Game theory and the budget

by on April 21, 2011 at 7:22 am in Current Affairs, Political Science | Permalink

Matt Yglesias writes:

…the right is big government’s best friend…You have a government set to steadily increase spending on autopilot as a result of demographic change and rising health care costs. And you have a Democratic President urging congress to enact spending cuts. But you have conservative politicians refusing to make a serious effort to reach an agreement out of some blend of taxophobia and fear of giving the President a win. The result, again, whether the right realizes it or not, is a gift to the wing of the Democratic Party that disagrees with Obama about the desirability of enacting spending cuts.

I tend to agree with this, but it’s always worth trying to solve for the case where one is wrong.  The strategy of “no trade” with Obama could be rational for the Republicans if:

1. Not much will happen this time around anyway, so the Republicans are investing in credibility for a future bargain, perhaps post-2012.

2. Republicans think that prevailing economic conditions will turn public opinion in their favor, over time, and so a later bargain is preferable.

3. Republicans think that if a fiscal crisis comes, drastic spending cuts are especially easy to enact, relative to tax increases, and they are willing to risk that crisis.  It’s hard to argue that this belief is true (reindexing benefits to a saner level takes a lot of time), although I would not rule out that some Republican Party politicians may hold it.

4. Wait for party leaders to move first, for political cover, and that is a dragons and ballroom dancing game (pdf).

And there is always:

5. Republican politicians are investing in the value of their non-electoral options and that implies group loyalty above other considerations.

None of us know the true model, but we all know the literature on irreversible investment and option value.  If you’re not sure of the true model, wait rather than commit.  Here is Jeff on deadlines.  Another way to put this point is that we can’t, from current Republican inaction, infer much about the likely final outcome.

libert April 21, 2011 at 8:21 am

Isn’t there also 6. Republicans don’t want a budget deal this year, since they would rather run on the issue in 2012, 2014, and beyond?

Rahul April 21, 2011 at 8:33 am

The essence of Tyler’s #1,#2 and #3 is scary: “Prevent the rival from doing good, so that we can take credit when things get worse?”

This might make pragmatic politics (we’ll forget conscience), but when did it become OK to accept this as good policy? Doesn’t the rationality test need to be followed by an ethics criterion?

Andrew' April 21, 2011 at 8:52 am

7. If Republicans are both rational and ethical and believe the spending cuts are probably a sham while the tax increases and spending shifts/increases are real. I tend towards this because the only reason Democrats are acting is because they have to, therefore they’ve learned nothing and forgotten nothing.

SteveX (formerly Steve) April 21, 2011 at 8:53 am

Maybe a #7: Do the Republicans believe they have yet finished their obligation to make enough fiscal noise to satisfy the base that elected them, while they think they still have enough time left to get a better deal on the debt ceiling trade off? Wouldn’t seem to be worth the risk to anyone sane, but sanity has been in short supply of late.

SteveX (formerly Steve) April 21, 2011 at 8:55 am

You beat me by a minute Andrew’. I’ll change mine to 8.

Orange14 April 21, 2011 at 8:57 am

Long term the demographics go against the xenophobic Republican party, maybe not in 2012 but certainly in 2014 and later (witness the huge demographic shift in Texas, the number 2 state for electoral votes; it will be in play for the Dems in 2016). Anyone who knows how to run an Excel budget spreadsheet knows that you cannot have a balanced budget based only on curbing the spending side of the curve, revenue has to increase as well and that balance is what is key. It’s this area where Obama is winning if one looks at the current public opinion. The Republican’s strategy of not giving into Obama maybe good for their psyche but is clearly bad for the country in terms a reaching an agreeable and workable solution. At this point Obama will get reellected, the Senate will either narrow in terms of the D/R ratio or be slightly R (given the number of D seats up next year). The House can easily flip back to the D column if this tea party nonsense continues as the Independent voters seem to be swinging in the other direction at this point (we still have not seen the R proposal for job creation other than cutting taxes or their solution to the health care problem other than repeal the current Obama plan; not good for a party that campaigned on both of these platforms last fall).

SteveX (formerly Steve) April 21, 2011 at 9:11 am

“…if this tea party nonsense continues as the Independent voters seem to be swinging in the other direction at this point…”

I’ll vouch for the accuracy of that statement. It doesn’t mean I’ll continue to feel that way right up until November ’12, but right now they’re waking up a lot of people and filling them with a sense of urgency.

Bill April 21, 2011 at 10:00 am

Agree with Orange.

Andrew' April 21, 2011 at 10:15 am

Disagree. Have a little objectivity. The “tea party nonsense” is at least a response to abject failure of government. How the people’s displeasure will play out is up for guesses, but I seriously doubt that when the Democrats succeed in raising everyone’s taxes to pay for their failure that they will be a smugly righteous as they are today.

