America Downgraded, and The Fierce Urgency of Debt Now

I’m tempted to speak as Aragorn did to Frodo at the Prancing Pony in Bree: “Are you frightened?  Not nearly frightened enough.”  And, humanly speaking, I think that Aragorn would have it precisely right.

Some of us have been trying to sound the alarm for a long time now.  Government spending has expanded at a gobsmacking rate, and once-sustainable levels of deficit spending have exploded far beyond sustainable levels.  And while the machinery of government has grown massive and over-fed, to where government employees are generally compensated far better than those in the private sector, Congress has passed one measure after another that makes life harder for the companies that power the private marketplace.

This is not a merely partisan complaint.  Leaders in both parties have treated the private sector as a sort of bottomless piggy bank.  The attitude appears to have been: feel free to impose more and more burdens, more and more restrictions and regulations, because surely the American economy can handle it.  Who are they to be making such obscene and unfair profits, anyway?  And yet, gradually, the gears of that economy began to slow, even as the spending commitments of our government have grown.  It was clear where we were headed: a stagnant economy and a massive debt burden that would only grow worse as we confront the skyrocketing expenses of providing for Baby Boomers in their old age.

To make matters worse, it has not been clear that we have the cultural capital or the political will and resources to accomplish a dramatic change of trajectory.  Can Americans become thrifty again?  Can we become more industrious and creative again?  Can we renew the virtues and values that provided the bedrock of the American free market?  What about our representatives?  Perhaps the most damaging legacy of the debt-ceiling debacle will be the decreased confidence amongst Americans and investors around the world in the American government, its ability to solve problems, and its commitment to getting its fiscal house in order.

And so yesterday Standard and Poor’s downgraded the credit rating of the American government to a AA+.  It appears unlikely, they said, that we would regain a AAA rating for years to come, due to the ratio between our debt and our GDP.

This is a part of why our group of friends formed Christians for a Sustainable Economy.  The political and economic practices of recent years are simply unsustainable.  They will bear us toward catastrophe.  This is not an exaggeration.  In order to be wise stewards of our common resources as a nation, it is morally imperative that we decrease the debt and get our house in order.  In the short term, I believe, the best thing (economically) we can do for the poor and for all Americans is promote job-growth.  In the long term, the best thing we can do is bring our revenues and our spending, our taxes and our entitlement commitments, back into balance.  Unless we are wise stewards now, unless we take responsibility and renew our commitment to sound economic values and practices, we are headed for terrible trouble.

Along these lines, I want to respond to something Michael Gerson wrote in the Washington Post today, referencing CASE.  After agreeing with some of our points, he writes:

CASE, however, seems to engage in some overreach of its own, asserting that compassion is “best fulfilled through Christian charity and spiritual counseling, not government programs.” If this is an affirmation that religious charities have unique advantages over public bureaucracies, it is noncontroversial. If this is an assertion that charity and counseling can replace public programs that provide school meals, AIDS treatment or health care for the poor, it is dangerously oblivious to the real world. The scale of private efforts is not sufficient to meet the demands of public justice — which gives government an important role.

The first problem with this argument is that Gerson is actually quoting Jordan Sekulow, not the letter from CASE.  So, to claim that “CASE” is “asserting” this is false (Mike is a friend, or at least a friendly acquaintance, so I assume it was a simple mistake; I’ve requested a correction and he said they’re looking into it).  Further, the CASE Letter to the President says explicitly, “The government plays an important role, and communities do need the support of social safety nets for those in need.”  So I find no daylight between the view we expressly hold and the view he criticizes us for failing to hold.  But Gerson goes on to write:

The arguments of the Circle [of Protection] and CASE both have merit. But the Circle’s approach is more urgent. Public spending on poverty and global health programs is a sliver of discretionary spending and essentially irrelevant to America’s long-term debt. A political argument giving equal weight to cuts in poverty programs and reductions in entitlement spending is uninformed about the nature of the budget crisis, which is largely a health-entitlement crisis.

To which I would make several points.  First, the Circle of Protection seeks to protect not merely discretionary spending, but entitlement spending as well.  So when we criticize their opposition to cuts, we are speaking not only of discretionary spending but also entitlements.  And second, I wonder how people are feeling about the “urgency” of addressing our debt problem now that global markets are losing so much confidence in the American government that we lost a AAA credit rating we had held for 70 years?

