You Mean Running Up Trillions in New Debt May Not Be Good Politics?

Obama Broke

The Washington Post reported Sunday here, hattip to Instapundit, that the White House is getting nervous about the political fallout from the unprecedented spend-and-borrow binge upon which  Obama has placed the country.

“Results from a Gallup survey released last week show that although more than six in 10 Americans approve of Obama’s overall job performance, fewer than half say they approve of how he is handling the deficit and controlling federal spending. The poll also shows a decline from the previous month in the percentage of Americans who approve of Obama’s handling of the economy, although a majority still does.”

Time now for the Republicans to press for repeal of the Bankrupt the Nation Act of 2009, otherwise known as the stimulus bill, before the Debt Supernova damages the country for generations.  The closer we get to 2010 the more amenable Blue Dog Democrats in Congress will be to restraining some of this fiscal lunacy.

Gallup released another  poll yesterday in which 40% of Americans describe themselves as Conservatives as opposed to 21% who claim that they are liberal.  The Republicans lost the 2006 and 2008 elections in a country in which such a large percentage of the population is conservative largely by convincing many of those conservatives that there was no difference  between them and the Democrats on government spending.  The Bush administration’s sponsorship of the Bailout Swindle of 2008 was the final straw for too many conservatives who stayed home on election day or who voted for Obama .  Now the Democrats are proving, once again, that, in general, the Republicans cannot match them for completely feckless government spending.  The Republicans have an opportunity here, but only if they convince the public that they have mended their ways.  Heaven help the Republicans if they win in 2010 and 2012 and simply go back to the fiscal irresponsibility that drove them from power in the first place.

15 Responses to You Mean Running Up Trillions in New Debt May Not Be Good Politics?

  • There you go again. Donald, do you understand the difference between a cyclical and a structural deficit? Are you aware that the vast majority of the increase in the deficit right now is cyclical?

    Let me ask you: how much of the fiscal turnarond since the last surplus is due to Obama’s discretionary spending? I’m talking from 2001 to 2012, so it captures the medium-term fiscal plans of the Obama administration. Well, 37 percent is the business cycle. 33 percent is discretionary policy under Bush – chiefly tax cuts and war spending. 11 percent comes from the continuing cost of Bush era programs that Obama has kept up (there’s your war again). Obama’s stimulus bill accounts for only 7 percent, and his proposed spending health, education, and energy account for a another 3 percent. [http://vox-nova.com/2009/06/10/blame-bush-and-the-recession/]

    As fiscal expert (and hawk) Alan Auerbach notes, the worst charge you can levy against Obama is that he is not making a concerted effort to fix the sustainability problems left by the Bush administration.

    And these numbers may actually over-estimate the impact of Obama on the budget. As TNR’s Jonathan Chait points out, the Center on Budget and Policy Priorities crunched the numbers, and found that Obama’s budget would reduce the budget by $900 billion over ten years compared with keeping current policies in place [http://blogs.tnr.com/tnr/blogs/the_plank/archive/2009/06/11/the-truth-about-obama-and-the-deficit.aspx]

    But you are right about one thing, Donald– Obama is getting blamed for this because people like you (and I include most political pundits here) simply do not understand the basic fiscal math.

  • Donald R. McClarey says:

    Tony, your frantic efforts to provide cover for the completely insane spending policies of the Obama administration indicates to me that the Left in this country will soon be in full melt-down mode by the Fall as the country fully awakens to the disaster of the course on which Obama has embarked the nation. As Robert Samuelson has noted:

    “Let’s see. From 2010 to 2019, Obama projects annual deficits totaling $7.1 trillion; that’s atop the $1.8 trillion deficit for 2009. By 2019, the ratio of publicly held federal debt to gross domestic product (GDP, or the economy) would reach 70 percent, up from 41 percent in 2008. That would be the highest since 1950 (80 percent). The Congressional Budget Office, using less optimistic economic forecasts, raises these estimates. The 2010-19 deficits would total $9.3 trillion; the debt-to-GDP ratio in 2019 would be 82 percent.

    But wait: Even these totals may be understated. By various estimates, Obama’s health plan might cost $1.2 trillion over a decade; Obama has budgeted only $635 billion. Next, the huge deficits occur despite a pronounced squeeze of defense spending. From 2008 to 2019, total federal spending would rise 75 percent, but defense spending would increase only 17 percent. Unless foreign threats recede, military spending and deficits might both grow.

    Except from crabby Republicans, these astonishing numbers have received little attention — a tribute to Obama’s Zen-like capacity to discourage serious criticism. Everyone’s fixated on the present economic crisis, which explains and justifies big deficits (lost revenue, anti-recession spending) for a few years. Hardly anyone notes that huge deficits continue indefinitely.”

    http://www.realclearmarkets.com/articles/2009/05/barack_obamas_risky_deficit_sp.html

    Contrary to your final statement, people are beginning to understand the basic fiscal math. That is Obama’s problem and yours.

  • Art Deco says:

    the Center on Budget and Policy Priorities crunched the numbers

    That is a small advocacy group which is an auxilliary of the Democratic Congressional Caucus. Their number should not be cited as authoritative.

  • Donald,

    Answer this question: how much of the increase in the deficit over these years is caused by (i) the economy; (ii) the inherited legacy of the Bush years (tax cuts, war, medicare part D); (iii) new policies of the Obama administration? Tell me.

    There’s something else. One reason why the deficit look so high going out is that Obama has gotten rid of all the fiscal gimmicry that made the deficit look artificially low under Bush.

    Here’s Chait: “In recent years, Congress and the president have relied on a series of budget gimmicks to mask the size of the deficit. For instance, they would assume that certain tax breaks would expire starting a year in the future, but routinely extend them a year at a time. According to the Congressional Budget Office’s numbers, Obama’s budget–compared to continuing current policies–would make the deficit $900 billion lower over the next decade.”

    Another issue — you do understand that high deficits does not mean unsustainable deficits, right?

  • Donald R. McClarey says:

    Tony, the matterhorn of new debt is all a deliberate policy choice of Obama and all completely unnecessary. He could still attempt to change course. A good start would be to repeal the stimulus package.

  • Dale Price says:

    According to the Congressional Budget Office’s numbers, Obama’s budget–compared to continuing current policies–would make the deficit $900 billion lower over the next decade.”

    So the gimmick-ditching explains $90bn per year. And the rest?

    The stimulus wouldn’t have been remotely as bad had more than 20% of it actually been devoted to infrastructure improvements. Instead, it was an election lottery splurge.

    http://www.washingtonpost.com/wp-dyn/content/graphic/2009/02/01/GR2009020100154.html

  • jh says:

    IT is a scandal. THe real scandal is that both Republicans democrats did not heed Bush’s call to so something about Social Security. I think it is the height of folly not to take care of that first.

    What is driving the future deficts is not really Bush Spending that in many ways were a samll structural deficit. And it is not Medicare D. It is going to to be the other parts of medicare and such.

    Heck balming anyone for that is ort of silly unless we want to blame Johnson.

  • Art Deco says:

    Answer this question: how much of the increase in the deficit over these years is caused by (i) the economy; (ii) the inherited legacy of the Bush years (tax cuts, war, medicare part D); (iii) new policies of the Obama administration? Tell me.

    You may be correct on the factual point. The trouble with your discussion is that the numbers your citing are derived from projections for which the methodology employed is very much a black box. Jonathan Chait is an opinion journalist making use of the product of the Center on Budget and Policy Priorities. The Center on Budget and Policy Priorities appears to have bulked up considerably in the last 25 years (I believe they once employed about 15 people) and unlike other such agencies (e.g. The Century Foundation) does generally employ properly credentialed individuals. Have a look at their site. I think you will look in vain for a refereed academic paper or for a working paper composed in a similar format and idiom. It is a cottage manufactory of press releases and Congressional testimony. Most of their fellows have been recruited from the Democratic legislative staff either of the U.S. Congress or of one or another state legislature. Others were hired off the research staffs of public employee unions. Asking these characters who is responsible for what is very much like asking Democratic members of Congress. That does not mean that they are wrong; however, consulting this source is not an optimal use of your time (or Mr. McClarey’s).

    One problem he only alludes to tangentially and you do not allude to has been the determination of Mr. Geithner (and Mr. Paulson, and various other rogues) to socialize as much as possible the cost of righting the banking system and to effect industrial restructurings so as to serve the interests of Democratic constituency groups. The higher the ratio of public debt to domestic product the more we are in danger of a currency crisis. Given that the propensity to public expenditure tends to explode during banking crises, it is simply awful timing to be attempting to effect what will without a doubt be a notable increase in the baseline of economic activity accounted for by the government’s purchase of goods and services. However, in Washington, in Albany, and in Sacramento, our politicians seem incapable of putting aside for even eighteen months their rancid ambitions and crappy little games to address a national crisis. Joseph Nocera is right, “worst political class, ever”.

  • Art Deco says:

    THe real scandal is that both Republicans democrats did not heed Bush’s call to so something about Social Security.

