Tag: Federal Budget Deficit

A Bum Deal

Earlier this week, Congressman Ryan and Senator Murray put together a budget deal that should stave off another government shutdown for quite some time. It was passed by the House tonight and will likely go through the Senate tomorrow. Here are the details. The basic gist is that half of the sequester for 2014 is cancelled for a spending hike of $40 billion, mostly in military spending. A quarter of FY 2015’s sequester is cancelled as well. These are paid for by increasing employee contributions to federal pensions, increasing some user fees and not delaying Medicare’s SGR cuts, which will cut doctor’s fees by a quarter if they go into effect, with a likely damaging effect on Medicare. In addition, unemployment benefits will not be extended which means over a million people will lose them starting in January. Overall, the deficit will go down about $20 billion more than it would have before, but that may change if Congress changes its mind on SGR.

It’s not the worst deal ever, but it’s not a good deal and it’s not the deal we needed. It has no desperately needed fixes to the tax code. It decreases the deficit mainly through little tweaks here and there. It has no changes to entitlements or mandatory spending at all. That was what the Republicans needed to get if they were going to cave on sequestration and they didn’t.

Moving Toward A Resolution

Congress has passed a budget for the rest of the year that keeps the sequestration in place. Now all we need is a rise in the debt ceiling and FY2013’s budget is finished.

Obviously, I’d like some entitlement reform. But moving toward an actual budget process is a first step toward sane fiscal policy. Flat spending trends will bring the deficit at least under $1 trillion for the first time since Obama and possibly much lower, depending on how the economy does and exactly how much the sequester bring down spending. That’s progress, albiet slow and painful one. But entitlement and tax reform are the next steps that need to be taken. Because the long term is where we’re screwed.

A Tale of Two Budgets

Earlier this week, Alex posted on the first Senate budget in four years. I have little to add to his criticism. The Democrats claim it continues the good work of the last two years — you know, the flat spending that they have continually claimed is going to ruin the economy and that their budget undoes. Remember that last point: our economy is supposed to be falling into ruin right now because of the payroll tax hike and the sequester. We have yet to see post-sequester numbers, but February saw solid gains in jobs and consumer spending. If the economy continues to move, it will be solid evidence that “austerity”, such as it is, is not necessarily ruinous.

But even liberals, if they are honest, have to be disappointed with this budget. In contrasting it against Ryan’s budget, which I’ll get to in a moment, Ezra Klein notes:

But even given that difference in objective, Murray’s budget is deeply, even excessively, respectful of existing institutions. If the problem of Ryan’s budget is that it wants to do far too much, the problem with Murray’s budget is that it is almost entirely devoted to saying what it won’t do, and it gets very vague when the topic turns to what it will.

If the budget is vague about what it would change, it is specific and effusive about what it will keep. A tremendous amount of the budget document is, in fact, an appreciation of what the federal government is already doing.

About all we really know of this budget is the top lines: It plans $975 billion in tax increases, though it doesn’t say precisely how it will get there, and it plans $975 billion in spending cuts, though it doesn’t say precisely where they will come from.

So Ryan’s budget is preferable, right? Well, not exactly. It keeps all of the Obamacare tax hikes. It proposes tax reform but, again, is not specific in how it is going to cut rates without getting rid of cherished deductions (probably because it can’t). It relies on the CBO’s very optimistic growth projections to keep revenue up.

Most importantly, it also punts on the most important issues. Medicare reform is put off for ten years. Social Security reform is not mentioned. Making the math work requires heavy reductions in discretionary spending which are not the cause of our budget woes.

It also relies on two things that are simply not going to happen under this President: a repeal of Obamacare and huge reduction in tax rates. Look, I can appreciate that the Republicans are trying to contrast their vision against the Presidents. But a plan that has no chance of passing — and only works if those undoable things are done — is not really a serious plan.

These are steps in the right direction. We seem to be returning to a budget process rather than a self-created series of bullshit crises. So I’m hoping a bargain can be struck. But a real bargain — a Simpson-Bowles style one — has to rely on something that is in neither plan: near term reform of both Social Security and Medicare. Until that’s on the tabls, we’re just chipping away at the problem and hoping an economic boom allows to paste over the deficiencies.

Update: Of course, when it comes to bullshit budget plans, no one does it better than the Congressional Regressive Caucus, whose plan was praised by Paul Krugman today. It calls for an immediate 6% spending hike which they claim will bring us back to full employment within a year.

Yeah, ‘cuz that worked so well last time.

Notes On A Sequester

A few notes on the budget sequester that is schedule to happen tonight.

First, it’s going to happen. We may, eventually, get something else to replace it. But it has been obvious to me for two weeks now that the sequester is going to happen. The writing on the wall was when Congress went on vacation and the politicos spent time blaming each other rather than talking about solutions.

