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.

President Obama is meeting with Republican Congressional leaders today, ostensibly to work out a game plan for the lame duck session. Or maybe it’s just crab cakes day in the White House kitchen, and who wants to miss out on that, yanno?

The two big issues on the agenda are the extension of unemployment benefits, which expire after today, and the extension of the Bush tax cuts, which expire on December 31. On the tax cut piece, the argument is limited to whether the tax cut from 39% to 36%, which applies to the highest tax bracket or about 2% of the population, should be extended. Everyone agrees on extending tax cuts for the other 98% of taxpayers.

The policy dilemma is that Republicans have pledged both to cut the deficit (which calls for letting the tax cuts expire) and to lower taxes (which, of course, calls for extending the tax cuts). President Obama should use that dilemma to his — and the economy’s — advantage today. He should present the Republicans with a public statement that says this:

“We are pleased to announce we have reached an agreement with the President to extend the tax cuts enacted earlier this decade for all Americans. While we recognize that the economy has rebounded these past two years, we also know that it is a fragile recovery. We have a responsibility to preserve and expand that recovery, so that the private sector can create more desperately needed jobs in the months to come. Extending these tax cuts for all Americans is an essential step in promoting that recovery.
“At the same time, we are troubled by the impact of extending these tax cuts on the federal deficit. Our agreement with the president today will add more than $2 trillion to our national debt over the coming years. We ask the American people to understand that what is necessary to solve today’s jobs crisis may increase federal deficits in the short run. We pledge to work with the president to find long term solutions to our fiscal crisis, solutions that bring government spending to a sustainable level without disrupting the ongoing recovery.”

If the Congressional Republicans agree to make, and adhere to, this statement, couldn’t the president go along? And wouldn’t that be good for America?

“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.

I try to keep my exposure to media opinions to a minimum, and to find my way to original source material wherever I can. I don’t like my ideas pre-thought for me by someone else. Hence, this afternoon I found myself perusing the Republicans’ A Pledge to America. On the one hand, I get that vagueness is standard campaign strategy for any minority party. “Hope” and “Change” were pretty vague, too, and many people now find themselves bewildered that Obama doesn’t always hope for precisely the change they thought he would.

While vagueness is an understandable political necessity, outright contradiction, whether of principles or of facts, is another thing. That kept going through my mind as I read this thing.

“America is an inspiration to those who yearn to be free and have the ability and the dignity to determine their own destiny.”

I don’t know what message I am supposed to be getting from a party that says that the same week it defeated the repeal of Don’t-Ask-Don’t-Tell. Contradiction.

“Rising joblessness…” and “Our economy has declined… with the loss of millions of jobs.”

Huh? Joblessness is falling, not rising. Our economy is growing, not declining. Since the recovery began, the economy has added nearly a million private sector jobs. Sure, these things are too little too late for too many millions, but the rhetoric in the document describes 2007-09, not the present.

“By permanently stopping job-killing tax hikes, families will be able to keep more of their hard-earned money.”

This is contradicted firstly by the simple fact that the March 2009 stimulus package included the largest tax cut in history for most Americans. Almost $300 billion of the total $787 billion was tax cuts. It is contadicted secondly by the Republicans’ current unwillingness to extend the middle class tax cuts enacted under President Bush. They do have a stated reason — the Democrats’ opposition to extending the Bush tax cuts for the wealthiest 2% of Americans. But the rhetoric in the Pledge is that “families will be able to keep more of their hard-earned money.” They did not write, “High income business owners will be able to keep more of their hard-earned money so that their companies can grow and other people that didn’t get tax cuts can get jobs.” That is, their tax cutting policy is directed to high income Americans, but the rhetoric of the Pledge makes it sound as if it is directed to middle America. Contradiction.

“We will rein in the red tape factory in Washington, DC by requiring congressional approval of any new federal regulation that may add to our deficit and make it harder to create jobs.”

Okay, this one isn’t a contradiction. I just found it hilarious that the plan for cutting through regulatory red tape is going to be direct intervention by Congress. We will all be able to rest easier when, Congress, that paragon of sleek performance, is on the job.

“…we will roll back government spending to pre-stimulus, prebailout levels…”

You know, like the good old days… back in 2008. When the government had to borrow… pause… $1.5 trillion to fund its deficit. We are suppose to elect you so you can knock a paltry $100 billion off of spending and return us to days when federal debt was rising faster than it is now? Good job, guys.

[Debt at December 31, 2008: $10.700 trillion. Debt at December 31, 2007: $9.229 trillion. Increase = $1.471 trillion. Source: US Treasury: http://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm. I warned you: I go to the original source material.]

