What Republicans are thinking on the sequester (one man’s guess)

Ezra on Twitter asks for a Republican version of this Jonathan Chait column, which basically suggests the Republicans don’t know what they are doing with their policies on sequestration.  Ezra has himself raised similar questions.  I am not a Republican, but I do like a challenge, so here is a brief attempt.

Correctly or not, many Republicans believe some mix of these propositions:

1. Much of government spending is massively wasteful.

2. Deep historical pessimism is justified, as the United States is sliding into a morass of ever greater statism on the economic, government spending, and taxation fronts, if not right now over the next ten to fifteen years.  Currently a majority of the public does not agree with the conservative Republicans and that is where the pessimism comes from.

3. All recent Republican strategies to stop this slide have been failing (this is evident to the Republicans, although not always admitted publicly so gladly, for obvious reasons).  Furthermore, short-term deal-making and policy trade-offs, even if they represent moderate improvements, will not reverse or even much slow down this slide.

4. There is a long-term dynamic whereby the rich will get taxed more and more in an unstable dynamic, ending in the Frenchification of the American economy or worse.

OK, now let’s go to the sequester.  The upfront costs are not viewed as so high, even on the defense side (see #1).  Furthermore something must be tried (see #2).  Given #1, there is some chance the public might see that government spending can be cut without causing disaster and this gives some chance the public might then support yet further cuts in government spending.  Maybe this chance isn’t so high, but all other approaches have been failing (#3).  Ideally, a big budget deal might be better on paper, but a line must be drawn in the sand on taxing higher earners (#4), especially given recent tax hikes, so right now a big budget deal is out of the question; this isn’t 1986 any more.

Draw up the Venn diagrams, or do the expected utility calculations, and you are left with sticking to the sequester.  Furthermore it allows some Republicans to take a “victory” back to supporters, and that gives a “practical” reason to support the “intellectual” ones.  Keep also in mind that a despairing group is a skeptical group, so how would Republican voters really know or trust that they got a good bargain with the Democrats, especially given the Democrats would have to sell it as a good bargain to their voters?  Who understands baselines anyway?

Here is a related Justin Green piece.

I’m not seeking to debate the points in this post, but rather consider this anthropology.  But if you ask about my views, I largely agree with #1, have mixed feelings about #2 (lately there is evidence of the health care cost curve bending; we will see), agree with the first sentence of #3 (though with a different normative slant), and don’t much agree with #4.  In my view the ranks and influence of the rich are growing, some factions of the Democrats will become more like the old anti-tax Republicans, and I don’t see U.S. tax rates on the rich as having a big chance of reaching unsustainable or catastrophic levels.  (If anything I worry much more about regulation stultifying the economy.)  So I would myself definitely prefer a “grand bargain” to the sequester.  The grand bargain would of course raise taxes further, but I don’t see this as a “slippery-slope-beginning-of-the-end.”

That I said, I have an affinity with #1, over fifty percent of the sequester cuts are obviously good ideas, and we could reverse the worst aspects of the sequester rather easily.  So while the sequester is far from my first choice, I also don’t think it is the end of the world.  I am distressed by the number of blogs posts emphasizing the “seen” costs of the spending cuts rather than the “unseen” benefits.  I am distressed by the notion of agencies which might play the “Washington Monument” strategy.  And I am distressed by the unwillingness of both sides — and possibly Obama will end up as the greater villain here — to make the cuts more flexible.  (It is funny by the way how much Republicans distrust Obama, and yet want to give him that discretion so that he will own the costs of the spending cuts to a greater degree.)  Given all that behavior, is a total shock to think that the public — or at the very least the Republican public in the partially gerrymandered House districts — might not want to trust so much of its money with those institutions?


The insanity is that the sequester represents about 10% of the cuts that need to happen on an annual budget that has gone up by a trillion since 2007. We're supposed to even notice this, much less care about it?

There was a giant financial crisis and the budgets past 2007 got really bad as a result. The worst year was FY 2009, (passed in October of 2008, the last FY under the previous administration). Ever since then, it's stayed pretty bad, in inflation adjusted terms, the federal gov't will spend less money this year than it did then. We're (slowly) making our way back down to the pre-crisis numbers you're citing.

FY 2009 was affected, to say the least, by the stimulus bill. (And also by the accounting for TARP on a cash basis.)

Actually, the deficit impact of the stimulus (aka American Recovery and Reinvestment Act of 2009) was $183 billion in FY2009. This is the sum of $69 billion in lower revenues and $114 billion in higher spending (see CBO Outlook 2012 for details). As the deficit increased by $950 billion between FY 2008 and FY 2009, the stimulus was only about one-fifth of the total increase. The other 80% were mostly due to the sharp fall in revenue caused by the recession, the increase in mandatory spending for poor or unemployed people due to the sudden increase in unemployment (e.g. "automatic stabilizers) and TARP.

How about facts instead of opinion....

From usgovernmentspending.com, the 2005$ Federal budget:

FY2000 2018.06 actual
2001 2055.00 a
2002 2181.10 a
2003 2294.47 a
2004 2368.98 a
2005 2471.96 a
2006 2571.95 a
2007 2568.75 a
2008 2731.97 a
2009 3205.79 a
2010 3106.14 a
2011 3168.36 a
2012 3277.12 budget
2013 3230.31 b

During the good economy years of the Republican control, the Federal budget increased by half a trillion.

During the recession which began in FY2008, the budget increased by an extra hundred billion over the annual increases typical during the Republican's good years, then with the economy crashing, the FY2009 increased by $500B based on President Bush's policy position followed by President Obama's policy constrained by the Republicans who were able to control the Senate by filibuster because Republicans won 41 seats in the Senate and with vacancies, Obama needed multiple Republicans to agree to every response to the economic crisis, just as Bush required Democrats to pass his responses.

Since FY2009, the budget has not grown, and is today at the same place it would have been if Bush and Republicans had continued in office from 2001 to the present without any economic crisis, at about three trillion.

And total government spending (Federal, State, local) has held flat since Obama took office, something that last happen when Truman was president.

Unless you consider the tax cuts Obama signed to be government spending because all the money you make belongs to the government when you speak of the trillion in increased spending since 2007....

Shhhh you're gonna make him angry.

"And total government spending (Federal, State, local) has held flat since Obama took office, something that last happen when Truman was president."


Does anyone remotely believe that Obama wouldn't have raised spending more if he could have? His very recent state of the Union address was chock full of additional spending he'd like to enact.

Yes what so few people realize is that what history remembers isn't what you *did*, it's what random people thought you really secretly *wanted* to do deep down inside.

"what random people thought you really secretly *wanted* to do deep down inside."

There's nothing secret about Obama's desire to increase Federal spending. It's pretty much the opposite of a secret.

I think JWatts was just ambushed by the fact based reality.

In that case, Obama didn't do anything because he's not responsible for the budget. Sure, he pushed for the budget to be massively increased, but that's just a super secret urge I guess.

The only way the President can gain "control" of a budget is when he vetoes one. Signing is just acceptance of the Congressional plan.

And why is it that Obama gets credit for spending cuts at the state and local levels? Is it because he's responsible for the bad economy, which lowered tax revenue, which lowered state and local spending? Something more subtle?

So the budget has increased by 60% in real terms since FY 2000 and we cannot reduce it by a few percent? Remember that in FY 2009 the Dems stuffed the stimulus in after Bush left office. Since then they have failed to pass a budget and spending levels have stayed at that level through continuing resolutions.

"Since FY2009, the budget has not grown, and is today at the same place it would have been if Bush and Republicans had continued in office from 2001 to the present without any economic crisis, at about three trillion"

That's a little disingenuous since revenues fell off a cliff during the same period. At least Bush could argue that the Federal budget was staying within a few percent of revenues. And as I recall the deficit was shrinking—just before everything blew up. I’ll bet if you listed Federal spending as a percentage of GDP or the amount of deficit spending from 2009 to 2012 it would paint quite a different picture.

