The Deficit: Fool Me Once, Shame on You; Fool Me Twice...

UPDATE: Most commentators--whether by accident or by design--have missed the significance of this passage in Krugman's op-ed: "Nancy Pelosi, the incoming House speaker, has promised to restore the "pay-as-you-go" rule that the Republicans tossed aside in the Bush years. This rule would basically prevent Congress from passing budgets that increase the deficit. I'm for pay-as-you-go. The question, however, is whether to go further..."

Restoring pay-as-you-go means that the Bush tax cuts expire at the end of this decade--unless, that is, som coalition finds sufficient spending reductions relative to the current baseline spending path to pay for an extension of the tax cuts.

The embrace of pay-as-you-go orders up a $300 billion rise in taxes at the end of this decade. That's a significant amount of deficit reduction all by itself, and a very significant change from Bush administration idiocy.

---

Paul Krugman says that he thinks that Democratic members of Congress should hold the deficit where it is, and not worry about reducing it: "Fool me once, shame on you; fool me twice..."

Democrats and the Deficit - New York Times: Now that the Democrats have regained some power, they have to decide what to do. One of the biggest questions is whether the party should return to Rubinomics -- the doctrine, associated with former Treasury Secretary Robert Rubin, that placed a very high priority on reducing the budget deficit. The answer, I believe, is no. Mr. Rubin was one of the ablest Treasury secretaries in American history. But it's now clear that while Rubinomics made sense in terms of pure economics, it failed to take account of the ugly realities of contemporary American politics. And the lesson of the last six years is that the Democrats shouldn't spend political capital trying to bring the deficit down. They should refrain from actions that make the deficit worse. But given a choice between cutting the deficit and spending more on good things like health care reform, they should choose the spending.

In a saner political environment, the economic logic behind Rubinomics would have been compelling. Basic fiscal principles tell us that the government should run budget deficits only when it faces unusually high expenses, mainly during wartime. In other periods it should try to run a surplus, paying down its debt. Since the 1990s were an era of peace, prosperity and favorable demographics (the baby boomers were still in the work force, not collecting Social Security and Medicare), it should have been a good time to put the federal budget in the black. And under Mr. Rubin, the huge deficits of the Reagan-Bush years were transformed into an impressive surplus.

But the realities of American politics ensured that it was all for naught. The second President Bush quickly squandered the surplus on tax cuts that heavily favored the wealthy, then plunged the budget deep into deficit by cutting taxes on dividends and capital gains even as he took the country into a disastrous war. And you can even argue that Mr. Rubin's surplus was a bad thing, because it greased the rails for Mr. Bush's irresponsibility.

As Brad DeLong, a Berkeley economist who served in the Clinton administration, recently wrote on his influential blog: "Rubin and us spearcarriers moved heaven and earth to restore fiscal balance to the American government in order to raise the rate of economic growth. But what we turned out to have done, in the end, was to enable George W. Bush's right-wing class war: his push for greater after-tax income inequality.%" My only quibble with Mr. DeLong's characterization is that this wasn't just one man's class war: the whole conservative movement shared Mr. Bush' squanderlust, his urge to run off with the money so carefully saved under Mr. Rubin's leadership.

With the benefit of hindsight, it's clear that conservatives who claimed to care about deficits when Democrats were in power never meant it. Let's not forget how Alan Greenspan, who posed as the high priest of fiscal rectitude as long as Bill Clinton was in the White House, became an apologist for tax cuts -- even in the face of budget deficits -- once a Republican took up residence.

Now the Democrats are back in control of Congress. They've pledged not to be as irresponsible as their predecessors: Nancy Pelosi, the incoming House speaker, has promised to restore the "pay-as-you-go" rule that the Republicans tossed aside in the Bush years. This rule would basically prevent Congress from passing budgets that increase the deficit. I'm for pay-as-you-go. The question, however, is whether to go further. Suppose the Democrats can free up some money by fixing the Medicare drug program, by ending the Iraq war and/or clamping down on war profiteering, or by rolling back some of the Bush tax cuts. Should they use the reclaimed revenue to reduce the deficit, or spend it on other things?

The answer, I now think, is to spend the money -- while taking great care to ensure that it is spent well, not squandered -- and let the deficit be. By spending money well, Democrats can both improve Americans' lives and, more broadly, offer a demonstration of the benefits of good government. Deficit reduction, on the other hand, might just end up playing into the hands of the next irresponsible president.

In the long run, something will have to be done about the deficit. But given the state of our politics, now is not the time.

Comments

[Lee A. Arnold]

I think this is on the right track, but starting to reduce the deficit just a tiny numerical bit will always help the Democrats in the medium-to-very-long term. The Republicans can't say anything right now, because their profligacy demolished their moral standing, but that won't last because they have no shame. Reducing the deficit a tiny bit should keep them in the doghouse for another 20 years... The danger that a tiny little saving will be squandered by the next Oval Officer is comparatively insignificant, or could work to political advantage. People aren't going to forget this present episode for a while.

[Marcus]

"People aren't going to forget this present episode for a while"

Depends. Mainly on how long the ADD public can focus on why things went wrong and who is responsible. But I'm sure a lot will focus more on Paris Hilton and the latest episode of Survivor before the next election, rather than on who is restoring sanity to the national budget. But then again, I've become a real cynic in the last few years, and I could be wrong.

[Captain Video]

"In the long run, something will have to be done about the deficit."

"In the long run we are all dead."
John Maynard Keynes

[Captain Video]

One of the ways the federal deficit hurts the U.S. economy is that it increases the inflow of capital funds from abroad to finance it. This drives up the dollar in the foreign exchange market and makes U.S. goods in which the U.S. has an intrinsic comparative advantage (i.e. if it were not for the capital inflows and trade were balanced, the U.S. goods could underprice foreign goods in world markets) uncompetitive, so that industries in which the United States has an intrinsic comparative advantage are driven out of buiness by foreign competitors and/or outsourced. This does tremendous harm to the productive capacity of the U.S. economy.

