The Fetishization of Balance

By James Kwak

I generally don’t bother reading Thomas Friedman. A good friend gave me a copy of The World Is Flat, and I started reading it. Somewhere in the first one hundred pages Friedman has an extended discussion of workflow software (as a key enabler of globalization) and I realized that he knew absolutely nothing about workflow software, so I stopped reading it and gave it away.

Another friend pointed out Friedman’s op-ed in the Times earlier this week in which he argues for “grand bargains” and “balanced” solutions to, well, all of our problems. For example, he says, “We need a proper balance between government spending on nursing homes and nursery schools — on the last six months of life and the first six months of life.” Despite the nice ring, that’s about as empty a statement as you can make about public policy.

But this is the one that really confused me (and my friend):

“The first is a grand bargain to fix our long-term structural deficit by phasing in $1 in tax increases, via tax reform, for every $3 to $4 in cuts to entitlements and defense over the next decade.”

Where does this $3–4 in spending cuts to $1 in tax increases come from? To put this in perspective, over the next decade, the CBO’s alternative scenario (the more realistic one) says that deficits will average 5.3 percent of GDP over the next decade. A major deficit reduction agreement would need to bring this down at least to 2 percent of GDP.* Friedman is basically saying that taxes should go up by about 0.7 percent of GDP and spending should come down by about 2.6 percent. Over the next decade, the Bush tax cuts, if extended, will reduce tax revenues by 2.2 percent of GDP.** So Friedman is really saying that the appropriate level of taxes should be well below Clinton levels and slightly above Bush levels.

In addition, these ratios of tax increases to spending cuts are essentially meaningless. Take Medicare, for example. We could increase the Part B premiums paid by high-income beneficiaries, which, according to conventional federal government accounting, would count as a spending cut. Or we could make Medicare benefits taxable for high-income beneficiaries, which would count as a tax increase. But the two would have exactly the same effect. About two-thirds of all federal spending is direct payments on behalf of individuals (e.g., Social Security checks and Medicare reimbursements). Reducing a direct payment to someone is the exact same as increasing her taxes.

In White House Burning, we propose large reductions in long-term deficits through a long list of policy changes. Many of our proposals count as tax increases from the accounting perspective. For example, we recommend eliminating or scaling back tax breaks for employer-provided health care, mortgage interest, charitable giving, and state and local government borrowing, all of which are implemented through the tax code. All of these tax breaks, however, are really government subsidies, so reducing them should count as spending cuts from an economic perspective.

You may disagree with these proposals, but they should be evaluated based on their impact—not whether they are labeled as tax increases or spending cuts. By buying into this arbitrary distinction, Friedman is really buying into the Grover Norquist view of the world, in which the only number that matters is total tax revenues.

Finally, however, what’s so great about balance? There is a political rationale for the perception of balance, which is that you can’t pass anything that appears to favor one side by too much unless you control the White House, the House, and sixty votes in the Senate. But there’s no particular reason why the pursuit of balance will produce good policy. To take a particularly vacuous example, Friedman says:

“Within both education and health care, we need grand bargains that better allocate resources between remediation and prevention. In both health and education, we spend more than anyone else in the world — without better outcomes. We waste too much money treating people for preventable diseases and reteaching students in college what they should have learned in high school.”

Is he saying that we should improve high school education (who’s against that?) but that, to “balance” this improvement, we should have worse college education?

Friedman concludes, “We can’t have any of these bargains, though, without a more informed public debate.” Fetishizing balance as an end in itself, in order to brand himself as a reasonable centrist who wishes we could all get along, is not going to get us there.

* If you look at the long term, we think that average deficits will have to come down by 5.5 percent of GDP; details are in chapter 6 of White House Burning.

** According to the CBO, the Bush tax cuts are worth $4.4 trillion over the next decade (Table 1-6; that’s the incremental effect of the tax cuts on top of indexing the AMT) while GDP will be $202 trillion (Table 1-3).

20 responses to “The Fetishization of Balance

  1. I quir reading anything by Friedman years ago…vacuous and spurious connections that serve nothing of practical import.

  2. Did Thomas Friedman kick your cat, James? You sound more than a little grumpy.

    Many of the Friedman comments that you object to, could be fairly easily defended.

    The talk of balance and bargains is probably meant to frame the debate so as to protect the delicate sensitivities of the politically motivated.

    Raising the needs of the first and last sixth months of life could be an attempt to find something,(anything!), that reasonable people might accept as common ground.

    The idea that tax increases should be matched to some degree with savings is hardly new or intrinsically wrong.

    You don’t have to go far to find dialogue dissolving into abuse, so for Friedman to try to step above that, makes some sense.

    I think Friedman is wrong, along with many others, in downgrading the importance of the Nation State, and especially ignoring the importance of each state having, and following, a comprehensive and sophisticated economic plan.

    His reliance on globalisation as a process for human advancement seems to me somewhat utopian, and one-sided, but not completely wrong. As an author yourself, you will understand the need to overstate the importance of your topic. No-one ever writes a book on some minor element that doesn’t matter very much.

