Take the deal, people

by on July 5, 2011 at 9:50 am in Games | Permalink

Here is Bruce Bartlett on the legacy of Margaret Thatcher.  And David Brooks is exactly right.  Take the deal, people.

Megan McArdle comments.

1 mdb July 5, 2011 at 9:56 am

Anything that includes “tax expenditures”, I have trouble taking seriously. The democrats are weak, they were weak last year, which is why they never passed a budget or raised the debt ceiling then – they are weaker now. I think people realize that increasing debt now, just mean bigger cuts in 10 years.

2 Andrew' July 5, 2011 at 10:08 am

I hate the term too, although it seems to be what even non-demagogues use, but the idea that we are going to tax you unless you behave X and then later claim we are doing you a favor irritates me.

3 HeyMikey July 5, 2011 at 12:23 pm

Forgive me, mdb and Andrew, but I’m not following you. Are you saying it’s OK to raise revenue by scaling back “tax expenditures?” Or that all current “tax expenditures” should remain in place?

4 Andrew' July 5, 2011 at 12:46 pm

All I’m saying is that when people want to manipulate behavior they call them tax incentives. When they want to demagogue the recipients, they tend to call them tax expenditures.

Get rid of them all, and then don’t come back a bit later with a new idea that you call a tax incentive.

5 Andrew' July 5, 2011 at 10:14 am

A Parable: The kiddies screwed up their little game and started bickering about who broke the rules of the little kiddie game. So the adults had to come in and fix it. The adults don’t really care about the game except when the game or the kiddos spill over and start mucking up serious business. So, until the kiddies start talking in terms of the adults interests, they aren’t ready to be taken seriously. Since the adults are busy and have to attend to reality, the adults may send in the babysitter who is only marginally more mature than the kiddies, and may not understand the game, and may actually hurt the game in an effort to resolve the bickering..

6 mdb July 5, 2011 at 10:24 am

Big cuts now, or bigger cuts later. Reality. Not a parable

7 Andrew' July 5, 2011 at 11:04 am

Sorry, I didn’t mean my parable as a direct reply to your comment, in which I am largely in agreement with. But in this paragraph Bartlett spells out what I consider their assumption:

Mr. Wolf said Mrs. Thatcher was far more concerned about fiscal stability and deficit reduction than lower taxes, and the idea that a debt default “would have been sensible would, to her, have been insane.”

That is because Mrs. Thatcher’s job was to steward the government. My job is to steward my own balance sheet. If the stewards of government are screwing up and not listen to me, my job is to insulate myself from them to the extent possible.

8 bjartur July 5, 2011 at 10:21 am

From Brooks: “Democrats have agreed to tie budget cuts to the debt ceiling bill.”

It’s telling that Brooks thinks (or pretends) that this actually means something. Cuts from fictional/proposed/projected/alternate universe levels of spending mean nothing. It’s playing with numbers. If you want a real deal here it is: I want government spending to decrease; you want it to increase. A logical compromise is a freeze, adjusted for population and inflation.

9 HeyMikey July 5, 2011 at 12:27 pm

“If you want a real deal here it is: I want government spending to decrease; you want it to increase.”

No, I don’t think that’s what’s going on, in two respects.

(1) Apparently the Dems have offered to balance the budget with 85% cuts and 15% revenue increases. This means overall lower spending, of course, since current revenue is far below current spending.

(2) There is a strong case to be made–and Krugman and Stiglitz have made it–for increased short-term spending, and decreased long-term spending. Unfortunately neither the Dems nor the GOP seems to be considering this.

10 Ron Potato July 5, 2011 at 12:38 pm

The “increased short-term spending” has already been going for four years.

11 Thomas July 5, 2011 at 10:15 pm

Dems haven’t offered to balance the budget. They’ve proposed to cut the cumulative projected deficit over a ten year period by a fixed amount.

12 Thomas July 5, 2011 at 10:26 am

Brooks misses the context. There is no need to increase taxes now. Apparently both Republicans and Democrats have agreed on spending reductions of between $2 and 3 trillion over the next ten years. Why shouldn’t that be the deal? A debt ceiling increase matched to those cuts would solve everyone’s problem. But Democrats have been fanatics on only one point: the need to go back to their base and say they’ve raised taxes. So we get a pretense that if only we raised taxes on hedge fund managers or if only we limited depreciation on corporate jets, we wouldn’t be in this terrible place. There’s no reason to concede that point. There’s no reason to even have that argument, given the broad agreement on the need for cuts. Why can’t Brooks spare a few nasty words for a party that allows its ideological needs to intrude on the broad agreement that both sides have reached?

13 Andrew' July 5, 2011 at 10:59 am

Outstanding point. At their best, they keep saying “if we only raise taxes on the wealthy (I think they mean high earners here, but who knows) then all our programs are solvent for another X years” but that does not solve the problems that I have with the way they are running government. I want government (if it does anything) to coordinate solutions to coordination problems and yield a high ROI on infrastructure projects, not transfer cash no matter how solvent they can make it by taxing people.

14 mk July 5, 2011 at 11:17 am

Well, plenty of people do want government to transfer cash, so for your sake it’s too bad you’re not a dictator.

15 Andrew' July 5, 2011 at 11:27 am

Still missing the point, there mk. Plenty of people don’t want them to. To illustrate, we don’t have compromise, so let’s try to explain that. Each of those people gets one vote just like I do.

16 Andrew' July 5, 2011 at 11:29 am

Hell, what I really want hasn’t been on the table since I saw Jessica Alba in Sin City.

17 mike July 5, 2011 at 11:40 am

Because the GOP has said they won’t take that deal, because it is not big enough. That’s why there is no deal.
And there is a reason to have that argument, given the BROAD AGREEMENT on the need to increase revenue.

18 Thomas July 5, 2011 at 12:42 pm

There’s a broad agreement on the need to reform our entitlement programs. Should that be reflected in the deal?

19 Brian J July 5, 2011 at 11:41 am

Wow, what a completely oblivious post.

In a sense, there’s no specific need to do anything one way or another. Political difficulties aside, all we can do is increase revenue or cut spending. But why should one side get everything it wants and the other side get nothing, particularly when the one side that appears unwilling to budge doesn’t have the public on its side? That’s not negotiating.

20 Thomas July 5, 2011 at 12:37 pm

But both sides want to cut spending! That’s where there’s agreement. One side wants to cut spending much more than the other. One side wants to increase tax revenues. They meet in the middle and cut spending by the amount they can both agree on. Do you think that Democrats are going to cut more than $4 trillion over the next ten years? Do you think they’re considering Ryan’s budet plan? If they’re not, then by your standard they’re not negotiating. You’ll need a better definition.

