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Grover Norquist Rejects Fiscal Sanity

The National Review allows Grover Norquist to enhance its position as the dumbest outlet for punditry ever:

Fast forward to 1990 when George Herbert Walker Bush also made the deal Gokhale recommends we repeat. Taxes were raised $125.4 billion over four years. Spending increased $208.8 billion during that period.

Nominal Federal revenues were $1081.5 in 1990 and were $1320.8 billion in 1994, while expenditures were $1253.5 billion in 1990 and were 1533.1 billion in 1994. In other words, the nominal increases were even larger than Norquist suggests. In percentage terms, both increased by 22%. Norquist fails to inform his readers than prices rose by 10.6% over this same period so the real increases in Federal spending and taxes were approximately 10.5%. Since real GDP also rose during this period, we should note that the increase in nominal GDP was 21.9% so Federal spending and revenues as a share of GDP did not rise appreciably. It’s also interesting that Norquist fails to discuss what happened to the Federal deficit for the rest of the decade.

Since Norquist recommends not negotiating on the tax side, let’s see where he would cut Federal spending:

We can and must reform the government to lower levels of spending. Social Security and government pensions provide the most obvious examples. Only by moving these “pay as you go” defined-benefit plans to fully funded, portable, individually-owned defined-contribution plans (like IRAs or 40l(k)s) can we end the escalating unfunded liabilities that correctly worry Gokhale and others.

Let me see if I understand this recommendation. Let’s imagine we go for complete privatization of Social Security by doing the following: (a) eliminate all future benefit checks; (b) eliminate all payroll contributions; and (c) take the Federal bonds in the Trust Fund and refund them to us elders who paid into the system over the past generation. If we did this – the General Fund deficit would still be around $600 billion a year. So where else would Norquist cut spending? He doesn’t say.

This is not meant to criticize either the National Review or Mr. Norquist. It turns out that none of the free-lunch supply-side crowd in the Republican Party has a better answer as to how to end the fiscal insanity that has existed over the past five years.

Update: Michael Powell relays a report on an American Prospect breakfast where Grover Norquist revealed his hopes for destroying Social Security:

“I believe that when there are 60 Republican senators we will move Social Security from the present Ponzi scheme to a fully funded, individually held system.”

Of course, the Social Security Trust Fund is not a Ponzi scheme – but it’s pretty clear that Norquist is hoping for a sizeable GOP majority so they can cut your Social Security benefits by more than they cut your payroll contributions. After all – this backdoor employment tax increase is how they plan to reduce the massive General Fund deficit created by reductions in taxes on capital income.

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Who is Purchasing All Those Federal Bonds?

Menzie Chinn directs our attention to a report from the JEC Democrats. Menzie focuses on the causes of the switch from unified surpluses to unified deficits over the past five years. Shorter Menzie – it’s those tax rate cuts.

Menzie gets it right (as usual) and all I would change about the chart he provides from the JEC memo might be to provide the upswing in the General Fund deficit. Actually, table 1 provides the data showing that the Federal debt was $5.7 trillion as of January 2001 and was $8.4 trillion as of April 2006. The debt held by the public was $4.8 trillion as government accounts (e.g. the Social Security Trust Fund) held the rest.

Debt held abroad has more than doubled from the $1 trillion held as of January 2001. Granted that this represents the increase in nominal debt and with the price-level increase being about 12.7%, the real increase in Federal debt held abroad is only 81.3%. We often hear about how the Chinese are purchasing US Federal debt, but it turns out that Japan is accumulating even more of our debt. We also hear about the OPEC nations purchasing US Federal debt, but the UK actually ranks third behind Japan and China.

