Archive for August 2011

Robbery with Violence

August 2, 2011

Via Twitter buddy and MIT colleague/Technology Review publisher/editor Jason Pontin, I got myself steered to this brutally, elegantly clear account of federal debt.

Writing at the website of the literary mag n+1, Stephen Squibb lays it out:

Letting one dollar equal a trillion, the total debt of the US Government is roughly $14.27. This divides into $8.32 of public debt, which is held by other nations, individuals, and institutions, and $5.95 of intragovernmental debt, which is owed to programs like Social Security and Medicare, and to the Federal Reserve.

Of the $8.32 of public debt, $4.47 is owed to other countries: $1.15 to China, $0.91 to Japan, $0.36 to the UK, roughly $0.20 each to oil exporters and Brazil, and $1.70 to the rest of the world. $0.63 is due to mutual funds, $0.61 to private pension plans, and $0.31 to depositors like commercial banks, credit institutions, and credit unions. Insurance companies hold $0.25 and savings bonds and state pensions $.018 each, while individuals, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors are due $1.21.

Intra-governmental debt is something of a misnomer: $4.53 of it is really money owed by the government to the American people. The biggest single number in sight, $2.40, represents what Americans have collectively set aside for retirement, or Social Security. This $2.40 is a surplus, collected over decades, as the total revenues from Social Security payroll taxes have exceeded the total amount being paid to beneficiaries. This surplus has been invested in the government, where it counts towards the total debt. The psychological impact of this language game should be clear. What ought to be celebrated as sound financial planning appears instead as further evidence of reckless profligacy. The more money we save, the poorer we are told we are. There is also $1.68 in savings for health care and $0.40 dedicated to needs such as highways, housing, the disposal of nuclear waste, and unemployment insurance.

The remaining $1.42, the second-largest amount, is owed to the Federal Reserve, a public-private institution born of a compromise a century ago between a familiar set of bankers and a less familiar set of populists. The Fed has bought government debt over the last three years in increasing quantity as part of its quantitative easing programs. Unlike other money owed by the government, this debt has no destination, and in many ways is fictitious. If the money were to be repaid, it would simply cease to exist.

He also makes clear where the debt comes from:

The three primary causes for the rapid expansion of the federal debt from $5.77 in 2000 to over $14.00 today are well known. The first is the Bush tax cuts, which with interest cost $2.39 ($1.30 went to the top 20 percent of earners); the second is $1.47 the wars in Iraq and Afghanistan; and the third is about $1.20 in lost tax revenues due to the recession and a dollar for TARP and other stimulus programs. The Medicare prescription drug benefit cost $0.22 and the health care bill $0.15. Because the federal budget was balanced at the turn of the century, these added costs really do correspond to the size of the current problem, an expansion financed almost entirely by issuing new public debt.

This is essentially the same story discussed on my last post (with a material error now corrected):  the McArdles of the world may not like to confront the sources of our debt, nor the implied policy responses, but the facts, sadly, remain stubbornly factual.
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The quotes above form Squibb’s set-up; the rest of the piece is an analysis of what the “resolution” to the debt crisis actually means.  Two money quotes:

The fact that John Boehner walked away shouldn’t obscure the facts: A Democratic president offered to pay for the Bush tax cuts by handing over the health care, education, safety, and savings of the American people.

And:

It is worth remembering what drove us to the edge of the cliff: the right’s absolute commitment to the further robbery of the American people for the benefit of unproductive wealth.

Read the whole thing.  Despite the author’s occasional use of DFH words like “hegemony,” it’s sharp and depressing as hell.  Squibb offers some truly gloomy last thoughts, but here’s mine:

The response to this whole episode is not usefully despair.  Rather, there is a specific pair of tasks we need to drive our representatives to accomplish:  the first is to come up — fast — with a tax expenditure reform package that includes as much as possible, to begin the tax reform vs. cuts argument of the new Catfood Commission Super Congress with as much revenue on the table as possible.  Wonkish — I know, but haven’t we learned by now that it is the first statement of policy that drives the rest of the discussion?

