Economy

What Goes Around (Comes Back Around)

Google
I find little to disagree with in Scott Lemieux’s look at the legality of minting a trillion-dollar coin . For those who have no idea what I’m talking about, the idea is simple. When the president is required to spend all money authorized by Congress, in most instances, that requires the Treasury to borrow money to fulfill congressional obligations. But Congress has also imposed a borrowing limit on the Treasury. In the past, Congress has lifted the limit with little fuss, but beginning in 2011, House Republicans have used it as leverage for spending cuts. If Treasury reaches the limit without paying its full obligations, it defaults, which would have catastrophic consequences for the global economy. At the moment, Republicans are threatening not to lift the limit (though, there is some question of their sincerity). This leaves President Obama with three options: He can let the government default, triggering a global recession. He can concede spending cuts to the GOP, giving further...

We Don't Have a Spending Problem

Mother Jones
Over at Mother Jones , Kevin Drum marshals two charts showing—quite clearly—that the federal government has a revenue and aging problem, not a spending one. The first shows federal spending as a percentage of gross domestic product, from 1981 to the present: There was a spike in spending in 2009, but that was entirely a function of the recession, when the government—as it should—began spending more on unemployment insurance, food stamps, infrastructure, and other stimulus programs. That spike was larger that similar recessionary spikes in 1990 and 2001, but that’s because the 2008 recession was the most severe since the Great Depression. Even with the Affordable Care Act and other new programs passed under this administration, spending is on track to reach the modest levels of the Clinton era by the end of Obama’s presidency. As for revenue, a combination of tax cuts and recessions have plunged federal income receipts to their lowest levels in 30 years: So how does this square with...

Calling McConnell’s Bluff

Flickr/Gage Skidmore
The budget deal that just averted the supposed fiscal cliff was only a warm up. The next fiscal cliff is the $110 billion in automatic budget cuts (sequesters) that last week’s budget deal deferred only until March. But, as long as we are using topographic metaphors, this is less a cliff than a bluff. On the Sunday talk shows, Republican leaders were full of bravado and swagger. Representative Matt Salmon of Arizona, on CBS “Face the Nation” said it was about time “for another government shutdown.” Senate Minority Leader Mitch McConnell, speaking with ABC’s George Stephanopoulos, ruled out any further tax increases, declaring that “the tax issue is finished, over, completed.” He insisted, “Now it’s time to pivot and turn to the real issue, which is our spending addiction.” But is spending really the problem? For most the postwar era, federal tax revenues hovered around 19 percent of GDP, and spending a bit more than that. But for the four years since the financial collapse, federal...

The GOP's Dangerous Debt-Ceiling Threat

Gage Skidmore / Flickr
Gage Skidmore / Flickr Even for someone unmoved by hyper-ideological, right-wing rhetoric, Senator John Cornyn’s most recent op-ed for the Houston Chronicle is astounding in its mendacity and utter disregard for responsible governance. To wit, after engaging in a little bizarro history—where he blames the president for brinksmanship on the debt ceiling and the fiscal cliff, as if Obama has an obligation to implement the GOP agenda—the two-term Texas lawmaker presents a government shutdown as a responsible way to force spending cuts: Over the next few months, we will reach deadlines related to the debt ceiling, the sequester and the continuing appropriations resolution that has funded federal operations since October. If history is any guide, President Obama won’t see fit to engage congressional Republicans until the 11th hour. In fact, he has already signaled an unwillingness to negotiate over the debt ceiling. This is unacceptable. […] The coming deadlines will be the next...

Holding Steady

wools / Flickr
Estimates for December job growth converged at around 150,000 net jobs, and according to today’s report from the Bureau of Labor Statistics, the economy created almost exactly that: 155,000 new jobs, with a steady unemployment rate of 7.8 percent. The revisions show an economy that’s a little stronger than it looks; October was revised to 138,000 jobs from 137,000, and November was revised from 146,000 to 161,000. Three years after the stimulus was passed, and just a few months after the latest round of quantative easing, what we have is an economy that turns in steady, but unremarkable, growth. At the current rate, our unemployment rate will slowly decline to 6 percent by the end of President Obama’s term. This isn't a full recovery—unemployment would have to be at the five percent range for that—it would still make Obama a major job creator by historical standards. Current projections hold that the economy will grow by 12 million jobs by the end of 2016. Add to that the nearly 5...

