Conservatives simmer as spending mushrooms under Bush

I don't think it matters that much to fiscal conservatives. It's not important enough to them to vote for anyone other than Bush. They're not a big enough block for the Bushies to change their policies either, unlike the fundies for instance.

 

I heard a political pundit say the other day "We're all Kenysians now." While neo-conservatives have talked fiscal conservatism they rarely have put it into practice. Under the Reagan Admin. the deficit boomed as it is again now. It was under the moderate GH Bush Admin. and the CLinton Admin was any serious moves made to control the deficit in both spending cuts and tax increases.

The big problem that I see with neo-conservative fiscal policy is they are trying to have it both ways. Huge spending increases with huge tax cuts. Its only in Washington that people believe that by taking in less revenue you can actually spend more.

Of course for those conservatives who actually still believe in fiscal discipline as Woofer notes they aren't about to vote for the Democrat candidate.

 

I consider myself a conservative and have voted Republican in every election I could vote.

Because of the spending/deficit issue I am considering voting Democratic for the first time.

 

It is exactly because of this why I will not be voting for Bush. This is even more important to me than the issues I have with how he dealt with Iraq.

 

Bush's Shrewd Budget Strategy


By E. J. Dionne Jr.

Tuesday, January 6, 2004; Page A17


One of the mysteries that politicians and we commentators muddle as much as we clarify revolves around this question: If George W. Bush is such a conservative, why is he spending so much money and why are deficits so high?

Liberals regularly assail Bush's tax cuts for creating big deficits, but also for limiting the government's ability to do more in areas where action is needed, especially health care and education. They paint Bush as miserly toward the needy.

Bush's conservative critics highlight the big spending increases on his watch and conclude that such a profligate president is necessarily unfaithful to conservative principles.

If Bush is being attacked from both sides, does that make him a "moderate"? Not at all. What it means is that Bush is pursuing a very shrewd political strategy that could have some very unhappy consequences for conservatives, moderates or liberals. We just can't know now which of these groups will be most unhappy in the long run. That's why Bush's approach is perfect for an election year.

Take the conservative view. Bush has indeed spent a lot of money. Much of that money has gone to defense and homeland security. Another big chunk has gone to entitlements such as Medicare, Medicaid and Social Security, programs whose costs are driven by demographics, increases in the price of health care and the economic downturn.

What bothers conservatives, says Bruce Bartlett, senior fellow at the National Center for Policy Analysis, are the domestic areas in which Bush has voluntarily increased the federal government's reach, specifically the new $400 billion prescription drug benefit under Medicare.

"People have the idea that $400 billion over 10 years means $40 billion a year," says Bartlett, a conservative who served in the Reagan and first Bush administrations. But most of the bill doesn't even kick in until 2006 and after, so the cost "takes off like a rocket," producing a potentially large fiscal problem in later years.

Conservatives, Bartlett said, might have supported a more modest program aimed at helping seniors who currently don't have drug coverage. But the program was broadened to cover large groups of seniors. Why?

"They had to go for a universal drug program because that's the only way that big corporations like GM or Ford could lay off their liability for retirees onto the federal government," Bartlett says.

Bartlett's conclusion: "Bush's idea of what it means to be conservative is to be pro-business."

Indeed, the Medicare drug bill could have held down costs by using the federal government's enormous buying power to negotiate better prices with the drug companies. Instead, the bill explicitly prohibits such bargaining. That's good for the drug companies, but it's not fiscal conservatism.

Liberals argue that Bush's big tax cuts have not only added to short-term deficits but will create a long-term fiscal crisis that conservatives will use to push for large spending cuts, even in popular programs such as Social Security and Medicare.

The irony is that Bush's increases in certain areas disguise how little he has spent on most domestic social programs. In the past two years, says Richard Kogan, a senior fellow at the liberal Center on Budget and Policy Priorities, funding in areas outside the entitlement programs and international and homeland security has fallen slightly when inflation is taken into account. So Bush is anything but a big spender.

Bush's tax cuts have also created a political trap for liberals and Democrats. In their debates, most recently on Sunday in Iowa, Democratic presidential candidates regularly trash each other over whether fiscal prudence and the need to finance new programs require repealing all of Bush's tax cuts, or only some of them. Watching these encounters must be sheer heaven for Bush's campaign operatives.

And in his new budget, according to the New York Times, Bush will propose some spending restraint on housing vouchers for the poor, veterans' health care, biomedical research and job training programs.

These are small cuts in relation to the overall deficit that could have a large impact on the affected groups. Democrats will (and should) oppose most of them. As soon as they do, Bush will claim the anti-spending high ground. Another trap.

