“A Straightforward Factual Description”: Only One Party Is Willing To Compromise And It Isn’t The GOP
The difference between the Republican and Democratic positions on the sequester is simple: Democrats believe reaching a compromise is preferable to letting the sequester happen, since it could devastate the military and scuttle the recovery. Republicans believe letting the sequester happen is preferable to reaching a compromise, even though it could devastate the military and scuttle the recovery.
This is not a partisan observation. It is a straightforward factual description of the two sides’ positions and public statements. The Democratic position is that we must avert the sequester with a mix of new revenues and spending cuts — which is to say, a mix of what both sides want. The Republican position is that we must avert the deal only with spending cuts — which is to say, only with what Republicans want. Some Republicans are openly declaring that they will sooner allow the sequester to kick in than accept a compromise that includes revenue hikes. In other words, the sequester is preferable to any compromise that includes a mix of concessions by both sides. That’s their explicit position.
Indeed, Politico details this morning that many Republicans are holding to this position because they believe that they can blame Obama for the sequester. Roll Call adds that Mitch McConnell is urging Republicans to draw a hard line on the issue.
But given that polls show the public is already convinced Republicans are not doing enough to compromise with Obama, this position is not without risk to their side. So Republicans have tried to obscure the true nature of their stance in two ways.
One is to pretend they are the party that has made all the concessions to deficit reduction thus far. For instance, Charles Krauthammer argues today that Republicans should not give an inch on new revenues, because they already agreed to tax hikes as part of the fiscal cliff deal. Krauthammer doesn’t mention that Democrats agreed to $1.5 trillion in spending cuts — significantly more than the $700 billion in revenues Republicans agreed to — in 2011. Indeed, even if the parties agreed to a roughly one-to-one split between revenues and cuts to avert the sequester, the overall ledger would still be tilted towards Republicans.
The second way Republicans try to obscure the true nature of their position is by pretending Democrats aren’t willing to cut spending. But there’s that aforementioned $1.5 trillion that must not ever be discussed. What’s more, there is simply no question that if Republicans agreed to new revenues, Democrats would give Republicans at least as much, and likely more, in spending cuts. Yes, some liberals want Dems to refuse to offer any cuts. But the position of Democratic leaders, and even the President himself, is that spending cuts must be part of any deal. By contrast, the position held by the Tea Party wing of the GOP — no new revenues no matter what — is the position held by GOP leaders.
The problem for Republicans remains that they are on record saying that the sequester would devastate our military and are even on record saying it would scuttle the recovery. And so the current political situation is this: One side is willing to reach a compromise to avert disaster for the country; the other is not only unwilling to reach a compromise to avert disaster, it views the impending disaster as an opportunity to get what it wants and even sees it as preferable to compromise. This is an objectively true description of the two sides’ positions. If Republicans believe this is a political winner for them, then hey, go for it.
By: Greg Sargent, The Washington Post The Plum Line, February 8, 2013
“Kick That Can”: Fiscal Austerity Should Wait Until The Economy Has Recovered
John Boehner, the speaker of the House, claims to be exasperated. “At some point, Washington has to deal with its spending problem,” he said Wednesday. “I’ve watched them kick this can down the road for 22 years since I’ve been here. I’ve had enough of it. It’s time to act.”
Actually, Mr. Boehner needs to refresh his memory. During the first decade of his time in Congress, the U.S. government was doing just fine on the fiscal front. In particular, the ratio of federal debt to G.D.P. was a third lower when Bill Clinton left office than it was when he came in. It was only when George W. Bush arrived and squandered the Clinton surplus on tax cuts and unfunded wars that the budget outlook began deteriorating again.
But that’s a secondary issue. The key point is this: While it’s true that we will eventually need some combination of revenue increases and spending cuts to rein in the growth of U.S. government debt, now is very much not the time to act. Given the state we’re in, it would be irresponsible and destructive not to kick that can down the road.
Start with a basic point: Slashing government spending destroys jobs and causes the economy to shrink.
This really isn’t a debatable proposition at this point. The contractionary effects of fiscal austerity have been demonstrated by study after study and overwhelmingly confirmed by recent experience — for example, by the severe and continuing slump in Ireland, which was for a while touted as a shining example of responsible policy, or by the way the Cameron government’s turn to austerity derailed recovery in Britain.
Even Republicans admit, albeit selectively, that spending cuts hurt employment. Thus John McCain warned earlier this week that the defense cuts scheduled to happen under the budget sequester would cause the loss of a million jobs. It’s true that Republicans often seem to believe in “weaponized Keynesianism,” a doctrine under which military spending, and only military spending, creates jobs. But that is, of course, nonsense. By talking about job losses from defense cuts, the G.O.P. has already conceded the principle of the thing.
