John McCain's Budget Policy: Government by the Underpants Gnomes!

UPDATED July 8, 2008:

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Cr--! Robert Pear of the New York Times called, looking for asoundbite on McCain's budget policy. I blathered on, while the perfect soundbite was waiting in my email inbox, unread.

It was:

Underpants Gnomes.

You all remember the plan of the Underpants Gnomes from South Park:

1. Collect underpants.
2. ?
3. Profit!

That's the perfect analogy for John McCain's budget policy:

1. Cut taxes and spend more on the military.
2. ?
3. Balanced budget!!

Memo to self: read email from persons known to be witty before talking to reporters, not after...

Let's see if Pear's story is up yet...

Yes. Ah, nice informative lead that tells it straight--with all the "to be sures..." placed at the end:

Skepticism on McCain Plan To Balance Budget by 2013: The package of spending and tax cuts proposed by Senator John McCain is unlikely to achieve his goal of balancing the federal budget by 2013, economists and fiscal experts said Monday.

“It would be very difficult to achieve in the best of circumstances, and even more difficult under the policies that Senator McCain has proposed,” said Robert L. Bixby, executive director of the Concord Coalition, a nonpartisan budget watchdog group.

Mr. McCain, the presumptive Republican presidential nominee, is proposing billions of dollars in tax cuts. But advisers to Mr. McCain said those costs would be more than offset by savings from slower growth in spending.

In his proposal, Mr. McCain said he would hold overall spending growth to 2.4 percent a year. That is a tall order because federal spending has been growing an average of more than 6 percent a year in the last five years.

Mr. McCain said he would also slow the growth of Social Security, Medicare and Medicaid, and fiscal experts agree that he would need to do that to achieve his goal. But Mr. McCain did not give details of how he would alter those benefit programs, which have powerful constituencies, including older Americans, a huge health care industry and state and local government officials.

A longtime foe of pet projects known as earmarks, Mr. McCain said he would stop such spending. The Bush White House says earmarks this year total $17 billion, a comparatively small share of a $2.9 trillion budget.

Mr. McCain proposed a one-year freeze in most domestic spending subject to annual appropriations, “to allow for a comprehensive review.” This proposal would affect education, scientific research, law enforcement and scores of other programs.

Mr. Bush’s battles with Congress suggest it would be extremely difficult for Mr. McCain to win approval for such a freeze.

Mr. McCain said he was counting on “rapid economic growth” to help reduce the deficit. While a growing economy generates additional revenue, several of Mr. McCain’s tax proposals would be costly, experts said.

He would “phase out and eliminate” a provision of the tax code known as the alternative minimum tax, which has ensnared a growing number of middle-class Americans in recent years.

By his own account, repealing this tax “will save middle-class families nearly $60 billion in a single year.” That is $60 billion that would presumably not be available to the Treasury.

Mr. McCain also wants to extend many of the Bush tax cuts, scheduled to expire by Jan. 1, 2011. That could reduce tax collections below the levels assumed under current law, and it could widen the deficit, many economists said.

In January, the Congressional Budget Office estimated that extending the Bush tax cuts would cost more than $700 billion in the next five years.

Since January, the economy has been weaker than expected, making the goal of a balanced budget more difficult to achieve. The budget deficit in the current fiscal year is running much higher than in the previous year.

Other McCain proposals, like doubling the personal tax exemption for dependents and cutting the corporate income tax rate, would also reduce revenues, economists said.

C. Eugene Steuerle of the Urban Institute, who worked in the Reagan administration, said Mr. McCain “may well be committed to balancing the budget in five years, but does not tell you how he would reach that goal.”

J. Bradford DeLong, a professor of economics at the University of California, Berkeley, who worked at the Treasury under President Bill Clinton, said, “Senator McCain and his advisers want to claim they will balance the budget by 2013, but they have given us no clue and no plan to meet all the commitments he has made and still get there.”

On the other hand, history shows the deficit sometimes shrinks faster than experts expect.

That happened in 1998 in the Clinton administration, when the government ran a surplus for the first time in nearly three decades. And Mr. Bush cut the deficit in half faster than he or many fiscal experts had predicted.

Comments

[John Emerson]

Below is a list of highpowered economists supporting McCain's fraudulent economic plan (link: http://www.johnmccain.com/Informing/News/PressReleases/Read.aspx?guid=c90681b9-5dfe-4de4-8057-ceedb30c228d).