21 Brian J July 5, 2011 at 1:35 pm

You can call it whatever you’d like, but the point is that one side refuses to consider one of two possible measures to solve a particular problem.

22 Thomas July 5, 2011 at 2:14 pm

One of two is a misleading way to describe the alternatives. There aren’t two alternatives, there are numerous alternatives. Including things like reform of our entitlement programs. Is Medicare on the table?

23 Brian J July 6, 2011 at 12:22 am

Thomas,

The point is that one side refuses to engage in anything but cutting. That’s not reasonable.

24 Aaron July 5, 2011 at 10:28 am

Brooks lost me at: “The members of this movement have no sense of moral decency.”

I don’t know how you can seriously say that in a piece about the virtues of compromise. It’s that same idea – if you’re not willing to act within my moral framework, then you must not have one at all – that Brooks is criticizing. And this is why we never get anywhere. People keep injecting something that we typically frown on compromise on – one’s moral boundaries – into an area where finance is important. Once people get it through their skulls that we’re only talking about money and not one’s immortal soul, perhaps people will drop the language of morality and get down to the business of policy.

25 Andrew' July 5, 2011 at 10:53 am

IMHO, Brooks et. al. keep getting it wrong because they think we all have the same interests.

By analogy, my bank comes to me and says they have to increase my mortgage payments because, well, when they let me refinance a few years ago they made a math error, and if I don’t increase my payments then they will go bust. To me, I don’t necessarily think that my and the banks’ interests are entirely aligned and they certainly aren’t unity. I just think they are bad at banking and, though it might be painful in the short run, in the long run I should act in ways that will have the management replaced.

26 Andrew' July 5, 2011 at 11:14 am

a la McArdle, I’m done beating this horse because he just won’t hunt, but the reason that I think my explanation is important is because it explains why thought leaders aren’t getting it, but more importantly why negotiations are failing. Negotiations go better if you understand the other side’s POV, and probably go worse if you start calling them morally depraved.

27 mike July 5, 2011 at 11:42 am

I think we all understand your point of view; our point is that you and the GOP are in the minority when it comes to this argument. In a democracy, the majority should have at least some say in policy don’t you think?

28 Andrew' July 5, 2011 at 12:48 pm

But the democracy isn’t the only thing. And even if it was, and it works as you say, then why isn’t it working?

29 Andrew' July 5, 2011 at 12:49 pm

(and noone has demonstrated an understanding of my point, not that I expect they would, but they might if they claim they do)

30 Ron Potato July 5, 2011 at 12:58 pm

They can have tons of say in policy by keeping their own money and allocating it as they see fit.

If this “majority” just wants free money, they should first learn the limits of economic resources.

31 Ron Potato July 5, 2011 at 1:03 pm

Democracy is the theory that the common people know what they want, and deserve to get it good and hard.

32 Bill July 5, 2011 at 9:31 pm

So, Ron, you favor aristocracy?

33 Ron Potato July 5, 2011 at 11:02 pm

For one thing, we already have an oligarchy, whose factions manipulate the public discourse, supply the candidates, and exploit the democratic tendency to exhaust the state coffers.

These are not the droids you are looking for.

34 mk July 5, 2011 at 11:42 am

In your analogy of the bad bank, what is the analog to the Bush tax cuts and 2 wars? That management was already half-thrown out.

Would you agree that if the management was more decisively thrown out (i.e. if there had been a bigger Senate dem supermajority), the Bush tax cuts would most likely have been allowed to expire, leaving us with a substantially smaller medium-term deficit?

Anyways, these party-specific stories strike me as overly simplistic. Wouldn’t it be more plausible to say that the combination of Democratic and Republican incentives, given the institutional structure of American politics, seems to lend itself to a lack of cooperation and resulting games of financial chicken which often have deleterious effects on the nation’s fiscal situation?

Given the constant recurrence of the same story, it would seem reasonable to look for systemic causes (whether institutional shortcomings or simply voter undereducatedness) rather than blaming particular political actors. The fact is that 50% of the people want X and 50% of the people want Y; X implies not-Y, and Y implies not-X; thus, a tenable compromise needs to be struck that incorporates the priorities of both sides.

35 TallDave July 5, 2011 at 10:37 am

“the welfare state was still intact.” Well, of course it was, no one seriously thought it was ever going away.

As for Brooks, where is this fanciful agreement he speaks of in which we will cut trillions from current spending levels in exchange for a few hundred million in higher taxes? The last offer I saw merely promised to increase spending more slowly. I don’t think even freezing spending at 2010 levels is on the table, let alone cutting back to the horrific privation of, say, 2007, when (as I recall) half the country starved to death, another half went unclothed and unhoused, and the nation was nearly conquered by a column of unarmed Cuban boy scouts.

At any rate I think he is mischaracterizing the positions of those he criticizes — the notion is not that that government can default and everything will be fine, it’s that faced with no other choice government would be forced to cut other spending rather than default. This is just another version of the ever-popular bureaucratic game of “oh dear, our budget was cut 1%, therefore we have no other choice but to shut down our most popular programs.”

36 Andrew' July 5, 2011 at 12:00 pm

Dan Gross thinks that some Republicans just want to blow stuff up. Why so serious?!? Even McArdle assumes that we wouldn’t be able to roll over debt. I’m not sure why. Mark Zandi says that even if we kept up interest payments that bondholders would say “hey, if they ‘default’ on Social Security payments, then how long will they keep paying me?” But I think bondholders know that improving the balance sheet improves their long-term prospects, so I’m not sure how the commentators come down on the side they come down on. I think they start out assuming that some Republicans are crazy, then when they hear hard-line negotiator talk they believe that reinforces their assumption. Maybe their are right. Who knows.

37 Bernard Yomtov July 5, 2011 at 3:40 pm

If you learned that someone who owed you a lot of money was not paying someone else he owed a lot of money to your reaction would be:

a. That’s great. Leaves him more to pay me with.
or
b. Oh s**t!! The guy is in starting to welch on his debts.

Mine, and Zandi’s, answer is (b). If yours is (a) you are a very optimistic fellow indeed.

38 Andrew' July 5, 2011 at 4:05 pm

That’s the question, isn’t it. Another Occam’s razor. Does the debt market see entitlements and other spending as one of “them” or one of “us?”

Considering “defaulting” on defense spending, for example, is a “default” by choice to reduce spending, I suspect the answer is a higher percentage (a) than you suspect it is.

