"You and I as individuals can, by borrowing, live beyond our means, but for only a limited period of time. Why, then, should we think that collectively, as a nation, we are not bound by that same limitation?"
—Ronald Reagan's first inaugural address, 1981
"Glenn Hubbard, chairman of the White House's Council of Economic Advisers … derides the 'current fixation' with budget deficits, and labels as 'nonsense' and 'Rubinomics,' the view espoused by former Clinton Treasury Secretary Robert Rubin that higher deficits lead to lower growth."
—The Wall Street Journal, Dec. 17
How in the world did this happen? Once upon a time, federal government deficits were denounced by St. Ronald as a focus of evil barely less threatening than communism itself. Now that concern is mocked by a Republican White House as the nonsensical "fixation" of a previous Democratic administration. In recent weeks the term "Rubinomics" has spread through the press like a rash—promoted by people who apparently believe that the best way to discredit anything is to associate it with Bill Clinton. They are not deterred by the inconvenient fact that the economy did rather well under Clinton and Rubin—better than under either of the Bushes or Reagan himself. Even more astonishing is that the Republican propaganda machine is trying to stamp "Clinton" all over one of the cornerstones of Reaganism.
In fact the coming White House campaign for changes in the tax code is starting to look like a world-class weird combination of extreme frankness and extreme fantasy. For a quarter-century, Democrats have been saying that Republican tax cuts favor the rich, and Republicans have been indignantly denying it. Now, as Tim Noah has been reporting in Slate, prominent Republicans are saying: Heck yes, we're out to shift the tax burden from the very affluent to the middle class. White House CEA Chairman Hubbard is one of those who has declared openly that rich folks deserve a break and ordinary folks deserve to pay for it. In an administration where economic advisers are fired merely for wearing a bad tie while loyally mouthing the party line in perfect iambic pentameter, Hubbard is still in good odor. So this bolt of honesty is apparently intentional. It may be brilliant political jujitsu—conceding the opposition's most damning point leaves them with mouths agape and little to say—or it may be nuts. But at least it is honest.
There is an honest element in the new party line about deficits, too. At least the Republicans are no longer pretending that deficits, if they happen to occur, are detritus left behind by the previous administration like all those McDonald's wrappers behind the dresser in the Lincoln Bedroom. Instead, Republicans embrace the coming deficits as their own and pooh-pooh any desire for a balanced budget as some kind of liberal Democratic folly. This is breathtakingly dishonest on three levels.
First is the utter contradiction between the new "deficits don't matter" line and what the Republican party has claimed to stand for over decades. There is nothing wrong with changing your mind. Indeed that can be one of the nobler forms of intellectual honesty. But if you decide that one of the core values in your political philosophy is misguided, you ought to say so before launching a campaign of ridicule against those who believe what you believed until the day before yesterday. Maybe you even ought to apologize. (Sometimes, as in the case of Sen. Trent Lott, even daily apologies of escalating slavishness may not be enough—though, like every American, I'm curious to see how much insincere self-abasement the man will offer before giving up.)
Ronald Reagan entered the presidency promising to rid the nation of government borrowing and, of course, ended up tripling the national debt. But Reagan never let his crystalline beliefs be fogged by reality, including the reality of his own behavior.
Even if Republicans hadn't been demonizing deficits for decades, their deficits-don't-matter line would contradict other allegedly core Republican beliefs. That is the second level of dishonesty. The explanation of why deficits allegedly don't matter goes something like this. When the government spends more than it takes in and borrows the difference, this has two potential effects. The borrowing reduces the amount of capital available for private investment, raises interest rates, and makes us poorer. But the extra spending or lower taxes stimulate economic activity and make us richer. The question is: Which effect is bigger?
A battle of empirical studies is going on about whether deficits actually do raise interest rates. And maybe they don't, but only if the law of supply and demand and other basic tenets of free-market capitalism have been repealed, which is an odd position for Republicans to take. Meanwhile the short-term stimulus is a classic "Keynesian" strategy—a word Republicans usually can't even pronounce without a sneer.
Keynes argued that modern economies have a tendency for inadequate demand that can produce a self-feeding spiral into recession or worse and that government deficits can be used as weapons against this danger. Republicans have gone from mocking that idea to parodying it. There hasn't been a moment since 1980 when Republicans thought it was the wrong time for a fiscal stimulus in the form of a tax cut. They were right to eschew Keynesianism—one taste and they became addicts.
