Brad DeLong’s fiscal plan

by on November 10, 2010 at 6:57 am in Economics, Political Science | Permalink

You'll find it here and I agree with much of it.  I would phrase the rhetoric differently, but let's put that aside.  And also let's assume — as is likely the case — that Obamacare is here to stay and thus that is taken off the table.  The most important development is simply that Republicans (and Democrats) support the potential for Obamacare to reduce the rate of growth of Medicare expenditures.  That is the #1 issue in fiscal policy today.  And it saddens me how infrequently it comes up, except to be attacked.

I get nervous when I read Brad's phrase "commit immediately," which appears repeatedly in the post and it appears in critical moments.  I favor the specified commitments but I also think they are highly unlikely.  The phrase "commit immediately" is almost an oxymoron, as the call for immediacy highlights that no one to date has made such a commitment or wants to or, in all likelihood, will, until of course an emergency comes, as with the passage of TARP.

This "don't commit, rather do it now" reasoning is easy to understand when the Democrats pushed for a rapid passage of Obamacare, or when we look at the frustration with the stalled repeal of DADT.  Few on the left thought that "precommitment to do" was a viable option in those cases, so the push was "do it now," even if that was not convenient in terms of the election or, in the case of DADT, relations with the Pentagon.  Yet when we return to fiscal policy, the talk is once again of "commitment."  I fear it is a placeholder for the idea of "no commitment."

What's the best fiscal policy when there is no commitment?  I say let the Bush tax cuts expire fairly soon, so that spending feels to the public like it has a cost.  (It's become increasingly clear to me that when it is possible for taxes to fall again that they will do so; I am less worried about high tax rate lock-in than I was fifteen years ago.)  Have prominent Republicans endorse the better parts of Obamacare.  Continue QEII but no second fiscal stimulus and no extension of any Obama tax cuts, which were a mistake in the first place.  Carbon tax if possible but it's not.  Reindex Social Security ASAP.  Cut discretionary spending where you can.

That's my fiscal recipe, for this lovely Wednesday morning, sans commitment.  Like Brad's proposals, it won't happen, but it feels "merely impossible," as opposed to impossible at a more fundamental metaphysical level.  Should that distinction matter?

Oh, and get rid of DADT during the lame duck session of Congress.  Ha. 

Addendum: Interfluidity has brilliant, and related, remarks.  The best post I've read in some time.

Andrew November 10, 2010 at 3:13 am

So is the idea that with more gays in the military they will push for piece?

John Thacker November 10, 2010 at 3:42 am

Have prominent Republicans endorse the better parts of Obamacare.

A major problem is that there was one– and only one, IIRC– Republican Senate candidate who publicly embraced the efforts to reduce the rate in Medicare spending growth in Obamacare, and castigated his party for doing so.

That would be Colorado loser Ken Buck.

He underperformed the general Republican wave, and lost. Those who did attack the Medicare cuts won, and benefited from, among other things, a strong swing among the elderly.

Whether you think his loss was mostly to other factors or not, it does not bode well for the political likelihood of the idea.

Tony Cohen– my thoughts are that either party in a majority would be more supportive of the plan, but that Dems are more likely than Republicans (though, not by all that much) to attack any cuts or restrictions in the rate of growth when in opposition, judging by the more overheated rhetoric over smaller proposed cuts in the rate of growth in Medicare several years ago, or the overheated rhetoric in response to changing the indexed growth rate in Social Security benefits back to inflation instead of wages, or the attempted selling of extra beyond-inflation bonus checks to seniors on Social Security.

It's not a stable equilibrium in politics, that each party when a majority wants the other to be "responsible" but feels free to attack when a minority.

I have a difficult time taking seriously a "commitment" to "cuts later, but extra spending and entitlement commitments now to get the future cuts approved."

M. Poe November 10, 2010 at 3:51 am

Make up most of the difference with radical defense cuts.

Tom November 10, 2010 at 4:50 am

Brad's phrase "commit immediately" sounds like Pelosi's "you have to pass it to find out what's in it.'

Lowrie Glasgow November 10, 2010 at 5:36 am

You are much better when you give your thoughts and not just links. Please continue .

Noah Yetter November 10, 2010 at 5:52 am

That was unfair. It is a good post. But his adulation for Krugman and DeLong is nauseating.

Ken Rhodes November 10, 2010 at 5:57 am

"And you linked to this?"

Yes, Noah, he linked to it. …and I red it. … and your problem with that is…?

If you don't like to read stuff you disagree with, simply skip it. Your smug comment, containing zero substance, contributes little to the rest of us.

John Thacker November 10, 2010 at 6:42 am

Defense is an enormous part of the budget. But the future budgetary problems are so large that radical defense cuts, while helpful, wouldn't be sufficient.

