Shrugging at the Long-Term Deficit

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From a technocratic point of view, I agree with the idea that it makes sense to pair short-term stimulus (i.e., bigger deficits) with measures that reduce the long-term deficit. In practice, however, I don’t think it makes sense to spend 2010 & 2011 worrying about what the deficit may or may not look like in 2047.

There are two reasons for this. One is the lessons of the 1999-2001 period. The reaction of the conservative movement to the elimination of budget deficits wasn’t to say “great news, let’s stick to PAYGO in the future.” It was to say that budget surpluses proved the need to cut taxes. Alan Greenspan even decided that budget surpluses were a bad thing and likely to lead to socialism and doom. The second reason harkens back to the conservative argument that the Affordable Care Act won’t actually reduce the deficit because it’s deficit-reducing provisions may be repealed. Progressives are fond of observing that this proves too much, since you coud say the same of any effort to reduce the long-term deficit. Which is true, but that in turn indicates that there’s something a bit pointless about having Congress in 2010 make promises about what will happen in 2023. It really could just change in the future.

Instead of worrying about CBO projections, people should worry about financial markets. If market concern about the deficit is pushing up interest rates or leading to problematic inflation, then you should worry. And of since you probably can’t reassure markets with one-off budget stunts, you probably need to enact measures with some enduring bite. This is what was done in 1990 and in 1993, and it worked out great. But what we need to be worrying about all the time is growth. That means stimulus when needed, it means deficit reduction when needed, and it means all the time striving to make the tax base more efficient, to improve education & infrastructure, and all the rest.