The reason it’s going to happen is not because it’s necessarily a good idea. It’s because replacing it entails a lot more work and political risk than our lazy cowardly leaders are willing to take on. They would much rather throw some blame on those idiots in the last Congress and the last Administration and hope that no one notices that the two groups of idiots are almost exactly the same. In fact, one of them still occupies the same big white house he did back in 2011.

The Woodward story Alex cites below (and the subsequent liberal freakout) comes from the allegation by Woodward that the sequester was Obama’s idea. Obama can tolerate a sequester; but he won’t tolerate being blamed for it. That, in a nutshell, is the sequester debate.

Second, the sequester is a very poor way of cutting spending. To give you just a few examples. Vaccination programs are going to be cut, perhaps resulting in tens or hundreds of thousands of missed shots. Vaccinations are a public interest. Unvaccinated kids don’t just put themselves at risk; they put everyone at risk because they compromise herd immunity. You’d have to dig pretty deep into Ayn Rand or Adam Smith to justify putting the public health at risk.

To give you another example, detained immigrants are being released because we won’t have the personnel to keep them in detention (although this raises a host of side issues, such as the atrocity of illegals being in detention for years awaiting hearing). On the other hand, it appears that supervised release is both perfectly doable and infinitely cheaper. In the end, this may be a win-win.

State governments are also up in arms including many died-in-the-wool conservatives like Jindal, Haley, McDonnell, Hubert and Walker. They are, inadvertently, revealing how often “responsible balanced state budgets” are balanced by the influx of federal dollars. But they are also very aware that a blind cut in education spending, for example, runs into a thorn maze of regulations, union rules and laws. The end result may be disastrous.

Supporters have pointed that $85 billion isn’t a lot in a $3.5 trillion budget. It is, a lot, however, when it is narrowed to a thin slice of spending with almost all entitlements exempted. For most programs, you’re looking at 10% cuts. And programs that need to be completely gutted — ethanol support for example — are hurt just as much as programs that are desperately needed like law enforcement.

However, …

Third, I don’t think this is going to be the economic disaster a lot are foretelling. I’ve seen estimates that this could destroy a couple of million jobs and plunge us back into recession. That seems absurd, given the scale of cut we’re talking about and Congress’s ability to reverse them. We’ve had cuts much larger than this in the past. Somehow, we’ve survived.

Fourth, I think this once again demonstrates how useless our leaders are. They came up with the sequester a year and a half ago as a way to force themselves to make smart cuts in the budget. This could be replaced, quite easily, with a package that reins in entitlements (e.g, chained CPI on Social Security) and kills some pointless government programs (e.g., ethanol subsidies, the second engine for the hyper-expensive F-35). They have had eighteen fucking months of holding that gun to their own heads. And now they are sitting on their hands waiting for the gun to go off so they can blame each other.

Why do we even have a Congress? Why do we even have a President? They aren’t doing their jobs. Maybe it’s time for the governors to say “that’s it” and pull the plug on this shit show.

In the end, this will be a relatively small cut in spending that could have very bad side effects and does nothing to address the tens of trillions in unfunded liability for entitlements (to which Obamacare is now estimated to add $6.2 trillion). That’s not exactly a solution.

(Disclosure: As a grant-funded scientist, I should note what the sequester will do to research funding (which has strangely been falling under the leadership of the “Party of Science”). You can see details here. No matter how you slice it, you’re looking at thousands of scientists out of work. And not scientists doing research on crab boners or something. This includes NIH-funded research on medicine, cancer treatment, public health and antibiotics. I suspect this will also mean a lot of people leaving for other countries to do research.

I won’t comment on the wisdom of this; my opinion is probably easy to discern. I mention it here so you can weigh it in considering my opinion of the sequester in general.)

The State of the Campaign

Here’s the thing that struck me as I read Obama’s State of the Union address: very little of this is going to happen. There is no way he will get even 10% of his agenda through a Republican House. Most of it would not even go through a Democratic House. This read less like a SOTU speech and more like a rally for liberals.

That would be fine except that … there are some things that kind of need to happen. Entitlements need to be reigned in. Our tax and regulatory structure are desperate for an overhaul. We need to cut spending and in a smarter way than the sequester does. So, in the end, this is fiddling while Rome burns. Or, more accurately, making MSNBC fawn over themselves while the country stumbles and bumbles.

Let’s go through a few talking points.

Over the last few years, both parties have worked together to reduce the deficit by more than $2.5 trillion – mostly through spending cuts, but also by raising tax rates on the wealthiest 1 percent of Americans. As a result, we are more than halfway towards the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances.

