EconomistMom.com
…because I’m an economist and a mom–that’s why!

EconomistMom.com

Over the Cliff and Yet Back in the Same Place

January 2nd, 2013 . by economistmom

near-death-experience-light

It’s as if we’ve just survived a near-death experience.  (Image above from NPR.)  Like we followed the light and even saw the pearly gates and then miraculously were sucked back down into our bed overnight!  We technically “went over” the fiscal cliff at midnight yesterday, and yet here we are today celebrating more extended tax cuts as the best way our policy leaders know how to compromise.

The debate over the fiscal cliff and all the scariness about it was far more about how we would manage to avoid our own prior commitments to reducing the deficit rather than what was intended to be a push for greater fiscal responsibility and at least a longer-term and thoughtful (rather than immediate and brute-force) strategy for deficit reduction.

So what has come out of this fiscal adventure?  The Washington Post’s Ezra Klein (in his “Wonkblog”) stayed up for the finale to post a nice summary of what was agreed to, “everything you need to know about the fiscal cliff deal.” Most of the press accounts characterize the deal as the Republicans eventually caving on raising taxes on the rich.  But the Brookings Institution’s Bill Gale points out that taxes are actually going way down, not up, relative to our one-day, near-death experience of the current law baseline–and thank goodness for the Republicans, because technically the minority of them who voted in favor of the deal did not violate the No New Taxes pledge.

The Congressional Budget Office tells us how big a tax cut it is, relative to current law revenues; the answer is it’s a $3.639 trillion tax cut over ten years.  Just for perspective, that’s well more than double the initial ten-year cost of the Bush tax cuts (of approximately $1 1/2 trillion) when they were first passed in 2001.  Of course, when the Bush tax cuts were originally passed, the official cost was a huge understatement of the real cost because of: (i) an expiration date before the end of the ten-year budget window, and (ii) the offsetting revenue increases scheduled to come in from the Alternative Minimum Tax (AMT), as more people were pushed onto the alternative tax when their ordinary income tax liabilities fell.  Over the years we learned to “fix” those features that held down the cost, by continuing to extend and deficit finance not only the original Bush tax cuts but also the AMT relief needed to prevent the Bush tax cuts from increasing AMT burdens.  And so we did in this cliff deal as well; the $3.639 trillion cost includes permanent extension of almost all of the Bush tax cuts plus permanent AMT relief.

But of course, everyone always disses the current law baseline as totally unrealistic (even though it was in fact the reality of current tax law before the Bush tax cuts), so for more perspective, let’s throw in CBO’s “alternative fiscal scenario” (which is similar to the Concord Coalition’s “plausible baseline”) into the comparison.  From Table 1-6 in CBO’s latest budget and economic outlook, they show that the difference in revenues between current law and the “alternative fiscal scenario” (extended and deficit-financed tax cuts) is $5.082 trillion over ten years.  So the cliff deal, by reducing revenues by $3.639 trillion over ten years relative to current law, basically drops revenues by 71.6% of that difference.  In other words, tax policy under the deal is far closer to “business as usual” (extended and deficit-financed tax cuts) than to the current-law baseline standard.

So in two days we’ve gone over the cliff and back again, and although we’ve made some progress raising taxes on some people (the top 1%) as a result of this fiscal adventure ride, I feel that by permanently extending the great bulk of the Bush tax cuts, we’ve made it permanently harder, politically, to raise taxes (whether through higher rates or base broadening) on anyone else ever again.

(PS:  Happy New Year!  Stay tuned for an important announcement from me within the week.)

33 Responses to “Over the Cliff and Yet Back in the Same Place”

  1. comment number 1 by: Vivian Darkbloom

    A brief note about the numbers:

    The $3.639 trillion mentioned above is with respect to the CBO’s estimate of the revenue decrease against a current law baseline.

    However, the CBO estimates that the net effect of the bill, again measured against a current law baseline, would be to increase the deficit by $3.971 trillion over the ten year period.

    The $300 billion plus difference is due to two factors. The largest difference is that approximately $300 billion is attributable to refundable tax credits, not counted as reductions in revenue, but as increases in “spending”. A smaller amount, about $30 billion is increased spending due to extended unemployment benefits.