Bill April 21, 2011 at 11:44 am

Oh, you think the House will raise taxes.
Interesting.

Andrew' April 21, 2011 at 12:44 pm

Never said that. What I said was eventually, the Democrats will have to quit pretending that everything turns to milk and honey if we just raise taxes on the rich folk.

Thomas April 21, 2011 at 8:58 am

You have a Democratic president urging Congress to raise taxes by significant amounts, and to count the net interest cost reduction as a spending cut to pair with it. There’s been no meaningful Democratic proposal to cut spending, and given the President’s dishonest rhetorical response to Republican proposals, the President doesn’t seem to be a trustworthy counterpart for negotiations. In that situation, the Republicans would be wise to take the President’s rhetorical concession that spending cuts are necessary and otherwise ignore him until they can beat him.

Sisyphus April 21, 2011 at 4:11 pm

Indeed, it is Obama’s inability to credibly deal that prevents a deal from occurring. His past rhetoric has been all over the map, pretending at fiscal responsibility one day, then “investments” another, while driving up spending faster than any other President in history (though of course Pelosi and Reid deserve substantial amounts of that blame), and he didn’t do a bargain any favors by his speech demagoguing the Ryan plan for cutting Medicare and Medicaid after Obamacare had already done so. Moreover, it appears somewhat unlikely that Obama can hold Reid to a deal, or at least sufficient Senate Democrats. Boehner has his own problems with maintaining a majority coalition credibly, of course.

All of this points to the problems in these kinds of leadership-only negotiations. California has done this for budgets for a long time, and this process seems to produce continually worse budgets. It’s too dependent on the coalition problems, largely opaque to the other side, that each leader can threaten. It also invites demagoguery by both sides.

We have a process in place that can produce credible compromises that obtain majority approval on budgets. The Senate merely needs to take up the budget passed by the House and amend it, then take it to committee and subsequently both houses pass the agreed upon compromise (if a majority supports it). But Reid refuses to even bring a budget to the floor, so until he can be pressured to do so, we are prevented from using the process that has actually, historically worked. And instead we are left with leadership negotiations with highly constrained leaders, each with credibility problems and questionable commitment to any final deal.

Roy April 22, 2011 at 4:07 am

I think you are completely correct, what we are seeing is the Californization of American politics, the Republicans are given absolutely no incentive to cooperate and the Democratic leadership seems to believe that the impasse that has been created is victory. Of course if the GOP gains victory in 2012, they will attempt impose their budget without negotiation and before you we know it the country will stop having a budgetary process at all. On the plus side it will be interesting to see how the new method will work, but on the negative side this is my country.

Tom April 21, 2011 at 9:02 am

It was a huge battle to get the Democrats to agree to a .01% reduction, almost leading to a gov’t shutdown.
Why would we take seriously Matt’s claim “you have a Democratic President urging congress to enact spending cuts.”?

And don’t say ‘social issues’ held it up, as we now know they were ironed out a few days before the potential shutdown.

Andrew Edwards April 21, 2011 at 9:22 am

I could be wrong about this, but I did not get the sense that the fight was about the magnitude of the cuts so much as the embedded socail policy (funding for Planned Parenthood, whatever you think of it, is not a major budgetary issue) and a backdoor attempt to defund the ACA.

Tom April 21, 2011 at 9:27 am

Those issues, as it was reported later, had already been ironed out.

Jim April 21, 2011 at 9:48 am

“And you have a Democratic President urging congress to enact spending cuts.”

They don’t call him Ydiot for nothing.

Floccina April 21, 2011 at 9:53 am

Planned Parenthood was started in a time when people feared population growth in the USA. We now have a birth rate below replacement. If Planned Parenthood did not exist you would not be able to get up enough interest to create it today and yet it is supposed to a deal killer to defund it. Interesting.

SteveX (formerly Steve) April 21, 2011 at 10:25 am

Would a conservative please explain to me the rationale behind wanting to wipe out Planned Parenthood? Don’t they realize that by defunding a program that prevents 500K births a year in the poor and lower-middle classes, they’re creating a de facto breeding program for future Democrats?

Ron Potato April 21, 2011 at 11:10 am

Why would people would do what they believe is right, instead of calculating results?

Government by the pleasure principle, rather than the rule of law?

You can see the future of a policy choice with eugenic certainty, but cannot see why the same people would freely choose one moral position over another?

Tom April 21, 2011 at 11:21 am

We don’t necessarily want 500k more poor kids, we just don’t want to kill them to get rid of them.

SteveX (formerly Steve) April 21, 2011 at 11:45 am

“You can see the future of a policy choice with eugenic certainty, but cannot see why the same people would freely choose one moral position over another?”

