Relevant and even prescient commentary on news, politics and the economy.

John Boehner says “we do not have an immediate debt crisis.”

Via Salon, David Sirota points to statements by John Boehner and Rand Paul:

America owes this debt of gratitude to Boehner after he finally came clean on yesterday’s edition of ABC’s “This Week” and admitted that “we do not have an immediate debt crisis.” (His admission was followed up by Budget Committee Chairman Paul Ryan, who quickly echoed much the same sentiment on CBS’ Face the Nation).

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Beliefs and economics

New study finds wealthy are different? via Alternet.  Since today and yesterday is shaping up to be deficit days in posts from me, this note caught my attention:

One especially significant difference between the opinions of the wealthy and the population as a whole centers on deficit reduction. According to a study cited by Demos, “87 percent of affluent households believed budget deficits were a ‘very important’ problem, the highest percentage of all listed perceived problems.” Jobs and education, which rank at or near the top of most Americans’ list of priorities, were “a distant second to budget deficits among the concerns of wealthy Americans.”

According to an exit poll conducted after the 2012 election, 59 percent of the public rated the economy as the country’s number one problem, while only 15 percent cited the federal budget deficit. But as the Demos report notes, “the affluent [not only] participate more in civic life; they also have greater influence over public policy.”

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The United States long term debt problem

Michael Linden from Center for American Progress addresses one aspect of using CBO projections, especially the June 2012 report. Best to walk it through with him based on the June report and subsequent reports…good for several posts more is how the current situation is still improving on the debt to GDP ratio so much talked about( and remind people to keep in mind the differences between federal deficit and public debt). Based on going over there to read the walk through, I will post his conclusions only:

The United States long term debt problem

Does this mean our long-term debt problem is solved? No, it doesn’t. Debt at 97 percent of GDP is still a serious challenge. But it’s a much more manageable and less intractable challenge than if the debt was actually on track to hit nearly 200 percent of GDP. With only a little additional deficit reduction, we can stabilize the long-term debt-to-GDP ratio at a reasonable level. Implementing an average of about 0.5 percent of GDP in additional annual programmatic spending cuts or tax increases—or some combination of the two—would keep the debt level essentially stable for the next 25 years, reducing it to about 71 percent of GDP in 2037. This 0.5 percent of GDP would amount to about $1 trillion saved over the next 10 years.

The conventional wisdom in Washington is that we have a huge long-term debt problem. But we rarely recognize that much of the expected run up in debt is derived not from out-of-control entitlement spending but rather from the assumption that future Congresses will make our budget challenges much worse by enacting new tax cuts and new spending increases without paying for them. Take that assumption away, add in the deficit reduction we’ve already enacted, and factor in the recent slowdown in the growth of health care costs, and the debt projection falls by more than 100 percentage points of GDP. That doesn’t mean the long-term budget picture is suddenly rosy, but it does mean that we may not need to hyperventilate quite so much.

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Guest post: HOW DID WE GET HERE? THE ROOTS OF DEFICIT BRINKSMANSHIP

Guest post by Joseph White, Case Western Reserve University and Department Chair and
Director of the Center for Policy Studies and reposted from Scholar Strategy Network:

HOW DID WE GET HERE? THE ROOTS OF DEFICIT BRINKSMANSHIP

March 2013 brings yet another in an endless series of budget showdowns in Washington DC. This time, draconian “sequestration” spending cuts that nobody actually favors are going into effect – because Congress and the President enacted them to end a previous showdown. The cuts will slow economic growth, cost hundreds of thousands of jobs, and devastate essential functions such as air traffic control.

Let’s remember how this sequester came to be. Between April and August of 2011, Washington DC was consumed by highly-publicized brinkmanship about raising the debt ceiling. At the last minute the President and Congress agreed on a three-part plan. Strict caps on discretionary programs (that is, most of what the government does) were set in place for the next ten years. A Joint Select Committee on Deficit Reduction was created, and charged with proposing $1.2 -$1.5 trillion in further deficit reduction over ten years. Lastly, the law included the current sequester, to take automatic effect if the Joint Committee failed. It did fail, as has  repeatedly happened with many deficit reduction committees convened over the past three decades.

