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The Republicans’ Irrational Mantra on Taxes

September 26th, 2009 . by economistmom

If you read Bruce Bartlett’s column in Forbes this week, you might think I’ve been passing notes to him under the desks at school.  Bruce explains how the Republicans are just downright stupid (ok, my paraphrasing) when it comes to their “no higher taxes” mantra (emphasis added):

Eventually, Republicans decided that fighting deficits just wasn’t working for them. People might support a balanced budget in public opinion polls, but they opposed every single thing that would actually reduce deficits, especially higher taxes.

It is now Republican dogma that taxes must never be increased no matter how big the deficit. The last Republican to do that, Bush 41, got thrown out of the White House on his ear for doing so, Republicans believe.

Such a fate is not going to befall any congressional Republican today. Their mantra is that all tax increases must be opposed with every fiber of their being, and there is no problem that can’t be cured by tax cuts

[B]ack in February when Congress was debating the stimulus package and the Treasury was facing a deficit of $1.2 trillion this year, the Republican position was that tax cuts–and only tax cuts–would stave off a deep recession. How that would have helped when incomes were falling to such an extent that tax revenues were virtually collapsing on their own was never explained. Tax cuts were a mantra to be repeated endlessly whether they had any rational connection to the economy’s problems or not.

Everyone knows that fiscal discipline must be restored eventually, or we will face truly horrifying consequences–defaulting on the debt, nonpayment of Social Security benefits, a collapsing dollar, and double-digit inflation and interest rates. Everyone also knows that this will involve a combination of higher revenues and lower spending. The idea that we can restore fiscal health only with spending cuts is childish

What we face is a game of chicken. Republicans think if they wait until the last possible second to support the smallest possible tax increase necessary to make a budget deal work, they can get the largest possible spending cuts. The problem is that there is not one iota of historical evidence that this strategy will work…

At some point, taxes have to be back on the table as the price that must be paid for profligate spending. Only then will the American people realize that they can’t have their cake and eat it too…

I think the only point I’d add to Bruce’s is that you’ve got to fight fire with fire–or tax increases with tax increases.  I think the most persuasive case we can make to Republicans about the need to raise taxes now is that by rejecting tax increases now, they’re effectively supporting manyfold future tax increases on our children and grandchildren–and yes, even Republican children and grandchildren.  Because there’s no way we are going to be so wildly successful at bending the health cost curve down such that federal spending will come all the way down to the “equilibrium” level of taxes under current policy or even under current law (with all the Bush tax cuts expiring).  Even if we had the political will to make those tough choices, we would not be willing to be so cold-hearted as to make such cruel choices–and they would indeed be “cruel” choices if we had to get spending down to the 40-year historical average of revenues/GDP (the “magical” 18.3 percent figure) despite the elderly share of the population still rising and per capita health costs still growing faster than the economy.

Republicans want to believe that by rejecting tax increases now, they’ll encourage spending cuts over tax increases as a way to balance the budget.  But then somehow along the way even they who profess to favor spending cuts over tax increases admit (through their actions) that they actually favor deficits over spending cuts.  (Exhibit A: the Republicans’ sudden love for Medicare as we know it, now that President Obama appears to be willing to change it.)  Hence, resisting (any kind of) tax increases now is just plain stupid if you’re a Republican who really doesn’t want to see your kids eventually paying “European level taxes.”

And when Bruce says that:

Clinton’s big mistake was in not locking up the surpluses in some way. One idea would have been to use the surpluses to create private Social Security accounts that Republicans wouldn’t have dared to touch any more than they would dare to cut Social Security benefits…

it makes me wax nostalgic about the fiscal discipline of the Clinton Administration and how different our nation’s fiscal outlook would have been in that parallel universe where Al (”LockBox”) Gore would have been our president over the past eight years (or at least the first four of the past eight years)…

32 Responses to “The Republicans’ Irrational Mantra on Taxes”

  1. comment number 1 by: Loyola

    I find your admiration for the Clinton Adminstration’s fiscal discipline kinda cute but understandable (give a girl a hammer to document the Clinton’s administration’s fiscal discipline and everything looks like fiscal discipline).

    I believe the absolute #1 cause of the fiscal discipline at the time was the divided government.

    I think subsebquent history supports the view that unified governments are especially bad on fiscal responsibility, the democrats via increasing spending and the republicans via decreasing taxes.

    There was some sort of an equilibrium between the two opposing forces during that fiscal responsibility period.

    The democrats had the power to could get a tax increase but not enough power to go crazy on spending. The republicans had the power to meter spending increases but not enough power to stop tax increases.

    That fiscal responsibility was more the result of the political ecology at the time rather than the political philosophy.

  2. comment number 2 by: Brooks

    Diane,

    In comments on Bruce Bartlett’s thread on CG&G regarding that column http://www.capitalgainsandgames.com/blog/bruce-bartlett/1129/taxes-and-deficits I suggested that, in such columns, he include some mention of similar delusions about the economic and political feasibility of their purist approach to our long-term fiscal imbalance: Just increasing taxes on “the rich” or that plus “getting out of Iraq” (and supposedly harmless cuts in Defense spending in general) and “eliminating waste” (as opposed to cuts in projected spending, particularly social spending, that will impose actual sacrifice on people). I made this suggestion (1) because it’s important that obstructionists on the left get the message, too, and (2) because failing to call out both sides on their delusional bullsh*t reduces his credibility among conservatives and centrists who may suspect or sense partisan bias or agenda on his part based on the “selective prosecution”, so to speak.

    Bruce’s response indicates to me that he may not appreciate the extent to which folks on the left react combatively to any suggestion of eventual sacrifice on the social spending side (particularly Medicare and Social Security, but also overall). Perhaps you can share with him (and your readers here) your experience/observation of the irrational, paranoid hostility toward Concord coming from hyperpartisans of the left who characterize Concord (and Pete Peterson) as some sinister bogeymen seeking to deprive needy seniors and others of needed benefits supposedly just “so the rich can keep their tax cuts” and so we can continue reckless “military adventurism” and “corporate welfare”.

  3. comment number 3 by: Jim Glass

    “I think the most persuasive case we can make to Republicans about the need to raise taxes now…”

    Why so concerned about making the case to Republicans?

    With Democrats having the White House and 60% majorities of both the Senate and House, wouldn’t it be more relevant to make the case to Democrats.

    After all, they are the ones planning to extend the Bush tax cuts — except for the little part on people making over $250,000, which part they have already planned to spend (seemingly a few times over) rather than apply to any deficit reduction.

    You talk about “courage”. Who has the most deficit-closing courage among Democrats?

    What about Paul Krugman — who is a more courageous truth teller than he? What commentator has more influence on the left? Who was more savage on the Bush tax cuts?

    He used to speak out on this…

    I’m terrified … we’re looking at a fiscal crisis … a looming threat to the federal government’s solvency … because of the future liabilities of Social Security and Medicare, the true budget picture is much worse than the conventional deficit numbers suggest.

    … the conclusion is inescapable. Without the Bush tax cuts, it would have been difficult to cope with the fiscal implications of an aging population. With those tax cuts, the task is simply impossible. The accident, the fiscal train wreck, is already under way…

    Of course, that was before the Democrats took control — now he describes himself as “sanguine” about the whole (much worse!) debt situation…

    in 1950, federal debt in the hands of the public was 80 percent of GDP, which is in the ballpark of what we’re looking at for 2019. By 1960 it was down to 46 percent — and I haven’t heard that anyone considered America a debt-crippled nation when JFK took office.

    So how was that possible? … How, then, did America pay down its debt? Actually, it didn’t: federal debt rose from $219 billion in 1950 to $237 billion in 1960. But the economy grew, so the ratio of debt to GDP fell, and everything worked out fiscally.

