The Sequester

[zraver]

z,



those tax increases were the partial expiration of the bush tax cuts, and as such, obama can argue quite rightly that this was not connected to a new republican compromise on deficit reduction. it would have happened anyway without republican support, and the revenue increase would have been significantly greater.

ironically, the GOP tried to calm their own troops down after the partial expiration by saying that obama, at his moment of greatest strength, caved on a big portion of the bush tax cut.

And its still 600 billion in new revenue with no matching cuts.

[astralis]

DOR,

Yes, it is a facilitator.
No, no one held a gun to your head and forced you to drink the entire bottle at one sitting.

cheap credit during a boom time has predictable results.

an ideal economic policy, not that this usually happens fast enough in a democratic system, should have recognized this and raised taxes during the boom times. that would have reduced the credit temptation and put our finances in a better situation so that we could afford tax cuts when the inevitable recession hits.

[astralis]

z,

The GOP gave him 600 billion in tax increases, Obama's premise is 2.5 dollars of cuts for each dollar in new revenue. Yet we do not have 1.5 trillion in cuts to match the 600 billion that Obama has already got from the GOP.

those tax increases were the partial expiration of the bush tax cuts, and as such, obama can argue quite rightly that this was not connected to a new republican compromise on deficit reduction. it would have happened anyway without republican support, and the revenue increase would have been significantly greater.

ironically, the GOP tried to calm their own troops down after the partial expiration by saying that obama, at his moment of greatest strength, caved on a big portion of the bush tax cut.

[zraver]

JAD,



what you're telling me is that obama's accepted the Republican premise of a unchained/superlative CPI...but the GOP refuses to even negotiate because Obama didn't completely surrender to the GOP position beforehand.

is this correct?

The GOP gave him 600 billion in tax increases, Obama's premise is 2.5 dollars of cuts for each dollar in new revenue. Yet we do not have 1.5 trillion in cuts to match the 600 billion that Obama has already got from the GOP.

[DOR]

Blaming China's purchase of T-bills for the US (personal, corporate, governmental) spending binge is like blaming the corkscrew for the hangover.

Yes, it is a facilitator.
No, no one held a gun to your head and forced you to drink the entire bottle at one sitting.

[JAD_333]

He can possibly argue that he had expected common sense to prevail.

He can, but he still gambled and lost. He signed a bill that called for automatic cuts that he didn't want, Congress didn't want and no one expected to happen. Common sense would say that's taking a chance.

I think that is probably why he is publicizing the pain and the Reps are protesting about that. then when the pain is actually felt, he will say - "I told you so, now write to your Congressman to make a deal".

In the world of US politics warnings like that are called the Washington Monument Syndrome. When Congress balked at giving the Park Service the appropriation they wanted, they warned that they would have to close the Washington Monument for lack of funds. It's an old gambit designed to stir up public protest. The sequester will bite, but does the FAA have to take its hit by cutting back on airport screening and air traffic controllers? No. They have budget enough to keep those visible services going, but they'll choose to cut them back in hopes the public will get pissed off and go after Congress and, in particular, the GOP.

That's fine. All I am saying is that he personally has nothing to lose politically through any attacking, while the Rep. Congressmen will remain vulnerable for 2014.

On the contrary, he can lose plenty politically. Waiting for the 2014 mid-terms and in the meantime working to unseat GOP members in hope of gaining a Democrat majority in the House is big risk for him IMO. That means 1) he plans to live with the current stalemate over entitlement reform; 2) he won't make any headway on the initiatives he proposed in his State of the Union speech; and 3) he may fail to get a Democrat majority in 2014. If the latter fails, the argument that his reelection gave him a mandate to raise taxes dies. He'll have 2 years left to horse-trade with the House. What will he hope to gain then, that doesn't come on the back of serious entitlement reform and cuts in gov't spending? If he get a Dem majority in Congress, he'll be vindicated. But for now, it's another gamble.

[JAD_333]

JAD,



what you're telling me is that obama's accepted the Republican premise of a unchained/superlative CPI...but the GOP refuses to even negotiate because Obama didn't completely surrender to the GOP position beforehand.

is this correct?

