Congress Jumps Off Fiscal Cliff, Pulls Parachute Rip Cord
Our politicians have averted an artificial crisis of their own making. The next one's in two months.
Congress went over its self-created fiscal cliff as we rung in the New Year; they pulled the rip cord on the parachute last night. Now, the recriminations begin.
First off, the CBO tells us that the deal adds $4 trillion to the deficit. The Hill‘s Peter Schroeder (“CBO: ‘Fiscal cliff’ deal carries $4 trillion price tag over next decade“) explains:
The Senate deal to avoid the “fiscal cliff” will add roughly $4 trillion to the deficit when compared to current law, according to new numbers from the Congressional Budget Office (CBO).
The CBO determined Tuesday that the package, hammered out late Monday evening by Vice President Biden and Senate Minority Leader Mitch McConnell (R-Ky.) would — over the next decade — come with a $3.9 trillion price tag.
The extension of lower tax rates for a bulk of the nation’s taxpayers and the addition of a permanent patch to the alternative minimum tax would add roughly $3.6 trillion to the deficit over the next decade, the CBO said. Other individual, business, and energy tax extenders would add another $76 billion. The extension of unemployment benefits would cost roughly $30 billion, and the so-called “doc fix” would tally another $25 billion through fiscal 2022.
The CBO says the budget agreement will lead to an overall increase in spending of about $330 billion over 10 years.
The problem with that is that “current law” was a silly baseline. Recall that the full expiration of the Bush tax cuts and the sequester were both poison pills negotiated between the White House and Congress to force compromise. They were never intended to go into effect, but rather for the prospect of that happening being so horrifying that Democrats and Republicans alike would have no choice but to give in on core principles. That’s why it was a fiscal cliff!
Indeed, as POLITICO’s David Rogers points out (“The price tag: $4 trillion added to deficit“), “since last spring the CBO itself has warned that if nothing were done, the so-called ‘fiscal cliff’ combination of tax increases and automatic spending cuts could throw the country back into recession.”
Instead, though, we actually went over the cliff and then basically said Never mind, kicking the sequester down the road a couple months and fiddling with the top end of the tax cut. Essentially, Congress and the White House agreed to undo the doomsday scenario they themselves created, without getting much at all done in the way of hard choices.
Politically, aside from patting themselves on the back for averting a crisis of their own making without actually solving the problem this whole exercise was allegedly designed to address, both sides seem to be furious about how much their leadership gave in.
Republicans are rightly steamed that their leadership didn’t get any movement on entitlement cuts. The president agreed in principle to a deal that would have conceded substantial ground on that front weeks ago and Boehner and company balked at taking it. On the other hand, that they got any concessions at all was rather remarkable considering that the Democrats had the winning hand.
The NYT’s Peter Baker (“On the Left, Seeing Obama Giving Away Too Much, Again“) reports on the Democrats’ reaction:
While Mr. Obama got most of what he sought in the agreement, he found himself under withering criticism from some in his liberal base who accused him of caving in to Republicans by not taxing the rich more. Just as Speaker John A. Boehner has been under pressure from his right, Mr. Obama faces a virtual Tea Party of the left that sees his compromise as capitulation.
The main difference is that in the Obama era, the Democratic establishment has been less influenced, or intimidated, by the left than the Republican establishment has been by the right. Liberals have not mounted sustained primary challenges to take out wayward incumbents the way conservatives have. All but three Democrats voting in the Senate and 16 in the House supported the compromise on Tuesday, even as most House Republicans balked, giving Mr. Obama more room to operate than Mr. Boehner.
But the wave of grievance from liberal activists, labor leaders and economists suggested that the uneasy truce between Mr. Obama and his base that held through the campaign season had expired now that there was no longer a threat of a Mitt Romney victory. It also offered a harbinger of the president’s next four years.
The criticism has irritated the White House, which argued that Mr. Obama held true to principle by forcing Republicans to raise income tax rates on the wealthy and extend unemployment benefits and targeted tax credits. Mr. Obama also quashed Republican demands to trim the growth of entitlement benefits. Aides dismissed armchair criticism from those who have never had to negotiate with intractable opposition.
The obvious rejoinder is that Obama didn’t have to do anything to “force” Republicans to raise tax rates on the wealthy. They went up automatically at midnight. By the time Congress was actually voting on this, the Clinton rates were the law of the land and there wasn’t a blessed thing Republicans could do about it. At that point, the negotiation was about whether to cut taxes back to the Bush levels and at what level of income to draw the line. In essence, what Obama got for drawing the line at $400,000 rather than $250,000 was an extension of some welfare programs disguised as tax cuts for people who don’t pay them and an extension of unemployment benefits.
Amusingly, despite this being not only obvious but pointed out over and over during the months of discussion about the fiscal cliff, Baker seems not to get it:
Mr. Obama succeeded in forcing Senate Republicans to raise the top income tax rate to 39.6 percent from 35 percent despite their adamant opposition, although he agreed to apply that to household income above $450,000, instead of $250,000.
Again, the 39.6 percent rate was already the law of the land. It’s Republicans who succeeded at forcing the president, despite his adamant opposition, to agree to apply that to household income above $450,000, instead of $250,000.
Oddly, as if to give ammunition to those who argue that the only principle Republicans will fight for is no taxes on the very rich, they’ve signed off on a deal that, as Bloomberg’s Richard Rubin points out, is an effective tax hike on 77 percent of us. Yes, the Bush tax cuts have been restored on all earnings below $400,000. But not the Social Security tax holiday.
Additionally, as Kevin Drum reminds us, the punt on the sequester and debt ceiling means we’ll be at this again in two months.
So as soon as Part 1 of the fiscal cliff deal is safely signed and in the history books, we’re going to have the same, dreary argument all over again. Call it Fiscal Cliff 2: The Dogfight in the District Continues. Republicans will once again try to use the debt limit to hold the country hostage, hoping that Obama will—once again!—play the role of the responsible adult in the room and cave in to their demands because he understands that America can’t default on its debts. Obama, for his part, says he’s tired of being typecast, and he’s demanding script changes. Check back on February 28 to see how it all turns out.
And, not to belabor the point, both the sequester and the debt ceiling are stupid traps that our policymakers have set for themselves. Neither of them are real things.