Technically, this is true. In reality, almost all of these “cuts” are in future budgets, not current ones. Spending has been flat over the last couple of years (after the 2009 runup) and it is now likely our deficit will fall under $1 trillion this year. If we can maintain that semi-discipline, the deficit will be a little less disastrous. But that budget control has come over the frothing opposition of the President’s party and every liberal commentator out there. And it’s still more like a few hundred billion, at most. You can’t really claim budget cuts that haven’t happened yet, especially when the rest of your agenda amounts to MOAR SPENDING!

Obama comes out against the sequester, which is indeed a crude and likely destructive tool compared to more targeted cuts (of course, he happily ignores his role in creating the sequester). It also doesn’t address, as he notes, entitlements. Oh, but on that subject:

On Medicare, I’m prepared to enact reforms that will achieve the same amount of health care savings by the beginning of the next decade as the reforms proposed by the bipartisan Simpson-Bowles commission. Already, the Affordable Care Act is helping to slow the growth of health care costs. The reforms I’m proposing go even further. We’ll reduce taxpayer subsidies to prescription drug companies and ask more from the wealthiest seniors. We’ll bring down costs by changing the way our government pays for Medicare, because our medical bills shouldn’t be based on the number of tests ordered or days spent in the hospital – they should be based on the quality of care that our seniors receive. And I am open to additional reforms from both parties, so long as they don’t violate the guarantee of a secure retirement. Our government shouldn’t make promises we cannot keep – but we must keep the promises we’ve already made.

Let’s get this straight: Obama’s healthcare reforms have not slowed the cost of healthcare costs. That slowing began before Obamacare was passed and was likely related to the Great Recession. Furthermore, his healthcare reforms have completely screwed young people, saving money by restricting what insurance companies can charge older people and therefore jacking up insurance rates on young people. (Yeah, how do you feel about voting for Obama by 24 points now, young people?)

He then talks about tax reform. But unless the mortgage interest deduction is on the table, such talk in unserious. That is not only one of the largest deductions (and one that heavily benefits the wealthy; for most middle class people, the mortgage interest deduction is less than their standard deduction), the unwillingness to challenge it is a sign of fecklessness. If you’re not willing to at least have it one the table at some point, you’re not serious about tax reform. Obama isn’t.

Obama then pivots to the economy for about the eighth time this week.

After shedding jobs for more than 10 years, our manufacturers have added about 500,000 jobs over the past three.

Almost all of those jobs were created by 2012. It’s nice they are coming back. But that has nothing to do with government policy and everything to do with smart business. Many businesses have realized that outsourcing wasn’t such a hot idea. They are bringing back some of their manufacturing. But most of it will remain overseas. And those trends have nothing to do with Obama’s policies.

Obama then talks up science and technology — fair enough. But then we get this whopper:

We produce more oil at home than we have in 15 years. We have doubled the distance our cars will go on a gallon of gas, and the amount of renewable energy we generate from sources like wind and solar – with tens of thousands of good, American jobs to show for it. We produce more natural gas than ever before – and nearly everyone’s energy bill is lower because of it. And over the last four years, our emissions of the dangerous carbon pollution that threatens our planet have actually fallen.

Good Lord, there’s a lot of BS in here. First of all, we have not doubled the distance our cars will go on a gallon of gas. That’s a goal in the law, but it is not reality. We encounter this over and over with Obama. He thinks that just passing a law calling for something to be done is the same as actually doing it. He fundamentally believes that law has the ability to change reality, alter the laws of physics and create the future. So, in his mind, we have doubled the mileage of cars. We passed a law, didn’t we? So.. done! QED. It’s the same logic by which he claims we have cut spending by $2.5 trillion because we passed a law calling on future Congresses to do so.

Second, jobs are being created in renewables but government investment is hurting that trend by funneling money to politically connected dead ends. Third, production of oil and gas have boomed over liberal protestations. Fourth, energy bills are not down (even with subsidies, renewables cost more per kwH than fossil fuels). And fifth, our emissions are down, in large part, because we have moved energy production from carbon-intensive coal to less carbon-intensive natural gas. None of this, none of it, is because of Obama’s policies. It is all because of innovation in the private sector.

He then talks of supporting McCain’s cap-and-trade scheme — the one that would put strings in every corner of industry and create hundreds of billions in federal slush funds. He propose that revenues from energy sources on federal lands go to an “Energy Security Trust” — another slush fund. This is the same stuff he has rolled out every year and it has gone nowhere.

America’s energy sector is just one part of an aging infrastructure badly in need of repair. Ask any CEO where they’d rather locate and hire: a country with deteriorating roads and bridges, or one with high-speed rail and internet; high-tech schools and self-healing power grids.

