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Fun With Eric Cantor

Monday, 22 August 2011 04:55

The Post gave Eric Cantor the opportunity to lay out his economic vision today. Let's have a little fun seeing how many things he got wrong.

Cantor begins by telling us:

"Our country is facing two related but separate crises. The first is the federal government’s debt crisis, the result of decades of fiscal mismanagement by both political parties as well as unsustainable entitlement commitments."

Debt crisis? Does Cantor mean the fact that we have to pay just over 2.0 percent interest on 10-year Treasury bonds, a post-depression low? Of course, there was a near debt crisis when the Republicans refused to raise the debt ceiling. If they had held to this position, then legally prohibiting payment of the debt can be viewed as a debt crisis, but this has nothing to do with the level of the debt or its sustainability.

As a practical matter, the debt-to-GDP ratio was actually relatively low prior to the downturn. It had been falling in the Clinton years, so the 90s should not be included in his list of "decades of fiscal mismanagement." Even with the Bush tax cuts, the cost of the wars, and the Medicare drug benefit, the deficit was projected to be just 1.4 percent of GDP in 2009, until the collapse of the housing bubble brought down the economy.

Cantor then tells us:

"the Obama administration’s anti-business, hyper-regulatory, pro-tax agenda has fueled economic uncertainty and sent the message from the administration that 'we want to make it harder to create jobs.'"

He then tells us about, "...the “Transport Rule,” which could eliminate thousands of jobs." Hmmm, thousands of jobs. That's not millions, hundreds of thousands or even tens of thousands. Back in the late 90s the economy was generating 3 million jobs a year or 250,000 a month. Cantor's "thousands of jobs," if accurate, would translate into one day's job growth back then. 

But Cantor then comes back with the "ozone regulation" which he tells us "would cost upward of $1 trillion and millions of jobs in the construction industry over the next decade." It would be interesting to know where these numbers came from, perhaps they are somewhere near the story of creation in the bible.

Then we get:

"There is the president’s silence as the National Labor Relations Board seeks to prevent Boeing from opening a plant in South Carolina that would create thousands of jobs."

No, this was about shifting jobs from plants that are unionized to plants that are not unionized. There was not an issue of net job creation, unless Cantor thinks that non-union workers are less efficient so that it takes more of them to build a plane.

Cantor next jumps back to taxes, complaining that these regulations:

"coupled with the president’s insistence on raising the top tax rate paid by individuals and small businesses, has resulted in a lag in growth that has added to the debt crisis, contributing to our nation’s credit downgrade."

Yep, President Obama wants to raise the tax rate paid by the wealthy, a group which excludes the vast majority of small business owners, back to the level it was at when we were creating 3 million jobs a year. Clearly this is a job killer.

Oh yes, and the debt crisis has reappeared. It is featured again in the next paragraph:

"The debt crisis threatens our long-term future: the ability of our children and their children to have the same opportunities to succeed that this and previous generations have enjoyed. Republicans passed a budget this spring, written by Rep. Paul Ryan, that would address our challenges head-on by putting in place common-sense reforms to manage our debt over the short and long term."

According to the Congressional Budget Office, the Ryan plan would increase the cost of buying Medicare equivalent insurance policies by $34 trillion over the program's 75-year planning horizon. Note that this $34 trillion figure is the higher cost to the country. The total cost shift to future seniors (our children and their children) is $38 trillion.

Then we get another shot at Social Security, Medicare, and Medicaid:

"The president has acknowledged that without reform, spending on entitlement programs is unsustainable. But he has also made clear that he would never support the type of structural changes to Medicaid, Medicare and Social Security needed to make these programs solvent as envisioned in our budget."

Mr. Cantor probably missed it, but Congress passed health care reform last year. According to the Medicare trustees, the bill eliminated more than 75 percent of Medicare's long-term shortfall. That's not 100 percent, but Cantor seems more than a bit off the mark when he complains that Obama "would never support the structural changes ... needed to make these programs solvent," at least in reference to Medicare.

Cantor probably also failed to notice that the Republican budget did not include any thing to improve Social Security's long-term budget situation. This was no doubt an oversight.

For those keeping score, a tax increase that is equal to 5 percent of the wage growth projected over the next thirty years would be sufficient to keep the program fully solvent over its 75-year planning horizon. That doesn't sound like an insoluble problem.

Cantor then concludes with a paean to growth. Yes, more growth would be better, but it's not clear why anyone would think that Cantor's path of tax cuts and lax regulation, which we just tried (remember George W. Bush?) would be the route to fast growth.

Okay, enough fun for now, I have work to do.

Comments (11)Add Comment
This Cantor Has Metastacized
written by izzatzo, August 22, 2011 7:33
We have bad news USA. Your Cantor has metastacized and cannot be treated for anything but symptoms.