    … the lesson of the 1950s — or, if you like, the lesson of Belgium and Italy, which brought their debt-GDP ratios down from early 90s levels — is that you need to stabilize debt, not pay it off; economic growth will do the rest…

    So, to review: to make the debt look scary, you have to dismiss the post-World -War II experience…

    Now he saying: do nothing until 2019, and even then the situation will be no worse than it was for Ozzie and Harriet, for whom everything worked out great!

    What happened? It seems that what he formerly considered the “impossible” fiscal implications of an aging population have for some reason dropped entirely out his calculations.
    Krugman versus Krugman.

    A person who was cynical about political partisanship might suspect that Krugman was “terrified” of the coming fiscal collapse of the US under the weight of entitlements when the Republicans were in office to try to obstruct their policies … and has forgotten the whole issue — and now even overtly dismisses such scare-mongering — to smooth the way for Democratic spending programs. But whatever, be that as it may.

    Nobody damned and villified the Bush tax cuts more than Krugman & Co.

    Yet now that Obama and the Democrats are planning to embrace the bulk of the Bush tax cuts as their own, and vote to renew them, he’s mute — not just mute but “sanguine”, openly reassuring about the whole fiscal picture.

    And who among his vast company of followers is arguing against the extension and for a tax increase? Anybody???

    Face it: If even brave Krugman isn’t for a tax increase and is pooh-poohing the need for one in the fiscal situation…. who ya’ got?

    Mr Bartlett, whom I have read for maybe 20 years and esteem greatly, has a problem with Republicans because he is one (or at least was) so they’re his concern. But, being realistic, Republicans are far from power, and their opinions and psychological abberations are pretty much academic at the moment as far as policy is concerned, and figure to remain so for some time.

    Your problem is Democrats. Your team. The relevant one, with all the power.

    Maybe you should try to get Krugman to square up and show some courage. For starters?

    (He’s got tenure — it’s not like he’s got an electoral seat to lose. If a guy who’s as rich and has as much rock-solid security as he has can’t find the “courage”, who do you think will?)

  4. comment number 4 by: Brooks

    Jim,

    As I’ve said before, kudos on digging up that gem from the Krugman archives and exposing his blatant hypocrisy.

    Re: your argument that seems to belittle the importance or usefulness of combating the unrealistic, irresponsible position and rhetoric coming from some on the right (since Democrats have 60 votes in the Senate, etc.), I would just point out that this rhetoric from the right makes it more difficult and less likely that moderate/centrist Democrats in Congress will accept tax increases, because of the threat to their re-election, so combating this rhetoric from the right can be part of changing minds and votes among those Democrats, as well as possibly bringing along moderate Republicans into some compromise, combination approach to solving our fiscal imbalance problem.

  5. comment number 5 by: Bruce Bartlett

    Although it’s true that Republicans are in the minority it’s clear that they have political power disproportionate to their numbers. Just look at the health debate.

    Secondly, I don’t see Democrats raising taxes significantly on their own. Just as Republicans believe that G.H.W. Bush was defeated for raising taxes in 1990, Democrats believe they lost control of Congress by raising taxes in 1993.

    Somehow we have to create an action-forcing event that will be sufficient to get both parties to put taxes on the table. This event may be very painful, but less so than the alternative of doing nothing.

    The debate, it seems to me, is similar to the one going on with regard to monetary policy and whether the Fed should prick a speculative bubble. Doing so will be painful, but the alternative will be worse.

  6. comment number 6 by: hanmeng

    The argument seems to be we don’t have the political will to cut spending, particularly on health care, so we should summon the political will to… raise taxes. How about taxing health insurance benefits to encourage consumers to see what they’re actually paying and look for ways to cut costs?

  7. comment number 7 by: Rodger Malcolm Mitchell

    Mom says, “Everyone knows that fiscal discipline must be restored eventually, or we will face truly horrifying consequences–defaulting on the debt, nonpayment of Social Security benefits, a collapsing dollar, and double-digit inflation and interest rates. Everyone also knows that this will involve a combination of higher revenues and lower spending.”

