I generally don't bother reading Thomas Friedman. A good friend gave me a copy of The World Is Flat, and I started reading it. Somewhere in the first one hundred pages Friedman has an extended discussion of workflow software (as a key enabler of globalization) and I realized that he knew absolutely nothing about workflow software, so I stopped reading it and gave it away.
Another friend pointed out Friedman's op-ed in the Times earlier this week in which he argues for "grand bargains" and "balanced" solutions to, well, all of our problems. For example, he says, "We need a proper balance between government spending on nursing homes and nursery schools -- on the last six months of life and the first six months of life." Despite the nice ring, that's about as empty a statement as you can make about public policy.
But this is the one that really confused me (and my friend):
The first is a grand bargain to fix our long-term structural deficit by phasing in $1 in tax increases, via tax reform, for every $3 to $4 in cuts to entitlements and defense over the next decade.
Where does this $3-4 in spending cuts to $1 in tax increases come from? To put this in perspective, over the next decade, the CBO's alternative scenario (the more realistic one) says that deficits will average 5.3 percent of GDP over the next decade. A major deficit reduction agreement would need to bring this down at least to 2 percent of GDP.* Friedman is basically saying that taxes should go up by about 0.7 percent of GDP and spending should come down by about 2.6 percent. Over the next decade, the Bush tax cuts, if extended, will reduce tax revenues by 2.2 percent of GDP.** So Friedman is really saying that the appropriate level of taxes should be well below Clinton levels and slightly above Bush levels.
In addition, these ratios of tax increases to spending cuts are essentially meaningless. Take Medicare, for example. We could increase the Part B premiums paid by high-income beneficiaries, which, according to conventional federal government accounting, would count as a spending cut. Or we could make Medicare benefits taxable for high-income beneficiaries, which would count as a tax increase. But the two would have exactly the same effect. About two-thirds of all federal spending is direct payments on behalf of individuals (e.g., Social Security checks and Medicare reimbursements). Reducing a direct payment to someone is the exact same as increasing her taxes.
In White House Burning, we propose large reductions in long-term deficits through a long list of policy changes. Many of our proposals count as tax increases from the accounting perspective. For example, we recommend eliminating or scaling back tax breaks for employer-provided health care, mortgage interest, charitable giving, and state and local government borrowing, all of which are implemented through the tax code. All of these tax breaks, however, are really government subsidies, so reducing them should count as spending cuts from an economic perspective.
You may disagree with these proposals, but they should be evaluated based on their impact -- not whether they are labeled as tax increases or spending cuts. By buying into this arbitrary distinction, Friedman is really buying into the Grover Norquist view of the world, in which the only number that matters is total tax revenues.
Finally, however, what's so great about balance? There is a political rationale for the perception of balance, which is that you can't pass anything that appears to favor one side by too much unless you control the White House, the House, and sixty votes in the Senate. But there's no particular reason why the pursuit of balance will produce good policy. To take a particularly vacuous example, Friedman says:
Within both education and health care, we need grand bargains that better allocate resources between remediation and prevention. In both health and education, we spend more than anyone else in the world -- without better outcomes. We waste too much money treating people for preventable diseases and reteaching students in college what they should have learned in high school.
Is he saying that we should improve high school education (who's against that?) but that, to "balance" this improvement, we should have worse college education?
Friedman concludes, "We can't have any of these bargains, though, without a more informed public debate." Fetishizing balance as an end in itself, in order to brand himself as a reasonable centrist who wishes we could all get along, is not going to get us there.
* If you look at the long term, we think that average deficits will have to come down by 5.5 percent of GDP; details are in chapter 6 of White House Burning.
** According to the CBO, the Bush tax cuts are worth $4.4 trillion over the next decade (Table 1-6; that's the incremental effect of the tax cuts on top of indexing the AMT) while GDP will be $202 trillion (Table 1-3).
James Kwak is the co-author of White House Burning: The Founding Fathers, Our National Debt, and Why It Matters To You, available from April 3rd. This post is cross-posted from The Baseline Scenario.
Follow James Kwak on Twitter: www.twitter.com/baselinescene
Simon Johnson: Fiscal Affairs: "JOBS" Disaster Looms
Every once in a while, amongst all the trash, there is a gem like this.
Thank you, Mr. Kwak, for pointing out what should be obvious and offering numbers to back it up.
They hand out Pulitzers like door prizes.
ROLFMAO (sometimes nothing else fits :>D ) It's so unfair that people who REALLY know stuff kick around our poor little news panel cuties. It's not right. Knocking Friedman is like knocking Scooby Doo for not being Lassie. Friedman has been a linchpin of Sunday Morning Pretense! If you can't be a Sunday morning phoney- just make way for those who can :>D I need a lot of help turning my ignorance into pretentiousness. You're no help.
