Greenspan says US has lost control of spending

[Gary Sisco]

I've been waiting to see this one in the American press but haven't yet, so thought I'd post it here. I happen to agree with him.

American fury over Greenspan leak
By Philip Thornton, Economics Correspondent in Washington
Published: 26 September 2005

Bitter disagreements over global economic policy broke out into the open yesterday as the French Finance Minister claimed that Alan Greenspan had admitted America had "lost control" of its budget while China warned the US to drop demands for radical economic policy changes.

In an extraordinary revelation after a meeting between Thierry Breton and Mr Greenspan, M. Breton told reporters: "'We have lost control,' that was his [Mr Greenspan's] expression.

"The US has lost control of their budget at a time when racking up deficits has been authorised without any control [from Congress]," M. Breton said.

"We were both disappointed that the management of debt is not a political priority today. The situation that is creating tension today on the currency market ... is clearly the American deficit."

The public comments, which were made during meetings between the G8 nations and the International Monetary Fund, are certain to anger the Bush administration and widen divisions between the US and France over issues such as the Iraq war and global warming.

A clearly irritated senior US Treasury source said: "Things can get lost in translation."

A spokesman for the US Treasury said: "This administration is absolutely committed to the President's goal of halving the deficit as a percentage of GNP by 2009 and we have every expectation of meeting that goal."

Meanwhile, Zhou Xiaochuan, the governor of China's central bank, said it would not be pressured into suddenly abandoning its currency regime.

He challenged claims that the blame for the global imbalances could be laid at Beijing's door, hinting that it was driven by the strength of domestic demand in the US.

Speaking at a meeting of the International Institute of Finance, Mr Zhou said people were right to worry about imbalances. "The US has always run a fiscal imbalance and current account imbalance but in the recent two years we see the magnitude of the deficits is historically high. People start to worry," he said.

Mr Zhou added that China's currency regime, under which the yuan was pegged to the dollar for 10 years until two months ago, when it was allowed to float within a narrow band, was not the sole cause. "For China, actually our statistical data does not support significant elasticity of exports and imports on exchange rates," Mr Zhou said.

In an apparent reference to the US, he said: "When internal demand in a large economy becomes stronger it imports more and exports less."

The central bank chief likened China's foreign exchange regime to a "very big complicated machine", saying: "If you don't know how to fix it, you should not dismantle the whole machine. Chinese economic reform philosophy is gradualism."

But he played down fears that imbalances would inevitably lead to a crash, saying the US's deficit of GDP could be "tolerable". "Probably nobody knows whether it is really unsustainable," he said.

Rodrigo Rato, the head of the IMF, said US plans to cut government spending looked ambitious in the light of huge reconstruction costs as a result of Hurricane Katrina.

"The strategy to reduce expenditures is quite ambitious even before the new needs derived from the natural disasters that have affected the country," Mr Rato said. Finance ministers from the other G7 nations urged the US to pursue "fiscal consolidation".

In its communiqué, the G7 (which is the G8 nations excluding Russia) praised China for its decision in July to adopt a "dirty float" against a basket of currencies that allows the yuan to make limited daily moves.

"We expect the more market-oriented system to improve the functioning and stability of the global economy and the international monetary system," the G7 statement said.

In an apparent snub to Russia, the G7 said it would hold an extraordinary finance ministers' meeting in London in December rather than one in February, during the Russian chairmanship of the G8.

G7 sources said ministers were concerned over abuses of the rule of law that had seen leading businessmen imprisoned over the level of corruption with the former Soviet state.

Bitter disagreements over global economic policy broke out into the open yesterday as the French Finance Minister claimed that Alan Greenspan had admitted America had "lost control" of its budget while China warned the US to drop demands for radical economic policy changes.

In an extraordinary revelation after a meeting between Thierry Breton and Mr Greenspan, M. Breton told reporters: "'We have lost control,' that was his [Mr Greenspan's] expression.

"The US has lost control of their budget at a time when racking up deficits has been authorised without any control [from Congress]," M. Breton said.

"We were both disappointed that the management of debt is not a political priority today. The situation that is creating tension today on the currency market ... is clearly the American deficit."

