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Simpson-Bowles as a basis for a "grand bargain"

Discussion in 'Economics, Business, and Taxes' started by imreallyperplexed, Nov 22, 2012.

  1. imreallyperplexed

    imreallyperplexed Council Member

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    Though Simpson-Bowles, the fiscal cliff, and the importance of a grand (genuinely) bi-partisan bargain to reduce the debt and deficit while promoting economic growth was sometimes mentioned during the Presidential campaign, the actual debate was - in my opinion - at a very debased level. Nevertheless, during the campaign, Paul Krugman reminded folks that he felt that Bowles-Simpson was bad fiscal policy but predicted that - if Obama was reelected (with Republicans in control of at least one house of Congress) - that Simpson-Bowles would reemerage as the "model" for a deal.

    http://krugman.blogs.nytimes.com/2012/09/30/a-public-service-reminder-simpson-bowles-is-terrible/

    That said, though I may differ with certain aspects of the Bowles-Simpson plan (e.g. specifics of tax policy. entitlement reform, and defense savings), I am sympathetic to the general sentiment behind the plant to put everything on the table and to aim to have everybody sacrific a bit. I am a bit more progressive in the sense that I am sensitive that people in dire economic straights have less room for "sacrifice." Nevertheless, I am also sensitive to the fact that a healthy economy is in everyone's interest. I am curious what other folks think about Simpson-Bowles as a blueprint for compromise. Here is a clip from a MTP interview with Simpson and Bowles from September 2012.

    [video=youtube;PkcsoLdIDCU]http://www.youtube.com/watch?v=PkcsoLdIDCU[/video]
     
  2. fairsheet

    fairsheet Senator

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    Bowles-Simpson was a tad more "political" than some may wish to acknowledge. That's understandable since both Bowles and Simpson are "political animals" and their mandate was to devise a scheme that might actually come to pass.

    As an example of the "political" aspect, I'll suggest that Bowles and Simpson included effective "cuts" to Social Security in their scheme. But, neither made any practical "math" case for including Social Security. I'm convinced that it had more to do with the fact that the Simpson (right) side wanted cuts to Social Security - irrespective if those cuts were justified by the "math". And, the Bowles (left) side decided that if it were to contribute to a politically plausible framework, it would have to "concede" something that the right so desperately wanted - whether it made "math" sense or not.

    I would prefer that we start this process over, with a panel committed to ignoring the political "push me - pull you". Let's consider this grand question from an apolitical, objective, and purely "mathematical" perspective. It could be that in so doing, we arrive at a plan that's tilted in favor of ideas traditionally put forth by one side or the other, but at least we'd have an outline as to what might be the best way of solving the problem - partisan feelings be damned.

    Then...if necessary, we could "cross-reference" this outline with the Bowles - Simpson outline. We may not go for the apolitical scheme, but at least we'd be rejecting it with our eyes wide open.
     
  3. imreallyperplexed

    imreallyperplexed Council Member

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    I am generally sympathetic with your approach. However, I think that there are probably several alternatives that are "mathematically" feasible and none of the alternatives is politically palatable for a variety of reasons. So, I am not sure that you can get away with the "political" aspects of the issue. (This is on top of the fact that there is not - as I understand it - full agreement on how urgent it is to get the deficit under control. For example, I don't think that it is as high a priority for Krugman as for some others. In addition, both sides are going to be tempted to factor in "economic growth" and "dynamic scoring." If the economy grows, revenues increase. My personal instinct - and perhaps this is the engineer in me - is to err on the side of conservatism and assume that reducing the deficit ASAP is very important and that the economy will NOT grow as quickly as the rosiest projections.) In any case, somebody's ox is going to get gored in the process. To me, the trick is for everybody's ox to get gored to some extent while preserving genuine economic incentives/opportunities for everyone. That is easy to say (and most everybody will say that they are for that. It is more difficult to do.

    As for Social Security, I am not opposed to some adjustments to Social Security - particularly in relation to those who are able to and want to keep working or who do not need to rely on Social Security in retirement. From what I understand, that has been the thrust of what Simpson was proposing (though I could be wrong about that). But it is a bit like "Pandora's Box." If you open the door to adjustments, where do you stop? So, personally, I am willing to talk about Social Security. But it would not be a high priority. What I think is more interesting - and Krugman mentioned - is the debate about raising revenues by capping deductions and closing loopholes or by raising marginal rates. The tax reform piece is going to be a mess.)

    Personally, I think that we are likely to see a "quick fix" for the fiscal cliff by January 1 and battles about the long term budget over the next two years (while everyone keeps their fingers crossed that the economy continues to mend.)

    It will be interesting (and more interesting to me than all the campaign back and forth. I hope that 2016 stays in the background until after the 2014 off-year elections.)

     
  4. fairsheet

    fairsheet Senator

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    I hope my closing sentence made it plain that I'm not (quite) so simple as think we could ACTUALLY indulge in a completely apolitical scheme! But, when you suggest that you're "not averse" to conceding something on Social Security, you're going straight to my point.

