Rearranging the Deck Chairs on the Titantic--or--We Have a Deal

It looks like the President and the Congress--its leaders at least--have come up with a deal to raise the debt limit.  It is notable for a few of things:  1) no tax or revenue increase; 2) the cut to the defense budget is $350B over ten years (less than the $400B the President had called for and the $800B in many of the competing visions); 3) it grants the government borrowing authority through the 2012 election; 4) it projects "spending cuts" of up to $2.7 trillion over ten years, though only about $1.0 trillion is up front--the rest would theoretically come as the result of a "tri-partisan" commission (whatever that means) that will meet this year to find the rest of the cuts.  If it doesn't, automatic "triggers" would then kick in which would cause draconian cuts in discretionary spending; 5) it sets the stage for a balanced budget amendment vote in both chambers.  Ok, now some analysis.

First of all, although I find him to be an insufferable prig, Ezra Klein of the Washington Post has a pretty good rundown on the deal and how the triggers and such work.  Read it here. 

The deal does one thing well--it provides for the debt ceiling to be raised, in two stages, averting the crisis of default.  The first stage would occur immediately and the second stage, next year.  This appears to be the President's major victory in all this--that he would not have to deal with another messy debt ceiling fight in the 2012 Presidential Election year.  On much of the rest, he compromised. 

The deal cuts spending--but on the whole, not very much.  The deck chairs on the Titanic have been rearranged.  The real culprit in our certain decline into insolvency--health care--remains virtually untouched.  Yes, there is a provision in the trigger mechanism to cut medicare provider reimbursements, but such cuts serve only to drive providers from the system, creating new political pressures on the Congress to reverse them.

There are no revenue additions in the plan--either tax hikes or adjustments to revenue expenditures.  This is a short term victory for Republicans, though it may be Pyrrhic.  Broadening the tax base to generate sufficiently predictable revenue was part of the Bowles-Simpson recommendations AND it is part of Saint Paul of Ryan's Roadmap.

The agreement to hold votes on a balanced budget amendment is an interesting one--this will cause quite a stir in the Senate (though it could still be filibustered) as there are a number of vulnerable Dems up for re-election who might find it hard to buck current Democratic thinking on the issue.  We'll have to wait and see.

So--everybody got something they wanted--the President got the debt ceiling raised until his (hoped for) second term.  The House Republicans got spending cuts equal to the debt limit increase (sort of) and a balanced budget amendment vote in the Senate.  I'm sure Congressional Democrats got something out of the deal (lest they would not have agreed to it), but I'm not sure what it is.

As for real reform, this "deal" does nothing.  It does nothing to reform our ridiculous tax code which punishes work, investment and saving.  It does nothing to control spiraling out of control entitlement spending, especially on heath care.  It sets up yet another "commission" to come up with another trillion and a half dollars in cuts which--if they aren't agreed upon--trigger draconian cuts to discretionary spending that no Congress will actually make. 

What did the deal do?   It moved the iceberg just a little bit farther on the horizon.   But it is still there, and we're headed right for it. 

The Best Explanation of the Long-Term Debt Mess I've Read

Everyone reading this blog should read this post on NRO from Yuval Levin.  Not just the post, but all the links in the post.  When you've completed this task, put your pencils down and look up.

There.

You've just read the single most effective and clearly communicated summary of the hole we are currently in that I have been able to locate.  If you find a better one, let me know.  In it, he states the problem, its enormity, and the laughably small impact any of the current Debt Ceiling driven plans will have on it--from either side of the aisle.

Behold the simplicity of this paragraph, which leads one to the conclusion that now is not the time for big deals (much as I'd like it to be):  "That doesn’t mean a debt-ceiling deal has to address all this. It would be unreasonable to expect that. But it does mean that by failing to address it, such a deal would fail to really touch the debt problem. Any deal that fails to do that (even if it’s called a “grand bargain” and claims to involve trillions in cuts over ten years or is hailed as the epitome of sanity by gang members) is not a meaningful debt-reduction plan, and is not worth huge concessions from Republicans, like a multi-trillion dollar tax increase. It would be, rather, a small spending-reduction deal and would be worth small concessions from Republicans, like a less than 1-to-1 relationship between cuts and a debt-ceiling increase, or some similar compromise. The equivalent of a huge tax concession (which would shatter the Republican coalition, but which Democrats consider essential) is a huge health-care concession (which would shatter the Democratic coalition but which Republicans consider essential), but the president has insisted that those are entirely off the table. If that’s the case, then taxes should be too, and it’s time to finalize a smaller deal."

This post and George Will's column in the WaPost this morning form a tight case for going small now and going bigger when more favorable electoral conditions exist.   Trying to slay this beast with the leadership of one half of half of the political branches is a plan destined to fail. 

WSJ on the Debt Limit

Here's a pretty good summation (summary?) of the strength of relative positions on this matter.  As much as folks on our side want things to go their way, they still have to get by the fact that the other side has the Presidency and the Senate.  Best line in the whole article: 

The tea party/talk-radio expectations for what Republicans can accomplish over the debt-limit showdown have always been unrealistic. As former Senator Phil Gramm once told us, never take a hostage you're not prepared to shoot. Republicans aren't prepared to stop a debt-limit increase because the political costs are unbearable. Republicans might have played this game better, but the truth is that Mr. Obama has more cards to play. 

