Simon Johnson and James Kwak; White House Burning: The founding fathers, our national debt, and why it matters to you ======================================================================================================================= This is one of those special books where it's helpful to know where the authors are going before reading it. I started with the last chapter, "Conclusion", then read the previous chapter, "Where do we go from here?", and then read the chapter before that, "Arguing first principles". Reading in that order helped me understand what Johnson and Kwak were trying to accomplish and what policies they believed would lead to those goals. Johnson and Kwak's conclusion is that ultimately our argument is about what kind of world we want to live in and what services and protections we want our government to give us in order to have that kind of world. In an increasingly risky world (with a shredded social contract, reduced labor union protection, the inequality generated by a winner take all economic system, etc), Johnson and Kwak argue that we will want *more* protections and services from our government, not *less*. Why doesn't this sane, rational argument work? There are a number of reasons, in addition to the fact that humans are at times just not rational. Among those reasons are: (1) Yes we want those services and protections, but no, we're not willing to pay for them. (2) Yes we want those services and protections, but, no, not for those who are undeserving (where "undeserving" often is a stand-in for "brown", "black", "immigrant", and "other" in general). Or, (3) simply that we believe we want and can have small government and are not willing to accept that services, benefits, and protections that *we* use are provided by our government, are expensive, and must be paid for. But, it's not a hopeful picture. Because of our political situation in the U.S., Johnson and Kwak, even as clear and rational and intelligent as their prescriptions are, will not have much if any effect. Our political system in the U.S. is so tightly controlled and so dysfunctional, that rational policy choices appear to be impossible. Amongst Republicans, especially, any politician tainted with "compromise" automatically becomes targeted for criticism and to be driven from office in the next election. In their next to the last chapter, titled "Where do we go from here?", Johnson and Kwak present a variety of proposals for changes and the funding and spending of our Federal government. Many if not most of them taken individually are reasonable. And, certainly, taken as a package, these are the kind of proposals that reasonable people could sit down with and agree on some of one, more or less of another, some compromise here and there. What is frightening is how, in our political climate, almost all if not all of these proposals is politically impossible and laughable. Examples of these impossible dreams, which likely would be practical reality in a more sane nation, are: (1) Do not extend the Bush tax cuts. But, of course, a vote not to extend them is interpreted as a vote to raise taxes, and that is career suicide for many of our Congress people. (2) Only a universal, single payer health care system can control health care costs. But, we are unable to agree on any health care system that does not allow health care providers and the drug industry to make as much profit as they possibly can, and we're about to try to repeal that system. (3) We could raise Social Security payroll taxes to keep that system solvent. But, we've recently *reduced* those taxes and can't seem to raise them even on high earners. Here is a list of proposals from Johnson and Kwak: - Taxes -- Let the Bush tax cuts expire. They are regressive, and they are a transfer of wealth to the rich. - Social Security -- (1) Increase the cap on earnings for Social Security tax payment. (2) Increase the age for full retirement benefits over time. (3) Expand the Social Security system to cover all new government employees. (4) Increase the payroll tax 1% (from 12.4% to 13.4%). - Health care -- Use "comparative effectiveness research" to reduce procedures and costs, e.g. reduce aggressive, end of life care. Fund preventative care. But, we must have universal government-sponsored health insurance plan in order to implement cost controls. - Energy -- Institute a carbon tax, i.e. a tax on each ton of carbon dioxide or other greenhouse gas. - Finance -- Our current deficit problems are the product of the finance which caused the financial crisis of 2007-2009 and the ensuing recession. What to do: (1) Impose hard limits on the size of financial institutions. (2) Increase capital requirements for large financial institutions. (3) Impose a fee on large financial institutions to compensate for the likely costs of future government rescues; scale the fee relative to the size, riskiness, and leverage of the institution. (4) Enact a financial activities tax. (5) Impose an added tax on high profits to discourage risky activities. - Tax expenditures -- Reduce or eliminate them: remove tax exemptions such as home interest exemption plus 100s more. And the third from the last chapter ("Arguing first principles") is the one that I really wish our political leaders would read. I know it helped me to better understand how to think about governmental financial policy. Their discussion of the idea that government policies, when enacted, should produce social benefits while minimizing the adverse side effects, and their analysis of some of the ways these policies go wrong, in particular because of loopholes in tax law, is very helpful. Bottom line: We, actually our political leaders, must be willing to compromise on paying for our government with some *combination* of tax increases *and* spending cuts. Since they, and possibly we, are not willing to do so, we're stuck. Johnson and Kwak give an excellent analysis of our current economic situation and problems and give very intelligent, reasonable, and rational proposals for what to do to make it better. But, the conclusion I come to while reading this book is that it's not so much the economic system that is broken, it's the political system. We have to fix the politics and probably most importantly, campaign finance and the corruption that it injects into that political system before we can even try to fix the economics. Johnson and Kwak's Blog is extremely enlightening, by the way. You can find it at: http://baselinescenario.com/ 08/07/2012 .. vim:ft=rst:fo+=a: