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Now Is Not the Time to Abandon Fiscal Responsibility

October 10th, 2008 . by economistmom

I like E.J. Dionne (and was his colleague at Brookings for awhile), but his Washington Post column this morning really got me going, in the part where he makes reference to “deficit hawks” (like me) in not-so-flattering terms (my emphasis on the part that “hurt my feelings” added):

Hope vs. fear, new vs. old: Barack Obama and John McCain have placed their bets. These are the terms on which the 2008 presidential campaign will be decided.

That’s why it’s unfair for political bystanders to attack Obama and McCain for offering few specifics as to how they’d fix an ailing economy. And it’s foolish to ask them to jettison their campaign promises in order to pay homage to the God of Balanced Budgets

As for cutting back on their programs because the government is spending and lending so much to save the economy, the candidates should just say no to the deficit carpers.

Yes, the federal government faces a huge deficit, bloated during eight years in which many of those now crying out for fiscal responsibility put up little resistance when the administration started two wars and cut taxes at the same time. Where were these deficit hawks then?

The time to balance budgets is when the economy is humming. Now, the government is obligated not only to prop up the economy but also to bring back long-term growth. That will require transformative investments in infrastructure, health care, education and new green technologies…

I actually agree with a lot of E.J.’s column, starting with the paragraph immediately above.  It’s the negative characterization of those who advocate for fiscal responsibility that I don’t like; later in the column he even seems to connect it to Herbert Hoover (yikes).  I mean, deficit “carpers” who “pay homage to the God of Balanced Budgets”?!!…  And where was I over the past eight years of fiscally-irresponsible war funding and tax cuts?  Not exactly twittling my thumbs, but fighting and complaining about that fiscal irresponsibility every step of the way, not that it did any good in the end given what we have had to work with (the Bush Administration).

I take quite a bit of offense in the characterization of “deficit hawks” as narrowly preoccupied with the goal of eliminating the budget deficit.  I think a “deficit hawk” is just shorthand for someone who promotes fiscal responsibility.  “Fiscal responsibility” is a much broader concept than decreasing the deficit:  it’s using our money wisely, not wasting or abusing it.

The clear present need for both some short-term economic stimulus and longer-term investments in human capital and new technologies (e.g., to help Detroit find its “new way”) is not an excuse to waste money on spending or tax cuts that we don’t need or are even counterproductive.  We simply don’t have enough money to afford not to prioritize better.

The fundamental, pervasive problem in today’s economy is that we’ve been living beyond our means.  To get the economy back on a sustainable path, not just over the next few days, weeks, or months, but over the next several years, we need to increase our national saving.  And that’s why deficit spending now is tolerable only if it doesn’t jeopardize that longer-run goal.

Now is exactly the time we need to be smart about fiscal policy: any stimulus should not encourage the same bad behavior–on the part of either the government or the private sector–that got us into this trouble in the first place.  Temporary, deficit-financed fiscal stimulus may be needed to simply keep the economy going–to allow us to “keep living” (consuming).  But we shouldn’t enact permanent proposals that permanently encourage consumption over saving (living beyond our means); we should be moving toward policies that encourage investments in workers and new technologies that are likely to pay off in the longer run, steering more of our limited resources toward boosting human capital–in other words, increasing our means.  But such investments will cost a considerable amount of up-front money.  Given that our budget constraints have gotten much tighter, it’s important that the next president set clear priorities and be willing to make tradeoffs, so that we will pursue policies that over the next several years (beyond these next several weeks or months) are most likely to get us back on the path of higher national saving and a stronger economy.

So it’s OK for a deficit hawk like me to acknowledge that eliminating or even reducing the budget deficit may no longer be a realistic goal over the next few years.  And it’s OK that it’s probably too much to expect the presidential candidates to explain how they’re going to scale back on some of their promises while they’re still campaigning.  But in my opinion, it’s not OK for anyone to view the current crisis and the $700 billion rescue plan–an action intended to help our overextended economy–as an excuse for continued overextension of the federal budget (which is really just a continued tapping into the future wealth of our children) or continued lack of prioritizing in how we conduct fiscal policy using our nation’s preciously scarce resources.  It’s not OK to give up on “fiscal responsibility,” especially not now. 

3 Responses to “Now Is Not the Time to Abandon Fiscal Responsibility”

  1. comment number 1 by: Brooks

    Diane,

    If I were so empowered, I would declare thee Goddess of Balanced Budgets. And anyone who dared characterize that title negatively I would cast into a fiery pit for all eternity.

    On a more serious note, I’m generally aversive to Congress and the president trying to manage economic cycles via fiscal policy, due primarily to the inefficiency (vis a vis the economic objective and in terms of economics generally) or worse that tends to result from the political process, and secondarily to timing problems (notwithstanding the relatively quick action this year on the “stimulus”). I’m much more comfortable with the leaving the management of economic cycles to the Fed, at least for the most part and under most circumstances, with exceptions for extreme circumstances or cases in which the Fed is unusually constrained in some way (e.g., if interest rates are about as low as they can go).

    Of course, I say all of the above as a non-economist.

    But certainly, insofar as recession (or threat thereof) is to be used as a rational (valid or otherwise) for greater deficit-spending, you are spot on in emphasizing that prioritization is key, and that the focus should be on cost-effective spending in terms of our long-term economic and fiscal health.

    And your last line was perfect.

  2. comment number 2 by: JIMB

    It’s the spending that kills the economy … because spending consumes useful wealth for foolish purposes. Balance the budget by cutting spending.

  3. comment number 3 by: eRobin

    Well said. I’m all about spending freely on the most efficient stimulus options out there (food stamps, UI benefits and in-place infrastructure projects). But I understand the need to increase the savings rate dramatically. Job creation, of course, is necessary but in no way sufficient. We’ve spent decades getting people to buy - to the point where the idea of buying American became a joke and was criticized as being xenophobic. I’m not sure how to get people off that path. In the long term it will be about bringing manufacturing jobs home, strengthening unions and re-building the middle class - cutting military spending and rehabilitating the image of people in need.

    Bill Moyers and Grace Lee Boggs talked about King and consumerism:

    BILL MOYERS: But Martin Luther King was ignored then on the war. In fact, the last few years of his life, as he was moving beyond the protest in the South, and the end of official segregation, he was largely ignored if not ridiculed for his position on economic equality. Upon doing something about poverty. And, in fact, many civil rights leaders, as you remember, Grace, condemned him for mixing foreign policy with civil rights. They said; That’s not what we should be about.

    GRACE LEE BOGGS: But see, what I hear in what you’re saying is a separation of the anti-war speech of the peace trajectory, from the other things that Martin said. He was talking about a radical revolution of values. And that radical revolution of values has not been pursued in the last forty years. The consumerism, and materialism, has gotten worse. The militarism has continued, while people are going around, you know just using their credit cards. All that’s been taking place. And so, would he have continued to challenge those? I think he would. But on the whole, our society has not been challenging those, except in small pockets.

    BILL MOYERS: He said that the three triplets of society in America were; Racism, consumerism or materialism and militarism. And you’re saying those haven’t changed.

    GRACE LEE BOGGS:I’m saying that not only have those not changed, but people have isolated the struggles against each of these from the other. They have not seen that they’re part of one whole of a radical revolution of values that we all must undergo.