Analysts have long recognized the tendency of companies who are forced to report bad news to make the news worse than they have to, piling every single thing that might goi wrong into one hell of a charge-off. The logic of this is simple: if your stock is going to take a hit, make it one gigantic hit, so that you can later "surprise" everyone when aliens from the Planet Zork do not actually land, vaporize 2/3rds of your customers, and keep the rest too busy dodging laser rays to focus on purchasing your product.
Looking through Obama's budget, I am reminded of those massive one-time-write-off festivals. Only the Obama administration has gone one better: he has actually gotten everyone to congratulate him for his breathtaking honesty.
Take the Iraq war. We were not, under any administration, going to spend as much in 2015 as we did in 2005. But by treating that spending as an ongoing cost, Obama now gets to take as much credit for reducing it as he would for closing permanent air bases in Germany, or trimming Social Security. Reducing the cost of "overseas contingency operations" acounts for $1.5 trillion of Obama's much vaunted $2 trillion in savings. Likewise the AMT fix--with high-end incomes falling, deflation in the air, and homeownership rates declining, AMT collections are going to decline even without a fix; this lets them recognize the entire decline at a time when the numbers are so large that taxpayers are too dazed to notice the fall.
The Obama administration is hardly the first to calculate the numbers to allow them to deliver upside surprises; during the Bush administration, the forecasts issued by the White House's Office and Management and Budget started to diverge from those of the Congressional Budget Office in an unexpected direction: they became markedly more pessimistic. Few people think it was an accident that this allowed the Bush administration to deliver a steady stream of "Surprise! The budget deficit is falling even faster than expected!" announcements.
Obama needs those big bath numbers on the Iraq side, because it seems unlikely that a lot of the things he's counting on to bailout his budget are going to materialize. Health care savings are often promised by American politicians, but so far never delivered. The cap and trade revenues which are supposed to deliver $625 billion over the next 10 years are going to be politically controversial, and also, highly dependent on energy demand--if there are too many permits, they won't yield much revenue.
Indeed, though Obama is getting a lot of credit for projecting out ten years, I'm not sure I see the point from an economic, rather than a political, perspective. These models consist of the modellers assuming that most things will continue to be largely as they are, unless the economy is in a recession, in which case everything will return to 3% trend growth 18 months after the recession started. They don't track reality all that much better than you would by throwing darts at a board with a bounded range of GDP growth around a mean of 3%. Given that we are in most unual times, they are particularly suspect now.
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Charts and grafs would be appreciated, please. If you've run some numbers.
Greatly appreciated.
Some of what Obama wants to do is necessary and has been put off for too long. But cap-and-trade is a joke (go to www.peer.org and read their report on why emissions trading is doomed to fail), designed primarily for the politicians and wealthy and well-connected to pretend they're doing something about warming while making a lot of money in the process. And as for health care reform, here's my bottom line--if it does not result in John Q. Public getting roughly the same amount of care he does now, only for significantly less in insurance premiums and out-of-pocket expenses, then it's a failure.
My fears are that we're 1) enacting very expensive solutions that won't really solve the problems, and 2) putting enormous additional burdens on an economy that will not be nearly as robust as Obama needs it to be. And a golden opportunity will be squandered.
The ten year outline is a complete joke. I busted a gut laughing at most of it, but in all seriousness, it is only a political document- reality will make for much different choices- or lack thereof. Obama is going to find that there is no money for all his new promises-the old promises made by previous presidents will swallow everything coming in. Seniority rules the roost when it comes to dollars.
So you believe the Bush Administration policy of ignoring the cost of the war was the most honest policy.
How do you propose the war being treated in the budget?
I though you claimed to be a libertarian, not a cog in the republican spin machine.
It's just a continuation of the trend by which serving retirees increasingly becomes our economy's central purpose. It won't work, at least not for those not retired, especially in light of the fact that the projected savings on health care are entirely fictitious, since retirees are only going to become a more sought after electoral group by both parties. Then again, maybe The One is contemplating forced labor camps for doctors, nurses, and pharmaceutical researchers!
Hope and Change!
spencer - so McArdle is now a Republican? Guffaw. I bet she's never voted for one in her life. Just goes to show how extreme the left wing is. If you don't toe the line 100% you are a "cog in the Republican machine".
Spencer,
It didn't matter what the Bush policy was regarding the cost of the war- the numbers were always there for anyone to see. Presidents always aggregate/disaggregate budget totals to provide the best possible view for themselves, but they can't actually hide their actual make up.
