Budgets & Bad Government

If history were any guide, President Obama should be cruising to reelection with high approval ratings just now. Economic recoveries are generally proportional to the severity of the recessions that preceded them. A president who is lucky enough to face reelection when a recovery is well under way should be a blessed incumbent.

The following charts suggest that something rather different is happening.

That's not Carter-horrible, but it is well below Reagan and Clinton levels. Here is another chart that is more unfortunate, perhaps, for 1600 Pennsylvania Avenue.

This isn't only merely bad; it's really most sincerely bad. The most recent jobs report is especially disheartening. It casts doubts about the recovery that seemed to be under way. This may be a blip and it may be revised upward when better data becomes available. The problem remains that we are seeing the weakest jobs recovery after the greatest jobs loss in a half century. At this rate, we don't get back to where we fell from for years. Why is line for the recent recession so different from those of previous recessions?

There is a reason why economic recoveries are usually robust. Recessions are caused by inefficiencies that build up in the private economy over time and they are the cure for that problem. That is why they are sometimes called "corrections". Unfortunately, recessions cannot correct for bad government.

Governments have enormous powers to keep paying out when their revenues dry up, something that private businesses cannot do. But with great power, I have heard it said, comes great responsibility. Another way to put that is that with irresponsible behavior by governments come great disasters.

The current dilemma is not the President's fault. It is the result of long term trends in government behavior. At virtually every level of government in virtually all developed countries, the same chickens are coming home to roost. Consider the state of Illinois, as told by the Chicago Tribune:

The state of Illinois admits to $83 billion in pension underfunding, a staggering weight on today's and tomorrow's taxpayers. Add to that the as yet uncalculated billions in unfunded pension obligations for city, county and other local governments… Beyond that $83 billion in unfunded pensions, state government alone faces an unfunded liability of more than $54 billion in retiree health liabilities over the next 30 years.

And then there is California. From the City Journal:

From health care to state and local public-employee retirement benefits, Californians face as much as $500 billion in unfunded liabilities for pensions alone. The state's unfunded health-care liabilities top $62 billion. Brown's new budget actually proposes a 7 percent increase in spending, though it offers to cut some services.

And then there is Spain. From the editors of the Washington Post:

EUROPE IS supposed to be well on its way to resolving the debt crisis that threatens the coherence of the European Union and the stability of its common currency, the euro. But apparently the bond markets didn't get the memo. Creditors balked at the latest offering of Spanish 10-year bonds, forcing Madrid to pay an interest rate of almost 5.8 percent, the highest rate since December and dangerously close to the 7 percent level believed inconsistent with national solvency.

That is why the current recovery in the US is so anemic and why the European governments are floundering in their attempts to economic stability. The basic problem is not in the private sector, which ordinary economic cycles can correct, but in the public sector. It is at root a failure of budgeting.

A responsible budget is a plan for the future. No one can see the future, but one can project realistic and honest estimates of the costs of government programs and balance those projections against equally realistic and honest expectations of revenues. Across the board and at every level and for decades, governments have failed to budget responsibly.

The President has acknowledged the need for entitlement reform and fiscal responsibility, but he has made no attempt to produce a budget that seriously addresses the problems we face. The budgets he has produced over the last two years, projecting long term deficits into the stratosphere, have failed to gain a single vote in House of Representatives.

The Republican majority in the House has produced a budget two years in a row. I am not here defending those budgets. I do note that what is supposed to happen is that the Senate would produce a budget of its own and conference committee would hammer out a compromise to be passed by both houses and sent to the President for his signature. That is how legislation works and in the case of budgets it is required by law.

The Democratic majority in the Senate refuses to produce any budget at all. It has been over a thousand days since they have done so. As long as the Senate continues to refuse to do its duty, the Federal Government will remain fiscally constipated. It can't pass a budget.

The severity of our economic crisis is due to a loss of confidence by business managers and investors. That will not be remedied until our own government and those of other economically important nations begin to put their fiscal houses in order. I don't know who will win the elections this fall. Whoever does will face some extraordinary challenges.

Comments

[Donald Pay]

The job numbers are bad, but isn't that the Republican plan? Had we followed the Republican plan, how much worse would they be?

This entire missive can be summed up right here: "The Republican majority in the House has produced a budget two years in a row. I am not here defending those budgets."