  2. comment number 2 by: Brooks / Gordon

    Andrew Samwick quotes Joe Wiesenthal of Business Insider with a good line:

    “The difference between the Obama Tax Cuts and the Bush Tax Cuts? Obama’s are permanent.”

    http://www.samwick.blogspot.com/2013/01/so-who-won-fiscal-cliff-fight.html

  3. comment number 3 by: Brooks / Gordon

    I should note that, although I like that Wiesenthall line in terms of wit and in terms of Obama having blown an opportunity and having made future deficit-reduction more difficult, I don’t think of what has transpired as a tax cut, but rather as a tax increase. I think reasonable people can disagree on how to view it, and if current tax rates had been in place for, say, only one year, my view would probably be different (I don’t view the expiration of the payroll tax cut as a tax increase other than technically, but rather as expiration of a very temporary tax cut for a temporary purpose), but after a decade, I view the current tax rates as the status quo and any increase from there as an increase, whether that occurs passively (by expiring) or actively.

  4. comment number 4 by: ST Dog

    I see Diane still can’t get past the whole “paying for tax cuts” mantra. Not a word about the excessive spending.

    When I get a pay cut, I have to cut spending.
    Whether it’s a voluntary cut or not.

    Congress votes for a pay cut for the nation, then balks at reducing spending to match.

    Why doesn’t congress cut spending top match the current revenue (at an all time high too)?

    Nothing in this “deal” to reduce spending by a penny.

    Obama never intended to reduce spending. Just look at his latest EO, a 1/2% raise for federal employees (of which I am one). Instead he should be calling for a 5-10% pay cut, and eliminating positions/departments.

  5. comment number 5 by: B Davis

    Brooks / Gordon wrote:

    I think reasonable people can disagree on how to view it, and if current tax rates had been in place for, say, only one year, my view would probably be different (I don’t view the expiration of the payroll tax cut as a tax increase other than technically, but rather as expiration of a very temporary tax cut for a temporary purpose), but after a decade, I view the current tax rates as the status quo and any increase from there as an increase, whether that occurs passively (by expiring) or actively.

    I agree. The concept of a 10-year “temporary” tax cut is a special form of insanity of which only our Congress seems capable. In regards to our deficit, it would have been better to let more of the Bush tax cuts expire. But that was very unlikely to happen after 10 years. Assuming that the tax cut would be made permanent eventually, it’s better to make it permanent now. Then, at least, we get rid of the confusion of two very different baselines (current law and current policy). Now that the current law baseline is nearly as bad as the current policy baseline, more people will likely become aware of our true financial situation.

    I think that the permanent AMT fix is definitely a good thing. Like the Bush tax cut expiration, the annual AMT fix expiration was used to make the budget outlook look better than it was. Though there are still some shell games being played with the budget, now there are at least a few less.

  6. comment number 6 by: AMTbuff

    Baseline games are so “last year”.

  7. comment number 7 by: AMTbuff

    Let’s speculate on the big announcement.

    Could it be a position in the Obama administration? Or do those all require pay cuts too large for those of us who live in the real paygo world?

  8. comment number 8 by: Brooks / Gordon

    I have the sense that Obama is a combination of a bad poker player (who leaves money on the table, so to speak, when he has a very strong hand to play) and a bad chess player. Re: the latter, I get the sense he doesn’t think through subsequent moves (remember his dear in the headlights cluelessness when Marc Ambinder suggested that the debt ceiling would give Rs leverage over him — see starting at 22:54 http://www.youtube.com/watch?v=KrTKUEfnegE), in this case not only on budget matters but also — quite possibly with even more significant consequences — on unrelated, national security matters, most notably Iran’s nukes (as well as any other potential crises that may arise).

