Posted by Ezra Klein on August 28, 2012 at 1:10 pm

On the Republican convention stage tonight, you’re going to see a really large clock. But the clock isn’t for keeping time. The idea isn’t to stop speakers from going over their allotted time, or the convention from running late. It’s a debt clock. And the idea is to blame President Obama and the Democrats for the national debt.

But in doing so, the Republicans will end up blaming Obama for the policies they pushed in the Bush years, and the recession that began on a Republican president’s watch, and a continuation of tax cuts that they supported. They’ll have to. Because if they took all that off the debt clock, there wouldn’t be much debt there to blame him for at all.

The single thing you should look at to understand the debt clock and what it is — or isn’t — telling you is this graph from the Center on Budget and Policy Priorities. It does something very simple. It takes public debt since 2001 — which is when we last saw surpluses — and breaks it into its component parts.

You can see it kind of looks like a layer cake. In fact, the folks at the Center on Budget and Policy Priorities call it “the parfait graph.”

The top layer, the orange one, that’s the Bush tax cuts. There is no single policy we have passed that has added as much to the debt, or that is projected to add as much to the debt in the future, as the Bush tax cuts, which Republicans passed in 2001 and 2003 and Obama and the Republicans extended in 2010. To my knowledge, all elected Republicans want to make the Bush tax cuts permanent. Democrats, by and large, want to end them for income over $250,000.

In second place is the economic crisis. That’s the medium blue. Recessions drive tax revenue down because people lose their jobs, and when you lose your job, you lose your income, and when you lose your income, you can’t pay taxes. Tax revenues in recent years have been 15.4 percent of GDP — the lowest level since the 1950s. Meanwhile, they drive social spending up, because programs like unemployment insurance and Medicaid automatically begin spending more to help the people who have been laid off.

Then comes the wars in Iraq and Afghanistan. That’s the red. And then recovery measures like the stimulus. That’s the light blue, and the part for which you can really blame Obama and the Democrats– though it’s worth remembering that Senate Republicans proposed and voted for a $3 trillion tax cut stimulus that would all have gone on the national credit card and added almost four times what Obama’s stimulus added to the debt.

Then there’s the financial rescue measures like TARP, which is the dark blue line. That’s almost nothing, as much of that money has been paid back.

If we didn’t have all that? If there’d been no Bush tax cuts, no wars, no financial crisis and everything else had been the same? Debt would be between 20 and 30 percent of GDP today, rather than almost 100 percent.

Now, the response you sometimes get to this graph is yes, that’s true, but Obama should have done more about the debt. But Obama has proposed a multi-trillion dollar deficit reduction plan. Republicans just refused to pass it. And, to be fair, he refused to sign their plan too. So the question then is less about what led to the debt and more about who has the right plan to get rid of it. I’ll get into that in a subsequent post.

Wall Street Journal June 17,2011

By JAMES
A. BAKER III

If the United States does not address its looming debt crisis, the cost of
servicing the national debt will spiral out of control. The annual interest
bill, according to a recent Congressional Budget Office report, will increase
four-fold to $916 billion by 2020. This year, we will spend 70% less on debt
payments than we do on defense. In nine short years, we are expected to spend 8%
more.

Washington so far has been unable or unwilling to make the tough choices
required to put us on the road toward fiscal sanity. And it is unlikely that a
grand bargain will emerge prior to the 2012 election. Nonetheless, our country
can still take three short-term steps to bolster confidence in the bond markets
and prevent a rise in interest rates that will damage our fragile recovery.

Step No. 1 is to raise the debt limit in a way that generates confidence in
the markets. That means including a restraint on spending.

