Obama’s new triangulation strategy

By Edward Harrison of Credit Writedowns

As I indicated in my post Grading Obama’s economic policy after one year, I see the President as a triangulating center-left politician of the Bill Clinton variety. The reason we have seen public policy which has been favorable to big business and reactive to events on the ground during this economic downturn owes much to this.  And, as if he heard me and wanted to prove me right, we get this just days later via the New York Times:

President Obama will call for a three-year freeze in spending on many domestic programs, and for increases no greater than inflation after that, an initiative intended to signal his seriousness about cutting the budget deficit, administration officials said Monday.

The officials said the proposal would be a major component both of Mr. Obama’s State of the Union address on Wednesday and of the budget he will send to Congress on Monday for the fiscal year that begins in October.

The freeze would cover the agencies and programs for which Congress allocates specific budgets each year, including air traffic control, farm subsidies, education, nutrition and national parks.

But it would exempt security-related budgets for the Pentagon, foreign aid, the Veterans Administration and homeland security, as well as the entitlement programs that make up the biggest and fastest-growing part of the federal budget: Medicare, Medicaid and Social Security.

I’m not sure who the White House thinks it can fool but the last paragraph makes clear that there is no long-term thinking in this public policy. If you want to go long-term and substantive on deficit reduction, you have to address military spending, Social Security, Medicare, and Medicaid. Everyone knows that.

Last summer I said:

the United States faces a very large fiscal problem under present tax and spend scenarios given likely future growth outcomes.  In plain English: there is a gigantic hole in the U.S. Government’s balance sheet under normal GAAP accounting…

SocialSecurityandMedicare_thumb[1]

The problem, of course, is Medicare and Social Security.  Looking again at 2007 and the composition of spending (Chart of the day: US federal spending and receipts), one can see that 40 percent of the budget went to spending on Medicare/Medicaid and Social Security…

These unfunded liabilities fit into today’s policy debate in that reducing Social Security and Medicare benefits would not only eliminate structural budgetary problems, it would also allow Obama to demonstrate fiscal prudence – even while the present deficit balloons.  I guarantee you that Summers, Geithner, Orszag and Romer are on to this and that this is a debate of huge importance inside the Administration.

These are tough issues politically. If the debate was happening in the Obama Administration, those favoring short-termism won it. And if you think Obama doesn’t get it, read Barack Obama gets it where he outlines the issue just one month ago.

See this chart from Perot Charts?  I originally posted this in June of 2008. You can see where the largest budgetary items are.  They are not in domestic discretionary spending where Obama is cutting.  So what gives?

challenges21-640[1]

I think Ryan Avent has it right when he says:

There really is no good way to interpret this turn of events. From the standpoint of the purely economical, this is a huge mistake. Even if we assume that the economy will be strong enough in 2011 to handle budget balancing, this proposal is practically worthless. The administration has said this will produce $250 billion in savings over ten years, but as The Economist noted in November, the fiscal deficit will be over $700 billion in 2014 alone, and will grow from there. Non-defence discretionary spending is nothing; those who are serious about long-term budget sustainability talk about defence, they talk about entitlements, and they talk about revenues. In other words, this will do very little about the deficit, and it will do even less to convince markets of the credibility of the American effort to trim the deficit.

So perhaps this is all about politics? Well, maybe, but there are two enormous problems with that. One is that the campaign trail version of Barack Obama railed against John McCain’s proposal for a spending freeze, rightly, as using a hatchet where a scalpel was needed. It’s unlikely that Mr Obama’s political opponents will let him forget that. The other is that this is a complete betrayal of the political ideal Mr Obama seemed to espouse from the beginning of his political career—the rejection of the argument by the lowest common denominator in favour of a more reasoned and argued approach. This is yet another move toward the infantilisation of the electorate; whatever the gamesmanship behind the proposal, Mr Obama has apparently concluded that the electorate can’t be expected to handle anything like a real description of the tough decisions which must be made. I sympathise with Mr Obama’s position—would that American voters were patient enough to hear and consider a detailed policy discussion on a complex issue—but it’s unreasonable to expect that Americans can be hoodwinked into major policy shifts.

Hoodwinked is a good word. The free dictionary defines hoodwinked:

hood·wink (hdwngk)

tr.v. hood·winkedhood·wink·inghood·winks

  1. To take in by deceptive means; deceive. See Synonyms at deceive.
  2. Archaic To blindfold.
  3. Obsolete To conceal.

hoodwink [ˈhʊdˌwɪŋk]

vb (tr)

  1. to dupe; trick
  2. Obsolete to cover or hide

hoodwink

verb deceive, trick, fool, cheat, con (informal), kid (informal), mislead, hoax, dupe, gull (archaic), delude, swindle, rook(slang), bamboozle (informal), take (someone) for a ride (informal), lead up the garden path (informal), sell a pup, pull a fast one on (informal), cozen, befool Many people are hoodwinked by the so-called beauty industry.

So, this is a deception where the White House is attempting to fool us that it cares about deficit reduction. We are being taken for a ride, bamboozled, if you will.

