These troubled fiscal times are characterized by a few big problems:
–too much fiscal drag from misplaced emphasis on deficit reduction in what’s still a weak recovery (with said weakness intimately related to said fiscal drag);
–cuts that are too deep in non-defense discretionary programs that invest in everything from upward mobility for disadvantage kids, to medical research, to education and worker training to needed infrastructure;
–cuts to entitlements that threaten to undermine retirement and health security for economically vulnerable elderly.
To their credit, the Obama administration released some early information on two broad ideas in their forthcoming budget, due out in the first week of March, both of which aspire to reduce the risks articulated above.
First, while their official budget numbers will fully adhere to the Murray/Ryan deal struck at the end of last year, which slightly relaxed sequestration’s cuts, the administration recognizes that even these agreed-upon spending levels are inadequate to meet the needs of the nation. As such, they’re suggesting that discretionary spending be raised for both 2015 (by $56 billion, which would bring non-defense discretionary spending back to pre-sequestration levels and help to restore much-needed funding to the critical functions noted above) and 2016. The latter year’s increase is especially necessary: since it is not covered by the Murray/Ryan budget, spending caps are scheduled to revert back to sequestration levels in 2016 and will thus become particularly tight.
The new spending they’re proposing would be offset by half new revenues and half spending cuts from the mandatory side of the budget.
Second, unlike recent budgets, this one will not include the recommendation to switch to the chained CPI. Past budgets included savings generated by this change, which would lead to slower rising benefits in programs indexed to prices, most notably Social Security (note: the administration also proposed measures that would protect low-income elderly from these cuts), and higher taxes, as nominal income growth would more quickly pass into higher tax brackets.
Prior administration budgets included this change, but did so specifically in the context of negotiations over a “Grand Bargain,” trading entitlement cuts for tax increases. Whether the chained CPI belonged in the budget in the first place is an open question (I’d say “no”), but with such negotiations far from the table, it makes sense for the administration to drop this idea.
Good news. Chained CPI was a really, really bad idea, whether part of a grand bargain or not. I understand the president’s desire to show as willingness to compromise, and sometimes the issues that enter into compromise are completely different than what constitutes an actual equitable compromise. In other words, the value of each concession to the negotiators are not necessarily related to the actual value of the concessions.
The president was very poorly advised to believe that chained CPI was a reasonable compromise. There are other ways to compromise.
We’re in an irreversible technocratic era. The historically-valid ideas about compromise are going to be repeatedly challenged. Let’s hope our leaders are technically aware enough to avoid disasters.
Agree with Dave. Chained CPI was a really, really bad idea. Good news that it’s gone. Now if only Congress (especially the House) acts reasonably to the budget proposal… I know, I know… wishful thinking.
“–cuts to entitlements that threaten to undermine retirement ”
The fed’s ZIRP is the primary destroyer of retirement.
Do you know a lot of people whose primary income is the interest on balances they hold at the Fed? There are plenty of reasonably safe investments out there that pay positive interest.
examples?
Are you familiar with any of these? These are no-load mutual funds with expense ratios less than .5, sorted by 3-year return. I would suggest that you close your account at the New York Fed and look into mutual funds. I agree that you’re never going to retire if all you’re earning is the Fed Funds Rate. Remember, diversify! [Even if you stubbornly insist on investing only with central banks, you should at least put your money in the vaults of many nations’ central banks.]
