Tuesday, March 15, 2011

Tea Party Wants Gov't Shutdown

This poll doesn't surprise me because I've been getting tea party calls all week opposing a CR that doesn't defund what they want defunded (mostly health care reform, but also Planned Parenthood). In addition, a number of Republican figures including Reps. Mike Pence, Michelle Bachmann, Jim Jordan, and Sens. Marco Rubio, Mike Lee, Jim DeMint, and Rand Paul have all come out against additional short term CRs. We haven't even got to the debt ceiling debate yet and these legislators and some of their more active constituents are already supporting a government shutdown.

37 comments:

kstill said...

The thing that most interested me about the article you posted was at the very end, ie: who would be blamed if there was a government shutdown.

I'm surprised that the Tea Party would stand behind something that would make them seem very unfavorable very quickly. In my mind they are still a relatively young faction of the republican party, and this kind of thing is exactly what could oust them. If the tea party and new members of the house continue to block a new budget on issues that will never be defunded, I think republicans could see a similar backlash like when there was a shutdown under Clinton.

Patrick_Landers said...

once again- this points to the stupidity (or more likely ignorance) of these people. A government shutdown would be related to the funding for FY2011- aka all of these CR's. Republicans right now are looking at like 15% of the budget (depends on how you count) and would only result in $60 billion in cuts from current spending levels, or about 1.6% of the budget. We have a $1 trillion+ deficit this year alone (partly related to economic downturn, but also heavily related to structural imbalances). This also happens to be the part of the budget which addresses those things most people consider most important- education, infrastructure, food & safety protections, the social safety net, etc. These levels are at the lowest levels as a % of GDP since the 1960's (the Obama claim about the Eisenhower administration is a slight exaggeration). You can't squeeze blood from a stone- they're really attacking the most critical and most efficient part of the budget (because it's the one that has received the harsh light of day for decades).

You're also threatening the economic recovery (as it receives other tiny shocks from Libya, japan, and who knows what else). Bernanke's estimates of 200,000 jobs being lost is a very credible number- basically what you're almost certain to see if those hard cuts were enacted (you're not going to have much less than 200,000 no matter what crazy, illogical back-routes you think these miniscule cuts are going to have on the economy, Cato's talking out of their a$$ when they try to come up with convoluted thinking as to how this would help our economy. The 700,000 figure of Zandi and Goldman Sachs represent a high end amount- possible but unlikely. I'm just saying that Republican cuts you could consider likely to cut anywhere's from 150-to 700,000 jobs, with a mean and most likely estimate centered around 200-300 thousand jobs lost).

You need to fundamentally reform entitlement programs, and you need to think about what level of government you want- and then getting revenue levels up to that point- which would involve getting tax levels up to Clinton rates (when the economy did very well) and scaling back or eliminating tax expenditures (which are poorly targeted, regressive, economically distortive, on autopilot, receive little oversight, create inequities between similarly situated people, etc.)

Which is why the House Republican leadership wants to move past this debate and move on to the more important longer-term problem. A shutdown would potentially weaken their political hand and certainly scare the markets by giving them a good signal that these Republicans aren't willing to address these issues (long-term problems not based on government fraud, waste, and abuse) in a serious and adult manner. It will also give investors greater cause to be concerned about the debt-ceiling increase vote which will have to occur.

Stupid, stupid, stupid to have a shutdown. Probably bad politics, and certainly bad policy if you were actually concerned about addressing the federal debt and the strength of our economy.

Ryan Karerat said...

I'm going to hold the Tea Party accountable if I have to go to work and you guys don't.

TJE said...

Argument 1: These cuts are trivial.
Argument 2: These cuts will devastate the economy.

PBM said...

Argument 1 applies to long term, argument 2 to short term. I'm just hoping the Dems can shape a message around these crazies that will pin a shutdown on the GOP.

I think the best thing would be to stimulate the economy in the short term, and reform entitlements for the long term. You can also reform government programs, but this should be done carefully and in a frame of a few years, not weeks.

TJE said...

But Patrick tells us cuts are only 1.6% of budget. Will they really make the sky fall?

PBM said...

They also take billions out of the economy in a very short period of time by dropping hundreds of thousands of federal workers in a matter of weeks. If they were put on unemployment (I don't know if they would, Patrick would have to answer that), then they would put a drag on the deficit for another potentially 99 week period with the same salary they would have if they were employed to help run the government.

