Useful Idiot David Brooks

David Brooks at the New York Times is considered a moderate pundit, but he puts out columns that in some ways make me more infuriated than anything coming from the hard right.  It's not that he's in favor of crazy policies or that he scores cheap political points; it really comes from the way he defnes himself and the way common political wisdom defines "the sensible center"- as the political center point between the two poles, no matter whether one of the poles is completely insane.  The centrist punditocracy just can't seem to accept this into their worldview- they search for comity, they want "people to work together", and then when an important Democrat points out that the other side is dedicated to policies that are terrible, the Democrat is punished for being too "partisan".

Today's column is a great case in point.  He starts off bemoaning how Obama comes off when he's being critical of the Ryan budget.

It should be said at the outset that the Ryan budget has some disturbing weaknesses, which Democrats are right to identify. The Ryan budget would cut too deeply into discretionary spending. This could lead to self-destructive cuts in scientific research, health care for poor kids and programs that boost social mobility. Moreover, the Ryan tax ideas are too regressive. They make tax cuts for the rich explicit while they hide any painful loophole closings that might hurt Republican donors.

But these legitimate criticisms and Obama’s modest but real deficit-reducing accomplishments got buried under an avalanche of distortion. The Republicans have been embarrassing themselves all primary season. It’s as if Obama wanted to sink to their level in a single hour.

First, there was his tone. Obama cast himself as the fiscal moderate who embraced the bipartisan Simpson-Bowles approach. (Perhaps we were all asleep during the Simpson-Bowles-Obama consciousness tour.) Then he unleashed every 1980s liberal cliché in the book, calling the Republicans a bunch of trickle-down, Trojan horse-bearing social Darwinists.

OK, let's start with the "fiscal moderate" meme.  Who is more moderate fiscally, right now, the party that has proposed closing the budget deficit with a combination of spending cuts and tax increases (from a current tax rate that is at its lowest level in decades), or the party that has just proposed cutting the deficit without any tax hikes at all, requiring cuts that would basically end nearly all discetionary spending?

Now it's true that the "trickle down economics" thing is an '80s liberal cliche, but it's also completely true right now.  The Ryan budget destroys the social safety net and counts on wealth trickling down to the masses- that's the plan!  When you propose turning government into little more than a defense force plus some services for the elderly, you're saying pretty explicitly that the poor will need to fend for themselves- that's Social Darwinism as far as I'm concerned.  (Jon Chait puts it well here).

Brooks goes on to point out that the Obama and Ryan budget proposals aren't that different in terms of how they'll affect the deficit.

Obama exaggerated these normal-sized differences into a Manichaean chasm. Under Ryan, Obama charged, 10 million college students would get their financial aid cut by $1,000, Alzheimer’s research would be slashed, 200,000 children would lose their chance to enter Head Start.

Where did Obama get these specifics? He imagined them. He imposed some assumptions that are nowhere to be found in the Ryan budget. He compared Ryan’s reduced spending increases with proposed growth, not current levels.

Now why would Obama have to make up specifics? Because the Ryan plan doesn't give any specifics!  It refers to hikes in defense spending, deep tax cuts, continued spending on entitlements, elimination of unnamed tax breaks, and making up the difference by reducing overall spending by a massive amount.  When one does the Math, it means that the programs Obama is talking about have to be cut out.  Saying so isn't hyperbole.

Then the president turned to Ryan’s Medicare proposal. The Ryan plan, he charged, “will ultimately end Medicare as we know it.”

In 2011, when Ryan first proposed a version of this budget, Politifact, the truth-checking outfit, honored this claim with its “Lie of the Year” award. Since then, the Ryan Medicare proposal has become more moderate and much better. Obama’s charge is even more groundless.

Well, Ryan's plan does end Medicare as we know it, and proposes changing it into a very different program in which seniors get a voucher to purchase health insurance instead of getting the health insurance directly from the government.  If they can't afford the difference between the two, then they won't have health insurance.  That sure sounds like a big change to me.

As I say, I have my own problems with Ryan’s plan, which Obama identified. But Ryan has at least taken a big step toward an eventual fiscal solution. He’s proposed necessary structural entitlement reforms, which the Democrats are unwilling to do. He’s proposed real tax reform, which the Democrats are also unwilling to do.

The first truth is that we will have to do these big things to avoid a fiscal calamity. The second truth is there is no one party solution; there has to be a merger of respectable ideas. The third truth is that gimmicky speeches obscure the president’s best character and make it seem as if he doesn’t understand the scope of the calamity looming in front of us.

This just makes me want to tear my hair out.   Ryan's plan is completely unworkable.  It's not a big step toward a solution to the deficit because it includes tax cuts that increase the deficit, and then use much of the rest of the plan to compensate for those revenue cuts with even more spending cuts.

We have to do things to avoid a fiscal calamity, but it's not all that complicated.  If Congress just does nothing the medium-term deficit goes down considerably. 

The fact is that the solutions to our budget problems are staring us in the face: a combination of spending cuts and the sunsetting of the Bush tax cuts.  That's actually a moderate solution.  It's proposed by the center-Left.  Centrists like David Brooks should be pointing out that Republicans are refusing to compromise to solve this problem, but instead they throw out this crap.

