“Not A Boon For Most Americans”: Congress Has Tackled The Deficit At The Cost Of The Economy
This morning, Eric Rosengren, chief executive of the Boston Federal Reserve, cautioned lawmakers against further fiscal retrenchment, lest they slow the recovery. As he said at the Global Interdependence Center’s Central Banking Conference in Italy: “Given the economic realities I would urge policymakers to consider scenarios where some elements of fiscal rebalancing take effect only after the economy has more fully improved.”
He’s right, in large part because Congress has already done a fair amount of deficit reduction. Beginning in 2011, with unemployment still high and the economy on a long, slow climb out of recession, Congress — led by a new Republican majority in the House of Representatives — moved to make big cuts in medium-term discretionary spending. It slashed $1 trillion with the Budget Control Act of 2011, and followed that with hundreds of billions more in spending cuts and tax increases with the fiscal cliff deal and sequester.
Now, as a result of this deficit reduction, the Congressional Budget Office projects a $642 billion budget deficit for fiscal year 2013, down $200 billion from its projection at the beginning of the year, and the lowest level of deficit spending since President Obama entered office. The near-term deficit projection also shows improvement; the CBO estimates a 2015 deficit of $378 billion. For Washington’s deficit hawks, this is cause for celebration. It’s a sign the federal government is on its way to a more sustainable debt load.
But this rapid deficit reduction is far less of a boon for most Americans, who have to live in an economy that’s been largely stalled by Congressional inaction. At 7.5 percent, unemployment is still too high, and there’s little sign of rapid improvement. According to most projections, joblessness won’t reach pre-recession levels for another three years.
Congress’ push for deficit reduction has a lot to do with this. As noted in the New York Times last week: “The nation’s unemployment rate would probably be nearly a point lower, roughly 6.5 percent, and economic growth almost two points higher this year if Washington had not cut spending and raised taxes as it has since 2011.”
To put that in more concrete terms, 1.5 million more Americans would have jobs if not for Washington’s decision to pursue deficit reduction in the midst of a sluggish economy.
Unfortunately, news of successful deficit reduction is unlikely to result in any respite from new cuts or tax increases. The Obama administration still has its Social Security cuts on the table — as part of a potential “grand bargain” — and Congressional Republicans are gearing up to demand still more spending cuts in exchange for raising the debt ceiling.
Will Washington avoid endangering the still-fragile recovery with further deficit reduction? If the refusal to end or replace the sequester is any indication, I wouldn’t hold my breath.
By: Jamelle Bouie, The American Prospect, May 16, 2013
“It’s Time For Republicans To Get Serious”: Spending Cuts In President Obama’s Budget Put Onus On Paul Ryan
When it comes to deficit reduction, President Barack Obama may have correctly taken the measure of Alan Simpson and Erskine Bowles and U.S. corporate leaders; that’s a reason why any deficit deal is more remote than ever.
Two and a half years ago, when the president refused to embrace the recommendations of his own deficit-reduction panel, he was criticized by the authors, Bowles, a former chief of staff to President Bill Clinton, and Simpson, a former Republican senator from Wyoming, as well as by business leaders.
The plan proposed a balance of spending reductions and tax increases of about $4 trillion over almost a decade; that would bring the long-term debt to a sustainable level, according to proponents, who said the president was abdicating leadership.
Privately, Obama saw the proposal as a trap. If he embraced it, Republicans would say, “let’s focus on areas where we agree — spending, including entitlement cuts — and return later to raising revenue.” Then, he feared, Simpson, Bowles and those worried executives would provide aid and comfort for that position, handing a devastating defeat to Democrats.
In these recurring budget battles, Obama deserves his share of blame. At the turn of the year, he was unwilling to hang tough for an entitlements-revenue deal as tax increases loomed for all Americans. He blinked and accepted a smaller tax increase on the wealthy. The White House then miscalculated that the mindless across-the-board spending cuts under sequestration were so bad that an alternative would emerge.
