Brad DeLong's Semi-Daily Journal: A Weblog

as someone who spent the entire campaign confidently expecting 3 disasters in the next 4 years - a fiscal crisis, an iraq cris, and a jihadist terrorist attack within the u.s. - even i didn't expect the first two to blow up before the inauguration.

but it looks like the markets have finally recognized that bush is a liar, and it looks like we're bound and determined to destory fallujah in order to save it.

whether the fact-deniers who make up such a large part of george bush's support will even notice - and if they notice, whether they will find a way to blame clinton, or kerry, or liberalism in general, or white wine, or the french, or the gays - remains an open question....

PS. Chad Kolton obviously passed the joke test that all bush spokespeople must go through: is this person a joke? then he can work here....

Ho hum--another example of Bush being completely disconnected from reality.

One cannot help but wonder what Congress will do when interest rates start skyrocketing so that the cost of servicing the debt exceeds federal revenues as a whole. Because that's what's coming.

Looks like a faith based four more years to be sure but for those with enough money reality will never set in.

Where does Rep. Kolbe expect to find responsibility within the Bush Administration?

Though some economists may fret about deficits here and there, the state election in California and the national election make clear voters are not fretting. Voters are not worried about deficits, at least not when the thought of a tax increase is broguht to mind. Republicans will happily spend away and cut taxes, and laugh about John Kerry or Gray Davis worrying about debt. Even I get awfully tired of listening to Pete Peterson tell me about the end of the world.

I have to wonder, are those projections for cutting the deficit in half even more ridiculous when you consider the fact that the increased borrowing and growth in deficits leading up to the end of the decade could increase interest rates and do other things to drive down the economy? In other words, are they relying on overly-rosy estimates of economic growth? I'd have to guess yes.

And if this administration is really serious about cutting the deficit down by a lot, what is it going to cut? The only thing I can think of is the new Medicare prescription drug benefit. (The projections seem to include that, but I can be absentminded and scatterbrained while looking at these papers, so if I missed something, please point it out.)

lise, just as a reminder, the people who have to take deficits seriously don't have to constitute a majority of voters; they only have to constitute a majority of bond and currency traders and foreign central banks....

What do we have? The tax cuts of the last 4 years will be made permanent, the Alternative Minimum Tax will be set aside, there will be a host of attempts to cut taxes in addition. Social Security accounts for younger workers will be at least partly turned to private accounts, and to pay promised benefits to baby boomers there will need to be significant additions to the government budget. There will have to be additions to the government budget to pay for the Medicare drug benefit. Defense and security and education budgets are not going to be cut. Little else in the budget can or will be cut.

There will be a budget deficit that grows faster than the economy can grow, and that may in time present problems for us, but the deficit is not an immediate apparent problem and will be given little notice.

"Cut the deficit in half in five years" was a promise in 2002. That gives him until 2007, not 2009.

Howard,

Though I agree, pushing a tax increase through Congress during the Clinton Administration cost the Democrats control of Congress. Pushing a tax cut through the legislature cost the Democrats in California a Democratic Governor. Howard Dean was defeated soon after vowing to roll back the Bush tax cuts if elected. John Kerry will not be able to raise taxes selectively, because Kerry lost to a tax cutter.

The obvious answer is for the administration to double their deficit projection for 2009. I mean they don't have to worry about shame standing in teh way.

The need for Democrats is to get elected not to sit around with Pete Peterson and the Concord Coalition crying about what voters do not care about.

I have heard that the stolen french gold(at the end of WW2)finished up in the hands of the Shah. An Iranian refugee has told the Americans where it is, when the troops take Teheran, there will be enough to cover a lot of the deficit, of course the invasion costs will reduce this, but still the deficit will be halved.

"Given the challenges of the president's Social Security plan amid record budget deficits, some budget analysts had hoped Bush's simultaneous call to simplify the tax code could be used to raise revenue. They reasoned that taxpayers may be willing to dig a little deeper in exchange for a tax system they see as simpler and fairer. But Bush made it clear yesterday that was not his intention."

We really do need to learn to listen.

http://www.nytimes.com/2004/11/07/weekinreview/07murp.html?

Can History Save the Democrats?
By DEAN E. MURPHY

A LITTLE more than a month before he was assassinated, Abraham Lincoln stood at the east portico of the Capitol and delivered his second inaugural address. It was a brief speech with a distinctly religious message: he twice cited biblical verses, and made a dozen references to God, most strikingly in assessing the opposing sides in the Civil War.

"Both read the same Bible and pray to the same God, and each invokes His aid against the other," Lincoln said. "It may seem strange that any men should dare to ask a just God's assistance in wringing their bread from the sweat of other men's faces, but let us judge not, that we be not judged. The prayers of both could not be answered. That of neither has been answered fully. The Almighty has His own purposes."