Government Spending Realities

This chart from Andrew Sullivan blew me away.  I already knew that the current administration and congress hadn't increased spending like the Republicans say- in fairness, a big reason that outlays have been lower is that the Republicans have been putting lots of downward pressure on spending.

But the point remains: Obama has been the most fiscally responsible president in modern times in terms of spending.

So why has the deficit ballooned so much?  Well, for one thing, he inherited an enormous budget deficit.  For another thing, it's tough to cut spending when all the automatic spending is going up during a recession (Unemployment, Medicaid, Food Stamps, etc).  But most of all, tax receipts go way down in a big recession, and that's certainly been the case.  On top of that, a big chunk of the stimulus measures has consisted of tax cuts, so receipts are even lower than they would have normally been.  Republicans don't filibuster tax cuts like they do spending hikes.

I guess the Republican rejoinder to this would be that sadly, GW Bush got the tax side right, but betrayed the movement on the spending side.  Of course, Reagan and Bush I had similar spending sprees, so what is here is more of a trend.  It's important to remember that Republicans don't really care about deficits- that's just window dressing for their real goal, which is lower taxes on the wealthy.

Some day they'll get another chance to prove me wrong- maybe even in 2013.  If they win, I really hope they do prove me wrong on that score, because then we can have a debate that's about real things- what are our priorities?  Do we really want lower taxes and lower spending like we say we do?  Instead we're having this fake debate in which Republicans pose as fiscally responsible budgeters in the face of all evidence to the contrary.

Deficits and Taxes

So here, via Paul Krugman, are the income tax rates at various income levels as proposed by Newt Gingrich, Republican front-runner:

Yes, this means that people at the top of the income scale will actually pay a lower average tax rate than people in the middle and upper middle (those lucky stiffs at the bottom still pay less, though).  Ezra Klein has some great points on the Republican dichotomy right now: in congress they're refusing to extend the payroll tax cut because it's not paid for, but on the campaign trail Cain, Perry, and Gingrich are falling all over themselves to make much larger tax cuts without any sign of a thought regarding how to pay for them.  So what's the result in terms of revenue?

The tax plan proposed by Republican presidential candidate Newt Gingrich would add $1.3 trillion to the U.S. budget deficit in 2015 alone, a new analysis shows, complicating his goal of balancing the government’s books.

 That's in one year alone!  It's just mind-boggling that Newt and other Republicans can spend the first half of a speech ranting about the deficits run up by the Obama administration, and then in the second half of the same speech roll out a revenue-eroding tax cut.  And nearly half the country is buying it!!!

Aaaaarrrrrrgggggghhhhhhhhh!

I do not look like this

This stuff, as reported by Paul Krugman, just drives me crazy.  Apparently Senator Olympia Snowe said this:

Fiscal shenanigans such as permanent tax increases to pay for one-year temporary measures are precisely the problem that drove our nation into a $15 trillion debt crisis.

Krugman isn't usually known for holding back, but in his post I think he hits it too lightly.  Snowe's statement is basically the opposite of the truth.

Here is a graph of the causes of our debt:

So the truth is that the Bush tax cuts were the single biggest cause of our current deficit.  Magical thinking that tax increases hurt the budget are not helpful in dealing with this problem.  And Snowe is supposed to one of the moderates!!!

The Party of the Rich

Great piece from Rolling Stone detailing the Republican party's shift to become the "party of the rich".  The conclusion:

...equating taxation with theft – is exactly the kind of talk that dismays old-line Republicans. Many of those who fought for years at the side of Ronald Reagan say they no longer recognize traditional GOP values in the new Republican Party. Fighting for the rich, after all, is not the same as championing the right.
"You can look up my record: On conservatism and taxes I was better than Jesse Helms," says Simpson, the former senator. "But whatever happened to common sense? People are going to look around in five or 10 years and say, 'Whatever happened to the things that made me comfortable? That made our streets and schools good things?' And they'll look, hopefully, at Grover Norquist. I can say to you with deepest sincerity: If this country and this legislature are in thrall to Grover Norquist, we haven't got a prayer."

The MSM's Lame "Even-Handedness"

Not too bad an article here in Time by Fareed Zakaria.  It quite rightly notes that many important differences between Greece and the US, highlighting how silly it is to say that we're in the same boat when we're not.

But then Zakaria writes:

The great truth facing the U.S. is not that we lack solutions to our problems but that our political system seems unable to do anything. With a deficit as large as the one we face, it should be clear that we cannot sort things out through either spending cuts alone or tax increases alone. (Spending on Social Security, Medicare and Medicaid is set to rise from 10% of GDP now to 15% by 2030. That is simply unsustainable.) And yet the two parties seem stuck in adolescent fantasies, one ruling out tax increases, the other ruling out any serious cuts in entitlement spending. Sure, in a country of 312 million, people will disagree. But on the deficit, the disagreement is not a theological one. Debates over money are always amenable to compromise. You can split the difference!

This is the Mainstream Media bending over backwards to be "even-handed" and declare a pox on both their houses. But look at the bolded sentence- it's wrong. Only one party is ruling out anything. Democrats are not ruling out cuts to entitlement spending or walking out on talks whenever it comes up. Obama is offering Social Security cuts right now! Only one party is refusing to compromise- the Republicans.

