Tea-Infused BS

TW: I cannot take it anymore. All of this hypocritical BS from the tea-infused Republicans must be stopped.

From Barry Ritholz:
"Once upon a time, there was a President. He was elected in the middle of a recession, following an economic crisis and a decade long bear market. He came into office on high flying oratory, but was regarded by many as a lightweight.
Once in office, he passed a variety of legislation over the objections of a hostile opposing party. The pundits and the thinktanks derided his big spending, his tax cuts, and his reorganization of government. He had very different priorities than the prior president, and tried to put his stamp on government in a variety of reprioritizations.

The President had barely been in office for 18 months when the pushback to his agenda became fierce. The media and the opposing political party all focused on the budget deficit. Most of it had been accrued long before this President came into the office, but that did not stop him from getting the full blunt of the blame. “We must stop this fiscal profligacy, or it will be the end of us!” the critics all cried.
But the president ignored the critics, and put forth a deficit laden budget that contained a massive stimulus and tax cuts. He even joked about the debt issue: “I am not worried about the deficit. It is big enough to take care of itself.”
By the second year of his presidency, the stimulative effects of the deficit had their impact. Unemployment began to come down, incomes went up, and the stock market roared ahead.

By now, it should be obvious that we are not discussing President Barack Obama, but rather the 40th President of the United States, Ronald Reagan.

Which raises an interesting question: We seem to be overrun with Austerians, newly minted deficit chickenhawks who recently have discovered the evils of deficit spending.

What would all of these deficit foes have said to Ronald Reagan during the first 2 years of his Presidency? Mr. President, we cannot spend more than we take in? Mr. President, we cannot afford those tax cuts — or to spend so much on the military?
The current president, who obviously has very different priorities than RR, is in many ways following his path: Huge deficits, tax cuts targeted to his electoral base, allowing policiies of his predecessor to expire.

I find it terribly amusing that some conservatives have latched onto the deficit as their key issue, when they took the idea of deficit spending to great new heights! Whether you are looking at the economic policies of Ronald Reagan or George W. Bush, reining in the deficit was clearly of no concern. (Forget speechifying, I refer to actual policies).
~~~
I continue to see the Austerian movement in the United States as thinly disguised partisan politics. These are people who will say anything to keep the subsidies and tax benefits flowing to their electoral base. They will say anything –regardless of whether they actually believe these things — to thwart the opposing fellows priorities.

Anyone who believes the new deficit fighters care about deficits has not been paying attention. This is simply about power and money and legislative priorities and cash. With only a very few exceptions, it has nothing to do actual fiscal priorities and debt loads and deficits.

The vast majority of these new deficit chickenhawks — who voted for unfunded entitlement program (prescription drugs), who gave away trillions in unfunded tax cuts, who voted for a trillion dollar war of choice, are simply not to be believed. Their past actions speak far louder than anything they might say today."

Not News Really

TW: Everyone knows this, most even agree it needs to be done but why is not being proposed? Simple game theory, the party that does will be hammered by the other.

From conservative economist Greg Mankiw:
"Americans, as well as citizens of many other advanced nations, now spend about twice as many years in retirement as they did a generation or two ago. During that time, they expect the government to provide them with income support and healthcare. Is it any wonder that we face serious fiscal problems?

I hope the president's fiscal commission makes raising the age of eligibility for these programs one of its main recommendations"
http://gregmankiw.blogspot.com/2010/03/life-expectancy-at-retirement.html

The Conflation Of Current With Future Problems

TW: Many folks are conflating our medium and long-term fiscal problems with the current fiscal situation. I have said before and will keep repeating, the implementation of fiscal constraints amidst a massive demand contraction would have and would still result in a vicious circle of even worse demand contraction. In other words a repeat of the Hoover approach of the early 1930's.

Most Republican politicians realize this but will keep conflating the issues right up until the time they regain political power at which point they will throw their fiscal concerns right back in the hamper where they resided until Jan 20th, 2009 to be replaced by the call for "supply side" (i.e.for the wealthy)tax cuts. The tax cuts that allegedly magically pay for themselves but somehow never do.

