Responsible Governing v. Ideological Purity

What exactly is the GOP trying to accomplish in the debt ceiling negotiations?

David Brooks takes the Tea Party wing of the GOP to task over the debt ceiling negotiations:

Republican leaders have also proved to be effective negotiators. They have been tough and inflexible and forced the Democrats to come to them. The Democrats have agreed to tie budget cuts to the debt ceiling bill. They have agreed not to raise tax rates. They have agreed to a roughly 3-to-1 rate of spending cuts to revenue increases, an astonishing concession.

Moreover, many important Democrats are open to a truly large budget deal. President Obama has a strong incentive to reach a deal so he can campaign in 2012 as a moderate. The Senate majority leader, Harry Reid, has talked about supporting a debt reduction measure of $3 trillion or even $4 trillion if the Republicans meet him part way. There are Democrats in the White House and elsewhere who would be willing to accept Medicare cuts if the Republicans would be willing to increase revenues.

If the Republican Party were a normal party, it would take advantage of this amazing moment. It is being offered the deal of the century: trillions of dollars in spending cuts in exchange for a few hundred million dollars of revenue increases.

A normal Republican Party would seize the opportunity to put a long-term limit on the growth of government. It would seize the opportunity to put the country on a sound fiscal footing. It would seize the opportunity to do these things without putting any real crimp in economic growth.

The party is not being asked to raise marginal tax rates in a way that might pervert incentives. On the contrary, Republicans are merely being asked to close loopholes and eliminate tax expenditures that are themselves distortionary.

This, as I say, is the mother of all no-brainers.

The problem, Brooks says, is with the GOP itself:

We can have no confidence that the Republicans will seize this opportunity. That’s because the Republican Party may no longer be a normal party. Over the past few years, it has been infected by a faction that is more of a psychological protest than a practical, governing alternative.

The members of this movement do not accept the logic of compromise, no matter how sweet the terms. If you ask them to raise taxes by an inch in order to cut government by a foot, they will say no. If you ask them to raise taxes by an inch to cut government by a yard, they will still say no.

The members of this movement do not accept the legitimacy of scholars and intellectual authorities. A thousand impartial experts may tell them that a default on the debt would have calamitous effects, far worse than raising tax revenues a bit. But the members of this movement refuse to believe it.

(…)

To members of this movement, tax levels are everything. Members of this tendency have taken a small piece of economic policy and turned it into a sacred fixation. They are willing to cut education and research to preserve tax expenditures. Manufacturing employment is cratering even as output rises, but members of this movement somehow believe such problems can be addressed so long as they continue to worship their idol.

Megan McArdle is similarly pessimistic:

I am getting the same sinking feeling that Brooks is having–that there is a sizeable faction on the right, and worse, in the GOP caucus, that is willing to default rather than make any deal at all. In fact, I think it’s worse than Brooks suggests.  It would be bad enough if these people were simply against higher taxes, because then you might persuade them by pointing out that if we default, we’re probably going to end up with higher taxes, right now, in order to close the current gap between spending and tax revenue.

But when I point this out, the response in my comments and email and twitter is “Fine, I’ll accept higher taxes, as long as they come with radical changes in spending.”  The BATNA (best alternative to negotiated agreement) is default on either our debt, or entitlements like Social Security that people have planned their lives around; the Democrats properly view this as a disaster.  But I’m hearing from people who seem to think that it’s better than raising one thin new dime in taxes.  This makes me very much afraid of where this is headed.

The political logic is infantile.  The American public does not want you to cut Medicare, Medicaid, or Social Security.  There is no monopartisan substitute for persuading people to agree with you.  Just as the Democrats spent way too much time reading their own press releases on ObamaCare, only to find that their cherished legislation was instantly at risk of dismemberment by legislative and court challenges.   Imagine that the GOP forces through an all-cuts deal–or forces the country into default?  What’s the next logical step?

Tyler Cowen agrees, as does Bruce Bartlett, but as Brooks notes the statements of people like them have little influence in the GOP these days. Instead, it’s Grover Norquist, who has spent his career as a political activist rather than a professional economist or  policy adviser, who seems to have the most influence in the GOP these days. His “no tax increase” pledge essentially has the GOP hamstrung to a negotiating position that, while it may have the benefit of being ideologically pure, is not politically viable and poses the risk of throwing the nation into default and the economy into recession. What’s more important, fixing the problem and taking what is, in the end a pretty good deal, or making Grover Norquist happy? As much as I hate seeing taxes increased, I can’t see any rational political argument for taking the Norquistian position in these negotiations, at least not while the opposition party controls the Senate and the White House.

The most absurd part about this to me is that we aren’t even really talking about tax increases here, we’re talking about closing tax loopholes and ending subsidies to preferred industries disguised as tax deductions, credits, or changes in depreciation schedules. These tax subsidies distort the economy as assuredly as government subsidies to preferred industries do because they involve using the tax code to pick winners and losers, and usually the winners end up being the industries that have been most successful at influencing the tax committees in the House and Senate (coincidentally, I’m sure). Ending these subsidies should be at the top of the GOP list as much as cutting spending is, and doing so would not involve making a single change to tax rates for either individuals or corporations. And yes, thanks to the “no tax increases” ideology, the GOP has drawn a line in the sand over an issue that, in the end, is not even worth fighting over.

