Posts tagged longrunfiscal

Link to the Column on Quartz

Here is the full text of my 14th Quartz column, “Off the Rails: What the heck is happening to the US Economy? How to get the recovery back on track,” now brought home to supplysideliberal.com. It was first published on February 1, 2013. Links to all my other columns can be found here.

If you want to mirror the content of this post on another site, that is possible for a limited time if you read the legal notice at this link and include both a link to the original Quartz column and the following copyright notice:

© February 1, 2013: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2014. All rights reserved.

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GDP fell in the last quarter of 2012. It was only a fraction of a percent, but it means the recovery is on hiatus. Why? Negative inventory adjustments tend to be short-lived, so let me leave that aside, although it definitely made last quarter’s statistics look worse. Of the longer-lived forces, on the positive side,

• consumer spending rose,
• home-building rose, and
• business investment on buildings and equipment rose.

On the negative side,

• exports fell more than imports, and
• government purchases fell.

Net exports and government purchases are the big worries going forward as well.

How much the rest of the world buys from the US depends on how other economies are faring. And most of the rest of the world is hurting economically. The Japanese are so fed up with their economic situation that they are on their sixth prime minister in the six and a half years since Junichiro Koizumi left office in 2006.  The European debt crisis is in a lull right now, but could still resume full force at any time. In addition to all of its other problems, the United Kingdom is facing a mysterious decline in productivity, explained in Martin Wolf’s Financial Times article “Puzzle of Falling UK Labour Productivity” and the Bank of England analysis by Abigail Hughes and Jumana Saleheen.

The decline in US government spending comes from the struggle of state and local governments with their budgets and at the federal level from the ongoing struggle between the Democrats and Republicans about the long-run future of taxing and spending. Last quarter saw a remarkable decline in military spending that Josh Mitchell explains this way in today’s Wall Street Journal (paywall).

The biggest cuts came in military spending, which tumbled at a rate of 22.2%, the largest drop since 1972. …

Military analysts said the decline likely was a result of pressure on the Pentagon from a number of areas.

Among them: reductions in spending on the war in Afghanistan as it winds down, a downturn in planned military spending, a constraint placed on the Pentagon budget because the federal government is operating on short-term resolutions that limit spending growth, as well as concern that further cuts may be in the pipeline.

The problem is that, absent a big increase in economic growth, balancing the federal budget in the long run requires big increases in taxes or big reductions in spending. But, although opinions differ on which option is worse, tax increases and spending cuts themselves are enemies of economic growth. So the traditional options for balancing the federal budget in the long run all have the potential to make things much worse.

Our problems are so big they need new solutions. In our current situation, the fact that a proposal is “untried” is a plus, since none of the economic approaches we have tried lately have worked very well. In the last few months I have focused my Quartz columns on explaining how the US and the world can get out of the economic mess we are in with new solutions. A recap:

1. One of the new solutions is really an old one, that Congress and the President might be timidly tiptoeing toward too little of: dramatically more open immigration. Done right, this is guaranteed to add to long-run economic growth, as more workers make more goods, perform more services, and contribute to solving our long-run budget problems. And it isn’t just the US that would benefit from more open immigration. Ryan Avent has a must-read article in The Economist arguing that “Liberalising migration could deliver a huge boost to global output.”
2. The long-run budget can be balanced in a way that achieves both the core Republican goals of holding down the size of government and the burden of taxation and the core Democratic goal of taking care of the poor, sick and elderly. Here is how: by using the tax system to back up a program of public contributions to expand the non-profit sector instead of taxes and spending to expand government, or brutal cuts with no compensating way to take care of those in need.
3. For stimulating the economy, the one current approach that has been working at least halfway is “quantitative easing”: the Fed’s large purchases of long-term government bonds and mortgage-backed securities. But quantitative easing is hugely controversial and has an unfortunate side effect of making our long-run government debt problem worse than if we could stimulate the economy some other way. Establishing a US Sovereign Wealth Fund to do the purchasing of long-term and risky assets would give the Fed room to maneuver in monetary policy, and restrict its job to steering the economy rather than making controversial portfolio investment decisions. And a US Sovereign Wealth Fund could stand as a bulwark against wild swings in financial markets. (In addition to the column linked above, I spoke onCNBC’s Squawkbox about a US Sovereign Wealth Fund.)
4. Although valuable, a US Sovereign Wealth Fund is a poor second best toelectronic money. It is the fear of massive storage of paper currency that prevents the US Federal Reserve and other central banks from cutting short-term rates as far below zero as necessary to bring full recovery. (If electronic dollars, yen, euros and pounds are treated as “the real thing”—the yardsticks for prices and contracts—it is OK for people to continue using paper currency as they do now, as long as the value of paper money relative to electronic money goes down fast enough to keep people from storing large amounts of paper money as a way of circumventing negative interest rates on bank accounts.)  As I argued in “Could the UK be the first country to adopt electronic money,” the low interest rates that electronic money allows would stimulate not only business investment and home building, but exports as well—something that would lead to a virtuous domino effect as the adoption of an electronic money standard by one country led to its adoption by others to avoid trade deficits. If I were writing that column now, I would be asking if Japan could be the first country to adopt electronic money, since Japan’s new prime minister Shinzo Abe is calling for a new direction in monetary policy. For the Euro zone, I argue in “How the electronic deutsche mark can save Europe” that electronic money is not only the way to achieve full recovery, but the solution to its debt crisis as well.
5. Finally, if electronic money is too radical, the government can stimulate the economy without adding too much to the national debt by giving consumers extra borrowing-power with a government-issued credit card and a $2,000 credit limit to every taxpayer. These Federal Lines of Credit would stimulate the economy at a fraction of the cost of tax rebates. This is a big advantage for countries deep in debt, which includes most major economies. And Lines of Credit are an affordable way to stimulate the economies of European countries such as Spain and Italy that lack an independent monetary policy because they share the euro with many other European countries.

Franklin Roosevelt famously said:

The country needs and, unless I mistake its temper, the country demands bold, persistent experimentation. It is common sense to take a method and try it: If it fails, admit it frankly and try another. But above all, try something.

We are at such a moment again. The usual remedies have failed. It is time to try something new. Any one of these proposals could make a major difference. In combination, they would transform the world.

Link to the Column on Quartz

Here is the full text of my 12th Quartz column, “Yes, there is an alternative to austerity vs. spending: Reinvigorate America’s nonprofits,” now brought home to supplysideliberal.com. It was first published on January 15, 2013. Links to all my other columns can be found here.

If you want to mirror the content of this post on another site, that is possible for a limited time if you read the legal notice at this link and include both a link to the original Quartz column and the following copyright notice:

© January 15, 2013: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2014. All rights reserved.

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Despite serving only one term from 1989-1993, US President George H. W. Bush (just released from the hospital yesterday after a bout of fever and other complications) has cast a long shadow over subsequent events. His decision to leave Saddam Hussein in place after the First Iraq War led to his son’s immensely controversial Second Iraq War. And the negative reaction to his decision to compromise with Democrats in raising taxes in 1990 despite his pledge “Read my lips, no new taxes” has set the terms of the tax policy debate ever since. Tax reformer Grover Norquist codified the principle of “no new taxes” into the Taxpayer Protection Pledge, which goes as follows:

I, ____ pledge to the taxpayers of the state of ____, and to the American people that I will:

ONE, oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses; and

TWO, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.

Republican Speaker of the House John Boehner made a nod toward this pledge two weeks ago, pushing for the temporary resolution of the fiscal cliff, when he reminded his rank and file that, technically, taxes had already gone up, due to the expiration of the younger Bush’s tax cuts at year end. The implication was that members of Congress would really be voting for a tax cut, not a tax increase, and so would not be breaking their pledge. There is no doubt that this matter of interpretation will feature prominently in the GOP primaries in 2014.