I don’t think the Republicans would have done much better, I just object to the notion that the nothing about the equation of Federal spending has changed under Obama. It has, our deficit has skyrocketed. And the ACA is almost certain to make it worse.

"Since FY2009, the budget has not grown"

"That’s a little disingenuous"

If by disingenuous you mean a straight up lie, then yes.

But facts are meaningless. You can use facts to prove anything that's even remotely true.

You realized that your response is a non-sequitur, right? You responded to a statement about the amount of spending with a discussion of the amount of revenues.

I know some tea party people and they join as more of a reaction Bush and the republicans that to Obama. They have been trying to push big spending republicans out of office.

Only 10? Interest rates and entitlements could make the current deficits look small...

Isn't the issue that as a simple factual matter, number two is simply, objectively, wrong? We can't compromise because one side refuses to engage reality.

Because you think taxes are low?

See below. Taxes are near historic lows, and almost no one wants them even to return to Clinton level. Federal government spending has been declining, and total government spending (including state and local) is way down. Exactly no one advocates for more government intervention in market for it's own sake.

If the deficit had to be closed immediately, taxes would increase incredibly. That is to say, spending is taxation eventually. Spending hasn't been declining. It may have dipped due to the recession, but nowhere near the ability to pay the taxes has dipped, thus the deficit. Numerous economic and other freedom indexes show the US steadily declining relative to other nations. And aside from a few blips that probably are more result from luck than action (Clinton's capital gains tax windfall, etc.) government spending has trended up for a century. So, the defense would be that European levels of intervention have proven to not meet the definition of 'morass' and that is debatable.

"Government spending in the United States has steadily increased from seven percent of GDP in 1902 to 40 percent today."

Thanks for providing example.

Yes, if the deficit had to be closed immediately taxes would have to go way up. You're one step ahead of the congressional GOP, which thinks spending would have to go way down.

But it's only true in a general sense that spending is taxation eventually. Debt acquired today will be paid back, if at all, if future dollars that will both differ in value to today's dollars and be part of different economy. And, of course, it won't ever really be paid back. It will shrink over time relative to GDP as growth slowly makes it irrelevant.

And yes, federal spending since 2009 has been declining, not due to the recession (which actually increases federal spending, not decreases it). See here: http://www.slate.com/blogs/moneybox/2013/02/12/total_federal_spending_federal_spending_under_obama.html and here: http://www.slate.com/blogs/moneybox/2013/02/12/federal_spending_no_log_scale.html

As for "economic and other freedom measures" consider the sources. Who is it that you think ranks countries by these measures? Might they have an agenda?

In 1902, GDP Per Capita was $5,913
In 2013, GDP per capita is $43,787 (7.4x1902)

So if the mean person in 1902 was taxed at 7% to pay for G, and the mean person in 2013 was taxed at 40% to pay for G, and all G was wasted, the 2013 person would be nearly 5x as well off, but only 2/3rds as well off as he could be. If G returns 50% of what private spending would have, he is over 6x better off, but only 5/6 as well off as possible. If 80% efficient, 6.9x 1902 and about 93% as well off as possible.

In other words, wealthier people can afford more government and still be markedly wealthier, even if expanding government wastes their money. And if the difference in well being between someone living on 36k of income and gov services and someone living on 44k of income is 8k spent on positional goods and status competition...

One might also note that debt per se doesn't tell us much without factoring in the cost of debt.

On that count, US servicing of the public debt, as a percent of GDP (and, mutatis mutandis, % of per capita income), is not too much more than the historical lows for the post 1950 period, currently well below the historical highs, and on track to increase to the norm from roughly 1980 to 2000:


Funnily enough, states rarely ever have to pay off their debt all at once. They have this odd habit of existing for hundreds and hundreds of years. Secularly stable or falling borrowing costs + gdp growth allow for deficit spending in perpetuity without worsening the debt/gdp ratio of the state. Plus, larger firms tend to be able to sustain higher debt/equity ratios at lower cost (and, implicitly, less risk), so as the total economy and tax base grows, alongside the per capita wealth of its members, one might expect a state to more comfortably shoulder higher and higher debt/gdp ratios.

I like that Adam doesn't get the joke, I think that's charming.

"But it’s only true in a general sense that spending is taxation eventually."

OK, stop the tape. Right there, see, RIGHT THERE, that is where the car swerves off the road into the magical world of fuzzy economic thinking.

“Government spending in the United States has steadily increased from seven percent of GDP in 1902 to 40 percent today."

That correlates very well with our decision to become the world's policeman. Stealth Fighters and F-35s are more expensive than calvary.

I guess I don't get the joke either. And I'm not making a proposal to raise taxes. I'm pointing out the reality that if the deficit were to be closed immediately then spending would be cut and taxes would rise. And since we have a pseudo-democracy taxes sould in fact rise most heavily on those with the ability to pay. This is another simple truism pointing out the reality of the extrema. If we choose to close the deficit gradually, then we can rationalize costs and benefits more logically. But that is no guarantee that the people with more money won't continually be forced to pay more than they are getting in return.

Brian - No, that's reality. The fuzzy thinking is the (very common) belief in perfect equivalence (that deficits now reduce consumption in the future). It feels intuitive and correct, but it isn't. It relies on the silly notion that there will be higher taxes to pay off the debt in the future, which, factually, just is really unlikely to be true.

Adam, I understand the slippery road you are walking. I have spent my whole career in finance, hearing about ways of cutting the deck such that $1 somehow really isn't $1. A lot of fancy models have been assembled purporting to show some kind of perpetual-motion machine on this premise, but, in the end, they are always undone by some assumption in the model, some "6-sigma' event" or other that was assumed away.

It is clear to me that a whole genus of the family of economists relies on such reasoning as the core of their macroeconomic thinking, under the noble banner of 'governments aren't households'. It's a shell game.

You wanna make the case that our polity should engage in some leverage? Fine. Let's have a discussion on those terms, cuz leverage, while always risky, may sometimes be a good idea. But please stop with the magical models where we borrow a dollar today and it only costs 80 cents (or nothing at all, if you take it to GiT levels) to pay it back.

Brian - Everything you say is true for private entities acting in a currency controlled by someone else. The government is different.

"But please stop with the magical models where we borrow a dollar today and it only costs 80 cents (or nothing at all, if you take it to GiT levels) to pay it back."

Except I didn't say it costs nothing at all. Or imply it. In fact, I linked to actual and projected costs, as a % of GDP (and, equally, as they are equivalent, per capita income). It's all spending growth and deficit size and debt burden, with nothing about relative direct costs, as opposed to opportunity costs, of debt. My suggestion is that it costs an eminently and increasingly bearable, and at times typical, portion of per capita income - not that it costs nothing or less than what we paid.

Currently, our public borrowing costs around 2.25% of our (America's) average per capita income. It's projected to rise to 3.5%. At least, that's why deficit hawk run USgovspending's data suggests. The salient question, for which knowledge of the size of our debt is necessary but not sufficient, is: do our debt levels impose unbearable or unreasonable costs on us presently and in the future?

The opportunity cost and the pay off, if any, of our spending/transferring by borrowing is another, separable, question. It may be inefficient or wasteful or relatively unwise of me to always be borrowing against future income to finance present consumption (and investment), but so long as the habit only claims a bearable portion of my future income year by year, so what, as far as my solvency is concerned? (Who are you to judge if I borrow to finance my "My Little Pony" collection!)

