Posts Tagged ‘ spending ’

Where Americans Can Cut Back

Tuesday, August 9th, 2011
Michael Mandel


Michael Mandel is the chief economic strategist at the Progressive Policy Institute and the founder of Visible Economy LLC, a New York-based news and education company.

by Michael Mandel

Dollar billWhere can Americans cut back if the economy slips back into recession again?  After all the talk about the “new frugality” and the deepest recession in 75 years, it might seem like households have tightened their belts as much as possible.

Surprisingly, however,  the economic figures show several key areas where Americans have actually increased consumption compared to 2006, the year when housing prices peaked.  Judge for yourself whether we can cut back more or not.   (Note: all consumption changes are measured in inflation-adjusted 2005 dollars, comparing the 2nd quarter of 2011 with the second quarter of 2006)

1. Clothing — Consumption: + 8.9% since 2006

Despite the economic weakness,  Americans spent on clothing at an almost $350 billon annual rate in the second quarter of 2011. Nothing seems to stop the waves of inexpensive shirts, dresses, and coats  coming from overseas.  Clothing imports from China, especially, are up 37 percent since 2006, and Americans are snapping them up.  Perhaps we could buy a a few less t-shirts with funny sayings on them?

2. Personal care products — Consumption: +14.4% since 2006

We like to look our best, even in a recession. Perfume, makeup, shampoo,  shaving cream and razors, body gels–Americans spend about $100 billion a year on these personal care items.  Not only that, we’re spending more on imported cosmetics,  which are up 26 percent since 2006.  Are all those goos and gels  really necessary?

3. Televisions — Consumption: +287.4% since 2006

No, that’s not a misprint.  The government adjusts for the size of the television, among other things, and the average size screen has soared since 2006.   If we don’t adjust for size and other variables,  Americans are spending 12.7% more on televisions today compared to 2006.  Total personal consumption outlays on televisions, according to the BEA: About $40 billion, pretty much all imported.  Do you really need an even bigger TV?

4. Alcoholic Beverages (off-premises) — Consumption: +10.7% since 2006

Perhaps it’s not surprising that Americans need an extra drink these days. Still, the total home spending on alcoholic beverages is about $110 billion, at annual rates, according to the Bureau of Economic Analysis. A few less glasses might put a few extra dollars in the pocket.

Remember, all these figures apply to Americans in the aggregate. Those people who have been out of work for months or years don’t have room to cut back at all.

And remember–when journalists write that “consumer spending is 70 percent of economic activity,” they are completely wrong. What the U.S. economy needs is more production, not more consumption–and in a globalized economy, the two are not synonymous at all. And that, my friends, will be the subject of tomorrow’s post.

Photo credit: iChaz.

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Evening Fix

Thursday, February 24th, 2011
Lee Drutman


Lee Drutman is a senior fellow and the managing editor for the Progressive Policy Institute.

by Lee Drutman

Our top five reads of the day:

  • Ruy Teixera finds strong public support for infrastructure spending: “It’s no secret that our country’s infrastructure is in urgent need of repair and serious modernization. Conservatives, in their mania for cutting government spending, have lost whatever little interest they once had in addressing this problem. But the public hasn’t.”
  • Thomas Carothers thinks Republicans should see foreign aid as a great value for their buck: “As House Republicans press for deeper budget cuts, one of their top targets is foreign aid. It is a tempting candidate for draconian cuts—a soft priority in today’s hard fiscal times and a budget line with no strong domestic constituency. Before Republican budget hawks wield their knife, however, they should take a lesson from their conservative cousins in the United Kingdom: When belt-tightening gets serious, foreign aid should be improved, not gutted.”
  • Tucker Willsie ponders how government can promote innovation: “A significantly more nuanced debate than ‘cut or invest’ is necessary to arrive at the best policies for stimulating innovation. Certain government interventions have been more successful than others. Government determination and funding was essential in creating the Internet, and there are clear instances of government intervention overcoming market failures such as when AT&T refused to build the initial infrastructure to demonstrate the internet technology – the task was instead taken on by the state-run British Post Office.”
  • Andrew Rotherham offers a five-point education reform plan: “So forget the theatrics in Wisconsin, reform doesn’t have to mean abolishing collective bargaining. But, if we’re serious about having school systems that put student learning first and creating a genuine profession for teachers here are five common practices that must change.”
  • John Avlon chronicles the apocalyptic politics in Wisconsin. “The Wisconsin protests are proving that the era of unhinged politics is not over. If anything, the hyperpartisan hysteria seems to be catching, with Democratic lawmakers in Indiana running for the hills while a new round of union protests swamps the statehouse in Ohio.”

