Whose Deficit?

Who's really responsible for the massive budget deficits we're currently running?  David Leonhardt crunches the numbers and produces a nice chart that tells the story: IWPBS.

That is: It Was President Bush, Stupid.  That's just a thumbnail on the right, but you can click on it to see the full-size version.  Here's Leonhardt on how an $800 billion surplus turned into a $1.2 trillion deficit over the past eight years:

You can think of that roughly $2 trillion swing as coming from four broad categories: the business cycle, President George W. Bush’s policies, policies from the Bush years that are scheduled to expire but that Mr. Obama has chosen to extend, and new policies proposed by Mr. Obama.

The first category — the business cycle — accounts for 37 percent of the $2 trillion swing. It’s a reflection of the fact that both the 2001 recession and the current one reduced tax revenue, required more spending on safety-net programs and changed economists’ assumptions about how much in taxes the government would collect in future years.

About 33 percent of the swing stems from new legislation signed by Mr. Bush. That legislation, like his tax cuts and the Medicare prescription drug benefit, not only continue to cost the government but have also increased interest payments on the national debt.

Mr. Obama’s main contribution to the deficit is his extension of several Bush policies, like the Iraq war and tax cuts for households making less than $250,000. Such policies — together with the Wall Street bailout, which was signed by Mr. Bush and supported by Mr. Obama — account for 20 percent of the swing.

About 7 percent comes from the stimulus bill that Mr. Obama signed in February. And only 3 percent comes from Mr. Obama’s agenda on health care, education, energy and other areas.

Everybody except the blowhards on TV seem to understand this already.  It's pretty simple stuff.

Now, Leonhardt also points out that inherited or not, Obama hasn't yet provided any credible plan for reducing federal deficits in the long term.  This is true, and eventually he's going to have to.  But since the inescapable answer includes higher taxes, he first has to turn around at least a few of the diehard tax jihadists in both the Republican Party and the conservative precincts of his own party.  That might take a while.

Via Dan Drezner, here is Martin Wolf summarizing a recently released research report from Goldman Sachs:

The paper points to four salient features of the world economy during this decade: a huge increase in global current account imbalances (with, in particular, the emergence of huge surpluses in emerging economies); a global decline in nominal and real yields on all forms of debt; an increase in global returns on physical capital; and an increase in the “equity risk premium” — the gap between the earnings yield on equities and the real yield on bonds. I would add to this list the strong downward pressure on the dollar prices of many manufactured goods.

The paper argues that the standard “global savings glut” hypothesis helps explain the first two facts. Indeed, it notes that a popular alternative — a too loose monetary policy — fails to explain persistently low long-term real rates. But, it adds, this fails to explain the third and fourth (or my fifth) features.

The paper argues that a massive increase in the effective global labour supply and the extreme risk aversion of the emerging world’s new creditors explains the third and fourth feature....The authors conclude that the low bond yields caused by newly emerging savings gluts drove the crazy lending whose results we now see. With better regulation, the mess would have been smaller, as the International Monetary Fund rightly argues in its recent World Economic Outlook. But someone had to borrow this money. If it had not been households, who would have done so — governments, so running larger fiscal deficits, or corporations already flush with profits? This is as much a macroeconomic story as one of folly, greed and mis-regulation.

I just finished reading Barry Ritholtz's Bailout Nation, and it was great.  It's a polemic, mainly about domestic policy and regulatory idiocy, but it's a good polemic.  Well worth reading.

But there was a big part missing from it: as Wolf says, better regulation would have reduced the size of the credit bubble and the ensuing crash, but in the end, all the cheap money generated by our persistent trade deficit had to go somewhere.  You can't hold back the tide forever, after all.

I guess I've been haunted for months by John Hempton's simple formulation: banks intermediate the trade deficit.  If China is sending us huge bales of cash every month, it's going to end up in the banking system and the banking system is going to end up lending it out.  Sure, Alan Greenspan made things worse, George Bush made things worse, and the giddy free market ideology of the Republican Party made things worse.  Bill Clinton, Robert Rubin, and the Wall Street wing of the Democratic Party made things worse too.  But the underlying cause is, and always has been, our persistent trade imbalances.  That was as much a weapon of financial mass destruction as the rocket science derivatives that Warren Buffett so famously criticized.

Things have improved on this score recently.  Our trade deficit is half what it was at its peak.  The problem is that this isn't nearly enough: eventually, we need to pay down all these loans.  That means we need to start running a trade surplus, not merely a smaller deficit.  And we have to do this even though oil prices are almost certain to rise in the long term and our dependence on foreign oil is going to continue to grow.  I still haven't figured out how this is going to happen, and as near as I can tell, neither has anyone else.  All the options seem pretty grim, though.