This is similar to the problem of how "raise taxes on the rich" is totally insufficient for our future budgetary problems. I believe that the Tax Policy Center found that you would have to have a federal marginal income tax rate of 91% starting at $200K for individuals, $250K for families and assume no change in behavior among those rich in order to come close to balancing the budget in one of their more favorable forecasts.

Not to say that it wouldn't provide some money, but the idea that we could do it all by taxing "the rich" is as delusional as the Republicans.

Ken Rhodes November 10, 2010 at 6:53 am

"Defense is an enormous part of the budget. But the future budgetary problems are so large that radical defense cuts, while helpful, wouldn't be sufficient. This is similar to the problem of how "raise taxes on the rich" is totally insufficient for our future budgetary problems."

John, you are absolutely correct — anybody who says "this is the solution to our problem" is blowing smoke. What you are pointing out is that we need to say "these are some steps that will help us eventually to solve our problem." And then we better list several steps, and they better be big ones.

joe November 10, 2010 at 7:00 am

"The most important development is simply that Republicans (and Democrats) support the potential for Obamacare to reduce the rate of growth of Medicare expenditures. That is the #1 issue in fiscal policy today. And it saddens me how infrequently it comes up, except to be attacked."

Thank you, Tyler. Thank you, thank you, thank you.

"Fiscal conservatives," please re-read those three sentences!

Tracy W November 10, 2010 at 7:07 am

I don't think it's much of a plan. In turn:
1. How about gaming politicians gaming what is PAYGO?
2. and 3. Fine in themselves, but not that large.
4. No specification of the other tax increases and spending cuts, anyone can agree to cut spending in abstract, the problem is that whatever you cut in reality is someone's job. Same on the other side for taxes.
5. Hold on, half the money from the carbon tax was going into the social security trust fund, half into operatinal spending. Now it's also matching social security. Now 2% of wages, wages are typically 60% of GDP, so 2% of wages is 1.2% of GDP, so a 2-for-1 matching means that the government will be spending up to 2.4% of GDP on matching, well above the 1% of GDP the carbon tax was. So, out of a 1% of GDP tax, DeLong says that we're going to spend half on improving the social security fund, half on restoring operating funding, and up to the remaining 12/5ths on matching the carbon tax.
6. Boils down to "let's increase the deficit now, and we we really will repay it in the future, this time I promise". Yeah, right. Presumably this point means that point 4 is delayed until some time in the future.
7. "Commit immediately", I share Cowan's concerns.

So to summarise, no specifics on cutting spending, plans to use the same tax revenue multiple times, the major political pain left until later on.

Philo November 10, 2010 at 7:36 am

There is no distinction between "merely impossible" and "impossible at a more fundamental metaphysical level." Are you thinking of *probability* here: that your proposals have a 1% chance of being enacted whereas DeLong's have only a 0.001% chance (or something of the sort)?

Andrew November 10, 2010 at 7:59 am

Interfluidity gives good heterodox.

Joke inflation.

Bill November 10, 2010 at 9:48 am

Interesting to compare to the Simpson/Bowles Deficit commission draft proposal just announced: http://www.nytimes.com/2010/11/11/us/politics/11f

Tom Grey November 10, 2010 at 12:12 pm

They will tend to vote against the party that threatens to kill them
Yep, this is the big gorilla.

Everybody who is sick could have a better chance of living: 1 yr, 5 yr, X yr, with unlimited cost is no object medical care. How much did Ted Kennedy's last 18 months of care cost?

How much should society use Other People's Money for dying people's last yr, or last 5 yrs?

Lindsey November 10, 2010 at 5:37 pm

Who is saying that raising taxes on the rich is the solution to our problems? No one's saying that… Letting an unfunded tax cut expire as it should, well, it's a step.

Unless you think we're going to find one single fix that will magically make $14T appear?

I got it! Death to senior citizens! Blammo. Problem solved and we can show China who the World Leader in Human Rights Violations really is.

R Richard Schweitzer November 10, 2010 at 7:33 pm

Disclosure:

At 86, I am a forced "beneficiary" of Medicare (M/C) and a forced participant in FICA (S.S.).

Both are systems of appropriations without Constitutional authority ("UnConstitutional" programs) Of course there is authority to tax, but not to appropriate.

Each of those programs were initiated at a particular phase in the nations social and demographic conditions – conditions no longer applicable and in fact contrary to what has developed.

It will not long affect those of my generation, or even the next, who are now about 60, but the transition of the Federal Government out of both of those programs, must begin soon, be effected by stages, or "phasing-in," to be complete within the next two generations (about 60 years, or around 2070).

The same attention will ultimately have to be given to the concept of unemployment "insurance," which is showing signs of political metastasis – also outside Constitutional authority.

More could be written about removing attempts at achieving eleemosynary objectives through governmental actions. But, enough for "damage control," lest we lose the ship.

Comments on this entry are closed.

Previous post:

Next post: