[PassedOut]

David Stockman, Reagan's budget director from 1981-1985, explained in great detail what went wrong in his book The Triumph of Politics: Why the Reagan Revolution Failed. I remember buying his book as soon as it came out because, as a conservative myself, I wondered exactly how the Reagan administration had gone so badly wrong. It was (and still is) fascinating reading.

Now Stockman has a piece in the NY Times that calls out the current Republican leadership for their lunacy in asking that the Bush tax cuts be continued in the face of mounting deficits: Four Deformations of the Apocalypse.

Stockman does not shy away from the truth:

Quote

The second unhappy change in the American economy has been the extraordinary growth of our public debt. In 1970 it was just 40 percent of gross domestic product, or about $425 billion. When it reaches $18 trillion, it will be 40 times greater than in 1970. This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts.

Stockman, who still believes in arithmetic, is correct.

I would like to see all the Bush tax cuts expire. And I'd like to see a surcharge on top of that to pay for the Iraq and Afghanistan wars. (But I'm not holding my breath.)

[luke warm]

what about cutting spending also? should that be part of the solution?

[nigel_k]

luke warm, on Aug 4 2010, 08:55 AM, said:

what about cutting spending also? should that be part of the solution?

It should be but it won't be because spending cuts are unpopular and politicians want to get elected. The first step towards a solution has to be finding a way to explain to people how and why high government spending makes them poorer.

[PassedOut]

luke warm, on Aug 3 2010, 02:55 PM, said:

what about cutting spending also? should that be part of the solution?

Of course. Once the spending is cut, the taxes can go down to match the cuts.

[awm]

luke warm, on Aug 3 2010, 02:55 PM, said:

what about cutting spending also? should that be part of the solution?

The problem is that most Americans have very little idea where federal money goes.

The vast majority of federal spending is on three things: Social Security, Medicare, and the Military. If we were to substantially cut one or more of these things, it is certainly possible to reduce the deficit through spending cuts. However, cutting any of these things is pretty unpalatable politically.

Most of the projects which people seriously suggest cutting are simply "small potatoes" and will not ever add up to enough to make a serious dent in the deficit. For example, we could eliminate all aid to foreign countries and all money for (non-military) education and scientific research, and the effect on the budget would be pretty minimal.

There have been some attempts to reduce waste in the major programs above; in fact the recent health care bill is funded in part through cutting waste in medicare. But if we really want to fix the problem, we need to decide that we're going to either: (1) give up spending roughly as much on our military as the rest of the world combined (2) give up having any sort of social "safety net" for the elderly (3) raise taxes. The third seems most likely, especially given that taxes on our most wealthy citizens are at record lows (since WW2 anyway), the gap in relative wealth between the top 1% and the average is at record highs, and the tax burden on the average american is substantially less than in most of the rest of the world (to a great degree because of VAT).

[blackshoe]

People seem to love the phrase "vast majority". 51% of the budget is a majority; I wouldn't call it a "vast" majority. Aside from that, the top four items in the 2010 budget were:

Social Security: 19.63%
DoD: 18.74%
Unemployment/Welfare/Other Mandatory Spending: 16.13%
Medicare: 12.79%
Total: 67.29%

The interest on the national debt is 4.63% of the total — a bit lower than it ought to be, considering.

The problem with raising taxes, as I see it, is that "raise taxes" isn't a solution — we need to target that raise on those who can most afford — and that's the group who will most oppose, and has the political power to oppose, such a raise. I would be in favor of reducing military spending — and also reducing military "adventurism", getting rid of the standing army, and restructuring our forces to confront the current threat, not the cold war threat.

Note: the figures above are from wikipedia, other sites give somewhat different breakdowns.

[y66]

Will check out that Stockman piece. I like your suggestion of a tax surcharge to pay for wars. Martin Wolf had a good summary of the contemporary conservative position on deficit spending in a recent column. 2 excerpts:

When Republicans assail the deficits under President Obama, are they to be taken seriously?

Quote

Yes and no. Yes, they are politically interested in blaming Mr Obama for deficits, since all is viewed fair in love and partisan politics. And yes, they are, indeed, rhetorically opposed to deficits created by extra spending (although that did not prevent them from enacting the unfunded prescription drug benefit, under President Bush). But no, it is not deficits themselves that worry Republicans, but rather how they are caused: deficits caused by tax cuts are fine; but spending increases brought in by Democrats are diabolical, unless on the military.

What conclusions should outsiders draw about the likely future of US fiscal policy?

Quote

First, if Republicans win the mid-terms in November, as seems likely, they are surely going to come up with huge tax cut proposals (probably well beyond extending the already unaffordable Bush-era tax cuts).

Second, the White House will probably veto these cuts, making itself even more politically unpopular.

Third, some additional fiscal stimulus is, in fact, what the US needs, in the short term, even though across-the-board tax cuts are an extremely inefficient way of providing it.

Fourth, the Republican proposals would not, alas, be short term, but dangerously long term, in their impact.

Finally, with one party indifferent to deficits, provided they are brought about by tax cuts, and the other party relatively fiscally responsible (well, everything is relative, after all), but opposed to spending cuts on core programmes, US fiscal policy is paralysed. I may think the policies of the UK government dangerously austere, but at least it can act.

This is extraordinarily dangerous. The danger does not arise from the fiscal deficits of today, but the attitudes to fiscal policy, over the long run, of one of the two main parties. Those radical conservatives (a small minority, I hope) who want to destroy the credit of the US federal government may succeed. If so, that would be the end of the US era of global dominance. The destruction of fiscal credibility could be the outcome of the policies of the party that considers itself the most patriotic.

In sum, a great deal of trouble lies ahead, for the US and the world.

