Perhaps I should say the building myth and the reality.
What is the building myth? That the worst is behind it. Megan McArdle fills you in:
Many of the commentators I’ve read seem to think that the worst is over, as far as unpopular surprises.
But she then takes a chain saw to that particular notion:
In fact, the worst is yet to come.
· 2014: Small-business policy cancellations. This year, the small-business market is going to get hit with the policy cancellations that roiled the individual market last year. Some firms will get better deals, but others will find that their coverage is being canceled in favor of more expensive policies that don’t cover as many of the doctors or procedures that they want. This is going to be a rolling problem throughout the year.
· Summer 2014: Insurers get a sizable chunk of money from the government to cover any excess losses. When the costs are published, this is going to be wildly unpopular: The administration has spent three years saying that Obamacare was the antidote to abuses by Big, Bad Insurance Companies, and suddenly it’s a mechanism to funnel taxpayer money to them?
· Fall 2014: New premiums are announced.
· 2014 and onward: Medicare reimbursement cuts eat into hospital margins, triggering a lot of lobbying and sad ads about how Beloved Local Hospital may have to close.
· Spring 2015: The Internal Revenue Service starts collecting individual mandate penalties: 1 percent of income in the first year. That’s going to be a nasty shock to folks who thought the penalty was just $95. I, like many other analysts, expect the administration to announce a temporary delay sometime after April 1, 2014.
· Spring 2015: The IRS demands that people whose income was higher than they projected pay back their excess subsidies. This could be thousands of dollars.
· Spring 2015: Cuts to Medicare Advantage, which the administration punted on in 2013, are scheduled to go into effect. This will reduce benefits currently enjoyed by millions of seniors, which is why they didn’t let them go into effect this year.
· Fall 2015: This is when expert Bob Laszewski says insurers will begin exiting the market if the exchange policies aren’t profitable.
· Fall 2017: Companies and unions start learning whether their plans will get hit by the “Cadillac tax,” a stiff excise tax on expensive policies that will hit plans with generous benefits or an older and sicker employee base. Expect a lot of companies and unions to radically decrease benefits and increase cost-sharing as a result.
· January 2018: The temporary risk-adjustment plans, which the administration is relying on to keep insurers in the marketplaces even if their customer pool is older and sicker than projected, run out. Now if insurers take losses, they just lose the money.
· Fall 2018: Buyers find out that subsidy growth is capped for next year’s premiums; instead of simply being pegged to the price of the second-cheapest silver plan, whatever that cost is, their growth is fixed. This will show up in higher premiums for families — and, potentially, in an adverse-selection death spiral.
In fact, she is exactly right. Note how many of these surprises happen before 2016. And, as they come true, perhaps … just perhaps … when voters are told that the rest of this nonsense is likely to come true too (it is the law, you see), they might believe it.
Perhaps. The “Cadillac tax” was inartfully delayed until after the election. However, the snowball will already be rolling down hill by then and you’d think the public would be open to believing that the rest of this abomination, that which was delayed, will indeed happen. And you’d also believe they’d want to do something about that (that, of course assumes Obama doesn’t wave the magic executive pen and waive all of this until after the election).
But then, doing something would depend on what? Well, getting elected officials that want to actually get rid of most of this monstrosity and are willing to say that and then do it. Uh, that won’t be Democrats (well except perhaps blue dog Democrats, if they’re not extinct by then).
What it all boils down too is that voters will have to depend on Republicans to do the heavy lifting. The question is will they do that if elected? In other words, will Republicans be up to the job?
If I had to base it on the current crop – yeah, not so much.
Interested in seeing one of the dumbest attempts to counter an argument against reinstituting the “assault gun” ban?
It’s, well, pretty pathetic, and, coming out of Media Matters, shouldn’t really surprise you.
First the graphic that started it all:
Okay, you’re in the ballpark now.
The Media Matters person (Timothy Johnson) says:
The image was created by a blogger who used it to argue in favor of the ban, writing that “If you can buy the gun on the top, but can’t buy the bottom gun, who cares? You still have a gun.” McArdle responded that “if it makes no difference, than why have the law?” and argued that “‘assault weapon’ is a largely cosmetic rather than functional description.”
