It's good of Dick Cheney to tell the world (via
Larry Kudlow) what he really thinks about deficits:
Well, I think the budgets he submitted are way out of whack. I
think what it does not only to the short-term deficit but long-term
debt situation is very objectionable. [...] We're at a point now where to look at the levels of spending that
are being contemplated, six hundred and some billion dollars, for
example, in unfunded planning with respect to their medical reforms,
somebody's got to pay for that in some fashion.
Which is a perfectly fine sentiment. But it's really just fish in a barrel to point out that this is the exact opposite of what Cheney was saying in 2002 (with similarities right down to the budget figure):
Shortly before he was fired, [Treasury Secretary Paul O'neill] confronted Cheney about the Administration's latest proposal to cut taxes by another six hundred and seventy-four billion dollars over ten years, pointing out that the country was "moving toward a fiscal crisis." The Vice-President stopped him. "Reagan proved deficits don't matter," he said. "We won the midterms. This is our due."
That's from John Cassidy's
retelling of the famous scene from Ron Suskind's The Price of Loyalty. Nice to see Obama getting his due.
Very true. Of course plenty of Democrats criticized Bush for deficits and saying nothing now, even about the deficits projected after full economic recovery from 2012 to 2019.
Cheney I suppose has the small advantage that our current deficits-- and deficits projected out by the President's budget until 2019-- are much larger than anything under Reagan or Bush as a percentage of GDP. It's actually a logical sane position to say that "Deficits and debt don't matter, until they get too big and suddenly do." Though of course it's probably hackery when that point of mattering is suddenly the other guy's levels but not yours. (At the same time, you could say, "Well, of course. I stopped at my level of deficit because I thought going beyond that was dangerous.")
The Democrats who complained about Bush's deficits have no excuse on that score. They have a fine excuse about running a deficit right now during a recession, but very little excuse about the projected 2012-2019 even in a full recovery massive deficits.
That's a good point. On the other hand there are people out there making the case that when you consider structural budget issues, you should come to the conclusion that Obama's budget actually reduces the budget deficit -- eg Jon Chait in TNR:
http://www.tnr.com/politics/story.html?id=46270d4d-61a1-4c1a-af71-92b5ddda9b6c
Here are the two critical graphs:
In fact, Obama's budget, on net, reduces the deficit. In recent years, Congress and the president have relied on a series of budget gimmicks to mask the size of the deficit. For instance, they would assume that certain tax breaks would expire starting a year in the future, but routinely extend them a year at a time. According to the Congressional Budget Office's numbers, Obama's budget--compared to continuing current policies--would make the deficit $900 billion lower over the next decade.
That's why it's unfair to compare Obama's fiscal stewardship unfavorably with his predecessor. Bush inherited a sound budget and made it vastly worse. Obama inherited a terrible budget and proposes to make it somewhat less terrible. Obama and his economic aides obviously feel bad for not doing more to improve things, and their regret has made them appear unduly guilty.
You're citing renowned economist Jonathan Chait? His critical graphs you didn't include suggest that massive expansion in federal responsibility over education and health will reduce the federal budget. That's hard to believe.
Also, his entire argument is "Obama's budget--compared to continuing current policies--..." The auto-pilot baseline makes Obama's doubling of actual 2008 Debt/GDP ratio (41%) to 82% by 2019 seem like a reduction, but again, that's hard to believe because the baseline is pure fantasy. ((You can read an actual budget analyst of your choosing if you want to know why.)
I've noticed the blog features a very Washington-centric view, one where its nearly impossible to paint Obama's feats without bringing his predecessor into the foreground and side by side. That's political analysis (whose fault? which is better? etc.) and not economic analysis (does this make sense?). And, besides political junkies, who really cares what a former VP (or current for that matter) has to say?
Conor,
Sure, Obama's budget has fewer budget gimmicks than other Presidential projections, which typically use enough gimmicks to show a surplus in the future. That's good. So we'll grant that Obama's far off numbers are more accurate than the norm.
However, that's entirely pointless if we're comparing the size of the budget to the actual Bush deficits. We have the real numbers for 2001-2008. Sure, they didn't match the Bush projections because of gimmicks. But I'm not saying that "Wow, Obama's projections are worse than Bush's projections." I'm saying that "Obama's projections, probably more accurate but perhaps with some gimmicks (see that supplementary funding was used for Iraq again this year, despite promises), are worse than Bush's actual deficits."
