On vacation, full of debt ceiling rage

By Michael J.W. Stickings

I'm currently on vacation and won't be blogging all that much over the next few weeks. Here and there, when the mood is right, but otherwise not. Rest, relaxation, and family are the priorities.

But, fear not, Richard and the gang will keep things rolling, and so I hope you keep checking back for new posts from my wonderful team.

Actually, though, I'm full of rage at the moment. I'm generally trying to avoid the news, and especially U.S. politics, but, well...

What has me enraged? The Deal, of course.

Yes, the new bipartisan deal to avert default by raising the debt ceiling and, to please Republicans, slash spending (of course, mostly spending that benefits the poor and downtrodden, the usual GOP targets, those no one in power seems to give a shit about).

Now, it's not yet a done deal. President Obama and the Democratic and Republican leadership have agreed to it, but not the rank and file -- and there are sure to be many on both sides who object to it.

Democrats have good reason to object. The deal is heavily Republican, a largely right-wing fix to a crisis created by Republicans. It's all about cuts, not revenue increases, and cuts that, again, will hurt those Democrats supposedly care about. Some Republicans will object as well, but only because -- let's put it kindly -- they're a bunch of petulant extremists who refuse to compromise and who are willing to let the country go into default, and face economic calamity, to get everything they want.

In fact, it has come to this largely because Republicans, from the top down (the leadership included), are bullies crazy enough to risk the country's health, so "patriotic" are they, having basically held the country hostage throughout this entire process.

Sure, I'm deeply critical of Democrats, including the president, for not fighting harder to prevent this, and for not standing up more determinedly for what they purportedly stand for, but, honestly, what were they supposed to do? Let the country go into default? Let the debt ceiling deadline pass, come what may? Sure, maybe. Maybe they could have spun that and kept the blame on the other side, and even come away with a political win, and maybe the impending crisis and public outcry would have forced Republicans back to the negotiating table with their tails somewhat between their legs, but... should they really have taken such an enormous risk?

Maybe Republicans were always going to win this, maybe it was inevitable, because all along they were willing to go further and risk more. That's the problem trying to negotiate with crazy people. They're willing to do things you're not. (Isn't that how Keyser Söze solidified his power?) In this case, Republicans were willing to sacrifice their country for their ideological demands. Democrats, being mature and rational and responsible, were not. And so they had to agree to a deal on Republican (i.e., insane) terms.

There was a brief time when Obama had the upper hand, after he had turned the tables on Republicans and back them into a corner, and with public opinion on his side, but he was only going to win this if he went all the way. And, say what you will about him, he wasn't prepared to play that game, not with so much at stake.

I suspect the deal will pass tomorrow. There will be major defections, but surely enough arms can be twisted, enough dissenters bought off, to make it happen.

And then? Crisis will have been averted, at least temporarily, but Republicans will declare victory -- for getting most of they want (loads of cuts, no new revenue).

The Democrats? They'll get nothing out of this politically.

Obama? Yes, probably. He'll be able to reinforce his credibility among independents by presenting himself as a bipartisan leader who got it done when it mattered (no matter the awful details of what got done).

But unless Democrats can gain control of the narrative and make the debate about ending the deeply unpopular Bush tax cuts for the wealthy and protecting deeply popular entitlement programs (Social Security, Medicare, etc.), this deal won't do them any political favors next year, with with Republicans set to hammer them, however dishonestly (as usual), for being tax-happy, spend-happy socialists.

At least for now, there is reason for cautious, extremely cautious optimism. The deal would allow the president to raise the debt ceiling by $2.4 trillion (with $900 billion in spending cuts):

That will be paired with the formation of a Congressional committee tasked with reducing deficits by a minimum of $1.2 trillion. That reduction can come from spending cuts, tax increases or a mixture thereof.

If the committee fails to reach $1.2 trillion, it will trigger an automatic across the board spending cut, half from domestic spending, half from defense spending, of $1.2 trillion. The domestic cuts come from Medicare providers, but Medicaid and Social Security would be exempted. The enforcement mechanism carves out programs that help the poor and veterans as well.