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Obama and the Independents: Round Two

Thursday, November 18th, 2010
Lee Drutman


Lee Drutman is a senior fellow and the managing editor for the Progressive Policy Institute.

by Lee Drutman

The debate about how Obama can win back Independents continues, and in my mind the big question is this: other than hoping that the economy starts recovering, is there anything Obama and the Democrats can do to win back the true swing voters among the Independents?

Over at The Monkey Cage, John Sides is skeptical that anything other than economic conditions will make a reliable difference:

Here is the bottom line. Voters don’t want style. They want results. Even independents.

Indeed, as Sides shows, the data are pretty clear that “Pure Independents” (the 10-15 percent of the electorate who are truly independent, and not closet partisans) are highly responsive to economic conditions. When the economy is doing poorly, their voting strategy is solidly of the “throw the bums out” variety.

John Judis makes a similar point in The New Republic:

Yes, Obama does have to pay attention to those white working-class voters who shift uneasily from one party to the other, but the way to win them over is to get them jobs—and if that fails because of Republican obstructionism, to make sure that these voters blame the Republicans not the Democrats and his administration for the result. If he can’t do that, his only recourse may be to get on his knees and pray that unbeknownst to most voters and many economists, a strong and buoyant recovery is about to begin.

But new polling from Third Way provides a counter-point, suggesting that it may not be just economic conditions driving the Independents’ swing:

The economy was not the only reason that switchers opted for a Republican candidate this year. For one thing, switchers are solidly middle class (median income range: $50,000-$75,000) and have a fairly positive view of their own personal circumstances—personal impacts from the downturn did not seem to be a driving force behind their votes. 82% of switchers, for example, rate their personal economic circumstances as “excellent” or “good” and 71% say they have suffered no major personal impacts from the recession.

The Third Way poll finds that “switchers” were concerned about the size and scope of government, are “cautious capitalists,” and have genuine concerns about spending and deficits.

Other polling, which I’ve detailed in an earlier post, suggests that Independents are also interested in moderation and compromise:

By a 63-26 margin, Independents want Democrats to move to the center, and by a 50-40 margin, they want Republicans to move to the center. By a 61-32 margin, they agree that “Governing is about compromise” more than “leadership is about taking principled stands.” That puts them a little closer to Democrats (who lean towards compromise 73-21, than Republicans, who are split 46-46 on the question.)

Clearly, the economy is going to be the most important factor in winning back the true independents, and in this I completely agree with Sides and Judis. But the problem remains that there is only so much Obama can do to change the economic fundamentals.

At this week’s PPI forum on “The Restless Independents,” Bill Galston suggested that Obama’s best strategy was to publicly offer an outstretched hand. If the Republicans accept, Obama will look like the post-partisan leader many swing voters hoped he would be; if Republicans spurn him, Obama will still look like the bigger man. I think Galston is mostly right.

But the two obvious challenges with such a pose are that 1) it’s unclear whether there is any realistic compromise Obama can have with Republicans and if he’ll just look pathetic trying; and 2) it’s unclear whether the economic conditions will always trump any perceived moderation, and if so, why bother to compromise when Republicans are clearly in no mood to do so?