And the last time I looked at the Iraq War numbers, they included the salaries of the troops in Iraq--which won't go away once they are brought home. Likewise, training costs will increase once deployed back home, although that will be more than offset by the savings in fuel, ammo, and batteries. But remember, fuel, ammo, and batteries will be significant training costs back home; just not as much as they are in Iraq.
So expect the numbers to go down, but don't expect to see them go WAY down.
"Take the Iraq war. We were not, under any administration, going to spend as much in 2015 as we did in 2005."
I think "hundred-year-war" McCain might disagree with this.
I want to know what the rest of you think. Is McArdle a "cog in the GOP machine" if she dares to criticize his holiness?
Actually you missed the other part of the charge-off on the tarp instead of the cbo accounting, then the blame goes to what was inherited and any value recovered will be new revenues later. Greg Mankiw explains here: http://gregmankiw.blogspot.com/2009/02/which-budget-deficit.html
I think Paul Krugman must be a tool of the radical right, just read what he had to say about Obama's efforts in the banking sector...
Adam, you hopeless tool. Go back and read McCain's actual quote.
What Obama is doing brings to mind a phrase Winston Churchill used: "Marshaling the facts and figures." One could imagine the facts and figures marching into battle alongside the troops. And in this case, it is well to parade the numbers in full to raise awareness.
Obama's announcement in his speech that off-budget spending would henceforth be accounted for in the budget effectively held a mirror up to the Congress in attendance. What I saw was a group repeatedly standing, as if for surrender or solemn garment discomfort.
"We are fifty or a hundred years behind the advanced countries. We must make good this distance in ten years. Either we do it, or they will crush us," Stalin said in 1931
From today's FDIC report:
The 25 bank failures in 2008 also depleted the agency's deposit insurance fund by $15.7 billion during the fourth quarter to $18.89 billion.
****
18.89 billion to insure every bank deposit in the country??????
The fund is three months away from insolvency.
Take you money out now. You may not get another chance. When the run starts, it will be too late.
That is a reserve ratio of around roughly 0.3%.
Your bank deposits are not protected.
Obama's accounting tricks are not new.
Inflation and unemployment are being under-reported.
In the United States, the printing presses have not been revved up heavily, yet, but the commitments are in place, as seen in the annual GAAP-based deficit running on average more $4.0 trillion per year. That amount is far beyond the ability of the government to tax or the political willingness of the government to cut entitlement spending. While the inevitable inflationary collapse, based solely on these funding needs, could be pushed well into the next decade, actions already taken likely have set the stage for a much earlier crisis.
The current systemic bailout being worked at all costs by the Federal Reserve and the U.S. government, as well as earlier efforts by the Fed to buy time, have made the circumstance worse. Pushing recent Treasury funding needs on foreign investors — stuck with excess dollars from the ever-expanding U.S. trade deficit — has created a huge dollar overhang in the markets that already has started to crumble. The more the crisis has been pushed into the future, the greater the potential for pending calamity has become.
Milton Friedman and Anna Jacobson Schwartz noted in their classic A Monetary History of the United States that the early stages of the Weimar Republic hyperinflation were accompanied by a huge influx of foreign capital, much as had happened during the U.S. Civil War. The speculative influx of capital into the U.S. at the time of the Civil War inflation helped to stabilize the system, as the recent foreign capital influx to the United States has helped stabilize the equity and credit markets of recent years. Following the Civil War, however, the underlying economy had significant untapped potential and was able to generate strong, real economic activity that covered the spending excesses of the war.
Post-World War I Germany was a different matter, where the country was financially and economically depleted as a penalty for losing the war. Here, after initial benefit, the influx of foreign capital helped to destabilize the system. "As the mark depreciated, foreigners at first were persuaded that it would subsequently appreciate and so bought a large volume of mark assets …" Such boosted the foreign exchange value of the German mark and the value of German assets. "As the German inflation went on, expectations were reversed, the inflow of capital was replaced by an outflow, and the mark depreciated more rapidly … (Friedman p. 76)."
Q.) What is the difference between America and Evil Communism?
A.) America has ten year plans.
Nope, she didn't say that. The truth is somewhat in-between; it needs to be on-budget, but budgeting in to make it look worse than you know it will be to have "surprises" is dishonest too-- just as it was, as Megan notes, when the Bush Administration did it.
Blaming all the TARP spending on the Bush Administration, but counting any revenues if the equities can be sold for something as Obama Administration revenues is also a bit dishonest. I'd love for those to be worth something, but it's still dishonest.
