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DU,
As for what program(s) I would cut? I have not given that much thought. But if I were to review the federal budget I am confident I could find a few items. I am going to leave my voodoo economics to side ;-) , for the most part, for a moment. What should we do – well between catching a bit of the SOTU last night – I did some thinking. This type of thing has become a bit of a hobby horse of mine the last few years too.
As you point out, it is commonly known that the federal budget embodies a large structural imbalance - one that persists through the economy’s ups and downs. Presidents from Bush I to Obama have commented on this fact.
Estimates of how large this imbalance is, and of what it would take to solve it consistently show two things: It would be costly to put off dealing with the problem, and federal debt will surge once the baby-boomers begin to retire during the late 2000s. Well….guess who is moving to Florida.
Moving to present day…true to form, in the aftermath of the 2008 financial meltdown, policymakers on both sides of the aisle scrambled to bail out banks, automakers, insurance companies, traders, consumers, and so on, the Fed injected huge amounts of cash into the financial markets, and lawmakers sought more benefits for today’s voters by appropriating vast sums for their pet projects. Furthermore, the Obama administration pushed (and based on the SOTU is still pushing) new entitlements, spending, etc. which entails additional trillions of dollars.
In any event, estimates that indicate U.S. deficits will total $9 trillion over the next ten years suggests that “business as usual” will rapidly (the real world eventually would have to intervene) come to an end. That’s the problem with long-term budget constraints - they inexorably draw closer, eventually forcing hasty and ill-conceived policies via a budget crisis.
Now I am not as up on this as you DU but I have read various reports that suggest that the total federal fiscal imbalance amounts to about 8 percent of future U.S. productive capacity. Since only about one-half of the nation’s total income is subject to taxes, Americans would have to immediately and permanently devote another 16 percent of their taxable incomes toward resolving it. Is this a feasible solution? Probably not. It’s unlikely that Americans are willing to bear the additional tax burden. Plus, as I pointed out before it would place a serious burden on economic activity. If tax increases aren’t the answer (an in this environment - I don't think they would be a wise move), we are left with reducing government spending – which would not make me the toast of the town at certain cocktail parties in Washington (or NYC for that matter).
I’ve heard many a policy analyst say that budget reform will become politically feasible only when a cash crisis becomes imminent. For example, the last major reform of Social Security was enacted in 1983, when the program’s trust fund was on the brink of exhaustion. But lurching from crisis to crisis is not a desirable or fair way to exercise stewardship over the nation’s fiscal affairs.
Others suggest that the economic implications of fiscal adjustments won’t necessarily be bad — that excess federal obligations can be simply “inflated away.” It is true that if the federal debt grows too large, the Fed can print money to pay it, and ignite higher inflation in the process. But this is not an effective way to balance the budget (and I am not implying that is your argument) as a whole, because large parts of the budget can’t be inflated away in this manner: Social Security benefits are indexed against inflation, and federal health-care benefits are provided in-kind. The inflation rate required to compensate for this problem would be massive. Furthermore, as I pointed out before inflation is simply another tax.
Just as preventing obesity by avoiding fatty food makes more sense than losing weight after the fact, it would be better for our economic health to proactively slow debt accumulation - preferably by gradually reducing future federal spending commitments - rather than risk the debilitating consequences of sky-high taxes, runaway inflation, or even federal defaults.
As for what program(s) I would cut? I have not given that much thought. But if I were to review the federal budget I am confident I could find a few items. I am going to leave my voodoo economics to side ;-) , for the most part, for a moment. What should we do – well between catching a bit of the SOTU last night – I did some thinking. This type of thing has become a bit of a hobby horse of mine the last few years too.
As you point out, it is commonly known that the federal budget embodies a large structural imbalance - one that persists through the economy’s ups and downs. Presidents from Bush I to Obama have commented on this fact.
Estimates of how large this imbalance is, and of what it would take to solve it consistently show two things: It would be costly to put off dealing with the problem, and federal debt will surge once the baby-boomers begin to retire during the late 2000s. Well….guess who is moving to Florida.
Moving to present day…true to form, in the aftermath of the 2008 financial meltdown, policymakers on both sides of the aisle scrambled to bail out banks, automakers, insurance companies, traders, consumers, and so on, the Fed injected huge amounts of cash into the financial markets, and lawmakers sought more benefits for today’s voters by appropriating vast sums for their pet projects. Furthermore, the Obama administration pushed (and based on the SOTU is still pushing) new entitlements, spending, etc. which entails additional trillions of dollars.
In any event, estimates that indicate U.S. deficits will total $9 trillion over the next ten years suggests that “business as usual” will rapidly (the real world eventually would have to intervene) come to an end. That’s the problem with long-term budget constraints - they inexorably draw closer, eventually forcing hasty and ill-conceived policies via a budget crisis.
Now I am not as up on this as you DU but I have read various reports that suggest that the total federal fiscal imbalance amounts to about 8 percent of future U.S. productive capacity. Since only about one-half of the nation’s total income is subject to taxes, Americans would have to immediately and permanently devote another 16 percent of their taxable incomes toward resolving it. Is this a feasible solution? Probably not. It’s unlikely that Americans are willing to bear the additional tax burden. Plus, as I pointed out before it would place a serious burden on economic activity. If tax increases aren’t the answer (an in this environment - I don't think they would be a wise move), we are left with reducing government spending – which would not make me the toast of the town at certain cocktail parties in Washington (or NYC for that matter).
I’ve heard many a policy analyst say that budget reform will become politically feasible only when a cash crisis becomes imminent. For example, the last major reform of Social Security was enacted in 1983, when the program’s trust fund was on the brink of exhaustion. But lurching from crisis to crisis is not a desirable or fair way to exercise stewardship over the nation’s fiscal affairs.
Others suggest that the economic implications of fiscal adjustments won’t necessarily be bad — that excess federal obligations can be simply “inflated away.” It is true that if the federal debt grows too large, the Fed can print money to pay it, and ignite higher inflation in the process. But this is not an effective way to balance the budget (and I am not implying that is your argument) as a whole, because large parts of the budget can’t be inflated away in this manner: Social Security benefits are indexed against inflation, and federal health-care benefits are provided in-kind. The inflation rate required to compensate for this problem would be massive. Furthermore, as I pointed out before inflation is simply another tax.
Just as preventing obesity by avoiding fatty food makes more sense than losing weight after the fact, it would be better for our economic health to proactively slow debt accumulation - preferably by gradually reducing future federal spending commitments - rather than risk the debilitating consequences of sky-high taxes, runaway inflation, or even federal defaults.
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