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September 25, 2009

Economist's View - 4 new articles

"Fiscal Responsibility Requires Higher Taxes"

Bruce Bartlett reiterates his disappointment with Republican attitudes toward taxes and the deficit:

Fiscal Responsibility Requires Higher Taxes, by Bruce Bartlett, Commentary, Forbes: Throughout most of our nation's history,... everyone who thought of themselves as a conservative believed absolutely in the necessity of balancing the budget... Today, the notion seems quaint. Republicans pay lip service to balancing the budget, but only when Democrats are in office. ... [T]he now-universal view among conservatives [is] that ... taxes must never be raised to reduce deficits. That's a cure worse than the disease...
This reversal of the historical conservative position has had enormous implications for our national finances. ... The reason why conservatives supported a balanced budget in the first place wasn't so much about the economics as a belief that it was a constraint on spending and the growth of government. That deficits were inflationary, raised interest rates and led to crowding out in financial markets, which reduced economic growth, was really a secondary consideration.
A key reason why a balanced budget requirement constrained spending is that deficits led to higher taxes. Since people don't like paying taxes, they put a brake on spending that couldn't be financed out of current revenues. In the event that there was some new program that was widely deemed to be desirable,... it was commonly understood that new taxes dedicated just to these programs were an essential requirement for enactment.
Programs that couldn't be financed weren't seriously considered until the Bush 43 administration. Contrary to the experience of Social Security and Medicare, he offered no dedicated financing for the Medicare drug benefit. It simply added to the budget deficit and will add as much to it over the next decade as the February stimulus package that every Republican voted against.
And, of course, no effort was made to pay for tax cuts or pork barrel projects. In fact, Republicans jettisoned PAYGO (pay as you go) budget rules in 2002. ... When pressed about their abandonment of support for the balanced budget, Republicans say that supporting higher taxes to reduce deficits only made them tax collectors for the welfare state. ...
In the 1970s, conservatives talked themselves into believing that cutting taxes was a better way of restraining government's growth than supporting a balanced budget. Just take away Congress's credit card, Ronald Reagan used to say, and it will be forced to cut spending.
This reversal of the long-held conservative position proved to be extremely popular, politically, and had a lot to do with the Republican takeover of Congress in 1994. It is now Republican dogma that taxes must never be increased no matter how big the deficit. The last Republican to do that, Bush 41, got thrown out of the White House..., Republicans believe. ...
During Bill Clinton's administration, Democratic economists got religion on deficits. They believe that his 1993 tax increase sparked an economic boom. They also saw that ... the federal budget [go] from deficit to surplus... Clinton's big mistake was in not locking up the surpluses in some way. One idea would have been to use the surpluses to create private Social Security accounts that Republicans wouldn't have dared to touch any more than they would dare to cut Social Security benefits.
Instead, the surpluses were completely dissipated on temporary tax cuts and spending programs that bought reelection for Republicans in 2002 and 2004, but made no lasting contribution to the economy's growth. Even as the surpluses turned into deficits, Republicans' position didn't change--they were still for big tax cuts...
Indeed, back in February when Congress was debating the stimulus package and the Treasury was facing a deficit of $1.2 trillion this year, the Republican position was that tax cuts--and only tax cuts--would stave off a deep recession. How that would have helped when incomes were falling to such an extent that tax revenues were virtually collapsing on their own was never explained. Tax cuts were a mantra to be repeated endlessly whether they had any rational connection to the economy's problems or not.
Everyone knows that fiscal discipline must be restored eventually, or we will face truly horrifying consequences... Everyone also knows that this will involve a combination of higher revenues and lower spending. The idea that we can restore fiscal health only with spending cuts is childish, as I tried to explain last week.
What we face is a game of chicken. Republicans think if they wait until the last possible second to support the smallest possible tax increase necessary to make a budget deal work, they can get the largest possible spending cuts. The problem is that there is not one iota of historical evidence that this strategy will work. The budget deals of the 1980s and 1990s were all roughly 50-50: half tax increases, half spending cuts.
At some point, taxes have to be back on the table as the price that must be paid for profligate spending. Only then will the American people realize that they can't have their cake and eat it too, as Republicans have preached for the last decade. Only when the American people go back to believing that spending must be paid for will they stop demanding something for nothing and put the country back on the path to fiscal sanity.

The Shape of Things to Come?

At CBS Money Watch, some reactions to recent data releases:

What the Unemployment Numbers Tell Us About the Economy, by Mark Thoma

And an update:

What the Latest Economic Reports Say about the Recovery, by Mark Thoma

Paul Krugman: It's Easy Being Green

The Waxman-Markey cap-and-trade climate bill won't destroy economic growth:

It's Easy Being Green, by Paul Krugman:, Commentary, NY Times: So, have you enjoyed the debate over health care reform? Have you been impressed by the civility of the discussion and the intellectual honesty of reform opponents? If so, you'll love the next big debate: the fight over climate change.
The House has already passed a fairly strong cap-and-trade climate bill, the Waxman-Markey act, which if it becomes law would eventually lead to sharp reductions in greenhouse gas emissions. But on climate change, as on health care, the sticking point will be the Senate. And the usual suspects are doing their best to prevent action.
Some of them still claim that there's no such thing as global warming, or at least that the evidence isn't yet conclusive. But that argument is wearing thin — as thin as the Arctic pack ice... So the main argument against climate action probably won't be the claim that global warming is a myth. It will, instead, be the argument that doing anything to limit global warming would destroy the economy. ...
It's important, then, to understand that claims of immense economic damage from climate legislation are as bogus, in their own way, as climate-change denial. Saving the planet won't come free (although the early stages of conservation actually might). But it won't cost all that much either.
How do we know this? First, the evidence suggests that we're wasting a lot of energy right now...— a phenomenon known ... as the "energy-efficiency gap." The existence of this gap suggests that policies promoting energy conservation could, up to a point, actually make consumers richer.
Second, the best available economic analyses suggest that even deep cuts in greenhouse gas emissions would impose only modest costs on the average family. Earlier this month, the Congressional Budget Office released an analysis of the effects of Waxman-Markey, concluding that in 2020 the bill would cost the average family only $160 a year, or ... roughly the cost of a postage stamp a day.
By 2050, when the emissions limit would be much tighter, the burden would rise... But the budget office also predicts ... that G.D.P. per person will rise by about 80 percent. The cost of climate protection would barely make a dent in that growth. And all of this, of course, ignores the benefits of limiting global warming.
So where do the apocalyptic warnings about the cost of climate-change policy come from?
Are the opponents of cap-and-trade relying on different studies that reach fundamentally different conclusions? No, not really. ... Instead, the campaign against saving the planet rests mainly on lies.
Thus, last week Glenn Beck — who seems to be challenging Rush Limbaugh for the role of de facto leader of the G.O.P. — informed his audience of a "buried" Obama administration study showing that Waxman-Markey would actually cost the average family $1,787 per year. Needless to say, no such study exists.
But we shouldn't be too hard on Mr. Beck. Similar — and similarly false — claims about the cost of Waxman-Markey have been circulated by many supposed experts.
A year ago I would have been shocked by this behavior. But as we've already seen in the health care debate, the polarization of our political discourse has forced self-proclaimed "centrists" to choose sides — and many of them have apparently decided that partisan opposition to President Obama trumps any concerns about intellectual honesty.
So here's the bottom line: The claim that climate legislation will kill the economy deserves the same disdain as the claim that global warming is a hoax. The truth about the economics of climate change is that it's relatively easy being green.

[See also Can Countries Cut Carbon Emissions Without Hurting Economic Growth? by Robert Stavins.]

links for 2009-09-24

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