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NRO’s eye on debt and deficits . . . by Kevin D. Williamson.

Jon Chait Cannot Read: An Ongoing Series -- Mitch Daniels Edition



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Jon Chait over at The New Republic has what he apparently supposes to be a rigorous and clever takedown of Gov. Mitch Daniels’s brief outline of an economic plan spelled out in the Wall Street Journal. Writing with the characteristic humility for which we have all come to appreciate him, Chait proffers, among other gems, the observation that Daniels is being held to standards that might be applied otherwise to the mentally retarded or severely disabled – his piece is headlined “Mitch Daniels Wins The Fiscal Special Olympics.”  “A proposal that seems remotely close to reality will be widely praised,” he writes, “as if we were watching a person with severe disabilities manage to finish a race. Wow, look at that! You have a plan! With numbers! Hooray for you!”

Chait has made a classic error here: Before one attempts to condescend, one must ensure that one is in the proper position from which to condescend. Chait is not. Let us count the ways.

At the core of Daniels’s plan — and Chait gets at least this much right — is a proposal to suspend or reduce the payroll tax for a year, and, because Daniels is not a naïve supply-sider, not only offset those lost revenues, but offset them twice over. This gets Chait into a bit of a huff, and there is nothing quite like a New Republic huff for pure amusement value:

Okay, let’s look at Daniels’ plan. He says we should suspend or reduce the Social Security tax for a year. In order to compensate for the lost revenue, Daniels proposes to make it up “twice over.”

The Social Security tax is projected to bring in $934 billion next year. If we “suspend” the tax, that means we need $1.8 trillion in savings to meet his target. If we merely reduce it, we need less. Keep that in mind while we go through Daniels’ proposed savings, which are these:

And then he quotes from Daniels’s WSJ piece:

• Impoundment power. Presidents once had the authority to spend less than Congress made available through appropriation. On reflection, nothing else makes sense. Plowing ahead with spending when revenues plummet is something only government would do. In Indiana, we are still solvent, with no new taxes, money in reserve, and a AAA credit rating only because our legislature gave me the power to adjust spending to new realities. I promise you that a president who wanted to could put the kibosh on enormous amounts of spending that a Congress might never vote to eliminate, but the average citizen would never miss.

• Recall federal funds. Rescind unspent Troubled Asset Relief Program (TARP) funds and any unspent funds from last year’s $862 billion “stimulus” package, as well as large amounts of the hundreds of billions of “unobligated funds” unspent from previous appropriations bills.

• Federal hiring and pay freeze. Better yet cut federal pay, which now vastly outstrips private-sector wages, by 10% during the emergency term, and freeze it after that.

• A “freedom window.” Might we try some sort of regulatory forbearance period in which the job-killing practice of agonizingly slow environmental permitting is suspended, perhaps in favor of a self-certification safe harbor process? Businesses could proceed with new job creation immediately based on plans that meet current pollution or safety standards, or use best current technology, subject only to fines and remediation if a subsequent look-back shows that the promised standards were not met.

Chait’s objections are these: 1. Daniels does not specify what spending he would impound, and such discretionary power resembles the line-item veto that has been thrown out by the courts; 2. There’s only $200 billion or so in unspent TARP and stimulus funds; 3. Federal workers are not actually overpaid (ho, ho, ho!); 4. The regulatory holiday is not a revenue plan.

Let’s take the low-hanging fruit first.

As evidence that federal workers are not overpaid, Chait cites a study from an organization whose board of directors is composed entirely — without exception — of representatives from government-employees’ retirement associations and their money managers: the president of the National Association of State Retirement Administrators and treasurer of the North Carolina Retirement Systems, the executive director of the National Council in Teacher Retirement, the executive director of the National Association of State Retirement Administrators, The CEO of the California State Teachers’ Retirement System, the executive director of the Minnesota Teachers Retirement Association, the secretary of the Kentucky Teachers’ Retirement System, and, drum roll, a guy from the Council of Institutional Investors, i.e., the guys who handle money for government-employee retirement systems.

Even if we were to assume that these guys are an entirely disinterested bunch, the study Chait cites is (pay attention, now!) not a study of federal employees’ compensation. It is a study of state and local government compensation. Mitch Daniels proposes to cut federal pay, a subject about which the study Chait cites tells us what is known in technical economic jargon as approximately squat.

Chait’s take is: But government workers have college degrees! Lots of them! Well, raise my rent! There’s a big difference between the sorts of people who have masters’ degrees and work in local government and people who have masters’ degrees in the private sector: No doubt the high-school career-guidance counselor who set Chait on his woeful course in literary life had a very impressive piece of sheepskin on his office wall. He is still overpaid, I will wager. What all this is supposed to tell us about the economics of federal government compensation — rather than about the entitlement mentality of the precious middle-class snowflakes turned out by our universities each year — is a mystery.

Chait calculates that Daniels only accounts  for about 10 percent of the double-offset he proposes, which is true — if you only count the stuff Chait counts. Daniels has his eye on hundreds of billions in unobligated funds and as much, possibly much more, in spending offsets through his impoundment proposal. These are the big-ticket items: Chait’s take only makes sense if you ignore them.

Likewise, Chait’s protestation that the regulatory holiday is not a revenue program ignores the fact that what Daniels is most interested in — as his op-ed makes abundantly clear — is achieving higher levels of economic growth, which will contribute to tax receipts (and also help to head off economic catastrophe!). Chait, no doubt a college graduate himself, should be able to identify the thesis statement here: “A time-limited, emergency growth program aimed at triggering new private investment should be a primary goal of the next Congress.”

Also, unless I’ve missed something, there is nothing in Daniels’s plan that indicates he thinks we need to achieve that double-offset in a single year, which makes Chait’s exercise in arithmetic totally meaningless. Presumably, Chait does not believe that each year’s federal borrowing needs to be offset fully in the following year; I’m not crazy about the logic behind stimulus borrowing, but the process of paying back borrowing for a spending program is precisely the same as the process for paying back borrowing to finance a tax holiday. Taxing is taxing, spending is spending.

So, other than ignoring the fiscal timeline, conflating federal and state/local workers, and leaving out the biggest pieces of the economic picture — other than getting every single aspect of the proposal wrong that it is possible to get wrong – Chait wins the gold medal.


Tags: Debt , Deficits , Fiscal Armageddon , General Shenanigans


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