Not at all. I am just saying that there are strings attached to Obama's acceptance of it that the GOP apparently don't accept. Therefore, Klein is wrong on the face of it for accusing the GOP of acting as if Obama hadn't already accepted the unchained CPI concept. The devil is in the details. I don't know what strings Obama proposed. I assume he wants to water it down by exempting certain recipients. He claims savings of more than $130 billion over 10 year. We'd have to compare that to what the GOP calculates the savings would be without strings attached. But, again, you asked about Klein's assertion, and based on the fact that the GOP and Obama approach to unchained CPI are different, his slam of Murphy and the GOP is somewhat disingenuous.

[astralis]

JAD,

I hadn't seen the piece, but I did see Murphy's TIME article. I remember thinking Murphy must have some really good inside information because I would never have guessed that all it would take for Obama to get GOP Congress to deal on entitlement reform would be to say six words:

"Six magic words can unlock the door to the votes inside the Republican fortress: Some beneficiaries pay more and chained CPI, budgetary code for slightly lowering benefit increases over time. Saying those words would mean the President is finally serious about facing the soaring cost of entitlements, with adjustments to future cost increases in Social Security and Medicare as well as a modest increase in what some must pay into the programs." Stop Campaigning, Mr. President | TIME.com

Klein's thesis is that Murphy and the GOP don't really want to negotiate because Obama said the six magic words a long time ago and they're right there on his website for the world to see.

Klein is a smart fellow but he blew this one, at least for those willing to dig for the facts.

Actually what Obama proposes on his website is: "Spending Savings from Superlative CPI with protections for vulnerable "[people]. So far so good, inasmuch as "unchained CPI" is also called the "Superlative CPI". But Klein, in his apparent haste to nail Murphy, jumped to a false conclusion. In fact, the GOP proposal isn't the same as Obama's, as is pointed out in this ABC article.

what you're telling me is that obama's accepted the Republican premise of a unchained/superlative CPI...but the GOP refuses to even negotiate because Obama didn't completely surrender to the GOP position beforehand.

is this correct?

[antimony]

Is there a negative perception? Right now, I don't think there is much of one. But this could change through the media or through paid political action. There has to be some hook to build an issue. How wise is it, for example, for a president to sign bill requiring automatic cuts in defense at a future date while at the same time issuing a statement saying that he believes the cuts would be devastating if actually carried out. Of course, he was confident they would not be carried out. But he could not be sure, and, therefore, one could say that he gambled on the outcome, especially now the sequester has come about.

He can possibly argue that he had expected common sense to prevail.

Now we wait to see the outcome. Maybe things will be repaired; maybe not. Maybe no harm will come if not repaired. No one knows. In short the potential for a public relations campaign to discredit Obama's judgement and leadership exists. You can have an opinion, but it makes no difference. Obama is vulnerable to how this sequester plays out. You may be able to blame the Republicans for now, but if there is ongoing pain at the airport, slackening of food inspections, and other public inconveniences, people will get on Obama's case for not doing a better job of using what resources he had at hand.

I think that is probably why he is publicizing the pain and the Reps are protesting about that. then when the pain is actually felt, he will say - "I told you so, now write to your Congressman to make a deal".

The law says Obama get's 4 years in office. We respect that. But the law doesn't say that he cannot be attacked politically or that parties cannot oppose his will.

That's fine. All I am saying is that he personally has nothing to lose politically through any attacking, while the Rep. Congressmen will remain vulnerable for 2014.

[JAD_333]

Is that not what he is doing?

He (along with the SecDef) has been asking Congress the amount of funds it would take to maintain the necessary operations. And it is also not fair to take funds from elsewhere just to allow defense to run, he has to manage the whole government, not just defense. And if what Asty posted is true, he has even agreed on cutting SS benefits while getting nothing back from the Reps.

Well, yes, Obama does (as do all presidents) as a matter or course issues through DoD an annual assessment of threats and suitable counters and seeks funds and program authority to ensure that both are in balance. This is his duty to "protect and defend". That is not at issue. What is at issue is the perception that he is failing to some degree in that regard.

