Invest Now to Grow Later

The economy isn't in good shape these days really just about anywhere in the world.  This global economic doom and gloom, though, has created a rather Un-Greek opportunity for the United States.  In an op-ed piece former Treasury Secretary, Larry Summers lays out the situation very succinctly:

 In real terms, the world is prepared to pay the U.S. more than 100 basis points to store its money for five years and more than 50 basis points for 10 years. Maturities would have to reach more than 20 years before the interest rates on indexed bonds becomes positive.

Basically, the U.S. can sell bonds, the market will buy, and we'll pay less than the face value to service that bond for over 20 years.  In other words this is free money.  So what could we do with this money?  Well Matt Yglesias brings up the issue of aging water infrastructure in the nation's capitol where the average water main is 77 years old.  This sort of infrastructure investment will be necessary at some point, and that point, after 77 years, is probably sooner rather then later.  Much like healthcare, it's cheaper to maintain the health of our infrastructure then to pay to replace it after a calamity.  Back to Sec. Summer, he notes: 

Any rational chief financial officer in the private sector would see this as a moment to extend debt maturities and lock in low rates – exactly the opposite of what central banks are doing.

In other words, we're missing our moment, because we've become afraid of debt.  But we aren't Greece and while we have some systemic debt issues we must address, I'm comfortable in suggesting we're still going to want roads, bridge, and running water.  Why not lock in a ridiculously low rate to make that investment now?

Markets Feeling Good About the U.S. in Short Term

The Economist, as always, publishes their daily chart and today it's about the riskiest and safest bets on government debt over two years.  The results may surprise you:

Source: http://www.economist.com/blogs/dailychart/2011/09/government-bonds

What this means is that contrary to the popular narrative, we are not broke and we certainly aren't the next Greece.  The markets seem content with the short-term prospects of the United States economy, in fact it only feels better about Singapore, Japan, and Switzerland.

It also means it's time to invest, heavily.  I've said it before and I'll say it again, the federal government needs to borrow money right now because the rates are good and the need for infrastructure improvement is great.  If private industry insists on sitting on a stack of cash, then the government should step in.  It isn't going to cost us very much in the future.

Falling On His Sword for Country & Legacy

As I mentioned in today’s Short List, Speaker Boehner has been neutered by Eric Cantor and his tea party cohorts, who want the government to live within its means so long as “its means” doesn’t have anything to do with the increasing revenue.  Even if that increased revenue comes through a simplified tax code and is accompanied with $3 in cuts for every $1 in revenue.  I think this presents Speaker Boehner with an opportunity, albeit one with severe short-term professional consequences.

As Ezra Klein reminded us this morning, on the whole the American people like compromise, even if a majority of Republicans do not.  From everything that’s been written, it would seem like Boehner knew he had a sweet deal with the Obama administration and was inching toward taking it until he was out-flanked by Cantor and the far-right of the Republican party.  I think Boehner ought to work with Obama to make this deal work and abandon Cantor and the tea party.  I think Boehner needs to appeal to the cadre of remaining Republican moderates in the House and work with Obama and the Dems to avert what would be an unmitigated economic disaster.

Sounds kind of crazy, I know.  But stay with me here.  I believe there is a segment of the Republican party that’s filled with people who want a government to govern, and I think that part of the party knows how good a deal they have.  They’re best personified by this column(NYT) from NYT Columnist David Brooks.  And I think this is the part of the Republican party that Speaker Boehner represents.  The trouble is this is now the minority wing of the Republican party.  Time and time again, Obama chased the Republicans rightward (a whole other problem for progressives), forcing Republicans to abandon several smart ideas they’ve had in the past decade.  They had to abandon them because Obama, the Other, embraced things like individual mandates and cap-and-trade.  But I believe there is a sizeable number of Republicans remaining who aren’t Grover Norquist zealots and genuinely believe it’s the job of people in Congress to compromise in the pursuit of governance.  I’m just hoping those same David Brooks’ Republicans are spoiling for a showdown with the tea party.

Which brings me back to Speaker Boehner and his opportunity.  Given Boehner’s sensibility, he is not long for his own party lest he abandon his remaining moderation.  If he can rally his fellow remaining moderates to get this deal done he will almost certainly lose the speakership, he will likely face a primary challenge, and he may well lose his seat, but it’s a play for his legacy.  He could force the showdown between David Brooks Republicans and tea party Republicans.  By falling on his own sword he may save the Republican party from permanent minority status.  And history tends to smile fondly on politicians who put the national interest (and indisputably it’s in the national interest to increase the debt-ceiling and cut the deficit) ahead of fleeting personal aggrandizement.

Perhaps I’m overly optimistic.  Perhaps I’m reading Speaker Boehner wrong.  But if he is going to be robbed of his influence, why should he hold ceremoniously to a title and let his fellow Republicans run the economy off a cliff?  Andrea Mitchell was on The Chris Matthew Show this week reiterating how much these negotiations and the compromise that will be reached is about leadership.  I couldn’t agree more and I think this is an opportunity for Speaker Boehner to demonstrate his leadership and his shot to write his name into the history books of great Speakers of the House.  If a deal doesn’t get done and the credit of the United States gets downgraded, well that path carries a legacy as well.

We're Not Broke

This post will inevitably lead to extended debate in comments about the proper role of government, but it's worth noting regardless.

In a column at The Washington Post today, E.J. Dionne asks "What if we're not broke?"  He could have saved some space by simply saying, "We're not broke."  Mr. Dionne really spends his time in the column going over, once more, all the reasons we aren't broke, why the Republican push to severely cut non-discretionary spending is about ideology, not fiscal responsibility, and the irresponsibility of taking any tax increases off the table entirely.

If it sounds like a song on repeat, that's because it is.  However, you have to keep saying it to combat the factually incorrect talking point that the nation is broke.  Is there a looming, long term fiscal crisis?  Yes.  Will cutting $60 billion dollars do anything to avert that?  No.  Once more with feeling.

Looking at Revenue

House Republicans rejected an amendment to their spending bill that would have corrected an error that will cost taxpayers $53 billion over 25 years.  Matthew Steinglass breaks down the situation more here, but the issue is leasing rights on public land for deepwater drilling.  An oil company would pay royalties to a private landowner, typically, for the rights to drill on their land.  The government decided to grant free leases on otherwise commercially nonviable lands.  The commerical viability of the land was contigent on the price of oil, and thus the leases should not have been given out after the price of oil reached a certain point. Through a Minerals Management Service error, free leases were given when they shouldn't have been.


The amendment, offered by Rep. Markey, would have corrected the lease free error going forward.  It would not have sought payment for passed royalties.  According to GAO, it would netted the government $53 billion in revenue over 25 years.  You can mock the original error, but to use the error to exonerate the oil companies from paying the leases in the future seems like a stretch.  We have been hearing constantly about how we have to cut spending, but there are two sides to the ledger.  Passage of this amendment would have done very little to help the deficit, but the revenue collected would have fully funded USAID every year, according to figures taken from the Republican Study Committee.  If Speaker Boehner and his House Republican colleagues were truly serious about addressing the deficit, you would think they'd support an amendment that collects royalties from oil companies, especially since these same oil companies pay royalties to use private land.

Defense Spending, Sacred Cows, and the Tea Party

AEI's Arthur Brooks, Heritage's Edwin Feulner, and Weekly Standard's Bill Kristol joined forces yesterday to write an op-ed in the Wall Street Journal (full text at Heritage.org) basically saying in the discussion about where to cut deficits can't include a discussion about cutting our defense budget.

C'mon man! (for the reader(s) who watch ESPN's Sunday NFL Countdown)

Instead, they go after entitlements. "Cut them first!" they holler, "Or else!" Or else our trading lanes will be obstructed, our freedom threatend, lions, tigers, bears! Oh my! Now the op-ed actually raised the ire of a conservative (maybe libertarian is a better descriptor) blogger writing on the Economist.com's Democracy in America blog. W.W. out of Iowa City, IA (because repetition sells) responds and makes from very valid points. The most notable point that our current defense spending is greater then the spending by China, Britain, France, Russia, Germany, Japan, Saudi Arabia, Italy, South Korea, Brazil, Canada, and Australia combined. Surely there is some room to make cuts there.

Also, let's look at percentages. The Center on Budget and Policy Priorities project that in FY2010 about 20% of tax receipts will go to pay for defense and security spending. This, by the way, is the same percentage as Social Security.

There is also the point to be made that President Obama didn't start two wars (one entirely justified, one less so) while cutting taxes. That's a tired point, but one we shouldn't forget.

I'm not saying we don't touch entitlements. There can be no sacred cows if we are legitimately going to get our budget deficit under control. My issue is the ridiculous attempt by these thought leaders of the conservative movement declaring one fifth of federal spending off limits for cuts. Ridiculous.

Closing note: W.W. critiques the WSJ op-ed and wonders if Tea Party activists will rally around this op-ed. He's hoping they don't. If you've read Matt Taibbi's piece in Rolling Stone (and I have) you are far less optimistic they won't.