Tea Party Wins

[ModlrMike]

For every $1 Billion invested in infrastructure renewal, 2500 new jobs are created either directly or indirectly.

Those are some pretty darned expensive jobs!

 

[a_majoor]

A general rule of thumb is it takes $50,000 of investment to create a full time job. Once you do the cost/job for most government "stimulus" you find that you have:

a. Removed a vast amount of monetary resources from the private sector to create jobs (through taxation)

b. Spent more (or even far more) to create a job somewhere else, and;

c. Created a temp job which ends with the stimulus funding.

As for infrastructure, note that a huge wave of civil engineering swept Europe and eventually America between roughly the 1600's and mid 1800's to build roads, canals, railways and bridges. Most of this was done by private contractors seeking profits from tolls, not by governments. The State could and would fund the occasional road or bridge during that period if there was a military purpose for that, but often it was cheaper and more efficient to march down the roads or sieze the trains that were already built for commercial purposes.

The US Interstate system is often touted as an example of how government spending helps the economy, but this is a secondary and (in fact) unintended consequence of building the "The Dwight D. Eisenhower National System of Interstate and Defense Highways". The Interstate was modeled after the autobahns, which were also built for the same purpose (military transport).

 

[cupper]

Return on Investment in infrastructure goes far beyond the life of the project itself.

Initial planning creates demand for engineering, legal, planning and other professional services.

Moving from planning to implementation, the demand for labour, materials, engineering and other support services. As more people become employed doing the implementation, they will in turn put money into the economy, as well as providing revenue through income taxes, sales taxes, etc. Companies invest in new equipment purchases, repair or upgrade existing equipment.

Once the project has been completed, IF PROPERLY PLANNED, the new transportation route SHOULD provide reduced transportation costs, increase productivity for users, reduced demand for fuel. Also an increase in property values which access the new route may be realized.

By saying that the jobs are only temporary overlooks the fact that by getting jobs back in the first place, you have created the necessary conditions for growth to occur. In order for that growth to be sustainable, the investments need to be meaningful. As the economy rebounds, the shift will be from projects that are stimulus based, back to those that would normally have been put into place had the economy not been in a state of contraction.

Don't mistake an infrastructure stimulus job with a job creation program scheme. The amount of investment is much higher, but the return on investment is also greater, and takes place in a shorter term. Job creation programs where the government goes out and actually hires people to do work, or pays companies to hire people doesn't provide the same return on investment, and does not have the same long term results.

 

[cupper]

Those are some pretty darned expensive jobs!

My mistake, the correct figure is 25,000 jobs. It was a quotation I had read earlier, but could not find it again, and erred on the low side when quoting it here apparently. :

According to FHWA figures, on average every $Billion in highway expenditures supports 30,000 jobs

http://www.fhwa.dot.gov/policy/otps/pubs/impacts/index.htm

 

[a_majoor]

Your assertation about infrastructure is based on a very dubious set of assumptions.

First off, you completely ignore the issue of Crony Capitalism; taxpayers are being fleeced to repay political contributions by the various companies involved. As well, even assuming there is no Crony Capitalism driving the project, you are paying for two sets of "professional, legal and other services"; the companies involved and the Bureaucrats employed by the State, additional overhead you have to pay for.

Secondly, what constitutes proper planning? Private sector investors need to plan for a profit, so roads, bridges and other infrastructure will follow the markets. Bureaucrats are rewarded for spending money, so have perverse incentives to build bridges to nowhere and other projects which consume funds and resources that could have gone to profitable ventures.

Thirdly, you ignore the fact that taxing money from the private sector in favour of a government "job" is a shell game. Even if a government project could create a job for a $50,000 investment, it still means that $50,000 is missing from some private investment; net job creation=0. Since these jobs often cost more than a private sector job, the net effect is to destroy jobs rather than create them. The primary reason that this sort of nonsense continues is another perverse incentive, politicians can claim success with a cluster of short term jobs (especially near election time) while remaining silent about both the jobs lost in small numbers on a continuing basis from the private sector, and the laid off stimulus workers post election period as well.

 

[Nauticus]

I am fairly active in our local Tea Party - the person that usually sits next to my wife and I is an African-American lady that is a Democrat. Many people are fed-up with both sides.

