Putting the Government Shutdown in Context

If you want to understand why our partial government shutdown is now the longest in history, all you have to do is read this one article in The New York Times. Its title is “In Business and Governing, Trump Seeks Victory in Chaos”.

Throughout his career, the supposed master of negotiation has followed the same pattern over and over again. Make demands, ignore advice, refuse to compromise and don’t worry about any damage done. All that matters is being “the winner”:

Quote:

Three decades ago, [Trump] waged a public battle with the talk show host Merv Griffin to take control of what would become [Trump’s] third Atlantic City casino. Executives at [his] company warned that the casino would siphon revenue from the others. Analysts predicted the associated debt would crush him.

The naysayers would be proved right, but throughout the turmoil [Trump] fixated on just one outcome: declaring himself a winner and Mr. Griffin a loser.

As president, [he] has displayed a similar fixation in his standoff with Congress over leveraging a government shutdown to gain funding for a wall on the Mexican border. As he did during decades in business, [he] has insulted adversaries, undermined his aides, repeatedly changed course, extolled his primacy as a negotiator and induced chaos….

“He hasn’t changed at all,” said Jack O’Donnell, who ran a casino for [him] in the 1980s …

[The president] briefly seemed to follow a more conventional approach for a president seeking consensus: encouraging his party leaders in Congress to negotiate a deal. Senator Mitch McConnell of Kentucky, the Republican majority leader, shepherded a compromise in December that would have kept the government open and put off negotiations over a wall and other border security measures.

[Trump] was expected to sign off on the deal, but then came the suggestion from conservative critics that he had caved in to Democrats — that he was a loser. It was a perception [he] could not bear, and he quickly reversed course.

He also reverted to lifelong patterns in business …

His lack of public empathy for unpaid federal workers echoes his treatment of some construction workers, contractors and lawyers whom he refused to pay for their work on his real estate projects. The plight of the farmers and small-business owners wilting without the financial support pledged by his administration harks back to the multiple lenders and investors who financed [Trump’s] business ventures only to come up shortchanged.

And his ever-changing positions (I’ll own the shutdown; you own the shutdown; the wall could be steel; it must be concrete; then again, it could be steel) have left heads in both parties spinning…

“I think he was always a terrible negotiator,” said Tony Schwartz, co-author … of The Art of the Deal.

That book, published in 1987, was intended to be [Trump’s autobiography]. Mr. Schwartz said that he created the idea of [Trump] as a great deal maker as a literary device to give the book a unifying theme. He said he came to regret the contribution as he watched [Trump] seize on the label to sell himself as something he was not — a solver of complicated problems.

Rather, Mr. Schwartz said, [Trump’s] “virtue” in negotiating was his relentlessness and lack of concern for anything but claiming victory.

“If you don’t care what the collateral damage you create is, then you have a potential advantage,” he said. “He used a hammer, deceit, relentlessness and an absence of conscience as a formula for getting what he wanted”…

In recent weeks, … his acting chief of staff, Mick Mulvaney … pursued a rather standard tactic in ending the impasse over border security and a wall: He tried to find middle ground between the $1.3 billion to which Democrats had once agreed, and the president’s demand for $5.7 billion. But upon learning of Mr. Mulvaney’s efforts, [Trump] snarled in front of a crowded room that Mr. Mulvaney had [“fucked it all up”] …

During his years in business, [Trump] earned a reputation as someone whose word meant very little. When a commitment he made no longer made sense, he walked away, often blaming the other party with a fantastical line of reasoning.

To win financing from Deutsche Bank to build a Trump Hotel in Chicago, for example, [he] personally guaranteed $40 million of the debt. When he could not make his payments during the 2008 financial crisis, Deutsche Bank executives were open to granting him more time to repay the loan, a person briefed on negotiations later recalled.

But before a compromise could be reached, [Trump] flipped the script. He filed a lawsuit and argued that the bank had helped cause the worldwide financial meltdown that essentially rendered [him] unable to make his debt payments. At the time, Deutsche Bank called the lawsuit “classic Trump.”

The bank eventually settled…. [Trump] expressed his gratitude to the lawyer who fought on his behalf by not fully paying his bill….

