Tag: Fiscal policy

The Farm Follies Continue

The latest CBO report shows that the FY2013 deficit will come in at around $642 billion, a dramatic reduction. Naturally, the usual suspects are calling for more “stimulus” spending now that the deficit problem is “solved”. But they should read some critical points raised by Peter Suderman. The “small” deficit is a result of tax hikes, spending cuts and about $200 billion in one-time revenues (Fannie/Freddie dividends and tax adjustments). The “small” deficit will only last a few years before entitlements and Obamacare began to raise it again even under optimistic budget scenarios. And even under optimistic scenarios, interest payments will reach historic highs.

(As an aside: what’s really hilarious is to watch the Left scramble to explain why “austerity” hasn’t crashed the economy. Most of them are simply going the Krugmann route and ignoring everything they’ve been saying for the last five years.)

So now is not the time to open the spending or tax cut floodgates. Now is the time to keep to build on the budget momentum and reign in entitlements. Now is the time to … oh, shit:

House and Senate farm subsidy supporters are pushing to enact the first big farm bill since 2008. Democratic and Republican supporters say that this year’s legislation will be a reform bill that cuts spending. Hogwash.

Last year, House farm subsidy supporters proposed a bill that would spend $950 billion over the next 10 years, while the Senate proposed a bill that would spend $963 billion. By contrast, when the 2008 farm bill passed, it was projected to spend $640 billion over 10 years. Thus, the proposed House bill would represent a 48 percent spending increase over the last farm bill, while the Senate bill would represent a 50 percent increase.

Congress is bizarrely claiming that they have “cut” the farm bill because it’s 3% less than the original proposal. But not only is this their usual “cut spending growth” trick, it runs into the problem that the farm bill is usually much larger than originally budgeted. Next year’s farm bill be almost 50% more than originally proposed.

The spending “discipline” of the last two years is already eroding in the face of temporary unsustainable deficit reduction. And even worse, it’s opening on one of the many places it shouldn’t: the massive pile of corporate welfare euphemistically called the “farm bill”. Now is not the time to be shoveling more money into this hole. Now is the time to follow the advice P.J. O’Rourke gave twenty years ago: “drag the Omnibus Farm Bill out behind the barn and kill it with an axe.”

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.

I Knew Bill Clinton. He Shagged My Maid. You, Sir, Are No Bill Clinton

Peter Suderman makes an excellent point about the Obama Administration’s mantra that “we just want to return to the Clinton-era tax rates; things were pretty good back then!”

Most of us can agree that the Clinton years, which saw growing median incomes as well as tiny deficits and steady economic growth, were economic good times, and we’d all like to see that sort of economic performance repeated. If that’s the case, then why should we limit ourselves to just replicating one tiny fragment of Clinton-era governance—higher tax rates on a fairly small number of earners? Why not replicate other aspects of Clinton’s policy mix as well?

Probably because that would entail mentioning something that Obama’s frequent invocations of the Clinton years always ignore: that Clinton’s spending levels were far, far lower than they have been for the last four years—or than President Obama has called for them to be in the years to come.

Government spending as a percentage of the economy fell during the Clinton presidency, starting at 21.4 percent and finishing up at about 18.2 percent of GDP in both 2000 and 2001. In 1993, Clinton’s first budget spent $1.4 trillion. The last budget he helped create spent $1.8 trillion. So far, President Obama has spent about $3.5 trillion every year, averaging more than 24 percent of GDP.

I think it’s important to note what Bill Clinton and the Republicans did not do in the 90’s to balance the budget. They did not slash spending left, right and center. They did not gut critical programs. In fact, spending grew in nominal terms. They also did not set vague goals and promise spending cuts in future years in exchange for tax cuts and stimulus spending today.

What they did was exercise restraint. What they did was keep government programs in check and in budget. Even Bill Clinton’s 1993 stimulus bill went down in flames thanks to Republican filibustering (the economy somehow recovered anyway). They did cut some spending significantly — welfare and military spending most notably. But, for the most part, they succeeded by simply not making things worse and letting the economy take care of the rest.

As several Reasonoids have pointed out, this kind of restraint could get our budget balanced within a decade, even without tax increases. Had that kind of restraint been exercised in the last decade, our budget would be hundreds of billions less than it is now. As it is in most of life, 90% of success is simply not fucking up.

That having been said, I think we face a very different challenge right now. The principle budget danger is not discretionary spending but entitlements. Every day we put off the reckoning makes it more difficult, with the ranks of the retired swelling with more and more Boomers. That requires statutory changes to the law and, thankfully, the Republicans appear to be holding out for that. Getting our entitlements under control would do more to get the budget under control than all the discretionary cuts and tax hikes in the world.

Clinton also inherited a much better situation. The economy was rebounding, the Cold War was over and Reagan-Bush I had a far better spending legacy than Bush II-Obama do. Like it or not, some spending is going to have be deep-sixed, preferably starting with corporate welfare. And I’m afraid that Stimulus V: The Search for More Weather-Stripping, is simply not on.

The general point stands: if Obama wants Clinton-era taxes, he needs to start showing Clinton-era spending restraint.

Economic Patriotism

This is the name of Obama’s supposed economic plan for the next four years. If you’ve swallowed something poisonous and are out of ipecac, you can download the PDF here.

