Author: David Dayen

photo: turtlemoon via Flickr

President Obama is holding a town hall right now in Nashua, New Hampshire that was both a teachable moment and also incredibly revealing about the bankruptcy of the President’s spending freeze.

The President, responding to a question about Judd Gregg’s fiscal commission, said that people have misconceptions about the budget. He said that, if you talk to people, they’d say that the waste in the budget comes entirely from foreign aid and pork. He calmly laid out that foreign aid represents 1% of the overall budget, and “pork” represents 1% as well. “What really accounts for our federal budget is Medicare, Medicaid, Social Security, defense, interest on the national debt,” Obama said. He said that if you wanted to cut the deficit using solely discretionary non-defense spending, exempting entitlements and defense, you would have to cut everything else by over 60% (I think his math is off; you’d probably have to eliminate them completely). “Can you imagine? So we’ve got to have an honest conversation about all aspects of the budget,” he closed.

We sure do. That’s why focusing on a spending freeze on those same discretionary non-defense parts of the budget as the centerpiece of fiscal responsibility is so unserious. Obama essentially delivered the argument against the freeze.

What Obama failed to say is that the cause of the deficit is extremely simple – the Great Recession. We both lose tax revenue when millions of Americans are out of work, and we have to spend on unemployment and public health and welfare programs at the same time (known as automatic stabilizers). And yet, despite this known reality, it’s the deficit that’s seen as a prelude to American decline and not the the unemployment crisis, that “human recession” which the Obama Administration sees as perfectly reasonable to exist for close to another decade. Christina Romer just rolled this out the other day, a benchmark of 8% unemployment at the end of 2012, without a hint of a problem at that. This is indeed a depressing reality, that concerns about the deficit have trumped this human crisis.

As many have pointed out, the administration projects high unemployment for years to come.

So what’s the response to this dismal, family-destroying prospect? A brief, small additional stimulus, followed by a spending freeze. In essence, the administration is accepting mass unemployment as just one of those things we have to live with […]

While the freeze won’t be a big deal, it will depress demand during a period in which, according to the administration’s own projections, unemployment will stay very high.

What we’re witnessing is an awesome national failure.

We don’t know if the President’s budget projections will turn out; these things are unpredictable. What we do know is that we’re in the midst of mass unemployment and the Administration is playing small-ball on spending freezes that they admit won’t do a thing on the deficit side, without coming up with anything to deal with the jobs crisis.

Brendan Nyhan and Matt Yglesias have more.

UPDATE: Rich Trumka, President of the AFL-CIO, says this pretty plainly in a statement. I’ve bolded the key point:

In Washington, too much attention is being paid to the budget deficit—most of which President Obama inherited from his predecessor. Not enough attention is being paid to our massive “jobs deficit.” We need to create over 10 million new jobs just to get back to where we were when the recession began. This massive jobs deficit demands bold, urgent action to create new jobs and grow the middle class. In any case, the most effective way to reduce the budget deficit is to eliminate the jobs deficit.

UPDATE II: Ugly.

I think that Adm. Mike Mullen’s powerful statement today on ending discrimination in the armed services is driving the fundies a bit crazy. Chris Matthews hosted a debate between Aubrey Sarvis of the Servicemembers Legal Defense Network and Peter Sprigg of the Family Research Council about the military’s don’t ask don’t tell policy, and eventually we got around to Sprigg’s real agenda. Do watch the whole thing to see Sprigg’s bankrupt arguments and Aubrey Sarvis’ rebuttals (”No one should have to lie to fight and die for their country”), but skip to around 4:49 for the punch line:

MATTHEWS: What should a young woman or man, 22 years old, out of college, officer material, they want to serve their country. But they’re gay. What should they do? They want to serve their country?

SPRIGG: Well, they should serve it in some civilian capacity, and not join the military.

MATTHEWS: Why not?

SPRIGG: Because the presence of homosexuals in the military is incompatible with good order, morale, discipline and unit cohesion. That’s exactly what Congress found in 1993 and that’s what the law states!

[snip]

SPRIGG: Don’t ask don’t tell is the Clinton compromise policy which is actually incompatible with the law that was passed by Congress. There’s almost universal misunderstanding about that. I’d like to see us do away with this don’t ask don’t tell, and simply enforce the law that was passed by Congress.

[snip]

MATTHEWS: Let me ask you Peter, do you think people choose to be gay?

SPRIGG: Uh, people do not choose to have same-sex attractions, but they do choose to have homosexual conduct […]

MATTHEWS: Do you think we should outlaw gay behavior?

SPRIGG: Well, I think certainly-

MATTHEWS: I’m just asking you, should we outlaw gay behavior?

SPRIGG: I think that the Supreme Court decision in Lawrence v. Texas, which overturned the sodomy laws in this country, was wrongly decided. I think there would be a place for criminal sanctions against homosexual behavior.

MATTHEWS: So we should outlaw gay behavior.

SPRIGG: Yes.

It took all of eight minutes to get Sprigg to admit that he thinks gay sex should be illegal and that Supreme Court “wrongly” banned anti-sodomy laws. The notion that this is about “unit cohesion” or “military readiness” can be seen by this display as completely bogus: this is about controlling people’s personal lives, and demanding that the whole country live under a theocratic agenda.

Sadly, even Michael O’Hanlon of the so-called “liberal” Brookings Institution would rather bow to this need for discrimination in the military. The Chairman of the Joint Chiefs of Staff, however, does not. And that has teased out the real agenda of the antigay movement.

UPDATE: Mike Stark talked to some Senators on the Hill about DADT today.

Adm. Michael Mullen, Chair of the Joint Chiefs of Staff

Admiral Mike Mullen, the Chairman of the Joint Chiefs of Staff, said at the first Congressional hearing on the military’s Don’t Ask Don’t Tell policy in 17 years that “my personal belief is that allowing gays and lesbians to serve openly would be the right thing to do.” However, he cautioned that a year-long process in studying the effects of repealing the policy would be necessary.

Defense Secretary Robert Gates, saying that he fully supported the President’s decision to repeal the policy, and that “the question is not whether the military prepares to make this change, but how we prepare for it,” named two Pentagon officials to head the study, which would focus on a variety of issues. Jeh Johnson, the legal counsel for the Defense Department, and Gen. Carter Hamm, the commander of US Army Europe, would lead that process.

