Political Animal

Blog

July 31, 2011 9:50 AM Grow the economy, lower the deficit

By Steve Benen

This comes up from time to time, but probably not often enough. For all the preoccupation with the budget shortfall, and the apparent desire to turn a blind eye to the economy, we know perfectly well that the most effective way to reduce the deficit is to grow the economy. Indeed, it’s painfully obvious: when the nation’s economic conditions improve, the nation’s fiscal conditions also improve.

Though she steered clear of policy recommendations, I was nevertheless glad to see the NYT’s Catherine Rampell touch on this today.

Not so long ago, the National Debt Clock, perched above the Avenue of the Americas, a block east of Times Square, was running backward.

It seems remarkable now, with all the End Times talk of debt ceilings and default, but it was only 11 years ago that the owners of that electronic totem, the Durst family, simply pulled the plug. The clock, a fixture since 1989, went dark after the federal government ended its 2000 fiscal year with a record $236.4 billion budget surplus.

Today, well — you know. We face the largest budget deficit the nation has ever known: $1.6 trillion, the equivalent of about 11 percent of our economy. And, whatever Washington does, many economists say the situation will grow only worse, particularly as Americans age and Medicare costs spiral higher.

But there is, in theory, a happy solution to our debt troubles. It’s called economic growth. No need to raise taxes or cut programs. Just get the economy growing the way it used to.

Good luck with that.

I do look back with some fondness at 2000. The National Debt Clock had never been programmed to run backwards, so it had to be unplugged. Did Tea Partiers celebrate? Well, no, the so-called “movement” didn’t exist, and its current members didn’t much care. Indeed, the elimination of the deficit was so low-key, about a third of the country still thought Clinton had left a deficit for Bush, reality be damned. (The deficit didn’t much matter to the public consciousness again until 2009, when the right hoped to make governing impossible for President Obama.)

It’s a forgotten detail, but going into 2000, the government was expected to run a deficit. What happened? The economy was growing so fast, and unemployment was so low, receipts far exceeded expectations. It was a striking reminder: good economy = good fiscal picture.

Of course, Republicans soon dominated after Clinton’s departure, the deficits came back, and those who claim credibility on fiscal issues stopped paying for their agenda and added several trillion dollars to the debt.

In our current decade, growth alone won’t be enough to balance the budget anytime soon. The shortfall is too large. That said, growth was responsible for reducing the deficit in 2009, and more growth would mean more jobs, more jobs would mean more revenue, and more revenue would mean a smaller deficit.

It’s why the last several months have been so dispiriting. Those who claim to be the most concerned about the deficit — who, incidentally, are largely responsible for the deficit — are also the ones demanding austerity measures that would hold the economy back, which in turn makes it tougher to address the budget shortfall they pretend to care about.

In the name of fiscal responsibility, we’re going to take money out of the economy, making growth more difficutl, and undermining the best available method of lowering the deficit.

Steve Benen is a contributing writer to the Washington Monthly, joining the publication in August, 2008 as chief blogger for the Washington Monthly blog, Political Animal.

Comments

Post a comment
  • SW on July 31, 2011 9:58 AM:

    I choose to believe that President Obama is only pretending to buy into this austerity bullshit in a brilliant move to discredit it for generations.

  • Extreme Moderate on July 31, 2011 10:00 AM:

    If you think the last few months have been dispiriting, wait for the upcoming Tea Party victory lap...One other point: I've basically given up on reading the mainstream press at this point for coverage of political issues. They're late, they're wrong, and most importantly they don't call the right wing out on this stuff. The Tea Party/GOP just lies and lies and lies and the American electorate either has this sort of cognitive dissonance or they just don't get it or they just don't care. Or maybe all of the above. How else do you explain that your post would probably come as net new information to most people out there?

    Separate subject: any chance we can con you into doing some kind of lengthy post mortem when this is all over? Is there any progressive hope that can come out of this? Nothing is a linear trend, but boy I'm worried. I can't think of a reason to vote for Jimmy Carter over there at the white house except for the fact that all the alternatives are unthinkable...

  • bob h on July 31, 2011 10:02 AM:

    Presumably there will be coming soon an estimate of the job and GDP loss from the $3 trillion deal. I would guess these would be sizeable, but no one will be challenging the Republicans about it.

  • Danp on July 31, 2011 10:12 AM:

    those who claim credibility on fiscal issues stopped paying for their agenda and added several trillion dollars to the debt.

    It didn't help that Alan Greenspan supported the Bush tax cuts (2001) in order to stop surpluses from getting too big. This guy should have been out drooling with the cows long before then.

