The debt limit compromise
If you look at today’s Memeorandum page, you’ll see that the debt ceiling compromise story totally dominates the news.
Most of the articles are of the “who won?” variety (even though the vote hasn’t occurred yet, everyone’s assuming it will pass). No need to link to them; just look at the page yourself and start clicking, if you’re interested. Most of them seem to think that the winners were the Republicans and the Tea Party. But I think most on the right would agree, instead, with commenter “J.J.,” who wrote here:
This deal does nothing about the spending problem. Just puts a bit of lipstick on the pig. Or as some might say ”“ kicks the can down the road. This is what I expected.
It’s hard to see that anyone “won,” especially if America’s credit might be downgraded anyway (see also this). The prolonged negotiations involved in making this especially stinky variety of sausage may have further shaken creditors’ already-waning faith in America’s ability and willingness to pay its bills.
The Tea Party wanted far deeper cuts than this. Liberals, the left, and Obama wanted tax hikes. And the public didn’t want the process of “negotiations” to go on this long, although politicians had reasons for believing the pressure involved in a down-to-the-wire dickering to be strategically advantageous.
This is just a first baby step. More must be done. What might it be?
I will go out on a small limb here and say that there’s nothing all that wrong (and even a few things right) with some manageable amount of deficit spending by the federal government. It’s the magnitude it has reached in the last few years that has become untenable and unsustainable, especially when projected only a short time into the future.
Somehow, and soon, entitlements must be reined in, or taxes raised, or both. There is no other way out. To accomplish these feats without undue hardship, and in an effective manner—to trim entitlements without harming people who have relied on them and paid into the system, and to do so for the next generations as well, and to raise taxes in a manner that doesn’t burden business and harm the recovery, and which actually takes in the amount of revenue needed rather than causing the overly-taxed to flee and/or become less productive—takes skill and wisdom that I’m afraid members of Congress do not possess (actually, I’m not sure who does).
So let’s not pretend it’s easy, although I defer to none in my contempt for Congress as a whole. But balancing (or at least getting into better balance) the budget of the federal government is nothing like balancing the budget of a household. Politicians must get elected and listen to the cries of constituents who want what they want when they want it. And cutting spending in the midst of an attempt to recover from a recession has its own dangers; it has the potential to put a damper on the economy itself.
It does no good to pretend that these problems don’t exist, and that solutions are simple. If the law of unintended consequences is any guide (and it usually is), any attempt to solve the problem will not go exactly as planned.
That doesn’t mean we shouldn’t try. Congress is going to have to tackle this, for real. This is what is contemplated:
Both Republicans and Democrats have proposed drumming up a committee of 12 legislators, handpicked by both parties, to deal with the most complicated issues involved in a likely debt-ceiling compromise. It will be up to this “super committee’’ to complete the epic task of cutting $2.8 trillion in spending from the federal budget.
According to the agreement reached yesterday, committee members would have only until the end of November to complete the job, and when they approve a final set of cuts, the rest of Congress would be given a simple choice: take them or leave them.
The first step in the process would take place immediately: raising the debt limit by nearly $1 trillion and cutting spending by a slightly larger amount over a decade.
That would be followed by creation of the super committee to recommend an additional $1.8 trillion or more in deficit cuts, targeting benefit programs such as Medicare, Medicaid, and Social Security or overhauling the tax code.
Best of luck. As the article points out, the committee will be tasked to do what Congress couldn’t, and there’s no indication it would do any better.
The problem is not just that Democrats are stupid and Republicans are mean, or vice versa, or both—although in some cases that may indeed be true. The real problem is that the problems are real, and the disagreements are real, and that predicting what the economy will do as a result of government intervention is an iffy task. But doing nothing is not a viable option.
There was an animated introduction to a classic English film of the 1950’s but the title escapes me. In it it showed how cartoon images of bowler hatted civil servants were supported by a burly English workman. It started out with only a fraction of a civil servant to each worker but rapidly multiplied until in the end the workman was crushed.
That remains the case, but now the government transfer payments to individuals have grown and grown. The same concept of a few paying in to a horde being paid applies. The Democrats know this but since they have no alternative vision are content to play games. To come to an alternative vision would require that they become NeoCons!
Neo says, “Somehow, and soon, entitlements must be reined in, or taxes raised, or both. There is no other way out….But doing nothing is not a viable option.”
You bring it up, Neo, so what is it you think should be done?
