The short answer is “no.”
My last two posts mentioned a National Journal interview of House Appropriations Committee Chairman, David Obey (D-Wisconsin), and his critique of fiscal hawks as preoccupied with the federal budget deficit when there are much more pressing “deficits” to attend to. As Chairman Obey puts it (my emphasis added):
I am very, very tired of one-dimensional politicians who simply talk about the deficit. In fact, we’ve got a hell of a lot of deficits. We’ve got a budget deficit. We’ve got an education deficit. We’ve got a health care coverage deficit. We’ve got a scientific research deficit. We’ve got an infrastructure deficit. This country has neglected for a long time so many of the basic investments that we need to make this country strong over time. And we also have an equity deficit, a fairness deficit. I want to know that we’re going to attack all of them.
The number that counts economically is not the year-to-year deficit number. If you have the heart of a CPA, then that’s the only thing that matters to you. But if you are a public policy person trying to figure out how to strengthen this country and how to strengthen the ability of this economy to produce for everybody in the economy, then you need to look at things in a hell of a lot broader way.
Chairman Obey goes on to explain that:
…When Henry Ford decided he was going to mass-produce cars, what’s the first thing he did? The first thing he did was to raise the wages of his workers to five bucks a day. He did that not because he was altruistic, he did that because he knew that you had to pay people good wages in order to get quality workers. Secondly, he knew that you had to create the ability for consumers to actually buy things. The economy doesn’t function if people can’t buy things, if they can’t afford to. And so he took the action that most businessmen should have taken in stimulating the ability of consumers to afford to buy whatever is produced. That example was not followed by a hell of a lot of people.
Well, yes, I know… you can see there’s a “hell of a lot” of Chairman Obey’s attitude in that interview…
But the point is that Chairman Obey is suggesting that having fiscal responsibility as a policy goal runs contrary to those other goals–such as adequate investments in our public goods and services, and a higher standard of living that’s broadly shared among Americans.
And Joe Klein, in this week’s Time magazine, seems to be suggesting a similar tradeoff, in his column on “The Recession Election” (again, my emphasis added):
[O]n July 28, Barack Obama held an economic summit with his covey of advisers — people like Bob Rubin, Larry Summers, Warren Buffett, Bob Reich; experts who seemed a sedimentary layer more recent than McCain’s crowd but still more a part of the past than of the future. They had cleaned up the Reagan-era mess. They had actually balanced the budget and created a surplus. They had — contra voodoo — raised taxes and yet produced an economic boom. There was a fair amount of argument behind closed doors, I’m told, between the two groups that sparred at the dawn of the Clinton era, the deficit hawks and the populists. In the end, though, there was a general agreement on the need for more government activism. Obama isn’t even pretending to balance the budget. His claim to pay for the things he proposes rests on loaves-and-fishes premises, especially the prospect of a Congress mesmerized into acquiescence on controversial issues like raising taxes to Clinton-era levels and closing corporate loopholes. But Obama’s economic proposals — especially the $21 billion per year he wants to spend on alternative energy and infrastructure projects — represent an acknowledgment that the economic conversation has to change, that the old order faileth.
I disagree with the suggestion that fiscal responsibility means setting aside those other priorities–in fact, I believe that those other priorities are exactly why fiscal responsibility is needed. What our government needs to be spending more federal resources on–be it infrastructure, health care, education, or income security–is a separate consideration from how that additional spending should be financed. There’s no reason to think that deficit-financing is a necessary part of a more “activist” government that “does better” for the people–even if such government is defined as bigger as well as better. In fact, those other economic goals Chairman Obey lists–greater investments, higher real wages, and increased standards of living, are all best accomplished through higher national saving–i.e., reducing budget deficits, not increasing them.
Fiscal policies that require deficit financing in the proper execution of their economics are rare, unless you’re talking about short-term (countercyclical) fiscal stimulus rather than fiscal policies designed to produce longer-term economic benefits. (Even then, in theory at least, one could design a countercyclical fiscal policy that did not add to the budget deficit, by simply redistributing income from the rich to the poor. It’s also likely that short-term stimulus that is fiscally responsible over the longer term would have a bigger short-term stimulative effect than a similar policy that involves longer-term increases in the deficit.)
Now, I will admit it may be true that fiscal policies execute better politically when deficit financed, as that seems to create only “winners”–at least among current voters. (That’s why deficit reduction is not a great issue to campaign on, even though it’s critical for the policy agenda of the next President, once he’s in the White House.)
Taking a fiscally-disciplined approach in pursuing those broader policy goals is likely to increase the chances that such policies will “succeed” in achieving those goals, even apart from the benefit from greater national saving and a richer economy from which to draw. That’s because trying to live within a budget constraint forces more thoughtful policies, as we’re more likely to seek to maximize economic “bang per buck,” to prioritize our most critical spending needs, and to find the most efficient ways of raising revenue.
So fiscal discipline should not be considered a roadblock to better government, as in fact, better government can be encouraged by fiscal discipline. Abandoning fiscal discipline would allow us to indiscriminately expand government, making it all the more likely that “bigger” would come without ”better”–and with the costs of those sub-optimal policies pushed off to our children and grandchildren. A more thoughtful consideration of this better (and maybe bigger) government we desire would be one that comes up with a government we conclude is worth paying for. And if at the same time such fiscal responsibility helps keep national saving and our economy strong, then paying for it becomes even easier over time.