Balkinization  

Wednesday, July 20, 2011

A fight to the finish

Sandy Levinson

I begin with the fact that the folks who participate in Intrade currently see only a 21% chance (!) of Congress approving a debt limit increase by July 31 and a 60% probability of approval by the end of August. This obviously runs contrary to the complacence of the market, which appears to believe that the Kabuki will come to an end with the capitulation of Eric Cantor and his troops to the obvious necessity to increase revenues along with cutting expenditures.

I've earlier noted how this is in large measure a fight over the willingness of congressional Republicans, who have painted themselves into a corner, to make President Obama's re-election a lock by capitulating on taxes and reinforcing the impression that he is the only adult in the room. At lunch today, though, a colleague suggested that the Republicians have also managed to create a situation where Obama will benefit from default, So right now, at least, it look like win-win for Obama.

So whose future, besides Obama's and Cantor's (and all of the feckless Republican presidential wannabes), is at stake in this fight that will seemingly go down to the wire (and, perhaps, over the cliff)? The clear answer seems to be Grover Norquist, correctly described by David Brooks as someone who "enforces rigid ultimatums that make governance, or even thinking, impossible.” If one were writing a latter-day Gilbert and Sullivan ditty about "people who would not be missed," Norquist would surely be a strong candidate to head the list. He is, I think, the conemporary versino of Wayne B. Wheeler. "Who was he?" you might well ask. The answer, as Daniel Okrent explains in his marvelous book on the 18th Amendment and its aftermath, Last Call, is "the brilliant tactician who dominated the Anti-Saloon League" and "was considered--by a critic--'the most masterful and powerful single individual in the Unied States,' who 'controlled six Congresses, dictated to two Presidents [and] held the balance of power in both Republican and Democratic parties." Norquist (and Rush Limbaugh) hae become the puppetmasters of the Republican Party (see also Brooks's comment on talk-show bloviators who don't have to worry about actually governing), and Democrats are so scared actually to defend the obvious necessity of tax increases that they have allowed Pope Grover to dominate the discussion. My hope is that he will one day be as obscure as Wayne B. Wheeler. It would be a good start if Tom Coburn, the first Republican senator to attack the Norquist papacy, will give strength to other members of his own party. But one must face the unhappy truth that Coburn may feel liberated by the fact that he isn't running for re-election and therefore doesn't have to put up with Pope Grover's denunciations as a "liar" and therefore deserving of excommunication from the Church of no new taxes--regardless of circumstances. (If any Catholics take umbrage at my reference to Pope Grover, I'm more than happy to analogize him to a Chassic rebbe whose followers are sheep-like followers or to Jim Jones, who organized his own odd-ball religion that led to his benighted followers drinking the Koolaid.)

In all circumstances, what one has to explain is how these individuals can establish themselves in such positions of dominance, given that they'v never received a single vote from a member of the electorate whose lives they are able to dominate. Norquist did see something in the zeitgeist that would support anti-tax fanaticism, and he has ridden it to the top. In any event, I would be shocked if he did not pull out all stops to send the country into default, given that this is an acid test of his ability to dominate the Republican Party. The next week or so will say a lot about the level of American political dysfunctionality and whether we are indeed going over the cliff into "ungovernability."

Comments:

The deficit problem is completely an overspending problem. Since the last balanced budget in 2000, the Bush and Obama administrations increased annual spending by over $2 trillion dollars, exceeding the current $1.8 trillion dollar deficit by over $200 billion.

The GOP is proposing a wholly insufficient plan to reverse just $270 million of that $2 trillion spending spree.

Demonizing Grover Norquist is not going to change the fact that there is no rational reason to raise taxes to preserve a dime of that overspending.
 

Although I do indeed despise Norquist, I'm not "demonizing" him; I'm simply offering a political analysis about why his political future is at stake and why is likely to pull out all stops, regardless of the consequences to the country (or, for that matter, to the Republican Party).
 

A delay of a month or two raising the debt ceiling would be a severe problem for the economy and the markets. On the economy side the 10% reduction in GDP speaks for itself. On the market side it would leave $110 billion or so with no 'safe' home and God only knows where it would go. Then when the cap is raised the Treasury would flood the markets with a stream of gigantic auctions which would overwhelm the markets and likely cause a liquidity crisis.

On the other hand this scenario would would create a stupendous trading opportunity. The almost certain rally the day the cap is raised would be a tremendous shorting opportunity.aireing
 

The influence of people like Limbaugh and Norquist isn't all that puzzling. It's a consequence of public choice theory and rational ignorance.

