Tag Archives: cutting spending

Should Nebraska Adopt the Common Core Standards?

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Yesterday’s New York Times has an article by Andrew Hacker and Claudia Dreifus “Who’s Minding the Schools?”, which makes a strong case against the so called Common Core education standards already adopted by 45 states.  Their argument is that the standards are a “one-size-fits-all pathway governed by abstract academic content” which will primarily benefit the affluent middle class students who have strong parental support and who will go on to attend selective colleges.
About a year ago Mr. Hacker wrote another NYT article “Is Algebra Necessary?”, pointing out all the grief resulting from requiring high school students to learn algebra.  The Common Core standards have a strong algebra component and so they will tend to solidify the expectation that all high school students study algebra and learn it well.  This is an especially big challenge for low income and minority students who have the least academic success in high school and are the most likely to drop out before graduation.
Both the U.S. Senate and the House are currently considering legislation to renew No Child Left Behind by giving states more flexibility in figuring out how to increase educational success for their own students.  This makes a lot of sense and should make it possible to cut back substantially on the approximately $100 billion per year spent by the federal Department of Education on grants to the various states.  In other words, for various reasons there is currently taking place a shift in educational policy to give more control and responsibility back to the states.  The Common Core standards are attempting to move things towards more federal control and therefore are likely to face very strong headwinds.

After the Crisis: The Power Inversion and What It Means

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In today’s New York Times David Brooks has a column “The Power Inversion”  describing a shift of economic and political power from the federal government to municipal governments.  Of course, the rural to urban population migration has been taking place for many years.  But now the financial crisis and resulting political stalemate in Washington is causing civic leaders to take more initiative in addressing economic problems.  The Brooking Institution’s Bruce Katz gives many specific examples of such initiatives in a recent speech “After the Crisis: The Metropolitan Revolution”.
This shift of power away from Washington and back to local government could have big ramifications for the federal budget which, as almost everyone knows, is currently running huge deficits.  Here is a good example to start with.  The U.S. Senate is about to take up revision of the No Child Left Behind law which expired several years ago.  A bill, Strengthening America’s Schools, has been introduced by the Democratic majority for this purpose.  It allows states to create their own education reform plans and sets testing and performance standards for all states to follow.  It is much more flexible than NCLB.
Congress should take this opportunity to reorganize the federal Department of Education by greatly consolidating its huge number of individual programs (over 100 separate programs in K-12 education alone).  Support for state education programs could be given in much larger chunks thereby giving states and school districts more leeway in figuring out the best way to divide up and allocate their education dollars.  The total federal budget for education could be significantly reduced in this way and the states will, at the same time, be able to do a better job with fewer dollars because there will be fewer strings attached.
This is a smart way to shrink the federal deficit and we should take advantage of it!

A Frightening New Look at the U.S. Debt Problem

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Let’s take another look at the Congressional Budget Office’s “An Analysis of the President’s 2014 Budget”.  On May 18, I pointed out that his budget projects a deficit of “only” 2% ten years from now in 2023, which amounts to a $542 billion deficit in that year, quite a large amount.
There is actually a clearer and rather frightening way to look at the continuing buildup of debt over the next ten years according to the President’s budget.  On page 4 of the CBO report, year by year projections are given for each of the following: Debt Held by the Public (on which interest is paid), Gross Domestic Product, Net Interest on the Public Debt, and Net Interest as a Percentage of GDP.  The actual amounts for 2012 are: $11.3 trillion in Public Debt, $15.5 trillion GDP, $220 billion Net Interest and 1.4% Net Interest/GDP.  These figures all steadily increase during the next 10 years with projected values for 2023 being: $18.1 trillion in Public Debt, $25.9 trillion GDP, $782 billion Net Interest and 3.0% Net Interest/GDP.
Here’s what is so frightening.  Right now we’re paying 1.4% of GDP as debt interest but GDP is itself growing at about 2%.  So we at least have a small net growth of .6%.  But the 1.4% interest for 2012 and 2013 is projected to keep growing steadily and reach 3% in 2023 and then to continue on growing indefinitely after that.  This means that either our growth rate continues to steadily increase and hits at least 3% by 2023, and then still goes even higher after that or else our economy will begin to stagnate and go backwards.
We are currently on a perilous course, caused by the enormous accumulation of debt over the past few years, on which we will have to pay interest in perpetuity.  It is an urgent matter to rapidly shrink deficit spending way down close to zero in the next few years.  We need to find more effective ways to boost the economy than the excessive public stimulus which has put us into this dreadful current situation.

