THE PLANK MARCH 4, 2009
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Ross Douthat charges President Obama with doing George W. Bush's budget strategy in reverse:
what you see in his budgeting proposals, I think, is the liberal
equivalent of the conservative attempt to "starve the beast." In both
the Reagan and Bush eras, Republicans passed tax cuts and ran up large
deficits while hoping that by starving the federal government of
revenue they would curb its long-run growth. Obama's spending proposals
would effectively reverse that dynamic - they would create new spending
commitments and run up large deficits, in the hopes that the dollars
poured into health care and education will create a new baseline for
government's obligations, which in turn will create the political space
for tax increases on the middle class. Like the starve-the-beast
approach, the Obama strategy puts off the hard part till tomorrow: Give
them tax cuts today, conservatives said, and they'll swallow spending
cuts tomorrow; give them universal health care, universal pre-K,
subsidies for green industry and all the rest of it today, liberals
seem to be thinking, and they'll be willing to pay for it tomorrow.
In the most important sense, this is completely wrong. Obama's budget is not a net spender. It would reduce the deficit by some $2 trillion over the next decade (big PDF link; see page 115) compared to continuing current policy. (You can quibble about the "current policy" baseline -- some of the Iraq expenditures would probably have declined under even a Republican administration -- but the basic fact that Obama's policies reduce the deficit on the whole is hard to dispute.) By contrast, all of Bush's major deficit-increasing initiatives -- the tax cuts, the war in Iraq, the Medicare benefit -- came without any attempt at all to pay for them. And, by the way, most of the people who are complaining about Obama's fiscal irresposnsibility today uttered not a peep of complaint about Bush.
Now, I'll concede that Douthat has a point in spirit. Obama does not get the deficit all the way to where it ought to be. If the economy recovers by 2011, as he projects, and we experience continued growth through 2019, and we're still running the 3.1 percent of GDP deficit he forecasts -- well, that would be a problem. It's totally unfair to compare a president who made the problem vastly worse with one who alleviates the problem considerably. But it is interesting to ponder why Obama doesn't go further in the direction of fiscal responsibility.
And here Douthat is onto something: Obama is trying to put his imprint on federal policy. I think he's right to do so. Ronald Reagan governed the country with little worry about its fiscal health. His goal was tilt the structure of the tax code and federal outlays so that conservatives would have an advantage when the bill came due. It worked: when the Democrats recaptured the White House, they mostly played janitor, cleaning up the Republican mess. Not only did Democrats mosty fail to impose their priorities to anything like the degree Republicans had, voters penalized them in 1994 for imposing fiscal pain. And then, when Republicans regained the presidency, they returned to the Reagan strategy.
Given all this, for Obama to govern like Clinton did would be insane. Clinton's policies were a good way to govern if you assumed that Democrats would hold power forever. But if you assume that Republicans will gain power again, reducing the deficit will do anything but clear up more room for upper-income tax cuts. Given that the GOP is committed to upper-income tax cut maximalism, Democrats can't win by taking the job of fiscal responsibility entirely on their own shoulders. What's more, they can't even effectively control the federal deficit in the long run, since their self-appointed role as janitor only encourages Republians to go hog wild when they have power. What Democrats can do is take some steps in the right direction, and implicitly invite Republicans to drop their supply-side fanaticism and come to the bargaining table when they're serious about governing.
--Jonathan Chait
17 comments
Or Democrats could stop believing in old gold-standard economic paradigms and realize that deficits are required to supply private savings.
Government is a monopoly issuer of currency. We the currency users need government money to pay our taxes. There is no limit to government spending, the money used to buy treasuries had to be created first by government spending. Government taxation and borrowing reduces inflation and maintain interest rates, that is their only purpose. The government does not need taxes in order to spend. The only consequence of excess spending is inflation, which, when 10% of our population is not working, and better than a quarter of our industrial capacity is idle, is not a serious threat.
What democrats should be doing to make sure that social security and medicare are around in the future is asking where are the doctors and health care workers going to come from to provide these services? Worry about real resources, and real goods and services, not paper money. You don't need to raise taxes if you shift workers from parasitic or non-productive industries (like the majority of the financial sector) to industries that you want more goods from (like healthcare). Stop the massive brain drain to Wall Street. Reform the social safety net by providing work instead of welfare. Increase the size of the House of Representatives so the people have a greater say and special interest lobbying is tougher.
- acria multa
March 4, 2009 at 6:23pm
What have you been smoking, acria? Democrats believe in the gold standard? This is Jack Kemp and he is not a Democrat. Your penultimate point was taken care of by Bill Clinton. Jonathan: This is a good take-down of Ross Douthat. Obama does plan to reduce the deficit but the Democrats can't be expected to do it all, as you say. Challenging the supply-siders is good politics and good policy. Thanks for all your yeoman service in this area, from taking on Stephen Moore to your book The Big Con.
- liberal reformer
March 4, 2009 at 6:43pm
Wait... real resources and not paper money?
Seriously?