“We will require that every bill contain a citation of Constitutional authority.”

Besides simply wondering what this “citation” is and who will issue it, the authors of the Pledge need to explain how Social Security, Medicare, Medicaid, farm subsidies, the Environmental Protection Agency, NASA, the entire Department of Housing, the non-defense portions of the Department of Energy, the entire Department of Education and, quite frankly, most everything we know our federal government to be today will pass this test. Why do all those long-standing, widely or even universally accepted functions of federal government pass constitutional muster, but somehow the most recent increments do not? Exactly what was the constitutional line that we crossed in January 2009? Or if Republicans in fact do intend to apply constitutional principles fairly, then they should at least give us a little heads up that 90% of the government as we know it will be eliminated. That’d be good to know before the election.

The economy sputters on. Meanwhile, our elected leaders debate what to do about it, in fact, much of the ongoing midterm campaign centers on it.

The Democrats, being in power, have already played their hand. The stimulus package of early 2009 was a grab bag of spending and tax cuts. [Not really the point of this post, but I’m so tired of the counterargument that “the stimulus failed, because they promised that unemployment would peak at 8%.” Any thinking person understands that the meaning of that presentation back in those days was that the stimulus package would lower the peak unemployment rate by about 1.5%. At the time, they estimated it would peak at 9.5% if no action was taken; hence, the stimulus would lower the peak rate to 8%. Instead, the recession proved to be much more severe, and so it peaked at 10%, versus 11.5%. Either way, every economic analysis supports the contention that about 3 million more Americans would be out of work today without it. Every counterargument I have ever seen is ideological, not economic.]

Republicans, being the minority party, have played the role of critic. As far as I can tell, the only policy prescription they have supported is the extension of the Bush tax cuts for the wealthy. There is also a lot of talk about “cutting spending” and “balancing the budget,” but I severely discount that talk. I discount it because: (1) cutting spending will weaken the economy in the short run. Spending discipline is a crucially necessary solution for the long term, but harmful in the short run — why, after all, do people think Congress never cuts spending? Because all the benefits are long term and all the short term impact is negative; and (2) I have watched the Republican party increase federal spending every time they have held power over the past 30 years, so, yeah, I don’t believe it. Anyway, that leaves the Republicans with tax cuts as their sole credible policy option.

Into this policy debate wades the intrepid CBO. They have analyzed 11 separate policy prescriptions. Of the eleven, extending the Bush tax cuts ranks dead last in terms of short term economic benefit. Why is this? Because tax cuts for the wealthy are a supply-side solution. The current weakness in the economy is based on low demand: people just ain’t buyin’ stuff. Tax cuts for the wealthy have little impact on consumption, because they tend to save the additional money, not spend it.

Think about it this way. The Republican argument is that economic growth depends on small business; that is where jobs are created. True enough. But why exactly does a small business owner hire the next employee? Because his tax rate is lower? No. Because he has more customers to serve. Period. I myself started a business in 2003, and now it has about 1000 employees. I can tell you that never once did we set our hiring plans around federal tax policy. “Hey, Bush cut my personal taxes… let’s go hire a few more people.” Nonsense. We hire whenever demand for our services outpaces the capacity of our current team to meet it. So, you fix the economy by creating more customers. Tax cuts for the wealthy fail to do that, so that is why it scores so dismally on the CBO analysis.

Back to the March 2009 stimulus package. Every Republican out there campaigning that the stimulus failed, and arguing instead for tax cutting policies, needs to explain why the $250 billion in tax cuts provided by the government in the stimulus package failed to work, and why more tax cuts would work the next time. Personally, my conviction is deep that the stimulus did exactly what it was supposed to do. Find me the maintstream economist who says otherwise.

*Derived from my own comment on another post of mine*

I have never completely understood something about a key conservative economic belief. Is the idea supposed to be that prosperity comes from the act of cutting taxes? Or that prosperity comes from taxes simply being low when you’re done cutting them. There’s a huge difference. Surely Reagan cutting taxes, when the top marginal rate had previously been 70% or so, is not the same thing as cutting taxes today, when the top marginal rate is half that. Yes, Reagan cut tax rates, but even when he was through, both the top marginal tax rates and the overall level of income taxation were much higher than anything on the table in 2010 — with or without the expiration of the Bush tax cuts. Conservatives point to those tax cuts as ushering in an era of prosperity.

Somebody needs to explain to me why Reagan’s tax policies produced economic prosperity, but Obama’s plan to allow the Bush tax cuts to expire — after which, marginal and overall tax rates still will be much lower than Reagan ever saw — would produce economic failure. That is a paradox not easily resolved.

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.