“Not A Boon For Most Americans”: Congress Has Tackled The Deficit At The Cost Of The Economy
This morning, Eric Rosengren, chief executive of the Boston Federal Reserve, cautioned lawmakers against further fiscal retrenchment, lest they slow the recovery. As he said at the Global Interdependence Center’s Central Banking Conference in Italy: “Given the economic realities I would urge policymakers to consider scenarios where some elements of fiscal rebalancing take effect only after the economy has more fully improved.”
He’s right, in large part because Congress has already done a fair amount of deficit reduction. Beginning in 2011, with unemployment still high and the economy on a long, slow climb out of recession, Congress — led by a new Republican majority in the House of Representatives — moved to make big cuts in medium-term discretionary spending. It slashed $1 trillion with the Budget Control Act of 2011, and followed that with hundreds of billions more in spending cuts and tax increases with the fiscal cliff deal and sequester.
Now, as a result of this deficit reduction, the Congressional Budget Office projects a $642 billion budget deficit for fiscal year 2013, down $200 billion from its projection at the beginning of the year, and the lowest level of deficit spending since President Obama entered office. The near-term deficit projection also shows improvement; the CBO estimates a 2015 deficit of $378 billion. For Washington’s deficit hawks, this is cause for celebration. It’s a sign the federal government is on its way to a more sustainable debt load.
But this rapid deficit reduction is far less of a boon for most Americans, who have to live in an economy that’s been largely stalled by Congressional inaction. At 7.5 percent, unemployment is still too high, and there’s little sign of rapid improvement. According to most projections, joblessness won’t reach pre-recession levels for another three years.
Congress’ push for deficit reduction has a lot to do with this. As noted in the New York Times last week: “The nation’s unemployment rate would probably be nearly a point lower, roughly 6.5 percent, and economic growth almost two points higher this year if Washington had not cut spending and raised taxes as it has since 2011.”
To put that in more concrete terms, 1.5 million more Americans would have jobs if not for Washington’s decision to pursue deficit reduction in the midst of a sluggish economy.
Unfortunately, news of successful deficit reduction is unlikely to result in any respite from new cuts or tax increases. The Obama administration still has its Social Security cuts on the table — as part of a potential “grand bargain” — and Congressional Republicans are gearing up to demand still more spending cuts in exchange for raising the debt ceiling.
Will Washington avoid endangering the still-fragile recovery with further deficit reduction? If the refusal to end or replace the sequester is any indication, I wouldn’t hold my breath.
By: Jamelle Bouie, The American Prospect, May 16, 2013
“It’s Time For Republicans To Get Serious”: Spending Cuts In President Obama’s Budget Put Onus On Paul Ryan
When it comes to deficit reduction, President Barack Obama may have correctly taken the measure of Alan Simpson and Erskine Bowles and U.S. corporate leaders; that’s a reason why any deficit deal is more remote than ever.
Two and a half years ago, when the president refused to embrace the recommendations of his own deficit-reduction panel, he was criticized by the authors, Bowles, a former chief of staff to President Bill Clinton, and Simpson, a former Republican senator from Wyoming, as well as by business leaders.
The plan proposed a balance of spending reductions and tax increases of about $4 trillion over almost a decade; that would bring the long-term debt to a sustainable level, according to proponents, who said the president was abdicating leadership.
Privately, Obama saw the proposal as a trap. If he embraced it, Republicans would say, “let’s focus on areas where we agree — spending, including entitlement cuts — and return later to raising revenue.” Then, he feared, Simpson, Bowles and those worried executives would provide aid and comfort for that position, handing a devastating defeat to Democrats.
In these recurring budget battles, Obama deserves his share of blame. At the turn of the year, he was unwilling to hang tough for an entitlements-revenue deal as tax increases loomed for all Americans. He blinked and accepted a smaller tax increase on the wealthy. The White House then miscalculated that the mindless across-the-board spending cuts under sequestration were so bad that an alternative would emerge.
Yet, a month ago, Obama took a risk and proposed a budget containing cuts to entitlements cherished by his party. House Budget Committee Chairman Paul Ryan, a Wisconsin Republican, and his cohorts were unmoved; they wouldn’t give an inch on new revenue.
Simpson and Bowles gave Obama a pat on the back and largely refrained from criticizing Ryan or House Speaker John Boehner, while corporate leaders ducked.