The public comments, which were made during meetings between the G8 nations and the International Monetary Fund, are certain to anger the Bush administration and widen divisions between the US and France over issues such as the Iraq war and global warming.

A clearly irritated senior US Treasury source said: "Things can get lost in translation."

A spokesman for the US Treasury said: "This administration is absolutely committed to the President's goal of halving the deficit as a percentage of GNP by 2009 and we have every expectation of meeting that goal."

Meanwhile, Zhou Xiaochuan, the governor of China's central bank, said it would not be pressured into suddenly abandoning its currency regime.

He challenged claims that the blame for the global imbalances could be laid at Beijing's door, hinting that it was driven by the strength of domestic demand in the US.

Speaking at a meeting of the International Institute of Finance, Mr Zhou said people were right to worry about imbalances. "The US has always run a fiscal imbalance and current account imbalance but in the recent two years we see the magnitude of the deficits is historically high. People start to worry," he said.
Mr Zhou added that China's currency regime, under which the yuan was pegged to the dollar for 10 years until two months ago, when it was allowed to float within a narrow band, was not the sole cause. "For China, actually our statistical data does not support significant elasticity of exports and imports on exchange rates," Mr Zhou said.

In an apparent reference to the US, he said: "When internal demand in a large economy becomes stronger it imports more and exports less."

The central bank chief likened China's foreign exchange regime to a "very big complicated machine", saying: "If you don't know how to fix it, you should not dismantle the whole machine. Chinese economic reform philosophy is gradualism."

But he played down fears that imbalances would inevitably lead to a crash, saying the US's deficit of GDP could be "tolerable". "Probably nobody knows whether it is really unsustainable," he said.

Rodrigo Rato, the head of the IMF, said US plans to cut government spending looked ambitious in the light of huge reconstruction costs as a result of Hurricane Katrina.

"The strategy to reduce expenditures is quite ambitious even before the new needs derived from the natural disasters that have affected the country," Mr Rato said. Finance ministers from the other G7 nations urged the US to pursue "fiscal consolidation".

In its communiqué, the G7 (which is the G8 nations excluding Russia) praised China for its decision in July to adopt a "dirty float" against a basket of currencies that allows the yuan to make limited daily moves.

"We expect the more market-oriented system to improve the functioning and stability of the global economy and the international monetary system," the G7 statement said.

In an apparent snub to Russia, the G7 said it would hold an extraordinary finance ministers' meeting in London in December rather than one in February, during the Russian chairmanship of the G8.

G7 sources said ministers were concerned over abuses of the rule of law that had seen leading businessmen imprisoned over the level of corruption with the former Soviet state.

[rollhead]

I don't agree that U.S. spending is "out of control."

I think deficit spending is a deliberate policy of this administration, undertaken to starve and destroy the remnants of social programs in this country.

It is far from being "out of control." It is what Bush wants.

While Alan Greenspan -- the acolyte of half-baked writer and philosopher Ayn Rand and life-long hater of the commonweath -- "deplores" Bush administration spending, I am sure he is rubbing his hands together with glee.

[Gary Sisco]

You give them way too much credit, as is normally the case with conspiracy explanations.

It doesn't seem inexplicable to me that Congress and the administration's spending on credit would be out of control (which it is, by all historical precedents, nothing compares) and living on borrowed money. They are drawn after all from a population that lives the same way -- way beyond its means, with a savings rate that is now zero.

With the Demopubs we get tax and spend. With the Republicrats, we get borrow and spend. Both ways add up to more spending on more bullshit and waste, and therefore more that we'll be forced, eventually, to pay in taxes.

The only interesting thing to me, since the rest is so utterly predictable as to be boring, is what's going to happen when the foreign banks and states that have been financing this amazing credit debt decide to stop -- for the same reasons any bank would stop lending to people who don't have the means to support a loan.

It's also fascinating to understand exactly how much of that debt is owned by the Chinese state. That, to me, is far more worrisome than any military issues. The US will never fuck with China, militarily, for obvious reaons, and the Chinese, if nothing else, are smart enough to know that. In any case, they could fuck back economically so quickly, and with such devastation to the American economy, that military options would be unnecessary.

It's going to be interesting watching the credit issues play out.

Anyone who doesn't think spending is out of control, try this. Compared to the last Senate, this Senate's spending is up over one thousand percent.

