Kevin Drum - December 2012

Public Service Announcement: Sometimes a Higher Deficit is Good. Like, For Example, Right Now.

| Tue Dec. 4, 2012 7:09 PM EST

More polling fun: Business Insider conducted an internet survey that asked people what would happen to the deficit if we go over the fiscal cliff. Nearly half thought the deficit would increase. The correct answer, of course, is that the fiscal cliff involves tax increases and spending cuts, which would dramatically reduce the deficit.

My initial reaction to this was pretty meh. I figure most people have only a vague idea what the fiscal cliff is, but they know it's bad. They also think that deficits are bad. Ergo, the fiscal cliff must produce higher deficits. This is wrong, but pretty understandable for the large majority of the population that doesn't really follow this stuff closely.

But Paul Krugman points out a related but different interpretation:

In a way, I understand this: the VSPs have been pounding the drum over and over again about how deficits are bad, evil; now they are warning about a fiscal something-or-other, so how are people supposed to know that they’re suddenly worried that we’ll reduce the deficit too much?

Right. Given the current level of discourse, it's inconceivable to a lot of people that reducing the deficit could be bad. That being the case, it's inconceivable that anything that would cause a deficit reduction could be bad. Therefore the fiscal cliff must not do that. It must cause a deficit increase.

This makes perfect sense even if you do follow this stuff fairly closely. As long as the media continues to treat the federal deficit as a self-evident apocalypse, what else would most people think?

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The Fox News Effect: Republicans Still Think ACORN is Alive and Stealing Elections

| Tue Dec. 4, 2012 4:25 PM EST

Here is PPP on their finding that 49 percent of Republicans think ACORN stole the election for Obama, a drop from the 52 percent who thought ACORN stole the election in 2008:

This is a modest decline, but perhaps smaller than might have been expected given that ACORN doesn't exist anymore.

I'd call this a dry British sense of humor if PPP were British. In other news, they found that 39 percent of Americans claim to have an opinion about the Simpson-Bowles deficit plan, while 25 percent claim to have an opinion about the Panetta-Burns plan, which they just made up. Fun times.

Quote of the Day: Obama Not Budging on Higher Tax Rates for the Rich

| Tue Dec. 4, 2012 4:01 PM EST

From President Obama, asked about John Boehner's deficit proposal yesterday:

He talks, for example, about $800 billion worth of revenues, but he says he’s going to do that by lowering rates. And when you look at the math, it doesn’t work....If we're going to raise revenues that are sufficient to balance with the very tough cuts that we've already made, and the further reforms in entitlements that I'm prepared to make, we’re going to have to see the rates on the top two percent go up. And we’re not going to be able to get a deal without it.

Well, that's pretty definitive. Obama didn't explicitly say that rates had to go all the way back up to pre-Bush levels, so there's still a bit of wiggle room here. But not much.

IMF Suggests Lowering Global Financial Speed Limit

| Tue Dec. 4, 2012 1:34 PM EST

The IMF has now officially come around to the belief that capital controls—limits on the global flow of money—are sometimes appropriate, especially for small, volatile, emerging economies. But not only for small, volatile, emerging economies:

19. Indeed, as the recent global financial crisis has shown, large and volatile capital flows can pose risks even for countries that have long been open and drawn benefits from capital flows and that have highly developed financial markets. For example, in several advanced economies, financial supervision and regulation failed to prevent unsustainable asset bubbles and booms in domestic demand from developing that were partly fueled by cheap external financing. Rather than favoring closed capital accounts, these experiences highlight the need for policymakers to remain vigilant to the risks. In particular, there is a constant need for sound prudential frameworks to manage the risks that capital inflows can give rise to, which may be exacerbated by financial innovation.

I'm glad to see this. I'm not an economist, which means that my views are crude and unlettered. But one of the things I've taken away from the past decade is a general belief that an increasingly frictionless global financial system is a bad thing, even for supposedly advanced, sophisticated countries like us. Roughly speaking, that means I think there ought to be a little bit of sand in the gears to slow things down. Modest capital controls can play a role in this, as can small financial transaction taxes, higher capital requirements for banks, and stronger tax treatment of debt. By analogy, we want highways that can whisk you along to your destination at high speeds, but we also understand that when speeds get too high the risk of danger rises exponentially. Right now, the speed limit on our financial highways is about the equivalent of a hundred miles per hour. Getting it down to 70 or 80 would probably be a good idea.

Chart of the Day: Public Blames GOP for Fiscal Cliff by 2:1 Margin

| Tue Dec. 4, 2012 11:58 AM EST

A new Pew-Washington Post poll puts the GOP's fiscal cliff problem in stark terms:

The Post site has a tool that lets you look at various demographic subgroups, and it turns out that everyone would blame Republicans. I figured maybe old people would blame Obama instead. Nope. Southerners? Nope. White people? Nope? High-income people? Nope. Literally the only group that didn't blame Republicans was....Republicans.

