Posted by: Michael Mandel on July 13
The Democrats need to stop running against the budget deficit. Here’s why.
1)Running against the budget deficit hasn’t worked. Since Walter Mondale in 1984, every Democratic presidential candidate except one has run against the budget deficit and lost. The one winner, Bill Clinton in 1992, ran a pro-investment campaign, and didn’t switch to an anti-deficit economic policy until he was in office (Remember “Putting People First”? See here for a Clinton 1992 campaign brochure. )
2) The budget deficit is a squirrely target. The deficit is small relative to the size of the economy, so it can shrink unexpectedly (as it appears to be doing now).
3) In the short run, there is little direct connection between the size of the budget deficit, and the state of the economy—including the things that concern Democratic and independent voters, such as unemployment, interest rates, and inflation.
4) Focusing on fiscal rectitude makes it harder for Democratic politicians to push for the types of spending which might actually benefit the people who would vote for them.
5) In the medium term, even liberal economists can only find a minor effect of budget deficits on growth. The January 2004 Brookings report “Restoring Fiscal Sanity” estimated that a $5 trillion increase in national debt would cut a bit more than 1 percent off GDP by 2014. That would lower the ten-year growth rate by only a tenth of a percentage point—well within the rounding error for growth estimates.
6) If there’s a long run deficit problem, it comes from the growth of health care spending and has very little to do with today’s deficit.
7) Running against the deficit hasn’t worked for 20 years. As the expression goes, insanity is doing the same thing over and over and expecting a different outcome.
Enough said for now.
Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.