Today’s Republican Party thinks the key problem America faces is out-of-control entitlement spending. But cutting entitlement spending is unpopular and the GOP’s coalition relies heavily on seniors. And so they don’t want to propose entitlement cuts. If possible, they’d even like to attack President Obama for proposing entitlement cuts. But they also want to see entitlements cut and will refuse to solve the fiscal cliff or raise the debt ceiling unless there are entitlement cuts.Yup. As I said in my Salon column over the weekend (see how I'm sneaking that in here?), everything about the fiscal cliff should be very, very, easy to resolve. We're just talking budget and tax levels here; there's nothing in the category of abortion, or war-and-peace, that doesn't really take to compromise very easily. So we're right up against the deadline (of a sort) not just for the normal reason that both sides usually press their positions up to the end, but because the GOP position is such a mess to begin with. They never have reconciled all the things that they themselves support, and that makes it awfully hard to cut a deal with anyone else.
This is also (and sorry for keeping myself in this one so much) why I flipped out so much at Paul Ryan's Republican convention speech, in which he bashed Barack Obama for not supporting the exact same Simpson-Bowles agreement that Ryan himself opposed. There's just something massively irresponsible in the kinds of blame-shifting and responsibility-ducking and, with it, dishonesty, that the current GOP has at its apparently core. Especially when it comes to budget politics.
At any rate, Ezra gets it exactly right in his post. And: nice catch!
Posts
I though the GOP had moved toward resolving this contradiction once they started emphasizing that no cuts would occur for current (mostly GOP, mostly white) senior citizens, only for younger people in the future. That made political sense, shoring up their base's support by allaying their fears, being able to have their cake and eat it too. Why was that abandoned (or why is it being newly downplayed, since Ryan hasn't publicly gone back on his plan)?
ReplyDeleteMaybe because making that argument explicit, as Romney and Ryan did, makes its cynicism all too obvious. It implies that seniors only care about their own medical care and not, say, about that of their children.
DeleteI think you are making the Republican’s principles much too complicated. I think the Republican’s have 2 goals. 1) Getting re-elected 2) Setting themselves up for nice jobs if they don’t get re-elected or when they retire from elected political office. In this respect, I think they are doing a great job.
ReplyDeleteTheir donors want to see want lower taxes and cuts in Social Security and Medicare. However to get re-elected they need the votes of people who depend on those programs. So they get Obama on the record as supporting cuts to both programs, and now have the Democrats in the Senate ready to give them almost all they want in tax cuts. This gives them both the election issue they need to run on; Democrats proposing cuts to entitlements and the tax cuts.
I think Obama would have done much better just staying in Hawaii or at least learning to just listen to the Republican proposals and refusing to counter propose anything.
And Democrats don't lie for political advantage? The real problem here is that neither party is proposing an alternative to the spend-now-pay-later philosophy that threatens our economic future.
ReplyDeleteWIN!!!!!
DeleteThe distinctive thing here isn't anything to do with lying, Couves. It's that Republican negotiators are making a bizarre, irresponsible, and unheard-of demand.
DeleteNot only are they demanding entitlement cuts, they're demanding entitlement cuts that are proposed by Democrats. They want something unpopular, so they don't want to propose it, so they're demanding that the other side propose it so they don't have to take responsibility. And they're refusing to allow an easy solution to a major national problem (the cliff) unless Democrats participate in their irresponsible and nonsensical stunt.
ModeratePoli, I think you might want to go up and read the post to see what it was about.
@Neil, Couves' comment was a great reminder that in the midst of a scold, the "other side" is not so golden. He nailed it by providing a brief reminder of how both sides are less than saintly.
DeleteI have a feeling I can read better than you can. I don't read just the words, but also consider what isn't said, but could or should be.
Thanks MP!
DeleteNeil, I'm not sure you understood my point. I don't care about political manuvering that has nothing to do with actually solving the underlying budget problems.
In a democracy, political maneuvering is how problems are solved. It is how trade offs between policies are clarified--or obscured--for the public.
DeleteIndeed, lots of things could be said, MP. Only some of them are relevant to the interesting phenomena discussed in JB's post.
Delete@Neil, I'm aware many irrelevant things could be written, but I don't waste my time on them.
DeleteAt this point, I think I've demonstrated my reading skills sufficiently that you won't question them again.
Consumatopia gets this right, by the way. Bargaining matters, because under a divided Congress, bargains are how you solve major economic problems like the cliff. Do you care about that, Couves? The point of Jonathan's post, missed in MP and Couves' irrelevant comments about lying, is that Rubio has made ludicrous demands which render bargains impossible. (Fortunately, it looks at this point like most Republicans aren't going to join Rubio's absurd position and go off the cliff.)
