What Were They Thinking?!?

My normal response to the question “What was he thinking?” (or a variation thereof) is that there was no thinking involved.  But is it possible there was no thinking involved on the part of the Republican House members when they passed the Ryan budget?  If there was thinking, what could it be?

All but four of them voted to destroy Medicare, slash lots of spending that people like, and lower taxes on the wealthy!  They did this even though there was not a chance in hell of the budget becoming law.  Next year they have to run for reelection while defending this vote.  I assume the primary defense will be “There was no way it would become law, so it was safe to vote for it” which, I am sure, will make everyone feel better about it.

The interesting thing about the Ryan budget is that if it actually passed the Senate and the President signed it, it would make the deficit worse.  Why?  Because there is no way the “end medicare as we know it” portion would remain intact.   The spending cuts the budget lays out would not remain intact.  But you can bet your boots the tax cut for the wealthy would stay.

And the deficit would explode.

The deficit is a serious issue, but it can not be solved by pretending that political realities no longer exist.

 

Why the Deficit Does and Does Not Matter

Saturday night I was at a charity casino night.  Buy a ticket, get an assortment of chips and try and increase them.  I got my initial chip allowance of “$30,000”  and headed for the roulette wheel.  At the end of the evening I had “$740,000” in chips.

This was not entirely luck.  I used a system.  One chip on odd.  When I won,  I bet one chip on odd again.   When I lost, I doubled the bet.  So two chips, then four, then eight, etc.   Sooner or later the ball was going to land in an odd number and I would win.  (Try this with real money at your own risk).   After a while, instead of starting the process with a “$1,000” chip, I started with a “5,000” chip.  I raised the initial amount once I felt comfortable that I had enough money to survive a likely (i.e. short) losing streak.  Eventually, I was starting with a “”$15,000” bet.

I believe the closest I came to bust was when, starting with a “$15,000” bet, I did not win until I had bet “$120,000”.  So I had lost three times in a row.   If I had lost that fourth time, I would have been starting over.  I did not have anywhere near “$240,000” in chips left to double my bet with again.

What does this have to do with the deficit?  As long as there are various entities ready and willing to buy bonds from the United States, then the deficit is not a problem.  But when there is no more money to put back us….

This years deficit is irrelevant.  It might be made relevant if the government decided to spend three or four more trillion this year (maybe a little less, maybe a little more), but given the probable deficit, even with no cuts from congress, the deficit is irrelevant.  Next year’s is too.

The people making the decisions on whether to buy or not buy our debt are fully aware of the projected deficits.   But even so, they still loan us money.  This tells us that the marketplace (where conservatives usually worship) believes that our present deficits are not that much of an issue.

However, it is reasonable to assume that at some point the total debt combined with the projected deficit will become too much for those decision makers and they will start putting their money elsewhere.   Then we are screwed (just as I would have been screwed if the wheel came up even four times in a row).  The money will no longer be there.

In the meantime, the economic recovery continues, slower than we would like, but continues none the less.  Some of the reason for this growth is a large federal government spending deficit.  That deficit is stimulative.  Continuing economic growth is very important for the deficit/debt issue as a strong economy will do much to ameliorate the problem.

The Republicans want to slash current spending which will have a depressive effect on the economy and cost jobs and will have a small effect on the current deficit and might easily increase the deficit over the next couple of years (due to the slowed economy).    It is difficult to understand exactly what the Republican objective is other than they want to handicap the economic recovery hoping for a double dip recession and that the voters blame Obama.

It is their only hope for winning the white house in 2012.

Delegating Powers to the Vice President in the Mubarek Administration

OK, that does not roll off the tongue as nicely as rearranging deck chairs on the Titanic.  But either metaphor serves in the case of our elected federal officials and the deficit.

Let us begin with an old chart from the Congressional Budget Office via our, ahem,  good friend Ross Perot:

This chart is a bit dated, but the curves have not changed much.  Future deficits are the result of medicare/medicaid and interest.  The last being the same as saying future deficits are the result of future deficits.   If future deficits can be brought under control, then the interest payments will take care of themselves.

Want something more recent?

This is from February 25th, 2011.  It assumes that the Bush tax cuts will expire and that the Obama stimulus tax cuts also expire.   Note that the growth of health spending goes from over eight percent of GDP to 12% of GDP while the total deficit at that point is 3.2 percent of GDP.   So the entire projected deficit in 2021 could be attributed to the growth of medical spending.