The Austerity Lobby Loses One

Flickr/Michael Pollack
Flickr/Michael Pollack A conference sponsored by Fix the Debt in Washington, D.C. takes place in January 2012. T he fiscal deal that raised taxes on the top one percent was a victory only for what it did not do. It did not cut Social Security, Medicare, Medicaid, or other public spending. Unfortunately, it merely put off the next round of jousting over fiscal issues to a time when Republicans will have more leverage. In what we might call Cliff One (tax increases for the rich), the status quo played to President Obama’s advantage. If Congress failed to act, taxes would go up on everyone. So the Republicans caved. But in the coming battles over Cliff Two (the debt ceiling) and Cliff Three (the $120 billion in automatic cuts known as the Sequester) the status quo favors the Republicans. If Congress fails to act affirmatively, the United States defaults on its debt, and highly deflationary spending cuts kick in automatically. President Obama might dispatch Cliff Two by invoking the...

We Need More Tax Brackets

401K / Flickr
Income taxes have gone up for the first time in 20 years, but as the Huffington Post reports , only 1 percent of taxpayers are affected: Forget the 1 percent, the fiscal cliff deal is all about the .7 percent. That’s the slice of Americans who will be affected by Congress’ new definition of “wealthy,” according to a new analysis from the Tax Policy Center, a nonprofit tax research group. The centerpiece of the deal passed by Congress on Tuesday includes higher income taxes on individuals who make at least $400,000 and couples who make more than $450,000. The tax rate for those groups jumps to 39.6 percent from the current 35 percent. Of course, income taxes were only ever going to go up on the wealtiest Americans: There was, and is, no appetite for significant middle-class tax hikes, though they will be necessary in the medium-term. With that said, I’m a little disappointed that there wasn’t more creativity with regards to how we’re raising taxes on the rich. I’ve said this before,...

Obama's Biggest Blemish

White House / Flickr
Yesterday, I complained that political media presents debt reduction as a no-brainer—something we must do, for the sake of our solvency—and not as a choice that may or may not be warranted in the current environment (hint: it’s not). There’s no mystery as to why that’s the case; the major mainstream news outlets are heavily influenced by elite opinion, and elite opinion is dominated by the views of successful businesspeople. Businesspeople, among other things, want lower taxes (to keep more of their income), fewer protections for labor (to spend less on workers), less spending (again, taxes), aggressive debt reduction (to avoid higher interest rates), and price stability (to avoid inflation). What’s more, they tend to be less concerned with joblessness—full employment diminishes the flexibility and power of people who own businesses. Because these things are treated as self-evidently good, mainstream media outlets tend to heap praise on politicians who commit to this agenda. The...

All Hail Wall Street

Flickr/Wally Gobetz, Emmanuel Huybrechts
Flickr/Emmanuel Huybrechts I f the debate around the fiscal cliff and, particularly, the still-impending sequester demonstrates anything, it’s that Richard Nixon’s one plunge into economic theory—“We’re all Keynesians now,” the former president once said—still holds. Everyone acknowledges that laying off hundreds of thousands of government employees, including 800,000 civilian Defense Department workers, and stopping payment to government contractors will, by definition, destroy jobs, at least until the payments resume. It’s still Republican orthodoxy, to be sure, to deny that government spending actually creates jobs, but even they acknowledge that the cessation of government spending destroys them. Which illustrates that the problem with contemporary Republicanism isn’t confined to their indifference to empiricism but also their indifference to logic. Reasoning—either deductive or inductive—is either beyond them, beneath them or above them. A second Republican talking point called...

Give Barry a Break

AP Photo/Charles Dharapak
AP Photo/Charles Dharapak President Barack Obama winks as he arrives to make a statement regarding the passage of the fiscal-cliff bill in the Brady Press Briefing Room at the White House. W hen President Lincoln suspended habeas corpus in 1862 (a couple of times, actually), he conceded the possible unconstitutionality of what he had done but concluded that since the move was necessary in a time when half the country was at war with the other half, he would take his chances with Congress, the courts, and history. The country’s current chief executive finds Lincoln comparisons disconcerting, but this is a case where he might pay attention, because his legal grounds for unilaterally raising the ceiling on the national debt in a time of congressionally inflicted crisis are no weaker than Lincoln’s and probably stronger. The latest furor over who should be paying taxes in this country is, as of 36 hours ago, over. This follows a presidential campaign in which the candidate who ran on...

Is the Fiscal Deal a Recipe for National Decline?

