Grand Plan In The Works?

From Larry Kudlow writing at National Review Online:

As has been reported, [Senate Minority Leader Mitch] McConnell is negotiating now with Sen. Harry Reid for a large-scale package that will allow the debt ceiling to rise unless overturned by a two-thirds vote. If a White House debt-ceiling deal comes through with $1.5 trillion of spending cuts, that will be part of the package. Right now, it’s not completed because enforceable spending caps have not been determined.

The key part of the new McConnell package is a joint committee to review entitlements in a massive deficit-reduction package. Unlike the Bowles-Simpson commission, this committee will be mandated to have a legislative outcome — an actual vote — that will occur early next year. No White House members. Evenly divided between Republicans and Democrats. No outsiders. This will be the first time such a study would have an expedited procedure mandated with no amendments permitted. Also, tax reform could be air-dropped into this committee’s report.

Greg Sargent writing in a Washington Post blog reports that the McConnell package would force a major review of entitlement programs, such as Social Security and Medicare, with Congress being forced to vote on entitlement changes.

The Republican leader in the Senate wants to make sure there are Congressional votes on cutting Social Security and Medicare in an election. That sure sounds like a winner for Republicans!

Meanwhile, Senator Jim DeMint (R-SC) is pledging to do everything possible, apparently meaning a filibuster, to force the U.S. into default.

"If You Argue With A Fool, You've Got Two Fools"

 From John Avlon writing in the Daily Beast:

Call them Debt Ceiling Deniers. Believers in faith-based fiscal policy. Math-challenged cause-and-effect-skeptics. ...

The costs of courting conservative populists should be clearer than ever to reality-based fiscal conservatives inside the Republican Party.  Their “all-or-nothing” meets “what, me worry?” negotiating stance is not only the newest symbol of D.C.’s dysfunction—it is beginning to have an impact on the entire U.S. economy. ...

The fact that defaulting on our debt would raise interest rates—deepening the fiscal hole we’re in by compounding the size of our deficit and debt overnight—is not addressed.  Instead we are greeted with nihilistic bubble talk—at its best, economic incompetence and at its worst evidence of tactical Leninism—the belief that “the worse things get, the better they are for me politically.” ...

If you argue with a fool, you’ve got two fools.  Nonetheless, I thought a reality check might help some of the Republicans in Congress currently deciding how they’ll vote as we pedal ever closer to the cliff that is the August 2 deadline.

So I reached out to two former Republican chairmen of the Council of Economic Advisors, with presumably impeccable fiscal conservative credentials: Michael Boskin, who served under Bush 41, and Glenn Hubbard, who served under Bush 43.

"A real default would have severe ramifications in financial markets and the economy.  We need to maintain the full faith and credit of U.S. government securities," says Boskin, now a senior fellow at the Hoover Institution.  "The deficit and debt are primarily a spending problem that could condemn us to stagnation or stagflation if not seriously addressed soon. So trying to leverage the debt ceiling increase into spending control makes economic sense...The worst outcome is a default with no real spending control."

While you’re digesting that considered opinion, here’s Glenn Hubbard, advocate/architect of the Bush tax cuts and dean of the Columbia Business School.  “The debt ceiling must be raised—not doing so is irresponsible,” Hubbard emailed.  “The real discussion needs to be about to stabilize, then reduce America's burgeoning debt-to-GDP ratio…From here, the most sensible path would be an agreement on spending reductions.  Then should come a debate (post-raising the ceiling) over reducing entitlement spending versus raising taxes.  That debate can also address raising marginal tax rates (as the president proposes) versus limiting tax expenditures (as the [Bowles-Simpson] commission proposes).  These debates will be the domestic policy stage for voters to judge in 2012.”

Not Going Quietly

Ephraim Feig

Social Security recently did a major reshuffling of its information technology workforce. In the process Dr. Ephraim Feig, who was the Associate Chief Information Officer for Vision and Strategy, left. Apparently, Feig had produced a plan for modernizing Social Security's information technology systems. That plan was not approved by Social Security management. Reading between the lines, it appears that Feig took this anything but gracefully and either quit or was let go as a result. Feig has posted his complaints and his plan online. As best I can tell, one of the major sources of disagreement is that Feig believes that Social Security's planned new national data center is unnecessary. He recommends rebuilding Social Security's information technology systems from the ground up in a completely different way that he describes in only the most general terms. Here are some quotes from his plan (emphasis added):

There is no evidence that the quality of SSA’s [Social Security Administration's] services is significantly improving because of IT [Information Technology] investments in the past decade; there are areas where we know that customer satisfaction is actually down (customer satisfaction with our 800-number phone service dropped significantly). ...

SSA has gotten to the point where the more it invests in IT improvements the less efficient it becomes. In the past eleven years, SSA spent on IT a total of $4.1 Billion above the baseline (the average IT spending during the 1990’s), but it has gotten a lot less than that in return. ...

There are numerous reasons why SSA has not investigated truly modern alternative architectures. The first is that it is comfortable with what it has and scared of changing. There is good reason to be scared of big changes; historically, most have either failed or turned out to cost a lot more than originally anticipated. ... 

 SSA likes to view its enterprise as very large and complex. This justifies its requests for larger and larger budgets and also emboldens it to claim that it is efficient. SSA brags about new highs in daily transactions. It is not in the Agency’s DNA to try to simplify its processes and to reconsider its enterprise as relatively simple. The reality is that, when it comes to transactional IT, compared to modern large enterprises, SSA is moderate. ...

