Deep in their hearts, Republicans know that if voters are ever forced to chose between progressive tax increases or cutting old age entitlements, they will soak the rich. Insofar as Republicans have a rational position, they are flailing around to obfuscate that choice to neutralize a losing issue.
This is basically a search for silver bullets. Cuts to old age entitlements can never be hidden. Any Congressional majority that meaningfully cuts social security or medicare will be decimated in the next election.
In the short run, making this a fight over debt rather than spending makes sense, because spending is popular and debt sounds icky. In the long term, Republicans can’t possibly get what they want. The smart ones know this and have left the cult of low taxes.
I'll repeat this to cows come home; this is the real impetus behind McConnell's furious drive to confirm judges and this is the real impetus behind the Federalist society and the 6 Federalist society judges who sit on the court. Abortion was the bone to throw the base. The real goal is dismantling the welfare state and regulatory state. As you say, GOP elites know this is very unpopular. So why not pass it on to the courts and have them declare regulating pollution unconstitutional.
I think you’re right, Colin. Finding novel ways to hold various aspects of welfare and regulation unconstitutional will be a growth area for conservative tourists. 
Bigger possibility than people realize given what happened with Dobbs.
We forget the reason ACA survived is Roberts was convinced to switch his vote because of the implications of the opinion Kennedy was going to write. Go read Scalia's dissent. It was clearly written to be an opinion in support of the majority and had to changed. The original opinion was not just going to find ACA unconstitutional, but find large portions of what the Federal government did full stop unconstitutional. Roberts blanched because he was convinced that completely overhauling the entirety of the federal government was a recipe for chaos.
The other five justices clearly don't care one iota about the implications of their decisions. They've shown themselves to be zealots with Dobbs decision full stop.
Medicaid is politically vulnerable. Democrats have gotten little electoral reward for expanding Medicaid. Even after expansion, the eligibility threshold is stingy enough that medicaid recipients have low voting propensity. Black Medicaid recipients are basically captive to the Democratic party, and white ones have such sketchy information that there’s little correlation between policy changes and their voting behavior.
A sound political coalition is grounded in the 25th to 95th percentiles of the income distribution. Win 3/5 of that group and you’ll have a crushing majority.
Reading today’s comment section is a useful of why I made the call that the illiberal wokeists I was getting yelled at about yesterday are less of a threat than GOP batshittery.
Deficit hawkism is like crack, it just eats away at the ability to consider historical parallels and think through the math on the issue in favor of simplistic straight-line projections and sheer panic.
The US clawed back from a total debt load a good bit higher than today’s (relative to GDP) and debt service significantly higher on the backs of productivity growth, taxation, and inflation. *Must* we pretend that that mix of driving factors isn’t going to happen again in favor of “cut spending!$@!”?
To clarify lest my last comment be interpreted as glib and substanceless:
US productivity growth has continued to increase quite quickly in historical terms after the post-war boom period "ended". Without referencing anything, off the top of my head I believe the average for the 1945-75 period was around 3.5%, the average from 1975 to 2005 was 3%. Since 2008 the numbers have been terrible but they are now recovering alongside business investment.
The problem is twofold: first, the transition in the global economy which you rightly note had the effect of allowing capital to capture a much larger portion of the gains after 1975 than before, at the expense of labor.
At the same time, the tax code became vastly less progressive, ensuring that most of those gains were not within the grasp of the newly amputated reach of the IRS.
Looking at the global trade regime today and the ways in which it's changing, I suspect that the first shift above is going to go into reverse. The current "slightly elevated inflation driven by the prices of labor-intensive services" certainly suggests this is starting to happen, and labor's share of income is increasing.
That will, without any change to the tax code, increase the tax take as a proportion of GDP. It will also likely increase investment and productivity growth because the marginal propensity to consume is so much higher at working and middle-class levels than professional class and up. One of the reasons productivity growth slowed this past decade, the main one really, is that demand was so soft that firms felt the best way to respond to temporary increases was with cheap labor and not process improvement or capital investment, both of which help drive TFP growth.
In addition, a rebalancing of labor incomes that keeps inflation slightly elevated above trend will have a favorable effect on the real value of outstanding debts and debt service. That is likely to persist for some time as it's structural in nature, and the Fed is not going to raise rates endlessly to try to strangle persistent 3-3.5% inflation, sorry inflation ultrahawks.
It is also increasingly clear that at some point in the next 20-30 years, the tax code is going to become more progressive once again as the GOP's base turns against it on the issue.
Suffice it to say, I am not in and refuse to enter into a state of panic on the basis of the lack of historical grounding and sound reasoning of my opponents.
Regarding tax progressivity: Piketty and Saez have a paper looking at the progressivity of taxes over time. Because of who they are, they focus almost exclusively on the top .01% and conclude "less progressivity today." But they provide the data that refutes their conclusion.
Look at Table 2 and compare to Table 1 in their paper. Tax changes have dramatically decreased the tax burden on every quintile of the income distribution, sometimes even going negative (i.e., no tax and net income). The slope of the curve between lowest tax rates and highest is much steeper today, which is how I would define progressivity. And I would argue the higher rates of taxation on the top .01% back in the 1960's were likely overstated due to deferred, and therefore unrealized, capital gains.
I would highlight a few issues with the picture you paint:
1) During the post war period, there was a baby boom and immigration reform in the 60s that led to much larger % population increases than we are seeing now. Its less than half what it was in the 60s.
2) I think you could have a deficit that averaged what the average growth rate for the overall economy. But it has to be the average, so in years when the economy is doing well, the deficit should be small or non existent, leaving space in bad years (pandemics, recessions, wars, etc.) for the government to spend. Unfortunately, we've been way higher than that for 20 years and should probably enter a period of financial retrenchment where we bring our debt to gdp ratio back down below 100% and preferably closer to our historical 60% average.
3) Biden's budget plan expects deficits of 1.2 trillion in 2023 and is likely to be about that level for a while. That is about 4.8% of GDP. If we wanted to cut that in half and get us to 2.8% gdp which is a reasonable growth estimate, we need to raise ~700 billion in revenue per year. That's a 15% increase in revenues which I would guestimate to require at least a 20% tax increase. That can either be across the board, or we can focus it on higher incomes, but if we do the latter, the rate increases significantly.
All of which to say, Republican's are bonkers to think any of this can be done without tax increases. But if you think we can do it just with tax increases, I don't think that's feasible either. My big takeaway is that as a country, almost no one in our political environment is ready to actually discuss deficit reduction in a serious way. They either pretend like its completely unnecessary or create fantasies about what will solve it that don't involve goring their preferences.
I don't disagree with some of this but there is one fairly glaring flaw:
Real GDP growth of 2.8% is a reasonable target, and especially so if we get our house in order on the supply-centric reform side, and the current trend of above-average real wage growth at the bottom of the scale and stagnation at the top continues, driving corporate investment and TFP.
But I would propose that, to make that rebalancing of the share of income flowing to labor and capital happen, the inflation target should be centered on 3%, not 2%, and that brings NGDP growth to close to 6%. I think that a shift in this direction is all but inevitable; the Fed would likely have to push rates above 7-8% and generate a rather long recession to squeeze the last bit of labor-driven cost-push inflation in the services sector back below 4%, which would inflict vastly more pain than is warranted if inflation in goods, housing, and foodstuffs are all brought under control.
Against this backdrop, a 4.8% deficit becomes sustainable, especially if we can increase immigration flows to closer to 1.5-2 million legal, skilled immigrants each year instead of a bit under a million.
I am open to reforms for Social Security aimed at improving its rate of return and capital allocations, which should, if done well, increase both productivity growth (ensuring that there are goods and services to match retirees' spending capacity) and the fiscal sustainability of the program (ensuring that politics don't get in the way of the boring business of helping 20-somethings insure their 70-something selves). I am equally open to tax reforms to increase revenue in a proportional-to-progressive manner, in moderation. I am also open to *specific* proposals to improve performance and value for money in the (especially) DoD, DOT, and NAS/NAM that would allow us to push growth in their budgets below inflation for a long while.
But the persistent "sky is falling, must slash everything to the bone" crap gets old, because it's not true.
There's a lot out there that points to us being on the brink of a new 50's/60's "golden era" for the masses, and repeating the mistakes of the post-2008 "recovery" will scupper that while it's still coalescing.
Biden just needs to cling to life in '24 and the autopilot set by the public investments and reforms we've recently made, as well as the general global macroeconomic climate, will be bearing fruit in time to prevent the GOP from trying to roll everything back after they sweep into power in 2028.
If we can get some serious permitting reforms, a considered/rational look at NEPA and OSHA, transform the SSTF into a sovereign wealth fund, ram through some occupational licensing deregulation, and actually enforce anti-trust law in a rigorous-to-brutal manner as well... all the better.
Compared to the tea party days, though, there hasn’t even been much anti-deficit rhetoric on the right in recent months.  It’s more a general vibe that we have to stop evil establishment CRT and pedophiles by any means necessary 
For clarification, David, what is your play here? Raise taxes on the top 5% while cutting Medicaid? That doesn’t seem like good policy.
To the extent that lowering the deficit is actually necessary, don’t we have to raise taxes on the top 30%? And to the extent that we want a more humane and safe society, we really need decent medical care for the poor 
I don’t want massive cuts to Medicaid, though I might support a lifetime cap on benefits, as long as it were a generous figure like $2million. I feel great sympathy for a healthy 35 year old who gets cancer, can’t keep a job, and needs public assistance to get better. I’m leery of paying for expensive treatments for unproductive people with chronic conditions. Decency means providing vaccines, blood pressure pills, antibiotics, etc. to people, but I don’t want to pay $170k year after year to keep a morbidly obese shut in alive.
I agree. It makes more sense to calculate QALYs and cost benefit trade-offs. But politically, calculations like that begin to sound like “death panels“
Given how poorly McCarthy’s speaker election went, I cannot see how he rallies House Republicans around any spending cutting plan. He’s always going to be facing several attention-seeking maniacs who will vote against any potential bill while screeching to their supporters about how McCarthy is a sellout RINO who is compromising with Biden. In the unlikely event that these extremists actually propose cuts, they’ll certainly be too politically unpopular to garner support from moderate Republicans.
So I imagine we’ll keep walking to the abyss of a financial crisis, and eventually moderate Republicans will feel compelled to work with the Democrats to avoid the financial armageddon of a US Treasury default. McCarthy will either get on board with this bipartisan coalition or he’ll be replaced. Even the WSJ is considering this to be a likely scenario given the lack of any plan of what House Republicans actually want. [1]
> All of which means Republicans will have to pick their spending targets carefully, explain their goals in reasonable terms so they don’t look like they want a default, and then sell this to the public as a united team. The worst result would be for Republicans to talk tough for months, only to splinter in a rout at the end, and be forced to turn the House floor over to Democrats to raise the debt limit with nothing to show for it. Opportunists on the right would then cry “sellout,” even if they had insisted on demands that were unachievable.
> This is what Democrats expect to happen, which is why they don’t think they need to negotiate. If Republicans want to use the debt limit as leverage, they need a strategy for how this showdown ends, not merely how it begins.
Enough with the discussion of gimmicks and tricks! the platinum coins, the super-high interest bonds, all of it! All that talk does nothing more than confuse the issue and feed the idea that the Republicans have some kind of leverage here, that some kind of magic trick is needed to defeat it. Treat this debt ceiling in grown-up fashion as the rather boring statutory interpretation problem that it is. Congress has passed conflicting laws, a general debt ceiling statute, and a bunch of more specific appropriations statutes that require the president to spend more money on specific things than the general debt ceiling statute would allow. To the extent it's not possible to comply with both statutes, the more specific statutes control under long-accepted canons of statutory interpretation. End of story. If Republicans in Congress don't like that interpretation of the law, they can either sue, or, better, actually *do their job* and pass a new law that reconciles the conflict.
You should have ended the article here, while you were ahead: "I think it’s important for Biden to maintain the posture that there’s no genuine financial crisis here, and one way or another he will see to it that the bills get paid."
The administration should begin any statement or answer with “of course the United States will not default on its debts, that’s prohibited by the constitution.“
But is that what the 14th amendment says? It says the US will honor its debts (including pensions incurred for services in suppressing insurrection (i.e., the Civil War)). Are things like Social Security, Medicare, military salaries etc. "debts" or "legal obligations"? If the latter, are they also covered by the 14th amendment?
By the traditional definition, I don't think these things are "debts." I'm not so sure the constitutional argument is as rock solid as people may think.
It’s immaterial. The G has taken out debt in the form of bonds in order to finance operations. It doesn’t matter if the operations count as “debts of the
United States.” The promise to pay on the bonds certainly does.
But that says we have to pay interest and principle on currently-issued bonds. But the question is whether we can issue *new* bonds to finance recurring obligations, like paying military salaries next month. Is that guaranteed by the 14th amendment?
I think this is the White House's basic strategy. Yellen criticized the idea of the coin last week. This doesn't mean they won't do it if they think it's their best option. They did that with student loan forgiveness.
However, I don't think they want or have to give this any more oxygen than what it takes to make the GOP look stupid.
I agree with this on the merits, but I'm slowly acquiescing to the idea that doing it that way may cause more trouble than the gimmicks. Inevitably, there will be claims that Biden is breaking the law, it must go to the Supreme Court, etc. and there's no guarantees about how they would rule if they took it up (even though they probably shouldn't). All of this uncertainty could roil the markets, especially if we end up right back where we started.
That's a reasonable concern, but settling this through a legal process (either the Supreme Court takes it up and sides with the administration, or they decline to take it up which forces the legislature's hand while Biden continues to pay the bills) seems like it will leave things on a more solid footing than something gimmicky like the coin, or even super-high-interest bonds. My guess is there will be some market turmoil, but nothing crazy, and when things settle down the whole issue will be revealed as empty posturing and we'll all be able to - finally - move on. The coin or the super-high-interest bonds might avoid some disruptions, but feel shakier in the long run.
Serious question: what makes you say that? My impression is that right now they're just hanging back and evaluating all of their options (which is a reasonable thing to do at this stage).
I guess I assumed that if they were going to take that route, it would have been stated matter of factly. But you're right that there's no reason for them to do so until necessary.
>>>they decline to take it up which forces the legislature's hand while Biden continues to pay the bills<<<
How does this work absent the platinum coin? Anybody know? I mentioned the possibility last week of a "just pay the damn bills" strategy based on the fact that, as I understand, Treasury has de facto money creation authority (it has open-ended overdraft protection via the Fed, I think).
Is "just paying the damn bills" absent a platinum coin or the super-bonds something that can work?
A Josh Barro piece from last week claimed that Treasury does not have de facto money creation authority, and explicitly cannot just print money to pay outstanding bills. I'm very far from being a SME and am not taking a position on the matter, but that's what he said
Where? I just visited his Substack, and didn't see what you describe. He's definitely not a fan of the trillion dollar coin, per my (just now) reading, as he points out it requires the Fed to accept the coin for deposit, and it's not 100% clear they'd do so. He seems to be of the opinion negative bonds are the way to go.