My current thinking is that, yes, clearly, economic conditions matter a great deal. If the economy recovers solidly, Obama will be a two-term president. But it’s not the ONLY thing that matters. My guess is that there are at least a few persuadable voters who can be won on some mix of substance and policy, and if recovery is ambiguous (as it’s likely to be) something else might make the difference in 2012. So it’s worth trying to figure out what makes them tick.

I’m increasingly inclined to think that the Democrats would be smart to come up about some wedge issues where they could split the Republican caucus and draw out the crazies who will scare moderate swing voters into voting Democrat again, all while pursuing solid progressive issues that the American public supports and on which Independents look a lot like Democrats. I’m thinking here about issues like immigration reform (supported by 61 percent of Independents), and “Don’t Ask, Don’t Tell.”  which is also supported by a majority. Independents tend to look a lot like Democrats on the social issues, and the Republican leaners among Independents tend to be more libertarian than your typical Republican. If the nativist, fundamentalist voices dominate the public image of Republican Party, that’s going to be very good for Democrats.

So, yes, if the economy recovers, Obama will win in 2012. But that’s far from a guarantee at this point. For my money, it’s also good to have a Plan B.

Photo credit: oaphoto

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Economy is the Problem, Not Obama

Tuesday, November 2nd, 2010
Will Marshall


Will Marshall is the president of the Progressive Policy Institute.

by Will Marshall

The punditocracy apparently cannot resist the tendency to personalize political trends and developments.  It has turned the midterm election into a political melodrama starring Barack Obama as the redeemer-President who inspired such soaring hopes in 2008, yet unaccountably failed to transform America in his first two years.

The saga of Obama agonistes may be more interesting, but public angst about the economy is what is really driving today’s election.

Sure, the president’s approval ratings are down (though not as low as Ronald Reagan’s or Bill Clinton’s at the same juncture). The public believes that the administration’s policies have failed to revive the economy, even while plunging the nation deeper in debt and, in the case of health care, expanding government’s reach.

But if unemployment were, at say, seven percent and trending downward, voters probably would see things in a more optimistic light. What’s oppressing the electorate is not the specter of big government, it’s the hangover from the 2007-2009 economic crisis, the worst to hit America since the Great Depression.

It’s not just lingering unemployment (9.6 percent). Americans lost roughly $11 trillion in net worth in those years, including about $4 trillion in home equity.  Though stock prices rebounded somewhat, foreclosures continue apace and sales of new homes are at a 50-year low. Hammered by this “negative wealth effect,” U.S. households are shedding debt instead of spending, which depresses economic demand.

Our big banks still carry hundreds of billions of troubled loans on their books, and small businesses still have difficulty getting loans. U.S. businesses are keeping payrolls lean to cut costs, while sitting on nearly $2 trillion in retained earnings.

The federal government, meanwhile, seems to have exhausted the usual countercyclical remedies. With the national debt swelling rapidly, there’s little appetite in Washington for another dollop of stimulative spending (and will be even less if Republicans take over the House). The Federal Reserve says it’s ready for another round of “quantitative easing” – aka, printing money – but interest rates are already near zero.

The truth is, an economic downturn triggered by a financial crisis is much deeper and prolonged than an ordinary recession. No wonder voters are in a sour mood. They are lashing out at the party in power because the real culprits – the Republicans who were asleep at the switch as the housing and financial bubbles formed – aren’t around anymore to catch the blame. That’s not fair, but politics seldom is.

And while conventional wisdom pillories Obama for pushing health care or financial regulatory reform rather than spending every waking hour focusing obsessively on jobs, it’s not clear that would have made much of a difference.

The supposedly awesome powers of the presidency don’t include any magic levers for creating private sector jobs or dramatically speeding up recovery.  In 1982, unemployment was even higher – 10.4 percent – on Election Day. Rather than promise instant relief, Reagan said the pain was necessary to wring inflation out of the economy and lay a stronger foundation for future growth.  He urged Americans to “stay the course” and ride out the downturn.  Republicans lost 26 House seats that year, but the economy eventually sprang back to life and propelled Reagan to a thumping reelection.