White House/Pete Souza
Now that the future revenue path is pretty clear for the next decade, I took another look at President Obama's 2013 budget , which projects spending and revenue through 2022 on the assumption—a correct one, it turns out—that taxes will only rise on the affluent. As I noted in an earlier post today, the White House projects serious cuts to domestic spending. These cuts wouldn't be necessary if the Bush tax cuts were fully repealed. So, in effect, President Obama has largely endorsed the fiscal priorities of his predecessor, with tax cuts forcing spending cuts. This may not amount to "starving the beast," but it is putting government on a conservative diet. I've written a lot about this historic capitulation already, so I won't say more. Instead, let me focus on another implication of letting the Bush tax cuts largely live on. The United States will not only cut spending over the next decade, it will also dramatically increase the national debt—adding $6.6 trillion in new debt by 2022...

Will John Boehner Lose the Speakership?

Flickr/Talk Radio News Service
Flickr/Talk Radio News Service The fiscal-cliff deal —which cleared the Senate by an overwhelming bipartisan majority earlier this week and passed the House late Tuesday—might end up costing House Speaker John Boehner his job. The legislation raises taxes on individuals earning more than $400,000 but cements the Bush tax cuts below that threshold. Only eight senators—five Republicans and three Democrats—dissented. But when the bill reached the House floor, conservatives revolted. The vast majority of House Democrats voted for the compromise measure while 64 percent of House Republicans—including Majority Leader Eric Cantor and Majority Whip Kevin McCarthy—voted against the bill. By introducing the compromise hammered out between Senate Republicans and the White House, Boehner violated the so-called "Hastert Rule," the operational norm by which only bills supported by the majority of the caucus in power are brought up for a vote. The timing couldn't be worse for Boehner. On Thursday,...

We Need More Spending

401(K) 2012 / Flickr
401(K) 2012 / Flickr This passage from Politico’s write-up of the fiscal cliff deal, on the supposed inadequacy of the agreement, stuck out to me for it’s sheer wrongness : “The pact also does little to reduce trillion-dollar-plus deficits, shore up entitlement programs, overhaul the tax code or stimulate the U.S. economy — the casualty of a polarized political culture that scorns compromise.” What’s striking is the matter-of-fact tone, as if to say that of course our chief concern should be spending cuts and lower deficits. And it’s echoed by President Obama’s belt-tightening rhetoric, which at this point is par for the course: “The deficit needs to be reduced in a way that is balanced. Everyone pays their fair share. Everyone does their part. That is how our economy works best. That is how we grow.” Except that’s not how we grow at all. As Stephanie Kelto explains in a great and helpful column for the Los Angeles Times , the economy grows when we—governments, businesses, individuals...

The Endless Cliff

Flickr/Talk Radio News Service
Flickr/Talk Radio News Service B eyond yesterday’s narrow escape from the dreaded fiscal cliff are … more cliffs. President Obama and Congress averted one fiscal calamity of tax-hikes-for-all only to face even steeper cliffs—the sequester, the debt ceiling, the Social Security shortfall, ad infinitum . It is a fiscal Wizard of Oz, an extended odyssey with perils on every side. The question progressives are asking themselves this morning is whether President Obama settled for too little in the fiscal mini-deal, having traded away his best single piece of leverage—the automatic tax increase on all Americans scheduled to hit today unless Congress acted. Some, like our colleague Robert Reich, have argued that it would have been better to “go over the cliff”—let tax hikes briefly take effect on everyone, thus increasing pressure on Republicans—rather than to make this agreement. Mercifully, Obama backed off any “grand bargain.” The deal was a defeat not only for the Republicans but for the...

It's Not about the Deficit

Flickr/401(K) 2012
“It’s not all I would have liked,” says Republican Senator Lindsey Graham of South Carolina, speaking of the deal on the fiscal cliff, “so on to the debt ceiling.” The battle over the fiscal cliff was only a prelude to the coming battle over raising the debt ceiling—a battle that will likely continue through early March, when the Treasury runs out of tricks to avoid a default on the nation’s debt. The White House’s and Democrats’ single biggest failure in the cliff negotiations was not getting Republicans’ agreement to raise the debt ceiling. The last time the debt ceiling had to be raised, in 2011, Republicans demanded major cuts in programs for the poor as well as Medicare and Social Security. They got some concessions from the White House but didn’t get what they wanted—which led us to the fiscal cliff. So we’ve come full circle. On it goes, battle after battle in what seems an unending war that began with the election of Tea Party Republicans in November, 2010. Don’t be fooled...

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