Someone explain this to me. I'm just a simple peasant, bo me McCain's plan does indeed look fraudulent and laughable. So why the high-level support?

I can think of two possible answers off the top of my head. #1, maybe economics isn't a science at all, but just a hodgepodge of hunches and dogmas. #2, maybe economics is a real science, but a lot of actually existing economists are unforgivably corrupt and partisan.

Is there a third, better answer?

SUPPORTERS OF McCAIN'S ECONOMIC PLAN:

Nobelists: Gary Becker, James Buchanan, Robert Lucas, Robert Mundell and Vernon Smith

Former Presidents of the American Economic Association: Gary Becker, Martin Feldstein, Anne Krueger and Robert Lucas

Economists who have served in the U.S. Treasury as Secretary or Under Secretaries: George Shultz, Beryl Sprinkel and John Taylor

Former Chairs and other Members of the President's Council of Economic Advisers: Michael Boskin, Martin Feldstein, Glenn Hubbard, Paul MacAvoy, Burton Malkiel, Paul McCracken, William Poole, Harvey Rosen, Beryl Sprinkel, John Taylor and Murray Weidenbaum

Former OMB Directors and other officials: John Cogan, James Miller, George Shultz and Amy Smith

Former CBO Directors: Dan Crippen, Douglas Holtz-Eakin and June O'Neill)

[John Drake]

"That happened in 1998 in the Clinton administration, when the government ran a surplus for the first time in nearly three decades."

It ran a surplus using cash accounting, but using accrual accounting it ran a deficit. The Clinton administration reported a surplus of $559 billion in its final four budget years. But the audited numbers showed a deficit of $484 billion. Of course Bush has much bigger deficits, so big they are frightening.

Social Security chief actuary Stephen Goss says it would be a mistake to apply accrual accounting to Social Security and Medicare. I don't agree with Goss. While the promises are not true legal obligations, does anyone really think those benefits are going to be canceled? Let's face it, cash accounting is a deliberate deception. Any company with revenues over a million must use accrual accounting.

[DavidWonk]

I just told economistsview this. But, a la McCain's social security plan, if I lose my job, can I balance my household budget by "reforming" my grocery-buying and bill-paying?

They will Kenny and Social Security! You bastards!

[ogmb]

Hah! I posted the same thing on Kevin Drum's post about the McCain plan. Regarding why the big-name support, the answer is #3: Economists, like everybody else, is less inclined to look under the hood of an argument when its finding matches their own leanings.

[Ginger Yellow]

"And Mr. Bush cut the deficit in half faster than he or many fiscal experts had predicted."

That wouldn't have anything to do with phasing in the most expensive cuts so their full impact wouldn't be felt until 2009, would it? Or refusing to fund the war in Iraq out of the general budget?

[bakho]

"And Mr. Bush cut the deficit in half faster than he or many fiscal experts had predicted. That wouldn't have anything to do with phasing in the most expensive cuts..."

No. There were some front-loaded corporate tax cuts passed in 2001. Those mostly phased out in 3 years. Corporations have had record profits. Corporate income tax went from 1.2% of GDP in 2003 to 2.7% of GDP last year. Mostly because of record profits.

By redistributing the income upward, we are collecting more % of GDP in individual income tax. Plus the stock losses of the dotcom bust have mostly been written off. So personal income tax as %GDP has partly recovered. Not enough to bring revenue to 2000 levels because of the Bush tax cuts. Because the stock market is down this year, there should be less income tax collected due to tax write offs.

[save_the_rustbelt]

Voodoo accounting. Continued.

[Epigone]

When the NYT finally publishes a story of the kind we've been screaming for all this time, one that "tells it straight," it seems to me that we should rejoice, not moan about underpants gnomes. Let's keep some sense of priorities here.

[bakho]

At least with the web, some of the better economics reporting can be highlighted.

McCain Myth
Fiorina: Obama’s proposed tax hike on those who make more than $250,000 a year would be damaging to small businesses.
“In the Bush tax cuts, if they are repealed, 23 million small businesses will have their taxes raised. Why? Because 23 million small businesses file their income tax as individuals. And so, when Barack Obama blithely says, only the wealthiest are going to be taxed, he is ignoring the fact that 23 million small businesses file as individuals and those small businesses are the only growing sector of the economy right now and small businesses produce 60%, actually it’s more like 70, 70% of the new jobs in this country.”

