How much deficits hurt the economy — by raising interest rates, thus reducing private investment — is a much-debated question, but it’s not one I have in mind today. What I have in mind are two questions that have reemerged as deficits have: 1) Do federal budget deficits restrain federal spending? and 2) Do deficits inflict political damage on the people who get blamed for them? Republicans have been answering yes to the first question, while Democrats appear to believe that yes is the answer to question two. I think the answer to both is no. More important, the questions are misconceived.
The idea that deficits increase the pressure to restrain federal spending is easy to mock — Michael Kinsley says it’s like binging now in order to force yourself to lose weight later. It would obviously be silly to increase spending now in order to produce a deficit that would then make people want to cut spending. But it makes a lot more sense to reduce revenues in order to force spending cuts. Milton Friedman argues that federal spending is limited by federal revenues plus the maximum politically acceptable deficit. If you can reduce revenues without increasing the size of the politically acceptable deficit dollar-for-dollar, you can force spending restraint.
Kinsley makes another argument: that it’s foolish of conservatives to see deficits as a tool to restrain spending because they could generate as much pressure to raise taxes as to cut spending. Even if this is true, however, it’s not an objection to reducing revenues as a strategy to restrain spending. If you cut taxes by $1 trillion and then later have to cut spending by $500 billion and raise taxes by $500 billion to restore balance, those of us who want lower spending and lower taxes come out ahead. (Assume the tax cuts generate enough growth to soften the revenue blow to the feds, and you’re still ahead on spending and you’re further ahead on taxes.)
None of this means that the deficit is “a good thing,” as some conservatives have been saying. If conservatives had an opportunity to slash enough domestic spending to balance the budget, they’d be fools to pass it up in order to preserve the deficit in the hopes of restraining spending later. It means that on restraining-government grounds, a deficit is better than some, but not all, of the alternatives. (I’d argue that this is true economically too.) But the deficit is not the thing to keep your eye on.
On to question two: Will the deficit hurt Bush? My colleague Byron York argues in The Hill that it will. He quotes “a conservative supporter of the Bush economic plan” saying, “A good economy and a $400 billion deficit is better than a bad economy and a $200 billion deficit.” York’s response: “That’s true, but it suggests, mistakenly, that because the economy is more important politically, the deficit is not important at all. A more likely scenario is that if the economy continues to lag, the presence of huge deficits will make Democratic attacks on Bush more effective.”
York is right to say that deficits will matter in Washington, increasing Democratic opposition to, and Republican nervousness about, tax cuts. He’s also right to suggest that deficits can damage a party with the public when they become a symbol of larger problems. In 1994, Republicans were able to capitalize on the deficit as a symbol of an out-of-control, out-of-touch Democratic Congress. Next year, Democrats could use it as a symbol of Bush’s poor economic management. So: The deficit might hurt Bush a little when coupled with a bad economy, which would hurt him a lot more.
But before reaching even the qualified conclusion that deficits can cost votes in some circumstances, one has to ask: compared to what? The alternatives to running a deficit — tax hikes or spending cuts — would cost more votes. Consider the Republican experience in 1995 and 1996, when they ran against deficits more or less as a stand-alone issue. It turned out that opposition to deficits (and support for the equally abstract idea of “reform”) was a much lower priority for the public than support for Medicare and other benefits. That’s why President Clinton was able to crush the Republicans. It’s also why deficits happen. The public likes them a lot more than the alternatives.
Republicans shouldn’t seek to maintain deficits in order to restrain spending, but they shouldn’t worry too much about their political impact either. Deficits can’t do much to help them either achieve their goals or to hurt them.
LANCE MORROW
I have a soft spot for him, largely because his son is a friend of mine. But his back-page essay in the latest edition of Time is idiotic. He writes, “With the approach of war, a familiar recklessness boils up from the American id; you catch it, for example, in the talk-show braying about various ingeniously horrible ways that the U.S. ought to be torturing Khalid Shaikh Mohammed. (I have been trying to decide how much anti-Arab bigotry goes into this: Would the braying be as graphic and gleeful if the terrorist were a Whiffenpoof? Maybe.)” Oh please. We all get the point: Lance Morrow is morally superior to the “American id,” which is guilty until proven innocent.