    What do I mean? Well, let me put it this way: my guess is that Reagan didn’t sent troops to Grenada because he really thought that air strip was a major national security threat to us, nor even that he saw Grenada as a “domino” (let alone simply because he thought American students were in danger after the coup, which was the initial ostensible rationale). At least I don’t think any or all of those reasons would have sufficed for him to send troops. Rather, I think he had the strategic sense to use that action as a signal to the Soviets that he was a bad ass Cold Warrier (at least insofar as such a limited military action against a tiny military could reinforce that perception). And I think it’s quite possible that this objective was a factor even in his decision to fire the air traffic controllers. The point is that I think Reagan probably factored in how toughness in one incident or policy area would impact perceptions that could serve (or hinder) his strategic efforts and objectives subsequently and even very broadly.

    By contrast, my sense — and note that this is just my sense, not based on related research, in the case of either Reagan or Obama — is that Obama probably hasn’t even thought of how his handling of these budget standoffs may affect his ability to intimidate the Iranian regime out of pursuing nuclear weapons capability with the threat of force (or even more severe economic sanctions, if possible), or negotiating with North Korea, etc., etc.

    I recall in 1993 or 1994 having a similar concern about President Clinton, although in his case the source of my concern was his bluffing in international affairs: two cases I remember were (1) stating that renewal of MFN with China would be dependent on a determination of progress on human rights, followed by a 180 in which he not only decoupled them, but did so permanently, and (2) initially sending a naval ship with hundreds of military trainers to Haiti amid a crisis, then having it turn back when a bunch of thugs showed up at the port (he did later invade, and in fairness to him, I don’t recall his specific role in deciding to turn back the ship, but I’m assuming it was his call). There was also the pullout from Somalia. And he did all this at a dangerous time vis a vis North Korea, when the perception that the U.S. president was a bluffer and weak could have (and may have) put America and the world at much greater risk. As noted, Clinton eventually did invade Haiti, and also intervened in Bosnia (albeit belatedly) and later Kosovo/Serbia. (He obviously did nothing in Rwanda in 1994).

    I’m not trying to initiate a discussion of foreign policy here, but I do want to point out a general concern I have that our president may not be considering that showing weakness in negotiations in even a domestic standoff can bring dangers to national security / international affairs.

  9. comment number 9 by: Vivian Darkbloom

    Sorry, Brooks, but I think you’ve got the entirely wrong read on this attempted comparison.

    Reagan was successful and effective because he was a credible and reliable negotiating partner. His word was worth something. When the time came for compromise, he negotiated in good faith, in good will and in good humor. And, when the time came for compromise, he compromised. He did not, for example, call press conferences in the middle of negotiations to try to intimidate and/or humiliate his negotiating partners. He was not condescending. As far as I know, he did not, as he got closer to his negotiating partner’s position, move the goal post at the last moment.

    The lesson is not about “being tough”. The lesson is about being credible and reliable. It isn’t about being a good poker player or a good chess player. It’s about being a fair and honest player.

  10. comment number 10 by: Brooks / Gordon

    Vivian,

    So you think Reagan’s strategy for winning the Cold War had little/nothing to do with convincing the Soviets that he was tough and all about negotiating in good humor, with good will and good faith, and avoiding intimidating or humiliating the Soviets? I didn’t realize displaying toughness had nothing to do with it, and that his strategy was simply to play nice and expect the Soviets to play nice, too, but I guess you’ve set me straight on the history [if there's a "sarcasm" emoticon, insert it here].

    Sure, eventually he got to the point where he could smile and shake hands with Gorbachev on agreements, but it seems odd to me that you’d disregard everything he said and did over the years — all displaying Cold War toughness (including very provocative comments — “focus of evil”; “tear down this wall”; etc.) and toughness in general — leading up to that point. (I should note that a glaring exception was the pullout of marines from Beirut, which sent a signal of weakness that later encouraged bin Laden to strike the U.S.)

    That said, your point seems actually to have little/less to do with my point re: the implications for national security concerns than with your apparent belief that Obama is at fault for the lack of progress on the fiscal imbalance only/mainly because (in your view) he did not negotiate in good faith, etc., and not at all (or not much) because of a lack of toughness amid the standoff. My view is that both sides acted more or less similarly, and both tried to get as much as they thought they could and compromise as little as they thought they had to, but my sense is that Obama left money on the table, conceding more to the Rs than he had to. Obviously YMMV, and I haven’t been following it thoroughly enough to know if your view reflects bias, but there does tend to be a strong tendency among people of each side to say the kinds of things you just said about the other side, so there seems to be an abundance of such bias out there, whether you are an exception or an example. By the way, I’ll take this opportunity to once again plug http://www.amazon.com/True-Enough-Learning-Post-Fact-Society/dp/0470050101 which I wish everyone in the world would read.