DeleteNeil, bargaining certainly matters, but it doesn’t matter to me if everyone is more interested in maneuvering for future political advantage than in actually trying to solve the underlying problem. That’s my read of what’s been happening.
DeleteOn lying -- Jonathan is the one who saw the situation as an opportunity to identify a form of dishonesty that he believes is specific only to Republicans. I was responding to that.
Jonathan,
ReplyDeleteThis is off topic but I hope you see this. You frequently refer to the John Tower nomination defeat as a major moment in the nominations battles. I am not that young anymore, age 30, but I have no idea who John Tower was or why he mattered. I imagine a lot of your readers who are younger than I am are in the same boat.
If you have the time, could you please write a short post on your blog explaining who Tower was and why he was opposed. I read his wikipedia entry and found it hard to determine why he launched such strong opposition. Womanizing and drinking are pretty common vices in Washington D.C. which are traditionally ignored by the Washington establishment so I suspect there must have been a different reason that he was voted down.
Thanks
I think Couves has a point. The problem with the Republicans is that they are kowtowing to an important constituency (old folks) by backsliding on ideological commitments. Are liberals better?
ReplyDelete30,000 foot level, we have a problem: we have a $3.5 T government supported by $2.5 T in revenues. Most folks support most of that $3.5 T; no one wants to pay more tax. Whose gonna eat the pain to close that gap? In a perfect world, we all would share, but in a partisan world, all sides attempt to shift the burden to their favorite ideological opponent.
Today Obama said he preferred a "comprehensive" solution (read: tax hikes on the middle class) but what could you do with this stupid Congress? Instead he spent months demagoguing a very narrow tax hike that would please his partisans but shift the revenue needle from $2.5 T to (if we're lucky) $2.55 T.
In the spirit of "point one finger at the other guy...", weren't liberals historically the "tax-and-spend" folks? Now they're just "spend". Didn't liberals pride themselves on balancing budgets? Now they promote plans having nothing better than a token impact on the deficit (if appeasing their many fans).
Why won't the tax-and-spenders talk about real taxes, like asking the middle class to share the pain of closing that $1.0 T gap? You know why. Middle class liberals would collectively plug their ears, shut their eyes and chant repeatedly "KrugmanKeynesKrugmanKeynesKrugmanKeynes..." until the mean old meanies asking them to eat part of this problem go away.
And you think the right is bad for kowtowing to the desire of their constituents not to bear undue pain here? Its universal, Couves is right, its just that we never recognize our own participation in it.
Well put, CSH. I’m more sanguine about the political prospects of both spending cuts and wider tax increases. Of course, no one wants to be the first piece of meat on the chopping block. An understandable sentiment! And one that politicians are shamelessly exploiting, instead of using horse-trading to force the tough choices to be made.
DeleteIt doesn’t help that Democrats are now accepting the Republican line that this as a "proxy battle" in the class war, at least that’s what I read over at Plum Line:
http://www.washingtonpost.com/blogs/plum-line/wp/2012/12/26/why-democrats-insist-on-upper-income-tax-hikes/
There may be a class war, but this isn't it -- more like a rearranging of deck chairs…
Couves, you got my blood pressure up with the Plum Line piece. Though I've inserted an ellipsis, follows is a direct quote:
DeleteDemocrats know that — barring a hike to pre-Reagan levels — there’s not much revenue to gain from restoring upper-income taxes to Clinton-era levels...if upper-income tax hikes serve a purpose, it’s to slow the income gains of the wealthiest Americans, who — for the past decade — have reaped the lion’s share of gains from economic growth.
Ok. We hate rich people, we hate uncontrollable deficits, so even if it doesn't help the deficit, its mollifying to stick the shiv in the rich.
I'm simply speechless that this is the right time for that conversation. Sake of argument, rich people suck. Sake of argument, the middle class has been oppressed for so long, they deserve a moral victory. BUT WHY THE HELL ARE WE HAVING THIS ARGUMENT...NOW...IN THIS CONTEXT?
As well as any other, this column illustrates perfectly why the deficit alarmists are concerned by the doves. The doves claim to be talking fiscal policy; in reality, they're seeking to come out on top in the "Deck Chair Rearranging Contest".
You can’t really talk about the current deficit and think of it as the long-term trend because we are still in a recession. Up until now our tax rates and government expenditures are still what they were under Bush. I think before the economy tanked the deficit was around $400 billion and I don’t recall a large number of people making many complaints about that level. Spending hasn’t changed much under Obama other than the stimulus; which doesn’t affect long-term trend.
