The Budget Issue is Just So Simple

Amidst all the sound and fury in Washington, and talk of a bargain between Republicans and Democrats on the budget, I think we keep losing sight of the fact that there is a fundamental issue that's just not going to be solved through negotiations:

1. Democrats will not agree to any more spending cuts unless they're paired with revenue increases.
2. Republicans will not agree to any revenue increase, under any circumstances

So we can criticize the politicians for "kicking the can down the road", but really, what else can they do?  There's no changing these fundamental positions.  There's just no deal to be had!

These are honest positions held by the parties, not cynical lies.  The only way the budget is going to get back on a normal footing is if one side wins and election handily and puts in their program.  This already happened in California- the state was stuck in budget gridlock and seemingly endless disaster, until Democrats took full control recently, put in their plan of spending cuts and tax increases, and balanced the budget. 

I know we all like the fantasy that divided government and "reaching across the aisle" is good for the country.  And maybe it used to be.  But not any more.

Syria

I'm having a busy Summer, so blogging has been nonexistent (sorry fans!), but the lurking Syria debacle, along with a slow day, has lured me back for a post.

This is outrageous.  President Obama drew a line in the sand, saying that use of chemical weapons was a "red line" that could not be crossed without consequences.  But it appears he didn't think about what consequences the US was prepared to mete out, and now Syrian President Assad has crossed the line and is thumbing his nose at the US.

Oops.  It turns out that a US bombing campaign would have no effect on the regime, which is already locked in a civil war.  And ground troops are out of the question, as very few Americans are willing to risk US lives for Syria.  We also saw how ground troops worked out in Iraq next door (wow, it turns out that Arabs hate us when we come in and occupy our country!)  Bombing hasn't worked out very well in the Muslim world (huh! Seems like Afghans don't like it when we bomb villages and kill women and children along with a few terrorists in the shack next door!)

But the President drew a line in the sand!  We have to do something or we'll appear weak! Think this through: in order to save face after an ill-advised statement months ago, the US should go on a bombing campaign, which will necessarily kill and maim hundreds or thousands of non-combatants, all for the ostensible purpose of protecting the Syrian people from their own government.  Meanwhile, that same Syrian government will barely feel the affects, and continue on their own killing spree.  Our "humanitarian mission" will very likely lead to more innocent Syrian deaths than doing nothing would.

But what about the flaunting of international law? Well, it turns out that Syria never signed the treaty banning chemical weapons, so technically they haven't broken any treaty obligation.  And few have pointed out that enormous irony that is the US punishing Syria for breaking international law by... breaking international law itself! There is simply no justification for attacking a country that has made no threats against us, when all the relevant world bodies (UN, NATO) have refused to approve any action.

The President is in a tough spot.  He promised to do something about Syria, and now it turns out that there's nothing he can do except make empty gestures.  He is indeed going to look weak.

But that's not a reason to bomb.  You don't save face at the expense of killing hundreds of innocent people.  A president who does that has crossed a very serious ethical line.

Some other thoughts:

• What's the moral difference between chemical weapons and conventional weapons?  Cluster bombs kill just as many people at the target, with shrapnel instead of sarin.  The victims are just as dead.  Yes, we're appalled by chemical weapons, but they're not the same as nukes, which potentially can kill many many more people.  The issue is the targeting of civilians, which Assad was already doing before this attack, and which other tyrants are doing all over the world.
• Asking for congressional approval is a much better solution than just bombing away, and I like forcing the legislative branch to go on record rather than just carp from the sidelines.  But in the end they're probably going to vote in favor of a campaign, and the administration still will bear responsibility for leading us into another mess.

Musings on Economics from a non-Economist

I never studied economics in school, but I guess you could call me an amateur macro-economist now.  Or perhaps a pretend economist.  Anyway, the study of large economies interests me, and I'm particularly struck by the challenge of evaluating a particular government action or policy in light of the fact that so many things are happening at the same time.  How can we say that government stimulus worked in 2008-2009, when at the exact same time the Fed was doing all kinds of stuff, and taxes were being cut, and a new president was being elected, etc etc?

Compounding this, as my friend "N" keeps reminding me in our email correspondence, is the reality of confirmation bias.  It is built into our nature to look for evidence to support our preconceptions, rather than to follow the evidence wherever it leads.  When I'm surfing the net looking for politics articles to read, I am much quicker to click on headlines that confirm something I already believe than on a headline that challenges that belief.  Now I believe some people are more hung up on confirmation bias than others, and as a seeker of Truth it is the duty of all of us to fight against our tendencies in this area.