I hope you all had raises in proportion.........

[Coda]

I read Greenspans article as well as his recent on on the housing bubble. I find this man fascinating.

When he talks about spending being out of control (Rollhead) what he is getting at mostly is consumer spending, not government spending. We have a savings level that is at the lowest end of the world spectrum. Our desire for the newest gadget, latest trend is at the root cause....and it's this type of glutunious spending shows its effect in the balance of trade with other nations. This in turn effects the value of the dollar, interest rates, and currently is manifesting itself in the housing markets.

I agree wholeheartedly with what Greenspan is saying. I also believe that folks like Rollhead who turn this into a partisan slam are missing the point and diverting the attention of our nation away from the real causes while packaging a false solution for a very real problem. It's our children/grandchildren that will have to pay.

The federal govt spending relative to consumer spending is a very small percentage of the total spending pie.

[Coda]

x

[groover]

Sounds like you're interested in macroeconomics, Scott, which most high schools don't teach much about anyway.

You might start here: http://en.wikipedia.org/wiki/Macroeconomics

[groover]

I still have my old copy of Samuelson's textbook on the shelf for reference, but it's a massive tome that's fairly daunting for anyone not enrolled in a college-level course.

Better to start with something like this:

Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics (Paperback)
by Henry Hazlitt

[Monte Smith]

Scott, for about $25 a pop, you can get some great recorded courses on economics from a company called the Teaching Company. The lectures are by Timothy Taylor of Macalester College (grad. of Stanford) and start at the basics. The courses offered are:

Contemporary Economic Issues
Economics
History of the U.S. Economy in the 20th Century
Legacies of Great Economists

I've listened to the second and third ones, which I checked out of the Seattle library and listened to during my commute. Well worth it, since it turned my car into a university.

Check your library or look at the website dubya dubya dubya teach12 dot commerce.

[Douglas]

Scott, a lot of good suggestions already. I'd strongly recommend going to a bookstore/library and browsing through pinciples of economics textbooks. Principles books are generally non-technical and they all cover much the same ground, but from my own experience teaching this stuff one of the barriers to understanding can be as little as an author's style. Get one that doesn't make your eyes start rolling. I've got Mankiw's principles text that you are welcome to if that takes your fancy.

A potential online source is at MIT (www.mit.edu) Follow the links to OpenCourseWare and look through the teaching material for undergraduates to see if there is anything there that suits your needs.

I think the Hazlitt is already available through Project Gutenburg.

I'd also echo Coda on Greenspan being fascinating. His speeches are available online at the federal reserve board (http://www.federalreserve.gov/). They can be extremely good.

Finally, an alternative is to start and Ask John L thread and post your question whenever you want something explained. Sadly James H has not been posting here for some time. He is another exceptionally gifted economist.

[Nathaniel Catchpole]

At the moment, I'd personally recommend this guy:

http://www.eco.utexas.edu/facstaff/Cleaver/

I found this particular article very interesting recently:

http://libcom.org/library/supply-side-economics-cleaver

Cleaver's very committed to studying how capital adapts to crises, class recomposition, stuff you won't get from many other people.

and for an introduction to Marx's economics, try this. Pretty short, pretty accessible, from the horse's mouth:

http://libcom.org/library/value-pric...ofit-karl-marx

or Capital vol. 1

Even if you disagree with it, at least a basic understanding of value, surplus value and the circuit of capital will help you critically assess the assumptions behind mainstream economics which ignore many of its central dynamics.

[/Sits back and waits for derision.]

[rollhead]

Originally Posted by Gary Sisco

You give them way too much credit, as is normally the case with conspiracy explanations.

This isn't Jim Garrison conspiracy.

Don't know when deficit spending is illegal.

Nor is it complex like most conspiracy theories. There is no one on the grassy knoll opening an umbrella.

It is just a deliberate -- above board -- effort on the part of Republicans to starve government.

You obviously haven't read your Grover Norquist.

As "scholarly" as you are (or pretend to be), you no doubt have heard Greenspan's solution to deficit spending -- cutting Social Security and Medicare.

So, the solution that Greenspan offers is to cut back on the most successful and popular social services program in history.