Updated Budget Projections from the Congressional Budget Office

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The Congressional Budget Office has just released an update to its February 2013 Budget Projections.  The deficit for 2013 is now projected to be $642 billion, down from the previous $845 billion.  This is good news but its main effect will only be to delay by several months until fall serious negotiations about raising the debt limit again.  The long term outlook has changed very little.  New debt for 2014-2023 is now projected at $6.3 trillion.  The total debt this year will be 76% of GDP and in 2023 it is projected to be at 74% of GDP and rising.  Over the past 40 years total debt has averaged 39% of GDP.
Such a large debt level now and for the indefinite future obviously has very serious negative consequences.  As soon as interest rates return to more typical higher levels, interest payments will rise by hundreds of billions of dollars per year, crowding out much other spending.  We can be sure that a new crisis will occur sooner or later leaving national leaders at that time in a precarious position, unless the debt level shrinks significantly in the meantime.
This means that significant additional deficit reduction is still needed at the present time.  Realistically, it should come from reforming entitlement spending which is becoming an even bigger driver of our continuing debt explosion.  Any national leader who denies the seriousness and urgency of our current frightful fiscal condition should be considered irresponsible and held to account for this failing.
The presently high unemployment rate of 7.5% is no excuse for inaction.  The way to boost the economy, and thereby reduce unemployment, is to encourage more business investment with tax and regulatory reform.  Economic stimulation and deficit reduction are not in opposition to each other.  They can and should be addressed together at the same time.

The New York Times and Fiscal Austerity

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The New York Times is devoting a lot of space recently to debunking the Republican’s supposed campaign to inflict fiscal austerity on the United States.  My May 10, 2013 blog entry responded to an NYT article on May 9 entitled “Emphasis on Deficit Reduction Is Seen by Economists as Impeding Recovery”.  Now they’re at it again!  Today there’s an Op Ed entitled “How Austerity Kills”, by David Stuckler and Sanjay Basu.  The authors state that “Recessions aren’t necessarily deadly.  But harsh spending cuts are”.
It needs to be pointed out over and over again, as often as necessary until it sinks in, that the current year’s federal budget does not represent a cut.  In 2012 actual expenditures were $3,538 billion while the 2013 federal expenditure budget, as estimated three months ago (in February 2013) by the Congressional Budget Office, is $3,553 billion.  This represents an increase of $15 billion from last year’s (2012) expenditures to this year’s (2013) estimated expenditures.  Holding down budget increases from one year to the next, at a time of enormous deficits, is exactly what our elected representatives ought to be doing.  If Mr. Stuckler and Mr. Basu want to argue that the sequester adjustments represent a poor way of holding back on large spending increases, then many Republicans, including myself, would agree with them.  Let’s definitely reduce spending increases in a more intelligent way!
But the larger issue is the question of austerity itself.  We’ve now had four years in a row of trillion dollar deficits and this year’s deficit is predicted by CBO to be $845 billion.  CBO projects deficits of $616 billion for 2014, $430 billion for 2015, and then annual deficits which start growing again (under current policy) and returning to the trillion dollar level by 2023.  This represents $7 trillion in additional debt by 2023 beyond the $6 trillion in debt already accumulated in the last five years.  To continue on this projected path is the height of irresponsibility!  And for the New York Times to refer to this amount of excessive spending as austerity is ludicrous, simply ludicrous!

Is Emphasis on Deficit Reduction Impeding Recovery?

