PAUL KRUGMAN, New York Times: Does anyone still take Mr. Greenspan's pose as a nonpartisan font of wisdom seriously?
When Mr. Greenspan made his contorted argument for tax cuts back in 2001, his reputation made it hard for many observers to admit the obvious: he was mainly looking for some way to do the Bush administration a political favor. But there's no reason to be taken in by his equally weak, contorted argument against reversing those cuts today.
David S. Broder, Seattle Times: Back-to-back briefings last week put a harsh spotlight on the deep hole left by the budget policies of George Bush's first term. Millions of Americans will be paying the price for the fiscal profligacy of this misnamed conservative government.
The bad news, delivered in the first report, is that the camouflaged domestic spending cuts contained in the Bush budget will — if accepted by Congress — do serious damage to education initiatives, low-income assistance and environmental programs over the next five years.
The worse news, documented in the second report, is that these cuts will not even begin to deal with the looming calamity of runaway entitlement spending on the retirement and health-care costs of the baby-boom generation.
You won't find either of these warnings spelled out in the budget message of the president.
Mona Megalli, Reuters: Moves by Middle East oil exporters and Russia to switch some revenue from dollars to euros lie behind the U.S. currency's weakness, and a further rise in crude prices could prompt more declines, the billionaire investor George Soros said on Monday.
Soros told delegates to the Jeddah Economic Forum that the dollar's fall should help to lower the U.S current account and trade deficits, but warned that a fall beyond an undisclosed "tipping point" would severely disrupt markets.
The U.S. current account deficit is more than five percent of gross domestic product despite the currency's three-year slide. The dollar, however, has staged a comeback recently, gaining about 3.6 percent against the euro and three percent versus the yen so far this year.
"The oil exporting countries' central banks ... have been switching out of dollars mainly into euros and Russia also plays an important role in this. That is, I think, at the bottom of the current weakness of the dollar," Soros said.
Bush Abomination’s #2 Failure: Economic Security
________________________________________
March 4, 2005
OP-ED COLUMNIST
Deficits and Deceit
By PAUL KRUGMAN
our years ago, Alan Greenspan urged Congress to cut taxes, asserting that the federal government was in imminent danger of paying off too much debt.
On Wednesday the Fed chairman warned Congress of the opposite fiscal danger: he asserted that there would be large budget deficits for the foreseeable future, leading to an unsustainable rise in federal debt. But he counseled against reversing the tax cuts, calling instead for cuts in Social Security, Medicare and Medicaid.
Does anyone still take Mr. Greenspan's pose as a nonpartisan font of wisdom seriously?
When Mr. Greenspan made his contorted argument for tax cuts back in 2001, his reputation made it hard for many observers to admit the obvious: he was mainly looking for some way to do the Bush administration a political favor. But there's no reason to be taken in by his equally weak, contorted argument against reversing those cuts today.
To put Mr. Greenspan's game of fiscal three-card monte in perspective, remember that the push for Social Security privatization is only part of the right's strategy for dismantling the New Deal and the Great Society. The other big piece of that strategy is the use of tax cuts to "starve the beast."
Until the 1970's conservatives tended to be open about their disdain for Social Security and Medicare. But honesty was bad politics, because voters value those programs.
So conservative intellectuals proposed a bait-and-switch strategy: First, advocate tax cuts, using whatever tactics you think may work - supply-side economics, inflated budget projections, whatever. Then use the resulting deficits to argue for slashing government spending.
And that's the story of the last four years. In 2001, President Bush and Mr. Greenspan justified tax cuts with sunny predictions that the budget would remain comfortably in surplus. But Mr. Bush's advisers knew that the tax cuts would probably cause budget problems, and welcomed the prospect.
In fact, Mr. Bush celebrated the budget's initial slide into deficit. In the summer of 2001 he called plunging federal revenue "incredibly positive news" because it would "put a straitjacket" on federal spending.