Per public choice theory, while politicians get elected by promising their base to pursue their base's priorities, once elected they pursue their own, instead. They then rely on rational ignorance to prevent the base from realizing this and ousting them.

However, the resulting gap between political promises and action provides anyone who both is aware of the gap, and good at communicating about it to their base, a great deal of leverage. The can (Selectively, of course; There'd be no leverage in doing it uniformly.) seriously hurt the politician by accurately communicating to the base the fact that they've been betrayed. And the politician has no effective defense, because they really HAVE betrayed their base.

It's rather like any other kind of broker profits off of the ignorance of others: By remedying it.

In short, Norquist has power only because politicians are cheating the people they encourage to vote for them with false promises. An honest politician has nothing to fear.

Which is why they terrify practically everyone in Washington...
 

the obvious necessity to increase revenues along with cutting expenditures

What is obviously necessary economically is that taxes be decreased (especially on grossly overtaxed working people), along with raising government expenditures. The problem with the deficit is that it is too small, not too big.

And of course the (good, but not good enough) deficit is caused by the collapse in revenues since the GFC and automatic stabilizers, not any wild new spending, except a slight increase on wars.

If you really wanted to make the deficit smaller, the place to do it would be taxing the rich like the good old postwar days. But the point of this would be to take money away from them, and increase the demand for and value of the dollar, not to "get revenue" for the government, or decrease the deficit.

Balanced budgets and surpluses are unsustainable, not deficits, which are the normal state of any monetary economy. Without government deficits, there would be no money.

People pointlessly worry all the time about the safe, friendly, small public deficits - and never even think of what Hyman Minsky called the private deficit (or surplus) - the unstable, usually much bigger expansion (or contraction) of private credit money, which has exactly the same economic effect.
 

Brett:

However, the resulting gap between political promises and action provides anyone who both is aware of the gap, and good at communicating about it to their base, a great deal of leverage. The can (Selectively, of course; There'd be no leverage in doing it uniformly.) seriously hurt the politician by accurately communicating to the base the fact that they've been betrayed. And the politician has no effective defense, because they really HAVE betrayed their base...

In short, Norquist has power only because politicians are cheating the people they encourage to vote for them with false promises. An honest politician has nothing to fear.


In sum, the GOP center right coalition does not want to raise taxes and Norquist makes a living making reminding GOP politicians of that fact.
 

"The deficit problem is completely an overspending problem. Since the last balanced budget in 2000, the Bush and Obama administrations increased annual spending by over $2 trillion dollars, exceeding the current $1.8 trillion dollar deficit by over $200 billion."

It would be just as accurate to say 'the deficit problem is completely an under-taxing problem. Since the last balanced budget in 2000, the Bush and Obama administrations decreased tax revenues by $2.5 trillion.'

It would also be irrelevant, as the current debate is not about a budget (that comes later, and if the GOP wants to make a case for cutting spending that's there chance -- they control the House, after all) but whether or not we should raise the debt limit to cover the money ALREADY SPENT. That's simply not a legitimate or responsible debate, and holding the good faith and credit of the United States hostage in order to win a political policy fight is dishonorable, disreputable and unpatriotic. One can only imagine what the reaction would be if a faction on the Left used similar tactics to, say, end the war in Iraq.
 

"but whether or not we should raise the debt limit to cover the money ALREADY SPENT."

Nope, flat out wrong. If I say to my wife, "Hey, let's have prime rib for my birthday next week.", and on Sunday I'm doing the checkbook and find the balance is critically low, the money for that prime rib isn't "already spent" just because we already made a decision to spend it some time down the line. We can undecide to spend it, and grill some burgers instead. In fact, we did.

Money that's "already spent" we'd have had to have already borrowed. There's a huge difference between "already spent", and "already decided to spend.
 

To Brett: "Hamburg?" "Bah, Humbug." Simple economics at the family level is a tad different from a nation of over 300 million. That's simpleton economics.

To get some perspective other than the slanting simplicities of both Brett and our yodeler, check out E. J. Dionne's column in the WaPo: "GOP leaders must free themselves from the Tea Party grip."
 

Brett's barbeque analogy isn't quite right. For the most part, the money was not only allocated (as in his example), but contracted (which in his case it wasn't).
 

Seth Owen said...

BD: "The deficit problem is completely an overspending problem. Since the last balanced budget in 2000, the Bush and Obama administrations increased annual spending by over $2 trillion dollars, exceeding the current $1.8 trillion dollar deficit by over $200 billion."

