Our House Burned Down, So Let's Worry About Our Electric Bill

Pundits love framing discussion about the deficit in the same terms as household budgets. And while I don't find that framing very useful and at times purposefully obtuse, here's my stab at it.

About four-and-a-half years ago your family's house was on fire. Your neighborhood fire department took the necessary steps to contain and eventually put out the fire. But your house suffered severe damages that were in need of repair. So you borrowed some money to make minimal repairs and got the house back to the point that you could sort of live in it again.

But it still needs a lot of work, including repairing a leaky roof. You have some debt, but it's manageable debt. In fact, the bank at the corner is still willing to lend you a lot of money and will do so at practically 0% interest because you are such a sure bet to repay it. So would you borrow some more money to finish fixing up the house now?  Or...would you spend 2-3 years singularly focused on reducing your electric bill and food expenses, and cutting junior's weekend art and music expenses, in hopes of slightly improving your debt holdings over the next 20 years?

And you'd be doing this because you are worried about how much debt you will have 15-20 years from now, even though the biggest driver of your debt happens to be your mortgage and education costs - neither of which are addressed in any of your household budget plans.

That in a nutshell is what has happened with the financial crisis/Great Recession and the ensuing fiscal debate that has been taking place in Washington the past 3 years. Our house was on fire (financial meltdown, over-leveraged household debt) and the fire is out and we still have a lot of work to do (economic growth, high unemployment). But we're focusing on debt instead and ignoring the biggest drivers of debt (health care costs, particularly Medicare).

This week both Paul Ryan and Senate Democrats both plan to release balanced budget plans, as if balancing the budget is an end unto itself. If balancing the budget in 10-20 years would lead to huge economic growth and job creation, it'd make more sense. But almost every economist predicts that any attempt at drastic spending reductions now would hurt economic growth and probably send us back into recession.

Here was Ben Bernanke a few weeks ago explaining Economics 101 to everyone else in Washington:

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Why Obama is Winning on Taxes

I said relax. I got this.

Something is happening during this Presidential campaign that I never thought I'd see: a Democrat both wanted a debate on taxes and is so far winning it.

It took a few long steps to get there, but it started last year when President Obama began focusing like a laser on Paul Ryan's budget and on the issue of fairness in the tax code. Mitt Romney obliged by running further to the right than he probably needed to in the primary, resulting in him putting out a revised tax/budget plan that was very similar to the Ryan plan.

In 2010 the Republicans re-took the House mainly due to three issues:

1) the distortion on the Medicare "cuts" in Obamacare
2) the deficit/spending cuts
3) the economy

The first was a result of an older whiter electorate and the second was driven by the energy created by the Tea Party and the cynicism of the GOP caring about deficits only when Democrats are President. And the third was expected given the high unemployment rate and the Democrats controlling the entire government. David Frum pointed out, the Republicans cynically won back power without understanding why and then overestimated the electorate's support for their "real" agenda.

.@ingrahamangle 1) 2010 was an election w ~40% turnout, weighted to older whiter voters. Bad model for 2012.
— davidfrum (@davidfrum) September 18, 2012

.@ingrahamangle 3) The 2010 platform was basically a defense of retirees' Medicare expectations - party won w/out understanding Y

— davidfrum (@davidfrum) September 18, 2012

So it was a bit of a gift that one of the first major economic or budget visions the GOP put forth after winning the House was a budget that cut taxes on the rich, ended Medicare as we know it, and still didn't balance the budget for 40 years. In one House vote the Republicans lost credibility on the Medicare and deficit issues. And with no plan to create jobs and address this particular economic situation and not the one they wished existed, they began losing support on the economy as well.

Obama and the Democrats spent months earlier this year hitting Romney on Bain and creating narrative that Romney was a heartless CEO unconcerned about the plight of middle class Americans. As Jonathan Chait noted, then Obama began moving to phase 2 earlier in the summer, which was talking the Romney/Ryan budget and tax code fairness. If voters didn't feel Romney really understood and cared about their problems, they'd be more willing to accept Obama's argument about the choice between the two competing visions for the country.

Obama knew the GOP couldn't very well admit that they don't really care about deficits. So he was able to put Romney in a box over his tax plan. If he did indeed want to cut taxes on rich people above all else and since any plan has to be absolutely deficit-neutral, lest he want to annoy the Tea Party and the Randians, then there is no other way to make that plan work without deep spending cuts to popular programs, increasing taxes on the middle class, and/or eliminating or reducing many middle class tax deductions and tax credits through some type of comprehensive tax reform plan. It is now September 20th, and Romney has still yet to reveal any details about how this plan would work.

