Taking Note

Safe as Houses

Why do people keep buying those worthless IOUs?

The returns on short term Treasury Bills are approaching the 1 percent rate last seen in 2003. Financial experts describe this rally in the Treasury market as a “flight to quality.” Investors and institutions are properly frightened and uncertain about the future prospects of all sorts of securities, so they are shifting money into U.S. obligations. This drives returns down, but at least the money is safe.

Or is it?

Back in 2005, during the last big push to scrap Social Security, the President and other high Bush Administration officials such as the Secretary of the Treasury trotted out the old red herring that the Treasury obligations held in the Social Security Trust Funds are just “worthless IOUs.” Now this was strange talk from a chief executive and his chief financial officer. To the uninitiated it might seem likely to set off a run on the bank and sharp decline in the value of the Treasury securities that are publicly traded. But the market knew better than to take this talk seriously. Bills and bonds continued to be priced and traded as though nothing had happened. In fact, not long after this flurry of disparaging remarks, the Administration announced that it was bringing back the 30 year Treasury Bond (which had been discontinued) and the market was ready to buy up as much as the government was willing to issue.

But why?

In league with democracies?

It was a bad idea when Pat Robertson proposed it in his 1988 presidential campaign. It was a bad idea when sundry Democratic policy intellectuals advanced it in the first flush of the invasion of Iraq. And it is still a bad idea when John McCain makes it a centerpiece of his foreign policy platform: a "League of Democracies."

What is the U.S. End Game in Basra?

Various explanations have been posited to make sense of the ongoing Iraqi Army operation codenamed Sawlat al-Fursan (Attack of the Knights), which has been directed against the Jaysh al-Mahdi (JAM) throughout the south of Iraq. Marc Lynch summarizes the various theories that have gained traction in explaining the motivations for launching the Basra offensive at this juncture and most of the more persuasive arguments focus on the motivations and rationales of the Iraqi actors:

 [1]  "Iran is liquidating its no-longer-useful proxies" theory (which would fit this general line of speculation about Iran's doubts about Sadr and preference for the simultaneously-US backed ISCI) to the notion that is generally most prevalent (in the Iraqi and Arab, not just Western, media) that [2] "Maliki and ISCI are liquidating their more popular rivals ahead of the provincial elections" theory; the optimistic [3] "Sadr has lost power and now's the time to take him out" theory (thus far not borne out by the course of the fighting, but who knows - it's early, or it could be a miscalculation); [4] Maliki's own "it's time to establish state sovereignty over a 'lost' province" theory (which Bush, of course, has embraced, and is supported by the reporting that the Iraqi Army began its preparations for the attack months ago;  but then why isn't he taking on the other militias and warlords? and why would he start now, and in Basra?); and [5] Reidar Visser's "Maliki is trying to build a power base in the Iraqi Army" theory.

More on the Safety Net

A couple of days ago when the annual report of the trustees of the Social Security funds was made public, we noted how the administration, as usual , put as negative as possible a spin on the information.

It’s easy to understand why. As many have noted, this is typical of the way the Social Security story is told. Despite the fact that the program is actually not in bad shape and could be fixed with minor tweaking, the administration remains ideologically and politically committed to eliminating Social Security and replacing it with private accounts. There is strong support for this idea on Wall Street, since it would mean a windfall of commissions and fees as millions of Americans switched to this riskier and uncertain form of retirement security. But politically, the idea hasn’t really gotten anywhere and, of course, it’s off the public table this year as the markets and financial institutions around us are crashing.

Obstacles to Health Care Reform: Lobbyists

Imagine a society that lets its automakers oversee crash tests on new models, allowing the industry to report results, as it sees fit, to government and consumers. Sometimes, an automaker might not reveal the outcome of a test that turned out badly, deciding that the dummies in the vehicle had been too short—no wonder their chests were crushed!

In other cases, a company might postpone reporting on crash test results for a year or two, hoping that later trials would turn out better. In these cases dozens of trials might be required in order to achieve the desired outcome. The car maker would, of course, pass the additional costs along, in the form of higher sticker prices.

In this society, crash tests are not run and paid for by an independent entity like our National Highway Traffic Safety Administration (funded by taxpayers) or the Insurance Institute for Highway Safety (funded by insurers). Instead, the auto industry itself finances and controls the trials. Automakers also provide most of the funding for the government agency that rules on car safety. Finally, under this system, head-to-head comparisons of cars in a similar weight class are frowned upon. Such trials would create winners and losers—and who wants to be a loser? Instead, each company tests its own cars, and when outcomes finally are published, they tend to be excellent.