Tonight, I propose a “Fix-It-First” program to put people to work as soon as possible on our most urgent repairs, like the nearly 70,000 structurally deficient bridges across the country. And to make sure taxpayers don’t shoulder the whole burden, I’m also proposing a Partnership to Rebuild America that attracts private capital to upgrade what our businesses need most: modern ports to move our goods; modern pipelines to withstand a storm; modern schools worthy of our children.

I’ve gone over the massively overstated case that our infrastructure is crumbling (such statements come from groups that lobby for more infrastructure spending). The Partnership to Rebuild America sounds very iffy. I’d much rather see privatization.

After talking about re-inflating the housing bubble, he turns to Universal Union Employment, er, Pre-K:

Study after study shows that the sooner a child begins learning, the better he or she does down the road. But today, fewer than 3 in 10 four year-olds are enrolled in a high-quality preschool program. Most middle-class parents can’t afford a few hundred bucks a week for private preschool. And for poor kids who need help the most, this lack of access to preschool education can shadow them for the rest of their lives.

Tonight, I propose working with states to make high-quality preschool available to every child in America.

I have taken on this subject before. There is no evidence that universal pre-K — yes, even in Oklahoma and Georgia — does anything. In fact, American kids start school performing quite well compared to international peers. But the longer they are in the public system, the more their performance decays. There is simply no good case to be made — other than wishful thinking and good feelings — that a lack of universal pre-K is the biggest problem with our education system. There’s frankly not a lot of evidence that it’s a problem at all. The logic amounts to “other countries have universal pre-K (even though many don’t) and other countries have better educational performance, therefore …” That ain’t logic. That’s rationalizing millions more union jobs.

Sandwiched in between Obama’s bullshit about pre-K and bullshit about college education is a not so bad idea:

Let’s also make sure that a high school diploma puts our kids on a path to a good job. Right now, countries like Germany focus on graduating their high school students with the equivalent of a technical degree from one of our community colleges, so that they’re ready for a job. At schools like P-Tech in Brooklyn, a collaboration between New York Public Schools, the City University of New York, and IBM, students will graduate with a high school diploma and an associate degree in computers or engineering.

We need to give every American student opportunities like this. Four years ago, we started Race to the Top – a competition that convinced almost every state to develop smarter curricula and higher standards, for about 1 percent of what we spend on education each year. Tonight, I’m announcing a new challenge to redesign America’s high schools so they better equip graduates for the demands of a high-tech economy. We’ll reward schools that develop new partnerships with colleges and employers, and create classes that focus on science, technology, engineering, and math – the skills today’s employers are looking for to fill jobs right now and in the future.

This is, in fact, something that Bobby Jindal has been pushing in Louisiana. Most people do not need a college education to get a good job that matches their skills. A better high school education — focused more on skills than abstraction — could obviate the need for crushing student debt and bloated universities.

Oh, about that higher education. Obama claims to have brought down costs (he hasn’t) and proposes that student loans be more conditional on education utility rather than just being handed out. Of course, that could be achieved very easily and cheaply if we 1) re-privatized the student loan market; and 2) made student loans dischargeable in bankruptcy. This would guarantee that $100,000 loans for degrees in puppetry wouldn’t happen. But, of course, that wouldn’t create more government spending and control.

Obama then digs into immigration, which I’ve already blogged about. He urges passage of the Violence Against Women Act (a bad piece of legislation wrapped in good sound bites) and the Paycheck Fairness Act. He proposes raising the minimum wage and linking it to the cost of living (as Romney proposed). Of course, that ignores that the COLA fell in recent years. Would the government then cut the minimum wage appropriately? I think not.

And this year, my Administration will begin to partner with 20 of the hardest-hit towns in America to get these communities back on their feet. We’ll work with local leaders to target resources at public safety, education, and housing. We’ll give new tax credits to businesses that hire and invest. And we’ll work to strengthen families by removing the financial deterrents to marriage for low-income couples, and doing more to encourage fatherhood – because what makes you a man isn’t the ability to conceive a child; it’s having the courage to raise one.

Spend, spend, spend on dead towns. Create collaborations between local government, federal government and business to maximize corruption. That’s the way to move an economy!

Obama then shifts to foreign policy. He promises to get out troops out of Afghanistan and adds this:

Different al Qaeda affiliates and extremist groups have emerged – from the Arabian Peninsula to Africa. The threat these groups pose is evolving. But to meet this threat, we don’t need to send tens of thousands of our sons and daughters abroad, or occupy other nations. Instead, we will need to help countries like Yemen, Libya, and Somalia provide for their own security, and help allies who take the fight to terrorists, as we have in Mali. And, where necessary, through a range of capabilities, we will continue to take direct action against those terrorists who pose the gravest threat to Americans.

I don’t disagree entirely with this. But it seems like this has been obvious for quite some time and it took a disaster in Benghazi for the Administration to figure out that they were wielding the guns of august.