Reporter looks at the details:
Okay, let’s assume there are now 23 million small businesses in the U.S. today (the latest stats I could find were 21.5 million "schedule C" class businesses in 2005). There’s no way that all 23 million of those are netting more than $250,000. In fact, 94.5% of all “flow-through” entities (self-employed folks, which generally tend to be small businesses, though Tiger Woods also falls into this category) had receipts under $100,000 in 2007.

http://www.time-blog.com/swampland/2008/07/fiorinas_fuzzy_math.html

More of this, please.

[John Emerson]

Ogmb: #3 is the same as #2. Let's not play pretend.

Economists are giving egregiously bad advice about their own area of expertise. Most people think wishfully about things that they don't know much about, but the reasons we have professionals is so that they can tell us what's really going on. When professionals submit to the temptation of private interest, that's malpractice, fraud, or corruption. Economists can (and do) say whatever they want about foreign policy, about which they are expected to have only the ordinary citizen's knowledge, but when we ask them about their own field we expect an honest, disinterested response.

By "we" I mean "the generic citizen". **I** do not expect honesty or disinterest from economists. The stakes are too high.

It's ironic that what claims to be the purest and most scientific of the social science is actually the most corrupt. But it's a very routine irony: egregiously exaggerated claims usually mask some sort of malfeasance. The economics profession of today is like the Vatican under the Borgia Popes.

[bakho]

What to make of McCainonomics?
"A point in all directions is the same as no point at all."

The Weekly Standard deconstructs McCain:

From The McCain Economic "Team"
Intellectual diversity, for better and for worse.
by Andrew Ferguson
02/25/2008, Volume 013, Issue 23

"As for his team of economic advisers, they continue to see in McCain a picture of their own aspiration. "He's a deficit hawk above all," Rudman told me. "Has been since the day I met him."

"He understands that the solution to our long-term problems will involve some shared sacrifice," Pete Peterson says. "And I think his leadership skills will be very effective in putting this idea of shared sacrifice across."

"I tell him: 'Stop mentioning Pete Peterson!'" Kemp says. "And he gets that. You look at Reagan. He ran a conventional Republican campaign in '76: limit spending, balanced budgets. Then [supply-side economist] Art Laffer and I and some others managed to talk to him. And in 1980 he ran as a growth candidate. I see something similar happening with John.

"It's true he doesn't have the same historical interest in economics that Reagan had. Reagan got it instinctively. But when I talk about the Bush tax cuts and John says, 'I don't think we should give money back to people who don't need it,' I say, 'John. John. That's not why we cut tax rates. We do it to incentivize people to put their capital at risk for new investment and capital formation.' And he gets that. He gets it. "I don't want John to be perfect. Politics is multiplication, not subtraction, and he needs support from all sides. He just has to listen to the right people."

AND

"McCain's method in domestic matters, no less than in foreign affairs is military: He surveys a set of facts, identifies a villain, fixes him with his steely gaze, and then goes after him....

....The tobacco legislation that McCain shepherded through his Commerce Committee in 1998, for example, was inspired by his revulsion at the seven tobacco executives who testified before Congress and famously refused to admit, under oath, that cigarettes caused lung cancer. "He just couldn't stand their lying that way," an aide said at the time. With its huge increase in cigarette taxes and its elaborate system of penalties, the legislation was one of the largest regulatory schemes ever cooked up on Capitol Hill. It was also a classic bill of attainder, designed to push the tobacco companies to the brink of bankruptcy without driving them out of business altogether.....

What's unsettling is that you can never predict who the next bad guy will be. No consistent economic principles can be extracted from McCain's grab bag of policy positions, and no amount of textbook baloney about the free market, deregulation, and limited government will deter him from bringing his malefactors to justice. McCain's economics aren't ideological but improvisational--a campaign with shifting fronts, running on indignation. And a very large number of voters, probably a majority, will find this approach appealing because they don't buy all this textbook baloney about the free market and limited government either. When President McCain finds his villain and pursues him however he can, they will likely cheer their president and egg him on--unless, of course, he fixes his steely gaze on them."

Andrew Ferguson is a senior editor at THE WEEKLY STANDARD.

[Altoid]

Ginger Yellow, I remember the same thing about war costs and the deficit: as far as I know, the supplementals aren't being added into even the official deficit numbers.

