The super committee fails so let’s go on a spending spree

November 23, 2011

The super committee has predictably failed – maybe there was green kryptonite hidden in its meeting room. Months of nearly round-the-clock debate about reigning in the national debt, conducted at the highest levels of government, come to a close with nothing done about the problem. This is the essence of contemporary Washington: lots of empty talk, interest groups appeased, all difficult decisions indefinitely tabled and the national interest ignored.

What comes next? Most likely, Congress will make the national debt even worse.

Republicans want to extend the George W. Bush top-rate tax cuts. Democrats want to extend the Barack Obama payroll tax cut, and enact yet another bonus extension of unemployment benefits. One or all may happen by Christmas as both parties switch to full-blown pandering mode.

If the costs in the December 2010 stimulus bill are any guide, a package of extended tax cuts for the well-off, payroll tax cuts for everyone and bonus payments to the unemployed will add around $700 billion to the national debt.

Bear in mind, last December’s stimulus bill (the third, following a 2008 stimulus under Bush and a 2009 stimulus under Obama) entailed $860 billion in borrowing. If another $700 billion or so is borrowed for lead items on the parties’ wish lists, during the very 12 months that Washington has refused to take action to reduce the national debt by $1.2 trillion over many years, an extra $1.5 trillion will be added to the debt in the here and now.

If tax-cut and unemployment-benefit extensions pass, Congress will already have spent every penny of the $1.2 trillion the deficit commission was supposed to save. Though no money has actually been saved yet – the “mandatory” spending reductions triggered by super committee inaction don’t start until 2013, which leaves plenty of time for Congress to cancel them.

As Oprah viewers know, when people finally toss out the clutter from their closets, often the next step is a wild shopping spree. In the case of Congress, the shopping spree looms without the first step of throwing stuff away.

But don’t we need income tax cuts to spur the economy? The entire Great Recession has happened with federal taxes at post-war lows. Bush’s income tax reductions were enacted in 2001 and 2003, and then extended in 2010. If income tax cuts haven’t fixed the economy in many years of use, it’s extremely unlikely that they will magically acquire the power to do so in 2012.

Don’t we need an extended payroll tax cuts to spur demand? A year of payroll tax  holiday has led to only a modest increase in the GDP.

Doesn’t high unemployment mean benefits must be extended? The jobless rate is the number one issue in the economy. But as Lawrence Summers argued before his stint in the Obama White House, unemployment benefits can make the jobless rate worse by encouraging people to pass on entry-level employment. Unemployment benefits are hardly lavish. So if they pay about the same for doing nothing as an entry-level wage, why bother to work?

Through unemployment premiums deducted from their paychecks, most Americans funded about half a year of coverage. Now, most who lost jobs have received two years of coverage, courtesy of the national debt, and the president proposes a third year of coverage, also funded by borrowing. Rather than pay people for doing nothing, any benefits extension should require community-service hours.

Beyond looming demands for more tax cuts and benefits, Medicare payments to physicians are scheduled to decline by 27 percent in January. The financing of Obama’s health care package is predicated on enormous Medicare savings down the road, so a Medicare payment cut in January sounds like good news. But there’s already a move afoot to cancel the cut.

For nine consecutive years, Congress has cancelled scheduled Medicare payment cuts to physicians, who constitute one of the country’s best-funded lobbies. Mere weeks after the 2010 enactment of his health care plan, which promised unspecified big spending cuts, President Obama asked Congress to cancel the only scheduled Medicare spending cut, saying  “we cannot allow this to happen.”

It’s true that the Medicare physician fee structure needs fundamental reform. For about two decades, Medicare has paid hospitals per-patient flat fees called DRGs, rather than paying per procedure, as with doctors. Peter Orszag, Obama’s first budget director, notes this approach has contained taxpayer costs at hospitals. Something similar might work for physicians.

But when Washington forecasts dramatic health care cost cuts in the future, while repeatedly cancelling health care cost cuts in the present, this makes concern about the national debt seem like a big joke. That, in turn, emboldens interest groups to reach into the cookie jar.

Some commentators contend that more borrow-and-spend will repair the economy. Perhaps. Your columnist believes reckless borrowing has become a core reason the economy and job creation remain cool.

Political leaders of both parties seem determined to push the nation off a fiscal cliff. That leads to pessimism about the country’s future, which discourages investment and job creation. Why hire if the country’s leaders are acting irresponsibly?

With the failure of the super committee, Americans ought to feel dismayed by yet another  indication that leaders of both parties are more concerned about their own temperature than that of the nation’s.