Here is the biggest whopper of the night:

As we do, we must enlist our values in the fight. That is why my Administration has worked tirelessly to forge a durable legal and policy framework to guide our counterterrorism operations. Throughout, we have kept Congress fully informed of our efforts. I recognize that in our democracy, no one should just take my word that we’re doing things the right way. So, in the months ahead, I will continue to engage with Congress to ensure not only that our targeting, detention, and prosecution of terrorists remains consistent with our laws and system of checks and balances, but that our efforts are even more transparent to the American people and to the world.

This is, frankly, a lie. The Administration only recently shared their drone policies with some members of Congress after being excoriated for the ambiguities in their “white paper” on the subject. They have asserted just as much executive authority as Bush did and with even less transparency. This Administration has killed an American citizen and his son and refused to disclose the rationale. They have asserted their ability to kill American citizens without any kind of due process of external review. To talk as though they were the most accountable transparent Administration ever is absurd and offensive.

After burbling inanities on Russia, Iran, North Korea and third world poverty, he gets to his final issue, which is gun control:

Overwhelming majorities of Americans – Americans who believe in the 2nd Amendment – have come together around commonsense reform – like background checks that will make it harder for criminals to get their hands on a gun. Senators of both parties are working together on tough new laws to prevent anyone from buying guns for resale to criminals. Police chiefs are asking our help to get weapons of war and massive ammunition magazines off our streets, because they are tired of being outgunned.

Most of this I don’t have a problem with (although I don’t like citing victims of tragedy in support of any law). The problem here is the last sentence which claims that our citizens have “weapons of war” and the police are outgunned. This is simply false. Automatic weapons are heavily regulated and illegal in most areas. And the proliferation of para-military SWAT teams and no-knock raids that results in such things as the killing of Jose Guerena (a military man who responded to what he thought were robbers with a military weapon) cries against this bleating about police being outgunned. In fact, police fatalities have been declining steadily for nearly four decades.

All, in all, it was what I expected. A huge declaration of a big liberal agenda that will never happen. Punting on the most important issues and staying the course of this bumbling presidency. And always deferring to the state and the law for progress.

SOTU’s are never very substantive. With each one, I become more and more convinced that Thomas Jefferson got it right and the SOTU should be a letter instead of a monarchial speech. But it does give us a chance to see what kind of agenda that President’s party thinks they should be flogging. And this agenda is … well, what we expect after four years. Bigger government in the language of smaller; “new ideas” that aren’t; bold initiatives that are throwbacks to yesteryear; Bush policies in prettier packaging.

Change!

Krugman v. Stewart

Jon Stewart responds to Paul Krugman’s criticism:

I think this exchange perfectly illustrates the debate over the Magic Coin Trick. Krugman wanted to get into nuance and detail and talk about this like it was a classroom exercise without real world consequences. But the value of money is entirely arbitrary, determined by how much “full faith and credit” people place in it. It doesn’t really matter if you’re right in some long-haired technical sense if the market decides you are full of shit. As Krugman, a Nobel Prize winning economist, should know, the market is always has the final word. It doesn’t matter how good your idea is if the market doesn’t agree.

Stewart, for all his flaws, cuts to the chase: even if technically legal, the Coin was a stupid idea. And it’s a good illustration of how unserious Krugman really is.

California in the Balance

Well, this is interesting news:

California has been Exhibit A for the fiscal upheaval that has rocked states throughout the recession. Year after year, California officials reported bigger and bigger deficits and sought to respond with spending cuts that left the state reeling.

“The deficit is gone,” Mr. Brown proclaimed, standing in front of an array of that-was-then and this-is-now charts that illustrated what he said were dramatic changes in California’s fortunes.

“For the next four years we are talking about a balanced budget,” he said. “We are talking about living within our means. This is new. This is a breakthrough.”

Mr. Brown was not just talking about a balanced budget. He projected that the state would begin posting surpluses starting next year, leading to a projected surplus of $21.5 million by 2014, a dramatic turnaround from the deficit of $26 billion — billion, not million — he faced when he was elected in 2010.

A few important caveats here. The deficit is not gone, it is projected to be gone based on an improving economy and the legislature sticking to the spending cuts. I am dubious that this discipline will be maintained given that Democrats — now with a supermajority — are already talking about restoring some spending and are still backing the $55 billion boondoggle of kinda-high-speed rail. There’s some awfully big assumptions baked into that budget projection. I will give Jerry Brown credit for what has been accomplished. But we were supposed to get big surpluses in the aughts, too.