Now the Tea Party types would say "that's great- we shouldn't compromise at all", and that's certainly the right of those politicians.  There are some things that one should not compromise on.  But let's please call it like it is- one side wants to make a deal, and the other side wants a capitulation.

Debt Ceilings and Tax Floors

Negotiations for a Grand Bargain seem to be breaking down once again, with Eric Cantor quitting the talks because those darn Democrats won't compromise with him by taking tax hikes completely off the table.  Matt Yglesias has an optimistic take on the political opportunities for Democrats.  Ezra Klein focuses on the Republican politics within the negotiations:

One analysis of the House GOP right now is that there are two players in the GOP who can cut a budget deal: Eric Cantor and John Boehner (and, on some of the other budget issues, Appropriations Chair Hal Rogers). One of them is going to have to do it. Which means one of them is going to lose his job. The optimistic take is that what we’re seeing right now is a game of musical chairs over which one of them it’ll be.

But the pessimistic analysis is that if you had to write a plausible scenario for how America defaults on its debt, or at least seriously spooks the market, this is how it would start. After insisting on using the debt limit as leverage for a budget deal, the Republican leadership finds they can’t actually strike a deficit-reduction deal, but nor can they go back on their promise to vote against any increase in the debt limit that isn’t accompanied by a deficit-reduction deal. What follows is a lot of jockeying and fingerpointing, a short-term increase or two, and eventually, a market panic.

Cantor is putting personal power before country here, and in a very dangerous way. If Boehner actually does manage to cut a decent deal despite Cantor’s effort to throw him under the bus, he may not hold on as leader of his party, but unlike Cantor, he’ll deserve to. For better or worse, this is when we learn whether anyone on the Republican Party’s leadership team is actually prepared to lead.

Basically Klein's point is that Cantor has the backing of the Tea Party, which will accept no tax increase.  If Cantor signs on to a deal with a tax increase, he loses.  But Boehner is less trusted by the Tea Party, and if he signs off on a tax increase then he loses.  Cantor probably wants a tax increase to happen because he's not stupid, but if Boehner does it without him then Cantor could be the next Speaker pretty soon.  Boehner knows this because he's not stupid either, so he wants Cantor to be part of the deal.  So it looks like there won't be a deal because neither one of them is blinking.

But there's another possibility!  Maybe the Democrats will blink!  Why would they do that?  Good question- I think they'd do it because they're gutless windbags, and Obama might lead it because he might be delusional enough to think that if he acts like the "grown up in the room" then it will benefit him and the country.

I just want to scream.  I'm really afraid that the Democrats are going to cave on this one.  This has been worrying me for a while.  If the party of the center-left in this country, controlling the Senate and the Presidency, joins a deal that destroys the safety net in order to keep tax rates at unaffordable historical lows while polls show that Americans support higher taxes on wealthy people, then what do we have a center-left party for?  I know I'm a fire-breathing radical liberal, well to the left of the mainstream in the US; but really, what's the point in supporting Democrats if they can't fight for this?? 

Democrats have lots of leverage here.  For starters, the Bush tax cuts expire in 2012.  If congress does nothing, the long-term deficit issue is greatly improved just like that.  Secondly, if the government shuts down and people stop getting their social security checks when the Debt Ceiling is reached, Republicans will be blamed (as long as Democrats hold their feet to the fire and make sure of it).  Third, as Jon Chait points out, Wall Street doesn't want a default and is  nervous that the whack-jobs in the Tea Party are going to bring the whole country over the cliff, and there could be real defections to the Democrats if that happens.

The Republican strategy has been compared to hostage taking- making the Democrats believe they just might be crazy enough to let the country default.  Democrats just have to stand up and call the bluff, and be ready to follow through with some rough and tumble blame gaming if Republicans can't come back to the table.

Tax Cuts and Laffer Curves

One of my right wing correspondents is giving me the business lately about how cutting taxes will be a free ride, leading to higher tax revenue and balancing the budget.  Of course this is now a standard Republican talking point.  Here's my primer:

The Laffer Curve says that if you raise taxes on and on, eventually you get to a point where the higher taxes lead to less revenue. For example: if taxes go from 99% to 100%, obviously people will stop working and revenues will go down. I don't doubt that's true too if marginal tax rates go from 90% to 95%. On the other end of the curve, tax rates going from 0% to 1% will increase revenue even though taxes are going up, since at 0% revenue is 0. Hopefully conservatives even agree that raising taxes from 1% to 10% would raise revenue, since people would still be keeping the vast majority of their money.
So the question is: what's the "sweet spot" marginal tax rate (or corporate tax rate, or sales tax rate, or whatever) that maximizes government revenue? Obviously it's not 95% and it's not 1%; it's somewhere in the middle. So now the top marginal tax rate is 35%. In the late 90s it was 39.6% and the budget was balanced. In the late 50s the rate was 91%, and in 1945 it was 94%! (Data is here.)
Nobody is arguing that we should go back to 90+% rates. But if conservatives think that revenues will go up if we reduce rates from the current 35%, then what are they proposing is the Sweet Spot?
I'm not saying that government should put tax rates in exactly the spot at which revenue is maximized. I happen to think the "sweet spot" is probably way higher than 40%, but government shouldn't try to raise more money than it needs. I know the reason conservatives want lower taxes isn't so government can have more revenue, but so citizens get to keep more of their own money. Conservatives don't care if government revenue goes down- that's a feature, not a bug. And when you reduce tax rates at these levels revenue is lower than it would have been:

Notice the Bush tax cuts in 2001 and 2003 were followed by revenue declines. Yes, they went back up as the Bubble economy grew in the 00's, but still not to the trend line they had been on. And of course they cratered again when the recession hit. Also look at revenues after the 1991 GHWB tax hike- going up steadily. And look at revenues after the early 1980s Reagan tax cuts at the start of the graph- flat, not starting to rise until Reagan increased taxes in the middle of his term.
So when one looks at actual data, it shows that- surprise!- when you raise taxes while they're at our current rates, you also raise revenue. When you cut taxes you cut revenue- there's no such thing as a free lunch in the real world.
Now reasonable people can be in favor of lower taxes anyway. They don't need to make ludicrous arguments like the Laffer Curve. The Republican party is in favor of lower taxes because they feel it is more free to pay less taxes. They don't really care about the deficit, as they've shown really clearly every time they've been in charge. They didn't care about the exploding deficit during the Bush years. I just wish conservatives would all be honest about that- there's no free lunch, and lower tax rates will lead to lower revenue which will lead to bigger deficits.

What?  Republicans don't care about the deficit? That can't be true, you say!  Well here's a graph of federal deficits since 1970:

Republicans controlled the Senate and the presidency in the 1980s, and deficits went up a lot.  Divided government in the 1990s resulted in a decreased deficit, even a surplus.  Then sole Republican control returned in 2001 and the deficit went up, culminating in a huge increase at the end of George W Bush's second term when revenues cratered due to the recession.  And see how the deficit is projected to go back down soon?  That's the expiration of the Bush tax cuts in 2012.  Which Republicans universally oppose.  Because they're against deficits.... or something.
(Source for the last graph is here.  This is a great website, with graphs you can customize)

The Limits of Common Sense

Another thing that gets me frustrated is the endless tropes about "common sense" when it comes to governance.  It sounds good, which is why the phrase gets used so much.  But what it fails to acknowledge is that systems are complicated, big systems are even more complicated, and the US federal government is a really big system. 

So common sense that works around the kitchen table in your family just has no parallel in the federal government.  In fact it doesn't have that much parallel in lots of areas.

For example, when I go to the hospital for a medical operation, I don't want the doctor referring first and foremost to common sense when he starts cutting me up- I want him using the latest scientific research and drawing from his vast experience performing similar operations.  I don't care whether he has enough common sense to fix a lawnmower or carve a turkey.  I'm looking for a savant who knows about his specialty.

To take another example, when considering Global Climate Change, referring to common sense arguments has no meaning.  We had a snowy winter here in New England, so common sense tells me that the planet couldn't be getting warmer.  Except climatologists who are studying this stuff for a living overwhelmingly agree that the planet is indeed getting warmer, and that it's caused by humans.  I think I'm going with the geeks here.

And finally, comparing the US government budget to my own family budget is comparing apples to cow dung.  The goals are completely different- we should be paying attention to what professional economists and policy wonks say about deficits.  And we should look at history- not the history of my family's finances, because that's not relevant- the history of our macroeconomy when governments have run deficits, the history of tax rates and how growth is tied into taxes.  When I'm arguing with conservatives about this I start with this kind of stuff, and they inevitably reply with "common sense" arguments about how government deficits crowd out private borrowing and how the burden of debt repayment will be unmanageable- but they've got no data!  Because the data's all pretty clear when you look at history instead of analogies to your family budget.

I had an old boss who once said "common sense isn't so common".  True that.  But in political discourse we could use even less of it.

A Federal Budget Parable

A family sits around the table.


Dad: Well kids, we're hemorrhaging money, so we're going to have to cut back.

Jonny: But Dad, when you gave up your full time job and went down to part time, you told us we wouldn't have to sacrifice anything!

Dad: Well, Jonny, I didn't realize your mother's spending would be so irresponsible.

Mom: Excuse me? I haven't changed my spending habits at all. The difference is that you spent $50,000 on 12 guns and full body armor for all of us!

Dad: I needed that weaponry to protect us from the neighbors. They're Arabs, after all.

Jonny: But you bought it on credit right after you quit the full time job

Dad: Never mind that- the money's spent. The point is that we have to cut back. Jonny we're not signing you up for baseball this year- we can't afford it.

Jonny: AAAWWWWWWWWW!!!!!!!!!!

Mom: What if you just got your full time job back?

Dad: Cutting out baseball won't be enough. We have to cut down on our medical bills too.

Mom: OK, how about signing up for this new medical insurance plan that cuts bills by determining what care is cost-effective?

Dad: That'll never work! And it's rationing care. No, instead of that we're just going to stop going to the dentist.

Mom: Isn't that rationing too?

Dad: Stop confusing me with facts, woman! Medical care costs us more because we signed up for that prescription drug plan.

Mom: Yes, that plan is really good. But when you signed us up you didn't make any plans to pay for it. And it pays drug companies double the going price so it's more expensive than it should be.

Dad: Oh, you and your facts again! The point is that we have to cut spending. We're going to cancel that plan to fix the roof of the house. We can just keep changing the buckets that catch the leaking water.

