Tuesday, January 1, 2013


Tonight we saw some things happen in Washington that we haven't seen in a long time. We saw the Speaker of the House bring to the floor a bill that the majority of his caucus does not support. We saw the Republican leadership fracture and the Democratic coalition hold together. We saw a bill to raise taxes pass by a huge margin with broad support from both parties. We saw 85 House Republicans vote to allow the top marginal tax rate to rise, something they previously said they would never do. (I realize they have an argument that because they took this vote the day after all tax rates automatically rose, they actually voted to lower taxes for the majority of Americans. Even so, by allowing restoration of the 39% bracket from the 1990's, they did something that they said they would never do.) And we saw Congress act together in a timely manner to prevent potential economic calamity.

A lot of people are worried about the terms of the compromise. A lot are worried that we put off some difficult decisions, and will have more difficult battles ahead. Personally, I am cheered whenever I see two groups locked in bitter conflict able to agree about anything. However small and halting that agreement, it can be used as a stepping stone to build larger agreements. And I will grant that a lot of what we witnessed in Congress was frustrating and ugly. Even so, I would call it hope and change.

New York Times photo


  1. Let me remind your readers, what just happened is almost meaningless.

    This is a poor deal for Dems and for all of us. Within a few weeks, Repubs will insist on entitlement demands. Recall, Obama started fiscal cliff discussions by saying that the final fiscal cliff deal will “permanently address the debt ceiling so we never go through this again.”


    3/3 – Sequestration cuts kick in // 3/27 – Federal funds run out and we face government shutdown // Late February we reach the debt ceiling.

    And this current deal addresses NO debt ceiling at all. Paint some more blue sky, Picasso.

    Obama and Reid have ensured that the debt ceiling fight is on. But the stakes are now much higher.

    Obama says he will not negotiate on the debt ceiling.

    But Repubs will:

    Ask for spending cuts

    They may try to change CPI in social security
    Ask to change Medicare entry fee age requirements

    Obama has already put these items on the table.

    He has backed himself and all of us into a corner. There are some tough times ahead if you think the stock market is a good or realistic measure of American economic success.

    By the way – jobs????

  2. So Congress has to vote to raise the debt ceiling. They've been fighting over that my whole life. And they have to fight over more spending cuts and more revenue increases. Again, so what? They've been fighting over those issues our whole lives also.

    The difference is that those fights seem to have gotten more acrimonious in recent years, with less willingness to compromise. That's why the most important thing that happened yesterday was that Democrats and Republicans voted together to get the hardest part done. That bodes well for being able to resolve the other issues you mention.

  3. I fail to see how anything important happened. Just the opposite; nothing important happened. Nothing important has happened for years on end. That is why we will see a more strenuous fight in late February.

    Would you agree this is a short, shakey, brittle, bridge to Febrauary?

    Do you agree that Obama and Congress will find compromise in March?

    Your investments in the stock market may go up and down from 15000 to 6000 to 13000 but it means very littel to the man looking for a job. They don't even notice the latest 7000 point increase.

    1. You're right that the ups and downs of the stock market might not matter to somebody who still can't find a job. But the stock market is still one important measure of the value of the whole economy, or at least a measure of whether investors think that company profits will grow. Frequently the market is wrong, because of mass psychology, or because nobody has a crystal ball. But in the long run the market is always right. And even in the short run it tells companies and individuals how much wealth they supposedly have, so it influences decisions to buy property or expand busineses.

      What will happen in March I'm not ready to predict just yet.

  4. What we have is business sitting on records amounts of money; ready to invest and create jobs. But we have politicians who refuse to acknowlege that uncertainty is prevnting that investment.

    What coulod be done legislatively with tax reform, combined with certainty that would cause this money to flow?

    My feeling is that you know -- but your ideology won't allow you to say it.

    Please clear this up. How does Obama loosen those purses? Will spreading the weath through higher taxes do that?

  5. Business invests when they see a return on investment. And that happens when the economy starts to improve. Business is always a little slow on the uptake, however, since they base their projections on the past. That's why they spend too much at the peak of the market but fail to spend at the bottom. How this is the fault of politicians I do not understand. All politicians can do is try to stimulate the economy by more government spending to make up for the lack of private spending, or by cutting taxes. It seems to me they have been doing that, and it has been working, though too slowly. This is Economics 101 by the way, and has not much to do with ideology.

  6. << Business invests when they see a return on investment. And that happens when the economy starts to improve. >>

    I was under the impression the economy starts to improve when business invests; and that the role of the government was to encourage investment. Silly me, I thought that was Economy 101.

    Please enlighten me.

  7. The problem with the private economy is that it tends to accentuate the business cycle. When the economy is booming, everyone tends to over-spend and over-invest, and that leads to the inevitable bust. When the economy is flat on its back, everyone tends to retrench. Consumers stop buying, and business stops hiring and investing. And that might be smart for an individual player but it makes the overall situation even worse, as the economy keeps spiraling down. (Demand falls, so companies lay off employees, which causes demand to fall even more, so companies have to lay off even more, etc.) That is the situation we have been in since 2008, but we have been slowly working our way out of it, mostly I would argue because the government has been maintaining spending and running up big deficits to stimulate the economy, and has kept demand up by expanding the social safety net (primarily unemployment insurance and food stamps). Business and consumers are still a bit cautious, but people are starting to figure out that it might be a good time to buy a house, if you can manage to get a loan. Banks are starting to figure out that it might be a good time to loosen up a bit. But they are so burned from the 2008 experience that they are still too conservative.

    Because the private economy tends to make the situation worse, the role of government in Keynesian theory is to counteract the business cycle. So in boom times, that might be a good time for the government to put on the brakes by raising interest rates or by raising taxes. And in bust times, that is a good time for government to make up for the lack of demand in the economy by borrowing and spending more.

    This really is pretty basic stuff, but it is still hard for most people to accept, because they resist the idea that the government should do the opposite of what every instinct, and every necessity, tells people they should do for themselves. But that is how the government makes the economy better in bad times and encourages private businesses to invest.

    This also explains why conservatives, who are somewhat resistant to Keynesian theory, and also ideologically opposed to government "interference" in the business cycle, do not think that government should be raising taxes when the government seems to be taking in more than it needs, and also hate the idea of the government cutting taxes or increasing spending when tax revenues are falling. They would have government actually contributing to accentuating the "natural" business cycle. And liberals, who are more distrustful of business, and have more faith in government, have less problem with the idea of running up a big government surplus in the good times, and running up a big deficit in the bad times, which is what Keynes told us we should do.

    Notice that conservatives hated it when Clinton kept tax rates up during the boom, which caused us to run up a big surplus. And liberals hated it when Bush cut taxes during pretty good times, and kept taxes low throughout his term even while he was increasing spending and the economy was getting extremely over-heated. In the last four years, conservatives have hated it when Obama's response to the recession was to increase government spending and cut taxes even more, thus allowing the deficit to climb further.

    Somebody like you, who distrusts both liberals and conservatives, and is also suspicious of both the government and of private enterprise, just has to decide whether you buy into Keynesian theory or not. But if you think the government should do something to help the economy, it's hard to think of a good alternative. Unless you are a socialist or communist and you think the government should just take over private businesses and start running them the way that people think would be best instead of for the benefit of their owners.

  8. Thanks for your time (volume) and for spelling out your position.

    On to the BS:

    You said << Somebody like you, who distrusts both liberals and conservatives, and is also suspicious of both the government and of private enterprise, just has to decide whether you buy into Keynesian theory or not. >>

    Counsel, that type of baiting is beneath you on more than one level. Disappointing of you; and that is me being kind. I will hold back from treating you like a punching bag because it is your blog and you have been fair in the past.

    1. No offense meant. And I was not spelling out my position; just giving a summary of mainstream economic theory. Not everybody accepts it. So you do have to decide whether you want to buy into it or not.

  9. << So you do have to decide whether you want to buy into it or not. >>

    You have a bad habit of telling others what they have to do based on false premise. This is a weak debating tactic for anyone, let alone a professional.