The crisis points which affect individuals and households - job loss, retirement, drastic pay cuts - aren't really so salient for the Leviathan - not that negative per capita GDP growth (er, contraction) never happens (http://data.worldbank.org/indicator/NY.GDP.PCAP.KD.ZG/countries/1W-US?display=graph). There's no "funny math" in recognizing that states seldom retire from producing revenue, via the productivity of their inhabitants.

It’s projected to rise to 3.5%

lol. Now there's a bet I'm willing to take. Anyone want to bet interest rates on the debt stay under 3.5% over the next decade?

That's a lotta words to say you're in favor of increasing the leverage of the national balance sheet.

I think we've gone far enough, thank you. We're coming off a painful lesson in the danger of leverage. Households and companies have made great strides in the past five years, but this has all come while running up a staggering sum on the gubmint's credit card.

Now it's gubmint's turn. You say we need to just pay the monthly minimum or, better still, get an increase in the credit line, before launching into some bullshit positive NPV opportunity if only we borrow a little bit more.

The past 20 years were the 'fat' years- historically low dependency ratios due to baby-boomer demographics. As a country, we have no excuse for pissing those years away, but we did.


Interest paid on the debt as a % of GDP, not the rate of interest on the debt. If you want to offer wagers about that, great.

Absolutely, GIT! Please, I'm begging you, bet me that that rate stays under 3.5% of GDP. I will bet any amount.

I haven't said I'm in favor of anything.

It's a lot of words to say that if one is going to complain about any given level of debt or 'leverage' being unsustainable, then demonstrate that it's unsustainable.

There's nothing "unsustainable" about 1.5% more of GDP on servicing debt. It was sustained for 20 years straight, and people were poorer then. If one can afford 3.5% of income on servicing public debt per year when real per capita income was 20k in the mid 80s, one can do it when per capita income is 50k just fine.

'demonstrate that it's unsustainable'. You know there's only one way to do that right? I'd rather not be picking through the ruins of this country in 10 years just so I could tell GiT "I told you so'.

We have come to such a funny money state that the default position is to spend a trillion more than you take in unless you can prove that it's unsustainable. Congratulations. Collect your economics PhD on the way out.

I'm just going off the numbers from US gov spending. I don't know how confident I should be in those numbers. The point is to think about debt burden in meaningful terms - like, for example, how much of the average individual's income it will suck up per year - not to present what those costs actually are. I don't project deficits, tax revenues, gdp growth, and interest rates on sovereign debt for a living.

Given my lack of knowledge, I'll bet $50 at even odds that the US will not spend more than 5% of GDP on debt service in 2017

Please, again, GIT, bet me! I want your money! I will offer mine!

Interest paid on the debt as a % of GDP, not the rate of interest on the debt. If you want to offer wagers about that, great.

The funny thing about the debt being 100% of GDP is that the interest rate on it=the percent of the GDP. Given that we're going over 100%, it just gets worse for you.

So obviously, I'd love to bet against you. Everyone likes free money.

What's wrong about it?

Everything. There is no slide toward statism and everyone agrees with conservative Republicans that there should not be.

"no slide toward statism"

Assumption: Increasing bureaucratic regulation is a proxy for increasing statism.

Context: There are probably optimal amounts of regulation in a well governed society. However, there is no efficient mechanism in the US for regulating the regulatory bodies, removing obsolete regulation or even determining if regulation is obsolete.

In that context, the amount and reach of regulations will tend to grow. Special interests will attempt to defend regulations that protect their interest. They will tend to support additional regulation. No one will much bother with trimming anything back and over time business activity of any type(including governmental) will become increasingly less efficient.

So what's the trend in governmental regulation over the last century in the US? Pretty much it's on an exponential growth curve.

There has been a 30 year trend of deregulation despite the greater complexity and density of our world. So your statement would be---inaccurate.

Not at all dollared.
There has been well-publicized deregulation, but the trend has been towards more regulation.


So how many regs are on the books now versus 30 years ago? I think there's about 3x or 50,000 more pages in the federal regs if you want to look it up.

While its true that some industries have been deregulated, anyone who runs a business can tell you that the tide of regulatory and reporting requirements is increasingly onerous each year. The uncertaintly on what constitutes compliance further creates an environment of seeming hostility to enterprise. For sure we are regulating faster than we are deregulating. I am puzzled how anyone can doubt the trend towards increased statism as we plunge into ACA implementation.

A good example: my company whas started by two guys in a garage in the 1950's. Yep airlines and interstate trucking were heavily regulated then, but they had other freedoms we don't have now. If these two gentlemen were to try to start this enterprise today, I would guess the timeline to a product introduction would be 5-10 years longer...if they could even do it.

And why is greater complexity assumed to require a positive correlation with more regulation?

I would assert that more complexity could just as logically necessitate less regulation. The internet is less regulated and the additional complexity is met with the acceptance (at least to date) that the government should not be regulating it. The government can still address things like theft but that is not a new thing, but it doesn't need to be in the business of regulating the technical minutiae.

"Isn’t the issue that as a simple factual matter, number two is simply, objectively, wrong?"

No, it's not a 'simple factual matter' and it's not 'simply and objectively wrong'. If it were we wouldn't be having this discussion.

Is the problem really that increasing statism is bad, or is it that statism as governed by the wrong party is bad? Bush increased statism, but that was somehow okay.

Then there is increasing statism? Or not? Certainly it is not okay. Bush is the reason there is/was the Tea Party. The only defense of Bush might be that he had to throw some statist bones to liberals in order to buy his wars. There are plenty of Republicans who don't like that deal. Obamacare is the most significant intervention in almost 50 years.

To be a little more clear:

"United States is sliding into a morass of ever greater statism on the economic, government spending, and taxation fronts"

This is just wrong. It's not happening. And, in fact, the trend has actually been in the opposite direction on all kinds of fronts.

But moreover this, as to those criteria, is also wrong:

"Currently a majority of the public does not agree with the conservative Republicans"

Conservative Republicans don't understand that they've won and almost no one wants greater statism. Even liberals agree that market-based approaches are nearly always preferable. Almost no one advocates for greater government spending as an objective of it's own, and now that Obamacare passed, no one is advocating big new programs. And even on their hated Obamacare, THEY EFFECTIVELY WON. No single payer. No public option. The plan put forward by Heritage as a market-oriented solution. Federal spending is not only slightly down over the last three years, everyone agrees it can be lower, and total government spending (including state and local) is significantly down already. Even on taxes, almost no one is advocating a full return to Clinton levels. That's right, the overwhelming consensus is taxes rates almost as low as they have ever been in modern times.

And yet they believe were perched on a slope to Soviet Town.

"Federal spending is not only slightly down over the last three years, everyone agrees it can be lower, and total government spending (including state and local) is significantly down already. Even on taxes, almost no one is advocating a full return to Clinton levels."

Isn't it a little disingenuous to compare spending "over the last three years" but taxes "to Clinton levels?" Couldn't a right-winger say that "federal taxes are slightly up over the last three years, and all the wonks agree that they have to be higher. Even on spending, almost no one is advocating a full return to Clinton levels," to make the opposite argument of you.

Clinton levels were the immediately prior policy choice, so, no, it's not at all disingenuous.

But yes, you could say federal taxes are slightly up (although only over the last few months, not last three years, during most of which they were actually lower than Bush levels). Not all agree they have to be higher, but yes, there is significant disagreement on that and on how much. But again, the point is that it's a victory for the conservative movement that historic levels favored by Democrats are off the table.

What's disingenuous is to suggest that slightly higher taxes are no different than socialism. And the GOP does that all the time.

Sure, but that Republican would be ignoring that all per capita spending growth since Clinton is 50% military spending, which Republicans drove, and 50% health care spending, which - oh yes! Republicans drove, since they created Medicare Part D and then resisted any attempts to aggressively bargain with Pharma to stop our ridiculous drug price subsidies.

