Economist Steven Conover has an interesting perspective on the issue of the national debt. One thing he notes is that the best way to reduce the debt is to increase the rate of economic growth — which should be head-smackingly obvious. What isn’t a way to reduce the debt is to raise taxes. On the short term a tax hike raises revenue, over the long term they provide an anchor on future growth which reduces revenue.
I’m not quite so sanguine on the issue of the national debt. Yes, it’s not earth-shatteringly high, but it still is too high. The best way of reducing the national debt is to cut federal spending. President Bush has been talking a good game about spending cuts, but he’s yet to show the cojones to actually start vetoing fiscally irresponsible legislation. The Medicare drug benefit was a massive expansion of federal entitlements that will cost billions more than estimated — if Bush passes more legislation along those lines the deficit is only going to get worse.
Congresscritters of both parties have a strong predilection for pork — it’s what keeps them elected. However, it’s going to require a great amount of fiscal restraint in order to keep the deficit at a manageable level without harming our policy priorities for the future. Sadly, the concepts of “restraint” and “Congress” rarely go together.
President Bush would be wise to borrow Sen. Kerry’s one good idea and reinstate the terms of the Gramm-Rudman-Hollings Act and PAYGO budgeting. One of the biggest reasons for the economic successes of the 1990s was the fact that Congress was both gridlocked and under statutory limitations that prevented runaway spending. The best way to keep Congress’ hands from raiding the cookie jar is by ensuring that they can’t get into it in the first place.
Again, there’s no historical precedent for tax increases necessarily anchor economic growth. That certainly wasn’t the case in the 1990s when the economy soared after a modest 1993 tax increase reduced federal borrowing and freed up more capital for business investment at the end of a recession. I expect the same scenario would play out today. The snake oil that supply-siders have been peddling for the last three decades can only be practiced in scenarios where there is no balanced budget requirement. Governors of states across the country don’t have the luxury of pontificating on whether tax increases anchor economic growth when they face a budget deficit. Given the increasingly level of irresponsibility by the GOP ideologues who control the federal government, I’m moving closer to the position that they shouldn’t be allowed that luxury either.
Bill Moyers had an interesting Op/Ed piece that helps explain the GOP’s indifference on deficits, preserving the environment and anything else concerning the future. In the eyes of the Republican party’s Christian fundamentalist base, there’s no such thing as the future…at least here on Earth. Why preserve the environment and maintain fiscal sanity for the benefit of the infidels left here on Earth after the Rapture? Given that the pious of the world will already be with God, they merely view their efforts to expand debt and pollution as a fulfillment of God’s will to make life on Earth post-Rapture as hellish as possible for the unchosen. The religious right’s alliance with Israel also has profoundly ulterior motives that extend beyond scoring political points with Jews, according to Moyers’ source. Left-behinders believe that the second coming of Christ will only occur after an Armageddon in the Israeli holy land brought about by continued tensions in the region.
I’ve been trying to view the world through the lens of evangelical lunatics ever since the election, but Moyers article really spells out why obviously ruinous GOP policies do not and will not phase the “values voters.” With this in mind, there can be very little expectation of deficit reduction being pursued by a President, Senate Leader and House leader, all of whom ascribe to the premise that it’s only a matter of days until they are snatched from the Earth by the hand of Creator and sent to the promised land.
Jay, Thanks a bunch for mentioning my article. I will consider it a huge win if we can nudge the debate toward the most important question of how to achieve economic growth (for starters, is it sensitive to tax rate cuts or not?). Demand-siders seem to take growth for granted, as if it were an independent variable in their equations, but that premise is flawed. Growth is a function of incentives, and incentives are a function of policy.
Regarding spending cuts: we need to be careful on that subject, because that is exactly what Clinton gave us: spending cuts of the military kind (as a %GDP). That, combined with the booming economy that was fueled by companies formed during the Reagan revolution, yielded a late-90s “surplus” that the Dems have turned into the most flagrant example of cause-effect reversal I have seen in my life: “Clinton surpluses drove the booming economy”, which is equivalent to asserting that “Melting snow caused the sun to rise.” (And the MSM lets them get away with that!)
There’s an article at my old website on that very subject, by the way. Here’s the link: http://web2.airmail.net/scsr/Burden.htm (please remember that that article was written prior to 9/11, and is a bit out of date now).
Thanks again, Jay. Nice blog you have here.
Steve