At Last, a Chance to Address Fundamental Issues

Image source: Congressional Budget Office

Image source: Congressional Budget Office

by James A. Bacon

With yesterday’s elections, the Republican Party has taken control of the United States Senate and padded its lead in the House of Representatives, assuring a markedly different political dynamic in the two years ahead. The big question on everybody’s minds is, “Can Republicans govern?” Or will we see two more years dominated by Ted Cruz trying to shut down government?

My sense is that Republicans are very serious about governing, certainly more serious than was outgoing Senate Majority Leader Harry Reid, the one-man algae bloom who rendered the Senate a dead zone for new legislation over the past four years. Republicans are likely to pass a passel of new laws. The question then will be, “Is President Barack Obama serious about governing?” Will he  work with Congress or will he veto everything that comes across his desk?

While the last four years have been a big battle over nothing, rest assured that the next two years will grapple with issues of fundamental importance. As the United States hurtles toward Boomergeddon, Republicans will tackle budgetary issues that Obama has been studiously avoiding since he disavowed the recommendations of his own Bowles-Simpson budget-balancing commission. The issues will be debated in a way they haven’t been for far too long.

This year, the budget situation looks relatively benign. Economic growth is puttering along and the Congressional Budget Office (CBO) projects that the deficit will shrink to its smallest size since 2007, equivalent to about three percent of the economy. That’s roughly equal to the rate of economic growth, so the national debt, while growing, is not growing as a percentage of the economy. But the CBO does not expect this balmy scenario to last. Says the CBO:

The pressures stemming from an aging population, rising health care costs, and an expansion of federal subsidies for health insurance would cause spending for some of the largest federal programs to increase relative to GDP. Moreover, CBO expects interest rates to rebound in coming years from their current unusually low levels, raising the government’s interest payments. That additional spending would contribute to larger budget deficits—equaling close to 4 percent of GDP—toward the end of the 10-year period spanned by the baseline, CBO anticipates. Altogether, deficits during that 2015–2024 period would total about $7.6 trillion.

That sounds bad but not Boomergeddonish. But there’s a big caveat. At some point, says the CBO, government spending crowds out economic growth in the private sector.

The large amount of federal borrowing would draw money away from private investment in productive capital in the long term, because the portion of people’s savings used to buy government securities would not be available to finance private investment. The result would be a smaller stock of capital and lower output and income than would otherwise be the case, all else being equal.

Translation: Under the current policy framework, as government spending crowds out the private sector, economic growth will slow. Slower economic growth reduces tax revenues, which increases budget deficits. I’m not certain, but I don’t believe that the CBO cranks that lower economic growth into its long-term budget forecast, which, by its own admission, is highly conjectural and based upon long-term assumptions that likely will not prove to be accurate.

Under a more pessimistic set of assumptions, the federal debt, instead of rising to 111% of Gross Domestic Product by 2039, would reach 180%.

When discussing climate change, Democrats invoke the “precautionary principle.” While we cannot know with certainty that global temperatures will increase by 4° Fahrenheit by the end of the century, as some climate models forecast, the consequences would be so disastrous that we must act to forestall the possibility. I would invoke a fiscal precautionary principle. While we cannot know with certainty that the national debt will approach 180% of GDP within twenty-five years, the consequences will be so potentially disastrous that we must act to forestall the possibility.

Republicans will be animated by the fiscal precautionary principle in the next two years. If past is precedent, the Obama administration will be driven by the desire to protect government spending at all costs. Americans will engage in the most serious debate over the size and scope of government spending, unclouded by distracting side issues, that we have seen in a generation.

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16 responses to “At Last, a Chance to Address Fundamental Issues

  1. Republicans cannot remake the world; they must accept the role of “fixing” social and health programs they would not have wished to enact in the first place, rather than waste political capital on a massive, futile assault aimed at repealing Obamacare and militarizing the Border. The “conservative” public does not want to turn the clock back 50 years, socially or economically, but to make what we have today work better. Congress has the opportunity to move beyond ideology to governing by moderate increments. Will they take that opportunity? I’d like to believe so.

  2. I wish you were right but I don’t think so. For real bipartisan action, you need a better balance among the parties. And while I support Obama, I realize that he’s no LBJ when it comes to getting things done. The GOP in the House during 2010 turned out to be a disaster of stubborn naysayers. Hopefully the GOP Senate won’t be. There’s a bigger issue here which is the power of negativity and partisanship that does need to be eradicated.