One of the targets of many Tea Partiers are RINOs. The strategy is to get active within the party of your choice (granted, most are Republicans) to nominate and elect candidates that more closely reflect their values. For us, that means Conservative candidates.

My local group does not endorse candidates for any race. Their goal is to educate members and let them make their own choices. There are many misconceptions about the Tea Party movement; the biggest in my opinion is that the Tea Party is a party; it has no desire to be a party. It's a grassroots movement to shrink government, reduce spending, and hold all elected representatives accountable.

And two of those three things, in my opinion, are the wrong thing to do right now. 

 

[Nemo888]

Shrinking government is not a great idea for the US right now.Later when they are back on their feet again I agree. They get horrible value for their money. They pay only 2% less in total taxes by GDP compared to Canadians and get significantly fewer services(health care, tuition, social safety net, etc). There is obviously some room for improvement.

All the government cuts have thrown their economy into negative growth for over three years now. That's depression territory. It's why the job numbers keep getting worse. Government jobs and increasing unemployment benefits saves jobs and provides a safe form of stimulus when economies falter. The money paid to them goes directly back into the economy. The American economy is too weak for harsh medicine right now. Most economists are in agreement on this. This political theatre is really a self fulfilling prophecy that only sees the US economy get worse. Rather self serving to destroy a country to win an election.

http://www.economist.com/blogs/freeexchange/2011/07/americas-economy

Distress signal

Jul 29th 2011, 13:58 by R.A. | WASHINGTON



IN 2007, the great ship of the American economy began encountering darkening skies. In 2008, it was suddenly faced with a violent storm which blew it miles off course, well south of where it ought to have been. The country's leaders didn't know how far from their charted path they'd been swept, but they recognised a need to make a course correction. Now, three years later, a look at the maps tells us that the storm was more powerful than previously believed, and it left the vessel much farther south than anyone had expected. The course corrections made earlier? Far too small to bring the ship back to its previous path. Yet none of America's leaders are trying to steer the ship back northward. Indeed, many seem anxious to yank on the tiller and drag the economy farther south still.

It has long been clear that America's recovery sagged worrisomely in the first half of 2011. This morning's  second-quarter GDP report reveals, however, that despite concern, most observers were too optimistic in their assessment of the economy's strength. Even more distressing, a series of revisions to past figures reveals a recession that was substantially worse than previously understood, which has left America in a bigger hole than imagined.

America's economy expanded at a 1.3% annual pace in the period from April to June of 2011. That was less than economists expected. Personal consumption growth slowed dramatically behind a drop in purchases of durable consumer goods, largely attributable to higher automobile prices associated with supply disruptions in the wake of the Japanese earthquake. Investment growth continued at a moderate pace. Businesses kept spending on new equipment, and residential investment was a small but positive contributor to output—a rare occurence in recent years. Net exports added slightly to growth, thanks mostly to a big drop in imports. But adding to the weight of the decline in consumer spending was the drag from cuts to government spending and investment.

As disappointing as the second quarter figures are, they're substantially better than the numbers for the first quarter. The Bureau of Economic Analysis initially pegged first-quarter growth at 1.9%, only to revise that figure down to 0.4% growth in the new release. Government represented a significant drag in the first quarter, chopping 1.23 percentage points off of growth, 0.41 precentage points of which were due to state and local cuts, and 0.74 percentage points of which can be chalked up to declining defence spending. Indeed, the new report reveals the extent to which government has been an obstacle to recovery. In five of the last seven quarters, government has contributed negatively to growth, again thanks mostly to large state- and local-government cuts that offset the federal government's modest attempts at stimulus.

The picture grows bleaker the farther back one looks. BEA revised its national accounts numbers back to 2007 for this release, and the picture revealed is far darker than anyone previously believed. From 2007 to 2010, real output declined by 0.3% per year on average. Previously, BEA had estimated annual growth of 0.1% over that period. The decline in output during the intense period of financial crisis was significantly more severe than economists had thought. In 2008, the economy shrank 0.3%, rather than holding flat, as earlier estimated. In 2009, the economy shrank 3.5%, worse than the earlier 2.6% projection. During the ugliest months of the crisis, in the fourth quarter of 2008 and the first quarter of 2009, output declined at a shocking 8.9% and 6.7% annual pace, respectively. It is now clear that the American economy has yet to reattain its previous peak in real output, achieved three full years ago.

