In keeping with what is as of now an annual tradition to produce some serious click-bait—and to cut through the “conventional wisdom” of inside the Beltway talking heads and commenters—we hereby present our best and worst economic policy ideas of 2013.
Reflecting the fact that fiscal policy in 2013 is a mess, the number of bad ideas on this list far exceed the number of good ones. (A 9-to-4 bad-to-good ratio seemed about right.) We’ll go ahead and put our best foot first.
1. “Inequality is the defining economic challenge of our time.” This was said by President Obama in a major address in December. In a period of wide—and rising— income inequality, wage stagnation, a tepid economic recovery, and fiscal policy mired in austerity, it is absolutely essential to begin put the rise in inequality at the center of policy debates.
2. Talking about expanding benefits, finally. While the conversation about Social Security in Washington has for far too long focused on how to cut benefits, Sen. Elizabeth Warren and Sen. Tom Harkin both rose up, not just to defend the current level of benefits, but to call for expanding them. This is absolutely the conversation we need to have. Retirement insecurity is growing as two legs of the three-legged “retirement stool” (pensions and personal savings) have become increasingly wobbly. Moreover, since the last major Social Security reform in 1983, the wealth of the bottom 60 percent of Americans actually declined. Even as our country has gotten 63 percent richer, millions of retirees are increasingly dependent on their benefits to get by. It’s a good thing we’re starting to consider increasing their benefits.
3. Increasing the minimum wage. While the federal government still hasn’t acted on a proposed hike in the minimum wage to $10.10 (a move supported by 80 percent of Americans), the issue has been gaining attention in Washington and throughout the country, especially in light of high-profile protests at fast-food restaurants. Moreover, the success of minimum wage increases in SeaTac, Wash. (to $15), and Washington, D.C. (to $11.50), among other states and localities has shown the minimum wage an issue to be reckoned with at the national level. And as the minimum wage is no longer enough to lift a family of three out of poverty, it is high time to raise it.
4. The IMF rethinks austerity. Early this year, International Monetary Fund economists reversed course, declaring that austerity policies’ call for deficit reduction in the midst of widespread economic turmoil did more harm than good. The IMF reiterated this point throughout the year, urging countries that can—including the U.S.—to slow the pace of austerity measures. At least the IMF changed its opinion in light of new facts; the U.K., which is yet again recommitting to austerity, celebrated avoiding a triple-dip recession earlier this year. If that is all the best we can expect from austerity, it’s clearly time we here in the United States turn away from it for good.
1. Deficit reduction should be our fiscal policy priority. Did you know that the federal deficit fell dramatically in 2013? No? Well, you’re in good company: only 10 percent of Americans know this. This is a clear result of deficit-hawks’ continued scare-mongering. Though the national debt will grow only marginally over the next decade (relative to the economy), deficit-scolds continue to see the long-term debt as a bigger problem than the long-term unemployment crisis, wage stagnation, and a lack of broadly-shared prosperity.
2. Budget sequestration isn’t so bad. Some commentators keep banging the illogic-drum that because nominal levels of federal spending will continue to increase over the length of sequestration, the sequester can’t really be so bad. To put it bluntly: they’re wrong. Spending only “increases” over the length of sequestration if you factor out inflation and population and economic growth. In reality, non-defense discretionary spending will be 16 percent lower eight years from now than we thought it would be before the sequester was proposed. In fact, even the cuts’ proponents find them tough to swallow: House Republicans failed to find a way to fund housing and transportation programs at the miniscule level mandated by the sequester.
3. Let’s not extend federal unemployment insurance. Auspiciously missing from the Patty Murray-Paul Ryan budget deal that sailed through Congress leas week was an extension of the Emergency Unemployment Compensation program. By ending the benefits, 1.3 million unemployed Americans saw their income support disappear the week after Christmas, and nearly 5 million will see their benefits cut by the end of next year. This despite the fact that allowing benefits to expire when long-term unemployment rates were so elevated (37.3 percent of unemployed workers have been jobless for six months or more) would be unprecedented. Add in the facts that the extra deficit reduction in the Murray-Ryan deal would have paid for the extension, that failing to extend the benefits will cost 310,000 jobs next year, and that unemployment insurance is great economic stimulus makes this one of the worst fiscal policy ideas of the year.
