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A Fiscal Commission in a Parallel Universe?

January 25th, 2010 . by economistmom

wizardofoztechnicolor

If our current policymakers can’t get it together, there’s a new effort to try it from the outside which begins today.  In a story in the New York Times, Jackie Calmes explains:

WASHINGTON — Just as President Obama and Congressional Democrats are trying to create a bipartisan commission on reducing the debt, some well-known former elected officials and veterans of past administrations are announcing their own task force on Monday, underscoring the mounting concern over the nation’s fiscal future.

The timing of the group’s formation is coincidental, organizers said. Yet the outside group, including prominent Democrats and Republicans, could provide pressure and political cover for the parallel effort by the administration and Congressional leaders to consider both unpopular spending cuts and tax increases.

The blue-ribbon group of 18 to 20 members will be led by Pete V. Domenici, a Republican former senator from New Mexico who for years was the chairman of the Senate Budget Committee, and Alice Rivlin, a Democrat and former budget director for both Congress and President Bill Clinton who is also a former vice chairwoman of the Federal Reserve.

Their goal is to, by December, give Congress and Mr. Obama a multiyear plan to raise tax revenues and pare spending, especially for the Medicare and Medicaid programs, which are the biggest factors driving the projections of future high deficits, Mr. Domenici and Ms. Rivlin said in a joint interview…

I’ll be attending the group’s unveiling this morning, so more later.  It’s going to be a very busy week this week–the start of “budget season,” with CBO’s outlook report coming out tomorrow and the State of the Union speech on Wednesday, on top of the debt limit (plus amendments) vote.

[**UPDATE 11:30 pm:  check out the video of the Bipartisan Policy Center event on this page, and in particular Senator Domenici's remarks about how "everything is on the table" (including very specifically TAXES) at 23:46, and the NY Times' Jackie Calmes' question (and the Senator's and Alice Rivlin's responses) at 41:45.  I will be revisiting these points later this week, for sure.**]

3 Responses to “A Fiscal Commission in a Parallel Universe?”

  1. comment number 1 by: Brooks

    oops, I think I included three links in my comment, and the spam filter may have junked it. Most of it I have and can paste again below, and I’ll try to recreate the rest.

    An outside commission would work best parallel to (concurrent with) a Congressional commission rather than preceding the establishment of a Congressional commission (or in lieu of one). If an outside commission recommends particular tax increases and particular reductions in projected spending, it will be harder to then establish a Congressional commission because members of Congress (and the president) who support it will face pointed questions about whether or not they support the particular tax increases and reductions in projected spending recommended by the outside commission, and many will say that support of a Congressional commission implies support of those recommendations or at least something similar. That situation will be a political loser (vis a vis chances at re-election next time around) and thus will inhibit support for a Congressional commission and make it even harder to establish than it is today.

    On a tangential note, in a blog post today Paul Krugman laments that Geithner is weighing heavily what Geithner considers the likely market reaction to a choice the president will make http://krugman.blogs.nytimes.com/2010/01/25/the-tyranny-of-markets/ . I guess Paul Krugman “hate, hate, hate[s]” himself. Well, at least he apparently hates the 2003 version of himself, the one that raised alarm bells because, with the increased deficits caused by the Bush tax cuts, he was “terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits… we’re looking at a fiscal crisis that will drive interest rates sky-high”, describing this fiscal outlook as a “really scary…threat to the federal government’s solvency”, and saying “the conclusion is inescapable. Without the Bush tax cuts, it would have been difficult to cope with the fiscal implications of an aging population. With those tax cuts, the task is simply impossible. The accident, the fiscal train wreck, is already under way”. http://www.nytimes.com/2003/03/11/opinion/11KRUG.html (h/t Jim Glass for digging up that column previously)

    Wow, what a difference (in Paul Krugman) 7 years — or much more relevantly, a change in the political party of the presidency and Congress, and a policy he supports (spending stimulus in recession) rather than opposes (tax cuts in normal times) — make. 2003 Krugman saw an almost unavoidable “fiscal train wreck” ahead due to the fiscal outlook at that time, but in August 2009, with a much worse fiscal outlook, he emphasizes how manageable our fiscal outlook is and saying that that anything like the same kind of talk today (about the ten-year projection in the context of our long-term fiscal imbalance) as we saw from him in 2003 is mere “hysteria” (”There’s been some hysteria” about it), that it “is bad”, but can “be handled”, and that “to make the debt look scary”, one has to ignore the lesson from history that it’s nothing to be scared about (”dismiss the post-World -War II experience, even though it turns out that the 50s offer a quite good lesson”). [See link in next comment] And now, in this post today, he tells us that we shouldn’t put much weight on what we think will be likely market reactions to some policy because “Nobody really knows how the markets will react.”

  2. comment number 2 by: Brooks

    Here’s that last link http://krugman.blogs.nytimes.com/2009/08/23/how-big-is-9-trillion/

    Oh, and one other note: Krugman is among those bloggers who deletes at least some comments that challenge his arguments (and I don’t mean due to incivility).

  3. comment number 3 by: Brooks

    Good column/post by Dana Milbank on the vote on establishing a Congressional commission http://www.washingtonpost.com/wp-dyn/content/article/2010/01/25/AR2010012503759.html?nav=rss_opinion/columns