The debt ceiling talks have collapsed.
I have little to add, really, to what I’ve already said about this. The political point-scoring brinksmanship on this issue is appalling. The Republicans’ position is logically indefensible, wholly and completely. The Tea Party’s ongoing temper tantrum about the mathematically necessary expedient of raising the debt ceiling — as I’ve said before, this is a math problem, not a policy decision — proves, if further proof was necessary, that the Tea Party is not a serious force for policy reform, but a puerile farce of a political movement. The reality-denying belief that “raising the debt ceiling isn’t necessary” or “default isn’t that big a deal” is just another example, perhaps the most egregious yet, of how far we’ve come as a body politic from making decisions based on actual facts, as opposed to emotion, demagoguery and sheer nonsense. This whole thing — the entire debate — is based purely on shockingly transparent bulls**t.
At its core, this isn’t a negotiation, but rather a hostage situation, and whatever negative consequences the nation suffers as a result of a default (or a “technical default” or whatever the hell you want to call it), if such a thing occurs, will be entirely the fault of the hostage-takers, not the ones being held hostage by their illegitimate demands. F*** ’em, all of ’em, these feckless, irresponsible, know-nothing morons who are willing to take unknowable risks with our nation’s future — the future of my daughters’ country — to make a political point by refusing to pay the bill for expenses that have already been incurred — and in the name of fiscal responsibility, no less. “Be Fiscally Responsible: Default On Your Obligations!” What a concept. Yeah. F*** ’em.
Also, this.
Also, #PANIC.
P.S. Also, this:
Increasingly, Americans and the markets have every reason to feel scared s**tless. The controlling faction in the Republican House is a faction that is not so much anti-debt as anti-government. If they have to choose between tackling the debt and raising even some revenues (while cutting spending dramtically), they will choose to push the US into default. Such a default would risk destroying the savings of Americans, make the debt far far worse, spark a double-dip recession, and throw countless people out of work and make those in work radically less financially secure. Even those of us who have saved for retirement by buying unglamorous bonds could see our financial future wiped out by these maniacs on a mission. That is the kind of small-c conservatism these Savonarolans want to penalize. …
This is brinksmanship with all of our lives, our money, our core financial stability and future growth. It is an outrageously reckless way to run a government. And Cantor’s refusal to take any personal responsibility for the result of these talks is of a piece with the record of this shallow, callow fanatic who has the gall to call himself a conservative, even as he launches a wrecking ball at the very fabric of the American and global economy.
These current Republicans would rather destroy the US economy than sacrifice one scintilla of ideological purity. They are an imminent threat to the stability of this country’s economy and the world’s. And they must be stopped before the damage is irreversible.
I had to look up “Savonarolans.” I found Girolamo Savonarola, a 15th-century Italian politico “known for his book burning [and] destruction of what he considered immoral art.” Um, okay. Not sure the relevance of that. But otherwise: spot on.
You know who needs to weigh in against this madness? Mitch Daniels. His debt-reduction credentials are impeccable, unquestionable, beyond dispute. He passionately argues, and I fervently agree, that going forward, we must tackle our long-term structural deficit and prevent the “red menace” of debt from destroying us. And yet surely, being an adult and a sensible, rational leader, he recognizes this feckless, know-nothing position of not raising the debt limit, despite the mathematical necessity of doing so in order to pay for obligations already incurred, for what it is: fiscally irresponsible, reckless insanity. And what was it he said about radicalism? Ah yes:
Purity in martyrdom is for suicide bombers. King Pyrrhus is remembered, but his nation disappeared. Winston Churchill set aside his lifetime loathing of Communism in order to fight World War II. Challenged as a hypocrite, he said that when the safety of Britain was at stake, his “conscience became a good girl.” We are at such a moment. I for one have no interest in standing in the wreckage of our Republic saying “I told you so” or “You should’ve done it my way.”
The House Republicans and the Tea Partiers are perfectly happy to do exactly that — stand amid the wreckage saying “I told you so” — and snap up the electoral benefit when the voters reflexively blame the president for the double-dip recession that they caused. If not Daniels, what figure of unquestioned fiscal conservative credentials will call them out on this terrifying, dangerous nonsense? And will they listen, or add the objector to their ever-growing list of apostates?
If it weren’t informed by such abject ignorance, I’d say the don’t-raise-the-debt-limit position comes as close to outright treason as anything I’ve ever seen in domestic political discourse. I don’t use the word “treason” lightly, but these people are literally willing to destroy the country’s economy to prove a point, even though the risk of destruction if universally acknowledged by everyone except, well, them. However, the reason it’s ultimately not treasonous is because I believe that they, like all those here who will wrong-headedly defend them, believe their own lies. Just as they don’t “believe in climate change,” just as they think “death panels” are real, just as they insist that modest government regulation is “socialism,” just as they deny or ignore empirical facts regarding everything from historical tax rates and revenues to comparative health-care costs and outcomes, likewise in this case, they simply do not recognize or accept the fact — universally and uncontroversially acknowledged by “experts,” and therefore by definition wrong, in their warped worldview — that their position on the debt limit is one of complete reality-denial and total economic nihilism. This earnestness, thus unwavering belief in their own righteousness, makes them less morally nefarious, but infinitely more dangerous. When fanatics honestly believe their own lies — when they truly think they’re doing the right thing, even though they indisputably are not — there’s no telling the damage they can do.
P.P.S. Anyone inclined to respond by blasting my position, I would ask that you first read what I wrote in the above-linked earlier post, if you haven’t already. That’s where I actually spell out my substantive position on the debt limit. This is just a follow-up rant.
I am generally in agreement. I don’t, however, solely blame the tea-party. The only difference between us and Greece right now is that no one will lend them, any more $. We can borrow additional funds to avoid the harsh austerity measures that would otherwise have to be enacted. I strongly believe that we need to use a combination of tax increases and spending cuts to move towards a sustainable fiscal model, but it is unnecessary and unwise to do it all at once and all thru spending cuts. It can be a managed process undertaken by thoughtful level-headed people on a bi-partisan basis. Not creating Greece-like problems and conflict.
I absolutely agree with that, except that I view it as something separate and apart from the debt limit “debate,” which is a math problem, not a policy debate. I believe the following two things are both indisputably true:
1) We must pay the bills we have already obligated ourselves to pay. (This means we must raise the debt limit — no ifs, ands, or buts, no wiggle room, no legitimate disagreement possible. Again: a math problem.)
2) We must, as you say, “use a combination of tax increases and spending cuts to move towards a sustainable fiscal model” … going forward. But not, obviously, by simply refusing, like petulant children, to pay the bills we have already obligated ourselves to pay; see point #1.
I don’t solely “blame the tea party” for our overall debt/deficit crisis. Not in the slightest. For the nation’s shockingly poor fiscal health, I blame Obama, and Bush, and Clinton, and Bush, and Reagan, and Carter… etc…. and I blame Congress… both Democrats and Republicans… and most of all, I blame us, the voters, We the People…
But if we default? Yeah, that one falls on the Tea Party and the GOP.
Democrat: Good, Good!
Republican: Bad, Bad!
Failure to respond to any substantive point: Noted.
Failure to acknowledge that I harshly criticized Democrats, including Obama, in the referenced linked post: Also noted.
Failure to acknowledge that, in various posts, I have been harshly critical of the Dems and Obama on the broader debt/deficit issue: Also noted.
