Dean Baker: The Return of Larry Summers?

According to accounts in the business press, there is a campaign among Washington insiders to get Larry Summers appointed as Ben Bernanke’s replacement as Federal Reserve Board chair. This could end up being the scariest horror movie of the summer.

It is bizarre that Summers would be seriously considered as the next Fed chair if for no other reason that there is an obvious replacement for Bernanke already sitting at the Fed. Janet Yellen, the vice-chair, has in the past served as the president of the Federal Reserve Bank of San Francisco, a member of the Board of Governors in the 1990s and head of President Clinton’s Council of Economic Advisers. She also has an impressive academic background, having been a professor at both Berkeley and Harvard.

No woman has ever served as chair of the Fed and Yellen would be an obvious choice to break the barrier. She also has been a consistent advocate of expansionary Fed policy focused on reducing unemployment. In terms of people who could plausibly make the short list for Fed chair, it is difficult to imagine a better choice than Yellen.

But even if President Obama were to decide for some reason not to promote Yellen to Bernanke’s position, it is difficult to see why Summers would be the alternative. Memories tend to be short in Washington, but those of us removed from elite circles know that Summers’ policies played a central role in setting up the economy for the crash that got us where we are today.

Summers was a key actor in the Clinton economic team that pushed for bigger and less regulated banks. He was there for the repeal of Glass-Steagall. He was also among those hectoring Brooksley Born, when the then head of the Commodity Futures Trading Commission argued that it would be a good idea to regulate derivatives. And he famously ridiculed as Luddites those warning of the risks of financial deregulation at the Fed’s Greenspanfest in 2005.

Even more important than his role in pushing financial deregulation is the fact that Summers played a direct role in promoting the imbalances from which the economy continues to suffer. The trade deficit was relatively modest through President Clinton’s first term in office, averaging just over 1 percent of GDP.

This changed dramatically in 1997 following the East Asian financial crisis. The basic story was fairly simple. The crisis knocked the fast-growing economies of the region off their feet. South Korea, Thailand, and the other economies of the region saw a massive capital flight as creditors rushed to take their money home.

The IMF, acting under the direction of then-Treasury Secretary Robert Rubin, Federal Reserve Board Chair Alan Greenspan, and Rubin’s top assistant Larry Summers, agreed to a bailout, but only with harsh conditions. They required the East Asian countries to pay back their debts in full. In order for this to be possible, the currencies of the region plunged in value against the dollar. This made their goods very cheap and allowed them to hugely increase exports to the United States.

Seeing the harsh terms imposed by the I.M.F. on the East Asian countries, developing countries throughout the world decided that they must protect themselves by accumulating vast amounts of reserves. This meant lowering their currencies against the dollar so that they could run large trade surpluses.

The resulting run-up of the dollar was the cause of the huge trade deficits the United States has seen over the last 15 years. The trade deficit peaked at almost 6 percent of GDP ($960 billion in today’s economy) in 2006, as the over-valued dollar made U.S. goods and services less competitive in the world economy.

The huge trade deficit created a gap in demand that was filled by the stock bubble in the late 1990s and the housing bubble in the last decade. Since the collapse of the housing bubble, much of the demand gap has been filled by the budget deficit. The need to fill the hole in demand created by the trade deficit has been the economy’s central problem over the last 15 years. And this problem has LARRY SUMMERS written all over it.

This fact alone should be sufficient to keep Summers safely removed from anything resembling a position of power well into his next life, but there’s more. Summers has been very close to the financial industry, pocketing millions of dollars in fees for speaking and consulting. Would this affect his willingness to put an end to Wall Street’s too-big-to-fail subsidy as Fed chair?

Even Summers’ successes are failures. The business press often touts his role in the bailout of Mexico following the peso crisis in 1994. Those of us with access to IMF data know that Mexico has had the lowest per capita GDP growth of any major country in Latin America over the last two decades.

There has been more talk of “the new Larry Summers” than the new Dick Nixon. Maybe such an animal exists, but those of us who remember the old Larry Summers would like to keep anyone with that name far away from the levers of power for a very long time.

 

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Dean Baker: The Return of Larry Summers?

Joe Duran: Reviving Financial Education

For better or for worse, money pervades the fabric of American life. Money funds our life-résumés, from our most basic needs to our most extravagant experiences, but it is also the leading contributor to divorce, domestic abuse, stress, and low college persistence rates.

Given the considerable influence of money on the American psyche, one may imagine our society would go to great lengths to promote proven financial education strategies. In fact, we do. Millions of dollars are spent each year on financial education programs to educate our populace on the costs and benefits of sound money management. Unfortunately, to date, financial education has been remarkably unsuccessful.

A 2009 study found that students who have taken financial literacy courses are no more financially literate than those who have not. The effects of poor financial education are as disturbing as they are ubiquitous.

