“Sequester Of Fools”: We Should Be Spending More, Not Less, Until We’re Close To Full Employment
They’re baaack! Just about two years ago, Erskine Bowles and Alan Simpson, the co-chairmen of the late unlamented debt commission, warned us to expect a terrible fiscal crisis within, um, two years unless we adopted their plan. The crisis hasn’t materialized, but they’re nonetheless back with a new version. And, in case you’re interested, after last year’s election — in which American voters made it clear that they want to preserve the social safety net while raising taxes on the rich — the famous fomenters of fiscal fear have moved to the right, calling for even less revenue and even more spending cuts.
But you aren’t interested, are you? Almost nobody is. Messrs. Bowles and Simpson had their moment — the annus horribilis of 2011, when Washington was in thrall to deficit scolds insisting that, in the face of record-high long-term unemployment and record-low borrowing costs, we forget about jobs and concentrate exclusively on a “grand bargain” that would supposedly (not actually) settle budget disputes for ever after.
That moment has now passed; even Mr. Bowles concedes that the search for a grand bargain is on “life support.” Let’s convene a death panel! But the legacy of that year of living foolishly lives on, in the form of the “sequester,” one of the worst policy ideas in our nation’s history.
Here’s how it happened: Republicans engaged in unprecedented hostage-taking, threatening to push America into default by refusing to raise the debt ceiling unless President Obama agreed to a grand bargain on their terms. Mr. Obama, alas, didn’t stand firm; instead, he tried to buy time. And, somehow, both sides decided that the way to buy time was to create a fiscal doomsday machine that would inflict gratuitous damage on the nation through spending cuts unless a grand bargain was reached. Sure enough, there is no bargain, and the doomsday machine will go off at the end of next week.
There’s a silly debate under way about who bears responsibility for the sequester, which almost everyone now agrees was a really bad idea. The truth is that Republicans and Democrats alike signed on to this idea. But that’s water under the bridge. The question we should be asking is who has a better plan for dealing with the aftermath of that shared mistake.
The right policy would be to forget about the whole thing. America doesn’t face a deficit crisis, nor will it face such a crisis anytime soon. Meanwhile, we have a weak economy that is recovering far too slowly from the recession that began in 2007. And, as Janet Yellen, the vice chairwoman of the Federal Reserve, recently emphasized, one main reason for the sluggish recovery is that government spending has been far weaker in this business cycle than in the past. We should be spending more, not less, until we’re close to full employment; the sequester is exactly what the doctor didn’t order.
Unfortunately, neither party is proposing that we just call the whole thing off. But the proposal from Senate Democrats at least moves in the right direction, replacing the most destructive spending cuts — those that fall on the most vulnerable members of our society — with tax increases on the wealthy, and delaying austerity in a way that would protect the economy.
House Republicans, on the other hand, want to take everything that’s bad about the sequester and make it worse: canceling cuts in the defense budget, which actually does contain a lot of waste and fraud, and replacing them with severe cuts in aid to America’s neediest. This would hit the nation with a double whammy, reducing growth while increasing injustice.
As always, many pundits want to portray the deadlock over the sequester as a situation in which both sides are at fault, and in which both should give ground. But there’s really no symmetry here. A middle-of-the-road solution would presumably involve a mix of spending cuts and tax increases; well, that’s what Democrats are proposing, while Republicans are adamant that it should be cuts only. And given that the proposed Republican cuts would be even worse than those set to happen under the sequester, it’s hard to see why Democrats should negotiate at all, as opposed to just letting the sequester happen.
So here we go. The good news is that compared with our last two self-inflicted crises, the sequester is relatively small potatoes. A failure to raise the debt ceiling would have threatened chaos in world financial markets; failure to reach a deal on the so-called fiscal cliff would have led to so much sudden austerity that we might well have plunged back into recession. The sequester, by contrast, will probably cost “only” around 700,000 jobs.
But the looming mess remains a monument to the power of truly bad ideas — ideas that the entire Washington establishment was somehow convinced represented deep wisdom.
