2005-03-10

The Financial-Military Complex

[This post is under development.]

Here are some excerpts from the 2004 book
The Pentagon’s New Map:
War and Peace in the Twenty-first Century

by Thomas P.M. Barnett.

Paragraph numbers and emphasis are added.
By the way,
Barnett’s text is an odd mixture of general statements
and personal experiences and feelings;
I have pruned many of those personal items from this document.







Preface:
An Operating Theory of the World



[The first twelve paragraphs are omitted.]

[P.13]
Now might be an appropriate time for me to tell you who I am.

[P.14]
I grew up—quite literally—as a child of the sixties,
somehow maintaining my Midwestern optimism in America’s future
through the dark sides of Vietnam and Watergate.
Captivated by the superpower summitry of the early 1970s,
I set my sights on a career in international security studies,
believing there I would locate the grand strategic choices of our age.
Trained as an expert on the Soviets
[Barnett has a Ph.D. (circa 1989) in political science from Harvard],
only to be abandoned by history,
I spent the post-Cold War years
forging an eclectic career as a national security analyst,
splitting my time between
the worlds of Washington think tanks and government service.
Though I worked primarily for the U.S. military,
my research during these years focused on everything but actual warfare.
Instead, I found myself instinctively exploring the seam between peace and war,
locating it first in
U.S. military crisis responses and then
America’s foreign aid, and finally
focusing on its leading edge—the spread of the global economy itself.
What I found there in the late 1990s was neither “chaos” nor “uncertainty”
but the defining conflict of our age—
a historical struggle that screamed out for a new American vision of
a future worth creating. [Original emphasis.]

[P.15]
And so I began a multiyear search for such a grand strategy,
one that would capture the governing dynamics of this new era.
Working as a senior strategic researcher
at the Naval War College in Newport, Rhode Island,
I first led a long research project on the Year 2000 Problem
and its potential for generating global crises—
or “system perturbations,” as I called them.
Early in the year 2000, I was approached by
senior executives of the Wall Street bond firm Cantor Fitzgerald.
They asked me to oversee
a unique research partnership between the firm and the college
that would later yield a series of high-powered war games
involving national security policymakers,
Wall Street heavyweights, and academic experts.
Our shared goal was to explore
how globalization was remaking the global security environment—
in other words, the Pentagon’s new map.

[P.16]
Those war games were conducted atop World Trade Center One;
the resulting briefings were offered throughout the Pentagon.
When both buildings came under attack on 9/11,
my research immediately shifted from grand theory to grand strategy.
Within weeks, I found myself elevated to the position of
Assistant for Strategic Futures in the Office of Force Transformation,
a new planning element created within the Office of the Secretary of Defense.
Our task was as ambitious as it was direct:
refocus the Pentagon’s strategic vision of future war.
As the “vision guy,”
my job was to generate and deliver a compelling brief
that would mobilize the Defense Department toward generating
the future fighting force demanded by the post-9/11 strategic environment.
Over the next two years,
I gave that brief well over a hundred times
to several thousand Defense Department officials.
Through this intense give-and-take,
my material grew far beyond my original inputs to include
the insider logic driving all of the major policy decisions
promulgated by the department’s senior leadership.
Over time, senior military officials began citing the brief as a Rosetta stone
for the Bush Administration’s new national security strategy.

[P.17]
But the brief was not a partisan document,
and the Defense Department was not the only audience
hungry for this strategic vision.
Within months,
I was fielding requests from the National Security Council, Congress,
the Department of State, and the Department of Homeland Security.
When Esquire magazine named me
one of their “best and brightest” thinkers in December 2002,
I began getting more requests, this time to brief in the private sector,
concentrating in the field of finance and information technology.
After I then published an article in the March 2003 issue of Esquire,
called “The Pentagon’s New Map,”
which summarized the strategic thrust of the brief,
invitations from both the public and private sectors skyrocketed.
The article was republished many times over in Europe and Asia,
and e-mailed to generals and diplomats and policymakers worldwide,
and when I found myself in London one fall evening
speaking in the House of Commons,
I knew the material’s appeal
had vastly outgrown my ability to deliver it on a room-by-room basis.

[P.18]
Thanks to this book,
I am finally able to deliver the brief to you.

[P.19]
I was once asked by a visiting delegation of security officials from Singapore
how my vision of future war differs from traditional Pentagon perspectives.
My answer was,
“Pentagon strategists typically view war with the context of war.
I view war within the context of everything else.”
This book will be mostly about
the “everything else” associated with war in the twenty-first century, or
that essential connectivity between war and peace
that defines globalization’s advance.

[P.20]
This vision constitutes a seismic shift
in how we think of the military’s place in American society,
in how our military functions in the world, and
in how we think of America’s relationship to the world.
All such “contacts” are currently being renegotiated,
whether we realize it or not.
As citizens of this American union,
we all need to understand better the stakes at hand,
for it is not the danger just ahead that we underestimate,
but the opportunity that lies beyond—
the opportunity to make globalization truly global.

[P.21]
This book will describe that future worth creating.
It will explain why America is the linchpin to the entire process,
not because of its unparalleled capacity to wage war
but because of its unique capacity to export security around the planet.
It will provide a way to understand not only what is happening now,
but also what will happen in matters of war and peace across this century.
It will explain where and why conflicts will arise, and how we can prevent them.
[That was also a prime goal of Huntington’s Clash of Civilizations.]
It will explain why
this new strategy of preemption and this new global war on terrorism
must be subordinated to the larger goal of
spreading economic globalization around the planet.
My purpose here must be clear from the outset:
I am proposing a new grand strategy
on a par with the Cold War strategy of containment—
in effect, its historical successor.
I seek to provide a new language,
or a new context within which to explain
strategic choices that America now faces.
By design, it will be a language of promise and hope, not danger and fear.
Some will interpret this as naïveté, others as unbridled ambition.
I choose to see it as a moral responsibility—
a duty to leave our children a better world.

[P.22]
Thanks to 9/11 and the two wars it has so far spawned,
Americans now understand that
there is no other great power like the United States.
Instead, we begin to see the world for what it truly is:
divided into societies
that are actively integrating themselves into
globalization’s Functioning Core
and those that remain trapped in its Non-Integrating Gap
that is, largely disconnected from the global economy
and the rule sets that define its stability.

[P.23]
In this century, it is disconnectedness that defines danger.
Disconnectedness allows bad actors to flourish
by keeping entire societies detached from the global community
and under their control.
Eradicating disconnectedness, therefore,
becomes the defining security task of our age.
Just as important, however, is the result that
by expanding the connectivity of globalization,
we increase peace and prosperity planet-wide.


[P.24]
This is the ultimate expression of American optimism,
which right now is undoubtedly
the rarest and most valuable commodity on earth.
The simple fact is,
an optimistic belief is quite frightening for a lot of people.
If I were to paint a future beyond hope,
more would find satisfaction in the description,
for it would leave us all more easily off the hook.
My business—the business of national security strategy—
is the business of fear, but it need not be.
My colleagues far too often market that fear to the public,
demanding trust in return.
By doing so, they extort the public’s sense of hope in the future,
and this is wrong.
It is wrong because America’s hope in the future
is what has for well over two centuries
driven this amazing experiment we call the United States.
I believe life consistently improves for humanity over time,
but it does so only because individuals, communities, and nations
take it upon themselves not only to imagine a future worth creating
but actually try to build it.

[P.25]
Despite our tumultuous times,
I remain wholly optimistic that it can be done.
My hope is that this book may help convince you of the same.

—Thomas P.M. Barnett
January 2004









Chapter 1
New Rule Sets




Section 1.4
A Future Worth Creating


Here Barnett defines what he considers
“a future worth creating.”
Paragraph numbers and emphasis are added.
By the way,
Barnett’s text is an odd mixture of general statements
and personal experiences and feelings;
I have pruned many of those personal items from this document.]


[1.4.1]
I felt absolutely crushed
watching the televised picture of World Trade Center One’s collapse
on September 11, 2001.
I had been inside the building
a couple of dozen times over the previous three years as part of
the Naval War College’s ongoing research partnership with Cantor Fitzgerald,
the Wall Street broker-dealer firm
that lost several hundred of its employees on that terrible day.
I had led several daylong workshops
on the 107th floor at the Windows on the World restaurant
and had come to know a significant number
of the amazingly talented people who worked at Cantor Fitzgerald.

[1.4.2]
The research project I was conducting with Cantor’s help
involved exploring how

globalization was altering
America’s definitions of national security

—in effect, altering our calculus of risk management.
The workshops we conducted jointly brought together
Wall Street heavyweights, senior national security officials,
and leading experts from academia and think tanks.
These were amazing conversations for everyone involved,
primarily because of the novelty of having
all these people in the same room discussing
globalization’s future and the threats that could derail it.

[1.4.3]
Our joint venture was called the New Rule Sets Project.
As director, I regularly visited two places:
the World Trade Center and the Pentagon.
This only made sense, since
the project sought to facilitate America’s understanding of
the growing nexus between national security and globalization,
and that meant getting Wall Street and the Pentagon
talking to each other on a regular basis.
On 9/11, I was gearing up for another Pentagon briefing the following week.
It would have occurred in the Navy’s command center facilities
that were destroyed that day.
The week following that canceled trip,
I was scheduled for another round of planning meetings
at Cantor’s headquarters on the 105th floor.

[1.4.4]
This steady steam of briefings and meetings gave me a new, far broader sense
of how globalization was shrinking the world,
not just geographically but also pulling together seemingly disparate sectors.
Individuals on both sides of this unprecedented dialogue—
security and financial—often said that
this was the first time they had genre-hopping conversations like this
since college.
...
The deeper we plunged into
how the worlds of finance and national security overlapped,
the more the phrase “unintended consequences” kept cropping up,
along with “spillover,” “tipping points,” and “pathway dependencies.”
What had looked like “chaos” from the Pentagon’s perspective
appeared a lot more orderly
once you knew how to track globalization’s causes and effects.

[1.4.5]
In this unique dialogue,

Wall Street executives helped my research team connect the dots
in ways the Pentagon never does in its long-range planning.

[I’ll bet.]
...

[1.4.6 and 1.4.7 are omitted]



[1.4.8]
September 11 told me that globalization’s uneven spread around the planet
delineated more than
just a frontier separating the connected from the disconnected—
it marked the front lines in a struggle of historic proportions.
The combatants in this conflict harbor very different dreams about the future,
and if 9/11 alerted us to
the asymmetry of will regarding the use of violence to achieve desired ends,
then that asymmetry—that rule-set gap—would have to be eliminated.
Revenge was pointless, and even killing the killers
smacked of treating symptoms rather than the disease.
America’s use of military power in this war
has to be guided toward strategic ends:
the destruction of those who would wage war
against global connectivity and the freedoms it unleashes.