Our approach to modernization at SSA is entrepreneurial; we design and build a modern system from the ground up, and we transition to it, gradually retiring the old.

I do not understand IT well enough to evaluate Feig's plan but I have to be sympathetic with Social Security management. As Feig acknowledges, Social Security has been burned repeatedly with expensive IT projects that did not work. A complete rebuilding of Social Security's IT systems from scratch based upon only the vaguest of plans would have to be a hard sell.

What Else Can They Say?

From Social Security Emergency Message EM-11051 that went out to Social Security employees yesterday:

If an individual inquires about payment of Social Security or SSI checks due to concerns about the federal debt ceiling, provide the following response:

“We’re sorry but we don’t know.”

And Here's Why There's An Inpasse

The National Journal did a poll of Congressional insiders on the possible effects of failing to raise the debt ceiling by early August. 61% of Democrats thought this would have catastrophic consequences but only 15% of Republicans thought so. 3% of Democrats thought there would be only minor consequences while 29% of Republicans thought so.

A 1,000 point drop in the Dow might change a few minds. I know readers of this blog are more worried about Social Security checks and paychecks but stock market turmoil is going to happen well before the checks stop going out.

Is Cantor The Obstacle To Social Security Checks Going Out In August?

From TPM Media:

Behind the scenes, leading members of both parties have concluded that House Majority Leader Eric Cantor (R-VA) is an impediment to resolving the debt limit standoff, and should back down. Now, Democrats are publicly calling for him to get real or go home.

"House Majority Leader Eric Cantor has shown that he's shouldn't even be at the table," said Senate Majority Leader Harry Reid (D-NV) in a blistering floor speech Thursday morning. "And Republicans agree."

In a press conference shortly after Reid's floor speech, one of his top deputies, Sen. Chuck Schumer (D-NY) explained the Dems' frustrations.

"He is basically standing in the way," Schumer said. "It can't just be Eric Cantor deciding everything. If Eric Cantor decides everything, I fear we'll be in default."

Of course, if Democrats would just give Cantor what he wants, there would be no problem.

More Compassionate Allowance Conditions Added

A press release from Social Security:

Michael J. Astrue, Commissioner of Social Security, today announced 12 additional Compassionate Allowances conditions involving severe heart diseases, bringing the total number of conditions in the expedited disability process to 100. Compassionate Allowances are a way to quickly identify diseases and other medical conditions that, by definition, meet Social Security’s standards for disability benefits. These conditions primarily include certain cancers, adult brain disorders, and a number of rare disorders that affect children. 

“We have reached a significant milestone for the Compassionate Allowances program,” Commissioner Astrue said. “We have an obligation to award benefits quickly to people whose medical conditions are so serious they clearly meet our disability standards. We are now able to do precisely that for 100 severe conditions.”

The Compassionate Allowances initiative is one of two parts of the agency’s fast-track system for certain disability claims. When combined with the Quick Disability Determination process, Social Security last year approved more than 100,000 cases, usually in less than two weeks. This year, the agency expects to fast-track nearly 150,000 cases.

Social Security has held seven public hearings and worked with experts to develop the list of Compassionate Allowances conditions. The hearings also have helped the agency identify additional ways to improve the disability process for applicants with Compassionate Allowances conditions. “By definition, these illnesses are so severe that we don’t need to fully develop the applicant’s work history to make a decision,” said Commissioner Astrue. As a result, beginning in August, Social Security is eliminating this part of the application process for people who have a condition on the list.

 Here is the list of the 100 conditions. I cannot find a list just of the new 12. I have said before that the whole compassionate allowances program is virtually meaningless since anyone with any of the problems would have been approved quickly anyway.

Will Social Security Checks Go Out On August 3?

Will Social Security checks go out on August 3? Probably not, unless there is an agreement on an increase in the debt ceiling. Let me lay out where the problem with doing that lies.

Eric Cantor, the House Majority Leader, that is the second ranking Republican in the House of Representatives after John Boehner, the Speaker of the House of Representatives said yesterday that  “Currently, there is not a single debt limit proposal that can pass the House of Representatives." The reason he said this is that he knows that a debt ceiling bill that only reduces spending without any tax increase must pass the House of Representatives solely with Republican votes. Nancy Pelosi, the House Democratic leader has said as much. Cantor cannot count on all or even most Republicans in the House to vote for anything that is on the table at the moment. There are many Republicans in the House who have pledged not to vote for any increase in the debt ceiling under any circumstances and many others who say they will vote for a debt ceiling increase only if Democrats agree to enormous cuts in expenditures without any tax increases even though the President would veto such a plan if it ever passed the Senate, which it would not. 

You can view this situation in differing ways depending upon your political views but something has to give. Either Democrats must cave completely or some extraordinarily rigid Republicans in the House of Representatives must cave. Complicating matters is the belief among many Republicans that nothing serious will happen if the debt ceiling is not raised by August 2. They think that they are being lied to, that the Treasury can continue to pay bills after August 2, or that the Treasury's failure to pay bills won't be that big as deal as long as bondholders are paid or that the only bills that won't get paid by the Treasury are bills for things like Medicaid and Food Stamps that they would prefer not get paid. This is all rubbish as more reasonable voices on the right acknowledge.

I am getting the feeling that we are not going to get agreement until something dramatic happens. My guess is that the dramatic event will be the stock market going into a tailspin with the Dow losing 1,000 points or more in a day. Such an event cannot be that far off.