“When Prophecy Fails”: It’s Time To Stop Taking The Members Of The Doomsday Cult Seriously
Back in the 1950s three social psychologists joined a cult that was predicting the imminent end of the world. Their purpose was to observe the cultists’ response when the world did not, in fact, end on schedule. What they discovered, and described in their classic book, “When Prophecy Fails,” is that the irrefutable failure of a prophecy does not cause true believers — people who have committed themselves to a belief both emotionally and by their life choices — to reconsider. On the contrary, they become even more fervent, and proselytize even harder.
This insight seems highly relevant as 2012 draws to a close. After all, a lot of people came to believe that we were on the brink of catastrophe — and these views were given extraordinary reach by the mass media. As it turned out, of course, the predicted catastrophe failed to materialize. But we can be sure that the cultists won’t admit to having been wrong. No, the people who told us that a fiscal crisis was imminent will just keep at it, more convinced than ever.
Oh, wait a second — did you think I was talking about the Mayan calendar thing?
Seriously, at every stage of our ongoing economic crisis — and in particular, every time anyone has suggested actually trying to do something about mass unemployment — a chorus of voices has warned that unless we bring down budget deficits now now now, financial markets will turn on America, driving interest rates sky-high. And these prophecies of doom have had a powerful effect on our economic discourse.
Thus, back in May 2009 the Wall Street Journal editorial page seized on an uptick in long-term interest rates to declare that the “bond vigilantes,” the “disciplinarians of U.S. policy makers,” had arrived, and would push rates inexorably higher if big budget deficits continued. As it happened, rates soon went back down. But that didn’t stop The Journal’s news section from rolling out the same story the next time rates rose: “Debt fears send rates up,” blared a headline in March 2010; the debt continued to grow, but the rates went down again.
At this point the yield on the benchmark 10-year bond is less than half what it was when that 2009 editorial was published. But don’t expect any rethinking on The Journal’s part.
Now, you could say that The Journal’s editors didn’t give a specific date for the fiscal apocalypse, although I doubt that any of their readers imagined that they were talking about an event at least three years and seven months in the future.
In any case, some of the most prominent deficit scolds have indeed been willing to talk about dates, or at least time horizons. In early 2011 Erskine Bowles confidently declared that we would face a fiscal crisis within around two years unless something like the Bowles-Simpson deficit plan was enacted, and Alan Simpson chimed in to say that it would be less than two years. I guess he has about 10 weeks left. But again, don’t expect either Mr. Simpson or Mr. Bowles to admit that there might have been something fundamentally wrong with their analysis.
No, very few of the prophets of fiscal doom have acknowledged the failure of their prophecies to come true so far. And those who have admitted surprise seem more annoyed than chastened. For example, back in 2010 Alan Greenspan — who is, for some reason, still treated as an authority figure — conceded that despite large budget deficits, “inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued.” But he went on to declare, “This is regrettable, because it is fostering a sense of complacency.” How dare reality not validate my fears!
Regular readers know that I and other economists argued from the beginning that these dire warnings of fiscal catastrophe were all wrong, that budget deficits won’t cause soaring interest rates as long as the economy is depressed — and that the biggest risk to the economy is that we might try to slash the deficit too soon. And surely that point of view has been strongly validated by events.
The key thing we need to understand, however, is that the prophets of fiscal disaster, no matter how respectable they may seem, are at this point effectively members of a doomsday cult. They are emotionally and professionally committed to the belief that fiscal crisis lurks just around the corner, and they will hold to their belief no matter how many corners we turn without encountering that crisis.
So we cannot and will not persuade these people to reconsider their views in the light of the evidence. All we can do is stop paying attention. It’s going to be difficult, because many members of the deficit cult seem highly respectable. But they’ve been hugely, absurdly wrong for years on end, and it’s time to stop taking them seriously.
By: Paul Krugman, Op-Ed Columnist, The New York Times, December 22, 2012
“That Terrible Trillion Deficit”: Another Disingenuous Attempt To Scare And Bully The Body Politic Into Abandoning Social Programs
As you might imagine, I find myself in a lot of discussions about U.S. fiscal policy, and the budget deficit in particular. And there’s one thing I can count on in these discussions: At some point someone will announce, in dire tones, that we have a ONE TRILLION DOLLAR deficit.
No, I don’t think the people making this pronouncement realize that they sound just like Dr. Evil in the Austin Powers movies.
Anyway, we do indeed have a ONE TRILLION DOLLAR deficit, or at least we did; in fiscal 2012, which ended in September, the deficit was actually $1.089 trillion. (It will be lower this year.) The question is what lesson we should take from that figure.
What the Dr. Evil types think, and want you to think, is that the big current deficit is a sign that our fiscal position is completely unsustainable. Sometimes they argue that it means that a debt crisis is just around the corner, although they’ve been predicting that for years and it keeps not happening. (U.S. borrowing costs are near historic lows.) But more often they use the deficit to argue that we can’t afford to maintain programs like Social Security, Medicare and Medicaid. So it’s important to understand that this is completely wrong.
Now, America does have a long-run budget problem, thanks to our aging population and the rising cost of health care. However, the current deficit has nothing to do with that problem, and says nothing at all about the sustainability of our social insurance programs. Instead, it mainly reflects the depressed state of the economy — a depression that would be made even worse by attempts to shrink the deficit rapidly.
So, let’s talk about the numbers.
The first thing we need to ask is what a sustainable budget would look like. The answer is that in a growing economy, budgets don’t have to be balanced to be sustainable. Federal debt was higher at the end of the Clinton years than at the beginning — that is, the deficits of the Clinton administration’s early years outweighed the surpluses at the end. Yet because gross domestic product rose over those eight years, the best measure of our debt position, the ratio of debt to G.D.P., fell dramatically, from 49 to 33 percent.
Right now, given reasonable estimates of likely future growth and inflation, we would have a stable or declining ratio of debt to G.D.P. even if we had a $400 billion deficit. You can argue that we should do better; but if the question is whether current deficits are sustainable, you should take $400 billion off the table right away.
That still leaves $600 billion or so. What’s that about? It’s the depressed economy — full stop.
First of all, the weakness of the economy has led directly to lower revenues; when G.D.P. falls, the federal tax take falls too, and in fact always falls substantially more in percentage terms. On top of that, revenue is temporarily depressed by tax breaks, notably the payroll tax cut, that have been put in place to support the economy but will be withdrawn as soon as the economy is stronger (or, unfortunately, even before then). If you do the math, it seems likely that full economic recovery would raise revenue by at least $450 billion.
Meanwhile, the depressed economy has also temporarily raised spending, because more people qualify for unemployment insurance and means-tested programs like food stamps and Medicaid. A reasonable estimate is that economic recovery would reduce federal spending on such programs by at least $150 billion.
Putting all this together, it turns out that the trillion-dollar deficit isn’t a sign of unsustainable finances at all. Some of the deficit is in fact sustainable; just about all of the rest would go away if we had an economic recovery.
And the prospects for economic recovery are looking pretty good right now — or would be looking good if it weren’t for the political risks posed by Republican hostage-taking. Housing is reviving, consumer debt is down, employment has improved steadily among prime-age workers. Unfortunately, this recovery may well be derailed by the fiscal cliff and/or a confrontation over the debt ceiling; but this has nothing to do with the alleged unsustainability of the deficit.
Which brings us back to ONE TRILLION DOLLARS.
We do indeed have a big budget deficit, and other things equal it would be better if the deficit were a lot smaller. But other things aren’t equal; the deficit is a side-effect of an economic depression, and the first order of business should be to end that depression — which means, among other things, leaving the deficit alone for now.
And you should recognize all the hyped-up talk about the deficit for what it is: yet another disingenuous attempt to scare and bully the body politic into abandoning programs that shield both poor and middle-class Americans from harm.
By: Paul Krugman, Op-Ed Columnist, The New York Times, December 16, 2012
“A-Dynamic Scoring”: Republicans Don’t Like The CBO, Except For When They Do
Rep. Tom Price (R-Ga.) has no shortage of charts, bullet points and studies to back up the GOP’s tax strategy, all of which he laid out Tuesday afternoon before a room of reporters. But, perhaps most prominently, Price wielded numbers from the Congressional Budget Office to make the case for extending all the Bush tax cuts permanently, as the House is poised to vote on this week.
“As the Congressional Budget Office has said, the growth rate if these [tax hikes] go into effect is 0.5 percent,” Price told reporters. “If we’re able to keep the rates the same, the growth rate is 4.4 percent.”
It’s not surprising that a legislator would rely on numbers from the CBO, given the office’s long-standing reputation as a non-partisan, independent scorekeeper. But in the next breath, Price dismissed another major finding from the very same number crunchers.