It was never CASE’s main point that we needed to cut anti-poverty spending.  We’re not out to gut programs that truly help people who are truly in need. Of course we’re not.  It’s always been our main point that there is a fierce moral urgency not only to serving the poor right now, but to reducing the debt and wisely stewarding our budgets so that we can continue to serve the poor and serve all Americans well for the long term.  To the extent that we raised concern over anti-poverty issues, it was to make the point that serving the poor and protecting the welfare state are not the same thing, and anyone who reduces the essence of Christian compassion to the Democratic social agenda is clearly not speaking for the whole “faith community.”

For a Christian like myself, there is ultimately another source of comfort and confidence in the face of all this fear.  Yet we have legitimate reason for concern.  We should all be concerned about the culture and the economy we’re handing over, or preparing to hand over, to our children and grandchildren.  Right now, we are effectively stealing from our children to pay our bills.  I don’t want my children to inherit a wasteland economy because my parents’ generation and my generation could not live within their means.  That is a moral issue too.

About Timothy Dalrymple

Timothy Dalrymple was raised in non-denominational evangelical congregations in California. The son and grandson of ministers, as a young boy he spent far too many hours each night staring at the ceiling and pondering the afterlife.
 
In all his work he seeks a better understanding of why people do, and do not, come to faith, and researches and teaches in religion and science, faith and reason, theology and philosophy, the origins of atheism, Christology, and the religious transformations of suffering

  • John Haas

    “… that global markets are losing so much confidence in the American government that we lost a AAA credit rating we had held for 70 years …”

    Standard & Poor’s was not reacting to “global bond markets.” See here: http://www.pbs.org/newshour/businessdesk/2011/08/default-by-debt-ceiling-comple.html

    That is the same Standard & Poor’s, by the way, that (along with Moody’s) spent the last couple decades rating 80% of the bonds composed of securitized mortgages triple A.

    • Timothy Dalrymple

      Who said they were responding to global bond markets? But S & P is one reflection of people around the world having less confidence that we’re capable of solving our problems and capable of handling our financial affairs long term. This is not a partisan point, and I don’t see how it’s really disputable.

      The fact that S & P highly rated some of the MBS’s that went bust is beside the point.
      -Tim

      • John Haas

        It’s not beside the point if you’re in the market for bonds. Triple-A ratings haven’t meant what they did pre-2007. It’s not clear that a loss of triple-A will mean as much either.

      • Nathan Smith

        The day before S&P downgraded US debt, the yield on the 10-yr note had reached below 2.5%. The markets perceive almost no risk in holding US debt. The statement is false.

        • Timothy Dalrymple

          Treasury notes are still perceived as relatively safe. But if you think the world is not concerned we’ve become incapable of handling our economy wisely, I think you’re fooling yourself.
          -Tim

          • Nathan Smith

            You’ve changed the subject, Tim.

          • Timothy Dalrymple

            These were the statements that were challenged: (1) “global markets are losing so much confidence in the American government that we lost a AAA credit rating…” and (2) “people around the world having less confidence that we’re capable of solving our problems and capable of handling our financial affairs long term.” So I don’t see how “the world [is] concerned we’ve become incapable of handling our economy wisely” is a change of subject.
            -Tim

          • Nathan Smith

            Tim, this is in reply to your most recent comment (below on my screen). I don’t see where in the above exchange anyone challenges #2. And I am certainly not challenging #2, I wouldn’t even know how. Is there some reasonable way to measure the confidence of “people around the world,” whoever that is? I’m obviously challenging the claim that markets are losing confidence in the US ability to repay its debts. This claim is false. Even today, after the downgrade the yield on treasury notes is trending downward, meaning it’s still an extraordinarily safe place to put your money (at least as far as the markets believe): http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

  • John Haas

    There’s a lot in S&P’s report. It’s explanation for the changed rating focuses less on economic fundamentals and more on politics:

    “The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.”

