Must- and Shall-Reads:

• Ben Friedman: “James Tobin often remarked that there are worse things than three percent inflation, and from time to time we have them. Indeed, we just did. In the same vein, there are worse things than sovereign debt defaults, and from time to time we have them too. They are in progress as we meet.”
• James Hamilton: “The [SNB] just wanted to try something different. But I confess that it is a great mystery to me why…. This has to be a major hit to Swiss exports and tourism, leave the SNB with little credibility and negative capital… cause significant financial disruptions… around the world.”
• Barry Eichengreen: Hall of Mirrors: The Great Depression, The Great Recession, and the Uses-and Misuses-of History
• Jenée Desmond-Harris: The Poor People’s Campaign: the little-known protest MLK was planning when he died
• C. Kirabo Jackson et al.: The Effects of School Spending on Educational and Economic Outcomes: Evidence from School Finance Reforms

 

1. Tim Duy: Will The Fed Take a Dovish Turn Next Week?: “We are heading into the next FOMC meeting with the growing expectation that the Fed will take a dovish turn… global economic turmoil, collapsing oil prices, weak inflation, and a stronger dollar… pointing to rapidly rising downside risks…. Expectations of the first rate hike have been pushed out  to the end of this year, seemingly in complete defiance of Fed plans…. [But] kind of a ‘Fed is from Mars, markets are from Venus’ situation…. My takeway is that the Fed sees the timing of the first rate hike as less important than everything that comes after that hike. This will leave them less eager to delay the hike… I suspect they see little chance of damage from that first hike alone…. I don’t see how they can justify raising rates without some reasonable acceleration in wage growth… [but] perhaps… they can justify it on the basis of 25bp won’t hurt anyone ..”

2. Willem Buiter: The SNB, the Exchange-Rate Peg, and the Interest-Rate ZLB: “[Superior] would have been the continuation of the exchange rate floor…. The old regime, with or without the additional 50bps cut… was viable and superior to the new regime…. Central banks can live with very large balance sheets… diversify… out of euro forex…. There is no ostensible problem with the central bank having to live with becoming an even larger hedge fund/asset manager or Sovereign Wealth Fund…. It may be that the political scrutiny that would come with an even larger balance sheet… was a source of concern…. But such discomfort would seem to be a small price to pay compared to the cost to the nation of a massively overvalued currency, serious deflation and the resulting harmful effects on the real economy…. The second superior alternative would have been to abolish the effective lower bound on the nominal interest rate…. There is little empirical evidence on demurrage for paper currency…. There are no serious arguments against creating a financial system where nominal policy rates can be set with equal ease at -5% as at +5%…. The ELB can be eliminated… by abolishing currency/cash… checkable deposits… credit cards, debit cards and cash-on-a-chip cards… existing and yet-to-be invented e-money… taxing currency, in the spirit of Gesell (1916)… end the fixed exchange rate, currently set at unity, between SNB deposits and cash… encourage the use of the deposit Franc as the numéraire… for price and wage setting…. The good news is that, apart for the reputational damage suffered by the SNB… much of the damage can be undone. The SNB… [could] restore as much of the status quo ante as possible by restoring a floor to the exchange rate of the CHF and the euro (or to the effective exchange rate of the CHF for some suitable basket of currencies)…. No doubt the euros would be galloping in at any floor that is not well below 1.20 CHF per euro, but Switzerland has many skilled asset managers who could invest the rapidly expanding resources of the SNB in a globally diversified portfolio of nominal and real assets. The second damage-limiting option is to abolish the ELB on nominal interest rates as soon as possible…

3. Franklin Delano Roosevelt (1935): “Today a hope of many years’ standing is in large part fulfilled. The civilization of the past hundred years, with its startling industrial changes, has tended more and more to make life insecure. Young people have come to wonder what would be their lot when they came to old age. The man with a job has wondered how long the job would last…”