To keep that straitjacket on, however, those who sold tax cuts with the assurance that they were easily affordable must convince the public that the cuts can't be reversed now that those assurances have proved false. And Mr. Greenspan has once again tried to come to the president's aid, insisting this week that we should deal with deficits "primarily, if not wholly," by slashing Social Security and Medicare because tax increases would "pose significant risks to economic growth."
Really? America prospered for half a century under a level of federal taxes higher than the one we face today. According to the administration's own estimates, Mr. Bush's second term will see the lowest tax take as a percentage of G.D.P. since the Truman administration. And don't forget that President Clinton's 1993 tax increase ushered in an economic boom. Why, exactly, are tax increases out of the question?
O.K., enough about Mr. Greenspan. The real news is the growing evidence that the political theory behind the Bush tax cuts was as wrong as the economic theory.
According to starve-the-beast doctrine, right-wing politicians can use the big deficits generated by tax cuts as an excuse to slash social insurance programs. Mr. Bush's advisers thought that it would prove especially easy to sell benefit cuts in the context of Social Security privatization because the president could pretend that a plan that sharply cut benefits would actually be good for workers.
But the theory isn't working. As soon as voters heard that privatization would involve benefit cuts, support for Social Security "reform" plunged. Another sign of the theory's falsity: across the nation, Republican governors, finding that voters really want adequate public services, are talking about tax increases.
The best bet now is that Mr. Bush will manage to make the poor suffer, but fail to make a dent in the great middle-class entitlement programs.
And the consequence of the failure of the starve-the-beast theory is a looming fiscal crisis - Mr. Greenspan isn't wrong about that. The middle class won't give up programs that are essential to its financial security; the right won't give up tax cuts that it sold on false pretenses. The only question now is when foreign investors, who have financed our deficits so far, will decide to pull the plug.
E-mail: krugman@nytimes.com
Bob Herbert is on vacation.
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Sunday, February 27, 2005, 12:00 A.M. Pacific
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David S. Broder / Syndicated columnist
The sorry fiscal record of a "conservative" administration
WASHINGTON — Back-to-back briefings last week put a harsh spotlight on the deep hole left by the budget policies of George Bush's first term. Millions of Americans will be paying the price for the fiscal profligacy of this misnamed conservative government.
The bad news, delivered in the first report, is that the camouflaged domestic spending cuts contained in the Bush budget will — if accepted by Congress — do serious damage to education initiatives, low-income assistance and environmental programs over the next five years.
The worse news, documented in the second report, is that these cuts will not even begin to deal with the looming calamity of runaway entitlement spending on the retirement and health-care costs of the baby-boom generation.
You won't find either of these warnings spelled out in the budget message of the president. An analysis by the liberal Center on Budget and Policy Priorities noted that for the first time since at least 1989, the White House Office of Management and Budget failed to give Congress or the news media information on the proposed spending on most domestic programs beyond the coming year.
These "domestic discretionary" programs — covering all the routine functions of government, except for defense, homeland security and international affairs, and the entitlement programs like Social Security, Medicaid and Medicare — span the gamut from national parks to medical research.
They are financed by annual appropriations from Congress. Bush gave detailed directions on how he wants $18 billion saved on these programs next year, but then urged Congress to impose spending caps for the next five years that would reduce spending in these areas by $214 billion total — without spelling out any of the specific cuts. (Savings in all cases are measured against the fiscal 2005 spending on these programs, adjusted only for inflation.)
By studying the spending caps Bush proposed for the 57 broad functions included in the domestic discretionary budget, the center's experts calculated how much would have to come out of individual programs — assuming Congress accepts Bush's priorities.
The results are startling. Elementary and secondary education programs, including the president's No Child Left Behind initiative, would be cut by $11.5 billion over the next five years to stay within the caps, with the 2010 year alone seeing a 12-percent reduction from inflation-adjusted 2005 levels.