Photo: Mineral curator Mike Romsey holds a newly classified mineral, to be named Jadarite, at the Natural History Museum in central London April 25, 2007. A mineral found by geologists in Serbia shares virtually the same chemical composition as the fictional kryptonite from outer space, used by the superhero’s nemesis Lex Luthor to weaken him in the film “Superman Returns”. REUTERS/Toby Melville

21 comments

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If form holds then yes we will be keeping taxes low and spending high. Part of me wants to believe that the country is ready for a politician who goes against that though. One who says that I would love to spend X on that, but WE DON’T HAVE THE MONEY and it isn’t ethical for us to borrow it from future generations who have no vote on it.

$15 trillion is an insane amount of money. That kind of debt is a drain on society. I recently saw a piece where it said that you could pave a sidewalk from here to the Sun with 15 trillion dollar bills. A normal sized sidewalk. Lay them flat and you could build a tower to the moon with them.

Balancing the budget and paying off the debt won’t be easy. Though I think if we were doing that that people would be much more optimistic. That kind of optimism would ultimately lead to growth. According to polling most are against tax increases because they believe that the government will simply use it to raise spending even more. That kind of negative thinking effects and economy to. With a $15 trillion debt and with all projections showing that debt to continue to increase it isn’t like that thinking isn’t justified.

Posted by AustinG | Report as abusive

Reading this, along with many of your other articles, leaves me begging the question, What can we do about it? I do indeed get dismayed by the current state of affairs, but I suspect, like most Americans, I don’t see any alternative. Throwing out all the congress persons (who are doing a terrible job) doesn’t work because they will be replaced by the same. Not to mention the fact that even though they are doing a terrible job (9% approval rating), the majority of the incumbents in the upcoming major election cycle will be voted back in. It’s depressing, to say the least, but the majority of America doesn’t care enough to do anything about it. And the ones that do care, have no clue what can be done about it.

Posted by canes816 | Report as abusive

In the face of the worst unemployment crisis we’ve had since the Great Depression, you want to raise taxes and cut spending, just like Herbert Hoover! You’re a genius Mr. Easterbrook. A certifiable GENIUS!!!!!!!!!

Posted by Sprizouse | Report as abusive

Bravo Gregg! Your words are filled with common sense, such a rare thing in this hyper-politicized climate. No problem is so complex that it can’t be boiled down to basics.

Increase revenues, reduce spending, and over time we’ll be fine. And no we won’t have to throw orphans and widows to the wolves and yes we’ll still be able to help those who truly need help.

And to Mr Sprizhouse, check your history. Hoover set the end game up for Roosevelt and although a scapegoat for American ire of the time, he was indeed a brilliant man.

Posted by CaptnCrunch | Report as abusive

Thanks CaptnCrunch for making me double-check my history. After quadruple-checking, it seems that wingnut lies are still wingnut lies. Here’s Herbert Hoover’s Budget Message for Fiscal Year 1932 (July 1, 1931-June 30, 19320:

This is not a time when we can afford to embark upon any new or enlarged ventures of Government. It will tax our every resource to expand in directions providing employment during the next few months upon already authorized projects. I realize that, naturally, there will be before the Congress this session many legislative matters involving additions to our estimated expenditures for 1932, and the plea of unemployment will be advanced as reasons for many new ventures, but no reasonable view of the outlook warrants such pleas as apply to expenditures in the 1932 Budget. I have full faith that in acting upon these matters the Congress will give due consideration to our financial outlook. I am satisfied that in the absence of further legislation imposing any considerable burden upon our 1932 finances we can close that year with a balanced Budget. When we stop to consider that we are progressively amortizing our public debt, and that a balanced Budget is being presented for 1932, even after drastic writing down of expected revenue, I believe it will be agreed that our Government finances are in a sound condition…

And here’s Herbert Hoover’s Budget Message for Fiscal Year 1931 (July 1, 1930-June 30, 1931):

[E]stimates of appropriations payable from the Treasury in this Budget is $145,696,000 less than the appropriations for 1930. The estimates in the Budget, however, contain no amount for the revolving loan fund for the Federal Farm Board, for which $150,000,000 is included in the appropriations for 1930…. Eliminating this item from the 1930 total the estimates of appropriations in the Budget for 1931 exceed the appropriations for 1930 by $4,304,000…. Through nonrecurring items and justified reductions in other items funds have been found to make increases in certain of our activities without enlarging to any appreciable extent the total of the estimates for 1931 over the appropriations for 1930…

I don’t see Hoover “setting the end game” up for Roosevelt’s massive government spending ANYWHERE in there, do you? As always, this is a wingnut attempt at revisionist history. But it’s wrong. Hoover did EXACTLY what Easterbrook is advocating… he raised taxes and cut spending, which is the WRONG thing to do in a recession. But, thankfully, he was voted out of office and FDR came in and FIXED everything he did wrong.