It’s my fault that, in this particular case, with regard to this debt-limit debate in particular (not the broader debt/deficit crisis, or previous years’ debt-limit debates), the Republicans are 100% to blame — they are the ones running full-speed toward a cliff, with the economy firmly in their clutches, threatening to jump if their “demands” aren’t met. That’s what happening, and neither you or I can will it otherwise through wishful thinking. I’m not going to ignore plain facts in the name of “balance.”
Do the Democrats bear any responsibility for the collapse of the Biden talks? It seems to me that both sides share responsibility for the collapse.
When I have maxed out my credit cards, put out a second and third mortgage on my house, borrowed money against my next year’s worth of paychecks and continue eating Kobe beef and artisan vegetables while driving around in my Escalade: what is the solution?
I can open up new credit card accounts (presuming I can find a sucker…) and continue to live it up, or I can change my lifestyle and live within a modest budget (presuming of course I am even willing to create a budget)
If you were bankrupt and went to a credit counselor, what would they recommend?
Cutting your spending? Or take out more debt?
The talks broke down because the Democrats insist we raise taxes while the Republicans insist we cut spending.
Remind me which message attracted more voters last year.
Tell you what…I propose that we raise the debt ceiling to 100 trillion dollars and buy golden unicorns for everyone.
but these people are literally willing to destroy the country’s economy to prove a point,
Doesn’t this apply equally to the Democrats and the Republicans?
universally and uncontroversially acknowledged by “experts,” and therefore by definition wrong, in their warped worldview
Just the other day someone was telling me that it was unreasonable to expect economic experts to make accurate predictions……
Treasury Secretary Timothy Geithner told the House Small Business Committee on Wednesday that the Obama administration believes taxes on small business must increase so the administration does not have to “shrink the overall size of government programs.”
http://pajamasmedia.com/tatler/2011/06/24/geithner-taxes-on-small-business-must-rise-to-prevent-government-from-shrinking/
On Republicans walking out of the deficit negotiations with Vice President Biden:
Because it’s clear to Republicans that the president has upped the ante. He is demanding not just one tax increase but two: a raising of the rates, which is the old story he’s talked about in every campaign, and eliminating [deductions] for the wealthy — and not just the loopholes but to eliminate deductions, like the deduction for mortgage interest for people over, say, a quarter of a million dollars.
That is [a] serious tax hike. If you add them together — imagine the person in that bracket. The tax rate puts you at 40 percent. You add on a lot for removing deductions and you are up to 50 percent. If you’re paying state tax, as in New York, that is up to 60 percent. That is a high rate of taxation, particularly in a recession. I think that is why the Republicans are resisting.
The problem is, I think, the president thinks that time is on his side. As you approach the August 2 date, we know the Treasury won’t stop repaying creditors. We’re not going to default. He has to stop paying out something. You will get letters late in July to Social Security recipients and families [of soldiers] overseas warning them that the money will stop. Who do you think will be the fall guys if that happens? The Republicans.
The president and the Treasury secretary are in charge of this. They decide if the money that is withheld (if you have a debt problem) is Social Security or ethanol or White House limos, and you know where they will exert the power — to embarrass and hurt Republicans. That is why the Republicans have to rethink where they are now.
http://www.nationalreview.com/corner/270440/krauthammers-take-nro-staff
According to historical budget tables published by the White House Office of Management and Budget, federal spending has climbed from $2.89 trillion in 2008—the year President Obama took office—to $3.82 trillion this year, an increase of approximately $930 billion.
http://www.cnsnews.com/news/article/geithner-taxes-small-business-must-rise
Get that? Government spending has risen by a third since President Obama took office.
We wouldn’t even need to raise the debt ceiling right now if the Obama administration had behave in a fiscally responsible manner.
Do the Democrats bear any responsibility for the collapse of the Biden talks? It seems to me that both sides share responsibility for the collapse.
For reasons I’ve already explained in detail, it is illegitimate in the first place for Republicans to be using an indefensible non-option — failing to raise the debt limit, which would be mathematically necessary even if the most draconian spending cuts imaginable became law tomorrow — as a bargaining chip to extract concessions from the Democrats. Their bargaining position is fundamentally illegitimate: “give us what we want, or we will do this unimaginable thing that would severely damage the country and cannot rationally be defended, since the math can’t support it even if we get our way 100%.” There shouldn’t even be a negotiation; the debt limit simply must be raised. It shouldn’t even be part of the discussion. That’s why I say this is not a negotiation, but a hostage situation.
When I have maxed out my credit cards, put out a second and third mortgage on my house, borrowed money against my next year’s worth of paychecks and continue eating Kobe beef and artisan vegetables while driving around in my Escalade: what is the solution?
I can open up new credit card accounts (presuming I can find a sucker…) and continue to live it up, or I can change my lifestyle and live within a modest budget (presuming of course I am even willing to create a budget)
Right. Except, raising the debt limit is not equivalent to “opening up a new credit card account.” (Authorizing additional deficit spending in the next budget would be the equivalent of that.) Rather, raising the debt limit is equivalent to paying down your old credit card accounts. And failing to raise the debt limit is equivalent to DEFAULTING ON YOUR OLD CREDIT CARD ACCOUNTS. And you call this “fiscally responsible.”
War is peace.
Freedom is slavery.
Ignorance is strength.
Refusing to pay bills you’ve already obligated yourself to pay is fiscally responsible.
Sounds like a great four-point GOP platform for 2012.
it is illegitimate in the first place for Democrats to be using an indefensible non-option — failing to raise the debt limit, which would be mathematically necessary even if the most draconian tax increases imaginable became law tomorrow — as a bargaining chip to extract concessions from the Republicans. Their bargaining position is fundamentally illegitimate: “give us what we want, or we will do this unimaginable thing that would severely damage the country and cannot rationally be defended, since the math can’t support it even if we get our way 100%.”
Fixed that for you.
I seem to recall the Republicans offering a clean vote on raising the debt ceiling last month. Less than half the Democrats voted in favor of it.
Refusing to pay bills you’ve already obligated yourself to pay is fiscally responsible
Even if this was true…you have it wrong.
It would be more accurate to say “Refusing to pay bills someone else already obligated you to pay is fiscally responsible”
It was the Democrats who behaved irresponsibly by their out of control spending while they controlled the presidency and Congress. Now the Republicans control only the House, and suddenly they are responsible for our nation’s financial troubles.
“It was the Democrats who behaved irresponsibly by their out of control spending while they controlled the presidency and Congress. Now the Republicans control only the House, and suddenly they are responsible for our nation’s financial troubles.”
Right cause Bush handed the country zero deficit and zero debt when he left office.
“Fixed that for you.”
This is the most assinine phrase on the internet. It cheapens any argument you make.
from gahrie: “When I have maxed out my credit cards…”, “If you were bankrupt…”, etc.
The country is not bankrupt, and it has not maxed out its credit cards. The debt ceiling is a self-imposed limit. It’s like saying, “My outstanding debt today is $14k. If it gets up to $15k, I’m going to stop for a moment, reflect on my situation, and make a decision about what I want to do next.”
You know how you can tell if someone has too much debt? They find it hard to get loans, or can only get loans at high interest rates. Take a look at the yields on Treasury Debt. Short term yields are next to nothing, and even the 30 years are below 4.5%. Find me a credit card that offers that rate on the first dollar, let alone a “maxed out” account.