[All hail global connectivity!]

[1.4.9]
America cannot really join this war until it can define the enemy,
and it has had difficulty doing so
out of the fear of appearing racist or intolerant.
But here is where our fixation on quick fixes and “big bangs”
undermine our ability to keep our eyes on the prize,
because identifying that goal leads us to identify the true enemy.
That enemy is neither a religion (Islam) nor a place (the Middle East),
but a condition—disconnectedness.

[1.4.10]
To be disconnected in this world
is to be kept isolated, deprived, repressed, and uneducated.
For young women, it means being kept—quite literally in many instances—
barefoot and pregnant.
For young men, it means being kept ignorant and bored and malleable.
For the masses, being disconnected means a lack of choice
and scarce access to
ideas, capital, travel, entertainment, and loved ones overseas.
For the elite,
maintaining disconnectedness means control and the ability to hoard wealth,
especially that generated by the exportation of valued raw materials.

[1.4.11]
If disconnectedness is the real enemy,
then the combatants we target in this war are
those who promote it, enforce it, and terrorize those
who seek to overcome it by reaching out to the larger world.
Our strategic goals, therefore, are to extend connectivity in every way possible,
but only in a manner that promotes justice as much as order.
Because when we sacrifice, when we suffer, and when we die in this war,
we must know that the good we promote is both immediate and lasting.
Americans need the confidence of knowing that every difficult step we take
represents forward progress on some level.

[1.4.12]
To that end, we need to understand what is really at stake here,
which is nothing less than
the future of globalization itself.
You may say that globalization is not a goal or a strategy
but simply a condition of the world we live in,
and you would be right on many levels.
But globalization is also a historical process,
or something that is defined by a sense of momentum and purpose.
Globalization has a past, which defines its limits,
but likewise a future whose promise it must fulfill [cf.],
otherwise it will become a spent notion
in the minds of political leaders
whose determined actions are required for its continued advance.
In short, once globalization is “done” as far as most leaders are concerned,
the willingness of states to continue compromising with one another
to further its growth will evaporate.
Everyone in this world will lose if this hopeless situation comes to pass,
but more saliently,
the historic window of opportunity will close on a major portion of humanity
currently living outside globalization’s Functioning Core.
That is not just a sad or unjust scenario,
it is one fraught with danger for America—
the world’s biggest economy and
the political ideal most closely associated with globalization’s promise and peril.

[1.4.13]
[In this paragraph, italics are from the original,
while underlining is added by the author of this blog.]

Whether we realize it or not,
America serves as the ideological wellspring for globalization.
These united states still stand as its first concrete expression.
We are the only country in the world purposely built around
the ideals that animate globalization’s advance:
freedom of choice, freedom of movement, freedom of expression.
We are connectivity personified.
Globalization is this country’s gift to history—
the most perfectly flawed projection of the American Dream
onto the global landscape.
[That is verbatim from the original.
As written, it makes no sense to me.]

To deny our parentage of globalization
is to deny our country’s profound role as world leader
over the second half of the twentieth century.
More important, to abandon globalization’s future
to those violent forces hell-bent on keeping this world divided
between the connected and the disconnected
is to admit that we no longer hold these truths to be self-evident:
that all are created equal, and
that all desire life, liberty, and a chance to pursue happiness.
In short, we the people needs to become we the planet.







Chapter 8
Hope Without Guarantees



As Barnett
was instrumental in causing Admiral William Fallon to be, effectively,
fired for his resistance to military measures against Iran
it is important to understand exactly what Barnett’s attitudes and goals are.
He reveals those rather clearly in the conclusion of his book.
Here is an excerpt from pages 379–83;
emphasis is added.




If those are the main challenges and dangers faced
in this Global Transaction Strategy,
then what is a possible story line for
this future worth creating?
[That is a constantly repeated object of Barnett’s affection and attention.]
Let me leave you with this hopeful image,
albeit one with no guarantees.

I see ten steps toward this future worth creating:

1.
Obviously, this all starts with
our efforts to re-create Iraq as
a functioning, connected society within the global economy.
Progress here will be measured in
the ability of the Iraqi people to assume control over their own destiny
as quickly as possible,
but likewise in the sheer amount of individual transactions that arise
between that battered society and the outside world.
Democracy is not the key bellwether,
nor is the complete eradication of violent terrorism,
which is likely to last for many years.
But show me an Iraq that is as globally connected as an Israel in ten years,
and I will show you a Middle East that can never go back
to what it has been these past two decades—
overwhelmingly disconnected,
populated with dispirited youth, and
enraged beyond our capacity for understanding.



2.
Kim Jong Il must be removed from power and Korea must be reunited....



3.
Iran will experience an overthrow of the mullahs’ rule by 2010, and this
still-talented and potentially vibrant pillar of a transformed Middle East
will once again
assume a position of serious standing in global society.
The counterrevolution has already begun,
and it will continue to flare up periodically
until some trigger sets off the big explosion.
Current president Mohammad Khatami
is a would-be Gorbachev awaiting his Chernobyl-like spark,
which America would do well to engineer
by making Iraq the greatest reclamation project the world has ever seen.
If that is not enough, then
Iran must become the main focus of our pressure for change
once Kim is dethroned in North Korea
[that was item number two on Barnett’s global to-do list;
item one is “success in Iraq” (my quotes)],
if only for
the regime’s continued support of
transnational terrorist groups in general
and al Qaeda in particular.




4.
There will be a negotiations breakthrough on the proposed
Free Trade Area of the Americas,
and this dream will become a reality by 2015....



5.
The Middle East will be transformed over the next two decades.
The rehabilitation of Iraq will be a major trigger,
but a far greater one will be
the world moving beyond oil and into natural gas and hydrogen.
The shift to natural gas alone
will increase connectivity between the region and the outside world,
as we are already seeing in Saudi Arabia,
but the shift to fuel cells powering automobiles will mean
the oil-rich states of the region will finally have to develop their economies
and move off the “trust fund” model of nondevelopment.
A key step in this process will be in
the massive revamping and commensurate buildup of their educational systems,
which right now do not produce enough young people
with viable skills to succeed in a global economy.
U.S. pressure in this regard should focus on the House of Saud,
getting it to stop its significant support for religious schools that,
in the words of Fareed Zakaria,
specialize in churning out “half-educated, fanatical Muslims
who view the modern world and non-Muslims with great suspicion.”



6.
[China]



7.
[An Asian NATO.]



8.
[The Asian NATO meets NAFTA,]



9.
The United States will admit new members to its union in coming decades,
and these will come first from the Western Hemisphere,
but over time from the outside as well.
By 2050, the United States could include a dozen more states.
The first president of Mexican heritage
will be elected directly from a Mexican state.
But this historical pathway will not be contiguous,
as we have learned in the cases of Hawaii and Alaska,
and there is nothing wrong with cherry-picking the best economies
as an inducement
for harmonizing economic policies throughout the Western Hemisphere.



10.
[Africa]



Perhaps all this qualifies me as a dreamer, but

I do believe that
all meaningful borders can be erased, and
all religious differences rendered harmless
as sources of mass violence.
I believe
the end of war is within our historical grasp,
and that I will live to witness this historical achievement.

But
nothing worth that much for so many can come without real sacrifice.

America must convince itself and the rest of the Core
that it is worthwhile shrinking the Gap,
and that the leading edge of that effort must be
extending the Core’s collective security rule sets
into those regions suffering the worst deficits.

America has made this effort before and changed the world.
Now is the time to rededicate this nation
to a new long-term strategy
much as we did following World War II,
when we began an exporting of security
that has already made war only a memory
for more than half the world’s population,
enabling hundreds of millions to lift themselves out of poverty
in the last couple of decades alone.
It is our responsibility and out obligation]
to give peace the same chance in the gap.

[End of excerpt
from pages 379–83 of The Pentagon’s New Map.]







Miscellaneous Articles


2008


2008-09-09-Woodward-Keane
'You're Not Accountable, Jack'
How a Retired Officer [General Jack Keane]
Gained Influence at the White House and in Baghdad

By Bob Woodward
Washington Post, 2008-09-09
[An excerpt from The War Within by Bob Woodward.]

[First, the subtitle is deceptive.
The article says next to nothing about
how Gen. Keane gained influence at the White House,
but rather focuses on how that influence was used
to influence war and personnel policies.

Second, and more important,
how on earth can the Post get away with not pointing out
Keane’s extensive business interests,
as listed here,
nor his close ties and professional affiliations
to the AEI (a center for the neocons) and, in particular, to Frederick Kagan,
nor, finally, that in December 2006 he co-authored with Kagan
the report “Choosing Victory: A Plan for Success in Iraq”?

What is the difference between
the actions recommended by that Kagan/Keane AEI report
and those he pushed on the US government?

In any case, the key point is that
the Post is passing off as the work of retired General Keane
what is actually work of the neocon establishment.
Yet another case of information hiding by the Post.



Here are some excerpts; emphasis is added.]


Retired Army Gen. Jack Keane
came to the White House on Thursday, Sept. 13, 2007,
to deliver a strong and sober message.
The military chain of command, he told Vice President Cheney,
wasn’t on the same page as the current U.S. commander in Iraq,
Gen. David H. Petraeus.
The tension threatened to undermine Petraeus’s chances of continued success,
Keane said.

Keane, a former vice chief of the Army,
was 63, 6-foot-3 and 240 pounds,
with a boxer’s face framed by tightly cropped hair.
As far as Cheney was concerned, Keane was outstanding --
an experienced soldier who had maintained great Pentagon contacts,
had no ax to grind and
had been a mentor to Petraeus.

Keane was all meat and potatoes;
he didn’t inflate expectations or waste Cheney’s time.

[This is how the Post describes Keane to its readers.
In the context of this story, is it journalistically responsible
to omit any mention of Keane’s extensive business interests,
as noted here?
I certainly don’t think so.
How do we know Keane is not slanting his advice
to reflect the desires of his business clients?
Does Keane currently receive, or has he received in the past,
financial support from the AEI?
Remember that Kissinger was not allowed to chair the 9/11 commission
because of the possibility that
his business interests (he would not identify the clients of his consulting firm)
might influence his actions.
Why is Keane’s situation any different?
Why does our “elite” allow this obvious potential conflict of interest
to go unreported?


(Recall, for comparison, the stink that was made [“The Tarnished Brass”]
over the undisclosed business interests of the retired generals
who provided commentary during the invasion of Iraq.
Although the point there was
desiring to preserve business relations with the Pentagon,
the desire to preserve business relations
with, let’s fact it, Jews in the business and financial community
surely is equally a potent potential factor.)]