Thanks for playing CaptnCrunch. Thanks for playing.

Posted by Sprizouse | Report as abusive

You said: “Rather than pay people for doing nothing, any benefits extension should require community-service hours.”

BRAVO! I can hear the chorus of “Oh No”s from recipients “on the dole” these last two years, but why should Taxpayer money NOT buy something in the way of “services rendered”?

The usual answer is that “Oh, you’ll put highway workers out on the street whose job it is to pick up the trash, etc.”. Well, those highway jobs are union wage plums the people can’t afford and should not be “on the hook” for.

To take this further, our County uses the labor of skilled and semi-skilled inmates that must be fed and housed anyway to do various improvements and other suitable tasks locally. It’s a “win-win”, since the inmates are tickled to death to have the opportunity to work “outside” and it probably cuts down the number that return to prison later.

Our government should learn from the Mormons…a fund to help the needy to get through life’s rough spots is “good”. But requiring each to buy back their dignity by paying back the “help” loaned so it is there for the next needy person is equally “good” in that dependency is not allowed or encouraged.

The very idea of “government money” is a sham. It’s ALL “taxpayer money” today, tomorrow and forever. Anything the government gives it must first take from someone, inflationary dollars printed without backing excepted).

At some point in time our leaders must wake up to the fact that America can no longer AFFORD to force non-union taxpayers to pay the union wage “premium”, or “surcharge”, on all construction and maintenance of this nation’s public roads and other infrastructure. Existing requirements to do so are blatantly unconstitutional and the associated transfer of money (from less advantaged non-union workers to the more advantaged that comprise organized labor) morally and economically reprehensible.

Posted by OneOfTheSheep | Report as abusive

Ron Paul has been advocating what this author presents as new thinking. Vote for Ron Paul

Posted by LouVignates | Report as abusive

Here’s a thought…quit quoting history (while there are some similarities that are also several differences). What can we do about? Vote every incumbent out of office in 2012. And keep voting incumbents out if they are failing as miserably as this group until politicians GET IT. Their job security is based on GOOD performance that benefits everyone. Next, every American needs to get their own house in order. Don’t count on government for retirement (social security) or your health care (Medicare)… ..save up for that rainy day.

Posted by xyz2055 | Report as abusive

@OneOfTheSheep:

> “Our government should learn from the Mormons…a fund to help the needy to get through life’s rough spots is “good”. But requiring each to buy back their dignity by paying back the “help” loaned so it is there for the next needy person is equally “good” in that dependency is not allowed or encouraged.”

It’s worth taking a look at what the Mormons are doing right (or, what The Church of Jesus Christ of Latter-Day Saints is doing right) – the benefits of their programs be no more obvious than when looking at the contrast between Utah’s financial & business affairs, and those of most of the rest of the United States. Mormons regularly vote for legislators and executives who have the courage to balance the books, and Mormon legislators follow these principles as well. Utah and nearby states with a high density of Mormon population are well known as having excellent an social welfare and business culture. How do they do it?

As a “Mormon” myself, I must clarify a few minor points of error in your description of Mormon welfare:
* Mormon bishops (lay preachers leading each congregation) are responsible for disbursing welfare, and identifying those in need.
* The “Mormon” church has a well-defined and documented set of principles for disbursing welfare.
* The main principle of the Mormon welfare system is helping people to maintain personal dignity by attaining and maintaining self-reliance. In accordance with this principle, welfare recipients are typically required to exhaust personal and family support options before bishops will disburse any of the funds entrusted by faithful donors, and faithful church members are encouraged to maintain a “rainy day” fund and food storage to prepare for times of need.
* Mormon welfare does not involve “loans”. Welfare is disbursed without any expectation of repayment. Loans are contrary to Mormon welfare principles because they can often threaten a person’s long-term self-reliance (compromising the key objective of Mormon welfare).
* Often, instead of directly disbursing money, Mormon bishops temporarily cover key living expenses of the person in need.
* Alongside assistance with key living expenses, referrals may be made (with the welfare recipient’s advance permission) to debt counselling, addiction recovery or employment resource services, or to other services where appropriate (whether those services are provided by LDS volunteers or by outside professionals).
* All faithful members of the LDS church who are physically capable of doing so (excluding pregnant women and small children, for example), fast for two meals once per month, and donate the money saved by fasting to the welfare funds of the church (as a recommended minimum donation, or more if desired). It is these funds that primarily support the Mormon welfare system, and as an added bonus, the practice of fasting regularly reacquaints church members with the perspective of those in need, infusing them with a truer sense of empathy. (Spiritual benefits are promised too.)
* 100% of the funds donated as “fast offerings” are used for welfare and charitable purposes. All administration expenses are fully covered by other church finances (tithing).