And second:  begin the pressure now and now-er on Obama to keep the extension of the Bush tax cuts at risk unless a genuinely acceptable package comes out of the new Big Daddy committee and the Congress.  No ten cents on the dollar nonsense.  It is not just fairness, but the actual long-term economic and social future of the country that depends on getting revenue up to its historic fraction of GDP.  Again, wonkish, a bit — but necessary, IMHO.  So call and write your folks — and the White House — as often as you can.

Image:  Francisco de Goya, Robbery, c. 1794

 

 

Megan McArdle: Is it her reading that’s the problem? Her comprehension? Her honesty? You Make The Call!

August 1, 2011

I know that this is all kind of moot in light of the events of the last few days, but someone passed word of this McArdle post to me yesterday, and it seemed to me to capture so much of what has gone wrong in the way the media engaged the debate over deficits and their discontents.

In this particular example of Village media retailing a false narrative, She Who Is Always Wrong™ took issue with a chart referenced by and a conclusion her actually, you know, accomplished colleague* James Fallows has been arguing for a while.

And yes, I know, a cage match between Fallows and McArdle is kind of like watching Ali (in his prime) against the Weehauken Regional Golden Gloves champion, at least as far as intellect and journalistic chops are concerned.  McArdle would win, no doubt, were the judges scoring condescension and high-school in-group wit.  But when it comes to actually reporting an issue, understanding what one has been told, and reporting both facts and (clearly demarcated) analysis/opinion, Fallows v. McArdle wouldn’t be licensed even in Nevada.

But that doesn’t stop the divine Ms. MM, unsurprisingly.  Her role is not to be responsible, or accurate, or even coherent.  It is to advance the approved Central Committee line — which, McArdle, loyal and very effective apparatchik that she is, seems to know before the word from on high need ever get spoken out loud.

Hence her attempt to deflect the hideously liberally biased facts of the history of the deficit.

For, you see, the Fallows post she seeks to undermine focused on this chart:

https://i2.wp.com/cdn.theatlantic.com/static/mt/assets/jamesfallows/debt_chart_wh_0.jpg

Fallows made the point, also raised by such raving loony left organizations as the Pew Charitable Trusts and the ever-liberal New York Times that such recourses to history and actual data suggest both a problem and solutions that are different from those we’ve just gone through the wringer trying to debate. (Both references supplied by the White House.)

The broad point is both obvious and obviously too painful for McArdle to contemplate:  George Bush the Lesser inherited significant surpluses and a budget that promised to generate further surpluses through times of economic growth, and transformed that extraordinary fiscal idyll into a crater, a truly spectacular failure of financial prudence.

As the chart above accurately depicts, the largest driver of the deficit is the Bush tax cuts that coincided with the eight years of desperately unspectacular economic returns, culminating in the catastrophic failure of global financial capitalism.** The next largest creator of new debt was expanding domestic spending, followed closely by the wars in Afghanistan and Iraq, both wars of choice.  The prescription drug benefit (Medicare Part D) is a smaller item on this list — just 10% of the scale of the tax cuts — but it’s worth noting for the argument to come below.

All this, of course, shows what we already knew:  Bush policies, supported overwhelmingly by a GOP party that controlled the House for six of the eight years of the Lesser’s adminstration, and the Senate for more than four of those years, are what produced something approaching half of the total still-outstanding debt accumulated to date by all administrations since the birth of the Republic.  This, the Obama administration contrasts with its own record of a 1.4 trillion dollar addition to what we owe now, composed mostly of the stimulus, some particular policy choices, and a bit (and the significance of this will become obvious in a moment) of the extension of Bush tax policies.

So, given that none of these claims are controversial to anyone but McArdle, why is The Atlantic’s Business and Economics Editor so unhappy with her colleague?

Let’s give her the floor for a a moment:

I’m a little less enamored, considering that this graph attributes decisions made by Obama and an all-Democratic Congress–like doubling down in Afghanistan–to Bush, while taking responsibility for basically nothing except the stimulus.  When Obama extends the Bush tax cuts for the rich under pressure from Congressional Republicans, that disappears from his side of the ledger, because after all, he didn’t want to do it.  When Bush enacts Medicare Part D under pressure from Congressional Democrats, the full cost is charged against his presidency.  The list of such silliness goes on.  Our president seems set to coin another presidential motto: “The duck starts here.”

