Sunday, November 1, 2009

Deficit Thinking

The wonder of the blogosphere is it's capacity to foster for readily-available, substantive discussions of important issues, unfiltered by standard media requirements for "balance."  A case in point . . .
Krugman: If a deficit falls in the forest …
Matt Yglesias makes a good point:
A lot of politicians and political operatives in DC are very impressed by polling that shows people concerned about the budget deficit. I think it would be really politically insane for people to take that too literally. If congress makes the deficit even bigger in a way that helps spur recovery, then come election day people will notice the recovery and be happy. If, by contrast, the labor market is still a disaster then people will be pissed off. It’s true that they might say they’re pissed off at the deficit, but the underlying source of anger is the objective bad conditions.
But the political argument against focusing on the deficit is even stronger than he realizes — because there are very good odds that even if Obama exhibited iron fiscal discipline, voters wouldn’t notice. There’s a remarkable, depressing paper by Achen and Bartels that includes an analysis of voter views of the deficit in 1996 — by which time the huge deficit that Bill Clinton inherited had been drastically reduced. Here’s what voters thought they knew:
DESCRIPTIONAmerican Political Science Association
Yep: after one of the biggest moves toward budget balance in history, a majority of Republicans, and a plurality of all voters, believed that deficits had increased.
Not to put too fine a point on it: if Obama succeeded in reducing the deficit, would Fox News or the Washington Times report it?
The truth is that the truth about budgets plays almost no role in real politics. Right now, Meg Whitman is campaigning for Governor of California on the claim that state spending has exploded over the last decade — when the fact is that it has fallen drastically in real per capita terms. Will she pay a price for this? Probably not.
So if I were a politician, I’d focus on providing real improvements in peoples’ lives, rather than seeking deficit reductions the public won’t even hear about.
Policymakers should be focusing on economic growth, not deficit reduction. Some "centrists" haven't gotten the message.
Faced with anxiety in financial markets about the huge federal deficit and the potential for it to become an electoral liability for Democrats, the White House and Congressional leaders are weighing options for narrowing the gap, including a bipartisan commission that could force tax increases and spending cuts.
But even the idea of a panel to bridge the partisan divide has run into partisan objections. Many Democrats, including in the White House, are loath to cede such far-reaching decisions to a commission and doubt Republicans' willingness to compromise. And most Republicans remain adamantly opposed to tax increases, leaving the prospects for any bipartisan approach limited at best.
The proponents, however, are pressing for a Senate vote this month. "If we have the same process and the same people, we are going to get the same results," said Senator Evan Bayh, Democrat of Indiana, who recently met with Mr. Obama to discuss the idea. "The Democratic Party wants to spend more than we can afford; the Republican Party tends to want to cut taxes more than we can afford. So we are stuck."
First, there's no evidence to suggest there is "anxiety in financial markets" about the U.S. budget deficit. The opposite appears to be true.
Second, Evan Bayh recently voted to "reform" the estate tax, cutting taxes for the extraordinarily rich, at a cost of $750 billion over the next decade. To pay for it, he recommended ... nothing. The costs would simply all be added to the deficit. I hope he'll forgive my skepticism about his credibility on the subject of fiscal responsibility.
What's more, this notion that both parties are to blame -- Dems want to spend too much, Republicans want to cut taxes too much -- may feed into conventional wisdom, but it's both lazy and wrong. Republicans decided to spend hundreds of billions of dollars on wars in Iraq and Afghanistan, didn't even try to pay for it, and added the costs to the deficit. Republicans did the same thing boosting Medicare spending, adding all of the costs for Part D to the deficit, and with No Child Left Behind, adding all of the costs to the deficit.
GOP policymakers took the largest surplus ever and created the largest deficit ever. I know everyone is always supposed to believe at all times that "both sides are equally to blame," but reality should have some relevance here.
Nevertheless, less than a year into President Obama's first year, 10 members of the Senate Democratic caucus are looking to force the issue. It's not enough that the president's budget proposals already project deficit reductions, and it's not enough that health care reform would also reduce the deficit if it passes. These 10 want a "commission," along the lines of the commission to close military bases, which would apparently be tasked with cutting Medicare and Medicaid.
What's more, they may use the upcoming vote on raising the debt ceiling as a way to force a commitment on the issue.

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