Tuesday, March 24, 2009

Ten Trillion and Counting

Tonight on PBS' Frontline, a segment will be aired titled Ten Trillion and Counting. Here is one editorial review of the program (H/T Dave at Progress Ohio). If anyone out there is wondering why it pisses me off so much to only NOW hear GOPers talk about deficit spending as "generational theft" after 8 years of standing by and signing blank checks to George W. Bush, this program will illustrate why:

The makers of “Ten Trillion and Counting,” Tuesday’s “Frontline” onPBS, want to make really, really, really sure that you know that George W. Bush, not Barack Obama, put the country in the economic mess it’s in now. More than half the program is devoted to cataloging the Bush administration’s economic policies, which, as portrayed here, come across as appallingly reckless, a burden that will grind us down for generations to come.

Though it may be accurate, it’s an emphasis that is unfortunate for two reasons. One is that it leaves the smart-sounding commentators assembled here not much time to talk about what matters now: how we get out of the mire. The other is that it could cause anyone who still has any regard for Mr. Bush to tune out the program as just another exercise in Bush-bashing. This is a program everyone needs to watch if the search for solutions is ever going to get beyond the simplistic, accusatory catchphrases that sometimes seem to pass for economic-policy debate in Washington.

The title, of course, refers to the national debt, and the program does a fine job of spelling out just what a daunting situation Mr. Obama has inherited: the federal government was already borrowing huge amounts, and now, as the only entity big enough to revive the gasping economy, it has to borrow more.

There is a succinct history lesson on how the Republican “starve the beast” economic philosophy — if you keep taxes low, government spending will automatically be kept low for lack of money — ran off the rails. And then, the program says, Mr. Bush took things a step further by cutting taxes while starting a war.

“We borrowed money from China to give tax cuts to the best-off people in our society and leave our kids paying the bill for a war that we chose to fight,” says Matt Miller, a senior fellow at the Center for American Progress, a liberal-leaning research group. “That was really unprecedented.”

Perhaps Mr. Bush’s main economic failure, based on the evidence here, was that he did not use the attacks of 9/11 to call on Americans to sacrifice, as other wartime presidents had. Instead he expanded spending — on the Iraq war, on prescriptions for the aging — without a template of how to pay for it.

Now it is Mr. Obama who will have to make the case for sacrifice, though the Iraq war is winding down, and the one in Afghanistan is somewhat murky in the public mind. Good luck.

“It’s hard to sell a message of pain to Americans,” says David Wessel of The Wall Street Journal. “It’s hard to tell them that we have lived beyond our means and we’re going to have to spend less money on benefits that you enjoy, and we’re going to have to collect more taxes from you than we do now because we overpromised in the past. That’s a very hard message to deliver when unemployment is low and everybody’s feeling good. It’s an impossible message to deliver when people are frightened that they’re going to lose their houses, lose their jobs and their kids are going to be out of work.”

12 comments:

Jeff Lehner said...

Ah, Matt Miller. Another purveyor of the old canard about how we borrowed from China to finance the Bush tax cuts that just won't go away. Look it up. Revenues increased following the Bush tax cuts, as they did following the Clinton tax cuts. The Reagan tax cuts. The Kennedy tax cuts. And so forth.

Bush spent too much. We borrowed from China to finance a spending binge - one that President Obama continues to expand. That's where deficits come from. Cutting taxes stimulates growth and boosts revenue. It's called the Laffer Curve. Of course, one is entitled to his or her view on how much should be taken from upper-income earners and re-distributed. One is not entitled to his or her version of facts related to federal revenues over the last fifty-plus years. Numbers don't lie.

Links:

Taxes Are High Enough (Too High), We Have A Spending Problem

Art Laffer, Vindicated

Art Laffer, Vindicated (Part II)

Nick D said...

Hey Jeff, I had this argument with Tom Blumer back during the days of the Plain Dealer's "Wide Open" experiment.

Gregory Mankiw, who chaired President Bush's Council on Economic Advisors, admitted in 2007 that the revenue lost through tax cuts is not ever regained via increased economic growth.

Personally, I think the Laffer Curve is somewhat debatable. Don't you think that the economic growth had something to do with the increase in federal revenue? Correlation is not causality, as you know.

And if you are saying Bush spent too much, and since Bush's War in Iraq was the cause for much of that spending, would you agree that the War in Iraq was costly, unnecessary, and ultimately damaging to our country?

Jeff Lehner said...

I'm very skeptical that Mankiw said such a thing in the manner you describe. I read his stuff every day. Do you have a link for context?

Of course growth caused revenue increases. That's the point. One can assert that the Bush tax cuts did not stimulate sustainable growth. We debate these issues all the time, correlation is not causation, as you note. But one cannot assert that the Bush tax cuts yielded less revenue. The opposite is true.

Finally, Bush's war in Iraq = America's war in Iraq. Democrats voted for it and funded it. Democrats ran the Senate back in 2003, they have run the House and Senate since 2007. They could have cut off funding. They chose not to. The difference between Bush and Nancy Pelosi, Barack Obama, Harry Reid et al following the 2006 Democrat takeover of the House was rhetorical in that Congress kept funding the effort. And continues to this day.

