Things-that-shouldn’t-need-saying-but-do Dep’t

The key to reducing the deficit is growing the economy.

The key to reducing the deficit is growing the economy. Therefore, “deficit reduction” that slows economic growth is self-defeating.

I’d like to see the President say this, and nothing but this, for the next two years. And I’d also like to see him get behind something serious, like the Rivlin-Domenici Plan that calls for a payroll tax holiday as a fiscal stimulus, and ignore the Simpson-Bowles nonsense.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: Markarkleiman-at-gmail.com

12 thoughts on “Things-that-shouldn’t-need-saying-but-do Dep’t”

  1. You know, prescient people of my acquaintance — liberals all — warned back in 2005 or so that our apparent prosperity was a sham product of a debt-fueled bubble. They warned of a coming crash, and were more right than they wanted to be.

    Now liberals say the answer is a debt-fueled bubble. That is something the U.S. could get away with for some time. But we might not get adequate warning. Even the most zealous deficit cutters would leave us with — what? — $6 trillion in new federal debt since the recession began. More? I've got my productive years ahead of me and don't much want to pay any more interest on that tab than I absolutely must.

  2. Another thing that shouldn't need saying, but does: When an institution spends 60 years regularly spending more than it takes in, and then announces that the way to get out of this cycle is to spend more than they're taking in, a certain degree of suspicion is merited.

    Especially when we're being told this by folks who claim that running deficits doesn't really matter.

  3. I wonder why it is that conservatives seem unable to understand the idea of countercyclical behavior. During the seven fat years, you put away your excess instead of spending it (and borrowing to spend more on top of that), so that during the seven lean years you will have something to spend instead of starving while creditors beat down your door.

  4. I wonder why conservatives and libertarians can't distinguish between public and private debt and why they were fine with private deficit spending and private business largess (spending lavishly on campaign donations, CEO salaries, upper level management bonuses, and executive perks, instead of companies saving for those rainy days) during the period 2000 – 2008.

    I also wonder why they think businesses with inventory they currently can't sell will spend tax cuts on hiring more employees to create even more inventory that they cannot sell.

  5. Unless, of course, they simply expect the consuming public to, you know, engage in the very deficit spending they say they abhor.

    What these folks really want is to turn American into a big company town where the employees are eternally indebted to their employer (effectively underpaid slave labor) who to maintain that system pays each employee a pittance forcing each employee to purchase company products necessary to live at inflated prices that force the employees into permanent debt.

  6. Here's a relatively straightforward plan that might–might–make further stimulus an easier political sell:

    1. Call for a combination of tax increases–mostly financial transaction taxes, but also possibly sin taxes and other small ones–totaling $200-300 billion. Call it the "Wall Street Paying Us Back Tax."

    2. Describe some projects on infrastructure spending and increased spending on education or whatever else is worthwhile that can be started relatively quickly. Travel the country highlighting such projects.

    3. Say that until unemployment is below a certain level–say five percent–this money will be used to put people to work and enhance our country's capacity to produce and the private sector's ability to move around and so on. Once that level is reached, say that the rest of the money will be going towards deficit reduction.

    4. Dare the Republicans to vote against it.

    I'm skeptical that this might actually pass, but who knows what a well planned communications campaign might do. If the president focused on this relentlessly for the next few months, perhaps public pressure would force just enough Republicans to vote for it. If nothing else, it would show the president is fighting to create jobs, which can't really hurt. And this plan probably wouldn't increase the deficit, since the money coming in would be going right back out. In fact, it probably would reduce the deficit, since the economy activity generated would be greater than the drain of the tax, according to one liberal economist that I e-mailed.

  7. Brett, let's just note that the call for counter-cyclical fiscal policy isn't just hindsight. Liberals and Democrats chose to run surpluses in 1999, 2000, and 2001 rather than passing a tax cut that would have ensured Gore's election, because we knew that the government needed to put some money away against the prospect of Boomer retirements. In that circumstance, George W. Bush, with the support of everyone now whining about debt and deficits, accused the Democrats of "overcharging" the public by collecting more in taxes than the government was actually spending. After the Republican faction on the Supreme Court elected Bush President, 5 votes to 4, Republicans and conservatives decided to slash taxes, mostly on the rich, in 2001, with Alan Greenspan warning of the terrible consequences should the Federal government, having paid its debt down to zero, had to find investment vehicles for huge stores of cash. Anyone who supported the Bush tax cuts in 2001 has no standing to opine on how to balance the budget. Anyone who supports the extension of those cuts and pretends to worry about deficits either doesn't know what he's talking about or doesn't mind talking nonsense. That includes almost all Republican politicians.