There’s still a part of me that the adults in the room will come to their senses. After all, John Boehner said as long ago as last November, just after the election, that he would make clear to the incoming freshmen that they would have to act like adults when it came to the debt ceiling. So far, it seems like he hasn’t succeeded in getting his message across.

In the current political environment, a 3-for-1 deal that ends up increasing the debt ceiling while also cutting up to $2,000,000,000,000 in spending over ten years, accompanied by a few hundred million dollars in revenue increases that come mostly from closing economically wasteful tax subsidies strikes me as a pretty good deal. Perfect? No, I would also like to see Congress deal with the long term entitlement problems, but there is no political consensus right now regarding entitlement reform. Anyone expecting perfection from government will be eternally disappointed, and anyone willing to play chicken with the economy over a tax pledge isn’t governing responsibly.

 

FILED UNDER: Congress, Deficit and Debt, Economics and Business, Social Security, Taxes, US Politics, , , ,
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. An Interested Party says:

    What exactly is the GOP trying to accomplish in the debt ceiling negotiations?

    The President’s reelection…

  2. Socrates says:

    What’s the mystery around anything the GOP is doing?

    Mitch McConnell already said it very plainly: their number one goal is to see that Mr. Obama is not re-elected. To that end they’ll do anything, including sabotage the economy.

  3. mantis says:

    What exactly is the GOP trying to accomplish in the debt ceiling negotiations?

    Political victory for themselves, economic disaster for everyone else. That’s why they oppose a payroll tax holiday, even though they’ve always supported such things. They are now against tax cuts, but only if they will stimulate the economy and Democrats support them. They are trying to sabotage the US economy, and doing so deliberately and brazenly. Why anyone would trust them with anything more important than a lawn gnome shop is beyond me.

  4. Herb says:

    “anyone willing to play chicken with the economy over a tax pledge isn’t governing responsibly.”

    You said it, not me.

    I’d add that anyone still taking advice from Norquist after Abramoff is a fool.

  5. @mantis:

    Even Democrats are now supporting Payroll Tax Holidays, which seem fiscally dumb to me

  6. Moosebreath says:

    “As much as I hate seeing taxes increased, I can’t see any rational political argument for taking the Norquistian position in these negotiations, at least not while the opposition party controls the Senate and the White House.”

    Nordquist is the person who wants the government to be shrunken sufficiently that it can be drowned in a bathtub. Reducing the size of government is an end to him in of itself. The goals which make most Republican commentators happy do not apply to him.

    “These tax subsidies distort the economy as assuredly as government subsidies to preferred industries do because they involve using the tax code to pick winners and losers, and usually the winners end up being the industries that have been most successful at influencing the tax committees in the House and Senate (coincidentally, I’m sure). Ending these subsidies should be at the top of the GOP list as much as cutting spending is, and doing so would not involve making a single change to tax rates for either individuals or corporations.”

    Umm, why? The GOP by and large is the party who receives the bulk of the political contributions from the winners. Why would they want to bite the hand that feeds them?

  7. PD Shaw says:

    It’s hard to tell how much of this is negotiating posturing (note the vote on the ethanol subsidy) and how much is idealogy.

  8. john personna says:

    I disagreed a bit with Brooks’ set-up a bit. I think that the Democrats are genuinely concerned with the debt and deficit. They are not tax-and-spend bogey men at this point.

    But I can see why he uses “Dems dragged to the bargaining table” to start his story cycle, and then asks why no follow-through.

    If the GOP cared about debt, they’d use their leverage now. On the other hand, if they care more about 2012 elections, they’ll put all their energy into positioning, budget be damned.

  9. john personna says:

    BTW, the secret to Nordquist is that he always was a “budget be damned” kind of guy. It’s just that for a while he got cover from those who thought/hoped that tax cuts could increase revenue. That hope is gone. Or more formally it is dis-proven that tax cuts always increase revenues. Just sometimes, under certain conditions.

    Now we have a split between those sane Republicans who can read a budget, like Alan Simpson, and those who still don’t care.

  10. David M says:

    I doubt the GOP knows what it wants, aside from getting re-elected. It’s been a while since the GOP had a coherent policy beyond tax cuts, and while I don’t doubt they are trying to make that apply to this, I wouldn’t think it’s going very well. They’ve said so many differing things, I can’t help but wonder if they aren’t trying to find out what their base wants, in order to avoid being primaried. Basically, they can’t take a deal until it pisses off liberals enough to satisfy their base. In fact, they might be closer to a deal if the Dems had been walking out on the negotiations in hysterics every other day.

  11. Tsar Nicholas says:

    Well, given that Team Rambobama in each and every prior “cliffhanger” moment has folded up like a flag in a hurricane I’d say at present the GOP leadership simply is driving a very hard bargain. But that’s OK. That’s dealmaking 101. If your opponent is weak use that weakness against him.

    That said, however, if no deal ultimately gets struck, despite the inevitable cave in by Rambobama, and the U.S. in fact goes into a state of de facto default, then, yes, I’ll be the first to admit that the inmates took over the asylum. We’ll just have to wait and see.