The JEC report also charts the fact the debt is rising faster than GDP and notes:

A growing federal debt and growing international indebtedness are signs of the looming debt crisis. However, a sense of complacency may have set in because many of the predicted consequences of rising debt and the abandonment of fiscal discipline are not yet evident in the performance of the economy. So far, the main adverse consequence has been the sharp decline in national saving, which has not had much of an effect on the economy in the short run but will depress living standards in the future. To be sure, the U.S. economy has experienced a business cycle recovery since the recession of 2001 and there has been a cyclical improvement in the budget deficit. How-ever, the argument about the adverse consequences of bud-get deficits is about the harm from embedded structural budget deficits, and they persist. In fact, the tax cuts that the Administration and its supporters are touting as an important contributor to the recovery were poorly designed to provide job-creating stimulus in the short run, while they have added to the structural budget deficit in the long run. The recovery owes more to the natural resiliency of the U.S. economy and the policies of the Federal Reserve than it does to those tax cuts.

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Hamdan Decision and the Thomas Dissent: Death by Footnotes

John O’Neil and Scott Shane report on this decision that tells King George that the Constitution is still alive. I just want to highlight one aspect of this decision:

Justice Thomas took the unusual step of reading his dissent from the bench, the first time he has done so in his 15 years on the court. He said that the ruling would “sorely hamper the president’s ability to confront and defeat a new and deadly enemy.” … In his dissent, Justice Thomas cited a recent ruling in an environmental case to argue that the majority was being inconsistent in order to denigrate the president’s powers. “Those Justices who today disregard the commander-in-chief’s wartime decisions, only 10 days ago deferred to the judgment of the Corps of Engineers with regard to a matter much more within the competence of lawyers, upholding that agency’s wildly implausible conclusion that a storm drain is a tributary of the United States,” Justice Thomas wrote. “It goes without saying that there is much more at stake here than storm drains.”

Did you get his “logic” here? Neither did Justice Stevens:

For his part, Justice Stevens devoted a long string of footnotes to dissecting what he at one point called Justice Thomas’s “remarkable view” of the case.

Who knew that a Supreme Court justice would have mastered the art of snark!

It also turns out that Justice Thomas is a chickenhawk. Speaking of chickenhawks, let’s see what the folks at the National Review think of this Supreme Court decision. Mark Levin proves his does not understand the US Constitution:

Congress and the Court are systematically stripping the presidency of war-making powers. Congress demands that the president get court approval before intercepting enemy communications (we call that intelligence gathering) and the Court demands that the president get statutory support from Congress before he can use military tribunals to try terrorists.

I guess Levin is not aware of the FISA Courts, which have allowed the government to be quite effective at intelligence gathering. Levin’s display of illiteracy continues:

The battle against terrorism is being fought as much in our courtrooms as on the field in Iraq and other places – where the likes of the ACLU and activist judges will set policy in contravention of the Constitution … Congress and the courts are conferring rights and privileges on terrorists. They are conferring constitutonal protections on the enemy. They are granting the enemy jurisdiction in our civilian courts. They are extending the Geneva Conventions to an enemy that is specifically excluded from those protections.

Respecting our obligations under treaties signed with most of the nations is something that would not exist in Mark Levin’s America. Being able to conduct fair trials as we provide security for our citizens would be considered an impossibility in Mark Levin’s America. Thank goodness that our Supreme Court thinks more of America than the folks at the National Review.

Update: Jonah Goldberg sees a partisan opportunity emanating from the Hamdan decision:

Basically the Court threw the whole issue in Congress’ lap. Right? They have to decide what to do with detainees. Well, here you have Nancy Pelosi saying the decision was not only a “triumph” but that “Today’s Supreme Court decision reaffirms the American ideal that all are entitled to the basic guarantees of our justice system.” If you were running for Congress as a Republican, wouldn’t you be tempted to run that quote over pictures of the 9/11 hijackers and the World Trade Center crashing down? Hamdan makes national security and terrorism a central issue of the Congressional elections, again. That’s good news for the GOP, I think.

Shorter Jonah: advocating fair trials is treason in the National Review’s America.

