And Also, A Budget

Aside from everything else, we could see the FY2010 budget passed this week, in time for the 100 day festivities.

House and Senate Democrats reached a budget deal on Monday night that will allow both chambers to vote on budget resolutions this week.

Budget negotiators, after hours of negotiations on Monday, put finishing touches on the resolution, which Democrats hope to approve by President Obama's 100th day in office Wednesday.

Senate Budget Committee Chairman Kent Conrad (D-N.D.) called the budget "a major accomplishment."

"We are meeting President Obama’s goals of reducing our dependence on foreign energy, striving for excellence in education, reforming our healthcare system, and providing middle-class tax relief – all while still cutting the deficit substantially," he said.

It looks like the price of reconciliation instructions for health care was a codifying of PAYGO rules, which basically mandates that all new spending find an offset in funding. That can be good, because it forces Blue Dogs to pay for spending with taxes on the wealthy, for example, or it could be bad, as it constrains lawmakers from deficit spending, particularly in a recession.

More from the AP. The serious issues of health care and climate change will be put off until later in the year; this budget is more of a framework. Fortunately, conferee Rosa DeLauro says that no deal to tinker with Social Security was offered as an exchange for the reconciliation instruction on health care.

Senate Passage

61-37, as John Cornyn bothers to show up to vote against poor people and children this time. The final price tag is $838 billion, because an amendment limiting bonuses for TARP recipients will actually cost the government $11 billion in tax revenue.

Now we're on to the House-Senate conference. You can see the differences between the House and Senate bills here. I think I've pretty well laid out the bill of particulars. The non-stimulative tax cuts to those in the upper portions of the income range should be jettisoned, and the assistance to state and local governments and some other worthy notables should be restored. Elena Schor reports that the school construction funding - totally eliminated by the Axis of Centrists - could return (Ezra thinks, only half-joking, that it's some kabuki game to get Republicans to vote against schools for kids before the funds are restored in conference, so they can use that vote in the next election). And there are the inevitable lobbying minefields - it's completely indefensible for the drug industry to want to eliminate comparative medical study from the bill, one of the most effective cost-control measures you can think of (comparing treatments and getting rid of the ones that don't work as well is a no-brainer), in an attempt to keep a medical-device bubble inflated.

I'm hopeful that we'll get at least a partial restoration in conference. Kevin Drum says the size of the bill is not as important as some are making it out to be:

The original bill totaled about $800 billion, and according to CBO estimates the amount of stimulus (spending + tax cuts) provided by the bill over the next two-and-a-half fiscal years would have been about $700 billion. This, we're told, would help create about 3 million jobs. The bigger Senate bill would have added $100 billion to that, and the current Nelson/Collins bill gets us roughly back to the original amount.

But stimulus isn't restricted to bills labeled "stimulus." Any deficit spending counts, and there's a ton of that already in the budget. Not counting TARP and bailout money (since it doesn't necessarily stimulate consumption), CBO estimates that the federal deficit this year will come to about $800 billion. If we assume the same next year and maybe half as much the year after, that's a total deficit-driven stimulus of about $2 trillion. Presumably this creates jobs at the same rate as spending in the stimulus bill, so that amounts to something in the neighborhood of 9 million jobs.

So: With the cut, total fiscal stimulus over the three years starting last October comes to $2.7 trillion and 12 million jobs. If we had kept spending at its higher level, it would have come to $2.8 trillion and perhaps 12.5 million jobs. That's a difference of about 3%.

I'm not sure this is the best way to look at it. The goal is to make up for a $1 trillion dollar annual shortfall. The normal appropriations may be deficit spending, but that is a cause of reduced employment and tax revenue. So are they really "stimulus"? It's a chicken-or-the-egg question to me. In addition, normal appropriations save the jobs in various agencies, but as they are not additional spending they don't exactly create any. This looks to me like fun with numbers.

The larger point is that even a really big stimulus package was going to be hard-pressed to lift the entire economy out of the ruin in which we find ourselves. James Galbraith said today on Democracy Now that the package depends on a proper resolution to the financial crisis, which he doesn't think is forthcoming considering the garbage that Tim Geithner laid out today.

So we need to fight for those additional funds, but I'm starting to wonder whether or not it matters.

...the Senate conferees are the chairmen and ranking members of the relevant committees, Senators Inouye, Baucus, Cochran and Grassley, along with Harry Reid. Specter and Collins and Snowe were denied the ability to be in the room by their own leadership, and this actually increases the possibility of restoring funds. It also increases the possibility that Collins, Specter or Snowe could bolt from the final deal because they aren't in on the final changes. It's a tightrope.