DeleteWith the new tax revenue, this should mean we are in better fiscal shape once the unemployment rate comes down. If you take into account that we should get a peace dividend with the ending of the Afghanistan and Iraq wars we will be far better shape than we were in 2006. I don’t recall many complaints about our long term trend in 2006 certainly now from Republicans, so my take is any Republicans worried about the deficit now are just being partisan.
Anonymous, keep in mind that coming out of recession cuts both ways: yes, there's more tax revenue, but it also costs a heck of a lot more to service our $16.5 T debt once interest rates (inevitably) rise from their current, historically low/cheap levels.
DeleteYMMV, but my understanding is that the consensus status quo forecast predicts $1T+ deficits as far as the eye can see, with the salutary effect of tax revenues and military reductions offset by interest rate increases.
Sooner or later (easier if sooner), all of our tax burdens will have to rise.
OTOH, the ship can also just sink.
CSH, I knew you’d love that.
DeleteAnon, the housing bubble was itself part of a long term trend. Greenspan’s policy of funneling money into the corporate world was thought to be an amazing innovation in the 90’s, until it caused a stock market bubble. To get us out of that mess, he employed his simulative powers again to create a housing bubble. Bernanke continues with the same policies… and Democrats have decided that keeping the Bush tax cuts is part of the ongoing cycle of stimulating our way into the next crisis.
And we’re not just left with huge ongoing deficits to deal with, but looming entitlement bills that will come due… and, again, our economic plan is to just get the American consumer to do a little more shopping. Where do you think all that money will come from? It’s borrowed, from future consumption and present investment, further driving down future economic growth. We may or may not be risking a sovereign debt crisis, but we’re at the very least severely stunting our future growth.
Democrats like to call most government spending either “investment” or “stimulus.” Republicans -- ditto for tax cuts. But the reality is that even the supposedly draconian austerity of the fiscal cliff would be in our long-term economic interest (at least according to the CBO).
Yes, all of our biggest problems are long-term. Recognizing that is the first step towards reform.
I think my basic point still stands. Relative to 2006 the cost of government hasn’t gone up other then for issues relating to the recession. In terms of entitlements, we are actually looking at slower growth projections than in 2006, both because of lower cost of Medicare part D and because of the savings Obamacare is taking out of Medicare.
DeleteIf medical costs keep rising as many projections show, I agree that taxes will have to rise eventually, but if we could also solve that issue by getting our medical cost more in line with what Canada pays. If we do that we have no long term deficit issue.
Anon, even you seem to acknowledge that big tax increases and real entitlement overhaul are necessary. Delaying this is what makes the problem grow -- maybe not to the scale of a Greek-style meltdown, but at least to the point where most average people will enjoy a significantly lower standard of living. This problem is worthy of more than just an ‘oh, we’ll muddle through’ response.
DeleteAnother interesting Plain Blog conversation. More food for thought: suppose the Krugman/Keynesian view comes to pass essentially exactly as supporters hope; we indulge massive deficits until the economy starts roaring again, in January 2015 unemployment will be back below 5%, growth will be north of 3% and the world will be rosy again.
DeleteCourse, interests rates will be at least back to historic levels by then, too. What will be the annual cost of sustaining the additional debt accrued in 2013 and 2014 to get us to the glorious day in 2015? Can't know exactly for sure, but somewhere in the ballpark of the $50 - $70 B that Obama's plan was going to raise from rich people.
So. If everything went according to liberal plan, Obama will have burned a significant chit on the road to progressive taxation for the gain of nothing more than 2 years of waiting, but no problem-solving. That's if Obama got everything he wanted, and the future is as optimistic as he can hope. Less optimistic outcomes would, obviously, be much worse.
Long-term structural problems? Check. Future medical costs through the roof? Check. 'Solutions' that trade valued progressive taxation for nothing more than avoiding a problem for a short while? Check.
Back to the original: Republicans are irrational about budget issues? Indeed they are. What's that New Testament passage about the splinter in the other guy's eye?
"Today Obama said he preferred a "comprehensive" solution (read: tax hikes on the middle class) but what could you do with this stupid Congress?"
ReplyDeleteIt's funny that even this incorrect reading of Obama (comprehensive means including tax and entitlement reform rather than the narrower changes of the current deal) makes Obama look much better than the GOP. At least Obama is telling us which direction things would move in if Democrats had more power--more taxes, fewer entitlement cuts.
The most important reality that every voter should understand is the tradeoff between taxes and entitlements. You can quibble over whether Obama is calling for enough taxation (I don't think he is, but that's because Obama is willing to cut entitlements more than I would prefer. For the middle of the road path Obama is aiming for, his tax plans are probably close to sufficient.) But if people can't see that keeping taxes low (to say nothing of cutting them ever further!) means severely cutting entitlements, or holding entitlements fixed means raising taxes, then any honest accounting of our problems is completely hopeless.
