Jackie Calmes’ “Dirty Secret” about the Opponents of Austerity is that they are Correct

By William K. Black

Ms. Calmes is the New York Times’ White House correspondent.  Readers who follow finance and fraud may recall her as the object of an epic dismantling in Naked Capitalism.  The subject there was Calmes’ dismissive review of Neill Barofsky’s (SIGTARP) book’s criticism of Timothy Geithner.

Calmes is back and writing about economics in an article entitled:  “A Dirty Secret Lurks in the Struggle Over a Fiscal ‘Grand Bargain.’”

Calmes thesis is:

“But the dirty secret — a phrase used independently, and privately, by people in both parties — is that neither side wants to take the actions it demands of the other to achieve a breakthrough.

That is, many Republicans are no more interested in voting to reduce Medicare and Social Security benefits than Democrats are, lest they threaten their party’s big advantage among the older voters who dominate the electorate in midterm contests like those in 2014.

And Democrats are no more eager than Republicans, with control of both houses of Congress up for grabs, to vote for the large revenue increases that a grand bargain would entail. They do not want to limit popular but costly deductions, as Mr. Obama and past bipartisan panels, like his Simpson-Bowles fiscal commission, have proposed.”

When we pull away the camouflage that Calmes deploys to obscure matters, the “dirty secret” that emerges is that key members of both parties realize that the purported “Grand Bargain” actually represents a self-destructive Grand Betrayal that should be opposed by both parties.  Her “dirty” secret is actually a “clean” non-secret.  Calmes’ quoted passage discusses two of the key planks of the proposal – cut the safety net and increase tax revenues (but not marginal tax rates on the wealthy, which Bowles Simpson propose to reduce).  The third plank is to cut (mostly) social program spending.

The most obvious question is also the most important question – would the three planks be desirable to implement today?  Calmes neither asks nor attempts to answer the question.  She assumes, implicitly, that the three planks would be desirable though she presents information that demonstrates the opposite.  Her article implies that the Grand Betrayal would be desirable because “past bipartisan panels, like his Simpson-Bowles fiscal commission, have proposed” [the three planks].  In fact, the Bowles-Simpson commission made no such formal proposal to Congress.  President Obama appointed the co-chairs – Erskine Bowles and Alan Simpson.  Bowles is one of the leaders of the Wall Street wing of the Democratic Party.  Simpson is an ultra-conservative former Republican Senator.  They are leading deficit hawks who keep predicting (incorrectly) that debt will cause hyper-inflation.  They are fierce proponents of cutting the safety net.  They support the partial or total privatization of Social Security – Wall Street’s ultimate dream.

Obama stacked the leadership of the panel to provide him with the political cover to cut the safety net.  The panel, however, was the product of a political compromise in which the parties agreed that the panel could make no recommendations to Congress not supported by a substantial consensus of the panel, which the agreement defined as 14 members.  The draft plan was supported by only 11 members.  Nevertheless, a member of Congress proposed the plan, only to see it overwhelmingly rejected by the House.

Bowles and Simpson, despite the failure of their plan to secure the required consensus, had their plan printed and disseminated as if it were an official plan.  Reporters like Calmes ignore Bowles and Simpson’s failure to acquire the required consensus despite the stacking of the panel with so many deficit hawks.  Calmes treats the word “bipartisan” as good magic even though the reality is that the Wall Street-wing of the Democratic Party agrees with the Wall Street-wing of the Republican Party that they would love to privatize Social Security and make tens of billions of additional dollars selling investment products to our grandmothers.  Washington reporters who bask in and glorify good vibes for such “bipartisan” assaults on our elderly are as common as they are loathsome.

Calmes quotes Jared Bernstein to the effect that the only consistent supporter of the Grand Betrayal is Obama.  Calmes is disappointed that “Mr. Obama has not pressed the negotiators from the Democratic-controlled Senate and the Republican-led House to aim higher.”  By “higher” she means deeper cuts in the safety net and social programs, which would represent Obama descending “lower” in moral terms.