Thinking Strategically About a Post-Balanced Budget Future

Paul Krugman has a good column today about how state balanced budget needs lead to perverse outcomes during an economic crisis that demands fiscal stimulus.

But even as Washington tries to rescue the economy, the nation will be reeling from the actions of 50 Herbert Hoovers — state governors who are slashing spending in a time of recession, often at the expense both of their most vulnerable constituents and of the nation’s economic future.

These state-level cutbacks range from small acts of cruelty to giant acts of panic — from cuts in South Carolina’s juvenile justice program, which will force young offenders out of group homes and into prison, to the decision by a committee that manages California state spending to halt all construction outlays for six months.

As Krugman notes, it's crazy to cut public spending at the same time that private spending is drying up. It's a recipe for a Hoover-esque depression with no investment or economic activity, and no way to increase consumer spending or create jobs.

Krugman acknowledges that balanced-budget rules are only a part of this problem in the states.

The answer, of course, is that state and local government revenues are plunging along with the economy — and unlike the federal government, lower-level governments can’t borrow their way through the crisis. Partly that’s because these governments, unlike the feds, are subject to balanced-budget rules. But even if they weren’t, running temporary deficits would be difficult. Investors, driven by fear, are refusing to buy anything except federal debt, and those states that can borrow at all are being forced to pay punitive interest rates.

Are governors responsible for their own predicament? To some extent. Arnold Schwarzenegger, in particular, deserves some jeers. He became governor in the first place because voters were outraged over his predecessor’s budget problems, but he did nothing to secure the state’s fiscal future — and he now faces a projected budget deficit bigger than the one that did in Gray Davis.

That's absolutely true. And the suffocating 2/3 requirement is most of the problem here. But once we get out of this crisis, hopefully with some assistance from the federal government for Medicaid and public works, we need to think a little more creatively about how to reduce the risk of a state's fiscal trap on the greater economy. One idea is allowing state governments the ability to deficit spend, perhaps through the creation of some federal Stimulus fund that states facing certain deficits can tap. This is the framework behind the National Infrastructure Bank proposed by Sens. Dodd and Hagel last year, but I would broaden it out. There's also the option of federal guarantees for state bond markets to increase investor confidence, or allowing states in a fiscal emergency to borrow at lower federal rates in the short term. These are steps similar to those being used to bail out banks, with the Fed intervening in the commercial paper market, and they should be tools for the states as well.

With structures like this in place, just maybe we can phase out the balanced budget amendments that force these bad choices on the states. Ultimately, California can't ask for help until they help themselves. The bond market will simply not improve until investors are assured that the state can manage its own affairs. But after the failed Schwarzenegger Administration, the next governor should think seriously about giving the state flexibility in an economic downturn, rather than going along with the necessary steps to making things measurably worse.

Either The Economy Is Fixed In 100 Days Or We Revolt!

Paul Krugman appears to be in contact with the Obama transition team, which is very positive news. It may be why the recovery package is expanding in the face of more bad economic news:

Faced with worsening forecasts for the economy, President-elect Barack Obama is expanding his economic recovery plan and will seek to create or save 3 million jobs in the next two years, up from a goal of 2.5 million jobs set just last month, several advisers to Mr. Obama said Saturday.

Even Mr. Obama’s more ambitious goal would not fully offset as many as 4 million jobs that some economists are projecting might be lost in the coming year, according to the information he received from advisers in the past week. That job loss would be double the total this year and could push the nation’s unemployment rate past 9 percent if nothing is done.

The new job target was set after a meeting last Tuesday in which Christina D. Romer, who is Mr. Obama’s choice to lead his Council of Economic Advisers, presented information about previous recessions to establish that the current downturn was likely to be “more severe than anything we’ve experienced in the past half-century,” according to an Obama official familiar with the meeting. Officials said they were working on a plan big enough to stimulate the economy but not so big to provoke major opposition in Congress.

Mr. Obama’s advisers have projected that the multifaceted economic plan would cost $675 billion to $775 billion. It would be the largest stimulus package in memory and would most likely grow as it made its way through Congress, although Mr. Obama has secured Democratic leaders’ agreement to ban spending on pork-barrel projects.

We can't afford to have a spending package less than this at this point. The economy has truly cratered nationwide, even in areas that didn't experience a housing boom, as the slump ripples through the greater economy. They're stopping jury trials because the states can't afford them, for crying out loud (how exactly does that not violate due process?). This, by the way, is why direct aid for state and local governments is as crucial as these public works investments.