The Affordable Care Act (Obamacare) actually includes several measures intended to bring down medical costs.  The CBO grades the Act as lowering the deficit even though they did not take many of the cost saving  measures into consideration on the grounds that the measures had not yet shown they would work (they were not even law at the time…).

So the only serious deficit reduction effort in Washington today is the Democrats defense of health reform.  Obama freezing spending and the Republicans talk of cutting spending amounts to nothing more that delegating powers to the vice president in the Mubarek administration.

Oh yes.  If you want to clear up the short term deficits, this chart might prove useful:

 

For good or for ill, the spending that the Republicans want to cut is there for a reason.  People like it.  That spending is popular.  War, the Bush tax cuts, and the recession drive the short term deficit.

Even if the wars end tomorrow, the savings there will be minimal.   Something else will come along.  It always does.

Many of the cuts the Republicans propose would actually weaken the economic recovery and so increase the deficit.

The Bush tax cuts should be allowed to expire.  All of them.

GOP Misdirection

Claiming to be concerned about the deficit, the GOP proposes 61 billion in cuts in this year’s spending.   These cuts will likely lead to the loss of one million jobs and slow the growth of the economy by 1.5 to 2 percentage points in the second and third quarters of 2011.

There are two things that are absolutely necessary for there to be any hope of a balanced budget.  One of those is a strong economy.   In the overall scheme of the US budget deficit, saving $61 billion this year is nothing.  Risking a strong economic recovery is a lot.

The Republicans either do not really care about the deficit, or they simply do not understand the situation.   The question is, is the GOP misdirecting us or themselves?

The Pendulum Gets Shoved

Back in June of 2009, I posted about the “death” of the Republican Party and who would save it.  Today, as predicted, the Republican Party is resurgent and I read stories of how the republicans are going to threaten democratic control of the senate and the presidency.   Who will save the Democrats??

The Republicans!!!    With the last election results being driven mostly by the economy, unemployment specifically, the republican controlled House of Representatives has not yet done a thing to address that issue.

With the national debt standing as one of the important issues of our time, the Republicans are content with addressing it by slashing domestic non-security discretionary spending, i.e., spending they do not like.  In other words, they do not care about the deficit (there is not enough money in domestic non-security discretionary spending to do much for the deficit), they are just happy to use the crisis as an opportunity to cut spending they do not like.  (Remember how unhappy they were when Obama talked about crises presenting opportunity?)

Of course, Americans like the spending and are still unhappy with the unemployment situation.   If this keeps up, I expect the Democrats to win big.

The Certainty of Uncertainty

Uncertainty seems to be one of the favorite words for republicans to pull out when they are trying to explain why a particular  situation is bad.  Last month they were very concerned about the uncertainty business had to deal with over the up in the air status of the Bush tax cuts.

The one certainty of this uncertainty is that it is a load of crap.

In the first place, when was there ever certainty?

Further, the extension of the tax cuts for two years apparently did away with the uncertainty.  Any business person can tell you how he or she only considers the next two years when contemplating investing tens of thousands, or hundreds of thousands, or millions of dollars.   Even if the two years was enough certainty, that “two years of certainty” only existed for a few days.  Then the two years started and now it is less.

And if extending the tax cuts for two years did away with uncertainty, would not have allowing the tax cuts to lapse have also done away with uncertainty?  I did not hear any republican mentioning that.

Another example is the health care reform.  It passed.  It is law.  That is as certain as it is going to get (again, not all that certain, but…).  Republicans have gone on and on about how they are going to undo the law with few specifics about how they would change it.  Who is introducing uncertainty?

There have been rumblings from Republicans to not vote to raise the debt ceiling.  What might happen if the debt ceiling is not raised?  Seems like there is plenty of uncertainty there.

There has been enough rhetoric on both sides to suggest that it is not beyond the pale that the government could well be shut down sometime in the next two years if agreement on budgets can not be reached.  A government shutdown presents all kinds of uncertainty.

Finally, sooner or later, the federal debt, if allowed to continue growing at present rates (or even Bush rates!), will cause significant problems for the US economy.   Most agree we are still several trillion dollars away (a few years) before such problems become plausible, but no one really knows.  The debt is practically the definition of uncertainty.  But Republicans continue to pretend that the deficit can be solved with discretionary spending cuts and tweaking of entitlements.  It cannot be solved this way.   Until the deficit is seriously addressed, there is no end of uncertainty.