So Obama is right to stay calm, rather than running around the country trying to do something that doesn’t come naturally to him – emoting and feeling peoples’ pain. Instead, he should be crafting a new and more compelling economic narrative focused on unleashing American entrepreneurship and innovation.  Forget Paul Krugman; Obama’s challenge is not to press for more stimulus or whine about economic inequality or posture as an anti-business populist, it’s to propose structural changes that will assure a broader, more robust economic recovery. These include an infrastructure bank, a new clean energy roadmap, pro-growth regulatory and tax reform (including corporate taxes), and a credible plan to restore fiscal stability once the economy regains strength.

Such a plan also is the best way to assure Democrats’ political recovery from the drubbing they will take today.

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Gates and Fiscal Responsibility (Again)

Thursday, May 13th, 2010
Jim Arkedis


Jim Arkedis is the director of PPI's National Security Project.

by Jim Arkedis

This past weekend Secretary of Defense Bob Gates continued to talk his Kansas brand of sense about Pentagon spending. After a lecture on shipbuilding last week at the Navy League teed up tough questions to the Navy — like whether we can continue to afford $7 billion submarines — Gates took to the Eisenhower Library in his home state to expand that theme across his entire department. I’d bet you a crisp $20 bill that this is the line that caused an audible gasp in Reston and on the Hill:

The Defense Department must take a hard look at every aspect of how it is organized, staffed, and operated – indeed, every aspect of how it does business. In each instance we must ask: First, is this respectful of the American taxpayer at a time of economic and fiscal duress? And second, is this activity or arrangement the best use of limited dollars, given the pressing needs to take care of our people, win the wars we are in, and invest in the capabilities necessary to deal with the most likely and lethal future threats?

As a starting point, no real progress toward savings will be possible without reforming our budgeting practices and assumptions. Too often budgets are divied up and doled out every year as a straight line projection of what was spent the year before. Very rarely is the activity funded in these areas ever fundamentally re-examined – either in terms of quantity, type, or whether it should be conducted at all. That needs to change.

But then again, maybe the shock value has worn off — fiscal responsibility has been such a theme under Gates’ leadership that perhaps tough-minded rhetoric on defense spending now comes with little surprise.

Then Gates delved into specifics. And now it was the soldiers’, sailors’, airmen’s, and marines’ turn to get nervous:

[H]ealth-care costs are eating the Defense Department alive, rising from $19 billion a decade ago to roughly $50 billion – roughly the entire foreign affairs and assistance budget of the State Department. The premiums for TRICARE, the military health insurance program, have not risen since the program was founded more than a decade ago. Many working age military retirees – who are earning full-time salaries on top of their full military pensions – are opting for TRICARE even though they could get health coverage through their employer, with the taxpayer picking up most of the tab. In recent years the Department has attempted modest increases in premiums and co-pays to help bring costs under control, but has been met with a furious response from the Congress and veterans groups. The proposals routinely die an ignominious death on Capitol Hill.

The resistance to dealing with TRICARE stems from an admirable sentiment: to take good care of our troops, their families, and veterans – especially those who have sacrificed and suffered on the battlefield. This same sentiment motivates the Congress routinely to add an extra half percent to the pay raise that the Department requests each year. Furthermore, the all-volunteer force, which has been a brilliant success in terms of performance, is a group that is older, more likely to have spouses and children, and thus far costlier to recruit, retain, house, and care for than the Eisenhower-era military that relied on the draft of young single men to fill out its ranks.

Those are the political and demographic realities we face. To a certain extent they limit what can be saved and where. But as a matter of principle and political reality, the Department of Defense cannot go to the America’s elected representatives and ask for increases each year unless we have done everything possible to make every dollar count. Unless there is real reform in the way this department does its business and spends taxpayer dollars.