You're complaining that Democrats aren't being honest about the magnitude of their tax hikes, but at least they're honest about the sign, plus or minus. Any final arrangement will be the result of compromise (even if one party got their entire plan enacted in law, the other party could take office and repeal it--we're talking about long term plans here, and neither party is likely to maintain permanent rule). That means that the magnitudes don't even really matter--they're purely abstractions, describing ideal worlds that political reality in a two-party democracy with as many veto points as ours would never let come to pass. When a voter pulls a lever for a Democrat or a Republican, what he or she needs to know is the sign--which direction would this candidate push things in negotiations? That's the most important piece of knowledge a voter can have (given that each vote for one of two alternatives can express at most one bit of information, a voter who knew that but nothing else could reasonably call themselves sufficiently informed), and Republicans are trying to obscure that knowledge.
You kids need to fix that sign error. Any discussion of magnitudes is pointless until that is fixed.
Keep in mind that the liberal tax 'plan' (which was Obama's starting point in the cliff negotiations) was only sufficient to finance the permanent debt accruing from 1-2 more years of chasing the Keynesian dream. I'll happily concede your argument that this is in the "right direction", though it seems a bit like the KC Chiefs 'celebrating' their 38-3 season-ending blowout because they could have, you know, scored 0.
DeleteOr to the terms of this discussion, celebrating a positive "sign" is a bit like celebrating the Deck Chair Rearranging Championship.
Obama's public position on revenues is to make permanent everyone's current tax burden, with the tiny exception of a part of the population sufficient to finance 1-2 more years of Keynesianism, but nothing further.
The sign may be positive, but it is quite a stretch to interpret that as a positive sign.
Keep in mind that without growth, we can't solve any long-term budget problem. Current deficits aren't primarily the result of "chasing the Keynesian dream"--they're because the economy is slow--adopting immediate austerity wouldn't eliminate the deficit, because revenues would likely fall as the economy slowed back into recession or worse.
DeleteAlso keep in mind that from the start of cliff negotiations Obama has proposed spending cuts as well as tax increases. Spending cuts he's been willing to accept have grown as negotiations have continued.
But leave all that aside. I'll grant for purposes of this thread that we should embrace austerity immediately. That makes the case against the GOP even stronger, actually. GOP rhetoric means that Democrats politically don't even have the option of surrendering to conservative budget hawks! That even if Democrats want to cut entitlements (and inside the beltway, many of them do), they can't--they'll get attacked for it.
I'm not talking "positive" or "negative" as "good" or "bad". People have different opinions on which side of the taxes/entitlements trade off is "good" or "bad". Nobody is going to get everything they want on this score. What matters is which side of that trade off you are on. Which direction are you pushing things in?
Perhaps instead of "sign" I should have been thinking in terms of vectors with magnitude and direction--in a political system like ours, direction matters much more than magnitude.
That's not rearranging the deck chairs, that's knowing which direction you want to steer the boat in. Once we've settled that, then we can worry about how we'll set the throttle.
The argument that middle-class tax hikes will ultimately reduce revenue sounds like the liberal version of High Lafferism. Certainly, if all of our tax rates increase by 4%, there will be friction costing a few dozen basis points in growth. But not - as liberals are fond of mocking conservatives on upper income tax hikes - anywhere near enough to prevent the raising of serious revenue.
DeleteIf I understand your argument correctly, it goes something like this: Sure, Obama spent a ton of political capital to set in stone tax rates that will cover perhaps the interest on the permanent debt accruing in the next year or two. Further, Obama did so knowing that it was the starting point of negotiations with the (g-d) Republicans, thus the actual dollars he could expect to raise would be much less, from compromise, than the meager amount he initially sought.
And yet, after that all comes to pass, Obama will then pivot on a dime, render the newly-permanent tax scheme unpermanent, and shepherd through significant revenue-enhancements that will close our increasingly frightening budget hole. Though he has given no indication of doing such a thing, and one's presumption should be that the "making permanent of tax rates" is, lacking better info, making permanent, perhaps it will be thus.
If he does that, I'll be standing right beside you, cheering him on, much more loudly than anyone else. However, you may wish to consider whether your faith in Obama ultimately doing the right thing (while the Republicans are scoundrels) may as much arise from Obama being your guy as any objective indication that things will play out that way.
Consumatopia, Maintaining high deficits may be good for current employment. It’s not good for long term growth. The CBO confirmed this when they said that going over the fiscal cliff would boost economic growth in the long term, even if the short term result would be a new recession.