But if government borrowing never hurts the economy and if taxes always do, why torture ourselves with taxes at all? Why not borrow the whole cost of government? If you suspect that won't work, you're right—but if the anathematizers of "Rubinomics" have a theory of when deficits can become too big, they haven't shared it. Meanwhile we have the evidence in front of our own eyes that Clinton and Rubin delivered levels of job creation, investment, and economic growth that the current administration would be thrilled to duplicate. And "Rubinomics" did it without the cortisone shots of short-term stimulus that Bush is demanding.
Thus the third level of dishonesty in the newfound Republican fondness for deficits: It conflicts with obvious reality. But I suppose that's a minor consideration.
Michael Kinsley is a columnist for the Washington Post and the founding editor of Slate. Notes From The Fray Editor:
A generally excellent Fray, with a variety of explanations for the Republican change of heart from both sides of the aisle. Several explanations: Reagan never believed (Publius); Clinton didn't either (Chad-B; The_Slasher-8); it's all an anti-Democratic ploy (WaterAngel; The_Slasher-8; Publius). The debate between randy_khan and Chad-B is especially robust and the discussion between MrZero and legis starts inauspiciously, but turns civil and smart.
Remarks From The Fray:
The right has a practical reason for wanting deficits, too. It is a kind of insurance policy against the possibility that Democrats will ever be in power again (an eventuality that the right fervently prays will never happen and which, in fact, looks increasingly unlikely). If the deficits are large enough, the reasoning goes, no administration will be able to engage in new spending programs.
-- WaterAngel
(To reply, click here.)
Truth be told, it isn't apparent that there's been any philosophical shift among Republicans in the last twenty years. Reagan and his cohorts certainly wanted to both cut taxes and reduce the deficit, but they decided that cutting taxes was more important and that they'd worry about the deficit later. (In fact, as David Stockman later said, they thought that increasing the deficit would force spending cuts, and there are still plenty of Republicans who think that the only way to get spending cut is to create a fiscal crisis.) Politically, the formula worked quite well - it got Reagan elected, and then re-elected by an historic margin.
-- randy_khan
(To reply, click here.)
The deficit is the result of the war and the economic slowdown/recession, not the tax cuts, which have barely kicked in.
If you have any good ideas as to how to get rid of these two problems, I am all ears. In the meantime, running a deficit is the rational thing to do. Isn't the right time to run deficits as an individual precisely when unexpected expenses occur or when income suddenly drops? I think the bigger problem is that when times are good (such as most of the 90's) we were not running nearly enough surplus. We should have had surpluses from 1993-2001 at minimum, not just the last year or two.
-- Chad-B
(To reply, click here.)
Republicans run up deficits for two reasons:
1) they believe in trickle-down economics, which means they reduce the tax burden of the upper classes (which fund their campaigns). The logical thing to do, if one believed in balancing budgets, would be to reduce spending at the same time and, of course, Republicans give lip service to this. But since it's hard to win elections when you're defunding programs that many voters have come to depend upon, it's easier to simply leave things as they are and run deficits.
Under "programs that many voters have come to depend upon," most of you are thinking of lazy black people smoking crack while cashing checks paid for with your tax money, but in fact they get peanuts next to CEOs of defense corporations, agribusiness outfits, etc. The welfare budget last year was 2% of the discretionary budget (that is, non-SocSec and Medicare), so it's the other 98% that is the real culprit, and most of it winds up in the hands of people who really could get along without it, but would prefer not to. Which leads up to...
2) ...the second reason Republicans run budget deficits, which is to force cuts in programs that do NOT benefit their corporate masters directly. When you run a deficit, there is a hue and cry to cut back. And, as a "conservative," you respond by cutting -- from those who did NOT help you in your last campaign. If there's no deficit, however, it's harder to do this, since the need is less pressing. So a deficit is GOOD, because it lets you divert tax money to your favorite people. An ancillary benefit is that there's always some part of government that is pissing off one of your business constituents -- like the SEC or OSHA or the EPA -- so you can help out your buddies by defunding THEM. Again, it's much harder to do this if there's no deficit.
By the way, the Democrats do this, too. But since they have constituencies that represent people who actually do work for a living, some of the fatback actually winds up in hands that really need it. It's not that they're nice guys and it's CERTAINLY not that they're honest guys. It's just that one of the creep parties has to be more this way than the other -- they're it.
