OK, this one is a bit off my usual style, but I feel obliged to speak up for a scorned and ignored group in American politics, those of us -- and, yes, I'm certainly one of them -- who don't believe, as a matter of policy, that the budget of the United States of America should be balanced at all times. Or over time. Or in the long run. We may disagree on the particulars, but we tend to agree that fiscal policy is a tool, a means to other ends. Sometimes, that means running a smaller deficit, sometimes a larger one, and perhaps at times even a balanced budget or a surplus. But as a rule we believe there's nothing principled at stake in the size of the budget deficit, thought of on its own. Economic growth, full employment, stable inflation -- those are reasonable goals. The deficit, for us, is just a means of getting there.
What's frustrating to me is that this group doesn't really have a name. People who actually care about balanced budgets are commonly called deficit hawks (okay, I admit it: I and others of my type tend to call them deficit scolds, or worse). But "deficit doves" doesn't really make any sense. Doves, in foreign policy, are those who prefer peace, while hawks prefer war (or, at least prefer always being very, very, ready for war). But most of us in my group aren't for large deficits in general. We think that fiscal policy depends on circumstances.
What I'm going to propose is that we follow a different foreign policy analogy: we are deficit realists, and we oppose not deficit hawks or alarmists, but deficit idealists.
Alas, one of the leading deficit idealists, Pete Peterson himself, has claimed the mantle of deficit realism. But clearly that's not correct. Pete Peterson has been for deficit reduction, well, forever -- and it's the mark of an idealist for policy preferences to remain unchanged no matter how circumstances change. They know how they think the world should be, and that's how it should be, and of story.
Realists, on the other hand, are always about the contingencies, always about the pragmatic solution for the moment. So many deficit realists may have supported deficit reduction packages in 1982, 1990, and 1993 -- but probably did not during the last three years. Some realists might be concerned about projected deficits twenty or thirty or seventy years into the future -- but we're more likely to believe that if the bond markets don't say its a problem, then it really isn't a problem. Realists are apt to point out that the United States managed to prosper perfectly well in the second half of the twentieth century while running a budget deficit almost always, and to cringe when we hear nonsensical rhetoric about future generations having to "pay back" current deficits.
But the main thing that really separates the idealists from the realists is any kind of talk about the morality and ethics of budget deficits. To idealists, it's axiomatic that it is fundamentally irresponsible to run budget deficits; to realists, deficits per se simply do not raise ethical issues.
Why do budget realists need a name? Well, for one thing, it's better spin, and while spin is generally overrated in politics, there's always the possibility that it would help around the margins. Currently we only hear about Very Serious budget hawks and those irresponsible other people who are ignoring the future of their nation. It might be a bit harder to call budget realists irresponsible (although perhaps it will be even easier to call them unethical, but that's the downside that realists of all types must accept).
But a better reason is because well-meaning deficit idealists -- and I do think that quite a few of them are well-intentioned -- are often just plain confused by those who don't share their religion. For example, Andrew Sullivan seems just baffled by the idea that there might be legitimate competing priorities to his preference for entitlement reforms that would reduce projected long-term deficits. For Sullivan, the main reason for lack of action on the deficit must be, as he says, political expediency; there's no sense at all that someone might have a substantive reason for putting off projected deficit problems until they start causing current trouble (to be fair, Sullivan was willing to accept countercyclical Keynesian deficits during the worst of the recession -- and his deficit idealism has been consistent over time, and regardless of whether he likes or dislikes the current administration). Explaining the point of view of deficit realism would surely not convert idealists, but it might help to prevent people from talking past each other.
It might help deficit realists, too, to understand better the other side of the debate. Liberal deficit realists are invariably suspicious that balanced budget are really a plot to destroy Social Security and other liberal priorities (and conservative deficit realists are suspicious that balanced budgets are really a plot to raise taxes). To be sure, GOP deficit pretenders (and there's no other way to think of most movement conservatives, who consistently support higher deficits in practice even while mouthing the rhetoric of deficit idealists) certainly do act far more interested in slashing spending selectively than in anything about the deficit. But there are real, sincere deficit idealists out there, and in my view they deserve to be taken seriously, even though I, as a deficit realist, strongly disagree with them. I suspect that thinking of them as deficit idealists would help facilitate useful conservation between the two groups.
At the very least, I think calling the two groups deficit realists and deficit idealists would promote clear thinking on the subject. So, if you think Pete Peterson is a menace to the nation and find Kent Conrad (the Senator who I believe has the longest record of sincerity on deficit reduction -- he once gave up his seat over it) a nuisance and a scold, embrace it: you're probably a deficit realist, and be proud of it.
