“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
“Utterly The Same”: Change, Learn, Compromise, Grow? Not These Republicans
Hearing so much chatter about “change” in the Republican Party, the innocent voter might believe that the Republicans had learned important lessons from their stinging electoral defeat. On closer examination, however, the likelihood of real change appears nil, because the party’s leaders and thinkers can cite so many excuses to remain utterly the same.
At the Republican Governors Association conference last week, for instance, the favored explanation for the voting public’s emphatic rejection of Mitt Romney had nothing to do with issues or ideology, but only with more effective Democratic Party organizing and communicating. According to Wade Goodwyn, the National Public Radio reporter who covered the GOP governors’ meeting, their post-election mood was not one of shock, but complacency.
“It was widely agreed that nothing needed to be changed except perhaps the tone,” he found. “For example, the idea that more than 70 percent of Hispanics voted for the president because of Republican positions on illegal immigration was rejected by the Republican governors.”
That would be hard to believe if Goodwyn were not such an excellent and experienced journalist, because it is so stupid, so insulting, and makes so little sense. Could it really be true that the nation’s Republican governors — one of whom is quite likely to be the party’s next presidential nominee — are so obtuse and so obstinate that they would reject change even on immigration?
Republican leaders also seem inclined to ignore voter sentiment on the issue of taxes, despite majorities of 70 percent or better that agree the rich should pay more (including many voters who identify with the GOP). Rep. Mike Pence, who will become the governor of Indiana next January, told the Republican governors that he remains firmly opposed to any tax increase, especially on “those in the best position to put hurting Americans back to work,” which is GOP code for mega-millionaires and above.
Clearly the Republicans in Congress too feel free to ignore public opinion on this question, since Speaker John Boehner and his caucus have offered a “compromise” on fiscal policy that represents no change whatsoever from their earlier positions and the Romney platform. Government can accrue fresh revenues from growth, they say; nothing new or even meaningful there. And government can close unspecified loopholes and deductions to increase revenues, too. Where have we heard that before?
Meanwhile, the consulting geniuses who predicted a Romney victory — a landslide, even! — are peddling alibis about why their party lost despite billions spent. Fox News expert Dick Morris says it is because their voter machinery failed, the Romney campaign didn’t fight back, and Hurricane Sandy persuaded all of the undecided voters to back Barack Obama.
By the way, Morris now predicts that the economy will suffer a ruinous decline over the coming year or two, so Republicans can just sit back and watch the Democrats sink with it. Which is another way of saying no need for change on any front. Given his record as an oracle, both Democrats and Americans more generally now have great reasons for optimism.
Karl Rove, who squandered vast sums of his generous donors’ money, has lots of explaining to do. But he always has lots of explanations. This time, having reluctantly acknowledged electoral reality, Rove agrees with Morris that the Romney campaign’s failures were mostly to blame. He is full of advice for the party leaders, urging them to change the date of the convention, try to avoid “sounding judgmental and callous” on social issues, and “do better — much better” with Hispanics, younger voters, women, and middle-class families.
How should Republicans “do better” with those voter groups? On that question, Rove resorts to clichés about “reframing” messages and “re-engineering” voter turnout efforts, as though issues and policies have nothing to do with motivating actual voters.
Finally, Rove insists that his donors will continue to pour good money after bad into the coffers of American Crossroads, his SuperPAC. His current bleating sounds nothing like his confident bluster a decade ago, when he looked forward to a Republican realignment and unchecked power for decades to come.
Reality has changed, but Republicans won’t. They insist on creating their own reality, like Rove and his friends at Fox News always did — but fewer and fewer Americans will still pretend to live there.
By: Joe Conason, The National Memo, November 18, 2012
“A Virtuous Cycle”: At Least The Federal Reserve Is Not Obsessing About The Budget Deficit
With deficit hawks circling overhead, the responsibility for creating jobs has fallen by default to Ben Bernanke and the Federal Reserve. Last week the Fed said it expected to keep interest rates near zero through mid 2015 in order to stimulate employment.
