Thursday, January 3, 2013

Juliet Schor: So-Called Fiscal Cliff Averted; New Fight begins over Spending on Social Welfare Programs

Hello, and a happier new year to all. This is the first newsletter to all subscribers, since the weekend before Christmas, when I
applied for an earthlink bulk mailing permit.  I was restricted to 100 emails per day throughout the holiday vacations, so sent out
primarily to list serves and a few friends; including a few gems which I may now pass on to everyone.  Here's a new one.  Warmly,
So-Called Fiscal Cliff Averted as Congress Begins New Fight over Spending on Social Welfare Programs
Juliet Schor
Democracy Now: 1/02/13

AMY GOODMAN: Our guest is Juliet Schor, economist, sociologist from Boston College, author of True Wealth: How and Why Millions of Americans Are Creating a Time-Rich, Ecologically Light, Small-Scale, High-Satisfaction Economy. The book was originally published under the title Plenitude: The New Economics of True Wealth.

Well, the New Year’s Day vote has taken place after much drama. The so-called fiscal cliff has come to an end, at least for now. On Tuesday night, the House voted to approve the Senate deal. Juliet Schor, your response?

JULIET SCHOR: It’s not a great deal. I think one of the big problems with it is that it asks the middle class and the poor to pay for deficits that they had no hand in creating. Seventy-seven percent of all households are going to be paying more on this deal, an average of $1,635 a year. So that’s the first point. It’s a deal that, as President Obama just said, asks everyone to pay. But that, in itself, I think is a problem, because it’s the top percent that has benefited from the tax cuts of the Bush era that drove the economy into recession and which is responsible for part of the deficit. And, of course, it’s, a small segment of the political class, really, that dragged us into war in Iraq and Afghanistan, and that’s another big part of the deficit. So, the cost is falling on the wrong group, in my opinion.

NERMEEN SHAIKH: Juliet Schor, some critics have said that it would have been better to go off the fiscal cliff. First of all, was there a cliff? And would you agree with that criticism?

JULIET SCHOR: I do agree that it would have been better to go off the cliff, in large part because there really wasn’t a cliff. The term "fiscal cliff," we have to remember, was coined by Ben Bernanke.  He didn’t want the country to get into this situation of higher taxes; in large part because that would have made his job even harder. The higher taxes would have slowed down the economy, and then there would have been even more pressure on the Fed to engage in monetary easing, quantitative easing, as it’s called, and the Fed really can’t do all that much more than it’s doing. I mean, it can do a bit more, but interest rates are at historic lows. And so, Bernanke didn’t want tax increases, so he was trying to control or affect what was going to be happening on the fiscal side.

But it was really much more of a ramp than a cliff, in the sense that the sequester cuts—we’re going to talk more about that, I’m sure—but the automatic cuts that were put in place with the deficit—or, the debt ceiling deal of the summer actually would come into play well into the year, and some of them even near the end of the year. So there really is quite a bit of time on that. And the tax rate increases, I think very few people actually felt that there would be major income tax increases on 98 percent of the population. So that, to me, was always a bit of a red herring. If the Senate and the House came to a deal a month into the year rather than on the first day of the year, that would have been fine.

NERMEEN SHAIKH: Could you explain what exactly are sequester cuts? And can you talk about the specific impact of the deal on Medicare and Medicaid?

JULIET SCHOR: Well, in the summer, when the fight over the debt ceiling happened, there was a small group Congress that was supposed to come up with a deal on cutting the deficit before the end of the year, and they didn’t. And that was pretty predictable. So, the Congress and the president sort of tied themselves to the mast and said, "OK, if we can’t come up with a deal, there are going to be automatic spending cuts of $1.25 trillion over 10 years that begin with January 2013." And those spending cuts were divided equally between military—or what they call in the deal "security," so that’s in addition to just DOD, also Homeland Security and other associated kinds of cuts—and non-military. And those do not include Medicare, Social Security and benefits for veterans, but all other federal spending, is in there, so Medicaid, farm aid, programs on the poor, energy programs, etc. And those cuts are 50-50 between those two areas.

Now, that’s that’s part of the kicking the can down the road that’s just happened, because they’ve agreed to put off those cuts for 60 days. And a big part of that sequestration deal, I think, is—a big part of what people are thinking about is not going to happen. And the reason it’s not going to happen, I think, is mostly because very few in Congress have the spine to do what I think those of us on the progressive side of the aisle would like, and that is major cuts in military and security spending.

AMY GOODMAN: I want to play a clip of President Obama speaking last night after the House voted to approve the debt deal.

PRESIDENT BARACK OBAMA: As I’ve demonstrated throughout the past several weeks, I am very open to compromise. I agree with Democrats and Republicans that the aging population and the rising cost of healthcare makes Medicare the biggest contributor to our deficit. I believe we’ve got to find ways to reform that program without hurting seniors, who count on it to survive. And I believe that there’s further unnecessary spending in government that we can eliminate. But we can’t simply cut our way to prosperity. Cutting spending has to go hand in hand with further reforms to our tax code, so that the wealthiest corporations and individuals can’t take advantage of loopholes and deductions that aren’t available to most Americans.

AMY GOODMAN: So this is going to be taken up in a few months. Juliet Schor, what is going to happen to Medicare, Medicaid, Social Security?

JULIET SCHOR: Well, it’s hard to say, but given that the president has already put these on the table, he’s already indicated a willingness to go to the chained CPI, meaning to change the way that inflation is calculated for benefits in the Social Security program, that it’s likely that Social Security and Medicare will be back on the table. And it’s unfortunate, because the Democrats negotiated quite a good deal with the sequester deal, because they are off the table. Social Security is not part of the problem of the deficit. It’s a fiscally solvent program. It’s solvent until 2030. We shouldn’t be talking about Social Security at all. Medicare, of course, is another story. But on the other hand, maybe we should be waiting to see what happens with the healthcare program and how that plays out in terms of costs, before we make dramatic changes to a program that people are, by and large, very satisfied with.

