There’s actually a simple way to resolve the debt ceiling crisis: non-crazy Republican leaders could support something like the Reid plan — which is, let’s be clear, a huge victory for the right and defeat for progressives — and pass it with limited GOP support and overwhelming Democratic support. Situation resolved.
This would, however, probably be the end of these Republicans’ political careers. And the answer is, so?
If you believe that default will quite possibly be a catastrophe — and leading Republicans probably do believe that — their unwillingness to take the action I’ve just described means that they are risking America’s future rather than pay a price in their personal political careers. That’s cowardice on an epic scale, even if it’s the kind of behavior we take for granted nowadays.
I might tone down the word “huge,” however. There is nothing more at the link. (Note that I’ll be disagreeing with Krugman again soon, very soon.) I also agree very much with Angus.
You could make the same argument for the left, though: “the Senate should just pass Cut, Cap, and Balance. It would, of course, be political suicide for congressional Democrats and the President, but they should do it because raising the debt ceiling is the Right Thing to Do” ™.
The Republicans calling raising the debt ceiling “compromise” is like a mugger saying that not killing you for your wallet is “compromise.” But Krugman is being a little disingenuous here – when was the last time a politician fell on their sword for the good of the country?
“You could make the same argument for the left, though: “the Senate should just pass Cut, Cap, and Balance. It would, of course, be political suicide for congressional Democrats and the President, but they should do it because raising the debt ceiling is the Right Thing to Do” ™.”
Two big differences Edward:
1. Cut, Cap, and Balance is MILES to the right of where the electorate is on reducing the deficit (the Reid proposal is also to the right of where the electorate is since it contains only spending cuts, thus why it is a significant loss for liberals).
2. Cut, Cap, and Balance is unquestionably bad policy. You can argue about what the appropriate size of government is, but requiring balanced budgets from the sovereign is one good way to create depressions from financial crises – even in the presence of exceptionally easy monetary policy. To visualize this just consider what Japan would have looked like without deficits over the last 20 years or where the U.S. would be without the deficits since 2008…
“Cut, Cap, and Balance is MILES to the right of where the electorate is on reducing the deficit ”
Not according to the last election.
“Cut, Cap, and Balance is unquestionably bad policy.” The balance part is bad policy, as you state, but the rest would work just fine.
“Not according to the last election.” you mistake voting for candidates for views on specific issues – the polls say that Americans want a deficit deal that has a mixture of spending cuts and tax hikes (roughly 3:1 ratio), and that they don’t want the budget balanced anytime soon, so I’d stand by my position that cut, cap and balance is miles to right of that.
And you mistake your felling for those of the American public. C, C & B polls very well with the public. It may be lousy policy (a BBA is lousy policy) but lack of popularity is not one of its warts.
I wouldn’t attribute ONE election to some kind of general agreement on the issues here. Most voters are clueless and I honestly doubt any significant number of people cast votes based on the deficit.
You can’t really make the same argument as the Democrats (why are they the left? you consider these guys leftists?) they’ve offered up tonnes of concessions the fact that Obama has offered trillions in entitlement cuts at the expense of angering his base should show that the Democrats are generally willing to take the heat – the Republicans are not at all willing to even slightly annoy their base.
Is that why Obama added 400b in ‘revenues’ last Friday after he Boehner had a deal?
Of course Obama is being pressured by the left of the Dems. It looks like the solution is more to the right because the reality is that we need to cut the debt and cutting spending is the only way to really do it in the current situation. Raising taxes in a <2 GDP growth environment would be an even bigger disaster and Obama knows it.
So 400Billion in some new taxes vs. TRILLIONS in spending cuts shows Obama is the one who isn’t compromising? I’m no Obama fan but that’s a ridiculous thing for you to imply.
The REALITY is there should be no cuts what-so-ever – the debt ceiling is a completely fake problem – with all the real world problems you’d think the United States would be smart enough not to invent fake problems to tackle as well. You attribute way WAY too much power to tax rates, they really don’t matter that much – a disaster? That’s just a baseless assertion.
CBBB,
That’s right. 400b was enough to break the deal and since that came after they had agreed on a deal you can say that Obama is definitely the party to be blamed. You can argue that reality is whatever you want, the actual reality is that we need to vote this pass the house and the rules are pretty clear.
Can you provide a link to the story on revenues? I haven’t heard anything about a deal being reached in the first place.
Dean
just listen to Boehner:
http://www.youtube.com/watch?v=HKWJ67S7HEI (1:06)
So it’s perfectly okay for the Republicans to demand everything including the kitchen sink but a relatively trivial request from the other side means they’re to blame? I guess compromise only means caving in totally to the Republicans. God forbid the other party is allowed to have some part of the deal.
Plus you use John Boehner’s word as evidence? How can that believed, last I heard there was never any deal of any sort.
Any way this whole process is utterly ridiculous – a completely self-imposed crisis for no real reason.
CBBB, the problem as I see it is that additional $400b is absolutely going to happen. The “TRILLIONS” you claim Obama is willing to cut almost certainly will not. And that $400b was already on top of $800b in additional revenue.
The truth is that Obama is far more concerned with his re-election than he is with the credit worthiness of the US government. The fact that the Republicans passed a budget and CC&B that would deal with the deficits (sigh, in a long time) and the Dems shut both of those down in the Senate should give you an idea of who are the serious people in this drama.
There are two separate arguments here.
1) Not getting this debt ceiling raised will lead to catastrohpe. Therefore not giving in to get a deal done is cowardice.
2) What policy should we end up with?
The problem is that so many people — Krugman, Cowen, etc. — are making argument 1 but just pointing fingers at the Republicans. The Republicans have put deals on the table, the Democarats have rejected them, and vice versa. Each side is implicitly saying “Yeah, a default would be bad, but raising taxes / not raising taxes would be worse.” No one is explicitly saying that, but that’s where we’re getting to. It’s possible, but unlikely, that both sides believe this, in which case we have a classic Prisoners’ Dilemma. It’s more likely that they both think default is worse than giving in, but they’re waiting for the other side to give in. That turns it into a game of Chicken. Both parties are playing. Both parties are waiting for the other to give in. Totally symmetrical.
Argument 2 is separate. It may be important, but it becomes a triviality relative to a default. And either party can sacrifice their relatively trivial goals to prevent catastrophe at any time.