Anyway, when it comes to macroeconomics during modern times, the questions that are asked are these:

• Does Keynesian stimulus work?
• Do tax cuts make a significant difference in growth?
• When a central bank can't reduce interest rates any more, will "printing money" help the economy or will it cause inflation?

There are lots more of course, but I want to take the first two of these.

Does Stimulus Work?

We had a recent financial crisis and bad recession, which turned out to be worldwide.  In response in the US, the Obama administration pushed through stimulus measures in 2009 to save the economy from a bigger collapse.  Conservatives, who had previously loved stimulus, have grown much more conservative of late, and now pushed hard for Hooverite budget balance in the face of the recession.  As a result, a stimulus package (including spending hikes as well as tax cuts- both of those are stimulus measures) was passed in 2009, but it was smaller than liberal economists calculated was needed.  We then proceeded to get out of the recession in due time, but haven't had the kind of job growth we need to return to previous trends.  In other words, we've had a recovery (so it worked!) but the recovery has been disappoining (so it failed!).  We did stimulus (we tried it and it failed!), but that stimulus was too small to get us back to speed (we never really tried it!).

So how to measure whether stimulus worked? I think what makes the most sense, since the crisis was worldwide, is to look at similar places to ours and compare policy and outcomes.  That makes a good case for stimulus: in Europe they did much less stimulus than we did in the US and their continent-wide problems are much worse than the US right now.  Of course, those problems are really bad in particular countries (Greece, Spain, Ireland, Italy), while in Germany things are going much better even though not much stimulus happened.  I think this is still a good case for stimulus though, as looking at Germany in isolation is kind of like looking at Massachusetts in isolation- they're part of a large monetary union, with stronger parts and weaker parts.  But others will point out that Euro area countries set lots of their own policies, and are separate entities much more than US states are, which is certainly true.

So there's still enough doubt about stimulus that sceptics won't be convinced.  BUT there's one thing I think you can say: US-style stimulus did not do any harm.  Interest rates remain low so borrowing is easy.  The stimulus program is over now, so there are not ongoing costs.  There was no double-dip recession.  European countries that stopped stimulus and tried to balance budgets earlier than us (like the UK) are doing much worse.  Maybe we can't prove the positive value of stimlus to a scepic's liking, but we certainly proved that their forecasts of doom from overspending was wrong.

Are high taxes stifling the economy?

I find the Republican fetish for tax cuts almost comical at this point.  It seems like their answer to any question is "tax cuts!".  But look at recent history:

• Taxes were cut way back by Reagan in his first term.  The economy did well, perhaps as a result of this, but the federal deficit ballooned. 
• In his second term and in the term of George HW Bush, taxes were increased (though never to the level they were in the 1970s).  The economy boomed in the 1990s.
• Under Clinton taxes were increased again; the economy boomed and the federal budget was in surplus by 2000.
• Under George W Bush, taxes were cut precipitously.  The economy performed sort-of OK from 2002 to 2007, growing but producing fewer jobs than most recoveries in the modern era. Then a financial crisis completely destroyed what little growth there had been (I blame the financial crisis on banking policy, not on tax rates; but those low taxes obviously didn't do much to push back against the crisis).
• In 2013 taxes were finally increased again, after a five year period of historically low taxes (the Bush tax cuts plus the stimulus tax cuts including social security tax cuts, passed by Obama).  So far in '13, the economy as a whole seems unaffected, continuing its recent growth.  Still growing, but not really fast enough.

Does this prove that higher taxes, particularly on the wealthy, are great for the economy?  No- Federal Reserve policy matters a lot, and I guess regulatory policy matters too.  But what is proved pretty clearly is that tax cuts are not the magic answer to all our economic questions.  Tax cuts probably goose the economy somewhat- but the Bush tax cuts definitely did not bring us the benefits that we were told it would.


So I guess in economics it's easier to prove negatives than positives.

Scandalmania!

I've been as riveted as everyone else by the trifecta of scandals, or perhaps "scandals" faced by the President.  A friend sent me an editorial from the Wall Street Journal that started out like this:

We are in the midst of the worst Washington scandal since Watergate.

Now it's hard to take an article seriously when it starts off like that.  More serious than Iran-Contra?  More serious than Monica Lewinsky (which I think was stupid, but it DID lead to an impeachment proceeding).  More serious than the US government approving torture of enemy combatants?