DeleteGrowth comes from investment based on real market prices. But federal policy has been to divert potential investment dollars to consumption (of course, this is nothing new). And prices aren't realistic either, because our fiscal and monetary goals are to immediately boost the stock and housing markets, not to mention consumer spending.
Investment based on unsustainable consumption (communicated through unrealistic prices) is not supportive of real economic growth -- as we've seen from past market bubbles, robust investment, in the wrong things, can even have a catastrophic effect on growth. But like any street junkie, we're chasing that quick and easy high.
It’s tough medicine to say we need a new recession, but sometimes that’s the best thing for true growth and a real recovery. To do so, we need to collectively wean ourselves from the short term thinking that got us into this position to begin with.
"The argument that middle-class tax hikes will ultimately reduce revenue"
DeleteNothing I said was specific to middle-class tax hikes. I said austerity wouldn't eliminate the deficit, and I'm right about this--raising taxes and cutting spending to the extent required to eliminate the today's deficit would fail--tax hikes and spending cuts that massive would seriously slow the economy. As a thought experiment, if you cut spending so hard that the only thing we were paying for was interest on past debt (and operating expenses for IRS revenue collection), that would trigger a depression and you probably wouldn't be able to raise even that much revenue. (Yes, just like raising taxes to 100% wouldn't work). Our current deficits are the result of our temporary economic situation, not of Keynesian policy.
sounds like the liberal version of High Lafferism.
With the massive distinction that Keynesianism only gives this advice when the economy is slow, while Lafferism would insist that low taxes increase revenue at all times.
(Also note that this line of discussion is a distraction from the main point--as I said, I'll grant for purposes of this thread that we should embrace austerity immediately.)
If I understand your argument correctly, it goes something like this
You don't. I'm hard pressed to find a relationship between what you went on to write and my post. (And I only wish I had any faith that Obama would do the right thing going forward.)
I'm not making any claims about what revenue Obama will or won't raise. (Though, for the record, he has insisted that further spending cuts be matched by revenue increases. His position from the beginning of the sequester fight has been that he gets the revenue from expiring upper income tax cuts--or equivalently revenue increases in this deal--"for free", and any further policy cuts are symmetric. That doesn't sound very "permanent" to me. But whatever--this is not the point.)
Why on Earth would you expect more austerity from Democrats if they get attacked by Republicans for any possible austerity they could come up with, even entitlement cuts? Since I've granted you that Austerity Now is the best policy, you need to understand: the GOP's willingness to attack Democrats for entitlement cuts will make it absolutely impossible to get that policy.
I...I don't know what to say here. If Republican are attacking Democrats for cutting entitlements, that's completely different in kind from Democrats failing to propose sufficiently steep tax increases.
As I said to CSH, this line of argument is besides the point--GOP rhetoric makes Democratic austerity impossible. So even assuming even assuming everything you just said was correct, Couves, that would only make the OP even more correct.
DeleteBut just to follow this rabbit hole down, the CBO assumes growth will return to normal very quickly, but they can't know that. It doesn't match the recent experience of other countries with austerity, and it assumes private borrowers are going to start borrowing a whole lot of money soon. Basically, it assumes the market will find another one of those "quick fixes" you hate so much. "Real market prices" are very good at seeking those out without government help.
Growth comes from investment in real goods and services that people can use in the future. Austerity doesn't necessarily increase that--people might just sit on their money, while others sit unemployed. If you want to promote investment and avoid consumption, then you should support investment in public infrastructure and education--things that will generate wealth in the future.
How does Rubio's tweet preclude austerity? He said the Republicans weren't "insisting" on SS cuts, using exactly the type of weasel word that is appropriately read "it'll probably happen". Then he tagged Obama with the unpopular cuts, again, just good political gamesmanship. Inferring that austerity is impossible from that tweet seems like a bridge too far.
DeleteAs with any negotiation, the players (in this case, US Senator Marco Rubio) take to the public not to negotiate but rather to curry support - as such it is wrong to infer that fingers pointed for public consumption govern private negotiations (especially when the rest of the communication is non-committal).
Who's talking about draconian tax increases? Let the Bush tax cuts expire and you get back probably half of the going deficit. Yes, you may temporarily stunt economic growth, a little, but the apocalyptic scenarios you put forth almost certainly won't occur.
And anyway, who's arguing on this thread that the Republicans are helpful? No one has, to my knowledge. The Republicans are a disaster! If Democrats are better, its only marginally.
One other thought: even though Couves' link to the WaPo framed Obama's tax cut in dubious class warfare terms, at least it admitted that Obama's plans were woefully inadequate for the weight of the problems we face.
Do liberals say that? Ever? I don't read a lot of liberal thought-leaders, but if there was a sense that Obama's laughable plan fell short of their collective, liberal, expectations, that's news to me.
Happy news, if by chance it were true.
Yes, if the other party is demanding that you take the blame for a concession to them, that leaves you with no reason to make that concession. Really. This is the biggest issue in the room. And if you think it's just one tweet--rather than the whole "no, YOU are cutting Medicare!" strategy the GOP has adopted--then, well, you're beyond hope. If Democrats will be punished for any austerity--even austerity compatible with conservative goals--then don't expect much austerity to come from liberals.
DeleteLet the Bush tax cuts expire and you get back probably half of the going deficit.
If you combine Bush tax cut expirations with the payroll tax cut expiring (which it still will), the sequester, and unemployment benefits going back to normal, then yes, it would be draconian. It would definitely be painful, and could possibly be devastating.
The Republicans are a disaster! If Democrats are better, its only marginally.
The point is that Republican political strategies prevent Democrats from getting better. It would be like if Democrats attacked the GOP for allowing tax rates on top earners in the recent deal to increase because that punished job creators.
I don't read a lot of liberal thought-leaders, but if there was a sense that Obama's laughable plan fell short of their collective, liberal, expectations, that's news to me.
It's a constantly refrained attack on Obama from the left that his proposals come pre-compromised and only get further compromised from there. Obama's plans don't tax as much as that writer would like--they probably also cut entitlements more than the writer would like.
Finally dropped into this thread, and enjoying it quite a bit.
DeleteQuick answer to CSH: I'd say liberals are all over the place on deficits. There's a (small, not in office) faction which believes that deficits are basically not a problem, ever. There's a somewhat larger faction which believes that deficits are only a problem sometimes. Neither of those wants long-term deficit reduction now. There's also a serious deficit hawk faction, which IMO includes most elected Dems, except that the outsiders with that perspective think that the insiders are all wimps because they should be supporting higher taxes on all but the poor, or at least all from the (actual) middle up.
And then there's also a strategic group, which wants deficit reduction but thinks that it's both politically stupid and practically pointless to do long-term deficit reduction because sooner or later Republicans will be back in office, and they'll undermine it all immediately. For better or worse, I think that crowd has some, but not overwhelming, influence.
At least that's my reading of where liberals are.
Jonathan, thanks for the clarification; it sounds like there is much more interest in "real" deficit reduction among liberals than I encounter in my admittedly limited forays into liberal media.
DeleteHappy to know I'm wrong.
Consumatopia, thanks for the link. I don’t think the CBO was suggesting that the government find some new policy to goose the economy post-recession. Quite the opposite -- they were highlighting the economic growth that would follow from a non-stimulated economy when compared with our current path (with the only variable being going over the fiscal cliff, or not going over the fiscal cliff).
DeleteOf course you’re right about “people just sitting on their money,” that’s part of what happens in a recession and we continue to see it today. The important point is that recessions are the hangover from bad policies and the hair of the dog only delays the pain. While the real damage is caused during the boom times, the recession is a time of economic healing, as the malinvestments get liquidated and the remaining real wealth gets reallocated to more productive uses.
A certain amount of government spending is necessary, but its ability to actually drive an economy’s growth is marginal, at best. If not, history wouldn’t be littered with the wreckage of state-run economies. Not only does government spending waste resources that could have been more productively invested elsewhere, but it risks creating new malinvestments by driving private investment towards new dead ends.
On the political side of things, I don’t find your defense of Democrats particularly compelling. If they’re not making the right choices because they fear Republicans will cynically use their tough positions against them, then I’d say they should get out of politics.
There is a lingering consensus in favor of our current policies, which continue to imagine the US as a prosperous consumatopia-empire without end. I think there’s a growing realization that this insanity can’t continue but I don’t think the political maneuvering we’re watching has much to do with the real conversation that’s going on (God help us if this is the Real Conversation). Whether it will be the beginning of real change, I have no idea.
Jonathan, if the deficit hawks are in charge, then I guess I'd hate to see those other Democrats in office.
