Ten Miles Square


September 05, 2012 10:46 AM Republicans Must Choose: Less Debt or More Jobs?

By Michael Kinsley

If you saw any of the Republican convention last week, or its garland of talk shows, you may be aware that President Barack Obama has run up deficits averaging about $1 trillion a year over his four years in office.

In case your math is weak, that’s $4 trillion added to the national debt — a lot of money. But what would have happened if we hadn’t borrowed and spent that money?

Much of this $4 trillion was not borrowed for the usual purpose of spending in the reckless way Republicans suppose that Democrats borrow and spend money — that is, for the purpose of shoveling out cash to poor people on the condition that they quit their jobs and go on welfare, and so on. Nor was this money spent for reasons Republicans might approve, such as subsidizing small businesses or building useless airplanes.

It was not borrowing in order to spend. It was spending in order to borrow, under the conventional Keynesian view that government deficits occasionally have to be used to stimulate demand in a recessionary economy. Even that part of the $4 trillion that wasn’t explicitly labeled “stimulus” was part of the calculation of how big the explicit stimulus should be. But in order for this trick to work, it must increase the size of the deficit. Cutting spending to pay for a tax cut, or raising taxes to pay for a spending spree, neutralizes the stimulus.

Stimulus Debate

Now, you can criticize this policy from many perspectives.
You can say, with liberal economists like Paul Krugman, that the
stimulus wasn’t big enough. The economy is still wobbly at best.
We should have spent double or triple what we did. You can say
(as I do) that the stimulus will lead to disastrous inflation
unless we offer a more convincing plan about how we’re going to
pay it all back in the long run. You can say, as the Republicans
do, that we should have cut taxes more and increased spending
less. You can get a similar bounce either way.

But you can’t say with any hope of being taken seriously
that the stimulus of $4 trillion of deficit spending destroyed

This doesn’t mean that the deficits were necessarily a good
idea. We have lots of goals for our economy, of which more jobs
is only one. We want low inflation. We want capital formation.
We want long-term growth. We want clean air and water. We would
like our Social Security checks, please. We wouldn’t like to
overburden our children with debt.

Deficit spending is bad for most of these other goals. All
things considered, it’s not clear that this strategy was the
right idea.

The Republicans, however, are not considering all things.
They have decided to concentrate on one economic statistic:
jobs. In his nomination acceptance speech, Mitt Romney made a
joke of it, ridiculing Obama’s professed concerns about the
environment and global warming. None of that pansy stuff for
Romney. He promised to focus on “jobs. Lots of jobs.” And jobs
in the very short run: People now await the release of the
monthly unemployment number like news of the path of a

So pop quiz: Would there be more U.S. jobs or fewer today
if the government had run a balanced budget, or even just a
smaller deficit, for the past four years? All else being equal,
it is obvious beyond dispute that there would have been fewer
jobs, not more.

As I say, this is far from the whole story. But it’s the
only part Republicans are telling, and they’re getting it
exactly wrong.

The Republican Party’s enthusiasm for curbing the national
debt has waxed and waned, as has its alarm about what happens if
we don’t. These days conservatives are quoting again from Ronald Reagans first inaugural address: the famous passage about how
you and I have to pay our bills, so what makes us think the
government doesn’t? At that moment, the Republicans pretty much
had a lock on fiscal responsibility as an issue. In the public
mind, whatever their other faults, Republicans were prudent;
Democrats were spendthrift.

Record Deficits

Of course, Reagan famously ignored his own sermon and ran
up record peacetime deficits. Because it was axiomatic that
Reagan could do no wrong, deficits came back into Republican
fashion. New theories arose. Republicans started saying that if
you cut taxes first, spending would automatically follow. That
didn’t happen.

During the Clinton years, temporary agreement between the
parties, with help from the economy, actually did wipe out the
deficit briefly. Then came President George W. Bush and his war
in Iraq. Vice President Dick Cheney, concerned that alarm about
the return of huge deficits might spoil the fun, declared that
deficits don’t matter.” Republicans began dismissing concern
about the national debt as “Rubinomics,” a reference to Bill Clinton’s Treasury secretary, Robert Rubin. It was not intended
as a compliment.

Now, in the latest chapter, Republicans have decided that
deficits are heinous once again. No doubt they will continue to
believe that for as long as there is a Democrat in the White

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  • Doug on September 05, 2012 5:16 PM:

    "We have lots of goals for our economy, of which more jobs is only one. We want low inflation. We want capital formation. We want long-term growth." Michael Kinsley

    As I see nothing in this entire article about HOW we're to do this, might I make a suggestion?
    Since the "job creators" have proven over the past three decades plus that they are incapable of long-term planning and have shown it by their inability to think beyond the end of the next financial quarter, we should return to the marginal tax rates prevalent under President Eisenhower and force them to think beyond a ninety-day window.
    If the economy is to grow, then the monies currently being wasted on massaging the egos of CEOs need to be put to work doing THAT and not wasted on solid-gold bathroom fixtures or worse. A growing economy, coupled with sensible spending restraints, is a surer, more sensible way to eliminate the deficit AND, over time, reduce the national debt.
    Republican politicians have shown that they don't even pay lip service to the idea of cutting taxes and THEN cutting spending as shown by the laughable attempt at a "budget" put forth by Rep. Ryan. Todays' CEOs, many if not most also Republicans, have demonstrated again and again that their one and only aim is to increase quarterly profits; even when that goal harms the over-all long-term viability of the corporation. When the effects of their short-sighted policies finally hit, THEN they beg for government handouts!
    High marginal rates would, at worst, only bring in large corporate tax payments for a year or two. After that the monies currently being wasted on CEO salaries and benefits, usually unconnected to performance I might add, will be devoted to what they should be: increasing the value of the corporations' assets, whether those assets are the physical plant, the employees, the stock issued by the corporation, repurchasing bonds or even R&D.
    THAT'S how one "grows" an economy and reduces the deficit.

  • anon on September 07, 2012 1:18 PM:

    Where is this disastrous inflation?

  • deejaayss on September 07, 2012 6:19 PM:

    What makes you think the debt is ever retired?

    Republicans hate and fear foreigners and will give money to war privateers to protect them from enemies real and IMAGINED. Where are those Weapons of Mass Destruction?
    (Democrats go along because they don't want to appear weak.)

    The fortunate few know how to profit from Republican fears. Most of us just take a fiscal beating. We give the military industrial complex half of our annual budget.

    If we are still carrying a large chunk of debt for WWII, how can we possibly retire our national debt?

    Kinsley seems to imply that taxing the super rich will somehow drain the economy at large of investment capital needed to create jobs. I say the guys at the top don't want or need to move their trillions to accelerate the economy, because their personal wealth vastly exceeds their personal needs. Creating a broad distribution of wealth accelerates the Velocity of Money. That's the key. Obama knows this.

    If you just want to sit on your pile of money and not let it work (zero velocity), you fear inflation. If you put that money to work you may just earn enough with it to get ahead of inflation and make a profit.

    The people of Yap have large stone "wheels" for money. The stones never move. Reminds me of those who collect and sit on shiny chunks of metal.

    Increase the velocity of money -- tax and spend -- on those things that ordinary people need -- schools,teachers, an educated workforce, etc.--the main stream economic stimulus that puts enough money in the pockets of all of us, to budge the velocity of money from zero to a reasonable rate of speed.

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