I'll join the Republican Party tomorrow if they will advocate cutting defense by 40% and advocate stringent health care cost controls. - not privatization without controls, but real controls.

But are they not cutting defense spending with the sequester?

All this Republicans will never cut defense business is being proven wrong right in front of out eyes.

And simultaneously the Democrats are fighting tooth and nail to protect those very same cuts.

Democratic politicians don't exactly tend to be critical of either the military or doctors, insurers, and 'big pharma.'

You realize that a majority of Democrats have voted for defense cuts, the public option for healthcare and to repeal the prohibition on negotiating drug prices and/or the importation of discounted drugs? So your statement would be - inaccurate.

Did they vote for those things because they knew they would not pass?

and 50% health care spending, which – oh yes! Republicans drove, since they created Medicare Part D Medicare Part D is a half trillion dollars a year? Oh, it's about $65 billion, so spending over the last 12 years is only up $130 billion? No? hmm

I don't think Part D spending is even as much as the increase in Medicaid over that period, let alone the rest of Medicare.

IOW, please try to find your way to the reality based community some day, Dollared.

I'd like to see exactly which large parts of government Republicans (or Tyler) consider massively wasteful.

Social security and pensions aren't wasteful, they're just transfers.

Defense is wasteful, but Republicans seem to mostly love it.

The medical system is wasteful, but this is true of the private sector as well. It's not clear to me that Medicare/Medicaid is any more wasteful than private insurance. And it doesn't seem that Repubs have much of a plan to make it more efficient, and in fact often oppose Democratic attempts to do so.

Interest on the debt isn't wasteful, it's required.

Some infrastructure, R&D, etc. is wasteful, I suppose, but it's not a big part of the budget.

There is probably over-regulation, but this isn't really so much a *spending* problem per se.

I guess you're left with welfare, unemployment payments. In other words, cut spending on the poor. Whether it is "wasteful" is hard to objectively say.

(And of course, don't forget foreign aid!)

Republicans do also hate some types of spending on the rich and upper-middle class, like NPR, the CPB, Amtrak, and so forth. Democrats seem to defend those as much as spending on the poor.

And what % of the budget do NPR, CPB, Amtrak, and so forth comprise?

Transfer programs (Medicare, Medicaid, and Social Security) represent over half of the federal budget. Another ~30% is made up of defense and interest on the debt. The remaining 15 to 20% is divi-ed up among literally everything else (FBI, Departments of Education, Commerce, Labor, Energy, Interior, etc.; NIH, Congress, White House, SEC, OCC, EPA, and so forth). If there is waste, it's only in the 15 to 20% of the budget that Republicans actually dislike.

No, 90% of all government waste is in the military budget. And that is a truth that all accept but no one speaks.

Isn't it also reasonable to say that one reason Republicans don't have a unified message on the sequester is that not all Republicans agree with one another? There is, for example, a large divide between Republicans that would be willing to cut defense to get other spending cut (or if the alternative is higher taxes), and Republicans that would be willing to raise taxes and other spending if the alternative is defense cuts. See for example the vote on the Mulvaney (R-SC) - Frank (D-MA) Amendment.

Amen. Tyler has made it clear (as clear as he ever does I guess) later that he's talking about Defense spending, but god only knows what Reps are talking about.

It depends on what you mean by "wasteful".

Wasteful can mean either "not necessary" OR "inefficient".

Social security might be efficient in the sense that very little is spent on overhead, but it may be hugely wasteful in the sense that if it's purpose to to eliminate poverty amoung the elderly, there are millions of seniors who don't need it. I would bet that at least half of the money spent on social security goes to retirees who are already collecting pensions that put them well over the poverty line.

It has been a long time bet your guess is fairly accurate. Just over half of the elderly are pushed out of poverty by social security.

Frenchification? As Dickens might have put it:

First Collector: At this taxing time of year, Mr. Scrooge, it is more than usually desirable that we should make some slight provision for the rich and idle
Ebenezer: Are there no chateaus?
First Collector: Plenty of chateaus.
Ebenezer: And the luxury retirement communities - are they still in operation?
First Collector: They are. I wish I could say they were not.
Ebenezer: Oh, from what you said at first I was afraid that something had happened to stop them in their useful course. I'm very glad to hear it.
First Collector: I don't think you quite understand us, sir. A few of us are endeavoring to secure for the rich some relief.
Ebenezer: Why?
First Collector: Because it is at taxing time that envy is most keenly felt, and merit and property most wanting. Now what can I put you down for?
Ebenezer: Huh! Nothing!
Second Collector: You wish to be anonymous?
Ebenezer: [firmly, but calmly] I wish to be left alone. Since you ask me what I wish sir, that is my answer. I help to support the establishments I have named; those who are well-off must go there.
First Collector: Many can't go there, taxes are too high.
Second Collector: And some would rather die than go to a smallish country estate, or heavens forbid, an apartment.

I understand why Frenchification (or Greekification) is a potent fear. I understand why it is potent rhetoric. I don't understand why it subs in for Nordification though. There are many happy countries who have higher tax rates, and spending rates. They are happy because they are in balance, and because they've been able to make compatible social compact. Some people still get rich. The non-rich manage civilized lives.

It's not that complicated. If I think that government spending and taxes are both higher than they should be, why would I agree to more spending and more taxes? If you want to offer higher taxes in exchange for lower spending that might be something I'd consider. You have to offer something up if you want to get to a compromise. Democrats aren't offering Republicans anything they want.

But that's not something Republicans consider. They could've had that in January. Instead, they opted for more spending and lower taxes. If the primary concern among Republicans on the Hill was decreasing the Federal deficit, we'd have had a larger deal around the fiscal cliff, resulting in higher marginal tax rates for half a percent of income tax payers and a more substantial reduction in spending. But all they really care about is tax rates, so we ended up with a smaller tax increase and a smaller deficit reduction package.

How could they have gotten actual spending cuts (not reductions of projections)? Who was offering that? Do you have a cite for this?

Obama had an offer on the table to reduce spending something $800B, the Republicans wanted $1.2T, so they compromised at a lower marginal rate on the top wage earners and ~$620B in spending cuts. If you want more details, you can google it. This was all over the news like 8 weeks ago.

Googled it. No actual cuts were offered. Nothing but spending increases, year after year, forever.

Why does government spending have to go down in absolute terms?

See Tyler's #1, then add "harmful" and "immoral" to his "wasteful".

Because that is the only way to guarentee the cuts will be real, not an illusion cooked up by juking the stats.


A very useful and enlightening argument.

Except that the administration is offering lower spending.

Cite please? (for an offer of actual spending cuts, not reductions of projections)

Read all about it: http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/cutting.pdf

"1. Much of government spending is massively wasteful. .... But if you ask about my views, I largely agree with #1"

Why is it you have a faculty appointment at a public university?...why not quit and do your small part to reduce the massive waste? Yes, I saw the previous post but it's odd to say that research funding from government is good, which you know personally, and yet the sum total of government is massively wasteful. The real problem is not the current level of government spending (hello we had some macro stabilization to do). There are real problems, but this is just a costly detour to the long-term issues, and left-over issues that no one wants to address. You are just dishing up the red herring.

Is there a name for this fallacy?

"Why is it you have a faculty appointment at a public university?"

Because (1) He went to Harvard and (2) He is Tyler Cowen.

The name of the dish is "Red Herring" and Claudia serves it up wonderfully, cold! In defense of TC, he could quit GMU become a NY Times columnist and make $1M a year like Krugman, but he has to become more extreme. As I have written him in private, I urged him to cash in on his fame, to become more controversial, to quit being so 'balanced' but he wrote me back a one-liner that he does not believe in 'selling out'. Baa humbug! Cash in on your fame--Rush Limbaugh style--now that you're hot! TC needs to take off the kid's gloves and start being more obnoxious. There's a market for that. Who wants to hear 'everything will be OK eventually'? No. Apocalypse Now sells!

