Obama makes disturbing noises about entitlements

There are some very disturbing sounds coming from the President-Elect. Even more disturbing is that only a small number of people in the progressive blogsphere have picked up on what’s been said.

Stirling Newberry warned yesterday that Obama Puts New Bank Bailout in Stimulus Bill - allowing financial companies to use losses in this crisis to “recover” taxes paid on profits going back five years! As Newberry notes, “The Wall Street Journal calls it a bonanza.”

But even worse, is what Obama had to say about what he is considering now:

“We expect that discussion around entitlements will be a part, a central part” of efforts to curb federal spending, Mr. Obama said at a news conference. By February, he said, “we will have more to say about how we’re going to approach entitlement spending.”

I think David Stout and Edmund L. Andrews have it exactly right when they begin their New York Times article:

 Changes in Social Security and Medicare will be central to efforts to bring federal spending in line, President-elect Barack Obama said on Wednesday, as the Congressional Budget Office projected a $1.2 trillion budget deficit for the fiscal year.

Dean Baker has an interesting take on what Obama said about “entitlements”: Obama Suggests Defaulting on the National Debt.

These two things should be setting off alarm bells already. But Newberry does us the discourtesy of adding some historical context, by quoting Martin Wolf:

 Welcome to 2009. This is a year in which the fate of the world economy will be determined, maybe for generations. Some entertain hopes that we can restore the globally unbalanced economic growth of the middle years of this decade. They are wrong. Our choice is only over what will replace it. It is between a better balanced world economy and disintegration. That choice cannot be postponed. It must be made this year.

As Stilring notes in a different article, this one on The Agonist:

An economic package facing a significant downturn has three parts: relief, restructuring, and recovery. Relief is to ameliorate the pain in the immediate context - this is done primarily by "counter-cyclical" policies like Unemployment insurance and other forms of direct aid. Restructuring is designed to move resources from wasteful activities to more productive ones, and recovery is designed to create a long term stream of sustainable demand and supply that will attract private investment. Obama's plan can best be described as "Better Bush": a tax cut and war spending driven plan which at least includes the no brainer steps of infrastructure and counter-cyclicals.

Newberry’s takedown of the Obama stimulus plan is trenchant and merciless, and very much worth the time. Ian Walsh also had a good critique of the Obama stimulus plan three days ago:  A Stimulus Bill with 40% in Tax Cuts Won’t Do the Job

the only economic policy that Obama really really believes in is tax cuts. During the election, even when no one really cared, he would keep repeating, over and over and over again, that he was going to cut taxes.

The problem is that giving money to people without pricing power (most middle and working class people) is pointless. People with pricing power, like health care providers, credit card companies (who can and will raise rates) and employers (who will take into account that their workers are now taking home more money and thus don't need as much from them) will simply take the money away. And at this time workers and ordinary consumers just don't have pricing power.

Likewise corporations are not going to create real new jobs if there's no demand. Who wants to invest into this economy? This isn't an economy where you hire new people, it's an economy where you take any money you've got and you use it to buy up distressed competitors and properties at generational lows. Then you rationalize your new acquisition with your own company by laying people off. We've just spent the past few months watching this play out in the banking industry, heavily subsidized by the government, now we're going to have to watch the government subsidize buyouts of non-financial companies. If at first giving money to corporations (banks) doesn't work, why not try it with even more companies?

In stark contrast to the disappointing neo-Chicago pablum coming from Obama is the article by David Cay Johnston, former New York Times correspondent, and author of Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You With the Bill), in Mother Jones a few days ago. Johnston provides a point by point guide to how to dismantle some of the most glaring abuses of the corporatist state that has developed since the Reagan revolution. It is a very powerful article, full of great zingers, and you should take to time to read it in full. Here’s my favorite part:

In 1983 just 10 percent of America's corporate profits were funneled through places that charge little or no corporate income tax; today more than 25 percent of profits go through tax havens. The Obama administration could tell the Caymans—now fifth in the world in bank deposits—to repeal its bank secrecy laws or be invaded; since the island nation's total armed forces consists of about 300 police officers, it shouldn't be hard for technicians and auditors, accompanied by a few Marines, to fly in and seize all the records. Bermuda, which relies on the Royal Navy for its military, could be next, and so on. Long before we get to Switzerland and Luxembourg, their governments should have gotten the message.

