A handful of friends reacted to my last post by telling me they thought I’d taken a hard hook to the right. I guess that would actually be a slice – unless you’re left-handed, which I am, but I don’t play that way. Some thought it was great, others not so much. In either case, I think and hope that they’re wrong. I just try to work from fact rather than theory. In this particular case, the facts as I know them are not flattering to anyone inside I-495, but they strike me as particularly unflattering to the president.
To prove that I’m an equal-opportunity offender, take a look at the following version of the deficit graph included in my last post, which I’ve annotated.
This is bad news for my Hard-R Republican friends. That big bubble between 1980-1990 is proof that Reagan’s tax cuts did not pay for themselves, no matter what the theory promised. Clinton deserves some credit for deficit reduction. He raised tax rates a bit. Tax collections actually went up, both in absolute dollars and as a percent of GDP, while spending came down, at least as a percent of GDP. But he had two unlikely bedfellows (which, in his case, is saying something. . .and no, I’m not above that kind of cheap shot). First, Newt Gingrich forced him to make some serious changes in domestic spending. Second, Al Gore invented the Internet, thanks to which the economy grew at an astounding rate while inflation stayed low, even though the resulting wealth was largely illusory. Bush II reversed the Clinton-era trend, and the first trillion-dollar deficit was his, not Obama’s. It’s not a pretty picture.
That said, the arithmetic of deficit and debt is pretty simple. Entitlements are social programs for which spending is mandated (if you meet the criteria, you get the money) rather than appropriated (every year, Congress decides how much it will spend). The Big 3 entitlements are Medicare, Social Security and Medicaid. Together, they account for nearly 60% of federal spending. As mentioned in my last post, they have grown from 4% of GDP in 1960 to 16% today, and now consume 94% of tax receipts.
The best economist ever was Willie Sutton, who taught us that you gotta go where the money is. Any serious attempt to tame the debt monster has to begin with reductions in the size and growth of these programs. That’s not a statement of policy or preference. It’s just arithmetic (unless you think that being nearly $17 trillion in debt and adding a trillion a year is good).
And that gets us back to the current cliff/sequester mess. First, despite all the sky-is-falling rhetoric, the sequestration cuts that just went into effect actually are pretty small. They total $85 billion out of a budget of $3.5 trillion, or about 2.3% (oh my!). Three days after they went into effect, the Dow hit an all-time high.
Second, in January, the Republicans gave Obama about half of what he was looking for in tax increases without getting anything in return. Yes, taxes can and will go up more (hopefully through a flatter, more transparent, less politicized tax code), and will do so without crushing the economy. But any so-called “balanced approach” to deficit reduction has to include something real on the other side of the teeter-totter. If Obama said, “Give me the rest of the tax increase and entitlements will be really, seriously on the table,” I’m pretty sure we’d have a deal in short order.
The other day, I heard Tom Brokaw, who is not exactly a conservative paragon, describe Obama as someone who clearly would rather campaign than govern. When you’ve lost someone who is that much of a natural ally, I think you have a problem. Yes, everyone is playing politics while Rome is starting to smolder. The smoke, however, is being drawn into a leadership vacuum.
Carp Diem 
As a reader of your blogs Dan, you work from a conservative/libertarian set of assumptions about economics. You are, without a doubt, a conservative blogger. I would recommend you not worry about labels, and simply say what you want. But dont be confused about the fact that you do have a very deep set of assumptions which are very much conservative/libertarian.
Example in this blog you said Any serious attempt to tame the debt monster has to begin with reductions in the size and growth of these programs.
That is not true. It could begin with a serious increase in tax receipts by increasing marginal tax rates on the wealthiest 1% to 50%, lets say, while raising capital gains tax rates on short-term gains to 33% and long-term gains to 30%, and taxes on intangible returns (such as interest and dividends) to 35% — all of which would be imposed on the highest earners and the investor class which is those with the largest asset base (by and large) such as those who inherited fortunes and really dont even work.
Another example – That big bubble between 1980-1990 is proof that Reagans tax cuts did not pay for themselves, no matter what the theory promised. This has been well documented for over a decade. No modern economist at any university (Im excluding politically paid think tank economists here intentionally) working on new theories of growth or public policy has worked from the assumption that tax reductions create economic growth for at least that long. That you thought this factoid worth a chart, and something of an apologetic Im sorry, but it really didnt work approach, in 2013 indicates that your assumption set still is grappling with these kinds of facts. It really sounds as if you took a much longer time to accept them than many other people.