If the committee finds $1.5 trillion or more in savings, the enforcement mechanism would not be triggered. That's because Republicans are insisting on a dollar-for-dollar match between deficit reduction and new borrowing authority, and $900 billion plus $1.5 trillion add up to $2.4 trillion.

However, if the committee finds somewhere between $1.2 and $1.5 trillion in savings, the balance will be made up by the corresponding percentage of the enforcement mechanism's cuts, still in a one-to-one ratio.

Democrats say they're confident that the enforcement mechanism is robust enough to convince Democrats and Republicans to deal fairly on the committee -- to come up with a somewhat balanced package of entitlement reforms and tax increases. However, the White House assures them that if the committee fails to produce "tax reform" he will veto any attempt to extend the Bush tax cuts, which expire at the end of next year.

Again, the focus is on spending cuts, not revenue increases, but at least cuts to defence spending are on the table and at least it's possible that revenue increases will be part of any future deal.

Actually, scratch that. I'm still highly enraged. And there's really no good reason for optimism at all, even cautious optimism. Obama may want to use the Bush tax cuts for the wealthy in his re-election campaign, as a winning issue (assuming public opinion stays roughly where it is), but he has shown little to no willingness to stand up for progressive principles -- indeed, for principles that are simply not Republican, so much of a moderate Republican does he appear to be -- and, what's more, neither have most Democrats on Capitol Hill, it seems.

All of which is to say, if Obama and the Democrats have been willing to cave so much already, what should make us think anything will change?

This day in history - July 31, 1981: A 42-day Major League Baseball strike ends

By Richard K. Barry

Now that the football lockout is over, I was just thinking about other memorable labor issues, past and present, in professional sports.

In fact, the 1981 baseball strike was the fifth work stoppage in Major League Baseball (MLB) since the 1972 baseball strike. The 1981 strike forced the cancellation of 713 games, which accounted for 38 percent of the MLB schedule.

And who could forget the 1994-95 baseball strike, which was the eighth stoppage in MLB history. This one was a 232-day strike, which lasted from August 12, 1994 to April 2, 1995, and led to the cancellation of between 931 and 948 games, including the entire 1994 postseason and World Series.

I was going to list all strikes and lockouts for MLB, the National Football League (NFL), the National Basketball Association (NBA) and the National Hockey League (NHL), but I counted 17 and just don't have the patience. If you're interested, you can find the info here.

And if you follow round ball you know that the NBA is currently in a lockout situation, which is now going into Day 28, and guess what else? The Collective Bargaining Agreements for MLB and the NHL expire on Dec. 11, 2011 and Sept. 15, 2012, respectively.

As I have said elsewhere, I don't begrudge players fighting for better deals, but, as a fan, I hate to see the games get damaged.

(Cross-posted at Lippmann's Ghost.)

The Chocolate Museum

Here are pictures from our trip to the Lindt Chocolate Museum in Köln two days ago. The museum features information on the growing and processing of cocoa. A portion of the museum is a working factory, producing those chocolates in different sizes, truffles, and hollow molded chocolates. The process for making miniature chocolate bars is completely automated and they also give free samples.




















By the way, just wanted to share to you the picture of my favorite potato soup with hotdog tidbits. It really taste good that it becomes our favorite lunch.

The Chocolate Museum

Here are pictures from our trip to the Lindt Chocolate Museum in Köln two days ago. The museum features information on the growing and processing of cocoa. A portion of the museum is a working factory, producing those chocolates in different sizes, truffles, and hollow molded chocolates. The process for making miniature chocolate bars is completely automated and they also give free samples.




















By the way, just wanted to share to you the picture of my favorite potato soup with hotdog tidbits. It really taste good that it becomes our favorite lunch.

Guy Clark: "Dublin Blues"

Music on Sunday @ The Reaction

By Richard K. Barry

Every now and then, I fool around with songwriting. Not that I think I'll ever be any good at it. I don't. But I am so impressed with the craft that I can't help but dabble in the process just on the possibility that something interesting and unexpected might happen when I put words to music.

Mostly I just love great songwriting. If I knew what it was about it that I loved so much maybe I'd be better at it myself, but I do recognize quality when I hear it.