The ongoing crisis in long-run US taxing and spending policy is born from the collision of an almost unstoppable force on the spending side with Grover Norquist’s almost immovable object on the taxing side. Former Treasury Secretary Larry Summers ably describes the almost unstoppable force on the spending side in his Washington Post editorial “The Reality of Trying to Shrink Government.” The bottom line is that the explosion of government spending is primarily the result of (1) an aging population, (2) having to pay interest on ballooning government debt, and (3) the increasing cost of medicine that keeps discovering ways to do more with the expensive skilled labor of doctors and other medical professionals. To put it bluntly, the only way to keep government spending constant in the future, let alone reduce it, would be to dramatically reduce benefit levels for Social Security, Medicare and Medicaid, or to gut all the other functions of government, from national defense to the judicial system to scientific research.
It is easy to be misunderstood when mentioning Hitler, but here I want to invoke a comparison solely in his role as an inept commander-in-chief of the German armed forces and in no other capacity. In his book, The Storm of War: A New History of the Second World War, Andrew Roberts argues that Hitler’s no-retreat, “stand-or-die” orders were strategically disastrous for the German forces. German generals had a brilliant record at turning tactical retreats into great German victories. But Hitler’s stand-or-die orders took away the advantage of maneuver and left German troops to be mowed down by the Russians under Stalin. My point is that the “stand-or-die” approach is likely to do no better against the spending juggernaut than it did against Stalin.

In our long-run fiscal situation, the alternatives (of which we may need more than one) are to convince the American people to swallow straight benefit cuts, to directly raise tax rates, to grow the economy to get more revenue through:

1. Increased immigration, done in a way that focuses on economic growth, as I discussed in a previous Quartz piece entitled “Obama could really help the US economy by pushing for more legal immigration”

2. A more efficient tax system that encourages capital formation, as discussed in my “Twitter Round Table on Consumption Taxation”

3. A big push for increased scientific research to accelerate technological progress

But then what? I propose that many of the jobs the government has set for itself actually be done outside the government, by the non-profit sector.

In my recent blog post “No Tax Increase Without Recompense” (there’s a cliff notes version here), I propose a “public contribution system” that goes far beyond the current tax deduction for charitable contributions. In this program:

A public contribution is a donation to a nonprofit organization meeting high quality standards that engages in activities that (a) could be legitimate, high-priority activities of Federal or State governments and (b) can to an important extent substitute for spending these governments would otherwise be likely to do.

My proposal is to raise marginal tax rates above about $75,000 per person—or $150,000 per couple—by 10% (a dime on every extra dollar), but offer a 100% tax credit for public contributions up to the entire amount of the tax surcharge.

In addition to helping the government budget by taking over tasks the government is now doing and by reducing revenue lost to the current charitable deduction, I believe the non-profit sector (with the usual level of regulation) can do many things better than the government, and this program would be much less painful for people than paying the same amount in taxes. It is easy to find fulfillment in philanthropy. There is satisfaction in knowing one has made a difference in the world, in a way of one’s own choosing. And giving can serve as a good opportunity for teaching children to care. No doubt, some would view these contributions to charitable causes as almost as onerous as the taxes to which they would be an alternative. But I don’t think that would be the typical reaction.

Many people talk as if taxes are hateful only because the government is taking our money. But taxes are also hateful because the government is arrogating to itself the choice of what should be done with the money it takes from us. The government is jealous of its power. But let us insist that any resolution of our long-run fiscal crisis reduces, rather than adds to, government power. We do need to take care of those who are poor, sick and elderly. A program of public contributions shrinks government, while getting the job done. And it would be a fitting honor for George H. W. Bush, who said movingly in his inaugural address:

I have spoken of a thousand points of light, of all the community organizations that are spread like stars throughout the Nation, doing good… . The old ideas are new again because they are not old, they are timeless: duty, sacrifice, commitment, and a patriotism that finds its expression in taking part and pitching in.

Here is a link to my 20th column on Quartz: “Why Austerity Budgets Won’t Save Your Economy.”

