A picture is worth 1000 words

Via Ritholtz, the National Priorities Project shows the federal budget.

It’s not a perfect picture. It’s misleading to have the military at 26.5% about three times the size of health care at 20%. It doesn’t show Social Security and it’s not clear that Medicare is included. It would also be valuable to have that 5.4% of “government” spelled out. I think it includes courts, prisons, education, highways, embassies, national parks, IRS, Congress, and much more, but it’s unclear from the NPP website. But with these flaws, it’s still a good starting point for understanding what the GOP “vision” for America is. If you want the exact figures, you can go here.

A few Republicans are not trying to blame Obama for what Bush did

If all Republicans were like Bartlett and Stockman, I’d have to reconsider which party to vote for. While I disagree heartily with them on many things, they have been honorable in accepting blame for bad policies. Via Ritholtz,

David Stockman, Reagan Director of OMB, in the NYT:

PAUL D. RYAN is the most articulate and intellectually imposing Republican of the moment, but that doesn’t alter the fact that this earnest congressman from Wisconsin is preaching the same empty conservative sermon.

Thirty years of Republican apostasy — a once grand party’s embrace of the welfare state, the warfare state and the Wall Street-coddling bailout state — have crippled the engines of capitalism and buried us in debt. Mr. Ryan’s sonorous campaign rhetoric about shrinking Big Government and giving tax cuts to “job creators” (read: the top 2 percent) will do nothing to reverse the nation’s economic decline and arrest its fiscal collapse.

Bruce Bartlett, Reagan and GHWB adviser:

Although it was quickly overshadowed by his choice of Representative Paul D. Ryan of Wisconsin as his running mate, Mitt Romney released an important document last week by his principal economic adviser…economists Glenn Hubbard of Columbia, N. Gregory Mankiw of Harvard, John B. Taylor of Stanford and Kevin Hassett of the American Enterprise Institute….

Much of the Romney paper is taken up with reviewing the poor economic recovery, which is undeniable. Reading it, however, one is left with the impression that the recession occurred on President Obama’s watch because of policies he is responsible for.

Just to be clear, the National Bureau of Economic Research, the private research group that determines the starting and ending points of recessions, says the latest economic downturn began in December 2007 and ended in June 2009.
…
The opposition of every Republican to the 2009 stimulus was a major factor in its inadequate size.

… it was Republican policies during the Bush administration that brought on the sickness and Republicans in Congress who have denied the economy an adequate dosage of the cure [i.e., stimulus]. Now they want to implicitly blame President Obama for causing the recession and the failure of stimulus to fix the problem, asserting that fiscal stimulus is per se ineffective.

One only wishes that Democrats would speak this plainly. Instead, some are complicit in why the stimulus is too small–a few are even giving their support to the Republican lie–and not enough are speaking out clearly on what stimulus is and why–of course!–it works (and why taxes have to be raised eventually to pay for it). Stockman and Bartlett, right-wing cranks though they may be, deserve a lot of credit for showing integrity.

The budget

To no one’s surprise, if you do not tax the rich, the budget remains in massive deficit. CBO explains here

Deficits driven by Bush tax cuts, recession

From CBPP via Avedon:

Yeah, the wars are a factor, they should add in Medicare D, but the picture is clear: without ending the Bush tax cuts, there is simply no way to close the budget gap except to outright steal the Social Security and Medicare trust funds.

Read the article. It refutes the Heritage Foundation apologia for the Bush tax cuts, noting:

1. Heritage admits that it understates the cost of the tax cuts by omitting their impact on rising net interest costs.
2. Heritage ignores the fact that the share of deficits accounted for by the Bush-era tax cuts will grow in future years as the impact of the economic downturn on deficits diminishes
3. Heritage assumes that regular discretionary spending (other than war costs and stimulus funds) will grow at the same rate as the GDP over the next 10 years. In contrast, we assume that such appropriations will grow somewhat more slowly in the 10-year budget window because they will grow with inflation; this is the standard, widely accepted baseline assumption.
4. It was not a sudden spurt of growth in Social Security, Medicare, and Medicaid that turned projected budget surpluses into deficits [these were accounted for in baselines developed by CBO].

If you start out from wrong assumptions, which Heritage and therefore the Republicans are doing, you will end up doing things that will simply make the deficits worse.

Shaving Washington with Occam’s Razor

The general reaction that I hear about our current politics is that they’re all corrupt. In the colloquial sense, that’s probably true, although enough of those guys are lawyers that they’re careful to stay on the north side of the statutory line, Tom DeLay and his pals being the exception that proves the rule. But having met, dealt with, and especially watched a fair number of politicians over the years, I think there’s a better explanation.