    Lastly, it needs to be pointed out the GOP for decades unfortunately has needed to deal with irrational factions. That whole “I’d rather starve than take a half-loaf of bread” mentality is nothing new around the fringes of the GOP. It’s been there since the days of the John Birch Society crazies. The only difference now is the 24/7 news cycle and the fact the irrational right has a much larger microphone than in year past.

  12. john personna says:

    Doug, there is another axis to this debate – the split between those who would try to shape in-recession and post-recession policies, and those who would just start future policy now.

    The in-recession payroll tax is less important to me than the post-recession tax and benefits.

  13. Hey Norm says:

    Everyone needs to realize we do not have a debt crisis…We have an unemployment crisis. Neither the 3 parts of spending cuts nor the 1 part of revenue increases will help the real problem…jobs. The so-called republicans regained the House on promises of jobs. But they are waging war for oil subsidies and farm subsidies and corporate jet tax deductions. Even Ryans budget only shifted costs to the sick and elderly in order to pay for additional tax cuts for the rich. Nothing to create demand, and thus jobs.
    Both parties need to get past this Kabuki Theater and focus on demand and jobs.

  14. Gustopher says:

    I really think it’s time for the Obama administration to start preparing for the default. We’re 30 days from default and a sudden shutdown, let’s do it in a nice orderly manner, and we might even delay it for a few days.

    There are lots of government programs that the Republicans are in favor of which can be first on the chopping block. Deferred payments to military contractors, farm subsidies, furlough the INS…

    The Republicans are holding the government and the economy hostage, so it’s time to start shooting the hostages.

  15. mantis says:

    Even Democrats are now supporting Payroll Tax Holidays, which seem fiscally dumb to me

    I know Democrats are supporting them, and now Republicans are against them because they might actually do some (short-term) good in our current situation. They aren’t fiscally dumb, unless you want a double-dip recession or at least stagnation, as Republicans clearly do.

  16. mantis says:

    Both parties need to get past this Kabuki Theater and focus on demand and jobs.

    What do you propose they do about jobs?

  17. Jay Tea says:

    How bad to the Republicans have to be to be more irresponsible than the Democrats, who didn’t even try to pass a budget the last two years? That’s one hell of a low bar.

    But even without a budget, federal spending’s gone from just under 3 trillion in 2008 to 3.8 trillion this year, and the debt has gone from 10 trillion to 14 trillion. That makes it abundantly clear that what we have is a spending problem.

    Can anyone make a compelling argument that the best thing we can do is give the government more money?

    J.

  18. @ Jay Tea — read Hicks and think long and hard about IS/LM models and that is the argument that the government needs to borrow a massive amount of money in the next couple of years in addition to current deficits.

  19. David M says:

    Jay: what’s your point? Seriously. How does the lack of a passed budget last year matter for the debt ceiling negotiations? Would you be happier if it had been budget had been passed, but the deficit was higher? If not, the budget complaint is way off topic.

    Secondly, your comparison is worse than useless. Quite a bit of the increase in spending was short term stimulus spending that is winding down and not a part of the long-term fiscal problem.

  20. Jay Tea says:

    David, would that be the stimulus that created jobs at the price of about $278,000 per job?

    That’s just helping my case even more.

    J.

  21. Scott F. says:

    @ Jay Tea

    Can anyone make a compelling argument that the best thing we can do is give the government more money?

    Because if Paul Ryan’s Republican blessed budget were to pass the Senate today and be signed by POTUS tomorrow, you’d still need to raise the debt ceiling to cover the nation’s obligations?

    Is that compelling?

  22. That Guy says:

    @Jay Tea:

    “Can anyone make a compelling argument that the best thing we can do is give the government more money?”

    I don’t think you’re at the right place if you are looking for compelling arguments.

    (I read this more for the entertainment value.)

  23. john personna says:

    Norm, we’ve had mixed credit and employment problems for some time. They are not unrelated.

  24. mantis says:

    @Jay Tea:

    “Can anyone make a compelling argument that the best thing we can do is give the government more money?”

    How about the alternative?

    Even a temporary default would eliminate the safe and liquid nature of the U.S. Treasury market, harming this country’s ability to exercise its power, to the detriment of the U.S. and the global economy.

    The main impact on markets would come from sharply reduced liquidity in the U.S. Treasury market, as financial firms’ procedures and systems would be tested by the world’s largest debt market being in default. Given the existing legal contracts, trading agreements, and trading systems with which firms operate, could U.S. Treasurys be held or purchased or used as collateral? The aftermath of the failure of Lehman Brothers should be a reminder that the financial system’s “plumbing” matters. All the legal commitments and limitations in a complex financial system mean a shock from an event that is viewed as inconceivable – such as a U.S. Treasury default – can cause the system to stall. The impact of a U.S. Treasury default could make us nostalgic for the market conditions that existed immediately after the failure of Lehman Brothers.

    Post-default liquidity could get even worse in the likely event of a rating downgrade. The liquidity event would not be limited to the Treasury market. Any reduction in the ability to use Treasury debt as collateral for loans would mean funds would need to be found: liquid assets sold to raise cash. Additionally, holders of U.S. Treasurys counting on timely payment could be forced to borrow funds in upset credit markets when those funds do not materialize.