But, as Ryan has suggested, voters are on to this con – as evidenced by my recent poll. There is widespread disappointment in this approach from economic pundits.

Brad DeLong, a big Obama supporter, says:

Barack Herbert Hoover Obama?

pointing to the potential this has of worsening the economic scenario. As I have been saying, Obama’s deficit measures – short-term measures that do not address systemic issues – are why I see double dip.

Mark Thoma says:

This is pretty disappointing.

The long-term budget problem is due to primarily one thing, rising health care costs. Everything else is dwarfed by that problem. If we solve the health care cost problem, the rest is easy. If we don’t solve it the rest won’t matter…

we get cheap political tricks that are likely to backfire. How will this look, for example, if there’s a double dip recession, or if unemployment follows the dismal path that the administration itself has forecast?

Obviously, I agree with Thoma’s later comments suggesting that Obama is playing Bill Clinton, having said:

I believe Obama is a triangulating New Democrat. His kneejerk reaction, therefore, is to look back to 1994 and draw the same conclusions Bill Clinton did when his own healthcare agenda collapsed. And all of the Clintonites surrounding him in the White House bubble are no doubt convincing him to do this. But 2010 is not 1994. Barack Obama would be well-advised to understand this.

All sorts of comparisons to past Presidents are being made. May I suggest that while Obama is playing Bill Clinton, he is actually Jimmy Carter. The “Crisis of Confidence” or “Malaise” speech Carter gave in 1979 when his administration was on the ropes was widely praised (see transcript here). But it was followed by his inexplicable request for the resignation of every member of his Cabinet.  From then on, his presidency was doomed.

Source

Obama Seeks Freeze on Many Domestic Programs – NYTimes.com

Also see Chart of the day: Social Security and Medicare and Rahm Emanuel, Obama’s Chief of Staff, Draws Fire From Left for background on the economics and politics respectively.

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About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward http://www.creditwritedowns.com

58 comments

  1. CaitlinO

    Sadly, Mr. Obama’s series of politically expedient decisions will very likely guarantee his place in history as the first African-American one term president.

  2. eric anderson

    Like Carter? No. Like Clinton? No. More like the captain of the Titanic.

    Except that on Obama’s sinking ship, the banksters have already filled the lifeboats. The women and children are SOL. Not to mention the small businesses.

    Is it possible that Obama knows there is no practical action he can take to prevent Great Depression II and all the associated damage that implies? And that he’s decided the only thing he can do is try to put on the best veneer possible? Maybe this is why none of his proposals have been serious. He never actually came out with a health care plan. He left it to Congress. He made a non-agreement agreement in Copenhagen and pronounced it as significant progress. The stimulus bill was largely pork — there was little in it to lay a foundation for economic growth. There have been no substantive efforts to reign in the kinds of financial activities that got us into the debt bubble debacle. He hasn’t done or proposed anything of substance so far. Why would anyone expect him to start now?

  3. b.

    I notice that your chart has “Social Security and Medicare Taxes” combined on the revenue side, and Social Security (color matching income tax) payouts separated from the color-matched Medicare/Medicaid expenditures. That is in tune with the constant scam aliasing of these “entitlements”, and predisposes me to skip everything else you write. If Perot (or whoever authored the image) was an honest man, he would color match Social Security revenue against Social Security payouts – fucking right it is an entitlement that is pre-paid and over-pre-paid – match Medicare and Medicaid separately to whatever their revenue sources, and make sure that the syphilitic elephant in the living room – defense spending – was rightly blood-red and not matched to anything.

    If the deficit is so important to you, then you should be grateful for Social Security, because refunding the trust fund with tax dollars to repay the “IOU deficit” that should have never been allowed to happen in the first place (say “lockbox” for me) is the *only* thing that will make obvious that this nation can no longer afford its pervasive idiocy and dishonesty.

    Yes, continuing all that “entitlement drivel” will probably allow the same elites to default on their trust fund liabilities, but even so they will only be able to hold up a plundering already done – the money has been borrowed and wasted, and a partial default on those IOU’s is not going to prevent the “emerging” national default.

    1. DownSouth

      b.,

      I take my hat off to you. You make many great points.

      Have you noticed how the deficit hawks have a way of never talking about private debt, that the focus is always on government debt?

      In addition to the $7.6 trillion in actual federal debt, plus the promises it has made to current and former employees and to the American people to provide a social safety net, there’s $43.1 trillion in household, business, state and local government and financial sector debt. http://www.federalreserve.gov/releases/z1/Current/z1r-2.pdf

      And it also seems to get lost on the deficit hawks that it’s not the federal government that has, as of this date at least, had trouble meeting its obligations. The crisis in private debt is now, whereas the crisis in public debt is sometime in the future. But this matters not an iota to the deficit hawks. The crisis that matters is not the one in private debt that is upon us, but the one in government debt that looms somewhere in the future.

      Have too many promises been made, whether public or private? And if they have, which promises are to be broken? And if promises are to be broken, trust is destroyed. And if trust is destroyed the entire economic edifice comes tumbling down. Will and Ariel Durant summed it up concisely when they wrote in The Lessons of History, “wealth is an order and procedure of production and exchange rather than an accumulation of (mostly perishable) goods, and is a trust (the “credit system”) in men and institutions rather than in the intrinsic value of paper money or checks.”

