Sound and Fury Signifying…? Mulvaney to OMB

Roll Call notes Trump Nominates Anti-Deficit Crusader Mulvaney to Head OMB.

This is taken by some to mean that the policies that will be implemented will be less inclined toward enormous budget deficits. I’m skeptical. Those of us who remember the David Stockman/Ronald Reagan years will remember the “magic asterisk” allows for massive regressive tax cuts, minimal actual spending cuts, and forecasted budget balances to be reconciled. From Greider (1981):

The “magic asterisk” would blithely denote all of the future deficit problems that were to be taken care of with additional budget reductions, to be announced by the President at a later date. Thus, everyone could finesse the hard questions, for now.

Either we will see a re-use of the magic asterisk, or, more likely, Republicans will just completely dispense with their hypocritical opposition budget deficits completely (consider EGTRRA/JGTRRA), just as free trade is a notion that has been “disappeared” from the Republican platform. Or, depending on who goes to CEA, “extreme dynamic scoring” (to semi-coin a phrase).

28 thoughts on “Sound and Fury Signifying…? Mulvaney to OMB

  1. Lord

    When I look at these appointments, I wonder if Trump isn’t trying to educate them, if they can be. Or waiting to fire them if they can’t, but I’m an optimist.

  2. PeakTrader

    It should be noted, under Reagan, the top income tax rate was lowered from 70% and the corporate tax rate was lowered from 48%. Also, the House was controlled by Democrats, who promised spending cuts that didn’t happen. Later, Reagan raised taxes, when the strong expansion was underway, which reduced budget deficits. Moreover, Reagan won the Cold War, which resulted in the “peace dividend,” until 9/11.

    The Trump administration will be dealing with the depression, the $20 trillion national debt, and $600 billion annual budget deficits. With Congress and his Cabinet appointments, I expect a massive overhaul of government that will shift spending. Therefore, new spending will be limited.

    Also, I may add, some people want to blame the GOP for the poor economic performance the last eight years. Yet, the Democrats were in total control in 2009-11, including with a 60 vote Senate. They set the big agenda items. There was little common ground and compromise for the GOP the last eight years with the Obama-Reid-Pelosi government and with Democrat moderates losing elections to Republicans. It seems, the American people wanted a divided government either for more compromising or to limit its power.

    1. 2slugbaits

      Peak Trader Well, to paraphrase one of your heroes, “There you go again.” Let me help you out with the facts.

      (1) If you look out over the 8 years of Reagan and compare budget proposals, it turns out that Reagan proposed $11B more in spending than the Democrats. Contrary to what you seem to believe, Reagan wanted more spending than the Democrats. The difference was in how that spending was allocated.

      (2) Please name a single important weapon system that was fielded under Reagan that didn’t go through the first development milestones under Ford and Carter. Name one. Just one. Trident? No. Abrams tank? No. Bradley? No. MX missile? No. Nimitz class carriers? No. Apache & Blackhawk helicopters? No. Pershing II missiles? No. F-15? No. F-16? No. Reagan was lucky enough that most of the R&D and small scale production was done during the Ford and Carter years, so Reagan did not have to support both older legacy weapon systems as well as field new production systems. But then again, you wouldn’t know this because I doubt that you’re an expert on DoD acquisition. The Cold War was won because of Pope John Paul II and because of shipyard workers in Gdansk. The burdens of imperialism just got too expensive for the Soviet economy to maintain, which weakened the Soviet Union’s ability to control its satellite countries. When the Soviets tried to liberalize their economy, things got out of hand. And when a few historical accidents happened one night at the Berlin Wall followed by Hungary announcing free movement to Austria, things just fell apart within a few weeks. And by then Reagan was no longer President. Learn some history.

      (3) The national debt held by the public is $14.4T, not $20T. The number that counts is the debt held by the public.

      (4) Trump’s annual deficits will be 2 to 3 times larger than $600B. Go read his plan. He wants to increase the deficit. Maybe you didn’t know that when you voted for him. Do you think interest rates are increasing because the markets expect less government spending?

      (5) The economic performance since 2009 has actually been better than expected given the track record of previous financial recessions and especially compared to other OECD nations.

      (6) I do agree that the Democrats should have done more while they had 60 votes in the Senate. But Obama can hardly be blamed for the cowardice of a few Democrats…almost all of whom ended up losing their seats anyway.

      (7) I also agree that there was little common ground, but it wasn’t for lack of effort on Obama’s part. Now it is true that Pelosi disagreed with Obama’s policy of looking for common ground and compromise with Sen. McConnell; but Obama (naively it turned out) thought that McConnell and Grassley were negotiating in good faith. They weren’t. Grassley even bragged to his supports about how he was able to outfox Obama by pretending to want to negotiate with him.

      (8) As to the American people wanting divided government, who knows? The American voters are idiots who don’t know what they want for lunch, never mind political governance.

      There are some technical duties performed by the OMB director that Congress…even a GOP Congress, might want to worry about. The OMB has considerable discretion is reapportioning dollars against Congress’ intent. And it’s pretty easy to do as long as Congress Critters only “work” 3 days a week. In short, Congress only has five calendar days to explicitly reject the OMB’s reapportionment once the OMB director sends it to Congress late Wednesday afternoon. Congressional inaction is considered concurrence under the law. So Congress might want to pay extra close attention to this guy.