But Johnson says there are vast differences which mean that, hey, they’re just not the same. The bottom one, per Johnson, is much more lethal. And he’s got the reasons why:
In fact, the lower pictured weapon, a Mossberg 500 Tactical Persuader, has a number of features that increase its lethality compared to the top pictured shotgun. Contrary to what the graphic suggests, the only difference between the two weapons is not just the pistol grip featured on the Tactical Persuader. The Tactical Persuader also has an adjustable stock that can be removed from the firearm completely, which allows the gun length to be shortened for increased concealability. Furthermore, when combined with a pistol grip, the firearm can be more easily maneuvered, allowing the shooter to fire from the hip and more easily use the weapon from vehicles and in other close quarters situations.
An almost identical configuration was sought out by Suleman Talovic, a teenager who used a Mossberg-derivative pistol grip shotgun during a rampage that killed five and wounded four at the Trolley Square Mall in Salt Lake City, Utah on February 12, 2007. A recent report issued by the John Hopkins Center for Gun Policy and Research found that firearms with assault weapon features are disproportionally used in mass shootings and that when used result in higher numbers of casualties.
OK? You get my point about silly?
A “pistol grip” doesn’t “increase lethality” unless you beat someone over the head with it (by the way, I can make a pistol grip on the other using a saw in about 5 minutes, or, just buy one aftermarket and install it on the top gun). Pistol grips are non-lethal “features”, not lethal weapons.
Secondly, being able to conceal something doesn’t make it more lethal either. It simply means you can hide it better. How hiding something better becomes “lethal” will have to be answered by Mr. Johnson who seems not to know what “lethal” actually means.
In fact the blogger is correct – they are exactly the same gun where it counts. And to be lethal, you must still load them, point each of them at someone and pull the trigger. One doesn’t shoot more rounds than the other, one doesn’t use a “bigger” round than the other, one won’t shoot faster than the other. They are each 12ga 6 round pump shotguns. Period.
Finally, correlation is not causation (i.e. the gun made him do it where he might not have had he had the top shotgun available instead) and the fact that someone on a rampage chose a shotgun with a pistol grip over a rifle stock doesn’t make the one with the pistol grip more lethal (I do wish this guy would look up “lethal”).
Additionally the fact that one might be able to be used in “close quarters” better than the other again doesn’t make it more lethal. It simply provides a perceived advantage over the other that may or may not, in fact, play out. If, however, it is something anyone would want, it is easily done to the top gun with a minimum of effort or cost.
Then, I assume, thinking he has just nailed it by pointing out the “lethality” of the pistol grip, he throws this up from some activist group that is just about as silly as the rest of his stuff:
All assault weapons–military and civilian alike–incorporate specific features that were designed for laying down a high volume of fire over a wide killing zone. This is sometimes known as “hosing down” an area. Civilian assault weapons feature the specific military design features that make spray-firing easy and distinguish assault weapons from traditional sporting firearms.
Civilian “assault weapons” or those which look like them are “semi-automatic” by law. Military assault weapons usually have the option of automatic fire. It is on the automatic selection that a large volume of fire is going to be projected (and, unless you know what you’re doing, very ineffectively). Civilian guns don’t have that option. They’re not the same freakin’ thing regardless of how they look!
Consequently they’re not going to be doing any “spray firing” or “hosing down” of an area in semi-auto mode. Can a semi-auto put out a decent amount of fire? Yes, especially if it has a large capacity magazine. But those two shotguns in question are pump action and only hold 6 rounds each.
Shotgun A will fire no faster or slower than shotgun B in the picture above. If A can do it, so can B and the reverse is also true. And whatever they do will involve shoot, pump, shoot, pump, shoot, pump etc. The bottom shotgun doesn’t go “boom, boom, boom, boom, boom”. It does exactly what the top one does – “boom, pump, boom …” (I wanted it to make it easy for Johnson to understand).
So, in sum, the blogger is correct, but even more correct is Megan McArdle. What’s the point? They’re pump action shotguns that are, except cosmetically, exactly the same (and each can be modified in any number of ways from their stock appearance). What again is the point of the law?
Uh, control, that’s what.
Or maybe a better analogy is Nero and Rome. Politicians and hard decisions just don’t seem to mix very well do they? It is much better to be Santa Clause than the Grinch. Especially if you want politics to be your career.