There's almost no chance that Krugman makes $1 million a year merely from his Times columns. (Then again, if he did, I wonder how easy it would be to raise taxes on the rich. :]). Maybe he makes close to that, or well above that. Whatever the case, he's very well off, but not entirely because he's a Times columnist. He's an internationally renowned and extensively published economist with tenure at one of the finest schools in the world.

And for what it's worth, Krugman (a) will readily admit he believes people like him should be paying more in taxes and (b) he's not all that extreme, but rather verbally aggressive and not afraid to be a pain in the ass to people in power.

I am not trying to be cold. I am sure TC could make more money somewhere. I could double my salary if I took one of the Wall Street job opportunities as a forecaster. But I see a lot of value in what I do as a government economist. Of course, there are inefficiencies and I work very hard to address them. Every once in a while something changes for the better because of my efforts. If I thought government was a waste, I would have left. TC thinks government is massively wasteful, fine but he's getting money from the government and he has the means to change things. There are lots of ways to pursue your argument, whatever they may be.

So you find it persuasive when cranks suggest that Democrats advocating for higher tax rates should just pay those rates on their own?

I think if you are not part of the solution (and you could be)...you are part of the problem. If government waste is really that big of a problem, then why not DO something to solve the problem. I suspect it would be kind of ceremonial thing and not affect his cash flow much. But symbolic gestures can be powerful ... even more so than symbolic words.

So, the answer is yes, you do think it's persuasive to say to those advocating higher taxes, why don't you go ahead, I'm fine where things are. I'll dispense with citing all the usual arguments against that position and note that they could also be used here, and leave it at that.

Surely advocating for smaller government on a well-read blog counts as doing something? Do you expect TC to run for office? Do you think he could get elected? Or perhaps you expect him to become a lobbyist for the "we don't want any favors from government" consortium (whoops, looks like that doesn't exist)?

I have no problem advocating for a smaller government...I have a problem with the 'massively wasteful' label on government. And I was just raising the question of why TC is a part of an institution that benefits from government 'waste.' I also have no problem saying there is waste in the government. There's waste in the private sector too. This ridiculous search for an enemy that doesn't exist is wasting a lot of precious time.

Sure, there's wastefulness and empire-building in the private sector too, but that's constrained by the bottom line and competition. The same unfortunate impulses in government are unconstrained, except for exercises like this.

So are you part of the problem, or do you pay the majority of your income in taxes? I know you're not poor.

I apologize for starting this comment thread. It was not appropriate, was beside the point, and more importantly, won't happen again. Thanks for the reminders that I have a lot of work to do.

Don't be ridiculous. We are all just throwing out talking points, and yours were as good as any others. Troll on Claudia! And good luck in your work in government. I too used to work for government.

Not here. There are better places for me to be annoying...I think I've done enough anti-anti-government and anti-anti-women trolling here for a lifetime.

I don't think I've ever seen you do trolling here before. Putting aside our disagreement on this topic, I usually find your comments very worthwhile.

The thing is that we aren't anti-women and that's what I'm trying to get at, that the more just simply not anti-anything keeps getting assumed to be anti whatever the other person is fixated on.

And you can say that government spending is by definition wasteful (you believe market discipline is more efficient than voting booth discipline) while at the same time holding that research is the least wasteful because although research is SUPPOSED to be wasteful (trial and lots and lots of errors) it is at least one legitimate role for government.

And certainly TC is not part of the problem if you believe his research is more right than others.

The thing is that we aren’t anti-women

Oh, there are at least two posters that can fairly be labeled "anti-women"

Claudia, I think you are one of the better posters here. Generally we are on the opposite side of the argument, but while I might disagree with your points they generally have merit. By all means don't let a blog interfere with your life, but I for one enjoy reading your posts.

What Republicans are thinking on the sequester (another man’s guess):


That in reality we are talking about a 4% cut and the Left is over playing the likely effects for political gain.

And also, that if we can't manage to make 4% cuts, we are doomed when it comes to entitlement reforms which will require substantially more adjustments.

No, its less than zero percent cut. The year to year growth is more than 4%, so this "cut" is actually an increase.

You said: "Ideally, a big budget deal might be better on paper, but a line must be drawn in the sand on taxing higher earners (#4), especially given recent tax hikes, so right now a big budget deal is out of the question; this isn’t 1986 any more."

And how long did it take for the 1986 deal to unravel? I'm currently reading Showdown at Gucci Gulch about the 1986 reform, and I'm wondering, where did all of those improvements to the tax code go? Republicans also have memories (although possibly biased ones) of Reagan getting a fast one pulled on him by his accepting of tax increases in exchange for spending cuts that never materialized. Whether true or not, Republicans believe it to be so.

And we mustn't let what's true or not get in the way of what Republicans believe.

It's much simpler: the Republicans do not believe the President is sincere about offering the cuts for a grand bargain or any other bargain. I've never heard the President give a speech talking up his willingness to cut "hundreds of billions of dollars in cuts to Social Security and Medicare" as mentioned in the Chait article, have you? But I do remember an inauguration speech about all the areas where the President would like to spend more (universal preschool, etc.). The President's supposed willingness to cut spending if only the Republicans would bend a little more on revenue is no more credible than Lucy's promise to let Charlie Brown kick the football.

So the thing he actually offers in negotiations, and the things he actually includes in written plans, you shouldn't believe because all that matters is what he said in a speech?

You know that they get to vote on the actual wording, right? How would he pull the football away?

John Boehner tells a pull-the-football story about how he thought he reached a deal, only to have Obama come back the next day and demand more taxes. I don't know if the story is true, and neither does Ezra Klein or Bob Woodward or anyone else who was leaked information. Maybe Boehner is lying. Maybe the President is. My point is that the Klein/Chait why-won't-the-GOP-take-the-deal angle is premised on the assumption that a deal is really on the table. The GOP does not share that assumption. Neither do I, for the reasons I stated - the President has never come close to proposing big cuts in public, so why should I believe he sincerely offers them in private?

"John Boehner tells a pull-the-football story about how he thought he reached a deal, only to have Obama come back the next day and demand more taxes. I don’t know if the story is true, and neither does Ezra Klein or Bob Woodward or anyone else who was leaked information. Maybe Boehner is lying. Maybe the President is."

If you watch this very recent Frontline I think you will emerge with opinion that it was primarily the White House pushed their luck. Too bad, it could have been a historic compromise.

Yeah, i wonder why they'd think that...

During Obama’s first confrontation with the House GOP in early 2011, John Boehner’s troops were bent on lopping $100 billion off Obama’s budget request for that year, an eye-popping sum to squeeze out of a weak economy. Obama, with Lew as his chief negotiator, eventually compromised at $78 billion, which looked at first like a massive concession, but was a pretty favorable outcome once you read the fine print. As it happened, Lew was able to produce a “headline” number that was large and pleasing to the GOP but ultimately rather meaningless: He’d conjured up cuts to piles of money that weren’t going to be spent anyway, and handed them over to Republicans wrapped in pretty little bows.

Granted, it's largely their own fault for being morons [see also: illegal immigration, 2013]

Yes, why can't he follow the Republicans' lead like Romney & Ryan (towards whom he's supposed to be moving in a putative compromise) and publicly profess a desire to cut Social Sec and medicare? Why on earth would he do this unilaterally, when it's not the goal of *his party*? Complete unmitigated nonsense.

I can't tell if you realize you agree with me. I too find it hard to believe the President would ever offer cuts that are antithetical to the cherished goals of his party.