Barring gunboat diplomacy (tempting as it is), there is no reason we cannot pass laws to block financial transactions with tax havens or even, Cuba-style, make it a crime for Americans to visit or do business with them without special permission. Congress could declare the hiding of funds a threat to national security and require that anyone with offshore assets disclose them to the irs within 30 days and pay taxes, interest, and penalties within 180 days. For the holdouts, temporary special teams in the IRS and Justice Department could speedily pursue civil or criminal charges.

I really wonder if most people understand the historic nature of the days we live in. The world’s financial system has collapsed. Trillions of dollars have been looted from the public, and from our future. Now is the time to propose and win fundamental changes – and Johnston has given us over a dozen solid, substantial examples of much-needed policy changes. The key question is: Will we ever see similar proposals from Obama and his team?



Will Obama stab workers in the back?

Thanks for this piece. The Social Security system is the one part of the budget that is completely solvent, and that Medicare spending can be reined in by a single payer health plan, If Obama actually cuts entitlements, it amounts to a stab in the back.

He made a few noises about this a year ago, and then immediately backed off when there was an outcry. People need to understand that this means that billionaires stole the Treasury under Bush, but it is a democrat who is going to make the middle class pay for it from the one part of the budget that centrally benefits them.

Keep in mind that it was only 3 months ago when Obama enthusiastically endorsed transferring $700 Billion of taxpayer money, no strings attached, in the Wall Street bailout/bonus protection plan.

This is obscene.

I hope that Obama doesn't pull a Bush

, but I won't be surprised. For the better part of a year, I've been pointing out the connections between Obama and the Hamilton Project, a group housed at the Brookings Institution and funded by Robert Rubin. Obama gave their the keynote speech at their launch, and has taken on their policy people for his economic team.

That having been said, I have some hope that Obama will act on offshore tax havens. We haven't gotten details about the American businessmen who were caught evading taxes using the Lichtensteiner LandesBank. The IRS has a copy of the DVD that the Germans used to bring in their nationals evading taxes. High profile prosecutions for tax evasions would do a lot to inhibit the outflow, estimated at around $100 billion yearly, from tax revenues, caused by evasion.

Differential pricing, and false corporate registrations in the Bermuda are another matter.

On Social Security, I think that any effort to cut Social Security benefits is going to backfire.

You can see that Dean Barker is boiling that Rubin is getting his money from TARP funds, while we are talking about taking away retirement funds from people who've worked their entire life.

I personally think that the having the US government establish an entity similar to the FDIC, that provides insurance on loans like the CDS market does now, would be a good source of new government revenue. We've been called upon as taxpayers to pick up the bill with TARP funds, to cover these things. Why not just have the government take over the CDS market, regulate it, and use the revenues to reduce deficits. We are already covering the cost of these CDS instruments, why shouldn't we get the benefits?

Not that worried

Look, if he cuts Medicare, he's a one-term president, and he knows it.

This move and the tax cuts inspired the new poll

I saw this too and am glad others are not ignoring it and that's when I put up the new poll (bottom right corner).

I'm not an Obamanut in the first place but these moves have shocked even me, for they are "far off" from even the campaign rhetoric.

Great post Tony and I love David Kay Johnston for his investigative journalism, especially on the tax code.

Obama speech text

Via Washington Post.

1. Broadband
2. unemployment insurance
3. tax cuts
4. no earmarks
5. cut "spending" (entitlements)

Am I hallucinating or could we take this straight from John McCain's campaign?

It's ridiculous! That whole "retraining" and "portable" worker B.S. has been run since the 1990's and it's pure bullshit. Look at the trade deficit these idiots, it's clear their great global arbitrage agenda simply doesn't work.

That's what they are saying, to extend unemployment benefits, COBRA (which is always way too expensive for laid off fired workers to afford) and "retraining" when they should be doing something immediately about infrastructure, trade policy and revamping manufacturing.

Hell, they could cancel their offshore outsourcing contracts on Federal and State jobs and probably that alone would create millions of jobs very quickly in the U.S.