By: Paul Krugman, Op-Ed Columnist, The New York Times, February 21, 2013
“Dire Consequences And Denial”: With Their Jobs Secure, Republicans Could Less About The Rest Of America
The sequester’s automatic, across-the-board spending cuts are set to go into effect on Friday, and there is no plan as yet to stop it.
America, this is your feeble government at its most ineffective and self-destructive.
The White House favors a balanced plan that would include spending cuts and some tax increases for the wealthy. Republicans reject any solution that includes tax increases.
These are two fundamentally different perspectives, only one of which is supported by a majority of Americans.
A Pew Research Center/USA Today survey released Thursday found that only 19 percent of Americans believe that the focus of deficit reduction should be only on spending cuts. Seventy-six percent want a combination of spending cuts and tax increases, with more emphasis on the former than the latter.
But the impasse could have dire consequences. A study last year by Stephen S. Fuller, a professor at George Mason University, estimates that the sequester could cost 2.14 million jobs and add 1.5 percentage points to the unemployment rate. Fuller’s analysis was cited in a Congressional Research Service report prepared for members of Congress.
What’s more, the sequester would reduce military spending by $42.7 billion; nonmilitary discretionary spending would drop $28.7 billion, in addition to a mandatory $9.9 billion reduction in Medicare, according to the Congressional Budget Office.
In anticipation of the very real possibility that the sequester could come to pass, some Republicans are leaning on the shoulder of an old friend: denial.
This week on CNN, Senator Rand Paul pronounced the $85 billion in mandated cuts a “pittance” and a “yawn” that is “just really nibbling at the edges.” He also called President Obama’s warnings about the sequester’s impact “histrionics,” “ridiculousness” and “emotionalism.”
What a perfect segue to Rush Limbaugh, who took to the air this week to denounce predictions about the sequester’s effects as a “manufactured” crisis, saying that “for the first time in my life, I am ashamed of my country.”
Limbaugh continued:
“In truth, we’re gonna spend more this year than we spent last year. We’re just not gonna spend as much as was projected. It’s all baseline budgeting. There is no real cut below a baseline of zero. There just isn’t. Yet here they come, sucking us in, roping us in. Panic here, fear there: Crisis, destruction, no meat inspection, no cops, no teachers, no firefighters, no air traffic control. I’m sorry, my days of getting roped into all this are over.”
Those not denying the crisis are hoping to exploit it.
Karl Rove, writing in The Wall Street Journal on Thursday, called the president “a once-in-a-generation demagogue with a compliant press corps” who will subject the American people in the short term to a “slew of presidential photo-ops with those whom he claims will lose jobs.” Mr. Rove advised House Republicans to “pass a continuing resolution next week to fund the government for the balance of the fiscal year at the lower level dictated by the sequester — with language granting the executive branch the flexibility to move funds from less vital activities to more important ones.”
Rove supports the steep cuts but wants to allow the president “flexibility” in applying them. That Rove is as slick as an eel. In other words, he wants to force the president to rob Peter to pay Paul and take the flak for making all the tough choices.
Another Pew Research Poll released this week found that although many Americans favor cutting government spending in the abstract, most don’t agree with cuts to specific programs. “For 18 of 19 programs tested, majorities want either to increase spending or maintain it at current levels,” Pew found. “The only exception is assistance for needy people around the world.”
Ah, foreign aid, the tired old whipping horse that would do virtually nothing to reduce the deficit, as it accounts for a paltry 1 percent of the federal budget.
Rove’s plan to shift to the president the burden of choosing where to bring down the ax is Rove’s way of getting Republicans “to win public opinion to their side.” That is a roundabout way of acknowledging that right now they’re losing. A Bloomberg poll released this week found the president’s job-approval rating at its highest level and the Republican Party’s favorable rating at its lowest since September 2009.
Furthermore, the Pew/USA Today survey found that if a deal isn’t reached in time, about half the public will blame Congressional Republicans while fewer than a third will blame the president.
And if the sequester happens, we’ll all lose. It will be a disaster for the job market and the economy. But no one can accuse these politicians and pundits of caring about such things as long as their own jobs are secure.