39 David Wright July 6, 2011 at 12:59 am

The US doesn’t owe one red cent to any social security recipient, in any legal, contractual sense. We have a longstanding tradition of political rhetoric framing social security like it was some kind of annuity, but legally it’s just welfare. If a guy who owes me a lot of money stops giving half his income to his non-working relative, even if that relative helped put him through college years ago, that increases my confidence that I will be repaid.

40 Bernard Yomtov July 6, 2011 at 3:14 pm

Whatever the legalities, not paying SS benefits is going to be perceived as a default by the markets, not to mention being politically infeasible. Remember, “bunch of IOU’s” rhetoric aside, the SS Trust Fund does hold Treasury securities legally backed by the full faith and credit of the United States. Defaulting on them won’t go over well.

I do think Andrew is correct that a big cut in defense would not be so perceived, though I doubt that’s what the GOP is after.

41 Dan Weber July 6, 2011 at 9:13 pm

the SS Trust Fund does hold Treasury securities legally backed by the full faith and credit of the United States. Defaulting on them won’t go over well

Loaded statement. The Treasuries held in the Trust Fund won’t ever default. But SS benefits can still be cut to zero without those ever being touched.

42 Thomas July 5, 2011 at 12:44 pm

It’s a few hundred billion. The mistake speaks volumes.

43 mjw149 July 5, 2011 at 3:16 pm

We’re losing our position in the world because we’ve not properly funded the United States. We didn’t properly regulate banking, food, real estate. Our infrastructure is crumbling, our education is fading away, and with no incentive to spend money on nonprofits, millionaires are spending that money overseas. We’re losing. Tax cuts have been occurring for the last 20 years, and we have nothing to show for it but a weaker and weaker country.

Regulations do something. Bureaucrats do something. It is a false statement that we need less government. Our founding fathers thought we needed more. First we wanted democracy instead of royalty, a more complicated, wasteful system. Then the Articles of Confederation wasn’t strong enough, so we wrote the Constitution. We’ve expanded the role of government in the 20th century, and when we had the largest government (remember FDR and WWII) and highest relative taxes, it worked. Tax cuts are a failed strategy. Look at Ireland. Look at the US post-1995.

You know why? Because those agencies and regulations and spending was work, real work, applied to organize our country effectively and maintain and build out our infrastructure. And that’s what nations need. 50 states doing it 50 different ways can’t be competitive globally. ‘United we stand, divided we fall’.

The GOP just wants to tear the country apart, and that’s what happening. We’re falling behind in broadband, in transport and in the world economy. We can’t even fix health care, because you don’t want to use the tried and tested methods they have in other countries. Because the millionaires have the money to win every argument. The GOP is pulling us back into the 19th century slowly, after making so much progress.

44 Andrew' July 5, 2011 at 3:35 pm

Okay, well that’s a Turing Test WIN.

45 Gabe July 5, 2011 at 3:50 pm

my taxes have gone up…been going up since I’ve been working. Payroll taxes/property taxes etc have had a bigger impact on my tax bill than the small income tax decreases.

It is a myth that taxes have been going down.

46 Dean July 5, 2011 at 5:03 pm

Take that up with your state legislature. Federal taxes have dropped, while ARRA bailouts for states prevented those taxes from going even higher.

47 Thomas July 5, 2011 at 10:07 pm

Federal revenues have dropped. Some tax rates have gone down, others have gone up.

48 skh.pcola July 5, 2011 at 11:16 pm

Our founding fathers thought we needed more. First we wanted democracy…

Wrong on the first point. And we didn’t want democracy. The FF specifically spoke to that point. Nice try at historical revision though.

We’ve expanded the role of government in the 20th century, and when we had the largest government (remember FDR and WWII) and highest relative taxes, it worked.

You have a curious concept of “worked.” And pointing to a wartime era, when essentially all productivity was aimed at fulfilling the needs of driving that war machine, is a straw man. I guess Now, with the largest share of GDP going to government since that time, we should be “working” even better than your mythical Clinton era. Not. Another nice try at historical revisionism. Or an abject ignorance of history and economics. Your choice.

We’re falling behind in broadband, in transport and in the world economy.

You can lay the blame for that and much more directly at the feet of your glorious bureaucrats and the government that you so idolize. One of the biggest concerns of industry right now is regulatory uncertainty, and it clear that if Obama and his henchmen are able to remove that uncertainty by instituting their destructive policies, the certainty will become even more destructive to the economy.

We can’t even fix health care, because you don’t want to use the tried and tested methods they have in other countries.

Where, pray tell, are these mythical utopias? Now you’re just making up stuff. Matter of fact, your entire sophomoric screed is playbook leftist pabulum, intoned rhythmically in a monotone prayer. You folks will never stop until your silly socialism/Marxism?Darwinism/whatever destroys this nation completely.

49 mjw149 July 6, 2011 at 10:24 pm

I voted for Bush twice. I’m a born again Christian. I have a Master’s degree in political science and also a degree in history. I work in the health care industry. I understand statistics, and I can easily identify your rhetorical ‘technique’ as ad hominem attacks. Typical Fox news stuff.

I mean, ‘Obama and his henchmen’, really? Who can even write that online? You should be embarrassed.

If you want to respond to my argument, please read it carefully next time, take some time to understand what I’m saying. And get some schooling before you respond. Maybe in history and economics.

50 8 July 5, 2011 at 10:48 am

I would take the deal, but first talk very loudly about how a tax increase right now will wreck the economy. The austerity is going to hurt the economy in the short-run, but once the story of the tax increase is out there, then when revenues drop, bigger cuts can be passed along with a big tax break, and we can set up another 20-30 years of prosperity before DC trashes it.

51 8 July 5, 2011 at 10:50 am

The real deal, the deal of the Century, would be for the GOP to offer up defense spending cuts in return for bigger cuts elsewhere and/or tax breaks. It’s their ace card, but they’ve rhetorically boxed themselves in. Not that Democrats would actually want to cut much defense spending anyway, fearing the rhetorical attacks from the GOP. God bless America, where you get the government you deserve.

52 Thomas July 5, 2011 at 12:45 pm

My understanding is that both sides have agreed on defense cuts.

53 Sisyphus July 5, 2011 at 2:06 pm

8, the smoke signals are definitely that defense is going to get cut significantly. Sec. Gates said so before leaving. Sec. Panetta, recently and quickly approved by the Senate, is a former budget director, not a military guy (though he has intelligence experience). You put a former budget director into the SecDef spot for only one reason – you need someone in that role to focus on managing the budget as their top priority.