The Obama campaign deftly called the GOP's bluff on their fake concern over deficits and contrasted it with their overarching goal of lowering taxes on the rich. And they were able to show how there was no way to achieve both of those goals without screwing the middle class. With Romney's lack of credibility with his base he had no room to maneuver or nuance this issue, so he was stuck defending a plan that either can't work or will screw the middle class. All that doesn't fit on a bumper sticker, unfortunately, but the groundwork was laid for months. And enough voters apparently have come to understand this argument. As President Clinton said, it's arithmetic.

Paul Ryan is a Fraud

 I can't tell them we really plan to end Medicare as we know it. I'm running for President for pete's sake. (CNN)

It'll be interesting to see how the Mitt Romney/Paul Ryan ticket handles criticism of their budget plans in the upcoming days. The next week or so will likely frame how both campaigns talk about his issue from now until November, barring a potential reboot during the conventions.

At least when it comes to specifics, both are already distancing themselves from the budget blueprint laid out by Ryan nearly two years ago, which Romney had previously voiced support for up until about 96 hours ago. Romney even went so far as to say he'd sign Ryan's budget into law within the first 100 days of his administration.

Previously we've heard how "courageous" Ryan is to put forth such a budget that compels us to have a "serious conversation" about changing Medicare from a contribution program to a voucher program and potentially changing other entitlements. The beltway media love to have serious conversations about having serious conservations about cutting entitlements, as long as their sizable beltway media incomes aren't taxed at a higher rate.

But now that his plan is receiving more scrutiny outside the beltway and outside the base of his party, so far Ryan is backtracking awfully fast and Romney is claiming Ryan will fall in line and disavow his plan, even though it's the same plan Romney said he would sign if he were President.

That would seem to be the opposite of "courageous." It isn't all that courageous to propose a budget plan that carries out a 40+ year goal of the movement conservatives in your party, which includes upper income tax cuts and entitlement and spending cuts that transform the budget in a way that most  Americans do not support.

In 2003-04, a young rising star in the Democratic Party named Barack Obama received some coverage for his "courageous" stance against the Iraq War. Much like Ryan's budget plan, his position was very popular among the base of his party, but less popular with independents and the other party. And then imagine a world where during the 2008 campaign, Obama attempted to run away from that position, or at least perhaps tried to muddy the waters to try to conceal what his original position was, when it turned out 2/3 of the country held the opposite opinion. There would be a lot of terms to use to describe Obama's new messaging - politically savvy, hackish, etc, but "courageous" would not be a term anyone would use. Yet with Ryan, he's still portrayed that way by most of the balance-obsessed media.

Here's the thing, either Ryan's plan does what it says it does or it doesn't. If it does, then all the attacks the Obama campaign is going to make on it are mostly accurate. If it doesn't, then the plan was a fraud to begin with and Ryan should have no credibility on these issues. Or as Paul Krugman, Jonathan Chait, and others suggest - perhaps the plan is honest about the massive cuts, while being fraudulent when it comes to revenue estimates and deficit reduction. And the clarity isn't helped when Romney keeps signaling that the Ryan plan is great, but also is different from his plan in many, many secret ways that he'll be glad to tell us all about after we elect him President.

In any case the Republicans have a huge problem right now. At least one of the following three things must be true: 1)their Presidential ticket plans to end Medicare as we know it, while cutting taxes for upper incomes, 2)their budget plan couldn't possibly work, not should it be taken seriously, and/or 3)the result of their plan will severely increase the deficit, painting their 3+ year campaign in favor of deep spending cuts to reduce the deficit as nothing more than a charade to co-opt the Tea Party and re-take power.

So which is it?

GO'P Lies

No, the coming military sequester cuts and "fiscal cliff" are not Obama's fault

McConnell, Boehner, and Cantor: "How can we get you to understand what a horrible no-good deal we forced everyone to make us take last year?!"

It became obvious during the Debt Ceiling negotiations last summer that the the Republican leaders were incapable of negotiating in good faith. Time after time, a grand bargain was supposedly in reach, only to see Speaker John Boehner or House Majority Leader Eric Cantor walk out near the end of that round of the process. During these negotiations, at various times the Republicans turned down deals with a ratio as high as 8 to 1 spending cuts to tax revenue increases.

