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Friday, November 20, 2009  

Deficit Attention Disorder

Even for the legislator or president who really cares about governing well and knows their stuff, governing in a democracy is just inherently hard. Take this CNN poll that shows 67% of Americans to be totally insane on the issue of deficits--namely, thinking that the budget should be balanced every year, regardless of recession or war:

As a first cut, we could return spending to its FY 2008 level (approximately at the historical average, and where we under the right-wing Bush administration) by entirely eliminating Social Security. Alternatively, we could keep Social Security as is, and entirely eliminate Medicare and Medicaid. Having done that, we would still need about $800 billion in additional tax increases. That’d be a tax hike of about twenty times the annual impact of the tax increases included in the health reform bill.

You could get this, maybe, by imposing a 10 percent Value Added Tax. But anyone who thinks that balancing the budget via a 10 percent VAT and the elimination of Social Security payments would be a popular agenda is certifiably insane....

If we entirely eliminated discretionary spending—no electricity in the White House, no military, no FBI, no national parks, no nothing—we’d still have a $346 billion deficit.

People think they think they want a balanced budget even in a severe recession, but that’s because they obviously have no idea what balancing the FY 2009 budget would entail.

This is just another facet of the fractal-like structure of voter ignorance. Everybody wants roads, schools, big armies, health care for grandma, and a pony, but no one wants either deficits or taxes. You can't get a majority of Republican voters to agree on cutting anything, whereas all rank-and-file Democrats can agree on cutting is the space program, which is essentially a rounding error in the federal budget. Every now and then a Republican will propose a "spending freeze," by which they mean a freeze on discretionary spending. This is not a good idea, but it at least projects a certain seriousness about the issue--that is, until the exemptions start coming up: the Pentagon, Homeland Security, aid to Israel, the wars, and so on. By the end of John McCain's dramatically unserious campaign, his "spending freeze" pledge had been whittled down to nameless programs that had no constituency of rich white people protecting them.

Needless to say, this disorder--people wanting goodies but not wanting to pay or borrow for them--can make the politics of governing very asymmetrical. Congressional Democrats proposed a flawed but good-faith attempt to reduce the long-term deficit by reining in Medicare increases, and what they got for their trouble, instead of a reasoned counter-proposal, was tea parties and death panels. In introducing their alternative, Republicans even trumpeted the fact that it left Medicare, the budget's rapidly ticking time bomb, untouched! Faced with a dire economic situation, the administration proposed and the Congress enacted a major fiscal stimulus, which undoubtedly propped up GDP and kept unemployment from rising even higher, but which has a high price tag. This allows the opposition to play both sides of the issue: the short-term deficit is sky high and the economy is still bad. Never mind that they never had a serious proposal to deal with either (anyone contemplating voting for Republicans next year because of deficits should remember that their alternative to the stimulus was $3.1 trillion in unfunded tax cuts). So long as the public demands specifics-free deficit demagoguery, I know just where they can get it.

Moreover, public concern with deficits is generally myopic. People are stunned at this year's deficit, which is through the roof. But short-term deficits don't matter. Repeat it ten times before breakfast: short-term deficits don't matter. We need the federal government to run deficits in economic down times to make up for the drop in private-sector output, not to mention to make sure that basic services can be provided without huge tax increases.

What matters is the long-term deficit outlook, and that is very grim--primarily because of Medicare and Medicaid costs (and a Pentagon that can never be sated). The shiny pinwheels of the Senate, like Evan Bayh and Joe Lieberman, have piously noted their fear of deficits as a reason to oppose the only major deficit-reducing measure we've seen in years. This is the stupidest thing imaginable, but they keep doing it because voters by and large don't know and don't care about the long-term deficit, which will ruin our economy.

This is why I'm skeptical of the administration's predicted pivot towards deficit-reduction next year. It's not an issue a responsible governing party can win on right now. You'll never be able to gain much ground on it by making a few high-profile but largely symbolic cuts. What you need to do is get health care passed, and campaign hard on its deficit-reduction numbers. And then you have to try to be Democrats on the other big issues of popular discontent--jobs and financial regulations. Right now, Democrats are on the run because Republicans can fling around the word "bailouts." But if a big push for financial reform does emerge, this puts Republicans on the spot, since they have no interest in the issue beyond demagoguing it. If you can bring a good package to a vote, you can seize back the momentum. Same thing with a new jobs bill. If employment is recovering noticeably by next fall, the Democrats will pull through with minimal losses. If unemployment is still above ten percent, we're hosed, and no amount of deficit-hawkery will possibly be able to save us.

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posted by Benjamin Dueholm | 12:41 PM
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