Nibbling around the Edges

There’s an intriguing graphic on the New York Times website. It shows, in scale, President Obama’s budget proposal. The bigger the rectangle, the bigger the budget. The chart also gives an indication, by means of color, of whether Mr. Obama is asking for more or less money than last year's budget for each area: green means an increase, red a decrease.

What’s particularly interesting, however, isn’t the graph that first appears on the site. Rather, it’s what happens when you click on the tab that reads “hide mandatory spending.” What happens then is that “spending that is controlled by existing laws and not subject to the annual budget process” is eliminated from consideration. So, for example, the increase in Social Security spending is overwhelmingly mandated: there’s an increase of about $14.5 billion, of which about a half a billion or so, slated to be used for administrative expenses (off-budget!) is discretionary. In other words, about 97% of the increase is prescribed by law. Of the $17 billion increase in Medicare, less than $1 billion is subject to the budget process. And the $63 billion in new interest load just has to be paid.

But even within the realm of what could conceivably be cut, there aren’t a lot of significant declines. There are a handful of programs that are projected to lose 10% or more of their funding: but all of these line items put together generate a total savings of barely over $30 billion, less than half of the increase in interest payments, or roughly equal to the discretionary increases in various areas of military spending (there are also some cuts in specific areas of the military budget, but, significantly, not in personnel, procurement, or O&M).

The most striking thing about the chart that eliminates mandatory spending isn’t that it’s significantly more green than red (although it is), i.e., it represents more areas of increase than of decrease; what’s striking is how much white (mandatory expenditure) space there is. The total budget: $3.69 trillion, up from $3.6 trillion a year ago. That $90 billion increase matches almost exactly with the mandatory increases in interest and social security… and doesn’t count significant mandated hikes in Medicare (the federal contribution to states) and student financial assistance, for example.

The debt and deficit are both huge, and growing. Two numbers a lot of people talk about: the deficit reaching 10% of GDP and the debt reaching 100% of GDP. One number I don’t see a lot: we’re looking at a deficit equal to about 40% of the budget! That means that for every $5 we spend, we collect $3 in taxes. I’m not an economist, but that sure looks to me like an unsustainable pattern. We are looking, after all, at a deficit in the range of $1.5 trillion in this fiscal year.

This means the spiffy new $60 billion budget cut just passed in the House, even if it were to become law (which it won’t, although parts of it might), wouldn’t make a dent in the deficit. That’s not to say that attempts to rein in spending are inherently misguided: predictably, I’m unimpressed with the specific targets of House Republicans’ budget-cutting axe, but a little fiscal restraint wouldn’t be a bad idea. More to the point, the Tea Party proposal, which would have cut an additional $22 billion from the budget, was deemed “irresponsible” by the GOP power base. It would have cut “everything indiscriminately in a heavy-handed way,” quoth Rep. Hal Rogers of Kentucky. And we can’t have that: Republicans came into power declaring their opposition to federal spending, and they all said that “everything [was] on the table” (Speaker Boehner said so in precisely those words), but of course they didn’t mean their pet projects.

One thinks, for example, of Boehner’s opposition to cutting $450 million for a new engine for the F-35 Joint Strike Fighter plane. (Here are links to good commentary by Dana Milbank and by Jack Marshall.) The Pentagon declares itself happy with the engine it has, making the cut seem a no-brainer. Half a billion dollars might not be a lot of money compared to the size of the deficit, but it ain’t chicken-feed, either. Yet John “We’re Broke” Boehner opposed the cut. Purely coincidentally, of course, the new engine would be made in Boehner’s little corner of the world. You see, “so be it” commentary about the loss of federal workers’ jobs notwithstanding, the good Speaker really does care about the American worker. Or at least the Southwestern Ohio worker, which is pretty much the same, right? It hardly qualifies as a revelation that Boehner is a hypocritical douchebag, but that knowledge doesn’t get us any closer to a sustainable budget.

