Obama's Spin Doctors Open Up A Pandora's Box With Their CBO Response

The Congressional Budget Office (CBO) report that Obama Care will cost 2.5 million jobs sent the Democrat rapid response teams reeling.  The “non-partisan” CBO has labelled the president’s signature achievement a job killer. What to do?

The Obama team’s first reaction must have been: This must be wrong! Haven’t we been saying all along that employment problems are to be corrected by government spending? With the CBO’s determination that the ACA’s carrot-and-sticks are destroying jobs, we cannot admit that the unemployed and underemployed are victims of misaligned incentives, not of inadequate government expenditures. We need another angle. A voice from the back of the room:  Maybe we can say that, in certain circumstances, job destruction is good?

That was it. The best that Obama’s rapid responders could do for positive spin was that the ACA gives low-income earners new choices. They couldchoose to work fewer hours, or not at all, to keep their incomes low enough to maintain their insurance handout. A blessing instead of a curse, the ACA turns high school dropouts into budding poets, photographers, and writers (per Nancy Pelosi) whom free insurance saves from the drudgery of earning a living.

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Virtual Insurance: How ObamaCare Saves 30 Million From Being Uninsured While Leaving 30 Million Without Coverage

Obama supporters cite the 30 million who stand eventually to gain health insurance coverage as the most compelling reason for not abandoning ObamaCare in its time of troubles. Despite a string of disappointments and broken promises, ObamaCare critics do not push back against this  claim. After all, the 30 million who will gain insurance is a calculation of the “non-partisan” CBO.


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Some Facts on Food Stamps You’ll Not See Elsewhere

The House Republicans proposed to cut $2 billion a year for ten years from food stamps (a “drastic” 3% cut fro0m the $80 billion program). The Senate passed on a bipartisan basis a much smaller reduction over the same period. House Republicans understood that they could not pass a farm bill that included $2 billion annual cuts in food stamps, so the House tried but failed to pass a farm bill without food stamps, hoping to pass a separate food stamp bill later. Liberal Democrats condemned the House action in unison, claiming falsely House Republicans wanted to wipe out the food stamp program entirely.

The liberal blogosphere condemns any cut in food stamps on the grounds that poor hungry people, especially children, are hurt and that food stamps have become an essential (and apparently permanent) stimulus to keep our economy moving.

Currently, 48 million people receive food stamps, 17 million of which are classified by the USDA as families with very low food security, of which 5 million are children. The USDA’s “very low food security measure” is its feeble attempt to measure the number of hungry Americans.

The accompanying chart (taken directly from the Congressional Budget Office) provides some perspective on where we stand:

The chart shows that, in past years, the number of recipients and spending on food stamps move with the business cycle, as measured by the unemployment rate. However, starting in 2001, food stamp spending and participation rose despite low unemployment due to the use of EBT credit cards and enhanced enrollment efforts. (Thank you, George W. Bush?) Both enrollment and spending soared with the recession of 2008, but did not moderate with the recovery that began in late 2009/early 2010. Both food stamp spending and participation doubled between 2007 and the present!

Those who oppose any cuts in the food stamps program argue that food stamp spending and participation were driven up by the recession and we still need an extra boost. If so, they should accept the fact that food stamps should decline as the recovery continues. The chart shows that the CBO expects food stamp spending to drop by $11 billion over the next decade, and the number of recipients to fall by 13 million people (under current legislation) as a consequence of the economic recovery.

Using CBO projections, Congress should prepare for reductions in the food stamp program. Using the CBO figures, Congress should budget slightly over $1 billion less per year over the next decade even without any changes in food stamp rules. Although opponents of food stamp cuts warn that some 2 million people will lose coverage as a result of the proposed House bill, the CBO projects that a much larger 13 million will lose coverage as the recovery proceeds without any changes in the way food stamps are administered.

Let us remember that food stamps are an entitlement that is supposed to increase during bad economic times and decrease during good economic times. Supposedly, we are in a recovery, or at least that is what we are told.