He approves of cutting taxes to the rich -- but doesn't want a corresponding cut to Social Security taxes (along with Social Security cuts), which are among the most regressive of all taxes.

As much as you would like to flippantly brush this off as a "conspiracy theory," -- it is true.

Your pretentious conceit of hating all "Demopubs" prevents you from acknowledging facts.


by Dean Baker

Federal Reserve Chairman Alan Greenspan Feb. 12 2004 called on Congress to restrain the growth of the federal budget deficit by adopting budget controls that would apply to new taxes as well as new spending. ... Greenspan offered several ways to curtail federal spending growth, including reducing Social Security and Medicare benefits. The Fed chairman again recommended raising the age at which retirees become eligible, to keep pace with the population's rising longevity. And he reminded lawmakers that they could link cost-of-living increases in benefits levels to a measure of inflation other than the consumer price index, a widely followed measure that some economists believe overstates the rise in overall prices. A measure that showed less inflation would cause benefit levels to rise more slowly. --Washington Post (Feb. 13, 2004)

Two weeks ago Federal Reserve Board Chairman Alan Greenspan testified before the Senate Budget Committee about the state of the economy. He expressed concern about the budget deficit and suggested that cuttng Social Security might be a good way to reduce the size of the deficit.

It is worth noting that Social Security is currently running a large surplus and is projected to continue to run annual surpluses for more than two decades into the future. The Social Security trustees projections show that the fund's trust will be able to support all scheduled benefit payments for nearly forty years into the future. If Social Security benefits are cut, without any corresponding reduction in the tax rate (which is exactly Mr. Greenspan's recommendation), then this would mean that Social Security taxes are being used to finance the general budget, not Social Security.

This point is especially important in this context since Mr. Greenspan had chaired the 1982 Commission that proposed a set of Social Security tax increases that were designed to build up a large surplus to help defray the costs of the baby boomers' retirement in later years. In other words, Mr. Greenspan's argument was that it was desirable to raise Social Security taxes above the levels needed to support the program in the eighties, nineties, and zeros, so that the tax rate would be somewhat lower than would otherwise be necessary in the twenties and thirties. If benefits are now cut below the levels that had been scheduled, then it breaks the link between Social Security taxes and Social Security benefits. Social Security taxes were simply used to finance the general budget.

The Social Security tax is highly regressive because it only applies to wage income and it is capped at approximately $85,000, so that wage income above this level is not subject to the tax. It is extremely unlikely Congress ever would have approved such a regressive tax to support the general budget. It would have been appropriate to note, in describing Mr. Greenspan's proposal, that the cumulative surplus in the trust fund is now approaching $2 trillion. This should give readers an idea of the extraordinary deception involved in proposing to cut Social Security benefits as a way of reducing the federal budget deficit.

[rollhead]

More on the Greenspan "conspiracy" as explained by economics professor at SMU:


Greenspan's Fraud: How Two Decades of His Policies Have Undermined the Global Economy by Ravi Batra
http://www.ravibatra.com/about.htm

Thom Hartmann's "Independent Thinker" Book of the Month Review

What do you do when you want to screw only the working people of your nation with the largest tax increase in history and hand those trillions of dollars to your wealthy campaign contributors, yet not have anybody realize you've done it? If you're Ronald Reagan, you call in Alan Greenspan.

Through the "golden years of the American middle class" - the 1940s through 1982 - the top income tax rate for the hyper-rich had been between 90 and 70 percent. Ronald Reagan wanted to cut that rate dramatically, to help out his political patrons. He did this with a massive tax cut in the summer of 1981.

The only problem was that when Reagan took his meat axe to our tax code, he produced mind-boggling budget deficits. Voodoo economics didn't work out as planned, and even after borrowing so much money that this year we'll pay over $100 billion just in interest on the money Reagan borrowed to make the economy look good in the 1980s, Reagan couldn't come up with the revenues he needed to run the government.

Coincidentally, the actuaries at the Social Security Administration were beginning to get worried about the Baby Boomer generation, who would begin retiring in big numbers in fifty years or so. They were a "rabbit going through the python" bulge that would require a few trillion more dollars than Social Security could easily collect during the same 20 year or so period of their retirement. We needed, the actuaries said, to tax more heavily those very persons who would eventually retire, so instead of using current workers' money to pay for the Boomer's Social Security payments in 2020, the Boomers themselves would have pre-paid for their own retirement.