What will do so, of course, is a recognition of reality. Protestations from both sides of the aisle notwithstanding, our old friends Waste, Fraud and Abuse are alive and well in most if not all federal agencies. My wife, who is a financial aid director at a community college, for example, sees more than her share of lazy and dishonest people whose “job” it is to attend classes long enough to collect a financial aid check, and then to simply flunk out and start over somewhere else. But Pell Grants and other forms of federal financial assistance per se aren’t the problem; indeed, they’re a central ingredient to a long-term solution. A well-educated workforce is crucial to any hope of a vibrant economy in years to come, and that means we as a nation need to provide a means for our best and brightest young people, not merely our most affluent ones, to attend not merely colleges, but good ones. Closing loopholes without throwing the proverbial baby out with the bathwater, however, takes actual work, actual commitment, and actual thought: neither party seems terribly interested in any of the above.

What this all boils down to, and pay attention because this doesn’t happen very often, is that Rand Paul was right in declaring that the federal government “can cut all of the non-military discretionary spending and not balance the budget.” You read that right. We could cut 100% of non-military discretionary spending and still not balance the budget. And that means next year’s debt payment will be bigger than this year’s, making it even harder to make any progress then. And so on ad infinitum.

I have a friend who is a costume designer. For a long time she had a saying posted outside her office: “Fast. Cheap. Good. Pick two.” The resurgent GOP has to make a similar choice, although I’m not sure they can really have more than one. Their options: maintain military spending, maintain current tax rates, and maintain the slightest hint of integrity in their rhetoric about caring about the deficit. It’s pretty clear, unfortunately, that such real resolve is lacking in the Republican leadership. Getting away with smoke and mirrors in the Reagan and Bush years, when the deficit (and spending) shot up but the rhetoric was always about fiscal responsibility, taught the current GOP all the wrong lessons.

Similarly, the Democrats, having slurped the Kool-Aid that makes them distrust the intelligence of the citizenry, seem far more interested in getting re-elected (by pretending to be Republicans), than in solving problems. There are solutions out there: raising taxes, probably significantly, especially on those can most afford it but ultimately on all of us; drawing down the war in Afghanistan and re-defining the mission of the American military throughout the world; recognizing that federal spending is often, even usually, a good thing, but current deficit levels cannot long be endured.

We’re well on our way to Oz. Here’s hoping we find a heart, a brain, and courage.

What If the Government Really Did Budget Like Families Do?

There was an interesting story on the HuffPo site by Johann Hari site a couple of days ago about the decision of Moody’s, the leading credit agency, to downgrade Ireland’s bond rating from Aa1 to Aa2. No, I don’t pretend to be economist enough to understand all the implications and repercussions (it would be nice if a few folks in Congress admitted similar ignorance), but the story caught my eye because of my affection for that country and because of Hari’s discussion of the implications of the Irish situation for the US:

The Republicans want to bring this vision from Ireland… to the US. They say–yes, this is rough, yes, it hurts, but it is for a necessary purpose. If we don't do it, the bond markets will downgrade our debt and we will be even worse off. Only austerity can hold off the prospect of a debt crisis.

So let's return to the truth buried in that little story on the financial pages. Ireland has been doing exactly what the Republicans urge, with a two year headstart. What are the results? Last week, a study by the International Monetary Fund nobody's idea of a left-wing pressure group—found that country’s economic collapse now “exceeds that being faced by any other advanced economy, and matches episodes of the most severe economic distress [anywhere] in post-World War Two history.”

Why? During a recession, ordinary consumers quite sensibly cut back and spend less. But if the government does the same, it means nobody is spending. This is bad enough for all the people who suffer immediately: the swelling army of the unemployed, the repossessed, the abandoned. But it turns out it makes its original goal—paying off the debt—impossible too. As the Nobel Prize-winning economist Joseph Stiglitz explains: “If you introduce austerity measures, the amount you can raise in tax falls, and welfare payments go up—so you don't have enough money to pay your debts anyway.”

If nothing else, I rather appreciate the phrasing of Stiglitz’s “cautionary note against deficit fetishism.” Hari also argues that:

When consumer spending collapses, governments need to borrow and spend to prevent a depression—and then pay off the debt from the proceeds of growth once we have brought the good times back. It's revealing that the countries that have done this hardest and fastest—like South Korea, which spent a fortune on employing people to green the country's infrastructure -- have been the first to pull out of this recession, while the countries glugging Republican-juice have sunk deeper into the gloop.

Needless to say, Hari goes on to assert that “the choice today is between a deficit and a depression. It is immoral not to borrow and spend when it could revive the economy and prevent all these lives being written off.”