      Of course this is all lost on those who hail from the Libertarian-Austrian-Neoliberal constellation. It dawned on me just how completely detached from any this-world reality they are when I saw this the other day, written by Ludwig von Mises in 1936 in explanation of the Great Depression:

      The means of production and labor which have been diverted to the new enterprises have had to be taken away from other enterprises. Society is not sufficiently rich to permit the creation of new enterprises without taking anything away from other enterprises.
      http://www.creditwritedowns.com/2008/12/what-does-mises-say-about-trying-to-stimulate-the-economy-out-of-recession.html

      Mises wrote this at a time when 25% or more of the workforce (human wealth) sat idle, an equal amount of the industrial capacity of the nation sat idle, and the country was floating on a sea of oil and other natural resources (natural wealth). (A great book to read in regards to this later phenomenon is Bless the Pure & Humble: Texas Lawyers and Oil Regulation, 1919-1936.) And yet Mises’ analysis for the causes of the depression is that “society is not sufficiently rich to permit the creation of new enterprises without taking anything away from other enterprises!” Go figure! This is but one example of the absurd nonsense that emanates from the Austrian School.

      I thought Hannah Arendt put it most eloquently:

      At any rate, the result of the ‘American’ aversion from conceptual thought has been that the interpretation of American history, ever since Tocqueville, succumbed to theories whose roots of experience lay elsewhere, until in our own century this country has shown a deplorable inclination to succumb to an to magnify almost every fad and humbug which the disintegration not of the West but of the European political and social fabric after the First World War has brought into intellectual prominence. The strange magnification and, sometimes, distortion of a host of pseudo-scientific nonsense—particularly in the social and psychological sciences—may be due to the fact that these theories, once they had crossed the Atlantic, lost their basis of reality and with it all limitations through common sense. But the reason America has shown such ready receptivity to far-fetched ideas and grotesque notions may simply be that the human mind stands in need of concepts if it is to function at all; hence it will accept almost anything whenever its foremost tasks, the comprehensive understanding of reality and the coming to terms with it, is in danger of being compromised.
      –Hannah Arendt, On Revolution

    2. tyaresun

      Absolutely agree with b. Ed should retract the statement that Medicare/Medicaid and Social Security are the problems. A much more instructive chart would show the deficits with and without the defense spending.

      The empire is over. The US needs to get out of Iraq, Afghanistan and the 700+ bases it has world wide. That would be the best way to reduce the deficit.

    3. MarcoPolo

      I caught that too. Social Security is NOT an unfunded liability. The SS trust fund was created precisely so that program could meet it’s obligations for a long time. And it can. If the govt is to back away from that it is no different than defaulting on any other obligation.

      And I can’t imagine who would compare Obama to the much better Carter, who had demonstrated ability outside of govt. and who may have done a lot of wrong things but did so for all the right reasons.

      The republic has been Sachs’d. All it took was one bald-headed pimp with a three page memo to prostrate himself before the queen of whores. It was so easy. Smooth. Electronic. That’s progress. Next come the Vandals.

  4. Valissa

    Actually I see very little in common between Clinton and Obama. They are very different character types in different historical situations, albeit with some superficial similarities.

    Here are my questions… how come so many very intelligent people seem to be incapable of looking at the political situation outside the Left-Right-Center box? I mean REALLY, how limited is that? How much useful information or even useful solutions can come out of that paradigm?

    To many triangulation is “evil” and ideological purity is “good”… political Manichaeism reigns, and political thinking looks ever more like religious thinking every day. Whatever happened to the things like problem solving and consensus building?

    How come so many very intelligent people point at certain politicians (Clinton, Bush, Obama, Carter, etc) and then blame them for the chaotic brew of historical trends that happened to coincide with their terms in office? Surely peole don’t really believe those presidents caused all the situations they are blamed for by the media pundits. I guess simplistic blaming (Clinton Derangement Syndrome, Bush Derangement Syndrome, etc, etc – enemy tribe bad, my tribe good, ugh) is alot easier than thoughtful consideration of the broader and more multi-dimensional scenarios in play in the world at this time.

  5. Ronald

    The voting public finds an gap between candidate Obama and President Obama. Prior to the election he was going to clean up D.C. because he wasn’t the run of the mill politician rather he was a bright clean cut guy born of humble origin ready to make the big change in D.C. but President Obama is turning out to be just a regular political ass kisser creating bigger wars,running up the deficit and making statements no ones believes.

    1. Valissa

      When Obama first ran for office in Illinois he was going to reform and clean up Chicago politics… and then he became another Chicago pol becaus like moswt poltiicans he doesn’t have a spine or real deeply held ethics and values. And now the Democratic Party HQ has been moved to Chicago and there is also the mysterious Chicago Climate Exchange started by Al Gore and his Goldman Sachs buddies. Now that the Democrats have bought in to the “Chicago model” of politicking they will be duly rewarded… hehehehe.