Seems to me that the Democrats have put deals on the table that are 90% of what Republicans want and Republicans are holding out for 100%. If the Republicans can’t even give a tiny bit then they are to blame. However, in reality there should be no cuts of anything at this time and the idea of a debt ceiling should be abolished. The US borrows in US Dollars and the US cannot possibly run out of dollars, there is no need to cut now, interest rates are extremely low, inflation is not a danger – there is too much idle capacity for wages to rise and start a 1970s wage-price spiral.
In the end however there won’t be a default – Obama will totally cave as per usual.
I am not aware of any deals that the democrats have put on the table. Reid is working on one now, but it will be their first. All indications are that it will look a lot like the Boehner plan once both have been scored by the CBO. And yet Obama is threatening that he’ll veto the Boehner plan but sign Reid’s. All the while calling for tax increases that aren’t even under consideration by anyone outside of the oval office.
It appears to me that, at least at this point, neither the republicans nor the democrats are responsible for the problem. The President is.
Although let’s be real here the irresponsible party is the entire Congress for having such a concept as a debt ceiling. There’s a budgetary process – all spending and tax issues should be addressed there. The debt ceiling is just another excuse for political jockeying.
No, there is no longer a budget process. The democrats have not passed a budget in several years, even when they controlled both houses of Congress and the White House.
There is a budget process – a budget has to be implemented every year and Congress can enact spending cuts or tax hikes in the budget. I don’t see why there ought to be a debt ceiling on top of that, makes absolutely no sense. I’m not here to defend either of these idiotic parties but I don’t see how objectively it can be said that the Republicans are being no more obstructionist then the Democrats.
CBBB – There is no budget. The Senate has not passed one. Other than the President’s budget, which was defeated, the Senate has not even taken up a budget for consideration. There is a law that says there must be a budget, but that law has been ignored for several years by the Senate. Senate republicans, in an attempt to force the issue, have promised to fillibuster all appropriations until a budget is passed, because there isn’t one. If there is no budget, it seems it would be hard to argue that there is a working “budget process”.
Why has these been no budget? I doubt the Democrats simply just forgot. I’m sure there’s more to the story then that
I’m just saying there’s plenty of blame to go around. Who’s more to blame? That’s secondary? Even if I accept the argument that the Democrats have given 90% (and I don’t think it’s nearly that simple), that just means they’re willing to force default rather than give one inch more. The Democrats can accept a Republican plan and then try to make their case at the next election just as easily as the other way around. If this gets to the point of default, it will be because BOTH parties let it happen.
You’re right there’s plenty of blame to go around, for God’s sake I’m not here to defend the Democrats – but they have given in to the Republicans repeatedly. Realistically there shouldn’t any cuts at all there’s no point and it will only serve to exacerbate the unemployment problem. It’s laughable that this country can bring itself to its knees with imaginary problems like the debt ceiling and then have the audacity to send diplomats around the world to tell other countries how they should reform their economies.
I should correct one error I made – the Senate did take up another budget. They defeated the Ryan budget in May by a vote of 40-57. It wasn’t a serious vote, however. The normal process would have involved the Senate developing and passing a budget and then going to reconciliation with the House to produce a final budget. However, the Senate simply took up the Ryan budget and defeated it in a symbolic gesture. They have never taken up the issue again.
Why have the dems in the Senate not passed a budget? Probably because they don’t want to have to disclose anything that would serve as a target to either the left or the right. You might call it cowardice.
Your view that the Democrats have put deals of the table that give the Republicans 90% of what they want looks peculiar from where I’m sitting. Frankly, until the Reid plan is finalized and scored it doesn’t seem that the Dems have put ANY deals on the table.
FYI, txslr, the Reid plan has been scored. It’s exactly as real as the Boehner plan.
Also to note is that no party controls the Senate right now, and the Senate probably won’t have one party control for a long time now that there’s a 60 vote threshold for action.
Dean – So the dems have put their first plan on the table, and with no taxes. It was bound to happen sooner or later, once they got the president out of the mix. And I know that no party has a filibuster-proof majority in the Senate, but I don’t see the significance of this to the issues under discussion. That isn’t what has stopped the leadership from pursuing a budget.
CBBB, trust me, I’m not defending the Republicans either. At least I’m only defending them against accusations of sole responsibility, not any of their specific plans. I agree with you that the debt ceiling should simply follow from the budget. And while I think there need to be serious cuts in long-term spending, I don’t thing deep immediate cuts will help.
I’m not so interested in the “Who has conceded more?” question, because you get into baseline games. The Republicans have conceded a huge increase in the debt from a point that they already think is far to high, but people assume a debt limit increase is a given and say the Republicans haven’t budged. The Democrats passed a huge increase in taxes and spending with health care reform, but again that gets baked into the baseline by people. If we focus on who has given up more from their starting position, it just encourages everyone to come to the table with a ridiculous starting position.
But that’s all secondary. Krugman is saying the Republicans should throw themselves on the grenade, and not to do so is cowardly. I actually agree. I just think the Democrats are just as cowardly.
CNN polls indicate that cut cap and balance is supported by more than 60% of the voters.( http://hotair.com/archives/2011/07/21/oh-my-ccb-bill-gets-2-1-approval-among-adults-in-cnn-poll/) Doesn’t fit the narrative though so you can ignore it.
Obama threatened to veto a Boehner plan because he didn’t want to have to do this again before the election, which means, of course, the Republicans should pass it.
Would the $400B reneg be a plan revision? Is that bigger than the revision Boehner is having to make on his plan?
I understand the point about moralizing, but they don’t listen to me, and this is fun.
when was the last time a politician fell on their sword for the good of the country?
Bush The First?
Or you could just raise the debt ceiling. I mean, this whole thing is performance art. Congress didn’t balance the budget the six dozen other times it raised the debt ceiling. It’s not mandatory. Debate the budget during the actual budget process. This is a manufacturer crisis.
Exactly. Congress essentially votes on a budget twice.
And it’s not like they’ll have to wait forever. The current budget, passed by Republicans in April, expires October 1. Shutting down government in a budget fight is an extreme, but acceptable negotiating chip. Pushing the nation into default for the first time in history is not.
The democrats (in violation of the law, BTW) have not passed a budget for a couple of years, so there is no “actual budget process”. When the republicans took the House they passed a budget, but the Senate wouldn’t take it up. The President submitted a budget that called for massive spending increases, and it was defeated in the Senate 97-0. So the republicans are using the debt ceiling as a lever to get some sort of budget passed. So the crisis is manufactured – if the democrats would abide by the law there would be no need to use the debt ceiling as a club to get a budget passed.
