hudebnik: (rant)

There's been a lot of debate over how dreadful it would be to hit the debt ceiling. Some R's say "it won't be that bad," which ironically would weaken their bargaining position that the D's have to give them what they want or terrible things will happen. There's talk about the government's ability (or not) to "prioritize" which of its obligations will actually get paid on time: do we protect bond holders in order to keep interest rates down (at the political risk of being seen again as bailing out rich investors while screwing the little guy)? Do we protect Social Security recipients? Medicare? Military employees? Left-handed fnord-twerglers?

I was recently reminded of this 2011 post, pointing out that Social Security (and, I think, Medicare) aren't immediately affected by the debt ceiling because their assets are held in special bonds. When they need to make $1bn in payments, they redeem $1bn worth of bonds for cash, thus reducing the debt by $1bn below the ceiling so Treasury can issue another $1bn in bonds to restore its cash balance. And this can go on for years until the bonds in the Social Security trust fund run out. The only thing Social Security can't do at the ceiling is use incoming SS tax revenues to buy bonds as usual; they'll need to store that stuff as cash.

So just as Republicans' government shutdown over Obamacare ironically had no effect on Obamacare, their debt-ceiling game over entitlement spending could ironically have no immediate effect on the two biggest entitlement programs.

Who will suffer when we hit the ceiling? I think it comes down to food stamps, unemployment, government employees (those left after the sequester and the shutdown), and private companies with government contracts.

Of course, in a sense it doesn't matter who suffers first. Any way you pull over a billion dollars a day abruptly out of the economy will mean People Not Buying Stuff, which shortly leads to People Losing Jobs, which means they too will Not Buy Stuff (especially since they won't get food stamps or unemployment insurance), which means more People Losing Jobs. And as Krugman points out, that means fewer people paying taxes, which increases the budget shortfall, which means more spending cuts immediately, which means more people Not Buying Stuff, etc. Under these unusual circumstances, Krugman estimates a multiplier of 2.5, so since the initial cuts would be about 4% of GDP, that means a slowdown of 10% of GDP, which means a 5% increase in unemployment.


Oct. 11th, 2013 08:12 am
hudebnik: (rant)

So the House Republicans are thinking about possibly not driving the economy off a cliff, only a steep hill, in exchange for a promise of serious discussions in the next 6 weeks of how to reduce the U.S.'s crushing budget deficit.

It is urgent that there be a deficit-cutting deal soon, because if they hesitate by more than a year or so, there may be no deficit left to cut. As shown in these charts, the deficit for the fiscal year just ended is already down by 2/3 from when Obama took office; if that trend continues, we'll run a surplus in 2014-2015, for the first time since 2001.

A few months ago my economist friend David D. Friedman (with whom I seldom agree on political matters but who knows a lot more about economics than I ever will) pointed out a problem with the way I was adjusting for inflation in those tables. I concluded he was right and started reworking the tables. In the revised tables, which I haven't posted yet, the deficit has shrunk by not 2/3 but 78% since Obama took office, and at that rate it's entirely possible we'll run a surplus in the current fiscal year.

There are of course longer-term deficit concerns, having to do with health care and other benefits for retiring baby boomers, and these need to be addressed in a sustainable, multi-decade approach, not a crisis-of-the-month approach.  Anybody who tells you we're in a debt crisis now and must cut spending (or raise taxes) drastically now or we'll turn into another Greece is either uninformed or lying.

hudebnik: (rant)
Shortly before the government shut down, the Treasury posted numbers for the fiscal year that ended that day. I put them into my spreadsheet and updated the Federal Deficits Page.

The abbreviated version: the U.S. Federal budget deficit continues its unprecedented rate of shrinkage. After adjusting for inflation, it's now down to about a third of what it was in 2008-2009 when Obama took office, and slightly less than the deficit in 2007-2008 when the recession was just starting. In fact, 2012-2013 doesn't even make the "top ten" list.

Slightly more detail: The deficit in 2007-2008 was by far the largest in history up until then, but it doubled again in 2008-2009 (between the recession, TARP, and stimulus spending to try to end the recession). The deficit shrank rapidly for the next two years (presumably due to the repayment of TARP loans, the expiration of stimulus bills, and a little bit of job growth). It then leveled off -- the deficit in 2011-2012 was very slightly larger, after inflation, than that in 2010-2011 -- and, this year, resumed its rapid fall (presumably due to a tax increase, the sequester, and a little bit more job growth). If this rate of deficit-cutting continued, 2014-2015 would show a surplus.

