Austerity and Stimulus

James K

James is a government policy analyst, and lives in Wellington, New Zealand. His interests including wargaming, computer gaming (especially RPGs and strategy games), Dungeons & Dragons and scepticism. No part of any of his posts or comments should be construed as the position of any part of the New Zealand government, or indeed any agency he may be associated with.

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27 Responses

  1. greginak says:

    SS isn’t really a big problem, it can be fixed for good with essentially minor tweaks. Saying we have to cut Medicare sort of sidesteps the issue that our medical spending in general and growth rate are unsustainable. We can’t fix Medicare without fixing our health care system as a whole and we can’t fix HC spending without fixing Medicare. Focusing on how to cut Medicare really doesn’t deal with the overlying issue.

    Defense…well, if anybody thinks getting some sort of HC plan was difficult was hard hasn’t dealt with trying to cut defense. As an anecdote i’ve known conservatives who still shriek that the obvious and sensible cut in spending by Bush I and Clinton after that little event known as the forking cold war ending somehow left us defenseless and the mercy of ….i don’t know, maybe at the mercy of Luxembourg or something. In any case there are many many loud americans who think any cut in D spending is our doom.

    As part of HC/Medicare debate the justice ( since mentioning morality is a non-starter) of who gets boned or not is a serious issue. The Medicare cutters on the right don’t like to directly state it, but their various plans dumps a few tens of millions of people of HC roles and leaves many people without options for getting insurance.Report

    • James K in reply to greginak says:

      I agree about health, that’s a blog post I’ve yet to do, but plan to at some point. Otherwise the only cutting you can do is to arbitrarily cap spending per person, or declare some procedures uncovered. Neither is a good way to go about it.

      I was under the impression that the “minor tweaks” to Social Security amounted to pretty large marginal tax increases for people on high incomes, which may not be a good idea. High income people are an especially volatile revenue source.

      As for the political viability of any of this – I agree with you, I honestly don’t see a way out for your country, given the politics. I can only hope I’m wrong.Report

    • DensityDuck in reply to greginak says:

      Defense? Yeah, go ahead and cut all that. I mean, we don’t need things like GPS or weather reports, right?Report

  2. Lyle says:

    On the debt lets just issue consols (permanent bonds) as the UK did in years past, since they are eternal you don’t ever have to pay them back. It would be interesting to see what rate US consols would go for.
    At least issuing some would require the complaints about the debt to change to the amount of interest being paid, since they never need to be repaid, thus our children and grandchildren need only pay the interest.Report

    • James K in reply to Lyle says:

      Perpetuities are a reasonable option, but the interest rate on them will be significantly higher than for a regular bond (to make up for the fact you don’t get principal back).

      Still it’s not a bad idea to have some long-run securities. The interest rate on bonds reflects (in part) default risk, but only over the period of the loan (a 6 month loan tells you nothing about default rick over more than 6 months), so long run bonds are a canary in the coal mine of fiscal stress.Report

  3. E.D. Kain says:

    Well said, James. It makes me really wish we actually had a mature fiscally responsible party here in the US.Report

  4. Tom Van Dyke says:

    the fact that the US government spends more than it taxes

    That’s a duh, Brother JamesK. Get back with some math about spending and taxes because you lost me at this locution. Leave the US out of it: the entire Western World is spending more than it taxes, and it taxes the bejesus out of anything that doesn’t move offshore. The Laffer Curve also contemplates tax avoidance.

    Bye bye, ABBA, Bjorn Borg.

    U2! An Irish band, a Netherlands corporation for tax purposes.

    I always wonder why tax-spend-state hounds think they’re smarter than the people who actually have or make money. Kennedys and rock musicians are the stupidest creatures on earth, but even they know enough to hire lawyers who ain’t.Report

    • James K in reply to Tom Van Dyke says:

      What you say is true Tom, structural deficits are the norm in the West. Still, that doesn’t make it less of a problem.

      And you’ll note that I explicitly mentioned the Laffer Curve, it’s one reason why I doubt you can get much money out of tax rises (and what you can get will most likely come from base broadening, rather than marginal tax increases).Report

    • superluminar in reply to Tom Van Dyke says:

      So just to get this straight dude, the conservative position now is that it is both admirable and downright patriotic for a citizen to avoid paying as much as he can get away with? Good to know.Report

  5. Michael Drew says:

    For a self-described libertarian, you address your posts surprisingly much as if there were a single, rational, centrally planning actor running things over here. There isn’t. There is more chaos within a decrepit institutional structure than rational planning going on over here. In fact, the inmates are darn near in charge of the asylum. Welcome to the monkey house.Report

    • James K in reply to Michael Drew says:

      That’s probably more to do with my nationality than anything else – in the Westminster system a government without budgetary control is a contradiction in terms.

      But bear in mind that I don’t think there is a political solution to this problem in the US, and I’m taking your dispersed political structure into account as part of that (though I think the voters are a bigger obstacle).Report

      • Anderson in reply to James K says:

        “a government without budgetary control is a contradiction in terms”

        One reason I’m inclined to see the superiority of a parliamentary system over a presidential one. There’s a total sense of political responsibility for the PM and ruling party; a divided government can often lead to both sides saying their plan would work *if only* the other side hadn’t been in the way. Even if the Repubs were totally in charge (though in a parliamentary and PR system I don’t think a Tea Party esque group would rise to power, even in America), I’d prefer they do as they will and let the voters see the results. Yet…with parliamentary coalitions this concept can become rather sticky (look to current UK or Israel governments for one)Report

  6. Art Deco says:

    1. Military spending (as a share of domestic product) has since 1929 varied wildly in response to exterior circumstances; it has been anywhere from 2% to 44% of the total, with a mean somewhere around 7%. There is some pork incorporated within it (some military bases and some procurement programs have congressional patrons), but Congress has managed to adopt some voluntary self-restraints that contain the effects of this on the military’s operations. Historically, it has been much more readily cut than programs which reflect the government patronage mill in operation. Still, if we were to return to the military similar to the levels they maintained prior to the Afghan War, we might slice off 15% of the deficit.

    2. About 13% of federal spending (give or take) is a function of patron-client relations the Democratic congressional caucus constructs with constituencies the way normal people breathe and digest food. (Republican members of Congress will act to retain those of significance in their local area). The big beneficiaries are agribusiness, higher education, real estate development, and the social work industry. These programs can all be replaced with a negative income tax, replaced with a general subvention to state and local government, or discontinued.

    3. Quite apart from that, miscellaneous service agencies and certain regulatory agencies have indubitably been the beneficiaries of the President’s spending electives. Just returning real expenditure on the part of these agencies to what it was in 2006-07 will likely save you an 11 figure sum.

    4. IIRC, federal income tax collections are at this time about 7.5% of gross domestic product, or about 9% of personal income. Raising them to 21% of personal income might close the deficit in the absence of any spending reductions. Excising deductions and exemptions and special credits and adding a general credit to remove the most impecunious quartile from the income tax rolls might require a marginal rate of 30%. I do not think Dr. Laffer has claimed that his conceptions apply at marginal rates at that range. (The experience we had during 1982, 1983, and 1984 suggest they do not apply when the ultimate marginal rate is at 50%).Report