Archive for March, 2013

Cliffhanger II – Did I Turn Into a Right Wingnut?

A handful of friends reacted to my last post by telling me they thought I’d taken a hard hook to the right.  I guess that would actually be a slice – unless you’re left-handed, which I am, but I don’t play that way.  Some thought it was great, others not so much.  In either case, I think and hope that they’re wrong.  I just try to work from fact rather than theory.  In this particular case, the facts as I know them are not flattering to anyone inside I-495, but they strike me as particularly unflattering to the president.

To prove that I’m an equal-opportunity offender, take a look at the following version of the deficit graph included in my last post, which I’ve annotated.

blodget-federal-spending-and-revenue-added-presidents

This is bad news for my Hard-R Republican friends.  That big bubble between 1980-1990 is proof that Reagan’s tax cuts did not pay for themselves, no matter what the theory promised.  Clinton deserves some credit for deficit reduction.  He raised tax rates a bit.  Tax collections actually went up, both in absolute dollars and as a percent of GDP, while spending came down, at least as a percent of GDP.  But he had two unlikely bedfellows (which, in his case, is saying something. . .and no, I’m not above that kind of cheap shot).  First, Newt Gingrich forced him to make some serious changes in domestic spending.  Second, Al Gore invented the Internet, thanks to which the economy grew at an astounding rate while inflation stayed low, even though the resulting wealth was largely illusory.  Bush II reversed the Clinton-era trend, and the first trillion-dollar deficit was his, not Obama’s.  It’s not a pretty picture.

That said, the arithmetic of deficit and debt is pretty simple.  Entitlements are social programs for which spending is mandated (if you meet the criteria, you get the money) rather than appropriated (every year, Congress decides how much it will spend).  The Big 3 entitlements are Medicare, Social Security and Medicaid.  Together, they account for nearly 60% of federal spending.    As mentioned in my last post, they have grown from 4% of GDP in 1960 to 16% today, and now consume 94% of tax receipts.

The best economist ever was Willie Sutton, who taught us that you gotta go where the money is.   Any serious attempt to tame the debt monster has to begin with reductions in the size and growth of these programs.  That’s not a statement of policy or preference.  It’s just arithmetic (unless you think that being nearly $17 trillion in debt and adding a trillion a year is good).

And that gets us back to the current cliff/sequester mess.  First, despite all the sky-is-falling rhetoric, the sequestration cuts that just went into effect actually are pretty small.  They total $85 billion out of a budget of $3.5 trillion, or about 2.3% (oh my!).   Three days after they went into effect, the Dow hit an all-time high.

Second, in January, the Republicans gave Obama about half of what he was looking for in tax increases without getting anything in return.  Yes, taxes can and will go up more (hopefully through a flatter, more transparent, less politicized tax code), and will do so without crushing the economy.  But any so-called “balanced approach” to deficit reduction has to include something real on the other side of the teeter-totter.  If Obama said, “Give me the rest of the tax increase and entitlements will be really, seriously on the table,” I’m pretty sure we’d have a deal in short order.

The other day, I heard Tom Brokaw, who is not exactly a conservative paragon, describe Obama as someone who clearly would rather campaign than govern.  When you’ve lost someone who is that much of a natural ally, I think you have a problem.  Yes, everyone is playing politics while Rome is starting to smolder.  The smoke, however, is being drawn into a leadership vacuum.

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