Recent comments

- Support some means of healthcare reform that will significantly reduce the "excess cost growth" of healthcare, particularly that pertaining to Medicare and Medicaid but which may involve the private sector as well. I haven't really researched this issue yet, so I don't have advocate any policies in particular yet. I assume, though, that we will have to accept actual sacrifice (e.g., what procedures/treatments/drugs are allowed under what conditions, or longer waiting periods for particular services, etc.) rather than being able to achieve significant cost savings without any sacrifice, purely through efficiencies. - Support efforts to raise public awareness about the long-term fiscal challenge and the consequences if we delay sacrifices to address it. (spread the word re: blogs like this one, organizations like the Concord Coalition, etc.) - Support efforts like this to force Congress to either act responsibly or be revealed more publicly as irresponsible, hopefully changing their political calculus and making it more politically costly to avoid fiscal responsibility than to endorse the needed (but unpopular) sacrifices to achieve it. - Push for a more rational analytical approach -- or at least explanation -- regarding our Iraq policy. It seems that Democrats don't want to really address the costs/risks of leaving (or substantially reducing our presence) and Republicans don't want to really address the costs/risks of staying and the question of why/how the outcome will be better if we stay longer and leave (or substantially reduce our presence) later (i.e., will our continued effort prevent or mitigate the disaster they envision if we were to leave now, or just delay it after costing us more in terms of lives and money). Even strategy, for lack of a better word, has, at least for most of the war, been dumbed down terribly by partisanship. See diary I wrote one year ago (essentially pre-"surge", pre- Sunni "Awakening", and pre- Sadr "ceasefire", but it still applies to at least a large ! degree) and follow-up diary a few months later. I don't know if I've answered your exact question (or given you much more than you wanted!), since I'm not perfectly clear on what you're asking, but that's my best shot. Please let me know if I've missed what you were asking.

Brooks, Since shading of facts and figures and spinning creates a cloud of fluff, it would be nice to actually do that kind of discussion not only behind closed doors which DC staffers appear not able to do either, but in public as well. How do we get there?

Maybe these are the same guys who take 5 mulligans during a golf round. Real men and women take responsibility for their mistakes, learn from them, and move on. Good post, thanks.

Clearly a lot of the expansion of US government spending (as measured relative to GDP) has been at the state and local level. I suspect most of that has been health care and education costs.

I believe that much of the increased local government spending relates to more pork projects given to developers and contractors who provide money or favors to politicians (essentially, increased corruption and bribery). I certainly see enough of this in the Memphis area. (Memphis politicians actively seek to reach the levels of corruption seen in New Orleans and Chicago.)

Bruce Webb, Well and clearly stated about Social Security. Even AARP needs to take notice. Perhaps Andrew can post on the General Fund crisis instead?

Thanks to both of you guys (Len and Ken). It seems that Len is correct regarding the projections, which means that there is a significant weakness in using CBO's scenarios to compare fiscal policy alternatives, right? GDP, and in turn absolute revenues (considering dynamic [feedback] effects) and deficits (absolute and as a % of GDP), interest expense (due to debt level and interest rates), and debt as a % of GDP, would all be affected significantly by the respective sets of fiscal policy choices under various scenarios. How are we able to use their comparative scenario data and charts if these dependent variables are treated as fixed? Their projections would show no difference between a high spending, high taxation scenario and a low spending, low taxation scenario, as long as statically-calculated deficits were equal under each scenario, right? As far as their methodology is concerned, there would be no difference in our GDP whether we try to eliminate our fiscal imbalance entirely through spending cuts, entirely through tax increases, through any proportion of the two in combination, or for that matter if we don't address the fiscal imbalance at all, right? Nor does it take into account feasibility -- e.g., diminishing returns on tax increases as they move higher and higher due to dynamic (Laffer Curve) effects. Am I right re: all of the above? If so, what's the best way to compare alternative sets of potential fiscal policies to address our long-term fiscal imbalance? Is CBO's methodology somehow good enough, perhaps with some method of rough adjustment we can apply? Is there a better source of analysis/projections?