Where am I wrong, if at all?

p.s. I don't know if he's related to the water cooler's libertarian-in-residence.

[Lobowolf]

PassedOut, on Aug 3 2010, 05:39 PM, said:

luke warm, on Aug 3 2010, 02:55 PM, said:

what about cutting spending also? should that be part of the solution?

Of course. Once the spending is cut, the taxes can go down to match the cuts.

This is in some theoretical world, I assume.

[PassedOut]

Lobowolf, on Aug 4 2010, 03:31 AM, said:

This is in some theoretical world, I assume.

Cutting expenditures gets a lot more attention when folks have to pay the bill right away than when they put it on a charge card. At least that's my observation.

I'd be interested to learn about your experiences to the contrary.

[Lobowolf]

PassedOut, on Aug 4 2010, 11:14 AM, said:

Lobowolf, on Aug 4 2010, 03:31 AM, said:

This is in some theoretical world, I assume.

Cutting expenditures gets a lot more attention when folks have to pay the bill right away than when they put it on a charge card. At least that's my observation.

I'd be interested to learn about your experiences to the contrary.

I didn't mean that this isn't correct, or even wise. I just meant that elected officials, whether at the federal, local, or state level, generally increase or maintain expenditures that have been allocated, or when specific items are cut, find other things that were previously "underfunded" to shift the money to.

Or back to the personal level, I absolutely agree that cutting expenditures gets a lot more attention when folks have to pay the bill right away than when they put it on a charge card; when they don't have to pay the bill right away, though...

[mike777]

luke warm, on Aug 3 2010, 02:55 PM, said:

what about cutting spending also? should that be part of the solution?

A third option besides finding new taxes or things to tax or talking about cutting spending is to increase the economy or revenues to tax in the first place.

Hopefully govt can find someway to encourage growth and not just debate on how to tax it or redistribute it.

[PassedOut]

Lobowolf,

I guess we agree about both the tendencies of both private individuals and public officials. (And business executives behave a lot like public officials when playing with other people's money.)

But public officials do respond to voter pressure as well. I strongly believe that you get a lot better scrutiny of public expenditures if the tax collections roughly match those expenditures. Running deficits is okay as a temporary measure to get through economic down patches and to pay for emergencies such as WWII. But then the debt needs to be paid down when the emergencies are over.

And that was the bipartisan consensus from Truman through Carter, which is why the US debt as a percentage of GDP continually declined from one president to the next. That continual decline included periods of recession and recovery, of low inflation and high inflation. It included the Vietnam war and misguided welfare programs, both of which I opposed.

But, as insider David Stockman has documented, our problem now arises from the abandonment of the bipartisan consensus during the Reagan years by "deficits don't matter" republicans. Reagan bought a few prosperous years by heavy deficit spending, passing the charges on to Bill Clinton. Dubya launched an utterly foolish war that escaped serious scrutiny because voters did not have to pay for it immediately.

Yes, I'd like to see higher taxes because that is the only realistic chance to get voters to look at what they are getting for their money. Until that happens, we'll get stupid wars and other stupid expenditures.

But I'm not very optimistic. I note that the current anti-healthcare slogan by republicans is "you have the right to be a dead-beat." And the republican voters in Missouri were pretty enthusiastic about that yesterday -- which pretty much follows from the abandonment of the former bipartisan consensus. And that is what Stockman objects to, as do I.

[jdonn]

Passedout for president

[y66]

Second that.

[y66]

Lobowolf, on Aug 4 2010, 03:31 AM, said:

PassedOut, on Aug 3 2010, 05:39 PM, said:

luke warm, on Aug 3 2010, 02:55 PM, said:

what about cutting spending also? should that be part of the solution?

Of course. Once the spending is cut, the taxes can go down to match the cuts.

This is in some theoretical world, I assume.

Such a theoretical world as is likely to come into existence as, say, one in which Barney Frank and Ron Paul team up to cut defense spending.

[junyi_zhu]

PassedOut, on Aug 3 2010, 05:59 PM, said:

David Stockman, Reagan's budget director from 1981-1985, explained in great detail what went wrong in his book The Triumph of Politics: Why the Reagan Revolution Failed. I remember buying his book as soon as it came out because, as a conservative myself, I wondered exactly how the Reagan administration had gone so badly wrong. It was (and still is) fascinating reading.

Now Stockman has a piece in the NY Times that calls out the current Republican leadership for their lunacy in asking that the Bush tax cuts be continued in the face of mounting deficits: Four Deformations of the Apocalypse.

Stockman does not shy away from the truth:

Quote

The second unhappy change in the American economy has been the extraordinary growth of our public debt. In 1970 it was just 40 percent of gross domestic product, or about $425 billion. When it reaches $18 trillion, it will be 40 times greater than in 1970. This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts.

Stockman, who still believes in arithmetic, is correct.

I would like to see all the Bush tax cuts expire. And I'd like to see a surcharge on top of that to pay for the Iraq and Afghanistan wars. (But I'm not holding my breath.)

I am wondering two things:
1 who pays the cost of the US troops in those foreign bases?
2 Can US economy really support a global super power and fight and win two regional wars at the same time?

[mike777]

http://www.data360.o...Data_Set_Id=354

FWIW 3 data points for GDP:


1) 3,759.8...end of 1970



2) 9,871.1....june of 2001...right before 9/11




3) 13,216.5....june 2010.




GDP-Real (Adjusted) United States
Units of Measure Billions of Dollars
Last Updated 8/6/2010
Source U.S. Dept of Commerce: BEA
Source URL http://research.stlo.../data/GDPC1.txt
Source Document
Editor (no editor)
Data Set Legend Real US GDP (2000 Constant Dollars)
Notes Billions of Chained 2000 Dollars