More on the decade of profligacy argument

More on the decade of profligacy argument

Last Tuesday I critiqued one of President Obama’s comments in my post “Which is the decade of profligacy?” Mr. Jonathan Chait, Senior Editor of The New Republic, wrote a response which he labeled “the beatdown that was nine years in the making,” and his “smackdown post.” I welcome TNR readers who are new to my blog.

Mr. Chait mistook my intent:

Keith Hennessey is tired of the Obama Administration dragging its predecessor’s name through the mud. Hennessey actually tries to make the argument that Obama’s policies are more profligate than Bush’s.

My intent was instead to correct the logic of and critique the absence of policy solutions from President Obama. I would note that President Bush has remained silent while repeatedly attacked, to allow President Obama the running room he needs to make decisions.

I will respond here to Mr. Chait’s arguments (using his numbering).

1. On the decline in surpluses during the Bush Administration

Argument: Mr. Chait writes, “To cast the Administration as victims of a ‘mistake’ requires a staggering level of chutzpah.”

Response 1: If I created the impression of victimization, I apologize. Yes, the tax cut and the post-9/11 spending increased the budget deficit relative to what it otherwise would have been. So did the wars in Iraq and Afghanistan and the Medicare drug benefit. The Obama Administration suggests, however, that the entire decline in the surplus was the result of policy decisions. That is clearly incorrect. CBO said that 40% of the surplus decline from 2001 to 2002 was the result of forecasting error and a failure to predict the recession. The other 60% was the results of policy choices by President Bush and the Republican Congress, most importantly the tax cut.

Response 2: There was a significant forecasting error that overestimated projected surpluses. Mr. Chait suggests I claimed the Bush Administration was “blindsided.” My argument is a little different. Given that we now know that the January 2001 economic and surplus projections were wrong, it is misleading for Team Obama to use those knowingly incorrect projections to describe the effects of Bush Administration policies.

Response 3: These were not just budget surpluses, they were surplus revenues. When President Bush took office there were budget surpluses largely because taxes far exceeded their historic average. In 2000 taxes were 20.6 percent of GDP, more than two percentage points higher than the historic average. That same year the budget surplus was 2.4 percent of GDP. The budget surpluses existed mostly because the government was taking much more from the private sector than it had historically taken.

Response 4: Three things can be done with a dollar of surplus: return it to the taxpayers, use it to pay down debt, or increase spending on a government program. Team Obama and its allies suggest that if we had not cut taxes and the surpluses had remained in Washington, then all these surplus revenues would have been used to pay down debt. I think it’s far more likely that Congress would have figured out ways to increase government spending (yes, sadly even with Republican Congressional majorities). For me tax cuts vs. debt reduction is a tough call. Tax cuts vs. (an uncertain mix of debt reduction and government spending increases) is a much easier choice.

Response 5: President Bush campaigned on tax relief. He won. He fulfilled his campaign promise and enacted tax relief, in part contributing to smaller surpluses and eventually budget deficits. In doing so, taxes returned to near their historic levels and budget surpluses got smaller as all income taxpayers kept more of the money they earned. Since I focus on spending as the problem, rather than the balance between levels of taxation and deficits, this shift doesn’t concern me as it might some others. I focus on what I think is our primary fiscal challenge: slowing the growth of government spending.

Argument: Mr. Chait writes further, “The Bush Administration furiously and successfully beat back Democrats’ attempts to inculcate caution and modesty about the projected surpluses.”

Response 1: Mr. Chait cites a 2000 convention speech given by President Clinton which effectively proves his point. He also cites his own TNR editorial and a book by Dr. Paul Krugman, neither of whom held any official policy role at the time. It’s important not to confuse the fans and sportscasters with the players on the field. I think other examples of elected Democrats attempting “to inculcate caution and modesty” beyond one sentence in President Clinton’s convention speech would help Mr. Chait make his argument more effectively.