If nothing else, this awful report helps to solve a number of lingering mysteries concerning the crisis. Arguments that unemployment must be structural, given the failure of projected growth rates to generate new hiring, now look silly. Projected growth rates were simply overstated, and current unemployment is exactly what we'd expect given such a feeble recovery. Those overly optimistic assessments of the likely impact of interventions, from fiscal stimulus to QE, also make much more sense now. Policymakers were fighting a fire far more intense than they recognised.

Of course, the previous underuse of countercyclical policy suggests that it's more important than ever to get policy right now. Unfortunately, Washington is failing miserably on this score. Policy stances that were inadequate before now look dangerously tight. The Federal Reserve should have all the excuse it needs to reconsider its decision to halt purchases of government assets. Despite all the warnings about inflation, the core Personal Consumption Expenditures price index, which the Fed follows closely, rose just 1.3% in the year to the second quarter. That's far too low.

Meanwhile, Congress' behaviour looks incredibly reckless in light of new figures. This publication has argued consistently that while America needs to address its medium- and long-run fiscal challenges, immediate austerity would be a mistake. The dire economic situation undergirds this point: Washington should delay immediate fiscal cuts. Indeed, it ought to be spending more now and revisiting the possibility of a payroll tax cut.

Instead, it seems as though the best possible outcome of the current debt-ceiling impasse is a deal which hacks away at current spending, increasing the government drag on growth. The risk remains, however, that Congress will fail to reach a deal in time, piling immediate, chaotic spending cuts of about 44% on top of the current malaise. Given consumer anxiety, the risk of a catastrophic government failure, however small, isn't helping.

And of course, there is no shortage of trouble elsewhere. All signs indicate that now is the time for policymakers to rush to the tiller and pilot the ship quickly and decisively back on course. Instead, leaders have left the economy adrift, even as rocks loom ahead.

 

[Brad Sallows]

Repeating it twice doesn't make it any more true here.  Also, the article simply repeats the talking point: "we didn't spend enough".  At some point it may have to be recognized that too many harmful and unnecessary (time- and money-wasting) things were done, and few to none of the helpful and necessary things have been done.

1. Assume the highest point of revenue recovery (from which normal rates of year-over-year growth will resume) will be the line formed by joining the points at either base end of the 2003-2007 bubble and extending it into the future.
2. Cut spending to match.
3. Repeal and otherwise eliminate all recent legislation which threatens to increase employer costs, particular if the cost increases are still uncertain (poorly or not understood/quantified).
4. Stop trash-talking the economy (undermining confidence).  It helped elect Democrats (and become a self-fulfilling prophecy) in 2008, but they must not continue in that mode.  Stop blaming Bush for entitlement programs they would have made bigger, temporary tax cuts that they have extended all on their own, wars they have started or not drawn down, and a looming crisis point for which they have plenty of hot air but no plans on paper that anyone is allowed to scrutinize.

 

[cupper]

First off, you completely ignore the issue of Crony Capitalism; taxpayers are being fleeced to repay political contributions by the various companies involved.

Most, if not all States have enacted laws against "Pay to Play". As well, a legitimate tendering process tends to nullify the effects of cronyism.

As well, even assuming there is no Crony Capitalism driving the project, you are paying for two sets of "professional, legal and other services"; the companies involved and the Bureaucrats employed by the State, additional overhead you have to pay for.

And this is different from the ordinary process how? Unless you privatize the government function which oversees the construction and maintenance of infrastructure, you will always have both government and private sector functions together. The key is to eliminate duplication of effort, by having the "bureaucrat" act in a position of oversight, and the private sector perform the work function.

Secondly, what constitutes proper planning? Private sector investors need to plan for a profit, so roads, bridges and other infrastructure will follow the markets. Bureaucrats are rewarded for spending money, so have perverse incentives to build bridges to nowhere and other projects which consume funds and resources that could have gone to profitable ventures.

First off, I never said anything about private sector investment. I am not talking about public / private partnerships. Two problems with that type of arrangement. First, the private sector is driven by a predetermined return on investment to the investors, which will result in decisions that provide only for the best interest of the shareholders, not the public. Second, government does not need to borrow if tax revenues are invested, and if borrowing is necessary for funding, government will always be able to borrow at a lower rate than the private sector.