    I may read your book if I see it in the shops. I don’t think the title makes importing the book very wise. Someone could get entirely the wrong idea of my tastes.

  3. Finally, however, what’s so great about balance?

    So what you are trying to say is that extremism in the defense of liberty is no vice?

  4. “Reducing a direct payment to someone is the exact same as increasing her taxes.”

    If she in fact pays her taxes.

  5. Here are James’s like minded problems in a nut shell. Until you see something, you can’t comment on it, or begin to understand it. If you try, you make a fool of yourself without knowing it. It happens all the time. Now if you see something and try to understand it, don’t be the one to force it on others, if you yourself have not achieved it. Because then you act on behalf of a clown and get handsomely paid for it. I found James to be the in former category long ago, and somehow found a way to be handsomely paid for it, where as with my achievements, i could not even get paid for the latter.

  6. If you decide on the solution before doing the analysis, there is no need for analysis. Without analysis, we are stuck with uninformed decision-making. To our (so far) one defender of Friedman, I would say that your defense is a defense of uninformed decision-making.

    Maybe…maybe… the points that you have picked from Friedman’s article are defensible in isolation as necessary coddling of political sensibilities, but taken together they amount to insistence that we choose a uninformed decision-making in order to avoid calling either side in our politics wrong. If one side gets something wrong, that ought to be said.

    I can only think that you have misunderstood the point that JK was trying to make, because you have not challenged his point. You have only tried to stand up for individual statements that Friedman made. It is the effect of the whole of Friedman’s argument – which is to support ignorance in policy making – that JK argues against, as I read him.

  7. I can’t help but wonder… Less money spent on health case, taxes, etc equals more money spent at the mall. After all when you marry into a family with a large retail trust does that influence you ability to analyze? Just wondering, if his perspective is tainted by his own economic self interest?

  8. Eclectic Obsvr

    I think your first point is more apt. Friedman only sounds good if you know little or nothing about the subject that he writes about.

    As for another point, unless you know the reality for which most people live as a matter of income, financial obligations and risks and their associated ability to improve, then you have no business writing about “balance”. It doesn’t sound like Friedman does. He never knew much about economics and increasingly he knows little about the world as well.

  9. I agree with your point about Friedman wanting to be seen as a centrist…but you’ve demonstrated that even taking a “centrist” approach is so far to the right of the aisle these days that it is essentially meaningless. It seems that eliminating the deficit must include both increases in revenue, and decreases in spending, and that we have to ask ourselves the question what do we cut and from where do we get the additional revenue. If you understand the safety net programs, the abundance of spending in the tax code, and the basic inequality in the Country I’m not sure how one can advocate for $4 in cuts for every $1 in revenue.

  10. I think you will like this review of “The World is Flat”:

    http://rolocroz.com/junk/friedman.html

  11. I was hoping someone would post that link. Taibbi is to Friedman what Twain was to J.F. Cooper.

  12. He is a shill for you- know- who. He supported the Cheney invasion of Iraq lock, stock, and smoking barrel to help someone but I can’t remember who. That destroyed his cred for independence. At that point the Times should have dumped him so he could make more money at Fox. Massive bombardments of population centers of people who look different than you rarely turn out to be admirable once you’re not around anymore to spin out propaganda.

  13. deusdarkjaws

    James,

    I am sorry to hear you and Simon Johnson wasted weeks or months of your life by writing a book that will make all of us worse off. One would assume someone like the two of you would have heard of something akin to “monetary sovereignty”, but judging by the topic of your book it’s quite apparent you haven’t.

  14. James, let’s face it, I characterize Thomas Friedman as a quasi-conservative, soft-headed populist. He really doesn’t like to write controversy at all, and, therefore, any opinion about the restructuring of our massive Federal Budget problem written by him should be viewed as essentially meaningless. We all know that the problem is about a politically insoluable as anything ever in American politics, at least under the current Plutocratic regime. What has been happening in that arena, vis a vis effective legislating, is a part of our American Political Theatre of the Absurd. All statements and arguments presented by either side are just a part of the obfuscation of thoroughly disingenuous leadership. So long as our elected officials are sponsored by the American Oligarchy, they cannot harm their handlers, and we simply get what we get: an anti-solution.

    Just stop for a moment and listen to a bit of the current “debate” happening in the Republican Primaries. Every candidate emphatically claims that their election will lead to the repeal of what they identify as Obamacare. Aside from the fact that no President has any actual power to repeal any law without full congressional support, we never, and I mean never, hear what they would replace the law with. I personally dispise this law, the beneficiaries which are plainly the key membership of the health care oligarchy, and no segment of the American public has actually benefitted from its content in any meaningful way. The law has not reduced costs, it has not increased the validity of treatment, and has not resulted in any improvement in this country’s ranking amongst developed countries in this area. But the completely bogus debate goes on, and is simply intended as a distraction, not to provide solutions.