  6. Harminder Singh

    I think this is the key point in Ryan Avent’s post:

    “the electorate can’t be expected to handle anything like a real description of the tough decisions which must be made… would that American voters were patient enough to hear and consider a detailed policy discussion on a complex issue”

    Given the political environment, I think that if the administration did not do this, they would be open to even more attacks from the Republicans. By mentioning spending cuts, the administration can close off that attack point, which hopefully gives them some more room to work on their other plans, such as health care reform (HCR). Emphasizing spending reductions could help move HCR forward, if it’s “re-clothed” as a spending control bill. Doing that might help get some of the Blue Dog Dems and maybe some Republicans (if they’re serious about reform and not just partisan) on board.

    1. Valissa

      How about someone coming up with some basic PowerPoint type slide shows (and geared for YouTube viewing) explaining the basic issues to the public so they can at least try and understand what’s going on. Obviously there are complex details that would be too hard to explain, and it might be tough to find someone who can explain the issues in a fair, objective and bipartisan… but it would be nice to see more effort being made to educate the public.

  7. Canucklehead

    Obama is not a triangulating politician, he is a puppet.

    The ex-Clinton cadre selected Obama to be their mouthpiece. Now Obama is clearly following their tune. Obama went on a tangent for a while and got himself into a ton of trouble. You can only make so many dumb mistakes before the “Boss” calls you up on the carpet and tells you to change your ways.

    Obama has been warned and is now singing a different tune.

    This will now be like 1994 with “Sarah” playing the “Newt” foil.

  8. Kevin de Bruxelles

    Ed,

    Oh don’t worry, Obama “get’s it”, and he is certainly going after Social Security and Medicare. You just have to wait until he gets his ass handed to him in 2010 so that he can then claim he understands the voter’s anger while he proceeds to transfer the masses’ retirement funds into Wall Street coffers. That is, after all, why he was placed in power in first place. I mean, we all know Goldman Sachs and the rest of the Wall Street gang don’t support a candidate so that when he gains power he can get all popular by handing out ponies to the peasants. This “freeze” is just an opening gambit to soften up liberal opposition.

    From the New York Times:

    But one administration official said that limiting the much smaller discretionary domestic budget would have symbolic value. That spending includes lawmakers’ earmarks for parochial projects, and only when the public believes such perceived waste is being wrung out will they be willing to consider reductions in popular entitlement programs, the official said.

    “By helping to create a new atmosphere of fiscal discipline, it can actually also feed into debates over other components of the budget,” the official said, briefing reporters on the condition of anonymity.

    http://www.nytimes.com/2010/01/26/us/politics/26budget.html

    1. Edward Harrison Post author

      Kevin,

      This is what we’re all afraid of: that Obama is looking to give Wall Street yet more handouts. Social Security’s future is in a MUCH better position fiscally than Medicare’s. You could close the gap easily by eliminating some of the FICA exemption above $200,000 through tying this number to inflation. For middle class people, there would no change. The problem there would be the “tax and spend” moniker this would engender. So, I would leave social security alone and focus on Medicare.

      What Obama failed to do is tie in his health care proposals to Medicare and deficit reduction via cost containment. Even Austrian economists have said so. Witness Bryan Caplan at EconLog:

      If I were Obama and believed in socialized medicine, here’s the speech I would have given ten months ago.
      My proposal is simple: Medicare for all who want it, paid for with higher taxes on the wealthiest Americans. I think it’s the right thing to do. I hope Congress feels the same way.

      I reject politics as usual. Here is my offer to our Representatives and Senators: If you think this is better than what we have, if you recognize Medicare as the great success that almost all Americans do, vote for it.

      I’m not going to bribe anyone in Congress to support my bill. It should pass on its merits, or not at all. If Congress passes another health care bill that contains bribes, I will veto it. Why? Because I want the American public to know that if I sign a bill, they can be as proud of it as they are of Medicare.

      We have before us a great opportunity to fulfill the promise of this great nation. But we won’t get there by dishonesty and backroom dealing. I think that many members of Congress are as sick of this hypocrisy as I am. In fact, I am willing to stake my presidency on it. Let’s show the American people that we deserve their trust and act now.
      I admit this would have been a high-risk strategy. But look at how easily Bush pushed through TARP! In the midst of recession hysteria and Obama worship, I say there’s a 40% a more polished version of my speech could have worked. Am I crazy to think so?

      P.S. Whenever I write things like this, I slightly worry that it will fall into the wrong hands and be misused. But on net, better understanding political manipulation probably makes it less likely to happen in practice.

      My point is simple. He doesn’t want real public policy and we won’t get it unless we push for it.

      1. Kevin de Bruxelles

        Ed,

        I certainly agree that Social Security should not be touched and that Medicare should have been the basis of any health reform and by doing so Obama would have cut the deficit substantially. But we have to ask the question why was this not done? While I agree with the substance of Bryan Caplan’s statement, he misses the entire point of American politics in general and the Obama Administration in particular: Obama is in power precisely because he will not make the right choices for middle class Americans. He is not a free agent able to do what is right. This is a misleading myth. He is nothing more than the keen servant of a parasitical elite.