To accomplish this, the debt limit should be increased by an amount
sufficient to service the U.S. debt for six months, provided that the proceeds
from the increase are used to service debt obligations. Doing this would
eliminate the argument that a U.S. default will end Western civilization as we
know it. And we should also increase the debt limit by an additional amount
sufficient to cover the federal government’s anticipated borrowing needs for the
next six months. But we must do so only if the administration and Congress agree
to a cap on total spending that will be enforced by sequestering spending from
specific programs or by cuts across the board—and only if, in addition,
agreed-upon amounts and types of projected spending are eliminated. Special care
here should be taken not to agree to waivers, exceptions or exemptions that
could be used to defeat the purpose of the cap, sequester or across-the-board
cuts.

We’ll have to repeat the process twice a year until a comprehensive budget
fix is reached. The caps should aim at achieving a historical ratio of spending
to GDP of 20.6%. The debt-limit increase should not exceed the six-month period,
because it is only when the debt limit has to be increased that Congress will be
forced to muster the political will to enact enforceable spending restraint.

Of course, the best way to permanently reduce spending would be to enact a
balanced-budget amendment to the Constitution requiring a supermajority in both
houses of Congress to run an annual deficit, raise tax rates, or increase the
debt ceiling. Unfortunately, the chances of enacting such a constitutional
amendment are slim.

Step No. 2 is to take a page from Ronald Reagan’s playbook in 1986 and
restructure our convoluted tax code by reducing loopholes and lowering marginal
rates. Business responded when the Reagan administration and a Democratic House
overhauled the tax system this way. It would respond again today if given the
chance. But, as in 1986, any changes in 2011 must be revenue-neutral so as to
avoid turning the discussions on tax reform into a heated debate over aggregate
levels of taxes and expenditures. Otherwise, with a divided government, the
effort will fail.

Step No. 3 is for Congress and the White House to fully embrace free trade.
With the dollar at low levels, consumers in other countries have an appetite for
products with a “Made in the USA” label. To encourage them, we should give more
than lip service to the currently pending free trade agreements with Colombia,
South Korea and Panama. The White House should stop stalling after two and a
half years of inaction and send them up to Congress for a vote.

In the long run, much more will be needed to correct America’s fiscal woes.
We must solve long-term funding shortfalls in entitlements such as Medicare,
Medicaid and Social Security. And at some point we will have to start thinking
about ways to raise revenue. But as President Reagan taught us, the very best
way to do that is by increasing economic activity with pro-growth economic
policies—lower tax rates, less regulation and more free trade.

With the Federal Reserve ending its purchase of bonds later this month, the
Treasury must rely even more on China, Saudi Arabia, Japan and other countries
to invest in our securities. The cost of these borrowings will ultimately
increase if the U.S. is not seen to be dealing with its fiscal problems. We must
demonstrate to the American people as well as the world that our leaders are
doing so.

Mr. Baker was President Ronald Reagan’s secretary of the Treasury from
1985-88.

Hu Jintao State Dinner

CHRISTOPHER BODEEN   01/16/11 08:24 PM   AP

BEIJING — Chinese leader Hu Jintao is being feted in Washington this week with a lavish state banquet at the White House and other pomp usually reserved for close friends and allies – all intended to improve the tone of relations between a risen, more assertive and prosperous China and a U.S. superpower in a tenuous economic recovery.

The shaky trust between the United States and China has been eroding recently because of an array of issues – currency policies and trade barriers, nuclear proliferation and North Korea – and both sides seem to recognize the need to recalibrate relations.

The U.S. is one of China’s biggest markets, with $380 billion in annual trade largely in Beijing’s favor. Washington increasingly needs Beijing’s help in managing world troubles, from piracy off Africa to Iran’s nuclear program and reinvigorating the world economy.

Hu sounded a conciliatory tone in a rare interview with U.S. newspapers ahead of his visit, saying the two countries could mutually benefit by finding “common ground” on issues ranging from combatting terrorism and nuclear proliferation to clean energy and infrastructure initiatives.

“There is no denying that there are some differences and sensitive issues between us,” Hu said in written answers to questions submitted by The Washington Post and The Wall Street Journal that were published over the weekend. “We both stand to gain from a sound China-U.S. relationship, and lose from confrontation.”