First, as OTB front pagers noted again and again the last time we went through this silliness, no other country on the planet has a self-imposed debt ceiling. Sure, most states and localities have a requirement to run a balanced budget. But national governments quite reasonably allow themselves to go into debt to cover emergencies from wars to natural disasters to global recessions. That the US Government has gone wildly overboard, spending like drunken sailors while fetishizing low taxes, is a problem to be solved. But Congress inherently controls the amount we borrow, since it controls both taxing and spending. To pass a budget that puts us $17 trillion into debt is—in a sane world, at least—to authorize $17 trillion in debt.
Second, the sequester is just a stupid self-dare. It’s like little kids agreeing that, if they chicken out from jumping off the roof, they’ll eat a live frog. While that may incentivize them to jump off the roof or eat a frog, they can simply choose to do neither. At the end of the day, Congress will pass a budget and the president will sign it. Maybe it’ll have $1.2 trillion in cuts; maybe it won’t. But whatever passes will be the law of the land and the sequester frog will be obsolescent.
The real take away should be that government spending will never be cut. AS the power of the Democratic Party grows and the Republicans are overwhelmed by demographics and economic changes, tax increases will be the only way that the budget deficit for the government to deal with the budget deficit.
I wonder if a single wonk or pundit will write about what will happen in the long run if more than $1 trillion dollars are transferred from the private sector to the government. How will economic behavior change in the U.S. if everyone’s taxes are doubled? What will happen to people’s career plans when the a public sector job if the best job to have in every area outside of Manhattan, Boston, SF, and LA?
See pretty much every article ever at The Weekly Standard, Breitbart, etc.
Most of the articles from the establishment Republican media is that higher taxes will discourage entrepreneurs or people taking risks. However, that POV is that the tax increases will only be on the top 1% or so. However, to fund a $4 trillion plus budget, everyone is going to have to pay higher income taxes. No one is writing about what happens if families making $75K see their income taxes significantly increased. Where will those families make cuts in their consumption to pay higher taxes. How can Americans sustain their leisure spending if incomes taxes double? How can Americans afford to have children if their incomes taxes double?
I have read very few pundits writing about what happens in the long run if taxes are increased enough to fund the levels of government that people are demanding.
Worst. Congress. Ever. Well, until the new one gets going – I don’t expect the house GOP to be any less obstructionist, so lurching from one deliberate crisis to the next may be the only way to get anything done.
Germany? UK? Sweden?
Headline: Not Going Over “Fiscal Cliff” Increases Deficit Compared to Going Over Fiscal Cliff
Sometimes I just despair about the quality of our political and economic discourse.
Given that “Fiscal Cliff” is shorthand for a large, simultaneous increase in taxation and decrease in spending, it’s nearly tautological that any Fiscal Cliff avoidance increases the deficit.
And yet the papers are full of the shocking news that, OMG!, Congress and the President approved a Fiscal Cliff deal that increases the deficit!!1!!1!!!
The our political press is full of children using words they’ve heard from the grown-ups, without any real idea what they mean.
Rightly? Rightly???? What in the name of the baby Jeebus is right about the richest country in the world trying to balance it’s budget by throwing old people under the bus while continuing to spend more money on defense as the next 10 closest countries combined?
James, it is your party and it is morally bankrupt.
Apparently we the people like getting shafted by Congress or we would come together and demand that they reduce the deficit by using responsible spending habits. Instead of one party threatening the other with “sacred cow” cuts to solve the problem, we could get a national referendum to:
1. enact legislation to insure that all appropriations bills be “clean”, NO pork for projects that have nothing to do with the core needs of the bill under consideration, to get support from congressional members.. Members who try to get pet projects funding as “ransom” for their vote, should be fined , and after 3 such attempts be kicked out for ethics violations.
2. enact legislation to curtail spending by elected congressional figures on their salaries, expenses for postage, travel, etc. that have nothing to do with the business of legislating.
3.enact legislation that makes lobbyist are taxed at 50% for money/gifts they give congressional members and that that revenue go directly to decreasing national deficit.
Kick out every member who votes against such legislation because it is obvious they do not have any interest in the country, only in themselves.
Those 3 things alone would probably solve the national debt problem in 2 years.
If deficit reduction were really the be all and end all of Republican existence then they should have just said that going over the cliff is fine, nothing more needs to be done.
This is not an outcome I expected. After all the bluster in the House, I really expected them to stonewall.
I’ll read analyses with interest, though as always beware “over 10 years” summations. When they have to go out ten years to make the $4T number, you know they had no, great, immediate, penalty.
(Really, “deficits” do not accumulate over 10 years. “Deficits” are for operating years. “Debts” accumulate.)
Yes. And it should be noted that most of the same House Rs who are soon going to be whining about the debt ceiling voted for the Ryan budget, even though it adds trillions in debt. H.Con.Res. 112 (“Concurrent Resolution on the Budget for Fiscal Year 2013”) calls for a total of $3,127B in deficits for the period 2013-2022. This bill was sponsored by Ryan and passed by the GOP House on 3/29/12. 96% of the Rs in the House voted for this bill. Link, link.
What kind of person votes for more debt and then claims that it’s wrong to add more debt? A better example of brazen hypocrisy would be hard to find.
You know, this deal may not be far from the “half cliff” that some economists advised months ago.
The 2012 rates added too much to deficit and debt. The full cliff was feared as a trigger to recession. And so you split the difference. It is neither a full solution to deficit, nor is it full austerity.
Then add all of the trillions you can save from defunding NPR, and we’ll have a perpetual surplus!
You’re kidding, right?
Personally, I was tempted to go over the cliff. The economy is gaining steam enough to sustain the hits. Whatever. It is true that no one is really concerned about the deficit. It really is a about smoke and mirrors. Bottomline: no one wants to pay for the government they want. No matter which way we attack the problem whether from the spending side or the revenue side, no one is willing to feel any pain.
One though I have is why no one has ever proposed a war tax. We should have one to fund continuing operations in Afghanistan and we should make it substantially enough to pay the $1T or so spent in the last decade for our military adventures in the middle east.
I don’t love the politics of it (yay, more fighting in 2 months, threats of more debt ceiling shenanigans, etc), but I didn’t actually want to go over the cliff. Too much austerity right now is a bad idea.