Maybe that’s the problem. If you remember correctly, at least in the US, politics was supposed to be a part-time job. But here as in Europe, it has developed into a full-time job that requires excessive pandering to special interest groups using taxpayer money and borrowing as the means.
And here we are.
In Europe, it has, as predicted for decades, finally reached a tipping point. And the political elite? They really have no idea how to handle the problem (and the same sort of problem is becoming evident here). So they resort to the usual reaction of politicians caught in an uncomfortable situation. Defer a decision:
Under pressure to deliver shock treatment to the ailing euro, European finance ministers failed to come up with a plan for European countries to spend within their means. Such a plan is needed before Europe’s central bank and the International Monetary Fund consider stepping in to stem an escalating threat to the global economy.
The ministers delayed action on major financial issues – such as the concept of a closer fiscal union that would guarantee more budgetary discipline – until their bosses meet next week in Brussels.
If their finance ministers can’t put together a plan of action, what in the world are the ministers going to do next week? Megan McArdle notices the can kicking as well and also recognizes that they’re doing that in a cul de sac:
Keeping the euro together requires much more than fiscal integration–all fiscal integration does is turn the peripheral countries into something like those Algerian ghettos ringing Paris. Actually correcting these imbalances is going to require a lot of people in the periphery to get up and move. That’s a really tall order. Despite the fabled European multi-lingualism, in my experience, the majority of workers speak English about like I spoke high-school French and college Spanish; well enough to go on vacation, but not well enough to enjoy living in another country. I’m told that this is about standard. And that’s just one of the many barriers to movement between countries.
It’s not just the Germans who have to ask themselves whether the PIIGS won’t eventually say "Enough!" and renege. The bond buyers have to ask the same thing. At this point, it’s not entirely clear to me that any solution is credible enough to kick the can more than a very short distance down the road.
McArdle’s question in the title of the piece is “How can Europe possibly save itself?” You could read the question two ways. The first is wondering out loud what Europe could do to fix the problem and solve the dilemma they’re in. The second is rhetorical and reflecting a belief that it can’t.
Given this latest deferral, I’m beginning to see the question as rhetorical and the result as catastrophic. If you want to see a real “Domino Effect”, let Europe collapse.
Oh, and by the way, they just downgraded the third quarter GDP estimate from 3.1% to 2.3%.
And that sound you hear? The can clinking along as politicians the world over do what they do best.
MICHAEL ADDS: You could actually read the question a third way: Who will step in to save Europe from itself? Why, none other than good ole Uncle Sam (aka we the taxpayers):
The Federal Open Market Committee has authorized an extension of the existing temporary U.S. dollar liquidity swap arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank through February 1, 2013. The rate on these swap arrangements has been reduced from the U.S. dollar OIS rate plus 100 basis points to the OIS rate plus 50 basis points. In addition, as a contingency measure, the Federal Open Market Committee has agreed to establish similar temporary swap arrangements with these five central banks to provide liquidity in any of their currencies if necessary. Further details on the revised arrangements will be available shortly.
U.S. financial institutions currently do not face difficulty obtaining liquidity in short-term funding markets. However, were conditions to deteriorate, the Federal Reserve has a range of tools available to provide an effective liquidity backstop for such institutions and is prepared to use these tools as needed to support financial stability and to promote the extension of credit to U.S. households and businesses.
This is essentially a back-door bailout of the Euro. The Fed fixes the interest rate for these loans (the currency swaps) at today’s rate, sends a bunch of US dollars to European central banks (and elsewhere), which then loan out those dollars to European banks facing a “liquidity crisis” — i.e. running out of money and holding diminishing assets (one of which may have almost crashed last night). Nominally, the European central banks are on the hook for any losses suffered, but we all know how that works.
You can read more about how these swaps work here.
Megan McArdle hits some points that pretty much doom Europe and, if it is not already too late, the US. They are contradictions and conditions that make recovery from all this fiscal irresponsibility almost impossible. It involves social welfare, democracies and why that combination simply can’t find the necessary ability heal itself.
