Eternal vigilance

I’m not very comfortable talking about policy because I know enough to know that I wouldn’t really know what I’m talking about. Further, I don’t want to turn this into another episode of Paul Krugman is right, everyone else sucks. But can someone answer these questions for me:

1. The Village/Republican critique of stimulus spending is “oh noes, the national debt”. Is there any legitimate reason why these proposed tax cuts do not provoke a similar reaction?

2. The reason why “oh noes, the national debt” supposedly makes sense is that an increasing debt may prompt the bond vigilantes to up the interest on T-bills. Krugman points out “The 10-year bond rate was over 3.7 percent when The Journal published that editorial; it’s under 2.7 percent now.” I understand that excessive national debt is problematic, don’t get me wrong, so that’s not what I’m asking. What am I asking is: is there any evidence that US debt will be hit by these bond vigilantes? If so, what are they waiting for?

Update. And one final question, a bit darker: is the Obama administration so deeply in the grips of irrational Village economic “ideas” that we are all fucked?

88 replies
  1. 1
    WereBear says:

    In short: they are simply full of crap.

    But it doesn’t bother them. Why should it bother you?

  2. 2

    1. The Village/Republican critique of stimulus spending is “oh noes, the national debt”. Is there any legitimate reason why these proposed tax cuts do not provoke a similar reaction?

    I only feel qualified to answer this one, but the answer’s pretty simple, and it involves who gets the money.

  3. 3
    nightshift66 says:

    1. There is no legitimate (logical) reason. The Right favors tax cuts as an end in themselves in all situations, and creates post hoc rationales for them.

    2. The evidence is against “bond vigilantes” punishing higher debt, as documented by Krug. This is an example of a rationale used to push a desired policy that is irrelevant to the policy itself.

    3. I cannot speak to the mindset of the Administration. However, all indications suggest that we are well and truly fucked.

  4. 4
    Nazgul35 says:

    is the Obama administration so deeply in the grips of irrational Village economic “ideas” that we are all fucked?

    Yes.

  5. 5
    schrodinger's cat says:

    Bond vigilantes stuff is bogus, the Chinese are not going to kill off the goose that lays golden eggs, at least not just yet. I don’t understand Obama administration’s timidity regarding the financial crisis. Why is he continuing to listen to the people who got everything wrong and are responsible for the mess we are in.

  6. 6
    slag says:

    __

    And one final question, a bit darker: is the Obama administration so deeply in the grips of irrational Village economic “ideas” that we are all fucked?

    The rest I’m pretty sure I know the answers to–and all of my answers are, indeed, cynical–but this question I’m honestly curious about. I’m trying to not be cynical about this one, but it sure as hell isn’t easy. I can definitely see why, to some people, it seems as if they’re actively trying to piss us off sometimes.

  7. 7
    Chris says:

    1: no. 2: no, there is no evidence of Bond Vigilantes About To Go On The Warpath. 3: I hope not, but only time will tell.

  8. 8
    Zandar says:

    1) A lot easier to sell “tax cuts let Americans keep more of what they earn” as the lie that tax cuts pay for themselves.

    2) They’re waiting for Helicopter Ben to start throwing money bricks out of the side of the choppah. They know it’s coming, just a question of when. Meanwhile, it’s just another Big Casino table in the meantime.

    3) Yes.

  9. 9
    Apikoros says:

    is the Obama administration so deeply in the grips of irrational Village economic “ideas” that we are all fucked?

    satsq: Yes

  10. 10

    1. Rich people matter more than the rest of us.

    2. Not at the moment, no. I’m not that dismissive of 11 trillion in national debt, but at the moment, the market seems to still have confidence that we’ll be able to meet our obligations.

    But facts rarely matter in debates these days. it’s all about emotions.

    3. Yes. SATSQ

  11. 11
    Jim, Foolish Literalist says:

    1. The Village/Republican critique of stimulus spending is “oh noes, the national debt”. Is there any legitimate reason why these proposed tax cuts do not provoke a similar reaction?

    a) Republicans drive the terms of the debate b) Villagers, including Republicans, Blue Dogs and pundits are far less sophisticated (by which I mean, much dumber) than we generally give them credit for; stupidity explains a lot more than malevolence, I think c) the leading Villagers are pretty wealthy people, think of six-figure/yr David Gregory and his “this isn’t about the fatcats, this is about people like you and me”, or Charlie Gibson physically assuming the caricature of a clueless plutocrat as he opined about “middle class folks, making $200,000 a year…”.
    A, B and C are overlapping categories.

  12. 12
    Sentient Puddle says:

    1) No.

    2) No.

    3) No. I think people forget that at the last G20 meeting, pretty much everybody else decided the best way to improve the world economy was deficit reduction, and America alone was all WTF. It’s reasonable to question whether or not the administration favors bold enough action needed to juice the economy, but they certainly ain’t falling prey to the dumbass austerity CW.

  13. 13
    LarsThorwald says:

    The measure of our potential fuckedness is directly proportional to the gloom of the populace. Look at an economic chart. We are in the trough. That trough cannot and will not stay bottomed out, and for all the reasons why people can tell me it isn’t happening fast enough, no one can tell me it won’t happen, that turnaround. Cyclical and structural causes, and all that. This too, friends, shall pass.

    And, not to sound like too old a guy (I’m 40), but if you read history you realize every generation believes it lived in the worst of all possible times. It’s not.

    This too shall pass.

    Everyone needs to do what I plan to do: I am turning off the computer for this long and glorious weekend, and I am getting my ass outdoors.

    That’s that place out the window.

    Cut of the doom box. Fresh air and shit. Perspective.

  14. 14
    Punchy says:

    Tax cuts LOWER the defecit, libtard. Less money coming into the government gives them more money to spend bringing down the defecit. Easy peasy.