4. Ezra Klein: Why Republicans Can’t Replace ObamaCare: “Cato’s Michael Cannon scolds the right for getting outplayed, again and again, on health care. ‘Conservatives are falling into the same trap… conceding… that the government should be trying to provide everybody with health insurance…. Once you accept those premises, all of your solutions look like the left’s solutions.’… Cannon is right. The basic project of health reform, at least as it’s been understood in American politics in recent decades, involves the government giving money to poor people so they can buy health-care insurance. That money needs to come from somewhere…. The problem for conservatives is that making sure poor people have health insurance is politically popular…. Philip Klein illuminates an inconvenient truth: upheaval in the health-care system typically makes for terrible politics…. This is the central problem for conservative health reformers… the party doesn’t want to make the sacrifices necessary to unite behind an alternative to Obamacare, much less actually pass and implement it…. Klein identifies three schools of conservative thought on what to do next: the Reform School… the Replace School… repeal Obamacare and replace it with Obamacare-lite; and the Restart School, which… rejects the idea that the government should be… expand[ing] access to health care…. Klein’s book is… far and away the clearest, most detailed look at conservative health-policy thinking…. But… the important cleavage… is between those in the party who want to prioritize health reform and those who don’t…. And that’s really the problem for conservative health reformers. For all the plans floating around, there’s little evidence Republicans care enough about health reform to pay its cost.”

Should Be Aware of:

• Steven Miner: Review of Roger Moorhouse: ‘The Devils’ Alliance: Hitler’s Pact With Stalin, 1939-41′
• Robert Reich: The New Compassionate Conservatism and Trickle-Down Economics
• Snowdonia Cheese Company

 

1. John Holbo: The Race Card, Circa 1871: “Jon Chait has an interesting column… Stephen Budiansky… ‘waving the bloody shirt’ wasn’t functionally a smear against post-Civil War Democrats, turning every debate about post-war issues into a re-commencement of old hostilities. Rather…. ‘In 1871, Klansmen in Mississippi accosted Allen Huggins, a northerner who had helped educate freed slaves, thrashed him within an inch of his life, and threatened to kill him…. The bloody shirt was Huggins’s, allegedly waved by Republican Benjamin Butler on the House floor… not the relic of an ancient feud but evidence of an ongoing epidemic of rampant violence.’… It was, right from the start, the double-reverse ‘bloody shirt’ gambit. False flag. An attempt to generate a smokescreen to conceal present violence, by falsely alleging that the people drawing attention to present violence were merely trying to inflame people regarding past violence…. Think of how weird it is that the Democratic attitude, which evolved ‘waving the bloody shirt’ as a rhetorical defense mechanism, was probably something like this: ‘I do not oppose Reconstruction, but of course that does not mean that I do oppose the near-murder of any carpetbagger who would educate former slaves!’ Chait’s point is that, in this case, a propaganda talking point won, becoming proverbial historical wisdom…”

2. * Munilass: A Defense of Disruption as a Cultural Phenomenon: “Wieseltier’s remark…. Isn’t it possible both to resent living in a universe of content-driven drones, mindlessly copying and pasting articles and co-opting narratives, but still be excited about the democratization of ideas?… Disruption is not the same thing as nihilism. Moreover, nihilism wasn’t invented in the 21st century…”

Tim Duy: Will The Fed Take a Dovish Turn Next Week?: “We are heading into the next FOMC meeting…

…with the growing expectation that the Fed will take a dovish turn… global economic turmoil, collapsing oil prices, weak inflation, and a stronger dollar… pointing to rapidly rising downside risks…. Expectations of the first rate hike have been pushed out  to the end of this year, seemingly in complete defiance of Fed plans….

[But] kind of a ‘Fed is from Mars, markets are from Venus’ situation…. My takeway is that the Fed sees the timing of the first rate hike as less important than everything that comes after that hike. This will leave them less eager to delay the hike… I suspect they see little chance of damage from that first hike alone…. I don’t see how they can justify raising rates without some reasonable acceleration in wage growth… [but] perhaps… they can justify it on the basis of 25bp won’t hurt anyone…

In its review of my next-door office neighbor, friend, and patron Barry Eichengreen’s superb Hall of Mirrors: The Great Depression, The Great Recession, and the Uses-and Misuses-of History, the London Economist writes things like:

Mr Eichengreen at times stretches the facts to fit his narrative. He accuses the Fed of keeping monetary policy too tight because of a preoccupation with inflation; but it enacted several rounds of unconventional stimulus…

This simply will not do.

