Saturday, January 19, 2013

A history of Congress from XKCD...dang. This is really good!

This should be hanging on the wall in every classroom.  It was created by the web comic XKCD.  Blow it up big on your screen, it's worth reading all the tiny print.

Here's what's really interesting: the categories into which congressmen are sifted (left,right, far left, far right)  are not primarily based on the expressed political philosophy except in a very generic mostly one-dimensional (a bit more detail on this below) sense, or on the content of bills they vote for or speeches they make.  The groups are based on a particular clustering index, on how often people vote together.  So in a way, each Congress should have its own separate index.  But since Congressmen come and go and overlap in their times in Congress, each group forms a chain of like-minded people from the beginning of the country.  But that doesn't mean that the people in any chain now would agree on every issue with those who were in the same chain 200 years ago---this is kind of like a game of telephone, I think, with each generation coming along with slightly different views, but forming fairly solid blocks with those who occupied a similar ideological space in the cohorts just before them, and voting with them much of the time.

On the categories, I won't give too much detail because I'm still trying to absorb it myself, but here's a quote from the Wikipedia entry devoted to the DW-Nominate scoring method, which is what XKDC used:

"Poole and Rosenthal demonstrate that—despite the many complexities of congressional representation and politics—roll call voting in both the House and the Senate can be organized and explained by no more than two dimensions throughout the sweep of American history. The first dimension (horizontal or x-axis) is the familiar left-right (or liberal-conservative) spectrum on economic matters. The second dimension (vertical or y-axis) picks up attitudes on cross-cutting, salient issues of the day (which include or have included slavery, bimetallism, civil rights, regional, and social/lifestyle issues). For the most part, congressional voting is uni-dimensional, with most of the variation in voting patterns explained by placement along the liberal-conservative first dimension."

The emphasis is mine, but I thought I’d point out that the primary  explanation of the vote clustering is the Congress member’s feelings about economics, and specifically about how much the government should intrude on the nation’s economic life.

Absolutely a fascinating graphic.  It's worth staring at for a while.  XKCD is worth staring at for a while.  With this graphic is has become a whole lot more than just a web comic.  Or maybe it has expanded the web-comic genre into a much bigger space.

Monday, January 14, 2013

Those platinum coins...

I’m deeply disappointed.  Maybe even depressed.  Ezra Klein spilled cold water yesterday on what had been a truly fun fantasy.  I never really believed that it would happen, because it was simply too perfect.  Not just as a means of avoiding the debt ceiling crisis, although it was a brazen but acceptable solution for that.  It was perfect as an economics lesson.  It would have made at least one difference between government budgets and family budgets so vivid that no one could miss it, or misconstrue it.

For those who have not been following with trembling anticipation the preparations for the coming debt ceiling confrontation, there has been a huge discussion in the blogosphere about the possibility of having the Treasury simply mint a coin with a face value of $1 trillion, and deposit that coin in its account at the Federal Reserve.  The federal government could then use that money to pay the nation’s bills while the Congress endlessly debates the debt ceiling issue.  This possibility has enchanted the Democrats and enraged the Republicans, because the Republicans have been counting on the threat of national default to give them “leverage” (their word!) in budget debates.

The trillion dollar coin sounds like a bad sitcom or a crazy punch line, but it isn’t.  Many respectable thinkers, including Paul Krugman, Nobel laureate economist, have come out in favor of it.   Krugman has said that it’s the only legal course of action available once the debt ceiling truly binds.  (I use that phrase, “truly binds”, because technically we are already past the debt ceiling date.   The Treasury is now using “extraordinary measures” to pay the bills.   But it will run out of measures of any kind to use in about a month and a half, and after that it will not be able to pay the obligations it already has, and the government will not be able to perform the functions that Congress has already said in its budgets that the government must perform.)

It’s true that we’re into strange legal territory once the Treasury is truly out of options.  That would mean that the Executive branch, without the help of Congress, would have to decide what bills to pay and what to defer or default on.  The executive branch would have to decide which programs to continue and which to abandon.  I don’t know what legal authority they have to do that.  Maybe some legal scholar out there can enlighten me.  But they can’t spend money they don’t have, can't borrow and won't create, and they can’t abandon the obligation that Congress placed on them to spend the money either.  The 1974 Impoundment Control Act forbids that, doesn’t it?  The budgets that Congress passes, including the continuing resolutions, aren’t just suggestions.  They are laws.

