Coyote Blog

For a while now I have argued that if people really are attached to Medicare as it is today, then premiums need to triple.

Along comes this analysis from Robert Dittmar via Hit and Run.  He argues almost all the current federal deficit is created almost entirely by the difference between the cost of government medical services and the premiums it charges.

As a thought experiment, let’s suppose that medical expenditures had been self-financed since the inception of government health care in the 1960s. What would our debt and deficit look like today? To answer this question, I simply added the medical care expenditure deficit back into the total government deficit. The result is depicted in [the figure below[ and is astounding (at least to me). Outside of medical expenditures and revenues, the Federal government sometimes ran a surplus and sometimes ran a deficit from 1966 until 1980. Starting in 1980, and lasting until 1994, the government consistently ran a deficit outside of medical spending, but from 1995 until 2010, it consistently ran a surplus. In 1994, the cumulative excess spending would have reached a bit over $1 trillion. But by 1999, debt due to sources other than medical spending would have been completely eliminated by surpluses! The government wouldn’t have needed to borrow again until 2011.

Of course, this is not entirely a Medicare issue.  Almost by definition, Medicaid and VA benefits are always going to be in deficit, since there are no premiums associated with these.

My normal response would be that the government not do this stuff.  But that is clearly a political impossibility.  We libertarians like to ignore realities like that, but it is true.  As such, I think two things will both be necesary

• Substantial hikes in Medicare premiums
• Some sort of system-wide cost reduction

To his credit, I suppose, Obama recognizes the need for the latter.  Unfortunately, he goes about it in exactly the wrong way.  His approach is to federalize the entire health care system and impose the same type of government-set rates on the rest of the health care system that obtain in Medicare.   But this does nothing to solve the government's cost problem.  In fact, it is likely to do the opposite.  To the extent that Medicare gets rates today that are subsidized by higher rates on non-Medicare customers, then forcing the entire health care system onto Medicare reimbursement rates will force an increase in Medicare rates, or a vast exit of health care capacity, or both.

If Medicare is going to continue to be a government program, we need to shift to a system that encourages price discovery and price shopping by medical consumers in the market end of the system.  We should be encouraging high-deductible health insurance plans rather than effectively banning them.

OK, to go along with the bad study in the last chart, I will offer up a terrible chart.  From Kevin Drum:

Drum uses this chart to hammer home the point that the current deficit is Bush's, rather than Obama's fault.  I have absolutely no problem with blaming Bush for all variety of stupid spending and handing him a share of the blame for the Federal debt.   Even using this bad chart (more in a moment), I think Obama gets a lot of the blame, though.  The highlighted bars don't really substantially move the debt until 2009 and after, on Obama's watch.   His complete lack of any effort to take on the rising debt, to pare back past spending programs (or wars, or whatever) has been unparalleled.  In fact, I think it is his absolute indifference to deficit spending and the debt levels that saddles him with a lot of the blame.

Anyway, back to the chart.  Notice that these are just a few of the many components of Federal spending, all of which are increasing in this period.  Picking out which ones "caused the debt" is not a neutral procedure.  Money is fungible.  One could just as easily substitute rising Medicare and Social Security costs (or education funding or transportation funding or government employee salaries) for any of the bars above and be just as correct.  Even if one wanted to just look at Bush actions, one would reasonably need to include the debt associated with the costs of Medicare part D, something left off this chart presumably because Drum supports that particular spending.    All this chart does is demonstrate the biases or preferences of the author, showing us which categories of spending the author most opposes (or which the author feels Obama can't be blamed for, like the down economy).

By the way, the chart's construction actually worse than this, because the chart is only "public debt" rather than total debt (for example debt bought in QE is no longer public debt).  If one looks at public debt, the total number should have crossed 100% some time in the last year, rather than the 70% or so in the chart.   So there are a lot of other things, presumably that the author likes, that are also causing total debt to rise.  But these are hidden, because presumably the Fed only buys debt created by the good spending, and the public buys all the debt created by the bad spending.

Finally, my suspicion is that some of these numbers are just plain wrong.  The chart implies Fannie, Freddie, and Tarp are only going to cause a total of 1% of GDP in debt, or about $160 billion.  That is WAY below the loss numbers that Fannie and Freddie have already acknowledged, with more to come.

