Peasel Prattle: Welfare for Rich

When I began this post, a response to Richard Peasel’s commentary on my  post of January 5, I didn’t pay a lot of attention to how he started it, since it looked like his standard cynical claptrap. I had pretty much easily refuted all his claims, but in review, this statement gave me a bit of pause:

Karen, I see a lot of pretty charts above, are you trying to dazzle me with your bean counter brilliance, or baffle me with your BS….your graph explanations leave a lot to be desired.

It turned into a bewildered pause when I saw the end of his comment, a long stack of monthly dates. Why? Because the purpose of a graph is:

To ILLUSTRATE numerical data, thus making it easier to understand.

To represent the data Graphs give a visual representation of progress (or regress) and they are much quicker and easier to grasp than a boring stack of numbers. 

So…by saying he “sees a lot of pretty charts” and telling me that mine “leave a lot to be desired” then showing me a stack of about 60 months with an “index” as if he thinks it’s much easier to understand is not only disingenuous but oxymoronic. Oxymoronic because he’s essentially saying that HIS jumble of numerical data with off-point commentary is more easily understandable than my focused, easy to understand charts. Not only that, his data was incomplete, because the Misery Index is the combination of inflation and the unemployment rate. Rich only presented the unemployment rate. He probably did not want to mention the inflation rate, because at the end of 2008 it fell precipitously, and was actually negative in 2009, meaning there was no condition of 70’s stagflation (which would have allowed him to draw parallels between Obama and Jimmy Carter).

Nevertheless, here is a graph of Peasel’s data, more complete month-wise, and including the inflation rate:

Note that green line (inflation) dropped with employment.  The black line is where the Dems took Congress in 2006.

Peasel has an ideological view of the stats, i.e., anything negative that occurs under Republican watch is either extraneous or the Democrat’s fault. He doesn’t want to admit that both parties are to blame , and extraneous factors play a larger role. The price of oil, which caused much of the inflation in 2008, had nothing to do with either party, but more to do with traders at the Chicago Mercantile Exchange. There were many factors to blame for the banking/housing crisis in 2008, and both parties share the burden.

Rich relies solely on the constitution that Congress holds the purse strings. But there is more to it than that: (emphasis added)

The Budget of the United States Government is the President's proposal to the U.S. Congress which recommends funding levels for the next fiscal year, beginning October 1. Congressional decisions are governed by rules and legislation regarding the federal budget process. Budget committees set spending limits for the House and Senate committees and for Appropriations subcommittees, which then approve individual appropriations bills to allocate funding to various federal programs.

After Congress approves an appropriations bill, it is sent to the President, who may sign it into law, or may veto it. A vetoed bill is sent back to Congress, which can pass it into law with a two-thirds majority in each chamber. Congress may also combine all or some appropriations bills into an omnibus reconciliation bill. In addition, the president may request and the Congress may pass supplemental appropriations bills or emergency supplemental appropriations bills.

Why did deficits really decrease in the 1990’s?  In the 1990’s, the Republicans/Conservatives claimed they were responsible for reducing the deficit because they controlled the House from 1994 through 2000.

But the fact is, deficits declined during those years because of the 1993 tax increase passed on high incomes, which passed with zero Republican votes. At the time, almost every Republican doomed it a failure:

• Sen. Pete Domenici (R-NM): “April Fool, America. This Clinton budget plan will not create jobs, will not grow the economy, and will not reduce the deficit.”

• Stephen Moore, Cato Institute, predicted: “Clinton’s plan will torpedo the economy”.

• Newt Gingrich: “The tax increase will kill jobs and lead to a recession and the recession will force people off of work and onto unemployment and will actually increase the deficit.”

• Sen. Phil Gramm (R-TX): “I want to predict here tonight, that if we adopt this bill the American economy is going to get weaker and not stronger, the deficit four years from today will be higher than it is today and not lower… When all is said and done, people will pay more taxes, the economy will create fewer jobs, the government will spend more money, and the American people will be worse off.”

• Rep. Dick Armey (R-TX): “a job killer”.