But what about the state of things AFTER two years of deficit spending? We will be facing a world much different from the one that fueled economic growth in the 1990s and the early part of this decade. The bubbles will have been stamped out and unlikely to resurface, at least for a while. Consumer spending as an engine covering 2/3 of economic growth, so that our collective future depends on whether or not kids like the newest Elmo doll, is unsustainable, and since wages are stagnant, unlikely to continue. What is going to take the place of these drivers of growth? Krugman looks at this today as well.

A few months ago a headline in the satirical newspaper The Onion, on point as always, offered one possible answer: “Recession-Plagued Nation Demands New Bubble to Invest In.” Something new could come along to fuel private demand, perhaps by generating a boom in business investment.

But this boom would have to be enormous, raising business investment to a historically unprecedented percentage of G.D.P., to fill the hole left by the consumer and housing pullback. While that could happen, it doesn’t seem like something to count on.

A more plausible route to sustained recovery would be a drastic reduction in the U.S. trade deficit, which soared at the same time the housing bubble was inflating. By selling more to other countries and spending more of our own income on U.S.-produced goods, we could get to full employment without a boom in either consumption or investment spending.

That is the answer, in my view - a reindustrialization of America. The hope is that the investments in areas like alternative energy will spur innovation and create new industries that America can export. But that's not going to happen overnight. It's going to take at least a decade to get manufacturing where it probably needs to be to bring the trade deficit back into balance. The other question, which Krugman addresses separately, is who gets stuck with decreasing trade surpluses in this zero-sum game. Clearly, if the exports are related to energy efficiency and aternative fuels, the answer is the Middle East. But if it relates to the source of most of our trade deficit, namely China, I don't think they will allow it, and they've been buying up our debt for years and years to make sure they have at least a partial veto on the resurgence of American manufacturing.

Which means that restoring our economy will be a long, slow, drawn-out process, lasting not a year or two but much longer. And this entire time, Republican know-nothings will promote impatience and start blaming the solutions as the problem. You saw an early example of this when the right, aided by a compliant media, cherry-picked a large infrastructure request from US mayors, finding one or two pieces that are supposed to invalidate the entire idea of federal spending. There will be plenty more of that, solemn speeches on the floor of the Congress along the lines of John McCain's "OMG $3 million for bear DNA!" nonsense. Plenty of hack groups like "Citizens Against Government Waste" will pop up with every spending request to call it wasteful, Republicans in the Oversight Committee of the House will demand hearings, the Pete Peterson Foundation will put out lamentation after lamentation about the soaring deficit, a newly energized set of conservative radio talkers will hammer these themes day after day, and conservative revisionist historians will influence media groupthink by questioning whether all this public works spending can even help the economy. By this time Republican candidates for national office will be getting lots of attention by slamming all the "pointless budget-busting porkbarrel spending" that is hurting the economy. And this will only get worse as the years go on:

But once the economy has perked up a bit, there will be a lot of pressure on the new administration to pull back, to throw away the economy’s crutches. And if the administration gives in to that pressure too soon, the result could be a repeat of the mistake F.D.R. made in 1937 — the year he slashed spending, raised taxes and helped plunge the United States into a serious recession.

The point is that it may take a lot longer than many people think before the U.S. economy is ready to live without bubbles. And until then, the economy is going to need a lot of government help.

This is not completely fated to happen, a technological breakthrough could spur new economic activity, and reducing wasteful health care or military spending would at least cool the deficit and make that money far more productive. But in general terms, failed conservative policies have put us into a ditch, and it's going to take a long time to dig our way out. Human nature in general is not exactly oriented toward unlimited patience or long-term planning. Conservatives are practically counting on that.

Neo-Hooverism Quashed

Barack Obama was pretty unequivocal last night making the case for Keynesian deficit spending to lift us out of the recession.

STEVE KROFT: Where is all the money going to come from to do all of these things? And is there a point where just going to the Treasury Department and printing more of it ceases to be an option?

PRESIDENT-ELECT BARACK OBAMA: Well, look, I think what's interesting about the time that we're in right now is that you actually have a consensus among conservative Republican-leaning economists and liberal left-leaning economists.

And the consensus is this:

That we have to do whatever it takes to get this economy moving again. That we're gonna have to spend money now to stimulate the economy. And that we shouldn't worry about the deficit next year or even the year after. That, short term, the most important thing is that we avoid a deepening recession.

Very good news. It doesn't mean that journalists like Kroft are going to stop asking these know-nothing types of questions, or that the Beltway chattering class isn't going to rend their garments over it. But Obama has the right perspective. Government is the spender of last resort in an economic downturn.

And good on Paul Krugman for knocking down the revisionist nonsense that George Will was spewing on ABC's This Week.



In essence, private investment was already bottomed out before FDR came into power. He didn't discourage it at all. After the New Deal was working well for a few years, he tried to go back to balancing budgets and the economy was too fragile to take it. FDR's problem, then, was that he was TOO CONSERVATIVE at a time that led to a new recession. This chart is instructive.



