Quote of the Day

“The wrong turn we’ve taken in economic policy — our obsession with debt and ‘entitlements,’ when we should have been focused on jobs and opportunity– was of course, driven in part by the power of wealthy vested interest.  but it wasn’t just raw power.  The fiscal scolds also benefited from a sort of ideological monopoly:  for several years you just weren’t considered serious in Washington unless you worshipped at the altar of Simpson and Bowles.

“Now, however, we have the president of the United States breaking ranks, finally sounding like the progressive many of his supporters thought they were backing in 2008.  This is going to change the discourse — and, eventually, I believe, actual policy.”

Paul Krugman, “Obama Gets Real,” NYT

It’s been so frustrating to me that during and since the Great Recession, we’ve sacrificed growth by focusing too much on each year’s deficit and the national debt.  Of course, deficits were going to spike when unemployment was so high and we were paying out so much more for unemployment benefits, food stamps, Medicaid, etc. and taking in so much less in revenues.  But we behaved as if that was not just a temporary circumstance, but our long-term destiny, and thus prolonged and deepened that temporary state, weakening us as a country and cruelly crushing a whole lot of families unnecessarily.  Keynes is (still) right, Paul Ryan is wrong, and Ayn Rand was a novelist, not an economist.  It’s time for the Prez and the Dems to lead us out of this economic wilderness.

Buried Under the “Scandal” Avalanche

There is some really good news out of Washington, if you look under the rocks of Benghazi, the IRS, and the AP.

The budget deficit is projected to drop to $642 billion for FY 2012, which ends on September 30.  That’s a whopping $200 billion less than the CBO estimated in February, when it adjusted the deficit downward to account for sequester spending cuts and 2012 tax increases.  This new projection comes strictly from higher-than-expected tax revenue.  This will be the first time the deficit has been under a trillion since 2009.

Things are so rosy that the deficit might be only a smidge over 2% of GDP by 2015, compared to more than 10% of GDP back in 2009.

In fact some economists, like Jared Bernstein, think the deficit may be coming down too quickly, keeping unemployment high.

 

OK, The Deficit Problem Is Solved

Well, that was easy.  From “Health Care Spending Growth May Have Slowed Permanently,” Brian Beutler, Talking Points Memo:

“Health care spending growth has famously slowed over the past five years, significantly enough that the Congressional Budget Office recently revised its projections of Medicare and Medicaid spending over the coming decade downward by hundreds of billions of dollars.

“Now, research papers suggests the recent slowdown doesn’t just reflect temporary economic weakness, but also structural shifts in how health care is delivered and financed — possibly attributable to the Affordable Care Act — and thus might be a harbinger of a longer-term trend.

If they’re right, and the trend continues, it means workers can expect higher wages and the country’s projected medium term deficits are significantly overstated, which in turn suggests lawmakers’ continuing obsession with the current budget deficit, and deficits over the coming decade, are misguided.

“The study by Harvard researchers, featured in the latest edition of Health Affairs, finds, like all studies of this nature, that the recession and weak economy contributed significantly to the spending growth slowdown. Less generous benefits, resulting in higher out-of-pocket costs, accounted for 20 percent of it. Faced with less generous coverage and less disposable income, people consumed fewer health services.

“But the good news is that spending growth also slowed among those whose health benefits haven’t changed, including Medicare patients. And that suggests a more enduring trend.

“’Our findings suggest cautious optimism that the slowdown in the growth of health spending may persist — a change that, if borne out, could have a major impact on US health spending projections and fiscal challenges facing the country,’ the authors write.

“In a related article, health care economist David Cutler attributes the majority of the slowdown to fundamental changes — including perhaps slowing technological and pharmaceutical innovation, and increased efficiency among providers. If current trends continue, he concludes, then over the next 10 years ‘public-sector health care spending will be as much as $770 billion less than predicted. Such lower levels of spending would have an enormous impact on the US economy and on government and household finances.'”

Stick that in your pipe and smoke it, Paul Ryan!

Of course, that money will probably be spent on more war(s).

 

 

The Deficit? Fuhgeddaboudit.

A little Krugman* to get your weekend off to a good start:

“The budget deficit isn’t our biggest problem, by a long shot.  Furthermore, it’s a problem that is already, to a large degree, solved.  The medium-term budget outlook is great, but it’s not terrible either — and the long-term outlook gets much more attention than it should.

“Recently the nonpartisan Center on Budget and Policy Priorities took Congressional Budget Office projections for the next decade and updated them to take account of two major deficit-reduction actions:  the spending cuts agreed to in 2011, amounting to almost $1.5 trillion over the next decade; and the roughly $600 billion in tax increases on the affluent agreed to at the beginning of this year.  What the center finds is a budget outlook, that, as I said, isn’t great but isn’t terrible:  It projects that the ratio of debt to G.D.P., the standard measure of America’s debt position, will be only modestly higher in 2022 than it is now.

