Dangerous targets: Why setting a specific deficit reduction target would worsen the economic and fiscal situation | Economic Policy InstitutePosted: 15 May 2013
It is not important now but as soon as they have milked all the PR they can out of Benghazi, IRS and AP then we will return to the BS of the budget deficit…..you might want to keep up because the airways will be filled with false information very soon……..help fight bullsh*t with facts….
Now that I have the Syrian stuff out of my system I will return to righting the wrongs put forth by the lunatics on the Right…..and now I bet you think this will be some rambling about the IRS or the DOJ and AP…..SURPRISE! I will those for lesser minds!
Later this year the circus will return to the budget and the deficit and there is something you need to know………
This is an economic post….I give warning because when it is talked about too many people glaze over and move on…..why? They get all their info from BS sources……but to pretend that one knows all about politics without a knowledge of economics is just plain stupid…..and there are those that will not let facts change their position.
If you are smart enough to turn on your TV then you know all about the budget deficit and the debate around the issue…….if you are paying attention then you have heard all the flap about the debt as percent of GDP….how this is killing jobs and bankrupting the country……right? But there is a problem with this rhetoric……with all this choking debt the nation’s GDP is still rising, slowly but rising, 2.5% for the 1st quarter of 2013….now if the toilet math of the GOP were correct would not the GDP be dropping?
Well the GOP talking point that debt is 90% of GDP and economic growth will cease and may even start to decline…….they got this information from a report by two economists, Reinhart and Rogoff……..a good piece was written and cited on any given day but Repubs time after time…….the problem is…..it is WRONG!
Yes I said WRONG! Not mistaken but outright WRONG!
I will bet you think since you believe me a liberal that I will go about quoting economists like Krugman…..am I right?
Well, just like the Reinhart/Rogoff paper, you and your friends in the conserv movement…..would be WRONG! Yes, I emphasized the word WRONG!
………….the most recent period of 2000-2009, which in almost all cases will be the most relevant set of experiences with respect to current policy debates, average GDP growth when public debt is above 90 percent of GDP is higher than when the public debt/GDP ratio is between 60 and 90 percent. The findings in our paper are clearly not consistent with the notion that we consistently observe a sharp fall-off in economic growth when the public debt/GDP ratio exceeds 90 percent. As for the misconceptions concerning causality, I encourage people to read the contribution by my professor Arin Dube. His treatment of the topic is highly readable and offers strong evidence that causality runs from slow growth to high debt.
There is not one word in our paper which suggests that a high level of government indebtedness is never a problem. It would be absurd to think that governments never have to worry about their level of indebtedness. The aim of our paper was much more narrowly focused. We show that, contrary to R&R, there is no definitive threshold for the public debt/GDP ratio, beyond which countries will invariably suffer a major decline in GDP growth. The implication for policy is that, under particular circumstances, public debt can play a key role in overcoming a recession. The current historical moment, with historically high rates of mass unemployment in both the U.S. and Europe and with interest rates on U.S. Treasury bonds at historic lows, is precisely the set of circumstances under which we would expect public borrowing to have large positive effects, with comparably fewer costs. Moreover, it is precisely the set of circumstances under which we expect austerity to have substantial negative effects.
But do not take my word for this……..the PhD candidate’s findings are linked above……read it and decide……..I will also post this article in full in a latter post today….read it……
I realize that the mindless regurgitation on the right will not read this or embrace it….and most likely will not understand anything that is not boiled down to a slogan….I would like to believe that Conservs are not idiots just misinformed…..I said I would like to believe it….but I have seen nothing about them that would lead me to think better of them…..
A couple years back two dudes, Simpson and Bowles, got together with a group of guys and had a commission that was suppose to be an alternative to the bullsh*t of the budget debate…….it was a complete failure! Even the prez who created the commission did not take any of their advice for the argument on the deficit….I other words it was a complete waste of time and energy……(go figure….a waste coming out of Washington)…….
Their first plan was a bust ….so what to do next? How about another budget plan?