DeleteCouves, it would be a much better world if political leaders were brave and did what was best for the country without fear for the political consequences. Or would it? I fear that if political leaders did that they would not be leaders very long, and their bravery would profit the country nothing. After all, politicians are only the servants of We The People, and we not only do not live our own lives by such standards, but we bitterly resent people that do and fall all over ourselves to punish them and send them away from our presence and awareness as quickly as possible. So you are absolutely correct that the Democrats are reprehensible cowards for fearing the political consequences of doing what they believe to be right. So are Republicans. Their actions are not mirror images because the specific political dangers facing Democrats and Republicans are different, but the motivations and strategic calculations are perfectly similar. But I am afraid that we will have that until our politics is taken over by the Solar Sandworms of Rigel VI, or other alien life forms. Until that day, humans will be humans, which s to say selfish, craven, self-deceptive, unwise, and much more concerned with personal advantage than noble goals or even enlightened long-term strategy. I think that the solution to our problems will not come from a basic shift in the beahavior of politicians, but rather by shifts in the political pressures they face. When and if the American people want serious deficit reduction and cease punishing people who try to deliver such, then serious deficit reduction is what we will have. But for the moment the American people want no such thing, despite oft-proclaimed rhetoric. Rather the people want lots of spending, which is to say lots of expensive support and services, low taxes, and bills pushed off on someone else. That this someone else may be future generations bothers the American People as a whole not very much. Oh, and if they can manage to stick a shiv or two into people's they detest, well what else is politics for? The Servants of them People are, like all good professionals, simply delivering what he client wants.
Delete"I think that the solution to our problems will not come from a basic shift in the beahavior of politicians, but rather by shifts in the political pressures they face."
DeleteI couldn't agree more! So how do you expect to change politicians' behavior without calling them spineless weasels when that's clearly how they're acting? If we expect more from them, we'll never get it unless we ask.
Call them anything you want, Couves, and good luck to you! It is an enjoyable pass time in addition to whatever good it may do! But the evidence of three centuries is that American politicians respond best to blunt stimuli, that is to say votes and money. When Republicans begin to lose primaries for not compromising with Democrats, when Democrats start to lose primaries for not reforming Social Security, when both fear a backlash for inadequate taxation, we may see movement in a direction you would find congenial. Otherwise ... well, like I say, good luck!
DeleteAnastasios, I'm not trying to start a political movement. I'm just trying to have a political conversation on a blog. Please feel free to agree or disagree with my opinion, but I don't feel like I need to justify simply expressing it.
DeleteThe utility of political conversation, particularly in a democracy, should be self-evident.
Oh, you don't have to justify that, Couves. Like I say, call politicians whatever you want and good luck to you! I just don't think, from a practical point of view, that being called cowards is something that politicians of any ideology or party fear. They respond to other kinds of pressure. It's an observation, not a criticism.
DeleteAnastasios, I'm obviously not trying to influence politicians with my comments here. So your "observation" is rather pointless.
DeleteWhatever, Couves. Whatever.
DeleteI'm wrong? Do you really think that Congressional staffers are monitoring these comments?
DeleteThis is certainly outside my bailiwick, but I think Couves makes a good point here; sometimes pushing the needle is as simple as "saying it"; we are cynical about those who do (myself certainly included - on this thread!) but words have power and it can't hurt to speak the truth, even if to no one in particular.
DeleteOur daughter is five. She's awesome and totally brilliant, but I digress. For Christmas she got a book about the cartoon pig Olivia, in which Olivia wants to be a princess (key subplot in every five-year-old girl's book). Before she can be a princess, Olivia must first consider other careers.
So Olivia considers being a nurse, or a lawyer, or a doctor, or a political science professor, and then - startingly! - the book reports that Olivia thinks about being a journalist so she can "expose corporate malfeasance"(!)
I may have mentioned the kid is brilliant; nevertheless I had to help her with "corporate" and "malfeasance" and explain what they meant. Which of course led to a lengthy discussion about what journalists do, framed in terms a cynical old bastard like myself would never use if left to his own devices.
And of course it doesn't matter if a random (if brilliant!) five-year-old has a particular, somewhat quaint and aspirational view of the journalistic profession. But it can't hurt. And its probably better than not saying it, no?
Repeat it a million times, and perhaps a movement is born.
It’s tough medicine to say we need a new recession, but sometimes that’s the best thing for true growth and a real recovery.
ReplyDeleteActually, I should go further with this. Anyone who thinks that we would be richer by having people unemployed needs to do a lot of re-thinking. That's not tough medicine. It's poison.
But what if our attempts to alleviate unemployment cause even more unemployment down the line? There's no doubt that the government could enact policies that would put most people to work. The problem is the significant damage this does to our economy going forward.
DeleteI haven't had time to read the whole thread, so I'd probably be well advised to keep my opinions to myself, but I'd just like to list three points that I think ought to be basic rules.
ReplyDelete1. You can't (or shouldn't) address deficits in isolation from the state of the economy. Austerity in a downturn is counterproductive. It will exacerbate the real and current crisis, unemployment, in the name of addressing the eventual, potential crisis, debt, and may not eliminate the defecit in any case. Ireland has been slashing budgets for three years without eliminating its deficit problem as its economy just continues to shrink.