Here's what liberals and rebellious fiscal conservatives have in common: They know Bush's budget policies don't add up for the long run. Down the line, the continuing deficits will inevitably force either the tax increases conservatives abhor or the program cuts liberals fear. Bush says they won't, and he only has to make that argument hold up for the 10 months between now and Election Day.

Bad policy? I think so. Smart politics? You decide.

 

Today's Krugman...
____________
Rubin Gets Shrill
By PAUL KRUGMAN

rgentina retained the confidence of international investors almost to the end of the 1990's. Analysts shrugged off its large budget and trade deficits; business-friendly, free-market policies would, they insisted, allow the country to grow out of all that. But when confidence collapsed, that optimism proved foolish. Argentina, once a showpiece for the new world order, quickly became a byword for economic catastrophe.

So what? Those of us who have suggested that the irresponsibility of recent American policy may produce a similar disaster have been dismissed as shrill, even hysterical. (Hey, the market's up, isn't it?) But few would describe Robert Rubin, the legendary former Treasury secretary, as hysterical: his ability to stay calm in the face of crises, and reassure the markets, was his greatest asset. And Mr. Rubin has formally joined the coalition of the shrill.

In a paper presented over the weekend at the meeting of the American Economic Association, Mr. Rubin and his co-authors — Peter Orszag of the Brookings Institution and Allan Sinai of Decision Economics — argue along lines that will be familiar to regular readers of this column. The United States, they point out, is currently running very large budget and trade deficits. Official projections that this deficit will decline over time aren't based on "credible assumptions." Realistic projections show a huge buildup of debt over the next decade, which will accelerate once the baby boomers retire in large numbers.

All of this is conventional stuff, if anathema to administration apologists, who insist, in flat defiance of the facts, that they have a "plan" to cut the deficit in half. What's new is what Mr. Rubin and his co-authors say about the consequences. Rather than focusing on the gradual harm inflicted by deficits, they highlight the potential for catastrophe.

"Substantial ongoing deficits," they warn, "may severely and adversely affect expectations and confidence, which in turn can generate a self-reinforcing negative cycle among the underlying fiscal deficit, financial markets, and the real economy. . . . The potential costs and fallout from such fiscal and financial disarray provide perhaps the strongest motivation for avoiding substantial, ongoing budget deficits." In other words, do cry for us, Argentina: we may be heading down the same road.

Lest readers think that the most celebrated Treasury secretary since Alexander Hamilton has flipped his lid, the paper rather mischievously quotes at length from an earlier paper by Laurence Ball and N. Gregory Mankiw, who make a similar point. Mr. Mankiw is now the chairman of the president's Council of Economic Advisers, a job that requires him to support his boss's policies, and reassure the public that the budget deficit produced by those policies is manageable and not really a problem.

But here's what he wrote back in 1995, at a time when the federal deficit was much smaller than it is today, and headed down, not up: the risk of a crisis of confidence "may be the most important reason for seeking to reduce budget deficits. . . . As countries increase their debt, they wander into unfamiliar territory in which hard landings may lurk. If policymakers are prudent, they will not take the chance of learning what hard landings in [advanced] countries are really like."

The point made by Mr. Rubin now, and by Mr. Mankiw when he was a free agent, is that the traditional immunity of advanced countries like America to third-world-style financial crises isn't a birthright. Financial markets give us the benefit of the doubt only because they believe in our political maturity — in the willingness of our leaders to do what is necessary to rein in deficits, paying a political cost if necessary. And in the past that belief has been justified. Even Ronald Reagan raised taxes when the budget deficit soared.

But do we still have that kind of maturity? Here's the opening sentence of a recent New York Times article on the administration's budget plans: "Facing a record budget deficit, Bush administration officials say they have drafted an election-year budget that will rein in the growth of domestic spending without alienating politically influential constituencies." Needless to say, the proposed spending cuts — focused only on the powerless — are both cruel and trivial.

If this kind of fecklessness goes on, investors will eventually conclude that America has turned into a third world country, and start to treat it like one. And the results for the U.S. economy won't be pretty.

 

I'm hardly a fiscal conservative, but this budget is freaking scary. Sometimes, you gotta dip into savings to pay for essentials, especially in lean times.

But this is absolutely ridiculous. You can't drastically increase spending, slash income and expect things to work out in the end. Anybody with a checkbook knows that.

 

Would fiscal conservatives be so apathetic toward the most bloated budget in U.S. history if Bush hadn't given them two tax breaks?