Ah yes. I see your point. You’re saying that there’s a contradiction in one who has no trouble seeing the future of a policy choice on its tangible savings of tax dollars, then freely choosing the moral position of allowing our elderly population who paid into a system all their lives to die without adequate medical care. Yes, it’s very clear now. Thank you.

SteveX (formerly Steve) April 21, 2011 at 11:57 am

“We don’t necessarily want 500k more poor kids, we just don’t want to kill them to get rid of them.”

With all due respect Tom, I don’t think 500K are “killed”, unless you regard contraception and education as the same thing as abortion (I realize some do). The vast majority of those pregnancies are “Prevented” by pre-”Planning”.

Rahul April 21, 2011 at 10:33 am

Birth control is not about population control alone; there is a personal choice and suitability angle to it too. The nation might need more babies without me being the right one to produce them.

Andrew' April 21, 2011 at 10:52 am

We need a department of Planned Policy & Programs.

SteveX (formerly Steve) April 21, 2011 at 11:03 am

But with the caveat that any funding that is intended to abort any of the programs must be withheld.

Tom April 22, 2011 at 12:48 pm

SteveX, PP performs 332,278 abortions per year. Using you 500k number, I don’t see have 1/3 add up to be a ‘vast majority’.

Anotherphil April 21, 2011 at 10:40 pm

Planned Parenthood was started in a time when people feared population growth in the USA.

Actually PP was founded by an inveterate racist who wanted to suppress the swarthy and unworthy.

John Thacker April 21, 2011 at 9:57 am

The fight was almost entirely about the magnitude of the cuts. The Republicans were easily willing to compromise on the social policy, as both the negotiations and the final deal demonstrated. The Republicans repeatedly in the various short term CRs showed a willingness to accept and pass whatever cuts the Democrats would agree to, so long as those cuts met the stated magnitude that the Republicans were looking for. The GOP named a number; the Democrats got to determine the makeup of the cuts.

Planned Parenthood may not be a major budgetary issue, but do remember that the Democrats preferred to cut Pell Grants and heating oil subsidies to the poor in preference to cutting NPR or Planned Parenthood’s subsidy.

For all the talk of the GOP’s “embedded social policy,” another valid way of looking at it is that the GOP wanted to cut spending that also went to educated middle class, whereas the Democrats preferred cutting spending aimed only at the poor. The underlying reason being that the particular middle-class spending was aimed at middle-class members of the Democratic Party coalition.

Andrew Edwads April 21, 2011 at 11:04 pm

I apologize for mentioning Planned Parenthood, that was a rookie mistake on an Internet message board. My bad.

E. Barandiaran April 21, 2011 at 9:37 am

Tyler, please tell me who the Republicans you mention in your post are. Please give me names and documents that support your description of the Republicans’ positions and strategy. Sorry to insist on this type of request but I reject your inclination to define the Republicans’ positions by relying on what their enemies say.
In addition, since you claim an interest in applying game theory to this conflict, you should define clearly the Democrats’ positions and strategy. Indeed I reject your implicit assumption that they are the good guys.
Given what reader Rahul asks in his comment, it will help if you provide some historical background about how this conflict has been played in the last 30 years, since Reagan became president (I assume you and most of your readers will agree with me that the last time that there was a change in positions and strategy was at the end of the Carter Administration). Do you think the strategies of the two main parties have changed significantly since 1980? Please provide us with references that support your view.

Andrew' April 21, 2011 at 10:54 am

E. Barandiaran,

Is that you in those Dos Equis commercials?

http://www.youtube.com/watch?v=8Bc0WjTT0Ps

E. Barandiaran April 21, 2011 at 11:07 am

Actually, he’s my eldest son. He learnt all the game tricks (including game-theory tricks) from his father.

E. Barandiaran April 21, 2011 at 11:32 am

And here you have my eldest grandson enjoying Tyler’s low-hanging fruit metaphor
http://www.youtube.com/watch?v=j8TXRfsCy3w&feature=related

Aaron April 21, 2011 at 4:40 pm

comment of the year

Dan April 21, 2011 at 9:49 am

It is not clear that Republicans agreeing to tax increases at this point would lead to any meaningful spending cuts. Nor is it clear that failure to compromise will produce a win for big government. In fact, the status quo is untenable, and will only become more so if no action is taken. Giving in on raising taxes would only decrease the urgency to shrink government.

The insinuation here seems to be that the Republican’s refusal to quickly compromise is irresponsible. This is a bit strange. Obama and Democrats in Congress vastly increased spending over the last few years. Now they offer to give a tiny portion of that back, and Republicans are morally obligated to raise taxes?

At some point the deficit becomes such an existential problem that these debates have to get cast aside, and it simply must get solved. If we are at that point now, and Republicans truly refuse to compromise on taxes, then they will have acted irresponsibly. But just because they haven’t agreed to anything now doesn’t mean they won’t agree to anything in the future.