This makes McCain's position a complete and utter fraud from the start. We won't be spending as much on the war and that'll reduce the deficit? How? For that to work, don't you first have to add war spending *to* the deficit?

But nobody wants to do that because the number would be too scary. And nobody seems to have caught this little detail.

This shows the hand of Rove. Lie so obviously, and so outrageously, that no one could possibly believe you're doing it. And no one will notice. What a student of Edgar Allan Poe.

[bigTom]

When I read the excerpt, I think you lost the argument. The last two sentences say it all.

[Nah. The last two sentences of a newspaper article are almost never read...]

Things don't always come out as bad as theorists would say, magic sometimes comes to the rescue. Maybe this time as well. Considering the large segment of the population who think that "magical thinking" is a charming quality this probably wins the debate.

[DRDR]

The actual clip is here for those who had the urge to revisit it: http://www.southparkstudios.com/clips/151040

[Eric]

I thought Bush "cut the deficit in half faster than expected" because he used wildly inflated projected deficits as a starting point, so that when the actual deficit numbers eventually came in, they wildly inflated how much ground his administration had made up.

[Bernard Yomtov]

One thing you have to give Fiorina. She knows something about how to damage a business. And in her case it had nothing to do with taxes.

[bakho]

The total budget deficit went from $413 Billion in 2004 to $162 Billion in 2007.

Of course, the On-budget deficit only went from $568 Billion in 04 to $343 Billion in 2007.

The total debt under Bush has gone from $5.6 Trillion to $9.5 Trillion.

McCain has never been serious about the budget. It is a mistake to treat his plan as if it is serious. It isn't.

[Barry]

John Emerson:

"Someone explain this to me. I'm just a simple peasant, but to me McCain's plan does indeed look fraudulent and laughable. So why the high-level support?

I can think of two possible answers off the top of my head. #1, maybe economics isn't a science at all, but just a hodgepodge of hunches and dogmas. #2, maybe economics is a real science, but a lot of actually existing economists are unforgivably corrupt and partisan.

Is there a third, better answer?"

No - first, it's clear after Reagan, Bush I, Clinton and Bush II that the GOP *deliberately* increases the deficit, which is allegedly something that econo-, ah, 'prosties' don't like. Second, McCain has solidly switched from less dishonest to far, far more dishonest, over the course of the Bush administration. And even his plan is a combination of lies and fraud.

So for any moderately well-informed person these days, it's clear that Joe Random Democratic President is better, economically, than any GOP candidate with a chance at the nomination.

[bigTom]

"So for any moderately well-informed person these days, its clear that Joe Random Democrat is better economically..."

I don't think this is so. Humans, by nature are highly partisan individuals. Our detection of who (and which arguments) are nominally on our side is highly advanced. It operates so quickly, and hijacks our emotions, so that recourse to a careful weighing of facts and logic is usually short circuited. We all are vulnerable to this effect. Those with training, and discipline can usually overcome it. All others are at the mercy of their preconceived biases.

[Barry]

Ordinarily, yes, bigTom. But look at the record for the past twenty years.

And these guys are allegedly people with extremely rigourous training, in an allegedly data-driven field, who then allegedly demonstrated performance among the top 1% in that field.

[MDM]

Sidney Harris had it right: http://tinyurl.com/5vlxeb

[John Emerson]

BigTom, economists have prestige deriving from their supposed neutrality and scientific purity. They aggressively promote themselves as neutral scientists. To a considerable degree they claim to have escaped that particular human failing.

My conclusion is that economists are like lawyers. They're very bright and they know a lot of valuable stuff, but they're primarily mercenary advocates. You get the law you can afford, and you get the economics you can afford (and as it happens, I can't afford much of either).

Once economists drop their pretensions to neutrality and pure science and admit to being mercenaries and ideologues, and once it becomes widely understood that that's what they are, I'll shut up.

Note that in this case some of the most eminent economists gave wretchedly bad counsel about the specific topics about which they are supposedly expert, pure, neutral scientists. Economics would not be so badly disgraced if top economists merely gave bad counsel about global warming or foreign policy, about which they are not presumed to be expert.

The fact that some of them apparently signed on without knowing what they were signing on to does not excuse them at all. It just tells you that they're ideologues willing to lend their names to anything coming from their side.