In recent months, people have asked me why I’m acting all giddy and optimistic. Am I hooked on cocaine? Have I fallen in love? Did I inherit several million dollars?
These questions started after I said the fiscal cliff was a smaller loss than I expected. Then people wondered what was going on when I wrote that we should celebrate the sequester victory. The questions got more intense when I opined that the Tea Party had made a positive difference. And people were even more nonplussed when I wrote that we should enjoy a win over the IMF.
But I’m not the only person thinking that things may be heading in the right direction.
Conn Carroll explains his optimism in the Washington Examiner. He starts by noting how bad Congress was back in 2009 and 2010.
…its liberal predecessor passed a trillion-dollar stimulus, enacted a government takeover of health care and institutionalized the power of Wall Street’s Too Big To Fail banks by passing the Dodd-Frank financial regulation law.
Then he explains that the new Tea Party Congress has changed the fiscal outlook.
…if you look at the hard numbers — if you look at the tax-and-spending trajectory that the United States was on before the 112th Congress was sworn into office, and then look at the path the U.S. is on now — you’d see that Republicans in Congress have made tremendous progress in shrinking the size and scope of the federal government.
But is there any proof?
Conn points out that the CBO “baselines” from early 2011 showed government growing very rapidly.
…the nonpartisan Congressional Budget Office released its annual Budget and Economic Outlook for fiscal years 2011 through 2021. That document showed the federal government was on track to spend…a total of almost $50 trillion ($49.8 trillion to be exact) through 2021. At the same time, tax revenues were set to rise from just 14.8 percent of GDP in 2011 to 20.8 percent in 2021.
The same estimates from early this year, by contrast, show government growing at a slower pace.
The CBO’s Budget and Economic Outlook for fiscal years 2013 through 2023 shows just how much House Republicans have actually accomplished. The federal government is now on track to spend just $46.2 trillion through 2021. That is a $3.6 trillion spending cut. And instead of taxes eating up 21 percent of the U.S. economy in 2021, now the government is set to take in just 18.9 percent.
Here are the respective baselines from those CBO publications. Let’s start by looking at how spending is projected to grow at a slower pace for the rest of the decade.
That’s $3.5 trillion of savings. Not genuine spending cuts, of course, but it’s real progress if government doesn’t grow as fast.
Here are the revenue numbers.
This data basically shows that the tax burden will be much smaller than projected because about 98 percent of the Bush tax cuts were made permanent as part of the fiscal cliff deal.
And if you believe in the Starve-the-Beast theory (and you should), this will make it harder for politicians to increase the burden of government spending in the future.
Conn also notes that the unemployment rate has fallen.
Despite all of this supposedly economy-killing “austerity,” unemployment has steadily fallen, too. When Republicans took control of the House in 2011, the nation’s unemployment rate was 9 percent. Today, it has fallen to 7.7 percent.
If this seems like a familiar point, it’s because I share his assessment. I wrote back in February of last year that gridlock was a positive thing for the economy since it reduced the likelihood of new bad policies.
What’s remarkable about these developments, as Conn notes, is that folks were expecting Obama to have momentum as his second term began.
Just three months ago, many in Washington were predicting Obama would steamroll Republicans into accepting higher taxes for millions of earners, undoing the sequester and maybe even passing new stimulus spending. Instead, Republicans have stayed unified, outfoxed Obama, preserved and made permanent most of last decade’s tax cuts (including permanent indexing of the Alternative Minimum Tax) and let the sequester cuts occur on schedule. As a result, Obama’s approval ratings have tumbled, and his entire second-term agenda is in jeopardy.
The final sentence in that excerpt explains why I’m feeling semi-optimistic. Obama’s agenda of more taxes and more spending is being thwarted.
To be sure, that doesn’t mean we’re seeing good policies of tax reform and fiscal restraint. And we still face a very dour fiscal future unless entitlements are reformed.
But we’re going in the wrong direction at a slower pace, and that beats the alternative.
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Reblogged this on Daily Browse.
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[…] The burden of government fiscal policy has been reduced since the 2010 elections. […]
[…] The burden of government fiscal policy has been reduced since the 2010 elections. […]
Dear Dan, I don’t know where you get your “Questions of the Week”, but I’m applying for one. With all of the Quantitative Easing and the massive pile-up of debt, isn’t a serious level of inflation inevitable? And, if so, what can I do to protect the 30 bucks I have saved for my retirement?
I love reading this blog by Dan Mitchell. No two people agree on everything but I sure do agree with most everything Dan writes on this blog of his. However, I disagree silently with something he has written today. I think it is encouraging that the Republicans in the House have been able to accomplish some things in slowing down the growth in spending by Obama. I know Dan would agree that more needs to be done. For instance, why don’t they just vote no on the next increase to the debt ceiling limit. I have praised over and over and over the 66 House Republicans that voted no on that before. If they did not raise the debt ceiling then we would have a balanced budget instantly. I agree that the Tea Party has made a difference and I have personally posted 49 posts on my blog on different Tea Party heroes of mine.
What would happen if the debt ceiling was not increased? Yes President Obama would probably cancel White House tours and he would try to stop mail service or something else to get on our nerves but that is what the Republicans need to do.
I have written hundreds of letters and emails to President Obama and I must say that I have been impressed that he has had the White House staff answer so many of my letters. However, his policies have not changed, and by the way the White House after answering over 50 of my letters before November of 2012 has not answered one since. President Obama committed to cutting nothing from the budget that I can tell. Republicans must take the next step now and vote no on the debt ceiling increase!!!
Am I dreaming or what? Maybe Dan is right after all and we just can’t expect the Republicans to do any better. If that is the case then maybe all hope is lost on our financial future?
[…] Good News: We’re Heading in the Wrong Direction at a Slower Pace […]
If we want to boost GDP, then the government should collect as much tax and hire as many people as possible. If GDP is a valid measure of prosperity, we will get gobs of prosperity.
YES, sarcasm, but the government doesn’t think so. Its accounting is bizarre.
( econlog.econlib.org/archives/2013/01/wasteful_hiring.html )
When Does Wasteful Hiring Cut Profits?
01/31/13 – Econlog by Garett Jones
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[edited] The boss hires his worthless unemployed nephew. Does that raise or lower GDP?
The answer depends on whether the boss works for the government or for the private sector.
GDP = Wages + Profits.
In private hiring, the nephew’s wages go up by say $100K, and profits go down by that same amount. GDP doesn’t change from the hiring itself. GDP goes up only by what the nephew produces (nothing).
[This makes sense. GDP is supposed to measure what is produced.]
In government hiring, wages rise by $100K and that is it! Government doesn’t report profits, so it pretends that there is no cost to the hiring, and says GDP has gone up by $100K.
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Prudent Spending
The Democrats have increase spending since 2009 by a modest 3% each year, after exploding spending with the $831 billion stimulus of 2009. The “stimulus” has been repeated and increased each year since 2009. Thus, our huge deficits.
So the function is still negative. The derivative is still negative. But the second derivative may have turned positive! There’s some hope there I guess.