There was a budget passed in mid-April for the remainder of FY2011 that expires October 1. There will be more budget negotiations in September for the FY2012 budget. At that time, the parties will do all the negotiating they want, and they’ll be able to do it without the risk of a default. It’s win-win, really.
There’s no need to use the debt ceiling as a club. The lack of a budget is enough of a club. Hostage taking isn’t cool when we’re the hostages.
I think we are talking about two different things. There is a spending bill for 2011 that was passed in mid-April. It replaced a series of continuing resolutions which allowed the government to continue to operate. What we are arguing about in the debt ceiling debate is projected spending and revenues over the next 10 years. The President submitted a 10-year budget (2012-2021) that called for about $4.6 trillion/year (if memory serves) in spending; up significantly from current spending levels. The House produced the so-called Ryan budget and sent it to the Senate. The Senate, for its part, defeated the President’s budget 97-0 and defeated the Ryan budget 40-57. The Senate has passed no budget, and hasn’t for about 2 years.
Again, the discussions in Congress and the White House are about spending and taxation over 10 years beginning in 2012, and there is no budget for that period. The debt ceiling is being used as a club to get the government to set markers for the next 10 years, not for 2011.
The current Congress can’t control the actions of a future Congress. Every budget is just a spending bill for the upcoming fiscal year. It really doesn’t matter if a budget that plans things out for 10 years is passed or there’s a single year of appropriations; it has the same effect.
My point is that we’ll be having the deficit debate in September when the FY2012 budget is set. That’s when spending will actually be determined, and that’s the time to make up a plan. The debt ceiling is a separate issue. This is much, much worse than when the Democrats considered holding up war funding under Bush.
Then why is it that the Democrats have been fighting tooth and nail to keep the Republicans from cutting the meaningless budget? Why is there a law that requires that the Congress pass a meaningless budget? Why would the Senate Democrats violate that law to avoid passing or even proposing a budget? Because it’s so meaningless? I don’t think so. You want to know why it matters? Think “non-discretionary”. That’s why we can’t simply go year-to-year.
And how you could think that this is worse than threatening to cut off war funding beggars the imagination. Again, default is not on the table. Not according to the markets or the rating agencies. Downgrade, yes. Default, no.
That should be manufactured crisis, by the way. Manufacturer crisis is what they are having in Japan.
Non-crazy Democratic leaders could support something like the Boehner plan–which is, let’s be clear, a huge win for progressives and defeat for right-wingers–and pass it with limited Democratic support and overwhelming GOP support. Situation resolved. Well, debt ceiling situation resolved. We’d still face a cumulative deficit over the next 10 years of, what? $8 trillion? Maybe more. (And that’s assuming no new recession.)
Tyler is eliding a lot here. Yes, there are some crazy Republicans. There are also some crazy Democrats who believe that there’s no call for change to our long term fiscal path. There are people like Paul Krugman who will say that a budget proposal that reduces the budget deficit next year by a billion or two is an austerity budget.
except for the fact that the Boehner plan can’t get overwhelming GOP support. And except for that fact that it’s not a win for progressives whatsoever. But other than that, yeah your point is right on target.
Sure it is–it doesn’t restructure any entitlements, and it doesn’t cut short-term deficits.
You know, Republicans offered up a clean increase in the debt ceiling. Did Democrats vote for that? No, they complained it was a gimmick.
I’m pretty sure that didn’t happen.
97 Democrats voted in favor of the clean debt increase. 82 voted against, and 7 voted present. The vote was held at the end of May. Roughly half of Democrats in the House oppose a clean debt increase.
The “clean debt increase vote” was a gimmick, a farce, proposed by Rep. Dave Camp (R – MI) yet got ZERO Republican votes.
Of course it’s a win for progressives. It cuts spending for next year by less than the Ryan budget, and all other spending cuts take place in future Congresses after elections. In trade for that, it raises the debt ceiling.
What’s not to like for Democrats?
Not sure what world your living in but progressives would consider a huge win to be 4 trillion in deficit savings coming from bush tax cut expiry, further tax hikes on non-labor income, and military spending cuts. This is roughly as far to the left of the electorate as 4 trillion in spending cuts with no tax increases is to the right. Boehner is moderately to the left of this extreme right wing position, so calling that a huge wind= for progressives is delusional. Just because congress has a centre right and hard right party doesn’t mean that progressives have consider the midpoint between them a win.
jfield, maybe that’s what progressives in the UK want. The key to judging whether a compromise is a win for the left or the right is whether it gives them what they want now, and whether it leaves room for them to get what they want later. In this case, the left doesn’t want any cuts now, and there aren’t any, and doesn’t want any changes to entitlements, and there aren’t any. Meanwhile the Bush tax cuts expire at the end of 2012 without any further action. So the left wins. Unless you are one of the crazy and irresponsible who believe that there’s no call to change the fiscal path, there were always going to be some cuts.
And if we don’t raise the debt ceiling, what does that mean? US cannot borrow anymore money. US has to allocate its current income to cover its current obligations. That means someone *cough* executive branch *cough* has to allocate what money goes to paying off which obligations. This looks strangely like a balanced budget*, I’m not sure because I have rarely seen one.
If Obama is threatening not to pay Social Security it is because he actually has the power to decide to not pay social security. Its not that the money is not there, It is there, but Obama chooses which obligations get paid with the country’s income, and he can choose to not fund SS.
*This is not actually a balanced budget because to have a balanced budget you actually need to have a budget first, which conveniently, the government does not currently have.
pay the bankers first….we know that is at the top of the priority list…maximize pain on the public we also know that is about 2nd….luckily for the politicians those two things are mutually incusive so they won’t have much trouble making the priority list.
A balanced budget is when congress passes a balanced budget. It is not when Congress passes an imbalanced budget and then refuses the authority to execute it. FYI, there was a budget passed for this year, they finally stopped with the continuing resolutions in the Spring.
I find “the power to choose which obligations get paid” to be a funny sort of power. Like a person who wants to lose 50 lbs, but has given himself only a week to do so. That person has the power to decide which of his limbs he’d like to cut off to reach that goal. Some might say that given that situation, he should instead abandon his arbitrary deadline, and instead plan his meals and activity to provide a surplus of burned calories over a longer period to get fit without physical harm.