So be sure to tell your Congressbeings that jobs can wait: we desperately need to cut the exploding deficit :-)
hudebnik: (rant)
If you care about the U.S. government's budget deficit...
If you care about the competitiveness of U.S. businesses...
If you care about economic fairness...
If you care about preventing individual bankruptcies...
If you care about health care for all...

you must read Steven Brill's detailed exploration of the costs of the U.S. health care system.

If you already know how incredibly inefficient and corrupt the system is, read the article anyway: it's even more inefficient and corrupt than you thought.
hudebnik: (rant)
I announced this petition to the White House a week ago on all the social-media outlets I'm on. It needs 25,000 signatures to be acted upon -- which obviously won't happen through friends and friends-of-friends -- but first, it needs 150 signatures to be visible to the general public, so people outside friends-of-friends can sign it.

So far there are 9 signatures. There are a lot of people on my various friends-lists who I'm pretty sure agree with the statement but haven't signed. If you're concerned with the U.S. economy and budget deficits, please take a look at the petition, decide whether you agree with it, and if so, sign it and spread the word.
hudebnik: (rant)
I've created a petition to the White House on the proposition that, for this year, job growth is a more urgent problem than deficit reduction.

While Republicans and Democrats in Washington argue about how to cut deficits right now, they don't seem to have seriously considered the prerequisite question of whether to cut deficits right now. Republicans who had no objections to the rapidly-growing deficits of the GWB administration suddenly decided under the Obama administration that deficits were a critical problem -- presumably because they wanted to keep jobless rates high long enough that Obama wouldn't be re-elected. Inexplicably, Democrats went along with this, presumably because it sounded "responsible".

In fact, most of the things a government can do to cut deficits also cost jobs, which leads to higher deficits the following year as fewer people pay taxes and more people draw welfare. And with interest rates as low as they've been in my lifetime, our current huge deficits are actually not costing much in debt service; if there was ever an acceptable time to run a deficit, now is that time. If we want a long-term, sustainable solution to budget deficits, it'll require getting Americans back to work (among other things).

If you find this reasoning plausible, please sign the petition and forward the link.
hudebnik: (rant)
Update to this post: a shorter, simpler link to the petition.

For those who didn't read it before, this is a petition to the White House suggesting that as long as interest rates are low and unemployment is high, creating jobs is a more urgent priority than cutting budget deficits -- indeed, creating jobs will cut deficits in the long run. If you agree, please sign and propagate the signal!
hudebnik: (rant)
I've put a petition on "We The People" recommending that for this year, it's more important to create jobs than to cut the deficit, and that creating jobs WILL cut the deficit in the long run. The petition will not be visible to casual visitors until it has 150 signatures. To push it towards that threshold, please visit
and let your friends know!


Nov. 8th, 2012 08:41 am
hudebnik: (rant)

The morning John Boehner says, in a spirit of bipartisan compromise, he's willing to consider increasing revenues, as long as it doesn't involve raising taxes (!) He adds that the way to get the deficit under control is to grow the economy so there are more people paying taxes. What a concept! If he'd been willing to say that three years ago, we'd have more people working and a AAA-plus credit rating right now.

I'm still not clear on how he proposes to grow the economy -- probably by laying off more public-sector employees so they can move to the abundance of "real" jobs in the private sector. And by closing tax loopholes (while lowering rates, so he can't be accused of raising taxes) to make the economy very slightly more efficient.

Posted via LiveJournal app for iPhone.

hudebnik: (rant)
So Stephen Colbert says (after cloning himself in two):

RED-TIE STEPHEN: Hey, [Romney] is looking out for the middle class.

BLUE-TIE STEPHEN: He's promising a 20% tax cut for the top 1%.

RED-TIE STEPHEN: Ah, but he's also promising to close their tax loopholes, so they'll still pay the same amount.

BLUE-TIE STEPHEN: Then... why cut their taxes?

I've been wondering the same thing: if we're cutting tax rates by 20%, but also cutting enough tax loopholes that rich people are paying about the same amount as they are now, and middle-class people are paying no more than they are now, and it won't increase the deficit, then what's the point of the tax cut?

There actually is an answer to that: loopholes tend to guide money in particular directions in order to avoid taxes, directions which might not have been the most efficient use of that money. So in theory, closing loopholes in exchange for lower tax rates should make the economy as a whole slightly more efficient. Probably not dramatically more efficient, and there's no reason to believe making the economy as a whole more efficient will put people back to work -- indeed, it might cost jobs.