 

This is all part of the plan. Cut off income and don't do anything about spending until it becomes a crisis - hopefully for some future congress and president down the line. It worked for Reagan. The best part is when the bills keep come due and the current base of support for the Republicans are seniors and want their welfare, I mean social security + COLA, to crush the average American worker no matter what.

 

I agree with Woofer. It's very clear that the party leadership would like to return us to a pre-FDR type of governance. So, do you accomplish that through argumentation and the political, legistlative process? No, that's too slow. You organize the budget so that social programs will necessarily be eliminated in a future crisis. It's quite savvy, and I think it will work, at least in part.

 

Kinsley looks at the beast...
________

A Beast of an Idea
Can big deficits starve the governm ent down to size? Not in this universe
By MICHAEL KINSLEY
How can you justify cutting taxes when you're already running a huge deficit and you're adding new spending like an extra $400 billion on Medicare? For a quarter-century, tax-cut junkies have had two answers to that. One is supply-side economics: There is no need to cut spending. Tax cuts can be so liberating they will actually pay for themselves, and then some, by inspiring new economic activity.

The second answer is that if you want smaller government, you have to "starve the beast." Larger deficits increase the pressure for spending cuts. President Bush has actually said that deficits are a good thing because they put Congress in a spending "straitjacket." An essay by three conservative economists, including Nobel prizewinner Gary Becker, published in the Wall Street Journal in October, ranked starving the beast ahead of the Laffer Curve as a reason to cut taxes. But there is even less evidence that starving the beast works in real life than there is for supply-side theories. Two rounds of tax cuts and a fast-rising deficit under George W. Bush have not led to serious spending cuts. The federal budget is bigger than ever.


But put reality aside (as the President and Congress seem to have done). Does starving the beast make sense even in theory? Supply-side economics comes with a lot of intellectual paraphernalia, such as that famous Laffer Curve, drawn on a cocktail napkin. It may be nonsense, but at least it's clever nonsense (as Tom Stoppard once put it — though not about supply-side economics). Starve the beast, by contrast, is not a theory or even an assertion. It is barely more than a wish.

There's a reason that starve the beast has no curves, formulas or doctoral dissertations to clothe its nakedness. Cutting taxes with the expectation that spending cuts will follow is a huge and implausible leap not just in terms of human psychology but also in terms of simple mathematics.

How is starving the beast supposed to work? Let's create a simple model, in which every dollar of a tax cut leads to some fraction of a dollar in spending cuts. The trouble is that when you starve the beast by cutting taxes, you also increase the national debt and the bill for interest on that debt. So the first thing that happens is that you increase government spending. From then on, it's a battle between the lingering effects of the tax cut and the ever growing impact of compound interest on the added borrowing.

Let's go to the spreadsheet. Start with a government budget of 100, no debt and an annual deficit of zero. Call interest rates 4%. And say that in year one we get a 10%, across-the-board tax cut. Let's assume further that there is a starve-the-beast effect of 90%. This means that 90¢ of any dollar in tax cuts is covered by spending cuts that emerge spontaneously from the national subconscious. Assume finally that all the other things that affect government revenue and spending don't exist. What happens?

Well, spending does go down. It plunges to 91 in year three and then drifts upward, but even 20 years down the road it is only 93--a 7% cut in the size of government. Meanwhile, the deficit has gone from 0 to 2.8--which is the equivalent of about $56 billion — and the accumulated new national debt is about $1 trillion in real money. All in all, not disastrous. But it's a big cost for a small tax cut and an even smaller cut in spending.

And the idea that a tax cut will immediately return 90¢ on the dollar is wildly optimistic. Starve the beast, as a philosophy, has nothing to say about what exactly gets cut from the government budget. And there is an implication that this cutting happens painlessly, like the supply-siders' free lunch. But it does not happen painlessly or without a fight. At a somewhat more realistic STB rate of 50¢ worth of budget cuts for every tax-cut dollar, the deficit climbs from 0 to 11 (equivalent to $220 billion). Spending drops to 97 around year eight but is back to 100 and heading uptown by year 20. Accumulated new debt over two decades is around 160 ($3.2 trillion).

And if spending goes down only 10¢ for every dollar of tax cuts (hardly pessimistic, given that there is no actual evidence that tax cuts drive down spending at all), we're in deep, deep doo-doo. Government spending is almost 10% higher (yes, higher) after 20 years, and the equivalent of more than $5 trillion has been added to the national debt.

But don't despair. Imagine an STB rate of 1 to 1. You end up with an annual surplus equivalent to $400 billion, government spending down by almost 30% and more than $5 trillion knocked off the national debt. All you have to believe is that every time President Bush gives the country a dollar in new tax cuts, the country shows its appreciation by spontaneously knocking a dollar off its demands for government spending. And if you buy that, I've got an old cocktail napkin I'd like to sell you.