    “Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues …”

    http://blogs.wsj.com/marketbeat/2011/08/05/sp-downgrades-u-s-debt-rating-press-release/

    • Larry

      John can you tell me of any time during the 40 years when increased revenues were not attended by increased spending. The last significant tax increase which was to have been matched or exceeded by accompanying reductions in spending occurred under Reagan. Democrats promised the cuts, but *surprise* reneged entirely on them. I do agree that the tax base needs to be dramatically broadened. Roughly 50% of Americans pay no taxes. That is absurd … and dangerous. By creating an entire class of takers, the status quo begins to look terribly attractive to at least half the nation. If every one has skin in the game, policies and their implications would be scrutinized much more closely by many more interested and engaged citizens. Debt which is a result of gross overspending, failed and unsustainable entitlement programs and vote buying efforts lay behind our fiscal mess. Placing the blame elsewhere is precisely the sort of wrong headed thinking which has produced this crisis.

      • http://www.theproblemwithkevin.com kevin s.

        Correct. When you have a plurality that benefit from big government without paying anything for it, you create a dangerous situation one way or the other.

        Also, this business with referring to taxes as revenues all of a sudden is like nails on a chalkboard. We aren’t customers of the government. Just because its in the talking points doesn’t mean you need to regurgitate it. Ugh.

      • sdb

        It is not true that 50% pay no federal taxes. The effective federal tax rates from all sources by quintile in 2007 were 4/11/14/17/25%. The top 1% has a rate of about is 30%
        http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=456

        • Timothy Dalrymple

          It would be more accurate to say that 50% pay no federal income taxes. There are other taxes which raise the effective federal tax rate. But it’s true that 50% do not pay federal income taxes.

          • Larry

            I made an assumption here that Federal Income Taxes were understood to be the matter under discussion. My bad … thanks for clarifying Tim … thanks also for the piece. Very helpful, a very good post to forward to others.

          • Timothy Dalrymple

            Yep, I knew that was what you meant, Larry. Just clarifying in light of the other commenter’s response. Thanks for the feedback!
            -Tim

        • http://www.theproblemwithkevin.com kevin s.

          It’s actually about 43%. Once you factor in credits and deductions, 43% pay no federal income tax. That’s a dangerously high number.

          • sdb

            Fair enough, but if we aren’t going to count payroll tax toward what people pay, perhaps we shouldn’t count social security or Medicare expenditures as part of the size of government.

      • John Haas

        Larry, obviously, if you don’t like S&P’s explanation of their actions, you need to take it up with them.

        And, speaking of S&P, let’s recall that just last October, S&P endorsed “the nation’s AAA rating with a stable outlook, saying the United States looks to be in solid fiscal shape for the foreseeable future.”

        So, I guess we need to attend to what’s happened since October.

        Maybe starting in November?

        • http://www.theproblemwithkevin.com kevin s.

          You didn’t address any of the substantive points anyone raised here.

        • Larry

          John, that sort of reply has become satisfying only to a shrinking number of thinking people. It evades the obvious to find relief in a narrative so detached from reality that it does fiction (to say nothing of the nation) a disservice. Since November the Democrats have, by and large, ignored not only the rising chorus of Americans demanding fiscal accountability but the mounting evidence of failure with regard to the political agenda which has dominated policy making for the last 2 and a half years. To ignore such a colossal failure and the extraordinary damage left in its wake … the human suffering it continues to spawn suggests an investment in liberal ideology so great that reason itself becomes offensive.

          • John Haas

            kevin, I’m not sure which substantive points you refer to. Who pays income tax? Has there been some massive restructuring of the tax code since October that I missed? The Bush tax-cuts were extended, I did see that, continuing to reduce revenues, and thus exacerbating our deficit problems. That substantive issue?

            Larry, thanks for the rhetoric. Afraid I can’t find an LZ in there where planet earth can touch down . . .

