A Flea in the Fur of the Beast

“Death, fire, and burglary make all men equals.” —Dickens

Category: Fiscal Cliff

How the Economist magazine crushed my soul

by pdxblake

I started reading this Economist article with hopes that it was going to point out the failure of the fiscal cliff nonsense with a call for American politicians on the right to stop trying to destroy the economic recovery that is starting to get momentum, only to find that it is simply another hand-wringing, both-sides-are-at-fault moralism about America’s long-term debt problems.  The Economist writes:

FOR the past three years America’s leaders have looked on Europe’s management of the euro crisis with barely disguised contempt. In the White House and on Capitol Hill there has been incredulity that Europe’s politicians could be so incompetent at handling an economic problem; so addicted to last-minute, short-term fixes; and so incapable of agreeing on a long-term strategy for the single currency.

Aha, let’s watch Europe fail at doing more than short-term fixes for a big problem, but the same thing is happening to the United States.  Surely the answer is to stop this series of manufactured crises and focusing on a long-term strategy for getting the economy going.  It continues:

“Rather than facing an imminent debt crisis, as many European countries do, it needs to deal with the huge long-term gap between tax revenue and spending promises, particularly on health care, while not squeezing the economy too much in the short term. But its politicians now show themselves similarly addicted to kicking the can down the road at the last minute.”

After making sure I didn’t hurt myself from smacking my hand firmly into my face, I thought, “wait, what?”.  The problem is not dealing with any long-run problems in matching spending and revenue.  After all, the long-run projections are based on estimates which, while made with credible inputs and a well-understood methodology do not provide much certainty with how much revenue and spending there will be in 20-50 years from now.

What will make a dent in a long-run problem that we can see with much more accurate data, and have a much more readily available solution to?  Growth.  Raising Employment.  As much as the solution to the current slow economy is clear to anyone who has not put on a blindfold and stuck their fingers in their ears (“na, na, na, I can’t hear you!”), the solution to the slow economy is 1) at least stop adding a drag on the economy in the form of government spending cuts; and 2) maybe think about spending increases in areas that will benefit the US economy in the long run since debt can be issued cheaply and there are plenty of unemployed people so it will be cheaper to hire workers to build it now than it will when the economy fully returns to health.

Of course, the Economist realizes that the problem is primarily on the Republican side with the idea that government spending is heresy.  Oh, wait:

“America’s Democrats and Republicans have proved similarly incapable of reaching a grand bargain; both are far too driven by their parties’ extremists and too focused on winning concessions from the other side to work steadily together to secure the country’s fiscal future.”

Seriously?  Words are hard to come by to describe how much hokum this is.  Both parties’ extremists?  Let’s see, when it came to the stimulus bill in 2009, how many Republicans supported it?  That’s right, zero, none.  Because government spending is socialism and Kenya, and blahblahblah.

I read the Economist because it generally has a more rational coverage of the news than the useless crap that comes out here where the media is so afraid of being accused of being ‘liberal’ that they always play the ‘both sides are at fault’ angle (something Krugman referred to years ago as the “Shape of the World: Views Differ” idea).  The Economist is not a liberal (in the American sense) magazine, and its typical conservative (although not by American Republican Party standards) outlook should give it cover to point out that, no, in fact it is not both sides at fault.  The Democratic Party was not coming out in 2011 and suggesting that defaulting on our debt might be no big deal (which has unfortunately been said again with reference to the debt ceiling that will create a US default again in March 2013).

The big lesson from the European crisis was that the obstinacy of one party (Germany in the case of the European debt crisis) will force a situation of greater and greater economic damage in order to avoid abandoning their fixation on one issue (for the Republicans, it is allowing any success for Obama, any increase in government spending or the expiration of any tax cuts).  In 2010 it was the initial expiration of the Bush tax cuts (Obama wilted and allowed a 2-year extension).  Then it was the debt ceiling in 2011 and the debt commission that came up with an incredibly unappealing solution that was still unacceptable to Republicans.  Then it was the “fiscal cliff”, which has been pushed back 2 months (the spending cuts, Obama gave up enough of his leverage to get a deal done on the Bush tax cut expiration).  Now it is the debt ceiling again and the sequestration again.

