Red Ink from Red America Pols

Salon's Jake Tapper has a sharp piece about the flip-flop on budget deficits and fiscal policy among various high-profile Republicans. Could the fact that these former budget hawks now run the country's cash register?

Here's a snippet:

Dozens of top-tier Republican officials for whom reducing the deficit once seemed their raison d'?tre are now in practice completely contradicting that position. Though the sluggish economy explains some of this, many of these officials were, when it came to eliminating the national debt, as hawkish during the economic downturn of 1990-91 as they were throughout the rest of the '90s. "Frankly, I find it to be one of the most incomprehensible political events in this country over the last 25 years," former GOP Sen. Warren Rudman of New Hampshire tells Salon. Rudman, a deficit hawk who helped found the fiscal-prudence-preaching Concord Coalition, says that he talks with former colleagues currently in the Senate to "try to get people to explain it to me and they can't. I am nonplused."

Note: Reading the whole thing requires sitting through a short ad to gain a free daily pass to Salon's "premium content."

Comments

[Kevin A. Hurley]

Hey Nick,

Hi. I’m Kevin from Massachusetts. I was in college at Northeastern U. during the 1990-1991 budget crisis, and I attended a forum conducted by the late Paul Tsongas – the other pioneer of the Concord Coalition who has since died of Lymphoma. He turned me into a “deficit-hawk” but I’ve since learned from my older, admitedly smarter brother that the economy doesn’t work by logic. It works by this thing called “the macro” which is all about properties and tendencies – notions so profound they are absurd. (if you ask me) I guess they teach you these things in B-School. And while that angers me – because it is very unjust/undemocratic – I’ve learned to just accept it. That’s how economics works. I’m sure Tsongas & Rudmon knew this. And that makes me curious as to why they made so many people think we can actually do something about the macro. They may have just been being politicians, trying to get elected. But the reason I identified with Tsongas is because he had triumphed – if only temporarily – over his medical condition. I am a survivor of a hit-and-run event that left me with brain dammage. I’m a survivor, too. So this is why I am puzzled. I won’t speak for Rudmon. But after surviving a very near brush with death, I doubt Tsongas was being a political-scumbag. (his daughter is also cute)

So here is my explanation to you, as at least I understand it:

1) Politicians are all scum-bags
2) The economy works by macro-principles, which is how the rich stay rich – since macro principles make no simple sense.

Yours in frustration.

Kevin

[Ron Hardin]

A deficit means you support that amount of spending voluntarily by borrowing (the lender volunteers) rather than involuntarily by taxing (the payer is coerced if he earns). If it’s a temporary thing, say in a downturn in the business cycle, the former is better, putting less of a crimp in private plans. If it’s permanent, you should reduce spending or increase taxes, because the crimp is permanent.

The total national debt is eventually a problem if you can’t service it, but the USA is very far from that. The thing to watch out for is financing the deficit by printing money rather than borrowing or taxing. If you can’t service it, the situation deteriorates very fast because you can’t roll it over either. Nobody volunteers to lend.

Incidentally you need national debt to efficiently manage the money supply. It lets you supply and withdraw dollars with minimal impact on the economy’s natural course.

The critical eye ought to be on what the money is spent on; any improvement there pays off.

[Anonymous]

Gotta hit the books, Kevin.

* F.A.Hayek
* Von Mises
* Murray Rothbard

That’ll get you started (and hopefully, out of your frustration.)

Start with Von Mises. Here’s a link:
http://www.mises.org/default.asp

[Anonymous]

P.S. Of course, no one can blame you — (Sorry about your misfortunate experience) — you’re from Massachusetts.

[Lefty]

This reminds me of some of the pre-enlightenment development of religious dogma. A small cadre of those “in the know” get together, argue about angels and such and then, depending on their self interests, finally come together on the message for the masses.

Money is simple, as you and I know. Spend it til it’s gone then go make some more. If you borrow, you have to pay it back, or else. Drug dealing and gambling are probably the cleanest economics on the planet.

The gurus want it complicated, though, and have made it that way to the point they can do anything they want. Ask any accountant – balance sheets are voodoo.

The classic shell game played with your money and mine.

[Lefty]

Economics as science has about as much credence as psychology, astrology, soothsaying and long term weather prediction.