I think there's a subset of official Washington that believes the economy runs like their checkbook, and that in a downturn you have to cut back, but I think the public is waiting to be sold on that idea, and what they're really looking for is effective government. Should they get that with the new Administration, they'd be immune to Republican fearmongering.

The exception is that moderates remain far more skeptical about government -- and government spending -- than liberals do. Conservative misrule has given them every reason to believe that large portions of their taxes are wasted. Not surprisingly, Republicans and conservatives have already been trying to paint Obama as a tax-and-spend liberal, while bemoaning the fact that Bush ran up deficits at the same time he increased spending across the board.

But progressives needn't be defensive about the majority that is dubious about government spending. Making government work effectively is at the heart, not the capillaries of the progressive agenda. This test doesn't distract; it focuses us on our task. No progressive majority can ever be consolidated for long if it doesn't demonstrate that government can be an effective ally for everyone.

And that is all moderates are looking for. They aren't skeptical about the need for government. By large margins, they think regulation does more good than harm. They want investments made in education and training. They favor a concerted government-led drive for energy independence. They far prefer a health-care plan with a choice between their current insurance and a public plan like Medicare, rather than one that would give them a tax credit to negotiate with insurance companies on their own. Their concern is less that government will do too much and more that government will fail to do what it must and waste their money in the process.

Obama has a moment to change that conversation and show how government can effectively respond to challenges. It may only be a moment, but it's better than nothing.

We Need To Be Bold

Digby pointed yesterday to David Broder's none-too-subtle warning that the next President had better not get any funny ideas about investing in the future or giving those among the least of society a hand or anything. Obviously we need to get through the next 22 days and usher in a Democratic President. But this is an absolutely vital discussion that we need to be having right now.

Unsurprisingly, Broder's concern trolling about the economic downturn and the debt reflects mainstream Beltway opinion of the moment. There's a reason why the story about the US debt clock needing extra digits got so much attention. Call it neo-Hooverism, as Matt Yglesias has taken to doing. Throughout the debates serious guardians of the discourse like Jim Lehrer and Tom Brokaw have hounded the candidates about what parts of their agendas they would cut or scale back in the midst of the slowdown. Here's Michael Scherer of TIME following their lead.

Neither candidate has the courage to speak straight with the American people about our nation’s fiscal problems. Asked about the financial crisis, McCain talked about energy independence, hitting the same talking points he used in July. Obama talked about the need to give tax cuts to the middle class, and expand spending programs, a proposal he put forward last year. Both men have proposed policies that will lead to an increase in the deficit, according to independent analysts, even without a dramatic economic downturn, which looks increasingly inevitable. Neither man has shown any clear intention to tell Americans to face head on the hard economic times that await us. This is politics. The candidates are playing it safe, not telling voters anything they don’t want to hear. They choose to demagogue Wall Street instead.

This is precisely the opposite of what needs to be done in a recession. In fact, the crisis facing the states right now is emblematic of this idiotic mindset. When the economy slows, tax revenues decrease. The demand for social services increases. So more is needed while less is earned. This leads to deficits, and because of balanced budget amendments at the state level (thank God we don't have them federally), spending cuts are implemented. This shrinking of state and local spending shrinks the economy. Which prolongs the recession and prolongs the pain. That's what the Beltway chattering class is RECOMMENDING.

The federal budget is not a family budget, as Brian Beutler ably explains.

When times are hard at home, after all, you scrimp and save and avoid exorbitant expenditures. You keep working hard and hold on to the belief that prosperity will return sooner than later. Maybe under different circumstances you take out a loan and start a business and hope it's successful enough to make you rich and famous--but now you have children. You really want them to go to college. And so you can't in good conscience take on the risk.

But countries aren't like households. When times are tough the last thing they need is for their governments to freeze out discretionary spending. And, paradoxically, the Great Men of History who so badly want to be president wouldn't be doing their countrymen any favors by choosing this particular moment to suddenly restrain their vision.

In response to a recession, spending to increase job creation and investment is a completely normal, Keynesian reaction. The idea that the bankers must be bailed out at all costs but that there's no cash for the ordinary stiffs who would benefit from a thorough stimulus package is bunk. It's also dangerous to the health of the economy and our future standard of living.

If you don't start spending at the federal level, more bridges will collapse and more roads will become unpassable. More state unemployment funds will become insolvent. More catastrophic effects of the climate crisis will unfold. More Americans will lack quality access to health care. More Americans will be out of work and lost when they could be put to work for our collective future benefit.

