Not even a deck chair on the Titanic

by Russ Roberts on April 13, 2011

in Budget Issues, Debt and Deficits, Politics

More like a slat from the chair or a piece of a slat of a deck chair. The National Journal reports (HT: Drudge Report)

A Congressional Budget Office analysis of the fiscal 2011 spending deal that Congress will vote on Thursday concludes that it would cut spending this year by less than one-one hundredth of what both Republicans or Democrats have claimed.

comparison prepared by the CBO shows that the omnibus spending bill, advertised as containing some $38.5 billion in cuts, will only reduce federal outlays by $352 million below 2010 spending rates. The nonpartisan budget agency also projects that total outlays are actually some $3.3 billion more than in 2010, if emergency spending is included in the total.

I’m paraphrasing and it’s not my joke (maybe Don’s?) but to say that Congress spends money like a drunken sailor is to insult inebriated seamen.

 

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{ 64 comments }

vikingvista April 14, 2011 at 12:07 am

Anyone who doesn’t plan for high inflation is a fool.

Tom April 14, 2011 at 11:59 am

Eh…doubt we will see anything substantial to the point where one needs to be stocking up on can goods and shot guns.

vikingvista April 14, 2011 at 12:32 pm

I don’t know about that, but anyone who lived through the ’70′s and ’80′s should know what to do.

Dan April 14, 2011 at 12:39 pm

Only 5 then…….. I just assume to tighten the belt and reduce unnecessary consumption along with sparing extra cash to precious metals.

vikingvista April 14, 2011 at 3:01 pm

Unfortunately, unless you receive money from the Federal government or a large Federal Reserve member bank, there is little you can do. But you can cut your losses by moving savings into assets with some inflation resistance. That is, you can lose a lot of money, instead of a very lot of money.

Or, you can can be hopeful that government leaders will do the right thing, stop printing money, massively cut spending, and let the big banks and recipients of government funds take the hit for this government engineered debacle. Fat chance of that.

Chucklehead April 14, 2011 at 12:21 am

Not even a deck chair on the Titanic
They just removed the cushions…..

Brian Bedient April 14, 2011 at 1:51 am

They slightly altered the stationery on which they’d write a Preliminary Deck Chair Rearrangement Environmental Impact Study were they inclined to take such a drastic measure.

$352 million is about $1 per US resident. At $3,819 billion the feds spend more than $12,000 per US resident. The spending cut is about .009% of the total.

While I’m making silly back-of-the-envelope calculations: the US median income was $44,389 in 2010…so the federal government cutting spending by $352 million is the equivalent to the median income earner cutting his annual spending by $4.09. While he has a credit card balance of $159,149, to which he plans to add $18,597 this year.

Randy April 14, 2011 at 4:35 am

Well done. As far as I’m concerned, the Republicans have one last chance to redeem themselves, and that is the opportunity to refuse to increase the debt limit. Spending cuts, real spending cuts, now.

gregworrel April 14, 2011 at 9:43 am

Don’t hold your breath. I have heard several House Republicans say that they are only one-third of the process. But aren’t they an essential one-third? Couldn’t they pass whatever budget they wish and let the Senate and Obama take it or leave it? They have all the control they need to reduce spending.

Randy April 14, 2011 at 2:17 pm

Not holding my breath. I do understand fully that the Republicans are part of the process. The thing is, the process is problematic. E.g., If they truly can’t not increase the debt limit, which should be THE constraint, then what else can they possible do that would be a constraint?

gregworrel April 14, 2011 at 2:48 pm

Randy, my point was perhaps better stated below by Pascvaks. The House has all the authority they need, they just don’t have the guts to use it. To say that they are only one-third of the process is to understate their true power. They could have said “Here is where we stand. It is not negotiable. It is up to Obama to come to our position or he can shut down the government.”

vikingvista April 14, 2011 at 3:03 pm

greg–

If the Republicans were serious about understanding the magnitude of the spending problem, that is exactly what they would’ve done. That is how we know that they are not serious.

vikingvista April 14, 2011 at 3:07 pm

Randy–

That CAN not increase the debt limit. If they couldn’t, then you wouldn’t have Geitner wasting his breath telling the wold it would be Armageddon.

And they should not increase the debt limit. If Geitner is serious about Armageddon, then maybe he will be serious about avoiding Armageddon by slashing entitlement programs if the debt limit is not increased.