Ken Rhodes April 21, 2011 at 9:57 am

I have to chuckle at the complex conditional combined with the future perfect tense in the next-to-last sentence.

Rahul April 21, 2011 at 10:14 am

The word “existential ” deserves a corollary akin to Godwin’s law……

SteveX (formerly Steve) April 21, 2011 at 10:44 am

Ahh! Good idea Rahul. You have created for yourself an opportunity for immortality. I’d love to see some suggestions for “Rahul’s Law”?

Rahul April 21, 2011 at 1:41 pm

Rahul’s law? Not possible. Refer: Stiglers law.

SteveX (formerly Steve) April 21, 2011 at 1:49 pm

Rahul: Does this mean that George Washington Gale Wheel, Jr. did NOT invent the Ferris Wheel?

Dan April 21, 2011 at 12:09 pm

I’m sure I could have written better. I meant that at some point the deficit will be serious enough that it threatens the existence of our current structures.

John Thacker April 21, 2011 at 10:02 am

What is the evidence that the President is making a serious effort to make an agreement? He previously proposed a bipartisan commission– and then totally ignored its recommendations. He then proceeded to finally make a speech proposing a more serious budget than his original FY2012 proposal– and promptly invited Paul Ryan to sit in the front row while viciously attacking Ryan and his budget during the speech.

The Republicans have demonstrated throughout this entire year that they’re very willing to bargain, and very willing to let Democrats almost entirely determine the nature of spending cuts, so long as it reaches a number. The Obama Administration has been extremely reluctant to cut spending, and much more focused on obtaining political advantage for 2012 and beyond. The Administration has been an unserious negotiating partner, looking to political advantage first.

EorrFU April 21, 2011 at 10:45 am

I think the issue is that the Republicans basically state that there must be cuts in only discretionary spending and they reject anything else except gutting entitlements. While I may not wholly agree with Tyler Obama is willing to propose a comprehensive plan with everything on the table and the Republicans have rejected anything involving Tax increases which means they are not willing to compromise.

MattM April 21, 2011 at 1:06 pm

EorrFU, have you completely missed the Ryan plan or the Gang of Six (three of whom are Republican)?

taybul April 21, 2011 at 1:36 pm

I will vote for anyone of any party who promises to cut the defense budget in half on day 1 and a standing army kept solely within our soveriegn borders unless attacked. Just putting that out there.

MattM April 21, 2011 at 4:14 pm

Good luck with that….Even if that was the case, it will not fix our long-term entitlement issues. Heck, the Stimulus was more money than we’ve spent on Iraq!

mpowell April 22, 2011 at 1:18 pm

The Ryan planned proposed to reduce taxes on the wealthy and make up for it with unspecified tax increases on the entire tax base. It also proposed dramatic cuts across the board in discretionary spending but without identifying how the impacted agency’s mission would be changed. And finally, it proposed giving seniors a stipend for health care that would not be enough for anything resembling an actual health care plan. I don’t see how the Ryan plan is a serious starting point in a negotiation between D and R on a budget, much less an actual deficit reduction plan.

Bill April 21, 2011 at 10:07 am

Do you think the revealed preferences that come about from playing this game will assist Republicans in swing or moderate districts in getting elected. Do you think the Ryan plan will help in swing districts the next cycle.

I think the party has an interest making a deal now rather than being rolled in swing districts or states in the next cycle.

John Thacker April 21, 2011 at 10:12 am

Do you think the Ryan plan will help in swing districts the next cycle.

Being serious on the budget and proposing real spending cuts or tax increases always carries the enormous risk in swing districts. That’s why President Obama isn’t being serious or proposing specific changes, preferring only to attack Ryan’s budget in the hopes of winning the 2012 elections. He’s following your logic, Bill, and refusing to compromise or be a negotiating partner. He makes a vague speech with no specifics, and savagely attacks one approach in a way that he said he wouldn’t. He wants to appoint a new commission, which he’ll ignore just like he ignored Bowles-Simpson in order to propose a status quo 2012 budget. Much easier to win elections on a status quo budget than to try to be serious, so Obama will continue to refuse to negotiate.

Bill April 21, 2011 at 11:08 am

If one was serious about the budget, one would not do Medicare Part D unfunded or keep Medicare advantage, or for that matter, keep in place tax cut which showed, even with their own projections in 2001, were budget busting later, if not when initiated.

This is not about budget balancing so much as about priorities. Its just that the budget battle illuminates the choice of priorities.

Again, I don’t see how moderate republicans win in the scenario beyond 2012.

Cliff April 21, 2011 at 12:00 pm

Bill,

It may surprise you to learn that the Republican Congressmen today are not the exact same people as the Republican Congressmen 10 years ago.