          • Larry

            John, I’ll have to respond to your latest post here … the reply button in your last post was malfunctioning. Allow me to quote your line to me “Larry, thanks for the rhetoric. Afraid I can’t find an LZ in there where planet earth can touch down . . .”

            heh heh … that’s actually quite funny, I’ll want to log that one away. I do think there was something to have responded substantively to, but I will agree that it WAS quite a rhetorical flourish. So I’ll try to be more specific. The liberal wing of the Democratic Party (which is to say the Democratic Party) enjoyed virtual reign in Washington for two years. Record amounts of debt, record amounts of spending have occurred during that same period. Assurances regarding outcomes were offered with a certainty that left no room for doubt … or compromise. Warnings were dismissed with an arrogant disregard that betrayed a loathing disregard for any point of view but their own. Liberals everywhere continually lectured us on the extraordinary wisdom and virtue of the ideology, policies and people who now governed the nation while casting their opponents as sinister, mentally handicapped and unnecessary. Two years later, by any reasonable measure every policy has failed. Miserably. Entirely. From unemployment rates that were to have peaked at 8% to promises of a burgeoning GDP to a vibrant and responsive economy … every projection has not only failed but has underscored and vindicated the predictions of those who warned against them. And yet, few if any on the Left are willing to admit their error or change course. Worse they demand more of the same poison already laying waste to our economy and solvency. Instead these apologists seek refuge in denial, insult and wild myths. They remind me of businessmen I’ve met through the years who are so certain of impending success that despite the obvious signs of failure they continue to ignore their counselors, eschewing their advice and warnings and double down. Often they mortgage their homes, raid their savings and placce not only themselves at risk, but worse, their families and collective futures. Only the willingly blind can ignore the blazingly obvious failure of these policies and the philosophy which produced them. In so doing they reveal a deeper commitment to their ideology than to the people, nation and collective future they were elected to serve.

          • http://www.theproblemwithkevin.com kevin s.

            “Has there been some massive restructuring of the tax code since October that I missed?”

            This is silly. S&P had a positive outlook in 2008 as well. The notion flipping one of two legislative chambers back to the (R) side influenced the prognosis is absurd.

            We’ve had an opportunity to address long term debt, and have made the decision to spend more. That’s driving this.

          • John Haas

            Yeah, the “reply” button disappears after awhile (browser issue?).

            kevin, I would encourage you to read the S&P statement explaining their actions. It’s quite clear what they’re saying.

            Now, you, and Larry also, are talking about something else–and that’s the deeper, structural problems behind the debt-ceiling debate. That’s fine. But as far as what narrative best explains the immediate actions of S&P, we do need to attend to what S&P is saying.

            I don’t have a problem with your insistence on the salience of the larger, longer narrative–though I don’t think the story is as simple as you seem to tell it, and I think it goes back much further than 2009.

            I also don’t think a verdict of “failure” is warranted, or that any governing philosophy has been discredited.

            The fact is, we knew from the beginning that this would be a long and difficult recovery, and that’s because a bank failure is a different thing than a stock market correction. The housing crisis led to the bank failure, sucking trillions out of the economy. More than that, it revealed the untrustworthiness of much of what was going on–from banks, to brokers, to Arthur Anderson, to S&P–and on and on. The bankers discovered how wide were the hiding of toxic assets, the spinning of ratings, etc., etc., and feared it might be much wider. That’s why they aren’t lending. Along with the fact that whatever smaller banks they might lend to are carrying a lot of mortgages (still) at risk of default themselves.

            Anyone who would want to lend faces a difficult topography: businesses aren’t hiring or expanding because customers aren’t buying, and customers aren’t buying because they’re scared as hell. It’ll be like this for awhile.

            The talk of “recovery summer” was an example of the kind of optimistic projections all presidents make to keep up morale and try to rebuild consumer confidence. Like Timothy’s comment below, where he says we don’t know what the cost of not invading Iraq would have been, so here: we don’t know what shape the economy and our society would be in without the actions taken beginning with TARP forward.

            If you believe our economy is rip-roaring to go, if only we’d stop taxing and regulating and get rid of all that mandated health care, then you believe the administration’s been hurting the country, and we just need to get out of the way.

            But even if that’s true in general (I don’t think it is) it doesn’t address the fundamental problems of this particular crisis.