The Sky Is Falling (again)

The latest annual report from the Trustees of the Social Security system can be read two ways: 1) the situation is unchanged from a year ago or 2) this is the Administration’s last chance to undermine confidence in the country's two most important domestic programs.

Guess which version the Bush officials involved picked?

These folks have been advocates of privatizing Social Security for years. However, they are steering carefully around that one in these times of falling stock markets and failing financial companies. Temporarily denied their favorite prescription, they’re stuck uttering gloomy and portentous sentences about America’s future and offering no remedies at all.

Social Security: Still Alive and Kicking

With the mistakes of private speculators and public regulators spectacularly on display in financial markets, this might not seem like the best time to sing praises of privatizing the safety net. This year, as happens every year, when the Trustees' Report on Social Security and Medicare is released, commentators seized on the forecasts to proclaim imminent disaster and called for privatization of Social Security.  In fact, the official forecasts, released yesterday, differ only marginally from those of 2007. The report underlines that we need to solve problems in these safety net programs.  But there is no imminent Social Security crisis; in fact, the outlook is marginally better than it was a year ago.

Here is an example (by Martin Crutsinger, Associated Press economics writer) of the misleading coverage of the entirely predictable information in the report.

"President Bush, who wanted to make overhauling Social Security his top domestic priority in his second term, ...has been unable to forge a consensus with Democrats, who took control of Congress in 2006... Bush [wanted] to allow younger workers to direct their payroll tax contributions into private accounts, an idea that went nowhere in Congress.

"While the Social Security trust fund will have resources until 2041, the more critical date in terms of government revenues will occur in 2017. That is the date that Social Security will have to pay out more in benefits than it collects in payroll taxes. At present, Social Security is running large surpluses that are going to fund the rest of government.

Social Security and Medicare: Separate and Not Equal

The New York Times tells a familiar story: "The Bush administration issued a grim report on the financial outlook for Medicare and Social Security on Tuesday."  This story conflates the two "entitlement programs" for old people, Social Security and Medicare, and tells us that the combined financial outlook is catastrophic.  The story is not false; the combined financial outlook of these two programs is very bad. But the combined outlook hides a huge difference between the two. Social Security is potentially easy to fix.  Medicare is caught in the same horrible mess of exploding health care costs that plagues Americans of all ages.

One could just as well write, "Our care of the young is a mess. Public schools and the public health care system are failing to provide services to most young people." This statement is right about health care and wrong about public schools.  Most public schools do a good job while public health care for the young does not. Similarly, Social Security is in pretty good shape while Medicare is not.

Forget Baseball

Surely the most frustrating aspect of the ongoing controversy over human growth hormone (HGH) in Major League Baseball is investigators' insistence that punishing doped-up athletes is all about protecting children. During last month’s high-profile Congressional grilling of Roger Clemens, for example, Representative Tom Davis (R-Va.) said that legislators have a duty to “discredit the crass messages” of drug use that are “aimed at our children.” Representative Elijah Cummings (D-Md.) seconded this lofty notion, saying that Congress’s HGH crackdown is “all about children trying to emulate their sports stars.”

Judging from these comments, priority number one in the steroid scandal is ensuring that kids don’t follow in the footsteps of dangerous role models. As compassionate as this sentiment may be, if our leaders really want to ensure the welfare of America’s children, there are far better places to start than baseball. The well-being of America’s kids is far more threatened by America’s weak social safety net than it is by misbehaving athletes.

$500 Million Well Spent

Over the weekend the World Food Programme (WFP), the U.N.'s food aid agency, sent out an “extraordinary emergency appeal” to donor countries asking them to help make up for a $500 million shortfall in its budget. The agency is strapped for cash thanks to rising food and fuel prices--and the world’s poorest people are about to be dealt a serious punch to the stomach unless the WFP is able to come up with supplemental income by May 1st.

On any given day the WFP may feed up to 70 million hungry mouths in the world. Josette Sheeran, Executive Director of WFP, reports that the cost of their food purchases “has risen 55 percent since June 2007.” Transportation prices are also increasing, and in an effort to cope the agency has been buying more and more food from sources close to the areas receiving aid. But these efforts have not been enough to make up for the blistering rate of food inflation. Unless it receives additional money to make up for the higher prices it must pay for both food and transportation, Sheeran warns the WFP will be forced to cut rations--dealing a devastating blow to those who need food the most.