From the time he built his first Manhattan apartment building, [Trump] left a string of unpaid tabs for the people who worked for him.

The undocumented Polish workers who did the demolition work for that first building, Trump Tower, eventually won a $1.375 million settlement. Since then, scores of lawyers, contractors, engineers and waiters have sued him for unpaid bills or pay. Typically, he responds by asserting that their work did not meet his standard.

That might sound familiar to furloughed federal workers. [Trump] recently retweeted an article, attributed to an anonymous senior official in his administration, arguing that 80 percent of federal workers do “nothing of external value” and that “furloughed employees should find other work, never return and not be paid.”

[Trump] has claimed [absurdly] that “maybe most” federal workers going without pay are “the biggest fan” of his use of the shutdown to fund a border wall. In ordering thousands back to work without pay, he has put the pain for the shutdown on them…

During his years in business, [Trump] rarely displayed an interest in details or expert opinions that might have informed whether his plans would actually work. That pattern has also emerged in the shutdown dispute.

Thirty years ago, his claimed defeat of Mr. Griffin turned out to be a Pyrrhic victory.

Within months of completing construction on his third casino, the Trump Taj Mahal, he could not pay interest to the bondholders who had financed the project. Having overpaid and overleveraged himself on other deals, banks forced him to turnover or sell almost everything.

His wealthy father helped bail him out. But [Trump] blamed everyone else. He fired nearly all his top executives and stopped paying contractors who had built the casino.

In describing the border wall, [he] has expressed unending confidence in its efficacy. Others, including Representative Will Hurd, a Republican whose Texas district includes part of the border with Mexico, have described it as a tall speed bump, nearly useless without technology to spot illegal crossings immediately and dispatch border agents to quickly respond.

End quote.

Our president has taken 800,000 federal workers and thousands of contractors and private businesses hostage. The Democrats in Congress have done what they can to reopen the government. They have also told the president that they will negotiate border security once everyone is back at work and being paid. Either the president or Congressional Republicans (without the president’s involvement) can end the shutdown. But they have to be willing to see reason and give up their hostages first.

The Plutocratic Party and Social Security

The latest Republican budget plan has a section on Social Security. Ordinarily, I wouldn’t have read it, but Michael Hiltzik, a business columnist for the Los Angeles Times, wrote an article called “Paul Ryan Rehashes An Old Social Security Lie”. 

The lie in question appears in the second paragraph below. I think it’s worth reading the surrounding paragraphs too (all of which appear on page 66 of the Republican’s budget document):

An all-too-common reaction to the fiscal problem in Social Security has been denial that a problem exists. It is claimed that the Social Security Trust Fund will remain solvent for at least a decade, at which point the government could theoretically cover any shortfall by raising taxes. Others downplay the necessity for change, contending that sustained economic growth could take care of the problem all by itself.

Neither is correct. First, any value in the balances in the Social Security Trust Fund is derived from dubious government accounting. The trust fund is not a real savings account. From 1983 to 2010, it collected more Social Security taxes than it paid out in Social Security benefits. But the government borrowed all of these surpluses and spent them on other government programs unrelated to Social Security. The Trust Fund holds Treasury securities, but the ability to redeem these securities is completely dependent on the Treasury’s ability to raise money through taxes or borrowing.

Social Security is currently paying out more in benefits than it collected in taxes–in other words, running cash deficits–a trend that will worsen as the baby boomers continue to retire. To pay full benefits, the government must pay back the money it owes Social Security. In testimony before the House Budget Committee, CBO Director Doug Elmendorf stated that:

“Well, again, Congressman, on a unified budget basis, taking account of just the tax revenues, the dedicated tax revenues, and the benefits, [Social Security] is contributing [to] the deficit now. If one instead looks at just the balance in the Social Security Trust Fund, that balance is, the annual balance is positive now, but will be negative within about a half dozen years.”

Given how difficult it is to predict the future, it isn’t clear exactly when Social Security would have trouble paying 100% of everybody’s promised benefits. As Ryan’s document says, however, the government could “theoretically” raise Social Security taxes at some point to make up the difference. The “theory” in this case is arithmetic.

