Arnold Kling  

Compared to What?

How Wage Rigidity is Special... Keynesianism as a ZMP Story...

John Taylor writes,

So it is clear that the budget has come a long way from the Administration's first spending proposal--about half way to the House proposal--and it was accomplished without any tax increases. Some are disappointed that Washington did not do more, but there is no question that this represents a very big shift, even though the heavy lifting will go on with a good debate in the upcoming elections.

Taylor compares the 10-year path of spending relative to GDP with the path implied by the budget submitted by President Obama. However, that budget was voted down, so I am not sure why it is a relevant comparison.

Another comparison would be with the Bowles-Simpson plan. That plan held spending to about 21 percent of GDP, and this plan never gets spending that low. That plan took on entitlements (admittedly without getting into specifics) and this plan does not.

I think it is reasonable to worry that the spending levels in this plan will become a floor rather than a ceiling. This is particularly likely to be the case if the narrative for the agreement becomes "The Tea Party won, and the left lost." That narrative implies that spending could not possibly be cut further in a responsible way.

Baseball executive Bill Veeck, in Veeck as in Wreck, praised Horace Stoneham for appearing to lose negotiations while getting what he wanted. I think that is what the left accomplished in this case. Relative to the Bowles-Simpson baseline, which is where centrists on both sides thought that the budget should head, it was not the crazies on the right who were able to move the needle. It was the crazies on the left.

Comments and Sharing

CATEGORIES: Fiscal Policy

COMMENTS (7 to date)
E. Barandiaran writes:

Both Taylor and you compare the consequences of the debt deal to those of plans that failed to be approved. I think this is not an interesting exercise.

Assuming the debt deal is approved, its implementation becomes the only interesting political game. At least until September 2012, the political debate will focus on how it's being implemented. You will see Don Boudreaux's fraudulent clowns on both sides arguing first about how the deal must be implemented and second about the consequences. Add crazies (= the mercenary media of journalists and pundits) on both sides to the debate and you will have good entertainment.

I hope that you and scholars interested in advancing ideas to restore fiscal discipline take advantage of the next 12 moonths to debate serious ideas that may influence the 2012 election. You may start with Ed Glaeser's yesterday column:

david nh writes:

I am not worrying too much - one way or the other spending will decline, if not because the politicians or electorate require it, then because the financial markets require it.

8 writes:

The political situation will deteriorate along with the economy and the Simpson-Bowles plan will look like unicorns and candy canes when this is through. Stop trying to be pragmatic and pushing for what you think can pass today, advocate for what will be possible when one party snags 300 House seats, 70 Senators and the Presidency. There's basically a 50/50 chance that we either get the New Deal on Steroids or a completely new approach for the 21st Century. There's no point in even worrying about compromise because there won't be any. Shoot for the Moon!

nels writes:

until the discussion starts to challenge the premise that the government should be involved at all in the supply of health care, "social security," labor negotiations, etc., government will always grow (until maybe you have a Soviet Union type of collapse.)

anyone care to give an over/under on total govt spending in 1 year, 5 years, 10 years?

R Richard Schweitzer writes:

We desperately need some gauge other than (or at least in addition to) the now iconic GDP with its "double dependent variable" of governmental receipts and expenditures.

If it is to be continued in use, it should at least be adjusted for the amounts of such expenditures provided through borrowing, particularly borrowing from sources external to the "D" of GDP.

steve writes:

I'm with 8. To gain any headway the definition of "crazy" needs to be moved from, "cuts of 20b in 2012 and undefined unenforcable cuts in the future" to "surpluses now".

Colin K writes:

Usually I appreciate prof. Kling's dour outlook, but it seems a little premature to mourn our victory. We could easily have ended up with a shutdown that really blew up in the tea party's face, or a deal with more taxes and even less meaningful cuts, and that too could have become the baseline. Instead we have a deal that leaves obama looking weaker and the left mad as all get-up, and we got it with only a House majority. Come 2012 the Democrats will have to either promise big tax increases or huge defense cuts, on top of defending obamacare. That's hardly a shoo-in for team blue.

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