There is literally nothing new in it. It’s simply a distillation of the promises he’s made over the last few weeks. If we’re lucky, most of it won’t happen. If we’re unlucky, some of it will and it will make things worse (one of my favorites, bringing the cost of higher education down by spending more).

Oh, and his budget plans?

The Committee for a Responsible Federal Budget (CRFB) explains: “To reach his $4.3 trillion in savings through 2021, the President’s budget counts $1.6 trillion (excluding interest) of already-enacted savings. In addition, it includes two elements which the Fiscal Commission assumed in its baseline – a drawdown of the wars ($740 billion through 2021) and the expiration of the upper-income tax cuts ($830 billion through 2021).” Overall, the CRFB analysis says, Obama’s budget “falls well short of the $4 trillion in savings claimed by the [Simpson-Bowles] Fiscal Commission.” CRFB estimates that it would save a little less than $2 trillion instead.


What about the $2 trillion in deficit reduction the plan can claim to put on the scoreboard? It comes almost entirely tax increases. As James Pethokoukis of the American Enterprise Institute shows, the plan would result in about $1.735 trillion in tax hikes — and just $230 billion in spending cuts, the vast majority of which are cuts to health care provider reimbursements of dubious long-term value.

Honestly, it’s like he’s running for his first term.

Our Shrinking Debt

This is good news:

U.S. debt has shrunk to a six-year low relative to the size of the economy as homeowners, cities and companies cut borrowing, undermining rating companies’ downgrading of the nation’s credit rating.

Total indebtedness including that of federal and state governments and consumers has fallen to 3.29 times gross domestic product, the least since 2006, from a peak of 3.59 four years ago, according to data compiled by Bloomberg. Private- sector borrowing is down by $4 trillion to $40.2 trillion.

So how can this be with trillion dollar deficits? Well, the private sector and non-federal public sectors are unravelling a tremendous debt bubble that built up in the last decade. Consumer debt is down by $1.3 trillion. Short term corporate debt is down by 55% as well. This isn’t as good as corporations need to borrow to grow. But for that much debt to be unravelled without a complete economic catastrofuck or massive inflation is remarkable.

It’s also helping with the national debt. Because consumer debt is so far down, the treasury has the loan market pretty much to itself. So all our borrowing is coming at low prices, despite the S&P downgrade.

I expect things to change soon. With debt down to much more manageable levels, people will start borrowing again. And if we can get control of federal finances, that will make borrowing even cheaper for private interests. Four years ago, I said that our economy would not move until we’d unravelled the tremendous debt we’d built up. We’re on our way to doing that, thankfully.

Your Stimulus Update

We already know that much of the so-called stimulus was not stimulus at all. A lot went to simply bolstering falling state revenues to put off their declines. One might argue that investments in research and technology have an economic payoff. But even the most ardent Keynsians has trouble arguing that pure transfer payments are an economic stimulus, especially when they’re mainly shoring up unemployment benefits.

But more and more info is coming out about the money that wasn’t just used to bail out the states. Here’s the latest:

Federal audits are turning up misspent taxpayer dollars in a $5 billion stimulus program aimed at lowering the utility bills of disabled, poor and older Americans by making their homes more energy-efficient.

In West Virginia, which received $38 million in weatherization funds, some of the money went for lobbying, to consultants who did little work and to recipients with connections to state officials who are doling out the funds, the Energy Department’s inspector general found.

In one case, West Virginia paid $25,000 to a lawyer for writing two sentences stating that weatherization contracts had been reviewed, reportedly after four hours’ work at a state office, according to a report analyzing how the federal stimulus money was used. A $20,000 consulting fee was paid to the former director of the state’s weatherization program after he left the job in May 2009 even though there were no specific work requirements set for the consulting contract.

I realize that to the true Koolaid-drinkers, none of this matters. Every dollar is a stimulating dollar, whether it’s wasted on a lawyer writing two sentences or used to fund energy research. But those of us with at least one toe in reality have to be angry about this. The Energy Department’s inspector general has warned that the weatherization program has little oversight, no internal controls and no accountability. Even if you think that weatherization is going to stimulate the economy, that’s $5 billion we might as well have set fire to.

It’s not like accountability in spending is a big mystery. The science community has been doing this for years. Right now, one of the most potentially important scientific missions of the next decade — JWST — is in danger of getting the budget axe. That’s because someone actually looked to see what was going on with the taxpayer’s money. Some branches of the government do this all the time. But with the stimulus, we decided that accountability meant nothing — spending as much money as possible, no matter what, was the important thing.

In this sense, Keynsianism can claim something in common with communism. Even if you were to concede that it works in theory (ahem), it has serious problem when you try to practice it. Small directed government programs can be managed, controlled and rendered accountable. Big huge unabashed spending initiatives can not be.

And while I’m up — let’s stop pretending that we’ve “only” had $787 billion in stimulus spending. We’ve racked up $4 trillion in deficit spending in the last three years — double what the Keynsians assured us we needed. The more we learn about the stimulus, the clearer it become that there really is no difference between “stimulus” spending and just plain spending. Why are we pretending otherwise?

Update: Oh, yeah. The stimulus also helped pay for Project Gunrunner