Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Friday, December 16, 2005

Robert Samuelson has been driven mad by all the budget phonies he sees in government:

Fiscal Phonies: The scramble by congressional Republicans and White House officials to show they're serious about dealing with the budget... most Republicans are phonies. So are most Democrats. The resulting "debates" are less about controlling the budget than about trying to embarrass the other side....

What have Republicans actually done? Last week the Senate Budget Committee endorsed spending "cuts" of $39 billion. That covers five years when total federal spending is projected at $13.8 trillion. So the "cuts" amount to a mere 0.3 percent -- one-third of one percent -- of projected spending.... Republicans also pledge to cut taxes by $70 billion from 2006 to 2010. The overall effect would be a slight rise in deficits....

There's a basic mismatch between the existing taxes and existing spending commitments. Neither party yet faces this candidly, because the only way to solve it is either to raise taxes or cut benefits.... Practical politicians like to confer benefits and tax cuts, not withdraw them. They don't like the discipline of inflicting pain (taxes) to distribute gain (benefits).

As Samuelson says, people are mad when you raise their taxes and mad when you cut (or slow the growth of) their benefits. So what's the plus side of fiscal responsibility? The plus side is:

  1. The happiness that comes from knowing that you have done the right thing.
  2. The applause of sophisticated members of the press who laud you for doing the right thing.
  3. The votes of those in the electorate who value good public service, as they learn from the press about how you have done the right thing.

And here Samuelson is part of the problem, for Samuelson tries to weaken the plus side to budget virtue. He's anxious to minimize the fiscal accomplishment of Bill Clinton and his team:

Democrats embrace class rhetoric and a self-serving mythology -- only they are "responsible"... Bill Clinton... those surpluses resulted largely from events beyond his control: the huge tax windfall of the tech and stock market booms, and the end of the Cold War, prompting much lower defense spending...

Clinton was lucky, yes. But Clinton was also good. The federal budget in 1992 had a deficit of 4.7% of GDP, projected to grow to a deficit of 5.2% of GDP by 2000. In actual fact we had a surplus of 2.4% in 2000--a swing of 7.6 percentage points roughly relative to expectations. Of this swing, approximately 2.0% was due to a booming economy, perhaps an additional 1.0% to the high value of capital gains taxes paid in 2000 because of the high value of the stock market, about 3.5% to the effects of the Clinton 1993 deficit-reduction package, and 1.0% to the additional post-1992 effects of the 1990 Bush-Mitchell-Foley deficit reduction package that had not yet been enacted as of the end of 1992.

Until Samuelson can screw his courage to the sticking point and praise--yes, praise--politicians who do take effective steps to balance the budget (even if they also have good luck), he has no standing to lament that his calls for budget balance are so pathetically ineffective. Journalists who don't praise good policies are part of the problem, not part of the solution.

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