Conservatives and the Deficit

Reacting to David Leonhardt's NYT article on the current deficit, The Atlantic's Megan McArdle writes:

Meanwhile, Republican scientists who presumably spent the last eight years locked in a vault in the basement of Heritage run out into the metaphorical street screaming that they have just made a shocking, horrible, and totally unexpected new discovery: budget deficits will make the economy melt down into a pool of manufacturing-depleted sludge, and also, cause rabies.

First of all, I think Megan would like our basement. It has a smoking lounge and everything. More substantively though, let's move on to Megan's bottom line:

The problem with the budget deficit is that, unlike the deficits George Bush ran, the deficits projected under Obama (and beyond) are actually large enough to potentially precipitate a fiscal crisis. If our interest rates suddenly spiked up, perhaps because lenders were worried about the size of our budget deficits, we'd find ourselves in the kind of nasty fiscal jam that regularly plagues third-world countries.

Megan might be surprised to learn that this is exactly what our basement scientists have been saying both before and after Bush left office. On February 25, 2008 Heritage's JD Foster wrote:

At the end of 2007, the debt-to-GDP ratio stood at 36.8 percent. The latest OMB fore­casts show budget deficits through 2013, but they are sufficiently small relative to the size of the economy that the debt-to-GDP ratio falls to 33.4 per­cent by 2013. Similarly, the CBO forecasts a 33.2 percent debt-to-GDP ratio in 2013. The average of the two forecasts for 2013 is 31.6 percent, or 4.3 per­centage points below the 2007 level. The Laubach study suggests, therefore, that the expected progress on reducing the debt-to-GDP ratio over the next few years is putting downward pressure on long-term interest rates equivalent to 15 to 20 basis points. Together, the Engin and Hubbard study and the Laubach study suggest a tentative, developing consensus about the general magnitude of the effects of deficit financing on real interest rates. The studies appear to suggest that, for deficits and debt levels in the ranges seen in recent years and projected in the medium term, the effects on real interest rates are in the expected direction, consis­tent across episodes and across estimating meth­odologies, and very slight--measured in terms of a handful of basis points.

Now fast forward to January 30, 2009:

At the end of 2008, the ratio of federal debt to GDP was about 44.9 percent. Under the assumptions here about new issuance and using the CBO forecasts for nominal GDP, debt at the end of 2009 will be about 57.9 percent, an increase of 13 percentage points in just a single year. By the end of 2010, the debt-to-GDP ratio will have reached 67.9 percent for a two-year increase of 23 percentage points.

Using just the consensus estimates, the projected increase in the debt-to-GDP ratio for 2009 alone will raise interest rates by between 0.39 and 0.65 percentage points. In today's terms, the average mortgage rate at the end of January was about 5.33 percent on a conforming loan mortgage. At the end of 2009, if nothing else occurs, this rate would be between 5.75 and 6 percent. Using the consensus estimates, by the end of 2010 interest rates will be up another 0.3 to 0.5 percentage points, for a total increase due to the government debt bubble of 0.7 and 1.1 percentage points. That would mean that today's mortgage rate of 5.33 percent would be between 6 percent and 6.4 percent. Such increases in interest rates would significantly weaken the economy further and delay for many months any hope of significant recovery.

In other words, debt-to-GDP ratio's in the 30s: no big deal. But debt-to-GDP ratio's in the 60s: big problem. As Jonah Goldberg has said, just because I drive 65 mph in a 55 mph zone doesn't mean I can't want to see a guy going 130 mph throw in jail.

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and what about the OTHER debt, my good man?

the CONSUMER debt, last seen at 100% of GDP and souring?

IMO, the voters started rejecting...

...apologies for deficit spending in 2006.  They obviously rejected it much harder in 2008.

FDR picked the lot and cleared the land.  LBJ started digging the basement.  Bush and congress spent 8 years building the foundation.  Now Obama is starting on the framework.

Apologizing for the right isn't going to change things. If senior GOP officials admit they were wrong and move towards a more fiscally conservative position, perhaps the GOP can be salvaged. But not with apologies for the Bush years.

Titanic Iceberg

It'll be interesting . . . in a bad way . . . as the year closes out. No sane person, from any party can ignore the debt any longer. It absolutely cannot be explained away . . . as Bush did. Obama is smart enough to know this and I bet as the year closes out and he gets some movement on Health care, you'll see drastic reductions in . . . something. Obviously entitlements, entitlements, entitlements finally have to be dealth with.