The only areas of spending big enough to matter much for cuts are Social Security, Medicare, Medicaid, defense, and unemployment insurance. Everything else is relatively small. You cannot mathematically get to $2 trillion in agreed upon “cuts” (really, slower growth most likely) without significantly reducing growth in one or more of the big ticket areas unless you actually reduce discretionary spending (where most programs are) by about a third – not just cut the growth rate, actually reduce the funds. Defense is probably the easiest area to cut, and procurement/accounting at Defense are so bad that we might be able to have nearly the same functionality in our military at $200 billion less a year for 10 years if Panetta can fix the bureaucracy.

54 Finch July 5, 2011 at 4:19 pm

> we might be able to have nearly the same functionality in our military at $200 billion less a year for 10 years if
> Panetta can fix the bureaucracy.

This seems like an optimistic assumption. But we’d get similar results if we just canceled the Joint Strike Fighter.

55 J Thomas July 7, 2011 at 8:34 am

But we’d get similar results if we just canceled the Joint Strike Fighter.

But if we did that, the military would have to spend even more to replace it with something else.

As soon as the political climate changed, maybe 2 years, we’d get congressmen yelling about how the idiots gutted the military, and there’s no substitute for victory, and we wasted all that research when it was about to pay off.

Maybe we got more than 2 years from the Peace Dividend, but they’ve learned better how to play the game since then.

56 FYI July 5, 2011 at 11:05 am

I don’t quite get this idea that Republicans got to this point by being tough and now they should let it go otherwise things will get nasty. Also, I don’t understand how Democrats who complain about cuts now can ask for tax increases at the same time. Aren’t they Keynesians after all?

If anything, the Republicans now are risking their prospects for 2012 by keeping firm with the line of no tax increases even if that causes a default. That is actually the only way this is not a ‘normal party’ like Brooks say. I am not sure this is not a good thing.

57 Brian J July 5, 2011 at 11:44 am

They are talking about tax increases in the future. Virtually every single popular left of center economist has been talking about tax increases and spending cuts in the future, when the economy is stronger, not now.

58 Thomas July 5, 2011 at 12:47 pm

My understanding is that they want the revenue increases in place for next year. Spending cuts in the hypothetical future, when the economy is stronger (how long will this recovery last?), tax increases next year.

59 Andrew' July 5, 2011 at 11:53 am

The underlying argument seems to be that since voters want low taxes and high spending the Republicans need to vote for higher taxes since voters won’t accept lower spending.

I see it differently. For some reason that noone can explain without calling voters irrational, we effectively achieve lower taxes but it is harder to achieve lower spending. The solution is not to throw in the towel and raise taxes but to push as hard as you can to get the spending to match.

60 mjw149 July 5, 2011 at 3:27 pm

Spending never lowers because more people are born every year.

And prior to Obama, Bush created Medicare Part D, which drove up spending significantly, as you’d expect.

Outside of the boneheaded GOP decision to add a poorly conceived new mandate along with tax cuts (to ‘save’ an economy that was hardly awful) the underlying issue is that we’ve tolerated a market for health care where costs rise faster than inflation. Other countries solved this, but the GOP refuses to use those technique, so we keep ‘running out of money’ while it all goes to docs, pharmaceuticals and med tech companies. Which would be fine, if the tax rate was higher and there weren’t so many ‘non-profits’ in that sector which isn’t the case.

We’re the second economy in the world, we can afford everything, we just need to manage our medical costs. We have plenty of young immigrant workers to pay for our older generations, if we’re a little more picky about what we pay for.

61 The Anti-Gnostic July 6, 2011 at 10:25 am

“We have plenty of young immigrant workers to pay for our older generations,”

Do you really think immigrants are coming here to pay taxes to old, white strangers who couldn’t be bothered to reproduce themselves?

The Baby Boomer/X’er generations are in for an awful surprise.

62 mjw149 July 6, 2011 at 10:26 pm

Baby boomers are already on social security and dying off. I’m referring to the idea that a nation needs a certain level of births to create a large workforce to pay for retirees in nations with a welfare state, like ours, Canada’s, most of Europe. America has a relatively high birth rate, and it’s in large part to immigration. Eventually, they’ll be here long enough to contribute taxes or their children will.

63 gmcinva July 5, 2011 at 11:12 am

The problem with “the deal” is that it is just negotiating chatter. There is no enforcement mechanism, and surely by now we know that politicians of both parties will resume spending increases if given a chance. If significant tax increases are agreed, they will happen. Spending decreases seem always to vanish unless they are mandated by law. Personally, I would be OK with returning to the Clinton tax rates – if applied to ALL citizens, eliminating single group/industry tax preferences and restraining by law the spending to 2007 levels. No increase in public debt levels unless in cases of declared war.

64 Bill July 5, 2011 at 11:26 am

On the last part, no increase in public debt unless cases of declared war, you may get more declared wars.

But, on the broader question of whether to lock your fiscal system into a formula, I would like to ask: when you drive a car, do you lash your steering wheel to the armrest so you will not swerve, reserving yourself the right only to use the brake?

Formularly rules for fiscal management raise, and do not reduce, risk and limit your ability to deal with contingencies.

65 KJ July 5, 2011 at 1:52 pm

That’s a false analogy. The proper analogy would be, “When you drive a car, do you observe the speed limit.” Speed limits save energy and lives. They are good for everyone. Sure, you might run into trouble if you are rushing to the hospital in a life or death situation, but guess what, you write the laws. If you really, really have to rush to the hospital, or declare war, you can simply pass a law temporarily suspending the speed limit laws. Of course, I know the counter argument to speed limit laws: “Sure, it’ll save a few lives, but millions will be late!”

66 Bill July 5, 2011 at 3:01 pm

KJ,

Oh, really. So your proscription at the beginning of this recession would have been to raise taxes or cut spending.

Smart move?

67 Bill July 5, 2011 at 3:03 pm

KJ, Beginning of the recession began in 2008 when minority leader Boehner cried, pleading his members to pass TARP, the day after the S&P dived 750 points when the House failed to pass the previous day.

Amazing how we forget.

68 Tangurena July 6, 2011 at 9:41 am

The last time the US “declared war” was in WW2. None of the other wars were “declared”.

69 J Thomas July 5, 2011 at 3:08 pm

No increase in public debt levels unless in cases of declared war.

Why do you want a war so bad?

70 mobile July 5, 2011 at 11:14 am

David Brooks passes Caplan’s Turing Test!

71 dearieme July 5, 2011 at 11:29 am

Mrs T was a very necessary Prime Minister. I don’t see anyone remotely of her calibre on the horizon, either in the UK or the US. Mind you, however much good one politician manages, another can come along in short order and piss it all away.

