Posts Tagged John B. Taylor
February 5, 2012
Debt Splits the Left
Does the national debt – which has now reached a cumulative total of $15.4 trillion — pose a serious threat to the financial viability of the United States?
This is not only a debate between the left and the right; it is also a debate that pits the two wings of the Democratic party against each other, the center against the left. At one end of the intraparty spectrum lie those Democrats who consider debt reduction a matter of key importance; at the other end are those who consider a focus on the debt ill-advised, a result of faulty analysis.
The very fact that government spending will be a key topic for the 2012 election creates a political hazard for the Democratic Party.
Among conservatives and Republicans, there is general agreement that budget deficits and the national debt must be addressed by cutting government spending, not by raising taxes. John B. Taylor, an economist at Stanford who is a favorite of Speaker John Boehner and a leading adviser to Republican presidential candidates, writes that:
the economy is being held back by high deficit spending and related policy uncertainties. The large deficits are causing the federal debt to explode, raising concerns about how it will be financed.
Instead of more stimulus spending, Taylor contends, “the best economic stimulus would be for the government to set a clear path now to reduce the deficit and to bring down the debt in the future.”
A 2012 election agenda dominated by the specter of debt is ideal for conservatives seeking to shrink the welfare state. It creates an optimal environment for Grover Norquist and his anti-tax group, Americans for Tax Reform, to operate in. Norquist has famously committed himself to whittling government “down to the size where we can drown it in the bathtub.”
Among Democrats there is, of course, no talk of drowning the government, nor is there unanimity about what we should do about the debt.
The influential centrist faction within the Democratic establishment that dominated during the Clinton administration is made up of relatively progressive economists and professional budget experts. This faction believes that the national debt poses a serious threat which demands austerity policies. Such policies can be delayed until the economy stabilizes, these economists argue, but they must be implemented in the not-too-distant future.
Isabel V. Sawhill, a senior fellow at the Brookings Institution who writes frequently on economic issues, describes herself as “a fiscal hawk” in an email to The Times, but pointedly notes that she:
strongly disagrees with those who want to begin an austerity program while the economy is still fragile. We should enact a deficit reduction package with both new revenues and entitlement reform ASAP but have it phase in slowly so as not to undermine the recovery.
Along similar lines, Laura Tyson, a professor at the Haas School of Business in Berkeley and the chairwoman of the Council of Economic Advisers under President Clinton, writes that Congress should enact “a long-run deficit-reduction plan now” but defer the start “until the economy is near full employment.”
Robert D. Reischauer, until last month the president of the liberal-leaning Urban Institute and a former director of the Congressional Budget Office, provided a nuanced analysis of issues surrounding the deficit and debt in an emailed response to The Times, an analysis worth reading in full.
Reischauer notes that those who have promised to “‘pay down’ or ‘reduce’ the national debt” are pursuing “an absurd and unattainable objective for the short or even intermediate term — meaning the next seven or so years. Paying down the debt would require us to run budget surpluses which would be fiscally foolish and programmatically disruptive.”
Instead, Reischauer suggests that in the short term, “we should enact policies that, for the next one-and-a-half to two years, provide significant stimulus, and over years three-to-10 both reduce spending and increase taxes.” The goal, according to Reischauer, should be to moderate, but not eliminate, annual deficits. He points out that the national debt fell from 109 percent of gross domestic product in 1946 to 24 percent in 1974 even though “we ran deficits in 22 of the 28 intervening years.”
The combination of near-term stimulus and medium-term austerity should be enacted in a single legislative package, Reischauer proposes,
sooner rather than later, because if we don’t start to do it under our terms, that is on our timetable and in our way, market forces — international institutions or our creditors — eventually will step in and dictate the corrective policies we must take.
American dependence on foreign lenders has resulted in the slow but steady “ceding” of “our sovereignty,” Reischauer writes, adding:
I am very pessimistic. The American people don’t understand either the seriousness of the problem or the size of the adjustments that will have to be made to put us on a sustainable path. And all of the incentives facing politicians work against both depicting the situation realistically or endorsing policies that would significantly address the problem.
Those closer to the left end of the Democratic spectrum — including netroots activists, progressive policy intellectuals and those with ties to organized labor — believe that Democrats who support austerity measures have been co-opted as unwitting collaborators of Republicans who want to decimate government-funded social insurance and other redistributive programs, Republicans like Paul Ryan, Chairman of the House Budget Committee, and Eric Cantor, the House majority leader.