[andrew]

yeah
and new events in iraq
Shiites Seek Cease-Fire From Cleric
BAGHDAD, Iraq - Delegates representing groups forming the largest bloc in Iraq's parliament gathered Thursday at the home of the country's top Shiite cleric to seek his... http://www.iraqdaily.com/

[dale]

The Repubs are playing the game of distinguishing between the Bush Administration and the real fiscal conservatives. So they will continue to attack Dems who want to spend on worthwhile programs and expand health care, pay our SS obligations, etc, from the perspective of movement Conservative Republicanism- who were always (wink wink) aghast at those Bushite apostates.

Let them attack. Good Democratic programs will be their own reward and justification.

[a1r]

I find it quite irresponsible to mean deficit managing as a sort of game between competitors for government, where the competitors are only parties and the best strategy is not to do anything because running a surplus would advantage the opposite party when he takes the lead of the government. I'm from Italy, and it's exactly such a confusion between political parties'interests and public interests which pushed us in such a bad trouble with public debt.

[John M 307]

Shortly after Bill Clinton took office in 1993, the Republicans went into lock-step formation to obstruct everything. The Anti-Clinton media was already on the attack, giving every nutcase with a gripe or conspiracy theory against Clinton a forum.

This will probably happen again, unless we fight back. Better yet, the new incoming Congress should go on the offensive. I don't think they can do much in passing legislation, but they control the agenda and they can hold hearings.

They should look into media consolidation and news control that focuses on attacking Democrats more than Republicans for even the identical evils. They should hold hearings on the drive to war in Iraq. They should look into the dark recesses of our intelligence and military agencies, including their practice of torture and rendition to foreign countries for torture. (What's up with the CIA and Syria, by the way?)

And, of course, they should reopen the 9/11 investigation. Perhaps it should be a meta-investigation, on the public lying by the Pentagon and Bush Administration, the Bush Administration's staunch opposition to publicly investigating 9/11, and their stalling and stonewalling of investigation.

[FredW]

I don't get it. PG wants us to ignore the deficit because paying it down just gives future Repugs more to spend. Then, why not run it up so future Repugs have nothing to spend?

[bloom]

1. Krugman almost always wrote his column as a political pundit, not an economist.

2. Krugman jumped the shark when he wrote that a second-tier American oil company should not be allowed to be sold to a Chinese company.

3. Krugman is mostly correct in today's piece.

-remo williams

[RKKA]

"But if the Democrats follow his advice, then they will be making equally clear that the Democrats who claimed to care about deficits when the Republicans were in power never meant it."

False. The truth about what a political party stands for is made manifest when it holds all power. It is instructive to see what both parties did on the deficit when they held both the executive and legislative branches. The Democrats "moved heaven and earth" to put the federal government finances on a sound basis, without a single Rethuglican vote in support BTW. The Rethuglicans embarked on a six-year binge of "borrow and spend like there's no tomorrow".

Considering this experience, all Democrats should now do about the deficit is let Bush's tax cuts expire. And when the Rethuglican noise machine starts squawking about "Democrats are raising taxes", remind the American people who voted for and signed the time limits the Bush tax cuts.

As for "meaning it" on deficit reduction, the Democrats have an actual record of balancing the budget. The Rethuglicans don't, since, like, Eisenhower. So don't talk as if the two parties have equally low credibility on the issue.

[anne]

Absolutely, positively, definitely and I do love Paul Krugman.

"I'm for pay-as-you-go. The question, however, is whether to go further. Suppose the Democrats can free up some money by fixing the Medicare drug program, by ending the Iraq war and/or clamping down on war profiteering, or by rolling back some of the Bush tax cuts. Should they use the reclaimed revenue to reduce the deficit, or spend it on other things?

"The answer, I now think, is to spend the money - while taking great care to ensure that it is spent well, not squandered - and let the deficit be."

I do love Paul Krugman.

[anne]

We were spending $8 billion a month on Iraq in 2005, then we spent $10 billion a month on Iraq in 2006. We are now spending $14 billion a month on the tragic lunacy of Iraq in 2007. Worried about the deficit, then leave Iraq immediately. We should leave Iraq immediately in any case. We must leave Iraq immediately. However, we must not in any way limit social benefit programs for the lunacy of occupying Iraq.

Spend wisely what is needed for American social benefit programs and no tax increases. Simply ask that we leave Iraq immediately.

[anne]

Finally, we have an understanding that in the tragic lunacy of spending $14 billion a month in needlessly occupying Iraq there really is a trade between guns and butter. But, we will have our butter, we must have America's social benefit programs, and Iraq is not to be allowed to bash and slash American social benefit programs.

Leave Iraq immediately, and nuture and protect America. I love Paul Krugman. I really do, I really do. I love Paul Krugman. I love Brad DeLong of course as well, but differently :)

[anne]

Duh, for all the deficit mongers you go mongering on deficits. We are directly spending $14 billion a month in fiscal 2007 on the tragic lunacy of Iraq. The war on and occupation of Iraq will cost $2 trillion and more and more since our Secretary of Defense and President are newly assuring that we are not leaving Iraq. There is no excuse for cutting any social benefit program for the sake of the tragedy of Iraq, and we must only point out to deficit mongers that leaving Iraq solves the problem. Duh.

Ah, leaving Iraq will also save lives and limbs and minds and souls which are more critical. We must leave iraq immediately.

[Chris G]

"Mr. Rubin’s surplus was a bad thing, because it greased the rails for Mr. Bush’s irresponsibility."