The good news is that we have available painkillers that will keep you numb and dumb until the end, thanks to the Ryan Revolution in health care that finally allowed the true and full cost of health care to be recovered in free markets.

Have a nice day since it may be your last.

Stupid liberals.
written by skeptonomist, August 22, 2011 9:17
Suppose that the government mandated that all coal-fired generating plants had to be rebuilt, to meet new EPA requirements. This would actually not be entirely fanciful, if for example a new CO2-sequestering technology were discovered. I don't know offhand how much cash power companies have at the moment, but if they are like most corporations they have a lot. Even if they didn't have a lot of cash, they could borrow it at record-low -long-term rates. This would create an enormous number of jobs, many of them for now-unemployed construction workers (and firms). The effect would be similar to that of WW II, except that the net result would not be a lot of people killed and the manufactured goods going up in smoke, but cleaner air and/or more efficient power generation.

Stockholder's profits and CEO's compensation might be temporarily squeezed, but otherwise there would be enormous benefit. Environmental improvement does not cost jobs, it creates them.
YES, Feds Are "Hyper-Regulatory"
written by Paul, August 22, 2011 9:50
I suggest that we start by deregulating airline safety and abolishing the FAA entirely.

Think of all the new jobs when jetliners start crashing everyday! Boeing and Airbus will have to double production just to keep up with the planes lost. My plan should also reduce congestion at airports dramatically.
written by joe, August 22, 2011 11:31
"cost millions of jobs in the construction industry over the next decade"

Preventing another real estate bubble might cost millions of jobs but otherwise it's unlikely that millions of jobs will be added to construction in the next decade. There were about 2 million added during the real estate bubble.

Jan 1997: 5.675 million construction jobs
Jan 2007: 7.718 million construction jobs

Maybe he is using the Heritage numbers that claimed the Ryan budget would restore real estate prices to their 2006 level by 2016. If that's the counterfactual he's using then it should have been trillions of jobs lost and quadrillions of dollars lost.

written by fuller schmidt, August 22, 2011 11:39
Someone put it well recently that the Republicans are doing the Lord's economic bidding, and that if you disagree with them you are an athiest.
He may be right.
written by Texas Aggie, August 22, 2011 1:31
Izzatso writes that Cantor has metastasized to the point that the metastases are beyond cure. Given the strength of the TPs and the other rightwingnuts, he may be correct and our country is going down the tubes. Thanks so much, wingnuts. It was a good country while it lasted.
Obama causes loss of jobs just by thinking of doing something
written by Melissa, August 22, 2011 2:46
Ok, I couldn't resist this: "coupled with the president’s insistence on raising the top tax rate paid by individuals and small businesses, has resulted in a lag in growth that has added to the debt crisis, contributing to our nation’s credit downgrade" - Obama's "insistence" hasn't actually translated into a change in the tax rates yet, that I know of (please correct me if I'm wrong) so apparently just his saying he wants to change them is enough to cause a "lag in growth..." - I'd like to see the proof of that claim!
written by Moopheus, August 22, 2011 4:07
"Does Cantor mean the fact that we have to pay just over 2.0 percent interest on 10-year Treasury bonds, a post-depression low?"

Are we paying that rate? That's the yield 10-year bonds are currently trading at, which is not necessarily the same as the yield all of the outstanding 10-year bonds were borrowed at. Do you mean the current cost of borrowing, or our total cost of debt service? I'd guess those two things are not the same.
More Fun With Eric
written by Benedict@Large, August 23, 2011 2:30
1) Even if you accept Cantor's statement that there is a debt crisis (there isn't; we are not on the gold standard anymore), and that this crisis will threaten out children's futures (it won't, as above), why does he endorse a budget that slashes educational and healthcare access for those same children? Does he think that they will be better off in the future if they are stupid or dead from otherwise curable illnesses?

2) Entitlement programs depend on one thing only: Congress authorizing the payment of benefits. In a fiat currency, they can ALWAYS do this if there is the political will. This does not depend on prior funding of these benefits, as Cantor seems to think, and entitlement programs CANNOT be "strengthened" by misguided attempts to do so. They can only be lessened, which is certainly not within any reasonable definition of "strengthening."

3) Cantor's idea that higher taxes stifle investment is based upon the false notion of crowding out, which in turn is based upon the false notion that a taxed dollar simply disappears forever. Higher taxes do NOT crowd out investment, they merely change where the dollars are that will create investments. While it's true that Cantor's real constituency MIGHT have fewer dollars to invest personally, the idea that these dollars are simply gone and cannot not be subsequently invested by others is nonsense.
earth to izzatso: conservatism is a cancer...
written by Greenwood63, August 26, 2011 10:22
...and it's not caused by "free" markets, since there is no such thing.
Toronto blue Jays
written by Toronto blue Jays, August 26, 2011 9:30

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.