    Adjusting tax rates, benefit levels, and the retirement age will right Social Security. It is not that difficult; it is that they are too irresponsible and poltroonish to do it.

    More salient, given our current circumstances, is the failure of Congress to heed the recommendations of Gregory Mankiw (the Chairman of Mr. Bush’s Council of Economic Advisors) to address the dodgy accounting practices and undercapitalization of Fannie Mae and Freddie Mac. The individual most responsible for this resistance was Barney Frank.

  • A number of points:

    * There is indeed a long-term fiscal sustainbility problem, but it has nothing to do with social secuity. The beltway talking heads just don’t get this — social security is fine, nearly all of the sustainablity comes from medicare.

    * Medicare is unsustainable because of escalating costs. See Peter Orczag’s editorical in today’s Financial Times. But here’s the rub: medicare costs are out of control because healthcare costs in general are out of control. In fact, medicare does a better than of keeping costs down than its private alternatives, but it’s still not enough. A great fallacy here is that because it’s on the government balance sheet, the sky is falling, but when it’s on the household balance sheet, we don’t have to worry about it. Much of the reason for stagnating median wages is the huge rise in healthcare costs – workers are sacrificing wages for this. So this has nothing to do with Johnson and medicare specifically, it has to do with costs.

    * Yes, the governance problems that led to the undercapitalization of the GSEs was a problem, but it had nothing to do with the financial crisis, which erupted in the private securitization markets. That’s where the vast majority of the credit losses lie, and for a very good reason — subprime loans (those things that triggered the crisis) were nearly all in the private sector.

    * I actually don’t know much about the Center on Budget and Policy Priorities, but their analysis certainly raises no red flags. And if you don’t believe them, then you are at the baase-case scenario whereby Obama contributyed about 10 percent of the deficit, instead of actually reducing it on net. Jon Chait tried to delve into the differing methodologies – it’s all rather technical– one big issue is whetther the tax credits that get renewed pretty much every year, long before Obama, should get pinned on Obama.

  • Art Deco says:

    Yes, the governance problems that led to the undercapitalization of the GSEs was a problem, but it had nothing to do with the financial crisis, which erupted in the private securitization markets. That’s where the vast majority of the credit losses lie, and for a very good reason — subprime loans (those things that triggered the crisis) were nearly all in the private sector.

    Rubbish. The mortgage portfolios of Fannie and Freddie constituted half of the secondary mortgage market and their bond issues constituted about two-thirds of all securitized receivables. The threat to the solvency of institutions comes not merely from subprime and alt-A loans (16% of the total) but from the prime loans of borrowers under water and out of work. It was not until August of 2008 that the national economy began to contract and a disagreeable condition in credit markets turned into a crisis precisely at the time a conservatorship had to be imposed on Fannie and Freddie. A trillion dollars worth of illiquid Fannie and Freddie issues are on the books of depository institutions in this country, and a trillion dollars worth of Fannie and Freddie issues were sold abroad, much of it ending up in the portfolios of sovereign wealth funds in the Far East. It is Fannie and Freddie issues that will (alas) be added to the national debt. It is Fannie and Freddie’s deficits that are being financed to the tune of tens of billions of dollars every quarter.

    Once more with feeling: it is a suboptimal use of your time to consult the work product of the Center on Budget and Policy Priorities, whether you believe them or not. There is so much literature out there from more credible venues, though it might not be sufficiently topical for your purposes. I cannot figure how Jonathan Chait is supposed to produce a ‘rather technical’ discussion when his source is not producing much in the way of technical discussions.

  • Art Deco says:

    Much of the reason for stagnating median wages is the huge rise in healthcare costs – workers are sacrificing wages for this. So this has nothing to do with Johnson and medicare specifically, it has to do with costs.

    You mean the escalation of costs has nothing to do with the socialization of costs. Okey doke.

  • Art Deco — I’m sorry, but your analysis of the subprime crisis could not be more off. The GSEs had a major balance sheet expansion in the 1990s, but this had largely stopped during the “subprime years” of 2004-07. If you look at data from the Fed:

    More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

    Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

    Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that’s being lambasted by conservative critics.

    (http://www.mcclatchydc.com/251/story/53802.html)

    During those years, it was the private investment banks gobbling up securitzied subprime loans, not the GSEs — the GSEs held only a quarter of subprime loans sold on the secondary market.

    Another way to look at it is to see where the bodies are buried – the GSEs account for a tiny proportion (certainly less than 10 percent) of estimated credit losses out there.

    Today, of course, it’s a different story — the private securization market is dead, and the GSEs basically are the market.

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