Lie of the Year? "$1.5 trillion spending cuts already passed"

For my undergraduate degree I majored in philosophy, and one of the ideas I picked up then that has stuck with me is that the "coherence" theory of truth has a lot to recommend it.  It answers many of the various objections that epistemological skeptics make and that subjectivists make to objectivists while retaining the primacy of logic and rejecting the metaphysical premises behind moral relativism.  To oversimplify, you might not agree with someone else's world view, but you still have to keep your own world view coherent, and once it is established that both you and another person both believe in certain basic principles, if you disagree on some derivative matter one of the two of you is more wrong than the other.

The moral status of abortion may be an example of an issue whereby the level at which disagreement begins is too fundamental for either side to prove the either side to be definitively wrong.  There just aren't many commonly held premises, even when drilling down to the metaphysical level.  One ends up appealing to a "correspondent" theory of truth, i.e. arguing that the other side's beliefs do not correspond to reality.  If one person's view of reality happens to be entirely materialist (that nothing, not even consciousness, exists apart from matter and energy) while the other is metaphysical dualist, the disagreement will be pretty fundamental.

But most debates between "subjectivists" and "objectivists" are over matters of degree within a coherence construct.  If the coherence test is applied to such an extent that the "edge" of its applicability circumscribes all of human consciousness, and that metaphysical premise itself forms a common cornerstone, then notions of "subjectivity" drop out as irrelevant, à la Wittgenstein's beetle in a box.  There might be another universe out there, but we are living in this one.

I write this as a preamble to making three comments about the U.S. economic and political debates.  Allow me to take as the first example what PolitiFact called the "Lie of the Year": the Romney campaign's Jeeps and China ad.

 How effective a criticism of PolitiFact's decision is it to note that every word of the ad is actually true?  Presumably not very, since that's held to not be the issue.  At the time, Politifact said, "In this fact check, we examine whether the sale of Chrysler came at the cost of American jobs" instead of examining what the ad actually claimed.  According to PolitiFact, the ad "presents the manufacture of Jeeps in China as a threat, rather than an opportunity to sell cars made in China to Chinese consumers."  Now that IS true, it is presented as a threat on the basis of the well established economic principle of opportunity cost (corporate resources spent on expanding plant in China are resources not spent on expanding plant in the U.S.) but the question is why outsourcing suddenly became an "opportunity" when Politifact treaded lightly on the Obama campaign's many charges that Romney was running to become Outsourcer in Chief.  Where is the coherency?  Now it's true that Romney could be challenged on his own "coherency" in choosing this line of attack by noting his track record at Bain.  But that's actually a charge of hypocrisy, not a truth claim.  As Ryan Chittum at the Columbia Journalism Review put it:

[The ad is] saying that Chrysler’s Italian owners “are going to build Jeeps in China.” But happens to be true, even if it was happening before 2009 under its German and private-equity ownership. Cars made overseas by an American company (even one with Italian owners) are cars that won’t be made in the U.S., and it’s fair to say those jobs are outsourced.
On the other hand, it’s high hypocrisy for Romney the free-trader private-equity guy to attack anyone for outsourcing production...

Glenn Kessler of the Washington Post dodged the fact that what the ad said was true by declaring that "The series of statements in the ad individually may be technically correct, but the overall message of the ad is clearly misleading."  Kessler assigned his most damning designation of Four Pinnochios on this basis, yet he assigned zero to Obama's claim in his second debate with Romney about his communications regarding Benghazi which were only technically correct and technically was not even technically correct.  The Columbia Journalism Review was founded by Victor Navasky, who has used his publication The Nation to, amongst other things, argue that Alger Hiss wasn't a spy for Stalin despite the overwhelming evidence to the contrary.  The CJR's Chittum nonetheless points out a mitigating factor re the Jeeps and China ad, namely that it started with a Bloomberg story with problematic wording and then was amplified inaccurately by a Washington Examiner blogger (before actually being dialed back in the Romney ad transcript from what the Examiner said).  No such mitigating factor exists with respect to Obama's misleading claim in the second debate.  Instead of getting "caught up in the liberal echo chamber," Obama's decision to create the impression that he called Benghazi a terrorist attack from Day 1 was a decision to create something, not picking up to forward on a liberal attack line already in circulation. Politfact, of course, also took a pass when it came to rating Obama's remarks, instead seeing the back and forth with Romney at the second debate as an opportunity to mark down Romney, calling his criticism of Obama on the point "half true."  The bottom line here is that it's a mug's game to try and expose "fact checking" bias by pleading the "facts."  One has to make an appeal to coherency, not correspondence.

There are other examples one could go into.  Romney's infamous "47%... pay no income tax" remark was taken to task by fact checkers in part because "nearly two-thirds of households that paid no income tax did pay payroll taxes."  Yet when it comes to trimming the growth of Social Security benefits, were these benefits paid for by tax revenue?  In that case, the payroll taxes are spun as being insurance policy payments or otherwise "earned" benefits; in other words, when the question is whether the 47% are carrying their share of the load, their payroll taxes are deemed to be building up the public pot, but when the question is limiting S.S. payouts, these same contributions are deemed to be building up a private entitlement.

Now the example I meant to talk about today (but which I've taken a while getting to) goes back to my last post about the extent to which U.S. unemployment is cyclical or structural.  In the context of the "fiscal cliff" debate the New York Times today claims that "Obama already agreed to more than $1.5 trillion in cuts last year."  This $1.5 trillion number comes courtesy of the Center on Budget and Policy Priorities, however it should be noted that these "cuts" nonetheless still not only allow "discretionary" programs to continue to grow with inflation, they allow for a further $65 billion in spending above and beyond that over the next decade.  How do you spin spending that exceeds inflation (and more) as "cuts"?  By reaching back to inflated 2010 appropriation levels and using that as the baseline.  The 2010 appropriation bills were actually adopted in 2009 when the demand on the social safety net was near its height and when Democrats enjoyed a filibuster-proof majority in the Senate in addition to their majority in the House, except for some special bills in 2010 for disaster assistance, border security, and the Patent and Trademark Office which the CBPP of course also included in order to further inflate its baseline.  The CBPP says that the 2010 appropriation "simply reflects the level that Congress deemed appropriate" at the time.  Well of course.  You could say the same thing about 2007, or 2013 (we're already more than than two months into the 2013 fiscal year), but of course then the claim of $1.5 trillion in "cuts" would collapse.

Now what would be an appropriate baseline?  The answer to that is what is most coherent with the view you have taken elsewhere.  Dean Baker, for example, has repeatedly insisted that the "graph that gives a better picture of the problem of the budget deficit in relation to the economy" is one that calls attention to projected deficits in January 2008 (I've copied his graph here).  The blogger Kevin Drum insists on using a graph that he cuts off at 2008 in order to argue that "Washington Doesn't Have a Spending Problem." Drum says he cuts off his chart because "numbers in the chart have spiked over the past four years because the recession has temporarily depressed GDP and temporarily increased spending, but that spike will disappear naturally as the economy recovers".  Yet Drum elsewhere tallies up "Discretionary spending cuts already passed in 2011: $1.5 trillion"  No "natural disappearance" here, it's "cuts already passed" by Congress!  Not passing another disaster relief bill like in 2010 becomes passing a cut.  Coherency here would mean tallying up the change in spending since 2008, although that would of course completely undermine the point about all the "cuts" that have occurred.