There's another problem, at least if you're Romney. One of the biggest loopholes, with the most dramatic distorting effects on how people spend and invest their money, is the different tax rates for salary income and interest/dividend/inheritance/etc. income. If you have a choice between an investment that pays $100,000 in dividends, and a job that pays $120,000 in salary, the latter presumably produces more value in the economy, but the tax code gives you an incentive to choose the former instead. Romney knows that very well: he's brought his own Federal tax rate down to about 15% by shuffling most of his income into interest and dividends rather than paychecks. And it's a loophole that Romney has promised to enlarge by eliminating the estate tax, so his kids can inherit billions of dollars from him tax-free.

I hope somebody at tonight's Town Hall (which is taking place about a mile from my office) asks him about closing those loopholes.
hudebnik: (rant)
October, and all hearts turn to ... what else but the end of the Federal fiscal year? I've posted updated deficit numbers here.

Executive summary: After two years of dramatic decreases in budget deficits, the deficit this year was flat: only $14 billion smaller than the previous year. The inflation-adjusted deficit is down 39% from its peak in 2008-2009, but not quite down to its pre-recession high of 2007-2008.
hudebnik: (teacher-mode)
With the end of the Federal fiscal year, I've posted updated deficit numbers.

Executive summary: the rapid deficit-cutting since fiscal 2008-2009 continues, and even accelerates slightly. Extrapolating from the past two years, the Federal budget will be down to pre-recession deficit levels in 2011-2012, and run a surplus in 2014-2015.
hudebnik: (rant)
A local political talk-show (hosted by a fairly liberal guy) asked for "Tea Party supporters only, for the first ten minutes". One of these Tea Party callers just said "With Obamacare, we're racking up tremendous deficits. We need to go back to '08 levels of spending, and get this country back on the right track."

Depending on what he means by "'08 levels", he's either totally or only mostly living in fantasy land. Fiscal year 2007-2008 had by far the largest Federal deficit in history (up until then), after adjusting for inflation: $472 billion, in 1983 dollars (the next largest, at $372 billion, was 1942-1943). Fiscal year 2008-2009 almost doubled that already-record-breaking deficit, to $879 billion in 1983 dollars. The two years since have shown steadily decreasing deficits: at the current slope they'll be back down to 2007-2008 levels in 2011-2012, and back to a balanced budget in 2017-2018. "Going back to '08 levels" does not count as fiscal discipline, and it doesn't count as a cut.

The only way I can imagine someone suggesting that is if he assumed that Republican Presidents are fiscally responsible and Democrats aren't -- in other words, he's arguing from political ideology rather than facts.
hudebnik: (teacher-mode)
John Boehner has spent the last several days moving his budget proposal to the right in hopes of grabbing a few more Tea Party votes, so he can pass something that is guaranteed to fail in the Senate, and if it miraculously passed the Senate, would face a Presidential veto.

With the same amount of effort, he could move his budget proposal to the center in hopes of grabbing an equal number of Democratic votes (which, last I checked, are worth just as much in the House as Tea Party votes). And then he'd have something that would have a chance of passing the Senate (or at least giving it heartburn), and a chance of not being vetoed.

[ETA 4 PM: Mitch McConnell, I think, says "Speaker Boehner has been working very hard to develop a plan that can actually pass the House of Representatives and thus end this crisis." Because we all know, once something passes the House of Representatives, it becomes law.]

In fact, I suspect there are more Democrats in the center than there are Tea Partiers in the right wing of the House, so once he reaches the threshold of being even remotely acceptable to Democrats, each inch of move to the center should, on average, gain more votes than it loses.

But I guess it's more politically valuable (e.g. in fending off primary challengers) to produce something that the party can agree on than to produce something that can become law.

Or maybe he's assuming that, at five minutes to midnight, Senate Democrats and Obama will back down and pass whatever he gives them rather than go into default. Which they might well do. In the game of chicken, reasonability is punished and inflexibility is rewarded.

Most of you have heard of the Prisoner's Dilemma game. What's distinctive about Prisoner's Dilemma is the inequality
T > R > P > S
where T, the "temptation", is what you get if you defect and the other guy cooperates;
R, the "reward", is what you get if both parties cooperate;
P, the "punishment", is what you get if both parties defect; and
S, the "sucker's payoff", is what you get if you cooperate and the other guy defects.
In a single round, single instance Prisoner's Dilemma, there is absolutely no reason to cooperate; the winning strategy is to defect.
As most of you know, the most generally successful and robust strategy for iterated Prisoner's Dilemma is "Tit for Tat": cooperate initially, and thereafter do whatever the other guy did last time. Or in human terms, be nice on first meeting someone; if they're nasty, retaliate in kind, and if they become nice again, forgive them immediately.