Update II: Let’s see what like would be like in Saxby Chambliss’s America:

In today’s USA Today, Chambliss argues that the controversial NSA call database, which has been secretly logging the phone records of millions of Americans, actually doesn’t go far enough – and that it would work better to have records of every telephone company. “On the birthday of our nation, it would be nice if Senator Chambliss showed some respect for our 219-year-old Constitution. Not many Americans like the idea of government trolling through their phone records, nor would they think what we really need is to expand government intrusion,” said Christy Setzer, communications director, Senate Majority Project. “Is this Saxby Chambliss’s idea of respect for the Founding Fathers and the principles that make America great?”

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Does the GOP Expect to Find Gold on Mars?

An AP story notes:

The Senate is just getting started in advancing its versions of the annual spending bills, the core job of Congress each year. On Thursday, the Appropriations Committee approved a $30.7 billion measure funding the Energy Department’s budget as well as flood control projects cherished by lawmakers … On Bush’s plan to eventually send man to Mars, the House on Wednesday rejected by a 259-163 vote a move by Rep. Barney Frank, D-Mass., to stop early stage preparatory work to send U.S. astronauts to Mars as the House debated a $59.8 billion measure funding. Frank contended the Mars initiative is unaffordable at a time when agencies, including NASA, are struggling with a clampdown on their budgets. “Sending human beings to Mars … is a luxury that this country cannot now afford,” Frank said. “The justification for sending people to Mars is political. It is psychological. It is cultural. It is not scientific.”

Whether Congressman Franks is correct about the Mars expedition being just a luxury – the GOP is not telling us how they will pay for the program or for the flood control projects. Unless they do find gold on Mars – we are talking about another increase in the Birth Tax.

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Real GDP Growth for the Past Two Quarters

BEA released its report entitled GROSS DOMESTIC PRODUCT: FIRST QUARTER 2006 (FINAL):

Real gross domestic product – the output of goods and services produced by labor and property located in the United States – increased at an annual rate of 5.6 percent in the first quarter of 2006, according to final estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 1.7 percent.

Preliminary estimates had also noted that the weak quarter from the fourth quarter of 2005 was followed by strong growth for the first quarter of 2006 – so this news release was not much of a surprise. This first quarter growth saw greater than average increases in consumption, investment, government purchases, and exports.

Expect some rightwing gloating including some weird reference to Krugman’s cat from Jonah Goldberg who provides this link:

The economy grew at its hottest pace in 2 1/2 years in the opening quarter of 2006 but signs suggest it has cooled since then … Fresher barometers, however, suggest the economy is slowing. In a separate report, the Labor Department said new claims filed for unemployment benefits last week rose by 4,000 to 313,000 – a bit more than economists were expecting. Analysts believe economic growth in the April-to-June quarter could turn out to be half the pace of the first quarter’s. They are predicting growth in the range of 2.5 percent to 3 percent. High energy prices and a more moderate housing market will play roles in the expected slowdown. “I think the economy is moving from a boil to a simmer,” said Richard Yamarone, economist at Argus Research. If that turns out to be the case, the economy will have registered a seesaw-like pattern of growth in the last few quarters. The opening quarter’s energetic performance followed a lethargic showing in the closing quarter of 2005 when the economy grew by a feeble 1.7 percent pace.

Seriously – does Jonah Goldberg bother to read these news articles? He wants to crow as to how great economic growth is under Bush’s economic policies even though average real GDP growth has been quite anemic since 2001. Yes – there have been a few quarters with headline grabbing numbers but as Yahoo/News points out: (a) “the economy will have registered a seesaw-like pattern of growth”; and (b) economists are forecasting slower growth rates for the rest of the year.

Update: Jonah Goldberg misquotes me as James S. Robbins provides some more numbers:

It’s worth pointing out that the average GDP growth for the first 21 quarters of the Clinton Administration was 3.5%, and for the same period in the current administration it is 2.8%.