From Paul Kedrosky:
"In his latest column, the FT’s Martin Wolf spanks historian Niall Ferguson for his recent column equating Greece and the U.S. Here is the money ‘graph from Wolf’s latest:

'If these governments had decided to balance their budgets [in 2009/2010], as [Niall Ferguson and] many conservatives demand, two possible outcomes can be envisaged: the plausible one is that we would now be in the Great Depression redux; the fanciful one is that, despite huge increases in taxation or vast cuts in spending, the private sector would have borrowed and spent as if no crisis at all had happened. In other words, a massive fiscal tightening would actually expand the economy. This is to believe in magic.' "http://paul.kedrosky.com/archives/2010/02/martin_wolf_spa.html

We Get What We Vote For

TW: As I say frequently, I do not blame the system or "DC" for our dysfunctional governance as much as I blame Americans. Americans are comfortable raising taxes as long as it is not their own, cutting spending unless it is for themselves etc. Our elected officials reflect these selfish desires. What Alabama voter supports cutting space programs? What urban voter supports cutting transportation subsidies? What rural voter supports cutting Cadillac highways to nowhere in their districts or farm subsidies?

Commissions are admissions that democratic processes are failing not because the process is flawed but because democracy is flawed.

From Politics Daily:
"Lawmakers who take a hard stand against federal spending are having a hard time reconciling that position when cuts are aimed at their home districts, The New York Times reported.

It's a bipartisan problem, and a good example of how tough it is to control government spending and deficits. Many so-called deficit hawks of both parties will put up a fight when money and jobs for their constituents are threatened.

The Times gives three prominent examples:

'While Senator Saxby Chambliss, Republican of Georgia, said he was all for slowing federal spending, he has no appetite for the substantial cuts in farm programs proposed in President Obama's new budget.

And Senator Jeff Sessions of Alabama, a fiscal conservative and a senior Republican on the Budget Committee, vowed to resist reductions in space program spending that would flow back home.

Representative Todd Akin, Republican of Missouri, issued a press release simultaneously lamenting the deficit spending outlined in the new budget and protesting cuts in Pentagon projects important to his state.'

On the Democratic side, Sen. Blanche Lincoln (D-Ark.) has protested all of the above spending cuts -- to NASA, the military and farms -- while also saying we "must all share in this responsibility" in reducing the deficit, according to the Times.

Principled opponents of federal spending say cutting earmarks and other spending shouldn't be left to the very people whose job it is to steer money to their home districts. They say the only solution for reducing the deficit might be an independent commission, separate from Congress, that would crunch numbers and rein in the dollars..."
http://www.politicsdaily.com/2010/02/08/spending-hawks-not-so-hawkish-about-cuts-in-home-districts/

Want America To Reduce Debt Then Stop Subsidizing It

TW: Suroweicki has a nice concise piece on the bias towards debt baked into our tax system. Mortgage interest and business interest deductions create a bias towards debts commercially and privately which feeds our collective appetite for debt. Read the piece, the logic is simple. Now will these well liked forms of crack ever go away of course not but when someone rails against guvmint ask them if they are ready to ready to remove their own debt IVs.

From Jim Suroweicki at New Yorker:
"...The government doesn’t make people go into debt, of course. It just nudges them in that direction. Individuals are able to write off all their mortgage interest, up to a million dollars, and companies can write off all the interest on their debt, but not things like dividend payments. This gives the system what economists call a “debt bias.” It encourages people to make smaller down payments and to borrow more money than they otherwise would, and to tie up more of their wealth in housing than in other investments. Likewise, the system skews the decisions that companies make about how to fund themselves. Companies can raise money by reinvesting profits, raising equity (selling shares), or borrowing. But only when they borrow do they get the benefit of a “tax shield.” Jason Furman, of the National Economic Council, has estimated that tax breaks make corporate debt as much as forty-two per cent cheaper than corporate equity. So it’s not surprising that many companies prefer to pile on the leverage..."