Chait is arguing that "Obama's projections are better than what would have happened in a projected future where the tax cuts were kept." (Incidentally, Chait's $900 billion is somewhat wrong, from what I can tell from looking at the CBO numbers. The $900 billion he gets from looking at the CBO document for the cost of extending all of EGTRRA and JGTRRA compared to letting it expire. But Obama isn't letting all of it expire; he's keeping the middle class and lower class tax cuts, which is actually the lion's share of the costs. It also assumes that we'll get $600 billion from climate permit auctions, which seems impossible given the current Waxman-Markey.)
That's I suppose fine if Chait's argument was that the Bush deficits themselves weren't that bad, it's the projected deficits in the future under the Bush policies.
Um. That little ellipsis you put in the Cheney quote represents 213 words, 137 of which were Cheney's. Obviously this means Cheney was not stating that the deficit situation was "objectionable" due to the "six hundred and some billion dollars" in medical reforms. As the whole quote makes clear he considers the deficit situation "objectionable" because he fears the debt equity ratio is going to go to 50, 60, 80%; the US may be in danger of losing its AAA credit rating; and all this may negatively impact the US dollar and the rate of inflation.
Cheney brought up the "six hundred and some billion dollars" in medical reforms in response to a later question from Kudlow about whether we were going to end up with a VAT-type tax to pay for the Administration's spending and borrowing. The figure was an example of something that had to be paid for either by raising taxes or by printing more money.
I'm certainly open to the idea that Cheney is being hypocritical. I just don't think the full context of his remarks proves that point.
well I'm not interested in hiding something, so I will stick the whole portion of the transcript below. It's clear to me that Cheney's talking about federal spending under obama in both places, so I don't think the elipses change his meaning. I just find long block quotes annoying, and try not to use them!
Here's the full section:
KUDLOW: What would you do differently now? Again, you, in some sense, I think a clear sense, that the Bush-Cheney administration laid the groundwork for this big government intervention. Mr. Obama is taking it further probably, perhaps, than you all might have, although one will never know. But what would you be doing differently right now?
CHENEY: Well, I think the budgets he submitted are way out of whack. I think what it does not only to the short-term deficit but long-term debt situation is very objectionable. I think the notion that we’re going to get up to a point where the debt equity ratio for the country’s going to be what, over 50 percent, 60 percent? I’ve seen even 80 percent at the end of a 10-year period of time.
KUDLOW: Some people are worried the United States is going to lose its AAA credit rating.
CHENEY: Well, that’s got to be of concern. The last time that we had debt to equity ratios, or debt to GDP ratios was 1950...
KUDLOW: Yeah.
CHENEY: ...at the end of World War II after we’d fought a major war and obviously had major governmental obligations as a result of that. So I don’t hear anybody in the administration expressing concern over that massive growth in the national debt and what’s that going to mean long-term in terms of our currency, in terms of inflation.
KUDLOW: Is it going to lead to a general sales tax? Big story in the Washington Post this morning about talk of a national sales tax or a VAT, a value added tax, which will ultimately be brought in play — it’s a European-style tax — to finance all the spending and borrowing. Do you think there’s a VAT tax in America’s future?
CHENEY: I would hope not. We’re at a point now where to look at the levels of spending that are being contemplated, six hundred and some billion dollars, for example, in unfunded planning with respect to their medical reforms, somebody’s got to pay for that in some fashion. It’ll be paid for either by printing more money or raising taxes.
Cheney is talking about federal spending under Obama in both places because spending is what matters most. More spending crowds out more capital. Holding spending constant, deficits don't matter (much). Lower taxes do increase incentives for capital formation and attract more capital. Cheney and Republicans are consistent, unless you believe that "taxes don't matter".
I agree that there is a difference between a $600 billion increase in spending with no change to the tax code and a $600 billion tax cut with no change in spending, but both cases will require government borrowing that will crowd out private investment and increase interest rates. More to the point, I think it would be hard to say that bush and cheney held spending constant!
The whole point of a progressive income tax, instead of a consumption tax, is to tax people who need not and will not spend their marginal income. This is taxing money that would have been saved or invested -- private capital. You cannot tax their money and borrow it too! Add incentive and competitive effects and taxes crowd out private capital more than deficits (at current rates). This is why interest rates have fallen when taxes have been cut (and why "starve the beast" doesn't work).
If interest rates were (theoretically) held constant, cutting taxes would increase total tax and bond receipts, and increase the government's spending ability.