The former chairmen of President Obama’s 2010 fiscal commission, Erskine Bowles and Alan Simpson, on Friday will release a new deficit reduction plan in the hopes of reviving a debt grand bargain this year.
The two-step plan has about $800 billion more in spending cuts than President Obama is seeking and $1.1 trillion more than Senate Democrats have proposed, while adopting roughly the same amount of new taxes from tax reform called for in Obama’s 2014 budget.
The new Bowles-Simpson plan calls for $585 billion in tax revenue from a reform process that starts by eliminating all deductions — then adds back in only those most needed — adopts a territorial tax system and maintains progressive tax rates. This is less than the $975 billion in tax increases in the Senate budget.
By their measure, the newest Bowles-Simpson plan will achieve $5.2 trillion in deficit reduction including laws enacted since 2010, compared to $4.3 trillion in reductions in the Senate-passed budget and Obama budget. Both of these calculations assume that $1.2 trillion in automatic sequester cuts are going to be turned off.
Bowles and Simpson say that their plan will bring the national debt down from 78 percent of the economy to 69 percent of gross domestic product. This compares to 70 percent for Senate Budget, 73 percent for Obama and 55 percent for the House-passed budget authored by Rep. Paul Ryan (R-Wis.).
The Ryan plan balances without raising taxes by cutting $4.6 trillion in spending, while keeping the $1.2 trillion sequester in place.
The vast majority of the cuts would come from Medicare. Medicaid is largely insulated, except for a plan to eliminate a tax that some states use to drive up the federal government’s share of Medicaid payments.
The new plan would expand Medicare’s means testing — charging wealthier seniors a higher premium — an area where Republicans and the White House agree.
There you have a synopsis of the ‘new’ plan…..but will it be as worthless as tits on a boar…..kinda like their first attempt?
It is election time and we have both parties screaming about cuts and which part of the government needs to be cut and why…..the GOP wants to cut everything but the military, regardless who is screwed by those cuts and the Dems want to cut the military and do not care about the consequences of massive cuts…..the truth of the matter is that we, as a country, will be cutting and cutting deeply…..the only question is who will pay the ultimate price of those cuts?
And now the Speaker of the House has fired the first shot on the national debt thing and promised that it will be another messy year of racing to mics to throw out the talking points….everyone will get their chance at the mic and the one liners and the people slowly suffer and unfortunately they do it in silence…….
But cuts, any cuts, will have consequences as pointed out on the website of Dirty Hippie……
A government budget cut is like a huge tax increase on regular people because it increases what each of us pays for the things government does — or forces us to go without. This is because cuts in government spending don’t actually cut the costor the need for those things, they just shift those costs onto the larger economy. But because these shifts attack the economy-of-scale, transparency, integrity and public-good management that government provides, they almost always increase the costs and harms to the larger economy.
- As government health care is cut (or not provided in the first place) each of us must take on those costs on our own, and as demonstrated, pay up to seven times what the same care would/could have cost.
- As infrastructure maintenance and modernization is cut, our economy becomes less competitive, unemployment increases and our wages and spending power fall.
- As spending on education is cut, our costs of educating ourselves and our kids increase. College costs soar. And the overall education level of our people will decrease, making our country less competitive in the world.
- As environmental regulation and enforcement is cut the costs of the resulting health problems and cleanups increase and our quality-of-life will decrease.
- As enforcement of labor laws is cut, our wages and protections fall.
- As etc. is cut, the costs of etc. are shifted to the larger economy, and the total costs of accomplishing etc. actually increase.
As budgets are cut, the costs are increased and shifted to the larger economy.
After the election we will find out who will pay the price for the decisions made in Congress over the last 40 years ……will it be the people or will it be the sector that has gotten all the benefits in those 40 years? My money is on the people……and the government will not even use Vaseline to make it less painful.
Yesterday the members of the Supercommittee announced that they could not find the guts to come to a filibuster proof solution to the deficit…..all the games….all the partisanship…..and all the total bullsh*t!