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The New York Times reported on May 9, 2013 that “Emphasis on Deficit Reduction
Is Seen by Economists as Impeding Recovery”.  According to the reporter, “Tax increases and especially spending cuts, the critics say, take money from an economy that still needs stimulus now, and is getting it only through the expansionary
monetary policy of the Federal Reserve.  … In all of this time, the president has fought unsuccessfully to combine deficit reduction, including spending cuts and tax increases, with spending increases and targeted tax cuts for job-creation initiatives in areas like
infrastructure, manufacturing, research and education.”
The $845 billion deficit for the current year, as estimated by the Congressional Budget Office, hardly represents austerity, and is in fact a massive stimulus.  The president says that he wants “sensible” deficit reduction, but simply offsetting sequester
spending cuts and higher taxes on the wealthy with other spending increases and
targeted tax cuts as above, really amounts to no deficit reduction at all.
Most observers agree that it is entitlement spending, especially for Medicare and Medicaid, which is the main driver of the national debt.  Serious deficit reduction will not be achieved by further whittling away at discretionary spending, as wasteful as
some of it is.  The president has proposed changing the way the Consumer Price Index is computed, by switching to a “chained CPI” which will save the federal government about $30 billion per year.  This is a worthwhile change to make but represents a relatively modest savings by itself.
If the Democrats want to spend more money on “investments” and other forms of
fiscal stimulus, to try to speed up the recovery, they will have to get on board with serious reform of health entitlements.  The rapidly exploding national debt is a far too serious and urgent problem to ignore any longer.  The president might say that it should be addressed in a sensible manner, but postponement is no longer a sensible option.

Whither the American Economy? II

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In today’s Wall Street Journal the columnist Holman Jenkins, with “The Reinhart and Rogoff Distraction”, writes that “Washington has signally failed to enact confidence-building and growth-inducing reforms that would make its fiscal and monetary stimulus seem less reckless and more like part of a coherent therapy.  The real problem is the incentive of voters and their representatives to stonewall any serious adjustment to the status quo….Hardly has the time been riper for another reform spasm like the Carter-era deregulation efforts, Reagan’s tax overhaul, … The ill-timed Obama campaign to magnify the perversities of our health-care system epitomizes a failure of political leadership to do its part to make the global monetary Hail Mary come off.”
The Republican House can slam on the brakes to try to slow down excessive federal spending but there is not much else it can do by itself.  The Democratic Senate is showing that it can address important but less central issues like Gun Control and Immigration Reform.  But only the President can provide game changing leadership on our fundamental economic and fiscal problems.  His political base of liberals and minorities does not want either spending cuts or reduction in tax rates.  So he proposes spending increases, small adjustments to entitlements, and tax increases on the wealthy.  This amounts to a political posture in order to appear to be addressing important issues without really engaging on them.
What has Obama accomplished?  He has shown that a liberal can be elected President  but can’t govern effectively from the left.  What is the likely outcome?  A stagnant economy with a slowly dropping unemployment rate from now until 2016 when we’ll have our next chance to vote for a reform agenda.  Eventually our rapidly growing national debt will lead to a new fiscal crisis, much worse than the Great Recession which we’ve just been through.  However it probably won’t happen until sometime after 2016.  So Obama is temporarily off the hook, so to speak, but he’ll still catch much blame later on.
Oh well, what is life without challenges!

Whither the American Economy?

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Paul Krugman, writing in today’s New York Times, ”The Story of our Time”, says that “this is a time for above-normal government spending, to sustain the economy until the private sector is willing to spend again”.  On the other hand, Bill McNabb, the Chairman and CEO of the Vanguard Group, writing in today’s Wall Street Journal, “Uncertainty is the Enemy of Recovery”, says that “there is…most significantly, uncertainty about U.S. fiscal policy and the national debt.  Until a sensible plan is created to address the debt, America will not fulfill its economic potential”.
So there you have it, our country’s two premier outlets for news and opinion putting forward contrasting views of what needs to be done to restore vitality to the world’s leading economy.  Do we ramp up government spending indefinitely in order to increase demand, paying little if any attention to the size of the national debt, until hopefully, before too long, private industry is willing to increase spending and investing for the future?  Or do we instead concentrate on establishing those policies which will directly and immediately give business leaders confidence that political leaders are willing to make the tough decisions needed to get our fiscal house in order?
This question is indeed the story of our time.  Getting the answer right will determine our country’s (and the whole world’s) fate for many years to come.

