Well, even many or most REPUBLICANS think the president has a mandate to raise taxes. So that means he does, of course. The election has all the meaning that the president can attach it, and Obama is loading it up in a way that, say, Mr. Ceaser didn’t anticipate.
I’m not saying that raising taxes is the end of the world, and I gladly say that no member of Congress should have signed Norquist’s pledge. But digging in on a principle (even as a bargaining chip) depends on the perception the people are with you, at least some.
As Charley Cooke says, the picture isn’t pretty, especially when you add that the voters also think that the election was a mandate to empower the president to protect entitlements against all cuts. Nobody really believes that taxing the rich a bit more can generate enough revenue to save Medicare, for example, as it is now. But who in his or her right mind wouldn’t want to believe that?
December 12th, 2012 | 1:06 pm
“Nobody really believes that taxing the rich a bit more can generate enough revenue to save Medicare, for example, as it is now.”
Actually, tons of people believe that. The same way that people believe that if we just stop spending money on the military we’ll have more money than we know what to do with. Because they’ve been lied to by the political & media establishment and don’t know any better. It’s pretty pathetic. But realizing that we’re completely and totally hosed is strangely liberating. For example, I couldn’t care less about the “fiscal cliff” nonsense, since it’s all just a deck-chair-on-the-Titanic triviality. Nor could I get upset about Romney losing.
December 12th, 2012 | 1:11 pm
Brian, “really believes” is ironically different from “believes.” I agree more than I should with the Titanic triviality. I didn’t get up set about Romney losing, but only because I saw it coming.
December 12th, 2012 | 11:46 pm
I would advise you to give more thought to what will happen after January 1 than you appear to be doing. One of the real flaws of the conservative point of view is the attitude that “government” is some kind of closed circle, disconnected from the realities of ordinary life, whether they be those on Wall Street, Main Street, or your favorite flavor of unemployed combat zone.
What has already been put in place is a protocol to stop spending on services and thus force suspension of the services. These services penetrate into every nook and cranny of the fabric of our lives, and yanking them out of every nook and cranny will massively disrupt your lives and mine. Don’t think for a minute that it won’t.
But even more importantly, it is a mere suspension of spending and not in any way a revision of the programs or legal withdrawal of the Congressional appropriation. It is also combined with a one-time, but significant, jump in tax revenues. This will mean much more money flowing into the federal treasury and much less money flowing out of it and back into the economic cycle.
This implies two things. First is a large and sudden decrease in the actual money supply in an economy already strapped for liquidity of funds. This risks a massive deflation of the economy, artficially raising the dollar’s value in real terms and creating a precipitous fall in prices which is a serious threat to any company holding onto stocks of already manufactured durable goods.
Even if such companies swiftly cut back their employment to the bare minimum to simply keep operating, they will still have to unload all those goods at a loss that may be too large for their continued survival.
Service industries will be better placed since they don’t hold a lot of inventory, but the hard assets of the business will fall in value in the general deflation. This will not mean a catastrophic loss, but it will prevent even these industries from showing the expected profits on which all our equities markets depend. Without significant increases in earnings, the value of their stock will inevitably decline.
Second, this will quickly put a large amount of ready money in the hands of the President and the entire Executive Branch. Since this artificial “fiscal cliff” was passed into law as an unthinkable outcome to put a gun to the head of the Congress and force a compromise, I strongly suspect that the law contains inadequate restrictions on what may be done with the accumulating money.
This opens the real possibility of Obama “budgeting by executive order” with the excuse that the country has fallen into an economic crisis that must somehow be stabilized by spending government money in any way that the “fiscal cliff” legislation does not specifically prohibit.
Is this really something that you want to see happen? I don’t. And I hope I’m wrong about the potential misappropriation of the accumulating federal funds.
But I’m pretty certain I’m right about the accumulation, the liquid asset starvation it will create, and the consequent troubles for businesses that have, up to now, been doing business quite responsibly.
Not to mention for almost everybody else.
December 13th, 2012 | 8:04 am
Yes, Obama has won the post election debate, as Peter says. (I hope to post on this later, time permitting.) As for taxes, in the full CRB article I did in mid-November, I did at least anticipate that:
“Yet when it comes to enacting a governing program, the 2012 election is hardly favorable to Obama. He won no mandate for a new major agenda—indeed, he hardly bothered to ask for one, except for raising taxes on the wealthy. The aim of his campaign was to retain the keys to the presidential office, virtually at any cost. He succeeded by hanging on.”