Mullen’s statement, which Sen. Mark Udall (D-CO) said would be “long remembered for its courage,” stands in sharp contrast to the response of the Joint Chiefs of Staff during the beginning of the Clinton Administration, the last time this policy was reviewed. Saying that he “understands perfectly the President’s desire to see the law repealed,” he stated his personal belief that the current policy “forces young men and women to lie about who they are.” In the end, Mullen said, “It comes down to integrity.”

Sen. Carl Levin (D-MI), the Chairman of the Senate Armed Sevices committee, said in his opening statement that we should “repeal this discriminatory policy,” and that ending it would contribute to the military’s effectiveness. By contrast, ranking member Sen. John McCain (R-AZ) noted a list of 1,000 former flag officers and generals who do not support repeal. “Numerous military leaders tell me Don’t Ask Don’t Tell is working, and I agree.” McCain expressed disappointment with Secretary Gates’ statement that the military must prepare for repeal, saying that it is Congress’ function.

Gates announced his one-year review, with its findings in the form of an implementation plan to be submitted by the end of 2010. The working group would 1) reach out to the force for their views and concerns, 2) look at changes to DoD regulations and policies (such as benefits, housing, fraternization, etc.), 3) look at military effectiveness (unit cohesion, retention). He will also ask the RAND Corporation to update their study of the impact on gays in the military. Responding to why this would take a year, Gates said, “When you take into account the overriding imperative to get this right, it is clear we must proceed in a manner that allows for a thorough examination of all issues.”

Gates also announced that, within 45 days, he would recommend changes, within existing law, “to enforce policy in a more fair manner.” He believes that there is a “degree of latitude” within existing law, similar to what was widely reported today, to reduce instances where a service member is outed by a third party with the intent to harm his or her career. He cautioned that “It’s a little more complicated than Wapo conveyed,” however, and he would not state support (or opposition) to a moratorium on discharges of gay and lesbian service members during the year-long assessment. While Gates believed current law would not permit that, Levin said that changes to the law could be made to accommodate a moratorium.

Mullen, while certainly favoring a go-slow approach to gather more information about the impact (”We would all like a better handle on these types of concerns”), said he would obey whatever the legislative and executive branch decided on the matter. However, his statement was undeniably powerful and had a moral force. Saying that “I have served with homosexuals since 1968,” Mullen said that the integrity of the military as an institution was dissonant with discriminatory policies. “Putting individuals in a position where they wonder, “is today going to be the day,” and devaluing them in that regard, just is inconsistent with us as an institution,” Mullen said.

UPDATE: Susan Collins’ questioning sure makes it seem like she would support a repeal. She asked about NATO allies who allow gays and lesbians to serve openly, and Admiral Mullen replied that “they tell me it has had no effect on their readiness or effectiveness.” There is at least one Republican vote for repeal.

UPDATE II: Sen. Lieberman: “I opposed DADT in 1993, and I oppose it today, so I support repeal.”

Last week, Newsweek reported that David Margolis, a career official at the Justice Department, softened an imminent Office of Professional Responsibility report about Bush “torture memo” lawyers John Yoo and Jay Bybee. Instead of sanctioning the two lawyers for their violating their professional obligations in writing legal opinions justifying torture, the report will now say, according to Newsweek, that they showed “poor judgment.” This will not open up Yoo or Bybee to sanctioning by state bar associations for disciplinary action, including possible impeachment for Bybee, now a federal judge. According to the article, Margolis acted “without input” from Attorney General Eric Holder.

I had the opportunity to ask Rep. Jerrold Nadler, of the House Judiciary Subcommittee on the Constitution, Civil Rights, and Civil Liberties, about this development. Nadler was in Los Angeles for an interview with Brave New Films’ “Conversations” series. Nadler was clearly unaware of the report, and replied, “It’s very upsetting to hear that. I should hold hearings on that. I’m interested in why a career employee would think his judgment would be better or worse” than the lawyers in the OPR who administered the initial report, he said.

I was surprised that I know more about this issue than a politician. I was really surprised that I knew more about this than a powerful politician. And I was especially shocked to know more about this than the ranking official on the relevant subcommittee in the House. If the Newsweek story is true, the Administration is making no effort to soften the blow in Congress.

Nadler reiterated his call for a special prosecutor in the matter of torture. “We are treaty-bound, and legally bound by federal statute, to investigate the commission of this crime. If Dick Cheney said he personally authorized waterboarding, and Eric Holder says waterboarding is torture, we are obligated to do something about that. So I think there should be a special prosecutor. I’ll try to do what I can to investigate, hold hearings, and open it up somehow.”

Multiple NGOs have called for hearings by Congress into the manipulation of the OPR report, and have said that the House Judiciary Committee does not need permission from the report to initiate impeachment hearings against Jay Bybee. Nadler did not comment on that in his remarks.

[Ed. Note: bmaz reported on the OPR scrub last Friday; Marcy has a detailed timeline of the report’s development.]

In a YouTube interview conducted today, President Obama reiterated his strong support for net neutrality, responding to a prominent question by one of the thousands of citizens who participated in the online town hall.

Here’s the exchange:

MR. GROVE: Great. Well, let’s move back to the questions. And I got to tell you, the number one question that came in, in the jobs and economy category had to do with the Internet. And it came from James Earlywine in Indianapolis. He said: “An open Internet is a powerful engine for economic growth and new jobs. Letting large companies block and fill their online content services would stifle needed growth. What is your commitment to keeping Internet open and neutral in America?”

THE PRESIDENT: Well, I’m a big believer in net neutrality. I campaigned on this. I continue to be a strong supporter of it. My FCC Chairman, Julius Genachowski, has indicated that he shares the view that we’ve got to keep the Internet open; that we don’t want to create a bunch of gateways that prevent somebody who doesn’t have a lot of money but has a good idea from being able to start their next YouTube or their next Google on the Internet. So this is something we’re committed to.

We’re getting pushback, obviously, from some of the bigger carriers who would like to be able to charge more fees and extract more money from wealthier customers. But we think that runs counter to the whole spirit of openness that has made the Internet such a powerful engine for not only economic growth, but also for the generation of ideas and creativity.