  15. 15

    Update. And one final question, a bit darker: is the Obama administration so deeply in the grips of irrational Village economic “ideas” that we are all fucked?

    Yes. I have seen nothing to indicate otherwise.

  16. 16

    1. Tax cuts and deficits. I thought that tax cuts increased business etc. and actually increase the amount the treasury brings in and thereby decrease the deficit. Right? [Okay, I’m kidding. :-)]

    2. The bond vigilantes are imaginary. Therefore, they can be used to support whatever position you want to take. Fictional beings don’t have to be consistent or logical [like humans are].

    3. I am not sure that the Obama Administration is in thrall to the Village. Obama is a centrist, pro-capitalist person and always campaigned from that position. I voted for him anyway. He is not trying to tear down the system or even reform it. He is trying to shore it up. Shades of FDR. This position, of course, will catch flak from all sides.

    4. We might be well and truly doomed, regardless of what Obama does. Europe is in trouble and that isn’t Obama’s fault. Asia is walking on eggs and waiting for the next disaster and that isn’t Obama’s fault. The OPEC countries, as they produce and sell less oil, will be in trouble and that won’t be Obama’s fault, either. As far as I can tell, NOBODY knows what the answer is.

  17. 17
    MikeTheZ says:

    1. IOKIYAR.

    2. No.

    3. Yes. Royally.

  18. 18
    Taylor says:

    It all makes sense if you just assume that President Robert Rubin is running everything.

    1. The Bush tax cuts won’t affect the deficit because Robert Rubin and his compatriots make out like bandits.

    2. Rubin doesn’t like inflation or currency devaluation, hurts his assets, why do you think the US has had a strong dollar policy under President Rubin. Those tax cut things, we’ll pay for that by cutting SS.

    3. Washington is full of very stupid people parroting things they think they are expected to say. It’s a side show. The pundit shows are a sideshow of a sideshow.

  19. 19
    Sentient Puddle says:

    Jesus Christ, when it comes to talking economics and the administration, so many of you are irrationally unexuberant.

  20. 20
    Zifnab says:

    What am I asking is: is there any evidence that US debt will be hit by these bond vigilantes? If so, what are they waiting for?

    The bond vigilantes will show up when the retail investor is no longer waking up in cold sweets over the specter of another market crash. 2.7% interest is trashy, but not as trashy as the -7% you could pick up betting on the DOW four months ago, or the -60% you could earn betting on any given major bank in the last three years.

    Right now, investors crave stability. The only asset that isn’t at risk for big hits to the principle is the T-Bill. If the market recovers and the blue chips regain an upward momentum, you’ll see Treasuries treated less reverently. Bond prices will rise and the vigilantes could conceivably step in to drive up interest rates.

    But we’re not there yet. We’re not even close. Worrying about Treasury rates during a massive recession makes about as much sense as worrying about mildew when your entire house is underwater.

  21. 21
    Corner Stone says:

    Update. And one final question, a bit darker: is the Obama administration so deeply in the grips of irrational Village economic “ideas” that we are all fucked?

    I think this presumes a real lack of agency on the part of Obama and his administration.
    When you hear the constant refrain of “belt tightening”, debt and deficit”, “private sector seeing the opportunity, and “we know government can’t create jobs” , at some point it has to be realized this isn’t 11D talking point neutralization or the fault of the Village.
    And now we see the suggested bromide is…wait for it…TAX CUTS!
    Yeah! Way to reinforce the idea that TAX CUTS are the remedy for what ails an economy!
    Yeah! Our Democratic President and his team are running like hell from the idea that a GOVT STIMULUS may actually help things.
    Nope! Our Democratic President and his team are really selling the case for TAX CUTS!
    Yeah!

  22. 22
    JohnR says:

    is the Obama administration so deeply in the grips of irrational Village economic “ideas” that we are all fucked?

    *shake, shake*
    *pause*

    Signs point to Yes

  23. 23
    AlanDean says:

    Who is Punchy? Is this a joke or something else…?

  24. 24
    Alex S. says:

    Remember that all the reports on these new tax cuts can be traced back to a single Washington Post article that cited “people with knowledge of the deliberations” as the source. In other words, some people said something.

    Regarding your final question, I don’t think so, yet many important members of Congress are (especially moderate Democrats like Conrad, McCaskill or Jim Webb), and it is currently impossible to pass the necessary legislation. In fact, tax cuts might be the only option available. I think it has come to this because the Obama administration consistently ignored short-term political gains for the longer picture – which is fine to do if you’re not in trouble in the short term… but the Democrats are.
    And I believe that Larry Summers and Ben Bernanke would like to see a little more spending.

  25. 25
    Bill Arnold says:

    Is there any legitimate reason why these proposed tax cuts do not provoke a similar reaction?

    Crudely paraphrasing a very smart and non-partisan libertarian I work with:
    The reasoning is basically that debt due to tax cuts is different than debt due to spending, and that the two forms of debt can’t be compared. One argument is that spending debt results in spending directed by the government while the tax cut debt results in spending directed by individuals. That the resulting local greedy optimization produces aggregate results that are invariably superior in practice to the results of government attempts at global optimization.
    …And none of the other arguments made enough sense to even remember, but there were more.
    Arguments against infrastructure spending (particularly with the unsecured loans at 2.x percent that the world is begging to provide to the US) never made any sense at all, as long as the infrastructure is real and long lived.

  26. 26
    Nathan says:

    Roubini has talked about this before–the problem is there is a world-wide savings glut… a bunch of money with no safe place to go. Krugman recently mentioned Japan’s lost decade where the only durable good that was selling was… safes.

    Compared to the investment banks/stock markets, buying U.S. debt seems like a very safe investment. Unless someone invents a shiny new scheme for making faster money and resulting in less demand for US debt, the bond vigilantes will never materialize.