Bureaucrates are not rewarded for spending money. If fact they have incentives to minimize expenditures, particularly in the cut cut cut world of todays political climate. If you don't spend the money on one project, it will be spent on another that doesn't stimulate the economy, or else it would be spent on government obligations, so that argument doesn't really stand up.

Thirdly, you ignore the fact that taxing money from the private sector in favour of a government "job" is a shell game.

I am not in the habit of repeating myself, but I AM NOT CREATING GOVERNMENT JOBS. The jobs I am talking about are private sector jobs, people employed by private companies bidding on government construction projects. They are paid at prevailing private sector or union wages. These are not government employees.

Even if a government project could create a job for a $50,000 investment, it still means that $50,000 is missing from some private investment;

Your assertion that the taxes used to pay for the project would pull money from the private sector that would go into some investment overlooks the fact that the taxes would be paid regardless, unless the project is funded by bond issues which would be the private sector investment you are arguing for. As well, private sector investment does not guarantee the creation of jobs, and certainly doesn't guarantee jobs created in the US.

Even if a government project could create a job for a $50,000 investment, it still means that $50,000 is missing from some private investment; net job creation=0.

A job created is still a job. Your math doesn't work. In order for the net to be zero, the private sector would need to reduce it's workforce by an equal amount. Let's say that this was true, and using the numbers I previously quoted, the government put $1 Billion in tax dollars on the table to upgrade and improve a highway between two cities. Using the FHWA number of 30,000 jobs are supported by this work, and lets assume that say 30% of those jobs are new jobs created as a result of this project. 9,000 new jobs are created by the project. However, because I pulled $1 Billion in taxes out of the private sector, they now have to reduce their workforce by 9,000. Why? Makes no sense.
 

Your assertation about infrastructure is based on a very dubious set of assumptions.

My assumptions are based on how the system actually works. Not exactly sure where your assumptions come from, but they seem to have a less stable foundation than the one that supports the ones I use.

 

[cupper]

Repeating it twice doesn't make it any more true here.  Also, the article simply repeats the talking point: "we didn't spend enough".  At some point it may have to be recognized that too many harmful and unnecessary (time- and money-wasting) things were done, and few to none of the helpful and necessary things have been done.

1. Assume the highest point of revenue recovery (from which normal rates of year-over-year growth will resume) will be the line formed by joining the points at either base end of the 2003-2007 bubble and extending it into the future.
2. Cut spending to match.
3. Repeal and otherwise eliminate all recent legislation which threatens to increase employer costs, particular if the cost increases are still uncertain (poorly or not understood/quantified).
4. Stop trash-talking the economy (undermining confidence).  It helped elect Democrats (and become a self-fulfilling prophecy) in 2008, but they must not continue in that mode.  Stop blaming Bush for entitlement programs they would have made bigger, temporary tax cuts that they have extended all on their own, wars they have started or not drawn down, and a looming crisis point for which they have plenty of hot air but no plans on paper that anyone is allowed to scrutinize.

Two points:

First, I believe that if you go back and look, the authors make the statement that cutting spending, especially the depths that are being considered today are compounding the problem. Federal spending cuts inevitably put pressure on lower levels of government, who in turn need to cut spending due to the reduced revenues and increased demand on state and local programs. It is not a surprise that unemployment has not gone down, since state and local governments are now laying off employees.

Second, the Congressional Budget Office has shown time after time that the Bush Tax Cuts are a significant contributor to the growing deficit. Pre Bush projections showed a steady increase in the budget surplus out well beyond 2020. 10 years and 2 wars later we find ourselves in a recession that could have been avoided. Essentially Bush took what could have been a oppourtunity to develop a buffer or cushion for economic downturns and decided that maybe it would be nice to give it back to the taxpayers, since we don't really need it. I will agree that there is a part to play for the current administration on the continuation of the bleak economic outlook, but it started under Bush. A lot of the issues that have occurred could have been avoided or minimized had the tax cuts not occurred, better regulatory enforcement taken place, and perhaps letting the Banks that were too big to fail do just that.

 

[Nemo888]

Sorry for the double post. I was reading two threads at once.