I am bummed about the payroll tax cut going away. That’s about the worst tax increase (best tax cut) you could devise in that it hits anybody who works, which in turn means a lot of people who are relatively tight on money already. Boo.
I’ll withhold judgment, of course, until I see the outcome of the next fight.
@jukeboxgrad: A downvote???? Really??? For simply stating history???
It is no wonder the GOP can hold the entire country hostage while only controlling half of one third of the gov’t.
@OzarkHillbilly: First, entitlements are going to have to be addressed. Either we need to collect way more in taxes or we have to figure out how to spend less on elder care–whether by postponing retirement, finding efficiencies in healthcare, moving to single payer, or some combination. Second, I must mean “rightly” in terms of their expressed policy preferences. Boehner had concessions on the table and walked away, getting a lesser deal.
A tax on war??? But that is un-American!!!!
Ohhh, wait a minute, a tax to pay for wars….. BUT but but…. that’s un-American!!!!
@Rob in CT:
You know, we could have gone over, and then seen how bad it was really shaping up. Course corrections were possible.
It’s not like macroeconomics is a science, or anything.
First, entitlements are going to have to be addressed.
Stop right there. Think about the important difference between deficit and debt.
Why is the first thing to address the thing with the longest event horizon? Entitlements look bad in 2030 or 2040 simulations, but again, macroeconomics, science.
What actually are the things impacting current year spending? I think you are willing to move on Defense. That is much more an immediate impact and option.
Which the GOP fought tooth and nail against from the start.
@john personna: I presumed the return on entitlement reform would be smaller-than-sequester but significant Defense cuts.
There are several easy fixes for Social Security. Pretending otherwise is not helpful. See Kevin Drum.
The problem with Medicare is not that it is an entitlement, it is that it is about healthcare. If this country does not get serious abut fixing healthcare (Obamacare is just a start and an inadequate one at that) than forget it, we all go under the bus.
James, we live in the richest country in the world. The idea that we cannot do these 2 simple things is ludicrous. If we can go to the moon, we can take care of old people. The only question is how. And it is not by building another aircraft carrier.
I’m hearing some weird, conflicted, arguments. Morning Joe went on about how Democrats used to complain about “Bush’s checkbook” and the expanding deficit. He noted that they complained about the Bush tax cuts. So his “ah ha!” moment is to say “now these tax cuts are yours!”
Well, Joe, that “ah ha” only works if you know in your heart that we can’t sustain those tax rates for the long term.
If you know that … where do you really go politically?
Sure, that was an option. Given how difficult deal making is at this point, however, I’m not so sure “course correction” would be a simple thing.
My point is that if you are worried about “deficit” you need to name 2013 or 2014 budgetary impacts, and not totals over 10 … or 30 … years.
You mean like the Victory Tax imposed during World War II? Or the increase in the income tax during the Korean War?
How about the 10% income tax surcharge imposed during the Vietnam War? The wars in Iraq and Afghanistan are practically unique in not being accompanied by a tax increase.
@Rob in CT:
I understand that, and it’s possible that this “half cliff” is even feeling our way, experimentally.
@john personna: Yes. Our inadequate media does keep confusing debt and deficit. The immediate problem is the deficit. To address that now, we have to raise taxes now or cut SS, Medicare, or defense now. Not in the future, but now. And no one, Republican or Democrat, is willing to do that.
I’m going to call this as Norquist’s downfall. From here on out Republicans will use the threat of tax increase to call for spending cuts. It will be a whole new election strategy. Rather than “we’ll cut taxes” it will be “if you don’t stop those Democrats, we’ll have to raise them, even more.”
@Dave Schuler: Exactly. It would have the additional benefit of putting a damper on the enthusiasm for war.
(The Republicans have taken “lower taxes are always better” down to the event horizon. They cannot proceed further, and they know it.)
That’s an ideological statement, not a logical statement. One dollar in entitlement spending adds as much to the deficit/debt as any other dollar in federal spending. If it’s logical to say that “entitlements are going to have to be addressed,” then it’s equally logical to say that military spending is “going to have to be addressed,” or our historically low tax revenue is “going to have to be addressed.”
Someone else has explained this problem (link):
The deeper issue is this: that we think killing brown people far away is more important than taking care of sick, old people here. If we had our priorities right, we would say that of course SS is ‘funded,’ and what’s “unfunded” is the military. So it’s the military that needs to shrink, not SS.
That’s true. There are many nations who happily deliver higher fractions of GDP as entitlements, paying for it with higher tax rates.
One endgame here is that we are just forced by aging demographics to adopt that model.
@john personna: Absolutely right on. Not to put too fine a point on it but we can support increased entitlements with a growing economy.
We can’t get to the growing economy while hobbled by a dysfunctional minority of a minority that obstructs the stimulus an economy needs to power its way out of a horrible recession.
A chart illustrating my point perfectly. One look at that chart says it is not Medicare that needs fixing, but our healthcare system.
I don’t know why you got a down vote. It’s simply true that “cuts now” are politically impossible. Sure, each party has a hit list, but it just happens to be the other party’s core value.
(Perhaps farm subsidies are ones that no one likes, but everyone thinks they must do.)
@OzarkHillbilly: I’m not arguing that there are no fixes possible but rather that enacting fixes requires, well, enacting fixes.
@OzarkHillbilly and @jukeboxgrad: Could we raise taxes, cut defense, and pay for entitlements? We could if we lived in a parliamentary system and Obama were PM. Given our system and the outcome of the last election, we’re going to need a compromise that cuts defense less and cuts entitlements some. We’ve already raised taxes.
And, yes, I fully agree that our problem isn’t Medicare per se but out-of-control health costs. But we’ve got to address them. ObamaCare, while rightly intentioned, was mostly a step in the wrong direction.
Sure it is.
1. Build aircraft carrier
2. Fill it with old people
3. Sail it out on the ocean
4. Sink it
5. Repeat until all the old people has been taken care of
Yes, and your back is against the wall. You aren’t asking for them to be cut again. You don’t want them to be cut again.
So what will be your bargain? Will the Republicans really bargain Defense cuts for entitlement cuts?
Grover tries to stay relevant, tweeting:
“The Bush tax cuts lapsed at midnight last night. Every R voting for Senate bill is cutting taxes and keeping his/her pledge.”