    When times are tough, everyone looks to the government for protection… investors are no different.

  27. 27
    kwAwk says:

    The answer to number one is the Laffer Curve which states that by cutting taxes you can free up capital for investment which helps create jobs, economic growth and tax revenues.

    The problem comes in is that people who are conservative can’t seem to figure out that the Laffer Curve is subject to the Law of Diminishing Return which says that doing the same thing in increasing numbers of repetitions will tend to yield a lower incremental benefit for each time you do it, and eventually will yield a negative return.

    That has to be combined with the notion of ‘Starve the Beast’ which is the conservatives belief system that the way to shrink government is to deny it revenue. People don’t get all that upset about government spending as a total number, what they get upset about is government living beyond its means. So Conservatives work to keep deficits high in order to be able to back handledly prevent government growth or to convince people to shrink government.

  28. 28
    Zifnab says:

    @AlanDean: It’s Reaganomics, silly head. If you cut taxes on the rich, they’ll spend more. If they spend more, the money will get taxed. This money then grows the federal budget. Arthur Laffer has this curve, you see.

  29. 29
    DougJ says:

    @Alex S.:

    Remember that all the reports on these new tax cuts can be traced back to a single Washington Post article that cited “people with knowledge of the deliberations” as the source. In other words, some people said something.

    My take is that they’re “floating the idea” to see if the all-important blogosphere shoots it down.

  30. 30
    Bob Loblaw says:

    I think this Harper’s article was one of the most prescient things written in Obama’s first year:

    http://www.harpers.org/archive/2009/07/0082562

    It’s hard to be a functioning technocrat when you use all the wrong models.

  31. 31
    Sentient Puddle says:

    @Bill Arnold:

    The reasoning is basically that debt due to tax cuts is different than debt due to spending, and that the two forms of debt can’t be compared. One argument is that spending debt results in spending directed by the government while the tax cut debt results in spending directed by individuals. That the resulting local greedy optimization produces aggregate results that are invariably superior in practice to the results of government attempts at global optimization.

    Of course, “greedy optimization” does shit all good for infrastructure like roads because the private sector doesn’t even touch that kind of stuff. “Private sector is always better” makes for a nice, clean ideology, but doesn’t survive first contact with reality.

    If that was the argument from your libertarian friend that made a modicum of sense, I’d hate to hear what else he said…

  32. 32
    Mark S. says:

    @Jim, Foolish Literalist:

    c) the leading Villagers are pretty wealthy people

    Ding, ding, ding. Also, every Senator and the vast majority of Reps are millionaires.

  33. 33
    schrodinger's cat says:

    I think the whole economic paradigm that the global economy is based on has to undergo a major change. You can’t run everything like a for profit business. If Governments can get too powerful so can Corporations. Increasing earnings in the short term does not necessarily guarantee long term success. I can go on and on. I think I will stop now.

  34. 34
    Bret says:

    Tax cuts rob the government of revenue it would otherwise use to provide services to poor people. Additionally, the vast benefits of almost all tax cuts grow exponentially as income increases. Therefore, Republicans love tax cuts. Kills two birds, as it were.

  35. 35
    drlemur says:

    Krugman won’t always be right about everything, but he’s in the middle of an amazing run — something like Joe DiMaggio’s hitting streak. The neo-Keynesians arguments make a lot of sense on their face and it seems like you’d be best off betting on the guys with the best recent record.

    The other side makes no sense at all, but somehow they’ve managed to paralyze policy through an incoherent but emotional media blitz.

    I have no insight into why the Obama administration has gotten paralyzed except an increasing suspicion that they are not very skilled politically. Which is a bummer and I hope they learn fast because it’s depressing watching them.

    The case for stimulus is economically strong and it should be a political winner. You know what “stimulus” is? It’s pork. Load up a bill with hundreds of billions in “pork” — special projects like parks, museums, bridges to nowhere. Anything as long as it requires hiring somebody to do it. Then start cutting projects in districts of reps who don’t support the bill and let the supporters brag about job creation to their constituents.

    When the villages start babbling about debt/deficits, just ignore them and reassure the people that jobs are needed now and the great economic engine of America will have no trouble repaying the debt once we’re back on our feet. Not everybody will understand why this is true, but given the b.s. they eat up everyday from Fox, I bet a lot of people will be happy to believe something that actually helps them (and is actually true to boot).

  36. 36

    @schrodinger’s cat:

    I think the whole economic paradigm that the global economy is based on has to undergo a major change.

    I agree.

    The real problem is that too many people don’t have enough money to buy things. All over the world. And it might not matter what the US does.

  37. 37
    Jim, Foolish Literalist says:

    @Mark S.:… to which I should have added: wealthy people whose personal and professional identities are deeply committed to the notion of being “just folks”.
    It cuts the other way too. A lot of middle, and even upper-middle, class people think they’ll be hit by tax increases, or will benefit from tax cuts, when they won’t. Remember that schlocky writer who calculated his tax hit with no apparent clue of how marginal tax rates work (and his editor didn’t have one either). I’m convinced that people with net assets (house, retirement accounts, etc) of >250K tell themselves that they would have to pay more taxes under Obama’s plan.

  38. 38
    lacp says:

    @Sentient Puddle:

    The libertarian argument might make sense if the money spent by the government evaporated into outer space after it was spent; the purpose of stimulus spending as I understand it is to get money into the hands of people who will spend it as quickly as possible rather than stuffing it into the mattress. That’s why food stamps are regarded as the form of stimulus with the greatest return to the economy.

  39. 39
    GS says:

    They rarely make a rational argument. However, I have been able to draw it out of them, through sheer force of will in come cases.

    The argument, such as it is, is that government is incapable of allocating capital efficiently, so stimulus spending always fails. However, if you do it in the form of tax cuts, you leave the capital allocation to the private sector, which knows how to invest. If you leave it to government, you get Bridges to Nowhere.