VCDAX:US Vanguard Consumer Discretionary Index Fund – Admiral 19.3668
VSEQX:US Vanguard Strategic Equity Fund – Investor 17.0030
NASDX:US Nasdaq 100 Index Fund – Direct 16.7914
VSTCX:US Vanguard Strategic Small-Cap Equity Fund – Investor 15.7713
FNCMX:US Fidelity NASDAQ Composite Index Fund 15.7314
WSMCOGR:US WTFSC Small Company Growth Portfolio – 0IM 15.6054
VTSIX:US Vanguard Tax-Managed Small-Cap Fund – Institutional 15.3434
VTMSX:US Vanguard Tax-Managed Small-Cap Fund – Admiral 15.2998
NMSCX:US Columbia Funds Series Trust – Columbia SmallCap Index Fund – Z 15.2240
PSSIX:US Principal Smallcap S&P 600 Index Fund – Institutional 15.1192
DISSX:US Dreyfus Small Cap Stock Index Fund 15.1077
PSTKX:US PIMCO StocksPLUS Fund/United States – Institutional 14.9514
FDFKX:US Fidelity Independence Fund – K 14.9261
VEXRX:US Vanguard Explorer Fund – Admiral 14.8851
FKMCX:US Fidelity Mid-Cap Stock Fund – K 14.8723
PSSPX:US Principal Smallcap S&P 600 Index Fund – R 5 14.8684
VSGIX:US Vanguard Small-Cap Growth Index Fund – Institutional 14.7494
VEXPX:US Vanguard Explorer Fund – Investor 14.7042
VISGX:US Vanguard Small-Cap Growth Index Fund – Investor 14.5527
DFMVX:US DFA Tax-Managed U.S. Marketwide Value Portfolio II 14.4277
PEXMX:US T Rowe Price Extended Equity Market Index Fund – Retail 14.3885
VIEIX:US Vanguard Extended Market Index Fund – Institutional 14.3149
VEMSX:US Vanguard Extended Market Index Fund – Signal 14.2981
VEXAX:US Vanguard Extended Market Index Fund – Admiral 14.2945
DTMMX:US DFA Tax Managed US Marketwide Value Portfolio 14.2450
DFSTX:US DFA US Small Cap Portfolio – Institutional 14.2336
FSEVX:US Fidelity Spartan Extended Market Index Fund – Fidelity Advantage 14.2050
VSCIX:US Vanguard Small-Cap Index Fund – Institutional 14.1724
FSEMX:US Fidelity Spartan Extended Market Index Fund – Investor 14.1708
FDESX:US Fidelity Advisor Diversified Stock Fund – O 14.1679
VMVIX:US Vanguard Mid-Cap Value Index Fund/Open-end fund – Investor 14.1675
VSMAX:US Vanguard Small-Cap Index Fund – Admiral 14.1559
VSISX:US Vanguard Small-Cap Index Fund – Signal 14.1550
VEXMX:US Vanguard Extended Market Index Fund – Investor 14.1379
DFUVX:US DFA US Large Cap Value Portfolio III 14.1295
DFCVX:US DFA US Large Cap Value Portfolio II 14.1006
DTMVX:US DFA Tax-Managed U.S. Targeted Value Portfolio 14.0571
NMSAX:US Columbia Funds Series Trust – Columbia SmallCap Index Fund – A 14.0343
NAESX:US Vanguard Small-Cap Index Fund – Investor 13.9961
DFLVX:US DFA US Large Cap Value Portfolio – Institutional 13.9799
VADDX:US Invesco Equally-Weighted S&P 500 Fund – Y 13.9659
DFBMX:US LWAS/DFA US High Book to Market Portfolio 13.8838
VPMSX:US Vantagepoint Mid/Small Company Index Fund – II 13.6968
SWSSX:US Schwab Small-Cap Index Fund – SELECT 13.6909
IIRMX:US ING Russell MidCap Index Portfolio – I 13.5213
VPSIX:US Vantagepoint Mid/Small Company Index Fund – I 13.4746
VINAX:US Vanguard Industrials Index Fund – Admiral 13.4690
MMCVX:US BlackRock Managed Account Series – Mid Cap Value Opportunities Portfolio 13.4495
VSIIX:US Vanguard Small-Cap Value Index Fund – Institutional 13.4392
SSMAX:US SEI Institutional Investment Trust – Small/Mid Cap Equity Fund – A 13.3272
PGMIX:US JPMorgan Market Expansion Enhanced Index Fund – Select 13.2966
VMCIX:US Vanguard Mid-Cap Index Fund – Institutional 13.2919
TRPWX:US TIAA-CREF Mid-Cap Growth Fund – Institutional 13.2682
VIMAX:US Vanguard Mid-Cap Index Fund – Admiral 13.2647