Yet, a month ago, Obama took a risk and proposed a budget containing cuts to entitlements cherished by his party. House Budget Committee Chairman Paul Ryan, a Wisconsin Republican, and his cohorts were unmoved; they wouldn’t give an inch on new revenue.
Simpson and Bowles gave Obama a pat on the back and largely refrained from criticizing Ryan or House Speaker John Boehner, while corporate leaders ducked.
Moreover, Simpson and Bowles have revised their plan and moved to the right, proposing proportionately more spending cuts and less in new revenue. Obama is playing ball, Ryan isn’t, and the two deficit hawks, and their CEO supporters, are rewarding the guy who is stiffing them.
Simpson and Bowles have been admirably persistent, open to some modifications and correctly insistent on the need to curb long-term health-care costs. A spokesman offered this explanation for their latest move to the right: Republicans now control the House. Sorry, Republicans had just won a huge victory, taking control of the House, and were on a high when Bowles-Simpson was first offered in December 2010.
What’s really going on is that their fervent hope for a deal rests on a naïve assumption that the able Ryan will strike a responsible compromise, even though he has made clear that he won’t.
The Republican position is that taxes went up as part of the deal on the so-called fiscal cliff, and there will be no more increases. In reality, all the tax cuts enacted under President George W. Bush were slated to expire anyway, and Republican congressional leaders, their backs against the wall, had to accept some higher levies on the wealthy.
Moreover, that $600 billion, over a decade, is only a little more than half of what Bowles-Simpson proposed. In addition, the new revenue is dwarfed by spending cuts, which have been more than twice as large.
Obama, for all his earlier timidity, showed political guts with his budget last month. He would lower cost-of-living adjustments for most Social Security recipients, means-test Medicare benefits for wealthier senior citizens and enact other reforms to entitlements that would amount to about as much as the deficit commission recommended.
This has infuriated the Democratic base, some of whom, unreasonably, oppose any cuts to Social Security or Medicare. Others warned that, whatever the merits, there was a political risk to a unilateral gesture, which would be rejected by the Republicans and rob the Democrats of a good issue.
So far, that’s proven to be the case.
Other Republican criticisms are equally dubious. The charge that Obama doesn’t deal with long-term health-care spending would be more credible if a stronger alternative were on the table. Obama’s Medicare cutbacks, over 20 years, are larger than Ryan’s. The sequestration cuts, now accepted by many Republicans, as the White House notes, provide no permanent entitlement changes. None.
There’s also sniping that the entitlement changes would be phased in only gradually. Well, that’s the only way to make entitlement changes politically viable. Consider the much-praised 1983 commission led by future Federal Reserve Chairman Alan Greenspan that made Social Security more solvent with spending cuts and higher taxes. It takes full effect in 2022, almost 40 years after it was enacted.
Corporate executives say they’re pessimistic about any long-term deficit changes and thus it’s better not to rock the boat. Who’s abdicating now?
Senate Democrats, after legitimate criticism for failing to pass a budget for years, did so this year. Now, it’s Ryan and the House Republicans who refuse to go to a conference to try to reconcile differences.
In Washington, there’s a propensity to find bipartisan fault in most conflicts. Often, that is on the mark.
Now, however, if Simpson and Bowles and the CEOs who warned about the dire need to get America’s fiscal house in order are serious, they have a clear target: Paul Ryan.
By: Albert R. Hunt, The National Memo, May 16, 2013
“Uniquely American And Uniquely Stupid”: The Makings Of The Next Debt Ceiling Debacle
I hate to interrupt fulminations about President Obama’s three incredible shrinking scandals with something as prosaic as concern about the GOP’s threatening to sabotage the economy, but a couple of bits of real news emerged yesterday regarding the debt ceiling (yes that, again).
It’s actually a perfect juxtaposition: On the same day that an interview with Standard & Poor’s top U.S. credit rating analyst warned of tinkering with the debt ceiling, House Republicans huddled up to brainstorm about what their price should be for not deliberately tanking the economy.
