Deficit Reduction

[Winstonm]

Hi, Ken,

 

Have a nice time.

 

I know I quoted from two spots but I thought you made good points both times and I saw a correlation that perhaps you did not see - the fact that the Fed's reaction is always the same, to lower interest rates in an attempt to spur borrowing - all kinds of borrowing, yet artificially low interest rates and excessive borrowing is how we engineered a real estate bubble in the first place.

 

Seems a Catch-22.

 

Regardless, Happy Thanksgiving

[kenberg]

I'm back. A couple of thoughts.

 

 

When we were last at the Shenandoah in June or so, they were working on the roads and the overlooks. They still are. Signs saying "Your recovery dollars at work". This makes fine sense to me. It needed doing soon, maybe next year or the year after, but soon. So with unemployment high, they are paying guys to do work that needs doing and timing it to help them and help the economy. How bad an idea can this be? Interestingly enough, much of the original construction was done in the thirties by the CCC.

 

Moving on, in the Post this morning there was an interesting article about the stress on community colleges. They are flooded with people seeking skills for new careers. See

http://www.washingtonpost.com/wp-dyn/content/article/2010/11/26/AR2010112605035.html

 

 

A couple of points from the story:

 

In one small anatomy lab, there's a craps dealer training to become an anesthetist, a cocktail waitress who wants to be a dental hygienist, and a former stripper seeking to become a nurse.

[/Quote]

 

This is a bit like fixing the roads. If a craps dealer, a cocktail waitress and a stripper convert to an anesthetist, a dental hygienist and a nurse this has its merits. But the money, including some substantial stimulus money, is running out to support this training.

 

 

Before we let ourselves get in a tizzy about all of this wasted stimulus money we might look at some specifics.

 

 

PS I thought that you shoot craps and deal blackjack. Am I behind the times?

[PassedOut]

We had quite a number of those signs in the Upper Peninsula of Michigan and the roads and bridges here are the better for it, as are the folks who worked on those projects. Teachers and police officers were kept on who would not have been otherwise and (in my opinion) communities are the better for that too. My eldest son took advantage of the first home tax credit, and I know several people here who made use of the cash for clunkers program. The Obama tax cuts have put more spending money in folks' pockets, and I'm sure that our businesses got some of that money.

 

So I wouldn't say that the stimulus money was wasted. But the stimulus did not reduce unemployment as much as was promised, so you'd have to classify it as a failure in that sense.

[y66]

I love that excerpt from the community college story Ken posted. Will find the paper and read the rest of that story.

 

p.s. Hard to believe anybody in their right mind would oppose increasing funding for community colleges.

[PassedOut]

Paul Krugman has endorsed Ken Berg's idea that the democrats should just let the Bush tax cuts die now, rather than making any kind of a deal with the republican free lunch crowd: Let’s Not Make a Deal.

 

Democrats have tried to push a compromise: let tax cuts for the wealthy expire, but extend tax cuts for the middle class. Republicans, however, are having none of it. They have been filibustering Democratic attempts to separate tax cuts that mainly benefit a tiny group of wealthy Americans from those that mainly help the middle class. It’s all or nothing, they say: all the Bush tax cuts must be extended. What should Democrats do?

 

The answer is that they should just say no. If G.O.P. intransigence means that taxes rise at the end of this month, so be it.

It's clear that the Bush tax cuts have been an abysimal failure--leaving a huge debt without producing economic growth. My only reservations about pulling the plug on those disastrous tax cuts now stem from the negative effects of doing so during the present time of high unemployment. However, Krugman makes a strong case that those negative effects pale in comparison with the negative effects of keeping in place the foolish Bush tax cuts:

 

But while raising taxes when unemployment is high is a bad thing, there are worse things. And a cold, hard look at the consequences of giving in to the G.O.P. now suggests that saying no, and letting the Bush tax cuts expire on schedule, is the lesser of two evils.

 

...

 

A few months ago, the Congressional Budget Office released a report on the impact of various tax options. A two-year extension of the Bush tax cuts, it estimated, would lower the unemployment rate next year by between 0.1 and 0.3 percentage points compared with what it would be if the tax cuts were allowed to expire; the effect would be about twice as large in 2012. Those are significant numbers, but not huge — certainly not enough to justify the apocalyptic rhetoric one often hears about what will happen if the tax cuts are allowed to end on schedule.

David Stockman, Reagan's budget director, is in complete agreement with Paul Krugman and Ken Berg on killing the Bush tax cuts right now to restore fiscal responsibility. And I'd love to see Obama and the democrats stand up for common sense and future taxpayers by putting a halt to the foolish Bush tax cuts once and for all. (Not holding my breath though.)

[luke warm]

well there's been time for the dems to do something about it... maybe you're wrong, maybe the reps aren't the only 'free lunch crowd' in d.c.

