Thursday, May 12, 2016

The Debt Silliness Olympics: Gold to Trump, Silver to Ryan, Bronze to ... Pelosi?

by Neil H. Buchanan

The Great Donald Trump "Did I Say That?" Tour continues on its merry way.  This past October, I wrote a Verdict column in which I refused even to describe Trump's musings about taxes as a "plan" or a "proposal," because what he has said is even less specific than Paul Ryan's magic-asterisk-filled budget plans.  And sure enough, Trump has recently been saying that rather than sticking to his original suggestions, he simply plans to negotiate about how to change the tax system.  Presumably, the result would be beautiful, or yuge, or something.

A few things in Trump's grab-bag of tax ideas sounded a bit liberal, as he actually talked about raising taxes on the rich.  When that started to cause problems among Republicans, Trump did what he always seems to do: He changed his mind and shifted course.  Or, as one headline put it: "Donald Trump’s Plan to Raise Taxes on Rich: Just Kidding."  Telling it like it is can apparently be challenging for someone who cannot decide what he really thinks.

This latest flip-flopping followed quickly on the heels of the ridiculous comments about the federal debt that Trump made last week.  In an interview with CNBC, Trump was asked whether he thinks "that there's actually ways that we can renegotiate that debt."  He immediately said, "Yeah," but then about a minute later, he said, "No. I don't want to renegotiate the bonds."  In my Dorf on Law post on Tuesday, I critiqued his subsequent attempt to walk back what he said, but there are a few more points worth making about Trump's new story.

In a way, I actually want to feel sorry for Trump.  In the middle of his confusion, he actually said some things about long-term public investment in infrastructure that almost sounded worthwhile.  As many people have noted, however, Trump is incredibly lazy; so when he says something sensible, it never means anything.  It is just that he happened to hear someone say something that was not stupid, and he parroted that line the next time he got the chance.  (This seems to be how he managed to point out that the U.S. government cannot default on its debt, because the debt can be paid off in dollars that the government can print.)

That brief foray during the CNBC interview also saw Trump talking about the importance of low long-term interest rates.  Right on.  But this is mixed in with comments like: "And I could see long-term renegotiations, where we borrow long-term at very low rates."  So apparently we are going to renegotiate the bonds, but we will do so to reduce long-term rates.  Correct?

Recall, however, that Trump's most widely quoted line from that interview was this: "I would borrow, knowing that if the economy crashed, you could make a deal."  Yet Trump's walk-back of those comments was entirely based on renegotiating in the face of rising rates.  And when the economy crashes, rates fall.   In addition, as I explained in Tuesday's post, because Trump's idea to buy back bonds at a discount could only work when rates rise, he would be replacing existing low-interest bonds with new high-interest bonds: "Lock in your interest rates now, while they're high!"

All of which means that Trump's attempt to clarify his comments about the national debt is even worse than it initially seemed.  It is not just that he is now relying on a plan that requires higher interest rates, but that his original premise was based on negotiating for lower long-term rates.  His new story cannot possibly fit with his claim that this is what he meant all along.

In a new Verdict column yesterday, I used Trump's strange comments about debt to point out that he is otherwise not very far away from the Republican mainstream in misunderstanding fiscal policy.  Sure, most of the Republican leadership probably wishes that the Tea Partiers had never discovered the debt ceiling, and they certainly have not said anything as strange as Trump's recent comments about the debt.  Even so, as I have been writing for many years now, nearly the entire Republican Party has adopted a form of budgetary orthodoxy that is simply uninformed.

Yesterday's Verdict column was rather long, so I want to emphasize here a point that I made only briefly toward the end of that column.  I noted that Speaker Ryan has been teaching other members of his party to say truly uninformed things about deficits and debt.  For example, back when Marco Rubio (remember him?) was still in the Republican presidential race, he claimed that "Social Security will go bankrupt and it will bankrupt the country with it," an assertion that he took directly from Ryan's playbook.

Although I had previously dealt with the false claim about Social Security going bankrupt, the broader point is that the two claims in Rubio/Ryan's assertion are mutually contradictory.  That is, if one were to give them the maximum benefit of the doubt, their claim about Social Security would have to mean that the system's trust funds will be depleted sometime soon.  (That might not happen, of course, but stay with me.)  If that day ever comes, we know -- or, at least the default assumption is -- that retirement benefits will be immediately adjusted down to the level where incoming tax revenues can cover the costs.

If that happens, however, then there is no way that Social Security can "bankrupt the country with it."  Ryan has long been obsessed with a debt crisis (which is not what bankruptcy means, either), but if Social Security is annually balanced, that would reduce borrowing, not increase it.  Ryan should be rooting for Social Security's trust fund to reach a zero balance, if he thinks that the overall debt situation is so dire.

