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And Speaking of Magic Ponies…

February 20th, 2010 . by economistmom

magicpony

For some reason there’s a recurring “equine” theme in the recent talk about how to achieve fiscal responsibility…

Apparently Larry Kudlow thinks the President’s fiscal commission is a clever trick of sorts to force (and sneak) tax increases onto unwitting Americans (uh, NO, Larry…I’ve said the commission’s first assignment should be to get all the issues and policy options “on the (open) table” with the American public)–for he’s suggesting we swap the “magic pony” of supply-side tax cuts for the “Trojan horse” of the commission:

Take, for example, Obama’s new deficit commission. It’s a bad idea. This commission is a fig leaf to cover up President Obama’s out-of-control budget. It’s a Trojan horse for tax hikes, especially a value-added tax that would engulf the middle class with up to a 15 percent tax rate on the sale of goods and services. Obama is getting ready to move his lips on the pledge not to raise middle-class taxes. Congressional Republicans must not let him do this…

Rather than tax hikes, I say stop the spending…

Why not stop the multiple taxes on all forms of saving and investing, including capital gains, dividends and inheritances? And why not eliminate the business tax on profits in favor of a sales tax on net revenues that would deduct all investment expenses? That would leave us with a single-rate consumption-based income tax that would grow this economy by 7 percent to 8 percent in the years ahead, just as the economy should grow after a deep recession.

Going back to the debt-to-GDP ratio, I want to grow the denominator (the economy) and reduce the demand for the numerator (spending and borrowing). That means a combination of supply-side tax cuts and firm spending limits.

(Never mind Larry’s odd self-contradiction of first criticizing the idea of a broad-based consumption tax (as an add on) and then coming back to recommend a broad-based consumption tax (as a replacement); yes, the key difference is whether it would actually raise enough revenue and reduce the deficit, or not…)

And by the way, exactly who will ride Larry’s magic pony in his fantastic vision of how to get things right?  Larry gleefully explains:

let’s especially use this Tea Party power to stop Democratic plans for another round of broad-based tax increases.

Thanks to Bruce Bartlett for directing me to Larry’s magic pony story, and for pointing to another stupid idea for an alternative to the fiscal commission–going ahead and defaulting on the debt.  I think I’ll label that the “Mister Ed” option, because only someone as eccentric and naive as a “Wilbur” would listen to (even “hear”) such crazy ideas as those of Ed.

mister-ed

A horse is a horse, of course, of course.  And no one can talk to a horse of course…  Unless…

26 Responses to “And Speaking of Magic Ponies…”

  1. comment number 1 by: Brooks

    My headline would be:
    “News Flash: Entertainer Kudlow Snarkily Suggests Something Stupid That His Target Audience Will Love”

    I only occasionally read/listen to Kudlow, just to know what’s being consumed by some others — mostly dittoheads, I assume — and to maybe, maybe hear something worth checking into. He always seems to be a full-blown rhetorical red-meat-thrower. He’s a clown. Or at best a blind squirrel or broken clock.

    Also, unless he’s changed, he is on my very short list of economists (including those who are primarily entertainers) who persist with the claim that tax cuts always (or at least generally) increase revenues, and that the Bush tax cuts did so. Another one is Stephen Moore, founder and former president of the Club for Growth and more recently grabbed by the WSJ for editorial (speaking volumes for the quality of WSJ editorials and opinion section generally*). Another is Brian Wesbury (B.A. in economics, career as economist; also, I’m embarrassed to say, a fellow alum of the Kellogg School [MBA] at Northwestern), with whom I had a long email exchange a couple of years ago in which he demonstrated that he is quite clueless and/or deliberately evasive rather than truly responsive to a challenge to his assertions. I don’t even know if Art Laffer contends that tax cuts generally increase revenues other than making that claim for cuts in the top marginal rate.

    As for Kudlow’s equine reference, given how budgetarily-challenged Kudlow is and his inability to distinguish between higher (than previous) revenue and incremental revenue, it seems to me that the most relevant equine reference would be that, given a bit of training, horses can generally count better than Kudlow. (yeah, the horse counting is probably fake, but grant me that license)

    * Pierre (”Pete”) du Pont, who isn’t an economist but plays on on the WSJ opinion pages with a monthly column, is another perpetuator of the “tax cuts increase revenues” myth.

  2. comment number 2 by: SteveinCH

    Personally, I’m still waiting for any proposal that achieves balance from a Democrat or Democrat leaning economist.

