Home / General / You Can’t Make A Deficit Deal With People Who Don’t Care About the Deficit

You Can’t Make A Deficit Deal With People Who Don’t Care About the Deficit

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I’ve neglected to respond to Marc Esiner’s challenge, so I suppose I should make a couple of points.   First, as Annie Lowrey points out, doing nothing would actually be a pretty good plan; certainly more effective than the fraudulent Ryan plan.

But, on some level, this is beside the point.   As Lowrey points out, nobody thinks that this will happen, and the primary reason for this is that Republicans don’t care about the deficit.   I guess I can understand why conservatives seem to think we will have forgotten what happened last time we went through this — after all, Barack Obama seems to have — but if you haven’t spotted the scam in the first thirty seconds you are the sucker:

Once upon a time Ronald Reagan was president, and the agenda was focused on gigantic debt-increases tax cuts and boosts in defense spending. Once upon a time the administration of Bill Clinton succeeded in achieving massive deficit reduction. At that time, George W Bush argued that the absence of giant deficits was an indication of policy failure requiring massive tax cuts to address it. The leading economic lights of the time including Maestro Alan Greenspan argued passionately that insufficient debt was a huge problem and one that only tax cuts could save. Then with Barack Obama in office, even as all the objective indicators point to the need to focus on unemployment the Beltway is seized with a passionate need to address the problem of too much debt.

Once we understand that there’s no way that one Congress can hold a future Congress to a deficit deal, the discussion can stop right there. The last time there was a surplus, Republicans literally argued that the disappearance of the national debt was a problem that needed to be solved by massive upper-class tax cuts. There’s no reason to think it wouldn’t happen again; indeed, the GOP has if anything become more fanatical in their ruthless devotion to upper-class tax cuts in the meantime. So there’s no point in talking about a “deficit deal,” and I’m certainly not going to pretend that Ryan’s destroy-the-welfare-state-to-pay-for-more-upper-class-cuts plan has anything to do with deficit reduction. If deficit-reducing policies that are otherwise good on the merits are proposed progressives should support them, but otherwise there’s no point discussing it.

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  • c u n d gulag

    Yeah, hard to believe that 10 short years ago Republicans were bitching about a surpus, and claiming it could be dangerous, so let’s cut taxes – for the rich.

    And then, 10 years later, many of the same people who were involved in that decision, then ran the deficit through the roof, and now scream and whine about deficits.

    They don’t give a shit about deficits and never have.
    This is just the newest cudgel that they can use to beat more money out of the poor, the sick, the elderly, and the middle class, and send it on up to the rich and businesses.

  • Brad P.

    That “Do-Nothing Plan” relies on government revenues starting higher than historical highs (even when the top marginal rate was 91%, tax revenues hovered just below 20% of GDP), and proceed up to 30% of GDP.

    And here is another thing that the CBO predicted would be a result of the “Do-Nothing Plan”:

    (A) couple with two children, earning the median income of $94,900 in 2010 and filing a joint tax return, would pay about 3 percent of their income in individual income taxes under the extended baseline scenario (see Table 4-4). By 2035, under existing tax law, a similar couple with median income would pay 13 percent of their income in individual income taxes, an increase of 10 percentage points.

    • MPAVictoria

      And yet the Status Quo is still far better than the Ryan plan. Funny thing that. I see no reason why we should punish working people to pay for upper class tax cuts.

      Why not raise taxes on the rich to what they were during the Clinton years. Cut military spending by a third and allow all Americans to opt into Medicare? Combine those things with ending the wars in Iraq and Afghanistan and you have the deficit pretty much dealt with.

      • c u n d gulag

        But that’s not “SERIOUS!”

        Serious is “we” all must share in the burdon, as long as we’re not rich, a corporation, or a military contractor.

        Now, if your plan includes hurting children, the poor, the middle class, the sick, the elderly, then you’re talking like a ‘serious’ person, you DFH, you!

      • Brad P.

        Why not raise taxes on the rich to what they were during the Clinton years. Cut military spending by a third and allow all Americans to opt into Medicare? Combine those things with ending the wars in Iraq and Afghanistan and you have the deficit pretty much dealt with.

        I would take that long before I took Ryan’s plan.

        On the tax side, I don’t find it that bad simply because I doubt it would be that effectual. You would have to do something to promote price competition to keep taxes on the wealthy from just translating into higher prices and problematic tax wedges.

        The Ryan plan is shitty to me for promoting the idea that we can and should address budgetary problems without endangering military spending.

        • MPAVictoria

          “You would have to do something to promote price competition to keep taxes on the wealthy from just translating into higher prices and problematic tax wedges.”

          Why? Shouldn’t the invisible hand of the market force them to compete for my business? Unless you think that these large corporations maybe colluding on price. Which we all know is impossible in libertarian land.

          • Brad P.

            Unless you think that these large corporations maybe colluding on price.

            They are colluding on a price. They have little reason not to. Our economy is made up of government protected and privileged oligopolies.

            As Kevin Carson says:

            What’s more, the largest corporations are least likely to suffer for whatever corporate income taxes they do pay, because they tend to be in oligopoly industries that practice tacit pricing collusion through the “price leader” system. This doesn’t require any conspiracies or secret meetings in smoke-filled rooms. When three, four or five large firms control more than half the market in a given industry, they tend to follow the pricing practices of the dominant firm. So prices in an oligopoly market are “stickier.” The practical effect is that the big firms in an oligopoly industry are able to use administered pricing based on a markup from their costs — including the corporate income tax — and pass them on to the customers. That’s essentially the same thing a regulated public utility does.

            There are so many government policies that shield the wealthy from needing to compete over consumers, that expecting tax increases on the wealthy to not get past down to the lower rungs is foolish.

            • Holden Pattern

              Please show how current government policies are the dominant barrier to entry today compared to (a) other real-world barriers to entry and (b) other realistic regimes (i.e., not some fantasy ginned up by someone who can’t construct a plausible narrative to describe how their utopia would have arisen), and how eliminating various forms of government consumer protection would both eliminate oligopoly and result in cheaper and safer services for consumers.

              Just waving your hands and chanting “ooga booga government always the problem perfect world small yeomen farmers artisanal craftspersons” doesn’t do the trick.

              • dave3544

                Once the sheriff protects the highways, the government is securing distribution networks that enable large producers from urban centers to crush the yeomen in the country, amirite?

                Don’t even get me started on sanitation, organization, and security provided by the urban governments that attract population and create conditions for the large producer to arise.

              • Brad P.

                Please show how current government policies are the dominant barrier to entry today compared to (a) other real-world barriers to entry and (b) other realistic regimes

                Regulatory compliance costs far more per employee for small firms than larger firms.

                Access to government subsidies, guarantees and cheap credit mask the diseconomies of scale inherent to managing enormous capital structures.

                Antitrust laws have little effect on oligopolies, except to discourage innovation, price lowering, and market shifting: see FTC v. Borden Co.

                See the history of margarine for the role government can play on behalf of existing industries against innovation.

                Refer to the history of Lodge Practice to see how government intervened with licensing requirements and completely eradicated a working mutual-aid system for medical provision.

                Refer to the Meat Inspection Act to see how big business managed to stop competing on quality, AND socialize the cost of meat inspections (without, of course, passing on lower prices).

                The Wagner Act mollified union protests for self-management by placing labor in the hands of Taylorist bureaucrats who simply wanted a certain share of the profits pie. This spurred on industrial unionism over craft unionism, while legalizing, subsidizing and streamlining the business relationship between giant unions and giant corporations. The result of government intervention on behalf of labor was not an even bargaining point, but a molding of labor to organizational structures most beneficial to industrialist needs (a particularly egregious example of progressives abandoning self-management/government for benevolence from the elites).

                Government regulation and intervention has consistently had the effect of stabilizing markets, locking capital and labor flows into huge industrial routes. Even though they often brought valuable concessions to labor and consumers, the general myopia of them created a system economically and legally dependent upon the decision-making of a very few privileged elite.

  • rea

    It’s not a matter of deficit reduction; it’s a matter of how many political concessions the Republicans can extract by threatening to inflict serious damage to the country and the global economy.

  • Incontinentia Buttocks

    This post is very sensible, but politically speaking it’s almost certainly too late in this game to stop playing.

    One of the reasons that the Democrats are such easy marks for this scam is that the party has long since been taken over by people who believe in old-fashioned fiscal conservatism, a zombie economic idea that would be no part of a serious public policy debate.

    • wengler

      Yep. The Democrats have almost always been fiscally conservative. When devising social programs, they’ve almost always found ways to pay for them. They are itemized on your paycheck. The Republicans called them ‘Tax and Spend’ Democrats.

      Of course the Republicans were ‘Borrow and Spend’, though they wanted no one to notice. They are using people’s real concerns over the debt and deficits to impose a ‘Borrow and Cut’ program on the federal government. Borrow money to fund tax cuts/subsidies for the rich and their corporations as they cut public spending on programs that keep a lot of people from tumbling over the edge. As you can imagine, they want Obama to be the face of this program because it is EXTREMELY UNPOPULAR.

      So far Obama has mistaken the applaud of the Villagers and his corporate sponsors for that of the American people.

    • I agree with Scott that the modern Republicans are uninterested in fiscal conservatism. I fail to see why that means it is a zombie idea that would (should?) be no part of a serious public policy debate. Deficits aren’t always and everywhere the end of the world, but they can be a serious problem. They give rentiers a low-risk investment, which means they don’t need to find something more productive to do with the capital. And the interest payments means less public services for any given level of taxes.

      In principle, the left and right should agree on generally balancing the budget — and disagree about the aggregate level of spending/taxes. This more or less happens in most OECD countries. The fact that it is not the case in the US is part of the American political system’s dysfunction.

  • dangermouse

    I guess I can understand why conservatives seem to think we will have forgotten what happened last time we went through this — after all, Barack Obama seems to have

    Can’t run a long con without a roper.

    • gmack

      Meh. I’m inclined to say that Greenwald’s column today is basically right. I don’t see much reason to think that Obama is just getting duped–that he really wants progressive outcomes but is just now brave enough or a good enough negotiator to get there. Rather, he has determined–probably correctly–that a triangulating strategy is the best way to get re-elected.