  3. In my opinion the most important job of the new Republican Congress is to block the path to the presidency for another empty suit in 2016. One per lifetime is enough and I’ve lived through two – Carter and Obama.

    Perhaps counter-intuitively, the best way to do that is to prove that Republicans can govern effectively by doing some relatively liberal things that need to be done.

    1. Raise the national minimum wage. It hasn’t kept up with inflation. Republicans can offset any arguments about the fact that just blocked the minimum wage hike by staging the increase and making each stage dependent on continued real GDP growth. The minimum wage hasn’t kept pace with inflation and the economy is growing at a reasonable rate so – limited chance of a problem.

    2. Close a few of the more egregious corporate tax loopholes. Corporations may be people (according to the Supreme Court) but they still don’t get to vote. Leave the personal taxes alone and pull together 3 – 5 corporate tax loophole eliminations. Call the bill the Tax Fairness Act. Giving flimsy legislation fluffy names is always a good idea.

    3. Let DC residents smoke their pot. Congress can over-rule DC’s marijuana legalization initiative but why? Bring the matter up for a vote and then vote against overruling the legislation.

    4. Militarize the border and streamline the citizenship process. There is a big difference between legal and illegal immigration and the vast majority of the American people understand that. If it costs more money to protect our borders – so be it. God knows how much we are spending to protect ourselves from terrorist plots. How much sense does it make to spend that mountain of money while leaving the door open to anyone and everyone who wants to walk in?

    5. Investigate / prosecute Eric Holder for his role in Fast & Furious and his alleged lying to Congress. If he’s not guilty – fine, say that. If he is guilty – punish him. Americans want to know that government officials are not above the law. Obama can always pardon him if he gets in enough hot water.

    6. Reopen an investigation into the financial collapse with a specific goal of determining if the banks which were too big to fail are now small enough to succeed. They aren’t. This will bring Obama’s utter failure to address this problem to light.

    Part carrot, part stick. Create a hostile political environment for the 2016 Democratic nominee unless they somehow find a moderate to run.

    • I’d like to see the same million dollar limit on deducting compensation placed on the entertainment and sports industries. Any annual compensation above $1 M per person or per corporation is not deductible. Treat it like dividends and tax it twice. The California glitterati are for progressive change. Would they be willing to pay for it?

  4. Ripper,
    I agree with most everything except militarizing the border and the Holder probe.

  5. I don’t think the GOP is capable of governing myself… but we’ll see.

    Anything that goes to Obama without at least some Democratic votes is going to be DOA… and then the GOP will change their crutch from doing nothing from Reid to Obama.

    THe trouble with Obama is that he could never get past the “he’s not one of us” petty and somewhat racist attitudes. You don’t question a man’s birth place and throw in Kenya and not be engaging in racism. There was no shortage of this – and Obama could not get beyond it.

    it’s not “politics” to attack a man’s ancestry and culture – it’s personal.

    I just don”t see an actual agenda from the GOP these days. They cannot even agree among themselves what they would support as a party to propose to te Dems…

    They cannot agree on immigration nor on health care.. nor on where to cut spending because they’ll not bring forth a proposal to cut Medicare – like they should for the folks that make 85K a year in retirement income.

    so what the GOP did – was demonize – very successfully – the POTUS and the Dems… it did work – extremely well.

    but now – people are going to be looking at the GOP to see what they move on as there is no longer a Harry Reid to blame.

    I’d be glad to be wrong. I’d like to see a GOP party return to it’s fiscal conservative roots and get off their silly blame game politics…

    and the name of the game in politics these days is to keep your base and convince the folks in the middle to vote for you – but I have less than wonderful views of the middle – no matter who they vote for – because they are fickle rubes… who are easily influenced with just butt-ugly sound bite concepts.

  6. The biggest stubborn naysayer in the Congress today and for four years has been Senator Harry Reid. 380 bills sent to the Senate, 80 of those authored and sponsored by Democrats, and none brought to vote and moved out of the Senate.

    • several bills had bi-partisan support in the Senate and got nowhere in the house.

      If you’re expecting the house to bring forth legislation that the tea party opposes – you’re going to have to combine non-extreme GOP reps with Dems.

      that’s the path to get something to the Senate that will actually pass the Senate and have enough horsepower to override a veto.

      Good luck on that. In order for the GOP to “govern” they need both houses of Congress and the POTUS or veto-proof numbers without him.

      The so-called “bills” that went to the Senate that Harry Reid “sat” on where dozens of bills to repeal ObamaCare – at the same time the Senate had a compromise on immigration that they House would not even vote on.