I could see a small tax cut on employee side payroll taxes as a temporary stimulus. But tax rates for the upper class need to go back up to previous levels. We nationalized the debt of the rich during the banking crisis, now they should pay us back and carry some of the load IMO. Cuts till the budget is balanced is fine if you also bring rates back up. But cuts alone will only make things  worse. Lets look at cuts again after 12 months of positive GDP. With the real unemployment rate in the US at 16.6% and youth unemployment in some areas pushing North of 30% the current course is a recipe for long term stagnation. Cuts alone seem punitive and doctrinaire IMO.

 

[a_majoor]

Politicians called the TEA Party movement "Hobbits". Obviously they are not attentive readers....

http://www.washingtonpost.com/opinions/how-the-tea-party-hobbits-won-the-debt-fight/2011/07/31/gIQALMrCmI_print.html

How the Tea Party ‘hobbits’ won the debt fight
By Marc A. Thiessen, Published: July 31

The Tea Party came under fire from all sides Friday after House conservatives nearly brought down Speaker John Boehner’s debt-limit bill.  John McCain went to the Senate floor to mock Tea Partyers as “hobbits,” and Democratic Rep. Chris Van Hollen said Tea Party Republicans “are unfit for governing.” 

What a difference a weekend makes.  The reported debt-limit deal appears to be a victory for the Tea Party. It includes around $1 trillion in spending cuts and creates a special committee of Congress to recommend cuts of $1.2 trillion more. If Congress does not approve those additional cuts by year’s end, automatic spending cuts go into effect. The package sets an important new precedent that debt-limit increases must be “paid for” with commensurate cuts in spending. According to Sen. Rob Portman, a former White House budget director, if we cut a dollar of spending for every dollar we raise the debt limit, we will balance the budget in 10 years — something that even the Paul Ryan budget would not achieve.  And all this is accomplished with no tax increases.

The devil is in the details, of course.  There are troubling reports that the agreement may disproportionately cut defense spending. Conservatives should ensure that the final deal, which is still being hammered out at the time of this writing, does not gut defense. They should scour the legislation to make certain it lives up to its billing.  If it does, the Tea Party has won.

To appreciate the scope of the Tea Party’s victory, consider: When Barack Obama came into office, he went on a bender of government spending. He signed an unprecedented $821 billion stimulus spending bill. His first budget increased federal spending to 27 percent of gross domestic product — the highest level as a share of the economy since World War II.  He then proceeded to ram through Congress Obamacare, a massive government intervention that adds $1.4 trillion in new spending over the next decade alone. Democrats openly talked about passing a “second stimulus.” And five months ago Obama submitted a budget to Congress that tripled the national debt, raising it by $10 trillion over the next 10 years.

Today, no one is talking about tripling the national debt or passing a “second stimulus.”  Congress is about to cut spending by about $2 trillion and put us on a trajectory to balance the budget within a decade. Senate Majority Leader Harry Reid complained Saturday evening that Congress has raised the debt limit 74 times since 1962 without conditions.  He is right. This is happening for the first time in history, thanks to the Tea Party.

Consider that less than a week ago, President Obama addressed the nation, demanding that Congress include higher taxes in any debt-limit deal. According to Senate Republican leader Mitch McConnell, the proposed deal has no tax increases. The Tea Party took tax hikes off the table and held the line — another major victory.

The Tea Party is also winning the battle of ideas.  Last week, Obama campaign strategist David Axelrod crowed that the debt-limit battle was shaping up as a “definitional fight” in which voters would see Obama as defending the reasonable center against Republicans who are “pandering to the extremes.”  Well, if Axelrod is so confident that Obama is winning this “definitional fight,” why was the White House so adamant about ducking a second round next year? The president said that “the only bottom line that I have is that we extend this debt ceiling through the next election.” If he were winning the argument, he would have been eager to have this fight again just before the next election.

Instead of winning over independents with his calls for a “balanced” approach, the president’s support among independents has collapsed. A Pew poll released last week found that a majority of independents now disapprove of Obama’s job performance for the first time in his presidency. Two months ago, Obama held an 11-point lead over a generic Republican.  Today, that lead has vanished. Whatever the president’s strategy was, it failed.