Happy Independence Day

Bart Gragg points me to an article about Noreen Evans, an Assembly Member in California.  California, as I understand it, is in the midst of a serious budget crisis.  Evans is quoted in the article as saying

This mantra out there ‘live within our means,’ while it sounds really nice, while it sounds really simple and it sounds really responsible, it’s meaningless.

My first thought is that Mr. Coupal, of The Howard Jarvis Taxpayers Association, did not give enough context for the quote.  I found a You Tube video of Evans’ comments.  She added to the quote above:

Our means are completely within our control…In good times we routinely give away taxes and in lean times we never replace those tax deductions or close those loopholes. We continuously borrow, which is an enormous cost that we shift on into future years and we find ourselves now with a deficit, an ongoing structural deficit that we simply can’t close.

It is not clear who put the video together, but it is clear it was not done by someone in agreement with Evans.  I give credit to whoever did it for providing a fuller context.

OK.  That appears to be what was said.  In my book, given the context, Evans is correct (but also wrong).  Since the government controls what the means are, to live within one’s means is, at best, a slippery concept.  The problem here is that it is still necessary to live within the means, whether it is by increasing the means or decreasing the living.

My grasp of what is happening in California is slim at best and mostly grounded in Jay Leno jokes (and I have not watched Leno in several months).  So from here on out I am talking in the context of the federal government.

No one in government will use the control of the means so that we live within our means.

No one.  Not the Democrats and not the Republicans.*  I want so much to write:

The Democrats vote to maintain/add programs and raise taxes while the Republicans want to cut programs and cut taxes and somehow this results in lots of programs and low taxes.

But that would not be true.  Republicans say they want to cut programs and cut taxes, but the emphasis is cutting taxes and the reality is cutting taxes.  Cutting programs just gets lip service. It is my understanding that even Reagan managed to eliminate only one program in eight years.

Democrats cannot raise taxes sufficiently to pay for all the programs because Republicans will raise hell and, we the people vote the Democrats out and the Republicans in and the taxes get cut but not the programs.  Generally, the Republicans are happy to run with deficits as long as taxes are low and the deficits are not caused by any new programs.

The Democrats run on the issue of needed new programs and we the people agree and vote them in.  Programs get added, some taxes get raised (but not enough and deficits continue) and Republicans run on cutting taxes…..

Note that the commonality in both sides of the problem is we the people.

We the people like our programs.  We the people would of course rather have lower taxes than higher taxes if given the choice.  What’s a congressman and senator to do?

Two hundred and thirty three years ago, fifty six men, representing the thirteen colonies, signed the Declaration of Independence.  Their signatures appear just below the last sentence:

And for the support of this declaration, with a firm reliance on the protection of Divine Providence, we mutually pledge to each other our lives, our fortunes and our sacred honor.

Their lives, fortunes and sacred honor.

Our congressman and senators today are not willing to put their own reelection on the line, let alone their lives, fortunes and sacred honor.  And there you go.  We the people want programs without taxes and our elected officials are not willing to disillusion us for fear we will not reelect them.

Three days ago I posted A Sea of Red Ink.  My hope expressed there is that by running the deficit/debt up to unprecedented levels, our reps will then have no choice but to show some backbone, risk reelection, and fix the problem.

In the meantime, if you complain your taxes are too high, be sure you include in your complaint what program you would also have cut.

My best to California. I hope they figure something out.

*Yes, Ron Paul would probably cut everything, but one man is not enough (and people would want him lynched after their favorite program got cut).

A Sea of Red Ink

As, I hope, most Americans are, I am concerned about the federal debt. Already high at the end of the Bush years, the federal deficit is now even higher, and the forecast for future years is even worse.

Clearly this is unsustainable.

I voted for Obama and I support his agenda. But at some point the deficit/debt must be addressed. I believe Obama to be an intelligent man and an astute politician. He surely understands the potential problems of continuing to pile up debt. I have to believe that he has a plan.

And the plan is this.* Effectively dealing with the federal deficit will not be politically popular. Programs will have to be cut and taxes raised. It will take a lot of Obama’s political capital to do this. So much so, that it would be difficult for him to get his other agenda items through after dealing with the deficit.

Of course, getting his other agenda items through might not leave him with enough capital to deal with the deficit. So what to do? By leaving the deficit for later, it continues to grow to obscene amounts. A year (or two?) from now, congress will have no choice but to get serious about the deficit. Democrats will have to accept some program cuts and Republicans will have to accept some taxes. They will be pushing each other aside to cut and raise more than the other.

A guy can dream, right?

*No, I have no inside info. This is completely speculative on my part.