This is what caused the prolonged damage from the European crisis.  The desire by Germany to crush those sinners in Greece, Italy, Spain, Ireland and Portugal made no actual solution possible (the solution largely requires economic growth and debt write-offs) and the result is a series of recurrent crises, many of which appear the same as earlier crises that were ‘solved’ by late-night agreements.  And it is not because they didn’t cut spending enough (they couldn’t because every spending cut added to the intensity of the recession guaranteeing that the targets set for economic growth and deficits would fail to be met, creating another crisis).  The political equivalent is happening because of the Republicans’ intransigence.  Every politically-generated crisis leads to a late night agreement that postpones the issue and promises no help to the economy and after the commission set up or whatever fails to find a solution because the Republicans refuse to negotiate in good faith, the cycle repeats itself.

And until people are honest about what the major problem is (and what it is not) and who is at the center of the failure to deal with the problem (if you missed it, that problem is slow economic growth and high unemployment), then it will be hard to find a solution.  The more things are hidden by the media discussing other non-pressing problems or describing the situation in false equivalence (both sides are at fault), I’m going to keep pulling my hair out. </rant>

Or Maybe The GOP Doesn’t Want To Argue About The Debt Ceiling…

by evanmcmurry

Now that Obama has resolved the fiscal stupidity bomb without a permanent debt-ceiling fix, smart people everywhere think the coming debt ceiling debate is sure to be a reprise of the last one.

But Greg Sargeant gets at what I’ve been thinking: the GOP is the last group to want to go through the debt ceiling debacle again.

All the way back in spring of 2012 (#memories), I examined the vicissitudes of GOP support over the previous year (significantly lower than you’d think, given the Tea Party hoopla). The GOP was riding high—though high in this case means 36% approval rating—until Paul Ryan’s Path to Prosperity put the brakes their momentum; from there, the GOP stayed in the mid-thirties until the debt ceiling debate later that summer. Both Obama and the Republicans took a hit from that fight, but Obama’s popularity dip was minor, and he immediately began to recover; in fact, right after the debt ceiling debate he began the admittedly modest climb in popularity that culminated in his reelection. The GOP’s approval, meanwhile, fell to 19%, and never recovered. The hostage-taking reflected so poorly on them that they returned to pre-2010 levels of unpopularity, where they remain.

In short, the debt ceiling gamble failed, and Republicans got blamed. And that was when such a tactic was unprecedented. Now that it’s so predictable that we can begin fretting about it the moment it looms on the horizon, it could only hurt the GOP more if they held the country’s credit rating and economic security hostage over spending cuts, again.

Yes, House districts have been redrawn such that many Republicans are safe until 2022, and a lot of these crazies have more to worry about from far-far-far right primaries than Democratic or moderate Republican challengers. However, we just had a long electoral argument over taxes v. spending, and Team Austerity came off the field looking like the New York Jets*. It’s hard to imagine anybody who hasn’t already been swayed by the “more spending cuts” arguments over the past two years suddenly deciding the intransigent Republican House has a point thanks to their second stand over the debt ceiling. Which means the GOP has nothing to gain from blocking the debt ceiling, and a whole lot to lose.

As Sargeant points out, none of this means the House won’t try to block it. But it stands to reason that enough Republicans realize what atrocious politics this is and vote with the Dems, along the same lines as the fiscal stupidity bomb vote. This is probably not what people mean when they talk about returning bipartisanship to Congress, but it’s better than August 2011 by a long stretch.

* Romney is Sanchez, Paul Ryan is Tebow, Karl Rove is Rex Ryan, etc. I’m here all day, people.

ONE TRILLION DOLLARS (of platinum, of course)

by pdxblake

A few weeks ago, Paul Krugman discussed the ONE TRILLION DOLLAR deficit, and why it doesn’t mean that much.  But today, there has been a lot more of the ONE TRILLION DOLLAR idea, but in a different (platinum) form that could solve the debt ceiling charade.  The charade is the idea that the Republican party (specifically the GOPs in the House of Representatives) could use the procedure by which the debt ceiling is raised (allowing for greater borrowing by the US government to pay for spending Congress has already authorized).  Short and simple, if the debt ceiling is not raised, the US government will default on its debt, which would be unprecedented, since it is a manageable debt that is growing currently due to the weak economy, but is not anywhere near unsustainable (if you want proof, look at the cost, measured by Treasury yields, now at record lows).