Now comes that hard part: accepting an incomplete victory. Some Tea Party Republicans will be unhappy with the deal because it does not include a balanced budget amendment to the Constitution. The fight for a balanced budget amendment must go on. But Tea Partyers should recognize just how much Obama and the Democrats caved: $2 trillion in spending cuts. No tax increases. A new precedent that debt-limit hikes must be accompanied by equal or greater cuts in spending. And the potential for a balanced budget in 10 years.  That the Tea Party accomplished all this in just six months — at a time when the GOP controls one-half of one-third of the federal government — is remarkable.

The “hobbits” won.

Marc A. Thiessen, a visiting fellow with the American Enterprise Institute and former chief speechwriter to President George W. Bush, writes a weekly online column for The Post.

If you want to continue this literary metaphore, the "Hobbits" haven't quite made it to Mount Doom yet, but they are in Mordor....

 

[Brad Sallows]

Variously:

1.  I do not believe that bureaucrats have sufficient incentives to minimize expenditures, except when they are told to achieve a specific reduction.  I believe the strongest incentive is to spend exactly every penny to justify continuation of funding of their fiefs at current levels.

2. Cutting government spending does not compound economic problems.  There was no problem "cutting" the private sector when whatever it is government does now was shifted from private to public.  The problem is that people inherently understand that nothing "private" is permanent, but expect their dependencies on government to continue forever.  As those dependencies increase, their self-direction and -sustainment wither.  That is a social conditioning problem, not an economic one.  The lie is shown with increasing frequency as the notion how far back the clock could reasonably be turned shortens: first it was "oh, you'd have the Industrial Revolution again", then it was "oh, the Roaring Twenties and Dirty Thirties", then it was "oh, the golden '50s", etc.  Now the progressives become unhinged at the thought of returning spending levels to where they were in 1998.

3. Some types of jobs can be "created" by government.  Public infrastructure (eg. for movement of goods and people) is an excellent example.  Busybody regulations requiring review, oversight, tracking, and enforcement are an excellent counterexample.

4. The "Bush tax cuts" are constantly measured in terms of how much they are thought to have taken out: X% rates times Y GDP, or whatever.  The contribution to GDP growth does not seem to ever be included.  Value of estimate: GIGO.  And projecting surpluses 20 years out is pure fantasy.  Economists have trouble explaining what has happened; their accumulated predictive capability is near zero.  Please do not cite happy-happy-joy-joy prognostications as evidence of anything except the overoptimism of the estimators.

5. I do not believe in such a thing as only "nationalizing the debt of the rich".  Where do you think pension funds and middle class investors with savings - inside or outside tax-protected vehicles - have all of their money?

6.  The initiation of the "bleak economic outlook" can be said to have started during the Bush presidency.  The continuation and stagnation is all happening - so far - during the Obama presidency.  As I wrote above: too much time was spent by Congress and the administration doing things which did not need to be done thereby wasting that non-recoverable resource, time; and too many things were done which have been either non-productive or counter-productive because ideology said they should be so.  Bush's last major single-handed (non-bipartisan) act was to publish his budget forecast in Feb 2008; after that you can find the dead hand of the Democratic party (see also elections, congressional, 2006) attached to everything with or without Republican support.  They wanted more appropriations, so they punted that budget to Obama and got what they wanted.  Both parties wanted the extraordinary measures taken in fall of 2008.  ARRA and PPACA pretty much fall in the Democratic lap.  Stubborn resistance to put entitlement programs on a sustainable footing with the historical percentage of revenue the US actually receives is a Democratic failing.  Goosing up federal revenues and making sufficient cuts in discretionary spending is just wishful thinking.  No severe entitlement reform: the wall is fast approaching.

 

[a_majoor]

WSJ on the debt limit fight:

http://online.wsj.com/article/SB10001424053111903341404576480653492061150.html?mod=rss_opinion_main

A Tea Party Triumph
The debt deal is a rare bipartisan victory for the forces of smaller government.