Barry has substantial discussions of when, how, and why he thinks that the Federal Reserve kept monetary policy too tight because of a preoccupation with inflation.

You can disagree with the analytical framework he uses to make his assessment that monetary policy was “too tight”–smart people like Jeremy Stein do.

But you cannot say that Barry’s documented and well-supported analytical judgment “stretches” the facts, without any further elaboratio–unless, of course, you want to get a reputation for being in the fact-stretching business yourself.

The London Economist is right now in a race to establish itself as a trusted information intermediary with entities like the Financial Times, Business Insider, and http://vox.com. Right now it appears to me at least to be well behind the leaders. Things like this do not help it…

Willem Buiter: The SNB, the Exchange-Rate Peg, and the Interest-Rate ZLB: “[Superior] would have been the continuation…

…of the exchange rate floor…. The old regime, with or without the additional 50bps cut… was viable and superior to the new regime…. Central banks can live with very large balance sheets… diversify… out of euro forex…. There is no ostensible problem with the central bank having to live with becoming an even larger hedge fund/asset manager or Sovereign Wealth Fund…. It may be that the political scrutiny that would come with an even larger balance sheet… was a source of concern…. But such discomfort would seem to be a small price to pay compared to the cost to the nation of a massively overvalued currency, serious deflation and the resulting harmful effects on the real economy….

The second superior alternative would have been to abolish the effective lower bound on the nominal interest rate…. There is little empirical evidence on demurrage for paper currency…. There are no serious arguments against creating a financial system where nominal policy rates can be set with equal ease at -5% as at +5%…. The ELB can be eliminated… by abolishing currency/cash… checkable deposits… credit cards, debit cards and cash-on-a-chip cards… existing and yet-to-be invented e-money… taxing currency, in the spirit of Gesell (1916)… end the fixed exchange rate, currently set at unity, between SNB deposits and cash… encourage the use of the deposit Franc as the numéraire… for price and wage setting….

The good news is that, apart for the reputational damage suffered by the SNB… much of the damage can be undone. The SNB… [could] restore as much of the status quo ante as possible by restoring a floor to the exchange rate of the CHF and the euro (or to the effective exchange rate of the CHF for some suitable basket of currencies)….

No doubt the euros would be galloping in at any floor that is not well below 1.20 CHF per euro, but Switzerland has many skilled asset managers who could invest the rapidly expanding resources of the SNB in a globally diversified portfolio of nominal and real assets. The second damage-limiting option is to abolish the ELB on nominal interest rates as soon as possible…

Via Eric Rauchway, Franklin Delano Roosevelt while signing the Social Security Act on January 19, 1935:

Franklin Delano Roosevelt (1935): “Today a hope of many years’ standing is in large part fulfilled…

…The civilization of the past hundred years, with its startling industrial changes, has tended more and more to make life insecure. Young people have come to wonder what would be their lot when they came to old age. The man with a job has wondered how long the job would last.

This social security measure gives at least some protection to thirty millions of our citizens who will reap direct benefits through unemployment compensation, through old-age pensions and through increased services for the protection of children and the prevention of ill health.

We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.

This law, too, represents a cornerstone in a structure which is being built but is by no means complete. It is a structure intended to lessen the force of possible future depressions. It will act as a protection to future Administrations against the necessity of going deeply into debt to furnish relief to the needy. The law will flatten out the peaks and valleys of deflation and of inflation. It is, in short, a law that will take care of human needs and at the same time provide for the United States an economic structure of vastly greater soundness.

Ezra Klein: Why Republicans Can’t Replace ObamaCare: “Cato’s Michael Cannon scolds the right…

…for getting outplayed, again and again, on health care:

Conservatives are falling into the same trap… conceding… that the government should be trying to provide everybody with health insurance…. Once you accept those premises, all of your solutions look like the left’s solutions….