The game of Chicken is quite similar, except that
T > R > S > P
In other words, cooperating when the other guy defects is preferable to the mutual annihilation that happens when both players defect. The result of this difference is that once I've demonstrated my willingness to defect frequently, you're better off cooperating than defecting -- which reinforces my willingness to defect in the future. We end up with a lasting and asymmetrical dominance/submission hierarchy, very different from the symmetrical Tit for Tat situation.

Another game probably has a name but I haven't found it, so let's call it Mine. In this game,
T > P > R > S
The "punishment" for mutual defection is actually preferable to mutual cooperation; in other words, my payoff is determined mostly by my own behavior, and only incidentally by yours (hence the name). Obviously, a winning strategy is to always defect, because even if I somehow get you to cooperate, that doesn't make much difference in my outcome.

As I pointed out on a newspaper blog somewhere, if we want our politicians to act more like "tit for tat", we need to convince them that they're in a game of Prisoner's Dilemma, rather than a game of Chicken or Mine or something else. To persuade them that we're in Prisoner's Dilemma rather than Mine, we need to convince all sides that default is worse than mutual compromise. (I'm not sure the Tea Partiers believe this.) To persuade them that we're in Prisoner's Dilemma rather than Chicken, we need to convince all sides that default is better than caving in to an uncompromising opponent. (I'm not sure the D's believe this -- or, more importantly, that the R's believe that the D's believe this.)
hudebnik: (rant)
During the Cold War, there was a lot of talk about "the doomsday bomb". Stanley Kubrick made a movie about it, "Dr. Strangelove, or: How I Stopped Worrying and Learned to Love the Bomb". The idea was to build a weapon so scary that the threat of using it would force politicians to actually negotiate and make peace. The conceit of the Kubrick movie is that some Air Force general didn't "get" that point, thought it was actually intended to be used, and did.

A doomsday bomb only works if it's scary enough that none of the people involved in the negotiations actually wants it to go off. If some of them do, i.e. if (for some of the players) actually using the bomb is preferable to negotiating, those players have no incentive to negotiate because they can get what they want by sitting on their hands and obstructing. So the lesson is: if you're building a doomsday device, you'd better make it really scary, inflicting unacceptable damage on all sides.

I'm reminded of this by the current Washington discussion about "deficit triggers". The idea is to pass a law that says "if the deficit hasn't decreased by such-and-such amount by such-and-such year, such-and-such measures will happen automatically," and this threat hanging over Congress's heads will force them to actually solve the deficit problem. The problem is defining "such-and-such measures": these measures have to be scary enough that nobody actually wants them to happen. If one significant faction in Congress actually wants those measures to happen, that faction won't negotiate, and will actively obstruct agreement by anybody else.

Of course, if you have a choice, you really want to be in that faction so you don't have to bargain anything away, you don't have to compromise. Compromise is for the people who didn't write the rules. So every individual member of Congress will try to make the trigger do what that member actually wants to happen, which coincidentally is also exactly what that member will do in negotiating an actual budget.

In other words, if the people designing the trigger are the same people it's supposed to threaten, then creating a "trigger" mechanism doesn't actually change the political calculus at all; its only effect is to apply today's political calculus to determine what happens several years from now. So, cui bono? The people who benefit from passing a trigger mechanism are precisely those who are politically powerful right now, but fear that they might be less powerful in a few years.
hudebnik: (rant)
In the course of a year or two, the top political priority in Washington has shifted from "get Americans back to work," to "cut the deficit," to "cut spending." I'm wondering about the relationship among those three things.

If you cut (say) $38 billion from a six-month budget, that's the equivalent of $76 billion in an annual budget. I don't know where that money is coming from, but I think it's a safe bet that most of it, one way or another, is somebody's salary. If the average "somebody" involved earns $76K/year (including benefits), that's the equivalent of laying off a million people from their jobs. Of course, if there were a seller's market in labor, many of those people would move into private-sector (aka "real", in Republicanspeak) jobs. But there isn't: there's a high unemployment rate, so most of those laid-off people are going to the unemployment rolls instead, raising the unemployment rate by about a percentage point; others will go into private-sector jobs, with the (short-term) side effect of depressing wages for everybody else in comparable private-sector jobs. In other words, cutting government spending is fairly harmless if unemployment is already low, and harmful if unemployment is already high.

[ETA: I hear now that of the $38 billion figure, only a few hundred million are actually saved this year; the rest is saved from projected spending over the next several years. Which means it's more like laying off a hundred thousand people, not a million.]