Caveat: I am basing this idea on a comment here the last time there was a debt ceiling thread. Maybe someone with more expertise can chime in.
I think the idea is that, in the event of a refusal to raise the debt ceiling, Congress has given the executive conflicting legal instructions. It had directed the executive to appropriate a certain amount of funds, but denied it the capacity to raise those funds. Then there’s the Constitution, which says the US must honor its debts.
So the theory was that Biden could say “as I cannot comply with the letter of the laws as passed by Congress, I will interpret this in the way which causes least harm.” Which is probably something like a government shutdown, but we don’t default on the debt.
I don’t know enough about the specifics of this idea to say how it would go precisely. But it seems like it does make sense, and it’s true that if the debt ceiling were reached the executive is going be forced to violate the law one way or the other. So doing it in the least-harmful way seems like it would pass muster, and also seems like it would neutralize the threat going forward.
>>> If bond holders get paid, but there's tons of other painful shit going down, it's not good.
It's not good, but it's not disastrous. We've had government shutdowns before, it's not the end of the world.
FWIW, I think this is better in the long run because of what the US' status as the center of the global financial system *means.* It's basically an expression of faith in the American system. If we reach the debt limit and it's basically just replay of the Gingrich-Clinton showdown in 1995 and nothing much happens, then markets are rattled for a bit but the system looks solid in the long-term. If we mint a platinum coin, that might satisfy markets temporarily, but it's not hard for me to imagine a scenario where this keeps happening, and we keep having to mint platinum coins, which eventually undermines faith in the system, because it all just seems rather silly. Better than defaulting on debt, sure, but still.
Good question. I think probably because it shows a good-faith effort on the part of Biden to comply with the law? Not doing anything seems like more of a flagrant violation.
Again, though: I am not an expert on the technical legal aspects of all of this.
The Supreme Court can take up the issue if they like but there’s no reason to believe their ruling would be binding over the Executive Branch. They can’t stop the checks from going out; indeed the Judiciary has no power of enforcement at all.
I think Matt's discussion of gimmicks and tricks is important precisely because the availability of gimmicks and tricks means that it *is* possible to comply with both statutes, meaning that the long-accepted canons of statutory interpretation wouldn't apply.
If the House Republicans want to sue Biden on the ground that he cannot continue to pay the bills and issue Treasury notes and bonds as necessary, but instead he must mint a platinum coin or use a gimmicky high-interest bond in order to comply with both statutes, let them.
>>To the extent it's not possible to comply with both statutes, the more specific statutes control under long-accepted canons of statutory interpretation.<<
Plus, going this route (by which I assume you mean paying the bills) has the advantage of not $&@^ing the country.
If SCOTUS was composed of 9 sane individuals I'd agree with you but unfortunately it's composed of 2 nutjobs, 4 conservatices, and only 3 liberals. Its not a slam dunk that they'd agree with your interpretation and just the doubt would be enough to crash markets. The gimmicks are arguably on safer legal ground.
Short of cutting a deal with the hostage-takers, which encourages further hostage taking, there's no path available to Biden when he will not face potential legal challenge and counterarguments, that will be resolved in court if a negotiated settlement can't be reached. At the end of the day, the Supreme Court either has a majority of Justices who are sober, judicious people rather than arsonists, or it does not. I think it does. But regardless, it's better to go into Court asking the Justices to approve a prudent course that protects the good credit and solvency of the United States, than to ask them to approve tricks and gimmicks.
I think the platinum coin thing counts as a stupid gimmick, but I don't think that's true at all of the high-interest bond idea. The interest rate on a treasury bond is literally set by the government, and there's nothing weird or improper about selling a low-value bond at a high interest rate compared to selling a high-value bond at a low interest rate. That's why this is a brilliant idea and is probably the best solution anyone has or will come up with. It doesn't do anything all that strange or illegal, it just takes advantage of the wording of the debt limit having to do with the face value of bonds, and just sells bonds at a lower face value but a higher interest rate, knowing that people will pay higher than face value in exchange for more interest. I love it and I hope it happens.
I think the platinum coin thing counts as a stupid gimmick, but I don't think that's true at all of the high-interest bond idea. The interest rate on a treasury bond is literally set by the government, and there's nothing weird or improper about selling a low-value bond at a high interest rate compared to selling a high-value bond at a low interest rate. That's why this is a brilliant idea and is probably the best solution anyone has or will come up with. It doesn't do anything all that strange or illegal, it just takes advantage of the wording of the debt limit having to do with the face value of bonds, and just sells bonds at a lower face value but a higher interest rate, knowing that people will pay higher than face value in exchange for more interest. I love it and I hope it happens.
I think the platinum coin thing counts as a stupid gimmick, but I don't think that's true at all of the high-interest bond idea. The interest rate on a treasury bond is literally set by the government, and there's nothing weird or improper about selling a low-value bond at a high interest rate compared to selling a high-value bond at a low interest rate. That's why this is a brilliant idea and is probably the best solution anyone has or will come up with. It doesn't do anything all that strange or illegal, it just takes advantage of the wording of the debt limit having to do with the face value of bonds, and just sells bonds at a lower face value but a higher interest rate, knowing that people will pay higher than face value in exchange for more interest. I love it and I hope it happens.
Sooner or later something is gonna have to give on this. Either funding entitlements is going to require broad based tax increases, or we're going to have to get serious about spending cuts. The problem here, unfortunately, is democracy. Deficit financed government fundamentally breaks the democratic process. The people in the future who are on the hook for the spending reps are voting for are not the voters those reps are accountable to in the present. It's real easy to rob some other guy's future constituents to buy votes from your constituents today.
The problem with the deficit is way less about the economics and way more about the political incentives. I struggle to see how those incentives will ever align with a needed set of reforms without some sort of materially catastrophic crisis occuring first.
The US has among the most slack in the developed world to raise taxes. Plenty of people would bitch, but as the post above yours gets dead right, the electorate will choose to keep popular programs and pay for them when it comes to crunch time.
That, but also as Matt pointed out, voters don't actually care about tax increases, they care about the rhetoric around them.
These things are impossible for me to Google because any search term that includes the word 'tax' leads to a firehouse of nonsense, but my recollection is that Reagan, Bush I, Clinton Obama and Biden all raised taxes. Bush II and Trump cut taxes. And despite the fact that Bush I and Trump both lost re-election, it is still canon that cutting taxes loses elections and raising them wins them.
I think that, because of the slack the US has, tax increases just don't translate into anything noticeable by the electorate. Nor do tax cuts, really, since most people aren't rich enough to notice changes in federal tax rates. (Hence the nonsense about 'fitting your taxes on an index card', which is the only change most people noticed.) Republicans like to pound on the table and yell about tax-and-spend liberals, but the taxes they want to cut are capital gains and income, which are only a big deal if you're rich enough to pay them. To wit, the SALT deduction cap in the Trump tax cuts got more coverage than I have ever seen for a change in tax rates because it mostly impacted rich Democrats (i.e., the NY Times readership).
It's the spending side that piques interest from voters; cut Medicare and kiss re-election goodbye. I bet that a President of either party could pass a comprehensive tax increase to balance the budget and that, if they got buy-in from right-wing media (which would never happen, of course), voters wouldn't notice.
Most of the Boomers have retired already. Healthcare spending growth rates, including for Medicare, have moderated. I agree with Just some guy: this is a slow burn, and a very manageable one, not a crisis. Just increasing the cap on Social Security wages would do wonders.
I'm not sure that's accurate. I can't immediately find a stat on what the average age of a Baby Boomer in 2023 is, but from the bar chart of "Births underlying each generation" here: https://www.pewresearch.org/fact-tank/2020/04/28/millennials-overtake-baby-boomers-as-americas-largest-generation/ , it looks to me like the average age would probably be something only around 67 or maybe 68 because of the later years of the boom having larger birth cohorts, so they've literally just started to become eligible for full Social Security benefits in the past year or two and plenty of people will hold on to age 70 to get the full bonus payment for delayed retirement.
Or died. I can't find more recent numbers, but as of 2012, 11 million of the 76 million boomers born 1946-64 had already died. I suspect those numbers have doubled since then.
Many boomers retired at 62; relatively few wait until they're 70.
I'm sure hard numbers are out there with some research but life is short (I'm a boomer).
Sure, it will be a tough political fight. Like raising the gas tax five cents. People *really* don't like increased taxes or reduced benefits, even if the numbers are small.
Won't their kids be retiring right around that time?
Our entitlements were designed for a growing population, so that the recipients of the entitlement spending are supported by an ever-larger workforce. A stagnant or shrinking population has disastrous implications for entitlement spending.
I accept the case that it might help living standards and economic strength over the long term to reduce federal borrowing. But the way to do that is to wait until insane people are no longer controlling the House of Representatives.
I do not believe we are on the verge of an imminent fiscal crisis. I'm fundamentally making 2 arguments:
1. The political incentives are aligned towards a persistently deteriorating long term fiscal situation.
2. Those political incentives are not well calibrated towards interventions to preempt even highly foreseeable crises that may arise along that long term trajectory.
Regarding (2), I suspect crises may be the only way some of these things get fixed because that's the only time the incentives of enough people will be sufficiently aligned. For example, we may see a bargain between democrats and a few republicans to raise the debt ceiling. Similarly, "fixing" (whatever that means) SS now doesn't really win anyone electoral points, but it might if the checks are at risk of not coming.
Yes, debt isn't a problem as long as it can be serviced - this is a truism. The trick is that when the debt becomes difficult to service, then things tend to cascade in bad ways.
I wonder if there’s a formula like the Sahm rule that one could write into a budget balance amendment. Instead of saying the budget must always be balanced, say that the ratio of deficit spending to GDP must be no more than twice the unemployment rate minus the GDP growth rate, or some better chosen formula to allow deficit spending during downturns and require a surplus during booms.
Right, I don't want to be out here implying that the dumb version of a balanced budget amendment makes any kind of sense, I'm imagining a type of mechanical stabilizer solution.
The European Union tried outlawing Keynesian economics. Spain, Italy and Portugal suffered a lost decade and Greece saw living standards decline. Then they gave up that silliness and got through the pandemic with less economic damage than German stinginess caused in 2007-13.
I feel like there's a middle ground between "no deficits ever" and our current policy of running perpetual deficits in all times - good and bad - expansion and contraction - not as some carefully tuned Keynesian stimulus.
The middle ground is Keynesianism: run deficits during downturns and surpluses during boom periods. I think we've nailed the first part, so good on us. Second part needs a bit of work.
The problems with Greece, Spain, etc. were mainly about the Euro (ie - those countries not being able to control their own currency). The reason the US can deficit spend the way we do is because we control our own currency.
In the 1820s, the UK carried debt equal to 225% of GDP. It did this with a very primitive economy that yielded a per capita GDP of under $4000 at current prices. Why can the US carry less debt that a proto-industrial monarchy?
I mean when the British Empire says, "We're good for it. We'll just go take some gold from India or wherever." It's probably true. I'm not sure, "We'll mint a trillion dollar coin" is such a confidence inspiring answer.
I think most of the people on the hook for paying most of the debt are alive and voting today.
As for those future people who are not alive today, history teaches us that they will likely inherit an economy more prosperous than the ones we live in today. We owe the future less than *some* people believe.
You're definitely underestimating how many people will be born, and over estimating how much of the "debt" needs to be paid off.
The "debt" will never be paid off, and because the public deficit is private sector wealth, thr economy will probably be more prosperous than it is today.
Now if you go about trying to constrict the money supply in inequitable ways, you're very likely to see the exchange of goods and services dwindle, and some real problems arise.
Some Scottish philosopher wrote about that very same idea, I believe some time around the American Revolution. Two hundred years later and so far he's been proven wrong. We shall see.
You know you're literally arguing "If the casino puts too many chips on the floor, how will future players ever afford to pay the casinos bills."
There's a problem with putting too many chips on the floor, because then the whales will bid up the cost of doing business too high for the new players, not that future players are going to struggle to make sure the casino can zero their books out at the end of the night. But taking too many chips off the floor will also really slow down how many bets are being placed and how much activity there is. If the Feds need to provision goods and services, then they will simply buy those goods and services. If they need people to accept the chips they are paying for goods and services, they will simply start producing it themself, or tell people they better start earning more chips, because anyone who doesn't produce the right stuff, and earning more chips from the market, is going to jail. Even better, they never even have to put anyone in jail, they just have to provide producers enough incentive to keep paying their taxes, so that they themself can be benefit from paying other people to produce for them.
"Republicans are in a state of internal chaos" largely because the American people are in a state of chaos on the topic of taxes and spending. Plus having some wackos in the coalition. In survey after survey, the public doesn't want to raise taxes and doesn't want to cut spending. Meanwhile, the structural deficit grows.
Democrats have their own internal chaos on this topic -- they've pledged no tax increase on anyone making less than $400K / year.
I used to look at the fiscal policies of various South American countries, careening between hyperinflation and debt default, and think "I am glad we don't have those problems". My sympathy for their situation is quickly turning into empathy.
U.S. GDP is $23.3 trillion. If inflation runs at 3% and real GDP grows at 2%, we could have a deficit of $1.165 trillion and have the national debt remain a constant share of GDP. If the deficit is held to $669 billion, it’s value as a proportion of GDP would decrease by almost half every generation.
Increasing taxes on the top 2 or 3% and corporations could easily get the deficit under $700B.
Inflation in social security and medicare is much higher than 3%.
"In 2022, the combined cost of the Social Security and Medicare programs is about 8.9 percent of GDP. The Trustees project an increase to 11.6 percent of GDP by 2035..., with most of the increase coming from Medicare"
Social security is pegged to inflation. Boomers are dying just about as fast as they are retiring, the structural problem isn’t huge. Health care inflation is a problem, exactly the kind of problem smart technocrats could fix-- more medical schools, more visas for english and spanish speaking doctors to immigrate, more power to negotiate drug costs, more options for hospice care and transitioning from patents to prizes for life saving drug research would do the trick.
I’m also certain that political will can be found if there is ever a fiscal crisis. But Americans don’t know what a fiscal crisis is cause we’ve never had one. A minor fiscal crisis is like what Britain experienced in the late 1940s, and I doubt we’ll equal that in my lifetime.
"U.S. GDP is $23.3 trillion. If inflation runs at 3% and real GDP grows at 2%, we could have a deficit of $1.165 trillion and have the national debt remain a constant share of GDP."
That's not the way it works!
If inflation runs at 3% and real GDP grows at 2%, that doesn't add up to a deficit of 5% gdp we can run.
The question which determines "how that works" is "Is the present debt-to-GDP ratio over or under 100%?"
If over, a deficit of 5% of GDP a year, assuming it includes debt service, equates to an expansion of the debt of under 5% (normalized against existing debt), set against a 5% increase in nominal GDP, meaning a fall in the debt-to-GDP ratio.
currently the debt to GDP ratio is 1.29, so here's the math:
(1.29 + 0.05)/1.05= 1.276
So right now that basically is how that works, given that the existing debt to GDP ratio is a bit over 100%.
