The Spending Crunch

 

In the March 26, 2013 edition of the Wall Street Journal, the nonpartisan columnist Gerald Seib makes a very astute observation, namely that “Liberals Face Spending Dilemma”.  The Republicans are beating the drums for a balanced budget, the economy is growing at the anemic rate of 2% per year and entitlement spending is growing much more rapidly than this.  So what is going to happen?  Discretionary spending is going to have to shrink!   This means a big hit for both defense and nondefense discretionary spending, meaning most of the traditional programs funded by the federal government.
How do we get out of this predicament?  The best way would be to make the economy grow faster but this is unlikely to happen while the Democrats control the executive branch and are unwilling to implement pro-growth policies such as tax reform, deregulation and stepped-up international trade.
But even with more business friendly pro-growth policies, entitlement spending is growing way too fast and eating up a larger and larger piece of tax revenues.  The Republicans want to control the costs of Social Security, Medicare and Medicaid but simply cannot get this done without Democratic cooperation and support.  Either Democrats help figure out how to make significant cost cutting changes to entitlements or else steep cuts in discretionary social spending will have to be made.
The Republican drive to rapidly shrink deficit spending down to zero is for real and will not be denied.  The sooner the big spending liberals figure this out and adjust their behavior, the better off will be the whole country.

10 thoughts on “The Spending Crunch

  1. “The Republican drive to rapidly shrink deficit spending down to zero is for real and will not be denied.”

    Says who? Obama soundly won the last election campaigning specifically on the platform of raising taxes on the rich in order to lower the deficit. The Republicans stole their majority in the House through massive gerrymandering in 2010 (they actually lost the House in the 2012 election by a decisive margin of the popular vote), but that will be over in seven years (and Democrats could win the House back even before that). I believe that as soon as that happens, taxes are going up.

    The Republicans (like you) are way over-playing their hand on all this deficit hysteria. Whether you know it or not (and it appears that you don’t), that hysteria is designed to protect the super-wealthy’s bond investments at the expense of the middle class. The majority are figuring that out and it’s just a matter of time until Republicans lose their majority and the Democrats are running this country virtually unopposed.

    That will likely be a disaster, and the seeds of that disaster are being planted by Republicans that are completely tone-deaf to the needs of the people because all they hear is the drum-beat of the super-wealthy (and their naive surrogates like you) to make the deficit the main priority while many common people are truly suffering.

    By getting caught up in (and pushing) this foolishness, you are laying the ground-work for a future government dominated by liberals. That will be a sad day. Time to give the Koch brothers et al. the heave-ho and get back to common sense conservative principles which include investing a little money today (in the form of deficits) to help people get back on their feet, then controlling government spending (including the huge expenditures for the wealthy) and medical costs (through market-fostering reforms such as Obama-care).

    That will control the deficit over the long run and simultaneously help people which would then attract them to the conservative cause.

    • Basically what you are saying is that Republicans want to cut programs for the poor to protect the rich and this is simply not true in general although it may be true in some specific cases. What I am saying is that yes, discretionary spending, both for defense and nondefense (programs for the poor), are going to get cut unless the Democrats are willing to change their tune. There are two different approaches they could take, ideally a combination of both, in order to preserve more spending on social programs.
      First of all, Democrats could join with Republicans to adopt a number of different pro-business policies to make the economy grow faster to produce more tax revenue (and also create more jobs!), i.e. pro-growth tax reform, deregulation, more foreign trade, etc, etc, etc.
      The other major route to providing more money for social programs is to rein in entitlement spending by making relatively small changes in social security but much more significant changes to both medicare and medicaid. The demographics of baby boomers means that this will have to happen fairly soon anyway, and the sooner we get started the less disruptive the necessary changes will be.
      The Republicans will rightly keep advocating for both of these types of changes which have to happen sooner or later. It will be far less painful if the Democrats join in voluntarily and enthusiastically for their own reasons, rather than wait until another fiscal crisis eventually occurs to force action.

  2. It Is Nice To Think That The Republicans Will Rise Up And Make Things Right; However, The Americann People Are Drunk On entitlements. Let’s Not Forget That Obama Got A Second Term. The 48 Percent Who Are Getting The Benefits Will Vote Whatever It Takes To Keep The Benefits. A Portion Of The Business People Will Vote For Liberals Once They Discover They Are Affected. So, In The Short Term, I don’t See Any Significant Changes. Things Have To Get Much Worse Before Significant Changes Can Happen. A Few Years Of 80 Percent Inflation, The Loss Of The Dollar As The world’s Reserve Currency, And Gas At $10/Gallon Would Be A Good Start. Only When The Pain Has Reached Every Level Of Soceity Will Things Change Significantly!