What's the effect on the budget deficit? Well, you immediately lose the 20% or so of those people's income that they were paying back to the Federal government in income taxes (c. $15 billion), so it really only saves you about $60 billion. They're also paying less in state and local income taxes, state and local sales taxes, etc; call this another $15 billion in lost tax revenue. This doesn't directly affect the Federal budget deficit, but most of those state and local governments are extremely budget-strapped too, and many of them don't have the option of deficit spending, so they HAVE to either raise taxes or lay off workers themselves -- which again cuts Federal, state, and local tax revenues. And the laid-off workers are now drawing unemployment insurance, Medicaid, WIC, and other income-based entitlements that they didn't need before; let's say that adds another $15 billion to deficits (between Federal, state, and local). And, of course, all the laid-off workers are now spending less money in the local economy, which comes out of their neighbors' salaries, so THEY pay less in income taxes too.

We know that "money in people's pockets" has a multiplier effect on local economies, as each dollar is involved in several transactions before settling down in long-term assets. If the average American has a marginal tax rate of 25% (that's MARGINAL tax rate, how much of each additional dollar goes to taxes, not how much of your entire income goes to taxes), and the multiplier is about 2, then cutting government spending by $100 billion worth of salaries would actually cut the deficit by about $50 billion. If the multiplier is about 4, then it wouldn't cut the deficit at all. If it's about 5, then cutting government spending would actually INCREASE the deficit.

But Republicans aren't really interested in cutting deficits (as witness the G. W. Bush years); that's just a codeword for cutting government as an end in itself. For which there may be legitimate arguments, but let's be honest about it: cutting government spending in a recession isn't about the deficit, it's about cutting government spending.
hudebnik: (rant)
It's remarkable that with solid Democratic majorities in both houses of Congress, and a Democrat in the White House, we still have a Republican-controlled Congress. I guess "majority" means "2/3" when you're a Democrat.

The House of Representatives agreed not to amend the tax-cut bill, and passed it with all its non-job-producing, deficit-busting giveaways intact. They could have amended it and sent it back to the Senate, where it would only need 51 votes to pass under the reconciliation process, but they didn't because they were afraid the mean old Republicans would do something to them -- I'm not sure what. As a result, the tax cuts will next come up for discussion during the 2012 campaign season, and they will be extended again because it's campaign season.

And the House of Representatives agreed to remove the repeal of DADT from the defense authorization bill; they'll presumably pass it shortly. They could have left DADT in the bill, but they were afraid that the mean old Republicans would prevent it from being voted on in the Senate. Which of course they will, because now that they've got their tax giveaway, the Republicans have no incentive to let anything come up for a vote in the Senate in the next three weeks; they can just hold their breaths and pass their own version next month, riding in on a white horse to rescue the American people from the Democrats' inability to get anything done.

They're bringing up DADT repeal as a separate bill, which has zero chance of coming up for a vote in the Senate so this is an utterly pointless gesture.

I think they've already given up on the DREAM act, out of fear that the mean old Republicans would... I'm not sure what.

I don't know about the "medical care for 9/11 first responders" bill: it's got the sort of heroic, patriotic ring to it that might pass the current Republican-controlled Congress, but OTOH, that would mean allowing something to pass with Obama's signature on it, and we can't have that. And somebody might (shortly after passing an $800-billion tax cut) complain about its [EDIT: $7.4 billion] effect on the deficit.

[EDIT: Yes, the Senate Republicans filibustered this one too, not because they had any objection to the bill but because Obama hadn't actually signed the tax cut yet, only promised to. And yes, they object to its $7.4 billion price tag, two days after cheerfully voting for a tax cut over 100 times larger.]

[EDIT: Meanwhile, House Republicans have killed a bill -- already passed unanimously in the Senate -- to treat child marriage as a human rights violation. They object that it costs $107 million -- which has already been allocated, but would be moved to a different budget line under the bill -- and that unless there's sufficient oversight, a penny of that money might accidentally go to an NGO that supports abortion rights.]

The entire Democratic Party seems to be running scared that someone somewhere will say something mean about them. Well of course somebody will say something mean about them -- that's the job of political campaigns -- but giving the Republicans everything they want won't prevent that.
hudebnik: (rant)
The end-of-fiscal-year figures are out, and I've updated my Federal Deficits web page.

Depending on how you look at the numbers, the Obama administration comes out as either by far the best deficit-cutter ever, by far the worst deficit-accumulator ever, or a pretty-good deficit-cutter (comparable to Clinton). Things are all over the map because fiscal year 2008-2009 was so outrageously expensive, due to both Bush and Obama decisions. The numbers should make more sense when we have another fiscal year to include in the table. Watch this space next October 1.


Sep. 20th, 2007 02:05 pm
hudebnik: (Default)
"I got a B in Econ 101. But I got an A in keeping taxes low... and in being fiscally responsible with the people's money." -- G.W. Bush

Compare with the facts.


hudebnik: (Default)

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