Let's just stick with Iran-Contra.  Remember that the Reagan administration blatantly broke the law by providing funding for rebels in Central America.  With full knowledge and leadership from the president.  At the same time, the president was selling arms secretly to the Iranian government, which was also against the law, and which was done with full knowledge of the president and his top advisors.  And there was never even a mention of possible impeachment.

 

So here we have three "scandals".  Let's look at them one at a time:

• Benghazi is a wholly partisan piece of manufactured drivel that makes no sense on even the most basic level.  The conspiracy theorists believe that President Obama and Hillary Clinton tried to cover up the fact that the attack was a terrorist operation, in order to... what? Never explained is why it would be that a terror attack hurts the President politically more than a mob attack.  As Hillary said during her testimony: "What difference does it make?!".  This whole thing blew up last week because of some emails that ABC news first reported seeing, which showed the administration covering up the terror connection in their talking points discussions.  But then it turned out that the emails were never seen by ABC, and in fact the disturbing lines quoted by the reporter were invented by the confidential source, as proven when the actual emails were released.  The source, of course, was a Republican staffer who has yet to be named.  Confusing?  Well, read about it here if you don't believe me.  There is absolutely zero scandal here.
• The IRS story is bad for the IRS, no doubt.  So far all the evidence suggests that low level staffers in the Cincinnati field office made a terrible judgment call.  The Right is darkly suggesting that the President will be shown to have had his fingerprints all over this.  That sounds like something that's pretty hard to hide with this level of scrutiny.  So far there's nothing linking the White House to it.
• The third leg of the stool is the Justice Department's use of extraordinary measures to try to find out who leaked confidential information to the Associated Press, including getting a huge swath of their phone records.  This is outrageous.  It's being done by a cabinet agency, run by a close friend of the President.  And it appears to be perfectly legal.  It shouldn't be legal... but it is.  Obama's record on civil liberties isn't very good, and this is a great example.  Gleen Greenwald and others have been killing the President for five years on things like this, and he continues to do so.  My favorite point here is made by Kirsten Powers at the Daily Beast: Republicans have been hammering the President up to now regarding his inability to plug these leaks, and calling for harsher measures.  So this scandal is bad, but it's bad in the way that Republicans should like!

Jon Stewart gets it right: Some people don't have the standing to criticize.

Deficit is Down!

I know blogging has been nonexistent for a while, but life has most definitely gotten in the way. Anyway, I have some time to kill now so I thought I'd expound on something.

The big econmic news lately is that the federal budget deficit is shrinking faster than predicted http://www.cbo.gov/publication/44144 . Apparently, the economic recovery, the 2013 tax hikes, spending cuts from recent years, and of course the Sequester have worked as intended by the deficit hawks, and we could have a balanced budget in a few years if all goes well (which it might not of course). So here we are again with the bizarre good news/ bad news positioning:

• This is great news for the Deficit Scolds! Right? Well, for some reason none of them seem to be thrilled about it. I guess it's because their whole existence requires constant hysteria about our mounting debt so that they can implement their actual agenda, which is cutting down government and the welfare state. They don't want to hear that, actually, we can afford to keep old people from dying of malnutrition and treatable diseases here in the richest country in the history of the world.
• OK, well it's great news for the Obama apologists who have stood firm against austerity in tough times, right? No, not really, because the economy is still in a depressed state, and in fact falling deficits are seen as a bad thing by the Keynesians, since the recovery will be slower due to the lack of demand in the private sector. It's true that liberals supported increased taxes on the wealthy which are a part of the reason for the good budget news, but what we really wanted was for those taxes to go up in a few years, when the economy was humming along again. And everything else that allowed this to happen was stuff we opposed like decreased social spending.
• Well, at least it's good news for the Tea Party right, whose victory in the Sequester fight is one of the big reasons for this outcome. No? My right wingnut correspondent and inveterate commenter on this blog keeps telling me that this is not even close to good news, because we still have a really big national debt we have to start paying down (where was this guy during the Reagan and Bush deficit years? Silent about that, naturally). Of course the real problem for this crowd is that they can't accept that anything good could possibly happen while Obama is at the controls.

Look, most of this is really about the economic recovery, which is slow but steady. I predicted a while ago that whoever was elected president in 2012 was going to get credit for the recovery, which was going to come almost no matter what policies were in place. The austerity policies of 2013 aren't severe enough to derail the recovery, so we're still on target for my prediction to work out. 

Responses to the Boston Marathon Bombing

A friend of mine posted this on Facebook; a criticism of Barney Frank for his response on TV to the Marathon Bombing in which he made the point that a well functioning government is crucial in dealing with tragedies like this.