And who besides Paul Ryan will bring something serious to the table? The appalling absurdities played out by Boehner, Reid, McConnell, Obama and the CBO this past week leave me gasping. They have essentially done nothing. End result, “The best we could hope for,” is an immediate TRILLION dollar debt ceiling increase, with every expenditure can kicked down the road; absurd, distorting, and misinforming CBO “scoring”.
It just goes on and on and on. And will end badly, very badly, with that badness to be with us for a long, long time.
I know that no one is satisfied with the alleged agreement. On the other hand, I do think that progress is being made and should be acknowledged. At the same time it should be acknowledged that this is going to be a long, a life-long, struggle. Those who are representing us should be encouraged to stay engaged.
I said as much to Limbaugh in an email this morning. I have dubbed him the new C-in-C, ie Carper-in-Chief. I suggested that instead of continually slamming the GOP leadership, he acknowledge what they have done in completely changing the narrative; and explain to the people the work that still needs to be done. At the same time he should explain that it will not happen immediately. Persistence and patience is the key.
Obama recently commented that he would like to (sic) “just do things on his own”. We are so glad that he can’t. Conversely, our guys can’t either.
If you want to limit debt to a % of GDP, and if GDP grows by 3%/yr, then a deficit of 2% of GDP isn’t too scary.
Today I turn 65, and so I’m very interested in Medicare. I am not allowed to opt out. What confronts me first is the price control that Medicare imposes, which means that no doctors want to continue to have me as a patient.
So, we need some way to address the total cost of Medicare, yet not force the price of care below the cost of care. I haven’t heard a better proposal than Paul Ryan’s vouchers for private insurance. That way I would be allowed to put more of my own money to pay for some of this.
The “Deal” is a POS. Cuts spread over 10 years, are basically no cuts at all. And now I see the super committee could raise taxes. But if those on the left are also upset then this is probably the best that could be done now.
If the GOP can get hold of congress, and by miracles of miracles, the WH in 2012, then maybe things will change. With the Dems in charge of the Senate and the WH, there’s not a whole lot that can be done. If the GOP does succeed in 2012, they must then go full out on repeal of the healthcare bill, major cuts in spending immediately, etc, IF they don’t, then I say it’s pitchforks and torches time in the US.
I give the GOP two years from now to show something. If BHO is still in office in 2013, then all bets are off on what happens in the US… second revolution??
“Somehow, and soon, entitlements must be reined in, or taxes raised, or both. There is no other way out. ”
Well, actually there is but it involves guns, explosives, civil war, etc. so you probably won’t be seeing it anytime before money becomes utterly worthless.
The fact that they were able to get the Senate to be a popular vote, and the fact that only 1/3rd of the Senate is ever up for re-election at a time, may have been the Left’s single master stroke that will lead to our decapitation and evisceration.
Do you see the strategy? Do you see the long term effects that had? At the time, it was nothing. A fluff piece. So what, Senators can now be popularly voted? How does that matter?
Well…
If a state refuses to provide the income tax to the federal government, that is de facto secession.
But it can also be used as a club, because it’s not legal secession yet. As a negotiation trick.
Since the Dems now talk about increasing revenues rather than raising taxes, why not have Obama instruct his EPA people to get the Gulf oil drillers back to work? How about telling him to stop identifying new enemy groups every month, to say nothing of his hare-brained schemes like high-speed passenger trains? Maybe if people thought they could count on a sensible adult making policies that were dependent on something other than the side of the bed POTUS woke up on, businesses would be able to plan investments and hire. The last I heard, employed workers do more for revenues than foodstamp recipients.
Entitlement cuts can also be made in a way that people can plan for them. Local communities can come up with programs (including volunteer) to aid those who really can’t make it, and they can probably do this in a way that preserves the dignity of the needy.
I agree that the compromise is a only a first step, but the things that are wrong with our finances are much broader than just our spending levels. We have spent decades training people to be victims when most could be productive and valued members of society. This has to stop.
A guest ob Bill Bennet’s show this morning said the following (paraphrase): If every time we raise the debt limit there must be a decrease in spending equal to or greater than the increase, there will be a balanced budget in 10 years.
If that is true this dealmis a huge win, even a game-changer.
I’ll see if I can find the person and why he said that.
The players realize that the math absolutely dictates an increase in the retirement age ASAP.
France has already taken that step.
Even Greece has been forced into lifting their absurdly low retirement triggers.
Each additional year of paying in is mated with a year of not getting the payout.
The economic parasitism of DC is vast.
0bombaCare increases the bleeding to the point of crushing Wage-Profits.
Wage-Profits are monies made as a direct consequence of hiring on labor.
