Unforeseen Contingencies

"To hell in a handbasket..."

David Post, of the excellent Volokh Conspiracy, swears off writing about Sarah Palin because it distracts us all from discussion of the real issues.

I respectfully disagree. Regardless of what a few bloggers write, there’ll be no discussion of the real issues, because 1) the issues are not on the table for discussion, and if they were 2) most eyes would glaze over - either from lack of understanding or mere boredom - and that would be the end of it. Sarah Palin is at least interesting.

That’s a bit unfortunate, though, because America faces a looming catastrophe, and it’s not going to be addressed until it is too late. Heck, it’s already too late. Take a look at the CBO’s just-released Budget and Economic Update. For this year, the estimated deficit has increased $51 billion over earlier predictions. Even worse, the expected surpluses for 2012-2018 in the January baseline prediction are now gone, turned to deficits, thanks to spending increases. And the long term outlook remains unchanged: exploding debt levels as far as the eye can see. Under one set of fairly reasonable assumptions, in the CBO scenario the federal share of the economy grows to (gulp) 75%. Add in another 20% for state and local budgets, and that means they won’t be taxing the vegetable gardens in our backyards...but everything else will be going to the tax man.

Of course, all of this is unrealistic. The CBO is required by law to use unrealistic assumptions, the baseline...which essentially means spending will hold constant, tax reductions with an expiration date won’t be renewed, economic growth won’t be negatively affected, and the like. And as CBO states upfront, these assumptions are doubtful. Reality will be worse, much worse. The Concord Coalition, using what they call a plausible scenario, finds a total increase in debt between now and 2018 that’s more than three times what CBO estimates. (The graph labels are somewhat misleading, I think. If I understand correctly, the $7.8 trillion is additional debt, not "deficit.")

Of course, all of this is just academic exercise, because we are going to have a new President. And we all know that this means change.

Change, as in... tax cuts that would result in $2.9 trillion less federal revenue between now and 2018 (Obama) or $4.2 trillion (McCain). Look, I’m no fan of taxes, but government borrowing is even worse. So where are the planned spending cuts to more than compensate and get us well into the black? Well they’re here for Obama. (Econbrowser calculates the net effect of Obama’s planned spending, tax increases, and tax cuts, and finds deficits in this lovely little post.) And for McCain, well, who knows? He promises he’ll balance the budget, but so far as I can tell, hasn't even a vague idea how. In his own words he has only $100 billion in annual budget savings planned, and those are going to tax cuts: "The great goal is to get the American economy running at full strength again, creating the opportunities Americans expect and the jobs Americans need. And one very direct way to achieve that is by taking the savings from earmark, program review, and other budget reforms -- on the order of 100 billion dollars annually -- and use those savings to lower the business income tax for every employer that pays it."

The bottom line: nothing either of these gents says about the budget makes a lick of sense. If they do what they promise (I know, an unlikely event), it would worsen, not improve, the current disastrous status quo. (Say, did we remember to add in the costs of Fannie Mae/Freddie Mac?) (No.)

Nouriel Roubini argues, correctly, I’m certain, that financial prudence is essential for a country’s success, and particularly for retaining superpower status. He thinks America is on the decline, to be eclipsed by some up and coming Asians. I concur. And if this proves to be right, it means that the tide favors the non-Western illiberal ideas of the East. Yikes!

So let’s summarize: the key issue facing us - the federal financial catastrophe - is one that almost no one can understand, least of all the press. And no one but an economist can stay awake through a discussion of it. America’s presidential candidates have plans for it, but those are built on lies, and leave us worse off. And the problem is unavoidable at this point. We can make it worse, of course, but there’s no agreeable (read "politically acceptable") solution.

So yes, we might as well debate 'Sarah Palin'...a relatively pleasant way to go, all things considered.