Cannon is right. The basic project of health reform, at least as it’s been understood in American politics in recent decades, involves the government giving money to poor people so they can buy health-care insurance. That money needs to come from somewhere…. The problem for conservatives is that making sure poor people have health insurance is politically popular…. Philip Klein illuminates an inconvenient truth: upheaval in the health-care system typically makes for terrible politics…. This is the central problem for conservative health reformers… the party doesn’t want to make the sacrifices necessary to unite behind an alternative to Obamacare, much less actually pass and implement it….

Klein identifies three schools of conservative thought on what to do next: the Reform School… the Replace School… repeal Obamacare and replace it with Obamacare-lite; and the Restart School, which… rejects the idea that the government should be… expand[ing] access to health care…. Klein’s book is… far and away the clearest, most detailed look at conservative health-policy thinking….

But… the important cleavage… is between those in the party who want to prioritize health reform and those who don’t…. And that’s really the problem for conservative health reformers. For all the plans floating around, there’s little evidence Republicans care enough about health reform to pay its cost.

Must- and Shall-Reads:

• Kevin Drum: Will 2014 Finally Be the Year That Puts the Climate Denialists’ 1998 Chestnut to Rest?
• Gavyn Davies: The Swiss Currency Bombshell–Cause and Effect
• Noah Smith: DeLong Smackdown Patrol: How worse off are we really?
• Republican Governors Accept Medicaid Expansion, Make It Costlier

 

1. Lawrence Summers: : Focus on Middle Class Growth: “Growth that is a necessary condition for rising incomes is threatened by the specter of secular stagnation and deflation. In… 2014… 10-year Treasury rates have fallen by more than 1 percentage point in the United States and are only half as high in Germany and Japan as they were a year ago. In… Germany, France and Japan, short-term interest rates are now negative… suggest[ing] a chronic excess of saving over investment and the likely persistence of conditions that make monetary policy ineffective…. The world has largely exhausted the scope for central bank improvisation as a growth strategy…. It is time for concerted and substantial measures to raise both public and private investment…. The United States has enjoyed growth of about 11 percent over the past five years. Of this, standard economic calculations suggest that about 8 percent can be regarded as cyclical…. That leaves just 3 percent over five years as attributable to growth in the economy’s capacity. Even after our recovery, the share of American men age 25 to 54 who are out of work exceeds that in Japan, France, Germany and Britain…. Third, if it is to benefit the middle class, prosperity must be inclusive, and in the current environment this is far from assured…. These three concerns… are real but… not grounds for fatalism…. Canada and Australia in this century… show that sustained growth in middle-class living standards is attainable. But it requires elites to recognize its importance and commit themselves to its achievement. That must be the focus of this year’s Davos”

2. Matt O’Brien: President Obama Finally Has His Piketty Moment: “Obama… will call for $320 billion of new taxes [over ten years] on rentiers, their heirs, and the big banks to pay for $175 billion of tax credits that will reward work… fighting a two-front war against a Piketty-style oligarchy where today’s hedge funders become tomorrow’s trust funders… trying to slow the seemingly endless accumulation of wealth among the top 1, and really the top 0.1, no actually the top 0.001…. And…trying to help the middle help itself by subsidizing work, child care, and education…. End the step-up [at death of] basis for capital gains…. Raise the top capital gains tax rate from 23.8 to 28 percent…. Tax the big banks for being big…. Subsidize middle-class work… a second-earner tax credit of $500… calling for the Earned Income Tax Credit to be doubled for childless workers, to try to get more young men in particular into the workforce… college tax credits to be streamlined, extended, and expanded… automatically enrolling [workers] in an IRA…. These are ideas, to be honest, that some Republicans support…. The question, then, isn’t how to help the middle class. It’s how to pay for it. Obama wants to make the top 1 percent and Wall Street do so. Republicans don’t. That, like every other one, will be what the 2016 election is about.”

3. Willem Buiter: Did the SNB Score an Own Goal? Francly, Yes: “1. The removal of the 1.20 floor on the CHF-euro exchange rate was a mistake. 2. Superior policy alternatives existed. 3. The old regime was indefinitely sustainable. 4. Removing the lower bound on nominal interest rates would have been the best choice. This can be done one of three ways. 5. The economic damage can be limited by restoring the exchange rate floor at a level not below the old one, and/or by eliminating the lower bound on nominal interest rates. 6. The rest of the world can learn from the SNB’s experience with a -0.75% deposit rate.”