PBM said...

Why do all these debates have to be heating up when the work day is ending?!?

Patrick_Landers said...

Nice try, but the arguments aren't contradictory as your framing tries to suggest.

1) The cuts are miniscule as a fraction of our total deficits and long-term debt problem. The Republicans want $60 billion in cuts. What’s our debt? Oh yeah, $14 trillion plus. What about the Bush tax cuts, which have helped to explain why even the middle-income [40-60th quintile] households are paying the lowest effective rate since 1979- the earliest year for which we have data? (Of course- those tax cuts were primarily a boondoggle for the rich. 31% of the benefits would flow to just the top 1 percent of households (those making $450,000+ in 2008) from 2009 to 2019 if they were kept for that entire time period.)What was the cost of that policy decision? Oh yeah- over $1.9 trillion.

What was the cost of just the extension of the high-income tax cuts & further weakening of the estate tax that occurred in the lame-duck tax deal? $139 billion over two years (aka similar in size to the Republican cuts if annualized). Let’s compare those tax breaks for those households making over $250,000 with the Republican cuts…in Head Start, Pell Grants, K-12 education, job-training, WIC (nutrition for Women, Infants, and Children), clean and safe drinking water, CDC cuts by 10%, FDA cuts by 10%, food safety and inspection cuts, vocational and adult education, mental health services, substance abuse treatment, public housing funds, etc. Oooh…tough choice. I can totally see why the Republicans would be willing to prioritize tax breaks for the wealthiest 2% as being more important than funding for a program like Head Start which has an enormous long-term impact on improving a variety of outcomes for at risk children.

You can’t cut non-security domestic discretionary (12, 15, or 18% depending on how expansively you define what Republicans in theory are looking at). Nor should you- the funding it at the lowest levels in roughly 50 years, and this section of the budget primarily goes to things like the social safety-net, or education, infrastructure(which has fallen as a share of GDP by 80% from past levels), R&D and other things completely unrelated to nation’s growth prospects.

Patrick_Landers said...

Hopefully this gives a clearer picture as to why “these cuts are trivial” (your phrasing) is a completely accurate statement, which is not incompatible with the argument that these cuts could have a very serious impact on our economy. Or as I phrased it, “threatening the economic recovery,” which is still fragile with unemployment at 8.9% (which ignores the more comprehensive measures of underemployment and discouraged workers leaving the labor force which are at even more, historically-high, levels).

Note that I only ever included it as a contributing factor, noting the other shocks the economy is experiencing (Libya-rising energy prices, Japan, etc.) and ones that we can’t predict but are likely to occur. However, the Republican cuts are a significant threat to the economic recovery, likely costing “a couple hundred thousand jobs” – a “not trivial” figure, according to Ben Bernanke. That’s a cautious estimate, one I generally agree with. I tried to explain why there was a variation in the estimates- it’s a skewed distribution, with 150k jobs being a low end and 700k being the high end of what are reasonable estimations, but at least 200k, more likely 300k, being a more likely to occur result. I guess people might look at those job losses and shrug them off- maybe pull a “Boehner?” However, I don’t think it’s such a smart idea to be doing such serious cuts to the economy and significant job losses in light of the other shocks are economy is receiving while it’s still struggling at 8.9% unemployment, especially since they have such a minor impact on our long-term deficits problem. Both the Bowles-Simpson and Dominici-Rivlin proposals agreed and would not impose their cuts so soon, and all of the co-chairs have made comments in the last few weeks reiterating their concern about these Republican cuts negatively impacting the recovery.

This is why none of the comments I made were contradictory or incompatible as the phrasing insinuated.

Patrick_Landers said...
This comment has been removed by the author.
Patrick_Landers said...

about the sentence "this section of the budget primarily goes to things like the social safety-net, or education, infrastructure(which has fallen as a share of GDP by 80% from past levels), R&D and other things completely unrelated to nation’s growth prospects."

the "unrelated" was meant to be facetious- just afraid it wasn't clear enough when I reread it

TJE said...

Methinks that some opponents of cuts are most concerned about effects on social safety net but think an argument about imperiling the economic "recovery" will get more traction.

TJE said...

http://www.latimes.com/news/opinion/commentary/la-oe-kinsley-budget-20110315,0,1118853.story

PBM said...