 

OT, but this is why the fiscal conservatives don't matter much.

The Bushies lead in the electoral college is stacked for rural voters who are not fiscal conservatives. The religious pablum he spews is music to their ears.

http://www.csmonitor.com/2004/0107/p25s01-usmb.html?usaNav

John Zogby and Brad O'Leary

Excerpts from a Monitor breakfast on "red" & "blue" states

By David T. Cook

Pollster John Zogby has done work for a wide variety of candidates as well as major news organizations. He starts daily tracking polling in Iowa for NBC News and Reuters on January 8.
Brad O'Leary is publisher of "The O'Leary Report" newsletter, author of high school textbooks on politics, and has written a book on President Kennedy's assassination.

At the Monitor breakfast January 6, they discussed a new survey Zogby conducted for the O'Leary Report on the cultural differences between "red" states (voted for George Bush) and "blue" states (supported Al Gore):




On conclusions from the survey conducted Dec. 15-17:

(Zogby) "What we discovered was a nation that is really two nations, split down the middle on a number of issues. A completely different way of looking at President Bush, completely different in terms of attitudes towards a number of key values in addition to issues. ..."

On the most striking differences between the red and blue states:

(Zogby) "Those in red states are almost 10 points more likely to be rural voters than those from the blue states. Forty-four percent of those in red states identify themselves as conservative or very conservative compared to 33 percent of those in blue states. Fifty-six percent of those in red states identify themselves as Protestant to 37 percent Protestant in blue states.....among those who attend church or a place of worship at least weekly...52 percent [live in] red states...34 percent in blue states."

On the impact of the survey's findings on religion:

(Zogby) "I have to tell you the religion thing really just sort of blew me away. Frequent church-goers are dramatically more likely to live in red states and they vote. When you see the numbers of Protestants in these red states, you are always looking at at least half of those being born agains - that is substantial."

On what they survey says about the 2004 election:

(Zogby) "We are looking at probably the most partisan election we have had in years. I think the broad appeal by the candidates is going to be get out their core....I don't think in this campaign you are going to see either side identifying its interests in terms of a nation-wide campaign. I think you are going to see a red versus blue strategy. And the broader implications: that's kind of sad."

On the political impact of the survey's findings about religion:

(Zogby) "Democrats have to do something about family values. That is a huge deficit that they have against Republicans...while someone like (former Vermont Governor Howard) Dean I don't think can be terribly competitive in most of if not all of the red states, he certainly has to neutralize an issue that could be used against him in some of the pivotal blue states. ...This is more neutralizing a negative than accentuating a positive."

On the conservative view of the survey results:

(O'Leary) "You would read this and say the Democrats could win but they would have to change their philosophy and their platform to accept back people they have pushed out.

On Democratic candidates' conduct in the primaries:

(Zogby) "Democrats have become true to their history again and have gone back to the grand tradition of fratricide."

 

As a semi-conservative, I will say it bothers the CRAP out of me.


DD

 

It's not hard to see where Bush is going with this. Overspend on military, corporate welfare and "security," and then later demand that Congress reel in spending.

Which is code for quit spending money on anything but bombs and tanks.

I'm still shocked that it's the LIBERALS who are calling foul on the most bloated budget in world history. Since when were liberals the loudest voice for fiscal responsibility?!

 

Speaking of defense projects , this is hilarious.

http://www.wired.com/news/technology/0,1282,61808,00.html?tw=wn_tophead_1

We are spending millions of dollars to make an electronic pack mule. How about we just use pack mules or llamas. Of if you've seen the combat photography of the Viet Cong, bicycles if we must have mechanical contrivances.

 

This is the thing that bothers me the most.

 

Interesting piece on the IMF...
_____________

I.M.F. Says Rise in U.S. Debts Is Threat to World's Economy
By ELIZABETH BECKER
and EDMUND L. ANDREWS, NYTimes

WASHINGTON, Jan. 7 — With its rising budget deficit and ballooning trade imbalance, the United States is running up a foreign debt of such record-breaking proportions that it threatens the financial stability of the global economy, according to a report released Wednesday by the International Monetary Fund.

Prepared by a team of I.M.F. economists, the report sounded a loud alarm about the shaky fiscal foundation of the United States, questioning the wisdom of the Bush administration's tax cuts and warning that large budget deficits pose "significant risks" not just for the United States but for the rest of the world.

The report warns that the United States' net financial obligations to the rest of the world could be equal to 40 percent of its total economy within a few years — "an unprecedented level of external debt for a large industrial country," according to the fund, that could play havoc with the value of the dollar and international exchange rates.