So what do they do?  Ahh…and along comes the platinum coin, a legal opening that would enable the executive branch to obey all the laws that Congress has bound it with, and give us all a good laugh at the same time.

That the platinum coin idea is legal is nearly beyond question, although by a fluke.  As part of the 1997 appropriations bill Congress provided the Treasury with permission to mint platinum coins in any denomination they see fit.  The intent was for the Treasury to mint coins in very small denominations so that coin collectors with modest incomes could buy them, and the bill’s sponsors never imagined that these coins could be used to fund the government in a significant way.   I have no doubt at all, though, that they did understand that the Treasury would make money by doing this: the coins don’t have to have anything close to their face value in real platinum, and would be sold at prices far above their cost to produce.  Coin collectors, the bill’s sponsors thought, would buy them because they were unique, official issue, and distributed in mint condition.  And I have no doubt that they understood that any money the Treasury made by this process could be used to reduce the Treasury’s need to raise money through taxation or borrowing.  They just never imagined that the Treasury could mint coins of this value, or deposit them at the Fed. But whatever they thought, this law is the creation of Congress, and Congress has every right to enact it, under the authority granted to it by the Constitution.  Article I Section 8, if you’re curious, gives Congress the authority “To coin Money, regulate the Value thereof…” and a bunch of other things.

And of course, that’s why I liked the idea: it’s both completely legal and unboundedly, hilariously, absurdly clarifying.  Because even though the phrase thrown around on blogs over the last few weeks has been “trillion dollar coin” there’s no legal reason we would have to stop there---or stop with just one.  Why not mint a $100 trillion coin, or a $100 quadrillion coin?  Why just kick the can a few months or years down the road?  Make a deposit to the Fed that would eliminate the need for a debt ceiling debate for the rest of the century.  Minting a mess of trillion dollar coins and depositing them at the Fed would make it very clear that there is no legal constraint on the federal budget, and that this lack of any constraint is one more reason that the federal budget is not like a family budget.  It would clarify the truth that the federal government does not borrow to fund its activities because technically it doesn’t really need to borrow, or tax either, to pay for things.  The federal government, specifically Congress, has the power to coin money anytime it wants, so technically there is no binding federal budget constraint, short term or long. 

So why does the government choose to tax or borrow rather than just create money to fund its activities?  Or more exactly, why should they choose between these options?  Because each of them has different economic implications for the world outside the government, for the national and even the global economy, and because the government, while not bound by a constraint in the same way the rest of us are, is bound by the pursuit of competing economic goals.   The government, if it is sensible, taxes or borrows or creates money from thin air, choosing each method of finance when that is the method that best promotes the health of the nation as a whole.

Many people argue that money creation, if carried on with excessive abandon, leads to inflationary pressure, or that excessive debt can limit future policy options.  Governor Perry was so convinced of the first that he suggested that Ben Bernanke, the Fed Chairman, would be “treated pretty ugly” if he came to Texas after expanding the money supply.  And of course the latter, the debt issue, is the drum that the house Republicans have been beating with all the vigor they can muster.  That is the drum they plan to beat again when their maximum leverage on the debt ceiling arrives.  They are so eager to avoid debt catastrophe in the distant future that they are willing to create catastrophe today as a cure (although only if we can solve it through reductions in spending on Social Security or Medicare, not through new revenues!)

I don’t want to spend time arguing the merits of either of those beliefs right now.  For what it’s worth, I agree that excessive debt can chafe even governments who control their own currency, but I don’t agree that we are at or approaching that level of debt yet. I agree that in normal circumstances excessive money creation can excessively stimulate the economy and lead to inflation, but expanding the money supply right now is not having that effect: a great deal of the newly created money is sitting idle, rather than stimulating the economy. 