If a good political compromise is one that has something for everyone to hate, then last night's bipartisan debt-ceiling deal is a triumph. The bargain is nonetheless better than what seemed achievable in recent days, especially given the revolt of some GOP conservatives that gave the White House and Democrats more political leverage.
***

The big picture is that the deal is a victory for the cause of smaller government, arguably the biggest since welfare reform in 1996. Most bipartisan budget deals trade tax increases that are immediate for spending cuts that turn out to be fictional. This one includes no immediate tax increases, despite President Obama's demand as recently as last Monday. The immediate spending cuts are real, if smaller than we'd prefer, and the longer-term cuts could be real if Republicans hold Congress and continue to enforce the deal's spending caps.

The framework (we haven't seen all the details) calls for an initial step of some $900 billion in domestic discretionary cuts over 10 years from the Congressional Budget Office (CBO) baseline puffed up by recent spending. If the cuts hold, this would go some way to erasing the fiscal damage from the Obama-Nancy Pelosi stimulus. This is no small achievement considering that Republicans control neither the Senate nor the White House, and it underscores how much the GOP victory in November has reshaped the U.S. fiscal debate.

No wonder liberals are howling. They have come to believe in the upward spending ratchet, under which all spending increases are permanent. Not any more.

The second phase of the deal is less clear cut, though it also could turn out to shrink Leviathan. Party leaders in both houses of Congress will each appoint three Members to a special committee that will recommend another round of deficit reduction of between $1.2 trillion and $1.5 trillion, also over 10 years. Their mandate is broad, and we're told very little is off the table, but at least seven of the 12 Members would have to agree on a package to force an up-or-down vote in Congress.

If the committee can't agree on enough deficit reduction, then automatic spending cuts would ensue to make up the difference to reach the $1.2 trillion minimum deficit-reduction target. One key point is that the committee's failure to agree would not automatically "trigger" (in Beltway parlance) revenue increases, as the White House was insisting on as recently as this weekend. That would have guaranteed that Democrats would never agree to enough cuts, and Republicans were right to resist.

Instead the automatic cuts would be divided equally between defense and nondefense. So, for example, if the committee agrees to deficit reduction of only $600 billion, then another $300 billion would be cut automatically from defense and domestic accounts (excluding Medicare beneficiaries) to reach at least $1.2 trillion.

This trigger is intended to be an incentive for committee Members of both parties to agree on more cuts, but defense cuts of this magnitude would do far more harm to national security than they would to domestic accounts that have been fattened by stimulus. This is the worst part of the deal, and Mr. Obama's political goal will be to press Republicans to choose between tax increases and destructive defense cuts. The GOP will have to fight back and make the choice between domestic cuts and harm to our troops fighting multiple wars.

While the "trigger" includes no revenue increases, the committee itself could agree to raise taxes to meet the $1.2 trillion deficit reduction target. This means GOP leaders Mitch McConnell and John Boehner have to be especially careful in their choice of appointees. No one from the Senate Gang of Six, who proposed tax increases, need apply. The GOP choices should start with Arizona Senator Jon Kyl and House Budget Chairman Paul Ryan, adding four others who will follow their lead.

One reason to think tax increases are unlikely, however, is that the 12-Member committee will operate from CBO's baseline that assumes that the Bush tax rates expire in 2013. CBO assumes that taxes will rise by $3.5 trillion over the next decade, including huge increases for middle-class earners. Since any elimination of those tax increases would increase the deficit under CBO's math, the strong incentive for the Members will be to avoid the tax issue. This increases the political incentive for deficit reduction to come from spending cuts.

Mr. Obama's biggest gain in the deal is that he gets his highest priority of not having to repeat this debt-limit fight again before the 2012 election. The deal stipulates that the debt ceiling will rise automatically by $900 billion this year, and at least $1.2 trillion next year, unless two-thirds of Congress disapproves it. Congress will not do so.

Given how much the current debate has damaged the public perception of Mr. Obama's leadership, this will be a relief at the White House. This is part of the negotiating price that Mr. Boehner had to pay because of the back-bench revolt that showed he couldn't guarantee a debt-limit increase with only GOP votes. This gave Democrats more leverage.
***

The same supposedly conservative Republicans and their talk radio minders may denounce this deal as a sellout, but we'll be charitable and assume they've climbed so far out on the political ledge they don't know how to climb back without admitting they were wrong. They're right that this deal doesn't "solve" our fiscal crisis, but no such deal is possible as long as liberals run the Senate and White House.