Actually, it’s 2.75% for the past 5.25 years and the average annual growth rate for Clinton’s 8-years in office was 3.7%. If the OMB forecast turns out to be right – the average for Bush43’s will be only 2.9%. I do hope Mr. Goldberg realizes that 3.7 exceeds 2.9.

But as I give a little credit to Mr. Robbins for being able to check the numbers, could someone remind him that capital gains from stock market appreciation is NOT counted as part of GDP so his remark about the Internet economy was – how should I say this – STUPID. Sorry James.

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The Keynes-Laffer Effect

I had the pleasure of meeting Richard Musgrave some 23 years ago at a conference on Reaganomics when he walked up and suggested to me that all this yada, yada, yada, about Laffer curves was really the Keynesian suggestion that reductions in tax rates is one of many aggregate demand tools that might pull us out of a recession. In a word, the Keynes-Laffer effect. It seems Thomas Nugent has finally figured this out too:

Paulson, demonstrating that he is not only a financial heavyweight but an agile debater when among undereducated politicians, focused on the impact of tax cuts on the economy in 2001, and gave credit to President Bush’s first tax cuts for moving the economy out of recession and into expansion. Nice job, Henry!

Of course, the cheerleaders at the National Review are telling us that we are now at full employment, which would imply we have hit the limit of the Keynes-Laffer effect. If fiscal stimulus lowers national savings in a full employment economy, we get less growth not more.

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The National Review’s Opposition to the Flag Burning Amendment

Let’s start with their editorial:

The Supreme Court got it wrong in 1989 and 1990, when it struck down first a state law and then a federal law banning flag-burning. The First Amendment protects freedom of speech, not freedom of “expression”; and burning a flag is no more speech than nude dancing, public urination, or a barroom brawl

How incredibly stupid – burning a piece of cloth is not the same thing as punching someone in the face. Does the National Review realize that the First Amendment also protects freedom of the press? Perhaps they’ll argue that the blog and television news is not protected since neither medium relies on the printing press.

Mark Kleiman gets this issue:

The notion of writing a restriction on freedom of expression into the text of the Constitution ought to offend every patriot. To pledge allegiance to the Flag instead of “the Republic for which it stands” is the political equivalent of the sin of idolatry: confusing a symbol with its referent, to the extreme of elevating the symbol above the referent. The Bill of Rights is as central to that Republic as anything could be: surely more central than the Flag. So to deface the Bill of Rights in order to defend the Flag is political idolatry at its worst.

Mark is not as sure about the Supreme Court decision. In my view, the Court got this issue exactly right. Then again, neither Mark, I, nor the editors of the National Review have been entrusted to interpret the Constitution.

Jonah Goldberg seems to be opposed to the flag burning amendment, but I get lost in all of his weird writing. John Podhoretz is more clear, but then he adds:

But as a strictly Machiavellian matter, as a sheerly political stunt, you have to admit that it’s one of those peculiar gifts that keeps on giving. Republicans can bring it up every few years or so during an election year

At least Podhoretz is honest. The GOP treats the Constitution as a partisan toy.

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Bill Frist on CNN Thinking He Was on Fox News

David Edwards watches Bill Frist on American Morning so we don’t have to. Credit goes to Miles O’Brien for not acting like Brit Hume:

O’Brien defended CNN, “We are covering but I think there is – a lot of what you say there – Americans are not hearing that particular message. As the majority leader, isn’t that part of your job?” Frist replied, “Well, you know, it’s part of my job and your job and your whole coming into this was, again, saying [from] Harry Reid that we are spending all of our time on marriage – which is important. That we’re spending all of the time on flag without mentioning what we’ve done of the floor for six weeks. Iraq, the war on terror, making you safer… where’s your coverage of that? What you do is concentrate on things that are spun to you from the other side of the aisle and that’s why that message doesn’t get out.”

