Am I Now, or Have I Ever Been, a Deficit Hawk?

Thu, 17 Dec 2009 14:03:36 +0000

In a word, yes, but Stan's thoughtful post prompted me to think again about what it means to be a deficit hawk.  With some further reflection, I think there are two incentive problems that dominate all others on domestic policy.

One of these problems is that the federal deficit serves as a mechanism to facilitate the use of future taxpayers' income to buy votes for elected officials today.*  To be a deficit hawk is to be vigilant against all possible instances where that may occur.  Our political system creates many opportunities for it.  I think my best statement on the problem was How to Advise on Fiscal Policy, posted in July 2007. Here is the key excerpt, pertaining to what the President's advisers should be doing about it: 

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On fiscal policy, the three main advisers are the Secretary of the Treasury, the Director of the Office of Management and Budget, and the Chairman of the Council of Economic Advisers.

To address the overriding problem, these three advisers must insist on an explicit budget target. The weakest one that I would accept is that the debt-to-GDP ratio (including debt held by government trust funds) must show no upward trend. (A stronger one would be that the on-budget deficit should be in balance over a full business cycle.) Long-term entitlement programs should be in projected actuarial balance to the extent it is possible to make a projection. (You can see here what happened to one adviser who made reasonable arguments without first getting agreement on a standard.)
 
The standard can be that simple, and it isn't as austere as I'm trying to make it sound. It doesn't rule out cutting taxes during the weak part of a business cycle, for example, but it does rule out cutting taxes to run a deficit that the Administration has no intention of paying back during the strong part of a business cycle. As a corollary, it does rule out passing tax cuts with explicit sunset provisions and then arguing to extend them with the budget not in balance. There can be occasional exceptions, but their presumed infrequency should immediately cause them to be fully explained. (Think of the President addressing a joint session of Congress.)
 
Twice a year, the Administration makes an economic forecast to underlie the budget or its mid-session review. I'd be surprised if you ever see such a forecast that predicts an upcoming recession. That means that every budget or mid-session review should be projecting on-budget surpluses or their quick resumption if we are just coming out of a recession. As I've discussed elsewhere, the "cut the deficit in half in five years" policy was at variance with this standard.

Deficit hawks, whether in government or not, should be relentless in pressing for policies that accomplish these ends.

*The second problem is that the buying of policy outcomes by organized interests to the detriment of the general population is rampant, bipartisan, and disgusting.  Until I heard it explained to me by an expert, I did not realize how necessary it is to reform the way elected officials and candidates for elected office raise money.  It is not the lobbying -- the petitioning of the government -- to which I object.  I object to the flow of money from groups to politicians.  As I noted here, I would prefer a system in which it would not be legal to give money to a politician who would not represent you as a constituent.  Given legislative history and Supreme Court rulings, this would be a major battle.  As it pertains to the topic of the post, this problem may compound the first -- organized groups may press their special interests at the expense of the general welfare of people alive in the future as well as those alive today.