    For starters.

  25. Lit3Bolt says:

    What makes this posturing by Democrats and Republicans even more amusing than normal is that no one questions the price or orthodoxy of waging multiple, unwinnable wars in various dust-nations.

  26. gVOR08 says:

    If even David Brooks recognizes that the Republican congress may be irrational, has the Overton Window moved far enough to allow discussion of the total moral and intellectual bankruptcy of the Republican Party?

  27. That Guy says:

    @David M:

    How does the lack of a passed budget last year matter for the debt ceiling negotiations?”

    If Obama and his party truly wanted to raise taxes, all he had to do was pass a budget with tax increases last year.

    But the point obviously here is to blame Republicans for not wanting to do what many Democrats already refused to do.

  28. sam says:

    @That Guy:

    If Obama and his party truly wanted to raise taxes, all he had to do was pass a budget with tax increases last year.

    Just got into town, have you?

  29. EddieInCA says:

    Doug –

    Screw David Brooks. Megan McArdle, too. And you and James to a lesser extent.

    Screw the lot of you.

    Seriously. Screw you and them. David Brooks, Megan McArdle, George Will, Charles Krauthammer, Ross Douthat, and too many other Conservative intellectuals have been sitting idly by, watching the likes of Palin, Bachman, Cantor, Ryan, McConnell and Paul speak nonsense for the past three years – at least – while taking over the party, and haven’t said a freaking word about the insane lack of policy positions coming from the GOP side of the aisle.

    Now, they, and you, have woken up, and realize the a loon like Michelle Bachman is the leading candidate for President, and that another loon, Sarah Palin, could probably win the nomination if she ran, and they, and you, are saying “Whoa… WTF happened?”

    Here’s what happened. When the GOP decided to scapegoat blacks, they, and you stood by, saying “That’s just a few crackpots. They don’t represent the mainstream of the party.”

    When the GOP decided to scapegoat minorities, immigrants, and Muslims, they, and you, stood by, saying “”That’s just a few crackpots. They don’t represent the mainstream of the party.”

    When the GOP decided to scapegoat women who want control over their bodies, and homosexuals, they, and you, stood by, saying “”That’s just a few crackpots. They don’t represent the mainstream of the party.”

    Now they, and you, can no longer say “”That’s just a few crackpots. They don’t represent the mainstream of the party.”

    Truth is… The crackpots… is you, and Brooks, and McCardle, and Will, and Krauthammer, and Joyner.

    Sad, but true.

  30. DMan says:

    @Jay Tea:

    David, would that be the stimulus that created jobs at the price of about $278,000 per job?

    That’s just helping my case even more.

    I believe that’s just a talking point. The 278,000 number comes from the low end estimate of jobs created, so it’s a disingenuous estimate. It’s also convenient for detractors of the stimulus that it solely focuses on job creation while ignoring consumer spending and investment that was spurred by the stimulus. I suspect it’s not as easy as dividing the costs of a stimulus bill by the estimated jobs created to accurately assess the short and long term success of the bill.

    The analysis indicates that the Recovery Act has raised the level of GDP substantially relative to what it otherwise would have been and has saved or created between 2.4 and 3.6 million jobs as of the first quarter of 2011.(link)

    I don’t think it can be said one way or another how successful the stimulus bill was based on this information alone. But it would be interesting to comparatively measure it to previous stimulus bills that had a greater focus on tax rebates and reductions by using the same standards of measurement. That would make for a more interesting look at the effects of different methods of stimulus.

  31. @EddieInCA:

    I don’t know where you’ve been but I’ve been critical of Palin and her lot for years, and people like Will and Krauthammer will calling her “not serious” while she was still the GOP candidate for Vice-President.

  32. JohnMcC says:

    Mr Tea asks “would that be the stimulus that created jobs at the price of $278,000 per job?”

    Sadly he is uneducated regarding the way that money moves thru an economy. Stupidity such as he exhibits amounts to mere echolalia. For even the slightly curious the facts are easy to determine. Try:

    http://www.theatlantic.com/politics/archive/2009/03/cbo-on-stimulus-multiplier-effect/1126

  33. EddieInCA says:

    Dear Doug –

    True. You’ve been critical of Palin.

    But she’s a sideshow; a carnival clown. You’ve mocked Palin because it’s too easy. I, for one, would prefer that you had spent your considerable talents calling out for truth when charlatans like Mitch McConnell, John McCain, Lindsey Graham are voting against laws they themselves presented to congress.

    I’d have preferred that you call out the GOP for it’s shameless race-baiting.

    I’d have preferred that you and James called for intellectual honesty from the Tea Party folks instead of treating them as the other side of an equal equation.

    It’s telling, however, that of all the points I make, you chose to answer with “Hey, I made fun of Palin, and have been doing so for years”.

    Well.. yeah… you did. Congratulations for picking on the easiest target in the room.

  34. Hey Norm says:

    @ Personna…
    Neither the credit problem nor the unemployment crisis are related to the debt. Interest rates are historically low, no one is being crowded out, and the markets are not clamoring for a solution to the debt. They are screaming for a solution to the debt ceiling issue, which the tea party is in denial about.

