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The Concorde Coalition says it’s the Budget Stupid!

WASHINGTON, D.C. /PRNewswire-USNewswire/ — Sobering 30-year projections that the Congressional Budget Office (CBO) released today underscore the need for the 2016 presidential and congressional candidates to provide voters with credible plans to put the federal budget on a more responsible course, according to The Concord Coalition.

cbo long term spending revenues

“If current laws remained generally unchanged, the United States would face steadily increasing federal budget deficits and debt over the next 30 years—reaching the highest level of debt relative to GDP ever experienced in this country” – Congressional Budget Office.

“Americans like to think we put a high priority on strengthening the country and looking out for the next generation, but the CBO’s latest long-term projections show once again that we are falling far short on both counts,” said Robert L. Bixby, Concord’s executive director. “Those who aspire to national leadership should take a good look at these projections and explain to the public how they intend to avoid the intense budget pressures and grave economic consequences toward which current policies are leading us.”

Bixby added:

“If candidates for federal office over the next few months ignore the CBO’s warnings of severe trouble ahead, whoever wins in November will not have a clear mandate for the reform measures needed to rein in the federal debt, strengthen the economy and protect our children’s future.”

The federal deficit has been dropping in recent years, creating a sense of complacency in Washington about the need for such reforms. Yet under current law the deficit is rising again this year and the debt will continually grow more quickly than the economy — a trend that is ultimately unsustainable.

Today’s CBO report looks out over the next three decades and projects even greater government debt and fiscal pressures after 2026.

The federal debt held by the public, which was only 39 percent of GDP at the end of Fiscal 2008, has climbed to 75 percent. That is already high by historical standards. The budget office projects that under current law, that debt would rise to 86 percent of GDP in 2026 and to 141 percent in 2046 — far exceeding the historical peak of 106 percent shortly after World War II.

As the CBO points out, such high levels of public debt would reduce national savings and income, increase interest costs that would put more pressure on the rest of the budget, limit the nation’s ability to respond to unforeseen problems and increase the likelihood of a fiscal crisis in which investors would demand extremely high interest rates on further loans to the government.

“The changes needed to bring about a sustainable fiscal policy are substantial and the costs of delay are profound, yet so far the 2016 presidential candidates have said nothing that comes close to addressing the challenges identified in CBO’s report,” Bixby said.

According to CBO, simply keeping the debt-to-GDP ratio from rising above its current level, would require spending cuts and/or tax increases totaling 1.7 percent of GDP in every year through 2046. That would amount to $330 billion in 2017.

Waiting until 2022 would require annual changes totaling 2.1 percent of GDP, and procrastinating until 2027 would require annual changes totaling 2.7 percent of GDP.

The choice about when to make policy decisions also has different generational impacts. As CBO says: “Reducing deficits sooner would probably require today’s older workers and retirees to sacrifice more and would benefit today’s younger workers and future generations. By contrast, reducing deficits later would require smaller sacrifices by older people and greater sacrifices by younger workers and future generations.”

An aging population and rising health care costs are key factors in the government’s growing financial problems. As more people retire, the government must spend more just to maintain current levels of service. Health care costs rise as more treatments become available and demand for them increases.

CBO says federal spending on Social Security, the government’s major health problems and other “mandatory” programs would rise from 13.2 percent of GDP today to nearly 16.9 percent in the decade starting in 2037.

The budget office also warns that interest payments on the federal debt are expected to rise rapidly as government borrowing continues and low interest rates return to normal levels. Net interest costs now amount to only 1.4 percent of GDP but that figure is expected to rise to 5.1 percent after 2037.

The CBO report shows other areas in the federal budget — even those that may prove critical to the nation’s future — being squeezed harder and harder in the coming years. CBO projects that over the next 30 years spending on national defense, infrastructure, research and development,  and everything else other than health care, Social Security and interest payments would drop to 5.2 percent of GDP, down from 6.5 percent today.

In addition to more thoughtful spending decisions in Washington, reasonable reforms in the federal tax system could help boost the economy and reduce federal borrowing.