On the one hand you’ve got an interview National Journal did with Nikola Swann, “Standard & Poor’s top analyst for the U.S. credit rating.” You will recall that Standard & Poor’s downgraded its rating of U.S. debt in 2011 after the last debt ceiling showdown. And you will recall that that showdown was engineered by the GOP as a political hostage-taking situation: Virtually everyone (or virtually everyone who is responsible) acknowledges that raising the debt ceiling is necessary to avoid the U.S. government defaulting on its obligations, which would be financially cataclysmic, but the Republicans threatened to force that exact scenario if they didn’t get spending cuts.
Now the debt-ceiling-fight countdown clock is ticking once again (the Treasury started its “extraordinary measures” to avoid default at noon today), with the moment of crisis expected to hit some time between August and year’s end. Does the prognosis look any better? “We have not seen any strong evidence that the political system as a whole is more effective, more stable, or more predictable than we thought it was in 2011,” Swann told National Journal’s Stacy Kaper. “There does seem to be, especially in recent years, an overall trend in the U.S. to effectively make major policy decisions at the last moment in a crisis setting. We don’t see that as credit-positive.”
That’s delightful understatement. He goes on to say that in order to avoid another credit downgrade, the U.S. should extend the debt ceiling for five years and bring the debt-to-GDP ratio under control with a plan that is actually credible. House Republicans passed a bill (which stands zero chance of becoming law) which would allow the Treasury to prioritize government payments (which would still leave the government in a position of not paying its bills … it would just be not paying for goods and services while making sure that its debt holders are taken care of). “This does not sound like a very comfortable scenario,” he says in another bit of understatement.
The final point in the interview is the most instructive:
S&P rates over 120 sovereign governments, including all of the wealthy developed ones. Of those, there are very few that have anything similar to the U.S. debt ceiling. Of those countries that do have some kind of legislated limit on the amount of debt, that limit is set as part of the budget-setting process. It almost never is divided the way it is in the U.S. We don’t think it is helpful to credit quality.
The very idea of a debt ceiling that doesn’t rise with authorized spending is, in other words, both uniquely American and uniquely stupid. Why? Because it lends itself to the kind of irresponsible hostage taking the Republicans are gearing up to engage in yet again.
And it’s a political terrorism scheme that is increasingly disengaged from reality (to which its connection was tenuous at best anyway). To wit: The last time around the GOP objection to the debt ceiling was grounded in rising deficits; this didn’t make their threats less irresponsible but at least established a plausible-sounding connection between their threat and their demand. But the budget deficit is, as my bloleague Pat Garofalo wrote earlier this week, the incredible shrinking issue. As a percentage of the economy, it is now roughly half of what it was when President Obama took office.
But Republicans know they’ve got a hostage so they’re bound and determined to extract a ransom. Hence the brainstorming session they held yesterday where 39 different members of the House GOP conference arose to offer their idea of what policy they should demand in return for not intentionally tanking the global economy. The ideas, according to various reports, ranged from approval of the Keystone XL pipeline to doing something about partial-birth abortion.
My personal favorite item comes from Jonathan Strong’s account at National Review Online:
The Ryan budget passed by the House assumes repeal of Obamacare. So if House Republicans were to press for enactment of the Ryan budget in exchange for raising the debt ceiling, that would entail repealing Obamacare – which is why there are pangs of doubt within the GOP leadership about whether that strategy is realistic.
So GOP leadership thinks demanding that the president sign onto the radical Ryan budget is unrealistic because it would necessarily involve repealing Obamacare? As if the Ryan budget’s dramatic cuts to discretionary spending and gutting of Medicare and Medicaid would be evenly remotely acceptable were Obamacare not involved? The whole scenario yesterday has the air of fantasy – like my wife and I arguing over what we’ll do when we win the Powerball tomorrow night (she looks oddly askance at my plan to commute via jet pack).