Those who oppose any reduction in the number of beneficiaries and benefits paid have lost sight of the meaning of entitlements, just as those who argue for permanent stimulus have forgotten the basics of Keynesian economics. Instead of accepting the reductions that are supposed to accompany a recovery, they are making new arguments. One is that food stamps really do not fight hunger. Rather food stamps fight obesity, especially among children. (I do not know how food stamps affect recipients’ choice of food. Please enlighten me). Obesity is a growing problem, so we need more food stamps. Second, they argue that we need food stamps as a disguised form of stimulus, without which the recovery is jeopardized.

I guess obesity and deficient stimulus will always be with us. Therefore let’s have no cuts in food stamps.

In googling material for this piece, I found that the first 40 posts argued against any food stamps cuts of any kind and warned of horrendous consequences of cuts. I ran across a vast array of groups and lobbyists with vested interests in food stamps. I did not find one article supporting the food stamps cuts that must come according to the CBO. The one exception was an attack on Lou Dobbs for venturing to say food stamps need to be cut.

We have no lobby for cutting government spending. Let’s hope the Tea Party gets animated again. This is a good issue for them.

'Sequester Costs 750,000 Jobs' From Those Who Gave Us the Four-Million-Job Stimulus

 The Director of the Congressional Budget Office, Douglas Elmendorf, testified on February 13 before Congress that 750,000 jobs would be lost in 2013  alone if Congress does not avoid the sequester cuts (source). To put that estimate in perspective: the economy gained 741,000 jobs between September and January 1. Per Elmendorf: The sequester cut, reported to be $85 billion in 2013, will set us back four months of job growth. I say, using the experience of the 2009 stimulus, that the 2013 sequester cuts will cost us zero jobs.

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The $995 billion Sequester Cut Is Actually a $110 Billion Spending Increase

The Congressional Budget Office gives its baseline budget projections for fiscal years 2013 to 2023 in its February 5, 2013  Budget and Economic Outlook: Fiscal Years 2013 to 2023. Table 1-5 shows how the CBO incorporates the $55 billion per year in sequestered defense cuts and the $37 million per year in sequestered non-defense cuts into its projections of  discretionary spending.

The sequester “cuts” are subtracted after  increasing  appropriations subject to the sequester at the rate of  inflation and adding back in more than a trillion dollars (over ten years) of spending exempted from the sequester.

The sequester has been advertised as “cutting” discretionary spending over a ten year period by $995 billion. After inflation adjustments and exempting more than a trillion dollars of defense and non defense discretionary spending from the sequester, the CBO projects  (in its Table 1.1) discretionary spending to increase by $110 billion over the decade. There is no actual $995 billion cut after the CBO applies its magic adjustments. Rather there is a $110 billion increase.

Sequester alarmists will respond that it is impossible to run the federal government  without annual inflation adjustments and without exempting certain government spending. We American voters might respond that most of us do not receive automatic inflation adjustments to our earnings and we are expected to tighten our belts when times are tough and our personal debt has gotten out of control.

Whatever the case, it is hard to characterize a $110 billion increase as a draconian cut that will bring America and its federal government to its knees.

published forbes.com

President Obama’s Legacy: $20 Trillion in Deficits for 2016 Victor

The fiscal-cliff negotiations have deteriorated into an embarrassing travesty of competing press conferences, off-the-record remarks,  closed meetings,  and sound bites. The Republican side is frustrated and flabbergasted by the absence of  a concrete proposal from the President  that can be scored by the Congressional Budget Office and then “marked up” by Congress according to standard procedures.  Vague offers of so and so many trillions of revenue increases and spending cuts spread over a decade are just words, not real proposals. 

The last serious fiscal-cliff projections date back to the Congressional Budget Office’s (CBO) August 2012 assessment of the budgetary effects of various fiscal policy alternatives. In its August study, the CBO –  the “gold standard” of budget projections -- calculated the budgetary consequences of going over the fiscal cliff in its “baseline projection.” It then projected the budgetary effects of alternative fiscal policies, among them, extending the Bush tax cuts and shelving the sequestered spending cuts.

We may agree or disagree with the CBO’s projections, but they are the most authoritative we have. President Obama has been vocal with respect to  the fiscal policies he wants, and each item on his wish list can be scored using the CBO’s August study. Therefore, we can approximate the five-year deficits that would result if President Obama gets what he wants. This is not rocket science. Anyone can do this using the CBO’s excel files.