This is an area where the executive branch is acting directly. As Obama mentioned, his FCC Chairman Julius Genachowski shares his vision, and the FCC has approved rules for an open Internet. The rules will be finalized in the spring, and certainly there is the possibility for wiggle room in the final language and explicit overturning of the rule from Congress. But this statement of continued support from the President aids the cause. Tim Karr of Save the Internet spoke with the questioner, who was pleased with the outcome.

“I was pleasantly surprised to hear he took my question,” said Earlywine, an online marketing expert who is working with eScrapInc to recycle electronic products that would otherwise be put into a landfill. “This business relies upon an open Internet for our continued growth and survival. ”

“I really believe in Obama’s commitment to saving the Internet for people,” Earlywine told me today. “Our nation’s laws are intended to protect the weak. But there are a lot of powerful people trying to set the agenda for themselves. Government is supposed to be a counterbalance to that and it’s nice to see we have a president who shares those values.”

As the FCC prepares to make new rules on Net Neutrality this spring, it’s important to hear Obama take a stand. Obama’s statement comes on the heels of other prominent public officials expressing their support of Net Neutrality and Internet freedom, including FCC Commissioner Mignon Clyburn and House Speaker Nancy Pelosi.

Save the Internet has collected 1.7 million signatures in support of net neutrality.

Democratic Senatorial candidate Rep. Joe Sestak (D-PA7) (photo: Progress Ohio)

Last week, a Franklin & Marshall poll showed Republican Pat Toomey pulling away in the Pennsylvania Senate race, with a large lead over newly minted Democrat Arlen Specter, 45-31 among likely voters. Toomey had a similar lead against Congressman Joe Sestak, 41-19, with a higher amount of undecideds. But Sestak is not fazed by such a result. He is focused on defeating Specter in the Democratic primary, and “taking on the DC establishment” in the process. After winning that election, Sestak told FDL News in an interview, he would pivot to talk about Toomey’s long record of “voting with the GOP establishment,” and his former profession on Wall Street.

Sestak is seemingly positioning himself in between both parties, as an outsider whose principle guides him instead of fealty to political party. “Democrats are going to have to wake up,” Sestak told me. “The question is, do we deserve to lead? We seized the White House out of audacity, out of the promise of change. But that included a change in our politics. And people seeing the dealmaking to get the 60th vote on health care were turned off. The lack of trust in our politics is harming America. If you follow your principles, the politics will follow.”

This is an outsider message. Sestak, who is the highest-ranking military member (a Navy Admiral) ever to get elected to the US House, was warned against taking on Specter by the state political establishment. Undaunted, he has jumped into the race, and has amassed over $5.1 million dollars in cash on hand. Specter’s fundraising was uncharacteristically soft last quarter, and had to return $600,000 in donations because of a Club for Growth-led campaign by conservatives to take back previous contributions. Specter still has $8.6 million in the bank, more than Sestak.

(Sestak and Specter were caught up in an unusual moment this weekend at a Keystone Progress forum, where Specter jumped the gun and took the stage while Sestak was finishing his closing statement.)

Sestak spoke about key issues in a wide-ranging interview with FDL News.

• On health care, he said “we have a duty” to get a bill through in the House. He floated an idea to take the best of all the proposals to get an agreement, package that to get something across the line, and then use the reconciliation process to make the fixes in the Senate. He thinks that a new process of explaining the bill, one that is open and transparent, can alleviate some of the concerns among the public. He did say that “we should not sacrifice good policy on the altar of bipartisanship,” and that he would be willing to lose his job to get health care through.

I found the idea of packaging the “best of the bill” together to be a bit jumbled, but Sestak was focused more on the determination to get something done, rather than the policy specifics. He also is correct that process concerns really harmed the bill.

• On Senate process, Sestak acknowledged that “the Senate rules may have gone beyond utility.” While he stated that the Constitution set up the Congress to allow for the protection of minorities, and that such protection is important, the “deep freeze” whereby legislation just withers in the Senate is “harming our nation,” in Sestak’s words. He thinks we should be careful in unraveling this rules conundrum, and not creating a mirror of the House, where “having the votes is more important than thinking things through.” But he added that James Fallows’ article on America in decline had a profound effect on him, and that he has become convinced that “the Senate needs to reform.” Needless to say, this is probably more than you’d get out of Arlen Specter, a creature of the Senate.

• On jobs, Sestak stressed many of the features that we’ve seen pop up in the Obama budget. He wants to see support for small business and community banks, perhaps in the form of a job creation tax credit. He lamented the fact that Specter took out $100 billion dollars for aid to the states in last year’s stimulus, leaving Pennsylvania with a large budget deficit. “Arlen bragged about that on his website,” he said. Sestak supports a “focused” jobs bill, but also supports fiscal discipline efforts like paygo. On a budget deficit commission, he made the point that “Congress should have the courage to make the cuts themselves” instead of letting an independent panel do the work for them.

This is in line with Sestak’s major complaint about government in the modern age: “The thing lacking most is the courage to articulate a vision. Then go home to your constituents and explain it. The nation is yearning for courage. We have to earn their trust.”

“We have to ask if Congress understands Americans? Do they understand working Americans and what they go through?”

The Times of London is not known for its journalistic acumen. Therefore, its report that Goldman Sachs CEO Lloyd Blankfein expects a $100 million dollar bonus this year, based mostly on hearsay from other bankers at the World Economic Forum in Davos, strains credulity. Felix Salmon’s take is much more in line with reality.

Nevertheless, Blankfein’s bonus will unquestionably reach eight figures in 2009, if not nine figures. And these numbers, eye-popping as they are, must be put to use if we’re going to get meaningful financial reform this year. While the White House lists it at the top of their agenda, they have not done enough of the spade work to ensure that they aren’t sunk by yet another Frank Luntz memo.

In a 17-page memo titled, “The Language of Financial Reform,” Luntz urged opponents of reform to frame the final product as filled with bank bailouts, lobbyist loopholes, and additional layers of complicated government bureaucracy.

“If there is one thing we can all agree on, it’s that the bad decisions and harmful policies by Washington bureaucrats that in many ways led to the economic crash must never be repeated,” Luntz wrote. “This is your critical advantage. Washington’s incompetence is the common ground on which you can build support.”

