Deficit

I know there's a lot of competition in what is the worst reason to eliminate competition from the health care sector, but I think we have a winner.

Megan McArdle's piece on why she opposes national health care got deservedly wide coverage, and provoked some generally limp objections, such as this offering from Ezra Klein:

For all its waste, elevating the U.S. government to sole purchaser seems to ensure a much-higher rate of military technology innovation than if we left it to the private sector.

How does this remotely make any sense? The reason the government is the sole purchaser of laser-guided 500 lbs bombs and Tomahawk cruise missiles is that we don't allow civilians to lob them around at each other. There is no private market for such military technology, unlike for Lipitor or Viagra. Utterly ridiculous

Is the argument the Left is now making is that we need to make civilian health care as cost-effective as Pentagon weapon procurement?  Hello, let's let the folks who gave us $700 hammers get into the bandage business.

 Indeed, one of the shills for socialized medicine once used the Pentagon as a poster child for waste.  And the Center for American Progress, one of Klein's soulmates,decried the program we've used to buy weapons.  So the same system that was utterly broken for the Pentagon prior to Obama is the way to reform health care under Obama? 

Hello? I'm a mick lawyer from deepest suburbia, not someone like Klein who is kingpin of Jornolist and part of the Beltway Brain Trust, but Talking Heads described this whole concept about the time Klein was born.    

Even if you thought these folks made sense before, they sure aren't now that they are in charge.

And Ezra, you know, most of the stuff in this movie happened about the time you were in utero or slurping down formula, and the Pentagon had nothing to do with it.   Innovation? No government bureaucracy to be found here.

Maybe in Klein's future the NEA will be distributing posters "Wouldn't be great if the schools got all the money they needed and they had a bake sale to buy an MRI machine"

Freshman CT Democrat Jim Himes got elected in 2008 by promising not to be George W. Bush, who is who he suggested incumbent Republican Chris Shays was. Now he has to govern. This is displeasing his core supporters.

Jim Himes recently sent out an update-to-constituents email that has a lot of his supporters fuming. Jon Kantrowitz at My Left Nutmeg has a lengthy post up about it. Here’s the offending piece of the email: 

It is clear that the next several years will be the economic equivalent of threading a needle. While we address the massive unfunded liabilities associated with Social Security and Medicare (now well in excess of $50 trillion), we will need to identify the moment at which our nascent recovery is self-sustaining and put on the brakes. If we are to avoid inflation, interest rates will need to go up and government spending will need to go down. Both of those things will be enormously unpopular, but the Federal Reserve and the Congress will need to remember that inflation is far more damaging.

 

 

Progressive Democrats are looking at this as a betrayal, mainly because, as national blogger Jane Hamsher of FireDogLake points out, the numbers that Himes is using come from a conservative billionaire who is apparently creating worst-case scenarios in order to scare legislators into, among other things, cutting back on Social Security benefits. Himes is also promoting pay-as-you-go legislation, which many progressives feel can be misused to block the Obama legislative agenda.

In essence, they see Himes talking like a conservative Blue Dog Democrat. Jon Kantrowitz writes: 

 

I guess you are really worried about being re-elected. But this is not why I voted for you (and contributed generously to your campaign.)

CT Local Politics think Himes is tacking needlessy to the right.  But one thing former Goldman Sachs honcho Jim Himes might understand is numbers.

Himes won by 12,000 votes  in a year where Barack Obama turned out huge numbers of urban Democrats and where Shays' campaign manager was subsquently linked to missing money

I think we can reasonably expect the 2010 Republican campaign will be run better than Shays's 2008 race. And CT 4 tracks far more Republican in off-year elections than recent Presidential races.   A Democrat running for Governor hasn;t broken 40% in this district since 1986.  And don;t look for Chris Dodd to be much help in this high income district. (Fairfield County is running 56% negative on the job approval question).

So Himes looks to be facing a much more skeptical audience to get re-elected, especially if voters sour further on stimulus spending and the Obama agenda. So Himes does what makes sense on policy and crass political grounds--suggest he's ready to shut off the federal money spigot.

And the lefties freak.

I suspect many of these people are what Michael Barone calls "Trustafarians" . ; lefties whose money is old enough and sufficient enough to argue for redistributing it.  Of course, folks like Kantrowitz openly advocating this have had their felt hats handed to them by the local voters.  And they seem to think former Republican strongholds will fall in love with "Buzz Lightyear economics"

Swing District Democrats like Himes may find that the only sort of Democrats their districts will tolerate are Blue Dog-ish devotees of Rubinomics.  But the lefty activists have convinced themselves that socialism works in economics and in politics as well.  And they are not in the reasoning mood right about now.

Ezra Klein says the health care public plan is very popular in polling, so Senate opposition to it means "the Senate hates democracy" and "is resolutely, aggressively, anti-democratic."

