The People Want Balance!

July 20th, 2011 at 7:52 am

It’s crunch time—way past crunch time, really—in the debt ceiling/budget debate.  While partisans are sharpening their knives in preparation of administering a deep, self-inflicted wound, markets are beginning to lurch around, tanking on bad news re the deal and visa-versa.

According to a Goldman Sachs research report from yesterday (no link), consumer confidence in June took a hit from the impasse, and “a large rotation by individual investors out of equities and into bank deposits in recent weeks also is consistent with greater nervousness over the possibility of a looming crisis.”

So damage is actively being done by the unwillingness of House GOP legislators to accept a deal.  Not to mention the most damaging aspect of this: the opportunity costs of sole focus by policy makers on deficit reduction in an economy where un- and underemployment is 16%.

The latest lurch is a plan from the “gang of X” (I think it’s six, but it was five for a while, which we liked because we got to call them “Five Guys,” a burger chain in these parts).  Read about it here if you want, but I wouldn’t get too attached—like I said, we’re deep into Lurchville.

The latest plan is notable, however, because the gang is bipartisan, and their $3.7 trillion deficit-reduction plan includes $1 trillion in new revenue.  So it raises an issue I’ve stressed from the beginning, that of balance: without significant revenue in the deal, there’s too much weight on spending cuts, and that creates more pain than gain.

What’s also notable this AM is that the people agree.  According to a WaPo poll out today, 62% believe some combination of revenues and cuts is the best way to reduce the deficit.  Even among Republicans, close to half—46%–agree.  And—take note elected officials—among those highly-desired Independent voters, it’s 64%.

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8 comments in reply to "The People Want Balance!"

  1. Th says:

    Is the $1T tax revenue real or “tax cut fairy”? I read where Coburn said the CBO would score it as a $1.5T tax cut but it would really raise $1T. That’s an awfully powerful voodoo doll if cutting 1.5T raises 1T.


  2. Th says:

    Never mind. Saw that it takes the Bush cuts into the equation.


  3. John says:

    Why does a poll like this matter?

    How does it not do more harm than good even to be discussing it?

    When I look at the larger picture, I see several things.

    . By and large, the US population is math-illiterate. Only certain kinds of scientists and technologists routinely deal with numbers of this size, and can begin to think across so broad a range of numbers meaningfully. Most people, I think, are just scared by big numbers – regardless of what they represent, if anything.

    . Even economists disagree about whether the deficit is a real problem or a manufactured political problem.

    . Even economists disagree about whether the deficit – if it is a real problem – is a more important immediate problem than unemployment.

    . Even economists generally don’t understand the more general problem of fiscal policy, and the implications of fiat money.

    . Those economists who question the quantity theory of money, don’t seem to have any idea of an alternative theory.

    . As simple a statement as Section 4 of the 14th Amendment is, Congress still managed to pass a law that conflicts with it, and modern economists and politicians clearly don’t have a clue how to apply it to the deficit issue.

    This is all insanity and evil, and you still mentioning polls like this – after your own suggestion that one should substitute jobs and/or unemployment for debt and/or deficit in such discussions – makes me frustrated with you again, Dr. Bernstein.

    The insanity isn’t just on the Republican side. Unfortunately, by now, I’m not sure the evil entirely is either.

    Focus. On unemployment. Ignore this deficit nonsense.

    These kinds of discussions are what Internet communities call “feeding the trolls.” Please, stop feeding the debt/deficit trolls.

    By now, I’m convinced that only a handful of economists have any real clue about macroeconomics. The US Federal government is the source, creator, and destroyer of this illusory stuff called “money.” I really don’t think that’s sunk in, even among macroeconomists.

    A simple question. As of any instant in time you choose, how much money is there? Just US dollars. M1, M2, M3, I don’t care. I just want a simple answer to a simple question. And if that question has no simple answer, it should tell people like you something that you don’t seem to get. I’m just trying to state something obvious. Obvious to me, anyway. Apparently not obvious to many others.

    But there is on simple answer, is there? It doesn’t matter, does it? What matters is how it’s distributed, what proportion gets spent for different things, what proportion one party or another can claim to be holding, etc. The total amount – it doesn’t matter, and never has mattered.

    This should thus also be obvious: money is more likely just a proxy for established power relationships, down to the individual level. And those power relationships are the real government of this country, if not now of the whole world. We are a plutocracy, not a democracy, not a republic. The insistence we have on measuring our relationships in money instead of other more important factors, is what really defines capitalism, and modern society. And it’s why I oppose it, and have called myself a socialist for decades now. All the while, as little as I’ve studied economics, it’s been clear to me that money is an illusion, with value only insofar as society puts its faith in it:

    “As for those in this present age, charge them not to be haughty, nor to set their hopes on the uncertainty of riches …” 1 Timothy 6:17.

