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The Shutdown Shakedown (and the Lowdown on It, Too)

April 7th, 2011 . by economistmom

This morning’s Washington Post could be called the special “Ponder the Shutdown” edition–perhaps the first in a week- or month-long series.  For federal workers, most of whom live here in the DC area, these are no doubt scary times, when one is not sure if one will be deemed “essential” and continue to get paid.  (Here’s a good FAQ section from today’s Post.)  I feel badly for my government-worker friends but continue to believe the adverse effects of a shutdown would be largely contained within the Beltway and that a shutdown would not cripple the economic recovery over the longer run or even immediately, simply because I doubt it would last very long or affect the neediest of households.  (Safety-net benefits will still get paid, and although government workers really aren’t paid as highly as their private-sector counterparts, I think they still do well enough to survive any potential blip in their income stream.)

The threat of the shutdown is hardly about the federal dollars it would save from the shutdown, or even about the continued funding for the current fiscal year (through September) that the disagreement is supposed to be about.  The threat of a shutdown amounts to a “shakedown” that each side is using to try to claim intellectual dominance or moral superiority over the other side on the federal budget more generally.  And the amounts of attention currently given to the particular unresolved budget issues–about this week, this year, next year, and beyond–seem inversely proportional to the sizes of the problems.

Incidentally, speaking of both “intellectual dominance” and “moral superiority,” it appears that Paul Ryan made a serious blunder asking the Heritage Foundation to do the macroeconomic analysis of his budget plan.  (And I would believe that even if Paul Krugman wasn’t the one, among many, to point it out.)

Ryan’s “Path to Prosperity”

April 5th, 2011 . by economistmom

House Budget Committee Paul Ryan has released his budget proposal, which he explains in the very polished video above. (Q: Did “taxpayer dollars” pay for the production of that video?…) Here’s the link to information on the Ryan budget on the House Budget Committee’s website.

Major contours of his proposal are that the deficit is brought down to economically sustainable levels, but not eliminated, within a few years; revenues never rise above the (”magic”) historical average of just over 18 percent of GDP; spending is brought down to around 20 percent of GDP within ten years and below 15 percent by 2050(!)–which is what it takes to get debt/GDP to come down while holding onto the revenue ceiling.

Ryan does the right thing by recognizing that a lot of “entitlement” spending in the federal budget actually operates through the tax code: he proposes fundamental tax reform that virtually eliminates tax expenditures–those deductions, exclusions, and other special provisions in the federal income tax. Doing that alone would raise a lot of revenue (in an economically efficient way) that could be used entirely for deficit reduction, but Ryan effectively “spends” it on reducing marginal tax rates instead. That’s my biggest complaint about his proposal, strengthened by my opinion that it’s unrealistic and perhaps downright cold-hearted to cut direct spending by as much as he’s proposing.

UPDATE: The New York Times’ David Brooks asks the same question I have (as I highlighted in my earlier post; emphasis added):

[The Ryan budget] also creates the pivotal moment of truth for President Obama. Will he come up with his own counterproposal, or will he simply demagogue the issue by railing against “savage” Republican cuts and ignoring the long-term fiscal realities? Does he have a sustainable vision for government, or will he just try to rise above the fray while Nancy Pelosi and others attack Ryan?

And what about the Senate Republicans? Where do they stand? Or the voters? Are they willing to face reality or will they continue to demand more government than they are willing to pay for?

Paul Ryan has grasped reality with both hands. He’s forcing everybody else to do the same.

More later; Concord is working on our press release. (UPDATE: here it is.)

Will the Ryan Budget Start a Real Conversation?

April 5th, 2011 . by economistmom

As the federal government prepares for a shutdown in the event that continued funding is not agreed to by this Friday (see the memo that was sent around yesterday, as reported by the Washington Post’s Ed O’Keefe), today Paul Ryan releases his own budget plan.  There have been plenty of preemptive critiques of the plan from those with a completely different view of the fiscal policy world who oppose the notion that the budget can and should be balanced by cutting spending alone, but the best critics who want to avoid just making things worse recognize that the time for merely throwing barbs has passed.  For example, in Monday’s Washington Post, E.J. Dionne isn’t shy about suggesting that the Ryan plan will promote “an even more unequal society”–but at the same time he praises Ryan’s character and conviction and in the end challenges President Obama to not just sit there but do something to defend “progressive government” (emphasis added):

This week, Rep. Paul Ryan (R-Wis.) will announce the House Republicans’ budget plan, which is expected to include cuts in many programs for the neediest Americans.

