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The “Pledge” Is No Promise for Deficit Reduction

September 28th, 2010 . by economistmom

the_hangover01

My boss at Concord, Bob Bixby, explains on the Tabulation blog why the House GOP’s “Pledge to America” is politically appealing but lacking in solid and smart policy ideas:

Last week, House Republicans offered a “Pledge To America” outlining their fiscal priorities and reform ideas. As with most such campaign manifestos, it is long on base-pleasing rhetoric and short on troublesome details.

The document correctly warns about the dire fiscal outlook and the potential dangers of escalating deficits and debt. Conspicuously missing from the Pledge, however, is any plan to bring deficits down to a sustainable level or even to improve upon the deficit projections in the President’s budget. It is worth noting that such a plan has also been missing from Congressional Democrats this year because Congress has failed to pass a budget resolution.

The net effect of the Pledge policies would do very little, if anything, to rein in our long-term structural budget deficits and may well lead to deficits even higher than under the President’s budget.

In other words, the “Pledge,” like all effective campaign rhetoric (coming from both sides of the aisle), is good looking on the surface but devoid of meaningful substance inside.  You know, it’s like someone who’s really primped up and might win your affection for one night while you’re drunk or otherwise not thinking or seeing them in really dim light. The trouble is that these days most of us act like a bunch of drunken, irrational, nearsighted voters, so politicians believe this is a winning strategy.  But wait until we wake up in the morning and get a good look at our “date” in the sunlight (”yikes”)–and can’t just take off saying “see ya later” because we’ve gotten married in Vegas!

(And no, I wasn’t just watching “The Hangover.”)

Obama’s Economic Team: First the Triage, Next the Tougher Choices

September 27th, 2010 . by economistmom

obama-economic-team

(photo by Annie Leibovitz for Vanity Fair)

The Washington Post invited me (and other economists) last week to “grade” the departing members of President Obama’s economic team.  I tried to be dispassionate about it and anyway didn’t have the space to rag about the Bush/Obama tax cuts for the umpteenth time–which are more a forward-looking issue anyway (and we can’t change the past, after all).  Here’s my about-200-words perspective on how the “team” did over the first two years, and why the next two will be different:

DIANE LIM ROGERS

Chief economist at the Concord Coalition and blogger at EconomistMom.com

President Obama’s inaugural economic team did about the best it could, given the terrible economic circumstances it inherited and the challenges it faced in Congress. Its individual members would have preferred policies more effective in dampening the recession and in improving the long-term budget outlook. The stimulus might have been structured to provide greater short-term “bang per buck” with elements better reflecting Larry Summers’s own “three Ts” — timely, targeted, and temporary. And the health-care reform could have been heavier on long-term cost-saving measures to “bend the health cost curve” more to Peter Orszag’s liking. But given the political constraints, the policies enacted were decent successes.

The departing members of the economic team were chosen for their pure intelligence and their well-tested policy instincts — exactly what was needed to perform triage on a failing economy. Over the next two years, however, there will be more time to develop a fiscal policy strategy that will best transition our economy from a “stimulate demand” mode (throw the money out there fast) to an “increase supply” (start living within our means) mode. Because this will necessitate many difficult policy choices that can only be achieved by working with Congress in a bipartisan manner, it is crucial that the new members of the Obama economic team have unusual people skills — not just book smarts.

Some may interpret my reference to the need for more “people skills” on the economic team as my call for more women on the team, but I’m not necessarily saying that (although it is a shame we are “down one” in losing Christina Romer).  I just mean people who have very good communication and diplomacy skills, whether they be women or men.  The hardest part about fiscal policy right now and going forward is getting everyone to talk about the tough choices and tradeoffs, and their own preferences on them, in an straightforward, open, honest and respectful (with ears as well as mouths open) way.

Maybe we need some “economist therapists” on the new team.  ;)

Why Are Economists So Boring?