Do you not remember the many instances which people in his party were up in arms over proposed reforms to entitlements, like a supposedly willingness to raise the Medicare age or go to a chained CPI for Social Security?

Chait and Klein's point is that, were you to grant that Republicans believe all of the points you suggest, they are still behaving perversely: rather than compromise and eliminate a far greater proportion of presumably wasteful government spending, reduce the level of statism beyond that accomplished by the sequester, and achieve a policy success, they prefer the sequester. In other words, they prefer a solution that accomplishes fewer of their stated policy goals to one that accomplishes more.

The explanation (implicit in Klein's case, explict in Chait's) is that, while Republicans may believe all of the points you mention, they believe that point #4 is much, much more important, but do not wish to say so, as it is politically untenable.

If the overspending (deficit and god forbid the debt) were closed immediately then #4 is straight-forward. Since the current model is two Americas this is also straight-forward. There are two Americas because we are in a zero-sum trade game plus politics game and have absolutely nothing to discuss that benefits both sides.

--In my view the ranks and influence of the rich are growing, some factions of the Democrats will become more like the old anti-tax Republicans, and I don’t see U.S. tax rates on the rich as having a big chance of reaching unsustainable or catastrophic levels.--

This use of the term "rich"- particularly by an economist- is uncomfortable to read. "Rich people" don't all have the same interests. Chief among the many divisions is the difference between "rich" people who perform labor- and are taxed on it- and those that do not and are barely taxed at all. The latter group- the trust fund babies or "old money" if you will- are desperate to raise income taxes as high as possible so as to keep their own pile of assets safe and secure.

Such is why certain politically motivated "economists" are so desperate to tar high-income earners as the actual rich people. In so doing they are protecting the old money interests they represent and insisting that as taxes increase- as they necessarily will- the increase is paid by people who work.

This distinction is enormously important in modern political and economic discussion and it is disappointing to see Mr. Cowen- whose work I greatly appreciate- gloss over it in such cavalier fashion. The reliance on income taxes- and all that flows from such- is and will be an enormously important one in the next couple of decades of American society.

I differ with most Republicans in believing that Inheritance taxes and trust funds (at initiation) should be highly taxed. I see no reason that they should be taxed at less than the Income tax rate.

No, you differ with *all* Republicans, at least in leadership positions.

This makes me think of the notion that there's less far less disagreement about the type of taxing that we should do than there is concerning the amount of revenue we should collect.

I think GOP actions are easy to understand if you believe their highest value is low taxes. It is certainly not reducing the deficit because they are content with cutting taxes when it increases the deficit like they did in 2003 when they started a war and passed Medicare Part D while lowering taxes.

I think what makes their actions difficult to understand is if you think they want to decrease government spending. Medicare is what is driving government spending but their only proposal is to reduce it for people under 55 which means doing nothing for 10 years. I think GOP leaders want to do more to reduce Medicare growth but they know the voters, including most GOP voters, do not want to trim Medicare. GOP leaders look like they are trying to get Obama to propose policies to reduce Medicare spending without giving Obama any increased tax revenue. I doubt Obama will agree.

Haha. I believe Ezra's question is: if we ascribe goals to the Republicans (reducing the deficit and cutting wasteful spending) that they *don't* actually have, rather than the goals that they *do* actually have (preventing tax increases), why don't their actions seem rational?

"reducing the deficit and cutting wasteful spending that they *don’t* actually have"

If what you are saying is true then Republican's will vote to postpone the Sequester permanently.

re: #3

Do you believe that Republican's have tried to "stop the slide"? Or do you think that Republicans believe this?

Is there any evidence that Republicans actually try to cut spending, at the Federal, State, or Local level, when they have power? Mostly, it seems they just try to grab a larger slice of the pie

Well, there's the sequester. I assume based on your complaint that you're in favor?

There are plenty of cases of Republican's cutting spending at the state level.

Who the hell ever heard of Walker?

This is a weird argument. Republicans (and Democrats for that matter) have insisted on massive spending cuts and layoffs on the city and state level over the past few years. Public sector layoffs in state and local governments were and remain one of the main drivers of the high unemployment rate we continue to experience. To say they there are no examples of Republicans persuing spending cuts is flat wrong. Doesn't mean there aren't plenty of examples of Republicans spending like crazy, either.

The problem for *federal* Republicans is that our biggest spending programs--Social Security and Medicare--are universal rather than primarily for the poor. To the extent that there's poor-specific spending to cut, they will publicly come out for it, a la medicaid.

I think it's very easy to understand. We face a fiscal gap over the next 10 years of more than $10 trillion. Unless we have another recession, in which case the gap is significantly larger. (We are in year 5 of our recovery; check the stats for average length of post-war recoveries.)

Over that period, the federal government will spend more than $45 trillion.

We're told that cutting aggregate spending by $1.5 trillion over that period would be a crisis. We supposedly need a "balanced approach", in which we raise taxes and cut spending by a smaller amount. (That's in addition to the tax increases we had at the beginning of the year.)

That we're even engaged in this discussion is all the evidence one needs for #2.

Shorter version of this argument:
If I have a tremendous pizza with a few toppings, and I remove 1% of the pizza, but it happens to be only the toppings, how could I possibly cause a toppings crisis?

Uhm, no. More like: we have a enormous pizza, including toppings, and we've agreed to remove 1% of it, and it's concentrated on sauce and toppings, disproportionately on toppings, but your preferred alternative is to not cut nearly so much as 1%, so we can leave the toppings alone, and because how could we ever cut 1%?

You have to remember, Tyler is promoting the Koch brothers' view. That's how he insures the flow of money into the department.

Don't forget his shilling Monsanto. Why else would he be promoting all those deadly, evil GMOs?

Tyler, please specify what government spending is "massively wasteful." Provide some numbers. Or shut up.

He specified defense.

No, he didn't. Remember, the quote is that "much of government spending is massively wasteful."

He did not quantify in any way. He did say that the sequester wouldn't hurt, but that is pure inference to say therefore that the spending cut by the sequester is "much" and "wasteful."

Does he have any credibility at all, or is just a fact-free glibertarian? He is the latter until he gets truly specific on his #1 point.

First of all Tyler was listing Republican points to analyze their tactics so they aren't his points. Second of all he did provide a link to where he wrote that a lot of defense spending could be reduced.

What Tyler said wrote was
Correctly or not, many Republicans believe some mix of these propositions:

1. Much of government spending is massively wasteful.
... more propositions.....
Then he wrote

That I said, I have an affinity with #1, over fifty percent of the sequester cuts are obviously good ideas,

The " over fifty percent of the sequester cuts are obviously good ideas" was a link to another article.

Medicare and medicaid are massively wasteful. Adopting a Singapore style catastrophic only insurance scheme would save 50% or more of medical spending. Consumers would be forced to shop based on price and we'd see much less frivolous spending on unproven and tenuous medical procedures like mammograms and "wellness care."

Which GOP politician has proposed making Medicare into a catastrophic only insurance system? I don't think any. It seems to me that, as Garrett Jones says, the GOP is the party of Medicare.

I would be happy to be proven wrong...

No GOP politician has, but Tyler has on several occasions.

The Republicans basic problem is that they have no consensus among themselves on what spending to cut. Their problem is compounded by the fact that their two big ticket goals, on which they generally do agree: (1) cutting taxes on the rich and (2) cutting social benefits for the poor and the middle class; are political suicide. So the Republicans sit, paralyzed by fear and internal strife.

Politicians are facing increasingly-constrained options, and their feet are being held to the fire. As a citizen, I'm enjoying this- it's at least a year overdue- the long-run, she's a comin', right around the corner, say 2019, and the ole USA may get its house in order and brace for the storm yet.