By: Robert Schlesinger, U. S. News and World Report, May 17, 2013
A Conservative Defense Of Government: You’re A Fan Of Government, So Stop Pretending Otherwise
Everyone knows that Ronald Reagan famously said, “Government is not the solution to our problem; government is the problem.” But as Ramesh Ponnuru recently pointed out, there is a “less famous yet crucial beginning of that sentence”: “In our present crisis.”
Conservatives rightly hate nanny-state government and big-spending bureaucracy. But too often, the word “government” has become unfair shorthand for what is actually only bad or oppressive government.
Conservatives aren’t anarchists, after all. We don’t want Big Brother, but none of us should want to live in a Hobbesian state where every person is absolutely and entirely for himself, either. Instead, we believe in ordered liberty via limited government.
Certainly, the size and scope of government has increased over the years. But still, we shouldn’t conflate all government with bad government. We need a functioning state, and yes, there is such a thing as a government that is too weak.
This is a lesson that goes back to our founding. And it’s one conservatives should appreciate. Judging from their colonial garb and tri-cornered hats, Tea Party activists are fond of the Constitution and its Founders. So you might expect that they, of all people, would appreciate the importance of having a government that isn’t laughably weak.
As Baylor professor and Patrick Henry author Thomas Kidd tells me, “Most of the major Founders became convinced that Americans needed a stronger national government to coordinate trade policy and protect against domestic and foreign threats.”
Under the Articles of Confederation, the government was impotent. “Major decisions — declaring war and signing treaties — needed the approval of nine states,” writes Richard Brookhiser in his book James Madison. Congress couldn’t even tax, and “as a result, the United States was perpetually broke,” Brookhiser adds.
To be sure, some patriots, like Patrick Henry and Samuel Adams, opposed the Constitution precisely because they feared big government. But as Kidd points out, “the majority of the best-known Founders believed that the new republic needed a bigger, stronger government for the United States to survive and compete on the world stage.”
“If men were angels, no government would be necessary,” wrote Madison, who (in fairness) added, “If angels were to govern men, neither external nor internal controls on government would be necessary.”
So, a natural question: What should a limited government do?
For starters, preserve law and order, ensure the rule of law, enforce contracts, provide for our defense — and yes, control the border. (I’m also partial to clean water, but that’s just me.)
Max Weber said the government has a “monopoly on legitimate violence in society.” This is needed to enforce law and order. Otherwise, whoever has the biggest gun — or the most brothers — takes your property.
“Government is the most common form of hierarchy,” Robert Kaplan recently noted. “It is a government that monopolizes the use of violence in a given geographical space, thereby preventing anarchy. To quote Thomas Hobbes, the 17th-century English philosopher, only where it is possible to punish the wicked can right and wrong have any practical meaning, and that requires ‘some coercive power.'”
But government functions don’t just keep us safe, they also make us prosperous. Sure, overregulation can be a job killer. But consider the extreme alternative. If you believe that someone could steal your business if he wants to, then you are much less likely to start one. If you believe that someone can break a contract with you — or steal your invention — without fear of punishment, that might make it less likely that you will go into business or to invest in research and development.
In their 2012 book Why Nations Fail, economists Daron Acemoglu and James A. Robinson provide a largely free market argument for why some nations succeed. For example, Acemoglu and Robinson fault protectionist policies instituted to avoid the process of creative destruction as a primary reason some nations fail.
But interestingly, they also frequently cite a lack of a strong central government as a prime reason nations fail. For example, the authors lament Somalia’s “lack of any kind of political centralization, or state centralization, and its inability to enforce even the minimal amount of law and order to support economic activity, trade, or even basic security of its citizens.”
I can’t imagine that any conservatives who decry government would prefer this sort of extreme chaos to our current, albeit imperfect, government.
So maybe the answer is to be more specific about our concerns with government. Attempting to do just that, Nobel Prize-winning economist James M. Buchanan distinguished between the productive state, the protective state, and the redistributive state.