In a Nov. 7, 2011 article in the Nation, Ari Berman describes Democratic advocates of deficit reduction as part of an “influential and aggressive austerity class,” the success of which explains:
a central paradox in American politics over the past two years: how, in the midst of a massive unemployment crisis—when it’s painfully obvious that not enough jobs are being created and the public overwhelmingly wants policy-makers to focus on creating them—did the deficit emerge as the most pressing issue in the country? And why, when the global evidence clearly indicates that austerity measures will raise unemployment and hinder, not accelerate, growth, do advocates of austerity retain such distinction today?
James Galbraith, an economist at the University of Texas, contends that the issue of deficit spending has been blown out of proportion by those whose focus on austerity blinds them to the damage inflicted by cuts in Social Security and Medicare. Instead of conducting major surgery on federal spending programs, Galbraith argues that “it is possible to run a low and even modestly negative real interest rate on the public debt at a low rate of inflation, and therefore to sustain quite a large primary deficit, essentially indefinitely and trouble free.”
Galbraith is optimistic about future economic growth and sees no need for spending cuts in Social Security or Medicare. “Let the economy recover through time, and do not worry if the debt-to-GDP ratio rises for a while,” he advises.
Jared Bernstein, former chief economist and economic adviser to Vice President Joe Biden and now a senior fellow at the Center on Budget and Policy Priorities, argues that many politicians are using public anxiety over the deficit to justify ideological attacks on government:
We should not lose sight of the political and ideological motivation against deficit spending. In an era when tax hikes are verboten, deficit reduction can be achieved only through spending cuts, and it has thus become a way of arguing for less government.
Bernstein rejects the argument that the deficit has ballooned largely because of domestic social spending. He contends instead that the major factors pushing up the deficit were the Bush tax cuts enacted in 2001 and 2003, at a cost of $3.6 trillion over 10 years and the wars in Iraq and Afghanistan.
Viewed from a purely political vantage point, the presence of budget deficits and the national debt as campaign issues give Republicans a strategic advantage. The concentration on deficits and debt establishes a political climate in which voters become more receptive to conservative messages that portray Democrats as extravagant spenders and taxers, as the party that uses government to finance transfer payments from a largely white taxpaying middle class to a more heavily minority poor population dependent on government support — a charge that carries the implication, never far from the surface, that the Democrats are taking “your” money and giving it to “them.”
Newt Gingrich has been explicit in this species of anti-Democratic critique,describing President Obama as “the best food stamp president in history.”
Mitt Romney takes up the same theme, with more subtlety, warning that Obama and the Democratic party are fostering a European-style welfare state with a growing “contingent of long-term jobless, dependent on government benefits for survival.”
In 2010, the debt-and-deficit issue, driven by the Tea Party, devastated the Democratic Party, turning majority power back to Republicans in the House, who picked up 63 seats. Going into the 2012 election, it is still a central issue. The Pew Research Center has found public concern over the deficit continues to grow:
Jan. 23, 2012, Pew Research Center
No matter what the merits are of the opposing positions within the Democratic coalition on the debt and deficits, a divided Democratic party is in a weakened position to counter Republican assaults on the issue of red ink. This is a vulnerability that the party and its candidates will take into the 2012 election. It poses a problem that cannot be easily resolved.
The only serious alternative strategy for the Democrats is to shift the attention of the electorate to issues like inequality, the declining fortunes of the middle class, corporate greed and diminishing social and economic mobility. These issues, which can work to the advantage of the Democrats, have gained some traction in recent months.
It is no surprise that we have been hearing about them in President Obama’s speeches, particularly the one he gave in Osawatomie, Kan. in December commemorating Teddy Roosevelt’s progressivism and the State of the Union address last month.
Still, the sheer size of the national debt, the accelerating pace at which it accumulates and the caliber of those on the left who consider the problem to have reached crisis proportions suggest that neither party will be able to plausibly guarantee the maintenance of the beneficent state Americans are used to.
- It’s Not Just About the Millionaires – NYTimes.com (policyabcs.wordpress.com)
- Jobless Rate Dips to Lowest Level in More Than 2 Years – NYTimes.com (mbcalyn.com)
- Jobless Rate Falls to 8.3%, Altering Face of Campaign – NYTimes.com (policyabcs.wordpress.com)
- Coming together to get out of debt (thehill.com)
- Grover Norquist Says Tax Pledge Was No Obstacle to Budget Compromise (prweb.com)
- How Medicare Fails the Elderly – NYTimes.com (policyabcs.wordpress.com)
- Congressional Committee at Odds on How to Cut Deficit – NYTimes.com (policyabcs.wordpress.com)
- Congress Takes Up a Partisan Battle, Again, Over Spending – NYTimes.com (policyabcs.wordpress.com)
- It’s Consumer Spending, Stupid – NYTimes.com (wpvins.wordpress.com)
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