The Beltway attack on the progressive agenda, through the lens of fiscal responsibility, is only the beginning. The Pentagon is going to demand a large payoff at the same time its defenders will call for budget austerity, because as everyone knows military spending is magic spending that doesn't exist in any temporal form.

Pentagon officials have prepared a new estimate for defense spending that is $450 billion more over the next five years than previously announced figures.

The new estimate, which the Pentagon plans to release shortly before President Bush leaves office, would serve as a marker for the new president and is meant to place pressure on him to either drastically increase the size of the defense budget or defend any reluctance to do so, according to several former senior budget officials who are close to the discussions [...]

“This is a political document,” said one former senior budget official, who spoke on the condition of anonymity. “It sets up the new administration immediately to have to make a decision of how to deal with the perception that they are either cutting defense or adding to it.”

If there's one place where budget hawks can go to find wasteful spending and unnecessary expenses, it's the Pentagon. But of course then "the troops" are disrespected by discontinuing weapons systems that the United States hasn't used since the mid-1950s.

Furthermore, sometime in the next year some wingnut publisher is going to release a book with a title like The FDR Depression, arguing that Roosevelt's policies actually prolonged the agony and deregulation and tax cuts would have been the proper answer to the country's woes.

This is a coordinated attack. And to fight it we're going to have to stake out some pretty solid territory right now in order to get what is desperately needed for the country and its people.

First of all, we have to have a legitimate stimulus package in place, one that's targeted to those steps which would have the best impact on the overall economy. Nancy Pelosi is already talking about something that would provide $150 billion to state and local governments for expanding public works, extending unemployment benefits and food stamps programs. That's not enough, but the targets are pretty solid. Investing in infrastructure provides a tangible benefit for the future while creating jobs now. Funneling money to the states stabilizes their budget and decreases the risk to program cuts. And the biggest "bang for your buck" in economic stimulus comes from spending increases like extending UI and food stamps and aiding state governments, not tax cuts which supposedly will trickle down. The White House thinks the luckie duckies can get their own job and shouldn't be bailed out, and House Republicans want a "stimulus" as long as it does nothing to stimulate the economy:

Rep. Roy Blunt, the Missouri Republican who serves as House minority leader, said he would support a stimulus plan if it did not include massive public works spending and budget bailouts for states that overspent on health care and other social programs.

“A stimulus plan that makes sense is something that I’ll be helpful with,” Blunt said, also on ABC television.

Furthermore, you have to find big solutions that can increase economic output, create jobs that expand the industrial base so we don't keep relying on pushing paper to make a living, and legitimately tackle the global challenges that threaten to overwhelm any short-term band-aids. Fortunately, such a solution already exists.

But in the medium to long term, once the immediate problems in the financial sector have been ironed out, we need a planned transition towards a cleaner future, not a headlong collapse into a new depression. That means – contrary to the suggestion of the "all growth is bad" school – that we need to grow our way out of this economic mess. A return to Keynesianism could be a good thing for the environment, if government-backed spending and investment drives growth in areas where it is desperately needed, especially particularly clean energy. The old days of environment versus jobs are over – we don't need to sacrifice quality of life in order to stimulate the economy.

A green recovery providing millions of jobs and avoiding the catastrophe of unchecked global warming is our only hope of maintaining our sliding global stature. The one saving grace of the past few weeks of debates has been that this question was finally asked in front of a national audience:

Sen. McCain, I want to know, we saw that Congress moved pretty fast in the face of an economic crisis. I want to know what you would do within the first two years to make sure that Congress moves fast as far as environmental issues, like climate change and green jobs?

This must happen quickly and boldly and Senator Obama needs to be pushed. His energy policies are good but insufficient. His renewable targets must be larger - his target of 10% of all electricity from renewables by 2012 has already been exceeded this year. When energy has come up on the campaign trail, Obama foregrounds with talk of "clean coal" and "safe nuclear" power, which is fine for triangulation but terrible for the planet.

Obama's four-part plan today to restore American jobs is solid, and also needs to be bigger. He supports immediate investments in rebuilding America's infrastructure to create a million new jobs, extending UI and suspending taxes on benefits, creating a two-year holiday on penalties for withdrawing from 401(k) and IRA plans, LIHEAP funding supplements, and a 90-day foreclosure moratorium, among other measures. The job creation incentives in here are fine, and relief to those who need help is crucial.

But this is a time to think big. We have to grow our way out of the economic depths. We have to use the money we'll spend wisely enough to create external benefits for the next 50 to 60 years, to wire America like we electrified America in the 1930s, to fix the roads and bridges the way we built them then, to create a new, clean energy grid to replace the old one that served us well. We can not only face the biggest challenges in the world and create a sustainable economy at the same time, but they can complement each other. And we can say "hell no" to those Wise Men of Washington and the conservatives they enable, whose ideas on budgets and fiscal responsibility and supply-side economics have been totally discredited. We need only to have courage in crisis, and a willingness to lead the way.