Reagan got Daniel Patrick Moynihan and Alan Greenspan together to form a commission on Social Security reform, along with a few other politicians and economists, and they recommend a near-doubling of the Social Security tax on the then-working Boomers. That tax created - for the first time in history - a giant savings account that Social Security could use to pay for the Boomers' retirement.

This was a huge change. Prior to this, Social Security had always paid for today's retirees with income from today's workers (it still is today). The Boomers were the first generation that would pay Social Security taxes both to fund current retirees and save up enough money to pay for their own retirement. And, after the Boomers were all retired and the savings account - called the "Social Security Trust Fund" - was all spent, the rabbit would have finished its journey through the python and Social Security could go back to a "pay as you go" taxing system.

Thus, within the period of a few short years, Reagan dramatically dropped the income tax on America's most wealthy by more than half, and roughly doubled the Social Security tax on people earning $30,000 or less. It was, simultaneously, the largest income tax cut in America's history (almost entirely for the very wealthy), and the most massive tax increase in the history of the nation (which entirely hit working-class people).

But Reagan still had a problem. His tax cuts for the wealthy - even when moderated by subsequent tax increases - weren't generating enough money to invest properly in America's infrastructure, schools, police and fire departments, and military. The country was facing bankruptcy.

No problem, suggested Greenspan. Just borrow the Boomer's savings account - the money in the Social Security Trust Fund - and, because you're borrowing "government money" to fund "government expenditures," you don't have to list it as part of the deficit. Much of the deficit will magically seem to disappear, and nobody will know what you did for another 50 years when the Boomers begin to retire 2015.

Reagan jumped at the opportunity. As did George H. W. Bush. As did Bill Clinton (although Al Gore argued strongly that Social Security funds should not be raided, but, instead, put in a "lock box"). And so did George W. Bush.

The result is that all that money - trillions of dollars - that has been taxed out of working Boomers (the ceiling has risen from the tax being on your first $30,000 of income to the first $90,000 today) has been borrowed and spent. What are left behind are a special form of IOUs - an unique form of Treasury debt instruments similar (but not identical) to those the government issues to borrow money from China today to fund George W. Bush's most recent tax cuts for billionaires (George Junior is still also "borrowing" from the Social Security Trust Fund).

Former Bush Junior Treasury Secretary Paul O'Neill recounts how Dick Cheney famously said, "Reagan proved deficits don't matter." Cheney was either ignorant or being disingenuous - it would be more accurate to say, "Reagan proved that deficits don't matter if you rip off the Social Security Trust Fund to pay for them, and don't report that borrowing from the Boomers as part of the deficit."

As the Associated Press reported on April 6, 2005:

"PARKERSBURG, West Virginia. (AP) -- President Bush on Tuesday used a four-drawer filing cabinet stuffed with paper representing government IOUs the president said symbolized the Social Security trust fund's bleak outlook for meeting Americans' future retirement needs. ...
"'A lot of people in America think there is a trust -- that we take your money in payroll taxes and then we hold it for you and then when you retire, we give it back to you,' Bush said in a speech at the University of West Virginia at Parkersburg.

"'But that's not the way it works,' Bush said. 'There is no trust "fund" -- just IOUs that I saw firsthand,' Bush said...

"[Susan] Chapman [of the Office of Public Debt] opened the second drawer and pulled out a white notebook filled with pseudo Treasury securities -- pieces of paper that offer physical evidence of $1.7 trillion in treasury bonds that make up the trust fund."

Later, Senator Rick Santorum made an odd admission for a Republican: ""You can't pay benefits with IOUs," he said on the Senate floor. "You have to pay it with cash."

And where will that cash - now nearly two trillion dollars - come from over the next decades as Boomers begin to retire?

Technically (and legally) it's simple - the Social Security Trust Fund will give back its IOUs to the Treasury Department and in exchange for them get cash to pay the Boomers' retirement checks. Practically, though, it'll be a crisis of biblical proportions. In order for the Treasury to come up with that kind of cash will require either massive tax increases or increased massive borrowing - at a time when we're already borrowing so heavily that China is propping up our economy with weekly loans.