    Kudlow’s a hack I agree but I don’t see a lot of proposals coming from anywhere about how to restrain spending as a matter of policy as opposed to as a matter of (easily set aside) process.

  3. comment number 3 by: Brooks

    Steve,

    I don’t know whether or not (or to what extent) he is, but Paul Ryan should be constantly issuing the challenge that Obama less legitimately makes regarding the Democrats’ healthcare “reform”: Ryan should say “I’ve laid out an actual plan that would actually get us on a sustainable course if adopted and implemented (regardless of what one thinks of the policial plausibility). If you don’t like it, present your alternative plan that will get us on a sustainable course, per CBO scoring.”

    (Obama’s use of that type of challenge is less legitimate because the Democrats’ plan doesn’t really do what they claim vis a vis spending, cost control, and impact on the difficulty/cost/risk of solving the long-term fiscal imbalance problem, and even it’s dubious claims of cost control are largely “rock soup” arguments)

    I hope that, whether or not the fiscal commission can get to a recommendation (i.e., reach that supermajority vote on a plan) it will develop at least one alternative plan to the right of the recommended plan, and one alternative to the left (and the same for the independent commissions that will be developing plans commensurate with the work of the official commission). That way those who object to the recommendation because it represents too much of an ideological compromise will at least have to face the trade-offs themselves* and can be pressed to acknowledge the greater sacrifices in some areas necessitated by the lesser sacrifices where they insist.

    * e.g., those on the right opposing any tax increases (or any tax increases AND no/minimal reduction in projected Defense spending) will have to face the real world implications (practical effects; effects on people) of the necessitated scale of reduction in projected non-Defense spending, and those on the left would have to face the scale of tax increases — although it would be ideal if, in addition to CBO’s static budget analysis, CBO and/or some other widely respected, non-partisan entity would present dynamically-scored projections.

  4. comment number 4 by: Bruce Bartlett

    The liberal Center for American Progress has put forward serious proposals for achieving a sustainable budget.
    http://www.americanprogress.org/issues/2009/12/path_to_balance.html

  5. comment number 5 by: Brooks

    Bruce,

    Thanks for that reference and link. Would CBO score a proposal from a private entity? Has any independent, non-partisan group of relevant experts scored/analyzed the assumptions and projections of the CAP plan?

  6. comment number 6 by: SteveinCH

    Bruce,

    That’s not a plan. There’s not a single policy prescription in it beyond the creation of a rules based system for budgeting. Let me summarize it…

    Assume, via some yet to be determined mechanism and some agreement on how much spending and receipts should be, that we achieve balance by forcing receipts to be equal to a certain, rising percentage of expenditures over time. That’s it, that’s the whole plan.

    This is exactly the issue. There no there there. It doesn’t offer a point of view on how much we should spend and how much we should tax. As a consequence, it’s a plan that’s impossible to argue with and impossible to agree with.

    In case you don’t read here often, I was similarly critical of the Peterson/Pew report which did nothing but articulate a target or series of targets.

    Such recommendations are completely meaningless.

    Said differently, I could implement the CAP program (assuming I could figure out how) with government at 17 or 27 percent of GDP. Don’t you think that’s a reasonable difference in terms of an actual plan?

  7. comment number 7 by: SteveinCH

    Brooks,

    I largely agree and I would take your argument one step further. What the President and Congress ought to do it tell the commission to generate a series (say 4 to 6) of specific proposals that represent different philosophical approaches to addressing the problem. The Congress ought to have to pick one of the 4 to 6 proposals. In other words, make the debate about which proposal to choose, not whether to choose one.

    As a practical matter, I’m not sure how this could be done in a legislative process but it’s something the commission should be thinking about if it wants to have impact.

  8. comment number 8 by: SteveinCH

    Brooks,

    Did you read the linked document? Do you have a different point of view than what I posted above?

  9. comment number 9 by: Brooks

    Steve,

    Sure, there could be a larger set of alternative plans. There’s a trade-off between the benefit of providing more useful info for comparison (and yes, taking the same idea further in a good way) vs. the potential drawback (vis a vis the prospects for political agreement) of complicating things and fragmenting supporters across a greater variety of options. But I guess I’d agree that more than two alternatives (one right, one left) would probably be ideal, and they should be geared toward political segments — for example, since there are the Ron Paul type conservatives who would want very large reductions in projected spending across the board vs. the “military hawk” conservatives who would want the focus on non-Defense spending, those could represent two alternatives corresponding to different conservative segments, even though perhaps the most difficult things to project and on which to reach any consensus are the economic and security “costs” of deep cuts in Defense spending.