By “Armageddon”, Geitner means that some government employees will lose their jobs or part of their compensation, and some entitlement recipients will not get what they were expecting. Boo hoo.

Sam Grove April 15, 2011 at 8:00 pm

They pretended to flip the cushions.

DWAnderson April 14, 2011 at 12:31 am

While the NJ piece makes some good points about the current savings (not much) that doesn’t mean that the ultimate savings aren’t real (at least in most cases). Although there are certainly a fair amount of gimmicks, removing the ability to spend in out years by reducing the amounts put in various funds isn’t nothing (assuming that money is not put back in the future).

Ronald Coase Himself (For real) April 14, 2011 at 12:56 am

Back in my day, $3.3 billion was more than the whole British GDP. Mind you, we didn’t have GDP back then. No, sir, we had to find places the old-fashioned way: maps and asking for directions.

Scott G April 14, 2011 at 9:58 am

Can you please prove that you’re Ronald Coase?

Ronald Coase Himself (For real) April 14, 2011 at 7:36 pm

Sorry, the transaction costs are too high.

Troll Finder April 14, 2011 at 4:55 pm

You be trollin’.

SheetWise April 14, 2011 at 1:07 am

“I’m paraphrasing and it’s not my joke (maybe Don’s?) but to say that Congress spends money like a drunken sailor is to insult inebriated seamen.”

Ronald Reagan — who said it was an insult to sailors in general, because they were spending their own money.

indianajim April 14, 2011 at 9:41 am

Thanks for reminding rr of RR’s retort.

SheetWise April 15, 2011 at 10:47 pm

Very clever ;) I’m just filling in the record.

Both rr and RR have taught me much — though I’ve only had the pleasure of meeting one of them. Some day I hope to fix that.

LA Liberty April 14, 2011 at 4:56 am
JohnK April 14, 2011 at 8:16 am

Reminds me of when the unionized state workers demand an 8% pay increase, see their paychecks increase by 5%, and then complain of a 3% pay cut.

danphillips April 14, 2011 at 8:23 am

Is anyone really surprised? Did anyone actually expect the Republicans to be any better than the Democrats?

Trapper_John April 14, 2011 at 9:56 am

Surprised? No, just sickened and disappointed. The bottom line is that these habits are incredibly hard to break because most programs have a small, active group of beneficiaries that will fight like hell to avoid seeing any of “their” money get cut.

Watching “This Week with David Brinkley” (I refuse to acknowledge any of the hosts since) last Sunday, Donna Brazil stated the Republicans are acting as a “reverse Robin Hood”, “robbing from the poor to give to the rich”. By this logic, if I buy your lunch today and then don’t buy it tomorrow, I have stolen from you. Unfortunately, this is the entrenched framework of government largesse. Strong mandates to cut spending will have to be sustained to undo it.

God help us all when we have to cut spending on a program with a broad base of beneficiaries (Medicare, Social Security).

WhiskeyJim April 15, 2011 at 5:51 am

1. Minus Mr. Stossel and the Judge, even Fox News is blithering. An articulate news channel that defended free markets would immediately sky rocket to number 1 and move the whole country right. If I was President of Fox, I’d leave the Left off all the panels, and replace them with free marketers. The Dems are a lost cause and are best ignored or referred to as inane.

2. It is a shame that Republicans watched millions of middle class Americans motivate for the first time in a generation to stop the spending. All they are getting for it is pilloried.

Ken April 14, 2011 at 8:00 pm

DP,

You act like the democrats don’t still control the senate and white house. Republicans control one half of one third of the federal government.

Regards,
Ken

Dan April 14, 2011 at 8:11 pm

I am not yet convinced of Repubs yet either. When Obama ‘the destroyer’ is out, than we shall see.

danphillips April 14, 2011 at 8:18 pm

No, Ken, no, I don’t act like that at all. What I’m saying is that Republicans are lying sons-o-bitch politicians. just like the Democrats, and anyone who thinks otherwise is simply deluding himself.

Richard Stands April 14, 2011 at 10:17 am

The “big fight” will be over the debt ceiling. That’s when many of our fearless Republicans swear they’ll get an agreement for something like a balanced budget amendment in exchange for raising it (and raise it, they certainly will).

And we know, once it’s in the Constitution, they’ll never be able to equivocate, evade or pervert that limit.