But he also, has no place to go from here. Not unless he wants to start bargaining those Defense cuts.
@john personna: I don’t know what the consensus position will be. I think you can phase in reasonable defense savings—especially with Afghanistan winding down—slightly raise the SS retirement age with some sort of disability waiver, slightly raise the FICA threshold (I agree in principle with it being capped but we could raise it somewhat), and do something on Medicare. Ultimately, though, I don’t see how you fix our massive commitment on health costs to seniors, civil service, retirees, and the poor without fixing the overall system.
How does postponing retirement at all address the cost of elder care? Whether they’re working or not, old people will have the same bodies with the same ailments. In fact, the cost of care may actually increase the longer people work, as older bodies can’t take the strain. Finally, Medicare is more efficient and costs less than private insurance, so it would make sense from an economic standpoint to get people into Medicare sooner rather than later.
Thanks to your party, that’s now shorthand for rationing and Death Panels.
Which is the “hard left” (in your preferred phrase) solution.
You sir are a Kenyan anti-colonialist socialist commie pinko man of effeminate persuasion. Either that or you are a realist. Can’t tell for sure.
There’s nothing odd about it. The only principle Republicans WILL fight for is no taxes on the very rich. As long as they get that, they don’t care what happens to anyone else. “Oh, how odd that they’re actually doing what all their behavior for the last three decades has indicated they actually will do! How odd that their rhetoric and actions were a reliable predictor of their behavior!”
Er, no. The immediate problem is high unemployment and the slow recovery. The media doesn’t talk about it and the Obama Administration, to its shame, doesn’t emphasize it but its the cure in the medium term to fixing the deficit.
A rational economic policy, focusing on what actually works, rather than what we think should work, would enact a round of fiscal stimulus, even if increases the deficit over the next two years, to kick start the economy and move to full unemployment. Once the economy is growing rapidly again, the deficit would naturally shrink ( tax receipts would go up, relief payments would go down). The budget would balance naturally, especially if we stay out of stupid wars and enact further modest tax increases.
Most people think the short run is over. That is why they aren’t talking stimulus.
Or put differently, current levels of deficit, combined with zero interest rates, are already as stimulative as we can manage.
We are actually now in a deficit spending, easy money, environment.
Well, as I say above, that’s a whole new world. Cut for cut bargaining is completely different than cut for tax dealing.
In 2013, a country such as the USA should have universal health insurance. It is simply what civilized countries should do . It can afford to do it, and it should do it, in the same way civilized countries don’t allow masses of their citizens starving in their streets.
Also too, Obamacare does have some cost control measures, and according to the CBO, will shrink the deficit long term .
Time to stop reading Freedom Works talking points.
If your point is more needs to be done, I agree with you. But Obamacare was a step in the right direction.
James has been advocating for a Single Payer system for a while. His point is that Obamacare doesn’t get us all that closer to that, and will act as a life extender for our current (broken) system.
Which your party always interprets as “cuts”.
But seeing as one party, the party you vote for, is insane, old people need to hurry up and die. Until then they should live in the streets and stand in line at soup kitchens. Got it.
So we can’t raise taxes anymore? Anywhere? Well, in that case, we already cut discretionary spending back in 2011 so we can’t cut anymore there either. So let us move on to defense spending…..
Well, while you and I agree that the public option is the only sane way to deal with the problem, the CBO says Obamacare reduces the deficit while getting most people into the healthcare market. I take that as better than nothing, which by the way, is what the GOP proposes.
@stonetools: Pretty much what @mattb says. To me, ObamaCare is basically a giveaway to the insurance companies in exchange for being a bit less insurance-like, such as accepting those with pre-existing conditions. My preferred position is something along the lines of the French or German system–universal care through something like Medicare For All with a robust private supplemental system for those who can afford to either buy additional private insurance or self-insure.
I think a vote for the previous status quo would have been even more of an endorsement for the previous (broken) system.
The Republicans sure were not offering single payer as their alternative.
I’m not usually one to say “and you voted for Romney?”
But seriously this is a place where it stands out like bold type on the hillside.
It makes absolutely no sense to voice your personal preferences, Romney voter.
@OzarkHillbilly: Again, I’m not talking about magic unicorn fantasies but the current political system. We’ve just done a tax deal under the most winnable scenario imaginable for Democrats. I don’t see how you get a deal in the next two years that’s more favorable to Democrats than the one passed overnight.
The reason we aren’t talking about stimulus is that Obama Administration made the huge but understandable mistake of under sizing the stimulus in 2009 and then didn’t respond properly to the disinformation campaign claiming that the stimulus failed.Those mistakes led to the gigantic ( and unfortunately semi-permanent) Tea Party victory of 2010. Since that time, the talk has been only about the deficit, not unemployment, even though the reason for the Tea Party wave was because of anxiety about UNEMPLOYMENT.
Now I expect John that you are well off and gainfully employed, so you can afford to be complacent about the slow decline in unemployment rates. This is not the situation of many unemployed Americans, who see the clock ticking every day on unemployment compensation benefits and foreclosure claims on their houses. None of that pressure has gone away for those people , and frankly they don’t give a d@mn about the long run.
OK, we are mostly in agreement then. I thought you were like Doug, who simply doesn’t care about those who lack health insurance, because FREEDOM!
You should understand if Obama were king, we would have single payer. We have the current cobbled together system because your party fiercely resisted anything better.
Which is absolutely broken, and will remain broken due to our currently gerrymandered districts. I hesitate to call the GOP DOA as a state wide party in MO, but if all they could get is the Lt Govship in 2012, I do begin to wonder. And if we continue to send a super-majority of GOP to the state houses while a majority of Missourians are plainly Democratic, what is the recipe for political stability?
More realistically, neither do I.
Also, I reserve the right to appeal to magic unicorn fantasies. It doesn’t get anything done, but if only the world would listen to me…. 😉
I’m trying explain why your idea has no traction at large, and not just with me.
We have deficit spending. We have zero interest rates.
Faced with the fiscal cliff, the Republicans recognized that yes, cutting too much too fast would be dangerous, but there was no constituency for what you want, doubling down. Not even with Democrats.
You have what I think is fair to call a far-left position at this point. On the far left when you ask “what kind of stimulus are you talking about?” The answer is just “more.”
And OTB. Don’t forget about OTB James.