Luntz continued: “Ordinarily, calling for a new government program ‘to protect consumers’ would be extraordinary popular. But these are not ordinary times. The American people are not just saying ‘no.’ They are saying ‘hell no’ to more government agencies, more bureaucrats, and more legislation crafted by special interests.”

This notion of financial reform as a “government takeover” is basically the framework of the Luntz memo around health care, one which was also leaked early, one which Republicans mimicked to the point of parody, and one which was nevertheless very successful.

Luntz in particular takes aim at the Consumer Financial Protection Agency, which the White House has made the centerpiece of financial reform, arguing that GOP lawmakers say it will create additional bureaucracy and “choke off credit options to small business owners.” And that is already working on Capitol Hill. The CFPA is showing some shakiness in the Senate; Chris Dodd’s instinct was to throw it overboard to bring some Republicans on the bill. The President’s State of the Union veto threat on financial reform if it wasn’t “tough enough” may have been aimed squarely at this capitulation, but Obama could make that explicit if he wants to save the policy.

No amount of op-eds from Paul Volcker or Paul Krugman, wrapped up in economist language, will be able to counteract this. The policy structure, with a focus on leverage or resolution authority or consumer protection or systemic risk, is an important piece of the debate. But it’s not the only piece. On messaging, advocates for reform need to use a bludgeon. And that is best expressed with statements about Lloyd Blankfein’s bonus. There’s a simple path to squeezing conservatives and servants of the banks on all of this – put them one the side of the firms who wrecked the economy, and put yourself opposite them. Republicans are already on the record against things like the bank tax to recoup TARP losses, and there are half a dozen other policies in the reform packages that would have a similar dynamic. This can be leveraged into a fairly stark choice between competing alternatives.

When you see the crowd at Davos support a fee on banks to use toward future bailouts, you know that a strategy of making the companies responsible for the crisis pay for its resolution is popular and sensible. The best way to counteract Luntz is by showing the huge sums being consumed by the banks. You have to provide the narrative of villiany.

UPDATE: Obviously, Senate Democrats hosting a bunch of lobbyists at the Ritz-Carlton in Miami tends to undercut this message. FAIL.

President Obama just finished speaking moments ago about his budget, a $3.8 trillion dollar document that will lead to $1.56 trillion in deficits for the coming fiscal year. The long-term outlook gets us back to deficits closer to 4% of GDP. FDL News has obtained this budget overview which includes all relevant statistics.

The budget outline includes the three-year freeze in non-security discretionary spending, but despite that, the deficit remains over $1 trillion dollars even in fiscal year 2012. President Obama explained that unfunded mandates, unfunded wars and tax cuts for the wealthy put the nation on this unsustainable path. However, while President Bush’s tax cuts on the wealthy are allowed to expire, war funding continues to surge in this budget, well above the forecast in Obama’s budget from the previous year, and a sign that the federal commitment to Afghanistan is far from over.

Using again the poor metaphor that “we have to do what families across America are doing,” Obama talked about the priorities in his budget. They include $100 billion for job creation, featuring the small business job creation tax credits, encouragements for energy retrofits and investments in public infrastructure the President has previously cited as the pillars of his job strategy.

He also stressed the need for “a new foundation for lasting growth,” and highlighted investments in clean energy, scientific research, and a 6% increase in funding for the Department of Education, saying that “there is no better anti-poverty program than a world-class education.” Obama plans to remake the No Child Left Behind law to reflect closely his “Race To The Top” funding program, where states receive additional funding based on their commitment to various reform measures like teacher performance evaluations. While changing the apportioning of federal monies, Obama would also eliminate certain Bush-era provisions that rigidly designate failing schools. He would also consolidate 38 Education Department programs into 11, an effort to reform the system.

Overall, the budget does reflect a “cut and invest” strategy (Obama called it “cutting what doesn’t work to make room for what does”), though Obama used some clever rhetoric to talk about these cuts. He said that his budget team found $17 billion in cuts in last year’s budget, and $20 billion this year. However, the first example of a “new” program cut, one that pays states to clean up abandoned mines (even if they don’t end up doing the work), was in last year’s budget as well, only to be trimmed by Western-state members of Congress. So the inclusion of a budget cut does not ensure its approval.

Obama included his student loan reform package, where subsidies to middleman banks to perform student loans are eliminated and the savings plowed into Pell Grants, in the budget (this policy was passed by the House but not the Senate last year). He included his tax on big banks, set to recoup $90 billion in lost TARP money over ten years. And he plans to let the Bush tax cuts for the wealthy expire, along with eliminating $40 billion in tax subsidies for oil companies. Obama also mentioned not continuing “a costly tax cut for hedge fund managers,” though it’s unclear whether this means taxing hedge fund profits as income instead of capital gains.

However, there are a multitude of tax cuts in the budget. The President would make permanent certain Bush tax cuts measures affecting those making less than $250,000 a year. He would also extend his “Making Work Pay” tax cuts from the stimulus ($400 for individuals, $800 for families), eliminate capital gains taxes for small business and add in the other small business tax cuts previously described.

Obama said that, while the Defense Department is exempt from the budget freeze, “it’s not exempt from budget common sense.” The big program that Obama is looking to pick off this year, building on the success of cutting the F-22 last year, is the C-17 transport aircraft. The Pentagon has 180 of these planes and does not want any more, yet Congress continues to slip in funding to build more year after year. Obama will seek to “eliminate this program that does nothing to keep us safe.”

As a supplement to the budget, the Administration will sign an executive order to create a bipartisan fiscal commission, which will recommend a plan specifically to balance the federal budget by 2015, excluding payments on the debt. Leadership has vowed to vote on these recommendations after the midterm elections, in December of this year.

The deficit persists throughout the decade, and while 4% of GDP is more sustainable, Peter Orzsag maintained that health care costs are driving those increases in the out years.

One of the drivers of the surging deficit in the second half of the 10-year budget window is surging healthcare costs. OMB director Orszag said in a Sunday briefing that the only way to change that would be to pass healthcare reform legislation. House and Senate Democratic leaders are trying to work out a compromise from House- and Senate-passed legislation that can be approved by both chambers.

“One of the reason why the administration has been pursuing health reform legislation … is not only that the legislation under discussion reduces the deficit over the next decade, but … it puts in place the infrastructure to allow us to constrain cost growth in the decades thereafter, while improving quality,” Orszag said. “Unless we do that, we will be on an unsustainable long-term fiscal trajectory regardless of what else we do.”

