Opportunism and the Debate about Deficits and Debt: Why Democrats Should Not Use Republicans' Hypocrisy as a Weapon
By NEIL H. BUCHANAN
|Thursday, December 16, 2010|
The debate about the national debt and federal budget deficits has taken a dangerous turn in recent weeks. In the midst of the battle over the extension of tax cuts for higher-income taxpayers, Democrats and progressives have gleefully attacked their adversaries for hypocrisy. They have pointed out that the same Republicans who have been telling us that the deficit is destroying the future for our children and grandchildren -- the very people who have told us that the national debt is a veritable cancer on our economy -- have insisted on substantially increasing that deficit by refusing to allow tax rates on adjusted gross incomes above $250,000 to rise by less than 5%.
My point here is not that this accusation is inaccurate. To the contrary, this is one of the most breathtaking examples of hypocrisy in the annals of American political history (a history that is replete with hypocritical stands by politicians of all eras). The Republicans in the Senate, moreover, were not merely willing to vote to extend the lower rates that apply to upper-income taxpayers. Nor were they merely willing to filibuster (with the help of a handful of unprincipled Democrats) the bill that would have helped non-wealthy taxpayers, while allowing the rates on the wealthy to return to their levels of the 1990's. Senate Republicans went further: They vowed that no bill on any other issue could even be considered by the chamber until the tax issue was resolved in their favor.
It is understandable, therefore, that the Republicans' opponents would smell blood in the water and move in to attack. The Republicans say that they do not like deficits, yet they happily increase the deficit. Anyone wishing to "win the news cycle" would be crazy not to be tempted to grab onto this storyline.
The problem with this approach, however, is that it reinforces the dangerously-misguided idea that deficits are always harmful. But if anyone should want to avoid telling the public that deficits are per se bad, it is Democrats and progressives. They are, after all, the people who best understand the central importance of carefully-crafted deficit spending as a necessary underpinning of economic prosperity in both the short and long runs.
Unfortunately, the urge for short-term political gains is overcoming the better instincts of far too many people. In this column, I will discuss some recent examples of the poor choices that are being made on the political left regarding the deficits debate; and I will argue that those decisions will surely come back to distort public policy.
When Your Opponents Hand You a Weapon, You Do Not Have to Use It
The debate over deficits and debt has been going on for generations. Even President Franklin D. Roosevelt, stung by charges that his deficit spending during the Great Depression was immoral and reckless, infamously capitulated by cutting spending before the economy had recovered, leading to renewed suffering. The anti-borrowing impulse runs strong in American political circles.
In the post-World-War-Two era, the battle lines were drawn between Republicans, who at least claimed to believe that deficit spending was always harmful, and Democrats, who correctly believed that deficit spending was a useful policy tool. The Democrats won the policy debate, with the federal government running annual deficits, almost without exception, throughout the era. Of course, the ratio of debt to national income was falling, because income was rising faster than debt. Even so, Republicans could continually point to the annual deficit as proof of the Democrats' supposed fiscal irresponsibility.
The Democrats could, therefore, be forgiven for their excitement when President Reagan's policies in the 1980's led to the largest deficits seen since World War II. After years of being tarred with simplistic slogans about how government must live within its supposed means, the Democrats could finally point at the Republicans and say, "No, you're the real budget busters."
As a matter of short-term political maneuvering, this might have made sense. This line of attack, however, reinforced the notion that deficits are always bad. The Democrats did not argue, as they should have, that budget deficits are good in some situations. They could have argued that the Reagan deficits were bad not because they were deficits, but because they re-oriented federal spending and taxing priorities in a way that would harm middle-class living standards for decades to come. Instead, they argued that the increases in the deficit under Reagan were simply bad.
Who could blame the American public, in those circumstances, for coming to believe that every deficit is a bad thing? The Republicans said that deficits were bad. The Democrats said that deficits were bad. And the Republicans refused to own up to their hypocrisy, secure in the knowledge that a debate about the evils of government deficits could only improve their long-term political fortunes. The Democrats simply could not resist falling into that trap.
The Debate in 2010: Listening to the Prophets of Austerity
Fast-forward to 2010. The Democrats again face an opponent that says one thing about deficits, but does the opposite. More importantly, the deficits that the Republicans insist on creating really are the bad kind of deficits -- pure giveaways to people who will, in the aggregate, do nothing to help the economy recover in the short term, or to improve growth prospects in the long term. If one wanted a textbook example of a deficit that will do nothing but make today's and tomorrow's wealthy people even better off, while harming future middle-class and poor people, this is it.
The problem is that we are hearing far too little of the argument that this particular increase in the deficit is a bad thing. Even people on the most progressive range of the political spectrum are simply saying: "We all know that deficits are bad. But guess who's increasing the deficit?!"
Consider, for example, the strange re-emergence of David Stockman, President Reagan's first budget director. Stockman long ago repudiated his belief in the ability of tax cuts to pay for themselves, marginalizing himself within a party that did not want to hear the bad news that trickle-down economics simply does not work. For his intellectual honesty and willingness to publicly discuss his epiphany, he certainly deserves credit.