Apparently the most important issue is not the unsustainability of deficit spending, lack of fiscal responsibility, or the tough problems of balancing expensive bailouts with expensive defaults.  It is making sure the timing of a Greek default does not negatively affect Obama's re-election.  From the Independent (UK) entitled, "Obama asks eurozone to keep Greece in until after election day"

American officials are understood to be worried that if they decide Greece has not done enough to meet its deficit targets and withhold the money, it would automatically trigger Greece's exit from the eurozone weeks before the Presidential election on 6 November.

They are urging eurozone Governments to hold off from taking any drastic action before then – fearing that the resulting market destabilisation could damage President Obama's re-election prospects. European leaders are thought to be sympathetic to the lobbying fearing that, under pressure from his party lin Congress, Mitt Romney would be a more isolationist president than Mr Obama.

Kevin Drum is back on his "because Republicans won't agree to more massive deficit spending, they must be purposefully trying to destroy the economy."   Literally.  He translates Republican opposition to Obama's proposed stimulus packages as being explained by this strategy:

Basically, the Republican strategy for the past three years has been this:

1. Do everything humanly possible to prevent the economy from recovering.
2. Wait for 2012.
3. Run a campaign focused on the fact that the economy is lousy.

This is such a shabby bit of false logic it is amazing anyone even attempts this any more, or more accurately, it's amazing that folks continue to buy it.  Is it really so impossible to believe that there are actually people of goodwill who wish to see the economy improve but disagree with Drum and Obama as to the correct course to achieve that?  Apparently not  (I suppose the last stimulus was so wildly succesful that it is impossible to doubt the success of another trillion or so of deficit spending?)

The irony is that for some reason I simply cannot fathom, from a political tactics point of view, he points to this chart when talking about Truman and his "do-nothing" Congress:

He's is trying to make some political tactical point, but he is so blinded by his own assumptions that he misses the real point -- that the American economy grew at records rates through a "do-nothing" Congress.  Now, I suppose Drum might argue that this was an accident of timing, but in fact Truman inherited what should have been, by Drum's Keynesian thinking, the worst economic situation ever since an enormous amount of government spending was going away after the war and new workers were simultaneously flooding back into the job market.  If any time in recent history should have demanded Keynesian stimulus, this was it, and yet a do-nothing Congress led to a massive expansion.  Hmmmm.

via here

The UK line is particularly interesting, since that is the country that Krugman has declared is austerity-izing itself into a depression. As I have pointed out before, real government spending in UK has been and is still rising.  The percent of GDP of this spending has fallen a bit, but there is nothing about Keynesian stimulus theory that says changes in the percentage of government spending is stimulative, only its absolute value.

Here is one thing I would love to here Krugman et. al. opine on -- at what percentage of government debt to GDP does additional deficit spending become counter-stimulative.   I imagine there is an inverse relationship for deficit-funded stimulus, such that it has a larger effect at lower debt levels with a zero to negative effect at higher interest levels.

Update:  From another source, here is the UK in real $

The Left continues to push the myth that government "austerity"  (defined as still running a massive deficit but running a slightly smaller massive deficit) is somehow pushing Europe into a depression.  Well, this myth-making worked with Hoover, who is generally thought to have worsened the Depression through austerity despite the reality that he substantially increased government spending.

It is almost impossible to spot this mythical austerity beast in action in these European countries.  Sure, they talk about austerity, and deficit reduction, and spending increases, but if such talk were reality we would have a balanced budget in this country.  If one looks at actual government spending in European nations, its impossible to find a substantial decline.  Perhaps they are talking about tax increases, which I would oppose and have been occurring, but I doubt the Left is complaining about tax increases.

Seriously, I would post the chart showing the spending declines but I can't because I keep following links and have yet to find one.  I keep seeing quotes about "commitment" to austerity, but no actual evidence of such.

Let's take Britain.  Paul Krugman specifically lashed out at "austerity" programs there are undermining the British and European economy.  So, from this source, here is actual and budgeted British government spending by year, in billions of pounds:

2007: 544.0

2008: 575.7

2009: 621.5

2010:  660.6

2011:  683.4

2012:  703.4

2013: 722.2

Seriously, I will believe the so-called austerity when someone shows it to me.  And this is not even to mention the irresponsibility of demanding more deficit spending without even acknowledging the fact that whole countries already have so much debt they are teetering on the edge of bankruptcy.