By the late summer of 2007,
Keane had established an unusual back-channel relationship
with the president and vice president,
a kind of shadow general advising them on the Iraq war.


...

Ever since [General David] Petraeus had taken over as the Iraq commander,
Keane had been making regular visits to Baghdad to see his protégé.
Upon his return to Washington,
Keane would come to the White House or the vice president’s residence,

establishing a line of communication --
Petraeus to Keane to Cheney and Bush --
around the official chain of command.


...

[W]hen Keane found that he couldn’t get clearance to go to Iraq,
he called John Hannah, Cheney’s national security adviser,
to report what had happened.

[Omitting the details,
according to the article Bush and Cheney each ordered the SecDef
to override the JCS chairman
and give Keane all the access to Iraq that he wished.]


...

[The day after SecDef Gates announced the resignation
of CENTCOM chief Adm. Fox Fallon, 2008-03-12],
[Keane] sent an e-mail to
[Lt. Gen. Peter Chiarelli, senior military assistant to Defense Secretary Gates].

“Subject: Food for Thought
“Pete, a way ahead after Fox Fallon:
Announce Petraeus as replacement but do not assign till fall or early winter. . . .
Assign Odierno, who will have had six months back in states,
to replace Petraeus.”

Gen. Raymond T. Odierno, a towering Army officer,
had previously been the corps commander in Baghdad.
“Believe this provides the strongest team we have to the key vacancies.
For what it’s worth.
Best, JK.”

Chiarelli e-mailed back 20 minutes later.
“Sir -- do you want me to pass to the SD?”
SD was shorthand for the secretary of defense.

By all means, Keane said.



While in Iraq, Keane talked to Petraeus about his future.
Petraeus’s next assignment -- commander of NATO -- seemed set.

NATO was important, Keane said, but its time had passed.
The international center of gravity had moved to the Middle East.

“We’re going to be here for 50 years minimum,
most of the time hopefully preventing wars,
and on occasion having to fight one,
dealing with
radical Islam,
our economic interests in the region
and trying to achieve stability,”

Keane said.

[In other words, the agenda of the Neocomintariat.]

This shift would have huge implications for
how the U.S. military would be educated and trained.
[Which is controlled by the Department of the Army, not combatant commands.]
“We’re going to do it anyway because we don’t have a choice,”
Keane said.
“So the issue is: Get over it. Come to grips with it.”
The Army didn’t want that.
“It wants to end a war and go home. But that’s not going to happen.”

[So much for the notion that
this retired four star general and vice chief of staff for the Army
is in sync with
the sentiments of the vast majority of the Army’s general officers.
Rather, he is in total sync with the wishes of the neocons.]




On April 7, 2008, Gates invited Keane to brief him at the Pentagon.

“Assign Petraeus to CentCom,” Keane urged.
Delay the assignment until the fall.
Make Odierno the new Iraq commander.
Odierno was an unsung hero with intellect and moral courage, Keane said.

“Let’s be frank about what’s happening here,” Keane told Gates.
“We are going to have a new administration.
Do we want these policies continued or not?
Do we want the best guys in there who were involved in these policies,
who were advocates for them?

Let’s assume we have a Democratic administration
and they want to pull this thing out quickly,
and now they have to deal with General Petraeus and General Odierno.
There will be a price to be paid to override them.”


[The situation (which is real) that Keane is describing is this:
If America’s political leadership tries to pull out of Iraq,
the media will create a firestorm of protest, asserting
“You’re letting down the troops,”
using Generals Petraeus and Odierno as lead examples,
and highlighting quotes from them about how we need to
“stay the course until victory is won.”

This should be compared to two examples in the past.

When Army Chief of Staff Eric Shinseki, in open testimony to Congress in Feb. 2003,
declared that the U.S. was going into Iraq with inadequate troop quantity,
hardly anyone in the media made a peep of protest.
Nobody took his side in the argument with Wolfowitz and Rumsfeld.
No one went out and found quotes to support Shinseki,
which they could very easily have done.

Also, as Woodward described earlier in this series,
in 2006 when the entire JCS opposed the surge,
while the media did report this opposition,
so far as I know no editorial pages went to bat for the JCS.

The moral: whatever Israel wants, the media will find a way to support.]

Labels: , ,

2005-03-01

The federal budget







































For an outstandingly responsible organization, see the
Committee for a Responsible Federal Budget.














2004


2004-12-06-Payne-entitlements
Coercive Compassion
By James L. Payne
The American Conservatie, 2004-12-06

Entitlements rely on force.




2008


2008-11-05-CSM-CRFB-Panetta-Frenzel
Who bails out the US government?
No one. We have to avert the need for that by reprioritizing now.
By Leon E. Panetta and Bill Frenzel
Christian Science Monitor, 2008-11-05

[Emphasis is added.]

[1]
Just as homeowners and financial firms have been living beyond their means,
so, too, has the federal government.
The question then is:
Who bails out the US government when Washington overspends?

[2]
Unlike when a firm is in danger,
if the US government collapses there is no backstop;
there is no one to bail us out.

[3]
What the government needs is a plan
that puts the US on a gradual path to bring the budget back into balance
before a financial crisis larger than this one forces us to.

[4]
Though the $700 billion package comes at a time of need,
it comes also at a time when the government’s finances are weak.
The danger is that
in trying to bail out one exploding economic bubble
the nation may be creating another debt bubble that will ultimately explode.

[5]
Rather than paying off our mounting and increasingly burdensome debt,
we borrow more every year.
The federal debt is currently $10 trillion,
and next year’s deficit is likely to add more than $1 trillion more.
And even these numbers pale in comparison to our implicit exposure,
as we’ve promised $40 trillion in pension, Social Security, and Medicare benefits.

[6]
As subprime mortgage holders were relying on
the housing market to continue to grow
at the anomalous rate seen in the late 1990s and early 2000s,
politicians are counting on impossible levels of economic growth
to sustain Washington’s addiction to debt.

[7]
When that growth doesn’t occur – and it won’t –
and America’s Financiers realize it isn’t coming,
there will be serious trouble.

[8]
The next months will be devoted in large part
to dealing with the flagging economy, and rightly so.
Policymakers must act now to fix the budget mess and stabilize the economy.

[9]
Plans for further bailouts and stimulus must include
consideration for the bottom line of the government –
we can lend money now, but recouping some of that money for the government
should be part of any plan.

[10]
As enticing as it is to offer the American public
trillions of dollars in tax cuts,
it’s not feasible right now.
There is just no more room in the budget
for the kind of deficit expanding policies
both Sen. John McCain and Sen. Barack Obama ran their campaigns on.

[11]
The new president should immediately hold an emergency economic summit
to deal with the budget deficit crisis.

[12]
A budget turnaround will require tough choices from all policymakers.
New priorities such as expanding healthcare and cutting taxes
may have to be shelved.
Popular programs including Social Security and Medicare
will not be exempt as spending is curbed.
Taxes are more likely to go up than down
so we will have to reinvent the way we tax
to raise more revenue with less economic distortion.

[13]
To be sure, crafting such a deal will be immensely challenging.
But this situation requires leadership willing to tackle this problem seriously.

[14]
The economy has just given us a wake up call:
never-ending borrowing schemes come to ugly end.
The federal government has been on a borrowing binge that cannot continue.



Leon E. Panetta, former chief of staff to President Bill Clinton
and Bill Frenzel, former Republican member of Congress,
are the co-chairs of the Committee for a Responsible Federal Budget.



2009-05-18-Samuelson
Obama's Risky Debt
By Robert J. Samuelson
Washington Post Op-Ed, 2009-05-18

[The conclusion of the column:]

...

The Obama budgets flirt with deferred distress,
though we can’t know what form it might take or when it might occur.
Present gain comes with the risk of future pain.

As the present economic crisis shows,
imprudent policies ultimately backfire,
even if the reversal’s timing and nature are unpredictable.

The wonder is that these issues have been so ignored.

Imagine hypothetically that a President McCain
had submitted a budget plan identical to Obama’s.
There would almost certainly have been a loud outcry:
“McCain’s Mortgaging Our Future.”
Obama should be held to no less exacting a standard.



2009-06-04-NYT-Schwartz-interest-on-debt
Rising Interest on Nations’ Debts May Sap World Growth
By NELSON D. SCHWARTZ
New York Times, 2009-06-04

[1]
As governments worldwide try to spend their way out of recession, many countries are finding themselves in the same situation as embattled consumers: paying higher interest rates on their rapidly expanding debt.

[2]
Increased rates could translate into hundreds of billions of dollars more in government spending for countries like the United States, Britain and Germany.

[3]
Even a single percentage point increase could cost the Treasury an additional $50 billion annually over a few years — and, eventually, an additional $170 billion annually.

[4]
This could put unprecedented pressure on other government spending, including social programs and military spending, while also sapping economic growth by forcing up rates on debt held by companies, homeowners and consumers.

[5]
“It will be more expensive for everybody,” said Olivier J. Blanchard, chief economist of the International Monetary Fund in Washington. “As government borrowing in the world increases, interest rates will go up. We’re already starting to see it.”

[6]
Since the end of 2008, the yield on the benchmark 10-year Treasury note has increased by one and a half percentage points, rising to 3.54 percent from 2 percent, the sharpest upward move in 15 years. Over the same period, the yield on German 10-year bonds has risen to 3.57 percent, from 2.93 percent. And British bond yields have increased to 3.78 percent, from 3.41 percent.

[7]
Concern over the long-term effect of greater debt prompted Ben S. Bernanke, the Federal Reserve chairman, to say in testimony before Congress on Wednesday, “Even as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.”

[8]
For now, the cost of more debt is the price government is willing to pay to spend its way out of recession, hoping that a return to fiscal health will increase tax revenue and repay the debt.

[9]
But in the last three weeks, the pace of the increase in the 10-year Treasury note’s yield has quickened, spurred by a Congressional Budget Office estimate that net government debt will rise to 65 percent of the gross domestic product at the end of fiscal 2010, from 41 percent at the end of fiscal 2008.

[10]
In 2009 and 2010, Washington will sell more than $5 trillion in new debt, according to Citigroup. A decade from now, according to the Congressional Budget office, Washington’s outstanding debt could equal 82 percent of G.D.P., or just over $17 trillion.

[11]
Governments borrow money in part by getting investors to buy their bonds, which are essentially i.o.u.’s. To attract investors for all the new debt, governments will have to compete with stock and corporate bond markets for investors’ money, hence the rising yields.

[12]
Although interest rates remain low by historical standards, the recent spike in rates comes at a critical juncture, threatening to damp the positive effects of new stimulus spending by governments around the world.