    In any case, these are two separate points (the point re: Reagan and the point re: why Obama didn’t achieve more deficit-reduction in this deal).

  11. comment number 11 by: Brooks / Gordon

    As just an additional note, I was also concerned by Clinton’s emphatic, finger-pointing denial of having had sex with Lewinski, not because I care what a president does sexually or even a denial per se, but because, in my view, there was some chance that putting on such an act would detract from his credibility if he had to issue a threat such as Kennedy’s 1962 on-air warning that if nukes were launched from Cuba amid our blockade (ahem, excuse me, “quarantine”), we’d obliterate the Soviet Union. Granted, an adversary might view the two situations as so unrelated that it wouldn’t matter, but it’s also not inconceivable that an adversary, having witnessed Clinton glaring and passionately insisting on something he knew was untrue, might be somewhat more likely to think he was bluffiing when issuing a threat in a similar tone.

    Again, my point re: national security is that something that harms credibility even when pertaining to some domestic matter can harm credibility more broadly, including (potentially most dangerously) national security. And if Obama is percieved by adversaries as a president who can be largely rolled even when he has substantial leverage, and as a president whose “red lines” are really just wishes that he’ll abandon when push comes to shove, that could be dangerous, whether it means they get away with doing harm and/or increasing risks to us (and/or friends), or means we end up having to wage war because they called the president’s bluff and he follows through.

  12. comment number 12 by: AMTbuff

    Making AMT relief and all the tax rates permanent was a win for Republicans in addition to promoting more honest debate. Dedicated liberals were continually counting the fantasy revenue from sunsetting tax rates. That rhetorical weapon has now been confiscated.

    Brooks, I agree with your assertion that credibility, stability, reliability, and ability to cooperate are crucial qualities to political success. Obama has none of these, but he is a superb campaigner. Therefore we will get 3 more years of campaigning now.

  13. comment number 13 by: Vivian Darkbloom

    Brooks,

    Again, you are confusing “being tough” with strength of character.

    I doubt very much that Reagan was playing chess or poker. I don’t think it was ever about “tactics” because “tactics” have nothing to do with principle. He was not being “tough” for the sake of gaining tactical advantage. He was just being himself, adhering to his own principles, consistently. The latter has nothing to do with chess or poker. Chess and poker do not end up in a negotiated agreement. That’s exactly where both you and Obama are totally wrong.

    The problem with Obama is that he has no such character and it’s anyone’s guess what his real principles are, if any. When he tries to act tough, which is frequently, it comes off as insincere and condescending. This faux toughness has nothing to do with character. After two presidential campaigns and nearly four years of presidency, no one really has a good idea of what he really stands for. All of this is one reason why, when the going gets tough, they call in Joe Biden.

    To paraphrase Lloyd Bensen: I knew Ronald Reagan, and Obama is no Ronald Reagan.

    Perhaps I have a somewhat different perspective because by that time I’d already voted in a few presidential elections. The contrast is both dramatic and depressing.

  14. comment number 14 by: Brooks / Gordon

    Vivian,

    First, the term “tactics” in the context of your comment seems intended to convey smallness or even pettiness, which is probably why you introduced and repeated the word “tactics” rather than referring to strategy or strategies. And you seem to be quite unfair to Reagan by apparently implying that all he did was speak and act based just on principle rather than thinking about consequences and doing so strategically.

    “Peace through strength” was an overall strategy, whether you want to recognize it as such or not, and it only works (in the sense Reagan meant it) if you get your adversary to perceive you as strong. And supporting strategies (to name just a few off the top of my head) included the defense build-up; the “Reagan Doctrine” of rolling back Soviet influence rather than just continuing the effort at “containment” (and probably aiming to hasten the eventual implosion of the Soviet Union itself); development of large-scale missile defense (SDI, which he refused to compromise on even though it meant walking away from Gorbachev at Reykjavik); severe anti-Soviet rhetoric (“focus of evil”, etc.) and blunt, public demands (including even after negotiations with Gorbachev had started – “Tear down this wall!”)); beefing up the regional nuclear deterrent in Western Europe (deploying the Pershing missiles); and (I think) signaling that he wasn’t shy about using American military power on at least a limited basis.

