Bonddad has produced two recent diaries promoting the comfortable concept that we have to put our financial house in order before we start expending public funds on priorities that Democrats want – universal health care, renewable energy, education, and public transportation. He was responding to this excellent op-ed piece by Princeton economist Paul Krugman, who argues precisely the opposite. Krugman is right, and bonddad's criticism of couldn't be farther off the mark, and for a number of reasons.
Bonddad argues forcefully that Democrats need to make deficit-reduction --- as opposed to fiscal responsibility, which, as I argue below, is not the same thing -- our number one priority.
Instead the Democrats should attack the deficit first, second and third.
He's right that the deficit and the expanding debt caused by it are important, but he's wrong when he argues they are more important than other things that also directly affect the performance of the economy and us people who live in it. He mistakenly falls for the line that deficit reduction IS being fiscally responsible. That, however, is a misleading, Republican talking point as old as Ronald Reagan, and it doesn’t usually even lead to lower debt. As many have stated in comments and in at least one other diary, bonddad is the one who is flat out wrong, for a number of reasons:
- Deficit reduction is not necessarily fiscally responsible: Deficit reduction means that you believe that private investors will spend money in ways that are better for the public than public investors – Congress -- will. Now that we have a Democratic majority in Congress setting the budget priorities, do we really believe that to be true?
- Debt is not necessarily a problem, and neither are deficits. It’s not high debt that is a problem, it’s what you spend it on that makes all the difference. Debt, which is caused by a deficit that can't be quickly recovered, creates a liability that needs to be offset in an accountant’s book by an asset. The Republicans took out debt and expended it on Iraq and some other ill-conceived, post-9/11, security-related, overhead items, so we don’t have a high value asset to offset the liability, putting us underwater. This does not mean that Democratic expenditures will do the same, even if the interest rate environment is worse now. If it did, I wouldn't have worked so hard to get Democrats elected this past year. Rather, we expect that the efficiency gains from universal health care, renewable energy, better transportation infrastructure, and more educated kids have positive, quantifiable returns that can put a much higher amount in the asset column than we borrow on the liability side.
- Democrats don’t trust trickle-down economics. But that is precisely what bonddad is asking you to trust. By prioritizing deficit reduction, he is saying that private investors who spend money on private interests instead of public ones will do a better job than a Democratic Congress will. If that was actually true, then the Bush tax cuts should have also worked, but they did not. Rather, what we need now are some Democratic priorities of responsible public investments, rather than an expansion of private ones, much of which would go overseas anyway precisely for the same reasons Iran, Venezuela, the UAE, and other countries are buying Euros in addition to dollars now, as bonddad correctly pointed out.
- Deficit and debt reduction are consequences of prioritizing people first, not the other way around. That does not mean we can just throw money at anything people-related, but in general we Democrats believe that if you invest in people, you get a good economy. Republicans believe that if you invest in a good economy you get good people. The Democratic way is the right one. Prioritizing deficit or debt reduction above health care, renewable energy, public transportation, or education is to prioritize an abstraction that exists in accounting ledgers instead of the real people that live it. If we invest in people the returns will be greater and the debt reduction more significant than if we target textbook indicators such as interest rates and debt ratios.
- Universal health care is a real priority, and it is more important both long and short term than deficit reduction today.
- Renewable energy is a real priority and it is more important both long and short term than deficit reduction today.
- Can you think of any other things more important than attacking the deficit first?