Getting to No

For the past few months President Obama has been open to nearly any proposal to curb spending and raise the debt ceiling. There's only one thing he's said he categorically won't accept: a short-term increase that kicks the can down the road and forces us to replay this entire battle next year. So guess what John Boehner plans to propose?

Mr. Boehner planned to unveil a new debt-ceiling plan later Monday, a spokesman said. Mr. Boehner's plan would cut the budget deficit by $1.2 trillion over 10 years and raise the debt ceiling in two phases—one that would enable the government to cover its bills through the end of the year and a second in January 2012 depending on recommendations from a congressional commission.

Is there any doubt left about what Republican goals are at this point? Boehner has rejected every possible compromise offered to him, and now plans to unilaterally hold a vote on the one thing — the only thing — that he knows Obama won't accept. This is all he cares about. He doesn't want to solve a problem, he just desperately wants to figure out some way to get Obama to say no so that he can make some political hay out of it.

Seriously, how much more obvious can he be? Is there anyone left in Washington who doesn't get this?

Hey, I have an idea. How about if Congress just passes a bill to raise the debt ceiling and sends it to the president? That would work, wouldn't it? I wonder why no one's thought of this before?

This chart is from the New York Times, and shows in lovely, vibrant colors that George Bush was responsible for far more of our current deficit than Barack Obama has been. It's pretty dramatic, and in any case, probably understates the difference since the vast majority of Obama's contributions were specifically designed to be temporary reactions to the recession. Take out temporary recession spending from both sides and the tally is something like $4,000 billion for Bush and $300 billion for Obama. So now you know the facts.

But, really, who cares? Republicans have never really cared about the deficit except as a partisan tool to use against Democratic presidents, and all the charts in the world aren't going to change that. They'll just keep pointing out that the 2011 deficit is bigger than anything Bush ran up — which is true, thanks to the recession he bequeathed to Obama — and then move on. It's enough for a TV soundbite, and that's all that matters. The Pete Petersons and Standard & Poor's of the world will play along for their own reasons, and the nation's editorial pages will mostly cheer them on. (And then, quite possibly in an editorial on the same page, wail about all the jobless and wonder why they've been forgotten.)

But while it's pretty plain that Republican angst over the deficit is just a facade, I think Atrios isn't quite right when he says that Republicans also don't care about cutting spending. They do. In fact, that's the political beauty of pretending to care about the deficit: it sounds fiscally responsible, and it provides cover to cut spending on social programs that Democrats care about. Not defense or, as Atrios says, Social Security or Medicare unless they can get bipartisan cover for it, but pretty much anything else that benefits the poor or the young or the sick. All in the name of getting our fiscal house in order and not becoming the next Greece. Hooray.

From Paul Waldman, reacting to Cornel West's peculiar ideas about making a difference:

If I said, "Last weekend I was at Clooney's, and we ate sushi off Jessica Alba's naked body, then later I gave him some notes on a script he's working on. That's an important role I'm playing," you'd think I was just about the biggest jackass you'd ever met. And you'd be right.

OK, but what if he and Clooney had eaten sushi off Jessica Alba's naked body and then co-written a blog post for the Huffington Post? How about then?

A few days ago, Standard & Poor's announced that even if Congress passes a debt ceiling increase, they might still downgrade U.S. debt if there's not also an agreement to cut the long-term deficit by at least $4 trillion. Now, there are all sorts of reasons why no one should care much what S&P thinks. For example, there's the fact that they don't know anything more about U.S. solvency than anyone else. There's the fact that they displayed monumentally bad judgment during the housing bubble. And as Mike Konczal pointed out earlier today, there's the fact that they routinely do a lousy job of rating sovereign debt.

But there's another interesting aspect of the whole thing. Here is S&P's explanation for why they're so concerned:

U.S. political debate is currently more focused on the need for medium-term fiscal consolidation than it has been for a decade. Based on this, we believe that an inability to reach an agreement now could indicate that an agreement will not be reached for several more years. We view an inability to timely agree and credibly implement medium-term fiscal consolidation policy as inconsistent with a 'AAA' sovereign rating, given the expected government debt trajectory noted above.

Did you see the card they palmed via use of the passive voice? Here's the translation: If Congress had just gone through its usual kabuki and then raised the debt ceiling, S&P wouldn't have cared. Life would go on as usual. But because "U.S. political debate" is currently so focused on the deficit, that makes addressing the deficit suddenly important regardless of what action is taken on the debt ceiling.

But this focus on the deficit didn't spring fully formed out of Zeus's forehead. It's the product of a deliberate political offensive by one of America's two major parties. (The other major party is more focused on addressing sky-high unemployment and poor economic growth.) So what S&P is saying here is this: If Republicans unilaterally decide to focus on something for partisan reasons, then the nation had better address it. And if the nation doesn't address Republican concerns, then its credit rating will go down.


Inkblot's senior campaign staffers have decided that Friday's campaign poster didn't show the candidate at his presidential best. Too squinty-eyed. So here's their second bite at the apple, a truly visionary and inspiring Inkblot dedicated to winning the future. How could you not vote for him?

