Stan Collender is feeling down:
Bush Midsession Budget: Profound Sadness, by Stan Collender: It says more about me than I should probably admit, but back in 2000 I found the prospect of paying off the national debt to be very exciting.
To me, the pledge to do that, which Bill Clinton made towards the end of his presidency and George W. Bush made as his years in the White House were just beginning, was absolutely thrilling. Because of the lower annual interest payments that would result, no other change then being seriously talked about had the potential to alter the long-term federal budget outlook as positively and permanently.
That's why I found the mid-session review of the budget released yesterday to be so depressing. It was the official notice that the pledge, and all the good things that would come from it, would not be fulfilled. It was also time to admit that the budget politics, economics, and limits of the past decade would continue...and continue...and continue.
That's just not a happy occasion for anyone but those of us who blog, write, and talk about the budget. Business will be booming.
None of this was a surprise, of course. The prospects for paying down the national debt firmly ended back in the first year of the Bush administration. And the close to $490 billion deficit that OMB projected for 2009 has long been assumed or leaked.
Nevertheless, the release of the midsession review on July 28, 2008 should be noted as the official date when the dream of a very different budget debate and fiscal policy opportunities died.
I'll have more about the following shortly. But other observations:
The bad news absolutely is understated. The $482 billion projected fiscal 2009 deficit will actually be closer to $600 billion before the year is over.
The much-ballyhooed Bush administration pledge to cut the deficit in half was a gimmick. There clearly was no commitment to do it more than once (that is, if there really ever was a commitment to do it even once).
From a budget, deficit, debt, interest rate, and fiscal policy perspective, the Bush administration is leaving the country so much worse off than it found it that it will likely hamstring the next president and Congress in ways that aren't yet fully understood.
Based on what we now know for sure about next year's budget, none of the presidential candidates' promises should be taken seriously. Unless they, the country, and those lending us money are willing to tolerate much higher nominal deficits and a larger debt than has so far been imaginable, the next president's options will be severely limited.
More to come.
How should Democrats respond? Recall Brad Delong's thoughts:
[S]hould Barack Obama become president. Those of us who served in the Clinton administration and worked hard to ... turn deficits into surpluses are keenly aware that, after eight years of the George W. Bush administration, things look worse than when we started back in 1993. All of our work was undone by our successors in their quest to win the class war by making America’s income distribution more unequal.
A chain is only as strong as its weakest link, and it seems pointless to work to strengthen the Democratic links of the chain of fiscal advice when the Republican links are not just weak but absent. Political advisers to future Democratic administrations may argue that the only way to tie the Republicans’ hands and keep them from launching another wealth-polarizing offensive is to widen the deficit enough that even they are scared of it.
They might be right. The surplus-creating fiscal policies established by Robert Rubin and company in the Clinton administration would have been very good for America had the Clinton administration been followed by a normal successor. But what is the right fiscal policy for a future Democratic administration to follow when there is no guarantee that any Republican successors will ever be “normal” again? That’s a hard question, and I don’t know the answer.
Fear of a deficit didn't stop the Republicans from putting their agenda into place, should Democrats take the same approach? Medicare, Social Security, and other programs for the elderly aren't going away, not with an aging population that will have considerable political power, so the question is how we pay for these programs.
The current budget problem is mainly from tax cuts and increases in military and domestic security expenditures, but the problem going forward is mainly health care costs. We can't cut enough out of the budget or raise taxes high enough to meet projections if the current health care system is unchanged, so this comes down to one question, how do we reign in health care costs?
I don't mean that health care spending shouldn't grow as a percentage of GDP as we get wealthier. It is quite reasonable for us to devote new income from growth toward health care spending. But even so, current projections are that growth in health care costs will need to be lowered to be sustainable.
All of the focus on getting the budget in shape in the short-run is necessary, though we should recognize that as a percentage of GDP deficits have been much higher in the past without disastrous consequences, so there's no need for drastic cuts in programs to make ends meet and tax increases are probably out of the question (and actual fat should not be eliminated from the budget, but there's not much there). This would be easier if Republicans hadn't squandered the surplus they inherited. But focusing on the immediate problems brought about by tax cuts and military spending should not divert us from the more formidable problem of solving the escalating health cost problem. If Obama wins and tries to institute some form of universal care, it will be opposed as a budget breaker (and for other reasons), but I think universal care will help a lot in bringing down health care cost growth. But whatever we do, it's time to get started.