The sequester really was a good idea

by on December 9, 2013 at 1:55 am in Current Affairs, Political Science, Uncategorized | Permalink

Here is the latest:

House and Senate negotiators were putting the finishing touches Sunday on what would be the first successful budget accord since 2011, when the battle over a soaring national debt first paralyzed Washington.

I have not seen enough detail to judge this emerging deal, but it seems it will reverse some of the initial cuts to discretionary spending from the sequester.  You will recall my original take on the sequester, namely that it brought some much needed spending reductions (relative to baseline, they are mostly not actual spending reductions!), and that undesirable side effects could be handled by a subsequent Coasian bargain between the parties.  (And here is me on the macro consequences of the sequester, and there was also plenty of monetary offset.)  That appears to be exactly what is in progress.  It is unlikely that bargain will approximate an ideal, but the pre-sequester spending decisions were not ideal either.

Brian Donohue December 9, 2013 at 8:25 am

Tsk, tsk, Tyler. You should listen to your Nobel-prize winning betters. In particular, the Grand Poobah of debt/leverage pushers:

http://krugman.blogs.nytimes.com/2013/04/05/depression-not-ended/

http://www.youtube.com/watch?v=XJHpTvhe09c

Brian Donohue December 9, 2013 at 8:35 am

So, we’re still in a depression despite savage austerity*.

* Federal government debt only going up $540,000 per minute, or about $300 billion per year (that’s $1,000 apiece in new debt on the card for every one of us- not that every one of us will be asked to pay for it. O, savage austerity!) http://www.usdebtclock.org/ $20 trillion or bust! Or? Wait, what?

At some point, the Narrative should be held up against the unfolding reality.

Marian Kechlibar December 10, 2013 at 5:44 am

Savage austerity?

Frankly, there is a limit where one stops being just partisan, and crosses into utter delusion / disconnection from reality, the “tinfoil-hat crank” territory. Even though some people (those who profit from constantly raising debt) may want to hear what Krugman preaches, it still baffles me that NYT publishes him. They can’t live in such a bubble themselves, for God’s sake.

Calling the current fiscal policy “savage austerity” is on par with calling the Earth flat.

Benny Lava December 9, 2013 at 8:44 am

Hey remember when ABC economists were predicting hyperinflation? Good times!

KPres December 9, 2013 at 8:51 am

I remember when unemployment was supposed to max out at 8% if we just went into massive debt.

john personna December 9, 2013 at 10:43 am

That was a self-refuting comment. It tells us that you understand little of the downtown, or why midline estimates proved optimistic.

I mean, the model was optimistic therefore the downturn was less bad? Seriously?

Rich Berger December 9, 2013 at 10:55 am

Yeah, I remember that, too. We just had to have that stimulus. Well, we still do – have to pay for it. It is a marvelous thing to see people attempt to deny the obvious with the stimulus, and desperately try to discredit the little bit of fiscal restraint that was the sequester. As if they were trying to protect their fantasy world from reality.

JWatts December 9, 2013 at 4:49 pm

I remember when unemployment was supposed to max out at 8% if we just went into massive debt.

+1

john personna December 9, 2013 at 6:13 pm

Really JWatts? What about this then?

According to some third-party estimates, the White House may have come close to hitting that target, especially if you factor in the administration’s bailout of the auto industry.

But the job losses in late 2008 and early 2009 ended up being much worse than expected. A total of 3.8 million jobs were lost from December 2008 through April 2009, an average of just over 750,000 a month.

By the time the job losses stopped a year after Obama took office, the Great Recession had cost the economy 8.8 million jobs, and the unemployment rate was stuck in the 9% to 10% range.

It is an easy, but very bad, argument to reject anything on the basis of your own imagined counter-factual. Too many indictments of stimulus are “we would have been better without it, because ponies and rainbows!” You can’t beat that! Of course, without stimulus it might have been sharks and spiders.

Rich Berger December 9, 2013 at 8:27 pm

No, the prediction was made as to how much better we would be with the stimulus and it was wrong. No amount of hand waving will obscure that result.

mulp December 9, 2013 at 11:16 pm

Tax cuts kill jobs but to gain Republican votes, the 2009 stimulus included job killing tax cuts.

Of course the 2008 job killing tax cuts were supposed to prevent jobs losses.

And the 2001 job killing tax cuts were supposed to get the economy creating jobs faster than in the 90s.

As were the 2003 job killing tax cuts passed to restore the jobs lost by the job killing 2001 tax cuts.

The 1981 job killing tax cuts were supposed to pay for themselves with all the jobs they didn’t create.

Tax cuts kill jobs and no amount of hand waving can obscure that.

If only we have more tax and spend laws like Reagan signed Jan 6 1983 when unemployment was 10.8%. That was a 125% tax hike. Unemployment started falling afterward and jobs were created rapidly enough for unemployment to fall back down to where it was when Reagan won in 1980 so he could win reelection.

mulp December 9, 2013 at 11:01 pm

“I remember when unemployment was supposed to max out at 8% if we just went into massive debt.”

I remember when tax cuts would generate more revenue and eliminate the deficit.

Let’s see, that was in 1981.

I remember when the 1993 tax hikes were going to make the deficit worse, but it reduced the deficit year after year until the operating budget was in slight surplus and then in 2001…

tax cuts were going to pay for themselves and reduce the deficit

followed by increasing deficits blamed on the tax cuts not being permanent with more tax cuts making some permanent, and then most of the Bush tax cuts were made permanent.

Will the Bush tax cuts be credited with balancing the budget?