  35. john personna says:

    Norm, how can you not see the interaction between credit (and interest rates), and debt, and the business cycle, and unemployment?

    They all interact in numerous ways. Which would you like to consider? The impact of low fed rates on debt? The fact that an economic crash both necessitated and allowed those rates?

    What about all the various stimuli, through Bush and Obama Presidencies, and their impact on debt?

    What about falling income tax receipts as unemployment rose?

    What about expanding social services (AKA “automatic counter-cyclical spending”) as a result of the same unemployment?

  36. john personna says:

    BTW Norm, if you are just making the (far left?) argument that debt can be pressed further, because disaster is not imminent, you wouldn’t be alone. I know that argument is out there, though not widely supported. It is not a mainstream Democratic position at this point.

    But for me that is not at all the same as denying the past interactions.

  37. Hey Norm says:

    Mantis…in a perfect world Both parties would settle on this 3:1 deal…which is probably both reasonable and responsible. Then I think the government needs to build some stuff. Not just filling potholes. The private sector is sitting on the sidelines, waiting for demand. It’s up to the government to drive that demand. It’s not going to come from anywhere else. The so-called republicans dream it will come from tax cuts and trickle down economics…it won’t…never has. The government has to jump start the cycle. Roads bridges dams high-speed rail whatever else you like. And skip the tax cuts that made the 2009 stimulus less effective than it could have been. How to pay for it? Walk away from Iraq and Afghanistan.
    Let me be clear…I’m not about running up a ton of debt. I do not use credit cards, I own all of my cars trucks and motorcycles…everything but my house which I am still right-side-up on. But we need to generate long term demand and I’m not hearing any other ideas.

  38. Steve Verdon says:

    Oh it is all horse crap at the end of the day.

    “This budget package will cut $x over N years, and put us back on a fiscally responsible path.”
    –Any U.S. President in the last 50 years.

    It is cheap talk. Non-binding “agreements” with worthless projections that nobody has to stick too. There is no commitment mechanism in any of these things.

    But people sit around getting all worked up over these things. It doesn’t matter. The debt ceiling will be raised. Government spending will continue at the rate is has been. Taxes likely wont be raised (it isn’t a winning strategy, especially for a President with a bit under a year and a half to re-election).

  39. Hey Norm says:

    Personna…sure they are connected. But the debt is not a driver…it’s a symptom – right? If we somehow zeroed out the debt it wouldn’t change anything. Not really. Not functionally. There would still not be any demand, interest rates would still be at historic lows, and tax rates would still be at historic lows. And republicans would still want tax cuts.
    Look at the depression…they started worrying about debt and cut spending and it stalled the recovery. It was only when we started spending on ww2 that the recovery gained momentum again.
    The markets do not seem worried about the debt. If they were it would be different. The markets would be worried if the recovery stalled.

  40. That Guy says:

    @EddieInCA:

    You need to chill out. All that anger can’t be good for your health.

  41. The Q says:

    We are clearly stuck between two dysfunctional parties.

    The loons on the right insist on the standard boilerplate of “tax cuts pay for themselves” or “i know how to spend my money better than the dumb gubmint” and the crazy libs who think that anyone making over $80k is “rich”.

    How about this to stimulate the economy: 100% government guaranteed SBA loans with zero interest for three years?

    Force the big banks to loan some of the TARP money by guaranteeing the loan (just like a student loan). Since there is no risk to the bank, they can loosen the credit spigot for the true job creators in the economy – small businesses.

    And where does this idea come?

    Japan.

    Last year I accompanied the Minister of the Small and medium size enterprises agency ( a cabinet level organization in Japan) on a fact finding tour to the U.S..

    We met with RAND officials, SBA directors and presidents of local chamber of commerces.

    The Japanese minister was absolutely stunned that the U.S. government only guarantees 75% of the bank loan to small business, hence the complete collapse during the recession of SBA loans.

    Not only does the Japanese government guarantee 100% of the loan, but they offer 3 year interest free loans to sweeten the pot.

    I have called Boxer and Feinstein’s office as well as Issa and Dreir’s offices and the response I get is typical.

    The Dems could give a shit about small biz and the Repubs don’t want to add any government programs which “meddle” in the market and could add to the deficit.

    So here we sit between the Scylla and Charybdis of the two clown parties as Sweden of all places kicks ass:

    http://www.washingtonpost.com/business/economy/five-economic-lessons-from-sweden-the-rock-star-of-the-recovery/2011/06/21/AGyuJ3iH_story.html

  42. john personna says:

    Norm asks “debt is not a driver…it’s a symptom – right?”

    I think the story has played out differently than I would have expected a year ago. Then, I would have expected the Bond Vigilantes to have to ride, and force a policy change, as they demanded higher return on government debt. We see that happening in the weakest economies (this month, Greece), but not here.

    No the surprising thing is that the US voters hit a limit on debt tolerance before the investors. Some economists may tell them debt isn’t an immediate concern, but they aren’t buying.

    And so we have broad agreement across political parties that debt must be reduced, even in the face of ongoing recession (broadly speaking, rejecting NBER orthodoxy).

