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Hullabaloo


Monday, October 15, 2012

 
The deficit tango: 20 years of New Dem windmill tilting

by digby

Steve Benen reports that we're going to be treated to a week's worth of Romney-Ryan blathering nonstop about deficits. Fell the magic. He also points out that the current deficit is 200 billion less than was projected, and has been reduced by 800 billion since Obama took office. He adds:

To add a little historical context to this, over the last four decades, only two presidents have reduced the deficit this much, this quickly: Bill Clinton and Barack Obama.

I have two points to make about this. The first is that Bill Clinton and his DLC allies insisted on deficit reduction (while "ending welfare as we know it") ostensibly in order to build credibility for the Democratic Party on economics. They would prove that you could be a responsible fiscal steward while "putting people first" through new technocratic reforms and "reinventing government." And they'd show that you could deliver all the same services by harnessing the power of the markets and the private sector for the public good and all the Republican arguments would be vanquished in one fell swoop. And politically, once the nation saw that the Democrats were the grown-ups who really cared about debt, they could never again be called tax and spenders. At the time it was commonly believed that the only task left was to wipe off the stain of Vietnam and Gulf War I appeasement to leave conservatism in the dust once and for all.

How's that plan working out?

Now, there's every probability that this was always just about money and pleasing our corporate overlords among many of the 80s Democratic politicians who "outgrew" their earlier idealism and settled comfortably into the Reagan era. But there was also an ideological and political calculation, the latter being the most important in my opinion. The sense that liberalism had hit a wall and needed to be "re-tooled" was strong during that period and the necessity of running from the embarrassing hippie recent past was rife within the Democratic Party in the Reagan years. So, they gave it the good old college try.

But a funny thing happened. It turned out the Republicans and the political press weren't going to cooperate in the make-over and would continue to portray them as the crazy tax-n-spend hippie freaks they used to be no matter how hard they tried to yuppify themselves. So here we are, with the Democrats still trying as hard they can to be Very Serious and never getting any credit for it. Go figure.

But in the case of Obama vs Clinton on this, I do have to point out one tiny difference. Clinton's deficit reduction came about during an historic boom while Obama's deficit reduction came about during an epic slump. I don't think I have to explain why this matters, but I'll just let Krugman do it just in case:

Let’s look at estimates of the cyclically adjusted budget deficit from the IMF’s Fiscal Monitor, measured as a percentage of potential GDP. I don’t think you want to take these numbers as gospel — for Britain, at least, there’s a very good case that the IMF is greatly understating potential output and hence overstating the structural deficit, and I suspect that this is true to a lesser extent for the US. But in any case the point is that even cheap-money countries facing no pressure either from the market or from external forces to engage in immediate austerity are nonetheless engaged in sharp fiscal contraction:


This is taking place in an environment in which the private sector is still deleveraging ferociously from the debt binge of the previous decade; so we’re creating a situation in which both the private sector and the public sector are trying to slash spending relative to income. And whaddya know, the world economy is sputtering.

The truly amazing thing is that this calamitous error is not, for the most part, the result of special interests, or an unwillingness to make hard choices. On the contrary, it’s being driven by Very Serious People who pride themselves on their willingness to make hard choices (which, naturally, involve inflicting pain on other people). In fact, I’d argue that the desire to make hard choices, or at least to be seen as doing so, is the reason the VSPs chose to ignore the extensive and, we now know, completely accurate warnings from some economists of what would happen if they gave in to their austerity obsession.

I can't get inside these administration people's heads, but if I had to guess they're still at least partially driven by the quixotic belief that they'll buy credibility with deficit reduction. At some point you'd think they'd figure out that it isn't helping them politically --- and judging by the chart above, I have the sneaking suspicion that we're about to see the results of a real life demonstration of just how bad the policy is on the merits.

Bragging about being the better deficit reducers may seem like a winner. But to me, it just shows how feckless the Democrats really are. They keep doing the Republicans' dirty work for them and getting blamed for the bad results. No matter how hard they try, Mean Villagers just won't give them any credit.

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