The United States is certainly not bankrupt. Bankruptcy is when your debts are larger than your assets, not when your debts are larger than what you’re comfortable with.
Along these lines, I’m sick of the idiotic talking point that “the national debt is approaching the size of the entire economy.” It’s comparing a rate with a quantity. It’s like traveling at 70mph on the highway, and claiming that doing so made the car as big as the state of Connecticut.
Rather, it would be accurate to say that the ratio between the national debt and the GDP was approaching a value of “one year.” That’s bigger than it’s been in the post-WWII era. It’s bigger than it ought to be. But it’s nowhere near bankruptcy.
It’s like if your annual income was $50,000, and the total mortgage/home equity line of credit on your home was $50,000, with a blended average interest rate in the neighborhood of 3%. That’s certainly a big, scary amount of debt. But it’s also a debt/income ratio that lots of homeowners have, handle, and are able to eventually pay off, if they’re willing to.
Right cause Bush handed the country zero deficit and zero debt when he left office
Nope.
But the deficit was $450 billion, not $1,400 billion, a year. President Obama and the democratic Congress tripled the amount of money we borrow each year.
When President Bush entered office, 1/20/01, the debt was at $5.7 trillion.
When the Democrats took control of both houses of the Congress on January 3, 2007, the debt was at $8.6 trillion. So in six years, Pres. Bush and the Republican Congress increased the debt by three trillion dollars while dealing with the aftermath of 9/11 and fighting the war on terror. (increased the debt by $500 billion a year)
When President Obama took office on January 20, 2009, the debt was at $10.6 trillion. So in two years President Bush and the Democratic Congress raised the debt another two trillion dollars. (raised the debt by a trillion a year)
In January 2011, when the Republicans took control of the House of Representatives the debt was at $14 trillion. In two years, President Obama and the Democratic Congress raised the debt by three and a half trillion dollars. (raised the debt by $1.75 trillion a year)
So President Bush (even with a Democratic Congress his last two years) left us a debt of $10.6 trillion, and a deficit of $1 trillion a year. The Bush administration added $5 trillion to the debt in eight years.
After two years of President Obama we have a debt of $14 trillion dollars, and a deficit of $1.75 trillion a year. The Obama administration has added $3.5 trillion to the debt in two years.
gahrie’s “fix”: “failing to raise the debt limit, which would be mathematically necessary even if the most draconian tax increases imaginable became law tomorrow”
Just not true. The current deficit is in the neighborhood of 10% of GDP. The current effective all-in tax burden (including state, local, everything) is about 27%, according to the Heritage Foundation. Increasing the tax burden past 37% (or probably somewhat higher, to account for the reduced productivity that would result) would put us in the neighborhood of where many of the developed European nations are.
I’m not saying we should raise taxes by 10%. In fact, I’m not convinced that we should raise taxes at all. I certainly think we need to rein in spending. I also think that, during the low part of the business cycle, it’s ok to run a deficit, and so we should raise the debt ceiling. But closing the entire deficit by raising taxes, while economically stupid and politically infeasible, would not be beyond “the most draconian tax increases imaginable”.
The Democrats have not passed a budget in almost 800 days, yet the Republicans are fiscally irresponsible.
Hell forget about increased taxes or budget cuts…how about saying we won’t vote to increase the debt ceiling until there is a budget in place?
The largest debt level increase prior to President Obama was less than $1 trillion. Last year the Democrats increased the debt limit by almost $2 trillion. Now the Democrats are trying to raise the debt by $2 trillion again this year.
But the Republicans are being fiscally irresponsible.
Your substantive points haven’t been responded to because by using terms like “hostage takers” you’ve pretty much undermined them. Sorry, but if this were death penalty case that opening argument would have the bailiffs starting to slather your guy down in Crisco. “WHAT THE HELL ARE YOU DOING?!” “Trust us son, you’ll like it better this way–you basically go out in one big Colonel Sanders-inspired flash of light when they throw the switch.” “B-b-but I thought that happened anyway!” *laugh* “You still believe in Santa Clause, don’t you?”
But, here’s the crux of your argument: The Republicans should commit political suicide because, by God, _it’s the responsible thing to do_. Hmm, or alternatively Harry Reid could get off his a**, pass the Ryan Budget and the Obamacare Repeal then let the President decide what leadership path he wants to take. Whoops, I’m breaking the concept that _magically_ we got up to this debt limit from November 2010 on. Sorry, but President “I Won” was all willing to claim a mandate based on his win, but somehow a GOP that ran on fiscal cuts and delivered one of the worst Congressional mid-term beatdown in modern history is “irresponsible” for demanding the people who set $800 billion – $1 trillion dollars on fire as “stimulus” not raise taxes but actually reform entitlements.
Quite frankly at this point I’m ready for a crack up. Maybe a little economic reaming will make the average voter realize, “Holy sh*t, maybe I should pay attention to who I vote for rather than watching House!” Sorry, but you can say all you want about Bush deficits, but besides Gahrie’s point that Obama took the bleeding patient _and shot him with a double-barrel shotgun_, the fact is the President took office with a _filibuster proof supermajority_ and his party with an iron grip on the House. Short of following the second coming of James Buchanan, _no_ President has any right to b*tch about what his predecessor did when gifted with that set up.
What a lovely screed 🙂
Full agreement on all counts.
One quick point — the United States cannot really go bankrupt. Our debt is denominated in our own currency. We can always print money to pay it. Other countries in the Euro zone don’t have that luxury, and they can go bankrupt.
And one more — Just by creating uncertainty over the debt limit, the Republicans have already introduced new and needless uncertainty into lending markets. That drives up interest rates a bit for everybody, including the small businesses Republicans claim to represent. This is much worse than just passing a TAX on all lending. It’s equivalent to taxing loans and then burning the revenue.
And one more — the debt limit is totally orthogonal to any spending debates. The House majority can always advance bills to cut spending whenever it wants. It cannot change government spending by restricting the Treasury’s ability to finance what the House has already passed.
The debt limit, like it or lump it, is the law. Now, we can argue whether or not it should be law, but it _is_ the law. Treasury can pay out our outstanding obligation to our debtors with the income we now have–it just may not pay some domestic obligations. In short, we will not “default” on our debt, we just may have to do things like not pay anyone who works for the government. (Full disclosure: That would mean _I_ don’t get paid, just in case you are going to go with the whole “Oh, typical conservative wanting to not pay those evil government workers.”) So, no, debt limit is not tangential–if you say it’s the law, then it is _the law_ and the President needs to man up and say, “Well, Congress, tell me which law you’d like for me to break?” (and yes, in just that tone) rather than sending Geithner out to scream about how those heartless bastards in the GOP are trying to starve granny.
Oh, and btw, the House has passed a budget. Which, incidentally, _cut spending_. Now the Senate Majority Leader and President might not _like_ that budget, but it did pass with that House majority you are trying to imply is not doing its job. I think the spending cut is totally related to the fact we are right up against our legal limit. That’s like saying, “Wow, my household is in the red, but confronting my wife about her crack addiction has nothing to do with that.”
Retarded post. Is there anything new here that wasn’t covered here? There is so much boy crying wolf going on here it’s ridiculous. This sentence is particularly galling:
Do you really expect to be taken seriously throwing around that kind of lame, baseless rhetoric? A brief overview of the retardation on display here:
1) Opposing raising the debt ceiling is akin to treason.