    I think that is a fair summary of it.

    It is not a good argument in this environment, because anyone who gets cash will just sit on it, whereas spending can create some real activity in the economy. Mark Zandi’s work is a pretty good place to start when evaluating the multiples of fiscal stimulus. And the Bush tax cuts do not look very good.

    But Obama should do whatever he has to do to get some real stimulus.

  40. 40
    Michael E Sullivan says:

    “Easy peasy. ”

    Lemon difficult?

  41. 41
    Alex S. says:

    @DougJ:

    Hmm, maybe. But the ones most likely to shout it down are the ones least listened to.

  42. 42
    AlanDean says:

    Zinfab– Actually I was wondering if that guy is for real and now I assume that person to be just a drive by insulter who believes in fairies and pixie dust. Will ignore in the future.

  43. 43
    JITC says:

    1) The reason is that despite ALL evidence to the contrary, “conservatives” still really, truly believe in trickle-down economics and that tax cuts for the rich/business results in higher revenues.

    OR, more cynically Republicans think they can convince their base of this.

  44. 44
    slag says:

    @AlanDean: No. Punchy was parodying. Though it is really too hard to tell nowadays.

  45. 45
    JITC says:

    @Bill Arnold:

    The reasoning is basically that debt due to tax cuts is different than debt due to spending, and that the two forms of debt can’t be compared.

    Yes, I think that’s a correct summary of the thinking. Further, the thinking is that the government is not entitled to tax income or business-revenue. Those taxes shouldn’t exist. If we’re in debt without it, then the problem is spending. And the spending problem is that we are spending even one dime on things besides the military, border control and the very occasional road project.

  46. 46
    BB says:

    The Right has owned the field of economics for some time, and this has warped economic theory to their advantage. The talk of the “national debt” is a case in point. Ok, so we are not on the gold standard, right? And since our currency isn’t pegged to anything, and since the Fed owns the only dollar-printing-press in the world, there is literally no such thing as the national debt. We have a monopoly on “dollars” and can make them whenever we want. It’s like saying you owe somebody one thousand BalloonJuiceBucks, and what that means is that you email somebody a document that says “Congrats you get one thousand BalloonJuiceBucks.” We can pay it all back tomorrow by printing 11 Trillion dollars. People who are worried about “paying back” money we owe: do not worry. What we do is this: Bernanke pushes a button on his computer, and the spreadsheet that says “we owe this guy X dollars” suddenly says “we just paid this guy X dollars.” That’s it. Nothing more to it. The only reason there is any “debt” is because we stick to the nonsensical and antiquated system of selling $1 of T-bills for every $1 the Federal government spends in excess of its taxes. We don’t need to do this. We could stop tomorrow. We could literally stop caring about deficits.
    Ok, so the problem with this is inflation: if we printed 11 Trillion dollars tomorrow everyone would go buy cars and t-shirts and houses and jack up prices. So the only thing is that we need to keep an eye on the inflation rate. Thing is, we have deflation. We need to print some damn money. We need inflation. By the way, we won’t get hyperinflation from this, because we have plenty of excess capacity that will pick up slack until demand shoots through the roof.
    This is also why taxes aren’t really “income” for the Federal gov’t. You wouldn’t need anybody to give you BalloonJuiceBucks to run your economy, because you make the damn things out of thin air. Taxes are ONLY a brake on the economy. They siphon some demand out of the economy, and cool it down. Which is why a tax holiday is actually a good idea. And why poor and middle class people should pay absolutely no tax anywhere whatsoever.
    Does this sound crazy? Probably. But it’s simple Modern Monetary Theory. You can check out Marshall Auerback’s work for NewDeal2.0 and Bill Mitchell’s work at “billy blog.” Mitchell’s introductory post is here, called “A simple business card economy”:
    http://bilbo.economicoutlook.net/blog/?p=1075

  47. 47
    Allison W. says:

    Geithner and Summers agree that we should spend more, there are a handful of Democrats who don’t agree so what does it matter what the admin wants? There should be no conversation about the economy and the administration w/o acknowledging the role of Congress and the Fed. Krugman mentioned some things the admin could do on its own, but the best way to get this economy moving again is for all three to take major action. I have no confidence in congress and the Fed.

  48. 48
    RSR says:

    >>Is there any legitimate reason why these proposed tax cuts do not provoke a similar reaction?

    Legitimate, from an economics standpoint? Doubtful.

    #2 comment is part of the answer–it’s who gets the money–but also it involves the bigger vision of shrinking government and privatizing everything. Tax cuts ‘starve the beast.’ They hate the beast (except for the military, but even vast portions of that domain have been privatized already). The more you starve the beast, the less the beast can accomplish.

    A large and influential portion of our citizens believe that government is never the solution and is usually the problem. Even POTUS parrots the ‘government can’t create jobs’ mantra, when clearly it could.

    Meanwhile, the debt issue itself is just a smokescreen and a way to curtail the economic muscle of a Democratic White House and Congress.

  49. 49
    Mnemosyne says:

    @Sentient Puddle:

    I think people forget that at the last G20 meeting, pretty much everybody else decided the best way to improve the world economy was deficit reduction, and America alone was all WTF. It’s reasonable to question whether or not the administration favors bold enough action needed to juice the economy, but they certainly ain’t falling prey to the dumbass austerity CW.

    Yep. I think the administration knows perfectly well that what we need is government spending in mass quantities, but they also know that the Senate and the American people are too stupid to understand that.

    I think they’re underestimating the American people (and taking the loudness of the teabaggers a bit too seriously) but there’s no way to overestimate the stupidity of the Senate at this point. The Blue Dogs and Republicans will keep shouting “tax cuts! deficit! tax cuts!” until the ship sinks completely.

