Congress and Detroit: Look in the Mirror
December 4th, 2008 . by economistmomLast week I pondered whether those of us inside the DC Beltway (aka 495) were being too hard on the auto industry. In today’s Washington Post, the editorial board doesn’t seem to think so:
[I]f the Big Three and the UAW are to have any chance of survival, there is no alternative to a swift and far-reaching overhaul of their business. Congress must continue to insist on one.
…and my boss, the Concord Coalition’s executive director Bob Bixby (in his op-ed column “Congress in a Glass House”), also doesn’t necessarily think so, although Bob does think it a bit ironic that it’s largely Congress that’s berating the auto execs about the mismanagement of their fiscal affairs:
After hearings last month to consider the plight of the Big Three automakers, Congress’s warning was clear: no plan, no bailout. It was a tough-love message, but it rang a bit hollow coming from lawmakers who have no plan of their own to avoid a fiscal debacle that could be many times more serious than anything the automakers face…
[I]t is worth asking what might be demanded of Congress by a special guardian appointed to safeguard the interests of today’s youth. A good place to start is the letter written to the automakers by House Speaker Nancy Pelosi and Senate Majority Leader Harry M. Reid…
These sound conditions [described in the Pelosi-Reid letter to the automakers] should be applied to the federal budget as well. Unfortunately, though, there is no special guardian of future generations to make such demands. That job belongs to our elected leaders. They, too, must demonstrate significant sacrifices and major changes to their way of doing business. After all, they share responsibility for the nation’s future just as the Big Three executives share responsibility for the future of the auto industry…
Taxpayers are getting fed up (and truly worried) of hearing of hundreds of billions of dollars in federal money being pumped out to an ever-expanding set of industries–where will it end, we ask? But let’s remember that most of this doesn’t automatically translate into higher taxes for current taxpayers anyway. Most of this cost translates immediately into a higher public debt, which translates eventually into higher taxes, lower government services, and a reduced standard of living for future taxpayers (our kids and grandkids). And the federal government was already over-extended and over-committed way beyond the increment we’re currently adding to the debt due to all this “rescuing” we’re doing. That’s the sense in which it’s ironic that Congress (and the federal government in general) is scolding the automakers for asking for federal money and imposing those burdens on (future) taxpayers.
For sure, a lot of this rescuing is necessary, and the deficit will be very high for the next couple years. But acknowledging the need for deficit spending as stimulus doesn’t justify ignoring the ultimate budget constraints and acting as if we need not count costs relative to benefits. Fiscal responsibility in a broader sense matters more than ever, which in the context of stimulus means avoiding “throwing the money out the window” and more carefully considering where we can get maximum economic bang per buck. Because each of those bucks is very precious, and the cost of each of them is actually many times a buck because of that nasty thing (for debtors) called compound interest.
See my colleague Jon DeWald’s excellent post on this point (why “fiscal responsibility” is not contradictory to short-term deficit-financed stimulus), on Concord’s “TABulation” blog.
Now, I’m off to Detroit… on an airplane!
Really looking in the mirror would require politicians owning up to the Federal government’s bizarre steps taken to (if not destroy) hamstring GM over several decades. Beginning with the labor legislation heavily weighted in favor of unions like the UAW, which ended up with the legacy costs currently dragging down the Big 3.
Then the 1947 anti-trust actions over the trivial matter of GM’s sales of buses to mass transit companies. The Justice Dept’s continued monitoring of GM’s market share in the 50s, with the threat of breaking the company up if it exceeded 50%.
Adopting in the 1960s much of Ralph Nader’s socialist agenda requiring auto mfgrs. to build the kinds of cars he liked, as opposed to those customers wanted–which created the opening for the Japanese invasion in the 70s.
The indulgence of the preposterous conspiracy ravings of John Kerry’s Yale debating team partner, Bradford Snell–still actively pursuing his Ahab and the Great White Whale jihad to the far ends of the world apparently (if this 2006 blogpost is true):
http://markmaynard.com/index.php/2006/06/20/branford_snell_g_m_in_china_the_conspira
Yeah, by all means, let’s look in the mirror everyone.
Last week I pondered whether those of us inside the DC Beltway (aka 495) were being too hard on the auto industry. In today’s Washington Post, the editorial board doesn’t seem to think so:
…and my boss, the Concord Coalition’s executive director Bob Bixby (in his op-ed column “Congress in a Glass House”), also doesn’t necessarily think so, although Bob does think it a bit ironic that it’s largely Congress that’s berating the auto execs about the mismanagement of their fiscal affairs:
I agree. One can only hope that Congress will likewise apply this call for fiscal responsibility to the federal budget. Bixby mentions two assessments of the country’s fiscal position in the following excerpt from his editorial:
Congress will soon receive two reports that could be used to set the stage for reform. If lawmakers want a “documented assessment” of the nation’s “current operating cash position,” they should read the Treasury Department’s Financial Report of the United States Government, due to be released in mid-December. This often-overlooked annual report details the extent to which the federal government is falling short of meeting the financing needs associated with the nation’s long-term fiscal health. Last year’s report found that promised Medicare benefits over the next 75 years will exceed dedicated revenue and premiums by $34.1 trillion in net present value. The corresponding Social Security shortfall was $6.7 trillion.
If lawmakers want to assess fiscal policy under “varying assumptions,” they can review the annual Congressional Budget Office report on the government’s long-term fiscal outlook, also due to be released in mid-December. Last year’s CBO report found that even under an “extended baseline” scenario in which spending is constrained and the Bush tax cuts are allowed to expire, annual deficits will reach nearly 20 percent of gross domestic product by 2082. In contrast, this year’s “record” deficit will be around 7 percent of GDP. Under an “alternative fiscal scenario,” which more closely reflects recent policy, the outlook is considerably worse. Deficits are likely to exceed 20 percent of GDP by 2050.
Both assessments have their advantages. One advantage of the Financial Report of the United States Government is that it uses accrual-based accounting as opposed the the cash-based accounting used by the U.S. Budget and most other documents. This shows that our financial outlook has serious problems regardless of which type of accounting is used.
One disadvantage might be that it is a little difficult to wrap one’s mind around the $34.1 trillion and $6.7 trillion figures mentioned in the Financial Report. I studied and wrote on the report in my June 16th and 23rd posts at this link largely so that I could gain a better understanding of the numbers. In any event, it gives a good idea of the relative size of the Medicare shortfall versus the Social Security shortfall. Over the next 75 years the Medicare problem is about 5 times as great.
As Bixby mentions, a major advantage of the CBO report is that it makes projections under varying assumptions. Most official government projections currently use a number of gimmicks to make the fiscal outlook look better. First of all, they assume that all of the tax cuts will expire on schedule in 2011 as is currently mandated by law. Secondly, they assume that the relief from the AMT (Alternate Minimum Tax) will NOT be extended and that it will extend further and further into the middle class. Thirdly, they make very optimistic projections regarding the future cost of our involvement in Iraq and Afghanistan. Many make other questionable assumptions, such as that revenues will grow faster or outlays will grow slower than they have in recent years. The CBO projections are usually made using the official baseline but also using arguably more realistic assumptions. This makes it possible to better see the range of possible outcomes and what types of changes are required to achieve the more favorable outcomes.