Moreover, Simpson and Bowles have revised their plan and moved to the right, proposing proportionately more spending cuts and less in new revenue. Obama is playing ball, Ryan isn’t, and the two deficit hawks, and their CEO supporters, are rewarding the guy who is stiffing them.
Simpson and Bowles have been admirably persistent, open to some modifications and correctly insistent on the need to curb long-term health-care costs. A spokesman offered this explanation for their latest move to the right: Republicans now control the House. Sorry, Republicans had just won a huge victory, taking control of the House, and were on a high when Bowles-Simpson was first offered in December 2010.
What’s really going on is that their fervent hope for a deal rests on a naïve assumption that the able Ryan will strike a responsible compromise, even though he has made clear that he won’t.
The Republican position is that taxes went up as part of the deal on the so-called fiscal cliff, and there will be no more increases. In reality, all the tax cuts enacted under President George W. Bush were slated to expire anyway, and Republican congressional leaders, their backs against the wall, had to accept some higher levies on the wealthy.
Moreover, that $600 billion, over a decade, is only a little more than half of what Bowles-Simpson proposed. In addition, the new revenue is dwarfed by spending cuts, which have been more than twice as large.
Obama, for all his earlier timidity, showed political guts with his budget last month. He would lower cost-of-living adjustments for most Social Security recipients, means-test Medicare benefits for wealthier senior citizens and enact other reforms to entitlements that would amount to about as much as the deficit commission recommended.
This has infuriated the Democratic base, some of whom, unreasonably, oppose any cuts to Social Security or Medicare. Others warned that, whatever the merits, there was a political risk to a unilateral gesture, which would be rejected by the Republicans and rob the Democrats of a good issue.
So far, that’s proven to be the case.
Other Republican criticisms are equally dubious. The charge that Obama doesn’t deal with long-term health-care spending would be more credible if a stronger alternative were on the table. Obama’s Medicare cutbacks, over 20 years, are larger than Ryan’s. The sequestration cuts, now accepted by many Republicans, as the White House notes, provide no permanent entitlement changes. None.
There’s also sniping that the entitlement changes would be phased in only gradually. Well, that’s the only way to make entitlement changes politically viable. Consider the much-praised 1983 commission led by future Federal Reserve Chairman Alan Greenspan that made Social Security more solvent with spending cuts and higher taxes. It takes full effect in 2022, almost 40 years after it was enacted.
Corporate executives say they’re pessimistic about any long-term deficit changes and thus it’s better not to rock the boat. Who’s abdicating now?
Senate Democrats, after legitimate criticism for failing to pass a budget for years, did so this year. Now, it’s Ryan and the House Republicans who refuse to go to a conference to try to reconcile differences.
In Washington, there’s a propensity to find bipartisan fault in most conflicts. Often, that is on the mark.
Now, however, if Simpson and Bowles and the CEOs who warned about the dire need to get America’s fiscal house in order are serious, they have a clear target: Paul Ryan.
By: Albert R. Hunt, The National Memo, May 16, 2013
“The Incredible Shrinking Issue”: Lack Of Jobs, Not The Deficit, Is The Actual Scandal That Congress Should Be Trying To Grapple
Republicans gleeful over the recent slew of scandals afflicting the Obama administration – some imagined and some worthy of the name – should be thanking their lucky stars that they have new issues to wield as political cudgels. After all, their favorite of the last few years, the federal deficit, is getting smaller and smaller and smaller.
The Congressional Budget Office – Washington’s nonpartisan number crunchers – released new projections Tuesday showing that the deficit will fall to $642 billion this fiscal year, a 24 percent drop in its projection from just a few months ago. The improvement is primarily due to increasing revenue and fewer expected outlays to government-backed mortgage giants Fannie Mae and Freddie Mac.
If this holds, it will be the smallest the deficit has been since President Barack Obama took office. As a percentage of the economy, the deficit will have been cut by more than half over Obama’s first five years, from 10.1 percent in 2009 to 4 percent in 2013.
And the incredible shrinking deficit doesn’t stop there, falling to 2.1 percent of gross domestic product by 2015, which, as the New York Times David Leonhardt noted, is “a level many economists consider healthy.” (For comparison’s sake, the much-ballyhooed Simpson-Bowles budget plan called for a deficit in 2015 of 2.3 percent of GDP.) It’s also worth noting that the CBO assumes perpetual levels of both war spending in Afghanistan and aid for Hurricane Sandy victims, so the projections for future years will certainly be lower than they appear now.
