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Thursday, July 20, 2006

Yet Another Robert Samuelson Edition...

Robert Samuelson repeats a familiar refrain on the budget deficit:

No Shame, No Sense and a $296 Billion Bill, by Robert J. Samuelson, Commentary, Washington Post: For those who believe our leading politicians are utterly shameless, there was dreary confirmation last week. President Bush publicly bragged about the federal budget. Here's the objective situation that inspired the president's self-congratulation: With the unemployment rate at 4.6 percent (close to "full employment" by anyone's definition), the White House and Congress still can't balance the budget. For fiscal 2006, which ends in September, the administration projects a $296 billion deficit; for fiscal 2007, the estimate is $339 billion. How could anyone boast about that?

Easy. In February the administration projected a $423 billion deficit for 2006, so the latest figure is a huge drop. A skeptic might say that the first estimate was inept; some cynics argue that it was deliberately exaggerated to magnify any subsequent improvement. Naturally the president had a different story. The shrinking deficits, he said, proved that his tax cuts are working. ... All around Washington, Republicans staged media events to hug themselves for their good work.

The tendency for politicians to claim credit for favorable news is as natural as flatulence in cows. Still, the Republicans' orgy of self-approval amounts to a campaign of public disinformation. It obscures our true budget predicament. Let's go back to basics. Here are two essential points.

First, budget deficits are not automatically an economic calamity. Their effects depend on their timing, their size and other economic conditions. During recessions, deficits may prop up the economy. In a boom, they may drain money from productive investments. Similarly, deficits are only one influence on interest rates; others include inflation, the demand to borrow, the supply of savings and Federal Reserve policy. At present the effect of deficits is modest; otherwise, rates would be higher than they are (about 5 percent on 10-year Treasury bonds).

What truly matters is government spending. If it rises, then future taxes or deficits must follow. There's no escaping that logic. The spending that dominates the budget is for retirees. Social Security, Medicare (health insurance for those 65 and over) and Medicaid (partial insurance for nursing homes) already exceed 40 percent of federal spending. As baby boomers retire, these costs will explode. ...

Second, the budget should be balanced -- or run a surplus -- when the economy is close to "full employment," as it is now. Balancing the budget forces politicians to make uncomfortable choices. Which programs are sufficiently needed or popular to justify unpleasant taxes? Balancing the budget also lightens the debt burden. One figure Bush doesn't praise is the annual interest payment on the growing federal debt. Even by White House estimates, it will rise from $184 billion in 2005 to $302 billion in 2011.

Some conservatives rationalize their indifference to deficits as "starving the beast." If you cut taxes and create deficits, government will spend less because it has less -- much like a teenager whose allowance is cut. But the theory doesn't fit the facts. ...

I have reserved my harshest scorn for Republicans, who are (after all) in power. But Democrats aren't much better. The nub of the matter is spending. When Republicans passed the Medicare drug benefit -- the biggest new program in decades -- Democrats actually advocated a more costly version. Whenever anyone suggests curbing spending, Democrats screech: Spare Social Security and Medicare. But Social Security and Medicare are the problem.

Just as Republicans now say their policies have cut deficits, Democrats contend their policies produced budget surpluses from 1998 to 2001. Nonsense. Those surpluses resulted mainly from the end of the Cold War (which lowered defense spending) and the economic boom (which created an unpredicted surge of taxes). In a $13 trillion economy, much of what happens has little to do with the White House's economic policies. The bipartisan reflex is to claim credit where little is due. ...

Nothing significant will happen because it's in no one's interest for anything significant to happen. Republicans don't want to raise taxes or restrain their spendthrift habits. Democrats love big deficits as rhetorical grenades to lob at the Republicans. The present paralysis is perfectly understandable. But to brag about it is disgraceful.

He contradicts himself in his misguided attempt to try and be 'fair' and make sure to criticize both parties. He says first that Republicans are to blame because with an economy near full employment, we should be running surpluses, not deficits. That we aren't is a policy mistake. But when it comes to Democrats who did just that in 1998 to 2001, ran a surplus during a boom, he says it's nonsense that they had anything to do with it and they deserve no credit, only scorn.

Second, time to roll the tape. Here's Brad DeLong on quite similar claims made by Samuelson in the past:

Why Oh Why Can't We Have a Better Press Corps? (Yet Another Robert Samuelson Edition): Mark Thoma directs us to Robert Samuelson in Newsweek on Washington's apparent lack of concern about the budget deficit:

MSNBC - A Deficit of Seriousness : There's no one in Washington--no one with any power--trying to balance the budget. President George W. Bush's budget did not ever envision reaching a balance. The Republican Congress's new budget resolution purports to halve the budget deficit by 2010 but does so only on the basis of optimistic assumptions. Balancing the budget is simply too much trouble. It requires asking unpopular questions about who deserves help, which government programs actually work--and how to pay for the rest. Plenty of programs could disappear without serious ill effects....

In this debate, there is no high moral ground. To critics, the Republican budget strategy is 'starve the beast'--cut taxes and use the resulting deficits as an excuse to squeeze spending. Agree or disagree, that's principled; it's a means to an end (smaller government). In practice, the real Republican strategy is more cynical--cut taxes and feed the beast. ... In 2003, Bush proposed and Congress approved the biggest new spending program since Lyndon Johnson, the Medicare drug benefit. It was all deficit financing; there was no new tax for any of it. Gone is any sense of shame about overspending and undertaxing. For 2006, the... estimated deficit close to $400 billion. Bridging that gap would require Republicans and Democrats to do what neither want--scrub government of less useful spending and then raise taxes. Democrats prefer to deplore Republican 'irresponsibility.' Republicans prefer to tax less and spend more...

My first reaction was, "Huh?" I thought that the Democrats in the House of Representatives had offered a plan to balance the budget--by 2012, in fact.

But Samuelson explains this away:

In floor debate, the Democrats never offered a realistic balanced budget. The closest they came was in the House, where they promised balance by 2012. But that happens only by assuming that all of Bush's tax cuts expire in 2011--a position that even many Democrats reject...

Ah. Now I see. The Democratic leadership's plan was not "realistic." The only "realistic" plan, in Samuelson's eyes, is one that (a) keeps the Bush tax cuts for the rich, and (b) balances the budget by cutting spending.

But then shouldn't somebody make his lead be different, and accurate? It's not "There's no one in Washington... trying to balance the budget," it's "The Republicans are cynical feckless cowards who aren't trying to balance the budget, and the Democratic leadership is trying to balance the budget in a way that I don't like." Truth in packaging would be a good thing, after all.

Not convinced yet? For more on this point, see Brad DeLong once again. Update: Brad DeLong follows up.

    Posted by on Thursday, July 20, 2006 at 12:15 AM in Budget Deficit, Economics, Policy, Politics, Press, Taxes | Permalink  TrackBack (0)  Comments (29)

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