  50. 50
    superking says:

    I am definitely kind of afraid that we’re all fucked precisely because of Obama. TPM was reporting that the House Progressive Caucus was circulating a letter demanding that Obama reject any cuts to Social Security.

    I can see Obama’s debt commission coming back and saying we should cut benefits and partially privatize Social Security. Obama, being so enamored of process and middleness, for lack of a better word, could easily be convinced to cheerfully slit Social Security’s throat. Thus accomplishing for the right wing something they couldn’t do when they controlled the entire government.

    Maybe it won’t happen, but it seems plausible to me.

  51. 51
    Will says:

    1. No
    2. No
    3. Yes

    The Republicans are very simple, the only question asked is how will it benefit them or not let the other guy does something that might work out well for him. Rest of the country be damned. Hence, ‘tax cuts good for our base,’ don’t really care about the deficit. Bonds, smonds. Don’t do anything that might make the other guy look good.

    Obama kept the same banking cabal as what Bush had. Not even the tone changed, much less any substance. We are screwed. Well, I’m just hoping that le deluge shows up apres moi.

  52. 52
    Chad N Freude says:

    @Punchy: Tax cuts increase government revenues. Didn’t you take Prof. Laffer’s course?

  53. 53

    Is there any legitimate reason why these proposed tax cuts do not provoke a similar reaction?

    Yes.

  54. 54
    Mogden says:

    A partial answer to #1 is that people spend their own money more carefully than the government spends money. But yes, the deficit is still a problem.

    On #2, my personal view is that many investors are absolutely petrified and have no idea what to do with their money, so they park it in Treasuries, but with the idea that at some point there will be a stampede for the exit. So we’ll see low bond rates for a long time, then a giant shock when it’s too late.

  55. 55
    Sentient Puddle says:

    @Mnemosyne: Yep, the people are smarter on this one. I don’t have one handy, but there’s been plenty of polling asking people to choose between economic recovery and deficit reduction, and the former always wins.

    (I’d say that sort of polling is flawed because you plain can’t have deficit reduction without a better economy to fill out revenue, but hey, at least people pick right)

    @superking: It isn’t really plausible. Best you’ll really hear from Obama on whatever comes of the report is “Hrm, interesting. Congress, go vote on it.” And the progressive caucus coming out against social security cuts is exactly how we expected the game to go: Republicans will whine about any sort of tax hikes, Democrats take offense at cuts, and the package fails in the house by a vote of about 30-400.

  56. 56
    slag says:

    @BB: Actually, it makes complete sense to me. Which must mean that it’s totally wrong. Sorry.

  57. 57
    ruemara says:

    I’m mildly amused at the view that the Obama administration is enamoured of tax cuts ergo we’re all fucked. Good thing it’s that virtuous Senate & House trying to end the tax cuts on the wealthy and not that nasty Tim Geithner. If only Obama wasn’t such a wuss and would work on jobs and ending those tax cuts. Does everything happen in a vacuum?

  58. 58
    schrodinger's cat says:

    The deficit is a problem in the long run but the government needs to spend more right now when we are hemorrhaging so many jobs. This worrying about the deficit, is like someone diagnosed with cancer refusing chemo and worrying about cholesterol.

  59. 59

    @superking:

    I am definitely kind of afraid that we’re all fucked precisely because of Obama.

    The Social Security thing:

    I haven’t seen any hard evidence that the commission is considering cutting Social Security.

    Even if they are considering such cuts, they have not made any recommendations on the subject yet.

    They have not delivered their recommendations yet.

    And, the Administration has not responded to any such recommendations yet.

    Why are so many people passing judgment already?

    Also, the Representatives who wrote and signed the now-famous letter may have many fine qualities but they don’t know the age for receiving full Social Security benefits. That age is not 65 any more. It is now 66. Maybe they should get their facts straight before they stage a total rebellion.

  60. 60

    On Social Security:

    Too late to change the previous post.

    Age to receive full Social Security benefits

    Year of birth and Full retirement age

    1943-1954, 66
    1955, 66 and 2 months
    1956, 66 and 4 months
    1957, 66 and 6 months
    1958, 66 and 8 months
    1959, 66 and 10 months
    1960 and later, 67

    http://www.ssa.gov/pubs/10035.html

  61. 61
    Brachiator says:

    1. The Village/Republican critique of stimulus spending is “oh noes, the national debt”. Is there any legitimate reason why these proposed tax cuts do not provoke a similar reaction?

    No. Republicans love tax cuts, especially tax cuts for the rich. Tax cuts are good, by definition for them, no matter what the impact on the national debt might be.

    And, as economists have pointed out, the national debt by itself doesn’t tell you anything. National debt as a portion of GDP might be interesting, but even here sometimes not.

    2. The reason why “oh noes, the national debt” supposedly makes sense is that an increasing debt may prompt the bond vigilantes to up the interest on T-bills. … What am I asking is: is there any evidence that US debt will be hit by these bond vigilantes? If so, what are they waiting for?

    Again, national debt by itself doesn’t mean much. Interest on government bonds, like that on all bonds, is based on the perception of how the US economy is doing vs other places where money can be invested. A recent Economist article went into how capricious investor behavior can be:

    Take the recent surge in the gold price to a nominal record of $1,251.20 an ounce. Owning gold is traditionally seen as offering protection against inflation. And inflation is very bad news for owners of government bonds. But the ten-year Treasury bond yields just 3.3%, a level that is towards the low end of the historical range.
    __
    There is something remarkable about this combination. You would expect the performance of gold and Treasury bonds to be inversely correlated. When gold was at its real all-time high in 1980, the ten-year Treasury-bond yield was 10.8%. Fixed-income investors had suffered years of negative real returns in the 1970s.

