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.
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