Different views of the budget deal

If like me you daily peruse Lucianne.com, you’ve seen the innumerable articles from the conservative Web celebrating the budget deal as though it were the second coming of Ronald Reagan. Andrew McCarthy does not share the joy. He excoriates the Republican leadership for progressively caving in and going from $100 billion in promised cuts to $61 billion to $38.5 billion, and lambastes the conservative commentariat for praising this pittance:

Regarding that plan, you’re to believe that the captains courageous who caved on $21 billion—and who got elected because of Obamacare but don’t even want to discuss holding out for a cancellation of $105 billion in Obamacare funding—are somehow going to fight to the death for $6 trillion in cuts. Right.

I look forward to next year, though, when the commentariat will no doubt be swooning over the just announced Ryan Plan 2.0. That will be an even more fantabulous, intellectually serious proposal to cut, oh, say $12 trillion (of course, if promises don’t mean anything, why stop at 12?)….

However, it seems to me that there is a flaw in McCarthy’s reasoning. As a commenter at his article puts it,

Mr. McCarthy is right in many ways, but the facts on the ground simply don’t allow for the tactic of digging in; to whit, Boehner’s only got one half of one branch of one government.

Why do so many people keep forgetting this simple fact? The House Republicans lack the power to impose their desired cuts.

- end of initial entry -

Alexis Zarkov writes:

While the Republicans only control one half of one of the three branches of government, their power in money matters goes way beyond one sixth of the government. All appropriations bills must start in the House. Strictly speaking, the House can defund anything that doesn’t automatically continue from prior legislation. The Democrats are dealing with the power of the House in money matters by intimidation. Their position: if you pass a money bill we don’t like, we will block it in the Senate vote or with a veto, and the voters will blame you when the government shuts down. This strategy works. The Republicans believe they will get blamed, so they cave in. Functionally the Republicans refuse to discharge their constitutional mandate. Even if the Republicans controlled both the House and the Senate, Obama could veto an appropriation and shut down the government (assuming no override). Yet according to this bizarre logic he wouldn’t get the blame. How did we come to dwell in such a strange universe where cause and effect gets reversed? We got here from the Progressive era, and the 1960s. The assumed norm is an ever expanding government, and any attempt to stop this gets deemed obstructionist. In effect most programs from the Square Deal, the New Deal and the Great Society are grandfathered in forever. The Democrats are the self appointed guardians of this grandfathering. At best the Republicans get to control the second derivative (as in calculus) of the budget. The first derivative is set by inflation, population growth, and the escalator clauses from prior legislation. Ronald Reagan managed to make the second derivative negative for a time and got called a “budget cutter,” despite the fact that the budget got larger every year under his rein. Now in fiscal 2011, for the first time, the first derivative is a very small negative. A breakthrough. The Republicans get to celebrate.

The Democrats dwell in a universe where derivatives of all orders (first, second, third, etc.) of the federal budget must always be positive. Anything else is an abnormal condition. This is the exact requirement for exponential growth. Everyone knows that exponential growth can’t keep up forever, and in theory a “blow-up” (the growth goes infinite) happens at a time infinitely far away. So as a practical matter this problem can and does get ignored, because no one can say for sure exactly when the system will break. They can only say, “We can’t keep this up” (Paul Ryan). However if the budget grows so fast that its doubling time keeps shrinking, then we have what’s known as super exponential growth. In this case the blow-up comes at a finite time you can calculate. In a real economy a “blow-up” usually takes the form of a currency crisis. Exactly this happened to Iceland in 2008 when its currency fell precipitously on a trajectory towards zero. Fortunately for Iceland, Iceland was too big to fail, and small enough to bail out. Unfortunately for us, the U.S. is both too big to fail and too big to bail out. Paul Ryan should be saying something like, “If the budget grows at (specified) rate year after year, then on or before (a specified date) the U.S. dollar will become worthless on foreign currency markets.” He should also show that no matter how high an income tax we levy on incomes over $200,000, the U.S. dollar will become worthless by a specific date. Otherwise radicals like Michael Moore they will keep saying, “This country is not broke, there’s a ton of cash,” and get believed.

Until the House Republicans have the courage to risk “getting blamed for shutting down the government,” the budget will keep growing with perhaps a minor pause now and then. I suspect that the fiscal 2011 budget is actually greater than fiscal 2010 when you properly account for off balance sheet items in federal spending. It’s quite possible the Republicans got nothing but the second derivative like Ronald Reagan.

This is my view on the budget deal. Others might differ.

Philip G. writes:

If the House does not fund a program; there is no program.

LA replies:

I stand corrected.

But here’s the question. Granted that the House has the sole ability to prevent any spending bill from going forward. But does that mean that the House could have had its way, without that leading to a government shut-down?

Posted by Lawrence Auster at April 09, 2011 11:58 AM | Send

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