I couldn't help but think of Scott Sumner a little with the CBO's recent analysis of the sequester's impact on growth and jobs. Sumner never tires of claiming that somehow the fairly solid job numbers this year prove there's nothing wrong with the sequester as 'obviously' the Fed has offset it.
"For 5 years Krugman’s tried to have it both ways. He needs to make up his mind. Does money matter, or doesn’t it? Why does Krugman suggest that Summers is OK on monetary policy, when Krugman thinks money is too tight and Summers doesn’t? And while he’s at it, please explain why the severe austerity in 2013 led to a speed up of job growth to over 200,000/month, instead of the sharp slowdown predicted by the multiplier models. Monetary offset? Did the US do better than the eurozone because Bernanke’s so-so Fed is better than the appalling inept ECB? I’d say so."
http://www.themoneyillusion.com/?p=22458
I would say so too, however, that's not the question. It's not if the U.S. with the austerity of the sequester is doing better than the EU with both deeper austerity and tighter monetary policy. It's whether the U.S. with a monetary policy less tight than the EU and the sequester is better off than the U.S. with a monetary policy less tight than the EU and no sequester?
On this you would clearly have to say not so. Democratic Maryland Senator Chris Van Hollen recently asked the CBO for an analysis of the sequester. Here's what it found:
"Here’s a way to get some more jobs in the very near term—900,000 to be precise: cancel the sequester.
"For 5 years Krugman’s tried to have it both ways. He needs to make up his mind. Does money matter, or doesn’t it? Why does Krugman suggest that Summers is OK on monetary policy, when Krugman thinks money is too tight and Summers doesn’t? And while he’s at it, please explain why the severe austerity in 2013 led to a speed up of job growth to over 200,000/month, instead of the sharp slowdown predicted by the multiplier models. Monetary offset? Did the US do better than the eurozone because Bernanke’s so-so Fed is better than the appalling inept ECB? I’d say so."
http://www.themoneyillusion.com/?p=22458
I would say so too, however, that's not the question. It's not if the U.S. with the austerity of the sequester is doing better than the EU with both deeper austerity and tighter monetary policy. It's whether the U.S. with a monetary policy less tight than the EU and the sequester is better off than the U.S. with a monetary policy less tight than the EU and no sequester?
On this you would clearly have to say not so. Democratic Maryland Senator Chris Van Hollen recently asked the CBO for an analysis of the sequester. Here's what it found:
"Here’s a way to get some more jobs in the very near term—900,000 to be precise: cancel the sequester.
That’s what the CBO said in response to Rep. Van Hollen’s request for such an analysis.
…canceling the automatic spending reductions effective August 1 would increase outlays relative to those under current law by $14 billion in fiscal year 2013 and by $90 billion in fiscal year 2014.Those changes would increase the level of real (inflation-adjusted) gross domestic product (GDP) by 0.7 percent and increase the level of employment by 0.9 million in the third quarter of calendar year 2014 (the end of fiscal year 2014) relative to the levels projected under current law, CBO estimates.
"The budget office goes on to say that if you didn’t replace the deficit savings, higher federal debt could lead to slower growth down he road, so if you’re worried about that, you’d want to replace sequestration with a balanced package of spending cuts and tax revenues that kick in later when the economy isn’t so demand constrained."
"But output gaps being what they are, more or less spending by the federal government feeds pretty directly into growth and typically with “multiplier” effects that increase the bang-for-each-buck (e.g., pave a road and you’ve created more business at both the pavement supply company and the diner where the new crew has lunch).
Of course, Sumner's always trying to show that the multiplier is zero. As for the claim that cancelling the sequester without replacing it with further cuts could harm growth, this only makes sense if you forget that there is a denominator as well as a numerator in the debt to GDP ratio.
However, if we increase GDP 0.7/% this lowers the ratio vs. the rise in debt with the end of the sequester. Ideally what we should do is tax reform Harry Reid style.
With tax reform that raises revenue rather than neutrality we'd make up for the sequester-the Senate Democrat plan raises $975 billion in revenue. This is preferable as we've already had plenty of spending cuts-by over a 3 to 1 margin-including the initial $917 billion dollars in cuts the miserable Budge Control Act of 2011 and the $1.2 trillion in the sequester.
We've already cut way too much. If it weren't for this self-imposed austerity particularly at the state level we'd have created even more jobs and had higher GDP-by historical standards GDP, or for that matter, Sumner's preferred measure, NGDP has been substandard, which is another way to compare it. Sure it looks better compared with Europe but in the world of the blind the one-eyed man is king. at the end of the day, he's still blind. By historical standards our recovery has been nothing to brag about.