Essentially, the productive state would constitute infrastructure like roads and bridges, the protective state would encompass the police, criminal justice, etc., and the redistributive state is obviously the entitlement state.
While most conservatives concede that we need some social safety net, they are mostly worried about the out-of-control growth of the redistributive state. And yet, too seldom is that distinction made. Instead, the criticism is usually directed at “government.”
When it comes to government, a lot of conservatives are probably too obsessed with size. Grover Norquist famously wants to shrink government to such a small size that you can drown it in a bathtub.
But I’m not sure most Americans want that. And trying to force it via draconian cuts doesn’t work, especially if they don’t address the specific problem, such as the need for entitlement reform. “You can’t make a fat man skinny by tightening his belt,” observed John Maynard Keynes.
Whether you’re a conservative who cares about preserving law and order, or a free marketer who appreciates the importance the rule of law plays in providing confidence and incentives to entrepreneurs, you’re a fan of government. Stop pretending otherwise.
By: Matt K. Lewis, The Week, May 9, 2013
“Making Governing As Miserable As Possible”: Republicans Discover Sequester Budget Cuts Are Politically Unpopular
Back in February, a Pew Research Center poll showed that while Americans like the abstract idea of “spending cuts,” they don’t support reducing actual spending on, well, anything. Foreign aid very nearly (but not quite) achieved a majority in support of cuts, but for every other government activity – including education, entitlements, environmental protection and infrastructure – Americans are loathe to reduce the level of investment.
The GOP recently seems to have taken the public’s position to heart. Exhibit A is Rep. Michele Bachmann, R-Minn., who took to the House floor last week to decry the so-called “sequester” because it “breaks everyone’s heart” to see services such as Head Start and Meals on Wheels cut. “There are numerous Republicans that voted against the sequestration because we knew all of these calamities were in the future,” Bachmann said. “Didn’t you know this was going to happen? We knew it. That’s why we voted against this bill.”
As the Washington Post’s Glenn Kessler ably details, Bachmann is significantly rewriting history by claiming that she was against the sequester because it cuts too much from key services. At the time, she very publicly explained that she was against it – and other far more severe budget plans – because it did not cut enough.
But this trend goes far beyond Bachmann. Take, for instance, the GOP’s latest debt ceiling gambit. Come the fall, the federal debt limit will have to be raised again, and Republicans are already making noise about which policy concession they hope to wring out of the White House this time.
Unlike previous episodes, though, it seems that the GOP won’t demand entitlement cuts, but has instead decided that a revenue-neutral rewrite of the tax code (which would do nothing to reduce the deficit) will be the price of avoiding a self-induced economic calamity.
The reason for this shift is Republicans fear that embracing entitlement cuts such as those included in the president’s most recent budget “would be political suicide.” As New York magazine’s Jonathan Chait puts it, “Oh! So you threaten to melt down the world economy unless Obama agrees to cut spending on retirement programs, and then he offers to do that, and then you decide it’s too unpopular?”
The only GOP goal at the moment seems to be making governing as miserable as possible for the Obama administration. That leads to a lot of heated rhetoric about the threat of the deficit and the imminence of a debt crisis, scaremongering about the U.S. turning into Greece and creating the impression that there are gobs of taxpayer dollars being flushed down some bureaucrat’s toilet somewhere, thus playing off the public’s fear of a budget deficit that it doesn’t understand but knows it doesn’t like.
But when push comes to shove – and people are actually living with the effects of government spending cuts as they, for instance, try to travel by air – the GOP’s true colors show. So we wind up with a cockamamie budget discourse in which one party doesn’t really want to cut spending but offers to do so anyway, while the other demands spending reductions but then turns them down when the president agrees. (Unless, of course, those cuts affect discretionary spending on the poor, in which case, the GOP does nothing to stop them, but, ala Bachmann, wants none of the credit.) And all the while, the economy sputters along without the support it so desperately needs.
By: Pat Garofalo, U. S. News and World Report, April 30, 2013
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