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Archive for January, 2011

Sometime this spring, Congress will vote to increase the debt ceiling. That vote won’t come easy. Newly ascendant House Republicans will threaten to withhold needed votes unless significant spending cuts or budget process reforms are attached to the measure. Democrats will denounce Republicans for threatening the government’s ability to pay its bills. And Treasury Secretary Tim Geithner will be forced into creative financing moves to buy Congressional leaders enough time to strike a deal.

But strike a deal they will. With monthly deficits running around $100 billion, the United States can’t cut spending or increase tax revenues enough to avoid further borrowing this year. It is equally inconceivable (I hope) that our elected leaders will decide to withhold payments from Social Security beneficiaries, our military, and our creditors.

So the debt ceiling will go up. And that means that at least 50 senators and more than 200 House members will cast a politically toxic yea vote.

Which lucky members will they be? The answer may well depend on what other budget provisions accompany the debt limit measure. That’s impossible to handicap today. In the meantime, though, we can look at past votes. They tell a clear story: debt limit votes are about politics, not principle.

Consider, for example, Senate votes on stand-alone debt limit measures over the past decade:

When Republicans held both the Senate and the White House (2003, 2004, 2006), they provided virtually all the yea votes, while almost all Democrats voted no. When the Democrats were in power (2009, 2010), the roles reversed: the Democrats provided all but one of the yea votes, while Republicans voted no. Only when government was divided – with a Democratic Senate and a Republican president (2002, 2007) – has the vote to lift the debt limit been bipartisan.

The House has taken fewer stand-alone votes than the Senate (because of the so-called Gephardt rule, which the Republicans abolished last week), but they show the same pattern: the party in power votes to increase the debt limit:

History thus suggests that Democrats will bear the burden of lifting the debt limit in the Senate; expect at least 50 yea votes. The only interesting question is whether individual Republicans filibuster the increase; if so, a 60-vote cloture measure would require at least 7 Republican votes as well.

Handicapping the House is more difficult since we’ve had no recent experience with divided government. If the Senate provides any guide, roughly equal numbers of Republicans and Democrats will ultimately vote for an increase. That would allow many Tea Party-backed Republicans to vote no without affecting the outcome. And other members might simply skip the vote. That’s what 21 members did in 2004, when it took just 208 votes to raise the debt ceiling.

Note: Congress increased the debt limit three other times during the past decade as part of larger bills: the 2008 housing act, the 2008 TARP act, and the 2009 stimulus. For simplicity, I have included all votes by Independents with the Democrats, since that’s how those members caucused during this period.

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I love Twitter (you can find me at @dmarron). Indeed, I spend much more time perusing my Twitter feed than I do on Facebook. But it’s not because I care about Kanye West’s latest weirdness (I followed him for about eight hours) or what Katy Perry had for lunch. No, the reason I love Twitter is that I can follow people who curate the web for me. News organizations, journalists, fellow bloggers, and others provide an endless stream of links to interesting stories, facts, and research. For me, Twitter is a modern day clipping service that I can customize to my idiosyncratic tastes.

Several of my Facebook friends are also remarkable curators, as are many of the blogs that I follow (e.g., Marginal Revolution and Infectious Greed, to name just two).  So curation turns out to be perhaps the most important service I consume on the web. In the wilderness of information, skilled guides are essential.

Of course, I also use Google dozens of times each day. Curation is great, but sometimes what you need is a good search engine. But as Paul Kedrosky over at Infectious Greed notes, search sometimes doesn’t work. That’s one reason that Paul sees curation gaining on search, at least for now:

Instead, the re-rise of curation is partly about crowd curation — not one people, but lots of people, whether consciously (lists, etc.) or unconsciously (tweets, etc) — and partly about hand curation (JetSetter, etc.). We are going to increasingly see nichey services that sell curation as a primary feature, with the primary advantage of being mostly unsullied by content farms, SEO spam, and nonsensical Q&A sites intended to create low-rent versions of Borges’ Library of Babylon. The result will be a subset of curated sites that will re-seed a new generation of algorithmic search sites, and the cycle will continue, over and over.

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The Federal Reserve system is doing its part to cut the budget deficit. The central bank earned $81 billion in fiscal 2010, of which a bit more than $78 billion will be remitted to the Treasury. That’s $31 billion more than last year.

