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Home / Jared Bernstein: On the economy / Some lynx: Unions, CBO’s new baseline, the Bernstein Rule…

Some lynx: Unions, CBO’s new baseline, the Bernstein Rule…

Summary:
The teachers provide us with a teaching moment, over at WaPo. Their actions pose a stark reminder of the essential need for a strong, organized movement to push back on the forces promoting inequality, non-representative government, trickle down tax policy, and more. CBO released their updated “baseline,” or estimate of the US gov’t’s fiscal outlook. If you like red ink, you’re in biz. Instead of deficits between 3 and 4% of GDP over the next few years, we’re looking at deficits of 4-5%. As I’ve written in many places, when you’re closing in on full employment, you want your deficit/GDP to come down and your debt/GDP to stabilize and then fall. It’s not that I worry about “crowd out” so much–public borrowing hasn’t crowded out private borrowing for a long time, as evidenced by low, stable

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The teachers provide us with a teaching moment, over at WaPo. Their actions pose a stark reminder of the essential need for a strong, organized movement to push back on the forces promoting inequality, non-representative government, trickle down tax policy, and more.

CBO released their updated “baseline,” or estimate of the US gov’t’s fiscal outlook. If you like red ink, you’re in biz. Instead of deficits between 3 and 4% of GDP over the next few years, we’re looking at deficits of 4-5%.

As I’ve written in many places, when you’re closing in on full employment, you want your deficit/GDP to come down and your debt/GDP to stabilize and then fall. It’s not that I worry about “crowd out” so much–public borrowing hasn’t crowded out private borrowing for a long time, as evidenced by low, stable interest rates (rates are climbing off the mat a bit now, as I’d expect at this stage of the expansion).

It’s a) there’s a recession out there somewhere are we lack the perceived fiscal space to deal with it, and b) the larger point that this is all part and parcel of the strategy to starve the Treasury of revenues so as to force entitlement cuts.

Which brings me to this oped by a group of former Democratic chairs of the president’s CEA. It’s a perfectly reasonable call for a balanced approach to meeting our fiscal challenges, and, again, consistent with my view that as we close in on full employment, the deficit should move toward primary balance (another way of saying debt/GDP stabilization).

But two things from this piece, which is a critical response to an earlier oped by a “group of distinguished economists from the Hoover Institution.”

First, I didn’t realize that the Hoover’ites argued that the “entitlements are the sole cause of the problem, while the budget-busting tax bill that was passed last year is described as a ‘good first step.’”

This puts them in direct violation of the Bernstein Rule: if you supported the tax cut, you can’t complain about the deficit.

A few of my CBPP colleagues have a new piece out about everything that’s wrong with the tax bill, and in this context, look at the section on why “…the nation is facing long-term fiscal challenges that will require more revenue, not less.  The new law…weakens the tax system’s ability to deliver on its core responsibility: raising sufficient revenue to adequately finance critical national needs…”

It’s really that simple. According to CBO, even including macro offsets, the tax cuts add $1.85 trillion to the debt over the next decade. Readers know my rap on this. The ultimate target of Republican fiscal policy is Social Security, Medicare, Medicaid, SNAP–the “entitlements.” Since they can’t politically cut them outright, they must starve the Treasury of revenues and then argue, as the Hoover’ites do, that we have no choice. After all, look at those deficits (to which we just added $2 trillion)!

That’s some serious chutzpah.

My second point is that the entitlements are actually a somewhat arbitrary target. That is, as long as we’re running up the debt, we’re increasing not collecting the revenues necessary to support spending. That means one could just as easily argue “we can’t afford the military!” as “we can’t afford the safety net!”

It’s true that the entitlements are on automatic compared to other spending that must be appropriated, but does anyone think the Defense Dept. is going to take a significant hit because we’ve recklessly cut taxes? That there’s a rhetorical question.

The moral of the story is: don’t listen to people telling you what we can’t afford, especially after they rammed through a huge, complicated, loophole-ridden, revenue-wasting tax cut.

Jared Bernstein
Jared Bernstein joined the Center on Budget and Policy Priorities in May 2011 as a Senior Fellow. From 2009 to 2011, Bernstein was the Chief Economist and Economic Adviser to Vice President Joe Biden, Executive Director of the White House Task Force on the Middle Class, and a member of President Obama’s economic team. Prior to joining the Obama administration, Bernstein was a senior economist and the director of the Living Standards Program at the Economic Policy Institute, and between 1995 and 1996, he held the post of Deputy Chief Economist at the U.S. Department of Labor.

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