The President’s Budget

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The Administration has now released its own budget, “Obama Makes Budget Gamble”  as reported by the Wall Street Journal on Thursday, April 11, 2013.  We now have three budgets to compare with each other, from the House Republicans and the Senate Democrats as well as from the President.  Not surprisingly the President’s budget is very close to the Senate’s for the entire ten year period ahead, both in year-by-year spending totals as well as revenue projections.
The President’s budget shrinks the deficit from 5.3% of GDP for 2013 to 4.4% for 2014 and down to 1.7% in 2023.  But just retaining the sequester level of spending for next year, as the Republicans propose to do, with no other cuts, would lower the deficit level to 3.7% of GDP for next year.  And, of course, the Republicans propose to entirely eliminate the deficit by 2023.  Shrinking the deficit to 1.7% of GDP by 2023, as the Democrats propose to do, sounds good on the face of it, but it means a deficit of over $400 billion still remains ten years out.  Bottom line: both the Administration and Senate budgets increase the debt by about $5 trillion over the next ten years, making no attempt to eliminate the deficit, compared with a Republican increase of $1 trillion in debt by 2023 while finally ending our awful slide into deeper debt.
The President’s budget does have some good features such as changing the way the Consumer Price Index is computed, to make it more accurate, which could save $339 billion over ten years.  The administration suggests additional means testing for Medicare recipients so that the more affluent would pay higher premiums than at present (significant but unknown savings).  Limiting tax deductions for the top 3% of taxpayers to 28% of income would generate $529 billion over ten years.  Taxing all incomes over $1 million at the minimum rate of 30% (The Buffett Rule) would raise an additional $53 billion over ten years.
The problem is that all of these spending cuts and tax increases in the President’s budget would go to new spending rather than deficit reduction.  Tax reform, with a tradeoff between lower rates and fewer deductions, would give a big boost to the economy.  But just raising taxes in order to increase spending neither helps the economy nor lowers the deficit.  The President is again failing to provide leadership on our most critical problems.
The job of providing national leadership on economic and fiscal issues thereby goes by default to the Republican majority in the House.  This is a very big responsibility for John Boehner and company.  But they’re doing a remarkably good job so far under very trying circumstances!

Why Medicare is Such an Enormous and Urgent Fiscal Problem, II

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The National Institute for Health Care Management has just issued a report, “Health Entitlement Spending: A Story in Six Charts”, which describes in great detail why federal health care spending is such an enormous fiscal problem.  First of all, health care spending is already 21% of total federal spending in 2012.  This spending will more than double in the next ten years.  Annual Medicare expenditures are already double the revenue received from the Medicare Part A Payroll Tax and premiums paid by Medicare recipients.  This gap will continue to steadily widen in the coming years because recent retirees will only pay in total a small fraction of their lifetime benefits.
Every year since 2006, the Medicare Trustees have issued a determination of “excess general revenue Medicare funding”.  By law the President must respond by submitting legislation to correct the problem and Congress must likewise respond on an expedited basis.  But no corrective action has been taken so far.
All federal programs should operate efficiently and much can and should be done to achieve greater efficiency across the whole spectrum of federal programs.  But Medicare is the “sine qua non”, (without which, nothing) for spending reform.  Nothing else matters unless we can get Medicare spending under control.
One way would be to raise Medicare Part A taxes for everyone and also raise premiums for well-to-do Medicare recipients.  And then we’d still have to severely restrict Medicare benefits.  This would be drastic action indeed.
Another way is to give (refundable) tax credits to everyone who applies for Medicare and let them find their own insurance coverage on the private market.  This would create a huge incentive for recipients and their families to pay close attention to health care costs.
Each of the above alternatives would bring radical changes to our Medicare system.  But either we act now in a deliberate, and hopefully rational, manner or else our national debt will grow so rapidly that there will be a new fiscal crisis much worse than what happened in 2008.
Which of these three scenarios do we prefer?  Right now we have a choice!