Hu called for more dialogues and exchanges to enhance “practical cooperation,” stressing the need to “abandon the zero-sum Cold War mentality” in U.S.-China relations.

Center for Strategic and International Studies scholar Charles Freeman, a former trade negotiator in the George W. Bush administration, said, “It is absolutely critical for the two sides to be setting a tone that says ‘hang on a second, we are committed to an effective, positive relationship.'”

The state banquet President Barack Obama is hosting will be Hu’s first. In the days before his visit, senior officials from both countries have spoken publicly in favor of better ties.

Secretary of State Hillary Rodham Clinton said in a speech Friday that the countries needed to manage their conflicts but their shared interests were so entwined as to constitute entanglement.

“History teaches us that the rise of new powers often ushers in periods of conflict and uncertainty,” Clinton said. “Indeed, on both sides of the Pacific, we do see trepidation about the rise of China and the future of the U.S.-China relationship. We both have much more to gain from cooperation than from conflict.”

Chinese officials have emphasized what they see as common concerns while acknowledging the complexity of the relationship.

“When the relationship is strained we need to bear in mind the larger picture and not allow any individual issue to disrupt our overall cooperation,” Vice Foreign Minister Cui Tiankai said in a speech Friday.

Such maxims, however, don’t apply to issues China defines as its “core interests,” including Taiwan, Tibet and the overarching authority of the Communist Party. That’s a condition Hu’s visit won’t change.

In his interview for the U.S. newspapers, Hu said the two countries should “respect each other’s choice of development path,” an implicit rejection of U.S. criticism of China’s human rights record and other internal affairs.

Hu, whose four-day trip starts Tuesday, is expected to talk up China’s intended peaceful rise in a speech to business leaders and opinion-makers in Washington on Thursday and to highlight the benefits of China’s market and investment when visiting Chicago.

Aware of China’s plummeting image in American opinion, Chinese Foreign Ministry functionaries have in recent weeks been looking for ways to make the usually stiff Hu, and China as a country, appear more human, something akin to reformist patriarch Deng Xiaoping’s donning a 10-gallon hat in Houston in 1979 just after the opening of diplomatic relations.

For the protocol-obsessed Chinese leadership, a highlight of the visit will be Wednesday’s state banquet – an honor denied Hu on his last trip to the White House in 2006. President George W. Bush thought state banquets should be reserved for allies and like-minded powers and instead gave Hu a lunch. Even worse, a member of Falun Gong, the spiritual movement banned by China, disrupted Hu and Bush’s joint appearance, and an announcer incorrectly called China “The Republic of China,” the formal name of democratically ruled Taiwan.

In this visit, no major agreements are expected. Talks over a joint statement ran aground until last-minute negotiations in Beijing last week. But the shared recognition to put things right and the bumpy relations of the last year augur for a better outcome.

The U.S. wants Beijing to move toward faster appreciation of its currency to boost U.S. exports and reduce unemployment. But in his written answers to the U.S. newspapers, Hu did not signal any significant changes in China’s currency policy.

China now holds the world’s largest foreign currency reserves at $2.85 trillion and a major chunk of U.S. government debt. At current rates, economists estimate China will overtake the U.S. as the world’s largest economy within 20 years, possibly by the end of this decade.

Hu said “the current international currency system is the product of the past,” but he did not dispute the U.S. dollar’s role as the global reserve currency. He said it “will be a fairly long process” before the Chinese renminbi can become an international reserve currency.

Beijing has largely rebuffed U.S. appeals for help in reining in bellicose North Korea, curbing Iran’s nuclear program and dismantling of trade barriers. Chinese officials and the nationalistic state-run media have criticized Washington’s renewed attention to Japan, South Korea and Southeast Asia, its arms sales to Taiwan and its continued naval patrols in the Yellow and South China seas as attempts to constrain China’s influence in its backyard.