Greeks are Angry

Greeks are angry over the costs of reform. See this article in the Guardian.

A growing chorus of voices is urging the Greek government to restructure its debt as fears grow that a €110bn bailout has failed to rescue the country from the financial abyss and is forcing ordinary people into an era of futile austerity.

"It's better to have a restructuring now … since the situation is going nowhere," said Vasso Papandreou, whose views might be easier to discount were she not head of the Greek parliament's economic affairs committee.

Given the scale of protests to minor adjustments it is hard to see how Greece can make the big adjustments necessary to adjust their fiscal situation:

Tomorrow, in a clear sop to the thousands who have signed up to the "can't pay, won't pay" movement, the ruling socialists will announce reductions of up to 50% in road toll fees. As the nation struggles to rein in a debt of €340bn, the logic of appeasing protesters – an estimated 8,000 Greeks a day were refusing to pay tolls – has outweighed antagonising them further. "Our hope is that this will calm things down," the deputy transport minister Spyros Vougias said.

Last week, a man shot a bus inspector hired to crack down on fare dodgers after protesters stormed a police station, snatched hundreds of confiscated number plates and set light to thousands of fines. Days later thugs attacked Antonis Loverdos, the health minister, as he visited a hospital in Athens. In Patras, James Watson, the 83-year-old Nobel Prize-winning geneticist was also attacked as he prepared to give a speech at the city's university.

It is hard to see how Greece can adjust without haircuts from bondholders. Some trade between haircuts and real reforms might make it palatable. But that opens up a complex political economy problem for Europe, since there are other economies, notably Portugal and Ireland with similar, though right now more manageable, problems.

Natural Gas Nonsense

Joe Nocera has an article in today NYTimes arguing in favor of tapping the Marcellus Shale. The main point he makes:

The truth is, every problem associated with drilling for natural gas is solvable. The technology exists to prevent most methane from escaping, for instance. Strong state regulation will help ensure environmentally safe wells. And so on. Somewhat to my surprise, this view was seconded by Abrahm Lustgarten, a reporter for ProPublica who has probably written more stories about the dangers of fracking than anyone. In a comment posted online to my Tuesday column, he wrote that while the environmental issues were real, they “can be readily addressed by the employment of best drilling practices, technological investment, and rigorous regulatory oversight.”

Ironically, the NYTimes also has a front page article today arguing that GOP Pushes to Deregulate Environment at State Level. And this does not even deal with our PA Governor Tom Corbett who has ordered that "the Secretary of Environmental Protection must personally approve all enforcement actions and notices of violation. But only for natural gas drillers." Moreover the Governor will not allow any severance tax to cover any social costs associated with removing the gas.

Nocera argues that all his opponents are NIMBYs. But he ignores any discussion of the high cost of getting the gas out. We are told how abundant the natural gas is, but that any severance tax will lead to a drastic cut in production. Which must mean that most wells are marginal -- that only with very high prices is it profitable to produce the gas.

I am not against drilling but I think one should not ignore the costs. I suppose the problem is that bankers do not drill for natural gas. If they did Joe Nocera would be telling us that we should never take one cubic foot out of the ground -- you cannot trust anything a banker says. But no problem with gas drillers. And environmental regulators, so much better than bank regulators.

Thanks Paul Ryan

Like most Republican initiatives, Paul Ryan's budget proposal is designed for me. Tax cuts for the well-off (which extend to the moderately well off), burden placed on future generations. For example, all the burden of Medicare reforms go to those 54 and younger. I'm 55, so I get off okay. Just like Republican tax policy or environmental policy all the costs are on future generations and I don't have any.

The reason is straightforward as David Leonhart notes in the NYTimes:

Yet there is at least one big way in which the plan isn’t daring at all. It asks for a whole lot of sacrifice from everyone under the age of 55 and little from everyone 55 and over. Representative Paul Ryan, the Wisconsin Republican who wrote the plan, calls the budget deficit an “existential threat” to the United States. Then he absolves more than one-third of all adults from responsibility in dealing with that threat...

The reason is partly political. Older people vote in larger numbers than younger adults. Children, of course, can’t vote at all.

This is the basic issue. All the young Obama voters did not vote in the midterm elections, so the Republicans won. Ryan rewards his constituency. Taxes will be cut. Spending for the poor will be cut. The deficit, well it will be cut if unemployment magically can fall to 2.8%, and if unicorns can fly.

Like all good Republican policies, the benefits go to me and the sacrifice goes to the future -- the young who will be left with the cost of the environmental cleanup and a huge federal debt -- and the poor who live elsewhere. I really don't understand why I should be so lucky.

Wisconsin Uprising and All That

The uproar in Wisconsin has awaken my desire to blog.

The fight over the right of public sector unions to collectively bargain is an interesting question. In principle, I would tend to be on the side of ending this right. Unlike unions in the private sector, public sector unions are bargaining with elected officials who have little incentive to hold the line since these unions are major voting interests.

On the other hand, it is pretty transparent that this is an attempt to break a key voting block on the Democratic side of the spectrum at the same time that the Supreme Court has opened up the spigots for corporate donations with their Citizens United Decision.