    Now this is, worryingly, like the 1937 tightening … but I think the main thing to note is that it isn’t really partisan. It’s a broad based, visceral, reaction to as much debt and stimulus as we can handle.

    (This is also why I’ve been prepping everyone one “austerity” for the last few months.)

  43. john personna says:

    The Japanese minister was absolutely stunned that the U.S. government only guarantees 75% of the bank loan to small business, hence the complete collapse during the recession of SBA loans.

    Heh. Insert ironic definitions of “free market” here.

  44. Hey Norm says:

    Personna…
    I think you’re confusing what Brooks called a faction and the public. The folks I know aren’t flipping out about the debt. They are flipping out about employment. The debt is just another shiney object.

  45. john personna says:

    Do you really think Obama is that politically dumb, Norm?

    I think he genuinely wants to reduce the debt, but I think he also knows where his political bread is buttered.

    The last stimulus did not go down well. I often make defenses that it wasn’t as bad as the most ardent critics claim (ie. that it did “nothing”), but I’d never try to argue that it was popular, or that it was a political win for the President.

    Oh, here is a poll to support my view:

    Despite lingering anxiety over the Great Recession, Americans by a large margin want their federal government to focus more on cutting debt than on increasing spending even temporarily to boost the economy, according to a new McClatchy Newspapers-Marist poll.

    That from Cut federal debt, Americans say, even if that slows economy.

    Dateline, today.

  46. john personna says:

    Again, this political reality is a prescription for austerity.

  47. The Q says:

    John personna, polls also show that 82% believe Obama is a kenyan muslim, 52% believe Lizard people inhabit congress, 42% know you can burn flatulence with a match vs. 31% of the people who could name the capital of France.

  48. Steve Verdon says:

    Lizard people?!?! I knew it! I knew it!

  49. john personna says:

    And yet we manage to believe in democracy.

    (Indeed, a careful reader would not confuse a poll result with my own “vote.”)

  50. Hey Norm says:

    But Personna…
    Given that choice what would anyone say? Rankings of the publics concerns usually name the economy in general…not the debt specifically.
    I’m pretty sure Obama didn’t want to do the 09 stimulus. The McClatchy poll also shows Americans believe he inherited the problem. I have the benefit of only caring about the country…not politics.

  51. Steve Verdon says:

    @john personna:

    Sure, its the best we got, but look at the options. That isn’t saying much…not much at all.

  52. john personna says:

    My point, Norm, is that it doesn’t make much sense to talk about “no real debt crisis,” and other ideas out of left field, in this environment.

    There is a political reality here, and as I’ve been saying for a few months, it looks to me like it is running toward austerity. I don’t say this because I like austerity, or think it is the wisest path. Far from it.

    I think those voters will get what they ask for, reduced spending(*), and then they will find that it’s not as fun as they thought it would be.

    * – with or without small changes on the revenue side.

  53. Hey Norm says:

    Well the only sense is in the real sense. Time will tell who is right. If the recovery stalls you can send me a case of beer.
    The deal being talked about is far from austerity. Austerity hasn’t worked in the UK.

  54. john personna says:

    Why would I send you a case of beer?

    You haven’t read what I’ve written.

  55. Hey Norm says:

    You think the political reality will lead to austerity. What did I miss?
    I think this coming deal, which is not warranted, will stop an already fragile recovery.
    Why would you send me beer? Because I like beer.

  56. john personna says:

    When you said “if the recovery stalls you can send me a case of beer” you were putting me on the other side, somehow. As if I thought this deal or austerity (now or later) would somehow be a boon.

    No, I am just a different sort of pessimist.

    Maybe my analysis is still a little too rational for politics, but it goes like this: If Republicans convince people that we can’t raise taxes much, it doesn’t matter if Democrats edge by and raise them a little. Then, if Republicans convince people that the deficit matters, there is only one course left. Spending must be cut.

    It’s actually really valuable that the poll above put it right to people, asking “would you cut spending, even if it reduced economic growth.” That is our question, and spending cuts which retard growth are a pretty good working definition for austerity.

    Now, this may not really hit the fan until after the 2012 elections. Everyone is counting time and positioning until then. But right now people want to reduce the deficit, and they don’t want more taxes. That leaves …

  57. john personna says:

    It is somewhat amusing that Republicans might be hoisted by their own rhetoric. That is, if they don’t really care about deficits that much (recent Martain Wolf column, Financial Times), but create so much of a movement that they are swept along with it.

    I mean, how many times can Congressional Republicans “press for cuts” without getting some?

  58. Brian Garst says:

    Several problems with this post:

    1) Hitting the debt ceiling will not result in “throwing the nation into default”. We take in 10x as much revenue as we have debt obligation. There is zero reason why Treasury won’t be able to prioritize debt payments to ensure there is no default. Whatever one thinks of giving the Executive that kind of power (to essentially write their own unilateral budget with the revenues they get), and frankly I don’t like it, risking default is not one of the realistic consequences. It’s a fear-mongering tactic, nothing more.