Re: Post-World War I Germany was a different matter
Indeed. Germany post WWI was mainly a malicious fiction imposed on he country by the vengeful allies. It did not correspond to any economic reality-- certainly not to money the Weimar Republic had actually borrowed.
That's not the case with the US today. Moroever you cannot get economy-wide inflation unless you have full employment. As long as bosses can say No to raise requests inflation cannot get off the ground. Inflation absolutely requires that wages (approximately) match prices. Otherwise sellers can't raise prices because people cannot buy their goods. Finally there's a multi-trillion dollar hole in the economy right now. Until that hole is full there will be no inflation.
"I think "hundred-year-war" McCain might disagree with this."
Thank you Captain Context!
Here is how it actually went down:
Last month, at a town hall meeting in New Hampshire, a crowd member asked McCain about a Bush statement that troops could stay in Iraq for 50 years.
"Maybe 100," McCain replied. "As long as Americans are not being injured or harmed or wounded or killed, it's fine with me and I hope it would be fine with you if we maintain a presence in a very volatile part of the world where al Qaeda is training, recruiting, equipping and motivating people every single day."
But yes, that is the same as a 100 year war. Idiot.
I suppose the Germans could have used him 65 years ago. In certain quarters, it would have been nice to know that the Russians were going to be turned back at the border.
As the Financial Times editorialized, "Americans trust Mr Obama. He needs to trust them. He should be honest, and make the case for specific policies, difficult to sell as they may be: prompt and decisive action on the banks; strong fiscal stimulus that lasts as long as it takes; and the broadly based tax increases that will eventually be needed to rein in public borrowing. From now on, less inspiration and more inconvenient truth would be welcome."
I think you mean the planet Ork. Zork wasn't a planet.
Depending on how long we're there, Afghanistan has the potential to cost much more than Iraq.
I at least sort of understand why everyone is praising President Obama so much.
1) He has honestly accounted for all costs. Not that I don't miss the days when President Bush would publish his 2005 budget projections with $0 allocated for Iraq for 2007, would count the social security trust fund money as straight revenue, pretend he actually intended for his tax cuts to expire, and that the baby boomers would never retire. That was great, and throwing all those dishonest numbers out there did wonders to cloud the political debate over the effects of his policies until it was too late. Still, I'm happy that President Obama has given us an honest accounting of what we're looking at.
2) You're focusing solely on the difference in his projections, between what would happen without cuts and what will happen under his budget. As I say on point one, the second number, his budget, is the most important one to get accurate. That his projection numbers are chosen to make his budget savings look optimistic does not pose a threat to our long-term fiscal situation. Indeed, most of his estimates, with Iraq, are at least within the range of reason of what could be spent.
There is a big difference between having a 10-year budget that is a bit off because things are genuinely difficult to project that far out, and having a budget that is fundamentally dishonest over the next 1-4 years. President Obama's budget is dead honest on the near future and as accurate as one can expect on the long-term. Is it perfect? No. But is it a big step forward of what preceded it? Yes. And I feel comfortable praising it for that reason.
Where do I plug in paying 10+ percent interest on 12+ trillion dollars? The interest expense would represent 40 percent of the total federal government outlay for 2008. The interest expense will represent nearly $10,000 per household, annually.
Yes in three weeks this President and Congress are proposing to spend more than all of Iraq, Afghanistan and Katrina relief combined for the last 7 years. All at one shot. And the Iraq war was *costly*?
How many Presidents have actually decided to do something like this while there was a war going on that Congress had put the Nation to doing? I can think of one... LBJ. Save that he also had the budget constraints of the Cold War to deal with, too. That would start the early '70s downturn and the de-industrialization of America and find our population even more divided because of the programs put in place than it was previously.
Unfortunately the next Counter-Insurgency plan will need to be for the US desert southwest and northern Mexico as the criminal insurgency spreads further than it has into the US. You want costly? Not addressing that will be very, very, very costly... and it could be started now and prepared for so as to do it cheaply. Wars overseas are relatively cheap compared to ones fought inside your Nation, as we have forgotten and will now be reminded of in the harshest terms possible.