The Cost-Plus contract of WWII fame was the acme of Wage-Profit generation.
By making labor king — employment collapsed overnight.
—–
Payroll wages hide labor earnings that ride ‘above-the-line.’
These are the ’employer paid benefits’ that go with the paid wages. In economic fact, they are the employee’s own earnings — which the tax man grabs before they even hit the pay stub.
The wage-slave must earn all of these monies or he is not generating any Wage-Profits — and must be laid off/ fired.
The typical $10.00 per hour job has an additional $3.00 in exactions — meaning that it’s really a $13 per hour job.
It’s just that income taxes will not be levied against the top $3.00 of employee earnings.
It then works out that big government has spent upwards of 45% of a wage-slaves true income before he can even cash his check.
——
The USD is international money — and the reserve base for virtually all other economies. ( Red China )
By hyperinflating the currency, the Wan and Congress are shifting our tax burden onto alien lands. This is ramping to such a scale that we are going to destroy the financial world.
The ramping cash positions held by corporate America are actually losing ground against the real world. The cost of our economic inputs is massively out stripping us.
0bomba is making most of the population, the unleveraged class, very much poorer.
Thusly, NAMs are getting absolutely hammered.
I told my sister a couple of months ago that when the markets finally start to puke, especially when treasury yields really spike, then the politicians will finally act in a serious and dramatic way. Until then it’s smoke and mirrors. But it will take a real, genuine crisis, not this phony one manufactured by the Democrats who stalled and ran out the clock refusing to put anything on the table until the drop dead minute.
Found it. Marc Theissen in today’s Wapo:
“Now comes that hard part: accepting an incomplete victory. Some Tea Party Republicans will be unhappy with the deal because it does not include a balanced budget amendment to the Constitution. The fight for a balanced budget amendment must go on. But Tea Partyers should recognize just how much Obama and the Democrats caved: $2 trillion in spending cuts. No tax increases. A new precedent that debt-limit hikes must be accompanied by equal or greater cuts in spending. And the potential for a balanced budget in 10 years. That the Tea Party accomplished all this in just six months – at a time when the GOP controls one-half of one-third of the federal government – is remarkable.”
Let’s do some arithmetic: $2T is 13.8% of the total $14.5T that we owe. Spread that over 10 years, and it’s 1.4% per year. And how much are we adding per year??
I had a radio on a cuppla nights ago, listening to an economist. I did not at all see that this fellow was R or D partisan, or in any way “progressive” or a leftie or a rightie. He struck me as a straight-arrow economist with no axe to grind — but buyer beware, I may be mistaken in my estimation of him.
Anyway . . .
He remarked that were it not for the fact that the American dollar persists as the world’s reserve currency (at least for now), we’d all be Greece. Already.
Sobering.
Oldflyer counsels, “he (Rush Limbaugh) should explain that it will not happen immediately. Persistence and patience is the key.”
That was what GWB tried re SocSec in 2005, six-count ’em-six years ago, remember? And the Barneys and Harrys were vicious in their denials. Persistence and patience works for tortoises in fables, but in real life it should be painfully clear a trainwreck is coming, and braking slowly simply isn’t enough.
That it won’t happen immediately is a strawman argument. Jeez, we all know that.
A downgrade of American debt was/is probably inevitable regardless of what happened to the debt ceiling. Just as when a household’s debt-to-income ratio reaches a certain point triggers a hit to credit score, the too high a ratio calls into question the government’s ability to pay.
I also agree with physicsguy. The main problem is that this Congress/ Administration cannot obligate in a binding fashion any future Congress/ Administration to do anything. If, God forbid, the Dems control the WH and both houses of the next Congress, all the cuts now in prospect will be as elusive as Obama’s transcripts. The first offical Act of that Congress will be to gut this deal.
Going forward, we need to insist that any tax increases (“revenue enhancements?” Love the doublespeak) be joined at the hip with spending cuts. How to do this, I have no idea.
First of all, the “budget” is nothing more than a cash flow projection. Any half-way competent accountant could make the “balance” come out any way he or she wanted. And anybody who said his company was in great shape because his cash flow projection was “balanced” would be either a fool or a liar.
If you want to have a much more realistic understanding of the financial situation of the government, go to the Treasury Department website and look up the “Financial Statement of the United States.” (Please make sure to take your blood pressure medication beforehand. Some of you may need to have oxygen standing by.)
OB, we don’t need to insist that tax increases be joined at the hip to spending cuts. We need to insist that any tax increases be tied to 4 times as much spending cuts!