13 percent of U.S. adults use prepaid cards for everyday transactions.

33 percent do not pay their bills on time.

39 percent do not have non-retirement savings.

The Center for Financial Education uncovered more dismal revelations on the state of American personal finance:

132 million adults lack emergency savings.

The average borrower carries almost $11,000 in credit card debt.

More than half of American adults have subprime credit scores.

Needless to say, we are in dire need of financial education reform. This lack of progress hardly justifies the individual, corporate, and government money spent annually on financial education. To ignite true change, the financial education industry needs to expand its focus from mere knowledge acquisition to actual knowledge application. The industry can achieve knowledge application by cultivating organizations that think practically, take risks, and aim high.

Think Practically

Too many financial literacy programs waste time on impractical or outdated financial instruments, such as paper tax forms, bank reconciliations, and handmade budgets. But research suggests Americans are unlikely to utilize such tools. 90 percent of Americans rely on professionals or computer software to complete their taxes, only 13 percent of people balance their checking accounts, and less than half create a budget at all. Why waste time teaching concepts our students will never use?

The complex and uninspiring nature of current financial education materials makes retention improbable. Instead of teaching these outdated modes of financial literacy, programs should strive for financial capability, which can best be achieved through relevant, timely, actionable, and ongoing education. Instead of counting the number of terms students memorize and forms they recognize, financial educators should measure student mastery through behavioral change and other tangible, financial outputs.

Take Risks

We must support financial education organizations that are willing to take risks. For inspiration, the financial education industry should look to organizations in education reform. Teach for America places thousands of young teachers in under-resourced schools. Charter networks spark ideological battles on the future of public education. KIPP continues to mainstream Harriett Ball’s mnemonic teaching strategies.

Notwithstanding the criticism that often attaches itself to these organizations, each has brought significant intellectual, monetary, and media attention to one of the biggest issues of our time: the educational achievement gap. Financial education needs similar divergence from the common course in order to incite true change. Donors looking to maximize their contributions should consider funding financial education catalysts, whose relative youth and lean balance sheets can produce transformative energy and higher risk profiles.

Aim High

Realistically, improving financial education is not enough to solve the widespread economic and societal issues facing our country. Promoting new businesses, seeking policy change, and driving investment in organic businesses will go a long way towards revitalizing America’s low-income neighborhoods. We must think outside the box about how to inspire entrepreneurial spirit, communicate policy needs to Washington, and infuse capital into our most impoverished areas. How will we educate a new generation of entrepreneurs? How will we stimulate opt-out retirement, anti-predatory lending, and financial education mandate policy? How will we finance small businesses in our emerging domestic markets?

Operation HOPE, the torchbearer in the Silver Rights Movement, exemplifies the big-picture thought leadership needed in the financial education space. By 2020, the organization aims to empower 5 million young Americans through targeted financial education, train 1 million young entrepreneurs within their “business-in-a-box” program, and establish 1,000 branch banks in low-income communities. Unfortunately, such ambitious industry stalwarts are rare.

The failures of financial education have plagued our society for decades. With Americans facing perishable pensions and waning net worth, financial education will continue to take center stage as one of the primary issues facing our country. Reviving financial education could ease economic hardship for millions of Americans, relieve government budgets, and reestablish the United States’ claim as the premier world leader in economic growth, opportunity, and mobility.

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Joe Duran: Reviving Financial Education

Reboot Illinois: Flat income tax? Progressive tax? No state income tax? A nationwide overview

The 1970 Illinois constitution states that Illinois’ state income tax must be applied with one rate paid by all taxpayers.

Illinois is one of nine states with flat-rate income tax. There are 34 states that use a graduated income tax system in which the percentage of income tax owed goes up with a taxpayer’s income. Seven states, meanwhile, have no income tax.

In 2011, Illinois raised its income tax from 3 percent to 5 percent in order to combat both a multi-billion-dollar backlog of unpaid bills and to prop up a failing public pension system. But two years later, the backlog of unpaid bills hovers around $8 billion and despite nearly all the new tax money going into the pension system, the state now carries a $100 billion unfunded pension liability. The new tax rate brings in roughly another $7 billion a year, but most of that will disappear on Jan. 1, 2015, when the tax rate is scheduled to fall back to 3.75 percent.

Against this background, a bill has been introduced in the Illinois House to amend the state constitution to allow Illinois to consider adopting a graduated income tax. Proponents say a progressive system will bring in more money for the state while reducing tax bills for middle- and low-income taxpayers. (Here’s one view in favor of a progressive tax system.)

Opponents, though, say all of this is merely a money grab by a government that has run the state into the ground through poor management. They say that ultimately a progressive system would result in the vast majority of taxpayers paying more each year — especially when contrasted with the pre-2011 3 percent rate and even the 3.75 percent flat rate scheduled to become law in 2015. (Find a detailed explanation of this view here.)