Mom: Honey, we were making it just fine when you were working full time. Why don't you just go back to work? Then we can solve more than half of our budget problem.

Dad: You're not listening to me. It's like you want to go bankrupt!

Mom: But I have a solution! It worked 10 years ago, whereas your plan to make ends meet with only a part time job has never worked. But you won't even address my idea.

Dad: It's a good thing it's going to be my turn to run family finances after November 2012.

Jonny: But Dad, you were running our finances for 8 years.  When you started, you were putting money into my college fund and had enough for us to live on. Then you put all our money into your friend's bank and didn't make sure it was an FDIC-insured one, and we lost most of it. Mom has only had a couple of years to clean up the mess you left.

Dad: Yeah, but this time it'll be different.

Misleading Stats from the WSJ

Infuriating article here from Steven Moore at the Wall Street Journal.  For your blog-reading pleasure I've decided to break it down.  Here's the whole thing, with my comments in red:

Stephen Moore: We've Become a Nation of Takers, Not Makers - WSJ.com


If you want to understand better why so many states—from New York to Wisconsin to California—are teetering on the brink of bankruptcy, consider this depressing statistic: Today in America there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million). This is an almost exact reversal of the situation in 1960, when there were 15 million workers in manufacturing and 8.7 million collecting a paycheck from the government. There are fewer people working in manufacturing for many reasons, most of them good. The US manufactures more stuff than it did in 1960, but we're so much more productive and automated that it requires fewer people to do it. And of course lots of manufacturing has moved overseas, because poor countries can pay people pennies an hour, with which we can never compete (thank God)
It gets worse. More Americans work for the government than work in construction, farming, fishing, forestry, manufacturing, mining and utilities combined. We have moved decisively from a nation of makers to a nation of takers. Nearly half of the $2.2 trillion cost of state and local governments is the $1 trillion-a-year tab for pay and benefits of state and local employees. Is it any wonder that so many states and cities cannot pay their bills? So this number presumably includes soldiers, police, firemen, teachers, postal workers, child protective service workers, etc etc. And it singles out town and city workers? Our voices are most easily heard in localities- I don't think my town is loaded with extra employees- is yours?

Every state in America today except for two—Indiana and Wisconsin—has more government workers on the payroll than people manufacturing industrial goods. Consider California, which has the highest budget deficit in the history of the states. The not-so Golden State now has an incredible 2.4 million government employees—twice as many as people at work in manufacturing. New Jersey has just under two-and-a-half as many government employees as manufacturers. Florida's ratio is more than 3 to 1. So is New York's. This is completely meaningless- the US is not a manufacturing country any more, most jobs are now in the services and high tech sectors. It's like complaining about how few jobs there are in the newspaper business now- the economy is changing, which doesn't imply that anything bad is happening at all. Jobs have moved from manufacturing to other things, because we're a rich country.
Even Michigan, at one time the auto capital of the world, and Pennsylvania, once the steel capital, have more government bureaucrats than people making things. The leaders in government hiring are Wyoming and New Mexico, which have hired more than six government workers for every manufacturing worker. Again, absolutely pointless statistics. What would be valuable to know is the growth of government workers per citizen compared to the past, or government workers compared to GDP. Instead he's comparing apples to chairs.
Now it is certainly true that many states have not typically been home to traditional manufacturing operations. Iowa and Nebraska are farm states, for example. But in those states, there are at least five times more government workers than farmers. Because farm technology has reduced the number of farmers needed to farm the same amount of land West Virginia is the mining capital of the world, yet it has at least three times more government workers than miners Same thing. New York is the financial capital of the world—at least for now. That sector employs roughly 670,000 New Yorkers. That's less than half of the state's 1.48 million government employees. Oh, that's what we need! More workers on Wall Street!


