February 22, 2003

THE DEMOCRATS' VALETUDINARIAN:

The George W. Diet: Lose unsightly pounds by eating like a pig. (Michael Kinsley, February 20, 2003, Slate)
[T]his is essentially the logic adopted by the Bush administration and the Republican congressional leadership to rationalize turning the federal budget surplus back into huge deficits...[t]hey say that deficits are actually a good thing--despite what you may have heard from Ronald Reagan and almost every Republican before and since--because deficits create pressure for smaller government. "Conservatives Now See Deficits as a Tool to Fight Spending" was the headline on a recent New York Times article quoting a slew of them--including the chairman of Bush's Council of Economic Advisers, Glenn Hubbard.

This line of patter started a couple of years ago, when Bush inherited a budget in surplus. There is some sense in the idea that a surplus stimulates appetites and that prudence suggests giving the money back before it gets spent. But "giving back" money you don't have turns prudence on its head.

Back in the 1980s, liberals used to suspect that Reagan was up to something similar--purposely producing a deficit to discredit the government--and would leap with a great "aha" on any Reaganite remark half-implying as much. Today, what used to be the ulterior motive has become the public excuse. The Bushies apparently would rather be thought of as insanely Machiavellian than as shamefully irresponsible.

In case the chief White House economist, the House majority leader (Tom DeLay), and others actually believe in this magical fairy dust, we'd better explain patiently why it is unlikely to succeed. You see, boys and girls, the trouble with spending is that it costs money. If the government could spend money it doesn't have without running up debts that have to be paid back (with interest), there would be little reason to object. So running up those debts in order to reduce spending is a bit self-defeating.


This reminded us of a quote from Macaulay's History of England:
At every stage of the growth of the debt the nation has set up the same cry of anguish and despair....[After the Napoleonic Wars] the funded debt of
England...was in truth a fabulous debt; and we can hardly wonder that the cry of despair should have been louder than ever. Yet like Addison's valetudinarian, who continued to whimper that he was dying of consumption till he became so fat that he was shamed into silence, [England] went on complaining that she was sunk in poverty till her wealth showed itself by tokens which made her complaints ridiculous....The beggared, the bankrupt society not only proved able to meet all its obligations, but while meeting these obligations, grew richer and richer so fast that the growth could almost be discerned by the eye.

Sure it would be nice to have a government so small we could pay for it again, but that's not going to happen anytime soon. But the complaint, heard from Republicans until Ronald Reagan's deficits and corresponding economic boom proved it to be ridiculous, that running a deficit has any appreciable effect on the health of a society, is by now so outmoded as to seem like hypochondriacal raving, as it does here from Mr. Kinsley. It should suffice to point out that here, in the midst of what may come to be called the Fourth World War, the total government debt is $6.4 trillion, with a GDP of over $10 trillion--let's call it about 65% of GDP. By comparison, the debt rose above GDP during the Second World War (and the debt Mr. Macauly was reffering to was three times GDP), yet Republicans were denied control of Congress for sixty years when they called for balancing the budget. Democrats are more than welcome to this perennial loser of an issue. Posted by Orrin Judd at February 22, 2003 9:13 AM
Comments

"So running up those debts in order to reduce spending is a bit self-defeating."



Surely Mr. Kinsley is not unaware of

"heightening the contradiction"? And what better way to draw attention to deficits (if you ultimately want them reduced) than to buy on credit all sorts of things that you want to have in the first place?

Posted by: BobM at February 22, 2003 11:57 AM

Mr. Judd;



It's not the deficits per se, it's the reduction of inflow. The deficits are a side effect of the real issue.



I would also like to object to your claim of the invalidity of the idea that running deficits has an appreciable effect on the health of a society. There isn't an excluded middle here, where either deficts are always
harmful or always
irrelevant. As you seem to realize, this is a situation where size matters. Surely a deficit the size of California's matters. Have you not yourself argued that the demographically driven deficits of European welfare states will be part of what does them in?

Posted by: Annoying Old Guy at February 22, 2003 2:50 PM

Sigh. From the perspective of my puny understanding, Economics = Alchemy.



Or maybe modern alchemy is just what you get when politics, scientific methodolgy and math intersect. . . .

Posted by: Whackadoodle at February 22, 2003 4:43 PM

AOG:



The problem is that Europe won't have the taxpayers to cover its deficits, won't be able to borrow, won't be able to conquer someone andtake their wealth. etc.. Most importantly, their tax base will be of a different ethnicity than the beneficiaries, leading to societal rupture when the taxes become exorbitant.

Posted by: oj at February 22, 2003 5:54 PM

That's a demographic, not a deficit problem.

Posted by: oj at February 22, 2003 5:56 PM

OJ:



What you have pointed out is the (what should be obvious) hazard of Ponzi schemes--which describes virtually all social security retirement schemes.



On another note, I think your predictions become less likely depending on the degree of future productivity growth (strong here, far less so there).



Regards,

Jeff Guinn

Posted by: at February 24, 2003 7:41 AM
« AUST???: | Main | AT HOME: »