          • Timothy Dalrymple

            I don’t think it’s a browser issue. More a settings issue. It’s set to allow threads 5 levels deep. I can change it.
            -Tim

          • Larry

            Fair enough John, however, the similarity in both policy initiatives (and the theories which drove them) and their attendant outcomes are eerily similar in the Administrations of FDR, Jimmy Carter and now Obama. Such parallels might lead some to suspect a correlation, yes? It appears that the policies derived from an effort to centralize economies here and elsewhere enjoy similar fates. Conversely, policies which favor laissez faire approaches seem also to enjoy similar outcomes. This move by S&P is historic, as are the choices and outcomes which triggered it. Thinking people should be able to assemble the evidence and begin reaching meaningful conclusions. Ideologies animate all of actions … no shame in that just as their is no point in denying it. The shame is ours only when we fail to acknowledge that OUR ideology may be desperately flawed while that of our opponent may well be right. That shame is not merely compounded by nearly criminal when our pride (and the willful blindness it yields)leaves us denying the obvious and others suffering.

          • Larry

            Fair enough John, however, the similarity in both policy initiatives (and the theories which drove them) and their attendant outcomes are eerily similar in the Administrations of FDR, Jimmy Carter and now Obama. Such parallels might lead some to suspect a correlation, yes? It appears that the policies derived from an effort to centralize economies here and elsewhere enjoy similar fates. Conversely, policies which favor laissez faire approaches seem also to enjoy similar outcomes. This move by S&P is historic, as are the choices and outcomes which triggered it. Thinking people should be able to assemble the evidence and begin reaching meaningful conclusions. Ideologies animate all of actions … no shame in that just as their is no point in denying it. The shame is ours only when we fail to acknowledge that OUR ideology may be desperately flawed while that of our opponent may well be right. That shame is not merely compounded but becomes nearly criminal when our pride (and the willful blindness it yields)leaves us denying the obvious while others suffer.

    • Richard

      Thanks for highlighting this John

  • http://www.theproblemwithkevin.com kevin s.

    But we wouldn’t need to raise revenues if the government didn’t pretend to itself that it is a business. Like any business, the government invests its revenues. If we eliminate the Bush tax cuts, our leaders will simply spend the additional revenues, as any business would.

    So all we would have is an increased tax burden, and some other giant federal program that will benefit favored constituencies.

    • Diane Reynolds

      Kevin,

      If we assume that the government would simply increase spending with increased tax revenues, we’re defeated before we start. Remember, under Clinton, we ended up with a surplus, not a deficit. We need a tax increase to pay down the debt. We need it. I can’t imagine in this dire state, both our parties wouldn’t pay down the debt. There really is no choice at this point.

      • http://www.theproblemwithkevin.com kevin s.

        “I can’t imagine in this dire state, both our parties wouldn’t pay down the debt.”

        I can imagine the Democrats won’t pay down the debt. They are still insisting on adding yet another entitlement with Obamacare. They aren’t willing to pair structural reforms to entitlements with tax breaks.

        Their ideology, aptly explained by Paul Krugman and Tom Friedman, leads them to conclude central planning is the key to making economies grow. They believe that spending trillions more will make the economy better. They literally believe that.

        The Republicans are better off doing what they did, holding firm on taxes and waiting until 2012, when they will likely have the power to enact real reforms. And yes, they had darn well better do so.

        • Diane Reynolds

          I too believe we have to spend money to make money. Yes, I do, the same way I would support taking on debt to start a business or to get an education–or to get Dad the very expensive surgery he needs to get back to work and earning, As for health care reform, it will SAVE money in the long run by addressing issues that are driving up health costs, while at the same time ensuring that all Americans have access to affordable health care. That’s humane and sensible–and simply how every other wealthy country approaches health care.

          • http://www.theproblemwithkevin.com kevin s.

            The government’s job isn’t to make money. It never turns a profit, nor should it. As such, that philosophy makes little sense. Successful businesses invest in highly-targeted strategies to maximize return on investment. There is no reason why we should expect government to do so and, as it turns out, ours never really has.

            Obamacare has very little to do with how other countries approach health care, and does nothing to address the issue that is driving up costs. It introduces no disincentive to the continual consumption of health care, but rather the opposite. Every other country imposes one, and saves money thereby.

            No analysis of the Obamacare plan predicts it will save money unless Congress makes good on a nebulous promise to cut Medicare. That isn’t going to happen.

            That said, you have essentially conceded that Democrats won’t pay down the debt. If the best way to make money is to spend money, paying down the debt is simply frittering money away.

  • Richard

    So how much defense expenditures are you willing to cut? Can we eliminate the military bases overseas before we start cutting food stamps?