      • wengler

        If he becomes Mr. Triangulator I think he is going to learn come fall 2012 that it’s not 1996.

        Remember also that in this point in his administration Clinton raised marginal income taxes once. Obama and the Democratic Congress were unwilling to even address the income tax rates until after the mid-term elections. And when they did it was to extend them.

      • dangermouse

        I think you may have misunderstood the meaning of the term “roper”.

        I don’t especially see why you or Greenwald think it’s about triangulation, either, since that’s really still just arguing strategy.

        • gmack

          Yep, on my first reading of your comment, I missed your reference. Now that I notice it, I find myself in pretty much full agreement with you.

  • mpowell

    Yeah, the sensible policy approach in this environment would be to keep running gigantic deficits until unemployment starts coming down or inflation starts to rise. If inflation (ie: wages) start to come up before unemployment drops, you know you have a structural problem and you’ll have to deal with that. But you can attempt to preempt that by raising taxes on the wealthy and investing in infrastructure and education spending…

    Medium and long term deficits can never be planned for due to exactly the reasons you outline. The best that you can do is institute programs that will be able to keep spending at reasonable levels. Ie, promote health care reform that will create mechanisms that allow for lower costs with the same overall quality of care delivered. This should be done anyways, but the long term cost picture on health care does make it particularly pressing.

    I actually think that running a surplus was probably the right thing to do in the 90s, but employment was sky high and cutting the deficit helped keep inflation down despite low fed rates. This is a good environment for healthy economic growth, which is what we got.

    Of course, as other posters have noted, the Democratic party seems to be populated in large degree by folks who believe in wrong theories of macroeconomics. And they take the wrong lessons from all of this stuff. Many of them probably do want to reduce the deficit today.

    At the same time, we are only talking about cutting the deficit now that we have a Republican House. You have to be slightly crazy to call this a true policy preference of the Democratic party. Obama seems to have a perverse desire to not try to pass his party’s preferred policy in the face of Republican opposition and a majority in the House, but it’s pretty hard to tell what’s really going on there.

    • chris

      At the same time, we are only talking about cutting the deficit now that we have a Republican House.

      Yes, exactly. All these people saying “this is the Democrats’/Obama’s real agenda” need to explain why when they controlled (sorta) both houses of Congress with a friendly president, they wasted their time on things like trying to revive the economy, improving the rules for people suing for pay discrimination, granting more-nearly-equal rights to gays, and oh yeah, arranging for millions more people to have access to health care. They could have been slashing Social Security right away, if that was what they wanted. Heck, they could have just let GWB do it for them.

      I think they believe the Republicans won the House on a deficit-scold platform, and that’s why they’re talking about deficit reduction. I think they’re probably wrong about that, but them having that theory seems to be most consistent with their behavior.

      Whether you want to call that a principled respect for the (supposed) wishes of the electorate or moral cowardice, if it’s what the Democrats think the people want, it’s not so unnatural for them to attempt to give it to them in a way that conflicts as little as possible with their other principles.

      • chris

        P.S. Polls show, IIRC, that the American people want deficit reduction, but don’t want to do most of the things that could result in deficit reduction. If Congresspeople are trying to serve an incoherent public will (again, whether out of principle or self-interest doesn’t matter), small wonder if the result is an incoherent policy.

        • dangermouse

          I can’t imagine why you’d assume that to be the cause of, rather than result of, incoherent policy.

      • dangermouse

        I think they believe the Republicans won the House on a deficit-scold platform

        So you believe the Democrats are delusional, such that they’re incapable of telling what platform the Republicans actually ran on?

        Okay, sure.

    • Counter-cyclical fiscal policy only works if the Fed wants it to work. Big deficits ultimately endanger the welfare state, particularly when you take demographics into account.

      Sorry, but neither Reagan nor Cheney really proved deficits don’t matter.

      • mds

        Big, growing deficits ultimately endanger the welfare state

        Your point has some valid elements, but it needed a little clarification. How big is “Big”? Countries with large economies and debt denominated in their own currency can run pretty large deficits forever, as long as the deficits don’t keep growing as a percentage of GDP. And “ultimately” is important, since big short-term deficits are no problem at all, and in fact are part of the solution. So gutting the welfare state because otherwise short-term recession-fighting deficits would destroy it isn’t particularly helpful.

        Now, getting Medicare costs under control by getting health care costs in general under control will indeed be important for keeping big growing deficits from destroying the welfare state. But alas, too many people are talking about what research programs, assistance for the poor, and the like need to be slashed from the FY 2012 budget instead.

        • That’s true, but it is easier to get political consensus for balanced budgets than for not-growing-as-portion-of-GDP-national-debt. The latter concept involves too much math for the average voter.

  • Mike

    And in 2000, getting rid of the debt was completely theoretical and off into the future. All of the big surpluses were projected ones that depended on the economy never slowing down. The Problem of what to do with any surplus was theoretical. Greenspan may really have thought the government should always have a small debt, but that was a problem for the future.

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