Two quick points here.

First, America’s armed personnel and their families represent an important political constituency. No administration wants the baggage that comes with reducing benefits for America’s fighting men and women. For the time being, that includes this one. If a serious restructuring of military pay and benefits ever occurs, it would likely be in about year six or seven of the Obama administration, safely after reelection.

Even then, it might prove impossible as Congress continues to feed the beast of fiscal irresponsibility. News broke just today that the Hill is about to vote on a 1.9 percent military pay raise. Guess what? That’s a half-percent more than the Pentagon recommended.

Second, in my mind, the structure of the benefits isn’t the problem. It’s the amount of care. I wrote a paper last year called “The Pentagon’s Most Expensive Weapon,” and I concluded that once you add up all outlays — including costs associated with the Department of Veterans Affairs — for military personnel, DoD spends not the $136 billion it tells you, but more than $300 billion.

Why are these costs skyrocketing? It’s a simple function of our foreign policy — America’s service members may be getting older and costlier, but since Afghanistan and Iraq, they’re also getting injured more frequently and in greater numbers.  Here’s my conclusion:

The problem of rising personnel costs can only be addressed from higher up the chain. Extended deployments overseas invariably increase costs because of the strain they place on the force — in casualties, logistics, sustainability, and recruiting and retention costs. Once the force has recovered from Iraq and Afghanistan, it is incumbent on America’s civilian leadership to carefully weigh the extended cost burden placed on the Pentagon’s personnel account when plotting our global security strategy. In short, America must choose its wars and deployments carefully, as exploding personnel costs are the untold story of Pentagon spending in 2010 and beyond.

In other words, you can talk about trimming benefits and reducing the ever illusive “waste, fraud, and abuse,” and that is no doubt a good thing. And so is eliminating unneeded weapons systems.

But if we’re going inject real savings on personnel into the system, we can’t just talk about TRICARE, we have to stop fighting dumb wars. And ultimately, that decision is above Gates’ pay grade.

Photo credit: http://www.flickr.com/photos/eschipul/ / CC BY-SA 2.0

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We Can’t Keep Borrowing to Cut Taxes

Thursday, May 6th, 2010
Jim Arkedis


Jim Arkedis is the director of PPI's National Security Project.

by Jim Arkedis

I am going to ever so slightly step out of my comfort zone to relay what I think is a brilliant policy frame for progressives in 2010 and beyond.

Fiscal hawks, like your hosts here at the PPI, have been clear about the stark choices future generations of Americans face. It’s simply not possible to have one of the lowest marginal tax rates in the world along with massive government spending on entitlements programs and defense. If the country is to emerge from the current economic crisis with its financial house in order, something has to give.

Will Marshall took a scalpel to the problem in a post a few weeks ago:

Here’s the blunt truth: the federal government faces a huge revenue hole – too big to be closed by spending cuts alone. Spending last year reached an astonishing 26 percent of national output, while revenues fell to 15 percent. Full economic recovery is expected to cut that yawning tax gap of 11 percent roughly in half.

Getting federal deficits down to a sustainable level – say three percent a year – will require both spending cuts and tax hikes. The president’s deficit-reduction commission will have to look hard at entitlement spending, but we will also need a sweeping overhaul of our tax system to solve our fiscal crisis.

Extending all the Bush tax cuts, of course, will only dig us in deeper. The Congressional Budget Office estimates that extending them through 2017 would cost $1.9 trillion. That doesn’t include the costs of servicing a bigger national debt, or the cost of adjusting the alternative minimum tax so it doesn’t offset the cuts.

So where does the national security guy get off talking about fiscal responsibility? Allow me to explain. There I was last Saturday night, sitting in a bar in Stockholm talking to two Swedes. One was my long-time buddy Eric Sundstrom, political junkie, ex-PPI fellow and current editor of the Social Democrats’ party newspaper. The other was Eric’s pal Torbjorn, who serves as a policy adviser to the Social Dems’ financial team and whose last name was erased from my memory by the time Scotch #3 rolled around.