    • http://www.theproblemwithkevin.com kevin s.

      I’d pair a 20% cut (we’d have to end the way in Libya, but that’s fine by me). But I want cuts to other areas.

      End the DOE. Their impact on education has only been negative. That’ll save $47 billion per year. 20% across the board cuts to entitlements (accompanied by reforms) will save another $400 billion per year.

      Cut the EPA and Urban Housing Dev. Departments in half. Another $30 billion. 25% cut to HHS, another $20 billion. No more TARP, no more stimulus, no more “other” random boondoggles. That’ll save about $150 billion per year.

      Pitch that, and this conservative will be on board.

      • sdb

        A 20% cut in entitlements, will require halving the per capita benefit between now and 2030 as the number of retirees is set to double. That just isn’t going to happen. Cuts of that magnitude will need a much longer baseline and will probably have to be means tested.

        If we want to reign in spending to 20% GDP (down from the current 25%), we will need raise tax receipts by about a third. The fact that so many in the house think that they can balance the budget without doing so is delusional. Getting spending down to 15% GDP (a 40% cut) will require extraordinary cuts to defense and entitlements. Republicans will fracture their base (vets and seniors) if they do so.

        One way to increase tax revenue is to eliminate the distortionary tax credits/deductions.

        • Witten

          sdb is basically correct here, we bring in less revenue (in absolute dollars) then we did 10 years ago (because taxes are lower), while Social Security, Medicare,Defense and interest on the debt is about 800 billion more a year. That’s the problem, and it’s largely driven by fighting 2+ wars without paying for them, and the fact that there are a lot more retired people then in 2000. The idea this problem is fixable without raising revenue is a fantasy. The idea we’re going to cut spending in absolute terms is also a fantasy, as it hasn’t happened since the end of world war II.

          • Witten

            replying to myself, because that’s not quite right. I was thinking inflation adjusted dollars 2000 – 2010. The general point stands, revenue is about the same as it was 10 years ago, but the population is larger, and the population of retired people much larger.

        • Timothy Dalrymple

          Getting spending down to 20% GDP would just require us to get spending back to where it was a couple years ago. I fail to see why that’s impossible.

          I also believe in tax reform – I think everyone does. Republicans had agreed to some tax reforms, eliminating loopholes and broadening the tax base, while lowering rates, amounting to an additional $800B in revenue, before Obama pressed for an additional $400B and the deal blew up. I think there’s some groundwork there for tax reform, eliminating loopholes and the vast labyrinth of exceptions and deductions which disproportionately benefit the rich because they have the money to pay the lawyers and the lobbyists, but for better or worse I don’t think that serious tax reform will take place until after the 2012 election. I’d love to be wrong about that, though.

          • Witten

            Federal government spending decreased below 20% GDP during the mid nineties (until about 2004) not because spending decreased, but because during the Clinton administration we had a long period of sustained high growth. Whereas we took around a 9% GDP hit in the 2008-2009 period. So I’m not sure how helpful it is to look at that number during a massive contraction, rather than look at the actual dollar figures.
            Anyways it’s a growth problem, not a spending or revenue problem. More importantly the % of the population that is over 65 and collecting on medicare and social security is increasing by about 1% every five years and will reach 20% in 2045 which is going to increase spending by about on social security alone by about 40 billion a year.

            Hey, I’m for increasing revenue’s just about anyway it’s going to happen, cause we’re going to need a lot more, the country is getting older, and their doesn’t seem to be any constituency for decreasing the number of countries we’re at war with.

          • sdb

            I agree that getting spending down to 20% of the GDP is doable, but it will be tough given the ever increasing number of retirees. I caught Bachmann on O’Reilly’s show – the main thrust of the segment I saw was that we need to overturn Obamacare in order to save Medicare. O’Reilly asked if she was open to raising the retirement age for those currently under the age of 40. She stammered a bit, but finally allowed that it should be “looked at”.

            Bachmann is as much a deficit hawk as anyone in Congrss, but even she can’t unequivocally advocate an increase in the retirement age for people currently under the age of 40. Her reticence illustrates why I believe that entitlement reform and thus keeping federal spending at about 20% GDP will be extremely difficult.