There is more at Budget.gov.

Hard to look at this and not think "Human Recession." Larry Summers at a previous Davos powwow (photo: E.T. Studhalter, WEF)

At Davos, Larry Summers called the current economic outlook “a statistical recovery and a human recession”. And leading economists not only agree with him, but see no way out of the deep hole of joblessness.

The economy’s 5.7 percent growth last quarter — the fastest pace since 2003 — was a step toward shrinking the nation’s 10 percent unemployment rate.

There’s just one problem: Growth would have to equal 5 percent for all of 2010 just to lower the average jobless rate for the year by 1 percentage point.

And economists don’t think that’s possible.

Most analysts say economic activity will slow to 2.5 percent or 3 percent growth for the current quarter as the benefits fade from government stimulus efforts and from companies drawing down less of their stockpiles.

That’s why the Federal Reserve and outside economists think it will take until around the middle of the decade to lower the double-digit jobless rate to a more normal 5 or 6 percent.

It’s hard to argue with the figures, which are just an application of Okun’s Law, relating the unemployment numbers to economic activity. This formula offers little hope that the jobless rate will even dial back to 9 percent by the end of the year – and by the time people are voting in November.

All of this suggests that a $100 billion dollar jobs bill is woefully insufficient to actually impact the employment rate, and that the multiplier effect for such spending must be as high as humanly possible to reverse the jobs crisis. That spending level for a jobs bill is embedded in the President’s budget, but Max Baucus wants to even dampen that meager spending by dragging the bill through his Finance Committee.

A meager bill that doesn’t include direct job creation or something that can vault past Okun’s Law will crush Democrats in November. More importantly, it will add to long-term joblessness, where millions of workers are unable to re-enter the labor force, lose some of their key skills, and reduce their earning potential over their entire lifetime. That’s the human recession Summers is talking about, and it demands a much fiercer government response.

budgeting gargoyle by brad montgomery (flickr)

The official rollout is tomorrow, but a couple stories have come out today about President Obama’s budget, where we’ll see the newfound emphasis on fiscal discipline turned into actual policy. It didn’t get much pub, but Obama’s first budget from last year was actually pretty progressive, and got through Congress without much trouble. What’s in store for this year?

The first thing that leaps out is that the fiscal aid to states is getting baked into the budget rather than in a separate jobs bill or appropriation.

President Obama will send a $3.8 trillion budget to Congress on Monday for the coming fiscal year that would increase financing for education and for civilian research programs by more than 6 percent and provide $25 billion for cash-starved states, even as he seeks to freeze much domestic spending for the rest of his term.

The budget for the 2011 fiscal year, which begins in October, will identify the winners and losers behind Mr. Obama’s proposal for a three-year freeze of a portion of the budget. Many programs at the National Institutes of Health, the National Science Foundation and the Energy Department are in line for increases, along with the Census Bureau.

Among the losers would be some public works projects of the Army Corps of Engineers, two historic preservation programs and NASA’s mission to return to the Moon, which would be ended as the administration seeks to reorient the space program to use private companies for launchings. Mr. Obama is recycling some proposals from last year, including one to end redundant payments for land restoration at abandoned coal mines; Western lawmakers blocked it in 2009. Mr. Obama will propose a total of $20 billion in such savings for the coming fiscal year.

The freeze is a bad idea rhetorically, giving ground to the conservative worldview of a federal budget as akin to a family budget, and during this employment crisis, it’s bad policy, because it constrains aggregate demand when the private market isn’t creating it. But if you’re going to do an overall spending cap, this is at least a plausible way to do it. That $25 billion for state aid is badly needed and will save a lot of jobs. Education and civilian research are both areas in line for increases. The Army Corps of Engineers doesn’t exactly have a great track record with the projects they’ve managed to complete. And while some may disagree, manned spaceflight doesn’t really seem like a crucial investment at this point in time.

This does seem to be a “cut and invest” strategy, and the celebrated freeze is more of a rhetorical device. But the expected $20 billion in savings in programs eliminated or cut has the disadvantage of being both infinitesimal from the standpoint of the deficit and harmful in terms of overall demand. The original sin here was the depths of the situation into which this White House was flung – millions unemployed and a huge run-up in the deficit at the same time, and an opposition that, despite all reason, used the latter as a reason for the former. But I don’t see how an obvious gimmick solves the problem, even if it was accomplished as well as could be expected.

Many of the programs marked for declines or elimination were elucidated here.

Sen. Tom Harkin (D-IA)

Tom Harkin said that negotiators had reached a deal on health care shortly before Scott Brown threw a wrench into it by winning that Senate election in Massachusetts. This is further than anyone has been willing to go before; we knew that a deal was reached between labor and the White House on the excise tax on high-end insurance plans, but we did not know that all elements of the deal was settled as well.

Harkin said “we had an agreement, with the House, the White House and the Senate. We sent it to [the Congressional Budget Office] to get scored and then Tuesday happened and we didn’t get it back.” He said negotiators had an agreement in hand on Friday, Jan. 15.

Harkin made clear that negotiators had reached a final deal on the entire bill, not just the excise plans, which had been reported the previous day, Jan. 14.

Harkin said the deal covered the prescription-drug “donut hole,” the level of federal insurance subsidies, national insurance exchanges and federal Medicaid assistance to states.

Senate Democratic aides declined to confirm Harkin’s account. A White House spokesman also declined to comment.

Do you think anyone at 1600 Pennsylvania Avenue wants those three months back when Max Baucus and the Gang of Six set out on a fools errand hunting for Republican support?

Kevin Drum sees a silver lining here, that there exists a pathway amenable to everyone that merely can be accomplished by the House passing the Senate bill, and the additional fixes done in a reconciliation “sidecar.” But he adds, “Why this isn’t happening is a mystery.”