Or as Joshua Marshall summarizes:

Frist: Senate GOP polls sagging because CNN not living up to role as GOP mouthpiece.

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Tax Cut Nuts

Nick Schulz has a flair for titles. The latest defense of free lunch supply-side insanity starts by noting the William Niskanen regression – which suggests that the starve the beast rational for tax cuts has not been operative as far as the U.S. economy over the past 25 years:

The question at hand regards whether tax cuts prompt more government spending or less. Some conservatives have argued for tax cuts with the belief that the resulting loss of revenue – and hence increased deficits – would yield spending cuts. This is called the “starve the beast” school of tax cutting. But research from economist William Niskanen of the Cato Institute suggests that tax cuts prompt more spending, undercutting the starve-the-beasters. For the sake of argument, let’s say that Niskanen’s analysis is correct. Chait says that, as a result, “the factual basis for [conservatives’] entire domestic strategy” has now been “exposed as a fraud.” As Chait sees it, since conservatives continue to insist on tax cuts, even though they lead to more government spending, conservatives must be “crazy.” But there are several problems with Chait’s argument. For starters, by suggesting that “starve the beast” is the only conservative argument for tax cuts, it is willfully ignorant of political history. Moral arguments about economic growth and undue burdens posed by excessive taxation animate conservative arguments in favor of tax cuts. The most articulate and successful advocates of tax cuts in the last thirty years – George Gilder, Jack Kemp, Ronald Reagan, Wall Street Journal editorial page editors, and Steve Forbes among them – all argued for cuts to prompt higher economic growth.

A moral argument? The issue is an economic issue – do the modest incentive benefits from lower tax rates outweigh the crowding-out effects from reduced national savings? Most economist would argue they do no so the free lunch fiscal policies that folks like Jack Kemp advocate lower long-term growth.

Schulz next asks us to read the explanation provided by Jeffrey Miron. I would suggest that the folks at the National Review read the whole explanation, which begins with:

Most economists agree that large and persistent budget deficits are bad for the economy. Deficits mean government borrowing, which implies higher interest rates, lower investment, reduced capital accumulation, and slower growth.

Miron believes that incentives matter. I agree. But he also begins his discussion with noting that cutting taxes without cutting government spending leads to crowding-out. If Mr. Schulz wants to cite Jeffrey Miron as an authority on this economic issue – might I simply ask that Mr. Schulz bother to read what Miron has written.

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Paulson’s Call for Reduction in Social Security Benefits

Reuters reports:

Treasury Secretary nominee Henry Paulson said Tuesday that letting tax rates rise would be a mistake … At his confirmation hearing before the Senate Finance Committee, Paulson clearly defined himself as a supporter of the Bush administration’s tax-cutting zeal

Let’s stop there as Paulson went on to claim tax cuts are pro-growth, which he should know is pure BS. So how would he reduce the deficit?

In response to repeated questions, he emphasized that he was concerned about the size of U.S. budget deficits and said it was vital to impose spending discipline to control them … In response to wide-ranging questioning, Paulson said America faces a “formidable challenge” funding government health and retirement plans and must tackle it soon. An aging population that will increasingly strain the resources of Social Security and Medicare means the problems cannot be simply set aside, he said. “I really do believe that we need to begin very seriously the process of addressing them because the earlier we step up to these issues, the less costly will be the ultimate solution,” he said in response to questions.

Paulson seems to agree with Jagadeesh Gokhale. I don’t for reasons that are very ably expressed by Mark Thoma. Interestingly, these views are coming in time for the voters to consider in the November 2006 elections.

Update: Mark Thoma has more on the GOP’s “posturing for the elections in the fall” Let me just repeat my comment at Mark’s place:

What’s that Dirty Harry line – “make my day”. God I hope the GOP does makes the Soc. Sec. issue a central issue in the 2006 campaigns. Notice they did not say one PEEP about this before the 2004 elections?

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