WE all have waited with baited breath……will we or will we not have a deal?
And the answer is in……(drum roll and trumpets sound)……..the supercommittee was a pathetic FAILURE! They spake not! A DISMAL WASTE OF TIME AND RESOURCES!
These idiots ( I am sorry to call them idiots but if the shoe fits……) could have just used the Simpson-Bowles Plan…….
The plan starts with a series of “guiding principles,” most of which are exemplary. But, as this analysis explains, the specifics of the plan violate some of the co-chairs’ core principles — namely, the principle “Don’t Disrupt a Fragile Economic Recovery” and the principle to “Protect the Truly Disadvantaged.” In addition, at least one principle is deeply misguided and could do serious harm to the nation in the future — the call to hold revenues and spending to no more than 21 percent of GDP, despite the challenges the nation faces in the decades ahead. 
“Don’t Disrupt a Fragile Economy”
The proposal to start implementing budget cuts in fiscal year 2012 — a short 10½ months from now — runs a substantial risk of impeding the economic recovery. In its most recent economic forecast, the Congressional Budget Office projects that unemployment will still average 8.4 percent in fiscal year 2012 and that the gap between actual GDP and its potential level will not be closed until the end of 2014. A growing number of private economic forecasters are expressing deepening concern over the economy’s lack of steam and its potential to experience growth too anemic to lower unemployment significantly over the next few years. It would be far better to delay implementation of significant deficit-reduction policies at least until fiscal year 2013, when there should be less chance of stifling the recovery and locking the economy into a long period of sub-par performance.
“Protect the Truly Disadvantaged”
While the plan aims to avoid violating the co-chairs’ principle “to protect the truly disadvantaged” by not proposing widespread cuts in means-tested programs, it nevertheless threatens benefits and services for millions of Americans who have very modest incomes and would experience significant hardship.
For instance, while the proposed changes in Social Security would produce benefit increases for many among the poorest fifth of Social Security beneficiaries — a praiseworthy accomplishment — the changes would cut benefits for those in the next-to-the-bottom fifth and the middle fifth of beneficiaries. Social Security Administration data show that in 2008, the median income for elderly Social Security beneficiaries (including any income they get from other sources, as well as their spouses’ income) was only $14,100 for those in the next-to-the-bottom fifth and $20,600 for those in the middle fifth.
Indeed, the plan would cut Social Security benefits for a medium earner (one whose earnings are in the middle of the wage distribution) by 15 percent below the currently scheduled amount in 2050 and 22 percent by 2080. Yet a lifelong medium earner who retires at age 65 in 2010 receives a benefit of just $1,397 a month, or $16,764 a year — which is only about 55 percent above the poverty line — and generally does not have significant income from other sources.
The plan’s cuts in Medicaid and Medicare would pose further problems for millions of people of modest means. The plan calls for increasing the amounts that elderly and disabled Medicare beneficiaries must pay for health care services (presumably through higher co-payments) under both Medicare and the Medigap policies that supplement Medicare coverage. The plan lacks details on how these changes would work, and they might well be reasonable parts of a balanced deficit-reduction plan — if they were not being extracted from the same modest-income seniors and people with disabilities whose Social Security benefits were being cut at the same time. As Drew Altman, the highly respected president of the Kaiser Family Foundation, recently explained, many of these modest-income Social Security and Medicare beneficiaries
have low incomes and already pay a significant share of their incomes for health care today. It will be difficult if not impossible to ask the majority of beneficiaries to pay more or make do with less. This has been the missing element in the entitlement/deficit reduction debate: Warren Buffet is not the typical Medicare beneficiary. Instead the prototype is an older woman with multiple chronic illnesses living on an income of less than $25,000 who spends more than 15 percent of her income on health care. It is the people on these programs and the realities of their lives that have been left out of the discussion.
