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9 Fiscal Challenges for the Next President, and 3 Fallacies About Those Who Speak of Them

October 22nd, 2008 . by economistmom

Today the Concord Coalition released our second issue brief that references the presidential candidates’ economic proposals, “Fiscal Policy Beyond Election Day: Nine Challenges for ‘09.  Our first discussion of the fiscal policy platforms of Senators McCain and Obama was somewhat hidden inside our September issue brief on the CBO’s latest budget projections, “Baselines Matter“–which was about a week before all hell broke loose with the $700 billion rescue plan.

Ever since all hell broke loose, many in the “mainstream” and not-so-mainstream media, and policymakers and policy thinkers inside the Beltway, have–in one way or another–been asking fiscal hawks like me, “so, do you still think we should be worrying about fiscal responsibility–even now?“  To which I have tried to explain all along, here on my blog, that yes, I think we should still be worrying about fiscal responsibility–in a broader than strict deficit-reduction sense–especially now.

Despite all I’ve tried to explain here on EconomistMom, there are some folks out there who have used the current economic crisis as an opportunity to challenge the positions and motives of people like me, and organizations like the Concord Coalition.  And although I’d like to believe that those who are attacking those of us who promote “fiscal responsibility” are just a minority of those who understand the economics of fiscal policy, I’m troubled by the fact that our critics are not just radical bloggers who don’t know what they’re talking about in terms of economics; they include economics professors, top economists from DC think tanks, and even our most recent Nobel laureate.

I’ve boiled down the criticism they’ve levied into three fallacies about “fiscal hawks”, which I will only try to respond to very succinctly here, referring you instead to today’s Concord issue brief (and actually any statement or report Concord’s issued in the past):

  • Fallacy #1 about Fiscal Hawks:  We believe that no matter what the economic circumstances, budget deficits must be reduced and deficit-financed fiscal policy opposed.   FALSE.  The Concord Coalition supports (well-structured) deficit-financed fiscal stimulus as an appropriate response to cyclical downturns.  We also believe that if deficit-financed policy is justified as short-term stimulus, it ought to be timely, well-targeted, and temporary.
  • Fallacy #2 about Fiscal Hawks:  We promote and exaggerate our “gloom and doom” stories about the long-term budget outlook because we want to undermine and destroy the large entitlement programs (Social Security and Medicare).  In fact, the so-called “unsustainability” of the fiscal outlook is just a “figment of our imagination.”  FALSE.  The Concord Coalition bases our analyses on the long-term projections of the (nonpartisan) Congressional Budget Office.  That federal spending and revenues are together on an unsustainable track cannot be disputed.  Concord “sounds the alarm” on the unsustainability of the entitlement programs in their current form, because yes, we do want to see them reformed so that they will thrive as public programs, rather than wither.  We also believe that the scheduled level of indebtedness to be passed onto future generations, if the entitlement and tax systems are not reformed, is unacceptably high.
  • Fallacy #3 about Fiscal Hawks:  We’re only “carping” on fiscal responsibility now, in order to push back against the pressure from liberals for larger government.  We didn’t complain about the deficit-financed Bush tax cuts or the war costs.  FALSE.  I don’t know where to begin here.  Just go look at everything the Concord Coalition has written during the Bush Administration.  And go look at everything put out by the Democratic staffs of the budget, tax, and economic committees in Congress since 2001.  I know we weren’t exactly successful in pushing back against all the fiscal profligacy that took place during the Bush Administration, but hey, you’ve got to recognize the difference between “achievement” and “effort.”  (The “carping” we’re doing now is still just in the “effort” phase, after all.)

Now, those who promote the above fallacies (really, conspiracy theories) about fiscal hawks who advocate for ”fiscal responsibility” probably won’t bother reading our issue brief, but I hope those of you who have a more open mind will.  If you read the full document, you will learn more about the Concord Coalition’s position (and our intentions/mission) through these nine fiscal challenges we discuss:

  1. The financial crisis and its spillover into the broader economy has become the top agenda item for the new administration, regardless of prior campaign promises.
  2. Short-term fiscal stimulus must be combined with long-term fiscal discipline.
  3. Fiscal stimulus should maximize bang for the buck.
  4. Two problems that led to Wall Street’s crisis — lack of transparency and over-reliance on debt — are problems for the federal budget as well.
  5. Current fiscal policy is already on an unsustainable track.
  6. Health care reform must reduce the growth in costs.
  7. Eventually, we are going to need more revenues.
  8. Over the longer term, we need to save more and consume less.
  9. We need to budget as if it matters — because it does.