In short, DC stepped back from the brink in August of 2011 by scheduling another brink. Who is to blame for this deficit brinkmanship? It may seem logical to finger Congressional “extremists.” In fact, Tea Party-oriented Republicans have recently shown the most enthusiasm for holding the nation’s credit and economic prospects hostage. Yet fiscal brinksmanship is nothing new, and it has been pursued at least as much by “centrist” budget hawks. Since the 1980s, a large segment of the Washington policy world has acted as if all other concerns are less important than shrinking the deficit, equating budgetary terrorism to “responsible government.”

Centrists and Budgetary Doomsday Machines

The Committee for a Responsible Federal Budget is a prime example. Its board includes many former budget officials along with leaders of the House and Senate budget committees. As a leading cheerleader for hostage-taking and brinkmanship, the Committee viewed the 2011 debt ceiling hostage crisis as an “opportunity” not to be wasted. It endorsed the threatened sequester, worrying only that it might not be tough enough. In December 2012, the Committee argued that Congress and the President did not have time to work out a detailed package of big deficit cuts, and called for any deal to include “enforcement mechanisms” such as yet another sequester.

The federal debt ceiling law opens the door to repeated brinkmanship. The ceiling means that if the government is spending, say, $30 billion a month more than it takes in, and comes up against the ceiling, it can’t borrow to pay the next $30 billion without a new law to raise the ceiling. Other laws create the need to borrow and refusing to raise the ceiling would not change those laws. But if a majority of the House or, these days, 41 Senators wish to hold the nation’s good faith and credit hostage, they can create a debt ceiling crisis. (www.scholarsstrategynetwork.org March 2013)

In 2011, the Financial Times editorialized that, “sane governments do not cast doubt on the pledge to honor their debts – which is why, if reason prevailed, the debt ceiling would simply be scrapped.” Yet instead of endorsing this common sense, the Committee for a Responsible Federal Budget has called the debt-ceiling “an effective lever… to require law makers to enact debt reduction legislation.” This promotion of budgetary extremism, however, is nothing new:

 In 1985, two centrists – Democratic Senator Ernest Hollings of South Carolina and Republican Senator Warren Rudman of New Hampshire – joined with ultra-conservative Republican Phil Gramm of Texas to block a debt ceiling increase until Congress passed the Gramm/Rudman/Hollings law requiring crude automatic cuts to domestic and defense programs – with no deliberation about which cuts made sense given national needs.

 In 2009-2010, the centrist Senate Budget Committee Chair, North Dakota Democrat Kent Conrad, first blocked sensible budget process reforms and then objected to a debt ceiling increase in order to force appointment of a special Fiscal Responsibility Commission.

 In November of 2010 former Senator Alan Simpson, co-chair of the deficit commission, boasted that the co-chairs’ recommendations could succeed even though not supported by the required number of commission members. “I can’t wait for the blood bath in April,” declared Simpson, pointing to the next Congressional decision on the debt ceiling. Simpson is a Republican long viewed as very conservative, but he now is considered a centrist by Washington DC reporters (and apparently also by President Obama, who appointed him).

Moving Beyond Deficit Mongering

The federal budget is a package of details about what government does and how the bills are paid. Deficit reduction requires “hard choices” because the details matter. Too often, budget hawks try to avoid those hard political choices by taking decisions out of normal channels. In this quest, they become reckless about both causes and consequences.

Centrist hawks have systematically exaggerated the economic risks of deficits, predicting high interest rates for the past five years and continually being disproven. They also have promoted a biased and inaccurate view of the causes of budget imbalances. Forecasts show that spending on Social Security, Medicare, and Medicaid will increase, while taxes at current levels are not projected to cover the costs. Although most American voters are willing to pay for health and retirement programs, budget hawks proclaim the deficit “crisis” is due to excess “entitlements.”

It would be just as logical to say that valuable health care and pension programs need more funding. The report of the chairs of the Fiscal Responsibility Commission called for an artificial ceiling on federal spending to be set at 21% of Gross Domestic Product forever. This is an arbitrary political move – and one that simply encourages right-wing extremists trying to force unpopular cuts in social spending that could not be enacted in normal proceedings.

Responsible budgeting must begin with accurate analysis of the economic effects of budget choices – and continue by weighing the effects of particular spending cuts and tax increases. Centrist budget hawks simply assume that how the deficit is reduced is far less important than reducing it. That is extremism. When they promote debt-ceiling crises and intentionally outlandish sequesters, they play an undemocratic and dangerous game.