    I could go on with this point and with this exchange, but I don’t think it would be worthwhile. You seem intent on conflating two separate points (a distinction I pointed out in a prior comment), and in your effort to do so you seem intent on (at best) grossly cherry-picking and distorting Reagan’s approach to the Cold War in order to transform a square peg into a round one that you can claim fits the round hole you want to put it in re: the separate point of why Obama didn’t achieve much in this deal to lower projected deficits. You probably would continue at this no matter what I say, so I’ll try to resist saying any more after this about your seemingly silly and unfair (to Reagan) claim regarding Reagan.

    On another subject, do you have no answer to my question at http://economistmom.com/2012/12/doomsday-for-the-cliff-deal/#comment-99306 regarding how you labeled me?

  15. comment number 15 by: Vivian Darkbloom

    “I could go on with this point and with this exchange, but I don’t think it would be worthwhile. ”

    I agree.

  16. comment number 16 by: Brooks / Gordon

    Vivian,

    ok. Feel free to answer that question at link, though. If you’re going to label people (e.g., “on the left” as you labeled me), at least some general response would be appropriate.

    And by the way, what do you consider yourself along that spectrum?

  17. comment number 17 by: Brooks / Gordon

    Vivian,

    I see now that comments on that thread are no longer possible, so again here:

    Everyone on the left, including you Brooks…

    On what basis do you consider me “on the left”?

    And what/where do you consider yourself along that spectrum?

  18. comment number 18 by: Vivian Darkbloom

    Brooks, relax. I was not trying to call you a lefty, although I can understand why grammatically you could have taken it that way. Besides, I don’t consider it pejorative, even if I had consciously wanted to put you in that category.

    As far as it concerns me, “it depends on the issue”.

  19. comment number 19 by: Brooks / Gordon

    Vivian,

    I”m relaxed. And I wasn’t taking it as a pejorative. I was just curious, because my experience is that people on the right have often called me a “lefty” and people on the left have often called me a “right-winger” or clearly so implied, and it’s usually just because I challenged them on their premises or reasoning, etc., (either because something in their argument seems invalid, or to play devil’s advocate and/or seek to flesh out his/her argument to see how strong his/her argument is, and to learn accordingly), so they just assume I was on the “other side” on the issue and overall, even though I often do that when I happen to be closer to that person on that overall issue than I am to the “other side”.

    So I just wanted to see if you had such a bias (at least what I consider a bias), or if perhaps you define “the left” in some way that would fit me (and which I think would be an unconventional view of the political spectrum, although perhaps prevalent among regulars on right-wing echo chamber blogs who tend to view anyone to the left of a card-carrying Tea Partier as a “lefty”).

    Anyway, thanks for clarifying. And FWIW, it depends on the issue for me, too.

  20. comment number 20 by: Vivian Darkbloom

    Brooks,

    As an addendum to your question of where I stand in the political spectrum, I recall having taken an on-line survey a couple of years back that was designed to ascertain just that. Someone pointed out the site, and it might have been from a comment to this blog, and that person might even have been you, Brooks. But, I don’t remember that anymore. I seem to recall that the thing was put together by someone in Australia.

    But, what I do remember is that the exercise involved a number of multiple choice questions on various and sundry topics, economic, social, etc. I dutifully answered all the questions, many of which I would have answered “none of the above” had that been an option.

    At the end of the exercise, one’s political position was plotted on a chart that I recall had four quadrants. Normally, I’m skeptical about this sort of thing, but when the results were plotted I was pleased to note that I was the maximum possible distance from both Hitler and Stalin.

    I hope that helps answer your question.

  21. comment number 21 by: Brooks / Gordon

    Vivian,

    LOL, great punchline to that story.

    I have low regard for such exercises for much the same reason as yours.

