Ages ago, at the dawn of politics, by which I mean in late 2008, our country had just finished an election cycle of historic significance. Collectively, we knew that we needed something or other that fell under the term “change,” and that’s what we voted for. Along came the 2010 mid-term elections, and we felt confused and anxious. Somehow the meal of change we had voted for last time didn’t taste as good as we were expecting it to. We sent the plate back to the kitchen and asked the chef to prepare us a fresh plate of some other kind of change. Now, as the 112th Congress takes office, we can ask ourselves, exactly what is the chef whipping up back there?

In our hearts, I think we know that our change needs to embrace a new kind of fiscal restraint at the federal level. It’s hard to define, but deep down we know that annual trillion dollar-plus deficits, with federal debt now exceeding $14 trillion, just cannot be sustained. In fact, we voted in great numbers for those candidates who promised such things as “balancing the budget” and “reducing the federal debt.” But that was in the campaign season. As someone (Nixon, I think?) once said, one campaigns in poetry and governs in prose.

What do we know so far about the governing reality? One, we know that our elected officials chose lameduckedly not to capitalize on an opportunity to reduce future deficits — foregoing an opportunity to reduce our federal debt over the next decade by $2.7 trillion. Not that there weren’t good reasons for doing so, but the action did display the stark tradeoff between tax cuts and deficits.

Two, we know that House Republicans intend to trim $100 billion in spending from the next budget. Well, if one is a deficit hawk, I suppose you can at least say that points in the right direction. The federal government spent $6,412.7 billion in FY 2010. So the Republican idea is, apparently, to move us to the $6,312.7 billion annual spending level, an overall reduction of about 1.6%. Personally, I find it hard to discern why spending $6,412.7 trillion (and incurring a deficit of $1,555.6 trillion) is catastrophic, while spending $6,312.7 trillion (and presumably incurring a deficit of $1,455.6 trillion) — each amount being $100 billion less than FY 2010 — is good policy. Seems kind of like saying, you can eat 20 donuts a day and not gain weight… but if that 20th donut has sprinkles on top, then you’re going to rush headlong into morbid obesity.

Three, Republicans are putting a lot of stock into Rep. Paul Ryan’s fiscal “Roadmap.” I like his roadmap, at least in concept; like any smart politician (campaigning in poetry, as I said), he leaves the details fuzzy. But we also must understand how greatly the Roadmap departs from the campaign rhetoric. Taken at face value, the Roadmap envisions non-stop federal deficits for the next 41 years. Those deficits will decline annually until 2017/2018, and then will start to increase again, and will do so through 2037.

Let’s state the fiscal reality out loud, my friends. The Republican plan does not balance the budget. It does not reduce federal debt. It contemplates nearly endless deficits and non-stop additional federal borrowing. That’s not me saying it, that is what is in Rep. Ryan’s Roadmap. If anyone still thinks that deficits and debt accumulation are a function of recent Democratic policies, they are wildly information-averse. These deficits are structural to the core. They are the result of decades of entitlement spending growth and tax cutting.

If there is any remaining doubt that governing reality will fail to match the political rhetoric, let’s all watch today as the new House Republican leadership has the U. S. Constitution read on the floor of the chamber. There’s another bit of powerful campaign poetry: “Restore the government to its constitutional boundaries!!!” Really? Keep a list in the weeks to come of federal programs the Republicans deem unconstitutional and therefore targets for elimination. Then ask yourself, if those programs fail to pass constitutional muster, on what basis do these programs pass: Social Security? Medicare? Medicaid? Food inspections? NASA? National Parks? DEA approvals of prescription drugs? The EPA? Nursing home oversight? Financial market regulation? Are Republicans really going to propose elimination of all these federal programs? Or they are somehow constitutional, but “Obamacare” is not? Where is the line???

In other words, if the Republicans sincerely believe in strict constitutionalism, then go after them all. But if they only target a select few programs, then we will know that their actions are driven by political calculations, and not by true constitutional principles. Another plate of “change” served up to us that ends up being inedible.