Still, won’t spending cuts (or tax increases) cost jobs whenever they take place, so we might as well bite the bullet now? The answer is no — given the state of our economy, this is a uniquely bad time for austerity.
One way to see this is to compare today’s economic situation with the environment prevailing during an earlier round of defense cuts: the big winding down of military spending in the late 1980s and early 1990s, following the end of the cold war. Those spending cuts destroyed jobs, too, with especially severe consequences in places like southern California that relied heavily on defense contracts. At the national level, however, the effects were softened by monetary policy: the Federal Reserve cut interest rates more or less in tandem with the spending cuts, helping to boost private spending and minimize the overall adverse effect.
Today, by contrast, we’re still living in the aftermath of the worst financial crisis since the Great Depression, and the Fed, in its effort to fight the slump, has already cut interest rates as far as it can — basically to zero. So the Fed can’t blunt the job-destroying effects of spending cuts, which would hit with full force.
The point, again, is that now is very much not the time to act; fiscal austerity should wait until the economy has recovered, and the Fed can once again cushion the impact.
But aren’t we facing a fiscal crisis? No, not at all. The federal government can borrow more cheaply than at almost any point in history, and medium-term forecasts, like the 10-year projections released Tuesday by the Congressional Budget Office, are distinctly not alarming. Yes, there’s a long-term fiscal problem, but it’s not urgent that we resolve that long-term problem right now. The alleged fiscal crisis exists only in the minds of Beltway insiders.
Still, even if we should put off spending cuts for now, wouldn’t it be a good thing if our politicians could simultaneously agree on a long-term fiscal plan? Indeed, it would. It would also be a good thing if we had peace on earth and universal marital fidelity. In the real world, Republican senators are saying that the situation is desperate — but not desperate enough to justify even a penny in additional taxes. Do these sound like men ready and willing to reach a grand fiscal bargain?
Realistically, we’re not going to resolve our long-run fiscal issues any time soon, which is O.K. — not ideal, but nothing terrible will happen if we don’t fix everything this year. Meanwhile, we face the imminent threat of severe economic damage from short-term spending cuts.
So we should avoid that damage by kicking the can down the road. It’s the responsible thing to do.
By: Paul Krugman, Op-Ed Columnist, The New York Times, February 7, 2013
“Driving While Impaired”: After Falling In Sequester Ditch, GOPers Look For Way Out
Remember the Republicans’ debt-ceiling crisis in 2011? It was about a year and a half ago when GOP leaders handed President Obama a ransom note: accept more than $2 trillion in debt reduction or the economy gets it. The parties agreed to more than $1 trillion in cuts, but agreed they needed more time to work on a larger agreement.
So, they crafted a mechanism intended to force both sides to the negotiating table — a sword of Damocles hanging over Washington’s head that would be so severe, Democrats and Republicans would have a strong incentive to strike a deal to avoid the drastic consequences.
The mechanism was automatic sequestration cuts — or “the sequester” — valued at about $1.2 trillion, half of which would come from the Pentagon. (Democrats originally wanted automatic tax hikes to motivate the GOP, but Republicans refused — even hypothetical tax increases were deemed outrageous — and deep Defense cuts were used instead.)
These cuts kick in three weeks from today, and so far, the two sides aren’t close. Democrats want a balanced deal the GOP should find tolerable — spending cuts on one side of the ledger, revenue from closed tax loopholes on the other. Republicans, meanwhile, say they’re prepared to simply let the sequester happen, regardless of the consequences to the economy, the military, or the public.
At least, that’s what they say publicly. Behind the scenes, the GOP strategy is on shaky ground.
One thing is becoming clear: Republicans want to find a way to replace the cuts in the sequester, despite some loud rhetoric to the contrary.
Top House Republican aides privately concede that the politics of allowing the cuts to hit — layoffs, furloughs and a stalled economic recovery — are tough to stomach and they would prefer to make a deal, on their terms of course. […]
A top GOP leadership aide, speaking anonymously to divulge internal thinking, laid out 10 options that the House GOP leadership would be willing to accept, along with savings estimates developed by GOP policy aides, in order to avoid the sequester.
So, the good news is, Republicans are not actively seeking a course that would hurt the country on purpose. The bad news is, they’re still struggling with the whole “compromise” concept.
To date, with just 21 days to go, Republicans leaders have offered nothing — there is no sequester alternative on the table, and in this Congress, no bills to replace the sequester have even been written. There are reportedly 10 different scenarios Republican leaders would be willing to consider, but all 10 are made up entirely of deep spending cuts and would not include so much as a penny in additional revenue.
