Posts Tagged ‘washington post’

Uh oh, the 14th amendment might not help here

30 July 2011

Many, including Bill Clinton, have said the debt ceiling is unconstitutional because it goes against the 14th amendment’s clause that the validity of the public debt shall not be questioned. However, it’s also been pointed out that interest on the debt is a relatively small obligation of the government and can easily be paid for out of incoming revenues ($29 B in interest, $172 B in revenues, for August after the 2nd). So it seems to me that a reasonable interpretation of the 14th amendment is that it applies to the government’s debt obligations but not to their obligations to anyone else — government employees, contractors, retirees, veterans, etc. Perhaps that’s why President Obama has said his lawyers don’t think invoking the 14th amendment is a promising solution.

Tom Geoghegan, one of my favorite writers on politics and the law (his book Which Side Are You On? even manages to make organized labor funny), suggests a different “constitutional option”: Article I. Sections 8 and 9 of Article I list the powers of Congress and the limits on those powers, which are quite limited. Article 10, Powers Prohibited of States, says no state shall pass any “Law impairing the Obligation of Contracts.” (Geoghegan’s March article on the subject is also worth reading.) Geoghegan says it’s implied that this would extend to Congress, too, but I’m not so sure — Section 8 gives Congress all sorts of powers that are prohibited of states, as well as the power to “provide for .. the general welfare of the United States,” and the Supreme Court’s interpretation of the “general welfare” clause became a lot more expansive around 1937 (after the kerfuffle over the Court’s resistance to the New Deal and FDR’s attempt to pack the court by increasing the number of justices; the so-called “switch in time that saved nine”). The conservative majority on the Court could conceivably rule that keeping the debt ceiling constant would aid the general welfare by forcing reductions in the size of government or in the burden of the debt on future generations. Lame, far-fetched arguments, to be sure, but those have carried the day rather recently with the Court.

So it’s unclear what the way out of this morass will be. If the debt ceiling is not raised, we most likely get a partial government shutdown, which will go on until the Republicans in Congress decide that it’s hurting them at least as much as it’s hurting Obama and the Democrats (see: 1995-96). If we’re lucky, the Republicans realize that before Aug. 2, and the nation is spared a shutdown.

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Feeling 1932 (updated, Aug. 1)

28 July 2011

I’ve written already that the best deal on the debt ceiling would simply be to raise it (or better still, abolish it), without attaching it to a bill that punishes the economy further by slashing spending and/or raising taxes. The last thing this ailing economy needs is a Grand Bargain to reduce the current deficit. It was disastrous policy during the Great Depression — first by Congress and President Hoover in 1932, then by Congress and President Roosevelt in 1937. I would have thought those historic blunders would not be repeated, but I guess it’s always a mistake to assume that politicians know economics or history. But I’ve said all that before.

What I want to point out here is that we’re due for some ill-timed spending cuts (and maybe tax increases), regardless of what Congress does in the next week. Remember that $787 billion stimulus package that Congress passed in early 2009? It was spread out over two years, so roughly $400 billion a year, about $250 billion of which was spending and $150 billion tax cuts, almost all in 2009-2011. So that stimulus is just about “spent.” The main tax cuts, like extending the patch for the alternative minimum tax, will probably be maintained because they’re politically popular, but the spending almost surely will not. So that’s an abrupt drop of about $250 billion in government spending, or about 2% of GDP, over the next year. This chart from James Fallows’ blog for The Atlantic shows the projected big drop in fiscal stimulus from “Relief measures.” That’s the trouble with stimulus — it’s finite. Congress passes these things reluctantly, and if the economy still needs stimulating when it’s over, people are more likely to conclude that it failed rather than that it was too small (which it was) or that it spared us even worse devastation (which it did).

Now it is possible, perhaps even probable, that Congress will fail to pass any deficit-reduction deal and will end up raising the debt ceiling anyway — after all, that’s what’s happened virtually every previous time that a debt-ceiling vote has come up. But even if Congress ends up not inflicting any new wounds on the economy, we’re looking at big-time deficit reduction that will do plenty of damage on its own.

UPDATE, 1 Aug. 2011: Actually, it looks like it’s already happened. In the dismal GDP figures released last week, the government’s contribution to real GDP growth was negative 1.2 percentage points in the first quarter of 2011, with about two-thirds of the decline coming from the federal government. Government purchases account for about 20% of GDP, so cuts in government purchases reduce GDP. “Fiscal drag,” the economists call it. Federal government purchases fell 9.4% in the first quarter (the unwinding of the stimulus surely had much to do with this), and state and local government purchases fell 3.4%. (In the second quarter federal purchases rose 2.2% and state and local purchases again fell 3.4%.)

P.S. The title’s musical inspiration is forty years off and I’ve used it before, but hey, it’s a good song.

Stimulate some action

26 August 2010

Michael Grunwald of Time has an interesting new article about the specifics of the stimulus spending, which began with “shovel ready” projects that could employ people right away but is now about to move onto “shovel worthy” projects that required more advance planning and are more in line with the Obama Administration’s long-term policy goals on energy, education, etc.  The article differs from others I’ve read on the stimulus in that the focus is not on its impact on jobs or GDP but on how these programs may yield a greener energy policy, expanded scientific research and broadband access, and school reform.  There’s an analogy to be made with the New Deal, whose early jobs programs were sometimes derided as “leaf raking” or “ditch digging” but which came to include enduring projects like highways, bridges, buildings, and parks.

The $787 million stimulus bill that passed in early 2009 is by now unpopular with the public.  A recent poll I saw in The Washington Post this summer (I’ll try to find the link later) found that the public, by a 56-41% margin, actually thought the stimulus had made the economy worse.  This is perhaps understandable considering that the unemployment rate has not come down much, but still mind-boggling in the face of empirical estimates by nonpartisan economists that the stimulus saved three million jobs.

The only part of Grunwald’s piece I didn’t like was his claim that “liberals” think the stimulus was not large enough.  While that much is basically true, it’s not just political liberals who believe that.  Keynesian economists, not all of whom are liberal Democrats, would tend to argue that another big round of stimulus is necessary to push the economy back toward “full employment,” i.e., an unemployment rate of about 5%, maybe 6% (it’s now 9.5%).  Three million jobs saved is better than none, but the glass is less than half full considering that there still are eight million more unemployed Americans now than in 2007, before the recession began.

Matt Yglesias presents another poll that tends to suggest that the stimulus’s unpopularity reflects not the content of the stimulus bill but basically just the sad state of the economy and the usual tendency of the public to blame it on the president — i.e., if the stimulus bill was his bill, then it must have been a bad bill, because the economy stinks.  Yglesias cites a poll that asks people whether they would like certain measures to be taken.  Asked if they would favor “additional government spending to create jobs and stimulate the economy,” 60% said yes.  Politicians, take note.

P.S. Today’s title is from J.J. Cale’s “After Midnight,” but the song I felt like posting was this one by The Flamin’ Groovies: