Is There Any Doubt We Are Heading for a Double-Dip Recession?

Great Debates
41

I missed responding to this earlier, but it’s important:

This is just flat-out wrong. The CBO scored the HCR bill as being slightly deficit neutral, but that’s not because it saves money - it’s because it raises half a trillion bloody dollars in taxes and new fees to pay for it, and gets another half-trillion in ‘savings’ by raiding the Medicare system of 500 billion dollars.

If there truly was 500 billion dollars of easy savings to be had from Medicare, that could just as easily have been applied to the debt, which would avoid cuts elsewhere. Or, you know, it could be used to help keep Medicare solvent for another couple of years.

Since then, however, Obama has issued hundreds of waivers to special interests, which will cut the amount of revenue the bill was going to collect, and they’ve also cut the 1099 reporting requirement that was supposed to raise 50 billion dollars or so. In addition, those supposed cuts to doctor’s fees likely aren’t going to happen, and Obama has already deferred them twice. So actually, the bill still costs over a trillion dollars, and now it’s not even deficit neutral any more.

The primary funding for the new health care bill is a direct tax on small business employment. That’s simply a fact. And small businesses are where all the job creation comes from.

Oh, there’s also taxes on other entities like insurance companies and medical device makers. To be specific, medical device makers are being hit with $20 billion dollars in taxes over the next ten years - a 2.37% tax on all sales. That’s a not a tax on profits, but all sales. That’s a a huge tax. This is already costing jobs - Boston Scientific, a major medical device maker, just announced that it’s moving 1,200 jobs to China.

So let’s not hear any more about how it saves money.

42

Yes, good points. I’m not sure who said it, but in reference to the expiry of the Bush tax cuts… If the congress just went home for 6 months and did nothing, it would have looked after a large part of the deficit. They did more damage by “governing” (ie. causing a lack of confidence) than they would have by doing nothing.

One reason our Canada Pension Plan is funded is that an independent body of actuaries recommended an increase in the plan payments by employers and employees (a tax increase by any other name), and in general the citizens said “makes sense, looks like we’ll have to pay more to keep the CPP solvent”. I can’t see that happening in today’s “no tax tea party” climate in the USA.

43

The real difference is that Canada has a parliamentary democracy with strong party discipline. That has its drawbacks, but when it comes to making big, tough decisions it works a hell of a lot better than the U.S. government system. In the U.S. every politician has a free vote all the time. That means all of them are responsible for every funding cut in their district, and get credit for every dollar of pork that comes home. It also means every politician is a target of lobbyists and special interests.

In Canada, politicians are expected to vote with the party, with few exceptions. That means they get cover from the ‘blame’ by their constituents, and that they have less power to wrangle for pork. it also means lobbyists can’t pay them off for a favorable vote.

This allows the government to actually make tough decisions and stick to them. The Martin government balanced our budget with a 7:1 ratio of spending cuts to tax increases. That would never fly in the U.S. any more, unless one party gets a supermajority in both houses and the presidency. And maybe not even then, as the party would probably split down parochial interest lines.

44

Come on, Sam. The source of Canada’s relatively stronger economy is hardly a mystery. 1) We largely dodged the real estate meltdown due to tighter financial regulations that run counter to your ideology, and 2) commodity prices have been high throughout the whole mess, and a significant portion of our economy is built around selling commodities. Trying to read anything whatsoever from the Canadian situation into US partisan policy bickering is just pointless.

45

I know exactly one more small business owner than you know, and they all agree with me.

Wow, dueling with unverifiable anecdotes is fun!

46

I’d give partial points to both you and Sam on this one. How’s that for typical Canadian compromise?

47

The shortfall in the SS trust fund is approximately equal to the amount of revenue lost by the Bush tax cuts. Yet no outrage over the cuts, which overwhelmingly benefited the wealthiest Americans.

And any Canadian opining about the failure of the US healthcare reform bill to rein in costs who argues anything other than “you should have gone single payer” should shut his mouth.

48

You should have gone single payer rather than the bastardized mess you wound up with. Happy?

As for cost control, every cost-control measure that was originally in that bill is gone, and it also removed the ‘donut hole’ in Medicare part D, which was the only cost-containment mechanism that legislation had.

49

Except nobody is hiring right now and the United States will probably get downgraded due to the lack of debt control. Go figure.

50

It’s not just Bush policy, it’s Republican policy and that’s where the blame must lie if we’re addressing this honestly at all. It’s simple fact. We know that the deficit is being largely driven by Bush’s wars and Bush’s tax cuts. And we know that historically, our national debt has grown under Republican presidents, and shrunk under Democrats because it’s been Republicans who have built fiscal policy on deficit spending.

We know that prior to last month’s Republican manufactured “crisis,” increasing the debt ceiling has been done with nearly no conditions ever attached, 91 times in the last 51 years. Republicans and Democrats alike regularly voted to increase the ceiling and avoid default. The largest increases in the debt ceiling have come under Republican presidents who have, of course, done the most deficit spending.

Now all of a sudden, the same Republicans who historically have embraced debt and deficits as a functional centerpiece of their policy, (while always proclaiming themselves the fiscally responsible party) felt the need to get belligerent about linking the debt ceiling raise to deficit reduction while refusing to put any of their own deficit driving policies on the table for consideration of any substantial cuts.

This is the second time they’ve courted disaster to retain the Bush tax cuts for the richest amongst us, and this time they’ve also gone to bat for their corporate friends, refusing to even address policies that allow multibillion grossing multinational companies like General Electric to have a lower functional tax rate than the janitors that clean their buildings. Apparently “no new taxes” apparently includes “no closing loopholes so that corporations are paying their fair share.”

And meanwhile, having campaigned on jobs, and saying even in the last week that they’re “laser focused” on jobs, the GOP leadership in the House has not only failed to propose any jobs legislation, they’ve not managed to pass a single piece of major legislation save for the budget deal that preserved the highly contentious tax cuts, and this debt ceiling deal that did likewise.

And the Republican Senate minority leader has said that his single most important goal isn’t doing his job, it’s not governing, it’s not working with the Senate majority or even with his party’s majority in the House to craft fiscally responsible economic policy bills or a new jobs program, it’s ensuring President Obama’s defeat next November.

So yes, we are certainly heading into an economic slowdown, and it may very well turn into a second recession. And we know exactly who to blame if we’re willing to be honest about the situation.

51

I dunno. I’ve been saying for years and year what Sam just said - that the Westminster system’s necessary strict party discipline makes it easier to make tough economic decisions.

The very significant cost-cutting does in the 1990s, when it really had to be done and the Canadian federl goverment was becoming hamstrung by debt, just isn’t even conceivable under the U.S. system. The cuts were broad and unpopular, but there was no political barrier to them because the Liberal Party could tell its members “Hey, by all means vote against it. Best of luck in the next election running as an independent.”

That’s just not possible in the American system. You can’t stop the pork there. There seems to be no political will to cut the defense budget. Nobody can lead.

The Liberal cuts entrenched fiscal discipline and balanced budgets as expected goals in Canadian federal politics for the first time in my lifetime, and gave the government far more latitude for deficit spending when the recession hit.

I realize this doesn’t go directly to the issue of Canada’s lack of bank bailouts and such, but it sure doesn’t hurt to have a triple-A credit rating.

52

I don’t dispute any of that. My post was unfortunately not clear on this, but I was responding to Sam’s earlier posts where he seemed to be trying to take policy lessons for how the US government should respond to the current situation from how the Canadian government has behaved the past couple years, talking about the current budget, government layoffs and the like. I would contend that there are no such lessons to be had.

There are some lessons to be had in how to avoid financial meltdowns by actually having some oversight of the financial industry. There are some lessons to be had in how it’s possible retrieve a nation from large deficits and debt nearing 100% of GDP, but they can’t be applied at this very moment. The Liberals balanced the budget during the dot com boom, not in the middle of the worst recession since the Great Depression. The relatively unscathed nature of the current Canadian economy is not the result of Conservative policies over the past two years, but is rather the result of the past two decades of policies from both Liberals and Conservatives (and actually of the previous Progressive Conservative government*). And they’re the result of being an exporter of oil and other commodities that are trading at historical highs. It’s far too late for the US to adopt the Canadian government’s policy of not spending like drunken sailors from 2000-2008, and I don’t think they’ll have any luck trying to become a net oil exporter.

*Just after the Flaherty brought down the budget that led to the recent election I happened to catch a fascinating interview on the CBC, on The Current. Anna Maria interviewed Michael Wilson, John Manley, and Janice MacKinnon (NDP finance minister in Saskatchewan during the Romanow years). Halfway through, Manley said, in so many words, that Wilson deserved some of the credit for Martin’s success in balancing the budget because the GST, while revenue neutral when it was introduced, resulted in much higher revenue growth in the 90’s than the old MST would have. Wilson and Mulroney took the political hit from introducing it, and the Liberals benefited from it. Was kind of funny listening to the CBC’s most lefty interviewer talk to former finance ministers from across the spectrum about the Conservative budget and all of them, even MacKinnon, were pretty much endorsing the budget as sensible and not agreeing with the Opposition’s criticisms of it. Of course, MacKinnon has deficit-fighting credentials to match most anyone herself, so perhaps no surprise there.

53

I recognize that Canada benefits from high resource prices. But my point was that a big feature in Canada is that the government hasn’t actually done things destructive to the economy. We are charting a stable course with little change, and that promotes a better environment for job creation. If we had a dysfunctional government pitting Canadians against each other and unable to govern including not being able to even pass a budget, and we had a huge mess of tax exemptions that are constantly changing, a major new health care initiative coming that was going to plonk a $3,000 per employee tax on random companies through the economy, but we couldn’t tell which ones for a couple of years, and ratings agencies warning the world about our fiscal stability, you can bet that we wouldn’t be creating nearly as many jobs.

Can you imagine if we had an election telegraphed two years in the future, with the promise that if one party got elected we’d see new taxes on business and more government, and if the other won businesses could expect regulations to be cut and taxes to remain stable or even be lowered? Even ignoring the relative merits of both sides of the argument, think about what that kind of uncertainty does to business confidence and the ability to make smart investments.

The U.S. got hit harder than most by the recession, but since then it’s endured a series of self-inflicted wounds, with politicians from both parties responsible.

54

Vermont is in the process of starting a single payer system. I believe in Canada it started in one province and spread. You can be sure that healthcare companies will come down hard on Vermont, doing anything they can to ruin it. There are slivers of hope that we can act like adults.

55

I hope Vermonts system stays in place. The guy who did Taiwan’s system did Vermonts (Taiwan covers everyone for about 8% of GDP, but east asian nations all seem to have great health care for 6-10% of GDP for some reason).

If the cost savings materialize, hopefully other more liberal states or at the very least left of center (Illinois, PA, CA, the rest of new england, etc) will look into similar plans and eventually trigger a national system. If cost savings end up being 30% over time, that is a major incentive for broke states not handcuffed by free market ideology to implement a similar system.

56

I quite see your point, and agree that the middle of a recession is absolutely not the time for massive and quick government cutbacks.

I think Sam’s point about the nature of the two systems remains highly valid, though, if looked at in the long term and in a more general sense. Right now the U.S. could stand to raise taxes, let’s be honest, especially if it was accompanied by substantive tax reform. But the system is hopelessly crippled by the intransigence of some of its members. Much the same thing can be said about military spending, which is absolutely astronomical and yet is a politically ungoreable ox.

Your anecdote about finance ministers reflecting on the value of a policy implemented in 1990 is actually a very good one, really, because there you have a policy - a national VAT - that absolutely DOES make sense for the USA to look into, even if now isn’t necessarily the right time for it, and that 15-20 years from now people will be looking back on and saying “ya know, in retrospect, that was a sharp call.” The Mulroney government was able to pass GST over the histronic shrieking of the opposition (hi, Sheila) because, well, they were the government and that was the way it was going to be and if you didn’t like it outta the party you go. Imagine, if you will, the U.S. government right now, or for that matter five years ago, or hell even 20 or 25 years ago, proposing a VAT. It would be a political debacle of the highest order if it ever saw the light of day in Congress, which itself is hard to imagine.

Of course, arguments about the relative merits of the American system versus ours lead to the rather obvious counterpoint that the American republic has carried on for 200+ years without collapsing, through problems bigger than this one, so why’s it not working now? That is a question I’ll have to stew on.

57

Forget PA. We’ve got a far right governor, a Republican dominated legislature, and if it weren’t for the fact that Philadelphia has now sprawled up the entire eastern 1/4 of the state, we’d be a red state. Right now our legislature is contemplating further cuts to Medicaid eligibility, the concept of expanding healthcare access is as anathema to this band of merry fools as eating live dogs. Maybe more.