Those of you who think either Party does what it does based upon principles are advised to drink a glass of warm milk and go to bed early. Then, decide where your interests lie -- with the rich or not -- and vote accordingly. It's really very simple.
-- TheSlasher-8
(To reply, click here.)
It is a notable fact that the GOP now slips sideways when anyone brings up deficits, and just as notable that Democrats tsk tsk about deficits. Most significant is the fact that these positions are now purely tactical; they relect no core doctrine to which either party is committed, and the two might easily switch sides depending on the politics of the moment.
Of course, this ws not always true since balanced budgets and the lowest possible debt and taxes were hallowed principles of government for both parties at least until 1917. Even after three years of depression, Hoover and FDR outdid each other in the 1932 campaign praising the virtues of "discipline." It was necessity that impelled FDR as President to begin serious funding of relief projects and spending designed to "increase purchasing power." Even at that, FDR was sill no Keyneian. It was the war that strips the wraps off federal spending, drive indebtedness and paid for it with huge income tax increases. Then,of course, came the cold war and its costs, but throughout the 60s and 70s most Republicans and conservative Democrats clung to the old faith of discipline as they winked at the annual disregard of it.
I believe that Reagan had a couple of keen insights that were political, not economic, although it was helpful to have an economic rationale (Lafferism) for policies. The first, which has long been recognized, was that defense and other spending increases coupled with tax cuts would create a political squeeze that would make it hard for Democrats (and "me-too" Republicans) to sustain any momentum behind the expansion of social programs. But there was a second that is not so well recognized: Reagan understood that the vast majority of Americans no longer cared whether the budget was balanced and that most would not sacrifice anything to balance it anyway -- not their tax lower tax rates, not their federal aid to education or health, not their local postal service, not their Army bases, not their farm subsidies, and certainly not the wide array of federal exenditures that flowed to corporations in which they had one or another stake.
They still don't care, even after the national debt tripled. You may ask, then why do pools show that people cite the debt or deficits as an issue that's way up there on their list of concerns? The answer is that it's an important abstraction; follow up by asking which of several ways the individual would be willing to contribut to reducing the debt and you get a far different picture. Still, it's a useful abstraction for politicians who can say, for example, that we can't systain these high deficits because it will provoke a raid on Social Security. The point there obviously is to evoke concern about pension payments.
So the issue wil continue to figure prominently in national politics but it's a delusion to think that this means that anyone has a coherent economic policy they are willing actually to employ, assuming they could.
-- Publius
(To reply, click here.)
(12/20)
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Notes From The Fray Editor:
A generally excellent Fray, with a variety of explanations for the Republican change of heart from both sides of the aisle. Several explanations: Reagan never believed (Publius); Clinton didn't either (Chad-B; The_Slasher-8); it's all an anti-Democratic ploy (WaterAngel; The_Slasher-8; Publius). The debate between randy_khan and Chad-B is especially robust and the discussion between MrZero and legis starts inauspiciously, but turns civil and smart.
Remarks From The Fray:
The right has a practical reason for wanting deficits, too. It is a kind of insurance policy against the possibility that Democrats will ever be in power again (an eventuality that the right fervently prays will never happen and which, in fact, looks increasingly unlikely). If the deficits are large enough, the reasoning goes, no administration will be able to engage in new spending programs.
-- WaterAngel
(To reply, click here.)
Truth be told, it isn't apparent that there's been any philosophical shift among Republicans in the last twenty years. Reagan and his cohorts certainly wanted to both cut taxes and reduce the deficit, but they decided that cutting taxes was more important and that they'd worry about the deficit later. (In fact, as David Stockman later said, they thought that increasing the deficit would force spending cuts, and there are still plenty of Republicans who think that the only way to get spending cut is to create a fiscal crisis.) Politically, the formula worked quite well - it got Reagan elected, and then re-elected by an historic margin.
-- randy_khan
(To reply, click here.)
The deficit is the result of the war and the economic slowdown/recession, not the tax cuts, which have barely kicked in.
If you have any good ideas as to how to get rid of these two problems, I am all ears. In the meantime, running a deficit is the rational thing to do. Isn't the right time to run deficits as an individual precisely when unexpected expenses occur or when income suddenly drops? I think the bigger problem is that when times are good (such as most of the 90's) we were not running nearly enough surplus. We should have had surpluses from 1993-2001 at minimum, not just the last year or two.