Is there a negative perception? Right now, I don't think there is much of one. But this could change through the media or through paid political action. There has to be some hook to build an issue. How wise is it, for example, for a president to sign bill requiring automatic cuts in defense at a future date while at the same time issuing a statement saying that he believes the cuts would be devastating if actually carried out. Of course, he was confident they would not be carried out. But he could not be sure, and, therefore, one could say that he gambled on the outcome, especially now the sequester has come about.

Now we wait to see the outcome. Maybe things will be repaired; maybe not. Maybe no harm will come if not repaired. No one knows. In short the potential for a public relations campaign to discredit Obama's judgement and leadership exists. You can have an opinion, but it makes no difference. Obama is vulnerable to how this sequester plays out. You may be able to blame the Republicans for now, but if there is ongoing pain at the airport, slackening of food inspections, and other public inconveniences, people will get on Obama's case for not doing a better job of using what resources he had at hand.

And what does that get you? He cannot be taken down now. The next fight is 2014, where all these Congressional seats are up for grabs. He and the Dems cn actually campaign in each Republican district showing the loss of jobs in that particular district due to sequester and other cuts.

The law says Obama get's 4 years in office. We respect that. But the law doesn't say that he cannot be attacked politically or that parties cannot oppose his will. In fact, the dynamics of political party struggle is what brings about change. So long as those dynamics center on marshaling public opinion that determines the outcome of issues and elections, all is well.

[JAD_333]

JAD,

have you seen this piece by ezra klein?

This is why Obama can’t make a deal with Republicans


i'd like like to know your thoughts. inaccuracies, good points?

I hadn't seen the piece, but I did see Murphy's TIME article. I remember thinking Murphy must have some really good inside information because I would never have guessed that all it would take for Obama to get GOP Congress to deal on entitlement reform would be to say six words:

"Six magic words can unlock the door to the votes inside the Republican fortress: Some beneficiaries pay more and chained CPI, budgetary code for slightly lowering benefit increases over time. Saying those words would mean the President is finally serious about facing the soaring cost of entitlements, with adjustments to future cost increases in Social Security and Medicare as well as a modest increase in what some must pay into the programs." Stop Campaigning, Mr. President | TIME.com

Klein's thesis is that Murphy and the GOP don't really want to negotiate because Obama said the six magic words a long time ago and they're right there on his website for the world to see.

Klein is a smart fellow but he blew this one, at least for those willing to dig for the facts.

Actually what Obama proposes on his website is: "Spending Savings from Superlative CPI with protections for vulnerable "[people]. So far so good, inasmuch as "unchained CPI" is also called the "Superlative CPI". But Klein, in his apparent haste to nail Murphy, jumped to a false conclusion. In fact, the GOP proposal isn't the same as Obama's, as is pointed out in this ABC article.

House Republicans have proposed indexing federal benefits, most notably Social Security, to a slower inflation rate known as the “chained Consumer Price Index (CPI).” That would slow the growth of Social Security benefits, which increase periodically with Cost of Living Adjustments (COLAs), the next of which is scheduled for January.

The president has countered with his own inflation offer, a “superlative CPI” that the White House says would shield the neediest beneficiaries from the change. Liberals have cried foul about all of it.

Social Security Cut of $130 Per Year Seen in Cliff Proposal - ABC News

Conclusion: Klein's thesis remains unproven.

[snapper]

snapper,



NO. monetarism and keynesianism and New Keynesianism are DIFFERENT IDEAS.

to utterly simplify things: monetarism depends on the Fed and monetary policy; keynesianism depends on fiscal policy; New Keynesianism depends on both.

so equating monetary actions to stimulus or fiscal policy is a gross mis-use and mis-understanding of the terms. they may have the same goal; but so does a car and a bike, yet you don't call them the same thing, do you?