Response 2: Mr. Chait fails to mention that his February 2001 editorial, titled “The Pathetic Party,” was aimed at elected Democrats who agreed with President Bush and supported the tax cuts. 28 House Democrats and 12 Senate Democrats voted for the 2001 tax cuts. If Mr. Chait believes that President Bush’s tax cuts were surplus-destroying bad policy, then his critique applies equally to sitting Democratic Senators Baucus, Carnahan, Feinstein, Johnson, Kohl, Landrieu, Lincoln, Nelson, and many House Democrats as well. (In their defense, they all voted against the much smaller 2003 tax cuts.) Partisan deficit finger-pointing rarely breaks down along clean party lines. Some Democrats support un-offset tax cuts, and (too) many Republicans support un-offset government spending increases.

2. On the cost of the Medicare drug benefit

I wrote that “By the time then-Governor Bush began his Presidential campaign, there was a broad bipartisan Congressional consensus to create a universally subsidized prescription drug benefit in Medicare without offsetting the proposed spending increases.

Argument: Mr. Chait writes, “This is misleading bordering on outright false. When Clinton was president, Congress had to operate under pay-as-you-go budget rules, which meant that any new tax cut or entitlement increase needed to be offset by an entitlement cut or tax hike.”

Response: Mr. Chait is almost correct, but not quite. The PAYGO rules from the 1990s did not require these kind of offsets. They merely established a higher voting threshold in the Senate for any legislation which was not offset. The Clinton-era PAYGO rules could be waived if 60 Senators voted to do so, allowing entitlement spending to be increased (or taxes to be cut) without an offset. On July 13, 2000 the Senate defeated a motion to waive the PAYGO (and other budget) rules on an amendment by Senator Bob Graham (D-FL) to create a universally subsidized Medicare drug benefit. Here is Mr. Graham describing his amendment:

Mr. GRAHAM. Mr. President, what we are about is to authorize that $40 billion of the new surplus which has come into the Federal Government and is projected to come over the next 5 years to be dedicated to the prescription medication benefit. This would allow for a total of $80 billion to be committed to this program.

Thus in 2000 Senate Democrats tried to create a Medicare drug benefit without offsetting the cost. They then tried and failed to waive the Clinton-era PAYGO rules. House Republicans passed a bill that year which created a smaller Medicare drug benefit without offsetting the costs. I therefore stand by my statement that “There was a broad bipartisan Congressional consensus to create a universally subsidized prescription drug benefit in Medicare without offsetting the proposed spending increases.” (Senate Republicans, including my boss Senate Majority Leader Trent Lott, were not a part of that consensus and did not try to create a Medicare drug benefit that year.)

3. On the Bush tax cuts

Argument: Mr. Chait writes, “… Obama’s determination to let [tax cuts for those with incomes over $250,000] expire represents a significant difference with Bush.”

Response: I agree. I never wrote that President Obama was doing exactly what President Bush did on tax cuts, and flagged the difference in my post.

Argument: Mr. Chait writes, “It’s true that Obama is keeping in place the tax cuts that benefit people who make under $250,000. But to equate that decision with enacting the tax cuts in the first place is absurd. Both public opinion and the political system have a huge bias toward the status quo. Once the Bush tax cuts were in place, anybody opposing them became a tax hiker.”

Response: This misses my point. I was not trying to equate extending tax cuts with initially enacting them. While they have the same policy effect, I agree that they are politically different.

I was trying to focus on the offset hypocrisy inherent in the President’s argument, not the policy or political aspects of the deficit-increasing policy. Since all the tax cuts are scheduled to expire on December 31st of this year, to “keep in place” that tax relief President Obama must propose legislation to extend the subset of the Bush tax cuts that he favors. President Obama is not proposing to offset that legislation with entitlement spending cuts or other tax increases.

President Obama signed into law what he calls tax cuts in the 2009 stimulus. He proposes to extend some of the Bush-era tax cuts. He is signaling that he will sign a new un-offset jobs bill containing tax cuts. In each case, he is not insisting that the deficit increases resulting from such tax cuts be offset. If he were worried about the need for short-term fiscal stimulus, he could insist on offsets that take effect later in time. And still he attacks his predecessor for enacting tax cuts without offsetting the resulting deficit increases. It seems Team Obama’s rule is “PAYGO for thee but not for me.”

Argument: Mr. Chait explains that I know how politically difficult it would be for President Obama to allow taxes to increase on the middle class.

Response: True. No dispute.

Argument: Mr. Chait writes, “Since Bush did cut taxes, restoring those rates in the face of unwavering GOP opposition would be a near-impossible task for Obama.”

Response: Reconciliation can be used to raise taxes with only a simple majority in the Senate, so if Mr. Chait is correct that doing so would be nearly impossible, it is because Congressional Democrats would choose not to do so. Republicans have no formal procedural leverage to block such a bill, even with 41 Senators.

I am happy that it is unpopular to raise taxes. If you believe that future deficits are a problem, then you are obliged to try to do something unpopular: raise taxes or slow the growth of entitlement spending. I prefer the latter. I want President Obama to choose one or both.

4. On the future deficits that President Obama faces

Argument: Mr. Chait writes, “Hennessey doesn’t deny the undeniable reality that this is entirely because Obama inherited a collapsed economy and a structural deficit caused by Bush-era policy changes.”

Response 1: Mr. Chait appears to accept the work of the liberal Center on Budget & Policy Priorities as defining the undeniable reality. While I respect the authors of that particular paper, I do not.

Response 2: I argue that President Obama’s policies will increase future budget deficits. The Obama Administration argues otherwise. This debate focuses on the current policy baseline question I discussed yesterday. Mr. Chait is correct that President Obama inherited an economy in severe recession and a large projected 2009 budget deficit. And yet in January of 2009, CBO projected that budget deficits would decline under current law to about 1 percent of GDP by the end of the decade, and debt held by the public would decline to about 42 percent of GDP. The future deficits we now face are much larger. These deficits are in part a result of the situation when President Obama took office, in part a result of his team misdiagnosing the macroeconomic situation and the policies needed to address it in their first year, and in part a result of policy choices the President is making.

Response 3: Even if I were to grant Team Obama’s characterization of what they inherited, they have the power to propose solutions. With enormous supermajorities in the House and Senate and a reconciliation process, they have the power to enact policies to improve the outcome, even if Republicans don’t play ball. They have so far not done so. I believe that at some point, failing to even propose policy solutions to a problem you argue you inherited makes the problem yours. Inaction is a choice which accrues responsibility over time.


I disagree with Mr. Chait’s characterization of the Bush Administration’s economic policy record and its results. Like two drunks at a bar, we could argue until closing time about whose team is better. This is, however, the wrong debate.

I presume the Obama Administration is highlighting the contrast with its predecessors in part to excuse the deficits in their proposed budget and in part to draw a contrast during a midterm election year. That’s a normal part of the inside-the-Beltway game as it is played by some on both sides of the aisle. I suspect this kind of behavior may contribute to the frustration of many who live outside the Beltway.

It would be far more productive (and maybe even more politically popular) if the Administration focused its attention on prescribing solutions to our policy problems. What is the appropriate short-term balance between budget deficits and fiscal stimulus? How does the President propose we accelerate GDP and job growth? What is an acceptable level of budget deficit in the medium and long run, and how does he propose we get there? Should we raise taxes, slow the growth of entitlement spending, or both?

These are enormous policy questions. The solutions to any one of these questions can, should, and will be fiercely debated. That is a far more productive debate than trying to apportion responsibility for the challenges America faces. To begin that debate, the President needs to propose solutions. He has not yet done so.

