A Useful Guide to the Federal Budget

On September 15, 2012, in budget, debt, deficit, by admin

David Wessel. Red Ink: Inside the High-Stakes Politics of the Federal Budget. Crown Business, pp. 204, $22.00 The United States, once a creditor to the world, is now in debt. Indeed, America is now one of the world’s biggest debtor nations, with an external debt to GDP ratio approaching 100%. While politicians from both parties [...]

David Wessel. Red Ink: Inside the High-Stakes Politics of the Federal Budget. Crown Business, pp. 204, $22.00

The United States, once a creditor to the world, is now in debt. Indeed, America is now one of the world’s biggest debtor nations, with an external debt to GDP ratio approaching 100%. While politicians from both parties acknowledge that the debt and the federal budget deficit pose substantial policy challenges, there is very little consensus in Washington as to what actually should be done to safeguard the nation’s finances for future generations, or whether deficit reduction should even be considered a primary goal at the moment.

When President Obama mentioned reining in the deficit at the recent Democratic Convention in Charlotte, there was scant applause in the crowd, at least in comparison to other topics he addressed. On the other side of the aisle, there are some ideologically-driven politicians who actually seem to believe their own rhetoric that immediately enacting massive spending cuts will miraculously lead to a new golden age of American economic prosperity, without any deleterious consequences or spillover effects.

With respect to the upcoming 2012 elections, when Mitt Romney chose Paul Ryan as his Vice Presidential nominee, he elevated the Budget Committee Chairman to the national stage. From that point on, the “Ryan Plan,” the Wisconsin Congressman’s eponymous budget proposal, which includes significantly cutting spending on federal safety net programs, would be an integral part of the presidential campaign.

An educated layman, bombarded on all sides by pundits in print, and talking heads on cable news, would be hard pressed to make sense of all the various accusations, counter-accusations, and outright lies that permeate the nation’s political discourse this election cycle. For readers interested in finding a guide for the perplexed to the nation’s budget in all its complexity, Red Ink: Inside the High-Stakes Politics of the Federal Budget is a welcome and useful addition to a growing corpus of literature on the peril posed by the national debt to America’s future.

In Red Ink, David Wessel (Wall Street Journal) has penned a relatively brief, but comprehensive, study of the federal budget and the seemingly never-ending political fights over it. The budget is not just about numbers or an abstraction devoid of greater political significance. “With far more precision than thirty-second sound bites or campaign speeches,” posits Wessel, “the president’s budget and alternative crafted by the opposition in Congress reflect contrasting visions for the size of government in America and the role it plays in the economy.” To illustrate his point, Wessel contrasts Jack Lew, President Obama’s director of the White House Office of Management and Budget (OMB), with Congressman Paul Ryan. Whereas, Lew “believes in government,” Romney’s running mate is on a “quest . . . to limit the size of government, including spending less on Medicaid and almost everything else.” Ryan’s “weapon of choice,” according to the author, is the budget.

Given that the budget is such a contentious political issue, one would think that the voting public would be fairly well informed as to how much the federal government spends and on what. Sadly, this does not appear to be the case. Indeed, one of the takeaway lessons of Wessel’s recent work is that the public is often misinformed, perhaps staggeringly so, on budgetary matters. Wessel cites the results of one CNN poll in which a typical respondent stated that he believed food stamps accounted for 10% of federal spending (it is actually around 2%). In addition, the results of a Cornell University poll demonstrate that an amazing number of persons who receive Social Security benefits or are covered by the Medicare program feel that they have not used a government social program. The joke about Tea Party protesters holding signs that read, “Keep Your Government Hands Off My Medicare” would be funnier, if it were not such a sad reflection of the state of public knowledge about the U.S. government’s role in the economy.

Red Ink
is divided into five discrete chapters, each of which is clearly written and well organized. In a more perfect world, voters heading to the polls this November will read the book’s third chapter, “Where the Money Goes,” prior to casting their ballots. He discusses such topics as how voters overestimate waste and inefficiency, how health care spending is rising to a greater extent than other portions of the federal budget, and how Social Security, which accounts for approximately 20% of federal spending, “is perhaps the most popular part of the federal budget.” Regarding farm policy, Wessel notes that President Obama’s most recent budget envisioned ending direct payments to farmers. He also discusses the food stamp program and the expansion of the program under both George W. Bush and Obama.

The book’s final chapter, “Why This Can’t Go On Forever,” is a wakeup call to Americans and their elected representatives. Wessel approvingly quotes Doug Elmendorf, director of the non-partisan Congressional Budget Office (CBO), who has argued that there is a stark disconnect between what the public expects the federal government to provide, especially to seniors, and what taxes people are willing to pay to finance such programs. As much as the public likes to criticize Congress, it must be incredibly frustrating for those rare politicians seriously interested in reducing the deficit to be told by constituents that they want even lower taxes, but that Congress shouldn’t cut Social Security or defense. While Wessel is overall successful in defining the contours of the political debate, his work’s final chapter would have been even more powerful had he been more revealing as to his personal opinions, particularly regarding what approach to deficit reduction would be most preferable.

Red Ink does not end on a particularly optimistic note. Wessel is clearly frustrated by the lack of compromise in Washington, polarized as he perceived it to be between President Obama’s budget and Congressman Ryan’s alternative. “Neither side has enough votes to prevail, and neither is willing to compromise on some amalgam that might spread the pain that both can live with. This is the crux of the issue: the deficit widens, the debt grows, the interest burden gets heavier, the voices grow even more shrill as the budget burden is passed to future generations, and nothing gets done.” If, as I suspect, the 2012 elections result in both President Obama’s reelection and a Democrat-controlled Senate and a Republican-controlled House, we probably ought to prepare ourselves for another two more years of gridlock. Eventually, however, the proverbial ‘can’ may rise up and no longer let politicians to boot it any further down an already long and tired road.

