Saturday, November 06, 2010

How to tell whether the Republicans are serious about fiscal restraint

If you think that majority control by Republicans automatically means that we have entered the era of federal belt-tightening, then you'd better sit down for a moment. We've got some bad news for you.

The job of taking care of the nation's financial hen house is about to be given to ... the fox.

Very few people noticed this during the election, but, with the Democrats out of power in the U. S. House of Representatives, the congressman slated to take the helm of the House Appropriations Committee is none other than Kentucky's own Hal Rogers. Rogers, who represents the 5th district and is a longtime Republican member of the committee, has used his post to direct a pipeline of federal cash back to his district.

Rogers is the congressional poster boy for federal earmarks. He is to fiscal restraint what Godzilla was to Tokyo. Can we mix more metaphors in description of the complete and utter absurdity of putting Hal Rogers at the head of the House Appropriations Committee at a time of Tea Party ascendancy? Yes we can: putting Hal Rogers in charge of stopping earmarks is like putting Madonna in charge of abstinence education.

Let this be the first test of whether Congressional Republicans are serious about their campaign promises.

19 comments:

Art said...

LOL

In reading some of Rogers' comments on this in the news, it sounds as if Rogers is going to, um, lean on competitive awarding processes (akin to, if not the same as, competitive grant programs at NSF, NIH, etc.) to make sure that his "lost" earmarks are still taken care of.

That would seem to be a Republication aim - take down one of the few things that the Federal government does right.

KyCobb said...

Martin,

Of course the GOP isn't serious about fiscal restraint. They only talk about it when they are out of power. They won't cut spending, only taxes, which makes them even more profligate than the Democrats.

Lee said...

I have nothing but contempt for such Republicans. However, I would like to point out that sometimes decrease in tax rates results in an increase in tax revenues. It all depends on the incentives presented to investors and businessmen. Obama even admitted as much when questioned on this issue (by Charles Gibson) during the campaign.

KyCobb said...

Lee,

Since US corporations are currently sitting on a couple of trillion dollars in cash, I doubt another tax cut for the rich will generate significant additional economic activity. They aren't investing because there are so many people out of work that demand is very weak. We really need another stimulus package to get money into the hands of middle and lower class people who would spend it, but thats not going to happen, since the GOP was so successful in demonizing the first stimulus package, which saved the jobs of millions of Americans and kept a bad Recession from becoming much worse.

Lee said...

> Since US corporations are currently sitting on a couple of trillion dollars in cash, I doubt another tax cut for the rich will generate significant additional economic activity.

Should perhaps consider why they're sitting on the cash instead of investing it and using it to hire. (I'm sitting on my cash. Can't blame them for doing the same.) Like everyone else who is not a decision-maker for big business, decision-makers for big business have to consider risk vs. reward. Government can tip the scales toward the "reward" side by reducing overhead and in general providing a sound basis for business comprising a predictable and affordable legal and regulatory infrastructure. Predictability is good.

Or government can continue to do what it's doing, which is to muddy up the Magic 8 Ball with incessant talk of new taxes, new imposed regulations and new employee liabilities. Add to that, basic rule changes such as, e.g., secured bond holders no longer go to the front of the line at bankruptcy time; or bankrupt companies rescued from bankruptcy at the expense of their competitors. Top it off with repeated rhetoric from on high about the villainous attributes of big business and how at some point we've made "enough money."

The future is tough enough to predict as it is. There is no need to make it tougher, and we're seeing the results of that. At some point, the inevitable conclusion is that businesses are better off studying politicking than doing what they're ostensibly in business to do.

> We really need another stimulus package...

I forgot to add in the uncertainty caused by worry about future government insolvency, which is at the point where it is our next existential threat. It's a cliche, but insanity is defined as doing the same thing over and over and expecting a different result.

> ...the GOP was so successful in demonizing the first stimulus package...

Demons need to be demonized.

> ...which saved the jobs of millions of Americans and kept a bad Recession from becoming much worse.

That's one possible spin. Another is this: they scared people by predicting that, *without* the stimulus, unemployment would rise to 9%. So they passed the stimulus, and the result was higher unemployment than their worst-case scenario without it. Now the same people are telling us it saved jobs. Too late, their credibility it already shot.

KyCobb said...

Lee,

Its much simpler than that. US business currently has a lot of excess capacity because demand is so weak. So why would they invest in adding to their productive capacity when they already have more than enough?