The address was roundly criticized in some newspapers for overstepping the bounds separating church and state. But Lincoln was using God to debunk government-by-God.

Now, with George W. Bush's re-election, God and a newly triumphant Republican president are once again in the headlines. And there are signs that the present national divide, between the narrow but solid Republican majority and a Democratic party seemingly trapped in second place, may be hardening into a pattern that will persist for years to come.

Democrats, especially, are left to wonder: What will it take to break the pattern - an act of God?

History suggests several possibilities for a major reshaping event - a national calamity, a deep schism in the ruling party, the implosion of a social movement under the excesses of its own agenda or the emergence of an extraordinary political figure.

Lincoln became president and the Republicans first took national power when the Democrats tore themselves and the nation apart over slavery and secession. Another national trauma, the Great Depression, produced a sweeping realignment in favor of the Democrats and Franklin D. Roosevelt.

Religious revivals and movements have also gusted periodically through American politics, sometimes reshaping the landscape as they go, said Susan Jacoby, author of "Freethinkers: A History of American Secularism." But she said it was not easy to find a historical blueprint for the current situation, with the religious right forming the core of Mr. Bush's majority.

The closest parallel, Ms. Jacoby said, might be the Christian temperance movement. It eventually "defeated itself," she said, with the absolutism of Prohibition, which spawned outlandish bootlegging and crime problems and made lawbreaking fashionable. The Depression eventually pushed joblessness and poverty ahead of temperance on the social agenda.

Even so, Ms. Jacoby said, that religious-political movement, smaller than the one swelling behind Mr. Bush, took decades to play itself out, and was not linked to a single party, as the Christian right is now. "What we have today is an unprecedented situation in American history, in terms of the willingness of a large number of people, backed up by the president, who want to infuse more religion into government," Ms. Jacoby said.

Sean Wilentz, a professor of history at Princeton, saw two instances in history when the American electoral landscape resembled that of today. "They are kind of scary examples," Professor Wilentz said. "One is 1860, and we know what happened after that one, and the other was 1896, the McKinley-Bryan election."

That contest, which seemed to herald a new era of Republican dominance, also started a chain of events that led to a disastrous schism in the party. William McKinley, a conservative Republican, defeated William Jennings Bryan, a populist Democrat, and won the first clear popular majority in 24 years. He beat Bryan even more soundly in 1900, but less than a year later, he was assassinated.

His death was a tragedy and a fluke, Professor Wilentz said, but it changed the course of political history. Had McKinley not been killed, Marcus A. Hanna, the political handler who was as instrumental to McKinley's success as Karl Rove has been to Mr. Bush's, would have pursued his dream of "creating a Republican machine that would go on forever," Professor Wilentz said.

Instead, Theodore Roosevelt became president, and pursued progressive policies at home and power projection abroad. "What followed shifted the Republican Party in a direction it had not planned to go, and created the groundwork for 1912 and eventually the New Deal," Professor Wilentz said. When his successor, William H. Taft, turned back to conservatism, Roosevelt ran against him in 1912 on the Progressive, or Bull Moose, ticket, and split the Republican Party, yielding the White House to the Democrats and Woodrow Wilson.

"One can't imagine what American history might have looked like had McKinley continued to the end of his second term," Professor Wilentz said.

Advice for Democrats:

Mr. Bush has said that he intends to reform the tax code. I advise the Democrats in Congress (and wherever) to insist on two conditions:

(1) The reform should be revenue neutral

(2) The reform should not increase taxes on more than half of the taxpayers.

Bush has already said that he wants (1). And (2) will be difficult to oppose. They should say that they will agree to almost any plan that fulfulls these conditions, and will oppose any plan that does not, with a Senate filibuster if necessary.

I think the deficit and similar money amounts would be more meaningfully stated as dollars per US eligible voter rather than as totals. We pretty much know the demographics for the next 18 years so there isn't much scope for fudging the denominator. My guess is that many Americans don't know the difference between a billion and a trillion in terms of their share but most know the difference between $1 and $1000.

"The reform should not increase taxes on more than half of the taxpayers."

George Bush and Congressional Republicans are committed to lowering taxes, not to raising them.

Susan

Agreed. We need to make discussion of the deficit more meaningful, if there is ever to be a fairly reasoned voter response to budget problems.

lise, we get that raising taxes and cutting spending isn't an electoral winner; this is the problem with being part of the reality-based party. sometimes it's hard to come up with palatable policies.

but as i say, as the currency markets and bond traders conclude that bush is a fiscal disaster with no chance of things getting better on his watch, they will vote, and once they vote, a lot of things will look different.

Actually, we're already getting a hefty tax hike, no matter how firm Bush's opposition. I'll call this tax the "World Tax." It's the tax that we pay when the dollar sinks relative to other world currencies. When the dollar goes down, our dollar-denominated assets are worth less, and stuff gets more expensive to buy, since a bit of everything is made abroad.