It would be just as accurate to say 'the deficit problem is completely an under-taxing problem. Since the last balanced budget in 2000, the Bush and Obama administrations decreased tax revenues by $2.5 trillion.'


Despite the current massive unemployment, the government is taking in more tax revenues now than in 2000. As for the 2003 Bush tax reforms, please note the skyrocketing increase in tax revenues between that reform and the collapse of the subprime home mortgage market.

http://en.wikipedia.org/wiki/File:U.S.-income-taxes-out-of-total-taxes.JPG

Once again, the problem is overspending.
 

USGovernmentRevenue.com provides and even better breakdown of revenue.

http://www.usgovernmentrevenue.com/numbers
 

@Bart,

There is no logic/chart/table that you can provide to prove your assertion that the US government is overspending. This is a value judgement, and your take on the matter exposes your values to a great extent.

Perhaps in Woodland Park things are going well, but in much of the US, things aren't so great and people have trouble paying their bills, obtaining healthcare or getting an education without incurring tremendous debt. These are real effects of government policies.

Perhaps you're OK with these outcomes. I'm not. There is no evidence that decreasing government spending or lowering taxes by themselves will change these situations.
 

Mr. Bell is absolutely right. "Underspending" or "overspending" are not empirical terms, but, rather, assertions of value judgments. The exception is when one can show, with precision, that relative to a specific goal, i.e., getting from New York to Chicago, one is paying far more than would need to be the case to accomplish the same objective.
 

"As for the 2003 Bush tax reforms, please note the skyrocketing increase in tax revenues "

Check the numbers for inflation and population growth
Bart.

You argue from ideology not facts. You want tax cuts and war.
 

According to the WP (http://www.washingtonpost.com/opinions/out-from-under-the-anti-tax-pledge/2011/07/20/gIQAoudbQI_story.html?hpid=z2), Norquist does not interpret his anti-tax pledge to prohibit expiration of the Bush tax cuts (as required by current law). This is a surprise to me, and I don't know what to make of it.

Current law includes not only the expiration of the Bush tax cuts but the AMT. If one takes this to be the baseline, then the debate is not over tax increases at all, but rather the size of the tax cuts.

I am sure everyone will draw their preferred conclusion from this information. My conclusion is that politics is 90 percent word choice, 10 percent actual thinking.
 

Andrew Bell said...

There is no logic/chart/table that you can provide to prove your assertion that the US government is overspending. This is a value judgement, and your take on the matter exposes your values to a great extent.

Fair enough. If you believe that the American people want to pay for the massive increase in spending since FY 2000, openly and honestly offer each increase in spending and/or new program with the tax increase you propose to pay for it.

Please note that if you seize all the wealth of the top 2% of earners, you could not come close to paying for this spending increase for a year and the folks you dispossessed would leave the nation thereafter.

To pay for EU style government, you have to dramatically increase the taxes on the middle class as does the EU. Let's see how that sells in an open and honest debate.

Perhaps in Woodland Park things are going well, but in much of the US, things aren't so great and people have trouble paying their bills, obtaining healthcare or getting an education without incurring tremendous debt. These are real effects of government policies.

I doubt you meant to write it that way, but I agree that the current stagnation is among "real effects of government policies."

FWIW, our mountain county is suffering from 11% unemployment. Until I gained market share in a diminished market because several competing attorneys either retired or went out of business, my firm was holding on by its fingernails.

We do not look to the government to bail us out. I and most other business people here donate to local charities to help our neighbors get by.
 

D. Ghirlandaio said...

BD: "As for the 2003 Bush tax reforms, please note the skyrocketing increase in tax revenues "

Check the numbers for inflation and population growth
Bart.


Inflation was almost non-existent between the Summer of 2003 and 2007 and population growth does not even begin to explain the double digit increase in government revenues after the tax reform.
 

@Bart,


I doubt you meant to write it that way, but I agree that the current stagnation is among "real effects of government policies."


I did indeed mean what I said. You just believe that the problem was that government was spending money that it didn't have or something like that, while I believe that the accounting of which you worry is a non-issue, and that government should use all the tools at its disposal to help make sure that you don't have to rely on the misfortune of others ("several competing attorneys either retired or went out of business") in order ensure that you can make a fair living for yourself and family.

The government isn't some evil entity out to get you - the government is you, me and all the others who make up this country. If we let the rich or powerful co-opt its public purpose, we should be embarrassed.

Best,
 

Our yodeler claimed per this:

"We do not look to the government to bail us out. I and most other business people here donate to local charities to help our neighbors get by."

how much in itemized deductions in 2010 going back to 2001?
 