Not everyone knows this, but as of 2014, Social Security taxes are only applied to the first $117,000 of a person’s income. Here’s what the Center for Economic Policy and Research says about raising that threshold and thereby putting more money into Social Security:

There have recently been several pieces of proposed legislation to raise or do away with the payroll tax cap. Sen. Bernie Sanders and Rep. Peter DeFazio have sponsored legislation that would raise the cap to income above $250,000 while Sen. Mark Begich and Rep. Ted Deutch’s proposal  would fully eliminate the cap, with a small portion of earnings above the current cap going toward benefits. If enacted, proposals like these could almost entirely close Social Security’s projected long-term funding gap without reducing benefits nor increasing taxes on the vast majority of American workers.

Of course, applying the Social Security tax to the highest incomes would also partly address the problem of economic inequality in America, a worthy goal in itself.

The statement in the second paragraph that “any value” in the Social Security Trust fund is “dubious” is the one that Michael Hitzlik called a lie (it’s good that reputable journalists are finally getting around to using that word). I’ve heard this claim before – that somehow the Social Security Trust Fund doesn’t have real money in it – but never understood how such a thing could be true. As Hitzlik explains, the Trust Fund holds almost $3 trillion (not billion, but trillion) worth of government bonds. In fact, as of December 31, 2013, the Department of the Treasury said these bonds were paying an interest rate of 3.626% and were worth 2,765,212,571 dollars (give or take a penny).

So why aren’t these bonds worth anything, according to the Republicans? Their idea seems to be that since the Trust Fund paid cash for those government bonds, and the government used that cash for various non-Social Security purposes like watering the White House lawn and paying Paul Ryan’s salary, the government has already spent the money in the Trust Fund. So it’s gone!

However, in the real world, when someone purchases a bond, whether the buyer is the Trust Fund or an individual investor, the bond pays interest (for example, 3.6%) and can eventually be redeemed (converted back into cash). That’s how investing in bonds works. Whatever the government did with the cash it got from the Trust Fund is irrelevant, so long as the government keeps paying interest and redeems its bonds when they mature.

The second “reason” they offer for saying all those bonds are worthless is that the government could stop paying interest on them and not redeem them when they mature. That’s what’s known as the U.S. government “defaulting” on its financial obligations.

As the Republicans say, the government’s ability to meet its obligations depends on raising revenue, either by taxing or borrowing (or selling stuff like national forests). But that’s what the government has been doing for more than 200 years. Is there any reason to think that the federal government will eventually become unable to pay its debts, including its debts to the Social Security Trust Fund? No, the United States is the richest country in the world. Investors all over the world, including foreign governments, believe our government’s bonds are very safe investments.

In fact, the only remotely likely scenario in which the government fails to pay its debts is if Republican extremists somehow manage to shut down the government again for an even longer period of time, which stops the government from levying taxes and selling more bonds! That’s what the Republicans recently threatened to do, many of them arguing that a government default wouldn’t be a very big deal. So on one hand, the Republicans claim to worry that the government won’t pay its debts to the Social Security Trust Fund, but on the other hand, they think it might be o.k. if the government didn’t pay its debts. (These people truly are amazing.)

The quotation above ends with the Republicans making the point that Social Security is running a deficit and the deficit is expected to get worse. That’s true, and that’s why raising the income cap would “theoretically” be a good idea. They then quote some testimony from the head of the Congressional Budget Office. I had to read that paragraph several times to see if it somehow supported the Republican contention that Social Security is in deep trouble. It doesn’t.

What the head of the CBO is saying is that Social Security is affecting the overall federal deficit now (since the government is paying what it owes to Social Security) and the Trust Fund itself will start running an annual deficit in about six years. What the Republicans don’t bother mentioning is that the Trust Fund is expected to have money in it until 2033 (and that’s if nothing is done in the meantime to put more money into the Trust Fund). Plus, even if the Trust Fund were to run out of money, Social Security would still pay about 75% of everyone’s promised benefit, since working people would still be paying Social Security taxes (reference here).