    The US is still a better bet than Europe (especially when you consider the case of Greece and Spain) or Japan.

    Update. And one final question, a bit darker: is the Obama administration so deeply in the grips of irrational Village economic “ideas” that we are all fucked?

    Yep. Too much of Obama Administration policy seems to be influenced by Treasury Department obsession over financial markets and stabilizing banks. This was OK short term, but is not the same thing as dealing with more prosaic, practical issues like getting banks to actually lend money, getting consumer credit card rates down, figuring out how to get more jobs created.

    The incumbent Secretaries of Labor and Commerce don’t appear to have any ideas to contribute, a critical failure. On the other hand, both Democrats and Republicans in Congress are stuck on old ideas that don’t appear to be connected at all to understanding, let alone dealing with, the current recession.

  62. 62
    Sly says:

    On Villagers: D.C. is like any other city: it has its own local elite (lobbyists, in this case) to which the local media is ultimately accountable. The difference between D.C. and other towns is that its the nexus of Federal policy, and the local media believes itself to be speaking to (and for) audiences outside the Beltway. In the vast majority of cases, they don’t. The people who run D.C. want tax cuts. The Washington Post, being the largest local media outlet, speaks to (and for) that audience.

    On Republicans: They think tax cuts are the best course of action when GDP is up. They think tax cuts are the best course of action when GDP is down. They think tax cuts are the best course of action when the government is running a surplus. They think tax cuts are the best course of action when the government is running a deficit. That should tell you something about the honesty of their arguments and the intent of their policy proposals.

    It has nothing to do with economic theory or government solvency. It is about political accountability. Republicans know who fund their campaigns.

    On Bond Vigilantes: The whole Bond Vigilante and Angels of Austerity argument is being pushed by Supply Side Theorists, who have adopted a pretty broad oversimplification of the relationship between the money supply and inflation. It’s not wrong in all cases, but its not right in all cases and certainly isn’t right for the current economic climate. There’s no data that supports the theory that bond investors are getting anxious. Evidence of that would come in the form of investors selling bonds, which they unsurprisingly aren’t doing.

    On When: We’ll see a rise in interest rates when Treasuries are no longer the most comfortable investment that banks can make. The reason why Treasury prices have dropped is easy: More people other than traditional bond investors are buying them. When other types of investments become more reliably profitable (i.e. when the economy improves), non-traditional investors will sell their bonds and the price will go up. If the price increase is not to the liking of traditional investors, they’ll sell too.

    On Obama: Long term structural deficits are a problem. Eventually, the government will be faced with higher interest rates and it’ll be tougher to roll over the debt. But its not the immediate problem, and treating it as the immediate problem will make economic recovery more elusive and, ironically, our debt position more precarious. Obama has said nothing that indicates that he believes debt and deficits are the biggest problem we face right now.

  63. 63
    Alwhite says:

    A thing to note about the G20 meeting – those nations that took the deficit reduction medicine (Irerland, Greece, Spain) are doing a lot worse while those that did not (Germany and France) are doing better.

    No Drama Obama is going to be napping while we drive off the cliff.

  64. 64
    Sly says:

    @Brachiator:

    Yep. Too much of Obama Administration policy seems to be influenced by Treasury Department obsession over financial markets and stabilizing banks. This was OK short term, but is not the same thing as dealing with more prosaic, practical issues like getting banks to actually lend money, getting consumer credit card rates down, figuring out how to get more jobs created.

    The only connection between stabilizing financial markets and the debt is future taxes, and thats a pretty tenuous one. And I don’t necessarily buy the argument that the Treasury holds the view that Saving the Banks is Saving the World. Treasury has advocated policies to stabilize the financial markets, but they’ve also advocated allowing the top marginal rate reductions to expire. Which seems to me to be evidence that they don’t see much of a connection between market stability and future taxes either.

  65. 65
    FlipYrWhig says:

    Look, Obama could propose the John Maynard Keynes Memorial Hole-Digging And Hole-Filling Act of 2010, but roughly half the Senate Democrats wouldn’t support it, because it’s an article of faith for them that Big Spending Is Bad. We have to separate the question of “What do they want?” from “What can they do?” And they’re completely hemmed in by deficit peacocks _within the Democratic party_. Of course the Obama administration knows what they _should_ be doing. But the politics among their own party make it fucking impossible.

  66. 66
    Oscar Leroy says:

    is the Obama administration so deeply in the grips of irrational Village economic “ideas” that we are all fucked?

    Yes.

  67. 67
    Sly says:

    @Brachiator:
    Further, debt as a percentage of GDP isn’t really interesting either when it comes to the Bond Vigilantes. The number to look at is the amount of revenue used to service the debt as a percentage of total revenue. When that gets too high, bond investors get nervous. And that number is determined by more factors than just debt as a percentage of GDP.

  68. 68
    Corner Stone says:

    “Nothing can be done!”

  69. 69
    Sly says:

    @FlipYrWhig:
    And its always helpful to remember that the opposition believes that raising taxes is always bad and bringing down Medicare spending, even when you’re just cutting inefficient boondoggles, will lead to death panels.

    The forty one Republicans in the Senate who have lost their minds, or never had them to begin with, are a bigger problem than the four or five Democrats who merely flirt with psychosis on a semi-regular basis.

  70. 70
    GeneJockey says:

    No. Republicans love tax cuts, especially tax cuts for the rich. Tax cuts are good, by definition for them, no matter what the impact on the national debt might be.

    You know, I used to believe this was true, that Republicans loved all tax cuts.

    Recently, however, what I’ve learned is that for Republicans to love a tax cut, most of the benefit has to go to the wealthiest, aka ‘the most productive people in the country’. Tax cuts that go to the people who need more money to buy more shit, so people get hired to make more shit – THOSE tax cuts aren’t REALLY tax cuts.

