Budget Hawk, Stimulus Dove

I doubt this is much mentioned because it appears politically infeasible, for now. If we could trust Congress to craft such long-term legislation that had a neutral or positive present value for public finance, would we even be concerned about the fiscal outlook?

“Why are the hawks and doves more interested in trying to score debating points against one another than in achieving their objectives?”

1. Because scoring points what that they are rewarded for. They are not rewarded for actually fixing problems

2. All the actual budgetary control of the US is in the hands of a tiny number of people, so everyone else has to act as if they have some say to make it look like they are doing a job, but really they have no purpose.

This is Democracy. You get money and power by being elected. Which has NOTHING AT ALL to do with implementing effective policies and EVERYTHING to do with scoring debating points.

This appears to be the Obama administration advocacy. They argue their healthcare bill was to save money long term and expensive short term to restore fiscal stability. Who knows if it is straight-faced, but they certainly lay out the same argument you say is missing from the debate.

Here is a quote from Obama in an Address to Joint Session of Congress
Tuesday, February 24th, 2009:
“To preserve our long-term fiscal health, we must also address the growing costs in Medicare and Social Security. Comprehensive health care reform is the best way to strengthen Medicare for years to come. And we must also begin a conversation on how to do the same for Social Security, while creating tax-free universal savings accounts for all Americans.”

http://www.whitehouse.gov/the_press_office/remarks-of-president-barack-obama-address-to-joint-session-of-congress/

For example, it would probably create more trust if some of those center-left types at least used Paul Ryan’s budget as a starting point for a conversation. But instead what I hear from the center-left budget/wonk types is an emphasis on scoring points, and disagreeing with his assumptions so as to claim that his budget doesn’t 100% solve the problem.

Rep. Ryan has responded to those criticisms by the Tax Policy Center and others by saying that he’d be willing alter his plan to have higher taxes if his economic assumptions didn’t meet reality. He says that he’d be willing to accept whatever rates were necessary for revenue to equal 19% of GDP. As far as I can tell, the response to this offer and effort to start a conversation has been silence from the policy wonks who are supposedly so brave and interested in solving problems instead of scoring points.

John:

“The reason that they aren’t considered sincere is that the promise isn’t credible.”

What promise? I’m not talking about legislators. As for the SGR – the people I’m thinking of have specifically said that we need to be honest about the way Congress will implement the SGR in practice, and take that into account when we set benefit levels and tax rates. So again, I’m not sure what you’re refering to exactly.

“It also doesn’t do much to foster trust and credibility when you insist that all center-right types who claim to be in favor of #2 (but against #1) are really “budget chicken-hawks” who aren’t sincere.”

I never said anything of the sort, John. You might want to review my post. I said two things – first, that “nobody is serious” about #2. I probably should have said “few people are serious”, but the point is its just not something that’s being seriously pushed in Congress right now by anyone. I never said anything about right or left. Everyone is dropping the ball on it (and to be fair, there is a lot on people’s plates right now). The second thing I said was that there are budget chicken hawks that make a huge fuss over #1 without really caring about #2, and that a lot of time is spent refuting these guys on #1 rather than advocating for #2.

Never once did I say that all center-right people are budget chicken hawks, nor did I ever say that all center-right people are insincere. Please don’t put those words in my mouth.

All I’m saying is that most people acknowledge the long-term budget problem and a lot acknowledge this sensible long-term budget solution, but very few (I said nobody – I should have said very few) are seriously addressing it right now. I’m also saying there’s a subset of people that aren’t sincere about either that are making a lot of fuss about stimulus that is a distraction.

I’m not impugning everyone to the right of me (and certainly not praising everyone to the left of me… the Dean Baker/Robert Reich types don’t help either) – I’m saying there are such people out there and its a problem.

I would love to see aggricultural subsidies and other transfer payments ended with a single (in theory stimulative) lump sum payment. A farming concern scheduled to get $1M a year until the end of time in the form of price subsidies would instead get a big check for $5M and the subsidy would be terminated immediately.

Arnold,

I don’t think such a piece would be feasible because Republicans simply will not go for it.

1. Tea Partiers have identified long run cuts in health spending as ‘killing granny’. As you know cuts in health care spending are the only real spending cuts possible in the very long term as they are the bulk of the forecasted increases in spending.

2. Politically such a ‘deal’ would be too easily bashed. The cycnic will say “you’re spending today but only promising to spend less in 2020! And whose to say Congress in 2020 won’t just reverse all those spending cuts”. Again Republicans and Tea Partiers (who are just a subset of the former) are on the lookout for cheap and easy shots to win elections. The wisdom of the deal you propose is the very reason it is doomed.

To the regular person this sounds like a problem drinker who says he will get really drunk tonight but next week will dramatically cut back. Ironically, though, the problem isn’t now it really is years from now. Today’s spending can go on basically forever. It’s tomorrows forecasted spending that can’t.

Let me just say, though, I’m a skeptic of your fiscal doom and gloom. I think its built on a mathematical error. I think you’re assuming a low rate of economic growth with a high rate of health care growth. The error is that as healthcare’s portion of the economy grows, either its growth rate must slow down or the entire economy’s must increase. The forecast is an example of straighlining present growth rates without thinking about the implications of doing that.

Two reasons I can think of for not having a lot of confidence in your stated solution: time inconsistency and opportunism. There will always be some potential looming crisis a politician can call upon. I don’t see how your proposal provides an incentive to hold to the agreement in the future.

Maybe if you could cite specific examples of where such proposals have worked in the past AND what mechanisms were called upon to enforce the agreement. Something like a requirement for a super majority or even unanimity to raise the debt ceiling. If there was a way of writing in unanimity and making it enforceable in the future, that may establish a true credible commitment.

An analogy to your proposal may be the deficit/debt limits established by the Maastricht Treaty. The monetary piece was a credible commitment to not have an opportunistic monetary policy. (They ceded control of monetary policy to a central body). Unfortunately, the fiscal piece had what seemed like a credible commitment, but was not (can’t exceed 3% deficit to GDP, no bail out clause, etc).

While the proposal may have merit, it needs to overcome these issues. At some level, we will always be dependent on the integrity of leaders to abide by promises given particularly if their incentives aren’t aligned with the promise.

Actually, I read the post a little fast. I didn’t mention entitlement cuts in my post, but I would be willing to support a raise in the retirement age, phased in over the long run, if there were allowances like exclusions for people not healthy enough to work, regulations that prevented requiring excessive hours, gave more sick days and flexibility, etc.

I’d also support a VAT if in conjunction with large increases in taxes for the wealthy and for negative externalites and activities, like carbon and smoking, and if the VAT was offset with large investments in the poor and middle class like free universal pre-school and much greater college aid.

This is a very encouraging post, Arnold. As Mark Thoma notes in his blog, some sort of fiscal tightening that would kick in below some particular unemployment rate would make a lot of sense.

But good things seem to get undone. The Tax Reform Act of 1986 was very good policy, as it broadened the tax base and got us closer to a progressive consumption tax. But that Act is now in tatters.