(This post was originally entitled the ‘Needle of Damocles’ but the very clever Chris Hayes just saw me and raised me on this point on his show this AM.)
One: The Sword that Became a Needle
Ezra Klein and I were bemoaning the current state of fiscal affairs the other night on the Lawrence O’Donnell Show and he made a point that is worth pondering for a second. The sequester was supposed to be a sword of Damocles, so damaging that even hardened obstructionists would seek compromise to avoid its terrible vengeance.
More like a nerf sword. The defense cuts were supposed to bring R’s to the table, but there are apparently enough R’s who’d rather protect high-end beneficiaries from tax loopholes than the Pentagon.
The logic of this is: then D’s should be at least OK with this outcome because even though domestic discretionary spending is taking a hit, defense is too. Here, e.g., is Howard Dean:
I’m in favor of the sequester. It is tough on things that I care about a lot, but the fact of the matter is, you are not going to get another chance to cut the defense budget in the way that it needs to be cut.
Yeah, well…a) I don’t think that’s the way it needs to be cut, i.e., it needs vertical cuts of inefficient programs and systems, not horizontal across-the-board ones, and b) now’s not the time for more cuts, as per this figure from GS researchers of the impact of contractionary fiscal policy on real GDP growth this year.
I’ve stressed the bad timing of the expiration of the payroll tax break, which is most of the black part of the bars in 2013. But according to these calculations, in Q2 and Q3 the sequester is of similar magnitude in terms of its drag on growth.
Two: You Can Never Go Back To the Well
I’ve done many mea culpas, deservedly so, for naively thinking way back during my tenure at the White House that if we needed more stimulus, we could go back to the well. And, truth be told, we did get a few more buckets of water, including unemployment insurance extensions, the afore mentioned payroll tax break, and various other measures (more state fiscal relief, the HIRE Act). But Republicans generally argued “been there done that” when it came to further Keynesian measures.
And that’s exactly what they’re saying now, of course, to the President and Congressional D’s on tax and further tax revenues. They gave at the fiscal cliff and that’s that. Why that doesn’t hold for spending—D’s gave, and gave a lot more, in terms of spending cuts back at the 2011 budget deal—go figure.
The point is that if the Obama team, which originally pressed for $1.6 trillion in revenues only to settle for about $600 billion (10-year numbers) in the cliff deal in early January of this year, was thinking, “we’ll get this much now, and more in round two when we hit the sequester,” they were making the same mistake. It would be good not to make it again.
Three: Is There Never Enough Deficit Reduction for Some People?!?
Rhetorical question…I know there isn’t. But as I was sitting in a midtown NYC bar tonight, eating dinner and prepping for the Chris Hayes Show tomorrow (8AM…check it out!), I read this and almost spilled my overpriced beer. He’s talking about what might happen if the sequester sticks, not just for this year but cutting spending by over $1 trillion over the next decade.
“This is not a result that deals with our long-term debt problem,” said Vin Weber, a Republican former congressman. “The fact we’ve gotten to a $4 trillion deficit-reduction deal without tackling entitlements is almost a bad thing,” he added, if it lulls the public and the politicians into thinking the problem is solved.
To be fair, cutting discretionary spending doesn’t deal with the central long-term fiscal challenge, which is a) pressure from health care costs, and b) the need to raise more revenue than we are now or, for that matter, more than past historical averages (for reasons I’ll write about next week). But the sequester plus the cuts and tax increases we’ve passed so far would just about stabilize the debt over the next decade, which is a fine first order goal.
And really, what’s this nonsense about lulling people into thinking the problem is solved? With respect, do you really know what people think “the problem” is? It’s not the budget deficit, it’s the jobs deficit. I’m starting to think this is just really very simple: people with jobs screaming about deficits just have a really hard time thinking about people who don’t have jobs.
Which brings me to the first annual OTE write-in contest. Write a short, one or two paragraph explanation (to comments) of this obsession with budget deficits and what it will take to put that concern—and ftr, I believe it is a legitimate, long-term concern—back in perspective. I’ll do my best to read and judge the entries.
The winner gets to host a Friday Musical Interlude!