I don't know about that professor. 300,000 jobs are still jobs no matter what sector they come from. They would be lost very swiftly and that would take a lot of money out of the economy. The public sector already lost 30,000 jobs last month, and is on track to lose more as state's try to manage their deficits. 330k+ jobs is not a small number. Keep in mind that if we want unemployment to get down to a normal rate we need growth of at least 250,000 jobs per month. That wouldn't put us in normal territory for at least 5 years, if not more (I've seen that stat somewhere, and it actually might be more dire, but I don't feel like looking it up right now). Let's wait until we've recovered before we start chopping away at the federal workforce.

Also, I don't know about you, but the public programs I deal with most, mainly in transportation (metro, roads, etc.) are already desperately underfunded. Wherever I drive, there is heavy congestion, a large number of potholes, and other maintenance issues. When I take the metro at rush hour, I (and we all) have to deal with broken escalators at least once a day if not more, not to mention waiting 10-15 minutes for trains on nights, weekends, and other non-peak hours. Let's keep programs like metro adequately funded now and alter social security, medicare and medicaid for the future.

PBM said...

And let's pare our spending cuts and entitlement reforms with tax increases that make sense and are popular like raising on the wealthy, taxing speculation, taxing Wall St. bonuses, taxing natural gas and oil drilling, removing tax breaks for agriculture and oil industries, and more. And when we do cut programs, let's cut ones that aren't achieving their goals like the war on drugs. It can be a mix, but dramatic spending cuts in the short term are not helpful to our economy or our country's general well-being.

TJE said...

Barro seems to have been right about effect of stimulus:

http://online.wsj.com/article/SB123258618204604599.html

Patrick_Landers said...

Methinks that some opponents of cuts are most concerned about effects on social safety net but think an argument about imperiling the economic "recovery" will get more traction.

You are completely correct on this one point- the arguments used for progressives vs. Moderate Democrats vs. Moderate Republicans are completely different. Anyone on the political spectrum from Chuck Schumer to Scott Brown/Snowe/Collins/Kirk are minimally responsive to concerns about the safety net. Anyone to the right of these 4 Republican Senators is completely non-responsive to safety net concerns, so there’s no point even trying the middle-class/economy arguments that can be used to defend social safety net programs. Now, many people concerned about the safety-net find personally the safety-net specific arguments more compelling (we believe in Head Start, WIC, TANF, Medicaid, the EITC, etc.). However, since Moderates only care about the middle-class, jobs, economy, etc. mantra- we are forced to use these secondary arguments. The jobs arguments are still completely true- I’ll repeat again that the Bernanke numbers are VERY credible. Once again- two Hamilton College economists (different pair than the last letter I mentioned) have signed on to at least one letter saying how cuts can damage our economic recovery. That is a very true and real argument, which, unfortunately in my opinion, is the major argument we have to use with a large-cross section of the Senate. It’s not being insincere since the argument is true and we believe in it, but you are correct in that we (people concerned about cuts in our very minimalist safety net) largely turn to it because we know it “will get more traction.”

As for the stimulus, here’s what the CBO finds http://www.cbo.gov/ftpdocs/120xx/doc12074/02-23-ARRA.pdf using a variety of approaches. Their LOW-END estimate was that in September, 2010- 1.4 million people owed their jobs to the stimulus. The stimulus was not a failure- it was only a fraction of the size necessary to deal with the fallout in economic demand caused by the economic recession…that would probably have been a depression without a stimulus. And why did this recession occur- a housing sector bubble (which the Bush administration did nothing to limit- aka they didn’t do their job) and inadequate regulation and complete ignorance about the huge risks being accumulated in the financial sector (once again, a Bush administration failure). The economic and government fiscal costs related directly to the economic collapse and the following government stimulus are enormous- and those costs should be attributed to the Bush administration for their EXTREME failures. This wasn’t a tiny recession where the economy was essentially resetting. This the worst recession since the Great Depression, following years of empty growth, all based on bubbles in the housing and financial sectors- which are BAD for the economy, so those responsible for the economy (aka- the Fed and the Bush Administration), are supposed to prevent them from developing. Clearly they failed.

Patrick_Landers said...

