FM newswire for 23 February, articles for your morning reading

Today’s links to interesting news and analysis, collected from around the Internet.  If you find this useful, pass it to a friend or colleague.

  1. Why Inflation Won’t Solve Our Debt Problems, blog of the New York Times, 18 February 2010
  2. Climategate: The World’s Biggest Story, Everywhere but Here“, Charlie Martin, Pajamas Media, 21 February 2010 — “The biggest scandal of our times is a non-story to U.S media. Why are the London papers covering the Climategate collapse, but not ours?”
  3. The UN climate commissars meet at Bali – again, Claudia Rossett, Pajamas Media, 21 February 2010
  4. Even More on The Coming War Over Public-Sector Pensions“, Nick Gillespie, Reason, 21 February 2010
  5. China’s real estate bubble:  “China: No one home“, Financial Times, 21 February 2010
  6. Republican strategy:  “The Bankruptcy Boys“, Paul Krugman, op-ed in the New York Times, 21 February 2010
  7. Another claim by Marc Thiessen about torture success Proved False, Adam Serwer, blog of the American Prospect, 22 February 2010
  8. How we’ve erased the legal lines around torture and replaced them with nothing“, Dahlia Lithwick, Slate, 22 February 2010
  9. Valuable correction to widespread misconceptions:  “What the PBoC cannot do with its reserves“, Michael Pettis (Prof at Peking University’s Guanghua U), 22 February 2010

Today’s Feature Article

Where Today’s Large Deficits Come From“, Kathy Ruffing and James R. Horney, Center on Budget and Policy Priorities, 17 February 2010 — “Economic Downturn, Financial Rescues, and Bush-Era Policies Drive the Numbers.”  Excerpt::

Some critics charge that the new policies pursued by President Obama and the 111th Congress caused the huge federal budget deficits that the nation now faces. In fact, the tax cuts enacted under President George W. Bush, the wars in Afghanistan and Iraq, and the economic downturn together explain virtually the entire deficit over the next ten years (see Figure 1).

The deficit for fiscal 2009 was $1.4 trillion and, at 10 percent of Gross Domestic Product (GDP), was the largest deficit relative to the size of the economy since the end of World War II. If current policies are continued without changes, deficits will likely approach those figures in 2010 and remain near $1 trillion a year for the next decade.

The events and policies that have pushed deficits to these high levels in the near term, however, were largely outside the new Administration’s control. If not for the tax cuts enacted during the presidency of George W. Bush that Congress did not pay for, the cost of the wars in Iraq and Afghanistan that were initiated during that period, and the effects of the worst economic slump since the Great Depression (including the cost of steps necessary to combat it), we would not be facing these huge deficits in the near term.

While President Obama inherited a dismal fiscal legacy, that does not diminish his responsibility to propose policies to address our fiscal imbalance and put the weight of his office behind them. Although policymakers should not tighten fiscal policy in the near term while the economy remains fragile, they and the nation at large must come to grips with the nation’s long-term deficit problem. But we should not mistake the causes of our predicament.

Recession Caused Sharp Deterioration in Budget Outlook

Whoever won the presidency in 2008 was going to face a grim fiscal situation, a fact already well known as the presidential campaign got underway. The Congressional Budget Office (CBO) presented a sobering outlook in its 2008 summer update,[1] and during the autumn, the news got relentlessly worse. Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that became embroiled in the housing meltdown, failed in early September; two big financial firms — AIG and Lehman Brothers — collapsed soon thereafter; and others teetered. In December 2008, the National Bureau of Economic Research confirmed that the nation was in recession and pegged the starting date as December 2007. By the time CBO issued its new projections on January 7, 2009 — two weeks before Inauguration Day — it had already put the 2009 deficit at well over $1 trillion.[2]

The recession battered the budget, driving down tax revenues and swelling outlays for unemployment insurance, food stamps, and other safety-net programs.[3] Using CBO’s August 2008 projections as a benchmark, we calculate that the changed economic outlook accounts for over $400 billion of the deficit each year in 2009 through 2011 and slightly smaller amounts in subsequent years. Those effects persist; even in 2018, the deterioration in the economy since the summer of 2008 will account for over $250 billion in added deficits, much of it in the form of additional debt-service costs.