The Republicans go on to suggest limiting benefits for upper income Social Security beneficiaries (certainly a possibility) and hint that maybe the retirement age should be raised because people are living longer (which is a bad idea, because it wouldn’t save much money and lots of people – unlike politicians – can’t keep working or can’t find jobs by the time they reach 65 or so).

For all their fear-mongering, Ryan and his colleagues don’t offer a solution to this supposed crisis, except to suggest that the President go first by making some specific recommendations (which they can then use to attack him as an enemy of Social Security). The Republicans even suggest that benefits should be increased for low-income retirees (another good idea, but one more often made by us “tax and spend” Democrats). 

Michael Hiltzik thinks this budget document is evidence that Republicans don’t want the government to make good on its debt to Social Security:

When you hear people like Paul Ryan talk as though the country can’t afford to pay back the money by redeeming the bonds in the trust fund, what you’re hearing is the sound of the wealthy preparing to stiff the working class. If the income tax has to be raised to turn those T-bonds into cash for payment of benefits over the next couple of decades, that’s how the rich will be made to repay the people who lent them the money. Some people love to claim that the government has “stolen” the trust fund. The correct reply to that is: “Not yet.” But if Ryan has his way, yes, the money will be stolen. It’s up to you and me to make sure that doesn’t happen.

The idea would be, I guess, that if the Trust Fund doesn’t have any real money in it now, we won’t miss it when it’s gone. I’m not convinced that’s the Republican plan. But I’ve given up trying to understand whether people like Ryan are knaves (unscrupulous and dishonest) or fools or both. What’s clear is that their principal goal as politicians is to serve the needs of the wealthy. The surprising thing is that so many voters, in particular, the Tea Party types who don’t want the government messing with their Medicare or Social Security, continue to vote for the Plutocratic Party. 

For more on Social Security (if you can stand it), there was a recent article at Salon written by a so-called “Millennial”. He rejects what most of his generation believe: that Social Security will go bankrupt before the Millennials can collect any benefits. He also argues that it makes no sense to be a “social conservative and economic liberal”.

PS — Ryan Budget Gets 69 Percent of Its Cuts from Low-Income Programs

Take This Job and Keep It!

It appears that Congressional leaders and the President are nearing an agreement to end the government shutdown and raise the debt ceiling. Rational people will applaud this development, even if the agreement merely buys some time until our next crisis.  

Then there are people like Rep. Tim Huelskamp, Republican of Kansas. He is reported to have said: “Anybody who would vote for that in the House as a Republican would virtually guarantee a primary challenger.”

Let’s see. Vote to end the shutdown and raise the debt ceiling, thereby putting thousands of people back to work and avoiding a possible financial meltdown and worldwide recession, or have competition in next year’s primary election. That’s a tough choice, all right.

Rep. Heulskamp was first elected to Congress in 2010. Nobody ran against him in 2012, not in the primary and not in the general election. He has a well-paying government job for life and nobody’s going to take it away, whatever happens to the rest of us.

But he isn’t a key player here. He’s one of the Tea Party radicals who is sure to vote against any reasonable agreement. It’s the Speaker of the House and the so-called “moderate” Republicans who have to decide whether to protect the general welfare, even if it means risking their jobs.

http://www.nytimes.com/2013/10/15/us/politics/seeking-deal-to-avert-default-lawmakers-to-meet-obama.html

The Fire This Time

la-na-tt-republicans-blame-obama-20131006-001

More from political cartoonist David Horsey of the Los Angeles Times here:

http://www.latimes.com/opinion/topoftheticket/la-na-tt-republicans-blame-obama-20131006,0,2739790.story

Jonathan Chait’s conclusion to a thoughtful article in New York magazine:

In our Founders’ defense, it’s hard to design any political system strong enough to withstand a party as ideologically radical and epistemically closed as the contemporary GOP. (Its proximate casus belli—forestalling the onset of universal health insurance—is alien to every other major conservative party in the industrialized world.) The tea-party insurgents turn out to be right that the Obama era has seen a fundamental challenge to the constitutional order of American government. They were wrong about who was waging it.

http://nymag.com/news/politics/nationalinterest/government-shutdown-2013-10/