No it isn’t. There are several major stumbling blocks where reconciliation simply won’t work. The biggest one is abortion, though the design of the exchanges doesn’t seem to be a real good fit for reconciliation, either. But the abortion issue is the one that doesn’t have a sidecar fix where the votes are probably consequential. Nobody has yet figured out how to overcome the dozen or so Stupak followers who would vote against the entire bill if Ben Nelson’s compromise on abortion services funding remains. Jim Moran seemed to hint at a deal on that front, but with the Senate composed as it is there doesn’t seem to be a good way to accomplish it. Basically you’re talking about a stand-alone deal affirming the Hyde Amendment and banning coverage on the exchanges. And if that is the only path for passage of the entire bill, don’t expect Republicans, even those who are virulently anti-choice, to help out with that. They don’t have much of a problem voting against things they supported in the recent past.

The best word you can use to describe all of this is FAIL.

photo: Jason Pier via Flickr

It didn’t take long for the Pentagon to try and assert itself in the Don’t Ask Don’t Tell debate. The New York Times reports:

Senior Pentagon officials said Defense Secretary Robert M. Gates and Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, had been in close discussions with Mr. Obama on the issue andobama’s would present the Pentagon’s initial plans for carrying out the new policy at a hearing before the Senate Armed Services Committee on Tuesday.

Changing the policy requires an act of Congress, and the officials signaled that Mr. Gates would go slowly, and that repeal of the ban was not imminent. And it could be a hard sell for the president, even among Democrats; Representative Ike Skelton of Missouri, chairman of the House Armed Services Committee, on Thursday restated his opposition to repealing the ban.

I think we can all expect by now the cautious approach from President Obama, but these are Pentagon officials talking about a policy that they admit is up to Congress (although, part of it is up to the President too – he could sign an executive order tomorrow stopping the discharges of gay and lesbian servicemen). This is a softer version of what the Joint Chiefs did to Clinton in 1993 – instead of publicly opposing the ban, they want to delay it to death.

The President needs to both cool the clear concerns from the Pentagon and find the votes in Congress (I think Patrick Murphy’s whip count in the House is at around 187 votes; the Senate doesn’t even have a co-sponsor for Murphy’s bill), as well as determine the strategy for how to put forward the legislation – as a stand-alone bill, or tucked into the defense authorization bill, which is must-pass.

John Aravosis is laying this on the President, saying that he put forward a real timeline and vowed to get this done this year. “If it doesn’t happen before the November congressional elections, I think things are going to be very ugly.” It may get ugly by Monday, when we see whether or not repeal is part of the military spending section of the budget.

The WaPo has some unnamed sources saying that Lower Manhattan will no longer be the site of the Khalid Sheikh Mohammed trial:

The Obama administration has all but abandoned its plan to put Khalid Sheik Mohammed, the self-proclaimed mastermind of the Sept. 11, 2001, attacks, on trial in Lower Manhattan, according to administration officials.

A senior administration official said no decision has been formalized, but the Justice Department is already considering other venues. Said another official close to the discussions: “New York is out.”

The reversal would mark the latest setback for an administration that has been buffeted at every turn as it seeks to close the military detention center at Guantanamo Bay, Cuba. Its options for closing the prison had already been dwindling, and without the backdrop of Ground Zero for a trial, the administration would lose some of the rich symbolism associated with its attempt to forge a new approach to handling high-profile al-Qaeda detainees.

The NYT concurs.

I know what I wrote yesterday, but I’ve been reconsidering this, in fact I did in the update. If this is just a change of venue, I’m cool with it. In fact, given the impossibility of getting a jury seated for the crimes of 9/11 in Manhattan, there was likely to be a change of venue anyway. Better to do it now than hand defense lawyers a likely victory later. If this is a prelude to changing the nature of the trial, and to move it back into the military commission process, it’s a problem. But the indications are that’s not the case right now.

Republicans and a number of Democrats in Congress have demanded that the detainees be tried in a military commission at Guantanamo Bay, arguing that they are enemy combatants in a war with al-Qaeda and the Taliban, not criminals deserving of the protections of civilian court.

But the decision to bring Mohammed and his cohorts onto U.S. soil for a civilian trial is a linchpin of Holder’s tenure, and an administration official said the Justice Department would not back down on the central principle of trying the men in federal court and inside the United States.

That commitment was welcomed by proponents of using criminal courts to try terrorist suspects.

“As long as these trials occur in federal criminal courts with proper due-process protections, the actual venue doesn’t matter very much,” said Anthony D. Romero, executive director of the American Civil Liberties Union. “All of our federal courts are equipped and able to handle such cases. That’s where they belong, and that’s where they should stay.”

I do have a couple other points on this:

1) I think that those arguing against Lower Manhattan are overreacting about the amount of security necessary to host the trial. We’ve been hearing about hundreds of checkpoints and effectively bringing the lower corner of the island to a standstill. I’m not certain that’s warranted. Joe Sestak, appearing on Hardball yesterday, analogized to the White House, which we’re “able to keep safe” without a flotilla of checkpoints around the perimeter for miles on end. It seemed like overkill to me, though the general point of holding a trial which would at least have some security cost in a densely populated area may hold. Ramzi Youssef and other terrorists have been tried in Lower Manhattan, and I don’t remember this hysteria about checkpoints.

2) I know a billion dollars to Mike Bloomberg is like an extra sandwich at the Carnegie Deli, but in exchange for saving his city from a trial with that price tag, he really should offer full-throated support to holding a criminal trial. His sinking of the NYC venue will be misconstrued as a victory for those who think we should upend the criminal justice system that has served us well for two centuries and confine trials like this to the flawed military commission process. The least Bloomberg could do is help to minimize the damage.

For more on how the New York City terror trials went up in smoke, read this comprehensive piece from ProPublica.

Roger Ailes, the Chairman and CEO of the Fox News Channel, will appear on ABC’s “This Week” on the roundtable segment. He will be joined by George Will, Arianna Huffington and Paul Krugman, in what could be one of the more interesting Sunday morning shows in recent history.

I’m racking my brain, but I cannot recall Ailes ever giving a public appearance of this nature. He’s much more of a string-puller behind the scenes. Perhaps Barbara Walters, this week’s substitute host for the departed George Stephanopoulos lured him into the spotlight. Walters and Ailes are reportedly friends.