Jonathan Eric Lewis (c) 2012

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Obama’s Deficit Gamble

On August 23, 2012, in derivatives, Dodd-Frank, economic theory, by admin

Noam Scheiber, The Escape Artists: How Obama’s Team Fumbled The Recovery. Simon & Schuster, 2012, pp. 351, $28.00 When he assumed the Office of the Presidency in January 2009, Barack Obama faced challenges on multiple fronts. Ground troops were still in Iraq, the deleterious effects of the housing bubble were rippling throughout the economy, and [...]

Noam Scheiber, The Escape Artists: How Obama’s Team Fumbled The Recovery. Simon & Schuster, 2012, pp. 351, $28.00

When he assumed the Office of the Presidency in January 2009, Barack Obama faced challenges on multiple fronts. Ground troops were still in Iraq, the deleterious effects of the housing bubble were rippling throughout the economy, and confidence about the nation’s long-term fiscal prospects hovered somewhere between hope and despair. To his significant advantage, President Obama did enter the White House with Democrat majorities in both the House and Senate. Although the former Illinois Senator’s supporters did not necessarily know it at the time of the new president’s inauguration, the first two years of the Obama Presidency would be crucial years for the country’s recovery from the worst economic downturn since the Great Depression. For decades to come, historians will debate whether President Obama helped or hindered what, in fact, would prove to be an anemic recovery from the near meltdown of the American financial sector.

In The Escape Artists: How Obama’s Team Fumbled the Recovery, Noam Scheiber provides a comprehensive narrative detailing the personalities and policies of the Obama economic team. He argues that President Obama and his team made a mistake in focusing on deficit reduction, rather than putting jobs foremost on the agenda. A senior editor at The New Republic and a Schwartz Fellow at the New America Foundation, Scheiber posits that while it is certainly the case that, “Team Obama helped avert catastrophe,” they nevertheless failed in their self-appointed task of restoring the economy to close to where it was prior to the financial crisis.

Readers most interested in the personalities behind the recovery will find much to appreciate in Scheiber’s extremely well researched book. Although he treats the complex economic issues with dexterity, Scheiber focuses his attention on the educational, personal, and professional backgrounds of the major players on Obama’s economic team than on complex and nuanced economic and legal issues. He devotes individual chapters to differing members of Team Obama, including Larry Summers of the National Economic Council, Treasury Secretary Tim Geithner, and Gary Gensler of the Commodities Futures Trading Commission (CFTC).

Overall, Scheiber is successful in documenting how the personal backgrounds of the key players on Obama’s economic team affected their policy decisions during their tenures in the administration. Occasionally, however, Scheiber’s narrative goes slightly off course. This is never more the case when, perhaps in an attempt to be comprehensive, he seemingly diverts his attention from the topic at hand. There are sections in the work where Scheiber spends perhaps too much time detailing some of the interesting, albeit not immediately relevant, details about the aforementioned personalities. One such case in point is a detailed discussion of Larry Summers’ childhood and high school years, which could easily have been condensed into two short paragraphs.

When he is at his best, however, Scheiber provides a fascinating look at the decision-making process of Obama’s economic team. This includes the numerous, and sometimes colorful, internal squabbles within the West Wing and other agencies and departments. Scheiber recounts how Christina Romer of the Council of Economic Advisers (CEA) had advocated for a larger stimulus package than the one that eventually was put into place is perhaps well known, details the tensions between Summers and Geithner, and recounts the different personalities and policy views of those tasked with deciding how to regulate derivatives, for instance, in the wake of the crisis.

Scheiber does, however, devote significant attention to Treasury Secretary Tim Geithner’s career and policy decisions. The reader learns how Geithner’s years overseas, first in his youth and then early in his career at Treasury, shaped his worldview. According to the author, Geithner’s approach, describing as a “willingness to set aside concern for appearances and keep kicking dirt on the fire until he smothered it,” is probably responsible for saving the financial system. On the other hand, recounts Scheiber, the bailouts really demonstrated how deeply embedded both personally and professionally Geithner was in the financial world.

As for President Obama himself, Scheiber portrays him as an idealistic politician who both sought bipartisanship on economic matters and was committed to his health care agenda, but was ultimately faced with an intransigent Republican opposition. For those readers who think that only Congressional Republicans cared about the deficit, The Escape Artists will provide a different perspective. In fact, Scheiber contends that Obama was too focused on deficit reduction. This, according to the author, played into the Republicans’ hands, as if to concede the point that the larger American public was most concerned with cutting spending. “By agreeing that deficits were the biggest threat to the economy,” he writes, “the president lent credence to the fallacious argument that cutting breeds prosperity, which Republicans wielded against his efforts to secure more stimulus.” Scheiber’s own view, then, is more in line with Keynesianism than with the cutting spending crowd.

In conclusion, The Escape Artists is an enjoyable read detailing how President Obama and his advisers ultimately failed to revive the American economy. The book, however, sometimes does not live up to the very provocative subtitle regarding fumbling the recovery. Indeed, if one were to judge this book by its cover, one would think it was just another right-wing critique of the president. While Scheiber occasionally gets bogged down in details that detract from the overall flow of the larger narrative, he does provide a lucid study of how individuals, personality quirks and all, do ultimately shape policy. Scheiber thinks that the president should have focused more on jobs. Whether he will get a chance to do so in a second term is ultimately up for the voters to decide.

Jonathan Eric Lewis (c) 2012

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