The first step to weight loss is to provide a surplus of burned calories, which is exactly why we need to cease increasing the debt limit.
If your equivalent daily caloric expenditures is 5 hamburgers and your equivalent daily caloric intake is 7 hamburgers, you are not going to lose weight cutting out only 1 hamburger a day, you need to at least get to 5 hamburgers a day to stop the daily weight gain.
Agreed, which is why the debt ceiling has nothing to do with the deficit. It’s the budget, the actual intake and expenditure, that needs to be fixed. And guess what? All of the spending that will happen in August has already been approved by the GOP. If they want less, they should’ve passed a budget with less spending back in April. They’ll get another bite at the apple in September anyway.
Why do people that think “uncertainty” is the thing holding the economy back think that a sudden and massive disruption is a good idea? Since when did “screw it, let’s just allow the government to breach all of its contracts” become a reasonable suggestion?
And the same would be equally true of Democrats bolting and supporting what they see as a crazy Republican plan because default would be worse.
Doing what Krugman suggests would not be the end those Republican politicians’ careers. Krugman should stick to economics- he knows zip about politics. So, is Krugman supporting the Reid plan? He should explicitly say so.
I’ve heard people say Krugman knows nothing about politics – but he tends to be right about politics and politicians a lot more often then the political-junkie pundits so I’m more inclined to believe it’s the critics who know nothing.
No, he isn’t. Statements like the one in the linked article are proof of that. What he tends to get right are the political things that literally everyone knows. Now, comparing him to the political junkie pundits is a low bar in my opinion since too many of them also know zip.
Give me an example of economics devoid of politics.
Yancey, Give me an example of economics devoid of politics.
Joe, economic policy is always entwined with politics simply because it is politicians that implement it, but economics itself need not be.
Sorry, but this is impossible. Separating the distribution of real resources from the distribution of power can’t be done, as real resources signify power. There is a reason why the powerful have ALWAYS also been the wealthy.
“Krugman should stick to economics- he knows zip about politics.”
And in the end, it’s always about politics. . .
Can you purchase a car or a house with politics? If my car needs repaired, I’ll go to a mechanic. If I’m looking for a solution to an economic problem, I’ll turn to economists.
If I’m in the market for blind ideology and sex scandals, I’ll head to Capitol Hill.
Yeah, if the Republicans could walk to their constituents and say “hey, we got 80% of what we wanted, send us back so we can get the rest,” that seems like a pretty good plan for re-election.
It seems many of them would rather win than succeed, though.
So we should line up behind the people that are in the process of marching us off the cliff of our own debt. That would make us non-crazy by Krugman’s and Cowen’s standards. Lemmings yet, but not crazy.
Look, I understand that there is an argument that this specific moment, amidst a feeble recovery from a deep, deep recession, is the perfect time to tackle our nation’s long-term fiscal problems. I understand that argument exists, I just don’t understand it.
To me, this seems like this specific moment is the perfect time to kick the can down the road and we can try to tackle those problems when the economy is stronger.
The economy is not recovering and getting stronger, except on Wall Street and in and around the DC beltway.
The economy is imploding due to unsustainable levels of debt at every level, and the “solution” the feds have pursued for the past three years is to add on huge amounts of additional debt. Now that episode of unreality is coming to an end, either through an end to borrowing (unlikely) or an increase in federal debt leading to hyperinflation and currency collapse over the next couple years.
Somehow the Republicans have been able to pervade this myth that the debt (or, even worse, “spending”) is slowing economic growth. Given the low interest rates, I have yet to see a description of how this happens, other than “uncertainty.”
I’d be curious if anyone has done a general poll asking something like “If a nation is in an economic recession, an increase in government spending is likely to make the recession (1) end sooner or (2) last longer?”
I’m sorry, this just bears no resemblance to the actual world. We are in a balance sheet recession, which you sort of seem to get, but the federal government can, right now, borrow as much money as it wants, basically for free. We are in exactly the same position as the Japanese have been for the last two decades. While that doesn’t suggest any easy answers to our problems, it certainly suggests that we don’t need to bite the bullet now if later might be better. And I strongly believe that biting the bullet now is far more likely to bring on that hyperinflation you’re hyperventilating about than dealing with things more slowly would.
By what mechanism is debt hurting the economy? You can’t just run around rambling on about debt unless you propose some kind of mechanism by which it is having an influence. Interest rates are very low right now so it can’t be high interest payments.
I agree. It isn’t the debt. It’s the involvement of government in the economy. The problem isn’t how the government funds its activities – its the activities themselves.
1) The debt creates more currency units, devaluing all the savings of currency units that people have foolishly stored in a mistaken attempt to store capital for future use. This drives up prices of everything in fiat currency especially tradable goods, causing massive inflation in food and energy.
2) ZIRP further punishes savers. ZIRP is required to bail out the banks and government due to the excessive high debt levels. ZIRP also drives malinvestments everywhere and a stock market bubble.
3) Debt drives up the cost of housing, cars, and higher education, further squeezing the middle class.
4) Debt creation enriches Wall Street and impoverishes main street due to unequal access to the newly created money. This exacerbates income inequality further damaging the economy.
Except that inflation is incredibly low. Those are persuasive arguments when inflation is above 10%. Fit your theory to the facts and not the other way around.
Dean, those of us who buy our own groceries, heat our own homes and pump our own gas beg to differ about inflation being “incredibly low”. And, of course, anyone who pays health insurance premiums or has a kid in college. . .
With real money (gold/silver) productivity increases lead to deflation. It is only because of our inferior fiat (where the creators pump up the money supply by double digits every year) that people believe that inflation is the natural order of things. Inflation is the money printers fleecing you, year after year.
I don’t think grocery and energy prices generally rise and fall based on the money supply. The inflation caused by excess money supply tends to show itself in a wage-price spiral which is nowhere near happening. Energy and food prices go up and down and reflect other factors.
This whole “fiat money” goldbuggery is like some kind of weirdo cult devoid of any real reasoning. Just repeating the same old, tired points. Real money is anything that is generally accepted – gold has no intrinsic value, only that created in the minds of people like any other currency and comes with its own host of problems.
AND WHY WOULD YOU WANT DEFLATION? So the burden of your debts become more onerous?
Except that our economic problems are due, in a large part, to our governments ridiculous borrowing and spending.