    The fact that “everyone” knows is the real problem, because it’s dead wrong. Federal deficits have not and cannot cause default on the debt or non-payment of Social Security. That is sky-is-falling, Henny-Penny nonsense.

    In 1979, the gross federal debt was $800 billion. Today, thirty years later, its $12 trillion, a 1400% increase. During this massive run-up. we did not default on the debt or on Social Security payments. The dollar did not collapse. We didn’t have double-digit inflation and interest rates. In fact, the largest percentage deficit since WWII (Reagan’s) cured inflation, and today the biggest concern is deflation.

    None of the things Moms says will happen did happen, despite that 1400% increase. So where does she get her information? What is here supporting data? She has none.

    If we were to repeat that same 1400% increase, the debt would be $180 trillion by 2039, an average annual deficit of more than $5 trillion. According to history, we would have the same results.

    The “everybody” who is so sure large deficits cause the sort of chaos Mom predicts should come up with some supporting data. At long last, debt hawks, let’s see your data.

    i have written to Diane Lim Rogers, and her Concord gang on numerous occasions, asking to see any data they have the proves the debt is too large, unsustainable or will cause any of the crises they predict. No data forthcoming.

    You can try the same experiment yourself. Write to them and ask for data. All you’ll get (if you get anything) is statements about how big the deficit is. Yes, we know. It’s big. So????

    If you are one of the few debt hawks who actually wants to see data, go to http://www.rodgermitchell.com and/or http://rodgermmitchell.wordpress.com.

    Or you can just keep running in circles screaming, “The sky is falling.”

    Rodger Malcolm Mitchell

  8. comment number 8 by: Rodger Malcolm Mitchell

    Another thing Mom says is, “it makes me wax nostalgic about the fiscal discipline of the Clinton Administration.” While she’s waxing, she fails to mention that immediately after the Clinton “fiscal discipline” and before the Bush tax cuts, we had the Clinton recession.

    In fact every recession in the past 50 years has come after reductions in debt growth and every recovery has come during increases in debt growth. Also, *every* depression in U.S. history has immediately followed a series of federal surpluses.

    You all will see that Mom will supply no data to refute me. Ask Mom for evidence to show this guy Mitchell is wrong; you’ll get none. Kind of embarrassing, isn’t it?

    Rodger Malcolm Mitchell

  9. comment number 9 by: Brooks

    Folks, this guy Rodger has been posting moronic comments on various economic policy/politics blogs, apparently trying to sell a book (which, I would guess, is self-published or close to it). His idea seems to be that if we just print as much money as we could possibly want to spend, we’ll never have any fiscal or economic problems. He is a whack-job trying to sell a whack-job book, probably with very little success. And his mantra — “prove me wrong with data” — is asinine, since his assertions are so confused and so obviously ridiculous that no one bothers to take time to try to sort out his underlying assumptions and reasoning to refute it all. And then he says “Ahah! People just offer ad hominem but no refutation!” Yeah, and most people don’t try to sort out and refute the pseudo-intellectual contentions of some street-dwelling psychotics either.

  10. comment number 10 by: Bruce Bartlett

    There used to be a Social Credit movement that believed printing money was better than issuing bonds. I think they still exist up in Canada.

  11. comment number 11 by: SteveinCH

    Diane,

    Once again, I’m with Brooks. I’ll be the first to stand in line and agree that revenue needs to rise from its current paltry levels; however, I think you and he make the assumption that only republicans and their reflexive revulsion for increase taxes are the only problem here.

    To be honest, in the current world, Democrats are worse. They not only oppose cutting any spending (well except for defense, because after all, who needs a military) but they are actively seeking to increase spending on just about everything one can imagine. $787 billion was not enough. In just the past week, we’ve said the post office can be “forgiven” a pension payment of $4 billion for the next 10 years, medicare premiums cannot rise, costing another $8 billion, and we need to extend unemployment benefits again (haven’t seen the cost of that one yet).