"To be sure, GOP deficit pretenders (and there's no other way to think of most movement conservatives, who consistently support higher deficits in practice even while mouthing the rhetoric of deficit idealists) certainly do act far more interested in slashing spending selectively than in anything about the deficit."ReplyDelete
A) I'd like to see evidence to justify writing "most"
B) There's also the possibility that they don't know what "deficit" means. Jon Chait occasionally posts interviews with GOP leaders who seem honestly flummoxed by the idea that increasing taxes decreases the deficit. I know some of that is supply-sider brainwashing, but some of it seems to be honest confusion over whether the size of the deficit means the size of the government
A) I'll guess that 'most' was in part polite understatement, and in part an acknowledgment that there might be some movement conservative out there who is is not a deficit pretender.
B) Confusion over the meaning of 'deficit' seems entirely plausible. To movement conservatives, I'd guess, the only difference between actual deficit spending and spending funded by taxation is which pocket they would say it is being stolen from.
I'd have more patience with "real, sincere deficit idealists" if they didn't almost universally propose to balance the budget on the backs of lower and moderate income earners (their obsession with Social Security is a dead give away). And if, in order to achieve a balanced budget -- which they believe is essential for the future economic and social health of the country -- they advocated for the wealthy, who obtain the largest benefits from this country, to pay more in taxes.ReplyDelete
It actually makes little difference whether they're sincere or not, because as a practical matter, the most sincere are merely useful, though well-meaning, idiots for the deficit hypocrites.
OK, this one is a bit off my usual styleReplyDelete
Maybe it should become your usual style, because this is the best blog post you've ever written.
There is a fundamental misunderstanding between these two groups - budget realists and budget idealists - that has made each side, as you say, "talk past each other." The idealists can't fathom that deficit spending might sometimes be the responsible, moral thing for a government to do; and the realists don't recognize that (for the idealists at least) the deficit is a moral issue.
The problem I have with deficit realism is that it tends to reflect naivete about the dangerous inertia that is driving us off the debt cliff. Contra Jonathan's post, I don't remotely believe that the deficit is high right now as a Keynesian response to a lagging economy, such that when the economy starts roaring, the deficit will come down. Nope, not unless an army of Andrew Sullivans storms the Treasury.ReplyDelete
Deficit 'realism' rests on the notion that deficit spending is countercyclical to the economy, per Keynes. However, it should be patently obvious by now that the US debt is not (counter)cyclical but structural, driven by years of political pandering in the form of the twin toxins of ever-increasing entitlements and ever-decreasing taxes. Do deficit "realists" really believe that this culture of budgetary pandering will naturally reverse when the economy starts moving, or are they "realists" in some vague sense of believing that deficits, generically, aren't as bad as Andrew Sullivan thinks?
Seriously. In the 80 or so years since a desperate FDR jacked the top marginal tax rate over 90%, sporadic presidents, in good times and bad, have whittled that thing down to the current 35% - to much political gain. Notably, no President has stood athwart that trend.
Deficit "realists" think Obama will break with tradition in 2013 if he's sitting on 4% growth? Without the Andrew Sullivans of the world screaming at him? That's realism?
Believing that Keynesian principles and economic growth will spontaneously overturn - without some help from an outraged populace - almost a century of pandering that has been slowly strangling our fiscal health is anything but realism.
(Unless you routinely traffic in euphemism).
@CSH I think JB's point was indeed that realists believe that "deficits, generically, aren't as bad as Andrew Sullivan thinks". They're (we're) pragmatists -- It all depends on circumstances. That's by definition how we differ from the "idealists."ReplyDelete
Somehow the 1990s seem to have disappeared from your 80-year history. They teach a fairly simple lesson -- if the pandering politicos don't get their acts together once growth resumes, the bond market vigilates will eventually concentrate everyone's minds without the country going off a cliff.
I agree with Andrew's comment above: There should be more of this sort of thing on this blog. Extremely interesting -- gets you thinking about a major issue in a new way. I also think that as a media or "branding" strategy, selling this distinction between idealists and realists could improve the discourse, at least in the medium term.ReplyDelete
That said, I still have a problem with this nomenclature: It's based on relativism, or suspended judgment, with respect to which of these orientations is actually correct. Deficit idealism just isn't; deficits are not always bad and are sometimes helpful. Putting the two viewpoints on an equal footing is a bit like relabeling Darwinians and creationists as "science realists" (because they follow the evidence where it leads) versus "science idealists" (because they start with idealistic notions of human specialness and the like, and insist that the evidence be made to fit). It's better just to call the Darwinians "scientists" and the creationists "nutjobs" .... uh, I mean, "people of faith who are sadly mistaken." Applying this to the deficit question, the long-term strategy should be to get the deficit realists labeled "economists" or "serious policy wonks" and the deficit idealists labeled "cranks."