September 24th, 2010 . by economistmom
The Daily Show With Jon Stewart Mon - Thurs 11p / 10c
The Recession Is Over
www.thedailyshow.com
Daily Show Full Episodes Political Humor Tea Party

Jon Stewart teases about how boring economists are, in this clip from Wednesday night’s show. And unfortunately, the second-most-popular adjective used to describe economists, particularly economists in important positions, is probably this. ;)

A “Pledge to America”…to Continue to Screw Things Up

September 23rd, 2010 . by economistmom

I was going to point out that the GOP’s new “Pledge to America” isn’t going to do the fiscal outlook any favors.  But Ezra beat me to it:

Take the deficit. Perhaps the two most consequential policies in the proposal are the full extension of the Bush tax cuts and the full repeal of the health-care law. The first would increase the deficit by more than $4 trillion over the next 10 years, and many trillions of dollars more after that. The second would increase the deficit by more than $100 billion over the next 10 years, and many trillions of dollars more after that. Nothing in the document comes close to paying for these two proposals, and the authors know it: The document never says that the policy proposals it offers will ultimately reduce the deficit.

This has been a winning political strategy:  promise the vague concept of “fiscal responsibility” and deficit reduction, get specific on cutting the parts of government spending that no one thinks of as a “benefit” to them, assure people that taxes will only continue to be cut and not paid for, know that most people (the most riled up ones in particular) don’t see the logical inconsistencies and don’t want to check the math.  It’s a winning political strategy but a losing economic one.

(UPDATE 9/24:  See the Washington Post’s online survey of readers, asking “Which GOP ‘pledge’ would most likely sway your vote?”)

Submit Some Sane Sign Slogans!

September 23rd, 2010 . by economistmom

jon_image_rallytorestoresanity

Just watched tonight’s Daily Show with Jon Stewart and hope to post a video clip of it as soon as it’s available–because he made fun of boring economists as well as a**hole policymakers.  (Sometimes it is indeed the other way around, as well.)  But for now I want to get to work on signs for Jon’s “Rally to Restore Sanity” on October 30th.

This CNN.com column by John Avlon repeated some of the slogans Jon Stewart unveiled upon his announcement of the rally:

Among the signs [Jon Stewart] suggested for the rally:

“I disagree with you, but I’m pretty sure you’re not Hitler”

“9/11 was an outside job”

“Got Competence?”

“I’m not afraid of Muslims, Tea Partiers, Socialists, Immigrants, Gun Owners or Gays … but I am scared of spiders.”

“Take it Down a Notch For America”

Here are a few of my own (Economist Mom) ideas:

“My parents got more goodies from the government, and all I got was this stupid sign to hold (and the bills to pay).”

“I’ll protect my kids over my Social Security benefits.” …and its companion:

“I love my kids more than my tax cuts.”

“Be a Radical: Prioritize.”

“Act Like An Economist: Weigh Costs Against Benefits” (well, of course, that’s pretty boring, so…)

“Be a Good Mom: Pay for Your Own S**t So Your Kids Don’t Have To.”

Please submit your own ideas in your comments!  The Concord Coalition doesn’t have the budget to actually print up signs like these, but who knows?…Maybe you’ll find me sitting along the sidewalk w/ poster boards and paint!  ;)

(Late addition: go here for some funnier ideas gathered by people who are actually humorous for a living–as opposed to just being economists or moms for a living.)

The Wrong Tax Debate, the Wrong Tax Policy

September 21st, 2010 . by economistmom

Today I have an opinion piece on CNN.com which doesn’t say anything you haven’t heard me say here before (over and over again!), but it was awfully nice of CNN to invite me to publish it where it will certainly get more eyeballs.  Here’s the opening:

(CNN) — President Obama proposes to let the Bush tax cuts for the rich expire as a way of “saving” $700 billion over the next 10 years. He says that our nation cannot afford those cuts, given the unsustainable outlook for the federal budget and the threat it poses to both our short-term and long-term economic health.

But that savings is just a fraction of the $2.2 trillion cost (without interest) of the generously defined “middle-class” portions of the Bush tax cuts, which President Obama does want to extend.

The president’s choice to continue most of the Bush tax cuts is puzzling. He has repeatedly blamed the Bush tax cuts for the fiscal mess he inherited and rightly points out that they did our economy little good — and a lot of bad — over the past decade.

