Annual is as annual does

PG has an article today: Prospect of defense cuts looms over Pa. that references some industry sponsored study of potential employment impacts of cuts in defense spending.

Funny thing is that there ought not to be a need for the industry sponsored report… at least for the city.   Mentioned in the past here as an example of how out of date Pittsburgh’s city code is. There are a lot of things buried in city code that are just plain overlooked or completely forgotten about. Something esoteric, but related to the defense story is this which is directly from Section 204 of the Pittsburgh Code of Ordinances: Specifically § 204 i 4 – says this verbatim:

4. The mayor shall present an annual report on the tax monies paid per capita and the citizens of the City of Pittsburgh to the federal government that is allocated to military spending. The report shall include an analysis of the impact of the military budget on the City’s economy in relation to jobs and social services. The mayor shall advertise this analysis in two prominent daily newspapers in the City.

That all happened once I do believe though I never have found the actual advertisement. May not be required any longer because of a unique legal opinion on the definition of ‘annual’. A bottoms up review of the city’s home rule charter might not be a bad thing at some point. Call it a once in a generation cleaning.   Maybe another contest is in order..  what else is screwey or at least out of date in city code?  Does the city still have a “Director of Water” as referenced?
That or maybe a contest for what changes people want.  I think somewhere in city code should be the word ‘tweet’.
Boring I know.. but just things that catch my eye because I started out as a defense budget wonk long ago.  Some of you were not even alive I bet when that was published.

Today's Inquiry into English Usage and Basic Mathematics ...

This one’s from the New York Times

And as the Pentagon confronts the prospect of cutting its budget by about 10 percent over the next decade …

… but you can probably find it in just about any newspaper article discussing the upcoming “budget cuts.”

So, just how deep are these horrendous, army-killing cuts?

Well, if “sequestration” goes as forecast, the federal government’s non-war military spending will only increase by 10% instead of by 18% between 2013 and 2021.

No, that is not a typo. The “cuts” are not cuts in actual spending, they’re cuts in the previously projected growth rate of that spending.

Most federal government spending proceeds on rails due to something called “baseline budgeting.” The “baseline” is the previous year’s spending. Under “baseline budgeting,” that previous year’s “baseline,” plus an increase based on a formula, happens automatically unless Congress decides to tinker with it.

This “sequestration” thing — triggered by Congress’s inability to agree on “deficit reduction” targets last year — imposes across-the-board reductions in that rate of automatic growth of spending, not in spending as such.

Neat trick, huh? Your congressman can brag to you that he’s cutting spending at this morning’s town hall, then — this afternoon, over cognac and cigars — brag to your local defense contractor or other corporate welfarist that he’s increasing that same spending.

Hint: He’s lying to one of you. And it’s not the guy pouring the cognac and lighting the cigars.

Since You asked…

This is a time of the year when I meet new people or get reacquainted with old friends, and once we run out of the usual “status update” conversation, someone often asks about the economy and the current crisis about the debt ceiling. I’m going to break a self-imposed guideline for this blog, and actually represent my opinions in a pretty straightforward manner. Usually my goal is to help students reach their own, informed opinion. This time – straight to the punch line…

  1. The 2011 deficit (estimated at $1.5 trillion) and the accumulated national debt (over $14.3 trillion) are not the most pressing economic issues facing the country right now. They are important, but several notches down from the top of the list. This year’s deficit is just over 10% of GDP, which is high, but not crushing. There are ways to deal with these issues, as I’ll share further down. They are presented as a crisis only because the Republican Party and the Tea Party are using them to push a small government agenda. While I don’t agree with that goal, it’s fine for some to support it, but holding the economy hostage by manufacturing a crisis tied around the debt ceiling makes no sense.
  2. Investment in economic growth has slowed dramatically. This is particularly true in education – at all levels. It is also true in basic research. Up until the last 20 years or so the U.S. has surfed the wave of economic change, by investing in new thinkers, and making infrastructure and other investments that will improve productivity. These seem left out of current debate options.
  3. The slow recovery and weak demand for goods and services is the number one problem facing the country. The Federal stimulus is winding down, the Federal Reserve has decided that they don’t need more quantitative easing, and government at all levels is cutting employment. All the while personal consumption dropped in the most recent quarter, along with the fixed asset portion of Investment (inventories increased as a partial offset.) The uptick in unemployment and the very slow growth in employment drags down demand for goods and services. We are sliding down the same hill that the U.S. economy did in 1937-38, when Congress and President Roosevelt worried more about public concern for the debt than about sustained growth. Then we slid into a quick, nasty recession. That’s a danger now, too.
  4. Inflation is not a pressing problem. The inflation we have seen this year is in food/commodities and energy. The food price spiral might well continue for awhile – I don’t have an independent sense of the true drivers. Even if food prices rise there are other elements of the Consumer Price Index that are holding steady. The rising energy prices are probably related to uncertainty about political conditions in the Middle East. Those concerns should soften soon.Inflation is something to watch out for, particularly with all of the money created by the Federal Reserve in the last three years – money created to help stabilize the economy. It is important that the Fed watch for signs of incipient inflation, driven by very high money supply, but I am confident they will act correctly and aggressively when that happens. That point is not now.
  5. Bond investors are not abandoning US Treasuries for fear of default. US bonds respond to typical market forces, though they have an element of future gazing in them. If you hold a 10 year bond, and a potential buyer thinks the US might default on that bond, then the buyer will expect a higher yield (lower price/higher interest rate). That isn’t happening now. The bond market for US Treasuries is not showing signs of investors being worried about US debt.

So, what to do….