Daniel Drezner links to a McKinsey report that says, while the government has been spending, the private sector has been deleveraging like mad. When the private sector is satisfied that it's on firmer ground, then demand should pick up, the recovery should accelerate, and the public sector can afford to start deleveraging. For the private sector and the public sector to deleverage simultaneously is a recipe for failure.
2. You can't (shouldn't) address deficits in isolation from the sources of the deficits. The current deficits were not caused by a sudden expansion of new government programs, they were caused by the recession (and the Bush tax cuts). The long-term deficit is caused by rising health-care costs, not by to the way Medicare it structured (although, to be sure, changes could be made). To address long-term health-care costs by slashing the Medicare budget (i.e., simply not paying the bills) will not resolve the problem, it will only transform it into a different problem. Since Medicare is currently the most cost-effective system that we have, moving medical expenses away from Medicare to any other existing system will actually make the overall situation worse. Even if it temporarily improves the government's budgetary balance (at the expense of the elderly), it will also eventually become a government problem again.
3. Regarding accusations of class warfare: this isn't simply a matter of class resentment. Apart from whatever class resentments may exist and whatever efforts politicians may make to take advantage of them, excessive income inequality is economically dysfunctional. (I say that with the understanding that people will disagree--legitimately--on the definition of excess and perhaps even on the definition of dysfunction.) No one is talking about eliminating inequality. Even the high tax rates of the pre-Reagan era didn't eliminate inequality, and no one is talking about reviving anything like that. Nevertheless, as more and more money gravitates to the top, potential investors will have more available to invest but less and less incentive to invest it in anything meaningful since overall demand will be increasingly depressed. They thus run the risk of transitioning eventually from "job creators" to parasites. If regular wages and incomes had kept up with increases in productivity over the past thirty years, you wouldn't have had so many people mortgaging their houses just to keep up. (And the entitlements would be solvent. The entitlement crisis wasn't caused by demographic changes. The demographics were factored into the equation back in the 1980s. The problem--in addition to rising medical costs--is that payroll-tax revenues haven't kept up with predictions because a growing share of income gravitates to the top where the payroll tax doesn't touch it.)
Overall, I think conservatives do themselves a disservice by resorting so quickly and easily to charges of class warfare. (Maybe we can call it the war on class warfare?) If they think that a return to a tax system adequate to fund the functioning of government is class warfare, then they don't understand the term. After all, aren't the ultimate beneficiaries of the welfare state the elites who aren't guillotined by enraged and impoverished mobs?
Scott, fwiw I consider myself a Keynesian. I suspect most deficit alarmists are. The basic insight that government should be accomodative during down periods, financed by cutting back in times of plenty, makes a lot of sense to me. Two issues:
DeleteFirst, when has our government ever cut back in times of plenty? In two+ centuries of existence, our govt has run a surplus for only one four year period, which was notable for the utter surprise it generated on the Beltway. Who knew there would be so many jerkwads willing to flip redenvelope.com every week, paying tons of short-term capital gains taxes in the process? In any event: one period of surplus in our history, and we didn't mean to do it!
As a result of our consistent and perpetual failure to satisfy the other half of Keynesian theory, we find ourselves with a public, visible debt that is larger than the economy. Worse, we live in a political system where our most prominent politician (Obama) expends a ton of capital/burns a ton of chits/gives up lots of pounds of flesh for incremental taxes that might finance the interest on the permanent debt arising in the next...year or two.
Given the fact that our government has never, in its history, adhered to the "other side" of Keynesianism (what to do in times of plenty), and given that the climate, for whatever reason, requires massive effort for very little reward, why are we confident that the spendy side of Keynesianism (which has always been easy, for obvious reasons) is really in our long-term interest today?
Or more pertinently, if Keynes were here, would he agree with you on the best road forward for America in early 2013?
CSH, I think you exaggerate. Much of the current debt was generated under three presidents: Ronald Reagan, George W. Bush, and Barack Obama. Getting up the courage to do the right thing in the future will be difficult; perhaps it won't happen or won't happen without another crisis. But will shooting ourselves in the foot today help? And, in any event, if you don't think it will happen tomorrow, why do you think it will happen today?
DeleteAnd of the three presidents, Reagan did make some effort to undo the damage, inadequate though it was. G. H. W. Bush did as well.
DeleteScott, in this case it was a liberal writer who said the tax increase was part of a class war. But I agree with the substance of your point, that it's about more than just class resentment to Democrats.
DeleteNoted. Thank you, Couves.
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