According to the Fed’s news release yesterday, the following items drove profits:

$76.2 billion in income on securities acquired through open market operations (federal agency and government-sponsored enterprise (GSE) mortgage-backed securities, U.S. Treasury securities, and GSE debt securities) [In short, the Fed is making money on its “quantitative easing” / “credit easing” activities. At least for now.];

$7.1 billion in net income from consolidated limited liability companies (LLCs), which were created in response to the financial crisis [Profits on the Maiden Lane partnerships, etc.];

$2.1 billion in interest income from credit extended to American International Group, Inc.;

$1.3 billion of dividends on preferred interests in AIA Aurora LLC and ALICO Holdings LLC [also related to AIG]; and

$0.8 billion in interest income on loans extended under the Term Asset-Backed Securities Loan Facility (TALF) and loans to depository institutions.

Additional earnings were derived primarily from revenue of $0.6 billion from the provision of priced services to depository institutions.

Those $88 billion in gross earnings were slightly offset by the following expenses:

$2.7 billion [of interest expense] on depository institutions’ reserve balances and term deposits;

[$4.3 billion] of operating expenses of the Reserve Banks, including $1.0 billion for Board expenditures and the cost of new currency.

The resulting $81 billion in net profits were then distributed as follows: $78.4 billion to the Treasury, $1.6 billion as dividends to member banks, and $0.6 billion retained to “equate surplus with paid-in capital.”

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Last spring, the Congressional Budget Office estimated that the new health legislation would reduce the deficit by $143 billion over ten years. Yesterday, CBO estimated that repealing that legislation would increase the deficit by $230 billion over ten years.

What gives? Why would it cost $87 billion more to repeal the law than was saved by enacting it?

The main reason is that the 10-year budget window moved. The health debate started in 2009, so CBO used a 10-year window that ran from 2010 to 2019. It’s now 2011, so the repeal law will be judged against a 10-year window that runs from 2012 to 2021. The $230 billion figure reflects that longer window. Through 2019, the cost would be $145 billion.

The second reason is that the legislation President Obama signed last spring wasn’t the final word on health reform. In December, Congress was struggling to find a way to pay for the infamous Medicare “doc fix”, which now runs through the end of 2011. To do so, Congress decided to cut $15 billion from the subsidies created by the health legislation. Because those cuts reduced future subsidies, it is now $15 billion more expensive to repeal the overall health reform.

The third reason is that the original health legislation wasn’t just about health policy. It also included fundamental reforms to the way the government subsidizes college loans. The repeal bill wouldn’t undo those changes, which resulted in budget savings of $19 billion over 2010 to 2019.

Finally, the original health reform included about $7 billion in net budget costs during 2010 and 2011. It’s unlikely (to say the least) that the health repeal bill would be enacted in time to avoid those costs.

Bottom line: CBO estimated that the original legislation would reduce deficits by $143 billion over 2010-2019. CBO now estimates that repeal would increase deficits by $145 billion over the same period; the slight difference reflects the education provisions in the original legislation, the 2010 and 2011 costs that can’t be avoided, and the December 2010 changes to the law. The jump from $145 billion to $230 billion then reflects the addition of two years to the budget window.

P.S. The $230 billion figure is preliminary and subject to change once CBO has an opportunity to update its calculations to reflect the latest information about the economy, health care markets, etc.

P.P.S. Aficionados of the health debate will recall that many differences of interpretation surround CBO’s cost estimates for health reform. You can see some of my discussion here.

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Top Posts in 2010

Happy New Year everyone.

To kick off 2011, I thought it would be interesting to look back at the most popular (by pageviews) posts from 2010. They are an eclectic bunch:

200 Countries, 200 Years, 4 Minutes

House Prices: Demographics Giveth and Taketh Away

Another Year Without a Social Security COLA

Can Greece Cut Its Deficit by 10% of GDP?

How Much Does Health Reform Cost?

Deficits As Far As The Eye Can See

The New Normal in Oil and Natural Gas Prices

A List of the Top 50 Economic Theories

Cupcake Economics

P.S. Here are similar lists from Marginal Revolution and Modeled Behavior.

 

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