When I was a young and naive economics writer, I used to write about developing countries a fair amount. Time and again they would make these bizarre and pointless moves, like suddenly and for no apparent reason defaulting on a bunch of debt. They would engage in obviously, stupidly unsustainable fiscal practices that caused recurring crises. They would divert critical investment funds into social spending which was going to become unsustainable when underinvestment reduced government revenue. And the other journalists and I would cluck our tongues and say "Why can’t they do the right thing when it’s so . . . bleeding . . . obvious?"
Then we had our own financial crisis and it became suddenly, vividly clear: democratic governments cannot do even obvious right things if the public will not tolerate it. Even dictators have interest groups whose support they must buy.
This has come home to me forcefully several times over the last few years, but never more than now. The leaders of the eurozone have a dual mandate to keep the euro intact, and to not do the things which could keep the euro intact. They cannot fiscally integrate to the extent necessary because, as I wrote for the Daily the other day, the Greeks do not want to act like Germans, and the Germans do not want to share their credit rating with anyone who won’t.
It is a bit like the Ohio vote on unions. In a heavily union state, those who benefit the most vote to continue the situation where they benefit. In democracies like Europe where people’s property are up for re-distribution, those who benefit from such redistribution are always going to vote to continue the status quo. And, of course, politicians who benefit from the vote of that constituency are going to try to find every way they can to accommodate that constituency.
So even when it is “so … bleeding … obvious”, to most economic observers as to what action must be taken, nothing happens or, in some cases, it gets worse.
At some point, though, the bill comes due. We’ve talked about the laws of economics and how unyielding they are. Oh you can screw around and play some games that allow you to defy them for a while, but like gravity, it all will finally come tumbling down.
We’re there. We’re at the falling down stage if things don’t change drastically.
But there is seemingly no stomach for drastic change.
And that leaves us to try to figure out what the world will look like after the collapse of the Western social welfare system is complete. Because it is seeming like its not a matter of “if”, but “when”.
Funny what actually producing something – a budget plan to bring government deficits and eventually debt under control — will see the other side produce. After a year in which the Democratic Congress was unable to produce a budget, suddenly the Progressive Caucus in Congress has an answer to the Ryan budget proposal produced by Rep. Paul Ryan (R-WI).
And, as you might imagine, it is, definitely snort worthy. However, if you remember what group I said had produced it, it shouldn’t surprise you. Phillip Klein brings you the “good news”:
Next week, the group of progressives plans to introduce its alternative to Ryan’s proposal, called "The People’s Budget." Based on an advanced peek provided by a senior Democratic aide, it promises to return the nation to surpluses by the end of the decade and reduce the debt, only with a much different approach from Ryan’s.
To extend the long-term solvency of Social Security, it would propose dramatically increasing payroll taxes on both the employer and employee side, and funneling the money into even more generous benefits.
Payroll taxes are economically destructive, because they make it more expensive for employers to hire new workers, meaning lower real wages and higher unemployment.
Yet the tax increases wouldn’t end there. The People’s Budget would rescind last year’s tax deal to raise rates on higher income levels, boost taxes on capital gains and dividends, increase the estate tax, institute three "millionaire tax rates," with the highest reaching 47 percent, tax corporate foreign income, impose a "financial crisis responsibility fee," and institute a "financial speculation tax."
Overall, taxes would rise to 22.3 percent of the economy, compared with 18.3 percent under the Ryan proposal.
The plan would also build on Obama’s most notable initiatives. It includes an additional $1.45 trillion in economic stimulus spending. On health care, the plan would add a government-run plan, or "public option," to Obamacare and have the government negotiate drug prices.
Yet while other parts of government would grow, the defense budget would be gutted. The proposal would "reduce baseline defense spending by reducing strategic capabilities, conventional forces, procurement, and R&D programs."
File this under “they just don’t get it”, for starters. And, if you didn’t get a horse laugh out of the “People’s Budget” (VolksBudget?) then your sense of black humor is a bit lacking. These fools, and I haven’t a better word for them, would absolutely ruin the country if given an opportunity. They’re ignorant of economic, ignorant of reality and just flat dangerous. If nothing else, the GOP ought to make this available far and wide – this is what these freaks will do if they get control of Congress again. If you think the debt and deficit are bad now, let this crew pass their “People’s Budget” and we’ll all wave goodbye to life as we know it.