Who will show it, if not us?

Financial Mess Gets Messier

I am not what you would call an economist, but I'm pretty sure this is a horrible sign:

Alarmed by the growing financial stress at the nation’s two largest mortgage finance companies, senior Bush administration officials are considering a plan to have the government take over one or both of the companies and place them in a conservatorship if their problems worsen, people briefed about the plan said on Thursday.

The companies, Fannie Mae and Freddie Mac, have been hit hard by the mortgage foreclosure crisis. Their shares are plummeting and their borrowing costs are rising as investors worry that the companies will suffer losses far larger than the $11 billion they have already lost in recent months. Now, as housing prices decline further and foreclosures grow, the markets are worried that Fannie and Freddie themselves may default on their debt.

Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee — which could be staggering — would be paid by taxpayers.

Shares of Fannie and Freddie have already lost half their value today.

The problem here is that we're looking at another bailout of financial services. And so the taxpayer bears the risk of mortgage speculation caused by investors. They got rich for years but won't have to give that money back. Socialize the risk, privatize the profit.

Bonddad has more on Fannie and Freddie, which are sort of public and sort of not, and now will be completely public in this bailout scenario.

Amazingly enough, after the financial sector's deregulated Nirvana fucked up the economy for years, if not decades, to come, now the government wants more regulation. It's similar to how now, budget hawks want to tackle the deficit, after Republicans busted it, just in time to constrain a possible Democratic President.

Now all of this isn't to say that the Peterson foundation's basic idea "live within your means" isn't a good one. Many of us here in the blogosphere have been screaming this from the rooftops for years. (Welcome to the party, lads. Pass the ammo. And where were you the last 6 1/2 years. Hmmmm?) They're absolutely right that debt services charges are an awful thing to spend money on. But somehow the problem for folks like Peterson is never the precipitous decline in capital gains taxes, or corporate tax rates, or estate taxes; nor is it spending too much on the military, the huge bleeding ulcer of Iraq, or the massive tax cuts for the rich. Somehow it's people who need healthcare or old folks getting Social Security checks. Somehow there's never a billion dollars to say 'well, one way to fix medical costs is single payor, and every health care expert who isn't paid not to know, knows it" but there is a billion bucks to go after "entitlements". Somehow there isn't a billion bucks to go after the fat cats who benefit from bloated Pentagon budgets which don't make the US one whit safer.

And somehow there wasn't a billion bucks to stop Bush and the Republican Congress from going on a drunken warmongering spending and tax cutting binge, but now that there's a possibility that Democrats might be in charge, fiscal responsibility is important again. Spending money on tax cuts for the rich and for unproductive foolish wars is one thing—but the very idea that it should be spent on old folks and sick people, well, that won't do.

I really want off of this treadmill...

McCain's Terrible, Horrible, No-Good Very Bad Week

I hope somebody's taking notes on this week's travails for John McCain, because if this was October and anyone was paying attention, his entire staff would be fired and the RNC would be gamely talking about random downballot races and how "2012 looks to be an up year."

The week started with a front-page story about his legendary temper, with new stories revealed therein. Then McCain embarked on a "Forgotten Places" tour this week, traveling across the country to places that "conservatives don't normally appear." And now, we know why. In Alabama, he attracted a largely white crowd in the landmark of the civil rights movement, Selma, and praised a ferry that was constructed due to an earmark, after condemning the practice. He then departed for Youngstown, Ohio, where he offered a stirring defense of free trade at a plant which closed earlier in the decade. When asked about the "cheap dumping of foreign goods" on US shores, McCain replied "I can't turn that around," which ought to be comforting to unemployed steelworkers.

Then came multiple gaffes over the situation in New Orleans. First extremist pastor John Hagee, whose endorsement McCain enthusiastically sought, reiterated his belief that Hurricane Katrina occurred as a punishment for a planned gay pride parade in the Crescent City (why Mississippi had to bear the brunt of the storm as well is unclear). McCain had to answer for these charges while docking in New Orleans, and he responded like any adult politician would, by saying "it's nonsense" eight times. Hagee has since retracted the comment, but clearly it made things awkward on McCain's stroll through New Orleans.