2000-2008, although expanding after 2004.



recessions and depressions by definition are not economically efficient. the mistake austrians make is that they see the silver lining of depressions as so beneficial that it outweighs the costs.



because 1.) primarily because people are still paying down their debts from the great credit boom of the last decade, and 2.) rebuilding their savings sheet as the population ages and moves closer to retirement.



please re-read what a liquidity trap is. although NO ONE is proposing keynes' tongue-in-cheek joke about digging up holes and filling them. in the US alone, aging infrastructure is a trillion-dollar problem. we have high unemployment, and negative borrowing costs.

any intelligent person would borrow the money, put people to work rebuilding infrastructure, and thus create a more efficient economy AND more demand for the future, above and beyond the costs of borrowing.



uh, no. the austrian view wouldn't account for the recovery of the economy at all; in the austrian view, fiscal and monetary policy is immediately harmful, not 'sometime down the line it'll be harmful, you just wait and see'.

the latter is used by austrians whose predictions haven't panned out.

as for iceland, it went against almost everything the austrians were for; iceland devalued its currency, engaged in mortgage debt relief, and imposed capital controls. and because much of iceland's money came from outside sources, what iceland in effect did was to minimize the losses by screwing outside investors and keeping their money. (caveat emptor, i suppose.)

NONE OF THESE THINGS ARE AUSTRIAN.

that they didn't engage in fiscal stimulus is secondary because they didn't need to after that. this is far less applicable to bigger countries not wholly dependent on international trade.

Let's try to clarify the discussions again here;

1. The 'New Keynesian' debate;

so equating monetary actions to stimulus or fiscal policy is a gross mis-use and mis-understanding of the terms. they may have the same goal; but so does a car and a bike, yet you don't call them the same thing, do you?

Well no I do not call a car a bike but I do call both means of transport and if I have a clear destination in mind they will both get me there. My view holds that is not for the Fed nor the Government to speed up an arrival at a politically defined destination by inventing magic money.

2. The Chinese contribution to the housing bubble 2000-2008: If the Chinese were investing that heavily why did interest rates drop to 1% between 2003-4 adding fuel to the building bubble? Clearly following inflation alone was too single minded in this period as per my criticism of monetarism above.

3. The Krugman 'savings argument';

because 1.) primarily because people are still paying down their debts from the great credit boom of the last decade, and 2.) rebuilding their savings sheet as the population ages and moves closer to retirement.

I am unsure where you stand here... Do you think people need to save more or agree with Krugman that they should be encouraged to spend and invest? The Fed, it seems to me, is clearly following Krugmans advice - I almost expect them to announce and alien threat next! Look at the start of every month Bernanke performs a magic trick... He goes into his office and opens a magic computer, types in 85 followed by nine 0s then puts a $ sign in front of it and pushes return.... There appears from nowhere $85bn! Nobody has worked, nothing has been made or sold, no efficiencies have been found - it's magic money. He then goes shopping and spends it all on mortgage guarantees and Government debt. This encourages other people to spend real money... Now perhaps you think that running an economy on an illusion is wise but I call it irresponsible.

I do not deny that infrastructure investment would be wise but it cannot be done on the basis of an illusion. I would argue that savings need to increase both household and Government; only when you have achieved this can non illusory investment be worthwhile as at present the dangers of the bluff being called outweigh any advantages.

4. The Austrian view and Iceland; Well I suppose I must be an 'Austrian' then as I also don't see fiscal or monetary interventions as useful but harmful. Certainly the Icelandic mortgage debt relief I regard as wrong - caveat emptor should apply to ALL and not just foreign depositors in their banks. Devaluation when the market sets the value I do not see as 'wrong', devaluation on controlled value I see as inefficient. Capital controls are more or less impossible today in real terms - look at the French who now have an MP for London as well as Depardieu (which translated means "God leaving") running to Uncle Vlad.

Let me summarise as briefly as I can. You say, correctly, that the US has a negative real interest on borrowing (which interesting means you accept that inflation is higher than quoted) so you should use this to employ people to rebuild infrastructure. I say that the negative real borrowing rate is an illusion caused by Bernanke's 'magic money'. The risk of the illusion being called is potentially default and all those who have 'followed the illusion' with real money will be burned (which is why I disagree with you about the housing market). I regard it as fraud and you call it economics... I believe Bernie Madhoff accused the Fed of running a Ponzi scheme. He spoke from some experience.