Read more: http://www.newyorker.com/talk/financial/2009/11/23/091123ta_talk_surowiecki

The Deficit Is Structural

http://www.economist.com/blogs/freeexchange/2010/02/deficits_past_and_future

TW: The Republican effort to attribute our fiscal deficits to Barack Hussein Obama continue unabated. But the reality as outlined above is so very different. Obama has barely done anything fiscally other than a short-term stimulus plan. W. Bush tax cuts and health care costs are the drivers of the deficit. Obama is obviously trying to address both. But are folks actually listening?

Opppose All Day, Every Day

TW: Are deficit commissions a great idea not really as they are merely a means to avoid the fundamental problem. But they are something and in this case another example of why fiscal policy is really just a political football punted around by the Republicans for their electoral benefit.

From Economist:
"The Democrats should embrace more Republican ideas. Republicans shouldn't then reject them

...the Republicans who complained to Barack Obama last week that they do, in fact, have some ideas were right. One idea Republicans had been pushing was a proposal for a bipartisan commission to recommend tough deficit-reduction measures. When Judd Gregg, the Republican senator from New Hampshire, and Kent Conrad, the Democratic senator from Nebraska, proposed the idea, most liberals dismissed it out of hand. The commission would have required the assent of 14 of its 18 members to make recommendations, and the recommendations would have required approval from supermajorities in both the House and Senate...

But then the Obama administration decided to embrace the idea. And, lo and behold...the Republicans promptly turned on their heels and repudiated it. Six of the bill's Republican co-sponsors voted against it. The justification was that mumble mumble tax increases mumble.

This was not a dignified spectacle. What it most strongly recalled was the old Bugs Bunny/Daffy Duck "Duck season, wabbit season" routine, where, as soon as Bugs says "Wabbit season", Daffy switches to "Duck season" and—pow!—Elmer Fudd blows him away. The conclusion is pretty clear. James Fallows lays it out here. Fred Hiatt lays it out here. And Ezra Klein lays it out here."
http://www.economist.com/blogs/democracyinamerica/2010/02/republicans_and_deficit_commission

That Deficit Thing

TW: As the demagougery continues relative to the federal budget deficit. A little data never hurts. For the umpteenth time- take your pick: tax increases, entitlements, national security- so what would you do?

We Get What We Want

From Economist:
"A Bloomberg National Poll conducted Dec. 3-7 shows two- thirds of Americans favor taxing the rich to reduce the deficit.

Even though almost 9 of 10 respondents also say they believe the middle class will have to make financial sacrifices to achieve that goal, only a little more than one-fourth support an increase in taxes on the middle class. Fewer still back cuts in entitlement programs such as Social Security and Medicare or a new national consumption tax."
http://www.economist.com/blogs/freeexchange/2009/12/bloomberg_headline_of_the_day?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+economist%2Fblogs%2Ffreeexchange+%28The+Economist%3A+Free+exchange%29

TW: The poll validates a frequent lament here at the White House. Our deficits are the result of our own selfishness, not politicians acting irrationaly. Do I support raising taxes on the wealthy back to where they were in 2000? Absolutely. Would that be anywhere near enough to end deficits? Absolutely not. Folks want to raise taxes and cut spending on anyone but themselves. They are also pretty adament about voting OUT of office anyone who does not pander to their selfishness. Hence, we have budget clusterfuggery seasoned with demagougery.

Calling Out the Deficit Poseurs

TW: POTUS and Mr. Blogger are of the same mind. Although he is easier on the public than I would be.

From POTUS December 8, 2009:
"Despite what some have claimed, the cost of the Recovery Act is only a very small part of our current budget imbalance. In reality, the deficit had been building dramatically over the previous eight years. We have a structural gap between the money going out and the money coming in.

