The GOP's Attention to Deficits Disorder

PHUTATORIUS
I'll start this by acknowledging I hold the status of The Last Writer On This Blog Anyone Will Confuse With An Economist. Be wary, then, of my seductive appeals to logic and common sense over intricate egghead theories of the economy supported by charts and graphs.

The Republicans in Congress have had an awakening recently about the federal budget and deficit spending. Of course, this is hypocritical, given their spending record earlier in the decade, and the Democrats have hammered away at this point when- and wherever they can. But politicians would have to credit the electorate with a memory before they would ever hold themselves bound to a value like "consistency." And of course many of the Democrats who would spend spend spend now were begrudging the consignment of debt dollars to Republicans' pet projects back in the day. To my mind, then, the question to ask isn't "who is inconsistent?" but "is there a right side to the inconsistency, and if so, who is on it?"

This is where you lose, Republicans.
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Most reasonable people understand that if there is a magic bullet that someone can fire to kill off a spiraling recession, it's government spending. A failing economy absolutely needs an infusion of dollars to jump-start the recovery. It has to come from somewhere, and the federal government is emphatically the best entity to provide it, for at least three reasons that I can discern:

(1) Like it or not, the federal government is the single biggest unitary actor in the economy. It can make the big Trillion Dollar Splash that is required.

(2) The federal government's mandate is different from that of any other economic actor. It is capable of a kind of selflessness that the regular investor, personal or institutional, is not. I don't mean to suggest a value judgment here about selfishness and capitalism. What I mean to say is that private investors rightly think hard about what they themselves will gain from their investments, and there's just no incentive for a private investor to kick money into a busting economy on the attenuated theory that, if everyone else throws their money at the problem, too, things will get humming again at a macro level and we'll all do better. The government's gig is to examine the larger picture.

(3) The government can raise the money. There's some suggestion right now that this will not always be the case, but there's a reason why the T-bill confers the lowest rate of return on your investment: it's the safest investment you can make. Sure, we thought institutions like GM and Lehman Brothers would be around forever, but this recession has proved us wrong. If there's a safe bet out there, it's that the United States government is here for the long haul.

So, duh: anyone with half a brain can figure that the federal government is the best and only bet to spend us all out of this. Note that I didn't say the government should generally be trusted to run the economy, and I didn't say I think the government isn't susceptible to all sorts of conflicts of interest, rent-seeking, and competence issues that will undermine its ability to target and direct its spending in the most efficacious, recovery-inducing way. But at a time like this, there's no better solution out there, and no one better to undertake it.

On to deficits, then. We know that there is an economic cycle of boom and bust, of growth and recession. The prudent government knows that it will need to spend spend spend — and possibly spend more than it brings in — during the downturns. The prudent government will prepare itself for that part of the cycle by working to generate a budget surplus during the boom times. Sure, we can carry a certain amount of debt from one generation to the next, but it makes sense to keep that practice to a minimum, so that — ahem! — we don't get in a habit of it, such that it gets out of control.

Working with a Republican Congress, President Clinton was able to balance the federal budget during the boom times of his second term. Both sides of the aisle are due some credit for this, but it's worth noting that Clinton didn't demand all sorts of tax cuts and extra spending to max out the economic growth. We were content with the prosperity that we had. Enter President Bush, and we instantly cut taxes, a recession followed (probably not related) and when we came out of that, we threw more than a trillion dollars at a war of convenience and added a massive GOP-championed federal entitlement in the form of the Medicare prescription drug benefit. These three significant deficit-creating events — the tax cuts, the Iraq war, and the drug benefit — have three things in common: (1) they all happened when the economy was running smoothly, (2) they were all championed by the Bush Administration and the Republicans in Congress, and (3) they were all unnecessary gestures of political convenience.

The government should run a surplus in boom times and spend into the red during economic crises. That's an "inconsistency," to be sure, on the question of deficit spending. But it's an inconsistency that makes sense. The Republicans were drunken sailors during the good times and are budget hawks now. They've got it completely backward, because they care more about politics than about the economy and the federal budget. Hypothetically, would the Democrats have done the same if they'd been running the show for the past eight years and the Republicans were in power now? Possibly. Probably. But it's the Republicans who have been actually stupid and wrong, to our detriment. Let them answer for that, and let the Democrats learn from it.

This Not Remotely an Economist has spoken.

France

MITHRIDATES
Over a million people took to the streets all over France last week to protest the state of their economy. This is brilliant stuff. People around the world protest all sort of injustices, war, corruption, and the like, but you've got to hand it to les enfants de la patrie for coming out in droves simply to show that they didn't like unemployment and low salaries.
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I'm not a hater, mind you. I love France. And even the most gallophobic has to admire an anthem far more bloody and martial than ours (and the making of one of the best scenes in movie history). Oh, sure, they're a ridiculous people (aren't we all?) and we could make a long list of standard French hypocrisies, but in general I'm a big fan of the French, I don't know, je-ne-sais-quoi that makes hundreds of thousands of people blow off work and have a big street party. Hell, I even gave my dog a French name. I mean, who but the French had the savoir-faire to come up with the international distress call.

What I don't understand is how, sacre-bleu!, a protest like this — really against no one — turns violent. See now you're taking away my joie-de-vivre.

And this pretty much sums up the lovable French attitude:

Commuter Sandrine Dermont, arriving in Paris, said: "I'm tired and frozen after waiting half-an-hour on the platform.

"But I'm prepared to accept that when it's a movement to defend our spending power and jobs. I'll join the street protests during my lunch break."

How on earth skipping work, freezing your butt off, and clashing with cops "defends your spending power" is beyond me, but if it all made perfect sense it wouldn't be French, now would it?

Of course, the links above are all from American and British sources. What does Le Monde think? Well, that the current economic crisis proves the superiority of the French model (to be perfectly fair, my French is a bit rusty and there's a reasonable chance that's an article about shaving your poodle). It was more important to show this picture to it's readers to remind them that things are really bad in America. Hell, who wants to worry about your own country's problems when you can find flaws with the USA?

What's the raison-d'etre of this post? It's simple. The French wine and rack of lamb I had the other night has made my gout flare up and despite being high on the requisite opiates I felt the need to vent . . .

PHUTATORIUS
"I'll join the street protests during my lunch break." Ah, France. And that lunch break is no doubt a nationally-mandated two-hour siesta, so she'll have all the tear gas she can eat.

This reminds me of protest season at Harvard. They come like clockwork every spring — you don't want to march in the cold weather — and after exams, so the students in SLAM don't have to make any difficult choices.

Last year the students famously went on hunger strike to protest the hourly wage Harvard's security guards were earning. Never mind stuff like Darfur, right?

Turned out a dozen lethargic students sprawled out in the yard on blankets drinking Gatorade (!) wasn't all that compelling a narrative. Go figure. So the students marched across Mass Ave and tried to storm the labor office — only to be thwarted in their efforts by the very security guards whose cause they were championing. The guards kept them out.

You couldn't make this stuff up.

They're Going To Screw Up the Stimulus, Aren't They?

PHUTATORIUS
I'm going to throw a crazy idea out here right now, and I'd like you all to tell me if it sticks:

No one knows what must be done to save this economy, and the most dangerous people out there right now are the "opinion leaders" who believe that they do.
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The conventional wisdom is that there needs to be an economic stimulus plan. This seems generally not a subject of serious controversy: Robert Reich tells us that "almost every economist will tell you the stimulus has to be massive." As with everything, there are skeptics out there, but rather than render myself completely paralyzed by epistemology, I'll buy into this premise.

But after walking hand-in-hand this first mile down the Road to Recovery — stimulus: oh yes, absolutely! — we confront the question:

What sort of stimulus?

and suddenly the consensus is dissolved, and everyone parts ways. We scatter all over the opinion landscape, and we start throwing rocks at one another — because this is what we do.

We need big, fat tax cuts right now, the Republicans are shouting, so that our businesses can snap out of their shock and get back to work.

No — it's about spending, respond the Democrats. The government has to channel the money into much-needed long-term investment.

Well, which is it? Is it both? Is it neither? Some combination of the two? If so, what's the magic recipe? How much in tax cuts? How much in spending? Nobody seems to agree, and all our livelihoods are hanging in the balance.

I wish I could say I trust one or the other party to do the right thing, but the circumstances pretty strongly suggest that I shouldn't. Why should we believe that the Republicans are thinking this through and arriving at their opinions on the merits, rather than on ideological orthodoxy and the principle of partisan opposition? It's just too convenient that their answer to this extraordinary question is the same as it is to every other question: more tax cuts, and what money the government does spend should go to defense contractors. And the GOP's sealed-up party-line vote in the House says more about opposition discipline in the caucus than it does about the merits of the bill. I'm suspicious that the Elephants in the Room voted as they did simply to serve notice to the President that they won't be pushovers.

As for the Democrats, they started with a number — an empty bucket, and they've been asked to fill it up, to the tune of $800+ billion. They've been decidedly uncreative with their recommendations, and one wonders if they're just recycling the party priorities that sat languishing during the Contract with America and Bush Administration years. Suddenly and somehow they've gone and rebranded the economic stimulus package — a term that suggests a jolt of adrenaline to the swooning patient — as a "recovery and reinvestment" plan. I don't feel like the Dems are keeping their eyes on the prize.

I'm not averse to tax cuts, and I generally think reinvestment — in research, infrastructure, defense — is a good idea. Far better than taxing the crap out of us and throwing the money into entitlement program holes. But this is an emergency bill. It's important, and I'd feel a lot better if (1) the folks on both sides weren't so confident that they have all the answers, and (2) the answers they're selling weren't so suspiciously consistent with party orthodoxy.

Partisan push-and-pull is all well and good, but what we need in the end is a bill that reflects each party's best ideas, not some watered-down compromise that gives every ideologue something to brag about to his/her constituency.