        As for “pushing” for real public policy, I think Americans are going to have to do a lot more than push if they expect to see any “hope” or “change” this decade. To follow on Aristotle’s analogy of a “body politic” it is clear that a parasitic elite cabal has latched itself onto America’s jugular and through its control of both parties is proceeding to suck the life blood out of a once proud nation. But invasive pathogens provoke immune system responses and there can be three outcomes from the resulting struggle. In the best case the infection provokes an immune reaction that is strong enough to kill the invading pathogens and the organism gets back to normal. Or worse, a stalemate can occur where the host organism is permanently weakened allowing the parasite to survive indefinitely. And worst of all, the organism can succumb to the infection leaving the pathogen to move on in search of a new host.

        In America we are seeing the very start of an immune reaction against the Corporatist elite. But we have a long way to go and the corporatists are in a most powerful position. Aiding and abetting them is a very efficient media apparatus that through the tactics of division, distortion, and distraction works to encourage immunodeficiency among the masses by weakening their will to resist. This is going to be a long and hard-fought struggle and I have at this point no idea which of the three results above we will eventually see.

  9. gruntled

    If Obama is calculating that he’ll save his administration by becoming a bit more like the Republicans, he’s dead wrong. The Obama most people voted for is disappearing right in front of our eyes; I’m afraid he’ll be completely gone in about three years, leaving a legacy he can only be ashamed of.

  10. Doc Holiday

    Wiki says Obama/Warren G. Harding will be in the history books along with:

    With some minor variation, both surveys found that historians consider Abraham Lincoln, George Washington, and Franklin D. Roosevelt the three best presidents by a wide margin and William Henry Harrison (to a lesser extent), Warren G. Harding, Andrew Johnson, Franklin Pierce, and James Buchanan the worst.

    Also see: Upon winning the election, Harding appointed many of his longtime allies to prominent political positions. Known as the “Ohio Gang” (a term used by Charles Mee, Jr., in his book of the same name), some of the appointees used their new powers to exploit their positions for personal gain. It is unclear how much, if anything, Harding himself knew about his friends’ illicit activities.

    The most infamous scandal was the Teapot Dome affair, which shook the nation for years after Harding’s death. The scandal involved Secretary of the Interior Albert B. Fall, who was convicted of accepting bribes and illegal no-interest personal loans in exchange for the leasing of public oil fields to business associates. (Absent the bribes and personal loans, the leases were fully legal.) In 1931, Fall became the first member of a Presidential Cabinet to be sent to prison after conviction on charges

    1. bobh

      That was before they perfected the technique of getting the sweetheart deal from the Cabinet officer, waiting until he retires from government, and paying him off with a lucrative sinecure because of his experience in government.

  11. i on the ball patriot

    Edward Harrison says;

    “Hoodwinked is a good word. The free dictionary defines hoodwinked:

    hood·wink (hdwngk)

    tr.v. hood·winked, hood·wink·ing, hood·winks

    1. To take in by deceptive means; deceive. See Synonyms at deceive.
    2. Archaic To blindfold.
    3. Obsolete To conceal.

    hoodwink [ˈhʊdˌwɪŋk]

    vb (tr)

    1. to dupe; trick
    2. Obsolete to cover or hide

    hoodwink

    verb deceive, trick, fool, cheat, con (informal), kid (informal), mislead, hoax, dupe, gull (archaic), delude, swindle, rook(slang), bamboozle (informal), take (someone) for a ride (informal), lead up the garden path (informal), sell a pup, pull a fast one on (informal), cozen, befool Many people are hoodwinked by the so-called beauty industry.

    So, this is a deception where the White House is attempting to fool us that it cares about deficit reduction. We are being taken for a ride, bamboozled, if you will.”

    Nice to see this said so clearly Ed!
    Now if we can just get to that scam electoral process :-)

    Deception is the strongest political force on the planet.

  12. bobh

    I have been waiting all of my adult life for a Democratic party that was willing to go down to defeat because Democrats told Americans the truth and Americans wouldn’t listen. Instead we get, over and over again, Democrats who are afraid to tell the truth, who try to match the Republicans at telling lies, and who, eventually, go down to defeat because they just aren’t natural-born, shameless liars like Republicans. Meanwhile, fifty-odd years have gone by and nobody, with the possible exception of Jimmy Carter, has tried telling Americans why things keep getting worse. Maybe if Democrats had started telling the truth and losing fifty years ago, the message would have begun to sink in and Americans, dumb as they are, might be ready to try a new approach.

    1. Valissa

      Yup, you are expressing exactly what I used to feel/think about the Dems. For so long I made excuses for them and finally during Clinton (and much as I like the Big Dawg as a brainiac) I realized the Dems would never “get it” because they were stuck in the same swamp as the Republicans and I became an independent/unaffiliated. But I continued to vote for the Dems anyway because I didn’t know what else to do. I still believed Republicans were “evil”. Then after reading “Us and Them: Understanding Your Tribal Mind” by David Berreby (a totally awesome book!), along with lots of history and some economics books I realized I needed to rethink my inner reality/mythology about politics. The combination of the election of Obama along with the truly awful Dem leaders in congress once they got their majority was what finally cured me of any lingering loyalty to the Democrats. I am down to supporting a single Democrat financially, Eric Massa, as he is one of the few left that seems to be trying to live what I thought was the Dem ideal.