26 responses

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  3. You're delusional. Bush was bequethed surpluses to slight deficits depending on how chairtable you want to be regarding status quo ante assumptions. Obama on the other hand has been bequeathed absolutely eye-watering deficits as far as the eye can see. And you well know it. Any fair estimate- i.e. the one with that includes preordained annual AMT and Medicare doc 'fixes', spending on the war in Afghanistan, on the catastrophic war of choice in Iraq, etc. etc.- would have to be in the neighborhood of $8tn over 10 years. Whether refuse to admit that fact publically is of little consequence to its manifest veracity.

    And yet your complicity in that insanely poor policy doesn't stop you from calling kettles black, and assailing the Obama administration for fiscal irresponsibility. Did it occur to you that perhaps, whatever the flaws of the current administration and Congress, that you are the last person who should feel entitled to throw any stones on the matter? I mean, do you possess no ounce or semblence of shame, at all?

  4. Also, fiscal irresponsibility isn't the half of the Bush administration's catastrophic stewardship of the national economy.

    What I'd like to know is what you guys were thinking as the current account deficit, (or in Bush terminology capital account surplus), approached $1tn annually? As our NIIP exploded deep into deficit (culminating with the net investment income position eventually into the red, ensuring debt spiral dynamics came into the fore)? As the total stock of mortgage debt in these United States doubled in just six years while measures of housing affordability deteriorated to historic levels? As broker dealer balance sheets exploded, notional derivative exposure hit the hundreds of trillions, credit derivatives in particular topped 60tn, etc. etc.????

    You can split hairs until your heart's content on the culpability for the irresponsible policy that is your record, but the more damning truth is that the Bush administration never acknowledged much less tackled the massively serious problems facing the country, not least of which was the catastrophic investment bubble you curated. That, in particular its legacy of massive social damage, is what will define it and you in history ad infinitum.

  5. Aw, there there now, Majorajam. Yes, we all know Bush "curated" the housing crisis and that St. Obama's virtue in all things is beyond reproach. Of course, were you more interested in objective analysis than being a spittle-spewing Bush hater, you might actually consider the current administration's deficits in relation to those over the previous eight years. Here's a handy chart, courtesy of the Washington Post:
    In the fairy tale world you apparently inhabit, Obama can preside over literally trillions of dollars in new spending and never have to accept responsibility for it with respect to the deficit. Assorted Obama groupies — like the Messiah himself — will reflexively blame Bush regardless.

  6. Klink, you don't hold the Bush administration responsible for the catastrophic real estate/financial crisis that occurred at the end of their eight year watch? Was this an act of God then? Divine retribution for our coddling of the homosexuals and abortionists? A force of nature that no human, least of all Dick Cheney, could be held responsible for not holding back? I'm curious, more than anything, just how unexamined the ideas someone has put in your head are.

    As regards the deficit picture, indeed credit bubbles inflate tax receipts as well as asset prices. But we knew that already. The fact remains Obama came into office with a ten year deficit picture in the proximity of $8tn and that- controlling for differences between forecast and actual economic performance- that's largely the same picture you have today. In the not terribly unlikely event you need it spelled out for you, this means it is an unimpeachable fact that Obama inherited the egregious deficits that have us all so spooked. To the extent this is troubling to your ideologically driven worldview, all I can do is say sorry.

  7. It takes profound obtuseness to cite supposed slights visited upon "homosexuals and abortionists" and then accuse someone else of having an "ideologically driven worldview." Perhaps when you're old enough to read a newspaper you'll come to understand that the executive branch has limited influence in relation to the nation's economy. If we accept your reasoning, Bill Clinton is directly responsible for the dot-com bust, the resulting early 2000s recession, Enron, WorldCom, etc., which of course is risible. The housing bubble dates to the mid-1990s and was in fact a global phenomenon (Spain is particularly instructive). The idea that it was Bush's doing is, again, laughable.

    Concerning the deficit, yes Obama inherited a terrible budget, which is largely Bush's fault (though much of the blame also rests with Congress). But it is "an unimpeachable fact" that Obama has rapidly exasperated the situation. The new spending he has explicitly championed or endorsed is Obama's responsibility alone.