This report is one more piece of evidence showing that the economic discussion that has gripped Washington recently is absurdly backwards. The short-term deficit is barely a problem, while the long-term issue for the nation’s finances remains, as everyone has known for years, spiraling health care costs (but there’s reason to believe they are also coming down).
What the dropping deficit has not done is spark the sort of economic growth or job creation that will bring down America’s still-too-high unemployment rate; lack of jobs, not the deficit, is the actual crisis with which Congress should be trying to grapple. In fact, as the Center on Budget and Policy Priorities’ Jared Bernstein notes, the deficit is coming down too fast considering the country’s current economic doldrums:
The deficit is falling quickly when it shouldn’t be and rising later when it shouldn’t be.
Certainly, if facts drove the day, this update would be a fire hose for the hair-on-fire austerity crowd re: the near-term deficit. The patient is checking out of the hospital while Drs Cantor, Ryan, and McConnell are still preparing for major surgery.
Considering that Republicans on the House Budget Committee claim that the CBO report “provided a fresh reminder of Washington’s out-of-control spending,” chances seem slim that those pushing austerity will change their tune anytime soon. So perhaps the silver lining in lawmakers focusing on what they see as today’s hottest “scandal-gate” is that it will distract them from doing any more to undermine the economic recovery or to cut a deficit that doesn’t need to be cut anymore.
By: Pat Garofalo, U. S. News and World Report, May 14, 2013
“GOP Deficit Scolds”: By All Means, Cut Social Security, But Don’t Tax The Rich
If the White House’s political goal in calling for Social Security cuts in its budget was to reveal the GOP as the intransigent, uncompromising party in Washington, it’s having the desired effect.
The statements from Republican leaders today in response to the budget are noteworthy, though not surprising: They say we should proceed with Obama’s proposed entitlement cuts but not raise any new revenues by closing any millionaire loopholes. Oh, they don’t put it in those terms. But here’s John Boehner:
While the president has backtracked on some of his entitlement reforms that were in conversations that we had a year and a half ago, he does deserve some credit for some incremental entitlement reforms that he has outlined in his budget. But I would hope that he would not hold hostage these modest reforms for his demand for bigger tax hikes. Listen, why don’t we do what we can agree to do? Why don’t we find the common ground that we do have and move on that?
And here’s Eric Cantor:
If the President believes, as we do, that programs like Medicare, Medicaid and Social Security are on the path to bankruptcy, and that we actually can do some things to put them back on the right course and save them to protect the beneficiaries of these programs, we ought to do so. And we ought to do so without holding them hostage for more tax hikes.
In other words, let’s only do the thing where there’s common ground (entitlement cuts) and not do the thing where there is disagreement (tax hikes).
Now in one sense, this can be seen to validate some of the left’s worst fears about what would happen if Obama offered entitlement cuts. Now that he’s formally proposed cutting Social Security benefits, Republicans can describe that proposal as the one area of agreement between the two parties. And it’s true Obama will probably take a political hit for the proposal.
At the same time, though, it’s worth noting that this doesn’t put Republicans in the greatest political position, either. The GOP position — revealed with fresh clarity today — is that we should only cut entitlements but not raise a penny in new revenues by getting rid of any loophole enjoyed by millionaires. GOP leaders try to compensate for this by robotically repeating the phrase “tax hikes” as a negative, but polls show that majorities already understand that Republican policies are skewed towards the rich. The use of the phrase “tax hikes” to obscure what Dems are really calling for — new revenues from the wealthy — didn’t fare too well in the 2012 elections.
And so, if the White House budget was partly intended as a trap, Republicans walked into it, revealing themselves as the only real obstacle to compromise. Indeed, as Steve Benen points out, Paul Ryan helped underscore the point when he struggled to name anything Republicans could support that their base wouldn’t like.
Now, maybe you don’t believe that there’s much political value in staking out the compromising high ground in this debate, because the Very Serious Deficit Scolds in Washington won’t ever award Obama any real credit for doing this. And maybe you believe that offering Chained CPI will do nothing more than make it easier for Republicans to attack Dems for cutting Social Security in 2014 and 2016.
All I can say to that is that the White House views things differently. Obama advisers believe Republicans could just as easily attack him this cycle for cutting Social Security based on his previous support for Chained CPI. They think the lesson of 2012 (remember the failed “he raided Medicare to pay for Obamacare” talking point?) is that Dems can fend off this attack with relative ease. And from what I have been told, they are looking beyond just getting the approval of the Very Serious People. They want to establish a Beltway narrative that GOP devotion to protecting the wealth of the rich is what’s preventing a deal to replace the sequester, in hopes that it will seep into local news coverage of the cuts around the country as the pain of those cuts sinks in, weakening Republicans further.
