Speaking of free flights of fancy, that’s how I saw Leon Panetta’s USA Today op-ed, staunchly championing the cause of balancing the budget:
Congress isn’t even pretending to care about fiscal discipline. If we want it back, we need presidential leadership and everything on the table.
Return with us now to those thrilling days of yesteryear. Where was this Leon Panetta in 2009 and 2010 when the Obama Administration which he served was, to use his words, “blowing up the federal budget”? I have failed to find such an ardent defense of balanced budgets from that period, which certainly calls his sincerity today into question.
Just to make my own views clear, here’s a quick summary:
- Since the recovery had already begun before the first dollar appropriated under the ARRA was disbursed, the ARRA cannot have caused the recovery.
- In all likelihood the ARRA did practically nothing to bolster the economy. It just moved money from one pocket to another.
- Running a surplus in the Clinton Administration was a major factor in the recession of the early Aughts.
- A well-timed, well-constructed fiscal stimulus can be used to offset a decline in aggregate demand.
- The Congress is incapable of timing or constructing such stimulus well.
- If the Obama Administration had done more to bolster the economy during its time in office, the economy might have grown a little faster and that would have done more to offset the deficit than the ARRA. But they had other fish to fry.
- We can afford to run a deficit of 2% of GDP indefinitely as long as GDP grows faster than 2% per year.
- To sustain the deficit we ran in fiscal 2017, GDP needs to grow at 4% or faster.
So, Democrats, we know what you don’t want to do: cut taxes. What are your plans for either a) cutting enough from the federal budget so that the deficit remains below the growth in GDP or b) making GDP grow faster?
First, traditionally Republicans have been far more concerned with balancing the budget than Democrats, but they are only concerned when a Democrat is in the White House. It’s political theater, plain and simple.
Second, the Democratic policies have tended towards higher taxes and higher services. These higher taxes can be structured to encourage economic behavior we want — I would eliminate nearly every corporate tax deduction except reinvestment in the company, cut payroll taxes on the first $150,000 of an employees pay, and tax capital gains at the same rate as wages (dropping the tax rate on wages, raising it on capital gains).
And point by point:
3: what?
6: also what?
I think that’s posturing. No Republican administration has ever eliminated a department, cut spending, or increased taxes. Neither party is actually interested in balancing the budget but it does make a handy cudgel to beat over the heads of your political opponents.
#3
By definition running a surplus means withdrawing money from the private sector. Withdrawing money from the private sector means reducing economic activity below what would otherwise have been the case.
#6
This seems to me practically self-evident. If you increase the amount of private sector economic activity, all other things being equal it increases tax revenues. That’s the foundation of the Republicans’ fixation on cutting personal income tax rates. It doesn’t take a lot of increased private sector economic activity to offset the additional spending.
Additionally, having greater private sector growth means you can spend more and still keep the deficit below the rate of growth in the economy, i.e. the public debt decreases as a percentage of GDP and the empirical evidence supports the notion that high public debts reduce economic growth.
Keep in mind that I don’t think we need to balance the budget. I just think we need to keep the deficit in bounds relative to GDP. At 4% the deficit is presently too high. You’ve either got to raise the bridge or lower the river.
You are still wrong about #1, so we will just have to disagree.
As to cutting the budget, the single biggest item there is health care. I have offered many ideas about that, on which we will also often disagree.
Private sector growth? I am not sure either party has a real recipe for that which will actually help any meaningful number of Americans.
Steve
Please explain the mechanism by which something that had not yet taken place had an effect on the economy. Animal spirits? Action at a distance? Immaculate conception?
You could make an argument that that the ARRA sustained the recovery but that it caused it is extremely far-fetched. The recovery had already begun in June 2009. None of the money had been disbursed at that point. I just don’t think the economy is that responsive to federal action.
If you’re going to argue that federal stimulus caused the recovery, you’re going to need to go with the stimulus put in place by the Bush Administration. I’m not willing to credit the Bush Administration with the recovery, hence my observation.
Many, many years ago when I took my first economics course, the prof said something to the effect that economists know how to create shortages but not growth.
The animal spirits are called “consumer confidence†and “investor confidenceâ€
Promised that there will be stimulus, people act accordingly.
It’s the opposite of what happens when the Republicans threaten to default on the debt.
“The animal spirits are called “consumer confidence†and “investor confidence.”
Investor confidence was all but absent during the Obama years.
How about cutting the defense budget? Cutting defense spending by half gives us 250 billion dollars in savings a year.
And we still be the #1 military budget in the world.
That wasn’t reflected in opinion surveys in 2009. According to Gallup after Obama’s inauguration public opinion on the state of the economy improved slightly but a majority of Americans still believed the economy was getting worse. It was practically unchanged from Feb 1, 2009 through June 2009. That doesn’t comport with a recovery based on “animal spirits” arising from the stimulus. It does comport with a weak cyclic recovery in which fiscal stimulus was largely irrelevant.
That’s one of the things I’ve been advocating. Of course, we’d need to reduce operations accordingly.