Does PG really believe that without a surplus Bush would not have engaged in the same kind of tax cuts and deficit spending? We'd have less of a deficit now if we'd had no surplus in 2000? Of course not. Krugman's political argument amounts to guilt by association and it's specious logic.

This country needs vision. We need to start thinking about the long run *now*, be it deficits or the environment, or some day future pundits will be writing about The Worst Generation.

[spencer]

I've been wondering for 5 years when the democrats would ask why they cann't be as fiscally irresponsible as the republicans.

But don't forget this is just part of the starve the beast strategy of destroying government. We don't know when irresponsible budget deficits will massively damage the economy. Even if it has not happened yet it will some day and at that point the starve the beast people will claim the only solution is to destroy the government. That is their objective but it is not the liberal's objective.
So what krugman is doing now is playing right into the hands of the starve the beast advocates.

[Mr. X]

I disagree with Paul Krugman. What are the chances of having another 100 year flood, where rising waters wash to shore another couple of turkeys like Bush and Cheney? Another generation or two will need to pass before their likes will ever be permitted to hold the office of POTUS. If the deficit isn't reigned in the dollar could continue to slide and that will bring nothing but inflation.

[Barry]

Mr. X, just to refressh your memory, we got Voodoo II just 12 years after Voodoo I. The probability is that we'll have an attempt at Voodoo II by 2020.

Posted by: Chris G:
"Does PG really believe that without a surplus Bush would not have engaged in the same kind of tax cuts and deficit spending? "

I do, but then again, I remember Bush using the surplus in his speeches, and Alan 'Prostie' Greenspan warning about the Evul Guvmint Surplus that'd Kill our Chillun and Wiminfolk.

[David Lloyd-Jones]

Seems to me step one outta be a three trillion dollar capital levy, to pay for Bushlet's War and his other assorted damage.

And while we're at it, an "American Corporation" needs to be defined as one with its control or direction located in the US, whether or not it has recently moved its HQ to some offshore island or elsewhere.

[Tom]

http://www.google.com/search?hl=en&q=squanderlust

[anne]

Now, I do respect and admire Robert Rubin, who is a wonderful person and was a superb policy maker. But, as Brad DeLong says, sort of, "we won't be fooled again." Democrats have to show that critical domestic needs can be served by government, and they need to stay away from any any any self-destructive fight with George Bush on raising taxes (remember who is now the Governor of California and why).

Spend wisely on social benefit programs, and push push push to leave Iraq immediately.

[anne]

Then, as deficit mongers monger about the end-of-the-world, the end-of-the-world is not come as a certain governor of California is proof of. (Who is the governor of California anyway?)

California is fine with deficits, and America will be fine for the time being. Build America at home and leave Iraq immediately.

Raise the minimum wage, dramatically lower tuition at public colleges and universities, build infrastructure, including education and environmentally sensitive infrastructure, subsidize health care coverage for employees, properly support Medicaid and Medicare.

Leave Iraq, immediately.

There is a purpose for America. "Hasta la vista, baby." (Who is the governor of California?)

[anne]

Phooey on the sneering Republican sarcasm, phooey. Want to worry about the Republican compromised budget, then leave Iraq immediately. Democrats produced a wonderful surplus and gave us a wonderful economy even with constant Republican opposition in the 1990s. Republicans then gave us an impossible deficit; impossible because they trapped us in a tragic lunatic war in and occupation of Iraq.

So, leave Iraq immediately and there is no budget worry, Republican. Ah, and save lives and limbs and minds and souls.

[RKKA]

"Didn't take long to prove my theory that worrying about the deficit is merely a rhetorical strategy employed by the party out of power to frustrate spending they don't like rather than an actual conviction. "My spending is so important as to require deficit spending. Deficit spending is evil when spent on your stuff." 'My' and 'your' are 100% interchangeable between parties."

You'll have to explain why the Democrats accepted the political damage for raising taxes in 1993, troll. And theories are never proven.

"Even the 'Rubinomics' success was largely due to unexpected tax receipts from the dot-com bubble."

You'll have to explain why the deficit declined every year Clinton was in office, troll.

"Ah well, at least it took more than a month to get to this place. The pirohette on redistricting took only one day."

So a rethuglican troll whines because Democrats fight back. Typical. Can dish it out, but the whinin' never ends when some comes his way.

[anne]

Oh my, notice how tough we are become. What a heady feeling. Yesterday, Emma Anne was instructing us on using 22s to ward off girl hungry possums, and now this. We are nothing if not tough.

If I went to battle
With someone's herd of cattle
You'd have steak when the job was done.
But if I shot the herder,
They'd holler "bloody murder"
And you can't shoot a male
In the tail like a quail
Oh you can't get a man with a gun.

Wanna bet?

[Sebastian Holsclaw]

"You'll have to explain why the deficit declined every year Clinton was in office, troll."

You are aware of the 1994 Gingrich revolution in the House right? Clinton had to fight with a Republican House in 1995, 1996, 1997, 1998, 1999 and 2000. That COMBINED with the dot.com bubble, COMBINED with a reduction in military spending and almost no reduction in other spending to make a temporary appearance of large deficit reduction. (Which is not to take anything away from Rubin at all. But the magnitude of the change is not at all like what it would have been if the dot.com bubble had actually run up for instance.)

Calling me a troll doesn't change the fact that it is YOUR deficit rhetoric that just took a 180 degree turn.

[anne]

[Sorry, no girl ravishing possums were actually hurt in the making of the comment or waving the 22s (I have no 22 bullets) though I am considered by the local watch a possum terror. I know, I have no idea what 22 even stands for, but do not mess with me when I waving mine.]

[RKKA]

Yup.

And its pretty funny to watch rethuglican bridge-dwellers scurry away at the flash of sunlight off a rhetorical muzzle.