Two cheers.
The problem is, low interest rates alone won’t do it. The Fed has held interest rates near zero for several years without that much to show for it. A smaller portion of American adults is now working than at any time in the last thirty years.
So far, the biggest beneficiaries of near-zero interest rates haven’t been average Americans. They’ve been too weighed down with debt to borrow more, and their wages keep dropping. And because they won’t and can’t borrow more, businesses haven’t had more customers. So there’s been no reason for businesses to borrow to expand and hire more people, even at low interest rates.
The biggest winners from the Fed’s near-zero rates have been the big banks, which are now assured of two or more years of almost free money. The big banks haven’t used the money to refinance mortgages – why should they when they can squeeze more money out of homeowners by keeping them at higher rates? Instead, they’ve used the almost free money to make big bets on derivatives. If the bets continue to go well, the bankers will continue to make a bundle. If the bets sour, well, you know what happens then. Watch your wallets.
The truth is, low interest rates won’t boost the economy without an expansive fiscal policy that makes up for the timid spending of consumers and businesses. Until more Americans have more money in their pockets, government spending has to fill the gap.
On this score, the big news isn’t the Fed’s renewed determination to keep interest rates low. The big news is global lender’s desperation to park their savings in Treasury bills. The euro is way too risky, the yen is still a basket case, China is slowing down and no one knows what will happen to its currency, and you’d have to be crazy to park your savings in Russia.
It’s a match made in heaven – or should be. Because foreigners are so willing to buy T-bills, America can borrow money more cheaply than ever. We could use it to put Americans back to work rebuilding our crumbling highways and bridges and schools, cleaning up our national parks and city parks and playgrounds, and doing everything else that needs doing that we’ve neglected for too long.
This would put money in people’s pockets and encourage them to take advantage of the Fed’s low interest rates to borrow even more. And their spending, in turn, would induce businesses to expand and create more jobs. A virtuous cycle.
Yet for purely ideological reasons we’re heading in the opposite direction. The federal government is cutting back spending. It’s not even helping state and local governments — which continue to lay off teachers, fire fighters, social workers, and police officers.
Worst of all, we’re facing a so-called “fiscal cliff” next year when $109 billion in federal spending cuts automatically go into effect. The Congressional Budget Office warns this may push us into recession – which will cause more joblessness and make the federal budget deficit even larger relative to the size of the economy. That’s the austerity trap Europe has fallen into.
Mitt Romney has been criticizing the Obama administration for not doing more to avoid the cliff, but he seems to forget that congressional Republicans brought it on when they refused to raise the debt ceiling. They then created the cliff as a fall-back mechanism. Romney’s vice-presidential pick Paul Ryan, chair of the House budget committee, voted for it.
It’s a mindless gimmick that presumes our biggest problem is the deficit, when even the Fed understands our biggest problem right now is unemployment. Yet even the nation’s credit-rating agencies have bought into the mindlessness. Last week Moody’s said it would likely downgrade U.S. government bonds if Congress and the White House don’t come up with a credible plan to reduce the federal budget deficit. (Standard & Poor’s has already downgraded U.S. debt.)
Hello? Can we please stop obsessing about the federal budget deficit? Repeat after me: America’s #1 economic problem is unemployment. Our #1 goal should be to restore job growth. Period.
The Federal Reserve Board understands this. And at least it’s trying. But it can’t succeed on its own. Global lenders are giving us a way out. Let’s take advantage of the opportunity.
By: Robert Reich, Robert Reich Blog, September 15, 2012
“Tell Tale Signs”: Recognizing When Paul Ryan Is Lying Or Trying To Avoid Something
In poker a “tell” is the physical giveaway or tic that lets you know someone is lying about his or her hand. In politics it’s the mode of evasion a politician chooses to sidestep a truth he or she doesn’t want to admit or to avoid saying something against self-interest. In his debut interview with Fox News’ Brit Hume Tuesday, Rep. Paul Ryan’s “tells” were audacious and revealing. They suggest an opening Democrats would be wise to pursue.