- dylanposer
March 4, 2009 at 7:08pm
I think I actually disagree somewhat. Clinton and Obama are in different circumstances. Bill Clinton promised to reduce the deficit and it was a huge campaign issue in 92. If he hadn't made that promise he wouldn't have been elected and if he hadn't kept it he would have had problems in 96. The deficit was not nearly as big an issue this last election cycle and to some extent Obama is trading in on the fiscal responsibility credit from the Clinton years. Likewise in order to undo Clintons fiscal policies Bush had to destroy the Republican party's credibility. Obama is right to focus on Universal Health Coverage and keep the deficit reduction as a secondary priority, but Clinton was also right to reduce the deficit in the 90s. Clinton probably shouldn't have ran up the huge surpluses, but by then he had a Republican congress so 'Save Social Security First' was the least bad option.
- CraigMcGil
March 4, 2009 at 7:14pm
lib. reformer,
I didn't say they believed in the gold standard, I said they believe its paradigms, like that government has to tax and borrow before it can spend. That there is an operational limit to government spending. This is simply not true for a currency that is not-tied to something like gold. If people understood how our monetary system worked, we wouldn't be debating what the right amount of debt is, we would be talking about maximizing output and employment.
Japan has more than 2x our Debt/GDP ratio, and runs deficits of over 8% of GDP/year regularly. Yet they have interest rates near zero. Why?
Yes Bill did reform welfare, but I'm talking about something different. Why offer any welfare/unemployment/food stamps or such stuff like that, instead just offer a government service job (which includes health care) to anyone will to take it. That way society has a chance to get something productive out those who need the safety net.
- acria multa
March 4, 2009 at 7:19pm
The center of gravity in the Democratic Party has been Keynesian for decades. Your post is incoherent. You act as if the sky is the limit when it comes to piling on debt.
- liberal reformer
March 4, 2009 at 7:51pm
acria:
Or Democrats could stop believing in old gold-standard economic paradigms and realize that deficits are required to supply private savings.
george:
Suppose someday metalurgists are able to create gold in a chemistry lab. Suppose it is virtually indistinguisable from gold mined on or under the ground. Soppuse they can create tons and tons and tons of it.
The Gold Standard is really just a device we invented in order to facilitate the buying and selling of commodities in the global marketplace. Gold however [as a commodity itself] is as susceptible to the vagaries of emotional and psychological caprice as the paper it is supposed to back up in the world economy.
Kenneth Moure:
"'The gold standard' is one of those expressions that combine fact, hope and wishful thinking. Like 'free market,' 'free trade' or 'free entreprise,' it refers to mechanisms and practices that give it the aura of a principle or scientific law. They all have a normative ring to them, implying a host of assumptions and apparently self-evident policy implications. Above all, they confer legitimacy to empirical experience or to a desired course of action."
george:
The meaning of "the gold standard economic paradigm" forgets to include the meaning of the expression "paradigm shift" in turn.
As in, say, Bretton Woods?
Any standard, mold, ideal, paragon etc. is always subject to change without notice. Thus I think Obama and the democrats have to role the dice and gamble on a return to something analogous to the Great Society. But this can only be accomplished of course after the economy is resusitated.
But who can pretend to know the one sure-fire way to accomplish that?
george walton
- iambiguous
March 4, 2009 at 8:20pm
Could be, but then why hard targets for GDP/Debt? If Obama said, I'll make sure we have full employment, I wouldn't worry.
Perhaps I'm skipping some steps:
What is the limit for the debt?
- acria multa
March 4, 2009 at 8:25pm
There is no set limit. It is like most everything, that is to say, contextual. It is a matter of intersubjectivity among economists and presidential advisers and policy wonks. Then the words and works of these wise women and men are put the pragmatic test.
- liberal reformer
March 4, 2009 at 9:58pm
lib:
There is no set limit. It is like most everything, that is to say, contextual. It is a matter of intersubjectivity among economists and presidential advisers and policy wonks.
george:
Exactly. Context and vantage point are everything when discussing or debating human moral and political values.
But most people refuse to accept that. Instead, they insist that mining for gold and then arguimg about its place in our political economy can both be accomplished objectively.
gw
- iambiguous
March 5, 2009 at 12:51am
Ramesh Ponnuru, responding to my budget post from last night, writes , "Chait may also be understating
- Anonymous
March 5, 2009 at 8:51am
"Obama's budget is not a net spender. It would reduce the deficit by some $2 trillion over the next decade compared to continuing current policy."
Compare it to anything you want. If this comes to pass I'll eat my shoe with a side of dog squeeze. Anyway, I'm going to start playing the lottery - recommend you all do same.
- selish70
March 5, 2009 at 9:16am
From Obama With Love: How His "Secret Letter" To Russia Helps Isolate Iran, Undermine Putin
- Anonymous
March 5, 2009 at 10:21am
Continuing our little budget spat , Ross Douthat writes , That deceptive baseline makes all the difference
- Anonymous
March 5, 2009 at 12:43pm
RE; acria multa - "...deficits are required to supply private savings...
Deficits are deferred taxes.
- bl462
March 5, 2009 at 1:33pm
This is so abolutely right on the mark!
- rmabbott09
March 5, 2009 at 4:14pm
Lets go back to the original argument! Deficits are deferred spending cuts, not deferred taxes. This is why the Republicans run deficits to cut taxes, and why the Democrats cannot run deficits to conserve the social order.
- tpinter
March 5, 2009 at 9:48pm