Another health-care element of the plan poses still greater risks for the nation’s most vulnerable people by threatening severe cuts over time in Medicaid, Medicare, and the subsidies to help modest-income people purchase coverage in the new insurance exchanges that the health reform law will establish. The plan proposes to contain growth after 2020 in federal health expenditures for these programs and the tax exclusion for employer-sponsored insurance to no more than 1 percent more per year than the rate of growth in GDP.
Tough, but rational, targets for slowing health care cost growth virtually always are based on per- beneficiary costs, not aggregate costs. For example, the target for Medicare cost growth that the Independent Payment Advisory Board established by the health reform law must hit is GDP plus 1 percent per beneficiary. The difference here is crucial. The Bowles-Simpson target is for total health program costs, rather than costs per beneficiary, to rise no faster than GDP+1; that would likely lead to draconian results. It would mean that as the share of the population that is elderly increases, cuts of increasing severity likely would have to be made in Medicaid and Medicare to fit total federal health-care expenditures within an entirely unrealistic constraint. Over time, the effects on vulnerable Americans could be grim.
Or some form of this…sign their names to it and look like they have earned their salary for the year…..but NOOOOOO….that would be too much like right…….
This exercise in futility reminds me a a shirt I have seen…..”Never underestimate the stupidity of a large crowd”!……….
Speaking of “recreational drugs”!…….may I see a show of hands of those who thought this idea was a good one?
This may have been defeated….but you WILL see it again…trust me.
A lot of media has been dancing around the newest budget two step……called the Cut, Cap and Balance Act of 2011….I know if you are at least mildly interested in what is happening in Washington, you have heard the term used and most likely, used often……..but what is it? (I know that is on your mind because the media is very cloudy on the issue)…….
First of all the different parts of the act……..
- Cut – Substantial cuts in spending that will reduce the deficit next year and thereafter.
- Cap – Enforceable spending caps that will put federal spending on a path to a balanced budget.
- Balance – Congressional passage of a Balanced Budget Amendment to the U.S. Constitution — but only if it includes both a spending limitation and a super-majority for raising taxes, in addition to balancing revenues and expenses.
I will set about to explain each part of this issue as best as I can…..but wait! I seems that someone has beat me to it….a great site, Blue Wave News (go to blogroll and visit)……….one of their writers a FleetAdmiralJ, a Dem no doubt has done an excellent job of explaining each part of the Act…….I will breakdown his post in 3 or 4 parts or if you are in a hurry go to my blogroll and click on the site……..http://bit.ly/mRYhLS
Title I: “Cut”
Title I is, appropriately named, “Cut.” It’s meant to cut the 2012 federal budget. Sec. 101 would cap discretionary spending budget authority for FY 2012 at $1 trillion, 19.4 billion and would cap FY 2012 discretionary outlays at 1.225 trillion.
Just for comparison, FY2010 (which is the last year we had a real budget), the total discretionary budget was $1.378 trillion, so that would be a cut of $349 billion for budget authority and $153 billion in outlays. And that’s not taking into account any increase in defense spending between FY 2010 and FY 2011. Based on FY2010 numbers, a $349 billion cut in appropriations would result in a essentially a 50% cut in non-defense discretionary funding, if no defense funding were cut from FY2010 levels. Even if one went with the $153 billion in outlays, that’s a 21% cut.
Just for some scope, to make up $349 billion, we would have to eliminate, entirely, the Department of Health and Human Services, the Department of Transportation, the State Department, the Department of Housing and Urban Development, the Department of Education, the Department of Energy, and the Department of Agriculture (give or take a billion).
(To make up $153 billion, if you want to use that number, you would merely only have to cut Health and Human Services and Transportation, plus another 2 or 3 billion).
If one were to carry that cut over 10 years, one would be looking at $3.5 trillion in cuts from the discretionary budget alone based on budget authority, or $1.53 trillion using the outlays number, assuming budget growth is equal to inflation.
Title I also caps the money that can be spent on the “Global War on Terrorism” (their term in the bill) at $126.5 billion. I’m not entirely sure if that is in addition to the discretionary spending or not.