    I’d guess that’s $20 billion in a week, none of which somehow could be covered by the $787 billion already appropriated but not spent. Lessee, at $20 billion a week, that works out to an extra $1 trillion a year (yes I know they won’t keep up at that pace).

    So you and Bruce feel Republicans are the problem because they won’t increase taxes. Not only will Democrats not decrease spending, they are increasing it at a pace that defies rational explanation.

    I renew my call for a national conversation on what portion of our GDP should go to government at various levels. It is the only way to break the logjam.

  12. comment number 12 by: SteveinCH

    And by the way, to the Al Gore lock box point, it wouldn’t much have mattered. I certainly believe he wouldn’t have been able to keep cash in the lock box. It would have been t-bills anyway which are basically worthless in practice.

    Given Gore’s willingness to bet on unproven and expensive technologies to move us off of oil, I’m happier with the current situation personally, but that is a long topic for another day I’m sure.

  13. comment number 13 by: murf

    While I’m no fan of the Republican non-approach to being a fiscal grown-up, you demonstrate quite well, your liberal blinders. One could replace in your comments “Republicans” with “Democrats” and “no new taxes” with “no new spending cuts,” and your column would read exactly the same.

    They are BOTH wrong. They are BOTH laying a foundation for the poverty of our children and grandchildren.

  14. comment number 14 by: Rodger Malcolm Mitchell

    In the interest of beginning a dialog, I’ve posted a graph you may find interesting. It shows that recessions begin when the growth of Federal Debt held by private investors declines. Any thoughts?

    The graph is at http://rodgermitchell.com/FedDebtPrivateInvestors-50-09.png

    Rodger Malcolm Mitchell

  15. comment number 15 by: Bruce Bartlett

    Some of the commentators miss my point. What I am talking about is reestablishing a rule that new programs be financed. We had such a rule from 1990 to 2002 called PAYGO, but Republicans abandoned it because the rule made it impossible to cut taxes without raising taxes or cutting spending. They rationalized this rule change on the grounds that deficits don’t matter.

    In the short run Republicans got the tax cuts they wanted. But by destroying fiscal discipline in the process they opened the door to Democrats spending. Imagine how different the debate over stimulus spending would have been in February if PAYGO rules were still in effect?

    Therefore, I continue to believe that primary–not exclusive, but primary–responsibility for our current budget mess belongs to Republicans.

  16. comment number 16 by: SteveinCH

    Bruce and Diane,

    What’s fascinating to me about your point of view is that it appears to be completely independent of historical fact. I looked at the data on table 1.3,
    http://www.whitehouse.gov/omb/budget/historicals/ and took 10 year averages of spending and receipts as a percentage of GDP. I think the results are instructive.

    1950s 17.2 17.6
    1960s 17.9 18.6
    1970s 17.9 20.1
    1980s 18.2 22.2
    1990s 18.6 20.7
    2000s 17.9 20.6

    The stability on both sides is pretty remarkable as is the structural shift created by the great society programs, which you can actually see in the 1970s and beyond. My broader point is that you seem to be asserting that the Federal government should and can lay claim to resources representing 21 or so percent of GDP despite the fact that it has not done so at any point in history. Those who long for the 90 percent marginal tax rates of the 1970s should note that total receipts as a percentage of GDP were no higher in the 70s than they were in the 80s under the “evil” Reagan tax cuts.

    One could look at these data and conclude that there is no correlation between party in power and receipts. The only correlation is a positive trajectory in spending as a percentage of GDP over time and deficits as a percentage of GDP over time.

    In my opinion, you preference for increasing receipts over reducing spending is more a policy prescription (meaning you believe receipts should largely be where they are) than an economic argument. It’s no skin off my nose if that is what you believe but let’s at least admit we’re making social judgments and not conducting economic analysis.

