"Structural Deficits"
Over at Obsidian Wings, Von uses visual aids to demonstrate the radicalism of President Obama’s long term fiscal plans. It is notable that the current “solve the economic crisis” spending spree is a small portion of what would be a reckless course even without them.
As he notes:
Obama and the Democratically-controlled Congress are creating debts and deficits larger than any other US government in the history of the Republic, under any measure, with the singular exceptions of the governments that got involved in a bet-the-country war.
I am not one for overheated rhetoric, but the word for that level of spending — far exceeding even a war-of-choice starting spendthrift like George W. Bush — is radical.
I’d only add that the United States is inevitably going to be confronted by unexpected challenges in coming years—perhaps quite grave ones. Imagine that circa 2015, we are facing worse than expected climate change, or the destruction of Midtown Manhattan by terrorists, or a collapse in Los Angeles port and freeway infrastructure due to a major earthquake and tsunami, or Russian aggression in the North Pole that demands a costly military response, or a flue pandemic that cuts world economic output in half.
A prudent country saves something for inevitable hardships. Our country has spent years of relative luck and prosperity spending ever more — and now we’re planning to accelerate the trend.
The notion in the eighties was that deficit spending was acceptable and did not threaten the economy as long as the percentage increase was stable relative to the GDP. A steadily increasing GDP could support a steadily increasing Federal deficit.
Well, we’ve certainly thrown that overboard. We have radically stepped up Federal spending in the face of a declining GDP. The inflationary pressures are inherent, and can already be seen in the offering of higher yield long-term US Treasury Notes as stated in the piece cited at Obsidian. The nation is going “all in” in an attempt to sustain industries and markets that the free market requires contraction of. Sooner or later, this enormous airplane we are trying to fly will run out of runway.
— nicholas · Jun 9, 06:47 PM · #
Conor:
In this post here at TAS a few months ago, here is what I said about this:
— Jim Manzi · Jun 9, 07:40 PM · #
It’s like we’re in a Jerry Bruckheimer movie, isn’t it? We’re into “That’s so crazy it just might work” territory.
— Tony Comstock · Jun 9, 08:07 PM · #
Jim,
I agree on the vulnerability aspect of the current hyper-deficit, but as to Obama, I believe the actions are purposeful rather than the result of inexperience. He has taken advantage of the real estate/mortgage industry collapse to extend Federal funds (and control) into the banking industry. He has taken advantage of the auto industries financial debacle to insert the Federal government (and his benefactors at the UAW) into an ownership position in these companies. His actions reveal his beliefs: he appears confident that the most equitable and favorable economic model is one with a great deal of central control.
— nicholas · Jun 9, 08:24 PM · #
We also have very, very low tax rates, historically speaking. When we needed to deal with a true and unending great depression and a world war unlike any that came before it (both calamities on the scale of those listed, if not much worse), we paid for it just fine, because people were actually willing to contribute to the well-being of their country. People now, especially those who have been blessed by our country, selfish, complaining that a 5% tax raise will be the end of their world. If our country collapses, it wont be because we spent a little too much money on nickle and dime stuff. It will be because the citizens lacked the will to contribute to their own survival and success. In contrast to their ancestors.
— JWill · Jun 9, 09:22 PM · #
How does that jibe with Hauser’s law? Hauser postulated that regardless of the top marginal income tax rate, post war tax revenues always remained at 19.5% of GDP, this despite changes in the top rate from between 91% under Eisenhower to 28% under Reagan. How do current expenditures compare to the GDP? If expenditures outstrip the GDP, what will that mean to the nation’s economy, in regards to inflationary pressures?
With all the good will in the world, you and I and everyone else cannot earn enough money to keep up with what someone else is willing to spend. Regardless of how heavy you tax the people’s earnings, you will not cover the bill. And remember, it is income earned that is being taxed, not actual wealth. Thus raising the rates of the progressive tax system will impeded (and more importantly discourage) anyone working their way to becoming wealthy, but will have little impact on those enjoying real wealth.
Is that what we really want?
— nicholas · Jun 9, 09:48 PM · #
We know how the movie will end: with inflation and tax increases. They were already inevitable anyway, since no one really wants to cut any of the major Federal spending programs.
In answer to nicholas’s question, if the experience of other OECD countries is anything to go by, there’s still a lot of room for more taxes in America’s economy, especially if they are more efficient taxes like a national VAT. You could have a pretty high national VAT.
Oh, but you don’t want to have higher taxes. Well, you don’t want lower spending either so something has to happen sooner or later.
— Pithlord · Jun 9, 11:52 PM · #
We all saw this graph, right? But anyway…
This is why saving vs. spending is the wrong way to look at this. Yeah, you could save trillions if we just let all bridges fall down, if we sold every weapon for scrap, and fired everyone at FEMA and the CDC. But that wouldn’t exactly save you from your terrorism, tsunami, earthquake, war or pandemic.
The problem is not too much spending, but too much consumption and not enough investment. If we avoid health care reform, that might make CBO estimates look slightly less scary, but it would do nothing to stop out of control health inflation. Private sector waste is just as much a threat to future preparedness as public waste.
Yeah, it’s true, Obama’s going to need to do more to address long-run fiscal solvency. The markets for our debt will eventually, rather soon, enforce this. But I think it’s reasonable to avoid taking those measures in the middle of a recession of unknown duration, if we don’t have to. There are economic reasons why Obama would want to avoid being specific about the tax increases or entitlement cuts required in the future at this time.
Frankly, as long as Obama is maintaining the the Bush status quo on state secrecy and indefinite detention, then that’s where I’m going to expend most of my outrage ammunition against him. Once the government starts detaining people illegally, I’m kind of beyond worrying about what it plans to do with all the little green pieces of paper.
— Consumatopia · Jun 10, 12:14 AM · #
Pithlord, what would compel you to offer that I did not want lower spending?
Without question I want lower spending. That would what I want most from our government. As I was commenting earlier in Americans Do Care About Smaller Government
“I believe the primary difficulty in decreasing the size of government is that the politician’s involved, both Republican and Democrat, derive power on the basis of these very programs.”
I would differ from Consumatopia’s view in that I do believe a primary problem right now is too much spending…way too much spending.
The government’s ability to fund “helpful programs” rides on the fact that the government procures it from the citizenry in the first place. While risking sounding over the top, the notion of political elites offering bread and circus to a plebe citizenry is detestable to me. Meanwhile, the true virtues of citizenship, self-reliance, self-determination, self-government, whither away in the populace. It is not the government’s role to take care of us. But we do have a moral obligation to take care of each other. This is best accomplished, in my view, without the heavy hand of the Federal government and all the small men seeking to make themselves powerful that make up the political class of this nation.
— nicholas · Jun 10, 12:45 AM · #
Before everyone just piles on the “OMG OBAMA’S DEFICITS ARE THE WORST! make sure you take a look at this chart.
Now, that’s not to say that Obama doesn’t have a responsibility to get things under control, but everyone seems to be getting collective amnesia about who actually took the country down this road.
— Mike P · Jun 10, 04:24 PM · #