72 MIchael Foody July 5, 2011 at 11:37 am

I disagree that Democrats have decided that if republicans are fanatics they need to be fanatics too. No, they have just come to the slow realisation that Republicans have been negotiating in bad faith. They correctly see their political fortunes tied to America facing large and real financial consequences. America’s economic situation deteriorating is not a bug from their point of view but a feature.

73 ad*m July 5, 2011 at 1:23 pm

The debt for every US citizen, newborn to 102 years old, is now
$46,197.33
My children are starting their life with this debt burden that they never asked for and never contributed too. And don’t start on ‘it takes a village etc’. If that is true, surely that is also true in 0-debt countries.

I think the crux is that some people see the US government is functionally bankrupt and others do not.

If you do think the USG is bankrupt, then you believe current interest rates do not reflect what they should be now based on EMH. Thus you would prefer defaulting now, rather than later with even more debt burden. Yes, this will cause higher taxes because interest rates will go up, and yes this will make a mess of financial markets.

But
a) this would be worse later on with more debt, which as mentioned I am sure will happen anyway
b) it would just reflect ‘reality’
c) it will certainly stop the USG from taking on any more debt.

and it is c) that I expect to drive down rates after the initial shock is over.

So, yes, default now!

74 Bill July 5, 2011 at 6:10 pm

ad*m, Over the life of your children, the children will pay far more than $46k in taxes, which they will then use to pay off that debt. Today, we build an interstate highway. It is funded with debt. It’s useful life is more than one year. Today, we buy a military jet. It’s useful life is more than one year. Today, we build a dam, its useful life is more than one year. When you have this type of expenditure, you do not cash account it; you pay it off over the life of the asset. Second, the number you quote also is not offset by the income that comes in currently and will in the future to offset it. They will drive down those highways, benefit from the dam, fund social security to cover your old age, just as you did for your parents.

75 Bill July 5, 2011 at 6:17 pm

Oh, and ad*m, you left our children with a total cost of war thus far in Iraq and Afghanistan of $1.2 trillion.

And, counting.

76 Thomas July 5, 2011 at 10:09 pm

How did adam do that?

77 Bill July 5, 2011 at 11:14 pm

Oh, the did it the way he always did: talk about deficits, and then pass tax cuts that show at the end of ten years there would still be a shortfall, and that after ten years there would be a massive shortfall. If you are worried about deficits, then why do you enact tax cuts that make them worse?

Talk. Talk. Talk by the chicken deficit hawks. They can’t even cut cotton subsidies and ethanol tax breaks, but they are worried about entitlements. Yeah, sure, when those are cut there is some more room for tax cuts and they’ll soon forget about deficits.

78 Thomas July 6, 2011 at 12:47 am

If you can suppose he’s that powerful and thus is to blame, do you mind if I make the same assumption about you?

79 Mario Rizzo July 5, 2011 at 11:38 am

All this discussion presupposes that the US cannot withstand or even benefit from its own debt crisis. At current low interest rates the cost of further debt is much lower than it will ultimately become. Therefore, even the current cuts (not to mention possible tax hikes) will not be enough. A small debt “crisis” will vividly demonstrate the inadequacy of the current political makeup to solve the ultimate problem.

80 Mario Rizzo July 5, 2011 at 11:40 am

Just to be clear I am talking about an impasse of a few days or week.

81 MattyM July 5, 2011 at 11:40 am

Megan makes an excellent point

Why can’t they take the deal? There’s one semi-fair reason, which is that the Democrats and the GOP leadership got entirely too cute with the last round of negotiations, finding a bunch of fake “cuts”–and then bragging that they hadn’t really cut anything.

I seem to remember Tyler highlighting this in one of his posts at the time. I doubt that democrats are serious this time around either. From accusing republicans of trying to kill Gabby Giffords, to inviting Paul Ryan to the WH to ‘rub his nose in ii,’ to pushing granny off the cliff, the democrats are cannot be trusted. Not that the gop is much better, but at least they are leading on this issue.

82 MK July 5, 2011 at 11:48 am

Nobody should take any deal, neither Republicans nor Democrats. Republicans’ whole philosophy is based on the idea that relatively large cuts to big government will spur business confidence and usher in new growth era. Well, this is their chance to put that idea into practice. If they don’t do it, then what do we need Republicans for in the first place? I personally think the idea is wrong on many levels and for many reasons, but hey, let’s just settle this right here, right now. If they are wrong, then we don’t have to have this debate ever again, and if they are right, great.

83 J Thomas July 5, 2011 at 4:00 pm

If they are wrong, then we don’t have to have this debate ever again, and if they are right, great.

We had the argument between Keynesians and pre-Keynesians around 1928-1942. But somehow we’ve still been having that same debate ever since.

People do not learn from history what you’d think they’d learn.

84 Thomas July 5, 2011 at 10:14 pm

I’m afraid I agree with you on the conclusion, but probably not much else.

85 J Thomas July 5, 2011 at 10:49 pm

Yes, precisely.

86 JeffyImmelt July 5, 2011 at 11:27 pm

Those cuts would be bad for the likes of GE, for sure.

87 duncan July 5, 2011 at 11:52 am

What is the proper economic arguement that an increase in taxes is acceptable if accompanies by even larger decreases in gov expenditures. I submit if a gov spending decrease is sufficiently large that the future tax liabitlities would be lowered by a great deal. And by discouting this lowering of future tax liabilities to present dollars, this offsets the negative affect of current increases in taxes. Perhaps there are other stronger arguements.

88 Jim July 5, 2011 at 11:56 am

An honest question, because I don’t know: Is anyone talking seriously about paying down the debt, or do all plans rely on long-term GDP growth to simply lower the % debt to GDP?

89 TallDave July 5, 2011 at 12:16 pm

Only Rand Paul. You need a surplus for that — and a real surplus, not the “technically a surplus but not really because we’re spending the SSTF.”

90 Brian J July 5, 2011 at 2:21 pm

It’s not clear whether there’s any reason to do so. If we can get health care costs under control (the biggest if there is, of course) and grow the economy, the ratio should probably decline by itself. I doubt it would continuously fall, but I’m not sure there’s any absolutely essential reason to pay down significant amounts of debt by raising taxes or cutting even more social spending.

91 Dan Weber July 6, 2011 at 9:25 pm

Wouldn’t the government have to suck money out of the economy to pay down the debt in nominal dollars? It’s probably few and far between that they could dare do that if the economy isn’t contracting.

OTOH, it could be held at a constant level of nominal dollars, and let inflation and GDP growth make it shrink.

92 Mercy Vetsel July 5, 2011 at 11:58 am

Ugh.