All Paper Federal Currencies Fail......................without exception.
Cut the Medicare Budget by 40 % thru copays and reduced services (expensive hip/joint, organ transplants) and you have solved the DEBT BOMB.
Governments waste $$$, Federals need to get 25 % smaller.
Inflation is destroying the poor. DEMS never discuss Inflation but praise loser Jobs ?
There may well be an ethically effective method for ensuring the latter. But the former?
"a grand bargain to fix our long-term structural deficit by"
determining what it is humanity is actually attempting to achieve here. Then diverting effort and resources from counter productive endeavours, over to productive ones.
"You may disagree with these proposals"
Perhaps because they are as relevant as rearrangements to the seating schedule during the last brief moments of the Titanic’s above surface existence.
"what's so great about balance"
Well. Given that any system where money wagered is not matched by tangible collateral, constitutes a recipe for regular and recurring collapse. One might just simply use leverage as a convenient club. With which to beat oneself over the head.
"We waste too much money"
We are also, it might be said, well on our way to wasting ourselves.
"We can't have any of these bargains”
because the store is locked, and the citizens thrown out in the street.
"If you look at the long term, we"
may see just a short term.
The fact remains that as Madison noted that when a person is presented with the option to act in one's own interest or for the general good, the actor invariably acts in one's own interest.
When his notions of balance are extended to the Supreme Court, the Constitution is reduced from its status as law to an academic or philosophical debate.
I also don't necessarily agree with a placing a surtax on millionaires since I would rather just reduce deductions given for charitable donations and curtail state and local deductions. Also, I would even support lowering the top-income tax rate. How about instead we lower the income tax rate to 30%? At the same time though, raise both capital gains and the tax rate on dividends to 30% also. Also, we need to raise the rate ceiling on the income tax which only taxes income below $111,100 up to $200,000.
But, it's not just the rich who need to pay more in taxes, we do as well. I think we should keep the payroll tax cut until unemployment creeps below 7% at which point a trigger would kick in and the rate would raise by 1% each year (which would be two years) back to it's original rate. Then, after that increase the tax by 1 to 1.5 percent and raise it by 0.5% each year. We need to start pumping all of that money back into social security that has been taken out of it by the GOP.
"About two-thirds of all federal spending is direct payments on behalf of individuals (e.g., Social Security checks and Medicare reimbursements)."
There is the problem. The United States of America is fundamentally skewered. Get what you can, while you can, before the music stops. Huh?!?!
That's right, I said, get what you can while you can, because the music is about to stop. We aren't creating enough wealth to sustain our lifestyle, and it has nothing to do with the wealthy. We are to the rest of the world economy as Greece is to the Eurozone.
The ONLY thing we have left is the United States Marine Corps.
Get used to it, but don't get used to it. Because what we assume someone else was responsible for making impervious and eternal, the United States of America, is teetering on the edge. And only the USMC stands between our foolishness and the desire of the rest of the world to pick our carcass.
Oh, the USMC and corporate America, which is the only part of America that's actually working right now. Kind of like a USMC, Inc.
Some people seriously need to get out in the world and see what's really going on.
If so, you are blind to the real problem.
Come to think of it, that's how Bain Capital et.al. work--force the company they take over to pay the costs of acquisition.
The wealthy have more now than they did in the past. Those in the middle who've kept their skills and professional network current are doing OK. It's those who've let their skills wither and neglected their professional network who haven't benefited.
That is not some evil capitalist scheme.
Tom is that worst sort of gadfly-hack who actually believes his own non-sense. It's amazing he doesn't have carpel-tunnel syndrome from patting himself on the back smugly congratulating himself on his astounding facility for "arbitrage". He speaks authoritatively upon issues which he has but the most rudimentary knowledge of and is consistently wrong in his prognostication. If he wasn't such a strident cheer-leader cipher for the Free-Trade syndicate mob he'd just be another harmless lunatic, however, there are just enough intellectually challenged people in positions of power who heed his delusions that he's actually a bit scary.
and
""** According to the CBO, the Bush tax cuts are worth $4.4 trillion over the next decade (Table 1-6; that's the incremental effect of the tax cuts on top of indexing the AMT) while GDP will be $202 trillion (Table 1-3)."
Given the secondary effects of the two unpaid (out of revenue at the time) for wars have exacted on our nation (interest payments, decayed infrastructure, etc) will we ever be able to really hindcast the disaster that supply side Bush 2.0 has wrought? Can some amount of formulae like the above undo the fiscal disaster brought upon us by folks that get away with calling themselves fiscal conservative? They of course, by demonstration, understand neither concept. I hope so but these days it seems like even when the glass is half full, the water is poisoned.
Read "Broken Government" by John Dean for a good review of this process.