Hence my other post: if we manage average NGDP growth of around 6% (real growth 2.5-3%, inflation 3-3.5%) then we can quite handily get control over this issue, excepting Social Security and Medicare, which will require some reform. If healthcare costs continue growing at a rate below inflation, as well, then even Medicare won't require a ton of help.
The real problem is that whenever the hell the GOP is next in office they'll do yet *another* miserably stupid thing to pitch $1-10 trillion into a black hole, whether it's another round of regressive tax cuts, a major war, or something else, as they have in *each of their last four presidencies*.
I am not in the habit of blaming the GFC or COVID on the GOP, nor will I here, but even without those numbers the GOP since 1980 has generated something like $13 trillion of debt in 2022 dollars through tax cuts, increases to discretionary spending, and wars.
First - Bush Sr. was one of the most fiscally responsible presidents we've had. Plenty of other faults, but he ate his (stupid) promise of "no new taxes" for the benefit of the country. That shouldn't be overlooked.
More generally, I'm fine castigating the GOP for profligacy, but I think you're being far to generous to Democrats by leaving them out of discussion.
Reagan and Bush Sr were presidents when Democrats controlled Congress. I don't excuse (or credit!) them for their own responsibility, but I think its worth remembering that Congress actually writes the budgeting laws.
Similarly, you can credit Clinton and Obama for being more fiscally responsible, but you also need to share that credit/blame with the Republicans in Congress.
I think you can put particular blame on GWB for Iraq, but otherwise what you see is that when either party controls both branches, they go wild with their priorities and there is no one to put the brakes on. Whether that be tax cuts, spending, etc.
The GOP claims to be the party of fiscal conservatism which I will grant you is ludicrous after watching them in 2016-17, and at least the Democrats don't claim that which I guess is something...
Interest payments as % of GDP are half of what they were in the days of Ronald Reagan's "Morning in America." We got past that via economic growth and some sensible policies enacted by Bush I and Clinton.
Deficits and/or interest rates would have to go up a *lot* for us to be in the horrible situation of the 1980s that so many people remember so fondly. We have a long way to go before we become South America or Greece or Turkey.
Your perspective on this topic is reasonable, John, but Americas place in the world economy, and the role of the dollar mean that our range of outcomes  is fundamentally different from Argentina, wouldn’t you agree? I mean, in the worst case scenario, it might be worse – for the world. 
It’s fine to point out the issue, but would the GOP sign on to a tax increase at those levels of income? The answer is surely, no. So there is in fact a consensus.
Neither party would sign onto such a tax increase unless an immediate crisis requires it. Elsewhere in this comment section, Dave Coffin describes the situation better than me.
It seems like you're trying to advocate for cutting popular programs without saying so, by reaching for any reason you can find why there's no alternative. "The public don't support tax rises"..."OK they do but not by enough"..."OK but the parties won't do it unless they had to"...why is the latter even a problem?
I think choosing a European-level of taxation and size of their welfare state results in lower growth and an overall poorer nation. So, yes, I do advocate for cutting popular programs including social security, medicare and defense spending.
I fully recognize this is unpopular, which is why it won't happen and I have accepted that tradeoff.
Fair enough. I think there are much better alternatives, from Mitt Romney style "close the loopholes and lower the rates" (including improving enforcement) to Yglesias favourites like immigration and zoning reform, to cutting popular programs.
I think that's a reasonable view. I mostly disagree with it, but that's fine.
However, it is distinct from the Congressional Republicans' position of "we are going to risk an enormous catastrophe now, because it is absolutely essential that we heed off this other crisis that's possible in 15 years." (Actually, that's a generous reading of the Congressional Republican position, as today's post makes clear.) This kind of reminds me of the climate left: "it looks like there's going to be more floods in 50 years so we need to end capitalism yesterday."
Also, this "crisis" in the future can be pretty easily averted by some combination of GDP growth, inflation, and possibly modest tax hikes and modest increases in the retirement age. There's no need whatsoever to blow the whole thing up.
I'd rather Republicans just come out and say what you're saying. At least it's intellectually honest. Although it's worth noting that the US *doesn't* have a European level taxation or welfare state. It's true that many on the left want this, and many on the right don't want it, which is probably how we wound up with our "we've got a welfare state that's more than what conservatives want, but less than what they have in Europe." I do think you are correct to point out that there is some dishonesty on both sides in this - but Democrats don't make a habit of threatening to blow up the global financial system to get what they want (even though that threat is likely hollow).
Fully funding the existing state does not require us to approach Western European levels of taxation, though?
I agree that I don't really want an NHS, a massive government-run sectoral bargaining program, free tertiary education paid for by large taxes and defrayed by tracking 75% of kids out of university at age 8, and incredibly generous retirement benefits at 62.
But that's not what we have, and what we have seems to be a well-functioning middle ground between "Early Industrial Britain" and "Sweden in the 1990's".
Is there room for improvement? Absolutely.
Am I willing to let the GOP torch everything when they're directly responsible for *choosing* to accumulate $13 trillion of the $27 trillion of debt we've accumulated since 1980, and the aftermath of the financial crisis and COVID are responsible for virtually all of the rest?
No. The GOP does not have a single policy-maker qualified to run a school bake sale, at this point, and I will pay about as much attention to them.
You want to both-sides this one out of some instinct to continue believing you're still a center-right conservative. Fine, be a center-right conservative, but let's not delude ourselves into believing that the Democrats haven't been the party of fiscal probity for the last 40 years.
You'd be correct to understand that to be grudging at best, but nonetheless the GOP is batshit insane on this issue and the Democrats are not, regardless of how they got there.
Make no mistake: I think the Republicans who are pushing for a fight over the debt ceiling are quite wrong. They were wrong the last time they did it and public opinion rightly blamed them for the stunt. And the public will do so again. Those who engage in this silly and ultimately fruitless exercise aren't serious about anything including fiscal responsibility. There will be a time when this changes, but it hasn't changed yet.
I also believe this "crisis" is lots of mental masturbation (pardon the phrase). I predict there will be no default, the debt ceiling will be raised, perhaps with a short government shutdown and associated backlash against the GOP, and we will carry on as we've done for decades until or unless a real crisis comes along to change the equation.
The Democratic party is more fiscally responsible (in the short term) for sure. I think their long-term ideal will be harmful, though.
We’re also no where near the situation you fear (assuming the freedom caucus doesn’t burn the country down over this ridiculous manufactured crisis. There is a lot of room to work with to get spending reductions, you just need a responsible party to negotiate..which btw I think is coming. As the wack-a-doos continue to steer the GOP I think it will finally become clear that the middle position is for the most part in the dem party.
I think the actual argument has to do with what I'd call the Robinhood delusion. Part of the D coalition is convinced that funding entitlements is as simple a robbing the rich to feed the poor. They don't want to make the case that these programs are good and worth paying for. It's always some richer guy who should pay for it. So no one pays and we kick the can down the road with deficits.
There is surely still a wing of the party that believes in fiscally responsible, tax and spend, good, efficient, government, but just like with the Rs, the populists are at the switches at the moment.
...but outside of AnCap meme world there's still a difference between "The wealthy should pay higher tax rates in line with their increased burden on government services and the greater benefit they derive from the government's protections." and "Ten people are in a room and 9 of them vote to beat up the richest guy and take all his stuff."
Yeah I know the takes, I used to have similar feelings. But the structural deficit has fallen (and risen) over the years and frankly I don’t think it’s the issue that you and Dave seem to be making of it. We’ve made adjustments to taxes many times. As long as GDP (g) continues to grow we can handle it. Meaning the debt/gdp ratio is really the metric to watch. The rise in r (rates) obviously raises issues that MattY has pointed out and I agree with. I see Olivier Blanchard believes we are on a path back to secular stagnation which would mean inflation moderates (which it is doing rapidly) and the fed will have to cut rates again. Bad for me personally (I liked riskless 4-5% interest) and not great in general but it likely means r<g…there are lots of opptys for reducing discretionary spending and reforms out there to make Medicare more efficient. So my guess is we’ll see the debt ratio fall again.
And as for the politics, Obama was at the table with all of this…so I don’t accept a both sides just because someone promised not to tax below 400k.
Especially since the somewhat high coupon version of this strategy (as opposed to the extremely high version Chicago used) is very common, but "the [insert any random school district that passed a referendum] model" doesn't have quite the same ring to it.
The public and elite understanding of the debt ceiling is mentioned briefly but is very important. The media landscape has changed and improved a lot. I think people forget how much the media took republicans side and blamed Obama for the standoff, in ways that tied his hands and somewhat forced him to negotiate. I think media figures thought buying into debt hysteria made them seem impartial. I don’t get that sense this time.
I think it took a few go rounds for people to get the dynamic here because the debt ceiling is usually explained with a boring credit card analogy. But what Republicans are doing is just a stupid dine and dash.
Republicans walked into Denny's, ordered three grand slams, and washed them down with a chocolate milkshake. And now they're screaming that they refuse to pay because they're on a low calorie diet.
I never understood why media didn’t understand the debt ceiling to begin with. At the national level, these are all graduates of elite universities who can presumably educate themselves on an issue which doesn’t require being an expert.
Also, people have been here before. Trump and the GOP were totally blamed for the government shutdown during his presidency. They've already seen how the public reacts to this kind of thing. It worked the first time but it clearly won't work again.
Honestly, Dems should do more to call Rebs bluff on this issue.
They should say "YES!!! WE DID SPEND TOO MUCH ON COVID! It really was a big nothingburger, and we need to tax back all that extra money that was thrown out into the economy during the Trump years. Jay Powell was even too busy printing money with low interest rates, low interest rates the average American doesn't get access to. We didn't know what we were up against, and now we know not all that money was spent wisely and a lot of scams took place and a lot of landlords got rich for doing nothing while people worked at home. If we're not going to cut spending, let's tax back that extra money, because otherwise there's no way to lower the deficit. Every once in a while Congress has to make hard decisions and make up for the mistakes of past congress's loose spending."
Validate some of the right wing populism, and provide a solution, while the Rebs flounder.
I made a comment on another substack criticizing Dems for not raising the debt limit during the lame duck session, and someone pointed out that Manchin wasn't too hot on it and getting his vote would probably require coal subsidies or something that most of the caucus would never go for.
I'm not sure that's true, but if it were...I am all for giving Joe Manchin coal subsidies! It sounds nice and populist and energy-independent, and pisses off the climate left (which is good politics) and makes no difference at all for actual climate change (because, short of giving utilities billions of dollars to burn coal rather than gas, coal's never gonna actually come back).
In general, there's great political low-hanging fruit for Dems in just handing the climate left a bunch of defeats on silly symbolic issues, because it makes the party look nice and moderate and populist but doesn't really matter for climate change.
The only goals of the Freedom Caucus are fighting and obstructing the "Establishment," whether that be Democrats, the media, or RINO squishes. Their supporters expect them to fight. Doesn't matter over what. As long as they can be seen fighting on Fox News and talk radio, their supporters are satiated. That is all this is about. The Freedom Caucus learned in the Obama administration they could pick an easy fight over the debt ceiling that really pissed off their enemies, so they are going back to that well.
>>I already wrote this for Bloomberg, but I want to reiterate that Joe Manchin’s proposal to re-run the grand bargain commission idea from the Obama era actually makes sense this time around.<<
In isolation it's certainly not a crazy idea to look at the government's longer term fiscal situation. But I must say I really dislike the idea of broaching this as "an idea that makes sense" at this particular juncture. Is there a case to be made for austerity moving forward? Sure. I can read inflation charts as much as the next guy, but, in addition to the fact that we really aren't in some kind of fiscal crisis (nor anywhere close) at present, I hate—absolutely hate—the idea of *rewarding* the radical and nihilistic Freedom Caucus for making threats. They are vowing to literally cause grave harm to the country they serve by savaging its creditworthiness. It borders on treason.
I get that they say they want a small state. And some of them may even mean it. But some tactics are beyond the pale—I don't care how fervently you want to achieve the goal in question.
I doubt that the Freedom Caucus would view a bipartisan commission as a 'win' for them. I hate giving an inch on this matter of principle and sanity, but I care not a whit about any such commission. I can grudgingly accept a fig leaf lest the world's economy go in the toilet.
It's kind of how Biden won some silence from the Left when he established the future of the Supreme Court commission. Boy, did that change everything.
I am going to give Matt Gaetz and That Crazy Woman From Georgia more diabolical credit than they likely deserve: I think they are aiming for default.
It would be their Hail Mary shot. The economy seems to be improving under Biden, American society re-normalizing, the world rallying behind the Western order. A stable, prosperous, just, boring planet Earth has no place for the likes of them.
An economic calamity, on the other hand, one happening during a Democrat president, caused by them or not, gives them hope of advancement amid chaos. Chaos is a ladder, as Littlefinger would say; you only need climb.
Keep in mind, of course, like all villain Hail Mary plans, it is a stupid plan that likely will not work. A default caused by a crazy, fractious Republican House will likely be blamed on said Republican House. It would also likely end the Republican party as we know it, no matter how ruthless Trump is or cunningly conniving DeSantis is.
But that doesn't mean a couple of stupid, vain politicians elected by stupid, vain local (gerrymandered) majorities don't want to try it. We'll see if they're able to carry all before them in a few months.
"But today — with a deeper public understanding of the issue, a clearer position from the White House on what they want, better elite comprehension of the available options, and a GOP whose stance on the issue is completely unclear — I don’t really think that leverage exists."
Uh, I'm going to pushback harshly on this. I think you're being wildly optimistic that a debt limit showdown wouldn't be much much more harmful to Biden then GOP in Congress. You're idea that the public has a much more sophisticated understanding than 2011 seems pretty off base to me. If you're talking about readers of substacks, NYTimes opinion columnists who used to write the "Wonk blog" or economics writers who write for The Atlantic and have podcasts on The Ringer, then yes this group of people have a reasonably sophisticated understanding of who's driving this debt ceiling standoff. But as you very very correctly remind us all the time, the median voter is a working class white guy over 50 living in the suburbs; a demographic likely very underrepresented in the group of people I listed above. Furthermore, I think you're wildly overestimating how much swing voters nowadays have a "sophisticate" understanding of what's going on. What they'll notice is a severe recession with massive job losses that very likely would result from a debt ceiling breach. If you want some proof go look at Biden approval rating and gas prices this past year (heck look at 538 recently where Biden's approval rating has ticked slightly downward again just at the same time there has been small increase in gas prices).
Also, I think you're also overestimating the sophistication of mainstream media, especially mainstream media personalities that have pretty far reach. The New York Times politics desk still exists; Peter Baker was on Meet the Press just this Sunday. The "hawks on both sides could not come to an agreement on a debt ceiling increase" take is basically probably prewritten to be belched out some point in June if necessary. Speaking of Meet the Press, honest to god, you really think Chuck Todd is going squarely point the finger at GOP intransigence and lack of actual plan as the reason a debt ceiling breach occurred? No he's going to have Chris Christie and Maureen Dowd on to talk about "how is it both sides couldn't come together here for the good of the country?".