It's anyone's guess why North Korea has returned to rattling its nuclear sabre. Some think it's just the same old problem-child behavior: acting out to get attention and receive humanitarian and food aid. Others believe its more closely tied to the country's internal power struggle, underway since Kim Jong Il suffered stroke. For its part, Pyongyang blames... wait for it... the United States, of course. It's a tough sell, considering that the Obama administration has offered to sit down with the North Koreans in direct talks--a move that might have been a major step forward had Kim Jong Il not decided to scrap it all and go for broke.

The question of how to deal with North Korea's recent displays of aggression--the nuclear test, the missile launches, the kidnapping of two US reporters--is one that will require a united international front. To that end, US envoy Stephen Bosworth is emphasizing a renewed diplomatic effort. Speaking to the Korean Society in New York City, he sent a message to the North Koreans assuring them that "we have no intention to invade North Korea or to change its regime through force and we have made this clear ... repeatedly." That doesn't mean there'll be no military reaction, though. "North Korea's recent actions to develop a nuclear capacity and an intercontinental ballistic missile capacity will require that we expand our consideration of possible responses, including our force posture and options for extended deterrence," Bosworth continued. 

But sanctions appear to be the international community's hope at the moment. (Whether they can work is another question entirely.) According to AFP, the five permanent members of the UN Security Council, plus Japan and South Korea, have reached agreement on a tougher set of sanctions, which they will present to the 15-member Security Council as early as Thursday.

It's become increasingly clear that New Jersey Governor Jon Corzine, a Democrat, is in big trouble in his re-election race against former US Attorney Chris Christie. Do Democrats really want to lose the governorship of an important state like New Jersey because they're backing a weak, unpopular incumbent? Losing the race will undoubtedly be touted as a rebuke to President Barack Obama's agenda. Thankfully, there's a solution: it starts with a "B" and ends in a "ruuuuuuuuuuuuuuuuuuce." That's right: Democrats should draft the Boss for governor.

It's clear that Springsteen has a lot of sympathy for liberal causes—he may even be to the left of Corzine. The Boss campaigned hard for Obama, so Obama might be inclined to back him if he has to run as an independent (the primary already happened)—although I think that Corzine has enough good sense to pull an LBJ and decline to run if he sees that Bruce is getting in. Bruce is immensely qualified—he's already been the Boss in New Jersey for decades. Being governor would simply formalize the arrangement. Springsteen also makes electoral sense—do you really think anyone is going to be able to beat Bruce Friggin Springsteen in New Jersey? Of course not.

Now, some of you might quibble and say that there's no indication that the Boss is even interested in being governor. That, of course, is where you come in: some enterprising citizen should register DraftBruce.com and TheBossforNJ.net and so on and start the campaign to get Bruce to announce his candidacy. If everything goes as planned, Springsteen will crush Christie, spend a few years in charge of the Garden State, and then run for President. That way my real goal will be achieved: the Maxwell Sachel Weinberg vice-presidency. Also the Clarence Clemons-run Department of Defense.

I love stories like this:

[Mark] Elliot's cellphone nightmare began last week when he received a notice from Bank of America saying a payment had bounced on his online bill-pay service. He looked into it and discovered that Verizon was trying to charge him $9,993.88 for his April bill.

....According to the bill, Elliot used his cellphone to upload, download or otherwise access more than 44,000 megabytes worth of data in a single month.  That's the equivalent of downloading about 11,000 songs from iTunes or 60 full-length movies.

[Blah blah....some idiocy from Verizon about how this was all perfectly normal....blah blah]

Elliot woke up Tuesday morning to another notice from BofA saying something was amiss with his account. Turns out Verizon had once again billed his account for the entire $9,993.88 — and this time BofA paid the bill.  This resulted in Elliot losing the $781 he had in his checking account and then owing more than $9,200 to the bank.

So I contacted BofA. Tara Burke, a bank spokeswoman, said the way the online bill-pay system works is that if insufficient funds exist in an account, the first two attempts by a business to withdraw funds will be rejected.  But if the business tries a third time, the transaction will be processed.

Verizon and BofA eventually fixed this stuff, but only after learning that it was going to be publicized in the LA Times.  Without that, this might have gone on forever.  And who knows if it's really over anyway?  I wonder if Elliot has checked his credit report yet to see if anyone has put a big fat black mark on it that will take the next five years to clear up?