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Those CBO Growth and Budget Projections: Just Forget About Them

The CBO 2012 and 2013 projections grabbed a lot of attention when they were released earlier in the week. The headlines were that growth will slow to two percent in 2012 and one percent in 2013, unemployment will rise to over nine percent by 2013, but the deficit will shrink dramatically. All of these calculations are based, as I pointed out in a recent blog, on discredited Keynesian models anyway.

None of these things will happen because the policy assumptions on which these projections are based will never materialize. The Bush tax cuts will not be dropped in their entirety (a slight possibility if Obama is reelected). Discretionary spending will not decline in absolute value over a five year period, and the various cuts in Medicare will not take place.

Actually the CBO points all this out, but commentators look only at the headlines and ignore the crucial details that tell us: “Never mind.”

Are CBO Estimates Really The Gold Standard Of Accuracy?

The pessimistic CBO estimates of growth, deficits, and unemployment for 2012 and 2013 are big news. The Democrats use them to argue for more stimulus. The Republicans cite them as a cautionary tale against government spending. Both sides express reverence for the “non-partisan” CBO, whose calculations are the “gold standard” of accuracy and integrity.

This elevated view of the CBO is wrong, not because the CBO is partisan or not immune to fudging. The CBO studies that I have examined use Keynesian models as the basis for all their calculations. If they are ordered to estimate the effect of the stimulus on GDP and jobs, they attach Keynesian multipliers to different spending categories. The model they use guarantees the finding that the stimulus saved jobs and growth. Similarly, when the CBO looks ahead to 2012 and 2013 and applies similar Keynesian models to projected tax increases and slower government spending, they will automatically conclude that growth will be slow and unemployment high.

The new CBO estimates cover 172 pages of charts, explanations, and footnotes. The draft spends most of its time on the details of government spending and revenues, which they must estimate using the flawed assumptions Congress gives them. The CBO publication does not take the reader into the “kitchen” where they prepare their estimates of GDP, but the source of their pessimism is clear from a short quotation (page 36):

Federal fiscal support for economic growth will weaken this year before turning to significant restraint in 2012 and 2013. Without the 2010 tax act, federal fiscal policy would have been restrictive this year because of the previously scheduled tax increases and the waning of the effects of ARRA (the stimulus).

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The NYT Lets the Cat Out of the Bag: Reduce the Deficit By Raising Taxes on the Middle-Class Without Doing Anything

Picture the five year-old who blurts out at a family gathering: “Grandpa has bad breath.” Grandpa may indeed have bad breath, but this is not something said in polite company.

A veteran NYT journalist has committed the indiscretion of the five year old. (See Ross Douthat, “The Middle Class Tax Trap”, April 18). He sweeps away the smoke and mirrors for a fleeting moment. We learn that Obama has an alternative to his strategy of “soak the rich and then just keep going deeper into the red.” The CBO’s “current law baseline” reveals that, if the Bush tax rates are not renewed in 2012, inflation and the alternative minimum tax will raise middle-class marginal tax rates from 29 to 38 percent (Welcome to the “tax rates for the rich”), and federal tax revenues will rise from 18 to 23 percent of GDP.

Just by doing nothing in 2012, the Obama administration can set the country on course to “afford” a European style welfare state. As more and more of our vast middle class are pushed into higher tax brackets, federal, state, and local revenues rise to some forty percent of GDP. Add a harmless two to three percent deficit on top of that, and we have reached the low to mid forty percents in terms of government spending. We can miraculously pay for our entitlements without breaking a sweat. And we have done this without a value added tax, no less.

The CBO warns that their “current law baseline” could “tend to discourage some economic activity” and could “harm the economy through the impact on peoples’ decisions on how much to work and save.” We do not really know how our middle class would react to European levels of taxation. Some of us hope we’ll never test this proposition.

President Obama warned that the Republican budget proposals would lead to “a fundamentally different America.” But in a burst of candor, the NYT writer admits that the “current law baseline” scenario would lead to a “more stagnant and balkanized society in which our promise to the elderly crowds out the fundamental promise of America itself.”

Remarkable words from our newspaper of record.