So if you're wondering what the GOP plan, their (probably correct) response is we don't need a plan, Biden is the one who will suffer most and RDS or Trump will just cruise to victory (as has been noted many times, swing voters latch on to personalities when voting for President). In fact not having a plan is a form of leverage. Nothing to negotiate. The whole point is "Look at me, I have the biggest dick..aren't I wonderful". And if you think I'm being too vulgar here, remember the last President literally grabbed his crotch on the GOP debate stage in early 2016. Also, if you don't think the epithet "Little Marco" doesn't have very very close to the surface undertones about penis size, then I have a bridge to sell you.
One last point. I feel like it's being lost that Trump tried his absolute hardest to get severe Medicaid cuts passed. ACA repeal didn't die in committee like Bush's social security privatization. It came within one vote multiple times of passing. Remember it wasn't just McCain's thumbs down. There was "skinny" repeal that was shut down by Rand Paul for reasons that I'm still at a loss to explain. You brought up Medicaid cuts and that GOP didn't seem interested in actually pursuing, but I think that's wildly wrong.
Given that the Democrats have in public opinion terms won every government shutdown/debt ceiling standoff ever, I'm at a loss as to why anyone would suddenly think it would hurt them.
The actual impact to the economy. If GOP, Jeffries and Biden come to some sort of agreement or (god I hope) people come to their senses and realize they need to a clean raise, then the actual impact on 2024 would likely be zilch.
But if we breach the debt ceiling, then the economic impact could be catastrophic worldwide. And even if we don't breach the ceiling but come perilously close, that could impact our ability to borrower and impact the prices of Treasuries which are essentially the real backbone of the world economy. Anything that threatens the "flight to safety" that is Treasuries as the safest in the world to invest, can have pretty profound (and likely negative) economic consequences. And reality is bad economic conditions almost always redound to the benefit of the party out of power in any Democracy; American, German, French (though apparently not U.K. for interesting reasons as evidenced by the last 14 years. Real example of what can happen when enough of your voting population is of retirement age. Danger will robinson danger).
Post truth politics - its not about truth telling or earnest governance
Its about saying whatever things and taking whatever positions will get you more power…truth and actual governance be damned.
Should not be lost on anyone that the same foreign nation that commits massive crimes to help the GOP win elections is also bludgeoning Ukraine, and those congressional GOPers make American look bad in front of the whole world while also lobbying against further US support to Ukraine. Not coincidental.
How much useful idiocy vs how much actual knowing agency of these actors is impossible to untangle from this perspective but I’d imagine its mostly the former.
“Breaching the debt ceiling” isn’t real. It’s like saying nobody can be taller than 6 feet, calling that “the heigh ceiling”, and then complaining that people exist who “breach the height ceiling.” It’s one real number being higher than an arbitrary one. We’ve “breached the debt ceiling” every year Congress has arbitrarily raised the debt ceiling, with no impact at all.
Strong disagree. Credit rating agencies also disagree.
Just because the sky hasn't fallen yet doesn't mean the sky can't fall. Seems obscenely stupid to tempt fate in this way. US sovereign debt is the most fundamental asset underlying (and stabilizing) the global economy.
When there is a critical mass that loses faith in the ability of the USA to repay its debts, we could face true economic catastrophe.
I think you don’t understand the issue, here. Allocating debt in excess of the ceiling isn’t what imperils the US’s creditworthiness; it’s not doing that that imperils the creditworthiness.
I do think suburban swing voters may respond to signals from the administration showing that they are the responsible side in the dispute, and distribute punishment accordingly 
Biden and Democrats will have to win a messaging game to make that work. They tend to lose those battles, but perhaps Biden’s earnestness will be better appreciated this cycle.
They will also need to make the Senate work as designed and hopefully advance solutions that will put the GOP into a bad place rejecting.
What happens in June 2023 won't matter when people vote in November 2024. If the GOP causes a economic catastrophe this year that persists until Election Day though, the Democrats will most certainly be blamed, because they didn't fix it in the meantime.
Loving the new focus on municipal bond quirks as a way out of crisis. I'm embarrassed that I didn't know it was McCormick Place that issued high coupon bonds. To any other muni nerds out there, do you think any of our other tools would fit the bill here? Like appropriation debt (not really a debt obligation, since Treasury isn't obligated to pay if Congress doesn't appropriate, so maybe it technically doesn't count)? Or a sale-leaseback of, I don't know, the Statue of Liberty, where the Statue of Liberty Financing Corporation (Liberty Bonds for short...) issues bonds backed by lease payments made by the Treasury? If you think this sounds wacky and no one would possibly buy a bond like that, you're clearly not a muni person.
I'm certainly not an expert on any of this, but I'm skeptical that the executive branch could do any sort of sale-leaseback transaction without congressional approval because my limited understanding is that the executive branch basically has no power to sell federal government assets except to the extent Congress has authorized it do so. (I briefly had to look at the issue of selling federal property 20+ years ago in the context of researching FTA regulations for a project in law school.)
I worked with a municipality that issued lease bonds for a national park facility. The GSA counsel issued an opinion that Treasury's obligation to repay the debt was the full faith and credit of the US and irrevocable, so unfortunately I don't think the lease strategy would avoid counting against the debt limit based on past practice.
That's interesting, maybe has to do with the leases committing the US Government for a multi-year basis, I can see that. So we make the "lease" non-recourse to the US Government, solely secured by the Statue of Liberty in the event that the US Government chooses not to pay. We'd need a pretty good appraisal, but I'm sure some appraiser will get to the right number.
Or maybe we could issue bonds which do not pay unless the statutory debt limit exceeds the amount of debt outstanding. It's not debt if it doesn't need to be repaid, so it can be sold when the debt limit is too low, and starts paying when the debt limit is raised. (Call them cinderella bonds, maybe.)
So many ideas, but so far none that don't break America.
EDIT: Think I misread your comment. Are you suggesting that the government essentially lease the Statue of Liberty to itself? I'm clearly out of my depth on bond structure and will be quiet now.
[Original, text below. I believe I may have misunderstood the factual predicates at issue]
How profitable is the Statue of Liberty? To be honest while there's a sort of deliciously perverse irony in its being privately owned it's not apparent to me that it's a particularly desirable mortgage security, but I may have a very wrong view of how attractive it is to tourists versus how expensive maintenance costs are.
Yes, I am suggesting the federal government sell to an legally distinct federal entity. But you weren't wrong to begin with, since if the government did not pay bondholders, their remedy would be to foreclose on the Statue, so you get to your same question of how valuable it would be to that private owner.
And that is a good, intelligent question. You're right, the Statue of Liberty may not be valuable (or valuable enough) to a private owner. But what's the negative value to the federal government of *not* owning it? You (and the entire secured lending universe) may think this is a scary way to invest, and I may agree with you. It should be even scarier if I replace the Statue in my example with the local courthouse. Shouldn't work, should it?
I take it the rhetorical implication of your last comment is that existing municipal bondholders already take this deal at present on even more confusing securities?
So I know next to nothing about what the market of muni bond buyers looks like -- it may just be that for whatever reason that I don't understand they think courthouses and the like are good securities -- but AIUI they receive unusually favorable tax treatment, right? So is it possible that the investors are betting more on general municipal solvency and reputation effects and accepting a lower interest rate despite a low value of the recourse security because they realize tax savings elsewhere?
(I am also willing to believe some combination of 'shruggie emoji / municipal bond buyers are just an odd and idiosyncratic bunch / some people collect baseball cards, others collect municipal bonds.')
Yes to everything you said. But the specific and most important point is that investors are betting on reputation effects. That's the same effect I'm talking about for the federal government, but sharpened with a nasty headline about how Kevin McCarthy lost the Statue of Liberty.
I do understand that we're well into the land of the silly, where we all seem to be living on this issue. But it's not *as* silly as it first sounds.
Leasing the Statue of Liberty would be a great prestige investment for a tech billionaire or Gulf state sovereign wealth fund! It wouldn’t have to turn a profit 
Yeah, I was also kicking around something that mimicked a cashflow bond type structure, only instead of only paying P&I when leftover revenues were available after paying what was due on the senior tranches, it would always pay interest as due and only pay principal when there was capacity in the debt limit. I think figuring out how to price and trade those bonds would be fascinating.
Replacing pensions with 401(k) plans (many of which have absolutely lousy employer matching rates) made social security more necessary than ever for the middle class. It’s so brutal to think about the nihilism involved with people that that essentially want to make retirement as hazardous as possible for everyone but the very rich.
Those are good talking points, but they elide the fact that our over-65 population is richer today, with a lower poverty level, than at any time in history. And their poverty level is lower than any other age group, per the US Census Bureau.
But any attempt to discuss whether we should continue to tax the young to give to the old is met with this type of "The Cruelty is the Point" rhetoric.
I’d be interested in the data on this because you make a good point.
I know, from own life, the retired folks have home values that have skyrocketed. The house my grandparents bought for 60k sold for a little under 2 million. They also had both pensions and 401(k)s, so that basket was helpful.
What I’m worried about is that the boomers had the best possible combination of tax cuts, high 401k matching and legacy pension systems that benefited them in retirement that my generation and younger generations won’t see.
I'm a boomer and I don't know any boomer outside the public sector unions that has a pension, as they still do. 401(k) deductions have only gotten more generous since my working days, and matches have always been up to employers, not to mention Roth IRA's that didn't exist in my day. You're living in a fantasy world if you think the boomers in their work day had it so sweet compared to your generation.
The industries in 1980 that had pensions, all had their pensions raided to fund LBO's while their factories were shut and their jobs shipped to China. Boomers really had a great deal.
Anecdotally, my 70-year-old parents appear to have the most financial breathing room they've ever had right now with a combination of their Social Security and my dad's (private) pension.
"n 2021, the national poverty rate for people ages 65 and over was 10.3%, significantly lower than the poverty rate for all people and the child poverty rate."
What I’m going to look for and what I’d like to see is comparative rates of savings for retirement between generations and what buckets those savings were placed in plus the average return.
Past performance isn’t indicative of future results so just saying “hey look, the boomers are doing great!” Isn’t filling me with confidence. I’m fairly on track for my personal retirement savings but most of my friends are nowhere close to where they should or want to be.
The future is hard to predict, so predictions about how future generations will fare have to be taken with a lot of salt. We just don't know, except that all generations have been richer than the ones preceding them.
Thanks Marc, that puts a little sugar in my coffee.
Does this account for the wealthiest of the millennials being much richer than their rich boomer counter parts? I’m always curious about averages and how they are calculated in things and I can’t find the back up in the article (though maybe I’m missing it?).
Given that retirees vote the most, young people the least, and kids not at all, is there a “popularist“ strategy to redress this structural tendency to favor the old over the young? 
>>Those are good talking points, but they elide the fact that our over-65 population is richer today, with a lower poverty level, than at any time in history<<
They don't "elide" it. What you point to is evidence of the success of FDR's masterpiece. Elderly poverty is bad. Reducing it is good! Why mess with what's working?
I think the level's about fine, though I wouldn't say "no" to nudging the retirement age upwards a tad, and use part of the proceeds to help those old people who need it most (about a tenth of the elderly population in America live in poverty).
You do understand that the entire reason we have Social Security is because of a massive stock market crash? You think we should replace SSI with a large 401k plan then, the next time the market crashes, we can create SSI 2.0 as a backup to SSI 1.0?
You do understand we have a very different economy, stock market, life expectancy, number of retirees vis-a-vis workers, monetary system, other welfare programs and benefit levels than in 1935?
I would not, and do not, advocate for replacing SSI with a 401(k). But I think the current level of income transfer happening from young to old is a bad policy choice.
Deep in their hearts, Republicans know that if voters are ever forced to chose between progressive tax increases or cutting old age entitlements, they will soak the rich. Insofar as Republicans have a rational position, they are flailing around to obfuscate that choice to neutralize a losing issue.
This is basically a search for silver bullets. Cuts to old age entitlements can never be hidden. Any Congressional majority that meaningfully cuts social security or medicare will be decimated in the next election.
In the short run, making this a fight over debt rather than spending makes sense, because spending is popular and debt sounds icky. In the long term, Republicans can’t possibly get what they want. The smart ones know this and have left the cult of low taxes.
I'll repeat this to cows come home; this is the real impetus behind McConnell's furious drive to confirm judges and this is the real impetus behind the Federalist society and the 6 Federalist society judges who sit on the court. Abortion was the bone to throw the base. The real goal is dismantling the welfare state and regulatory state. As you say, GOP elites know this is very unpopular. So why not pass it on to the courts and have them declare regulating pollution unconstitutional.
I think you’re right, Colin. Finding novel ways to hold various aspects of welfare and regulation unconstitutional will be a growth area for conservative tourists. 
Or they might bite the bullet and go full Lochner all at once 
Bigger possibility than people realize given what happened with Dobbs.
We forget the reason ACA survived is Roberts was convinced to switch his vote because of the implications of the opinion Kennedy was going to write. Go read Scalia's dissent. It was clearly written to be an opinion in support of the majority and had to changed. The original opinion was not just going to find ACA unconstitutional, but find large portions of what the Federal government did full stop unconstitutional. Roberts blanched because he was convinced that completely overhauling the entirety of the federal government was a recipe for chaos.
The other five justices clearly don't care one iota about the implications of their decisions. They've shown themselves to be zealots with Dobbs decision full stop.
Medicaid is politically vulnerable. Democrats have gotten little electoral reward for expanding Medicaid. Even after expansion, the eligibility threshold is stingy enough that medicaid recipients have low voting propensity. Black Medicaid recipients are basically captive to the Democratic party, and white ones have such sketchy information that there’s little correlation between policy changes and their voting behavior.
A sound political coalition is grounded in the 25th to 95th percentiles of the income distribution. Win 3/5 of that group and you’ll have a crushing majority.
Reading today’s comment section is a useful of why I made the call that the illiberal wokeists I was getting yelled at about yesterday are less of a threat than GOP batshittery.
Deficit hawkism is like crack, it just eats away at the ability to consider historical parallels and think through the math on the issue in favor of simplistic straight-line projections and sheer panic.
The US clawed back from a total debt load a good bit higher than today’s (relative to GDP) and debt service significantly higher on the backs of productivity growth, taxation, and inflation. *Must* we pretend that that mix of driving factors isn’t going to happen again in favor of “cut spending!$@!”?
We definitely can't pretend that our economy is the only one kept standing after an extremely destructive world war.
To clarify lest my last comment be interpreted as glib and substanceless:
US productivity growth has continued to increase quite quickly in historical terms after the post-war boom period "ended". Without referencing anything, off the top of my head I believe the average for the 1945-75 period was around 3.5%, the average from 1975 to 2005 was 3%. Since 2008 the numbers have been terrible but they are now recovering alongside business investment.