2) Textbook inappropriate grammatical misuse of the term “literally”.
3a) Moronic, hyperbolic unsubstantiated citation of something being “universally acknowledged by everyone”.
3b) We are supposed to be impressed and stroke our chins in sober acknowledgement of this appeal to authority.
4) We’re supposed to accept the fuzzy logic that a temporary failure to pay short-term debtholders due to political wrangling will cause chaos and a total economic collapse.
5) We’re supposed to ignore the fact that the economy is already hosed; it’s like fretting about firebombing Hiroshima after it’s already been nuked.
I’ll repeat what I said before:
Whatever risk the GOP might entail politically, I am really not worried about the long-term effect on the economy — only fiscal good can come Republicans holding the line in this showdown.
But fear not: Pretty soon you will have a beautiful baby, and this nonsensical rant will largely have been forgotten. Surely by the time you come up for air, August 2 (or whatever the latest doomsday date is) will have rolled around, the world will not have ended, and you can make full amends with a short post stating the following: “I stand corrected”.
“I think it’s worth a second recession…if it means the GOP can…fundamentally reform entitlements and permanently simplify and fix the tax code”
On behalf of the many Americans who care more about the 73% (on average) of our income that we keep than about the 27% that we don’t (only a small portion of which is realistically up for debate):
We don’t think it’s worth it. Especially given that:
1) It seems unlikely that fundamentally reforming entitlements will happen in the 112th Congress, given the current Senate.
2) Any kind of changes to the tax code, for better or worse, are about as permanent as a sand castle. The most nearly permanent change among the currently popular ideas would be the FairTax, and its repeal of the 16th Amendment actually proves that any federal policy is subject to change down the road.
You don’t think it’s worth it? Fair enough, but don’t worry, Mike R — Obama’s policies are ensuring you’ll get your second recession either way.
On behalf of the many Americans who care more about the 73% (on average) of our income that we keep than about the 27% that we don’t (only a small portion of which is realistically up for debate):
What world are you living in?
Between:
Federal income tax
State income tax
FICA
Sales Tax
Gas tax
Property taxes
Utility, cable, phone taxes
I personally pay around 60% of my income in taxes, and I am hardly rich at around $60 thousand a year.
Now tht I am safely home (and Internet-connected on a predictable basis), I have to disagree with some of what AMLTrojan offers in his comments here … (disclaimer: I have now met said AMLTrojan and dcl – and I believe I understand both of them *and* Brendan and David K better ! (grin)) …
The way the current Administration’s and current Senate’s policies are being pursued, we are sadly on our way into The One’s Depression … if I believed in the transmigration of souls, I would start to worry that Hoover and FDR and their believers from back in the 1930s were back in Waqshington in new incarnations … of course, we know that Obama isn’t the re-incarnation of FDR, cuz FDR’s actions weren’t actively anti-jew/anti-Israel …
He could be Hoover, however, from his policies …
Ah yes, the “We have to pass _______ or we’re ALL GOING TO DIE!” Last seen being enjoined by the Bush Administration, but apparently now that the shoe is on the other foot an acceptable gambit by Democrats as well. Bipartisanship in insanity at last.
Sorry, but if the only solution to saving the Republic is to, you know, keep raising the debt limit, then I think I’m willing to go on record as saying “Better a crash landing we are aware is going to happen than colliding with a sheer rock face later.” If you accept that A. entitlements are on an unsustainable path and B. the prospect of slamming hard into the debt limit is the _only_ thing that will actually bring both sides to the table amidst the economy catching fire then, well, this is apparently the only game in town. Oh, and before you start saying the Republicans / Tea Partiers are basically crazy f*ckers outside the mainstream, didn’t the last Gallup Poll show a majority of Americans opposed to raising the debt limit? Guess we’ve got more kamikazes than Imperial Japan in 1945.
Sorry that the thought of the economy imploding and your idyllic life being disturbed leads you to start casting aspersions, but really, _treason_? Mmm, let’s see, Constitution says the people get to choose their duly elected representatives every two years, November 2010 the people said STOP!! more firmly than a college coed macing a handsy frat boy, and now suddenly all those folks who voted for Tea Partiers (who almost all ran on the current platform) are suddenly _traitors_? Despite the fact that the current occupant of the Oval Office demagogued this issue from 2006 until 2008? Or funny, I don’t recall Nancy Pelosi and Harry “Supermajority” Reid entering any bills to raise the debt limit from 2009-2011. My what short memory we have…or maybe this issue just wasn’t that pressing compared to passing Obamacare. Sort of belies your point that this is the utterly foreseeable END OF THE WORLD, doesn’t it?
Alasdair–FDR’s actions not being actively anti-Israel isn’t too far of a stretch. That whole “worm food for over four years” by the time Israel became a nation thing. As to the anti-Jewish–really? Even setting aside whether President Obama is or is not anti-Semitic, I’m not so sure I’d run out and proclaim FDR’s religious tolerance given the numerous examples historians can provide to counter that statement. Look up the S.S. St. Louis and Evian Conference for starters.
Or funny, I don’t recall Nancy Pelosi and Harry “Supermajority” Reid entering any bills to raise the debt limit from 2009-2011
The debt limit was raised by $789 billion on Feb. 17, 2009.
The debt limit was raised by $290 billion on Dec. 24, 2009. (Christmas Eve!!)
The debt limit was raised by $1.9 trillion in Feb. 12, 2010.
James #31 – I was not aware of the St Louis … I was going more by FDR’s support for Great Britain with such things as Lend-Lease … so the current Democrat lack of support for Israel is actually a continuation of historic Democrat policies … I continue to learn from the commenters here …
If anyone is honestly interested in further discussion of this issue…
The Treasury Secretary has just explicitly stated that he wants to raise taxes (specifically on small businesses) so the administration does not have to “shrink the overall size of government programs.”
http://www.cnsnews.com/news/article/geithner-taxes-small-business-must-rise
1) It should be noted that this “shrinkage” he refers to is cuts from the unprecedented amount of new spending and new debt that the Obama administration has created in the last two years. The whole point of the last two years was to create a new “baseline”.The very idea of going back even to the already bloated spending levels of the Bush administration two years ago is seen as draconian.
2) Most of the “cuts” being fought over are not even real cuts…they are just reductions in the amount of proposed increases. No one is seriously discussing getting rid of actual government programs or even *gasp* departments.
3) The basic question, currently being fought on every level of government all over our country is this: Should government continue to get increasingly bigger, more powerful and more expensive, or should government get smaller, less powerful and less expensive?
Thoughts?
My take : Government should *not* get bigger, nor more powerful, nor more bloated ! If Government wants to do more, like the rest of us, it should have to do so with *less* !
gahrie #29: “What world are you living in?” (in disbelief of the US overall tax burden of about 27%.)
The same world as the Heritage Foundation: http://www.heritage.org/index/explore?view=by-variables .
If you make $60k/yr, and are single with no other deductions you pay about:
14% federal income
You pay in to FICA taxes, but assuming you live long enough, you get the value back in benefits (albeit with a below-market rate of return). But, for the sake of argument, lets include the 15.3% (ie. both halves) anyway.
State taxes vary, obviously, but all the conservatives here in CT say that we have a really high tax burden. Sales taxes are currently 6% (soon to increase a bit), and income tax for a single filer making $60k adds about 4.7%.