Here is the European problem -- they are pouring hundreds of billions of Euro into bailing out failed banks and governments.  They are effectively taking massive amounts of available resources out of productive hands and pouring it into failed institutions.   Had they (or we) let these institutions crash four years ago, Europe would be seeing a recovery today.  The hundreds of billions of Euros used to keep banks on life support could have instead been used to mitigate the short term effects of bigger financial crash.

Proponents of higher taxes and larger government often criticize small government folks in Congress for being "obstructionist" and "not willing to compromise."

But here is the problem:  Coyote's first rule of budget politics is to never trade current tax increases or "temporary" spending increases for future spending cuts, because the future spending cuts never happen.  Ever.  Not once.  In fact, I would not agree to trading current tax increases for current spending cuts, because taxes will stay forever but spending cuts will just be over-ridden in a few months.

Here is a recent example:

Last summer, Republicans in Congress agreed to increase the federal debt limit in exchange for the Democrats’ pledge to cap future spending at agreed-upon levels. The compromise was embodied in the Budget Control Act; discretionary spending was to increase by no more than $7 billion in the current fiscal year. I wrote yesterday about the fact that the Democrats intended to violate the Budget Control Act by increasing deficit spending on the Post Office by $34 billion. The measure probably would have glided through the Senate without notice had Jeff Sessions not challenged it. Sessions insisted on a point of order, based on the fact that the spending bill violated the Budget Control Act. It required 60 votes to waive Sessions’ point of order and toss the BCA on the trash heap.

Today the Senate voted 62-37 to do exactly that. This means that the consideration that Republicans obtained in exchange for increasing the debt limit is gone. Moreover, some Republicans–I haven’t yet seen the list–voted with the Democrats today.

One principal lesson can be drawn from this experience. It happens all the time that Congressional leaders will trumpet a budget agreement that allegedly saves the taxpayers trillions of dollars–not now, of course, but in the “out years.” But the out years never come. Tax increases are rarely deferred to the out years; they take place now, when it counts. But spending cuts? Never today, always tomorrow.

Purported agreements about what federal spending will be years from now are utterly meaningless. Congressmen will make a deal, brag about the ostensible savings in the press, and then walk away from it the moment our backs are turned, as the Democrats (and a handful of Republicans) did today.

When folks say, "we just want a compromise" on budget issues, what they are really saying is "we want to roll you.  We are hoping you are stupid enough to trade for future cost reductions that will never happen.  We can get away with this because we have an ally in the press, who always treats promises of future cost reductions as entirely credible and believable and thus paint those who are skeptical of them as radical obstructionists."

From Zero Hedge:

The hoped-for April spike in personal income tax revenues for the State of California fell once again below theoveroptimistic assumptions used to get the budget to “balance.” Instead of the $9.4 billion that the government had counted on collecting in April, it only collected $7.4 billion, according to the nonpartisan Legislative Analyst's Office. A 21% shortfall! In addition, corporate taxes were $450 million below forecast. After months of “disappointing” tax revenues, the total shortfall in income taxes now amounts to $3.5 billion for fiscal 2012 ending June 30.

The budget, supposedly balanced when it was passed last summer, had been spewing red ink from day one. Tax revenues were one problem. Expenditures were the other. The most recent re-revisions pegged the deficit at $9.2 billion. That was a few weeks ago. Now it’s going to be re-re-revised to nearly $12 billion.

Just how bankrupt does a budgeting process have to be for a budget that is supposedly in balance turn out to be $12 billion overdrawn barely 9 months later?  I have a California state tax refund on my desk -- better cash it quick or else its going to be replaced by scrip again.

The same article has this interesting tidbit about California high speed rail:

The CHSRA plan assumes that it would cost 10 cents per passenger mile (the average cost of carrying one passenger one mile at a given load factor) when international high-speed rail systems averaged 43 cents per mile, according to a report that just surfaced. The low-cost leader was Italy with 34 cents per mile; at the upper end were Germany and Japan with 50 cents per mile; Amtrak’s Acela Express, though not truly high speed, was in the middle with 44 cents per mile. And in California, it’s going to be 10 cents per mile?

The CHSRA correctly assumes that train tickets compete with air fares and the cost of driving, which, despite our incessant complaints, are lower in California than overseas. Thus, the US market requires cheaper tickets. And to make the project appear profitable, and thus more digestible for the taxpayer, the CHSRA lowered its projected operating costs to less than a quarter of the international average.