  8. Honestly, Keith, I don't know why you bother arguing with Jonathan Chait. Yes, he is smart, and he makes a few good points, but he's also an insufferable boor who is clearly much in love with himself. Funny thing is, the commenter majorajam seems much the same. Perhaps it's Chait with a pseudonym! (-:

    In any case, you make many excellent points, Keith, and come across as mature and unfailingly civil – things a very juvenile Chait would do well to emulate when he finally grows up (TNR has always bred writers like this).

    Obama cannot be excused for everything he does and cast the blame on Bush. Sooner or later all presidents have to take responsibility for their actions. No reason to get annoyed at Obama's act. It won't wear well with the public no matter how much Obama and his supporters complain. The political bill will also come due in short order.

    I would not be surprised if He looks juvenile and

    • Why make it personal jbart? Its much more juvenile to take cheap shots at Jonathan Chait as an individual. Like you say "Yes, he is smart, and he makes a few good points."

      Both of the arguments put forth by Keith and Jonathan have some valid things to think about.

      • Perhaps you ought to reread Chait's piece, John R. Keith is civil and measured and sticks to his argument without trying to offend anyone. Even when he presents solid arguments, Chait likes to mock and belittle people who disagree with him. No surprise from a writer who flatly declared he hated George W. Bush. That's why I rarely read Chait or, for that matter, any writer who acts in such a way, left or right.

  9. It takes a certain genius of self-parody to combine a tin ear for humor with ignorance of the provenance of 'homosexuals and abortionists' in the midst of accusing someone else of 'profound obtuseness'. You raise a good point though. Did the Clinton administration bear any responsibility for the dot-com bust and the resulting recession? Of course! Why wouldn't we expect that our leaders are responsible for taking reasonable appropriate steps to avoid such calamities however politically unpopular???? Clinton as Bush failed to do these things.

    As to the mechanism of culpability, this can be illustrated most easily by examining the Bush administration's record, given that their negligence was greater, more damaging and more inexcusable by some orders of magnitude. In my original post, if you actually read it, I explicitly note some of the things that should've set alarm bells off within the Bush administration: essentially, the warning lights on the macroeconomic dash board of the cockpit were screaming danger. And reputable people were saying that as early as 2004- people like Paul Volker.

  10. But yet the administration did nothing, despite having myriad tools at its disposal to act. If anything it exacerbating the problem by its tremendously loose fiscal policy and directives to regulatory agencies to look the other way, some in the face of mounting concerns. Again, if they're not accountable for these things, then you might as well forget about the concept of accountability full stop.

    As I indicated, there are of course parallels here both for the Clinton administration during the dot com bubble and the Regan/first Bush administration for the S&L crisis. There again you had warnings, in fact some of the same warnings, e.g. yield compression, ballooning current account deficits, weak currencies, etc., which is what makes the Bush administration's active abetting of its investment bubble so incontrovertibly unconscionable.

  11. As regards the deficit, you're wrong on your facts again. Please give me one Obama spending proposal that has worsened the long-term deficit picture…. crickets. If Obama can be criticized along this dimension, and he can be, it's for not reversing the Bush era initiatives that have made things worse. For example, the Medicare Part D prescription drug plan, the entire tax cuts (they want to extend the middle class cuts rather than let them expire), the unsustainable defense spending, both annual Pentagon budgets and on the wars in Iraq and Afghanistan, etc. etc. His spending thus far is stimulus, and propositions that call for offsetting cuts/taxes.

    Please do yourself a favor, get the facts and be informed.

  12. Yes, your brilliance is beyond question. In spite of your obviously limited faculties, you've actually answered your own question. The federal stimulus bill passed almost one year ago — $787 BILLION worth — was borrowed money in its entirety. What part of this don't you understand? One can argue that the plan had merits or was even necessary whole or in part from a political and/or short-term economic perspective. But the fact remains, it was deficit spending. Similarly, the just-announced budget for 2011 is 3 percent larger than the current year's. Again, one can argue the merits of Obama's plan, but the deficit implications are clear. (As an aside, Obama's claim to be saving $1.6 trillion over 10 years is a sham, predicated as it is on a bogus baseline assumption of peak Iraq war spending for another decade.)