The notion that the US government is on the verge of insolvency is laughable, the real problem we have right now is unemployment. Virtually all mainstream economists agree the stimulus saved millions of jobs, regardless of how much the Right-wing noise machine insists it failed. The real problem is that it wasn't large enough.

Lee said...

Why do you think demand is so weak? Did consumers just quit wanting goods and services? Do you think demand is a fact of nature, a constant, like the speed of light? Or do you think a lack of confidence in the economy, and the government's role in it, might be a contributing factor?

Production comes before demand. Did anyone want an iPhone before an iPhone was invented?

I wish the "notion" of US government insolvency was just a mere notion. Unfortunately, on this, Barack Obama and I are in agreement. At about the same time he was adding a trillion to the deficit by pushing his so-called "stimulus" package, he said trillion dollar deficits are "unsustainable."

http://www.businessinsider.com/obama-warns-of-unsustainable-deficits-and-spiraling-interest-rates-2009-5

Of course, that was before he added $3 trillion to the deficit in two years. Maybe he changed his mind.

Currently, the U.S. owes about $38,000 per citizen and now spends more servicing the debt than we pay for defense spending. When unfunded liabilities (i.e. social security, medical entitlements) kick in for the boomers, we will owe more than the net worth of the U.S., lock stock and barrel (currently estimated at about $60 trillion). You may find the "notion" laughable, but I'm not laughing, and you shouldn't be.

> Virtually all mainstream economists agree the stimulus saved millions of jobs, regardless of how much the Right-wing noise machine insists it failed.

That is simply false. Google it yourself, but be sure to see:

http://politics.usnews.com/opinion/blogs/peter-roff/2010/06/10/economists-stimulus-not-working-obama-must-rein-in-spending.html

The article cites 100 "prominent economists." That certainly steals the thunder from what you characterize as virtual unanimity.

> The real problem is that it wasn't large enough.

But I see you've been reading Paul Krugman.

KyCobb said...

Lee,

One reason demand is so weak is because millions of people are unemployed and can't afford to buy much. Millions of others are underemployed or worried they might lose their jobs. Reducing the deficit relative to the size of the economy is a good long term goal, but doing it right now would suck hundreds of billions of dollars out of the economy and weaken demand even further. The way to get the deficit under control is to grow the economy. The national debt relative to GDP at the end of W.W.II was much higher than it is now, but the total amount would seem laughably small today relative to the current size of the economy.

Lee said...

When considering the potential hazards to future U.S. solvency, you have to consider the unfunded liabilities. We have far more of those today than in the post-World War II time frame. Those liabilities (social security, welfare, and medical entitlements in particular) are growing at a much faster rate than the revenues to cover them. The result will be enormous deficits that will make the current situation seem like budget utopia.

KyCobb said...

Lee,

According to CBO projections, Social Security spending will rise slightly as a % of GDP and then stabilize for decades to come, so its not a problem. The big increase in spending comes from medicaid/medicare due to increasing health care costs. The hysterical claims from the Right that the US is going bankrupt is just typical scare tactics-if we did absolutely nothing to correct current trends, federal government spending would reach levels typical of most western countries, and taxes could be raised to generate sufficient revenue. So what's likely to happen is that steps will be taken to control health care costs and increase revenue. The US isn't Greece; if Germany can afford to spend half its GOP on government services, as it does, the US can certainly afford to spend more than 20%.

Lee said...

> According to CBO projections, Social Security spending will rise slightly as a % of GDP and then stabilize for decades to come, so its not a problem.

Spin it any way you want, but the ratio of people receiving social security payments relative to those paying them has increased more or less permanently.

> The big increase in spending comes from medicaid/medicare due to increasing health care costs.

Do you think the government's medical spending might be the key factor in the increase of health care costs?

> The hysterical claims from the Right that the US is going bankrupt is just typical scare tactics...

Sometimes scare tactics are employed when there really is something to be scared about.

> -if we did absolutely nothing to correct current trends, federal government spending would reach levels typical of most western countries

And in case you haven't noticed, there are a few western countries flirting with bankruptcy.

> and taxes could be raised to generate sufficient revenue.

That approach does not seem to be helping Greece, Spain, or Portugal.

> So what's likely to happen is that steps will be taken to control health care costs and increase revenue.

Prices are fairly easy to control. Costs, not so much.

> The US isn't Greece; if Germany can afford to spend half its GOP on government services, as it does, the US can certainly afford to spend more than 20%.

