Larry Haas’ objections to my commentary on the irrational aspects of budget debate are illuminating because they show how little connection there is between rational consideration of means and ends in the deficit hawk arguments.
Larry raises three objections.
1) He agrees that there is no economic rationale for government to be a particular size of GDP. But then he adds that voters and commentators may disagree with my “let it grow, grow, grow” position “because they fear the potential political downsides of letting their government grow too big.” Americans, after all, “are a people born of a revolution against what their ancestors viewed as centralized tyranny.”
Timeout. First, I never said government should “grow, grow, grow.” There are plenty of situations where relative needs decline, so spending on related programs should decline. In fact, the main reason why the government share of GDP has been relatively stable over the past forty years is that one need, defense, has declined as a share of GDP about as much as other needs have expanded. Defense needs, for one thing, are not proportional to size of the population and per capita product; neither, to give another example, is the need for weather forecasting. As the nation and economy grow, the need for some services then can shrink, proportionately. In the case of defense, also, the actual threat can change. In other cases the nation grows but the share of the population requiring a service does not. If the school-age share of the population shrinks, proportional education costs should decline. Conversely, sometimes the share of the population requiring a program grows, proportionately: like the elderly in the coming few decades, and the school-age population in the 1950s and 1960s. My point is that, if what we care about is how the package of spending and taxing by the federal government serves the country, setting some arbitrary figure for the total, either as a cap of a floor, does not rationally relate means to ends.
Larry’s position is, essentially, “But people want to do that, because they don’t like government.” In fact, voters are conflicted: they respond to claims that “big government” should be limited, but also believe they need help with all sorts of aspects of life, help that government can best provide. For the reasons I explain in my third post, people usually think they can serve both their preferences. But the issue of “size of government” is a political construction, an argument made, essentially, by people who believe strongly in the ideology Larry describes but also believe in ideas such as that markets are fair, richer people don’t have power over poor people in the private sector, and that if people do poorly in the private sector there is something wrong with them. This is a matter of ideology, and people can believe what they choose to believe. But it is not appropriate to take the conclusions of a given ideology for granted as a constraint on what the budget should be, unless you believe in that ideology. So centrist budgeteers should be careful not to defend those views – unless they believe them.
2) Larry also defends doomsday projections, comparing me to a smoker who claims that emphysema is no threat. But my objection is not to saying that deficits can be a problem, or even to worrying about long-term deficit forecasts. My objection is to the exaggerated claims that are treated as gospel in so much of the budget community, as if it is irresponsible to, for example, not have a plan to make Social Security “solvent” beyond the 75 year time horizon. My objection is to Bogey-Man Budgeting which promotes horror stories even if they are quite unlikely. The right analogy is not to smoking causing cancer, but to the idea that Saddam Hussein would support Al Qaeda. I guess he could have, eventually, sometime. That didn’t make invading Iraq a good idea.
Similarly, someday the Chinese might decide to sell all their U.S. assets (it used to be the Japanese), or the deficit could get to 200% of GDP, or there could be a market panic. But the collapse of financial markets in 2008, and the recovery that has occurred since then, should be evidence enough that government deficits are hardly the determining factor. In my version of rationality, people consider the evidence about risks. I gave reasons in my earlier posts why some of the standard arguments about these risks are not credible.
But the claims about risks are not the only problem: some of the claims about what long-term responses should be are equally unreasonable. As I wrote in an earlier post, there is no responsible way – relating means to ends – to set health care spending 20 years in advance. Yet most of the budget commentary suggests that is a reasonable goal.
In a book, False Alarm, published in 2001, I argued that there are times when medium-term forecasts justify prioritizing deficit reduction. I have always emphasized the importance of controlling interest costs. The situation justifies concern now, and the objective the Obama administration has set – “to stabilize the debt to GDP ratio once the economy recovers” – is a good one. But that is not an argument for (for example) cutting Social Security on the grounds that it would be “unaffordable” in 2040. The case for budget responsibility does not require hysterical tales about the long run.
In fact, I have argued consistently for controlling health care costs as well as possible in the short term, which would help both government and private businesses in the long run too. I would be more impressed by budget hawks if most of them, including participants in this blog, didn’t endorse either measures that will have no immediate effect (P4P, CEA, HIT – there’s a whole alphabet soup) or measures that will hurt sick people most (higher cost-sharing). It is simply bizarre that many budget hawks argue that a 75-year “fix” in Social Security would be insufficient because sometime after 75 years the program would go out of balance, but few of them support the regulatory crackdown that is necessary to control health care costs in the near future.
In short, the long-term bogey-man stories are exaggerated, often highly implausible, and define responsibility in a wrong-headed manner.
3) Last but not least, Larry argues that I exaggerate the Fiscal Commission’s power. No I don’t. Obviously it can’t make the Obama administration and Congress do anything in particular. I never said it could. What I did say is that it is set up so that it is highly likely to promote only one particular approach to dealing with deficits: cutting “entitlements.” And it is set up to create a situation that will maximize pressure on President Obama to endorse that approach.
Will that happen? I haven’t a clue. All I said was that IF the Commission had any effect, it would not be by serving the dream of creating a “balanced” deficit reduction package. I’ll stand by that prediction.
Meanwhile, it would be nice if, instead of all the macho talk about the need to promote a crisis so that the politicians will confront the problem of “entitlements” that threaten to make government “too big,” budget analysts would spend a bit more time informing the public about the choice that MUST be made this year.
This is not about entitlements, or about 2037. It is what to do about the tax cuts that are set to expire at the end of the year. The difference between extending all the expiring cuts and letting them all expire is far larger than the projected deficits in Social Security financing. This is a major budgetary and political challenge. Given that reality, the continual drumbeat that we should worry about Social Security and Medicare in 2030 or 2050 to show we are responsible about the budget seems even more wrongheaded.
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Joseph White is Director of the Center for Policy Studies at Case Western Reserve University.