In other words, Republicans want to replace sequestration with a package that gives them 100% of what they want and 0% of what Democrats want.
This after a national campaign in which Democrats voiced support for a balanced approach, and the American electorate strongly agreed.
It’s nice, I suppose, that there are so many Republican-friendly options to choose from — the menu includes everything from raising the Medicare eligibility age to chained CPI, cutting federal pensions to cutting agricultural subsidies — but so long as GOP officials expect a 100%/0% deal, the likelihood of a breakthrough is remote.
That said, with three weeks to go, I expect some movement away from the intransigent status quo. Put aside the rhetoric and the posturing and we’re left with a picture in which Democrats and Republicans actually have the same goal: to get rid of the sequester. The GOP doesn’t want to admit it, but a bipartisan deal, featuring a combination of spending cuts and revenue from closed tax loopholes and unnecessary deductions could come together with relative ease.
What’s more, if the automatic sequestration cuts happen, and the economy tanks, Republicans probably realize this will be their fault and they’ll likely get the blame. It’s why Josh Green wrote late yesterday that a “Republican crackup over the sequester” almost seems inevitable.
As the process unfolds, I’d like to take a moment to throw in my own suggestion: get rid of the sequester. Don’t try to replace it, don’t struggle to find some satisfying ratio that pleases both sides, don’t delay it for a few months, just cancel it. The deficit is already shrinking, spending has already been cut, and if policymakers want to do even more to improve the nation’s long-term finances, they can work on a deal without some dangerous threat hanging over their heads.
Sequestration was a bad idea. There’s no reason both sides can’t agree to get rid of the darn thing and start fighting over something else.
By: Steve Benen, The Maddow Blog, February 7, 2013
“Looking For Mister Goodpain”: The Doctrine That Has Dominated Economic Discourse Is Wrong On All Fronts
Three years ago, a terrible thing happened to economic policy, both here and in Europe. Although the worst of the financial crisis was over, economies on both sides of the Atlantic remained deeply depressed, with very high unemployment. Yet the Western world’s policy elite somehow decided en masse that unemployment was no longer a crucial concern, and that reducing budget deficits should be the overriding priority.
In recent columns, I’ve argued that worries about the deficit are, in fact, greatly exaggerated — and have documented the increasingly desperate efforts of the deficit scolds to keep fear alive. Today, however, I’d like to talk about a different but related kind of desperation: the frantic effort to find some example, somewhere, of austerity policies that succeeded. For the advocates of fiscal austerity — the austerians — made promises as well as threats: austerity, they claimed, would both avert crisis and lead to prosperity.
And let nobody accuse the austerians of lacking a sense of romance; in fact, they’ve spent years looking for Mr. Goodpain.
The search began with a passionate fling between the austerians and the Republic of Ireland, which turned to harsh spending cuts soon after its real estate bubble burst, and which for a while was held up as the ultimate exemplar of economic virtue. Ireland, said Jean-Claude Trichet of the European Central Bank, was the role model for all of Europe’s debtor nations. American conservatives went even further. For example, Alan Reynolds, a senior fellow at the Cato Institute, declared that Ireland’s policies showed the way forward for the United States, too.
Mr. Trichet’s encomium was delivered in March 2010; at the time Ireland’s unemployment rate was 13.3 percent. Since then, every uptick in the Irish economy has been hailed as proof that the nation is recovering — but as of last month the unemployment rate was 14.6 percent, only slightly down from the peak it reached early last year.
After Ireland came Britain, where the Tory-led government — to the sound of hosannas from many pundits — turned to austerity in mid-2010, influenced in part by its belief that Irish policies were a smashing success. Unlike Ireland, Britain had no particular need to adopt austerity: like every other advanced country that issues debt in its own currency, it was and still is able to borrow at historically low interest rates. Nonetheless, the government of Prime Minister David Cameron insisted both that a harsh fiscal squeeze was necessary to appease creditors and that it would actually boost the economy by inspiring confidence.
What actually happened was an economic stall. Before the turn to austerity, Britain was recovering more or less in tandem with the United States. Since then, the U.S. economy has continued to grow, although more slowly than we’d like — but Britain’s economy has been dead in the water.
At this point, you might have expected austerity advocates to consider the possibility that there was something wrong with their analysis and policy prescriptions. But no. They went looking for new heroes and found them in the small Baltic nations, Latvia in particular, a nation that looms amazingly large in the austerian imagination.
At one level this is kind of funny: austerity policies have been applied all across Europe, yet the best example of success the austerians can come up with is a nation with fewer inhabitants than, say, Brooklyn. Still, the International Monetary Fund recently issued two new reports on the Latvian economy, and they really help put this story into perspective.