Bill April 21, 2011 at 3:25 pm

And, they won’t be in two years if they block moderates in their own party.

MattM April 22, 2011 at 1:00 am

Bill, so what the excuse for the current Admin spending trillions more without paying for it? If you hate Part D, why no disdain for the ACA, which will increase the debt by almost a trillion. Part D is small potatoes c/w that.

Bill April 22, 2011 at 9:58 am

Didn’t ACA balance itself.
Don’t you want a countercyclical fiscal policy? What I object to is not running surpluses during good times, and when we do, cutting taxes so that we make it more difficult (and risky) for ourselves in the next downturn.

EorrFU April 21, 2011 at 10:47 am

Not really, in the end what really matters is at what speed the economy is growing and jobs are created. All these other issues don’t affect the swing voters who don’t pay attention to the news because they have more important things to do.

John Thacker April 21, 2011 at 10:07 am

If you’re actually interested in seeing what Republicans are thinking, including Republicans that definitely want a compromise, you can read Keith Hennessey, and various other recent articles on his site.

President Obama did exactly what he said he wouldn’t, as Jake Tapper reports. The President chose not to reach across the aisle. He chose to focus on bringing up an issue for the 2012 elections with his “make very clear to the American people that we have a choice” rhetoric.

AlanW April 21, 2011 at 12:06 pm

Expecting a Democratic president to seriously consider turning Medicare over to the private market is ridiculous. And given that he would never seriously consider that proposal, there’s little incentive for him not to demagogue what’s been a surefire political winner for decades. If he treated it seriously, that would be hypocrisy, because there’s zero chance he’d ever compromise with a proposal along those lines.

Dean Sayers April 21, 2011 at 10:16 am

I’ve always found it very bizarre how the right wing is dead-set on lowering taxes, closing the deficit and “lowering the size of government.” Services like soc-sec are paid for by the consumer and their “reform” only accomplishes theft from those who have already paid into it (or unfair tier programs). And of course, nobody lowers the size of government purchases very much for fear of a recession.

I think that republicans do this to box themselves into a corner – this way, their rhetoric doesn’t have to match their actions (not that democrat politicians are any different, mind you).

Andrew' April 21, 2011 at 10:38 am

The theft already happened. Think about it.

Bill April 21, 2011 at 11:45 am

2000-2008?

Andrew' April 21, 2011 at 11:53 am

It’s a Ponzi structure. The money was spent. It is now obvious it was wasted. “Already payed in” doesn’t account for anything.

AlanW April 21, 2011 at 12:10 pm

It only becomes a Ponzi scheme if the economy stops growing. Are you saying America is destined for contraction?

Dean Sayers April 21, 2011 at 12:33 pm

So you are saying that the theft was committed against people who didn’t pay anything in the first place?

Andrew' April 21, 2011 at 12:42 pm

A Ponzi structure is always a Ponzi structure even before it starts collapsing. It is in fact a Ponzi structure BECAUSE it is dependent on constant expansion.

However, we now are fully aware that we aren’t growing like we should because the money collected when the Ponzi programs were running a surplus was spent on things that did not increase our productivity.

“So you are saying that the theft was committed against people who didn’t pay anything in the first place?”
No. I’m saying the people who paid in were tricked. Taking from more people doesn’t fix that.

mark April 21, 2011 at 10:22 am

Sorry, the premise that the President is prepared to enact spending cuts renders the whole argument false.

John Thacker April 21, 2011 at 10:25 am

After Bowles-Simpson was ignored by the President, and he has offered no help to the bipartisan group of Senators trying to introduce it in the Senate, why exactly are we supposed to trust this call for a new commission? In DC, when you respond to your opponents plan by attacking it as too harsh and calling for a bipartisan commission, that’s understood as running out the clock towards the next election, because, contrary to some beliefs, it’s often easier to beat something with nothing than with something else.

It’s made worse because President Obama has already used the deficit commission idea. Fool me once, shame on you. Fool me twice, shame on me.

Jonathan April 21, 2011 at 11:14 am

Bowles-Simpson failed. It failed to put out a plan supported by it’s members. It was categorically rejected by it’s Republican members such as Paul Ryan. Why should the President use a failed compromise as his initial bargaining position?

Neil S April 22, 2011 at 11:26 am

Jonathon,
You are wrong on the facts. 6 of the 8 Republicans on the commission were willing to vote for the final proposal. It failed to get 14 votes out of 18 to pass. Opposed were Max Baucus (D), Andy Stern (SEIU-D), Dave Camp (R), Paul Ryan(R), and Jan Schakowsky(D).

The “failed compromise” was a more serious attempt than we have seen to date and would have a significant chance if pushed forward by the president. I expect that the gang of 6 will come up with something substantially similar to Bowles-Simpson.