“The center calls for another $1.4 trillion in deficit reduction, which would completely stabilize the debt ratio; President Obama has called for roughly the same amount.  Even without such actions, however, the budget outlook for the next 10 years doesn’t look at all alarming.

“Now, projections that run further into the future do suggest trouble, as an aging population and rising health care costs continue to push federal spending higher.  But here’s a question you almost never see seriously addressed:  Why, exactly, should we believe that it’s necessary, or even possible, to decide right now how we will eventually address the budget issues of the 2030s?

“It’s time to focus on other stuff — like the still-depressed state of the economy and the still-terrible problem of long-term unemployment.”

Instead of wringing our hands about the deficit/national debt, we need to roll up our sleeves and focus on growth and good jobs.  That’s the best thing we can do for the 2030s right now.

* “The Dwindling Deficit,” NYT

It’s Not the Deficit, Stupid

From “That Terrible Trillion,” Paul Krugman, NYT:

“The first thing we need to ask is what a sustainable budget would look like. The answer is that in a growing economy, budgets don’t have to be balanced to be sustainable. Federal debt was higher at the end of the Clinton years than at the beginning – that is, the deficits of the Clinton administration’s early years outweighed the surpluses at the end. Yet because gross domestic product (GDP) rose over those eight years, the best measure of our debt position, the ratio of debt to GDP, fell dramatically, from 49% to 33%.

“Right now, given reasonable estimates of likely future growth and inflation, we would have a stable or declining ratio of debt to GDP even if we had a $400 billion deficit. You can argue that we should do better; but if the question is whether current deficits are sustainable, you should take $400 billion off the table right away.

“That still leaves $600 billion or so. What’s that about? It’s the depressed economy – full stop.

“First of all, the weakness of the economy has led directly to lower revenues; when GDP falls, the federal tax take falls too, and in fact always falls substantially more in percentage terms. On top of that, revenue is temporarily depressed by tax breaks, notably the payroll tax cut, that have been put in place to support the economy but will be withdrawn as soon as the economy is stronger (or, unfortunately, even before then). If you do the math, it seems likely that full economic recovery would raise revenue by at least $450 billion.

“Meanwhile, the depressed economy has also temporarily raised spending, because more people qualify for unemployment insurance and means-tested programs like food stamps and Medicaid. A reasonable estimate is that economic recovery would reduce federal spending on such programs by at least $150 billion.

“Putting all this together, it turns out that the trillion-dollar deficit isn’t a sign of unsustainable finances at all. Some of the deficit is in fact sustainable; just about all of the rest would go away if we had an economic recovery.”  Emphasis added.

It’s the GOP Who’ll Hit Their Heads on Ceiling

From “How Obama Can Prevent Another Debt-Ceiling Crisis,” Jack M. Balkin (Yale Law School Professor), the Atlantic:

“Obama’s correct — and constitutional —  response to Republican intransigence is the same as Bill Clinton’s before him:  a replay of the 1995 government shutdown.  If Republicans force that confrontation, they will lose, just as they did before.

“Section 4 of the Fourteenth Amendment provides that ‘the validity of the public debt of the United States, authorized by law, … shall not be questioned.’  Its purpose was to prevent Southern Congressmen and Senators from trying to hold payment of the nation’s debts hostage in order to get their way on Reconstruction policies.  The point of Section 4 was to put this sort of hostage-taking beyond ordinary politics.  The framers of the 14th Amendment did not want future politicians to threaten to destroy the country’s finances by refusing to pay the country’s debts in order to win political concessions from their opponents.  After all, once politicians did so successfully, they would try it over and over again and it would become a normal feature of politics.  This is precisely what we are seeing now.

“If Congressional Republicans are threatening to let the nation default on its debts if Obama doesn’t agree to their demands, they are violating the Constitution.

“[U]nder section 4 of the Fourteenth Amendment the president has an independent constitutional obligation not to allow the validity of the debt of the United States to be put into question.  That means, at the very least, that the president must make sure that interest payments continue on existing federal bonds and similar obligations.

“If the president follows his constitutional obligations, then some government operations will not get funded because payments to the bondholders must come first.  That means a partial government shutdown, with more and more of the government closed as the president continues to pay the bondholders.

“We’ve seen this movie before.  Once government offices close and government checks aren’t issued, the public will complain loudly, the markets will tumble, and Congress will eventually have to give in, just as it did in the winter of 1995.  The public will rightly conclude that Congress is to blame, because it was Congress, and not the president, who tried to hold the nation’s economy hostage.

“The president’s obligation to pay the bondholders first…is how the Fourteenth Amendment helps the president resolve any debt ceiling crisis.  All he has to do is follow the Constitution and he will come out on top.”  Emphasis added.

Maybe when the Republicans hit their heads on the ceiling, it will finally knock some sense into them.

Ryan Threw Away His Carefully-Cultivated Reputation with That Speech

I’ve been reading so many excellent take-downs of Paul Ryan’s speech last night.  But I especially like this one.