Don't expect a reversal of this trend anytime soon. Surveys of college graduates are finding that more and more of our top minds want to work for the government. I'd like a source here- I doubt this is true- do you know college students who dream about being bureaucrats? Why? Because in recent years only government agencies have been hiring, and because the offer of near lifetime security is highly valued in these times of economic turbulence. First of all I dispute that grads are dying to work in government. But of course they need jobs somewhere. In 2009 nobody in the private sector was hiring, and government through stimulus was filling the gap. It was government or nothing. When 23-year-olds aren't willing to take career risks, we have a real problem on our hands. Sadly, we could end up with a generation of Americans who want to work at the Department of Motor Vehicles. No, we end up with people taking jobs where they can get them. When the private sector generates jobs, they won't have any trouble finding workers thanks to the huge number of people not working right now. What a ridiculous statement- do you know anyone who wants to work in the DMV?  College grads work where they have to to make ends meet.
The employment trends described here are explained in part by hugely beneficial productivity improvements in such traditional industries as farming, manufacturing, financial services and telecommunications. These produce far more output per worker than in the past. The typical farmer, for example, is today at least three times more productive than in 1950. EXACTLY! That's why all those statistics you just went through are the way they are!
Where are the productivity gains in government? Consider a core function of state and local governments: schools. Over the period 1970-2005, school spending per pupil, adjusted for inflation, doubled, while standardized achievement test scores were flat. Over roughly that same time period, public-school employment doubled per student, according to a study by researchers at the University of Washington. That is what economists call negative productivity.
But education is an industry where we measure performance backwards: We gauge school performance not by outputs, but by inputs. If quality falls, we say we didn't pay teachers enough or we need smaller class sizes or newer schools. If education had undergone the same productivity revolution that manufacturing has, we would have half as many educators, smaller school budgets, and higher graduation rates and test scores. Give me a break! How can you teach kids in a classroom setting in a way that is more productive? You can use technology to increase class sizes I guess, with interactive systems. Anyone think that would be better? Manufacturing is totally different from education, or policing.
The same is true of almost all other government services. Mass transit spends more and more every year and yet a much smaller share of Americans use trains and buses today than in past decades. I don't believe it's true that mass transit spending is higher now than it used to be. No citation here I notice. One way that private companies spur productivity is by firing underperforming employees and rewarding excellence. In government employment, tenure for teachers and near lifetime employment for other civil servants shields workers from this basic system of reward and punishment. It is a system that breeds mediocrity, which is what we've gotten.
Most reasonable steps to restrain public-sector employment costs are smothered by the unions. Study after study has shown that states and cities could shave 20% to 40% off the cost of many services—fire fighting, public transportation, garbage collection, administrative functions, even prison operations—through competitive contracting to private providers. But unions have blocked many of those efforts. Public employees maintain that they are underpaid relative to equally qualified private-sector workers, yet they are deathly afraid of competitive bidding for government services. Well, yeah.  Unions allow workers to bind together to get better wages or working conditions.  Understandably, workers want that.  If they can't unionize then their wages will certainly fall.  Can you blame them? The biggest problem with this is that public employees perform tasks that aren't easily measured. Sure, we could contract out firefighting services, but then we're not sure the fire truck will be there when we need it- what if it's not profitable to keep the local fire station open?

President Obama says we have to retool our economy to "win the future." The only way to do that is to grow the economy that makes things, not the sector that takes things.

But I'm not completely done.  I kept thinking: is it true that government has been growing at some crazy pace?  What about this graph:
 
The graph is inverse of what I want- it shows citizens per government employee, not government employees per citizen, so lower means more government workers.  It looks like state government has grown while federal government has shrunk, for a net wash in rough terms.  I guess government isn't really growing in the US after all.  Of course the agenda of the Right isn't too stop growth, it's to cut to unprecedented levels.

Morning TV Pundits Driving Me Crazy

Watching Morning Joe today as I get dressed, listening to Pat Buchanan and crew talk about the deficit, and I just keep wanting to throw something through the television as hear all the misinformation:

• Yes, it's a good point that non-defense discretionary spending is only 12% of the budget and can't be used solely to solve the budget deficit.  I'm glad that point is now made all the time.  And then pundits rightfully point out that Defense spending has to be confronted.  But then we hear about "entitlements"- we have to "do something about Medicare and Social Security".  Actually, Medicare and Social Security are very different issues and need to be discussed separately.  Social Security is a simple program with a simple funding scheme- all we have to do raise revenues (in some way) or cut benefits (in some way) moderately and the problem will be easily solved.  Medicare is the real problem in the long term, which is why it's really about health care.  So I'd like to see pundits hold the budget hawks' feet to the fire on their plans for health care spending, because that's where the real challenge is.
• Nobody talks about tax increases as part of the solution to the budget problem, except when trying to draw a false equivalency.  Here's Joe Scarborough in Politico today:

There are elements of the GOP spending plan that cause me great concern. The belief of some on the right that America can balance the budget by cutting education, infrastructure, the Corporation for Public Broadcasting and home heating assistance to the poor is tantamount to budgetary witchcraft. Also, enough with the argument that eliminating earmarks will balance the budget. That is as ignorant as liberals believing that all problems will be solved if we raise taxes and cut defense. Those left-wing “cure-all’s” won’t solve our structural debt problem any more than some Republicans’ plan to simply slash domestic spending.

Yeah, that causes me concern too, but look at how he characterizes liberals: they think you can balance the budget by raising taxes and cutting spending!  Whereas conservatives believe we can balance it by cutting just discretionary spending.  One side is pretty close to accurate, the other side is living in Wonderland.

Alright, got that off my chest, off to work now.

A little Health Care reminder

An email correspondent wrote me:

You still believe that ACE [sic- he means ACA] is going to rein in health care costs??? Knowing that one can make numbers do anything one wants them to, and that all the ACE calculations are based on hypothesis and not fact, I find it unbelievable that you keep espousing the party line. Granted ACE will be affordable for those who don’t pay taxes and who don’t have healthcare, but for those of who do and have to pay for those who don’t????

Here's my response:

I think it's reasonable to be suspicious of any numbers, but just because a study (or, studies) by the CBO supports a liberal position doesn't mean it's necessarily wrong either.


Here's what is indisputably true: the ACA does something to slow the growth of health costs in Medicare. It may not be enough. It may be overturned by a future congress. It may be swamped by unrelated increases from a now-unthought of corner. But it will definitely introduce cost controls that would not be there without it. That's why the Republicans were able to gin up senior citizens with misleading stories about how their Medicare would be cut- because there actually are Medicare cuts.

I'm continually frustrated by the Right's refusal to understand something: they reason that because the ACA raises health care spending by extending it to the uninsured, it can't possibly reduce the deficit. But for those of us who took 1st grade Math, I would point out that spending can be offset by increases in revenue- the ACA raises revenues through various taxes that pay for the increased benefits. So to criticize the ACA for raising our taxes is perfectly legit- it does. To criticize it for increasing the deficit is just wrong- it doesn't.