    2) There is a significant and compelling political reason for Norquist’s position, and that reason is history. Every time we’ve done what you are advocating, trading tax hikes for spending cuts, the result has been all hikes and no cuts. Bush 41 got a 2 for 1 spending to hike deal, and the hikes not only cost him the election, but no cuts ever materialized. Same thing happened under Reagan. They are lying to you and they are playing you.

    You cannot solve the problem of spending 24% of GDP when the historical average revenue rate is 18% of GDP (where it holds remarkably steady regardless of rates) with tax hikes. You can only solve it by cutting spending. It’s too bad the David Brooks’ and Bruce Bartlet’s are intent on undercutting us at every turn from doing what needs to be done.

  59. narciso says:

    Well there’s that Churchill quote ‘except for all the others’,and Steve, you have the best read on the matter. The other side hasn’t presented a budget n two year, ys that isn’t unprecedented, it happened in1974, a well.

  60. john personna says:

    I don’t know Brian, when you’ve got Megan McArdle talking about The Party of Crazy, you aren’t really selling it too well.

    I’m kind of bored by your misdirection, but I’ll identify them:

    1) Ask the ratings agencies. You may be technically correct that the administration could triage the budget, and not default on bonds, but the bond experts are not so sanguine. And as the article says, triage with downgrade equals higher borrowing costs, and negative feedback.

    2) Kind of a boring and selective history.

  61. Tano says:

    You cannot solve the problem of spending 24% of GDP when the historical average revenue rate is 18% of GDP

    Thats pretty funny. Compare the spending now with the historical average of revenue???
    Why not look at what revenues are TODAY, to see if maybe there is some need for additional revenue.
    Oh, but that would require honest argumentation….

  62. davod says:

    Responsible Governing v. Ideological Purity

    The heading is exactly right but your argument is misdirected.

    What exactly is the Obama regime trying to accomplish in the debt ceiling negotiations, an increase in spending?

    Any increase in Federal revenue should be because of the improving economy.

  63. Jay says:

    No, I would also like to see Congress deal with the long term entitlement problems, but there is no political consensus right now regarding entitlement reform.

    Oh please. When will there ever be a political consensus on entitlement reform? When the government announces they can’t send out checks b/c the system is awash in red ink deeper than the Pacific Ocean?

    This is horseshit. Paul Ryan submitted a budget plan that deals with Medicare. Did the “leader” of the free world submit his own?

    No.

    Has any Democrat said they’d be willing to put Medicare on the table?

    No.

    But somehow, the argument has been turned against the GOP because after all, eliminating the deducting for private jets is of course, going to solve our fiscal problems.

    And please, somebody show me where over the last 30 years, when spending was actually cut when exchanged for tax increases.

    Screw that. It’s high time for the other side to give first.

  64. MBunge says:

    “This is horseshit. Paul Ryan submitted a budget plan that deals with Medicare. Did the “leader” of the free world submit his own?”

    Why do I have the idea you don’t have the slightest idea of what the Ryan plan for Medicare would actually do or how it would actually work?

    Mike

  65. MBunge says:

    “What exactly is the Obama regime trying to accomplish in the debt ceiling negotiations, an increase in spending?”

    All reports are that Obama has essentially agreed to a deal that is 1/4th revenue increases and 3/4ths spending cuts. Are you even paying attention?

    Mike

  66. Rob in CT says:

    @Tsar Nicholas:

    Part of me thinks this is correct: the GOP (once again) staking out a maximalist position, pushing it aggressively, and then ultimately reaching a compromise that is far closer to their desired outcome than the Dems, who fall all over themselves to compromise right out of the gate. Negotiation 101.

    Part of me thinks the inmates are really running the asylum, and it’s freaky.

    Either way, it sucks, from my PoV.

  67. mantis says:

    @Rob in CT:

    It’s not possible to negotiate otherwise with a party that is unwilling to compromise on anything at all, no exceptions. The alternative to compromise for the Dems is to let the Republicans destroy the global economy out of spite. Not much of a choice. Too bad the Republicans want to do it anyway, even if all their demands are met.

  68. Barry Kearns says:

    There is some serious smoke-and-mirrors going on here.

    On the one hand, we have the claim that the “deal” being offered is roughly 3 times as much in spending cuts as there are “revenue increases”. With a claim of two trillion in cuts over 10 years, a three-to-one ratio implies 666 BILLION in revenue increases.

    Yet the article claims that “It is being offered the deal of the century: trillions of dollars in spending cuts in exchange for a few hundred million dollars of revenue increases.”

    666 Billion is a heck of a lot more than “a few hundred million”.

    It’s about 2000 times more. So what gives?

  69. Barry Kearns says:

    And while we’re at it… if 666 billion in “revenue increases” are taken from the private sector, how many jobs do you think that will cause to be lost?

  70. matt says:

    And while we’re at it… if 666 billion in “revenue increases” are taken from the private sector, how many jobs do you think that will cause to be lost?

    Yeah that 666 billion will totally vanish into a vacuum NEVER TO BE SEEN AGAIN. No one WILL EVER be paid that money and then turn around and use that money to buy services.. NO WAY WILL THAT MONEY EVER BE SEEN AGAIN IT”LL BE LOCKED IN A VAULT FOR ALL ETERNITY..