[VennData]

If you look at the growth of the national debt under Clinton, there never was a surplus (but they came real close) so Krugman is wrong about that. However, since he calls upon the fact that Rubin (and our blog-host) brought down the deficit as an arguement for his support for Rubinomics in so many of his missives, this piece seems to be an ill-advised outlier. Pay it down..
Oh and we broke Iraq, we must fix it. It doesn't matter if Bush should have left as soon as they toppled Saddam, we need to draw down over a brief timeframe... like by 2008... and stick to the timetable.

The GOP media machine will always find some way to get the emotions of the swing voter going. Remember, the mid terms were very close.

[anne]

Yes; and I did not even call you a possum and would never think of it, but Democrats gave us a mild tax increase that Republicans fought and that led to a Republican Congress. The tax increase allowed for a narrowing of the deficit which in turn allowed for lower long term interest rates and easier Federal Reserve policy that in turn allowed more investment and led to wonderful information technology development.

Yes; we were given a budget surplus that has been squandered. So, we should leave Iraq immediately but we will fund needed domestic programs in any event.

[anne]

"Oh and we broke Iraq, we must fix it."

Nonsense, day after day, week after week, month after deadly month, year after deadly year of such nonsense. We must leave Iraq immediately.

[RKKA]

"You are aware of the 1994 Gingrich revolution in the House right?"

And they didn't write a budget until 1995.

So why'd the deficit drop before then?

And notice what the Gingrichite Congress did when George replaced Bill. Yup, the truth about rethuglicans came out. They're the party of "Borrow and spend".

[anne]

Leave Iraq immediately, and allow Iraqis to fix Iraq and offer our assistance. Offer United Nations assistance. However, leave Iraq immediately for there are "things" that are being broken that can never ever be fixed.

[anne]

http://query.nytimes.com/gst/fullpage.html?res=9903EED9163EF930A15756C0A9629C8B63

The Hawks on Iraq, And My Lost Son

To the Editor:

In ''The Hawks Loudly Express Their Second Thoughts,'' you note that the shapers of thoughts and architects of the war now have troubling doubts about their enthusiastic support of the invasion of Iraq. How sad for them.

I am the mother of Sgt. Sherwood Baker of the Pennsylvania National Guard, soldier 720. That number is seared on my soul now, along with the screams and despair of my family and the wind carrying the sound of taps above the weeping crowd at the grave site of my son.

To me and mine, the consequences of the failed judgment and outright lies of the Bush administration and its apologists and spokesmen are not just becoming ''depressed'' or ''angst-ridden.'' We have lost our brave and beloved son, who was ordered to the war these folks dreamed of and hoped for.

The explosion that killed my son in Baghdad will go on in our lives forever. Sherwood gave the full measure of his responsibility as an American citizen doing his duty for an administration that betrayed him.

CELESTE ZAPPALA
Philadelphia, May 17, 2004

[Bruce Webb]

Policies which make sense for 2009 do not necessarily make sense for 2007. Pushing for programs and failing just limits the possibilities going forward.

Democrats need to go tactical in 2007. They need to scrub the defense and intelligence budgets and eliminate every last bit of Wilkes/Cunningham steered spending, audit the hell out of the Iraqi reconstruction effort and get some people sent to jail, they need to ensure that every bit of spending goes through committee or at a minimum reveals who proposed it. Doing so will prepare the ground for capturing the
White House and putting forth the number one agenda item of the New New Deal: Universal Health Care.

Over the next two years we are very likely to have a Revolution by Revelation, numbers are rolling in and Social Security is going to be moved right off the table. For 25 years Social Security has been the Right's posterboy proof that Big Government solutions don't work and that further Big Government programs can be ruled out of order on that basis. If it can be shown that Social Security is in fact fully funded going forward that whole narrative shatters.

Now most people dismiss this as a pipe dream. Well they need to start smoking some of what I have in my stash. You can get it online at:
http://www.ssa.gov/OACT/pubs.html

You can't believe the rush you will get after inhaling a little Figure II.D7 and realizing how little in the way of economic and demographic numbers it takes to get to outcome I. (You may need to scroll down)
http://www.ssa.gov/OACT/TR/TR06/II_project.html#wp106217

[Alex Tolley]

It can't be a healthy sign for the Republic if we are advocating a bad policy in response to a possible worse response by political opponents.

Isn't this like torching our own crops to stop the opposing army using them for food?

What we need is a better polity, not more gamesmanship in the current one.

The Fall of Rome indeed.

[RKKA]

"It can't be a healthy sign for the Republic if we are advocating a bad policy in response to a possible worse response by political opponents."

Letting the Bush tax cuts expire is good policy, and good politics. Democrats don't have the power to do more until 1/20/2009, and spending political capital in 2009 on something that will fix itself in 2010 looks to me like giving unnecssary "tax and spend" ammunition to the rethuglican noise machine.

[anne]

California is dying, dying, dying, I tell you. Dying, in deficits. Oh dear, oh dear. That deficit driving governor of California, however, is likely the most popular Republican in the country. (What is his name, darn, I forget.)

Suddenly Republicans are whining whining, save us all raise taxes. Please raise our taxes whine Republicans. Please. Tough. No tax raise, Republicans. Worried about the deficit, then leave Iraq immediately. Otherwise, watch Democrats build America.

"Hasta la vista, baby."

[failingeconomist]

As a classical liberal heavily dosed with a large amount of public choice theory I can spot what I consider to be the flaw in Krugman's reasoning here. (Quite apart from the snark about health care spending. I thought his argument was that current practices were so appallingly inefficient that moving to a single payer system would both reduce governmental spending and also improve the system?)
It's in his line about spending money well. I'm just about willing to accept that it is possible for government to legislate well (although much of that is to legislate so as to prevent politicians from having power), I'm more tenuously attached to the idea that they can regulate well and extremely cynical about the idea that they can spend well or wisely. There are some things that have to be done both collectively and by compulsion (the military etc.) but we tend not to think of them actually being efficient really.
But then that's why I'm a classical liberal, not a liberal, because I'm extremely cynical about the ability of politicians to spend money well.