[astralis]

snapper,

I am pleased that you seem to agree with me that monetarist theory is essentially being used as a 'front' for good old fashioned Keynesian stimulus. Just because a Government itself isn't pursuing a Keynesian 'stimulus' theory (as in the UK's case for example) it doesn't mean it's not happening if a central bank does it instead. Of course in the US both Government and Bank have been involved as Krugman advised... Krugman is in fact the originator of 'Abenomics'. It will be interest to watch what happens in Japan as an example of what may happen in the US.

NO. monetarism and keynesianism and New Keynesianism are DIFFERENT IDEAS.

to utterly simplify things: monetarism depends on the Fed and monetary policy; keynesianism depends on fiscal policy; New Keynesianism depends on both.

so equating monetary actions to stimulus or fiscal policy is a gross mis-use and mis-understanding of the terms. they may have the same goal; but so does a car and a bike, yet you don't call them the same thing, do you?

Could you please clarify when you think Chinese investment played a role?

2000-2008, although expanding after 2004.

All I am saying is that any readjustment that is needed will find a 'truer' price and therefore be more efficient than any readjustment that follows intervention.

recessions and depressions by definition are not economically efficient. the mistake austrians make is that they see the silver lining of depressions as so beneficial that it outweighs the costs.

But Krugman, in the article you pointed out, suggests that their is a surfeit of saving which of course begs the question of why it is not being invested

because 1.) primarily because people are still paying down their debts from the great credit boom of the last decade, and 2.) rebuilding their savings sheet as the population ages and moves closer to retirement.

NOT when they are thumb twiddling... it is an illusion to call this employment.

please re-read what a liquidity trap is. although NO ONE is proposing keynes' tongue-in-cheek joke about digging up holes and filling them. in the US alone, aging infrastructure is a trillion-dollar problem. we have high unemployment, and negative borrowing costs.

any intelligent person would borrow the money, put people to work rebuilding infrastructure, and thus create a more efficient economy AND more demand for the future, above and beyond the costs of borrowing.

All the Austrian view suggests is that when the recession does come it will be worse than it would have been without these interventions. Look at Iceland where they let failed banks go to wall, had a recession and devalued and are now back on the up.

uh, no. the austrian view wouldn't account for the recovery of the economy at all; in the austrian view, fiscal and monetary policy is immediately harmful, not 'sometime down the line it'll be harmful, you just wait and see'.

the latter is used by austrians whose predictions haven't panned out.

as for iceland, it went against almost everything the austrians were for; iceland devalued its currency, engaged in mortgage debt relief, and imposed capital controls. and because much of iceland's money came from outside sources, what iceland in effect did was to minimize the losses by screwing outside investors and keeping their money. (caveat emptor, i suppose.)

NONE OF THESE THINGS ARE AUSTRIAN.

that they didn't engage in fiscal stimulus is secondary because they didn't need to after that. this is far less applicable to bigger countries not wholly dependent on international trade.

[snapper]

snapper,

Friedman advocated the abolishment of the Fed and a creation of a new organization that would simply increase the money supply at a steady rate, regardless of the economic situation.
the relatively low inflation and the growth of the market in the pre-dotcom bubble years were the years of the monetarist/new keynesian triumph, where folks believed that they had solved the issue of depressions once and for all.

I am pleased that you seem to agree with me that monetarist theory is essentially being used as a 'front' for good old fashioned Keynesian stimulus. Just because a Government itself isn't pursuing a Keynesian 'stimulus' theory (as in the UK's case for example) it doesn't mean it's not happening if a central bank does it instead. Of course in the US both Government and Bank have been involved as Krugman advised... Krugman is in fact the originator of 'Abenomics'. It will be interest to watch what happens in Japan as an example of what may happen in the US.

my mistake here, actually; chinese investment played a minor role up until 2004-2005, where it fed the housing bubble.

the housing bubble itself was not caused by the Fed but by a huge inflow of chinese money, as i wrote before.

Could you please clarify when you think Chinese investment played a role?

read any economic history of the gilded age. huge growth because of the second industrial revolution, yet it was hit with the panic of 1873 (lasted 3 years), panic of 1884, panic of 1890, the panic of 1893, 1896, 1901, 1907, 1910-1911.

this led to recessions in 1873–1879, 1882–85, 1893–1896, 1907–08.

the time before the fed involved crashes that were greater (because the swings in the market were greater), and longer/more recessions.