It never ceases to amaze me at how smart people like Tyler and Megan can get caught up in the twisted logic of D.C. So we need to be “responsible” by borrowing more money to avoid a default? We need to keep borrowing money to service our debt? It doesn’t take a finance whiz to realize that’s not a winning strategy.

And the deal of the century is locking in the Obama spending surge with higher taxes?

That’s breathtakingly stupid on too many levels to sort out.

I’d be a lot more insulted by all of the slurs in the Brooks piece if any liberty Republicans really cared what he thinks, but he’s precisely the vile sort of DC creature that got us into this mess in the first place.

-Mercy

P.S. Excellent point 8 (also TellDave), but the Republican position has been that ANY spending cuts are on the table. Alas, no takers. If Brooks and all of the other fans of bloated government really cared about compromise and spending cuts, then why not the military?

93 Dean July 5, 2011 at 5:09 pm

So your strategy is that it’s better for the government to just stop mailing Social Security checks on August 2?

94 The Anti-Gnostic July 6, 2011 at 10:36 am

A completely false dilemma. The Treasury and the SS/Medicare slush, er, trust funds take in plenty of money to satisfy their obligations. This whole ‘debt ceiling’ debate is designed to obscure. If we’re going into debt to pay debt, then the jig is actually up. If that’s not really the case, then something else is going on–I suspect the Fed and Treasury just trying to keep the sovereign debt bubble inflated.

95 unblinkered July 6, 2011 at 12:30 am

You write: It never ceases to amaze me at how smart people like Tyler and Megan can get caught up in the logic of D.C.

I removed the word twisted because it’s a nonsense. As to the answer, Tyler and Megan are economists, and I don’t mean that in the pejorative way utilized by so many here. I mean that in the revered terms of a studied professional in economics with a first rate intellect. What you argue, and what so many more further up have, has everything to do with perspective of an individual balancing his personal finances, and nothing to do with the flow based system that drives an economy in the aggregate.

In the Short Term spending is high, which will be a problem if it keeps up over the long run, but it is needed in the short run, to keep aggregate demand up, as we exit the recession. In the long term we have a spending problem, that needs solving with structural changes that cut spending in the long run. It’s not that complicated, and there are genuine points made about the tendency of politicians to shirk the cuts component of that equation. But, all the other ideological arguments thrown around here are junk economics. Increase taxes will not be detrimental to economic growth, and we are relatively lightly taxed by the standards of our peers in this world. Genuine spending cuts, combined with small revenue increases are about a sensible as it gets.

96 Andrew' July 6, 2011 at 10:50 am

unblinkered,

I think you misunderstood nearly all the comments here, especially if you think that many people here use “economist” in the perjorative.

For example, you say “and we are relatively lightly taxed by the standards of our peers in this world.” This is oft-repeated, but in a funny way, Bruce Bartlett himself explains the falseness of this meme when he says:

http://economix.blogs.nytimes.com/2011/06/07/health-care-costs-and-the-tax-burden/
“In short, a substantial portion of the higher tax burden that Europeans pay is really illusory. They are really just paying their health insurance premiums through their taxes rather than through lower wages, as we do.”

I’m obviously not saying we should emulate European policy, but when people say that we have really low relative taxes they are not comparing what the economy gets in return in the comparison coutries.

97 Andrew' July 6, 2011 at 11:13 am

Also, US federal outlays are the highest ever excluding world wars. So, talking about tax rates is probably misleading to begin with.

But to me the point about what value we are getting from our tax dollars isn’t just a technical point. If the government cannot obtain a decent ROI on its capital then we cannot continue borrowing. For example, when a large fraction of government money is used to fund wars and medical procedures rather than medical research that is a recipe for investing in a way that increases costs versus benefits.

98 Chris D July 5, 2011 at 1:19 pm

It’s fantasy to imagine that American conservatism represents some kind of serious, adult approach to governance, and even more fantasy to imagine that approach has been focused on budget deficits in a principled rather than demagogic way.The former might have been true in 1980, but has certainly not been the case for over 20 years.

The latter, as far as I can tell, has never been true.

Kudos to David Brooks for finally, gingerly, apprehensively, in couched terms, maybe, possibly, facing up to reality. He’s still pretending it’s an “infection” and not acknowledging that the lunatics have been running the show for quite a long time now. And by his cheerleading over the years (presumably trying to avoid being cast out like David Frum), he helped put them in charge.

99 Andrew' July 5, 2011 at 1:48 pm

“It’s fantasy to imagine that American conservatism represents some kind of serious, adult approach to governance,”

Who did that?

100 Chris D July 5, 2011 at 3:32 pm

It’s both implicit and explicit in Brooks’s piece.

“A normal Republican Party would seize the opportunity to put a long-term limit on the growth of government.”

“That’s because the Republican Party may no longer be a normal party. Over the past few years, it has been infected by a faction that is more of a psychological protest than a practical, governing alternative.”

And he constantly refers to “this movement,” as though the GOP contains anything of note other than this rebel faction which has somehow magically gained control.

He clearly thinks of the Republican Party as “a practical, governing alternative” which has gone astray, as though GOP lunacy is something new and something in which he had no part: both wildly untrue.

101 Andrew' July 5, 2011 at 3:43 pm

Brooks: They’ll never have a better opportunity

Contra Brooks: They’ll never have a better opportunity

I see Occam’s Razors all over the place.

102 TallDave July 5, 2011 at 6:00 pm

I agree GOP lunacy is nothing new, but as an alternative to Dem lunacy it often has advantages.

103 J Thomas July 5, 2011 at 10:56 pm

The lunatics have taken over the ship and are steering it.

But luckily, they disagree.

One group wants to turn left. The other wants to turn right. Whenever one of them gets control, the ship goes around in circles. When neither of them is in control they shut down the engines and go nowhere.

So we probably won’t go anywhere dangerous.

104 FYI July 5, 2011 at 4:52 pm

And you think that is the case because they spent too much on the Bush years or because they want to cut too much now?

Really, to try and image the Republicans as a ‘outside of the mainstream’ party is to ignore the very small difference that we have between the 2 parties through the years. The mess we are in is due to both parties being demagogic and power driven. To ignore how the Democrats play into all of this is simply politiking.

105 Gabe July 5, 2011 at 1:33 pm

I hope a default occurs. The lenders to this government are immoral funders of a mad gang of thieves.

106 Dan July 5, 2011 at 2:01 pm

Maybe Brooks is right, and right now the Republicans are passing up a chance that they will never get again. On the other hand, maybe their refusal to compromise will lead to an even better deal with more concessions from Democrats in the future. If the latter is the case, then Brooks’s theory that all of the Republicans are unhinged lunatics would be disproved.