Explain.
Please.
A perfect example of empty-headed posturing posing as serious, mature thought.
Except they’re not. A lot of this crap gets assert with ZERO actual explanation. It’s like you people are just robots.
It’s quite simple. The private sector economy generates wealth, the public and quasi-public sector (ie: banking and the legal profession) destroys wealth. Witness the difference between UPS and the USPS, for starters.
That’s simply another blind assertion
Tyler, are you trying “to pull a Homer”?
Footnote on “to pull a Homer”
In the third season of The Simpsons, the episode “Homer Defined” introduced the expression “to pull a Homer” and defined it as “to succeed despite idiocy.”
Obama and Boehner had a deal until last Friday when Obama added $400b in additional “revenues” (don’t you love how people use their words carefuly?). Why is Obama not being called the radical here? Have you seen anyone in the media asking Obama why he changed his mind like that?
The Reid plan has so many accounting tricks (like counting savings on war ramp downs which already happened) that even NPR was saying that the numbers on that plan are bogus.
You can argue that Republicans are being difficult but really Democrats are not helping either. The only difference is that Democrats know Republicans are on the right side of the issue and have to position their ideology in subtle ways. But it is clear that it takes two for a fight.
Sean Hannity said the Republicans are the ones who have produced plans. No, I don’t trust Hannity.
I’d be passing stuff like a madman and let the other guy choose.
Obama and Boehner had a deal until last Friday when Obama added $400b in additional “revenues”
Funny, I heard it was because Boehner suddenly wanted a complete repeal of PPACA.
No, I don’t trust the source who told me this. I also don’t trust the source who told you that about Obama.
The source was Boehner himself (watch the friday interview, it is posted everywhere). If he is lying Obama should say so out loud and clear instead of talk about how Bush did this and that.
If I’m not mistaken, this was later confirmed by “unnamed White House sources”. I don’t think there really isn’t any controversy about whether the President came back with another $400 billion in taxes. He did.
Obama didn’t change his mind. He’s always had the position that some portion of deficit reduction should be accomplished through increased revenues. Why did Boehner move the goal posts by abandoning his initial agreement with Reid and pushing for a two part increase?
Right now there are two possible plans: Reid’s cuts $1.7 trillion (says the CBO, he claimed 2.2), Boehner’s cuts $710 billion (same deal), neither use revenues. Boehner’s plan doesn’t even have enough GOP votes to pass, that’s why he delayed the vote until tomorrow.
He’s admitted he changed his mind, and went from $800 billion to $1.2 trillion in tax increases.
Krugman has a completely unjustified belief that he is not the crazy one.
As a general question, why would you expect the final bill to pass with overwhelming Democratic support and minority Republican support, rather than the other way around? The Democrats certainly haven’t been driving the issue, and if they have overwhelming consensus on a single approach, I would like to hear it.
I don’t really think it would end their political careers. Some maybe. They’d have some explaining to do. But noone promised this was going to be a fun time to be a politician.
Something I’ve never been clear on – is there actually merit to the idea you can close the defecit with tax hikes or is it purely a political tool to get Dems on board with medicare reform that really matters?
I’ve seen all these charts indicating that we have really never been able to get more than 19%ish of GDP in revenue even at 90% top rates and we are currently at 15%. So, fine, we do some Simpson-Bowles type stuff and maybe add a higher marginal rate on rich people – let’s negotiate it at $400k per household where it won’t deter production. How much actual money do we get? I don’t think we can really expect to get more than 3% of GDP.
This thought process suggests to me that taxes don’t actually matter except to the extent Dems need them to sell anything they do. If correct, it’s just incredibly frustrating that we can’t use this as an opportunity to get a bigger deal. Tighten up the hedge fund thing and create a non harmful higher rate. You won’t get any money but so what, you may get some entitlement reform, you bozos.
We probably could get consistently more than 19%, but
1. we’ve never done it, so it would really be a never-before-seen tax burden on the country
2. you would need to hit the middle class pretty hard, since there simply aren’t enough “millionaires and billionaires” to cover the nut, and
3. it would likely require something like a VAT, since even progressive European countries have trouble getting marginal rates above 50% on income.
It’s a straw man that liberals want to use only tax hikes to close the deficit. The consensus right now is that about 25% should come from new revenues, mostly through ending tax expenditures.
It may be a straw man, that, but they haven’t been beating the drum on entitlements for a decade or so. Until recently all I ever heard was that allowing the Bush tax cuts to expire was more than enough. Maybe it is, but I don’t hear that anymore. Liberals seem to specialize in just-in-time reasonableness.
I think that’s because of a fundamental difference where liberals are in favor of entitlements, generally, and are willing to advocate sufficient taxes to pay for them. Back during Bush’s term and in the 2010 elections, all I heard from conservatives were that entitlements couldn’t be touched, so I’d revise your comment that all politicians seem to specialize in just-in-time reasonableness.
All you heard during the Bush years was that entitlements couldn’t be touched? Really? From whom?
I’m half wrong. I was referencing Medicare Part D. Bush’s halfhearted attempt to privatize Social Security was, in essence, a cut, so I was wrong to say that Republicans didn’t want to cut entitlements back then (even though he couldn’t muster much support from the congressional GOP).
Heard where? Usually these sorts of strawmen can be backed up with evidence – the hard evidence here has nearly every major Democratic proposal offering between 50% to 75% spending cuts The Republican proposals have literally offered -25% to 0% revenue increases. Please dont’ bother with what you were “hearing” and focus on what’s actually happening.
Is 25% from taxes credible? Again, I’m all for it as long as you don’t tax investment or productivity to any great extent. I was a fan of Bowles-Simpson. I just can’t square the terms of the current debate with either A) the argument from the right that the dems are asking for large tax increases and B) the argument from the left that tax increases actually matter at all.
Well, the current debate is in two parts. In regards to the debt ceiling compromise, Dems have dropped revenues from the equation. The second piece is the actual future plan for balancing the budget, and Dems have generally settled on 25-33% of the gap to be made up with revenues, whereas the GOP wants 110% of the amount to be spending cuts so that they can fund further tax cuts.
From National Review Online
July 27, 2011
Some Austerity
Federal spending would rise despite proposed “cuts.”
By Michael Tanner
‘It is clear we must enter an age of austerity,” House minority leader Nancy Pelosi mourned as she endorsed Harry Reid’s proposal for raising the debt ceiling. Austerity? Really?