Folks passed tax cuts and expansive entitlement programs without paying for any of it -- even as health care costs kept rising, year after year. As a result, the deficit had reached $1.3 trillion when we walked into the White House. And I'd note: These budget-busting tax cuts and spending programs were approved by many of the same people who are now waxing political about fiscal responsibility, while opposing our efforts to reduce deficits by getting health care costs under control. It's a sight to see...

In the end, the economic crisis of the past year was not just the result of weaknesses in our economy. It was also the result of weaknesses in our political system, because for decades, too many in Washington put off the hard decisions. For decades, we've watched as efforts to solve tough problems have fallen prey to the bitterness of partisanship, to prosaic concerns of politics, to ever-quickening news cycles, to endless campaigns focused on scoring points instead of meeting our common challenges.

We've seen the consequences of this failure of responsibility. The American people have paid a heavy price. And the question we'll have to answer now is if we're going to learn from our past, or if -- even in the aftermath of disaster -- we're going to repeat those same mistakes. As the alarm bells fade, the din of Washington rises, as the forces of the status quo marshal their resources, we can be sure that answering this question will be a fight to the finish."
http://swampland.blogs.time.com/2009/12/08/a-jobs-speech-with-elbows/

The Deficit Poseurs

From Dan Gross at Newsweek:
"A once endangered species is staging a robust comeback: the deficit hawk. Hunted nearly to extinction during the Bush years, many varieties not seen in Washington in a decade are now perching on branches and dropping their wisdom. Look, there's the Puff-Chested Congressional Peacock Hawk, strutting around Sunday-morning television-show sets complaining about pork while emitting loud honks upon the receipt of stimulus funds. The Furrowed-Brow Warbler Hawk (natural habitat: the op-ed pages) loathes deficit spending for the purpose of funding social insurance, but loves it when it's used to finance military actions abroad. The Blue-Bellied Partisan Hawk nests in think tanks; it goes mute when members of its own party run the show but squawks loudly when opponents run up debt. And on Nov. 3, birders sighted the rare Skinny Parrot Hawk, which repeats back the calls about fiscal probity. Said President Obama: "The government is going to have to get serious about reducing our debt levels."

The deficits are large. But a lot of this debate is for the birds. It's not uncommon for senators of both parties who oppose health-care reform because it's fiscally irresponsible to call for the elimination of taxes on the ultrawealthy's estates. Too often, "deficit reduction is a form of defense—as a shield for policies they don't like," says Maya -MacGuineas, president of the Committee for a Responsible Federal Budget (CFRB), a bipartisan group that was worried about deficits back when we were running a surplus..."
http://www.newsweek.com/id/221272

TW: I really liked Gross' deficit hawk depictions, they ring true. So much of the deficit discussion is led by hypocrites with agendas having little to do with actual fiscal responsibility. If someone was talking about deficits in 1995 and 2005 and not just since Obama became POTUS then she has credibility. If someone recognizes the cyclicality of much federal spending, then he has some credibility. Otherwise, stfu, thou art a poseur.

Read What He Says, You Might Learn Something

TW: Obama is nuanced which apparently puts some folks off. I would strongly urge folks to actually read or listen to what he says, what he says is pretty useful, informed and correct. Folks these days conflate his fiscal policies with structural and cyclical challenges which have little to nothing to with "stimulus", "socialism", or anything else the guys has allegedly done or will do. He knows what he is doing far better than most. Why folks would wish for something else at this point continually perplexes me.

From POTUS December 3, 2009:
"We have a structural deficit that is real and growing, apart from the financial crisis. We inherited it. We're spending about 23 percent of GDP and we take in 18 percent of GDP and that gap is growing because health-care costs, Medicare and Medicaid in particular, are growing. And we've got to do something about that.

You then layer on top of that the huge loss of tax revenue as a consequence of the financial crisis and the greater demands for unemployment insurance and so forth. That's another layer. Probably the smallest layer is actually what we did in terms of the Recovery Act. I mean, I think there's a misperception out there that somehow the Recovery Act caused these deficits.