And, one should ask: why are Democrats so willing to cut spending? It’s not because Republicans won the lottery. It’s because the current budget situation stinks. That isn’t going away.

107 Dan Weber July 6, 2011 at 9:33 pm

If the cuts don’t lead to a meltdown, then the GOP would have the ability to gain more seats. (Or, if the winds are blowing that way, the Democrats could try to run on doing cuts themselves. Which works for people who want spending cuts and don’t care too much about which party does it.)

And, one should ask: why are Democrats so willing to cut spending? It’s not because Republicans won the lottery

It’s because you need 50% + 1 votes to raise the borrowing limit.

108 Bill July 5, 2011 at 3:15 pm

The problem is that the ‘deal’ is just a promise that does not bind anyone making it past the next election. Tax increases are real, the spending cuts usually end up being ephemeral. Remember the only reason that we are talking about this at all is that we haven’t raised taxes. Thus, the left has no choice but to deal with the problem now. No deal without entitlement reforms. Indeed the truly rational approach would be no deal without strict new constitutional limits on what the Federal government can do, spend and borrow.

But neither economists nor columnists are known for their successful deal making. Professional wordsmiths often confuse words for actions.

109 Bill July 5, 2011 at 6:25 pm

Congress abandoned Paygo in 2001, it didn’t pay for two wars, it cut taxes and paid for it on the credit card and now it is irresponsible not to raise revenue to pay for this?

110 Andrew' July 6, 2011 at 11:01 am

Bill,

You can’t just raise taxes if the voters don’t want it. My theory is that voters are fed up with government run for cash transfers and the ante to DC and want actual coordination problems solved. People think I’m crazy and cite the popularity of Medicare and Social Security, but that’s not proof. It may just be that people aren’t willing to give up something for nothing.

111 JW July 5, 2011 at 3:26 pm

I think the risk of a default due to a failure to increase the debt ceiling is fairly low. My primary evidence is that the financial markets show very little concern that the US will default. I believe that both the Democrats and Republicans are posturing in any attempt to extract the “best deal” from the opposition.

112 J Thomas July 5, 2011 at 3:52 pm

Why would Democrats hold out for taxes?

http://www.clms.neu.edu/publication/documents/Revised_Corporate_Report_May_27th.pdf

Tyler linked to an oversimplified link to this.

The US government has gone deeply into hock to pay for the recession to end. Perhaps as a result, GDP has increased 4%, more than half a trillion dollars. Corporate profits have increased 40%. S&P is up 44%.

Total civilian employment is down 0.5%. Median weekly earnings are down 1%. More than half of the voters who work for a living are not better off. Employers who pay health insurance pay more for it now, but that doesn’t make their employees feel like they get better health care.

In normal times Republicans get a fair number of fairly-poor people supporting them. “Hey, leave those rich people alone! They worked hard to get rich, and maybe someday my hard work might pay off too. And if it doesn’t it’s my own fault.”

But times are not normal. The government spent, what? 1.25 trillion dollars to stimulate the economy and GDP went up half a trillion dollars? And it all went to owners? And somebody’s going to argue the owners deserve to get it because of their hard work?

It’s the most natural thing in the world for them to want to tax owners at this point. But maybe they’ll listen to Fox News tell them that the problem is entitlements to poor people, so we have to cut unemployment insurance, and cut medicare, and cut social security, and increase their taxes to support the military, and be careful not to tax the owners who make it all possible because without the owners working so hard we wouldn’t have anything….

If Democrats can’t tax the owners, a whole lot of working people are likely to stay home from the polls. They won’t see that there’s a nickel’s worth of difference between Democrats and GOP.

113 Andrew' July 5, 2011 at 5:15 pm

“The government spent, what? 1.25 trillion dollars to stimulate the economy and GDP went up half a trillion dollars? And it all went to owners? And somebody’s going to argue the owners deserve to get it because of their hard work?”

From this, it’s not clear to me that the solution is to grant the government more money.

I sense some cognitive dissonance from the “we are good governance and you can too!” crowd.

114 Andrew' July 5, 2011 at 5:18 pm

Competent government climaxed under Clinton…as did Lewinsky.

115 J Thomas July 5, 2011 at 11:18 pm

From this, it’s not clear to me that the solution is to grant the government more money.

Yes, I agree.

Obama got elected on the promise that he’d change things. So he followed a Republican plan on healthcare that the Republicans all rejected. And he put more money into Afghanistan, while claiming to very slowly our reduce attacks in Iraq. And beyond that it’s “Give me a lot of money and I’ll give it to banks or something, and maybe it will prevent a catastrophe.”.

He’s done very little to persuade the public that he’s different from Bush.

So what’s Plan B? So far it looks like the GOP plan is “Let’s play anti-Keynesians and cut government spending now while for most people it’s still a recession. When the economy gets a lot worse everybody will blame Democrats and we’ll get lots of votes.”.

I’m not seeing a whole lot of leadership here from anybody. Do you have a plan you think would work?

116 unblinkered July 6, 2011 at 12:39 am

The real implication is that real negative GDP growth would have gone on for a longer period, given the small impact of the spending. Business and household spending have been constrained. Government spending has been driving economic activity. Governance is preventing economic meltdown, good governance is fixing the underlying causes. We have governance, but not good governance.

117 Andrew' July 6, 2011 at 10:58 am

Well, that’s a theory. But Tyler just posted that corporations captured some insane percentage of the stimulus and labor less than 1% or something, so whether that is good or bad governance depends on who you ask I suppose. Personally, I think it is pushing on a string because it doesn’t even wink at the underlying causes which are not a gross lack of economic activity.

I suppose such periods of a gross lack of activity could exist and could be fixed by stimulating gross activity, but I think we are in a phase of a lack of intelligent economic activity. On the private side that is people making rational decisions and financing coordination rather than consumption. On the government side, that is them getting back financing coordination (infrastructure projects, etc.) rather than cash transfers.

118 Andrew' July 6, 2011 at 12:31 pm

“Do you have a plan you think would work?”

I’ll take a stab. What I’d like to see is someone to use the words “counter-cyclical regulation” in a sentence. I would slash anything that even smelled like it added to the cost of labor.

119 Tom Grey July 5, 2011 at 4:29 pm

“The members of this movement have no sense of moral decency.”
Bah. The Dem Party was irresponsible in NOT passing a budget last year.
They lost, Tea Party influenced Reps won. On a pledge of “no new taxes”, sort of like almost-RINO G.H.W. Bush (41), who raised taxes. And lost.