When asked how the GOP would make up for the huge increase in the deficit that would result from making the Bush tax cuts permanent—which the CBO estimates will reduce revenues by $4.6 trillion—Price flatly denied that the numbers were valid. “We don’t believe that keeping tax rates as they are right now costs money,” he said. Instead, he explained, preserving all of the Bush tax cuts would spur tremendous economic growth that would quickly fill the deficit gap. “What happens when the economy grows, is the federal government actually gets more tax revenue.”
So how is it possible to tell which CBO numbers to trust? I asked Price, pointing out the discrepancy. “The CBO is constrained by rules, in some instances,” he explained. “Sometimes the rules allow them to have more accurate information, in others they don’t.” When it comes to analyzing tax revenue, the CBO must follow the guidance of the 1974 Budget Act, which Republicans like Price believe is flawed. Instead, they’ve long advocated for what’s known as “dynamic scoring” to account for the revenue impact of the economic growth they believe that tax cuts will accelerate.
Why, then, were the 1974 rules for scoring taxes imposed in the first place? Were people just misinformed? Price shrugged, pointing out that Republicans on the Budget committee have tried to change the rules 10 separate times.
In fact, the Bush administration tried using the GOP’s preferred dynamic scoring method to look at the very same Bush tax cuts in 2006. But the results disappointed conservatives: There wasn’t the strong correlation between growth and tax cuts they had expected, and there were far lower levels of growth attributed to the tax cuts than Republicans had claimed, particularly when they weren’t offset by other budget cuts. Even Doug Holtz-Eakin, then a GOP-appointed CBO director, didn’t clamor for more dynamic scoring thereafter.
But that hasn’t stopped Republicans from using the logic of dynamic scoring to make the case for tax cuts that aren’t offset by anything else, as they’re proposing once more. It’s a position that everyone from Tom Price to Mitt Romney has embraced, whatever CBO says to the contrary.
By: Suzy Khimm, The Washington Post, August 1, 2012
“Big Fiscal Phonies”: Republicans Are Fake Deficit Hawks With “Magic Asterisk” Solutions
Quick quiz: What’s a good five-letter description of Chris Christie, the Republican governor of New Jersey, that ends in “y”?
The obvious choice is, of course, “bully.” But as a recent debate over the state’s budget reveals, “phony” is an equally valid answer. And as Mr. Christie goes, so goes his party.
Until now the attack of the fiscal phonies has been mainly a national rather than a state issue, with Paul Ryan, the chairman of the House Budget Committee, as the prime example. As regular readers of this column know, Mr. Ryan has somehow acquired a reputation as a stern fiscal hawk despite offering budget proposals that, far from being focused on deficit reduction, are mainly about cutting taxes for the rich while slashing aid to the poor and unlucky. In fact, once you strip out Mr. Ryan’s “magic asterisks” — claims that he will somehow increase revenues and cut spending in ways that he refuses to specify — what you’re left with are plans that would increase, not reduce, federal debt.
The same can be said of Mitt Romney, who claims that he will balance the budget but whose actual proposals consist mainly of huge tax cuts (for corporations and the wealthy, of course) plus a promise not to cut defense spending.
Both Mr. Ryan and Mr. Romney, then, are fake deficit hawks. And the evidence for their fakery isn’t just their bad arithmetic; it’s the fact that for all their alleged deep concern over budget gaps, that concern isn’t sufficient to induce them to give up anything — anything at all — that they and their financial backers want. They’re willing to snatch food from the mouths of babes (literally, via cuts in crucial nutritional aid programs), but that’s a positive from their point of view — the social safety net, says Mr. Ryan, should not become “a hammock that lulls able-bodied people to lives of dependency and complacency.” Maintaining low taxes on profits and capital gains, and indeed cutting those taxes further, are, however, sacrosanct.
Still, Mr. Ryan and Mr. Romney are playing to a national audience. Are Republican governors, who have to deal with real budget constraints, different? Well, there have been many claims to that effect; Mr. Christie, in particular, has been widely held up, not least by himself, as an example of a politician willing to make tough choices.
But last week we got to see him facing an actual tough choice — and aside from the yelling-at-people thing, he proved himself just another standard fiscal phony.
Here’s the story: For some time now Mr. Christie has been touting what he calls the “Jersey comeback.” Even before his latest outburst, it was hard to see what he was talking about: yes, there have been some job gains in the McMansion State since Mr. Christie took office, but they have lagged gains both in the nation as a whole and in New York and Connecticut, the obvious points of comparison.
Yet Mr. Christie has been adamant that New Jersey is on the way back, and that this makes room for, you guessed it, tax cuts that would disproportionately benefit the wealthy.