What I notice is that politicians are, at least in person, charming people, but also narcissistic and shallow. They’re opportunists, constantly sniffing for a way to get ahead, and constantly seeking to ingratiate themselves. When they don’t have handlers around, they come out with stunning examples of ignorance. On Thom Hartmann, Bernie Sanders actually said that he doesn’t know what ALEC is. How can anyone in Democratic politics not have heard of ALEC? And Bernie Sanders is relatively engaged in the reality-based world. As we see, Michele Bachmann doesn’t even know where “the shot heard ’round the world” was fired. Is it really a surprise that so many politicians believe that lowering tax rates increases revenues, particularly when the Wall Street Journal and other respected publications tells them it’s so?

Predicting the consequences of the debt ceiling deal is not particularly complicated. In a normal year, the American economy grows by about 3%. Since our GDP is about $14T, that’s about $420B per year. At the moment, it’s more in the 1-2% range, or $140-$280B/year. So a debt deal that promises to cut $2.6T over ten years is promising to remove about $260B per year from the economy. Without any complicated calculations, this is enough to trigger a recession with almost certainty. Even in good times, this would cut the growth rate at a first approximation to about 1%. This is growth barely sufficient to keep up with normal population growth. So the debt ceiling deal is a bill essentially guaranteed to make the next ten years the worst American decade ever–with average growth worse even than 1930-39! And this is after perhaps the second worst decade ever. Growth from 2000-9 averaged 1.7%.

Now, it’s not quite that simple. Suppose this were a municipal budget. Cuts to police and fire are very likely not going to save money. Buildings that burn down do not produce tax revenue. Communities that have rising crime lose businesses. Other cuts may produce genuine savings. For example, police like to run up overtime as a means of improving their salaries. It’s fundamentally a corrupt practice, and stopping it could produce genuine savings.

So a lot matters about the details. In particular, politicians like to backload cuts because that puts it after the next election. They often have the goal of making sure that the total budget never declines, even if there are real cuts to programs favored by the opposition party. It’s very unlikely the Tea Party will fall for this.

But in this case, these considerations are probably less important than the long-term expectations that austerity creates. If you are a business dependent on consumers, are you more or likely to invest in the US? If you are a bondholder concerned about possible default of states and municipalities, do cuts in the federal budget increase or decrease your confidence? If you are a promising student, do you take the extra years to go to a four year college and grad school in hopes of getting a high-paying job? If you are a consumer, are you more or less willing to spend? So, the likelihood is that cuts of $260B/year will damage the economy by (SWAG) up to $400B.

Genuine austerity, in which programs are constantly reviewed to see if they are being run efficiently to deliver what the public wants is a good thing. One of FDR’s best points was his insistence on efficiency, since it created public trust that taxpayer dollars were being spent well. But fake austerity, where budget cuts are made for political reasons without regard to the long-term consequences? This is the kind of thing poorly-informed, narcissistic opportunists do.

It’s very difficult for me to get upset at Washington. These people will be reviled as the worst generation of politicians in our nation’s history: shallow, vain, grasping men (and some women) who– in a few short years– destroyed the strongest economy of the 20th century. Considering the verdict that history will deliver, any condemnation that I could add would seem gratuitous.

Growth Dance Religion

Near the depths of Plains Indians defeats in the American conquest, the Paiute shaman Wovoka had a vision of the Second Coming of Christ in which the resurrected Jesus promised to save the Indians from the white man. The new religion was widely adopted. (The religion figured in the massacre at Wounded Knee Creek, since the Indian Agency had become convinced that the Lakota were blessing shirts to be invulnerable to bullets). In fact, the religion would have facilitated the acculturation (genocide) of the Plains Indians by accommodating demands that children be sent away for schooling, among other points:

According to the prophecy, the recent times of suffering for Indians had been brought about by their sins, but now they had withstood enough under the whites. With the earth destroyed, white people would be obliterated, buried under the new soil of the spring that would cover the land and restore the prairie. The buffalo and antelope would return, and deceased ancestors would rise to once again roam the earth, now free of violence, starvation, and disease. The natural world would be restored, and the land once again would be free and open to the Indian peoples, without the borders and boundaries of the white man.

Needless to say, the vision remains unfulfilled.

