Deficit Reality and Sideshows

I've been reading an interesting exchange between Stan Collender, George Hager, and Collender again about the deficit commission.  Collender, in his first piece, points out that the "commission" model is a useless one in general, and especially for deficit politics.  That's exactly correct.  What commissions can do -- the only thing they really can do -- is to give cover for something that politicians want to do but don't want to take the blame for.  This is especially effective when the thing that the pols want to do is nothing: if you want to duck an issue but don't want to be seen ducking an issue, appointing a commission is a classic response.  One hopes that by the time the commission reports back, everyone's forgotten about the urgency that made the commission necessary in the first place, and the commission report can be safely filed away.  Stan Collender is exactly right: the deficit commission is a sideshow.

The oddity with deficit politics and this particular commission is that Barack Obama and the Democrats actually are doing something, which Collender and Hager skip right past in their discussion. 

Remember the mantra from Brad DeLong that I'm fond of quoting, but which I'll paraphrase this time: in the short run, what matters is getting the economy moving.  In the middle term, PAYGO to keep things under control.  And in the long run, health care (see also this similar analysis from Ezra Klein).  Well...that sounds like the direction that the Democrats have followed for the last year, no?  Certainly, there are questions about whether they've doing the correct things. But it's just wrong for deficit hawks to completely ignore an enacted plan to take a significant whack at the deficit in the second decade (and beyond that?  I don't know; as far as I know we don't have estimates of what happens done the line -- but note that "down the line" is where the deficit problem is, not now or in the next decade or so).  Why are deficit hawks whining that no one will do anything about the deficit, instead of applauding what the Dems just did (and, if they want, asking for more)?

Moreover, I disagree with Hager's analysis of previous successful deficit reduction packages.  He believes a common element is what he calls a "dire or embarrassing, or both" deficit problem.  I disagree, especially about the "embarrassing" part of it.  What the three episodes he cites (1982, 1990, 1993) have in common was that in each case, the president's economic team told him that the problem was likely to have real, immediate effects on the economy, effects that would show up before the next election.  In each case, that seems to have been both necessary and sufficient.  Hager does include presidential involvement as one of his three conditions, but I'm making a slightly different claim: presidents will care about deficit reduction when they have an electoral incentive to care about it, and once they are on board, Congress gives it them to them. 

That was certainly the case with the Bush and Clinton episodes; Bush was reacting to a stock market crash that was interpreted as a reaction to budget deficits, while Clinton was told that the best thing for the economy was keeping interest rates low, which could be achieved with deficit reduction.  The 1982 case is a little different...if I recall correctly that situation featured the president's staff and the Congressional leadership (primarily the GOP Senate leaders) combining to convince the president that tax increases were necessary, along with the Reagan/O'Neill deal on Social Security.  Notice too the dynamic with health care reform.  In that case, Barack Obama put deficit reduction (and long-term cost reduction, which eventually would produce deficit reduction) front and center, demanding deficit neutrality or better.  And Congress really never questioned that demand. 

By the way, I think the conventional wisdom that Perot was somehow a factor in the 1993 deal is totally wrong, and not just because Perot wound up opposing the deal (because he didn't actually care about deficit reduction after all).  Clinton, in the 1992 campaign, seemed perfectly able to position himself as favoring growth and jobs, not deficit reduction; that didn't change until his economic team convinced him that deficit reduction would cause growth and jobs.  In other words, Clinton -- like Bush in 1990 -- wasn't interested in deficit reduction as a goal, but only as a means to other ends. 

I want to be careful with my claim, because there may be studies of this that I'm not aware of.  But just from the evidence here, it sure looks to me as if presidential electoral incentives are the big thing that makes deficit reduction happen.