The GOP threat, which they used to extract cuts in spending back in 2011 (never mind that we are still trying to get out of the Lesser Depression), is that if there are not more spending cuts, they will hold hostage the credit of the US government by threatening to force a US debt default if their demands are not met.  Obama has rightly promised not to negotiate about the debt ceiling (although he already did, trying to get its resolution in the fiscal stupidity bomb, aka the fiscal cliff, negotiations).  However, given the way the fiscal stupidity bomb negotiations with, no one believes Obama anymore about that.

So, then, what are his options?  He could argue that the 14th amendment does not allow for a voluntary default, but he already said he won’t use this tool (he is a terrible negotiator, and an amazingly weak president by his own choosing).  However, he could mint a ONE TRILLION DOLLAR platinum coin.  Joe Weisenthal explains:

In the section of the law which specifically relates to the Treasuries ability to create money (coins and bills) section K says this:  (k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.In other words, when it comes to platinum coins, the Secretary (who is currently Tim Geithner) has discretion on the designs, specifications, quantities, and denominations of platinum coinage.”

That coin would then be deposited with the Federal Reserve in the US government’s bank account and could be used to make the payments already authorized by Congress and take the wind out of the sails of the “Somali pirates of debt default” that is today’s GOP.  With the precedent already established it would make the GOPs hostage taking pointless (since it is just paying for spending they authorized and produces the same effect, without actually issuing bonds in excess of the debt ceiling).

If Obama were a good negotiator, which he is not, he would use this option as a way to resolve the debt ceiling crisis in advance by stating that the die is already cast for the ONE TRILLION DOLLAR coin (please submit in the comments whose face should appear on it, my vote is for Joe Biden in aviator glasses).  In exchange for the abolition of the debt ceiling, Obama could offer to change the language in the law to remove the ability of the Treasury to issue ONE TRILLION DOLLAR platinum coins, as Josh Barro argued today:

“And then he should offer to sign a bill revoking his authority to issue platinum coins — so long as that bill also abolishes the debt ceiling. The executive branch will give up its unwarranted power to print if the legislative branch will give up its unwarranted restriction on borrowing to cover already appropriated obligations.”

When it comes down to it, the debt ceiling is stupid.  It limits the ability of the Treasury to borrow to pay for spending already appropriated by the Congress and the use of the debt ceiling by the GOP demonstrates a disgusting willingness to use the full faith and credit of the United States as nothing more than a political bargaining chip.  It would be an act of suicidal cynicism if the GOP actually went through on their threat to force a US default (yet I don’t doubt their willingness to do just that, knowing the House GOPs suicidal cynicism).  Let’s get rid of this archaic relic before it becomes an everyday tool of political mayhem ($5 doesn’t buy my undivided attention, Robert!).

“Leverage”

by evanmcmurry

From now on, when you go to dictionary.com, the following will be found as the definition of “leverage”:

The leaders warned that the Senate was unlikely to approve any changes to the carefully calibrated compromise and that a vote to amend the measure probably would leave the nation facing historic tax increases for virtually every American — and force House Republicans to take the blame.

The other option: Let the measure pass the House unchanged and go to the White House for Obama’s signature. Late Tuesday, it appeared that even some of the chamber’s staunchest conservatives were ready to give up the fight.

“I think the best outcome is to have a clean bill, actually put it on the floor and see what the consensus of the House is,” said Rep. Raul R. Labrador (R-Idaho), a freshman who has opposed every major bipartisan compromise on the budget over the past two years and said he would vote against the measure.

Rep. Lou Barletta (R-Pa.), another freshman, said he would support the legislation as the “safest bet” to prevent a major tax increase that many economists predict would throw the nation back into recession. (via)

As in, “In the fiscal cliff negotiations, Obama squandered significant leverage.”

