Do deficits matter any more?
For a long time, progressives in D.C. have argued (with justification) that their conservative GOP counterparts only complain about deficit spending when Democrats are in power. When they themselves hold the reins, deficits run wild. But now, could we suddenly have achieved consensus between the parties?
Let’s review a couple historical highlights:
Trickle Down Economics. The idea of spending tax dollars that don’t exist isn’t exactly new. But Ronald Reagan brought back to life an old economic theory called “trickle down”, one that the likes of Mark Twain was mocking a half century earlier. The idea was that giving rich people even more money would pay dividends, because those rich people would spend it in a way that benefitted non-rich people. Amazingly, that didn’t happen. Even the man who conceived Reagan’s plan, budget director David Stockman, eventually admitted it was a disaster. The federal debt exploded.
Trump Tax Cut. Not to be outdone, 30+ years later Donald Trump and his Congressional minions pushed through a $1.5 trillion tax cut (largely benefitting corporations and wealthy investors) that delivered only a temporary sugar high—84% of businesses reported their tax gifts did nothing to change their hiring or capital investment plans. The projected growth of the national debt because of this robbery is, coincidentally, as much as $1.5 trillion. In other words, every dollar that Trump gave to the largest corporations and wealthiest billionaires eventually is going to have to be paid back by current taxpayers—and their descendants. Once again, the debt exploded.
Between these two disasters, a couple other things happened. First, Bill Clinton went to great lengths (perhaps too great) to compromise with Republicans and balance the federal budget. Thus, there was momentarily this odd thing called a surplus. And later, Barack Obama rode to the rescue of a cratering economy presided over by George W. Bush.
So, by this point, everything seems pretty clear, doesn’t it? Republicans create fiscal disasters, and Democrats have to come in and clean up the mess. This is something Democrats could comfortably run on in 2020.
But not so fast.
MMT. We live in an era of new acronyms. Alexandria Ocasio-Cortez is “AOC”. Her Green New Deal is “GND”. And pundits are now adding to that with “MMT”, or “modern monetary theory." This is the magic budgeting elixir that is going to pay for all AOC wants—nationalized health care, a guaranteed wage, free public college tuition, and of course, a revolution in combatting climate change. (Note: my comments here do NOT concern the desirability or wisdom of these proposals—many of which I endorse.) But like every other purchase, there is a cost—unless, of course, the laws of economic gravity can somehow be suspended. AOC’s financial mentor says they can--all that needs to be done to pay for all this is to print more money:
“If you control your own currency and have bills that are coming due, it means you can always afford to pay the bills on time. You can never go broke, you can never be forced into bankruptcy. You’re nothing like a household.”
To some, this sounds splendid. But it also sounds exactly like what David Stockman was pitching in the ‘80’s…and what Trump’s people promised late in 2017. In fact, while sometimes necessary, all deficits create risk--sometimes great risk.
By choosing to align with the wasteful policies of the GOP in the past, the GND wing of the Democratic party is forfeiting not only the rhetorical high ground—but also promoting the type of risk that again endangers our entire economy.
Right now, mainline Democrats are wondering exactly what to do with AOC and her supporters.
The GOP has no such confusion. It gleefully celebrates her every step. Because fiscally speaking, she validates them.