On April 1st Sen. Judd Gregg (R-NH) the Republican stalwart who changed his mind about serving as Secretary of Commerce in the Obama Administration, gave us a beautiful example of the surpassing “rationality” of standard Republican reasoning about the pending budget bill in the Congress in the form of a Washington Post op-ed piece, called “A Budget to Beggar Us. While a critique of his article is like the proverbial “shooting fish in a barrel,” I still thought it might be worth doing, because, really, Republican mouthpieces need to upgrade the quality of their reasoning if the US is to have an effective two-party system, and the only way to convince them of that is to call them out whenever we encounter the usual pap they hand out. So, in this and a couple of other blogs, I’m going to comment on the statements in Sen. Gregg’s piece I find particularly silly, or otherwise objectionable. Of course, I should also, perhaps, comment on the sensible views in his piece, but I’m afraid there are very few of those, and this “stress test” will be long enough as it is. So, in the interests of space, I thought it reasonable to ignore them.
Gregg says: ”. . . Yet I believe that over the next couple of years, the country will recover from this severe recession. We are an inherently resilient nation.” I read this and I wonder, how does Senator Gregg know whether or not the country will recover in two years? In 1930, people were saying that “prosperity was just around the corner.” Why should we think Gregg’s assurance of recovery is any better than that prediction? Does he understand economics better than Herbert Hoover? Has he got “the Black Swan” covered? Based on his views expressed later in his article, I’d say his view of the economy is very similar to Hoover’s, and that if we followed his policy recommendations, his own prediction about when recovery will take place is much more likely to be wrong than it is to be even in the ballpark, much less reasonably accurate. The interesting thing about his forecast is that if the facts bear it out, that will probably be due to Administration actions Gregg opposes, rather than to the Government following his prescribed course.
Gregg also says: “This is a defining budget. It shows very clearly where the president and the Democratic majority want to take our country: sharply to the left.” I guess my problem with this is that I’m pretty tired of meaningless labeling. What does calling this budget “left,” really mean, after all, other than that Sen. Gregg disagrees with what is in it? Does Sen. Gregg really think that people evaluating his views will find that kind of name-calling compelling? Let’s have a moratorium on calling things “left” or “right,” and instead articulate what’s wrong with them compared to other alternatives.
Gregg moves on:
“But don’t be fooled when the president says the economy he inherited is the reason that future deficits and debt skyrocket.
“The president’s budget makes clear that a huge expansion of government is not just about today’s economic downturn. Once the recession is behind us, this budget will continue pushing for more and more government in our everyday lives.”
First, it isn’t clear that future deficits and debts will “skyrocket.” Budget forecasts are sensitive to tax revenues, which, in turn, are sensitive to growth, and since we don’t know much about how fast the economy will turn around, and grow once again, we also don’t know much about what will happen to our national debt in the face of unexpected growth. For example, who, at the end of 1946, observing a ratio of Federal Debt Held by the Public to GDP of 108.6% would have guessed that by the end of 1952, just six years later, that ratio would have fallen to 61.6%. Also, even in stable economic times, budget forecasts beyond five years are notoriously unreliable, and sensitive to small changes in model assumptions; so looking beyond five years is largely a waste of time.
Second, however, to the extent we do have large deficits, these will be due much more to the failure of the economy to recover than they will be to increased Government Expenditures. Why? Because, historically, recovery increases tax revenues and lowers deficits and the national debt as a percentage of GDP or national wealth.
Further, while it’s true that the Obama Budget calls for the growth of Government and regulation, Senator Gregg’s easy association of more Government and more regulation with increasing deficits and growing debt to GDP ratios is a Republican dogma belied by history. Thus, the Reagan-Bush 41 presidencies led to less Government and less regulation, but also to much higher deficits and to an increasing public debt (rising from 26.1 to 48.1) as a percent of GDP. The Clinton Administration, while lightening regulation in certain areas, was more activist than both Bush Administrations, yet it enjoyed a period of decreasing public debt (falling from 48.1 to 35.1) as a percent of GDP. Lastly, the Bush 43 Administration which certainly decreased regulation and Government intervention in the economy until its final days, also increased the public debt to GDP ratio from 35.1 to 37.9 (estimated). Why did the ratio of Federal Debt held by the Public to GDP increase under the Reagan and Bush Administrations, and decrease in all others since the end of WW II? The answer is that the growth in deficits during these administrations outran the growth in GDP. Why did that happen? Primarily because the tax cuts for wealthy Americans used as the primary tool for economic stimulus in the Reagan and Bush Administrations provided very little multiplier effect beyond the tax expenditures themselves. That is, tax cuts are a much less effective stimulus than other Government expenditures, so when they’re used to stimulate the economy, growth in GDP, won’t outrun growth in deficits and the National Debt. In short, in recent history, the rise in the National Debt to GDP ratio has been due to the inadequate stimulus provided by Republican tax cuts for the wealthy. Older post-WW II Republican Administrations (Eisenhower, Nixon, Nixon/Ford) didn’t cut taxes, but often ran deficits because of the cost of social programs and military expenditures, and their record of reducing the debt ratio was comparable to the record of their Democratic counterparts.
In short, Sen. Gregg’s association of Government activism and regulation with deficits and debt is contrary to fact, and to a period of history which he personally experienced and whose lessons he should have learned. What about his charge of increased Government in our lives? Well, it’s certainly true that many in the financial and business sectors of our economy will have to be concerned about regulators looking over their shoulders, perhaps the rest of us will have to worry less about sudden increases in credit card interest rates we have no control over, or real estate bubbles, or unreasonable increases in medical costs, or consumer product defects, or extreme economic cycles, or lack of educational opportunity for our children, or the incapacity of government to help people respond to natural disasters. The point, of course, is that Government constraints on the economic decision making of some, can increase the freedom of others to live their lives as they see fit. Freedom from Want and Fear have been decreasing in America for a generation, and the decrease is associated with the decline of Governmental activism and regulation. Our problem now is not too much Government in the economic sphere, it is too much unaccountable private economic power that can only be countered by restoring the role of the Government to its proper role in a mixed economy.
To Be Continued