Iraq was cheap, less than 1% of all GDP over the last 6 years and. The bailout is heading into the 8-20% range depending on who you talk to, eclipsing everything save WWII in terms of percentage of GDP. That was 50% per year of GDP from '42 to '45. Somehow the state of our economy doesn't look like '42 to '46 in terms of need... Obama isn't 'taking a bath' but making the company larger, keeping the same board and poor accountanting groups, raising the price of the product and hoping the new, more expensive, less appealing product will gain a wider market. The concept of newer and better sticker shock is one that we cannot afford for ourselves, our children and grand children as we ask them to pay off this debt.
Vermando,
Except that most Presidents make optimistic long-term projections, but then at least can promise that we'll get to no or low deficit in the out years as a result.
President Obama's budget uses the standard rosy assumptions, and then still assumes, if everything he proposes passes, a deficit of 2.9-3.1% of GDP in every year from 2013 to 2019, while the economy is growing 3% per year with no hiccup.
It's nice to be honest, but in this case he's stating honestly that if everything goes as smoothly as possible, the deficit during a time of strong economic growth will be significantly larger than GWB averaged over his 8 years. It will be as large as 2008's deficit.
The Pentagon said Wednesday that top military officers and civilians had to sign a letter promising to keep details secret as they work on the military's budget.
...
[Defense Department press secretary Geoff] Morrell also disclosed Wednesday that the Pentagon is expecting to have a war supplemental appropriation for fiscal 2010, which would cover additional funding for the wars in Iraq and Afghanistan -- even though Obama made a reference in his speech Tuesday to Congress to scaling back the practice of supplemental appropriations.
...
The Pentagon will try to include all "predictable" war costs in the base budget and wants to eventually move away from supplemental budgets, Morrell said, but in fiscal 2010 there will be costs "above and beyond" early estimates.
"It's extremely difficult for us to predict what our level of commitment is going to be in either theater, let alone theaters that we haven't potentially thought of, God forbid, a year, two years, let alone 10 years from now," he said. "So we are trying to be as helpful as possible in this process, but some of this stuff is not known at this point."
So in other words, in the name of transparency and good government, the Obama administration's going to do the exact same thing as the Bush administration, only spin it better. The announced budget number was fantasy from it's conception. If you actually think you can accurately budget how much a dynamic event like combat operations is going to cost in advance, then you're an idiot. And even if Iraq continues to stabilize, we're sending troops to Afghanistan, and will be there for the foreseeable future. So unless you're willing to grant the DoD a ridiculous annual surplus, just in case, then supplemental budgets and unpredictable costs are part of the game. Or Obama can just ride out on his unicorn and slay the country's enemies.
This is the best you guys can do to refute the budget? Baseless canards about how we were going to spend less in Iraq anyway? Assertations that the Iraq war was cheap? Hoping against hope that cap and trade numbers turn out wrong?
Your ideology's lack of ideas is more apparent than ever.
Still auditioning for the WaPo ...
Those of us for the war felt that the cost versus the benefit --removing a genoicidal, murderous, potentially biologically-weapons upgraded tyrant from office--analysis worked. America had supported Saddam but he had wrought destruction and death. And, as Hitchens has pointed out, more thna bit friendly with terrorists.
Obama, in contrast, isn't out to save some poor country from a dictator they couldn't defeat. He's out to support the greedy slime who bought shit they couldn't afford and now are demanding not to pay for it.
Internationally, I'm an interventionist. Domestically, hands off.
Megan,
While you may find ten year projections dubious economically, that's how the federal budgeting system works. I should know, having spent the last four years doing it in DC for a recognizable federal agency. Righ now, we're turning to formulation for Fiscal 2012 (three years off) and when we do that, we'll run the numbers out to Fiscal 2016 (making it eight years off). As you might guess, there's a lot of assumptions about revenues implied in our method - there are also a lot of assumptions about what Congress will direct us to do on behalf of Americans in terms of program changes, eliminations and new starts.
I can honestly tell you we do the best we can at the staff level with all the information we have. We document our caveats, and we outline alternative proposals and risks of adopting those alternatives. Then we start shoving it up a pipe to OMB, where we sometime recognize the finished product that is released to Congress.
Why do we start so far out? The realistic answer is we have to so that we can get the budget done. But it means that the federal government releases a product that is forward looking for many years. We would view it as irresponsible if we didn't.
This is the best you guys can do to refute the budget? Baseless canards about how we were going to spend less in Iraq anyway? Assertations that the Iraq war was cheap? Hoping against hope that cap and trade numbers turn out wrong?
Your ideology's lack of ideas is more apparent than ever.
Your ideology's willful ignorance of completely predictable consequences also is more apparent than ever.
Welcome back, Carter.