My last two blogposts about the U.S. prior to this one were about whether the current U.S. economic situation is the "new normal" and whether Obama's remarks at the second presidential debate were misleading or not.  People can disagree with the former and say that 2007 should be the touchstone, but if so, don't elsewhere start calling a level of federal government spending that was decided in 2009 the appropriate reference point.  People can disagree about my negative take on Obama's claim in October about what he said on September 12 by saying his words were narrowly true, but don't elsewhere say that Romney was a liar because while his ad was narrowly true it's what viewers were lead to believe that matters.  

the sorry state of the US healthcare debate

After almost two decades of holding a subscription to TIME newsmagazine, I've decided not to renew. I don't have a problem with left leaning publications; indeed, I probably read more material from "left" sources than "right". But what is insidious about TIME is that its agenda is not apparent (aside from the fact that Joe Klein is unabashedly the biggest Obama partisan amongst MSM columnists, a remarkable feat given the intensity of the competition for this distinction). I could take a number of examples, but TIME's July 28 article "Taxing Pricey Insurance: No Health-Care Cure" will readily do. Despite the fact the whole focus of the article is the tax exclusion for employer provided health care, at no point is there any reference to the consensus of expert opinion on the subject. We instead just get

- the claim that "very few [nonelderly Americans] would look kindly on reforming the system" by removing the exclusion

- a few quotes from union lobbyists

- the argument that "Cadillac health plan" is somehow "misleading" terminology because these plans are more often enjoyed by union and public sector employees than CEOs:

many more of the most expensive employer-based health-insurance plans cover people like the families of New Hampshire state employees who, according to the Boston Globe, have policies worth $20,400 per year

- the title's conclusion that there is "no cure" to be found here

Contrast this with more openly leftist The New Republic, where their healthcare writers Jonathan Cohn ("most economists will tell you ... [t]he exclusion distorts the market") and Harold Pollack have both acknowledged where expert opinion lies. As Pollack writes

[re the] Taxation of health benefits... A large and influential group of policy experts--not least among them,Congressional Budget Office Director Doug Elmendorf--believe that this is the surest way to pay for reform and curb health spending in the future.

So why is Pollack not calling unequivocally for removal of the exclusion? He's frank: "For reasons of coalition politics, I don't go as far as ... many economists would." Pollack acknowledges that "Unions provided boots on the ground by the thousands in various canvassing efforts [for Obama]."

It's not like the economic argument is so abstruse mass market readers could not follow it. Of the measures that are uniquely tax exempt in America, the two most significant are income spent on servicing a residential mortgage and income spent on health care services. What is so special about these particular services that consumers should be able to pay for them with pre-tax income instead of after-tax income?

It should be obvious that when the taxman is not taking a cut from a particular sector of the economy that sector's share of the economy is going to grow, and we've already seen the consequences of retail overconsumption of mortgage origination. You accordingly don't have to be an expert CBO analyst to appreciate that raising taxes just on the non-healthcare economy in order to pay for broader health insurance coverage is more likely to "bend the curve" of spiraling healthcare costs up than down.

Although healthcare benefits are also not taxed in single payer systems like Canada, consumers here have to "bargain" with government and thus ultimately themselves as taxpayers for their level of healthcare service. In the US, employees bargain with their employers, and it is all too easy for them to agree to an inflated, inefficient level of service because, to get technically precise for a moment, the deadweight loss created by the externality is borne by third parties (the self-employed and the uninsured underclass).

To make the point with an example, suppose the employment compensation your household earns consists of $50 000 in wages and $10 000 in healthcare insurance. In negotiations for another $5000 in compensation, you could either get, on an aftertax basis, another $3500 in wages or another $5000 in healthcare value. The employer, of course, is indifferent between the two as both would create a $5000 tax deduction for the employer. What are you going to choose? Now, in practice, most individuals are not as familiar with the way the system works as professional union negotiators such that it is typically union members (as opposed to individual bargainers) who end up with "Cadillac" health plans. And so it is that the unions are quite happy with the status quo, such that if there is to be any expansion of healthcare insurance coverage, they want it paid for by taxing the non-unionized (a group which includes the über-rich and the self-employed). Even if not taxed directly, the non-unionized working outside the healthcare sector pay an opportunity cost because unionized employees chose not to take their compensation increase as wages that could be spent in the non-healthcare economy.