• Rep. John Kasich (R-OH): “This plan will not work…. If it was to work, then I'd have to become a Democrat…”

In other words, the Republicans did very little to rein in spending, and the surpluses came from the increase in taxes on upper-level incomes (along with the booming economic cycle, which they predicted wouldn't happen). But, did they learn a lot from these false predictions…..uh, no, they didn’t.

So, what is the source of the current deficits?  Here's another pretty chart:

Deficits would have been more manageable without tax cuts and wars.

A careful analysis of CBO reports by the New York Times revealed the following:

The story of today’s deficits starts in January 2001, as President Bill Clinton was leaving office. The Congressional Budget Office estimated then that the government would run an average annual surplus of more than $800 billion a year from 2009 to 2012. Today, the government is expected to run a $1.2 trillion annual deficit in those years.

You can think of that roughly $2 trillion swing as coming from four broad categories: the business cycle, President George W. Bush’s policies, policies from the Bush years that are scheduled to expire but that Mr. Obama has chosen to extend, and new policies proposed by Mr. Obama.

The first category — the business cycle — accounts for 37 percent of the $2 trillion swing. It’s a reflection of the fact that both the 2001 recession and the current one reduced tax revenue, required more spending on safety-net programs and changed economists’ assumptions about how much in taxes the government would collect in future years.

About 33 percent of the swing stems from new legislation signed by Mr. Bush. That legislation, like his tax cuts and the Medicare prescription drug benefit, not only continue to cost the government but have also increased interest payments on the national debt.

Mr. Obama’s main contribution to the deficit is his extension of several Bush policies, like the Iraq war and tax cuts for households making less than $250,000. Such policies — together with the Wall Street bailout, which was signed by Mr. Bush and supported by Mr. Obama — account for 20 percent of the swing.

About 7 percent comes from the stimulus bill that Mr. Obama signed in February. And only 3 percent comes from Mr. Obama’s agenda on health care, education, energy and other areas.

The business cycle’s decline, which peaked in 1999-2000, accounts for a little over a 1/3 of the deficit. Another 1/3 stems from the Republican tax cuts of 2001 and 2003, and the Medicare prescription drug benefit, passed in 2003. Obama (and the Republican and Democratic congress’) continuance of Bush policies, such as the Iraq/Afghanistan wars and the tax cuts, account for 20% of the $2 trillion swing. It should be noted that a large part of the stimulus bill (which was 7%) was tax cuts as well. But Peasel’s complaint is , of course, about the 3% of Obama’s for the departments of education and energy.

What’s driving deficits in coming years are these factors as well, as shown in this graph: “The Bush tax cuts, the economic downturn, and the wars in Afghanistan and Iraq explain virtually the entire deficit over the next ten years.” The full extension of the Bush Tax Cuts will increase deficits and debt by $3.8 trillion over ten years. Now Republicans say that not doing this is equivalent to a tax increase, which would crash the economy. Of course, they said the same about the Clinton tax increases on higher incomes. I guess they never learn.

There are those (like Rich Peasel) who think that between tax cuts and the deficits, they can “starve the beast” (STB) of government to spend less. Has it worked?

Although all of evidence of the previous 20 years [by year 2000] clearly refuted starve the beast theory, George W. Bush was an enthusiastic supporter, using it to justify liquidation of the budget surpluses he inherited from Clinton on massive tax cuts year after year. Bush called them "a fiscal straightjacket for Congress" that would prevent an increase in spending. Of course nothing of the kind occurred. Spending rose throughout his administration to 20.7% of GDP in 2008. …..

In the latest study of STB, political scientist Michael New of the University of Alabama confirms Niskanen's analysis [that STB is a failure]. "Revenue reductions by themselves are not an effective mechanism for limiting expenditure growth," New concluded. "The evidence suggests that lower levels of federal revenue may actually lead to greater increases in spending."

In effect STB became a substitute for spending restraint among Republicans. They talked themselves into believing that cutting taxes was the only thing necessary to control the size of government. Thus, rather than being a means to an end--the end being lower spending--tax cuts became an end in themselves, completely disconnected from any meaningful effort to reduce spending or deficits.