[hrothgar]

well there's been time for the dems to do something about it... maybe you're wrong, maybe the reps aren't the only 'free lunch crowd' in d.c.

 

Maybe abuse of the Senate rules have blocked any possibility for the democrats to pass legislation?

 

FWIW, here' a pretty good discussion regarding "free lunch" over the last decade or so

 

http://motherjones.com/kevin-drum/2010/12/incentives-and-business-cycle

[kenberg]

 

 

David Stockman, Reagan's budget director, is in complete agreement with Paul Krugman and Ken Berg on killing the Bush tax cuts right now to restore fiscal responsibility. And I'd love to see Obama and the democrats stand up for common sense and future taxpayers by putting a halt to the foolish Bush tax cuts once and for all. (Not holding my breath though.)

 

And you know, these guys did not even acknowledge me!

 

I am more and more in favor of the following:

 

Long term, the cuts should expire. Simple argument: Before the cuts, the budget was balanced. Now it isn't. Of course I know that this is simplistic, but Palinites are not in a good position to criticize simplistic reasoning.

 

 

As to cutting government spending and cutting taxes, perhaps. But so far we have succeeded in cutting taxes, while cutting spending has been all talk and no action. So,restore the taxes to previous levels. If we reduce spending, and if this leads to deficit reduction, then, after the spending has been reduced and the deficit has been reduced, I will be happy to hear of tax cuts.

 

Short term: We need to put people back to work. This is done by hiring them. Since industry isn't, government should. We are not, I hope, going to let them starve so putting them to work on worthwhile projects seems to make sense. Better than paying them when they are not working. Perhaps the overall economic effect is less than hoped/predicted, but every guy you hire is one more guy feeding his family with wages from a job.

 

I await my Nobel prize.

[PassedOut]

And you know, these guys did not even acknowledge me!

It's a jungle out there! :)

 

As to cutting government spending and cutting taxes, perhaps. But so far we have succeeded in cutting taxes, while cutting spending has been all talk and no action. So,restore the taxes to previous levels. If we reduce spending, and if this leads to deficit reduction, then, after the spending has been reduced and the deficit has been reduced, I will be happy to hear of tax cuts.

 

Short term: We need to put people back to work. This is done by hiring them. Since industry isn't, government should. We are not, I hope, going to let them starve so putting them to work on worthwhile projects seems to make sense. Better than paying them when they are not working. Perhaps the overall economic effect is less than hoped/predicted, but every guy you hire is one more guy feeding his family with wages from a job.

 

I await my Nobel prize.

You'd have my vote, if I had one.

[y66]

 

... I am more and more in favor of the following:

 

Long term, the cuts should expire. Simple argument: Before the cuts, the budget was balanced. Now it isn't. Of course I know that this is simplistic, but Palinites are not in a good position to criticize simplistic reasoning.

 

... I await my Nobel prize.

 

If you decide to make some calls and get enough votes to let the tax cuts expire, I will contact Nobel Shore and pay his fee to play in the event of your choice.

[luke warm]

Maybe abuse of the Senate rules have blocked any possibility for the democrats to pass legislation?

yeah, that's probably it... i'm sure obama will speak on the subject soon, probably to tell everyone that across the board renewal won't do

[hrothgar]

yeah, that's probably it... i'm sure obama will speak on the subject soon, probably to tell everyone that across the board renewal won't do

 

I seem to recall a number of threads a couple years back in which folks on the right were trying to claim that Obama was a raging socialist (the most "liberal" member of congress). I commented that he was a centrist and not particularly liberal.

 

Very little that I've seen since then has convinced me to change my mind...

 

FWIW, I've seen pretty good arguments both

 

1. In favor of letting all the tax cuts expire immediately

2. In favor of a temporary extension of all the tax cuts

 

Personally, I find Krugman and Rich more convincing than Sullivan and co on this one.

Let the tax cuts expire.

Force the GOP to veto a new round of tax cuts for the middle class on down.

Hang this around their necks.

 

This is the position that has overwhelming popular support.

Pity the the democrats are so gutless.

[hrothgar]

yeah, that's probably it... i'm sure obama will speak on the subject soon, probably to tell everyone that across the board renewal won't do

 

I seem to recall a number of threads a couple years back in which folks on the right were trying to claim that Obama was a raging socialist (the most "liberal" member of congress). I commented that he was a centrist and not particularly liberal.

 

Very little that I've seen since then has convinced me to change my mind...

 

FWIW, I've seen pretty good arguments both

 

1. In favor of letting all the tax cuts expire immediately

2. In favor of a temporary extension of all the tax cuts

 

Personally, I find Krugman and Rich more convincing than Sullivan and co on this one.

Let the tax cuts expire.

Force the GOP to veto a new round of tax cuts for the middle class on down.

Hang this around their necks.

 

This is the position that has overwhelming popular support.

Pity the the democrats are so gutless.