In this case it is hard not to agree with Krugman:

In principle, every American citizen has an equal say in our political process. In practice, of course, some of us are more equal than others. Billionaires can field armies of lobbyists; they can finance think tanks that put the desired spin on policy issues; they can funnel cash to politicians with sympathetic views (as the Koch brothers did in the case of Mr. Walker). On paper, we’re a one-person-one-vote nation; in reality, we’re more than a bit of an oligarchy, in which a handful of wealthy people dominate.

Given this reality, it’s important to have institutions that can act as counterweights to the power of big money. And unions are among the most important of these institutions.

You don’t have to love unions, you don’t have to believe that their policy positions are always right, to recognize that they’re among the few influential players in our political system representing the interests of middle- and working-class Americans, as opposed to the wealthy. Indeed, if America has become more oligarchic and less democratic over the last 30 years — which it has — that’s to an important extent due to the decline of private-sector unions.

The irony, however, is that what the unions and right thinking people should be fighting is not for public sector union fighting power but a consensus that will cut subsidies for heating for low-income households so that the estate tax can be reduced and taxes can be cut for the super-rich.

Why doesn't anybody protest that? The contrived budget crisis caused by excessive tax cuts is the real shame.

End all Energy Subsidies

An interesting article that discusses ending all energy subsidies. The argument is that since most subsidies actually go to fossil fuels, this will help green possibilities. And with cap and trade dead, it may be the only politically feasible way to encourage green alternatives.

If President Obama wants to set us on a path to a sustainable energy future—and a green one, too—he should propose a very simple solution to the current mess: eliminate all energy subsidies. Yes, eliminate them all—for oil, coal, gas, nuclear, ethanol, even for wind and solar. It will be better for national security, the balance of payments, the budget deficit, and even, believe it or not, the environment. Indeed, because wind, solar, and other green energy sources get only the tiniest sliver of the overall subsidy pie, they’ll have a competitive advantage in the long term if all subsidies, including the huge ones for fossil fuels, are eliminated. And with anti-pork Tea Partiers loose in Washington and deficit cutting in the air, it’s not as politically inconceivable as you might think.

In any event, it certainly would eliminate wasteful subsidies.

Voter Preferences

This column in Slate collects the American voters views, according to polls, on economic policy. No wonder that policy is stalemated. Two snippets:

But the polled American is not sure whether the government should be doing so much to aid the economy in the first place. And, for her, all bets are off if the tax compromise becomes known as Stimulus 3.0 (or 2.0). She barely liked the 2009 stimulus when Congress passed it, and she certainly does not like it now. (The financial regulatory reform bill? She's made her peace with that.) Yet, in an enduring example of the polled American's propensity for containing multitudes, she likes virtually all of the elements of stimulus, such as the tax breaks, unemployment insurance, infrastructure investment, and bolstered food stamps—a case of the parts besting the sum, apparently. And she thinks the country needs more of those provisions. She also supports an increase in the minimum wage.

and

So how does the polled American think we should tackle the deficit issue? He knows that programs need cuts—tax hikes alone can't, and shouldn't, pull the country out of this mess. But he wants Washington to leave Social Security and Medicare well enough alone. And he hesitates to bring the ax to energy, health, or education programs. That said, he supports several provisions proposed by the president's debt commission—like shrinking the federal workforce, cutting federal salaries, closing overseas bases, and ending the tax deduction on home mortgage interest. And one program to really trim is America's generous foreign aid. The polled American thinks the government ships a quarter of our budget overseas, and thinks we should spend only $1 of every $10 helping out other nations. (In reality, the foreign aid amounts to less than 1 percent of the federal budget.)

This last part is great. Voters want to reduce the amount of foreign aid the government gives to a level ten times higher than we do! I don't think this can be done even standing on a chair.

Note also this article from Bloomberg that reports polling on the deficit. Americans want the deficit reduced. But the public also wants

...Congress to keep its hands off entitlements such as Medicare, Medicaid and Social Security, a Bloomberg National Poll shows. They oppose cuts in most other major domestic programs and defense. They want to maintain subsidies for farmers and tax breaks like the mortgage-interest deduction. And they’re against an increase in the gasoline tax.

I want to lose weight without cutting down my caloric intake. Not having great success with that program either.

No wonder policymakers can get nothing done. We would be better off, perhaps, if policy could be made in secret and then we voted after the fact based on results. I think that leads basically to dictatorship.

I Agree with Krugman

Paul Krugman argues that President Obama should just let the tax cuts expire and I agree.

Democrats have tried to push a compromise: let tax cuts for the wealthy expire, but extend tax cuts for the middle class. Republicans, however, are having none of it. They have been filibustering Democratic attempts to separate tax cuts that mainly benefit a tiny group of wealthy Americans from those that mainly help the middle class. It’s all or nothing, they say: all the Bush tax cuts must be extended. What should Democrats do?

The answer is that they should just say no. If G.O.P. intransigence means that taxes rise at the end of this month, so be it.

Krugman thinks it is a bad deal. I think they should just let them expire based on budget realities. What would be best would be to couple this with a cut in payroll taxes. That would lower the cost of employing people and would mitigate any effect on unemployment.

But I expect the President will give in to satisfy his campaign pledge about not raising taxes on the middle class.