Announcement

Comments on this website will be turned off tomorrow.  It will follow the practice of many big websites (e.g., Glenn Reynolds’ Instapundit) and technical ones (e.g., Roger Pielke Sr).   Best would be imitating the professionals (e.g., Thinkprogress, news media websites) and allow comments without replying.  But that requires more willpower than mine.  My limited time for this project is better spent writing rather than replying.

8 thoughts on “FM newswire for 23 February, articles for your morning reading

  1. I am sorry to hear about your decision re: comments. The challenge-and-response element was one of my favorite aspects of the site, and I think the socratic engagement added to the understanding of your material, which is frequently dense and complex. But it is your time, after all, so I understand your decision. Good luck.

  2. Comments on this website will be turned off tomorrow.

    A dark day indeed. The discussions in the comments were sometimes more valuable than the original post. But I can understand the need to conserve resources. I’m extremely impressed with the amount of work that goes into the posts on this site; combine that with the well-researched and thoughtful replies to the majority of comments, and I find it hard to fathom how you have time to brush your teeth Fabius, let alone take care of your model boat building . . .

    I stop by here daily, even if I don’t have time to comment. I’ve learned a tremendous amount, and I can usually count on having my preconceptions challenged or even overturned, which I enjoy thoroughly. Congratulations for the good work so far, and thanks to all the other commenters who usually teach me something, or at least help clarify my arguments, even when we don’t agree. Keep on fighting the good fight, Fabius.

    Maybe we shall cleave a road, or make such an end as will be worth a song — if any be left to sing of us hereafter.
    -King Theoden in The Two Towers by J.R.R. Tolkein

  3. Tax cuts don’t cause deficits. Spending more than your revenue causes deficits.
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    FM reply: Interesting math. I assume that at some point this logic changes as taxes approach zero. Just as your employer says that wage cuts do not cause deficits, spending more than your wages causes deficits. Cutting taxes without cutting spending, happy to just borrow the difference. Insane.

  4. The “tax cuts enacted by George W. Bush” sunset in 2010, and so cannot be a cause of any deficit in 2011 and beyond absent becoming “the tax cuts enacted by Barack Obama,” which of course they are destined to be. The inaccurate partisan reference detracts from what should be the point, often made on this blog, of the essential continuity on almost all issues between the last administration and the present one.

  5. I understand the time constraints. I am always amazed by the amount of information you pack into this site.

    What amazes me about the chart is it “assumes” revenue collected at the higher rate without taking into consideration the higher rates effect on income activity. They may of collected only half, or three quarters, or whatever. We know taxes have effect on activity just ask the American yacht builders when we enacted a surcharge on Yachts and it nearly destroyed them and put many middle income people out of work. It was later repealled. I was taught never to assume anything in this case the chart only exists to place blame and not really get to the root of the problem. Americans like their programs and spending and are easily bought. Once that changes everything else changes as well.

    “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”
    Alexis de Tocqueville

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    FM reply: Most budget analysts (including those in the GAO and CBO) use static scoring, since introducing the complex adjustments of dynamic modeling renders the result contraversial. People can agree on the static scoring, which provides a baseline for discussion. In any case, the key point of the graph is the breakdown of the past and present numbers.

    ” Americans like their programs and spending and are easily bought. Once that changes everything else changes as well.”

    Agreed, as I said in A look at our government’s debt – rising because we like to spend (29 December 2009).

    The quote you give is a fabrication. It’s usually attributed to Alexander Tytler, but in fact was manufactured in the 1940’s and 1950’s. Plato said nothing like this. For an account of the origin of this story see “The Truth About Tytler” by Loren Collins (there are many very similar other accounts of this history). Of course, that does not mean that it will prove to be incorrect.

  6. As to the article about the “whitewashing” of Yoo and Bybee, the DOJ report on their conduct does not by itself prevent the filing of an ethics complaint against either. The impediment, if there is one, will be the ethical rules in the states in which they’re licensed, which may limit the class of persons permitted to file complaints. On the other hand, some bars will start investigations based solely on media reports.

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