Starve the beast was a theory that seemed plausible when it was first formulated. But more than 30 years later it must be pronounced a total failure. There is not one iota of empirical evidence that it works the way it was supposed to, and there is growing evidence that its impact has been perverse--raising spending and making deficits worse. In short, STB is a completely bankrupt notion that belongs in the museum of discredited ideas, along with things like alchemy.

Rich Peasel’s commentary tells me that the “creation and expansion” of “liberal” government agencies, for example, the departments of Education, Energy, and Transportation and Health and Human Services, are what is driving the increasing deficits. He is correct on their being part of government expenditures, but saying they are “liberal” is disingenuous. I will save that argument, which is the problem I have with Conservatives often termed the “commons problem” (or non-recognition that a morally well-ordered society is not a free gift) for later. For now I will focus on one of those departments: Health and Human Services, for it includes Medicare and Medicaid. According to budgetary projections, sometime between 2030 and 2040, social security, Medicare, Medicaid and the interest paid on the debt will exceed government revenues. So Rich doesn’t have to worry about those other departments, they will have to go by the wayside as all the entitlements consume the revenues.

Fortunately, I don’t think Rich will escape having to pay the piper when “Boomergeddon” arrives. Most Republicans are pro-military, and even with cuts it’s still a huge budget, and as noted above, the entitlement spending will be crowding it out. So somewhere along the line, the tax man will be visiting Rich for *mo money* . And I don’t think anything I say will “dazzle” him as he calls upon me to do, because I know his mind is made up, or rather, closed. What a pity.

Oh, and by the way, if you believe that increasing the minimum wage increases unemployment, here’s an entire book on the subject, which shows by empirical evidence it does NOT.

When Peasel said in regard to the housing crisis: “this is what happens when society tries a repeat of the “great society” with housing for everyone” I’m wondering if he really means second homes for the wealthy, since “...the delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent...”

*Easy* (?) way for Rich to make $100K!  For more on the (non-)role of the CRA in the mortgage crisis, here is a link to my write up and to a follow-up. Also, anyone who is SO sure that the crisis was caused by the CRA, they can put their money where their mouth is. Barry Ritholtz is betting $100,000 that he can win a debate that the CRA did not cause it. Barry was challenged by  conservative blogger John Carney until Barry made the bet, then he suddenly disappeared.

Finally, I couldn’t resist one more comment on the budget from a libertarian blog I frequently link, which explains how ALL discretionary spending must be eliminated to balance the budget: (emphasis added)

Second, it is impossible to fill its promises of bringing our debt under control. The debt is about $14T today. Let us say the GOP is going to be more fiscally conservative and run “smaller deficits” than we see today. Although that is a promise made by the Democrats, we will assume that the Republicans will really do it because they stump it so often. Boehner wishes to return to Bush-era budgets. That era ran $900B deficits. I hate to be an antagonist, but a $900 deficit still adds to the debt. But I’ll run with it. Under GOP control, 2011 will see a budget with a $900B deficit, and the debt rises to almost $15T. In this case, less is more. Less of a deficit still leaves more of a debt. In order to reduce the national debt, mathematically you need to spend .01 less than you bring in. The government pulls in receipts of approximately $2.4T. We spend about $3.7T. That means we need to eliminate 1.3T from the budget to even begin considering a reduction. Here’s the hard part: 2/3 of our spending is entitlement spending (also called mandatory) – the money that is nondiscretionary and based on our stated rights and constitutional duties. One third is discretionary. 1/3 of $3.7T is $1.25T. Therefore, in order for one red penny to be paid against our debt, the entire amount of discretionary spending must be eliminated. That, my dear friends, is NOT going to happen."

But it bothers me that he refuses to understand my graphs, but expects me to discern his huge stack of numbers. He never addressed the fact that I had debunked his claim about Obama’s debt being more than that of all presidents combined. It’s as if he doesn’t want to, and he’s just more proof of the theory of backfire, that “when presented with contradictory facts, we adhere to our original belief even more strongly.”

This also has a lot to do with the revered Republican quality of individual responsibility, because it seems to me he is not taking responsibility for Republican failures. Well, oops they did it again (setting aside personal responsibility) with the Tucson situation. So, at least I know, given the preponderance of anecdotal examples, that personal responsibility is not a quality of the Republicans.