We need to be talking about other things, things that are not in the conversation right now and we also need to be talking about cutting those military expenditures a lot more.  My feeling is the Democrats are not going to get a good deal 60 days from now  because Republicans know they don’t have much of a spine for cutting military spending. But if Democrats did, I think they could get a pretty good deal, or at least a much better deal than what it looks like they’re going to get right now.

NERMEEN SHAIKH: Republican Senator Lindsey Graham voted to approve the fiscal cliff deal, but just one day before the vote, he told Fox News Sunday he may vote no unless it included more cuts to Social Security benefits.

SEN. LINDSEY GRAHAM: I’m not going to raise the debt ceiling unless we get serious about keeping the country from becoming Greece saving Social Security and Medicare. So here’s what I would like: meaningful entitlement reform, not to turn Social Security into a private account, not to take a voucher approach to Medicare, adjust the age for Social Security, CPI changes and means testing, and look beyond a 10-year window. I cannot in good conscience raise the debt ceiling without addressing the long-term debt problems of this country, and I will not.

NERMEEN SHAIKH: That was Senator Lindsey Graham. Another Republican senator to vote yes on the fiscal cliff deal was John McCain of Arizona. Looking forward to the next round of debt talks, Senator McCain said Republicans would block another deal unless it includes major cuts to so-called entitlement programs. He was interviewed Monday by CNN’s Wolf Blitzer.

WOLF BLITZER: Are you going to use the raising of the debt ceiling in February or March, Senator McCain, as leverage to get what you want from the president?

SEN. JOHN McCAIN: I think there’s going to be a whole new field of battle when the debt ceiling rolls around. Most of us have pledged that we’re going to have to—before we vote again to raise the debt ceiling, even though it may be at great political cost, we’ve got to address spending. And that means entitlements. We’ve got to sit down together and get us back on a path. Look, we just added — what was it? — $2.1 trillion in the last increase in the debt ceiling, and no—and spending continues to go up. I think there’s going to be a pretty big showdown the next time around when we go to the debt [limit].

NERMEEN SHAIKH: Juliet Schor, that was Senator John McCain. Can you explain the significance of the Republican push to raise the retirement age? And how are people organizing around this?

JULIET SCHOR: Well, Republicans have been trying to cut, undermine, reduce, get rid of Social Security for decades and decades, and that is—it’s pretty much a constant. What’s, I think, troubling about the current period is that we also now have a president who has put pretty significant concessions and cuts to Social Security on the table, because he has not only offered the changes in the inflation adjustment, but he also has talked about raising the age of retirement, which is a terrible idea. 

AMY GOODMAN: Why is it a terrible idea?

JULIET SCHOR:   Well, because there are a lot of people in this country who need and want to retire at 65. And to make that change, for no reason—the Social Security is not in a fiscal crisis. It doesn’t have a fiscal problem. It’s not running out of money. It doesn’t contribute to the deficit. So, it’s a total red herring in this debate. Republicans are trying to chip away, piece by piece, at this. I mean, it’s particularly a bad idea for people who do physical labor, manual labor, because those two extra years are very difficult for people. So, we’ve got to look at this in terms of the fact that it’s really a fraud. The Republicans want to do this, not because of the deficit. The deficit is coming down. It’s coming down as a fraction of GDP. It is not caused by Social Security. It’s caused by the downturn, the Bush tax cuts and the wars. So that’s the first thing.

There’s no danger of the United States becoming Greece. That’s another fraudulent metaphor. The U.S. has no problem financing its deficit. The only problem it has financing its deficit is Republicans who threaten to hold up the debt ceiling. Spending will increase, because the size of the economy is increasing, so the size of federal spending will increase. But the Republicans are really back in the 19th century, basically. They’re not accepting that the 20th century happened. They’re not accepting the role of a modern welfare state. And, you know, I think, as Paul Krugman noted a little while ago, it’s obvious to most economists that this is a good time to be running deficits, not just for the standard Keynesian reasons that the economy is weak and we still have a lot of people unemployed, but also because the cost of borrowing is so low. It’s historically low, so it’s a good time to borrow money, but to use that money to spend on the things that the country needs.

And this is, I think, one of the points that Obama made in one of the clips you just ran that I really agree with, which is that the government needs to be spending to do the things the country needs. So we need to be spending on shifting into a clean energy paradigm. We need to be spending on affordable transport—

NERMEEN SHAIKH: Juliet Schor, we have 20 seconds, and very quickly, on that note, you’ve said that carbon tax was something that should have been included in this deal. Can you talk about the significance of that, very quickly, before we conclude?

JULIET SCHOR: Absolutely. The cliff we’re going over is the climate cliff. And a carbon tax, putting a tax on carbon, about $20 to $25 per pound of CO2, could raise about $125 billion. It’s an out-of-the-box solution in the sense that it gets us out of just the things that we’re talking about. It’s a revenue raiser that creates a lot of good things, more labor intensive jobs in the economy, helps us on climate. So I think that’s really where the Democrats need to be focusing for the next deal, not on cutting Social Security and other welfare entitlements.

AMY GOODMAN: Juliet Schor, we want to thank you so much for being with us, economist, sociologist from Boston College, author of True Wealth: How and Why Millions of Americans Are Creating a Time-Rich, Ecologically Light, Small-Scale, High-Satisfaction Economy. This is Democracy Now!,, The War and Peace Report. When we come back, we will talk about climate change with Christian Parenti and Bill McKibben, just chosen as Vermonter of the Year by Burlington Free Press. Stay with us.

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