To the list of examples of deficit-financed fiscal policies that would be more effective at stimulating the short-term economy, I should have added some tax cuts that President Obama can more legitimately call his own, which E.J. Dionne handily reminded me about in his column in yesterday’s Washington Post:

[N]otice that this entire battle is being framed around Bush’s proposals. The parts of the Obama stimulus program that never get discussed — one reason it may be so unpopular — are its many tax reductions.

John Podesta, president of the Center for American Progress and White House chief of staff under President Bill Clinton, noted the Obama tax cuts also expire at the end of this year: “I don’t understand why we’re only talking about extending George W. Bush’s tax cuts, which are heavily skewed to help the wealthiest Americans, yet no one’s discussing President Obama’s cuts, which are exclusively focused on middle-class families.”

I don’t understand it, either. The stimulus included not only the broad Making Work Pay tax cut that gave most families an $800 refundable tax credit but also the child tax credit and the earned-income tax credit, which were especially helpful to lower-income families…

But remember, President Obama’s mistake all along has been putting the failed Bush tax cuts ahead of his own tax policy agenda.  The first time he included an extension of the Making Work Pay tax credit in his first budget (for fiscal year 2010), he proposed a permanent extension with its costs to be offset with revenues from auctioned carbon permits (climate change policy).  Well, that didn’t go over so well with Congress (including Democrats in Congress), once they realized that such a climate change policy was actually intended to raise revenue.  As soon as it became clear Congress wouldn’t support that offset, the President backed away from his proposal, claiming that because it was in place until the end of 2010, he would have some time to revisit the proposal later.  Meanwhile, he has continued to propose deficit-financing the permanent extension of $2 trillion worth of the Bush tax cuts which have always been scheduled to (also) expire at the end of 2010.  I’ve never understood why President Obama repeatedly jettisons his own policies in favor of his predecessor’s (by his own label) “failed” policies.

Incidentally, in the President’s latest budget submission for fiscal year 2011, he proposed just a one-year extension of the Making Work Pay tax credit, this time deficit-financed under the umbrella of policies intended specifically as “stimulus” (which to work properly should be deficit financed).  But the proposed extension of the “middle-class” Bush tax cuts is still included as part of the Obama “current policy” baseline and is still permanent and still fully deficit financed.  No justification needed.

I’m not claiming that a permanent, deficit-financed extension of President Obama’s Making Work Pay tax credit would be a good tax policy for the long run.  But that’s not what President Obama ever proposed.  He did it right: he first proposed permanent extension fully offset as a longer-term tax policy, and then (when that didn’t work) proposed a temporary, deficit-financed extension as stimulus.  And in terms of stimulus, a temporary extension of a refundable tax credit like the Making Work Pay credit would be more effective in terms of economic “bang per buck” than any extension (temporary or permanent) of the “middle-class” Bush tax cuts–and far less harmful to the longer-term fiscal outlook.

I’m asking (yet again) why does President Obama refuse to hold the Bush tax cuts up to the same standards as his own policies?  I (like E.J. Dionne and John Podesta) just don’t get it.  He’s never really liked the (”failed”) Bush tax cuts that much, right?

____________________

**Addendum (2 pm):  Here’s CQ’s Richard Rubin’s take on it (subscription required).

Well, Now That That’s Over…

September 20th, 2010 . by economistmom

recessions-chart-cnn-092010

Or is it?  The National Bureau of Economic Research has finally made it official: the latest economic recession ended well over a year ago–in June 2009.  From a CNN-Money story:

The National Bureau of Economic Research, an independent group of economists, released a statement Monday saying economic data now clearly points to the economy turning higher last summer.

That makes the 18-month recession that started in December 2007 the longest and deepest downturn for the U.S. economy since the Great Depression.

The NBER acknowledged the risk of double-dip recession in its statement, but said “The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007. The basis for this decision was the length and strength of the recovery to date.”

Of course, that doesn’t mean that things are just peachy now.  We’re still in “recovery”–not “recovered”–mode:

The committee that made the finding said it “did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity.” Rather, it decided that June was when the economy hit bottom, and that it has been slowly but steadily growing since then.

“Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the expansion,” said the NBER.

…which means there’s still plenty of need for counter-cyclical fiscal “stimulus” and that right now is not yet the right time to reduce the federal deficit.