Loans don’t come into it. As far as I’m aware, Mormon bishops may refer welfare recipients to programs of charitable involvement, as part of their private discussion with the needy person or family; but they will normally be careful to explain that this practice is more for maintaining a welfare recipient’s sense of dignity and self-reliance than for any requirement to “pay back” the support: no pay-pack is expected.

Sorry if this is too much information!

Posted by matthewslyman | Report as abusive

The Mormon welfare system is established to serve church members and non-members alike, so if anyone out there is at the end of their tether and out of options, they might want to pay a visit to a Mormon church, or otherwise try the charity of their other Christian brothers and sisters.

One thing I find personally about fasting is that it somehow reminds me of the differences between “need” and “greed” – it somehow brings those differences into sharper focus. My family is living on a low budget, but we’re presently debt-free: I think it’s largely thanks to fasting. Living within our means has benefits too: it sharpens my ambition to improve our circumstances, and makes the benefits of doing so, far more obvious and immediate.

Posted by matthewslyman | Report as abusive

@AustinG (Comment #1) : Excellent perspectives.

Posted by matthewslyman | Report as abusive

Please don’t just repeat inaccurate talking points about the job market. There are about 4X (or more, look it up, or have one of your many Beltway connections task one of their paid interns with the research) job seekers per job opening, and thousands cannot find work even after exhausting unemployment benefits. The proportion of the unemployed who qualify for unemployment benefits is dropping (workers losing jobs before they accrue enough credit to qualify for benefits, plus accumulation of years of the young, never continuously employed). The output of the economy is NOT constrained by unavailability of labor. And I doubt you really want to propose policies to affect which of the many available workers get the scarce job openings. Limiting unemployment benefits reduces the safety net support payments to the unemployed population – it has no other likely effects on the economy – it will certainly not increase employment or output. If you want to go deep in the weeds of rational expectations models, it gets more complicated, but still no clear economic benefit, unless you cherry-pick which of many plausible expectations to believe.

Clearly you (and Lawrence Summers) just don’t know enough people who are struggling to find work, or you would not be so glib and inaccurate.

When it comes to extending unemployment benefits, you don’t appear to have cared enough to even be factually accurate. The maximum unemployment benefit duration has never been two years (104 weeks) but rather 99 weeks. And unless things have changed recently, the currently pending issue is not about extending beyond 99 weeks, but rather whether to let the temporary extension to 99 weeks lapse. So there is no issue about anyone getting 2 years of benefits, much less 3. Who’s propaganda are you repeating? Questioning the veracity of partisan sources would be called “due diligence.”

In fairness, you ought to acknowledge the Keynesian point of view, which would argue that the problem is not stimulative spending and tax policies now, but the difficulty in achieving effective commitments to restrain deficits once the recession is over. The likelihood that the Keynesian stimulus will at least partially pay for itself in quicker increases in taxable growth is at least as great as that of the similar claims of the “supply-side” tax and spending cutters drafting the House budget.

Lastly, as a matter of clarity, it would be better if you separately addressed the two upcoming tax issues: a temporary extension of the payroll tax holiday, and a complete or partial extension of the Bush tax cuts. The distinctions are politically and economically relevant. By not distinguishing between the Democrats’ clearly temporary agenda for payroll tax abatement (and extended benefits) from the Republicans’ immediate and permanent agenda for maintaining the (initially time-limited) income tax cuts, you create a false equivalency. Failing to note that a couple years of payroll tax holiday and extended benefits has much less fiscal impact than long-term extension of historically low income tax rates at the high end is in itself an abdication of fiscal responsibility in punditry. Or do you really believe that when unemployment gets back down to 5% the majority of Democrats will still be voting to extend unemployment benefits and reduce contributions to the Social Security Trust Fund? (If so, please explain why? It would be a major change from Democratic policy to date.)

In short, whatever thought and sentience you may have put into your comments about the overall inability of our political system to make difficult fiscal choices, you seriously undermine your credibility and objectivity by constructing your labor market analysis (in particular) from inaccurate and one-sided talking points. The conservative business and economic community have enough paid and acknowledged stenographers. Augmenting their propaganda for free only makes the possibility of a sane body politic less achievable.

Oh, and it’s “reining in” not “reigning in” – but then I only noticed that on my third reading.