But if actual operating costs are 43 cents per mile and not 10 cents per mile, annual subsidies of $2 billion to $3 billion would be required just to keep the trains running, according to the report. Yet, AB3034, the California High-Speed Train Bond Act, makes these subsidies illegal. A conundrum that the Legislature, the Administration, and the CHSRA have so far successfully ignored.

I found this to be one of the most immoral statements I have read in a long time (bold added)

Saez and Diamond argue that the right marginal tax rate for North Atlantic societies to impose on their richest citizens is 70%.

It is an arresting assertion, given the tax-cut mania that has prevailed in these societies for the past 30 years, but Diamond and Saez’s logic is clear. The superrich command and control so many resources that they are effectively satiated: increasing or decreasing how much wealth they have has no effect on their happiness. So, no matter how large a weight we place on their happiness relative to the happiness of others – whether we regard them as praiseworthy captains of industry who merit their high positions, or as parasitic thieves – we simply cannot do anything to affect it by raising or lowering their tax rates.

The unavoidable implication of this argument is that when we calculate what the tax rate for the superrich will be, we should not consider the effect of changing their tax rate on their happiness, for we know that it is zero. Rather, the key question must be the effect of changing their tax rate on the well-being of the rest of us.

From this simple chain of logic follows the conclusion that we have a moral obligation to tax our superrich at the peak of the Laffer Curve: to tax them so heavily that we raise the most possible money from them – to the point beyond which their diversion of energy and enterprise into tax avoidance and sheltering would mean that any extra taxes would not raise but reduce revenue.

Another way to state the passage in bold is, "if one can convince himself he will be happier with another person's money than that other person would be, it is not only morally justified, but a moral imperative to take it."

This is the moral bankruptcy of the modern welfare state laid bare for all to see.  Not sure if this even deserves further comment.  Either you see the immorality or you bring a lot of very different assumptions about morality to the table than I.  For those of you who accept the quoted statement, how are you confident you will always be the taker, the beneficiary?  You might be if the box is drawn just around the US, but from a worldwide perspective all you folks in the American 99% may find yourselves in the world's 1%.

And from a purely practical standpoint, while I suppose one might argue that the total happiness in this particular instant could be maximized by taking most all the rich's marginal income, what happens tomorrow?  It's like eating your seed corn.  Taking capital out of the hands of the folks who have been the most productive at employing capital and helicopter dropping it on the 99% feels good right up until you need some job creation or economic growth or productivity improvement.

To this day, over 30 years after I had it explained in economics class, I am still floored by the line I read in the introductory macro textbook describing the Keynesian manipulation of Y=C+I+G+(X-M) to demonstrate a "multiplier" effect.  The part that I never could get over was at the very beginning when they said "I, or Investment, is considered exogenous" - in other words, the other variables could be freely manipulated, the government could grow and deficit spend as much as it liked, and investment would be unaffected.  Huh?

My memory was that Keynesians considered "I" a loser.  They felt anything that was not G or C actually acted as a drag, at least in the near term (in the long run we will all be dead).  This despite the fact that "I" is the only thing that grows the pie over time.

I had thought the situation in Greece would eventually hammer home for everyone the perils of reckless enlargement of the state and deficit spending.  But apparently, it is not to be.  This is how Kevin Drum describes the core problem in Greece:

the austerity madness prompted by the 2008 financial collapse

So the problem is not a bankrupt state, but the "austerity" which by the way has at best carved only a trivial amount out of spending.  And it was triggered not by a ballooning deficit as a percent of GDP and an inability to meet interest and principle payments, but by the US financial crisis.

This is willful blindness of absolutely astounding proportions.  Which means the same folks are likely just rehearsing to ride the US right into the same hole.

Bruce McQuain has a roundup.    Here is the list from the American via Q&O:

1. The top income rate would be raised to 39.6 percent vs. 35 percent today.

2. Under the “Buffett rule,” no household making over $1 million annually would pay less than 30 percent of their income in taxes.

3. Between now the end of a second Obama term, Obama proposes $707 billion in “net deficit reduction proposals.” Of that amount, only 16 percent is spending cuts.

4. The majority of small business profits would be taxed at 39.6 percent vs. 35 percent today.

5. The capital gains rate would rise to 25.0 percent (including the Obamacare surtax and deduction phase out) from 15 percent today.

6. The double-tax on corporate profits (including dividends) would increase to 64 percent based on the statutory corporate tax rate (58 percent using the effective tax rate), easily the highest among advanced economies.

7. The double tax on corporate profits (including capital gains) would increase to 51 percent (44 percent using the effective tax rate), also among the highest among advanced economies.