    1. bobh

      For of all sad words of tongue or pen,
      The saddest are these: “It might have been!”

      –John Greenleaf Whittier

  13. Ishmael

    Mr. Harrison — right on target or as a very right wing friend of mine said a few months ago — We are so screwed.

  14. jay22

    Im not sure what we want Obama to do. He tried to do the right thing; attack the deficit via health care and medicare reform. He got almost no support from the deficit reduction crowd and the bill was often blasted for hurting the deficit.

    The current policy is certainly not a serious deficit reduction plan….but once you try the effective plan and that fails, all you are left with are gimmicks.

    The country hasn’t been ready to actually address the deficit issue for the last several decades, it isnt about to start.

    1. cs

      “Im not sure what we want Obama to do. He tried to do the right thing; attack the deficit via health care and medicare reform.”

      “Reform” isn’t the solution when it makes the USG the guarantor of everyone’s medical bills and makes politicians the decision makers on medical cost control. (Medicare is an excellent test)

      Budget deficits and long-term debt are addressed the way the state’s are currently doing it … wholesale closures of entitlement programs, reduction in pension obligations, layoffs, etc. Ten years from now we will look at California and understand that they paved the road.

  15. Bob Falfa

    I don’t understand, how can the “cuts” be a drop in the bucket but at same time the lack of those expenditures will end the furtive recovery.

    1. alex

      Good point. I can tell you that the left, including the moderate left (like me) is up in arms over this. Taking your point to heart, I have to admit that it’s a “straw that broke the camel’s back” sort of frustration and the wrong sort of “political signal”.

      Obama doesn’t seem to be serious about anything. His health care reform is a joke. Yes, the senate is the big stumbling block, but he doesn’t seem willing to spend any political capital on getting a decent bill (and even undermined it with his back room pharma deal). His idea of financial reform is a joke, his economic team is a bunch of Wall Street cronies, and his “fat cat bankers” rhetoric is comical. Now, when further stimulus is needed, he talks about counteracting it with budget constraints. Even if it’s small it’s inconsistent. I agree the deficit is a potential problem, but there are more effective ways to deal with it. A return to Clinton era tax rates would do a hell of a lot more, and given the tiny stimulative effect of tax cuts, could be used to increase stimulus without increasing the deficit.

      What the hell is this guy anyway? He’s not a Democrat, he’s not a Republican, and he ain’t Bill Clinton. He may think he’s the second coming of Clinton, but the 1990’s are over, times are different, and Obama and his gang of Clinton retreads should stop trying to relive the glory days of the 1990’s. A little less reflexively falling back on what worked once-upon-a-time and a little more thinking about what makes sense now is called for.

  16. Michael Aurzada

    http://books.google.com/books?id=aCjt_Wr23hQC&pg=PA94&lpg=PA94&dq=parliament+of+whores+pave&source=bl&ots=QJ1tpjJdH-&sig=K2GP4uluRt-RifMRo8aNUcdlpXw&hl=en&ei=OF9fS8D1Gs_JlAfk04jYCw&sa=X&oi=book_result&ct=result&resnum=1&ved=0CDkQ6AEwAA#v=onepage&q=&f=false

    Maybe the best (humerous) reading I’ve done on why Federal Budgets never get balanced. While out of date, still a good reflection on the problem.

    “The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.” – H. L. Mencken.

  17. Lyle

    Let me add and to pacify the population by giving them something to loose if they revolt (the flip side of everyone should be a home owner because it makes them more stable citizens) Really what mass home ownership does is to take down the “Workers of the World Unite, you have nothing to loose but your chains” by giving them something to loose. Sometimes it just helps to look at a statement and ask what its negative would be.

  18. tdraicer

    I’m not a big fan of the Clintons, but everything is relative, and compared to Obama, Bill Clinton was FDR. In fact the political contexts that Clinton and Obama faced were vastly different and Obama squandered opportunities that Clinton could only dream of.

    1. alex

      Too true. For all of his pandering, Clinton could think. He was a Republican-Lite because that’s what the times called for. If Clinton had been elected in 2008 instead of 1992 there’s no doubt that his actions would have been quite different. Clinton had to deal with the Republican victory of 1994, but Obama can’t seem to deal with the Democratic victories of 2006 and 2008. Huh?

      I think Obama and his gang of Clinton era retreads are stuck in nostalgia about the glory days of the 1990’s. They’re too unimaginative, too inflexible, or too scared to try anything else. Who knows, maybe they don’t even realize that’s what they’re doing. I’m not a die hard fan of The Big Dog, but damn he knew how to think on his feet.

  19. Blurtman

    Comparisons to Clinton fall short when the economy is tanking and is in serious trouble of never recovering. Obama seems to have neglected Big Bill’s favorite mantra – “It’s the economy, stupid.”