What Would Newt Gingrich Do?

by evanmcmurry

It’s come to this:

Huelskamp was shocked at the very idea that Boehner would allow a bill to pass without majority Republican support. “I think most Republicans would be stunned if the speaker moved forward on something like that,” he said. “Denny Hastert wouldn’t have done it. Newt Gingrich wouldn’t have done it.”

 

This BBC Image Of The Fiscal Cliff Made It All Worthwhile

by evanmcmurry

Is this Boehner? (via)

The last thing I write about the ‘fiscal cliff’ (I hope)

by pdxblake

Hey, I’m still just as sick of the “Fiscal Cliff/Slope” as I was before.  The main reason of course, is that it was an unforced error beginning with its own creation, after the failure of the “Stupor Committee” around the Debt Ceiling increase.  That whole saga (which could repeat itself in 2 months) was based on the Republican willingness, and even enthusiasm, to let the US government default on its debt for political reasons (something which would put the US in Argentinian territory).  Anyway, the issue at hand is whether the Bush tax cuts are finally allowed to expire, whether a few annual ‘fixes’ are made to, for example, make up for the Alternative Minimum Tax threshold not being indexed to inflation, as well as make across the board cuts to government spending.

There are some political considerations that make one or the other thing more likely than another (here’s one suggestion of how it could go down and here’s a viewer’s guide to the negotiations), but the more interesting issue is the economics of the various aspects of the plan.  I’ll break it into a few different components:

1) Taxes go up on the non-wealthy – It is pretty well accepted that higher taxes on the non-wealthy is not the best way to help the economy grow right now.  However, the bulk of the discussion in Congress has omitted the most important contractionary tax rise that  will kick in in 2013: the end of the payroll tax cut.  The current tax cut reduces the payroll tax by 2% (from 6.2% to 4.2%, of taxes that are dedicated to funding Social Security, and are made up for by funds transferred in the budget so that Social Security remains funded at the 6.2% rate).  Since payroll taxes are capped (you only pay Social Security tax on the first $110,100 of payroll income), the tax cut is targeted to the income groups where the stimulative impact is the greatest, because it goes to people in small amounts every other week, at payroll time, who are most likely to direct a big portion of that towards additional spending.  As Krugman has reminded time and time again, your spending is my income, which is how the impact of the additional spending is higher than just the amount that everyone spends from the payroll tax cut (there is a ‘multiplier effect’).  So, the discussion around the ‘fiscal cliff’ should focus more on stimulative issues, like extending unemployment insurance and the payroll tax cut.

2) Taxes go up on the wealthy – This is the biggest focus of the negotiations, as far as I can tell, with much of the debate going to the somewhat pointless argument of what the threshold is between someone being wealthy and not wealthy.  That threshold is arbitrary, but even if it is set pretty low ($200,000 for example) it would only affect a small proportion of the population.  According to IRS data, setting that threshold (according to data collected for 2009) would affect 7.8 million people, or just 5.6% of all the returns filed.  Of course, it would be more likely to see a number somewhat higher, between $200,000 and $400,000, which will pretty dramatically reduce the number of people affected.  So, we should not worry too much about the effect of taxes going up on the wealthy, simply for the reason that it will not have much of an effect because, well, because they’re wealthy (the higher taxes will have a limited impact on their spending, which will mean little contractionary impact on the economy as a whole).

3) Defense spending is cut – The reason I separate this out from the non-defense spending cuts is that there is a flavor of Republicans who want to cut government spending and claim it will not affect the economy, but who then warn that any cuts to defense spending will cripple the economy.  Hypocritical?  Yes.  Opportunistic?  For sure.  The key thing to remember is that economics is not a morality play.  The impact of government spending on the economy will be the same (more or less) whether you personally approve of that spending.  Defense spending, non-defense spending, infrastruture improvements, whatever.  More spending will move through the economy, building on itself through the multiplier and in a severe recession like we are seeing now, it will be supportive to economic growth.  Cutting it severely before the recovery is strong enough to withstand the drag from the cuts is not smart, but for some reason people (Republicans) who hate the government want to pretend that since they don’t like government spending, cutting it will not act as a drag on the economy.