    Re: the linked document, I was only able to view the executive summary. On the laptop I’m using today I am unable to view the full report PDF for some reason (characters do not display correctly, per the error message I receive, “Cannot extract the embedded font…”). I plan to view it tonight/tomorrow when I’m home.

  10. comment number 10 by: SteveinCH

    Thanks Brooks. Will be interested in your reaction when you can see the full document.

  11. comment number 11 by: SteveinCH

    One further thought, I don’t mind starting with a larger number of options and voting our way down to a smaller one, ultimately deciding between 2 as per your suggestion above. Maybe an open vote on 4 to 6 followed up by a runoff of the top 2.

  12. comment number 12 by: Brooks

    Steve,

    The potential political fragmentation to which I refer as a potential drawback to a larger number of alternatives pertains not primarily to votes in the commission, but to political support among the public and in Congress. If, for example, Congress is presented with one recommendation from the commission, and the commission has also developed and presented (but not recommended) 4 others — one somewhat to the right of the recommended plan, one far to the right, one somewhat to the left, and one far to the left — perhaps it could be harder to get to 60 on an up/down vote on the recommendation and/or get to 60 on one of the more moderate alternative plans at a later date. I’m not saying having a larger number of alternatives (6 or whatever) is necessarily undesirable, just contemplating potential drawbacks vs. the benefit of having more useful analysis for comparison of a broader set of trade-offs (and putting useful pressure on a broader set of obstructionist segments).

  13. comment number 13 by: Jim Glass

    Larry Kudlow thinks the President’s fiscal commission is a clever trick of sorts to force (and sneak) tax increases onto unwitting Americans (uh, NO, Larry…I’ve said the commission’s first assignment should be to get all the issues and policy options “on the (open) table”

    Of course it should be … but that doesn’t mean Kudlow isn’t entirely right about what the commission actually is.

    There’s a very simple yet acid test: Obama, Gibbs, Summers, somebody speaking for the Administration says out loud, “We are putting *all* policy options on the table, including spending cuts and reform of entitlements, along with tax increases”.

    Then to confirm that they actually said it we see the response of AARP, Kos, Krugman, young Ezra, and all the other militant defenders of Democratic spending in general and entitlements in particular. (Their concern is zero to date, so we see that they at least deem the Commission to threaten nothing at all by way of putting “on the table” anything at all that they care about.)

    Making predictions is difficult, especially about the future, as Yogi Berra reputedly said. But I will bravely make this one:

    As the Democratic position going into this election is so precarious-to-dire — see Charlie Cook’s latest — the very *last* thing Obama can afford now is to have his left-side base explode on him.

    Ergo, the Administration is going to put on the table nothing, absolutley zero, in the way of spending cuts that would anger the left base — much less say it is even willing to consider entitlement cuts, which would inflame it.

    Hey, prove me wrong! I hope I am.

    But as long as this prediction remains true Stan Collender’s orginal opinion is accurate, the commission is just a political ruse.

    Politics 101: We have a bad problem with the public on the deficit issue. Despite our commanding legislative majorities, we have no desire to reduce spending and no will to increase taxes by ourselves. So, to show our concern over the deficit to the public, we’ll instead have a Commission.

    Worst case: We show the voters our concern about the deficit without having to actually do anything about it. Better possibility: We get to score some points against the Repubs by making it look like they don’t want to do anything about the deficit, while we do. Best case: We get lucky, ploy the Commission into getting us some tax increases with no real spending cuts, then say: “We did *not* break our promise not to raise taxes on anybody earning under $250,000 — the Commission did it!”

    Of course the Democrats desire that last option to come true. It would be pretty naive to deny that.

    As Mankiw said, if the Democrats actually are willing to put up stuff from their side of the table — to really bargain, giving on entitlements and the like, and proving my crystal ball wrong! — then the Repubs should bargain, offer tax increases and see what they can get in return.

    But if the Administration just keeps posing like this, keeping its base totally happy and putting nothing real on the table while trying to game the Repubs and get something for nothing, then as Mankiw also said…

    A reasonable position is, perhaps, that the commission should not succeed. After all, it is the president’s responsibility to put out a budget. The one he just released is, as I explained in my recent Times column, not sustainable. He just passed the buck to the fiscal commission.

    Perhaps conservatives should not allow him to do that but, instead, should try to force him to put out a sustainable budget on his own. After all, isn’t that Peter Orszag’s job?

    The Dems won the last election big time. They have the WH, 60% of the House and 59% of the Senate (though they act like they don’t believe it themselves).