  22. comment number 22 by: ST Dog

    Brooks
    “regulars on right-wing echo chamber blogs who tend to view anyone to the left of a card-carrying Tea Partier as a ‘lefty’”

    Interestingly, most of them are left of John Kennedy (I’m not)

    The “center has moved so far to the left the anyone in the true middle is considered far right. It also leaves little distance between left and far left.

    So the “far right” covers a wide expanse of views and there’s very little to place in the “far left” category.

    If you want to look for the true extremes they are hard to find, though a lot on the right is called extreme, while the opposite to the left doesn’t even count as far-left.

    (Washington and Jefferson would be extreme right wingers.)

  23. comment number 23 by: Jim Glass

    Off topic, message for Vivian:

    I just read your comment about the “platinum trillion dollar coin trick” at Sumner’s…

    http://www.themoneyillusion.com/?p=18493#comment-218176

    Ah, spot on, wonderful.

    We could be friends. :-)

  24. comment number 24 by: Vivian Darkbloom

    Thanks, Jim.

    “We could be friends”?

    Are you kidding?

    We already are.

    But, between us friends, I trust you won’t hold back if you think I’ve written something stupid. It happens to the best of us and honesty is one of the qualities that makes friendship rewarding.

  25. comment number 25 by: Brooks / Gordon

    With the return of the debt limit debate comes…

    The “D” word again.

    And the “just paying for what we’ve already spent” characterizaton.

    Perhaps someone can be so kind as to refresh my memory from 2011 (I did find my comment here http://capitalgainsandgames.com/blog/bruce-bartlett/2296/debt-limit-options#comment-11935 and Vivian’s responding comment containing an important link — http://www.economist.com/blogs/freeexchange/2011/01/americas_debt )

    If the Treasury has the legal authority to prioritize payments (and apparently some question if it has that authority), and if “default” means failing to pay debt service when due, it seems quite clear to me (admittedly, as just a layperson, not any sort of expert) that the federal government could fully pay debt service when due if such payments are a/the top priority, using as a guide the monthly figures at that Economist (Free exchange) link as a guide.

    Is there any reason the above point may not be valid?

    If it is indeed valid, then by what definition of “default” would we be in any danger of defaulting (assuming the Treasury can prioritize)?

    And if the answer is that the “default” would occur as a result of failure to pay government employees for work they haven’t yet done, private sector suppliers to whom we don’t already owe money, and/or beneficiaries of government entitlements (e.g., Social Security beneficiaries) for benefits due in the future based on current eligibility and benefit formulas, etc., then isn’t the real point that continuing to make these commitments at the budgeted/projected levels of expenditure will result in failure to pay money that will become owed (but is not yet owed), not that failure to raise the debt limit per se would cause such failure, given that we could choose not to make such commitments (and even to change policies via legislation if needed to reduce future commitments that are on auto-pilot)?

    And if that is the case, wouldn’t the practical effect of not raising the debt limit (assuming we wouldn’t default on debt service) not that we “wouldn’t pay for what we’ve already spent”, let alone that we’d default on bonds, but rather that we’d have to substantially cut spending?

    (As a note, I don’t think a spending cut of that magnitude with that timing would be net beneficial; I’m just trying — with some help from you guys, hopefully, since I’m not sure — to separate the bullsh*t claims and arguments from the valid ones.)

  26. comment number 26 by: AMTbuff

    Brooks, I think you will find that Jim Glass answers most of your questions at
    http://www.themoneyillusion.com/?p=18493#comment-218017

    Short version: The Constitutional requirement that debt issuance be authorized by Congress trumps any legislative restrictions such as anti-impoundment or entitlement status of spending programs. Congress can no more legislate away its power over the debt than it can legislate away the public’s right to free speech. Congress and the administration may want to spend, but that does not give them the authority to ignore the Constitution when borrowing the money they want to spend.

    That’s in theory. In practice, the Roberts court will do whatever it wants to with scant regard to the Constitution.

  27. comment number 27 by: Brooks / Gordon

    AMT,

    Unless I’m missing something, you are addressing entirely different questions than the ones I asked.

    I didn’t ask anything about what authorization is required for debt issuance.