    I could go on, but the picture is crystal clear. There will be no way to tackle the Federal debt and deficit until we find some way to elect government officials who actually are driven to improve the lot of the average American. The present election paradigm is fully broken and dysfunctional. Sadly, the only solution is probably some form of national revolution. One can only hope that it will be non-violent. As the various Occupy Movements creep out of their winter foxholes to resume their protestations this year, where will that go? The 99% must stand up and be counted. There are tens of millions ready to move, but do they have the courage and will? Only time will tell.

    Guys like Friedman are not driving any useful debate. There are legions of Friedmans working for the “popular” media, who make the pretense of driving solutions, but, in fact, are driving nothing.

  15. All of these tax breaks, however, are really government subsidies, so reducing them should count as spending cuts from an economic perspective.

    The difference between a tax break and spending is that spending is for things like Medicare that the government is perfectly comfortable admitting that it does, while tax breaks are how you spend when you don’t want to admit you’re spending or how much you’re spending. Every lobbyist knows to ask for tax breaks, not spending. That way your gift will never appear in the budget and Grover Norquist will make every Republican sign a pledge to never take your gift away.

  16. The solution to “the completely bogus debate” is not to continue it.

    It is perfectly reasonable to disagree with Friedman, both in his descriptions of the various problems in the world and the remedies he proposes. Disagreements on such matters should be viewed as normal, and not a reason for undue angst. I don’t agree with him and that doesn’t worry me. My opinions are my own.

    I don’t favour extrapolating tax income and government spending in a recession and proposing a “minor” modification to “balance” the two, as Friedman does. This is like hanging out your washing when its raining. Cutting Government spending will only heighten the recession and further reduce tax revenue. But the recession is arguably over, and we will have to face up to this sometime.

    I think that the USG should set a target to significantly increase government revenue, and start to pay back debt. An increase of 10% is not inconceivable. This would be a great time to reform tax law. It w/could raise money and help direct investment more efficiently. Sure taxes would increase. I hope mine will keep increasing forever.

    Alongside that there needs to be a program to remodel government agencies and the way they operate. Most OECD states need to do this as years of cost cutting has caused many of these agencies to atrophy. Why not load your passport into your cellphone? The CIA is probably tracking you anyway. This would cut duplication.

    The welfare state needs to be rejigged to automate the economic certainties of life. Birth, education, marriage, housing, aging, sickness and death. Is there anyone who is truly happy with the way we do things now? We can now connect these programs directly to the citizen. Look at Singapore. That country has only five million brains, but they use some of them. So could we if we tried.

  17. Friedman lives in “fantasy land.” He makes appearances on the big talk shows. Makes big money working for the Times, and thinks the rest of the world should live and can live like him. When I listen to him my blood pressure rises and feels it like to going to explode. His field of expertise is the Mid East, but he was totally wrong on Iraq. I find it annoying that when a reporter is trained to be an expert on a subject, and develops a following, his editors, decide to make him an expert on everything. I read the “World is Flat” when it first came out. I really felt Friedman was wrong, didn’t give facts, and relayed on conversions with businessmen and politicians who had there own agenda.

  18. Tom Freidman has proven clueless on public policy for a very long time, most notably his continued insistence that staying the course ( path of disaster) in Iraq made the most sense.

    After 1.455 million dead Iraqis, and trillions wasted, one need not look further into what a truly muddle-headed individual this neocon shill is.

    Next time he promotes war, he should begin with proclaiming his own loved one will be there fighting on the front lines. Absent this, I wish he’d blow away for good, the big windbag of lies.

  19. I agree that the idea of “balance” should not be a fetish.

    One thing that annoys me about Friedman is where he starts his balance argument. There should be $1 in tax increases for $3-4 dollars in spending cuts? Why? Because we have to bow down to Grover Norquist??? That isn’t balance. That is just plain capitulation.

    Where you start is not advocating from a compromise position. When you advocate from a compromise position, the other side will usually just pocket your compromise and push for more. Instead, you start from an ideal position and then compromise to the extent necessary to make progress.

    There is one advantage to starting with the balance rhetoric. Most Republicans have signed a pledge to never increase taxes. This makes it nearly impossible for them to make any deals. One way to exploit this for public relations advantage is to propose deals that are one-sided in favor of the them. This is what Thomas Friedman is proposing with his heavily one-sides proposal. Then when out of extremism and the signing away of Constitutional duties the other side rejects the deal even though it is one-sided in their favor, you can hopefully reveal their extremism to the larger public.

    This is a bad strategy though. This is what the Obama administration seemed to be trying to do early on. The problem is that making all of the concessions necessary is very dispiriting to your own base. A much better approach is to not make concessions right away, but talk about balance and compromise. The other side absolutely hates the words “balance” and “compromise.” This fact can be exploited. But it doesn’t require huge substantive concessions in order to reveal this.

  20. Scheesh – like *greed* wasn’t fetishized (is that a real word? :-)) for the past 30 years…?