I do not deny that readjustments will occur if intervention is excluded. All I am saying is that any readjustment that is needed will find a 'truer' price and therefore be more efficient than any readjustment that follows intervention.

this is true when the economy is close to the natural rate of employment, but definitely not true in a liquidity trap.

But Krugman, in the article you pointed out, suggests that their is a surfeit of saving which of course begs the question of why it is not being invested. Might this not have something to do with the Fed's 'magic money'?

encouraging employment in a liquidity trap is useful because the point is to get money flowing in the market, as it is otherwise locked in unproductive arenas.

NOT when they are thumb twiddling... it is an illusion to call this employment.

finally,

good lord, at least have the courage of your own convictions. your own little theory has predictable outcomes, not least of which is that any Fed involvement will backfire quickly, because by its mere existence it is distorting the market.

i've heard these same predictions since 2008, and you'd think after 5 years of being proven wrong each and every time folks like yourself would be willing to consider that they may indeed be wrong.

hey, i'm even willing to wait until 2015 or so, when most folks predict that the fed will begin rate hikes. let's see if there's utter disaster then, shall we?

Nobody could predict in 2008 the depths of lunacy that the Fed would sink to nor can we predict today what further lengths Bernanke may be willing to go to. All the Austrian view suggests is that when the recession does come it will be worse than it would have been without these interventions. Look at Iceland where they let failed banks go to wall, had a recession and devalued and are now back on the up.

I have tried to avoid soap-boxing but here for the sake of amusement is someones 'translation' of Bernanke -speak following his recent 'testimony':



1.“[The Federal Reserve has] 25 years of success in keeping inflation low and stable, not just in the United States but around the world.”

Translation: “I have not set foot in a grocery store or gas station in decades.”

2. “Our estimates are that we’ve helped create many private sector jobs, government jobs to support the economy quite significantly.”

Translation: “In my sole discretion where I get to completely ignore all data points I don’t like, I am doing a heck of a job.”

3. “I am very much in favor of getting our fiscal house in order but I think it’s a long run issue and I would be supportive of a less front-loaded set of measures.”

Translation: “Feel free to continue kicking the can down the road.”

4. “The best way to get interest rates up is to not raise them too quickly.”

Translation: “No matter what, I’m going to continue printing money and justify it with puzzling drivel.”

5. “I don’t see any sign that that’s happening (the U.S. dollar losing status as world’s reserve currency).”

Translation: “I pay absolutely no attention to what’s going on in Russia, China, the Middle East, or the gold market.”

6. “[S]avers have many hats. They may own fixed income instruments, like bonds, but they also may own stocks or a house or a business. . . And those values have gone up, the stock market has roughly doubled, as you know, in the past few years.”

Translation: “In order to not get eaten alive by inflation, I will force responsible savers to assume unnecessary risks in an overinflated stock market that has just now, finally, reached its nominal highs from 2007 thanks to my money printing.”

Lost in translation: Ben Bernanke-speak

[antimony]

It is true, but was said in a different context. Nevertheless, your point is half right. Congress can lead, but so can the president, inasmuch as he holds the veto. With respect to defense, he is the executive in charge. In a perfect world he determines what he needs to maintain a force adequate to meet current and anticipated threats and asks Congress for the funds to do so.

Is that not what he is doing?

He (along with the SecDef) has been asking Congress the amount of funds it would take to maintain the necessary operations. And it is also not fair to take funds from elsewhere just to allow defense to run, he has to manage the whole government, not just defense. And if what Asty posted is true, he has even agreed on cutting SS benefits while getting nothing back from the Reps.

But I wasn't expressing a personal opinion as to whether Obama is culpable for risking military readiness by refusing to back down on the sequester. What I was getting at is that a political group determined to attack his position on the sequester could try to sell the public that he not living up to his oath of office. That's the way the game is played.

And what does that get you? He cannot be taken down now. The next fight is 2014, where all these Congressional seats are up for grabs. He and the Dems cn actually campaign in each Republican district showing the loss of jobs in that particular district due to sequester and other cuts.