    Nobody has made any PRACTICAL case for putting the squeeze on Social Security. Sure, maybe it's something "we" have to give in order to get something else. But, what if we considered Social Security in a vacuum? How would cutting Social Security in and of itself, have a positive impact on our fiscal situation? I would suggest that not only would it NOT have a positive impact, but that it'd probably have a negative one.

    On the OTHER hand, I'm sure there ARE Democratic "sacred cows" that in their concession, WOULD have a positive fiscal impact. I would prefer that we concentrate on offering up in trade, our favored expenditures that might help with an actual "math" solution, as opposed simply lining the pockets of those who've been salivating over the Social Security pot for so long.
     
  5. Spamature

    Spamature President

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    When you say put everything on the table. I think of a group were trapped in a frozen cabin in the wilderness and need to build a fire.

    Each has with them a backpack with something precious that might have to be used as kindling.

    While one of them has a backpack full of money.

    Another has backpack with a baby in it.

    Do we say let's put in a little bit of each ?
     
  6. NightSwimmer

    NightSwimmer Senator

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    Ah... The wisdom of Solomon.

    I'd support raising the contribution cap on SS, although it would cost me personally. I am against changing Social Security from a mandatory insurance program to a means-tested welfare program.
     
  7. degsme

    degsme Council Member

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    I agree with Krugman that the problem with Simpson Bowles is that it gives away way too much of the store (lower marginal rates) for way too little.

    There is a difference between the STRUCTURAL deficit, and the transient deficit. our STRUCTURAL deficit is about $600 bil/yr give the debt we've run up (it used to be around $450)

    Simson Bowles ignores this distinction

    It also ignores the distinction between the operational deficit - which is largely caused by Defense Spending and Tax cuts -

    vs.

    Medicare Medicaide and Social Security, which currently IS NOT CONTRIBUTING TO THE DEFICIT and hence should be "Off the Table" for these talks
     
  8. fairsheet

    fairsheet Senator

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    That goes to the point I was trying to make. I think Bowles-Simpson was designed a little too much in the context of what these two politicos thought might be politically plausible, and not enough in the context of what's right. Bowles-Simpson may or may not be "wise" from a political standpoint. But if it is, it doesn't necessarily follow that it's wise from a fiscal-economic standpoint.
     
  9. imreallyperplexed

    imreallyperplexed Council Member

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    Thanks for the clarification. I thought that that might be what you were driving at. I agree. On a purely financial basis, I do not think that Social Security is a big problem or needs to be a priority. The one thing that I wonder about is whether folks have borrowed so much from the Social Security trust fund that folks are worried about whether the borrowed money can be paid back to Social Security. I have wondered if this was an underlying narrative that no one really wanted to talk about in the open.

     
  10. imreallyperplexed

    imreallyperplexed Council Member

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    Unfortunately, I don't think that analogies/metaphors like that are very helpful. For example, do you see yourself as the one with the money in the backpack or the one with the baby in the backpack? Why?

    Do you really think that the choice is that stark?


     
  11. imreallyperplexed

    imreallyperplexed Council Member

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    I am sympathetic to that critique. I am less sympathetic to the "details" than to the spirit. I do think that the "structural" deficit is a problem and I do think that everything should be considered (at least in the brainstorming phases).

    Just to be sure that I understand you, the "transient deficit" is the result of the economic downturn and should be expected to disappear when the economy recovers. Correct? The "structural deficit" is the difference between the built in spending obligations and revenue expectations. I actually do think that Simpson Bowles does keep this distinction in mind. But they differ from Krugman about how to manage the structural deficits.

    To be fair, I think that the worry is with "trends" in Medicare and Medicaid costs rather than the current situation.

    I am not taking a "strong" position on anything. I am more interested in hearing the logic behind the debates.
     
  12. degsme

    degsme Council Member

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    Correct IRP. US Economy normally grows at 3.2% At that rate we have a "structural deficit" based on current revenue collections of about $600 Billion. Simpson-Bowles KINDA keeps this diff in mind, but does the GOP's POLITICAL bidding by bringin SS and Medicare expenditures into the discussion of the non-dedicated revenue/Deficit discussion.

    Yes there are "trends" in SS and Medicare that need to be addresssed. But mixing it in with the non-dedicated revenue discussion is fundamentally an intentional mashup by the GOP because THAT is the only way they can achieve cutbacks in a program they have ideologically considered "communist" since FDR got it through Congresss.

    Hence why I object to the "logic" of that approach. The two are not related and the misleading conflation is POLITICALLY intentional
     
  13. imreallyperplexed

    imreallyperplexed Council Member

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    I think that you hit one of the crucial aspects of the debate. A lot of folks would disagree with you about the nature of the debate. In particular, I am not sure that the debate was ever just about non-dedicated spending. I have always thought that the debate included entitlements as well - at least in principle.