Regards,
Neil

John Thacker April 22, 2011 at 12:38 pm

It was rejected by some Democrats and by some Republicans, but got a majority of both parties on the commission, just not the overall supermajority required. It was clearly “in the center” and a basis for bipartisan negotiation, as seen by the Gang of Six, which includes both Dick Durbin and Tom Coburn, for goodness sake.

“Why should the President use a failed compromise as his initial bargaining position?”

This would be one thing if the President were putting out an initial bargaining position, but he hasn’t, not in detail, and not as scored by non-partisan groups.

But fine, suppose I grant your point, and the President is putting out an “initial bargaining position,” the same as Paul Ryan. That just proves the point that the President is being no less partisan than the GOP, and it’s silly to blame only the Republicans for playing politics.

It is absurd to expect a new commission to do any better than to produce a compromise supported by a majority of both parties, which disagreements from both fringes.

Adam April 21, 2011 at 11:05 am

I think you left off the perceived electoral value: Rs think making an issue of spending but getting nothing done helps them win next time around, and don’t really care much about anything else.

Benny Lava April 21, 2011 at 11:25 am

I’d like to point out that an easy way to close the budget deficit would be to repeal Medicare part D. How many Congressmen are proposing that as a solution from either party?

Yancey Ward April 21, 2011 at 11:39 am

How much would that “close” the deficit?

Bill April 21, 2011 at 11:50 am

Or pay for it. Per a former Fed Reserve economist, repealing Part D and eliminating Medicare advantage (an advantage to SOME seniors of $15 billion/year) would cut $60 billion, and would reduce the deficit by $750 billion over 10 years or over $900 billion over 12 years.

E. Barandiaran April 21, 2011 at 1:52 pm

and $60 trillion over one billion years. Is that right? Can then we say that a solution is around the corner? This reminds me of my periods of hyperinflation when we were asked to shift from 10% per year, to 10% per month, to 10% per day, to 10% per hour, … For politicians it was always 10%. Bingo!

Bill April 21, 2011 at 3:32 pm

E. Most of the proposals talk about $4 trillion over time, so you can forget about the hyperbole. 600 trillion over one billion years, right. Why not acknowledge this is a step…to pay for what you want, or say you don’t want it.

And, pay for trillion dollar wars, too.

Yancey Ward April 21, 2011 at 11:30 am

It is things like this that lead me to mostly ignore Yglesias:

And you have a Democratic President urging congress to enact spending cuts.

I really don’t see the evidence, yet, for this bald assertion. Indeed, I doubt we will see much in the way of cuts for the coming fiscal year, either, nor will the president be pushing for them prior to his attempt at reelection. Was Yglesias comatose during the most recent budget battle to just finish the current year’s budget? Continuing resolutions from this October til November 2012 is the most likely outcome, and it won’t be because the two sides can’t agree on a tax increase. Sheesh!

balabla April 21, 2011 at 11:54 am

This is an odd post. Are you sure it’s the Republicans who are refusing to engage? Many top Republicans made supportive noises concerning the Bowles-Simpson plan, even as Pelosi scorned it. And many Republicans have been quietly making the case for the Bowles tax-hike-in-disguise (lowering rates but getting rid of deductions). Meanwhile, Obama is campaigning against Ryan’s budget plan in a way that may poison the well for any future compromise.

MM April 21, 2011 at 12:43 pm

Government functions through inaction. Typically any politician or committee or big business waits for the problem to solve itself – waits for solutions to emerge from how large groups in society or employees in a company. This works in stable conditions where there is enough wealth or market control to let things run. Think America post WWII till 2000, Detroit at the same time, etc. Since the US controlled world markets and had the most money and talent a solution, usually organic growth in markets and wealth, came along to fix the problem. Next!

Neither party has any clue what will happen in the next 20 years, other than American economic growth and control of world markets is in rapid decline. At the same time as crushing demographics in an aging American population is thundering towards them. At the same time a great powers world like the 18th-19th century is re-emerging and other economic powers, China, India, Barzil, EU are blocking American business from operating on their soil. No more Bretton Woods. Soon no more dollar reserve currency. Buy our stuff or we call the loans!

Both parties have to do what they hate and loathe – they have to act delibertly to cut Social Security, Medicare, and defense – all at the same time, with no hope that waiting for economic growth to save them. Run away! Run away!

Independent living for Baby Boomers with full medical is not going to happen. Both parties have to tell the voters this and American society has to fundamentially change as a result. Deal with it!

Bill April 21, 2011 at 12:46 pm

Is this a game in which you presume rational actors?

Is this a one shot game or a repeated game extending into the future?

What is the payoff?

If you want to put it into game theory, both sides have moved:

Ryan proposed something that will be unpopular and doesn’t have a tax increase and Obama has proposed something that would be popular and is doing his best to hide some tax increases except those on the wealthy (which would be popular given the alternatives of taxing me and thee (although I actually would have my taxes increased under Obama’s top 2% rule)).