But that doesn’t mean that any deficit-financed spending or tax cut is justified.  You will hear a lot of economists, including those recently surveyed by CNN-Money in fact, say that the continued weakness in the economy is why all of the Bush tax cuts should at least be temporarily extended.  But that conclusion puts a pretty low bar on the Bush tax cuts:  it says they’re a good idea just because they cost money–in simply moving substantial resources from the government sector to the private sector.  It doesn’t ask how good a job those tax cuts will do in stimulating private-sector economic activity.  It doesn’t ask if there are ways to stimulate the economy even more, for less money.  It doesn’t ask if there are better ways to get money in the hands of people who really need the help the most.  It doesn’t ask if the dangers of this deficit financing of these particular tax cuts becoming permanent (and hence eventually a bad thing for our economy) are too large.

As CBO Director Doug Elmendorf recently explained (emphasis added):

There is no intrinsic contradiction between providing additional fiscal stimulus today, while the unemployment rate is high and many factories and offices are underused, and imposing fiscal restraint several years from now, when output and employment will probably be close to their potential.

If taxes were cut permanently or spending increased permanently, that would worsen the fiscal outlook. Even if changes were temporary, the additional debt would weigh on the budget and the economy in the future.

Achieving both stimulus and sustainability would require a combination of policies: changes in taxes and spending that would widen the deficit now, but reduce it relative to current baseline projections after a few years. Developing such a combination would be feasible but not easy.

I think the only justification for supporting any extension of the Bush tax cuts (and turning them into the magically-better “Obama tax cuts”) is the “a bird in the hand” political argument.  If we could more objectively analyze any possible economic benefits of the Bush tax cuts, just about any benefit could be made greater (and/or at lower cost) if we substituted an alternative fiscal policy.

But I guess it’s just our human nature:  it’s typically easier to stay in a bad relationship rather than make the hard but obviously-better choice to get out of it.

Jon Stewart’s “Million Moderates March”

September 17th, 2010 . by economistmom
The Daily Show With Jon Stewart Mon - Thurs 11p / 10c
Rally to Restore Sanity
www.thedailyshow.com
Daily Show Full Episodes Political Humor Tea Party

…a.k.a., the “Rally to Restore Sanity,” on Saturday, October 30th, on the National Mall in DC.  I think he’s serious.  His rally cry (watch the precious video):

“We are here!!!…

(We’re only here though until 6, because we have a sitter.)”

I am so there!  (Maybe with my own motto–”be a (moderate) Mom“–on a sign!)

Gee, Maybe They ARE “Good for Nothing”

September 17th, 2010 . by economistmom

Over on the Fiscal Times, check out two recent columns on the Bush tax cuts written by experts considered to be fiscal conservatives.

Today Bruce Bartlett says the Bush tax cuts “had little positive impact” on the economy:

The truth is that there is virtually no evidence in support of the Bush tax cuts as an economic elixir. To the extent that they had any positive effect on growth, it was very, very modest. Their main effect was simply to reduce the government’s revenue, thereby increasing the budget deficit, which all Republicans claim to abhor.

And a couple days ago (also from the Fiscal Times), the Tax Foundation’s Gerald Prante and Bill Ahern wrote about “five myths about the Bush tax cuts” (a slightly different set of “five myths” from Bill Gale’s Washington Post piece–so that makes at least ten now!), pointing out that the myths abound from both parties and even on a bipartisan basis in terms of the worst ones!  This is yet another reason why the Bush tax cuts, and continuing them as the new (but really just “reheated”) Obama tax cuts would be bad for our country: these myths and misinformation would be perpetuated along with these far-from-wonderful tax cuts.

Be a Mom!

September 17th, 2010 . by economistmom

For some reason this “campaign slogan” of sorts came into my head when I first woke up this morning–it was like I had dreamed it–so I scribbled it down.  Perhaps this is what I think of as my EconomistMom “creed”:

Protect your kids more than your benefits;
Love your kids more than your tax cuts;
Listen to the math more than the rhetoric;
And do the right thing.

Stop enabling fiscally-irresponsible policy making.

Be a Mom! (…or a Dad!)

Can we put it to music or put it on a poster?  I don’t know… too corny?  ;)

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