            On the taxation side of the ledger, Coburn was taken to task by Norquist for trying to cut the ethanol subsidy without an offsetting tax cut. My understanding was that part of the stalemate in the tax negotiations was tied to N’s insistence that elimination of tax breaks be revenue neutral.

            Wasn’t the $800b deal over 10years. If we need to increase our taxes from 15% GDP to 20% GDP, we need to up revenue about $700b/yr. A 33% hike in tax receipts is also going to be tough. Maybe some of that will come if the economy improves?

            Whatever the case, balancing the budget is going to be incredibly difficult, and I don’t think we can wait for a republican/libertarian supermajority to emerge and impose its will on the democrats (Douthat had an interesting column on that today in the NYT). Suggesting that half the country is made up of “an entire class of takers”, that we can painlessly balance the budget by eliminating food stamps and the Dept. of Ed, or that any tax increase will just be used to further grow the size of government (as a couple of commenters on this site have) just isn’t productive at building the sort of broad based coalition necessary to get our budget under control.

        • http://www.theproblemwithkevin.com kevin s.

          Instead of means testing, we should have ability testing. If you can work, regardless of age, you should work. If you cannot work, you can earn social security and government assisted health care. These programs were intended to be safety nets, not a retirement program.

          The government cannot decree to increase tax receipts. They can only increase tax rates, which is not the same thing.

          I agree we should eliminate our bizarre system of tax credits and deductions.

        • Diane Reynolds

          Hallelujah brother.

          • Diane Reynolds

            Wait, I made a mistake. Social Security was started as a retirement program, not a safety net. It was also started to get people who were older off the job market to open up jobs. A good idea today would be to lower the retirement age to open up jobs. Also, basic humanity says that a person who has been in harness say 40 years should have time to enjoy his or her golden years without having to work until they die.

          • http://www.theproblemwithkevin.com kevin s.

            It was absolutely begun as a safety net. It was initially argued getting older people off the payroll would create jobs, which is absurd. If that’s the way to grow the economy, we should pay companies to lay people off. It didn’t create any jobs then, and it isn’t creating jobs now.

            Your assertion regarding basic humanity is begging the question. We cannot afford to fund a retirement fund for everyone, and so we shouldn’t try, and people should work for as long as they are able, unless they want to make a provision for their own early retirement.

  • Lamar Aiazzi

    Your comments seem to hinge on the extraordinarily short memory most Americans have when it comes to earth shaking events. The reason the government is in such terrible debt is the sub-prime bubble, tax give backs, tax cuts, and a two front war. The bubble was a direct result of the government LOOSENING regulation, and not having enough of those “overpaid” government employees on the payrolls to enforce regulations, especially in the SEC. Quantitative Easing, or the purchase of toxic debt by the federally controlled Fannie Mae and Freddie Mac, took the burden and the responsibility for the massive failure (Ponzi scheme) from banking CEOs and their executive boards, and put it on the U.S. Government. Otherwise, these overpaid leaches would have been (and should have been) relegated to the lines outside local relief food pantries. Your assertions have no merit. Sticking “Christian” in front of them will not lend them legitimacy.

    • Timothy Dalrymple

      Lamar, it’s not that simple. (1) After the Bush tax cuts, federal revenue grew from $1.9T in 2003 to $2.4T in 2007. Now, there are always a thousand-and-one reasons the market moves in any direction, but it’s easy to make the case that the Bush tax cuts actually stimulated market growth and increased revenues. But, granted, that’s disputed, and you’ll find excellent economists who differ on that point. (2) The wars we’ve fought have certainly had their costs, too, but do you really think that we should have had no response to 9/11? Perhaps we should have done less, and kept costs lower? We don’t really know what the costs of that would have been, and other damage that could have been done to the United States and the US economy if we had suffered more terrorist attacks on our home soil. Not to mention that military spending is actually, as far as government spending goes, one of the more market-stimulating ways of using federal dollars. Besides, if the costs of the wars so far have been $1T, then that’s still a relatively small proportion of the debt, and even a relatively small proportion of the debt increase that we’ve seen from 2001 to 2011. (3) You say that the bubble was a direct result of loosening regulation, as though – again – it were that simple. It’s not. We had some regulations that were not effectively enforced, but we also had emerging corners of the economy for which no regulation had really evolved yet. Worse, we had government and government-sponsored-entities that were pressing and facilitating banks to make sub-prime loans. More accurately, the were pressuring banks and mortgage lenders to give sub-prime loans, especially for minorities, while also removing the risk by purchasing those loans and then bundling them away in mortgage-backed-securities. The whole mortgage market got in on the racket, and got over-leveraged, and it worked fine as long as housing prices were rising. Meanwhile, the ratings agencies were either ignorant or in collusion, and (yes) there were very few regulatory controls on this wild expansion of MBS’s and default insurance and etc.