The link has the abbreviated title “Austerity is Bad Economic Policy”:

http://qz.com/69302/austerity-is-bad-economic-policy/

To interpret that abbreviated title, let me claim that austerity plus electronic money is so dramatically different from austerity alone, that it would not be called “austerity.” 

Link to the Column on Quartz

Here is the full text of my 6th Quartz column, “Second Act: Obama could really help the US economy by pushing for more legal immigration,” now brought home to supplysideliberal.com. This column was first published on November 7, 2012. Links to all my other columns can be found here.

If you want to mirror the content of this post on another site, that is possible for a limited time if you read the legal notice at this link and include both a link to the original Quartz column and the following copyright notice:

© November 7, 2012: Miles Kimball, as first published on Quartz. Used by permission according to a temporary nonexclusive license expiring June 30, 2014. All rights reserved.

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It’s time for US President Barack Obama to think big. Syria’s civil war and Iran’s nuclear capability will continue to give the president plenty of opportunities to make his mark on history in foreign affairs. But the hope of any further major achievement in domestic policy will have to overcome two hard realities: Republican control of the House of Representatives and aging Americans’ effect on the federal budget.

What the president needs is some form of political jujitsu that also solves the country’s long-term budget problems. Meanwhile, one of the biggest messages for Republicans from this election is that their electoral prospects hinge on bringing a larger fraction of Hispanics into the GOP fold. So immigration is an issue that puts them in a box: either they play ball, or they get tarred further as the anti-immigration party, which is politically deadly.

Now is the perfect time for the president to tackle immigration reform. He already has put immigration reform on the agenda, but there is a danger that he will think too small and miss the potential of the right kind of immigration reform to strengthen the economy and shore up the long-run government budget. But the key to the economic and budgetary magic of immigration reform is to dramatically increase the level of legal immigration allowed each year.

Read more …

Link to HuffPost LIve Segment “Owning Our Debt” 

I am still a novice at TV and video appearances, and so stumbled over some of my words and had some trouble with my lighting, but I thought this segment of HuffPost Live went well. I had a chance to talk about debt, electronic money, Federal Lines of Credit and my idea for a Public Contribution Program.  My main goal was to get across the substance of my Quartz column “What Paul Krugman got wrong about Italy’s economy,” including my reply to Paul Krugman’s response, which you can see in my post “Noah Smith Joins My Debate with Paul Krugman: Debt, National Lines of Credit, and Politics.”

The segment was inspired by Robert Solow’s essay “Our Debt, Ourselves.”

My other appearance on HuffPost Live is here: 

• Miles on HuffPost Live: The Wrong Debate and How to Change It

I also had one TV appearance on CNBC’s Squawkbox:

• Miles’s First TV Interview: A US Sovereign Wealth Fund.

Finally, I have had two radio interviews, whichj allowed me to explain electronic money and Federal Lines of Credit much better than I could on HuffPost Live: 

• Miles’s First Radio Interview on Electronic Money
• My First Radio Interview on Federal Lines of Credit

Here is a link to my 14th column on Quartz: “Off the Rails: What the heck is happening to the US economy? How to get the recovery back on track.” 

This column gives a better overall picture of my economic policy stance than any other single post so far. From the conclusion: 

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Franklin Roosevelt famously said:

The country needs and, unless I mistake its temper, the country demands bold, persistent experimentation. It is common sense to take a method and try it: If it fails, admit it frankly and try another. But above all, try something.

We at such a moment again. The usual remedies have failed. It is time to try something new. Any one of these proposals could make a major difference. In combination, they would transform the world.

Here is a link to my 12th column on Quartz: “Read His Lips—Yes, there is as alternative to austerity versus spending: Reinvigorate America’s nonprofits.”

I like the name my editor, Mitra Kalita, gave to the link itself, as well:

http://qz.com/43702/in-the-debate-over-taxes-and-government-there-is-a-third-way-reinventing-americas-nonprofit-sector/