Andrew said...

The government isn't some evil entity out to get you - the government is you, me and all the others who make up this country.

This is where I and the Founders fundamentally disagree with the you and the progressives and socialists.

The Declaration of Independence is based upon the assumption that the people and the government are two distinct entities, that the government's purpose is to serve the people and that the people reserve the right to abolish governments that decline to do so:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

Or as Tom Paine more pithily observed: ""Government, even in its best state, is but a necessary evil; in its worst state, an intolerable one."

Socialists and their cousins the progressives developed the theory that their style of government automatically represents the people and thus their policies were per se democratic.

Given the plurality to majority opposition to every major Obama policy apart from maybe bank regulation, the idea that "the government is you, me and all the others who make up this country" does not ring true.
 

"Inflation was almost non-existent between the Summer of 2003 and 2007 and population growth does not even begin to explain the double digit increase in government revenues after the tax reform."

Bullshit.

Added to the last link you didn't read: One
Two and again, from the past Three
 

Bart, you're so full of shit your eyes are brown
 

DG:

None of your links supports your claim that inflation and/or population growth accounted for the double digit revenue increases after the 2003 Bush tax reforms.

I have addressed your erroneous static model arguments before and repeating them will not change your mind now. You folks on the left will simply not accept the fact that using taxation to punish wealth creation leads to less wealth creation because it conflicts with your need to redistribute wealth through a progressive tax system. You accept taxation as a disincentive for a wide spectrum of disfavored acts from smoking to drinking sugary beverages, but not in wealth creation, because it does not fit within your world view.
 

Americans by a 2:1 margin tell CNN of all pollsters that they support Cut, Cap and Balance.

http://i2.cdn.turner.com/cnn/2011/images/07/21/rel11b.pdf

This is no time to go wobbly, GOP.
 

"You folks on the left will simply not accept the fact that using taxation to punish wealth creation"

Your "facts" are nonexistent.
-----
This is Bruce Bartlett, also quoting others:

Andrew Samwick, chief economist at the Council of Economic Advisers during George W. Bush’s first term, in a January 3, 2007 blog post:
“You know that the tax cuts have not fueled record revenues. You know what it takes to establish causality. You know that the first order effect of cutting taxes is to lower tax revenues. We all agree that the ultimate reduction in tax revenues can be less than this first order effect, because lower tax rates encourage greater economic activity and thus expand the tax base. No thoughtful person believes that this possible offset more than compensated for the first effect for these tax cuts. Not a single one. If I'm wrong, show me the evidence ... and tell me why the tax cuts were so small given their effects on revenues.”

Alan Viard, senior economist at Council of Economic Advisers during Bush’s first term, as quoted in the Washington Post on October 17, 2006:
“Federal revenue is lower today than it would have been without the tax cuts. There’s really no dispute among economists about that.”

Robert Carroll, deputy assistant secretary for tax analysis at the U.S. Treasury Department during Bush’s second term, as quoted in the Washington Post on October 17, 2006:
“As a matter of principle, we do not think tax cuts pay for themselves.”

Edward Lazear, chairman of the Council of Economic Advisers in Bush’s second term, in testimony before the Senate Budget Committee, September 28, 2006 (p. 11):
“Will the tax cuts pay for themselves? As a general rule, we do not think tax cuts pay for themselves. Certainly, the data presented above do not support this claim. Tax revenues in 2006 appear to have recovered to the level seen at this point in previous business cycles, but this does not make up for the lost revenue during 2003, 2004, and 2005. The tax cuts were a positive step and have contributed to the enhanced economic growth, additional jobs, higher real disposable income, and the low unemployment rates that we currently see today.”

At his Senate Finance Committee confirmation hearing on June 27, 2006, Bush’s nominee to be Secretary of the Treasury, Henry Paulson, was asked if he thought that tax cuts paid for themselves. He replied (p. 18):
“As a general rule, I do not believe that tax cuts pay for themselves.”

Your eye color remains as unchanged as your faith.
 

""The deficit problem is completely an overspending problem."

Well, no. The post WWII average is Federal Government revenues of over 17% of GDP. Currently they are near 14%. It is true the expenditure side is further out of kilter with the long term average around 20% of GDP and current spending near 25%. Still, "completely" is simply wrong.
 

To pay for EU style government, you have to dramatically increase the taxes on the middle class as does the EU. Let's see how that sells in an open and honest debate.