[Winstonm]

Too bad Obama isn't a mafiosa boss - Barrack "The Weasel" Obama has such a fitting ring to it.

 

Richard calls this guy a centrist Democrat - my age group called them Republicans.

[kenberg]

Name calling at Winston's

 

 

Oh I hate you, you, you Centrist Democrat!

What did you call me! Say that again, you Republican.

Hah! Your mother voted for Eisenhower.

Yeah? Your mother campaigned for Taft. And what did they do after the rally?

[kenberg]

As I understand it, Obama has now made a deal with the Republicans: They can give scads of money to people who don't need it if he can give scads of money to other people, some of whom actually need it. Any concern about the deficit can be put off for another day.

 

I am now seriously worried about the future of this presidency.

[PassedOut]

So the "compromise" is that both parties get away with adding to the deficit and neither makes any effort to pay the bill: Package to Aid Most, Especially Wealthy.

 

In fact, the only groups likely to face a tax increase are those near the bottom of the income scale individuals who make less than $20,000 and families with earnings below $40,000.

The poor pay now to give tax cuts to the rich, and the younger people will pay later.

 

Obama did lay out his reasoning effectively in the press conference today, but he'd better show that fighting spirit for two years straight if he wants to beat Mitt Romney in 2012.

[kenberg]

I am afraid I found his speech weak. The Republicans made me do it, those nasty hostage takers. Oh Oh It's just so awful, what is a caring guy like me to do. Oh me, oh my.

 

I exaggerate? Sure. But it wasn't good.

[PassedOut]

I am afraid I found his speech weak. The Republicans made me do it, those nasty hostage takers. Oh Oh It's just so awful, what is a caring guy like me to do. Oh me, oh my.

 

I exaggerate? Sure. But it wasn't good.

I didn't like the speech either. Thought the press conference was a lot better.

[kenberg]

First, a story that I suppose is irrelevant but I will tell it anyway.

The local bank has a Christmas tree, patrons are invited to leave a gift for a child who needs one. We stopped by Kohl's to get a Fisher-Price toy and while there we picked up a couple of rolls of wrapping paper. The toy and the paper were marked as on sale, the store had an additional 15% discount, and we got a rebate based on our previous purchase on another day. Total bill: $12.31. The gal at the register informed us: You saved $31.54 today. Now I know she is required to say such things and I don't give her a hard time, but it is tempting to reply "No, I spent $12.31 today". The savings are totally fictional. I doubt it would be possible to find a store where the toy and two rolls of wrapping paper came to $43.85. The words "You saved ..." have no meaning whatsoever.

 

End of that story. Now:

 

This deal is described as a compromise. In what sense? In 1945 the U.S. and Japan came to a compromise. They agreed to total surrender, we agreed to stop dropping atomic bombs. Obama agreed to a tax deal that will cost hundreds of billions, the Republicans agreed to let him continue to send money to those who are unable to find a job. If this man is representing my interests, I expect better.

 

I did not save $31.54, and this deal was not a compromise.

[PassedOut]

I did not save $31.54, and this deal was not a compromise.

Indeed Obama's deal was not a compromise, and to reinstate those poorly conceived tax cuts was shortsighted and foolish, in my opinion. It was truly a "compromise."

[y66]

David Leonhardt has a pretty good take on compromise elements of this deal.

 

You can argue about the merits of the deal. Personally, I favored the Berg/Krugman alternative. But it seems inarguable that the Democrats have proven themselves inept at managing the legislative process.

[blackshoe]

So what else is new?

[kenberg]

Depends on how new you are thinking.

 

 

Bill Clinton managed the legislative process reasonably well, despite his failure to push health care through. So did LBJ. These guys were consummate politicians, whatever you think of the course they set sail on. If memory serves me right, both Clinton and Johnson lost an election early in their careers. This can help provide balance in later years.

 

I'm sort of serious about this. Obama perhaps believed the press about how transformative he was (whatever that means) and now he seems a bit at a loss after discovering that he is just another president.

 

He has to get his act together, and quick. A weak presidency is not in the national interest.

[awm]

This "compromise" on tax rates would be more palatable if they allowed the capital gains rate to rise. As opposed to raising the income tax rates:

 

Raising the capital gains rate would not punish people whose income is from business profits (the people Republicans claim raising the top bracket hurts).

Raising the capital gains rate is a matter of fairness -- the current system allows rich hedge fund managers (and Warren Buffet) to pay lower tax rates than their secretaries.

Raising the capital gains rate punishes the "investor class" whose gambling with the economy arguably caused the economic crisis.

Raising the capital gains rate recoups some government revenue, which can be used to pay for extending unemployment insurance (which Republicans insisted should be "paid for").

Raising the capital gains rate will have little effect on poor or middle-class Americans (few of whom have significant savings).

Eliminating the preferential treatment of capital gains was recommended by the bipartisan deficit commission, and by most of the alternatives coming out of various focus groups.