[dale]

failing economist,
two words: Social Security

[anne]

Then, old classical liberal, go be classically liberal enough to save $14 billion a month on the occupation of Iraq. Fine by me, but, me, I am about showing just how much people about the Gulf Coast have been ignored and building again.

I am about subsidizing health care for employees, about Medicaid, about subsidizing tuition at public colleges, about working on global warming and other environment-ecology problems, on infrastructure development including public education from HeadStart to high school.

We are spending 60% less now on global warming technology research and development than we were in 1979. So, be a trifle less classical and raise the amount while being more classical and pushing to leave Iraq immediately.

[wkwillis]

Let's look at the situation.
The Republicans knew they were going to lose the election. So they passed the Defence and Security budgets with all their pork, and punted on everything else with a continuing resolution.
The Republicans control the White House and entire executive branch, the Fed, and are tied in the Senate, unless Lieberman votes with them, and then they control the Senate.
The Democrats control the House.
So the Democrats can pass any balanced balanced budget they want, complete with tax increases and budget cuts, including cuts to the Defence and Security budgets already passed, and then wait for the Republicans to stall it in the Senate, or veto it. Then they punt with a continuing resolution.
So the Republicans get their pork and their budget deficit.

[Bupa]

A view from Central Europe.

In the mid 1990s a Socialist Gov't of Hungary implemented a much needed austerity program which probably prevented a Mexico type financial crisis.

They lost the next election to the main opposition party, led by right wing populist thugs, who then went on a spending spree.

The Socialist regained parliament 4 years later and in an effort to keep the bad guys out of power allowed the budget deficit to creep up.

Now the Socialists are struggling to get the budget deficit under 10 percent of GDP. If they weren’t a small country that recently joined the EU they probably would have already had a financial crisis. Now the Socialist have a new mandate and their only agenda is finding some way to drastically cut the budget deficit in the least painful way.

I hope the Democrats will follow Paul’s advice closely. Spend, but don’t increase the budget deficit.

[pgl]

anne - it is true that ARNOLD is fine with California's deficits but are a host of CAL liberal bloggers (me, Mark Kleiman, Kevin Drum, etc.) who have been considering our replacement governor from the beginning for being just another spend and borrow Republican. I was truly sickened to see him win another four years of this pandering garbage.

[Bernard Yomtov]

"You are aware of the 1994 Gingrich revolution in the House right? Clinton had to fight with a Republican House in 1995, 1996, 1997, 1998, 1999 and 2000"

Sebastian,

You really do have to give Clinton the credit for the deficit reduction of the 90's. Republicans fought his tax increases, and some, including Gingrich, predicted that economic catastrophe would follow. Gingrich even recommended selling all one's stocks, as I recall. Wonder if he did that?

[Anthony Damiani]

Krugman seems to be advocating ignoring deficit reduction not because it is a good idea, but because the next guys are sure to mux it up good-- why not pursue our agenda today and let them be constrained by the deficit instead.

When Republicans do this, they call it "starve the beast." It's not a good practice to emulate.

[anne]

Still, the Terminator is governor of California and California is fine and the Terminator is popular pandering because he learns and is pandering in the proper directions such as the environment. Of course, we could have a CAL liberal blogger try to recommend another increase in the vehicle registration tax and try to recall the Terminator, but, I think that was done the other way round.

Pandering can mean a lot in a democracy, when what it means is understanding what voters wish and leading not forcing them to what they need.

"Hasta la vista, baby."

[anne]

No; we are spending $14 billion a month directly on the tragic lunacy of Iraq. The President does not want and will successfuly fight any tax increase, while Democrats are blamed for the attempt. So, do what is possible which is protect and improve and increase social benefit programs while urging that we leave Iraq immediately.

Will waving a 22 with no bullets really work on girl hungry possums?

[bakho]

I would like like the Dems to hit Bush over the head with his Iraq policy by attaching a repeal of the top income tax rate cuts (put the top rate back to 39%) and make the political point that if Bush can't stop his irresponsible war mongering, at least he can stop his irresponsible borrowing.

It should be expressly stated that the tax increase is needed to pay for the Bush occupation of Iraq. The Bush base who pay the top income tax rate should be told that they are being punished for supporting Bush and that Congress will continue to punish them until they force a successful intervention. Tying a tax increase on the wealthy to the Iraq Supplemental would put more pressure (especially from his base) on Bush to get out.

Give it another 10 years and the Bush money, media and political machine will squeak brother Jeb Bush into office.

[gordon]

Discussion of the US Federal deficit reminds me of Stiglitz' complaint that the priority accorded to deficit- reduction by the Clinton administration was excessive ("Roaring Nineties", end of Ch.2 and other places). Stiglitz points out that there were a lot of things (education, R&D, infrastructure) which needed money spent on them, but the Treasury stonewalled relentlessly. Perhaps the answer lies in the type of spending - Govt. investment which benefits the whole society not only pays a dividend later, which is good economics, but is also politically beneficial immediately. Armies aren't in this category, unless you set out to balance the budget by plundering your neighbours.

[CapitalistImperialistPig]

Could you explain again how that "ignorant, amoral swine" thing works?

[BroD]

Well, I for one think there's some value in having the Democrats establish a reputation for fiscal responsibility. I think that's worth something--and could tip some elections down the road.

I agree there's no reason to embark on a severe belt tightening programme (sorry, a bit of faux brit there) but, yes, let's get this thing under control before (as I said in an impassioned letter to the editor) it eats our children.

