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.
- Why Inflation Won’t Solve Our Debt Problems, blog of the New York Times, 18 February 2010
- “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?”
- The UN climate commissars meet at Bali – again, Claudia Rossett, Pajamas Media, 21 February 2010
- “Even More on The Coming War Over Public-Sector Pensions“, Nick Gillespie, Reason, 21 February 2010
- China’s real estate bubble: “China: No one home“, Financial Times, 21 February 2010
- Republican strategy: “The Bankruptcy Boys“, Paul Krugman, op-ed in the New York Times, 21 February 2010
- Another claim by Marc Thiessen about torture success Proved False, Adam Serwer, blog of the American Prospect, 22 February 2010
- “How we’ve erased the legal lines around torture and replaced them with nothing“, Dahlia Lithwick, Slate, 22 February 2010
- 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.
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