No, I mean, we had -- we've got a 9-point-something trillion-dollar deficit, maybe a trillion dollars of it can be attributed to both the Recovery Act as well as the cleanup work that we had to do in terms of the banks. In turns out actually TARP, as wildly unpopular as it has been, has been much cheaper than any of us anticipated.

So that's not what's contributing to the deficit. We've got a long-term structural deficit that is primarily being driven by health-care costs, and our long-term entitlement programs. All right? So that's the baseline.

Now, if we can't grow our economy, then it is going to be that much harder for us to reduce the deficit. The single most important thing we could do right now for deficit reduction is to spark strong economic growth, which means that people who've got jobs are paying taxes and businesses that are making profits have taxes -- are paying taxes. That's the most important thing we can do.

We understand that in this administration. That's not always the dialogue that's going on out there in public and we're going to have to do a better job of educating the public on that.

The last thing we would want to do in the midst of what is a weak recovery is us to essentially take more money out of the system either by raising taxes or by drastically slashing spending. And frankly, because state and local governments generally don't have the capacity to engage in deficit spending, some of that obligation falls on the federal government.

Having said that, what is also true is that unless businesses and global capital markets have some sense that we've got a plan, medium and long term, to get the deficit down, it's hard for us to be credible, and that also could be counterproductive. So we've got about as difficult an economic play as is possible, which is to press the accelerator in terms of job growth, but then know when to apply the brakes in the out-years and do that credibly."

Something Has Broken Down

TW: ...in the American economy and it started quite awhile ago. Not sure exactly what the solutions are but more supply side tax cuts (i.e. on capital gains, high income individuals etc.) I suspect are not the answer.

Cutting the Deficit...So Easy To Say So Hard To Enact

TW: Frankel is a progressive economist (Harvard) but he identifies ten steps to address the deficit. They are almost amusing in their utter unliklihood of actually being enacted even though I would agree with most of them. Again defining the choices are so easy, getting the public to support them a different story.

From Jeff Frankel's blog:
First, auction off most greenhouse gas emission permits, rather than giving them away to firms (which would confer windfall profits). This is what President Obama originally proposed last February, but it is not in the congressional legislation.

Second, raise the gas tax. Among the benefits, besides raising revenue, would be reducing traffic congestion, accidents, pollution, dependence on Mideastern oil, and the trade deficit.

Third, cut agricultural subsidies to rich farmers and agribusiness, saving money and improving economic efficiency. This is another measure that Obama proposed when he first took office, but that was voted down.

Fourth, continue to cut expensive weapons systems that the military doesn’t want, but are kept only because the suppliers are in the districts of influential congressmen. President Obama and Secretary Gates amazingly managed to do this with the F22 (the first administration to succeed at such a thing, or even to try, so far as I know).

Fifth, end manned space exploration. We don’t need it. Spend half the money on useful science instead, including research on energy and medicine (and unmanned space exploration).

Sixth, let the George W. Bush tax cuts for the rich expire as under current law. Of course the Bush plan to eliminate the estate tax completely in 2010 and have it bounce back to its 2001 level thereafter is nonsense. Level the taxable threshold out at some reasonable estate size, a few million dollars, something high enough to de-legitimize the hysterical stories about inheritors supposedly being forced to sell their small farms or small businesses to pay the tax. (Use some of the revenue in these proposals to fix the AMT once and for all. And, in the meantime, continue Obama’s return to honesty in budget accounting regarding the costs of AMT, wars in Iraq and Afghanistan, tax cuts, etc. Bush’s habitual trick of purposely understating such costs in future budgets allowed him to pretend that we could afford his profligate fiscal policies, which in turn added far more to the national debt than the current recession measures are adding .)

Seventh, encourage hospitals to standardize around national best-practice medicine – to avoiding unnecessary tests and procedures – using levers such as making Medicare payments conditional on best practices. This is another part of the Obama plan. (Don’t follow the logic of radio show propaganda that labells even modest government involvement in health care “socialism,” because that would certainly require dismantling veteran’s hospitals, which provide good medical care relatively efficiently, even before it would require dismantling Medicare.)