  1. To tackle the most pressing problem – the slow recovery – the Federal government should be stimulating demand, through more government spending (on the part of Congress) and more quantitative easing (on the part of the Federal Reserve). Tax cuts can be part of this but they should not be across the board. The most effective, stimulative tax cut on the Federal level is the payroll tax for Social Security and Medicare. Those funds need help, and there are ways to fix them, but a payroll tax benefits mostly working people who will use the increased take home pay to consume.
  2. To help with the deficit, we should remove the Bush tax cuts, and speed our exit from Iraq and Afghanistan. The Bush tax cuts disproportionately benefited higher income families, who use the extra money for non-consumption activities. When some politicians complain that raising taxes on the wealthy takes money away from job creators, there is no empirical evidence and scant theoretical basis for that claim. Along with repealing those tax cuts there are plenty of opportunities to strengthen the tax code and reduce the dreaded loopholes. Despite what many politicians say and the media parrot, this is not hard. It just takes clear headed thinking and political courage.
  3. The real budget deficit challenge, at the Federal and State levels primarily, is the cost of healthcare. Increasing costs and inefficient uses of services put pressure on Medicare, Medicaid (which impacts states as well), the VA, the Dept. of Defense, and government employment costs at all levels. We should be strengthening and extending the healthcare reform efforts beyond just extending coverage – to include incentives for cost efficiency and efficacious treatments.
  4. Restore and enhance funding for education at all levels. Resist the temptation to make education accountable on a short term basis, while hobbling it from producing the long term benefits derived from basic research and liberal arts education. This is an area in particular where Federal spending, even if they result in deficits, is a good investment. Cutting taxes on the wealthy is not a good use of a deficit. Deficit spending should support short term stimulative needs and long term productivity enhancements.

The Thing About Earmarks

Ever heard the one about “a tale told by an idiot, full of sound and fury, signifying nothing?”

The congressional earmarks saga is a tale told by charlatans trying to distract you from the Really Bad Stuff.

For those who don’t follow this stuff closely, here’s a simple version of how earmarks work:

1) Congress appropriates $130 billion for “Agriculture” (yes, that number is close to the current figure).

2) The Honorable Gentleman from Iowa puts an item — an “earmark” — in that appropriation requiring that the US Department of Agriculture $10 million of that $130 billion to fund the [the Honorable Gentleman from Iowa's name] Corn Research Center in Ames (I just made that up, but I wouldn’t be surprised if it resembles a real earmark).

The case against earmarks is that they:

- Are “pork” used by incumbents to buy re-election (”I earmarked $50 million in the Defense budget to ensure that the little dials on the Army’s radios would be manufactured right here in Secaucus”).

- Promote corruption (Acme Guide Missile Systems, Inc. gives a congresscritter a big campaign donation or a brown paper sack full of cash; said congresscritter earmarks an even bigger amount in a way that forces it to be spent with Acme Guided Missile Systems, Inc.).

- Result in silly/extraneous spending just to bring home the bacon (I seem to recall reading that the late US Senator Robert Byrd [D-WVa] once earmarked money to restore an old store as an “historic landmark” because it was the second location in the US to sell Chanel No. 5 perfume).

All of these things may be true, but here’s the case for earmarks:

- They generally constitute less than 1% of the federal government’s total budget. If that rate holds true for Agriculture, call it $1.3 billion total in that particular area. All the rearing and pitching about them is mostly just a way to distract from the fact that Congress is spending $128.7 billion in non-earmarked funds on Agriculture. Think maybe there’s a little fat in that bigger piece of the budget puzzle? But that doesn’t get talked about, because everyone’s throwing a fit about the Corn Research Center or whatever.

- They limit the power of the executive. Instead of handing Barack Obama $700 billion for “defense” and turning him loose to buy lollipops for the Russians and bombard Baghdad with packages of mail-order Swiss Colony cheese logs, Congress tells him that at least some of that money has to be spent in very particular ways. Granted, it pretty much amounts to those cheese logs going to Boeing workers in St. Louis instead, but any leash on the president, even one held by that bunch of reprobates down the street at the Capitol, is better than no leash at all.

So the two-case for earmarks is a) they’re not a big deal in the scheme of things and b) they may have at least one mildly positive feature.

I agree that that’s not a very strong case, but it’s a case, at least.

The important thing to remember is that all the caterwauling over it is intended to distract your attention from the 99% of the federal budget that isn’t earmarked. It’s pretty much a more boring version of “teh gays are gonna GETTT YEWWW!” or “Osama bin Laden may be under your bed right now — take off your shoes and stand in front of the porno scanner, please” or “the brown people who speak Spanish are going to take your job if you don’t give us another $10 billion to fight them off.”

Watch the birdie.

If Obama’s Not Serious About Freezing or Cutting “Defense” Spending …

… then he’s not serious about freezing or cutting spending.

Glenn Greenwald elaborates on just how friggin’ big and bloated the US “defense” budget is over at Salon. My shorter version:

The US spends almost as much as the rest of the world combined on “defense.” It spends six times as much as the next-largest “defense” spender (China), and 29 times as much as the six top “rogue states” (Cuba, Iran, Libya, North Korea, Sudan and Syria) combined.

And let’s be truthful here: US “defense” spending is mostly just a gigantic corporate welfare program — a way of redistributing wealth from the taxpayer to the politicians’ corporate cronies (and if a few hundred thousand people have to die every few years to keep the gravy train running, no problem as long as most of those people are evil, swarthy furriners). The actual national defense requirements of the US come to a small fraction of the amount spent under that label. Politicians and corporate welfare queens like the label because they can call anyone who objects to spending under it “unpatriotic.”

If Obama was serious about a discretionary spending “freeze,” he’d include the Department of Defense in that freeze. If he was serious about balancing the budget, he wouldn’t stop there, either. He’d propose a 25% cut to DoD over the three-year “freeze” period, and ask for a much larger cut over a longer time period.

So, now we know Obama isn’t serious.