Thus, Bush talks about a "crisis" in Social Security with some accuracy. But he doesn't dare tell us what the real "crisis" is, or how Reagan and Greenspan set it up, because when it becomes widely known that the real crisis is that Reagan set the course to steal Boomers' Social Security savings, it will destroy the reputation of both supply-side economics and the Republican Party for generations to come.

That Republicans and "conservative" Democrats have been able to perpetrate this fraud on America for the past 25 years tracks back to the initial and ongoing efforts of one man, Alan Greenspan, says Ravi Batra in his new book "Greenspan's Fraud: How Two Decades of His Polices Have Undermined the Global Economy."

And the Social Security fraud just outlined is only the beginning. Batra shows - in extraordinary (and easily understood) detail - how Greenspan has steadily worked for over two decades to sell out America's sovereignty and economic interests to those of the multinational corporations he so loves, and to sell out the working people of America (and their Social Security Trust Fund) to the super-rich who Greenspan has always represented.

Greenspan manipulated the stock market so his buddies could get rich, then warned them just in time to get out before it blew up. He's kept together tax cuts and pay increases for the CEO class by pumping cheap money into the economy so the Middle Class will go ever deeper into debt, setting up a housing bubble that could crash in a way that would make 1929 look like a mild bump in the economic road. And he's helped engineer and support international "free" trade policies that have disemboweled America's manufacturing and information technology sectors, with the happy result for Republicans that the once-politically-active and heavily unionized middle class is being replaced by a politically impotent mass of the working poor, too busy to worry about politics or challenge corporate news.

Most people, coming across this massive indictment of Greenspan, would probably react with skepticism. Why wasn't any of this in the paper? Why haven't I heard Democrats and liberals attacking Greenspan from the floors of Congress and in the progressive media?

As Batra points out, the truest testament to the power Alan Greenspan holds is that he's been able to do so much of this behind the scenes. He gently encourages and nudges, argues and lectures, leaks and pontificates. He suggests, rather than orders. And, of course, he holds the levers of the nation's money supply in his hands - making him a more fearsome threat to a sitting president or political party than J. Edgar Hoover ever was.

And, Batra documents, Greenspan has not been at all reluctant to use his considerable power to the benefit of those in office.

One example: During the Reagan and Bush presidencies, he was in favor of tax cuts. During Clinton's he was against them. During Bush Junior's he was again in favor of them.

Ravi Batra's book "Greenspan's Fraud" is not only required reading for all Americans because it so clearly lays out the crimes this man - and the Republican Party - have committed against the United States of America, but also because it's such a brilliant primer in macroeconomics overall. If you never were able to figure out, for example, what interest rates had to do with unemployment, or how the rich get richer in America while the poor get poorer, or why when the minimum wage is increased the economy gets better, Batra explains it all with elegance, wit, and comfortable clarity.

"Greenspan's Fraud" is one of the most important books you can read this year. Get two copies, because you're sure to have at least one friend you'll want to read this book, but your own copy will be so marked up and beloved that you'll not want to let go of it.

[Gordon B]

Katrina Bailout Means Big Deficits, Higher Taxes: John M. Berry

2005-09-28 00:05 (New York)





(Commentary. John M. Berry is a Bloomberg News columnist.

The opinions expressed are his own.)



By John M. Berry

Sept. 28 (Bloomberg) -- President George W. Bush and his

administration have been widely criticized for their inept

response to Hurricane Katrina. Bush's sweeping promises to

rebuild New Orleans and the surrounding Gulf Coast region have

been equally devoid of serious leadership.

After administration officials told the president the

reconstruction effort may cost at least $200 billion, Bush said,

``You bet it will cost money, but I'm confident we can handle

it.''

Of course, the U.S. is prosperous enough to handle it. The

big question is how will we pay for it?

``It's going to cost whatever it costs,'' Bush also said,

adding, ``We're going to be wise about the money we spend.''

The first step in being wise in this case would have been

for the president not to suggest an open-ended commitment of

federal money. His words underscored how little he actually

seems to care about fiscal discipline or the long-term

consequences of running large budget deficits when national

saving is much too low to adequately finance them.