Germany seems actually to be moving closer to a free market even while we are embracing the failed policies of Europe. In any event, ask the Germans how happy they are to be propping up the Greeks.

KyCobb said...

Lee,

"Do you think the government's medical spending might be the key factor in the increase of health care costs?"

No. While its probably true that if we eliminated all government spending on medical care and allowed the poor and elderly to die in the streets it would provide some cost containment, a big part of medical inflation is due to the development of expensive new treatments.

Lee said...

>> "Do you think the government's medical spending might be the key factor in the increase of health care costs?"

> No.

Fine, so we'll just here and now repeal the laws of supply and demand. Lenin and Barney Frank will both be proud.

> While its probably true that if we eliminated all government spending on medical care and allowed the poor and elderly to die in the streets it would provide some cost containment...

I know that's just a subordinate clause, but I'd like to unpack it just a bit. I have been around a while, and certainly was here before Medicare. I'm trying to remember the headlines that must have screamed, "More Poor and Elderly Found Dead in Streets -- Problem Traced to Lack of Medicare!" Sadly, my memory just isn't that good.

Of course, it is true that people live longer today. The problem I have is with attributing all of this progress to bureaucrats on white stallions, rushing into the fray with swords of money and shields of regulation, pure of heart and on a mission from God, or perhaps Richard Dawkins for you non-believers.

> ...a big part of medical inflation is due to the development of expensive new treatments.

Don't forget the costs of insurance. And as much as you protest, I think supply and demand just might have some little tiny part to play in all this.

But the unspoken assumption in all this is the notion that if something is desirable, then it is possible. There is also another: liberals can do a better job of allocating supply and demand than the market.

KyCobb said...

Lee,

"But the unspoken assumption in all this is the notion that if something is desirable, then it is possible. There is also another: liberals can do a better job of allocating supply and demand than the market."

I don't want to put words in your mouth or twist your meaning. Are you basically arguing that people who aren't rich should be denied all but the most basic of medical treatment so that demand for it will be reduced to bring the costs down? For example, a year ago, I had surgery for diverticulitis. There were complications, and it all would have cost over $100,000 without insurance. Should I simply be doing without insurance and just live with the pain because surgery is so expensive?

Lee said...

The fact of the matter is that government's involvement in the medical market creates distortions, just like their involvement in the housing market, big business, and wherever and whenever they decide to get involved in playing the economic game rather than be simply the referee. These distortions usually result in gross inefficiencies.

KyCobb said...

Lee,

I have to assume then, that you view expensive medical treatments as something that most Americans will simply have to learn to live or die without.

Lee said...

Well, I would go ahead and assume that, because I know how important it is for liberals to feel morally superior to conservatives.

But medical care is a scarce good. We cannot have as much of it as we want. Shaking your finger at conservatives is not going to change this basic economic fact. Another way of stating this is somebody, somewhere, will always be denied the medical care he needs, whether it is denied by lack of cash, lack of adequate insurance, insurance denial, bureaucratic edict; in socialist systems, denial tends to take the form of very long lines and delays. But the denials of service are not going to stop just because Uncle Sam puts on a white smock.

Liberals are not talking about expanding medical capacity to serve more people, nor increasing the number of med schools and med school grads to meet demand, nor finding newer and more efficient ways to deliver health care, nor developing new cures for old problems. They are only talking about redistributing that which we already have, using government bureaucrats as decision-makers instead of the market. This doesn't produce more; it only adds overhead and inflexibility.

You can call that compassion, if you like. I call it a failure of imagination. I just have more faith that the private sector is capable of doing much more good than the government.

KyCobb said...

Lee,

" I just have more faith that the private sector is capable of doing much more good than the government."

Even Rand Paul doesn't have as much faith in the private sector as you do. He supports Medicare so that doctors can make a living.

Lee said...

My first guess is Rand Paul supports Medicare because he was running for Senate and old people vote.

Since the market distortions have been in place since the Sixties, and since old folks are now depending on Medicare, getting rid of it becomes a ticklish business and even if we started today, may take generations to do in an honorable manner.

That's the other half of conservatism, by the way: easy does it on "change" thing, because you don't know what unintended effects it will precipitate.

But a practical assessment of what can be done is not the same as an ideal assessment. I think government should get out of the health care business completely, but that like saying we should set sail for Singapore. Between here and there, there is a lot of preparation and a lot of shoals.

Of course, if the government spends us into the dustbin of history, Medicare will be the least of our worries.