But the point I’m making here is that these concerns are clearly and explicitly different from the concerns of the average family trying to make ends meet, or of a business balancing its books. The average family cannot create the money they spend, and their first priority is the welfare of their own family, rather than the health of the economy outside their doors.  A business pursues profits for its owners, and perhaps of its employees and customers, but it generally doesn’t actively pursue the interests of people unrelated to its own operations.  A national government, by contrast, can create money, and its goals, the whole reason for its existence if it is a good government, is to protect and expand the welfare of people outside the government itself, to promote the general welfare of the whole nation.

But in yesterday’s column Ezra Klein reported that the Treasury has ruled out the platinum coin idea.  They will not mint such coins, and if they did the Fed would not accept them.   So the sitcom is cancelled, and the Treasury has officially stepped on the punch line.  The ubiquitous use of the family-budget or business-budget analogy for federal choices will not be disturbed, and those who use them will not be disconcerted by a ludicrous, clarifying moment.

Saturday, January 5, 2013

One complaint toward each side on the Social Security discussion

This is nearly utopian level wishful thinking, I know, but here are two arguments in the Social Security discussion that I wish would be abandoned, one from each side. I’ll start with the progressive side, because that’s where I generally live.

Progressives love to point out that Social Security is really off-budget, that it is funded by its own revenue stream, and that by law it cannot spend money from the general fund, and so it cannot contribute to the deficit.  For example, Ed Schultz on the Ed Show made this point forcefully on a recent show, and cited this video of a noted progressive thinker as authority.   When---if---the SS trust fund runs out of money, under current law the SS system would have to live on it’s current receipts, and progressives often cite the 2012 SS Trustees Report, which estimates that current receipts will be sufficient to pay 75% of payable benefits in 2033, declining to 73% in 2086 (which is a far out as the forecast goes).

Ok.  This is technically true.  But honestly, do we, any of us at any point on the political landscape, really believe that the retired population in 2033 will meekly accept a sudden 25% reduction in income?  Do we really believe that Congress will blithely allow this to happen?  The pressure to resolve this will be simply overwhelming, and the results will, without any doubt, spill over into the general deficit.  What’s more, when that calamity is facing us, as progressives we will loudly explain that SS should spill over to the general deficit: our responsibility to care for the elderly will not end when the trust fund is exhausted.  Let’s stop pretending that a future SS deficit can’t be a problem---it can be.  We can argue, reasonably and correctly, that the SS shortfall is not the dominant financial problem (health care costs hold that position by current estimates), and we can argue that repairing the SS shortfall should be fairly easy to do.  But let’s put away the technically-true-but-misleading argument that SS is strictly firewalled away from all other expenses.

And conservatives love to point out that, technically speaking, the SS trust fund is already absorbing taxpayer’s funds since SS already distributes more than it receives from payroll taxes alone; it distributes all of that plus some of the interest income it receives from the Treasury. 

Again, this is technically true in a cross-eyed sense, but utterly misleading.  It’s absurd to claim that the SS system, having saved trillions of dollars over the last several decades, and having provided those saved dollars to the general taxpayers by buying Treasury securities, is somehow to blame for the interest the Treasury now must pay on that debt.  If the SS trust fund sold all of those bonds to someone else, and purchased corporate bonds with the same interest rate instead, it would have the same income from it’s savings and the Treasury would face the same interest payments---but now to China, or whoever purchased the bonds that SS sold.  And of course, the businesses who borrowed money from the trust fund at the (very low!) Treasury interest rate would have to pay interest to the Trust Fund.  Presumably those businesses would not borrow the money unless they thought the profits they could make from investing that money would be greater than the interest they would need to pay.  But if only they didn’t have to pay any interest, their profits would be even higher!  Would the same people who are blaming the SS system for draining the Treasury right now continue to blame the SS system for draining profits from the businesses to which they lent money?  Do they blame banks for extracting interest from businesses who borrow money from them?  I suspect that the answer to these two questions are: yes, and no.  No, they don’t blame banks for charging interest; that, they would explain, is how the system works.  But yes, they would blame Social Security, because Social Security is a government program and they always blame the government first.

In the coming weeks I expect to hear both of these arguments over and over and over again.  In a better world, I wouldn’t hear either of them.