Maybe you're beginning to join the sane world after all. Of course you're not going to defend Republican budgets. No one with any working synapses would. These budgets would have produced more joblessness, more tax gifts to the rich, more misery to the poor and middle class, and more deficits and debt.

We have a weak recovery because Republicans wouldn't go along with policies that would have made the recovery stronger. A stronger economy along with jettisoning Republican budgeting, tax and war policies gets us back to a federal budget in balance.

[caheidelberger]

Hold on: isn't it at least as plausible, if not more so, that the major cause of the recovery's anemia is the stagnation of wages and the concentration of wealth at the top that has left the middle class without the purchasing power to drive the consumer demand on which the large majority of our economy is based?

[Mark Anderson]

Gosh, I just lost my comment from previewing it. Serves me right, you can't save the country with a 10 minute response.
So a speedier version. Read Robert Reich on the Paul Ryan budget:http://www.csmonitor.com/Business/Robert-Reich/2012/0322/Ryan-s-budget-helps-no-one-but-the-rich Read Paul Krugman on the Ryan budget:http://krugman.blogs.nytimes.com/2012/04/06/ryan-in-two-numbers/ By the way Ken, Krugman isn't vile, you are revealing too much about yourself with those type of comments, although I wouldn't try to defend the house budgets either.

[Donald Pay]

Cory is right. The recessions from the Reagan Administration on have been characterized by longer and longer jobless tails as we emerge from each recession. Republican policies that weaken domestic industries and the middle class have made it more difficult to emerge from job turndowns. All the Republican trickle down has gotten us is more debt, fewer jobs, and longer periods of job loss.

[Stan Gibilisco]

Donald, in this case you and Cory are absolutely right (in my opinion).

We must also remember that while a lot of people remain opposed to Obamanomics, a lot of people favor it too.

I don't much relish the idea of four more years of Obama. But the idea of four years of Romney actually makes me sick.

[Jon S.]

Cory, I think you are confusing a symptom for the disease. I believe it has recently taken place that the United States has the highest corporate tax rate in the world. That is not a recipie for robust job activity. Perhaps the economy is so overtaxed and regulated that it can no longer create well-paying jobs at a profit. And contra Pay, the Ryan budget proposes reducing tax rates on the wealthy while also drastically reducing "loopholes" for the wealthy. The result, Ryan believes, is that the wealthy will actually pay more in effective taxes while we will have fewer economically distorting tax policies.

It seems strange to say the way to create jobs is to tax the wealthy more and institute more government control over economic activity. Note how the critics here have nothing positive to say about the president's plan. How could they? Why did last year's budget lose 97-0 in the Senate? Because it was so wise and ssagacious? Why did this year's budget lose 414-0 in the House? And Harry Reid is pulling out all the parliamentary stops to make sure it doesn't come to a vote in the Senate? Because it is so awesome it will blow our minds? And why can't the Senate Democrats propose a budget? Why is Harry Reid trying to strong arm (unsuccessfully) the Senate parliamentarian into ruling that they don't have to pass a budget? Becuase he thinks his ideas are just too damn good that no one will get them?

I do think neither party has much to say about the loss of well-paying manufacturing jobs in the United States. Both parties are more friendly to the financial sector than to manufacturing/industry (I mean this as an observation, ot necessarily an indictment). But I also think that the structure of modern international economics makes it very difficult for the United States to effectively compete in many cases. For example, the textile industry is gone and it ain't coming back.

I now wait for the liberally minded Donald Pay to tell me I am a mental defective. I mean, why else would anyone disagree with Donald?

[Ken Blanchard]

Mark: Paul Krugman blamed conservatives for the shooting of Gabriel Giffords. That was nothing short of vile. He was part of a full court press to tar the Tea Party Movement as violent, when there was not a shred of evidence for that. He accused Republicans of fomenting violence by using violent rhetoric, when he and Democrats used exactly the same kind of language repeatedly. He accused Republicans of living in a different moral universe for making a claim about unemployment that was substantiated by his own book on economics. He is a vile, partisan hack.

[pradeep]

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[Mark Anderson]

If Paul Krugman is a vile, partisan hack, what are you Ken? A non-vile, partisan hack?

[harry]

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