  17. comment number 17 by: SteveinCH

    But Bruce, didn’t you hear, PAYGO has been reestablished. Of course, a whole host of things are exempted but we have the comfort of that system in place.

    In my opinion, any legislative remedy to fiscal discipline will fail because Congress will set it aside when it suits them. The only things that could work are a line item veto and a balanced budget amendment of some sort.

    To use analogies, can you imagine how different the stimulus or health care debates would be if the budget were in balance. We would have had a 1.5 trillion stimulus and a $1.5 trillion health care plan and PAYGO be damned.

    To be honest, although the current situation is tragic, large deficits are the only thing that keeps the Democratic spending machine in check. I strongly believe that more reveneue will not balance the budget, rather it will product an equally unbalanced budget at a higher set point

  18. comment number 18 by: SteveinCH

    Oops, last paragrapho of post 16, it should say you believe spending should be where it is.

  19. comment number 19 by: Rodger Malcolm Mitchell

    The problem with PAYGO is it doesn’t increase the deficit. (I know; that’s supposed to be it’s purpose.) But not increasing the deficit means not adding money to the economy. A growing economy, by definition, requires a growing supply of money. Where will the money come from to grow our economy?

    This Fed bank graph shows that lack of deficit growth triggers recessions:

    http://rodgermitchell.com/FedDebtPrivateInvestors-50-09.png

    Rodger Malcolm Mitchell

  20. comment number 20 by: Jim Glass

    What I am talking about is reestablishing a rule that new programs be financed. We had such a rule from 1990 to 2002 called PAYGO, but Republicans abandoned it because the rule made it impossible to cut taxes…

    Therefore, I continue to believe that primary … responsibility for our current budget mess belongs to Republicans.

    Rudy Penner, former CBO head, told Delong that paygo came off in 1997 due to the arrival of the surplus. (No more need to starve the beast).

    The result was a 1998 spending fest for the off-year elections. One will remember that Clinton and the Repubs happily and bipartisanly went along with that together in the split government of the time.

    That was long before Bush and his tax cuts were dreamt of.

    DeLong:

    Brad praises how well and honest the budgetary process worked in the early and mid-1990s, and what an important role the Budget Enforcement Act [BEA] and its Pay-As-You-Go restrictions [PAYGO] that made any piece of legislation that increased the deficit out-of-order on the floor of the House and the Senate played in making the 1990s debate both high-quality and effective…

    Rudy: …One substantive point: You rightly praised how the BEA worked from 1990 thru 1997. But then it broke down completely. It may not be renewed or even worse it may be renewed and then ignored. I think now the only defense is presidential vetoes, but I’m not confident he’ll use them.

    Brad: The discretionary caps were pierced regularly and with gay abandon. But–and correct me if I am wrong–individual bills that moved outside of appropriations jurisdiction still had to be deficit neutral, didn’t they? But the rapid dissolution of the effectiveness of the process after 1997 puzzles me greatly…

    Rudy: Legislation involving mandatory accounts “had to be deficit neutral”, but it wasn’t after 98. PAYGO rules were routinely violated, but legally in the sense that a phrase was often included in the legislation that essentially said that this law is not subject to PAYGO rules.

    Brad: Yeah. But up through 1997 (or so) inclusion of such a phrase would automatically lose you ten votes (or so) in the Senate. So what happened at the beginning of 1998 to change things so completely? That’s still not clear to me…

    Rudy: I believe it was the surplus. PAYGO was originally designed to stop tax and entitlement policy from increasing the deficit. (Really, to preserve the gains from the 1990 budget agreement.)

    After 1997, it had the effect of preventing any reduction of the surplus and that didn’t make much sense.

  21. comment number 21 by: Jason Seligman

    I’d like to take the truth in the Mitchell argument and repurpose it towards informing better governance:

    “The fact that “everyone” knows is the real problem, because it’s dead wrong.”