4. The debt ceiling is a negotiating chip. In October, as you may recall, Republicans, as was the prevailing metaphor of the time, took the debt ceiling “hostage,” claiming that they would only allow the U.S. government to keep incurring the debt that it had already agreed to if the President would allow his signature policy achievement to be erased from the books. (Writing this sentence just re-iterated to me how implausible their demands really were.) Anyway, it didn’t work. And yet, Republicans seem as committed as ever to ransoming the full faith and credit of the U.S. government. It looks like we’ll all have to stay tuned for the next debt ceiling deadline in February, when conditions look like they’ll be more ripe for market turmoil. Just… sigh…
5. All reductions to the sequester must be “paid for.” In August 2011, the Congressional Budget Office projected deficits from 2013 to 2021 to total $6.2 trillion with the sequester in place, equal to an average of 3.4 percent of gross domestic product. In projections made this May, CBO declared that if sequestration simply vanished, deficits over the same time period would total $5.6 trillion, or an average of 3.1 percent of GDP. If deficit hawks were satisfied with the earlier projection, they lack credibility when insisting any further adjustments must be “paid for.” The implication is that we are running some naturally “correct” level of deficits, when in fact our deficit is shrinking so quickly as to harm the economy.
6. The public sector workforce can and should be cut. While small-government conservatives simply assume that the Obama era has been a boon to public sector jobs, the opposite is true. During the recovery alone—so not even counting the Great Recession itself–the public workforce has shrunk by 600,000, which is completely unprecedented. The public sector jobs gap—the difference between actual public sector employment and what it would be if it had simply grown with population growth—is nearly 1.5 million. Cutting public spending has consequences, and those consequences can be seen in millions of missing paychecks.
7. Shutting down the government won’t hurt anyone. It did. Federal workers missed 6.6 million days of work, for which they were nonetheless paid $2 billion. The Council of Economic Advisers estimated that the combination of the government shutdown and the debt ceiling showdown may have resulted in up to 120,000 fewer private sector jobs created over the first two weeks of October than would have otherwise been the case. Programs for veterans, needy children, seniors, and other vulnerable groups were cut back during the shutdown. Early estimates predicted that the shutdown would cut a half a percent from quarterly economic growth. Facts may not convince some people that shutting down the government is bad and wasteful, but these definitely should.
8. Enormous health care cost growth is permanent. Combined with our aging population, the rising cost of health care is often cited as a reason we must immediately pare back the social safety net. As it turns out, health care costs have grown much slower than anticipated in recent years. Between August 2012 and May of this year, CBO reduced its projections of Medicare and Medicaid spending by $544 billion. While the slowdown in health care cost growth may well reverse itself, the new numbers should serve notice that dire long-term projections should not alone justify draconian policy changes. Dereck Thompson put this best in the Atlantic: “In the future, there are budget crises that some people think might happen. In the present, there is a long-term unemployment crisis that we know is happening.”
9. Cutting food stamps is a good idea. What to do with the budget over the Supplemental Nutrition Assistance Program (food stamps) is one of the great unresolved policy debates of 2013. In short, the House-passed bill would cut SNAP by $40 billion, whereas the bill that passed the Senate would cut the program by $4 billion. The House bill is particularly egregious; it would eliminate nutrition assistance for 3.8 million people. Not only is SNAP already bare-bones (the average benefit is $1.48 per meal), but recipients are truly needy; the average net income for SNAP recipients is down 25 percent since 2001. SNAP benefits are good for recipients and for the economy as a whole, as benefits tend to get spent and spent quickly.