VMISX:US Vanguard Mid-Cap Index Fund – Signal 13.2617
VISVX:US Vanguard Small-Cap Value Index Fund – Investor 13.2568
DFVEX:US U.S. Vector Equity Portfolio – Institutional 13.2249
DFFVX:US DFA US Targeted Value Portfolio – Institutional 13.1279
VIMSX:US Vanguard Mid-Cap Index Fund – Investor 13.1036
DFTVX:US DFA US Targeted Value Portfolio – R1 13.0380
MAMQX:US Mutual America Institutional Funds Inc – Mid-Cap Equity Index Fund – INSTITUTIONAL 12.8583
NMPAX:US Columbia Funds Series Trust – Columbia MidCap Index Fund – Z 12.7689
NOMIX:US Northern Funds Mid Cap Index Portfolio 12.7145
MPSIX:US Principal MidCap S&P 400 Index Fund – Institutional 12.7010
SFLNX:US Schwab Fundamental US Large Company Index Fund – IS 12.6727
VCVLX:US Vanguard Capital Value Fund – Investor 12.6023
FIMEX:US Nuveen Mid Cap Index Fund – I 12.5696
GMXIX:US Nationwide Mid Cap Market Index Fund – Institutio 12.5618
PMFPX:US Principal MidCap S&P 400 Index Fund – R 5 12.4873
NTIAX:US Columbia Funds Series Trust – Columbia MidCap Index Fund – A 12.4765
PESPX:US Dreyfus MidCap Index Fund 12.3898
SFSNX:US Schwab Fundamental US Small Company Index Fund – Institutional 12.0612
WTRREIT:US WTFSC Total Return REIT Portfolio – 0IM 10.7592
VGSNX:US Vanguard REIT Index Fund – Institutional 9.9840
VGRSX:US Vanguard REIT Index Fund – Signal 9.9517
VGSLX:US Vanguard REIT Index Fund – Admiral 9.9493
FDGKX:US Fidelity Dividend Growth Fund – K 9.9100
VGSIX:US Vanguard REIT Index Fund – Investor 9.8058
DFREX:US DFA Real Estate Securities Portfolio – Institutional 9.6521
REITs and small caps? Are you serious? You would put what’s left of grandma’s nest egg (already beaten down by NASDAQ crach and 2008) in REITS and small caps? Your comment is an example example of the moral hazard of an interventionalist fed–folks are being pushed into risky investments.
REITs and small caps are inappropriate for retirees of modest to average means.
The one and only condition in which chained-CPI becomes an acceptable method for establishing Social Security benefits is if it becomes “the” black-letter CPI. Until then, if there is to be a variation from the standard rate, it would have to be the CPI-E for cost-of-living changes for the elderly. Introducing special protections for low-income seniors along with chained-CPI is another way of dismantling the bargain that FDR and Frances Perkins made with the public. The fact that “many” economists may think it is more accurate is completely irrelevant until they prevail upon BLS to make it the standard methodology.
For a Democrat to even consider it, much less propose it, is the absolute height of political stupidity.
“For a Democrat to even consider it, much less propose it, is the absolute height of political stupidity.”
One would hope Democrats learned in 2010 how stupid it is to make your base supporters angry. Think Rahm Emanuel going out of his way to insult the President’s most devoted supporters in 2008, calling them “retards” and the like. Democratic success depends on turnout, especially in a mid-term. Besides the effects of a policy that by itself depresses turnout by making Democratic voters angry, it is the base that does the hard work of getting out the vote. With an angry electorate and a base lacking the enthusiasm to work hard, you get the worst mid-term result in 100 years.
Centrists do not work hard to get out the vote, and are weakly motivated to vote in mid-terms. How strong were those Republican centrists in 2010?