Embrace your enabling. You’re good at it even if it is bad for our country.
(You can try to find me an economist with a specific spending plan, and jobs impact modeling, but I have seen none. I have seen commentary on “with negative real interest rates we can do more,” which is true in the short term. The thing is if you want to impact all-caps EMPLOYMENT you need more of a plan than that. And you need to sell it with more internal logic than “more is better.”
Again, I don’t think I’m just speaking for myself. I think this is why no majority buys in. They don’t believe “more” would be efficacious.)
I agree with you , for the most part.
OTOH, the Republicans , despite their rhetoric (“Spending is the ONLY problem!”) have run like jackrabbits from naming spending and entitlement cuts. If Obama hammers them on their hypocritical refuse to name cuts, then they just might go along with a balanced approach, in lieu of listing specific cuts that affect their constituents.
Obama’s problem is that he refuses to let the hostage be killed. The next time around, its going to be tougher. Hopefully, he will do so next time. But if he didn’t do so THIS TIME, its hard to believe he’ll do so next time.
Oh well, the Munich appeasement was eventually followed by Allied resolution over Poland . I’m hoping Obama’s Poland moment will be over the debt ceiling fight. The economy will be better then, and he will have had two more months to get the country ready for a showdown.
@Davebo: I’m not sure what you’re arguing here.
Well, actually, informed people do believe more stimulus would be efficacious. Its why Obama snuck in stimulus in the current deal ( even going back on his 250, 000 pledge to do it). Why Bernanke is doing his bit with QE3.
Stimulus has been so successfully demonized that none dare speak its name, but a lot of economists still think it would be a good idea.
If Europe moves further into recession this year,even more economists will embrace it . A lot will depend on whether unemployment continues to fall quickly. I expect it will not , given more “cliffs” ahead, and slow growth worldwide .
A tell on what Obama will do will be who replaces Geithner, who argued (wrongly as we now know) against greater stimulus in 2009.
Which is why we should be investing heavily in our infrastructure at this time.
They have before, I assume their previous results would hold the same for now, more or less.
Which is why you voted for Romney, I suppose.
Plenty of stimulus packages out there, any one of which would be better than the status quo. I’m sure that both Krugman and Robert Reich have plans outlined in their most recent books. A start would be just going back to the Obama jobs bill of 2011.
If it were up to me , I’d go full FDR , with a CCC. Most economists think that’s inefficient, but the public is nostalgic for something like that. Part of the problem with the 2009 stimulus, was that it was so “smartly” designed that the public didn’t give it credit for the good it actually did. If there’s another stimulus, it needs to make sure it and the politicians who voted for it gets credit for any fall in unemployment.
I don’t think it is fair or accurate to describe additional stimulus as a “far left” idealogy. Hindsight is now 20/20 and we now know that the only ineffective thing about the 2009 stimulus bill was that it was not big enough. It probably would’ve been fair to call more spending on stimulus “far left” at the time of. In fact (if memory serves me correct), the only reason Obama did not seek more was becuase everyone knew that asking for greater than a certain amount could potentially make the bill dead on arrival. We did not find until well after the stimulus had been spent that the recession was much worse than anyone at the time expected. However, as stonetools correctly pointed out, conservatives had already demonized the stimulus so much that any attempt to revisit would have looked totally foolish.
In other words, conservatives played the media, thus, making the media part of the problem. Therefore, I would not expect the media to correctly identify that measures like additional stimulus in this economy is not a “far left” idealogy.
The problem with James is that he is nostalgic for the old line, rational Republic Party of Rockefeller, Poppy Bush, and even Nixon. They would have gone for a “conservative version” of national health insurance -something like the German system, pioneered by Otto von Bismarck ( not a liberal) and backed by even such as Hayek , Mr . Road to Serfdom himself.
Instead, he has to support the current ” Screaming meemies” , who opposed the very idea of national health insurance , because FREEDOM ! and because the Kenyan Muslim usurper proposed it.
James, I don’t think the old line Republican Party is ever coming back, buddy. Face reality.
@stonetools: I think there’s a distinct possibility of that. There are still a handful of Chuck Hagels and Jon Huntsmans out there. Whether they can regain control anytime soon remains to be seen.
Oh, and PJ, How silly of me. Now that you have explained it, it all makes perfect sense!
Indeed. Bithead and Jenos are the reality of today’s GOP. As a Democrat, I would be very happy to have guys the caliber of Huntsman, Hagel, & of course, Joyner in our party. I am not sure what function they perform for Republicans other than providing a patina of rational thought and legitimacy.
Actually, Krugman, who is not far left in any rational understanding of the word famously and loudly predicted that the 2009 stimulus was too small and the its (relative) lack of success would be used against it . He did that in 2008-2009. He wasn’t alone . And he and the others were proved completely right.
At the time, both Christine Romer and Larry Summers argued for a big stimulus. Tomothy Geithner argued against it. Obama went with Geithner, partly because he didn’t understand the economics but mostly because he was chasing the will-o-wisp of ” bipartisan agreement”, so he allowed Romer’s initial stimulus proposal of $1.2 T to be whittled down to $800B.
By early 2010, two things were clear: the stimulus was not enough and the Republicans were going to win big in 2010 on a ” where are the jobs” message aimed at people who didn’t give a d@mn about Obama’s legislative achievements or the Iraq pullout or drones or entitlement reform or any of the other stuff fully employed “Inside the Beltway” pundits cared about. Its clear to me that Obama’s decision not to listen to liberals and go all in on stimulus was the biggest single mistake of his Presidency, by a country mile.
Forget caliber. It’s about policy. Huntsman calls himself a Republican because those are the policies he likes. Labeling him a D won’t change those policies.
Same with Joyner. He will be supporting Republican candidates who want awful policies forever. He said so himself, it’s just inertia. So much easier for a prosperous white guy to vote for the party that tells him that he is the best kind, the realest kind of American. He made quite clear he doesn’t care about policies. Alas, the rest of us not-as-real Americans have to live with the consequences.
Oh well, fight the good fight. Only after a massive wave defeat do I see the old-line Republicans making a comeback. In the short term, Jon Huntsman’s best political hope is to move to a purple state and run as a Democrat, a la Charlie Crist.
“There are still a handful of Chuck Hagels and Jon Huntsmans out there.”