    • You are saying that so many Americans are so drunk on entitlements and welfare that it will be impossible to getting federal spending under control anytime soon. Therefore we are doomed to suffer an enormous crisis, much worse than our current Great Recession, before enough people will wake up and demand radical changes. Call me a naive optimist but I think positive changes will start in the very near future based on the plain ordinary common sense of the American people.
      Most people realize that we can’t spend money we don’t have indefinitely without paying the piper, and so we must cut back. Republican’s endorse such fiscal prudence while Democrats (at least currently) oppose it. Good sense usually prevails in American politics and I’m confident it will do so again.

      • I too believe that good sense will prevail in American politics, and that the American people will ultimately reject the Republican strategy of making all the exact mistakes that led to the Great Depression.

        What I don’t understand is why today’s Republicans lack that good sense. Why would they (you) want to follow the playbook to disaster? As I said in the other post, this is a huge mistake that, if implemented, will lead to liberal rule for the foreseeable future.

        As a conservative, this is so frustrating to me…

  3. The recession ended in June 2009, almost four years ago, but the economy is still in precarious condition. What is the best way to give it a boost? The Keynesians (i.e. Democrats) say more deficit spending, the Republicans say more private initiative. The Democrats say shrink the deficit by raising taxes, but the problem is that this will retard the economy. If we’re going to shrink the deficit, as we must, and boost the economy at the same time, then we need to both cut spending and stimulate more private investment. Both of these things are eminently doable but cannot be accomplished by the (House) Republicans alone. All the Republicans can do by themselves is to dig in their heals, i.e. budget by continuing resolution in order to try to slow down spending increases.
    There are moderates in both parties who want to work across the aisle in order to move forward, but unfortunately not nearly enough of them to be effective. It’s a very frustrating situation.

    • What is your evidence that there is any lack of private investment? What is your evidence that raising rates on the top earners will retard the economy?

      I have presented links several times showing that neither of these are true. I will do it yet again:

      1. There is no lack of investment today that needs to be stimulated. Business is already investing at a very high rate relative to demand:

      http://delong.typepad.com/sdj/2012/08/fix-spending-on-residential-construction-and-you-will-have-fixed-the-downturn.html

      2. All tax rates are already at their lowest in over a generation, so there is no high tax situation that needs to be addressed to fix the problem. I.e., if low tax rates could fix the problem, we wouldn’t even be in this problem in the first place give how low rates are today:

      http://www.ritholtz.com/blog/2012/08/historical-tax-rates-poster-on-sale-for-10/

      3. There is no apparent historical relationship between top rates and growth:

      http://blogs.roanoke.com/dancasey/2013/03/the-chart-of-the-day-is-about-tax-rates-growth/

      In summary, there is no lack of investment, there is no high tax problem, and there is no evidence that raising top rates (from today’s very low levels) will hurt growth.

      I have just shown, with fully documented evidence, that every point you made in that comment is wrong, and I have provided similar documentation to you (updated from new sources on a regular basis) many times over the past two years. Over that same two year period I have asked you repeatedly for evidence that those points are correct and you have provided pretty much nothing.

      Yet you just repeat the same points over and over with no supporting evidence. Do you see no problem with that? Do you think if you simply repeat something over and over it will be true? Or that if in your mind it’s just “common sense” then no evidence can refute it, no matter the volume or quality?

      This is the problem with today’s Republicans; they just repeat easily discredited talking points over and over with no sense of understanding or shame.

      It’s just bizarre and it’s going to be the ruin of this party….

      • What you are saying is that we already have right now lots of business investment and historically low tax rates. So just because we have anemic 2% growth, a high unemployment rate of 7.7%, and enormous deficit spending, there is nothing we can do to improve the situation besides further stimulating the economy with even higher deficit spending.
        This is a very pessimistic outlook! Tax deductions, expenditures and loopholes total over a trillion dollars a year! We could replace a significant amount of these deductions with even lower tax rates than we have already. The lower we can make the corporate tax rate (one of the highest in the world), in particular, the more money the multinationals will bring home and invest here.
        If we replaced the business tax exemption for employer provided health care with a tax credit for everyone to buy their own health insurance (suggested by that evil Republican Congressman Paul Ryan, among others!), business would be spared an enormous expense especially onerous for small businesses where most new jobs are created.
        Here are two significant actions, among many others, which could be taken to boost the private sector and therefore the economy as a whole. The second item, concerning how health care is paid for, will be difficult to accomplish. But isn’t that what national leaders are supposed to be for, to do the heavy lifting which progress requires?

    • Thanks for your interest and support. We are falling deeper and deeper into an abyss of debt. It will take many years to extract ourselves from the hole we are in. But before we can start climbing out we need to stop falling any deeper. Creating more awareness of our terrible situation is the purpose of this website.

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