In the coming weeks, legislators in Washington will take up two looming matters: the debate over the sequester and a debate over the budget. Everything is delicate. There are ideological battles to be fought, compromises to be made, and the results of these debates are going to largely dictate the path of our fragile economic recovery. Because Washington's lawmakers and media have a hard time getting it through their thick heads that returning the nation to something that resembles full employment should be their highest priority, their current obsession with long-term structural deficits remains a block to a bargain that would help the economy flower. As such, we have only a limited opportunity to arrive at truly balanced arrangements.
And now, like Eris tossing the Apple of Discord into the wedding of Peleus, come Alan Simpson and Erskine Bowles, determined to cause a late-stage cock-up by introducing yet another "deficit plan." As the Wall Street Journal reports:
Mr. Simpson, a Republican, and Mr. Bowles, a Democrat, say their new proposal would reduce the federal budget deficit by $2.4 trillion over 10 years, more than the $1.5 trillion package that White House officials have said is their goal. Obama administration officials say any deficit-reduction package must include new tax revenue as well as spending cuts.
Instead of the $1.5 trillion package, Simpson and Bowles call for "$600 billion in spending reductions through changes to health care programs such as Medicare and Medicaid" as well as "changing the way cost-of-living increases are calculated for Social Security checks and other government benefits, cuts to farm subsidies, and changes to military and civilian retirement programs, among other things."
They also essentially abrogate their previous position on revenues. As Jeff Spross reports, the "simple problem" with this new plan is that it "represents a massive shift away from their own previous target and towards even more spending cuts."
Back when the original Simpson-Bowles plan was laid out in 2010, Spross notes, they sought $6.3 trillion in savings, divided in a balanced way between cuts (to the tune of $2.9 trillion) and additional revenues ($2.6 trillion), with an additional $800 billion in savings coming in the form of a reduction in the interest payment on the overall debt. He goes on to note that in the intervening years, Congress has passed the Budget Control Act and the American Taxpayer Relief Act, making it so that "roughly half" of the "recommended spending cuts" in the original Simpson-Bowles plan have already become law, compared to "less than a quarter" of the plan's targeted revenues.
That means there is an enormous inconsistency in this new "Simpson-Bowles" plan. Per Spross:
So if Simpson-Bowles are interested in “building upon” what lawmakers have already achieved, the logical thing to propose is another $1.4 trillion in spending cuts plus another $2 trillion in additional tax revenue. Or if they’re happy with their new $4.8 trillion target -- rather than the original $6.3 trillion -- their new proposal should heavily favor tax increases, since deficit reduction so far has favored spending cuts by three to one. Instead, Simpson and Bowles are proposing $1.8 trillion in new spending cuts and reduced interest payments, and only $600 billion in additional revenue.
One of the things that differentiates a cult from any normal religion or ethos is that normal religions and ethe strive for consistency. Cults, on the other hand, keep changing the rules. So Spross has it right when he marks this occasion as an attempt to "move the goal posts."
Slate's Matt Yglesias echoes the goalposts metaphor. He notes that what seems to have spurred a new "plan" from Simpson and Bowles is that they've noticed that "thus far none of the deficit reduction has cut spending on programs designed to bolster the living standards of the elderly." And they would very much like to shift the fiscal burdens onto those elderly backs. Yglesias writes:
The problem with the $1.5 trillion figure, from this viewpoint, is that you could achieve it without substantially cutting programs designed to bolster the living standards of the elderly. That's especially true if you're allowed to achieve the $1.5 trillion in deficit reduction in a "balanced" way that features tax increases. But if you accept the combined premises that cutting programs designed to bolster the living standards of the elderly is an urgent national priority and also that everything needs to framed in terms of the budget deficit, then the only way to reconcile those views is with a little burden-shifting. I don't know why this framing has come to be accepted, but it has. But you as a reader at home shouldn't be taken in. The main policy debate here isn't about deficits but about spending, and specifically spending on the elderly.
I emphasize the last part because it is particularly spot-on. Right now, we are bent on a course toward inevitable and substantial deficit reduction. Last week, Jed Graham explained this, noting that objective reality was sufficient to both "embarrass budget hawks," and, more gravely, give rise to new concerns that another recession might be similarly inevitable:
Here's a pretty important fact that virtually everyone in Washington seems oblivious to: The federal deficit has never fallen as fast as it's falling now without a coincident recession.
To be specific, CBO expects the deficit to shrink from 8.7% of GDP in fiscal 2011 to 5.3% in fiscal 2013 if the sequester takes effect and to 5.5% if it doesn't. Either way, the two-year deficit reduction -- equal to 3.4% of the economy if automatic budget cuts are triggered and 3.2% if not -- would stand far above any other fiscal tightening since World War II.
The larger problem America faces has nothing -- nada, nil, the null set! -- to do with deficits. It's the unemployment, stupid:
The Congressional Budget Office projects just 100,000 jobs will be added per month this year, the jobless rate will remain stuck around 8% and the economy will grow 1.4% if the sequester takes effect, but that may be too optimistic.
And, as Joe Wiesenthal explained, patiently and in depth, the rational way to go about bringing down deficits is to put more people back to work, by any means necessary.
This new batch of Kool-Aid from Simpson and Bowles is thus a huge impediment to both prosperity and a balanced legislative compromise at a time where we can ill afford it. Naturally, the media, which have long fetishized every utterance of Simpson/Bowles (it's becoming more and more useful to describe them collectively, as if they were a deficit-hack human centipede), have given this new cultish parameter-shift wide play, fully investing in the notion that Simpson/Bowles' increasingly frenetic efforts to needlessly direct the budget axe at the elderly are the only serious concepts under discussion.
In fact, the new hot Simpson/Bowles injection, and the concomitant discussion it's brought in its wake, is a big distraction. And it comes at the expense of more serious matters: the massive unemployment crisis, the deepening hysteresis in the economy, and rising health care costs.
But the salient point is this: The Simpson/Bowles centipede this week has made a balanced, serious, sensible budget deal less likely, by giving fiscal demagogues new fuel for more distracting blather.
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