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Sequester, Bob Woodward And Other Craziness

So, we are in the post-sequestered era. What happens now?

Bob Woodward

First of all, let’s deal with the craziness. The Obama administration has been accused of threatening legendary journalist Bob Woodward. I think that this falls into one of the common themes facing Barack Obama – he’s from Chicago. Because Barack Obama’s from Chicago he must be part of the Chicago, “rough-and-tumble” political machine. Yet, we’ve seen no evidence that Barack Obama plays politics this way (well, it may be an overstatement to say that we see no evidence). Personally, I doubt that the Obama administration has threatened any journalist, let alone Bob Woodward. it appears that the truth is that the superficial political website, Politico, is playing this up in order to drive hits to their website. It is probably also true that Bob Woodward is playing this up in order to drive book sales. The fact that he went on Fox News’ Hannity, where the discussion turned from this latest flap to Sean Hannity’s favorite topic, Bill Ayers, says everything that needs to be said.

What has been lost in the sequester flap is that the sequester has started. Across-the-board spending cuts are going into effect starting today. The spending cuts will have real consequences.

From the Center for Budget and Policy Priorities:

  • The roughly 3.8 million long-term unemployed workers receiving federally funded unemployment benefits will face nearly 11 percent cut in their weekly benefits, according to the Administration. This will translate into a cut of roughly $130 per month for jobless workers.
  • As we explain in a new paper, the WIC nutrition program for low-income pregnant women, infants, and young children will have to turn away an estimated 600,000 to 775,000 women and children, including very young children, by the end of this fiscal year.
  • We estimate that more than 100,000 low-income families will likely lose housing vouchers.

More later.

By |2013-03-02T12:31:08-04:00March 1st, 2013|Budget, Party Politics|4 Comments

Want to kill a fragile recovery? Cap federal spending.

Every now and then senators/representatives propose things in Congress that sound good but are really terrible federal policy. A new bill that proposes to Federal spending at 20.6% of GDP is exactly one of those bills. This sounds reasonable. But with 25% of our GDP currently dependent on federal spending this would mean drastic cuts to the federal budget.

More from the Center for Budget and Policy Priorities:

A prominent proposal by Senators Bob Corker (R-TN) and Claire McCaskill (D-MO) to limit total federal spending to no more than 20.6 percent of the Gross Domestic Product (GDP), which is attracting increasing attention, may sound benign, but it would inevitably force enormous cuts in Medicare, Medicaid, and possibly Social Security.

The Corker-McCaskill bill would impose automatic, across-the-board cuts (a “sequester”) to close the gap between projected spending and the proposed cap if the cap would otherwise be breached.  If the cuts needed to reach the cap were achieved entirely through this mechanism, the estimated cuts would total about $1.3 trillion in Social Security, $856 billion in Medicare, and $547 billion in Medicaid over the first nine years that the cap was in effect, from 2013 through 2021.  These figures are based on Congressional Budget Office (CBO) projections of spending over the next decade under current policies and on the Corker-McCaskill formula for how across-the-board cuts would be imposed.

The cuts in Social Security, Medicare, Medicaid, and other programs would grow much larger in subsequent decades.  For one thing, the 20.6 percent cap would phase in gradually and would not be fully in effect until 2023 and thereafter. [1] For another, Social Security, Medicare, and Medicaid costs are projected to rise substantially in future decades due to the aging of the population and rising health care costs and, thus, would have to be cut by increasingly severe amounts to meet the Corker-McCaskill level. (more…)

By |2011-04-18T06:01:51-04:00April 18th, 2011|Budget|Comments Off on Want to kill a fragile recovery? Cap federal spending.

We Need to Focus Our Priorities (re-posted)

Several months ago I wrote:

Now the deficit guys (cleverly described as “deficit peacocks,” since they’re really not hawks) are out in force. They have America worried about how to pay for all of this red ink. Remember when President Clinton handed over the keys to the White House to President Bush? He handed Bush a budget surplus that was projected to be approximately $800 billion per year from 2009 to 2012. Instead, it looks as if we’re spending $1.2 trillion more than we’re taking in during this same time frame. What happened? About 33% of this $2 trillion deficit (the difference between $800 billion in the black and $1.2 trillion in the red) comes from George Bush’s tax cuts and his Medicare prescription benefit. About 20% of the deficit comes from Obama’s extension of Bush policies like the war in Iraq and tax cuts for households making less than $250,000. Only 7% comes from the stimulus bill passed in February 2009. The downturn in the business cycle accounts for approximately 37%.

The Center for Budget and Policy Priorities has noticed that conservatives continue to harp on the deficit. Even the conservative think tank the Heritage Foundation has been screaming about the deficit. In my opinion, screaming about the deficit now is like trying to fix faulty wiring while the house is on fire. We need to put out the fire first then fix the wiring. This should be obvious to any congressperson on Capitol Hill. Unfortunately, it is not. These same deficit peacocks are trying to point to Obama and his policies as if they were the problem. It’s almost laughable. From CBPP:

Some commentators blame recent legislation — the stimulus bill and the financial rescues — for today’s record deficits. Yet those costs pale next to other policies enacted since 2001 that have swollen the deficit. Those other policies may be less conspicuous now, because many were enacted years ago and they have long since been absorbed into CBO’s and other organizations’ budget projections.

Just two policies dating from the Bush Administration — tax cuts and the wars in Iraq and Afghanistan — accounted for over $500 billion of the deficit in 2009 and will account for almost $7 trillion in deficits in 2009 through 2019, including the associated debt-service costs. (The prescription drug benefit enacted in 2003 accounts for further substantial increases in deficits and debt, which we are unable to quantify due to data limitations.) These impacts easily dwarf the stimulus and financial rescues. Furthermore, unlike those temporary costs, these inherited policies (especially the tax cuts and the drug benefit) do not fade away as the economy recovers (see Figure 1).

Without the economic downturn and the fiscal policies of the previous Administration, the budget would be roughly in balance over the next decade. That would have put the nation on a much sounder footing to address the demographic challenges and the cost pressures in health care that darken the long-run fiscal outlook.

Fix the economy first then fix the deficits. We need a strong jobs package now. Failure is not an option. At least, it is not an option that most Americans would want to live through. Economist Paul Krugman follows up on a point that is all too simple.

In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer.

But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks — but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.

Why are our politicians so tone deaf? Could it be that conservative Republicans just don’t want a Democratic administration to turn around the economy?

By |2011-03-23T16:56:01-04:00March 23rd, 2011|Economy|Comments Off on We Need to Focus Our Priorities (re-posted)
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