It's like conservatives have decided that spending and deficits are the same thing. Similarly, they scream about out of control spending even though the current deficits were largely caused by the Bush tax cuts, not spending.

Budget Problems

Jon Stewart had a good line last night about the budget debate raging now.  He said something like:

It's good to see that everyone in Washington can get together to cut services for people who vote for Democrats.

This seems like the pattern we're stuck in now. Obama proposes something moderate, and the Republicans just move the finish line back further. 

The Argument for Keynes and Deficit Spending (posted by DT)

I had some exciting email correspondence with my conservative group on the topic of Keynes and whether recent events have proved him wrong or right. Here's an edited version of my argument. I'm not very good with the layout on this site, so the graphs are at the top instead of where I want them- sorry!

I keep hearing how Keynesian economics is dead from those who don't seem to understand it. But the history of the last 80 years is great evidence that Keynes was right, that governments should run deficits during recessions and stimulate the economy. Let's start with the Great Depression. See the second graph above, with GDP charted during the period.

As you can see, FDR took office in 1933 when the Depression was at its nadir. He started Keynesian deficit spending and voila!, the economy started recovering. But there was a second recession in 1937-38; did government overspending cause it? Let's look at the federal deficit during the depression- see the top chart for when the feds were using deficit spending.

Notice that the deficit goes way up starting in 1932 (I guess Hoover gets some credit too! I didn't know that), and then dips severely starting in 1936, just in time for the next recession. Then it goes through the roof for WW II (in fact that peak is WAY higher than the current deficit), and yet the economy came roaring back.

So the Depression is a perfect example of how deficit spending helps an economy in recession.

How about since then? Well, recessions after 1945 have been much shorter in duration (on average) than recessions were before that time- recessions starting in 1900 lasted 23, 13, 24, 23, 7, 18, 14, 13, and 43 months. The recessions after 1945 lasted 8, 11, 10, 8, 10, 11, 16, 6, 16, and 8 months (the last listed here is the early 1990s one). Why is that? Because of Keynesian spending- we learned how to deal with deficits, and so now we spend our way out of them.

I've yet to hear any other convincing explanation for these numbers. Can we please stop arguing about whether Keynes was right?

Whose fault is the Deficit? (posted by DT)

In my debates on budget matters with conservatives, I am always trying to remind them that the reason we have a huge budget deficit is because we have lowered taxes to an unsustainable level. I should probably also mention more that the 2000s also saw huge spending increases on the military in Iraq and Afghanistan and on the Medicare prescription drug benefit, which were completely unfunded (mind you, I don't oppose all that spending, but it's sort of outrageous that the same people who wouldn't consider paying for spending in good times are now arguing for budget austerity now).

The reply from conservatives keeps coming back: What about Obama's deficit explosion? Well, let's just keep things in perspective:



Stimulus spending, the light blue area, is indeed a huge contributor to the deficit this year. But it's projected to decrease to very little by 2012. The Bush tax cuts (orange), however, continue forever if they are made permanent. And they're a way bigger factor. Also of note, the economic downturn (dark blue) is a really big piece of the puzzle too.

I don't know any more ways to say it: the Republican/ Tea Party position at this time is not about balancing the budget- it's about tax cuts for the wealthy. If taxes don't go up, we'll stay in the red, even in good times.

Unemployment, Tax Cuts, and Deficit Peacocks (posted by DT)

This week we're getting a wonderful window into the priorities of liberals and conservatives. We have virtually every Republican in congress opposed to the extension of unemployment insurance, ostensibly because they don't want to further increase the deficit. Why do I write "ostensibly"?

Well every last one of those same Republicans is in favor of extending the Bush tax cuts for wealthy Americans. This would make the deficit much worse, costing many times what unemployment extension (which is temporary, while tax cuts are permanent) would cost. They apparently see no contradiction here.

Someone in the Blogosphere coined a perfect term for such conservatives: Deficit Peacocks. They talk about the horrible deficit that is passing costs onto our grandchildren, but they are completely unserious about actually solving the problem in the long term.

The current Republican party is genuinely in favor of lower taxes- that's not fake. But you can't seriously propose lowering the deficit and cutting taxes. This just isn't that hard to figure out.

One other thing. If you believe in the claptrap that lower tax rates actually lead to increased revenue through massive economic growth, this post: http://modeledbehavior.com/2010/07/13/ezra-klein-is-dismayed-that-some-people-think-the-bush-tax-cuts-raised-revenue/ pretty much demolishes that argument. You can't get something for nothing, nice as that would be.

Email Throwdown! (posted by DT)

I thought I would share with you my loyal readers one of the lengthy email chains that we have been involved in. What follows is an edited and hopefully readable version of an exchange about the general issue of fairness and tax policies. I've taken out names to protect the politically innocent:

From JB:
The general question I have is, where is it written that life is supposed to be fair? Actually, life not being fair is what motivates a lot of people to success....and it builds character too. Secondly, if fairness is something that we should strive to achieve for all, why is it fair that those in the higher brackets are paying 60% oftheir money in taxes, and the government wants them to pay even more? Why is it fair that living in the northeast in order to afford a house and a family, and live like people in the rest of the country, you needto make 75%-100% more? Why is it fair that my buddy in Texas lives in a house just like mine and it cost him 1/3 the price of mine, but my taxes are higher because i make more? Meanwhile he probably can buy much more with the money he makes in Texas? When you start playing the "fair" card, it is a very slippery and dangerous slope - none of it is fact based, it is purely emotional andby definition will create inequities for someone else.