Ah, word salad.

I’ve been enjoying ignoring McArdle, as life is too short to waste time on the negligible.  But that means I’ve forgotten the peculiar pleasure of watching someone lie so badly.  It really is an art, to say something contradicted within fractions of a column inch without noticing — or more likely, without caring, for the purpose of this kind of communication is not to advance an argument but to establish a talking point.

So, to the fisking:

On attributing to Bush costs for the two wars:  well, (a) the $1.4 trillion laid to the Bush account underestimates the long term budgetary consequences, reasonably accurately totals up the budgetary authority extended to conduct the war through FY2009, including homeland security and foreign aid costs of the choice made to go to war.   More to the point, it correctly attributes the decision to the administration that made it.  We are still paying for Medicare Part D, for example, and will continue to do so, because unless repealed, future administrations continue to administer decisions made by prior ones.

It’s true that Obama and his administration have continued to fight the wars launched by his predecessors — but unless you want to advance the claim that all decisions by a President vanish from their legacy the moment they leave office, it still seems appropriate to lay the bulk of the cost of any given decision to the President who made it.  It is fair to state that Obama has chosen to pursue war in Afghanistan while dialling down our commitment (and cost) in Iraq — which is indeed a commitment for which the US taxpayer must pay.  That would suggest one could add a chunk to Obama’s ledger of deficit spending for war, while the chart above suggests other choices are responsible.

But again, if you think about what that chart is actually arguing —  that you should look to new choices on spending, president by president, to understand our current budget predicament — then you grasp its logic.  Bush sent us to war that we must somehow finish.  Obama demanded stimulus, which has not proved to be sufficient.  Both of these are real decisions taken at particular points in time by distinct administrations.  And both choices are accurately reflected above.  To which McArdle responds by conflating our president with water fowl. (Sic — ed.)

Meanwhile, consider McArdle’s next claim:

When Obama extends the Bush tax cuts for the rich under pressure from Congressional Republicans, that disappears from his side of the ledger, because after all, he didn’t want to do it.

Oh snap!  I wish I could proffer such incisive analysis with such — how to describe it? — insouciance.

Except (and this is where my jaw hit the floor, even considering the source), if you take one moment to look at the chart in question, you’ll find, nicely colored in blue, attributed to Obama, $250 billion accounted for as part of the December, 2010 deal that extended the Bush tax cuts for two years.

It really doesn’t seem too much to ask that the Business and Economic Editor of an institution as venerable as The Atlantic might actually read the chart she’s analyzing.  But sadly, that’s just a bridge too far for McArdle.

Update 8/2/31:  reader Atlas Fugged caught an error here:  Obama lays claim to $250 billion of the $800 billion cost of the December 2010 deal; that covers the unemployment extension and other aspects of that bargain; the tax cut extension does, as McArdle says, lie on Bush’s side of the ledger.  I apologize for the error — but note that the argument made on the cost of war still applies:  the decisions made by presidents do not die with the end of a given administration; legacies are, after all legacies.  To be strictly fair, I’d say Obama should own the middle class portion of the tax cuts; the extension of the tax cuts on earners over the $250,000 was clearly a Republican ambition first and last.

And now for the capper:

When Bush enacts Medicare Part D under pressure from Congressional Democrats, the full cost is charged against his presidency.

This is called doing the best (worst) you can when the hand you’ve been dealt has no cards at all.  Just to recall.  Medicare Part D, the prescription drug benefit, was debated and passed in 2003, a year in which the Republicans controlled both houses of Congress.  Republican leadership in the House of Representatives famously bent procedure to the point of breaking to ensure the measure’s passage there.  It’s not clear what pressure that the Democrats could have brought to bear on any of the key players, and certainly not Bush himself:  this was a period of unequivocal Republican control of the legislative process.