4. Noah Smith: DeLong Smackdown Patrol: How worse off are we really?: “Bad Brad! In 2000, you believed that American economic policy and the American economy, though far from perfect, had been largely a success (right?). It’s understandable to think the 15 years since then have been a big disappointment – they have! – but why should that cause you to revise your evaluation of the period from 1980 to 2000? Do you think that we are now paying for excesses we enjoyed in that period, and that our prosperity increases during that period were thus illusory? I don’t think you think that. So don’t succumb to excessive pessimism!”

5. Biagio Bossone: The ‘Safety Trap’ and Eurozone Secular Stagnation: “I have recently worked out a… DSGE model where the upsurge of pessimistic expectations causes high liquidity preference to become the source of a persistent drop in demand…. Would breaching the ZLB through negative interest rates (NIR) really help the economy exit the trap? Theoretically, it would; in practice, it is much less certain… push agents to search for alternative safe assets earning higher returns… [which] would then supplant… those liquid assets whose liquidity premiums the monetary authorities had sought to neutralize through NIR…. For similar reasons, quantitative easing… is ineffective…. Yet under liquidity preference dominance (Landau’s safety trap) and a binding ZLB, agents absorb any amounts of reserve money created and hold on to them without changing their consumption and investment plans…. Assume the central bank commits to being ‘irresponsible’… [if] QE policy actually becomes ‘helicopter money’… [it] impact[s] spending decisions through the fiscal lever…. Short of this twist… the central bank is left without effective channels…”

Should Be Aware of:

• Paul Rosenberg: Now they’re sliming Elizabeth Warren: Fox News tactics and the surprising water carriers for the 1 percent
• HiLine Coffee Company

 

1. 
   
   
   
   dew: Warren, public opinion, and inequality: ”
   Paul Rosenberg has a good response to Amitai Etzioni’s rather lame attempt at a hatchet-job on Elizabeth Warren at The Atlantic: ‘Taking Norton and Ariely’s results seriously, we can say that the American people want a much fairer society than they live in, but that the means for articulating this desire—the stories, concepts, policy proposals, etc.—are in scandalously short supply, a de facto example of hypocognition thwarting what people want. Elizabeth Warren is particularly popular precisely because she provides some of the missing means that people are so hungry for—an antidote to the hypocognition that thwarts their desire for a fairer, more just vision of America, which respects both their hard work and their compassionate values. There may be relatively little polling to support this view (though there’s considerably more than you’d expect) but that’s partly just another example of how elites dominate the landscape of acceptable thought to protect their interests, as underscored by recent research by Martin Gilens and Benjamin Page. Warren represents a clear alternative to this narrow-minded view. Her popularity derives in large part from her ability to shape narratives that reflect the hidden majority’s shared values and articulate them in policy terms, reversing a decades-long trend by which elites of both parties have turned their backs on the welfare of ordinary Americans.’ While Rosenberg offers a much more accurate portrait of American public opinion than does Etzioni, there are reasons to think this offers an overly optimistic account. He’s right, of course, that Americans want a more egalitarian distribution of wealth and income than they’ve got. But it’s almost certainly the case that partisan identity is likely to significantly diminish the ‘hidden majority’ support for redistribution when it turns into an actual plan promoted by and associated with Democratic politicians (as the continued unpopularity of something called ‘Obamacare’ demonstrates). Raising the minimum wage manages to remain broadly popular despite the partisan divide, so it’s important not to be too fatalistic about this. (I suspect one reason for this is the simplicity of the policy; it’s harder to spin or dissemble the basic fairness of it away.) But the lack of specific policy proposals cuts both ways–lots of inequality-reducing proposals could be quite popular in the abstract, but once they become ‘Democratic’ proposals support is likely to conform to a more familiar partisan pattern.”