Anyway, this is why I don't use electronic bill pay.  You have been warned.

According to a new study, as the economy tanked last year, so did Americans' charitable giving. The Giving USA Foundation reports that we donated nearly six percent less than we did in 2007, the biggest annual drop in 50 years. This is hardly unexpected, but it's still notable that charitable giving didn't drop at the same rate as the stock market or people's retirement funds. Which may suggest that even in hard times, we Americans are a fairly generous lot. Or are we? In our current issue, I explore the question of whether we can afford to give away even more of our hard-earned cash. As residents of the richest nation in the world, do we have an ethical obligation—as philosopher Peter Singer argues—to give away a substaintial chunk of our personal wealth to help others? And even if we do, can we write our favorite causes an IOU until the economic mess works itself out?

My take: I find Singer's basic argument compelling, if guilt-inducing. We should still keep our checkbooks at the ready, not simply because it's the right thing to do, but because nonprofits are an economic engine every bit as important as mismanaged auto companies or short-sighted investment firms. And they're picking up much of the slack in our frayed social safety net. So, if you can afford it, go out and stimulate the economy and your conscience. (I don't say this just because I work for a nonprofit magazine. Really.) Read my article and let me know what you think.

Image by Wikimedia Commons user Remi Jouan.

We gave the Pentagon more than $500 billion (PDF) last year, but, according to the Center for Public Integrity, that hasn't stopped defense officials from routinely accepting trips bankrolled by special interests.

Despite the Pentagon’s big budgets, DOD personnel routinely accept free flights, accommodations, and hospitality from outside interests, according to a Center for Public Integrity analysis of thousands of travel disclosure records. From 1998 through 2007, the analysis found, outside sources paid for more than 22,000 trips worth at least $26 million, sponsored by an array of foreign governments, private companies, and other groups which have business with the Pentagon.

The best (or most suspect) trip taken by an American official? A $24,000, Saudi-funded excursion—complete with a trip to a camel race as special guests of Prince Miteb bin Abdullah bin Abdulaziz—taken by Richard Millies and his wife in 2005. Millies is one of the Pentagon's men in charge of selling advanced weapons to foreign governments.

Yesterday I posted a photo from Afghanistan. Today, it's Iraq.U.S. Army Pfc. Anthony Mariscao of Houston, Texas, from 3rd Platoon, Charlie Company, 1st Battalion, 8th Cavalry Regiment, 2nd Brigade Combat Team, 1st Cavalry Division, Fort Hood, Texas, gives an Iraqi girl candy in the village of Raml in Kirkuk, Iraq, June 4, 2009. U.S. Coalition and Iraqi Security Forces are working to identify areas that need road repair in and around Kirkuk, Iraq. (U.S. Army photo by Spc. Bobby L. Allen Jr./Released)

Uighurs to Palau

Kevin Drum relays the fact that the Uighurs are headed to Palau, an island nation in the North Pacific. You may remember Palau because it's especially threatened by climate change. Mother Jones has covered the story of the Uighurs, 19 Chinese Muslims held in Guantanamo Bay, extensively. In November 2008, when it looked like the Uighurs might be released near Washington, DC, Stephanie Mencimer spoke to members of the local Uighur community. Here's a video from that story (Jonathan Stein narrated):

Later that month, Stephanie reported on the Bush administration's half-hearted struggle to find a home for the Uighurs. Back in January, Kevin wrote that he hoped Obama would be able to settle the Uighurs.

As Nick and Kevin have noted, 17 Uighurs may soon be headed for the tiny Pacific nation of Palau. This strikes me as a little odd, because when Palau's government isn't offering to accommodate Guantanamo detainees, it's publicly fretting that the country may become unliveable because of global warming.

At the United Nations, Palau is one of the savviest, loudest voices (admittedly there aren't many) calling for the international community to help small island countries whose existence is threatened by climate change. Palau says it has already lost one third of its coral reef ecosystems, which it depends on for food and tourism, due to rising ocean temperatures and increasingly frequent storms. The government fears that if these weather patterns continue, the islands will no longer be able to sustain its population of around 20,000 people. Palau's UN ambassador, Stuart Beck, has said that "the destruction of coral reefs is tantamount to the destruction of our country."

Palau's dire predictions never seemed to result in much tangible assistance. Now the US is pledging the country $200 million in development aid. Just to put that in perspective, that's $10,000 per person, and nearly twice as much as the US gives to Rwanda. In 2007, US aid to Palau totaled $27 million. But the extra money has nothing to do with the Uighurs, of course.