I don't think this terminology really works. In my mind a "deficit realist" would be somebody who is against deficits but knows that you can't fix them by cutting waste, fraud, and abuse; PBS and NEA; foreign aid; and the number of administrators for Social Security.ReplyDelete
By referring to yourself by any label that has the word "deficit" in it, you also implicitly accept the framing of the deficit hawks that deficits are what matters in economic policy. Perhaps try something like "growth hawk", "jobs hawk", or "standard of living hawk" instead.
@nadezhda - actually, the 90s are the exception that proves the rule, where the rule is "for almost 100 years, special-interest-pandering politicos have raised entitlements (for liberal-ish friends) and decreased taxes (for conservative-ish ones)."ReplyDelete
While its true that President Clinton had balanced budgets, its quite generous to assume that was primarily due to the markets instructing him to do what's right, contrary to the instincts of a modern, pandering pol. Two unique tail winds arguably made Clinton's budget-balancing efforts much simpler than any other postwar President.
The first is the end of the Cold War, which facilitated a significant cut in defense spending that occurred naturally, that is, didn't run afoul of the "big US military is good" special interest. The second is the huge tax "increase" resulting from the massive tech bubble, short-term trading taxes that were almost certainly well north of $1 T during Clinton's White House years.
Balanced budgets in the Clinton White House are therefore attributable to the peace dividend (end of Cold War) and tech tax dividend (bubble madness), much more so than a message from the markets or political bravery.
Which leaves one with a pretty much unbroken chain of (increasingly) bad fiscal behavior since the Depression. Andrew Sullivan is quite right to think the future looks awfully bleak in a political environment like America's.
One other point about structural deficits: they are fine when, like any other organization that borrows money, the US generates economic growth in excess of the cost of servicing its debt. That has certainly been the case in the past in the US.ReplyDelete
But we're long past the looking glass in terms of the size of structural deficits in America, which, absent dramatic intervention, are running at 6% or more of GDP as far as the eye can see. If you assume roughly a 5% cost of servicing that debt, that means we have to generate an incremental 0.3% (0.3% = 5%*6%) or so of growth annually to make our deficits "pay out".
0.3% doesn't sound like a lot, but keep in mind that the US is only able to muster 3% overall GDP growth during strong economic periods. Believing America's current deficit trajectory is no big deal is tantamount to believing that 10% or more of total national economic growth can occur due to deficit spending. That's quite nuts, frankly.
(Consider: if you lay the deficit at the feet of entitlements, such spending may be staving off economic decline, as starving old folks are bad for a consumer-based economy, but that spending absolutely isn't generating growth, and certainly not the 10% of the total national growth necessary to make deficits pay out).
So when Jonathan suggests we shouldn't worry about current deficits until the bond market balks, by the math of it, said balking is inevitable, and - to Andrew Sullivan's point - waiting is infinitely more painful than dealing with our obvious problem now.
Really, waiting for the bond markets to tell you what is transparently obvious is a little like waking up in the morning, feeling a new pain in some part of your body, finding a lump there and considering "Damn, my family has a history of cancer of that organ"....and then deciding, well, there's no need to see the doctor until the pain becomes unbearable.
If you want to handle your own health that way, that's your business. Where the country's fiscal health is concerned, I hate the fact that my family is yoked to such an attitude.
No, it's like deciding not to see the doctor until there's any symptom period. You're talking about going to the doctors when you're completely healthy but still worried about your health, which is called hypochondria.ReplyDelete
You're saying there are no symptoms? Wha. . .? CSH has laid out the case for how the deficit is structural, not cyclical, i.e, we won't grow our way out of it. How can you say that the patient is completely healthy?ReplyDelete
Senator DeMint asked Chairman Bernanke whether the private sector is better than government at allocating resources. He seemed to assume it is. I would like to clarify something. The goal of each entity in the private sector (there is no unified private sector - I hope) is to make profit. I hope you will agree that the goal of government is make life as good as possible for as many people as possible. The private sector may know how to use a dollar to make a profit, but it does not make public sector investments. I would argue that investing in the railroads, the Interstate Highways System and the Internet, for instance, improved the lives of more Americans than could have been done by any private sector entity. In fact, such an investment would not be economical for a private sector entity. Therefore, in many instances it may be better for the American People if the government gets the dollars.ReplyDelete
Jonathan, Your article above very much has “I’m not an economist” written all over it. Had you studied economics you’d have come across a bunch of people who very definitely do not think that balancing the budget matters too much. They are advocates of Modern Monetary Theory (MMT). MMT is actually implicit in Keynes’s writing and was advocated more openly by Abba Lerner, a contemporary and friend of Keynes’s.ReplyDelete
A good introduction to why budget deficits don’t matter is Ch 24 of Lerner’s “Economics of Control” here:
For more on MMT, see Warren Mosler site: http://moslereconomics.com/
There is also plenty on MMT on my own blog, e.g.:
Another leading light in the MMT movement is Bill Mitchell. See: http://bilbo.economicoutlook.net/blog/