I was complaining about America’s fiscal imbalance and national allergy to taxes, when Eric piped up and said, “It’s not just an American problem. Torbjorn concocted a brilliant message on it for Sweden, too.”

Smiling, Torbjorn looked up an uttered what could be the defining policy frame on taxes and spending for progressives this year — or any year:

“We can’t keep borrowing money to cut taxes.”

In that form, it’s brilliant in the American context. It puts Tea Partiers on notice that their tunnel vision for lower taxes is costing America dearly. But I’d make one modification to show exactly what’s at stake and where the money comes from:

“We can’t keep borrowing from China to cut taxes.”

Bill Clinton would probably agree. At the Peterson Institute last week, the former president said, “I think this is a national sovereignty issue,” noting that foreign creditors hold 48 percent of America’s debt. China alone holds more than $877 billion of U.S. debt.

So there you go, progressives — a talking point straight from Stockholm on why the right-wing obsession with cutting taxes is so irresponsible.

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Clinton Talks Deficits and Debt at Fiscal Summit

Wednesday, April 28th, 2010
Will Marshall


Will Marshall is the president of the Progressive Policy Institute.

by Will Marshall

Politicians, especially at the national level, have little credibility on matters of fiscal discipline. Bill Clinton is an exception.

As president, Clinton inherited fast-rising budget deficits that threatened to capsize an economy emerging from recession. He made deficit reduction a top priority, incurring the wrath of liberals who accused him of governing like an Eisenhower Republican. Such complaints evaporated as jobs and economic growth surged in the late 1990s, and Clinton handed his successor budget surpluses.

In an act of monumental political irresponsibility, George W. Bush promptly squandered the surplus on big tax cuts and a $1 trillion-plus Medicare prescription drug entitlement that Republicans simply added to the nation’s charge account.

So it was worth listening to Clinton speak about the fiscal challenge facing President Obama, as he did today at a big “fiscal summit” in Washington sponsored by the Peter G. Peterson Foundation.

“I think this is a national sovereignty issue,” said Clinton, noting that foreign creditors hold 48 percent of America’s debt. As that debt grows –- Clinton’s treasury secretary, Bob Rubin, cited projections that it could reach 130 percent of GDP by 2030 –- so will the influence over U.S. policy of foreign bondholders.

As America grows older, Clinton said, “delivery systems” like health care and education become rigid and society in general tends to put a premium on security. It’s no accident that the government’s biggest programs are defense, Medicare, Medicaid and Social Security. By letting this programs continue to eat up a greater share of national output, politicians put a severe squeeze on discretionary programs that invest in the well-being of children and families.

“The future always has a smaller constituency than the present,” the former president said. “We’ve got to be a tomorrow country. We can’t do it if we mortgage our future to people in other countries.”

Clinton also noted that Congress is not organized to deal with America’s fiscal crisis. Congressional committees expand programs and mint new ones; none is charged with putting America back on a sustainable fiscal course.

Since Congress also punted on forming a deficit reduction commission, President Obama has been forced to empanel his own. As it met yesterday at the White House for the first time, Obama vowed that “everything will be on the table.”

Thanks to the cost of bailing out the financial sector and mitigating a severe recession, Obama faces a bigger fiscal challenge than Clinton’s. Budget deficits are now running at about $1.3 trillion a year, a whopping nine percent of GDP. The president’s commission needs to come up with a plan for whittling deficits down to size. But it’s even more important, as Clinton argued, to attack the structural roots of exploding debts, lest America lose control of its own economic destiny.

