Monday, 03.17.08
The Fiscal Nightmare of 2009
Photo by flickr user humain under a Creative Commons license
Countdown to a meltdown
July/August 2005
Meltdown: a case study
July/August 2005
Benjamin Friedman discusses the accompanying civic and moral costs of recession.
The economy writ large -- the crisis in the financial markets, the panics and contagion, the lockdown of the lending markets, et. al. -- will be the totalizing narrative of the next six months in our politics, policy, government and society. When a new president takes over, the Federal Reserve may have run out of basis points to cut. Inflation will be higher. The credit markets will still be in capital preservation mode, trying to conserve all the cash they can. So businesses won't be able to invest. Consumer spending will be negligible. Containing the crisis -- to the extent that fiscal policy and the moral suasion of the executive can contain the crisis -- will be extraordinarily difficult, and it will be the defining problem of the next president's first term.
A Democrat will be under intense pressure to raise income taxes beyond the pledged "Bush tax-cut-for-the-wealthy" levels, but tax increases, even on the rich, are contraindicated during a recession. Any money raised by a President Clinton or Obama will end up transferred into existing social programs. There will be no room for an expensive universal health care plan, much less the time to negotiate it through Congress.
John McCain will face the Hoover challenge: He's been campaigning as a spending hawk, but if he refuses to raise spending during a recession he will stand against public opinion, which tends to demand action even when there is nothing to be done. If he pushes for a dramatic tax cut, he'll be betraying his promise to restore fiscal discipline, and compounding the recklessness of the Bush years. But the briefcase of alternatives will be slim.
Too complex to callNina Easton looks over the history of election-year recessions and finds that there is no clear pattern to who benefits politically. |
A real fixer-upperIn a recession, Americans want a president who will confidently fire up the economy with tax cuts, writes James Pethokoukis. |
ScapegoatsEveryone suffers in a recession, and the incumbent party always gets blamed, says Andrew Leonard. |
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We need jobs, loans, health care, and regain the love of our nation.
help us McCain
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"There will be no room for an expensive universal health care plan..."
Forget universal health care. It's not going to happen anytime soon, if ever. THERE IS NO MORE MONEY!!! We can't afford existing programs now. Before any additional entitlement programs are created, we've got to put the books back in order.
What's the way out? Tax increases? Can the middle class afford a hefty tax hike? No one is going to raise taxes on the middle class. The corporate tax rate is already pretty high. Closing some loopholes, raising taxes on capital gains and the very wealthy will be useful, but a relative drop in the bucket compared to the federal government's obligations, especially considering the need for a permanent AMT fix.
Can we borrow the money? I think we're pretty much near the end of that tether. Paying the interest (much less the principal) on what debt we already have is going to be a challenge.
Nope, the only real way out is a substantial, maybe even severe, reduction in discretionary spending (including defense), along with a dramatic restructuring of Medicare (i.e., cost containments through rationing). Politically, that will be difficult. But the crisis is pretty much upon us, and the longer we wait the worse the solution will be.
The truth is that Americans have been living beyond their means both individually and culturally. For a long time they've demanded federal government services that they didn't want to pay for. So they spent the surpluses from Social Security and borrowed the rest. Now the bill is finally coming due. The only real answer is to stop running up the tab. Painful? Yes. But what's the alternative?
Posted by Claudius | March 18, 2008 12:10 PM