Another point for the “Forum” coming up. In case no one noted, incumbents in “modern” times usually win…post mckinley the losers were taft, hoover, carter, and bush sr. hoover needs no explanation; taft, carter and bush sr. all had nomination competition (obama did not) and taft and bush had big time third party competition.
December 13th, 2012 | 3:06 pm
Joseph Marshall, that is incredibly eloquent, well considered and solid economics. It is so obvious to me that I get frustrated and fall back to satire when articulating it.
Point blank then I think it is safe to say that neither of us believes what Brian claims the “american people” do: “The same way that people believe that if we just stop spending money on the military we’ll have more money than we know what to do with.”
Indeed we believe that if we stop spending money on X we’ll have less money than we know what do with.
That both spending less money, and taxing more is deflationary. Point blank, always.
“This will mean much more money flowing into the federal treasury and much less money flowing out of it and back into the economic cycle.”
So obvious.
Indeed we also believe that as an analytic formulation that this error in economics is aided and abbeted largely by the rhetorical mirror image of the same error Brian decries!
This starts by thinking of the federal government as raising taxes for the purpose of raising revenue instead of raising taxes + cutting spending for the purpose of fighting inflation! (A key but “principled” stance of the deficit hawk democrats)
Indeed only if you believe that you have to generate revenue to save medicare, do you also get yourself into believing that “if we just stop spending money on the military we’ll have more money than we know what to do with.”
That is precisely as you say the attitude that “government” is some kind of closed circle.
I do think that if you are really dedicated to the idea that deficits matter (absent underlying conditions like unemployment, inventory, manufacturing capacity.) that the most principled thing you can do is go with the CBO right over the fiscal cliff. (I don’t think the CBO is right or necessarily accurate in its long run picture…here I am very much Hayekian, or even still Keynesian (if we want to find ZOPA between the two) the only thing that can be known or which we can speak of in terms of wealth lies in patent, which is THE LONG RUN TRICKLE DOWN ECONOMICS! ), but assuming you are a deficit hawk democrat, dedicated the the accountants(household, state) view of the universe the CBO gave you a pretty good reason to just go over the Fiscal Cliff!
Contrary in so many ways to what Lawler says, however it seems hard for me to credit the idea that folks who happen to be Republican can attack Norquist. I certainly can’t. If you take Obama’s question about “who built that” as a sort of threshold legal question applicable in liability but also patent…i.e. as a generalized mechanism for allocating praise and blame…then a very large chunk of at least the technocratic right was built around a very very simple BRIGHT LINE RULE. Norquist didn’t invent the concept, but he certainly made great breakthroughs in its implementation. Like all bright line rules its weakness is also its strength, it enforces discipline, it acts as a whip, it even gives republicans complete “freedom of speech” in a way that is as irresponsible as lawyers discussing history that is way past a statute of limitations(itself a sort of bright line, regulating rule)… and these bright line rules, ground history for those in the know, while leaving the american people potentially rather clueless and confused.
The Problem with Norquist’s bright line rule is that it is arbitrary and capricious when applied to Macroeconomics. Given the realities of 1972, it is slightly less arbitrary and capricious, than it might have been at other times…(there is just less reason to tax,(no natural reason)since we have no gold window).
Personally I would like to see Krugman get his revenge on Norquist by getting together with economists and trying to formulate a rule subject probably to administrative law and a waiver process for conditions of hyper-inflation, that would involve something like a no budget cuts no tax raises plank in situations in which reported inflation is bellow a certain ammount and unemployment is above NAIRU, (somewhere around 5%). Because here honestly there is certainly no mandate from the american people for deflationary policies.
Indeed just what NAIRU is could be left open for notice and comment, and the administrative law of the people could be conducted from say the Freakonomics blog.
But personally I think the New York Times has a bigger mandate than the president. (What that may imply for corporate speech is a seperate issue).
December 14th, 2012 | 12:18 pm
I honestly don’t know whether I’m a deficit hawk or not, but like any corporation issuing debt in the form of stocks, the debt must be managed through time. Our debt is in treasury bills and the only way to reduce it is to buy these back like a company buys stock back when conditions are favorable for this.
You can only buy treasuries back with revenue, you cannot buy them back with any “spending cuts” you have made. That is, unless you take the money you just cut from X (fill in your own favorites) and spend it to buy back treasuries. You are still spending the money in either case, and you still require tax revenue to do this.
But our budget really doesn’t work that way. We can cut what we plan to spend, but we cannot actually “cut spending”. All we can do is not appropriate the money long after the budget decisions are made. Unless we appropriate actual tax money to buy back treasuries, they will not get bought back, leaving the debt just as it is no matter how much we lower the budget amount for anything else.