Bowles-Simpson would cut the safety net and inflict even more destructive austerity on our Nation while cutting taxes on many of the wealthy.  That is a trio of terrible ideas, particularly in our current economic circumstances.  We have just watched the eurozone suffer through years of a second gratuitous Great Recession (and a Great Depression in its periphery) because of the self-inflicted wound of austerity.  The most recent data show that the eurozone’s “recovery” is so anemic that it makes the U.S. recovery roaring by comparison.  Austerity has been proven, again, to be a disastrous response to a recession.  This is one of the areas where Calmes’ lack of understanding of economics produces incoherent analysis.  In her piece criticizing Barofsky’s book she understands that the eurozone’s policies proved self-destructive, but not what those policies were or why they failed.  The context is Calmes defense of TARP.

“As ugly and flawed as the rescue process was, and as galling as Wall Street’s revived bravado and bonuses can be to most Americans, the fact remains that an economic collapse was averted, and that Main Street is recovering: slowly, but typically so for recessions brought on by credit crises. As Europe’s crisis persists for a fourth year, commentators around the globe have suggested that the Continent should have followed America’s example.”

Yes, the eurozone “should have followed America’s example” and provided a recovery program that expanded federal spending rather than inflicting austerity.  Indeed, they should have provided considerably more vigorous increases in recovery spending than we were able to do because of the opposition of leaders likes Treasury Secretary Timothy Geithner, Bowles, and Simpson.  Calmes, however, seems to think that the key to the U.S. economic recovery was the bailout of U.S. banks and that eurozone nations did not provide bank bailouts.  Both assumptions are incorrect.  The U.S. bailout made our banks and their owners wealthier, but it did not expand the economy.  Many European nations provided bank bailouts – and suffered a second gratuitous recession due to their austerity programs.

Calmes was particularly disturbed at Barofsky’s criticisms of Geithner and emphasized that Geithner had never cashed in.  It has just been announced that Warburg Pincus has hired Geithner as its President.  Calmes’ heroes have betrayed her faith, but her analytical failure in her 2010 book review was her inability to understand that Geithner’s preferred policy of austerity was the policy that explained Europe’s far more severe economic problems.  In her current “dirty secret” article she concedes that austerity in response to the Great Recession is self-destructive.

“With the unemployment rate stuck above 7 percent, Democrats are more interested in increasing spending for programs like public works and education, and ending the sequestration cuts, which economists say are costing hundreds of thousands of jobs.”

The sequestration, which is only one of several acts of federal austerity over the last two years, is “costing hundreds of thousands of jobs.”  Collectively, the multiple acts of federal, state, and local austerity have seriously reduced the pace of the recovery.  The real “dirty secret” about the Grand Betrayal is that it would harm the Nation by recreating the self-inflicted wound of austerity that devastated Europe.  That means that many Democratic members of Congress oppose the Grand Betrayal for the best of reasons that they are happy to proclaim publicly – he opposite of a “dirty secret.”

It is Calmes who still seems to think it makes sense to adopt even more severe austerity now through cuts in the safety net and other governmental spending, even though it will cost hundreds of thousands of additional jobs, in order to “save” (my characterization of her implicit argument) Social Security in 2033.  She quotes this source with apparent approval.

“David Winston, a Republican pollster close to House leaders, said that especially in a slow-growing economy, lawmakers have a hard time selling voters on proposals like fixing Social Security to avoid shortfalls in the 2030s.

‘That pressure isn’t there,’ he said. ‘People are more like, ‘I’m in a job where I’m clearly underemployed. How did this happen? How do we resolve underemployment as a problem, as opposed to dealing with Social Security in 2033?’”

Winston, a “pollster” with no understanding of economics is upset that “voters” and members of Congress are economically literate and realize that Winston’s arguments about “fixing Social Security” now by cutting current benefits is ridiculous.  Social Security is currently in surplus.  If we cut Social Security benefits today it does not provide any additional real resources in 2033.  We can produce additional real resources in 2033 through programs we implement between today and 2033 that increase training, improve health, and produce higher rates of employment.  Reducing unemployment today is helpful to reducing unemployment in 2033 because extended unemployment is strongly associated with reduced future employment.  There is no inconsistency between working to reduce underemployment today and being able to provide full benefits to Social Security recipients in 2033.  Cutting Social Security benefits today would add to austerity and inflict even greater damage on our productive capacity, which is what defines our ability to provide real resources to those in need.  Once more, the only “dirty secret” is that the proponents of the Grand Betrayal and their media mavens are economically illiterate as well as callous.  If their policies were adopted our Nation would suffer more.