To be fair to the Latvians, they do have something to be proud of. After experiencing a Great-Depression-level slump, their economy has experienced two years of solid growth and falling unemployment. Despite that growth, however, they have only regained part of the lost ground in terms of either output or employment — and the unemployment rate is still 14 percent. If this is the austerians’ idea of an economic miracle, they truly are the children of a lesser god.
Oh, and if we’re going to invoke the experience of small nations as evidence about what economic policies work, let’s not forget the true economic miracle that is Iceland — a nation that was at ground zero of the financial crisis, but which, thanks to its embrace of unorthodox policies, has almost fully recovered.
So what do we learn from the rather pathetic search for austerity success stories? We learn that the doctrine that has dominated elite economic discourse for the past three years is wrong on all fronts. Not only have we been ruled by fear of nonexistent threats, we’ve been promised rewards that haven’t arrived and never will. It’s time to put the deficit obsession aside and get back to dealing with the real problem — namely, unacceptably high unemployment.
By: Paul Krugman, Op-Ed Columnist, The New York Times, January 31, 2013
“The Urgency Of Growth”: Congressional Doom-Mongers Need To End Their Campaign Of Government By Deadline And Emergency
If you care about deficits, you should want our economy to grow faster. If you care about lifting up the poor and reducing unemployment, you should want our economy to grow faster. And if you are a committed capitalist and hope to make more money, you should want our economy to grow faster.
The moment’s highest priority should be speeding economic growth and ending the waste, human and economic, left by the Great Recession. But you would never know this because the conversation in our nation’s capital is being held hostage by a ludicrous cycle of phony fiscal deadlines driven by a misplaced belief that the only thing we have to fear is the budget deficit.
Let’s call a halt to this madness. If we don’t move the economy to a better place, none of the fiscal projections will matter. The economic downturn ballooned the deficit. Growth will move the numbers in the right direction.
Moreover, the whole point of an economy is to provide everyone with real opportunities for gainful employment and economic advance — the generational “relay” that San Antonio Mayor Julian Castro affectingly described at last year’s Democratic convention. When we talk only about deficits, we take our eyes off the prize.
But there is good news. Gradually, establishment thinking is moving toward a new consensus that puts growth first and looks for deficit reduction over time. In the last few months, middle-of-the-road and moderately conservative voices have warned that if we cut the deficit too quickly, too soon, we could throw ourselves back into the economic doldrums — and increase the very deficit we are trying to reduce.
Here, for example, is excellent advice from the deservedly respected (and thoroughly pro-market) economic columnist Martin Wolf, offered last week in the Financial Times: “The federal government is not on the verge of bankruptcy. If anything, the tightening has been too much and too fast. The fiscal position is also not the most urgent economic challenge. It is far more important to promote recovery. The challenges in the longer term are to raise revenue while curbing the cost of health. Meanwhile, people, just calm down.”
“Calm down” is exactly what we need to do. We have been inundated with apocalyptic prophecies about our debt levels. While they come from the center as well as the right, Republicans are using them to turn the next two years into a carnival of contrived crises. These will (1) make normal governing impossible — no agency can plan when budgets are always up in the air; (2) distract us — we need to think about measures, such as an infrastructure bank, that would promote prosperity now and into the future; and (3) drive business people crazy — no enterprise would put itself through the contortions that are becoming part of Washington’s routine.
Only if you believe that deficits mean the end is near can any of this be justified. Sen. Mitch McConnell, the Republican minority leader, perfectly encapsulated the effort to diminish the importance of all else (including growth) when he declared recently that “deficit and debt” constitute the “transcendent issue of our era.”
No, it’s not. As Bruce Bartlett, the bravely dissident conservative economics specialist wrote a few days ago: “In fact, our long-term deficit situation is not nearly as severe as even many budget experts believe. The problem is that they are looking at recent history and near-term projections that are overly impacted by one-time factors related to the economic crisis and massive Republican tax cuts that lowered revenues far below normal.”
Former Treasury secretary Lawrence Summers warned in The Post that we can’t “lose sight of the jobs and growth deficits that ultimately will have the greatest impact on how this generation of Americans lives and what they bequeath to the next generation.” And economists at the International Monetary Fund have offered some honorable mea culpas about underestimating the damage that ill-timed austerity programs have done to growth — and to the fiscal positions of the nations affected by them.
You have to hope that President Obama will use his State of the Union message to speak forcefully for growth and the public investments that will foster it. But sensible people also need to rise up and tell the congressional doom-mongers that they have to calm down and end their wholly destructive campaign to turn our great system of self-rule into a government by deadline and emergency.
By: E. J. Dionne, Jr., Opinion Writer, The Washington Post, January 27, 2013
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