[david f]

greetings!

hey Kevin! greetings from the midwest! (did you have a course with prof pruett there at Northeastern? he’s an absolutely fantastic person!!!)

however, Lefty: even though the, ahem, sciences you name are about as accurate as economics where half the time you explain what will happen and the other half you explain why it didn’t, econ and weather sure get good discussions flowing!

good links, Anon. i’d also throw in “capitalism.org” for some good defs. that is quite an Ayn Rand site, too.

good luck kevin (and when i’m done with my MA in econ, we can add more muddle to the mix!)!

cheers,
drf

[david f]

… and on the article — does it come as a surprise that politicians do that? while there are certainly good individuals, in both parties, there are a fair share of turkeys who all stand for one thing: to get reelected. it’s most likely the case that the current bozos, errr, representatives, are in favor of spending more because it’s for their projects. that could be a feature of the job, not the side of the aisle.

consider PAT LEHEY, of all people, whining about CIVIL LIBERTIES with PATRIOT and the other frightening measures done by this administration. Pat was gung ho for watching militia groups and for the measures taken post oklahoma city. it’s the nature of the opposition.

is Rep Kaisich still a budget tough guy? his c-span speeches were always entertaining…

and, how many republicans who signed the contract voluntarily left after their term limits? that’s impressive that several did…. (of course, it’s up to their constituents to set the term limits)

lamenting-the-end-of-the-weekend,
drf

[Michael Peterson]

Hi,

>Could the fact that these
>former budget hawks now run
>the country’s cash register?

Possible, but a more likely explaination is that most of ’em have come to their senses and have seen Rubinomics for what it always was – A scheme to support unrestrained government spending.

Today’s take on deficits is that, contrary to conventional thinking, they do not cause interest rates to rise (as predicted by Rubinomics). That they should is of enormous frustration to the deficit hawks past (mostly republicans) and present (mostly democrates).

Here’s the problem: Today’s deficit hawks assume that government spending is predetermined, fixed, inviolable. If true, then “overspending” can not occur and deficits arise entirely from a shortage of tax receipts. Eliminating deficits, therefore, is simply a matter of raising taxes.

As Milton Friedman reminds us, deficits, not spending, are what is predetermined. This explains the behavior observed when congress raises taxes to balance deficit – As tax receipts go up, congressional spending increases and the deficit remains untouched (or increases).

Again, according to Mr. Friedman, tax cuts are better at eliminating deficits for two reasons:

(1) Tax cuts increase future income because they serve as an incentive to produce more.

(2) Tax cuts restrain congressional spending, unlike tax increases.

Michael Peterson,
Editor, The Final Frontier

[Cotter]

Lefty, I’ll bet you’ve never even cracked a book on either Economics, Psychology, Astrology, nor Soothsaying.

Probably the only thing you do is gawk at the boob tube for long term weather prediction.

[JDM]

Lefty,

Are you sure they weren’t talking about payments on personal debt? Your googled advice would imply that only people with a $400,000/year income should have a $200,000 mortgage.

[Lefty]

I think it’s all long term obligations excluding the mortgage or rent. Here’s the site:

http://www.edebthelp.org/debt-ratio.htm

[Buddy]

Hey Cotter, leave lefty alone, he is right, it is much easier to just diss everything, and act as though you have it all figured out and it is all a giant con game, than it is to actually have a little respect for what you don’t know–and thereby create a bit of self-motivation to learn something.

[Lefty]

As an admitted member of the unwashed, uneducated class who have not been exposed to high math, I resorted to Googling (books are just such a hassle) for a little more info about economics and how it fits with reality.

I found that our national GDP is a little over 10 trillion dollars and our debt is about 6.5 trillion.

I found a web site that advises folks like you and me about how much debt we should carry. It says:

Your debt-to-income ratio

20% or less: This is a healthy debt load to carry for most people.
20%-35%: Not bad, but start paring debt now before you get in real trouble. You should look carefully at your monthly payments and expenses and start decreasing your overall level of debt.
35%-50%: Financial difficulties are probably imminent unless you take immediate action. You should stop accumulating debt and start looking for ways to decrease your total debt level.
50% or more: Get professional help to aggressively reduce debt.

Then I see that there are conflicting opinions among the economists (they actually read books and are very smart) about continued deficit spending – that it’s not so bad, after all. In fact, it’s good.

I’m just so confused! I think I’ll go watch the weather.

[Anonymous]

economics is hard! far easier to just blame republicans for all my hard times!

[david f]

… and you blame clinton for other hard things?

are there any good econ books with pictures? and does skipping to the final chapter ruin the suspense?

but any topic with terms as “laffer curve” or “HETEROSCEDASCITY” has got to be good!

sorry. need more SSRIs…

drf

[Jon B.]

If you laid all the ecconomists end to end, they’d point in all directions
-Harry Truman in Give ‘Em Hell Harry

When is a deficit a good deficit?
When it’s OUR deficit
(or when we don’t have to pay it back)

[Jon H]

Michael Peterson lied: “Today’s take on deficits is that, contrary to conventional thinking, they do not cause interest rates to rise (as predicted by Rubinomics)”

Actually, that’s predicted by Mankiwnomics. Mankiw. Bush’s latest economic maven (not yet confirmed by congress).

In a textbook he wrote, released this very year, he wrote that deficits raise interest rates.

You’re living in a fantasy land, denying basic economics. And thanks to thinking like yours, we’re going to be wasting more and more taxpayer money on interest payments for the forseeable future.