“As in past years, CBO’s long-term projections are a valuable reminder that the federal budget is not on a sustainable course,” Bixby said. “Interest payments and a few spending programs, no matter how important, cannot be allowed to squeeze other national priorities out of existence. Voters this year would do well to look for candidates who understand this and are prepared to do something about it.”

ABOUT THE CONCORD COALITION

The Concord Coalition is a nationwide, non-partisan, grassroots organization advocating generationally responsible fiscal policy. The Concord Coalition was founded in 1992 by the late former Senator Paul Tsongas (D-Mass.), late former Senator Warren Rudman (R-N.H.), and former U.S. Secretary of Commerce Peter Peterson. Former Senator Sam Nunn (D-GA) serves as co-chair of the Concord Coalition.

RELATED ARTICLE: The 15th Obamacare Co-Op Has Collapsed. Here’s How Much Each Failed Co-Op Got in Taxpayer-Funded Loans.

The Rise and Fall of American Growth by Emily Skarbek

Diane Coyle has reviewed Robert Gordon’s new book (out late January), The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War.

Gordon’s central argument will be familiar to readers of his work. In his view, the main technological and productivity-enhancing innovations that drove American growth in the early to mid 20th century — electricity, internal combustion engine, running water, indoor toilets, communications, TV, chemicals, petroleum — could only happen once, have run their course, and the prospects of future growth look uninspiring. For Gordon, it is foreseeable that the rapid progress made over the past 250 years will turn out to be a unique episode in human history.

Coyle zeros in on the two main mechanisms to which Gordon attributes the slowing of growth. The first is that future innovation will be slower or its effects less important. Coyle finds this argument less convincing.

What I find odd about Gordon’s argument is his insistence that there is a kind of competition between the good old days of ‘great innovations’ and today’s innovations – which are necessarily different.

One issue is the extent to which he ignores all but a limited range of digital innovation; low carbon energy, automated vehicles, new materials such as graphene, gene-based medicine etc. don’t feature.

The book claims more recent innovations are occurring mainly in entertainment, communication and information technologies, and presents these as simply less important (while making great play of the importance of radio, telephone and TV earlier).

While I have yet to read the book, Gordon makes several similar arguments in an NBER working paper. There he gives a few examples of his view of more recent technological innovations as compared to the Great Inventions of the mid-20th century.

More familiar was the rapid development of the web and ecommerce after 1995, a process largely completed by 2005. Many one-time-only conversions occurred, for instance from card catalogues in wooden cabinets to flat screens in the world’s libraries and the replacement of punch-hole paper catalogues with flat-screen electronic ordering systems in the world’s auto dealers and wholesalers.

In other words, the benefits of the computer revolution were one time boosts, not lasting increases in labor productivity. Gordon then invokes Solow’s famous sentence that “we [could] see the computers everywhere except in the productivity statistics.” When the effects do show up, Gordon says, they fade out by 2004 and labor productivity flat lines.

Solow’s interpretation (~26 mins into the interview) of where the productivity gains went is different, and more consistent with Coyle’s deeper point. In short, the statistics themselves doesn’t capture the full gains from innovation:

And when that happened, it happened in an interesting way. It turned out when there were first clear indications, maybe 8 or 10 years later, of improvements in productivity on a national scale that could be traced to computers statistically, it turned out a large part of those gains came not in the use of the computer, but in the production of computers.

Because the cost of an item of computing machinery was falling like a stone, and the quality was at the same time, the capacity at the same time was improving. And people were buying a lot of computers, so this was not a trivial industry. …

You got big productivity gains in the production of computers and whatnot. But you could also begin to see productivity improvements on a national scale that traced to the use of computers.

Coyle’s central criticism is not just on the interpretation of the data, but on an interesting switch in Gordon’s argument:

Throughout the first two parts of the book, Gordon repeatedly explains why it is not possible to evaluate the impact of inventions through the GDP and price statistics, and therefore through the total factor productivity figures based on them — and then uses the real GDP figures to downplay modern innovation.”

