Tag Archives: deficit

The Federal Government Races to the Cliff

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In the 1955 movie Rebel Without a Cause, James Dean and a teenage rival race two cars to the edge of a cliff in a game of chicken.  Both intend to jump out at the last moment.  But the other guy miscalculates, and goes over the cliff with the car.

This is the game that is being played out in Washington this month over the debt ceiling.  The chance is at least 1/4 that the result will be similarly disastrous.    

It is amazing that the financial markets continue to view the standoff with equanimity.   Interest rates on US treasury bonds remain very low, 3% at the ten-year maturity.   Evidently it is still considered a sign of sophistication to say “This is just politics as usual.  They will come to an agreement in the end.”  Probably they will.  But maybe not.   (I’d put a ½ probability on an agreement that raises the debt limit, but just muddles through in terms of the genuine long term fiscal problem.  That leaves at most a ¼ probability of a genuine long-term solution of the sort that President Obama apparently proposed last week – described as worth $4 trillion over ten years.) read more

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Democrats should not rise to the bait of “fiscal conservatives”

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I never cease to be frustrated that the current public policy debate is described as a contest of ideas: fiscal conservatives versus liberals.   It is not just Republicans or Tea Partiers who believe that they are fiscal conservatives, no doubt sincerely.   Democrats and liberals seem to accept this characterization at face value, as does most of the media.  

The problem is that a heavy majority of the supposed fiscally conservative congressmen, although passionate about cutting government spending in the abstract, are in truth no better able to find specific dollars of budget cuts that they can support or defend to their constituents than are the Democrats.   Factoring in their immutable desire to cut taxes, I believe that if the Republicans were in full control, we would have larger budget deficits in the coming years than if the Obama crowd retained power.  This is what happened in a big way when Presidents Reagan and GW Bush took office promising to cut the debt while also cutting taxes.   Spending, deficits, and debt soared during their terms, relative to their respective Democratic predecessors.  There is no reason to think anything has changed.  read more

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The Tea Party protestors really mean whiskey, not tea

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Evidently the four-word slogan “No Taxation Without Representation” is too complicated to fit on some people’s bumper stickers.  They have chopped off the last two words.  They don’t want taxation period.

The “Tea Partiers” revere the Constitution. But some might lack the knowledge of early American history that they claim.  In honor of George Washington’s birthday, February 22, I would like to recall a bit of that history.

The Boston Tea Party is not in fact the most appropriate historical precedent for the grass roots protests that have received so much attention over the last year.  The famous slogan motivating the patriots in Boston Harbor in 1773 was “No Taxation Without Representation.”  But democratic representation was achieved with the American Revolution. The Whisky Rebellion of 1794 is a much closer parallel for today’s protestors.   Or the earlier Shays’ Rebellion of 1787, the episode of anarchy to which many Americans reacted by seeking a federal constitution.    The pitchfork-carriers in these rebellions were protesting against taxation with representation.   They did not want to pay the taxes necessary to fund the government services they enjoyed — which at that time meant servicing the debt from the Revolutionary War. (Sound familiar?)  President George Washington, not the rebels, was defending the Constitution against its first severe test, when he personally put down the Whiskey Rebellion with force.    read more

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