    That’s why the tax cuts in the stimulus bill ‘didn’t really count’, and why a payroll tax holiday won’t either – because the money goes into the hands of the middle class, not the rich.

    I tried discussing this with a friend, who, though Right Wing, at least USED TO BE semi-rational. I pointed out that the way to get consumers to spend more and revive the economy was to pay them more and stop laying them off. His response was that the middle class would just have to accept lower wages, but we can’t tax the Rich any more.

    This reflects the basic Conservative understanding of the economy – even though middle class earnings have stagnated, or even declined, while earnings at the top have increased, the problem with our economy is that the middle class have it too good, and the wealthy don’t have it good enough.

  71. 71
    Sly says:

    @GeneJockey:
    There are a ton of fallacious arguments about the trickle-down effect that your average rank-and-file, middle-class (and even working-poor) Republican buys into. The real reason is that a working class that is financially squeezed will be less likely to demand a bigger share of the economic pie because they’ll be too busy competing amongst themselves in an atmosphere with high structural unemployment. The root of the tax cut fetish among the top 10% is that their earning potential increases as income inequality increases. Everything else is bullshit.

  72. 72
    daveinboca says:

    First instead of relying on the gummint, I’m buying gold. Second, Nouriel r. is right about savings and paying down debt. But no small business is going to hire when every week, another hidden landmine is revealed in the 2000-page abortion called Obamacare, which the US’s worse Speaker and now its most unpopular SOTH ever correctly noted that we will not understand until after it was passed. Now we understand, and it is KILLING recovery, because of the noxious and unconstitutional elements in the bill scare the shit out of any business-plan conscientious small business planner. Period.

    The amazing fact is that Pelosi is even more unpopular than Gingrich and DeLay despite the equally amazing fact that the slavishly unctuous stenographers in the state-controlled media have played endlessly on their “Mighty Wurlitzers” praising her for all sorts of genius politicking.

    Gingrich and other GOP congresscritters faced endless contumely and slanderous lies from the MSM and the lackeys of academe and nutjobs of Hollyweird, yet were nowhere near as low as the single-digit approval numbers of Mis-speaker Pelosi.

    Nancy is the smelliest part of that swamp she claimed she wanted to drain. rangel and the entire CBCaucus are stinking up the fens as well, but Maxine Waters is the only c-woman close to Pelosi for sheer cluelessness.

  73. 73
    Nylund says:

    1. The Village/Republican critique of stimulus spending is “oh noes, the national debt”. Is there any legitimate reason why these proposed tax cuts do not provoke a similar reaction?

    Its not hard to find someone who hates the stimulus and proposes tax cuts. Remind them that about 1/3 of the stimulus was tax cuts and you’ll hear a lot of rambling nonsense.

    The simple fact is the public likes the sound of “tax cuts” and hates the sound of “more spending”. Both increase the gap between revenue and expenditures (ie, increase the debt), but neither party will admit that since they each praise one and demonize the other. Economists like Krugman are correct in pointing out that the magnitude of each will be different though. The rich are already sitting on a pile of cash and they have a low marginal propensity to consume. Giving them more money won’t “stimulate” much at all (and studies into the multiplier effects support this).

    The most sound logic is to let the tax cuts for the wealthy expire and give that money to those that will actually spend it (ie, the poor), and hope that helps push the economy back onto a higher growth path that will offset the short-term deficit increase in the long run. But, that sounds way too much like a “redistribution of wealth” (because it is) for a party that is already attacked endlessly as socialistic.

  74. 74
    Brachiator says:

    @Sly:

    The only connection between stabilizing financial markets and the debt is future taxes, and thats a pretty tenuous one.

    Yep.

    And I don’t necessarily buy the argument that the Treasury holds the view that Saving the Banks is Saving the World. Treasury has advocated policies to stabilize the financial markets, but they’ve also advocated allowing the top marginal rate reductions to expire. Which seems to me to be evidence that they don’t see much of a connection between market stability and future taxes either.

    Good point. On the other hand, Treasury’s advocacy for letting the top marginal rates expire is still macro-level tinkering, not much related to getting the economy up and running again. This just reinforces my dismay at the relative ineffectiveness of the current Secretaries of Labor and Commerce.

  75. 75
    El Cid says:

    My way of protecting myself is buying up silver, and using some of it as colloidal silver to allow myself to live forever because it kills all bad germs.

  76. 76
    The Other Chuck says:

    Congressmen don’t cut taxes so much because they’re millionaires, they cut them because all their friends are millionaires. Like all other humans, they want to belong, they want to be loved. So they please their friends first, and the rest of us can go pound sand.

    What, you think they have any ability to rise above their natures? I submit that politicians, by nature of craving power, attention, and adulation are even less capable than the average person of it.

  77. 77
    PeakVT says:

    1) Not under the laws of physics as we know them.

    2) Bond vigilantes will be absent until another reserve currency develops.

    3) I have no idea what anybody in the Obama administration believes, but they are acting like they take the advice of Very Serious Persons very seriously. Which means we’re fucked.

  78. 78
    sparky says:

    annnd another non-economist weighs in–
    as to #1, this looks like an attempt to float a bunch of half-assed trial balloons that will, as usual, do nothing but look flashy. and a payroll tax holiday is a different kind of tax holiday than a change in the tax rules.
    to me, the salient point here is that apparently the corporation not the individual would get the break. this is in keeping with the general Obama administration principle of favoring corporations over individuals except at the margins.

    as to #2, this is the usual rhetorical trick of a proper answer at the wrong time. it’s not that it’s never true, just that it’s not relevant right now, and as a result has the great virtue of potentially being true–any day now. think Iran and nuclear weapons–over the weekend!
    (in other words, it can’t be proven or disproven).

    as to #3, well, these ideas have worked out pretty well for the top 1% of the US. so if you are in that group, you’re still doing fine and you will continue to do so, because there’s no reason to change any of these policies. you’re not in the top 1%? then go away.