If this is the game, Ryan loses.

But, I don’t think that is the game, in reality. I think Ryan et al know that taxes will have to increase, but they are playing the opening gambit, drawn reluctantly to raise taxes by those democrats.

Their risk is that their proposals stay out there for a while, attact more attention, and there is no movement to get a deal done. Basically, they both have to get something done by October if they want the electorate to forget, so they’d better get movin’. From that point forward, delay benefits Obama because Republicans will have to harden their position to get nominated by their base.

Imagine what the game is next March-May if there is deadlock with both parties stuck in their initial positions.

SteveX (formerly Steve) April 21, 2011 at 5:43 pm

“…they both have to get something done by October if they want the electorate to forget,…”

Bill: Do you think the Democrats would be so negligent as to allow the electorate to forget that the GOP passed a Budget Bill that dismantled Medicare? Not just proposed it, but actually passed it for gosh sakes!

Bill April 21, 2011 at 6:48 pm

I don’t think there is the slightest chance of the GOP dismantling medicare.

I think the Ryan-Republican plan was a failed attempt to say that they could cut the budget without raising taxes as a preliminary step for hard negotiation.

David April 21, 2011 at 12:50 pm

Tyler,

I think you are leaving out the context. The Republicans lack of cooperation with the administration comes after Obama responded to Ryan’s budget by saying that Republicans want bridges to fail and autistic children to be denied care. If the Obama wants cooperation, he needs to change his own behavior.

mulp April 21, 2011 at 3:00 pm

Ryan came out with his budget in March 2009???

conrad April 21, 2011 at 1:34 pm

Laffer curve anyone?

At what point over 20% of GDP going to the Feds for social engineering and redistribution ( and some services to the taxpayer until that useless spending can be curtailed by death panels) does capital formation fall of a cliff?

Barkley Rosser April 21, 2011 at 1:50 pm

John Thacker,

Why should anyone take the Ryan plan seriously? It increases deficits for at least the next ten years.

Ryan was the leader of those on the Bowles-Simpson commission that refused to support what was being proposed. As a result, nothing was formally proposed, although Bowles and Simpson put out their own proposal that reflected what had been discussed. Their proposal involved a combination of cuts in future social security, medicare, medicaid, and defense, along with tax increases. It was the tax increases above all else that led Ryan and others to oppose this plan. Of course, Ryan’s plan calls for more tax cuts, and for you know whom.

Historically, serious moves to cut deficits have involved both restraints or cuts in spending with tax increases. We saw this done under Bush, Sr. and Clinton, and, just in case anybody has forgotten, we were running surpluses at the end of Clinton’s two terms. Plans to just cut spending and not raise taxes to balance the budget, especially all of a sudden in time to avoid banging into the debt celing limit and crashing the world economy, are utterly unrealistic.

For that matter, we should simply abolish the debt ceiling, as I proposed on Econospeak two days ago. No other country has such an idiotic law in place, and none ever has. Ours dates to 1917, a time that we were not at the center of the world financial markets and economy. The debt ceiling is dangerous and stupid. Abolish it.

Regarding the politics, well a crash of the world economy would be blamed on Obama, so would be a good way, maybe the only way, for Obama to be defeated in 2012. Looks like hot stuff for sure.

E. Barandiaran April 21, 2011 at 2:16 pm

I take neither Ryan nor any politician seriously on anything they say, in particular promises and judgements. Do you take Obama seriously? About the deficit, about U.S. policy with respect to Libya or any other country, about abuses of power, about transparency, about his concerns, about his knowledge of history, about his knowledge of anything, about his life history as told in his books, about his tax filing? I’d like to take at least one politician seriously, so please, if you take him seriously, tell me why? how can you trust him? Please make your best effort to persuade me that I can take him seriously.
On the other hand, I take very seriously everything a politician does. I mean I want to know the consequences of what they have done. I know they can impose large costs on many people while benefiting a few people. What do you think Obama’s best action has been so far? the worst one?

Ryan Vann April 21, 2011 at 3:11 pm

Excellent questions; I love your cynicism.

Barkley Rosser April 21, 2011 at 4:10 pm

Maybe, but essentially irrelevant to anything I said, which barely involved Obama.

E. Barandiaran April 21, 2011 at 4:29 pm

Sorry, a minor point –I remember when Senator Obama and other Dems voted against the extension of the debt ceiling (were they serious?). Oh, a major point –Obama gave a national speech from GWU about the deficit and the Ryan plan and Ryan became very disappointed he didn’t hear what he would have liked to hear, and since then hundreds of stories about the conflict between Obama and Ryan have been written (indeed Tyler’s post doesn’t make any sense without a reference to this conflict). Has Ryan become an emotional trigger word to Obama –as fast food became to Michelle?