I frequently bemoan the media imperative to find ways to criticize Democrats whenever they blame Republicans.  In recent years, that simply has not been possible to do without distorting or inflating something that a Democrat has said.  And I certainly find it annoying when liberal pundits "hippie-punch," as Times columnist Nicholas Kristof did again last Sunday, in "A Confession of Liberal Intolerance," in which he went back to the old line about academia being hostile to conservatives.  (Isn't it nice when someone who is not an academic confesses on behalf of the entire academy?)

Even so, I have also been painfully aware over the years -- and I have written frequently with no small amount of angst -- that mainstream Democrats have long shown a self-destructive desire to become champions of budgetary orthodoxy.  It started back in the 1980's, when Democrats thought that the "Reagan Deficits" were a gift from heaven.  "Now," they thought to themselves, "those Republicans will be seen for the hypocrites that they are!  They tormented us about fiscal irresponsibility for so long, now it's our turn."

This is a large part of my critique of the Clinton years, and it had formed the basis for much of my skepticism about Hillary Clinton, who seemed to be equally willing to feed the narrative that deficits and debt are always bad.  What these mainstream Democrats have never learned is that this narrative is always going to hurt their agenda more than the Republicans'.  Telling people that debt is bad simply makes it much more difficult to do what Democrats say that they want to do.

And when I say that the Democrats have never learned, that statement is very much a current assessment of the views of the Democratic leadership.  A month and a half ago, Democratic House Leader Nancy Pelosi penned a holier-than-thou op-ed in which she criticized Congressional Republicans for "adding a thunderous $2 trillion to the deficit over the next two decades."  Thunderous!  Why is $2 trillion thunderous?  Apparently because a trillion is a big number, and here there are two of them.  Who cares that this represents less than one-half of one percent of GDP over the next two decades, even if nominal GDP growth remains stuck in its current slump!

This is not at all a defense of the content of the Republicans' tax cuts, of course.  But Pelosi is once again falling into the trap of anti-deficit orthodoxy, thinking that because Republicans' reasons for increasing the debt are bad, it is acceptable to make it sound as if debt is always bad.

Pelosi does not merely reinforce bad rhetoric, however.  She also lauds "pay as you go" budgeting, which requires (except in emergencies) that all spending increases and tax cuts be offset in the same legislation with new revenues or spending cuts.  What this fails to take into account is that the infrastructure spending that we need so badly -- so badly that even Donald Trump noticed it, sort of -- can and should be financed by borrowing.  Yet Pelosi would make it impossible to do so.  She also cannot stop herself from lauding the "four consecutive annual budgets that were either in balance or in surplus" during the Clinton years, as if pay-as-you-go was the reason for this (rather than the expanding economy and the dot-com bubble).

Whereas Trump and Ryan genuinely appear not to understand deficits and debt, however, Pelosi's error is strategic.  She undermines her party's ability to govern in the future, thinking that she can score cheap short-term political points off of the Republicans.  Did her op-ed stop the Republicans from passing their tax cut?  Of course not.  Did she make people more likely to vote for Democrats in 2016?  It is difficult to see how.  She did, however, put her successors in the difficult position of some day having to explain that they are really not anti-deficit after all, which will merely reinforce voters' cynicism that "all politicians are dishonest."  I had hoped that the Democrats had learned this lesson.  Apparently not.

3 comments:

Greg said...

I want to take issue with the idea that if the trust fund runs out, the results would not be disastrous. You keep calling this nonsense, but I'm not sure that it is.

Social security represents about 1 Trillion dollars of consumer spending in a country with a GDP of 18 Trillion. If all of a sudden that spending were to be reduced by 30% (about 2% of GDP), wouldn't that have disastrous effects on the U.S. economy as a whole? This seems to me like reason enough to ensure that even by pessimistic estimates the trust fund will not go bankrupt, but primarily by ensuring continued funding at the full amount, not by reducing current or future benefits.

Shag from Brookline said...

Gary Trudeau's "Yuge!" "30 years of Doonesbury on Trump" has a July 5, 2016 release date, giving COP Convention delegates just short of two weeks to look at the pretty drawings and read the text for background on The Donald. Perhaps #NEVERTRUMP should plan on a bulk purchase for distribution to the delegates.

Neil H. Buchanan said...

Based on Greg's very well informed comment, it's clear that I need to clarify what I'm saying. I completely agree that we should keep benefits AT LEAST at currently scheduled levels, both for the macro reasons stated in Greg's comment and because Social Security benefits are modest in any event. When I have talked about the trust fund reaching a zero balance, I have been saying that the Is not as bad as Republicans claim. The system would not be bankrupt, and benefits would still be paid at 70-80% of the "full benefit" levels.

Automatic reductions in benefits would be bad, and I will in such an event strongly argue that benefits should be increased, not reduced. But saying it "would not be disastrous" is context-specific, and I am arguing against the Republicans' big lie that Social Security is doomed. That's why I said that Paul Ryan should be happy about the trust fund hitting zero: he gets s huge cut in government spending, and a regressive hit to people's living standards. I'm against that very bad outcome, but what Ryan is telling people will happen would be even worse.