  • RD Padouk on July 31, 2011 10:13 AM:

    Now that the Republicans have made such a public display over the dangers of the deficit, I question if they can put this genie back in the bottle. Once this crisis has passed it seems hat Obama can now exploit this increased public awareness with the deficit to obtain political support for refusing to extend the Bush tax cuts.

  • tonyroma on July 31, 2011 10:14 AM:

    Its just a closed feedback loop that the GOP/TPers continue to use over and over again.

    1) The nation is broke because "they" spend too much, completely ignoring the fact that their own reckless and forecast policies put us in this position in the first place

    2) Taxes must be cut so that the "job creators" can grow the economy, disregarding the fact that almost all the wealth created in the last 30 years resides with the top few percentile of wage earners

    3) Its the spending that benefits the actual taxpayers which is the problem (ie. entitlements), not the spending benefiting the wealthy and their interests

    4) Rinse, repeat

  • c u n d gulag on July 31, 2011 10:17 AM:

    Nothing done in the past few months indicates that there'll be anything positive done about employment. So, there's nothing to point to where we can look at more people working as a source of revenue.

    Let's face it, we are a nation in decline.

    Voting for Democrats means a slower decline. The water going out of the bathtub drains slowly - but it still drains.

    Voting for Republicans is like slicing your own throat in the bathtub and then shooting an additional hole in the bottom of the tub.

  • DAY on July 31, 2011 10:22 AM:

    Day after day, we hear the same old platitudes and generalities. Cut spending! Cut taxes!

    I have yet to see a blueprint enumerating the details. Cut WHAT, and HOW MUCH?

    Senator Coburn has given us a start, but the numbers are still missing. Senator Kerry sidled up to his position on the floor yesterday, and- ever the optimist- I hope they go out on a date. Dutch, of course. . .

  • david1234 on July 31, 2011 10:33 AM:

    So much has changed since 2000.

    We threw away financial regulation that worked and the result was catastrophe.

    We threw away our approach to foreign policy, went into Iraq and the result was catastrophe.

    Now we have thrown away the Keynesian approach of surpluses in good times and deficits in bad time and we are getting a catastrophe.

    How long are we going to keep doing this to ourselves?

  • Danp on July 31, 2011 10:33 AM:

    Dutch, of course. . .

    Maybe Coburn can get Jon Ensign's parents to spring for it. Isn't that how they react to unseemly relationships?

  • T-Rex on July 31, 2011 10:34 AM:

    My husband may be naively optimistic, but he knows a thing or two about markets, having once been a trader, and he envisions a scenario like this:

    Midnight, Aug. 1: Congress is still stalemated, unable to pass a compromise bill. Obama goes on TV, says that as a last resort that he hoped to avoid, he must honor the Constitutional requirement that government debts cannot be questioned, and will raise the debt ceiling by executive order. The white-knuckled traders who have been watching the TV with increasing anxiety will whoop, crack out the champagne and the markets will go crazy. The Republicans screeching for impeachment won't be heard over the noise of the celebration. If anyone brings a suit challenging the executive order, the Supreme Court, which is conservative, but of the old-fashioned fiscally responsible variety, probably wont' even agree to hear the case, on the grounds that anyone who tries to bring a suit lacks standing. (That's assuming that they will be intellectually consistent, based on previous rulings). Meanwhile, the shorts will be selling like crazy, other investors will be buying at bargain prices, and we'll enter a boom time. And the Republicans will have handed Obama the biggest victory any President could ask for.

    Now. The BIG QUESTION -- will he have the gumption to do it? The Republicans are obviously trying to set him up for impeachment, by putting him in a damned-if-he-does-damned-if-he-doesn't corner. They've already said they'll bring articles of impeachment if the country defaults, AND will bring articles of impeachment if he invokes the 14th amendment. Since he can't win with these clowns, he might as well do the right thing. But will he? We'll see.

  • dalloway on July 31, 2011 10:35 AM:

    I read on Digby's blog that Obama's advisors decided after the 2010 debacle that what the country wanted most was spending cuts. And they've stuck to that like glue, despite polls that disprove it over and over again. So now, in their delusional dreams that it will win them the next election, they're contemplating cutting Medicare. What a hell of a wake-up call they're going to get in 2012, when liberals simply give up and stay away from the polls in droves. It will make 2010 look like a major Democratic victory. And don't tell me that's why we lost then. I know that. But I've come around to Nader's way of thinking: only when Republicans control the government and burn down the middle class will people see the truth. And, yes, of course, by then it may be too late.