    I suppose you can present evidence proving that the Bush administration issued "directives to regulatory agencies to look the other way" and can cite instances of the federal government properly identifying and then effectively intervening to stem an asset bubble in real time?

  13. Klink, there's this thing called the Google <a href="">you should investigate. 4th one down:

    When ANB Bank of Arkansas failed last year, it was easy to blame executives whose pursuit of high-adrenaline growth led to the bank's demise. But now other key culprits have emerged in ANB's collapse: the government officials who were supposed to be policing the bank.

    The inspectors general at the U.S. Treasury and the Federal Deposit Insurance Corp. (FDIC) have both issued reports saying that bank failures surged because regulators in some cases didn't step in and prevent hazardous behavior, and in others actively helped banks hide their growing problems…

    "A fire alarm might go off and someone might run to see what's happening, but there's no one there to put out the fire," says Tyler Cowen, economics professor at George Mason University. Cowen also says that under former president George W. Bush's administration, the emphasis on de-regulation led to an environment in which there was "a greater willingness to look the other way."

    <a href="">And that's not the half of it.

  14. Again with links unembedded:

    Klink, there's this thing called the Google you should investigate:

    4th one down:

    And that's not the half of it:… From the second:

    This was but one of many instances of state posses sounding early alarms about the irresponsible lending at the heart of the current financial crisis. Federal officials brushed aside their concerns. The OCC and its sister agency, the Office of Thrift Supervision (OTS), instead sided with lenders. The beneficiaries ranged from now-defunct subprime factories, such as First Franklin Financial, to a savings and loan owned by Lehman Brothers, the collapsed investment bank.

    Some states, including North Carolina and Georgia, passed laws aimed at deterring rash loans only to have federal authorities undercut them. In Iowa and other states, mortgage mills arranged to be acquired by nationally regulated banks and in the process fended off more-assertive state supervision…

  15. As regards feds properly identifying asset bubbles, it is one thing to wonder if speculators have got the upper hand in the silver market and another thing to sit idly by as the entire stock of mortgage debt in the country doubles in six years as it did during the first six of the Bush administration. The former is barely relevant. The latter signals impending catastrophe. As did the national savings rate turning negative unprecedentedly in the third and fourth year of an economic expansion at close to full employment not least while investment spending stayed mordant. As did the run-up in home prices itself, i.e. the largest asset bubble in the history of the world, which prompted from the administration at most astute assurances that 'when homes get too expensive, people will stop buying them'.

    Be that as it may, you'd be happy to know that an asset manager by the name of GMO have done a comprehensive if perhaps less than exhaustive review of asset price bubbles, the demise of some of which was orchestrated by policy makers, wittingly and otherwise. You can google that, too. Either way, I expect my leaders to do more than float on the tide where the viability of the national economy hangs in the balance.

    This helps to explain why I continue to find your desperation to excuse these imbeciles of their crimes against this country bewildering. Isn't the 'culture of accountability' supposed to be your guys thing?

  16. On the deficit, you'll note the modifier I used 'long-term'. I do not think this word means what you think it means. Either that or you're simply unfamiliar with the order of magnitude of the numbers relevant over the medium to long term. Also btw, seven hundred whatever sized stimulus was one third tax cuts. You guys will have to decide for yourself whether that constitutes spending, but my preference is that you at least remain consistent. Finally, about the baseline, it is not anchored to a given year, cherry picked or otherwise, but a certain set of status quo assumptions. These can certainly be gamed as Bush administration officials made into an art form, and it is possible the Obama administration is trying to claim some savings from Iraq spending which wouldn't be legitimate. I don't know. What I do know is that there is savings over the status quo from things like removing the subsidy to private lending companies to give student loans which turns out to be highly inefficient, as well as through a few other entirely appropriate steps such as letting some of the Bush tax cuts expire. I'm not arguing the fiscal austerity is nearly austere enough, although there are limits to how fast budgets can be brought down without wrecking the economy. However, it is at least austere on a relative basis, and in any case far more so than what's on offer from Congress, not least from your side of the isle.