Of course, McCain's ideas on New Orleans aren't much better than Hagee's justifications for the hurricane. And Newsweek actually committed some journalism on that front, reaching into recent history to remind everyone that while Bush was galavanting around the country partying and ignoring the fact that New Orleans was underwater, one of his party partners was McCain:



Not only that, but McCain's prescriptions for New Orleans leave much to be desired:

Today he took a walking tour of the Ninth Ward--perhaps the most visible symbol of the Bush administration's inaction in the wake of Katrina--passing a mix of rebuilt homes and vacant, blighted houses. After the tour, McCain addressed reporters in front of a restored church. "Never again will we allow such a mishandling of a natural disaster," he vowed. "Never again."

Yet on the issue of New Orleans, it's still unclear how different McCain and Bush actually are. Speaking about Katrina, McCain, like many other Republicans, has trashed the administration's handling of the storm and has vowed to prevent similar catastrophes. "We can never let anything like that happen again," McCain told reporters on board his Straight Talk Express earlier this week. Still, the senator, who has visited the Lower Ninth Ward twice since the storm, has yet to tread into the far trickier debate over what to do about New Orleans now, a fight that has dragged on and on with little progress since the waters washed part of the city away.

The senator won't present his own plans for recovery, at least not today. Asked earlier this week if he thought the Lower Ninth Ward should be rebuilt, McCain shrugged, considering the question for several seconds. "I really don't know," he finally said. "That's why I am going … We need to go back to have a conversation about what to do: rebuild it, tear it down, you know, whatever it is."

Democrats pounced on this errant statement that McCain would be open to tearing down the Ninth Ward, and despite his media constituency running interference for him, there's no question that saying this in the midst of a tour to forgotten places was just a cardinal sin. When he was confronted about it, he claimed that he never said it despite the fact that the quote was only three days old.

McCain is of course completely constricted by his new image as a tax-cutter while still trying to keep alive the flame of the old image as a budget hawk, which essentially means that he won't be able to pay for anything that he proposes. In fact, the Washington Post hit him again, for offering tax proposals that he once considered anathema, and offering no explanation for the sudden change of heart (we know that he's unable to keep the fragile Republican coalition together without claiming to be the second coming of Milton Friedman). This leads to an endless series of contradictions.



McCain ended the week by admitting the country is worse off than it was eight years ago, despite having said the opposite on multiple occasions and offering economic proposals that are identical to Bush's. The New York Times attacked him for offering multiple favors to a wealthy Arizona friend and contributor. Oh, and McCain reveled in private fundraisers throughout this tour of "Forgotten America" this week, including one in Alabama where he got an 80% discount from a municipality on rental space and used PRISON LABOR for the event.

The McCain campaign was charged $250 to use two rooms in the hall, which normally would book for $1,200 on a weeknight. The campaign also was given free labor from Homewood City Jail inmates to set up tables and chairs for the event, avoiding a $100 set-up fee, but did pay a standard $50 cleaning fee.

He also said he would do anything he could to stop the North Carolina GOP from running their stream-of-consciousness "OBAMA WRIGHT GOD DAMNS AMERICA SCARY BLACK ZOMG!!1!" ad, which resulted in the ad running anyway. And while the media certainly gave a ridiculous amount of coverage to this ad as they will any anti-Democratic attack ad, I think the real story is McCain's impotence - not that he's trying hard, or at all, to stop the ad, but the "I deplore their behavior" pose runs a little stale when nothing is done to stop it, and there will be diminishing returns to this trick as McCain spends all his time denouncing and rejecting yet doing nothing substantial to stop the smear campaigns. He's actually in a bind over that as well.

Hell of a week. One thing that is getting lost in this primary fight is that John McCain is a pretty terrible campaigner and general election candidate. The only thing going for him is media interference, but even they can't hide the contradictions and the gaffes and the essential conservatism he's boxed himself into.

What If They Held A Rally And Nobody Came?

I guess that John McCain's "Forgotten Americans" rally in historic Selma, Alabama forgot to tell the Americans he was trying to reach that they were invited.

But as you take a look at the shot, which is just off to my left here, you can see that the audience in large measure is white middle-class voters. The African-American poor folk of Selma, Alabama and around here haven’t turned out.

Is there any question why they wouldn't be there? Outside of the fact that McCain voted against the MLK holiday in 1983, his vision for America offers nothing for the poor and actually presumes that they've had it pretty good in the Bush years.



McCain is also signaling, after all these years of being a deficit hawk, that he'll toe the familiar Republican line that deficits don't matter as much as tax cuts for the wealthy. And despite the campaign finance reform bona fides he's devised a system to get around contribution limits with a giant unaccountable slush fund. Shockingly, he's also failing to get traction with downscale voters, despite running a campaign suited to the aristocracy. Maybe all the black people in Selma were just busy today.