Krugman pivoted on this to claim that federal budget crisis is also over because an analysis from the CBPP shows that if the economy does well, Congress maintains discipline and we find another $1.4 trillion in deficit reduction, the deficit will not rise as a percentage of GDP for at least a decade (after which, it goes up rapidly). I worry about a man of his age twisting himself into a pretzel through all of those assumptions to reach such an uninspiring conclusion; especially after he vehemently denounced the policies that have made progress on the debt. But then he makes the bizarre statement that, since the deficit problem might possibly maybe be solved with a lot of assumptions and a good economy and a more disciplined Congress, we can now start spending again. So much for the Keynesian business of reigning in spending and paying down debt when the economy is better.

Don’t believe the hype. Believe the numbers when they actually come in. Just this week, our budget deficit has exceeded $1 trillion for the fifth straight year. That is reality. If California’s 2013 budget does indeed come in balanced, that will be reality. All else if conjecture. It is not entirely useless conjecture. but it’s a sign of idiocy to treat it as reality. In the federal case, the budget is “balanced” based on spending cuts that yet to be enacted and economic growth that has yet to happen. Using that as an excuse to reverse the policies that attacked the deficit in the first place is delusional.

(Frankly, I don’t think even Krugman believes his own post. You know that if a Republican used the same CBPP graph to claim we can now cut taxes, Krugman would go ape-shit about how irresponsible they were.)

IOU Nothing

I won’t waste much time on this. A new alternative has been proposed to the $1 trillion coin that is, if anything sillier. It’s that the government should just issue IOU’s. Seriously:

Congressional Republicans have said they will demand immense cuts to popular government programs in exchange for agreeing to raise the nation’s authorized borrowing limit of $16.4 trillion.

Stop right there. I highlighted this sentence in just to show you the author’s delusions. The GOP is not proposing immense cuts. All programs will grow over the next decade. And they are even trying to weasel out of those cuts. I realize the Left thinks we don’t have a spending problem. But when real-term spending doubles over a decade, most rational people think spending might have something to do with our present woes.

Anyway, continue.

However, there is a plausible course of action, one that the president should publicly adopt in the coming weeks as his contingency plan should debt-ceiling negotiations falter. He should threaten to issue scrip — “registered warrants” — to existing claims holders (other than those who own actual government debt) in lieu of money. Recipients of these I.O.U.’s could include federal employees, defense contractors, Medicare service providers, Social Security recipients and others.

The scrip would not violate the debt ceiling because it wouldn’t constitute a new borrowing of money backed by the credit of the United States. It would merely be a formal acknowledgment of a pre-existing monetary claim against the United States that the Treasury was not currently able to pay. The president could therefore establish a scrip program by executive order without piling a constitutional crisis on top of a fiscal one.

To avoid any confusion with actual Treasury debt, and to be consistent with the law governing claims against the United States more generally, the scrip would not pay interest in most cases. And unlike debt, it would have no fixed maturity date but rather would become redeemable in cash only when the secretary of the Treasury was able to certify that there’s enough money available in the Treasury’s general fund to cover it.

Finally, the scrip would be transferable, allowing financial institutions to buy it at a high percentage of its face value, knowing that the political crisis would almost certainly be resolved before long.

He cites California as an example. But California is not the federal government. What he is essentially calling for is the President to create a new currency that is not backed by the full faith and credit. Oh yes. I’m sure that the Republican party, who have promised legal fights over the 14th Amendment Option and the Coin, will will look at that and say, “Oh, Jeez. He’s got us now!”

Look, the President has been given two contradictory instructions from Congress. They have passed spending bills, instructing him to spend more money than we are taking in. And they have not passed a bill authorizing him to borrow money to cover the difference. They haven’t told him to make bricks without straw. They’ve told him to make bricks out of thin air.

The President has two options: break one of those laws or default. It’s that simple. And if he’s going to break the law on the debt ceiling, just break the law on the debt ceiling and issue more bonds. That way we’re in a plain old constitutional crisis instead of a constitutional crisis and an absurd legal battle over a God-damned coin.

A … I just … OK. You might want to skip the rest of this post because I’m going to lose it.

Good God, liberals, do you even hear yourselves?! Are you so far up your own asses that this is sounding anything short of absurd?! Platinum coins? IOU scrips? 14th Amendment? For God’s sake, if the Republicans suggested something like this — if Michele Bachmann suggested something like this — you’d go nuts! You’d be lampooning it as a sign that the GOP has finally gone off the deep end. Hell, Stephen Colbert called you out on it the other night.

Stop this silliness. Stop it right now. Every moment you spend on these absurdities is a moment you’re not spending working the actual problem we are facing. Yes, the GOP is crazy to contemplate hitting the debt ceiling. But these absurdities within absurdities only provoke more craziness. You’re not helping. You’re patting yourselves on the back for your own perceived cleverness.