Lawrence Summers: Focus on Middle Class Growth: “Growth that is a necessary condition for rising incomes…

…is threatened by the specter of secular stagnation and deflation. In… 2014… 10-year Treasury rates have fallen by more than 1 percentage point in the United States and are only half as high in Germany and Japan as they were a year ago. In… Germany, France and Japan, short-term interest rates are now negative… suggest[ing] a chronic excess of saving over investment and the likely persistence of conditions that make monetary policy ineffective…. The world has largely exhausted the scope for central bank improvisation as a growth strategy….

It is time for concerted and substantial measures to raise both public and private investment…. The United States has enjoyed growth of about 11 percent over the past five years. Of this, standard economic calculations suggest that about 8 percent can be regarded as cyclical…. That leaves just 3 percent over five years as attributable to growth in the economy’s capacity. Even after our recovery, the share of American men age 25 to 54 who are out of work exceeds that in Japan, France, Germany and Britain….

Third, if it is to benefit the middle class, prosperity must be inclusive, and in the current environment this is far from assured…. These three concerns… are real but… not grounds for fatalism…. Canada and Australia in this century… show that sustained growth in middle-class living standards is attainable. But it requires elites to recognize its importance and commit themselves to its achievement. That must be the focus of this year’s Davos.

Howard Gleckman writes:

Howard Gleckman: Two economists debate whether the Federal budget deficit matters: “Do deficits, or at least currently projected deficits, matter?…

…A recent debate between my Tax Policy Center colleague Bill Gale and UC Berkeley economist Brad DeLong…. Bill wrote that ‘a major priority should be to get our long-term fiscal house in order.’… Brad argued that… the fiscal gap is really not that bad… especially if you assume that Congress will eventually enact a carbon tax and that the Affordable Care Act will help control future health costs…. With interest rates so low… why worry about deficits in the current environment?  Long-term debt is a problem for future generations. Let them figure out how to address it…

I don’t think that that last paraphrase from the excellent Howard Gleckman quite gets at what I was trying to say. And since that is what Howard got, that means I said it wrong. Let’s try again, in a different way:

---

Sokrates: I did not expect to see you here at Davos!

Gorgias: Wherefore not? I am a rhetorician. That as, as Homer would say: “what I boast myself to be!” Where better to practice my excellence? And acquire clients so that I can live at the standard of living I dream of?

Sokrates: And what topic are you going to use to demonstrate your excellence as a rhetorician this forthcoming week?

Gorgias: “Fix the Debt!” of course. It is really important to pass laws to cut spending and raise taxes and so get our debt-to-GDP ratio on a trajectory where it is declining rapidly. That is one of the three things we could do to most effectively boost economic growth.

Sokrates: Right now, if President Obama and the centrist Democrats agreed, to join the Republican coalition, we could pass laws to cut Social Security, Medicaid, Medicare, SCHIP, and ACA spending. But there are no counterparts on the Republican side to pass laws to raise taxes now and in the future.

Gorgias: That is true. But that is not terribly relevant. The important thing to do is to Fix the Debt. Any steps that Fix the Debt are good–we are not partisan about this, it is simply that right now it is possible if moderate Democrats agree to pass one set of steps to Fix the Debt.

Sokrates: And moderate Republicans?

Norman Ornstein: Moderate Republicans are party loyalists first and moderates second. They will never break party discipline.

Gorgias: Unfortunate. But not relevant. Fix the Debt!

Sokrates: Is it that government spending is too high and needs to be cut?

Peter Diamond: Actually not. As we move into the twenty-first century, it is likely that categories of domestic spending in which the government has a comparative advantage vis-a-vis the market–pensions and other retirement social insurance, medical insurance, education, research and development, information goods–will grow as a share of GDP. Optimal fiscal policy will in all likelihood have the government spending a greater share of GDP in the twenty-first century than it did in the 20th.

Sokrates: Do you disagree Gorgias?

Gorgias: I neither agree nor disagree: I say that we need to Fix the Debt!

Sokrates: So if the government were now to pass a law that would greatly increase the tax base by, in the long run, severely reducing the tax preference offered to employer-sponsored health insurance, you would be in favor of that? That would help Fix the Debt?

Gorgias: Yes. But since the moderate Republicans will not break party discipline to support it, that is irrelevant. Fix the Debt!