The danger, according to the report, is that the United States' voracious appetite for borrowing could push up global interest rates and thus slow global investment and economic growth.

"Higher borrowing costs abroad would mean that the adverse effects of U.S. fiscal deficits would spill over into global investment and output," the report said.

White House officials dismissed the report as alarmist, saying that President Bush has already vowed to reduce the budget deficit by half over the next five years. The deficit reached $374 billion last year, a record in dollar terms but not as a share of the total economy, and it is expected to exceed $400 billion this year.

But many international economists said they were pleased that the report raised the issue.

"The I.M.F. is right," said C. Fred Bergsten, director of the Institute for International Economics in Washington. "If those twin deficits — of the federal budget and the trade deficit — continue to grow you are increasing the risk of a day of reckoning when things can get pretty nasty."

Administration officials have made it clear they are not alarmed about the United States' burgeoning external debt or the declining value of the dollar, which has lost more than one-quarter of its value against the euro in the last 18 months and which hit new lows earlier this week.

"Without those tax cuts I do not believe the downturn would have been one of the shortest and shallowest in U.S. history," said John B. Taylor, under secretary of the Treasury for international affairs.

Though the International Monetary Fund has criticized the United States on its budget and trade deficits repeatedly in the last few years, this report was unusually lengthy and pointed. And the I.M.F. went to lengths to publicize the report and seemed intent on getting American attention.

"I think it's encouraging that these are issues that are now at play in the presidential campaign that's just now getting under way," said Charles Collyns, deputy director of the I.M.F.'s Western Hemisphere department. "We're trying to contribute to persuade the climate of public opinion that this is an important issue that has to be dealt with, and political capital will need to be expended."

The I.M.F. has often been accused of being an adjunct of the United States, its largest shareholder.

But in the report, fund economists warned that the long-term fiscal outlook was far grimmer, predicting that underfunding for Social Security and Medicare will lead to shortages as high as $47 trillion over the next 70 years or nearly 500 percent of the current gross domestic product in the coming decades.

Some outside economists remain sanguine, noting that the United States is hardly the only country to run big budget deficits and that the nation's underlying economic conditions continue to be robust.

"Is the U.S. fiscal position unique? Probably not," said Kermit L. Schoenholtz, chief economist at Citigroup Global Markets. Japan's budget deficit is much higher than that of the United States, Mr. Schoenholtz said, and those of Germany and France are climbing rapidly.

In a paper presented last weekend, Robert E. Rubin, the former secretary of the Treasury, said that the federal budget was "on an unsustainable path" and that the "scale of the nation's projected budgetary imbalance is now so large that the risk of severe adverse consequences must be taken very seriously, although it is impossible to predict when such consequences may occur."

Other economists said they were afraid that this was a replay of the 1980's when the United States went from the world's largest creditor nation to its biggest debtor nation following tax cuts and a large military build-up under President Ronald Reagan.

John Vail, senior strategist for Mizuho Securities USA, said the I.M.F. report reflected the concerns of many foreign investors.

"I would say they reflect the majority of international opinion about the United States," he said. And he added, "The currency doesn't have the safe-haven status that it has had in recent years."

Many economists predict that the dollar will continue to decline for some time, and that the declining dollar will help lift American industry by making American products cheaper in countries with strengthening currencies.

"In the short term, it is probably helping the United States," said Robert D. Hormats, vice chairman of Goldman Sachs International.

Fund officials and most economists agreed that the short-term impact of deficit spending has helped pull the economy through a succession of crisis. And unlike Argentina and other developing nations that suffered through debt crises, the United States remains a magnet for foreign investment.

Treasury Secretary John W. Snow did not address the fund's report directly. But in a speech to the United States Chamber of Commerce on Wednesday, he said Mr. Bush's tax cuts were central to spurring growth and reiterated the administration's pledge to reduce the deficit in half within five years.

"The deficit's important," Mr. Snow said. "It's going to be addressed. We're going to cut it in half. You're going to see the administration committed to it. But we need that growth in the economy. We had an obligation to the American work force and the American businesses to get the economy on a stronger path. We've done it and we have time to deal with the deficit."

But the report said that even if the administration succeeded it would not be enough to address the long-term problems posed by retiring baby boomers.

Moreover, the fund economists said that the administration's tax cuts could eventually lower United States productivity and the budget deficits could raise interest rates by as much as one percentage point in the industrialized world.

"An abrupt weakening of investor sentiments vis-à-vis the dollar could possibly lead to adverse consequences both domestically and abroad," the report said.

 

Since the coup d'etat of December 2000.