Former Obama Budget Director Peter Orszag’s maiden column as a New York Times op-ed contributor undermines Brad DeLong’s hope that Orszag’s addition would make the Times op ed pages better. That might have been true if Orszag replaced a clown or someone not worth reading, but he didn’t.
Instead, Orszag gives us an illogical argument for why we should extend Bush tax cuts for the richest two percent of Americans for another two years but end the Bush tax cuts for everyone by 2013. To get there, Orszag has to ignore both economics and fairness, and use logic and political arguments only when convenient.
Orszag’s hook is to argue we have two unacceptable deficits — one for jobs and the other for the federal budget. So we need to keep the cuts for now for stimulus reasons, but end them soon to reduce the deficits. But he quickly reveals he doesn’t care about the jobs deficit, because nothing he advocates would alter government (including his own) forecasts that today’s 9.6 percent unemployment will decline only slightly over the next few years. Instead he reveals he’s a believer in invisible bond vigilantes — lucky for him, vigilante slayer Krugman is en route to Japan — and reveals his belief that only the budget deficit is truly unacceptable. The unemployed don’t matter.
He worries that we face budget deficits that may be 4 to 5 percent of GDP, asserting we have to get that down to an arbitrary 3 percent by 2015 or so, but he seems completely unconcerned about the harmful drag on GDP from leaving 10 to 20 percent of the nation’s labor resources unemployed or underutilized.
So what’s wrong with Orszag’s "political compromise" of extending all cuts for two years, then ending them all? The main problem is the error we see over and over in reporting on the economic stimulus value of tax cuts.
For the thousandth time, tax cuts aren’t very effective, and those applied to rich people suck. When the government gives a tax cut — essentially a gift — to the richest Americans, they spend proportionally less to stimulate Mainstreet’s economy and gamble a lot more on Wall Street’s casinos. Everyone should know this by now. Transferring money from the middle class to the rich impoverishes Mainstreet and enriches Wall Street. So retaining lower taxes for the middle class is as much a democratic equity argument to help redress the egregious distribution of wealth to the richest people as it is an economic stimulus plan.
But if you’re going to defend extending tax cuts as an economic stimulus and re-employment measure on the op-ed pages of the New York Times, your readers expect you to acknowledge Christy Romer’s work on stimulus multipliers, and CBO’s or at least Mark Zandi’s studies on stimulus effects, never mind OMB’s own budget forecasts. All of these tell us many tax cuts suck as stimulus compared to direct spending, especially spending on the unemployed or those less well off or even the middle class. Tax cuts for the less well off are fair, but tax cuts for the richest are just fiscally irresponsible and economically wasteful gifts to people who don’t need more federal entitlements or bailouts. There was no excuse for them before and none now.
Any honest op-ed on this subject would tell us these facts in the first few paragraphs and then explain why any compromise package that deviates from those fundamental priorities is still justified.
So if former OMB Director(!) Orszag’s "compromise" is economically foolish and harmful, what’s his political excuse? Here he finds it convenient to argue Republicans would never agree to extending tax cuts only for the middle class while leaving out gifts for the rich — probably true — but inconvenient to note that the same Republicans would likely reject ending the tax cuts for everyone in two years. Similarly, he says Obama could enforce this unlikely compromise by vetoing any bill to make the cuts permanent in 2013, but he assumes Obama cannot fashion an intelligent veto threat in 2010.
Next we get Orszag’s dissembling on where to find spending cuts:
How much savings is plausible on the spending side? Medicare, Medicaid and Social Security will account for almost half of spending by 2015. Even if we reform Social Security, which we should, any plausible plan would phase in benefit changes to avoid harming current beneficiaries — and so would generate little savings over the next five years. The health reform act included substantial savings in Medicare and Medicaid, so there aren’t further big reductions available there in our time frame.
Translation: to "reform Social Security" means to cut benefits for future beneficiaries. And you can’t reduce health care costs because, uh, he sat in the Senate’s Big Six meetings to protect Obama’s deals with PhRMA and hospitals, mandating private insurance while killing the public option, nixing drug imports and negotiations and taking Medicare for all off the table. And that’s why "there aren’t further big reductions available."
The nation’s number one economic problem is not Peter Orszag’s fear of invisible bond vigilantes or even the prospects of deficits in 2015 or 2018 still at 4 to 5 percent GDP. It’s the loss and waste of 15 million of America’s most important resources and the costs that imposes on us for decades. They need jobs, and just as important, America needs to put them to work, because America has public investment needs in the trillions — yes, trillions, not the $50 billion Obama proposes for starters.
If Congress allows the Bush tax cuts for the richest Americans to expire, just as current law provides, that will give OMB $700 billion more over the decade to use for much needed economic expansion now — e.g., a way to "pay" for an Infrastructure Investment Bank that doesn’t require you "work with Republicans" — or short run enhancements to Social Security, and, if they choose, deficit reduction later.
It also means the phony budget hawks who have no plans to cover the tax cut extensions, will have $700 billion less in deficits to use as an excuse for leaving 15 million American workers unemployed.
That’s good policy, good politics, smart economics. By undermining all three, Orszag’s first op ed gets an "F". Well, Prof?
Krugman on tax cuts and the need for public investment