Oh, and one last about the stimulus. People are right when they point out that we have to consider what that money would have done in the private sector. However, during an economic downturn (which we're still seeing), private spending massively retracts which can prevent enough of the economy to keep on churning to maintain it until the private sector regains enough confidence to return to spending money, creating aggregate demand, etc. So when we think about a stimulus, we are taking into account the private sector effects. We just realize that very little of that money would have been put towards demand- it would have just been saved, and not necessarily in high-yield ways. The government stimulus does have a long-term financial cost- however, that cost is less than would have been the cost of the government doing nothing and the recession being worse (probably a depression) which have stunted growth for many, many years which would have been devastating to the private sector and the government's finances.

Patrick_Landers said...

And I'm not arguing for further stimulus now, or even a larger stimulus then (I think the $ amount of that was right, the makeup could have been done better- largely speaking, the more Republican ideas were far less stimulative and we knew that then- the best stimulus is usually direct spending programs and money being put into the hands of the poor and middle-class, since that means the money is going to all be spent). There are long-term costs to any stimulus, besides the risks of disrupting the private sector kicking back into gear; and with the deficits we had going into the recesssion (heavily inflated by Bush policies) combined with structural imbalances (which all President's share part of the blame), we just didn't have enough fiscal slack to be able to run the risk of doing TOO MUCH fiscal stimulus. It's likely that more could have worked and been fiscally a good-deal in the long-run, but that's a less certain question so I wouldn't want to have risked it.
THe government stimulus was relatively small for the size of our problem, and large portions of it have already been spent and worked itself through the economy. The private sector has picked up the slack from that withdrawl- unfortunately the private sector growth just hasn't been strong enough yet on its own to really improve our economy and employment.

TJE said...

The appeal to the authority of selected HamColEconProfs strikes me as a slender reed for your position.

To paraphrase Bill O'Reilly, show me where Barro is wrong.

TJE said...

http://money.cnn.com/2011/03/15/news/economy/alan_greenspan_recovery/

Patrick_Landers said...

I wasn't appealing to Hamilton Econ professors for their expertise (good to know you think it's a "slender reed")- I only bring it up as a human interest element. I'm sorry if you don't think the Federal Reserve or CBO has any competent, neutral economists, but that’s who I generally turn to unless I see a compelling reason not to. If you reject their advice, then you're basically stuck looking to the Heritages, Catos, Mercatus Centers, et al. of the world for economic opinions- and that is quite a small sliver of the field.

The explanation for the impact of the cuts is really quite simple- they are going to have the immediate impact of cutting public sectors jobs and private sector jobs dependent on federal funding. When all those people lose their jobs, they cut back on their household spending because they've lost their income source. That reduction in spending then has multiplier effects- with lower consumption and demand reducing secondary (further down the line) jobs.

Some wacko economists- the same ones generally who argue the most strongly that markets are rational and superior- argue that this impact would be offset by the increasing market confidence in our government's ability to tackle our long-term, structural problems. Of course, "the markets" are smart enough to know non-security domestic discretionary spending has nothing to do with our current structural problems (lowest levels since the 60's) and they know it's a drop in the bucket compared to what's needed on entitlements and revenues. The private sector is looking for serious, credible multi-year plan (which means the plans can't be too severe- because everyone knows when Congress and the President have done this in the past, i.e. 80's, the plans weren't kept too), for addressing our structural problems- not the Republicans piddling effort pandering to their uninformed base about all that "waste, fraud, and abuse" and worthless spending. I don't see how something that's been declining for decades could be considered the explanation for our long-term problems nor rightly the solution, and I don't think the markets would fall for this falsehood either. Therefore, when Cato argues that these cuts will send a signal to the private sector and magically kick start their economy, they are a) not making economic sense, and b) going against the arguments, logic, and frameworks they have used for decades about free markets being so smart. Either markets are super-smart and the government should get just out of their way, or market are super-stupid (and the government should intervene to make up for its irrationalities). Pick a side (I know it’s a spectrum, I just think it’s ridiculous the lengths to which Cato experts are contorting themselves to try to justify their fierce support for these cuts. It’s fine if you support them (which Cato does)- just don’t try to say they’ll be good for our economy.) They won’t- we’ll lose hundreds of thousands of jobs while unemployment is still at 8.9, running the risk of additional multiple economic shocks combining to really hurt the economic recovery.

Patrick_Landers said...