      What’s the net effect of Mitch McConnell with the same bills and the Senate voting in favor of them if McConnell and the House do not have veto-proof numbers?

      You cannot govern like this. It’s ignorant and asinine…

      the country is more or less – 50-50… you have to govern with that reality but the GOP thinks if they gain control – even in a 50-50 divide that they can force legislation …

      I actually hope they do – and I hope Ted Cruz runs for POTUS and the primary does the same thing it did last time and highlights the numerous ego-maniac wacko-birds in the GOP who think they have the stuff to be POTUS.

      Maybe at some point – the folks in the middle will actually get a clue about those in the Tea Party who basically are not interested in governance at all .

  7. Actually the deficit has been coming down over the last several years.My worry worry is that as the Ted Cruz/David Brat wing of the party will advocate the type of economic policy that have brought real problems to the EU countries.

  8. We’ll see. A lot of magical thinking on your part. As well as forgetting what the Republicans have actually done and said in the last few years. You really think that the Republicans will tackle the deficit – Medicare, streamlining the military, industry subsidies, taxes? (Gee all I think they can agree on is a war against ISIS, restrictions on abortion, and a thousand mile fence on the southern border.) But I guess it’s always possible that McConnell will transform into that charismatic leader who will somehow in the next two years bring us all together in reasonable compromise – Kumbaya. Uncle Mitch? Ha!

  9. Prediction:

    Every bill the house and senate pass will have a rider on it gutting Obamacare, and therefore just being political bait.

    Jim, you must come to the realization that the republican party is dead. They did well this cycle (mostly because of a perfect storm of beneficial elements), but unless they change and I mean really change, it will never really be a political brand. You know the very first bill will be some easy bait tax reform or immigration reform with a obamacare rider. You know it.

    • perhaps nothing shows the disconnect with reality with the GOP than health care and immigration.

      they are unable – as a group – to come up with something they will support – as a group to try to attract support from Dems or the POTUS.

      there agenda to this point has been to advocate repeal and nothing to replace.

      it’s the same approach for immigration. Nothing short of deporting virtually everyone can get gain a majority of support within the GOP – BEFORE it gets to the Dems – where it will fail to get any support.

      this is not governing.

      this is basically trying to impose on people what a bare majority of the elected believe with nowhere near a veto-proof super-majority.

      To date – there is no forward agenda – just a destructive one.

      We know how far right we have moved – when the folks who oppose Obama say that Bush was similar – that they both are much alike.

      If the current GOP runs true to form – what we’re going to see for the next two years is Senate investigations, impeachment hearings, and two years worth of vetoes… with snowball in hell chance of overrides…

      The GOP will squander their opportunity to actually govern because really -as a group – they do not seem to be able to agree as a group …..

      • What hurt the D’s on immigration is Obama’s failure to stem the tide of unaccompanied minors. It reminded the public of the Mariel landings under Jimmy Carter. I think a lot of people would be willing to provide legal residence to longtime illegal residents who have not committed crimes, but few like the site of their president unable or unwilling to control the nation’s borders.

        I think it is possible to come up with a compromise plan on immigration reform that no one will like in total, but might work. It will require allowing many who are hear illegally to stay; a realization that people want to come to America; and strict border control. Everybody needs to compromise.

        • I never heard from the GOP – how to stop the “tide”. Did you?

          what was Obama supposed to do?

          you say “compromise”.

          have you listened to the GOP lately on immigration?

          you and JimB tickle me. It’s as if you see a different GOP that the one that is right in front on you.

          you somehow seem to believe that somehow the GOP will compromise.

          I just point out to you that they cannot compromise among themselves before they ever get to the Dems.

          do you think it will be different now?

          I don’t see any difference. I just see more GOP who still don’t agree among themselves.

    • John Foust, one of the highest regarded Democrats even with Republicans, lost by 17%. Both he and Barbara are personal friends of mine. I respect them both. But John was humiliated in defeat. I must have received 500 emails from his campaign. He wrapped himself in Obama’s policies and abortion and got his *&& kicked.

      A majority of Americans don’t like Obama and his policies. And they showed it on Tuesday.

  10. HAAAAAAAAAAAAAAAAAAAAAAAAAAAHAHAHAHAHAHAHAHAHAHA.

    The only thing keeping this from being a repeat of the Clinton years is if Orange Julius holds on to his speakership and proves to be less out of his mind than Newt Gingrich.

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