The WIC program, which subsidizes the diets of low-income pregnant women and nursing mothers — a major preventive measure against low-weight babies — would be cut by $658 million, enough to reduce coverage in 2010 by 660,000 women. Head Start funds would be reduced $3.3 billion over five years, with 118,000 fewer youngsters enrolled in 2010.
Clean-water and clean-air funding would decline by $6.4 billion over five years, a 20-percent cut in 2010. Community-development programs used by cities to build up impoverished neighborhoods would lose $9.2 billion in five years, a 36-percent cut in 2010.
Most of these cuts would come out of state and local budgets, adding to the burdens their taxpayers would have to take up if services are to be maintained.
As Bob Greenstein, the center's director, commented, cuts of this magnitude would be bitterly contested if Congress had to justify them to the people who care about each of these programs. But by asking instead for a vote this year on enforceable five-year caps on these broad categories of spending, the administration hopes to accomplish its goals without arousing the same degree of controversy.
The irony is that even if all this were done, the biggest budget problem would still remain. Medicare and Social Security benefits for the huge demographic wave of boomers, who start to turn 62 in just three years, make the current budget policies "unsustainable" for the long-term. That was the word used repeatedly at a briefing by David Walker, the head of the nonpartisan Government Accountability Office, Congress' watchdog agency, and others.
Reform of these major entitlement programs is the pressing need to avoid a budget train wreck in the next generation, but Bush has offered little leadership on that. His Social Security plan — for individual savings accounts — does nothing to address the shortfall in that system. And his "contribution" to solving the more pressing crisis in Medicare has been to add an unaffordable prescription-drug benefit to the program.
It is a sorry record for a conservative administration, and we are just beginning to recognize its price.
David S. Broder's column appears Sunday on editorial pages of The Times. His e-mail address is davidbroder@washpost.com
http://www.news.com.au/story/0,10117,12356131-29277,00.html
Oil Exporters Behind Weak Dollar-Soros
Monday February 21, 5:23 AM EST
By Mona Megalli, Gulf Economics Correspondent
JEDDAH, Saudi Arabia (Reuters) - Moves by Middle East oil exporters and Russia to switch some revenue from dollars to euros lie behind the U.S. currency's weakness, and a further rise in crude prices could prompt more declines, the billionaire investor George Soros said on Monday.
Soros told delegates to the Jeddah Economic Forum that the dollar's fall should help to lower the U.S current account and trade deficits, but warned that a fall beyond an undisclosed "tipping point" would severely disrupt markets.
The U.S. current account deficit is more than five percent of gross domestic product despite the currency's three-year slide. The dollar, however, has staged a comeback recently, gaining about 3.6 percent against the euro and three percent versus the yen so far this year.
"The oil exporting countries' central banks ... have been switching out of dollars mainly into euros and Russia also plays an important role in this. That is, I think, at the bottom of the current weakness of the dollar," Soros said.
Soros, dubbed "The Man who broke the Bank of England" for his role as a hedge fund manager in betting the pound would drop in 1992, said he was not predicting further falls in the value of the dollar. But he linked its fate to the price of oil.
"The higher the price of oil the more the dollars there are to be switched to euro (so) the strength of oil will reinforce the weakness of the dollar," he said. "That is only one factor, but I think there is such a relationship."
U.S. crude hit a record $55.67 a barrel late last year and prices remain close to $50 a barrel.
In later comments to Reuters, Soros said the U.S. current account deficit could be financed at the current level of the dollar. "There are willing holders of the dollar. There are the Asian countries that are happy to accumulate dollar balances in order to have an export surplus and a market for their dollars," he said.
Soros would not make detailed comments on why long-term borrowing costs have fallen in the face of short-term rate increases, a development U.S. Federal Reserve Chairman Alan Greenspan said on Wednesday he found difficult to explain.
"A flattening of the yield curve is usually an indication of a slowing economy, but here I don't know," Soros said.
The Hungarian-born financier, a critic of U.S. involvement in Iraq, said he was considering backing an Arab foundation to promote the ideals of civil and open societies in the region.
©2005 Reuters Limited.
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