“Fiscal Fever Breaks”: 2013 Was The Year Journalists And The Public Finally Grew Weary Of The Boys Who Cried Wolf
In 2012 President Obama, ever hopeful that reason would prevail, predicted that his re-election would finally break the G.O.P.’s “fever.” It didn’t.
But the intransigence of the right wasn’t the only disease troubling America’s body politic in 2012. We were also suffering from fiscal fever: the insistence by virtually the entire political and media establishment that budget deficits were our most important and urgent economic problem, even though the federal government could borrow at incredibly low interest rates. Instead of talking about mass unemployment and soaring inequality, Washington was almost exclusively focused on the alleged need to slash spending (which would worsen the jobs crisis) and hack away at the social safety net (which would worsen inequality).
So the good news is that this fever, unlike the fever of the Tea Party, has finally broken.
True, the fiscal scolds are still out there, and still getting worshipful treatment from some news organizations. As the Columbia Journalism Review recently noted, many reporters retain the habit of “treating deficit-cutting as a non-ideological objective while portraying other points of view as partisan or political.” But the scolds are no longer able to define the bounds of respectable opinion. For example, when the usual suspects recently piled on Senator Elizabeth Warren over her call for an expansion of Social Security, they clearly ended up enhancing her stature.
What changed? I’d suggest that at least four things happened to discredit deficit-cutting ideology.
First, the political premise behind “centrism” — that moderate Republicans would be willing to meet Democrats halfway in a Grand Bargain combining tax hikes and spending cuts — became untenable. There are no moderate Republicans. To the extent that there are debates between the Tea Party and non-Tea Party wings of the G.O.P., they’re about political strategy, not policy substance.
Second, a combination of rising tax receipts and falling spending has caused federal borrowing to plunge. This is actually a bad thing, because premature deficit-cutting damages our still-weak economy — in fact, we’d probably be close to full employment now but for the unprecedented fiscal austerity of the past three years. But a falling deficit has undermined the scare tactics so central to the “centrist” cause. Even longer-term projections of federal debt no longer look at all alarming.
Speaking of scare tactics, 2013 was the year journalists and the public finally grew weary of the boys who cried wolf. There was a time when audiences listened raptly to forecasts of fiscal doom — for example, when Erskine Bowles and Alan Simpson, co-chairmen of Mr. Obama’s debt commission, warned that a severe fiscal crisis was likely within two years. But that was almost three years ago.
Finally, over the course of 2013 the intellectual case for debt panic collapsed. Normally, technical debates among economists have relatively little impact on the political world, because politicians can almost always find experts — or, in many cases, “experts” — to tell them what they want to hear. But what happened in the year behind us may have been an exception.
For those who missed it or have forgotten, for several years fiscal scolds in both Europe and the United States leaned heavily on a paper by two highly-respected economists, Carmen Reinhart and Kenneth Rogoff, suggesting that government debt has severe negative effects on growth when it exceeds 90 percent of G.D.P. From the beginning, many economists expressed skepticism about this claim. In particular, it seemed immediately obvious that slow growth often causes high debt, not the other way around — as has surely been the case, for example, in both Japan and Italy. But in political circles the 90 percent claim nonetheless became gospel.
Then Thomas Herndon, a graduate student at the University of Massachusetts, reworked the data, and found that the apparent cliff at 90 percent disappeared once you corrected a minor error and added a few more data points.
Now, it’s not as if fiscal scolds really arrived at their position based on statistical evidence. As the old saying goes, they used Reinhart-Rogoff the way a drunk uses a lamppost — for support, not illumination. Still, they suddenly lost that support, and with it the ability to pretend that economic necessity justified their ideological agenda.
Still, does any of this matter? You could argue that it doesn’t — that fiscal scolds may have lost control of the conversation, but that we’re still doing terrible things like cutting off benefits to the long-term unemployed. But while policy remains terrible, we’re finally starting to talk about real issues like inequality, not a fake fiscal crisis. And that has to be a move in the right direction.
By: Paul Krugman, Op-Ed Columnist, The New York Times, December 29, 2013
“Someone Please, Alert The Media!”: The Budget Deficit Is Shrinking Rapidly And Most Americans Don’t Know It
The deficit is down 37.6 percent for the first 10 months of the 2013 budget year, according to the Congressional Budget Office. But a new survey conducted by Google at Paul Krugman’s request finds that more than 50 percent of Americans think it’s still growing.
Last year the government spent $973.8 billion more than it took in for the first 10 months of the budget year. The deficit for the same period this year is $607.4. This year’s deficit is projected to be $670 billion.
As a share of gross domestic product, the deficit was recently as high as 10.1 percent in 2009, when the deficit was $1.4 trillion. It is now closer to 2 percent of GDP, which means the deficit has been cut by more than half since then, in both actual dollars and as a share of GDP.
A poll in February found that only 6 percent of Americans were aware the deficit was shrinking. The new survey finds that a little over 17 percent of those polled know the deficit is shrinking, with only 8.3 percent giving the correct answer: that it has decreased by a lot.
The perception that the deficit is still growing has been fed by Republicans including House Minority Leader Eric Cantor (R-VA), who recently said the deficit is growing and Senator Rand Paul (R-KY), who said last week that we have trillion-dollar deficits.
What’s causing the deficit to drop so drastically? Probably even too quickly?
Economic growth, lower spending, increased taxes, and windfalls from government-sponsored mortgage corporations Fannie Mae and Freddie Mac brought on by the resurgent housing market.
Republicans are intent on keeping the so-called sequester in place, which will cut government spending by $85 billion, leading to the loss of up to 1,600,000 jobs. The government is only funded through September 30 and the debt limit will need to be raised soon after that. House Republicans have vowed to use both deadlines to demand even more cuts in spending, along with a delay in or defunding of Obamacare.
By: Jason Sattler, The National Memo, August 13, 2013
“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
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