4) Non-defense spending is cut – As I said before, spending is spending is spending.  And in a slow recovery, increased government spending will be supportive to the recovery and spending cuts will act as a headwind.

So, there you have it, my thoughts on the economic impact of the various parts of the ‘fiscal cliff’.  Not the most scientific analysis, but that’s not really necessary since it is mostly a political exercise.  It will have an impact on the economy, but not in the ‘cliff’ sense that if there is no deal on January 1, everything goes to hell.  It is more analogous to going off a cliff with a hang-glider that has a motor that isn’t started now.  There is a glide downward, but once the deal gets done (the motor turns on) most of the damage can be reversed unless it takes so long that you are already close to the ground, in which case you could crash and burn.   But that’s months and months away, so if there’s a deal in the first couple months, no biggie.

Why Republicans Won’t Agree To A Fiscal Cliff Deal Even If It Has What They Want

by evanmcmurry

Ezra Klein makes the subtext text. You already knew all this, but now you know know it:

Underlying the complaints of conservatives like Gohmert and Americans for Tax Reform is that their goal isn’t to reduce deficits. If it was, they’d be open to tax increases. Rather, austerity is one of many arguments marshaled toward the long-term end of shrinking the size of government. That’s why a deal that solves the deficit problem and then sees government spending rise in its eight year is a failure rather than a success — it betrayed the actual goal of shrinking the size of the government, even if it succeeded in the putative goal of balancing the budget. 

This is why a “fiscal cliff” deal is proving so difficult. There’s little doubt that a mixture of tax increases and spending cuts could bring deficits to manageable levels within a few years. Add in some stimulus and we could even protect the recovery between here and there. Moreover, since the discretionary spending cuts have already been made, the next set of spending cuts will likely focus on entitlements. Those are easier to make stick, as they don’t come up for a new vote each year.

But for Republicans, agreeing to those tax increases means agreeing to a larger government than would be possible in the absence of those tax increases. That undermines their real goal: Not smaller deficits, but smaller government.

Klein points out that this intransigence means Republicans will lose their leverage on tax cuts when the rest of toast next Monday night. Tax increases are happening one way or the other, and be being obstinate conservatives are ensuring the budget will eventually be balanced without their input—which is fitting, as they don’t really care about it anyway.

What It Takes To Get Steve King To Shut Up

by evanmcmurry

One minor (but embarrassing) Republican surrender, apparently:

Representative Steve King of Iowa, a frequent Boehner critic, looked at me, shook his head, and said, “I have nothing to say.”

Server, I’d like to order four more of those, please.

The Best Article On The Fiscal (It’s Not A) Cliff You’ll Read

by evanmcmurry

Chait gets to the core of the stalemate between Obama and Republicans over spending cuts in a direct way I haven’t read anywhere else:

Reporters are presenting this as a kind of negotiating problem, based on each side’s desire for the other to stick its neck out first. But it actually reflects a much more fundamental problem than that. Republicans think government spending is huge, but they can’t really identify ways they want to solve that problem, because government spending is not really huge. That is to say, on top of an ideological gulf between the two parties, we have an epistemological gulf. The Republican understanding of government spending is based on hazy, abstract notions that don’t match reality and can’t be translated into a workable program.

[…] There really isn’t money to be cut everywhere. The United States spends way less money on social services than do other advanced countries, and even that low figure is inflated by our sky-high health-care prices. The retirement benefits to programs like Social Security are quite meager. Public infrastructure is grossly underfunded.

[…] When the only cuts on the table would inflict real harm on people with modest incomes and save small amounts of money, that is a sign that there’s just not much money to save. It’s not just that Republicans disagree with this; they don’t seem to understand it. The absence of a Republican spending proposal is not just a negotiating tactic but a howling void where a specific grasp of the role of government ought to be. And negotiating around that void is extremely hard to do. The spending cuts aren’t there because they can’t be found.

Add on to this the fact that Americans only support spending cuts in the abstract—and not when those cuts affect specific programs or benefits—and you have the perfect conditions for some sort of Beckettian absurdist standoff.