10 July 2011

Federal deficit

Conservatives consistently talk about reducing government spending. Lately we've been hearing a lot of talk from them about the evils of deficit spending. Fundamentally I agree; we cannot rely on running a deficit year after year without screwing up the economy.

(Actually, economists I respect argue that if the economy is growing, modest deficits are safe and even healthy; I won't quibble. And I vigorously believe in the Keynesian argument that temporary large deficits are desirable in deep demand-failure recessions like we're in right now. But my point is that you cannot run big deficits year after year indefinitely.)

But in understanding what's going on with this conservative rhetoric, one must look at both the past and the future.

The past: Throughout Bush's administration Republicans held the House. Four out of eight years they held the Senate as well, and the other four years the Senate was exactly split between the parties. Republicans were steering the bus. They turned the balanced budget from the end of the Clinton administration into rising deficits. And no, we did not hear conservatives talking about how the deficit was bad.

Now that we have a Democrat in the White House, conservatives are talking a lot about deficits. This pattern arouses my skepticism.

The future: I was inspired to write this post because a conservative was telling me that conservative commentators promise to hold Republicans' feet to the fire about the deficit ... which they want to see addressed only through spending cuts, not by raising taxes.

This tells us that the deficit itself is not the priority. If it were, tax increases would be worth discussing. Combine this with conservatives' silence about the deficit during the Bush administration and I conclude that conservatives are insincere with their concern about the deficit. The point is cutting spending, the deficit is just rhetorical support for that project.

Well okay, conservatives are unmistakably consistent in talking about cutting spending. But most conservatives and practically all Republican politicians are evasive about what spending they would cut. Saying they want to eliminate “waste” and the Department of Education isn't enough. What will it take?

Federal spending consists of four roughly-equal major chunks:

  1. Military
  2. Social Security
  3. Medicare/Medicaid (and miscellaneous other health insurance stuff)
  4. Everything else (embassies and the FBI and maintaining the interstate highway system and NASA and farm subsidies and federal prisons and keeping the lights on in Washington DC and the immigration and naturalization service and the CIA and on and on ....)

The deficit is currently about 30% of total expenditures. So you have to cut two of those in half, and then some, or eliminate one of those entirely and sweat something else down significantly. If you're sincere and serious about cutting spending then you have to say which of those it's gonna be.

But conservative commentators and Republican politicians don't do that, because most Americans are in favour of Items 1, 2, and 3, and if you cut significantly into Item 4 you can count on hitting something they care about there, too.

So: What's it going to be? What are you going to cut? Until you answer that, I say shenanigans.

I'm sincere and serious, so here's my plan:

  1. Fix the weak-demand recession with as much deficit-funded stimulus spending as Paul Krugman says we need. This is a temporary measure, so it should focusing as much as possible on one-time infrastructure investments.
  2. Cut the military in half.
  3. Raise taxes on income over $100k to fill the gap.
  4. Switch our broken health insurance system to Medicare For Everyone so we start working on long-term cost controls. (No, this doesn't have to cost more money; most rich countries with universal government health insurance spend no more per capita than we already do.)


A clever video about how projects Republicans propose cutting have trivial costs:


Since people get confused about what these numbers are, checking Wikipedia I see that the Federal budget for 2011 was $3700 billion. That breaks down to $835B for Medicare/Medicaid, $725B for Social Security, $700B for the military (or about $1000B or even more, it depends on how you count), and $1340B (or $1000B) for Everything Else, including $225B in interest on the outstanding debt. Note that this is on $2300B in revenue, leaving a deficit of $1400B. (Note also that Social Security payroll taxes brought in $820B, so that program is almost $100B in surplus, which is set aside to pay for rising expenditures in benefits for retiring Boomers.)

Note also that the $1400B deficit sounds pretty scary until you realize that total GDP for 2011 was $15,000B. No, we cannot tax all of that out of the economy — that would leave nothing for people to buy shoes and pay for groceries — but it means that the country isn't “broke”. We can pay for everything in the Federal budget now if we really want to.

Deficit hawkery is a lie.


Doug Muder said...

I'll sign on to that program.

Here's something I've heard that may or may not be true: Back in 1954 when the French were getting chased out of Vietnam, Eisenhower asked his generals what it would cost to intervene. He looked at the result and decided we couldn't afford it.

Nobody does that any more. Guns and gold live in two different universes now.

J'Carlin said...

Sounds like what Obama promised he was going to do before he reverted to Chicago politician.
I'll sign on. Who do we get to implement it?

J'Carlin said...

You are forgetting the other option. At some point the Gov'mint starts printing money, the creditors get screwed and everybody starts over with the productive class defining value of the inflated monetary unit. Economics always wins.

Jonathan Korman said...

Yeah, inflating the currency is always an option, typically the last resort.

That rich guys have succeeded in tricking people into thinking that inflation hurts the poor and helps the rich is one of the greatest propaganda tricks one could imagine.