  17. I intend to waste no more time on this thread. Clearly, you have nothing better to do. Some closing points:

    For someone who purports to be well informed, you evince a curious allergy to actual facts. You contend that the Bush administration directed regulatory agencies to refrain from monitoring banks. When I ask for proof, you send a newspaper article detailing the failings of some regulators that contains an assertion from a partisan academic about the Bush administration fostering an "environment of deregulation." In point of fact, not one link you provided comes close to bolstering your original contention. Can you grasp this? I realize the "Bush signifies deregulation" narrative holds considerable appeal for Democrats, many of whom have fetishized it. But it really only holds up as a vague descriptor of market philosophy. If we're talking concrete policy prescriptions, Bush in fact compares rather favorably to the Clinton administration.

  18. In the same vein, I asked you to identify even a single of instance of the federal government successfully intervening to stem an ongoing asset bubble, and you were unable to do so. This undermines your contention that the Bush administration somehow failed to use available tools to ratchet down the housing bubble, which as I've pointed out was a world-wide phenomenon. You may expect "your leaders" to possess omniscient powers to correct market imbalances in mid stream, but that hardly means they have the ability to do so. For whatever it's worth, we can now say with certainty that Greenspan was in error with regard to monetary policy (at the very least). But it's far from clear at this point that the Fed could have halted or even slowed the bubble. More to the point, Bush proposed significant new housing finance regulations as far back as 2003 (the link is below), only to be thwarted by Congress.

    Finally, the desperation is clearly on your end. I freely admit that Bush bears responsibility for his deficit spending. In your zeal to hold Obama blameless for his, you offer up discursive sophistry. Your responses to my points about the stimulus bill and the 2011 budget amount to nothing more than lame non sequiturs. The distinction between spending and tax cuts is irrelevant in this context; both will have to be financed with debt. You're fond of citing the long-term impact of Medicare Part D. It may interest you to know that its aggregate cost through 2018 ($727 billion) will be less onerous than that of the stimulus bill. And labeling Obama's latest budget "austere" in any sense of that word is beyond ridiculous. It's the largest budget is U.S. history!

  19. Likewise with your dismissal out of hand of two lengthy articles (found in a few seconds of Google searching, and yielding just a taste of the failings) documenting a number of abject failures of Bush regulatory agencies. Doubtless you didn't read them, but they hardly rely for evidence on the opinions of an academic you feel no compunction about disparaging. Rather, there are references to two inspector general reports, interviews with state officials, and specific instances of OCC interference in state regulatory initiatives and regulation, etc.. All of which is just the tip of the iceberg. Why didn't, for example, the Bush administration take the rating agencies to task after Enron, Worldcom, etc. exposed the bankruptcy of their business model, i.e. getting paid by issuers? You think that couldn't have had some effect on this whole catastrophe? Indeed, as you say, they do “detail the failings of a some regulators”. You should know that federal regulatory agencies are a part of the executive branch.

  20. As to deficits, my distinction between short- and long-term circumstances exists for good reason. Markets care about sustainability, not whether debt to GDP is 65 or 70% of GDP, and markets are the source of worry when it comes to fiscal outcomes. Medicare Part D, unlike the stimulus plan, has now become a non-trivial part of the intractability of our future budget deficits, notwithstanding what it means before the demographic problems deteriorate after 2020. This means that the stimulus is irrelevant to the underlying concerns about the economy. It also is the case that stimulus can’t be fiscally responsible by definition, but that’s a tangential point.


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