Title I then also caps direct, or mandatory spending, at $680.7 billion, exempting Social Security, Medicare, Veterans Benefits and Services, and national debt interest (note: Medicaid is NOT on the exempted list). This may or may not result in any mandatory cuts in 2012. Based on FY 2010 numbers (PDF), that would be a cut of $60.3 billion (taking out gains from TARP), though would be pretty much even with expected expenses based on FY 2012 projections made in January 2011.
My final analysis of the entire act will be in the last part of this series……please keep reading and let me know what you think of each part or the whole thing….your choice…..
There seems to be some good news coming from Washington…..first of all, it is NOT that the people are happy with their Reps…..
When asked how they felt about the federal government, 80 percent of poll respondents said that they felt dissatisfied or even angry about the work the government is doing. The last time such a peak of ill will was felt was during 1992′s economic slump, under President George Bush’s leadership.
This is something that could impact the 2012 election…watch and learn…..
The happy is coming from the negotiations of the “Gang of 6″….they 3 Repubs and 3 Dems, that have come up with a plan that the Prez seems to like and the media seems to like and the Reps are torn…..but there are other views of this plan and I have read one that I will agree with after hearing all the proposals within the Gang of 6 deal…..
This was written by jcase for a Google discussion board……..
The plan is said to be “balanced,” meaning there will be big cuts in
spending plus some revenue increases from closed loopholes and
abandoned deductions like mortgage interest. That’s alongside, of
course, an agreement to raise the debt ceiling and not revisit it until
after the 2012 elections.But the deal is also a big step in the direction of Austerity Economics
- the lunacy of fighting recessions with more layoffs.
Cuts in basic entitlements – Social Security, Medicare, Medicaid – will
not drive more customers into the empty parking lots in stores across
America, nor fill up the order books of manufacturers. Those empty
parking lots and order books are the number one and two reasons why
economic recovery is sputtering.
The framework that says debt is more important than jobs is
fundamentally backwards. The president’s deficit reduction plans – and
those of the “Gang of Six” – rest on a series of predictions and
assumptions about employment, none of which has proved accurate. And
based on the past quarter’s private sector hiring of only 18,000
workers (far less than the swell of the workforce), these predictions
and assumptions will be flat out wrong for the future. The lesson: if
employment does not increase no deficit reduction plan will work.
I have said from the beginning of all this …..that cuts will NOT do it alone; it must be coupled with revenue and jobs creation…..without those 3 there is NO debt reduction….unless that is what is intended….and in this political climate I would not put it past some of the amateurs in Congress to work for a default……basically we have turned away from fighting for prosperity to embracing austerity ONLY! The concept of prosperity is NO longer relevant….that only austerity will make the economy strong again…….a pile of steaming bovine fecal matter (to use a fav analogy)……..
These days in Washington there is enough BS flowing in the streets to keep all us politicos writing for months……and then there is the budget debacle…..Repubs have one…Dems have one…..Pres has one…..everybody has a budget,,,,,but the one that is seldom mentioned is the one that has been offered up for consideration from the Congressional Progressive Caucus….it is called the People’s Budget…..
The CPC proposal:
• Eliminates the deficits and creates a surplus by 2021
• Puts America back to work with a “Make it in America” jobs program
• Protects the social safety net
• Ends the wars in Afghanistan and Iraq
• Is FAIR (Fixing America’s Inequality Responsibly)
What the proposal accomplishes:
• Primary budget balance by 2014.
• Budget surplus by 2021.
• Reduces public debt as a share of GDP to 64.1% by 2021, down 16.5 percentage points from
a baseline fully adjusted for both the doc fix and the AMT patch.
• Reduces deficits by $5.6 trillion over 2012-21, relative to this adjusted baseline.
• Outlays equal to 22.2% of GDP and revenue equal 22.3% of GDP by 2021.
It is an interesting document and well worth some real attention….read it for yourself…..