      1. PeakTrader

        2slugbaits, I’m sure, Reagan wanted more defense spending to break the Soviet Union faster (and without “Star Wars”). Obama-Reid-Pelosi added over $5 trillion to the national debt their first four years. You don’t know what the Trump budget deficits will actually be (including with fiscal conservatives in Congress). Given monetary and fiscal policies compared to past recessions (e.g. The Great Depression and the 1907 Bank Panic), we should’ve had a stronger recovery and expansion.

        1. baffling

          peak, you give too much credit to saint reagan. my memory of the early 80’s was fraught with my friends parents losing jobs and moving away. my family’s standard of living did not start to rise until the 90’s-with the arrival of clinton.

          “Obama-Reid-Pelosi added over $5 trillion to the national debt their first four years. ”
          you do know most of that was the result of required disbursements to us citizens resulting from the financial crisis that people like yourself brought upon the country? that automatic spending would have occurred with a republican government as well. don’t be a political hack.

          1. PeakTrader

            I’m glad your friends finally got a job baffling. I know, in the late ’90s, when actual output exceeded potential output, we were hiring bag ladies and guys sleeping in parks.

            Yes, a lot of spending was needed in Obamanomics, including multiple extensions in unemployment benefits.

            Right, it was a vast right wing conspiracy all the lenders agreed simultaneously to lend to people who couldn’t afford the loans. It was all the Republicans fault.

          2. baffling

            peak, it was not republican’s fault in full. it was greedy banker and financial types who did not accept any responsibility for their actions. folks like you, peak.

        2. not_really_cold

          Reagan wanted more defense spending to break the Soviet Union faster

          Pfft. The CIA was saying it was the effective end of Russia while Reagan was stirring up the whole cold war rhetoric. He was a great communicator though, so, people bought it.

          There is enough research on the topic of Reaganomics to dismiss the broader hypotheses behind Reaganomics.

      2. ottnott

        Peak Trader wrote:
        “The Trump administration will be dealing with the depression”

        Will that be before or after they drive the flying-lizard people off our planet?

    2. James

      When you stated that Reagan raised taxes when there is a strong expansion miss the whole point. When he put together a 1986 Tax Reform Act (and 11 other tax increases), it eliminated many of the tax breaks that the middle class taxpayers were using to reduce their taxes thereby raising their taxes. At the same time, the tax rate for the top earners went down on the Laffer theory that it would trickle down to everyone ignoring the fact that his theory does hold that if taxes were too low, it would cause a deficit. Even Laffer would deflect when things don’t pan out. Many economists have debunked his theory and analysis and yet GOP politicians catered to the guy again.

      Even Reagan admitted that he was sorry that the deficit rose under his administration. The blame lies with Congress, which includes GOP, who supported the tax cut but not the spending reduction needed to offset the loss of the revenue that is permanent. Additionally, the GOP Congress pushed by GWB enacted via reconciliation two tax cuts in 2001 & 2003 that pushed much of the tax cut outside the CBO’s ten year window to make it look smaller due to the Byrd Rule after the tax increase under Clinton resulted in budget surplus for the fiscal year 1998-2001 which the GOP argued that it was Reagan’s policy that created this when it was not true.

      At the same time, the economy underwent transformation which resulted in globalization.

      As for the Democrats having majority in 2009-2011 while true, ignored several things. The GOP leaders had a meeting prior to Obama assuming the Presidency that they intend to obstruct his effort to fix economy and obstruct they did by using the ACA as a misinformation campaign and putting holds on his nominees to shut down any attempt to work with the majority. Even McConnell had a motion he proposed, Reid took him on to put it up for a vote. Guess who objected? McConnell himself. So he says one thing and does another. Norm Ormstein, the scholar, called them out for that.

      Lastly, our economy is in a much better shape than when Obama is started his term and Trump is going to acerbate the deficit even more with his supply side economic plan and I wonder if you will defend him like you are defending Reagan economic policy by cherry picking his good ones and ignoring the bad ones.

      1. PeakTrader

        James, you don’t give Reagan enough credit for raising taxes, including on high income taxpayers.

        Clinton benefited from the “peace dividend,” oil falling to $10 a barrel, demographics with the Nasdaq Bubble, and successful compromises with the GOP Congress, after the 1994 election.

        How many Republicans voted for Obamacare? Zero. Yet, it passed. Republicans didn’t have much power to obstruct Democrats. And, they believed Obama’s policies would fail. You sound like another one who wants to blame the GOP.

        I agree, the economy is much better – a weak expansion is much better than a contraction. Cherry picking by putting lipstick on a pig doesn’t change the fact it’s still a pig.

        1. baffling

          “How many Republicans voted for Obamacare? Zero. Yet, it passed. ”

          and if we had named it romneycare, it would have passed with full support from both parties. that was an example of the obstructionist behavior, simply on an issue where it failed. if one cannot understand and acknowledge such obstruction occurring, then one is simply a political hack.

