City Journal Winter 2016

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Winter 2016
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Nicole Gelinas
GOP, Beware the S&P « Back to Story

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Curious if Obama's 'deficit' INCLUDES the war expense vs Bush's separate accounting of it---it was NOT a part of the budget.
It was great to see Ms. Gelinas show what other countries and states are doing to get their deficits under control. Clearly tax hikes and spending cuts are essential to getting the U.S. budget under control.

The GOP's main risk is its counterfactual, ideologically driven arguments.

The first counterfactual argument is: "We have a spending problem, not a revenue problem." This is plain silly. Compared to historical averages or when we last balanced the budget in 2001, revenues are down just as much as spending is up relative to GDP, according to CBO data.

CBO estimates the Bush tax cuts at 2% GDP, or about 20% of our deficit problem. The other is defense spending, which has also increased by about 2% GDP since 2001. Reverse these two policy choices and we solve 40% of our short-term deficit problem.

In the long-run, it's all about healthcare reform, as Medicare and Medicaid will take up all government revenue later this century.

Mr. Ryan and the Republican zombies simply want to put healthcare in the private market and hope the market will take care of it. This is naive, as nobody shops for the cheapest doctor when they are sick... everyone wants the best doctor and the best treatment.

We have to tackle the drivers: obesity, defensive medicine, incentives that reward more care instead of better care, fraud, multiple payment systems, and heroic intervention at the end of life vs. hospice.

But a more pressing question is: What happens when $1.5 trillion in deficit spending and the Fed's easing end? Does the U.S. have a sustainable level of GDP or is a technical depression (a 10% decline in GDP) inevitable? Is the U.S. condemned to a Japan-like fate, with huge deficits forever?
Will we forcibly de-leverage the banks and consumers and start fresh, imposing the hit on global bondholders, as Nassim Taleb argues?
Meh, S&P are whores, throw them some money and they will rate dog shit at AAA. Anyone stupid enough to give them the time of day will end up living under a bridge.
The problem with projections of spending cuts is that they are dependent on members of Congress and their financial supporters.
What will S&P do when Illinois fails to collect the extra revenue it "projects." The problem with projections is that they're guesses. Informed, perhaps, but guesses nonetheless. And only politicians believe in a static market which is predictable. Apparently this includes S&P. Step 1 has to be to eliminate all the wasteful spending in the federal budget. Because reduction of costs is actual, not predicted.