Utility taxes are somewhat complex, but for argument, let’s say it adds 1% of your income ($50/mo.) to your tax burden *over and above* what the generic sales tax would be on the price of those utilities.
The average American pays about $83/yr in federal gas tax, and about $212 in total gas taxes. At current prices, it works out to something in the neighborhood of 12% of the price of the gas (again, varying by state). Since we already assumed 6% generic sales tax on all your income, that leaves about $106 in gas taxes per year. For a person earning $60, that’s about 2% of income.
Property taxes are highly variable depending on the location and how valuable your home is relative to your income. The national average, according to The Tax Foundation, is 3%.
Adding it all up:
14% federal income + 15.3% FICA + 6% sales + 4.7% state income + 1% utilities + 2% gas + 3% property = 46%. (If you take out the FICA, that leaves about 31%.)
I’d love to know the calculations behind your 60% number. That’s a difference of $8400/yr from my estimate.
At $60k/year of pre-tax income, you may not consider yourself rich, but depending on the statistic, you’re making somewhere between 50% and 100% more than the average American.
You pay in to FICA taxes, but assuming you live long enough, you get the value back in benefits
You’re kidding, right? I’m only 46…I’m never going to see much if any of that money.
but all the conservatives here in CT say that we have a really high tax burden.
In Calif. My income tax is 9.55% and sales tax is between 9.5% and 10%, depending on the city and county.
. At current prices, it works out to something in the neighborhood of 12% of the price of the gas (again, varying by state).
I pay 50.5 cents a gallon in gas taxes.
At $60k/year of pre-tax income, you may not consider yourself rich, but depending on the statistic, you’re making somewhere between 50% and 100% more than the average American.
What’s your point? The “average” American also pays no income taxes, and in fact gets a “refund” check from the government.
.The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners — households making an average of $366,400 in 2006 — paid about 73 percent of the income taxes collected by the federal government.
The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment.
“We have 50 percent of people who are getting something for nothing,” said Curtis Dubay, senior tax policy analyst at the Heritage Foundation.
http://finance.yahoo.com/news/Nearly-half-of-US-households-apf-1105567323.html?x=0
This, in fact, is a huge part of the problem we have today, and the reason why I support making everyone pay at least 5% income taxes, no matter what their income is. Give everyone a stake in the game.
I also would temporarily suspend the voting rights of anyone who receives more in federal benefits and payments than they pay in.
Regarding Social Security and Medicare: “I’m only 46…I’m never going to see much if any of that money.”
I assumed that you wouldn’t get any of it when I calculated the 46% number. That assumption is pretty far off for the average American (these systems pay out almost as much as they take in). But, to be conservative about it, I went with the worst case in this area.
“In Calif. My income tax is 9.55%”
That’s the top marginal tax rate. A single filer earning $60k in CA pays $3,440 in state income taxes (based on 2010 rates), for an effective rate of 5.7%. That adds +1% to my earlier estimate. SDI adds another +1.2%. The sales tax rate may be 10%, but you’re only spending about half of your gross pretax income for items on which sales tax is charged, so lets call it 5% of your total income, or -1% from last night’s estimate. So far that nets to +1.2%.
“I pay 50.5 cents a gallon in gas taxes.”
The average American pays 47.0 cents a gallon, and that’s the figure I used for my previous calculation. Assuming that you use a normal amount of fuel, the overage is (50.5/47-1)*212/60000 = about 2.6 basis points of your income, much less than a percent.
All in that brings us to a total tax burden of 47.2%, assuming that you never get a dime back from social security, medicare, the CA SDI system, or any other government program.
Yes, that’s more than average, but it’s also a far cry from your claimed 60%.
“What’s your point?”
Well, I guess my point here is that, if you don’t even have a good understanding of how much in taxes you yourself pay, it’s hard to take you seriously when you make grand, abstract arguments about tax policy.
The point of my earlier post #27 was that, in AML T’s model:
Don’t raise the debt limit -> recession occurs (or is more likely, deeper, or longer as a result) -> conservatives in Congress succeed in reforming entitlements, dramatically reducing discretionary spending, and cutting taxes while balancing the budget…
I worry that I, and most other Americans, have more to lose from the recession (lower income by a few percent, or even under- or un-employment), than we have to gain by the federal budget reforms. AML T thinks there’s more upside than downside, but our disagreement is about opinion and prediction.
More importantly, Mike R, I think we’re already in the recession that you seem to fear, and raising the debt ceiling isn’t going to move the needle and get us out of it.
“I think we’re already in the recession”
A recession is a period during which economic activity declines. The commonly accepted definition in the US is two or more quarters of decline in the inflation-adjusted GDP. By that measure, the recession ended halfway through 2009. The economy is certainly still bad, and unemployment is still high. However, although the GDP growth is disappointing, it is currently positive, which means we’re not in a recession.
In any case, I don’t think that raising the debt ceiling will make the economy better. In fact, I would characterize raising the debt ceiling as basically maintaining the status quo, which is not great. But, if the debt ceiling is not raised, that means immediately eliminating the deficit to balance the budget. To do that would require cutting government expenditures by about a third (which is what it would take to balance the budget without increasing revenue). That means that lots of federal employees would either get laid off or have major pay cuts, corporations would lose contracts and subsidies, etc. Done gradually, all that could be good – you migrate the labor, consumption, and investment over to the private sector. But, by doing it all at once, you lose more than a trillion dollars a year of economic activity. The economy already has a surplus of idle labor and inadequate demand to occupy the available private sector capital, and this would just make those issues more severe. Plus, you don’t even get the benefit of being able to cut taxes (unless you make matching cuts even deeper on the expenditure side). The direct consequences and ripple effects would shock the economy, and make a bad situation worse (which I think is part of Brendan’s point, along with some political stuff and rhetoric).
Mike R, everyone here knows the textbook definition of what constitutes a recession; that’s not the point. If you want to call the current malaise something other than a recession, fine — my point still stands.
As for the second paragraph, again, it’s not gonna happen. The GOP wants a commitment from the president to sign up to budget cuts that would go into effect down the road. Any temporary stalemate that causes us to hit the debt ceiling will only apply for a handful of days or weeks until one side or the other caves. Neither party will stand for that long-term, so the immediate cut of a trillion dollars in spending simply isn’t going to happen, and therefore the impact will be temporary and lightly felt.
As a parting shot, it’s a fallacy to confuse government spending for “economic activity”. That spending has to come from somewhere — a reallocation of private capital. Printing money simply trades economic activity for inflation — essentially a zero-sum game in real GDP terms — and deficit spending simply robs from future growth potential. Deficit spending is only potentially stimulative when it’s not part of a pre-existing baseline. Once deficit spending is baselined, its stimulative effects are marginalized by the private sector reallocating capital based on the expected drop in future growth due to having to eventually pay for the deficits.
All in that brings us to a total tax burden of 47.2%, assuming that you never get a dime back from social security, medicare, the CA SDI system, or any other government program.
Yes, that’s more than average, but it’s also a far cry from your claimed 60%.
Accepting your analysis (which I don’t) 47% is closer to my 60% than it is to your 27%.
All in that brings us to a total tax burden of 47.2%, assuming that you never get a dime back from social security, medicare, the CA SDI system, or any other government program.