          1. PeakTrader

            I’m sure, you also believe the American people, particularly the working middle class, who suffered the most under Obamacare, are obstructionists and political hacks too.

          2. baffling

            middle class did not suffer under obamacare. that is a revisionist history supported by conservative echo chambers. you continue to repeat such propaganda.

    3. Richard

      I wonder if the dollar index is rising because of Republican future deficits. They’ll need to be financed.
      That’s cute, you think that those tax cuts will have offsets. A real Laffer!

    4. sherparick

      In the 1980s, the “House” may have been nominally controlled by Democrats,” but that was still the days when the Democratic Party was an uneasy coalition of liberals, trade unions, New York banks, and “Bourbon Southern Democrats,” this last group and the bankers being very much pro-tax cut and anti-spending. Further, the big boos in spending under Reagan was the military buildup. Domestic spending was slashed. Social Security and Medicare spending increased, but taxes funding Social Security and Medicare increased even more, with the surplus being used to reduce the deficit created by the income tax cuts and military spending. Reagan had a functioning majority supporting him on tax and spending issues. Foreign policy, not so much, at least when it came to military adventures.

      By the way, the economic performance of the last 8 years has been good when compared with other OECD nations in the same period, or the Bush administration that preceded it. It has been good given the demographics of a declining labor force and that low wages have encouraged low productivity (since labor is cheap, why spend on investment to make it more productive.) We will see how good the next 8 years turn out since unemployment is 4.6% right now and inflation under 2%. Also, we will see how much economic growth is created when 8 million workers are taken out of the labor force and the Government diverts money and resources into arrest, detention, and deportation of 11 million people.

      1. PeakTrader

        The country was at full employment by the mid-2000s with stronger domestic growth and up to $800 billion annual trade deficits, which subtracted from GDP.

        We had a sudden and sustained downshift in domestic growth under Obama, not explained by demographics, with trade deficits half the size as a percent of GDP, which added to GDP.

        We’ve had an L-shaped recovery at best, based on per capita real GDP, since 2009.

        1. baffling

          “We had a sudden and sustained downshift in domestic growth under Obama, not explained by demographics”

          we had a sudden downshift in domestic growth under Bush. this was the great recession. this was not caused by obama. it was ushered in by bush, following the deregulation of the financial industry. the result was nearly a decade of slow recovery from what was a preventable financial calamity. you were a contributor to this calamity peak, as a financial professional.

  3. dwb

    Different times, different party. Trump and the current GOP have pushed the “penny plan” to reduce deficits. I put the odds of getting congress to pass a balanced budget amendment at about 50% in the next 2 years. It will be probably something along the lines of the 1995 version which missed by one vote. The controversy will not be getting the amendment passed, the controversy will be other provisions – for example the 2011 version included a cap of 18% of GDP on federal spending as a % of GDP.

    This is just reality: House and Senate republicans will demand it. Or, they will face a tough primary election.

    If Trump/GOP break campaign promises, it won’t be the one to eliminate deficits. It will be the promise to eliminate them without touching Social Security and entitlements.

  4. Ben Arownd

    OMB also has to approve any federal agency data collection activity. So it will be interesting to see who gets appointed as the director of OMB’s Office of Information and Regulatory affairs and whether that office pursues cutbacks in data collection as happened in the Reagan administration.

  5. Kevin O'Neill

    Peak Trader’s defense of the communist system is endearing. The USSR would be alive and thriving today if not for the economic war on it launched by Reagan. Marxists around the world take note!

    Ronald Reagan, ah, the good ol’ days.
    Nov. 13, 1986: “In spite of the wildly speculative and false stories of arms for hostages and alleged ransom payments, we did not, repeat, did not, trade weapons or anything else for hostages. Nor will we.”

    March 4, 1987: “A few months ago I told the American people I did not trade arms for hostages. My heart and my best intentions still tell me that’s true, but the facts and the evidence tell me it is not.”

  6. Paul Mathis

    Reagan Tripled the Debt. FDR Increased It More Than 1000% in 12 Years. Obama Added $9 Trillion.

    What harms ensued from all of this profligacy? Nothing, as we all know. In fact, what ensued was all good for the economy, jobs and America’s leadership in the world.

    Now the fear mongering debt phobics want to crash the economy just like they did in the 1920s when they ran budget surpluses every year and caused 4 separate recessions during that decade with the last one causing the Great Depression. Why?

    1. Paul Mathis

      As Ken Rogoff knows full well, we are spending unlimited billions fighting wars all over the world and we never worry about adding to the debt for that wasted money. But when it comes to borrowing and spending money to fund America’s domestic needs, then the PayGo statute prohibits borrowing to spend more.

      Ken also refuses to be specific about the harms that would ensue from borrowing and spending more except to vaguely refer to inflation. Of course when we had our highest inflation in the post WWII era back in the late 1970s, the deficit to GDP ratio never exceeded 3% and ended the decade at 1.6%. Compared to 2009-2012 when the deficit to GDP ratio was high, what was inflation then? Ken obviously doesn’t want to talk about the historical facts.

      Like all debt fear mongers, Ken knows the truth but he loves to play the fear game to advance his agenda.

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