Ailes was the recent subject of a long feature in the New York Times, which included some not-so-flattering information about his personal paranoia:

As powerful as he is within the News Corporation, Mr. Ailes remains a spectral presence outside the Fox News offices. National security had long been a preoccupation of Fox News, and it was clear in the interview that the 9/11 attacks had a profound effect on Mr. Ailes. They convinced him that he and his network could be terrorist targets […]

His movements now are shadowed by a phalanx of corporate-provided security. He travels to and from work in a miniature convoy of two sport utility vehicles. A camera on his desk displays the comings and goings outside his office, where he usually keeps the blinds drawn.

Mr. Ailes said he received frequent threats over the years, but his concerns for the safety of his family were heightened by an incident at his New Jersey home after the 9/11 attacks. There was an intruder on his property, but no arrest was made. In Putnam County, he has bought several properties surrounding his home. A sign outside his house shows an illustration of a gun and advises visitors that it is under video surveillance.

It’s unclear how much security will be required outside the Newseum, where “This Week” is taped, on Sunday.

Judd Gregg, who hates populism, had an extended hissy fit on MSNBC yesterday, when he was actually challenged to name what programs he would cut in the name of fiscal austerity. This is what always trips up these deficit hawks, who try to scare the public with their warnings about the deficit but don’t want to go on the record with the agenda of leaving the poor and the elderly to fend for themselves. I particularly liked this segment about education:

GREGG: Well, first off, nobody’s saying no money for schools. What an absurd statement to make.

BREWER: Well, I’m asking you, what we’re…

GREGG: And what a dishonest statement to make. On its face you’re being fundamentally dishonest when you make that type of statement.

This is from a guy who said that eliminating federal agencies was a “great idea,” and whose party has wanted to eliminate the Department of Education for over 30 years.

In reality, Gregg is a “deficit peacock,” someone who calls a lot of attention to himself with fears about “the deficit” but then, pressed for real answers to how to reduce the deficit, come up with gimmicks to hide their actual agenda. These are the people who say things like “the federal budget is like a family budget, and when things are tough, a family tightens their belt” (actually, no; they get another job).

That’s why it’s so depressing that the President came out with just such peacockery this week:

Wait, it gets worse. To justify the freeze, Mr. Obama used language that was almost identical to widely ridiculed remarks early last year by John Boehner, the House minority leader. Boehner then: “American families are tightening their belt, but they don’t see government tightening its belt.” Obama now: “Families across the country are tightening their belts and making tough decisions. The federal government should do the same.”

What’s going on here? The answer, presumably, is that Mr. Obama’s advisers believed he could score some political points by doing the deficit-peacock strut. I think they were wrong, that he did himself more harm than good. Either way, however, the fact that anyone thought such a dumb policy idea was politically smart is bad news because it’s an indication of the extent to which we’re failing to come to grips with our economic and fiscal problems.

The actual effects of this non-security discretionary spending freeze isn’t huge; letting the Bush tax cuts on the wealthy expire, moving to a saner health care system and ending unnecessary wars are the actual paths to fiscal stability. But this cedes rhetorical ground to a Republican Party which really wants to talk about deficits, not deal with them, now or in the future (and we shouldn’t deal with them at ALL in a time of mass joblessness). Triangulation is a tricky game; when you give so much to your foes, what you gain for yourself you lose for your colleagues.

The President did better at his question time today. But over the long term, failing to push back at these narratives will not just paint Democrats as weak, but cripple the nation.

Sen. Tom Harkin (photo: Leadership Conference on Civil Rights via Flickr)

In Baltimore this morning, President Obama announced his proposal for a job creation tax credit for small business, which would spend $33 billion dollars trying to encourage hiring in the small business sector, where a majority of all job creation originates. This is combined with the $30 billion proposal for community banks to lend to small businesses, adding up to a serious commitment to the small business sector.

The White House describes their proposal like this:

• Businesses will receive a $5,000 tax credit for every net new employee that they employ in 2010. The total amount of credit will be capped at $500,000 per firm, to ensure that the majority of the benefit goes to small businesses.

• Small businesses will be reimbursed for the Social Security payroll taxes they pay on
real increases in their payrolls. Specifically, firms that increase wages, expand hours or
hire new workers would get a credit against the added payroll taxes that result. This bonus would be based on Social Security payrolls, so it would not apply to wage increases above the current taxable maximum of $106,800.

• Firms will be able to claim the credit on a quarterly basis, which gets money out to
businesses quickly and provides an early incentive to hire and increase payrolls. Non-
profits will be eligible for the credit and start-ups will be eligible for half the credit.

• The proposal is estimated to cost $33 billion.

It’s worth wondering whether this is a commitment to small business or something of a giveaway. While the CBO has gauged this to be an effective technique at stimulating job creation, others have wondered whether this would allow small businesses to take a subsidy for people they were already planning to hire. Economists at the Center for Budget and Policy Priorities expressed tepid support for this kind of measure, but worried about the design.

Tax cuts targeted on job creation have some advantages compared with general business tax cuts but there are serious practical difficulties in designing such measures and their net impact on job creation is uncertain. How would one identify which jobs in expanding firms were created due to a jobs tax credit and which would have been created anyway? How would one identify jobs in contracting firms that would have been lost without the credit? The temptation for firms to game the system would be huge. Proposals that take these concerns seriously acknowledge that the large majority of jobs that receive such a tax credit would have been created anyway.[4] That means that a large percentage of the money spent is a business windfall that generates little new demand, as described above.

Econometric evidence suggests that even if they experience no increase in demand for their products, some firms will respond to such a tax credit by expanding employment. The wages supported by the credit will represent a net increase in demand, and the jobs will represent a net increase in employment. In terms of bang-for-the-buck, however, there is a real question whether a targeted jobs credit is as effective as the UI/food stamp/state fiscal relief measures discussed above.

For their part, the Administration says that they would look at net increase, not grass hiring, and would deny the credit to businesses which switch from full-time to part-time workers, which they say would cut down on gaming the system. Obama acknowledged that there would be some gaming in his remarks today:

Now, it’s true that in some instances this tax credit will go to businesses that were going to hire folks anyway. But then, it simply becomes a tax cut for small businesses that will spur investment and expansion. And that’s a good thing, too. And that’s why this type of tax cut is considered by economists — who rarely agree on anything — to be one of the most cost-effective ways of accelerating job growth, especially because we will include provisions to prevent people from gaming the system. So, for example, you won’t get a tax credit for doubling your workforce while cutting the hours of each worker in half. We’re not going to let you game the system to take advantage of the tax credit, unless you’re doing right by your workers.