So where does Illinois fit in the national state income tax picture? Here’s a look. We’ve also included a table at the bottom of the chart that shows the widely varying range of tax brackets and income levels other states use to define their progressive tax systems. You’ll be hearing a lot about this issue in the months to come, as supporters of a progressive system for Illinois want to see a constitutional amendment placed on the November 2014 ballot.

 

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Reboot Illinois: Flat income tax? Progressive tax? No state income tax? A nationwide overview

Pete Hegseth: Put Away the Pom-Poms: Tackling Spending, Debt Still Needed

2014 budget demonstrates that we do not need to choose between making critical investments necessary to help grow our economy and support middle class families and continuing to cut the deficit in a balanced way,” she writes.

Well, okay. A smaller deficit is welcome, but we’re nowhere close to a responsible fiscal course, and the president’s ever-expanding spending plans — and desires to hike taxes even more — won’t get us there either.

According to recent estimates from the nonpartisan Congressional Budget Office, the U.S. is on track for a steady stream of deficits every year between now and 2023 — which means another decade of fiscal policy that will continue adding to our nearly $17 trillion debt.

The president has had almost five years to make “critical investments necessary to help grow our economy,” and yet we’re still stuck in a jobless “recovery” that stretches the definition of “recovery.” Unemployment remains high — the topline rate of 7.6 percent obscures the fact that millions of Americans have dropped out of the workforce entirely or are underemployed in part-time jobs.

Meanwhile, quarterly growth estimates remain sluggish, with economists recently scaling back their expectations for future growth. These are not the hallmark signs of a vibrant economy, and no amount of cheerleading from the president’s admirers — who have convinced themselves that a surging stock market is the same thing as a healthy economy — will change that fact. It seems, to them, the difference between Wall Street and Main Street only exists in election years.

If the president and his Washington allies truly want to grow the economy, reduce the deficit, and restore proper budget prioritization, how about starting with something they can control — enacting spending and tax reform that will restrain the growth of government, reduce our $17 trillion national debt, and incentive businesses — especially on Main Street — to invest in the future of their workforce and this country.

That was the consensus view at a presentation on the “The Need for Spending Reform” that Concerned Veterans for America (CVA) hosted in Washington on July 11, where a bipartisan group of speakers and panelists emphasized the need for fiscal responsibility.

Not all agreed on the best path toward that goal — but all agreed that Washington can’t afford to be complacent when facing down our historic debt burden. Unfortunately, the news of slightly smaller deficits — coupled with mindless spending cuts under sequestration — appears to be feeding into that very sense of complacency.

Fortunately, there are opportunities on the horizon to restrain spending — and one of the event’s keynote speakers, Senator Marco Rubio, highlighted that fact. Senator Rubio said the following about the forthcoming debt ceiling debate:

“We should refuse to raise the debt limit by one single cent unless we pass and the president agrees to sign a budget that shows us how we’re going to get to balance in at least 10 years. This is not an unreasonable request. They will say that it is. But it is not. They will say ‘oh, you’re going to risk default.’ The $17 trillion debt is the risk of default. The lack of any plan to fix it is the risk of default.”

Senator Rubio is right to tie raising the debt limit to spending reform — as he says, we can’t afford to maintain the status quo. In some fashion, the debt limit debate will be a legitimate leverage point to demand spending reductions at least equal to any debt limit increase. These reductions should be reforms that put federal spending on a sustainable path while putting safety-net programs — like Medicare and Social Security — back on sound fiscal footing.

Early in his first term, President Obama agreed with Senator Rubio — and seemed to understand we couldn’t afford to shirk our fiscal responsibilities. At his much-heralded Fiscal Responsibility Summit in February 2009, the president’s disdain for deficits and debt seemed clear: “Contrary to the prevailing wisdom in Washington these past few years, we cannot simply spend as we please and defer the consequences to the next budget, the next administration or the next generation,” Obama declared.

Wise words — but unfortunately there was no substantive follow-through, and in the intervening years the president has pursued virtually every avenue available for more government spending and found every reason not to implement much needed reforms to bloated bureaucracies.

Is it too much to ask that the president read back over his old speeches and strive to rediscover something of that old Obama, who spoke of deficit spending and debt as if they were dread diseases to be beaten back?

Perhaps then he’d be prepared to take on the challenge of reforming entitlement spending, as he pledged to do in January 2009. Yet four years later, spending for Medicare, Social Security and Medicaid has continued to command a larger share of the federal budget without a serious attempt from this president to make them solvent for future generations. Yet again, the president’s approach has been all talk, lots of demagoguery, and little action.

