It surprised few that the debt ceiling is a topic of discussion again, although the way this is unfolding may actually be a surprise. The leaders of the House of Representatives and the Senate both seem convinced there will be an approval of a debt ceiling increase before the end of the government’s fiscal year. For the time being markets seem to largely believe this.
In an epic display of the more things change, the more they stay the same Paul Ryan is unhappy with the process of fiscal policy under his own leadership. I will wait to comment on the legislation more fully when the votes are in (what the end passing coalition looks like may be the most interesting part of this). With this policy we essentially put in place tax cuts and spending increases, so something for both parties to celebrate or at least sell as a victory. Of course it is fiscally irresponsible and leads me to the generic comment I want to make: fiscal policy is not working. As much as people (in and out of government) want to take aim at the Fed, their policy decisions can be justified as following a defined approach to policy and the world.
The legislative session is in high gear and on March 18th the OMB released what they are calling their March 2015 Revenue Forecast (found here). This is an updated revenue number for the legislators, and I think it comes as no surprise that some of the numbers were down, especially oil. Looking ahead to the 2015-17 biennium the forecast is for a decline in oil revenues by $869,745,374. That is on top of more than $100 million less in the remainder of the current biennium. Does this number seem plausible? Sure.
Thinking about fiscal policy dominates my time lately. Mostly my concern is with parsing the data in such a way to make sense of the various arguments out there about the proper course for fiscal policy. Recall that I doubt that anyone is willing to reduce spending by enough to balance the budget. So if we are to see balanced budgets at some point, the timing of that is a topic for another post, it seems likely to me that tax increases will be necessary. Anyway, those policy issues will be covered another day.
At least that is the case for the healthcare obligations of most states and local areas, though Robert Pozen points out that this is likely to change soon (available here). This is something I discussed when Detroit went through bankruptcy proceedings. Pension and healthcare obligations of the city made a contribution to the bankruptcy, but only because the broader electorate allow it. If we get accurate accounting and compel elected officials to use realistic discount rates there would be a better sense of the amount of these obligations. The proposed accounting changes are a step in the right direction, requiring more transparency and better assumptions.