Paul Krugman says poll results show that a majority of Americans prefer deficit reduction to higher government spending, but Krugman says "most people don’t know much about macroeconomics" so "the moral for Obama is, of course, to ignore this poll".

Discuss.

NOTE: Aside from the fact that people tend to accept or dismiss polls results based almost entirely on what they already wanted, I think there are two problems with the idea that popular support equals legitimacy, propriety or even democracy.

1. Stated preference (poll) and revealed preference (how people actually behave when making a choice) differ widely.
2. With no real price mechanism through which people can evaluate the costs and benefits of policy, we end up with simultaneous public support for massive spending and minimal taxation.  Well, who doesn't want something for nothing?

#1 is a political problem that can't really be changed - thus, we have a representative democracy, rather than direct democracy.

#2 is a policy problem that both Republicans and Democrats should be doing more to fix - e.g., indexing tax rates to spending, pigovian taxes, federalism, etc.

The New Ledger has already suggested that the alleged $100 million budget cut means Barack Obama can;t do math, or think's we can;t. 

I have a different take. He's just getting deep into the car business.  Let's compare a $3/7T budget with a $100M reduction.

It would be like cutting the price of this vehicle by $ 1

Tahoe LS

2WD starts at $37,915* 

Evidently the WH press corps isn't buying the sales pitch  

Maybe they'll realise all they are going to get from "Brother Gibbs"is "jive talking"    

President Obama "will order members to identify a combined $100 million in budget cuts over the next 90 days...".  Granted, as Greg Mankiw says, this is the government equivalent of a cup of coffee, but it does signal that the Obama administration recognizes the public outrage over spending. [UPDATE: I think Heritage gives this budget cut entirely too much credit; in fairness, they probably just don't have a smaller dot]

Is this the first sign that the Tea Party protests are having an impact?  Maybe.  But politicians cannot be allowed to get credit for fiscal responsibility by making trivial noises about spending cuts.  This is a very easy thing to measure.

So, how can we measure how serious Obama is about long term fiscal responsibility and deficit reduction?  Watch how Obama funds programs that are not successful, or that do not have clear metrics for success/failure.  Recall a point that Obama made in his inaugural address.

The question we ask today is not whether our government is too big or too small, but whether it works ... Where the answer is yes, we intend to move forward. Where the answer is no, programs will end.

Here's my prediction: programs that Democratic groups are inclined to like will almost never end.  They will be given additional funding.  For those programs, the answer will almost never be "no".

If Democrats cannot make serious sacrifices (actual, significant cuts) in the spending their coalition groups want, then you can be pretty certain that politicians are unwilling to share in the sacrifices they say we all need to make. This is a very measurable thing.  They need to be held accountable, both by the media and by voters.

The same thing goes for Republicans, too.  We can't dig our way out of this fiscal hole by "cutting waste".   We certainly can't afford any significant tax cuts at this point.  Proposals that are not politically viable are not "serious"; they are grandstanding for the base.  If Republicans want to be taken seriously, they need to start talking much more seriously about the trade-offs and innovative approaches necessary to address the long term deficit and tax system.  For starters, that probably involves means-testing entitlements.

Check this article out from the National Center for Policy Analysis, entitled:

       "WHAT ABOUT THE UNFUNDED LIABILITIES?"

          ex animo

          davidfarrar

Paul Krugman's commentary from 2003, when the deficit was $374 billion.

It has been obvious all along, if you were willing to see it, that the administration's claims to fiscal responsibility have rested on thoroughly cooked books. [...] There's no mystery about why the administration's budget projections have borne so little resemblance to reality: realistic budget numbers would have undermined the case for tax cuts [2009: spending increases & new programs]. So budget analysts were pressured to high-ball estimates of future revenues and low-ball estimates of future expenditures ...

Furthermore, this time huge deficits have emerged [2009: increased] just a few years before the baby boomers start retiring and placing huge demands on Social Security and Medicare. ...

But haven't administration officials said they'll cut the deficit in half by 2008 [2009: 2013]? Yeah, right. I could explain in detail why that claim is nonsense, but in any case, why bother with what these people say? ...

The last defense of the budget deficit is that it helps a depressed economy — to which the answer is "yes, but." ...  And yes, deficits are appropriate as a temporary measure when the economy is depressed — but these deficits aren't temporary ...

Still, do deficits matter? Some economists worry, with good reason, about their long-run effect on economic growth. But I worry most about America's fiscal credibility.

You see, a government that has a reputation for sound finance and honest budgets can get away with running temporary deficits; if it lacks such a reputation, it can't. Right now the U.S. government is running deficits bigger [2009: much, much bigger], as a share of G.D.P., than those that plunged Argentina into crisis. The reason we don't face a comparable crisis is that markets, extrapolating from our responsible past, trust us to get our house in order.