I think they may be under-estimating the double taxation of corporate income as the Buffett rule would increase the capital gains and dividends tax to 30% for wealthy individuals who rely mostly on these as a source of income.

Given that his own party would not pass most of this stuff last year, it is impossible to believe they will pass it in an election year.

Kevin Drum apparently believes the reason Republicans are not passing further stimulus spending is because such a stimulus would be too likely to have immediate results improving the economy and thus will help Democrats in the next election.

This is the kind of politcal bullshit that drives me right out of the system.  I am perfectly capable of believing Drum honestly thinks that further deficit spending will improve the economy this year.  I think he's nuts, and working against all historic evidence, but never-the-less I believe he is sincere, and not merely pushing the idea as part of some dark donkey-team conspiracy.  Why is it that he and his ilk, from both sides of the aisle, find it impossible to believe that their opponents have similarly honest intentions?

I mean, is it really so hard to believe -- after spending a trillion dollars to no visible effect, after seeing Europe bankrupt itself, and after seeing the American economy begin to recover only after crazy stimulus programs have mostly stopped -- that some folks have an honest desire to see economic improvement and think further stimulus programs are a bad idea?

In his New York Times column, Paul Krugman blames the coming British recession on the government's "austerity."  In the Left's parlance, "austerity" means the government is not spending and in particular deficit spending enough.

But it turns out that

a. Of 44 major economies in the world, the British have been running the highest budget deficits of any country except two - Greece and Egypt are higher.

b. British real government spending has risen every year through the financial crisis

Presuming Krugman has access to these basic facts, is his argument that Britain should be deficit spending even more (and if so, wtf is enough?) or is this just political hackery to help Obama dispel concerns about his deficits?

Nice tax refund you have coming .... we think we'll keep it

The [Greek] government has decided to stop tax returns and other obligation payments to enterprises, salary workers and pensioners as it sees the budget deficit soaring to over 10 percent of gross domestic product for 2011.

For all the supposed austerity, the budget situation is worse in Greece.  Germany and other countries will soon have to accept they have poured tens of billions of euros down a rathole, and that they will have to do what they should have done over a year ago - let Greece move out of the Euro.

Government workers and pensioners simply will not accept any cuts without rioting in the street.  And the banks will all go under with a default on government debt.  And no one will pay any more taxes.  And Germany is not going to keep funding a 10% of GDP deficit.  The only way out seems to be to print money (to pay the debt) and devalue the currency (to effectively reduce fixed pensions and salaries).  And the only way to do all that is outside of the Euro.  From an economic standpoint, the inflation approach is probably not the best, but it is the politically easiest to implement.

I find the Left's opinions on Greece to be fascinating.  After all, Greece is essentially the logical end result of all of their love for deficit spending, so what kind of cognitive dissonance is necessary to write about Greece on the Left?  This kind:

OK, but they're spending too much money. Surely they know they have to cut back?

Sure, but the deals on offer are pretty unattractive. Europe wants to forgive half of Greece's debt and put them on a brutal austerity plan. The problem is that this is unrealistic. Greece would be broke even if all its debt were forgiven, and if their economy tanks they'll be even broker.

But that's the prospect they're being offered: a little bit of debt forgiveness and a lot of austerity.

Well, them's the breaks.

But it puts Greece into a death spiral. They can't pay their debts, so they cut back, which hurts their economy, which makes them even broker, so they cut back some more, rinse and repeat. There's virtually no hope that they'll recover anytime in the near future. It's just endless pain. What they need is total debt forgiveness and lots of aid going forward.

I certainly agree that Greece is now in a death spiral, but this analysis is just amazing.  The only way for other countries to avoid sharing Greece's fate is to, very simply, spend within their means.  If they do, problem avoided.  If they don't, and get hooked on deficit spending, then Greece is their future, the only question is when.

So what does Drum do?  He calls the spending withing their means strategy "unrealistic" and "brutal austerity."    So he occupies a long post lamenting what a totally SNAFU'd situation Greece is in, but takes off the table the only possible approach for other counties to avoid the same fate.   And in fact advocates a strategy that will push a few others over the cliff sooner, or even cause a few to jump on their own (after all, if the punishment for spending your way into financial disaster is to get, as Drum recommends, all your debt forgiven and years of aid payments, why the hell would anyone want to be fiscally responsible?)