Chained CPI is awful policy, and I oppose it. On the raw politics of all this, however, only time will tell who is right.
By: Greg Sargent, The Plum Line, The Washington Post, April 10, 2013
“Cheating Our Children”: The Deficit Scolds Are Actually The Bad Guys In This Story
So, about that fiscal crisis — the one that would, any day now, turn us into Greece. Greece, I tell you: Never mind.
Over the past few weeks, there has been a remarkable change of position among the deficit scolds who have dominated economic policy debate for more than three years. It’s as if someone sent out a memo saying that the Chicken Little act, with its repeated warnings of a U.S. debt crisis that keeps not happening, has outlived its usefulness. Suddenly, the argument has changed: It’s not about the crisis next month; it’s about the long run, about not cheating our children. The deficit, we’re told, is really a moral issue.
There’s just one problem: The new argument is as bad as the old one. Yes, we are cheating our children, but the deficit has nothing to do with it.
Before I get there, a few words about the sudden switch in arguments.
There has, of course, been no explicit announcement of a change in position. But the signs are everywhere. Pundits who spent years trying to foster a sense of panic over the deficit have begun writing pieces lamenting the likelihood that there won’t be a crisis, after all. Maybe it wasn’t that significant when President Obama declared that we don’t face any “immediate” debt crisis, but it did represent a change in tone from his previous deficit-hawk rhetoric. And it was startling, indeed, when John Boehner, the speaker of the House, said exactly the same thing a few days later.
What happened? Basically, the numbers refuse to cooperate: Interest rates remain stubbornly low, deficits are declining and even 10-year budget projections basically show a stable fiscal outlook rather than exploding debt.
So talk of a fiscal crisis has subsided. Yet the deficit scolds haven’t given up on their determination to bully the nation into slashing Social Security and Medicare. So they have a new line: We must bring down the deficit right away because it’s “generational warfare,” imposing a crippling burden on the next generation.
What’s wrong with this argument? For one thing, it involves a fundamental misunderstanding of what debt does to the economy.
Contrary to almost everything you read in the papers or see on TV, debt doesn’t directly make our nation poorer; it’s essentially money we owe to ourselves. Deficits would indirectly be making us poorer if they were either leading to big trade deficits, increasing our overseas borrowing, or crowding out investment, reducing future productive capacity. But they aren’t: Trade deficits are down, not up, while business investment has actually recovered fairly strongly from the slump. And the main reason businesses aren’t investing more is inadequate demand. They’re sitting on lots of cash, despite soaring profits, because there’s no reason to expand capacity when you aren’t selling enough to use the capacity you have. In fact, you can think of deficits mainly as a way to put some of that idle cash to use.
Yet there is, as I said, a lot of truth to the charge that we’re cheating our children. How? By neglecting public investment and failing to provide jobs.
You don’t have to be a civil engineer to realize that America needs more and better infrastructure, but the latest “report card” from the American Society of Civil Engineers — with its tally of deficient dams, bridges, and more, and its overall grade of D+ — still makes startling and depressing reading. And right now — with vast numbers of unemployed construction workers and vast amounts of cash sitting idle — would be a great time to rebuild our infrastructure. Yet public investment has actually plunged since the slump began.
Or what about investing in our young? We’re cutting back there, too, having laid off hundreds of thousands of school teachers and slashed the aid that used to make college affordable for children of less-affluent families.
Last but not least, think of the waste of human potential caused by high unemployment among younger Americans — for example, among recent college graduates who can’t start their careers and will probably never make up the lost ground.
And why are we shortchanging the future so dramatically and inexcusably? Blame the deficit scolds, who weep crocodile tears over the supposed burden of debt on the next generation, but whose constant inveighing against the risks of government borrowing, by undercutting political support for public investment and job creation, has done far more to cheat our children than deficits ever did.
Fiscal policy is, indeed, a moral issue, and we should be ashamed of what we’re doing to the next generation’s economic prospects. But our sin involves investing too little, not borrowing too much — and the deficit scolds, for all their claims to have our children’s interests at heart, are actually the bad guys in this story.
By: Paul Krugman, Op-Ed Columnist, The New York Times, March 28, 2013
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