Guy Clark is a phenomenal songwriter. He's had a great career writing mostly in the country / folk / Americana genre. Those who have recored his songs include Jerry Jeff Walker, Johnny Cash, Vince Gill, Ricky Scaggs, Steve Wariner, Alan Jackson, Brad Paisley, Rodney Crowell, Asleep at the Wheel, and Jimmy Buffet. And a lot of artists have charted with songs written by Clark.

He is also known for helping Steve Earle develop his career and for his friendship with the late Townes Van Zandt, whom Clark credits as a major influence in his own songwriting.

There are a lot of names mentioned here that you may know better than Clark's, but he's probably okay with that as long as the royalty checks keep on rolling in.

The song below, "Dublin Blues," performed by Guy Clark, was on my iPod for the longest time. It really does set a mood.

(Cross-posted at Lippmann's Ghost.)

iUSA

By J. Thomas Duffy 

Well, if we see President Obama sporting a black turtleneck over the weekend, perhaps that will signal that Apple has purchased the U.S. Government.

 

U.S. balance now less than Apple cash 

Steve Jobs is now more liquid than Uncle Sam...

As Republicans and Democrats continue to work towards a compromise to the country’s debt ceiling crisis, the U.S. Treasury Department said on Thursday that Washington now has a total operating balance of only US$73.768-billion.

Meanwhile, Apple currently boasts a cash reserve of US$75.876-billion, as of its most recent quarterly earnings report at the end of June.

 

If that happens, I suppose, we'll all be mandated to purchase iPhones (which will help streamline the iLocater program), and changes will include download apps for things like Social Security and Food Stamps.

And Jobs can scratch the plans for building his new spaceship office, as, no doubt, he'll move straight into the White House, incorporating the Apple logo into the presidential seal. 

Welcome, to the good ol' iUSA!

(Cross-posted at The Garlic.)

How do you kill the economy? Pass a balanced budget amendment.

Guest post by Publius

The House recently passed “Cut, Cap and Balance” (see John McCain’s fantastic take on it here). Republicans are convinced of the need for a balanced budget amendment, and one of the most cited arguments for they give for a balanced budget amendment is that 49 states have one so the federal government should too.

The concept of a balanced budget amendment sounds intuitive enough. “Ordinary Americans and 49 states have to balance their budgets,” the argument goes, “so Congress should too.” Well, not exactly.

First, there is a huge difference between the balanced budget “amendments” (several states have laws instead of constitutional amendments) at the state level and the proposed amendment at the federal level. The state amendments, for example, do not even attempt to balance the entire state budget. Instead, they almost exclusively only apply to a state’s “general fund.” The general fund oftentimes constitutes less than half of a state’s budget. It is the fund out of which general expenditures flow and into which general revenues enter. “Special” expenditures and revenues, such as gasoline taxes, education expenses, etc., have nothing to do with the general fund and are exempt from the balancing requirement.

If Congresspeople would stop and think about their argument for a moment, they would quickly realize that the balanced budget requirements at the state level either can’t apply to the entire budget or are laxly enforced. Most every single state is currently running a deficit, and has been for several years! Further analysis by these Congresspeople would also show the issue isn’t lax enforcement- at least exclusively.

In 1987, the Advisory Commission on Intergovernmental Relations published an oft-cited study (PDF) of state balanced budget requirements. The study examined each state’s budget balancing requirements and the mechanisms each used to enforce the requirements. It then ranked each state on a scale of 0-10, with 0 being no enforcement mechanism and 10 being the strongest possible enforcement mechanism. 26 of the states ranked a “10,” and in 2004, California recently became the 27th state to join that category by adopting an amendment to its constitution. Here’s how those states have done with their deficits since FY 2009:

States in categories 3-5 (fairly lax enforcement) had the largest deficits by far over the measured periods, but states in category 10 (most stringent) were the next worst deficit spenders. Ironically, states with little to no enforcement mechanism had almost no deficit (though only 2 states fit in this category, so not much of a sample size). This suggests that stringent enforcement of a balanced budget amendment is insufficient to produce a balanced budget for the states.

