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Tilting at Windmills

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November 17, 2010

CREATE JOBS, LOWER THE DEFICIT.... For all the talk about tax rates and government spending, with deficit fears hanging over head, there's one sure-fire way to improve the nation's finances. As David Leonhardt explained today, it's a largely-overlooked approach called "economic growth."

We look back on the late 1990s as a rare time when the federal government ran budget surpluses. We tend to forget that those surpluses came as a surprise to almost everybody.

As late as 1998, the Congressional Budget Office was predicting a deficit for 1999. In fact, Washington ran its biggest surplus in five decades.

What happened? Above all, economic growth. And that may be a big part of the answer to our current problems.

Yes, the government became more fiscally conservative in the 1990s. Both President George H. W. Bush (who doesn't get enough credit) and President Bill Clinton, working with Congress, raised taxes to attack the 1980s deficits.

But those tax increases were the second most important reason for the surpluses that followed. The most important was the fact that the economy grew more rapidly than expected. The faster growth pushed up incomes and caused more tax revenue to flow into the Treasury.

Given the size of the current deficit, growth almost certainly won't be enough to balance the budget anytime soon, even if the economy grows much faster than expected, which seems unlikely. But growth was responsible for reducing the deficit over the last year, and the more things improved, the lower the deficit will be -- without slashing spending.

Indeed, perhaps the most astounding aspect of Republican rhetoric on the economy lately is how contradictory it is. On the one hand, a top GOP goal is, at least in theory, deficit reduction. On the other hand, those same Republicans want more tax cuts (which makes the deficit worse), and spending cuts that would likely slow the economy (which also makes the deficit worse).

Digby added, "Why Democrats haven't been saying 'jobs=deficit reduction' on a loop, I don't know. I guess they figure it's just too complicated to explain that when people aren't working they aren't paying taxes so the government doesn't have as much money."

I'm guessing the same thing. It's easier to talk about "belt tightening" during a downturn than it is to explain how economic growth leads to revenues leads to deficit reduction.

But I'd sure like to see Dems talk up this idea anyway. It's not that complicated; the 1990s offer a recent model of success; and no one outside the far-right really wants those brutal spending cuts anyway.

Steve Benen 11:20 AM Permalink | Trackbacks | Comments (18)

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Comments

They are astoundingly poor at messaging. That is one thing we do know. Can't really figure out why. Take START. Seems like a no brainer to be screaming about the National security implications. Maybe have Webb on the TV trashing them daily? For the sake of the Republic they really need to get their act to together. Both Ob and Reid...

Posted by: KK on November 17, 2010 at 11:33 AM | PERMALINK

So what we need is a new high tech bubble to get us through until the next bubble?

Sustainable growth is the only way we can continue.

As for Jobs=Deficit Reductions, as they say in the fundraising world, no one wants to give to retire debt. The Repubs will just turn that into They Want To Take More of YOUR Money.

Jobs= Prosperity seems like a better tack, though Prosperity may have too may syllables to satisfy the marketing dept.

Posted by: martin on November 17, 2010 at 11:34 AM | PERMALINK

When telling the story of the late 90's, you really need to include that Clinton said no to most of the Republican plans to cut taxes. Then Bush came in and cut taxes and the deficits reappeared. I wonder whw.

Posted by: John Dillinger on November 17, 2010 at 11:35 AM | PERMALINK

Continued 10% unemployment is a crucial key to the Republican hopes in 2012. They will impede any attempt to lower that and will, if possible, try to raise it to 12%. Once you understand that, their actions start making sense. I wonder if their "base" will ever catch on?

Posted by: T2 on November 17, 2010 at 11:37 AM | PERMALINK

What Republicans understand about economics would fit on the back of a postage stamps.
What they want to do to help people get jobs would fit on the back of an atom.

It's not in ther best interest for the economy to improve until they control the Senate and the Presidency. And sadly, they'll then make a horrible situation much worse. It's all the know how to do.

Posted by: c u n d gulag on November 17, 2010 at 11:37 AM | PERMALINK

Republicans want government to "tighten it's belt" just like the rest of Americans have to. They'd like to shrink the federal government and all government. If that means state governments in California, Illinois and New York have to lay off more employees like cops and teachers they're all for it.

The way to counter that meme is too remind voters that the laid off cops and teachers then go on welfare. Don't call it unemployment use the GOP term. The GOP wants to put more people on welfare.

Posted by: markg8 on November 17, 2010 at 11:46 AM | PERMALINK

Indeed, perhaps the most astounding aspect of Republican rhetoric on the economy lately is how contradictory it is.

There's nothing remotely contradictory about it once you discount the stated rationale for their policies (the national interest) in favor of the true rationale for their policies (capturing the White House in 2012, and solidifying GOP political power).

They're not the first people to engage in boldface lies to gain power, and I doubt they'll be the last.

Posted by: Jasper on November 17, 2010 at 11:48 AM | PERMALINK

"Destroy America, Defeat Obama!"