[13]
Under President Obama’s 2010 budget, total interest payments by the federal government could rise to $806 billion in 2019, from $170 billion this year, according to the Congressional Budget Office. Much of that projected increase is a result of higher government borrowing, but the forecast also assumes that the average 10-year note yield will increase to 4.7 percent.

[14]
Some of the increase in rates earlier this year actually stems from rising confidence in an economic recovery and growing tolerance for risk, as investors abandon government bonds for higher-yielding but riskier corporate bonds and stocks.

[15]
Now the threat posed by the rise in government debt is getting increasing attention from investors and traders.

[16]
“It’s a gigantic issue,” said Kenneth Rogoff, a Harvard professor and the co-author of a forthcoming book, “This Time is Different: Eight Centuries of Financial Folly.” “It leaves us very vulnerable to a global rise in interest rates that might be substantially beyond our control.”

[17]
Mr. Rogoff estimates that if the budget office’s debt estimate proves correct, every one percentage point increase in rates could eventually cost Washington an added $170 billion a year.

[18]
The long-term situation is particularly perilous, because the added interest costs will worsen what have become record deficits as Washington has rushed to bail out industries and stimulate the economy.

[19]
A year ago, under old budget and policy assumptions and before the financial crisis escalated, the Congressional Budget Office projected that outstanding federal debt would hit $5.3 trillion in 10 years.

[20]
“It’s an exaggeration of course, but it’s a little like what happened to the subprime borrowers,” Mr. Rogoff said. “People are just assuming the funding will always be there.”

...


2009-06-10-NYT-Leonhardt-sea-of-red-ink
America’s Sea of Red Ink Was Years in the Making
By DAVID LEONHARDT
New York Times, 2009-06-10

accompanied by a neat graphic depicting the growth of the deficit

[1]
There are two basic truths about
the enormous deficits that the federal government will run in the coming years.

[2]
The first is that
President Obama’s agenda, ambitious as it may be,
is responsible for only a sliver of the deficits,

despite what many of his Republican critics are saying.
The second is that
Mr. Obama does not have a realistic plan for eliminating the deficit,
despite what his advisers have suggested.


[3]
The New York Times
analyzed Congressional Budget Office reports going back almost a decade,
with the aim of understanding
how the federal government came to be far deeper in debt
than it has been since the years just after World War II.
This debt will constrain the country’s choices for years
and could end up doing serious economic damage
if foreign lenders become unwilling to finance it.

[4]
Mr. Obama — responding to recent signs of skittishness among those lenders —
met with 40 members of Congress at the White House on Tuesday
and called for the re-enactment of pay-as-you-go rules,
requiring Congress to pay for any new programs it passes.

[5]
The story of today’s deficits starts in January 2001,
as President Bill Clinton was leaving office.
The Congressional Budget Office estimated then that
the government would run
an average annual surplus of more than $800 billion a year from 2009 to 2012.
Today,
the government is expected to run
a $1.2 trillion annual deficit in those years.

[6]
You can think of that roughly $2 trillion swing
as coming from four broad categories:
  1. the business cycle,

  2. President George W. Bush’s policies,

  3. policies from the Bush years that are scheduled to expire
    but that Mr. Obama has chosen to extend, and

  4. new policies proposed by Mr. Obama.

[7]
The first category — the business cycle —
accounts for 37 percent of the $2 trillion swing.

It’s a reflection of the fact that
both the 2001 recession and the current one
reduced tax revenue,
required more spending on safety-net programs and
changed economists’ assumptions about
how much in taxes the government would collect in future years.

[8]
About 33 percent of the swing stems from new legislation signed by Mr. Bush.
That legislation, like his tax cuts and the Medicare prescription drug benefit,
not only continue to cost the government
but have also increased interest payments on the national debt.

[9]
Mr. Obama’s main contribution to the deficit is
his extension of several Bush policies,
like the Iraq war and tax cuts for households making less than $250,000.

Such policies — together with the Wall Street bailout,
which was signed by Mr. Bush and supported by Mr. Obama —
account for 20 percent of the swing.

[10]
About 7 percent comes from
the stimulus bill that Mr. Obama signed in February.
And only 3 percent comes [so far] from
Mr. Obama’s agenda on health care, education, energy and other areas.

[11]
If the analysis is extended further into the future, well beyond 2012,
the Obama agenda accounts for only
a slightly higher share of the projected deficits.

[12]
How can that be?
Some of his proposals, like a plan to put a price on carbon emissions,
don’t cost the government any money.
Others would be partly offset by
proposed tax increases on the affluent and spending cuts.
Congressional and White House aides agree that no large new programs,
like an expansion of health insurance,
are likely to pass unless they are paid for.

[13]
Alan Auerbach, an economist at the University of California, Berkeley,
and an author of a widely cited study on the dangers of the current deficits,
describes the situation like so:
“Bush behaved incredibly irresponsibly for eight years.
On the one hand,
it might seem unfair for people to blame Obama for not fixing it.
On the other hand,
he’s not fixing it.”

[14]
“And,” he added, “not fixing it is, in a sense, making it worse.”

[15]
When challenged about the deficit,
Mr. Obama and his advisers generally start talking about health care.
“There is no way you can put the nation on a sound fiscal course
without wringing inefficiencies out of health care,”
Peter Orszag, the White House budget director, told me.

[16]
Outside economists agree.
The Medicare budget really is the linchpin of deficit reduction.
But there are two problems with leaving the discussion there.

[17]
First,

even if a health overhaul does pass,
it may not include the tough measures needed to bring down spending.
Ultimately, the only way to do so
is to
take money from doctors, drug makers and insurers,
and it isn’t clear whether Mr. Obama and Congress
have the stomach for that fight.

[There is an alternative:
simply restrict the types of care for which the government will pay.]

So far, they have focused on
ideas like preventive care that would do little to cut costs.

[18]
Second,
even serious health care reform won’t be enough.
Obama advisers acknowledge as much.
They say that changes to the system
would probably have a big effect on health spending
starting in five or 10 years.
The national debt, however, will grow dangerously large much sooner.

[19]
Mr. Orszag says the president is committed to
a deficit equal to no more than 3 percent of gross domestic product
within five to 10 years.
The Congressional Budget Office projects
a deficit of at least 4 percent for most of the next decade.
Even that may turn out to be optimistic,
since the government usually ends up spending more than it says it will.
So Mr. Obama isn’t on course to meet his target.

[20]
But Congressional Republicans aren’t, either.
Judd Gregg recently held up a chart on the Senate floor showing that
Mr. Obama would increase the deficit —
but failed to mention that much of the increase
stemmed from extending Bush policies.
In fact, unlike Mr. Obama, Republicans favor extending all the Bush tax cuts,
which will send the deficit higher.

[21]
Republican leaders in the House, meanwhile,
announced a plan last week to cut spending by $75 billion a year.
But they made specific suggestions adding up to meager $5 billion.
The remaining $70 billion was left vague.
“The G.O.P. is not serious about cutting down spending,”
the conservative Cato Institute concluded.

[22]
What, then, will happen?

[23]
“Things will get worse gradually,” Mr. Auerbach predicts,
“unless they get worse quickly.”
Either a solution will be put off, or
foreign lenders, spooked by the rising debt,
will send interest rates higher and create a crisis.


[24]
The solution, though, is no mystery.
It will involve some combination of tax increases and spending cuts.
And it won’t be limited to
pay-as-you-go rules,
tax increases on somebody else, or
a crackdown on waste, fraud and abuse.
Your taxes will probably go up,
and some government programs you favor will become less generous.

[25]
That is the legacy of our trillion-dollar deficits.
Erasing them will be one of the great political issues of the coming decade.


2009-06-14-WP
Obama's Spending Plans May Pose Political Risks
Concern Mounts in White House as 2010 Elections Loom
By Scott Wilson
Washington Post, 2009-06-14

its graphic:
“Spending in Perspective”: Federal Projects Compared Against GDP



2009-06-CBO-Long-Term-Budget-Outlook
The Long-Term Budget Outlook
Congressional Budget Office, June 2009

2009-06-26-WP-CBO
CBO Paints Dire Portrait of Long-Term Revenue, Spending
By Lori Montgomery
Washington Post, 2009-06-26

[1]
The nation’s long-term budget outlook
has darkened considerably over the past six months,
and President Obama’s plan to extend an array of tax cuts and other policies
adopted during the Bush administration
has the potential to “create an explosive fiscal situation,”
congressional budget analysts reported yesterday.

[2]
In a new report, the Congressional Budget Office found that
extending the Bush administration tax cuts,
reining in the alternative minimum tax and
canceling a scheduled reduction in payments to Medicare doctors
would dramatically slash tax collections
at a time when federal spending would be “sharply rising.”
The resulting budget gap
would drive the nation’s debt over 100 percent of gross domestic product
by 2023,
the report says,
and past 200 percent of GDP by the late 2030s.

[3]
Obama has not proposed to extend all of the Bush tax cuts,
which are scheduled to expire in December 2010.
But he would keep all cuts benefiting the middle class --
a substantial portion of the total --
and has advocated additional borrowing
to cover the costs of that and other policy changes analyzed by the CBO.

[4]
The CBO released its report on the same day
that White House Office of Management and Budget Director Peter Orszag
appeared on Capitol Hill
to defend Obama’s request
to extend the Bush tax cuts and make other policy changes
without making up the lost revenue.
Orszag argued that
no one has offered “credible proposals” for raising the necessary cash,
and that simply allowing the tax cuts to expire
or permitting a 21 percent cut in payments
to doctors who care for Medicare patients
to proceed next year
would “unrealistically reduce costs or increase revenues.”

[5]
Democratic lawmakers generally agree,
and the budget resolution they adopted earlier this year assumes that
many of the Bush tax cuts will be extended and future deficits will rise.
Yesterday’s CBO report highlights the cost of that trade-off.

[6]
The news is not particularly good
even if the government were to collect the extra money,
primarily because of
the rapidly rising cost of Social Security
and federal health programs for the elderly and the poor.
According to the CBO,
the annual gap between spending and revenue
would briefly drop below 2 percent of GDP in the next decade
before rising to
5.6 percent in 2035,
8.3 percent in 2050, and
nearly 18 percent in 2080.
But the outlook is much worse
if the tax cuts and other policies are extended,
the CBO found:
Annual deficits would never drop below 4 percent of GDP;
they would approach 15 percent by 2035 and surpass 42 percent by 2080.

[7]
Already heavily in debt,
the nation would be forced to borrow
ever more massive sums to keep the government afloat, the CBO warns,
with the national debt nearly 200 percent of the overall economy by 2035.