The problem, though, is that Stockman migrated from one bad theory to another. No longer believing that tax cuts for the rich will create a rising tide that lifts all boats, Stockman now argues that all deficits are bad, all the time. During a recent appearance on MSNBC's "Countdown with Keith Olbermann," Stockman argued that the Bush tax cuts "should not be extended. We couldn‘t afford them in 2001 and 2003 when they were passed. Since then, we‘ve had two unfinanced wars. We‘ve had this huge stimulus, $1 trillion. We put all this money into TARP. We have now maxed out our national credit card. We‘re close to the edge of insolvency in this country. And it‘s a farce to have a debate about extending tax cuts for the rich especially, but ultimately for anyone." Similarly, on "The Colbert Report," Stockman repeated those arguments and added that the country has been having a big "party" since 1980 and that the bill is now coming due.
Stockman is wrong on every major point. The problem was not that the tax cuts were unaffordable in 2001 and 2003. If the surplus that President Bush inherited had disappeared and turned into deficits because we were, say, embarking on a major program of improving the nation's schools while rebuilding water and transportation networks and supporting emerging green technologies, then we would have been very fiscally responsible. (He is right to decry the unfinanced wars, to be sure.)
Stockman is simply wrong on the facts when he claims the stimulus amounted to $1 trillion. And his opinion that the stimulus was "huge" is insupportable -- for it was not in any meaningful sense "huge." It was, in fact, far too small, as even the President's own economists admitted at the time. And TARP, the bank bailout initiated by President Bush in Fall 2008 (and supported strongly by Republican leaders), has ended up being amazingly inexpensive -- $25 billion, by the latest estimate. Not bad for an economy-saving rush job.
Stockman's biggest error, however, is in saying that the country is close to insolvency. His moralistic tone, invoking the "national credit card," appeals to our puritanical impulses; but he is simply wrong. While debt has gone up as a result of the Great Recession, well-designed deficits could -- and should -- be enacted today that would both end the downturn and set the stage for renewed long-term prosperity.
It is especially important to note Stockman's blindness to the realities of life for most Americans in the Twenty-First Century. Contrary to his blithe assertion, "we" have not been having a big party since 1980. To the contrary, every economic indicator shows that the middle-class and the poor in the U.S. have barely been treading water during the era spawned by Reagan. Families that have managed to prevent a decline in their living standards have done so by working multiple jobs (when they can find them), borrowing, and bringing more family members into the paid workforce. In short, they have maintained their monetary living standard by degrading almost every other aspect of their lives.
In this atmosphere, to argue that "we" cannot afford to give more support to middle class people -- at the very least, by preventing tax rates on middle-income earners from rising, when the unemployment rate is near 10 percent, and home foreclosures continue unabated -- is simply immoral.
Why are Democrats and Progressives Now Embracing Anti-Deficit Rhetoric?
It is no surprise, however, that there are people like David Stockman out there, arguing in favor of policies that would harm the vast majority of Americans. People like him have always existed, and they always will. The question is why Keith Olbermann and Stephen Colbert are willingly promoting such a reactionary agenda.
The short answer, again, is that Olbermann and Colbert are progressives (notwithstanding Colbert's on-air persona as a nitwit rightwing pundit) who see an inviting political opening. Earlier this week, Olbermann strongly promoted a new announcement from Moody's Investor Services that purported to show that the credit rating of the United States government would be harmed by the tax-cut compromise that President Obama so foolishly negotiated. The problem is that Moody's makes that kind of announcement quite regularly. I agree with Olbermann that the tax-cut compromise was a very bad idea. However, for Olbermann to cite Moody's as a credible source on fiscal policy unnecessarily lends credibility to a non-credible source.
Similarly, Rachel Maddow's show recently ran a story about the Chinese government's efforts to lead a boycott of the Nobel Peace Prize ceremony in Stockholm. Maddow closed her remarks by claiming that China's hardball moves in this regard demonstrated that it was a bad idea for the U.S. government to sell debt to China, saving that it is "intolerably gross" that China holds $880 billion of U.S. debt. This is an increasingly popular canard, but it is completely misguided, as I argued in a written commentary earlier this year.
Still, in the immediacy of the moment, one can easily understand Maddow's inability to resist this temptation. Republicans are running up the deficit. People fear China. Therefore, progressive can score political points by claiming that Republicans are making America vulnerable to nefarious Chinese plots.
Unfortunately, this has always been a losing strategy, and it still is. Next year, the new Republican majority in the House of Representatives will propose cuts in federal spending. Democrats and progressives would have put themselves in a much better position to respond to such proposals if they had been arguing all along that deficits are not always a bad thing.
Many on the left -- including Olbermann, Maddow, and others -- have done an admirable job over the years in pointing to the many important things that only the federal government can do. Yet they harm their own position by failing to say clearly that some deficits are good, while others are bad. Accepting one's opponents' framing of the debate is never a winning strategy.