July 7, 2008 3:24

McCain says he'll balance the budget by 2013. Yeah, right

John McCain promises, in an exciting new 15-page briefing paper that you can download as a pdf or consume in video form, that he's going to balance the federal budget in just four years:

John McCain will balance the budget by the end of his first term. The near-term path to balance is built on three principles:

• Reasonable economic growth. Growth is an imperative – historically the greatest success in reducing deficits (late 1980s; late 1990s) took place in the context of economic growth.
• Comprehensive spending controls. Bringing the budget to balance will require across-the-board scrutiny of spending and making tough choices on new spending proposals.
• Bi-partisanship in budget efforts. Much as the late 1990s witnessed bipartisan efforts to put the fiscal house in order, bi-partisan efforts will be the key to undoing the recent spending binge.

Principle 3 is the most interesting. McCain is basically channeling Jonathan Rauch and arguing that, Hey, the Democrats are gonna run Congress. So elect me and bask in the benefits of gridlock. He's probably on to something there.

But even with that, I find it extremely hard to believe that a McCain administration could get us to a balanced budget by 2013. Certainly not with the policies outlined in his new briefing paper. First, he promises several tax cuts but identifies no sources of replacement revenue. Second, there simply isn't enough non-military, non-entitlement fat in the budget to generate the couple hundred billions of dollars in cuts needed to bring the budget in balance in good times in the absence of new taxes (or at least I'm not going to believe that there is until the McCain campaign presents a list of exactly which government programs they plan to cut). Third, and perhaps most importantly, the current economic malaise looks like it's going to hang on for a while. The budget surpluses of the late Clinton years were the product of an economic boom and stock market bubble that were almost a decade in the making. Would you really want to bet on that happening again just four-and-a-half years from now?

Now I'm not saying that Barack Obama would balance the budget by 2013 either. But as far as I know he hasn't promised to do so.

Update: From James Pethokoukis, who just got off a conference call with McCain advisers Douglas Holtz-Eakin and Meg Whitman:

I asked Holtz-Eakin for some details on how exactly his boss was planning on balancing the budget after four years. How fast will the economy have to grow? What programs will be eliminated? What will the pace of discretionary spending have to be?

All I got were generalities and historical arguments. Definitely would not pass the Russert test. I can only guess that they are betting that people will want to know how a candidate will create jobs and reduce gas prices and not much more.

Sphere Related Blogs & Articles

|

July 7, 2008 1:04

The fall (and rise?) of FHA mortgage lending

I already knew that the subprime mortgage boom of 2003-2006 had taken a lot of business away from the Federal Housing Administration. But looking through the actual numbers in a June 2007 GAO report on the FHA's declining market share (pdf!) was still a revelation. In the housing bubble epicenters of Arizona, California, and Nevada in particular, the FHA went from being almost a quarter of the mortgage market to almost nothing in just four or five years. Here's the graphic version:

Graphic by Feilding Cage/TIME.com

What does this mean? I think it means that a government program that had for decades done a tolerably good job of making home ownership possible for people who don't make lots of money was pushed aside by aggressive private competitors. Those private competitors won that business by making lots of really crazy loans on which borrowers are now defaulting en masse. And the Senate is planning to debate a bill this afternoon that would enable the FHA to take over a few hundred thousand (or more) of those loans.

There's a nice symmetry to it, don't you think?

Sphere Related Blogs & Articles

|

July 7, 2008 10:20

Long live the long tail? Maybe not so much

Guinea pigs are pretty cool, Justin, but I spent my weekend reading the Harvard Business Review. Now who's the sad one?

The article you want to check out in the July-August issue is the one in which Anita Elberse calls into question the whole notion of the long tail. Elberse, an associate prof at HBS, analyzes music and home-video sales data and concludes that Chris Anderson kind of got it wrong when he made the argument that digital distribution (think Amazon and Netflix) changes the shape of the demand curve as people shun blockbusters in favor of niche products. You can read the HBR piece here.

I then suggest reading Chris Anderson's response here.

And then Elberse's response to Anderson's response here.

Sphere Related Blogs & Articles

|

July 7, 2008 10:13

Nouriel Roubini on the endgame for Bretton Woods II

The Bretton Woods system of managed currencies unraveled in the early 1970s, leaving a decade of economic trouble in its wake. In recent years there's been a lot of talk of Bretton Woods II, the informal setup in which emerging market countries link their currencies to the dollar. That arrangement is of course under a lot of pressure. There's been lots of debate about whether China, the Persian Gulf countries, and others will keep buying U.S. assets to fend off a big rise in the value of their currencies vs. the dollar. Now Nouriel Roubini has written an epic post (you have to register to read the whole thing) arguing that this discussion becoming irrelevant:

[E]ven if the BW2 economies were to resist further their currency appreciation and desperately hold on BW2 - as the rate of accelerated forex accumulation in 2008 so far suggests – the result, like the demise of BW1 shows, would be a rise in global inflation that would – at some point – destroy BW2 as rising inflation would erode the competitiveness of the BW2 club. Thus, either way we are now closer to the end game of BW2: formally BW2 is still alive and well as the reserve accumulation is as aggressive as ever or even more aggressive than in 2006-2007 among many – but not all – members of the BW2 club. But continuing with BW2 is leading now – with certainty – to inflation becoming so unhinged in the BW2 club that the basis of undervalued currencies and export-led growth will be destroyed by the real appreciation that a rise in inflation induces.

I'm not entirely sure what this means. But I think it's bad news for Wal-Mart.

Sphere Related Blogs & Articles

|