Budget

I wrote a lot about the magic behind Ryan's budget and GOP economic strategy yesterday, so I'd like to round up some of the smart commentary and analysis about it.

After half the national media descended on their obviously ridiculous employment projections, Heritage scrubbed the numbers from their report - seriously shameful stuff. Here are the links (via Krugman):

As of yesterday.

As of today.

Paul Krugman did a lot of work over the past two days breaking apart the economics and showing the of Ryan budget. As he writes, the part that hasn't gotten enough coverage is the fact that

the biggest source of supposed savings in the plan isn't actually health care, it's an assumption that federal spending on everything except health and Social Security can somehow be squeezed, as a percent of GDP, to a small fraction of current levels. 

Ezra Klein explains why Ryan's projections of health care costs over time are completely unrealistic, and makes this very important point:

This is an important point: there's difference between cutting costs and shifting them. As the Congressional Budget Office noted, a lot of what Ryan's budget does is shift costs from the federal budget to someone else's budget: Medicaid's costs moves to the states, and then when the states cut it, to the people who need it, or to their families. Medicare's costs move to seniors, or to the families of seniors. The budget doesn't have a clear theory for how to spend less on health care. It has a clear theory for how the federal budget can spend less, and other people can spend more. But that's not good enough.

If you like the gory details, the Congressional Budget Office has analyzed Ryan's budget. It's not pretty.

Center on Budget and Policy Priorities President Robert Greenstein describes how two-thirds of Ryan's cuts come from low income programs.

While Paul Ryan and Alice Rivlin worked together on some Medicare reforms, she does not support the version he ultimately included in his budget, despite his implications to the contrary.

There's been a lot said and written in the last day describing Ryan's budget as an honest effort to address a major problem. Half the Members of Congress standing with Ryan yesterday called it "fact based." David Brooks wrote, "His proposal will set the standard of seriousness for anybody who wants to play in this discussion."

Here's the problem with all of that: the Ryan budget is simply not honest. The numbers in it and the economic analysis it relies on are wrong. You don't just get to put a bunch questionable numbers together, say it handles our deficit and debt issues, and declare victory. The tough part is that the plan has to actually handle the issues, and probably shouldn't do so on the backs of the most vulnerable. (One of the core principles of the Bowles-Simpson effort was to protect the truly disadvantaged.) So if Ryan sets the standard for seriousness, that standard is incredibly low.

This piece also appeared on The Huffington Post.

When Paul Ryan unveiled his budget today, he touted it as a "Path to Prosperity" and he and his colleagues kept saying it was "based in fact." In reality, Ryan's claims of prosperity are based on an analysis - written at his request by the conservative Heritage Foundation - that has more basis in magic than economics.

For starters, the Heritage analysis's unemployment projections alone are utter nonsense. It claims that - under the Ryan budget - unemployment will plummet from the current 8.8% to 6.4% next year, 4% in 2015, and 2.8% in 2021. Each number is totally impossible - we'll never see 2.8%, and 4% would require run-away economic growth. As Matt Yglesias points out, the Federal Reserve would respond to that type of growth by raising interest rates to avoid inflation, so the levels forecast could never be reached.  (As a reference point, full employment is around 5%, so 2.8% is a total fabrication.)

Furthermore, the Heritage report uses an almost comical conceptual explanation (under the heading "Economic and Fiscal Results" on page 3) of how the tax cuts in the Ryan plan pay for themselves and reduce the deficit. This would be great, if it were actually true. The Bush tax cuts did not come anywhere close to paying for themselves, nor have other large cuts to upper income tax rates. From the Chair of Bush's Council of Economic Advisors, Greg Mankiw:

I used the phrase "charlatans and cranks" in the first edition of my principles textbook to describe some of the economic advisers to Ronald Reagan, who told him that broad-based income tax cuts would have such large supply-side effects that the tax cuts would raise tax revenue. I did not find such a claim credible, based on the available evidence. I never have, and I still don't.

The unfortunately truth is that this Heritage "analysis" represents the lack of reality in which conservative economic policymaking functions. Paul Ryan is getting a lot of credit today for pointing out a large challenge facing America. Sure, we do have a debt problem, but we need to view it in its proper economic context.