    Seeming oblivious to the plight of J6P sunk George HW Bush. Seeming to favor Wall Street over Main Street and not doing anything meaningful about the economy will sink Barack Obama.

  20. mock turtle

    after reading the very thoughtful comments up thread id like to make a recommendation to the president

    as we know,social security, medicare-medicaid, interest on the national debt, and defense+2 wars make up the 80% of the budget obama says he wont touch

    would you?

    if i were the president of the USA i would…..

    i would freeze social security,

    i would have passed the health care bill, house version, which btw was at least 50% about cost containment…which the repubs dont want cause they want medicare to fail…so they called the cost containment death panels etc

    the interest on the national debt…
    well “ZIRP bernanke” is taking care of that isnt he

    and finally

    i would get out of iraq because the sunni shia and kurds are gonna kill each other no matter what…

    i would get out of afghanistan because we are pissin off and killing more civilians than we are saving and converting

    and i would close 600 of the 700 foreign military bases the usa currently operates,

    the rest of the military budget should be frozen as well…the usa spends more than all the rest of the nations on the planet combined on war and defense…we will be ok with what we spend now minus two wars and minus 600 bases

    then

    then of course

    there would be a coup

  21. alex

    “i would freeze social security”

    What does “freeze” mean exactly?

    And why would you “freeze” it? It’s separately funded from the rest of the government, and is fiscally in pretty good shape. In fact its loans are propping up the rest of the government. Any “freeze” is just a way to avoid having the general fund pay off its debts. In other words take money collected from a regressive tax that by law is dedicated to a specific purpose, and use it to compensate for the inadequate collections of a progressive tax. The plain English word for that is “theft”.

    1. Doug Terpstra

      That he even mentions Social Security is extremely ominous, especially in contrast with truly sacred cows like war-spending, Fatherland Security, and foreign aid (read Israeli expansion). During the campaign he discussed raising or eliminating the income ceiling on FICA taxes as a solution to SS insolvency—an obviously fair, easy-sell flat tax. But of course, now we know the value of his campaign rhetoric.

      Medicare for all too was a slam dunk ‘puppy-dog’ sale—sells itself. Let ’em keep it overnight, and they’ll never let it go. The moral mandate has grown glaringly obvious with tens of thousands of unnecessary casualties every year, and the single-payer (Medicare) alternative has demonstrable success in the time-tested results of civilized societies. But NO, for the Great Deceiver, the flim-flam snake oil salesman we get some feeble metaphor about a “belt” for insurance reform and “suspenders” for a public option. His on-court performance, throwing the ball through your opponent’s hoop, makes a fixed game an inescapble probability.

  22. RC

    Why is Social Security shown separate from Medicare on the left chart but grouped together on the right chart? Same old card tricks Social Security is funded but we need to make it seem like its not.Why not just increase the Medicare withholding tax from peoples paychecks to match whats needed? Duh.

  23. mock turtle

    alex

    your cries of theft are like the passenger who yelled “i’ll sue” at the bridge of the titanic as the ship reached its last degree of list before the bow began to plunge below the waves

    im a left leaning democrat and i value social programs, but i see the destruction of the country ahead if we dont perform radical surgery now

    my father who is in his late 80s has drawn far more money out of medicare and social security than he ever paid in taxes

    when social security starts drawing more, to pay commitments that exceed income, what do you suggest we do?

    i know what i suggest…we draw from the general fund

    btw, i made a mistake in my “recommendations to the president” above. for close to 50 years we have seen an ever decreasing share of federal tax revenues paid by corporations as compared to individual citizens, so that now the corporate contribution , i seem to recall, is around 15% where as during the eisenhower years it was close to 50%

    i would slowly but steadily raise the level of corporate taxation until there is parity again …this especially since our illustrious supreme court thinks that corporations are people and have a first amendment rights etc

    also the bush tax cuts which should never have been passed by congress to begin with, should be allowed to expire

    best to you
    mt

    1. alex

      “when social security starts drawing more, to pay commitments that exceed income, what do you suggest we do?”

      I’m too tired right now to dredge up the cites, but IIRC it’ll be 30 years or more before the trust fund is used up. Even that is contingent on numerous assumptions, which historically have been a bit pessimistic. I’m not saying we’ll never need to tweak it, but it’s in better shape than almost anything else. It’s better left alone right now, so real problems can be concentrated on.

  24. Hugh

    When the meltdown hit, Bernanke and Paulson flooded literally trillions in the following months into the banking sector.

    For 30 years, wage increases were seen as a problem to be combatted while during the same period investment was sanctified even though it created a succession of ever larger bubbles.

    Taxes were cut on the rich and corps during this same period transferring enormous wealth to a few.

    Military spending has grown enormously. We have waged a series of long pointless expensive wars. We continue to.

    Social security surpluses were spent, so much “free” money for politicians. They also were used to mask the size of deficits. In a few years, it will come time to start paying back those surpluses. This has to come out of general revenues and can only be paid for by raising taxes or lowering benefits. We all know what route Obama and every other politician in Washington wants to go on this.