Finally a deal was reached at the last minute: $1 trillion in spending cuts over 10 years, and an establishment of a Super Committee with a deadline of December to reduce the deficit by $1.2 trillion or more over the next 10 years. The Super Committee had the flexibility to use a combination of tax revenue increases and spending cuts to reach this $1.2 trillion, and if they couldn't reach a deal automatic spending cuts would kick in starting in 2013, reducing military budget and domestic spending budget by roughly equal amounts (roughly $600B each) over the next 10 years.

But once again, the GOP showing their lack of seriousness about the deficit, offered three of deals they knew were unacceptable. The first offer was $2.2 trillion in spending cuts with no tax revenue increases, which was rejected. The second offer included $1.5 trillion in spending cuts and $300B in tax revenue increases. That part seems pretty good, but then the Republicans on the Super Committee also included a poison-pill extension of the Bush tax cuts and a lowering of the top marginal income tax rate. The Democrats predictably balked. The final offer was even worse: $640B in spending cuts and $3B in tax revenue increases, a ratio of 213 to 1 spending cuts to tax revenue increases. And it would barely meet half of the agreed-to deficit reduction figure.

Just like during the summer, no compromise could be made on a balanced deal that also contained significant tax revenue increases, so the automatic spending cut triggers were set to take place in 2013.

This underscores a point Jonathan Chait has made time and time again and he made it again yesterday:

What the defense sequester drama actually shows, for the jillionth time over the last twenty years, is that Republicans don’t actually care about reducing the budget deficit. If you care about reducing the deficit, you want to keep in place these triggers in order to force some kind of agreement. But Republicans want to disarm the defense trigger, and also of course the expiring tax cuts, which are the other trigger, leaving no pressure mechanism to force a deficit agreement. They’re happy to use the pretext of the deficit to pass something that cuts upper-bracket tax rates and social spending (especially for the poor and non-elderly), but there’s no plausible way to read their actual legislative position as anti-deficit.

This reinforces once again that the Republican party cares deeply about only one domestic policy: ensuring taxes remain low for rich people. All of these other issues, especially the whining about the budget deficit and spending that takes place whenever a Democrat occupies the Oval Office, is a ruse and merely a means to achieve the ultimate end of lowering taxes for the rich.

Anyway, in the last week or so the GOP new line of attack blames President Obama for the spending cuts that are scheduled to take place to the military in early 2013, as part of this deal. Here were Mr. Boehner's new talking points earlier in the week:

"Let's remember why we have the sequester. We have it for one reason: because the President of the United States didn't want to deal with the debt limit again before the presidential election. Because the president didn't want to be inconvenienced, he came up with the sequester," he said.

Well, actually, Mr. Boehner, you have the sequester because one party would not accept any fair amount of revenue increases as part of a balanced deal to reduce the defict. These spending cuts do seem to have some real teeth and will likely result in some job losses and possible overall macroeconomic harm. But that's more of a general argument against any significant spending cuts during a time of poor economic growth, than it is an argument against these cuts specifically. Cutting safety net programs would present a similar drag on the economy. 

Keynesians would have preferred a clean debit limit increase in the winter of 2011, followed by more spending to stimulate the economy. Or if anything a balanced deal that has a significant amount of upfront stimulus spending, coupled with future deficit reduction measures, all budgeted over a 10-year window.

So in review, the GOP held the country hostage last summer for months over the Debt Ceiling increase, making an unprecedented demand for a significant deficit reduction plan as a prerequisite for any deal to raise the debt limit. Then they negotiated a deal to raise the debt limit in exchange for an unspecified future plan to reduce the deficit. Then when no agreement could be reached on this future plan, automatic across-the-board spending cuts became the law.

Last summer we were reminded how bad things were when the leaders representing one of the two major parties no longer had the power nor the courage to negotiate budget deals without first consulting the Tea Party, Grover Norquist, and Rush Limbaugh. And things are even worse when the same party leaders now seem unwilling to follow through on deals they voted into law.


How can you run a government effectively when one of the two major parties can no longer be taken seriously when it comes to following through on agreements they passed into law? The GOP were exposed as fiscal frauds when it comes to the deficit years ago. Now they are being exposed as frauds in general. And this is just yet another example of them living up to the "worst Congress in history" label given to them recently by Ezra Klein.