The chips are falling in a predictable order along the path of least resistance:

1. Tax increases on the rich. Check.
2. Pentagon cuts. Check.
3. Discretionary spending cuts. Check.

The big two, the hardest two remaining sales, will be tax increases on EVERYONE and entitlement reform.

So far, the 2013 scorecard reads, including the sequester reads Republicans: 2 concessions, Democrats 1. The big two remaining require broad bipartisan support. I can still see some grand bargain here, but failing that, 2013 is still looking like so far, so sensible.

And Mr. Donohue wins another thread.

Those last 2 'tough sells' are the essence of Simpson-Bowles. Those guys are still out thumping for it, I think we'll eventually get some version.

The country is richer than ever but with lower taxes than ever. But the new tax increases on the rich haven't been even in the same universe as the their increase in income share.

Why on earth would we increase taxes on people who have become poorer while the country has become richer?

Exactly. Well put.

Because there's more to life than Robin Hood calculations?

The American people have been sold by their government on an almost European-style welfare state- Obamacare and Medicare Part D being the last two bricks in the wall.

With the fiscal cliff tax increases, tax rates in the US are about as progressive as they've ever been, and more progressive than European countries.

It's a comforting fantasy that we can just tax the rich to pay for our shiny welfare state.

The interesting question, to me, is: how do the politicians break all this to the American people? Gotta be a 1986-style tax reform. If it don't happen this year, we get maybe two more 'off-election year' shots, or a 2019 reality that will make 2013 look like the last of the big-time spenders.

"With the fiscal cliff tax increases, tax rates in the US are about as progressive as they’ve ever been, and more progressive than European countries - "

It's so refreshing to come to Marginal Revolution. All the little glibertarians live in their "I was born during the first Bush years" bubble, unaware that when our country was strong and prosperous, 35% of our workers were union members, and the highest marginal tax rate was 90%.

...of course, the rest of the world was a steaming pile of rubble from WW2, or in the throes of the Iron Curtain at that time. The ceteris was not paribus.

Bruce Cleaver, the assertion was about the relative progressivity of today's tax regime. It did not specify any ceteris to be parebus. Besides, how does the existence of an authoritarian Russia versus a communist USSR change the reality of US tax rates? Besides suggest that we are way, way overspending on defense right now/

"When our country was strong and prosperous" is an assertion about a particular time (i.e. 'When'). You imply the causes were union membership percentage and marginal tax rates. That is too simple - many other things were different.

Moi, Libertarian? Dude, I'm the lone nut calling for higher taxes on EVERYONE, so...

I grew up in the 1970s- please don't regale me with the good old days of liberal hegemony.

As far as 90% tax rates, ya gotta look at the actual distribution of the actual tax burden, not some silly headline rate that no one paid. If you spent more time at MR, you'd be more up to speed on tax progressivity. Don't expect me to do your homework for you.

The share of total taxes paid by the top 10% of payers has increased in the last 30 years, but has that tax share has not kept pace with the jump of that demographic's income over the same time period. Then look to see how real median family income has changed over the same time. Taxes should go up on everyone, but progressivity is is a tricky analysis. Also, this the analysis should include things like capital gains taxes.

Except taxes did go up by about 2% on everyone. You can call it a "return to the past", but that's not really the point here. You should at least put a partial checkpoint next to one of the "big two".

Hey, I'm a pragmatic guy, skeptical of stimulus magic in general, but I had no problem with a temporary relaxation of the Social Security payroll tax- among stimulus measures, this may have been one of the best. "Give it a shot!" was my breezy FDRish attitude.

But it's over Johnny. That move cost Social Security $100 billion per year, and, while I believe in the viability of Social Security, it needs some fixes and those are real dollars, even though they're big and connected with the government, they're very real, contrary to the magical thinking common nowadays.

So, letting this 'temporary two-year stimulus' measure expire can be characterized as a tax increase I suppose, but I see it more as a down payment on the last few chapters of the story of "How Americans Came to Terms With Not Being As Rich As They Thought They Were In The 21st Century" a two decade drama that maybe, maybe, will have a happy ending after all.

Another way of looking at #1: "1. Much of government spending is massively wasteful." - who cares? According to what I've seen of long-term growth, says the Solow model, it's driven by technology. So government is irrelevant, as long as it does not harm technological innovation. Say therefore that government is wasteful, and is equivalent to destroying 50% of the GDP. That means instead of 300M people in the USA, and really about 100M productive taxpayers, you only have the 'equivalent' of 150M/50M people. That means government is like killing off half your population. But the Solow model says the 'steady state' (long term) growth rate is not a function of population. So again, government is irrelevant. The only way government is relevant is if debt servicing becomes so big that you cannot pay the interest portion of the debt. Or, if that 50% of 'government waste' affects the remaining 50% that is productive and keeps these people from doing their job. So far, I've not seen that happen. Having said all of the above, I think eventually the US government will collapse, since I don't think debt servicing is sustainable once interest rates rise. But that's a post for another day.

By 2017, interest on the public debt is projected to rise, as a % of GDP, to the level it was from roughly 1980-2000. Quite unsustainable, I'm sure.

Well, if we keep sticking it 'anti-social savers' with 0% interest rates, interest on the debt will remain manageable (For FY 2012, interest on debt is only 9% of revenues!)

But any kind of uptick in rates, and the squeeze will be much greater than this.

I'm not sure what the 'baseline' numbers packed into this CBO report are (I'm guessing they're optimistic), but they estimate debt interest will exceed 15% of government revenue by 2020 and 17% by 2023, just as the entitlement plans start reflecting feckless baby boomers slurping from the trough en masse. Totally sustainable, right?


I think the history of the sequester is rather important. If the Republicans relent on these spending cuts (either kicking the can or trading in cuts for revenues of some kind), it means that their 2011 debt ceiling antics, premised on the notion that we urgently needed to be implementing spending cuts, were a complete fraud. That would be quite embarrassing, even for people who have a high tolerance for embarrassment.

Get out the lipstick, we've got a pig!

Any political party that thinks the best strategy to get what it wants is to repeatedly threaten to shut down the government (House Republicans), or prevent it from working (Senate Republicans), is not interested in finding what is best for American people.

They may be interested in keeping their donors happy, getting re-elected or getting a bigger, personal, slice from the government coffers but that's about all.

Yes, they are corrupt. The Democrats, too.

I've written my congressman and one of my senators about doing stuff to reduce corruption and special favors. One responded, there is no corruption and the other didn't even give me the courtesy of a reply.

Hah. What a joke.

Dude, the government is not being shut down.

wait until next month

Some of us can remember the last time it was "shut down"

Turned out pretty well for the country.

and what country was that????

Let me remember...

There were no threatened or actual shutdowns during the Bush years... hmmm...

Oh, yes, it's coming back to me... Newt shut it down during the Clinton years!

And then in 2011 Republicans threatened to do it again and we got our first ever debt downgrade!

So I guess it's only worth shutting down during Democratic administrations...

Like I said before:

Any political party that thinks the best strategy to get what it wants is to repeatedly threaten to shut down the government (House Republicans), or prevent it from working (Senate Republicans), is not interested in finding what is best for American people.

Yes, the Republicans are terrible in Congress when they have a Republican president. Do try to address what people write instead of what you imagine people think

And that debt downgrade was 100% inevitable without a Republican president+Republican Congress that both really wanted to kill the deficit (in other words, it was 100% inevitable)

You're basically terrible at redefining badly defined terms to try to prove things that are false. What you were trying was not impossible. You're just not smart enough to pull it off.

The OP has some reasonable enough views, but I don't see how it fits "What Republicans are thinking". This is a description of a pro-sequester view, but Republicans are anti, hence their trying to pin it as the #obamaquester. This whole comment thread pretty much proves Chait has you guys pinned correctly.