Last week reality hit: David Rosen, the state’s independent, nonpartisan budget analyst, told legislators that the state faces a $1.3 billion shortfall. How did the governor respond?
First, by attacking the messenger. According to Mr. Christie, Mr. Rosen — a veteran public servant whose office usually makes more accurate budget forecasts than the state’s governor — is “the Dr. Kevorkian of the numbers.” Civility!
By the way, even Mr. Christie’s own officials are predicting a major budget shortfall, just not quite as big. And the two big credit-rating agencies, Moody’s and Standard & Poor’s, have recently issued warnings about New Jersey’s budget situation, which S.& P. called “structurally unbalanced” because of the governor’s optimistic revenue assumptions.
New Jersey, then, is still in dire fiscal shape. So is our tough-talking governor willing to reconsider his pet tax cut? Fuhgeddaboudit. Instead, he wants to fill the hole with one-shot budget gimmicks, including reneging on a promise to reduce borrowing for transportation investment and diverting funds from clean-energy programs. So much for fiscal responsibility.
Will Mr. Christie’s budget temper tantrum end speculation that he might become Mr. Romney’s running mate? I have no idea. But it really doesn’t matter: whoever Mr. Romney picks, he or she will cheerfully go along with the budget-busting, reverse Robin Hood policies that you know are coming if the former governor wins.
For the modern American right doesn’t care about deficits, and never did. All that talk about debt was just an excuse for attacking Medicare, Medicaid, Social Security and food stamps. And as for Mr. Christie, well, he’s just another fiscal phony, distinguished only by his fondness for invective.
By: Paul Krugman, Op-Ed Columnist, The New York Times, May 27, 2012
“Out Of Egypt, Into The Red Sea”: Romney’s Cowardly Speech On The Deficit
Another day, another economic speech by Mitt Romney. Romney is constantly trying to refocus the campaign on the economy. After being sidetracked by President Obama’s announcement that he supports gay marriage speech last week, and Romney’s appeal to the religious right at Liberty University on Saturday, Romney is once again on the attack against Obama’s economic record. Romney’s Tuesday afternoon speech in Des Moines, Iowa, was nominally focused on deficit reduction.
There are plenty of reasons to worry about the rate of job growth in the short term and federal debt accumulation in the long term, but unfortunately Romney’s proposals would make both problems worse. Rather than offer specific investments or incentives to hire now and plausible plans to reduce the deficit later, when the economy is strong enough to withstand spending cuts, Romney offers the same austerity measures that have crippled the recovery in much of Europe.
It’s worse than just that. If Romney specified which tax loopholes he would close and spending he would cut, at least we’d get deficit reduction, if nothing else. It would also allow for an honest debate about the American people’s priorities on taxes, spending and deficit reduction. But he stubbornly refuses, out of cowardice. Specific cuts could trigger opposition, so Romney offers only bromides.
Romney compared the rising federal debt to a “prairie fire” sweeping the nation. “The people of Iowa and America have watched President Obama for nearly four years, much of that time with Congress controlled by his own party. And rather than put out the spending fire, he has fed the fire,” said Romney. “He has spent more and borrowed more.”
While technically true, this is a bit misleading. Obama inherited an imbalance between spending and revenue because of tax cuts and wars started by George W. Bush and congressional Republicans. Much of the increase in the deficit since Obama took office can be attributed to increases in mandatory spending such as food stamps and decreases in tax revenue that were caused by the recession he also inherited, rather than any of his policies. While Obama did sign some new spending bills, he also signed the Affordable Care Act, which would reduce the deficit. Romney pledges to repeal the ACA and complains that it cut spending on Medicare.
“The time has come for a president, a leader, who will lead. I will lead us out of this debt and spending inferno,” Romney promised. But how? Romney does not say. He wants to extend the Bush tax cuts, then cut taxes an additional 20 percent and raise spending on defense. All of this increases the deficit.
To pay for all of this and then reduce the deficit from current levels would require drastic cuts in domestic programs. But Romney knows that the American people like the idea of cutting domestic spending more than they like cutting actual programs they rely upon. So he avoids offering any specifics. “Move programs to states or to the private sector where they can be run more efficiently and where we can do a better job helping the people who need our help,” said Romney. “Shut down programs that aren’t working. And streamline everything that’s left.” None of this really means anything. No one is for programs that aren’t working or inefficiencies. Unless you say which programs you believe are not working, or which inefficiencies you will remove, you aren’t really saying anything at all. Romney says he will lead on this issue, but he offers no leadership at all.
By: Ben Adler, The Nation, May 15, 2012
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