      This of course is a thumbnail sketch, and there are many other factors as well. But it’s arguably government distortion of the housing market that created the bubble. Could more effective regulation have raised alarm bells, or restrained the growth of the subprime market? Yes. And I’m all for effective, but minimal, regulation. But that’s a pretty small part of the picture. Yet one thing that was not a part of the problem at all was, as you say, not having enough federal workers. My goodness, we have an enormous federal workforce.

      But your incorrect definition of Quantitative Easing gives away the fact that you don’t really know what you’re talking about. I don’t mean that as an insult. I’m just saying, I think you’d benefit from reading more on both sides of the argument. Quantitative Easing does not refer to the purchase of toxic assets from Fannie and Freddie!
      -Tim

      • Witten

        I have to ask because I can’t think of a single economist or economic theory that says it is.

        Do you have a cite for: “military spending is actually, as far as government spending goes, one of the more market-stimulating ways of using federal dollars” ?

        Because it’s a 180 from everything I’ve read or been taught about economics, and I’m interested where your getting it from.

        • Timothy Dalrymple

          Have you read, for instance, Bernanke’s (and he had a co-author) Principles of Macroeconomics? Or you could take Marty Feldstein’s article here: http://online.wsj.com/article/SB123008280526532053.html

          You can find the case pretty easily if you Google it. And you can find the case against it. The gist in favor seems to be: if there is military equipment that needs repairing (which there is now) or replacing, or if there is need for more troops/personnel, then moving up military spending in a time of crisis will stimulate the economy by directing funds to American firms and manufacturers that make the equipment (defense, more than other industries, draws on American companies) and providing employment for Americans (in the same way that keeping state workers employed helps keep the number of employed up).

          Some conservatives will argue that it’s better not to tax an additional $50B and give that money to defense; but if you are going to tax an additional $50B, and there’s a need to replenish the military, then directing that money to defense is better than directing it elsewhere. I’m not really taking much of a position here, just noting the arguments.
          -Tim

      • John Haas

        “Yet one thing that was not a part of the problem at all was, as you say, not having enough federal workers. My goodness, we have an enormous federal workforce.”

        It doesn’t follow, no matter how many federal workers there are, that there are therefore enough regulators working on finance and banking and etc.

        There must be a name for that particular informal fallacy?

    • http://www.theproblemwithkevin.com kevin s.

      “Quantitative Easing, or the purchase of toxic debt by the federally controlled Fannie Mae and Freddie Mac, took the burden and the responsibility for the massive failure (Ponzi scheme) from banking CEOs and their executive boards, and put it on the U.S. Government.”

      What the?

  • Larry
  • http://questorpastor.blogspot.com/ Dennis Sanders

    Tim,

    I think a problem that conservatives tend to have when talking about the debt and spending is that it is not immediately clear that government still has a role in alleviating poverty. You did spell it out in your post today, and I’m glad you did. While I would probably align closer to CASE’s view over the Circle’s view, I do think that there still needs to be a role for government when it comes to the poor.

    I think that there needs to be a way that says rather clearly that there is a need for government when it comes to ending poverty, but it has to be done in a more sustainable manner than what is being done now. Otherwise people will fill in the blanks.

  • http://johnpauldewalt.wordpress.com John Paul DeWalt

    Tim, you wrote, “In the short term, I believe, the best thing (economically) we can do for the poor and for all Americans is promote job-growth.” I believe the best way to help the poor and promote the economy (and job growth) is to promote business growth. Jobs don’t bring enough income to people; owning at least part of a business does. Yes, business people need to be restrained from abusing employees, customers, and the environment. Beyond that, businesses need support/enablement for success and economic growth.


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