Obama stressed that this tax credit is merely a part of the jobs bill that he hopes will pass the Senate in the coming weeks, but the Senate is grinding down the size of the bill so much that the $33 billion earmarked for this approach would result in much of the overall size. Tom Harkin is fighting to keep the cost higher than the $80 billion floated earlier this week. He also rejected this manner of job creation tax credit:

Sen. Tom Harkin (D-Iowa), chairman of Health, Education, Labor and Pensions (HELP) Committee, said he wants the package to exceed $80 billion and he has panned a proposal to give tax credits to businesses that hire new employees.

“I think it’s going to have to be a bigger package than that,” said Harkin.

Harkin said Senate Democrats met with economists who have told them “$80 billion won’t make a difference.” […]

Senate Finance Committee Chairman Max Baucus (D-Mont.) is pushing tax cuts for small businesses and Senate Majority Whip Dick Durbin (D-Ill.) said the tax credit for new hires is still on the table.

Harkin said he “totally disagreed” with estimates that small-business tax credits would spur significant job growth.

“If you give a small business a tax break for hiring someone that is unemployed, how do you know they wouldn’t have hired that person anyway?” Harkin said.

Furthermore, if this package needs to follow the recent paygo rules and have offsets, it will do nothing for aggregate demand and barely be worth the effort.

Stay tuned…

Scott Roeder, the man who killed abortion services provider Dr. George Tiller, has been found guilty of first-degree murder in a Kansas courtroom today. The jury took just 15 minutes to deliberate on their decision, a fact bolstered by Roeder’s testimony on the witness stand yesterday, where he basically admitted to killing Tiller, while saying that it was necessary to saving the unborn. Defense lawyers had sought voluntary manslaughter in the trial, but the judge said yesterday that the jury could not consider that charge in their decision, or a lesser second-degree murder conviction.

Under Kansas law, Roeder’s sentence will be, at a minimum, life imprisonment with the possibility of parole only after 25 years.

Think what you get for a condo in this building… (photo: wallyg)

I remember the President closing his State of the Union address with the phrase “I won’t quit.” I replied, “So don’t.”

On at least one level, he is quitting, or at least relenting:

The White House ordered the Justice Department Thursday night to consider other places to try the 9/11 terror suspects after a wave of opposition to holding the trial in lower Manhattan.

The dramatic turnabout came hours after Mayor Bloomberg said he would “prefer that they did it elsewhere” and then spoke to Attorney General Eric Holder.

“It would be an inconvenience at the least, and probably that’s too mild a word for people that live in the neighborhood and businesses in the neighborhood,” Bloomberg told reporters.

“There are places that would be less expensive for the taxpayers and less disruptive for New York City.”

The financial impact is a somewhat legitimate argument, but it’s not usually taken into account when determining where to site a criminal trial. New York happens to be the scene of the crime. There were two others, at the Pentagon and in Shanksville, PA, and so you could presumably hold the trial at or near one of those locations. But there’s an opportunity, says Jeralyn Merritt, to move it virtually anywhere, because the offenses of Khalid Sheikh Mohammed and the others began outside the country.

Since the offenses were begun outside the U.S. and the defendants have not been arrested or brought before a U.S. court, is venue proper in whatever district the U.S. flies them to and officially arrests them in? Or should it be in the District of Colombia?

Seems to me the charges should be brought in one of the districts where the offense — or at least an overt act in furtherance of the conspiracy — was committed. That’s probably a lot of districts, giving the Government pretty free reign.

9/11 plotters were located in multiple locations throughout the country.

It’s not exactly a sign of strength that Bloomberg’s objections were enough to disrupt plans that DoJ had for months. Needless to say, the newly forthright post-SOTU Presidency isn’t off to such a bold start.

Speaker Nancy Pelosi (D-CA) (photo by Orin)

In her weekly press conference today, House Speaker Nancy Pelosi was fairly adamant – a proposed spending freeze should apply to defense, not merely non-security discretionary spending, as the President seeks. “I don’t think we have to protect military contractors. I do not think the entire military budget has to be exempted,” Pelosi said.

“We want them to have everything they need,” Pelosi said of military forces abroad and their families. “But we do not support an entitlement program for overruns in defense contracting,” she quickly added, noting millions could be saved if lawmakers ensured Defense contracts did not overshoot spending targets.

Defense contracting waste really does not flow to other areas of the economy, and a “freeze” where discretionary spending can rise as defense spending falls would actually create more jobs and improve the economic outlook. We really cannot afford a military-based stimulus.

Pelosi has some powerful support for her criticism of the exemption of the military budget – military analysts who face the bloat in the contracting system every day.

Steve Kosiak has spent much of his career as a defense analyst frustrated by military bloat. In early 2003, he found it was “impossible to say precisely” how much of the Bush administration’s military buildup was actually attributable to the post-9/11 emergency and how much was pre-existing defense pork. A 2005 paper he authored for the Center for Strategic and Budgetary Assessments, a leading Washington defense think tank, warned that rising defense costs could add “some $900 billion to projected deficits.” And in December 2008, he devoted almost 100 pages to carefully itemizing the costs of the Iraq and Afghanistan wars — $970 billion as of then, he found — and placing them in a broader social, economic and budgetary context.

The Obama administration is deeply familiar with Kosiak’s work. A year ago, the White House tapped him to oversee defense spending for the Office of Management and Budget. And that makes President Obama’s decision to exempt the hundreds of billions spent annually on defense and homeland security from a proposed overall freeze in discretionary spending — a policy he formally unveiled in his State of the Union address Wednesday night — particularly difficult for defense analysts to understand.

Leading defense wonks, particularly those on the left, have harsh words for the exemption. “Ridiculous,” said Laicie Olson of the Center for Arms Control and Non-Proliferation. “Completely inappropriate,” said Lawrence Korb of the Center for American Progress. “A political decision,” said Charles Knight of the Project on Defense Alternatives.

Korb elaborated on this in a guest post for Think Progress.

Clearly, Congress is not swallowing Obama’s call for a freeze without raising objections. However, he did make an explicit veto threat in last night’s speech – saying that he would send back any budget that did not meet his guidelines. More light will be shed on this when the White House’s budget is actually released early next week.