There are always alternatives. You may not like those alternatives or choose to consider them. But your language in the statements above demonstrates you have internal assumptions (a bias.) Im not judging your bias, just a bit surprised you seem to not recognize it and your deep assumption set. I think youll find you can clarify your positions, and writing, if you are clear with yourself about your assumptions and the messages you want to provide your readers.
On 3/5/13 7:27 PM, “Carp Diem (Fish of the Day!)” wrote:
> Dan Wallace posted: “A handful of friends reacted to my last post by telling > me they thought I’d taken a hard hook to the right. I guess that would > actually be a slice unless youre left-handed, which I am, but I dont play > that way. Some thought it was great, others not ” >
Adam, thanks for taking the time to write thoughtfully and seriously. As you know, I case, though, I mostly disagree with you, which probably doesn’t come as a surprise.
Yes, we all have beliefs and biases, and I have mine. But politically, I actually think I’m right down the center. Of course, everyone probably thinks that about themselves.
My arguments for me being in the center are:
1) I spent many years managing, with only moderate discomfort, to call myself a Moderate Republican. I lived just inside the left edge of the Republican tent – fiscally conservative, socially moderate, internationally pragmatic. I’m pretty sure I’m still standing in the same spot. The tent, however, got picked up and moved a few hundred yards to the right, leaving me shivering in the cold.
2) I have dogmatically liberal friends who read my posts and tell me that I’m a right-wing nut, and I have dogmatically conservative friends who tell me I’m a flaming liberal. As I said, I’m an equal opportunity offender.
3) I was working for a Republican member of the US Senate Budget Committee when the Reagan tax cuts were passed. I was always skeptical as to whether they would produce the promised results, and am not late to that conclusion. I do, however, have dogmatically conservative friends who lionize Reagan. I was speaking to them.
3) “. . .increasing marginal tax rates on the wealthiest 1% to 50%, let�s say, while raising capital gains tax rates on short-term gains to 33% and long-term gains to 30%, and taxes on intangible returns (such as interest and dividends) to 35% — all of which would be imposed on the highest earners and the �investor class� which is those with the largest asset base (by and large) such as those who inherited fortunes and really don�t even work.” I said a “serious” effort to tame the debt monster. To the best of my knowledge, we’ve never managed to generate tax revenues above 22% of GDP, and they’ve averaged about 19%, which is what we ought to expect, so there’s still a gaping hole to fill.
4) I firmly believe in what works.
5) I also believe government has a significant and legitimate role, including providing a safety net.
5) If I have one strong bias in this particular discussion, it’s that I would like my country to have a healthy, vibrant economy that is competitive globally, which it has not been for 35 years, and for which both parties are roughly equally at fault. I also believe that a debt burden which is greater than the size of the economy, and which reflects 35 years of importing goods and exporting wealth, is a drag on the restoration of economic health. If that puts me to the right of Paul Krugman, I’m OK with that. There’s still lots of room to the right of me.
6) In terms of making that debt burden go away, please see #4 above.
7) I would like to see a genuinely balanced approach to deficit reversal and debt reduction (cf, Simpson-Bowles). That would include:
a) Increased tax revenues achieved through a much simpler, more transparent tax code. The code we have is incredibly complicated, drives people to make economic decisions for non-economic reasons, and necessitates the existence of a very large class of tax accountants and tax lawyers who are wonderful people, but who get paid tons of money to hide value rather than create it. (I base this on my personal observations, having lived and worked in a place with a very complex tax code – here – and a place with a very simple one – Hong Kong. In the latter, people made decisions without “tax factors” ever being mentioned. They did their deals, shut up and paid their taxes.)
b) A meaningful change, based on difficult decisions, in the trajectory of entitlement spending. By difficult decisions, I mean applying a means test to these programs, raising the Social Security retirement age to something reasonable given current life expectancy, and figuring out how to bring medical spending on people in their last year of life (most of which is paid for by Medicare) down from 20% of all healthcare spending to something like, say, 5%.
c) A realistic assessment of our role in the world, and an effort to provide for our security in smarter ways than we have tended to in the past. When I worked for the Senator, I was his defense and foreign policy guy. We represented Washington State (read “Boeing”). I got to see up close and personal how defense spending decisions were made. Trust me, we could spend a lot less without compromising our security.
Like I said in the original post, my favorite economist is the great pragmatist, Willie Sutton. What I’ve listed in 7 a,b and c above is where the money is. It certainly is a matter of bias to believe we have to solve the debt problem. But if you believe we have to solve it, I genuinely don’t think it’s a matter of bias to say we have to solve it by actually solving it.
No Sir – not a right wingnut but a truth teller. There is no leadership in DC from anyone. Hit the nail on the head again Dan –
Great job
Spence