    You can’t serve two masters, Dr. Bernstein. You’ll love one and hate the other. So, I have to ask you flatly and plainly: do you love money or do you hate it? If you love it, stop complaining about it. This is just the nature of the beast, the nature of your chosen Master.

    Maybe a default will be a good thing. Maybe it will impress upon folks like you how uncertain money is, for many of the things for which we depend on it. Maybe then, folks like you will be more in the same boat that folks like me have been in – without any help and not much hope – for a good while now. Then again, maybe not. Maybe we’ll just have to wait a few days and see.

    Mene. Mene. Tekel. Parsin.


    • Steve Goldstraw says:

      I agree with every word. You must feel very frustrated dealing with how our country (doesn’t work!). I certainly do. And I see no resolution to the overall problem soon. I just see increasing disasters.


  4. Fred Donaldson says:

    The poll says spending cuts – not reducing Social Security and slashing Medicare, removing mortgage interest deductions, allowing more money to avoid taxes in overseas banks, again reducing the top income tax rate, doing nothing about Hedge Fund manager 15% tax rate ripoff and stopping childcare tax credits.

    Jared, you know better than enyone that the middle class has already been raped. There’s no need to now kill it.


  5. Mary says:

    People like to compare things on an absolute basis because it’s easier; however, it’s often more informative to look at things relatively.

    When I look at this chart,
    http://wallstreetpit.com/45226-why-isnt-total-employment-booming
    http://economix.blogs.nytimes.com/2010/09/14/whats-holding-back-small-businesses/

    My initial observations are based on how things shift in relative importance.

    When the economy was doing quite well, especially during the end of the Clinton era, poor sales were not much of a problem, but the quality of labor rose in importance. This fits with other macro data.

    Then when you look at the Bush era, you see that aside from the mild recession post 911, sales were fine, but insurance costs increased in relative importance.

    Now, obviously, demand is the main problem.

    To suggest that we should look at this graph on an absolute basis, as Hamilton does, is poor logic. None of these factors will disappear. Just like there will always be land, labor and capital, the factors in the chart will always be present. What’s important is the relationships between the variables and the trend.

    I also want to note that looking at the Bush era should be a wakeup call to those who oppose Obamacare. Assuming that the US finally fully emerges from the Great Recession, guess what the biggest problem will be? It would simply shift back to health care costs. Hopefully, the new legislation will help mitigate some of the increases.

    On the job creation front, I think credit conditions for small businesses will become increasingly important when the recovery takes hold, but they are also important now because of the debt overhang. There doesn’t seem to be much done with this 2010 Small Business Jobs Act, even though it seems like business credit cards have increased. “Since 1990, an increasing number of small businesses have used credit cards to help finance operations. Spending on small business credit cards tripled between 2002 and 2007, according to the Nilson Reports, to about $150 billion. Credit cards made up roughly 14 percent of small business credit in 2009.” http://www.richmondfed.org/publications/research/economic_brief/2011/pdf/eb_11-02.pdf

    I would argue that a simple measure that the government (the stimulus plan) could have taken was decrease debt burdens by reducing interest rates; for example, they could have lowered the rates for student loans by allowing for consolidation or they could enable businesses to tap lines of credit with the federal government instead of paying higher rates to private credit card companies. The federal government could still make money on these loans. I don’t think solutions have to cost money or be all or nothing. They don’t necessarily have to hand out money. Mitigating the debt load seems like a practical solution given the nature of the crisis.


    • Mary says:

      Oops, sorry about the double post. It’s the whole lack of confirmation thing. Instead I got a message about a duplicate, but I didn’t see it go through the first time so I figured it just didn’t work and tried this post.

      Anyway, this is the continuation of yesterday’s comment.

      Thanks!


  6. Steve says:

    Three questions – First, how dare you insult the burger chain like that?

    Second and more seriously, why can’t we get balance in our news/blogs/policy reviews anymore? Every blog I read throws a line or two of “I can’t believe we’re concentrating on the debt/deficit when unemployment is X”. If you can’t believe we’re concentrating on it, STOP CONCENTRATING ON IT. I realize you have to cover what’s happening. However, at what point does this go from coverage to echo chamber? Politicians are spending all their time on topic Y so that’s what all the papers/blogs/pundits cover. The politicians see all the papers/blogs/pundits covering topic Y and now they think that’s what everyone wants them to spend their time on.

    Finally, why can’t we just do what other people (notably Yves Smith) are credibly (to me, at least) claiming we can do and just print the money we need to keep spending? I understand how printing money causes inflation but is that true in this case, especially if the money never makes it into circulation? Aren’t we essentially holding ourselves to a faux gold standard by not doing this?


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