Ryan (R-Wis.) tried to cloak himself in his supposedly charming “wonky-ness” to sidestep two simple questions from Hume: When does Mitt Romney’s budget reach balance, and when does Ryan’s own budget plan do the same? Ryan pirouetted because Hume’s queries threatened to expose his famed “fiscal conservatism” as a fraud.
It’s worth parsing Ryan’s tactics in this exchange because it shows the brand of disingenuousness we’re dealing with. So let’s go to the videotape. Have a look at the relevant two-minute portion of the clip (excerpted on this CNN video) and then we’ll dissect it.
Okay, you’re back. Hume started with a simple question: “The budget plan that you’re now supporting would get to balance when?”
Now, for context, recall that in the last era of epic budget smackdowns, 1995 and 1996, Newt Gingrich would have had an equally simple answer: in seven years. President Bill Clinton’s failure to embrace the goal of a balanced budget at all was a major political liability that Clinton finally (and shrewdly) erased when he came out with his own 10-year plan in mid-1995. (It’s worth underscoring that a 10-year path to balance was viewed then as the outer limit of credibility — pledging to end the red ink any further than a decade out didn’t pass the laugh test.)
Since Ryan knows that Romney’s bare sketch of a plan never reaches balance, he stumbles momentarily before trying to move the conversation to his comfortable talking points about Romney’s goal of reducing spending to historic norms as a share of gross domestic product.
But Hume grows quietly impatient. He practically cuts Ryan off.
“I get that,” Hume says. “But what about balance?”
You can see Ryan flinch. He doesn’t know, he says. Why not? “I don’t want to get wonky on you,” he says, recovering, “because we haven’t run the numbers on that specific plan.” But that’s not “getting wonky” at all. As common sense (and the Gingrich/Clinton approach) suggests, there’s nothing arcane about this subject. You decide on a sensible path to balance as a goal and come up with policies that achieve it. All this means is that Romney hasn’t done what a fiscally conservative leader would do. Trying to evade this as a matter of not “getting wonky” is Ryan’s tell. He’s betting Hume is too dumb, uninterested or short on time to press the point.
Ryan then adds that “the plan that we’ve offered in the House balances the budget.” But he immediately stops short of saying when — you see his eyes dart to the right at that moment, his next tell — because that would mean admitting it reaches balance in the 2030s. And Ryan wants to get through this interview without saying that, because he knows it doesn’t sound good. After all, what kind of “fiscal conservative” has a 25-year plan to balance the budget? Instead, in a practiced maneuver signaled by his telltale sideways glance, he moves to a contrast with President Obama, who he says has never offered a budget that ever reaches balance.
This is true — but is a plan to balance the budget when Ryan is nearly 70 really different enough to make Ryan the “deficit hawk”? Please.
Meanwhile, Hume’s quiet baritone presses on.
“Your own budget . . . when does that contemplate reaching balance?” Hume asks.
There’s no exit. Not until the 2030s, Ryan finally admits, looking uncomfortable — but then he quickly adds, making a face, that’s only under the Congressional Budget Office’s scoring rules, implying that they’re silly constraints every Fox News viewer would agree are ridiculous (instead of sensible rules meant to credit politicians only for policy proposals that are real). Ryan adds that “we believe” if we get the economy growing, “it would balance in 10 years.” But that’s supply-side faith-based budgeting again — exactly what we ran an empirical test on in the 1980s. (And the truth is, if Ryan’s big tax cuts were properly accounted for, his plan’s real date of balance would push well beyond 2040).
Why am I harping on this? Because it’s impossible to overstate how central the unjustified label of “fiscal conservative” is to the Ryan brand and the GOP’s strategy. As Clinton understood in the 1990s, “fiscal responsibility” is a values issue important to the voters who decide modern presidential elections.