However instead of waiving this off, people need to study these two contrasting approaches to government advance by Paul Ryan and the Progressive Caucus.
Oh, and Megan McArdle, doing some back of the napkin figuring, isn’t buying the “22.3%” of the economy nonsense:
A 47% federal tax rate on top incomes, plus increases on estates, capital gains, and dividends, and all you get is . . . 22.3% of GDP? A bare 1.3% above the collections envisioned by Simpson-Bowles?
And she asks for a little honesty:
No, if you want to get the budget under control without meaningfully cutting into entitlements, you’re going to need to hike taxes substantially on the middle class. I’m waiting for the first politician to say this out loud.
Well, it won’t be the Progressive Caucus, you can count on that. Instead, they’re all for making entitlements even more generous. National defense – we don’t need no stinkin’ tanks.
Meanwhile the left has been savaging Ryan’s proposal (and so far the “People’s Budget” is the best they can throw back). But serious people, like Charles Blahaus of e21 find it pretty refreshing (read the whole thing). And he makes a point or two I’ve been making recently:
Yesterday’s release of the draft Ryan budget offers a vision for repairing the federal budget. Thus far, this vision for fiscal repair remains the only serious legislative alternative to fiscal catastrophe. President Obama’s submitted budget, by contrast, contains no significant effort to repair the federal fiscal outlook. The Congressional Budget Office (CBO) has shown that it would leave federal finances on a clearly unsustainable trajectory. Health care reform, long touted by some as being the real key to fiscal reform, turned out to mean expanding federally-subsidized coverage rather than fiscal correction. Last year the Congressional Democratic leadership declined even to pass a budget at all. If there is a responsible left-of-center alternative to the Ryan proposal, we have yet to learn what it is.
Well sir, it won’t be the People’s Budget for the People’s Republic of Fantasy Land, I’m sure of that.
All sorts of coverage on the Obama budget, most of it negative. While the White House spin machine works overtime to attempt to fashion a message saying the effort confronts the harsh fiscal reality we’re faced with and makes tough cuts and decisions, that’s not the way others are interpreting it.
Andrew Sullivan figured out Obama’s budget is a very political one:
But the core challenge of this time is not the cost of discretionary spending. Obama knows this; everyone knows this. The crisis is the cost of future entitlements and defense, about which Obama proposes nothing. Yes, there’s some blather. But Obama will not risk in any way any vulnerability on taxes to his right or entitlement spending to his left. He convened a deficit commission in order to throw it in the trash. If I were Alan Simpson or Erskine Bowles, I’d feel duped. And they were duped. All of us who took Obama’s pitch as fiscally responsible were duped.
Uh, yeah. And it only took 3 years for Andy to figure it out. Speaking of the Simpson Bowles commission, Sullivan cites a David Brooks column where Brooks talks about a group of Senators who are taking the lead in writing up the recommendations of the commission for implementation. Says Sullivan of the effort:
They have to lead, because this president is too weak, too cautious, too beholden to politics over policy to lead. In this budget, in his refusal to do anything concrete to tackle the looming entitlement debt, in his failure to address the generational injustice, in his blithe indifference to the increasing danger of default, he has betrayed those of us who took him to be a serious president prepared to put the good of the country before his short term political interests. Like his State of the Union, this budget is good short term politics but such a massive pile of fiscal bullshit it makes it perfectly clear that Obama is kicking this vital issue down the road.
Lovely to see someone else finally realize that leadership is something this president knows nothing about, never has exercised and wouldn’t know how to do with a self-help book in front of him. And, as Sullivan correctly surmises, this atrocity of a budget is firm proof of that (and no that doesn’t mean I endorse the Simpson Bowles commission – the point is about leadership). Sullivan also finally ferrets out that the commission was nothing more than an artifice the president used to cover his rear and make it appear like he was focused on doing something about the fiscal shape of the US government. Instead we get exactly what those of us who’ve been on to this president’s act all along expected – pure politics.
John Hinderaker at Powerline gives graphic proof (left) that the media water carriers who are parroting the White House line about the President’s budget containing “steep” or “painful cuts” aren’t fooling anyone. As you can see the only steep incline over the next few years is up. There is nothing significant about any “cuts” or “savings” the Obama budget puts forward on the overall level of government spending except to keep the slope headed in a direction we can’t afford.