    If I’m missing the connection between my questions and what you’re talking about, please explain how what you’re saying addresses my questions.

  28. comment number 28 by: AMTbuff

    Sorry Brooks, I was speed reading and I thought you were asking why Obama couldn’t just ignore the debt limit as contradictory to other laws Congress passed. Jim Glass addressed that but not your somewhat related questions.

    As a practical matter the courts will not normally intervene in disputes between Congress and the Executive unless the Constitution is very clear. The courts would rather see Congress enforce the limits through impeachment. This may be changing as the Supreme Court assumes a progressively more political character.

  29. comment number 29 by: Jim Glass

    Austan Goolsbee just explained why we hit “another fiscal cliff every two months” in a nutshell, on Charlie Rose:

    “The politicians every day see two very clear poll results:

    “1) 80% of the people agree with the Republicans that spending is out of control.

    “2) 80% of the people say that entitlements are not ’spending’,and will punish anyone who tries to cut them.

    “As long the peoples’ opinions producing these results don’t change, nothing else will”.

    Period. End.

    Nothing will change until we’ve put off everything until some sort of crisis hits to shake up public opinion. Period. Simple as that.

  30. comment number 30 by: Vivian Darkbloom

    “If it is indeed valid, then by what definition of “default” would we be in any danger of defaulting (assuming the Treasury can prioritize)?”

    Brooks,

    I agree with the substance of your comment; however, I would phrase the issue somewhat more fundamentally. That is, before we get to the issue of “default”, we need to address: “by what definition of *debt*”.

    We’ve been over this ground before at CG&G and there’s probably no need to repeat what I’ve already said there last year. My opinion hasn’t changed.

    I would add, however, that it strikes me now more than ever that the arguments forwarded by those who think alternatively 1) if we don’t raise the debt limit, we’ll have to “default on the debt” (as a legal and Constitutional matter); and/or 2) we can issue a trillion dollar platinum coin to get around the issue and that would be just fine because we can interpret federal law on numismatic coinage literally (ignoring all principles regarding statutory interpretation and further ignoring the federal constitution), a reasoning and result that Jim correctly called, “bizzaro”, is just political.

    Most of those who pursue this line and ignore all evidence to the contrary, are in the economic/political blogger echosphere who have zero appreciation for the legal issues involved, much less the potential damage to our system of law and government. Some might sincerely think coining a trillion dollar platinum coin is the *economically preferable* thing to do (ignoring the more profound long-term consequences to our system of government); however, I’m convinced that the majority just want to pursue the misguided and bizarre notion in the vain hope that it will get them just a bit more bargaining power, all other consequences be damned. That’s it, I think, in a a nutshell (to borrow another of Jim’s descriptions, but to be clear, as used by me, it is intended as a double entendre).

    Unfortunately, I also agree with Jim’s conclusion that only a “crisis” will force a resolution. AMT has been saying this repeatedly, but until now I’ve actually held out some hope. It”s probably better that we have a mini-crisis now than wait till the catastrophic one later. That said, I fully agree with Keith Hennessey’s take on a responsible Republican strategy to the debt limit. Hennessey is normally the moderate voice of adult reason and this is no exception.

    http://keithhennessey.com/2013/01/07/a-modest-debt-limit-strategy/

  31. comment number 31 by: Vivian Darkbloom

    This might be a good time to be reminded of the writings of James M. Buchanan, a Nobel laureate economist who recently passed away at the age of 93. Those writings are quite relevant to the issue of how we’ve gotten ourselves in such a mess.

    The New York Times has published a very good obituary of Dr. Buchanan. And, I also recommend the piece written earlier by Tyler Cohen that is referenced to in that obit.

    http://www.nytimes.com/2013/01/10/business/economy/james-m-buchanan-economic-scholar-dies-at-93.html?hpw&_r=0

  32. comment number 32 by: Vivian Darkbloom

    Brooks,

    I simply can’t resist.

    Rivlin and Casey agree with you:

    http://online.wsj.com/article/SB10001424127887324081704578232080227662110.html?mod=WSJ_Opinion_carousel_2

  33. comment number 33 by: Brooks / Gordon

    Thanks Vivian.