Dan April 14, 2011 at 12:20 pm

Balanced budget amendment is only likely to give democrats more authority to raise taxes……. ‘The constitution requires we balance the budget’
I think any type of mandate to rein in spending will have to be as thoughtfully crafted as were many of the provisions in the Constitution. Clearly thinking out times of war and the dangers of exempting the law during times of war, less we be in perpetual state of war for generations as the rout around the law.
Dems want to see govt spending at 25% of GDP. Problem is that we have yet to see any tax code that can avg 20% or better in revenue of GDP. Raise taxes, see less growth and more money finding tax shelters.

danny April 14, 2011 at 7:55 pm

This is something of a tangent, but is it really true that no tax code can bring in more than 20% of GDP? I know that tax receipts have always been around 20% of GDP, but I wonder if the causation could be in the other direction. I mean, usually when someone is for “higher” taxes it really means they are for higher taxes on the top brackets and lower taxes at the bottom. Could it be that every time they re-write the tax code they are just playing with the numbers to come up with a final total that is 20% of GDP?

I have no idea if that is way off, but I’ve heard that 20% number so often that I’m starting to become wary of it as “conventional wisdom”. Could the laffer curve really be that constant across time that 20% is ALWAYS a magic limit?

Anyone insight on that would be appreciated. Russ, do you have any research on that?

Dan April 14, 2011 at 8:09 pm

They only wish that they could account for all of the variables that exist from human behavior in response to tax code or the many other variables that occur as any new innovation spurs the marketplace, recessions, wars, trade impacts as other nations fiddle with their economies, etc.,….
They are not capable of this.
The CBO does not due any of it’s projections with all of the dynamics of behaviors in a society. They can’t.
But indeed, a full report is required for a resource. I will search, but the professors are more apt at supplying u with the info and quicker than I ever will be.

Danny April 15, 2011 at 11:03 am

Aren’t there European countries with tax receipts greater than 20%? This could be explained by culture, but then hasn’t the culture of the us ever fluctuated whereby we should see periods of higher receipts?

Also, as far as I can tell the city/county/state taxes have gone up considerably (I’m not sure of this). Should that put downward pressure on the federal tax receipt frontier?

I’m not even saying you are wrong, I just think that is a pretty interesting topic in itself that I’m not sure is getting thorough enough examination relative to it’s use in discussions.

vikingvista April 15, 2011 at 2:55 pm

“Aren’t there European countries with tax receipts greater than 20%?”

Yes. I haven’t seen a good analysis explaining the reason for the 19% rule, but it isn’t the case in other countries, and it wasn’t the case pre-WWII. I think the main reason is that governments with a >19% collection capture more trades. Although an income tax–labor trades–which the other countries also have, is widespread and captive, the politics of progressivity mean that there is less capture of lower income groups. Other governments make up for it with a VAT, which captures even more of the captive population. Another way to break the 19% barrier would be a national poll tax or fixed property tax.

I think if the US implemented a VAT, the 19% rule would no longer hold.

Economiser April 16, 2011 at 8:47 pm

I wouldn’t be surprised if 19% is close to a natural limit, since we’ve hit it consistently over time despite very different marginal tax rates.

The European countries with higher headline rates probably also have larger black markets, which aren’t reflected in the denominator.

tdp April 18, 2011 at 8:31 pm

Yes, but their GDP is much smaller as a result because taking such a high percentage of money in taxes stifles economic growth. The only European countries with higher growth rates than the US pre-Recession were Estonia, Latvia, Lithuania, and Ireland. Estonia has a flat tax and Ireland has one of the lowest corporate tax rates in the world. Not sure about the other two countries.

JohnK April 14, 2011 at 12:23 pm

“And we know, once it’s in the Constitution, they’ll never be able to equivocate, evade or pervert that limit.”

I like the sarcasm. Very nice.
Kinda like “Congress shall make no law” has been interpreted to mean “Congress shall make no law EXCEPT…” or “shall not be infringed” means “shall not be infringed EXCEPT”.

So any amendment that requires a balanced budget would have that invisible EXCEPT in it and be rendered meaningless.

Dan April 14, 2011 at 12:35 pm

Got me. Did not take note of sarcasm.

Anotherphil April 14, 2011 at 3:03 pm

And we know, once it’s in the Constitution, they’ll never be able to equivocate, evade or pervert that limit.

You think some friendly (9th circuit) judge won’t intone solemnly with some phrase like “compelling state interest” or “unenumberated penumbrae” to defeat or distort the clearest of language.

