Jonathan Chait

Keith Hennessey Should Cut His Losses

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Former Bush economic advisor Keith Hennessey is back for more. His first defense of Bush fiscal responsibility was highly unpersuasive, and his follow-up, unbelievably, appears to be even worse.

For instance, I pointed out that the prospect that the 2001 CBO budget projections of endless, growing surpluses would prove inflated were not some "hindsight analysis" but a probability Democrats constantly emphasized and Republicans repeatedly dismissed. I cited a TNR editorial and Paul Krugman's book, in addition to Bill Clinton's 2000 convention speech. Here's Hennessey's response:

Mr. Chait cites a 2000 convention speech given by President Clinton which effectively proves his point.  He also cites his own TNR editorial and a book by Dr. Paul Krugman, neither of whom held any official policy role at the time.  It’s important not to confuse the fans and sportscasters with the players on the field.  I think other examples of elected Democrats attempting “to inculcate caution and modesty” beyond one sentence in President Clinton’s convention speech would help Mr. Chait make his argument more effectively.

Come on. The prospect that CBO projected surplus would prove too high was a constant theme of Democratic skepticism. I cited TNR's editorial because I wrote it and Krugman's book because it was on my shelf. But if you look at any of the democratic rhetoric from that period, you'll find this theme. Here's the Democratic response to Bush's address to Congress pushing tax cuts:

Worse still, the president's plan depends far too heavily on a 10-year budget estimate, which is no more reliable than a 10-year weather forecast. And there's no room for error.

Nobody's crystal ball is that good. Just ask Texas. Two years ago, using rosy forecasts, then-Governor Bush signed a budget that cut taxes by $1.8 billion. But his budget projections were wrong. And today, Texas faces a serious budget shortfall.

Does Hennessey really want to try to deny that this theme figured prominently in Democratic objections to the tax cut, or is he just engaging in sophistry? (Note that Hennessey ignores my point that conservative economists and pseudo-economists repeatedly insisted the surplus projections were too low, and that Bush treated the projected surplus like money that had already materialized.)

Hennessey continues:

28 House Democrats and 12 Senate Democrats voted for the 2001 tax cuts.  If Mr. Chait believes that President Bush’s tax cuts were surplus-destroying bad policy, then his critique applies equally to sitting Democratic Senators Baucus, Carnahan, Feinstein, Johnson, Kohl, Landrieu, Lincoln, Nelson, and many House Democrats as well.

Okay, point taken. Bush opened the floodgates of fiscal irresponsibility, and some Democrats jumped at the chance to take some credit for the lucre and avoid being attacked as partisan liberals. If Hennessey is saying those democrats should be ashamed, I agree. If he's trying to deny that Bush was the prime mover for this policy, that's just laughable.

In response to me pointing out a CBPP graph showing that Obama's policies reduce the deficit relative to current law, Hennessey retorts:

Mr. Chait appears to accept the work of the liberal Center on Budget & Policy Priorities as defining the undeniable reality.  While I respect the authors of that particular paper, I do not.

That's the entirety of his retort. He does not say what he disagrees with in the figure, which is based on CBO data. I haven't seen anybody raise a detailed objection to it. Hennessey just wants to wish this fact away because it's inconvenient.

This particular defense struck me as a howler:

Three things can be done with a dollar of surplus:  return it to the taxpayers, use it to pay down debt, or increase spending on a government program.  Team Obama and its allies suggest that if we had not cut taxes and the surpluses had remained in Washington, then all these surplus revenues would have been used to pay down debt.  I think it’s far more likely that Congress would have figured out ways to increase government spending (yes, sadly even with Republican Congressional majorities).

This actually harks back to the argument Bush used in 2001. While Democrats pushed for reserving the surplus to reduce the national debt, Bush always  insisted there were just "two choices": leave the money in Washington, or return it to the taxpayers. This was a rhetorical trick designed to define out of existence the option of paying down the debt. It's nice to see Hennessey admit there are actually three choices. But he recycles Bush's old dodge that somehow the debt wouldn't have been paid down and that spending would rise. This is nonsense. Debt reduction was the default policy in the absence of Congressional action. If Bush wanted to pay down the debt, he could have vetoed any spending bill above his desired amount. The decision not to pay down debt was not taken away by Congress. It was removed by Bush because Bush preferred tax cuts.

Here's the paragraph of Hennessey's that really gets to the nub of the point:

President Bush campaigned on tax relief.  He won.  He fulfilled his campaign promise and enacted tax relief, in part contributing to smaller surpluses and eventually budget deficits.  In doing so, taxes returned to near their historic levels and budget surpluses got smaller as all income taxpayers kept more of the money they earned.  Since I focus on spending as the problem, rather than the balance between levels of taxation and deficits, this shift doesn’t concern me as it might some others.  I focus on what I think is our primary fiscal challenge:  slowing the growth of government spending.

Here I will permit myself to go beyond factual debunking of Hennessey's arguments and add some analytical perspective. What Hennessey's saying here is that he prefers low taxes and low spending. Bush's deficits don't bother him all that much because they helped push the composition of the federal budget and the burden of the tax code in a direction he prefers. So, in his previous post he argues that Obama bears more responsibility for deficits than Bush, but his position is not really contingent upon that argument holding up. His deepest belief is that deficits caused by tax cuts are fundamentally okay, and deficits caused by failing to cut spending are not.

This is why the deficit is currently intractable. Hennessey is clearly one of the most responsible Republican economic policy-makers. He doesn't say that deficits don't matter or that tax cuts cause revenues to rise. But even somebody like Hennessey is willing to support policies that destroy the country's fiscal position in order to tilt the level of taxes and spending in a more favorable direction. This is why fiscal responsibility right now is a fool's errand. Even if Democrats could right the fiscal ship in the face of total GOP opposition -- a move that would entail such massive political costs that no sane political party would attempt it -- Republicans would just steer it right back off course as soon as they regain power.

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