That’s not the proper way to evaluate it, and whether gahrie gets his money’s worth out of SSA, medicare, and SDI is beside the point; should we also try to calculate what gahrie gets out of DOD, VA, food stamps, welfare, unemployment, street paving, and law enforcement? We’re talking about right-sizing the burden on the average American taxpayer, and apportioning government spending to be reflective thereof. A conglomerated tax rate of 47% for a $60,000 wage in a high cost area like Southern California is ludicrous.
I would call the current “malaise” something like:
“A recession happened, and ended two years ago. Since then, the economy has been growing. It is not yet back to the pre-recession peak. Unemployment has been on a generally improving trend. Although the decrease in unemployment has been somewhat slow and unsteady, the employment trajectory is generally consistent with what would be expected given the pace and severity going in to the recession (let me know if you haven’t seen the graphs on this), and the fact that employment almost always trails other measures of the economy. The S&P 500 index, a leading indicator, hit bottom in Spring of 2009, and over the past 2 years is up almost 40% (the number is more dramatic if one measures all the way back to the bottom, but that seems like cherry-picking). Again, it’s not back up to pre-recession peak, but it’s still pretty strong. Many other measures of the economy, such as retail sales, have also been growing for quite some time, but most are not yet ‘out of the hole’.”
Or, put more simply: In a recession, things are getting worse. Right now, they’re getting better. To me, that’s an important difference.
The second subtopic is a prediction of what the politicians are going to do, and I don’t pretend to know any better than anyone else what GOP legislators want, or at what point they or their opponents will cave. I do think that, if an eventual compromise is where this is going, it would be better governance to get to that compromise now, rather than continuing to play budgetary chicken. Among other things, uncertainty is bad for business.
Government spending, in most cases, is indeed economic activity. If the government pays people to build bridges, provide medical care to old people, fight terrorists, etc., then those people are being paid to do something useful, and taxpayers (or some subset) are getting the benefit of it. I don’t disagree that, in most cases, it’s less efficient than the private sector. Of course it takes capital out of the private sector, where it could generally be put to better use, but it’s not like that money just disappears.
Short term stimulus, whether fiscal, monetary, or both, can increase real GDP. It’s not a zero-sum game. This is one of the major conclusions of modern mainstream economics.
Obviously, if you borrow money now, you have to pay it off later, but Ricardian equivalence only goes so far. At present, the federal government is able to borrow money very cheaply (see above #18). As long as the private sector rate of return is higher than the interest rate the federal government pays on its debt, then, given a level of spending, it is rational to borrow and run a deficit.
A recession happened, and ended two years ago. Since then, the economy has been growing. It is not yet back to the pre-recession peak.
This is a rather banal, clinical description of what has happened that ignores pertinent details that highlight just how weak the growth has been, and just how far from our previous economic peak we are (especially adjusted for inflation and population growth).
Unemployment has been on a generally improving trend. Although the decrease in unemployment has been somewhat slow and unsteady, the employment trajectory is generally consistent with what would be expected given the pace and severity going in to the recession (let me know if you haven’t seen the graphs on this), and the fact that employment almost always trails other measures of the economy.
This is manifestly untrue and a whitewashing of just how bad things really are. Most economists (including the current administration’s economic advisors) expected a sharper rebound in employment and GDP growth, given the severity and suddenness of the job losses in 2008. Aside from the fact that net job creation has been abysmally weak, the number of adults who want to work full-time but instead are forced to work part-time, or indeed have dropped out of the labor pool altogether, are at all-time highs. And these “underemployed” numbers have been especially slow to improve.
The S&P 500 index, a leading indicator, hit bottom in Spring of 2009, and over the past 2 years is up almost 40% (the number is more dramatic if one measures all the way back to the bottom, but that seems like cherry-picking).
I’m unimpressed. The S&P closed today at 1,280 — nearly 300 points off its 2007 high. Meanwhile, many financial analysts have concluded that the Fed’s easy money policies have had far more to do with increasing equity values than the fundamentals being reported. The only reason I’m heavy in stocks right now in my 401k is that there’s pretty much nowhere else to go — the bond and stable value funds are returning almost nothing over inflation. I suspect that’s true for a lot of other folks as well.
Again, it’s not back up to pre-recession peak, but it’s still pretty strong. Many other measures of the economy, such as retail sales, have also been growing for quite some time, but most are not yet ‘out of the hole’.
Have you seen consumer sentiment? It’s abysmal for this stage of the economic cycle. Seriously, spend some time looking at the data and tell me how you are not completely depressed about the state of this economic “recovery”.
I do think that, if an eventual compromise is where this is going, it would be better governance to get to that compromise now, rather than continuing to play budgetary chicken. Among other things, uncertainty is bad for business.
Master of the Obvious. OTOH, if a little temporary uncertainty due to the debt ceiling battle has a higher potential for producing an optimum fiscal outcome than does an early compromise, I’m quite sure most of us who are affected can stomach a few weeks of subsisting on Rolaids.
I don’t disagree that, in most cases, it’s less efficient than the private sector. …Short term stimulus, whether fiscal, monetary, or both, can increase real GDP.
These two statements are generally inconsistent with one another, philosophically. If capital is more efficiently allocated in the private sector, why take that and spend it via the public sector if one is seeking stimulus? If anything, tax cuts would be the optimum stimulus in that case vs. increased government spending. Government spending must be allocated more efficiently than would be done via Adam Smith’s “Invisible Hand of God” for it to truly be stimulative — and historical government experience suggests that is rarely the case:
In any case, you blew right past the pertinent fact that current and projected deficit spending is not “short-term stimulus” — it is baselined spending that is projected to add trillions to the federal debt more quickly than we can pay it off with increased GDP growth. There is nothing economic stimulative about that.
At present, the federal government is able to borrow money very cheaply (see above #18). As long as the private sector rate of return is higher than the interest rate the federal government pays on its debt, then, given a level of spending, it is rational to borrow and run a deficit.
It’s a close call, but this is definitely the biggest howler in your comment. Why is the federal government able to borrow money so cheaply? Because the Fed — a quasi-government institution — is purposely holding down interest rates and buying up Treasurys, absorbing massive amounts of government debt (in effect, printing money). I’m not sure what you are referring to when you talk about “the private sector rate of return”, but I can tell you that bond yields across the board are depressed. The big unknown is why banks are hoarding cash (beyond as a response to tougher capital-to-debt ratio requirements) instead of lending — this is the only thing holding back massive hyperinflation.
If I were a Keynesian, I would agree with the general concept that, if interest rates are low and the economy is stagnating, it makes sense to borrow money at cheap rates and stimulate the economy (again, I think tax cuts make the most sense — in particular permanent cuts to marginal rates or corporate tax rates, followed by a plan to hold spending in line until revenues catch up). However, this is not the situation we are in. We have tried fiscal and monetary stimulus, to no avail, and we’re fast approaching a cliff. The existing deficits reflect not stimulus, but permanent fiscal imbalances. We have no choice but to embrace austerity and use this opportunity to get the government’s fiscal house in order. Other means will have to be encouraged to stimulate GDP growth: freer trade; tax credits for corporations to repatriate cash held abroad; rolling back burdensome regulations; reduction of government intervention in the economy; a strong domestic energy policy that fast-tracks new energy production of all types; and so on.
Gahrie–I stand corrected. For some reason I didn’t remember any news stories about raising the debt limit, but that’s not surprising.
