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Ballooning Debt & Deficits: How the Republicans are Making America “Great (in Debt)” Again

By Shlomo Maital

You, dear reader, are as tired of reading about the Republicans’ iniquities as I am of writing about them. Hopefully – this is the last blog on the subject for a very long time.

   The Trump Administration has made hypocrisy an essential element of everything they do, with unqualified support of Republicans, both in the House of Representatives and the Senate.

     The latest 2-year budget?   It calls for massive spending increases in defense and non-defense items, without showing how to pay for them. Add this to the unfunded tax cut.  The result?

* The ratio of debt to GDP will rise to 109% by 2027, and

*   the spending bill will add $1.2 trillion to the deficit by 2019.

   Under Obama, the Republicans rioted over Obama’s free-spending budgets. But it is a fact – deficits have risen far more under Republican presidents (remember Reagan’s tax cuts, unfunded?) than under Clinton and Obama. Clinton in fact balanced the budget!   Obama ran a small deficit.

     Make America great again?   Here is how Trump is doing that.

     Here is the list of countries with triple digit (over 100%) debt to GDP ratios:   Portugal, Italy, Eritrea, Belgium, Mozambique, Japan.

       You’ve done it Trump! You have managed in just one year to help America gain entry, very soon, to this unique club of great nations, with GRRRREAT debt to GDP ratios. America will soon drown in debt, on the Republicans’ watch.   Does this bring new meaning to the word “political hypocrisy”?  

     I predict this Trump Tweet:   GREAT world-leading debt ratio.  Historical. Fabulous.  Debt is great. I know — I did borrow and then bankrupt. Watch me bankrupt America too…piece of cake.  Make America broke.

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How to Solve US Political Gridlock: Dual Survival

By Shlomo Maital

Senators Flake and Heinrich

   An Amazon Reality show, Dual Survival, shown as well on Discovery Channel, features two sitting U.S. Senators, Jeff Flake (Republican, Arizona) and Martin Heinrich (Democrat, New Mexico), dumped on a deserted island in the Marshall Islands, and required to survive for 7 days.   They have to find water, make shelter, find food, and in general work closely together.  

     They do succeed, and together build a raft that takes them beyond the surf and the coral reef to their extraction ship.

       While on the island, they commiserate about Americans’ low opinion of the Senate, about who is to blame (“Americans blame both parties”, they say), and note that Republicans and Democrats simply do not meet and talk together, but rather, within each party, talk only to each other.

     They vow to have lunch together once a week.

       So here we have a solution to the toxic political atmosphere in the US, which allows a leading Republican senator (Senate Majority Leader Mitch McConnell) to say, we will do everything to make Obama a one-term president, rather than we will do everything to improve the wellbeing of ordinary Americans. (He failed – but apparently, aggressive partisanship beats legislative productivity).

       Send the 52 Republican senators off to desert islands, with the 48 Democrat senators, in pairs. Give them knives and an (empty) water bottle. Work together, or starve and dehydrate. Come back and tell us if you can work together.

   Hey, it worked for Flack and Heinrich.   And as for the catastrophic McConnell Health Bill — Republicans barely talked about it with Republicans, let alone with Democrats.  One of the strongest arguments Republicans put forward, for the Bill:  If we don’t pass it, we will (horrors!!) have to talk to the Democrats on a compromise.  Talk to Democrats????!!!!!   Only on a desert island….

Costs and Benefits: A Disastrous Asymmetry

By Shlomo Maital

 

   An economist, it is said (and I am one), is one who knows the cost of everything – and the value of nothing. There is much truth to this saying.

   Costs are pretty easy to measure. You add up the numbers in financial statements or government budgets.

   But benefits? Fruits? Now that’s another story. Because many social benefits are long-term and indirect. There is a famous study by Nobel Laureate James Heckman of the pre-school program known as Head Start, where funding has been drastically cut.

     Heckman writes in SCIENCE, 2006: “at current levels of funding, we overinvest in most schooling programs, and underinvest in pre-school programs for disadvantaged children”.   The diagram above shows this. Pre-school investment has a social return above the opportunity cost of the money. Other programs for older children fall short. Why?