The Ryan budget’s central purpose will not be deficit reduction but the gradual dismantling of key parts of government…

Put the two parts of the Ryan design together — tax cuts for the rich, program cuts for the poor — and its radically redistributionist purposes become clear. Timid Democrats would never dare embark on class warfare on this scale the other way around.

But while I am assailing his ideas, let me put in a good word about Ryan himself: He is, from my limited experience, a charming man who truly believes what he believes. I salute him for laying out the actual conservative agenda. Here’s hoping he is transparent in the coming weeks about whom he is taking benefits from and toward whom he wants to be more generous. If he thinks we need an even more unequal society to prosper in the future, may he have the courage to say so

[The conservative agenda] is all extreme and irresponsible stuff. The president knows it. The coming week will test who he is. When Ryan releases his budget, will the president finally engage?

“This is our time,” Obama liked to say during the 2008 campaign. This most certainly is his time to stand up for the vision of a practical, progressive government that he once advanced so eloquently.

And in today’s Washington Post, (Republican) Senator Tom Coburn says it’s time to stop bickering over the little stuff and start working together–as in, with the other side and not just with the extremists in one’s own party–on the big stuff (emphasis added):

Here’s some perspective on this week’s debate: When our grotesquely obese government is borrowing $4.1?billion a day in order to function, the $29?billion gap between the House-passed continuing resolution and a possible compromise is enough to fund the government for seven days. Seven days.

What’s extreme in this debate is not our cuts but our complacency.

It’s time for politicians to tell the truth and talk in trillions, not billions. The $14.2?trillion question before us is whether discussion of our debt crisis is hyperbole and fear-mongering, or whether our debt truly is the “greatest national security threat facing our nation,” to quote Adm. Mike Mullen, chairman of the Joint Chiefs of Staff.

This question is critical because until there is a consensus in the country we will never have a consensus in Washington. There is no question that the American people are deeply concerned about spending and deficits. I’m concerned their representatives do not understand how close we are to a crisis. I’ve found great fault with my friend President Obama because this national conversation should be led from a presidential podium, not by political odd couples in the Senate. But in the absence of leadership from others in Congress or the administration, I will continue to work with any colleague from either side of the aisle who is honest about this country’s fiscal peril…

The best catalyst for forcing Congress to tackle our debt crisis will be the upcoming vote to raise the debt limit. We can either appease like Chamberlain or prepare like Churchill. Appeasement means avoiding the real issue and pandering to the debt-dodgers and dogmatists in both parties who define purity not on the basis of principle but partisanship and power.

I’ve confronted the phony purists on my side and need partners on the left to confront the same on theirs. We will never address these challenges without putting everything on the table and making choices that may end careers. Of my Republican friends I would ask: What good is a Republican Party without a republic? And of my Democratic friends: What good is your commitment to the poor without an economy to sustain your commitments?

House Budget Committee Chairman Paul Ryan, who unveils his budget this week, deserves credit for pushing the debate toward our $14.2?trillion question. His critics who fail to offer plans of their own have little credibility.

Congress can choose a path of prosperity over austerity but only if we act quickly. History, and future generations, will not be kind to those who sleep.

So let’s hope that after Ryan releases his budget today that we’ll hear some criticism of the constructive variety, because we really don’t have time to waste on any more of that destructive bickering we’ve been doing so far.  Let’s hope that a real (and adult) conversation will begin.

“Three Stooges”-Style Budgeting

April 1st, 2011 . by economistmom

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My boss at the Concord Coalition, Bob Bixby, offers a very unique perspective on how the budget process is going, suggesting it goes beyond “childish.”  (In fact, Bob and I have often remarked to each other that we’re sure that real kids could outdo the adults in providing some pretty common-sense–and not just cute–suggestions on how to solve our budget woes.)  Bob’s set-up for the “Stooges” analogy (check out the video that goes with the blog post for Bob’s further explanation):

Moe, Larry and Curly are fighting in the back seat of the car. No one is in the driver’s seat. As the boys settle down, Curly looks up and says, “Hey, don’t look now but we’re about to be killed.”

Leave it to The Three Stooges to provide the perfect metaphor for what passes as a budget debate in Washington these days.

It appears that we’re headed for a government shutdown in April and a possible default in May all because politicians can’t stop squabbling over a few billion dollars from a small slice of the budget while our overall fiscal policy is headed for a cliff.

I’m not familiar enough with the Stooges’ individual personalities to figure out which of our leaders correspond best to each of the Three Stooges.  Any Three Stooges aficionados out there who also have been paying attention to how our leaders have been behaving in these debates?  Who is Moe?  Who is Larry? And who is Curly?

Oh, and how fitting… it is April Fools’ Day, after all!

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