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A Quick Look at Federal Spending

Over at Plain Blog, an anonymous wing nut made this off-topic comment.

Now, yes, Bill Clinton and his 2000 federal spending level of 18% of GDP doesn’t put him on the fringe, which makes it surprising that you lefties are celebrating him, even as you hysterically condemn anybody who resists the Left’s current massive spending levels, which are nearly 50% greater than Clinton’s and are spending the nation into debt obvlivion.

This once again raises the regressive canard that Obama has been a profligate and fiscally irresponsible spender.

Let’s have a look.

Here is a graph of current expenditures that took place in the years of the current century.

First observation is that anon’s math isn’t very good.  Current expenditures are roughly 100% greater than when Clinton left office, not a mere 50%.

Second observation is that the vast majority of that increase – from about $1900 billion to about $3200 billion – took place under the previous administration.

Third observation is that the bulk of the Obama increase occurred during the recession – as it should – from a bit under $3200 billion to a bit under $3600 billion.  Since then it’s crept up to about $3800 billion, and has recently flat-lined.

A more subtle point is that spending, like many time series data sets, increases exponentially over time, following population growth.  So, saying that a value at time B is some percentage greater than the value at time A communicates essentially zero information.  Context matters.

Let’s look at expenditures in terms of year over year increase.

Yep, there was a big increase in 2009 and 2010, as social safety net programs kicked in.

Since then, expenditure growth fell precipitously and now has actually gone negative.  The last time that happened was in the Eisenhower administration.  Clearly, Obama has not been profligate.  Would it be an exaggeration to say he’s been miserly?

Bill Clinton did a great job of exposing Republican lies in his speech at the Democratic convention last night.  But really, it’s easy.  All you have to do to refute a regressive is have a quick look at facts and data.

Cross-posted at Retirement Blues.

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AEI Economists and the Ugly Memory Hole

by Mike Kimel

From an article in the NY Times:

Politicians sometimes say that lower tax rates lead to higher economic growth, which in turn leads to higher overall tax revenue. This may have been true in the early 1960s, when the top tax rate was 91 percent, but the top tax rate today is 35 percent. For decades, lower tax rates have led to lower government revenues, says Alan Viard, an economist at the American Enterprise Institute, a conservative policy group. “The Reagan tax cuts, on the whole, reduced revenue,” he explains. “The Bush tax cuts clearly reduced revenue. There is no dispute among economists about that.”

I guess we can credit Viard with actually looking at data on taxes and revenues, and having at least enough honesty not to obfuscate results.

Sadly, there is a dispute among the folks who call themselves economists about that, and it seems particularly easy to find that category of economists among the type of folks who are willing to associate themselves with the American Enterprise Institute.

Here’s Kevin “Dow 36,000” Hassett of the AEI, not incidentally co-author of Viard with a paper currently highlighted on the AEI’s website:

Republicans have asserted for years that just about all tax cuts pay for themselves. They’ve almost always been wrong about that. But with regard to corporate taxes, it’s true.

As Hassett notes in his piece, the top US corporate rate in 2010 was 35 percent. Note the Viard quote shown earlier.

Then there’s AEI visiting scholar R. Glenn Hubbard, previously the first Chair of the Council of Economic Advisers under GW Bush, and as we all remember, a huge advocate of tax cuts all around. I found this old Brad DeLong post from Hubbard’s White House days. DeLong quoted, in its entirety, this letter by Hubbard that was printed in the Washington Post.

Washington Post
Low Taxes and Growth for All
January 4, 2003; Page A15

A Dec. 16 news story in your paper stating that a Republican economist does not care about the deficit and wants to raise the tax burden on the poor was too good for Michael Kinsley to check [“Republicans Go Positive on the Deficit,” op-ed, Dec. 23]. Had he checked the complete text of my Dec. 10 speech, it would have been clear that I believe the fiscal position does matter and that a pro-growth policy with lower taxes for everybody makes sense.

The president is committed to fiscal discipline, and he rightly believes it is important to balance the budget. The deficit we now face is caused by national emergency, war and recession. We must keep in mind that growth leads to surpluses, not vice versa. Promoting economic growth and job creation is the aim of the administration–and this will lead back to a balanced budget. At the same time, the peer-reviewed economics literature shows that long-term interest rates do not go up in lockstop with the budget deficit. This is apparent from recent history.