The scatterplot table below (amounts in thousands) shows the deficits by year, state and category. California’s enormous deficits and NY’s 2010 deficit were removed from the scatterplot because they shrunk the scale of the chart so much the rest was not legible:

The scatterplot is a bit messy, but it shows the size of the deficit for each state within the 0-10 enforcement categories described above. There’s no getting around it. No matter how strict a state balanced budget requirement is, states continue running deficits during this economic downturn. This doesn’t mean the balanced budget requirements have no impact- only that they don’t accomplish what Republicans in Congress think they accomplish.

One might ask, “Why isn’t the federal proposal (which demands that the entire budget be balanced) more workable than the state proposals?” Well, first consider that the federal “general fund” only accounts for about about 35% of the entire federal budget. That number includes defense spending, however (which is considered “discretionary” even though it has a history of only going up). Non-defense discretionary spending only accounts for about 15% of the budget.

A true “balanced budget amendment” like what Republicans have proposed could require that money which is allocated to defense spending or other mandatory spending (social security, Medicare, Medicaid, interest on the debt, etc.) be cut in order to balance the budget. In FY 2010, for example, the deficit was about $1.3 trillion. Total non-defense discretionary spending in FY 2010 was only $714 billion. Even if all non-defense discretionary spending was eliminated in FY 2010 (no spending on education, justice, health, roads or other infrastructure, etc.), we would have still had a $586 billion deficit. Total defense spending in FY 2010 was only $663.7 billion, meaning to avoid any cuts to mandatory spending (which, as its name implies, is money we must spend), the Department of Defense budget would have been reduced by 88% (to a total of $77 billion). The last time defense spending was that low was 1973.

As should be obvious, when a severe recession hits, it’s quite difficult to balance a budget. In fact, it’s also precisely the wrong thing to do in a recession (when spending should go up as a stabilizer). The federal government has a macroeconomic role through fiscal policy which it cannot play if it is hamstrung by a balanced budget amendment. But even assuming that wasn’t the case, there’s just not enough discretionary spending to cut to balance a budget in a severe recession. Recessions reduce tax revenue dramatically because people lose jobs and stop paying FICA and income taxes. There just aren’t enough discretionary dollars to eliminate to keep pace. That means defense spending and/or mandatory spending has to be cut. So who should cut it?

This is the next problem with the balanced budget amendment. The enforcement mechanism. If the Constitution requires Congress to balance a budget and it doesn’t- what happens? In some states, the governor can eliminate spending without legislative approval (like a line-item veto). In 2010, however, there is no chance any politician would have voluntarily eliminated 100% of discretionary spending plus a large amount of defense/mandatory spending. The courts, then, would be required to mandate the cuts or, alternatively, raise taxes (also a bad idea during a recession). One can only imagine the Republican cries of “activist judiciary” in such an instance- and ironically they would have been the ones demanding that the judiciary take such an activist role. I should mention that tax increases could be adopted in lieu of spending cuts, but I haven’t spent much time on that option because: a) Republicans would never agree to tax increases; and b) to ensure no tax increases are passed, Republicans have proposed in Cut, Cap and Balance that all tax increases require a 2/3 vote, effectively making them illegal.

So, what happens if the courts also don’t act to force the budget to balance? The Constitution is violated and, as we are seeing with the debt ceiling debate, the nation’s credit rating would beat risk as a consequence (thereby threatening global economic instability).

Of course, the federal amendment could be fashioned to look more like the state balanced budget requirements and only apply to discretionary spending. Needless to say, such an amendment would not eliminate federal deficits (which is the stated purpose of enacting such an amendment). The amendment would be circumvented entirely in recessions (appropriately so from an economic perspective) which would only serve to undermine the Constitution and the rule of law. The accounting tricks employed by states to “balance their budgets” would only be magnified at the federal level thereby creating far more frustration with the system (California technically has a balanced budget this year, despite its projected $17.9 billion deficit).

The balanced budget amendment as included in Cut, Cap and Balance is quite possibly the worst economic idea any major party has actively promoted in modern history. It can’t work- except to wreak havoc. Few other proposals stand to do as much harm to the US and global economies, particularly during recessions.

(Cross-posted at The Fourth Branch.)