By: Charles M. Blow, Op-Ed Columnist, The New York Times, February 22, 2013
“Ideology Over Sound Policy”: Republican Governors No Longer A Force For Moderation
Republican governors, who actually have to govern, used to be a moderating force on the most extreme aspects of Republican ideology. No longer. In major areas such as health care, taxes, and jobless benefits, ideology is trumping sound policy judgment in many gubernatorial mansions and state legislatures.
Healthcare
Antipathy toward “Obamacare,” not reasoned analysis, seems to be why many governors have expressed hesitation, if not outright opposition, to the Medicaid expansions under the Affordable Care Act, even though the federal government would pick up almost all of the costs. A similar antipathy (and probably a hope before the Supreme Court decision and 2012 election that the law would go away) led many governors to pass on the chance to use the flexibility that the it afforded them to design their own health insurance exchanges—new competitive marketplaces in which individuals and small businesses can choose among an array of affordable, comprehensive health insurance plans that the Affordable Care Act requires.
I’ve previously explained why Medicaid expansion is a good deal for the states. But as the map below from the Center on Budget and Policy Priorities’ report on the healthcare law’s Medicaid expansions shows, many states remain undecided or are leaning against expansion:
The Center’s report on the state health insurance exchange implementation shows that 26 states, including most of the states leaning against Medicaid expansion, have declined to either operate a state-based exchange or partner with the Department of Health and Human Services in designing their exchange. Under the law, that means they default to a “Federally facilitated exchange” that HHS will establish.
Taxes
In another disturbing development, numerous states are considering—or have already enacted—sweeping tax and budget proposals that follow recommendations of the American Legislative Exchange Council, also known as ALEC. As this CBPP report explains, ALEC’s recommendations for deep tax cuts and limits on revenues and spending reflect extreme “supply side” and antitax arguments that mainstream economic research discredited long ago.
CBPP’s most recent assessment finds that at least five states (Kansas, Louisiana, Nebraska, and both North and South Carolina) are considering eliminating income taxes. At least 11 others (Idaho, Indiana, Missouri, Montana, New Mexico, North Dakota, Ohio, Oklahoma, Pennsylvania, Texas, and Wisconsin) are considering deep tax cuts. And at least three states (Arizona, Arkansas, and Kansas) are considering harsh revenue limits.
Unemployment Insurance
Unemployment Insurance is a joint federal-state program in which states have traditionally offered up to 26 weeks of benefits to qualified workers who lose their jobs through no fault of their own, and the federal government typically provides additional weeks of emergency unemployment compensation when national unemployment is high. In the current jobs slump, by far the worst since the 1930s, seven states have cut back on the maximum number of weeks of regular benefits they offer. Because the maximum number of weeks of federal emergency benefits is proportional to the maximum number of weeks of state benefits, that means jobless workers in those states have seen a significant reduction in support while they look for work in what remains a tough labor market.
Research shows that Unemployment Insurance is valuable not only to unemployed workers and their families but also for the additional spending that it injects into the economy. States that have cut back on it are hurting struggling families and their own economic recovery.
The North Carolina Trifecta
North Carolina is the poster child for these disturbing trends in state governments.
The Tar Heel State is one of the five considering eliminating its income tax. The new Republican governor supports legislation that would prevent the state from expanding Medicaid or establishing a health insurance exchange. And, in July, the state will become the eighth to have reduced the maximum number of weeks of Unemployment Insurance it offers. Moreover, North Carolina also cut the maximum level of benefits which, under the “maintenance of effort” requirement for receiving emergency federal benefits, requires the federal government to cut off all emergency Unemployment Insurance to North Carolina.
Republican governors used to fight for Medicaid and Unemployment Insurance because they recognized how much their states benefited. Now, many are leading the effort to cut valuable programs in order to finance tax cuts for high-income households and businesses, while letting the chips fall where they may for those of more modest means.
By: Chad Stone, U. S. News and World Report, February 22, 2013
“A Game Of Chicken”: Republicans Want To Burn The Coop
Well, here we go again. Another season, another manufactured, self-inflicted, completely preventable crisis of government. This time it’s the sequester.
We may as well put these things in the Farmers’ Almanac.