We may need one more election before we can get what we want--it may be too soon.

President's "Me Too" Plan Falls Short

The President hopped in a motorcade today that carbon-burned its way down the street all the way to GW University where he delivered his "me too" speech on the deficit in order to show that Paul Ryan wasn't the only big man in town.  In a speech in which it took him 24 minutes to deliver his FIRST policy idea, he began with a rambling dissertation on what America means to him, followed by a predictable misrepresentation of Paul Ryan's plan designed to make sure every poor person and old person in America remained convinced that Republicans were out to get them.

A couple of things stood out in the speech for me today.

--The President was honest and blunt with his own party when it came to the discussion of having to reform entitlement spending in order to save the programs.  It's a shame he wasn't able to muster the same clarity and sensibility in his evaluation of Mr. Ryan's plans to do the same thing.
--As I predicted here a few days ago, a centerpiece of Mr. Obama's approach is going to be tax increases, specifically, raising the current tax rates to their pre-President Bush levels.  Interestingly, the President referred to "new tax breaks" several times in the speech, as if his agreement with the Republicans in December to not increase tax rate, counted somehow as a "tax break".  The income tax rates that have existed in this country since 2003 are the baseline, and any changes to those rates are henceforth to be referred to as "increases" or "cuts" depending in the direction the adjustment is made.
--The President spoke several times of "shared" sacrifice, and just as many times seemed to inoculate a broad swath of our society from such pain's impact.  Who you ask?  "Seniors"--as if simply getting old in our society was in some way a rationale for being treated differently.  Nonsense.  Seniors with means should be treated no differently from others in the same tax bracket or the same economic strata.  NEED should be the determinant of benefit, not AGE.
--The President made a really loony statement when he asserted that "most" wealthy Americans agreed with him that they should pay higher taxes in order to "give more back" to the country.  What is his evidence for this?  "We just haven't asked them" was further nuance added to this silliness.
--I am all for eliminating certain deductions in the tax code (mortgage interest deduction chief among them), but I refer to such ideas by what they are--tax increases.  The President's selection of the tortured "spending reductions in the tax code" is just another ridiculous example of Washingtonspeak.

The best part of the speech came toward the end when he spoke of the "sharp and vigorous" debate that had attended to issues of this kind in the past, and that would assuredly accompany this era.  He said that such a debate was not a bad thing.  I agree with him.  These are big and important issues, the kinds of issues worth a protracted and spirited tussle.  I am quite certain he is going to get one.

Now He Tells Us

Paul Krugman, writing on Ireland's debt spiral:

"It's hard to escape the sense that European policy makers are just completely out of their depth. They know how to deal with liquidity problems, but they cannot come to grips with the reality that this requires more than buying a bit more time. It's as if we're having the following dialogue:

Ireland really can't afford to pay these debts.

Here's a credit line!

No, really, we just can't afford to pay.

Here's a credit line!

It really is like watching a car wreck."

It really is like watching a car wreck...watching while you steer your own car toward the edge of a 50 foot embankment.

David Brooks Is Discouraged

We've seen a number of interesting and thought-provoking plans to address debt and deficit in the past few weeks, and as I've said before, there is a lot to like in some of them.  David Brooks has surveyed the offerings and also finds them of interest.  He however, has access to leaders in DC (both parties), and in his conversations, has come up with a sense of discouragement that there is anything close to a plan (on either side) that would seek to implement even some of the more popular measure being discussed.

Brooks makes an interesting assertion, one that I find plausible.  He indicates that if a package came forward that was 90 percent spending cuts and 10 percent tax increases, many Republicans would sneer at it--as the "no new taxes" pledge taken (and broken) by George H. W. Bush has now become canonical.  I think he's probably right, and I think that's bad for the country. The New York Times had an interesting little debt calculator that allowed you to frame your own debt reduction plan--and I came up with an approach that was 84% spending cuts and 16% tax increases.  Of course I'm convinced of the reasonableness of my plan, but I also realize that it would be DoA on Capitol Hill, as at the very least, the mortgage and real estate industries would unite to fight my abolishing of the home mortgage interest deduction.

What do you think, Republicans?  Can ANY taxes be raised as part of a deficit and debt reduction approach? 

Too Entitled To Fail?

Poor Cortney Munna. The 26 year-old New York University graduate has found herself, like many recent graduates like her, mired in college loan debt. The New York Times financial columnist Ron Lieber uses Munna's story as a cautionary tale on the dangers of making investing and borrowing decisions based upon emotion rather than reason.

And just who are the villains in this morality tale?

"For starters, it's the shared responsibility of parenting and loan underwriting...but perhaps the biggest share lies with colleges and universities because they have the most knowledge of the financial aid process. And I would argue they had an obligation to counsel students like Ms. Munna, who got in too far over their heads."