The problem is twofold: first, the transition in the global economy which you rightly note had the effect of allowing capital to capture a much larger portion of the gains after 1975 than before, at the expense of labor.
At the same time, the tax code became vastly less progressive, ensuring that most of those gains were not within the grasp of the newly amputated reach of the IRS.
Looking at the global trade regime today and the ways in which it's changing, I suspect that the first shift above is going to go into reverse. The current "slightly elevated inflation driven by the prices of labor-intensive services" certainly suggests this is starting to happen, and labor's share of income is increasing.
That will, without any change to the tax code, increase the tax take as a proportion of GDP. It will also likely increase investment and productivity growth because the marginal propensity to consume is so much higher at working and middle-class levels than professional class and up. One of the reasons productivity growth slowed this past decade, the main one really, is that demand was so soft that firms felt the best way to respond to temporary increases was with cheap labor and not process improvement or capital investment, both of which help drive TFP growth.
In addition, a rebalancing of labor incomes that keeps inflation slightly elevated above trend will have a favorable effect on the real value of outstanding debts and debt service. That is likely to persist for some time as it's structural in nature, and the Fed is not going to raise rates endlessly to try to strangle persistent 3-3.5% inflation, sorry inflation ultrahawks.
It is also increasingly clear that at some point in the next 20-30 years, the tax code is going to become more progressive once again as the GOP's base turns against it on the issue.
Suffice it to say, I am not in and refuse to enter into a state of panic on the basis of the lack of historical grounding and sound reasoning of my opponents.
Regarding tax progressivity: Piketty and Saez have a paper looking at the progressivity of taxes over time. Because of who they are, they focus almost exclusively on the top .01% and conclude "less progressivity today." But they provide the data that refutes their conclusion.
Look at Table 2 and compare to Table 1 in their paper. Tax changes have dramatically decreased the tax burden on every quintile of the income distribution, sometimes even going negative (i.e., no tax and net income). The slope of the curve between lowest tax rates and highest is much steeper today, which is how I would define progressivity. And I would argue the higher rates of taxation on the top .01% back in the 1960's were likely overstated due to deferred, and therefore unrealized, capital gains.
https://eml.berkeley.edu/~saez/piketty-saezJEP07taxprog.pdf
We are much more progressive than parliaments that defended the gold standard and corn laws. Woot!!
I would highlight a few issues with the picture you paint:
1) During the post war period, there was a baby boom and immigration reform in the 60s that led to much larger % population increases than we are seeing now. Its less than half what it was in the 60s.
2) I think you could have a deficit that averaged what the average growth rate for the overall economy. But it has to be the average, so in years when the economy is doing well, the deficit should be small or non existent, leaving space in bad years (pandemics, recessions, wars, etc.) for the government to spend. Unfortunately, we've been way higher than that for 20 years and should probably enter a period of financial retrenchment where we bring our debt to gdp ratio back down below 100% and preferably closer to our historical 60% average.
3) Biden's budget plan expects deficits of 1.2 trillion in 2023 and is likely to be about that level for a while. That is about 4.8% of GDP. If we wanted to cut that in half and get us to 2.8% gdp which is a reasonable growth estimate, we need to raise ~700 billion in revenue per year. That's a 15% increase in revenues which I would guestimate to require at least a 20% tax increase. That can either be across the board, or we can focus it on higher incomes, but if we do the latter, the rate increases significantly.
All of which to say, Republican's are bonkers to think any of this can be done without tax increases. But if you think we can do it just with tax increases, I don't think that's feasible either. My big takeaway is that as a country, almost no one in our political environment is ready to actually discuss deficit reduction in a serious way. They either pretend like its completely unnecessary or create fantasies about what will solve it that don't involve goring their preferences.
I don't disagree with some of this but there is one fairly glaring flaw:
Real GDP growth of 2.8% is a reasonable target, and especially so if we get our house in order on the supply-centric reform side, and the current trend of above-average real wage growth at the bottom of the scale and stagnation at the top continues, driving corporate investment and TFP.
But I would propose that, to make that rebalancing of the share of income flowing to labor and capital happen, the inflation target should be centered on 3%, not 2%, and that brings NGDP growth to close to 6%. I think that a shift in this direction is all but inevitable; the Fed would likely have to push rates above 7-8% and generate a rather long recession to squeeze the last bit of labor-driven cost-push inflation in the services sector back below 4%, which would inflict vastly more pain than is warranted if inflation in goods, housing, and foodstuffs are all brought under control.
Against this backdrop, a 4.8% deficit becomes sustainable, especially if we can increase immigration flows to closer to 1.5-2 million legal, skilled immigrants each year instead of a bit under a million.
I am open to reforms for Social Security aimed at improving its rate of return and capital allocations, which should, if done well, increase both productivity growth (ensuring that there are goods and services to match retirees' spending capacity) and the fiscal sustainability of the program (ensuring that politics don't get in the way of the boring business of helping 20-somethings insure their 70-something selves). I am equally open to tax reforms to increase revenue in a proportional-to-progressive manner, in moderation. I am also open to *specific* proposals to improve performance and value for money in the (especially) DoD, DOT, and NAS/NAM that would allow us to push growth in their budgets below inflation for a long while.
But the persistent "sky is falling, must slash everything to the bone" crap gets old, because it's not true.
There's a lot out there that points to us being on the brink of a new 50's/60's "golden era" for the masses, and repeating the mistakes of the post-2008 "recovery" will scupper that while it's still coalescing.
Biden just needs to cling to life in '24 and the autopilot set by the public investments and reforms we've recently made, as well as the general global macroeconomic climate, will be bearing fruit in time to prevent the GOP from trying to roll everything back after they sweep into power in 2028.
If we can get some serious permitting reforms, a considered/rational look at NEPA and OSHA, transform the SSTF into a sovereign wealth fund, ram through some occupational licensing deregulation, and actually enforce anti-trust law in a rigorous-to-brutal manner as well... all the better.
There is a big opening for soak the rich candidates to run as Republicans.
Which has… precisely fuck-all to do with productivity growth and total tax take?
And, more importantly, go read Pettis and Klein and repeat after me: the global trade regime is not “free”, the global trade regime is not “free”…
:p
Broken windows fallacy alert!
Compared to the tea party days, though, there hasn’t even been much anti-deficit rhetoric on the right in recent months.  It’s more a general vibe that we have to stop evil establishment CRT and pedophiles by any means necessary 
For clarification, David, what is your play here? Raise taxes on the top 5% while cutting Medicaid? That doesn’t seem like good policy.
To the extent that lowering the deficit is actually necessary, don’t we have to raise taxes on the top 30%? And to the extent that we want a more humane and safe society, we really need decent medical care for the poor 
I don’t want massive cuts to Medicaid, though I might support a lifetime cap on benefits, as long as it were a generous figure like $2million. I feel great sympathy for a healthy 35 year old who gets cancer, can’t keep a job, and needs public assistance to get better. I’m leery of paying for expensive treatments for unproductive people with chronic conditions. Decency means providing vaccines, blood pressure pills, antibiotics, etc. to people, but I don’t want to pay $170k year after year to keep a morbidly obese shut in alive.
I agree. It makes more sense to calculate QALYs and cost benefit trade-offs. But politically, calculations like that begin to sound like “death panels“
I’m ok with death panels as long as they are reasonably chill
"Sound like"?
And how did that work out when the GOP had all three branches just 6 years ago?
Given how poorly McCarthy’s speaker election went, I cannot see how he rallies House Republicans around any spending cutting plan. He’s always going to be facing several attention-seeking maniacs who will vote against any potential bill while screeching to their supporters about how McCarthy is a sellout RINO who is compromising with Biden. In the unlikely event that these extremists actually propose cuts, they’ll certainly be too politically unpopular to garner support from moderate Republicans.
So I imagine we’ll keep walking to the abyss of a financial crisis, and eventually moderate Republicans will feel compelled to work with the Democrats to avoid the financial armageddon of a US Treasury default. McCarthy will either get on board with this bipartisan coalition or he’ll be replaced. Even the WSJ is considering this to be a likely scenario given the lack of any plan of what House Republicans actually want. [1]
> All of which means Republicans will have to pick their spending targets carefully, explain their goals in reasonable terms so they don’t look like they want a default, and then sell this to the public as a united team. The worst result would be for Republicans to talk tough for months, only to splinter in a rout at the end, and be forced to turn the House floor over to Democrats to raise the debt limit with nothing to show for it. Opportunists on the right would then cry “sellout,” even if they had insisted on demands that were unachievable.
> This is what Democrats expect to happen, which is why they don’t think they need to negotiate. If Republicans want to use the debt limit as leverage, they need a strategy for how this showdown ends, not merely how it begins.
[1] https://www.wsj.com/articles/the-hard-reality-of-a-debt-ceiling-showdown-house-republicans-congress-gop-11673904239
Enough with the discussion of gimmicks and tricks! the platinum coins, the super-high interest bonds, all of it! All that talk does nothing more than confuse the issue and feed the idea that the Republicans have some kind of leverage here, that some kind of magic trick is needed to defeat it. Treat this debt ceiling in grown-up fashion as the rather boring statutory interpretation problem that it is. Congress has passed conflicting laws, a general debt ceiling statute, and a bunch of more specific appropriations statutes that require the president to spend more money on specific things than the general debt ceiling statute would allow. To the extent it's not possible to comply with both statutes, the more specific statutes control under long-accepted canons of statutory interpretation. End of story. If Republicans in Congress don't like that interpretation of the law, they can either sue, or, better, actually *do their job* and pass a new law that reconciles the conflict.
You should have ended the article here, while you were ahead: "I think it’s important for Biden to maintain the posture that there’s no genuine financial crisis here, and one way or another he will see to it that the bills get paid."
The administration should begin any statement or answer with “of course the United States will not default on its debts, that’s prohibited by the constitution.“
But is that what the 14th amendment says? It says the US will honor its debts (including pensions incurred for services in suppressing insurrection (i.e., the Civil War)). Are things like Social Security, Medicare, military salaries etc. "debts" or "legal obligations"? If the latter, are they also covered by the 14th amendment?
By the traditional definition, I don't think these things are "debts." I'm not so sure the constitutional argument is as rock solid as people may think.
It’s immaterial. The G has taken out debt in the form of bonds in order to finance operations. It doesn’t matter if the operations count as “debts of the
United States.” The promise to pay on the bonds certainly does.
But that says we have to pay interest and principle on currently-issued bonds. But the question is whether we can issue *new* bonds to finance recurring obligations, like paying military salaries next month. Is that guaranteed by the 14th amendment?
I think this is the White House's basic strategy. Yellen criticized the idea of the coin last week. This doesn't mean they won't do it if they think it's their best option. They did that with student loan forgiveness.
However, I don't think they want or have to give this any more oxygen than what it takes to make the GOP look stupid.
I agree with this on the merits, but I'm slowly acquiescing to the idea that doing it that way may cause more trouble than the gimmicks. Inevitably, there will be claims that Biden is breaking the law, it must go to the Supreme Court, etc. and there's no guarantees about how they would rule if they took it up (even though they probably shouldn't). All of this uncertainty could roil the markets, especially if we end up right back where we started.
That's a reasonable concern, but settling this through a legal process (either the Supreme Court takes it up and sides with the administration, or they decline to take it up which forces the legislature's hand while Biden continues to pay the bills) seems like it will leave things on a more solid footing than something gimmicky like the coin, or even super-high-interest bonds. My guess is there will be some market turmoil, but nothing crazy, and when things settle down the whole issue will be revealed as empty posturing and we'll all be able to - finally - move on. The coin or the super-high-interest bonds might avoid some disruptions, but feel shakier in the long run.
Fair, but it doesn't seem to be a gamble Biden is interested in taking (short-term pain for a *possible* long-term fix).
Serious question: what makes you say that? My impression is that right now they're just hanging back and evaluating all of their options (which is a reasonable thing to do at this stage).
I guess I assumed that if they were going to take that route, it would have been stated matter of factly. But you're right that there's no reason for them to do so until necessary.
>>>they decline to take it up which forces the legislature's hand while Biden continues to pay the bills<<<
How does this work absent the platinum coin? Anybody know? I mentioned the possibility last week of a "just pay the damn bills" strategy based on the fact that, as I understand, Treasury has de facto money creation authority (it has open-ended overdraft protection via the Fed, I think).
Is "just paying the damn bills" absent a platinum coin or the super-bonds something that can work?
A Josh Barro piece from last week claimed that Treasury does not have de facto money creation authority, and explicitly cannot just print money to pay outstanding bills. I'm very far from being a SME and am not taking a position on the matter, but that's what he said
Where? I just visited his Substack, and didn't see what you describe. He's definitely not a fan of the trillion dollar coin, per my (just now) reading, as he points out it requires the Fed to accept the coin for deposit, and it's not 100% clear they'd do so. He seems to be of the opinion negative bonds are the way to go.
Caveat: I am basing this idea on a comment here the last time there was a debt ceiling thread. Maybe someone with more expertise can chime in.
I think the idea is that, in the event of a refusal to raise the debt ceiling, Congress has given the executive conflicting legal instructions. It had directed the executive to appropriate a certain amount of funds, but denied it the capacity to raise those funds. Then there’s the Constitution, which says the US must honor its debts.
So the theory was that Biden could say “as I cannot comply with the letter of the laws as passed by Congress, I will interpret this in the way which causes least harm.” Which is probably something like a government shutdown, but we don’t default on the debt.
I don’t know enough about the specifics of this idea to say how it would go precisely. But it seems like it does make sense, and it’s true that if the debt ceiling were reached the executive is going be forced to violate the law one way or the other. So doing it in the least-harmful way seems like it would pass muster, and also seems like it would neutralize the threat going forward.
Then again, I could be wrong about all of this.
>>Which is probably something like a government shutdown, but we don’t default on the debt.<<
I think the threat is neutralized for the long term if the government does *not* have to shut down.
If bond holders get paid, but there's tons of other painful shit going down, it's not good.
>>> If bond holders get paid, but there's tons of other painful shit going down, it's not good.
It's not good, but it's not disastrous. We've had government shutdowns before, it's not the end of the world.
FWIW, I think this is better in the long run because of what the US' status as the center of the global financial system *means.* It's basically an expression of faith in the American system. If we reach the debt limit and it's basically just replay of the Gingrich-Clinton showdown in 1995 and nothing much happens, then markets are rattled for a bit but the system looks solid in the long-term. If we mint a platinum coin, that might satisfy markets temporarily, but it's not hard for me to imagine a scenario where this keeps happening, and we keep having to mint platinum coins, which eventually undermines faith in the system, because it all just seems rather silly. Better than defaulting on debt, sure, but still.
This is all rather speculative, of course.
Why would the government have to shutdown?
Good question. I think probably because it shows a good-faith effort on the part of Biden to comply with the law? Not doing anything seems like more of a flagrant violation.
Again, though: I am not an expert on the technical legal aspects of all of this.
