A low volume, high quality source from the demand side perspective.The podcast is produced weekly. A transcript is posted on the day of.

Thursday, January 31, 2013

Transcript: The federal government failing the states, climate change, entitlements


 [Richard Kravitz, former Lt. Governor of New York State, commenting on the findings of the State Budget Crisis Task Force, which he chaired with former Fed Chairman Paul Volcker, which reviewed the fiscal situation of six large states.]

The economic discussion at the highest policy levels in the Capital and on Wall Street is a Mad Hatter's tea party, full of idle chatter with little connection to the real economy in which people live. it is a place where everybody agrees on the need to reduce federal spending, cut entitlements, where climate change is a non-factor, where the lessons of the Great Financial Crisis and subsequent might as well be printed in the Cyrillic alphabet. And where the sky is blue because we say it is. Never mind the torrential rain.
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The disconnect between DC and economic reality is no more evident than in the willingness to let the states fail. This, of course, lets the municipalities dependent on the states fail. The federal government, somebody said, is an insurance program with a military. The states and local -- county, city and special purpose districts -- deliver the services we call government. Schools, roads, courts, police, utilities, fire protection, parks, libraries, jails, health and human services, airports, seaports, and on and on.

This is the government that is set to fail. And it is the object of the Tea Party Right to let it, or actually make it fail. The teacher and the policeman is just another corrupt bureaucrat.

Here in Washington State we are just starting up a new session of the legislature. It meets in the vise of on one hand the McCleary decision and on the other the promise of our new governor Jay Inslee not to raise taxes. The McCleary decision came down from the state supreme court and mandates full funding of K through 12 education per the state constitution. This is a billion dollars or more than the state has access to at present.

The response has been, from the no new taxes folks:

(A) We will fund education and write off the rest, or

(B) We will not fund education and let the court do whatever it has done in the past when its decisions have been ignored.

These are the let government fail responses.

Meanwhile, of course, transportation funding is absent, the roads are deteriorating, as are the linkages between the ports and rail. Washington State, with Boeing and big agriculture and a couple of deep water ports just right for container ships is highly trade dependent. THE most trade dependent state in the nation. That industry -- trade -- is threatened by the widening and deepening of the Panama Canal, set to be finished in 2014. Ships that are now too big and must offload on the West Coast or go around South America will soon be able to steam right into the Caribbean and on up the East Coast.

The Canadians have responded by linking their ports of Prince Rupert and Vancouver, British Columbia, to the U.S. Midwest with nonstop rail. Seattle, Tacoma and Washington have failed to rise to the challenge. Penny wise and pound foolish. This means the deterioration of a big private industry.

That is a bit of a digression. Still on the order of "Let government fail," but this is key infrastructure and planning for the private economy, not education. When it fails, hypocrites will assail the government that they just refused to fund. The Constitutional protection for education is only a technicality, they say, and really the human cost continues to rise.

On that happy note, we turn to climate change.

This week we posted on reMacroBaseline.com our observations on climate change and how it illustrates another grand disconnect between economics and reality.

The fact of near term, catastrophic climate change is both illustration and proof of the dysfunction of orthodox Neoclassical economics, but also any other economics which does not have an institutional component.

Environmental Protection Agency

For forecasting, nothing is easier to read than the chart of the rise in CO2 emissions over the past quarter century. The loss of Arctic Sea ice, the growth of the average temperature, the increasing frequency of violent weather, all are charts as easy to read as they are alarming.

The science behind climate change predictions is long established and solid. All major scientific organizations have asserted its validity. Its predictions have proven out over time.

Yet climate change has earned nary a whisper in the economic discussion. It is the health of the banking system, the recovery of housing, the size of the federal deficit that are presumed to be the drivers of economic well-being. This is not withstanding the enormous toll of violent weather, drought, flood we have seen so for and the potential for the effects to become hundreds of times worse. The loss of resources and natural systems are invisible to the economics as practiced in 2013. Repairing and rebuilding from damage is a positive thing in GDP, the measure used for health.

This is partly because the orthodoxy is entirely distracted with readings on the dials and how they relate to their hypothetical or replica of the economy. Federal deficits are a monetary phenomenon that has history. They can be seen in this replica. The certain collapse of the ecosystem cannot. There is no monetary trend line for it.

The other major part is not the invisibility of climate change in measurement or model, but the active denial of the science by major sectors of the existing corporate economy, and the active promotion of climate-damaging technologies by these and others. This is the institutional side: The failure to put a price on carbon, the manipulation of the political system to avoid addressing needed changes, and the simple distortion of the science for public consumption.

The challenge for the forecaster is not so much to anticipate the gradually worsening effects of climate change, but to capture these effects in numerical terms that can be tracked over time and used for policy purposes. An additional challenge is to make these numbers comparable to those of other forecasters so as to provide a base for evaluation.

We go into that in more depth in the post, or at least more breadth.

The Demand Side Podcast is brought to you today by the word "Entitlements." No, not the program of social insurance, just the word "Entitlements." Much like the term "Fiscal Cliff," which turned out to be more a pile of bull than a cliff -- not to say it doesn't have a certain downward slope, the word "Entitlements" has been selected carefully.

For those of you listening in Europe or Australia or elsewhere, social insurance -- mainly the public retirement program and public health insurance are referred to as "Entitlements" by virtually all media and most of the political class. Entitlement has a pejorative connotation, as something not earned..

We were unable to come up with the first use of the word entitlement, just as we do not know the derivation of "fiscal cliff."

The United Federation of Teachers had a similar problem,

How these programs came to be called entitlements we do not know, but it was the wrong word when first used and continues to be the wrong word today.

They are not entitlements. They are hard earned benefits. Working people contribute toward their benefits over a life time of work.

We have heard it said that retirees are getting more in benefits than they have paid for. The answer to this charge is that Social Security and Medicare are like insurance policies. Some people will benefit more due to a long life span while some will benefit less or not at all because of a death at an early age.

As we fight to protect and preserve Social Security and Medicare as we know them, we must always remember that we have earned and sacrificed for the benefits we receive. Nothing has even been given to us on a silver platter. Our benefits must never be taken away, diminished or changed into private plans.

RESOLVED, it is time to do away with the use of the word entitlements. Earned benefits we have worked a life time for and have made sacrifices for are not entitlements.

Dr. Paul M. Johnson defines the term:

The kind of government program that provides individuals with personal financial benefits (or sometimes special government-provided goods or services) to which an indefinite (but usually rather large) number of potential beneficiaries have a legal right (enforceable in court, if necessary) whenever they meet eligibility conditions that are specified by the standing law that authorizes the program.

The beneficiaries of entitlement programs are normally individual citizens or residents, but sometimes organizations such as business corporations, local governments, or even political parties may have similar special "entitlements" under certain programs. The most important examples of entitlement programs at the federal level in the United States would include Social Security, Medicare, and Medicaid, most Veterans' Administration programs, federal employee and military retirement plans, unemployment compensation, food stamps, and agricultural price support programs.

So. the word and its meaning.

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