Here’s something you could do: get Harry Reid to pass a damned budget. It has been over 1000 days since the Senate last voted on a budget. A budget usually includes a debt ceiling hike to cover the authorized spending. Maybe … just maybe … if we return to an actual budget process, we can organize spending, taxation and debt in an organized systematic regular way — the way we’re supposed to — rather than this perpetual series of crises and cliffs. I know that sounds insane to budget the way we did for two centuries. But it’s so crazy it just. Might. Work!

I realize that wouldn’t give you a West Wing moment where you finally beat those damned GOP bastards and the credits roll. But credits don’t roll in real life. Budget tricks have consequences and legal fights. Fixing the budget won’t be as satisfying as a coin trick. But it might help save the country from the perilous fiscal path we have been on since the millenium.

Of Ceilings and Coins

Ugh. Do I have to write about this again? Apparently.

Let’s be clear. Hitting the debt ceiling is a seriously stupid idea. The debt ceiling was never intended to be a debt control measure. It does not, in fact, limit the amount of debt we can run up, only the amount we can pay to creditors for things we’ve already authorized. Here’s Ezra Klein on what will happen if we crash the debt ceiling.

The choices [the government] will face quickly become stark. It can cover interest on the debt, Social Security, Medicare, Medicaid, defense spending, education, food stamps and other low-income transfers, and a handful of other programs, but doing all that will mean defaulting on everything — really, everything — else. The FBI will shut down. The people responsible for tracking down loose nukes will lose their jobs. The prisons won’t operate. The biomedical researchers won’t be funded. The court system will close its doors. The tax refunds won’t go out. The Federal Aviation Administration will go offline. The parks will close. Food safety inspections will cease.

This is the difference between a debt-ceiling shutdown and a government shutdown. As Shai Akabas, a research at the Bipartisan Policy Center, puts it, “in a government shutdown, the government is shutting down future obligations. With the debt ceiling, They’ve already obligated the money. They owe these people the payments now, and they can’t make them.”

This means businesses that have already done work for the Feds won’t be paid and will have to lay off workers. It means government agencies — prisons, for example — will not be able to contract basic things like food and electricity because they don’t have the money. A government shutdown is something that can be prepared for and dealt with. It’s not even clear that we have the ability to selectively pay our bills.

That’s to say nothing of the hit the economy would take because of the uncertainty (Remember uncertainty? That think we’ve been blaming for the slow economy?) and the wallop our government would take in the bond market. We’ve already had one downgrade. A second debt ceiling hit could raise the interest rates at which people will loan us money. And every point of interest rate hike is a $160 billion hit on the budget. That’s a bigger impact than all the spending cuts and tax hikes anyone has discussed. “Giving in” on raising the debt ceiling is like giving in on not burning your own house down.

I just wanted to get out of the way before I address the $1 trillion coin yet again. This is the idea that we should mint a $1 trillion coin to pay our debts. The typical liberal response to criticism of the coin idea is “well, the platinum coin may be dumb but hitting the debt ceiling is really dumb”. I know that. I just wrote several paragraphs about that. No one is seriously disputing that.

But here’s the thing: the debt ceiling foolishness does not make the trillion dollar coin a good idea.

I know that should go without saying, but it apparently does. Last week, the trillion dollar coin was a fringe idea we snickered about. Today, it’s being taken seriously by people who should know better. The platinum coin idea is being defended by heavyweights like Laurence Tribe, who argues that because the law does not expressly forbid the coin idea, it could be legal (although the former Mint Director disagrees. And Paul Krugman has written a third op-ed in support of the idea in which he calls on the treasury secretary to wear a clown suit. Metaphorically. I hope. Actually, I don’t. Geithner wearing a clown suit would be the most productive thing he’s done in four years.

The thing is that, even we posit that the trillion dollar coin is legal and doable, the platinum coin problem runs into many of the same fucking problems as a debt ceiling crisis. Klein again:

Imagine a Japanese bond trader who hears we’re now running our government off of a trillion-dollar coin created through a loophole in the law. Is there any way that trader is going to keep lending to America at near-riskless rates? The result might be better than default, but it won’t be good.

That, of course, involves pretending that the platinum coin would not precipitate a gigantic legal and constitutional battle that will bring about they very economic chaos it is designed to prevent. I’m really glad that someone from Harvard thinks the platinum coin is legal. God knows we can’t decide what to do in this country until Laurence Fucking Tribe weighs in. But no matter what opinion anyone has on the coin’s legality, this does not mean the everyone in America is obligated to accept it. Somebody won’t and they will fight it in court. Of course, I’m sure the ensuing legal battle will be blamed on Republicans for daring to oppose Obama. That will be a great comfort while we’re all out of work.