The Supreme Court can take up the issue if they like but there’s no reason to believe their ruling would be binding over the Executive Branch. They can’t stop the checks from going out; indeed the Judiciary has no power of enforcement at all.
I think Matt's discussion of gimmicks and tricks is important precisely because the availability of gimmicks and tricks means that it *is* possible to comply with both statutes, meaning that the long-accepted canons of statutory interpretation wouldn't apply.
If the House Republicans want to sue Biden on the ground that he cannot continue to pay the bills and issue Treasury notes and bonds as necessary, but instead he must mint a platinum coin or use a gimmicky high-interest bond in order to comply with both statutes, let them.
>>To the extent it's not possible to comply with both statutes, the more specific statutes control under long-accepted canons of statutory interpretation.<<
Plus, going this route (by which I assume you mean paying the bills) has the advantage of not $&@^ing the country.
If SCOTUS was composed of 9 sane individuals I'd agree with you but unfortunately it's composed of 2 nutjobs, 4 conservatices, and only 3 liberals. Its not a slam dunk that they'd agree with your interpretation and just the doubt would be enough to crash markets. The gimmicks are arguably on safer legal ground.
Short of cutting a deal with the hostage-takers, which encourages further hostage taking, there's no path available to Biden when he will not face potential legal challenge and counterarguments, that will be resolved in court if a negotiated settlement can't be reached. At the end of the day, the Supreme Court either has a majority of Justices who are sober, judicious people rather than arsonists, or it does not. I think it does. But regardless, it's better to go into Court asking the Justices to approve a prudent course that protects the good credit and solvency of the United States, than to ask them to approve tricks and gimmicks.
I think the platinum coin thing counts as a stupid gimmick, but I don't think that's true at all of the high-interest bond idea. The interest rate on a treasury bond is literally set by the government, and there's nothing weird or improper about selling a low-value bond at a high interest rate compared to selling a high-value bond at a low interest rate. That's why this is a brilliant idea and is probably the best solution anyone has or will come up with. It doesn't do anything all that strange or illegal, it just takes advantage of the wording of the debt limit having to do with the face value of bonds, and just sells bonds at a lower face value but a higher interest rate, knowing that people will pay higher than face value in exchange for more interest. I love it and I hope it happens.
I think the platinum coin thing counts as a stupid gimmick, but I don't think that's true at all of the high-interest bond idea. The interest rate on a treasury bond is literally set by the government, and there's nothing weird or improper about selling a low-value bond at a high interest rate compared to selling a high-value bond at a low interest rate. That's why this is a brilliant idea and is probably the best solution anyone has or will come up with. It doesn't do anything all that strange or illegal, it just takes advantage of the wording of the debt limit having to do with the face value of bonds, and just sells bonds at a lower face value but a higher interest rate, knowing that people will pay higher than face value in exchange for more interest. I love it and I hope it happens.
I think the platinum coin thing counts as a stupid gimmick, but I don't think that's true at all of the high-interest bond idea. The interest rate on a treasury bond is literally set by the government, and there's nothing weird or improper about selling a low-value bond at a high interest rate compared to selling a high-value bond at a low interest rate. That's why this is a brilliant idea and is probably the best solution anyone has or will come up with. It doesn't do anything all that strange or illegal, it just takes advantage of the wording of the debt limit having to do with the face value of bonds, and just sells bonds at a lower face value but a higher interest rate, knowing that people will pay higher than face value in exchange for more interest. I love it and I hope it happens.
Sooner or later something is gonna have to give on this. Either funding entitlements is going to require broad based tax increases, or we're going to have to get serious about spending cuts. The problem here, unfortunately, is democracy. Deficit financed government fundamentally breaks the democratic process. The people in the future who are on the hook for the spending reps are voting for are not the voters those reps are accountable to in the present. It's real easy to rob some other guy's future constituents to buy votes from your constituents today.
The problem with the deficit is way less about the economics and way more about the political incentives. I struggle to see how those incentives will ever align with a needed set of reforms without some sort of materially catastrophic crisis occuring first.
The US has among the most slack in the developed world to raise taxes. Plenty of people would bitch, but as the post above yours gets dead right, the electorate will choose to keep popular programs and pay for them when it comes to crunch time.
That, but also as Matt pointed out, voters don't actually care about tax increases, they care about the rhetoric around them.
These things are impossible for me to Google because any search term that includes the word 'tax' leads to a firehouse of nonsense, but my recollection is that Reagan, Bush I, Clinton Obama and Biden all raised taxes. Bush II and Trump cut taxes. And despite the fact that Bush I and Trump both lost re-election, it is still canon that cutting taxes loses elections and raising them wins them.
I think that, because of the slack the US has, tax increases just don't translate into anything noticeable by the electorate. Nor do tax cuts, really, since most people aren't rich enough to notice changes in federal tax rates. (Hence the nonsense about 'fitting your taxes on an index card', which is the only change most people noticed.) Republicans like to pound on the table and yell about tax-and-spend liberals, but the taxes they want to cut are capital gains and income, which are only a big deal if you're rich enough to pay them. To wit, the SALT deduction cap in the Trump tax cuts got more coverage than I have ever seen for a change in tax rates because it mostly impacted rich Democrats (i.e., the NY Times readership).
It's the spending side that piques interest from voters; cut Medicare and kiss re-election goodbye. I bet that a President of either party could pass a comprehensive tax increase to balance the budget and that, if they got buy-in from right-wing media (which would never happen, of course), voters wouldn't notice.
The longer we wait to fund entitlements the more difficult the political incentives become to do it before the crisis hits.
Most of the Boomers have retired already. Healthcare spending growth rates, including for Medicare, have moderated. I agree with Just some guy: this is a slow burn, and a very manageable one, not a crisis. Just increasing the cap on Social Security wages would do wonders.
"Most of the Boomers have retired already."
I'm not sure that's accurate. I can't immediately find a stat on what the average age of a Baby Boomer in 2023 is, but from the bar chart of "Births underlying each generation" here: https://www.pewresearch.org/fact-tank/2020/04/28/millennials-overtake-baby-boomers-as-americas-largest-generation/ , it looks to me like the average age would probably be something only around 67 or maybe 68 because of the later years of the boom having larger birth cohorts, so they've literally just started to become eligible for full Social Security benefits in the past year or two and plenty of people will hold on to age 70 to get the full bonus payment for delayed retirement.
Or died. I can't find more recent numbers, but as of 2012, 11 million of the 76 million boomers born 1946-64 had already died. I suspect those numbers have doubled since then.
Many boomers retired at 62; relatively few wait until they're 70.
I'm sure hard numbers are out there with some research but life is short (I'm a boomer).
Sure, it will be a tough political fight. Like raising the gas tax five cents. People *really* don't like increased taxes or reduced benefits, even if the numbers are small.
I guess the silver lining of low birth rates and low immigration will be falling entitlement spending after the boomers die 
Won't their kids be retiring right around that time?
Our entitlements were designed for a growing population, so that the recipients of the entitlement spending are supported by an ever-larger workforce. A stagnant or shrinking population has disastrous implications for entitlement spending.
Yes I agree
I mean, I'm all for boomers dying.
Not any of the boomers *I* know, of course. But all those *other* boomers. The ones that caused all of the problems. /s
*Edited to add the "/s", which I think is how we're marking sarcasm on the internet now? I can't keep up.
Evidence is far from overwhelming we have too much debt. Relatedly, the evidence is overwhelming there's no crisis around the corner.
https://www.nytimes.com/2023/01/24/opinion/us-debt-deficit-economy.html
I accept the case that it might help living standards and economic strength over the long term to reduce federal borrowing. But the way to do that is to wait until insane people are no longer controlling the House of Representatives.
I do not believe we are on the verge of an imminent fiscal crisis. I'm fundamentally making 2 arguments:
1. The political incentives are aligned towards a persistently deteriorating long term fiscal situation.
2. Those political incentives are not well calibrated towards interventions to preempt even highly foreseeable crises that may arise along that long term trajectory.
Regarding (2), I suspect crises may be the only way some of these things get fixed because that's the only time the incentives of enough people will be sufficiently aligned. For example, we may see a bargain between democrats and a few republicans to raise the debt ceiling. Similarly, "fixing" (whatever that means) SS now doesn't really win anyone electoral points, but it might if the checks are at risk of not coming.
Yes, debt isn't a problem as long as it can be serviced - this is a truism. The trick is that when the debt becomes difficult to service, then things tend to cascade in bad ways.
>Deficit financed government fundamentally breaks the democratic process.
So are you a balanced budget amendment guy?
I wonder if there’s a formula like the Sahm rule that one could write into a budget balance amendment. Instead of saying the budget must always be balanced, say that the ratio of deficit spending to GDP must be no more than twice the unemployment rate minus the GDP growth rate, or some better chosen formula to allow deficit spending during downturns and require a surplus during booms.
Right, I don't want to be out here implying that the dumb version of a balanced budget amendment makes any kind of sense, I'm imagining a type of mechanical stabilizer solution.
This sounds reasonable, but is there any overlap in the Venn diagram of wonkish macroeconomists and budget hawks?
Absolutely.
The European Union tried outlawing Keynesian economics. Spain, Italy and Portugal suffered a lost decade and Greece saw living standards decline. Then they gave up that silliness and got through the pandemic with less economic damage than German stinginess caused in 2007-13.
I feel like there's a middle ground between "no deficits ever" and our current policy of running perpetual deficits in all times - good and bad - expansion and contraction - not as some carefully tuned Keynesian stimulus.
The middle ground is Keynesianism: run deficits during downturns and surpluses during boom periods. I think we've nailed the first part, so good on us. Second part needs a bit of work.
Have we had a real boom since 1999?
The problems with Greece, Spain, etc. were mainly about the Euro (ie - those countries not being able to control their own currency). The reason the US can deficit spend the way we do is because we control our own currency.
In the 1820s, the UK carried debt equal to 225% of GDP. It did this with a very primitive economy that yielded a per capita GDP of under $4000 at current prices. Why can the US carry less debt that a proto-industrial monarchy?
I mean when the British Empire says, "We're good for it. We'll just go take some gold from India or wherever." It's probably true. I'm not sure, "We'll mint a trillion dollar coin" is such a confidence inspiring answer.
If people don't believe America's good for the money, why are they buying so many treasuries?
I’m pretty sure that at the level of the fiscal state,  the empire was a net loss for Britain 
I mean ... didn't the UK ~ run out of gold in 1825 requiring the Bank of England to be "rescued" by the Rothschilds'?
I think most of the people on the hook for paying most of the debt are alive and voting today.
As for those future people who are not alive today, history teaches us that they will likely inherit an economy more prosperous than the ones we live in today. We owe the future less than *some* people believe.
You're definitely underestimating how many people will be born, and over estimating how much of the "debt" needs to be paid off.
The "debt" will never be paid off, and because the public deficit is private sector wealth, thr economy will probably be more prosperous than it is today.
Now if you go about trying to constrict the money supply in inequitable ways, you're very likely to see the exchange of goods and services dwindle, and some real problems arise.
If I'm following you, I'm not sure we're disagreeing.
Some Scottish philosopher wrote about that very same idea, I believe some time around the American Revolution. Two hundred years later and so far he's been proven wrong. We shall see.
I don't understand what you're arguing. What exactly has to give?
test
You know you're literally arguing "If the casino puts too many chips on the floor, how will future players ever afford to pay the casinos bills."
There's a problem with putting too many chips on the floor, because then the whales will bid up the cost of doing business too high for the new players, not that future players are going to struggle to make sure the casino can zero their books out at the end of the night. But taking too many chips off the floor will also really slow down how many bets are being placed and how much activity there is. If the Feds need to provision goods and services, then they will simply buy those goods and services. If they need people to accept the chips they are paying for goods and services, they will simply start producing it themself, or tell people they better start earning more chips, because anyone who doesn't produce the right stuff, and earning more chips from the market, is going to jail. Even better, they never even have to put anyone in jail, they just have to provide producers enough incentive to keep paying their taxes, so that they themself can be benefit from paying other people to produce for them.
"Republicans are in a state of internal chaos" largely because the American people are in a state of chaos on the topic of taxes and spending. Plus having some wackos in the coalition. In survey after survey, the public doesn't want to raise taxes and doesn't want to cut spending. Meanwhile, the structural deficit grows.
Democrats have their own internal chaos on this topic -- they've pledged no tax increase on anyone making less than $400K / year.
I used to look at the fiscal policies of various South American countries, careening between hyperinflation and debt default, and think "I am glad we don't have those problems". My sympathy for their situation is quickly turning into empathy.
This isn't true. Polls consistently find Americans support tax hikes on the rich.
https://www.vox.com/2021/10/15/22723457/build-back-better-poll-democrats-bill-infrastructure-taxes
https://www.businessinsider.com/why-more-americans-want-tax-rich-2022-7?r=US&IR=T
https://www.reuters.com/article/us-usa-election-inequality-poll-idUSKBN1Z9141
https://news.gallup.com/opinion/polling-matters/396737/average-american-remains-higher-taxes-rich.aspx
The level of taxation required to make a material reduction in the structural deficit was not in those polls.
Disagree.
U.S. GDP is $23.3 trillion. If inflation runs at 3% and real GDP grows at 2%, we could have a deficit of $1.165 trillion and have the national debt remain a constant share of GDP. If the deficit is held to $669 billion, it’s value as a proportion of GDP would decrease by almost half every generation.
Increasing taxes on the top 2 or 3% and corporations could easily get the deficit under $700B.
Relatedly, our debt-GDP ratio **declined** in the last fiscal year, because of the dynamic you explain here.
Inflation in social security and medicare is much higher than 3%.
"In 2022, the combined cost of the Social Security and Medicare programs is about 8.9 percent of GDP. The Trustees project an increase to 11.6 percent of GDP by 2035..., with most of the increase coming from Medicare"
https://www.ssa.gov/oact/TRSUM/
Social security is pegged to inflation. Boomers are dying just about as fast as they are retiring, the structural problem isn’t huge. Health care inflation is a problem, exactly the kind of problem smart technocrats could fix-- more medical schools, more visas for english and spanish speaking doctors to immigrate, more power to negotiate drug costs, more options for hospice care and transitioning from patents to prizes for life saving drug research would do the trick.
I’m also certain that political will can be found if there is ever a fiscal crisis. But Americans don’t know what a fiscal crisis is cause we’ve never had one. A minor fiscal crisis is like what Britain experienced in the late 1940s, and I doubt we’ll equal that in my lifetime.
When you say, "negotiate drug costs", do you mean price controls by another name?
"U.S. GDP is $23.3 trillion. If inflation runs at 3% and real GDP grows at 2%, we could have a deficit of $1.165 trillion and have the national debt remain a constant share of GDP."
That's not the way it works!
If inflation runs at 3% and real GDP grows at 2%, that doesn't add up to a deficit of 5% gdp we can run.
The question which determines "how that works" is "Is the present debt-to-GDP ratio over or under 100%?"