Bush's behavior is just the latest reason to regard the

budget process and the budget itself as out of control.

Federal Reserve Chairman Alan Greenspan certainly thinks

that, according to French Finance Minister Thierry Breton. At a

Sept. 25 press conference in Washington after a meeting between

U.S. and French officials, Thierry said Greenspan told them he

``very bitterly regretted'' that budget deficits are no longer a

political priority. Greenspan said the U.S. has ``lost control,

and that's his expression, of its budget,'' according to Breton.



`War on All Fronts'



Citing that loss of budget control, yesterday the Committee

for Economic Development, a business-backed research and policy

organization, recommended a fiscal ``war on all fronts,'' that

should include revising entitlement programs such as Medicare,

reducing discretionary spending and raising new revenues.

The obligations the government faces are so great and the

political likelihood of very substantial restraint in the growth

of spending so remote that a major new tax -- a value-added tax

-- is needed to avert a fiscal crisis, the CED said.

``The deficit is now slightly more than 3 percent of GDP,

in very good times,'' said W. Bowman Cutter, a managing partner

at Warburg Pincus, chairman of the CED's subcommittee on tax

reform, in presenting the proposal at the National Press Club in

Washington. ``It will be over 4 percent by the end of the decade

and it will rise to above 6 percent toward the end of the next

decade.''



Threat to Growth



Cutter, a Democrat who served in both the Carter and

Clinton administrations, said that large, growing deficits

eventually will pose a danger to U.S. economic growth.

A similar message was delivered on Sept. 23 at a Capitol

Hill economic forum organized by Democrats, where Republican

economist Bruce Bartlett, a senior fellow at the National Center

for Policy Analysis, said he had spent most of his career

looking for ways to cut taxes.

``But that was predicated on an assumption those supporting

tax cuts also wanted to downsize government,'' he said.

``Unfortunately, few in my party seem to share this philosophy

any longer.''

Many Republicans ``seem genuinely oblivious to the fact

that the burden of government is largely determined by the level

of spending, not taxes,'' he said. ``Nor do they understand that

in the long run, all spending must be paid for one way or

another. Increasing spending today, therefore, absolutely

guarantees that taxes will have to be raised in the future.''



Reconstruction Costs



If the president realized that, then maybe he would have

been more cautious in his promises about the post-Katrina

reconstruction. Of course, whatever rebuilding after Katrina

might cost, that figure is now a lot bigger as the result of

Hurricane Rita, which struck the Gulf Coast about a month later.

Rita's damage was not nearly as great; still, are the

people, businesses and communities of eastern Texas and western

Louisiana going to be willing to accept less help than those

hurt by Katrina?

With little forethought, Bush has by proclamation created a

new entitlement, one for which he apparently is unwilling to

pay.

With Bush's implicit invitation to open-ended spending,

Louisiana's congressional delegation has proposed a $250 billion

Hurricane Katrina Disaster Relief and Economic Recovery Act,

which includes $40 billion for Army Corps of Engineers projects

in the state. The legislation would waive the usual requirement

for partial matching funding from state or local governments and

create a commission that would decide which projects would be

built.



No New Taxes



For comparison, over the past five years, the Corps of

Engineers' budget for the entire country has averaged $4.6

billion annually.

Meanwhile, Bush has ruled out raising taxes to cover any of

the reconstruction costs. Instead, as usual when some new

spending comes along, the president said other government

programs can be cut.

What programs? Who is supposed to do the cutting?

Certainly not congressional Republicans, who have shown no

spending restraint, all their small-government rhetoric

notwithstanding.

And certainly not the president, whose rhetoric runs in a

similar vein and who has not vetoed a single bill in his almost

five years in office. The last president never to exercise the

veto was John Quincy Adams.

House Republican leader Tom DeLay of Texas discouraged the

notion of cutting spending to offset reconstruction costs.

``There is no fat left to cut in the federal budget,'' DeLay

said.

Well, if there's nothing to cut on the spending side of the

budget, the alternatives are expanding deficits or raising

taxes.

Or, as Cutter put it, trimming the fat isn't nearly enough.

Taxes eventually are going to go up, and the longer big deficits

are allowed to persist, the larger the eventual increase will

have to be.