPMorgan Chase, Wells Fargo, Citigroup, Bank of America, and several other banks. The firm also lobbied on behalf of Goldman Sachs during the same period. In a past financial reform fight, lawyers at Sullivan & Cromwell lobbied on behalf of Enron, and appear to have helped craft the “Enron loophole.”

Read the full report »

Money-Changers In The Senate

Isaiah J. Poole — Mon, 22 Mar 2010 11:55:10 -0400

The student loan industry faces a serious challenge from advocates who question the reason for its existence, which is premised on massive, inefficient government subsidies.

Leading student lender Sallie Mae reported profits of $324 million last year on the strength of its student loan business, which is heavily subsidized through the Federal Family Education Loan program (FFEL). Sallie Mae originated $21 billion worth of loans backed by the program in 2009; other major lenders profiting from the program include Citigroup, Nelnet, JP Morgan, and Wells Fargo.

Meanwhile, by ending the program with the Student Aid and Fiscal Responsibility Act (SAFRA), the Congressional Budget Office estimates that the federal government would save $68 billion—money that would otherwise subsidize these banks' profits. The CBO score also estimates that students would pay significantly lower interest rates on their loans.

With billions in profits on the line, banks have waged an intensive, multimillion-dollar political and lobbying campaign to maintain the status quo: subsidies for the banks, at students' expense.

Their expensive campaign has won them some support. On March 9, six Democratic senators—Blanche Lincoln, D-Ark.; Mark Warner, D-Va.; Tom Carper, D-Del.; Ben Nelson, D-Neb.; Bill Nelson, D-Fla., and Jim Webb, D-Va.—sent a letter to Senate Majority Leader Harry Reid to make him "aware of our concern" about reform efforts and urging consideration of "potential alternative legislative proposals."

What would prompt six senators to oppose efforts aimed at reducing lending costs by cutting out superfluous money-changers? The answer, of course, is the power of money, as deployed through a combination of campaign contributions and strategic lobbyist hires.

This report documents the extensive ties between the six senators and major players in the student loan industry. Among the findings:

The report estimates that the student loan industry has spent $15 million in the past year on a political campaign to rescue multibillion-dollar profits. Banks have waged an expensive and sophisticated battle to defeat SAFRA with campaign contributions, lobbying of congress and the CBO, help from major industry associations, and shadowy front groups to escape accountability.
At least six former staffers to the six Senators who signed the letter to Reid are currently lobbying for the student loan industry: Kelly Bingel (former chief of staff to Blanche Lincoln); Bill Leighty (former chief of staff to Mark Warner); Amy Tejral (former legislative director for Ben Nelson); Oscar Ramirez (gubernatorial campaign staffer for Mark Warner); Timothy Casey (legislative aide to Tom Carper); and Paul Brathwaite (Carper staffer).
Lenders have employed front groups to lobby on their behalf. The Business Roundtable, the Consumer Bankers Association, the American Bankers Association, and the Chamber of Commerce (including CEO Tom Donohue) have all lobbied around student aid reform on behalf of unidentified lenders. Major lenders associated with these groups include JP Morgan, Citigroup, Wells Fargo, Sallie Mae, and Bank of America.
Student lenders and their lobbyists have showered the six senators with tens of thousands in campaign contributions over the last year, including $15,000 from the PACs of Sallie Mae and Nelnet alone. In the past, the senators have also been top recipients of loan industry largess: Sallie Mae and Nelnet both maxed out to Bill Nelson in the space of three days during his 2006 campaign; two of Tom Carper's three top career contributors are JP Morgan and Citigroup -- both major players in the student loan industry; Ben Nelson has received $19,000 from Nelnet's PAC in the past ten years.
Jim Webb, Carper, and Ben Nelson sided with banks, and against students, on a key education measure in 2007. Nelson also sponsored a failed 2007 amendment that would have maintained government subsidies to private student lenders.

The report documents a host of additional ties between the six senatorial defenders of the status quo and the main organs of the student loan industry.

Given that deeply indebted students and young adults have little discretionary income to devote to catered dinners for senators and campaign coffers, we can only hope that transparency and accountability will balance the scales.

Report

Labor Market In Full Retreat

Democracy Corp/CAF Survey on the House Republican Budget

Democracy Corps Poll On Economy And Federal Spending

Democracy Corps/CAF Poll On Jobs And The Economy

The Politics Ahead

Report And Recommendations Of The Citizens’ Commission On Jobs, Deficits And America’s Economic Future

RELATED CONTENT

EXECUTIVE SUMMARY

Causes of Current and Future Deficits

The Lesson of 1937

Government Investment Still Works

Overview of Recommendations

Who We Are

Deficits And Economic Recovery

Key findings of the poll:

James K Galbraith Statement to the Commission on Deficit Reduction

Clouds Over the Work of the Commission

Current Deficits and Rising Debt were Caused by the Financial Crisis

Future Deficit Projections are Generally Based on Forecasts which Begin by Assuming Full Recovery, but this Assumption is Highly Unrealistic

Having Cured the Deficits with an Unrealistic Forecast, CBO Recreates them with Another, Very Different, but Equally Unrealistic Forecast

The Only Way to Reduce Public Deficits is to Restore Private Credit

Social Security and Medicare “Solvency” is not part of the Commission’s Mandate

As a Transfer Program, Social Security is Also Irrelevant to Deficit Economics.

Markets are not calling for Deficit Reduction; now or later

In Reality, the US Government Spends First & Borrows Later; Public Spending Creates a Demand for Treasuries in the Private Sector

The Best Place in History (for this Commission) Would be No Place At All

Voter Survey On U.S. Manufacturing Policy

Big Bank Takeover

Findings from the report

Money-Changers In The Senate

In Reality, the US Government Spends First & Borrows Later; Public Spending Creates a Demand for
Treasuries in the Private Sector