Ken's email made me wonder whether I was wrong about this and I called a friend at CBO who spelled out their modeling assumptions. CBO considers the GDP effects of higher or lower tax rates in their discussion, but does not incorporate those effects into its long-term projections. The projections also assume that interest rates are unaffected by ballooning government debt. My guess is that CBO's judgment is that the projections are scary enough without including the implications of a financial market meltdown, which would make things much, much worse. Also, I don't think there's empirical evidence on the effects of catastrophically reckless fiscal policy in a major developed country (although I suppose the Weimar Republic's monetary policy provides a cautionary anecdote). Thus, it would be hard for CBO to produce estimates for interest rates and real GDP consistent with its projections.

Brooks, Tax increases can lead to additional spending, but the 1990 and 1993 budget reconciliation bills demonstrated it is also possible to harness carefully selected tax increases to cut the deficit. Letting the Bush tax cuts expire in 2010, which I doubt will happen, would raise taxes dramatically, and, if the Fed didn't offset that with easier monetary policy, it would slow GDP growth. That slower GDP would reduce revenue growth, but not by anywhere near the amount of the tax increase. Therefore, the long-run debt to GDP ratio would decline. However, there is a limit to how far taxes could be increased before a recession resulted, GDP declined, tax revenues declined, spending increased, and the debt to GDP rose. The problem is figuring out where that limit is. Economists have not agreed on this, but voters don't wait for economists to speak, they just threaten to vote replacements for their elected representatives. Those representatives are quite sensitive to this issue, and that's why federal revenues as a share of GDP doesn't vary much from 18% of GDP. In my experience, spending decisions by the President and Congress are made without much regard for revenues or the deficit. President Reagan blithely proposed and enacted the largest tax cut in history AND the largest peacetime defense increase in history. President Bush 43 cut taxes more than any modern president AND signed the largest expansion of Medicare to cover prescription drugs of any president since Lyndon Johnson created the program. On Capitol Hill, the budget committees are supposed to keep spending and taxation in balance, but they rarely have more power than the appropriators or the tax writers. Deficit reduction is like dieting; it takes a lot of hard work to get the weight off and a lot more hard work to keep it off. It's a matter of political will. If political will is sufficiently powerful it will reduce the public debt with a combination of tax increases and spending cuts. There are tax increases and spending cuts that can be very damaging to economic growth, and there are tax increases and spending cuts that don't affect economic growth at all. To just preclude all tax increases or all spending cuts ignores reality. Pete

Not quite. CBO appears to assume a similar economic growth rate. From p. 15 (25 in the PDF linked above): "CBO found that in that case, real GNP could fall 1 percent to 4 percent below what it would be in that year if tax rates were held at their 2007 levels. Although such a reduction in GNP would be noticeable, it is small in comparison with how much the economy could grow over the same period under a sustainable budget policy. If the budget was put on a sustainable path by keeping tax and spending rates close to their current levels, real GNP could grow by 110 percent between 2007 and 2040. Although under the extended-baseline scenario, the higher tax rates in 2040 would reduce that growth, real GNP would still be 101 percent to 108 percent higher than it is today, CBO estimates." Deficits matter, and crowding out is considered.

Thanks Len. If you happen to have a source for that, please provide link or advise on where I can find it. I didn't see that assumption stated in the CBO report, although I could have missed it. Just to be sure I'm clear on your answer, so CBO assumes the same GDP growth rate under all fiscal policy scenarios, even though those scenarios represent different levels of taxation, spending, and debt?

Andrew, If I may ask a tangential, but related question: In CBO's Long Term Budget Outlook reports, when they provide figures for alternative scenarios of spending and taxation policies, showing projections for spending and revenues under each scenario, do they assume the SAME GDP growth rates and levels for all scenarios? If so, aren't they making erroneous assumptions by ignoring the dynamic effects of such policies (impact on GDP, and in turn, % of GDP that a given level of spending or revenues represents)?