The Dec. 16 article and Kinsley suggest that by acknowledging the challenges inherent in fundamental tax reform, the administration favors increasing taxes for some individuals. But the record makes clear this is not the case: The president and this administration know that lowering taxes for everybody leads to growth. This continues to be the sound policy of the administration.

— R. Glenn Hubband, Chairman, Council of Economic Advisers

Notice… he talks about “fiscal discipline” but he is very clear, “growth leads to surpluses.” Fiscal discipline is important, but it isn’t what leads to surpluses. The only way that is true is if the faster growth generated by tax cuts leads to increased tax collections.

Note that this was 2003… and Hubbard and his boss had already given us tax cuts in 2001 and 2002.

Anyway, I can go on, but it seems to me Viard’s comment is merely part of a concerted effort to scrub a large history of very, very bad economic forecasts down the memory hole. Sorry, but unless and until Viard calls out some his big name colleagues by name, it is going to be just as hard to take him seriously as it is to pretend that folks like Hubbard and Hassett don’t have a long history of promoting very damaging policies, and doubling down when those policies blew up.

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Weapons That Didn’t Work Out

by reader ilsm
The Campaign to Preserve Pentagon Waste is in High Gear:

From Forbes, Defense Advocate Loren Thompson:
 
How To Waste $100 Billion: Weapons That Didn’t Work Out

One of the most unsettling facets of federal finance is the way the government devalues past investments. The political system is so focused on the next budget — and the next election — that it ignores sunk costs. Thus, every program termination is considered “savings,” without regard to the money that was spent to get the project in question to its current state.”
“This fiscal myopia is especially pronounced in the defense budget, where the government makes most of its capital investments. Cancellation of weapons systems that have been in development for a decade or longer is typically greeted as evidence that policymakers have made “hard choices” and had the courage to stand up to the “military-industrial complex.” The fact that previous administrations may have spent billions of dollars trying to satisfy a valid military requirement is barely mentioned — as is the fact that future administrations will have to spend additional money starting over on a replacement project.

Thompson is not an economist. More here.

What Thompson is advocating is to continue throwing good money after bad, which is poor economics; decisions on future “investments” need to be made on the performance of the project and the continued need for the projects’ performance. Neither are evident in the “defense” cuts that do indeed go against the jobs and PAC funding of the “military-industrial complex.”
For example, the F-35 should be killed based on failed tests, over runs delays and dangerous outcomes in several critical safety issues.
Walking away from the $50B is a problem for Thompson, but it will free up nearly $1000B in the next 20 years for uses that work, and benefit the US.
The “don’t throw good money after bad argument” was made in “Of Mice and Economics Dan Seligman, Forbes Magazine, Aug 28 1998 (Dan here…Also see Naked Capitalism US Wars are far from over)

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The Argument Against the "First Derivative Mistake" Excuse

Unless you’re really stupid, or bending over backwards to find excuses for the Obama Administration’s Geithnerian malfeasance, you should be less than impressed with Matt Yglesias’s attempt to argue that the Administration saw reason to be happy with overall employment (link to Brad DeLong).

If you’re Matt Yglesias, you should be even less impressed with your (own) argument.

Because Matt Yglesias was paying attention in 2010. He was paying much more attention to Barack Obama’s speeches than I was, so he would have heard the 27 January 2010 State of the Union, when Barack Obama said:

[O]ur efforts to prevent a second depression have added another $1 trillion to our national debt. That, too, is a fact.

I’m absolutely convinced that was the right thing to do. But families across the country are tightening their belts and making tough decisions. The federal government should do the same. (Applause.) So tonight, I’m proposing specific steps to pay for the trillion dollars that it took to rescue the economy last year.

Starting in 2011, we are prepared to freeze government spending for three years. (Applause.) Spending related to our national security, Medicare, Medicaid, and Social Security will not be affected. But all other discretionary government programs will. Like any cash-strapped family, we will work within a budget to invest in what we need and sacrifice what we don’t. And if I have to enforce this discipline by veto, I will. (Applause.) [emphases mine; laugh track in original]

And Matt Yglesias, who was paying attention then and has a memory now, would have known that “freezing government spending in 2011” means starting 1 October 2010 (when FY 2011 starts), which means that departments have to start planning and cutting…well, basically when the words leave Obama’s mouth.