13 responses to “Jackie Calmes’ “Dirty Secret” about the Opponents of Austerity is that they are Correct

  1. Here’s another dirty secret: Government backing for the banks REQUIRES deficit spending by the monetary sovereign else the interest for the debt nearly everyone is driven into by the government-backed banks cannot be met in aggregate UNLESS we export real goods and services and the Fed creates/sells dollars for/to foreigners so they can buy those exports – assuming those countries are not attempting to be net exporters themselves.

    What a mess you supporters of government-backed banks have created. We are either driven into unpayable debt or we must export real goods and services for mere money tokens created by the Fed or the monetary sovereign must clean up the mess and ameliorate the damage. And the whole process is as contentious as Hell, where our money system was most likely invented.

    But continue on; it’s not like theft, oppression of the poor and usury from one’s fellow countrymen are forbidden by the Bible EXCEPT they are.

    And here’s another secret: If mere humans can perceive the wickedness of our current money system then the injustice of it must literally stink to High Heaven.

  2. “The U.S. bailout made our banks and their owners wealthier, but it did not expand the economy. Many European nations provided bank bailouts – and suffered a second gratuitous recession due to their austerity programs.”

    The US not only bailed out the US mega banks, we also bailed out many of the European banks by purchasing toxic assets owned by US subsidiaries of European banks. Nothing like being an equal opportunity chump.

  3. Brilliant as always, Dr. Black. Why do lawmakers need to “sell” austerity to their constituents? If, in fact, it is truly beneficial to the populace in some clear, tangible way, wouldn’t it be enough to simply identify those benefits?

    Instead, we get “sold” obtuse and false claims regarding the financial health of social security. Why should the financial health if social security be a concern at all so long as there are people willing to accept dollars in payment for social security’s “debts?” Are the Chinese going to begin providing low-cost elder care through Walmart soon?

    The idea that we have to sacrifice full employment now to “fix” the future of Social Security violates common sense. Theres no good reason to inflict present damage to prevent a future problem that can be effectively dealt with in the future.

    Perhaps some of the highly educated very serious people calling for austerity could have used a lesson in common sense from my farmer grandfather, who taught me that there’s never any need to borrow tomorrow’s trouble today.

    • Not only is “The idea that we have to sacrifice full employment now to “fix” the future of Social Security ” stupid, it won’t “fix” SS in any way because it would reduce the future resources that will be needed by future retirees to meet their needs.

    • The purpose of austerity is probably (follow the money trail) to protect or increase the real gains of existing sovereign debt holders since deflation does not increase the default risk of sovereign debt since there can be none but it does increase the real yield of that debt.

      Misery merchants they might well be called, those who profit off the misery of others. Yes, pensioners might well depend on sovereign debt too but if they need welfare* then let’s honestly and generously give it to them and not disguise it as interest on unnecessary borrowing by the monetary sovereign since a monetary sovereign NEVER has a need to borrow in the first place.

      *Indeed, almost the entire population deserves restitution for theft by what is essentially a government-backed counterfeiting cartel.

    • Perhaps some of the highly educated very serious people calling for austerity could have used a lesson in common sense from my farmer grandfather, who taught me that there’s never any need to borrow tomorrow’s trouble today. Kevin Scott

      “So do not worry about tomorrow; for tomorrow will care for itself. Each day has enough trouble of its own.” Matthew 6:34

      Of course, if more people knew and believed the Bible, is it likely we’d have a money system based on usury for stolen purchasing power, especially from the poor?

  4. Typical. Americans preach fiscal austerity to others via such organizations as IMF and Wold Bank, but practise fiscal laxity at home. They also typically ignore all economic troubles outside United States like Japan’s slump or Agentina crisis, except maybe Paul Krugman.

    • Mark Robertson

      “Americans preach fiscal austerity to others via such organizations as IMF and World Bank, but practice fiscal laxity at home.”

      I wish you were correct, because then the USA’s real economy would not be in a depression.

      Unfortunately the US government is indeed crushing us with fiscal austerity. There is massive and ongoing deficit reduction. There is the Budget Control Act of 2011 that caused federal sequestration to commence in March 2013. There was the repeal of the 2% FICA tax holiday. There are the incessant calls to cut Social Security, Medicare, Supplemental Security Income, SNAP, and all other social programs that help the 99%.