And it is amazing to me that he calls forgiving half their debt, the equivalent in the US of our creditors erasing about $7 trillion, as "a little bit of debt forgiveness" while cutting government spending a few percent of GDP is "a lot of austerity."

His solution, of course, is not for Greece to face up to its problems but to transfer the costs of its irresponsibility to others and then remain nearly perpetually on the dole.

His mistake is to assume Greece faces endless pain.  It does not.  History has shown that countries that are willing to rip off the bandage quickly rather than over a few decades can recover remarkably quickly if sensible policies are put in place.  Heck, the Weimar Republic, which had inflation so bad people got paid 3 times a day so their family could buy something before the money became worthless a few hours later, got its house in order in a matter of months.

That is the sound of the printing presses running 24/7.  Because that appears to be how we are funding all of Obama's spending right now (source)

When folks say they are not worried about the deficit, because folks still seem eager to buy our debt (as evidenced by the low interest rates) note that the general public has been a net seller of US debt the first 2 quarters of 2011.  In fact, the only buyer has been Uncle Sam himself, buying up the debt with newly minted cash (or electrons, really).

One other interesting issue, the Fed seems to have been soaking up the money supply in the early days of the recession, before the high-profile business and financial failures really got things moving downward.

Via Ed Driscoll, from Richard Cohen in the Washington Post:

The odd thing about the Tea Party is that it uses Washington to attack Washington. This is a version of Hannah Arendt’s observation that totalitarian movements use democratic institutions to destroy democracy. (This is what Islamic radicals will do in Egypt.) Note that the Tea Party is nowhere near a majority — not in the House and not in the Senate. Its followers have only 60 seats in the 435-member House, but in a textbook application of political power they were able to use parliamentary rules to drive the congressional agenda. As we have known since Lenin’s day, a determined minority is hands down better than an irresolute majority.

The Tea Party has recklessly diminished the power and reach of the United States. It has shrunk the government and will, if it can, further deprive it of revenue. The domestic economy will suffer and the gap between rich and poor, the educated and the indolently schooled, will continue to widen. International relations will lack a dominant power able to enforce the rule of law, and the bad guys will be freer to be as bad as they want. Maybe the deficit will be brought under control, but nothing else will. I worry — and I envy (but will not forgive) those who don’t

Yep, those dang totalitarians -- always trying to shrink government and diminish its power and reach.

My column in Forbes is up.  Here is how it starts.  Hit the link to see it all.

We Americans are all being held hostage.  The ransom demand:  Trillions of dollars in new taxes.  The threat:  the shut down of any number of economic activities, from retirement payments to mortgage lending.

Megan McArdle, blogging at the Atlantic Monthly, posted a hypothetical list of what government activities would have to cease if we bumped up against the debt ceiling and 40% of government activity (ie the amount currently funded by deficit spending) had to cease immediately. Here are two examples from her article:

The market for guaranteed student loans plunges into chaos. Hope your kid wasn’t going to college this year!

The mortgage market evaporates. Hope you didn’t need to buy or sell a house!

Terrorists have tried for years to find some way to threaten the whole of America and have, with the exception of 9/11, never really succeeded.  Who knew that all they really needed was not to buy guns and bombs, but to get elected to Congress.   How did we ever get in this position, where a handful of men and women in Washington had the power to hold the entire economy hostage?

 

From our President

"The American people are sold," President Obama said.

"The American people are sold, I just want to repeat that."

"You have 80% of the American people who support a balanced approach. 80% of the American people support an approach that includes revenues and includes cuts. So the notion that somehow the American people aren't sold is not the problem. The problem is members of Congress are dug in ideologically."

The point he is trying to make is that 80% of the people in the US support higher taxes as part of the deficit reduction package.  Not sure I have seen a poll number this high, but let's assume our dear leader would not lie to us.  But let's be clear on what this means - 80% of the people in the US support higher taxes on other people.

So, should our deficit today be considered a spending problem or a taxation problem?  Kevin Drum argued yesterday it is a tax problem, and used a historic chart of spending as a percent of GDP to make his point.

I have to thank him.  I would have normally been skeptical of such an analysis yielding much that was useful, but I was forced to do the analysis to correct some obvious data errors in Drum's chart.  Having done so, I found the exercise useful and it became the basis for my column this week at Forbes.  The short answer, its a spending problem.  For more, hit the link.

Update:  Make sure to see bottom of post, I have run the numbers from the source and the chart below is proven to be totally BS.