[8]
“We’re drowning in unprecedented levels of red ink,
and there is no plan to fix the situation.
Having spent over a decade worrying about budget deficits,
I can quite honestly say that things have never looked as bad as they do now,”
said Maya MacGuineas,
president of the bipartisan Committee for a Responsible Federal Budget.
“We need to be focused on slowing spending
and finding better ways to raise revenue,
not on cutting taxes and introducing new entitlement programs.

We can either make these hard choices now,
on our own terms,
or we can make them in a panic
on the heels of a full-blown fiscal crisis.”




2009-06-28-WP-Editorial-CBO
The Debt Tsunami
The CBO's latest warning on the long-term deficit is scarier than ever.
Washington Post Editorial, 2009-06-28



2009-07-16-CBO-Elmendorf
The Long-Term Budget Outlook
by Douglas Elmendorf, director, Congressional Budget Office (CBO)
cboblog.cbo.gov, 2009-07-16

[0]
Today I had the opportunity to testify before the Senate Budget Committee
about CBO’s most recent analysis of the long-term budget outlook.


[1]
Under current law, the federal budget is on an unsustainable path,
because
federal debt will continue to grow much faster than the economy
over the long run.

Although great uncertainty surrounds long-term fiscal projections,
rising costs for health care and the aging of the population
will cause federal spending to increase rapidly
under any plausible scenario for current law.
Unless revenues increase just as rapidly,
the rise in spending will produce growing budget deficits.
Large budget deficits would reduce national saving,
leading to more borrowing from abroad and less domestic investment,
which in turn would depress economic growth in the United States.
Over time, accumulating debt would cause substantial harm to the economy.
The following chart shows our projection of federal debt relative to GDP
under the two scenarios we modeled.

Federal Debt Held by the Public
Under CBO’s Long-Term Budget Scenarios
(Percentage of GDP)


Federal Debt Held by the Public Under CBO’s  Long-Term Budget Scenarios  (Percentage of GDP)


Keeping deficits and debt from reaching these levels would require
increasing revenues significantly as a share of GDP,
decreasing projected spending sharply,
or some combination of the two.

[2]
Measured relative to GDP,
almost all of the projected growth in federal spending
other than interest payments on the debt
stems from the three largest entitlement programs—
Medicare, Medicaid, and Social Security.
For decades, spending on Medicare and Medicaid
has been growing faster than the economy.
CBO projects that if current laws do not change,
federal spending on Medicare and Medicaid combined will grow from
roughly 5 percent of GDP today to
almost 10 percent by 2035.
By 2080,
the government would be spending almost as much, as a share of the economy,
on just its two major health care programs
as it has spent on all of its programs and services in recent years.

[3]
In CBO’s estimates,
the increase in spending for Medicare and Medicaid
will account for 80 percent of spending increases
for the three entitlement programs between now and 2035
and 90 percent of spending growth between now and 2080.
Thus,
reducing overall government spending
relative to what would occur under current fiscal policy
would require fundamental changes in the trajectory of federal health spending.
Slowing the growth rate of outlays for Medicare and Medicaid
is the central long-term challenge for fiscal policy.

[4]
Under current law,
spending on Social Security is also projected to rise over time as a share of GDP,
but much less sharply.
CBO projects that Social Security spending will increase from
less than 5 percent of GDP today to
about 6 percent in 2035
and then roughly stabilize at that level.
Meanwhile, as depicted below,
government spending on all activities other than
Medicare, Medicaid, Social Security, and interest on federal debt—
a broad category that includes national defense
and a wide variety of domestic programs—
is projected to decline or stay roughly stable as a share of GDP
in future decades.

Spending Other Than That for
Medicare, Medicaid, Social Security, and Net Interest,
1962 to 2080 (Percentage of GDP)


Spending Other Than That for Medicare, Medicaid, Social Security, and Net Interest, 1962 to 2080



[5]
Federal spending on Medicare, Medicaid, and Social Security
will grow relative to the economy
both because
health care spending per beneficiary is projected to increase
and because the population is aging.
As shown in the figure below, between now and 2035,
aging is projected to make the larger contribution
to the growth of spending for those three programs as a share of GDP.
After 2035,
continued increases in health care spending per beneficiary
are projected to dominate the growth in spending for the three programs.

Factors Explaining Future Federal Spending on
Medicare, Medicaid, and Social Security
(Percentage of GDP)




[6]
The current recession and policy responses have little effect
on long-term projections of noninterest spending and revenues.
But CBO estimates that in fiscal years 2009 and 2010,
the federal government will record
its largest budget deficits as a share of GDP
since shortly after World War II.

As a result of those deficits,
federal debt held by the public will soar from
41 percent of GDP at the end of fiscal year 2008 to
60 percent at the end of fiscal year 2010.
This higher debt results in
permanently higher spending to pay interest on that debt.
Federal interest payments already amount to more than 1 percent of GDP;
unless current law changes,
that share would rise to 2.5 percent by 2020.



2009-08-24-WT-DioGuardi-time-for-budgetary-truth
Time for budgetary truth
Soaring deficits and national debt are rising concerns
By Joseph J. DioGuardi
Washington Times Op-Ed, 2009-08-24

Joseph J. DioGuardi,
a certified public accountant and
former two-term Republican member of the U.S. House of Representatives
from New York (1985-89),
is a public advocate for fiscal responsibility
as the leader of Truth In Government,
a nonpartisan, nonprofit organization.



2009-08-31-Samuelson
Ducking the Deficit Issue
By Robert J. Samuelson
Washington Post Op-Ed, 2009-08-31


















2010


2010-02-02-NYT-FY2011-Budget
In $3.8 Trillion Budget,
Obama Pivots to Trim Future Deficits

By JACKIE CALMES and JEFF ZELENY
New York Times 2010-02-02

[Here is the beginning of the preliminary web version as of 2010-02-01:]

WASHINGTON — President Obama sent Congress on Monday a proposed budget of $3.8 trillion for the fiscal year 2011, saying that his plan would produce a decade-long reduction in the deficit from $1.6 trillion this year, a shortfall swollen by $100 billion in additional tax cuts and public works spending that he is seeking right away.

“We simply cannot continue to spend as if deficits don’t have consequences, as if waste doesn’t matter, as if the hard-earned tax money of the American people can be treated like Monopoly money,” Mr. Obama said at the White House.

But at the end of the decade, the yearly deficits would begin moving up again, as the projected costs of health and retirement programs for an aging population start to escalate, according to forecasts in the administration’s new blueprint.

...



[The as-published version begins:]

[1]
President Obama declared in presenting his new 10-year budget proposal on Monday that “our fiscal situation remains unacceptable,” but he insisted that the country pursue his ambitious domestic agenda despite facing swollen budget deficits for the foreseeable future.

[2]
“Just as it would be a terrible mistake to borrow against our children’s future to pay our way today, it would be equally wrong to neglect their future by failing to invest in areas that will determine our economic success in this new century,” Mr. Obama said at the White House.

[3]
The budget projects that the deficit will peak at nearly $1.6 trillion in the current fiscal year, a post-World War II record, and then decline but remain at economically troublesome levels over the remainder of the decade. In the coming fiscal year 2011, which begins in October, the projected shortfall would be under $1.3 trillion.

...

Mr. Obama does not make the really hard choices
about entitlement programs — Medicare and Medicaid, especially —
and about taxes
that most budget analysts say are essential to cut annual deficits
and to begin paying down an accumulated debt.



2010-02-02-NYT-Sanger-FY2011-Budget
Deficits May Alter U.S. Politics and Global Power
By DAVID E. SANGER
New York Times Analysis, 2010-02-02

...

His greatest hope, [Prof. James K. Galbraith] said,
was Stein’s law, named for Herbert Stein,
chairman of the Council of Economic Advisers
under Presidents Richard M. Nixon [37] and Gerald R. Ford [38].

Stein’s law has been recited in many different versions.
But all have a common theme:
If a trend cannot continue, it will stop.

[That is how the article (or “analysis”) concludes.
But a more complete, and responsible, analysis would not stop there,
but would go on to make several points
regarding Galbraith’s invocation of Stein’s law in this context.

Galbraith is quite wrong, it seems to me, to see any “hope” in that law,
in and of itself.
(By the way, that “law” is, essentially, merely a tautology.)

It should not be interpreted, as apparently it is by some (Galbraith is not the first),
as saying or suggesting that we need do nothing about
a trend that is sure to stop, somehow or another.
The question is not will some trend stop,
but rather how it will stop,
and
who will be the winners and losers produced by the way it stopped.

Take the instance relevant here,
the monotonically increasing buildup of federal deficit and debt.
The question is how will this end.
Four ways seem possible:
  • Fed-induced inflation, to inflate away the debt
    (always a favorite of debtors, but not of creditors).

  • An out-and-out United States default on its debt.

  • Crushing tax burdens on future generations
    to pay down the debt the current generation has left to them.

  • Effective efforts, now, to eliminate the deficit.
Clearly, at least to me,
each possible outcome will have its own set of winners and losers.
The challenge for our political system is to determine
who those winners and losers will be.
The current game plan is:
The current geriatric set wins
their best attempt at staving off the inevitable effects of aging;
the health care industry gets rich off those attempts, and
future generations get stuck with the debt.]




2010-02-08-Samuelson-candor-gap
America's candor gap on the budget
By Robert J. Samuelson
Washington Post Op-Ed, 2010-02-08

[1]
In all the recent reports, speeches and news conferences
concerning the federal budget outlook --
including the administration’s proposed budget for 2011 --
hardly anyone has posed these crucial questions:
What should the federal government do and why;
and who should pay?

We ought to go back to first principles of
defining a desirable role for government
and abandon the expedient of assuming that
anyone receiving a federal benefit is morally entitled to it
simply because it’s been received before.

[2]
We have a massive candor gap,
led by President Obama but also implicating most leaders of both parties.
The annual budget necessarily involves a bewildering blizzard of numbers.
But just a few figures capture the essence of our predicament.

[3]
First, from 2011 to 2020,
the administration projects
total federal spending of $45.8 trillion against
taxes and receipts of $37.3 trillion.
The $8.5 trillion deficit is almost a fifth of spending.
In 2020, the gap is $1 trillion, again approaching a fifth:
Spending is $5.7 trillion, taxes $4.7 trillion.
All amounts assume a full economic recovery;
all projections may be optimistic.
The message: There’s a huge mismatch between
Americans’ desire for low taxes and high government services.

[4]
Second, almost $20 trillion of the $45.8 trillion of spending
involves three programs --
Social Security,
Medicare (health insurance for those 65 and over) and
Medicaid (health insurance for the poor --
two-thirds goes to the elderly and disabled).
The message:
The budget is mainly a vehicle for
transferring income to retirees from workers, who pay most taxes.
As more baby boomers retire in the 2020s, deficits would grow.

