There’s an op-ed in the Wall Street Journal that should give us pause. Former Federal Reserve governor Lawrence Lindsey lists several reasons that we can’t wait to do something about the deficit:
- Interest rates are at historic lows and won’t stay there forever.
- Economic growth is significantly below the rates that were assumed just a year or so ago and it’s likely to stay that way.
- The PPACA is already proving to be a lot more expensive than was originally assumed.
His estimate for the costs that may be incurred by increasing interest rates, low growth, and higher costs for the PPACA, just for the next four years (but accrued over ten years)? Just about $10 trillion.
You can’t raise that kind of money just by eliminating the “Bush tax cuts” and cutting back on discretionary spending. Spending reform has got to get serious and it’s got to get serious now.
I have been very consistent on this. I think that both tax increases and major spending cuts must happen immediately. We’ve deferred tweaking past the point at which tweaking will be enough to solve our problems. Time to stop living in a dream world.
I completely agree. Right now we are looking at a Japanese situation where we’ll likely have sub-par growth for a decade, possibly longer. We are pursuing policies that are very similar to theirs, IMO, and in terms of growth it didn’t work out at all.
The mantra of “wait till growth is stronger” ignores the Japanese experience where growth has yet to “get stronger”.
The thrust of your point is what I’ve been saying for a decade plus now.
As much as I just fool around here, I have a serious question for anyone who visits this site. The numbers are not debatable. The rate risk is real. The “earnings” risk is real. Our national debt capacity is being approached. And yet I observe that in the current debt ceiling debate we have the decades old leftist claims: if we don’t do more of the same (tax, tax, tax – spend, spend, spend) the widows and orphans will starve, the elderly will die in the streets. My God, the weather service won’t be able to tell us a thunderstorm is coming…. blah, blah, blah
Our current president has shown zero understanding or leadership on the issue. Zero. Where is this going?
Drew,
“tax, tax, tax – cut, cut, cut” isn’t a winning position politically so things are likely to get much worse before we can hope they get better.
Andy –
Yes. But that is exactly the current posture. I’m an LBO guy. I’m looking at our revenue and expenditure realities, – juxtaposed against debt capacity – and the prospects for changing revenue. That would mean accelerated GDP growth, or tax increases. That’s a very weak reed to lean on. The tax route will be self defeating.
The country needs to understand that they have been sold a pig in a poke on government benefits. The politicians are Enron. The shell game game is over.
Which gets back to Drew’s point about leadership and why so many here run around believing there is a magic government pony somewhere that will save us.
” we have the decades old leftist claims: if we don’t do more of the same (tax, tax, tax – spend, spend, spend)”
Every serious left of center economist/writer I can think of has advocate spending cuts, just not ones acceptable to the right. They nearly all call for defense cuts, cuts to Medicare by cutting costs, cutting agricultural and oil subsidies, cutting spending on prisons by either decriminalizing drugs or reforming the prison/judicial systems. They also advocate raising some taxes to help lower the debt. Many on the left have advocated for cutting tax expenditures. This is opposed by the GOP, though to be fair, some right of center economists support this.
Right of center economists/writers just do not like those spending cuts. They want to cut Medicare spending with vouchers and put people into private insurance plans, resulting in more and more people w/o insurance. They have never attempted reform for private insurance. Ultimately, the GOP plan is to cut some spending, then cut taxes for the highest brackets. If the debt is our priority, why are they cutting revenue? When I balance our books, I look at revenue and spending?
Finally, I do take conservatives at their word when they say that they think we should not neglect our moat vulnerable.
Steve
steve –
You tell me left of center economists and pols have reasonable positions. And yet just today I see Obama calling out “private jet owners.” This is just ludicrous on its face.
The simple arithmetic is that populist and politically expedient calls for “taxing the rich” a) don’t close the gap and b) will screw the productive pooch. I’m feeling feisty. This is pure crap. CRAP.
We need a president who has the experience and temperment to do what really needs to be done. The current one is an impotent, clueless fool. I know you disagree, but we are just treading water right now…………..waiting for a real executive/leader.
Drew,
A President that needs to do what needs to be done? With what powers? This President, like all Presidents, can’t fix this problem – all he can do is use the bully pulpit.
Fundamentally, this is a political problem. This isn’t a country where the elites can “do what needs to be done.” Solutions exist, but a combination of the status quo political parties and grossly unrealistic expectations from the populace ensure that no one can “do what needs to be done.”
BTW, that’s analysis, not advocacy. Taxes are going to go up, even for the so-called “productive” class. Government spending is going down. It’s only a matter of when and how.
Too many people are having political flashbacks to their youth.
In 2011 just about everyone agrees that a $3 trillion budget gap needs to be closed over 10 years. Republicans claim they can do it with spending only, but have not produced cuts their own members, let alone the general public, will accept. Democrats are proposing cuts and taxes these days, IMO a more moderate path to that $3 trillion, but they seem to want to out-wait the Republicans on specifics.