Tuesday, January 1, 2013

The meagerness of this, or any, fiscal deal

The big news this in Washington this morning is, of course, that RG III and the Redskins beat the Cowboys at home in the last regular season game of the year, and as a result are the NFC East champs and in the playoffs.   That was the big news yesterday too, and probably will be until at least next week, when we will have another Redskins game to celebrate or mourn. 

In other, lesser news, the negotiations between McConnell and Biden actually achieved a mini-deal on the fiscal cliff issues, and a mini-deal is a major achievement these days.  The really big news is that it passed the Senate 89 to 8.  That’s eighty-nine.  I had to spell that out to understand the number.  89 votes out of 100 possible.  That’s way better than passing, it’s a high B!  This isn’t fake bipartisan, with one or two token votes from another party.  This is real bipartisan.  Of course no one really likes the compromise (that is the nature of compromise), and it has not yet passed the House, which will probably be an ordeal since the Tea Party Caucus has a lot of control over there.   Officially we are now over the cliff and in free fall.  But unlike Boehner’s Plan B, this bill will get a lot of Democratic votes in the House, so it doesn’t have to achieve a majority with Republican votes alone.  The odds seem modestly good that we as a nation will complete this tiny, tiny achievement.

It’s tiny in part because it’s only a partial event.  It does not solve the debt ceiling issue, and it only puts off the sequestration issue for two months, which is just about when the Treasury will run out of tricks to evade the debt ceiling limits.  It’s hard to believe that’s a coincidence.  So expect another round of bloody head-butting in February, and extending into March. 

It’s tiny in part because what they are arguing about is budget, and they haven’t even passed a budget for this fiscal year, FY2013, which is already ¼ over.  Passing a budget is not extraordinary business for a Congress: it’s their bread and butter business.   If they had any pride in their work, they would pass a budget for this year, including whatever debt authority is needed to implement that budget, and discuss the longer term issues in, well, the longer term discussion.

And finally it’s a tiny achievement because it’s only a budget, only for the near term really (all the reports tell us what these negotiations will do to our deficit over the next ten years, not over the next fifty), and we have other business that is truly huge. 

To start with, we have the long-term budget issues, the long term debt that is, we are ceaselessly told, the terrifying monster in the closet, the phantom in the dark, and nothing that is being discussed and is likely to pass comes close to dealing with that.  Because the long term issue is not the federal budget, or the federal debt: the long term issue is the rising cost of health care, period.   Yes, there will also be a bulge in the fraction of the population that is retired over the next few decades, but keeping all those retirees fed, clothed and housed is not going to break our economy---more about that another time.  The real issue even with the retired population is health care costs.  Unfortunately, we seem obsessed only with whether that cost shows up on the federal books, whether they add to the federal debt.   The real issue is that unless we deal with rising health care costs directly they will show up on someone’s books---if not on the federal government’s books, then on state or local or city books, or on the books of individual families who simply can’t afford them.   Maybe the Affordable Care Act (Obamacare) will help.  But “bending the cost curve” for general health care costs---not just federal health care expenditures---should be an absorbing interest for every member of Congress.

And we have climate change---and that the climate is changing is now undeniable, that carbon is accumulating in the atmosphere is both undeniably true and undeniably a primary cause of climate change, and that human activity has increased carbon in the atmosphere enough to matter is so close to being certain that no political philosophy that denies it can really hope to stand. 

We have the issue of the massive rise in income inequality and decline in economic mobility in the United States.   We now have greater income inequality than any other developed nation shown in the “Great Gatsby” chart in the link above, and less intergenerational income mobility that all but Italy and Great Britain.  We have less intergenerational income mobility than Singapore or Pakistan.  Surely this is worth some of Congress’s attention. 

And of course, there is the dismal state of America’s infrastructure, and how to maintain it, and how to improve it to enable economic growth over the next centuries.   And immigration and integration issues.  And how to deal with gun violence.  And..and…and…

I’m glad we have a mini-deal nearly in place.  But it would be better for the country if Congress could get past all the head butting on budget deals and debt ceiling deals, and get on with some of the truly big work that needs to be done.

But hey, at least the ‘Skins are in the playoffs.