In an effort to paint the current budget deficit as a tax shortfall (ie we don't take enough of others people's money) rather than a spending problem, Kevin Drum offers this chart:

OK, I was going to talk about how they cherry-picked the start date (which is the peak of spending at that time since WWII) and the end date (the left off the ugly 2011).  But I just can't bring myself to talk about anything else except those trendlines.  Not sure what algorithm Drum uses to create the trendlines -- they seem suspicious but surely someone in the science-based, reality-based community would not just draw them on by eye!

It is just incredibly disingenuous (and ballsy) to try to portray 2009 and 2010, which represented the highest numbers since WWII, as a declining trend line falling faster than revenues.

Postscript: Here is the longer view, from here, with projections which I presume come from the Obama budget.  I think if I took 1950 as a start point I would get pretty different trend lines.

Update: Here is the data right from the Federal web site with Excel adding a linear trend.  Sure looks like Drum is wildly exaggerating.  Just as in Drum's chart, red is outlays as a percentage of GDP, blue is collections.

So lets look at the longer trend.  WWII was obviously an anomaly, so we will jump to 1950 to make sure we are well past it.  And we will go through 2012, because those projections are probably pretty good (though optimistic on the spending side).

Here is Drum's chart, with the longer trend and actual mathematically rather than politically calculated trend lines.

Hmmmm.  Revenue or spending problem.  You make the call.

Kevin Drum had a post lamenting that Congress is doing nothing when it could be spending money that would, in his view, stimulate the economy out of a recession.  All well and good, and predictable based on his assumptions.  But he ended with this

We are ruled by charlatans and cowards. Our economy is in the tank, we know what to do about it, and we're just not going to do it. The charlatans prefer instead to stand by and let people suffer because that's politically useful, while the cowards let them get away with it because it's politically risky to fight back. Ugh indeed.

I was horrified by this sort of discourse, and wrote back:

It is so tiring to see both parties ascribing horrible and hostile motivations to their political opponents.  Your last paragraph is just absurd, implying that everyone agrees with your economic prescriptions and that the only reason everyone is not following them is either a) political self-interest or b) loathing for the poor and helpless.

Is it really so hard to understand that well-intentioned, intelligent people who honestly want the economy to get better might disagree with you about the benefits of deficit spending? The literature is at best mixed on this topic and certainly there is nothing about the last stimulus that causes me to become a believer.

Those of us who believe strongly that diverting trillions of dollars of capital from private to public hands (ie from hands focused on productively employing it to hands focused on politically employing it) makes the economy worse by necessity are just as motivated by trying to improve the economy as you.

I really don't understand this absolute insistence on ascribing bad motivations to those with whom one disagrees.  Is it ego, or just insecurity?  If one admits his or her opponents can be smart and well-motivated, it certainly creates an edge of doubt and uncertainty.  Deal with it.  That's healthy.  It keeps us intellectually honest.

From Tim Cavanough

In the eight days preceding the $38.5 billion deficit reduction deal, the national debt of the United Statesincreased $54 billion.

via Maggies Farm

I have been told that the first person in a negotiation that mentions a number will lose.  Something similar is at work with the US federal budget.  When they controlled Congress, Democrats never even proposed a budget for this fiscal year (which began last October, months before they lost control of the House).  Obama's budget is simply a bad joke, a non-effort,  that simply extrapolates current trends without any real change or exercise of control.

Its amazing to me that all the news reports today are about the "risk" Republicans are taking by actually proposing a plan into this vacuum.   It is amazing to me that actually trying to exercise adult supervision when everyone else is voting "present" could be "political suicide," but I have to accept that the political experts know their stuff.

This situation is in fact exactly what Democrats have been hoping for -- they have purposefully hoped to avoid suggesting any solutions in order to force the Republicans to be the first and only ones to the table with suggestions.  Democrats have zero desire to actually close the multi-trillion dollar deficit;  rather, they see it as a huge opportunity that traps Republicans into trying to actually, you know, solve the problem.  These proposed solutions can then be demagogued against to electoral victory.  Or so goes the theory.

So, I want to thank the Republicans for actually producing a budget plan that actually attempts to bring some fiscal sense to the government.  I would have like to see other changes (less defense spending, elimination of Dept. of Education in favor of block grants, zeroing out of all farm and ethanol subsidies, etc) and Ryan's numbers seem screwy, but let us be happy there is at least one adult in Washington.