America has two large economic problems. The first is an economy that's just not working in the face of rising global competition: a lost decade of median household income decline and wage stagnation followed by a recession and financial crisis from which we have yet to fully emerge. The second is a long-term structural debt problem: the federal government's expenditures far exceed its revenue, and that trend will be exacerbated by rising healthcare costs. And debt is a problem because it can impact the economy itself; it's not right now.

The President's budget is a credible response to the economic challenge: investments in education, infrastructure, innovation, and industries of the future represent a viable economic plan. It also makes down-payments - if incomplete - on long-term debt issues. Let's not forget though, that he already passed the most significant piece of deficit reduction legislation in recent memory - the Affordable Care Act, which the GOP wants to repeal. As former Obama OMB Director Peter Orszag often said, health care reform is entitlement reform. And the Simpson-Bowles fiscal commission report, which Ryan voted against, recommends building on the ACA's cost-controls as a major form of deficit reduction.

Let's contrast the President's approach with the House Republican approach of massive cuts in the near-term and Ryan's budget, which focuses on dramatically reducing the size of government. In the near-term, the House GOP agenda of $61 billion in cuts would, according to McCain campaign economic adviser Mark Zandi, cause 700,000 jobs to be lost by the end of 2012, and, according to Federal Reserve Chairman Ben Bernanke, cause the loss of 200,000 jobs. Goldman Sachs estimates a 1.5 to 2% reduction in GDP.

In the long term, Ryan offers no strategy to make America more competitive, increase employment, or make people's lives better. Rather, he offers reduced benefits, namely to the elderly, the poor, and the handicapped, and cuts taxes for the wealthy. (His one sop to competitiveness is corporate tax reform, which President Obama also favors.) Forget about the immorality of his budget for a moment, (well, don't, it's pretty appalling) the fact is that Ryan's budget offers no real path to economic growth, other than fudged numbers from the Heritage Foundation, and a questionable, slash and burn approach to deficit reduction.

Taken together, it's clear that the GOP isn't focused on the real problems facing the country. At a time when Americans want more jobs and more growth, the GOP strategy - if you believe the analyses of George W. Bush's Federal Reserve Chair, a McCain economic adviser, and Goldman Sachs - is to create less. And, if you believe the analysis of Bush's Council of Economic Advisor Chair, their deficit reduction strategy is deeply flawed too. Unless, of course, you believe the Heritage Foundation's analysis that Paul Ryan's budget is made of magic.

NDN and the New Policy Institue will be hosting two events on the economy in the budget in the next week. I hope you will join us for both.

Friday, Feb 18 - The Budget and the Economy 

The release of President Obama's budget on Monday marked an important moment in the debate about the economic and fiscal future of the United States. Americans of all points of view are looking to this budget to understand the specifics of the President's approach to the great challenges of the day, from a competitive, global economy of the 21^st century, to the need to accelerate innovation and growth, to long-term debt.

On Friday, February 18, NDN and the New Policy Institute will host a group of economic and budget experts to discuss these matters.

Robert J. Shapiro, Chair, NDN Globalization Initiative

Stan Collender, Partner, Qorvis Communications and author, Capital Gains and Games

William Gale, Senior Fellow, Economic Studies, The Brookings Institution

Kevin Hassett, Senior Fellow and Director of Economic Policy Studies, The American Enterprise Institute

The event will be held from 12-1:30 pm at NDN/NPI headquarters - 729 15th St NW, First Floor.
Lunch will be available. Click here to RSVP. The event will be live webcast.

Tuesday, Feb 22 - National Economic Council Deputy Director Jason Furman on "Winning the Future"

On Tuesday, February 22, NDN and the New Policy Institute will host Dr. Jason Furman, Assistant to the President for Economic Policy and the Principal Deputy Director of the National Economic Council, for an important discussion of the Obama Administration’s economic strategy. The conversation will focus on President Obama’s budget and efforts to "Win the Future" in the competitive, global economy of the 21st century. Dr. Furman will deliver brief remarks and NDN Globalization Initiative Chair Dr. Robert Shapiro will lead a discussion.

The event will be held from 12-1:15pm at NDN/NPI headquarters – 729 15th St NW, First Floor.
Lunch will be available. Click here to RSVP. The event will be live webcast.