Reversing the Bush tax cuts (with perhaps a little something extra for those who so obscenely profited by them) and getting out of this fool's errand in Iraq would start us nicely in the right direction.

[RKKA]

"Well, I for one think there's some value in having the Democrats establish a reputation for fiscal responsibility. I think that's worth something--and could tip some elections down the road."

We've got that now. We can't do the rest until 1/20/2009, and the "Borrow and spend" Bush tax cuts expire in 2010. We maintain the Democratic Party's reputation for fiscal rectitude by taking Bush's top-line budget proposal, trimming just a hair, then writing it to our priorities, not his.

[save_the_rustbelt]

Rubin has his own form of trickle down, make Wall Street extremely wealthy and the rest of us will benefit.

Sorry, we have seen how the rubinomics bubble played out.

The little people will be screwed, the party in power only determines the depth.

[Bruce Webb]

Gordon: "Stiglitz points out that there were a lot of things (education, R&D, infrastructure) which needed money spent on them, but the Treasury stonewalled relentlessly"

Who bells the cat? Given Republican control any bit of "education, R&D, infrastructure" legislation would undoubtedly be loaded up with pork and tax cuts. From a Progressive standpoint Rubinomics was a cynical but effective way of putting our fiscal house in order to pay for Single Payer, which with transition and certain structural costs would have represented a hit to the bottom line of the budget however societally efficient it would prove to be.

Which is also the answer to this query from failingeconomist:
"I thought (Krugman's) argument was that current practices were so appallingly inefficient that moving to a single payer system would both reduce governmental spending and also improve the system?" Yes, but not overnight.

I am convinced this was the plan all along for the Gore first term: continue with a balanced General Fund and then discover mirabile dictu! that Social Security was not in any particular fiscal risk and so we could fund the transition to Universal Health Care.

[Wild Pegasus]

Republicans are stupid and irresponsible. Ergo, Democrats should be stupid and irresponsible, and then blame the prevailing political winds. That's an awesome argument for voting Democratic. *laugh*

- Josh

[anne]

My, oh, my; Deomcrats should be and will be smart and reponsible, and Republicans are ever so annoyed at the prospect. Interesting characteristic about Republicans is that war is always costless, while domestic needs always cost too much. So, when you think responsibility, think about Republicans pushing for ending the occupation of Iraq immediately as Democrats take care of our domestic needs.

"Hasta la vista, baby."

[anne]

What Brad DeLong and Paul Krugman and, yes, the Terminator have taught us is just how Democrats can be smart and responsible. So, Republicans time to bring American soldiers home and show us your responsibility by saving lives and limbs and minds and souls and $14 billion a month. There is responsibility.

"Hasta la vista, baby."

[dale]

even after all these years, too many folks still haven't a clue as to the nature of the radical republican regime Krugman has been writing about.

Spend the money- spend it well- invest in our ordinary citizens- honor our social security obligations- end this war

[anne]

Dale:

"Even after all these years, too many folks still haven't a clue as to the nature of the radical Republican regime Krugman has been writing about.

"Spend the money- spend it well- invest in our ordinary citizens- honor our social security obligations- end this war."

Nice.

[RKKA]

Exactly. The outgoing rethuglicans have left a great many mines and traps for the Democratic Party, and would like nothing better than to have us the next two years walking into them as we spend our efforts cleaning up their mess.

And to top it off, George will veto any serious deficit-reduction effort, and Congressional rethuglicans will ensure it is not overridden. So we needn't undertake a fruitless and politically damaging effort.

What we should do is take the bottom line of the budgets Bush will propose, shave just a hair off the top, and then rebuild them to our priorities, not his.

Then dare him to veto budgets that strengthen the American people and serve their needs.

[Matt McIrvin]

The Bush base who pay the top income tax rate should be told that they are being punished for supporting Bush

Ah, no. Raise their taxes, yes, but telling people who supported the winning side in 2004 that they are being punished for voting wrong is not a good way to keep winning.

[anne]

"The Bush base who pay the top income tax rate should be told that they are being punished for supporting Bush."

Absurd, of course, and how about not raising taxes because the President will not allow it and voters will not tolerate it. Remember who is governor of California and how and why? (I never can remember what his name is, though.)

[Neil Bates]

Just for some perspective, the deficit is the excess in current spending over collections, but there is a debt too, which is how much we already owe - that is gigantic. Even with no more deficit we'd have all that debt to pay back, and we owe lots of it to China, etc.

[anne]

For those who are worried about the deficit, simply support leaving Iraq immediately though we should leave Iraq immediately if the occupation were not costing a cent rather than $14 billion a month directly.

[anne]

Debt is paid in terms of interest and as long as the economy grows about as fast a debt grows, there should be no problem indefinitely. In any event, notice long term interest rates and notice that bond holders are just not worried about our debt. Leave Iraq, and think about containing the debt then. For now, the Congressional Democrats simply need to be judicious.

[andres]

"The embrace of pay-as-you-go orders up a $300 billion rise in taxes at the end of this decade. That's a significant amount of deficit reduction all by itself, and a very significant change from Bush administration idiocy."

Careful Brad. If and when this happens, the Masters of Mendacity will again paint it as "the biggest tax increase in US history." You have to state explicitly, for the benefit of the semi-literate, that paygo is simply a reversal of the Bush tax cuts, not a unique tax increase.

But I agree with Krugman that this is as far as the Democrats should go. Any further deficit cleanup must have the imprimatur of the Republican congressional delegation as well and should in fact be sponsored by them, in order to make it clear that it is not just Democrats who are feeding the country needed (and bitter) medicine.

[bakho]

The tax cuts expire AFTER Bush leaves office. This will put all the blame for higher taxes on Congress and the next president and produce enormous pressure to retain some of the tax cuts. The Republicans will try to claim that the tax increases are for social spending and not for the very large Iraq bill. Bush should have to eat repeal of some of his tax cuts so the higher taxes will be tied to the Bush Iraq failure. Congress needs to make Bush pay the bill and not let him off the hook by letting his successor pay for it.