God only knows what offers Obama really made to John Boehner last week and what offers Boehner might have been willing to accept. Reporting is all over the map on this. Like nearly every liberal, though, I'm pretty stunned by White House confirmation that Obama offered to raise the Medicare eligibility age to 67 — a truly terrible idea that wouldn't even save very much money. If this is true, it means either (a) Obama really is willing to sell out the left almost completely, or (b) he's trying to demonstrate how completely instransigent Republicans are. I can't even guess which at this point. Maybe both.

Frankly, though, the endless "inside" reporting of offers and counteroffers isn't very interesting any more. I think we've seen pretty much every permutation possible. Details aside, what's obvious is that Obama is willing to concede a helluva lot while a big chunk of Republicans are not only unwilling to concede anything, but think it would be great to just go ahead and default. So what if the economy goes kablooey? It'll help defeat Obama! And anyway, it's only a bunch of long-haired economists saying so, and they're probably just making stuff up, the same as the long-haired climate scientists and the long-haired biologists.

But here's what I am curious about. Up until very recently, Republicans were mostly taking a hard line on the deficit and weren't shy about making sure everyone knew it. The hard line itself hasn't changed since then, but over the past few weeks they've come to realize that it doesn't make for very good PR. So now their enablers in the media are furiously pushing the story that it's really Obama who's completely intransigent and insincere, rejecting deal after deal no matter how much Republicans try to accomodate his crazed desire to punish the rich. This narrative, as near as I can tell, is now virtually unanimous among conservative commenters.

So the question is, will anyone buy this? It's so self-evidently preposterous that it doesn't seem possible, but then, I wouldn't have figured that they could successfully make the world so quickly forget that they were responsible for the deficit in the first place, nor that they were also responsible for the most epic financial meltdown since the Great Depression. But they have. Their ability to shape popular narratives can hardly be overestimated.

Even now, House Republicans are apparently readying a plan that appears to have no purpose except to be so obviously outlandish that it will get rejected out of hand, thus helping their storyline. Conservative pundits will spin it in lockstep as yet another example of Obama's obduracy, and the rest of the media will.....

What? Slowly buy into it? I don't know. The American press, as long as it's bound by its usual standard of objectivity, just isn't set up to deal with a two-party system in which one of the parties has gone completely off the rails. So we'll see. They might yet pull it off.

In the last election cycle, Inkblot announced his candidacy for president ten days before the election. Too late! He's learned his lesson, though, so today he's throwing his whiskers in the ring for 2012. His official campaign poster is below.

My mother says he looks shifty. I say he looks tough-minded but visionary. On a policy note, he's running on a promise not to raise the debt ceiling, which should go over well with his core tea party supporters. However, instead of cutting spending, his plan to balance the budget involves extremely punitive taxation against dog owners. I've advised him that this sends a muddled message to his followers, but he's a cat of principle and refuses to back down. He also plans to release much-needed supplies from the Strategic Cat Food Reserve and to break off diplomatic relations with Germany because they invented the German Shepherd. More details and white papers to follow.

Gordon Adams says that rumors that a budget deal will include $1 trillion in defense cuts is just smoke and mirrors:

Right now, the adminstration's budgets assume that war costs will be $50 billion a year over the next ten years. That is not a real number; it is what budget folks (like me) call a "plug" — we know something will go there, but we don't know what it is.

By contrast, the Congressional Budget Office uses its own "plug" in forecasting future war costs. Theirs is based on what was the last appropriation for the war, or $159 billion in fiscal year 2011. Then CBO just mechanically projects that number out over ten years, regardless of what policy might be.

So if the deal assumes that by, say, 2014 our wars all wind down to a mere $50 billion per year, that's a savings of $109 billion for eight of the next ten years compared to the CBO estimate. That comes to $872 billion over ten years, or, roughly speaking, $1 trillion.

And you never know: maybe this will actually happen. But simply saying so doesn't make it any more likely, nor does it make it any more likely that we'll avoid future wars. And it certainly doesn't force any serious cuts in the Pentagon's operating budget.

If it ends up making a budget deal more likely to pass the House, I guess I'm OK with it. But no one should mistake this for any kind of serious spending cuts. Those, apparently, are being saved for the poor and the elderly.

This chart, inspired by Larry Summers, comes from Felix Salmon. Roughly speaking, it shows the relative valuation of tech companies vs. industrial companies. For the first time in two decades (and possibly the first time ever), the PE ratio of tech companies is lower than the PE ratio of industrial companies. In other words, given a choice between a tech company with earnings of $1 billion and an industrial company with earnings of $1 billion, investors today would pay a higher price for the industrial company. Generally speaking, this means that investors think the industrial company has better long-term growth prospects than the tech company.

So why has this happened? I can take a few guesses:

  • The ratio was fairly flat from 2004 until 2009 and then nosedived. For some reason, the recession had a bigger impact on tech companies than industrial companies.
  • Older tech companies, like Microsoft, aren't high flyers anymore, and new tech companies haven't gone public in big numbers. If tech companies like Facebook and Twitter were holding IPOs in normal numbers, average tech valuation would be higher.
  • Investors are still nervous about the dotcom bust and are afraid it could happen again.
  • Most of the manufacturing sectors that were in danger of losing their business to overseas competitors have already been decimated. The ones that are left are pretty healthy and unlikely to fall prey to competition from China or Malaysia.

I suspect the real answer is something else, but I don't know what it is. In any case, I'd like to see this chart decomposed so it's more obvious why these relative valuations have changed. Has it mostly been because tech PEs have gone down or because industrial PEs have gone up?