To bring the deficit down you must spend revenue. This means you have to have revenue. Revenue comes from taxes and nowhere else. It comes as a **percentage** of actual income or capital gains. As long as these stay low, the revenue will stay low.
Thus what is needed is not a trickle down. What is required is a stream up of revenue into the government. For we have already “spent” the debt, we simply have defered acquiring the money to pay it.
Prosperity comes first and, in this particular instance, it is quite clear that what is required for it is **demand**, and demand at a level impossible for a population with the amount of personal debt most of us are carrying as a result of freewheeling issuance of high interest credit cards, the destruction of home equity for those already committed to home mortgages, and the ballooning of student loan debt whose default cannot be negotiated.
They call this a liquidity crisis and this is why historically low interest rates have not significantly increased demand.
In default of the ordinary population generating this consumer demand, the only entity with sufficient capital and a realistic level of need to consume to create this demand is the U.S. Government. Period.
The only way for the U.S. government to do this is to spend money, and I don’t mean spending money on buying back treasury bills. This consumes nothing and profits no one but a handful of debt holders, and may not even profit them enough for them to be willing to sell the bills back.
Everything proposed in the way of more tax cuts, spending cuts, AND “doing something about the debt” is a ticket straight to less prosperity and less capacity to “do something about the debt”, both the public debt and the private debt.
Period.
So if ordinary Republicans are starting see reason about this stuff, this is an unqualified good, even if it means the Republican Party is “losing” to Obama. Until prosperity returns, and the people in control of Congress commit to spending money buying back public debt when prosperity finally makes it possible, “losing” and “winning” have no meaning for the vast majority of us. Including the majority of Republicans.
December 15th, 2012 | 11:43 pm
Joseph Marshall:
Since I agree with you about where we currently are(prosperity comes first and demand), my points of disagreement may be moot.
Under current law that may well be partially accurate enough to be the case.
But what is the sense in being a congressman if you can’t think up other possibilities?
We(The federal government) actually are not like any corporation.
“but like any corporation issuing debt in the form of stocks, the debt must be managed through time.”
It is in my view a very grave error, and a common rhetorical error to consider the Federal Debt as akin to the debt of a corporation.
A corporation can file for bankrupcy…ask Elizabeth Warren for details…
But the U.S. government cannot. Dear Elizabeth Warren(here more a placeholder for experts in bankrupcy)…find me a statute authorizing the bankrupcy of the U.S. government!
It doesn’t exist.
“Our debt is in treasury bills and the only way to reduce it is to buy these back like a company buys stock back when conditions are favorable for this.”
A way. Not the “only” way. The U.S. congress happens to be an entity that can write its own financial laws. I agree with you on where our debt lies (in treasury bills), and I agree with you on the mechanism to reduce it. (buying them back). But I also happen to believe that at any point in time (including right now) Congress can manufacture conditions that are favorable for this, by say using the constitutional ability to coin money (trillion dollar coins) to deposit in the federal reserve account, an ammount sufficient to retire the debt.
So basically I agree with some of what you are saying, but will absolutely not budge on the idea that the United States is in fact monetarily sovereign and not some sort of “household, state, or corporation.”
In my opinion you are still making the mistake of Brian with some additional solid contributions from Keynesianism.
i.e. “In default of the ordinary population generating this consumer demand, the only entity with sufficient capital and a realistic level of need to consume to create this demand is the U.S. Government. Period.”
I am currently not disagreeing at all with Krugman.
A corporation is an entity which often times forum shops and tends to like the laws of the great state of Delaware. So a corporation is subject to Corporate Law of some concrete jurisdictional nature.
But if we think of U.S. debt as the debt of a corporation, are you trying to tell me that the U.S. Congress is a corporation subject to the laws of the great state of delaware?
That is what it sounds like you are saying, and to this proposition I firmly object.
The corporate law that governs the U.S. Debt is actually Constitutional Law. Constitutional Law that grants to congress the capacity/power to handle the question of this debt as it sees fit.
December 16th, 2012 | 12:07 pm
“In my opinion you are still making the mistake of Brian”
Dude, you, along with all the rest of us, have no idea what the heck YOU are even talking about, so spare me your bizarre interpretations about what might be wrong with ME and my posts.
Printing trillion dollar coins, running a debt-to-GDP ratio of infinity, and debasing the currency by any arbitrary amount, along with all the rest of your, um, “ideas”, would be a recipe for many things, but economic prosperity and success is not on the list.
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