Tuesday, September 28, 2010

Pledge to America: Short-term Fiscal Restraint and Long-term Fiscal Folly

Michael Ettlinger and Michael Linden focus on the fiscal folly part of the Pledge:

The “Pledge to America” budget would mean $11.1 trillion in deficits over the next 10 years. By 2020, the federal budget deficit would be 6.3 percent of gross domestic product, the federal debt would exceed 93 percent of GDP, and interest payments on the debt would be more than $1 trillion a year. The budget deficit would be about $200 billion larger in 2020 under the “Pledge to America” plan than it would be under President Barack Obama’s budget, and over the next 10 years deficits would be $1.5 trillion higher than under the president’s budget. The substantial increase in deficits under the “Pledge to America” budget are due to the significant tax cuts that come from extending all expiring tax provisions and the implementation of several new tax cuts. Altogether, tax revenues under the “Pledge to America” plan would average 16.7 percent of GDP. During the last period the federal government ran balanced budgets revenues averaged 20 percent of GDP. The document claims that these cuts will be offset by spending reductions, but their proposals for these reductions add up to significantly less than their revenue cuts. The vast bulk of these spending cuts are achieved through what are described as “hard caps,” but they provide little detail as to what programs would be cut. The “Pledge to America” also includes a repeal of the Affordable Care Act. But since the ACA reduces deficits over the next 10 years, repealing it increases the deficit as well.

Also take a look at their chart which shows how the deficit would be larger under the Pledge after 2012 but smaller over the next couple of years. In other words, the Pledge has fiscal policy all backwards. We need more short-term fiscal stimulus in the short-run with fiscal restraint after we get back to full employment. Which is why the Pledge’s promise to create new jobs is just stupid from an economic perspective!


Brenda Rosser said...

PGL: "We need more short-term fiscal stimulus in the short-run with fiscal restraint after we get back to full employment."

What kind of full employment? Upstairs-downstairs-master-servant kind of employment?

Back to the land as agriculture struggles with a loss of fuel?

What happens when the extra income generated by extra jobs fails to increase prosperity because the 'surplus' is not there anymore?

Well, according to many accounts the world will be experiencing a decline in oil production in the very near future.

16 september 2010
‘Peak Oil’ : Jimmy Carter’s top energy official sounds the alarm

Washington considers a decline of world oil production as of 2011
Tuesday, April 13, 2010
by Matthieu Auzanneau
Le Monde (March 25 2010)

Brenda Rosser said...

I hope my comments didn't sound facetious. The Great Disruption appears to be unfolding quickly. Climate change, peak water/soil/minerals/oil. Pollution on a grand scale. Deforestation so extreme that I shudder to think of the consequences of this alone.

TheTrucker said...

Please understand, Brenda, that environmental issues are not going to play in the current political arena. Stop trying to piss up that rope. Energy independence and alternative personal conveyance will sell. You accomplish the same goals but have a viable means to the end. Quit being thoughtful about it except in private.

But then I think that you are in Australia where sane people live. I am driven by political insanity in the USA, where devil worship and Jasus worship women are running for seats in the US senate and a dude running for governor of New York threatens to "take out" a reporter because the reporter asks him what evidence he has concerning a political smear against an opponent.

Here in the USA there is no "thought". All discussions are religious. The only pony one can ride is the economy pony and jobs. Even then we have witch doctors claiming cures that are the old time Hoover religion revisited.

Brenda Rosser said...

"then I think that you are in Australia where sane people live..."

Nuh. Just a different brand of insanity. As you might see from the article I published tonight.

Environmental issues will soon be number one in the political arena in America. If fear that this will be the case for the worst of reasons. The level of pollution from the Gulf oil spill will be untenable. Even in the short term.

TheTrucker said...


I think the sandwich man had the right train of thought on this. We need to make the straight time work week a lot shorter and share the available jobs. This will reduce profits but allow more people to contribute to the economy while not dramatically increasing the destruction of the planet. This implies, of course, the running of medical insurance by government and not by employers and private insurance companies. There are many people working specifically for the health insurance. If they could get access to health insurance for a reasonable fee they would start their own small business. The 40 hour week (which is really a 60 hour week) is ludicrous.

There is also the problem of trade and monetary hucksterism. Tariffs worked because each political entity could be held accountable by the citizenry, When it is turned over to central bankers then there is no accountability