My Response:
I think that it would be nice if life were always fair, though of course impossible. I believe that when government can make life more fair (by, to take an uncontroversial example, enforcing laws against robbing and killing people) it should consider doing so. Some unfairness can't be solved by government (like, for example, gov'tcan't stop a child from being born with cerebral palsy), but can be ameliorated (gov't could make sure that that child's family can still afford health care). I think people's motivation is DECREASED by unfairness- if I know that because my parents can't afford college and because there's no financial aid, I have virtually no chance of going to college, I may not bother studying hard, accepting my fate as a low-wage worker. I'd be much more motivated to improve my situation if I felt like I had a fair chance to succeed. As for the tax issue, the more people make the more they should pay in taxes. It doesn't seem like our progressive tax system has stopped high wage-earners from working lately. As for the problem of your house being worth less than your buddy inTexas, that's one of the fairness issues the gov't should not try tosolve. You're welcome to move to Texas if you want, so it's really not unfair at all. That's not quite the same as the parent whose kid has cerebral palsy- can't exactly give him back.

JB respondes:
I am not sure if you have ready any Thomas Sowell - an African American who grew up in Harlem, pennyless, but went to MIT and has become a brilliant economist. He talks a lot about the same general principles that [another correspondent] touched on, how people need to be motivated to improve their own situation. Too much of our society is inherently lazy and does not produce for the greater good. This government is continuing to move in the direction of enabling this behavior, making indiviuals reliant on handouts, rather than motivating. Now, from the perspective on the top of the food chain: as the government continues to take and redistribute, those who create the jobs become less motivated to continue to do so, as they see less and less return on their own invested capital. By de-incentivizing these individuals, it has a spiraling effect on the whole system. With less motivation on the top of the food chain, there is fewer trickle down effect and everyone loses. Since we can both agree that life unto itself is not fair, the governments role is not and should never be to determine winners and losers i.e. fairness. When you take away more money from the top, and give it to the poor, that is exactly what the government IS doing, it is choosing to whom it wants to be fair, and to whom it wants to be unfair. Your thought is, why shouldnt the government be able to make things more fair for some. My question is why should the government be allowed to make things unfair for others. Everything has a cost to society, there are no free lunches.

Me again:
I find your position a maximalist one, that's all. As I see it, gov't can't do everything, but it also can do SOMETHING. The current conservative argument is that gov't can't do a damn thing and shouldn't even try (except use its military to kill lots of foreigners of course). I agree with you that taxes and redistribution can get too high and lead to the things you fear- a sinking economy that helps nobody. I just don't think that's a big danger with current tax rates, or even with Clinton-era tax rates. The economy was running pretty well during most of the '90s, with higher taxes than in the 2000s. I just don't see evidence that going back to those tax rates would be harmful. I'm not arguing that we should go back to 1970s tax rates, which I believe included a 91% marginal rate at the top- that's too high. My position on taxes isn't really radical based on recent US history. What's radical is the current Republican fixation on tax cuts ad infinitum. It is completely impossible to solve the deficit problem without revenue hikes; so when I hear absolute refusal to raise any tax rates, I can only conclude that you're not really serious about the deficit.

JB:
The one piece that you are missing from the Clinton era (I actually really like Bill Clinton) is the growth of the economy. The taxes issue is a much bigger drag on the economy now, since we are not seeing the economic growth, growth in worker productivity, wage growth that we saw in the 90's. Couple that with the reset of the Bush era tax cuts (that not enough people are talking about) and we are all really about to feel this pinch on our wallets. So, its not the tax rates that are the problem in a vaccum, it is the tax rates combined with the spending increases on top of more taxes yet to come with the absence of economic growth that does not provide a lot of optimism for the future.

Me:
To me the key point here about the Clinton years is that, as you say, tax rates "in a vacuum" aren't the only thing that matters. I agree with you. But I don't hear anything else coming from the Right except talk about tax cuts. The '90s certainly showed that the economy can grow with tax rates higher than we have now. The 2000s certainly showed that tax cuts alone don't necessarily produce growth (we had the lowest taxes since I don't know when, and we had the first presidency ever during which the economy didn't grow at all from 2001-2009).So I think we've dispensed with the argument that tax cuts are what the economy needs. Now the argument we're left with for tax cuts is: "it's my money, the government shouldn't be taking it", i.e. the moral one. Certainly that's the one stressed by [another correspondent], and it's a legitimate point of view. But let's face it, tax cuts have not correlated with economic growth over the last 20 years. We have to keep the deficit argument and the tax rate argument separate, which seems hard to do in this debate. HCR does not increase the deficit- why? Because it raises some taxes to pay for itself. And moderate tax hikes don't appear to wreck the economy- the argument against them is just the moral one. Now the moral argument for less taxes is fine, but it's of course impervious to data so I don't know that we can have a very illuminating debate about it.