I'm happy to see the White House is taking a harder line on the upcoming negotiations suggesting that a deal on the sequester should be part of the debt ceiling and government shutdown negotiations. The President is considering not signing any budget deal that doesn't do something about the sequester.
"White House officials also are discussing a potential strategy to try to stop the sequestration cuts from continuing, the lawmakers and Democrats said. Under this scenario, the president might refuse to sign a new funding measure that did not roll back the sequester. No decision has been made."
"But some of Obama’s top economic advisers fear that they may not be able to stop what they consider damaging cuts without a sharper confrontation, the sources said. Other advisers are urging a more cautious course, saying it would be better for Obama to seek a more targeted agreement that would increase funding for a smaller set of priorities."
I think in this case the 'maximalists' are right. Going small bore means the sequester becomes the status quo. It is good to see he's not going to repeat the quick buckling he did with the FAA cuts in March
"Deciding to escalate the confrontation with Congress over the budget would be a break from the president’s approach earlier this year. In March, he signed a budget resolution that continued to fund the government through Sept. 30 without forcing a fight over the sequestration cuts. Several weeks later, he agreed to move around money to cancel furloughs at the Federal Aviation Administration to eliminate flight delays, angering congressional Democrats who wanted broader negotiations."
"Administration officials said that they had no choice because Senate leaders said that Congress probably would override any veto."
"Congressional Democrats, led by Rep. Chris Van Hollen (Md.), told White House Chief of Staff Denis McDonough after the FAA episode that the administration had to send a much clearer signal about its intentions.
"In recent weeks, Obama has been issuing a fusillade of veto threats and signaling that he will not sign bills that do not support his priorities."
The Dems are thinking that the best course may be a temporary deal to fund the government through to November when the debt ceiling problem comes up again.
The GOP is kind of thinking this too for their own reasons. There is actually going to be very little time to negotiate an end run around a government shutdown as Congress is set for a long August recess in a week and then they don't get back until September 9-there will be only 9 legislative days.
It's a bit cofusing what Tom Cole is saying. On the one hand he admits that trying to enforce the Boehner Rule-one dollar of spending cuts for every dollar the debt ceiling is raised is a terrible idea.
Yet he seems to be trying to make some sort of ultimatum on the debt ceiling as well.
For his part, Obama has said he won’t negotiate over the debt limit, a point press secretary Jay Carney reiterated this week. “We’ve made clear we’re not going to negotiate with Congress over Congress’s responsibility to pay the bills that it’s already racked up. We’re just not,” he said. “And it is an irresponsible thing to even flirt with, because the flirtation itself does harm to our economy.”
But Republicans aren’t buying it. “The president’s living in a fantasy land if he thinks he can get the votes to raise it without some concessions on spending,” Cole said. “Republicans are willing to vote with him to raise it, but they need something that changes the long-term arc of the debt.” Cole added that Republicans want to talk to the president about cuts he’s suggested in the past, including changing how entitlement benefits are calculated and means-testing for Medicare beneficiaries.
That sounds like debt ceiling chicken to me: saying you'll only raise the debt ceiling under the condition of Obama agreeing to spending cuts.
However, it is Congressman Cole who is living in the fantasy world if he thinks he's going to get entitlement reform of any kind without fixing the sequester. So if this is really something that is wanted by the GOP than maybe this could represent the outlines of part of a deal.
It could go something like this. A 2 month short-term extension on the budget, and then roll the debt ceiling and budget deal into one. The ultimate Grand Bargain would also roll in entitlement reform, sequester repeal, and tax reform. In any case this is the direction the Dems may be pushing it in. If the GOP knows it can't really default on our debt and that another government shutdown is untenable maybe they'll be willing to take what they can get and a GB is possible.
From the Dems' perspective the more that can be done at once the better.
P.S. I can't but see Sumner's monetary offset argument as a reduction absurd em when taken too far. As he believes that any level of fiscal austerity can be offset does this mean that the more we cut the better of we'll be? After all, the Fed can make it all up. Why not just shutdown the military and national highway system then-after all the Fed will offset it? I mean is there any limit to how much austerity Congress should impose? Maybe he'd argue that there could be supply side reasons? Would that be the argument against eliminating the military?
P.S. I can't but see Sumner's monetary offset argument as a reduction absurd em when taken too far. As he believes that any level of fiscal austerity can be offset does this mean that the more we cut the better of we'll be? After all, the Fed can make it all up. Why not just shutdown the military and national highway system then-after all the Fed will offset it? I mean is there any limit to how much austerity Congress should impose? Maybe he'd argue that there could be supply side reasons? Would that be the argument against eliminating the military?
No comments:
Post a Comment