Video: Countdown to the Sequester and Blaming Bush. As seen on Hannity...;


I'm surprised how many commenters on a blog called MARGINAL revolution are fixated on average costs.

Marginal may refer to the value of the revolution, in the second sense of the word. And given government is a natural monopoly, don't marginal costs equal zero equal average costs in the long run? So that's your answer: the average cost (and value) of government is zero in the long run, just as I said earlier above. Government is irrelevant, until and unless it goes bankrupt, since that upsets the Ricardian equivalence of inter-generational debt owed to ourselves. I have spoke.

"And given government is a natural monopoly, don’t marginal costs equal zero equal average costs in the long run"

No, they are much higher than zero in the long run, for a natural monopoly.

But Doc, the limit of: M/x, where x --> infinity, and M = some very big number, but finite, is? Zero.

"I am not a Republican, but I do like a challenge, so here is a brief attempt."

Don't tell us what you aren't, but tell tell us who you are -- specifically. Sorry if I missed the answer sometime prior.

The man has only made about 10,000 blog posts under his own name, plus god knows how many interviews

Reasonable response. But then why the need to lead with "I am not a Republican, but....?

I'm not certain what the Republicans are thinking, but so far they seem comfortable with the cuts as described. Much to the surprise and dismay of Obama.

Reading the comments here the book 'What is The Matter with Kansas', where he describes people voting against what he considers there self interest. During the Clinton years the budget battles were if anything more fierce, the end result being Clinton presided over a balanced budget and time of prosperity.

What are you guys complaining about? The Republicans in power are awful, but as opposition they seem to be determined to use whatever power there is to limiting spending. This, contrary to most economic thought, ends up engendering a healthy economy, which enables the Democrats to talk about their wonderful stewardship of budgets and the economy. A good cop bad cop routine. Let the Republicans take the heat, just sit back and reap the benefits.

The Democrats are stuck in a nasty situation, being the party of more for less. Higher taxes all the while shrinking benefits. Letting the Republicans take the heat for cuts allows them to escape that deadly situation, and they can represent themselves as valiant protectors of the common interest, taking advantage of the stability and growth that a shrinking government produces to maintain social programs that are popular. Every dollar cut makes tax increases less important. As much as they say they want to raise taxes, even Obama, when push comes to shove they don't do anything but a token because they know it is a losing proposition for anybody.

I think I agree with basically all of this. There is still deniialism among Republicans about tax increases, but, since the low-hanging fruit is already picked here, we're talking broad-based tax increases that Democrats are still in denial about as well.

Republicans have been ridiculously demonized here, but they have made concessions, the biggest one being dropping the idea of repealing Obamacare, which nobody talks about anymore.

Fine. You win. So now we gotta pay for it, and finally have an honest conversation about what this costs and delivers. It's simple really:

Plan A: 10%+ across the board tax increase and current entitlement programs as is.

Plan B: 5%-7% across the board tax increase. Medicare vouchers, 20% Social Security cut (not for you, granny- it's phased-in, so pipe down.)

Plan C: No new taxes, repeal Obamacare.

Plan B is so obviously the choice. Let's get to it people!

The cravenness of economists who can't imagine beyond next quarter's GDP impact make them loathe to increase taxes either (repeat after me: "not now anyway", where 'now' refers to whatever fragile point in the business cycle we are currently at), but the 1990s experience suggests these fears, too, are exaggerated.

Brian D, I'm not convinced the numbers are as rosy as you think they are:

Plan A: 10%+ Across the board tax increase
I assume you mean raising rates from say 15% to 16.5% or 40% to 44%.

I don't think that's not enough. Now granted you left the open ended + in there, but I think you'll need either:
Significant cost containment on all Federal medical spending (which clearly is not the 'as is' option) or 20% across the board tax increases.

Also, you need to factor in an expected return to historical Treasury Bond rates. Which will add around $500 billion of additional spending.

To clarify, when I say 10%, I mean, for example, 15% to 25%. It's a lot, enough to make this as far-fetched as Plan C.

Even 5%-7% is a gut check, and this is what's needed to pay for something realistic.

The middle class in this country is undertaxed- this is awkward for politicians of all stripes.

It's funny, I live in the DC area and I make a salary that is (let us say) somewhere around the 6 figure mark.
That puts me in a 25% tax bracket. And yet, after income taxes, FICA, 401(k) contributions, and rent, I barely have enough left to pay my student loan bill. Much less save up for a down payment on a house.
Am I supposed to be one of these undertaxed people?

And, JFTR, I make too much money to qualify for the student loan interest deduction.

Hazel, yup- you, me, and the man behind the tree.

I'm not any happier about this than you are. I've paid a fortune in taxes over the past decade, yet here we are, $16 trillion in debt and growing.

You need to think about this generationally. The perpetrators are, slowly, leaving the building. If we don't tax them now, while they're still making money, our problem is gonna be a lot worse in five years.

"To clarify, when I say 10%, I mean, for example, 15% to 25%. It’s a lot"

Yes, that would balance the budget, but I agree it seems far-fetched.

I think option B, primarily driven by increasing the Retirement age from 67 to 70+ would probably work. It's a lot more palatable to consider raising the retirement age of someone who's not retired yet vs drastically cutting SS and Medicare payments.

And a 5% across the board raise in income & capital gains taxes is at least conceivable.

Both sides say they don't like the cuts, but they can live with them if they must.

Who, if anyone, is bluffing? Obama thought the republicans were bluffing 3-6 months ago. Now, I think he isn't so sure. Republicans also thought Obama was bluffing. Now they are not so sure.

In poker, this would be a fun hand to watch. Both sides keep raising the stakes (which seems to be the equivalent of passing an extension) to delay finding out who has the better hand. When the cards fall, who is still in the game?

Here is what I think. Promises were made (cuts in spending in the future) for Republicans' support during the debt ceiling crisis. Republicans were not as stupid as to believe Obama will do good on these promises. So Democrats tied their hands, or pretended to do so, with the sequester: if they did not deliver on other spending cuts, there will be automatic spending cuts across the board. The Democrats have not yet delivered these promised cuts, two months after the deadline, and after Republicans gave them (almost) everything they wanted, including raising the ceiling, accepting more taxes, etc. Why can't the Republicans want the sequester just to show that there are consequences to making promises and not delivering? The bank takes your collateral if you do not make the promised payments on the loan, on principle, even if it is bad for them, because otherwise lots of people will take advantage of them. Why can't the Republicans just want the sequester to go through so that Democrats will not have taken advantage of them? If there is one thing Conservatives should be for is that there should be consequences. Here they are.

God, this thread is a catastrophe of left-wingers unable to defend their preferences at even the most basic level. What a slaughter.

Once again, there is no reality-based community.

What have we got this fabulous and expensive military for? It's way more than we need to defend ourselves and the rest of the world that supposedly shares our ideals. How about using some of that investment and expertise to take by force the wealth of people we really don't even know? Instead of stealing from our own citizens, take what other folks have. We could always give some of it back, like we do now with taxes, build them a few roads and airports, kick in some on their medical expenses, set up a kind of safety net. If it works so good for us it should be great for them, too. Who cares if they object, lots of Americans aren't in favor of the program either.

The various Republican factions have clearly decided to tough out out the sequester but that's largely because of ignorance about it's effects which are actually going to be quite severe in some areas because of their concentration in limited areas of the federal budget and timing...we only have seven more months of this fiscal year to run. The effects are going to be cumulative but within a month the screams from affected constituencies with leverage over Republicans are going to be severe. Then comes the continuing resolution. Assuming the Republicans are still hanging tough they will then attempt to lock in the sequestration cuts and the Democrats will balk thus setting up a govt shutdown.....a real shutdown. All these issues will be commingled and the public isn't going to be examining the small print of how and why.

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