    With winning all the power comes the responsibility. It’s their job to make the budget.

    That’s the bottom line. Saying “we can’t, the minority won’t cooperate” is pretty weasely, Ronald Reagan never had majorities anything like Obama has now.

    If they want the Republicans to cooperate in a Commission to take heat off themselves they should have to offer something significant on the table themselves. If they aren’t willing to, but want something for nothing, the Repubs should tell them to forget it, and make them do their job on their own.

  14. comment number 14 by: Brooks

    Krugman today, referring to Obama’s fiscal commission:

    Many progressives were deeply worried by this proposal, fearing that it would turn into a kind of Trojan horse — in particular, that the commission would end up reviving the long-standing Republican goal of gutting Social Security.

    Man, that sure is one crowded Trojan Horse with one heck of an identity crisis.

  15. comment number 15 by: SteveinCH

    An additional thought, can we now agree that no single program is funded by a particular tax since we’re going to dramatically increase “Medicare taxes” while cutting the cost of Medicare to fund a program that has nothing to do with Medicare.

  16. comment number 16 by: Nick

    To Jim Glass–

    If the Repubs do not filibuster, then the Dems would have “all the power.” Getting 59 (which means a very small portion of the represented electorate frustrated the will of a large majority) isn’t enough.

    Let’s vote on a proposal (up or down) and let the majority rule.

    Jim, you are for majority rule, aren’t you?

    You have been in the past.

  17. comment number 17 by: SteveinCH

    Nick,

    The majority rule argument is a canard for both parties. They are for it when they are in the majority and against it when they are in the minority. The Rs are no different than the Ds and the commenters on both sides are the same.

    As a personal matter, I’m for the filibuster when used by both sides. If we lived in a world without gerrymandered districts, you might be able to talk me out of it but I think it should be hard for government to act since the SCOTUS has all but ceased to be a check on Federal power.

    I believe that regardless of who is in power

  18. comment number 18 by: Nick

    That’s fine…

    I was just disputing Jim’s statement that the Dems “have all the power.”

    No, they do not.

    Repub intransigence remains the obstacle. For example, the health care bill certainly can’t be described as “liberal.” Liberals conceded on single payer, expanded Medicare and a full-throated public option. HRC is a middle-of-the-road reform blocked by the Party of No.

  19. comment number 19 by: SteveinCH

    Actually, the health care bill can easily be described as liberal since, by whatever means, it proposes taking money from one class of citizens and giving it to another (in this case for them to buy a product, insurance).

    You are confused between ends and means. The ends of HCR are very liberal even if the means are not.

    Why would a Republican vote for more redistribution of income regardless of the means?

  20. comment number 20 by: Nick

    Again, my point was that, contrary to Glass, the Dems do not have all the power.

    Now to address the “liberal” issue, I always thought that Repubs believed the ends justified the means. Look at their support of torture, look at their support of the Iraq war.

    As to redistribution, Obama, as a centrist Dem, still believes that the uninsured should be covered. We are not living in a social Darwinism world. Should you think we are…bang, bang.

  21. comment number 21 by: SteveinCH

    There’s a long way between social Darwinism and saying that people should have health care provided to them even when they have income that exceeds the Federal poverty line. You see, Medicaid is the program that is designed to address those people who are in poverty as the government declines it. Were this the only issue, the solution would be simple, raise the Medicaid eligibility level. Since that’s not the only thing being done, there must me more in play.

    I didn’t say Republicans didn’t believe the ends justified the means, I simply said that the end of providing coverage is a liberal one in my opinion. It’s clear you disagree and that’s fine.

    But, they did it too is hardly a justification whether it’s said by Republicans or Democrats.

  22. comment number 22 by: Jim Glass

    To Jim Glass– If the Repubs do not filibuster, then the Dems would have “all the power.” Getting 59 (which means a very small portion of the represented electorate frustrated the will of a large majority) isn’t enough.

    There’s no filibuster on producing a budget. The Dems have control of the govt — WH and Congress — it is their job to produce a budget. Orszag is not just supposed to be the new 21st Century sex object!

    So if they want the Repubs to contribute either…

    * as short-term political cover, because they have a big problem with voters this November on huge deficits running forever, and want to “share the pain”… or

    * to come up with a budget plan for long-term fiscal stability, because for some reason they can’t come up with any such plan themselves (they don’t have to enact it, just announce a plan).

    That’s fine with me. But as Mankiw notes, it’s the Dems’ job to come up with a budget. And if they want someone else to help them do their job, they have to offer something in return for the help.