Tune out the rhetoric. It is meant only to deceive and pacify you. Observe the actions, and assess the results.

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“Morning Joe” had as guests this morning both Rep. Aaron Schock (R-IL) and Rep. John Shaddeg (R-AZ). These are two of the more thoughtful, reasonable Congressional members of either party. What struck me, though, is the formulation of economic policy that they were putting forth.

Rep. Shaddeg was being asked one of the media’s favorite questions these days, namely, why it is that extending unemployment benefits has to be “paid for,” but extending the Bush-era tax cuts does not. The response — predictable from either party — was that this was all about jobs. Shaddeg made the point that unemployed people don’t spend those unemployment benefits; they hold on to the money for as long as they can. Rep. Schock’s contribution was that the unemployed don’t hire people, business owners do.

To me, this is a complete distortion of economic reality. Of course business owners do the hiring, but why do they hire? They hire for one reason and one reason only: they need the workers to meet the demand for their goods or services. Certainly not because their taxes are lower (or higher). Where does the demand for goods and services come from? From consumer spending, mostly. Create more consumers, or increase the spending of the consumers we have, and demand goes up… and then hiring goes up. It’s pretty simple really. Except somehow it confounds the Washington crowd.

I am not making the case for or against extending unemployment benefits, nor the case for or against extending tax cuts. My point is that we will never get economically sound policy out of Congress if our elected representatives continue to put forth economic nonsense as the basis for policy.

Put very simply, we have to choose between more job creation or more debt reduction, at least in the short run. Republicans have come into town promising both. That’s nonsense. Those two policy aims, each important and valuable in its own right, work at cross purposes, at least in the short run. Pick one. You want job creation? Then extend unemployment benefits and extend the tax cuts — but be honest and tell the American people that it is necessary to raise deficits in the short term to stimulate those jobs. You want debt reduction? Then cut off the unemployment benefits and let the tax cuts expire — but be honest and tell the American people that job creation will suffer in the short run.

Good reading from David Frum here.

If the Democrats lose control of Congress in the November elections because Democrats have offered too little vision for how to address federal spending and long-term structural deficits, then that strikes me as a fair and reasonable outcome. The Democrats have not. Even if the election turns on competing visions of the role of government in addressing the needs of citizens — that is, if voters turn out Democrats because they somehow prefer the current healthcare system to that recently enacted, or they decide they’d rather hope for the best and take no action on global climate change — well, I disagree with those positions, but at least that would be a fair outcome of a fair debate.

If the Democrats retain control of Congress in the November elections because of their policies reversed the catastrophic recession conditions the country faced in 2007-08, then that also is fair and reasonable.

But if the Democrats lose control of Congress because voters blame them for the current lethargy in the economy, that is an unfair and unreasonable outcome. Yet that seems to be exactly where the electorate is right now. What exactly are the objectionable economic policy actions of the Democrats, anyway? That they enacted the biggest tax cut in history? That they put forth stimulus funds that created (or “saved”) an estimated 3 million jobs?

The accurate way to look at it is that a huge economic tsunami was coming at us, and Obama hastily built a levee that mitigated the damage. Was it a perfect levee? No. But we must remember that the tsunami was coming either way. If Republicans had controlled Congress in 2009, and had pursued policies akin to what they are campaigning on now, what would have been the result? No levee at all. Job losses, which had been running more than 700,000 per month at the time, would have continued longer and deeper. The economic contraction would have lasted longer and been more severe. Budget deficits, which are driven by the recession, would have been worse. We would have absorbed the full brunt of the tsunami.

So if the Democrats lose over their handling of the economy in the short run, that’s just wrong.

My simple federal fiscal policy formula:

  1. Accept that these severe short-term federal deficits are an unavoidable consequence of many decades of spending growth, several decades of tax cutting, and the severe recession. It is unwise to sharply rein in these deficits until the economy is stably back on its feet. I define that as when job creation reaches the level needed to start making serious inroads into the unemployment rate — i.e., private sector job creation in the 250,000 per month range.
  2. Courageously attack long term deficits by starting to raise the Social Security/Medicare retirement age (but not for near-term retirees) and by tightening means-testing for Medicaid so that it is restored to its original purpose: a safety net for the indigent, not a middle class entitlement.
  3. In between, restore fiscal sanity by a formula of $2 of spending cuts matched to every $1 of tax increases. Real math, not Washington math.