The Reid plan would theoretically cut spending by $2.7 trillion over ten years. Even if that were true, it would still allow our national debt to increase by some $10 trillion over the next decade. But, of course, the $2.7 trillion figure is mostly fiction. About $1 trillion of the savings would come from the eventual end of the wars in Iraq and Afghanistan, savings that were going to occur anyway. Senator Reid might just as well have added another $1 trillion in savings by not invading Pakistan.
Another $400 billion comes not from cuts but from assuming reduced interest payments. And, of course, there are $40 billion in unspecified “program-integrity savings,” meaning the “waste, fraud, and abuse” that is the last refuge of every phony budget cutter. The plan rejects any changes to Medicare and Social Security, despite the fact that the unfunded liabilities from those two programs could run as high as $110 trillion. But those liabilities generally fall outside the ten-year budget window, so Reid — unlike our children and grandchildren — doesn’t have to worry about them.
That leaves about $1.2 trillion in discretionary and defense spending reductions over the next ten years. Let’s put that in perspective. This year the federal government will spend $3.8 trillion. Our deficit is roughly $1.6 trillion. Our national debt exceeds $14.3 trillion, not counting unfunded entitlement liabilities. We are talking about raising the debt ceiling to $16.9 trillion. This month alone the federal government will borrow $134 billion. Reid’s cuts would average roughly $120 billion per year.
This is austerity?
Of course, the House Republican plan as announced by Speaker John Boehner is only marginally more austere.
Boehner proposes a two-stage increase in the debt ceiling, with each stage accompanied by spending cuts. The first $1 trillion debt increase would be accompanied by $1.2 trillion in spending cuts over ten years, pretty much the same as Senator Reid’s plan. The big difference is that instead of Sen. Reid’s phony Iraq and Afghanistan savings, the speaker’s plan would appoint a commission — now there’s an exciting new idea — to propose $1.8 trillion in savings from entitlement programs. To be fair, Senator Reid would also appoint a commission — because that’s what Washington does — to recommend additional deficit reductions, presumably including entitlement changes. The difference is that the Boehner commission has teeth. If Congress rejects its recommendations, the president doesn’t get a second $1.6 trillion hike in the debt ceiling.
But $1.8 trillion in entitlement savings over ten years is still too small to encompass real structural reforms of the type envisioned by Rep. Paul Ryan and others. It is much more likely to simply be more tweaking around the edges, perhaps raising the eligibility age or changing the way the cost-of-living formula is calculated. True, changes such as these will have a real impact out beyond the ten-year budget window, but they fall far short of what is necessary to deal with the shortfalls to come.
Making matters worse, both Reid and Boehner are using the time-honored Washington dodge of “baseline budgeting,” meaning that the proposed cuts are not actual reductions in spending from year to year, but cuts from projected future increases. Thus, under both the Reid and Boehner plans, actual federal spending will continue to rise.
With the clock running out, we are now down to fifth- or sixth-best options. But let’s not pretend that this is austerity.
— Michael Tanner is a senior fellow at the Cato Institute and author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.
http://www.nationalreview.com/articles/272813/some-austerity-michael-tanner
The catastrophe was, and is, the insane policies of continuous debt expansion and money printing filling up bottles with nitroglycerin and putting them in the back of the truck. Whatever pothole along the road sets off the explosion is irrelevant and inconsequential.
Progressives’ battle isn’t so much with the GOP or conservatives as with reality and the bond markets. Their “huge defeat” of spending cuts was always inevitable, which is why the GOP is not celebrating the Reid plan and it’s ~2% cut to the baseline projected growth of gov’t.
Minarchists of whatever stripe will not have achieved any kind of real victory until total gov’t spending (fed, state, and local) falls below 30% of GDP again.
Don’t worry Dave when the fiat debt bomb detonates sometime over the next few years we won’t have to worry AT ALL about government spending 30% of GDP for a long time, hopefully ever again in human history. They will be broke as nobody will accept their crappy, constantly devaluing paper money anymore (which is the only way it ever got above, say, 10% of GDP spending in the first place).
I really can’t stand these people who run around rambling about fiat money and debt. WHAT IS THE MECHANISM BY WHICH this is doing damage?
Maybe you should try understanding them 10% of the time.
The debt crisis for one. Need I go on?
CBBB, the Fed has doubled the base money supply since 2007. That means for every dollar you were saving in 2007, it now has to compete with twice as many dollars for food, gasoline, and the like. Hence, inflation. This does not take into account all the additional creation of money “higher up” in the money pyramid, for example the secret (SECRET!) 16 trillion dollars in loans from the Fed to foreign central and TBTF banks.
All of this money printing means that saving fiat money is a fool’s errand.
You can’t print up gold, silver and the like, therefore they maintain (and even increase) their purchasing power over time.
As for debt, it is mainly an avenue for those with privileged access to the new fiat (banks) to charge the rest of us for the privilege of buying the essentials of life (food, housing) and of career preparation (higher education) with the higher prices their uncontrolled emission of currency directly causes.
And now this Ponzi financial system we have is imploding under the weight of simple mathematics and demographics.
But where’s the inflation? Where’s the evidence of inflation – just printing money cannot generate inflation if this money is not used to actually INFLATE the price of things. You could run the printing press from now until eternity – if no one takes the excess money and makes excess purchase with it or demands increased wages how can you have an inflationary spiral?
Your world view is ridiculously simplistic.
CBBB,
The inflation is in the price of gas (a triple in 3 years), wheat (another triple), milk (75%), ground beef(100%), home heating oil (a triple) or gas (a double). It is in health insurance premiums (up 35%), college education (30%), the S&P 500 (100%), gold (110%). Etc. Directly corresponding to the weakness in the DXY and the huge increase in number of dollars outstanding.
The current CPI is, of course, a politically manipulated statistic. For example, using the old CPI measure from the 70s and 80s, we’ve had 9% inflation over the past three years.
So the price of gas would be much lower if less money was printed? Laughable? Increased food prices – nothing to do with extreme weather conditions across North America and large parts of the world?
Not all price increases are due to money being printed
So, Krugman and Cowen argue that a politically worded bill meant to avoid REAL spending cuts would be a good move for Republicans specifically elected to control spending.
I do not follow this logic. Is this another fun mind exercise to entertain our inner child? Or is Krugman so naive that he missed the clear signals the bill sends to spenders? Really?