Actually the US isn't too far from the middle of the EU pack in dollars of govt revenue per capita at PPP. Unfortunately, we waste a lot of money on an oversized military prone to foriegn adventures and inefficient medical and educational sectors.
 

Our military may be oversized, but it is not prone to foreign adventures. Our politicians are prone to foreign adventures.
 

"Our politicians are prone to foreign adventures."

If that's all it is then the joint chiefs of staff and heads of various intelligence agencies should each request a massive budget cut.

I won't wait up.
 

Having an oversized military and being prone to foreign adventures go hand in hand. When you are holding a hammer everything looks like a nail.
 

"Brett's barbeque analogy isn't quite right. For the most part, the money was not only allocated (as in his example), but contracted (which in his case it wasn't)."

Isn't the other reason the analogy is off is that the same entity (the husband and wife) directed which spending to cut? With the debt cap, as I understand it, it's more like husband and wife told their servant "don't spend more than fifty dollars a week on groceries." Then later, they instructed him "on Monday, we'll have a steak ($30); on Tuesday we'll eat lentils ($5); on Wednesday we'll eat venison ($35) etc. Now go do the groceries."
 

Not sure if anyone is reading the comments thread here any more but I would add to my above analogy, another important directive the couple gave the servant -- it was "downstairs in the basement, there is a mint and few bars of platinum; feel free to make coins out of it, if you need to carry out our business. Those coins won't count against the $50/week expenditure limit."

The reason that's important is that if the usual practice in statutory interpretation is a presumption against implied repeals and you have to make all seemingly inconsistent laws consistent, the first two instructions ("don't spend more than $50/week) and ("we want steak, venison etc.") would probably be reconciled by having the servant buyer smaller steaks, venison etc. to keep the overall cost for dinner that week down.

But if you have the third directive "make some platinum coins as you feel like it," the best way to reconcile all three directives is quite different. By minting new coins, the servant can much more faithfully fulfill the mandate of the first two directives ("don't spend more than $50 a week, new platinum coins excepted" and "buy us $30 of venison and $30 of steak"), by going down to the basement and coining some platinum.

In other words, Obama may be legally required to use the platinum option. I don't think anyone has said that yet.
 

"Americans by a 2:1 margin tell CNN of all pollsters that they support Cut, Cap and Balance.

http://i2.cdn.turner.com/cnn/2011/images/07/21/rel11b.pdf

This is no time to go wobbly, GOP."

95% could support Cut, Cap, Balance and it still wouldn't pass. A balanced budget amendment would either encourage us to always be at war to get out of it or would make the government permanently and totally dysfunctional like California (I'm betting on the former; even if a formal declaration of war were required, I think we'd start seeing formal declarations of war against Libya and Iran, etc). Besides, I don't think the GOP REALLY wants it, either. Imagine if Ronald Reagan had to get a two-thirds supermajority of each house for every budget bill. Let's not even get into the second Bush administration.

The Democrats will never vote for that, and they shouldn't. Nor would they likely ever be willing to vote for essentially making every tax cut irreversable (requiring a two-thirds supermajority of both houses).

It would be less destructive to the country in the long run to balance the budget right now than to castrate the Federal government forever. Besides, it's beyond outrageous to hold the economy hostage to muck around with the constitution.
 

"n other words, Obama may be legally required to use the platinum option."

Not actually a bad plan, as long as you ditch the pretense that we don't know "bullion" coins aren't fiat currency.
 

The problem with the coin plan is:

1) Minting 2.7 trillion dollars worth of very high denomination platinum coins would have serious political and economic fallout. Especially since it would be through what's obviously a loophole in the law (Congress certainly never intended the law to be used this way, even though it would seem that the wording allows it).

2) If he did it as needed, there would be a strong push from Congress to amend that law to stop him, with effort to get enough Dems to break ranks to override a veto. Sticking by Obama's ability to make as much money as he wanted to out of thin air would not, I suspect, be a comfortable position for congressional dems.

It's still a better idea than letting the economy go to Hell. That's the biggest vote-loser of all, and it's doubtful even if Obama makes sure the House GOP gets most of the blame that it'll necessarily translate to the GOP presidential candidate. After all, reverse coattails are almost unknown (where congresscritters hurt the presidential candidate rather than the other way around).
 

Within a month or two the extension of debt limit would be a serious problem for the economy and markets. On the economic side of the 10% reduction in GDP is eloquent. Side of the market leaving $ 110 billion or more, with safe at home, and God knows where it went. Then, when the cap is raised Treasury flooding the markets with a huge current auctions overwhelm the market and could lead to a liquidity crisis.

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