There seems to be a wealth of proposals out there to help out our budget deficit…..and personally, would like to see them all get the light of day and let the true people of the country see which one makes the most sense and which one would do the most good…..something I know will NOT happen but one can dream…..But wait! Does it say a balanced budget in 3 years? Yes it does! If I am not mistaken that is way sooner than golden boy Ryan’s proposal…..if true why does it NOT get more air time? My guess is that it does not play well with corporate American and since they own most of the media….it will be ignored!
We can change that….how? Tell your reps in Congress that they need to consider the CPC budget and remind them that elections are quickly approaching…….WE CAN MAKE A DIFFERENCE!
Repubs have been using this tired diatribe for years….you know if you say something long enough people will start believing the words without checking the facts……and it is working. For months now the GOP has been on a massive ad campaign to make the people, the voter, think that cuts in ALL services are needed or the country will go under and of course they use Greece, that scary scenario playing out in Europe…..and it is working…..all those talking points that are repeated 100 times a day…..are working.
But people are we truly going broke or is it all so much bovine fecal matter? My vote, no surprise to anyone, is it is Bovine in nature…..the Economic Policy Institute (EPI) has issued a new report……
Nevertheless, while these claims have little in the way of truth, politicians and pundits have successfully used them to promote budget cutbacks and the notion that employers cannot afford decent pay and benefits.
The paper shows the economy has seen steady growth in income and wealth over the past 30 years and will see similar growth in the next 30 years. The caveat is the middle class hasn’t seen much benefit from that growth. Since 1979, the top 10 percent of households have received almost two-third of all the income gains, with the top 1 percent claiming 38.7 percent.
Read the report in its entirety….there are questions answered and some new ones asked…..Before you jump on any bandwagon do a little research and see if you are being told the truth…….
We hear this from the politicians as they go about the word games instead of doing something about the problems……during the election it was JOBS…..and why the Obama admin could not create any……well, for 140+ days the Repubs have controlled the House they have create NO jobs and offered NO jobs legislation……well America…..yet another wasted VOTE……
Let me see….corporations get their tax breaks, financial markets get to keep gambling with taxpayer money, courts giving corporations the same rights as individuals…….so on and so forth….we all know the headlines by this point…..but what are the people, the middle class and poor, getting out of all this “shared sacrifice”? States are having to make drastic decisions….they will cut taxes on businesses and cut services to the poor……
The Center For Budget And Policy Priorities has issued a report……
* Monthly cash assistance benefits have been cut in several states. This is pushing hundreds of thousands of families and children well below the poverty line.
* Time limits for receiving TANF benefits have been shortened. California and Arizona are two of the states carrying out such measures, which have the result of cutting off thousands of very poor families from any aid. Other state legislatures are discussing shortening time limits from 60 months to as short as 18 months.
* Working families with low incomes face cuts in TANF-funded supplements in several ways. Michigan’s Earned Income Tax Credit (partially funded by TANF) is being slashed by two-thirds, for example, raising state income taxes for several hundred thousand low-income working families. This is part of a state budget that sharply cut taxes for corporations and the wealthy. In other states, families are having their supplemental TANF benefits cut or eliminated.
The report points out, “States are terminating or reducing benefits for some of the most vulnerable families, most of whom have very poor labor market prospects.” This is under conditions of a continued jobs crisis.
While the states are directly responsible for implementing the cuts, the federal government and the Obama administration are just as culpable. As the CBPP notes, “The TANF cuts are due in substantial part to the inadequacy of the federal TANF block grant.”
Despite the fact that the creators of TANF in 1996 gave assurances that a TANF Contingency Fund would be maintained to provide help during economic downturns, that fund was entirely exhausted in December of 2010 and additional money allocated by Congress for 2011 was so small that it has since been used up.
Now tell me where will the pain come from? That answer can tell more about the direction of this country than anything else you may hear in the media.
Once again we see who the politicians really want to help and who they consider “expendable”……..I know many say the class war is a myth dreamed up by disgruntled “Leftists”…..but it looks like a real possibility to me, if it is NOT already underway.