Instead it is more of the same simply couched in the same old obfuscating rhetoric that calls spending “investment” and taxation “savings”. Someone needs to get the point across to Obama that the smoke and mirrors company in which he’s so heavily invested isn’t working for him anymore.
In fact, just to make the point even more evident, take a look at this chart by Doug Ross. The yellow line you see (right) are the “steep” and “painful cuts” the president and some of the media are trying to pretend his budget is making. Tough stuff, no? No. His steep and painful cuts are a veritable drop in the bucket and really do nothing structurally to actually cut spending to affordable and sustainable levels. As Rep. Paul Ryan has said, Obama “punted” with this budget.
Megan McArdle thinks, given this budget by the president, that it may finally be time to panic.
I was a laconic hawk when the deficits shot up in 2008, 2009, 2010. A few years of deficits in an unprecedented crisis weren’t going to kill us; we had time to get them under control.
But I’m starting to think that it’s time to panic. This deficit is $700 billion higher than the CBO projected in August 2009, of which $500 billion is lower tax revenues, and $200 billion is new spending. It’s also $500 billion less revenue and $100 billion more spending than the CBO was expecting as late as August of last year, thanks to the extension of the Bush tax cuts. For all that I keep hearing about deficit reduction and PAYGO rules, somehow those "fiscally responsible" Democrats have given us the largest peacetime deficit in history, one that keeps growing beyond all expectations–and for all their alleged worries about the budget deficit, so the Republican role in all of this has been to goad Democrats into cutting taxes even further, so that the wealthiest earners could enjoy their fair share of our collective fiscal insanity.
I know the arguments for stimulus, but at this point, I don’t think we can afford the luxury of a more stimulating economy. Our politicians can’t be trusted to do the right thing later; we need to make them do it now.
I can’t emphasize that last sentence more. If ever there was a time to do what is necessary to take a knife to the bloated government budget, it is now. The public is as much on board as it will ever be and while it may whine and even scream and holler about some thing’s, most of the voters in this country know something pretty drastic must be done and done soon.
Even “Johnny one-note” Paul Krugman isn’t happy – for the usual reasons:
Andrew Leonard is right: the Obama budget isn’t going to happen, so in a sense it’s irrelevant. But it still has symbolic meaning. What is Obama saying here?
The important thing, I think, is that he has effectively given up on the idea that the government can do anything to create jobs in a depressed economy. In effect, although without saying so explicitly, the Obama administration has accepted the Republican claim that stimulus failed, and should never be tried again.
My favorite line in the Krugman piece was this:
What’s extraordinary about all this is that stimulus can’t have failed, because it never happened. Once you take state and local cutbacks into account, there was no surge of government spending.
Remember, what was spent was about $300 billion more than Krugman recommended. But if it never happened I assume Krugman will now quit attempting to say that the trillion dollars which was thrown out there to stop the fall and stimulate growth did it’s job, right? That was his previous stance and all that was needed was more spending to have an even greater effect. Correct? Now he’s in the middle of rewriting history:
Yes, I know, it’s argued that Obama couldn’t have gotten anything more. I don’t really want to revisit all of that; my point here is simply that everyone is drawing the wrong lesson. Fiscal policy didn’t fail; it wasn’t tried.
MIA – a trillion dollars. Yeah, it “wasn’t tried”, was it? About the nicest thing Krugman can muster to say about the Obama budget (in another article) is it isn’t the Republican budget:
It’s much less awful than the Republican proposal, but it moves in the same direction: listening to the administration, you’d think that discretionary spending, not health care, is at the heart of our long-run deficit problems — and you’d also think that the job of rescuing the economy was done, with unemployment still at 9 percent.
It could be worse — the GOP proposal is — but it’s hardly something to cheer about.
Well, we’ll see how much either is to cheer about when we take a look at the Republican budget.
Finally, to inject a little humor into a basically humorless debate – even if the humor is unintentional – read Jonathan Chait’s piece in The New Republic. You get the idea he was on his third or fourth scotch and up late when he wrote it. It is the journalistic equivalent of trying to turn a sow’s ear into a silk purse and coming up with an ugly fuzzy pouch that smells like bacon. Even his title points to a very tentative approval, something he had to talk himself into in order to make the attempt: “Why Obama’s Budget Is OK”. And while some of his points are valid (the president’s budget is a political document) how he got from some of his observations to some of his conclusions can only be explained by booze and sleep depravation.