Posted by dpavelchek | Report as abusive

Why is it that every commentary on the US budget deficit ignores the $1 trillion per year we spend on these wars? They do not help the USA at all and are not supported by the population, yet cutting them is not even discussed.

Do you need any other information to know that the USA is not a representative government with free and open elections?

Posted by txgadfly | Report as abusive

@matthewslyman,

My apologies. When I said “But requiring each to buy back their dignity by paying back the ‘help’ loaned so it is there for the next needy person is equally ‘good’ in that dependency is not allowed or encouraged” it was in the aspirational sense.

I tried to compliment this function of “The Church of Jesus Christ of Latter-Day Saints”…no disrespect was intended. The information you provided was most interesting and enjoyed.

While I am not a theist, I, too, believe in attaining and maintaining self-reliance as essential to personal dignity. To such end, I, too, maintain “rainy day” funds and store food. I extrapolated and tracked what we use over a six month period as the Swine Flu epidemic arose. Better late than never.

My wife and I have, in the overall, lived within our means as we approach 48 years of happy marriage. So you and I have some core beliefs in common, even if differently motivated.

Posted by OneOfTheSheep | Report as abusive

“Your columnist believes reckless borrowing has become a core reason the economy and job creation remain cool.”

Why? I see this claim all the time presented as axiomatic and never with any sort of explanation for the mechanism by which it is supposedly true. Now, the traditional sense in which this sort of claim is understood is that excessive borrowing by the government raises the government’s cost of borrowing, which in turn raises the cost of borrowing for private sector entities. But that’s obviously not the case! Interest rates on treasuries are at near-historic lows and show no signs of rising, especially given the catastrophe that is the Eurozone. Given that that is the case, what exactly about government borrowing is supposedly stifling the economy?

Posted by dyrnych | Report as abusive

@Gregg Easterbrook: Intriguing link… I will examine that later. (I have a suspicion the U.S. government’s perspective is slightly more complex than @txgadfly suggests. War is certainly wasteful though!)

@OnOfTheSheep: No apologies necessary; I understood your intention. Just a slight factual error and point of clarification.
I just remembered that the “Mormon” church does actually do something (separate from their welfare program) that resembles loans (a subsidised program, with low-interest or no-interest for loan beneficiaries). They have a program for supporting education in 3rd-world countries with poor social mobility and poor access to such loans (education is one of the few things the “Mormons” approve of borrowing for)… This program is called the Perpetual Education Fund. Details here for anyone interested:

http://pef.lds.org/

http://en.wikipedia.org/wiki/Perpetual_E ducation_Fund

Posted by matthewslyman | Report as abusive

Reagan’s Supply Side policy was enacted to address Johnson’s Demand Side policy. At present, the tug of war is between both policies. Why not a third option … a pragmatic policy drawing from the strengths of both and adding sanity for good measure.

Posted by SanPa | Report as abusive

The budgets for Medicare , unemployment benefits and welfare seem to draw the attention and the ire of most Americans.My solution is to turn them into national security issues (which they are), incorporate them into the defence budget and the needy in America will have nothing to worry about, provided you find a way to ensure the top 1% get their cut.To make this possible, America will have to quit playing the imperial power game and transfer all the money saved to look after its own people.

Posted by Biscayne | Report as abusive

Medicare, unemployment benefits, and welfare are national security issues? We actually spend more on those types of programs every year than we do on defense(not that there isn’t waste in both btw). It is the government’s job to make sure that people aren’t poor by taking money from those who are productive and giving it to those that aren’t? It is national suicide if that is taken too far. You can argue for it being humane, but that is only in the short term. People don’t need the government to “look after them” in that way.

One of our biggest problems today is that too many people are looking to government to get us out of our problems. Too many people are declared disabled and given money for simply existing. I have a cousin who was born without the use of his legs and yet he has a job and a wife. This while I run into people in my day to day life that say they are on disability when nothing is visibly wrong with them. The money that pays for them doesn’t fall from the sky. They are drains on society when there is certainly something that they could do that would have a value to it.

Posted by AustinG | Report as abusive

Spriz,

Apparently you didn’t check that history good enough. According to the WH budget website government spending dramatically increased from 1931-1932 while revenues tumbled. Revenue in ’32 was 60% of what it was in ’31 while spending was 130%. So under what definition was that raising taxes and decreasing spending? FDR did that in the late thirties. Though there was much more in terms of increased taxes than decreased spending.

Almost a decade after Hoover FDR’s spending policies had done nothing to fix the economy. Don’t take my word for it though here is a quote from his Treasury Secretary Henry Morgenthau Jr.

“I say after eight years of this Administration we have just as much unemployment as when we started. … And an enormous debt to boot!”

Posted by AustinG | Report as abusive