If Congress were to repeal all or part of the top tax rate cut (Put it back to 39%) and then attach it to the Iraq Supplemental as a means to pay for the Bush Iraq occupation, then it would be clear in the minds of the media and the public that the Bush Iraq misadventure has real dollar costs associated with it.

Besides, Bush is apparently not listening and planning to escalate and increase the Iraq costs even further. By forcing Bush to address the reality that his expensive Iraq policy means reversal of his treasured tax cuts for the wealthy, it puts additional pressure on Bush to improve his Iraq policy instead of sinking deeper into the quagmire.

[anne]

http://economistsview.typepad.com/economistsview/2006/12/more_on_democra.html

December 23, 2006

More on Democrats and the Deficit
Edited by Mark Thoma

The Economist blog weighs in on the Paul Krugman article:

Beating around the Bush Budget: For a certain stripe of Democrat, one of the shining defenses of their lot is that they are the "party of fiscal responsibility". A number of left-leaning economists, notably Paul Krugman, have been leaning hard on this theme.

Perhaps too hard; it seems to have collapsed beneath them. On Friday, as Mark Thoma points out, Mr Krugman wrote ...[that] cutting the budget deficit is a very fine idea, but unfortunately, it makes it difficult to hold onto power. Mr Krugman, along with his supporters, seems to believe that this is somehow different from the Republican position. It must be a very subtle difference, then....

[anne]

http://economistsview.typepad.com/economistsview/2006/12/more_on_democra.html

The genial Tyler Cowen is ... uncharacteristically cutting:

Suppose the Democrats can free up some money...Should they use the reclaimed revenue to reduce the deficit, or spend it on other things?

That is Paul Krugman, and the answer is that Rubinomics is dead and they should spend the money. Deficit reduction is for "the long run." Even from Krugman's point of view, the use of "they" seems premature with a Republican President and a hard-to-elect Democratic frontrunner candidate in the wings. More economically, I am pleased that the forthcoming fiscal destruction of the United States has been averted, or at least held at bay for some time. It took a mere mid-term election; cuts in spending or tax hikes were not necessary, quite the contrary.

Brad DeLong argues that no, really, they're the party of fiscal responsibility:

Most commentators--whether by accident or by design--have missed the significance of this passage in Krugman's op-ed: "Nancy Pelosi, the incoming House speaker, has promised to restore the "pay-as-you-go" rule that the Republicans tossed aside in the Bush years. This rule would basically prevent Congress from passing budgets that increase the deficit. I'm for pay-as-you-go. The question, however, is whether to go further..." ...

[anne]

Suddenly the genial Tyler Cowens is genially cutting away at Brad DeLong and Paul Krugman in a genial way of course. Want to save money? Leave Iraq immediately. Suddenly folks have figured out there really really is a material cost to Iraq, beyond the more important deaths and woundings. Then, where are all the usually genial voices calling for us to leave Iraq immediately?

[Wild Pegasus]

---
For those who are worried about the deficit, simply support leaving Iraq immediately though we should leave Iraq immediately if the occupation were not costing a cent rather than $14 billion a month directly.
---

I didn't support going to Iraq in the first place (by which I mean "in 1990"). Assuming that anyone disagreeing with you is a Bushbot is bad form.

- Josh

[dale]

"Mr Krugman wrote ...[that] cutting the budget deficit is a very fine idea, but unfortunately, it makes it difficult to hold onto power. Mr Krugman, along with his supporters, seems to believe that this is somehow different from the Republican position. It must be a very subtle difference,"
That may seem so from a shallow, technocratic point of view. But the more important point of view is concerned, not with power as such, but with the good that political power can do. Investing in our people's future, supporting ordinary families, working on solutions for global warming (in ways that do not increase inequality nationally and world wide). Doing all those expensive things that need doing.

This seems more like some phoney stance of neutrality to me. As if there is neutrality in morals and politics.

[dale]

As if there is no difference between good social policy and bad. Between broad based prosperity and ever increasing and polarizing inequality. Between environmental disaster and long term sustainability.

[Bupa]

It occurred to me last night that we can use the simplified version of the Krugman-DeLong Doctrine on policies other than the deficit.

The simplified version: Clinton left a budget surplus. Bush took advantage of the surplus to cut taxes for the rich, squander money on Republican interest groups and drive up the deficit. So Democrats should not reduce the deficit since the next Republican will run it up again.

OK let us apply the Doctrine to war.

Clinton left the world in peace. Bush took advantage of the fact that our troops were not bogged down in a quagmire to get us stuck in one in Iraq.

The Krugman-DeLong Doctrine response should be for Democrats to stay the course in Iraq so that the next Republican president will not have a free hand to invade other countries.

What other policies can we apply this brilliant political philosophy.

[anne]

For those who are worried about the deficit, simply support leaving Iraq immediately though we should leave Iraq immediately if the occupation were not costing a cent rather than $14 billion a month directly.

Precisely what is needed. What is not needed is to cut Social Security. What is not needed is to cut Medicare. What is not needed is to cut Medicaid. We do need an employee health care subsidy. We do need to assist 47 million Americans with no health care insurance. We do need tuition assistance for college stuents. We do need education assistance from HeadStart through high school. We do need infrastructure development. We do need research and development on technology to protect the environment....

We need to leave Iraq immediately, and not to harm America.

[anne]

The Krugman-DeLong philosophy is of course precisely what is needed for successful Democratic legislation, because the Krugman-DeLong philosophy will protect and nuture the programs that in turn protect American well-being. The Krugman-DeLong philosophy means protecting the legacy of Franklin Roosevelt and there is a truly wonderful philosophy.