    Just like you and I would have to put up something to get someone else help us do our jobs.

    (As to “majority rule”, continued…)

  23. comment number 23 by: Jim Glass

    Let’s vote on a proposal (up or down) and let the majority rule.

    Jim, you are for majority rule, aren’t you?

    What proposal? I assume you are talking of other issues than the budget now.

    Actually I’m for constitutional rule. If the authors of the Constitution didn’t doubt the unlimited virtue of majority rule they wouldn’t have created a Bill of Rights and Senate specifically to block it (or an electoral college, most of the rest of the Consitution, courts in which appointed judges can strike down unanimous acts of Congress, etc.)

    Moreover, this …

    Getting 59 (which means a very small portion of the represented electorate frustrated the will of a large majority)

    … is just not true in reality. The Repubs haven’t blocked anything - they have filibustered *nothing*, zero — they didn’t have the votes to until last month. The Dems haven’t been able to get their health care, cap-and-trade, etc, bills through their own filibuster-proof majority for a solid year.

    Why? Because politicians want to get re-elected! And when it comes to that it is the center, the 40% of voters who are independent, who rule.

    The Dems have been stopped not by the Repubs, who didn’t have the votes to stop anything (and still have zilch credibility and remain frankly brain-dead) but by their fear of the independents. And they are right to fear! Scott Brown won by carrying the Mass independents by more than 50 points(!). It was the same in NJ and VA.

    Look at the majority voter opinion on the health reform bill and Obama’s management of it. If I really believed in “majority rule” then trying to force upon the majority what they don’t want, like this, would trouble me.

    OTOH, if you believe legislators are elected to do what they deem best — whether the majority of voters like it or not — then you are for constitutional rule, not majority rule, too. :-) Except what the legislators deem best is getting themselves re-elected.

    Compare: Obama has had the biggest Congressional majorities since LBJ, in 42 years. In contrast, Bush II had a Democratic Senate in 2001 & 2002, remember, and never had anything like Obama’s majorities. Clinton had a Republican Congress, 1995-2000, six years. Reagan always had a Democratic House and also a Democratic Senate for two years — and started off with an even worse recession, 10.8% unemployment.

    Yet nobody ever said Bush II, Clinton, Reagan, couldn’t get anything through Congress — they succeeded because they tended the center so even opposition legislators went along with them.

    Obama has lost the center en masse, all polls agree. Maybe by gross miscalculation, or maybe he’s intentionally throwing ‘em overboard. Whichever, same result. The centrists Dems don’t want to go overboard, so they are finding excuses to not vote his bills through. (Today’s news is that Pelosi and Hoyer say they don’t have even a simple majority in the House now — e.g. “abortion” is costing them a dozen votes they had before. Is a small minority of Repubs really causing that?)

    The bottom line is: the center determines the majority, and the majority is ruling.

  24. comment number 24 by: zou

    I agree with your political sentiments, but take issue with you dissing Mr. Ed. The character was brilliant. Crazy, yes, but still brilliant.

  25. comment number 25 by: Brave Captain of Industry

    1) The Dems have never been “in charge” for a moment since 2006. Lieberswine is not a Dem and 59 dont get it done.

    2) Defense is killing the country. We spend more than the rest of the world combined. What more does anyone need to know ?

    4) “Entitlements” are American lives- without them, people starve and die on the street. Keep that in mind.

  26. comment number 26 by: Jim Glass

    [Trying again to get past the spam-blocker]

    Jim, you are for majority rule, aren’t you?

    Nick, if you want to see what Democrats think of majority rule when Republicans have the majority, here’s a nifty video of Democrats telling you. They are discussing the prospect that Repubs would go the reconciliation route in 2005 to get past the filibuster.

    Enjoy.

    Really, after watching that, does anyone believe politicians put things like, say, honesty, ahead of winning the next vote?

    What is the justification for thinking these people pursue as their top priority anything except their own self-interest of the moment?

    This is why what matters for better government in general and better fiscal policy in particular is better incentives … not “better, braver politicians”.

    If Diogenese had been looking for an honest politician he’d be still out there walking the shores of Long Island or wherever today — and continue to well into the future when global warming ends in the next ice age.

    That’s why we need incentives that make dishonest, entirely self-interested politicians produce good government.

    (And if one has read the Federalist Papers, one knows the Founders knew this. They were the last people to believe in wise, disinterested, impartial Platonic Guardians as legislators. They just never imagined the intergenerational fiscal incentives for political gain that drive politicians today.)