Barkley Rosser April 21, 2011 at 5:06 pm

E.G.,

Quite likely “Ryan” has become a trigger word for Obama, but the fact remains is that is plan actually increases deficits above baseline “do-nothing” projections, much less any proposal put out by Bowles and Simpson (just the two of them, one a Dem and the other a GOP), or any other that has been floated (such as Obama’s Feb. proposal). So, it remains “not serious” for deficit reducing purposes, however “brave” he may be or however much he ticks of Obama, irrationally or otherwise.

E. Barandiaran April 21, 2011 at 6:37 pm

Still hope you find a break to answer my questions about President Obama’s seriousness and about his actions. I’m really interested in your answers.

Psychohistorian April 21, 2011 at 2:29 pm

Also, if congress got together and compromised and fixed the damn problem, it’s almost inevitable that Obama would get a tremendous amount of credit for it. Which would get him re-elected. Which the Republicans clearly do not want.

At the federal level, there does appear to be some significant tension between competent governance and the two-party system.

mulp April 21, 2011 at 2:59 pm

Clearly Republicans believe Democrats do not believe tit for tat is responsible governance for We the People, so Republicans can obstruct and block and act contrary to the best interests of the the People in order to gain power, and then once in power, can count on Democrats to compromise for the welfare of the People.

After all, after the Republicans engaged in bloody conflict with Clinton and Democrats in the 90s, shutting down government in their efforts to increase the deficit and block balanced budgets, and going so far as impeaching Clinton just to cut taxes, when Bush became president, Democrats did not come close to shutting down government to block two wars, massive increases in debt and deficit, massive unfunded entitlement increases, as well as the largest foreign aid program since the Peace Corp (PEPFAR). Ted Kennedy, who was constantly vilified as the most radical liberal …. was engaged with the President and Republicans on moving multiple programs through Congress. Multiple Democrats and a few Republicans spoke out against the wars and the direction the administration was heading, but they didn’t engage in the obstructionism the Republicans used before and since. Even while Clinton was president, Democrats did not shut down government when a 20,000 page bill was put together, and then passed in the Senate by voice vote 24 hours later to prevent a shutdown – the last minute addition ensured no one other than the Fed chair and Bush administration could oversee the credit default swaps or AIGs involvement. Greenspan’s position then was commercial-banking-business fraud was not possible because the market prevented them, and thus led to trillions in government debt, because Democrats weren’t willing to have a hundred million people lose more of their pensions, bank accounts, mutual fund accounts than they did. (If Citi, BofA, et al had all been taken over by FDIC, would all their depositors and customers been served well?)

Democrats acting like Republicans would have blocked the tax cuts, unemployment extensions, the wars, the Medicare drug benefit, the homeland security changes, NCLB, PEPFAR, delayed, blocked, delayed, blocked, shutdown, blocked from 2001 to 2006. Democrats cooperated on 6 debt ceiling increases to accommodate the massive debt increases of the Republican government.

Republicans expect Democrats to not respond with tat to the Republican tit.

eccdogg April 21, 2011 at 3:06 pm

Well I can’t speak for the Republicans, but personally I am on board with #3.

I am preparing my life as if a debt crisis is inevitible. Ultimately the big pain will fall on those who rely on a check from the government. As a net taxpayer probably for the rest of my life that ain’t me.

Why should I bargain now? I think we collect plenty of taxes (probably too much) to do everything worth doing. If the politicians want to bankrupt the country doing stupid stuff, I guess I can’t stop them. But I sure as hell don’t want my taxes to go up to pay for that stupid stuff.

wally April 21, 2011 at 3:20 pm

Hanlon’s Razor is the operative law in this case.

mutant_dog April 21, 2011 at 5:37 pm

I don’t know how anybody can say “the right is big government’s best friend” with a straight face. Beginning an argument with such an absurdity vitiates the rest of the piece.

Tom Grey April 21, 2011 at 9:16 pm

First, the printing presses will be running to reduce the real value of the huge debt.

Second, tax increases will reduce wealth creating jobs. Digging holes and filling them in isn’t much more useless than creating unreadable forms and filling them in, and similarly doesn’t create much wealth.

The USA will continue to decline if it punishes the workers to reward the non-workers; punishes the responsible to reward the irresponsible; punishes the careful to reward the careless.
Incentives matter.
The Democratic Party Policies have the wrong incentives.

Hugh April 22, 2011 at 3:41 am

President Obama’s official Budget (Feb 2011) did absolutely nothing about the long-term deficit/debt problems.

Ryan’s Budget proposal opened up the discussion on entitlements.

Obama then made a noisy speech but has yet to resubmit a revised Budget.

Ignoring noise and scoring only Budget makes the Republicans the 1-0 winner here.

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