The middle class is shrinking. Those in power have run up enormous debts on public credit while shoveling most of the money into private pockets. The corporations that have benefitted from this borrowing binge, meanwhile, leverage the global trade system to transfer their profits beyond the reach of national governments.

Meanwhile, we have been told lies by Democrats and by Republicans, divided into artificial camps and led into debates that are either irrelevant or so dramatically scripted that we fail to realize every choice leads to the same result: the dismantling of the social framework that defined and sustained the opportunity of the last century. National mobilization of resources has given way to radical individualism under a narrative that, in the wealthiest nation in the world, we must always expect less.

In this tumultuous time, we search for a way forward - a new Square Deal for the American people.

Wednesday, August 31, 2011

On the Matter of Foreign Aid

This morning, C-SPAN radio hosted a representative of the U.S. Global Leadership Coalition to discuss the workings and impact of U.S. foreign aid.

Foreign aid is probably the least understood of all U.S. government spending items.  According to a 2010 poll, most people believe that about 25% of the Federal budget goes to foreign aid.  Those same people think that 10% would be a more realistic and fair amount to spend. 

In fact, we spend only 1% of our budget on foreign aid -- about $50 billion per year.


Now, $50 billion is a lot of money.  There are only a handful of people who have that much personal wealth, and the vast majority of corporations weigh in far below that sum in their total market capitalization.  But the U.S. economy in annual terms is about $26 trillion.

Put another way, the same 1% of our $5 trillion Federal budget that goes to foreign aid is equal to less than 1/10th of a percent of our Gross Domestic Product, or GDP.

That does not mean that we are obligated to give money to aid other countries; we are not.  We have the choice to do so, and we could choose to withhold aid for any or every nation that we presently support.  Even if it meant starvation, disease, and death for the people of those nations, the choice would remain ours.

On the other hand, we get a lot for what we invest in foreign aid.  We feed people who would otherwise be hungry.  We make people well who would otherwise be sick.  We keep people alive who would otherwise die.  And for our efforts, we engender a lot of good will -- not everywhere, not in all cases, but in many, many cases. 

One common claim that I hear from people opposed to foreign aid -- they are almost invariably conservative Republicans, though I do not know nearly enough people to claim that as a general principle -- is that "we should take care of our own people first."

That argument would make perfect sense.  But keep the conversation going.  Ask the people who make such statements how they feel about food stamps.  About housing for the poor.  Job retraining.  Medicaid.  Public education.  Infrastructure.  Check off the boxes one by one as they list the litany of reasons why the government should not be spending money on any of those things, about how we are in debt and need to drastically cut spending.

They say "take care of our people first," but they really mean "what's mine is mine."  That is their right, but we should not be fooled by any claims of nationalism.  Their real campaign is against giving aid at all.

Many people say that we do not have money to provide foreign aid.  In the 1990s, after spending huge sums on weapons and equipment for the Afghani mujahadeen to wage war on Soviet troops, we decided that it was too costly to provide them with schools and factories.  Afghanistan fell into chaos, then consolidated under the Taliban, who as we all now know gave shelter to Osama bin Laden and the violent fundamentalist group known as Al Qaeda. 

In 2002, we began large-scale military operations in Afghanistan that continue to this day and have drawn in hundreds of billions of dollars.  Had we been nearly as willing to pay for development as we were for weapons, there might have been no Taliban government, no refuge for Al Qaeda.  

As we prepare to commemorate the 10th anniversary of the September 11 terror attacks and debate the very same arguments that arose in the 1990s, with more than 100,000 American soliders still deployed in combat and support operations in Iraq and Afghanistan, we should reflect on the true cost of foreign aid. 

The alternative costs a lot more.

Friday, August 19, 2011

The Crushing Weight of Student Loans

Americans owe a lot of money in Federal student loans.  By one calculation, the figure is $608.6 billion; that number may not be exactly right, but it's obviously going to be pretty close, plus or minus a billion.

How much the repayment of these loans costs each person varies.  Some borrowers are repaying under the standard ten-year terms.  Others have requested extended repayment (20 years), while many are under income-contingent (ICR) or income-based repayment (IBR) programs that offer substantially reduced payments. 

The interest rates of the loans also vary.  Since July 2006, all Stafford loans have been issued with fixed interest rates of 6.8%, and since March 2010, all GradPLUS loans have been Direct Loans with 7.9% rates.  Prior to that date, however, Stafford rates varied, and GradPLUS loans issued under the old FFEL program (a.k.a. welfare for banks) carried 8.1% rates.  Consolidation loans formed from these various products get fixed interest rates calculated as weighted averages of the loans that are being consolidated.

Despite this uncertainty, there are some certainties.  There are more Stafford loans than GradPLUS loans; the rates of these can each be no higher than stated above; and most people are not under ICR or IBR repayment. 

If we assume a ratio of 2:1 for Stafford to GradPlus loans, each with its highest interest rates, we get an interest rate of 7.17%.  Assume also that everyone repays on the standard 10-year plan, and the income to the U.S. government from student loan repayment would be no higher than $7.12 billion per month, or $85.44 billion per year.  (It is, for the reasons stated above, actually much lower; this is an intentionally extreme figure.)

If that number strikes you as substantial, it should; $86 billion is a lot of money to even the largest corporation on Earth, and would be massive to most of the world's national governments. 

Consider it in the context of the U.S. budget, however, and the number is less impressive.  For 2012, the United States estimates total revenues of $2.53 and $2.62 trillion dollars.  What's more, in that same year, expenditures are estimated between $3.52 trillion and $3.72 trillion.1

Now, put this in context. 

Student loans finance education; they are by definition investments, which is why the Federal government provides them at all.  We are given a means of pursuing education so that we can become productive, generate income, and contribute to the economy. 

So here we are, having obtained our educations, and rather than being able to devote the bulk of our income to positive economic activity, we are instead providing a revenue stream to the U.S. government that goes towards a massive budget deficit.  We, the ones who bothered to get the advanced knowledge needed to drive an advanced economy, are paying in some cases upwards of 25% or more of our gross monthly income to the government as student loan payments -- then we are paying another 25% or more in income taxes.

The student-loan repayment system is just a means of tapping the income of American citizens to instead provide income to the Federal budget.  It is, functionally, a tax -- one that by its nature is levied against those with relatively low levels of wealth, as these are ones who need to borrow to finance their educations.

Is there any wonder that recent graduates are not driving the economy merrily forward but are instead despondent and struggling just stay afloat?

A Bold Idea

Because Federal student loans are public debts; and

Because the debts of the U.S. government are the debts of the American people, who collectively depend upon the functioning of an advanced economy that requires educated people to not only administer but also expand it; and

Because Federal student loan repayments feed a Federal income stream that is just a small part of the total annual Federal budget shortfall against a mountain of debt; and

Because this comparatively small stream of up to $86 billion annually would be enormous in its stimulative economic impact if instead directed to productive investment; and

Because the total amount of debt owed to the American people is so much larger than the outstanding total of Federal student loans as to render even this sum virtually insignificant in the grand scheme of national economics;

Why not write off the total sum of current outstanding Federal loan debt for all American citizens and let everyone get to work on innovation and the creation of successful opportunities?


1 The difference depends on who you ask: in both cases, the higher figures come from the Obama administration's original budget request, while the lower ones come from the April 2011 plan put forth by Congressional Republicans -- the so-called "Ryan Plan."

Sunday, August 7, 2011

The Audacity of No

Last week, the two great political parties of the United States came together to adopt a bill that raised the so-called "debt ceiling," the statutory limit imposed a century ago by Congress to cap how much the country could borrow.

Throughout its 94-year history, the debt limit has been noteworthy for its complete uselessness as a control.  It has been raised 106 times since 1940.  Ronald Reagan presided over 18 separate hikes to U.S. borrowing authority over his eight-year presidency; George W. Bush oversaw 7 increases.  In recent years, the votes have become opportunities for partisan grandstanding, with politically vulnerable members voting against the inevitable as a token gesture to ease their reelection campaigns.

This time was very different.  Having endured a damaging battle with Republicans just seven months ago in which an extention of unemployment benefits was tied to an extension of the 2001 tax cuts of the Bush administration, Barack Obama inexplicably opted to leave the debt limit out of that vote, intoning instead a claim that Republicans would do the responsible thing and approve a debt-limit increase when the time came.  They did not.

Months ago, the Republican leadership staked out a position that any increase in the debt ceiling would come only with deeper cuts to spending.  The President staked out his own position that mounting debt called for increased revenue.  Negotiations got underway.

They were on, then off, then on.  Then off.  The President was negotiating with John Boehner, Speaker of the House.  But then Eric Cantor, the House Majority Leader, made his own demands.  He stormed out of talks.  Weeks passed.

The President remained resolute--about getting something done.  What that "something" was proved surprisingly malleable.  Instead of tax hikes, we would eliminate loopholes for corporate jets.  No deal; anything that restricted deductions was a "job-killer."  We would enact sweeping cuts to Medicare and Social Security as part of a $4 trillion budget cut over ten years, with just $1 trillion in new revenues.  No deal; anything that added revenue was a "job-killer."

Boehner was back to center-stage.  He offered, perhaps, $800 billion in revenues.  The President, perhaps, wanted $1.2 trillion.  We can't know, because the talks were private.  They always are.

The Speaker walked out.  The click ticked.  Markets started to get nervous.  Tea Party leaders had asserted months earlier that there would be no default; the United States had ample tax revenue to cover 56% of all obligations, well beyond the amount required for interest payments.  They were right; in fact, there would be enough to pay the interest, send out Social Security checks, pay the soldiers, and even fund most Medicare reimbursements.  The rest of it, the other 44¢ of every dollar, would go unpaid, but what of it?  That was just the wasteful bloat of an inflated government--ridiculous spending like salaries for the civil service, pensions for Federal retirees, transfer payments for unemployment and Medicaid, and the operations of eleven of the twelve departments of government.  That, and the money owed to Federal contractors.  The contractors could wait; the rest was just liberal handouts to lazy people anyway.

A bipartisan initiative was whispered.  Obama quickly praised the "Gang of Six;" support evaporated.  The Speaker introduced a very partisan bill and scheduled a vote; he was obliged to withdraw it on Thursday to move it further to the right as it became clear that the Tea Party would not back it.  A revised bill passed the Republican house on partisan lines; it died the same way in the Democratic Senate.

Underpinning it all was the Tea Party.  The freshmen Congressmen were unique among their fellows: elected by angry populists, they had little interest in a compromise that would only see them swept aside in 2012.  For many, reelection itself was not as important as doing what they came to do.

Obama had several times made the same claim, that he would rather be a good one-term President than a bad one who was.reelected.  Negotiations spanned the weekend.  The markets and the world watched and waited.

What might have been?

Even a month ago, polls were clear in showing support for the President's position.  The debt was a problem.  Spending cuts were needed; so were tax increases.  A majority indicated that they supported broad-based tax hikes, not just increases on the rates paid by the highest earners.

There would be enough to pay the interest.  There would be no default, and as the President, it would be in his power to prioritize the spending by directing his Secretary of the Treasury who would have to wait.  He could minimize the pain; he could also show the American people in no uncertain terms what it would really mean to cut 44¢ of every dollar from government spending and adopt a "live within your means/no new taxes" position.

The Tea Party had written a narrative that government was only waste.  Mere days would expose that as a lie.  Obama could challenge that narrative, rewrite it and break the grip that this handful of idealogues was holding on power.

On Sunday, a deal was announced.  Republicans would get their spending cuts, more than $2 trillion.  They would get their vote on a specially written Balanced Budget Amendment, one that mandated balance and created an unprecedented "super majority" requirement for any increase in taxes.  There would be no consequence should the amendment fail, but Republicans would get two additional opportunities to vote on spending cuts based on incremental increases in the debt limit.  It was an amazing bounty for a party whose own usual backers had in recent days begun questioning their sanity as opportunities slipped by.

The President's take was no less breathtaking: coming in with all of the cards, he got a three-part process to keep spending money, an ability to define his Presidency solely in terms of borrowing, and a convoluted committee that would yet again study how to cut the budget.  If a deal were not reached, automatic spending cuts would allow him the distinction of slashing the Department of Defense during time of war.  There were no tax hikes; corporate jets kept their special loopholes.

The deal was immediately recognizable after three years as the outcome of an "Obama Compromise," the sort of abject capitulation that was matched only by the President's adoption of new criteria so that he could call it a success.

To be sure, many Democrats deserted the President.  In the House, the Monday-night vote was 269-161.  The Senate vote, held early Tuesday morning, was 74-26.  A fair number of Tea Party Republicans also voted against the deal, outwardly bothered that it did not cut more.

After signing the bill, thus returning the world's largest economy to a financial status quo under which it has existed for ten decades, President Obama gave remarks to the press and the American people.  He spoke of compromise and disappointment on all sides.  He affirmed that he was committed to new revenues, which were "only fair."  He sought to move on.

It is impossible to misunderstand what happened here: with control of less than half of the caucus, the Tea Party directed the Republican Party, and with only the lower house of Congress, the Republicans directed the country.  Digging in over a manufactured crisis, one in which the majority of Americans clearly opposed their agenda, Republicans forced the President to surrender.  Again.

From Guantanamo to the Public Option, the Bush tax cuts to the budget, Barack Obama has consistently failed to hold his ground.  He has staked out reasonable positions to be overcome by unreasonable people, ultimately "compromising" on deals that are mere giveaways.  He is following a narrative written for him by people who publicly brand him as a Communist, foreigner, and traitor.

What can possibly lie ahead for the President?  Certainly, there will be no director for the Consumer Financial Protection Bureau; he jettisoned Elizabeth Warren for nothing.  When unemployment benefits run out, or the next budget comes up for debate -- or even when the highway funding bill comes up next month, carrying with it a need to renew the 18.4-cent Federal gas tax -- why would anyone even listen to what he "insists" be done?

August 3, 2011 may well have marked the start of a 17-month lame duck term, the longest in U.S. history.