If over, a deficit of 5% of GDP a year, assuming it includes debt service, equates to an expansion of the debt of under 5% (normalized against existing debt), set against a 5% increase in nominal GDP, meaning a fall in the debt-to-GDP ratio.
currently the debt to GDP ratio is 1.29, so here's the math:
(1.29 + 0.05)/1.05= 1.276
So right now that basically is how that works, given that the existing debt to GDP ratio is a bit over 100%.
Hence my other post: if we manage average NGDP growth of around 6% (real growth 2.5-3%, inflation 3-3.5%) then we can quite handily get control over this issue, excepting Social Security and Medicare, which will require some reform. If healthcare costs continue growing at a rate below inflation, as well, then even Medicare won't require a ton of help.
The real problem is that whenever the hell the GOP is next in office they'll do yet *another* miserably stupid thing to pitch $1-10 trillion into a black hole, whether it's another round of regressive tax cuts, a major war, or something else, as they have in *each of their last four presidencies*.
I am not in the habit of blaming the GFC or COVID on the GOP, nor will I here, but even without those numbers the GOP since 1980 has generated something like $13 trillion of debt in 2022 dollars through tax cuts, increases to discretionary spending, and wars.
A couple of caveats -
First - Bush Sr. was one of the most fiscally responsible presidents we've had. Plenty of other faults, but he ate his (stupid) promise of "no new taxes" for the benefit of the country. That shouldn't be overlooked.
More generally, I'm fine castigating the GOP for profligacy, but I think you're being far to generous to Democrats by leaving them out of discussion.
Reagan and Bush Sr were presidents when Democrats controlled Congress. I don't excuse (or credit!) them for their own responsibility, but I think its worth remembering that Congress actually writes the budgeting laws.
Similarly, you can credit Clinton and Obama for being more fiscally responsible, but you also need to share that credit/blame with the Republicans in Congress.
I think you can put particular blame on GWB for Iraq, but otherwise what you see is that when either party controls both branches, they go wild with their priorities and there is no one to put the brakes on. Whether that be tax cuts, spending, etc.
The GOP claims to be the party of fiscal conservatism which I will grant you is ludicrous after watching them in 2016-17, and at least the Democrats don't claim that which I guess is something...
That's a lot of questionable "ifs."
Interest payments as % of GDP are half of what they were in the days of Ronald Reagan's "Morning in America." We got past that via economic growth and some sensible policies enacted by Bush I and Clinton.
Deficits and/or interest rates would have to go up a *lot* for us to be in the horrible situation of the 1980s that so many people remember so fondly. We have a long way to go before we become South America or Greece or Turkey.
Your perspective on this topic is reasonable, John, but Americas place in the world economy, and the role of the dollar mean that our range of outcomes  is fundamentally different from Argentina, wouldn’t you agree? I mean, in the worst case scenario, it might be worse – for the world. 
It’s fine to point out the issue, but would the GOP sign on to a tax increase at those levels of income? The answer is surely, no. So there is in fact a consensus.
Neither party would sign onto such a tax increase unless an immediate crisis requires it. Elsewhere in this comment section, Dave Coffin describes the situation better than me.
It seems like you're trying to advocate for cutting popular programs without saying so, by reaching for any reason you can find why there's no alternative. "The public don't support tax rises"..."OK they do but not by enough"..."OK but the parties won't do it unless they had to"...why is the latter even a problem?
I think choosing a European-level of taxation and size of their welfare state results in lower growth and an overall poorer nation. So, yes, I do advocate for cutting popular programs including social security, medicare and defense spending.
I fully recognize this is unpopular, which is why it won't happen and I have accepted that tradeoff.
Fair enough. I think there are much better alternatives, from Mitt Romney style "close the loopholes and lower the rates" (including improving enforcement) to Yglesias favourites like immigration and zoning reform, to cutting popular programs.
I support those actions also.
I think that's a reasonable view. I mostly disagree with it, but that's fine.
However, it is distinct from the Congressional Republicans' position of "we are going to risk an enormous catastrophe now, because it is absolutely essential that we heed off this other crisis that's possible in 15 years." (Actually, that's a generous reading of the Congressional Republican position, as today's post makes clear.) This kind of reminds me of the climate left: "it looks like there's going to be more floods in 50 years so we need to end capitalism yesterday."
Also, this "crisis" in the future can be pretty easily averted by some combination of GDP growth, inflation, and possibly modest tax hikes and modest increases in the retirement age. There's no need whatsoever to blow the whole thing up.
I'd rather Republicans just come out and say what you're saying. At least it's intellectually honest. Although it's worth noting that the US *doesn't* have a European level taxation or welfare state. It's true that many on the left want this, and many on the right don't want it, which is probably how we wound up with our "we've got a welfare state that's more than what conservatives want, but less than what they have in Europe." I do think you are correct to point out that there is some dishonesty on both sides in this - but Democrats don't make a habit of threatening to blow up the global financial system to get what they want (even though that threat is likely hollow).
Fully funding the existing state does not require us to approach Western European levels of taxation, though?
I agree that I don't really want an NHS, a massive government-run sectoral bargaining program, free tertiary education paid for by large taxes and defrayed by tracking 75% of kids out of university at age 8, and incredibly generous retirement benefits at 62.
But that's not what we have, and what we have seems to be a well-functioning middle ground between "Early Industrial Britain" and "Sweden in the 1990's".
Is there room for improvement? Absolutely.
Am I willing to let the GOP torch everything when they're directly responsible for *choosing* to accumulate $13 trillion of the $27 trillion of debt we've accumulated since 1980, and the aftermath of the financial crisis and COVID are responsible for virtually all of the rest?
No. The GOP does not have a single policy-maker qualified to run a school bake sale, at this point, and I will pay about as much attention to them.
You want to both-sides this one out of some instinct to continue believing you're still a center-right conservative. Fine, be a center-right conservative, but let's not delude ourselves into believing that the Democrats haven't been the party of fiscal probity for the last 40 years.
You'd be correct to understand that to be grudging at best, but nonetheless the GOP is batshit insane on this issue and the Democrats are not, regardless of how they got there.
Make no mistake: I think the Republicans who are pushing for a fight over the debt ceiling are quite wrong. They were wrong the last time they did it and public opinion rightly blamed them for the stunt. And the public will do so again. Those who engage in this silly and ultimately fruitless exercise aren't serious about anything including fiscal responsibility. There will be a time when this changes, but it hasn't changed yet.
I also believe this "crisis" is lots of mental masturbation (pardon the phrase). I predict there will be no default, the debt ceiling will be raised, perhaps with a short government shutdown and associated backlash against the GOP, and we will carry on as we've done for decades until or unless a real crisis comes along to change the equation.
The Democratic party is more fiscally responsible (in the short term) for sure. I think their long-term ideal will be harmful, though.
We’re also no where near the situation you fear (assuming the freedom caucus doesn’t burn the country down over this ridiculous manufactured crisis. There is a lot of room to work with to get spending reductions, you just need a responsible party to negotiate..which btw I think is coming. As the wack-a-doos continue to steer the GOP I think it will finally become clear that the middle position is for the most part in the dem party.
I’m sure you have looked at FRED. A few times… https://fred.stlouisfed.org/series/FYFSD
The deficit is shrinking. The structural deficit shrank just as Obama was leaving office. This is not ancient history.
I think the actual argument has to do with what I'd call the Robinhood delusion. Part of the D coalition is convinced that funding entitlements is as simple a robbing the rich to feed the poor. They don't want to make the case that these programs are good and worth paying for. It's always some richer guy who should pay for it. So no one pays and we kick the can down the road with deficits.
I don’t think that is true in the least and it takes willfully ignoring Obama stated positions only 5 years ago to arrive at your conclusions.
There is surely still a wing of the party that believes in fiscally responsible, tax and spend, good, efficient, government, but just like with the Rs, the populists are at the switches at the moment.
> convinced that funding entitlements is as simple a robbing the rich to feed the poor
So uh... progressive taxation is theft?
Ok, I'll bite. Taxation is theft.
...but outside of AnCap meme world there's still a difference between "The wealthy should pay higher tax rates in line with their increased burden on government services and the greater benefit they derive from the government's protections." and "Ten people are in a room and 9 of them vote to beat up the richest guy and take all his stuff."
Yeah I know the takes, I used to have similar feelings. But the structural deficit has fallen (and risen) over the years and frankly I don’t think it’s the issue that you and Dave seem to be making of it. We’ve made adjustments to taxes many times. As long as GDP (g) continues to grow we can handle it. Meaning the debt/gdp ratio is really the metric to watch. The rise in r (rates) obviously raises issues that MattY has pointed out and I agree with. I see Olivier Blanchard believes we are on a path back to secular stagnation which would mean inflation moderates (which it is doing rapidly) and the fed will have to cut rates again. Bad for me personally (I liked riskless 4-5% interest) and not great in general but it likely means r<g…there are lots of opptys for reducing discretionary spending and reforms out there to make Medicare more efficient. So my guess is we’ll see the debt ratio fall again.
And as for the politics, Obama was at the table with all of this…so I don’t accept a both sides just because someone promised not to tax below 400k.
If you’re trying to portray something as a smart financial decision, then calling it the “Chicago Model” probably isn’t the best branding
Maybe the McCormick Place model has sort of a nice, homey ring to it 
Especially since the somewhat high coupon version of this strategy (as opposed to the extremely high version Chicago used) is very common, but "the [insert any random school district that passed a referendum] model" doesn't have quite the same ring to it.
The public and elite understanding of the debt ceiling is mentioned briefly but is very important. The media landscape has changed and improved a lot. I think people forget how much the media took republicans side and blamed Obama for the standoff, in ways that tied his hands and somewhat forced him to negotiate. I think media figures thought buying into debt hysteria made them seem impartial. I don’t get that sense this time.
I think it took a few go rounds for people to get the dynamic here because the debt ceiling is usually explained with a boring credit card analogy. But what Republicans are doing is just a stupid dine and dash.
Republicans walked into Denny's, ordered three grand slams, and washed them down with a chocolate milkshake. And now they're screaming that they refuse to pay because they're on a low calorie diet.
Dine and dash is a pretty funny, nice analogy 
I never understood why media didn’t understand the debt ceiling to begin with. At the national level, these are all graduates of elite universities who can presumably educate themselves on an issue which doesn’t require being an expert.
Also, people have been here before. Trump and the GOP were totally blamed for the government shutdown during his presidency. They've already seen how the public reacts to this kind of thing. It worked the first time but it clearly won't work again.
Honestly, Dems should do more to call Rebs bluff on this issue.
They should say "YES!!! WE DID SPEND TOO MUCH ON COVID! It really was a big nothingburger, and we need to tax back all that extra money that was thrown out into the economy during the Trump years. Jay Powell was even too busy printing money with low interest rates, low interest rates the average American doesn't get access to. We didn't know what we were up against, and now we know not all that money was spent wisely and a lot of scams took place and a lot of landlords got rich for doing nothing while people worked at home. If we're not going to cut spending, let's tax back that extra money, because otherwise there's no way to lower the deficit. Every once in a while Congress has to make hard decisions and make up for the mistakes of past congress's loose spending."
Validate some of the right wing populism, and provide a solution, while the Rebs flounder.
I made a comment on another substack criticizing Dems for not raising the debt limit during the lame duck session, and someone pointed out that Manchin wasn't too hot on it and getting his vote would probably require coal subsidies or something that most of the caucus would never go for.
I'm not sure that's true, but if it were...I am all for giving Joe Manchin coal subsidies! It sounds nice and populist and energy-independent, and pisses off the climate left (which is good politics) and makes no difference at all for actual climate change (because, short of giving utilities billions of dollars to burn coal rather than gas, coal's never gonna actually come back).
In general, there's great political low-hanging fruit for Dems in just handing the climate left a bunch of defeats on silly symbolic issues, because it makes the party look nice and moderate and populist but doesn't really matter for climate change.
Some of my favorite substackers keep claiming Manchin is negotiating in good faith, regardless of his conflicts of interest, but somehow I think that's still not true: https://subscriber.politicopro.com/article/eenews/2023/01/25/manchin-bill-slaps-back-at-biden-in-ev-tax-credit-fight-cw-00079322
The only goals of the Freedom Caucus are fighting and obstructing the "Establishment," whether that be Democrats, the media, or RINO squishes. Their supporters expect them to fight. Doesn't matter over what. As long as they can be seen fighting on Fox News and talk radio, their supporters are satiated. That is all this is about. The Freedom Caucus learned in the Obama administration they could pick an easy fight over the debt ceiling that really pissed off their enemies, so they are going back to that well.
This was the lesson I took from American Carnage. Conservative politics are for entertainment purposes only.
Pleased to meet you
Hope you guessed my name
But what’s puzzling you
Is the nature of my game
- House Republicans
*grinning satan emoji*
Just when it seems we somehow might get a soft landing gop is going ”hold my beer” :(
>>I already wrote this for Bloomberg, but I want to reiterate that Joe Manchin’s proposal to re-run the grand bargain commission idea from the Obama era actually makes sense this time around.<<
In isolation it's certainly not a crazy idea to look at the government's longer term fiscal situation. But I must say I really dislike the idea of broaching this as "an idea that makes sense" at this particular juncture. Is there a case to be made for austerity moving forward? Sure. I can read inflation charts as much as the next guy, but, in addition to the fact that we really aren't in some kind of fiscal crisis (nor anywhere close) at present, I hate—absolutely hate—the idea of *rewarding* the radical and nihilistic Freedom Caucus for making threats. They are vowing to literally cause grave harm to the country they serve by savaging its creditworthiness. It borders on treason.
I get that they say they want a small state. And some of them may even mean it. But some tactics are beyond the pale—I don't care how fervently you want to achieve the goal in question.
I doubt that the Freedom Caucus would view a bipartisan commission as a 'win' for them. I hate giving an inch on this matter of principle and sanity, but I care not a whit about any such commission. I can grudgingly accept a fig leaf lest the world's economy go in the toilet.
It's kind of how Biden won some silence from the Left when he established the future of the Supreme Court commission. Boy, did that change everything.
I am going to give Matt Gaetz and That Crazy Woman From Georgia more diabolical credit than they likely deserve: I think they are aiming for default.
It would be their Hail Mary shot. The economy seems to be improving under Biden, American society re-normalizing, the world rallying behind the Western order. A stable, prosperous, just, boring planet Earth has no place for the likes of them.
An economic calamity, on the other hand, one happening during a Democrat president, caused by them or not, gives them hope of advancement amid chaos. Chaos is a ladder, as Littlefinger would say; you only need climb.
Keep in mind, of course, like all villain Hail Mary plans, it is a stupid plan that likely will not work. A default caused by a crazy, fractious Republican House will likely be blamed on said Republican House. It would also likely end the Republican party as we know it, no matter how ruthless Trump is or cunningly conniving DeSantis is.
But that doesn't mean a couple of stupid, vain politicians elected by stupid, vain local (gerrymandered) majorities don't want to try it. We'll see if they're able to carry all before them in a few months.