Chuck Hagel is about to be filibustered by the Republicans in Congress over being appointed Secretary of Defense, presumably so the next Secretary of Defense will be a Democrat. He is considered to be an apostate by the leaders of the Republican Party. Hagel and Huntsman are not going to seize the reins anytime soon.
The old “Rockefeller Republicans” still exist. They’re called “Blue Dogs.” They have Ds after their names. 😉
Thanks. Those links cleared up a lot of what I thought happened. I think part of John’s beef with this stance is that it is hard to push more spending during this politically charged environment. However, if the media did it’s job, more of us would be aware of the difference between spending for investments and spending that you’d expect very little return on. Ironically, smart spending on one side potentially decreases spending on the other. It is the way the total economy works. Do you expect anyone from the media to actually explain how? Heck No! Whoever barks the loudest gets legitimacy with airtime and the republican/conservative party has done this with great efficiency!
AHAHAHAHAHA! HAHAHAHAHA! *wipes away tears*
It’s nice to get a good laugh in at least once a day. Thanks for the chuckle!
There are more people who say “coulda shoulda” about 2009 than actually have a stimulus plan for 2013. Different questions.
The main thing to consider is the parallel to 2004-2008. Bush and the then congress spent a lot of energy trying to stimulate a slow recovery. It was not without consequences.
Except to James, who considers Krugman a “leftist.” (Then again, he also considers Mondale and Dukakis to have been “hard left” so that’s an indication of how well he understands American political alignments).
Well, who is actually to the left of Krugman and Reich on stimulus?
Any working politician?
What I’m saying is that we can look at the past to see what actually worked and what didn’t. The economy we have today is more of a product of what happened during the end of 2008 and immediately afterwards.
I’m curious to know what measures the administration and congress tried to stimuate the economy during 2004-2008. All I can remember off-hand is the continued oversight of the housing industry which ultimately inflated the housing bubble before it burst.
@superdestroyer: You don’t want to pay sufficient taxes to run a civilized country? Then you’ll get the mess you deserve.
Repeat after me: taxes are the price you pay to live in a civilized society. Stop bitching about it, or move somewhere that doesn’t have them.
At least the Democratic party is willing to raise taxes high enough to cover the level of services everyone demands. The Republican party is the hypocritical bunch: providing tons of services, refusing to make sure taxes are high enough to cover them, and putting the rest on the debt credit card. When you call loudly for cuts in the military sufficient to balance our budget,then I know you’re serious. Until you’re willing to gore your own ox, well, it’s pretty obvious what you are, madam, we’re simply haggling over the price.
“The Economic Stimulus Act of 2008 (Pub.L. 110-185, 122 Stat. 613, enacted February 13, 2008) was an Act of Congress providing for several kinds of economic stimuli intended to boost the United States economy in 2008 and to avert a recession, or ameliorate economic conditions.”
There are a few though. There would be more if the Obama Administration pushed it. I would say there was even consensus among economists that a fiscal stimulus package would be good. There’s also an consensus that the idiot tea party folks would block it, which is why economists aren’t talking it up.
Its up to economists, not working politicians, to create stimulus plans. The politicians enact them , based on the economists’ advice.
That said, I would agree that the politics don’t favor stimulus at this time, which sucks for the people who will lose their houses and their dreams , because the economy isn’t recovering as fast as it could.
While the media and the Republicans bear much of the blame why we aren’t adopting more stimulative fiscal policies, the Obama Administration shares the blame, if only, because they did such a poor job of not only designing the original stimulus, but of explaining it to the public. They spent so much PASSING stuff that they forgot to explain to the public how it helped the public. Its unclear to me that their messaging has improved any.
@john personna: The Stimulus Act of 2008 had the same problem the ARA had in 2009: it amounted to only 1% GDP, while the ARA was around 1.5%. Neither plan was tailored to the savings needs of households given the seriousness of the situation.
This is one of those moments where I decisively disagree with you.
The problem with the The Stimulus Act of 2008 is that it came in 2008.
The tracks were out, and the answer was to pile on more speed.
The contribution was a bigger wreck, and (this is important) less flexibility in dealing with the aftermath of the crash. We went into the worst contraction in 70-some years with stimulus already in effect.
Of course it was that much harder to “start stimulating” in 2009!!!
(The problem with permanent stimulus, is that is pretty hard to “apply stimulus” when you need it.)
Thanks. After briefly reviewing (and I mean very brief), it is not surprising that the bill appears to me to be “top heavy” (or trickel down related) and potentially did not address the needs of the economy. In fact, one measure in that bill confirms what I initially thought in that it encouraged higher loan amounts to Freddie Mac and Fannie Mae loan recipients. Other than that, the bill appears to relax espense recovery and provide additional incentives for businesses and business investment – hardly the same stimulus bill that was passed in 2009. Granted, the economical environment by 2009 was much more severe. However, you can still look at the two bills and determine what actually worked and what did not. That is a conversation I would like the media to engage in. I also would like to be a trillionair, neither is likely to happen!
I don’t know what that means. If you’re trying to make the argument a tax rebate made the recession worse, you’ve got your work cut out for you.
The latest work (at the time) in quantifying Okun’s Observation suggested a 2% fall in GDP correlating to a 1% increase in unemployment. The correct policy response to limit unemployment to 6% or less was thus a stimulus of $1.2 trillion in a single year. At no point did any politician appear to understand the seriousness of the situation or the size of response needed to counter the cycle. Among mainstream economists I can count on my fingers the number who recognized what was necessary (including Krugman, but he’s barely on the fringes of the mainstream now).
What the results from both bills show is that you have to tailor your response to a crisis to the size of the crisis, and its better to “go big”. When faced by the greatest economic crisis since the Great Depression, you have to “shoot the works” and worry about the problems of “over-stimulation” later.
Countries like China and South Korea who “went big” recovered stronger and faster. Countries who did too little or tried austerity are, quite frankly, still depressed, although their recoveries, such as they are, are touted by conservatives desperate for success stories .
This has been little reported on by the media, and this has left things open for conservative politicians to misrepresent the lessons of the 2008 financial crisis and to bang on about how like an improvident household, we still need to ” cut back.”
The Obama Administration, unfortunately, has done little to explain all this. Unfortunately, I think Obama just didn’t get the whole “economics ” thing at first and thought that the Presidency was all about foreign policy and passing legislation.He most likely thought that turning round the economy was only one of the things he had to do, and that he would be graded globally on everything he did.
Unfortunately, that’s not how the public grades Presidencies. They grade them on the state of the economy FIRST and only then do they even notice foreign policy, entitlement reform , “bipartisanship” and all the inside the Beltway stuff. Obama’s mistake on the primacy of economics almost cost him this Presidency and it has resulted in the entrenchment of an ultraconservative House majority that will hamper the country for maybe the rest of this decade
We mad a couple of quick, un-coordinated and underpowered attempts to stimulate and then shifted from an expansionary budget stance to a neutral one, where we’ve been ever since.
People have to understand when it comes to counter-cyclical policy, you’ve got three choices:
A) you can embrace what Bill Mitchell has termed Keynesian “generalized expansion” where government goes out and buys up enough goods and services to keep people employed
B) you can cut taxes on people who spend a high porportion of their incomes
C) you can have strong automatic stabilizers which will attentuate the recession or an overheated economy.
In the absence of C, some combination of A and B were necessary unless we wanted an even worse depression. We held back big-time and working people have paid the price ever since.
The broad arc here is pretty simple. During the Bush administration we had early hits from the dot -com crash, and 9/11. We responded to those, but never went into “short term is over” mode. We were stimulated when we crashed (houses in 2006, GDP in 2008).
You want a replay. You want to stimulate “because you can” (in theory) in 2013, regardless of what 2015 brings.
Perhaps you have a faith that 2013 stimulus can keep away all possible bad things that could happen in 2015?
How’s that equity market pumped up by quantitative easing looking to you?
(and again, I am not at all the last man standing in the way of 2013 stimulus. I am explaining why 2013 stimulus is not even on the map.)
Well no one knows what to expect tomorrow. So everything regarding policy is technically driven by theory. But that never stopped meaningful policy from moving forward.
“Counter-cyclical spending” is a solid theory. One to hang your hat on.
Note that it comes from “the man”
“Keynesian economics advocates the use of automatic and discretionary countercyclical policies to lessen the impact of the business cycle”
Uhhhh, John? Neither Krugman nor Reich is a working politician…. Neither pretend to be….. If you want to find people to the left of them, the blogosphere is full of them, starting with Chavez….and me.
And yes, I exaggerate….. I am no where near Chavez. Which by default means…. You are exaggerating by referring to Krugmann and Reich as “working politicians” seeing as neither has been currently elected to office.
Actually, no. The reason to stimulate now is that:
1.The US (and world) economy is still too weak and may slip back into recession.
2. Unemployment is 7.7 per cent and there are millions of people still out of work ( some for a long time). Again, if you are fully employed and your car and house note is paid, you are OK with waiting for the economy to recover “naturally”. If you are unemployed and you’ve got your second foreclosure notice, not so much.
3. There is at this point zero chance of some kind of upsurge of inflation. There is no chance of “overshooting”, “over-stimulation”, “bubbles”, or the kind of problems the Fed generally worries about. We’re really more in danger of a “1938” where we plunged back into depression by cutting back sharply on stimulus, than we are in danger of a late 70s stagflation.
In other words, I’m in favor of stimulus not because I want to stave off something happening in 2015. Rather, its because I want to make things better for those who are unemployed NOW
Speaking of Keynes, I just want to mention that about ten minutes ago the GOP thought Keynesian stimulus was a great idea. The GOP was for Keynesian stimulus before it was against Keynesian stimulus (link):
GOP rhetoric has so many contradictions that even the contradictions have contradictions. When you’re suffering from Romnesia you don’t realize that you’re opposing what you supported ten minutes ago, and vice versa. Just like how the individual mandate was a great idea when it was part of HeritageCare and RomneyCare, but a Marxist plot when it was part of Obamacare.
@OzarkHillbilly: He’s not claiming that they’re working politicians. He’s saying that, while they’re not that far to the left on the total spectrum, they’re further left than any prominent working politician at the national level in the US today. Which is to say, from the standpoint of practical American politics, they’re pretty hard left. And he’s right.
George Will has frequently used the line that American politics is like a football game played between the 40 yard lines. The current Republican party is now hard right—but still within that 40 yard line measure.
Er, Paul Krugman is pretty hard left? The guy who won the Nobel Prize for Economics , who’s a professor at Princeton, and who’s a columnist for the New York Times, the exemplar of the MSM?If you think he’s hard left, James-you need to get out more. Noam Chomsky is hard left, Paul Krugman is in the left of the mainstream.
Robert Reich was Clinton’s Labor Secretary, so he has actually worked in an Administration.
Both are to the right of this guy, who represents the Tenth District in Ohio ,and this guy, Senator from Vermont.
The current Republican Party isn’t within the 40 yard lines, at least the Tea Party elements of it.
“The current Republican party is now hard right—but still within that 40 yard line measure.”
Umm, no. They’ve gone further away from those narrow confines than anyone has in decades. Think about it this way — When was the last time that a vote to extend the debt ceiling was ever in danger of not passing? When was the last time that the federal response to a natural disaster had to be “paid for” by reducing other spending? When was the last time that we had a war and lowered taxes rather than raised them?
@James Joyner: “The current Republican party is now hard right—but still within that 40 yard line measure. ”
Yes, because forcing women to bear their rapist’s child in the name of “life” is right between those 40 yard lines. Because refusing to fund disaster relief is right between those 40 yard lines. Because declaring that private businesses should be able to turn away minorities is right between those 40 yard lines.
Keep pretending your party is what you want it to be. America knows that’s a lie…
No, your party is Bithead and Jenos.
I think you miss understand. Democrats will always be calling for higher taxes no matter how high taxes are. Democrats will always be talking themselves into higher taxes. Look at how the solution to every problem is more government spending. The question for the Democrats is what happens to “civilization” when the private sector is not big enough to produce the wealth required to run a political entitiy. If big government and high taxes meant a better life when people would be migrating from Houston to Detroint instead of the other way around for the last 30 years.
Taxes are as much as raw political power, determining the winners and losers of a country, and a method of certain political groups to control others. What Democrats like Paul Krugman really want is very high taxes, a massive federal government, and a small patron class to control others. The real question for Democrats is why are they will to cede control of the country to a small group of Ivy League educated patrons.