I’m getting weary of this. I’m fairly convinced that gahrie (1) doesn’t actually know how much he pays in taxes and (2) is somehow simultaneously upset about and yet unable to believe that most people pay less taxes than he does. AML T is pessimistic about the economy, which he’s entitled to be. We agree that the recession was bad, but he apparently attributes the amount of time it’s taken to recover to bad policies, whereas I see it simply as a product of the depth of the recession. I think everyone should take a look at the link he put in to the charts from Calculated Risk blog. What I see in nearly every chart is that this recession is bigger than recent ones, but is following roughly the same shape. Deeper recession -> takes longer to recover. Judge for yourself, I guess.
Anyway, I’ll respond to a bit of “the biggest howler”:
re: the Fed printing money: Yes, the Fed is intervening in the money supply (as they always do). But, if inflation is the major risk of printing money, and inflation for the past few years has been very low, and continues to be low, then so what?
re: “the private sector rate of return”: I’m going to break this down as simply as I can. If it’s too simple, please don’t take offense. You can think of this exercise in either nominal dollars or real dollars, as long as it’s internally consistent.
Suppose the government decides to spend $100 on something this year. For simplicity, let’s suppose it considers two options. Option A is to collect $100 in taxes today. Option B is to collect $0 in taxes today, borrow the whole amount at 3% interest, and collect $103 in taxes next year. Suppose the private sector can take $100 today, and through capitalism, turn it in to $104 a year from now. Given the choice between the two policies, it would be better to go with Option B. That way, the private sector gets to keep the extra dollar. Extrapolate this out to the size of the federal budget, and this is the argument for why deficits are ok (or, in the words of VP Cheney, they “don’t matter”).
And, just so I’m not accused of being unaware of this last part: The constraint on it is that, at some point, people stop wanting to lend the government money, and interest rates rise. The tipping point is when interest rates go up so high that gov’t debt become a more attractive investment than the private sector, at which point (1) financing gov’t spending through borrowing rather than taxes becomes a losing proposition for taxpayers and (2) public borrowing “crowds out” private borrowing. If that happens, it’s a serious problem, but we’re not there yet.
I’m fairly convinced that gahrie (1) doesn’t actually know how much he pays in taxes
Believe me, I know how much I pay in taxes. You are the one convinced he is right about something he knows nothing about.
and (2) is somehow simultaneously upset about and yet unable to believe that most people pay less taxes than he does
I know most people pay fewer taxes than me. We are close to the point when over 50% of the population will not only not pay taxes, but instead receive transfer payments of other people’s money. you’re damn right I’m upset about it, it’s actually my biggest beef with the US tax system.
Mike R # 48 – are you serious ?
Your Option A / Option B example ?
When the private sector takes $100, and through capitalism, turns it into $104, it uses *capital* to do so … (hence “capitalism”) … your example suggests that the governments legitimate options are to take the $100 of capital *now* as Option A – or take $103 next year as Option B … in *either* case, you do define yourself as a current democrat, with a current democrat’s ‘understanding’ of how the private sector works … much as your hero, our current First Occupant, would like to tax “the rich” at those sort of confiscatory rates, that’s *not* how successful capitalism works …
Hmmm … if you are a ‘graduate’ of public school, you have my sympathy … if you are a graduate of private education, can you please tell us which fine institution has responsibility for your economic prowess, please ? Those of us with kids would like to be suitably forewarned …
@gahrie: You claimed that:
(1) My indication that many Americans pay an overall tax burden of 27% was an indication that I’m living in another world, apparently on the basis that you pay more taxes than that. This is, in fact, the overall tax burden in America, according to the Heritage Foundation.
(2) You pay 60% in taxes, and yet when listing the taxes you pay, have only listed 47%. If you can explain where the other 13% goes, you’ll change my mind about your understanding.
@Alasdair:
I explicitly said that this was a simplified model. The example doesn’t say anything at all about tax rates (confiscatory or otherwise), how capitalism and the private sector work (except to assume that it does), or what the government spends money on (except to assume that it does spend money). I was simply trying to demonstrate that, assuming investment by the private sector pays better than Treasuries, it can be rational for the federal government to finance its spending with borrowing (without judging whether or not it should be spending the money in the first place, which is an important and distinct, though related, question). In other words, *it’s better to let the people keep their money than to raise taxes*.
I don’t think that you actually disagree with this point. If you disagree with the assumption about capitalism, then the corollary is you should completely divest yourself from the private sector, and put the proceeds into Treasury debt (in case my tone isn’t coming across, my implication here is that most people would find this unwise). If you disagree with my conclusion about financing spending through deficits instead of taxes, then the alternative is to think the federal government should raise taxes to pay down the debt (there are people who think this, but I’m not one of them, and I don’t think you are either).
Mike R #51 – accepted, mostly …
To make your example more meaningful, you would have to posit that the gov’t was choosing between taxing $100 of income at 3% now or 3.5% next year – with the deferred taxation being a stimulus (which has been proven to be effective, within reason, many times) … just today, on the radio, they were announcing that the LA area was seeing movie makers returning to make movies here, now that there are tax credits in place to make it worth their while doing so … (“Another “Well, d’uhhhhh !” moment brought to you by our *unbelievably*-able California Democrat politicians !) …
It is, however, not “financing spending through deficits” that works … it is, rather, non-dis-incentivising private sector by taking *less* out of the private sector that works … again, within reason …
gahrie’s #34, points 1 and 2 state it well … we don’t need to increase taxes (which increase prolongs/deepens the Obama Recession/nascent-Depression) – we *do* need to cut back (or cut *out*) the spending *increases* over and above the Bush-Presidency ones, at least until the economy can turn round …
AML T is pessimistic about the economy, which he’s entitled to be. We agree that the recession was bad, but he apparently attributes the amount of time it’s taken to recover to bad policies, whereas I see it simply as a product of the depth of the recession. I think everyone should take a look at the link he put in to the charts from Calculated Risk blog. What I see in nearly every chart is that this recession is bigger than recent ones, but is following roughly the same shape. Deeper recession -> takes longer to recover. Judge for yourself, I guess.
My judgment of why things haven’t recovered very well is less important than the fact that they aren’t recovering as projected. What you see as obvious (“Deeper recession -> takes longer to recover”) is not reflective of policymakers’ actions, which have been to try to stimulate and speed up recovery — to no avail. If it’s a given that deeper recessions take longer to recover from, and stimulus spending is proving ineffective, that castrates the argument that permanent budget deficits have any stimulative effect. If deficits aren’t stimulating economic growth, then the obvious corollary is that there’s no point in continuing running deficits and we should balance the books. Ergo, time to slash spending.
As for this recession following the shape of previous recessions, you’re dead wrong. There are two general shapes in those graphs, along a continuum of which all of the lines — except for one — display: a shorter, steeper drop in employment, followed by a shorter, steeper rise; and a longer, more gradual drop in employment, followed by a longer, more gradual rise. This recession exhibited a long, deep drop in employment, but we are witnessing a slow, gradual rise in employment (that is potentially flattening out and/or dropping again). That speaks to this recession being highly abnormal, and there are three potential reasons why: Either the events that precipitated the recession are uniquely adverse; or the policy prescriptions taken to recover have been ineffective / counterproductive; or both. Most conservatives think our policy response has been dead wrong; most liberals are now suggesting the nature of the financial crisis is what is making recovery painful. However, if we accept that the financial crisis is what is making the recovery so stubbornly slow, then it stands to reason that virtually all of the policy prescriptions (e.g. TARP) proffered by Keynesians and liberals were exactly wrong: We should have let banks collapse; we should have encouraged bankruptcy; we should have killed off Fannie Mae and Freddie Mac; we should have let the housing market become flooded with foreclosures and bottom out — in general, we should have dealt with the financial entanglements as quickly and efficiently as possible to allow for a fresh start. Instead, we’re still untangling the mess, still trying to prevent foreclosures and real estate price decreases, still worrying about “exposure” to European banks, and so on — so of course we’re not growing our way out of this mess yet.