Richard Stands April 14, 2011 at 8:44 pm

Nope, JohnK is right. It was definitely sarcasm. It’s been a rough week. :)

Mickey April 14, 2011 at 10:36 am

I’m having trouble backing into the $352 million below 2010 spending rates.

I see the 2011 outlay as (HR 1473) $1,364,714 million, but cant find the apples to apples number for 2010 that is $1,365,066 million. Anyone know where this can be found?

vidyohs April 14, 2011 at 10:37 am
Mesa Econoguy April 14, 2011 at 7:16 pm
Pascvaks April 14, 2011 at 10:39 am

The “House” has all the authority they (or anyone else) need. The problem is they don’t have the guts to use it and force real changes on the Senate and the President. Looks more like another Great Depression is just around the corner. Wonder which domino will fall first, Japan or Europe or the good old USofA?

vikingvista April 14, 2011 at 2:01 pm

The Federal government’s fiscal calamity needn’t be an economic disaster for the rest of us. The problem is what the government is willing to do to us to get what they want, and what your countrymen are willing to suffer at the hands of the law. Unfortunately, this isn’t the 18th century. Your countrymen will take a great deal of abuse.

Billy Sullivan April 14, 2011 at 4:13 pm

Russ, you are wrong on this point.

Indeed, I would be careful before jumping too hard on this issue. When you deal with government budgets, you have to deal with outlays already authorized to be paid and outlays that need to be authorized to be spent. If you assume that most money that is authorized to be spent by the government is actually spent at some point–a good assumption when you are dealing with government money, then cutting spending authorizations is the equivalent of cutting spending.

To demonstrate this point, the conservative, anti-spending group Americans for Tax Reform has pushed back against the AP’s claim that the spending cuts are illusionary. ATR argues that you have to view the spending cuts within the context of how the budgetary process works. To put it another way, ATR confirms that the Budget deal eliminates the government’s capacity to spend by $38 million.

(http://www.atr.org)

Billy Sullivan April 14, 2011 at 4:14 pm

This is not to say that the Budget deal was good for America. We need to cut significantly more. But this is a start in the right direction.

WhiskeyJim April 14, 2011 at 7:41 pm

I believe Russ has talked before about Canada being the only western nation to successfully decrease government expenditure in the modern age.

Contrary to all Keynesian construct, slashing spending 15% across the board stimulated economic growth and improved the strength of the Canadian dollar as government shrank.

Ontario may provide an even better microcosm since in the 1990s, a Conservative government unwound many of the Keynesian, quasi-socialist policies that a Bob Rae government instituted in response to a recession that mired the province in debt and prolonged the recession in that province while other provinces and countries (including USA) had long ago crawled out of their economic realignments and again embraced growth.

The reason the Bob Rae example is so pertinent is that he instituted many of the exact same policies Obama did on a national scale, including public sector raises, green energy programs, extended UI, pro-union laws, etc., leaving a ginormous annual deficit. Bob Rae eventually decried Keynesian policy as ineffective and switched political parties. The unions still consider him a traitor.

The Conservative government that replaced Rae found the faster they pushed austerity and pro-growth measures, the faster the economy grew including job creation.

In the USA, the Republicans hold the purse strings. But they are allowing the Progressive narrative to define the discussion while allowing Democrats to play rope-a-dope. The reason is simple; most of them believe the Keynesian tripe.

More generally, I believe it is time for a refreshed articulation of political discussion. And it is an even higher priority that politicians demand that economists stop using the economy as their personal laboratories in an inter-causal world. It is my personal belief that economics has now done more harm to world development than any other discipline.

dan April 14, 2011 at 9:21 pm

Can you articulate it all in quick quips and using buzz words? That which will grab enuf attention and say it all in a newspaper headline?

WhiskeyJim April 15, 2011 at 6:10 am

Since they are the only government I know of that cut spending 15%, and the results refuted every Keynesian prophecy ever made, they are worth following.

I can understand why Keynesian economists ignore the data. I do not understand why Canada did not become small government economists’ favorite research gold mine, published in every journal they could find.

E.G. April 14, 2011 at 10:59 pm

I wholly agree with your last sentence. Not economists in themselves, or their ideas, but the fact that they often supply the ammunition for any political imbecile to push any particular agenda and dress it in “economic” term; everything is an “investment” all of a sudden; everything comes out to be hugely profitable after a “cost benefit analysis” by this or that commission. It gets to be really silly, because once you learn “how” to present an argument to make it seem “economic”, then you can make any argument to the “masses”. Who knew that Amtrak was a huge success! Carbon markets are just…markets!