Photo credit: http://www.flickr.com/photos/bestrated1/ / CC BY-NC-ND 2.0

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A Push Into the Abyss

Tuesday, February 23rd, 2010
Ed Kilgore


Ed Kilgore is a PPI senior fellow, as well as managing editor of The Democratic Strategist, an online forum.

by Ed Kilgore

Glenn Beck”s weird tutorial that ended this weekend’s Conservative Political Action Conference seems to have been a big hit among attendees. Yes, it’s a bit ironic that he expressed views highly similar to those of Ron Paul, whose student-driven victory in the CPAC straw poll was heavily panned and booed by the “regular” conservatives at the conference. Yes, some may have been put off by his constant use of Alcoholics Anonymous metaphors (people who need any form of government assistance are apparently just like alcoholics who haven’t “hit bottom” yet). But there really didn’t seem to be much dissent in this crowd with the idea that “progressivism” dating all the way back to Wilson and TR has been demonic, or that Republicans have to repudiate all forms of activist government if they want to get back on the paths of righteousness.

I was particularly struck by John Fund’s analysis of Beck’s appearance for the Wall Street Journal, which treated it as a constructive warning to Republicans against the temptations of governing.

It’s true that people like Beck and Paul, and most obviously the Tea Party Movement, are encouraging Republican politicians to take an ever-more-rigid position against government spending which, in combination with perpetual demands for both fiscal discipline and major new tax cuts, suggest a level of government retrenchment far beyond anything Americans have experienced since Hoover. But it’s surprising how few observers on the Right seem to be aware of the exceptionally perilous political direction of such talk.

Chris Bowers recently offered a useful summary of recent polling on specific cuts in government spending. And the bottom line is that Americans really, really don’t want them except in small categories like NASA and non-defense foreign assistance. And this is why symbolic anti-spending measures like never-to-be-enacted constitutional balanced budget amendments (Tim Pawlenty’s favorite panacea) and various “freezes” have always been so popular among GOP politicians. It’s probably poetic justice for conservatives that decades of anti-government demagoguery have convinced so many people that it would be easy to slash spending by attacking “waste” or “bureaucrats” or “welfare” or “foreign aid,” but the reality is that any serious attack on federal spending will have to include major cuts in defense; very popular domestic entitlement programs; or very popular domestic discretionary programs like public education and law enforcement.

So all the white-hot rhetoric about spending you hear from GOPers these days carries some pretty interesting implications, particularly for the bulk of Republicans who also favor a big escalation of the Afghanistan War (and perhaps a new war with Iran), and who have no prescriptions for economic growth other than still more tax cuts. I’m sure that Beck and Paul would have no problem calling for the abolition of Medicare and Social Security as they exist today, but are GOP politicians ready to follow? I don’t think so. And this is the real reason they struggle to articulate a governing agenda for 2010 and beyond.

Maybe John Fund thinks it’s good for Republicans to regularly get a kick in the pants from right-wing figures whose own views, if put to a vote, wouldn’t get support from more than a quarter of the electorate. But it looks to me more like a push into a political abyss. Maybe they can get away with fierce-but-vague rhetoric and opposition to Democratic initiatives for a while, but ultimately they will have to come right out and admit that the fiscal arithmetic of their own “thinking” would lead to a federal government more like that of the Coolidge administration (Beck’s favorite) than that of the Reagan administration. If they do, it won’t be Beck or Paul who has to pay the political price.

This item is cross-posted at The Democratic Strategist.

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A Fiscal Dr. Strangelove

Friday, February 5th, 2010
Will Marshall


Will Marshall is the president of the Progressive Policy Institute.

by Will Marshall

Paul Krugman wants Americans to stop worrying and learn how to love the bomb – the fiscal bomb that is.

Just as Dr. Strangelove in the eponymous film classic assures the president that America can survive thermonuclear war, Krugman professes blithe disregard for the impact of massive government borrowing on U.S. fiscal stability.

The public and a good many economists may beg to differ, but what do they know? Voter concern about deficits has grown salient over the past year, as Washington has spent trillions to prop up the economy. Last March, a slight majority approved of President Obama’s handling of the federal budget deficit; in January, a CNN/Opinion Research poll found that 62 percent disapprove.