   Because the benefits we reap from pre-school (mainly the Head Start program) are long-term, accruing in adulthood, hard to measure, hard to track – and beyond the myopic vision of political leaders, especially Republicans.

   Here is another example of this dreadful cost-benefit asymmetry:[1]

The study shows that, under plausible scenarios, the societal cost savings generated from fewer evictions and foreclosures could equal half of the cost of subsidizing coverage for the near-poor.

Low-income people who gain health insurance are much more likely to make their rent and mortgage payments, according to a new Washington University study of families living near the poverty line. Lower delinquencies mean fewer foreclosures and evictions. Researchers found that near-poor households that enroll in subsidized Marketplace insurance are 41 percentage points less likely to become delinquent on home payments compared to similar uninsured households. As a likely consequence, the rate of home delinquency for households without access to employer insurance fell by 31 percent at the income eligibility threshold to receive Marketplace subsidies during the 2015-2016 period. The study, performed at the Center for Social Development at the Brown School of Social Work and the Olin Business School, is one of the first to show the effect of the Affordable Care Act on family finances and the first to show the financial impact of the Marketplace component of the program, in particular. “Our results indicate that lower home payment delinquency may be an important benefit from subsidized Marketplace insurance,” the authors write.

          “The spin-off benefits to the community may offset a substantial share of the cost of the subsidy program,” said lead researcher Emily Gallagher. “Not only do the banks and landlords benefit, but the entire community gains through lower rates of homelessness and abandoned property. There are fewer vacant homes dragging down housing values in the neighborhood.”

   Republicans in the Senate are about to kill Obamacare (the Affordable Health Care Act) and deprive 23 million people of health insurance. The main motive is cost saving. The result will be to again increase defaults on home mortgage payments, eviction, decaying neighborhoods and vast human suffering.   And all, because of cost-benefit asymmetry, and blindness to long-term indirect social benefits.

   By the way – many Senate Republicans have not yet seen the actual proposed legislative bill. Senate Majority Leader Mitch McConnell has kept it a state secret.   Thus does calumny thrive in the dark, like mold.

[1] https://ssrn.com/abstract=2922260

The Obama Excuse

By Shlomo Maital

 Obama

President Obama, and the Democratic Party, appear to be headed for a larger-than-usual mid-term election defeat on Nov. 4, with the Republicans gaining control of the Senate and retaining control of the House.   But for America, this may not (believe it or not) be a bad thing.

   Obama and the Democrats have often used the obstructionist Republican-controlled House as the excuse for their lack of achievements. And indeed, the approval rating of Congress is abysmally low, lower than Obama’s! Americans are simply fed up with Washington and with both political parties.   Contrast this with German Chancellor Merkel’s 78 per cent approval rating, one other leaders can only dream about.

   But a chart in the recent issue of The Economist sheds some light on the Obama excuse. President Ronald Reagan faced a Democratic House and Senate in 1986-88, yet as a lame duck president in his last two years, passed a major tax cut bill. President George H.W. Bush faced a hostile House and Senate in 1988-90. Bill Clinton had a Republican House and Senate in 1994-2000, for fully six of his eight years as president, yet got the U.S. economy rolling. George Bush faced a hostile House and Senate in 2006-8….     And Obama had both House and Senate FOR him in 2008-10, controlled by Democrats, and… achieved, well,   achieved…. Uh…..?  

   To be an effective president and leader, in the face of House and Senate opposition, you need to be very skillful at compromise, at dialogue and at collaboration. Some U.S. presidents were. Obama wasn’t. It is not too late. He may yet learn, and may yet leverage the fact that if the Republicans do win control of Congress, and continue to obstruct, they will be severely blamed by the American electorate, and may lose any chance of regaining the Presidency in 2016.

   In President Lyndon Johnson, America had a president with long long experience in the Senate, who knew how to compromise and how to deal. In President Obama, America has an inexperienced President who is just now beginning to understand how to work with Congress. It has been six wasted years.

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
August 2019
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