McArdle:

The trillion dollar platinum is an absurdity wrapped in a legislative incongruity inside a farce. It is the logical extension of an utterly illogical legislative process that only becomes more irrational with each passing day. Each partisan battle has become stupider than the last. Silly loopholes are exploited for bargaining power, and the resulting stalemates are generally solved with a temporary patch that solves the immediate problem by creating a bigger one down the road. When the bigger problem arrives, naturally the other side seeks an even sillier loophole, resulting in an even more temporary patch.

We are now approaching the era of permanent fiscal crisis.

The Great Platinum Coin Caper is everything that is wrong with Washington: a stupid partisan maneuver that erodes the institutions of our government for no gain other than an immediate political win. The only good thing that can be said about it is that the President seems to be too sensible to actually consider doing it. Nonetheless, the fact that intelligent people like Professor Krugman are even discussing this debacle, much less endorsing it, is a depressing reminder of just how nasty and short-sighted our nation’s capital has become.

The more I read these pro-coin articles, the more I think this is really about giving the middle finger to the GOP. The Left has long wanted Obama to have a temper tantrum to match the hysterics that the GOP sometimes descends to (ignoring that Obama doesn’t have to have a temper tantrum because they’re always having one on his behalf). This isn’t about economics. This isn’t about the economy. And it’s certainly not about the debt. It’s about winning one from those damned GOP bastards by some bit of trickeration. It’s about saying, “Ha-ha! Got you!”

It won’t work. Even if it works, it won’t work. The only way to get out of the debt ceiling crisis is either for the GOP to come to their senses or for Obama to give into their faux demands and pretend to cut spending.

You know, it’s January. We are nine days into this year. I’m going to call it right now. The platinum coin will be the Official Stupidest Fucking Thing I Blogged About in 2013. It just shows that the vener of “reasonableness” that the Left has cloaked themselves with in recent years is just that, a veneer. The minute the wind turns, they turn just as idiotic as a talk radio host on meth.

Update: You know, it might advance the debate a bit if the liberals would acknowledge, for once, the Senate’s failure to have a vote on a budget bill for three years. That’s where this problem got its initial start.

Update: Douthat nails it.

Fiscal Cliff I: The Search for More Money

As Thrill noted, the so-called fiscal cliff was semi-averted last night. I didn’t pay too close attention to the debate since the basics of the deal had been hashed out days before. All we had last night was political theater. It’s true that 2/3 of the Republican House voted against it. But they allowed it to come to a vote and most voted after they were sure it would pass as an ass-covering maneuver. I’m reminded — and not in a good way — of the TARP vote where the Republicans and Democrats agreed to let vulnerable House members vote against it once they’d secured passage.

To be honest, I’m OK with the deal, since the alternative was letting all the tax cuts expire. I would have preferred it be paired with entitlement reform but the Republicans apparently scuttled that, to judge by the GOP Senate leadership’s statements over the last few days. It will mean about $60 billion per year in revenue — a few drops in the bucket that only looks large in comparison to the trivial budget maneuvers we’ve gotten until now.

What no one is mentioning, of course, is that there is a much larger tax increase going into effect: the expiration of the payroll tax holiday, which is expected to add about $100 billion to federal revenue. That means every working person is going to see a 2% slice taken out of their next paycheck. I’ve long been in favor of this, feeling that the longer the holiday went on, the more difficult it would be too get rid of and the worse it would make the situation with Social Security/Medicare. I also thought it was wrong-headed from the beginning. From the employer side, it would have made hiring cheaper and eased unemployment. From the employee side, all it did was (maybe) goose consumption. And it did even more to narrow the wedge of people actually paying taxes in this country. The cut was temporary and it’s gone now. But it will be fun to watch the shocked reactions of people who think taxes are just going up on “the rich”.

The big thing — and the reason my reaction is kind of “meh” — is that two more important cliffs were put off. One is the sequester, which seems to have bipartisan opposition. Republicans don’t want military spending cut, despite spending currently being in excess of Vietnam War levels (although the number of soldiers is only slightly above post-Cold-War levels). And Democrats don’t want anything cut.

Obama has indicated that future spending cuts will have to be matched by tax increases, but I think he’s overplaying his hand here. The Republicans were forced to give in on taxes because the alternative was tax hikes for everyone. Obama is going to have to give in on spending cuts because the alternative is a 8-10% cut in everything else.

He’s also going to have to give in because of the third cliff: the debt ceiling. This could be the most interesting fight as Obama might try to fight this on legal/constitutional grounds. I’m not looking forward to this as it was almost an economic castastrophe last time. Hopefully, our leadership won’t be quite as stupid (yes, I know ….).

In the end, I think the most important thing to be pulled out of this unholy mess is the chained-CPI formulation of Social Security that was temporarily on the table and should be again. This seemingly small change would slow the growth of the program and save us trillions down the road. If we can get that, it will have a more lasting impact than the tax hikes, debt ceiling or sequester.

This isn’t over yet. We’ve got another two months of theater to go.