Which brings us to the latest evidence of Alan Greenspan's growing senility and/or pathetic attempt to draw attention away from his miserable failures during the 2000's. Basically his empirical model allows him to explain 45% of the current sluggishness of the economy, the other 55% he simply attributes to “government activism” without providing any empirical evidence. Note that his deregulation was a major factor in allowing the bubbles and volatility to develop which caused the massive economic downturn. But of course, he can’t truly admit his “hands-off,” deregulate approach to the markets were a major factor in the worst economic downturn since the Great Depression- hence his need to sign onto the craziest and least substantive assaults on government activism and anything smacking of regulation.

For a very good evaluation of this article from the National Journal’s (part of vast left-wing conspiracy? I can’t keep track of which publications are considered biased) economic policy reporter. It’s actually very good. http://nationaljournal.com/economy/greenspan-s-flimsy-explanation-for-a-tepid-recovery-20110314?mrefid=site_search

These arguments people try to make are all about how the government is crowding out the private sector. Then how can interest rates be so low? They pretty much can’t get any lower. If the private sector was having trouble getting access to investment capital, this would cause interest rates to be rising (not staying at historically unusually low levels). We have excess capacity in just about every sector of the economy. There just isn’t any major evidence for the government being a drag. More credible explanations are either a remaining shortage in aggregate demand or the serious harm caused to the financial sector (thanks Bush Jr. and Greenspan- great job on that one!).

TJE said...

http://online.wsj.com/article/SB10001424052748704150604576166563309681964.html

TJE said...

So it's somewhere between zero, 200,000 and 800,000 jobs lost. Economics may be dismal but it's not exactly precise.

TJE said...

Reason for optimism? Will President Obama join the party?

http://online.wsj.com/article/SB10001424052748704296604576197240929370526.html

TJE said...

Who is John Galt? Alan Greenspan?

http://www.businessweek.com/news/2011-03-07/greenspan-grapples-for-stimulus-that-works-with-ayn-rand-s-help.html

Did Atlas Shrugged inspire the President's affection for high speed rail?

Patrick_Landers said...

a) I love how the EPI is generally referred to with the caveat (left/big labor funded). All the AEI ever gets is conservative. Why don’t we ever say the American Enterprise Institute, a Washington outfit funded by Big Corporations? It’s just as true.

b) It’s not between zero, 200,000, and 800,000. I’ve already explained at least my understanding of how the distribution of numbers worked. 150 to 700k is the distribtution, 200-300k is the mean. It’s not that imprecise. How’s political science doing on narrowing down the questions of life.

c) We’ve discussed the Golden Sachsonomics article before. Basically it rests on attacking the knowledge of the EPI, Moody’s Analyatics, Golden Sachs, the OMB, the CBO (they don’t know these last two because of what’s public and not), and the Federal Reserve (as we move our way from left to right, passing through the center and into a slight right on this kind of economic question with OMB, CBO, and the Fed). They defend this claim by all-out assaulting Keynesian economics (a much larger question, and a surprising conclusion for conservatives to make since recent economic downturn is not easily explained and substantiated by their alternatives, the Austrian school et al.; while Keynesian-properly understood by economists, in many respects seems like a strong tool for explaining large parts of what we’ve seen. I think many people thinking the Keynesian name is dirt, which the vast majority of economists would disagree with). They then cite Barro and Alessina, two well-known right-of-center economists (not doing a he said, she said thing here about ideology, just making sure everyone knows their placement on the economic spectrum when it comes to questions like these, and pointing out that unless you think the CBO and Fed are leftist hotspots, then I’ve pointed to support for my arguments from left AND center economists, not just those the WSJ editorial page find acceptable. And if you think CBO and the Fed are crazy leftists, then there are VERY FEW centrist or right-wing economists by that definition.) Also, their breezing by of Alesini’s research slightly mischaracterizes it, but that’s a minor quibble. Generally speaking, what he says is similar to how the WSJ is framing it. However, rebutting his research is done through really dense Econometrics- I’m talking really dense. I know of people who are doing it, I just don’t know off the top of my head where to find their results.

TJE said...

http://online.wsj.com/video/opinion-journal-budget-cutting-baby-steps/F7EF64AF-C8C3-4E49-A822-BC1205C33E6D.html

Patrick_Landers said...