Over the last decade, across two consecutive presidential administrations, our nation’s leaders have failed to lead on fiscal issues. The resulting mountain of debt is the clearest manifestation of that failure. Now it’s time for our leaders in Washington to make meaningful, credible efforts to return our nation to a sustainable fiscal path.

Pete Hegseth is the CEO of Concerned Veterans for America, and the former executive director of Vets for Freedom. Pete is an infantry officer in the Army National Guard, and has served tours in Afghanistan, Iraq, and Guantanamo Bay.

 

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Pete Hegseth: Put Away the Pom-Poms: Tackling Spending, Debt Still Needed

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Lonna Saunders: Eaton CEO Cutler: 'Butch Cassidy and the Sundance Kid' Our Debt

When Eaton Chairman/CEO Alexander “Sandy” Cutler played football at Yale, winning wasn’t about who was a Republican or Democrat, it was about pulling together as a team.

Meeting in Washington for the Campaign to Fix the Debt’s National Fly-In on July 17th, were members of state chapters at 73 congressional offices.

Sandy Cutler, co-chairs the non-partisan, national Campaign to Fix the Debt for the state of Ohio, along with Akron Mayor Donald Plusquellic (D), and former Ohio Gov. George Voinovich (R). Cutler addressed a City Club of Cleveland Friday forum as a prelude to National Fly-In Day.

“Today, it’s not safe for those in the Senate and House to compromise within their own party. If they do, they can be unelected by their own party. We need something to give them cover. To help educate the American public on how the national debt can be fixed so they can compromise without sacrificing their seats.” That cover according to Cutler, is the bipartisan Campaign to Fix the Debt at fixthedebt.org. Its motto: “Inaction is not an option.” They hope the Obama admininstration will provide some cover, too.

A Milwaukee native, who nows calls Cleveland home, Sandy Cutler urged the luncheon crowd to get educated through the nonpartisan Campaign to Fix the Debt website, and then armed with this newfound knowledge, to weigh in with their representatives in Washington. To become knowledgeable about the specifics so they can challenge their legislators.

“Don’t ever believe your voice doesn’t count if you are articulate and well-educated on the subject. When those in Congress don’t hear from you, they fall prey to the small extremes on both ends of the equation who are pulling them in different directions.” He encouraged those present to become informed citizens and to express themselves to their legislators who will respond. To fill up their email inboxes. Telephone them.

“Nothing can be more fundamental to being an American than fixing the debt. We must get all policymakers to recognize this is a serious problem that can not be put off. We can’t keep postponing it.”

“We need a plan that hits both revenues and expenses. Both have to be in the game. It must be enacted now. We are in a very fragile economic recovery. We need job growth. We need good jobs. Growth is critical. But growth is not enough by itself. We won’t grow ourselves out of this.”

Besides Cutler, other members of the Steering Committee of the CEO Fiscal Leadership Council of the Campaign to Fix the Debt include Microsoft CEO Steve Ballmer and PricewaterhouseCoopers Chair Robert Moritz. Just a few names on a long list.

This non-partisan group has been working on getting others to join them and get this done. Co-founders of the group are former Clinton White House Chief of Staff Erskine Bowles, and former Sen. Alan Simpson (R-WY). Anyone can join. There are some 345,000 members and growing.

“If we start now, and the time is now,” maintains Cutler, “We can get it done in 10 years. But everyone has to be willing to give a little. We are working at finding the mechanisms to do this on a gradual basis. It can’t be all done in a year. Done over a ten year time period allows us to get the debt down to acceptable levels in 2023.” Start by everyone getting to the middle of the table and being willing to compromise, says Cutler. Instead of proceeding from the extreme ends.

“Scare tactics by both political parties are non-constructive,” cautions Cutler. Such as talk of jumping off a fiscal cliff. Think instead, Cutler offers, of Butch Cassidy and the Sundance Kid and their jump off a cliff memorialized by actors Paul Newman and Robert Redford in the 1969 film. Pointing out the pair survived their jump, Cutler talks of a jump into opportunity.

He emphasizes the Campaign to Fix the Debt, has no set agenda. No ironclad plan. They are willing to listen and incorporate ideas from all comers, regardless of background or political affiliation.

Eaton’s CEO urged, “Stand up and take it head on and solve the problem. Otherwise, we become the first generation of Americans to let our children live in a country that doesn’t have the prospects we did. That is unconscionable.”

He closed with these words: “The time to act is now. The person who can act is you. The power comes from all of us.”

Reminding us of pioneering Cleveland talk radio powerhouse, WERE-AM Radio in the ’70s, “WERE the talk of Cleveland.” “People Power, People Power.” WERE’s slogan.

Changing the world for the better. Our generation promised we would.

Lonna Saunders may be reached at lonna2

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Lonna Saunders: Eaton CEO Cutler: 'Butch Cassidy and the Sundance Kid' Our Debt

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