-- Chad-B
(To reply, click here.)
Republicans run up deficits for two reasons:
1) they believe in trickle-down economics, which means they reduce the tax burden of the upper classes (which fund their campaigns). The logical thing to do, if one believed in balancing budgets, would be to reduce spending at the same time and, of course, Republicans give lip service to this. But since it's hard to win elections when you're defunding programs that many voters have come to depend upon, it's easier to simply leave things as they are and run deficits.
Under "programs that many voters have come to depend upon," most of you are thinking of lazy black people smoking crack while cashing checks paid for with your tax money, but in fact they get peanuts next to CEOs of defense corporations, agribusiness outfits, etc. The welfare budget last year was 2% of the discretionary budget (that is, non-SocSec and Medicare), so it's the other 98% that is the real culprit, and most of it winds up in the hands of people who really could get along without it, but would prefer not to. Which leads up to...
2) ...the second reason Republicans run budget deficits, which is to force cuts in programs that do NOT benefit their corporate masters directly. When you run a deficit, there is a hue and cry to cut back. And, as a "conservative," you respond by cutting -- from those who did NOT help you in your last campaign. If there's no deficit, however, it's harder to do this, since the need is less pressing. So a deficit is GOOD, because it lets you divert tax money to your favorite people. An ancillary benefit is that there's always some part of government that is pissing off one of your business constituents -- like the SEC or OSHA or the EPA -- so you can help out your buddies by defunding THEM. Again, it's much harder to do this if there's no deficit.
By the way, the Democrats do this, too. But since they have constituencies that represent people who actually do work for a living, some of the fatback actually winds up in hands that really need it. It's not that they're nice guys and it's CERTAINLY not that they're honest guys. It's just that one of the creep parties has to be more this way than the other -- they're it.
Those of you who think either Party does what it does based upon principles are advised to drink a glass of warm milk and go to bed early. Then, decide where your interests lie -- with the rich or not -- and vote accordingly. It's really very simple.
-- TheSlasher-8
(To reply, click here.)
It is a notable fact that the GOP now slips sideways when anyone brings up deficits, and just as notable that Democrats tsk tsk about deficits. Most significant is the fact that these positions are now purely tactical; they relect no core doctrine to which either party is committed, and the two might easily switch sides depending on the politics of the moment.
Of course, this ws not always true since balanced budgets and the lowest possible debt and taxes were hallowed principles of government for both parties at least until 1917. Even after three years of depression, Hoover and FDR outdid each other in the 1932 campaign praising the virtues of "discipline." It was necessity that impelled FDR as President to begin serious funding of relief projects and spending designed to "increase purchasing power." Even at that, FDR was sill no Keyneian. It was the war that strips the wraps off federal spending, drive indebtedness and paid for it with huge income tax increases. Then,of course, came the cold war and its costs, but throughout the 60s and 70s most Republicans and conservative Democrats clung to the old faith of discipline as they winked at the annual disregard of it.
I believe that Reagan had a couple of keen insights that were political, not economic, although it was helpful to have an economic rationale (Lafferism) for policies. The first, which has long been recognized, was that defense and other spending increases coupled with tax cuts would create a political squeeze that would make it hard for Democrats (and "me-too" Republicans) to sustain any momentum behind the expansion of social programs. But there was a second that is not so well recognized: Reagan understood that the vast majority of Americans no longer cared whether the budget was balanced and that most would not sacrifice anything to balance it anyway -- not their tax lower tax rates, not their federal aid to education or health, not their local postal service, not their Army bases, not their farm subsidies, and certainly not the wide array of federal exenditures that flowed to corporations in which they had one or another stake.
They still don't care, even after the national debt tripled. You may ask, then why do pools show that people cite the debt or deficits as an issue that's way up there on their list of concerns? The answer is that it's an important abstraction; follow up by asking which of several ways the individual would be willing to contribut to reducing the debt and you get a far different picture. Still, it's a useful abstraction for politicians who can say, for example, that we can't systain these high deficits because it will provoke a raid on Social Security. The point there obviously is to evoke concern about pension payments.
So the issue wil continue to figure prominently in national politics but it's a delusion to think that this means that anyone has a coherent economic policy they are willing actually to employ, assuming they could.
-- Publius
(To reply, click here.)
(12/20)