Now we’re engaged in a finger-wagging blame game of who proposed it, who supported it and who is opposed to preventing it.
Let’s lay out some of the facts of this disaster.
The sequester’s origin is quite muddy.
President Obama, responding to Mitt Romney in an October presidential debate, said: “First of all, the sequester is not something that I’ve proposed. It is something that Congress has proposed. It will not happen.”
John Boehner, on the other hand, now says that the sequester is Obama’s baby. In a speech on the House floor this month, Boehner said:
“The president first proposed this ‘sequester’ in 2011 and insisted it be part of the debt-limit agreement.”
In an opinion piece published Wednesday in The Wall Street Journal, Boehner wrote, “Having first proposed and demanded the sequester, it would make sense that the president lead the effort to replace it.”
PolitiFact rated Obama’s claim that the sequester was proposed by Congress as “mostly false” saying:
“It was Obama’s negotiating team that came up with the idea for defense cuts in 2011, though they were intended to prod Congress to come up with a better deal for reining in the deficit, not as an effort to make those cuts reality. Meanwhile, members of both parties in Congress voted for the legislation that set up the possibility of sequestration. Obama’s position is that Congress should now act to avoid those across-the-board cuts. Obama can’t rightly say the sequester isn’t his, but he did need cooperation from Congress to get to this point.”
PolitiFact bases its assessment largely on assertions in the new book “The Price of Politics,” by the renowned Washington Post reporter Bob Woodward.
The Web site does, however, point out that there are dissenting views, including that of Christopher Preble at the libertarian Cato Institute. PolitiFact quotes Preble as saying, “I do not believe it accurate to refer to the cuts that will occur in both defense and nondefense discretionary spending under sequestration as ‘Obama’s cuts.’ ”
And John Avlon, a senior columnist for The Daily Beast, wrote Wednesday that he “happened to come across an old e-mail that throws cold water on House Republicans’ attempts to call this ‘Obama’s Sequester.”
According to Avlon:
“It’s a PowerPoint presentation that Boehner’s office developed with the Republican Policy Committee and sent out to the Capitol Hill GOP on July 31, 2011. Intended to explain the outline of the proposed debt deal, the presentation is titled, ‘Two Step Approach to Hold President Obama Accountable.’ It’s essentially an internal sales document from the old dealmaker Boehner to his unruly and often unreasonable Tea Party cohort. But it’s clear as day in the presentation that ‘sequestration’ was considered a cudgel to guarantee a reduction in federal spending — the conservatives’ necessary condition for not having America default on its obligations.
The presentation lays out the deal in clear terms, describing the spending backstop as “automatic across-the-board cuts (‘sequestration’). Same mechanism used in 1997 Balanced Budget Agreement.”
So, there’s that.
But I’m not sure where all this you- are-the-father origination blame game gets us.
The bill got bipartisan support in the House and at the time Boehner bragged:
“When you look at this final agreement that we came to with the White House, I got 98 percent of what I wanted. I’m pretty happy.”
And President Obama signed it.
None of this changes the fact that the sequester is still bearing down on us, and it still holds horrible consequences that we didn’t think we’d be facing.
Now we are stuck in a vicious fight about what, if anything, can be done to prevent it and protect an economy that is just beginning to emerge from the muck.
According to the Bipartisan Policy Center, “Our estimate of approximately one million lost jobs due to sequester remains our base case if a full sequester occurs as scheduled on March 1.”
So once again the American people are caught in the middle of a game of chicken between Democrats, who rightly warn that the sky could fall, and Republicans, who want to burn the coop.
Thus far, the president and the Democrats are outmaneuvering the Republicans in the messaging war, but that will be of cold comfort if the Republican hotheads prevail.
Erskine Bowles, the former White House chief of staff for Bill Clinton, and the Bowles half of the Simpson-Bowles Commission, said of impending cuts: “They are dumb and they are stupid, stupid, stupid. They are inane.”
And yet dumb, stupid and inane have become the three pillars of government now that strong-willed, dimwitted hard-liners who see compromise as a dirty word have infiltrated the halls of Congress.
By: Charles M. Blow, Op-Ed Columnist, The New York Times, February 20, 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
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