With lock-step hyper-partisanship the norm in dysfunctional Washington, one disturbing move away from pragmatism on budget issues is the Democrats’ unwillingness to engage.
Senate Democrats go more than 2 ½ years without passing a true budget, and House Democrats mantra is simply: entitlements are off the table.
Of course, that approach is not realistic – it’s merely pandering to the liberal base.
On the Republican side, the drift rightward has been questioned quite bluntly by a number of economists who are in the conservative corner. Perhaps the scariest moments in the hackneyed debate leading up to the debt ceiling deal were when Republicans started comparing Keynesian economics – the backbone of our system for nearly 80 years – to socialism.
Thankfully, a number of economists who actually know the business have stepped forward to try to put a stop to the attempt to have politics trump economics.
At The Washington Post, Jackie Calmes reports that a number of conservative economists say Congress must adopt a budget deal that offers a mix of spending cuts and new tax revenue.
“Among those calling for a mix of cuts and revenue,” the Post reported, “are onetime standard-bearers of Republican economic philosophy like Martin Feldstein, an adviser to President Ronald Reagan, and Henry M. Paulson Jr., treasury secretary to President George W. Bush, underscoring the deepening divide between party establishment figures and the Tea Party-inspired Republicans in Congress and running for the White House.
“’I think the U.S. has every chance of having a good year next year, but the politicians are doing their damnedest to prevent it from happening — the Republicans are — and the Democrats to my eternal bafflement have not stood their ground,’” Ian C. Shepherdson, chief United States economist for High Frequency Economics, a research firm, said in an interview.
Meanwhile, House Majority Whip Eric Cantor has warned his colleagues that they will face great pressure to compromise on revenues but he urged his fellow GOP stalwarts to resist those efforts.
“We were not elected to raise taxes or take more money out of the pockets of hardworking families and business people,” Cantor said.
Republican presidential candidates share that intransigence. In Thursday’s Iowa debate, all eight participants said they who would reject a long-term debt reduction package even if it offered $10 in spending cuts for every $1 in revenue increases.
Over at FrumForum.com, a haven for moderate establishment Republicans, they point out that the idea that “Washington has a spending problem, not a taxing problem” has become a common GOP refrain.
However, FrumForum spoke to several right-leaning economists about this position, and their verdict was clear – they were willing to accept higher revenues as part of a debt-reduction plan.
Here’s part of their post:
“Scott Sumner, a professor of economics at Bentley State University who describes himself as a ‘Chicago-trained libertarian,’ emphasized that there are ways of raising revenue without much cost to economic efficiency.
“’There’s an opportunity to … make our tax code a lot more efficient … in a way that maybe collects some more revenue but also makes it less intrusive … by having lower rates, a simpler system, fewer loopholes,’ he said.
“Richard Posner, a federal judge who helped found the influential law-and-economics movement, agreed: ‘U.S. taxes are low, and even without raising tax rates, tax reforms could generate increased tax revenues’ by eliminating tax expenditures.
Feldstein, who was chairman of President Reagan’s Council of Economic Advisers, endorses the idea that tax expenditures are a key ingredient for any successful budget deal. By tax tax expenditures, he means the costly tax breaks awarded to corporations and individuals – an idea recommended in December by a majority of the Simpson-Bowles fiscal commission.
“I think Republicans should recognize that is a way of raising revenue without hurting incentives by higher marginal tax rates,” Feldstein said.
The prospect of relying entirely on spending cuts, particularly in the short run, worries forecasters.
Here’s the Post again: “Jerry Webman, chief economist of OppenheimerFunds, wrote in an analysis that while the (spending) cuts were not huge this year or next, ‘they are nonetheless contrary to what would be expected in a fragile economic environment.’
“In separate interviews, Joel Prakken, chairman of Macroeconomic Advisers, a forecasting firm, and Laurence H. Meyer, its co-founder and a former Federal Reserve governor, called the reductions ‘job-killing spending cuts’ — playing on Republicans’ mantra against ‘job-killing tax increases.’
Unfortunately, buzzwords and bullet points rule the day. Democrats are cowering because they’re afraid of the politics, not the economics.
A Democratic congressional adviser, granted anonymity to discuss party deliberations, told the Post: ‘We’re at a loss to figure out a way to articulate the argument in a way that doesn’t get us pegged as tax-and-spenders.’”
In a column in the Post on Friday, Bill Gross, who runs the giant bond-trading firm Pimco, lashed out at Republicans and “co-opted Democrats” for setting aside widely accepted economic theory.
“An anti-Keynesian, budget-balancing immediacy imparts a constrictive noose around whatever demand remains alive and kicking,” he wrote. “Washington hassles over debt ceilings instead of job creation in the mistaken belief that a balanced budget will produce a balanced economy. It will not.”