But Mr. Bush [2009: Mr. Obama] shows no inclination to deal with the budget deficit. On the contrary, his administration continues to fudge the numbers and push for ever more tax cuts [2009: spending increases & new programs]. Eventually, markets will notice. And tarnished credibility, along with a much-increased debt, is a problem that Mr. Bush [2009: Mr. Obama] will pass along to other Congresses, other presidents and other generations.

The 2009 deficit is estimated to be $1.7 trillion.  So take Krugman's 2003 criticisms and multiply them by 4.5.  And the long-run deficits are much, much worse, too.

Now, there are legitimate - if unproven - economic arguments that, in the absence of many monetary options, rapid and very temporary fiscal stimulus/deficit spending can be beneficial in reducing the deadweight loss of a potential output shortfall.  But these are not temporary deficits. 

• They are structural - even under the administration's absurdly optimistic economic assumptions, the deficits remain very large. Under the CBO's economic assumptions (pdf), they never go below $658 billion.
• They are permanent - CBO estimates the 2019 deficit at over $1 Trillion (pdf).
• They are driven by entitlements - Entitlements currently amount to about 45% of the federal budget, and that percentage increases dramatically in coming decades.  Yet Obama wants to dramatically expand entitlement spending (e.g., health care).

Republicans irresponsibly ran up enormous deficits during the Bush administration.  Democrats are now doubling down on the disaster.   Republicans and Democrats have played a game of chicken with tax cuts and spending in recent decades.  That's been a major strategic mistake.  Democrats have the advantage, because the majority of long term spending is structural.  When the bill comes due, taxes or inflation will rise dramatically.  For everybody.  At all income levels. There's simply no way around it.

"There are some things we have to do at home to get our house in order. No. 1 is we shouldn't be running up budget deficits." - Barack Obama - May 2006

The U.S. Chamber of Commerce supported Obama's Porcus Maximus Stimulus bill, along with Senators Collins, Snowe and Specter .

ex animo

davidfarrar

We have the likes of Sarah Palin and Florida Gov. Charlie Crist urging our Republican Senators  to abandon their ideological principles and become socialist simply because these Republican Governors don't have the backbone to tell their state unionized employees to cut their budgets and live within their means. It has to be done. There is no other way. It is time, long, long past the time, when these Republican politicians should be called to account for this abandonment of Republican ideals. It is the Chairman's job and responsibility to call them to this account.  

If Republican governors are going to undercut the party's platform, we will never get out of the deficit spiral. We can't spend our way out of it. We must cut spending.  Now is the time for leadership. A public message to all Republican governors to cut state spending is the fastest way and the most responsible way to revive the economy. Even if this message is ignored, it has to be stated by the party or we might as well pack it up and go quietly away as a political party.

If the Chairman of the Republican Party does not speak out and articulate the party's position on Obama's Porkus Maximus Stimulus proposal, others will speak for the Republican Party:

Clyde Frazier, a professor of political science at Meredith College in North Carolina, said it wasn't politically inconsistent for Republican governors and members of Congress to part ways on the stimulus plan.

"For governors, it's free money — they get the benefits and they don't have to pay the costs of raising the revenues," Frazier said. "Senators and representatives get only some credit for the expenditures, and they have to pay the bill."

This is complete and utter bs. We all are going to pay the price for Obama's Porkus Maximus Stimulus package, as are our children and their children, as is this country's economic future, even of own personal liberty -- we all will pay.

ex animo

davidfarrar

Gordon is right, nobody seems to have any idea how to deal with the looming debt cliff towards which we're running.  You can't keep saying "cut taxes" unless you have some reasonable way to bring spending into line with tax revenues.  These deficits are going to be the major issue in forthcoming elections. - Jon Henke

I shore love me some tax cuts, but...

While I hold the highest of respect for former Reagan speech writer Peggy Noonan, she seems to be missing a vital point, right now.  She's written, IMO, some of the best political speeches of my lifetime.  At times, she's also been willing to criticize the GOP for fiscal irresponsibility. In her most recent Wall Street Journal article, she made some valid points about the Obama stimulus package du jour.  However, it's telling that the following terms are missing from her article: deficit, balanced budget, and debt.

Also at the Wall Street Journal, Rush Limbaugh proposes his stimulus plan, which allows Obama to spend $486 billion as he sees fit and for Limbaugh to be able to direct $414 billion toward tax cuts as he sees fit.  To be sure, Limbaugh's suggestion is a bit tongue-in-cheek, but it is also lacking the same words as Noonan's article: deficit, balanced budget, and debt.

At issue is whether we should spend a lot of money which we don't have on "infrastructure" and a bit on tax cuts, or less money we don't have on "infrastructure" and more on tax cuts.  There is no serious suggestion from either major party to deal with the deficit, decrease government spending, balance the budget, or decrease our debt.