McArdle hopes no one remembers when and what happened here, I guess.  She’s playing to the established meme that Medicare is a Democrat’s program, so any spending for it must be due to some nefarious Democratic strategem.  But facts do have that well-known liberal bias, and this claim of hers is simply false.  Whether it is a conscious lie or merely a reflexive one is unclear and unimportant.  That McArdle publishes obviously wrong statements — this one, and the tax gaffe above, for two — is what actually matters.

Enough, mostly…except for a quick take on what this is all about.  One thing among many has been driven home by the ongoing debt-limit debacle:  however poorly you may rate Obama’s poker skills, the GOP has been revealed, again, as a party that cannot govern.

It can make use of power, of course — that’s the what they’re doing now, as they attempt to transfer yet more of the burden of living in American from the rich to the poor and middle class.  (Just to anticipate the usual trolls, how else to characterize an approach to deficits that bans tax increases on the rich and the richest but explicitly raises all kinds of costs borne by the rest of us.)

But it can’t actually do stuff that makes the country go.  The Bush the Lesser administration was an eight year demonstration of that incapacity to do even the basics — from the catastrophic mismanagement of the Coalition Political Authority to “heckava job Brownie” adventures in abandoning an American city, to the sustained and successful campaign of failure in economic and fiscal mismanagement.  Remember:  Bush policies left us with debt, a burst housing bubble, and the near-death experience of the US and world banking system.

It shouldn’t require reminding folks of this:  the GOP had its hands essentially unchallenged on the levers of governance and they failed.  Full stop.  A crater.  We’re currently flying with a partly crippled FAA because the GOP still can’t find their asses with two hands behind their backs.  And above all, as the chart that the White House published, others have corroborated, and James Fallows correctly pointed out accurately depicts, any Republican who claims to care about deficits who voted for Bush-era spending measures is a fraud.

Which gets back, at long last, to McArdle’s real aim in her post.  She writes:

The focus on the past makes it a very bad guide to the relative magnitude of the future choices we need to make.  Some of these items (tax cuts, entitlements) will grow, and some of them (military spending, some discretionary items) won’t….Settling whether “Bush policies” or “Obama policies” were the “cause” of the deficit wouldn’t tell us a damn thing about what we should do

This is an attempt to bely the obvious: knowing what policies, chosen by whom actually created the federal debt tells us a great deal about what we should do.  E.g.:  GOP tax cutting creates recurrent fiscal disasters, leading, inter alia to the need for Democratic choices to spend on stimulus to try to recover from the mess.  Pace McArdle, looking at what was done, administration by administration, and then examining both the context and the consequences of those decisions is precisely what you need do in order to frame choices here-and-now about what we should do.

That McArdle knows this at some level, I have little doubt.  But the consequences of becoming aware of such knowledge are insupportable: she’d have to come to grips with the realization that much of what she has written and supported in the past is turning to ashes in her mouth — not to mention the difficulties it would cause her with her patrons were consciousness to descend upon her.  So, again, she is a pretty straight forward illustration of the truism that it is very hard to grasp that which would cost you to understand.

That’s it, but for this last bit of snark:  McArdle near the bottom of her post contrasts the White House chart with one that she “just happen[s] to have handy.”  I invite you to enjoy it, for it is a peculiar masterpiece. It is both one of the worst examples of the graphic display of information I’ve seen since the great Tufte began to show us the way — and it is, as one would expect, a deeply dishonest depiction.

I’ll leave it to you to pick out the various ways in which the chart conceals relevant information, while just noting that I find it … interesting … that McArdle does not provide a source for this handy chart.  Would it’s provenance be that embarassing?

And with that, enough.

*I know that it must hurt Fallows, an actual journalist, to be thus labelled by McArdle. But, in fact, she’s right, with all the implications for both that follows from that harsh reality.

**I know that sounds like hyperbole — but as the Michael Lewis work at that link documents (as many others do), it ain’t.

Images:  Joachim Beuckelaer, Vegetable Seller2nd half of 16th century.

Gerard ter Borch, The Reading Lesson, 2nd half of the 17th century.