Economists aren’t at fault, but we are lacking a true “popular economist” to make things understandable and sway public opinion like Milton Friedman.

Anyway, this Canada experience seems interesting. I’d love to hear more about it, since I don’t think most Americans have any clue what happens or happened in Canada.

SheetWise April 15, 2011 at 11:06 pm

“Anyway, this Canada experience seems interesting. I’d love to hear more about it, since I don’t think most Americans have any clue what happens or happened in Canada.”

Look on the back of almost any book printed in the USA, and you will see a price for US and Canada (CAN). Usually ~10-30% (unjustified, as the exchange historically has been ~10%). I cannot remember any time in my life when the Canadian Dollar was worth more than the US Dollar — until today.

Sigh.

Chucklehead April 17, 2011 at 8:54 pm

It is my personal belief that economics has now done more harm to world development than any other discipline.

All:
God save your majesty!
Cade:
I thank you, good people—there shall be no money; all shall eat
and drink on my score, and I will apparel them all in one livery,
that they may agree like brothers, and worship me their lord.
Dick:
The first thing we do, let’s kill all the economists.
Cade:
Nay, that I mean to do.
Henry The Sixth, Part 2 Act 4, scene 2, 71–78

Sam Grove April 14, 2011 at 7:52 pm

It is my personal belief that economics has now done more harm to world development than any other discipline.

As politics doesn’t qualify as a discipline, I’ll leave that be.

Hard on the heels of the fiat economics of _____ Keynesianism, is Climate science.

maximus April 14, 2011 at 11:59 pm

LOL! Good one Sam. Let’s see…fill in the blank…neo, new, contemporary, the new-new, new- fangled, up to the minute, just out, whatever fits the political template, this week, not that keynesianism before the 70′s, etc etc

vikingvista April 15, 2011 at 12:52 am

I thought the blank was for “goddamn”.

yet another Dave April 15, 2011 at 12:08 pm

There’s only 2 kinds of Keynesians – stupid and evil – and they’re both wrong.

WhiskeyJim April 15, 2011 at 6:06 am

That politics is not a discipline may be all the evidence we need to keep it small. I consider Marx an economist.

And remember that sociology is right up there, what with its general sway over whole swaths of governmental policy, and its victimology meme in particular. Which the data do not support BTW.

Imagine our culture if educational systems had spent even a third of their time in the last 60 years teaching and nurturing the empowering freedom of individual choice. Ironically, it is how Oprah got rich. I wonder how she reconciles her personal meme to a socialist government. But then, psychology, which should by rights naturally extend to free markets on a macro level, is right behind her. It is irrational to me.

SheetWise April 15, 2011 at 3:42 pm

I was thinking presumptuous.

David April 14, 2011 at 9:02 pm

But the cuts! The cuts! They’re going to stall the recovery and send us into indefinite economic decline!

…at least, this is what the Paul Krugmans of the world will say, even though it appears that there have been no real cuts.

John Galt April 15, 2011 at 12:41 pm

Mellifluous kudoses to this cubically true analogy.. Many leading nation-states behave like the titanic. Are captained like the titanic. Eventually they are the titanic. The titanic is a finite ship that was built, received unprecedented accolades, and then went sailing off by itself, with no sister vessels. It unsurprisingly quickly sank to the bottom of the ocean with a few refugees surviving. Tragically, America is built and captained the same way, famous for its fragility, not robustness. The best parts of her sank around 1865, 1913, 1945, & 1971. She’s becoming a counterfeit shell of her formerly beautiful self,
A great economist is not an expert in Titanics like America but of living dynamic systems transcending beginings and ends.
Consider the living Earth has no true zero. GMU campus geocode of -77.3080912 longitude is a lie. There is no zero longitude, each rotation of the earth brings a new world and thus A is not A. GMU today is not GMU yesterday. Each structure decays and is maintained. Each student learns, loves, & loses. Don’t be evil and accept the false equalities without qualifications. A doctor whose knowledge is cadavercentric will never reach his true potential.

Tamquam April 15, 2011 at 3:37 pm

Having been a drunken sailor I can say with certainty that the difference between a drunken sailor and Congress is that the sailor stops drinking when the money runs out.

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