2 quick comments before I move onto broader points.
a) Not every left-of-center person cares about trains. I don’t. I know that American has a really good commercial rail system, and I know we could have a cost-effective personal rail service for parts of the Northeast rail corridor, and potentially elsewhere. Personal rail might even be more feasible in certain parts of the U.S. than in Europe. However, that’s not a big concern of mine, and our current fiscal straits make me even less inclined to care. So train-baiting won’t work on me :-P

Though even in our tight fiscal straits, we do need some more transportation investment (roads, bridges, ports, broadband, etc.). However, as much of this as possible should be done through private incentive means, with as minimal as possible role for government spending. (i.e. joint venture infrastructure investment banks perhaps). Our national infrastructure is very important to our nation’s physical capital, which improves our long-term growth prospects. Even the Chamber of Commerce in a rare alliance with labor strongly supports more infrastructure spending (which has decreased as a % of GDP by 80%- I don’t know the exact figures, but this would mean if that it once was 5% of all GDP, we now only spend 1%)

b) Hopefully in this post I don’t say anything too wrong.

My specific critique of Barro (which I’ve already sort of said) is that the normal rules about private spending wouldn’t apply during such a severe recession when private sector spending so massively contracted. So under normal conditions private spending is generally more efficient than public spending (we trade-off private spending’s efficiency for targeted public spending on things that for economic reasons are done best by the state (i.e. public goods) and for spending on those things we value that aren’t a part of the private, free-market [i.e. social safety net]). However, under these conditions where private individuals and businesses were acting rationally and irrationally (for instance, many people had just seen their major asset and source of wealth, housing, drop dramatically- basically overnight, to their perception. So to some degree people were acting intelligently)

Patrick_Landers said...

However, we know that markets eventually recover from these bubble and financial sector-crises shocks. Unfortunately if the private sector contracts to strongly, this can delay the economy fully recovering in a shorter timeframe (less time away from potential GDP is a good thing). Thus, it’s perfectly appropriate for the government to step-in in times of severe fiscal crisis in order to basically keep the economy stabilized and internally moving to some degree. Just as there are spending multipliers, there are contractionary multipliers. If a million people lose their jobs, they’ll cut back on their household spending because they know their incomes are constrained. This reduced spending causes other people to lose their jobs- say 100,000 people. Then all of those people cut back, and 10,000 more people lose their jobs, and so one. These multiplier effects aren’t very accurate, but they are showing how an economy could get into an excessively mutually destructive cycle (this cycle is limited, and we’d recover eventually, but it’s better to short-circuit this process to some degree by having the government step in to prop up spending and demand).

This reasoning is why the vast majority of economists argue against federal balanced budget requirements (that spending must equal revenues in every single year). The government has an important automatic stabilizer role to play (revenues decline in recession, but spending on the safety net, education, and other things increase). Most European countries had a much smaller stimulus package (as a % of GDP) than the U.S. did- because their government’s have such stronger safety nets, their economy’s have more automatic stabilization, so they didn’t need all the extra stuff our government had to do (which actually wasn’t anything extreme, whether compared historically, internationally, or to the size of the problem).

Basically, there’s just disagreement (empirical, but mostly theoretical) about the different multipliers, ratios, etc. we’d use to determine how much the government should respond in such a severe fiscal crises. So in answer to Bill O’Rielly, this is where I disagree with Barro. You know just as well as I do that the stimulus package has split the economics profession. You can find lots of very qualified economists critiquing Barro’s arguments- just as you can find others supporting him. Clearly I’m not going to convince you, but in my reading of both sides of the argument, I generally finding myself agreeing with those that the stimulus was a necessary and good idea that has had a significant impact. I’m not on the extreme of this issue, arguing for massive stimulus and improbable effects. Clearly you, in your reading of arguments made over the last few years by qualified people for both sides, disagree with me. You also know there is no way I can rebut Barro definitively. I’ve previously pointed to CBO’s studies using a variety of methods finding the stimulus was important. I’ll add what Bernanke said back in the summer of 2010 “I do believe that, at the current moment, that the large deficits, as unattractive as they are, are important for supporting economic activity, and they were important also in restoring financial stability…And so I think they were justified in that respect, and I would be reluctant to withdraw that support too precipitously in the near term.” “The best approach, in my view, is to maintain some fiscal support for the economy in the near term but to combine that with serious attention to addressing what are very significant fiscal issues for the United States in the medium term” Just know that Barro is going up against just little me and Krugman (who I know you love!). He’s also disagreeing with the CBO and the Federal Reserve Chairman. I take that into consideration when I think about these issues.