  • Ron Byers on July 31, 2011 10:37 AM:

    Given the preoccupation of both sides with reducing programs it is entirely possible our leaders, on both sides, have concluded there is no growing the American economy. They might believe America's best days are behind us and they are trying to ease the slide for either the rich (Republicans) or the rich and middle class (Democrats.)

  • kevo on July 31, 2011 10:42 AM:

    Yeah, go figure!

    After all those years of being back-benchers for Johnny Birch's team, the twits finally got picked for Team USA, and they've made a mockery of the entire national playing field! -Kevo

  • berttheclock on July 31, 2011 10:43 AM:

    In watching Bill Maher, yesterday, there was an interesting exchange between Elliot Spitzer and the great grand daughter of Herbert Hoover, Margaret Hoover. Spitzer spoke about our not having the capability for grand schemes, such as going to the Moon, due to loss of revenue from cutting taxes. Hoover laughed hysterically, and said his comment was absurd. Having never seen Hoover before, as I do not watch O'Arrogantone, I was not famillar with her. As she appeared to be a complete airhead during her time on Maher's show, I was amazed to learn she was a graduate of Bryn Mawr. Have their standards fallen that low?

  • Danp on July 31, 2011 10:45 AM:

    My husband may be naively optimistic T-Rex

    Has he been treated for hyper mania? He could just be really naive about politics.

  • Rip on July 31, 2011 10:55 AM:

    The economy cannot "grow the way it used to", because much of that growth was fueled by asset bubbles, increased household work hours that papered over an actual decline in hourly earnings, and a doubling of household debt in relation to income over the last 25 years.

    It was an economy driven by consumer demand, but that demand was inflated by increased borrowing and the perception that "wealth" created by appreciating assets was not subject to depreciation.

    Even if unemployment manages to come down to pre-2008 levels, the jobs being created are less likely to have retirement and health benefits, and pay less than the jobs that were lost (the "Texas miracle").

    Slow growth, a gradual decline in unemployment, and stagnant wages with low inflation is the best case scenario over the next few years, not the worst. Eventually the economy will become more vibrant, but it will take years of reversing the trends that brought us here before significant improvement is made.

  • Grumpy on July 31, 2011 11:45 AM:

    Bush said the surplus he inherited was a sign that taxpayers were "overcharged." He might have had a point IF the debt had been paid off. Though even then, surplus revenue could be stashed ib a "rainy day" reserve. But that's not a discussion we ever had because the debt wasn't paid and tax cuts ruined our ability to do so.

    Just once, I'd love to see Bush admit that his assurances that tax cuts would A) benefit the poor and B) not enlarge the deficit were BS.

  • CDW on July 31, 2011 11:59 AM:

    Rip, you sound more like gloomy gus than a rip. But I suspect you're right, except perhaps for the bit about the economy becoming more vibrant some day. I can't see how that's going to happen, can you?

    I'm Gloomy Gert to your Gus.

  • sparrow on July 31, 2011 12:54 PM:

    If the Republicans and their austerity-at-all-costs Tea Party brethren entirely had their way, an investment in paper products by those with still enough scratch on hand would surely pay handsome dividens going forward with the increased number of people needing to live out of cardboard boxes or take shelter in them or simply be buried in them.

  • Rip on July 31, 2011 1:13 PM:

    i believe most Americans like being productive, so yes, eventually the economy will turn around.

    We need policies that promote global trade but consider tariff and currency valuations that currently put us at a disadvantage, along with lack of labor rights and environmental policies among some of our trading partners.

    We need to invest in infrastructure, and intelligently (such as realizing that high speed internet is more important than high speed rail, and that upgrading existing utility infrastructure is more valuable than building subways at the cost a half billion dollars a mile).

    We need a real national health care plan that allows individuals portability when making career changes and business to make hiring decisions without worrying about triggering added obligations, and we will have to accept and understand that not everyone will get every procedure they'd like (AKA - rationing), regardless of whether it's a public or private provider.

    And we need to realize that there is no magic bullet to resolve the decline in housing values that wiped out much of the "wealth" we had accumulated. Anything the government or the banks do differently isn't going to bring that equity back, not to say that nothing should be done, but ultimately people are going to continue to lose houses they can't afford and banks will lose money on loans they never should have made, and it will take years to unravel the mess.

  • Winner on July 31, 2011 10:03 PM:


    "The National Debt Clock had never been programmed to run backwards, so it had to be unplugged."

    Incorrect. It ran backwards just fine, but the owners were afraid it would confuse people or make them complacent, so they shut it down.

  • Seibebrain on January 24, 2012 12:52 PM:

  •  
  •  
  •