A couple things intrigue me about this. One is the manifest hypocrisy of the Republicans, who exploded the deficit with their pet projects (read: tax cuts for fat-cats) but now fret about it with deep and abiding concern. Isn’t it about time somebody called “bullshit” on this tactic? Here are the facts for the last 50 years, based on figures posted on the usgovernmentspending.com website: From 1961-69, i.e. the Kennedy and Johnson administrations, federal debt as a percentage of GDP fell from 53.04% to 35.93%, a reduction of nearly a third. The Nixon/Ford years produced little change, as the percentage dropped slightly to 34.42% in 1977. The much-maligned Carter administration further reduced the rate to 31.91% in four years. By 1993, Reagan and Bush the elder had more than doubled that number to 66.17%, all the while yammering about fiscal responsibility. Then came Bill Clinton, who lowered the rate to 56.46% by 2001. Then, guess what? Along comes Bush the Lesser and the percentage shoots up to 83.29% by 2009.

In summary, then: every Democratic president in the last 50 years except Barack Obama, who inherited an economy in free-fall, has reduced the federal debt as a function of GDP. Every Republican president since (and including) the sainted Reagan has increased that debt percentage significantly. So this isn’t at all about Republicans caring a whit (or something that rhymes with “whit”) about the deficit. It’s all about budgetary priorities. If they’d admit that, I’d still disagree, but I might be able to muster a little respect (or at least less contempt) for their position.

But the other element of the Republican talking points that catches my attention is the whole conflation of government economic policy with family finances. In these difficult times, the argument goes, everyday people are being forced to tighten their belts; the government should do the same. Let’s leave aside the fallacy of considering these two fundamentally independent concepts as if they were the same thing. Let’s pretend, in other words, that the parallels are legitimate.

What, then, would the Republican strategy mean to a household? Well, they’d spend less (or they'd say they would, which isn't quite the same thing). In the world of family budgets, it probably is a good idea to put off buying the big-screen TV or the new Jacuzzi when times are tough. You might go out to eat less often, watch Netflix instead of going to the movies, keep your house a little cooler in the winter and warmer in the summer.

But there are some expenses you just can’t forgo. If you’re looking for work, cutting off your internet service might save you a few dollars in the short term, but it will also inhibit your ability to find out about job opportunities or to apply for those that do exist. If you live several miles from your place of employment, you could save money by not driving to work, but you run the risk of losing your job. If you’re a contractor, turning off your cell phone will save you perhaps $1000 a year, but prospective customers (or your telephone service) can’t contact you, and your business losses will outpace the savings. Cutting expenditures on clothes might be an option… unless you go for an interview at a place where dressing well is a job requirement. And on and on.

Similarly, fiscal responsibility in government is a good thing. Cutting back on unnecessary spending—say, a pair of bright shiny wars that have already cost nine years, over a trillion dollars (that’s $1,000,000,000,000) and over 5,000 Americans’ lives (not to mention the tens of thousands of Iraqi, Afghani, and Pakistani civilians who have also perished in the conflict)—might be a good idea. But refusing to spend money to stimulate job growth, to provide a safety net for those put out of work through no fault of their own, to provide short-term support for an automobile industry that directly or indirectly provides literally millions of jobs: that’s the equivalent of refusing to take your flu-ridden kid to the doctor because the credit-card bills are already kind of high.

And then, of course, there’s the income side. We don’t want any more than we’ve already got. Yes, we’re having trouble paying the bills, but collecting over half a trillion dollars (an estimated $564,000,000,000) just by allowing tax cuts on people making over $200,000 a year to expire—well, that, in Republicania, is simply beyond the Pale. Imagine if households really operated the way the Republicans say the federal government should: “No, that pay cut I took a few years ago, don’t worry about taking me back to my old income; we’ll just eat less, and my friend says sending your kids to college is over-rated, anyway.”

Don’t get me wrong. There is plenty of pork in every budget, and probably a considerable amount of our old friends Waste, Fraud, and Abuse, too. Nor does either party have a monopoly on self-righteous posturing or on prioritizing re-election over the common weal. That said, even if we buy the Republican talking point analogizing from federal spending to household budgeting, their argument just doesn’t make sense.