Well, the debt ceiling is raised; there are no real cuts but you can bet the spending is real. The tea party people are terrorists and Obama is taking credit.
The solution to the problem is two fold.
Step one: Freeze spending at 2010 levels for the next six years. Federal budgeting calls for a 7% increase in spending each year. The pols like to call any spending less than that a “CUT.” So, if you only raise spending by 5%, that is a cut in their eyes. Freezing spending levels at 2010 means that the Feds will have to prioritize where to spend their still plentiful dollars. It also means they will have to get a handle on the entitlements because they do grow with new people reaching 65 every year. It can be done – it just isn’t easy given that the pols (both dems and Repubs) are used to trying to fund every cockamamie thing that they can because it helps them get reelected.
Step two: This requires that Obama order the EPA, Interior Department, NLRB, OSHA, and Energy Department to ease off on their restrictions on oil and gas exploration, power plant operation, nuclear power plant construction, company’s abilities to open new operations, health and safety regulations that do little to improve health and safety, and give everyone an exemption from Obamacare. (Or repeal it – same difference.) Those actions by Obama would change the confidence of the business community for the better. What is slowing business and investment is a lack of confidence. Everyone is hunkering down or even “going GALT.” The economy is operating way below its potential.
Those two steps would rein in spending for real and get the economy moving again, which would bring more revenue to the government coffers. The bad old days would soon be forgotten.
The problem is, the dems will not, cannot do this. Because somebody might actually make some profits and that is a dirty word in their vocabulary. They will scream that the poor are suffering, but they don’t really care about the poor. If they did, they would do everything possible to enhance business growth. That is the only way to really help the poor, but they won’t do it.
“”We have spent decades training people to be victims when most could be productive and valued members of society.””
expat
Which translates into decades of training people to vote only goodies for themselves. What we have are hordes of people with major character flaws and the terrible economic situation is but a symptom.
Not quite a categorical syllogism, but it works for me.
Don’t compromise with liars.
Democrats and RINOs are liars.
Don’t compromise with Democrats and RINOs.
Bleeding less is not an indication of health. Sometimes it means the victim is running out of blood.
Doing nothing was not such a horrible option. Along with the maxim about not compromising with Ds and RINOs, always assume chicken little is wrong.
The immediate–although temporary–balanced budget that doing nothing would have created would strengthen the dollar and thereby lower commodity (energy) prices. Interest rates would rise maybe a half point. (Japan is three grades lower and their debt sells for 1.26% yield)
Learn from Minnesota. A three-week partial shutdown is merely an inconvenience, and highlights how much dead wood hides in bureaucracy. It would quickly reveal easy cuts.
But politics is about finance, not about economics. It is the game of what can we pay for, without regard to actual cost.
Every federal program has a constituency, and any attempt to make cuts is met with outrage. Programs that have been shown to be a waste of money (e.g., Head Start) must be continued to show appropriate sympathy for the poor.
When I was a kid I used to hear adults say that we needed a good Depression to straighten people out. We’re getting close.
http://www.americanthinker.com/blog/2011/08/we_the_stupid.html
The above AT link shows the strategy of Obama. Getting the extra 2 trillion, he will now spend it like he spent the Stimulus.
I worked Sunday just so I could listen to Rush Limbaugh today. You have to catch the opera lady singing. To the main point or Limbaugh’s point: Obama intends to claim, when the economy does not improve, that it was due to his “compromise” with the Republicans in that long hot summer of 2011. What we need is more cow bell (socialism).
Nice, huh?
Let’s just do what is right and believe, with Abraham Lincoln, that right makes might.
Shortest relief rally in history.
Ann Barnhardt nails it, as usual.
Interesting gal, that Barnhardt. Thanks, rickl.
Thanks for the link to AT & Barnhardt.
The Marxist Revolution has won except for the mopping up. There is no way to get rid of Obama and his lackeys without bloodshed: yet this will not restore the Republic because Americans falsely believe the Constitution failed; the Constitution was poison pilled.
JJ,
I agree, especially about #2. Of course Obama won’t do that, but the Reps need to keep asking why. The energy issue is one that can crack the complacency of lots of voters. Lefties have overplayed their hand on so many issues that it may take only one concrete example to start opening minds to see the ridiculousness of our overregulated country. I’m hoping for Generation 3 of neocons. This could do it:
http://pajamasmedia.com/blog/coping-with-obama-induced-irritation-syndrome-oiis-a-guide-for-the-perplexed/
Obama is only an extreme example of what people are starting to feel about our clueless elites.