From “Paul Ryan fails — the truth,” Jonathan Bernstein, The Plum Line, Washington Post:

 

It was, by any reasonable standards, a staggering, staggering lie.  Here’s Paul Ryan about Barack Obama:

He created a bipartisan debt commission. They came back with an urgent report.  He thanked them, sent them on their way, and then did exactly nothing.

“They.” “Them.” “Them.” Those words are lies. Because Paul Ryan was on that commission. “Came back with an urgent report.” That is a lie. The commission never made any recommendations for Barack Obama to support or oppose. Why not? Because the commission voted down its own recommendations. Why? Because Paul Ryan, a member of the commission, voted it down and successfully convinced the other House Republicans on the commission to vote it down.

That wasn’t the only bit of mendacity – lazy mendacity, incredibly lazy mendacity – in Ryan’s speech. Twitter lit up as soon as he started telling the story of the Janesville auto plant that Barack Obama didn’t save – a plant that, it turns out, closed before Obama was president. And of course there’s the infamous cuts to Medicare that Ryan lambasted Obama for without happening to mention that those very same cuts were in Paul Ryan’s own budget. Yes: absolutely everything in Obamacare is an abomination, says Paul Ryan, except for (as he forgets to mention) the cuts to Medicare that he supports – and yet he still singles that part out to use as an attack.

It isn’t even true in some symbolic or abstract way. The real truth is that Paul Ryan completely rejects the approach of that commission – because it includes tax increases along with spending cuts – while Barack Obama has, while not endorsing the exact plan that Ryan shot down, basically endorsed the commission’s approach.

And then there’s the logic of the whole thing. As Seth Masket said, it all comes down to arguing “we must cut entitlements! Obama cutting entitlements is un-American.”  There’s also, as many were pointing out, the plain fact that until January 2009 Paul Ryan faithfully supported all the tax cuts and spending increases which created the deficit problem he’s been so concerned about since January 2009.

But really, the proper response to a speech like this isn’t to carefully analyze the logic, or to find instances of hypocrisy; it’s to call the speaker out for telling flat-out lies to the American people. Paul Ryan has had what I’ve long thought was an undeserved good reputation among many in the press and in Washington. It shouldn’t survive tonight’s speech. 

Italics in original; emphasis added.

Merkel — Euro Bonds Over My Dead Body

With France, Spain, and Italy supporting euro bonds (shared European debt), Germany’s Angela Merkel told them to fugeddaboudit:  “I don’t see total debt liability as long as I live.”

There’s another EU Summit this Thursday and Friday, but I think they’re running out of road to kick the can down.

This isn’t going to be pretty, either in Europe or here.

If you’re Mitt, it’s all good.   For the President and the rest of us, not so much.

 

Quote of the Day

 

“Gov. Romney and the Republicans who run Congress believe that if you simply take away regulations and cut taxes by trillions of dollars, the market will solve all of our problems on its own — If you agree with that, you should vote for them and I promise you they will take us in that direction. I believe we need a plan for better education and training and for energy independence, rebuilding our infrastructure, for a tax code that creates jobs in America and pays down our debt in a way that’s balanced. I have that plan, they don’t. And if you agree with me, if you believe this economy grows best when everybody gets a fair shot, and everybody does their fair share, and everybody plays by the same set of rules, then I ask you to stand with me for a second term as president.”  President Obama, speaking in Cleveland, Ohio

A War Between Debtors and Creditors That We Are All Losing

From “Obama’s Fate Rests in Part on Europe,” Eduardo Porter, NYT:

“Battle lines have been drawn across the Continent between a political establishment that defends austerity at all costs in the name of preserving the euro, and increasingly radical oppositions.

“This kind of political polarization may be a standard feature of financial crises.  Economists have noted that such crises naturally widen the chasm between the interests of creditors — like banks, investors and even governments — and debtors, who are suddenly made insolvent by a crisis that takes away their jobs and destroys the value of their homes.

“Creditors push austerity as the best way for debtors to repay their debts.  They oppose efforts to write down or renegotiate loans, or to allow higher inflation to erode their value.  And creditors, better financed and organized, usually gain the upper hand.  Debtors, who are generally poorer, lose.

“This cleavage is evident in Europe, where German voters have staunchly opposed committing more German resources to aid indebted Southern European countries.  It is also evident on Capitol Hill, where Republicans have countered the administration’s stimulus plans with proposals to cut public spending to finance tax cuts that would favor the most affluent Americans.  The ensuing gridlock has paralyzed policy-making on both sides of the Atlantic.  And it could produce a lot of economic damage.

“When Lehman Brothers went bankrupt in 2008, sending the global financial system into a tailspin, its debts amounted to about $600 billion.  Government debt alone in Greece, Spain, Portugal and Ireland…adds up to about $1.9 trillion.”  Emphasis added.