UPDATE: Steve Eggleston has a good post up full of charts that makes the point with the government’s own numbers that Paul Ryan was right yesterday – “doing nothing would be better than passing [Obama’s] budget”.
Megan McArdle takes a first look at the bill and CBO numbers and gives her preliminary assessment. I want to specifically discuss a few of them:
1) Thanks to reconciliation instructions, they needed to improve the budget impact by at least $1 billion in the sidecar. They improved it by exactly $1 billion. Which goes back to what I’ve now said several times: the CBO process has now been so thoroughly gamed that it’s useless.
That’s the point I’ve been attempting to make for some time – CBO is limited to a 10 year window when it “scores” a bill. When you look at the graph below, you see the literal gaming that has taken place to get the numbers needed to make this seem palatable.
That brings us to a second point raised by McArdle:
2) The proposed changes increase spending dramatically, most heavily concentrated in the out-years. The gross cost of the bill has risen from $875 billion to $940 billion over ten years–but almost $40 billion of that comes in 2019. The net cost has increased even more dramatically, from $624 billion to $794 billion. That’s because the excise tax has been so badly weakened. This is of dual concern: it’s a financing risk, but it also means that the one provision which had a genuine shot at “bending the cost curve” in the broader health care market has at this point, basically been gutted. Moreover, it’s hard not to believe that the reason it has been moved to 2018 is that no one really thinks it’s ever going to take effect. It’s one thing to have a period of adjustment. But a tax that takes effect in eight years is a tax so unpopular that it has little realistic chance of being allowed to stand.
This proposal with the reconciliation package actually costs more than the previous version. And, she’s dead on right about the tax provision which will most likely never be enforced. That, of course, would add 32 billion to the net cost of the bill pushing it to over 826 billion. That’s not all:
3) As I expected, the size of the magic asterisk–the modern equivalent of David Stockman’s infamous “savings to be named later” in the Reagan budgets–has had to be beefed up to offset the new spending.
Go back and look at the chart here. She’s talking about the last line, “Other Effects on Tax Revenues and Outlays”. No specifics. Assumed savings of 44 billion to help arrive at the net 794 billion. Will there be any savings? Who knows, but given government’s history in that regard – the “magic asterisk” whose saveing never seem to actually materialize – probably not. So when you add that to the tax that’s never taxed, your net is now $860 billion over 10 years.
Add the 200 to 250 billion “doc fix” not in the bill and where are we “net”? Over a trillion dollars hidden in a gamed 10 year period.
I think this is a fiscal disaster waiting to happen. But no one on the other side cares, so I’m not sure how much point there is in saying that any more.
I think she’s right, but it is well worth recording the sentiment though. This has devolved into an exercise in power, politics, party and the presidency. It has little if anything to do with what’s best for the other “p” – the people.
Is it too big to fail? Megan McArdle believes the possibility certainly exists (I mean was Arnie really in DC yesterday just to see the sights). Says McArdle:
If the government does bail out the muni bond market, how should it go about things? The initial assumption is that they’ll only guarantee existing debt. Otherwise, it would be like handing the keys to the treasury to every mayor, county board, and state legislature, and telling them to go to town.
But once the treasury has bailed out a single state, there will be a strongly implied guarantee on all such debt. So you don’t give them the keys to the vaults, but you do leave a window open, point out where the money’s kept, and casually mention that you’ve given the armed guards the week off.
Of course the right answer is not to bail out either. Failure is a great teacher. And then there’s the moral hazzard angle.
But in this day and age, that’s approach is almost unthinkable apparently. Government, as we’re being told, is the answer to everything.
My fear, based on what the federal government has done to this point, is they’ll “hand the keys to the treasury” on both the muni bond market and the states (with bailouts). They have no business doing anything in either place, but we’ve already seen that the arbitrary assessment that some entity is too big to fail apparently takes priority over economic law.
Once a single state is bailed out, there is nothing to stop other states from making a similar claim on the treasury.
Should such a thing happen in either case (or both), Federalism, which is on its last legs anyway, will be officially dead.