[5]
Third,

there is no way [original emphasis]
to close the massive deficits without
big cuts in existing government programs or
stupendous tax increases.

Suppose we decided to cover all future deficits by raising taxes.
Taxes would rise in the 2020s
by roughly 50 percent from the average 1970-2009 tax burden.

[6]
That’s the guts of it.
At age 65, average Americans live for another 18 years.
Government now subsidizes each of them an average of about $25,000 a year
(almost $14,000 Social Security, $11,000 Medicare).
We cannot sensibly afford all these subsidies without
oppressive tax increases (see above),
deep cuts in defense and other programs or
immense budget deficits that someday might trigger another financial crisis.
[“Might” is way too weak here. “Will” is the right word.]
Bond buyers might balk at swallowing so much government debt.
By the administration’s estimates,
that publicly held debt (the accumulation of all annual deficits)
balloons from $5.8 trillion in 2008 to $18.6 trillion in 2020.

[7]
Eligibility ages for Social Security and Medicare
should be gradually raised to 70,
coupled with a requirement for people to buy into Medicare at 65.
Wealthier retirees should receive lower Social Security benefits
and pay more for Medicare.
Programs that have outlived their usefulness need to be abolished:
farm subsidies, for instance.
Even with these cuts, future taxes would need to rise.
Unless you’re confronting these issues -- and Obama isn’t --
you’re evading the central budget problems.

[8]
True, this is a confusing time to engage.
Trying to cut the deficit immediately could undermine the economic recovery;
what’s needed are credible steps to curb future deficits.
It’s also true that Republican presidents and congressional leaders
(some exceptions: Rep. Paul Ryan and Sen. Judd Gregg)
have ducked the hard questions.
Finally,
Obama has endorsed a bipartisan commission to propose budget changes.
But the commission’s powers are unclear,
and the administration’s goal is modest.
It’s not to balance the budget; the aim is merely a smaller deficit --
one limited to the annual interest payments on the debt.
By the administration’s estimates,
that implies a deficit of $571 billion in 2015 instead of $752 billion.
No big deal.

[9]
We can no longer just tinker.
We need to ask whether government spending serves genuine public purposes
or merely benefits favored constituencies.
Delay in acting has already eliminated a long grace period
to prepare for reduced retirement benefits
or to wind down useless programs.
Now, we are condemned to be unfair.
If we don’t cut spending, the young may complain (correctly)
that they’re burdened with crushing tax increases;
if we do cut spending, beneficiaries may complain (correctly)
that they didn’t receive ample warning.

[10]
The politics of procrastination is bipartisan and rests on shared assumptions:
that the public won’t stomach hard choices;
that we don’t know whether large budget deficits will produce a crisis or when;
and that, therefore,
the easiest political course is to dawdle and blame the other party.
But this self-serving inattention, coupled with much larger deficits,
is tempting fate.
If investors lose confidence in Treasury bonds,
they would demand much higher interest rates.
The ensuing crisis
would almost certainly compel abrupt spending cuts and tax increases
that would make today’s choices look gentle.























2011





2011-08-08-Samuelson-budget-deal
The welfare state wins this budget war
By Robert J. Samuelson
Washington Post Opinion, 2011-08-08

...

But the budget deal does reflect national priorities, for good or ill.
It’s mostly a triumph of the welfare state over the Pentagon.
Even before the deal, the Obama administration projected that —
assuming continued withdrawals from Iraq and Afghanistan —
defense spending would shrink to 15 percent of the budget by 2016.
This would be the lowest share since before World War II.
The deal’s cuts, potentially as much as $950 billion over a decade,
would reduce that further.
In the 1950s and ’60s, defense often was half of the budget.

Drastic military retrenchment seems unwise.
It would threaten readiness, training and the replacement of aging weapons.
Many planes, ships and vehicles are approaching or have passed
their planned service lives,
says Heritage Foundation defense analyst Mackenzie Eaglen.
To take one example:
F-18s were designed to fly for 6,000 hours;
now, many are headed toward 10,000, she notes.

The defense cuts show how, contrary to conventional wisdom,
the budget deal reflects liberal preferences.
The liberal agenda came in three parts:
First, raise taxes on high-income Americans to limit domestic spending cuts;
second, protect the social “safety net,” especially Social Security and Medicare;
and finally, cut defense spending to spare (again) domestic programs.

Liberals got two of three.
They failed on taxes, the Republicans’ litmus test.
But they prevailed elsewhere.
Social Security, Medicare and most benefits (food stamps, Medicaid) for the poor, regardless of age, were put off-limits.
Medicare reimbursement rates might be cut by 2 percent as part of a second round of reductions,
but that’s small potatoes.
Because retiree benefits constitute half of non-interest federal outlays,
the deal isn’t hard on overall government spending.

The real budget story is how protecting these vast retiree benefits
dominates policymaking.
If you shield almost half of spending and still want to cut,
pressure intensifies on everything else.
Along with defense, the budget deal also squeezes that catch-all category,
“domestic discretionary spending.”
This covers many programs:
roads, food safety, financial regulation, grants to states and localities, and much more.

We are penalizing general government to protect all retirees,
no matter how healthy or wealthy.
Earlier this year, the Congressional Budget Office projected that
domestic discretionary spending
would drop 30 percent — as a share of the economy — from 2011 to 2021.
The budget deal will deepen that.
President Obama keeps saying this spending will fall,
again as a share of the economy,
to its lowest level since Eisenhower.
Why is he bragging about this?

The conventional wisdom holds that Republicans, hostage to the Tea Party,
prevented a larger and more “balanced” deal
by their rejection of any tax increases — ever.
Not so.
It’s true that Republicans were unbending on taxes
and, at times, reckless in their rhetoric.
It’s also true that, even with sizable spending cuts,
tax increases will ultimately be needed to balance the budget.
But it’s not true that only the right blocked a more comprehensive agreement.

Although Obama said he was willing to trim “entitlements” —
presumably, Social Security and Medicare —
he never laid out specific proposals or sought public support for them.
There was more talk than action.
Even if Obama had been more aggressive,
he probably wouldn’t have carried most liberals, who adamantly oppose cuts.
They regard Social Security and Medicare as sacrosanct.
Not a penny is to be trimmed from benefits.


This is an extreme, even fanatical stance.
Social Security and Medicare do create a safety net
for many millions of poor and near-poor retirees.
But for millions of wealthier retirees, they are handouts.
Liberals’ unwillingness to admit and act on this distinction
has long stifled meaningful budget debate.
This would have doomed a bigger agreement.

Both the ideological right and left would have objected.
The center couldn’t have overcome that alliance.
We got what politics permitted.
It’s a modest package.
If fully implemented, it won’t dramatically affect economic growth.
It would still leave large deficits —
by one estimate, 3.5 percent of gross domestic product in 2021.
That projection assumes that the economy regains “full employment.”
This would usually be a safe bet,
but after last week’s dramatic market turbulence, who knows?

[My opinion: Samuelson is being overly wishy-washy on this.
Due to the fact that so much of what we buy is now being made overseas,
or otherwise outside of this country,
there is no way to restore the country to fiscal and trade health
without directly reducing that imbalance.
But our "elite" absolutely refuses to acknowledge, let alone address,
that fundamental issue.

Further, it is pathetic that the Fed is being called upon to produce adequate employment in the current circumstances.
It quite simply is the wrong tool for that job.
Oh sure, if the country's employment problems were due to monetary policy,
as the experts say they were in the Great Depression,
then adjusting monetary policy is the right corrective.
But the current problems are quite clearly not due to monetary policy,
but due to the fact that the American worker is no longer competitive in the international workforce.
If you doubt that, why do we buy so much from overseas?
Is that due to monetary policy differences?]

Labels: , ,

The federal deficit






2009




2009-10-16-AP-record-1.4-trillion-deficit
Federal Deficit Hits All-Time High of $1.42 Trillion
By THE ASSOCIATED PRESS, 2009-10-16
Filed at 8:42 p.m. ET

WASHINGTON (AP) –

[1]
What is $1.42 trillion? It’s more than the total national debt for the first 200 years of the Republic, more than the entire economy of India, almost as much as Canada’s, and more than $4,700 for every man, woman and child in the United States.

[2]
It’s the federal budget deficit for 2009, more than three times the most red ink ever amassed in a single year.

[3]
And, some economists warn, unless the government makes hard decisions to cut spending or raise taxes, it could be the seeds of another economic crisis.

[4]
Treasury figures released Friday showed that the government spent $46.6 billion more in September than it took in, a month that normally records a surplus. That boosted the shortfall for the full fiscal year ending Sept. 30 to $1.42 trillion. The previous year’s deficit was $459 billion.

[5]
As a percentage of U.S. economic output, it’s the biggest deficit since World War II.

[6]
“The rudderless U.S. fiscal policy is the biggest long-term risk to the U.S. economy,” says Kenneth Rogoff, a Harvard professor and former chief economist for the International Monetary Fund. “As we accumulate more and more debt, we leave ourselves very vulnerable.”

[7]
Forecasts of more red ink mean the federal government is heading toward spending 15 percent of its money by 2019 just to pay interest on the debt, up from 5 percent this fiscal year.

[8]
President Barack Obama has pledged to reduce the deficit once the Great Recession ends and the unemployment rate starts falling, but economists worry that the government lacks the will to make the hard political choices to get control of the imbalances.

[9]
Friday’s report showed that the government paid $190 billion in interest over the last 12 months on Treasury securities sold to finance the federal debt. Experts say this tab could quadruple in a decade as the size of the government’s total debt rises to $17.1 trillion by 2019.

[10]
Without significant budget cuts, that would crowd out government spending in such areas as transportation, law enforcement and education. Already, interest on the debt is the third-largest category of government spending, after the government’s popular entitlement programs, including Social Security and Medicare, and the military.

[11]
As the biggest borrower in the world, the government has been the prime beneficiary of today’s record low interest rates. The new budget report showed that interest payments fell by $62 billion this year even as the debt was soaring. Yields on three-month Treasury bills, sold every week by the Treasury to raise fresh cash to pay for maturing government debt, are now at 0.065 percent while six-month bills have fallen to 0.150 percent, the lowest ever in a half-century of selling these bills on a weekly basis.

[12]
The risk is that any significant increase in the rates at Treasury auctions could send the government’s interest expenses soaring. That could happen several ways -- higher inflation could push the Federal Reserve to increase the short-term interest rates it controls, or the dollar could slump in value, or a combination of both.

