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Posts Tagged ‘government debt’

As Pileus readers know, the spending cuts Congress and the President agreed to in future budgets are a drop in the bucket of future deficits. Nevertheless, the cacophony of protest among partisan hacks is deafening. Jacob Weisberg has a particularly incoherent piece at Slate today. Two selections:

But for the federal government to spur growth or create jobs, it has to spend additional money. The antediluvian Republicans who control Congress do not think that demand can be expanded in this way. They believe that the 2009 stimulus bill, which has prevented an even worse economy over the past two years, is actually responsible for the current weakness. Their Hooverite approach—embedded in the debt-ceiling compromise—demands that we address the risk of a double-dip recession by cutting public expenditure now rather than later.

The deal that President Obama and House Speaker John Boehner tentatively agreed upon in early July was far from perfect, imbalanced in favor of spending cuts over revenues by a ratio of 4-to-1. But that $4 trillion “grand bargain” would have constituted a serious down payment on the deficit, and sent a strong signal to financial markets that our political establishment took the problem seriously. Instead we got this week’s sad bargain—a much smaller, deferred, and contingent reduction in spending projections. This sends quite a different signal: that our political system cannot, in its current configuration, cope with difference between what comes in and what goes out.

So let’s get this straight: the cuts in spending were both too large and too small for Weisberg. Bigger cuts would have been better, and so would no cuts – in fact, increases! Perhaps he means that there should be increases now, bigger cuts later – a respectable position. But that’s not what he says, nor does that position correspond to any recognizable negotiating position taken by either side in the debt ceiling debate. So why does all the blame accrue to “antediluvian Republicans”? (Never mind the ignorance about Hoover’s massive increases in federal spending.)

But the reliably behind-the-curve New York Times editorial board takes the cake with their proposal to abolish the debt ceiling altogether. So let’s get this straight: Politicians in DC are such irresponsible spenders that the only thing that could force them to get together and make even small cuts in future spending growth was the risk of financial annihilation. And the solution is? Take away the very risk of financial annihilation that finally forced them to exercise a modicum of fiscal responsibility!

Of course, if you abolish the debt limit, then under divided government we’d have the same game of chicken played at budget time, when the hostage would be the operations of the federal government. And I’m sure we can count on the Times editorial board to scream about not holding our economy hostage when the federal government shuts down or comes close to it. Maybe we should abolish annual budgeting too. Just let departments set their own budgets. It’s safer that way.

The right blogosphere is little better. Looking ahead to the super-committee, the only concern on the right seems to be that – horrors of horrors – the committee might try to raise some revenue by eliminating tax expenditures and deductions! So the GOP should have forced default instead! Because if you want long-run spending cuts, the right strategy is to gain control of one house of Congress and then maintain a position of complete and total intransigence on the only thing you can reasonably offer the other branches in exchange for spending cuts! Oh, and frighten as many independents as you can before the next election.

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Here is the reason why a subscription to the WSJ is worth the money: because they run pieces by people like John Cochrane.   I’ve been trying to make sense of the Greece mess, but I was missing the key.  Here it is:

Letting someone lose money on sovereign debt is the acid test for the euro. If not now, when? It won’t happen in good times, nor to a smaller country. The sooner the EU commits, and other countries and their lenders come to terms with the fact that they will not be bailed out, the better.

The current course—ever-larger and less-credible bailout promises, angry German voters who may vitiate those promises, vague additional fiscal supervision (i.e. more of what just failed miserably)—is not the answer.

The only way to solve the underlying euro-zone fiscal mess (and our own) is to slash government spending and to focus on growth. Countries only pay off debts by growing out of them. And no, growth does not come from spending, especially on generous pensions and padded government payrolls. Greece’s spending over 50% of GDP did not result in robust growth and full coffers. At least the looming worldwide sovereign debt crisis is heaving “fiscal stimulus” on the ash heap of bad ideas.

I’m pre-disposed to like Cochrane because he was a terrific teacher of mine (though I was a terrible student) and a super nice guy, but mostly I like him because he nits the nail on the head: as a currency the Euro is a great idea,  but the problem is that the EU can’t decide whether it is going to be a fiscal union in addition to a monetary union, so the bond holders aren’t being required to take the hit they legitimately deserve (and need) to take for investing in Greece in the first place.

A comparison between Cochrane’s arguments and those of Paul Krugman would be interesting.  But getting past the “Republicans are soooo evil” nonsense to find the actual economics is too annoying for a late night.

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