I agree on one thing I have seen around the Internet lately. It is time to have adult conversations.
Passing another foolish bill that approves of accumulating huge(7 trillion minimum) new deficits for the next decade is not going to fix anything.
So, Krugman and Cowen argue that a politically worded bill meant to avoid REAL spending cuts would be a good move for Republicans specifically elected to control spending.
So, Jim doesn’t even read when Krugman says “This would, however, probably be the end of these Republicans’ political careers.”
Congress has made many many decisions over the years that are bad for the long term health of this country. Americans have continously re-elected the people making the decisions. If the Americna empire ends tomorrow i don’t think the issue of blaming it on team red or team blue is meaningful AT ALL. Most americans do not vote for these teams because we know they are fraudulent. the elections are carried out by a corrupt group of gangsters to justify theft on a grand scale. Hegelian dialectic is used to get pre-created “solutions” approved by the public. The “left” vs “right” framing of the debates in this country are silly. Only the brainwashed are going to be wasting their energies trying to blame the problems our country has on “team red” or “team blue”.
Those who still actually think will look for the underlying errors behind the ideas AGREED on by the Mainstream Conventional Democrats and Republicans. That set of ideas is where our weakness come from…not from extremist on either side of the false left right paradigm.
Very cynical and I would agree except for the raft of freshmen representatives that got voted in in 2010 riding the wave of the tea party actually got cut cap and balance through the house. It’s not much, but there is hope that it’s not too late.
They should have given him the private jets. Maybe they thought he was joking.
Tyler, I think that if Republicans think they can get a better deal they should wait until the last moment. Just as the Democrats are doing.
The spending cuts are largely insignificant because they are in the latest years and can easily be reversed. I suggest that the Republicans shift gears and pass a short term (say 3-6 month) extension and promise to vote for a further extension after the Dems put forth a budget proposal. I would rather cut $100 billion in the FY 2012 budget than meaningless cuts in FY 2017.
I take Obama’s demand that the extension get him past the 2012 elections to be an admission that this is not a subject he wants to publicize.
Those of us who have actually done the budget arithmetic, including the general Treasury investor, are still awaiting a rational explanation from the Beltway hysteria mongers of why Obama and Geithner are so incredibly incompetent or over-the-top malicious that we are at any risk of defaulting on the U.S. debt. An explanation that does not involve, for example, arguing that when default risks on a bond rise that the interest rate investors demand for it falls.
This is one of these “truths” that is in the heat of a crucial political fight is that is accepted on pure faith from “authority” with critical thinking skills suspended by taboo.
Great post. There is plenty of revenue to pay the bondholders from tax receipts, just not enough to pay rest of the expenses of this bloated leviathan.
The answer is that even if the government pays up on its bonds, it will still be downgraded and judged to be in technical default when it defaults on all its other various obligations.
So when the US government breaches its non-bond contracts (soldiers, military contractors, employees, Medicare/Medicaid reimbursement) or its legal obligations required by Congress (Social Security, payment of grants to state and local governments), that counts as a default even though bond interest is still being paid.
This is not hysteria, it’s common sense. If you think the federal government spends too much money, convince Congress to spend less in its next budget.
Yes exactly. These issues of spending should ALL BE ADDRESSED IN THE BUDGETARY PROCESS – this debt ceiling should not exist
deficit = spending – revenue, maybe when Congresspeople learn basic arithmetic politics will improve.
I once believed that the debt ceiling was pointless, but you have convinced me otherwise. As long as the government can go on operating without a budget (as it has been for quite some time now) the debt ceiling operates as a reasonably effective instrument for forcing Congress to produce one. It’s ugly to watch, but is it uglier than allowing the government to continue to operate forever with producing a budget?
Utter gibberish. The amount of revenue the Treasury has coming in in August is far larger than the current contractual obligations that come due in August, leaving plenty of room for any conceivable cash flow irregularities during debt rollovers. Social Security and Medicare aren’t contractual obligations (and so can’t be “defaulted” on) but under the current debt ceiling in August we have plenty of revenue for those too. And Obama and Geithner have known for many months now that the debt ceiling was, is, and remains the law of the land and may well not be raised for many months. Furloughs will obviously be needed, as in Minnesota, and obviously to anybody who has any respect for meaningful communications in the English language furloughs are not defaults either. Even if the revenue was far lower than under any actually possible scenario, sales of gold and currently held securities could have been and can be taken at any time to overcome any irregularities
The prices on Treasuries (perfectly normal) and the InTrade odds of a deal being done (very low) reflect this reality. The uncritically parroted theory of “default is coming if we don’t do a deal!” does not.
Do the arithmetic for for yourselves, folks. Stop blindly trusting the “authority” of the Obama-controlled Treasury Department.and the press and pundits who have magnified their disinformation into a derangement syndrome. The only way that the Treasury can default would be due to a very intentional decision to make such a completely unnecessary and highly illegal step by Obama and Geithner, to screw contractual obligees with malice aforethought. Neither I nor the general Treasury investor believe that they are so incredibly evil as is implied by the cries of “default is coming!”. There is far more than enough revenue under the current debt ceiling to pay for all these current contractual obligations, and Social Security and Medicare on top of those.
That’s incorrect. Social Security is a binding legal entitlement, and Medicare reimbursements for services already performed are made under valid contracts. The cost of bullets and the salary of soldiers are also set by valid, binding contracts. Simply furloughing federal employees won’t get us anywhere near balance. Social security checks go out on August 3 to the tune of $23 billion, which there isn’t enough money to cover, so that presents an immediate problem. It is absolutely ridiculous to think that we can yank $134 billion out of the economy in one month without anything happening.
As for asset sales, they may be an option, but to pull them off and get actual payment in a matter of days? Good luck with that.
I have heard two different stories on Social Security. One is that, as you have stated, the Treasury will have to issue debt to pay the benefits and that this will cause a huge problem w.r.t. the debt ceiling. The other is that SSA is holding Treasury instruments in the S.S. trust fund, and that redeeming them will lower the federal government’s debt outstanding. Reissuing that debt to the public simply brings the debt level back to where it was before, so no increase in the debt ceiling is need for that transaction.
Think about it this way – SSA is holding Treasury securities in the trust fund, which it could (in theory) sell in the open market to generate cash to pay recipients. This has no impact on the government’s debt level, only who is holding it.
Am I missing something?