Note also the recent headline that California’s Democratic Governor and legislature passed an “austerity budget.”
Two points. First,
is untrue. The Obama Administration has proposed $4 trillion dollars in cuts over 12 years with much of the cuts coming at the tail end of that period. That doesn’t translate into cutting $3 trillion over 10 years.
Second, you’ve sidestepped the point of this post: the assumptions under which the “$3 trillion in 10 years” target have been predicated are very unlikely to hold true. We’re likely to have higher interest rates, lower growth, and a faster increase in spending. That means it’s not nearly enough.
I’m on my phone and can’t find/link to that article I believe I dropped here on the $3 trillion in 10 years consensus.
But LOL!
Do you think $4 trillion in 12 disproves my larger point? As knuckleheads above live in a “tax, tax, tax, spend, spend, spend” fantasy?
Finally I don’t know why you are talking to me about details of projections when I’ve said neither party is taking real action.
The (national political) reality in 2011 is to agree in principle to cuts, do disagree about minor tax increases, but then to wait for 2012.
(States will move to at least “semi” austerity sooner.)
Republicans want to make 2012 a referendum on keeping the current tax rate (inc. temp. cuts), and balancing the budget on reductions to social spending.
Democrats seem fine with that, and wait for it to play out.
Some evidence would be nice. Maybe a few links….
Well the President has a great deal of power…it just isn’t suited to solving economic problems. And yet this has not stopped Presidents from claiming that they can fix these problems. Vote for them, support their agenda (i.e. tell your Representative and Senator) and there you go, 7% unemployment….or not.
Especially since Obama wont be around then anyways. Presidents always come up with these budgets that try to impose constraints on future Presidents and members of Congress, but the problem is that these constraints are always non-binding. Nobody really believes them. It is all, in the parlance of game theory, cheap talk. Talk that carries with it no real commitment value and people typically ignore it.
I agree. Do they rely on the proposed cuts to Medicare that Congress has dodged every year for the last 10? Suddenly somewhere Congress is going to find a backbone? Count me in the dubious camp.
Now, I’d be really impressed if Obama came up with a plan to raise taxes, cut spending and put in it a commitment mechanism. Perhaps a super-majority requirement to change any part or the whole thing. But we wont get that, because many of today’s members of Congress will still be in Congress in 2, 4, 6, even 12 years down the road and they don’t want their hands tied. Once somebody has power they are loathe to give it up.
Drew- Nearly every GOP pol starts out with the words “job killing” before naming whatever Democratic policy they wish to denigrate. What you describe is politics. Obama kind of has to fight back.
“Especially since Obama wont be around then anyways.”
These are always done over ten years. Are you suggesting we should cut $3 trillion over three or four years?
Steve
That’s why the Obama Administration’s budgeting over a period of 12 years is so peculiar. It’s a finesse—they’re pushing the time for cuts safely outside a second Obama term.
I don’t know about Drew but I am. As things stand now we’ll be running trillion dollar deficits for the next five years. I think we’ll be in primary deficit territory, viz. Greece, at that point.
As I have said repeatedly, I would start by withdrawing troops from Iraq and Afghanistan with all due haste, reducing troop commitments in Europe and the Middle East, and generally cutting the size of the standing army in half. The Air Force should also be in line for substantial cuts. That would realize $300 billion a year right there.
We need a major revamp in our healthcare system, starting with Medicare and Medicaid but not ending there. We can’t afford to devote a sixth of the economy to it let alone a fifth which is where we’ll be soon. State and local governments just can’t tolerate our present system.
I opposed the “Bush tax cuts” when they were enacted and I thought that President Obama was insane to come out in support of their extension, even if only for a couple of years. It’s intellectually unsustainable. That would realize, what, roughly a $100 billion a year?
I would either be prepared to let the zombie banks fail or, if we don’t have the guts, tax the living bejezus out of them. The financial sector is nearly an order of magnitude what it should be for an economy of our size and, obscenely, growing.
People who personalize “Obama” for a Washington dynamic are dumb, or playing their own 2012 game.
No one, from either party, has released a rational budget that can clear committee, let alone clear congress.
Of course not. Nothing I said indicated that. What I was pointing out that there is no commitment to these kinds of “budget proposals” they are quite simply bullsh!t. Everybody knows it.
Absolutely, but this does not obviate the point above that these kinds of “plans” are largely toothless piles of bullcrap. Obama has put forward a plan that will enact trillions in cuts….well after he is out of his second term. Well golly gee, he really is serious about cutting spending, and bringing the deficit into line.
Until there is a serious commitment mechanism in these proposals they are nothing but cheap talk.
It is true that Presidents always prefer pain after they leave, but I think these circumstances merit the long plan more than most.
As you say, no one wants to dramatically cut spending or dramatically raise taxes in this “soft spot.”