Is that so hard? Apparently so, because I have not heard a single congressional candidate in this election cycle — not Republicans, not Democrats, not Tea Party folks, not libertarians — not one who espouses anything resembling a coherent fiscal message. This would be the time to do it, too, because for the first time in memory, the electorate seems to be ready to hear that entitlements need to be reformed. I don’t know about tax increases though. Most people still seem in denial about that stone-cold reality.

Seven Things It Seems We Could (Mostly) All Agree On:

1. That non-fossil fuels are better than fossil fuels, and that domestic energy is better than foreign energy. Therefore, promote domestic production of nuclear and alternative energy, and, for the time being, domestic fossil-based energy sources.

2. That the totality of retiree promises extended by the private and public sectors is a contract we cannot fulfill. Therefore, begin the long, slow deflation of the bubble by scaling back entitlements/benefits, and by extending more realistic promises to those currently working.

3. That neither the suffocating prescriptive regulatory framework of the 1970s and 1980s, nor the unfettered Wild West business environment of the 2000s has proved sustainable in the long run. Therefore, pursue enlightened progressive regulation where needed, by imposing appropriate capital and/or reserve requirements on risky corporate actions.

4. That 30 years of federal spending acceleration and tax cutting have left us with spending at record high levels, tax burdens at a 60-year low, and deficits as far as the eye can see. Therefore, calibrate spending reductions and tax increases until we are back in equilibrium.

5. That teachers’ unions really do put the interests of grown-ups over those of children, and really have gravely compromised the quality of public education. Therefore, break or circumvent them.

6. That all meaningful growth in personal income and personal wealth over the past 30 years has occurred only among the highest income Americans, meaning there has been a wholesale shift in wealth from the middle class to the wealthy. Therefore, be open to policies that restore the previous equilibrium.

7. That Congress has become incredibly beholden to special interests, chief among them the established political parties, putting at risk its ability to govern in a wise and thoughtful manner. Therefore, break down the hide-bound rules of seniority and deference that invest power in a select few.

I have been saying for years that the orthodoxy of tax cutting that originated back in the Reagan administration is as responsible for today’s vast deficits and federal debt as over-spending. After all, say what we will about FDR and the New Deal, or Johnson and the New Society — at least through the 1970s we pretty much paid for the government we demanded. Jimmy Carter left office with less than $1 trillion in federal debt. Since then, though, it has exploded, driven by both steadily rising spending and by tax cutting measures. Debt doubled under Reagan, and nearly did so again under Bush 43. By the time we get to Obama, debt is piling up at the rate of more than $1 trillion a year.

As a result, I have been highly critical of Tea Party and other right-wing types who espouse a “cut spending, cut taxes” view of fiscal policy. I believe that deficits and the resulting debt are the great threat to our future. Tax cuts in this environment are not merely illogical, they are irresponsible. If your family is deeply in debt, you work to cut spending and raise your income. You don’t cut spending and ask your boss to cut your pay. We cannot in good conscience cut today’s taxes, which raises the deficits and puts an even greater burden on future generations.

Now, along comes a front page piece in USA Today, of all places. The headline reads “Tax bills in 2009 at lowest level since 1950“. On average, 9.2% of our personal income is paid in taxes at all levels of government. Our taxes are at their lowest level in 60 years. Let’s have that sink in: lowest in 60 years. What could possibly be the argument for cutting taxes even further than a 60-year low when we are saddling our children and children’s children with more than $1 trillion in debt by the year?

Do you know what is “conservative”? Conservative is paying for what you buy, and not acting like a god-damned socialist and expecting someone else to pay for it instead. Spending cuts and tax increases, please.