Krugman dismisses such concerns as “hysteria” and puts them down to a combination of economic ignorance and Republican propaganda.

On one point, the intensely partisan Krugman is dead right: GOP credibility on fiscal discipline is shot to pieces. The Bush Republicans squandered the budget surplus President Clinton bequeathed them on tax cuts and profligate spending. In 2003, they rammed through Congress a trillion-dollar prescription drug benefit for Medicare recipients but somehow forgot to pay for it. Quite a contrast to President Obama, who took pains to insist that Congress fully offset the costs of his health reform plan – with Republicans all the while hooting inanely about “socialism” from the peanut gallery.

But on the fundamental question – whether progressives should ignore America’s huge and growing fiscal imbalances – Krugman is flat wrong. GOP hypocrisy aside, plenty of progressive economists are sounding the fiscal alarm.

Jeff Garten, for example, believes America’s ballooning national debt will lead to “the slow but inexorable decline of the U.S. dollar,” undermining a key source of U.S. prosperity and influence in the world.

In a compelling Time essay, Jeffrey Sachs argues that the mounting public debt is symptomatic of a breakdown in political responsibility in Washington that stymies the nation’s progress. Republicans won’t abandon their anti-tax fetish, Democrats won’t rein in spending, especially on fast-growing entitlements, and the result is paralysis. “Until both political parties make a serious effort to improve the performance of government while shrinking its swelling deficits, Americans will watch both their quality of life and their country’s standing in the world erode,” he maintains.

Liberals, says Sachs, are wrong to cite deficit spending during the New Deal as proof that Americans shouldn’t worry about government borrowing today. During the height of the Depression, he notes, the federal government was running deficits of around about 5 percent of GDP as opposed to 10 percent today. Back then, he notes, we financed our debts domestically. Today about half of our national debt is held by foreign creditors, especially China and Japan.

Now, Sachs is neither an economic ignoramus nor a Republican stooge. He believes, as Krugman does, that public investment is an imperative to create jobs, rebuild U.S. infrastructure, and restore shared prosperity. But unlike Krugman, he recognizes that Washington’s unwillingness to defuse the public debt bomb is relentlessly squeezing out fiscal space for such investment.

President Obama gets it too. He is trying to strike a balance between massive, short-term spending (although not massive enough for Krugman) to stimulate the economy, and the need to restore fiscal discipline over the long haul by freezing domestic spending and creating a bipartisan commission to tackle entitlement reform.

That’s not easy, and he deserves more help than he is getting from liberals like Krugman who pose a false choice between progressive reform and fiscal responsibility.

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Another Teachable Moment

Friday, February 5th, 2010
Ed Kilgore


Ed Kilgore is a PPI senior fellow, as well as managing editor of The Democratic Strategist, an online forum.

by Ed Kilgore

Sen. Richard Shelby (R-AL) has done a very irresponsible thing that nonetheless offers Democrats a classic “teachable moment” about the true fidelity of Republicans to fiscal discipline. Shelby put a hold on all presidential appointments (70 are pending at present ) until he gets his way on a couple of big projects — one involving a Shelby appropriations “earmark” — benefiting Alabama.

Some may recall that during the 2008 presidential campaign, Republicans talked as though earmarks were the primary cause of the federal government’s budget problems. And here’s one of their own gumming up the entire executive branch over one of them, while also trying to control the exact language of a federal contract on another project to steer money to his own state.

Shelby’s action could also help draw attention to the disgraceful pattern of Republican obstruction of presidential appointments, which has left dozens of federal agencies without key personnel.

“Holds” by senators are an atavistic tradition in the first place. Democrats should not let Shelby get away with the unprecedented step of a “blanket” hold, in order to shake down the administration for earmarked money, even as his party demagogues endlessly about runaway spending. Congressional Republicans should finally begin to pay a political price for their hypocrisy and cynicism on fiscal issues.

This item is cross-posted at The Democratic Strategist.

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