In this terrible situation, let's be very grateful that we had a well-funded, functioning government. It is very fashionable in America, and has been for some time to criticize government, belittle public employees, talk about their pensions, talk about what people think ... of [their] health care. Here we saw government in two ways perform very well. ... I never was as a member of Congress one of the cheerleaders for less government, lower taxes. No tax cut would have helped us deal with this or will help us recover. This is very expensive.

The responses of conservative commenters were a torrent of nasty put-downs of Frank for politicizing the bombing. But when I clicked over to the video I was struck by the way Frank made his point- he didn't call out specific people, or the Republican party.  He didn't blame anyone for anything- he made what I think is an interesting and important point, that when we talk about how government spending is "out of control" we should think about things like government-funded first responders, who may often be sitting around twiddling thumbs on our dime, but are there when we need them, like on April 15.  Hey, he was nothing like this stuff on twitter.  Or this:

If you’re looking for an example of a politician cloaking his cowardice in principle, look no further than Rep. Steve King (R-IA).
On Tuesday, less than 24 hours after the Boston Marathon bombing that left three dead and more than 150 injured, King gave an interview to National Review Online where he used the attack to justify his opposition to immigration reform.
From the interview:

Representative Steve King of Iowa, a prominent House conservative, says Congress should be cautious about rushing immigration reform, especially after Monday’s bombing in Boston, where three people were killed.
“Some of the speculation that has come out is that yes, it was a foreign national and, speculating here, that it was potentially a person on a student visa,” King says. “If that’s the case, then we need to take a look at the big picture.”
On immigration, King says national security should be the focus now, and any talk about a path to legalization should be put on hold. “We need to be ever vigilant,” he says. “We need to go far deeper into our border crossings. . . .We need to take a look at the visa-waiver program and wonder what we’re doing. If we can’t background check people that are coming from Saudi Arabia, how do we think we are going to background check the 11 to 20 million people that are here from who knows where.”

I guess in a world with the internet and billions of people who feel really strongly about stuff, it will be easy to troll for outrageous comments on every side of an issue related to a terrible event like the Boston bombing.  In the twitter link above the Tea Party blames President Obama for the bombing, pointing out that President Bush kept us safe (I guess 9/11 doesn't count for them).

For the record, I don't think Boston demonstrates much of a lesson that benefits anyone's side in the political wars (if it had been an assault weapons attack, that might have been a different story).

All my condolences to the families of the victims.

Hello Again, Sorry for the Hiatus

Well, I've been a little busy lately, but that doesn't mean I haven't been thinking about the latest political budget disputes.  I mysteriously can't sleep tonight, so here are my thoughts:

Most striking to me lately is the framing of President Obama's latest budget proposal, in which he puts in writing his offer last year to John Boehner, to cut benefits to Social Security and Medicare, in return for tax increases.  It's the "grand bargain" all the centrist pundits are keen on, and in fact it's not anything new- it seems that the administration has been continually frustrated by the mainstream media's framing of the budget issues, blaming both sides for the budget impasse while the administration proposes compromise after compromise and is rebuffed. 

This has been building as centrist pundits like David Brooks kept criticizing Obama for not reaching out to the GOP, while pushing him to propose exactly what he was already proposing.  Of course the real reason that no Grand Bargain is possible is that Republicans are totally unwilling to consider revenue increases under any circumstances, and thus have nothing to offer in any compromise that's better than the status quo to Democrats and liberals.  The right wing press is completely hysterical about the budget deficit, insisting that our out-of-control debt will destroy Ameerica, but they won't endorse raising taxes one nickel in order to combat it- which makes one wonder how serious a problem it really is in their minds.

But there's something else happening that doesn't seem to be getting noticed through all the carping: the budget deficit is actually going down already.  With the tax increases of 2013, the Sequester, the economic recovery, and previous budget cuts forced by Republicans, the deficit is down 47% in four years.  And that's while the US is among the lowest-taxing countries in the first world.

 

 



That's 2010, and this year's tax increases would change things a little, but not much. 

Now a sane Republican party would be bragging about how their tight-fisted spending has brought the deficit down even while taxes remain really low.  They have every right to brag about it!  Spending is certainly much lower because of the influence of the Tea Party.  But it seems like the Republican party is now temperamentally unable to celebrate victory if they have to share it with Obama or Democrats.  In some ways this is the biggest obstacle of all to productive lawmaking in a divided country- if Obama agrees to it, it's by definition a bad deal for them.