      All these are fiscal austerity. In the USA, the purpose of fiscal austerity is to sustain a permanent depression, so as to continually widen the gap between the rich and the rest, and to continually promote the supremacy of the financial economy over the real economy.

      Most of the planet (including the USA) suffers from fiscal austerity mania.

  5. Mark Robertson

    [1] “We have just watched the euro-zone suffer through years of a second gratuitous Great Recession (and a Great Depression in its periphery) because of the self-inflicted wound of austerity.”

    >> I think some clarification is needed. Is the euro-zone’s depression gratuitous? The answer depends on which euro-zone nation we speak of. Austerity and recessions are indeed gratuitous among EZ nations that enjoy trade surpluses. These nations (Italy, Ireland, Holland, Belgium, and Germany) have euros coming in from abroad.

    However, for the other 12 nations, their depression is not gratuitous. Rather, it is the unavoidable consequence of these 12 nations having surrendered their monetary sovereignty to the Troika. Since these nations can no longer create their own money out of thin air, and since they have trade deficits, these 12 nations must borrow all their money by selling bonds, or else by borrowing from the ECB in Frankfurt. The result is ever-increasing debt, poverty, austerity, and inequality.

    France has by far the biggest trade deficit, which means that Frances is hemorrhaging more than any EZ nation, although the French economy is large enough for this mass-hemorrhaging to not yet be obvious to all. Germany has by far the biggest trade surplus, which is why Germany is the loudest champion of the euro scam.

    As a nation, if you cannot create your own money out of thin air, then you need a whopping trade surplus. Otherwise your debt, poverty, depression, and inequality will continue to worsen forever.

    Since the US government creates its own money, its depression and austerity are absolutely gratuitous.

    [2] “The eurozone should have followed America’s example and provided a recovery program that expanded federal spending, rather than inflicting austerity.”

    >> For the 12 euro-zone nations that have a trade deficit, it is not possible to engage in stimulus spending, since they do not create their own money. For them, government spending (any spending) creates more debt, which necessitates more austerity, which creates more debt, which necessitates more austerity. As long as their politicians refuse to recover their monetary sovereignty, these nations’ masses will suffer. This is so obvious that a child can understand it, yet it is beyond the grasp of 333 million adults in the euro-zone nations.

    [3] Regarding Ms. Jackie Calmes’ demand for more austerity, and for “saving” Social Security, every word she writes is nonsense, and is not worth addressing. Social Security can have no “shortfall,” and can never become “insolvent,” since the US government has infinite money (literally).

    [4] The article above says, “Social Security is currently in surplus.”

    >>Wrong. SS is not in surplus, or in deficit. Such terms do not apply to a currency issuer like the US government. SS benefits are not taken from some pool of money somewhere, nor are they derived from the FICA tax. Instead, money for SS benefits is created out of thin air when the US government orders banks to credit the accounts of SS recipients.

    This is basic MMT.

  6. F. Beard …
    Re: “Government backing for the banks REQUIRES deficit spending by the monetary sovereign else the interest for the debt nearly everyone is driven into by the government-backed banks cannot be met in aggregate…”

    The mistake you are making is in thinking bank interest is any different than any other kind of profit. In fact, deficit spending is the only way to pay for any kind of retained profit without the society in aggregate (minus the profit takers) getting poorer. Deficit spending is the price of capitalism itself. Without deficit spending, capitalism will run out of money and fail.

    • Mark Robertson

      “Deficit spending is the price of capitalism itself. Without deficit spending, capitalism will run out of money and fail.”

      >>Exactly. The only exception is when a nation has such a large trade surplus that it has money coming in from abroad.

      The USA has a trade deficit (not a surplus). Hence the US economy would collapse without deficit spending.

    • Charles Fasola

      Hoorah!!

  7. I believe the dirtiest secret is that Erskine Bowles sits on the Board of Directors at Morgan Stanley, while his wife sits on the BoD of JPMorgan Chase, and that when Bowles was hired at Forstmann Little (where he made his big bucks), it was by one of their directors, Henry Kissinger.

    It’s as if David Rockefeller has always had a direct line into the White House (defense advisor to President Johnson, National Security Advisor to President Nixon, constantly having Henry phone the White House when Jimm Carter was president, and having Erskine Bowles as Clinton’s chief of staff.