    The point here is that there has been a pattern for 30 years where when it came to the needs of ordinary Americans they were told, “Sorry, but we just don’t have the money.” But when it came to the haves in our society whether it was to enrich themselves or engage in their little imperial wars, deficits never mattered. The money was always there trillions upon trillions.

    If you want to build up the middle class and create economic stability, then simply reverse engineer the trends of the last 30 years. Cut back our bloated military, tax the rich and corporations, cut back our casino banking sector, increase middle class jobs, their wages, and their security, maintain and increase the social safety nets of Medicare and Social Security, demand corporate responsibility. Yes, this would mean the demise of Goldman Sachs and casino capitalism, private healthcare insurance, imperial wars, a worldwide US military presence, the hyper-wealthy. In other words, we could stop the looting and get back to the business of building the country again.

  25. Matt Franko

    Ed,
    To follow your logic: I didnt realize GAAP should, in a similar fashion, treat the sum of all future utility bill payments as a “long term liability”. In that case you yourself are probably are “in debt” to your gas & electric co. for $100,000. Did you realize this? Resp,

    1. Edward Harrison Post author

      You clearly don’t understand accrual accounting. All major companies report under GAAP. Accrual accounting is standard worldwide. The reason the GAAP accounting exists to begin with is to make an accurate accounting of liabilities incurred today and their likely effect on a company’s financial health.

      In the case of the government it is there to protect social security and medicare. If the government only looks at its revenue stream on a cash-in cash-out basis the way a small business does, we would be blindsided by huge liabilities in social security and medicare down the road. We would then be faced with a choice of increasing taxes or cutting benefits.

      It is criminal that the government still reports its books on a cash accounting basis.

      And for the commenter who said “The “accounting” is quite humorous, though not intended to be so. Were the same “accounting” used for private pensions and other privately-supplied post-retirement benefits (such as early retirement medical benefits and post-65 retiree medical), corporate America would be revealed to be staggeringly bankrupt.”:

      that is patently false. GAAP IS the accounting used by corporations. It is the government which is shown to be bankrupt under GAAP. The only reason the government can get away with having such a huge future UNFUNDED liability is taxation.

  26. NYT

    I think Matt Franko is right, applying “GAAP” accounting to the government is ridiculous.
    If the government is going to be always around, then why does 75 years of social security spending have to be counted as a liability but 75 years of defence spending does not?
    And why is it 75 years? Why not 7.5 years of 750 million years.

    Pension entitlements are included in GAAP for companies as a liability so you can see what the picture would be if you were to shut down the company now – what would be the liabilities. This does not apply to USG.

    The only reason people like you present it in this way is because social security is paid by regressive taxes, so you want to make a budget problem into a social security problem

  27. d4winds

    The “accounting” is quite humorous, though not intended to be so. Were the same “accounting” used for private pensions and other privately-supplied post-retirement benefits (such as early retirement medical benefits and post-65 retiree medical), corporate America would be revealed to be staggeringly bankrupt.

  28. NYT

    “Defense spending is accounted for like any other measure – the key being that defense spending does not have the same level of future commitments that social security or medicare do.”

    Where did you read that? There is no contract between the government and a citizen to provide social security. It can be reformed any time, just as the level of defence spending can be. A basic accounting convention is substance over form, and on that basis defence and other government spending is just as much a liability as social security

    You don’t answer the question as to why 75 years was chosen either as opposed to any other timeframe

    1. Edward Harrison Post author

      NYT, everyone knows that Medicare and social security present the largest future commitments which the federal government has already made. When you address the bloated military budget, are you disputing this? Future commitments for military expenditures are accounted for in GAAP analyses and are nowhere near the levels of social security or medicare; so let’s end that discussion.

      On the other issue, there IS no contract between government and a citizen the way there is in the private sector. But, that argument only bolsters the case of cutting benefits.

      My understanding on the 75 year swag instead of using an infinite time horizon has to do with the “no contract” point you make. In any event, even in this case, the gap could be closed via increased taxes or reduced benefits of as little as 15%.

      Obviously, if Obama had made cost containment a central part of his health care plan and tied it to Medicare, this number would be even lower.

  29. NYT

    Take a look at your chart. Social Security spending is only marginally less than defence spending (its probably less it you include the special appropriations for defence).
    Current spending on pensions in total is about 15% of US budget, defence is about 14%. 10 years ago, defence was 11% pensions were 17%. (see usgovernmentspending.com)
    So which is growing faster , defence spending or pensions?

    There is no basis for this comment about social security being the largest future commitment of the federal government.

    This business of extending out social security spending for 75 years whilst ignoring defence and other spending is nonsense. If you were asked to draw up a budget for a company for the next 10 years which is currently spending as much on pensions as on security, you would assume the pensions were a future cost but security spending magically disappeared? What a load of nonsense.

    This is just a crock to pretend that a budget problem is a social security problem. It’s used by people who want to see regressive taxes raised because social security is a regressive tax

  30. Matt Franko

    NYT,
    I better go out and buy a “Flowbee” self-automated home haircut kit so I can retire the debt I owe to my barber!

    If you are interested here is another alternative view of the Social Security and Medicare issue, and related “accounting”. Resp,

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