Sokrates: And if government would pass a law giving the Secretary of HHS power to curb Medicare spending in a smart, technocrat way, you would be in favor of that? That would help Fix the Debt?

Gorgias: Yes. But since the moderate Republicans will not break party discipline to support it, that is irrelevant. Fix the Debt!?

Marty Weitzman: Since if we do not pass a carbon tax in the next generation, the U.S. long-run fiscal gap is likely to be way, way, way down on our list of serious problems, we should carve our policies toward the debt presuming that we will pass such a carbon tax and its revenues will be available to help Fix the Debt, nu?

Sokrates: But we have already Fixed the Debt. The ACA–ObamaCare–contains the IPAB, which gives the Secretary of HHS power to curb Medicare spending in a smart, technocrat way. The ACA–ObamaCare–contains the Cadillac Tax, would greatly increase the tax base by, in the long run, severely reducing the tax preference offered to employer-sponsored health insurance. When we include those two and a reasonable carbon tax in our long-run forecasts, the Debt Is Fixed: resources available exceed projected spending.

Gorgias: But future congresses will repeal the IPAB! Future congresses will repeal the Cadillac Tax! Future congresses, if they do pass a carbon tax, will couple it with tax cuts so that it will not raise any revenue! We must Fix the Debt.

Sokrates: So, if I understand you, we Fixed the Debt in the Clinton administration in the sense that there was no fiscal gap if future congresses adhered to the pay-as-you-go principle. And then the George W. Bush administration unfixed it. And we have Fixed the Debt in the Obama administration in the sense that there is no fiscal gap if future congresses adhere to the pay-as-you-go principle. But you do not believe that future congresses will adhere to the pay-as-you-go principle?

Gorgias: No. I do not. And you should not either.

Sokrates And if I say that interest rates right now are so low that any optimal fiscal policy would say that the debt-to-GDP ratio should be rising, rather than falling?

Gorgias: I would say that such considerations would apply if we had a plan for balancing the long-term finances of the federal government that will be put into effect. But we do not. Fix the Debt!

Sokrates: So the things that the Obama administration has done to Fix the Debt do not count because you see them as likely to be undone by future congresses?

Gorgias: Exactly!

Sokrates: And the plans you have for policy changes to Fix the Debt are painful and difficult to pass?

Gorgias: Yes!

Sokrates: And even if you do pass them, they are likely to be unpopular?

Gorgias: Yes…

Sokrates: But you believe that future congresses will not repeal your policies–even though you believe future congresses will repeal the IPAB and the Cadillac Tax, and offset the carbon tax that is coming–because?…

Gorgias: [Silence]

---

I would be very happy if I could get an answer from the Fix the Debt crowd as to why Fix the Debt doesn’t mean working to:

• enforce pay-as-you-go on congress,
• defend the Cadillac Tax,
• protect the IPAB, and
• pass a carbon tax.

But that’s not what Fix the Debt means in America today. And until it does, I will be highly skeptical of all who want to put it high on the list of policy priorities…

---

1168 words

Matt O’Brien: President Obama Finally Has His Piketty Moment: “Obama… will call for $320 billion of new taxes [over ten years]…

…on rentiers, their heirs, and the big banks to pay for $175 billion of tax credits that will reward work… fighting a two-front war against a Piketty-style oligarchy where today’s hedge funders become tomorrow’s trust funders… trying to slow the seemingly endless accumulation of wealth among the top 1, and really the top 0.1, no actually the top 0.001…. And…trying to help the middle help itself by subsidizing work, child care, and education….

End the step-up [at death of] basis for capital gains…. Raise the top capital gains tax rate from 23.8 to 28 percent…. Tax the big banks for being big…. Subsidize middle-class work… a second-earner tax credit of $500… calling for the Earned Income Tax Credit to be doubled for childless workers, to try to get more young men in particular into the workforce… college tax credits to be streamlined, extended, and expanded… automatically enrolling [workers] in an IRA….

These are ideas, to be honest, that some Republicans support…. The question, then, isn’t how to help the middle class. It’s how to pay for it. Obama wants to make the top 1 percent and Wall Street do so. Republicans don’t. That, like every other one, will be what the 2016 election is about.