"But today — with a deeper public understanding of the issue, a clearer position from the White House on what they want, better elite comprehension of the available options, and a GOP whose stance on the issue is completely unclear — I don’t really think that leverage exists."
Uh, I'm going to pushback harshly on this. I think you're being wildly optimistic that a debt limit showdown wouldn't be much much more harmful to Biden then GOP in Congress. You're idea that the public has a much more sophisticated understanding than 2011 seems pretty off base to me. If you're talking about readers of substacks, NYTimes opinion columnists who used to write the "Wonk blog" or economics writers who write for The Atlantic and have podcasts on The Ringer, then yes this group of people have a reasonably sophisticated understanding of who's driving this debt ceiling standoff. But as you very very correctly remind us all the time, the median voter is a working class white guy over 50 living in the suburbs; a demographic likely very underrepresented in the group of people I listed above. Furthermore, I think you're wildly overestimating how much swing voters nowadays have a "sophisticate" understanding of what's going on. What they'll notice is a severe recession with massive job losses that very likely would result from a debt ceiling breach. If you want some proof go look at Biden approval rating and gas prices this past year (heck look at 538 recently where Biden's approval rating has ticked slightly downward again just at the same time there has been small increase in gas prices).
Also, I think you're also overestimating the sophistication of mainstream media, especially mainstream media personalities that have pretty far reach. The New York Times politics desk still exists; Peter Baker was on Meet the Press just this Sunday. The "hawks on both sides could not come to an agreement on a debt ceiling increase" take is basically probably prewritten to be belched out some point in June if necessary. Speaking of Meet the Press, honest to god, you really think Chuck Todd is going squarely point the finger at GOP intransigence and lack of actual plan as the reason a debt ceiling breach occurred? No he's going to have Chris Christie and Maureen Dowd on to talk about "how is it both sides couldn't come together here for the good of the country?".
So if you're wondering what the GOP plan, their (probably correct) response is we don't need a plan, Biden is the one who will suffer most and RDS or Trump will just cruise to victory (as has been noted many times, swing voters latch on to personalities when voting for President). In fact not having a plan is a form of leverage. Nothing to negotiate. The whole point is "Look at me, I have the biggest dick..aren't I wonderful". And if you think I'm being too vulgar here, remember the last President literally grabbed his crotch on the GOP debate stage in early 2016. Also, if you don't think the epithet "Little Marco" doesn't have very very close to the surface undertones about penis size, then I have a bridge to sell you.
One last point. I feel like it's being lost that Trump tried his absolute hardest to get severe Medicaid cuts passed. ACA repeal didn't die in committee like Bush's social security privatization. It came within one vote multiple times of passing. Remember it wasn't just McCain's thumbs down. There was "skinny" repeal that was shut down by Rand Paul for reasons that I'm still at a loss to explain. You brought up Medicaid cuts and that GOP didn't seem interested in actually pursuing, but I think that's wildly wrong.
Given that the Democrats have in public opinion terms won every government shutdown/debt ceiling standoff ever, I'm at a loss as to why anyone would suddenly think it would hurt them.
The actual impact to the economy. If GOP, Jeffries and Biden come to some sort of agreement or (god I hope) people come to their senses and realize they need to a clean raise, then the actual impact on 2024 would likely be zilch.
But if we breach the debt ceiling, then the economic impact could be catastrophic worldwide. And even if we don't breach the ceiling but come perilously close, that could impact our ability to borrower and impact the prices of Treasuries which are essentially the real backbone of the world economy. Anything that threatens the "flight to safety" that is Treasuries as the safest in the world to invest, can have pretty profound (and likely negative) economic consequences. And reality is bad economic conditions almost always redound to the benefit of the party out of power in any Democracy; American, German, French (though apparently not U.K. for interesting reasons as evidenced by the last 14 years. Real example of what can happen when enough of your voting population is of retirement age. Danger will robinson danger).
Post truth politics - its not about truth telling or earnest governance
Its about saying whatever things and taking whatever positions will get you more power…truth and actual governance be damned.
Should not be lost on anyone that the same foreign nation that commits massive crimes to help the GOP win elections is also bludgeoning Ukraine, and those congressional GOPers make American look bad in front of the whole world while also lobbying against further US support to Ukraine. Not coincidental.
How much useful idiocy vs how much actual knowing agency of these actors is impossible to untangle from this perspective but I’d imagine its mostly the former.
Cheers
“Breaching the debt ceiling” isn’t real. It’s like saying nobody can be taller than 6 feet, calling that “the heigh ceiling”, and then complaining that people exist who “breach the height ceiling.” It’s one real number being higher than an arbitrary one. We’ve “breached the debt ceiling” every year Congress has arbitrarily raised the debt ceiling, with no impact at all.
Strong disagree. Credit rating agencies also disagree.
Just because the sky hasn't fallen yet doesn't mean the sky can't fall. Seems obscenely stupid to tempt fate in this way. US sovereign debt is the most fundamental asset underlying (and stabilizing) the global economy.
When there is a critical mass that loses faith in the ability of the USA to repay its debts, we could face true economic catastrophe.
I think you don’t understand the issue, here. Allocating debt in excess of the ceiling isn’t what imperils the US’s creditworthiness; it’s not doing that that imperils the creditworthiness.
I do think suburban swing voters may respond to signals from the administration showing that they are the responsible side in the dispute, and distribute punishment accordingly 
Biden and Democrats will have to win a messaging game to make that work. They tend to lose those battles, but perhaps Biden’s earnestness will be better appreciated this cycle.
They will also need to make the Senate work as designed and hopefully advance solutions that will put the GOP into a bad place rejecting.
What happens in June 2023 won't matter when people vote in November 2024. If the GOP causes a economic catastrophe this year that persists until Election Day though, the Democrats will most certainly be blamed, because they didn't fix it in the meantime.
Strongly agree
💯
Loving the new focus on municipal bond quirks as a way out of crisis. I'm embarrassed that I didn't know it was McCormick Place that issued high coupon bonds. To any other muni nerds out there, do you think any of our other tools would fit the bill here? Like appropriation debt (not really a debt obligation, since Treasury isn't obligated to pay if Congress doesn't appropriate, so maybe it technically doesn't count)? Or a sale-leaseback of, I don't know, the Statue of Liberty, where the Statue of Liberty Financing Corporation (Liberty Bonds for short...) issues bonds backed by lease payments made by the Treasury? If you think this sounds wacky and no one would possibly buy a bond like that, you're clearly not a muni person.
I'm certainly not an expert on any of this, but I'm skeptical that the executive branch could do any sort of sale-leaseback transaction without congressional approval because my limited understanding is that the executive branch basically has no power to sell federal government assets except to the extent Congress has authorized it do so. (I briefly had to look at the issue of selling federal property 20+ years ago in the context of researching FTA regulations for a project in law school.)
I worked with a municipality that issued lease bonds for a national park facility. The GSA counsel issued an opinion that Treasury's obligation to repay the debt was the full faith and credit of the US and irrevocable, so unfortunately I don't think the lease strategy would avoid counting against the debt limit based on past practice.
That's interesting, maybe has to do with the leases committing the US Government for a multi-year basis, I can see that. So we make the "lease" non-recourse to the US Government, solely secured by the Statue of Liberty in the event that the US Government chooses not to pay. We'd need a pretty good appraisal, but I'm sure some appraiser will get to the right number.
Or maybe we could issue bonds which do not pay unless the statutory debt limit exceeds the amount of debt outstanding. It's not debt if it doesn't need to be repaid, so it can be sold when the debt limit is too low, and starts paying when the debt limit is raised. (Call them cinderella bonds, maybe.)
So many ideas, but so far none that don't break America.
EDIT: Think I misread your comment. Are you suggesting that the government essentially lease the Statue of Liberty to itself? I'm clearly out of my depth on bond structure and will be quiet now.
[Original, text below. I believe I may have misunderstood the factual predicates at issue]
How profitable is the Statue of Liberty? To be honest while there's a sort of deliciously perverse irony in its being privately owned it's not apparent to me that it's a particularly desirable mortgage security, but I may have a very wrong view of how attractive it is to tourists versus how expensive maintenance costs are.
Yes, I am suggesting the federal government sell to an legally distinct federal entity. But you weren't wrong to begin with, since if the government did not pay bondholders, their remedy would be to foreclose on the Statue, so you get to your same question of how valuable it would be to that private owner.
And that is a good, intelligent question. You're right, the Statue of Liberty may not be valuable (or valuable enough) to a private owner. But what's the negative value to the federal government of *not* owning it? You (and the entire secured lending universe) may think this is a scary way to invest, and I may agree with you. It should be even scarier if I replace the Statue in my example with the local courthouse. Shouldn't work, should it?
I take it the rhetorical implication of your last comment is that existing municipal bondholders already take this deal at present on even more confusing securities?
So I know next to nothing about what the market of muni bond buyers looks like -- it may just be that for whatever reason that I don't understand they think courthouses and the like are good securities -- but AIUI they receive unusually favorable tax treatment, right? So is it possible that the investors are betting more on general municipal solvency and reputation effects and accepting a lower interest rate despite a low value of the recourse security because they realize tax savings elsewhere?
(I am also willing to believe some combination of 'shruggie emoji / municipal bond buyers are just an odd and idiosyncratic bunch / some people collect baseball cards, others collect municipal bonds.')
Yes to everything you said. But the specific and most important point is that investors are betting on reputation effects. That's the same effect I'm talking about for the federal government, but sharpened with a nasty headline about how Kevin McCarthy lost the Statue of Liberty.
I do understand that we're well into the land of the silly, where we all seem to be living on this issue. But it's not *as* silly as it first sounds.
Leasing the Statue of Liberty would be a great prestige investment for a tech billionaire or Gulf state sovereign wealth fund! It wouldn’t have to turn a profit 
Yeah, I was also kicking around something that mimicked a cashflow bond type structure, only instead of only paying P&I when leftover revenues were available after paying what was due on the senior tranches, it would always pay interest as due and only pay principal when there was capacity in the debt limit. I think figuring out how to price and trade those bonds would be fascinating.
Replacing pensions with 401(k) plans (many of which have absolutely lousy employer matching rates) made social security more necessary than ever for the middle class. It’s so brutal to think about the nihilism involved with people that that essentially want to make retirement as hazardous as possible for everyone but the very rich.
Those are good talking points, but they elide the fact that our over-65 population is richer today, with a lower poverty level, than at any time in history. And their poverty level is lower than any other age group, per the US Census Bureau.
But any attempt to discuss whether we should continue to tax the young to give to the old is met with this type of "The Cruelty is the Point" rhetoric.
>our over-65 population is richer today, with a lower poverty level, than at any time in history
Social Security is doing good work keeping them out of poverty!
Before social security is factored in, 65+ poverty rate is 37.8%. After social security it's 9.0%.
https://www.cbpp.org/research/social-security/social-security-lifts-more-people-above-the-poverty-line-than-any-other
I’d be interested in the data on this because you make a good point.
I know, from own life, the retired folks have home values that have skyrocketed. The house my grandparents bought for 60k sold for a little under 2 million. They also had both pensions and 401(k)s, so that basket was helpful.
What I’m worried about is that the boomers had the best possible combination of tax cuts, high 401k matching and legacy pension systems that benefited them in retirement that my generation and younger generations won’t see.
I'm a boomer and I don't know any boomer outside the public sector unions that has a pension, as they still do. 401(k) deductions have only gotten more generous since my working days, and matches have always been up to employers, not to mention Roth IRA's that didn't exist in my day. You're living in a fantasy world if you think the boomers in their work day had it so sweet compared to your generation.
To be fair, I don’t think they had it “sweet” and I suppose mileage might vary depending on the industry you started working in before 1980.
I feel like we are in a Macgruber “the game has changed but the players are the same” situation.
The industries in 1980 that had pensions, all had their pensions raided to fund LBO's while their factories were shut and their jobs shipped to China. Boomers really had a great deal.
Anecdotally, my 70-year-old parents appear to have the most financial breathing room they've ever had right now with a combination of their Social Security and my dad's (private) pension.
"n 2021, the national poverty rate for people ages 65 and over was 10.3%, significantly lower than the poverty rate for all people and the child poverty rate."
Source: https://www.census.gov/library/stories/2022/10/poverty-rate-varies-by-age-groups.html
What I’m going to look for and what I’d like to see is comparative rates of savings for retirement between generations and what buckets those savings were placed in plus the average return.
Past performance isn’t indicative of future results so just saying “hey look, the boomers are doing great!” Isn’t filling me with confidence. I’m fairly on track for my personal retirement savings but most of my friends are nowhere close to where they should or want to be.
Maybe they ought to live a little less large and save more.
Well, if people would just die sooner that would certainly help their savings.
What, precisely, convinces old people that my age cohort is mainly "living large" is beyond me.
Utterly, hopelessly beyond me.
Hey, get out of here NY Times Pitch Bot ; )
As Kevin Drum has demonstrated, the Boomer generation was no better off than current generations at the same age. Except for possibly student debt -- and that in part because far fewer Boomers went to college. https://jabberwocking.com/millennials-are-the-highest-paid-generation-in-american-history/
The future is hard to predict, so predictions about how future generations will fare have to be taken with a lot of salt. We just don't know, except that all generations have been richer than the ones preceding them.
Thanks Marc, that puts a little sugar in my coffee.
Does this account for the wealthiest of the millennials being much richer than their rich boomer counter parts? I’m always curious about averages and how they are calculated in things and I can’t find the back up in the article (though maybe I’m missing it?).
He's reporting medians, so there's no skewing due to rich tech bros.
I share your analysis of the situation, particularly your last paragraph.
We presumably won’t have such difficult demographics then however. Should help.
Given that retirees vote the most, young people the least, and kids not at all, is there a “popularist“ strategy to redress this structural tendency to favor the old over the young? 
>>Those are good talking points, but they elide the fact that our over-65 population is richer today, with a lower poverty level, than at any time in history<<
They don't "elide" it. What you point to is evidence of the success of FDR's masterpiece. Elderly poverty is bad. Reducing it is good! Why mess with what's working?
All poverty is bad. I think the current level of income transfer from young to old is too much.
I think the level's about fine, though I wouldn't say "no" to nudging the retirement age upwards a tad, and use part of the proceeds to help those old people who need it most (about a tenth of the elderly population in America live in poverty).
You do understand that the entire reason we have Social Security is because of a massive stock market crash? You think we should replace SSI with a large 401k plan then, the next time the market crashes, we can create SSI 2.0 as a backup to SSI 1.0?
You do understand we have a very different economy, stock market, life expectancy, number of retirees vis-a-vis workers, monetary system, other welfare programs and benefit levels than in 1935?
I would not, and do not, advocate for replacing SSI with a 401(k). But I think the current level of income transfer happening from young to old is a bad policy choice.
https://www.politico.eu/article/netherlands-prime-minister-mark-rutte-europe-frugal-us-subsidies-loan-reform/