While I would submit that Ms. Munna herself assumes the onus of the responsibility here, I can't say that I totally disagree with Lieber's belief in the culpability of the university system. I think colleges and universities ought to provide incoming students with information on employment statistics and career prospects for their chosen major - including students who are taking on debt to finance their degree, and especially those students enrolled in academic degree programs in the Arts and Humanities.

Alas, Cortney borrowed almost $100,000 to finance a degree in Religious and Women's Studies - and is now putting all of that acquired knowledge of Buddha and Sylvia Plath to work as a photographer's assistant while living in the fourth most expensive city in America.

For me, this is the more meaningful moral of the story - that if you're going to leverage your rainbow, you'd better make sure there's a pot of gold at the end to pay for it.

Who Owes First?

Once you get past the frightening gravity of what is being said, the following video clip is actually very funny.



This explains in part my pessimism on the strength and endurance of the 'recovery'.

Hat Tip: Greg Mankiw

'Plug The Damn Hole'

If it were that easy, everyone would be doing it.

Glass House

Maybe we shouldn't be wagging our fingers so much at the Greece.

The U.S. suffers from a similar problem as Greece. It spends like a socialist
nation, but it taxes like a capitalist nation.

Congressional Dems To Skip Budget Process This Year

From the WaPost and straight from the horse's mouth (well, Steny Hoyer), Democrats (like Republicans while they were in control) are unlikely to bring up budget talks this Fall, as we wouldn't want all those untidy facts to come out right about the time folks are trying to get re-elected.

Here's Steny's riff: "it is difficult to pass budgets in election years because, you know, they reflect what is the status. And the status of this country was brought into deep debt by the economic policies of the Bush administration."

Notice the continuing reliance on the previous administration; notice the evasion of responsibility by the Majority Leader of the party in power in Congress since 2006. Notice what's missing here: any suggestion that such a budget might actually MITIGATE any of the debt we currently find ourselves in, whether legacy Bush debt (actually, Bush debt is the accumulated debt of the Republic, but that's another post) or Obama debt.

Obviously, they will eventually have to take up the budget--but it will be after the November elections.

Such courageous people, our Representatives in Washington.

Lithuania Gets It

Lithuania takes radical approach to debt--it cuts spending.

'It's Going To Be Like Christmas'

Complete with the massive post-holiday debt. How to pay for it all? Charles Krauthammer believes he knows the answer:

"I think ultimately Obama understands that he has just added an unbelievably large entitlement onto a country drowning in debt. He is not stupid. I think he has anticipated this, and I think that he, from the beginning, had a plan. And the plan is going to be the deficit reduction commission, which will report only after November - and I'm absolutely sure it will recommend something new in American history, a national sales tax which is called a VAT in Europe."

We're all European now...

CBO Forecasts Higher Debt Than White House

Shocker.

What Shade Lipstick?

The Obama Administration released its budget proposal yesterday for fiscal year 2011 (which begins on October 1st of this year). Keith Hennessey has a pretty good summary of its impacts on spending, deficits and taxes. And, if you are a regular to this site, chances are that you're not going to like what you read.

Interestingly, for someone who a week ago was calling for greater fiscal restraint, Obama appears to be casting a blind eye toward budget deficits. For 2011 alone, the proposed budget deficit is over two percentage points higher this year than last (8.3% v. 6.0%).


Spending under the proposed budget increases as well, up almost 2% of GDP more in 2011 and about a percentage point a year over time.

The budget is based on the following economic assumptions:

• Real GDP growth of 2.7% in 2010, followed by 3.8%, 4.3% and 4.2% in 2013;
• Unemployment holding at 10% in 2010, declining to 9.2% in 2011, 8.2% in 2012 and 7.3% in 2013.

Eeesh. The President is right about one thing - calling something the same, something different really is like putting lipstick on a pig.

The Post Sees A Coming Debt Panic--Can't Seem To Identify Sources

Two cheers for the Washington Post, which this morning ran an editorial giving full voice to the coming dangers of mounting debt. I am a "Johnny Come Lately" to the anti-debt crowd, thinking for years that our debt as a percentage of GDP was reasonable (others, like frequent poster JPH have been warning me of the problems of debt for years). Clearly though, we have accelerated the debt problem and it is a sea anchor that will slow and ultimately doom our economy.

Noticeably absent from this editorial is a single word....Obama. There's nothing here to tie our President---you remember him, the Hopey/Changey guy....to the debt explosion. Nothing about an $800B non-stimulating stimulus. Nothing about $1T health care proposals. Nothing about the largest expansion of government (read: spending) in recent memory. Yes, yes, we were on the debt gravy train when he took office (yet another thing he can blame on Bush), but it is presumably his job to do something about it--well, something other than triple it.

$6 Trillion......

One estimate for the cost of Obamacare.....

If We Can Avoid Luxury Tax and Jail and Land on Chance, We'll Pay You Back Next Trip Around the Board

Looks as if Government Motors Corporation (GMC) is marching steadily toward its own economic recovery...just as one would expect with the new board of directors at the helm. It is making promises of paying back money it owes in the midst of a post-bailout, post-government take over, post-bankruptcy quarterly earnings report of MINUS $1.15 Billion.

No sweat. As in MONOPOLY, it isn't real money anyway.