The debt ceiling is a political hostage the GOP could never afford to shoot, and this deal is about the best Republicans could have hoped for given that the limit had to be raised. The Jim DeMint-Michele Bachmann-Sean Hannity alternative of refusing to raise the debt limit without a balanced-budget amendment and betting that Mr. Obama would get all the blame vanishes upon contact with any thought. Sooner or later the GOP had to give up the hostage.

The tea partiers pride themselves on adhering to the Constitution, which was intended to make political change difficult. Yet in this deal they've forced both parties to make the biggest spending cuts in 15 years, with more cuts likely next year. The U.S. is engaged in an epic debate over the size and scope of government that will play out over several years, and the most important battle comes in the election of 2012.

Tea partiers will do more for their cause by applauding this victory and working toward the next, rather than diminishing what they've accomplished because it didn't solve every fiscal problem in one impossible swoop.

 

[Fishbone Jones]

And two of those three things, in my opinion, are the wrong thing to do right now.

How about telling us which two (of the three) and explaining why you think they are the wrong thing to do.

 

[Bruce Monkhouse]

Secondly, what constitutes proper planning? Private sector investors need to plan for a profit, so roads, bridges and other infrastructure will follow the markets. Bureaucrats are rewarded for spending money, so have perverse incentives to build bridges to nowhere and other projects which consume funds and resources that could have gone to profitable ventures.

Slow down Sunshine,...don't let your time in the gong show that is most military budget planning confuse you with the good folks in most Govt departments that always have to do more with less.

When you read a story in the media like e-health, OLG, etc. there IS a good reason that it happens to be NEWS, because it isn't all that common.

 

[cupper]

The final bill has passed the House.

 

[a_majoor]

While the deal is a victory and an important first step, I will ask a question of the various people who have been decrying spending cuts.

If Keyensian spending is so effective, why was US economic performance not enhanced by the 2006 spending blowout orchestrated by the Democrat Senate and House? Why did this vast spike in spending not prevent the 2008 economic meltdown? (We already know that the 2008 Stimulus package had a negligable or even negative effect on the US economy).

Second question: If Keyensian spending is so effective, why is big spending California facing net emmigration of people and jobs, while low spending, low tax Texas is gaining people and creating jobs?

These two data points alone should refute the idea that Keyensian spending is in any way effective.

 

[Gimpy]

While the deal is a victory and an important first step, I will ask a question of the various people who have been decrying spending cuts.

If Keyensian spending is so effective, why was US economic performance not enhanced by the 2006 spending blowout orchestrated by the Democrat Senate and House? Why did this vast spike in spending not prevent the 2008 economic meltdown? (We already know that the 2008 Stimulus package had a negligable or even negative effect on the US economy).

Second question: If Keyensian spending is so effective, why is big spending California facing net emmigration of people and jobs, while low spending, low tax Texas is gaining people and creating jobs?

These two data points alone should refute the idea that Keyensian spending is in any way effective.

How do you account for the China's improved economic performance after their stimulus in 2008 though?

 

[Redeye]

Second question: If Keyensian spending is so effective, why is big spending California facing net emmigration of people and jobs, while low spending, low tax Texas is gaining people and creating jobs?

You mean California, whose federal tax revenues subsidize numerous red states?  And Texas, which had to take stimulus money to balance its budget?

Texas isn't quite so rosy:

http://www.star-telegram.com/2011/06/14/3152456/story-of-texas-job-growth-not.html - Pay particular attention to the comments about the role of education in setting the stage for now - and what's happening to Texas' education system now.  That doesn't bode well for the future.

http://swampland.time.com/2011/06/27/the-cracks-in-rick-perrys-job-growth-record/

I'd be interested in knowing what sorts of jobs are being created, too - what the pay is like, what fields.  Job growth - especially in the US now - is good in general - but what actually matters is good jobs that provide people with the income to live, to some extent, "the American dream".

These two data points alone should refute the idea that Keyensian spending is in any way effective.

And China, as mentioned by Gimpy, turns that argument on its head - meaning that debate will wage on, not likely to ever be solved.

As far as spending cuts go - I'm not sure how laying off government employees and the US government spending less on procurements is likely to help the situation particularly, to the extent at least that those procurements are domestically sourced.  That doesn't mean that government should just keep buying things to prop up the economy per se, but lurches into austerity are not necessarily going to help much.