And Matt Yglesias would have known that transfer payments such as Unemployment Insurance, Temporary Assistance for Needy Families, the Home Energy Assistance Program, and other programs that (at the least) enable “discretionary” spending on things such as food, clothing, and medicine are not on the list of programs that will be exempted from funding cuts. So—even ignoring any moral considerations about letting people freeze to death or starve—there’s a cut in consumption (and therefore GDP) coming. Which will impact employment.

And Matt Yglesias would have known that freezing Federal spending—which is what Obama really means, since he doesn’t control the States’s spending directly—means that the States that are at best just starting to recover, and that have to balance their budget somehow, and only did it for the then-current fiscal year with the help of a lot of stimulus that won’t be coming from a frozen government budget. So there will be cuts in civil servants, and more cuts in consumption.

And Matt Yglesias would have known that freezing the Federal budget in the midst of a slow recovery (because even Matt’s first graphic doesn’t come close to the stable-unemployment rate of 110-150,000 new jobs a month at the time of the SotU, and only approaches it later because it includes temporary census hiring) means that there will have to be layoffs at the Federal level as well, even if there is no one (contrary to economic theory) who leaves for the private sector.

And Matt Yglesias—who isn’t as dumb as his post makes him seem—would know that an Administration that says something that stupid in 2010 isn’t looking at his second (more clearly understandable) graphic, or even his first (census-enhanced) graphic, but rather so mythological construct where all those government workers and increasingly-impoverished unemployed people magically Create Jobs.

And Matt Yglesias—not to mention Brad DeLong—would not be at all surprised when the result of those early 2010 policies came home to roost:

Indeed, the reaction might well be that the recovery went even better than should have been expected, and to wonder why.

And Matt Yglesias would, instead of making excuses for them, wonder aloud why any capable economist (or even one of the Administration’s policy guru) would have been stupid enough to take the first chart he presented seriously as a roadmap, since the Administration changed the territory—for the worst, from an employment perspective—from the previous model. He would be asking if Austan Goolsbee—who is smarter than both Matt and myself, and possibly the two of us combined—was just sleeping through the entire Administration.

But Matt Yglesias didn’t do any of those things. Why, oh why, can’t we have a better press corps?(tm, Brad DeLong)

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GOP Representative moves to increase deficit–and aid the investor class

by Linda Beale

GOP Representative moves to increase deficit–and aid the investor class

The GOP has made lots of fusses lately about the deficit. According to the party line, earned benefits that Americans rely on for health care and retirement income just “have” to be reduced, no matter how painful it is to the GOP-controlled House to do it, because of the unrelenting deficits that are destroying the US economy.

How then can any GOP member of the House think it is reasonable to introduce legislation that institutes a permanent tax cut that will cost the government billions will benefitting primarily the very rich investors in corporate stock?

Peter Roskam (Republican from Illinois and member of the House Ways and Means Committee) introduced legislation–H.R. 3091 (for those with BNA access)– on Tuesday that would make the ridiculously low Bush tax legislation provisions for capital gains and dividends permanent. A 15% rate on the main source of income that the uberrich enjoy, while the rest of us pay regular ordinary income rates on our wages.

How does Roskam justify this further giveaway to the rich, this further example of governmental capture by oligarchy? He claims that this revenue reduction that benefits mostly the very rich will –yes, you guessed it–help generate U.S. investment and create jobs. Making this giveaway rate permanent for everybody will “foster a culture that encourages investment, capital formation, and economic growth”, he says. BNA Daily Tax Report, Oct. 5, 2011.

Balderdash. Low capital gains rates have nothing to do with encouraging investment or capital formation or job creation. They mostly reward investors in the secondary market on their trades. They let the rich get even richer and make more investments–probably in emerging markets rather than in the US.

It is true that having more cash on hand because you didn’t pay as much taxes means you’d have more to spend. So why not encourage economic growth by putting cash in the hands of the middle and lower income classes through the payroll tax reduction proposed by Obama? (Yes, it should be temporary–as an economic stimulus.)

This is just another example of class warfare in action in the right-leaning House GOP. All the fuss about deficits. All the economic terrorism about the U.S. debt limit. But reducing revenues still more in order to benefit the wealthy–well, the Mr. R. just can’t wait to do that one.

originally published at ataxingmatter

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