[anne]

http://www.feri.org/common/news/details.cfm?QID=2088&clientid=11005

January 11, 1944

Message on the State of the Union
By Franklin Roosevelt

This Republic had its beginning, and grew to its present strength, under the protection of certain inalienable political rights — among them the right of free speech, free press, free worship, trial by jury, freedom from unreasonable searches and seizures. They were our rights to life and liberty.

As our Nation has grown in size and stature, however — as our industrial economy expanded — these political rights proved inadequate to assure us equality in the pursuit of happiness.

We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. "Necessitous men are not free men." People who are hungry and out of a job are the stuff of which dictatorships are made.

In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all — regardless of station, race, or creed.

Among these are:

The right to a useful and remunerative job in the industries or shops or farms or mines of the Nation;

The right to earn enough to provide adequate food and clothing and recreation;

The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;

The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;

The right of every family to a decent home;

The right to adequate medical care and the opportunity to achieve and enjoy good health;

The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;

The right to a good education.

All of these rights spell security....

[anne]

The Krugman-DeLong philosophy or "doctrine" is quite simple. Remember the legacy of Franklin Roosevelt and completely and utterly ignore Republicans who delight in spending forever and ever on needless war and occupation and never ever spending at home on the true needs of Americans. The Krugman-DeLong doctrine is to protect and nuture America's social benefit programs.

The Krugman-DeLong doctrine is to let Republicans save us all from the deficit goblins and save lives and limbs and minds and souls which are more important by leaving Iraq, while Democrats build America.

[Bupa]

Anne, Darling,

DeLong and and Krugman are not talking about ignoring the deficit. They are talking about keeping it constant. They are a bit vague if they mean constant nominally or in percent of GDP but they are not talking about ignoring it.

The big risk is their nonchallent attitude towards the deficit will feed the rallying cry of many good hearted folk (and politicians) who don’t understand that the US does ultimately have a budget constraint.

The US also faces many enormous challenges. Overhauling America’s health care system is certainly one. Confronting climate change is an even bigger challenge....yes all that other stuff about inequaliy and exanding the social welfare system is also important. How to do all this under a budget constraint? It would be nice to have some sound advice from our friends Paul and Brad. Instead they are busy being sophomoric and glib.

[anne]

Paul Krugman and Brad DeLong are never glib, though I can tell for pretty sure that Brad was once a sophomore as campus legend has it so. I do have trouble picturing Paul as a sophomore, but I never biked France with him so who knows.

The Krugman-DeLong Doctrine is to keep the deficit growing roughly in line with economic growth, which will allow for domestic needs to be met while keeping the deficit well controlled. What could be more responsible?

[Krugman-DeLong Doctrine; trademark pending.]

[anne]

Attempts at significant deficit reduction will almost certainly fail with a Republican President who is determined not to allow tax increases. Not only will deficit reduction fail, but it will decisively alienate voters and lead to another awful Republican Congress which is what Republicans are after. Voters do not wish social benefit programs slashed and do not wish higher taxes, while the President is determined to spend every possible cent on the tragic lunacy of occupying Iraq.

[anne]

Congressional Democrats only have to keep the growth in debt vaguely in line with economic growth to avoid a problem. This should be done readily, though growth in defense spending needs to be closely watched. I do enjoy referring to the Terminator as an example, because we find a Republican who has been sensitive enough to voter needs and wishes to move closer to the Democrats. Were we able to have a Terminator run for president, he could easily be the most popular Republican candidate with the potential to carry California. So, Democrats have watched and learned. As Brad Delong of the Krugman-DeLong Doctrine sort of noted; "We won't be fooled again."

[Krugman-DeLong Doctrine; license applied for.]

[Bupa]

"We won't be fooled again." Singing lines by the Who has never proved to be a winning policital strategy.

Paul and Brad are economists. They are political neophytes.

They should offer sound technical advice. Advice about fiscal policy should involve an analysis of current and future interest rates, growth rates, deficits and the stock of debt. This is the bit about the size of a sustainable budget deficit. There is also a bit about the size of Expenditures and Revenues to GDP and the composition of such Expenditures and Revenues.

Nothing competent was said about any of these important matters.

Remember, continuing the insanity in Iraq is viable policy option of your admired Krugman-DeLong Doctrine. It will prevent a future Republic President from starting such a lunicy elsewhere because his troops will be stuck in Iraq just as a budget deficit will prevent a future Republican President from cutting taxes for the rich. This "Docrine" is the stuff of a trashy novel and not worthy of the stature of the men who proposed it.

[dale]

"Instead they are busy being sophomoric and glib."

Bupa Darling,
far from being sophomoric and glib, they are being wise and pragmatic. all they are saying is don't panic over the debt. don't put aside the good progressive policy and investments in our future in favor of prioratizing debt reduction over all else. you, in your comment above, seem to agree with that. so why the condescending attitude towards two guys who have been right about most everything these past few years?

And- Happy Holidays

[Esq.]

I've been having a thought experiment:

EMERGENCY WAR BUDGET

Increase taxes to pay for increase in the size of the army and to pay for iraq. Create a 45% marginal rate on high incomes or capital gains. Remove any special tax breaks from the code that are designed to benefit republican contributors. Make big oil pay exactly the same as everybody else.

Call any republican who opens his mouth unpatriotic over and over again. Turnaround is fairplay.

Daydreaming again, I know.

[andrew-rock]

Fierce Opposition to Iraq Escalation

Speaker Nancy Pelosi and Majority Leader Harry Reid sent a letter to President Bush calling on him to reject plans to escalate the civil war with additional troops and stating "it is time to begin to move our forces out of Iraq." The Bush/McCain war escalation plan expected next week comes as U.S. fatalities over the course of the war in Iraq pass 3,000, along with the deadliest month for American troops in over two years.