Beware the Fair-Weather Deficit Hawks
A few days ago, Commerce Secretary Wilbur Ross announced that attention will be placed on the national debt and the budget deficit, starting next year. Disguised as a banal announcement from a government bureaucrat, the announcement was actually something much more sinister.
Some of my strongly-held beliefs about the deficit may seem contrarian. Here are four major ideas:
1. Running up deficits is politically advantageous for the party in power.
(Short term, anyway.)
Take Jan Hatzius, the chief economist at Goldman Sachs, for example. In a letter to clients before the election, he conceded that a potential Biden administration (and a Democratic sweep of both Congressional chambers) would result in “tax increases on corporations and upper-income earners.”
Sounds bad, right? Not exactly.
All else equal, such a blue wave would likely prompt us to upgrade our forecasts. The reason is that it would sharply raise the probability of a fiscal stimulus package of at least $2 trillion shortly after the presidential inauguration on January 20, followed by longer-term spending increases on infrastructure, climate, health care and education…
Yes, the chief economist of a top financial firm — the type of firm that would push for such measures as free trade and flat taxes — believes that Democratic control of government (and subsequent tax increases) would be a net-good for the economy.
The reason is the deficit. Running a deficit is stimulatory. Borrowing money to pump into the economy exerts an uplifting effect for every sector.
2. Republicans don’t care about the deficit.
The GOP campaigns like they worry about the deficit, then govern like they don’t. “Fiscal conservatism” isn’t a sincerely held, principled position, but a politically held, sinister one. Republicans only feign interest in the deficit when they are in the governing minority.
If Republicans care so much about the deficit, why did they permit soon-to-be former President Trump to run up historic deficits? Even the pre-pandemic deficits far exceeded Obama’s.
In the last two years of Obama’s presidency, the annual deficit was $0.459 trillion and $0.585 trillion, respectively.
In Trump’s first three years, the deficit exploded to $0.666 trillion, $0.984 trillion, and $1.02 trillion, respectively. For fiscal year 2020, official Trump administration estimates predict a $3.1 trillion deficit, or about six times higher than the deficits Obama ran.
But don’t take my word for, take former GOP congressman and White House chief of staff Mick Mulvaney’s word. In an audio recording obtained by The Washington Post, Mulvaney is heard contemplating the same idea.
“My party is very interested in deficits when there is a Democrat in the White House…then Donald Trump became president, and we’re a lot less interested as a party.”
3. The Deficit Paradox
Democrats and Republicans both like to spend money, that is a similarity. What they spend money on, however, is different.
Democrats tend to invest money into its people, whether it’s ensuring Americans have access to health insurance, establishing debt-free college, or investing in clean energy.
Republicans favor foreign wars and tax cuts for the wealthy.
Bush’s Iraq war cost over $2 trillion, or about $8,000 per person. The twenty year conflict in Afghanistan, also ushered in from the hawks in the GOP, cost another $2 trillion. If you add costs with other skirmishes in the area — like in Syria and Pakistan — the total amount of money spent since 2001 is $6.4 trillion.
Then, there’s the 2017 Trump tax cut, which disproportionately benefited wealthy individuals and large corporations. The total cost for this corporate giveaway was $2.3 trillion by conservative estimates, although the true cost is most likely much higher.
Together, the total cost for our interventionist, foreign wars ($6.4 trillion) and our Amazon and Google focused tax cut ($2.3 trillion) is about $8.7 trillion.
What could we have instead gotten for the same amount of money?
— Healthcare for every American citizen with no copayments, deductibles, or premiums. The approximately 30 million Americans without healthcare would immediately gain coverage. (Cost: $1.38 trillion)
— Eliminate child poverty. Bring every family with children, or each child not currently living with their family, above the poverty line. (Cost: $0.694 trillion)
— Double climate science funding. (Cost: $0.170 trillion)
— Universal pre-k and childcare. (Cost: $0.7 trillion)
— Immediate pay increases for teachers. Provide a $10,000 pay raise for teachers in high-poverty schools to reduce inequality in our education system. (Cost: $0.15 trillion)
— Free community college (Cost: $0.6 trillion).
— Solve the opioid epidemic. Funnel money into local communities to give them the resources to tackle the effects of the opioid crisis. (Cost: $0.1 trillion)
Taxpaying Americans could have enjoyed all these benefits for less than half the total amount spent in Iraq and the corporate tax cut.
But there is a larger dilemma. When Democrats try to push these ambitious legislative actions, Republicans fall into one of two camps: either giving teachers more money is “socialist” or “Marxist,” or “sure that sounds great but how do we pay for it.
That’s the problem. That’s the deficit paradox. When Democrats want to spend money on good policy, they must explain how to pay for it. When Republicans want to spend money on bad policy, they don’t. How did we pay for our wars in Iraq and Afghanistan? How did we pay for the big company tax cut?
We didn’t. We borrowed money from China.
4. Republicans run bigger deficits than Democrats.
Let’s say you’re still in denial. Let’s say you believe in the myth that Republicans are fiscal conservatives. That this is a principled position, not one to undercut the opposing party when the GOP doesn’t have power.
Let’s look at the spending habits of Republican and Democratic presidents in my lifetime. Here is a viral tweet from Alex Cole:
While this looks bad for Republicans, it’s actually worse than it appears. George W. Bush actually inherited a surplus, meaning he had better than zero. Also, the tweet is from 2019, and in 2020 Trump ran a deficit three times as high as 2019.
Politifact investigated the tweet’s claims, and marked the assertions true.
Republicans understand that there is a stimulatory effect of deficit spending — you get to increase the good (services to people) without increasing the bad (raising taxes). That’s why they rail against Democratic deficits but welcome Republican ones. The GOP simply does not care about true fiscal conservatism. This would require raising taxes (blasphemy to the GOP) or cutting benefits/services (political suicide).
Democrats tend to spend money on domestic services and benefits, and are often asked to provide ways to pay for it beforehand. Republicans tend so blow through money with huge Pentagon budgets and tax cuts for companies like Amazon, and they aren’t asked how to pay for it beforehand.
Over the last 30–40 years, Republicans have actually increased the annual deficit more than the Democrats have.
With a historically spend-crazed Republican leaving office shortly, and a moderate Democrat coming in, I am sure there will be more people like Wilbur Ross. More bad-faith GOP actors who will try to limit spending to hurt Democrats, and not for some fake allegiance to our founding principles. These are not consistent, loyal defenders of any higher notion of fiscal discipline.
They are fair-weather deficit hawks. And they must be treated as such.