The fables we hear about the debt are far more pernicious than the Ghost Dance. For all I know, Wovoka’s vision was true. The same cannot be said of Catherine Rampell’s column in the New York Times, which promises us that we can painlessly grow out of our debt. (Atrios, in his appealingly simplistic way, described this as “the other way to cure the deficit is, you know, awesome”):

But there is, in theory, a happy solution to our debt troubles. It’s called economic growth. No need to raise taxes or cut programs. Just get the economy growing the way it used to.
…
We wouldn’t need any of that [taxes, cut spending, have inflation, or default] if we could restore economic growth. If that happened, Americans would become richer and pay more taxes. Et voilà! — we’d pay down the debt painlessly.

Crazy as that might sound, particularly given Friday’s figures, the possibility isn’t some economic equivalent of that nice big farm where your childhood dog Skip was sent to run free. There are precedents.

Well, actually, it is on par with telling kids that you’re sending the family dog to the farm when you’re prepping him for euthanasia. Rampell cites as a precedent Ireland, which did indeed enjoy some good decades of growth: partly because it was starting from a very low base, partly because it was able to exploit the American trend of capital flight to low-wage countries, and partly because a large part of the growth was illusory, based on massive overvaluation of real estate… all of these much like the Japanese “miracle” which crashed two decades ago and has never been revived.

Jack Kemp used to tell us that he was running on “hope, growth, and opportunity.” It was a great slogan. But on the growth part, let’s be realistically. The American economy has never sustained 5% growth in the modern era. Even if we regarded the bottom end of our economy as the Third World that it is rapidly becoming, by properly investing in it, we might be able to get 7-10% growth of 10-20% of our economy… in other words, we might add about a percent to our historic growth to get near 4%. For that matter, since we need to reduce resource consumption, we might have to achieve higher standards of living without raising GDP as much as we are accustomed to… which has implications for debt service.

Ultimately, we do need higher taxes, less wars, and a much more efficient medical insurance system. The latter will cost, not create jobs, and winding down our overspending on the military will cause great pain to some areas. There is no solution to our problems that is pain free. But let the pain be inflicted on those who have enjoyed decades of overstuffing themselves, not on the poor, the sick, the elderly, and those struggling just to stay in a home.

(written in partial answer to Atrios, and Chicago Dyke in comments)

Default now appears inevitable

43 Republican Senators Sign Letter Opposing Reid Debt Plan

Of course, three Republicans could decline to join a filibuster. Looking at who signed the letter, even the so-called “responsible Republicans” (Lugar, McCain) are on board with blowing things up. I guess that the Democrats could cave and do what the Republicans want. But that would probably be worse than default.

Or a meteor could land on Washington. That would certainly would gratify a large swathe of the American public and lead to better economic policies than are presently under consideration.
____________
Update: So, we get worse than default. Ten years of a contracting economy and joblessness levels to rival the Great Depression. This agreement will definitely put the US back into recession. And by caving, Barack Obama has left the only healthy part of the American polity leaderless, adrift, and tearing at one another.

Mr. President, Put the People’s Budget on the Table

The Campaign for America’s Future has a message for us all:

There’s only one deficit reduction proposal clearly backed by the American majority: the “People’s Budget” from the Congressional Progressive Caucus. Yet none of the authors of the “People’s Budget” are currently part of the White House-led bipartisan budget negotiations. The Progressive Caucus has just written a letter to President Obama asking to be part of the budget talks. Now the President needs to hear from the rest of us in the American majority. Use the form below to send a letter to the President, saying “Put the People’s Budget on the Table.”

Exactly. Why does the commission have immensely wealthy inherited-wealth guys like Baucus and Simpson, yet nobody who is advocating intelligent deficit reduction?

Tom Emmer, The Baghdad Bob Of Minnesota Politics

Two Putt Tommy sinks it:

The departure point for the YouTube was this Grand Forks Herald editorial commentary:

If GOP candidate Tom Emmer loses the race for governor in Minnesota, it will be for one key reason: His utter – and utterly baffling – refusal to specify where he’d make his spending cuts in order to balance the state budget.

Day after day, week after week and now month after month, Emmer has dodged questions about how he’d close Minnesota’s $5.8 billion budget gap. His most recent dodge came during a debate Tuesday in Duluth, when he alternately pretended that the gap doesn’t exist or claimed it could be closed by Minnesota suddenly creating thousands of new jobs.

Frankly, those positions aren’t worthy of a major-party candidate. …

[…]

… Because when Emmer speaks on the budget, he sounds deeper in denial than Saddam Hussein’s famous spokesman, the one who kept insisting on Saddam’s genius and triumph even as coalition tanks rolled up outside his ministry’s door.

That’s perfect.

Sorry, Cons: Bush Still Owns The Deficit

As shown here:

Note that the stimulus and recovery spending portion (Obama’s part) is already shrinking rapidly, whereas the parts Bush gave us are still there and will start growing again soon.