On the Laffer Curve, I don't see what's so controversial about the concept in 2009. Every tax cut since Kennedy, as I wrote, supports the theory. And if higher taxes are NOT harmful to growth, why has President Obama chosen to delay implementation of the hikes he proposed during the campaign? Is this delay not tacit acknowledgment that lower tax rates on work and investment yield more robust growth?

Nick D said...

Jeff, I'm trying to find my argument with Blumer in the Plain Dealer's website. As for the rest:

But one cannot assert that the Bush tax cuts yielded less revenue. The opposite is true.

You can argue that revenues would have been even higher, and thus the deficit lower, without the tax cuts.

Democrats voted for it and funded it.
Come on Jeff. You know damn well that the use of force resolution passed in October 2002 a) required Bush to use diplomacy in good faith which he never did b) Was all but irrelevant since the White House was asserting the right to go to war without congressional approval (talk about the founding fathers weeping) and c) the whole thing was a face engineered by Karl Rove and the GOP as a way to paint Democrats as soft on terror.

Democrats ran the Senate back in 2003 Incorrect. The Dems had a 50-50 tie with the GOP from 2001-2002, but the GOP took over in 2003 with the gains from the 2002 midterms.

They could have cut off funding. They chose not to. It was and still is a political necessity to continue the funding Jeff, if only to allow for an orderly extrication of the troops.

What matters is, who blew the call that got us in this mess in the first place.

About the Laffer Curve Jeff, at what point do tax rates get to low to support optimum revenue? Would the GOP fight for tax hikes if they felt this was the case? Somehow I doubt it. It seems to me like the Laffer curve is a convenient intellectual crutch to be used by the "tea partiers" amongst us who look at the economic growth that followed the Reagan tax cuts and screamed "post hoc ergo propter hoc!" (after therefore because of it).

Nick D said...

Jeff, I just discovered that the Plain Dealer did not save the archives from Wide Open. Bummer. I will try to dig up that Mankiw quote via alternative means.

Jeff Lehner said...

"You can argue that revenues would have been even higher, and thus the deficit lower, without the tax cuts."

I can also argue that the sun wouldn't have risen today had I not eaten a steak Saturday night. A ridiculous example, but the point is that you're talking about a completely hypothetical situation. My point was that if revenues increased following the Bush tax cuts, it is inaccurate to blame deficits on the Bush tax cuts.

"The Dems had a 50-50 tie with the GOP from 2001-2002, but the GOP took over in 2003 with the gains from the 2002 midterms."

Jim Jeffords bolted GOP in May 2001, Democrats controlled Senate May 2001-January 2003. Iraq war vote held October 2002. Quote: "A joint resolution to authorize the use of United States Armed Forces against Iraq."

"You know damn well that the use of force resolution passed in October 2002 a) required Bush to use diplomacy in good faith which he never did b) Was all but irrelevant since the White House was asserting the right to go to war without congressional approval (talk about the founding fathers weeping) and c) the whole thing was a face engineered by Karl Rove and the GOP as a way to paint Democrats as soft on terror."

I don't know any of that. Democrats ran the Senate, presumably they held the vote because they wanted to. Tom Daschle ran the show back then, if they didn't want to, they wouldn't have.

"It was and still is a political necessity to continue the funding Jeff, if only to allow for an orderly extrication of the troops."

Yes. They chose not to cut off funding. Out of political necessity. Once they were responsible for prosecuting the war, they started singing a different tune than that which they sang when they had the luxury of just sitting around whining about stuff. Statesmen, all. But it seems your beef on the war funding issue should be with Democrats. They're the ones who broke the promises they made to you.

"About the Laffer Curve Jeff, at what point do tax rates get to low to support optimum revenue? Would the GOP fight for tax hikes if they felt this was the case? Somehow I doubt it. It seems to me like the Laffer curve is a convenient intellectual crutch..."

I go back once more to Kennedy, Reagan, Clinton, Bush cuts and their respective effects on federal revenues. Every time taxes have been cut since the 1960s, revenues have increased. At some point, tax cuts would generate less revenue, as the Laffer Curve indicates. History tells us we're still on the "wrong side" of the curve - that rates are too high, too growth-hampering to generate "maximum" revenue.

The larger philosophical question, of course, is why do we work in the first place? To fund government? Or to provide for ourselves? It is incredible that in a free country, there are people who pocket less than half of what they earn in a given year (local, state, federal income taxes, sales taxes, property taxes, excise taxes, cap gains, dividends, etc.). Even more incredible that there are those of us who believe these people should pay more, in my view.

A final note on the Bush tax cuts, blaming the Bush tax cuts for current economic problems presupposes that higher rates on capital gains and dividend taxes and a higher marginal income tax rate on would have incentivized more work and investment post-9/11 than the lower rates did. This makes no sense. Growth comes from profits, higher taxes=less profits. Blaming tax cuts for lower revenues and economic downturns is folly...

Nick D said...