3 Responses to “9 Fiscal Challenges for the Next President, and 3 Fallacies About Those Who Speak of Them”

  1. comment number 1 by: Patrick R. Sullivan

    ‘Despite all I’ve tried to explain here on EconomistMom, there are some folks out there who have used the current economic crisis as an opportunity to challenge the positions and motives of people like me, and organizations like the Concord Coalition. And although I’d like to believe that those who are attacking those of us who promote “fiscal responsibility” are just a minority of those who understand the economics of fiscal policy, I’m troubled by the fact that our critics are not just radical bloggers who don’t know what they’re talking about in terms of economics; they include economics professors, top economists from DC think tanks, and even our most recent Nobel laureate.’

    Did it ever occur to you that those people might be right?

    That your refusal to consider that the problem is government spending, not revenue (consistently between 17-19% of GDP in the SIX DECADES after WWII) exposes your real agenda?

  2. comment number 2 by: B Davis

    Patrick R. Sullivan wrote:

    Did it ever occur to you that those people might be right?

    That your refusal to consider that the problem is government spending, not revenue (consistently between 17-19% of GDP in the SIX DECADES after WWII) exposes your real agenda?

    And what, pray tell, is this “real agenda”? What precise gain, financial or otherwise, does the Concord Coalition and its members stand to gain from promoting fiscal responsibility? I really get tired of people who claim to be able to divine people’s “real agendas”. Those mystics on the left have divined that the real agenda is to destroy Social Security and those mystics on the right have divined that it is to increase taxes. Did it ever occur to you that the great majority of Concord Coalition members might be very sincere and possibly even correct in many of their concerns?

    In any event, you need to look a little more closely at those seemingly consistent revenues. If you look at the third graph on this page showing revenue, you’ll see that individual income tax revenues have been fairly stable since 1952. However, social insurance tax revenues have risen sharply and corporate and excise tax revenues have fallen sharply. Now those Social Insurance tax revenues were intended to pay for the new and expanding entitlements of Medicare and Social Security. In fact, they are running a surplus at present. However, no attempt was ever made to replace the dropping corporate and excise taxes. Since businesses with U.S. employees are paying half of their FICA taxes, there may be a rationale for having lowered corporate taxes somewhat. However, those revenues need to be made up. The fact that we decided to implement entitlement programs and provide a separate tax to fund them does not change that.

    In addition, it may help to look at the first couple of graphs on this page showing outlays. Since 1980, the only categories that have increased as a percentage of GDP are Medicare and Health (chiefly Medicaid). This is likely due chiefly to rising health care costs. This does need to be addressed but is not the discretionary spending that gets most of the attention. In fact, the category of “Other Outlays” in the first two graphs shows outlays other than Defense, Health, Medicare, Social Security, Income Security, and Net Interest. As a percentage of GDP, it is as low as it was in the late fifties. Income Security is higher but is at about the level that it was in the mid-seventies. Hence, the argument that the deficit is due simply to spending, especially discretionary spending, is simply not correct.

  3. comment number 3 by: Craig Jennings

    Concord “sounds the alarm” on the unsustainability of the entitlement programs in their current form, because yes, we do want to see them reformed so that they will thrive as public programs, rather than wither. We also believe that the scheduled level of indebtedness to be passed onto future generations, if the entitlement and tax systems are not reformed, is unacceptably high.

    Here’s why Myth #2 persists. You say that fiscal hawks are not out to destroy Social Security, but then you lump Social Security in with Medicare, insisting that both are causing “spending and revenues” to be “on an unsustainable track.” This is simply not the case. Social Security, while it faces funding shortfalls – as a program – is not a cause of the projected skyrocketing national debt. Medicare funding, on the other hand, is.