I won't fault the Dems for spending so much money in the sense that we're going broke to start saving. Nothing else seems to be working. People have been talking about the debt foreever. We simply cannot have entitlements that give all to everyone. The question is, who is the loser? The usual suspects, defense is always an easy target and services to the average person.

Too bad AARP is one of the most powerfull lobbies on the hill. Retiring non-contributors certainly are never going to pay their way (generIizing of course). I persoanly believe in natialized health care if services are capped and there is an option to use private health insurance.

Obama's the only one who can do anything.

he's the only shmoo with a coalition that isn't primarily elderly.

But you just watch, he'll inflate our way out of debt. And it's the elderly, those on fixed incomes, who will suffer (not children, not your grandchildren.).

But they've been suffering ever since Reagan started to cook the books on inflation. Entitlements? whitle whitle whittled away.

All we'd need to do is raise taxes a little tiny bit to get away from the entitlements problem. But me? I'd raise 'em 5% -- and use it to pay down our children's debt. "High Taxes, Five Years, Then Lower Taxes. Run A Tight Ship"

I'm waiting for someone to come up with that idea. Few people pay their share of taxes right now... and those who do are mostly for higher taxes...

i like the timeline idea

but i'd disagree that the people who pay their share support higher taxes. i'd say support for (temporary) higher taxes is split pretty evenly between, say, people making between 40k-200k and that pay their share. the problem is that a lot of super-wealthy people don't pay taxes, because they can take advantage of the loopholes.

the people that pay their share, or more, tend to be liberals

1. They make more (most creative class folks are Democrats, for example)

2. They live in urban metropolises, which are cheaper to operate.

Suburban voters do not pay their fair share (unless they live really close to town. ten miles max, say). Urban voters like myself continue to pay oodles for police and "bribables" (like that Pens Stadium) that cause my city to be called the Most Livable in the United States (by the Economist), and yet everyone gets to use them.

It's truly bonkers (and yes, this is a pet peeve)

 

Now as to what you're saying, yeah, the support for temporarily raising taxes is probably pretty widespread (except for the people, and there's a lot, who are having trouble making ends meet. probably something to try after the depression).

I like the idea because it's practical, nonpartisan, and actually ends up lowering taxes with little cost (and the costs are predictable)

How do you get to that conclusion?

I live in a very small city. about 12,000 people.We have our own Fire Dept, Police Dept, EMS, School system . . .and we pay for it all. The city is actually considered a suburb of Houston about 25 miles away. We get no services from the city.

oh? do you pay for your roads?

including the ones that get you to your job (presupposing that there aren't jobs in your small city).

Suburban folks pay less than they're actually getting, oftimes. Hell, Philly subsidizes the whole rest of my state. You get money from PA -- that's Philly's money. It ain't at all equivalent to what you're paying in, as a small town or suburb (or even Pittsburgh, though we do pay more than most folks, and cost less to operate).

The pure and simple thing is that suburbs cost a lot to operate, in comparison to urban living (heat an apartment, versus a house. run sewer lines 100 ft instead of 50ft from house to house). Even if you were to assume that the city dwellers were paying the same as the suburbs in taxes (and we know that local taxes are higher in cities, most often), the suburban folks are still underpaying, as compared to the city dwellers.

How many people do you suppose would live there without Houston nearby? The city gets to pay for a lot of attractions that you guys use, am I right?

 

If you run the numbers, you find that urban dwellers (particularly on the coasts) make more money per capita (higher cost of living), and therefore pay more in state and federal taxes, as well as local taxes. [I'm including inner suburbs in this, as in 10miles from the main city].

Part of that is supply and demand -- enough of the rich folk want a short commute. But there's also the widespread idea that efficient city living leads to "poor schools and crime" -- and that attitude leads to far suburbs and exurbs... trully inefficient ways of living, that come at a cost to the rest of us.

Got to disagree

We vote on bond issues for roads, which are repayed with our sales taxes and other taxes. Our three new(ish) stadiums are paid for with rental car taxes and hotel taxes. We have no state income tax. We have a lot of toll roads.

As far as sewer and water, we have our own MUD districts that are pretty much pay as you go (a new neighborhood will pay a lot the first several year as opposed to a more mature neighborhood). I pay for my heating, AC and trash pickup. We pay a heighborhood association fee for maintainance of public areas. I work at home. 

Somehow I don't feel subsidized by anyone. In fact, I pay wayyyy more property taxes (including school taxes) than apartment dwellers. In fact, it kind of works the opposite of what you are claiming. The more single family homes there are, the more revenue is generated.

<snicker>

I'm sorry, but...

"How do you fund your sewer?"

"Pay as you go."

rental car taxes and hotel taxes are supposed to work more

on outofstaters (they DON'T when they're currently being charged on Zipcars and other locally used renters, thanks PGH).

Sales taxes, as generally constituted, are regressive taxes... your state do anything about that? (curiousity kills pooties, I know).

Apartment dwellers do pay for property taxes (ahem. for the portion of the property they're using -- of course this is generally smaller than a normal domicile. naturally).

Does houston really have lower taxes than where you live? (Is it really that different in texas? sorry, it just surprises me).

Not sure

Its probably about the same. Lie I said, there is no state income tax, but property taxes have been going up for a long time. I think our milliage rate is about $3.89 when you roll it all together. I'm not sure how that compares to Houston metro area.

So that was my point-out of towners and the ticket gate pay the way for stadiums, not the few city dwellers Houston has. I know the city charges a francise tax to businesses and have a sales tax that we all pay.

i see your point

i was thinking more along the lines of the rich population being relatively even, with a slight advantage for liberals. but you can even extend your argument even further; i believe that texas is the only red state that is not a beneficiary state (ie Texas pays more than it receives). It would be nice if all of the "small government" states would only take from the federal government what they pay in.

it's all in the numbers... the real rich are about evenly split

but the middle class in the blue areas makes a LOT more than in red areas. ($250,000 is the start of the middle class. THANKS california!)

Texas is not the only red state not a beneficiary state! But seriously, come off your high horse a little! WV may get a lot of help from the Feds, but they need the help! They aren't robbing the rest of us like South Carolina does! They've got high state taxes, but when there's nothing to tax... they NEED HELP. Hell, if we didn't have Philly, Pennsylvania would have a lot more dirt WV roads.

BTW, deficit spending is...

...something like chastity.  Can one be a partial virgin? Can one have a virginty-to-sluttiness ratio of 30 and still be considered chaste?

It's like being 30% pregnant.

sure. it's like "free" stock markets. ;-)

have you been watching Morgan Stanley lately? They aren't even trying to hide the market manipulation anymore. 3pm hits, buy buy buy.

Heritage policy wonks take dictation

Those "scientists" are Heritage Institute employees paid to coat with jargon whatever the Institiute's position is.  Repbulican debt good, Democratic debt bad.  If their case held water, we would hear independent economists saying the same thing.  We don't. 

You wouldn't accept the Greenpeace Institute staff scientist position on global warming, if it didn't have the backing of the National Academy of Science, the American Geophysical Union, the American Physical Society, the American Association for the Advancement of Science (publishers of Science), and every major international science body.  Come to think of it, doesn't the Heritage Foundation employ global warming deniers too? 

Heritage and AEI

...are nothing but paid shills.

They were CREATED to support Conservative ideology, not do independent research. 

Their idea of "research" is to be given an endpoint by their corporate and millionaire funders, like "Government Health Insurance is BAD" and "research" a way to "prove" it.

Defecit, Bankruptcy

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Debt collectors are usually looked upon as the dregs of society.  Richard Nixon is more popular than most debt collectors, and most people would rather get dragged over a cactus with the tailpipe of a Greyhound in their mouth than deal with them.  There are statutes of limitation on how long they can harass you for – but you're still responsible for the debt, and you might need a few online loans to get started.  Bankruptcy might be an option, but above all make sure to get legal advice – there are applicable laws and rights you should be aware of.  It might take a few cash advances to start paying the debt, as you don't want to deal with debt collectors.

 

They were CREATED to support

They were CREATED to support Conservative ideology, not do independent research. Air Jordan Nike Air Max shox shoes Nike Kobe jordans

I live in a very small city.

I live in a very small city. about 12,000 people.We have our own Fire Dept, Police Dept, EMS, School system . . .and we pay for it all. The city is actually considered a suburb of Houston about 25 miles away. We get no services from the city

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The Conservatives are

The Conservatives are planning on tabling a federal budget with a $40 billion deficit, CTV News has learned.

The deficit would be the highest since the 1993 budget and $10 billion more than Prime Minister Stephen Harper indicated in a late 2008 interview with CTV.

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