    I agree, people are not as aware of the looming crisis as they need be. That is why misinforming the health care debate, and the rest of the fiscal three-ring circus is so easy for the party of underfunded government.

    As for the rest of the thesis offered by the Mitchell posts, he begs, so I did look at the chart… Look at it, and… 91, and 2000 recessions seem to be linked to increases in privately held debt. Awesome thesis.

    Here are some suggestions:
    -1- Do not try to compare times in which the marginal investor is by and large a US citizen to time in which they are not. And relatedly, as for monetization, look at China in the 15th century, or France under the bi-metal standard (that would in the 19th C). Or Germany in the 1920s, or Brazil and Argentina at various times over the last 30 years. All those societies went into profound retreat. Thanks for the prescription “doc.”

    -2- Try to get a good number of observations when you look into something. The period of 1950 forward is relatively short. Go back to 1775, or 1830, what would a fuller history of even the one series reveal? Ohh but wait, who cares, this thesis does not even work in the period you present, and it seems to work less well as you get closer to the present. Genius.

    -3- In order to convince me that your thesis is the right one, make sure to address others in the literature. Engage more data.

    To summarize then, a thousand words or otherwise, some pictures like some arguments are more or less worthless.

    Now then, going back to the “everybody knows” — I think Concord is working on that but like all good work it needs to be supported by additional informed efforts.

    After all, at the end of the day you are either part of the solution, or part of the problem, or part of the scenery.

  22. comment number 22 by: Brooks

    Jason,
    I think you’re misunderstanding the absurd contention coming from Rodger and thus giving him credit for saying something that might be even partly sensible. He’s saying it’s “dead wrong” to think that “fiscal discipline must be restored eventually, or we will face truly horrifying consequences” and/or that restoring fiscal discipline “will involve a combination of higher revenues and lower spending”. He apparently thinks that all we have to do is print as much money as we’d like to spend (which presumably is an infinite amount) and there we’ll get everything we want with no adverse economic or fiscal consequences. He’s a nutjob, and I don’t throw around that term lightly.

  23. comment number 23 by: Bruce Bartlett

    It’s true that PAYGO began to break down in 1998 when the Republican Congress started declaring an emergency every time it wanted to spend money on another pork barrel project. Nevertheless, it remained a constraint on spending, which is why the Republicans repealed it in 2002.

  24. comment number 24 by: B Davis

    Rodger Malcolm Mitchell wrote:

    In the interest of beginning a dialog, I’ve posted a graph you may find interesting. It shows that recessions begin when the growth of Federal Debt held by private investors declines. Any thoughts?

    How about answering a question about the following excerpt from your website?


    1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
    1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
    1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
    1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
    1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
    1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
    1998-2001: U. S. Federal Debt reduced 9%. Recession began 2001
    2004-2008: Deficit Growth reduced 40%. Recession began 2008.

    My question is why did you switch from “Federal Debt” reduction to “Deficit Growth” reduction for 2004 to 2008? Could it be because the Federal Debt increased 35 percent in those four years, totally counter to your theory that depressions and/or recessions are caused by debt reduction?

    In fact, I’ve seen first six set of numbers bouncing around the web since they appeared in the writings of Frederick C. Thayer in 1996. I have addressed the flaws in Thayer’s arguments and posted them at this link. The basic point is that nearly all of those debt reductions were just partial reductions in huge debts that had just been run up in prior war years. Do you concede this point? If so, do you simply believe that we can run up any level of debt for an emergency with no intention of ever paying that level down?

  25. comment number 25 by: B Davis

    Bruce Bartlett wrote:

    It’s true that PAYGO began to break down in 1998 when the Republican Congress started declaring an emergency every time it wanted to spend money on another pork barrel project. Nevertheless, it remained a constraint on spending, which is why the Republicans repealed it in 2002.

    I agree. The first graph and tables at this link show that outlays continued to fall after 1998, dropping from 19.2% of GDP in 1998 to 18.4% of GDP in 2000 and 18.5% of GDP in 2001. In 2002, the year that PAYGO ended, outlays jumped to 19.4% of GDP and have never looked back.