Today, as analysts pore over President Obama's budget proposal, Millennial Generation activists are focusing on what his proposal means for students.  According to a write-up by Reuters:

President Barack Obama's proposed budget for the next fiscal year nips and tucks at individual grants for low-income students but the amount budgeted is twice as high as two years ago because the number of students has grown.

One tuck is a decision to end the year-round Pell which allows students to collect two grants in a calendar year if they attend summer school, which is most likely to be felt by for-profit schools, according to one analyst.

The other tuck is the elimination of interest subsidies for loans to graduate students.

The maximum award for a Pell grant remains $5,550, which more than nine million students expected to benefit from as part of the program.

The New York Time's David Leonhardt delves into the Pell provisions, writing:

When the Pell program recently expanded to include grants for summer classes, the additional cost was not supposed to be very large - roughly 1 percent of Pell's annual $30 billion cost in future years. Instead, many more students than expected have signed up for the program and are receiving federal grants for summer classes. In 2013, summer grants are projected to make up $5 billion of the program's total $36 billion budget - or a whopping 14 percent.

In my earlier post, I asked for evidence that the summer grants did not help lift graduation rates. The administration official preferred to ask a different question: What evidence exists that summer grants, which began last year, have lifted graduation rates? Or, as the official put it, "Is the evidence adequate to justify a $5 billion new entitas lement?"

The administration decided that the answer was no and that eliminating the program was the kind of budget cut that the government should be making, given the deficit. One reason to be skeptical that summer grants are making a big difference is that enrollment in summer classes has risen only marginally in the last year.

By contrast, the Republican plan would offer even sharper cuts.  Nick Anderson at The Washington Post writes:

House Republicans would lower the maximum Pell grant to $4,705 and cut other education spending by $4.9 billion, according to their spending proposal for the rest of the fiscal year that ends Sept. 30.

This narrow but important conversation about educational grants brings into focus an even larger and long over-due conversation about unemployment among young Americans.  University of Massachusetts Amherst Economics Professor Nancy Folbre explores this issue on today's New York Times Economix blog.  As she writes,

Neither lofty rhetoric surrounding a new "competitiveness agenda" nor bipartisan invocations of the importance of public investments in human capital can conceal the emerging reality.

Apart from the American Opportunity Tax Credit and modest increases in financial aid, public policy is not doing much to help young people from moderate- and low-income families who can't find a job or afford the education they need to improve their chances of finding one.

When last reported by the Bureau of Labor Statistics in August, unemployment among those aged 16 to 24 was about 19 percent - unchanged from the previous year. Partly as a result, community college enrollments, already on an upward trend, have grown in the last two years. However, state budgets, already groaning under fiscal pressure, have been unable to provide additional support.

As voters - particularly Millennial voters - begin to compare and contrast the budget proposals, this underlying question about investment in the largest generation in American history offers a stark contrast between the two parties. 

This morning, as President Obama releases his budget, it's clear that his strategy is one best labeled "cut and invest." Jackie Calmes in The New York Times describes it:

The budget reflects Mr. Obama’s cut-and-invest agenda: It creates winners and big losers as he proposes to slash spending in some domestic programs to both reduce deficits and make room for increases in education, infrastructure, clean energy, innovation and research to promote long-term economic growth and global competitiveness.

The president is unveiling his budget to emphasize one of the winners: He will do so on Monday morning during a visit to a middle school and technology center in Baltimore.

Among the losers are programs that Mr. Obama has supported, even expanded, in the past: Popular programs for home-heating aid to poor families and for community services block grants would be cut in half, and a multi-state Great Lakes cleanup project would lose a quarter of its money compared to 2010.

Pell grants for needy college students would be eliminated for summer classes, and graduate students would start accruing interest immediately on federal loans, though they would not have to pay until after they graduate; both changes are intended to help save $100 billion over 10 years to offset the costs of maintaining Pell grants for 9 million students, according to administration officials.

Officials contrast the administration’s budgetary approach with that of House Republicans, who are voting this week to slash the current year’s spending by much larger amounts, sparing few programs from cuts and increasing spending on none.