On top of this is the fact that removing the exclusion would facilitate labour mobility and make costs more transparent to consumers.

I've been spending a fair amount of time on the US healthcare debate, and the prime reason why is because this is a critical test of whether the United States will get its fiscal house in order. With respect to soaking the rich, "You can only go to the same well so many times": if you can't tax the "middle class" here in order to rein in the deficits, when the policy argument for doing so is so clearcut (any absence of clarity being attributable to the sorry state of the current debate), the United States is highly unlikely to ever do so short of a California style fiscal crisis (or worse).

UPDATE August 4:

It appears that a couple of wonkier left wing pundits have finally broken from the herd. J. Lester Feder, a former "steward of the United Auto Workers" notes in a Salon piece that "[t]he employer exclusion is a backdoor health insurance subsidy that gives the most help to the wealthiest workers with the best benefits while fully taxing the income of uninsured low-wage workers" and defends the reforming efforts of Senate Finance Committee Chairman Max Baucus (D-Mont.) against Obama's union coddling policy. Today Jonathan Cohn at TNR joined Feder in calling for a partial rollback of the tax exclusion for group health insurance by supporting a cap regardless of what organized labour thinks.

Ontario should run a deficit

Given the very real economic reality of falling demand, the Ontario government would run a one time deficit (by adopting the tax reductions that the federal Finance Minister is calling for and I discussed here) while affirming its commitment to long term debt reduction.

What's happening is the opposite. The Ontario government will provide limited fiscal stimulus to the private sector. Meanwhile, the Toronto Star reports that "[t]he Liberals have also introduced legislation that allows part of the annual surplus to be spent ... rather than applying all of it to reducing the debt." This legislation suggests that, going forward, the Ontario Liberals will provide more stimulus when demand is high and tax revenues are flowing in, but less stimulus when demand is low and tax revenues are limited.

Part of the reason why Alberta politics are so frustrating is that many voters seem to be more concerned with "flows" than "stocks". As defined by the infallible Wikipedia, "stock refers to the value of an asset at a balance date (or point in time), while a flow refers to the total value of transactions (sales or purchases, incomes or expenditures) during an accounting period". So long as the "flow" is above the red line, all is presumed well in the land of the Wild Rose. On the "stock" front, however, the value of Alberta's assets is an embarrassment.

As I noted in an earlier post by quoting Wikipedia:

"Crowding out" is most serious when an economy is already at potential output or full employment. Then the government's expansionary fiscal policy encourages increased prices... At potential output, businesses are in no need of markets, so that there is no room for an accelerator effect. More directly, if the economy stays at full employment gross domestic product, any increase in government purchases shifts resources away the private sector.

This is Alberta spending in recent years. It gets worse, however, in that the spending also comes at the opportunity cost of contributing to our net asset position, which would allow us to run a deficit when economic growth is well below potential.

One can actually plausibly argue that the Klein cuts of the mid-90s were economically unwise. Why? Because if Klein had invested in, say, a high speed rail line between Edmonton and Calgary 10 - 15 years ago, we would have paid significantly lower prices then than now. As it was, the accelerated debt repayment of the early Klein years ended up removing the political discipline to restrain spending at the worst possible time. If voters disciplined non-savers like they are inclined to discipline deficit spenders, the 21st century would have been a different story for this province.

At issue is not the size of government per se, but expected return on taxpayer dollars. It is the generally low expected return that argues for smaller government in general. A government could responsibly go into deficit to fund an investment which generates a greater return than its cost of capital. Corporations borrow all the time and the issue for shareholders is whether the borrowing is being used to fund projects that have a "positive net present value" or NPV, not whether they borrow. In my campaign literature during February, I noted that Alberta spends almost 40% more per person than Quebec but then immediately also noted that Quebec has $7 a day child care.