Thursday, February 17, 2011

False Choices and Public Prosperity

-- Posted by Neil H. Buchanan

The dominant political story this week has been the sparring over the federal budget. The new Republican majority in the House of Representatives has been busily trying to see how much it can cut from this year's budget, decrying President Obama's less draconian cuts as irresponsible. The Obama team, meanwhile, continues to prove that it takes a back seat to no one in the art of triangulation, "pivoting" to prove that it finally gets it by proposing "tough" and "bold" -- read, harmful to the poor and middle-class -- cuts of its own. Within hours of announcing his budget plan, in fact, Obama was busily announcing that he really had not done enough cutting. Without doubt, Obama's approach to budgeting is the better of the two currently on offer in the United States, but no praise has ever been so faint.

The continuing narrative on budget questions is that there is no arguing with mathematics. The long-term budget forecasts all show historically large imbalances, and the only way to handle that is to cut, cut, cut. Moreover, as I explained when the reports of some deficit reduction commissions were released last Fall, the accepted route for anyone who wishes to be viewed as a Serious Person on budget matters is to somberly announce that some regrettably difficult choices must be made -- assuring everyone that the easy decisions are behind us, and that it is now time to pull together and set aside political sacred cows. This is followed by a selective list of proposed cuts to various programs that are usually viewed as politically protected. The message: If only the grown-ups could take over and show us that protecting these programs is no longer possible!!

That game is, naturally enough, easily rigged. A Serious Person proposes cuts to a given list of programs, taking the rest of the movable pieces in the budget game as immovable. A good recent example of this appears in last Friday's op-ed column in The New York Times by David Brooks. Shamelessly titled "The Freedom Alliance," Brooks lays out a blatant divide-and-conquer approach to budgeting.

Brooks first offers some crocodile tears for some "great people" he has recently met, all of whom are advocates for continued funding of wonderful programs that might well be cut: foreign aid, support for university-based research and innovation, early childhood education, and Teach for America. Assuring us that he is deeply sympathetic to their plight, Brooks announces that "these great people are suffering under a misimpression" that the merit of particular programs means something in the budget wars. Instead, "The coming budget cuts ... have to do with the inexorable logic of mathematics, [because] spending in nearly every section of the federal budget has exploded to unsustainable levels" over recent decades. He then cites John McCain's economic advisor in support of the claim that U.S. debt might be downgraded soon by Moody's.

All of this is perniciously wrong. "Nearly every section" of the budget is now at "unsustainable levels"? Not even the most hawkish analyses demonstrate any such thing. Our foreign aid levels are pathetically low (both by the standards of other wealthy countries, and compared to our own promises), and they could easily be doubled or tripled without causing any budget problems. Aid for low-cost housing, nutrition, and similar programs has exploded? Hardly. If one wants to believe that the U.S. budget has become unsustainable overall, that problem has nothing to do with growth in non-defense discretionary programs.

The most obvious problem with Brooks's claims, however, is that the "inexorable logic of mathematics" apparently does not apply to taxes. Brooks does allow that we need to "reform the tax code to foster growth and produce more revenue," but that is standard code for Laffer Curve logic: cutting rates for rich people and businesses to try to spur growth, with more revenue to follow. If the revenue does not follow, of course, then it's back to more spending cuts -- because it would "choke innovation" to raise taxes once they have been cut.

We thus have to make tough choices -- politically unpopular choices -- but none of those choices involves actually collecting more revenue from those who can most afford it. "We don't want to gut programs for home heating oil, but we have to." No, we don't. At most, one can argue that the choice to raise taxes to pay for such programs would be worse for the country in the long run than it would be to cut those programs now. That, however, is not a matter of being forced by mathematics to cut those programs. It is a matter of favoring one long-term outcome over another outcome with known short-term pain (and other long-term costs).

Having rigged a zero-sum outcome to the game, Brooks then proposes a "freedom alliance" of people who believe in Teach for America, who support research and innovation, and so on. This alliance should then do battle with their real enemies: people who defend Medicare and Social Security. Some "courageous senators" (including, shockingly, Democrats Dick Durbin and Kent Conrad) have been trying to make a "serious effort" to turn last December's laughable Deficit Commission report into legislation. Brooks asserts that we need a "popular movement" that understands that this is "about freedom." Cut Medicare and Social Security, or forget about other valuable government programs.

This, by the way, is hardly a new ploy for Brooks. As I pointed out last Fall, he used exactly this move to argue that public employees' unions have made it impossible for the government to spend money on any useful programs. Note that he continues to profess admiration for those who have good ideas for public spending programs -- thus appearing to be moderate, by refusing to repeat the more fundamentalist claim that all government spending is bad -- while always finding that the fault ultimately lies elsewhere inside the Democratic base.

Even if one believes that taxes are off the table, however, there is a more fundamental problem here. The basic claim is that some things must be cut to allow us to spend in other areas. It's simple math, because we cannot keep borrowing. But we can, especially for precisely the types of programs that Brooks highlights. Regular readers of Dorf on Law will surely recognize this as yet another example of my favorite subject: public investment. Public investments, like private investments, can be financed with borrowed funds. Not doing so -- choosing to forgo a program that would pay long-term net benefits -- would be irresponsible.