  26. comment number 26 by: SteveinCH

    Guys. correlation does not equal causality. PAYGO only works when Congress wants it to work. The House passed PAYGO just a little while ago. Did it stop them from “deferring” a $4 billion pension payment from the post office or stopping medicare premiums from increasing (because SS didn’t get a COLA this year) or extending unemployment benefits again. Surprisingly, it stopped none of those things from happening.

    For the life of me, I cannot understand why you think self-regulation in Congress is a viable solution to runaway spending or tax reductions. In point of fact, establishing PAYGO today would do nothing more than mandate a deficit of greater than 5% of GDP while giving Congress the political cover of explaining that they’ve enacted PAYGO.

    The history lesson about the 1990s is interesting. Remember Graham Rudman? That was Congress’s version of self regulation in the 80s. Funny, it didn’t work either. If you think PAYGO is a viable solution for 2010, that’s a debate worth having. The debate about the 90s or the 80s is only interesting to the degree it informs that debate.

    For the future, PAYGO could only work if (1) someone outside the Congress were empowered to enforce it; (2) it were enacted at a point in time where the budget was in balance; and (3) there weren’t enough loopholes to drive a truck through.

    To me, (1) is impossible via a legislative act, (2) is unlikely to happen, at least according to the most recent budget outlook, until at least 2019, and (3) is possible without (1) but impossible with it

  27. comment number 27 by: Brooks

    Steve,

    Re:establishing PAYGO today would do nothing more than mandate a deficit of greater than 5%

    Why? PAYGO doesn’t preclude raising taxes or reducing spending (vs. either prior spending or projected spending) to reduce deficits. In other words, it doesn’t say we can’t do better than what it requires.

  28. comment number 28 by: SteveinCH

    Brooks,

    Of course it doesn’t but by that logic the budget should be balance now. If the binding nature of PAYGO is what makes it good, do we really believe that the probability of Congress doing better than that binding is any different than the probability of them doing it without the bind?

    My point is, the most likely outcome is 5%+ deficits and sanctimony coming from legislators about how they are being responsible by following PAYGO. I grant that other outcomes are possible but much less so. That’s the reason why I would oppose

  29. comment number 29 by: Brooks

    Steve,

    I realize there is always a danger of something that is good providing enough political points to a politician that he becomes less less likely to do better, but in this case I’d rather see the good than not, particularly if we’re talking about seeking a comprehensive PAYGO (rather than full of huge exemptions) and a higher hurdle for overriding it. I think, on balance, such a PAYGO rule would lead to lower deficits than without it.

  30. comment number 30 by: Brooks

    Diane,

    Stanford economics prof (and now blogger*) takes David Walker’s intergenerational morality rhetorical tactic (a slide he uses) a step further http://www.youtube.com/watch?v=7X0jC3GvPYo&feature=channel_page

    * http://johnbtaylorsblog.blogspot.com/

  31. comment number 31 by: SteveinCH

    Brooks,

    You may be right but I’m not sure that’s the complete choice set, meaning PAYGO or nothing. My worry about PAYGO is it’s the easy answer. Once it’s in, Congress gives themselves a pass. I’d rather see a line item veto or a balanced budget amendment with some flexibility. Put PAYGO in and the pressure for either drops to zero.

    I recognize maybe it’s making the perfect the enemy of the good but I more see it as refusing to take something that surely won’t work for the chance for something that might

  32. comment number 32 by: Brooks

    Steve,

    I hear ya’. I just see the balance differently. And I should not the importance — and relevance to this question of net effect — of budget rules / process changes such as a strong, statutory PAYGO being accompanied by a strong educational and advocacy effort pushing fiscal responsibility. As I say here http://dmarron.com/2009/09/21/is-it-possible-to-tame-the-deficit-yes/#comment-967 we need to work both ends, the public and the process.