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Morgenson Watch Continues

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I was recently reminded of the late Tanta (a/k/a Doris Dungey) of the Calculated Risk blog, who wrote the recurring “Morgenson Watch” for that site.

As soon as I saw the title of Gretchen Morgenson’s most recent article at the top of the Sunday link list at Real Clear Politics, I suspected there would be trouble:  “U.S. Has Binged.  Soon It’ll Be Time to Pay the Tab.”  After reading as far as the first sentence of the second paragraph, my concern was validated.  Here’s how the piece began:

SAY this about all the bickering over the federal debt ceiling:  at least people are talking openly about our nation’s growing debt load.  This $14.3 trillion issue is front and center – exactly where it should be.

Into the fray comes a thoughtful new paper by Joseph E. Gagnon, a senior fellow at the Peterson Institute for International Economics, which studies economic policy.

The Peterson Institute was formerly the Institute for International Economics, founded by C. Fred Bergsten.  It was subsequently taken over by the Peter G. Peterson Foundation, a foundation established and managed by Richard Nixon’s former Commerce Secretary (and co-founder of Blackstone Group), Pete Peterson.  The Peterson Institute is a “think tank” (i.e. propaganda mill) most recognized for its advocacy of “economic austerity” (which usually involves protecting the interests of the wealthy at the expense of the middle class and the impoverished).

Yves Smith of Naked Capitalism, is always quick to rebut the pronouncements of those economists, acting as “hired guns” to spread the gospel of the Peterson Institute.  Needless to say, once Gretchen Morgenson began to parrot the Peterson Institute dogma in her aforementioned article, Yves Smith didn’t hesitate to pounce:

I’m generally a Gretchen Morgenson fan, since she’s one of the few writers with a decent bully pulpit who regularly ferrets out misconduct in the corporate and finance arenas. But when she wanders off her regular terrain, the results are mixed, and her current piece is a prime example. She also sometimes pens articles based on a single source, which creates the risk of serving as a mouthpiece for a particular point of view.

(As an aside, a good example of this process has been Ms. Morgenson’s continuing fixation on “mortgage mania” as a cause of the financial crisis after having been upbraided by Barry Ritholtztwice – for “pushing the Fannie-Freddie CRA meme”.)

After pointing out Morgenson’s uncritical acceptance of the economic model used in the Peterson Institute report (by Gagnon and Hinterschweiger) Yves Smith directed our attention to the very large elephant in the room:  the proven fact that au-scare-ity doesn’t work in our post-financial crisis, anemic-growth milieu.  Ms. Smith focused on this aspect of the Peterson Institute report:

It also stunningly shows the howler of the Eurozone showing improvements in debt to GDP ratios as a result of the austerity programs being implemented. The examples of Latvia and Ireland have demonstrated that austerity measures have worsened debt to GDP ratios, dramatically in both cases, and the same deflationary dynamics look to be kicking in for Spain.

The article repeats the hoary cliche that deficit cuts must be made to “reassure the markets” as in appease the Bond Gods. Gee, how is that working out in Europe, the Peterson Institute’s obedient student?

Ms. Smith supported her argument with this report, which appeared in Bloomberg News on May 27:

European confidence in the economic outlook weakened for a third straight month in May as the region’s worsening debt crisis and surging commodity costs clouded growth prospects.

An index of executive and consumer sentiment in the 17- member euro region slipped to 105.5 from 106.1 in April, the European Commission in Brussels said today. Economists had forecast a drop to 105.7, the median of 27 estimates in a Bloomberg survey showed. The euro-area economy is showing signs of a slowdown as governments toughen austerity measures to lower budget gaps as investors grow increasingly concerned that Greece may default, while oil-driven inflation squeezes household incomes. European manufacturing growth slowed this month….

Be sure to read Yves Smith’s entire essay, which addressed the tired canard about those phantom “bond vigilantes”, etc.  Ms. Smith’s closing paragraph deserves repetition:

But the idea of government spending has become anathema in the US, despite plenty of targets (start with our crumbing infrastructure).  The banks got first dibs on the “fix the economy” money in the crisis, and continue to balk at measures that would shrink a bloated and highly leveraged banking sector down to a more reasonable size.  Evidence already shows the size of the banking sector is constraining growth, yet a full bore campaign is on to gut social spending out of a concern that sometime down the road the size of the government sector will serve as a drag on the economy.  In addition, the banksters need to preserve their ability to go back to the well the next time they crash the markets for fun and profit.  So the attack on deficits is financial services industry ideology, packaged to make it look like it’s good for the little guy. We have too many people who should know better like Morgenson enabling it.

The reader comments to Ms. Smith’s essay were quite interesting.  Many of the readers who have been outraged by Smith’s ongoing rebuttals to the Peterson Institute gospel and other Austerian dogma would do well to familiarize themselves with this bit of legalese:

EXCLUSION OF SOCIAL SECURITY FROM ALL BUDGETS Pub. L. 101-508, title XIII, Sec. 13301(a), Nov. 5, 1990, 104 Stat. 1388-623, provided that:  Notwithstanding any other provision of law, the receipts and disbursements of the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund shall not be counted as new budget authority, outlays, receipts, or deficit or surplus for purposes of – (1) the budget of the United States Government as submitted by the President, (2) the congressional budget, or (3) the Balanced Budget and Emergency Deficit Control Act of 1985.

I include myself among those who are “generally” Gretchen Morgenson fans.  Nevertheless, it has become obvious that with Tanta gone, the spirit of “Morgenson Watch” shall endure for as long as the frailties of being a New York Times pundit continue to manifest themselves.



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