Eighth, limit or eliminate the tax-exemption for employer-paid health insurance (proposed by Senator McCain), at least the cadillac plans which are very expensive but don’t even pay off in health results (proposed by Senator Kerry).

Ninth, ideally, eliminate the tax deductibility of mortgage interest too. But proposing this would be political suicide. Congress and the public are still virtually unanimous in wanting to tilt the playing field in favor of owner-occupied housing and against rental housing and the rest of the capital stock, notwithstanding that such policies contributed to the housing bubble and crash.

Tenth, to save Social Security, raise the retirement age (just a little), tax higher incomes (just a little), and progressively index benefits for future retirees to price inflation, rather than to wage inflation (just a little)."
http://baselinescenario.com/2009/12/01/feudal-lords-of-finance/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BaselineScenario+%28The+Baseline+Scenario%29

Obama Is Doing the Right Things

TW: When the economy is doing well the Republican want to cut taxes on the wealthy, when the economy is doing poorly they wish to cut spending. The results of such policies have been poor yet many folks hue their line. Here is a progressive economists take on the situation. Demoguery is a bi-partisan sport but the demoguery on the right is reaching new heights. When someone a viciously bad as Karl Rove is writing editorials in the WSJ about the need for conservative fiscal policy, one knows the shark has been jumped.

From Brad Delong at Project Syndicate:
"From the day after the collapse of Lehman Brothers last year, the policies followed by the United States Treasury, the US Federal Reserve, and the administrations of Presidents George W. Bush and Barack Obama have been sound and helpful. The alternative – standing back and letting the markets handle things – would have brought ... higher unemployment than now exists. Credit easing and support of the banking system helped significantly...

The fact that investment bankers did not go bankrupt last December and are profiting immensely this year is a side issue. Every extra percentage point of unemployment lasting for two years costs $400 billion. A recession twice as deep as the one we have had would have cost the US roughly $2 trillion – and cost the world as a whole four times as much. In comparison, the bonuses at Goldman Sachs are a rounding error. ...

The Obama administration’s fiscal stimulus has also significantly helped the economy. Though the jury is still out on the effect of the tax cuts in the stimulus, aid to states has been a job-saving success, and the flow of government spending on a whole variety of relatively useful projects is set to boost production and employment in the same way that consumer spending boosts production and employment.

And the cost of carrying the extra debt incurred is extraordinarily low: $12 billion a year of extra taxes ... at current interest rates. For that price, American taxpayers will get an extra $1 trillion of goods and services, and employment will be higher by about ten million job-years.

The valid complaints about fiscal policy ... are not that it has run up the national debt..., but rather that ... we ought to have done more. Yet these policies are political losers now: nobody is proposing more stimulus. This is strange... Good policies that are boosting production and employment without causing inflation ought to be politically popular, right?

With respect to Obama’s stimulus package, it seems to me that there has been extraordinary intellectual and political dishonesty on the American right, which the press refuses to see. For two and a half centuries, economists have believed that the flow of spending in an economy goes up whenever groups of people decide to spend more... – and government decisions to spend more are as good as anybody else’s. ...

Obama’s Republican opponents, who claim that fiscal stimulus cannot work, rely on arguments that are incoherent at best, and usually simply wrong, if not mendacious. Remember that back in 1993, when the Clinton administration’s analyses led it to seek to spend less and reduce the deficit, the Republicans said that that would destroy the economy, too. Such claims were as wrong then as they are now. But how many media reports make even a cursory effort to evaluate them?

A stronger argument, though not by much, is that the fiscal stimulus is boosting employment and production, but at too great a long-run cost because it has produced too large a boost in America's national debt. If interest rates on US Treasury securities were high and rising rapidly as the debt grew, I would agree... But interest rates on US Treasury securities are very low...

Those who claim that America has a debt problem, and that a debt problem cannot be cured with more debt, ignore (sometimes deliberately) that private debt and US Treasury debt have been very different animals – moving in different directions and behaving in different ways – since the start of the financial crisis. /blockquote>

What the market is saying is not that the economy has too much debt, but that it has too much private debt, which is why prices of corporate bonds are low and firms find financing expensive. The market is also saying – clearly and repeatedly – that the economy has too little public US government debt, which is why everyone wants to hold it."
http://www.project-syndicate.org/commentary/delong96/English

So What Would You Do?

TW: This is another chart from the Economist piece on fiscal policy. It is a
useful chart though in that provides a framework to evaluate fiscal policy alternatives. They use 2014 as the base year reflecting their understanding that cutting spending amidst a demand contraction like many Republicans (and a few Dems) would be economically foolish. Review the choices.

The chart suffers a bit from the reality that bending spending categories like retirement ages and social security benefit increases take time to materialize into significant savings. The savings in year one are quite modest but the power of compounding would turn them into very material savings over time. The Economist also chose to leave out reducing defense spending as an alterantive.

So what would you suggest?

Revenue Flat, Spending Up

TW: Economist has been doing some work on U.S. fiscal policy. They are a good source, fiscally conservative but not dogmatic on either spending or taxes in other words realistic. This chart starts in 1980 not by coincidence. 1981 was when the Reagan Revolution introduced the U.S. to massive deficits. What does this chart say to you?

To me I see revenues as a % of GDP gyrating but at the end of the day staying roughly flat. The gyrations related primarily to the Reagan tax cuts, then the W. Bush tax cuts (for the wealthy) and finally the Great Recession which decimated tax receipts.

On the spending side Reagan increased spending (largely on defense) then Clinton balanced the budget (with zero Republican votes in '93) partially on the back of the Peace Dividend as well as strong overall economic growth. Then spending began to rise again with W. Bush before skyrocketing with the bailouts in late 2008 and 2009 combined with some stimulus. In the out years spending rises as social security and Medicare begin to bite hard, note the spending rise has little to do with any new Obama policies as they have yet to be enacted and the health care reform would show up as essentially deficit neutral in this type graph.

Fundamentally this graph portrays a nation whose taxes have remained flat (at least at the federal level), yet whose consumption of social security, health care and defense continue unabated and are rising faster than GDP. When a cost is rising faster than GDP then either that cost curve must be bent downward or one has a bad problem.

Fiscal Conservatism?

TW: If Obama is to be a great POTUS, one of the attributes will need to be navigating the swirling fiscal currents which integrate the realities of our economic situation with the frequently contradictory realities of our political system. The public is always left with its head spinning. Should one care about deficits? "Deficits don't matter" said VP Dick Cheney, when the wealthy were being showered with tax cuts, $ poured into Iraq and Medicare prescription drug benefits doled out like crack. "The country is headed into a fiscal hell" says most every Republican now that some $ is being spent on stimulus and financial stabilization.

When should Obama shift to fiscal conservatism? That is a question, another would be whether Americans could actually accept fiscal conservatism. Taxes? Spending cuts not on someone else but on something that impact YOU? I obviously wish him well.

From Andrew Sullivan at Atlantic:
"...I've been arguing that the Obama administration needs to pivot swiftly from health insurance reform to fiscal responsibility in the coming months. The recession made deficit cutting in the here and now imprudent in his first year; but now addressing the long-term debt is itself necessary for stabilizing the economy - and reassuring independent voters that he, unlike his predecessor, gives a damn about fiscal health. Well: the good news is that he's going to do exactly that:

'President Barack Obama plans to announce in next year's State of the Union address that he wants to focus extensively on cutting the federal deficit in 2010 – and will downplay other new domestic spending beyond jobs programs...'

This classic Politico piece..fails to mention a few things about Obama's spending in his first year.

Item one: the recession.
To treat the stimulus package as if it were something he just felt like doing - because he's a big government maniac - is a lie, a piece of propaganda that has seeped into the lazy Beltway desire to describe everything - even now - into the big government/small government, red-blue paradigm.

