Monday, June 7, 2010

Democrats and Deficits

The LA Times reported today that Democrats in Congress are starting to become more skittish about spending bills, due to increasing concerns about the large federal deficit.  If I were advising any of these worried Democrats, I would suggest finding something else to worry about more.  Posing as the party of fiscal conservatism and balanced budgets has never proven to be a terribly successful strategy for either party, as there are usually other issues that people are more concerned about.  Telling people that we need to balance the federal budget is generally a depressing and unwelcome message to give them.  Better to let the Republicans assume that task.

Whenever I hear Republicans whining about the deficit, I just smile, not only because their sudden concern about deficits--after remaining complicit for eight years while George W. Bush doubled the national debt--is funny, but more importantly because it represents a return to a more natural order of politics.  One of the most refreshing changes caused by the election of Barack Obama was that it allowed Republicans to return to their customary role of fulminating about fiscal responsibility, while Democrats can return to their traditional role of promising more goodies for the people.  That natural order was reversed for a full 28 years previously, and that was always confusing to me, and pretty much turned me off of politics for the entire period.  We entered the looking glass when Ronald Reagan was elected.  Instead of worrying about the deficit, he persuaded people to worry more about taxes and big government.  As a result of his tax-cutting policies, the deficit started ballooning, but people didn't seem to care all that much about it.  So from 1980 through 2008, although the Republicans sometimes professed to be concerned about deficits, they never did anything much to reduce them, instead promising to keep cutting taxes, while letting others worry about the deficit.  The worriers during that period turned out to be Democrats, who suddenly and unnaturally became the party of fiscal responsibility.  During Bill Clinton's term, the Democrats actually succeeded in turning the federal deficit into a substantial surplus.  A lot of good that did the Democrats politically, as Congress fell into Republican control during Clinton's term, and he was followed by the most reckless tax cutter and deficit spender in history, George W. Bush.  

President Obama is now presiding over an even greater increase in the federal deficit as a result of and in order to cure the country of the deep recession we entered in 2008.  Of course, substantial deficit spending would have occurred regardless of who was elected, due to reduced tax revenues, increased unemployment and other social welfare claims, and the need for some form of increased spending or tax cutting to end the recession.  Obama is smart politically to profess a concern for rooting out wasteful spending, and to set a goal of deficit reduction over the next few years.  But as I mentioned in a previous post, it still seems premature to panic about deficit spending.  We are not even close to having the problems that are occurring in Greece, and significant cutbacks in government spending would likely slow the economy down again, which would not exactly help the government get its books back in balance.  For the Democrats to become deficit hawks again would also seem dumb politically, despite polls that purport to show increased public concern about deficit spending.  What Democrats need to do, as Ronald Reagan so brilliantly did, is to find something else for Americans to be more concerned about than deficit spending.  Reagan convinced us to become more concerned about taxes and big government, so we would stop worrying about the deficit.  Democrats should focus on concerns about unemployment and economic stagnation, because those problems are much more serious than deficit spending, particularly in the short term.  Democrats should not be so quick to wish to return to the unnatural order that prevailed for the strange 28 years prior to 2008.

2 comments:

  1. The Democrats have been talking up "pay-go" for several years now and they have broken their pledge at every turn. So, any new talk about deficit reduction or even just finding the revenue for new spending is just that---talk.

    Reagan and the supply-siders didn't (and still don't) care for addressing deficits because according to them, if taxes are cut enough along the Laffer Curve, the economy will grow enough to capture ever more tax revenue. This does work (as witnessed by Reagan, Clinton and Bush II) but if government spending continues to grow unabated, you are constantly playing catch up with a runaway deficit gap. Hence the problem with supply side economics.

    Bur Mr. Obama is no supply-sider. He's an old fashioned 1970's Keynesian-tax and spend-type. He believes that we can tax ourselves into prosperity: He's going to hike up taxes and hope for the tax revenue to start rolling in for all of those sweet promises he keeps hailing---he's in for a shock. The problem here is that all the "goodies for the people" is actually increasingly funded these days with Treasury bonds sold to countries like China because tax revenue doesn't cover the candy that people want and that our government has continued to promise for decades. As long as someone continues to buy our bonds (this only covers the interest on our debt!), we can live high on the hog. But once markets get spooked, and it only takes one time, with our debt load, the whole thing will get ugly and Grecian fast. Obama may not know it but he doesn't have as much maneuvering room for pumping money into the economy, building aggregate demand, and also having robust growth as other Presidents did. Obama is unlucky to be the one stuck with the can that resists being kicked down the road anymore.

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  2. Deficits are definitely a concern, and there is obviously a limit as to how much even the United States of America can borrow. Does anyone know for sure when we will reach that limit? I don't think so. Should we wait until we find ourselves unable to borrow any more before we institute whatever austerity measures or tax increases might be necessary to cure the problem, or should we take proactive measures now? The danger of waiting is that it could make the ultimate pain worse, but the danger of retrenching now is that that could cause another recession. I lived in New York City in the 1970's when the city went broke so I remember what happens when the government maxes out its credit card, but we did recover from that episode pretty nicely eventually.

    So I am not saying we should not worry about the deficit. All I am saying is that I feel a lot better from a political point of view that it is now the Republicans who are worrying about the deficit. It is the Democrats' job to be the tax and spenders, and it is the Republicans' job to raise the alarm about the national debt. All is right with the world when each party is doing its proper job.

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