[13]
The Congressional Budget Office projects that the nation’s debt held by investors both at home and abroad will increase by $9.1 trillion over the next decade, pushing the total to $17.1 trillion decade under Obama’s spending plans.

[14]
The biggest factor behind this increase is the anticipated surge in government spending when the baby boomers retire and start receiving Social Security and Medicare benefits. Also contributing will be Obama’s plans to extend the Bush tax cuts for everyone except the wealthy.

[15]
The $1.42 trillion deficit for 2009 -- which was less than the $1.75 trillion that Obama had projected in February -- includes the cost of the government’s financial sector bailout and the economic stimulus program passed in February. Individual and corporate income taxes dwindled as a result of the recession. Coupled with the impact of the Bush tax cuts earlier in the decade, tax revenues fell 16.6 percent, the biggest decline since 1932.

[16]
Immense as it was, many economists say the 2009 deficit was necessary to fight the financial crisis. But analysts worry about the long-term trajectory.

[17]
The administration estimates that government debt will reach 76.5 percent of gross domestic product -- the value of all goods and services produced in the United States -- in 2019. It stood at 41 percent of GDP last year. The record was 113 percent of GDP in 1945.

[18]
Much of that debt is in foreign hands. China holds the most -- more than $800 billion. In all, investors -- domestic and foreign -- hold close to $8 trillion in what is called publicly held debt. There is another $4.4 trillion in government debt that is not held by investors but owed by the government to itself in the Social Security and other trust funds.

[19]
The CBO’s 10-year deficit projections already have raised alarms among big investors such as the Chinese. If those investors started dumping their holdings, or even buying fewer U.S. Treasurys, the dollar’s value could drop. The government would have to start paying higher interest rates to try to attract investors and bolster the dollar.

[20]
A lower dollar would cause prices of imported goods to rise. Inflation would surge. And higher interest rates would force consumers and companies to pay more to borrow to buy a house or a car or expand their business.

[21]
“We should be desperately worried about deficits of this size,” says Mark Zandi, chief economist at Moody’s Economy.com. “The economic pain will be felt much sooner than people think, in the form of much higher interest rates and much higher rates of inflation.”

[22]
If all that happened rapidly, it could send stock prices crashing and the economy tipping into recession. It could revive the pain of the 1970s, when the country battled stagflation -- a toxic mix of inflation and economic stagnation.

[23]
Paul Volcker, then the chairman of the Federal Reserve, responded by raising interest rates to the highest levels since the Civil War in a determined effort to combat a decade-long bout of inflation. His campaign pushed banks’ prime lending rate above 20 percent in 1981 and sent the country into what would be the longest post-World War II downturn before the current slump. Unemployment jumped to a postwar high of 10.8 percent in December 1982.

[24]
The battle against inflation, though, was won.

[25]
Most economists say we have time before any crisis hits. In part, that’s because the recession erased worries about inflation for now. In its effort to stimulate the economy, the Fed cut a key interest rate to a record low last December and is expected to keep it there possibly through all of next year. Demand for loans by businesses and consumers is so weak that low rates are not seen as a recipe for inflation.

[26]
Some hold out hope that Congress and the administration will act before another crisis erupts.

[27]
Robert Reischauer, a former head of CBO, said that in an optimum scenario, Congress will tackle the deficits next year. A package of tax increases and spending cuts could be phased in starting in 2013 and gradually grow over the next decade.

[28]
The administration has pledged to include a deficit-reduction plan in its 2011 budget, which will go to Congress in February.

[29]
Stanley Collender, a budget expert at Qorvis Communications and a former staff aide to House and Senate budget committees, cautions that unless investors show nervousness about the debt, the budget debate next year could feature more posturing between the two parties than any real action to fix the problems.

2009-10-17-NYT-record-1.4-trillion-deficit
$1.4 Trillion Deficit Complicates Stimulus Plans
By JACKIE CALMES
New York Times, 2009-10-17

[The NYT’s rewrite of the above AP story.]


2009-10-17-WP-record-1.4-trillion-deficit
Record-High Deficit May Dash Big Plans
$1.4 Trillion in Red Ink
Means Less to Spend On Obama's Ambitious Jobs, Stimulus Policies

By Lori Montgomery and Neil Irwin
Washington Post, 2009-10-17

[The WP’s rewrite of the above AP story.]






2009-12-14-Peterson-Pew-Budget-Commission-Red-Ink-Rising
Red Ink Rising
by the Peterson-Pew Budget Reform Commission
budgetreform.org, 2009-12-14

In Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt
[36 pages, PDF],
The Peterson-Pew Commission on Budget Reform
calls on policy makers to stabilize the national debt through a six-step plan.
Crafted over the past year by former heads of
the CBO, OMB, GAO, and the congressional budget committees,
the plan reflects a bipartisan approach
to avoiding the tremendous global risks of America’s expanding debt,
without destabilizing the economic recovery.
Red Ink Rising is the first of two major reports to be released by the commission.



2009-12-18-WP-Broder-Peterson-Pew
Calling on Congress to stop the debt tsunami
By David S. Broder
Washington Post Op-Ed, 2009-12-18

[1]
The 34 names are familiar to anyone
who has followed economic policy in Washington for the past generation,
one-third of them former chairmen or members of key committees of Congress,
seven of them former directors of
the White House Office of Management and Budget,
two of them former comptroller generals of the United States,
seven of them former directors of the Congressional Budget Office,
and one of them -- Paul Volcker --
a former chairman of the Federal Reserve System
and now an adviser to President Obama.

[2]
Both political parties are well represented in their number.
But they came together this week as signatories of a nonpartisan manifesto,
essentially a stark warning to the president and Congress
and a plea for action on behalf of the next generation.

[3]
The United States, they unanimously said, is facing “a debt-driven crisis --
something previously viewed as almost unfathomable
in the world’s largest economy.”
Under the impact of the worst economic calamity since the Great Depression,
the federal government ran a deficit of $1.4 trillion this past year.
The rescue effort was necessary
but in 2009 alone, the public debt grew 31 percent,
from $5.8 trillion to $7.6 trillion,
rising from 41 percent to 53 percent of gross domestic product (GDP).

[4]
Unless strong remedial steps are taken in the years just ahead,
the debt is projected to rise to
85 percent of GDP by 2018 and 100 percent four years later.
By that time, barely a dozen years from now,
these sober-sided, deeply experienced folks say,
the American economy is likely to be in ruins.

[5]
All of us have become accustomed to hearing lamentations --
or partisan accusations --
about the changes in the annual budget deficits,
the gap between federal revenue and spending in a particular year.
But this commission deliberately shifted its focus
from the deficit to the underlying debt.

[6]
The reason was explained to me by one of the Democrats, Alice Rivlin,
formerly a director of both the Congressional Budget Office
and the Office of Management and Budget.
“Previously, when we were worried about deficits,
we could take comfort in the fact that
the debt was not very high relative to the economy,” she said.
“But now that debt has shot up. The cushion has gone.
If the same thing [a severe recession] happened again,
we wouldn’t be able to borrow to deal with it.”

[7]
In addition to robbing us of the flexibility to deal with future crises,
the rapidly rising debt level
could push up interest rates, threatening economic recovery;
slow the growth of wages; depress living standards;
make the United States even more dependent on foreign lenders;
and leave us vulnerable to a shock wave
if those lenders lose confidence in our ability to repay the loans.

[8]
To avoid those consequences, these experts --
writing under the auspices of the Peter G. Peterson Foundation,
the Pew Charitable Trusts and the Committee for a Responsible Federal Budget --
suggest a series of steps.

[9]
First, they want Obama in his State of the Union address
to urge Congress to join in a pledge
to stabilize the debt at no higher than 60 percent of GDP by 2018.
(Remember, it is 53 percent now.)
This would require actions by Congress and the administration
to start reducing the projected annual deficits, which add to the debt,
starting in 2012.

[10]
That would make debt-management an economic priority
once the effects of the current severe recession have eased.
To ensure that the pledge is kept,
those who signed this report would ask Congress and the president
to set up an enforcement mechanism
that would automatically reduce spending or increase taxes
when the debt target is missed in any year from 2012 to 2018.

[11]
This is stiff medicine, but this report’s message is that
temporizing on this issue poses such perils to the nation’s future
that the risk is unacceptable.

[12]
When Congress this week ducked its responsibility again
by deciding to enact a temporary, two-month increase in the debt ceiling,
the need for a shock treatment like this report could not be plainer.
















2010


2010-01-15-Buchanan-Is-a-US-Default-Inevitable
Is a U.S. Default Inevitable?
by Patrick J. Buchanan
The American Conservative Blog, 2010-01-15
[Alternative source]

...

[T]here were those who warned
a housing bubble was being created like the dot-com bubble;
others who predicted the Empire of Debt was coming down.
As, today,
there are those warning that the United States,
with consecutive deficits running 10 percent of gross domestic product,
is risking an eventual default on its national debt.

The warnings come from
the Committee on the Fiscal Future of the United States, chaired by
Rudolph Penner, former head of the Congressional Budget Office, and
David Walker, former head of the Government Accountability Office
and author of
“Comeback America:
Turning the Country Around and Restoring Fiscal Responsibility.”

With that share of the U.S. national debt
held by individuals, corporations, pension funds and foreign governments
having risen in 2009 from 41 percent to 53 percent of GDP,
Penner and Walker believe it imperative to get the deficit under control.
Unfortunately, it is not possible to see how, politically, this can be done.



Consider.
The five largest elements in the budget are
Social Security, Medicare, Medicaid, defense and interest on the debt.

With interest rates near record lows, and certain to rise,
and back-to-back $1.4 trillion deficits,
this budget item [for interest on the debt] has to grow and has to be paid
if the U.S. government is to continue to borrow.

Second, with seniors on fire against Medicare cuts in health care reform,
it would be fatal for the Obama Democrats
to curtail Social Security or Medicare benefits any further this year.
Next year, they will not only lack the congressional strength
but any desire to do so, after their anticipated shellacking this fall.

The same holds true for Medicaid.
The Party of Government
is not going to cut health benefits for its most loyal supporters.
Indeed, federal costs may rise as state governments,
constitutionally required to balance their budgets,
cut social benefits and beg the feds to pick up the slack.

This leaves defense.
But the president is deepening the U.S. involvement in Afghanistan
to 100,000 troops,
and the military needs to replace weaponry and machines
depreciated in a decade of war.



Where, then, are the spending cuts to come from?

Can the administration cut Homeland Security, the FBI or CIA
after the near disaster in Detroit?
Will Obama cut the spending for education he promised to increase?
Will he cut funding for Food Stamps, unemployment insurance
or the Earned Income Tax Credit in a recession?
For the near term, the entitlements are untouchables.