I don't know any of that. Democrats ran the Senate, presumably they held the vote because they wanted to. Tom Daschle ran the show back then, if they didn't want to, they wouldn't have.
It's all true Jeff, refute it if you can. And Tom Daschle didn't run the show wholly, there was a power sharing agreement in place with the GOP because Jeffords didn't switch parties until after the session of Congress started. Bush was the one beating the war drums, Bush was the one who we know now began planning for war as soon as he got into office. Bush was the one who cynically used 9/11 to further his case for an irrelevant war. Let's lay blame where blame is due.

History tells us we're still on the "wrong side" of the curve - History Jeff? The Laffer Curve was invented in the 1980's to justify the "voodoo economics" of Ronald Reagaon.

This 2005 CBO report presents a more realistic view of the Laffer Curve. Beware its a rather large PDF file.

The larger philosophical question, of course, is why do we work in the first place? To fund government? Or to provide for ourselves? It is incredible that in a free country, there are people who pocket less than half of what they earn in a given year

Sorry Jeff I don't buy it. Our progressive income tax has the highest rate of 35% only on income earned over $357,000. Only the 357,001st dollar is taxed at 35%, income below that is taxed at various rates that stair step down.

We pay taxes to fund the government services we consume, as well as to programs that make our society prosperous as a whole. There is not a single Western democracy that does not have some form of redistriubtive mechanisms. Not one. In fact most are much more generous the we are. What you call socialism, I call a signal of a well-functioning democracy.

Tudor said...

We pay taxes to fund the government services we consume,

No, we pay taxes to fund the government services that get shoved down our throats, such as enough military hardware to destroy the earth thrice over, a non-electable pension system that is doomed to failure, and a social welfare system that rewards incompetence like so many corporate bailouts.

as well as to programs that make our society prosperous as a whole.

And no price is too high for "the greater good", damn those bothersome property rights.

There is not a single Western democracy that does not have some form of redistriubtive mechanisms. Not one. In fact most are much more generous the we are.

Do I detect a hint of jealousy? Yeah - we may be thieves, but, damn, those Europeans are GOOD. Never mind that nearly every European social welfare state has a lower standard of living than the U.S., and is headed toward oblivion, as they they fail to make enough future taxpayers, er, I mean babies, to support all those old folks.

Can you say "inter-generational conflict"?

What you call socialism, I call a signal of a well-functioning democracy.

And when we pass that point when the net recipients outnumber the net payers, what then? I suspect that the democracy won't function so well.

Jeff Lehner said...

Agree w/ Tudorman above. Plus:

CNN (2001):

"Sen. James Jeffords of Vermont left the Republican Party as expected Thursday, becoming an independent and throwing control of the Senate to the Democratic Party for the first time since 1994."

Facts are facts.

Plus, the Laffer Curve wasn't "invented" to "justify" the "voodoo economics" of Ronald Reagan. A group of economists, led by Laffer, went to Reagan and said essentially "Historical data indicates that if you cut marginal tax rates, revenues will increase and the economy will grow." So Reagan did it. And it worked. And it's worked since...

Nick D said...

Hi Jeff, did you read the CBO report? And you still haven't refuted the claim that the October 2002 vote was a political stunt engineered by Karl Rove to paint the Democrats as soft on terror a month before the 2002 midterms. Therefore it is accepted as fact. You also have not refuted the fact that there was a power sharing agreement in place with the GOP because Jeffords' switch happened after the start of the session. That's accepted as fact, too.

Tudorman, pray tell, by what measure does Europe have a lower standard of living than we do? I can't find one. They have a longer life expectancy, less pollution, lower gini coefficient, etc. The following Eurpoean countries have higher per capita GDP than the United States, according to the IMF: Norway, Denmark, Ireland, Sweden, Finland, the Netherlands, Austria, Belgium, and France. Canada does as well, and Germany and the U.K. are just behind the U.S.

Also, Tudorman, this isn't just Europe. I dare you to find me a functioning democracy anywhere on the globe that does not have redistributive mechanisms. Just one. Good luck finding one.

Good luck also finding an economy that functions well without a prosperous middle class. Or is everyone (except the top 20%) who hasn't gotten a raise since 1975 incompetent? Hmm. Seems more likely to me like our economic policies are skewed to get the rich richer at the expense of everyone else...

Jeff Lehner said...

Nick,

This is what cracks me up. You invent your own facts when facts that exist aren't as Democrat-friendly as you want them to be.

Jeffords switched in May 2001. On June 6, 2001 a vote was held to re-organize the Senate. Check out Daschle's bio page at Congress' website:

"...minority leader (1995-June 6, 2001; 2003-2005); majority leader (June 6, 2001-January 3, 2003)"

Majority leaders run the show in the U.S. Senate. I know it's convenient to make Karl Rove out to be some kind of evil genius, but the Iraq vote was held because Daschle wanted it to be held.

I looked at the CBO report. It was a projection. I'm talking about hard facts that are supported by historical events. Economic facts are not the same as economic forecasts.

Nick D said...

Jeff, the trouble is those "hard facts" aren't as hard as you make them out to be. There are plenty of other plausible reasons for the economic growth that happened following the Reagan tax cuts. You are saying "Post Hoc Ergo Propter Hoc" and calling it a hard fact when its not.

Now I am off to do be productive for the rest of the afternoon.