  79. 79
    SciVo says:

    Our current level of indebtedness is clearly fine, as shown by the bond market. The point of concern trolling about it now is so that rich people won’t have to be taxed to pay it back. Either not taxing them now or not taxing them later is a wash as far as Republicans are concerned, or if anything being not taxed now is better.

    That’s why they want to reduce/eliminate Social Security when it’s financially healthy in itself — to avoid having to be taxed to pay back the Treasuries that it holds as its savings account — while spending on defense contractors (rich people) is sacrosanct. All of their other stated reasons, like the stuff about bond vigilantes, is just bullshitting to sell their policy goal of rich people being taxed less.

    As for Obama, the time to start worrying is if he utters the word “austerity” which I’m not aware of him doing yet.

  80. 80
    sparky says:

    tried to edit the above but no go, sorry, so here’s an edit:

    edit for #1: it occurs to me that perhaps i should clarify my flame-bait above. what i meant is that apparently the administration believes that the way to fix everything is to help corporations and other asset-holders rather than individuals. in other words, what is good for GM is good for the country. as corporations owe a duty to their shareholders rather than the general public it is not clear to me how this notion will work, much less end happily.

    and a different thought: i would not hazard a guess as to how this looks politically to the as yet to be engaged voter who has not been Fox-notized.

  81. 81
    Mnemosyne says:

    @GeneJockey:

    Recently, however, what I’ve learned is that for Republicans to love a tax cut, most of the benefit has to go to the wealthiest, aka ‘the most productive people in the country’. Tax cuts that go to the people who need more money to buy more shit, so people get hired to make more shit – THOSE tax cuts aren’t REALLY tax cuts.

    Yep. Listen to them bitch and moan about middle-class tax breaks like the mortgage deduction and child-care deduction that mean a lot of working families essentially don’t pay income tax. It’s the WORST CRIME EVER, unlike the massive tax breaks they want for the upper 1 percent, which they clearly deserve because shut up, that’s why.

  82. 82
    SciVo says:

    @Sly: Minor quibble.

    When other types of investments become more reliably profitable (i.e. when the economy improves), non-traditional investors will sell their bonds and the price will go up. If the price increase is not to the liking of traditional investors, they’ll sell too.

    When the non-traditional investors all sell their bonds, the yield (for new purchases) will go up because the price will go down, and so momentum investors will sell too. Then, value investors will step in and provide a floor by snapping up bonds that are excessively cheap for their authentic long-term prospects based on the underlying fundamentals.

  83. 83
    morzer says:

    @daveinboca:

    So you are embarking on an investment program where you are guaranteed to lose, and on that basis you want to offer your deep thoughts to the rest of us? The word “loser” seems almost too charitable.

  84. 84
    Corner Stone says:

    @SciVo:

    As for Obama, the time to start worrying is if he utters the word “austerity” which I’m not aware of him doing yet.

    Give us a break. He will never, ever use that word regarding policy.
    And he doesn’t have to.

  85. 85
    Bill Arnold says:

    @Sentient Puddle

    Of course, “greedy optimization” does shit all good for infrastructure like roads because the private sector doesn’t even touch that kind of stuff.

    The practical libertarian allows temporary exemptions for stuff that the private sector doesn’t (currently) touch.
    (I have a hard time channeling these arguments…)

  86. 86
    LosGatosCA says:

    @Nazgul35: @drlemur:

    I have no insight into why the Obama administration has gotten paralyzed except an increasing suspicion that they are not very skilled politically.

    They exploited the ‘change’ theme adroitly in 2008. But that was obvious, not only a change from Bush but from Hillary, too.

    But in fact Obama is as deeply in bed with the establishment as a Democrat can be. Plus he learned that not rocking the boat was the key to his personal ambitions.

    Now we have an inexperienced, risk averse administration, with no versatility and very poor recognition that’s now set themselves and the country up for failure.

    Yup, we are so screwed.

  87. 87
    Jinchi says:

    Is there any legitimate reason why these proposed tax cuts do not provoke a similar reaction?

    You’re forgetting, Republicans don’t need to support a payroll tax cut. Republicans are fine with raising payroll taxes. They’re fine with raising sales taxes, they’re fine with raising fees and tolls.

    Only income taxes count. That’s why they can say with a straight face that half of all Americans pay no taxes, and why you can find conservatives arguing that we should raise taxes on the poor and middle class. Paul Ryan gets called a visionary for pushing that line.

  88. 88
    sherparick says:

    The answer to your last question is unfortunately yes, and it starts with the President, who came out of the University of Chicago, and its law school, and therefore comes with an innate belief in the superiority of “markets” (a concept I now know is rather vague) over the superiority of Government intervention.

    There is also an unfortunate reflex position in the White House that they cannot admit they were ever wrong or acted on the basis of imperfect information, doing the best they could while peering through a “glass darkly.” Hence, even as unemployment was shooting well over the 8% target they had given, they did not go back to Congress and ask for a second stimulus in the summer of 2009, when perhaps they could have gotten something through, especially if it consisted of tax rebates, pay roll tax holiday, and a short term extension of the Bush tax cuts (not my favorite, but with Senators Nelson, Snowe, and Collins having the veto in the sixty vote Senate, it might have gotten through. Instead, Goolsbee thought the Fed QE and low interests would be enough, Summers thought that as well, along with the bailout of the big banks, and they both joined Geithner in thinking that once house prices stop falling and started going up again, a new housing bubble would start up and lift the economy. Not that Geithner believes it would be a bubble. I still think he believes the fall in house prices is the aberration. At least that is the implication of his extend and pretend positions on all the bad mortgages and the HAMP program.

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