Item two: The health insurance reform almost painfully tries to pay for itself - something that Bush's Medicare entitlement didn't even pretend to do.

Item three: there's a big big difference between spending on green and infrastructure investment and slashing taxes or increasing Medicare entitlements.

The way in which cynical and amnesiac Republicans have tried to portray this as classic big government liberalism is a lie. You can debate the merits of each initiative, but this is obviously not an administration as fiscally reckless as the last one. Mercifully, they have a chance to show it in earnest next year. And to call the bluff of those Republicans yelling about spending while having absolutely no plans or ideas for cutting it."
http://andrewsullivan.theatlantic.com/the_daily_dish/2009/11/obama-deficit-hawk.html#more

What Do You Want?

From David Rosenburg at Gluskin Sheff:
"...President Obama is now running fiscal deficits that would have made FDR blush.
If the consensus is correct that the recession is behind us, then what we have on our hands is the mother of all jobless recoveries

...But while Uncle Sam can try to stimulate spending on autos and housing and even mortgage credit via the myriad of policy measures that have been undertaken, the return to job creation is as elusive as ever. It is hard to fathom that, according to the White House estimates earlier this year, the stimulus was supposed to help cap the unemployment rate at 8.5%. Here we are today with both an unemployment rate and a fiscal deficit-to-GDP ratio both north of 10%. While real GDP did manage to rebound at a 3.5% annual rate in Q3 — stagnant if not for the government incursion..."

TW: This statement frames the messed up nature of our current economic discussions. One, Rosenberg conflates "Obama" with the current deficits. The vast bulk of the current deficit (and future deficits) are structural and would have been very high regardless of the POTUS. When economies contract tax revenues contract as well and things like unemployment spending, food stamps etc. go up. The graph below portrays the relative impact of various factors.

Two, Rosenberg seemingly laments interventions in things like clunkers etc. but then mentions that BUT FOR "gov't intervention" growth in Q# would have been stagnant. This is a common utterance from Wall Street- they bitch about government intervention but then what would they prefer? Financial Armageddon? Contractionary fiscal policies in the face of a massive demand contraction? We know they do not want financial regulation, what do they want?

I realize folks just want everything magically fixed- lower taxes, higher employment, lower deficits, a smidge of inflation but not too much. Let me know if you know where the magic button is. I am highly confident it is not anywhere near the tea-bagging fools.

Some Hardass Solutions

Comment from a reader on how we should address our economic challenges:
"The theoretical one is that we man up to our issues - put people [TW: those who have enabled the credit crisis] in jail, work-out the debt, stop the current BS programs [TW: some of the stimulus stuff like the housing credits] and the past stupid subsidies like the mortgage tax credit, hike the crap out of taxes, cut benefits, increase the retirement age, break-up the banks, get tough/fair on trade, transition to ANY of the 36 healthcare systems on the planet with better results ANY one of which is significantly cheaper than the one we have now, tax the shit out of carbon, start investing several trillion in infrastructure, slash the military budget, stop the "war" on drugs, eradicate Monsanto [TW: this person is not a fan of our food system], etc. The truth is you are shaking your fist at the sky. No matter how much we don't like it, the way humans solve problems is highly inefficient which is they don't solve problems until they are obviously on fire and there is no easier choice..."

TW: I agree with most of the prescriptions even if I agree essentially none of them will be enacted. The only value in pondering them is to ask why each of us individually would necessarily oppose a particular solution. And if by chance one does not oppose them all, which party is more likely to address them. Obviously neither party is able or willing to address them all. A common thread with the above suggestions are that they would:
1) require some level of sacrifice
2) require entrenched interests to relent relative to their particular interests
3) require a focus on the long-term rather than the short-term

This week's new meme is drop everything and focus on jobs. No health care reform, no financial reform etc. Eight months ago it was all the "stimulus" had to take effect immediately. We have been on this merry-go round forever, perhaps it will keep twirling a long. But something seems amiss.