Coyle’s understanding of the use and abuse of GDP figures leads her to the fundamental point:

While the very long run of real GDP figures (the “hockey stick of history”) does portray the explosion of living standards under market capitalism, one needs a much richer picture of the qualitative change brought about by innovation and variety.

This must include the social consequences too — and the book touches on these, from the rise of the suburbs to the transformation of the social lives of women.

To understand Coyle’s insights more deeply, her discussion with Russ Roberts gives a fascinating discussion of GDP (no, really!).

In my view, it seems to come down to differing views about where Moore’s Law is taking us. The exponentially increasing computational power — with increasing product quality at decreasing prices — has never happened at such a sustained pace before.

The technological Great Inventions that Gordon sees as fundamental to driving sustained growth of the past all were bursts of innovation followed by a substantial time period where entrepreneurs figured out how to effectively commodify and deliver that technology to the broader economy and society. What is so interesting about the pattern of exponential technological progress is that price/performance gains have not slowed, even as some bits of these gains have just shown signs of commodification — Uber, 3D printing, biosynthesis of living tissue, etc.

There are good reasons to think that in the past we have failed to capture all the gains from innovation in measures of total factor productivity and labor productivity, as Gordon rightly points out. But if this is true, it seems strange to me to look at the current patterns of technological progress and not see the potential for these innovations to lead to sustained growth and increases in human well-being.

This is, of course, conditional on the political economy in which innovation takes place. The second cause for low future growth for Gordon concerns headwinds slowing down whatever innovation-driven growth there might be. Here I look forward to reading the relative weights Gordon assigns to factors such as demography, education, inequality, globalization, energy/environment, and consumer and government debt. In particular, I hope to read Gordon’s own take (and others) on how the political economy environment could change the magnitude or sign of these headwinds.

The review is worth a read in advance of what will likely prove to be an important book in the debate on development and growth.

This post first appeared at Econlog, where Emily is a new guest blogger.

Emily SkarbekEmily Skarbek

Emily Skarbek is Lecturer in Political Economy at King’s College London and guest blogs on EconLog. Her website is EmilySkarbek.com. Follow her on Twitter @EmilySkarbek.​

The EPA’s Ozone Nightmare

Putting aside its insane attack on carbon dioxide, declaring the most essential gas on Earth, other than oxygen, a “pollutant”, the Environmental Protection Agency (EPA) is currently engaged in trying to further regulate ozone for no apparent reason other than its incessant attack on the economy.

In late January on behalf of the Committee for a Constructive Tomorrow (CFACT), Dr. Bonner R. Cohen, Ph.D, filed his testimony on the proposed national ambient air quality standard for ozone. The EPA wants to lower the current ozone standard of 75 parts per billion (ppb) to a range of 70 to 65 ppb, and even as low as 60 ppb.

“After promulgation of the current ozone standards in 2008,” Dr. Cohen noted, “EPA two years later called a temporary halt to the nationwide implementation of the standard in response to the severe recession prevailing at the time.”

In other words, it was deemed bad for the economy. “Now, EPA is proposing a new, more stringent standard even before the current standard has been fully implemented and even though, according to the EPA’s own data, ozone concentrations have declined by 33 percent since 1980.”

AA - Ozone molecule

Ozone molecule.

According to Wikipedia: “Ozone is a powerful oxidant (far more so than dioxygen) and has many industrial and consumer applications related to oxidation. This same high oxidizing potential, however, causes ozone to damage mucous and respiratory tissues in animals, and also tissues in plants, above concentrations of about 100 ppb. This makes ozone a potent respiratory hazard and pollutant near ground level. However, the so-called ozone layer (a portion of the stratosphere with a higher concentration of ozone, from two to eight ppm) is beneficial, preventing damaging ultraviolet light from reaching the Earth’s surface, to the benefit of both plants and animals.”

So, yes, reducing ozone in the ground level atmosphere does have health benefits, but the EPA doesn’t just enforce the Clean Air Act, it also seeks to reinterpret and use it in every way possible to harm the economy.

As Dr. Cohen pointed out, “the Clean Air Act requires EPA’s Clean Air Scientific Advisory Committee to produce an evaluation of the adverse effects, including economic impact, of obtaining and maintaining a tighter standard. Despite repeated requests from Congress, (the Committee) has not produced the legally required evaluation. By ignoring this statutory mandate, and moving ahead with its ozone rulemaking, EPA is showing contempt for the rule of law and for the taxpayers who provide the agency’s funding.”

Since President Obama took office in 2009 he has used the EPA as one of his primary tools to harm the U.S. economy. In a Feb 2 Daily Caller article, Michael Bastasch reported that “Tens of thousands of coal mine and power plant workers have lost their jobs under President Obama, and more layoffs could be on the way as the administration continues to pile on tens of billions of dollars in regulatory costs.”

The American Coal Council’s CEO Betsy Monseu also testified regarding the proposed ozone standards, noting that the increased reductions would affect power plants, industrial plants, auto, agriculture, commercial and residential buildings, and more.

Citing a study undertaken for the National Association of Manufacturers, “a 60 ppb ozone standard would result in a GDP reduction of $270 billion per year, a loss of up to 2.9 million jobs equivalents annually, and a reduction of $1,570 in average annual household consumption. Electricity costs could increase up to 23% and natural gas cost by up to 52% over the period to 2040.”

In a rational society, imposing such job losses and increased costs when the problem is already being solved would make no sense, but we all live in Obama’s society these days and that means increasing ozone standards only make sense if you want to harm the economy in every way possible.

© Alan Caruba, 2015

Florida to Lose 79,459 Jobs Due to Defense Cuts

The Jacksonville Business Journal reports that Florida stands to lose 79,459 jobs and $4.1 billion in labor income by the end of fiscal 2013 if $1.2 trillion in federal defense cuts take place in January as planned.  A report conducted by George Mason University by economist Stephen Fuller says Florida would suffer the sixth most job losses of all the states. The report measures the impact of both defense and nondefense employment reductions at federal agencies and their contractors, as well as at businesses that count them as customers. A little more than half of Florida’s lost jobs in the next fiscal year — 41,905 — would result from Department of Defense cuts, and the rest would stem from reductions at civilian agencies. During that period, Florida would also see gross state product losses of $8 billion. To read more click here. The George Mason University report concludes – The magnitude of economic impacts resulting from the Budget Control Act of 2011 over the combined FY 2012-FY 2013 period have been shown to be large and their impact on the U.S. economy to be significant:

• Combined DOD and non-DOD agency spending reductions totaling $115.7 billion in FY 2013 would reduce the 2013 U.S. GDP by $215.0 billion.

• These spending reductions would result in the loss of 746,222 direct jobs including cutbacks in the federal workforce totaling 277,263 and decreases in the federal contractor workforce totaling 468,959 jobs, thus affecting all sectors of the national economy.

• The loss of these 746,222 direct jobs and 432,978 jobs of suppliers and vendors (indirect jobs) dependent on the prime contractors would reduce total labor income in the U.S. by $109.4 billion.

• The loss of this labor income and the resultant impacts of reduced consumer spending in the economy would generate an additional loss of 958,508 jobs dependent on the spending and re-spending of payroll dollars associated with the direct and indirect jobs lost as a result of BCA.

• This loss of $215.0 billion in GDP and 2.14 million jobs in 2013 would erase two-thirds of the GDP gains projected for the year and raise the national unemployment rate by 1.5 percentage points by the end of 2013.

• These economic impacts would affect every state with their respective vulnerabilities to projected DOD and non-DOD spending reductions being determined by their agency mix and relative magnitudes of federal payroll and procurement. Based on current patterns of federal spending by state, ten states account for more than half of total federal payroll and procurement outlays. This significant concentration of federal spending represents a major threat to these states’ economies in 2013. While other states may appear less vulnerable to federal spending reductions, these may also suffer significant impacts dues to their smaller sizes or more specialized economic structures.

Florida is has twenty-one military installations, and is home to U.S. Central Command at MacDill AFB in Tampa.