I Fixed the Deficit

What do econo-wonks do for fun on the weekends? We play interactive deficit-fixing games online. Really. Felix Salmon has a good post explaining why some of the options the game provides–especially the Medicare cap–are unrealistic and why many of them are regressive. But the solution Salmon proposes (gutting the Pentagon budget completely) seems just as unlikely. My version is harsher, in that I take a scalpel to entitlements. But it gives a 60-40 tax increases-spending cuts balance that I’m more comfortable with the 70-30 Salmon has going. You can see my version, and make your own, here.

Updated 11/15 5:20PM: Also worth playing is the CEPR budget deficit calculator. A very different–ie more left-wing–set of choices are in place there. It’s pretty hard to get far on that calculator, for example, without a complete re-do of health care reform and two energy taxes–both at the producer and the consumer levels. That seems ridiculously implausible to me, but still fun to play with.

The Stiff Upper Lip and Its Discontents

I’ve just written the longest blog post ever at Foreign Exchange. It filled about 6 pages in Microsoft Word as I was working on it. I don’t think bloggers are actually allowed to be so verbose, but I couldn’t help myself, as the subjects touched on in the post triggered too many of my wonkish fetishes:

On Wednesday, the Tory-Lib Dem coalition in the U.K. unveiled its mammoth austerity program, aiming to take £81 billion off the deficit over four years. There are a few major sources of cuts: a reorientation of British foreign policy that should take 24% out of the Foreign Office and 8% out of the Ministry of Defense; a welfare reform program  that should yield close to £20 billion in savings; a push towards privatization and localism on everything from low-income housing to law enforcement; and across the board cuts–mostly efficiency savings and staff reductions–in all departments with a few notable exceptions: education, health and foreign aid spending will all keep growing.

The plan has taken a heavy beating in the first 48 hours. First, there are criticisms of the way the Spending Review plays fast and loose with data: leaving off half the cuts in order to claim that the overall effect is more progressive than it really is, conflating real and nominal figures or cash figures and percentages or departments’ capital ceilings and their actual expenditures. I can’t tell if that kind of fuzzy math is intentional obfuscation or just economic incompetence, but it’s a problem with the Review and one reason it took me a long time to develop a solid analysis of my own. Second, there are criticisms of the policies on the merits, in particular of the changes in taxes, disability and child benefits and housing. The most aggressive critique has come from the Institute for Fiscal Studies in a series of Power Point presentations that are getting a lot of positive play in the British press, but of which I’m a bit skeptical.

The rest of the post is a detailed analysis of the review, followed by an assessment of just how regressive it is. The figures I ended up with show that the Review is regressive in the broad sense (worse for the bottom half than the top half) but when it comes down to specifics, is actually going to squeeze the middle more than the absolute poor.

For more scintillating details, read the whole thing.