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Tuesday, August 17, 2010

Thune's Paradox: 10% Cuts Never Eliminate Deficit; Debt Still Grows

When John Thune floated his "Deficit Reduction and Budget Reform Act of 2010," the Wonk Room noted that Thune's math was a bit off. His deficit reduction plan would create a joint committee, ten members from the House, ten from the Senate, equal numbers from each party (ah, spoken like a member of the minority) that would propose budget cuts to reduce the deficit by 10% every year.

Ever hear of Zeno's paradoxes? If you want to get to Hy-Vee, you first have to cover half the distance to the store. Then you have to cover half of the remaining half of the route. Then again, and again... nuts! You never get your grapes!

Ditto but worse with Thune's 10% plan. If enacted, his plan would chop the deficit down to 90% of the starting amount in year one, then 81%, then 72.9%.... We'd finally whittle the deficit down to less than 1% of the current amount by year 45 of the Thune plan... during which time the national debt would still have increased by an amount almost ten times the current annual deficit.


  1. As we all know, in the real world (as opposed to the theoretical), we do, in fact, get our grapes -- and our nuts too.

    I suspect that John Thune is not too well versed in theoretical logic or mathematics, or he would have made his statements more rigorous to the effect that by "cut by 10% every year" he means to say that the budget shall decrease to 90%, then 80%, then 70%, etc.; that is to say, by 10% of the original amount every year until it is gone.

    Then we would "break even" every year after that. Some sort of constitutional amendment would be necessary to ensure that the original disease didn't sprout again.

    Cory, I think I can sense where you might want to go with this argument, anyhow: Dr. Thune's medicine is nowhere near strong enough to cure the disease at hand, and that could in fact be true.

    So let me, in my theoretical universe, offer up the suggestion that we enact a brand new 17% national value-added tax (VAT, often mistakenly called a "national sales tax") starting on Jan. 1, 2011. I suggest 17% because it's just about in line with the levels typical of Europe, and also because any level lower than that would not likely generate a sufficient revenue stream to really strike a consequential blow at the deficit.

    I've already got a spending plan of my own in mind for such a situation: Cut my personal spending by 17% overall. That means no more diet soda, no more smoked oysters, more ground chuck and less tenderloin; fewer paper towels, less toilet paper, a cooler house in the winter, and of course a lot less driving that old pickup truck around the Black Hills. Also I could consider converting to the Christian Science religion to see if that might not opt me entirely out of the U.S. Medical-Industrial Racket (USMIR) on religious grounds ... even after 2014. That'd save me a bundle even now (not to mention in 2014), and would shorten my life sufficiently so as to keep me from spending more than my share of time on the downslope of Dr. Ezekiel Emanuel's famous humanoid-viability-vs.-time curve.

    Now then, suppose everyone follows my lead and cuts their spending by 17%. They'd have to cut by at least that much in order to save one single penny more than they do now. What do you economists out there suppose will happen to our recession if, next Jan. 1, everyone abruptly cuts their spending by 17%?

    Forget the grapes. Forget the nuts. We'll be eating the grasshoppers and dandy-lions in the summer, and stray cats in the winter. At least there will be fewer obese children to worry about.

  2. Please delete the foregoing passage in my previous rant:

    ...and would shorten my life sufficiently so as to keep me from spending more than my share of time on the downslope of Dr. Ezekiel Emanuel's famous humanoid-viability-vs.-time curve.

    After careful research, I must conclude that this statement might not be fair to Ezekiel Emanuel. I know what it's like to be taken out of context, so I wouldn't want to be guilty of that. I may have fallen victim to a conservative distortion of Emanuel's true intentions -- not the first time the right wing has hoodwinked me.

  3. [Sorry! No edit capacity on comments on Blogger. But readers, edit Stan's comment in your heads accordingly. :-) ]

    President Obama has pledged to cut the deficit in half by 2013. One anti-Obama blog said that pledge "doesn't really mean a whole lot." Thune's 10% proposal reduces the deficit even more slowly.

    VAT: Stan, do you think it's safe to advocate any tax policy that mirrors Europe? Some conservatives will accuse you of trying to ruin our fair country with that dratted Eurosocialism. I, however, appreciate your willingness to acknowledge that we have to pay for what we've spent, and that even painful spending cuts may not be enough to balance the books without some tax increases alongside them.

    And I'm inclined to a similar conclusion on what would happen if you imposed a big VAT: people buy less, the recession gets worse, and we don't see a big uptick in revenue to help address the deficit. Wow -- what a bind! How do we solve this mess?

  4. Cory, I wasn't actually advocating a VAT; I'm dead-set against it. However, on the flip side, I don't know how we get out of the deficit bind.

    New revenues won't help unless drastic cuts are made as well.

  5. Sorry to have read too casually! I think we agree: We won't eliminate the debt without serious spending cuts and tax increases... and those items together will cause serious economic pain. There's no voodoo route out of this mess.


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