Also, you do realize that you could eliminate the defense department and how eliminate the budget deficit. Of course, you would also lay off several million people in the process and basically eliminate the need to train engineers and physicist in the U.S.
That was actually a two-part question.
As long as you understand that is beyond Keynesian. Keynes taught countercyclilcal action, something I recognize, and not permanent stimulus.
There really isn’t a big correlation between high taxes/big gov’t and how desirable a place is to live, because other factors matter more. Cali and NYC are highly desirable. Connecticut is too, for that matter (granted, in no small part because of NYC and Boston being fairly near). Employment opportunities, climate, commute, services/lack thereof, and so forth matter as much or more as the level of taxation. Of course all things being equal taxes could tip things: if there were two NYCs side by side and one had higher taxes, it might suffer some drain. Then again, it depends. Perhaps the low-tax version lacks proper mass transit or is short on police or maybe it just has lots of bums in the street. Some folks might prefer the higher taxes.
It’s obvious that to you, it’s always the 1970s. I know how it works, because the same is true for my parents. The boogieman (personified by Jimmy Carter) is always there, waiting to take their money away.
The Dems of today are not the same (DLC, ever heard of it?). Maybe they would be if the political climate where different, but that’s hard to know for sure. What I do know is that the political climate today is not the same as it was then, and that matters. For both parties. And if the Dems overreach, voters will be driven back toward the GOP. Now of course the GOP could manage to screw that up, but one can hope for better.
Or one could hunker down and wait for the race war or whatever you’re doing.
To continue the policy discussion, we *do* have automatic stabilizers. If one wants to argue they’re too weak, and show their work, ok. But we do have UI benefits, food stamps, medicaid and such. Those things exist, and they kicked in. We added stimulus (too small, I agree). The result was sucky but a lot less so than in some other countries. We averted freefall.
So more stimulus now? Ideally, yes, some, especially if people are willing to lend us money at negative real interest rates. My idea would be to spend money on upgrading our coastal defenses (national security! 😉 ) against hurricanes as the sea level keeps rising.
But JP’s right about why this is a heavy political lift.
@Rob in CT:
One way to appeal to “the short term is over” folks might be to use the “stimulus” word less, and “investment” more.
Investment can actually be justified, even in periods of growth.
(Flood defenses would actually protect future GDP, yes. The growth hit for hurricanes is well-documented.)
Nouriel Roubini, writing at the Financial Times:
This is back on topic. In the long run our preferences imply higher tax rates.
We can’t just say “God, give us chastity, but not yet.”
Well, yes. Public investment.
Another example of a worthwhile effort would be spending some money on insulating homes or government facilities (doesn’t have to be wizbang stuff – low hanging fruit like insulation and new windows would probably be worth it w/o a bunch of fighting over solar panels or whatever). Another possibility is lead abatement (yeah, I’ve been reading Kevin Drum today).
Hey, if it was good enough for St. Augustine…
I remain of the opinion that the terror isn’t government debt, but household debt. Not that a lot of government debt is a great thing, but the household debt seems to be the killer to me.
I’m not talking about permanent stimulus. I’m following the lead of that well-known radical Bernanke, and talking about stimulus till the economy meets certain targets.
Hey, if using the right terminology will smooth the political path, sign me up. I’m OK with “investing in infrastructure”, “training for the jobs of the future”, “building the America of the 21st century,” “betting on American innovation”, and what not. The Republicans have shown that catch phrases and slogans work , much to the disgust of liberal policy wonks. Let’s do what works.
Mean while, you might want to take a look at this:
I know its talking about foreign countries and all, but it shows that the world economy is weak and may actually be slipping into recession. That could drag us right back into rising unemployment.
Its data like that which pushed Bernanke into QE3 . It you gave Bernanke truth serum and asked him about another round of fiscal stimulus, he would most likely say, “Hell yes, and yesterday too. What do you think I’ve been hinting at these past 6 months?” The Atlantic tries to decode him here:
The article does finish by saying that Bernanke would settle for no further austerity, but that’s not his preferred approach. We should go with his preferred approach.
As long as it passes an ROI test it is an investment, and not (more desperate) stimulus.
I really think that’s a good way to separate the wheat from the chaff at a time like this. Again, we are running a deficit. We are at zero interest rates. We are running QE.
We are in stimulus.
To want “more” without focus is to say that more spending is always better. That’s a case people aren’t buying.
When Social Security goes full Titanic it’ll make the current scenario look tame. The notion that Gen. Y will be able to support the Boomers on its face is absurd. Living at home with mom and dad until age 35 doesn’t exactly pay so well.
In any event, putting aside for a moment the entitlement time bombs, a few other points are worth mentioning:
– The federal government pisses away ten figures of public money each year on fraud and waste and separate and apart from that it also pisses away ten figures of public money each year on redundancies. The EPA does the same thing as every state and local enviro agency. The EEOC and the DOL do the same things as every state labor and employment agency. The SEC does the same thing as every state securities agency. The DOJ pisses away huge dollars every year prosecuting what should be state law crimes handled in state courts. HUD does the same thing as every state housing agency. Education is a farce. Agriculture does the same thing as every state AG dept. DOT does the same thing as every state transportation agency. So on, so forth.
We’re talking about over 200 billion dead presidents each year thrown away. Every year. Year after year. For decades. Now all but in perpetutity.
– Millions upon millions of high-paying jobs are being held hostage to the Sierra Club, the ATLA, the SEIU and the Teamsters, and by other left-wing cabals and groups. We’re talking about hundreds of billions of dollars in federal tax revenues each year that are lost in the political astral plane.
– Ergo the notion that tax hikes are absolutely necessary to deal with the deficit and debt miasmas is ludicrous. We could fix those problems simply by cutting unnecessary and wasteful spending and by unshackling the labor markets for energy production, export and transportation-related jobs, and then by privatizing Social Security and Medicare.
– Ultimately, however, the denoument already has been written. We’re going to turn into Europe West. In large part we’re already there. It won’t be pretty. Not even for movie stars.
Read what Roubini said above, again.
The right, and even the Teas, want too much spending for themselves. There is not enough waste, fraud, and abuse to change the picture. Even throwing hurricane victims under the bus won’t do it.