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Friday, May 06, 2005

Financial Times: Politicians Do Not Pay a Political Price for Deficits

This Financial Times article (S) asks why politicians in the U.S. have not paid a larger political price for running large and persistent budget deficits and offers two main reasons, ignorance and the unwillingness to incur the tax increases or benefit cuts required to bring the budget into balance:

Deficits cannot simply be ignored, By Patrick Gavin, Financial Times, May 5 2005

… Americans - including their politicians - did not seem to care about the reckless fiscal course they were on. And they did not seem particularly bothered by the fact that, during President George W. Bush's first term, the US turned record surpluses into record deficits. They remain largely blasé about the deficit, despite bleak reports suggesting last year's budget deficit of $412bn (€318bn) will be eclipsed by this year's projected $427bn deficit. … Even though Alan Greenspan, US Federal Reserve chairman, recently cautioned the Senate's budget committee that continued deficits would cause economic stagnation or worse, his comments barely ruffled Wall Street, much less the American citizenry. A recent Harris poll asked people to identify the two most important issues for the government. Only 10 per cent chose "federal budget surplus/deficit". …

So why do Americans not care more? … many people do not understand the workings of the federal budget and its ripple effects. Most Americans probably could not explain how large deficits result in higher interest rates, indebtedness to foreigners, passing the bill to future generations, lower growth, reduced government spending and more taxes. Even more difficult for the public to grasp - and for politicians to convey - is how swelling federal deficits affect them personally. … In addition, voters have seen deficits come and go before, so why should they care this time around? …

Americans' lack of interest in federal deficits may simply come down to plain ignorance. Larry Bartels, the Princeton university professor, recently produced evidence suggesting that Americans often support policies that negatively affect them. … Recall the popular phrase: Be careful what you wish for, you may just get it. Americans - and their elected officials in particular - are clamouring for more and more from their government: more benefits, more services, more military power . . . while wanting to give less and less in the form of taxes. In this case, continued wishing could mean they will get exactly what they ask for: fiscal disaster.

The article uses "plain ignorance" to explain budget deficits, but we should be careful, if we accept that explanation, not to take the next step and say it justifies budget deficits. I don’t believe that the lack of political accountability, particularly if it arises out of confusion about complicated accounting and economic relationships, excuses the fiscal policies congress has pursued. In fact, when congress is dealing with confusing issues they should be more careful than ever to ensure they are acting in the public interest. When there is a tenuous link between policy and political accountability due to the complexity of the issues, they should not take advantage of it by using budget tricks such as sunshine clauses, on and off budget calculations as convenient, and so on to enact policies that might be opposed if they were thoroughly understood by voters.

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    Posted by on Friday, May 6, 2005 at 12:15 AM in Budget Deficit, Economics, Politics | Permalink  TrackBack (0)  Comments (0)

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