    For god’s sake think a little man. Money cycles on a daily basis into and out of the government. The only people hoarding the money are the well off and the companies themselves..

    I mean seriously you’re the type that complains about the tax and spend democrats and now you’re pretending the spend part doesn’t exist…

  71. Barry Kearns says:

    Straw man much, Matt?

    The premise is simple: Government spending is less than 100% efficient. Capital taken from the private sector for government spending is less likely to produce jobs than if that same capital were to be left in the hands of the private sector.

    I never asserted that tax-and-government-spend was ZERO percent efficient. But if it LESS efficient than the private sector (and I contend that this is an uncontroversial position), then taking more in taxes from the private sector is likely to produce a net loss in jobs.

    I was simply asking what the expected magnitude of that loss would be.

    But hey, as long as there’s a chance to misrepresent someone’s position in the worst possible way… I guess the order of the day is to grab a stick and start wailing away on a straw man.

    I notice you didn’t comment on what appears to be the case of Doug’s assertion being off by roughly three orders of magnitude. I wonder why that is?

  72. matt says:

    I never asserted that tax-and-government-spend was ZERO percent efficient.

    You’ve asserted all kinds of gobbly gook and it still doesn’t make it true lul..

    IN essence you’re now arguing that instead of all the money disappearing never to be seen again it’s only SOME of the money that disappears and is never ever spent anywhere or seen again..

  73. Barry Kearns says:

    No, I’m not asserting that ANY of the money disappears, and I never have. My assertion was about JOBS, and the effects of reducing private sector capital formation, which impacts how that capital can be used to grow the economy, through the creation of net jobs as wealth is created in the business cycle.

    Of course, I suppose I shouldn’t have expected an understanding of how wealth creation (as opposed to movement of money) works from someone who would blithely assert that “The only people hoarding the money are the well off and the companies themselves..”

    Yep, you’ve pegged things just right, matt. That’s what they do, all right. The well off and the companies out there are all doing their best Scrooge McDuck impersonations, rolling around in their private vaults stashed full of loot, cackling madly to themselves. That’s what they do with all of that “hoarded” money.

    If only they were more patriotic, and allowed the government to tax and spend that money… why, then the economy would come roaring back, unemployment would fall precipitously, and it would be days of wine and roses!

    Here’s a hint, matt: just because you don’t understand something, that doesn’t make it “gobbly gook”.

  74. matt says:

    Barry : Companies have plenty of capital see record profits for the companies and for the CEOs. Everywhere I look the problem is that companies are sitting on large chunks of money instead of investing in the workforce or their production facilities here in the USA. There are some companies that are spending money and it seems most of that is going towards shipping jobs oversees.

    If only they were more patriotic, and allowed the government to tax and spend that money

    Indeed the economy would be better off if they’d stop the shell company bullshit to avoid liabilities and taxes. The economy might be better off if their greed didn’t cause them to ship jobs oversees.. etc etc..

  75. Duracomm says:

    The wailing of brooks and the other dispensers of inside the beltway show a striking ignorance of history on the budget.

    The problem is past budget cuts turned out to be nothing but carefully packaged political lies. There was lots of rhetoric about cutting the budget but no actual cuts.

    Billion-Dollar Budget Cuts, We Hardly Knew Ye

    Yesterday, I noted that the GOP’s budget cut promises sank from $100 billion to $61 billion and then resulted in a deal party leaders claimed cut $38 billion but really cut just $14 billion.

    I ended the post with a question: “Any bets on how many days before the cuts disappear entirely?” I didn’t intend the question to be taken literally.

    Perhaps I should have: The Congressional Budget Office now says the deal will reduce this year’s budget deficit by just $352 million.

    The lunacy of the belief that giving the politicians more money will fix the budget problem is summed up by this comment.

    Riiiiiiight. Because nothing — NOTHING — gives Congress the incentive to cut spending like having more cash coming in.

    * facepalm *

  76. Eric Florack says:

    What exactly is the GOP trying to accomplish in the debt ceiling negotiations?

    What the voters said they wanted as of the most recent election… a call that has gotten even louder, since.@JohnMcC:

    Sadly he is uneducated regarding the way that money moves thru an economy

    No, I’d say he’s got it right.

    Of course, I suppose I shouldn’t have expected an understanding of how wealth creation (as opposed to movement of money) works from someone who would blithely assert that “The only people hoarding the money are the well off and the companies themselves..”

    Indeed. TRained by the repeated reading of Das Kapital, one assumes.

  77. Softball says:

    It’s true the budget is out of control. Also true, the GOP approach is juvenile. It is worth considering the likely results of a US default. A Government shutdown is only a minor part of the fallout.

    Foreign governments, which have been looking now for several years at how they can escape from the US Dollar as the world’s reserve currency will act. Our AAA rating gone, they will begin the abandonment of the dollar for international trade. Imagine, the US having to buy oil with a basket of currencies, say 50% dollars, 25% euros, and 25% yen. The US will have to go into the currency markets and buy foreign currency at very unfavorable rates (which will continue to get worse over time). The price of gas will be $7.00 within 12 months.

    I can’t wait to see Mr. Cantor explain that.