Posted by: d@idiots on November 17, 2010 at 11:49 AM | PERMALINK

Leonhardt: “But those tax increases were the second most important reason for the surpluses that followed. The most important was the fact that the economy grew more rapidly than expected. The faster growth pushed up incomes and caused more tax revenue to flow into the Treasury.

Yes, that was the case EVENTUALLY, but initially the primary reason for the declining federal budget deficits were the increased taxes on the Rich & Corporate.

Proof of this is that the federal budget was in NET surplus by the Summer of 1994, less than a year after the tax policies were changed. The increased tax revenue from aggregate rising incomes was later.


Posted by: Joe Friday on November 17, 2010 at 11:54 AM | PERMALINK

Sometimes you have to destroy the country to save it from a black president. Just don't screw with my medicare or social security payments.

Posted by: Tea Party Point of View on November 17, 2010 at 11:55 AM | PERMALINK

OK, here is the question nobody is asking. How do we go about creating economic growth? Do we subsidize exports like the Chinese? It is sure as heck that we aren't going to do anything to create renewable energy as long as the oil companies are in charge.

Posted by: Ron Byers on November 17, 2010 at 11:58 AM | PERMALINK

The Republicans have spent three decades "proving" that tax cuts increase revenue. It is now an article of faith. Combine that with three decades of "proving" that the "lamestream" media is biased so everything they tell you is a lie, and that liberals love to tax and spend and you have a world view that is unassailable by facts, figures, charts, diagrams, reason or logic.

Posted by: vickijean on November 17, 2010 at 11:58 AM | PERMALINK

The problem is that the vast majority of the citizenry, politicians and the newspeople who cover them don't know jack about macroeconomic principles. A bonehead like Boehner can say that governement spending doesn't create jobs and people believe it because they never had a teacher in an economics class tell them exactly how government spending DOES lead to job creation, then econcomic growth, then more jobs, more tax revenue, leading eventually to balanced budgets.

Instead they watch "Dancing With the Stars."

Posted by: wihntr on November 17, 2010 at 12:38 PM | PERMALINK

the most astounding aspect of Republican rhetoric on the economy lately is how contradictory it is. On the one hand, a top GOP goal is, at least in theory, deficit reduction.

Posted by: bittorrent movies on November 17, 2010 at 12:38 PM | PERMALINK

Why Democrats haven't been saying 'jobs=deficit reduction' on a loop, I don't know

How does the government act to create jobs? Is there even a consensus within Democrats about how that's supposed to happen? I think the Republican theory is that cutting taxes on businesses creates jobs, and cutting taxes on working people gives them more money to spend, keeping more businesses aloft. What's the Democratic theory? I don't mean how _should_ it work, I mean what do they _say_ about it? I don't know the answer to that.

Posted by: FlipYrWhig on November 17, 2010 at 1:14 PM | PERMALINK

What led to the small budget supluses in 1999 and 2000 ($2B and $86B respectively - larger numbers count SS money as general income) was the stock-market bubble and extremely high capital-gains proceeds, and also decreased military expenditures because of the end of the cold war and a temporary hiatus in our perpetual war against the middle east. Likewise the apparently favorable economy up to 2007 was based on the housing bubble.

The 1990s offer a recent model of success if you like bubbles.

Posted by: skeptonomist on November 17, 2010 at 1:59 PM | PERMALINK

How do we go about creating economic growth?

Keynes answered this question awhile back. Here's a simple equation for everyone to remember.
GDP = Y
Y = C + G + I + (X-M) where
C = consumer spending
G = government spending
I = business investment
(X-M) = net exports (exports - imports)

C is down. X-M is down and constantly negative.
I is flat to down. What does that leave us?
Government spending, bridges, dams, roads, internet infrastructure, etc.

Here's an idea to increase C. Raise the top marginal tax rate to 50%, then provide an income tax deduction of 50% on all purchases over $1000. This will stimulate consumer demand among those that can most afford it.

Posted by: Gridlock on November 17, 2010 at 6:27 PM | PERMALINK

skeptonomist,

What led to the small budget supluses in 1999 and 2000 ($2B and $86B respectively - larger numbers count SS money as general income)…

Sure, but ya gotta be consistent.

During the 12 years of Reagan/Poppy Bush, they utilized the SS surpluses to mask the size of the exploding federal budget deficits as a result of the failed tax cuts for the Rich & Corporate.

During Clinton’s 8 years, the Republicans demanded that the SS surpluses not be used to mask the size of the shrinking federal budget deficits as a result of increasing taxes on the Rich & Corporate.

During Chimpy Bush’s 8 years, the Republicans demanded that the SS surpluses be utilized to mask the size of the exploding federal budget deficits as a result of the failed tax cuts for the Rich & Corporate.

I suggest that we should be comparing apples, not oranges.

Therefore, according to the independent non-partisan CBO:

1998 - $069 billion SURPLUS
1999 - $126 billion SURPLUS
2000 - $236 billion SURPLUS
2001 - $128 billion SURPLUS

Posted by: Joe Friday on November 17, 2010 at 8:52 PM | PERMALINK
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