“The debate in Washington is not whether to cut or to spend,” said a senior administration official on Sunday, speaking on condition of anonymity to brief reporters on the budget in advance of Mr. Obama’s Monday announcement of the spending plan. “We both agree we should cut. The question is how we cut and what we cut.”

There are some cuts that should be obvious, and the President outlined them in his State of the Union. Eliminating fossil fuel subsidies, for example, starts the list of corporate welfare that should be phased out. For more on a cut and invest strategy, I recommend reading Dr. Robert Shapiro's paper from 1997 entitled, "Cut and Invest to Grow." As the strategy around the budget becomes clearer over the coming days, it will ring familiar.

The underpinning for much of the Clinton era economic strategy, "cut and invest" is even more important now, following 8 years of economic and fiscal mismanagement coupled with a recession that was tough on the fiscal picture. No one should miss the irony in OMB Director Jack Lew's White House Whiteboard talk today, when he notes that there was a budget surplus last time he held that job.

For more on the budget, please join NDN and the New Policy Institute this Friday, as Rob Shapiro leads a discussion with budget expert Stan Collender, Brookings' William Gale, and AEI's Kevin Hassett.

It was a busy week for NDN in the media. First off, Simon was the lead quote in a big USA Today piece on the release of their new opinion polling, which found broad public support for spending to help people but very little for spending to rescue financial institutions. From the article:

"Look, the American people are pleased with the direction Barack Obama is taking, but there are still parts of the economic recovery plan that people are not sure about," says Simon Rosenberg of NDN, a Democratic-leaning think tank. "He has to make it very clear that his focus is on the struggle of everyday people, and not on those with means."

The poll also generated coverage in AHN and Presna Latina.

Simon's analysis of President Obama's speech was also featured in the Washington Times:

The speech was a critical moment in Mr. Obama's "evolution" from candidate to president, said Simon Rosenberg of liberal think tank NDN.

Mr. Rosenberg, who worked in the Clinton White House, said before the speech that the night was an opportunity for Mr. Obama to detail point by point how he will lead them during a time of crisis.

"The American people are willing to give him time, but he needs to make sure they walk away with a clear sense of what he wants to do for them and that they think that it's actually possible for him to pull it off," Mr. Rosenberg said.

My favorite of the many inane / insane comments about this article from the Washington Times site, by "Woody":

"Still a man in an empty suit."

(Think about it)

Rob was featured in the Associated Press, the Huffington Post, and the Wall Street Journal talking about Obama's budget proposal. From the Associated Press piece by Tom Raum:

Is it possible that the White House will be right and the economy will recover along the time line projected in Obama's budget?

"Yes, it's possible. Do I think it's probable? No I don't. But I don't think anybody's forecast is probable," said Rob Shapiro, head of the globalization program at NDN, a Democratic think tank, and chairman of Sonecon, an economic-consulting firm.

"No one has called this cycle correctly," Shapiro said. "Because it is so unlike any other downturn, economists are legitimately more uncertain about what its course will be."

And from the Huffington Post piece by Sam Stein:

The president's plan would raise the tax rate on capital gains and dividends to 20 percent from the 15 percent levels imposed by the Bush administration. In a climate in which few people are actually making capital gains earnings, raising the rate, economists say, shouldn't dry up market activity much, if any. On the flip side, the Obama budget team projects that it could help decrease the deficit by more than $1 billion in fiscal year 2010, $5.4 billion in 2011, $12.2 billion in 2014 and $19.9 billion in 2019.

"This increase will not just have no severe effect on the economy but have almost no effect except higher revenues," said Robert Shapiro, the deputy commerce secretary under Bill Clinton and an occasional adviser to president's economic staff. "It is basically a freebie. So why not do it?"

Rob also discussed the stimulus on the Fox News Channel:

NDN fellow Morley Winograd was quoted in the Los Angeles Times on how the recession is affecting Millennials:

But Morley Winograd, coauthor of "Millennial Makeover: MySpace, YouTube and the Future of American Politics," has no such concerns. "This is not an embittered and cynical generation," he said. "Although they did tend to be protected as children, they were also taught to compete and to perform. This will only make them more determined."

Finally, Michael Moynihan was quoted about the stimulus in the Charlotte Observer.