The Fallacy of ‘Tough Choices’

The Fallacy of ‘Tough Choices’

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Capital Exchange is a new blog featuring debate among some of Washington’s smartest budget and policy experts. –Eric Pianin, Washington Editor and Moderator

Budget politics is quite strange.

In normal politics, people on the “far left” or “far right” demand dramatic change and tell hysterical stories about the evils of the status quo.  In budget politics, it is the establishment – the editorial boards, distinguished former government officials, and the like – who continually attempt to panic the public into dramatic change by exaggerating the situation. 

In the 1980s, deficit hawks recognized that, in the words of former CBO Director Rudy Penner, , “the crisis is there is no crisis.”  In other words, the deficit wasn’t actually hurting people much.  But it could, eventually, like “termites in the basement” as former OMB Director Charlie Schultze put it.  How could this be dramatized? 

One approach was to make arguments about the economic good that would be accomplished by reducing deficits.  The idea was that lower deficits would produce greater national savings so more investment and a larger economy.  Unfortunately, the standard economic estimates (such as by CBO) did not project enough extra growth to convincingly justify the pain of the deficit reduction.  (Would you have abolished the Navy and Medicaid so that the economy would be 3% bigger thirty years later?).  So deficit hawks promoted two other arguments, each of which should sound familiar.

One was to invent scenarios about what would happen if absolutely nothing were done for decades – a highly implausible case, but one that could, with sufficient assumptions, lead to economic disaster.  The point was to promote so much fear that the goal of deficit reduction would take precedence over messy, uncomfortable subjects like the consequences of any particular means of reducing the deficit. 

The other was to claim that “the markets” would eventually turn against the U.S. government and U.S. economy because of the spiraling debt, forcing some sort of payback that would make everyone miserable.  Then, as now, these arguments simply ignored obvious points such as:

* If markets were rational and the debt were so bad, the markets should already have been rejecting treasury borrowing.  
* The theory that people in the markets are making rational decisions and so will reflect the judgments of deficit hawks has two flaws: people in the markets do stupid things all the time, and the deficit hawks aren’t necessarily right, anyway, because…
* People have to buy something, and what matters is how U.S. debt compares to alternative investments.

Both patterns have now been revived.  We see this in the “if nothing else happened ever” projections used by the “Fiscal Wake-Up Tour” promoted by self-styled fiscal Paul Reveres (one if by land, two if by sea, the debt is coming, the debt is coming!).  The “markets” argument has now taken a xenophobic turn, with claims that the Chinese will for some reason stop buying U.S. debt – which begs the same questions as before, plus a few more (If it doesn’t make sense, why are they doing it now?  What will they buy instead?  Don’t we actually want them to invest in their own consumption so as to rebalance the world economy?).  In each case the goal is to create a panic about budget totals.  Panic is considered a good thing by most of the contributors to this blog.  Thus we see Larry Haas, who is a relative moderate among Washington elites on this topic, praising comparisons of the deficit to a “cheap affair” and hoping for more “chest-thumping.” 

I see this all as irrational both because it misstates the consequences of totals and because it presumes that totals matter much more than what government actually does.  A rational person might think, for example, that a bit less economic growth could be justified by greater national security; or that a fairer society is worth some more debt.  Yes, deficits could become so bad as to be truly threatening; but even then we have to be very careful to fix them in a way that does as little harm as possible on other dimensions.

This is what’s so frightening and strange about the drumbeat that deficit reduction must include cuts to Social Security .Really?  Just because it is big and growing?  Maybe that’s because the need is growing.  This could be the worst place to cut. Maybe, at a time of imploding private retirement arrangements, we need more Social Security, not less.

But such questions are devalued by “chest thumping.”  In an era of “chest thumping,” the mantra is that “our politicians must make the tough choices.”  The implication is that choices that hurt a lot prove integrity; so the very fact that lots of people will be upset if Social Security were cut means that “real men” should cut it anyway.

This is an extremely dangerous, and dumb, way to think about budgets.  For decades, the basic mantra of the budget establishment has been that the nation needs to make “tough choices” to get the budget under control.  But if choices are really “tough,” that is because their merits are not clear.  If the merits were clear, they would be easy.  A truly “tough choice” would be one that could go either way. But the rhetoric suggests they should obviously be made in one way.

The argument about “tough choices” at best is saying something else: that choices are substantively clear but politically difficult.  In other words, the claim is that we obviously should cut Social Security, but those pesky voters are too stupid to see it, so politicians have to worry about being punished for doing the right thing.

One trouble with this claim is, it makes it too easy for budget hawks to dismiss the substantive consequences of their campaign, and not really think about things like whether Social Security should be cut or, instead, even expanded.  But the other problem is more fundamental: in reality, budget elites and the public think in much the same way. 

Both can be self-righteous about the deficit, and ignore how choices really are tough and not at all obvious, because of the difference between making up your own mind and how a group makes decisions.  Budget-making is hard in any democracy, but not because politicians are craven or the public ignorant (though both may be true).  Budget-making is hard because collective preferences are inherently self-contradictory.

So the irrational refusal by budget hawks to think clearly about the relationship between totals and details is based on the difference between individual choice and social choice.  I will explain why in a third post.

Post your comment below or click here for the previous Capital Exchange post.

Joseph White is Director of the Center for Policy Studies at Case Western Reserve University.