No new taxes are needed, that’s a fact.
The gov’t could, if it chose to, merely print money instead of borrowing it. While this might lead to inflation, if it increases GDP growth it might not.
The gov’t could, it it chose, take all gov’t payments to individuals and separate the payment into two parts:
a) 80% of the median wage (or 100%, about $45000/yr),
b) the amount OVER that median wage.
For all individuals, reduce the amount OVER the median wage enough to keep within the debt limit.

J Thomas says Reps claim: the problem is entitlements to poor people, I don’t believe it — Tea Party folk are furious at TARP “entitlements” and bailouts for the rich, and the overpaid union workers whose overpayment caused their companies to go bankrupt.

My (a) & (b) above can keep ALL entitlements to the real poor. The real problem is entitlements to the (majority?) middle class, who WANT, but do not NEED, the money earned by the rich.

They are the morally depraved addicts of using gov’t to spend Other People’s Money.

This needs to stop, the sooner the better.
No more taxes, responsible politicians need to choose how to cut the bloated gov’t for 100% of the change.

120 Bernard July 5, 2011 at 9:03 pm

wow, what a wonderful la-la land you live in. no concept of the rest of us, those “little people”.

it is quite a fantasyland, a la Disneyland, reading your opinions. what a treat to see how out of touch most of the comments are with the rest of us who live and work and have a reality you can’t even conceive of, much less comment about.

that’s the fascinating part. to listen to your “noble” decisions about who and what needs to give or take, versus taxes and entitlements and especially about taxes and Bush in particular. even the loonies, both Democrats and Republicans i know think and despise Bush, for his destruction of our economy for war profit and then Obama’s continuation of the same policies that have landed us into and cemented our 3rd world status.

what a treat it is to see such lunacy bantered about like common sense. amazing, just amazing to see the self conning going on here. we have met the enemy and it is us, Pogo once said.

i do hope we default, it would be good grounding for people like you, though i doubt you would be able to make any sense of the reality default offered. like most disconnected, there already is such a false sense of what constitutes “reality” and after the default such a mismatch will be even more extreme, despite the incontrovertible facts, aka reality, staring them directly in the face. it is obvious though, you can’t see the reality we have now, much less the facts coming down once we finally hit bottom. like how we got there. faith based reality in all its’ splendor. fascinating to see such “creativeness” passed off as reality.

those that refuse to see reality, usually stay where they are. it is always much safer there.

reality bites… hard.

121 Rich Berger July 5, 2011 at 9:46 pm

What deal? Can somebody show me the details.

122 unblinkered July 6, 2011 at 12:46 am

From reading the comments Tyler, and especially in comparison to the lively well reasoned “economics” grounded argumentation that used to take place here not just four years ago, I have concluded that your audience has shifted perceptibly away from economists and towards educated professionals with libertarian leanings. I notice you rarely jump into these debates now, a sign if there ever was one.

123 Andrew' July 6, 2011 at 11:18 am

unblinkered, while your observation is correct, what ‘economic’ reasoning are we missing? I’ll listen.

People are talking like these questions are no-brainers and I don’t think they are.

For example, Bernard Yomtov agrees with Mark Zandi that bondholders consider Social Security promises on par with promises to bondholders. I contend that there is also an equivalence between taxpayers and Social Security holders. Neither taxpayers or Social Security recipients hold promises stating that the bargain would not be altered. Why wouldn’t a bondholder be equally or at least somewhat similarly worried by tax increases as SS cuts?

124 J Thomas July 6, 2011 at 2:25 pm

Why wouldn’t a bondholder be equally or at least somewhat similarly worried by tax increases as SS cuts?

If I was a government bondholder, I would be utterly dismayed by new taxes on government bond income.

Apart from that, not particularly.

The big worry is that the economy might not do well. The worse the economy does, the less real wealth the government has to work with. The worse the economy does, the worse Americans do on average, and the harder it is to be the exception who gets a lot wealthier while the rest sink. So that’s a big worry.

In the meantime, bonds do better when there isn’t much inflation and better when the government is putting the squeeze on somebody else and not bondholders.

What can government do to help the real economy improve? They can cut subsidies across the board, except perhaps in “infant industries” that temporarily need funding. Subsidies distort the economy in ways that are not, in fact, economic.

Unfortunately, the US Constitution prohibits us from taxing exports, so we cannot have products that are cheap inside the USA and expensive elsewhere — unless we use loopholes that subvert the Constitution.

We need better government regulation. That would probably involve eliminating a collection of existing regulatory agencies and replacing them with new agencies that can train their people fresh, and create high morale. So for example, the EPA got pretty demoralized under Reagan, Bush etc because they were told they were useless and worthless, and then ordered to regulate only corporations that did not contribute adequately to the GOP. So we get unrecognized toxicity problems which raise healthcare costs. The EPA probably can’t be salvaged, it must be replaced by a new organization.

To actually make significant changes, we need to give up business-as-usual. In the past, the main approach we have found effective for that was giant wars. Who could we go to war with, to transform our economy?

We need to do something about China’s control of our exchange rate. But what? Hmm. If we went to war with China, our trade arrangements would be badly disrupted. We would have to make for ourselves most of the things we now buy from China (or do without). We would inevitably cancel our debts to China. We would tool up our industry, and do whatever fuel conservation and energy efficiency we could, fast. War with China would be the obvious best possible thing for our economy, apart from the side effects of being at war against a nuclear power, a rising economic giant with the world’s largest population.

125 Andrew' July 6, 2011 at 11:19 am

Besides, this is a political post.

126 Andrew' July 6, 2011 at 11:29 am

For example, these are active debates

http://www.samefacts.com/2011/07/watching-conservatives/michael-mcconnell-weighs-in-on-the-debt-ceiling/

As Bill says, the tax increases would be real and the spending cuts in the future are not guaranteed. How Keynesian is that? Tax increases in a soft patch and no surpluses later?

That’s not to say that the Republicans should blow up the government, but that they want to is an assumption. Tyler says “take the deal” because he thinks they might be willing to take the deal.

127 weichi July 6, 2011 at 1:07 am

Take the deal? Of course.

But they would be idiots to not wait until the last possible minute.

128 Dan Weber July 7, 2011 at 12:16 pm

It’s possible for a deal to go away.

129 Gabe July 6, 2011 at 12:20 pm

Why would economist be making moral claims about how it is “honorable” for our children to pay off the debts of low IQ elders intent on plundering goods that they can’t pay for themselves?

I think a default is more honorable. If I’m going to put on a objective economist hat and keep the moralism out of the equation…then I don’t see any good arguments that could be made to have our children pay interest on this debt for countless generations.

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