Anyway, I’ll respond to a bit of “the biggest howler”:
re: the Fed printing money: Yes, the Fed is intervening in the money supply (as they always do). But, if inflation is the major risk of printing money, and inflation for the past few years has been very low, and continues to be low, then so what?
We’re playing with fire, that’s why. The market is simply not responding to the monetary stimulus in textbook fashion. Banks’ balance sheets have exploded, and what we don’t know is why they are holding onto dollars that are earning them <1% ROR. As soon as they start making that money available to borrowers, hyperinflation is going to be a massive risk. We are finally seeing core inflation pick up (never mind that food and commodities have already undergone hyperinflation), and so now the Fed is finally starting to talk about raising interest rates again.
Suppose the government decides to spend $100 on something this year. For simplicity, let’s suppose it considers two options. Option A is to collect $100 in taxes today. Option B is to collect $0 in taxes today, borrow the whole amount at 3% interest, and collect $103 in taxes next year. Suppose the private sector can take $100 today, and through capitalism, turn it in to $104 a year from now. Given the choice between the two policies, it would be better to go with Option B. That way, the private sector gets to keep the extra dollar. Extrapolate this out to the size of the federal budget, and this is the argument for why deficits are ok (or, in the words of VP Cheney, they “don’t matter”).
Your argument works for tax cutting, but not deficit spending. How that dollar is spent affects things such as productivity, and those are the factors that determine whether the “private rate of return” (what you really mean is “real growth rate of the tax base” — or, assuming the tax base is 1:1 correlated with GDP, “real GDP growth rate”). Oversimplifying things into your metaphor, that $100 deficit this year — paid for by the 3% loan — will drive $104 next year if it’s a tax cut, or only $102 dollars next year if it’s a spending plus-up. We’ve been doing the latter, and that’s part of why GDP growth is lagging projections, and consequently the taxable base isn’t large enough to pay the full interest, so debt accumulates.
The other fallacy here is that it is simply a matter of GDP growth vs. interest rates. However, interest rates are reflective of money supply and are not market driven but Fed policy driven, and drive factors such as inflation. In your scenario, that 3% rate is an artificial product due to Fed policy. That Fed policy may drive inflation of 3% and there may be 0% real GDP growth, but that’s fine for the government because its $100 debt is paid back easily with the $103 coming in the following year. Meanwhile the non-taxed capital left in the private market buys less than it did the year before, hampering productivity and economic growth. These factors make it nearly impossible for the government to effectively use fiscal policy to stimulate the economy, which is why Friedman always pointed to monetary policy as the better lever. Yet the likes of QE2 won’t do jack squat if bad government policy encourages the markets to sit on capital out of fear or uncertainty about future tax / inflation implications.
And, just so I’m not accused of being unaware of this last part: The constraint on it is that, at some point, people stop wanting to lend the government money, and interest rates rise. The tipping point is when interest rates go up so high that gov’t debt become a more attractive investment than the private sector, at which point (1) financing gov’t spending through borrowing rather than taxes becomes a losing proposition for taxpayers and (2) public borrowing “crowds out” private borrowing. If that happens, it’s a serious problem, but we’re not there yet.
Again, here is where you run into the howler again: Due to the fact that the Fed is buying up Treasurys, interest rates aren’t rising even though private investors have lost interest in lending to the government at those rates. The market signals you allude to as being the necessary “constraint” that signals when deficit spending “becomes a losing proposition” have been obscured by QE2! Not to mention, there is much to suggest that private borrowing has indeed been crowded out.
As if on cue, yet another article that shows the ludicrousness of those whining about the Republicans’ insistence on controlling spending and no tax hikes as part of the debt ceiling deal:
Andrew Sullivan and Brendan Loy, the crows are dropping by the thousands, choked by the insipid logic and hyperbole of your irrational lemming defense of the economic march right off the fiscal cliff (yes, I am purposely daring James Taranto to nominate me in his “Metaphor Alert” feature). I hope you’re hungry and ready to eat.
Brendan – it looks like it is time to offer AMLTrojan a guest spot, so that he can share his wisdom in the form of “Fiscal Cliff Notes” …
Andrew, you are defining the question in too narrow a manner. There is a great deal more to it. Just not wanting to pay your fair share for a civil society isn’t really a good reason.
In the starkest possible terms FDR was good for the country for basically one thing; he did what was necessary to prevent a communist revolution. The Republicans at the time hated what he was doing, but the alliterative for them would have been far far worse. FDR did business interests a favor they didn’t know they needed and didn’t think they wanted.
Be that as it may, if you make less than 250K a year, you’d have to be brain dead to vote for a Republican. I suppose this explains why, on average, Republican voters have a lower IQ than those that vote for Democrats.
Just not wanting to pay your fair share for a civil society isn’t really a good reason.
Well…I would like to know what my “fair share” is.
I would also like to know if it is fair for 50% of the people to pay nothing, while the rest of us pick up their tab.
I’d also like to know if it is fair that nearly 50% of the people not only pay nothing, they get a check from the government courtesy of the rest of us who actually pick up the tab.
Really..just how “civil” is society when half of it is comprised of freeloaders? (Freeloaders who loudly complain and behave uncivilly when their gravy train is threatened.)
Republican voters have a lower IQ than those that vote for Democrats.
Aha..the tried and true “Republicans are stupid” meme, that of course the Left denies exists.
By the way, you guys do know that this “airplane deduction” that President Obama condemned six times yesterday was created by him and a Democratic Congress in the first place, right?
How about we pass a law that says:
“While the Unites States government is running a deficit (or better yet has debt), no citizen may receive a check from the IRS for more money than they have had witheld that year.”
Then we can begin to talk about “shared sacrifice”.
I am sure that Brendan will post an attack against Patty Murray for threatening to hold the American economy hostage any day now….
Democrats say they’ll let all the Bush-era tax cuts expire if they can’t raise taxes on the rich. Apparently, economic catastrophe is a reasonable price to pay for class warfare politics.
Should Obama make good on this threat, the risks to the economy would be enormous. Tax rates on everyone would climb back to Clinton-era levels, which translates into a tax hike of roughly $150 billion next year alone.
And that, in turn, will cut economic growth by as much as 3% next year, according to the Congressional Budget Office, and quite possibly plunge the country back into another recession.
Today, the top 1% of income earners pays 37% of all federal income taxes, far more than their 17% share of the nation’s income. The bottom half, meanwhile, pays just 2% of all income taxes, although they account for 13% of the nation’s income, according to IRS data.
What’s more, the share paid by the rich is higher today than it was when Bush took office, when it was 34%.
How is this not fair?
http://news.investors.com/article/618358/201207161909/democrats-hold-economy-hostage.htm