Dean you must be wrong, because that guy is a Former Beltway Wonk, and has obviously done the budget arithmetic, because he says he has.
Typical of those overcome by the hysteria to just make stuff up. “Default” in any legal or financial sense of the word applies only to _contractual_ obligations, not to statutory “entitlements” Furthermore, you continue to fail to do the arithmetic for yourself. Those who have thought for themselves instead of mindlessly parroting what they hear on “the news” know that there’s also plenty enough revenue to pay for Social Security and Medicare. Wages, of course, are only current contractual obligations if they have already been earned — and can be readily avoided by furloughs.
And Obama and Geithner have had since at least April to plan for this with furloughs, sales of gold and securities, and any other appropriate measures. Default is utterly unnecessary and highly illegal, an impeachable offense at the very least.
There is enough revenue to cover Medicare, Social Security, contractual obligations, even wages with some furloughing that wont hurt anyone. Dont parrot the media, do your own arithmetic! In fact there isnt even a deficit.
Ok, my last troll feeding of the day.
Obama and Geithner’s plan was to have the debt ceiling raised by an act of Congress. It’s the same plan that has been used since the debt ceiling was enacted and has worked 100% of the time until Republicans decided to take it hostage.
I would love, just love, to see your numbers. Here are mine:
http://www.bipartisanpolicy.org/sites/default/files/Debt%20Ceiling%20Analysis%20FINAL.pdf
Note page 23, which details August 3rd. On that day there’s about $12 billion coming in and $32 billion coming out (in spending committed by Congress, just to remind you can refusing to honor those obligations is also illegal). Social Security checks alone are $23 billion, so you’ll need to cut those in half, at least. That leaves you unable to pay $2.2 billion in Medicare/Medicaid costs, plus food stamps, employee pay, tax refunds, etc.
And yet another example of taboo mongering. Anybody who doesn’t blindly worship authority on this issue is now a “troll.”
Expecting Congress to do something that Congress hasn’t in fact done, and shows plenty of signs of not doing, is not a plan. It is criminally negligent suicide. The current debt ceiling has been, is now, and shows every sign of continuing to be the law of the land. Any “plan” that doesn’t follow this law of the land would reflect an unprecedented degree of astronomical negligence or malice. Neither I nor the general Treasury investor share the preposterously low opinion of Obama and Geithner.implied by your conception of their planning.
(1) The August 3rd cash flows will have been prepared for by building reserves by any executive who is not astronomically negligent or malicious. This can be done by, among other options, asset sales (especially securities or gold, both of which have very liquid markets and so would not be “fire sales”) or furloughs. That is what reasonable executives, most recently the Democratic government of Minnesota, do when faced with a lack of cash flow. They don’t plan to default with malice aforethought, which is what you are implying Obama and Geithner have done.
(2) Delaying Social Security checks, besides being utterly unecessary, does not in any legal or financial sense constitute “default.”
Again per your link, it’s important to observe that in all their scenarios, interest on the debt, Social Security, and Medicare are all paid in full for the entire month of August.
I went through the presentation and I still don’t understand why Social Security payments are included. As of December of 2010 the Social Security Administration held over $2.5 trillion in the Trust Fund. This $2.5 trillion (or whatever it is at the moment) is held in the form of Treasury securities. This $2.5 trillion IS COUNTED in the $14.3 trillion in government debt outstanding, which is the number against which the debt ceiling is applied. Hence, selling enough of the trust fund securities to cover social security payments due WILL NOT INCREASE DEBT. It should be removed from the calculations in the slides and the evaluation should be done again.
Apparently, the same is true for Medicare, so it should also be taken out of the numbers. If (I don’t know about this) Medicaid is paid out of the same trust fund, or if it can be (it is treated as a single line item in the Bipartisonpolicy presentation) this removes just short of $100 billion in money that the Treasury would need to come up with. That changes the story dramatically. It would mean that, instead of coming up with $134 billion in current spending cuts the administration would have to come up with a bit more than $34 billion. That should be very doable.
Again, am I missing something here?
In a rightful Republic, one parliament is not bound by the actions of a previous parliament. That is why entitlements are not only unsound, but unjust. And the idea that it is “illegal” to refuse to honor payments from a previous Congress is laughable on its face.
Also, just curious, when was the last time our Congress passed a binding budget?
rfigueira supplies a splendid example of taboo mongering. Don’t bother with the facts, just insult away.
Excactly. Also, would it even be so bad if federal courts, DOJ, FBI and DEA shut down for a while?
Until the bond market forces the issue, voters will continue to demand entitlements we cannot afford under our current tax schemed. Politicians are only too happy to accommodate until then.
I think the Republicans insisting on more substantive reform are trying to protect the Republican brand until the inevitable emergence of the bond vigilantes. Once they emerge, someone is going to need credibility to deal with the ugly fiscal mess that will ensue. Perhaps the Republicans are standing up for their principles despite the short-term political risk after all.
“Or you could just raise the debt ceiling. I mean, this whole thing is performance art. Congress didn’t balance the budget the six dozen other times it raised the debt ceiling. It’s not mandatory. Debate the budget during the actual budget process. This is a manufacturer call option opportunity.”
I took the liberty of fixing that for you.
Krugman, the serial liar and obfuscator, thinks Republicans are in general crazy? Wow. I’m surprised you agree Tyler. I’ve come to see you as a fairly reasonable person. This is disappointing.
Tyler is thoughtful about long-range and theoretical issues, but when it comes to urgent political developments that would be favorable to the libertarian or economically conservative position, Tyler invariably pushes the knee-jerk Beltway position full tilt. As is natural because he lives and socializes in the insular Beltway community that includes the most influential political press, pundits, think tanks, politicians, bureaucrats, and lobbyists. in the nation. In an urgent and important political event like this, this community circles the wagons and turns into an echo chamber plumping for ever bigger federal government, nearly regardless of their political views n more thoughtful times.
In 2008 when Ron Paul was making the best run a libertarian has made in many decades in the Republican primary, getting out a libertarian message to a mainstream political audience for the first time in many years, Tyler and his Beltway friends, often libertarian on more abstract issues, on the day before the New Hampshire primary happily quoted and linked to timely Beltway slanders of Paul and refused to quote or link to the refutations. Now he appears to be fully bought in to the preposterous Beltway hysteria about “default.”
You people are trully insane. Its frightening to read these comments.
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