Patrick_Landers said...

Moving on, to show you that I’m not crazy, and to give you an idea about what liberal fiscal hawks might be interested in, here's my ideal deficit reduction (points are not in order of importance):

1) let all of the Bush tax cuts and estate tax provisions rise to their previous levels (i.e. Clinton 1990's). Reduce the $1.1 trillion in annual tax expenditures- I'd eliminate the employer-provided health insurance deduction pretty quickly (completely phase out it out within 10 years at the absolute latest), eliminate or cap how much could be credited of the mortgage deduction credit, reform all of the other expenditures, and set a cap on how much value you could get in tax deductions (forget the lingo for this measure at the moment). We also would implement a progressive consumption tax or modified VAT (basically some alteration to the consumption taxes to compensate for their regressivity) to largely, but not entirely base the federal income tax system (we'd lose too much revenue if we completely got rid of the income tax, plus we'd be sharply reducing the overall progressivity of the system if we completely got rid of income tax). This would allow us to have much lower marginal tax rates, which we know are one the most economically distortive tax policies. This change to a consumption tax would improve our economy's incentives to shift towards more investment and less consumption, which is important considering our nation's current account deficit (refers to whole economy). We'd also do extensive corporate tax reform, making sure that the corporate rates and rates affecting pass-throughs (businesses taxed on the individual code) have similar rates to minimize distortion. Overall, tax reform would raise revenues but improve incentives for growth. It's important that we at the very least see revenue increases (which would still be at internationally low-levels) for the next two decades in order to stabilize and reduce our debt to GDP ratio, which is impossible to do the through the spending side alone because entitlement reforms will take years to accumulate significant savings. If we are able to improve the financing of Social Security and reduce economy-wide health care costs, we could several decades down the line consider reducing the amount of revenue collection as a % of GDP. But it’s very hard policy wise to just tackle our deficits in the mid-term [next two decades] with just spending cuts. It’s also considered politically impossible by everyone- you couldn’t get lots of Republicans in the House or Senate to approve the kind of drastic, really draconian cuts necessary to do spending-only deficit reduction that quickly.

Patrick_Landers said...

2) Reform Social Security to make the program fiscally solvent beyond at least the 75-year timeframe, preferably by improving how the program’s finances are structured to ensure surplus years are protected from pillaging. This will improve our deficit picture. However, Social Security reform can’t (as every major bipartisan fiscal commission has agreed to) be used to enact deficit reduction beyond what we’d get from just restoring the program to solvency (which would be a significant, useful step).

3) Enact some cuts in non-security domestic discretionary funding (aka what the Republicans are doing- I think the Republican cuts are a little too much for me to accept, but I could get pretty close, especially if I could make some modifications in what programs the cuts would be implemented). Cap spending on this part of the budget for GDP growth and demographic changes of the population these program services.

4) Which reminds me- like all of the fiscal commissions have agreed to, and all past deficit reduction deals have conformed to, programs for low-income Americans should be protected and not be cut for deficit reduction. They will still face the impact of other cuts, but these most important and essential aspects of the American social safety net must be protected.

5) Cuts in security and defense spending should be at least as large as those in non-security domestic discretionary spending. We spend nearly 50% of the world’s military budget. We can’t afford that when our fiscal problems represent the most important national security threat our nation faces, in the words of Admiral Mullen, Chairman of the Joint Chiefs of Staff. These cuts will not hurt our national security interests. As everyone knows, the national defense budget is probably the least examined and controlled aspect of our budget, so there is actual significant fraud, waste, and abuse in this part of the budget. Beyond that, defense spending that won’t hurt our national security interests should play an important role as tackle the most important national security threat of our deficit problem. One of the many ways to achieving these savings is to address the payment and health care systems of the military and Veterans system, which have been poorly examined in the past but constantly added to by Congress to levels that even the current military leadership is starting to realize are excessive and counter-productive.

Patrick_Landers said...

6) Health Care reform will not be repealed. It is the framework we have for moving forward, so we should strengthen it extraordinarily. Implement all of the delivery reforms both parties’ experts have supported in full strength. Eliminating the deduction for employer-provided health insurance is a great way to start bending the cost curve even further. There is a great deal that we can do to accelerate the speed and impact of the Affordable Care Act to more rapidly and significantly bend the cost curve. Do tort reform. Do additional things. Lowering health care costs economy-wide will improve our private sector’s efficiency and improve our public sector’s finances.