The point: Democrats can’t afford to let Ryan/Romney’s phony image as superior fiscal stewards survive. And Hume’s interview shows how swiftly this charade can be exposed if Democrats and the press zero in on simple questions like Hume’s. If the press is primed to cover this more intelligently, such queries will also expose the big Republican lie — the idea that you can balance the budget as the baby boomers age without taxes rising.
Let me be clear. The most important issue facing the country isn’t when we’re going to balance the budget. It’s how to get growth and jobs reignited in the near term and how to renew the country’s promise and competitiveness after that (an agenda in which long-term budget sanity is just the ante). But if Democrats spend all their energy on Medicare — and don’t knock out the GOP ticket’s undeserved reputation for fiscal responsibility — they’ll find themselves in unexpected peril as the race heads to the fall.
BY: Matt Miller, Opinion Writer, The Washington Post, August 16, 201
“Hallmark Doublespeak”: With VP Selection, Romney Now Won’t Take A Stand On Paul Ryan’s Budget
It’s only been a few hours since Mitt Romney announced House Budget Chair Paul Ryan as his running mate, but the Republican presidential candidate is already distancing himself from Ryan’s signature policy achievement.
In what appears to be an early attempt to deflect criticism about Ryan’s controversial budget plans, Romney’s aides circulated an internal memo to reporters this morning that lays out talking points for how the campaign plans to address the Ryan budget.
The whole memo is worth a read, but here is the part that addresses the budget (emphasis added):
1) Does this mean Mitt Romney is adopting the Paul Ryan plan?
- Gov. Romney applauds Paul Ryan for going in the right direction with his budget, and as president he will be putting together his own plan for cutting the deficit and putting the budget on a path to balance.
- Romney’s administration will go through the budget line by line and ask two questions: Can we afford it? And, if not, should we borrow money from China to pay for it?
- Mitt Romney will start with the easiest cut of all: Obamacare, a trillion-dollar entitlement we don’t want and can’t afford.
- Mitt Romney also laid out commonsense reforms that will make good on our promises to today’s seniors and save Social Security and Medicare for future generations.
2) Mitt Romney and Paul Ryan have different views on some policy areas – like Medicare spending, entitlement reform, labor, etc. – do you think those differences are going to hurt or help?
- Of course they aren’t going to have the same view on every issue. But they both share the view that this election is a choice about two fundamentally different paths for this country. President Obama has taken America down a path of debt and decline. Romney and Ryan believe in a path for America that leads to more jobs, less debt and smaller government. So, while you might find an issue or two where they might not agree, they are in complete agreement on the direction that they want to lead America
On the surface, this just looks like a feeble effort to mitigate the political risk of being associated with Ryan’s budget, which proposes drastic cuts in federal spending and a dramatic overhaul of popular entitlement programs, including Medicare.
But these proposals are the reason why conservatives and Democrats are both psyched about the Ryan V.P. pick. So Romney’s attempt to simultaneously embrace Ryan’s fiscal policy record and disavow his signature fiscal policy just sounds like more of his campaign’s hallmark doublespeak.
In reality, however, this is really the only position that Romney could or should be expected to take on Ryan’s budget proposals. As we have pointed out before, no one has ever thought the Ryan Budget was going to become a law. It has always been a political document, laying out a new ideological framework for the Republican Party, which, in the wake of the 2008 financial crisis, found that it had lost its way on fiscal policy.
It would be unreasonable to ask Romney to rigidly adhere to someone else’s budget manifesto, and it makes sense that he would want to form his own plan, consistent with his own ideas about the economy and fiscal policy.
The problem is that we have no clue what those ideas are. So in the absence of details about Romney’s own budget plan, it seems fair to tie him to the only proposal available — that of his V.P.
By: Grace Wyler, Business Insider, August 11, 2012
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