    What is a sticking point is what entitlement reform might entail. If entitlement reform involves a wholesale dismantling of Medicare and Medicaid (and I would agree that this is the sort of thing that folks like Grover Norquist have in mind), I have a problem with the prescription. Nevertheless, if the programs are fiscally unsustainable over the long haul (and I am more worried about Medicare and Medicaid than about Social Security), that is something that is a legitimate concern for a Simpson-Bowles type deal whether it comes about in the near term (over the next month) or over the course of the next couple to few years.

    The other thing that I am interested in is tax reform - and particularly the relationship between taxes and economic growth. This also seems to be a big bone of ideological contention.
     
  14. degsme

    degsme Council Member

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    Well the whining about
    • The National Debt
      and
    • The Deficit

    as examples of "out of control spending" has been the pivot point of the debate. And ALL OF THAT is purely in the non-deciated spending/taxation side.

    Now of course all along on the conservative side there has been an intentional POLTITICAL conflation between the whining public statements, and SS and Medicare. Because they have hated those programs from day one.


    As for the unsustainability of Medicare - someone posted a chart not that long ago of predictions by the CBO of how many years in the future SS/Medicare would go bankrupt. This was charted on a year by year basis. The low was 3 years, the high was 20, and THE AVERAGE WAS 12... Going back to when such predictions were made.

    Yes Governance is necessary. But the notion that they are not "sustainable" is nonsense. You too have been suckered in by the conflation techniques beng employed.


    As for tax rates and growth - again backin September there was a paper released By the Congressional REsearch Service that basicall concluded that marginal tax rates below 90% and above 20% have no meaningful impact on growth. Which makes sense. You and I as folks looking to start or grow a business, don't give a rats as$ about the marginal tax rate. WE have a good idea that will make money. We then calculate the ROI and decide if we can do better elsewhere. If everyone else has the same marginal rate Then we can only do better elsewhere if we have a worse idea/plan

    Sure in a larger org, we will hand off the investment for tax optimization, but that is not a go/nogo decision.



    As you point out, part of the problem is that the BUdget debate is fundamentlly a "wicked problem" http://en.wikipedia.org/wiki/Wicked_problem
     
  15. imreallyperplexed

    imreallyperplexed Council Member

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    It is definitely a "wicked problem." (The question of the expansion of slavery into the territories was also probably a "wicked problem" and that ended in civil war. I hope that things don't come to that. :smile:)


     
  16. Woolleybugger

    Woolleybugger Mayor

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    I agree with this point. If one were to list the various things we spend money on and the prioritize them against their offsetting tax revenues giving items such as SS and Medicare more priority due to the specific taxes collected to pay for them, you would have the remainder of the budget to review.What exactly is the most expensive item that is purely discretiionary? A giant military and a foreign policy based on power and might. Why must we continue to assume that it is our responsibility or mandate to be the world's cop? Ditch that entire idea...
     
  17. degsme

    degsme Council Member

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    Well I would suggest most of the difficult political problems are "wicked" problems. And in fact that is the very art of politics - getting done what you want to do and you think is the right thing to do in an environment of ambiguity and competing interests.

    And that's why "Simpson Bowles" is inherently a political document in and of itself. Its not clear that a "compromise approach" of the sort proposed by Simpson Bowles is in fact desirable as a solution to "wicked problems". Because in essence it avoides the question of defininig the actual problem clearly and then defending that definition.

    Instead it gives dribs and drabs to multiple different definitions of the problem and solves those dribs and drabs, but does not solve any one cohesive definition of a problem.

    That's what is at the core when I talk about "giving away too much" . From the outset, it gives away the fight over defining the problem.
     
  18. imreallyperplexed

    imreallyperplexed Council Member

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    That helps me make more sense of your evaluation of Simpson-Bowles. I will grant that Simpson-Bowles is a "political document" in the sense that you argue. Nevertheless, it is a political document in which the numbers add up (which was not the case for the Romney/Ryan plan to "grow the economy" and "fix the deficit."

     
  19. NightSwimmer

    NightSwimmer Senator

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    What is the value of having the "numbers add up", if you're summing the wrong numbers to begin with?
     
  20. imreallyperplexed

    imreallyperplexed Council Member

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    NS,

    I am not sure what you mean by "wrong numbers." I realize that the numbers are "forecasts" and the forecasts can be rosy or bleak. Personally, I like to set up several scenarios and see how the numbers add up over several scenarios. I don't take any particular set of numbers as the gospel truth. That said, you can spot large-scale trends and those trends affect folks differently.

    (BTW, in this case, perceptions of what will happen counts for a lot in negotiations and perceptions of the possible consequences of particular policies can differ quite dramatically even among economists.)

    Again, my instincts tell me that an agreement that has some level of bi-partisan support is likely to be more workable than a "one-sided" agreement and that some kind of agreement - especially on the fiscal cliff - is likely to be better than no agreement. (If Republicans offer a deal that is no better or worse than no agreement, I walk away from the table. And I may walk if I think that I have bargaining power.)

     

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