If tax cuts pay for themselves, when will all the tax cuts of the 21st century start kicking in to pay off the debt.

Brian M December 9, 2013 at 10:18 am

“the sequester was a great idea.”
To get to that conclusion, you have to ignore any negative consequences associated with the policy, but once you do that, its effectiveness can’t be overstated.

john personna December 9, 2013 at 10:50 am

My recollection is that I wanted good budget negotiation back then, and I probably would have been on board with any of the committee proposals.

If we get there now, all we’ve lost is time.

aaron December 9, 2013 at 1:17 pm

Also, a major factor in potential credit rating downgrades following the sequester were due to worry that the govenment would roll back the spending cuts.

aaron December 9, 2013 at 1:26 pm

My thoughts at the time were that it was one of the only politically feasible ways to make necessary cuts in militiary spending. We way over-payed during recent wars and we haven’t reduced spending to near pre-war levels.

One reason military spending has been good stimulus in the past, is that it could be ramped down easily. Now it seems just like other spending.

dead serious December 9, 2013 at 2:04 pm

I have to give the Rs props for sticking to their guns. I think the country is better for it.

Keep cutting!

Lord December 9, 2013 at 3:47 pm

You do realize the accord is to cut less?

enoriverbend December 9, 2013 at 3:59 pm

“You do realize the accord is to cut less?”

If they manage to not reverse 100% of the cuts to spending, that would be better than the typical political behavior. So, depending on your level of cynicism, yes, that is something to applaud. (#SlowClapForCongress)

Joseph Ward December 9, 2013 at 4:19 pm

I don’t know if I’ve ever seen the hash tag: #slowclapforcongree. I wonder if I’ll ever see it again.

Steve Labinski December 10, 2013 at 2:38 am

Some penicillin should clear that right up. #SlowClapForCongress

JWatts December 9, 2013 at 4:54 pm

Hopefully we’ll see pretty modest increases and the sequester will remain pretty much intact. The US needs to cut it’s budget deficits, in whatever manner is politically feasible.

john personna December 9, 2013 at 5:16 pm

“Cutting” is a poor substitute for redesign. A better educational system should cost less. And a better health care system as well. Of course, every time we see that comparison with the US as an outlier on healthcare spending, we hear “we can’t,” because less expensive systems are socialist, or something.

Jay December 9, 2013 at 6:03 pm

Citation required. What lower cost system has been proposed here that has been shut down as socialist? All I’ve seen are plans that increase spending drastically for unseen (and probably unrealized) savings in the future due to clever CBO tricks. When the R’s come up with a reform, agree or disagree, it ends with commercials of grannies going off a cliff so I’m not sure you’re painting a complete picture of how “we can’t” is stated.

john personna December 9, 2013 at 6:17 pm

Come on. Pull the other one. We have had N repetitions of US healthcare costs vs the world, noting life expectancy across them. There has never been a rational argument about why we can’t just “pick one” and do better. Cue all those arguments that “we can’t” because we’re bigger, or we’re too diverse, or other hand-waving.

Marian Kechlibar December 10, 2013 at 6:11 am

So, what about this argument.

The other healthcare systems in the world were not introduced overnight, and, in their early stages of development (which is many decades ago), these nascent systems mostly replaced simpler older systems, where people would either pay their doctors in cash, or had simpler insurance systems than those of 2013. In the 1940s, there were only a few expensive treatments for serious diseases available. Getting cancer or Alzheimer’s meant that you died.

As of 2013, there already is a huge and complicated healthcare system in the USA. And a lot of people – voters — have stake in the system *as it is*, and they will not be willing to replace the system from the scratch with something completely different, especially if they themselves will be worse off, or if they feel uncertain about the change – which is what you seem to propose by your “pick one” comment.

It is absolutely politically impossible (in a democracy) to proclaim that from January 1, 2015, the current system ends and a completely new one is introduced. This kind of stuff only authoritarian regimes can do, and even for them there is some risk in it.

Which means that you need to have a long migration process, which, given the fact that older generations are the most resistant to change (and at the same time the most interested in healthcare per se) will take about one and a half human generations to complete (remember that even the current single payer systems are a product of long development themselves). It seems to me no easier to do than rebuilding a space ship – underway. Of course, every four years, there are elections on the spaceship, and the winning candidate may have a differing design to go with…

It seems to me that, realistically taken, the USA is stuck with what it has, with possible cosmetic adjustments here and there. Inertia is powerful. I would sooner expect a successful metrication process than any radical overhaul of the healthcare system, and I do not expect to see metric USA in my lifetime.

john personna December 9, 2013 at 6:21 pm

To be clear, the reason the emotional right opposes all of the lower cost healthcare options is that while it would save money, it would also be more centralized. Given that trade, they’d rather pay more and complain, than pay less and empower the state.

JWatts December 10, 2013 at 9:57 am

To be clear, the reason the emotional right opposes all of the lower cost healthcare options is that while it would save money, it would also be more centralized.

You really seem to be stuck deep in your ideological narrative. There are plenty of counter examples to that statement, so many that I can’t believe you could post it. Some of those include, Ryan’s voucher proposal, tort reform, interstate healthcare insurance, raising Medicare / retirement age, etc. All of those are ideas that potentially lower healthcare costs without centralizing healthcare.

So really, rather than except those as potential options you’d “rather pay more and complain”.

I’m willing to entertain ideas from the Left if they seem like they will result in a better country. Obamacare doesn’t seem likely at this point to make that benchmark.

TMC December 10, 2013 at 4:21 pm

“emotional right” Fine example of projecting.

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