Not every public investment is worth it, of course, but many could be. As it stands, we have no formal process for determining which public investments are viable candidates for deficit spending. Pretending, as Brooks does, that potential public investments are subject to the same logic as current public spending, is self-defeating and dangerous.


Paul Scott said...

Why does no one ever suggest - even a "Serious Person" - that we cut our National Offense? Is it that obvious to everyone that there is nothing to be gained from that?

Personally, I am satisfied that we do not really need to reduce our offensive capabilities and would prefer to see tax reform that heavily focused on wealth, not income and in particular the wealth of the recently deceased, but however you do it, I would prefer seeing taxes go up, at least on those easily able to afford it.

But, if it is cuts that are "demanded," I would at least like to see a reasoned explanation of why significant cuts can't be made to National Offense before we go cutting tiny programs that really will do nothing other than save "chump change" and cannot possibly be seen as effecting our National Debt in any real way.

Neil H. Buchanan said...

I completely agree with Paul Scott's sentiments -- and I love the term "National Offense." (It's effective on multiple levels.) I have never seen anything even resembling a reasoned argument that anything close to our current levels of spending on those multiple budget lines are essential.

Obama's proposed $80 billion in defense cuts will go nowhere politically (even though they are really chump change within that budget), but he'll surely refer back to those proposed cuts (as proof that his heart was in the right place) when he tells liberals to shut up and go along with the cuts in the essential (but really quite inexpensive) programs for the poor and middle class that he will inevitably -- but oh-so-reluctantly -- endorse.

bjn said...

The main thing I remember from my one horrible economics class (back in the dark ages of the late '70s) is it is Keynesian writ that government spending should increase during a recession. I've never heard any reputable economist dispute this - although the government hating Republicans pretend they never heard it whenever they lose absolute control of the budget process.

Under that analysis, the case should be made that the stimulus was not big enough or sustained enough. I'd like to see the President use his position to make that argument, and make a public push for real investment in the future (e.g., infrastructure repair and construction and increased funding of education and research) rather than "triangulating" by agreeing that discretionary spending is a problem.

J Pahnke said...

Leaving aside that the Democrat party has had two years to try their solutions but could only increase the power of government over all our lives and quadruple the national debt, contrary to the comment by "bjn" there are HUNDREDS of economists and policy papers which dispute that public "Keynesian" spending in this case can even work to stimulate the kind of economic growth we desperately need.

Moreover, if "reforming the tax code" to be more growth friendly is 'code' for presumably failed and derisively dismissed "trickle down" economics, then I can't imagine what "public investment" is 'code' for, (more failed tax and spend policies that have pushed our nation to the verge of bankruptcy?

I also find it interesting that though this post plays on the usual cynicism and fear-mongering of the progressive left, (for whom more spending is always the solution), it provides no factual evidence that tax-cutting policies don't work to increase government revenues.

Such "facts" would have surprised the Kennedy Administration who enacted the exact same tax-cutting strategy as did the Reagan Administration, (to say nothing of the 8 year economic and historic boom spurred by the Reagan Administration's tax cuts and the staving off of the recession by the Bush tax cuts.

In point of fact, and contrary to the "public investments" we were assured by the Obama Administration would result in unemployment never exceeding 8% for all the "shovel ready" jobs which failed to materialize, EVERY TIME pro-growth tax cutting policies have been tried they have ALWAYS WORKED to spur economic growth.

This is because government is inherently less inefficient than private enterprise and can only compete for resources, not actually "create" anything.

Further, the perspective here seems to deny how our economic system actually works and the according folly of increasing taxes on the alleged "rich," (as it actually hurts the jobs and financial well-being of all whose fortunes rise or fall with the general economy in our country, including the working poor.

And this is besides the FACT that the top 10% of the so called "rich" already pay 71% of all income taxes in this country and taxing them more would only cause them to cut BACK on business investment and factory expansion that would create jobs for those on the lower end of the economic ladder.

Indeed, this is in line with the generally non-controversial economic truth that you get LESS of what you tax more and more of what you tax less, (i.e., if you want MORE jobs then you tax less the creation of them by reducing taxes on the only people who can afford such "investments," the "rich").

On the other hand, there are in fact literally HUNDREDS of examples by just the Obama Administration's increase in "public investment" over the last two years that economic problems can't be solved by just increasing government spending.

Indeed, if it could do so, we would have seen more bang for our buck from the huge Porkulus bill filled with earmarks and special interest payoffs with which we have now saddled future generations with more growth-robbing debt.

Moreover, contrary to Mr. Buchanan's post, we ARE in fact spending at unsustainable levels, (including on government housing 'assistance' and nutrition programs, which according to the U.S. census saw a 31.7 percent increase in just 2009.

I expect we will see more of this kind of rhetoric which seems lifted from Democratic party leadership talking points, but I would have expected more from this site (which otherwise I am enjoying immensely).

Jp Andreas