Is this Democratic Congress,
which increased the budgets of all the departments by an average of 10 percent,
going to take a knife to federal agencies or federal salaries,
when federal bureaucrats and beneficiaries of federal programs
are the most reliable voting blocs in their coalition?



What about tax hikes?

Obama has promised to let the Bush tax cuts lapse for those earning $250,000
but has pledged not to raise taxes on the middle class.
Any broad-based tax would be politically suicidal
for him and his increasingly unpopular party.



But if taxes are off the table,
Afghan war costs are inexorably rising,
and cuts in Social Security, Medicare, Medicaid and entitlement programs
are politically impossible,
as pressure builds for a second stimulus,
how does one reduce a deficit of $1.4 trillion?

How does one stop the exploding national debt
from surging above 100 percent of GDP?

America is the oldest and greatest constitutional republic,
the model for all the others.
But if our elected politicians are incapable of imposing
the sacrifices needed
to pull the nation back from the brink of a devaluation or default,
is democratic capitalism truly,
as Francis Fukuyama told us just two decades ago,
the future of mankind?

What the looming fiscal crisis of this country portends
is nothing less than a test of whether this democratic republic is sustainable.



[Obviously, there is no solution that won't anger powerful groups.
My proposal:
1. Put dollar caps, per person, on how much medical care Uncle Sam will pay for.
Further, restrict to medical essentials what Uncle Sam will pay for,
not nice-to-have items like Viagra, Fosamax, etc.
2. Taper off government-paid medical care as people get older.
The government will do less and less to keep you alive as you age: 70, 80, 90, 100.
After 100, you're on your own.
3. Encourage people to take better care of themselves
by minimizing government-paid health care
for conditions that people cause themselves,
like obesity-related items like hypertension and diabetes.
Exhibit A:
How much does his healthcare cost?






4. Institute a border-adjusted VAT (cf.),
add a 50% tax bracket for ultra-high incomes,
enact a financial transaction tax and/or currency transaction tax
(cf. the Tobin tax), coordinated with the EU, OECD, and G-whatever,
eliminate entirely the deduction for employer-paid health insurance.

I know all of those are unpopular, and in some cases (rationing healthcare) radical,
but the alternative will, in a decade or so,
be far worse.]




2010-03-29-Samuelson-Democrats-healthcare-spending
With health bill, Obama has sown the seeds of a budget crisis
By Robert J. Samuelson
Washington Post Op-Ed, 2010-03-29

[1]
When historians recount the momentous events of recent weeks,
they will note a curious coincidence.
On March 15, Moody’s Investors Service -- the bond rating agency --
published a paper warning that
the exploding U.S. government debt could cause
a downgrade of Treasury bonds.

Just six days later,
the House of Representatives passed President Obama’s health-care legislation
costing $900 billion or so over a decade
and worsening an already-bleak budget outlook.

[2]
Should the United States someday suffer a budget crisis
[Why does Samuelson use the subjunctive?
IMHO, that lenders will in the future
either refuse to roll over U.S. government debt
or impose very painful conditions before they will do so
is inevitable,
unless the government adopts serious budget-balancing policies.]
,
it will be hard not to conclude that
Obama and his allies sowed the seeds,
because they ignored conspicuous warnings.

A further irony will not escape historians.
For two years, Obama and members of Congress have angrily blamed
the shortsightedness and selfishness of bankers and rating agencies
for causing the recent financial crisis.
The president and his supporters, historians will note,
were equally shortsighted and self-centered --
though their quest was for political glory, not financial gain.

[3]
Let’s be clear.
A “budget crisis” is not some minor accounting exercise.
It’s a wrenching political, social and economic upheaval.

Large deficits and rising debt -- the accumulation of past deficits --
spook investors, leading to higher interest rates on government loans.
The higher rates expand the budget deficit and further unnerve investors.
To reverse this calamitous cycle,
the government has to cut spending deeply or raise taxes sharply.
Lower spending and higher taxes in turn
depress the economy and lead to higher unemployment.
Not pretty.

[4]
Greece is experiencing such a crisis.
Until recently, conventional wisdom held that
only developing countries -- managed ineptly --
were candidates for true budget crises.
No more.
Most wealthy societies with aging populations, including the United States,
face big gaps between their spending promises and their tax bases.
No one in Congress could be unaware of this.

[5]
Two weeks before the House vote,
the Congressional Budget Office released
its estimate of Obama’s budget, including its health-care program.
From 2011 to 2020, the cumulative deficit is almost $10 trillion.
Adding 2009 and 2010, the total rises to $12.7 trillion.
In 2020, the projected annual deficit is $1.25 trillion,
equal to 5.6 percent of the economy (gross domestic product).

That assumes economic recovery, with unemployment at 5 percent.
Spending is almost 30 percent higher than taxes.
Total debt held by the public rises from
40 percent of GDP in 2008 to
90 percent in 2020, close to its post-World War II peak.

[6]
To criticisms, Obama supporters make two arguments.
First, the CBO says
the plan reduces the deficit by $143 billion over a decade.
Second,
the legislation contains measures
(an expert panel to curb Medicare spending,
emphasis on “comparative effectiveness research”)
to control health spending.
These rejoinders are self-serving and unconvincing.

[7]
Suppose the CBO estimate is correct. So?
The $143 billion saving is about
1 percent of the projected $12.7 trillion deficit from 2009 to 2020.

If the administration has $1 trillion or so
of spending cuts and tax increases over a decade,
all these monies should first cover existing deficits --
not finance new spending.

Obama’s behavior resembles a highly indebted family’s
taking an expensive round-the-world trip
because it claims to have found ways to pay for it.
It’s self-indulgent and reckless.

[8]
But the CBO estimate is misleading,
because it must embody the law’s many unrealistic assumptions and gimmicks.
Benefits are phased in “so that
the first 10 years of [higher] revenue would be used to pay for
only six years of spending” increases,
a former CBO director, Douglas Holtz-Eakin,
wrote in the New York Times on March 20.
Holtz-Eakin also noted
the $70 billion of premiums for a new program of long-term care
that reduce present deficits but will be paid out in benefits later.
Then there’s the “doc fix” --
higher Medicare reimbursements under separate legislation
that would cost about $200 billion over a decade.

[9]
Proposals to control health spending face restrictions
that virtually ensure failure.
Consider the “Independent Payment Advisory Board” aimed at Medicare.
“The Board is prohibited from submitting proposals that would
ration care, increase revenues
or change benefits, eligibility or Medicare beneficiary cost sharing,”
says a summary by the Henry J. Kaiser Family Foundation.
What’s left?
Similarly, findings from “comparative effectiveness research” --
intended to identify ineffective care --
“may not be construed as mandates, guidelines
or recommendations for payment, coverage or treatment.”
What’s the point then?

[10]
So Obama is flirting with a future budget crisis.
Moody’s emphasizes two warning signs:
rising debt and loss of confidence that government will deal with it.
Obama fulfills both.
The parallels with the recent financial crisis are striking.
Bankers and rating agencies engaged in wishful thinking
to rationalize self-interest.
Obama does the same.
No one can tell when or whether a crisis will come.
There is no magic tipping point.
But Obama is raising the chances.



2010-05-17-Samuelson
Wake up, America
By Robert J. Samuelson
Washington Post Op-Ed, 2010-05-17

[1]
You might think that Europe’s economic turmoil
would inject a note of urgency into America’s budget debate.
After all, high government deficits and debt are the roots of Europe’s problems,
and these same problems afflict the United States.
But no. Most Americans, starting with the nation’s political leaders,
dismiss what’s happening in Europe
as a continental drama with little relevance to them.

[2]
What Americans resolutely avoid is
a realistic debate about the desirable role of government.
How big should it be? Should it favor the old or the young?
Will social spending crowd out defense spending?
Will larger government dampen economic growth through higher deficits or taxes?
No one engages this debate, because if rigorously conducted,
it would disappoint both liberals and conservatives.

[3]
Confronted with huge spending increases --
reflecting an aging population and soaring health costs --
liberals would have to concede that
benefits and spending ought to be reduced.
Seeing that total government spending would rise even after these cuts
(more people would receive benefits, even if benefit levels fell),
conservatives would have to concede the need for higher taxes.
On both left and right, true believers would howl.



[An excellent column.
I just don't have the time to text-edit the rest of it.]




2010-07-08-NYT-Democrats-on-debt
For Democrats, Debt Debate and Familiar Ring of Disunity
By MATT BAI
New York Times, 2010-07-08

...

A lot of Democrats maintain that
deficits remain a distant concern at a moment of crisis,
especially while interest rates are historically low.





2010-07-12-WP-debt-commission
Obama's debt commission warns of fiscal 'cancer'
By Dan Balz
Washington Post, 2010-07-12



















2011


2011-06-22-NYT-Leonhardt
The Deficit, Real vs. Imagined
By DAVID LEONHARDT
New York Times, 2011-06-22

...

Eventually, the country will have to confront the deficit we have,
rather than the deficit we imagine.
The one we imagine is a deficit caused by
waste, fraud, abuse, foreign aid, oil industry subsidie
and vague out-of-control spending.
The one we have is caused by
the world’s highest health costs (by far),
the world’s largest military (by far),
a Social Security program built when most people died by 70 —
and to pay for it all, the lowest tax rates in decades.




2011-07-02-Kal-Debt-Doctor

Although the above cartoon shows European nations worried about how they will maintain their ability to receive future loans from investors,
there should be no doubt that the United States will be in exactly the same position
if congressional leaders cannot come to an agreement to stop the debt from rising at a high rate.




2011-09-02-WT-ten-year-deficit-factors
Dark-cloud financial forecast precedes president’s speech
by Stephen Dinan
Washington Times, 2011-09-02

[The last paragraph.]

Under Mr. Obama's projections,
the government will spend $46.6 trillion over the next decade [2012-2021],
with the bulk of that -- $27.4 trillion --
coming on formula-driven entitlement programs such as Medicare and Social Security.
It will spend another
$9.1 trillion on security,
$5.9 trillion on interest payments on the debt, and just
$4 trillion on other basic domestic needs.
On the revenue side it will collect $37 trillion in taxes and fees --
leaving it with a $9.6 trillion deficit.

[So plug the gap.
Raise taxes to fill half, cut entitlements to fill the other half.
But do it now, before crises arise and to avoid over-burdening the future.]




2011-11-02-NYT-Pear-Four-past-deficit-panel-chairmen-advise-debt-supercommittee
Deficit Panel Is Warned That It Must Not Fail and Is Urged to Compromise
By ROBERT PEAR
New York Times, 2011-11-02

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