Politically speaking, President Obama's main job is to keep things this way. Republicans pay a price for their anti-tax jihad only if the public blames them for the ensuing catastrophe. But if Obama sticks to reasonable asks—modest tax increases, modest spending cuts, and a debt ceiling increase—and pounds away at Republican intransigence, these numbers aren't likely to shift much.

Pay No Attention to the Plan Behind the Curtain

| Tue Dec. 4, 2012 2:16 AM EST

David Brooks says Republicans should agree to a small deal that gives in a bit on taxes in return for a few modest spending cuts. However, it would come with a condition:

That on March 15, 2013, both parties would introduce leader-endorsed tax and entitlement reform bills in Congress that would bring the debt down to 60 percent of G.D.P. by 2024 and 40 percent by 2037, as scored by the Congressional Budget Office. Those bills would work their way through the normal legislative process, as the Constitution intended. If a Grand Bargain is not reached by Dec. 15, 2013, then there would be automatic defense and entitlement cuts and automatic tax increases.

I'm pretty sure I don't understand this. But if I do understand it, Brooks is saying that Democrats and Republicans should agree on a plan (automatic defense and entitlement cuts and automatic tax increases) and then start work on a pair of alternate plans (leader-endorsed tax and entitlement reform bills). If the alternate plans fizzle out, the first plan will go into effect.

But....this still means that Democrats and Republicans have to agree on the first plan, the one that will go into effect if the alternate doesn't pan out. And right now, that's what they're doing: trying to agree on a plan. It won't suddenly get easier to do that just because they agree to maybe replace it someday with an alternate plan, something that Congress can do any time it wishes anyway.

There's no magic here. Agreeing on a plan is hard. There are no cute psychological ploys or Jedi mind tricks that will make it any easier.

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Proposals Made on Background Are Not Real Proposals at All

| Tue Dec. 4, 2012 1:53 AM EST

I buried a point in an update to my earlier post about John Boehner's new deficit proposal, and I want to give it a short post of its own to make sure it gets a bit of attention. The point was this: every news account of Boehner's proposal says that it includes (a) an increase in the Medicare eligibility age, and (b) a change in the way inflation is calculated, which would reduce Social Security benefits. But neither of those things is in the letter he sent to President Obama. So where did they come from?

The answer, apparently, is from anonymous GOP aides on background. And if that's the case, it should have been clearly reported that way. Because that's not a proposal at all, it's a way of pretending to make a proposal that can be disavowed and denied at any time if it becomes inconvenient. If it were real, after all, Boehner would have put it in his letter. It's not as if he didn't have enough room.

And on a substantive note, if the inflation proposal is real, I hope that Obama rejects it unless it's matched at least dollar-for-dollar with a proposal to increase Social Security revenues. Raising the maximum taxable income so that it once again covers 90% of earnings would just about do it. Generally speaking, I don't mind making a deal on Social Security, but it needs to be a balanced deal that pairs up benefit cuts with tax increases. Under no circumstances should any Democrat accept a deal that includes only a benefit cut.

Can Obama Stop Netanyahu's New Settlement Project?

| Tue Dec. 4, 2012 1:16 AM EST

Robert Wright thinks that President Obama needs to respond forcibly to Benjamin Netanyahu's decision to undertake a new round of settlement construction in a highly contested area east of Jerusalem. "This was more than a slap at Obama," he says, "It was a slap at the United States." Here's his proposal:

[1] Write out a statement that he's willing to deliver on TV. It should criticize Netanyahu sharply and say something that will shock the Israeli people: If the prime minister is going to behave this outrageously, America can no longer guarantee that it will stand by Israel's side at the United Nations. It can no longer guarantee that it will veto Security Council resolutions that declare West Bank settlements in violation of international law. Indeed, America may now introduce such a resolution--that's how outrageous this latest settlement project is.

[2] Call Netanyahu, read him the statement, and tell him that if the settlement plans haven't been reversed within 48 hours, Obama will deliver the statement on TV.

That's never going to happen, but it's something to fantasize about, I suppose. Honestly, Netanyahu seems hellbent on making sure that Israel doesn't have a single friend left in the world aside from the United States, and even that's a relationship he's apparently willing to strain to the breaking point. The part I don't get is what he thinks the endgame is here. If Netanyahu's new settlement finally puts a stake through the heart of a two-state solution, and Israel is left isolated and almost entirely friendless, what's left? Permanent occupation within a vast sea of global hostility? Is that really the plan?

John Boehner's Smoke-and-Mirrors Deficit Proposal

| Mon Dec. 3, 2012 7:29 PM EST

Earlier today, I argued that contrary to popular opinion, John Boehner has not agreed to raise more revenue as part of a deficit reduction plan. He's rather vaguely said he might agree to this, but he's steadfastly declined to produce any details. "I'll believe Boehner is serious," I said, "as soon as an actual proposal is on the table and both Eric Cantor and Paul Ryan say they've signed onto it."

Well, good news! Today Boehner wrote a three-page letter to President Obama outlining his proposal. And it was signed by, among others, Eric Cantor and Paul Ryan. So now we're cooking. What does the letter say?

For starters, it's not really a three-page letter. The first two pages are just some throat-clearing about how disappointed Republicans were in Obama's initial proposal and how sweetly reasonable they plan to be in response. That response, however, turns out to be a grand total of two paragraphs long, and basically says they're endorsing the "middle ground" plan that Erskine Bowles proposed on November 1 of last year. I looked far and wide for this plan, and as near as I can tell, it doesn't really exist. The only record I could find was Bowles' oral testimony before the supercommittee last year. Here it is:

Mr. BOWLES: You all are between $250 and $400 billion of additional cuts on discretionary, so I assumed that we could reach a compromise of an additional $300 billion on discretionary spending cuts.

On health care you are somewhere between $500 and $750 billion of additional health care cuts. I assumed that we could get to $600, and I got there by increases in the eligibility age for Medicare that I discussed with Senator Kerry when he was talking to me. That is about $100 billion. That would take you from the 500 where the Democrats are to $600 billion, and it happens to come not on the provider side, which I think would kind of balance that out.

On other mandatory cuts, you are somewhere between 250 and 400, so I settled on 300 there, and we had enough cuts in our plan to get you to 300 on the other mandatory....You agreed actually on CPI in your two plans of approximately $200 billion.

....That gets me to revenue. And on revenue I took the number that the Speaker of the House, I had read had actually agreed to, and I was able to generate $800 billion through revenue from the Speaker’s recommendation.

So that's it. The only specific proposals there are increasing the Medicare eligibility age, which is a terrible idea, and changing the way inflation is calculated to slow down automatic spending increases. However, Boehner doesn't appear to have included the inflation proposal in his letter, probably because it would affect tax brackets as well as Social Security benefits if it were implemented government-wide. Republicans have long championed adopting a new inflation calculation in order to reduce Social Security benefits, but they usually get cold feet when you suggest that if it's good for Social Security, it ought to be good for everyone else too.

So what we're left with is: $800 billion in revenue plus $1.2 trillion in spending cuts. But these are nothing more than numbers that Erskine Bowles pulled out of the air because they were in between some other numbers. They're just vague goals.

Now, it's true that Bowles thinks that closing deductions and loopholes is the way to go about raising revenue, and he even has a few suggestions along these lines. But that doesn't matter. What matters is what Boehner & Co. are willing to sign up for, and Boehner's letter makes it clear that Republicans also want to lower tax rates, which means they'd need to find way more deductions and loopholes than Bowles has ever proposed. So far, though, they've declined to make even a single concrete suggestion. Nor have they committed to genuinely raising revenue, as opposed to "raising" revenue via tax reform that will supposedly supercharge the economy and thereby increase tax payments automatically. Until they do, this is just hot air. 

Am I being too cynical? Maybe. After all, Boehner has said that he's willing to close loopholes and deductions. And maybe the details can only get hammered out behind closed doors, in order to keep the lobbyists at bay until both sides have an agreement. We'll see. But I will remain cynically skeptical until the day that Boehner publicly proposes $800 billion in actual deductions and loopholes he wants to close. That day hasn't come yet.

UPDATE: Jeez. Even Erskine Bowles doesn't support the supposed "Bowles plan" in Boehner's letter. I guess maybe Boehner should have checked with him first.

UPDATE 2: There's nothing in Boehner's letter about changing the way inflation is calculated, but all the news accounts I've read say that Boehner's plan includes it. So maybe it's there after all. I'm just not sure where.

UPDATE 3: Apparently, the inflation thing came during background briefings from anonymous GOP aides. Needless to say, this means no one is really standing behind it and it can be easily denied in the future if need be. Color me unimpressed until someone in the Republican leadership makes this proposal publicly. They could have put it in their letter pretty easily, after all.

Today's Dictionary Update: Serious vs. Unserious

| Mon Dec. 3, 2012 3:27 PM EST

As a public service, here is today's installment of Capitol Hill lexicology. Today's subject: serious vs. unserious deficit proposals. As committed descriptivists here, we naturally define these words by their actual usage among contemporary users of the language:

Serious (ser ee uhs) adj. any of a group of proposals that immiserates large numbers of ordinary people, either immediately or in the future, via cuts to broad-based social welfare programs.

Unserious (un ser ee uhs) adj. any proposal that slightly inconveniences rich people via modest tax increases or annoys military contractors via small cuts to the Defense Department.

As near as I can tell, that's about it. Have I missed any nuances?