And it's already happening. As recently as April 2002, the euro was worth 88¢ American. Friday, it closed at $1.29. In January 2003, the Canadian dollar was worth 65¢ US; it closed Friday at 83.5¢ American.

I'm cherry-picking my starting points, but what's happening is real: everything we have is decreasing in value, and most of the stuff we'd like to buy is going to get more expensive, on account of the dollar's decline relative to other currencies. And this, in turn, is due to the reality that there's no money backing up the dollar, just a mountain of debt.

Moral #1: you can be taxed sooner, or you can be taxed later. But the bill always comes due.

Moral #2: it's really a lot better if you tax yourself, than to let someone else tax you. Because if you tax yourself, you still have the money. What Bush has done is refuse the "tax ourselves" option, and the result is the World Tax. If we'd taxed ourselves, it would have at least put money in the treasury. The World Tax doesn't have that benefit. Instead of the wealth being transferred from taxpayers to the government, it's just gone.

Moral #3: Bush and his anti-tax crew are a bunch of frickin' idiots, and we're all going to pay the price for his stupidity.

Look, people, you're all just whistling past the graveyard.

It's time to get real, suck it up, and bow before our new Chinese overlords.

Oh, and say goodbye to Taiwan.

Great post, RT. True and scary at the same time...

I think RT has some good points too.

I heard Krugman speak to a group of policy wonks and a general audience when he was here in the Bay Area. He said that same thing to both audiences, that in financial markets there was very often a Wiley Coyote effect -no one seems to notice that the Coyote has run off the edge of Cliff until he is about twenty feet out over thin air.

When he spoke to the wonks, he dressed it up with jargon about this happening because of the the risk of being the first mover, strategic considerations on the part of large traders that have market power ("goodbye Taiwan" goes here??), asymmetric loss functions for different actions when the timing of the market movement is still uncertain.

But the bottom line is the same. And now there are other macro/finance/international econ authorities making the same kind of noises (Volcker).

So, could this administration be able to see the reason for engineering a controlled fall in the dollar? If they are not willing to anything about the long term fundamentals, why would anyone be interested in controlled fall, what would be in it for them (probably would be something, but maybe not)? What would be the respective bargaining power of the US vs. central bankers in China, Japan, and other coutries. Would James Baker be called in to handle it again? Would the mystery of low interest rates be solved in a very unpleasant way?

Anyway, I've copied out the investment advice in the post above re the dollar, and will keep it for future reference.

Isn't is a little late to be discussing what effect Bush's agenda will have on our future and financial health?
Shouldn't we have had this article BEFORE the election.
And while I agree this article by Jonathan is much better than his past efforts, I would submit one error: He refers to Bush's plans for Social Security as REFORM.
I strongly contend that reform is not calling a spade a spade. Bush's plan is what it is: Partial privitization. Reform would imply that we are making something better by removing faults, but since no one can say with absolute certainty that partial privitization will improve SS outlook (in fact some say it could be disatrous), then it's ridiculous to call it a reform. The word reform is best left to histornians 50 or 60 years down the road. It will either come to be known as SS reform or debacle. But no one should be throwing around that word until all the evidence is in.

Here's a question that has been rambling around in my mind.
What if we go to 15 percent flat tax. In other words, people only pay 15 percent of their income to the government. I guess that means that their paychecks could increase weekly by at least a small amount, but of course that doesn't include social securty, medicare and everything that is taken out.
But what about the working class people, you know who you are and there are many of us, who use the Federal government income tax return as a kind of savings and then plan for a year on how to spend it. Vacation, new carpeting, repairs to the home, car, etc etc etc.
Our economy no doubt has to pick up in February thru may and maybe June and July because of that extra infusion of cash into the marketplace. I bet retailer, well I know they do, because they advertise sales and other ways to spend that windfall, have come to rely heavily on early year spending. So what will become of that time of year with no windfall? How will people who use the system as a savings account, even when we probably shouldn't, afford the little extras once a year? Sure we will have extra money throughout the year, hopefully, but you all know as well as I do that when you have extra money, it somehow finds a way out of your wallet. Saving when you have a family to support is hard work!

Uhhh, if we went to a flat tax, the base rate would have to be something like 27-30% across the board w/ NO EXEMPTIONS (mortgage, etc.). Flat-taxers don't seem to realize that 10-15% would not be enough. Not saying you are a flat-taxer. Also, how do you figure that your (salary or wage) income would increase? If you currently claim a lot of exemptions, then it is very possible that your income would fall, not increase. Companies would likely have corporate tax rates slashed to almost zero under a flat tax scenario, and would pocket the windfall, not disburse it to employees...