Arnold, The Great Uniter

Arnold Schwarzenegger has finally managed to bring people with differing viewpoints together to agree in a post-partisan fashion. See, nobody likes his revised budget plan, as Bob Salladay reports. Conservatives think that it doesn't go far enough, spends too much, and relies on too many shaky budgeting gimmicks, like privatizing the lottery for a short-term cash infusion. Democratic leaders have rightly called it mean-spirited and cruel for slashing aid to the poor and cutting public transit funding, among other things. The state's pundit class has sneered at the cynical nature of saying that you could balance the budget responsibly to begin with. And the Legislative Analyst's Office, who are supposed to play it right down the middle, criticize the revision as well.

The administration has attempted to address a $2 billion decline in the state’s fiscal outlook. Due to several overly optimistic assumptions, however, the May Revision overstates its reserve by about $1.7 billion—leaving an estimated reserve of $529 million. Even this reserve level would be subject to considerable risks and pressures. As a result, the Legislature will face a significant challenge to develop a 2007-08 budget that realistically reflects revenues and spending while maintaining a prudent reserve. As it sets its own priorities, it should identify solutions that realistically balance the state’s finances on an ongoing basis while also avoiding new ongoing commitments (absent identified funding to pay for them).

The Governor is more about fantasy than reality, anyway, so it shouldn't be suprising that his budget numbers would be a carefully crafted fiction.

A budget is a moral document. Priorities in the budget mirror priorities in the real world, what kind of California you want to see. Arnold Schwarzenegger wants to see a California where investment bankers get rich while the poor and the middle class who struggle to survive are left on their own. And this would have been worse if the state didn't find a little more unexpected revenue at the end of last month. Nobody should be surprised that this Governor automatically thinks "cut the poor" when faced with a budget crunch. That translates directly to who he values in society. This isn't the result of Arnold "reverting back" to his pre-post-partisan self, as Speaker Nunez claimed in his statement. This is who he's always been.

UPDATE: One thing that should be stated is that the Governor is very much an acolyte of Reaganomics. He puts everything on credit and passes the problems off to future executives and future generations.

Schwarzenegger's "Kick-The-Can" Budgeting

The state of California is not generating the revenue that they expected. This is clear and it's been known for some time. The original budget that the Governor proposed, based on those sunny estimates, is obsolete. In order to balance the budget, spending will have to decrease or revenue increased. We know what choice the Republican will make.

Gov. Arnold Schwarzenegger is likely to call for state spending cuts beyond those he proposed in January when he presents a revised budget to the Legislature next week, administration officials said Tuesday [...]

In January, Schwarzenegger outlined a $103 billion general-fund budget for the 2007-08 fiscal year and proposed balancing it by withholding cost-of-living increases for welfare recipients, cutting welfare payments to children whose parents fail to comply with work requirements, and reducing aid to the homeless, among other things.

The cuts to welfare will remain in the budget the Republican governor is slated to unveil on Monday, Palmer said. That could set up a showdown with Democratic lawmakers, who have made it clear they oppose reducing the social safety net for children.

But don't worry, there's a Plan B; privatizing the lottery!

Gov. Arnold Schwarzenegger is poised to call for privatizing the state lottery, a move that would bring California a cash infusion of as much as $37 billion to help solve pressing budget problems but also could sacrifice a major revenue source for decades to come.

....It comes at a time when the state is facing only a modest budget deficit for the coming fiscal year — about $1 billion. But billions more in bond payments will be due soon after.

This is "kick-the-can-down-the-road" budgeting, and it's no different than George Bush trying to run out the clock on Iraq so that the next executive has to clean up the mess. It's irresponsible to put so much of a debt burden on future generations. We're looking at hundreds of billions of dollars in debt for decades and decades, in bond issues and the loss of revenue for short-term gain. Kevin Drum thunders on this, and he's absolutely correct:

Once again, Arnold "We Have To Stop This Crazy Deficit Spending" Schwarzenegger is desperately trying to figure out a way to increase our deficit spending so that he can continue to pretend that he hasn't raised taxes. That's all this is about.

He's already done this once with his deficit bonds, which will have to be repaid out of increased taxes eventually, and now, in order to make sure that "eventually" is sometime after he leaves office, he wants to raid the lottery to tide himself over. The result, of course, will be lower revenue in the future and therefore higher taxes. But not on his watch.

Schwarzenegger may have a sunnier persona than George Bush, but the cynicism on offer here is even worse than Bush's. Arnold knows perfectly well he's raising taxes. He's just hoping the rest of us are greedy enough to allow ourselves to be convinced otherwise.

We're going to have three and a half more years of this nonsense, of this focus on short-term glitz at the expense of long-term security. We are getting played, and I would like to see some of our Democratic leaders in this state make this point forcefully.