  8. If it is growing the same old unsustainable economy, I don't want it and the country doesn't need it.

    We need a new economic paradigm, along with a new politics to go along with it. Anything else and we will continue our decline, with the rich scrambling for all the hi-tech cushions to soften the landing. The rest of us will scramble for what's left.

    /dystopian

  9. "Brett, let’s just note that the call for counter-cyclical fiscal policy isn’t just hindsight. Liberals and Democrats chose to run surpluses in 1999, 2000, and 2001 rather than passing a tax cut that would have ensured Gore’s election, because we knew that the government needed to put some money away against the prospect of Boomer retirements."

    Mark, that 'choice' was made, supposedly, back in the Reagan administration. The money was used to increase spending, instead of paying down the deficit. If the additional revenue generated by those tax increases hadn't resulted in additional spending, we probably wouldn't have a national debt today!

    I'm familiar with the concept of counter-cyclical policy. I've just never seen it implemented, and I'm in my 50's. Instead, I've seen deficits during the bad times, and deficits during the good. Nothing counter-cyclical about it.

    You yourself have explicitly argued that there's no problem with deficit spending. I KNOW you want higher levels of spending. So why, (Setting aside the assumption that I'm a moron.) should I believe you when you say you want more spending so that a balanced budget you don't think desirable can be achieved some time down the road?

    No. You just want more spending because you want more spending.

  10. Brett, let’s just note that the call for counter-cyclical fiscal policy isn’t just hindsight. Liberals and Democrats chose to run surpluses in 1999, 2000, and 2001 rather than passing a tax cut that would have ensured Gore’s election, because we knew that the government needed to put some money away against the prospect of Boomer retirements. In that circumstance, George W. Bush, with the support of everyone now whining about debt and deficits, accused the Democrats of “overcharging” the public by collecting more in taxes than the government was actually spending. After the Republican faction on the Supreme Court elected Bush President, 5 votes to 4, Republicans and conservatives decided to slash taxes, mostly on the rich, in 2001, with Alan Greenspan warning of the terrible consequences should the Federal government, having paid its debt down to zero, had to find investment vehicles for huge stores of cash. Anyone who supported the Bush tax cuts in 2001 has no standing to opine on how to balance the budget. Anyone who supports the extension of those cuts and pretends to worry about deficits either doesn’t know what he’s talking about or doesn’t mind talking nonsense. That includes almost all Republican politicians.

    This is all true. But it also includes most Democratic politicians as well. Remember, it's the MIDDLE CLASS portion of the Bush tax cuts ($3 trillion) that costs most of the money.

    A payroll tax holiday is a fine idea as economic stimulus. But we need to pay our bills even if the economy starts growing, and that means ALL the Bush tax cuts must expire, or else we'll just have to raise them again (and in an even greater amount) or slash entitlements later.

  11. paul says:

    "I wonder why it is that conservatives seem unable to understand the idea of countercyclical behavior. "

    Oh, they did. Mankiw, for one, was defending some Bush post-9/11 tax cuts as necessary to counter a down economy.

    They don't know, because they're hoping that a bad economy will sink Obama (and the banks were bailed out, which means that the rest of us can go s*ck on dirt).

    "During the seven fat years, you put away your excess instead of spending it (and borrowing to spend more on top of that), so that during the seven lean years you will have something to spend instead of starving while creditors beat down your door"

  12. Mark, I wish that we had some chance that Obama might follow your suggestion (or the suggestions of Nobel winning economists and many others). Unfortunately, I believe that Obama is a Republican, and a right wing Republican at that . I suspect that his economic policy can be summed up as "what would the VP of a small rural bank do?" (i.e. his grandmother). Why is Obama not praising (and emulating) FDR, rather than Reagan? The answer = OIAC – Obama Is A Conservative – first seen on Corrente.

    Since 1932, we've had many examples of how well Keynesian economics work, but there remain a large group of people who are unconvinced (and actively hate FDR) – they are called conservatives and Obama is clearly one. Whether he acts from a set of principles passed on by his grandmother, or from a desire to fit in with a particular group of "elites" (damn, I hate that word) is not clear. I am coming to suspect that Obama's decisions are driven by a desire to be part of the elite gang, not by any principles. I hope that I am wrong, but I've found that by simply asking what would a Republican do, I can accurately predict his behavior nearly 100% of the time. If principles are involved, they are right-wing conservative principles.

    Unless we (liberals/progressives – sane people) fins a way to replace Obama in 2012 (insane hope), I can see no way that things get better, and the not so tender mercies of the Tea Party and other like minded folks is not going to be pretty.

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