7) On Medicaid, it’s already a very stringent, stingy program that has actually for the last decade seen lower cost-growth than the private sector. We can’t cut benefits and we shouldn’t cut beneficiaries since universal health insurance is an important policy aspect to any attempt to reform the system. Private alternatives aren’t any better than Medicaid. They already have less access to care (because the program is so cheap). The people qualifying for the program under the ACA’s expansion will be at 133% of the federal poverty line or less- these people have very little disposable income and they already struggle keeping up with the costs of food, child care, housing, transportation, etc. Studies have shown that low-income people are the most responsive to cost-sharing mechanisms (which I’ll get to more later) in that they make WORSE care decisions as a result. Since they have so little income and making them spend more of it on health care will hurt their outcomes (and actually increase long-term costs as a result), we can’t increase cost-sharing for Medicaid beneficiaries. Basically, I don’t think there’s much we can do with Medicaid. When governors talk about wanting more flexibility with the program, it’s important to press them on what they think they’re going to do (especially the Republicans ones). They try very hard to not give a straight answer- because the answer is quite clear- the only thing they can hope to do to significantly reduce costs is to cut benefits and cut people from the program (adding to the ranks of the uninsured). As I’ve tried to very quickly explain, this is the wrong policy prescription for this already stingy and efficient program.

8) There is one thing we can do within Medicaid, and that is improve the care and treatment of the “dual-eligible’s,” those who receive Medicaid and Medicare. A lot of that involves care coordination and improving cost efficiencies in end-of-life-care (which isn’t as scary as it sounds. I don’t know why it’s a problem for the government to be willing to pay for doctors to have counseling sessions with those patients who ask for it on end-of-life medical decision processes, especially when these sessions have been shown to improve outcomes, reduce costs, and actually improve the patient and family experience and happiness with the whole process. Aka, “death panels.”).

Patrick_Landers said...

9) On Medicare, we have to keep in mind the impacts of the cuts we will already be making in Social Security, as well as the modest retirement incomes of the vast majority of all retirees and the elderly. However, I would be open to increasing the cost-sensitivity in the Medicare program by increasing cost-sharing. Other than that, there’s not much we can do with the Medicare program (actually has fewer benefits than private insurance currently, and the elderly are very hard to insure in private markets for obvious reasons) beyond this and the other steps the government will be taking to reduce the cost-curve (which often is done through using the market share of Medicare to make significant changes to test their efficacy in the health care sector).

So there’s what I would do- similar to what both the fiscal commissions (Simpson-Bowles, Rivlin-Dominici) did in one way or another. I’d say it’s either the same or slightly to the left of what many Democrats right now would be willing to accept. The current machinations you are seeing on this issue comes from the sliver of left-wing crazies (similar to Cato and the Tea Party on the right), as well as the center left’s concern over the politics of the current situation- which make finding any deficit-reduction plan acceptable to the right impossible for even the center-left to accept. Politics are a negotiation, so you can’t start it by putting forward the ending position you could accept.
Though I do think the President needs to get more involved in the game. However, they are keeping a very close eye on the Gang of Six negotiations (and I’m not saying that based on press stories, if you catch my drift…)

Btw, I think you (Professor Eismeier, and others potentially) think I’m a lot more left than I actually am. I started college as a Republican, and I still think in terms of opportunity and markets being great. For instance, I love George Will, even though more and more I disagree with him quite forcefully.

I just tend to think conservatives/Republicans underestimate how bad things are (which makes the costs of intervention more worthwhile) for some people. For instance, I believe in the research showing the long-term effects of childhood poverty, which cuts against equal opportunity. I also think free-market conservatives overestimate how perfect markets are (which rests on certain assumptions that don’t empirically hold up, including how rational people areN’T and how much information they DON’T have. Just to name a few examples). Anyways, just offering some thoughts psuedo-related to this argument, and the ones we get into more broadly all over the blog. I thought it might add context and greater understanding to my thinking. This way, you're not just seeing my thinking on those issues where I respond as the Devil's Advocate and always criticize what other people, (generally conservatives) are saying. I'm not just a negative Nancy, loony Liberal. At least I don't think I am. Other people may disagree

TJE said...

Courageous if difficult proposals, especially big tax hikes on middle class.

But you and Megan are both great Americans.